Cell: 609-468-9324 (609-HOT-YEAH)
Personal Email: Rick.Bagel@gmail.com
LinkedIn Page: https://www.linkedin.com/in/rick-bagel-98a626239
I truly love talking real estate, investment/development, and finance, and would welcome the opportunity to connect. Every day and every connection is a blessing.
I am somewhat active in residential investing in the Philadelphia MSA, and I try to stay current on credit markets outside of real estate.
*** This is a Personal website to promote financial literacy and express my individual views. The information is highly generalized and is not connected to my employer or any business. People deserve to have a better understanding of basic finance, key financial mechanisms, and their own place in the economy. I hope to provide some color. Public, charter, and independent schoolteachers and administrators please contact me to request pdf copies and worksheets. ***
US Treasury 10 Year Yield - https://fred.stlouisfed.org/series/DGS10
CE BofA BBB US Corporate Bond Index Yield - https://fred.stlouisfed.org/series/BAMLC0A4CBBBEY
St Louis Fed 30 Year Fixed Rate Mortgage Avg US - https://fred.stlouisfed.org/series/MORTGAGE30US
B.S., Economics, 2008. Duke University. Durham, NC. Beta Theta Pi. Duke RE Club Founder.
M.B.A., Real Estate, 2011. University of Miami. Coral Gables, FL. GA Scholar.
Nonbank Clearing. Philadelphia, PA. Lending. Present.
Concord Home Mortgage. Chadds Ford, PA. Lending. Present.
Cardinal Financial. Edgewater, NJ. Lending. 2023.
HQ Commercial Capital. Edgewater, NJ. Lending. 2023.
Conventus. San Francisco, CA. Lending. 2022.
Morning Sky Capital. Philadelphia, PA. Acquisitions. 2021.
Leith, Inc. Cary, NC. Sales. 2020.
Wetrock Farm I, LLC. Durham, NC. Land Development. 2013-2019.
Hometown- West Windsor, NJ (Princeton Area).
Old Schools- West Windsor-Plainsboro Regional School District, K-8. The Peddie School, 9-12. JV Tennis.
Business- Real estate and real estate finance. Housing supply and commercial lease deals. Planning and development. Sales and trading. Algos, benchmarks, and parameters.
Personal- Family. Road trips. Tennis. Cars. Real friends. Capri Sun.
Favorite Music- Early trap music. 90s or 70s rock music.
Favorite Movies- Risky Business. Uncut Gems.
Favorite TV Shows- The Boondocks. Rick & Morty. Euphoria.
Favorite Funny Website (I know from this)- www.jewornotjew.com.
Dear Friends- Herein are tools and musings on loans and financial literacy.
*** This is for informational purposes, it is not legal advice, it is generalized, and I make no warranties for its accuracy. The information on loan programs is not at all comprehensive. No preliminary checklist is a substitute for a loan application process, and there is a wide range of factors that go into credit decisions. ***
For my loan calculator apps to function, check for monthly vs annual figures, and plug in “0” for blank fields.
© Rick Bagel, MBA 2024
The periods are monthly- for a 30 year mortgage, the # of months = 360.
For homes, or rental properties, these payments do not include property taxes, insurance, hoa dues, or other assessments- this is just the principal + interest which is only part of your mortgage payment.
Cars also have insurance payments, but the insurance payments are not part of the car loan, so this principal + interest payment would represent your actual monthly debt payment for a car loan, and then your insurance bill is separate.
Credit cards are open ended, but if you assume a current balance amount, then this payment would represent the amount you need to pay monthly to pay off your card in a given # of months assuming you don’t spend any more on the card.
This is not applicable to a bridge loan, which is a type of balloon loan.
