FranLab is getting evicted

[nctnico]

It's almost zero risk, unless you were completely hopeless at valuing properties, or the value more than halves.
Damn, I'll take that deal every day of the week, seriously, I'll go into the lending business. I'm not kidding. Anyone who wants to give me the title deed to a $200k housing asset to borrow $100k, I'll loan you the $100k no questions asked.

I think you'll be out of business quickly. First you'll need to hire people to get the house cleaned & fixed up (people who have no money likely don't maintain their home). Then you'll need to get an auctioneer in to sell the house for you and hope there will be bidders who want to pay a lot and not a bunch of 'house flippers'. By that time you'll be losing money. Your best bet to make money from lending is to have people pay back their loans.

[Mr. Scram]

I think you'll be out of business quickly. First you'll need to hire people to get the house cleaned & fixed up (people who have no money likely don't maintain their home). Then you'll need to get an auctioneer in to sell the house for you and hope there will be bidders who want to pay a lot and not a bunch of 'house flippers'. By that time you'll be losing money. Your best bet to make money from lending is to have people pay back their loans.

House flipping has become popular enough for it to guarantee a decent return. There's quite a bit of competition.

[EEVblog]

It's almost zero risk, unless you were completely hopeless at valuing properties, or the value more than halves.
Damn, I'll take that deal every day of the week, seriously, I'll go into the lending business. I'm not kidding. Anyone who wants to give me the title deed to a $200k housing asset to borrow $100k, I'll loan you the $100k no questions asked.

I think you'll be out of business quickly. First you'll need to hire people to get the house cleaned & fixed up (people who have no money likely don't maintain their home). Then you'll need to get an auctioneer in to sell the house for you and hope there will be bidders who want to pay a lot and not a bunch of 'house flippers'. By that time you'll be losing money. Your best bet to make money from lending is to have people pay back their loans.

Nope, I'd make a killing.
If I can get a place for half the current market rate then I can make a killing reselling that. Like I said, unless you are an absolute fool and don't know the market and prices.
I'd be begging people to default on their loan instead of paying the pathetically low interest rate.

[EEVblog]

When the bank loans you the money, they own the property. 50% down is a no brainer. Default on payment, they get the property, they keep your 50% down. And they have to pay only for evicting you and cleaning up the property.

This shows no understanding of how banks operate legally. That is not the way things work.

Of course it is, it's called foreclosure, that's why the bank keeps the legal deed to your property, they own it until you pay it off.
They can and do sell your property if you fail to repay the loan. They may not want to do that, but it happens all the time. New Jersy for example has the highest rate, one in every 600 or so.
https://www.experian.com/blogs/ask-experian/do-you-live-in-one-of-the-10-states-with-the-highest-foreclosure-rates-in-the-us/

In any case, most banks have no interest in executing mortgages, their interest is in having performing loans which pay their interest regularly. If the bank does not want to foreclose it does not matter if you put 90% down, they are not interested. They want to see ability to pay and meet your obligations.

Of course that is their business, but they hold the deed to the property, they own it.
What that means is that all things being equal, any bank would rather give a $500k loan on $1M property deed than a $900k loan on that same property. i.e. that $500k loan is a vastly lower risk than the $900k loan.

Most banks are not interested in foreclosures. It is not the business they are looking for and they try to avoid it. Arguing that they are protected is useless because it is not a business they are interested in. They will tell you to go find another lender who might be interested.

Sure, but that's a different argument entirely. Banks look very favorably on large deposit loans for a reason, they are lower risk.

[EEVblog]

I think you'll be out of business quickly. First you'll need to hire people to get the house cleaned & fixed up (people who have no money likely don't maintain their home). Then you'll need to get an auctioneer in to sell the house for you and hope there will be bidders who want to pay a lot and not a bunch of 'house flippers'. By that time you'll be losing money. Your best bet to make money from lending is to have people pay back their loans.

House flipping has become popular enough for it to guarantee a decent return. There's quite a bit of competition.

Here in Australia it's a national sport. We have dozens of TV reality shows devoted to it.

[EEVblog]

Even if you have plenty of income.
The banks do not like self employed people who get income in tiny amounts but from many sources. Even if they have plenty of total income to service the loan.
They prefer a self employed person who gets paid all their money from doing one or two tasks.

This makes no sense to me, but that's the way they think.
Maybe they are required to investigate and document all the sources of income and can't be bothered looking over 100 separate sources.
Or maybe they don't like 100 little sources coming and going from week to week.
Yeah, it's probably less about the person proving they had plenty of income in the past, and more about the bank knowing their sources of income are static and never changing.
i dunno.

This is one reason many managing directors in the UK struggle to get mortgages, even when running £1m+ turnover businesses.
You will want to pay yourself a salary.

