On the Invest Four More Podcast, I usually interview real estate investors or agents, but today I interview a lender. Mike Bowen, is a lender in Colorado that my team has worked with numerous times. Mike is one of the top lenders in the nation as far as number of deals done per year and is a tremendous business person. In this interview, we talked about a number of things including: why real estate agents succeed, what investors need to look out for when getting a loan, how to build a team and much more. I think Mike and I could have talked for another 3 hours, but we are both busy guys!
How did Mike get started in real estate?
Mike did not start out as a lender, in fact he started out in the oil fields. He was doing manual labor jobs, when an older friend told him he was quitting and going into real estate. Mike could not understand why anyone would want to give up the easy money that was in oil, but he had a lot of respect for his friend and wanted to know why he was getting into real estate. It turns out doing manual labor your entire life for an hourly wage, is not so appealing once you get into your forties or fifties. Mike did a lot of thinking, and decided he would get into real estate as well. He actually started out as an agent, and signed on with a broker as soon as he got his license.
Mike was expecting some training or guidance when he became an agent. But his broker basically told him to start knocking on doors and that was it. With no training and no direction, Mike did not like being an agent. He also loved to work with numbers and he felt being a real estate agent was too emotional for him. After a couple of years as a real estate agent, Mike became a lender.
What does a lender do?
A lender helps prospective home owners get a loan to buy a house. Almost every bank hires lenders to work with potential borrowers and close on loans. Typically the lenders work on commission, much like real estate agents. Mike started out working with a big bank, because he thought that would give him credibility. Working with a big bank did give him some credibility, but it also limited him greatly. Big banks, had more restrictions and it was much harder to get a loan done, than with a smaller mortgage broker. Mike switched companies and started to find a lot of success as a lender.
How did Mike’s career collapse?
Mike was doing many deals a month, making great money and loving life. He was loving life until the recession hit, and then his world fell apart. People stopped buying houses after the recession and hit and it became much more difficult to get a loan. In 2011, Mike was almost completely broke. Mike gave lending one more shot, he moved to a new company and told himself there was no way he was not going to succeed. With a new attitude and new company, Mike closed more loans in three months than he had the entire last year and was back on his feet. Mike built his business with multiple lending products, built a team and now is one of the top lenders in the country.
What has Mike learned about being a lender and real estate agent?
Mike has learned a lot about real estate as a lender and agent. He has also learned a lot from dealing with many agents and investors. Mike sees many agents come and go in the business and has a few pieces of advice for agents.
- You have to base your business on relationships whether you are a lender or agent.
- You must be willing to get out in the field and talk to people as an agent. You cannot hide behind your desk.
- You have to set goals, have an idea of how much money you want to make and save money before becoming an agent.
- If you can build a team, it will make you more money and make life much easier. Mike may be one of the top lenders in the nation, but he only works a 40 hour week and is trying to work less.
Mike talks a lot about working with investors as well. Many investors do not save enough money to buy rentals and are surprised when they talk to a lender. Some investors also max out how much they can qualify for on their personal residence, which makes it very tough to buy a rental.
How can you contact Mike Bowen?
Mike works for Guild Mortgage in Denver and works loans throughout the state. I can personally vouch for him as a great lender. Mike can be reached by emailing him at [email protected] or you can him directly at 303-995-4663.
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[0:00:58.6] MB: Hey everyone, it’s Mark Ferguson with Invest Four More and welcome to another episode of the Invest Four More Real Estate Podcast. I have a really awesome guest on today’s show. Mike Bowen who is with Guild Mortgage in the Denver area.
I have not had a lender on the show before, but he is just super successful, he does a lot of teaching himself, has worked with our team and done an awesome job and I’m really excited to hear his perspective, learn how he got in the business what he’s learned over the years and I think he can provide some great insight for investors and agents as well.
So Mike, thank you so much for being on the show, how are you doing?
[0:01:39.1] MB: I’m doing well Mark, thanks for having me, I really appreciate it.
[0:01:41.2] MF: Yeah, no problem. I’m glad to have you on the show. I always like to start out talking to guests, just figuring out how did you first get involved in real estate? How did you first become a lender? What drew you to the business?
