43 Real Estate Investor Market Update
Bill Fairman (00:09):
Hi everyone! Bill Fairman, Carolina Capital Management. I’m here with Wendy Sweet and Jonathan Davis. So what we’re going to talk about quickly is, what’s going on in the market. And how it’s affecting us and everyone else around it. And this thing is changing hourly.
Wendy Sweet (00:28):
Right! On the real estate side, right.
Bill Fairman (00:29):
If not daily.
Wendy Sweet (00:30):
Yeah, yeah. Minute by minute. That’s just, it’s crazy, right?
Bill Fairman (00:34):
Absolutely. So there’s a lot of panic going on. First thing that we’re doing is we’re keeping our social distance apparently. We were all scrubbed down before we get really close together. We had our Purell wipes for all of our tables, chairs and microphone. Right off the top, I heard on the way in that the stock market has lost all the gains in it. It’s gotten in the last three years.
Jonathan Davis (01:05):
Yeah. That’s, that’s insane!
Bill Fairman (01:07):
Within a couple of days.
Wendy Sweet (01:08):
Glad I’m not in it.
Jonathan Davis (01:10):
Yeah. I’m glad that, you know, for those who, you know, it’s not your only investment. I’m glad that you diversified. For sure.
Wendy Sweet (01:16):
That’s why you should diversify. Right?
Bill Fairman (01:18):
But if you’re looking at single companies, the essential industries, where are the stocks going up? Costco. Was it BJ’s?
Wendy Sweet (01:30):
Kleenex? Toilet paper.
Bill Fairman (01:33):
Amazon is going up a bit because a lot of people are ordering online. You know, your healthcare stocks are actually going up.
Wendy Sweet (01:39):
Maybe the conspiracy is, Amazon caused all of this!
Bill Fairman (01:43):
Your pharmaceutical stocks are going up. All of those, what they figure is, essential industries. And by the way, another essential industry is housing. Because while people need food, they also need shelter.
Wendy Sweet (01:58):
That’s right. That’s right. And in this business, that’s where we’re providing. Right?
Jonathan Davis (02:03):
Affordable Housing. Yes!
Bill Fairman (02:05):
So, anyway, and I’m not beating our chest.
Wendy Sweet (02:10):
But he’s beating his chest.
Bill Fairman (02:12):
We took the conservative approach last year when we changed our model. We knew, and you know, we’re involved in several high level masterminds. And, you know, we’re, we’re meeting with people from all over the country that are in the same industry that we’re in. And there was a poll taken and each one of these is how many people felt like, you know, in their markets, was there more on the upside of the real estate market or more to the downside at that point. And the vast majority said that they’re at or close to the peak.
Wendy Sweet (02:50):
Right. And we’ve been, we’ve been preparing for this Black Swan event. Or any Black Swan events. Something that we can’t control. So, you know, even with freedom founders, that were a member of that mastermind. We did a stress test in January. Thank you Lord! And really got a handle on, you know, what we would need to do if something like this happened. We were already sitting in a good position and now we’re even, we’re even stronger there.
Bill Fairman (03:19):
But that was business wise. That’s running a small business. On our investment side of things, we turn the ship last January and we’re only going to be focused on the residential affordable housing. And what do we mean by that? Our average loan size now is 158,000.
Wendy Sweet (03:39):
Yeah. And it’ll be even lower for 2020.
Bill Fairman (03:42):
So really what we’re focused on lending is two places. We still do multifamily, but again, it’s going to be in the affordable housing side of things. When we do make the larger loans into the multifamily, we are doing participations with other lenders so we don’t have to carry the whole load. So in most cases we’re only going to be in it for 30% or less, wouldn’t you say?
Jonathan Davis (04:07):
Yeah, I would say you know, between 30% and 50% but yeah, most of them are around 30 or less. Yeah.
