Brad Hansen 0:00
The typically unless it’s a portfolio loan in the bank or investors keeping it, but your typical Fannie Freddie, Ginnie Mae loans, these are packaged and sold as mortgage backed securities on the secondary market. And then that’s what determines the rate. So those rates will go up or down based on inflation based on demand. And so, you know, during the 2120 2021 time, what the Fed was doing, not only did they take their Fed rate down to basically zero, but they also were buying mortgage backed securities and just like anything else, it’s kind of a supply and demand right? So they’re buying up all these mortgage backed securities that’s driving the price down, right so that’s part of the reason why we saw rates you know, 30 year traditional conventional loan rates were in the upper upper twos low threes, you’ve got good credit and you know, now they’re they’ve more than doubled.
Welcome to CRE PN Radio for influential commercial real estate professionals who work with investors, buyers and sellers of commercial real estate coast to coast whether you’re an investor, broker, lender, property manager, attorney or accountant we are here to learn from the experts.
J Darrin Gross 1:19
Welcome to commercial real estate pro networks, CRE PN Radio. Thanks for joining us. My name is J. Darrin Gross. This is the podcast focused on commercial real estate investment and risk management strategies. Weekly, we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio. Today’s interview is sponsored by building insurance and risk. When you invest in real estate, you need to protect yourself and your investment from catastrophic loss. The experts had building insurance and risk provide you with multiple offers and a side by side coverage comparison. To learn more, go to building insurance risk.com.
Today, my guest is Brad Hansen. Brad has been in the mortgage business for 18 years helping clients meet with home financing goals. He also is a real estate investor and loves to educate others on how to build wealth through real estate. And in just a minute, we’re going to speak with Brad about great products and strategies for becoming a real estate investor.
But first couple reminders. If you’d like her if you if you can, we’d love to have you. Let me say this again, if you like our show, like I’m nervous. If you like our show CRE PN Radio, there are a couple things you can do to help us out. You can like share and subscribe. And as always, we encourage you to leave a comment. We’d love to hear from our listeners. Also, if you want to see how handsome Our guests are, be sure to check out our YouTube channel. You can find us on YouTube at commercial real estate pro network and lawyer there. Please subscribe without a warm welcome my guest, Brad Hansen, welcome to CRE PN Radio.
Brad Hansen 3:11
Thanks. Great to be here with you, Darren.
J Darrin Gross 3:13
Well, I’m looking forward to our conversation. But before we get started, if you could take just a minute and share with the listeners a little bit about your background.
Brad Hansen 3:22
Yeah, you bet. Like you said earlier, I’ve been in the mortgage business for about 18 years. I’m a branch manager. And so I’m also an originator. So I have worked with clients 1000s of clients over the last 18 years and like you said, I really love helping people achieve their goals. And we do everything from really primary residents, second homes, investment properties, construction. But it’s all very residential focused, right? So rigid residential investment, typically includes one to four units, although we have some options to go pay units. So yeah, I really love what I do. I think it’s homeownership, I believe really strongly in homeownership and investment as you know, investment properties as a way of investing as well.
J Darrin Gross 4:13
Now, I love it. So if you could, Brad, what’s the difference between an investor versus a an owner occupied as far as lending requirements or it gets kind of you could differentiate between the two?
Brad Hansen 4:31
Sure. Yeah, I mean, it’s a good question. I mean, really, when it comes down to it the the lender, and we use a number of different lenders that help provide the funds right. So we’re the originator, little bit about Academy mortgage, we originate the loan which basically means take the application, we work with the client directly. We will we will underwrite the loan will fund the loan, but then the loan will sometimes go to different investors. So it might be Fannie Mae, Freddie Mac, FHA, VA, USDA, but then we also have private investors, right, they portfolio these loans, we see that a lot with Jumbo. And all of these investors, they will categorize their loan risk based on is it a primary residence, are they going to live in that home for 12 months, up to 12 months, because normally when you when you get a loan, you say, this is going to be my primary residence, you’ll say, Hey, I’m gonna live in this for the next 12 months. Now, things can change. And sometimes there are exceptions to that. And then, of course, a second home is a home that you don’t live in primarily. But it typically will be in a place where people vacation, you know, here in Oregon, it’s at the coast, it’s in the mountains, it’s out in Bend Sun river, you can’t have a second home, that’s next door to you, right, that doesn’t qualify. And then of course, an investment property is one that you’re not going to be living in. And those can be really anywhere. It could be the house next door to you if you want. The other thing that’s really interesting about the last few years is we’re beginning to see what I’ll call you know, I think the term house hacking is kind of the term for this, but people will see their primary residence and say, Hey, how do I leverage my primary residence to also make money with it? They might use Airbnb move out for the weekend, they might get an adu. So the thing that’s exciting about real estate right now is we have more products and tools and options than ever before, to help people finance. But also there’s more options for investors, right. It’s not just a long, you know, long term rental, you can do short term, you can do all kinds of different things with it. So that’s, I think one of the exciting things about being in real estate, and even if you’re a primary, even if it’s your primary property, it’s still an investment to I mean, you get to live there and enjoy all the benefits. But I’ve personally made more money from the homes iPhone than I might have from the stock market in terms of return on investment.