[0:01:55.1] MB: Yeah, I’m glad you asked that. I think kind of looking back, I was in the oil field for a long time, I used to drive around in a truck and check oil wealth and the guy that I worked for, his name is Tim, decided to get his license and he actually was getting out of the oil business and I asked him when I was 21, 22 years old, “Why would you do that? I though, there’s a lot of money in oil, why would you do that?”
And when he told me, “Listen and listen closely is how he put it to me. If I could go back and redo my life,” he was probably 58 or 60 at the time. He says, “If I could go back and redo my life I would start in real estate, it’s a really strong profession, it’s interesting, it’s different, there’s a lot of reasons,” but he says, “I would go back and I would start a career in real estate.”
So I respecting him a lot, he was kind of a first mentor for me and I literally went out I think six months later and took the course and got licensed as a real estate agent in 1994.
[0:02:53.8] MF: Wow, so I didn’t even realize that you were an agent before you were a lender.
[0:02:57.4] MB: Yeah.
[0:02:59.0] MF: So how was it when you first became an agent, was it all that you thought it would be?
[0:03:02.8] MB: Definitely not. I was licensed as a real estate agent, did that for two years, ’94 to ’96 and I think it’s funny because when I first got in, I came to work in a suit and came to work, reported to my managing broker and said, “Great, what do you need me to do?” Kind of looked at me and said, “Go get business,” and I literally had no idea what that even meant.
“What do you mean get business?” He says, “Go door knock,” and I had no idea, I didn’t have any guidance at what that even meant and I quickly started jumping in, I was pretty fearless, I just went out and door knocked and I started to get with people and I figured out that being on the real estate side, that’s a hard gig.
It allowed me to gain a huge respect for those of you in the profession, out there working with real estate, what I did also show me is for my personality style, I just decided, you know what? Numbers are a better fit for me, it was always something that I excelled at, working numbers, being creative with numbers. So in ’96 I decided to go towards the lending part of things. That was kind of my very first start.
[0:04:06.5] MF: Very cool. It’s interesting because I’ve always liked numbers too in that side of it more than — I’ve never door knocked as an agent but as an agent, you just have to talk to people, whatever you do, there’s no way you can get around talking to people and getting yourself out there and I found REO as an agent, which was kind of more a numbers game, a system’s game but what drew you to lending and how did that work out when you first started becoming a lender?
[0:04:34.9] MB: Yeah, so I mean I started on a team with a local guy, you’ll find with me if you talk to me, I believe in mentors, I believe in hooking up with people that do things better than me or smarter than me at the time and at that time there’s a guy named Dale and he’s a lender. I was his assistant, so that was ’96, I did that for three years and then I branched out on my own after that around 1999 I guess that would be.
I think what attracted me to the lending side is yeah, I think working with numbers, I always say that numbers are kind of black and white and in other words, if somebody wants a payment, the numbers will either work or they won’t. Where real estate can be a little bit more working in the grey right?
Does it have a big enough bedrooms, is the carpet the right color and for me it was those kind of grey areas that I think didn’t always work for my personality style. I wanted more black and white. If I can make the numbers work, can I earn you as a client? Yes or no? And I enjoyed that kind of direction I think.
[0:05:33.7] MF: Right. Being a real estate agent, you’re working with a lot of emotions. It doesn’t always makes sense what people do. It takes some getting used to that’s for sure.
[0:05:46.2] MB: I was thinking, that’s exactly right and I think when you talked about the REO Mark, what strikes me is really, when you — this is really what I teach a lot. I’m coached with a business coach and I do coaching myself, I have six students that I coach nationwide and then I do a lot of courses, training courses and things, business planning courses and I love doing that because what I teach and, you’ll probably relate to this being an REO is business is really business.” No matter what you’re doing, what you’re selling, business is kind of universal.
The tactics and the things that we all work as a business owner are really similar. The problem that I see is sometimes agents don’t see themselves as a business owner and they see themselves as a sales person and they’re kind of viewing it as that’s the game that sells rather than being a good business person.
Recording their results and being very thoughtful and tactical in their business rather than emotional. I think back to what you just said, I mean, that’s what I’m working to change that perception to people that will come to my courses is really hey, emotion never serves us well in business, it just doesn’t. It’s impossible to eliminate it but it doesn’t service very well so if we can be tactical and make decisions tactically, we’re going to be better for it.