Bill Fairman (04:15):
And then on the single family side, now we have those loans a 100% but it’s the old adage, I’d rather have, you know, five $100,000 loans than one $500,000 loan. Well, while the work is a lot, lot more on our side because now we have to do five loans. You know, the defensive mechanism is there is that, you know, if one goes bad, we still have four that are working.
Wendy Sweet (04:41):
Right, right. So, and then, the interest of time, cause we really only have 10 minutes to go on this and I just wanted to make sure that we talk about some of the things that we’re seeing as of today. You know, we have, one particular lender that we were sending a lot of loans to and there’s 10 loans in our pipeline that we can’t do. And those are the long term buy and hold property stuff that these lenders aren’t doing because they were lending from institutional money or wall street money and those stop. Yeah. Tell us a little bit about that. What do you see going on there?
Jonathan Davis (05:13):
I mean, we see it, we see a lot of national lenders, national aggregators taking the pause button, you know, taking the wait and see approach…
Wendy Sweet (05:20):
Which is making the interest rates go up a little bit.
Jonathan Davis (05:25):
And you see a little bit of, I wouldn’t, freeze is too hard or too strong of a word, but a slow down in, in the secondary market sales, which is just buying and selling of originated loans.
Wendy Sweet (05:38):
Loans that are already in place.
Jonathan Davis (05:39):
So you’re seeing that slow down. You know, one of the things that, you know, I think we were careful to position ourselves was to not be reliant on one or a couple national lenders or lines of credit. We have no, you know, we don’t leverage our fund. We don’t do any of that.
Wendy Sweet (06:00):
We had lots of people courting us, but we didn’t do it. And I’m so glad that we didn’t, right?
Jonathan Davis (06:05):
Because you know, the example, I was talking with someone earlier is they always question, well you can, why wouldn’t you want to tenex your business utilizing our capital?
Wendy Sweet (06:15):
Feed that machine!
Jonathan Davis (06:16):
You know, cause you know, to tenex a business, you have to add employees, you have to add all this infrastructure, you have to add all these things. And my question for them now is, those people who tenex their company utilizing their capital, that is now on pause, right? What does that do to them right now?
Wendy Sweet (06:31):
They’re dead in the water. That is dead in the water.
Bill Fairman (06:34):
So on the borrower side of things, you’re looking at it, this way if you’re buying portfolios or individual homes that you’re going to hold long term, you are probably going to have a lower leveraged amount. Meaning you’re going to have to bring more money to the table.
Wendy Sweet (06:57):
Right! You’re not going to be getting those 80%, 90% loans.
Bill Fairman (07:00):
Yeah. You’re going to have a lower loan to value. And they’re going to want to see that you have, based on the number of properties that you have already, they want to make sure that you have the reserves because they know there’s going to be bumps in the road. With everything shutting down and people have a hard time making their payments. Are you going to be able to make their payments while your tenant are not.
Jonathan Davis (07:19):
And speaking of tenants, you know, one of the things that I did this morning was I emailed my property manager on the properties that I own. And my question was, every property, what is the occupation of all those tenants?
Wendy Sweet (07:35):
It’s a great question. It’s a great question.
Jonathan Davis (07:37):
Because you know…
Wendy Sweet (07:39):
They work for a hotel? Are they a bartender?
Jonathan Davis (07:42):
Am I going to be expecting no payments? I mean, what’s, what’s the expectation? And to know that like, is reassuring for me cause yeah, I wouldn’t, I don’t want to just not get a payment. I want to kind of know that in advance. Prepare for it. So if you all have properties, know that. If you have property managers, ask them that.
Wendy Sweet (07:59):
That’s right. And you know, I’m a big Airbnb fan. I have several of them that are all sitting there empty right now. And you know, I thank God that, you know, I have the wherewithal to make those payments and keep them going. You know, I’m going to drop my nightly rate down to $50 a night and just see, you know, what I can get booked. But you know, we get a lot of sporting events, all the weddings. Those are the reasons why people we’re traveling. And all of it was canceled. And I mean, I’ve, I literally spent all last week just with 5, 6, 10 cancellations every day. And, and it’s disheartening, but I know that this too shall pass.
