Cincinnati and Northern Kentucky Real Estate BlogRecently posted or modified blog posts in the category - Podcastshttps://www.cincinkyrealestate.com/blog/Copyright CinciNKYRealEstate.com2021-04-04T08:22:10-07:00tag:cincinkyrealestate.com,2012-09-20:18147RealCincy.com Podcast: Commercial Real Estate<img src="https://assets.site-static.com/userfiles/584/image/Podcast_Commercial_Real_Estate.jpg" width="735" height="1102" alt="Podcast about commercial real estate recorded in Cincinnati" style="display: block; margin-left: auto; margin-right: auto;" />
For this podcast I sat down with Bruce Hopkins, attorney with Finney Law Firm. In the podcast Bruce and I discussed how he got started in commercial real estate, how he helps out commercial real estate clients, what commercial real estate investors need to be doing when wanting to buy commercial real estate, commercial real estate leases and more.
Watch on YouTube:
You can connect with Bruce at <a href="https://finneylawfirm.com/team/bruce-g-hopkins/" target="_blank">Finney Law Firm</a>.
You can connect with me on <a href="https://www.facebook.com/realtorpaulsian" target="_blank">Facebook</a>, <a href="http://www.pinterest.com/paulsian/" target="_blank">Pinterest</a>, <a href="https://twitter.com/PaulPsian" target="_blank">Twitter</a>, <a href="https://www.linkedin.com/profile/view?id=AAIAAAEYCmQBnexBnCk1RPA9wXPcXSj_qNRXF5g&trk=nav_responsive_tab_profile_pic" target="_blank">LinkedIn</a>, <a href="https://www.youtube.com/c/PaulSianRealtorwithHERRealtorsCincinnati" target="_blank">YouTube</a> and <a href="https://instagram.com/cincinkyrealestate/" target="_blank">Instagram</a>.
About the author: The above Podcast “Podcast: VA Mortgages” was provided by Paul Sian. Paul can be reached at <a href="mailto:paul@cincinkyrealestate.com">paul@CinciNKYRealEstate.com</a> or by phone at <a href="tel:513-560-8002">513-560-8002</a>. With over 10+ years experience, if you’re thinking of <a href="https://www.cincinkyrealestate.com/ready-sell-home/" target="_blank">selling</a> or <a href="https://www.cincinkyrealestate.com/find-home-now/" target="_blank">buying</a>, I would love to share my marketing knowledge and expertise.
I work in the following Greater Cincinnati, OH and Northern KY areas: Alexandria, Amberly, Amelia, <a href="https://www.cincinkyrealestate.com/anderson-township/" target="_blank">Anderson Township</a>, Cincinnati, Batavia, Blue Ash, <a href="https://www.cincinkyrealestate.com/covington/">Covington</a>, Edgewood, Florence, Fort Mitchell, <a href="https://www.cincinkyrealestate.com/fort-thomas/">Fort Thomas</a>, Hebron, <a href="https://www.cincinkyrealestate.com/hyde-park/">Hyde Park</a>, <a href="https://www.cincinkyrealestate.com/indian-hill/" target="_blank">Indian Hill</a>, Kenwood, Madeira, Mariemont, Milford, Montgomery, <a href="https://www.cincinkyrealestate.com/cincinnati/mt-adams-homes-for-sale/">Mt. Adams</a>, Mt. Washington, Newport, Newtown, Norwood, Taylor Mill, <a href="https://www.cincinkyrealestate.com/terrace-park/" target="_blank">Terrace Park</a>, Union Township, and Villa Hills.
Transcript
[00:00:01] Paul Sian: Hello, everybody. This is Paul Sion, Realtor with United Real Estate Home Connections License in the state of Ohio and Kentucky. And with me today is Bruce Hopkins. We're going to be talking about commercial real estate. Bruce is a commercial real estate attorney with the law firm. How are you doing today, Bruce?
[00:00:26] Bruce Hopkins: Great. Thank you. How about yourself?
[00:00:28] Paul Sian: Great. Thank you for being on my podcast. So, let's let's start off. I understand you're in the commercial real estate industry. Why don't you tell us how you got there and about your background?
[00:00:37] Bruce Hopkins: Thank you. And thank you for talking with me about this. I love my job. I love my career. I love my industry. So, this is always a pleasure. And I'll try to explain why. First, I'll say that once I learned about commercial real estate, I was never interested in any other industry. Starting with background. I'm a Texan. It starts there. I'm Fort Worth native and I went through the urban public schools in that time there. It was a little bit different from Cincinnati. In the same high school, you'd have the kind of attrition you see in an urban public school. where 1/4 of the people who start in ninth grade don't finish and graduate. Yet it was the same high school that had calculus to and chemistry, too, so you were mixed with all kinds of people, and that's been useful my whole life. But in my profession, because commercial real estate involves dealing with everyone, everyone uses commercial real estate. Everyone needs it. Everyone has their own personal motivation for being involved in whether it's an investor or the people who are creating the value, which are your tenants and their needs, which are very different. And so, having a background with all sorts of people has been very useful. Then in college, I discovered commercial real estate didn't expect to. I have moved to the Northeastern University or Northeastern US for university, and I got an economics degree. Let me talk briefly about how economics degrees work because it goes straight into my commercial real estate career. One kind of economics which didn't introduce me interest me was second derivatives and incredible projections of deep math. I wasn't interested in that. The other side is dealing with how small markets work. If you've ever taken even one course in real estate. Your first day, the professor got up and spoke about perfect markets and would say, Well, there's zero transportation cost and it's frictionless and for perfect information, infinitely divisible. And then the professor would use real estate as the contrast for each one. Well, there's zero transportation. The contrast is real estate, because it's permanent one location and is affected by its surroundings. There is perfect information. Well, in commercial real estate, everything is completely different, and you have to know the specific property. And what I took from that is wow, commercial real estate won't ever be standardized. And that's really true. Real estate is always something that is different with every property and every transaction. And even though sometimes the documents and forms are standardized, the properties and the people are not. Then I had the great luck of having a course one night a week taught by the head of planning of the City of New York. This person would take the train in one night a week.
[00:03:25] Paul Sian: Very nice.
[00:03:26] Bruce Hopkins: It was wonderful. It was a big class auditorium sized, but he used role playing every two or three weeks and by complete luck the first time he picked me to play the role of commercial lender, and it was for a mall in New York City to be a week later. Well, I took the train down to New York and visited them all and saw that it was closed even though it had been built only five years before. It was the last small in New York ever built without air conditioning. And so, I was able to bring that back to the class and say, Well, I won't land unless you do air conditioning for them all. And I was off and running the career was as interesting as I thought. In college, I had one paper where I spoke to several dozen merchants in one of the commercial streets next to the university and what made their businesses go and not go. My senior paper was on the major cities of Connecticut, and YH was growing or not. So, you can see I love this, and from the very start, I knew this was what I wanted to do. So, when I moved out into the world, I did not become a lawyer. I never thought I'd be a lawyer. I was a commercial real estate appraiser then, some residential appraisal. I then went on to be a commercial mortgage lender, which grew out of appraising evaluation and understanding the math from economics that wound up becoming being a real estate developer because my, my company also did major development. If anyone is familiar with the one Columbus building in downtown Columbus, across from the state capital, I was the development manager. I was the highest-level team member in the state of Ohio when that was built. That led to my coming down to Cincinnati and working on the team that did not wind up doing Fountain Square West. If some people remember that, but I did wind up on the team that did the Fountain Place and Karoo Tower redevelopment project. At the time, I felt like I wanted a graduate degree to go on, and an N b A would be very interesting, but not pertinent to my love of real estate. Uh, international markets and currency exchanges were not going to be part of my career, and all I did was read long documents. In fact, in the offices of where I worked. I tended to be the person who got long documents, and so I thought, Law school at night, I'll know my enemy better. I'll have a graduate degree. And then after I finished law school, my wife and I decided, I guess maybe I will do this lawyer thing, So I did.
[00:05:52] Paul Sian: So, from there you got you went into a commercial real estate. I mean, that was your primary. Did you do any other types of law or just dove right into commercial?
[00:06:00] Bruce Hopkins: I have never done anything but commercial real estate. If I had to pick between being a lawyer or a commercial real estate professional, I'd be a commercial real estate professional. I spent a decade in the business before I became a lawyer, and that's how I think of myself.
[00:06:13] Paul Sian: So, something you're very passionate about. So, what are your? What are your typical clients? Who are your typical clients that you're serving today?
[00:06:20] Bruce Hopkins: Since the mid-nineties, I've worked almost exclusively on retail and mixed-use projects that have a hard, strong retail component. So, they are, and it's almost always on the landlord side. There's one grocery chain that I represent regionally, but it's mostly landlord work. And so, it's anyone who invests or owns retailer mixed use retail property. It's all over the United States. Philadelphia, Baltimore, D. C. Central Virginia, San Francisco, Seattle, Metro L. A. Points in between and entities that own major real estate projects tend to be asset managers handling them on behalf of major pension funds. So often the owner is a pension fund in Alaska or Hawaii or Florida. That's state employees or state teachers. But the Contact person is the outside professional asset management company they use, and those are professional real estate operators and investment advisors. There are also more regional companies that are investing for their own account that I do a lot of work with.
[00:07:26] Paul Sian: Okay, great. And then what kind of services are you providing to these? These clients of yours
[00:07:31] Bruce Hopkins: was, you might guess, I see real estate and retail. Real estate is something almost alive, and there's a life cycle to investment in real estate, including retail. Where you investigate, you acquire lease, you operate, you manage and you dispose, and I do various things within that cycle. But at all times I'm thinking about the entire cycle and the decisions, and the analysis goes into what will happen next. What will happen after that? The ultimate goal of a real estate investor is to get value out using the pitching functions. An example. The employees of Alaska or these teachers in Florida don't know that they own a part of a particular center. They need to return to pay for their retirement. And so even when we're talking about a specific lease or specific site plan decision to be implemented by a new improvement or a change in the site plan, the ultimate question is. Are we creating value that, through finance or sale, can be realized so that the investor gets money from an asset they may not even know that they own? It's dealing with everything that happens in the life cycle of the property in order to create value for the investor. Okay,
[00:08:45] Paul Sian: let's take a look at a lot of my clients are more in the small to medium size, especially in the, uh, whether it be residential or commercial real estate. Let's take a look at their perspective. What you know, if you let's say a new client comes to you today. You know they want to buy a local strip mall. You know something small based on, uh, the current, uh, areas a size footprint. What would you suggest to them? You know, I'm your new client here. I want to buy this this strip mall here and, uh, and say in mountain lookout area there. What would you suggest to me?
[00:09:16] Bruce Hopkins: First, investigate the credit worthiness of the people who are going to provide the in-perspective income stream. And that's the one thing I don't do. I try to make sure that that's something that you've affirmed to me that you've done. But I don't get involved in your business analysis, but please do it. But what I can help with ultimately is that you think you project what the funds out of the property will be. My most important job is to help you evaluate what might prevent receipt of those funds. You project a return. You're making an investment in a price based on it. But what could happen where somebody doesn't have to pay you or that something goes wrong and something is terminated that you anticipated? So, it is the risks and commercial real estate. There are always risks that Oh, if this happens or if that's violated or this condition occurs, the income stream might be interrupted. The occupant who's supposed to pay it might leave. And so, we together look at the aspects of contracts and retail. Often, they would be co tendencies. You may have heard of where, if there's a particular tenant in the shopping center that's a grocery store, then other tenants might say, if there's no grocery store for six months, I've only paid half rent. Or if you ever permit a building in this area that interferes with my sight lines, then I can terminate my lease. All of those things will impair your income stream. But there's a second level because the analysis is not. If this went to a lawsuit, who would win? Because that does the investor no good in practice at the time of investment events, which are loans or sales, the purchaser or the lender requires that you get an estoppel certificate, an agreement from each existing tenant that the leases enforces, that they owe the money well. They have some grievance with you as a landlord, even if they might not win in court if they turn in an estoppel certificate. That says, we think we don't really owe our rent because the landlord made this lease and we think it violates our lease. You don't have time to go through a two-year trial. You're not going to spend the money for a two-year trial. You might have just lost your deal or the person who you'd like to give you money is going to give you less. So, it's not a question of going through the documents and contracts and saying Who would win? The question is much more strict. It is what would create a claim by a tenant or occupant that they don't know the full amount. So that's the main thing that I can do for a client. What I also would encourage the climb to do very much is go see the property. No, it well remember my anecdote from college when I went down to see them all in New York and I saw that it was an air conditioned Well, that's pretty glaring. But if you're an investor and you're walking around the property and you're thinking, well, I look at that condition, and it's clearly not being maintained, right. I'm going to do it better. You should instead assume under the budget this property owner has, they can't afford to do it. They see it, too. So, if I really care about improving that condition, I need to add more. Maybe I might need to add a maintenance man to my staff. Think of it that way. Think about the property critically and slowly to figure out what will change your investment.
[00:12:40] Paul Sian: You had mentioned credit, credit worthiness, and that's something that I understand you don't do. But are there resources or, you know, is that something from the residential perspective? We just look at the tenant's credit score. We look at tenants, bank accounts, their residential history. Have any predictions on the record? Is there something similar like that for commercial tendencies?
[00:13:00] Bruce Hopkins: It depends. Whether the tenant is publicly traded with large asset size is a large proportion will be publicly traded, and even those that are large tenants that are privately held usually can provide you with some letter or provide you with some assurance that all the stores held under that trade name are owned by the same entity. It's more work and less reliable when you're dealing with local tenants. But there are credit reports. Of course, useful can be litigation history because that tells you both have people, had a trouble with them, and maybe will they be a litigation risk for you. So, it's worth checking that there are companies that for the low hundreds of dollars or mid hundreds, and if it's complicated, maybe four figures, but not heavily into the thousands that can do a little more basic financial report and can give you some more detailed information about the size of transactions they seem to have and where their financial relationships are out of all that. Plus, when you're dealing with a small owner, what you can ask for is the tax return, or at least a page that shows the adjusted gross income. And so, they're probably being honest with the government about that. That might be reliable for you. So, nothing that's particularly perfect. But a lot of things that will give you a sense.
[00:14:23] Paul Sian: Okay, that's great. Great insight. Let's look at some of the ways that the new investor can protect themselves legally, you know, in addition, to speaking with a commercial real estate attorney. What are some tips that you can give to that person you know prior to speaking with an attorney? But, hey, here's some. Here's some ideas here some ways that you know you can make sure you're less likely to get sued or you're less likely to find yourself in court or some other issue
[00:14:50] Bruce Hopkins: or another. Well, mostly real estate agreements are not binding. I'm both there in writing, and they're signed by the people who are going to be sued by you if you're going to be sued. It's a little bit different and in this way, slightly safer than some other types of commercial activity, because unless you put it in writing and signed it, typically a court will not charge you with, say, having contracted to buy real estate. But what's the one thing you might sign before you see your lawyer? That's your letter of intent. So, the one thing I would plead that people do is make sure that letter of intent is non-binding. It says it's nonbinding. If there's something in it that's binding like confidentiality, make it clear this paragraph confidentiality is the only binding aspect. And so, I'd say, don’t sign anything that's binding. And if you're asked to sign some sort of term sheet or a letter of intent, make sure it has a very clear statement. It's not binding. If you do that, then you're unlikely to be in legal trouble before you get to your lawyer.
