Learn about Real Estate by one of the premier Real Estate Investors in New Jersey. Each week Joseph J. Zoppi will be talking about investing in real estate including buying and selling houses and apartments. Understand how the economy, the Fed and world events impact real estate and how to adjust to these dynamics.
Templar Real Estate Radio Show for August 29, 2020
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The following program was paid for by Templar Real Estate. The views and opinions expressed on this program are not necessarily those of the staff and management of WMTR. As always, it is advisable to consult a professional before making a major decision.
It’s time now for the Templar Real Estate Talk Show. Here’s your host for the program, Joseph J. Zoppi.
Joseph J. Zoppi:
Hello, welcome to the Templar Real Estate Talk Show. My name is Joseph J. Zoppi, a real estate investor, consumer advocate, author, and managing partner of Templar Real Estate Enterprises. You could reach us at templarcashforhouses.com. That’s T-E-M-P-L-A-Rcashforhouses.com, that’s one word, or you could call us at 973-240-8593. That’s again, 973-240-8593. We could answer any questions you may have, or email us at our website. I have one question from a listener and I’m going to discuss it later. It has to do with due on sale clauses, some of them mortgages, so all of those different things associated with that.
My company is a real estate investment firm, we buy houses for cash, we purchase apartment buildings, we do joint ventures with other real estate investors, we loan money for rehabs or provide transactional or gap funding. We work with individuals that want to invest with us in single-family houses up to apartment complexes. We do not speculate, we are very protective of our money and our investors’ money. I’m not a real estate agent and we are not a brokerage. I have individuals and staff that are agents that will sell your house through the traditional Multiple Listing Service.
The show is going to go over everything there is about real estate, those things that impact real estate, we’ll talk about our rehabs, the sale of our houses, what went well, what did not go well, and the things that we learned from it. We are going to talk about the economy, interest rates, we’ll discuss the trends in real estate market and how they are impacted by the different things that go on during the course of the day, month, year. Real estate is the biggest investment you have so it’s important that you know as much as possible about it.
The show is based on my opinion and my experiences. Again, I always tell you, please research everything. What’s good about the Internet, there’s a lot of information out there. What’s bad about the Internet, there’s a lot of information out there that’s not all accurate, so please, when you research things, be prudent and understand when a website is telling you something or an author is telling you something, please understand their position and why they are leaning an article towards a certain direction or not. A lot of articles are not balanced, so you have to understand that, so you need to really look at things in terms of being balanced. You’ll read something about how to do something and you’ll have 10 different ways of doing it – well, I’m not sure which way is the best way or the correct way, but that’s a classic example when you do do yourself types of things, so please understand that and like I said, research is so important these days because there’s just so much noise out there and to get the right information, you have to work through it and it’s just very difficult at times. And anytime you bring on someone and you hire someone, it’s just difficult and you might feel very comfortable with the person, but in the end, you’ll realize sometimes, it just doesn’t work out. We have that all the time and we go through a pretty stringent process but you never really know until the person comes to the door and you start working with them. Whether it’s a financial advisor or any other type of individual, so like I said, do your homework, get references.
The other thing with references is that they are good to some extent, it depends who’s giving you the reference. So that’s the thing, so you just have to balance that out as well. I had someone where we’re talking and it was for a company and they had an intern and the intern was done with their job, and they were seeing if that intern could be placed anywhere else, and then after lots of questions, it was determined that the intern wasn’t that good even though they were passing the intern onto other people. When asked, “Well, why don’t you want them?” They said it wasn’t a good fit. So they didn’t want the person but it was all right someone else took the person, so that’s something you have to really watch. Just because someone’s giving you a reference or suggesting someone, doesn’t mean it’s the right person. It might be like, well, he’s not good for me but he might be good for you. So really, really look at that very carefully and ask a lot of questions.
And when sometimes, I’m on the phone and I’m talking to someone at a company and then they start saying, “Well, I think it’s this and I think it’s that,” well, that means they don’t know, so there’s no emphatic, “This is what it is, this is what it’s not.” So you need to pick up those subtle cues when someone’s speaking in terms of their knowledge or anything else associated with that.
I had multiple interviews this week with a number of publications, we’ll see if they will get published and if they do, we’ll notify you. One is a mortgage recasting which we will discuss today. Another one is on appraisals which I won’t have enough time to discuss today but maybe next week, I’ll do that.