J Darrin Gross 7:10
Yeah, now, it’s a good case to make for the positive market with real estate there. So I’m curious. So between the two are the multiple different options, you know, whether it be a primary or a vacation, or a rental? How, how is it that the lenders view if you could kind of is it like, percentage down payment required? Is it the I mean, when it comes to, you know, your ability to qualify for a loan? Yeah. What are some of the factors they look at in those different scenarios?
Brad Hansen 7:45
Yeah, you bet. So, with a primary residence, you have typically much more options when it comes to your downpayment, right? So we have primary residence, if you’re a first time homebuyer, we have zero down loans, multiple different zero down loans, or downpayment assistance programs. Typically for those, you have to be a first time homebuyer. But even with that you we have 3% down, we have 5% down some low down payment programs, right? Those are what available for a primary residence, but you’re gonna live in that home. When it comes to investment properties. The minimum down, we have a loan that you can put as little as 10%, down, but 10 15% down, depending on the the investor that we talked about, those are kind of the options that we have. We have a great portfolio loan that I’ve used myself, that’s a 10% down no mortgage insurance. And it’s a portfolio investor product. So still pretty good. But most of the time when you’re getting into higher units, so 344, plexes, they’re wanting to see 25% down and typically, the larger the downpayment that you have on an investment property, the better your your interest rate, and your fees are on these. So any again, well, I’m not necessarily going to quote interest rates, because everyone’s situation is different. We’re seeing right now, interest rates are a lot higher than they have been in the last couple of years we’ve been, you know, in these COVID lows we had the Fed and their actions created, the lowest rates we’ve seen in history, I think, during 2020 and 2021. And as we came into 2022, really, toward the beginning, we started to see rates climb, because of inflation. And again, that has caused a lot of people to slow down, take a pause. But anytime the crowd is going one direction, there’s going to be opportunity for others, right so I’ve talked to a lot of investors and they they feel like now’s a great time to buy because number one they’re not competing with 456 other people, right? So they can go in, they can typically get concessions from, from a seller to help cover some of their costs. And they feel like even though rates are higher, maybe their cash flow is not going to be quite as good during this time, they can actually take advantage of get get some more more opportunities to buy properties during this time.
J Darrin Gross 10:21
Yeah, I was gonna ask you just about the kind of the current situation. Like you mentioned, fed rates are increasing and kind of the mortgage rates, I think everybody assumes that they’re always coupled to the rate. But are you seeing that? Is that the case today? Or is there is or where we’re in relation just to the spread, I guess, or is? Right.
Brad Hansen 10:47
Right. Good question. So there’s a lot of confusion, people sometimes think when the Fed takes their Fed rate up, right, that’s the money that banks lend to one another, it’s kind of the overnight rate, they, they think that is how mortgage rates are determined. And actually, it’s sometimes what we’ll do is we’ll see the Fed take the rate up, and interest rates will actually drop. And the reason is, because the Fed is taking their rate up to fight inflation, right? Inflation is the enemy really, of bonds. And mortgages are bonds. So you hear about mortgage backed securities, those are bonds, those are sold on the market, they’re the you know, the when we, when we do a loan, the typically unless it’s a portfolio loan in the bank, or investors keeping it, but your typical Fannie Freddie, Ginnie Mae loans, these are packaged and sold as mortgage backed securities on the secondary market. And then that’s what determines the rate. So those rates will go up or down based on inflation, based on demand. And so, you know, during the 2120 2021 time, what the Fed was doing, not only did they take their Fed rate down to basically zero, but they also were buying mortgage backed securities. And just like anything else, it’s kind of a supply and demand, right? So they’re buying up all these mortgage backed securities that’s driving the price down. Right. So that’s part of the reason why we saw rates, you know, 30 year, traditional conventional loan rates were in the upper upper twos, low threes, you’ve got good credit. And you know, now they’re, they’ve more than doubled, right? And then typically, an investor rate is about anywhere from a half to a point higher than a regular conventional loan. But it’s interesting, because right now, we’re actually seeing the conventional rates, the Fannie, Freddie, you know, driven rates are actually higher than jumbo right? So we’re seeing some jumbo rates that are lower. And it’s really a little bit interesting right now, because you’re not a lot of the rates are not following their traditional rules. Typically, a jumbo rate is slightly higher than conventional rate. Right now, they’re lower, right? We’re seeing them anywhere from a half to point lower, because a lot of those are driven by the banks, right, some of these big banks, they’re, they they’re in maybe the sixes, and if the conventional rates and the sevens there, they’re thinking, hey, I’m make we’re making enough money on this, we don’t want when rates start to drop, we don’t want those rates to run off, right. We don’t want them to be refinanced right away, because the banks or the servicers, they make their money and investor, they make their money on holding those loans in those notes for a while. And they’re making the interest on him. Right. So it’s really changed the dynamic. We have the we have, I think, the highest rates in 21 years I just read recently. And that scares a lot of people. But again, anytime you have a lot of people that get scared to say, hey, I don’t want to, I’m going to wait on the sidelines to buy that home. What that means is it means opportunity that’s out there in some markets are worse than others. Right? I’ve heard Arizona right now that home prices have dropped significantly, inventory is gone, you know, triple double or quadruple what it’s been since the beginning of the year, here in Oregon. While we’ve seen inventory go up. We haven’t seen it go up significantly. I think the last number I saw it went from 1.8 months, up to like 2.2 months. So again, supply and demand has a lot to do back in the Great Recession. You know back in, oh 809 We saw inventory up to 1112 months, right there was too much supply. And now we don’t have that problem. And it’s really different a different time than we were back in Oh 809 When we had the those market that market volatility right now. Back then, I had my my loan options went from you know, 15 pages of Luna options to one, right I had a, I had a 30 year and a 20 year loan, and nobody wanted to do the risk was way low. Now, we still have a ton of opportunities and products for homebuyers, whether it’s for primary and investment property, things like that, we’re starting to see, you know, more credit. And part of that, the thing that has helped, is they’ve tightened up a lot of the guidelines, right. So they’re not giving the old no income, no asset loans or stated loans. They’re really solid loans. It does help that that, you know, unemployment slow that jobs are strong things like that. So, you know, the economy does impact our you know, what we have what we can offer as well.
