What lessons should real estate investors be gleaning from American banks’ biggest blunders?
While most of the media spin, and online debates focus around pointing fingers at U.S. banks, savvy real estate investors might be best served observing the available lessons so that they don’t repeat them.
Collections
One of the biggest bank stories is centered around Bank of America’s $1M payout to a couple that was harassed nonstop by collection phone calls. Apparently Bank of America threw out the book, much like many of these institutions are doing. This couple decided to flex their consumer rights, and won a million dollar settlement.
Obviously Bank of America might not even notice paying out a million dollars. However, most small and mid-sized real estate investors certainly can’t afford paying out millions to borrowers and tenants for harassment. Know the law and your legal limitations. That said, as an investor, do not cross the line in gaining leads. Know what you can do and specifically, what works for your particular situation.
Properties Being Seized for Neglecting Maintenance
While not yet rolled out on the scale some had hoped for, local authorities are seizing properties that have been neglected, and have unpaid property taxes. Many of these are abandoned homes banks repossessed and have failed to maintain. So far, we’ve already seen this in the Northeast, and to a certain extent, through other means in Michigan and elsewhere.
While there is gold to be uncovered in taking distressed properties, real estate investors need to stay on top of maintenance and property taxes if they want to retain their assets, and actually make a net profit. That said, these are the kinda of properties an investor can make a living off of. If you know what you are doing, there is a lot of money in rehabbing distressed homes.
Foreclosure Alternatives
One of the biggest issues in the U.S. property market and financial sector is foreclosures. There are still years of backlogged properties in some areas, and hundreds of billions of dollars in delinquent loans and REOs. Even with their multi-million dollar power legal teams, these banks just haven’t been able to push through foreclosures effectively and efficiently. Perhaps the biggest lesson in this for note investors, house flippers, private lenders, and landlords is that it might be smarter to act faster and be willing to make some compromises early in order to head off delinquency issues rather than let it drag out and balloon into a much bigger challenge. Put emotions and pride to the side, and use common sense to find the most profitable resolution.
Settlements & Ethics
Big U.S. banks and mortgage lenders continue to be hit with sizable lawsuits and be called on to settle for millions of dollars for poor business practices. In some cases. this was outright fraud, as well as poor lending ethics. This doesn’t mean progressive loans shouldn’t be available to consumers and sophisticated real estate investors. In fact, some of the issues being dragged out were legal at the time, but have been deemed otherwise since, like stated income loans. While many don’t feel banks have been seriously punished, it has caught up with them in many ways. On top of massive settlements, tougher new regulations, and lost jobs, deposits have dropped.
The general population appears to have lost all faith in banks, and this has been confirmed by terrible customer service which gives less for higher costs at some institutions. Recent statistics have shown deposits dropping significantly, and this might be the punishment felt the most by these banks. Real estate investors have realized they don’t need these banks as the middle man to invest in real estate or debt, and thanks to new options they can make far greater returns without them.
Summary
Trust is hard to win, and easy to lose. Everyone is more demanding when it comes to value today. Ultimately it is those that can maintain both of these that will see the best overall investment returns, and enjoy sustainable wealth building over the long term.