[00:15:55] Paul Sian: Yes, that's true. Switching gears here slightly from the residential perspective. In terms of when you're going from buying a house, you know you make an offer, you do your inspections. You wait for the lender to do their appraisals, then get towards closing with the title company. How is that similar or different? On the commercial side,
[00:16:16] Bruce Hopkins: it's similar in terms of everything you do. It's simpler in terms of some things you don't do, but you do still have to investigate. And while the items you're discovering are smaller in scale, they are far more important to you. If you see some height problem on a stairwell in a house within your budget, that's probably structural and unfixable. We're with a larger investment. You can say, Well, I'm going to have a X $1000 contingency to fix things around the property and minor things you see you can assume are fixable, whereas the house more attention to detail. One thing that I think people don't do is ever look at their real estate contract, and I understand that those are preprinted forms, but the items that aren't preprinted or that our numbers and our preprinted are worth remembering. It's very important, so simple to know. When does your contingency period start and end? You made your concern, and talking with a lawyer on air is to hear how you're legally can be protected. Make sure you know your dates and don't miss them. If you think you need to get out by a certain date, start all of your investigations early so you can be done by the date involved. Obviously, title is usually not a problem in real estate, but I actually have seen a case where someone bought a property that was subject to, uh, forestry easement for the owner next door and thought nothing of it. But they didn't read the details of that and see oh, the forestry. Cheeseman extended this far, and it prohibited decks, and they were constructing a deck and they had to stop and rip it out. So, if there's anything unusual at all in your title that looks like it affects what you can do inside the four boundaries of your property, don't just say, Oh, that's probably standard. Read it.
[00:18:11] Paul Sian: Yeah, we read it. And time is of the essence. That's what a lot of attorneys will talk about. Let's go talk about a little bit, uh, commercial leases. I mean, quite different than the residential leads in the residential lease you're looking at, you know, one-year lease. Sometimes paying utilities, sometimes not paying utilities. You know there's certain things landlords cover. There's a lot of laws that cover residential leases versus commercial leases from my understanding What? What can you share with us about that?
[00:18:40] Bruce Hopkins: Well, that's the I would first agree with you about residential, especially multifamily residential. It's not that single family residential is heavily regulated, but for an investor, you're probably unless you are a home renovator yourself. You're probably looking at investing in multifamily to get scale and multi Family. Residential is very heavily regulated, both at the state level, and it's different in every state and at the federal level. Commercial real estate outside of multifamily is typically mostly unregulated, so that's a significant difference. The laws that govern commercial real estate typically have more to do with land use. And if you are not going to change the use, then usually there's not a great deal of law that comes into what a property can or can't be used for. But terms that do get thrown around in the commercial real estate world are some terms that everybody uses, but nobody quite knows what they mean. And they are terms that lawyers use. Let's use a great example going back to a letter of intent. It's very common, particularly in a retail, sometimes industrial, sometimes office to see the phrase triple net Well. It's a good, useful phrase, but lawyers don't use it because it isn't well defined. Triple Net has a concept that's clear and widely understood, which is the idea that costs are passed through to the tenant taxes, insurance costs of maintaining the property. And that makes sense because the market has learned over decades that the tenant will wind up paying less, and yet the landowner will wind up with less risk. If the actual costs are simply passed through, it might seem simpler to say, Well, we'll just pay you a fixed amount for, say, common area maintenance. But when that happens, experience over decades has been. The landowner wants to charge a premium and always does because this is an investment for them, and they must protect prudently the investment income so they want to cushion from unexpected shocks. That means the tenants paying more overtime than they would otherwise. But what is included in Triple Net is open to negotiation and is different in many deals. For instance, taxes and insurance are pretty objective and pretty uncontrollable. So often taxes and insurance are simply passed through without any question but for operating costs. If it is a property that has staff, what personnel are included or excluded? Is there a management fee? Is there an administration fee? If there's capital expenditure, is it allowed? Is it advertised over the life of the expenditure? Is it done in one-year lump sum, which can be a nasty shock for a tenant? Our marketing costs for the property included in common area are decorations cost, so triple net is a great way to get through a letter of intent. But for a commercial property, you're probably going to need to think carefully about the operating costs passthroughs once you get to an actual lease.
[00:21:49] Paul Sian: So that would be part of your due diligence to if you get existing tenants into property, you're considering just looking at the leases. What did they say? What are the tenants paying and what is the owner responsible for paying?
[00:21:59] Bruce Hopkins: Absolutely. If you have plans to renovate your center and you think you're going to do a lot early on, do the leases allow you to pass through capital costs, like redoing the parking lot or re landscaping? And if so, are there caps on how much can be included in each year? You might plan your budget and your schedule based on what allows you to pass through the costs. Okay,
[00:22:24] Paul Sian: moving on to property management, you know, comparing again. The residential property management on residential side is pretty heavy regulated, and there's a lot of state laws a lot of, uh, you know, just going back. Similar with the leases for residential, there's a lot more regulation. How does that compare on the commercial side?
[00:22:41] Bruce Hopkins: There are very few regulations that apply. There are always employment type regulations and the things that apply to operation of any business but particular custom to commercial real estate. Really not. The practicalities of management for commercial real estate really instead, vary with who comes to the property and how often do they come. If it's the general public, whether it's multi family, residential or whether it's commercial retail, that's going to have a lot more management variables than a property that is the other extreme. A single occupant, industrial or office property not open to the public. The tenant just shows up for work there every day and utilizes it for their business. But nobody else comes. The amount of complexity explodes, the more people are involved. If it's multiple tenant and then particularly of members of the public, come at that point. Are you employing a management company? Are you employing leasing company? Do you have multiple vendors you're working with for various services? So, the property condition also becomes a question of risk when the public is coming as to who is responsible for what in general, all risks associated with normal operation of commercial real estate can be insured. But to the insurance coverages of landlord and tenant fit together. And are they all together a seamless web? If there's a problem, will there be dispute in this area? Typically, sophisticated properties often take this away from the lawyers in terms of the actual coverages and simply have the risk manager and advisor. If it's a third-party insurance broker, someone in house work together directly to agree. Here's what the coverages will each maintain, and this is who will be primary and hand that back to the lawyer. The lawyers are still asked to resolve concepts like indemnity that are a little more legal and that I won't dive into today. But in general, the insurance pros can solve the basics of who covers what and what coverages will be carried without needing the lawyer to write all that down or spend time on it.
[00:24:54] Paul Sian: So that's another. Keep growing team members, the insurance person to kind of bring on your team attorney, your lender. If you're financing the deal as well as an insurance person, they're all great tips and the great conversation. Any final thoughts? Bruce.
[00:25:11] Bruce Hopkins: Well, I was right. I have been doing this for many decades and it still is different every single day.
[00:25:20] Paul Sian: Great. Thank you for being on.
[00:25:21] Bruce Hopkins: Thank you.
2021-03-11T05:00:00-07:002021-04-04T08:22:10-07:00Paul Siantag:cincinkyrealestate.com,2012-09-20:17444Podcast: First Time Home Buyer<img src="https://assets.site-static.com/userfiles/584/image/Podcast_First_Time_Home.jpg" width="535" height="635" alt="first time home buyer" style="display: block; margin-left: auto; margin-right: auto;" />
Podcast: First Time Home Buyer
For this podcast I sat down with Walt Wollet, mortgage loan officer with Pacific Residential where we discussed his experience as a first time home buyer. Learn about the home buying process from the perspective of a mortgage lender and how handled the process and what things he might have changed to make it even better.
You can connect with Walt Wollet on <a href="https://www.linkedin.com/in/walt-wollet-1a4b6225/" target="_blank">LinkedIn</a>, <a href="https://www.facebook.com/WaltTheLO/" target="_blank">Facebook</a>.
You can connect with me on <a href="https://www.facebook.com/realtorpaulsian" target="_blank">Facebook</a>, <a href="http://www.pinterest.com/paulsian/" target="_blank">Pinterest</a>, <a href="https://twitter.com/PaulPsian" target="_blank">Twitter</a>, <a href="https://www.linkedin.com/profile/view?id=AAIAAAEYCmQBnexBnCk1RPA9wXPcXSj_qNRXF5g&trk=nav_responsive_tab_profile_pic" target="_blank">LinkedIn</a>, <a href="https://www.youtube.com/c/PaulSianRealtorwithHERRealtorsCincinnati" target="_blank">YouTube</a> and <a href="https://instagram.com/cincinkyrealestate/" target="_blank">Instagram</a>.
About the author: The above Podcast “Podcast: First Time Home Buyer” was provided by Paul Sian. Paul can be reached at <a href="mailto:paul@cincinkyrealestate.com">paul@CinciNKYRealEstate.com</a> or by phone at 513-560-8002. With over 10+ years experience, if you’re thinking of <a href="https://www.cincinkyrealestate.com/ready-sell-home/" target="_blank">selling</a> or <a href="https://www.cincinkyrealestate.com/find-home-now/" target="_blank">buying</a>, I would love to share my marketing knowledge and expertise.
I work in the following Greater Cincinnati, OH and Northern KY areas: Alexandria, Amberly, Amelia, <a href="https://www.cincinkyrealestate.com/anderson-township/" target="_blank">Anderson Township</a>, Cincinnati, Batavia, Blue Ash, <a href="https://www.cincinkyrealestate.com/covington/">Covington</a>, Edgewood, Florence, Fort Mitchell, <a href="https://www.cincinkyrealestate.com/fort-thomas/">Fort Thomas</a>, Hebron, <a href="https://www.cincinkyrealestate.com/hyde-park/">Hyde Park</a>, <a href="https://www.cincinkyrealestate.com/indian-hill/" target="_blank">Indian Hill</a>, Kenwood, Madeira, Mariemont, Milford, Montgomery, <a href="https://www.cincinkyrealestate.com/cincinnati/mt-adams-homes-for-sale/">Mt. Adams</a>, Mt. Washington, Newport, Newtown, Norwood, Taylor Mill, <a href="https://www.cincinkyrealestate.com/terrace-park/" target="_blank">Terrace Park</a>, Union Township, and Villa Hills.
Transcript:
[00:00:09] Paul Sian: Hello, everybody. This is Paul Sian, Realtor with United Real Estate license in the state of Ohio and Kentucky. And with me today is a returning guest, Walt Wallet with 5th 3rd Bank. He was with a different lender in the past, and now he's with 5th. 3rd. We'll talk Are you doing today?
[00:00:24] Walt Wollet: I am fantastic today, Paul. We're out here at the on my new piece of property that you helped me acquire and I'm excited. Toe do a podcast. It's been a while.
[00:00:36] Paul Sian: Yeah, that's that's one of the reasons to that we decided to do this. Podcast is hey, your lender. I'm the You know, I've been through the process of myself of buying my own house as a real real estate agent, so I know how it is. So let's we want to get the perspective of a mortgage lender, you know, buying the house. So I guess let's just start from the very beginning. What's what's the first step that anybody has to do If they're they're interested in buying a house, they skip, you know, leave out the real estate agent. They know they want to buy a house, and they're gonna talk to a lender at 5th, 3rd, and that happens to be you. So what's their What's their first step?
[00:01:10] Walt Wollet: So for my first step, and we talked a little bit before this about just being an active consumer, and we'll get more into that. But it really it really what I what I would tell people is that you need to do an honest debt analysis, and you honestly need to look at budgeting eso. You need thio when you're when you're buying a place you need, you need to take in all what all those costs are, you know? So what are the costs that you know you have to pay every month, is there, You know, do you have a $40 credit card bill you pay every month? Your cars? You know, your auto loans, whatever, whatever you pay every month and you need you need to analyze that. Um, just just so that way you're not wasting your time, right? So it's like the first thing I would do is get is get pre qualified or talk to a lender, you know, And I'm an insider, so I kind of knew what I had to do and what I did was before I got pre qualified, was paid off, paid off all my credit cards because I could, um, you know, just to make sure that when my credit was pulled, I had I had a score that was higher so that I could get the best rate in terms that are available. Um, so that that was that was that was a big That was a big thing that I that I did your credit score a big part of it is is factored by credit utilization. So a lot of times, people that are borderline approval if they can get, get added to a secure card or get added to, you know, another account, unauthorized user account or pay down credit cards, Um, you know, say from 70% to below 50% utilization than their score could shoot up. And we can, you know, we can qualify them for, for for what they really want to buy. So that that that that would say that would be the first step is always to just talk to different lenders and talk to different people. Don't go toe one lender and just trust them and like I wouldn't want any what, buddy? That I work with to just talk to me. I want them to do their own research. And I want them to know that I'm going to take care of them now If they find someone else that maybe is promising them better numbers or whatever. You know, we I hope that we can talk about that. But, you know, at the end of the day, we have toe, we have to perform and do what's best for consumers. Yeah,
[00:03:27] Paul Sian: definitely looking at that. Going back to the the credit score. And you mentioned credit score affects your your interest rate. And you know what? Let's do you have Ah, breakdown. Basically, you know what? What credit scores and how how much impact on your interest rate is? I mean, is it is something easy to quantify? Or is it a little more, you know, computer oriented than that or computer algorithm oriented than that?
[00:03:53] Walt Wollet: So this is another. This is another question. Where it gets into every bank is gonna be different on that account. Okay, so you have the agencies Fannie and Freddie, right? That that back these the back these loans and securitized these loans. And they said, Ah, lot of what the fees and charges are on on those you know on those products and and those were built in to the actual interest rate into the actual loan. In a lot of cases,
[00:04:21] Paul Sian: those almost like base fees,
[00:04:22] Walt Wollet: right? But then other people. So what a lot of banks will do and Chase Chase is an example is notorious for this, but so say they don't want They don't want a certain loan. They still legally have to offer it. But they'll raise the interest rate on that product so that they don't have to, you know, originate or services many of those loans. So, you know, truthfully, you know certain certain companies will do that with government loans if they don't want, You know, they don't want to deal with the potential risk of having the the agency's forced them to buy back those loans if there's any sort of auditing or documentation issues, so they just set their their margins, you know, like this that their rate really high, um, to try to dissuade people from applying and you're seeing that a lot with refinances that some of the larger lenders now, too, Just for the same. The same exact reason.
[00:05:17] Paul Sian: So what do you tell us about some of the hiccups that you had happened to you in your specific alone while you were trying to buy a house?
[00:05:25] Walt Wollet: So I would say that I would say that any hiccups we had Mike, who helped helped who helped us out on this purchase, did a did a great job with, you know, a soon as stuff came out of underwriting. Soon as underwriting came back with a message, he would reach out to me and anything we needed, we would get. We did a good job together. Me being an insider, of documenting everything up front that we needed Thio. So any letters of explanation and any sort of thing like that, I'd say that the biggest hiccup was probably and especially right now with Kobe, it was the appraiser. So you way had required a desktop appraisal on this purchase, which is essentially a drive by appraisal. Now, typically, you know, in any other market, a normal market. I guess you might say you would have that appraiser reach out. They would be reaching out to the selling agent so the agent would know. Okay. The appraiser has seen the property. They're out here
[00:06:25] Paul Sian: there physically walked in the property, right? And almost like a home inspection,
[00:06:28] Walt Wollet: right? And so that didn't happen with this purchase, I guess. I think he pulled. He might have pulled into the back, you know, a little bit and checked out some of the buildings and took off, right. Um and then and then the appraisal came back. Luckily, was all good, but I think one of the hiccups was just that. That that cellar not knowing that the that the appraisal was done and that the seller's agent not knowing. And that kind of elevated there, um, anxiety, right?
