This must be a bad week for my state of mind. Nothing, including the new housing rescue bill, has been positive regarding the housing scenario. In fact, two of our local banks were even caught up in the debacle and were FDICized.

It seems these banks had to be taken over with Mutual of Omaha as not only the new bank name but the new bank. Mind you, I am not describing banks the size of Citi or Wells or B of A. These were million dollar banks versus billion dollar banks.

Nonetheless, they are symptomatic of the whole system. I can’t believe this happened only in my hamlet – Reno, NV. I have to believe other cities woke up to the same news that several of their small town banks would open under new names.

Something else I find a bit curious, or maybe even funny, is a mutual insurance company branching into the open market bank business. Why would a stable old line insurance company enter into the banking business in small town America? What is that all about?

At this rate, by the end of 2010 there will be only 5 conglomerate sized banks in the entire country. I wonder how easy it’ll be to get a home loan at that time. How about those of us who actually need a loan every once in awhile to keep our real estate empire humming along?

Couple that with home loans from insurance companies and one has to wonder will they still be in business when it comes time – say retirement - to start the contracted annuity payments or pay the face value of the policy at the death of the policy holder. Insurance companies have a tendency to play only in the commercial real estate realm by the way. The returns are usually huge and the loans generally safer.

The discussion possibilities/probabilities are almost endless so I won’t walk that boulevard, at least not today. Besides, there are enough talking heads on CNN and the networks to beat it to death.

Did anyone else get the same feeling about this so called housing rescue bill as me? I don’t see it as a rescue but more as a piece of duct tape over the mouth of the people yelling and screaming about foreclosure.

After all, if you are already in the foreclosure grinding factory, the bill doesn’t help you an iota. You can kiss your house good bye or pay up. What kind of rescue is that?

Maybe it is me and my inherent distrust of anything that even smells like a politician in an election year. Simply throw a few billion at the masses of asses and they’ll shut up. Hell, I’m beginning to think I should be yelling and screaming too and maybe a few dollars will land in my bank account.

I don’t know why this stuff runs through my brain but as noted last week, the real goat in this bailout and rescue mission is you and me the taxpayer. I get tired of paying politicians to create more messes that require more money from me to “fix”.

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Tags: bailout, foreclosure, housing rescue, mortgage

I’m on week three of my marathon training, but it might as well be week 123. I still think running is a terrible idea. Every time I see someone running now, I actually get angry and wonder why in the world are they doing it and I want to run them over (I guess it’s my inner O.J. coming out, however if someone does get run over, I will be the first one to search for the “real” killer.) Anyway, now that you know that deep down I have serial killer tendencies (and what entrepreneur doesn’t? We’re all crazy) let me give you some information that will fatten your bank account and make you filthy stinking rich…because I love the smell of capitalism in the morning!

When you are talking with a seller, whether it’s on the phone or in person, there is one single question which can make the difference between millionaire status and non-millionaire status (or as I like to say being a “player” or a “tire kicker”). Write these words down and send my royalty checks to 123 Main St… Alright, here is the question “Mr. Seller, what do you need?” Not, “Mr. Seller, how much are you asking for the house, or how much are you looking to get for the house or how much do you want for the house.” Everyone wants $50,000 in cash, but what do they need? Usually this question will quickly drop that $50,000 to a much lower number. So if it drops from $50,000 to $25,000, then ask why they need $25,000. They will usually tell me it’s for moving expenses or to rent an apartment, and together we realize they actually only need about $5,000 or so. The beauty of this question is that it helps sellers come back to reality and realize that they only need $5,000 to move to Florida to be with their grandkids or $5,000 to get an apartment in another state to be closer to their relatives.

When you are meeting with a seller in person, the best way to “show” the seller what they need is using the pen and pad approach. When the seller wants $50,000, take our your yellow legal pad and show them what they need…$1,500 for a moving truck, $2,000 for the first months rent and security deposit on a new apartment, $500 to pay off some utility bills, etc.

Make sure you remember to ask this every time you talk with a seller and when they tell you some ridiculous number, make sure you question them and ask why they need that much money. So, I thought I would end this week with a very important scientific discovery that was passed onto me by a friend: Scientists have discovered that there is one food that drastically reduces a woman’s sex drive…………………WEDDING CAKE!

