BradyLoan.com

Carnival of Wealth Building

The Carnival of Wealth Building is up at Home Equity Loan Lowdown.  This second edition had 15 posted entries.  The ones about real estate are:

WBL presents How To Invest In Real Estate posted at Wealth Building Lessons. Bread and butter properties are just your basic, no-frills 3 bedroom, 2 bath, 2 car garage homes which are usually around 1250-1500 sq ft. These properties will give you the best rent-to-mortgage ratio.

Amy Pedersen presents Credit Repair Companies and Debt Consolidation, Do They Really Do Anything? posted at Your Credit Score Secrets. While many people tend to think that the only thing that can actually fix credit is time, in reality, there are a ton of things out there that can help you to repair your credit score yourself. Time is only one piece in the big puzzle.

Edithyeung presents How to Analyze Real Estate: Single Family Homes (SFH) posted at Stewart Hsu. If you buy a new SFH with a 20% down-payment, chance are the property is going to be negative cash flow, which means that your rental income will not cover all of the operating expenses associated with owning the property

Darius presents How much worse can housing get? posted at Related to Mortgage. The slow drift downward in long-term rates stopped this week, the 10-year T-note at 4.69 percent, mortgages settling just above 6.25 percent.

Tracy Coenen presents Home buyers suing to get out of contracts posted at FRAUDfiles. Cancellation rates on these home buying contracts may be as high as 30%. The story highlights a few situations in Florida, where attorneys are even advertising their services to people who want to get out of their contracts.

And, your truly. America's Most Opinionated Mortgage Broker, took last place with:
Brian Brady presents What's my rate? It looks like I gotta WACC you ! posted at The Most Opinionated Mortgage Broker. CAN YOU GET A FIRST MORTGAGE WITH A RATE BETTER THAN 6.575%? Find out...

Thanks to Sagar Satapathy for hosting this new carnival.

How Realtors Get Leads From Lenders

I have found that a sure fire way to get referrals comes from being SPECIFIC about what you want.  I ask Realtors what a good prospect would be for them.  Mostly, I hear "Well, someone who wants to buy or sell a home."

Well, DUHHHHHH!  I know that! 

Now I'm a fair-minded fellow here.  We, as lenders, are just as bad.  You ask us what our "niche" is and we spout off platitudes like, I can get anyone a loan.  I have over 100 banks who have over 400 programs available to me. I can do zero down loans, interest only, neg-am...blah, blah, blah....blah, blah,...blah.

Marketing consultants call this your Unique Selling Proposition. I call this directed referral requests. In short, tell me to whom you want to be referred.  I hate to say it like this but we really do put people in little boxes in our minds.  I do it with my lender reps.

Here are examples:

1- I do well with business owners.  I've owned a business so I understand their needs.  I get the whole liquidity thing.

2- I do well with stockbrokers, financial planners, and accountants.  Most of my loans in Florida or California are people in the financial business.  I started in that industry so I "talk their talk"

3- I have seemed to attract a lot of physicians this past year in San Diego.  i think that's because I understand  their problems (shrinking margins due to managed care, a desire to own a Doctor's home, etc.)

4- I really don't do well with teachers.  I think it's because I rebelled in school.  I can (and have) fund a loan for a CFO of a Fortune 500 company but am terrified of a sixth-grade teacher.

Can you tell me the same thing about you?

1- If you list property, what are the specific ares/neighborhoods or price ranges you like?

2- If you work with investors, why do you tend to attract them?

3- If you're a buyers' agent, describe the demographics of a buyer with whom your most comfortable.

Please tell me who your perfect client is in the comments section.

It's a LOCAL Business. Ask Warren Buffett.

Is the "neighborhood Realtor" going to become the next vinyl record manufacturer (READ: obsolete)?? 

I think NOT and here is why:

1- We learned something from the CIA in the 1990s about human intellegence versus technology.  Realtors are the modern day HUMINT gatherers in the market.  Technology is an "asset" we control as real estate professionals.  As such, we should not worship this new idol but understand the we, as humans, control technology as a tool. 

2- Nothing, and I repeat, NOTHING can replace a real estate agent when it comes to dealing with the unpredictable human behavior that matches a buyer and seller.  People get divorced, freeways get widened, property taxes go up, companies relocate leaving unemployed people behind, and HOAs get whacked for being undercapitalized.  Machines can NOT solve these human problems, only people can.

3- The greatest skill top agents have is the yiddish term "schmooze": the art of casual yet meaningful conversation.  I work with a Loan Officer who is in his 41st year in lending and he doesn't use e-mail.  Folks he has assistants for that. He is the ultimate schmoozer.  He constantly finds out who has money to invest and who needs money so he has built a solid practice of "private mortgage" lending.  When the "machines" (READ: automated underwriting systems) can't approve a borrower, he runs to the folks with money and sells them on lending money for a year or two. 

4- One of the most powerful buyers' agents I've met is a 65 year old woman.  She is revered by Generation X and Generation Y here in San Diego because she is like your mother (or grandmother).  You never want to disappoint her and you know that she's right when she says:  "Honey, God ain't making no more ocean-view real estate" or "The IRS pays 30% of your mortgage payment; it's the last government handout you'll get".

