October 10, 2017
How To Buy a 2,3 or 4 Family Home
FitSmallBusiness quoted me in How to Buy a Duplex, Triplex, or Fourplex – The Ultimate Guide. It opens,
Buying a duplex, triplex, or fourplex can be a good investment for both investors and residential home buyers. Purchasing small multi-unit properties requires some basic understanding of how to locate, finance, and manage multiple units. Those activities are only slightly more involved than for buying single-family properties but can lead to a profitable multi-unit investment.
Buying a duplex, triplex, or fourplex can be broken down into 7 steps:
1. Determine Whether Buying a Duplex, Triplex, or Fourplex is Right for You
Whether you learn how to buy a duplex, triplex, or fourplex as an investor, or as a home buyer attempting to secure some rental income from your property, buying a small multifamily investment is a bit different than for a single-family property. Assessing the benefits and downsides at the outset is a good idea.
Benefits of Buying a Duplex or Small Multi-Family Building
There several reasons why duplexes, triplexes, and fourplexes are sensible purchases. Home buyers can live in one unit and generate rental income with the others; they provide a good way to start investing in multi-unit properties; and, for investors, they diversify the rents and consolidate expenses among multiple units.
You Can Live in One Unit of a Multi-Family Building and Generate Rental Income
If you are buying a personal residence, a duplex or other small multi-unit building will provide you with a place to live along with rental income. You can live in one unit while renting out the others to generate income.
It is fully possible, particularly with triplexes and quadraplexes that your rental income can pay your entire mortgage and maybe even a bit more. In effect, you can purchase a place to live, but have your tenants pay for it.
David Reiss, Professor of Law and Director, CUBE, The Center for Urban Business Entrepreneurship, Brooklyn Law School tells us:
“There are significant benefits that you can get from
buying and living in a duplex, triplex, or fourplex instead of a single-family home. For instance, you may be able to use the rental income from the additional units to increase the amount that you can borrow and that rental income can offset a big part of your monthly mortgage payment. You can also deduct more of your expenses, such as part of your insurance premium and a portion of your repair bills, as business expenses.”
Duplexes, Triplexes, and Four-Unit Properties Are a Good Way to Start Investing in Multi-Unit Properties
Learning how to buy a duplex, triplex, or fourplex provides a good entry into multi-unit properties without taking a deeper dive into apartment buildings. While screening tenants and managing renters in any kind of multi-unit building is a bit different than with single-family properties, the leap isn’t insurmountable. Duplexes and the like provide a good transition from managing single-family properties to handling multi-unit buildings without getting overwhelmed.
October 10, 2017 | Permalink | No Comments
Tuesday’s Regulatory & Legislative Roundup
- In a seemingly rare occasion, a bipartisan alliance has formed between a Democrat and Republican. The duo paired together to garner support for a repeal of the Consumer Financial Protection Bureau’s (CFPB) Know Before You Owe rule. The CFPB’s rule requires specific mortgage disclosures which they believe pose harm to consumers. They cite title insurance and fees as the cause of the harm to consumers.
- The Consumer Financial Protection Bureau (CFPB) released new guidelines regarding payday loans. The goal of the regulatory agency is to ensure lenders are not taking advantage of those in lower socio-economic households. The new guidelines mandate lenders to determine a borrower’s capability to repay a loan before they can issue said loan. This new rule will likely decrease the profit of the $38.5 billion lending industry.
October 10, 2017 | Permalink | No Comments
October 9, 2017
Obama on Columbus
The Landing of Columbus at San Salvador, October 12, 1492
Here is how President Obama commemorated Columbus Day last year in his Presidential Proclamation:
In October of 1492, Christopher Columbus completed the first of his expeditions that would land him on the shores of North America. Sponsored by Isabella I and Ferdinand II, Columbus embarked on a 10-week voyage he had hoped would lead to Asia. But when his ships instead landed in the Bahamas, a new story began to unfold. The spirit of exploration that Columbus embodied was sustained by all who would follow him westward, driving a desire to continue expanding our understanding of the world.
