7/19/20: Seg 2: Bidding wars driving up market value are creating mortgage nightmares

Andrew Lieb (3s):
You were personal coach and trusted attorney, Andrew Lieb help you get started in building your real estate empire, grow your self confidence, find your grit and get the skills needed to dominate the real estate world. So this is real estate investing with Lieb. That was an interesting discussion Lauren, before the break. And we were talking about Forbes bread Hunter, and he was talking about how commercial isn't as good as single family homes.

Andrew Lieb (37s):
And I have a guy that I'm gonna bring on in a second. That's going to tell us a little about getting mortgages on single family homes, but we were having a conversation during the break. And I just want to go into this too, because I was reading JLL. I don't know if you know JLL there, the office space gurus, and they have their own little thing of serving 3000 office workers. And they said some interesting stuff there. And I just want to hit this for a second because my man, Jeff <inaudible>, I'm going to bring on in a second was saying to me, I can't work from home. And you know what they said in this JLL survey, nor can anyone else, they said 58% of office workers miss the office.

Andrew Lieb (1m 12s):
I miss the office.

Lauren Lieb (1m 13s):
Yeah. We need to have some social interaction. Some innovation, just conversations. It's really hard to have from home.

Andrew Lieb (1m 19s):
It's just hard to get that kept going and going at home. Like you got your kids running around, you got, you know, how much I was eating when I was staying at home. I had a lunch break five times during,

Lauren Lieb (1m 28s):
I think they said there's a COVID 20, like the freshmen 15 or the COVID 15, something like that.

Andrew Lieb (1m 33s):
So like that. So I think we're going to see a eventual that the office space segment is going to boom, but, and we were talking about it on the first segment. Why is it delayed? Because we're coming out of phase four right now and you're seeing Texas and you're seeing Florida and you're seeing the South in Oklahoma. It's just everywhere. There's this COVID stuff. So everyone's afraid in the office. But as we said, Forbes, spread Hunter said single family rentals are the way to go, but we got a problem with single family rentals. And that's why I brought on my friend Jeffrey Butofsky and he is the producing branch manager at nationwide mortgage bankers.

Andrew Lieb (2m 7s):
He's a buddy of mine. He just knows how to get you the shackles. I like the shackles. I want the shekels to buy the house. This is what we do, but there's a problem, Jeff. And you can help me with this. These houses are in bidding Wars, bidding Wars. So the value that they were three months ago,

Lauren Lieb (2m 22s):
Like it's astronomical. Just to understand Jeff, do you do loans for houses all over the country or just New York? No, no, no. We're we're nationwide. I'm personally licensed

Jeffrey Butofsky (2m 32s):
In 33 States. So I mean, what's going on in New York is going on.

Lauren Lieb (2m 38s):
Okay. So what I'm seeing here is that people are, are getting, putting offers on homes and not getting them, or if they're getting them, they're getting them for astronomical prices,

Andrew Lieb (2m 47s):
Shopping for houses this past weekend with some of our friends and we were out everywhere and the houses let's say they were worth $600,000, three weeks ago are now selling for $800,000. Just like madness. Jeff, you have, I think you were telling Lauren about this guy that you know, who, what was a 300 something thousand dollar house now it's 500.

Jeffrey Butofsky (3m 8s):
Yeah. I mean, honestly, everything's up 15, 20% within weeks just because inventory is low. So people are, they're just paying to whatever, just to get the house at this point.

Lauren Lieb (3m 20s):
My big question for you is if let's just say the house appraised three weeks ago for $600,000, but the offer was at accepted at 800,000.

Andrew Lieb (3m 30s):
Can we get a mortgage? I want a mortgage

Jeffrey Butofsky (3m 32s):
Listen. So yes you can. But the banks we're going to base everything just off of the appraised value. We just care what the home is worth and we're going to lend based on what it's worth. So if you're going to pay over what the home is worth, you could do that, but essentially you're paying over market value, right? So we're going to lend based on what the home is worth, what the appraisal is,

Andrew Lieb (3m 55s):
Makes sense. But let's talk, what market value is we, as you said, over market value. And I don't think everyone realizes how appraisal of residential homes is market value. Isn't about the bidding war today. Jeff it's about how much comp properties recently sold for, right?