[0:07:05.8] MF: That is an awesome point. I completely agree with you about real estate agents, treating themselves as a business. I think one of the easiest business you can start is becoming an agent or maybe even being a lender, I’m not familiar on the lending side but so many agents start and just kind of feel like you did, you show up your job and expect someone to tell you what to do and if you’re not at the right brokerage, you’re not with the right company that has training. What do you mean you want me to tell you what to do? You go figure it out man. Yeah, it has to be a business and you really need the right training as well to succeed as an agent.
[0:07:41.0] MB: Big deal, it really is. I’ll tell you a quick story. My mom was just licensed in the industry so she’s a licensed real estate agent, that’s the advice I gave her, all the things she was worried about was just more to do with how to write a contract and all important stuff, certainly how to write a contract, how to get into MLS, all really necessary but what I really was trying to help her with is start off the same way you would start off if you started a business, a flower shop.
You’d never go into that flower shop without having the right tracking systems and the right software to be able to run your point of sale, your registry and your point of sale software and things like that. You would have to set all those things up. You’d have to have them in place to be a respectable business owner but you’re right. I think those of us in real estate and even lending, we all jump in and we forget those basic business techniques and things that we have to do.
[0:08:38.3] MF: Right. Yeah, as well, you start a flower shop, you want to know how many flowers you have to sell, what the cost is of those flowers and many agents just jump in without any idea how many houses they need to sell, how much money they need to make to survive, what the expenses are and it’s so important to know all that stuff before you get in to the business.
[0:08:57.7] MB: I couldn’t agree more, absolutely.
[0:09:01.1] MF: So being on the lending side, I’m curious, is it similar to being an agent with different job descriptions or is it just completely different as a lender?
[0:09:12.0] MB: No, I think yeah, I think it’s absolutely similar. I think where you go for your deal, probably 75% of the business I do is with agents. That happens to be my focus is relationships and talking with people and understanding their business. So agents are a big focus where I think if you’re an agent, you’re going to pick some place. REO for instance or past clients or your sphere or maybe you’re going to get with Relocation Company or maybe a builder.
But in other words, the game is the same, right? We’re all hustling trying to earn a deal and earn people’s trust, it’s just a matter of where you’re going for that, what direction you’re going to go to get those leads. I think that really the game is the same and I’ll even boil it down farther, I really believe it all really comes down to again good business tactics of course. But then it really boils down to relationships.
Whether you’re an agent or you’re a lender, if you’re good at forming relationships and people take to you and they feel like they can trust you. You’re almost always going to do well is my opinion. As long as you’re out playing the game right? In other words if you’re a stay at home and you’re a great guy and you’re not going to do any business, right? If you’re out meeting people and you have those basics where you can form relationships and again you come off trustworthy and you act in that manner as well and you’re out meeting people. That’s most of the game in my opinion. IT’s the piece that people don’t think about just meet a lot of people and do a good job and work with integrity, I guess would be the word.
[0:10:46.7] MF: You know BJ and David are in our team but one thing I loved about them was when they first joined our team, they went out and talked to people like the first day they were on the job. They had no idea what they’re doing, no clue about how to write a contract or do any of that, they just went and talked to people.
They’re like, “You know? The people is brand new and had no idea what he was doing but I was honest with him I told him and they were cool with it.” And I’m like, “Okay, well if you can do the job and keep in contact with me.” I think that’s the biggest thing an agent can do, It amazes me how many agents won’t return phone calls, won’t return emails. It’s like they don’t want to be an agent but for some reason they’re in the business. I don’t understand it.
[0:11:26.2] MB: Well yeah, I can bring a little insight, I don’t know about agents but loan officers, what I’m amazed is as I talked, I’m the branch manager over here. I’ve got 10 loan officers that work for me and then I have six coaching students and just talking with people nationwide and things.
This is what I’ve learned in the last two years to my shock and amazement, most people, even though we’re in a sales position, you wouldn’t think this, they have call reluctance. They’re afraid of the denial, they’re afraid to get on the phone. The reason why a lender won’t call back when something goes wrong is because they’re afraid of being yelled at, it’s uncomfortable for them and they’re afraid of what that agent might say to them.