Though Columbus departed from the coast of Spain, his roots traced back to his birthplace of Genoa, Italy. Blazing a trail for generations of Italian explorers and Italian Americans to eventually seek the promise of the New World, his voyage churned the gears of history. The bonds between Italy and the United States could not be closer than they are today — a reflection of the extraordinary contributions made by both our peoples in our common efforts to shape a better future. Across our Nation, Italian Americans continue to enrich our country’s traditions and culture.
As we mark this rich history, we must also acknowledge the pain and suffering reflected in the stories of Native Americans who had long resided on this land prior to the arrival of European newcomers. The past we share is marked by too many broken promises, as well as violence, deprivation, and disease. It is a history that we must recognize as we seek to build a brighter future — side by side and with cooperation and mutual respect. We have made great progress together in recent years, and we will keep striving to maintain strong nation-to-nation relationships, strengthen tribal sovereignty, and help all our communities thrive.
More than five centuries ago, one journey changed the trajectory of our world — and today we recognize the spirit that Christopher Columbus’s legacy inspired. As we reflect on the adventurers throughout history who charted new courses and sought new heights, let us remember the communities who suffered, and let us pay tribute to our heritage and embrace the multiculturalism that defines the American experience.
October 9, 2017 | Permalink | No Comments
Monday’s Adjudication Roundup
- A decade ago, Greenberg Trauig LLP allegedly participated in a Ponzi scheme involving mortgages. Recently, the entity settled its issues with their accusers for $9.75 million. A federal bankruptcy judge in Arizona approved the settlement, and quoted the settlement as, “reasonable and a fair compromise.”
- The state of Texas will soon be in court against T-Mobile. T-Mobile South LLC and Eco-Site LLC sued Brownsville, Texas and their city commission because they rejected the entities’ application to develop a local unused lot. T-Mobile and Eco-Site allege the city unlawfully denied their application.
- South Korean real estate brokers may believe justice is served regarding their loss of $500,000. The brokers believed they were bribing a Middle Eastern investor; however, the duo were being deceived by an art blogger. The art blogger received a 31/2 years in prison for his actions.
October 9, 2017 | Permalink | No Comments
October 6, 2017
Treasury’s Overreach on Securitization Reform
Treasury Secretary Mnuchin Being Sworn in by Vice President Pence
The Department of the Treasury released its report, A Financial System That Creates Economic Opportunities Capital Markets. I will leave it to others to dissect the broader implications of this important document and will just highlight what it has to say about the future of securitization:
Problems related to certain types of securitized products, primarily those backed by subprime mortgage loans, contributed to the financial crisis that precipitated the Great Recession. As a result, the securitization market has acquired a popular reputation as an inherently high-risk asset class and has been regulated as such through numerous post-crisis statutory and rulemaking changes. Such treatment of this market is counterproductive, as securitization, when undertaken in an appropriate manner, can be a vital financial tool to facilitate growth in our domestic economy. Securitization has the potential to help financial intermediaries better manage risk, enhance access to credit, and lower funding costs for both American businesses and consumers. Rather than restrict securitization through regulations, policymakers and regulators should view this component of our capital markets as a byproduct of, and safeguard to, America’s global financial leadership. (91-92, citations omitted)
This analysis of securitization veers toward the incoherent. It acknowledges that relatively unregulated subprime MBS contributed to the Great Recession but it argues that stripping away the regulations that were implemented in response to the financial crisis will safeguard our global financial leadership. How’s that? A full deregulatory push would return us to the pre-crisis environment where mortgage market players will act in their short-term interests, while exposing counter-parties and consumers to greater risks.
Notwithstanding that overreach, the report has some specific recommendations that could make securitization more attractive. These include aligning U.S. regulations with the Basel recommendations that govern the global securitization market; fine-tuning risk retention requirements; and rationalizing the multi-agency rulemaking process.
