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Thursday, January 22, 2009

No Brainer Loans

A few years back when buyers were buying properties in Key West as second homes or investment properties, some of the local banks helped create part of the financial predicament we are experiencing today. They made what I like to call "No Brainer Loans".

I first heard the term "No Brainer Loan" about 4 or 5 years ago. It was used by a local banker I'll call "Big-wig". I had called him to discuss a property my buyer had found that needed renovation. I needed to find out what kind of financing my buyer could obtain. Big-wig told me the bank had a program where the bank would loan money to purchase the property and renovate it. The bank would require two appraisals. One would value the property "as is" when purchased. The other would value the property after the construction was completed. (This appraisal would be done based on architect plans, budget guidelines, and appraiser assumptions. The bank would over-see the construction and pay the contractor and materialmen.)
Big-wig's bank would the convert the purchase-construction loan into a permanent mortgage and "save" the buyer-borrower from additional mortgage expenses later on down the line.) The buyer-borrower would still need some cash, but the amount of cash was diminished by the assumption that the finished property would be worth far more money later on. Everybody was supposed to get rich on this scheme. Big-wig said with assurance something to the affect "It's a no brainer for me."

I never had a buyer that took advantage of Big-wig's offer. My buyers always dug into their piggy banks and borrowed the rest.

The loan option proposed by Bib-wig was akin to the "bigger fool theory" of investing in my opinion. CLICK HERE to read short Wikipedia explanation of the bigger fool theory. Several local banks did the same type of loan or a variation thereof. So I'm not picking on any one lender.

I have seen a lot of properties either get foreclosed or offered for sale on a "short sale" basis that were or are owned by local Key West residents. Many of these properties were investments. The banks created the tools with which both locals and out of towners could buyer property and renovate the same. That is a good thing. But both the lenders and borrowers should have had their heads examined to find out before hand that neither party had any business participating in a "No Brainer Loan".

If you are hoping to find a place to call your own in Paradise, please consider calling me, Gary Thomas, 305-766-2642 or e-mail me at CLICK HERE to search the Key West mls database. If you see something you like, give me a call or send me an e-mail. Let's use our brains and make you dream come true.

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Key West, Florida, United States
I first read about Key West in a magazine called "After Dark" sometime in the mid 1970's. But it wasn't until March 1984 that I made my first visit to the island that would become my home. I had two weeks for a vacation and reserved a room at Colours Guesthouse (now Marrero's Guest House) for one week. I thought that if I didn't like Key West, I could always go back to Miami or Ft. Lauderdale for the rest of my trip. But after a couple of days in Key West, that was no longer a consideration. But when I wanted to extend my stay for the extra week I found there was no room at the inn. The guesthouse owner did find me a room at LaTeDa, the infamous guesthouse/restaurant. That's a story I'll write another day. But those two weeks in Key West gave me the realization that I had found Paradise. Key West has been my home since 1993 and my only regret is that it took me so long to get here. I am a full time Realtor at Preferred Properties CRI. Let me help you find your new home or business in Paradise. Living in Paradise is not a slogan, it's a way of life.