I never would have guessed that because I think well, I can understand that that’s hard but if you’re in the position that we are, you would think your personality would suit those kind of activities but what I find a lot ifs when I talk to them and I say, “Why don’t you call back? Why don’t you return that call,” and the answer is often the same. I’m scared, I don’t’ want to call them until I know the answer because I’m afraid that they might ask me something I don’t know or they might say something that makes me uncomfortable so I try to gather all the information before calling the real estate agent and then I say, “Even if it means taking two or three days?Yes, even if it means taking two or three days.”
My philosophy has always been call them immediately because they appreciate that even if you don’t have all the answers. I think it’s more important to be fast and get on the ball and don’t worry about it right? If appraisal comes in low, it’s not a lender’s fault he didn’t do it but they’re afraid to call that out because they’re afraid everybody’s going to get mad at them. It’s interesting because I think you really have to get over that call reluctance and that fear of somebody just being upset at the situation and don’t take it personal. Again, take the emotion out of it.
[0:13:14.6] MF: Right, that’s awesome. I think with agents too though, maybe they’ll get an information gathering stage or they’re busy and they forget to call someone back right away. They feel like it’s too long for them to call them back or they’re worried that someone might be mad and took so long to call him back, so they just don’t do at all. It’s even worse. Very cool. When you went out on your own as a lender, did you start your own company, did you just kind of… how does that work? How did that full process start?
[0:13:42.0] MB: Yeah, in 1999 I decided to leave and I think I’m thinking where I went immediately after that. I think I went to US bank and decided that the big bank was probably the way I needed to go and then that just wasn’t a great fit. I think the big banks are tough to deal with. Most of us probably know it’s tough to get things done in a timely manner.
I work fast, I like things to happen fast, I don’t like waiting around for things so it’s just not my personality. So I quickly moved to what I thought was better fit and it ended up being it was a smaller bank, kind of a mid-sized bank and that worked really well. When you get out in there, it’s kind of like being a real estate agent.
At that time there was no licensing, it was even easier than being a real estate agent, you basically landed the job and you’re a 100% commission and you go out and hustle the streets, you try to show people what you’re about and earn their trust and start to get deals going. I think through years and years, I had some pretty good success, rose to the top of that bank and really thought like I had something figured out and I told this story actually yesterday in the class that I taught your office there.
Really personal story. I think for years, I was working, really felt pretty good about myself, I was really proud of myself, I have risen to the top of my company at least. I thought, “Hey, I’m really somebody I’ve really come up and you get where you think boy, I’ve got this business figured out.”
2008, 2009 comes along and I realize I’m really a three legged stool and when that one product that I was hanging my hat on, my little niche product that I was selling, they pulled out from underneath me, my three legged stool became a two legged stool and it tumbled. I had from 2009 to 2011 the toughest financial time of my life and I don’t think that I’m unique, I know a lot of people had a really tough time. A lot of people say it’s the economy and there was a lot of blame to be given and I don’t blame any part of the economy, I blame myself.
I had a flawed business plan. I see it clearly now. I had one product that I hung my hat on and I sold the heck out of it and I was known for doing it and that’s really great. Again, when you don’t have enough lets on your chair, it doesn’t take much to kind of topple over. From 2009 to this, 2011, I spent a lot of time trying to get my business rebuilt unsuccessfully, ran through all my savings and was flat broke.
October 2011 and I mean flat broke. Sold my properties, everything I’d worked for was gone and I was desperate, I was absolutely desperate and really came to my wife and I said, I got one last idea before I have to get a nine to five job which sounded terrible to me. That was 2011 October. I told her I’d get October, November, December if you can give me that, I’m going to work like a dog, I’ll probably sleep at the office right?
It was a really intense deal for me and I say you may not even see me in three months, that’s how bad I have to make this work, I came to guild mortgage, was just where I’m at now. They’re a direct lender, they had a few things that I thought boy, a direct lender in house, underwriting, that’s unheard of in this market, I can beat everybody with that. I really felt like I had the tools to beat anybody.