Tags: Buying real estate, negotiation, real estate investing, real estate investor

The economic news seems dire, to say the least: home prices taking their steepest fall in May—ever! As in, ever!

The Standard & Poor’s /Case-Shiller index of 20 cities dropped 15.8 percent in May compared with last year, reports the Associated Press.

And, that is an average, of course.

Las Vegas, for example, had home prices drop 28.4 percent in May.

But the current and somewhat related energy crisis may help provide a sort of blueprint on how to lift ourselves out of this credit,mortgage,housing debacle.

Consumers strike back!

After week upon week of a steady drumbeat of seemingly perpetually rising oil and gas prices, oil has now actually dipped to a seven week low, down more than $2 a barrel! And gas prices at the pump are also moving in a downward direction.

What happened?

What happened is the American consumer got fed up and revolted.

According to the U.S. Transportation Department, drivers in the U.S. logged almost 7 billion fewer vehicle miles in May, the biggest drop ever recorded during the normally gas guzzling summer vacation season.

To be sure, there are other factors at play—a stronger dollar, for one thing, that are having an effect on the price of oil.

But, at the end of the day, it appears pretty simple–Americans are driving less and using less fuel and that is primarily what is responsible for the fall- off in the price of oil.

The mortgage/credit mess is admittedly a much tougher challenge. Having said that, what is happening with oil may be showing us the light at the end of the tunnel?

More and more foreclosed houses are now on the market–but fewer and fewer people can afford to buy them because credit is so damn tight. But there will come a point when banks (if any remain standing?) will have to lower their credit barriers or risk permanently losing potentially lucrative customers.

Can consumers, then, help turn this around for the good? Yes–we can!!

Tags: Economy, gas, housing, inflation, mortgage, oil

One of the great aspects of being an apartment building owner is the ability the owner has to increase value in a variety of different ways. All of these methods for increasing value will not apply to every apartment building, however, I would venture to propose that there is not one apartment building in any state in this country that could not use at least one of these methods to create more value very easily. If you compare this ability to other investments like stocks or bonds you can truly begin to realize why so many fortunes have been built by investing in multi-family properties.

Forced Appreciation — Forced appreciation is any repair made on commercial real estate that “forces” the value of the property to appreciate.

Cosmetic Repairs:

Making cosmetic repairs makes the property more appealing to potential tenants while also keeping current tenants happier. Repairs that can have a dramatic impact on appearance include painting exterior walls, painting interior walls, repairing the landscape around buildings and replacing aged, dirty and worn out appliances.

Raising Rent:

This may seem like an obvious way to increase the value of an apartment building but it is truly surprising how many rental buildings are charging rent that is 10% to 20% below market rates. Many smaller apartment building owners manage the property themselves and thus find it easier to keep rents below market to retain tenants. This theory is flawed in practice because it doesn’t take into consideration that, nowadays especially, many people will move from an apartment for reasons having nothing to do with the rent. For example, many people relocate for better job opportunities in another city.

Replacing Utility Equipment:

If an apartment building owner is paying the electric bill for common area lighting he or she can save a lot of money every month by simply replacing all of the lighting fixtures with energy efficient bulbs.

Tags: apartment building investment, apartment building value, buy apartment building

The housing , bubble, sub-prime meltdown and the bubble in the oil markets.  Like a witches brew straight out of Macbeth, it all comes together like an evil potion to make life miserable for all.  Hindsight being 20-20, we can look back and see how one thing led to another to bring our economy to the painful point at which we now find ourselves.

For a charm of powerful trouble…

The days of ridiculously easy money, creative loan products and a total lack of oversight led to a real estate bubble of historic proportions.  People with no experience thought that they were going to become the next Donald Trump by flipping houses.  We know how that turned out.  The rate of appreciation was totally unsustainable and, like a game of musical chairs, the music stopped and the bubble deflated.  We now have a different kind of bubble, one filled with an extraordinary number of foreclosures. 

Like a hell-broth boil and bubble…

When the runaway appreciation came to a screeching halt, we were left with the sub-prime mortgage crisis.  There have been over 260 failures of lending institutions since late 2006.  Those who invested in these risky loans have been left holding the bag.  Major institutions have been brought to their knees.  Bear Stearns and Countrywide were the prominent names, but there have been many other casualties as well.  The FBI is now investigating hundreds of cases of fraud in the financial markets by lenders, brokers and borrowers.  Although it may be a case of shutting the barn door after the horses have escaped, heads are going to roll here.