*** This info is for financial literacy purposes only and not connected to any business ***
This calculator is for computing mortgage payments, housing expense ratio, and debt-to-income ratio. For Principal, plug in the amount you are looking to borrow, typically 80-97% of the property’s purchase price. Property taxes vary by municipality- to find the property tax rate check the property listing or go to the city’s website to try to find the property tax rate which will be a % or thousandth (mil) of tax assessed value. Check that the rate includes County, City, and Special Assessment taxes if relevant. For property insurance you would need a quote, but you could plug in 0.6% annually or 0.05% monthly of the loan amount for a ballpark. Condos and townhomes always have HOA dues and they are often quite high. Houses in neighborhoods with amenities typically have HOA dues, and some other houses do as well. The listing, listing agent, or if not listed then the seller, would be the best source for this information. Debt payments outside of residence include car payments, other installment loans, credit card minimum payments, child support, and alimony, to name a few. A more recent uptick in income might help, but go by the lower of the last two years’ income to be conservative. In some cases, with W-2 income and not self-employment, most recent one year of income history will suffice. Gifts do not count as income, only as down payment.
If your housing expense ratio and debt-to-income ratio are just above the percentages below then you should consider properties with lower purchase price (i.e. lower loan amount) or lower expenses (i.e. somewhere with lower taxes and hoa dues).
Housing Expense Ratio and Debt-to-Income Ratio Limits
If you don’t yet have the last 12 months (T12) or previous year end financials from the seller or listing agent (or yourself if you are the owner), please get that information. Sometimes people don’t have an income statement on pdf or excel, but they do have a tax return which has the relevant information. Ask if there have been any changes in the tenancy, leases, or expenses since that tax year so you can make appropriate adjustments. Review any existing leases.
To approximate net income from a tax return, take the bottom line net income figure from the first page and add the dollar amounts for “depreciation” and “interest” which should be on a breakdown on the later pages. Check to make sure the tax return does not include other properties.
To use this calculator, you can either input the net income in the gross income field and input $0 for the expense rows, or you can fill out gross income and the 3 expense rows. For a 10 year loan with a 25 year amortization schedule, plug in 300 for “amortization term (# of months)”.
Lenders typically require a debt service coverage ratio (DSCR) of 1.25 or 1.3, meaning the net cash you have coming in after expenses needs to be 1.25x or 1.3x your monthly payment.
For new acquisitions, banks typically lend at 60-70% of purchase price with DSCR of 1.25 or 1.3 or better for commercial properties, and sometimes stretch to 80% of purchase price for residential rentals. For refinances, after a seasoning period (one year after the purchase date), borrowers can sometimes refinance based on appraised value. If you are buying a rental property worth $2mm for a $1mm purchase price, then a lender is only going to lend you $600-700k for the purchase for a commercial property and maybe $800k for a house. You might have a shot at refinancing for a higher amount later. You can’t just borrow the entire purchase price because you are getting a deal, or count seller financing as a down payment.
Lenders might pass on a commercial loan request due to imminent lease expiration (aka “roll”), deferred maintenance, high local market vacancy rate for your product type, or in-place rents that are above market rents. Basically, the key metric for a lender is current cash flow with some cushion to meet the payments, but if there is reason to doubt that cash flow would continue, then a savvy lender would know better than to write the loan at full leverage.
Getting a commercial or residential permanent loan from a bank generally requires good credit, income history, and track record. Private lenders will write loans based on the property income, purchase price, and appraised value, with less stringent borrower-level requirements or even DSCR requirements, albeit at a higher interest rate.
Bridge loans are typically 1-2 year balloon loans, interest only, where the borrower intends to repay the loan by either refinancing (taking out) the bridge loan with a permanent loan, or selling the property and repaying the loan at sale.
The above assumes interest being charged on undrawn amount for any rehab budget. The total interest cost is lower if there is a rehab budget and no interest on the undrawn amount, or if the loan is repaid early and minimum interest is already met. Interest payments are paid monthly by the borrower, often out of pocket if the property is being rehabbed or mid-lease up and there is no tenant in place. If the borrower fails to make interest payments or gets to the end of the loan term and fails to sell or refinance for an amount to repay the bridge loan, then the borrower will be in default, the loan will be accelerated (full balance due immediately), and the property goes into a foreclosure process or workout process where lender takes title.