J Darrin Gross 15:48
And it it is kind of a, you know, weird how, you know, when we go through these cycles, especially like the oh eight cycle where everybody, I mean, just the lending environment was basically anybody could get a loan and, and multiple, multiple properties. And, you know, probably I don’t know what the percentages were, but enough people had them that it created this, this false market that basically couldn’t support itself. And so then, and I forget what were the measures they put in place there? Because it was like, weren’t me I know, they tighten up the the inspection with the appraisals and, and some of the the loan requirements and that but I mean, basically some of the the they narrowed the opportunity for this problem to reoccur. And now we have I mean, the last couple years, like we’re talking about how rates have been so low? Is there any kind of number industry wide or like a percentage of people that actually refinance to a lower rate, as opposed to still have a writer?
Brad Hansen 16:58
Right? Yeah, that’s a good question. I’ll answer your first question first. So you asked about what were some of the main things that changed. On the appraisal side, they instituted a home value code of conduct, which was really good. And what that did is that created a separate function. So you couldn’t just have your own appraisers go out and give you values. And you know, I think, you know, that was really good, I think having some accountability with appraisals and banks and lenders, so you weren’t just getting false values, right? So bringing more guidelines into that and more rules, I think was really good. Now, maybe they’ve gone a little too far. And we’ve actually had appraiser shortages, but then they’ve instituted things in recently, like appraisal waivers. So if they’re doing a lot more electronic appraisals, that’s your primary residence. And so that’s that actually has helped. Then the other thing they did is they’ve instituted and I won’t go into all the details, but basically they instituted an ability to repay rule, right. So we’ve as a lender, we have got to make sure when we underwrite that loan, we can show that this borrower has the ability to repay, right, are we verifying their income or re verifying their assets, their credit, their debts, all those things, and then we have very specific guidelines. Typically 50% debt to income ratio, when you look at their your housing costs, as well as your all of your other debt is pretty much the maximum there are some exceptions with FHA and VA. But that’s kind of about the max when it comes to an investor loan. Typically 45% debt to income ratio is about the max. And when it comes to a jumbo loan, most of those loans have been limited to 43%. Now, again, we have other loan programs, the old subprime is gone, but there’s a new category they call non qualified mortgages. And non qualified mortgages are an opportunity to for self employed borrowers to use bank statements or assets for income, they’re still have, they still have this ability to repay rule as part of it, but they’re just using they’re using bank statements or maybe it’s a 1099 employee or some things like that they don’t fit into the box, we’ve got options for some of the people and then typically those rates will reflect the risks that are associated with that type of product. So I really feel like there’s been a lot of really good things that have happened over the last you know, what is that now 14 years or so? Since that happened you know, just the basic rules and and they brought some more sanity to the I started in oh four. And I still remember when I came in and someone was telling me about the no income, no asset, no employment loan night and, and the rate wasn’t even that much different. I was a little bit surprised by that and really didn’t do most of those kinds of things. A lot of those people that focused on subprime, many of those people got out of the business or switched out of subprime. And the, you know, obviously, you don’t need to go into the disaster that happened in Oh, 809. But took a while to get through that.
J Darrin Gross 20:22
But I think, you know, kind of where I was going with this is that, you know, the fundamentals in the market in a weight are entirely different than the fundamentals right now. Absolutely. I think that there’s a sense that history is gonna repeat itself. Now, we’re gonna have this big wash of closures, and and there’s going to be all the supply on the on the market. In fact, there’s, I mean, what I read and see is that there’s a housing shortage. It’s right, but most markets, there’s still demand. I think the challenge we have in any, any market or any situation where there’s change, it’s there’s, there’s a sense, or there’s a time for people to kind of read get their, you know, get their footing to understand what is the market, as opposed to feel like, you know, it’s too risky, or it’s not what it was, or it’s not what I think it’s going to be Yeah. And so I don’t know if if you have any kind of thoughts on that, or if there’s any kind of, you know, what you’re seeing Yeah, I’m guessing the activity level has changed for you in the last couple of months.
