All Forum Posts by: Corey Dutton

I received a call a few weeks back from a broker who sends us real estate loans occasionally. He had a client that owns a property free and clear, a rental property. The borrower needed a loan quickly before the end of the year in order to take care of some year-end obligations. The borrower also required at least a 2-year loan in order to allow him time to liquidate some other assets and have the ability to pay us back. This is an easy loan for us because there is no debt on the property, therefore the loan would be a low loan to value. Not to mention the property is cash flowing. We approved the loan within 24 hours and provided excellent terms, 9% interest only for 2 years, with 4 points as a loan fee.

Well the broker didn’t even present our offer to the borrower at all. The points were too high the broker told us, therefore he wouldn’t be able to make any money on the loan.
“I’ve put a lot of time into this loan, and I really need to make some money on this one,” the broker flatly told me. I told him I would see if another affiliate lender could do it for less points but I would need him to send me more information on the borrower such as a full loan application, credit, and some other items.
“I didn’t take a 1003 loan application,” the broker then told me.
What?!! You’ve spent so MUCH time on this deal and deserve to make more money but you haven’t even taken the time to take a basic loan application from your borrower???!!! This made no sense at all.

A week went by and I didn’t hear anything back from the broker. So I decided to call him to see if he was able to get his borrower into a better loan. The broker then told me,
“No I got the borrower an 18% interest only loan for one year. The lender only charged 2 points so I was able to tack on another 5 points and make some money on the deal.”
I promptly answered the broker saying, “I thought the borrower absolutely needed a 12 month term?”
The broker answered, “Oh well, he’ll make it work.”

This happens all of the time in the world of lending. There are so many “joker brokers” out there who don’t care about the needs of the borrower on a loan. These brokers only care about making the most money they can, and have no problems putting their borrowers into bad loans so they can profit. This is pure greed and it sickens me. This broker didn’t even take a basic loan application from the borrower or ANY documentation at all, but he thought he deserved to make 4% of the loan amount as a broker fee?

If you are a broker that is doing these things, take a long look at yourself and your activities and reconsider. If you are a lender that sees this type of broker activity, consider cutting these “joker brokers” out of the picture completely.

We were able to cash them out until they sell it so they can pay their brother in law back, so life is good. They did learn a good lesson.

I visited a real estate club recently and gave a presentation about using hard money loans to do more deals. After the presentation, I was approached by two novice real estate investors. The told me about a “flip” they did recently that still had not sold at their asking price. They had their brother in law’s cash in the deal longer than they anticipated, so they wanted to do a hard money loan on the property to cash him out.

After getting further information and later taking a look at the subject property, it was obvious why the house wasn’t selling. The house was fixed up very nice, and was of a similar age and type of the comparables around it that were selling at their target selling price. But the house had one major flaw that the other houses did not have. It was on the corner of a heavily trafficked street, off an intersection, whereas the other comparables were all on quiet side streets or on a cul-de-sac. Not only that, but the driveway was really steep and at an odd angle for access on the street’s intersection.

A beautiful house, all remodeled with the right upgrades, but not selling at the same price as the other comparables. The house is priced too high because of its poor location on a busy street and intersection. Being first time real estate investors, this couple did not factor this into their numbers on this property before they purchased it. They will sell the house eventually, but they may not make money on this one. A good lesson learned for two first time real estate investors

Ty Burns not sure if you've seen me at any of the SLREIA meetings but wanted to say hello.

Thanks, yes agreed.

For real estate investors doing home flips, having a dependable contractor is key to success. Because making money depends on the speed of turnover of the property, any delays can really cut into the project profit.

We recently funded a hard money loan on a purchase and rehab of a property in Provo, Utah. The property was half fixed up when our clients purchased it. They were buying the house for $157,200 and would put approximately $21,000 into it. Their estimated After Repaired Value (ARV) is showing as $235,000 and there are strong comparables for it. The client estimated 2 weeks to complete the rehab on the house and another 4-5 weeks to sell it. This timeline seemed very realistic for the repairs needed and the days on the market for the neighborhood the house is located in.

At the outset, prior to closing on the property, we asked for a bid from our client’s contractor. It took so long to get the bid from the contractor that it actually delayed the closing on the property by nearly one week! This was a red flag that we all should have paid attention to.

After closing on the property it was just one delay. The contractor didn’t even start the work until the 3rd week after closing on the property. He came up with some pretty creative excuses too! During week 3 after the closing, the contractor finally came in and demolished one of the walls between the kitchen and the living area. Nothing else was done. Another 2 weeks went by and still nothing more had been done to the house.

After week 5, the contractor still had only demolished the one wall in the house. The client called me to find out what he should do about the contractor. The client was panicked because his holding costs with the loan were eating him up with each passing week. I told him to fire the contractor immediately and get another to come in and finish the work.

When doing home flips, having a dependable contractor is key to success. If you see delays or excuses at the outset, consider these to be red flags and start looking for another contractor. In California, delays are just the norm right now for contractors due to high demand so listen to what your market is dictating as well. Listen to your gut. If a contractor is being flaky, keep him to the curb and find another.

What are the most expensive U.S. Cities to buy a home? You may be fooled by the answer. Close your eyes real quick and ask yourself, ‘What are the most expensive cities in the U.S.A to live?’

This list is based on the highest price per square foot for homes. I’m sure you may guess several of them but will you guess all? Here are the top 5:

1. San Fran
2. Hawaii
3. Washington D.C.
4. San Jose, CA
5. Jersey City, NJ

I was surprised to see New York, NY was No. 7 on a list of ten.
For real estate investors doing flips or rentals, this is a tough market to be involved in. Larger size deals are always riskier because more capital is on the line.

Source of List of Most Expensive Cities to Buy: http://247wallst.com/2012/04/17/the-ten-most-and-least-affordable-cities-to-buy-a-home/5/

I agree with Chris. I'm not an attorney either but start out with a JV agreement on your first deal and see how everything goes.

I wonder if we are already programmed to use the online marketplace to buy and sell...?

While all 3 these sites are essentially real estate search engines, Redfin differs from its competitors Trulia and Zillow. Redfin adds the real estate sales component to the mix and combines real estate search with real estate sales. Yes Trulia and Zillow allow agents to advertise on their sites, but Refin has an organized sales system as a part of its design. Redfin actually offers brokerage services and access to live agents. Neither Trulia nor Zillow have this sales component built in.

Redfin has raised approx $26 MM since the site went live in the Summer of 2005, right before the real estate meltdown. Redfin has been a little controversial among realtors, since it is truly an online real estate company. Because of the Company’s success, many wonder if real estate market will eventually become one big platform modeled after Redfin? Or are we already in the midst of this evolution in real estate? Please share your opinion.

Source: http://www.crunchbase.com/company/redfin