Checkers vs Chess in Real Estate

While my record as a listing agent is second to none with a 107% average sale above listing price, I spend 80% of my time as a buyer’s agent. Why? Because a) we’re in a seller’s market, b) buyers tend to be younger than sellers so that c) buyers search the Internet for good information and find my blog. Therefore, you can bet I’ve talked to enough first- and second-time investors to understand the weight that this decision has on their livelihoods, futures, and all the work they’ve put into getting where they are now: at the cusp of climbing America’s class structure.

That’s why I take it so personally when a listing agent or her seller messes around in order to earn an extra $5,000 or 0.5% on their purchase price. For the seller, it’s an extra $5k. For my buyer, an entire life’s savings or inheritance is at risk. My job as an agent both on the listing and buyer’s side always involves considering my client’s larger financial picture and advising according to life plans. You can’t discuss a real estate decision without thinking about a client’s daily life and goals. It’s not a stock or bond; it’s a living, physical, very expensive investment that takes care and attention, and affects tenants’ lives directly.

So why the rant? I’ve been an agent for multifamily and single family residential real estate for four years now. Speaking honestly, there aren’t many Princeton graduates who become realtors – if I skipped college altogether I could make as much money as I do now. Real estate came into my life because of the larger picture: retiring early from my real estate investments. Most residential realtors aren’t business-minded in that way and understand that a lot of pounding pavement and making neighborhood connections and self-marketing could earn them a six-figure salary. I’m not that kind of realtor, and I never intended to be. So when a long-time realtor invokes her 20 years of experience and justifies her backhanded and illegal move by claiming “her client’s interests,” I bite my tongue while in the background I call the guild lawyer and prepare for every chess move. (I can beat you at chess. Especially if that chess game involves nuances of Southern California’s standard purchase contract.) You may have been in practice for the past twenty years but the contract has changed 10 times in the last four.

The thing is, while I never worry when it comes to my client’s legal and leveraged position since I set them up right, for a buyer, any sign of less than reputable action by the seller’s side can set nerves aflame. Buyers have enough to worry about from the property condition to title to their loan. It’s an emotional time for most buyers, and it’s easy to forget that real estate is one of the oldest businesses whose barrier to entry involves no morals nor reputation nor license. While an agent requires a license, if she is acting on her “client’s interest” she could attempt anything and justify it as such. 

When I’m selling a property, the reputation of the agent is one of the biggest qualifiers for an offer. When I’m buying, the due diligence period and the property must speak for itself. Though an agent’s checkers tactics don’t work in a game of chess, I’d rather not play games at all and work together in order to give our clients the best possible transaction experience.

On that note, I’d like to name several agents and colleagues with whom I’ve worked who have been stellar partners in this endeavor, while truly representing their clients’ best interests (in chronological order): Carlos Skubacz, Donna Rue, Francesca Zummo, Yolanda Gomez, Gavin Fleminger, Bill Rojas, Diane Herlofsky, Venus Martinez, and others. 

In multifamily real estate, a good deal for a buyer usually comes in differences of $100,000 and a secure investment. For sellers, they celebrate if they get $5,000 more than the market suggested. I contest that, in my experience, you can have it all: a wonderful transaction where both sides win. 

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Election Results, Real Estate-wise

Despite one’s personal political beliefs, a sharp turn in government is going to mean changes in the economy. You’ve already seen markets fall based on anxiety, so what does this mean in terms of real estate?

So far, since the election, more fair-priced apartment buildings have come on the market than I’ve seen since the beginning of the year. Could this be coincidence? On one hand, it would be hard for a reactionary seller to get a realtor to throw a property on the market in less than a week. However, that’s not to say they didn’t have a plan going into the election. Why would a seller want to sell now? Perhaps it’s the instability, fear, or they decide this its an apt time to move?

With a real estate mogul as president, one can assume that he might take care of his assets, tax-code-wise. Additionally, in a time of market volatility, having multifamily rental units is the most secure way to own real estate. House prices often surge and fall with the markets, but multifamily less so. When people foreclose their houses, they rent. This is the reality, for what it’s worth, from where I can see it.


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Refinancing FHA Loans for Investment Property

Today I refinanced my triplex in Boyle Heights. I bought it with an FHA-backed loan, which is meant only for primary residences between 1-4 units. It’s quite difficult to use an FHA loan in most good areas of L.A. nowadays, as FHA loans have stricter closing requirements than traditional loans. However, I bought this Boyle Heights triplex in December, 2014 when it was a different world out there.