Brad Hansen 21:25
Absolutely. You asked a question about, you know, how many people refinanced right? What percentage, and I don’t know that I’ve seen a percentage, but it was a lot. I mean, it was it was, if I remember correctly, the the number of mortgages that were done, was last year in 2021, was like 4 trillion or something like that. I mean, it was a giant number. And this year, I think it’s expected to be closer to like 1.5 trillion or something. And again, my numbers are probably off. But the the percentages are similar in the sense that, I know it’s funny, because every once awhile, I’ll talk to a client whom that didn’t refinance. And I’m actually really surprised that they didn’t refinance during that time, but you don’t know what they were going through. Right. So there, they might have been unemployed during the time or they might have had a foreclosure or bankruptcy or other things that happened, that are going on. And the one thing that we’re seeing this year is we’re still seeing people that want to upsize or downsize. There’s a big demand from millennials, that, you know, they were competing with 456 10 other people last year, and they couldn’t get into it, now’s the time for them. And like I said, even as an investor, now’s the time that you don’t have to necessarily overpay for a home. Right, you might actually get it for less than asking, get some concessions. And I know we’ll talk about some products here. But we do have a we have a lot more. That’s the other big difference, like I was was saying, I went down from the 15 page rate sheet down to one page. And now I’m with the change that we’ve had with rates going up, I still have even more loan options than ever before.
J Darrin Gross 23:09
Well, let’s talk about some of the products. Yeah, that you have.
Brad Hansen 23:12
Yeah, you bet. So, as I mentioned, you got your kind of traditional agency loans and you’ve got portfolio and private so I’ll just kind of walk through a few different ones. But I’m gonna start with actually one that I think is kind of one of my favorites. It’s a new one. Fannie Mae just came out with a new, they call the Fannie Mae adu product loan. So I could, if I have a home, I could actually, you know, get a line of credit, build an adu on my property. And then this loan allows you to basically pay that off and consolidate the loan. Or you can even purchase a home that has an adu and you can use the rental income from that adu from the auxilary dwelling unit to to qualify, and, you know, that’s something let’s say you have a someone who’s buying a home, and they’re buying a duplex, right. So you could buy a duplex live in one side and rent out the other side. And we can actually use the rental income from the other unit to help you qualify for a home. So what’s really interesting is, a lot of times it’s easier to qualify when you’re buying an investment property or some sort of property that will whether it’s a Plex something that’s got an adu. You know what let’s say I own a home and I want to buy an investment property, I can actually get a rent schedule from the appraiser and I can use those rents to help me qualify. If I’m buying an investment if I’m buying a vacation property, I can’t use the rental income from it. So it’s a little hard to qualify but investment properties you can use those now not not all banks allow that I know. You know for us with the way we do business, Fannie Mae does So a lot of our investors do. Typically when you’re buying a jumbo, which in our market, jumbo is any loan amount that’s above $647,200. And most investors want to see, or I’m sorry, jumbo loans, they want to see that you’ve got a history of investing. So you know, one of the things I always talk to people about is walk before you run when it comes to investing, right? years ago, back in Oh, eight, I had heard about people who were buying 4567 properties at a time, right? Well, they fell hard, right, because they didn’t just buy one, they just bought multiple, because they could buy him on 100% loans. And other things are at each one is if you remember the old 8020. And he they had those even for investors. So especially if you’re a new a new investor, I would say, you know, definitely take it slow, do one at a time, or do one of these house hacks that we’re talking about where you buy a duplex, live in one side rent out the other. We’ve seen a lot of people to where they’ll buy their home. And then a year later, they’ll turn that into a rental. And then they’ll buy another home, right. So we’ve seen people build a rental portfolio by by buying them living in them, maybe fixing them up, turning it into a rental and then go in and buying another new investment or another new primary. The when you’re like I said, when you’re buying a home, you’re basically saying if it’s your primary, I’m going to be living in this for the next 12 months. So you don’t have to keep that home as a primary residence for you know, the rest of the time you own the home, it’s just for one year that you’re committed to. So we’ll see people they do it that way, do it slowly, maybe every couple of years, they’re buying a new primary, converting their old one into an investment property from there. So that’s, that’s one of my new, it’s pretty new, it’s a new favorite that you can actually use the adu because most of the time when you’re buying a primary, you can’t use room rents or border income, or things like that. So you’ve got your traditional Fannie Freddie loans. And for most of those, your minimum downpayment is 15%, down for kind of your traditional conventional Fannie Freddie loans. You can and then if you go to a
J Darrin Gross 27:25
brand new site 15% Is that is that for investors,
Brad Hansen 27:29
single family, single family investor, so let’s say I was buying a, an investment property, single family home, I need to bring at least 15% down that’s for like Fannie Mae, Freddie Mac. Now, like I mentioned, I do have a investor portfolio program that you can go 10% Down rates a little bit higher than the Fannie Freddie one right now. But it doesn’t have mortgage insurance. And anytime you’re not putting 20% down, you’re gonna have mortgage insurance that you need to bring in. So with the Fannie Freddie loan, you would have mortgage insurance, if you’re not putting at least 20% down. Now, if you go to a Plex to let’s say, it’s a two plaque duplex two or three Plex and you’re going to live, you’re going to live in one of them, then that will that will help as well, right, because you can buy it as a primary residence, we can, we can use that and that one. Typically, I think that’s 15% down on that one. You also have for people who are more low to moderate income, you can only be 80% of the area median income, we’ve got home ready and home possible, which are both that’s a Fannie and Freddie loans that they require the income limits, they have home education requirements, and with those, you can get into like a Plex for 15% down, or, again, four to three to four unit would require 25% down, right, so
J Darrin Gross 29:13
80% That’s the maximum amount of income that they can have.
