Does my realtor know what he is talking about??

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

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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes

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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Syed H.
Developer · NY/NJ/PA · Member since 2018 · 758 posts · 935 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.

Huh? Since when? In my past corporate life, I was a debt & equity broker. Plenty of RE professional shopped rates. Now they would pay me to shop the rates, but to say they never shopped rates is definitely not accurate. I knew plenty of borrowers who shopped rates between their own banks.
It's not like shopping rates is difficult. It's a pretty simple thing. Now I agree you shouldn't spend so much time on it because there are more productive uses of your time.

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Syed H.
Developer · NY/NJ/PA · Member since 2018 · 758 posts · 935 votes
6y
Also @Rick Oaks, unfortunately, most agents are just salesmen. They don't understand the numbers of the business. He's not your accountant or your debt broker. Don't listen to what he's saying. He just wants to get another closing.
In this business, many of the people on your team will try to give advice on things that are out of their purview. Your agent isn't your lawyer, your lawyer isn't your agent, your contractor isn't your accountant; etc etc.
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Joel OwensBusiness Member
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Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
6y
On the commercial real estate side I do not care what rates they tell me over the phone or provide with some useless form. Talk is cheap and people are full of BS.
Your transaction costs on a failed 1031 exchange or a regular transaction can eclipse the extra savings the buyer thought they were getting with this lender or mortgage broker blowing sweet nothings into their ear.
I want to know the lender or mortgage brokers track record and how many loans they close and what size. I want to know if something they are working on is in their wheelhouse and they have references from clients that can be validated. Not talking about fee takers trying to be in the middle and provide no value. A HUGE mistake I see investors make is to call around and be promised some amazing loan and then they write the offer factoring in that debt. Then mid deal a re-trade happens when it gets to committee or the lender turns it down all together. Now the buyer is trying to re-trade the seller on price to make the cash flow numbers work and the seller says pound sand that's not my problem and the deal falls out.
Now the buyer has thousands to tens of thousands in sunk costs all because they did not verify ahead of time. What I like to do with my commercial buyers is to mention underwriting the deal with standard market debt that is known easy to get all day long. This way the deal works at okay financing terms but if you land the unicorn terms and they really happen you come out way ahead.
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Matt Higgins
Property Manager · Blaine · Member since 2015 · 209 posts · 276 votes
6y
I had a realtor tell me to cash out a retirement fund to purchase a home in 2007 because I would get a far better return from real estate than I would in the stock market. So I paid the penalty & taxes and put money I didn’t even need into the down payment on a new house. I’ll take the blame for my stupidity but I was 23 and she was 50. She should have known better. Anyway, fast forward 15 years and I’ve had the same renter living in that paid off 200k home for 9 years. The realtor ended up filing bankruptcy during the recession, went through a divorce, and never got back. I almost purchased her home though a short sale, but decided I didn’t want to be involved with anything she had going on.
We all make our own financial decisions. As as a real estate broker I will tell you that they do not teach any classes on tax strategy. The answer is suppose to be, “consult a financial advisor”. Keep in mind that most people live in a house 7 years and not the term of the loan so even if you think you will own the place for ever the odds are that you will not.