Salary makes no difference in Australia, if you have a controlling interest director position in a company you are deemed to be self employed, and a majority of bank will not touch you.
That's the reason I took the money out of my own home loan in order to buy my lab, I became my own bank. And it's why I've never paid off my house, I use it as a line of credit.
Ironically, most banks are happy to take your existing home and give you 80% of the value as a line of credit, but want to buy the same value home with a 20% deposit - nope.
I went through this the other year for an investment property, but luckily Mrs EEVblog has a regular job which made it more manageable. Still we had to go through a broker to find us a bank willing to give us a 2nd look because I'm "self employed".

[EEVblog]

Speaking of labs, time flies and I'm starting to think about a new lab. Soon it'll be 12 months months left on the current lease, and it doesn't make sense to continue leasing with interest rates so low now.
Let's say the next 10 years, at (currently) $40k a year (lease + outgoings), that's $400k.
A similar size commercial business park office is $800k-$1M depending on quality and location, and I think the prices have gone crazy.
I can actually buy a house nearby on it's own block of land for that, maybe even under $800k for a small run down place.
But let's say $800k, at 3.8% that's only $30,400 a year in interest, the same as I'm paying in rent now, but there are no commercial outgoings that add another $10k. Just council rates and odds and ends.
So over the next 10 years I can either be $400k in the hole, or have that $400k going into a property I own, no brainer.
So the new EEVblog lab might be an entire house, I'll invite everyone around for a barbie
No law against not living in a house and just using it as a private business were no one comes and goes except the courier guy.

[Ysjoelfir]

So the new EEVblog lab might be an entire house, I'll invite everyone around for a barbie

Finaly a legit reason to save some money for a vacation to aussieland!

[Mr. Scram]

Speaking of labs, time flies and I'm starting to think about a new lab. Soon it'll be 12 months months left on the current lease, and it doesn't make sense to continue leasing with interest rates so low now.
Let's say the next 10 years, at (currently) $40k a year (lease + outgoings), that's $400k.
A similar size commercial business park office is $800k-$1M depending on quality and location, and I think the prices have gone crazy.
I can actually buy a house nearby on it's own block of land for that, maybe even under $800k for a small run down place.
But let's say $800k, at 3.8% that's only $30,400 a year in interest, the same as I'm paying in rent now, but there are no commercial outgoings that add another $10k. Just council rates and odds and ends.
So over the next 10 years I can either be $400k in the hole, or have that $400k going into a property I own, no brainer.
So the new EEVblog lab might be an entire house, I'll invite everyone around for a barbie
No law against not living in a house and just using it as a private business were no one comes and goes except the courier guy.

Make sure the last part is true. I know of a few countries where it isn't.

[EEVblog]

So the new EEVblog lab might be an entire house, I'll invite everyone around for a barbie

Finaly a legit reason to save some money for a vacation to aussieland!

I could rent out a room on AirBnB 

[Electro Detective]

Jaws: "I think you'll need a bigger barbie.."

The only downside I can think of if moving the lab to a house, which btw is a great long term move 

is you will lose Dumpster Diving privileges/access to corporate tosses    

or, you could go nuts now/hoard overdrive and stock up with 12 months worth and wack it in storage   

[soldar]

Most banks are not interested in foreclosures. It is not the business they are looking for and they try to avoid it. Arguing that they are protected is useless because it is not a business they are interested in. They will tell you to go find another lender who might be interested.

Sure, but that's a different argument entirely.

It's not a different argument. It's the argument I am making. It is my entire and sole argument.

If a bank is looking to sell loans that will perform and is trying to avoid loans that will result in foreclosure telling them they are protected in the case of a foreclosure is useless because that is what they are trying to avoid.

If the applicant's profile looks like they might default the bank decides it is not interested regardless of the applicant's ability to put down a substantial percentage. Another bank might be interested but many are not. Really, it's not difficult to understand.

What I don't understand is why some people feel they are entitled to tell a bank or other business how they should manage their business. You are entitled to do business with whoever you want on whatever terms you want and the rest of the world is entitled to the same privilege.

Some years ago a friend of mine got very upset when his bank cancelled his credit card. He took it very personally and was quite upset because he had perfect credit and payment record. I offered to go to the bank with him and the bank officer explained it had nothing to do with him personally; it was just that the bank needed to reduce certain activities and exposures, etc. But my friend just couldn't understand why they would cancel HIS credit card when he had a perfect record.

It serves no purpose to argue why a bank should lend you money. They have their policies and business model. If you don't like their services better try to find some other bank you like better.

[EEVblog]

is you will lose Dumpster Diving privileges/access to corporate tosses    

Nope, I'm still an owner and have the key 

[nctnico]

I think you'll be out of business quickly. First you'll need to hire people to get the house cleaned & fixed up (people who have no money likely don't maintain their home). Then you'll need to get an auctioneer in to sell the house for you and hope there will be bidders who want to pay a lot and not a bunch of 'house flippers'. By that time you'll be losing money. Your best bet to make money from lending is to have people pay back their loans.