Lenders underwrite these deals based on borrower’s skin in the game (% of purchase price as down payment), appraised value (as is, and as complete), and borrower’s experience, credit, and assets.
Getting a bridge loan for commercial or residential real estate from a bank generally requires good credit, income history, and track record. Private lenders will write loans based on the property fundamentals and cash down payment from borrower, with less stringent borrower-level requirements, albeit at a higher interest rate.
*** This info is for financial literacy purposes only and not connected to any business ***
There are often exceptions, and work arounds, but below are some usual requirements:
* Sometimes one year if it is W-2 income, but that is for Conventional loans which have higher credit score criteria than shown above.
You basically need a good job or business income history for two years demonstrating that you earn 2.32 times (pre-tax) of what will be your housing expense (principal, interest, taxes, insurance, and hoa dues) and outside debt obligations (car payments, credit card minimums, installment plans, other consumer credit, student loan payments, and child support / alimony) for FHA.
Even if you have no outside debts (mazel tov), you will still be maxed at a housing expense to income ratio of 31% max. You need to earn 3.22 times (pre-tax) what your housing expense will be for FHA.
These ratios are 3.57x housing expense and 2.77x total debt to income ratio for Conventional. The criteria is for FHA loans which are less stringent, and there is higher criteria for the more popular Conventional loan programs. Borrowers who meet the more stringent criteria usually opt for Conventional over FHA. FHA is a good solution for borrowers with 2 years income history, where their credit score or debt to income ratios are marginal.
If your income is not up to par to afford a modestly priced home you like in your market, then the best thing you can do for yourself is to try to grow professionally, try to move up incrementally in income, and keep it up over the next two years. The two years part is tough because it is easier to land a position or make more money for a few months than it is to keep it up consistently for two whole years. Life might not let you, but you can try and plan and take steps. Win or not, it still takes time. You are the American dream and I believe in you. I wish you success in getting your income up and keeping it there for a couple years, so you can qualify for a home mortgage on a home that you like.
The other thing you can do if your income does not support your initial budget, is to consider more modestly priced homes. Maybe there are some fixer uppers that are livable, or homes in a nearby town or neighborhood that are less expensive. This is also a potential solution for borrowers with child support / alimony or big student loans, which can end up throwing off their debt-to-income ratio.
Be careful buying vehicles and other items on installment plans if you intend to get a mortgage, and you are potentially exceeding debt-to-income ratio limits. If you already have zero or low monthly debt obligations, then that $500 car payment might not push you past debt-to-income ratio limits.
The above represents some, but not all, of the minimum qualifications for an FHA 203b mortgage. FHA loans have an up front mortgage insurance premium of 1.75% of the loan amount and annual premium of 0.4-0.7% of the loan amount paid for at least 11 years.
There are sometimes public and non-profit down payment assistance programs available. VA offers 0% down mortgages to qualified veterans. USDA offers 0% down mortgages in qualified rural areas.
FHA is a government program so it is more “We the People” in terms of access compared to conventional mortgages which are sold on the bond market and held by banks and have more stringent criteria in order to conform. Criteria for conventional mortgages is usually similar to home mortgage criteria for banks (see next section).
*** This info is for financial literacy purposes only and not connected to any business ***
* Sometimes one year of income history with Conventional mortgage with W-2 employment.
The above are some minimum criteria and it is not a comprehensive list. The approval prospects and terms get better for borrowers with 680 to 780+ credit score marks, higher down payment (5, 10 or 20%), liquid assets, and especially clean history of income and expenses on bank statements. Bank loan or Jumbo loan criteria is usually at or above this stated criteria for Conventional.
