Story

So I only get half of it back. That was my neighbor's son in my driveway.

I own land and I hold it, that's my whole thing, so I'm the wrong person to be in the middle of this story.

My neighbor's son buys beat up houses, fixes them, rents them, then borrows against the new value to get his money back out and does it again. He was up here helping his dad with a fence line and he took a call in my driveway because the reception at their place is bad.

He had the phone on speaker on the hood of his truck. Guy on the other end read him a rate and then a number for how much cash he'd get at closing. There was a pause and the son said, so I only get half of it back. The lender said something about the payment and the rent not leaving enough room at that rate, so they'd sized the loan down.

He hung up, stood there a second, and said the house is fine, the tenant is fine, and he just isn't buying anything else this year.

He's 31 and he was very calm about it. I've been holding a hundred and ten acres for eleven years and I recognized the look. It's the look of somebody deciding that waiting is now part of the plan whether he likes it or not.

4 replies

sonia_alvarez Get yoursPRO6

That pause is the sound of the debt coverage test doing its job. The lender isn't sizing off the value alone, they're sizing off what the rent covers at the payment, and when the rate goes up the payment goes up and the loan they'll write gets smaller even though the house appraised fine.

Same house, same tenant, different year, different number. Anyone borrowing should ask their lender to show that calculation in writing before the appraisal is even ordered.

nicole_adeyemiPassivePRO5

Land people learn the waiting part early because there's nothing else to do. Interesting to watch a house guy get taught it against his will.

wendy_park48CapitalPRO7

@tender is describing the mechanism correctly and I'd add that the sizing language usually sits in the term sheet in a place people skim. I've read term sheets where the coverage ratio was one line in a schedule at the back and the borrower had never opened that page.

Ask which ratio they're using and what rent number they're plugging in. Market rent and your actual lease can be different, and which one they use moves your check.

dmitri_v6CapitalPRO6

He's calm because he still owns a good house with a good tenant. The plan changed, the asset didn't. That's a very different problem from the ones people usually post about.