Category: General

Full
disclosure: this week’s missive is more for the consumer than for the
realtor.  I
can promise, though, that for all the realtors who read this, you’ll most
likely find yourself saying or thinking something along the lines of “preach
on, brother”, “testify”, “amen”, or “you got that right”.  With
that in mind, I implore you ALL to read on.

Recently,
I received my monthly wireless phone bill, and it was $20 higher than it should
have been.  I had made some changes on my
plan a little before that, but my monthly bill’s amount was supposed to stay
virtually the same –
in fact, my first bill after the changes was a little bit less than my usual
amount.  Bonus!  Befuddled, I called the company and asked the
operator to help me understand why my bill was $20 higher and then find a way
to get it back down to the price I had been promised when I had made the
changes to my plan.  Long story short:
the operator with whom I had originally made the changes had promised me one
thing, and the billing was something entirely different.  The “new” operator patiently tried to explain
the math to me to demonstrate that my new $20-more bill was correct, and I kept
politely stopping her with, “I’m not arguing the math –
that would be like arguing that water isn’t wet or that Kim Kardashian
should write a book giving marriage advice.
What I’m upset over is the fact I was promised my bill wouldn’t change,
and it did.”

She
kept trying to explain that the math was correct and there was nothing more she
could do about the monthly bill amount.  Remaining
calm, I said to her, “I appreciate everything you’ve done for me today, I
really do, but I do need to speak with a manager.  I truly believe someone at that level is
given a little more leeway, and that’s no slam on you.”  Five minutes later, I was talking with a
manager, and twenty minutes later, I had a $240 credit (12 months X $20) to be
applied to upcoming bills on my account.
All told, this experience took well over an hour –
yes, an hour of my life I’ll never get back, but I got some compensation out of
it.  I would have liked to see the
$20/month taken off my bill FOREVER, but I took what I thought I could
reasonably get.

For
those of you who are about to wade into the waters of home buying, let this
rather strange story help you in your quest.
My goal when I picked up the phone to talk to the wireless company was
to get my $20 back –
in Fantasy Land, that should have taken about five minutes, but here in the
real world, it took over an hour –
and I wasn’t going to hang up until I got some resolution.

Once
you’ve found the house you want to buy and put in an offer, PLEASE DON’T EXPECT
it to be accepted within five minutes (or an hour) and be on your merry
way.  Your
goal is to get that house, but there are a lot of things that will be out of
your hands and in the hands of others –
PREPARE yourself to be patient and know THERE WILL BE COMPROMISES.  This could take many forms: closing on a
later date, digging through old file boxes to find that ONE piece of paper the
underwriter wants, dealing with a seller’s last-minute request, etc.  Just remember the goal (the house) and what
that goal is going to make possible for you: a place to raise a future family,
a gathering point for friends and loved ones where you have enough room that
you don’t have to sit on laps to watch the Super Bowl, a place without a pervy
landlord (unless you’re the landlord, and then all bets are off), etc.  Lastly, remember that your real estate agent
IS management: she/he has the leeway to get the deal done (as long as it’s
legal).  Happy buying!

It’s
highly likely I’ve already written about this, but I’ll try to make it
entertaining at least.  There’s a guy who
works in our
office who suffers from kidney stones –
and from what he’s described, “suffers” might even be a little too tame a word
for it.  As an aside, though, when you
ask him how painful the experience is, he gets an odd smile and says, “It’s the
most intense pain I’ve ever experienced, but it’s hard to describe.  I’ve heard a lot of people compare it to the
pain a woman experiences while giving birth.
To that, I must say, those people are big, fat liars!  I’ve been in the presence of a woman giving
birth, twice, and her pain has to be 100 times worse.  They’re passing the equivalent of a Buick.  I’m passing a pumpkin seed.”  He’s always been a colorful fellow.

He’s
had this wonderful condition for over a decade now, and the stones make their
appearance about every 18 months or so.
Up until recently, he had chosen to accept his fate and have the buggers
make their appearance that sideline him for about two days, three at the
most.  Well, according to him, his most
recent bout was so painful, and the entire “incident” lasted off and on for
about ten days, he got with his doctor and had the stones analyzed.  I won’t bore you (or gross you out) with what
the analysis indicated, but it gave him and his doctor a basis for a solid
treatment plan.  Oddly enough, he didn’t
have to change his lifestyle and/or diet significantly, but he has to take a
pill twice a day that’s larger than any stone he’s ever passed and big enough
to choke a medium- or large-sized farm animal, if one is so inclined.