Brad Hansen 29:17
80% Yeah, it’s 80% of the area median income, right. So those are for people that have lower now. Honestly, those are really challenging, right, because it’s gotten so expensive, it is difficult, but you know, on some of those, you can you can count the rental income on some of those as well. But, you know, it just gets a little bit more complicated when you do those things. I mean, for for most people, when they’re buying an investment property, they’re not normally living in those. But there are options to live in. You know, maybe buy two Plex or you know, a three Plex, four Plex and you live in one of them rent out the other So you can count that FHA is another one, you can go three and a half percent down as long as you’re going to live in the home, because FHA is only for primary residence, but you can buy a Plex, with those. The one thing you have to be careful with FHA loans, though is if it’s a three or four unit complex, then you have it has to, it has something called a self sufficiency test, which means it has to be able to qualify, just with the rents that are there. So that again, can be a little bit difficult with the price of flexes these days, a lot of investors love, you know, plexes, because you have multiple borrower or multiple renters in the in the homes. So yeah, we’ve got your traditional Fannie, Freddie, you’ve got FHA, we’ve got the investor product. And then we also are seeing more recently, in the last few years, jumbo loans are starting to come in, and with the jumbo loans, typically 20%, down for a single unit, and then 25 to 30%, for a four, three to two to three, sorry, two to four unit property. Those jumbo loans, the what some of the ones we have, they can go up to one point 1,250,000. So you got some bigger loan amounts, but you’ve got a lot more requirements on those, you’ve got the debt to income ratios, 30 43% or lower, you gotta have typically reserves anywhere from six to 24 months, just a lot harder when you’re going into those, those type of products. But we even have products that and as I mentioned that non QM, there are investor properties or investment products with the non QM, which means we can use bank statement loans, we can use asset. And then we even have something called the DSCR, which is the debt service coverage ratio. So it’s, you’ve got to have the debt to income ratio on that. One is I think it’s 20%, you gotta have at least 20% down, but it’s got the rental income on that property has to be able to support the payment, right. And then they have an option for short term rental as well, people are starting to recognize that folks will will have some properties that will be used for Airbnb, VRBO, those kinds of things. And typically, if you’re going to use short term rental for income, they want a much higher downpayment. Typically, that’s like a 35% down. So the thing that’s nice about the different options we have is everybody’s situation is a little different. Some people are self employed, and some people are using income from rental properties. And we can really customize there. You know, we’ve got a lot of different product options, depending on the different borrowers situations. But again, my I always come back down walk before you run, right, don’t try to overdo it when you’re getting into being an investor.
J Darrin Gross 33:13
And Brad, what about a, buying a property that needs some work? So you can get it for just for round numbers to say it. You can buy it for 100. You’ve got 30 down, but it needs it needs 30 or 40. Right? Is there any product that you have that will help provide funds for the renovations or repairs that are in need? Yeah.
Brad Hansen 33:39
Yeah, actually, that’s just property. Yeah, for an investment. So we just did this actually, for one of our borrowers. It was a property at the coast. And 100,000 is probably not a realistic number.
J Darrin Gross 33:49
I’m just saying for easy numbers. Yeah, I’ll give you this this exact
Brad Hansen 33:53
example. So the property was not financial. It had just a number of things wrong with it that didn’t make it financeable in a traditional sense, the borrower had 20%, down, they bought it for 300,000. And they were they ended up putting in about $75,000 in improvements in the home ultimately appraised for 450,000. In that situation, we actually used a private money lender, sometimes people call them hard money lenders, right? So the borrower was able to get the funds within within a week, they were able to, you know, get the hard money loan, they closed on the purchase. They brought their downpayment, and then we did the we did the refinance once the home was done. We did the appraisal, and we basically were able to pay off that hard money loan and to get hard money loans are meant to be short term, right. They’re meant to be able to help you get into something that maybe isn’t fun. financeable and you don’t have 100% Cash, right? In this case, in this particular case, you know, it was like three points, two for the fees and 12% for the interest. But it’s short term, you’re only they only needed it for a couple months, and then we were able to refinance them out of that into a permanent loan. And like I said that because it was not financial, they will to get a really good deal at it, you know, for 300,000 on this home. And when we appraised it, it was priced at 404 150,000. So they made money, they had a property that they’re now going to be using for probably short term rentals and then enjoying it themselves at the coast as well. And that same concept can be used in other situations where you have, you will need to close quickly, you need to be able to not have them worry about if it’s you know, got all the plumbing or it’s missing siding or whatever, right, there might be issues. We do have. So Fannie Mae actually does have a product called home ready. And that’s for something that let’s say it needs a new roof, or you want to put new appliances. So that actually is another property product that we have. It’s a traditional loan, it’s basically the rehab, Fannie Mae’s rehab loan. And we can do the same thing. That one is a little bit more complicated, takes a lot more time, because you’ve got to get bids. And this is a lot longer. So the other one went really fast. And it was more appealing to the seller, because they didn’t have this big, you know, 60 day 75 day process waiting for contractors and everybody else to come in. It’s a much tighter process, but it’s a good, that’s a good product as well. And then sort of one all in one loan. Right. So it’s the purchase when you buy when you buy it. And you could do it as a reef rehab refinance as well. Basically, you’re getting that money set aside. And as the work is completed, that money is drawn and pay you pay off the construction or the rehab part of it to the contractor. So