Again, if you need to sell your house very quickly, please give us a call. If you call up and say, “Joe,” or any of my staff members, “I need to sell my house fast,” we’ll be more than happy to address it, I will be able to come over, take a look at it, and definitely give you an offer, and the offer sometimes takes a couple of days to put together, we want to make sure we do our due diligence ahead of time to ensure that you get the best possible price. On the flipside, if you just want to sell your house, please give us a call, we are listing a lot of houses lately. It’s just, everyone is trying to seize on the opportunity which is great that they understand that the market is hot and they need to sell, and that’s a good thing because I’ve been preaching that for a while because we really don’t know six months from now, a year from now where we’re going to be, and we’re getting mixed signals from everyone, and usually, that always happens with the economy but especially now, we really don’t know what’s going to happen between the election and between everything going on – Vice President Biden saying that if he’s elected and we still have issues with Corona, he’s going to close down the economy, so again, that will impact a lot of businesses. Even if the Fed starts to inject even more money into people’s pockets, it’s just, certain companies are not going to exist anymore, and we have a lot that right now, smaller companies which I spoke about last week, they’re just not opening again. So it’s a little scary and you have this environment where things are moving along and if you really look at it, you really don’t know what’s going to happen, especially next six months or so. You might be getting money in your pocket, your company might be fine, but all of a sudden, it could just fall off the cliff, you gotta watch it and be prudent, I think, with budgeting and everything else going forward.
So one of the things that I’m going to talk about today is an individual asked me a question about – it’s called due-on-sale clauses subject to, so sometimes, individuals purchase properties – they are called wholesalers – and what they’ll do is they’ll say, if the pricing isn’t right in terms of how much equity they have, they are going to say, “Well, we are going to take over the mortgage and we might give you $5000, then will take over the mortgage, we’ll fix up the property, and then sell it, okay?” And what they’ll do is again, they will take over the mortgage, they will do a transfer of deed, so they’ll put the house in their name, and they’ll give you $5000, we’ll say. Well, that technically is, we’ll say illegal to say the least, so if you have a conventional mortgage or any type of mortgage, but we’ll go with conventional first. Conventional has terms in there that say it’s a due-on-sale clause. Due-on-sale clause means they want the money based on the sale of the property, so if they switch it to their own name, that’s basically a sale, and if they find out – the mortgage company might not find out it’s going to occur. If they find out, they’re going to go to the individual and say, “You have to pay us whatever the outstanding balance is,” and they might not have the money or they probably don’t have the money. So you are also liable but they’re going to be pushing on the other individual that the title is in that they want the money, so that could cause a lot of problems.
Second thing is that if the individual says they’re going to pay the mortgage and they don’t pay the mortgage, well, that’s going to impact your credit. Now, you might have lousy credit already but still, they might just not pay it until they rehab the house and sell the house, and then eventually will get paid the mortgage, but again, there’s no way to enforce that, so you are kind of in a Catch-22 situation because if you complain to the bank and they say, “Well, you weren’t supposed to do this,” then you’re in trouble anyway, so it’s a very touchy situation. So like I said, under conventional mortgages, you cannot assume the mortgage, so it’s called the due-on-sale clause. With FHA and VA, you can’t assume the mortgage, but the person that’s going to purchase the property still has to reapply basically and they gotta check their credit and so on and so forth. Individuals that want to just take over the mortgage, they don’t want that. They’re not just purchasing it that way and they’re not going to do a background check in terms of their credit and so on and so forth, they just want to take over the mortgage, pay it, rehab the house, and then sell it, or they are going to continue to make payments, and then they’re going to probably lease or rent out the property. They will receive their rents, and then pay the mortgage, but again, that is based on you assuming that they are going to consistently pay and there’s not going to be any problems. So like I was talking to my attorney one evening and she was saying she would never write any type of contract that had those types of provisions in it because neither the seller or the buyer can be fully protected. So that’s just something to be really wary about if you do it.
Now, certain states and a lot of investors I know, they do that in other states – Virginia, I know someone that does it all the time, but in the end, again, it’s a very hairy situation and I would not recommend it at all, okay? Please be clear on that, I would not recommend it at all. You’re really on the tightrope there and you could have a lot of problems as a result of it. So that’s where we are with that, so if you hear anything about subject to, assuming the mortgage, I will pay the mortgage, run away.
