Luxury Home Sales, Market Theories, & How Funds Can Boost Earnings

Best of Investing

Luxury Home Sales, Market Theories, & How Funds Can Boost Earnings

Episode Aired: October 17th, 2020

Show Speakers: Edward Brown, Mark Hanf, and Nam Phan

Luxury home sales soar & crazy real estate market theories emerge. Laugh along with us as we dive into the Bay Area residential real estate market. We also take a look at our Family of Funds. If you are looking for higher returns, but don’t want the risks of the stock market, our funds are a secure alternative.

Please click play, and read along with the audio.

Segment 1

Edward Brown: [00:00:00] Welcome! You’re listening to The Best of Investing. I’m your host, Edward Brown, along with my co-host, Mark Hanf and Nam Phan of Pacific Private Money. Our phone number is [888] 912-1190, use that number to answer the trivia questions for a five pack tanning certificate given away during the show. That certificate’s not sponsored by the radio station, but by Tan Bella Tanning Salon with two locations in San Francisco and one in Marin. Today’s trivia theme is general trivia. Nam what do you have for us? You wanna start us off?

Nam Phan: [00:00:27] Yeah. Start us off again with mortgage rates.  So this article, I think, came out this morning, 30-Year Mortgage Rate Hits Yet Another Record Low. So gosh, it seems like we’ve been hearing these headlines almost weekly or monthly for several years.

Mark Hanf: [00:00:43] Well, we have. So 12 consecutive weeks, mortgage rates have been below 3% and it’s the 10th broken record this year for a new low. Now I think what… I think 2.81 is only like a one basis point below the previous record of 2.82. So it’s not like it’s… it’s still, it’s funny. They celebrate every basis point savings and mortgage rates. But I guess the whole… The thing is that I remember we did a show earlier this year where we said that mortgage rates weren’t likely to even go below 3 because there’s just a certain amount of fixed costs that you can’t eliminate.

Edward Brown: [00:01:18] Yeah, good point.

Mark Hanf: [00:01:18] But that not withstanding, they’re eliminating some of that.

Nam Phan: [00:01:22] Yeah. in the 15 year rate, it remained unchanged from the prior week at 2.59%. But, this is on top of already low rates. And the article goes on to say, “Despite waning demand applications are still far ahead of last year’s levels in both the refinance and new purchase sector. The refinance index was up 44% year over year, while the unadjusted purchase index was up 24% year over year, according to the Mortgage Bankers Association.” this is going straight into the Q4.

We’re in Q4 now. But, it’ll be interesting to see how this impacts the rest of the quarter. December is typically a really busy month for us just because people try and wrap up transactions before the end of the year. On our side, demand is still really strong. I think this time last year, we saw a little bit of a dip going into October and then, it carried over to like early November and then picks up again. But we’re not seeing any dip so far.

Edward Brown: [00:02:21] Mark, let me ask you. For-

Mark Hanf: [00:02:21] Yeah, it’s really interesting here. Go ahead Edward.

Edward Brown: [00:02:24] With the election happening next month, have there been… you think some people would just sit on the sidelines wondering, what’s gonna happen? Whoever’s gonna get in office.

Mark Hanf: [00:02:34] And again, just to lay the foundation for the audience, for any new listeners, on the Best of Investing, we typically start out by talking about , what’s new in real estate and mortgages. And primarily residential real estate because that’s the most exciting sector right now. And the only sector that’s really thriving in the real estate marketplace.

And again, it’s residential mortgages, that’s  benefiting from  low rates. And at Pacific Private Money, who sponsors this show and who Nam and I run that company and have since 2008, we, we make mortgages, primarily alternative mortgages, also called private money or hard money loans, fast funding, short-term loans, where people need to rent money that they can get quickly and easily to, execute a real estate transaction.

We fund all those loans with private capital. And we discuss and mo- and most of those loans are residential real estate. On the best of investing, we’re oftentimes discussing, what’s happening in money, what’s happening in real estate, because we make real estate loans with our investor capital and we invite investors to, increase their capital positions with us. We’re always looking for more investors to join in with the family of, investment strategies that we employ at Pacific Private Money.

Since we lend mostly on residential real estate, we’re very excited that this year, has not been, the real estate pandemic that many were predicting. And one of the articles I have here that I really enjoyed reading, and I just took a few excerpts from it is that, a gentleman wrote an article and he titled it, The Forbearance Crash Bros Spoke Too Soon.

So we coin the term forbearance crash bros. And what he’s talking about is that there’s a segment of the real estate investment community that has been very bearish. It’s akin to those bears that kept calling for the real estate… for the stock market to crash for the last five years.

Edward Brown: [00:04:29] Oh yeah.