I kind of… whether that was true or not is probably irrelevant, it’s really more I believed it. I believed it in my heart that I had something that no other lender could offer. I went out on the market October to December and by then I had closed as much business in three months as I did the entire year 2011 elsewhere.
Then yeah, fast forward and all of a sudden my four years of guilt mortgage has been by far the most successful time in my entire 20 year career. You won’t meet a more grateful person. I’m extremely grateful and humbled at the experience and I learned a ton and what I learned is be a business person. Make sure you have a sound business plan and I didn’t, I deserved what happened to me right? I’d like to think that I’ve got a much better business plan today.
[0:17:49.6] MF: Right. That’s a really awesome story and I’m sure many people can relate with it but just be able to come back from that in that position shows your resilience and not everything ends on money if you still have the right attitude and the right drive but I’m going to give you a chance to brag right now. I know you guys are tops in Colorado in a number of categories. Tell us a little bit about your team and how well you’ve done the last few years.
[0:18:15.6] MB: Thank you, it’s not so hard to brag and that’s not because I’m not bragging about me, I’m bragging about my team and what we’ve been able to accomplish as a group and again back in the past, I would have taken all the glory because that’s the way I was built a little bit more and I think in time I realize you just can’t do it alone. Right now I’ve got a 10 person team. When I started I had nobody. Literally no body, I was a one man show.
October 2011, fast forward today, I have 10 people, I have support people that help get the loans done, I have a full time dialler, really kind of a business development gal that calls all my clients, keeps in touch with them, we send them gifts and we take very good care of them and she kind of keeps me on track with all that stuff.
To give you a little bit of a run down in 2012, we closed 125 units for $25 million and we made the top club here at Guild Mortgage President’s Club. 2013 we did $36 million, made President’s Club, 2014 we did $44 million President’s Club and then 2015 we did $75 million for 330 transaction and we hit Chairman’s Club which is the very top and that ranks us I think in units, we’re ranked nationwide in the top 30 nationwide in units and then the top I think 200 in volume. So as a team, to exceed anything I ever dreamt up long ago, I mean I never thought I could hit these kind of levels and that thing Mark that I will say that I am the proudest off is I have a healthier business plan but I am happier in my life than I ever was before and my 10 people would tell you this is the best place and best team they’ve ever worked on.
The volume is really cool and I’m very proud of that of course. I’m really proud of the fact that we’re doing it without compromising our lives, our clients are very ,very happy and again, I don’t want to paint a picture like we’re perfect over here. We certainly have our falls and we do some things wrong, we really do.
But I think in this business, perfection is probably not achievable, there’s just too many working parts but I would say we’re as close as I’ve ever come in my life and in my career and there’s balance there and I have a number of realtors that I consider friends and just the relationships that I’ve made, that I didn’t have in the past, it’s been quite a journey, it’s been amazing, we’re really proud of it.
[0:20:43.7] MF: Yeah, that’s awesome and I’m really glad you brought that up. I run a real estate team too and I know one thing you talked about yesterday was you worked about 40 hours a week right now, it’s not like you work nonstop and that’s all you do in your entire life. I think obviously, one of the main reasons you can do that is because you have a team and people you trust and systems setup. But I talk to so many people who are afraid to have a team or afraid to hire people because they think it will be more hassle and more work. But really, it is the complete opposite if you get things setup right.
[0:21:17.7] MB: It’s the complete opposite. I think there’s a lot of things. I mean a lot of people want to just hire an assistant and feel like you’ll feel instant release and it doesn’t really work that way. You have to — I think like anything in life, you really have to come up with a plan and by the way there’s plans out there and that’s what I do is I share my plan, you don’t have to reinvent the wheel here.
In fact, I was reading your manual that Mike, your office manager gave me. And the manual, that manual is actually outstanding and it really talks about everybody thinks they got to come up with some innovative way to sell real estate when in fact there’s 10 tried and true ways and focuses that you can do that will get you where you want to be.
You don’t have to be that innovative. Just work a plan and work it really well. What I really kind of show in my classes is just start a plan where you’re going to start with relationships, you’re going to hire your first employee but you’re going to do it right, you’re going to have job duties written down so they know exactly how to make you happy as their leader.