J Darrin Gross 37:12
yeah, I was gonna say the the speed at which you can get your funds, I think that’s probably pointing worth reiterating. Because yeah, it’s one thing that they have an advertised rate of, you know, below or super low or whatever. But you know, how much ground glass you have to crawl over to get to it kind of thing, as opposed to something you can get it, like I said, relatively easily and actually close on the deal. And, you know, have an advantage with the seller, as opposed to I think I’ve heard about this done before. And I know it’s available in my my broker says I can, yeah, and, you know, be more of an you have to
Brad Hansen 37:48
be careful, you got to have the right people. I mean, we have, we have, you know, a few different relationships. But you know, the people that we’ve seen have high integrity there, they finance these things, they set the money aside, I mean, you have to be careful with that, right. And having a history of know who can help you in the right situations, is really important. The other thing that I think is really important as people get into investments is number one, they want to make sure that they’re not looking at this as a short term, quick fix, right? I mean, we’re not talking about fix and flip kind of thing, right? We’re gonna buy it, fix it, sell it up, we don’t we don’t do that kind of thing. The hard money people do. That’s not something we do. You know, but you know, typically, when you’re looking at buying an investment property, the idea is you want to hold that for seven to 10 years, right? And over that seven to 10 years. Number one, you’re gonna have the your renter, paying the principal down for you, right, not only are they paying the interest on the loan, but they’re also paying principal. So you’ve got to, you’ve got all of this principle, buy now that you’re gaining, gaining that someone else is buying this for it, and then you have your appreciation on the home, right. So what I’ll do for investors, we have a investor analysis that we do for borrowers and we look at it over 10 710 years, we look at what are some appreciation expectations, we look at not just what’s your principal, interest, taxes, insurance, HOA fees, we also look at what’s your expected maintenance fees, right? And you want to build all that in and then you can look and see, hey, is this is this right? For me? Is this an investment and typically in the first couple of years, when you’re putting money into the home, whether it’s the cost for the closing costs, and the taxes, insurance and everything, typically, the first couple of years, you’re really not making money on those. In some cases, you can if it’s a long term investment, but most of the time, it’s more really over time, right? Because your payment stays the same over time, you can start raising your rates or your rents and soon you know you’re making more money on this through. You know, like I said appreciate One principal reduction, and then of course, cash flow over time as well. So we will do a full cash flow and investment analysis for the clients as they’re looking at those. So make sure you know, whatever they’re doing, make sure they’re partnering with people that can add value, you know, use a accountant or CPA or, you know, financial planners can help you with this kind of thing too. So that it’s important to have the right team, you know, someone like yourself, who provides insurance making sure that that the home is properly insured. And that the renters have insurance as well. Things like that are really important when you’re doing this.
J Darrin Gross 40:42
I appreciate you reiterating that I think it’s in real estate is always in vogue, when rates are low, and, you know, people have bought for low and they, they’re flipping in and out of it. And it’s almost seemed like as a stock, you know, because people are able to get in, make a big, big money or, or you hear about the big cash flow deals or whatever. But truly, it’s an over time kind of thing. And the real test of it is that it’s not easy to sell a property, you know, when you get in, you better have a plan to stay in for a while, because, you know, you know, just the transaction costs, you know, you’ve got commissions and, and all that stuff. So I think that for myself, it’s, it’s been kind of a, you know, it’s been rewarding, in that I haven’t really, I mean, I do have kind of like my little sheet that I kind of like look at occasionally just to see how things are based on whatever the, the values are, you know, presumed to be, as opposed to how much is owed and, and kind of that just as kind of a reference point, but it’s not, it’s not like money I can go spend the whole day for for an investor is to create a nest egg that is large enough that then it it’s you know, purposes that it throws off capital, as opposed to something you’re working down to zero kind of thing, which is the went to the stock market model really is is is, you know, good enough to where they can get you to the end. And, you know, get a, you know, settled up there, but definitely a different mindset. One of the questions that you have touched on a little bit about the products you have in the Ingo is pretty much one to four doors is kind of the the real sweet spot for the
Brad Hansen 42:33
Yeah, Bester. It really is for what we do, we do have a we have one product that can go five to eight units. But again, it’s a larger downpayment. Once you get over four units you into that five plus units, it is a pure commercial. And it pretty much is always based on the property’s ability to service the debt. Right. So I mentioned that we have this debt service coverage ratio product, they call it DSCR. That’s kind of how and again, I’m not an expert on the commercial side. But but really, once you get over five units and higher, that’s when they’re really commercial and hey, does this thing pay for itself? Right? They’re not. They’re not looking at the borrower’s qualifications. Whereas when we do a loan, we’re looking at it in relation to not only the property, but also all the other debts, right? Do they qualify with everything else they have? And so we’re they’re personally liable for those. And again, I think they’re on commercial too. But it’s a little different how they look at those.