Mark Hanf: [00:04:29] Or those Tesla short sellers that were wondering when they were going to, when Tesla stock was gonna crash. So you have these, forbearance crash bros that continually, are hyping real estate price crash and so I don’t quite have enough time. I don’t think in this first segment to go deep into that. I’ll talk about it a little bit later.

Edward Brown: [00:04:49] Sure.

Mark Hanf: [00:04:49] And we also have, some updates on what segments of the residential market are doing better than others. It might surprise you. And, also what areas of the real estate market are actually, not doing well, depending on what side of the fence you’re on, better for consumers, not so good for landlords.

Edward Brown: [00:05:07] All right, guys, we’re gonna catch our first commercial trivia break question here. In what decade did the dust bowl devastate U.S. Midwest farmers? What decade? All right? Call [888] 912-1190, first caller with the correct answer is gonna win that five-pack tanning certificate. And I wanna make a mention here for the Elk Cove Inn.

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Give them a call at [800] 275-2967, or go to elkcoveinn.com. Stay with us. The Best of Investing, we’ll be right back.

Segment 2

Edward Brown: [00:00:00] Welcome back to The Best of Investing. Edward Brown here, along with Mark Hanf and Nam Phan of Pacific Private Money. Second tri… first trivia question, excuse me. In what decade did the Dust Bowl devastate U.S. Midwest farmers? What decade was that?

Mark Hanf: [00:00:14] I don’t know, I didn’t do good in history.

Nam Phan: [00:00:16] ’20s?

Edward Brown: [00:00:17] No, it was the 1930s.

Nam Phan: [00:00:19] Oh.

Edward Brown: [00:00:19] So during the Depression.

Mark Hanf: [00:00:19] Right alongside The Great Depression. Great…

Edward Brown: [00:00:23] Right alongside, yeah.

Mark Hanf: [00:00:23] Those poor folks.

Edward Brown: [00:00:24] A double whammy there. Mark, go ahead and continue on. You were talking about the different segments of residential real estate.

Mark Hanf: [00:00:31] Yeah. I wanna just, share with you this article I thought was funny, titled The Forbearance Crash Bros Spoke Too Soon. “The health and economic crisis, of course, has made 2020 a horrific year for many Americans.. Added to all that misery, we had terrible fires in the West” [laughs] “and hurricanes in the East,” “from this author’s perspective, the ball in Times Square can’t drop fast enough, hailing an end to-“

Edward Brown: [00:00:52] Yeah.

Mark Hanf: [00:00:52] “… 2020. One might think with all that bad juju circulating on the planet, people would be extra careful not to bring more misery upon themselves. But then we have our band of housing bubble boys, who shamelessly-“

Edward Brown: [00:01:06] [laughs]

Mark Hanf: [00:01:06] “… never miss a chance to call it wrong in epic fashion.”

Edward Brown: [00:01:10] [laughs]

Speaker 3: [00:01:10] [laughs]

Mark Hanf: [00:01:11] “Some of their biggest hits, or should we say misses, in the last eight years have been a never-realized silver tsunami crash. The ever-popular investor supply crash, the Airbnb supply crash, and this year the COVID-19 was for sure gonna send prices crashing 30 to 50%. Despite what they promised, we sit here today with the United States housing market outperforming” [laughs] “all other economic sectors as the world, in the world during this pandemic. But hey, at least they are consistent in their catastrophic failure-“

“… to predict what will” [laughs] “actually happen.”

Edward Brown: [00:01:47] [laughs]

Mark Hanf: [00:01:48] “Also in predictable fashion, after time proves one of their crash predictions wrong, hard band of bubble boys-“

Edward Brown: [00:01:55] [laughs]

Mark Hanf: [00:01:55] … Bubble boys reminds me of the Seinfeld episode.

Edward Brown: [00:01:57] Seinfeld, yeah.

Mark Hanf: [00:01:58] “A band of bubble boys” [laughs] “have a proclivity for moving the goalpost. The COVID housing crash in 2020 that they promised, has now been repurposed as the forbearance crash of 2021.”

Nam Phan: [00:02:09] [laughs]

Mark Hanf: [00:02:10] “According to this new and improved crash thesis, when the forbearance plans time out in 2021, home prices will crash 30%, 40%, maybe even 50%.” Real estate’s going on sale, guys.

Nam Phan: [00:02:25] Wow.

Mark Hanf: [00:02:25] “This will make their daily trolling of America for the last eight years worth it.”

Edward Brown: [00:02:30] Can you go into a little-

Nam Phan: [00:02:31] Troll.

Edward Brown: [00:02:31] … more depth on that? Why, w- with regard to the forbearance issue, what, play this out for us?