If you are putting down less than 20%, then you will be paying private mortgage insurance, roughly 0.5-1.0% of the loan amount annualized, until the loan balance is paid down to 78% of original purchase price. In some, but not all, cases, if the property value has truly increased after a year or two, then you can have the home re-appraised and get PMI removed early.
Crawl- not applicable if you are a self-supported adult, but for a minor or college student, you can start to “crawl”. Instead of not thinking about your money, carefully manage and budget your money for walking around, clothes, events, and other stuff. Don’t let money be a nebulous thing where you don’t really know what you have, and you are more reactive than proactive. Some people with parental support or student loans go all in on school/grades instead of focusing on income, and that is an OK strategy, but even then, try to mind your cash flow just for practice. You could port your bank account and credit card into quickbooks, or keep track of your cash, and categorize where all your money goes and how it comes in. Maybe tweak your habits and plan a bit to optimize outcomes.
Walk- Sticking to a plan that supports your monthly expenses. Getting the right job or business or work situation to generate sufficient income and living in a way that is within your means. Don’t let money be a nebulous thing where you don’t really know what you have, and you are more reactive than proactive. Getting monthly income and expenses right is THE key item for anyone going out on their own for the first time no matter what age, or for anyone just living life. This is a daily struggle for most people. It is no small feat. Anyone successfully earning money to meet their monthly obligations and take care of their own should be proud of themselves. I feel that most financial literacy lessons start at the “run” phase, of putting money in savings and investing and watching it grow, when really people have to “walk” first for any of that to start, let alone stick.
Run- This is also known as “getting established”, and most borrower clients for home loans are at this stage. For these people, after years of “walking” they have decent work history and income, and with judicious spending habits, they have some savings. Savings can be kept in the bank, invested in the stock and bond market (usually in 401k / IRA, or 529 accounts), or used as a down payment for a house or car. Building up work history and income, keeping up judicious spending habits, saving for a house, funding 401k / IRA and 529 plans, and putting away cash savings all takes time.
Fly- Moving up in income tax bracket, having a lot put away in savings / investments, and perhaps owning real estate or other businesses. If you are flying, then there are lots of businesses you can get into including real estate investing. Flying is great, and I hope you make it, but you don’t need to fly. As long as you are walking or running, you will be fine. If you are going to fly, don’t fly too close to the sun.
Recommended Movie on the topic- “The Jerk” starring Steve Martin
A note on a person’s worth- All people are children of God, made in His image. Every person’s life is valuable independent of their productivity, money, good deeds, and bad deeds. Everyone is a sinner- even if you pay every bill on time in your life, you have still done wrong or come up short in some way. There is more to life than making money. I think it is OK to break everything down to a bottom line, but don’t confuse that with making everything about money. It is normal to think about other people who might be further along in their career or finances and think about what they did different than you, how their life is different from yours, and what you would need to do to do better yourself. Just remember, it doesn’t make any sense to measure people by their money, and it is even better to not measure or judge people at all.
Whether you are a Fortune 500 company, a homeless man living on the street with 25 cents in your pocket reading this on your busted phone, or anyone in between- every company or individual’s financial situation can be measured by three standard financial statements-
Balance Sheet is a current snapshot, usually year end. Cash Flow and Income Statements are monthly or quarterly lookbacks, and they are consolidated into an annual statement.
Health is wealth, knowledge is wealth, your network is your net worth, and reputation is everything- In addition to finances, your health, habits, education / knowledge, and network need to be taken into account. Working more hours, stress eating, and not making time to exercise might yield better financial results but you are paying with your health. A drug or alcohol habit that you use to cope with the shift may or may not impact your bottom line, but you are paying with your health. Knowledge, skills, things you learn, work experience, education, credentials- these are all valuable things that might not have cash value on a balance sheet but they have value. Similarly, your network is your net worth- your network and the resources embedded in that network might have tremendous potential value, and this wouldn’t be on your balance sheet. Reputation needs to be built over time and it can be lost in an instant. Generally being a good person, not breaking the law, keeping a clean legal record, avoiding any criminal or civil allegation of wrongdoing, maintaining an honest reputation, and having a track record of good work with references is highly valuable and this is not shown on a balance sheet.