So I’m closing up my segment, I’ll be right back in a few minutes. Thank you very much.
Joseph J. Zoppi:
Hello, welcome back to the Templar Real Estate Talk Show. My name is Joseph J. Zoppi, managing partner of Templar Real Estate Enterprises. You could reach us at 973-240-8593. Again, that’s 973-240-8593, or you could call us at templarcashforhouses.com. That’s T-E-M-P-L-A-Rcashforhouses.com, and that’s one word. Remember, if you need to sell your house fast, please give us a call or you need for us to buy it, we’d be more than happy to – we’ll definitely work something out and we’ll work with you based on your circumstance. Whether you need to sell in two weeks or a couple of months, again, we’ll be there to work with you on it. Now, obviously, if you need to sell in six months, we are probably not going to go into a contract if we’re going to buy your house because we don’t know what’s going to happen in six months. Prices might go up, they might go down, so as you extend further and further out, there’s a lot more uncertainty associated with that, so we would have to balance that out and just work with you in terms of the best approach, and we could always do something creative, so there’s never any black-and-white in terms of what we do. There’s always something we could do or work with you to resolve those issues that you may have and move forward. That’s the most important thing. Again, we are not going to shoehorn you, as I always say, into a particular type of solution, we’ll provide multiple solutions in terms of what’s best for you, and what’s best for you usually, the most money, but sometimes, it’s something that needs to be done very quickly. Either way, we could work with you on any scenario you have from an inheritance to medical bills, so on and so forth.
We have an individual right now we are listing the house for. He had cancer, he went to remission, everything has been fine, and when I was talking to his wife, she was saying that “We were in quarantine for years because he was sick with cancer,” so they were always wearing masks and always very protective of his health, and as soon as this year came by, everything in the beginning of the year, it was cancer-free and they were happy and they were living their life, and then all of a sudden, March, they got hit again with this coronavirus, and then back to this type of protecting themselves and everything else like that. So right now, what they want to do is they want to sell the house, we are going to list it for them, and they’re going to take a vacation for three weeks, four weeks traveling around, so what we are going to do is we are hiring a moving company take certain things out of their house. It’s going to be packed up and put into storage, we are going to bring our team in to do some light painting and just some light staging where we’re going to leave most of their furniture but some of their furniture really doesn’t work well with their house. They have a very small house and they have these big sofas and chairs, and it just makes everything so cramped, so we’re going to pack up those sofas and chairs, and we are going to put some furniture that’s more appropriate for the size of the house, and we’re going to just do some touchups and then put it on sale for them and list it, so we’re anxious to do that for them and we’re happy that they were able to feel free to travel around a little bit to families throughout the United States and people in St. Louis all the way up to Boston, so they’re going to just travel to the different cities where their families are and we will list the house and we should be able to sell very quickly, so we are really happy for them and it’s a great story. We love doing things like that for individuals, it just makes our business just that much easier and enjoyable, so we are really happy with that.
So I’m going to talk about something I talked a little bit last week, about this one inspection that occurred and they were nitpicking on a lot of little things. There were no major issues. So when you deal with selling a lot of houses, most of the time, it goes really, really well but because of the number of houses that we deal with, sometimes, they go sideways. Case in point, this one did, so after the woman received the inspection report, and this was her first house, and it was kind of kludgy because when the contract was signed, it was signed with just her name, and we find out later that the loan was with her and her brother, so that added some complexity to it because once you have a second party in there, it just adds complexity because a lot of times, people don’t agree on things. So after the inspection, the agent didn’t hear from her and the agent kept calling, and she was just delaying things and then finally, she canceled the contract. We weren’t particularly happy about it, but so be it, but she was spooked by the inspection even though there was hardly anything on it. I mean, hardly anything, but her expectation was that there would be no problems at all, and an inspection report will always have problems. I say that all the time, and I’ve said it a long time ago, that if an inspector doesn’t have any issues on the inspection report, a lot of people say, “Well, is the inspector doing a good job? I can’t believe this.” So the inspector always has to put things on the report. We always say that they have to have like, 33 items. It just always seems there’s 30-something items on the report. One of the things he said was that the front light didn’t work. Well, the front light didn’t work because there was no bulb with it, but it worked. So there were just a lot of little things like that and they were no major things. Any of the things that were major for safety