Mark Hanf: [00:02:38] I’ll answer that by saying that this year they were calling it a COVID-19 crash because of the unemployment. And historically, real estate prices have been tied to, it… Real estate, where you would want to invest in real estate in the country, you would usually tie that to looking at things like job growth, right?  Strong job market, historically has equated to strong real estate market, strong underlying principles. but that didn’t happen, so the 30 to 50%, crash didn’t happen. In fact, real estate across the country is up anywhere from five to 15%, prices-

Edward Brown: [00:03:12] Yeah.

Mark Hanf: [00:03:12] … and it’s just, i- it’s unbelievable and no one could’ve predicted that.

Edward Brown: [00:03:15] No.

Mark Hanf: [00:03:15] Now the forbearance crash they’re now calling for, and I’ve seen a lot of articles, about this, too, and I don’t believe, it I think it’s nonsense, but what they’re hoping for is that when the forbearance agreements that banks have given to homeowners so that they don’t have to make, three to six months worth of payments, when time runs out on those, and they’re saying that, they’re starting to run out now, and presumably some banks have extended that forbearance-

Edward Brown: [00:03:41] That’s unexpected.

Mark Hanf: [00:03:41] … to some, to some borrowers, some homeowners, they’re predicting that, there’s gonna be, a, an increase in, foreclosures, etc. But here’s the thing, Congress is not gonna let that happen. They’ve already passed a slew of laws. They’re gonna pass a-

Edward Brown: [00:03:56] Yeah.

Mark Hanf: [00:03:56] … slew of more laws. There’s not gonna be any foreclosure wave coming. People are not gonna be booted out of their homes. It’s not gonna be good news for banks. It’s not gonna be good news for lenders, that have a portfolio of non-performing, non-paying loans, but it’s not gonna result in the real estate market crash. It’s just not. The metrics don’t support it, and really, those people predicting a real estate market crash are really trying to sell something at the end of the day. They’re trying to sell their, get rich quick in real estate-

Edward Brown: [00:04:27] [laughs]

Mark Hanf: [00:04:27] … programs, coaching-

… books and tapes, that they used to call it, the videos, there’s always gonna be people like that. Just like the guys that still  fill my Facebook feed with, 9/11 was an inside job. There’s just-

Nam Phan: [00:04:40] [laughs]

Edward Brown: [00:04:40] [laughs]

Mark Hanf: [00:04:40] … there’s always gonna be those crackpots out there predicting, a way for you to get rich on the coming, the coming chaos-

Edward Brown: [00:04:47] For me it’s pretty simple-

Mark Hanf: [00:04:48] … but, really not gonna happen.

Edward Brown: [00:04:48] … supply and demand.

Mark Hanf: [00:04:50] Yeah. So-

Edward Brown: [00:04:51] Yeah.

Mark Hanf: [00:04:51] … let’s pivot onto the real estate market, what sectors are doing good.  Here’s a surprise, and I wouldn’t have guessed this, luxury home sales have surged 40% in the third quarter.

Edward Brown: [00:05:01] Wow.

Mark Hanf: [00:05:01] As sales of affordable homes, lower-priced homes falter, highlighting the pandemic’s uneven impact on Americans with less wealth. Interesting, that’s what they call… the k recovery where, the rich get richer and the poor get poorer.

Edward Brown: [00:05:17] Yeah.

Mark Hanf: [00:05:17] This lends a little bit of support to that. Luxury home sales increase 40% year over year in Q3, however, sales of medium-priced homes climbed just 3% and sales of what they call affordable homes, lower-priced homes, declined 4%-

… there’s really… very interesting. The luxury housing market normally takes a hit during recessions, as we all know, that’s usually the first market-

Edward Brown: [00:05:41] Yeah.

Mark Hanf: [00:05:41] … and I would’ve guessed that would’ve happened this year, but it didn’t. It’s exactly the opposite.

Edward Brown: [00:05:44] But also the houses, then, in the lower end market,  is that across the board, or you have to go still … in submarkets?

Mark Hanf: [00:05:53] I don’t know, they’re not clear on the data on this. It was a fairly long article, so I picked some of the highlight paragraphs out of this. So I didn’t wanna go too deep into the grass, but I don’t know how they, where they picked this up, this would be interesting. I think I’ll bring this back next week.

But, it does say that, “remote work, record low mortgage rates, and strong stock prices during the pandemic are allowing America’s wealthy families to gobble up expensive homes with home offices and big backyards in the suburbs. Meanwhile, scores of lower, middle-class Americans have lost their jobs, or are still renting in the city because they’re essential workers and have to commute to work. So they’re unable to reap the benefits of home ownership.” So-

Edward Brown: [00:06:31] But the rent

Mark Hanf: [00:06:32] … interestingly enough. Yeah.

Speaker 3: [00:06:32] [affirmative].

