Does my realtor know what he is talking about??

Multi-Family and Apartment Investing
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Does my realtor know what he is talking about??

Rick Oaks
Investor · Ridgeley, WV · Member since 2015 · 65 posts · 10 votes

So I’m trying to buy a rental unit with 15yr loan and I tell my realtor I’m trying to get a better rate on my loan. He proceeds to say

“ why are you worried about the rate, it’s a write off “. This comment really worries me coming from somebody in this industry for 40+ years. I think it’s a REALLY bad comment. Am I wrong to question his expertise?

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Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
6y

Real estate professionals never shop rates.

Laymen always shop rates.

Got to ask yourself, why the people who do this day in and day out arnt shopping 25 lenders to save an eighth of a point, while the people who do it once a decade are obsessed about it.

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  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    6y
    Originally posted by @Rick Oaks:

    So I’m trying to buy a rental unit with 15yr loan and I tell my realtor I’m trying to get a better rate on my loan. He proceeds to say

    “ why are you worried about the rate, it’s a write off “. This comment really worries me coming from somebody in this industry for 40+ years. I think it’s a REALLY bad comment. Am I wrong to question his expertise?

     40 years means he's been in it since the 1980s, when a solid no points 30 year fixed rate was 16%. A week passes and it's 18%, another few weeks pass and it's 13%. Put yourself in his shoes, and now he's got these "kids" coming along worrying about 0.5% and opting into higher minimum monthly payments to get it. On top of that, he's been through something like 6 or 7 recessions where he might have seen the value of a lower minimum monthly payment over the lower rate: households have monthly budgets (not 15 year budgets...), the ones calling him for a fire sale listing back in '89 (S&L crisis) or '01 (dot com bubble) were the ones with the higher monthly payments, not the ones with the higher interest rate. He probably didn't even blink when rates hit 7 year highs in the summer of 2018, assuming he even noticed, to him that's nothing.

    I can't speak for anyone but myself, but I have a feeling that's likely where he is coming from. It's a valid perspective, not to be dismissed, my $0.02.

    Even your younger 3 or 8 year Realtor is rolling their eyes (even if you don't see it) when you start making significant sacrifices or trade-offs over $14.22 per month per hundred grand, and they've seen only a fraction of what Realtor Gramps has seen. 

    22Reply
  • Eric X.
    Real Estate Agent · Naperville, IL · Member since 2014 · 196 posts · 130 votes
    6y

    @Rick Oaks Technically your agent is not totally off base.  30 year note will give you better cash flow. Rates are low and the interest is deductible. rates shouldn't differ that much between lenders.  The change in rates for the same 15/ 30 year note should be fairly negligible.  a quarter point on a 100k loan is only about 14 a month.  And that 14$ is deductible as well so of course you want the best rate but it shouldn't kill the deal.  

    He isn't wrong but he should of worded it slightly better.

    6Reply
  • Alan Lacey
    Lender · Grand Rapids, MI · Member since 2019 · 175 posts · 82 votes
    6y

    @Rick Oaks either that or simply bad at math, and has never owned a business. When you lose a dollar in actual money you don’t magically get that dollar back because it is a additional write off. I would gladly save the whole dollar than the 25 to 50 cent I get back from writing it off. Ridiculous

    12Reply
  • Rick Oaks
    OP
    Investor · Ridgeley, WV · Member since 2015 · 65 posts · 10 votes
    6y

    Thank you all for the input but I’m with Alan on this.  My accounting background says that the difference in rates is not a dollar for dollar trade off.  It really has nothing to do with the 15-30yr loan but more that he thinks the interest rate is a non issue

    3Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    6y

    Real estate professionals never shop rates.

    Laymen always shop rates.

    Got to ask yourself, why the people who do this day in and day out arnt shopping 25 lenders to save an eighth of a point, while the people who do it once a decade are obsessed about it.

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    22Reply
  • Gabe Radovsky
    Rental Property Investor · Austin, TX · Member since 2019 · 23 posts · 34 votes
    6y

    I'm currently looking at small multi family deals in LA county, and possibly looking to borrow up to about $1.2 million. I've spoken to a couple of lenders out here who are offering me 3.25% on a 30 year note, and one who offered me 2.875. At the high end of my price range, those 3/8 of a percent end up saving me about $250 a month. On a low down payment deal, this translates to a significant bump in ROI, and even if I were putting more down, a few thousand a year for the life of a deal is worth a few hours of my time to shop around. Even if you're looking at much cheaper deals, you're probably going to want to buy more than one, and those savings will add up the more deals you make with lower interest loans.

    Can one of you more experienced folks please explain to me why this amount of money isn't worth my time to make a few phone calls? Is it just that you feel new investors are spoiled on these low rates, and we should expect them to go much higher at some point?

    7Reply
  • Sylvia B.
    Rental Property Investor · Douglas County, MO · Member since 2014 · 1k+ posts · 1k+ votes
    6y
    Originally posted by @Russell Brazil:

    Real estate professionals never shop rates.

    Laymen always shop rates.