issues, we would’ve been more than happy to fix. We had a door that we know about that was leading to the garage and there wasn’t a fire door, so that needed to be replaced, that definitely needed to be replaced. There were some issues with the garage door and we’re going to fix them, but he did not see any of those issues, but it was the right thing to do. But you never know if all of a sudden, somebody’s going to back out, and part of it, I don’t know if it’s true, but the real estate agent that was the buying agent, I don’t know if he really handled the situation really well. So originally, when we had the property listed, he had called up and said he was going to come by. I was in the area, so I went to the house waiting for him. He was 15 minutes late and I called up and he said, “Oh, I forgot, she canceled,” I was kind of miffed at that, and said “You didn’t have any professional common courtesy to give me a call,” and he says, “Well, it happens all the time with people that they miss appointments or my clients skip it,” or so on and so forth. I know, and I said, “I know, but you gotta give me the common courtesy to tell me as soon as you find out.” So that was one strike against him. Afterwards, during the inspection, we were there at the inspection to turn the keys over to him and let the inspector in, and so on and so forth. He showed up 15 minutes late. The inspector was there, the individual that was going to buy the house was there, we were there, and then he shows up 15 minutes late. I was like, okay, then afterwards, we came back to the house a day later and the door was open. It wasn’t unlocked; the door was ajar, it was open, and I called him up on that. He goes, he apologized for that. And then, I don’t feel that he really managed the buyer really well in terms of setting expectations, telling them that there will always be problems on the inspection report, so I know he really didn’t talk to her to the detail that was needed, so I think that spooked her, coupled with the second person, her brother that was on the loan, so I don’t know if she knew about any of this situation and looked at the reports and said, “We got all these problems,” but again, they were all very, very minor. So I don’t know, but I was very disappointed and the issue with that is that when you list a property and then it goes under contract, and then comes off contract, now, we get questions: did we sell the inspection? Was there problems with the inspection? It’s just, it’s not a good thing that it doesn’t go through, so we are very, very cautious about it, especially when we’re getting offers that we want to make sure that on the financing side, things like that, so we are sometimes overly cautious but I think rightfully so and we’ve always been successful because of that, but it’s something that you always need to understand that you get an offer, you got to look at it very carefully. You don’t take the offer even if it’s the price you want if there’s some underlying things that you need to worry about. So a good professional real estate agent will say some of those things. Sometimes, they just want to close the deal and hopefully, it’s going to go through, but that’s not how we look at it. That’s just not our model, but just be wary of that.
One of the other things I want to talk about is called mortgage recasting, so I only have a few minutes left, so what’s mortgage recasting? So say you have a mortgage and you’ve paid down the principal considerably, you could go back to the lender and what they could do is what’s called recasting. Recasting basically is that they could redo the loan in terms of what your monthly payments are based on the current principle. So, they’ll calculate it out, it would be for the same interest rate and the same term, but based on the existing principal that you have now, and as a result of that, that will reduce your monthly payments. Now, there are certain terms that are sometimes in a mortgage document that will say they will do recasting, sometimes, you will ask and they will do it for you even though it’s not explicit, so you gotta ask and it’s not guaranteed that they will recast it for you, but it is an option. Now, with the way the banks are and with Corona, it might be a little more difficult because they are undermanned right now and if you call up, there waiting time is considerably longer, so it just might be more difficult now than in the past, but mortgage recasting is really something you could do and just reduce your payments. Now, it’s not the same as refinancing. Refinancing is totally different. It’s recasting, it’s a couple of hundred dollars to do it, a few hundred dollars, it’s minimal, and the amount you could save is a decent amount, but the when you refi, it’s basically, you get a new loan, so you get a new loan based on the new term and new interest rates, but you have to also get an appraisal done, you gotta get a lot of different things done which is another $3000, $4000, or $5000 with closing costs and points, and application fees, and everything else that’s associated with it. So, mortgage recasting is easier, refi is a little more difficult, a little more costly associated with it but either way, you could potentially reduce your monthly fee which is always a good thing.
So I’m going to have to close out, thank you very much. Again, you could reach us at 973-240-8593, and that’s templarcashforhouses.com. Peace, God bless, and take care, bye.
The preceding program was paid for by Templar Real Estate. The views and opinions expressed are not necessarily those of the staff and management of WMTR. As always, it is advisable to consult a professional before making a major decision.
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