Did you know that appraisers are supposed to provide a service that accurately estimates the value of a piece of real property? Usually they are reasonable accurate, but the new HVCC system is creating a mess.
The Home Valuation Code of Conduct (HVCC) is creating a mess for all involved- lenders, appraisers, and most of all, home buyers. Why? Because it restricts the free flow of information by disallowing an appraiser any contact with anyone involved with originating the loan.
Here is a "bottom line" story: We have a client we just had an appraisal done. The appraiser was selected randomly, according to the new guidelines. An appraisal done less than a year ago put the property at $110,000. We agreed with the appraisal, as did two separate Realtors that Clear Day Capital works with in the Ogden area.
The appraisal came back at $68,000!!! Why? Because he compared an occupied house with renters paying $950.00/mo for the last 8 month to uninhabitable, bank-owned properties!! He made prejudicial statements about what he felt the values should be in Ogden and indicated that a $17,000 rehab done a year ago was simply "deferred maintenance" and did not add value to the property!!! It appeared that he was looking for the LOWEST POSSIBLE VALUE! Not accurate value, lowest possible.
Was he afraid to "speak his mind?" We don't know, but it has been reviewed by an experienced loan officer, a Realtor who is an Ogden expert, and by Clear Day Capital. We ALL agreed: BAD appraisal.
Now that the lender has the appraisal (which cost $450 and took 3 weeks to complete), it is impossible for that lender to go out and get a new one! Our borrower needs to start from scratch with a different lender and hope that the new one is reasonably accurate. The minimum cost:
- 2 appraisals at $450 each = $900
- 1 month loan extension = $2,000
Total = $2,900
That doesn't include opportunity cost, time spent, and aggravation!
Here is a link to a website about what is happening today with HVCC: http://bit.ly/jZaIO
The HVCC system has got to go, for the good of homeowners, investors, and the residential real estate industry.
Tuesday, June 30, 2009
Monday, June 29, 2009
Utah Real Estate- Don't Wait!
My biggest complaint about the real estate market in Utah is that the general public is listening to the news instead of doing research for themselves. This is leading to waiting for...what?
Interest rates to do down? They did and they are going back up.
Prices to drop? They did (a little) and they are now flat.
Waiting for a short-sale/foreclosure/bank owned property? They are much fewer and far between than you would think.
Take a look at this posting to get even more insight.
Utah Dave- Why People are losing today!
Interest rates to do down? They did and they are going back up.
Prices to drop? They did (a little) and they are now flat.
Waiting for a short-sale/foreclosure/bank owned property? They are much fewer and far between than you would think.
Take a look at this posting to get even more insight.
Utah Dave- Why People are losing today!
Tuesday, June 23, 2009
10 Questions to Ask Before Investing with a Hard Money Lender
There are at least ten questions that you should consider before investing with a hard money lender. Any investment should be made carefully. Passive real estate investments can become a non-passive investment, depending on how you invest. We'll answer five questions this month and five advanced questions next month.
1. “Are you going to broker or borrow my money?”
When your money is brokered on a loan, you invest in a single property. The loan broker is paid a percentage of the deal by the borrower, and then you have the responsibility for the loan and a direct relationship with the borrow.
In most cases if the loan goes bad, you will have to pressure the borrower, go through the foreclosure process with an attorney, and liquidate the property. Even if the loan broker is willing and able to help, your money is tied up in that single property and you have the ultimate responsibility for collecting. You will not earn any interest while you are recovering your capital.
When you loan your money to a reputable company, they will pool it with other investors. If a single loan goes bad, they will recover the pooled capital while you continue to receive interest for your investment. Since they have a portfolio, your money is spread throughout the portfolio and good loans will continue to be made. In this case you will continue to receive interest regardless of the performance of an individual loan.
2. “What types of properties to you lend on?”
Why is this important? It will help you understand the level of risk, the relative liquidity of the investment, the size of the market, and how much real equity is in a property and how that equity is determined. Types include: Single family homes, raw ground, commercial properties, multi-family residential, etc.
There is not enough space to explain all of the implications in investing in each type of property, but here are follow-up questions:
A. Is there “fundamental” demand for this type of real estate i.e. a mansion vs. a 3 BR / 2 BA house in a blue collar neighborhood?
B. What income will the property produce if it needs to be rented? Raw land may not produce any, other properties will depend on location, demand, proper management, etc.
3. “How well do you know the market(s) that you lend in?”
If a hard money lender is an expert in a specific area they will understand property values better, have contacts in the area to help them evaluate an opportunity, know the “rules of the road” (local laws covering everything from foreclosure to building ordinances), and know the trends in the local market.