Edward Brown: [00:06:32] The rent in San Francisco has dropped, though, quite a bit, hasn’t it?

Mark Hanf: [00:06:36] That’s another, we’ll go into that in a little bit. “Handful of West Coast metro areas have fueled the surge in luxury home sales including Sacramento-“

Edward Brown: [00:06:44] Huh.

Mark Hanf: [00:06:44] … “Luxury sales soared 86% year-“

Nam Phan: [00:06:47] Wow.

Mark Hanf: [00:06:47] “… over year.” Really what’s happening is a lot of people are moving to Sacramento from the more expensive Bay Area, there’s an exodus-

Edward Brown: [00:06:53] Ah.

Mark Hanf: [00:06:53] … of course, from San Francisco into the suburbs, and Sacramento’s picking up, a lion’s share-

Edward Brown: [00:06:59] I thought it was just the,  …

Mark Hanf: [00:07:00] of those moving out of the cities.

Edward Brown: [00:07:01] I thought it was just the politicians getting richer and getting into their bigger mansions-

Mark Hanf: [00:07:05] [laughs]

Nam Phan: [00:07:05] [laughs]

Mark Hanf: [00:07:05] Yeah. “The Sacramento metro was the most popular destination for home buyers looking to relocate in July and August, according to Redfin. San Francisco was the top origin of out of area buyers looking into the Sacramento area.” Exodus from San Francisco to Sacramento, very interesting.

Nam Phan: [00:07:23] Wow.

Edward Brown: [00:07:23] All right, guys, cuttin’ to our second trivia question commercial break. What color are cranberries before they turn red?

Call [888] 912-1190, first caller with the correct answer is gonna win a tanning certificate and don’t touch that dial, The Best of Investing will be right back.

Segment 3

Edward Brown: [00:00:00] Welcome back to The Best of Investing one more time. I’m Edward Brown, your host, along with Mark Hanf, excuse me, and Nam Phan of Pacific Private Money. Second trivia question, what color are cranberries before they turn red?

Mark Hanf: [00:00:13] Green?

Edward Brown: [00:00:15] That’s what-

Mark Hanf: [00:00:15] Green? Yellow?

Edward Brown: [00:00:16] … I would have thought. No [laughs].

White.

Nam Phan: [00:00:19] They’re what?

Edward Brown: [00:00:19] … they’re white colored. Yeah, isn’t that weird?

Nam Phan: [00:00:21] I’m gonna go Google that after this [laughs].

Edward Brown: [00:00:23] [laughs] yeah.

Mark Hanf: [00:00:23] I don’t know [laughing].

Edward Brown: [00:00:24] Nam, you wanna continue on with, the luxury market?

Nam Phan: [00:00:27] Yeah. Mark was mentioning in the last segment how, the luxury market has been really strong, since, over the last several months. And, last week on the show, Patty was talking about that in Marin, how so many of the, high-end properties or high-end markets were just seeing a ton of offers. And I just did, a quick analysis of the last 20, 22 loans that we did that closed and, six of them were over a million-and-a-half. So that’s… And our average loan during that time was 1.1 million. Our highest one was the three million dollar loan, and, a number… The most… Or, eight of them, I should say, were bridge loans.

So we had a significant, bump in the average loans that we’ve done over the last, over the last 90 days than the previous, 90 days. So Q3 for us, our average loan size went up a lot and that kind of, tells a story of where these borrowers were coming from-

Edward Brown: [00:01:21] Yeah.

Nam Phan: [00:01:21] … a lot of them were in these high-end markets.

Edward Brown: [00:01:25] Okay

Mark Hanf: [00:01:25] Yeah, absolutely.  It’s just been, one of those unpredictable years in so many different ways, the way it’s played out.

… but, one of the bright spots for listeners, for those of you with money to invest, whether you are, selling real estate or maybe, taking some of your profits out of the stock market, which continues to go up, in defiance of, almost all predictions. We didn’t have that October, annual October, you know-

Edward Brown: [00:01:51] Not yet.

Mark Hanf: [00:01:52] … massive adjustment. Or at least, not yet! Yeah-

Nam Phan: [00:01:54] Yeah.

Mark Hanf: [00:01:54] … We’ll see what happens during the election. It could,

Edward Brown: [00:01:56] Well- let’s get into the investments-

Mark Hanf: [00:01:57] …provide some surprising results.

Edward Brown: [00:01:58] Let’s get into the investment side of things. We’ve got an email here  from a listener. It says, “How can your Freedom Fund provide such ease of liquidity?” So this person obviously has been listening, why don’t you backtrack and fill in the gaps on this one?

Mark Hanf: [00:02:12] We offer multiple ways for accredited investors to earn above market yields on their savings, secured by real estate. And I said accredited because four of the five ways you can invest with Pacific Private Money are through mortgage funds. Mortgage-backed funds where the assets of that mortgage pool are real estate secured loans.