House flipping has become popular enough for it to guarantee a decent return. There's quite a bit of competition.

But Dave isn't talking about flipping but lending people the money and then getting the house 'cheap' when they can't afford it. My point is that Dave is underestimating of all the hidden costs before you can sell a home for a profit. The 'flippers' have to be creative to make a profit and usually they won't touch a home which is fubar. If you are the lender you have to sell whatever junk gets thrown in your lap.

I've seen how bad this can get first hand when they foreclosed the neighbours a few houses away. First they had to haul away 3 large dumpsters of junk, then 4 weeks of repairing, cleaning and painting including filling in the DIY basement which wasn't built according to code. And these are homes build from bricks and concrete (including pilings) so wood rot, foundation problems and termites aren't an issue.

[soldar]

The first lender physically holds the deed, they own it.

If I may digress on this topic for a moment, the deed and who holds it are pretty much a "bill of goods", quite literally.

The concept of mortgage, that is a loan secured by real estate, exists pretty much in every western nation I know. But the old English system of deeds and chain of title is being replaced gradually by a system of registry. In nations like France and Spain there never really was a deed and chain of title system and it always was a registry system. Whoever appears in the registry as the owner is the owner and all interests, liens, etc. need to be registered to be enforceable.

Australia, with Torrens, was one of the first Anglo countries to switch to a registry system.

In a registry system the registered owner of record is the owner for legal purposes. A lien or mortgage holder will have that interest recorded but they are not the owner. Rights on real property take precedence by date of recordation, not by date of creation.

What matters with a deed is that it is recorded. After that you can frame it and hang it in your bathroom if you like.

https://epilawg.com/2012/08/torrens-vs-abstract-property-whats-the-difference/
https://www.sa.gov.au/topics/planning-and-property/certificates-of-title/torrens-titles
https://www.reisa.com.au/publicinfo/general-tips-and-traps/torrens-title-explained
https://en.wikipedia.org/wiki/Torrens_title

[ebastler]

is you will lose Dumpster Diving privileges/access to corporate tosses    

Nope, I'm still an owner and have the key 

Umm, didn't you mention "12 months left on the current lease"?
Are you owning or renting the current lab? (Just curious...)

[EEVblog]

I think you'll be out of business quickly. First you'll need to hire people to get the house cleaned & fixed up (people who have no money likely don't maintain their home). Then you'll need to get an auctioneer in to sell the house for you and hope there will be bidders who want to pay a lot and not a bunch of 'house flippers'. By that time you'll be losing money. Your best bet to make money from lending is to have people pay back their loans.

House flipping has become popular enough for it to guarantee a decent return. There's quite a bit of competition.

But Dave isn't talking about flipping but lending people the money and then getting the house 'cheap' when they can't afford it. My point is that Dave is underestimating of all the hidden costs before you can sell a home for a profit.

My entire point is that the bigger your deposit the more likely you are to find a willing lender. I've experienced this first hand several times.
If Fran went to a broker with say $100k cash and said she wanted to buy a $200k property, that broker has more to work with than if she rocks up with only $20k.

[EEVblog]

Umm, didn't you mention "12 months left on the current lease"?
Are you owning or renting the current lab? (Just curious...)

I own my old lab. It's currently rented to a bunch of lawyers I found via Gumtree.
The new lab is rented, both are in the same complex and share the same garbage room.

[Nusa]

Speaking of labs, time flies and I'm starting to think about a new lab. Soon it'll be 12 months months left on the current lease, and it doesn't make sense to continue leasing with interest rates so low now.
Let's say the next 10 years, at (currently) $40k a year (lease + outgoings), that's $400k.
A similar size commercial business park office is $800k-$1M depending on quality and location, and I think the prices have gone crazy.
I can actually buy a house nearby on it's own block of land for that, maybe even under $800k for a small run down place.
But let's say $800k, at 3.8% that's only $30,400 a year in interest, the same as I'm paying in rent now, but there are no commercial outgoings that add another $10k. Just council rates and odds and ends.
So over the next 10 years I can either be $400k in the hole, or have that $400k going into a property I own, no brainer.
So the new EEVblog lab might be an entire house, I'll invite everyone around for a barbie
No law against not living in a house and just using it as a private business were no one comes and goes except the courier guy.

Or you could stumble across a property the family actually likes for living in, and turn your old house into a lab.

[james_s]

Or you could stumble across a property the family actually likes for living in, and turn your old house into a lab.

Or get a house on enough property to build a lab out back, or a bigger house with a full basement and build it down there. Because why commute somewhere when you can have your office right in your own back yard?

[dr.diesel]

Or get a house on enough property to build a lab out back, or a bigger house with a full basement and build it down there. Because why commute somewhere when you can have your office right in your own back yard?