Double, double toil and trouble…

Former Federal Reserve Chairman Alan Greenspan called, “The current financial crisis in the US is…the most wrenching since the end of the Second World War.“  The Government was not going to sit idle while people were screaming for them to do something.  In an effort to stimulate the economy and, at the same time, mitigate the effect of rate adjustments on mortgages, the Federal Reserve slashed interest rates.  The idea was that adjustable rate mortgages (ARMs) that were adjusted based on treasury rates would not rise as much.  The hope was that the rate of foreclosures would slow enough to avoid a total collapse of the economy. This has worked to a degree and , while still a huge number, the number of foreclosures is nowhere near where it could have been.

Fire burn, and cauldron bubble…

In physics there is a law that states: every action has an equal and opposite reaction.  The flip side of the interest rate cut is that the dollar plummeted in relation to other currencies.  The slowing of our economy only made the dollars plunge more pronounced. A weaker dollar makes the cost of imported goods more expensive and our number one import is oil.  While well down from its all-time high, oil prices have gone through the roof.  Gas prices effect just about everything we do and have an impact on almost everything that we buy. 

There is no easy fix for this.  The politicians point fingers at each other and the candidates claim to have the solution.  I’ll vote for the first one to admit that they don’t have a clue about what to do next.  The road has been rocky and it’s going to get worse before it gets better.  As investors we need to watch for the opportunities that arise while exercising caution and restraint.  The foolish among us have lost a great deal of money, but those of us who have the nerve to take calculated risks can profit handsomely from this turmoil.

Formula for success: Rise early, work hard, strike oil.
J.Paul Getty

Yesterday in a special session the Senate passed the Housing Economic Recovery Act of 2008, H.R. 3221, with a 72 to 13 vote. This measure received such overwhelming bipartisan support so politicians could point to this legislation and say, “We are doing something to mitigate the foreclosure crisis”.

They aren’t.

This bill once converted to law with President Bush’s signature next week can’t and won’t do a thing to stem the drop in home prices which is what home owners and landlords need desperately. But with over 1.5 million households in foreclosure and elections in November, politicians did what politicians usually do…too little, too late.

I found the perfect quote to describe this new bill…

“Politics is the art of looking for trouble, finding it, misdiagnosing it and then misapplying the wrong remedies.” - Groucho Marx

Grouch had H.R. 3221 in mind when he made that statement. This bill is nothing more of a blank check to the Treasury Department to bail out the GSEs, Fannie Mae and Freddie Mac. Sure the Democrats slipped in a $5 Billion measure allowing states to buy and repair foreclosure properties. However, you and I both know this money will never reach the market in time and it’s a drop in the bucket anyway.

Paulson pushed hard for this legislation for the last 2 weeks telling every Congressman who would listen how our national credit worthiness with the world was at stake…our honor no less. It just goes to show how ill-equipped Congressmen are to spot a conman in action. Since when does bailing out two of the most profitable NYSE traded companies in recent history a national priority?

Paulson now has the power to grant unlimited credit to the GSEs and the power to buy their stock directly. This over-reaching power has never been given to the Treasury. The GSEs, especially Fannie Mae, are known for accounting scandals, huge campaign contributions to Congress, and multi-million dollar incentive-based compensation packages for top executives.

This is how we want to spend tax payer money?

Wall Street firms can’t seem to determine the extent of the subprime damage in their own portfolios, so how is Paulson going to it at the GSEs? The bad loans buried in the mountain of GSE owned debt - over $5 Trillion - could easily be well over $100 Billion at Fannie Mae alone.

My guess is this new law will cost the tax payers over the next few years about $200 Billion and not one dime will stop the slide in home values. Not one dime will go to help a family save their home from foreclosure which would help stabilize home prices.

Groucho…when you’re right, your right.

Tags: foreclosure legislation, Foreclosures, house foreclosure bill, housing bill, Housing Economic Recovery Act of 2008

Greetings from a jam-packed airplane headed North. I am on my way to go Walleye fishing in South Dakota. I am not an avid fisherman by any means and I have no idea how to fish for Walleye….but off I go to make new friends and to reconnect with another.

Anyways….