Jeffrey Butofsky (4m 9s):
Yep. Yeah. Correct. The appraisers will go back anywhere between free six months, rarely a year, unless sales aren't there within the three to six month period, but your home is worth usually what the comps are. So you might be willing to pay more, but the value is going to be based on, you know, similar homes that have sold in your area.

Lauren Lieb (4m 28s):
So how quickly does that happen? So I know I have a neighbor that sold, let's say last week, is it available? What they sold for like for the comp

Jeffrey Butofsky (4m 36s):
It is. Yeah, yeah, yeah, absolutely. Well, yeah, the appraisers, the appraisers will find those comms. Yeah.

Andrew Lieb (4m 43s):
But the key, just to be clear is Lauren the fact that you have a bidding war today and you're not even the highest like, and then you go higher. So let's say there was a house that comp sold at 600 and I go to this house, it's listed at six 50 and it drives it up to seven 25 with five people bedding. I would think that's market value because there's five people bidding. But at the end of the day, that's $150,000 over the commonality of looking at three comparable properties. And his Jeff saying, they're not going to look a year out, generally three to six months max. And from, as you're saying, Warren from like tomorrow, but Jeff, here's the thing.

Andrew Lieb (5m 18s):
A lot of people don't want to pay less than 20% down because of this PMI or MIP. Can you tell me a little about that?

Jeffrey Butofsky (5m 25s):
Yeah. I mean, you'll pay PMI. If you're putting more than 20% down, you avoid PMI. If you're putting less than 20% down, you have PMI. So depending on the products, you know, you could get loans with as low as 3% down nowadays. So you just, you know, again, you'll, you'll have the PMI. If you're doing a FHA loan, which is a government insured loan, you know, the PMI could be on for the life of the loan. If you're putting less than 10% down and on conventional loans, you'll pay PMI until you get that 20% equity in the house. So, so yeah.

Andrew Lieb (5m 55s):
So when you're saying PMI or MIP, it is if it's government or otherwise the question that's money, you have to pay every month, right? Like that's just,

Jeffrey Butofsky (6m 2s):
Yeah. Every month, every month and possibly for the life of the loan,

Andrew Lieb (6m 5s):
Big money. So people, a lot of people go, even though I can go to Jeff and I could get in the threes, I could only put that amount down 3% down, someone like that. They'll say, I want to go up over 20%. So I don't have to pay this extra fee that's insurance every month into the future. So here's the thing though. I go to buy a house, it appraises it 600, I pay seven 50. I want to get 20%. Is it 20% of the seven 50 or 20% of the

Jeffrey Butofsky (6m 31s):
Percent of the value? So 20%. So if the home appraises at 600, right, you're going to do 20% of the 600 just to get you to that 80% loan to value. So you avoid the PMI. But now in your example, you're going to also pay $150,000 more, right? Just to get you to where you want to be. Cause you're paying 150 grand more than market value than the appraised value.

Andrew Lieb (6m 53s):
I just want to slow this down for a second because I think people are missing something that's very important. I'm no longer paying 20% on pangs. And I didn't do the math. I'm paying in the forties of percent.

Jeffrey Butofsky (7m 1s):
You're paying 40 to 50% just to have the 20% equity. So you're, you know, again, you're paying 30% over market value, whatever that number is,

Lauren Lieb (7m 9s):
That's wild. So another thing I'm thinking about right now is people are just trying to get these houses because there's bidding Wars. So anyone but anybody that has the cash are trying to close with cash and then refining,

Andrew Lieb (7m 25s):
Well, it's not a refi because you can get an origination for some time after you close Lauren. But the key that I want to emphasize, and I don't want anyone to lose this sidetrack is to not pay PMI. If you have that 20% threshold, I just wanna go back to the prior conversation. Then we'll go to what you're saying. I'm getting the death stare right now, Jeff. But I want to be clear about this. If you don't want to pay this, you better have a lot of extra money. If you were budgeting, you put 20% down and the houses are going up in that area. You're going to need to put down, as we're saying 30, 40, 50% to avoid the PMI and go forward.

