Fairfield Financial Services, Inc. - Private Money Loans, Lending & Borrowing

Less Grumbly – A Follow-up to 'grumblings of a slum lord in the post-bust environment'

This Guest post by Brian Blum, Operating Manager of Maverick Structures LLC,
is  a follow up to an earlier post

Sure, we each have “teams” of lawyers, Realtors, title agencies, finance people, insurance agents, and contractors working with us, but don’t kid yourself – real estate investing is largely an individual sport.  Many investors have neither receptionists to greet them when they show up to work nor water coolers around which to shoot the bull with co-workers.  Besides the lack of regular camaraderie, we don’t get a lot of feedback from others in how we’re doing at our jobs, either.  Whereas W-2 employees get performance reviews, we just get rent checks and mortgage statements.  I frequently 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 peers, the other players in this life-sized game of Monopoly, on my earlier article, “Grumblings of a Slum Lord in the Post-Bust Environment.”  I pride myself on my logical and critical thinking, as I’m sure do many of you, which is certainly the source of much of my frustration in the face of illogical and reactionary lending policies.  When I wrote my earlier article, it was just a way to get those frustrations off my chest, but it’s been reassuring to know that others can understand and appreciate my pain, and even share some of my perspectives.  It helps me know I’m not crazy.
Thank you also for the compliments on the clarity of my writing and how it explained challenging concepts in everyday layman’s terms.  I’m thrilled that the article was so well-received and that my peers found it entertaining, if not helpful.  I often debate with people who don’t appear to understand the workings of a “market,” 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 that wages would plummet without a minimum wage, whereas you are much more likely to agree that artificial controls worsen the very problems they’re created to solve.
But that’s enough gushing and philosophizing; let’s jump into the epilogue to my earlier rant. …
Congratulations are in order!  …for me!  We finally closed on that six-unit apartment building we were in contract to purchase as a short sale.  (It only took ten months to bring that deal to the closing table!)  We have some minor repairs and maintenance to perform there, and one vacancy yet to fill, but the hard part is finished – any decent managing company could handle the ongoing responsibilities … and we’re giving some thought to formalizing our management company.  When we close on our next building, I’ll have enough “equivalent experience” to permit me to become a NY-licensed real estate broker without having to apprentice as a salesperson, and then we can hire a salesperson to be our in-house property manager.  If we join the association, we’ll even be able to list our own rentals in MLS to save on commissions.
Getting the word out about our borrowing gripes, both through my earlier article and by crying on the shoulders of anyone who would listen, we actually found leads for a few reasonable lenders that may want to work with us.  We also stumbled into an introduction to a private lending consortium that might want equity stakes in our future deals.  Consequently, we’re moving forward on the seven-unit building we mentioned in the last article.  We conducted our inspection last week and my “team” is hashing out the contract terms at this very moment.  I’m much more confident that we’ll actually be able to get financing … but I’m still insisting on a financing contingency, just in case.
The bank that initially denied our application to refinance our two-family house rather than make a counteroffer has surprisingly reconsidered their position.  I’m shocked.  One day I got a denial letter and my application fee refunded, the next day I got phone calls asking for the application fee back, and the next day I got a letter with a counteroffer.  Apparently their left hand doesn’t know what their 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 limit) or self-employed (50% LTV limit), and *surprise*, I’m apparently employed!  I promptly accepted their commitment and hired a title company.  There are a few final due diligence items we have to provide, and we’re hoping to close in 2-3 weeks.  Incidentally, I haven’t sent back the application fee, and they seem to have forgotten about it.  (I hope they’re not reading this…)  Depending on how everything turns out, I may even give them a shot at financing the seven-unit building, too.  …but I still wouldn’t want to own shares of their corporation.
My own bank continues to baffle me.  After accepting that commitment from another bank to refinance the two-family house we own outright, I went back to the lending officer at my bank who didn’t want us using his HELOC as a down payment for a new loan.  I told him we’d use this cashout as the down payment for our next loan, but he still wouldn’t do it, arguing that we’d still be financing the new building entirely with debt, and that his underwriters weren’t comfortable with that.  I can see his point (if I really squint and crane my neck), and the crazy thing is that after debating with him, I honestly believe he can see my point, too.  Our total property value is greater than our total debt, so overall we have a reasonable LTV ratio.  However, since we own several properties, you could juggle the numbers to argue that any one individual property is 100% financed.  Logically, if you want to assign that much of our debt to the one property, it only makes the other properties look proportionally better, but if you then myopically only consider the one property that you’ve made appear over-leveraged by unfairly assigning debt to it, you end up with his underwriters’ concerns.
It’s not just the lenders who are as sharp as marbles, either.  The two side-by-side three-family buildings we wanted seem to have fallen through.  I 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 attorney advised his client not to accept *any* contract changes we requested … and wouldn’t return my attorney’s calls.  Many of the changes we requested were just boilerplate minutia that we would have been happy to negotiate or concede, but there were a few deal-breakers that we just couldn’t waive.  For one, the two buildings share a common furnace, gas meter, superintendent, and fenced back yard, even though they were two lots.  We didn’t want to end up owning just one of the buildings under any circumstance – both or neither.  We needed each contract to be contingent on the other, and we couldn’t get their attorney to even discuss it with our attorney.  In hindsight, I think there are better deals out there anyway – in fact, my broker keeps sending them to me.
So, that’s it, then – you’re all caught up on our exploits and adventures.  We’re still looking at new opportunities and still trying to streamline and improve operations on our existing ones.  I’ll contact those new leads I got to lenders and mortgage brokers until I find some that want to make loans.  (Hopefully this means the pendulum has started swinging back to center.)  I’ll still consider other options, like private borrowing from friends, relatives, and associates, paying them more on their loans than their banks would pay them for savings.  I’ll negotiate with sellers to try to get them to hold notes on the buildings I buy from them.  I’ll keep my eyes and ears open for other opportunities to finance my investments, and I’ll try to keep my mind open to new ideas.  If anyone reading this is or knows of any banks, brokers, or private lenders who want to work with investors buying multi-family commercial-sized buildings, please contact me!  I don’t want to publish my email address here, but you can find it at http://MaverickStructures.com.
Brian Blum is the founder and operating manager of Maverick Structures LLC, a real estate investment, rental, and management company.  He owns, rents, and manages several pieces of investment real estate, and is always on the lookout for good opportunities, reasonable lenders, and rational partners.  Brian also founded, owns, and operates Maverick Solutions IT, Inc, a technology consultancy and support provider, serving mostly schools, NFPs, and SO/HOs in the New York Metro Area.

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