People with unrealistic expectations

[300UGUY]

OMG!!!! I have heard this before...I'm having a sense of deja vu...all over again

You guys (and I) expect the bankers to be the archetype conservatives who guard their funds and insure that loans they make will be paid back properly and protect themselves by demanding significant percentage down payment so if property values fall, (nah, they ain't making any more land!) therefore they would be well covered.

I think we gotta learn that they are not like that. The bankers don't have a role of protecting the borrower. Rather, they just have to keep dancing fast enough to not be caught in the next bubble with PERSONAL losses.... losses for the taxpayer in general and foreclosed borrowers is just fine...it's FREE ENTERPRISE after all.

Seems the reality is that many hard working folks dream of having a piece of the 1% american pie they see daily on the tube...and don't have the perspective to realize that they are now, always have been, and will always be "have nots."

As some of us have noted....we started small, worked hard, made choices which worked out to our benefit which we ascribe to our brilliance and keen insight. And, with nothing but our bootstraps, upbringing, educational opportunities, native intelligence and other accidents of birth, we have attained some degree of power and pelf which allows us to comment on the foibles and follies we perceive in others. As for myself, my understanding and perspective is surely limited because my annual income is below the $540,000 or so needed to make the 1% category.

Sounds like the bankers are, again, encouraging another bubble....guess we all better get us a piece of cheap loans before they go away.

And I do hope that the OP's friend making $25k with spouse and two kids can win the lottery and get the house and land of his dreams!

Yeah, things worked out pretty good for me, but I know that I have been fortunate. Not fortunate enough to be in the 1%!!!

 

[bdog]

Thanks for the replies and they are spot on. I have known this guy and his wife since they were in high school and they are in their mid twenties now. He works at an auto parts store and she works part time at a day care. I am pretty sure the 25k is close and I know their whole family and am pretty sure there is nothing else. They are hard working good people and are doing as good or better than I was at that age but I worry that they are fixing to make a big screw up.

I try telling him stuff but he doesn't really listen and it is almost like he thinks I am trying to keep him down or something. I have all the things he wants and me telling him not to do it doesn't go over good but I try to explain I am nearly twice his age and it took a long time to get where I am.

He finds all these properties and is excited and wants me to go look at them with him and I would love to offer advice on the properties but I think the whole idea is a bad idea given his circumstances.

I don't if you guys know about Dave Ramsey or not but I loosely follow his principles and it has served me well. I listen to his radio show sometimes and all the people calling in with the problems they are having seems like right where my friend is heading.

 

[MinnesotaEric]

Right now land loans are 33-50% down and premium to prime.

Anyway, you should help him find a duplex and let the renter make the mortgage.

 

[EJP1234]

At $100k at 30yrs at a 3.75% note, the mortgage is going to be a huge chunk of their take home... A huge chunk. If they weren't eating oodles of noodles now, their going to be splitting a pack amongst the family.... Actually they won't, because you and I will be supplementing their food bill... Gotta love America...

I bought another 39acres in November, but I used a HELOC for many reasons... Lots of people warn against this but I only borrowed $65k, used $10k from reserves and it's based on prime which is still pretty low. I always felt safe since I have about 80% equity in the house. I didn't refinance to cover the new land, because of closing costs, and prime is lower than a standard mortgage rate and still stable. I can always bite the bullet and refi if prime climbs higher, but it has to be 2yrs after I started contract otherwise I owe closing costs on the HELPC. This was the best way I felt, to keep the costs the lowest, it's really a game lol.

 

[mark02tj]

I think the bank will bring him to "reality" if he thinks that since he's "pre-approved" he can just waltz into the bank and say "I found a piece of land for the $100k you've approved me for. Where's the check so I can buy it?" We all know there's no way it can happen.

If he and his wife are bringing in $25k between them, they have other "supplemental income" that's adding to that. There's the Federal Earned Income Credit that's probably adding $3-4k if they have a couple of kids. Daycare is probably being subsidized so that's at a reduced cost. There's also a chance that their rent is being subsidized. And they may also qualify for food stamps and WIC. Kids are probably getting free lunches (and maybe breakfast) at school. And, at that income level, they're paying no income taxes (only FICA/Medicare). I'm not trying to say they're living a life of luxury, but they are certainly aren't going to starve to death.

Good for you for wanting to help him!! I'm all for giving a helping hand for someone that's trying to make good choices. Hopefully this guy isn't spending money on tattoo's, cigarettes, etc. and is making responsible decisions. You might also encourage him to try to further his education, even one class at a time, so he can get ahead at work.

 

[texasjohn]

I just started recalling all the OTHER expenses which seem to jump up and bite you....survey, closing costs of various kinds, etc. etc....it would be possibly helpful if you were able to find out the expenses and list them for a particular property...having not done this previously, he likely doesn't see them coming and it will further his education to know that they are out there. And those are CASH FLOW needs, not long term loan funds.

 

[rtimgray]

To the OP, my only input is that if you have talked with him and let him know your concerns, and he proceeds anyway, you can sleep well. If a bank does give him a loan on property like you have mentioned and he ends up unable to uphold his end of the bargain, you can also be first in line to say "I told you so."

I've given plenty of advice that no one has heeded. I've reached a point where, for the most part, it's not worth the time and trouble to argue. Just say your concerns, offer your support, and if he presses forward against your better judgement, just say "whatever".

Some folks can only learn by doing, and that includes doing wrong some of the time.

Good luck and take care.

 

[txdon]

If they are making minimum wage in Texas they are making $30K a year. The banks will lend 2.5 times that amount or $75K.

They are probably making an average of $9.65 an hour and are making $40K a year and can borrow $100K - for a home.

Glad he has a good friend, he will probably ask for a lot of your time to help him build his house. Don't forget your tools.

If I was in my 20's I'd build my own house like Eddie. My neighbor in his 50's built his own house - he did contract out about half the labor and hired a few high school kids to help him also. Once the bank finds out it is land only the problem should go away otherwise get a sore back quickly.

 

[EarPlug]

You need to sit him down with pencil and paper and do the math. Maybe he needs to actually see the budget.

$25k per year income equates to about $12/hr. Probably about right for a job at a parts store. His wife's day care job probably pays about the same. All of this BEFORE TAXES!

Do the math, create a budget, and show him a realistic path to his goal.

 

[EddieWalker]

I didn't realize he was so young. It never hurts to dream and start planning early. Sounds like they both have entry level jobs and they are barely getting by. Not knowing how many hours a week they work, my guess is they probably don't work 40 hours each, so there is plenty of time in the day for them to work on other avenues of generating revenue. I know that when I was in my 20's I wasn't making very much either. I also know that when I was in my late 30's and decided to move to TX, I started out doing handyman jobs, part time for $10 an hour, which is probably a lot less then they are making.

If they want land, all they have to do is go out and improve their situation. In ten years they could easily be doing a lot better an have that piece of land if they want it.

Eddie