Yes and No. Technically yes because the rich win, but no because the rest of us don’t really end up holding the bag. Sale profit on property, businesses, stocks, and other assets held at least one year is treated as a long-term capital gain, which has a lower tax rate than short term capital gain or ordinary income. The lower rate for long term capital gains (i.e. “capital gains” or “LTCG”) contradicts the graduated income tax rates which are progressive (i.e. people who earn more, pay a higher tax rate). Most of the LTCG savings go to the super wealthy, who start a company or build a large real estate portfolio. However, smaller investors, savers, and business owners can sometimes benefit from the lower tax rate as well when they sell. My personal opinion is that capital gains tax is less equitable, but it is better for the US economy and doesn’t really leave anyone worse off. A progressive system where higher earners get taxed at a higher rate is more fair. However, without giving folks a break on long term capital gains tax, some of those folks will not sell homes, properties, businesses, stocks, and other assets because they don’t want to pay the taxes. The result is people living in houses where they don’t want to live, and owning businesses and properties that they don’t want to own and operate, because paying half of the sale proceeds on taxes is a disincentive. It is better socially, and from the perspective of maximizing use value of resources, for people to just sell and move on when the time is right, and for a more interested owner to come in. Taxes might not be collected at all (0%, instead of 20% or 40%) if owners just don’t sell. All other things being equal, if twice as many owners sell at a 20% tax rate vs. a 40% tax rate, then the same amount of tax dollars is collected in both scenarios that year... Having fewer sellers makes markets less liquid and the economy less robust. The break on capital gains tax helps the US maintain its business-friendly reputation amidst international competition for companies and human capital, and its spot as the world’s largest economy by GDP. Sadly, the super wealthy have a lot of leverage in this scenario and we are better off if they live in the US and spend their money and invest here, instead of going somewhere else.
Note- Please consult a CPA for any tax matters. I am not a CPA or an attorney.
See below, the Laffer curve (Source: Wikipedia). There is an optimal tax rate for maximizing tax revenue. When tax rates are lower than an optimal rate, the government is leaving money on the table. When tax rates are higher than optimal, economic agents change their behavior to avoid taxes, and the government is caught overplaying their hand. The Laffer Curve might look familiar from Ben Stein’s boring economics class scene in the movie “Ferris Bueller’s Day Off”.
Yes and no. Technically yes because mortgage interest on a house isn’t really a business expense, but no because a landlord gets to write off the interest. It is not crazy to give homeowners the same treatment as landlords even though mortgage interest isn’t really a business expense. The government allows homeowners to deduct mortgage interest on primary residence from their ordinary income tax up to a certain amount. There are many societal benefits for giving this little tax break for homeowners. It helps distribute wealth and capital appreciation across the middle and lower-middle class through homeownership instead of those gains being reserved for people with more cash to invest. The good part about pwnership society is that people care about what they own. I want to live in a world where more people have skin in the game, and a piece of the pie.
Note- Again, please consult a CPA for any tax matters. I am not a CPA or an attorney.
Yes and no. Eyeballing it, I would guess about half of the wealth in this world was derived from smart decisions and hard work, and the other half from theft and fraud. You have the cumulative hard work and planning of employees, business owners, and independents going back a very long time. You also have organized crime, slavery, etc, which makes up the other half of all wealth accumulated in this world. It is not healthy to write off the system as entirely messed up and unlivable, but it is also unhealthy to be one of those people (mostly people born rich) who think the financial system is fair and just. It is not.
Money is a proxy for other things. While acknowledging that the financial system is a little messed up, some of the struggles people attribute to that system are personal and social struggles they would endure anyway if they lived completely outside the financial system. If you lived on an island alone, at a co-op, or even if you individually control a means of production, you will still struggle with not having enough, the work being too hard, and living with the animals.