10 Reasons Why I QUIT
 Investing In Distress Residential
Real Estate Over 15 Years Ago
And Why You Should Also!"

5. Residential Real Estate Properties Are "ZONED" For Personal Use.
   When my banker and mentor said " Durante, as long as you are purchasing properties that are zoned for residential use, you will always have to "qualify" and "guarantee" the loans because the properties are "designed and zoned for personal use."

   Personal use properties will always require personal qualifying and personal guarantees regardless of what you do with the property. These properties are always underwritten based on residential lending and underwriting guidelines.

   The only way to eliminate this completely is to purchase properties that are not zoned for personal use." explained that the reason I had to qualify for loans and personally guarantees them was a result of the zoning on the property, I was shocked!

   This means that no more than 28 percent of your total monthly income (from all sources and before taxes) can go toward housing, and no more than 36 percent of your monthly income can go toward your total monthly debt (this includes your mortgage payment). The debt they look at includes any longer term loans like car loans, student loans, credit cards, or any other loans that will take a while to pay off. This is typical conforming loan standards based on FREDDIE, FANNIE AND FICO lending standards.

    

6. Residential Real Estate Requires Personal Qualifying And Personal Guarantees 
   In order to qualify for a mortgage, most lenders require that you have a debt-to-income ratio of 28/36 (this can vary depending on the down payment and the type of loan you're getting, however). This means that no more than 28 percent of your total monthly income (from all sources and before taxes) can go toward housing, and no more than 36 percent of your monthly income can go toward your total monthly debt (this includes your mortgage payment). The debt they look at includes any longer term loans like car loans, student loans, credit cards, or any other loans that will take a while to pay off. This is typical conforming loan standards based on FREDDIE, FANNIE AND FICO lending standards.
    

7. Residential Real Estate Is Limited To Conforming Mortgage
   A conforming mortgage is one that is packaged for resale on the secondary mortgage market to Fannie Mae or Freddie Mac, two quasi-governmental agencies that buy mortgages from cooperating lenders. Both agencies set limits annually on the size loans they'll buy.

   Conforming loans not only have the BEST and MOST competitive interest rates, they also tend to have the MOST STRINGENT "qualifying criteria". If your credit is shaky or you have been job-hopping in recent years, you may find it easier to qualify for a mortgage with a portfolio lender. A portfolio lender is a lender that doesn't routinely sell its loans on the secondary market. You may pay a higher interest rate with a portfolio lender. These are also referred to as "HARD MONEY LENDERS.
   For more information on click the links below:
    

   Conforming Loan Guidelines Non Conforming Guidelines

    

8. Residential Real Estate Underwriting "SUCKS"
   For years I didn't know what underwriting was all about. Yet I still bought those ugly properties. Real estate is so forgiving.
   
   For me, knowing and understanding how all these pieces effect each other was very important. I can tell you now that in order to structure really creative terms and conditions, a firm understanding of the underwriting process is essential. The underwriting standards used in underwriting your deals or your clients is very important. Once understood, you can pre qualify properties and clients in a matter of minutes. No longer will you be out looking at properties and hoping to get them financed. You will be looking for properties that meet the underwriting requirements.
    
   FICO driven underwriting standards are standards that are Regulated by Fannie Mae and FICO.  They use the strictest financing guidelines in the loan approval process. Factors like
   Income to Debt Ratios, Loan To Value Ratios And Credit Scores are all factored into the loan approval process. Thus all the financing is FICO driven. Your credit score determines which rate you can get for your financing. If your credit score is low you pay the higher rate. Eventually, your credit power ends. It just a matter of time if you are an active investor.
    

   Why I NOW Avoid FICO Driven Underwriting All of your mortgage holders or lenders report monthly to the credit bureau, Your "tenants do not report to the credit services" so your income isn't. Thus your credit score declines and erodes with each property purchase.... As your debt increases your credit power decreases! Even though you have more monthly income, it doesn't matter because it's not reported! Bottom Line: Credit Driven Underwriting Guidelines Works For You Initially... Then It Begins To Work Against You Once You Begin Acquiring Properties! The Financing Only Get Harder, Never Easier!

    

9. Property Values Are Determined By 3rd Parties: When purchasing residential properties, we are forced to determine the value of a property. There are several methods that are used. We aren't faced with the challenge of confirming the value, we are faced with the task of determining value. I take great issue with these method.
    

   Does Anyone  Know What This Property Is Really Worth? It Depends On Who You Ask... Tax Assessors Uses Millage Rates A Millage rate is the rate at which property taxes are levied on property. A mill is 1/1000 of a dollar. Property taxes are computed by multiplying the taxable value of the property by the number of mills levied. What ever that means? Realtors Use Sales Comparables Sales comps can be very helpful when you are trying to determine the value of a property. However, they are not just going to come right out and say, "Your house is worth $150,000." That would be very nice, but somewhat unrealistic. On the other hand, sales comps are fairly easy to comprehend. Insurance Companies Use Replacement Cost Approach Insurance companies rely on replace cost to determine the value of a property. They use current cost or materials x the number of square feet. Appraisals use a blend and combination of them all. Let's face it, you can get 3 appraisals on a property you get 3 different results. Determining value on Residential Real Estate is subjective!   The Best Way To Determine Value Is To  Use An Income Approach! It's not subjective at all.

    

10. Residential Real Estate Paid Well, but it came up very short on providing the lifestyle I wanted.
    
    I never wanted my days to be filled with chasing properties, fighting with contractors, tenant issues, evictions and all the other issues associated with Residential Real Estate.... I wanted to be able to leave town for weeks and months at a time. Being a landlord is not a part time job if you own more than 4 properties!