[00:06:55] Paul Sian: E, remember talking with the seller's agent, basically, you know? Hey, when's the appraisal happening? And, you know, I asked, I did ask the agent. You know, did they praise will call you and that kind of send up red flag on her part unintentionally because, you know, they won't be contacting her. They would just be driving by, you know, looking at the back of building or looking, walking the building that really get, you know, looking to get inside the building.
[00:07:20] Walt Wollet: But as far as just just hiccups now and generally on in this market with loans is ah, big thing I talked to with my team and my manager all the time is just getting things in is clean and as clear as possible, you know? So what I think a lot of especially first time clients don't understand is you cannot tell me that your student loan payment is this when really, it's this and you cannot You cannot say that you make this much money when really you make this much money and every little detail of that application is gonna be verified and is gonna be put through extreme due diligence. So with that said, you know, like where when where we run into problems or where any lender will run into problems is when the story changes, you know? So it Z okay, we're calculating, you know, 40 hours a week for your income, and then we get you know, the verification of employment back. And it's it's 32 you know, a week. Um, even though your recent pay stub stay safe 40 like, you know, those kind of issues I think everyone runs into and deals with, and it's just like we have to have it perfect, you know? So if we're talking about homeowners insurance numbers up front and this is what they are, and this is what you know, this is what they need to be. Then that's what it is, you know. So we can't I guess we can't have, you know, radical changes in process or else you're gonna have a loan that goes on forever and ever.
[00:08:45] Paul Sian: Yeah. So make sure you, you know, you're dot your I's cross your T's and making sure the information is 100% correct. I mean, probably one of the best ways to do that is, you know, go on your own, pull your own credit report. Make sure you see all your accounts. Kinda like you had mentioned the beginning. Take a look at all your debts and and your assets as well. You know, make sure all your income is properly documented. Make sure all that's documented. You know, the numbers that you're reporting are what you're being, what it is being reported to the lender that way. It you know, it's smoother process underwriting is gonna have less less questions and you know you're the one will go through easier,
[00:09:20] Walt Wollet: definitely. And one thing that I advise a lot of people to is I like to have, if possible, if time permits have that credit conversation with the clients up front. So even, you know, two weeks before they're ready to shop, you know, even months before ideally, we talk about the credit and that there was a There was a case recently with a friend of mine, a client who's a doctor, and he had mentioned, though I you know, I have this collection from this utility and I don't know where it came from. And you know, there's there's laws that debt collectors and that people have to follow. And a lot of times you know what we're seeing in the world, right is with with corruption and people not following rules and people not doing what they need to dio Ah, lot of times you as a consumer and you do you have rights to dispute that and toe thio and try to clean up that information yourself. The, uh, credit bureaus have legally every year have to send you a copy of your credit report if you request it so and I always advise people to do that, definitely
[00:10:21] Paul Sian: take a look at it. It mentioned fees earlier. We talked about a little bit about lenders fees and let's talk a little bit more. I mean, what? We have your base fees that the the these other, like government sponsored entities, so to speak, the Fannie Mae Freddie Mac's that they have charged. What sort of extra fees are you know, Banks, tacking on the loan and whatever. I guess what? Some of the reasons for these fees
[00:10:45] Walt Wollet: so every every loan requires people that work on it. So one thing is, is that I always say is you know, I would advise consumers toe, look at different lenders and talk to different people Now, I'll tell you right now that cheaper is definitely definitely, definitely not always better. And a lot of times there are lenders out there that you know they're overpriced and they're at the top of the market and they know it, um, and so I guess there's a There's a huge discrepancy between fees in various programs and various lenders, and it's just a matter of going and asking those questions. Okay? What is you know, why is the processing fee this why, you know, what's this underwriting fee? And then it's always okay to ask. Well, hey, is there anything we can we can do about this? So in my case, when it comes toe the fees or the stuff that I that I had to pay for it. So you know, certain things that the bank paid for because I'm an employee, which is a great benefit to us. Um, you know, help me, Help me, you know, save money. As I bought this place, one thing that a lot of buyers don't think about is all those incidental fees. So every home inspection is 4 to $500. You know, every, um, you know, just just buying garbage cans out here was $150 you know? So there's these. There's these costs that come up, you know, the wax seal on the toilet stuff will come up, and you just have to make sure that you have that budget it in and that you're prepared for those expenses. And so, like we you know, a lot of times if there's multiple people living in a house and it's it's one person on the loan, you know, like that's when I'll look at it and be like Okay, well, you know, really, there's three people that are gonna be living in this house. Three people sharing expenses. It's different. Um, but those kind of loans are are always more difficult, you know? So you really want to make sure that, um, you understand all the costs involved, Especially if you're especially if your debt to income ratio is higher as it is because you have a lot more expenses. So,
[00:12:54] Paul Sian: yeah, we're talking about those fees. I mean, it's almost example is some of the car dealers used car dealers or even new car dealers? I mean, you know, the you get through the negotiation process you got, you got the price on the car, and then you go talk to the finance finance manager quote unquote. And that's where they you know, they start trying to tack in all these, you know? Hey, let me let me throw this warranty on you. Let me throw, you know, non, you know, payment protection in case you're disabled. Campaign and So that's where they start packing in things, packing their basically fees. You know, they're fattening the bottom line of the car dealer, of course. And you know, that's that's part of their job. But you know, the same time to as consumers, our job is to look at that critically and say, You know, do I really need that? You know, Do I need a no payment fee? You know, because I'm disabled. I'm not currently working, but at the same time to, you know, turn around, look at your auto insurance or look at your homeowners insurance. Are they providing some similar coverage that you know that you would need or you know would would avoid? And least in that case, in the autos auto example, It's not so clear cut. You always don't have that type of thing. You know you're homeowners insurance. Not necessary gonna cover you. You know, if you can't, you can't pay the mortgage, but there might be other, some other benefit or some other protection. You know, your employer might be offering something for you too, you know. Why pay the extra fee to the lender. You know, when it's saving you money and they're just trying to pad their bottom line versus, you know, you're trying to save your dollar and you know, it's a long term purchase you're investing for, you know, 2030 years. Mawr costs them or the higher the interest rate. I mean, the more you're paying overtime,
[00:14:35] Walt Wollet: and that's why it's so. It's so important up front. You have, You have power is a consumer, you know, like and lenders, you know, if if any lender doesn't, you know, it doesn't wanna be competitive. That za red flag, probably. You know, so especially with with us in the bigger banks, you know, we we have you know, we did until, you know, kind of some of the, you know, the new fee with Fannie and Freddie for refinances, um, kind of cut into our margins a little bit. But, you know, we're willing, toe, do you know we're willing to do whatever we can do toe win business, you know? But at the same time, we have to pay people off a fair wage and we employ Americans, you know, So that Z you know, that can can be a difference, right? But it's just a matter of like weighing, weighing out things. You know different. You know this. This lender might have the best deal, but they might take a really long time to get it done. You know this lender there there really fast, But they're very expensive, you know? And what's the What's the trade off? And so you know, it's always good toe talk to multiple people about that to gain a broader understanding for yourself.
[00:15:46] Paul Sian: How are they giving those fees? I mean, I'm presuming you need to get a credit report. Run right, Okay. And then how how big of an impact is that? You know, you're getting multiple credit reports. Let's say I talkto 34 lenders and I say, Okay, go ahead, run my credit if I, if I do it over the same day or a couple of months, is a big difference.
[00:16:05] Walt Wollet: So as as Faras a assed faras, a hit on the credit report. Yes, it's it's 30 days, so you're allowed. What sends a red flag to the to the bureau's is when you shop for a bunch of different things. So say that when I was buying this house, I also have my credit pulled for a car and I had my credit pull it for a tractor on and I did all this financing stuff. Well, my credit score, which just start to tank because it's because the way the agencies that their algorithms or reading that is this person doesn't have any cash right there. They're financing everything you know. Here's another credit card inquiry, so it's all within that 30 day window. So you legally you get your credit pulled once with a lender, and then you have 30 days and you could have the credit polled, so long as it's a mortgage inquiry and not any sort of general finance inquiry. And it's how they're coded to the to the actual credit providers, right? But so long as it's a mortgage inquiry, it only it's only gonna count is one hard inquiry. So you you're you're the credit agencies. They don't wanna dissuade people from shopping for mortgages because we need to have a fair, you know, a fair and ethical mortgage market. Um, and it and it iss you know it. It's definitely better than at what I've heard about, you know, from from some of the people I work with in before 2000 and eight. Right? But, um,
[00:17:30] Paul Sian: but comparison comparison shopping is, uh, could be a big saver. I mean, you know, thousands upon thousands over the life of the loan. Definitely going back. Now, we're going back to your own personal experience looking. You know, hindsight is 2020 looking back at the whole process. Is there something you think you could have done better? That you know, would be good advice for somebody else?
[00:17:51] Walt Wollet: Yeah, I think I am. I think I probably I probably should have paid off all my all my dead sooner, you know? So that was that was one thing is I really, um
[00:18:05] Paul Sian: when you say sooner, how much sooner? And say prior to applying the loan. How much quicker should you have done
[00:18:12] Walt Wollet: that? So just as an example, I had There's a company. There's a rental verification company, and I pay them a fee toe, add toe, add my rental trade lines to my credit report, and those were not added before my credit report was pulled. So just like things like that that I had done to strengthen my credit profile in my score, they weren't reported, right. And then I paid off all my cards, like I said, but some of them were still reporting balances when we pulled s. So it was kind of like take
[00:18:45] Paul Sian: 30 to 60 days for some companies report.
[00:18:47] Walt Wollet: Exactly. And so And here's what I found out is that you most companies will offer what's called off cycle reporting so you can call them like, Hey, I'm you know, I'm gonna get my credit pulled for, you know, this investment property loan. And I just paid off this credit card. I'd like it to report. And so some of them were honest with me, and they're like, Oh, well, yeah, we can report And they did, and others said they did, but they didn't. And it's just the nature of, you know, the nature of it. So I would I would say a lot of that stuff. I would I would just, you know, I would just get it done as soon as possible. If you know, you know, if you know that, that's gonna happen. Like I had my I had my credit pull twice for this home purchase. Um, because the original credit report expired right. Um, and I did that in February, you know? So I knew in February like, Okay, that's what my actual score is. And then I use that credit report to attack the, you know, some of the balances and anything. Any other derogatory is that we're keeping my score lower than where where I wanted it to be. Okay, so
[00:19:50] Paul Sian: all great advice and all great conversation. So I appreciate you taking the time to be on this podcast with me. Any final thoughts?
[00:19:59] Walt Wollet: Um, I, uh I just I just say everyone stay safe out there. And, um, you know, it's just like with with what we're talking about with with lenders, you know, and with getting different opinions and different perspectives in the world right now, that is what I would advise everyone to dio, you know, So, ah, lot of people there usedto watching CNN. They're used to watching Fox News. They get their perspectives in their opinions, you know, from this one place. And I think that, you know, especially right now, is as you know, things were kind of, you know, getting getting a little crazy
[00:20:38] Paul Sian: up in the air,
[00:20:39] Walt Wollet: right? We need we need to All kind of, like, you know, realize that that everyone's a person and that, you know, people are people and that we just way have to We have to do a better job working together. We have to hold our leaders accountable in this country.
[00:20:55] Paul Sian: We're in this together basically,
[00:20:56] Walt Wollet: right, you know, And then and then that's that's all I That's that's all I would say to people is just and especially if you're working with mortgage lenders right now, we're all you know. We're all stressed out and we're swamped. And, you know, your I promise you you're not the only client you know. So it's like, you know, just just be patient with people. Um, you know, there's a lot of people that that, you know, behind the scenes that work on these loans and your your loan originator eyes going to do their best for you. But a lot of times things, things happen. Unfortunately, and you know, you just need to take it as a learning experience and move forward. And I think that's what our country needs to do with, uh, a lot of this craziness right now
[00:21:38] Paul Sian: wholeheartedly agree in the awesome advice. Thanks again for being on
[00:21:42] Walt Wollet: awesome. Thank you, Paul.
2020-09-17T09:00:00-07:002020-09-17T09:30:33-07:00Paul Siantag:cincinkyrealestate.com,2012-09-20:16754Podcast: Insurance For Homeowners and Real Estate Investors<img src="https://assets.site-static.com/userfiles/584/image/Insurance.jpg" width="535" height="635" alt="Insurance For Homeowners and Real Estate Investors" style="display: block; margin-left: auto; margin-right: auto;" />
For this podcast about insurance I chatted with Matt Kincaid of Meridian Captone. In the podcast we discussed insurance for homeowners and real estate investors. Topics included first time homebuyer tips for arranging insurance, insurance for real estate investors with long term tenants and insurance for investors working in the short term rental space.
I hope you enjoy the podcast and find it informative. Please consider sharing with those who also may benefit.
Listen via <a href="https://www.youtube.com/embed/s2RQlXTdcdU" target="_blank">YouTube</a>:
You can connect with <a href="https://www.mymeridianinsurance.com/staff-directory/MattKincaid" target="_blank">Matt</a> at <a href="https://www.linkedin.com/in/matthew-kincaid-157b5a9b/" target="_blank">LinkedIn</a>, You can reach out to Matt for more information on their insurance products by emailing him at <a href="mailto:mkincaid@meridiancapstone.com">mkincaid@meridiancapstone.com</a>.
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About the author: The above article “Podcast: Insurance For Homeowners and Real Estate Investors” was provided by Luxury Real Estate Specialist Paul Sian. Paul can be reached at <a href="mailto:paul@cincinkyrealestate.com">paul@CinciNKYRealEstate.com</a> or by phone at 513-560-8002. If you’re thinking of <a href="https://www.cincinkyrealestate.com/sellers/" target="_blank">selling</a> or <a href="https://www.cincinkyrealestate.com/buyers/" target="_blank">buying</a> your investment or commercial business property I would love to share my marketing knowledge and expertise to help you. Contact me today!
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Transcript
[RealCincy.com Insurance Podcast]
[Beginning of Recorded Material]
Paul S.: Hello everybody, this is Paul Sian with United real estate home connections. Real estate agent licensed in the state of Ohio and Kentucky. And with me today is Matt Kincaid with Meridian. Hi Matt, how are you doing today?
Matt K.: I'm doing great, Paul, thanks for having me.
Paul S.: Great to have you on here, and looking forward to our podcast today. Where we're going to discuss insurance for homeowners, for investors as well as looking in-depth into the insurance policies and how that'll help out buyers and investors, so why don't you tell us a little bit about your background? When did you get started in insurance?