    Got to ask yourself, why the people who do this day in and day out arnt shopping 25 lenders to save an eighth of a point, while the people who do it once a decade are obsessed about it.

     It's precisely because they only do it once a decade that they obsess over it. They know that they will have to live with their choice for many years and are afraid they will make a bad decision. Those who do it day in and day out know that it all averages out and if they pay a little higher rate on this one they are just as likely to pay a little lower rate on another.

    3Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    6y

    @Sylvia B.

    ....And that by using our trusted lender that its closing without issue. Then these other people shop for the lowest rate, but end up with someone who screws up the closing and they lose the deal altogether.

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    9Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    6y
    Originally posted by @Gabe Radovsky:

    I'm currently looking at small multi family deals in LA county, and possibly looking to borrow up to about $1.2 million. I've spoken to a couple of lenders out here who are offering me 3.25% on a 30 year note, and one who offered me 2.875. At the high end of my price range, those 3/8 of a percent end up saving me about $250 a month. On a low down payment deal, this translates to a significant bump in ROI, and even if I were putting more down, a few thousand a year for the life of a deal is worth a few hours of my time to shop around. Even if you're looking at much cheaper deals, you're probably going to want to buy more than one, and those savings will add up the more deals you make with lower interest loans.

    Can one of you more experienced folks please explain to me why this amount of money isn't worth my time to make a few phone calls? Is it just that you feel new investors are spoiled on these low rates, and we should expect them to go much higher at some point?

     Theres very little chance you are getting 3/8ths difference in an apples to apples comparison. Theres a high probability that if the higher rates are normal reputable brokers, that that lower rate has a hidden rate buydown fee in the breakdown. 

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    4Reply
  • Doran Summers
    Lender · Chicago, IL · Member since 2015 · 608 posts · 70 votes
    6y

    @Russell Brazil that and probably higher fees for the lower rate.

    3Reply
  • Account Closed
    San Jose, CA · Member since 2015 · 4k+ posts · 3k+ votes
    6y
    Originally posted by @Rick Oaks:

    So I’m trying to buy a rental unit with 15yr loan and I tell my realtor I’m trying to get a better rate on my loan. He proceeds to say

    “ why are you worried about the rate, it’s a write off “. This comment really worries me coming from somebody in this industry for 40+ years. I think it’s a REALLY bad comment. Am I wrong to question his expertise?

    "Trust me!"  famous last words you should never trust.

    Never cringe from doing your own homework, etc (unless you are 100% sure you can trust any money you have not in the trust..).  And if something smells rotten - it probably is.

    1Reply
  • Craig Jeppesen
    Rental Property Investor · Chubbuck, ID · Member since 2018 · 532 posts · 466 votes
    6y

    The agent just wants a sell also realtors always sell tax deductions even to those who can’t itemize (not investors). It’s like a car salesman selling payments vs price. If you are using a conventional FNMA loan rates should be pretty close. I would call around a few trusted lenders but not spend hours on it. 25bpt is about $16 a month diff on a $120k loan.

    2Reply
  • Eric X.
    Real Estate Agent · Naperville, IL · Member since 2014 · 196 posts · 130 votes
    6y
    Originally posted by @Gabe Radovsky:

    I'm currently looking at small multi family deals in LA county, and possibly looking to borrow up to about $1.2 million. I've spoken to a couple of lenders out here who are offering me 3.25% on a 30 year note, and one who offered me 2.875. At the high end of my price range, those 3/8 of a percent end up saving me about $250 a month. On a low down payment deal, this translates to a significant bump in ROI, and even if I were putting more down, a few thousand a year for the life of a deal is worth a few hours of my time to shop around. Even if you're looking at much cheaper deals, you're probably going to want to buy more than one, and those savings will add up the more deals you make with lower interest loans.

    Can one of you more experienced folks please explain to me why this amount of money isn't worth my time to make a few phone calls? Is it just that you feel new investors are spoiled on these low rates, and we should expect them to go much higher at some point?

     If your rates are actually that different...you aren't getting quotes from the right lenders.  I rarely shop rates since the lenders I use are almost always within 1/8 of a point once you line up the fees.  

    2Reply
  • Gabe Radovsky
    Rental Property Investor · Austin, TX · Member since 2019 · 23 posts · 34 votes
    6y

    Interesting assumptions... but no, no points, buydown fees, etc, on either loan. The lender offering the lower rate gave me the option of taking a credit up front in exchange for a higher rate, I guess you could call that a "reverse buydown"?

    Just curious, what makes a lender "normal" or "reputable"?

    0Reply
  • Gabe Radovsky
    Rental Property Investor · Austin, TX · Member since 2019 · 23 posts · 34 votes
    6y

    It's also worth noting that you can negotiate with lenders on rates. Have any of you asked your favorite normal, reputable lender to match another lender's lower rates? If not, why not?

