Tuesday, December 14, 2021

What is a mortgage, really?


Does a mortgage always mean a loan?  Is it always associated with debt

The answer is NO!

A mortgage is just a security instrument.  What is a security instrument?  It's a contract (an agreement) that references another agreement, oftentimes this "other'" agreement is a promissory note, a loan; however, it doesn't always have to be debt.  Let's explore why you might use a mortgage as a tool for your real estate investment business. 

OK, let's back up a second.  A mortgage, is just one type of security instrument.  Some states are deed-of-trust states and some states are mortgage states.  Let's use the generic term of security instrument, so we can talk in broader terms.   What's the point of a security instrument?   The security instrument is a recordable (on public record) agreement which stipulates what the parties agree can happen if the terms of the other referenced agreement is violated .  For example, if the promissory note (the other referenced agreement within this security agreement), goes into default, then the mortgage holder can foreclose (for example).

The security agreement (mortgage or deed of trust) will spell out the recourse and rights of either party.  Usually foreclosure is the remedy; however, there can be other remedies which can get creative and extend beyond the property in question.  For example, an option could be executed secured with a mortgage, and if the option is violated (for example maybe the taxes were not paid by the occupant or some other provision of the option is not upheld), then the option holder could enforce the the terms of the mortgage, which may include access or rights to another property, or some other "specific performance" (often called a performance mortgage).

Keep in mind, the person who is signing the security instrument is the fee-simple owner of the property.   As the owner, you are agreeing (granting) the mortgage holder permission to do all these things.  It's a powerful tool, and one that can be used to secure a lease, an option, a loan, or some other agreement (i.e., property management agreement, purchase agreement, occupancy agreement, lease-back, etc).

Can you think of how you might use this to secure your agreement, beyond a promissory note?   Leave a comment with your ideas.

Monday, October 11, 2021

The Key to Understanding Bankers Wealth

A History of the Mandrake Mechanism:

The federal reserve states that member banks must keep no less than 10% in reserves.  If someone makes $100 deposit, the member bank can lend out $900.

Let's see how this Mandrake Mechanism works:

A $100 deposit is made and Joe borrower, borrows $900 at 1% per month, and starts making $90 payments.  Imagine that goes on and on and on, until that's paid back. 

Although that's good money, there is more good news. The lender can use that performing note as collateral, and borrow against it.   It can actually borrow up to 100% of it's value.  

Let's say they do that, and the bank uses the promissory note as collateral, and borrows all of it's value @ half of the interst rate.   So they are owed $45 month to their lender (the bank's lender). So the bank then gets their $900 back, but they owe $45/month.  

So let's review.  
The bank receives a deposit of $100.   They lend out $900, receiving $90/month.  They then pledge that note as collateral and receive their $900 back and owe $45/month for that loan.  They then do this again.   

They lend out $900, receiving $90/month.  They then pledge that note as collateral and receive their $900 back and owe $45/month for that loan.  They then do this again.   

They lend out $900, receiving $90/month.  They then pledge that note as collateral and receive their $900 back and owe $45/month for that loan.  They then do this again.   

They lend out $900, receiving $90/month.  They then pledge that note as collateral and receive their $900 back and owe $45/month for that loan.  They then do this again.   

Do you see why banks have the nicest buildings?

Thursday, August 5, 2021

I feel like such a failure...


A Real Estate Coaching Client recently expressed this (above) affirmation to me *(note the langage, he didn't say he failed or was failing, he said he was a failure). 

He had come to this realization after reflecting back over the past 6-months of no deals, and realized he had over 120 leads and had only made 3 offers.  He was scared or something.  I'm not sure.  Of those 120 leads, he should have made at least 100 offers.  

Here's the lesson:  Learning to see yourself as a winner and to feel like a winner happens primarily as a result of having small successful experiences and thinking self-affirming thoughts. When we believe our efforts will be successful, we become venturesome and are most likely to undertake an activity or task. Because we expect to succeed, we persist until we do. This successful experience causes self-affirming thoughts, which boost our self-esteem, enhances our self-efficacy, make us feel good, and leads us to believe we will do well in the future. Thus, we attempt more and the upward spiral continues. This internal system helps us grow and develop -- a natural continuous quality improvement program.