Matt K.: Yes. It really started in junior/senior year of college. I went to NKU, graduated in 2015. My best friend actually dropped out of school and started selling commercial trucking insurance to long-distance truckers. So he thought it might be a good part-time job for me to do, do some customer service work.
So that's what I did my senior year mostly. And picked up on it pretty quickly, and after I graduated, I started selling full-time, and it just happened to be when I stuck with. Ended up transitioning to more personal lines. So I still do a lot of commercials, but our main focus is personal. So we're typical home auto landlord insurance that sort of thing, so that's kind of how I got started.
Paul S.: Great. And you've been with Meridian ever since?
Matt K.: Yes. I've been with Meridian. It'll be four years in September; I've been in the industry for about six years now.
Paul S.: Nice. So I understand a lot of people don't know that you've got your insurance brokers, which I believe Meridian is an insurance broker, and then you got your insurance agents. Can you explain a little bit the difference between an insurance broker and an insurance agent?
Matt K.: Yes. So in the insurance world, there's independence and captives; captives are just what it sounds are captive to one product, one company. Whereas with independence Meridian particular, we have about 15 different companies that we're able to shop around through. So one of our companies is, for example, is Allstate. A lot of captives also have Allstate, but we have the same exact product.
But we also have 12 other companies that we can shop around through, to make sure that you're getting the best. So it'll really benefit to the customer and me as an agent, or I'm not if I was just one company, I know I have to stand behind that product 100% no matter what. Whereas being a Meridian, I can just do whatever is best for the customer.
Paul S.: Yes. So the ideal then I guess is that you can shop around from multiple policies. Just like going into the store, you can compare different types of bread, and whatever price works best for you, whatever flavor works best for you. That's similar to what you're able to provide.
Matt K.: Yes, that'll be a good example. For like your typical, this may not be what we're talking about but, but for like your home and auto, most of time, it's best to be with one company, but not all the time. So I'm able to mix and match if need be, whatever is going to save the customer most money, whatever they're company is having.
Paul S.: Great. So let's move on to first-time homebuyers. Insurance is a, especially for homeowners, insurance is the new thing for first-time homebuyers if they don't really know what they're looking for. When's a good time for them to start having that conversation with their insurance person?
Matt K.: So I think whenever you get in contract is a good time to start looking. Getting a quote is never going to hurt, you're not bound to any coverage, or you're not going to be paying. 90% of time, you're not going to be paying the full 12 months up front.
So it's good to start getting your quotes shops around, getting some final numbers to give to your lender if you have one. So they can finalize numbers and give you a good picture of what you might be looking at going forward. So it's never too early in my opinion, but once you get into contract, I think is an ideal time.
Paul S.: Yes. That's something I agree with too. And it should be pointed out for those first-time homebuyers who don't know, I mean insurance is required if they're financing the purchase, and the lender is going to require homeowners insurance.
Matt K.: Yes. A lot of people know that it's not a law that have home insurance, but the lender can make that stipulation that you have to have it upon closing.
Paul S.: Great. And when a homebuyer first time, whether homebuyer existing or first-time homebuyer. What exactly is the insurance company looking at when they're pricing out policies?
Matt K.: So a big one is, you'll hear this term going out a lot, insurance score. It's a credit-based score; you don't need a social to run it. But they're able to calculate a similar score based on the amount of claims you're turning in, your payments.
Are you making your payments on time? That sort of thing. So they're able to get a good a good picture of the type of risk that the insurance company is taking on so that I mean if you're looking at the property itself, the construction of the property, how old it is, the exterior that sort of thing.
Paul S.: So does that involve a hard credit pool or a soft credit pool?
Matt K.: It's soft; you won't see it on your credit at all.
Paul S.: Okay, great. So that's something that doesn't have, even though during the home shopping process there's going to be a bunch of credit pools, whether from a couple of lenders. But insurance it's not one of those things that the buyers have to look at.
Matt K.: No, absolutely not. Especially, that would be a big pain. Especially if I'm shopping through 15, and I'm running NVR and insurance score. But no, it won't even show up on your score.
Paul S.: Okay. So what are some of the best ways that homebuyers can improve their chance of getting a better insurance rate?
Matt K.: Right. So prior insurance history is a big one, making your insurance payments on time. The area that you are in is going to be a big factor. The zip code, there's different what's called protection classes based on where the home is. So that's based on how far you are from the fire hydrant, and also how far you are from the fire department.
So the highest protection class you can have is ten, that's a maximum risk. You're over five miles away from the nearest fire department, and your insurance rate is going to be higher. Simply do the fact if there was a fire or total catastrophe, it's going to take longer for them to reach you.
Paul S.: Okay. Let's talk about the risk; you mentioned risk in there. How does risk play into it? Let's say whether of the buyer themselves and if they've had past history of claims or the house even if they've never been in the house before what about the risk associated with that.
Paul S.: Yes. So like I said before pass to insurance, history is big. With these landlord policies, it's hard to tell what the price is exactly going to be. Because obviously, they're going to rate it based off the buyer's insurance score.
But they don't know who's going to be living in there. They don't know the type of risk for who's going to occupy that home. So it's very limited; there's more of a baseline price just based off the buyer’s insurance score and the protection class and the age and the property itself.
Paul S.: Okay. In terms of the property itself, there's a CLUE report which a lot of buyers probably have not heard about. Can you explain what the clue report is, what does it stand for, and what does that exactly provide?
Matt K.: Yes. So I kind of describe it as a moto vehicle report for your home. So it stands for the comprehensive loss underwriting exchange. So a lot of times, LexisNexis, you'll get your reports from there. It's just a big aggregate of claims that are turned in by insurers, and obviously, when I'm running your clue report, it's going to pull up based off your name, your date of birth and the address if there are any claims that correspond to you, the insurance company can grade it importantly.
Paul S.: Okay, great. Is there any cost for you pulling a clue report for a buyer?
Matt K.: No, absolutely not. So for a personal policy, so if we're talking landlord, that's four units, four family and under. Most of the times, the company can run that itself. If it's a commercial policy, it's a little bit more different.
For example, if this is not a new purchase, maybe you've had this property for a few years, and you're shopping right around, you may have to order that from your prior insurance company. But if it's a new purchase, a lot of times it's not going to be necessary, if it's a commercial risk.
Paul S.: Okay. Let's talk about a homeowner who's been in their house for a few years now, and they had a policy in place with an insurer. Do you have any recommendations or suggestions for them? I mean, do the rates get better? Do the rates get higher if they get another quote?
Matt K.: So it's kind of a cache one to it. It's almost impossible to know what the insurance company is going to do. Obviously, you want to find a company that is A-rated or higher, that means they have a good financial stability, so they're not just going to raise your rates for no reason.
But insurance is kind of like the stock market in some ways. If a company is taking big losses a certain year, they may try to recoup by raising rates, and that's just going to be across the board based on your zip code. But I always just say just keep track of your rates. I know Meridian we have somebody who's dedicated to be shopping if your policy goes up a certain percentage. So I think that's great to have. But just pay attention to it, and re-shop it every couple of years if need be.
Paul S.: Okay. By the fact of them, somebody re-shopping it, that's not necessarily going to increase their rates, will it?
Matt K.: No, absolutely not. Companies like to see that you've been insured, they don't want to see you bounce around all the time, because that means they're probably going to lose that risk in a year. But to answer your question, there's no harm in re-shopping. I have customers that will call me each and every year to make sure that we have the best rate, that's totally fine by me.
Paul S.: Okay, that's great and helpful information. To move on to investment real estate, can you talk about the differences in commercial versus residential investment real estate insurance?
Matt K.: Yes, so kind of hard to describe the four. Commercial is going to be the five units and above, personal is going to be four and under. Coverages on that, the only differences that you're going to see with commercial, instead of having a one hundred thousand or three hundred thousand liability limit, most of the time they're going to include a general liability policy, which is going to include one million in liability.
A bunch of different other things that fall under that, so that might look different. Other than that, the forms are fairly similar. You just want to make sure that you have replacement cost, or if you want actual cash value, deductible, loss of rent. So those things are going to be similar, it's just a matter of how many years you have, that sort of thing.
Paul S.: Okay. In terms of investors who are owner occupying, they're buying a duplex or four-unit, and they want to live in one unit. Are the insurance rates generally better for that type of situation?
Matt K.: There's not a clear answer for that, I mean it's still going to be written on the same type of form. There might be some discounts being that the insurance company is able to calculate their risk, maybe a little bit more accurately. I mean, that could be a good thing or a bad thing for the customer.
But really, you just want to make sure that you're asking those questions, make sure the agent is writing the policy correctly. So down the road, if there are any changes or let's say the insurance company audits you and that information is inaccurate, that could then raise your rate.
Paul S.: Okay. So I guess the answer is it depends?
Matt K.: Yes. With a lot of insurance, it just depends, unfortunately.
Paul S.: That's still good to know. So let's talk a little bit about insurance riders, I guess insurance riders applies both to regular homeowners as well as investors. What can you tell me? I guess first, let's explain what's an insurance rider, and why would somebody want one or need one.
Matt K.: Yes. So with any insurance policy, there's going to be a lot of things that are automatically included. Like if we're talking landlord policy wind, hail, fire, that sort of thing. And then if you want to have personal property protection, let's say you're furnishing some of the items may be the appliances in the home can have that. Otherwise, the writers are going to look fairly similar to what you're going to see on a typical homeowner’s insurance policy.
Or do you want water and sewage backup? Do you want replacement cost on your belongings or the roof? So those are going to look fairly similar. If the agent is asking the right questions and going over it thoroughly, there should be no question on how you want it covered. Some other things that might be on there is earthquake that's not included; flood insurance it's a totally separate policy, so there's always that misconception that flood is included in the homeowners; it's never included.
Whether it's a landlord policy or homeowner’s policy, the way to differentiate that with water coverage is where the water is originating from. If the water originated from outside the house, that is flood. If the water is originating from inside, let's say you have a pipe that burst, or a toilet that overflows or some pump that's water inside the house and that's something that could be covered either automatically or with a rider.
Paul S.: Okay. And just look a little further into flood insurance that applies to both regular buyers and investors, but that's also like you said this based on external factors close to a river, close to the lake. Where would somebody find out if their property falls under that, or requires flood insurance?
Matt K.: So a lot of the times, the lender may have an idea if it's required or not. Otherwise, just asking your insurance agent. There's not like an automatic identification that is going to tell you. In the loan process, it will probably come up that flood insurance is required, and then at that point, the insurance agent can find out what flood zone you're in, what kind of rate impact that's going to have on you, and that sort of thing.
Paul S.: And then flood insurance too is not something you provide directly, I believe that's provided from the government, correct?
Matt K.: Yes. So it's a FEMA based product, but we do also have a private flood company if your loan accepts that, which can be up to 40% off of a FEMA back product, and it's the same exact coverage.
Paul S.: Okay. So let's talk a little bit more about the private insurance coverage you said for flood insurance, as opposed to FEMA. That's something you said the lender would have to allow it. Otherwise, they have to go through the government program?
Matt K.: Yes. So I mean the laws are changing for this all the time, most of the time if it's a Government loan, they're not going to allow private flood insurance. But that could depend on a bunch of different factors.
So the best thing to do is just ask your lender if private flood is acceptable because if it is, that's going to save you a ton of money. I just did one a couple of weeks ago, where FEMA wanted 1,500 bucks, and my private flood carrier came back at like 700. So that could be a big difference, especially if you have a certain down payment you need to make for the home, and just cut cost in general.
Paul S.: That's 1500 versus 700 is that a yearly cost?
Matt K.: Yes, flood is always going to be a 12-month policy, just like your homeowners.
Paul S.: Okay. Is it worth it? Let's say somebody's not listed as a; the property is not listed in flood zone, so they don't require flood insurance. Is it worth it for them to maybe they happen to live behind a, there's a small lake behind them? Is it worth it to get flood insurance for them?
Matt K.: I think it's at least worth having that conversation, you know everybody's different. You know there are some customers they're going to want all the bells and whistles, they are going to want earthquake even if you're not even close to a fault, that sort of thing.
So it's just having that conversation, I mean you can never be too covered. It's never a bad idea to cover all your paces, but it's just a matter of what the insured is willing to spend, and if they think it's worth taking that risk or not.
Paul S.: Okay. Most of the insurance policies we're talking about, and I shouldn't say most, I should say all the policies we're talking about right now are generally applied to like long term whether you as a long term owner-occupant or as a long term investment property, where you have a one continuous tenant may be staying a year after a year or long-term leases basically.
Let's talk a little bit about short term tenants like your Airbnb, your VRBO, I mean, are there different insurance requirements for that, different insurance policies? What would you recommend? And what have you seen for other people who are looking for that type of insurance?
Matt K.: Yes. So honestly, I've ran across it a few times. The one thing you want to make sure of is most companies will either not write it, or they'll have an endorsement done for a short-term rental. So that's going to be a surcharge for you. Other than that, it's going to be fairly similar. You just want to make sure if you're going through air Airbnb or VRBO make sure what they are going to cover.
They're going to include an insurance policy, so you don't want to have any overlaps, we also don't want to have any gaps in the insurance. I know Airbnb will, for example, not cover bodily injury or property damage, so that's something that's going to fall under your insurance policy. So it's just making sure that you understand the verbiage. So if you do have an Airbnb home that you want to get insured, take a look at that policy, send it to your insurance agent. Have them write over it, and make sure that you're fully covered.
Paul S.: Okay. That's something that you'd provide if somebody's coming to look for a policy through you for a short term rental that you would be able to assist them with too?
Matt K.: Yes, absolutely. I did one last week; the customer was very concerned about the pricing. He was coming from USAA; they wanted like 2,500 bucks on the year for a single-family Airbnb.
I have a great company called Berkshire Hathaway; they have a product specifically for Airbnb or VRBO. I was able to cut his price almost in half. So we definitely have products for it; off the top of my head I probably have three or four that I can quote through.
Paul S.: Okay, great. And just to go back to your company's footprint, Meridian, basically, are you able to offer insurance all 50 states? Are you limited anywhere?
Matt K.: So yes, we're not available in all 50 states, but we are available in the Tri-State as well as Tennessee, Illinois, a lot of the southeast. So if you have any questions about that, please give me a call.
That being said, I have a lot of property investors that are coming from either across the country or overseas. That is totally fine, as long as the property that they're buying is within our scope, we can definitely accommodate.
Paul S.: Okay, great. And what's the best way for somebody to reach out to you if they want to get some more information?
Matt K.: So you can reach me either by phone or email. I'm also very active on Facebook. My phone number is 513-503-1817. Or you can reach me by email that is MKincaid@Meridiancapstone.com.
Paul S.: Okay, great. That's all the questions I have for you today, Matt, thanks for being on.
Matt K.: Yes, thanks for having me.
[End of Recorded Material]2020-04-16T04:00:00-07:002020-04-19T13:54:42-07:00Paul Siantag:cincinkyrealestate.com,2012-09-20:15619Podcast #13: Commercial Lending and Real Estate<img src="https://assets.site-static.com/userfiles/584/image/PodcastCommercialLending.jpg" width="535" height="635" alt="podcast 13 commercial lending and real estate" />
For this podcast about commercial lending I sat down with Angie Hoffman at U.S. Bank. During the podcast we discussed investing in real estate, commercial lending, and how commerceial mortgages can help investors. If you want to learn more about commercial loans this is a great pdocast for you.