The fifth way is we still do individual trust deed investing, and we have a number of clients that prefer to invest in individual notes. They’d rather not be in a fund. These are your more sophisticated people who have been doing this for 10, 15, 20 years, oftentimes like to manage their own portfolio of notes. Although, those are getting harder and harder to find these days because so many institutional buyers are buying product from us. And so our funds have become more popular as a method for, earning anywhere from 7 to 12% on your money secured by real estate.

So the Freedom Fund is our most flexible fund. Albeit, we do have the highest, initial deposit requirement for that fund. It’s $250,000. The Freedom Fund is a fund where we use the money in that fund to fund and close loans, real estate loans, that we’re going to sell to a third party within 30 days.

So the Freedom Fund for our company acts like a warehouse credit line. And if you’re familiar with how mortgages work, warehouse credit lines are used by lenders to provide additional capital to close a loan, but they have to clear those lines usually, once every 30 days. Meaning, they’ve got a buyer for them, it could be anywhere from one week to three weeks, to turn around and sell that loan. The reason that we have to close loans in advance is that most loan buyers,  they wanna buy an existing loan. So it’s incumbent upon originators like Pacific Private Money to actually, locate the loan, underwrite it, document it, fund it, close it, and then once it’s closed we have an existing security that we can sell.

So the Freedom Fund, is used… it’s not a portfolio letter. In other words, we have other funds in our mix that are longer-term investments. They pay a higher rate of return. But your funds are locked up for a minimum of 12 months. And, we fund loans and we keep them in the fund. So for example, our Pacific Private Money Fund has $62 million worth of loans, currently, as of this past month. And that’s paying about, seven-and-a-half percent right now, year to date, to investors.

Freedom Fund is designed for those who have capital that they would really like to make money with, earn more than a half percent interest from their bank, but they wanna keep it relatively liquid. We do not enforce a lock-up period, in that fund. So if you invest 250,000, 500, a million, we have several one million dollar investors in that fund already. You can request that money back. We ask for 30 days advance notice but oftentimes, because we’re liquid twice a month in that fund, we can reliably pay or  redeem your capital within two weeks.

So again, it’s just a tool that we use to be able to close loans that we know we’re gonna sell. Therefore, it’s designed to be a highly liquid fund, and it’s… And as far as I know it’s unique. There isn’t any other fund like this paying 7%. There are similar funds paying four and five percent, but we decided to be a little bit more aggressive knowing a lot of our clients. It seemed that 7% was a sweet spot that we could pay that we could still make money with that money, and they would feel like, “Gosh, 7%,

Edward Brown: [00:05:57] Sure.

Mark Hanf: [00:05:57] “… and with no lock up, and liquidity so I can-“

Edward Brown: [00:06:00] And [crosstalk 00:06:43], exactly.

Mark Hanf: [00:06:01] “… keep it at bay if I wanted to buy stocks or buy a fancy car or buy a house.”

Edward Brown: [00:06:06] Yeah.

Nam Phan: [00:06:06] Can I tell you a quick story? I had a call with an investor today and he said, “Hey, listen. I have, $101,000 that I want to wire as soon as I can into my Pacific Private Money Fund account.” And he said, “How fast can I get it in [laughs]?” I said, “I’ll send you the paperwork.” he said, “I invested this money, 100,000, three years ago and I checked my balance today ’cause I’m so busy I forget, and after three years it’s… I’ve earned $1,000.”

Edward Brown: [00:06:33] Woo-hoo [laughing]!

Nam Phan: [00:06:34] [laughs].

[laughing] and, he said, “How much would I have made, had I invested that in the Pacific Private Money Fund-“

Edward Brown: [00:06:39] Oh, gosh.

Nam Phan: [00:06:39] “… over the last three years?”

Edward Brown: [00:06:39] 21,000.

Nam Phan: [00:06:40] And-

Edward Brown: [00:06:41] Or more.

Nam Phan: [00:06:41] 20… Essentially, 24,000. Yeah.

Edward Brown: [00:06:43] 24?

Mark Hanf: [00:06:43] With compounding, yeah.

Nam Phan: [00:06:44] Yeah.

Mark Hanf: [00:06:45] He reinvests his earnings.

[laughs].

Edward Brown: [00:06:47] Geez.

Nam Phan: [00:06:47] … he said, ” I need to get it over as quickly as possible. I’m so angry.”

Edward Brown: [00:06:50] Yeah [laughing], How do people get a hold of you Mark if they’re interested in this fund?

