Until the last couple years, our clients, for the most part, have been able to acquire their investment real estate without paying loan points. As change in the markets took hold, things began to change. How’s that for understatement? The lender problems emerged big time. Underwriting changed even more, and lenders changed the way they viewed investor loans. To all this you may all now roll yer eyes while in unison saying, Duh. I know, I know. When yer used to no points and read closing statements these days, it can be chilling.
How ’bout goin’ from loan fees totaling less than $2,000 for a fourplex purchase, to $5,000 sans processing for a duplex? Ouch and a half.
Yesterday we learned investor loan costs have risen — again. My response?
So what.
Real estate investing is, in so many ways almost perfectly analogous to baseball, the perfect sport. (And no, we’re not gonna waste time debating that assertion, as there’s no point in doing so.) And the first rule in baseball is the same as in real estate investing:
There’s no crying.
Imagine you just paid stoopid loan costs to acquire several small income properties on which you were able to apply prudent leverage. Think loooooong term, OK? It’s a decade down the road and you’ve long ago traded those properties for a very handsome capital gain into even more property. Quick now — The first thing you think of is how nice all that profit was OR Dang it all, wish I hadn’t had to pay that extra few grand in loan costs 10 YEARS AGO. What seems painful now, is merely a cost of doin’ bidness. Is there a point at which you should walk away ‘cuz of loan points? Absolutely. But the reality is, you’ll literally forget a few thousand bucks 10 years down the road.
It’s all about the net — the long term net. As in net worth. Keep yer eye on that ball.
This is a gentle reminder to remain objective when your lender gives you the news. The analysis is what it is, and if it says your costs kill the deal? Then the deal’s dead. Turn the page. Get over it. Eat some chocolate. Bang a drum. Scream into a pillow. But, at all costs, keep yer eye on the right ball.
Something to ponder.
We keep score in terms of capital growth, or cash flow, and ultimately net worth and retirement income. Costs? It’s something you laugh about 20 years later over a beer.
But remember…
BawldGuy Axiom: There’s no cryin’ in real estate investing. Walk it off.
Let’s have a conversation. Click on Contact BawldGuy and before ya know it, you’ll hear, “This is Jeff.” It’s at that point you and I can get the ball rollin’ your way. We’ll be talkin’ about capital growth far more than loan costs.
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- The #1 Myth — Investing in Real Estate For Retirement — Boomers Beware
About BawldGuy
Jeff,
You rock. Plain and simple….
Tom
Nice, I have run into many folks who get so tied up in knots over fees and expenses that they end up hurting themselves fatally. We have all been trained to look at the wrong thing by our consumer mentality. We have been trained to “shop” for the least expensive items, hence we go to Wall Mart and buy some cheap consumer good that lasts one season and then go back next season for some more. Great business model for Wal Mart, not so great for the consumer, and fatal for the wealth builder. I had a good client stop a re-finance where we were lowering his interest rate by almost 1 point, because of closing costs. Worst part of it was it was a stated income loan, and I told him the lenders had stopped giving out stated income loans for investment properties right after I locked him. Oh well, he will survive.
Wow, beautifully done! I think Mr. Brown should be writing a book. I think even I were to hate real estate I would steal read this blog. There’s no crying in real estate.. had me laughing for at least 5 minutes straight!
Wow, did I just put “steal” read his blog. I apologize, I haven’t had my 10 cups of joe yet.
Mr. Brown? Is he talking about the same Jeff that I know?
LOL
Tom
Like I said, not enough coffee. Gulp, gulp, gulp.. one down and nine to go.
Thanks Tom — You must go through this ‘the costs are too high’ thing daily.
And be easy on Josh. When he hasn’t had his coffee he reverts to the whole midwest ‘respect yer elders’ thing.
Of course, when I was young… Oh, never mind. 
Dave — Your Wall*Mart analogy reminds me of a real life example.
When I was 16, Dad bought me a Wilson A2000 baseball glove as a reward for some work I’d done. It was 1967, and he was nearly apoplectic at it’s price tag — $59.95.
Fast forward to 1993. My son, at my request, used that glove for his last Little League season. We had to have it reconditioned ‘cuz it had been spiked once on a play at third base. (I got spiked on that play too. Still have the scar on my ribs.)
Quality — 26 years old, and the glove was still better than anything out there. That model is still one of the handful of gloves in the major leagues preferred by players.
The cost? A bunch. The benefit? It did the job for which it was designed for over a quarter century.
Works for me.
By the way, Josh wanted his own A2000 the next year. So we retired my glove and bought him his own.
Holy crap on a cracker Batman! $154.95!
Nicely done Jeff – and so true.
We need to have a long term focus and a portfolio profitability viewpoint rather than nickle and diming ourselves out of really great deals.
Dennis — Thanks, folks are so entrenched in the cost/expense of everything these days. That’s not a bad thing — ’till it costs you a nice capital gain.
Readers: Dennis is a very experienced and successful real estate investor himself. He knows whereof he speaks.
Jeff,
You’re right. I do run into that on a daily basis. That’s why it’s a necessity to take the time and actually talk with the customer so they can understand the long term picture.
Oh, and I’ll be nice to Josh, I just wanted to make sure we were talking about the same person…..
Tom
I think josh had it right. More coffee.
Just don’t let them see you cry. Same goes for laughing (on the way to the bank).
Robert — Excellent points, both.
Hey, don’t forget about paying me!
Seriously, sometimes clients can be penny wise and pound foolish. Case in point: instead of working with old reliable Lender A, you try working with Lender B to save 25 bps on a loan. Unfortunately as often as not, Lender B delays the closing because it doesn’t know your business or hires an attorney to document the deal that ends up costing twice as much as before, or [insert closing nightmare story here].
The long and short of it is that you are spot on. Get the $%&*() job done and then buy some coffee, because we all know coffee’s for closers!
Have a great weekend.
Dave S — You said what many newbie real estate investors learn the hard way.
[insert closing nightmare story here]