There is, however, an equally powerful downward spiral that can interrupt the natural growth process. If we believe we are likely to fail, we undertake activities tentatively, expecting a negative outcome. We feel anxious about our performance, we avoid or remove ourselves from anxiety-producing situations. When we fail, we say "I told you so" to ourselves and make a mental note to avoid similar situations in the future. When we expect failure and succeed anyway, we toss it off to luck or say it's a "fluke" or "only temporary," and hold on to our negative beliefs

Henry Ford said if you think you can or think you can't your right.

Here's the bottom line. On a fundamental level, your thoughts create your reality. If you think you have the capacity to assume total control of your life, take on new challenges, learn from your mistakes, and persevere to get the results you want, you will! But if you believe that no matter how hard you try, you’ll never succeed, guess what? Your fears will become a self-fulfilling prophecy.

The key word I want you to pull out of the paragraph above is "believe", it's the most powerful of

all the inner game concepts. We act not in accordance with the truth, but the truth as we believe it to be.  This belief may be right or wrong, it may support us or not support us, but we still act that way.  We act this way because we are this way, because we believe that this is the way we should act, and that belief could be 100% wrong.   

Remember that phrase:  we act not in accordance with the truth, but the truth as we believe it to be. 

You won't build a ship to go around the world, when you know the world is flat.  It would be ridiculous to put your time and your energy and really even learn how to navigate a ship to go around the world if you knew the world was flat.  Why would you spend the time doing something so dumb, when you believe the world to be flat?

If you knew you had no music ability, it would be ridiculous to invest in music lessons.  Why even study?  

If you know personally that you don't have the skill or the ability to become a leader, then why should I invest in the time and skills that go along with it?  

If you know personally that the seller would say no to your offer, why would I even give the offer?    

You see?  From belief comes behavior.  I won't set myself up to be embarrassed, b/c I already know the seller is going to reject my offer.  If your belief is that you won't get the deal, you won't even try.  If the belief is that you won't be able to win the race, well then, you won't even try.  

How then are these beliefs formed?  It always gets created in our mind.  We can touch the hot stove, and learn that the stove is hot, but it's not just that one time that we experience the hot stove.  We play it over and over again in our mind, we have 50,000 thoughts a day, do you think that the hot stove or fill in the blank, once it's played over and over, day after day, month after month, that a certain amount of imprinting goes on, and we may have perceived the entire thing wrong to begin with!    Sometimes we don't think about what's wrong with us for just an hour, but sometimes a whole day, or a week, or a month or years or even for a lifetime.  That's how beliefs are formed, and often the wrong beliefs are formed. 

Become aware of how you talk to you.  Become aware of how other people talk to you and who you give permission to (or sanction to), to talk to you that way.  Your self talk reinforces your beliefs, at a subconscious level. 

Remember, the truth may not be the truth, and that's how you change beliefs, which change behavior.   So what is the first step?   Set a goal, make your plan, work your plan, and get feedback for the results.  Along the way, monitor your self-talk and when you do something wrong, say to yourself "that's not like me, I do it this way"

Wednesday, July 14, 2021

Who has the Upper Hand in Real Estate?


The single and most dangerous word to be spoken in negotiation is no. The second most dangerous word is yes. It is possible to avoid saying either.” – Lois Wyse

Today, I was thinking about a recent negotiation and deal that I'm in the midst of, and was wondering to myself how the other party got the upper hand.  The deal isn't done yet, by any means, but I'm sitting there contemplating to myself how it is that I am on the down side of this deal. 

Save heart faithful reader, the deal isn't done yet, and we're far from the end, but I'm thinking to myself - how did I get to this point?

And then I started thinking, who in Real Estate has the upper hand more often than not?  And I was reminded that it is me.  It's me the buyer.  The buyer usually has the upper hand.  Under normal circumstances, the buyer doesn't need to buy.   The seller usually has the motivation to sell, but the buyer, unless constrained by a 1031, usually doesn't "need" to buy. 

Don't get me wrong, I've heard "I don't need to sell" about a thousand times.  Maybe a million times.  If only I had a dollar for every time I've heard that statement.  However, it usually is the seller who is already committed to selling, and they're looking at spending that money and their emotion (key word) is already attached to selling the property.  The buyer really is holding the cards, aren't they?  

There are details about this (potential) sale that I'm not enthusiastic about.  I may be able to negotiate around them.  Maybe.  Let me see what I can do, and I'll fill you in on more details later.  It's not about the price.  The price is sooooo insignificant in this negotiation.  It's the other terms.  My mentor once told me this:  The part of the system that has the most flexibility has the most control.    Think about the heating system.  What has the most flexibility?  it's the thermostat.  The thermostat controls the entire system.  So stay flexible.