I will tell you this, I bought that first home on a 15 year loan, and my first 5 rental properties with cash, and now I love that 30 year fixed money when I can get it. That risk muscle is something that has to be built. We keep a close eye on our debt to equity ratio, have a number of our properties free and clear, but an investment with great cash flow isn't that risky. That 30 year money on a SFH is pretty good financing and you're paying the origination fees anyway. Especially if you use the xtra money to grow your portfolio.
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Brendan F. Nagle
Member since 2018 · 104 posts · 94 votes
6y
@Rick Oaks
On my first deal with my dad, I complained about half a point. He kicked me under the table. “I paid points to get 12%.
It’s about perspective. My dad and I differed, now I can tell you now that I would pay more for a rate if it was an easy, no surprises, closing.
Good luck on your journey.
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Joel OwensBusiness Member
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Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
6y
On the commercial side at a minimum if the deal warrants it I like 7 to 10 years fixed rates. I like amortization to be 25 to 30 years.
I do not care for 15 year amortizations. I like loans that run almost the regular length of a real estate cycle to give flexibility on when to refi or sale instead of the loan dictating what the owner of the property has to do.
With 25 to 30 year amortization you tend to keep more cash flow and then can decide if and when you want to pay down more whereas with a 15 year amortization the real estate might have to run in a (property to perfection) mode to keep servicing that debt. Yes the interest paid over time tends to be more but an investor can have more control over their cash flow today versus trapped equity and might have some valuable debt that can be assumed when they sell. I do not see anybody generally jumping up and down for 15 year amortizations in the commercial space. Most are not going to hold 15 years anyways unless it is a hold to retirement and eventually (kick the bucket) property for estate planning purposes.
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Steve B.
Engineer · Portland, OR · Member since 2014 · 1k+ posts · 1k+ votes
6y
@Rick Oaks there are probably just as many financially illiterate doctors as real estate agents. I don’t think it means much
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Kristin Benbow
Member since 2020 · 1 post · 0 votes
6y
Haha this is a great response. Love it!
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
6y
Originally posted by @Chris Mason:
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 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, 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 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.
NO kidding having started selling RE in 75.. it cracks me up all these folks worried about .25 bps LOL Rates are phenomenal and have been for a decade.. but if a project does not work over 25 50 or 100 bps then i suppose you need to look at it closer.

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Account Closed
Rental Property Investor · Twin Cities, MN · Member since 2019 · 122 posts · 150 votes
6y
@Rick Oaks
Start at 20 seconds in.
Sums up your situation.
https://youtu.be/XEL65gywwHQ
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Chris MasonPro Member
Moderator
Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
6y
Originally posted by @Account Closed:
@Rick Oaks
Start at 20 seconds in.
Sums up your situation.

Ha!

0 Reply
Jonathan R McLaughlin
Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
6y
@Rick Oaks hope he is a better realtor than accountant....with the new raised levels of personal exemption he is very likely wrong about having the write-off matter.
But yeah, it’s pretty cheap money all round
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Randy Rodenhouse
Investor · Charleston, SC · Member since 2011 · 606 posts · 413 votes
6y
@Rick Oaks
This is a somewhat of a flippant comment by the agent. The agent should ask more questions on what exactly are you going to do with the property... is it a buy and hold or short term fix and flip it or exactly what is exit strategy. The rate is important on a large deal where you plan on holding for awhile and not so important when short term deal.
1 Reply
Eric Johnson
Lender · Chicago, IL · Member since 2016 · 653 posts · 313 votes
6y
Look, I fund multifamily deals and commercial deals nationwide.. it's about getting a lender that will close the deal and at reasonable price (rate and fees) that you know is reliable and has good communication. Nothing is worse than a commercial deal that's held up or lost because a lender has in-efficient processes and procedures.

Pay what you think is reasonable for a dependable transaction. It's a balance. That's why it's also difficult the first couple times around because you don't know who is reliable or not, which is why the default inclination is to shop for the best 1/8th of a rate. In reality, some lenders just throw buy-down points to sell the rate to you.

I would be glad to assist more if needed!
EDIT: forgot to answer the original question. Yes that's a stupid comment. You should definitely care about the rate and his statement also worries me as I would not be working with them if they said something like that. Thx.

1 Reply
Al Pat
Rental Property Investor · Atlanta, GA · Member since 2016 · 325 posts · 253 votes
6y
@Rick Oaks I always get 30 year loan and recommend to everyone. For one it improves the cash flow and helps with deductions but also leaves capital for me to use for the next deal.
0 Reply
Kieshia Bryant
Rental Property Investor · Saint Paul, MN · Member since 2018 · 4 posts · 0 votes
6y
@Rick Oaks
Cash Flow is key right!? You are an accountant so you know that you can go with a 30 year term and pay more a month by amortizing your own loan. Pay more each month and it's almost the same thing right? You pay off in 15 years...But then you are not obligated in case of vacancy, ect. Yes you may pay a little more in interest...but you can figure out a way to minimize that...especially if cash flow isn't important and the interest rate means more.
0 Reply
Kieshia Bryant
Rental Property Investor · Saint Paul, MN · Member since 2018 · 4 posts · 0 votes
6y
@Russell Brazil
I can't begin to tell you how much I agree with this! Lol Thanks for sharing!
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