I bought a rental property two years ago with a 1100sq ft house and a 3000sq ft shop with office for $95K on 3 acres.

[nctnico]

Speaking of labs, time flies and I'm starting to think about a new lab. Soon it'll be 12 months months left on the current lease, and it doesn't make sense to continue leasing with interest rates so low now.
Let's say the next 10 years, at (currently) $40k a year (lease + outgoings), that's $400k.
A similar size commercial business park office is $800k-$1M depending on quality and location, and I think the prices have gone crazy.
I can actually buy a house nearby on it's own block of land for that, maybe even under $800k for a small run down place.
But let's say $800k, at 3.8% that's only $30,400 a year in interest, the same as I'm paying in rent now, but there are no commercial outgoings that add another $10k. Just council rates and odds and ends.
So over the next 10 years I can either be $400k in the hole, or have that $400k going into a property I own, no brainer.
So the new EEVblog lab might be an entire house, I'll invite everyone around for a barbie
No law against not living in a house and just using it as a private business were no one comes and goes except the courier guy.

If you can get the loan approved and the interest rate fixed for the entire period it seems like a good deal. Renting is expensive. I'd be wary of zoning laws though and perhaps you may change your mind and do a higher volumes. Neighbours may start to complain due to traffic. Also see if big trucks have easy access.

[jancumps]

I bought a house with virtually no money on the bank - but a steady income.
Loaned 110% of the value. Interest about 6% (early 90s), 20 years. The amount I had to pay every month was comparable to renting a place.
The house was under hypotec (deed? I don't know the English term) by the bank until the very last day of the mortgage - meaning they could sell it if I failed two payments, even if in the 20st year when I virtually payd everything back.

During the years, I used that hypotec to get new loans from the same bank. It means that you can take out money at the same interest rate. The payments go up but the duration stays the same.
But a payment that hurt in the early 90s (approx. 600 euro) was almost neglectable in the 2000s, when I worked longer and both my partner and I earned more.


So as long as the interest rate on my house was lower than the going rate for a financial loan, I've been using it as a vehicle to loan and pay off money when it made sense.

 

[langwadt]

I bought a house with virtually no money on the bank - but a steady income.
Loaned 110% of the value. Interest about 6% (early 90s), 20 years. The amount I had to pay every month was comparable to renting a place.
The house was under hypotec (deed? I don't know the English term) by the bank until the very last day of the mortgage - meaning they could sell it if I failed two payments, even if in the 20st year when I virtually payd everything back.

During the years, I used that hypotec to get new loans from the same bank. It means that you can take out money at the same interest rate. The payments go up but the duration stays the same.
But a payment that hurt in the early 90s (approx. 600 euro) was almost neglectable in the 2000s, when I worked longer and both my partner and I earned more.


So as long as the interest rate on my house was lower than the going rate for a financial loan, I've been using it as a vehicle to loan and pay off money when it made sense.

at the moment the interest on a mortgage is silly low, here you can get 15 years fixed 0.00% or 30 years fixed 0.50% so it is much cheaper than renting, but since the last financial crisis you can't borrow more than ~4x your annual income

[dnwheeler]

In the U.S., the mortgage holder (e.g., the bank) has NO ownership interest in the property. When someone buys property, they borrow money from a bank and then use that money (plus some of their own) to purchase the property. The property is then transferred to the new owner. When you get the mortgage, the bank is going to require that you give them a lien on the property. If you fail to pay the mortgage, the bank then has to go through the foreclosure process to take ownership of the property. Only then can they sell the property, and they are only allowed to keep as much money as necessary to pay off the outstanding debt, any extra goes back to the debtor.

The whole notion of "giving the property back to the bank" is incorrect, as is the idea that the bank can sell the property and make a profit.

The reason the bank wants a big down payment isn't so they get more money in a foreclosure and sale, it is to ensure that if they have to go through that process that will be able to sell the property quickly and for enough money to cover the debt. They also don't want to go through this process, so they want the borrower to be incentivized to make their payments (or sell the property themselves to pay off the debt).

The primary issue with self-employed borrowers is the bank needs to see consistent income for many months (typically 2 years). There has to be some assurance that the borrower will still be able to make the payments for the next 3-4 years (at which point, enough equity has been built up to mitigate most of the risk). Many sole proprietors tend to co-mingle their personal and business accounts (or simply don't keep business accounting records), or try to structure their income in such a way as to show little to no income (by writing off everything, typically for tax purposes). Unfortunately, you can't tell the IRS that you only make $10,000/yr and then try to tell a bank that you really make $100,000/yr. You also can't say I make $10,000/mo, if you can't demonstrate (with documentary evidence) that you actually receive (personally, as payroll income or cash taken out of the business, properly documented and taxed) this amount every month from a source that will continue at that rate indefinitely.