If you do that, they’ll feel more organized and they feel more fulfilled when they get their job duty list done and you give them a big pat on the back or you give them a gift certificate to dinner and they start to feel really good about it. It’s the beginning of something. Then your second one comes in and that person is uplifted by how happy that first employee is. Right?
Then you do the same thing with them and there’s a process here that you really have to follow and it’s very systematic and it’s not like you just throw somebody in there and hope that it changed your business. I think that’s the biggest mistake I hear is people say, “I hired an assistant, it was too much work so I got rid of her.”
Then I’m like, “You missed the beauty of it, right? You never got to that point because you didn’t” — could be they had a bad employee that just didn’t work but it really, more times than not, it’s the leader’s fault, we just don’t do a good job. Being a leader is something we all take for granted is what I’ve learned for two years now. That’s been my primary focus.
Being a leader is the hardest thing you’ll ever do in business. Trying to lead people and inspire people, they’re very difficult, I think you have to take that very seriously as well and how you’re going to speak to them, how you’re going to lead them, how you’re going to communicate what you expect out of them.
It can’t be verbal, it has to be written so they know exactly what you expect and how to make you happy. I mean there’s a lot of piece of this, Mark, and I don’t know that we have time to go to every piece but that’s the start of it, is then you’re right, you have to get to a certain point, once you get to a certain amount of employees and it depends on the volume of your business and the complexity.
But you get to a certain amount of employees, you’ll feel that release starting to happen, you literally get to a point where you maybe have four employees and the fourth one is the leader of the other three. So you’re no longer managing those three people, you’re really only managing your team lead and they’re having to deal with those other three people and that’s when, to me, the magic starts to happen.
[0:24:11.6] MF: Right. Justin on our team is kind of that role for me and people think it’s so complicated to hire people and do payroll and do all the stuff and what I did was I hired Justin, I let him deal it. I’m like, “You figure all this technical stuff out,” and there’s companies that will do that.
Like you said, the leader has to focus on more important things than the technicalities. You can always get those figured out or hire someone, the company to do that kind of stuff. That’s awesome information. I really appreciate that.
[0:24:41.0] MB: Well that’s really big what you did, I think a lot of leaders and I hear constantly what we believe and we kind of joke about it in my coaching circle of we’re also kind of full of ourselves that we think nobody could possibly do any facet at this business, any better than we could. It just isn’t right. We just can’t imagine somebody could do it as well as. It’s interesting, as I start getting going and I start assigning people on my team different things and then after I train them and after some time, I start to see different conversion rations that I used to achieve.
Now they’re exceeding what I ever did. So the you start to understand, kind of like what you said with Justin, he probably has skills that you may be either don’t have or you don’t want to focus on to become great at them and he exceeds what you ever could have done. Does that make sense?
[0:25:32.2] MF: Yeah. For sure. Everybody on my team that does something better than I can do. Once you realize that, it’s kind of like, “Oh wow, I don’t have to do everything myself. And it even works better when I don’t.”
[0:25:45.2] MB: Then you find when you do get in the mix of things, your team yells at you because they’re like, “All right, now you’re just screwing things up,” just stay out of the way and you’re like, “All right, I’ll just stay out of the way.”
[0:25:53.8] MF: Yup, exactly. That’s great advice and I love the whole team concept as you know. I want to move on to a couple of more things that maybe might help some of the listeners out there. You work with a lot of agents. You work with investors as well. From the lending side, when you’re working with a real estate investor, I’m curious if there are certain things or certain mistakes you see them make or certain things they assume will happen or be easier that aren’t. What are some tips you can give for investors who are trying to get loans on properties?
[0:26:27.9] MB: That’s a really good question. I don’t know if I’ve ever been asked that in that way, but it’s a great question. I think the biggest thing I see in investors a lot of times, they want into what they perceive as going to be maybe relatively easy money without really understanding what it takes.
Number one, a lot of investor, I get a lot of my past clients calling me and they want to buy a property but they have no money. The perception is that you can get in with 5% down or three percent down. I think when you’re going to be an investor, I think just kind of planning ahead and knowing that you can get in with as little as 15% but remember, when you’re buying investment property, your return or your cash flow every month is really a bit key when you’re looking at that stuff.