J Darrin Gross 43:46
Right. And so what I wanted to ask beyond that is what are the number of loans an individual can have? I mean, at one point, there was a, there was a limit, I think it was four. And I don’t know what the what’s the current market or? Yeah, there’s a number right now that you’re limited, right?
Brad Hansen 44:08
So your traditional agency loans, so Fannie Mae, Freddie Mac, they have a limit of 10 financed properties, right? So you could have up to 10. So if I’m doing a financing for someone, and this is their 10th, finance property, and you’re gonna count your primary and every other home, that’s finance, that’s the last one I can do with Fannie Mae or Freddie Mac right. Now, there are other investors who don’t have limits. So I did, I had a customer that I helped a couple years ago, and this particular investor had over 100 properties. And, you know, 50 of them were in their own name. 50 of them were in an LLC were in a kind of an LLC and the LLC hold held them, but they had too many from vehicle to do Do that. And we were able to refinance them with one of my portfolio lenders, where they didn’t have a limit on that, save them a lot, you know, got the rates down, even consolidated some of some of the debts, once you start getting into over 10. Really, there’s, there’s other ways to look at that, too. Sometimes banks will package five, or six properties in one, if you have that in a LLC, for example, and give you one loan. And so it can really vary. We even have, you know, again, we have a jumbo option, for those who have more than 10. Finance probably doesn’t mean how many properties you have, but it’s how many you have financed, right, so you might have 20 properties. But this is only if this is going to be your 10th Finance one, then that’s the maximum we can do with Fannie Freddie loans. Now, if you’re doing that’s for purchase, if you’re doing a lower rate term refinance, if you’re doing cash out, there are some other limitations when it comes to cash out refinances. The debt to income ratios come a lot coming in a lot lower too, when you have more than four. So important to be talking to, to a professional.
J Darrin Gross 46:09
Yeah, and I just I remember, you know, just kind of the nuance of it. And at the time, I don’t remember how many I had, but I know that if he put my loan in a different category, right. And I think when the only thing blew up, and there was all these lower refinancing options available for whatever reason, I had one that it wasn’t it didn’t qualify as like a, I think it was a Freddie Mac as opposed to a Fannie Mae, there was like a differentiation between the Yeah, an agency made it available. The others didn’t. Yeah, I
Brad Hansen 46:46
think they did for a while have and I’m not remembering off the top of my head. But I think for a while one of them had a limit of six and the other had a limit of 10. And they will have different requirements, which I think is great. Honestly, it’s nice having a couple of different agencies that you know, give us different ways to help help our clients. Yeah.
J Darrin Gross 47:06
I just said, I remember thinking like, Why didn’t decide which one? You know, how did I How did I end up hearing? I think
Brad Hansen 47:13
that’s a good point. I mean, I think when you are doing, you’re looking at this, it’s important to do some planning, right? It’s, you know, not only do do the investment analysis, but you’ll also look at like, how long do I want to hold it? How many do I want to have, and just work with someone that can help you do some, you know, we call it mortgage planning, right? Do a little bit of planning around that mortgage, and maybe even I’ve had situations where I’ve been with the client, and we’ve had their CPA with us, we’ve had their financial planner with us, and we’re all there in the same room, talking about how real estate fits into their overall investment plan. Right? Those are, those are great, because I don’t have, you know, the expertise as a CPA or as an investment advisor, I’ve got the mortgage expertise, and they don’t necessarily know all the rules around. So bringing your your your team together, right, having a team that might maybe even in an insurance person. Because there’s different requirements around all those things, you want to definitely make sure that you’re protecting yourself when it comes to you know, all the all your different needs and different you look at it in light of your whole whole package really, and not just in isolation, I think is really important.
J Darrin Gross 48:31
No, well, well said and indefinitely having some some sort of a plan, and then the strategy that you can act on it, it definitely will make it a smoother go forward, as opposed to a new plan. And, and, you know, no ability to execute kind of things.