Do you want to lend money in Chicago when you live in California? What about Knob Lick, Kentucky? Distance creates time and expense for any type of recovery process.
4. “Do you have the proper licensing for the types of loans that you do?”
Commercial loans have no licensing requirements in many states. Residential loans that place a lien against a residential real estate (single family home, condo, townhome up to a four-plex) are considered mortgages. Mortgage lenders in most states require a mortgage broker’s license for their company and a personal license for the employees who originate mortgages. Federal licensing goes into effect in late 2009.
Many hard money lenders casually state, “It’s just a hard money loan, it’s not a mortgage so I don’t need a license.” Wrong. Why does this matter to you, if you invest with an unlicensed hard money lender? Simple answer: Your money is connected to an individual or company that is wide open to lawsuit from the borrowers, and to investigation and prosecution by the state Division of Real Estate. How will a company that shows a disregard for the law ,regard you and your investment?
5. “What position do you lend in?"
The first position lien holder gets paid first, then the second, third, etc. If everything goes well, it doesn’t matter and everyone gets paid. If there is a problem with the loan and the first position lien holder takes it to foreclosure, the first position lien holder gets paid their capital, legal fees, interest, penalties and everything that is owed them before other lien holders receive any money.
Unless there is a tremendous amount of equity, this often means that only the first position lien holder gets paid. So, do you want your money lent in second position?
Coming Soon: 5 Advanced Questions
1. “Are you going to broker or borrow my money?”
When your money is brokered on a loan, you invest in a single property. The loan broker is paid a percentage of the deal by the borrower, and then you have the responsibility for the loan and a direct relationship with the borrow.
In most cases if the loan goes bad, you will have to pressure the borrower, go through the foreclosure process with an attorney, and liquidate the property. Even if the loan broker is willing and able to help, your money is tied up in that single property and you have the ultimate responsibility for collecting. You will not earn any interest while you are recovering your capital.
When you loan your money to a reputable company, they will pool it with other investors. If a single loan goes bad, they will recover the pooled capital while you continue to receive interest for your investment. Since they have a portfolio, your money is spread throughout the portfolio and good loans will continue to be made. In this case you will continue to receive interest regardless of the performance of an individual loan.
2. “What types of properties to you lend on?”
Why is this important? It will help you understand the level of risk, the relative liquidity of the investment, the size of the market, and how much real equity is in a property and how that equity is determined. Types include: Single family homes, raw ground, commercial properties, multi-family residential, etc.
There is not enough space to explain all of the implications in investing in each type of property, but here are follow-up questions:
A. Is there “fundamental” demand for this type of real estate i.e. a mansion vs. a 3 BR / 2 BA house in a blue collar neighborhood?
B. What income will the property produce if it needs to be rented? Raw land may not produce any, other properties will depend on location, demand, proper management, etc.
3. “How well do you know the market(s) that you lend in?”
If a hard money lender is an expert in a specific area they will understand property values better, have contacts in the area to help them evaluate an opportunity, know the “rules of the road” (local laws covering everything from foreclosure to building ordinances), and know the trends in the local market.
Do you want to lend money in Chicago when you live in California? What about Knob Lick, Kentucky? Distance creates time and expense for any type of recovery process.
4. “Do you have the proper licensing for the types of loans that you do?”
Commercial loans have no licensing requirements in many states. Residential loans that place a lien against a residential real estate (single family home, condo, townhome up to a four-plex) are considered mortgages. Mortgage lenders in most states require a mortgage broker’s license for their company and a personal license for the employees who originate mortgages. Federal licensing goes into effect in late 2009.
Many hard money lenders casually state, “It’s just a hard money loan, it’s not a mortgage so I don’t need a license.” Wrong. Why does this matter to you, if you invest with an unlicensed hard money lender? Simple answer: Your money is connected to an individual or company that is wide open to lawsuit from the borrowers, and to investigation and prosecution by the state Division of Real Estate. How will a company that shows a disregard for the law ,regard you and your investment?
5. “What position do you lend in?"
The first position lien holder gets paid first, then the second, third, etc. If everything goes well, it doesn’t matter and everyone gets paid. If there is a problem with the loan and the first position lien holder takes it to foreclosure, the first position lien holder gets paid their capital, legal fees, interest, penalties and everything that is owed them before other lien holders receive any money.
Unless there is a tremendous amount of equity, this often means that only the first position lien holder gets paid. So, do you want your money lent in second position?
Coming Soon: 5 Advanced Questions
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