With 15% down, not only is your loan amount higher but then you’re going to have mortgage insurance. When you do that, you have to rent it for so much just to be able to cash flow that property and make it make sense. A lot of people don’t think about that piece of it even when you get to 20%, you don’t have mortgage insurance but then the rate is higher. 20% is kind of a good place to be but the rate is higher.
If you’re really wanting to put yourself in a good position in terms of cash flow, you’re going to want 25% down, there’s no mortgage insurance, that’s where the rates hit the most premium levels, that’s really the piece of it that you want to get to.
Yeah, I think the other piece of it that I see a lot of investors tend to be pretty savvy and they may be self-employed, I see that a lot. They don’t want to be bothered with the whole idea of giving all the stuff that we need as a lender. I think that would be another piece of advice. Understand that when you’re buying an investment property for a lender, that’s a high risk comparison to your primary resident. An investment property is a high risk purchase. With a thought being that if you get into financial trouble, you’re going to walk away from your rentals long before you’re going to walk away from your home where your family is right?
I think understanding it is a more high risk for the lenders so therefore it’s going to be a higher scrutinized right? They’re going to lend tax returns, they’re going to want the letters of explanation if you have anything unusual. Just understanding that lending is harder anyway these days but if you’re doing an investment property, it’s going to be that much harder. Does that makes sense Mark?
[0:28:48.8] MF: Yup, that makes a lot of sense. One thing too, I think you might want to, or you could touch on too is when investors are self-employed and they own a lot of rental properties, there’s a ton of tax advantages. But at the same time that really decreases your income and can really hurt your ability to qualify. Is it wise to deduct every possible thing you can if it shows you it makes no money?
[0:29:13.2] MB: That’s a great one and we see that so, so often. It’s hard because that fraction of the nation is really excluded from getting homes and I don’t think a lot of people know that what you just brought up. But you’re exactly right.
When you own a business, your accountants and everybody in the world is always going to tell you, “Write off your car, your gas, your oil changes, part of your house if you can. Right everything under the sun.” Really, what people don’t think about is what you’re really saying to the IRS and the government is, “Please don’t charge me taxes on this write-offs because it’s not income to me, it’s really expenses to me.” That’s really what a write-off is and again.
People don’t think of it that way. If you made a hundred thousand dollars gross but you come up with $50,000 dollars in write-offs, you’re not being taxed on $50,000 right? Then the other part, you are being taxed, only $50,000 out of the $100,000 you’re being taxed on, you can’t use anymore to qualify than what you’re taxed on. So it would be only $50,000 in my example. That does put you in a spot where really and truly that person maybe made really good money but because they had a great accountant and they’re really creative and they wrote off everything they could. Yeah they saved a little bit of money on taxes but now they can’t qualify for anything for their family.
So I think yeah, that’s a big consideration. What I usually tell people is, it’s just about knowing that fact and just planning ahead. If you think you’re going to buy a house in the next year or two then you’re going to have to just pay the taxes, you want to show your max income so you can have the income to qualify for a new property when you’re ready. If you’re good and solid and you don’t expect to buy any real estate then by all means, take advantage of the tax laws, that’s why they’re there, and save yourself the money.
[0:31:00.8] MF: Yeah, awesome advice and then one thing you just reminded me off too is, people who have bad credit or people who don’t think they can buy a house, a lot of times they’ll put off talking to a lender or they’ll just delay it. But what I always tell people is whether you have awesome credit or bad credit, one of the best things you can do first is talk to a lender, to see what position you’re in because in my experience, lenders can help fix things better than almost anybody if there are problems.
Like you said, if there’s not enough income being shown, you can tell them that so they know sooner rather than, you want to buy a house in a month and figure out “Oh wait, I don’t have the income to last two years to buy a house.”
[0:31:39.2] MB: I can tell you Mark to tell your listeners out there. One thing that I would really say is what you said is exactly right. Remember, lenders see thousands of scenarios a year. This is very common for us, we see people with outstanding credits, challenging credit, really low credit scores, all different scenarios.
