Mark Hanf, CEO of Pacific Private Money details the latest on transitional loans and Realtor Michelle Baylog answers the question; when did it get so expensive to live in the Bay Area and is there a bubble?

Episode Transcript

Intro:

Welcome to the Practical Tax podcast, with tax attorney Steve Moskowitz. The Practical Tax podcast is brought to you by Moskowitz, LLP, a tax law firm.

Disclaimer:

The information contained in this podcast is based upon information available as of date of recording and will not be updated for changes in law regulation. Any information is not to be considered tax advice or legal advice and does not form an attorney/client relationship. Further, this podcast may be construed as attorney advertising. You should see professional consultation for your individual tax and legal situation.

Steve Moskowitz:

Welcome. This is Steve Moskowitz, and welcome to Practical Tax. I'd like to introduce you to my friend, colleague, and go host, Chip Franklin.

Chip Franklin:

Steve is recovering from COVID. It's good to see he's got some rose in his cheeks, which is nice to see as well, it's one of the byproducts of this. What's interesting Steve, I love talking with you, because of your passion for taxes. I was looking at when you were on some of these sports shows, and we'd bring up luxury taxes and stuff, and just how you get into it. At the end of the day, taxes are about people. We all have to deal with them. We all benefit from them. They can do wonderful things for our society. We all have criticisms and worries about that, too. Real quick, you came here with all your possessions in a box, to San Francisco.

Steve Moskowitz:

I moved to San Francisco many moons ago, with all my worldly possession in four cardboard boxes. I bought a one way ticket from New York city to San Francisco, and said, "Here I am. I'm going to get my fancy, advanced law degree, specialization in tax, and see what I'm going to do with it." I liked San Francisco, decided to stay, and that was many years ago.

Chip Franklin:

You've turned that this business from an accountant/attorney into an outreach for people that covers everything from cannabis, as we just heard last episode, to cryptocurrency. It fascinates me. There's other people here in San Francisco, that we've met, that have an interest, obviously, in people, and money, and helping them through periods like that. Joining us right now is a CEO for Pacific Private Money, and a good friend to both of ours, and we've been with before, and worked with before, and that would be Mark Hanf. He joins us here, on our Practical Tax podcast. Hello Mark, good to see you, my friend.

Steve Moskowitz:

Hi Mark.

Mark Hanf:

Gentlemen, how are you? Steve, sorry about your voice.

Steve Moskowitz:

I'm very much looking forward to getting it back, because why'd you say, who's that guest host you have on? What happened to Steve?

Chip Franklin:

I think the ladies think it's sexy. I think it's a male version of Brenda Vaccaro happening right there.

Mark Hanf:

A little bit of Rod Stewart going there.

Steve Moskowitz:

Thanks guys.

Chip Franklin:

Explain to us about your business. You guys have two parts of your business, and we'll talk about both of them, but tell us a little bit about what hard money is, and what you guys do.

Mark Hanf:

The term hard money is a little bit dated. Usually 20 years ago, the hard money guy was the guy that everyone knew in town, that if you were in a pinch, you can go to him for money. As long as he thought you had real estate worth enough capital, he'd lend you the money. I started Pacific Private Money 15 years ago, and even now, we prefer the term alternative real estate provider. Essentially, what we do is, we use private capital from investors, most of whom are right here in the bay area, and we make short-term bridge loans to people, to help them either buy their next home when they're trying to compete with cash buyers, or high buyers, or to real estate investors who want to buy, fix, and flip properties, because that's still going on.

Chip Franklin:

It's interesting too, because you have a great story, and I researched this story. There are many people, they want to downsize, and they want to sell their home. Since 2008, even with these non-QM loans, it's still difficult to get a loan if you don't have a job.

Mark Hanf:

That's true. The average homeowner, and this is mostly boomers, the average stay has gone from seven years to 13 years, in the last 15 years.

Chip Franklin:

Wow.