One interesting point about this refinance is that I actually refinanced out of primary residency and still saved money. When I bought the apartment building, mortgage insurance was higher and so were interest rates.  So now I’m saving $264/month and I can legally move wherever I want. I recommend it to you investors who still have your FHA loans.



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Corporate Achievement = Hooray?

Dear readers – most of you know I’m quite the practical real estate agent. But corporate marketing compels me to let you know that I’m now a top 2% Coldwell Banker nationwide agent. I’d be much prouder, however, if I could properly calculate the total net worth I’ve helped increase for my clients by selling and buying. Being a top 2% agent doesn’t quite reflect that – most of us in the top 2% sell giant mansions. I wonder how many of us work primarily in income property, and within that number, how many have repeat clients, etc. I think you get my point.

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Add 40% for Zest

spencer-rascoffs-former-homes-historical-zestimates-768x621According to this recent article that’s been going around my office, Zillow CEO Spencer Rascoff sold his Seattle home for 40% less than its Zestimate this year.

Why are real estate agents happy? Because one of the most common obstacles we face in pricing a house is the owner saying “but my Zestimate says [40% higher than the actual price].” Now there’s ironic proof that Zillow plays games with us.

Why does Zillow inflate prices? If you think your house is worth more, you’re more likely to sell with them. This is the fallacy: “If the Zillow agent thinks my house is worth X => he is more likely to get me X.” I know agents at other firms who are famous for this, as well. To them, if they win the listing, they don’t mind having their name outside your house for eight months while you reduce the listing price down to its actual price, eventually. It’s free marketing for them, and in the end, they still get the commission.

Why don’t I do that? My clients are smart, and finding actual comparable sales is part of my job. When the evidence is there in front of you, I don’t have to do any convincing. I don’t stress about Zillow or Redfin or any of that. I’m not a flashy agent so I know my clients come to me for knowhow and honest feedback.


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Real Estate Loans

Once in a while, I like to touch on the basics. But if this is obvious stuff, skip to the next post. Here are the questions I’ll be answering:

  1. What is a real estate loan?
  2. What loan programs are available today?
  3. How do I qualify?
  4. What are the hidden costs and benefits of a loan?

1. What is a real estate loan?

A real estate loan allows you to buy a property whose purchase price (or, value) is a lot more than you have in cash. Banks and mortgage companies will lend you large sums of money so that they earn loan origination fees, plus fees for selling your mortgage to a third party, who then collects interest on your loan.

2. What loan programs are available today (as of 4/21/2016)?

For a single family home as your primary residence, you can put anywhere between 3.5% to 25% cash down, or more. If you put down less than 10% of the purchase price, you will likely have to pay hefty mortgage insurance up to 1.75% of the total loan up front, plus 1% annually. These loans are usually 30-year fixed loan (your interest rate doesn’t change for the life of the loan) and government regulated.

For a duplex the same rules apply, except you’ll pay mortgage insurance if you put down less than 20%.

For 3-4 units as your primary residence, the same rules apply, except you’ll pay mortgage insurance if you put down less than 25%.

If any of the above are investment properties only and not primary residences, you have to put down 25% minimum.

For any residential income properties with 5 or more units, you must likely put down around 50% in order to qualify for a loan, based on today’s market. For five or more units you must get a “commercial loan” which is based on the gross annual rental income, and therefore varies by how much your property currently cash flows. These loans are usually amortized over 30 years, but the interest rate is fixed for a shorter time period (usually around 7 years).

3. For 1-4 units, you qualify partially based on the rent, but mostly based on your average annual income over the past two years (the rent counts toward your income). Banks use a standard formula to determine if your annual income is enough to secure the loan, despite these loans usually being non-recourse.

By contrast, for 5 or more units, your personal income is not a factor because the loan is based on gross annual rent from the subject property. This makes these properties better for investors who can’t show regular income on their tax returns.

4. The hidden cost of your loan is obvious: all the interest and mortgage insurance you pay during the life of your loan adds up.

The hidden benefit of your loan is twofold: if your rental income is covering your mortgage and expenses, that 75% LTV (loan to value) that the bank gave you is turning into money in your pocket over the course of the loan. In other words, if your interest rate is less than the your annual return on your loan, you are making money off the loan.

Make sense? If not, feel free to ask any questions you may have at:

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