The 10-year yield moved up slightly this past week. Stepping back a bit, rates are holding low due to the Brexit issues, the low German 10-year, concern of lower earnings, concern over the 2-year yield being higher than the 5-year, and the stock market still correcting. In the past, I have discussed the tug-of-war between all the factors affecting interest rates. However, with the German 10-year yield down around .26%, it is difficult to see the US 10-year yield rising much.
Inexperience versus Experience – The Risk to Clients
One of my pet peeves is when people misrepresent themselves and then do harm to clients. A little over a week ago, I got a call from one of my contacts (a commercial real estate broker out of Southern California). We were talking about a situation with one of her clients buying a small apartment building in Texas. There was a mortgage broker involved, who ended up putting the clients unnecessarily into a private money loan for the purchase.
There was absolutely no reason to take this approach. All it did was set the client up to pay 3 ½ points in the front end with a 7-year fixed rate of 7.75%. In fairness, if there was a problem with the property or if there were vacancies, then I could understand this. Well, I could understand obtaining a short-term private loan until the problems were resolved. And, then moving the client to the appropriate longer term financing. However, this was not the case. This was just total abuse of the client. What I found interesting was that the mortgage broker involved with somehow coached by somebody from back east. They made it look like she had a lot of experience. She did not. Clearly, she did not know what she was doing at the very least. Or, she was out now taking full advantage of these people. Either way I was annoyed.
This is just an example of some of the unnecessary abuses that clients get exposed to. When you do the math, this suggested approach would have cost these unknowing clients an extra $100,000 over the next 10 years. This is why we all have to work with people we know and trust. We use our experience of working with each other all for the benefit of the client. You get my point. Please do not assume that what we all do is a commodity. We are professionals; and we have the obligation to do the right thing by our clients.
In closing on this, I did manage to find a solution for these investors. Due to the shenanigans of the original mortgage broker, the whole deal was on the verge of collapsing (and costing the clients their earnest money). I worked with both sides, told them my approach (I was very transparent as always), and then implemented a private money solution to get the deal to close quickly. Note that the client ended up paying far less with this solution, but some damage was done to them regardless.
That’s it for this week. As always, feel free to give me a call with any of your strategic financing needs.
Article of Interest:
Bisnow reported “18 Commercial Real Estate Trends To Dominate In 2019.”
See the table below for approximate interest rates.
|Apartments||4.375% – 4.960%||3 to 10 year (30 yr amortization)|
|Commercial||4.675% – 5.260%||3 to 10 year (25 yr amortization)|
|SBA Lending||Call for Options||Call for Options|