    2Reply
  • Gabe Radovsky
    Rental Property Investor · Austin, TX · Member since 2019 · 23 posts · 34 votes
    6y

    I guess this might come down largely to how long you're planning to hold a property. If you're looking to flip or hold it for a couple years tops, it's probably worth sacrificing a lower rate for the lowest possible fees and closing costs. If you're planning to hold for 10 years or more, those things will probably come out in the wash with a lower rate.

    0Reply
  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    6y

    How a first time homebuyer software engineer for a Silicon Valley tech company buying in Oakland sees me:

    How the person refinancing in San Diego for the first time ever sees me:

    How the seasoned East Bay landlord or Realtor sees me:

    How much attention a Los Angeles first time home buyer might pay to all of that:

    How I see me:

    Can someone meme that up for me please? Thanks. :)

    8Reply
  • Michael Noto
    Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
    6y

    @Rick Oaks Sometimes agents don't realize that clients hang on every word they say and say things in passing that the client latches on to. In the end this is why I stay away from giving opinions unless asked on my clients financing situation. 

    Odds are you have decided a certain financing situation works for you based on your situation, not my business to get involved if I am not asked what my opinion is. 

    3Reply
  • Erik W.
    Real Estate Investor · Springfield, MO · Member since 2017 · 1k+ posts · 2k+ votes
    6y

    Run you numbers.  Figure the cost over the lifespan of the project.  That will tell you whether or not it is worth worrying about.  If you find it's worth your time getting a better deal, but your agent still doesn't think it's that big of a deal, ask if he'll pay the first 10 years of extra interest up front out of his commission.  Say it with a smile but a straight face and see what he says.  It might be enough of a deadpan joke to make him see it from your perspective.

    3Reply
  • Account Closed
    Investor · Milwaukee, WI · Member since 2013 · 1k+ posts · 1k+ votes
    6y

    Question his expertise? Expertise in what? Is he an accountant too? Were you expecting the realtor to also be an accountant? He's a salesman my friend. Sounds like he is an expert in that to me. Most buyers are dumb. Don't hate him for doing his job and opening with those statistics in mind. If he's a really a good salesman, he'll recognize that approach was not working, assess who you are and what will work, and will switch gears to that like a light switch. By the end of it he'll sell you the house for more than you intended on paying and you'll think of him as your hero. If that's what ends up happening, I'd say your questions concerning his expertise are answered - lol.

    But seriously, you hired him to help you. Let him help you. You can think and make decisions for yourself and he knows that, and he doesn't mind either, unless your thought process is nuts and your wasting his time.

    Maybe just look straight at him and say "Really? Huh. I was under the impression that interest was not deductible. Am I wrong about that?"

    Then again, maybe you don't want him to switch gears on you...

    This is the person who shows you houses and helps prepare and navigate the paperwork, and coordinates with others on your behalf. IMO, best to leave it right there.

    2Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    6y
    Originally posted by @Rick Oaks:

    So I’m trying to buy a rental unit with 15yr loan and I tell my realtor I’m trying to get a better rate on my loan. He proceeds to say

    “ why are you worried about the rate, it’s a write off “. This comment really worries me coming from somebody in this industry for 40+ years. I think it’s a REALLY bad comment. Am I wrong to question his expertise?

    No, you're not wrong.  Ignorant comment all the way.

    A tax deduction has a -70% return for most.  That's negative 70%.  Give me $10k and I'll give you back $3k.  But do it for the tax wrote-off? 

    Good on you looking at a 15 yr.  The ones I still have (that haven't paid-off already) had a rate .6% lower than a 30 and amortize down amazingly fast. 1 has a payment of $1732 where $1300+ is principal 8 years in. 8 years in to a 30 would maybe be $300.  $1000 difference per month. 

    Not for everyone, but I've never looked back after paying one off and wished it was still there, especially with my wife getting laid-off yesterday.  

    3Reply
  • Nik S.
    OH · Member since 2014 · 454 posts · 227 votes
    6y

    @Russell Brazil

    Can’t agree more! It’s said that one should never fight the lenders rate but perhaps negotiate the covenants. Also choosing a lender that’s better to work with and one that has a solid foundation in the industry is best. Never be a (1) bank investor either. In the end, some banks just won’t do the deal Bc of your good history either.

    0Reply
  • Ronan DonnellyPro Member
    Investor · New York City, NY · Member since 2012 · 332 posts · 385 votes
    6y

    I’d say trust the broker for their area of expertise and look elsewhere for expertise on financing. Every dollar counts with multifamily so why not invest a little time up front to get the best rate for you. The best rate doesn’t always mean the lowest rate, it just depends on how long you plan to hold the loan for, whether or not you want to be able to pre-pay without penalty,etc, etc.

    [email protected]
    1Reply
  • Tony WooldridgePro Member
    Rental Property Investor · Walla Walla, WA · Member since 2016 · 480 posts · 346 votes
    6y

    @Chris Mason, PRICELESS, if I were more tech savvy, I absolute would!

    1Reply
  • Kenneth Donaghy
    Real Estate Broker · San Diego, CA · Member since 2016 · 355 posts · 195 votes
    6y

    Good Thread!

    0Reply
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