Mark Hanf: [00:06:54] Our website has a lot of information on our funding opportunities. Go to pacificprivatemoney.com, click on the invest page. That’s pacificprivatemoney.com. Click on the invest page, we’re just adding a fourth fund. Relatively, our newest fund, the Pacific Southwest Note Fund is being added to that page in the next couple of weeks. But the Freedom Fund is on there, as is the Pacific Private Money Fund, and our third fund, the North Star Capital Fund. So for more information, check us out.

Edward Brown: [00:07:21] All right, third trivia question. What element has the chemical symbol K? Stay with us, The Best of Investing will be right back.

Segment 4

Edward Brown: [00:00:00] Welcome back to The Best of Investing. Edward Brown here, along with Mark Hanf, and Nam Phan of Pacific Private Money. Third trivia question was, what element has the chemical symbol K?

Nam Phan: [00:00:12] Potassium?

Edward Brown: [00:00:13] Potassium. There you go. Very good.

Mark Hanf: [00:00:15] Oh, look at that.

Nam Phan: [00:00:16] All right.

Edward Brown: [00:00:16] Hey, you’re just such a chemist. What can I say?

Mark Hanf: [00:00:18] Studied my chemistry.

Edward Brown: [00:00:20] … okay. Let’s get into deal of the week. I have just a quick little story where this guy, he’s got great credit, he’s got almost an 800 FICO score, makes good income. just, he’s your perfect borrower. The problem was that somehow he heard about these forbearances and decided, if the bank’s not going to make me pay my mortgage payment and just, add it on to the end or, something along those lines where I just, basically-

Mark Hanf: [00:00:46] Yeah, if it’s free.

Edward Brown: [00:00:47] If it’s free, yeah. I mean-

Mark Hanf: [00:00:48] Yeah.

Nam Phan: [00:00:48] Oh, no.

Edward Brown: [00:00:49] He knew eventually he was gonna have to pay it back, but he just went-

… why should I pay it if I don’t have to, right?

Mark Hanf: [00:00:53] Why would I not take advantage of that?

Edward Brown: [00:00:54] Exactly. does he … he did it for two or three months. And, unfortunately, somehow now he’s, wanting to refinance and, sure enough, he can’t get a loan from a conventional bank. Why is that?

Nam Phan: [00:01:08] Oi.

Edward Brown: [00:01:09] [laughs]

Mark Hanf: [00:01:10] Because credit reports, while it doesn’t lower your score to participate in your bank’s offer to allow you to forebear your payments for a short period, it does show up as a memo item in your credit report. Your score stays the same, so the credit companies are abiding by the regulations. But, it still becomes a scarlet letter for the borrower because credit reports do indicate whether or not you’ve requested and or participated in a forbearance program with your bank. And when another bank sees that-

Edward Brown: [00:01:45] Yeah.

Mark Hanf: [00:01:45] … they decline your loan application.

Edward Brown: [00:01:49] And it kinda makes sense because if I’m the new bank lender, I’m gonna say, if you didn’t pay your last bank, how do I know you’re not gonna pay me either?

I get it.

Mark Hanf: [00:01:58] You’ve seen articles. There are a number of banks have been accused of putting in place forbearance programs when the borrower actually didn’t ask for it.

Edward Brown: [00:02:08] Oh.

Mark Hanf: [00:02:08] And it actually, it, anecdotally, I don’t want to say actually because according to the papers I’ve seen in some of the press, there were real people who complained that they could not move and or refinance their mortgage because lo and behold, there was a forbearance memo item in their credit report that was-

Edward Brown: [00:02:28] Wow.

Mark Hanf: [00:02:28] … not accurate nor requested. And they were damaged as a result.

Edward Brown: [00:02:33] Yeah, that’s the key-

Mark Hanf: [00:02:33] Anyway, it’s really a big deal.

Edward Brown: [00:02:35] … and from an attorney, that’s a pretty big lawsuit against the bank. [crosstalk 00:02:55]

Mark Hanf: [00:02:38] Yeah, absolutely. But still, just like when the IRS makes a mistake, it’s like oopers. It doesn’t help your credit report.

Edward Brown: [00:02:45] No.

Mark Hanf: [00:02:45] Which is why companies like Pacific Private Money exist.

Edward Brown: [00:02:48] Okay. Very good. Nam, you have a deal of the week for us.

Nam Phan: [00:02:51] Actually, I have a deal summaries-

Edward Brown: [00:02:53] Okay.

Nam Phan: [00:02:53] … of the last, again, 22 loans that we did.

Mark Hanf: [00:02:56] Talk about that big one we just closed-

Nam Phan: [00:02:58] Yeah.

Mark Hanf: [00:02:58] … in three days.

Nam Phan: [00:02:59] Three da- yeah. On, this, I think we chatted about it a little bit last week, but we actually closed a deal last week that came to us on potentially a Sunday, and closed on a Wednesday.