I hope you enjoy the podcast and find it informative. Please consider sharing with those who also may benefit.
Listen via <a href="https://www.youtube.com/embed/Mr35xDsCSNc" target="_blank">YouTube</a>:
You can connect with Angie on <a href="https://www.linkedin.com/in/angie-hoffman-32222325/" target="_blank">LinkedIn</a>. You can reach out to Angie for more information on their lending products by emailing her at <a href="mailto:angel.hoffman@usbank.com" target="_blank">angela.hoffman@usbank.com</a>.
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About the author: The above article “Podcast #12: Hard Money Lending” was provided by Luxury Real Estate Specialist Paul Sian. Paul can be reached at <a href="mailto:paul@cincinkyrealestate.com">paul@CinciNKYRealEstate.com</a> or by phone at 513-560-8002. If you’re thinking of <a href="https://www.cincinkyrealestate.com/sellers/" target="_blank">selling</a> or <a href="https://www.cincinkyrealestate.com/buyers/" target="_blank">buying</a> your investment or commercial business property I would love to share my marketing knowledge and expertise to help you. Contact me today!
I work in the following Greater Cincinnati, OH and Northern KY areas: Alexandria, Amberly, Amelia, <a href="https://www.cincinkyrealestate.com/anderson-township/" target="_blank">Anderson Township</a>, Cincinnati, Batavia, Blue Ash, Covington, Edgewood, Florence, Fort Mitchell, Fort Thomas, Hebron, Hyde Park, <a href="https://www.cincinkyrealestate.com/indian-hill/" target="_blank">Indian Hill</a>, Kenwood, Madeira, Mariemont, Milford, Montgomery, Mt. Washington, Newport, Newtown, Norwood, Taylor Mill, <a href="https://www.cincinkyrealestate.com/terrace-park/" target="_blank">Terrace Park</a>, Union Township, and Villa Hills.
TRANSCRIPT
Commercial Lending Podcast
Paul Sian: Hello everybody. This is Paul Sian, Realtor with United Real Estate Home Connections, licensed in the State of Ohio and Kentucky. With me today is Angie Hoffman with US Bank. Angie how are you today?
Angie Hoffman: I'm doing great Paul. How are you?
Paul Sian: Great. Thank you for being on my podcast. We're gonna start off. Today's topic is ‘Commercial Lending’. Angie is a commercial lender with US Bank, as I mentioned. Angie, why don't you tell us a little bit by your background. What you do with the US bank, and how did you get started in that field?
Angie Hoffman: Sure. So, I am a Cincinnati resident, have been my entire life. Was previously with a company called the ‘Conner group’, which is located out of Dayton, Ohio. They're a private investment real estate firm. I was with him for about five plus years, just learned a ton of information, really loved the financing portion of their group. So, that turned me to the banking portion, which I ended up going with US Bank just because of the knowledge and the breadth of what they can do as well. Just the culture within US Bank has been phenomenal. I've actually been with us Bank now for five years; in the last three years I've been within the commercial real estate side as well as the business banking side.
Paul Sian: Okay. Your primary focus is commercial loans.
Angie Hoffman: Correct. Yes, both investment real estate as well as owner-occupied and small to medium businesses.
Paul Sian: Okay. The investment side, I represent a lot of buyers of multifamily. I know with the form below we do, the conventional space generally, and then when you're in the five units and above. You go into the commercial space, which is your space. I have also heard it being covered with mixed-use buildings, industrial properties, is there something else that commercial loans would cover?
Angie Hoffman: Correct. I mean it can really be quite an array of properties, office is one that we see pretty often, and can tend to be either hot in certain areas, whether it's office Class B or Office Class A. Retail strip centers, we'll look at Triple Net properties, and absolute not properties. We are very popular, if you're looking at diversifying a multi-family portfolio and adding in some triple net properties. We also do, obviously owner-occupied properties too. When you have that small business or medium business owner who wants to own their own real estate. We do that as well, and that's again part of what my position entails, and then we will also look at portfolios will do single-family homes.
I'm actually working with somebody now who has a portfolio of several single-family homes, that were looking to kind of restructure and refinance for him. We can even utilize current equity and properties to purchase additional properties to help you grow your portfolio. We do try to have a full understanding of your portfolio or a full understanding of what your strategy is. How partner with you, as you continue to grow that portfolio short- and long-term goals.
Paul Sian: For our listeners, who don’t know. What Triple Net means, do you mind explaining that.
Angie Hoffman: Sure. So, Triple Net is gonna tend to be your properties that have the tenant itself is paying the taxes, the insurance, you may have some pretty minimal depending upon the property, responsibilities that are usually restricted to the exterior of the building. It may be like a roof or a parking lot. Type of maintenance but generally speaking the great thing about the triple net is that for some clients, it's a property that you can basically own, and you have to do pretty much nothing with. So, you're gaining that income without having to do a very minimal type of responsibility or maintenance.
The downfall of that is that typically they're gonna be somebody, who is gonna be a longer-term lease, which is great. However, you still have the issue that it's a bigger square footage generally. So, five, ten, twenty thousand plus square feet. If you lose a tenant obviously, that can be very impactful. It just depends upon your, again your focus of your portfolio, and if you want to add in that. But it can be great opportunity, but tends to again be a little bit less of a return. Because of the minimal responsibilities.
Paul Sian: Going back to single family. That is similar, I am using the same term your bank use but to ‘wrap mortgage’. Is that what you use for single families?
Angie Hoffman: We do have the ability, from the perspective of what you say wrap mortgage. We're typically calling that like an umbrella, if you're grouping all, let's call it, if there's ten single family homes. You're grouping this all into one, it lies together. We have the ability to do that depending again on the structure that the client is looking for.
We also have the ability to separate out those facilities, and do a simultaneous closing for each one of them to have them separated out from each other. Obviously, there's some contingencies but that the properties itself have to be able to cash flow by themselves, things along those lines that we would underwrite to. But we do have ability to look at it from both perspectives.
Paul Sian: Okay. The biggest advantage of that if someone has reached the maximum ten convention mortgage loanlimit. They can step into your space there and you could cover them, and they can either restart that or. With something like that, let's say somebody does get ten properties, and are they able to finance in additional properties into that same loan or is that has to re-finance each time?
Angie Hoffman: No. We would be able to add in. I mean, if you're asking like if they want to refinance these properties, and they're also looking to maybe either use some of the equity in them or they're also buying at the same time. We can do all of that together, so that's not an issue at all.
Paul Sian: Let’s say to somebody new coming to investment. What is the typical down payment on commercial loans? That are looking to buy in the mixed-use space or multifamily space?
Angie Hoffman: So, generally speaking. We'll go up to 80% loan-to-value. The biggest factor within that is gonna be how much the capability of the property to hold that debt. We're gonna have, we have a pretty. I don't want to say complex but we do have multiple factors that go within our cash flow, and net operating, income calculation, that we're gonna want to see. It balanced to a certain point for it to be able to hold the debt at an 80% loan to value. Again, we tend to partner with our clients. I have several clients who will send me properties on a daily basis, that they're interested in. We will let them know what the debt capacity would be on that property.
Paul Sian: Okay. Income from the rents per sale, let's say, something's got a ten-unit building. Then you're looking at the rents that are coming in. You're also considering the buyers income level, income to debt ratio, all that as well.
Angie Hoffman: Yes. When I talk about the capacity, the debt for the property is being the one of the first things we look at is. In order to get to that 80% LTV, if you're looking at the actual depth, they're wanting the property to take on. Compared to other rent they're taking in and the expenses, as well as some vacancy factors, things like that. That's what we're looking at to have a certain ratio, then on top of that. When we get to the next step would be look at the client globally, and their personal debt to income, and that factor too.
Paul Sian: Looking at that commercial mortgages, can buyer use the mortgage to upgrade property, to build in some equity in the property. Does the building of the equity get taken into account, and do you have a loan that allows them to do that?
Angie Hoffman: That question is kind of twofold. If you have a property, let's say, it's multiple unit, and you're continuing to kind of do some improvements and renovations. If the property has the equity, we can look at small lines of credit to help with that renovation cost. Then once everything's complete to be able to wrap that together. If you're looking at a property that's completely distressed, and doesn't have any type of income. Then that's gonna be something that generally we're gonna have a harder time with. Because it's a speculative type of scenario, and we want to typically see the actual income.
Paul Sian: How about converting something, I am interested in buying warehouse, either in retail space or multifamily. Do you offer products for that, or is that a similar situation when you're looking at the risk as being a little high?
Angie Hoffman: Yes. So, that is gonna be a similar situation. Once the actual project would be completed again from a speculative standpoint, it just it becomes a little bit more difficult from a risk perspective. However, we've been in scenarios where we've worked with clients and partnered clients, people we know who work in that space more than we do. We can look to, guide them to what we would look at if we wanted to refinance that once it was completed, and there were leases in place.
Paul Sian: Okay. So, that is one of the benefits working with a big bank like US bank, is you can reach across departments there, and tap other resources within your organization.
Angie Hoffman: Even if it's within the organization, we have other resources whether it's our private wealth or wealth group, have some capabilities that are different than what we have as well as from a CUI or network basis. It may be somebody just within my network that I know works within that space to introduce that way and hopefully can get that client taken care of.
Paul Sian: Are you able to comment on the underwriting process of commercial loans compared to residential. Is there a big difference in that process?
Angie Hoffman: So, yes and no. I know we touch on it already a little bit. One of the biggest differences is obviously we're gonna look at the actual collateral in a very different way, especially on the investment real estate side. When you're looking at investment real estate, the factors that the net operating income as well as the cash flow of the property become factors. Whereas, when you're buying a home, obviously it's a lot more about the loan to value of the property. However on the other side of that, if we are looking at a property that's gonna be owner occupied by a small to medium business. It becomes a lot more about the loan-to-value as well. So, it can depend upon the situation.
Paul Sian: Okay. How important is the person's experience when they come to loan, get a loan for you. If it's a new first-time investor looking at multi families versus somebody who's already got five to ten units and then either self-managing or running it for a couple years.
Angie Hoffman: I mean, generally speaking, if you have somebody brand new, one of the biggest things is if you're not familiar in the scope. You don't have experience, you gonna be partnering potentially with a property management company or somebody else who is maybe a partnership within the LLC or the property that you're buying that has the experience. Just being able to show you may not have previous experience in this but you are partnering with a property management company that has historical success in these properties. You're partnering with somebody, for instance, who has historical success in the properties.
Paul Sian: So, yeah boils down to your team then. What you’re bringing to the team. What kind of document requirements are there to start a commercial loan process with US bank?
Angie Hoffman: Generally speaking, in every situation is different, every request is different, client is different. But it's typically going to be two to three years of taxes, personal and business, personal financial statements pretty standard as well. If it's a purchase, we're gonna want to see a purchase agreement or understand the purchase agreement as well. As you're gonna want to have financials whether it's profit loss or the rent rolls preferably a Schedule E or 8852 from the client. Showing what the historical trends of that property of have been. That's where we really try and partner with our clients of understanding their portfolios, understanding what purchase they're trying to make. So, that, does it fit, and is there anything we see because we see them on a very regular basis that. Maybe we need to discuss or let the client know that we are suggesting maybe prying a little bit more information.
Paul Sian: How important is ones credit score when they come to apply for loan with you?
Angie Hoffman: It is a factor, I mean. In any type of just like the traditional mortgage, it is gonna be a factor. But there are so many different factors that, it's only one of many.
Paul Sian: One of the important things when it comes to purchasing real estate is I always tell the buyers that have a pre-approval letter ready. Is there something similar in the commercial loans place? A pre-approval letter, pre-qualification letter. Just something that says, somebody sat down with you, they started the initial process. They've got access to certain amount that they can borrow to purchase this property. Do you have something like that?
Angie Hoffman: We do. So, on the commercial side it's gonna be called a letter of interest, and it basically lays out that we are working with a client. We have a price range or up to a price range that we're looking for with the client, and depending upon the collateral. We are looking to work with him on the financing, again depending upon what the collateral is, and then we also have once we've actually maybe gone through a more official process of underwriting and submitted an actual financial package. We do have, depending again on what the financing contingency is for that client.
We do have a letter of commitment, which lays out that there is an approval but it goes through all of the conditions as well like your appraisal certain things like that, that we're gonna have to clear.
Paul Sian: Okay. How long does that process take? If you are writing an offer today for a client, and then usually you have to write in how many days we're gonna close in. 30 days, 40 to 45 days. I know conventional, it's usually a little quicker, a little easier. So, we can do it in 30 days or so. I mean, what would you recommend for a commercial loan?
Angie Hoffman: I think 45 days is very practical. One of the biggest things that I always talk about with my clients is that 45 days really is incumbent of me having a full financial package, meaning those two years of tax returns. The financials, I spoke about from the client that you're purchasing, and or if you're refinancing. To me, having that full financial package is really the key and then, again from there it's gonna be some of the factors of the appraisal as well as the title work that would go along with it. But generally speaking, 45 days to close is pretty.
Paul Sian: Reasonable.
Angie Hoffman: Yes.
Paul Sian: You mentioned the documents that was my blog article documents for the conventional mortgage process. You mentioned W2s, 1040, tax returns, that is pretty similar the document requirements for commercial loans that it is for residential space?
Angie Hoffman: Yes. It's very similar. With the PFS is gonna be one of the biggest as well as the two years of tax returns. Potentially three years depending upon, again the request size. Like you said, I mean, if they're a W2 income type of employee, then we may need additional pay stubs. like I said, for any client, it could be very different depending again on what their history is. If they're a business owner, then we may mean some more details but generally speaking, again it would be two to three years of personal business has returns, personal financial statement, and potentially obviously purchase agreement or additional documentation from that side.
Paul Sian: Okay. When it comes to partnership, people coming together, those documents from everybody. Correct?
Angie Hoffman: Correct. So, depending on what the ownership structure is. Generally, if somebody's over 20% ownership within the property, then we're going to need that financial information from them as well.
Paul Sian: Okay. I know with the conventional space. Lending into an LLC is generally impossible. Most lenders will not allow conventional borrowers to use an LLC. How does that work on the commercial side?
Angie Hoffman: The vast majority of the lending that I do is going to be through an LLC in a holding company. The clients are still a personal guarantor but the lending itself in the title is all within the LLC.
Paul Sian: Is it a requirement in LLC or is it an option for the buyer?
Angie Hoffman: It's an option. I mean, one that again depending from an attorney’s perspective, if you're talking about liability. It may be a best-case scenario to have an LLC with that property. But we always reference stuff talk to your attorney about what makes sense for you.
Paul Sian: How much, do you have any minimum loan requirements and your maximum loan requirement?
Angie Hoffman: Up to ten million on the investment real estate side, and then once it's beyond that, we do have a commercial group that we would work with a real estate group as well as our middle marker group that would potentially be involved. As far as minimum typically, again if it's under 2,50,000. It's still something that we would do. It just, we pull in a different partner to work with us on that too, because it kind of goes into a little bit different of a space.