Andrew Lieb (7m 57s):
And I think the transition that what Lauren's saying is that you're going to need a lot of cash to be able to do this. And really it's the era of the cash buyer. Even when they're getting mortgages, Lauren saying you could get the mortgage and get your liquidity out because you know, after all interest rates are around three, what are interest rates right now?

Jeffrey Butofsky (8m 15s):
I mean, listen, you could get anywhere on a 15 year, mid twos, 30 year high twos.

Andrew Lieb (8m 21s):
You just said mid twos. Did I hear that? Right?

Jeffrey Butofsky (8m 23s):
Two's on a 15 year. It's crazy. Yeah.

Andrew Lieb (8m 28s):
And so let's say I wanted to get, I just need to know right now because I might be calling you after. What's the best number to reach you. If I want to get this 15 year mid two thing.

Jeffrey Butofsky (8m 36s):
Of course. Yes. Six three one three, four six, six, eight zero one.

Andrew Lieb  (8m 41s):
I think I'm going to be ringing. Maybe I'm going to have my assistant call you out. We're on the same because there are people going to be ringing you off the hook. And when we go to break, so meet twos, this is crazy talk. So,

Lauren Lieb (8m 50s):
So even if you have cash, you still want that loan.

Jeffrey Butofsky (8m 54s):
Yeah, absolutely. You won't borrow bank's money at those low rates.

Andrew Lieb (8m 57s):
Yeah, because listen, you can get yourself 7%, 8%, 10%. Even if it's four and a half percent when you're going into stocks and bonds. So I paid Jeff and his bank two and a half percent, and then I'm getting, let's say 5%. I'm making two and a half percent just from borrowing money from Jeff. And then here's the kicker, the first $750,000 I borrow from Jeff. I get to get interest tax advantages. So this is like killing it. But Jeff, are you seeing a lot of people, a lot of people in this market because of this cash issue, are you seeing a lot of people starting to get, as Lauren was asking, I said, I was going to go back to your question.

Andrew Lieb (9m 30s):
So you still got our arms folded and she's growling at me. So here's the thing. Are we going to see a lot of people that are closing and then getting the mortgages,

Jeffrey Butofsky (9m 39s):
A lot of people closing cash and then getting mortgages yet, see that people want to be ahead of all the bidders out there that are getting mortgages. Right? Well, listen, if they're buying cash right there, they have no mortgage. And then when they go do a mortgage, three, six months down the road, then it's considered a cash out refinance. And the rate is a tad higher. Again, still very aggressive, but it's is going to be a little bit higher than purchasing the house

Lauren Lieb (10m 8s):
On Friday. And they want the loan.

Jeffrey Butofsky (10m 12s):
Yeah, they could start the process, but it's still again, it's considered a cash out refinance. So let's just as an example instead of a two eight, seven, five on a 30 year. Now it's a 3.1, two five, which is still excellent, but it's going to be a tad higher.

Andrew Lieb (10m 26s):
That's just so interesting because people are just doing what they can do to get the homes. Cause there's just no inventory. There's no inventory. So here's why I brought Jeff on everyone, the single family market for investors and an investor for investors, for owners, for people escaping the city it's happened. It's happened. We read Forbes is Brad Hunter. He's telling you, this is the market to be in. But the problem is you're going to want to leverage loans. As Lauren's pointing out, you can get two and a half percent with Jeff on a 15 year. And then you could get 5% in the stock market.

Andrew Lieb (10m 57s):
You're killing it. But the problem is that getting these loans right now, your percentage, when you do your loan to value ratio, you're going to be off because they're going to give you a praise number, which is going to be different when you're in, what's called a sellers market and the valuations are skyrocketing every day. So what I want you to do is I want to call you to call my friend, Jeff Petoskey. You can just look them up. You type in Jeff, <inaudible> you put a nationwide mortgage bankers. This guy is going to help you out because you need to know your preapproval numbers and what they're going to be looking for before you go make that offer.

Andrew Lieb (11m 28s):
Otherwise, you're going to be pretty sad after the break. We're going to come back and we're going to talk to you about what's going on with these masks because masks are affecting all sorts of things. Even in the Hamptons with our friend Eric file in Dan tastic, Hampton, stay with us.

Jeffrey Butofsky (11m 41s):
<inaudible>.