As some of you know, I have been working on refinancing my shopping center for almost a year now….and guess what? We closed!!! As my attorney, Jay, said…”…what an ordeal.” An ugly ordeal it was….thankfully with a happy ending due to the work of my mortgage broker(s).

I have three strong (at least I think) relationships in the commercial mortgage business. Not only are they my friends but they are amazing at what they do. I consider them the best in the industry.

1. Brandon Haddon @ Omni Credit in Denver, CO
2. Scott Nelson and Karla Lyngvar @ Lyngvar Financial in Sacramento, CA
3. Terry Painter @ The Business Loan Store in Milford, OR

I now use all three in every deal I do. “How so?” you ask….well….let me explain.

The subject is an eighty-three thousand square ft, class C, retail shopping center located in West, TX. Solid cash flow, solid tenants, great history, great city, etc…. but there were a few issues:

1. Environmental Reports were not conclusive
2. Lease terms for credit tenants were up for renewal in the next few years
3. Loan needed to be defeased
4. A weak economy and tight credit (and getting tighter)
5. and on and on….

I started with Brandon Haddon at Omni Credit first. Brandon had pulled off a miracle the year before by refinancing my mobile home park which I acquired via a lease option. Many mortgage lenders, including Terry from The Business Loan Store said I could not do the deal without me having to put 20% down….and I could not pull cash out. Brandon was able to do the deal for me. Not only was it a no money down deal…I was also able to pull cash out… a no money down commercial real estate!

Now….the shopping center was a difficult deal for several reasons but the first hurdle was the environmental report. Many moons ago…there was a gas station on the premise. The gas station and the underground gas tanks are long gone. BUT…the tanks at one time leaked. Now, to understand the problem fully, the property where the gas station once stood was not part of the shopping center and not part of the loan…but because it was an adjacent property, the lenders had concern. This issue caused my first mortgage broker (Brandon) to fall off. I felt that Phase One environmental report would suffice and that a Phase Two was not needed…and I stuck to my guns. But the lender Brandon was working with (Union Bank of California…which screwed me once before via another mortgage broker) felt that a Phase Two was needed….even though, at one time, they were fine with the Phase One report (go figure).

Next…I decided to “two fist it” and go to both Scott/Karla @ Lyngvar Financial and Terry Painter @ Business Loan Store. Karla and Scott felt that I would need to do a Phase Two. Terry on the other hand thought I had a good chance of avoiding the Phase Two. So I went with Terry.

Now, I have dealt with Karla and Scott on a personal level….and they came through on a big way later in the process.

So…Terry and his right hand, Sarah, went to work. There were so many issues (the list above) but Terry was able to get me a lender commitment on the property. This was a huge accomplishment because Terry was able to bypass the need for a Phase Two as well as manage the lender regarding the changes in the economy and the impact on the rates. Not to mention dealing with the defeasance.

Now, when I got the commitment, I sent it to Scott at Lyngvar financial to see what he thought. Scott said “Rob, I would love to do this deal for you but I cannot beat this commitment. You are getting the best terms in the market. I cannot even come close.” Wow….at that very moment, I knew that I was going to add Scott to my commercial mortgage team. Integrity in the mortgage business is hard to find…..as if you don’t already know that.

I needed Brandon, Terry, and Scott to get this refinance done. Even though only one mortgage broker was able to close the deal, they all played a huge role.

“Okay Rob…so what?”

Well….having different mortgage lenders in your corner is crucial. Mortgage brokers have relationships with different lenders. Just because one lender cannot do a deal does not mean that all lenders cannot do the deal. Even when it comes to environmental issues, terms, market conditions, etc., different lenders handle issues differently.

Also, having mortgage brokers that you trust will go a long way in avoiding losing money and time. Have a resource you can trust to confirm if you have a good loan commitment or not is a HUGE plus.

I have been burned by several brokers in the past that I have contacted through forums or newsletters (I have never had a good experience). I have always lost money and or time dealing with people that I do not have a relationship with. But I have had great success from those recommended to me. I met Terry at a commercial real estate seminar that we both spoke at. I met Brandon through a friend of mine that highly recommended him. I met Karla through a friend while I was in Sacramento. I highly recommend all three of them.

I am very thankful for Brandon, Karla, and Terry for helping me get through this “ordeal.”

Until next time……rob

Tags: commercial loan, commercial mortgage, Commercial Real Estate, lending, Mortgages