Back when I was an employee in corporate America, every so often, we were mandated to come up with ways to cut costs within our department. I used to think of such demands as an annoyance, taking time away from our core function.
With the passage of time, oh, how my view has changed 180 degrees! A reversal of role forced me to appreciate why it is so important to keep down operating costs. Today, as an officer and member of small, privately-held business entities, managing our own investments, I can fully appreciate why such mandates – to keep our cost down – are necessary on regular intervals. Unless we remain vigilant, costs have a way of creeping up, like fast-growing cancer cells.
Every cost-cutting effort requires our time commitment, ranging from simply calling up a service provider and canceling it, all the way to spending hours making it happen. With limited time and resources, we tackle each cost-cutting opportunity when the long-term benefit far outweighs the pain of going through with it.
Here is an example of one of the most time-consuming, cost-cutting efforts we have experienced. For the last few years, post capital- and real-estate market crashes, we kept receiving teaser ads from banks to refinance the existing loans on our rental properties by taking advantage of the Home Affordable Refinance Program (HARP). More than a few times, David would submit all requested documents, only to find out at the last minute that the banks were not accepting any refinancing requests for investment properties. Other times, again at the last minute, the banks were demanding that the property be placed outside of an LLC (limited liability company) for six months before they could close on the refinancing.
We said, “No, thank you.” In this highly litigious society called America, why would any business owner leave ourselves vulnerable to potential liabilities for more than a day? It made no sense. Banks are in business themselves. I simply did not understand why they did not understand what it meant to own each of the properties in an LLC.
In 2014, one of the banks said, “We’ll take your property out of the LLC only on the closing date and put it right back into it immediately following the closing.” Finally, the bank has come around to our way of thinking as investor clients. We felt comfortable agreeing to the terms. This moment was well over a year in the making. With this closing under our belt, David called back the other bank that had been trying to get us to refinance, and explained how it could work. Sure enough, they obliged.
By the way, when the refinancing was concluded with the second bank, out of curiosity, I checked on the entity status for the first refinancing that had closed more than a year prior. At this point, I happened to find out in the public records that the title company that had worked with the first bank never did put the property back into the LLC. In other words, it had left us vulnerable personally for potential liabilities for over a year and we didn’t know about it!? By this time, the person that was in charge of our refinancing was long gone from that bank as well.
The moral of the story is this: Trust but ALWAYS verify. Bank employees are no different from how I used to be as a corporate employee way back when. They certainly care about what they are doing within their own specific function but most of them are not trained to see crucial details as you and I do as investors. In the end, no one cares about your money and what you are building to protect your financial future as well as you do yourself.
Happy investing!
