Sure, each of us has “teams” of lawyers, real estate agents, title agencies, finance people, insurance agents, and contractors who work with us, but don’t be fooled: real estate investing is very much an individual sport. . Many investors don’t have receptionists to greet them when they report to work or water dispensers around which to shoot the bull with their coworkers. In addition to the lack of regular camaraderie, we also don’t get much feedback from others about how our work is doing. While W-2 employees receive performance reviews, we only receive rent checks and mortgage statements. I often feel like no one else understands what I’m going through, so first let me express my appreciation for all the encouragement I received from my fellow players, the other players in this life-size Monopoly game, in my previous article, “Complaints of a slum lord in the post-bankruptcy environment”. I pride myself on my logical and critical thinking, as I’m sure many of you do, which is no doubt the source of much of my frustration with illogical and reactionary credit policies. When I wrote my previous article, it was just a way to get those frustrations off my chest, but it has been comforting to know that others can understand and appreciate my pain, and even share some of my perspectives. It helps me to know that I am not crazy.
Thank you also for the compliments on the clarity of my writing and how it explains challenging concepts in everyday terms. I am delighted that the article has been so well received and that my colleagues have found it entertaining, if not useful. I often debate with people who don’t seem to understand how a “market” works, and one of my goals in writing the article was to help enlighten them. Many of them believe that rents would skyrocket without rent controls or wages would plummet without a minimum wage, while you’re far more likely to agree that artificial controls make the very problems they were created to worsen.
But that’s enough effusiveness and philosophizing; Let’s jump into the epilogue of my previous rant….
Congratulations are in order!…for me! We finally closed on that six unit apartment building that we were contracted to purchase as a short sale. (It only took ten months to get that deal to the closing table!) We’ve got some minor repairs and maintenance to do there, and a vacancy yet to be filled, but the hard part is over: any decent management company could handle the ongoing responsibilities. . … and we are thinking of formalizing our management company. When we close on our next building, I will have enough “equivalent experience” to allow me to become a licensed New York real estate broker without having to apprentice as a salesperson, and then we can hire a salesperson to be our property manager. If we join the association, we will even be able to list our own rentals on MLS to save on commissions.
By spreading the word about our loan complaints, both through my previous article and by crying on the shoulders of anyone who would listen, we actually found leads to some reasonable lenders who may want to work with us. We also stumbled across an introduction to a private lending pool that might want equity stakes in our future deals. Consequently, we are moving forward with the seven-unit building that we mentioned in the last article. We did our inspection last week and my “team” is discussing the terms of the contract at this very moment. I’m much more confident that we’ll actually be able to get financing… but I still insist on a financing contingency, just in case.
The bank that initially turned down our request to refinance our two-family home instead of making a counter offer has surprisingly reconsidered its position. I am shocked. One day I received a denial letter and my application fee was refunded, the next day I received phone calls asking for my application fee to be returned, and the next day I received a letter with a counter offer. Apparently, your left hand doesn’t know what your right hand is doing. These are also the guys who wouldn’t give me a straight answer as to whether I was employed (70% LTV cap) or self-employed (50% LTV cap) and, *surprise*, apparently I am employed! I quickly agreed to their commitment and hired a title company. There are some final due diligence items we have to provide, and we expect to close in 2-3 weeks. By the way, I have not returned the application fee and it seems they have forgotten about it. (I hope you’re not reading this…) Depending on how it all turns out, I might even give them a chance to finance the seven-unit building as well… but I still wouldn’t want any shares. of your corporation.
My own bank continues to baffle me. After accepting that commitment from another bank to refinance the two family home we own, I went back to my bank’s loan officer who did not want us to use his HELOC as a down payment on a new loan. I told him we would use this withdrawal as a down payment on our next loan, but he still didn’t, arguing that we would still be financing the new building entirely with debt and that his underwriters were uncomfortable. with that. I can see his point (if I really squint and crane my neck), and the crazy thing is that after debating him, I honestly think he can see my point too. Our total property value is greater than our total debt, so we generally have a reasonable LTV ratio. However, since we own multiple properties, you could juggle the numbers to make the case that any single property is 100% financed. Logically, if you want to allocate that much of our debt to one property, it only makes the other properties look proportionately better, but if you then myopically just consider that the property you’ve made seems over-leveraged by the unfair allocation of the debt to him, you end up with the concerns of his subscribers.
It’s not just the lenders that are as sharp as marbles. The two three-family buildings next to each other that we wanted appear to have collapsed. I would have thought we would have been considered for sainthood for our offer to this seller; he accepted it without a moment’s hesitation. We wanted both buildings and were willing to pay cash. He had four different loans that were going to need short sale approval and only two of the six units were rented. Most people wouldn’t have touched it. We paid for the inspection and there were no big surprises in the report. We were all ready to negotiate contracts, but the seller’s lawyer advised his client not to agree to *any* contract changes we requested…and he didn’t return my lawyer’s calls. Many of the changes we requested were just repetitive minutiae that we would have liked to negotiate or concede, but there were a few deal breakers that we just couldn’t do without. For one, the two buildings share a common oven, gas meter, superintendent, and fenced-in backyard, even though they were two lots. We didn’t want to end up owning just one of the buildings under any circumstances, both or neither. We needed each contract to be dependent on the other, and we couldn’t get his lawyer to even discuss it with our lawyer. With hindsight, I think there are better deals out there anyway; in fact, my broker keeps sending them to me.
So, that’s it, so, everyone is caught up in our exploits and adventures. We are still looking for new opportunities and we are still trying to optimize and improve the operations of existing ones. I’ll be reaching out to new leads I’ve gotten from lenders and mortgage brokers until I find some who want to make loans. (Hopefully this means the pendulum has started to swing back to center.) I will still consider other options, such as private loans from friends, relatives and associates, paying them more for their loans than their banks would pay them for their savings. I will negotiate with sellers to try to get them to retain notes on the buildings I purchase from them. I will keep my eyes and ears open for other opportunities to finance my investments and try to keep my mind open to new ideas. If anyone reading this is or knows of a private bank, broker, or lender that wants to work with investors buying commercial-size multi-family buildings, please contact me! I don’t want to post my email address here, but you can find it on our website.
Also, read our previous article, if you haven’t already, A Slum Lord’s Complaints in the Post-Bankruptcy Environment.