Edward Brown: [00:03:12] [laughs].

Nam Phan: [00:03:12] And not only was it, a record for us I think, but the size of the loan was $3 million.

Mark Hanf: [00:03:17] Yeah, so not a small loan. So and again, luxury market, we’re seeing a lot of luxury market bridge loan requests, and this was somebody who had an opportunity to buy real estate. And was this one where they had financing lined up and it glitched?

Nam Phan: [00:03:32] Yeah. Financing lined up-

Mark Hanf: [00:03:33] Yeah.

Nam Phan: [00:03:33] … and it glitched. And we came to the rescue and closed this deal. We got it; we worked on it first thing Monday morning. Funded it on Tuesday, and it closed on a Wednesday.

Mark Hanf: [00:03:43] If you’re a real estate professional listening, if you’re a realtor or a mortgage broker and you don’t know that this tool exists to help your client in a pinch, you’re missing out on opportunities to close more deals. Because it’s such an amazing tool and it’s not hard money like you remember it.

We price our loans as low as 8%. But again, if you keep in mind that there’s no pre-payment penalty.

Edward Brown: [00:04:08] Yep.

Mark Hanf: [00:04:09] You’re renting the money on an 8% annualized rate but you only pay for it as long as you use it. If you hold a loan for 60 or 90 or 120 days, you’re not paying 8% for that money. And just,

Edward Brown: [00:04:20] And to continue on with that, and I’m actually gonna be doing a webinar.  I’ve been invited by mortgage broker to talk about the transitional bridge loans on October 23rd, 10:45 AM. And, it’ll be in Eventbrite, and people should email edward@pacificprivatemoney.com. I have my own special email with pacificprivatemoney.com if they wanna get the Eventbrite, and participate in the webinar. I’ll be glad to share that with all. And we’ll talk all about how transitional bridge loans work. And

Nam Phan: [00:04:50] If I can add onto what Mark was saying, if you’re a realtor or mortgage broker, again going back to these last 20 some odd loans that we closed, the average time to close was 16 and half days. We’re getting these loans and we’re able to process them very quickly, the shortest being four days and the longest being 36. We like as much time as possible, but we also know people are coming to us at the eleventh hour. We’re closing these in a little over two weeks.

If you’re an investor, it’s good to know on the investment side, what’s the quality of the borrowers that are coming in?

Mark Hanf: [00:05:20] Oh, yeah.

Nam Phan: [00:05:21] And of all of these loans, only 2 out of the 22 loans that I looked at, the last 22, had a FICO score  below 650.  The average was somewhere in the, 720-725 range.

Mark Hanf: [00:05:33] And the 800 credit scores are not unusual.

Nam Phan: [00:05:35] Not unusual. Yeah, I actually, about, 6 or 7 of them had 800 or higher FICO scores.

Edward Brown: [00:05:41] And as [crosstalk 00:06:24]

Mark Hanf: [00:05:42] And we still get questions from people, why would someone with a 800 FICO, need to use you? Why can’t they go to the bank? Because the bank’s don’t make loans that fast.

Nam Phan: [00:05:52] [laughs].

Edward Brown: [00:05:52] [laughs].

Mark Hanf: [00:05:52] They just… they can’t. They can’t do 21 days.  Sometimes they’re some sources of financing that can do 21 day closes, but people generally come to us for several reasons. One, they’re literally out of time because their bank financing glitched, and they’re gonna lose their deposit. Or the seller’s gonna sell to the back up offer, which there usually is-

Edward Brown: [00:06:10] Yeah.

Mark Hanf: [00:06:10] … in this market. Or number two, they wanna make an offer that looks like a cash offer. They wanna make a non-contingent, fast closing, low contingent offer, and they want it to look like cash. They don’t wanna have a financing contingency. That’s another way you can use our loan product ’cause we pretty much give you a funding commitment that you can you go to the bank on, so to speak. So-

Edward Brown: [00:06:31] And [crosstalk 00:07:17]

Mark Hanf: [00:06:32] … there’s just, there’s a lot of reasons why realtors and mortgage brokers call us to inquire about that option with their client.  We do things banks simply cannot do. And then third reason people come to us is we can provide 100% financing to buy the property you’re looking to buy now, and not require you to move first or sell your house first to free up the equity.

This is something that banks won’t do, but we can do a loan crossed by two properties. We can cross your target property as well as your existing property, and lend on your equity in your existing home so you don’t have to sell first. You can buy the house first.

It’s a very creative tool, a lot of different uses, and banks just simply don’t have that product or capability for speed.