Mark Hanf:

They're staying in their homes longer, and in fact, boomers are being blamed for contributing to the lack of inventory that's available for sale, for people who want to buy a home. Quite frankly, it's not their fault. They're just feeling trapped in their home, because their bank told them, "You can't buy your next home until you sell your existing home, because you don't qualify under the new Dodd-Frank regulations to have two mortgages at the same time." It's a real conundrum, and we help them get through that.

Chip Franklin:

Who wants to move twice, right?

Mark Hanf:

Exactly. You have this need to buy your next home before you sell your existing home, we call it, "Buy before you sell." That's an industry term that's actually been popularized in the media lately. You also have a second conundrum, which is, you're competing with cash buyers now, and cash buyers and institutional buyers are snapping up a lot of the inventory, and making them rental properties. What's a home buyer to do? We created this consumer bridge loan product about 10 years ago, and it's now one of our most popular loan programs. It's essentially a loan that's up to 100% of the price of the home you want to buy. Whether you're buying up or buying down, or moving to another community or another state, we can do 100% financing if you have enough collateral in your existing home. We can do the math, and have a cushion of safety there, about 75% CLTV is what we solve for.

Chip Franklin:

Steve, let me ask you a question. This is along the same lines, this happened to me about 20 years ago. I sold a property, and I didn't reinvest the cash quick enough, and I got hit with that IRS penalty. Many of the people, they sell their, home and maybe they can't find their home. What is the time period that you have to reinvest that money, or you have to pay a big-

Steve Moskowitz:

20 years ago, that's back when you were a high school student.

Chip Franklin:

There you go, baby.

Steve Moskowitz:

The law that you're talking about has long since changed.

Chip Franklin:

Good. If you were to sell your home today, and say you downsized, and you spent maybe a third of that, or half of that, what is that income on the other side? How does that look?

Steve Moskowitz:

What happens is, it's not like what you were talking about was in the old days, postponing it into the next house. That's long gone. Today, we have an exemption, a quarter of a million dollars single, half a million married. That's why we were talking a little bit before, that if you have that situation, if you do have a tax coming up, you might want to consider talking to a charity, and making package deal where everybody benefits. The charity gets something, and you are in a better position economically, and the only one that misses is the taxing authority, which is okay, because that's what the law provides. Remember, the tax law is two things: one, collection of tax, which everybody knows about. The other one is a system of incentives. The government wants us to do certain things, but in a democracy, they can't order us to do it.

Chip Franklin:

Not yet.

Steve Moskowitz:

Not yet, depends who's in office. How can the government get you to do something when they can't order you? They give you a tax incentive. There's so many times where people, what you're talking about, they've had that house for years and years. They want to move a retirement community, but they don't want to be hit with these enormous cap gains. There's a way with charities that everybody benefits.

Chip Franklin:

Mark, you told me once, and I found this fascinating, about these transitional bridge loans. You come in, and you're paying some points for the loan, again, it's not like a bank, it's different. Then, there's a higher than average interest rate. But, since you sell your home, you get to go in and buy that next home with cash, and that puts you right to the top of the list. I know this happened to me when I was in San Diego. The people next door, their home is owned by a Chinese consortium, they own 30 homes in the Del Mar area. Obviously, you're competing in a very difficult environment. Having cash is great. You also get to stage your home. Explain how that works, and why that benefits you.

Mark Hanf:

You're right, our money is not inexpensive, because we're not a bank. We're a private lender, and private money is traditionally higher. Today, with rising interest rates, the interest rate is at 9%, but it's an annualized rate, of course, and it's a couple of points up front. We find that most of our clients actually make money at the end, because they don't have to move twice. They move right into their next home, and you're right, now their home is empty. It can be cleaned up, staged, maybe you had pets, maybe get rid of the pet smells, but your agent will help you freshen it up. Now, you sell your home for anywhere from 5% to 15% more. More often than not, using our bridge loan pays for itself, in allowing you to get a higher price. Then, you get all the added benefits of moving right into your next home, competing against and winning against cash buyers, because you can structure an offer to be as compelling as it needs to be, and it's cash-like when you use one of our loans.

Chip Franklin:

How'd you figure this out? Where'd you get this idea?