Paul Sian: Is there, under 250,000$ or is there a lower minimum. I know some conventional lenders won't touch anything fifty thousand and under.
Angie Hoffman: It's pretty common. Yes, under fifty thousand is gonna be a little bit more difficult.
Paul Sian: 50,000 to 2,50,000, and above that.
Angie Hoffman: But keep in mind too. I mean, if you have properties itself. It may be again, you see this more with the single-family home portfolios. You may have multiple properties that are under fifty thousand. But we're looking at the entirety of the portfolio, makes a little bit different of a scenario. I would caution that anything that somebody is looking at from the perspective of either total lending amount or even individual property. We're happy to take a look at it, have an understanding of what you're looking to do, and if for some reason it's not something that is in our world necessarily. Again, from an internal and external standpoint. We typically have somebody who I can contact.
Paul Sian: Discussing interest rates from general perspective, everybody’s situation is different and unique. But in terms of paying more, having a lower LTV, 60% LTV rather than 80%. People get themselves a better interest rate or is it generally, can we same and more just depending on credit and history.
Angie Hoffman: So, from an interest rate standpoint, the commercial side is a little bit different. Then maybe the mortgage or lines of credit side, then you then you generally see. Ours is based off of what banks cost the funds are, and then there is a spread that is on top of that. That's where you get the percent from. Right now, cost of funds are pretty minimal. So, interest rates are extremely competitive. But from that perspective, it doesn't necessarily factor in the actual loan it saw or the guarantor itself or the property itself.
Paul Sian: So, there's some risk-based consideration towards interest rates. I guess a little higher risk project is that something you would price a little higher in the interest rate or generally that it's not considered as much?
Angie Hoffman: No. That's not considered as much, generally.
Paul Sian: Okay. Great. That's all the questions I have for you today Angie. Did you have any final thoughts to share with the group?
Angie Hoffman: Sure. One thing I would say is if anybody has any questions about property specific, cash flow, if this property may fit into their portfolio or something that we would look to land up to 80%.I'm happy to partner with anybody on that side as well, and be resource for them. On top of that, I did want to mention that obviously US Bank is across the country. That gives us the ability even, if I'm your contact in Cincinnati to lend out-of-state borrowers.
I've worked with quite a few clients obviously from California that are buying in Cincinnati as well Chicago. So, those are people that I've worked with quite frequently as well.
Paul Sian: That is perfect. I’ve got a number of out of state clients to. That is one of the biggest challenges that I’ve faced with some local lenders is that they don’t lend to out of state. That’s a great ability to have.
Angie Hoffman: So, the key with in that too is just as I want to mention too. I mean, anytime that scenario comes up. We are happy to discuss it. One of the biggest factors with out-of-state lenders is that we do look for them to be within US bank footprint. So, we are very much on the west coast and Portland, all of those areas. If they're somewhere you're not familiar, if we're within that area, please reach out. Let me know, and I'm happy to take a look.
Paul Sian: Great. Thank you again. I will leave your contact information on my blog post once it gets published live. Thanks again for being on the podcast.
Angie Hoffman: Thanks for having me. 2019-11-14T05:00:00-07:002019-11-14T17:45:17-07:00Paul Siantag:cincinkyrealestate.com,2012-09-20:15314Podcast #12: Hard Money Lending<img src="https://assets.site-static.com/userfiles/584/image/Podcast_12_Hard_Money_Lending.png" width="435" height="635" alt="Podcast 1 Hard Money Lending" style="display: block; margin-left: auto; margin-right: auto;" />
For this podcast about hard money loans I sat down with Kay Battle of Common Sense Capital Solutions. During the podcast we discussed investing in real estate, hard money lending, and how hard money loans can help investors. If you want to learn more about hard money loans and how hard money lenders operate this is a great pdocast for you.
I hope you enjoy the podcast and find it informative. Please consider sharing with those who also may benefit.
Listen via <a href="https://www.youtube.com/embed/K1RcOvAb4_o" target="_blank">YouTube</a>:
You can connect with Kay on <a href="https://www.linkedin.com/in/kenitrabattle/" target="_blank">LinkedIn</a>. You can reach out to Kay for more information on their lending products by emailing her at <a href="mailto:info@cscapitalsolutions.com">info@cscapitalsolutions.com</a> and check out the company website <a href="https://cscapitalsolutions.com" target="_blank">Common Sense Capital Solutions</a>.
You can connect with me on <a href="https://www.facebook.com/realtorpaulsian" target="_blank">Facebook</a>, <a href="http://www.pinterest.com/paulsian/" target="_blank">Pinterest</a>, <a href="https://twitter.com/PaulPsian" target="_blank">Twitter</a>, <a href="https://www.linkedin.com/profile/view?id=AAIAAAEYCmQBnexBnCk1RPA9wXPcXSj_qNRXF5g&trk=nav_responsive_tab_profile_pic" target="_blank">LinkedIn</a>, <a href="https://www.youtube.com/c/PaulSianRealtorwithHERRealtorsCincinnati" target="_blank">YouTube</a> and <a href="https://instagram.com/cincinkyrealestate/" target="_blank">Instagram</a>.
About the author: The above article “Podcast #12: Hard Money Lending” was provided by Luxury Real Estate Specialist Paul Sian. Paul can be reached at <a href="mailto:paul@cincinkyrealestate.com">paul@CinciNKYRealEstate.com</a> or by phone at 513-560-8002. If you’re thinking of <a href="https://www.cincinkyrealestate.com/sellers/" target="_blank">selling</a> or <a href="https://www.cincinkyrealestate.com/buyers/" target="_blank">buying</a> your investment or commercial business property I would love to share my marketing knowledge and expertise to help you. Contact me today!
I work in the following Greater Cincinnati, OH and Northern KY areas: Alexandria, Amberly, Amelia, <a href="https://www.cincinkyrealestate.com/anderson-township/" target="_blank">Anderson Township</a>, Cincinnati, Batavia, Blue Ash, Covington, Edgewood, Florence, Fort Mitchell, Fort Thomas, Hebron, Hyde Park, <a href="https://www.cincinkyrealestate.com/indian-hill/" target="_blank">Indian Hill</a>, Kenwood, Madeira, Mariemont, Milford, Montgomery, Mt. Washington, Newport, Newtown, Norwood, Taylor Mill, <a href="https://www.cincinkyrealestate.com/terrace-park/" target="_blank">Terrace Park</a>, Union Township, and Villa Hills.
TRANSCRIPT
Paul: Hello everybody, this is Paul Sian real estate agent with United real estate home connections licensed in the state of Ohio and Kentucky and with me today I have Kay battle, she's an investor herself and she also works for a hard money lending company and is part owner.
So, we're going talk about a about her background and hard money lending, so Kay, thank you for being on, how are you today?
Kay: I am doing great, thank you for having me call
Paul: Thank you. So, you tell us a little bit about yourself, your background, how did you get started, I guess how did you get started investing first off?
Kay: Yes, I actually mentioned I am a real estate investor, I actually started in 2008 which was right after the market crash and so I we all know there were tons of deeply discounted and foreclosed properties on the market and so I just saw an opportunity to kind of jump in low risk not, much to lose so I tried it and it worked out great and so ever since then I've been actively investing
Paul: Very nice, yeah that was a great time to invest, I wish I had, we had actually sold a property at that time that just wasn't performing well and it was distance-wise us it was too far for me, you tell us how many units do you have currently?
Kay: So currently we have 35 units, they range from single families all the way up to nine units of types of properties total of 35 doors.
Paul: Okay, are they all in these Cincinnati, Cincinnati area?
Kay: Yes, we are all in Cincinnati
Paul: You are still acquiring properties, what are your strategies or goals now?
Kay: Yes, I'm currently acquiring properties and actually have a property under contract at the moment, mostly what I'm focused on now is rehab, so flips just to build up my cash reserve and then I'll probably purchase something for holding next year.
Paul: Okay and how are you identifying your flips are you finding all in market deals off-market deals?
Kay: Well, so I use on market and wholesalers to look for off-market deals as well, so it's a combination
Paul: Okay, yeah, this market it's a lot on market deals are highly competitive don't make sense
Kay: Yes very, very different from 2008
Paul: Why don't you tell us about your company the company that you work for that's a hard money lender what's the name and how long have you been with them?
Kay: Yes, so as you mentioned I'm part owner of common sense capital solutions, we provide alternative funding for real estate investors and also small businesses and we've been in business for about a year and a half, now so I'll start it at the beginning of 2018 and we just help people find solutions basically
Paul: Okay, so primarily you're doing mostly hard money loans, you don't do anything conventional?
Kay: Well, actually we do both, so I couldn't do anything from you know months all the way up to 30-year times depending on the situation
Paul: The primary focus of this podcast is more than hard money loans not everybody's familiar with that anybody most people are familiar with a 30-year mortgage 50-year mortgage, so tell us about a hard money loan, I mean what exactly is a hard money loan?
Kay: Yeah, the hard money loans are typically used by real estate investors who either can't obtain conventional financing or conventional financing doesn't make sense for the situation, so maybe they have a property that the only one I hold for a short period of time and they don't want to be tied down to a 15-year or 30-year mortgage that might have a prepayment penalty. So, generally speaking hard many miles are short-term either they are use of bridges and to more permanent onions and or for a situation where you're only going to hold the property for a short period.
Generally the interest rates are higher because the risk is higher or the property is going to be the loan is only going to be held for a short period of time and also in most situations the loans are interest always so you're only paying in terms of paying a monthly interest payment, which means the principal balance isn't decreasing, over time and so as you go to either refinance or sell the property you will still owe the full balance of whatever your loan is.
Paul: Okay, and you mentioned short term what are the I guess what's the shortest term and we'll see the longest terms?
Kay: Generally, you know you can go from anywhere three to three months all the way up to three years, so usually beyond three years you won't likely see a hard money loan
Paul: Okay, presume you take into account the property itself, it's floors can you tell us a little bit about that?
Kay: Yeah, so in general terms hard money loans are what is goods that are in accident they flown so a lot of emphasis is put on the property in the deal itself, however a lot of lenders are still going to want to get a little bit of information about the farmer so usually the credit requirements are fairly low but credit will be still taking into consideration also the person's experience, so it can have you know a hit to your credit score heart many wells are definitely an option because there is still a lot of emphasis on the packet in the deal itself, so as long as the numbers make sense and they deal usually something can be worked out
Paul: Okay, what kind of down payment are you looking for most properties?
Kay: Down payment can range anywhere from ten to twenty-five percent, depending on the type of property in a situation, there are certain situations where a down payment may not be required, I have seen those situations as well but it's kind of rare so it leaves plant for its investment
Paul: Somebody were to apply with your company how fast does it take you do a similar process like a pre-approval so how long would that take?
Kay: Yes, in most situations we won't need to do like a pre-approval we'll just go straight into underwriting, so simple for Hard money loans it doesn't take very long to actually close, I mean it's run situations we can close in a few days and it can go two or three weeks
Paul: Okay, so in terms of pre-approval, you're still like we're looking at credit somebody needs to you know they need a letter of intent from you or so that's they could get that?
Kay: Yes, so usually we can do that whole process in a few days
Paul: Okay, all right you mentioned the example of you know having a zero down payment loan that's pretty interesting, can you elaborate on that, what sort of examples have you seen of that?
Kay: Yeah, generally I've seen those and the loan amount is fairly high, so we're looking at plus a million but usually in those situations we're taking into account what the after repair value is going to be, so if someone is doing a large rehab project or have a construction project where they're adding a great level of value and equity into a situation, in those types of conditions the down payment you require because we're going to take actually count the equity that is being filled into the deal
Paul: So, that's even equity that the person let's say they are they're doing sweat equity or they've got contractors who are going to that's even that equity to you're not considering already existing equity where it's a great deal already it's you know 50% LTV loan the value and then you also look at what they're putting into the into the deal
Kay: Exactly
Paul: Okay
Kay: Yeah, so that's a great example so if someone has seen after repair value that's going to be four million and they want to land fifty percent loan to value can be two million and so that's kind of how we look at the situation
Paul: Okay, you're also taking a primary lien position?
Kay: Correct. Yes
Paul: Okay and you mentioned we talking about two million four million or do you have any upper limits, minimum loan amounts, upper low amount?
Kay: Usually, for residential properties we're looking at a 50k minimum, for commercial we're looking at 100K minimum, and really the upper limit is pretty high looking at the several millions of dollars
Paul: Okay and then we you know it's a good segue into the you're talking about commercial residential and the in a conventional space, I mean you've got your commercial loans they're quite different than your residential loans so than residential two to four units, you know do you have that distinction or it's the same type of loan product upfront applies regardless of commercial and residential?
Kay: Generally speaking all of the month that you are still considered commercial even if you're doing you know working with residential properties because we require that they are in an entity, and so they're going to be loan in a business, the terms and everything are going to be very similar, the only difference is that because many I'm wrong about
Paul: Okay so you mentioned in an entity you mean like an LLC S corporations in a corporation, so that's even another helpful thing for investors to I mean a lot of with your conventional loans, generally the conventional lenders don't want LLC, they want you to individually on the deed but this case that's an extra advantage for that.
Kay: Yes, exactly.
Paul: You had mentioned repayment terms we talked about interest only, I guess it's optional on the buyer to they want to pay more if they want to pay down the principal as well, I mean are you able to you calculate that upfront or you just as they you know they get to do that however they want to do that?
Kay: It's a case-by-case situation, we can't look into that if there someone is interested in doing that generally most people like the interest-only payments because it helps keep the payment low while you're in this transition phase and so you're not having to pay additional money if you're plenty the cells of property or if you're playing so you're in finance it into something that's more than conventional most investors like to keep they're paying it as well as possible during that time period
Paul: Okay let's say someone does start off with the intent of you know I'm looking alone when I'm looking for a fix and flip, but then they look at the property later and you know based on the value add and they think they can get better rents are you able to refinance them into a conventional loan that you no longer term 15-year, 20-year or 30-year or how does that work with your company?
Kay: Yeah definitely, so we can do finances, we can even cash out refinance and so if someone has built equity into the property and they were planning on selling it but then they change their strategy and once they hold it, we can refinance it and let them cash that equity out and then we of course maybe purchases as well.
Paul: So, the cashing out those include 20-year loan, 30-year loan?
Kay: Yes, even up to 30-years, yes.
Paul: Okay, do you hold all the loans on your books or do you already also broker some of these loans?
Kay: So, most of your loans are going to be held by the actual lender so we broker those out an they work with the paper
Paul: How many lenders do you work with private lenders?
Kay: So, we do real estate loans and also small business loan, so total we have about 15-lender that we work with on a real estate track, I would say it's about 15/20
Paul: Okay, very nice you mentioned small business loans here to share some information about that?
Kay: Yes, on a small business side we have a wide range of moms as well, we can do asset based loans where a company can use their invoices as collateral also inventory and equipment we can do equipment finance, we have some unsecured lines of credit for businesses and a few other things with over some general loan that we are offering.
Paul: So, talking about the loans, you mentioned interest rates are higher earlier in terms of your short term your hard money loans welcoming interest rates are we looking at there?