Edward Brown: [00:07:13] And before we cut to break, Nam, Pacific Private Money is going to be doing a webinar, I mean-

Nam Phan: [00:07:18] Yeah. Our next webinar is November 18th at 6:00 PM. I believe that’s a Wednesday. And you can learn more, about not only Pacific Private Money fund but all of the funds that we offer. We had a great turnout on the last one. We are in capital raising mode. We’ve got so much loan demand, that we just need the additional capital. If you wanna learn more, you can give us a call 415-833-2150, or go to our website and we’ll have it on the events page shortly.

Edward Brown: [00:07:45] All right, stay with us. The Best of Investing will be right back with some closing comments.

Segment 5

Edward Brown: [00:00:00] Welcome back to The Best of Investing. Last time for today, I’m Edward Brown, your host, along with Nam Phan and Mark Hanf, of Pacific Private Money. No trivia question, but Nam, you wanted to continue on

Nam Phan: [00:00:09] Yeah.

Edward Brown: [00:00:10] Yeah.

Nam Phan: [00:00:10] Just from the last segment, when we were talking about when the next fund event is. And again, it’s, November 18th, which is a Wednesday. It’ll be a couple weeks after the election, so hopefully there won’t be so much hysteria and chaos in the streets.

Edward Brown: [00:00:22] [Laughs]

Nam Phan: [00:00:22] It’ll be at 6:00 PM, and one of the things I want to mention is, we offer four new funds, or we offer four funds. And Mark mentioned that you do have to be an accredited investor. But the nice thing is, you only have to get accredited with us once. And that accreditation allows you to invest across all of our funds, or any future funds that we may offer. And it’s a very convenient way to get certified and look at diversifying your portfolio.

We’ve had a number of investors who have invested across, two to three of our funds now, and for our Freedom Fund, we’re going to be launching an online portal so investors can track their investment there, next month. We’re doing a lot in terms of providing the transparency for investors, giving them more options to invest. But really, now’s the time because we’ve got, as I’ve mentioned in earlier segments, Q3 was a record quarter for us. Q4 will probably be a record Q4 for us, I imagine, just with the pace that we’re on. If you’re concerned about uncertainty with the stock market or whatever, we’ve been emphasizing how real estate has withstood so much this year , and it’s continuing to be strong for us. And we follow economists and they’re saying it’s going to be strong going into 2021  and beyond for the next three years. For more information, give us a call at [415] 883-2150.

Edward Brown: [00:01:45] Yeah, because you guys have been paying between 7.5, 8%, on the main fund for the last seven years.

Nam Phan: [00:01:53] Yep.

Mark Hanf: [00:01:53] Yeah, since 2013. We’ve been using mortgage debt as a strategy for generating yields for investors since 2008. And even if you’re a believer that real estate’s prices are going to decline in California next year. And again, I say California because, virtually all of our loans are made here in California, a small percentage outside, but, 90% here in California. If you believe that, we’re due for a 5 or 10, or 15 percent correction, don’t forget that, we don’t lend like the banks at 80 or 90%, loan to purchase price, or loan to value. We sell for a 70% loan to value, or less. So we bake in the protective equity in the event of a market decline.

And 70% is usually on a purchase money transaction, where we really feel comfortable with the value of the property. If it’s a refinance, like cash out, someone pulling cash out on real estate that they own. We typically go no higher than 60 to 65%. Again, trying to be conservative, we don’t want to end up having to foreclose on a borrower, if they’re borrowing money to risk in some business initiative that may not turn out. We have a lot of deal flow, so we’re very choosy in the types of loans we make, and we’ve never lost a dollar of investor principal, ever, since 2008. And, there’s been a lot of real estate activities since 2008, some of it going downward in those years.

Again, for more information, check us out at pacificprivatemoney.com. We do these events, these webinars, to introduce you more deeply to our company, and to share with you the ways you can invest in mortgage debt for a higher yield on your savings. And again, always go to our website, because we’re always adding more information, pacificprivatemoney.com.

Edward Brown: [00:03:29] All right, guys, we’re going to cut out. Here’s our thoughts for the day, “Research has shown that laughing for two minutes is just as healthy as a 20 minute jog.” So now I’m sitting in the park laughing at all those joggers.

Nam Phan: [00:03:44] [Laughs]

Edward Brown: [00:03:44] It’s like Mark was saying about how sore he was working out, right? And,

Nam Phan: [00:03:48] That’s right.

Edward Brown: [00:03:48] And, I like this one, “Make today so awesome that yesterday gets jealous.”

Nam Phan: [00:03:53] [Laughs]

Edward Brown: [00:03:54] I like that.

Nam Phan: [00:03:54] That’s a good one.

Edward Brown: [00:03:54] All right, tune in next week to The Best of Investing. We’re going to be giving away more free prizes for answering trivia questions. Thanks for listening. On behalf of our team, I’m Edward Brown, wishing you the Best of Investing. So long.