All Forum Posts by: Stephen S.

That being said;  the process of underwriting is still based on the concept of acceptable risk.   The LTV number is one of the components of underwriting.  Whether you exceed it before or after the loan is made doesn't alter the risky-ness of the situation - the risk to the bank.  Any time the LTV ratio exceeds the comfort level of the bank - the loan becomes 'non-conforming' and stands the risk of being re-evaluated.

At one time most banks made and held loans for their entire term.  That may still happen now but 1. I think it is relatively rare, and 2. I think it likely that banks today will still want to maintain their loans in 'sale-able condition' even if they are not looking to sell them right now.  Because having the ability to readily sell their loans at any moment reduces the bank's risk.

Ask your banker how they would handle a loan which becomes non-conforming after-the-fact.  What would they do if the value of the asset securing the loan somehow became worth 50% of the remaining loan balance - what would they do to correct that?  

stephen
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       Originally posted by @Jeremiah B.:

Originally posted by @Stephen S.:

That isn't what happens.  Yes;  you are well solvent and servicing the loan perfectly well.  But the original loan was $80K on a $100K assessed property.  An 80% loan-to-value mortgage - which aligns perfectly with the lender's underwriting criteria.

What happens is that the property value falls to $50K.  But the bank's underwriting criteria is still 80% loan-to-value.  So 80% of $50K is $40K.  As a result the property equity cannot be $80K - it must instead be $40K or the bank call the loan as 'non-conforming'.  So all you have to do to keep the loan in good standing is to write the bank a check for $40K - the difference between what you owe and what the property will support.

See the problem? <g>

I have a different understanding, so let me ask the question in this way:

If I am current on my payments but am underwater, can the bank call my loan due?

I strongly believe the answer to that question is no.  I recognize that the price factors into a great many number of things, such as my ability to refi or get other loans, but this is insufficient for them to call the loan due.

That isn't what happens.  Yes;  you are well solvent and servicing the loan perfectly well.  But the original loan was $80K on a $100K assessed property.  An 80% loan-to-value mortgage - which aligns perfectly with the lender's underwriting criteria.

What happens is that the property value falls to $50K.  But the bank's underwriting criteria is still 80% loan-to-value.  So 80% of $50K is $40K.  As a result the property equity cannot be $80K - it must instead be $40K or the bank call the loan as 'non-conforming'.  So all you have to do to keep the loan in good standing is to write the bank a check for $40K - the difference between what you owe and what the property will support.

See the problem? <g>

And seven years ago that exact thing happened to millions of people.  And . . . .  most of them couldn't write the check.  Obviously they couldn't refinance.  And so they walked.  The banks were mechanically, robotically, stupid and called even otherwise perfect loans.

stephen
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Originally posted by @Jeremiah B.:

Originally posted by @Brent Coombs:

@Jeremiah B. The bigger problem is that as far as the banks will be concerned, most SFR Investors will have borrowed more than the newly crashed values of their investments, so will be likely to call in those loans EVEN IF THE LOANS ARE STILL BEING SERVICED! Cheers (while you can)...

Brent  - I'm not sure I follow.  If I owe 80K on a 100K house, I have 20K equity and all is well.  If that house value is cut in half to 50K, I will owe 80K on a 50K house.  That's a big paper loss, but does not mean that the loan will be called due.  Either way, I can still keep making my monthly payments at <5% and ride out the bubbles and bursts.

My view is that if I am cashflow positive on the house, I should keep it - regardless of whether I'm underwater 30K or have 20K in equity.  So, for properties I already hold in my long-term, buy-and-hold portfolio, I'm far far far more concerned about gross rents than property value.-

I do sometimes stop on those channels and watch.  For one thing they often have pretty smiling girls an the set, and for another;  I am always looking to learn something if I can.

My short-version assessment is:  it's entertainment and not reference material. <g>

Ever notice how on those carpenter shows even the most complicated wood working details:  complex finger joints, delicate inlays, and etc. all fit Perfectly the first time? <g>  Now I am not Norm Abrams, not by a Long shot - but I have a nice wood shop and a lot of experience making pieces of wood fit together.  And in my experience:  it just ain't like that in real life. <g>

stephen
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 Originally posted by @Account Closed:

I've recently been watching HGTV's Income Property. All I have to say is wow they really can turn around a place. But I'm thinking the estimates are a bit conservative? Don't think it includes all the design work and furnishings just the appliances and rehab. What do I know I've never done this or estimated a job. But I am a graphic designer by trade and have an eye for details. Just making notes and seeing potential but don't want to get my hopes up if it is unrealistic in the estimates they give to the home owners. A lot of the fixes are in Canada some around Toronto. The rent prices seems quite reasonable and lower for what you can get then what I'm used to in NYC. 

Do you speak Punjabi?

stephen
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Originally posted by @Dilip Gandhi:

Hello all,

I have recently joined BP and try to gain more inside into the real estate investing in US. 

I am living outside US, but interested in real estate in US. 

My long term goal/strategy is to have ample cashflow through properties/rentals in US, so i can leave my full time job and settle in US to manage my portfolio. 

Few thoughts to start with am looking with few flips to make some bucks to purchase equity growth properties with +ve cashflow in it.

Look for seller finance properties, which can have some +ve cashflow. 

Main question, where to start from and how and what to do, which is the best county, state to have rentals, flips, etc. 

The articles here are wealth of info and am overwhelmed. 

I hope this brief intro gives you my thoughts. Any direction to achieve above will Be much appreciated.