Kay: Generally speaking, they start in the high single digits so maybe seven and eight percent and it can go well into the teens, so twelve fourteen percent
Paul: What's the reason for you know a low interest rate and the high interest rate, is there you know it's based on the properties are based on the borrower?
Kay: Yeah, generally speaking it's going to be based on leverage, so long to value also borrower experience plays a role and sometimes FICO score, not all, not in all situations but those are the key elements of determining what that interest rate is going to be.
Paul: So, you can get a loan to like it you know if I wanted to go I found a property that's an ideal fixing flip and I can get the money to buy the property, are you also lending so I can you know pay contractors hire contractors to do repairs and if so then how is that done, how does that handle over time, do you think about all that money up front, do you draws?
Kay: Yeah, so we can find the purchase and the rehab in that situation and generally we go up to ninety percent, so we'll do ninety percent of the total project cost which is the purchase list or we have. The purchase clients are dispersed for the seller at closing and then whatever you have to set aside for your construction or rehab will go into an escrow account and you work on a draw system, so as the worth of being included you can request a draw and get that money for that particular piece of the work
Paul: Okay, for each draw you acquiring invoices, are you requiring some sort of milestones or just?
Kay: No invoices, we just we have an inspector come out just to make sure the work is completed and don't require that in the use you know specific contract, there's anything like that you can do it work yourself you just want to know that the work has actually been completed and then you can have the draw
Paul: Great when it comes to the actual loan approval process, you mentioned underwriting before is there a committee, are you part of that committee or how does that work in your company?
Kay: No, I'm not part of the committee I do like a pre-assessment, so I'll collect all of the documentation and kind of look over the deal, make sure that numbers and everything makes sense and then I submit it to the underwriting team and they actually do a full assessment, so they'll pull the credit they'll run the numbers and make sure that everything's okay. In most situations we do require an appraisal so that will be ordered and generally I was saying it usually takes a couple to close everything
Paul: Okay, you mentioned appraisals and who pays for the appraisals and I guess out of their other upfront costs that the buyers should need to expect?
Kay: So, the only upfront cost generally is the appraisal and the flyer is responsible for that in most situations, there are some situations where the lender will pay for the appraisal so that's the only thing that would need to be paid paint privates are closing. At closing for hard money loans usually they're going to have to pay fees which are loan origination fees a point for the hard money loan, I mean those can rent anywhere from one to, I have seen it at five. So…
Paul: Five points?
Kay: Yeah, it a percentage point of whatever the loan amount is.
Paul: Okay, and the reason for the variance and the loan points do that based on risk as well too?
Kay: Well, it's based on race it's also based on lender and situation depending on the long sides major advantage, you are at a lower loan amount, your points are likely going to be higher versus this to add you know a million plus or like your higher loan I'm not you okay a lower percentage point but of course if you've going to be higher in general because the loan amount is higher.
Paul: Okay, you handle all your loans and closings or deal with the title company?
Kay: We allow the borrower to choose their title company, so they can choose whatever they want to work with
Paul: Do you service all 50-states as their in limits where you do not service?
Kay: Yes, so in most we can definitely learn in most states, there are certain situations that are a little bit more difficult one of those on the top of the head is like North Dakota, so some you know random states you have some restrictions and for the most part you can you can live in any of the states
Paul: Okay great, and how can buyers get in touch with you if they will be interested in chatting with you and finding out more about your loan products and company?
Kay: Yeah, so you can reach me at info@cscapitalsolutions.comor you can visit the website which is <a href="http://www.cscapitalsolutions.com/">www.cscapitalsolutions.com</a>
Paul: Great and if you are listening to this podcaston my website, i'll definitely provide your contact information there and leave a couple of your social media profiles too.
Again, thank you for being on our podcast and enjoy the rest to day.
Kay: Yea, thanks for having me
Paul: Thank you
Kay: Awesome
2019-07-11T04:00:00-07:002019-07-10T17:28:11-07:00Paul Siantag:cincinkyrealestate.com,2012-09-20:15105Podcast #11: Financial Planning and Real Estate<img src="https://assets.site-static.com/userfiles/584/image/Podcast_11_Financial_Planning.png" width="435" height="635" alt="podcast 11 financial planning and real estate" style="display: block; margin-left: auto; margin-right: auto;" />
For this podcast about financial planning I sat down with Scott Trent of Skylight Financial. During the podcast we discussed financial planning in general, qualifications to be a financial planner and how a financial planner can benefit homeowners and real estate investors. This podcast is helpful for those who may not be certain what a financial planner does and can learn how they can benefit from working with one.
I hope you enjoy the podcast and find it informative. Please consider sharing with those who also may benefit.
Listen via <a href="https://www.youtube.com/embed/K1RcOvAb4_o" target="_blank">YouTube</a>:
You can connect with Scott Trent on <a href="https://www.linkedin.com/in/cscotttrent/" target="_blank">LinkedIn</a>.
You can connect with me on <a href="https://www.facebook.com/realtorpaulsian" target="_blank">Facebook</a>, <a href="http://www.pinterest.com/paulsian/" target="_blank">Pinterest</a>, <a href="https://twitter.com/PaulPsian" target="_blank">Twitter</a>, <a href="https://www.linkedin.com/profile/view?id=AAIAAAEYCmQBnexBnCk1RPA9wXPcXSj_qNRXF5g&trk=nav_responsive_tab_profile_pic" target="_blank">LinkedIn</a>, <a href="https://www.youtube.com/c/PaulSianRealtorwithHERRealtorsCincinnati" target="_blank">YouTube</a> and <a href="https://instagram.com/cincinkyrealestate/" target="_blank">Instagram</a>.
About the author: The above article “Podcast #11: Financial Planning and Real Estate” was provided by Luxury Real Estate Specialist Paul Sian. Paul can be reached at <a href="mailto:paul@cincinkyrealestate.com">paul@CinciNKYRealEstate.com</a> or by phone at 513-560-8002. If you’re thinking of <a href="https://www.cincinkyrealestate.com/sellers/" target="_blank">selling</a> or <a href="https://www.cincinkyrealestate.com/buyers/" target="_blank">buying</a> your investment or commercial business property I would love to share my marketing knowledge and expertise to help you. Contact me today!
I work in the following Greater Cincinnati, OH and Northern KY areas: Alexandria, Amberly, Amelia, <a href="https://www.cincinkyrealestate.com/anderson-township/" target="_blank">Anderson Township</a>, Cincinnati, Batavia, Blue Ash, Covington, Edgewood, Florence, Fort Mitchell, Fort Thomas, Hebron, Hyde Park, <a href="https://www.cincinkyrealestate.com/indian-hill/" target="_blank">Indian Hill</a>, Kenwood, Madeira, Mariemont, Milford, Montgomery, Mt. Washington, Newport, Newtown, Norwood, Taylor Mill, <a href="https://www.cincinkyrealestate.com/terrace-park/" target="_blank">Terrace Park</a>, Union Township, and Villa Hills.
Transcript
Paul Sian: Hello everybody. This is Paul Sian Realtor with United Real Estate Connections licensed in the state of Ohio and Kentucky. Today I have with me Scott Trent Financial Planner with Skylight Financial. We're going to talk about financial planning and add a little bit of real estate information on that. Scott, how are you doing today?
Scott Trent: Do an excellent, how are you Paul?
Paul Sian: Good. Glad to have you on. So let’s get started, tell us a little bit about your background. What do you do and how long have you been doing it?
Scott Trent: Sure. Well, it started in 1999. That's just wrapping up college and started working for a local retail bank back in the day that was bank one, which of course became chase bank. And uh, for about three or four years with the banking industry, had a couple of different roles started off essentially kind of right on the teller line, cashing checks and making deposits. And then within about a year I was tapped for personal banker role and was able to acquire my insurance and investment license and to be able to expand the services I provided my client. And you fast forward to working primarily in that space and the investments in the insurance space. A couple of different companies such as nationwide in western southern and was right about 2007 then I had an opportunity to expand my role into leadership and management and so from about 2007 to 2017 I've trained and developed and recruited and was in a leadership position in the financial services industry. And right about 2017 I just decided to lean back towards my personal practice and spend more time with my clients, which really is my first love is just spending the time with those clients, helping them achieve their goals and seeing their eyes light up when you give them hope that they can actually accomplish the things that they set out to accomplish when they first signed on with that first job right out of college.
Paul Sian: Very nice. You did mention something about licenses and they in your statement there, so like I guess we can go on with that. What kind of licenses are you required to have and what kind of licenses are helpful to have in your line work?
Scott Trent: That's an excellent question. So at a minimum you want to work with a financial planner that has an insurance license and at least one securities license. And the reason for that is because any financial plan is going to ideally holistically look at the different moving pieces of someone's life. We're going to look at cash flow and protection, risk management, wealth accumulation, tax reduction, retirement and ultimately a state of planning. And it's with those different areas, there's going to be some, some expertise needed as it relates to saving money, investing money as well as protecting your income and your assets. And so again, at a minimum bar you're going to work with someone who has an insurance and investment license. On top of that, there are other designations of the industry provides such a CFP or cou chfc is going to emit apple bet soup out there of different designations that you can achieve. But I tend to tell people you want to work with someone. Again, that is looking at from a big picture, looking at both the protection and the wealth accumulation side. And I would say just as important as licenses or designation. Do you want to work with someone that has a rather quit experience?
Paul Sian: Okay, great. What kind of licenses do you have?
Scott Trent: So I have an insurance license in Ohio where where I reside and also uh, about a dozen other states that I conduct business said on a regular basis as well as uh, a series six license, the series 26 license, a series 63 license. And I'm also approved for financial planning through my broker dealer.
Paul Sian: Okay. So it looks, sounds like some of the licenses to our state restricted just like real estate or are all of them state restricted or though some of their general that you have licensed you can work anywhere?
Scott Trent: That's a great question. So typically what happens is any insurance side of the house, once you are licensed in the state that you reside, you can fairly easily become what they call non-resident license in other states that you wish to do business and which is essentially filling out a background report, paying a fee and they kind of stamp stamp off and approve it. And so then in that way you're able to conduct the insurance transactions in those states that you have clients that are, you know, for example, I have clients in the west coast and east coast ever where in between and I, I need to be licensed in the state that they reside as well as my own. On the security side or the investment side, you have one set of licenses that determines what type of business that you can conduct for your clients. And then the series 63 that you might've heard me mentioned that says that I can service the clients that reside outside of Ohio or I do, but you also need to be registered and approved and those surrounding states as well. So there's a bit of administration that needs to take place, but at the end of the day, as long as you have filled out the proper forms and you're mindful of your continuing education, just like you are as a real estate professional, you should have no problem servicing clients anywhere in the country.
Paul Sian: Okay. And we did a, you did kind of talk about, you know, one financial planner does coming, explained it in the light detail and through your intro, can you boil it down to us, boil it down to somebody who's never met a financial planning before. We never talked to a potential central planner. What, you know, what exactly you do and how can you help somebody?
Scott Trent: That's a great question. So you're, from a bullet point standpoint, I would say it's really about the why, how, and why and the what speaks to goal clarity. What I find working with our clients, Paul, is that mom and dad or partner's, they're getting up every day. They're going to work and they're doing their job. Then they're coming home and will oftentimes doing mom things and bad things and catching their breath and then we get the little ones off the bed and next thing you know, we're waking back up doing it all over again. And you know, kind of big picture. Intuitively we're working to provide for our family and we're working to have a great lifestyle. But you'd be surprised that most often people aren't actually having a good conversation about what they're really trying to accomplish and setting benchmarks for things like we want to have x amount of debt paid off in three years, or we want to save up for a great family vacation.
We've always wanted to go overseas. But yeah, we ended up just going to Florida every year because we don't take the time to plan it through. And next thing you know it's summertime. And so it's about that clarity that the conversation that needs to happen between the partners in a hole, the spouses often let's say, hey, where are we really getting up and working for a day to day basis? And so goal clarity, what do we want life to look like? If we wake up 20 years from now looking at a rear view mirror, what things would we have wanted to accomplish, make, make it feel like we've made some progress. So that's a lot of it. The houses, the strategy or the roadmap. So once we identify what a client wants and help provide, help them have that conversation of clarity among all interested parties, then it's how do we get there? And that's where our expertise comes in and that's looks like cash flow design that looks like different vehicles or products sometimes. Sometimes it's as it's a matter of saving, saving the right amount and the right kinds of buckets. And so again, that's that more technical roadmap piece of it and it ultimately the why of it is this, the accountability, it's, it's part of my job is to keep the, why are we doing this in front of them? It's what, what do we want to feel, what do we want to experience? And so if we, we've looking to the future and we can see our future selves waking up with the confidence of knowing that, that all of our financial lives are in order, that all the moving pieces are fitting together like a, like a perfect puzzle. There's total efficiency there. It's, it's making sure that we keep that in front of our coins to say, Hey, this is why we're saving this much. On a monthly basis. This is why we have that insurance in place. This is why we are investing in these types of instruments and vehicles. It's all about, it's about the experience that we want to create for ourselves and for the people that we love the most. So I guess that's a little bit more than bullet points fall, but in a bullet point, it's the why, how, and why. Otherwise it's the goal, clarity of strategy and accountability that we provide.
Paul Sian: Actually that's, yeah, that's very well said. So it's not just long term planning, it's not just you know about retirement. It's also about your short term. If you want to go, like you mentioned the vacation plan or even then you know, my case, I deal with a lot of real estate investors. So somebody who wants to set up a plan for investing in real estate, you can help out with that too. Correct?
Scott Trent: Oh absolutely. And so, you know, the time frame, it has a lot to do with what their client has going on in their life and this season that we meet them in. So, you know, for example, and we hear a lot about, I've really liked to get in to real estate investing. And then we say, well, when do you see yourself doing that? And sometimes they'll say, well, you know, in the next two to five years. And sometimes they say, well, like right now I can't. And so we'll take a step back again, kind of coordinate all the moving pieces of their financial world and letting math and math have a seat at the table and not just intuition and not just kind of what we want and, and you know, let things that, you know, sometimes we see something on the internet or hear a friend talk, we're like, Ooh, I want that. And so then we just go do it. And so again, that's a big part of it. But also its let's, let's have the emotions have a seat, but also led logic and math and rationale habits. Have a seat, the tables.
Paul Sian: Well, yeah. And you mentioned long term plan, also short term plans, looking at things. So, I mean just uh, and we can go a little situations or specific, basically you have to look at everybody's individual situations and how they're, you know, what they're doing and what their goals are. Let's say we have somebody who's a, you know, there were w two income earner, they make x amount of money per week, per month, what have you, and so they're interested in, in a real estate investing. What kind of general advice would you give to that person and you know, maybe they don't have a full down payment saved up yet and they need 20-25% for whatever they're trying to buy. What kind of suggestions would you have for them.