Don’t be afraid to call the lender. I can tell you that people sometimes, they call and they’re embarrassed about maybe different financial hardships they’ve had or different problems they’ve had on their credit and then again, back to what we said, it becomes an emotional thing where it’s very hard for them to work through that if they can remove themselves and say, “Listen, everybody has trouble, I want to move on, I want to get this fixed and call us with an open mind,” we’ll help them. Nobody’s judging them here at lenders because again, we see it in all different ways, we probably been there our self. It’s okay, right? Don’t worry about it, call us, let us give you advice and maybe we can’t do it today but maybe we can in three months or six months or nine months or 12 months.
But let us help you through that or at least give you the advice and then the best thing you can do is follow that advice. Just work through it, it may be a process. One of the things that I have to my clients is, “Listen, getting your credit in the shape that it’s in didn’t happen overnight and fixing it won’t either, it’s a process. We have to work at it,” right?
[0:33:02.7] MF: That’s great advice and one thing too that you’ve told our team before is, a lot of people think that their credit is really bad, they need to go to one of these credit repair agencies first. But you told us, many times a lender can fix it without charging you anything too if it’s not depending on a situation.
[0:33:20.1] MB: Sometimes if it’s more minor, you’re right. If they’ve got a letter saying it wasn’t their fault and we can get that, sometimes we can just send it off to the creditors and get it rebuilt for a fraction of the time and a fraction of the cost. Now, there are times that the credit is really, it’s got some pretty major issues to it and then we would refer it off to someone that really can help them kind of work through it on an ongoing basis and get that stuff done.
But a lot of times we can, even with the bigger stuff, we could at least advise them at what to do to be honest, a lot of people just don’t want to do the work themselves, they would rather pay somebody and that’s okay, that’s what they’re there to do. Either way, no matter how you do it, the point I would make is don’t make it emotional, make it more tactical and say, “I want to buy a home for my family,” or if it’s an investment property, “Hey, I want to start investing in real estate.” I know there’s some steps I have to take to get there and then seek the advice of professionals that you trust to get it done.
[0:34:17.9] MF: That’s great advice. Mike, this has been awesome, I have a feeling we could keep talking for like three hours if we wanted to. But we both have a schedule. Before we go, do you have one piece of advice, one tip for someone who is looking to buy a home or one thing I always try to tell people, I don’t know if you agree with this or not is, just because a lender says you can qualify for $300,000 doesn’t mean you have to buy a $300,000 house.
Because we use the term house poor in our industry where you spend all of your money in the house, you can’t save anything you can’t invest. What’s your advice to people who are looking to buy a houses?
[0:34:54.4] MB: Well I’ll tell you. Part of what I do is coach people in finances as well. What my advice would be is figure out a monthly budget where you’re able to save 20% of your gross income and buy a house that you can afford after you’ve saved 20% each month. Don’t worry about what the lender says. Take 20%, put it away each month and then buy a house that first within your budget after that. But have a personal family budget before doing it.
[0:35:23.7] MF: That’s awesome, great advice and one more thing, I know we’re getting a little closer to the end but if you qualify for the most, you possibly can on your personal house then it’s going to be virtually impossible to buy an investment property too because you’re just maxed out.
[0:35:36.5] MB: That’s exactly right, now there are some — yeah, you’re right, there are some ad backs, we can give you rental credit for instance if the market rent on a house is a thousand bucks typically we can use like 70% of that. It would be like $700 to offset, there are some ways that we can do that but you’re right, if you ran right up against the ledge there with your primary residence, it’s not going to leave much room for investing and therefore doesn’t leave you much room to build a future right? To save money.
[0:36:06.4] MF: Awesome, fantastic job, before we go, if people are in Colorado, they want to find an awesome lender, what’s the best way to contact you to get a hold of you?
[0:36:15.3] MB: You can email me or my team at [email protected] or you can call me directly at 303-995-4663. That is my cellphone.
[0:36:33.3] MF: Awesome. Well Mike, I appreciate it so much, I’ll list that information on the website too when this podcast goes up. Really appreciate it, awesome job and yeah, thank you so much, I might to have you on again here a little later.
[0:36:46.3] MB: Anytime Mark, I’m honored, it was cool, a lot of fun.
[0:36:49.3] MF: All right, cool, well take care Mike, have a great day and we’ll talk soon.
[0:36:54.1] MB: Thanks, you too. Bye-bye.
[0:36:54.1] MF: All right, bye.