Thanks in advance!

Dilip Gandhi

No non-landlord stand-in reference will ever respond smoothly to that. <g>  

And if it does turn out to be their actual landlord just say why you are actually calling.  If they question about why you started off as you did - you tell them the truth again:  you wanted to make sure that it's not a false-reference person you are being directed to call.

stephen
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Originally posted by @Elizabeth Colegrove:

I don't even ask for them because they are BS. Who is going to give you the name of a landlord who will actually give a bad review. Even if they do, what landlord will actually give you a bad review since they don't want to deal with liable laws or the tent staying there or trashing the place. 

Where are you from?  I have never heard that expression:  " . . . .  you should seriously reconsider and just back up turn around and head the other way"

I'm just curious;  the various subtleties of language always interest me.  The sometimes amazing regional, even national, differences fascinate me.

BTW:  something else just occurred to me - maybe they aren't calling You, because you are the most recent landlord.  Maybe instead they are calling the landlord Before you.  I have heard that expressed as a way of avoiding a possible conflict-of-interest reference.  So if you have a tenant stay for four or five years, and then then stay four or five yeas at their next rental - someone who does it that way w might not be calling you for ten years! <g>

I never really gave it any thought before your mention.


stephen
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 Originally posted by @Jeff McCaskey:

@Stephen S. 

I'm not really sure what to say to you on this. I'm a little confused as to which way you're coming off. If you are trying to be a jerk then you should seriously reconsider and just back up turn around and head the other way. If you are simply discussing the post then ok, but I can't decipher tone of voice via text on a screen.

First of all I guess it doesn't really matter to me if  get used as a reference or not. I was the last landlord and if the next guy is actually doing due diligence then he would acquire that information through and application and then check on that persons history, unless he doesn't want to put in the effort or doesn't care.

You said @Stephen S. I do call, or or have someone call, but now that you mention it: I can't remember the last time someone called Me. <g>

So that's my point about starting the post, I call everyone - getting ready to right after this reply in fact, but...... nearly none call me. So if you have this 50K 100K 200K investment that could/would cost thousands of dollars to repair if it were trashed, why would you not check on previous history?????? I don't get it, I'm baffled on the subject and so I created the thread......

And from the posts it looks like there are a wide variety of responses to that question, but still looks like there are a number of people who just don't bother with it.

It was just a conversation piece and a good question and I wanted to know what others thought - it won't change the way I process applications at all. I try to eliminate as much risk as possible.

That's that I guess

The trees looked weird to me so after pondering for a while I started to trim them up with an electric hedge trimmer.  The first one ended up round and while I was pausing for 'admiration-time' a neighbor came home and asked what I was doing.  

Trimming my trees.

I never saw a tree that looked like That!

Really?  These are lollypop pines.  Somebody has just let them go too long.  They're Supposed to be round - that's where the name comes from.

Oh;  I didn't know that.

Well;  my grandfather was a tree expert.

It's does look kind of nice round like that.

Thanks.  Let me get back to work on the rest of them.

Over the next week I trimmed them all round.  And told the "lollypop pine" story  (entirely fictional - and my grandfather worked in an oil refinery <g>)  every time someone mentioned the trees.

I lived there for more than a year fixing the house and by that time everyone near there talked about "lollypop pines" like they had known about them their whole lives. <g>

stephen
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 Originally posted by @John D.:

@Stephen S. thanks for the advice.  i will explore leaving some bushes, to break up the landscape a bit.  good to hear things should look decent quickly, and that I can reasonably expect to have some coverage.

That being said;  except under extraordinarily perfect conditions I find it virtually impossible to do 2% in New York, New Jersey, or Conn. - primarily because of the tax burden.  In AZ, FL, and TX I find it fairly easy to do better than 2%.

I looked at a small 3/1/0 townhouse (twin) in a decent area NJ area yesterday.  It's kind of a beater but could be nice with a real rehab.  But the property taxes are $4100. a year.  In case you don't have a calculator that is $342. out of the rent every month.  Rents in that area trend in the $1100. range.  30% of the gross for taxes?  Pa-leeeeze!

I have heard that even if you lose money on every deal - there is always the chance of making it up with sufficient volume.  But I have always shied away from trying it. <g>


stephen
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Originally posted by @Martin S.:

I cant find a single property that I would be able to buy in a half decent neighborhood utilizing the 2% rule. I looked in almost all of florida. Maybe a trailer park home, but then again, the land rental fee or whatever will kill any positive cash flow...

I do call, or or have someone call, but now that you mention it:  I can't remember the last time someone called Me. <g>

Although, that being said;  to a large extent tenants tend to either stay with me for a long time or are forced out under less than pleasant circumstances.  So I guess it does make sense that I get few reference-type calls.

Why are you so curious about it?

stephen
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Originally posted by @Jeff McCaskey:

I just wanted to hear from anyone and everyone about this topic.....

I have been doing this for about 5 years now and probably run through 100 different tenants (total number of people - not turned over units) in my time and I check every application that gets turned in!!!

BUT....... during that time I have only had ONE, yes count that ONE, other manager call me to check on a previous rental reference for an applicant.

So since I basically get nobody at all, ever, whatsoever, calling to check references I am forced to assume that the VAST MAJORITY of landlords don't ever make the phone calls.

Like I said, I sure as hell process ALL of my applicants. Have the rest of you had any experiences similar or different to share????

I can't wait to read what you have to say :)

Thanks!!