Scott Trent: Paul What I would say with someone who's looking to take their first step into the financial independence or looking at that opportunity to, to start a real estate investment portfolio, it is always looking at it through the filter of what we call our four pillars of financial security or the value system, that value system that we use when it relates to financial planning. And those things are going to be making sure that you're protected against major financial risks, that you are becoming a world class saver, saving upwards of 15 to 20% of your income on a monthly basis, making sure that you have a life events fund. We have says that I have upwards of a year's worth of my income in places that I can access outside of my qualified plans such as his Iras so that I'm able to deal with not just rainy days in emergencies, but I'm also able to take advantage of great opportunities like I ain't a great property for a great price and also taking a look at the debt that I have on my balance sheet that already exist and so we would do with a client is to say, Hey, let's take a, let's take a holistic look or three 60 look about how a purchase of a real estate property, what impact these other creek cake, key critical areas of financial planning and your overall wealth strategy.
Paul Sian: Okay, great answer. You had mentioned a debt in there. Let's go talk about that a little bit of an most people are buying real estate using that, you know, your mortgages, commercial mortgages, residential mortgages. What are your thoughts on debt? I mean a good, bad avoiding to some that's good, bad. What do you think?
Scott Trent: That's a great question too. I think that it is difficult especially you're right up in the Midwest to ever say Ted is good. However, when it comes to that, when I, when I'm, what's an easier answer to give is the what, what is the fat kind of debt and so bad debt is higher interest rate, unfavorable terms, excessive fees, consumer base that such as credit cards or retail store cards, things that we, that that we acquire just for lifestyle. Because a lot of times what that represents on someone's balance sheet is that they have let their once supersede their actual needs.
And so what lending institutions are happy to do is to say, hey, if you want an extra money to be able to keep up with the Jones' is it will give us a call or come see us on credit card.com and so I always caution against that kind of debt because it speaks usually to a bigger problem on the other side of things. Acquiring that for the purpose of acquiring assets like real estate, like vehicles, that can be very wise decision because it helps you leverage your own cash flow and leverage your own opportunity to earn income and your own savings and oftentimes, particularly as it relates to real estate for home purchases for example, there are, there's some tax favor ability to be found with those kinds of debt. And so what I've, what I've loved the, the good debt, Paul, the best debt is low interest rate, tax deductible kind of debt.
That's good debt. But again, this kind of summarize, I would say the bad debt is usually represented by death that we were required to just improve our lifestyle, close trinkets in the house, furniture, things like that. That's usually about ego, about lifestyle as well as just as much to do with our neighbors and our neighborhoods. What does ourselves or the people that we care about the most.
Paul Sian: You had mentioned the taxes in there too. I do. I guess Texas do come into play as a financial planner when working with your clients.
Scott Trent: Yeah, absolutely. And so one of the things that we've helped the client with recently is to help weed through the confusion of the current tax situation because of the tax cuts that will were implemented in 2018 and so as an example, all you brought up about, it's not just long term planning, it's not just retirement plane that we help our clients with.
It's also short term goals. And so taxes is a great example of that because what we do know that unless there's some overall legislation that gets passed, what we can expect is that in December 31st, 2025 the current tax cuts are going to that. So another way to think of that is come January 1st, 2026 everyone's taxes are going to go up if they're earning the same income of the art today. And with that creates opportunity. It's one of the things I'm working with a family right now on is this idea of exploring, does it make sense to take advantage of after tax investing rather than what most people focus on kind of cause they told to just what they see their neighbors and their friends and family doing, which is maximizing their pretax dollars is what could happen without getting too far into the weeds fall is because of the current tax environment.
We might be deferring taxes at 20 or 24% all the way to wake up and later in life and find that we're now paying taxes on those same dollars at a higher rate, 30% 32% 36% and higher. So we just have to be careful about that. And so taxation is a area of emphasis that is necessary working with any financial planner. And I would just caution folks that if their financial planner is not having a meaningful conversation about long term impact of taxation, then they might want to seek out a higher authority on the matter or maybe it might be time to start interviewing other financial planners. I think the asterisk that I would add there fall is that that's also why we partner with local professional CPAs so that they can have the kind of final say so in these matters as it relates to wealth building in financial planning in the in the area and Ronald Taxation, we are very familiar with that have very powerful tools that speak to taxes.
However, what we are not as certified public accountants and so as you can imagine, we want to make sure that we always work with someone who, who is that when it comes to crossing those ts and dotting those I's. Also, I think with the financial planner, bigger picture is working with a successful financial planner also should give you access, favorable preferable access to the financial professionals that they network with. Such as personal make herself a professional real estate agent as well as an attorney as well as a property casualty specialist to CPA, a benefits consultant if it's a business owner on and on. And so it's really working with the right team, but ultimately working with someone who is going to be that can symphony conductor or that quarterback of their team, who's going to take the responsibility to make sure that all the orders are running in the right direction.
Paul Sian: Great answer. Actually that wasn't, that answers my, uh, it wasn't going to answer my next question, which is a financial planner is not a solo person. They work with, uh, with a team as you mentioned, you know, working with the accountants, the attorneys, CPAS, what have you. So that's a great answer. We had discussed earlier you had discussed about building up an emergency savings fund. Then you mentioned a year, which is great. And that's the idea was the year, you know, we've heard online from anywhere from three months up to six months. I mean, what's, how do you suggest people go about building that savings funds? I mean, especially for somebody who thinks they're living paycheck to paycheck, I mean, where do they find that, that room, that gap to start, start that savings fund?
Scott Trent: SoI guess it would clarify first the difference in an emergency savings fund in a life event. It's fun. So for an emergency savings fund that's best suited typically at the local bank, and that's going to be in the form of a savings account on or maybe even a and no fee checking account. And that's going to be where you want to have about three months, maybe six at the most. A lot of it has to do with the comfort level, the individual client. But typically three months is more than fine to have on hand at the local bank. That's money that I'm an ATM card or a debit card swipe away or uh, a dash over to the local branch away from getting access to my funds. Outside of that, the next six to nine months that we talked about from a life events that doesn't necessarily have to be in cash at the bank, but it just needs to be somewhere outside of a qualified plan.
Because as you probably know, and your listeners know, Paul, money that's inside of a qualified plan is largely inaccessible until I'm 59 and a half. And last I want to jump through hoops, pay interest rates to access my money or God forbid pay taxes as well as IRS penalties. And so when we talk about life events, fun big picture, we're talking about braces for the kids. We're talking about a $2,000 car repair emergency that jumps out the bushes on us. We're talking about, um, the vacations that we want to go on. So it's the experiences that we want to have in life for the people that we care about most, but it's also the things that life is inevitably going to do, which is getting, throw those curve balls. Dot Us good and bad. So as far as how do we get there, take baby steps, it's just sometimes it's as simple as going to your HR coordinator, your payroll director and saying, Hey, can I split my direct deposit between two counts right now?
This is kind of hitting the checking account. And then from there it's, it's um, you know, all bets are off and it's a feeding frenzy. And ultimately, uh, fortunately for the bills and the lifestyle expenses and gas money and everything else, uh, the best way to say fall, no matter how you do it or what vehicles you use is systematically and consistently. So it's those things that you don't have to pull ever go online, go to the local branch and things that just happened. That's why good and bad, most of Americans well is in their qualified plans are the 401k because it comes out before it ever hits our bank account. It's out of sight, out of mind. It just piles up. You know, the, the, the tough part about that is, again, that's a qualified account. So there's some heavy restrictions that keep us from being able to access our funds when we might need them most.
So just like the 401k if for example, I talked to a college student this afternoon and it was as simple as go to the HR director happens, split your direct deposit into two separate accounts and just start taking out $25 a pay check and having that diverted to a secondary account just so that it starts to pile up and the idea that the money's there but really need it, but it's just that extra layer that helps reinforce the discipline to say, okay, I'm not supposed to touch that. That's for future purposes. That's for rainy days, real emergencies and not frivolous spending. And so start with baby steps. And next thing I would look at is working with an advisor who has tools to help you analyze your spending. Your cash flows ideally will help bring awareness to where those dollars are going. What I find fall is that what most of our clients, there might be 10 to 15% of their monthly income.
That just seems to just disappear. It's not accounted for it. And so using the tools such as, uh, we use a tool, Claudine money for example, and we're personal financial view that will really electronically analyze someone's spending habits so they can say, oh, I wonder how much money we're spending out spending on a monthly basis eating out. Well, click, click, click. This is exactly how much that is. And we can set short term goals on what we think that should be and we can keep, we can track our progress through these financial tools. The other thing that we look at in a financial planning process is we want to analyze the cost of the services that you're currently receiving. So for example, when we work with our lending and credit specialist or real estate professionals or CPAS or attorneys or property and casualty specialist, we're making sure that our clients are getting value, not always looking for cheap.
In fact, the chief is not a word that I tend to use or any of the professionals and network with. We're making sure that we're getting the best value since we have a finite amount of dollars coming in. We want to make sure that those are being used, maximized and leveraged the most appropriate way. So it is taking the baby to start somewhere. It is working with an advisor to find the awareness of where the money's actually going as well as taking a look at the cost of service for the services that we're currently enjoying as well as I. Lastly, I would say looking for ways to minimize the impact of interest rates wherever possible, whether that be through right refinancing or creating a debt payoff strategy so that we are avoiding those excessive interest rates in feet.
Paul Sian: Yeah, it takes a, an overall, you like you're, you're saying you have to look at the budget, get to look at the incoming money, outgoing money as well, and kind of build that plan. So I mean that's, that seems you to be your specialty. Very much. So. Moving on, let's go back to the topic of real estate. And I go over one of the controversial statements made by Gary Vee, Gary Vaynerchuk. I mean he had, he had say stated, uh, rather than buying a house, it's better to go, you know, go rent and I don't know that upset a lot of real estate agents too. I mean that's kind of our bread and butter. We're, we're buying and selling real estate. I'm of the opinion though. I mean I, I help a lot of buyers and sellers with the investment real estate too. So it's not that, you know, I have to own a house personally, but I can own an investment property and I'm helping somebody else, you know, live in a place. What are your thoughts on the ownership of a house or renting, renting the place to live.
Scott Trent: Interesting and not, I read an article last week that talked about the difference in buying and renting or leasing in different pockets of the country. And as I said, it'd be four people. I work with clients all across the country and in some markets it's really hard to justify a home purchase as it, as it compares to renting a home. You know, for example, a lot of clients on the west coast where housing market is very tight and there's certainly a premium for home homes costs there in that part of the country. And so what we find is that the monthly cost of leasing a home can oftentimes when you consider the fact that with home ownership, I also am now responsible for property taxes, homeowner's insurance, as well as the upkeep of the property that that can sometimes more than double the living expenses as it relates to housing. Whereas compared to here in the Midwest where sometimes it can actually be much more cost effective to own a home rather than rent a home from a monthly cash flow outlay. Even when you add in insurance and taxes and the kind of monthly maintenance, if nothing else, it's oftentimes a break even when you consider all factors. So I think that would go back to as you say, Paul, you know, or Scott does it. Does it make sense to own or rent when you think about Gary V's advice way I would look at that is again, just like any other decision that our clients would come to us and ask our feedback on. We would take a, at the basics we'd say, okay, before pillars of financial planning or financial security or these value system that we use to build our clients' financial plans on the perfect protection, the become a world class save or having the life events fund to be debt free or have a, have a plan to get us there.
If a, if home ownership or home purchase would get in the way of us living out those values or achieving those financial objectives then and renting would, then we're going to say it. We should think about writing for another year or two. However, if, if our clients can own a home and be protected well and be a great saver and be building their life events fun and have a handle on the that that's already existing on their financial balance sheet, then by all means we've been encouraged folks to take, take ownership of a home so that they have acquired an asset. They're building a liquidity in the form of equity and they're also able to take advantage of the things we talked about earlier, which is having the tax deductibility from interest payments on the mortgage and so on and so forth. And so the other astronauts that I would have there is the sense that if someone comes to us and says, yeah, you know, my job, we're an up and coming or a rising star and you know, are two of the five year goals are too.
And we want to, we want to be really nimble because we're very likely to be transferred across the country, maybe Chicago or San Diego here in the next two to five years. Again, why would attend to encourage those folks is and can be consistent with say, nimble homeownership home purchase, maybe a terrible idea. This is because it's, it's easy to, it's much easier to give a landlord a 60 day notice that you're moving out than it is to be able to sell a home in 30 to 60 days regardless of the market. Also the fact of course you gotta be careful that we're not holding an asset that we're going to look to sell or relinquish in the next 12 to 24 months or even three to five years. Knowing that it's not often, but every so often the housing market can regress such as 2007 and eight and we have to be careful that we didn't make a 30 year decision based on 24 to 48 months factors, if that makes sense.
Paul Sian: Yeah, definitely makes sense. And it's a a great point. I mean just like real estate, you know, when you brought up earlier the cost differences, you know, living in California versus living in Cincinnati, Ohio, it's location, location, location is agency. So, I mean when you get over here for you know, $250,000 you know, in California you can easily do the, be able to get 1.2 million depending on the location you're at. So same, same thing for the individual person. I mean it's the, it's the individual that matters. What's your life goal? What's their life plans? And you know, somebody who's going to be here in Cincinnati for two years, it doesn't make sense. It might not make sense. The, you know, there are high transaction costs, you know, where they're from, your, your real estate closings, closing costs, your, your mortgage closing costs. So I mean that that kind of adds in and you might not get that pay off in two years. Especially if value state stay flat or decrease.
Scott Trent: That's an excellent point perspective. If I could leave your listeners with one nugget of wisdom for what it's worth, I would say the sooner that you can let go, other people have expectations of you and let go of what other people might think of you and the perception others have of you, the better off you'll be. We find so often that the pressure to keep up with the Joneses that use that expression again or to to everybody else is doing it just kind of like kids in grade school. That same peer pressure exists with hardworking families, grownups, parents here in adulthood and the idea that we've got a finite amount of time and a finite amount of resources and at the end of the day being able to look in the mirror and have satisfaction about the progress you're making it for yourself with people that you love, making sure that you have a plan that works and offer seen circumstances, good days, bad days, sunshine or rain.
Knowing that you've prepared a path for yourself and for your family. That is a general one that reaps benefits for generations and that we're teaching the generation coming behind us about financial responsibility. I think if we can find joy and peace in those principles and those ideas and the visions of that kind of a future rather than making sure that, you know, we look good when we pull up to the company picnic or the family or a union or making sure that we form to the right neighborhood with the right car and the right toys in our garage. No, I think we'd be much better off as Americans because sadly enough, the statistics say that the average American to saving 5% or less of their income or an overwhelming majority of folks are not even prepared to deal with a thousand dollar emergency if it were topics that out of the bushes.
And so I think that what I'd like to leave your listeners with this idea of we can do better and one of the best ways to start doing better is to think a lot less about the perception and approval of others and really start thinking about the idea that the stakes are high and when, when we consider the magnitude of the impact of our financial decisions, not just for our lives but the lives of the generations that follow, I think we can make the best well informed decisions and whether that includes home purchase or renting or if it includes real estate and investing or for or not. I think that working with myself and my team, we really work very hard to make sure that we keep the main thing, the main things and minimize the distraction of other things I've mentioned.
Paul Sian: We've talked today, plan for now and plan for the future. All very great and solid advice. Thanks Scott. Appreciate you. Haven't you on the show here and I will chat with you soon.
Scott Trent: Thanks Paul.
2019-04-25T04:00:00-07:002019-07-10T09:06:11-07:00Paul Sian