Category Archives: Financing

Real Expertise — Video

Everyone’s an expert. But when the Firestones hit the pavement, what is real expertise?

 

Transcript:   Hi this is Jeff Brown the “BawldGuy”. Today, we’re going to talk about real expertise, especially when it relates to teams and real estate investors and who should we really believe. I maintain experts in every, even minor, topic as it relates to real estate investment. I’ve done that for the last 25 years. Most people who know me know I’ve been licensed for over 40 years, so I was a slow learner, thought I knew everything. What a joke. It just doesn’t work that way. The biggest problem is, is when we do acquire just enough expertise in a subject to think we actually know where the bodies are buried. It just never works out, because that goes back to my very, very favorite BawldGuy Axiom, and that is, “It’s the answers to the questions we never know to ask that ends up biting us in the end,” so we have to have real expertise. This is why I make sure I get the best most reliable investment lenders. I do the same thing with insurance and all the rest of it. The idea is to have expertise on the team in every possible topic. Let’s move and start talking about some of them. One of them, for instance, would be CPAs. I’ve had a love/hate relationship with CPAs my entire career. Their problem is the same problem they say real estate investment brokers have, is that we both sometimes tend to think we know more about the other guy’s practice. It’s just a huge mistake. I have gained an enormous respect for real estate investment-related CPAs because, man, they bring answers to the table that nobody had the questions for, and they do it all the time. I have learned enough to understand that if you don’t have a real estate-related CPA on your team, you’re just playing games. It just is not the way to go. Let’s talk about management. Management is one of those things where that’s all you want them to do. You don’t want them to address anything else. You don’t want them to give their opinions about anything else. We don’t care about management’s opinion on the viability of any particular piece of property. If they have something to say about its rentability, we are all ears, and we’re going to shut up. We want to know what their professional opinion is based on what they do for a living. The rest is just worthless and absolutely hurtful. I could go over example after example of people who have listened to so-called professional management opinions and not only lost out on investment properties they stopped the purchase of but end up having more cost because of it. Same thing with qualified retirement plans. How much do you really know about 401(k)s? About self-directed, not self-directed? About traditional, about Roth? You get the point. Get somebody who knows. That’s why I have John Park. The guy’s forgotten more than I know about this stuff. My clients love him. I always tell people, they ask me a question about it on that topic, I will give them an answer. Before I give them that answer, I say, “Look, you’re going to ask the same question when we hang up of John Park. If he gives you a different answer than I just did, forget what I told you. He’s the expert.” I will say the same thing about David Shafer in EIUL, builders, lenders, all of them. Let’s talk about lenders in an example of how getting an expert lender isn’t as easy as most real estate investors might think. They will always tell you, “Oh, we do investors all the time. That’s a big part of our business.” I switched to investing during the years ’76 and ’77. I opened Brown & Brown with Dad in January ’77. I can tell you right now that I have known three lenders in my life that knew about lending on two to four units to investors. One of them is Chad Emerson, the guy I have in Texas. Here is the question you want to ask these lenders. You don’t want to get super sophisticated with them. You don’t want to play who knows more. Here is what you want to ask: “Out of your last hundred loans that have closed, how many of them were investor loans, and how many of them were owner-occupied loans?” If you ask Chad that, somewhere between 92 and 97 of those hundred loans are going to be to investors. That’s the answer you want to get. The rest is happy talk. With builders, yes these builders build this fourplex. I just had a client recently fortunately get out of a transaction in the general Austin area … San Antonio, excuse me, of Texas where the builder ended up in midstream wanting to know if they could take over the financing and finish the building. Really? That’s your expert, two to four-unit builder? No. Ask the builder how many income properties have they built in the last 10 years? The builder I use, they’ve specialized in it since before Reagan was in office. That’s good enough for me. Let’s move on to an example of what happens when you use a wrong expert in a 1031 exchange. I get calls all the time that say, “We’re going to do a 1031 exchange, and we’ve sold the property.” When you sell the property, you’re going to get a situation where you better have an accommodator. But what this guy said was he already told the seller of the property that all they had to do was keep the proceeds in the escrow in which it had been housed to begin with, and then they had a certain amount of time to find the property, and then somehow, they had to tell their escrow what property they were going to buy and all that. Here’s the problem: As soon as that escrow closed and those proceeds went to him, regardless of whether they stayed in that escrow or not, they were under his control. That was the end of his 1031 option. It just wasn’t going to happen. They got everything else exactly right, the timing, what had to be done mechanically, everything. They missed one fact, and that fact was that the investor in a tax-deferred exchange can never be in control of the net proceeds of the property they’re relinquishing, the property they just sold. That’s what the IRS calls them, the relinquished property. Their expert, in this case, it was a combination of their house real estate broker and the escrow officer who pretty much thought this was the way to go. Are you kidding me? I said that the property had closed. It actually was a day before closing the loan had closed. They even screwed that up. I called the escrow officer. I said, “I now represent the seller,” and they stopped the closing. I set him up with my local accommodator. They then had a special closing that afternoon in real-life closing. Nothing changed, and we saved their 1031. How much did that luck save them from paying in taxes? In that case, it was literally over 40 grand in cash. Get the right expert. Man, I hope this helped you. This is Jeff Brown, the BawldGuy. I’ll see you next time.

Investment Lenders — Video

Truly expert real estate investment lenders aren’t rare, they’re very difficult to find. Has that been your experience?

 

Transcript:   Hi this is Jeff Brown the “BawldGuy”. Today we’re going to talk about investment lenders, not regular lenders. It’s important to distinguish between the two. Here’s why. They simply don’t know the rules. Underwriting an investment loan is far different in many ways than underwriting a home loan. They have to know the different Fannie Mae rules. Many of them still think to this day that the most loans an investor can get are four when it’s ten. They don’t know that there are certain things you should watch for when you’re booking the third and fourth loan for the guy who may be thinking of buying five or six. Here’s what happens. They’re in the middle of underwriting for that fourth loan and their lender’s all happy because they’re getting ready to buy that fifth and sixth. They put those fifth and sixth properties in the pipeline. What happens is Fannie Mae comes up and says, “Sorry, this fourth loan you’re doing is going to have to be at a 5% higher down payment because you’re doing a fifth and sixth loan.“ Keep those loans under the radar until you’re done with your first four. You see, your home lender doesn’t know that. It’s not their fault. Ignorance is ignorance. You’re not going to feel that way when it cost you 5,000 to 10,000 or more because you have extra appraisals and the like. Look, get an investment lender and I’ll tell you right now. I’ve been doing this since Ford was in office. Pick a hundred lenders at random. One or two of them can do investment loans competently. Maybe only one, half of one can do it expertly. This is why I go through lenders all the time when I’m in a different state until I find the one. I have the one. This is why you want to make sure that when you’re buying investment property, you have the right lender. Otherwise, you’re not going to make it to the ninth inning. This is Jeff Brown, the BawldGuy. Thanks for showing up. We’ll see you next time.