So who better to understand this than the "Oracle of Omaha", Warren Buffet?  Did you know that Warren Buffet's Berkshire Hathaway owns the second largest real estate operation in the country?  It's called Home Services of America and it owns some 20 different LOCAL brands (including our local giant Prudential California) with over 400 LOCAl offices and 21,000 sales associates.  This means that he recognizes that local brands carry more impact than if he "rebranded" the company under one name. He just bought two more companies in the past 6 months.

Mr. Buffett once said that he "tries to be fearful when everyone else is being greedy and greedy when everyone else is fearful".   I'm betting my money on Warren.

What's my rate? It looks like I gotta WACC you !

You told me "I never want to refinance my 30 year fixed rate loan at 5.25% !"

I told you that I was gonna WACC you if you said dat!

I often use a formula to analyze a client's borrowing costs that is taken straight from a Corporate Finance textbook.  It's called the Weighted Average Cost of Capital or WACC for short. 

I'll give you a brief explanation, in layman's terms, of how I perform a WACC analysis.    Assume these folks have a $350,000 first mortgage at 5.25%, a HELOC of $100,000 8.5%, and consumer debt of $50,000 at 12%.

1- I total up the amount of your debt.  ($350,000 + $100,000 + $30,000= $500,000)

2- I determine what percentage of the total debt each individual loan is :
    a- First Mortgage         ($350,000/$500,000= 70%)
    b- HELOC                     ($100,000/$500,000= 20%)
    c- Consumer Debt         ($50,000/$500,000= 10%)

3- Now, I "weight" each interest rate you pay for a before tax average cost of capital:
    a- First Mortgage         (5.25 * .7= 3.675)
    b- HELOC                     (8.5 * .2 =  1.7)
    c- Consumer Debt         (12 * .1 = 1.2)

4- Add up the weighted rates (3.675 + 1.7 + 1.2 = 6.575)

5- So , the REAL, before tax, cost-of capital for this client is really 6.575%

CAN YOU GET A FIRST MORTGAGE WITH A RATE BETTER THAN 6.575% ?

So, you said, "Yeah, but what about my tax benefits? "

And I replied (as I always do), "Let's plug them into the formula !"

Assume the client is in the 40% marginal tax bracket (for Federal and State taxes). 

1- The total debt remains the same ($500,000)

2- The percentages of total debt remain the same as the above example

3-  Now, I determine the after-tax interest rate for each piece of debt:
     a- First Mortgage=     (5.25% * .6) = 3.15% after tax
     b- HELOC=                 (8.5% * .6) = 5.1% after-tax
     c- There is no tax deduction for the consumer debt so it remains 12% after-tax.

4- Weight the after tax costs:
    a- First Mortgage=      (3.15% * .7= 2.205)
    b- HELOC=                  (5.1 * .2 = 1.02)
    c- Consumer=             (12 * .1= 1.2)

5- The real, after-tax, cost of capital is 4.405%

THAT'S A HELLUVA LOT BETTER THAN 6.575%, RIGHT?

Of course it is.  But you forgot that the new first mortgage has tax benefits, too!  Now you have to translate that after-tax costs of capital. So, we divide 4.405 by .6 and find out that a first mortgage, with a before tax rate of up to 7.34% still makes more sense than keeping that first mortgage.

In this case study, I refinanced them to a 6.25%, 30 year fixed rate loan with an after-tax cost of capital of 4.0%.  Some portion of the new loan may not be deductible due to the Home Equity Interest Deduction Cap of $100,000.  We consulted with their tax advisor, and the new loan still made complete sense.

My point of the article is this:  Stop shopping online for loans.  The average loan hack in a boiler room has no clue about what I just taught you.  Rather, look for a mortgage advisor who has had some real financial planning experience or training.

Here are some pros in your neck of the woods:
Illinois:  Dan Green
Florida:  Robert Ashby
Washington:  Rhonda Porter
Utah: Karl Christen

Brian Brady to Speak at Inman Conference

This came in from Inman News.  I accepted:

Brad Inman, Publisher of Inman News and Jessica Swesey & Joel Burslem, our Editor and Manager of Social Media and would like to invite you to be a speaker at Bloggers Connect on August 1, 2007 at the Palace Hotel in San Francisco.  

Bloggers Connect (click to see the entire program) is an exciting new conference running in conjunction with our SF Connect event.  The event is being created by bloggers for bloggers and will have a dynamic program addressing all the issues that bloggers want answers to now. 

 

SF Connect is now in its 12^th year and is the premier executive gathering for everything related to real estate, the Internet, technology, and new digital media. Bloggers Connect is the latest program to be introduced as part of a “must attend” event.

 

Our Steering Committee, which is made up of many leading industry bloggers, has identified you as someone that our audience would love to hear from.  We look for high-level insights from innovators and industry leaders.  The Committee has identified the following panel that we would love to have you participate in:

 

Session Name:  Show Me the Leads

Session Day/Date:  Wednesday, August 1, 2007

Session Time: 11:00am – 11:45am 

 

Previous speakers at Connect have included Barry Diller; Marc Andreesen, Co-founder, Netscape; Larry Page, Co-founder, Google and Rick Braddock, Chairman, Priceline.com.  Our sponsors and affiliates include Zillow, Google, Microsoft, Trulia, Mapquest, Yahoo! and numerous other technology leaders. 

 

The Wall Street Journal, New York Times , USA Today, Forbes, Los Angeles Times, Chicago Tribune, Barron’s and the Financial Times of London routinely attend the event.  We typically draw over 50 key press at each event