Brad Hansen 48:47
Yeah. Yeah, I mean, one other thing I will throw out there, that’s kind of interesting. We used to see this a whole lot more, but it’s seller financed. You know, in sometimes, especially in a market where things aren’t selling as quickly, you might even have sellers who are willing to provide the seller carry financing. Like I said, we used to see that a lot more and they would even do second liens or other things. But you know, something to think about when you’re in this market. There’s a there’s still different ways to do that doesn’t have to be a traditional mortgage, like we’re talking about or you know, you know, don’t trust deed, it could be a seller that carries the note for you. Maybe they don’t want they want to sell but they don’t want to take all of that money right now. They’d rather have that money working for him and maybe an investor can get even better rate working directly with the seller. But again, it’s important to have maybe an attorney real estate attorney help draft agreements and the notes and trust deeds and those kinds of things too. So like I said, Be Be sure to work with professionals because As you want to make sure that you have somebody looking out for you, and it’s not just the seller who’s writing it up, or you’re getting it off onto getting it online and writing it up yourself something like that. So
J Darrin Gross 50:12
I love I love you, the fact he brought that up, because one of the things, I think that, you know, investors that are just getting started if they’ve bought a primary home, and they went through a realtor and ended up with a mortgage broker, and you know, there’s a, there’s a marketplace, and that’s fairly routine, I mean, there’s the MLS, where you can find the homes, you know, a three bed, two bath, you know, that fits your budget and the neighborhood, the school district, whatever it is you’re looking for. And when you go into the investor world, it really is kind of like the wild west from a standpoint of flexibility. If your imagination allows you to think outside the box, and you’ve got a seller, that’s, you know, agreeable, you know, whatever you you agree to, is, is available to you. It’s not like, it is like with a primary home. And and and so I mean, the fact that you brought that up, I really appreciate that, because that’s, that’s, that’s really where the the, you know, kind of the, the, the Genesis or the ability to really become an investor might might be for somebody listening right now. So I appreciate that. Yeah, you bet. So, Hey, Brad, if we could, I’d like to shift gears here for a second. Sure. By day, I’m an insurance broker. And as such, I work with my clients to assess risk and determine what to do with the risk. And there’s three strategies we typically consider, we first look to see if there’s a way we can avoid the risk. When that’s not an option, then we look to see if there’s a way we can minimize the risk. And when cannot avoid or minimize the risk, we look to transfer the risk. And that’s what an insurance policy is. And as such, I like to ask my guests, if they can look at their own situation, could be clients, investors, tenants, the market interest rates, politics, however you choose to have to identify what you consider to be the biggest risk. And for clarification, again, while I’m an insurance broker, I’m not necessarily looking for an insurance related answer. Yeah. So I’d like to ask you, Brad Hansen, what is the biggest risk?
Brad Hansen 52:27
Yeah, that’s a good question. You know, I think, you know, there’s a couple of them. Number one, I mentioned a few of these number one, I think you have to be really careful. Trying to do too much too quickly, right? It’s like anything, the more experience you get, the better you’ll be at IT knowledge. So I always say, they walk before you run, right? And make sure that you’re not, you know, if you’re gonna buy an investment property, do it in an area that you know, do it, do it in such a way that you’re going to minimize the risks, right? You know, that you have professionals help you, right? You know, the value of the home, you’re not overpaying. It’s going to cash flow, those kinds of things. So, you know, one of the risks is that you have a home that has a negative cash flow, right, let’s say you overpay and rates are high right now, right? So your rates, your payments going to be relatively high, but let’s say you have a payment, that’s 3500. But you can only rent it for 3000. Well, now all sudden, you’ve got a $500 a month negative cash flow. So, you know, again, knowing what you’re getting into and not just, you know, it can be as you said, it could be a little bit kind of glamorized a little bit, right. That’s a lot of hard work. You know, are you going to are going to hire a property management company? Are you going to manage yourself? Are you going to hire a handyman to help take care of repairs, you know, those kinds of things? Because stuff goes out, right? Are you going to set aside money for maintenance? So there’s a lot that goes into it, I would say, you know, that’s a risk. But it can be mitigated by educating yourself, surrounding yourself with with professional so walk before you run is another one. The other risk potentially is home values might go down. Right. Now, while we don’t necessarily think the environment similar to what happened in oh eight, where we saw 25 to 30% declines, because of the oversupply and the the lot of other things that were happening with the home financing wasn’t great. We don’t think that’s the same environment we have, if you overpay, you could see values go down, but that I think that can be mitigated to a degree by what we talked about earlier. If you’re going to buy it, don’t expect it. It’s going to give you the return on investment that you want to just the first year or two might take multiple years for that. So like anything, it is a risk. It’s money that can be lost. But I think I mean, I honestly think the big Guess risk is that negative cash flow, maybe buying a property again, I always recommend that you get a really thorough inspection, you found a property that had that you didn’t do an inspection. And you ended up having to put a new roof in or you had other issues, right. So like you, you know, again, I’m not insurance you there are things that insurance can protect you from, but insurance can’t necessarily protect you from buying a home that is in disrepair and needs a lot of work. Right. So those are probably the biggest risks that I see. And there’s ways to mitigate those and be prepared for them. But yeah, those are those are probably two of the biggest ones I’ve seen.
J Darrin Gross 55:45
Now well well put there definitely insurance company doesn’t want to rehab your home therefore i That’s no good way to get yourself canceled, but it’s like you Hey, Brad, where can listeners go? If they’d like to learn more connect with you?
Brad Hansen 56:00
Yeah, number one, they can go to my website. Again, I’m with Academy mortgage and they can go to my Portland mortgage.com. If you go to my Portland mortgage.com You’ll see my website, all my contact information is on there. I’m also at Brad.Hansen@Academymortgage.com Is my email. People can reach out to me my phone number is 503-544-8504 I love helping people. You know, really just, you know, with my experience, love helping be an advisor for people to help them with that mortgage plan, helping bring other people together to help them be successful in real estate.
J Darrin Gross 56:43
Awesome, Brad, I can’t say thanks enough for taking the time to talk. Yeah, thank you. I’ve enjoyed it and learned a lot. And I look forward to doing it again soon.
Brad Hansen 56:54
Yeah, thanks. Thanks so much. Always fun talking about what we love. All right. All
J Darrin Gross 56:59
right. All right. Take care. All right, for our listeners. If you liked this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow? That’s all we’ve got this week. Until next time, thanks for listening to commercial real estate pro networks. CRE PN Radio.
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