But it is disturbing when a government report contains a passage like the following, without evaluating whether it is true or not: “issuers have stated that the increased cost and compliance burdens, lack of standardized definitions, and sometimes ambiguous regulatory guidance has had a negative impact on the issuance of new public securitizations.” (104) The report segues from these complaints right to a set of recommendations to reduce the disclosure requirements for securitizers. It is incumbent on Treasury to evaluate whether those complaints are valid are not, before making recommendations based upon them.
Securitization is here to stay and can meaningfully lower borrowing costs. But the financial crisis has demonstrated that it must be regulated to protect the financial system and the public. There is certainly room to revise the regulations that govern the securitization sector, but a wholesale push to deregulate would be foolish given the events of the 2000s.
October 6, 2017 | Permalink | No Comments
Friday’s Government Reports Roundup
- 2018 fiscal year budget is forging forward. Recently the House of Representatives passed the 2018 fiscal year budget. Their budget is designed not to increase the national deficit; however, the Senate’s competing fiscal year 2018 budget will increase the national deficit by $1.5 trillion over the course of the next ten years. The Senate’s budget causes such a deficit because it promotes the proposed tax reform efforts as well as reduces the corporate tax rate. While the House beat the Senate to moving forward with 2018 budget plans, the Senate will introduce the bill the week of October 16.
- Today Americans are better suited to lead financially sound lives; however, there are roughly 26 million Americans that are “credit invisible.” The Consumer Financial Protection Bureau (CFPB), recently released a report that studied the effects of this fact. Through the study they found that many minorities are likely not to have a credit score or fail to have a sufficient credit history, thereby making them “credit invisible.” This may seem like a small issue to mitigate, but without such credit scores, their lives as consumers are limited.
October 6, 2017 | Permalink | No Comments
October 5, 2017
Evolution of the CFPB?
The Mortgage Bankers Association has issued a white paper, CFPB 2.0: Advancing Consumer Protection. The Executive Summary reads, in part,
In its first years, the Bureau’s regulatory expertise was largely consumed by the need to meet deadlines on specific rules required under the Dodd-Frank Act, and its supervision program took time to stand up. In its first years, the Bureau spent relatively little time providing guidance to industry on its expectations.
The combination of aggressive enforcement and the absence of regulatory guidance evolved into a regime of “regulation by enforcement.” Director Richard Cordray has argued that the Bureau’s enforcement regime provides “detailed guidance for compliance officers” and that it “would be ‘compliance malpractice’ for the industry not to take careful bearings from [consent] orders about how to comply with the law.” Unfortunately, the reality is that the Bureau’s enforcement program offers only fragmentary glimpses of how the Bureau interprets the laws and regulations it enforces.
This paper explains why authoritative guidance is still needed. Rather than seeking to provide the equivalent of “detailed guidance” through enforcement, the Bureau should simply provide detailed guidance. Such guidance can be provided in a host of forms, including advisory opinions, bulletins, no-action letters, statements of policy, and answers to frequently asked questions. In contrast to enforcement orders, such guidance can be proactive, efficient, clear and comprehensive, and can allow for stakeholder input and revision when facts and circumstances warrant. (v)
It is hard to argue with the MBA that it is better to regulate by supervision than by enforcement as that allows regulated companies to design policies that meet with their regulatory requirements. As the CFPB matures, I would expect that this would happen naturally. Indeed, the white paper acknowledges the challenges of standing up the CFPB in its first few years of existence that led to the early emphasis on enforcement.
I wonder a bit about the timing of this report. The MBA describes the CFPB as being at a “crossroads.” (19) That crossroads may refer to the Republican control of Congress and the Executive Branch, it may refer to the soon-to-be ending term of Director Cordray, or it may refer to both of those developments. So I wonder if this report is meant to provide some intellectual cover to bigger changes that would reduce the CFPB’s role as America’s consumer protection sheriff. Let’s see where the MBA comes down on those bigger changes once their floated in the coming months. Are they advocating tweaks to the way the CFPB does business or are they looking for some kind of revolution in the regulation of consumer protection?
October 5, 2017 | Permalink | No Comments