While
you may be sitting there and thinking to yourself, “Wow, I’m glad I don’t have
kidney stones,” I’ll say this: every one of us has something in our lives
that’s a kidney stone –
something that is small and doesn’t happen on a daily basis, but when it comes,
it knocks us off our game or diverts us from our goal; and most of the time, we
do nothing to change it because we right ourselves and accept the delay.  But as time goes on, hopefully, the “stone”
gets big enough and causes enough of a hindrance and/or obstacle that we’re
compelled to take action and not just remove it from our lives but take steps
to prevent it from happening again.

In
the case of a potential homeowner, these “stones” take many forms –
and I’m not talking about foreclosure, bankruptcy, etc. (those are major
incidents that require a lot more time and attention).  I’m referring to things like multiple trips
to Starbucks in a week that add up, financing a car over a longer period of
time to get “the right payment”, paying for a big summer trip with your credit
card because you’re “pretty sure” you’ll get a nice bonus to cover it at year’s
end, and so on.  Before
you even start LOOKING at homes, get with a mortgage company to give your
financial health a thorough exam –
unlike a doctor’s visit that costs a bit of cash depending on what type of
medical insurance you have, such an “exam” with a mortgage company is
free.  They’ll be able to tell you what
needs to be cut out, changed, and/or added to your spending habits to remove
the “stone” before it has a chance to divert you from your goal –
a delay in that process is unacceptable.
If a mortgage company asks you to disrobe for the exam, you’ll know you
picked the wrong one.

Amongst
the ads and emails we receive each day ranging from “how to lose 75 lbs. in 12
days by eating just Three Musketeers candy bars and milkshakes” and “the
lessons learned from a dyslexic 1980s pop musician turned auto mechanic”,
there’s an occasional gem that stands out and helps you look at life from a
different perspective.  In that vein, I
was recently directed to an article on Forbes.com
titled “15 Surprising Things Productive People Do Differently” that I found
interesting.

Surprisingly,
it didn’t have little tidbits like “only sleep standing up” or “drink the sweat
of Hollywood actors who have won an Academy Award three times a day”.  The one that stood out most to me was
something that is attributed to Warren Buffet: “The difference between
successful people and very successful people is that very successful people say
‘no’ to almost everything.”  This doesn’t
mean that such people walk around all day with a negative attitude just looking
for a chance to be a contrarian –
it means they must be presented with an overwhelmingly persuasive argument to
buy into something or to change their minds.
This morsel of billionaire insight reminded me of mortgage underwriters.

Contrary
to popular belief, underwriters aren’t overgrown tree sloths who take an
eternity to review your application –
underwriters have, on average, five fingers on each hand.  With that said, though, they are employed by
banks and investors to look for reasons to say “no” to your request.  It’s nothing personal –
it’s actually a good business model.  On
the marketing side of things, a bank or investor will tell you how they want to
help you achieve the American Dream by getting you into a house –
it’s good public relations.  On the
operations side of things, though, they want to make sure they uncover ANY
reason that it would be too much of a risk to give you a huge chunk of money to
buy that rambling ranch or mid-century modern house.  It’s their money –
you can’t blame them for wanting to make sure they’re going to get paid
back.  If, at last, they can’t find a
reason to tell you “no”, you’re good to go.
That IS a good business model.

Understanding
the role of underwriters in this process helps you understand how important it
is to pick the right mortgage broker –
the individual who’s going to help you make an overwhelmingly persuasive
argument to which the underwriters can’t say “no”.  Any
warm-blooded loan originator who has a license can take your application and
submit it to the underwriter . . . and cross his/her fingers that it’ll pass
muster.  And if it doesn’t, you’re forced
to start the process all over again (and perhaps cross your fingers that you
picked the RIGHT mortgage broker this time).
Instead, go to a mortgage broker who has a reputation for providing
unique solutions to strange circumstances –
they’ve been trained to know what to feed the sloths without getting bitten.

• $135,000 Appraised Value

• Get back $77K

• Earn $435/mo in passive income

• 29% ROI in the first year

• No short-term capital gains taxes

Any questions?  Sure, some of you are probably wondering how I came up with some of the numbers outlined in the scenarios listed above.  Buckle up, because here we go:

The
costs of the sale tend to be approximately 10% of the sell price.  In this case that would be $13,500 –
these costs consist of commissions, seller’s costs, and concessions.  After subtracting out the costs of the sale
($13,500), the cost of acquisition ($77,000), and the costs of the rehab
($18,000), there’s a profit of $26,500 of which 35% ($9,275) will go to
short-term capital gains taxes for an overall net profit of $17,225.  Dividing $17,225 by $95,000 (the costs of
acquisition and rehab) yields an ROI of 18.1%.

PROS

CON

Once
the work on the house has been completed, an appraisal is ordered, and it comes
back at $135,000.  The
property can be refinanced at that point up to 100% of the acquisition cost,
which is $77,000 in this case.  The
monthly mortgage payment of $465 is based on a conventional fixed 30-year
mortgage at 3.875% (4.893% APR).  The
difference between $900 (the projected rental rate) and $465 is $435.  Multiplying $435 by 12 yields $5,220 in
annual profit.  Dividing $5,220 by
$18,000 (which was the investment in this case – the
rehab costs) yields an ROI of 29% for the first year.

PROS

CON

Six
months after work on the house has been completed, an appraisal is ordered, and
it comes back at $135,000.  The property
can be refinanced at that point up to 75% of the new appraised value, which is
$101,250 in this case.  The monthly
mortgage payment of $605 is based on a conventional fixed 30-year mortgage at
3.875% (4.893% APR).  The all-in costs
for this property were $77,000 for acquisition and $18,000 for rehab, for a
total of $95,000.  The difference between
what can be pulled out in the refinance ($101,250) and the all-in costs
($95,000) is $6,250 in PROFIT.  Because
the money available to pull out through refinance is greater than the all-in
costs, the ROI is infinite.

PROS

CON

On
a fairly regular basis, you can fire up the computer and go to your favorite
news site or flip on the television to seek out your favorite news channel, and
you’ll come across a story about how the economy continues to improve –
and, overall, that’s fairly true.
However, that doesn’t mean that everything is dandy.  As individuals, we have our challenges, and
sometimes we need help.

On
those same news sites or channels, you frequently see ads for credit-repair
companies or from a credit card company offering to give you your credit score
for free without it affecting your score.
Before I go any further, I want to make it abundantly clear that I am
NOT speaking ill of any of these companies –
I’m simply going to try and give you something to think about.  Are we good?
I’ll press on.

Credit-repair
companies make their money by selling a service to folks who are looking to
raise their credit score.  I’ll pause
here for anyone to say, “Duh!”  Here’s my
point: these companies ask for payment up front, which is a good business
model.  Upon payment, these companies
then work with the customers by giving them counsel on what needs to be
addressed on their credit reports, what changes the customers should make to
their spending habits, etc.  All good
stuff –
no argument here.  However, these
credit-repair companies don’t give out guarantees, and it’s a good business
model not to do so because there are many things they can’t control.  The biggest thing they can’t control is how
attentive the customer is (or isn’t) to the advice the company is giving
them.  Whether the client heeds or
doesn’t heed the advice, the credit-repair company has already been paid.  In other words, because they’re paid up
front, success or failure is sort of a moot point –
they move on to the next potential client.

The
credit card company offering to give you your score for free isn’t evil or
nefarious –
they simply want your personal information so they can market their services to
you (and possibly sell your personal information to other marketing information
clearing houses –
there’s A LOT of money in that).  You
aren’t going to get bamboozled and taken to the cleaners by someone posing as a
Nigerian prince if you call this credit card company and ask for your score for
free, but I’ll guarantee that you’ll start getting an increased number of
emails and phone calls from them and companies to whom they’ve sold your
information.

In
the real estate world, the only company you should visit if you need help with
credit repair is us.  Sure, other
mortgage companies offer credit counseling, but most either refer it out to a
service (that might hit you up for a fee) or shuffle you off to someone else in
their company who may or may not care if you follow their advice –
they get paid hourly or a salary.  There
are two reasons Priority Lending should be your only source of help with your
credit issues: (1) You’ll work ONLY with your loan originator –
he’s been trained to read and understand a credit report to help you repair and
improve your score as quickly as possible; (2) we don’t get paid UNLESS WE’RE
SUCCESSFUL in helping you –
in other words, our incentive is to stay engaged as long as you are, and by
doing that you GET A HOUSE (and we get to write the mortgage).  It may take three months or 24 months to get
you to that point –
we’ll be there as long as it takes.
We’re a patient lot.  And by doing
it with us, there are no up-front charges for counseling or subsequent annoying
phone calls that come in JUST as you’ve sat down to dinner.

So,
give us a call and eat your nachos in peace!