Bill Fairman (08:44):
Yeah. It’s short term. Now, at the same time I’m thinking if you have long term tenants and you’re a section eight landlord, you’re in,
Wendy Sweet (08:53):
You’re in good shape! And a great time to love section eight stuff. Right?
Jonathan Davis (08:57):
I’m in the process of rehabbing some properties to make them section eight, I mean I wish they were already done, but…
Wendy Sweet (09:04):
That’s right. And then that’s a good, it’s a good reason to do that. It’s also a great opportunity to be picking up houses right now because there’s a lot of people backing out because these, these smaller lenders that are, that are, you know, somebody might have a hundred thousand dollars or $200,000 in a self directed IRA. They’re lending that money out on their own to a lot of different investors. Those people aren’t lending, they’re hoarding their cash. So now they’re calling us. Yup. So,
Bill Fairman (09:32):
Well, not to mention the institutional lenders are cutting back a little too. So they’re getting it from all sides.
Wendy Sweet (09:38):
That’s right. And then we’ve got other companies like, you know, some insurance companies that were seven step to that saying, Hey, load us up. We’ve got money, we’re putting it out there. So,
Jonathan Davis (09:47):
And those are backed by premiums, not by institution. That’s right. Very different. Different underwriting box.
Bill Fairman (09:54):
And what happens is, on the hedge fund side of things, people are wanting their cash back. So they have to give them their money. Right? And then on the more conservative insurance place, that’s where they’re putting their money and now they have all this extra capital they have to put to work.
Wendy Sweet (10:11):
That’s right. So this is where the tortoise and the hare are in a race and we’ve been the tortoise, we’re not sexy, we’re vanilla. There’s nothing exciting about what we do. We’re very conservative. And at this point that’s the place to be. Right?
Bill Fairman (10:23):
Yeah. And I want to say one last thing before we end this. It’s been a long time since the last downturn. There’s plenty of people that have completely forgotten what had happened. And the people that get hurt the most were the ones that were over leveraged. There’s nothing wrong with debt during this time. Especially long term fixed with low interest rates, you know what your payments are going to be. Your biggest issue is can you survive a few months without having payments and all your properties, not just one or two of them. Okay. But if you’re way over leveraged, there’s not a lot of room for maneuvering there and that’s where you’re going to get hurt, right?
Jonathan Davis (11:06):
There might be opportunity, in I guess people or, or LLCs or whatever they are that have bought a lot of rental properties or properties in general. Who wouldn’t say they’re over leveraged but they are asset rich and cash poor right now you can probably pick up some good prices on some rental units just because people are uncertain about, will my rent be paid? And if my rent isn’t paid, that’s, that’s my income when I live off of, that’s what I pay my debt with. Right? Like, so they’re going to be looking perhaps to be gathering some cash and quickly,
Bill Fairman (11:46):
I am going to say this might be a good time also to explore, owner financed properties.
Jonathan Davis (11:52):
That’s another great point! Yeah.
Bill Fairman (11:53):
They may want to cash out and you can offer them a lower price.
Wendy Sweet (11:59):
That’s a great point!
Bill Fairman (12:00):
Well, thank you.
Wendy Sweet (12:01):
If you already have seller, plus one, so if you already have seller financing and place it’s be a great time to cash them out. And get a discount and run that, that’s a, that is a really, really well said there bro.
Bill Fairman (12:13):
We’ve reached our limit, so we’ll be back soon. Don’t forget CarolinaHardMoney.com is our website. If you want any further information. It’s magical.
Wendy Sweet (12:25):
Yeah, were special.
Bill Fairman (12:27):
New Speaker (12:30):
Exactly where its going to be.
New Speaker (12:30):
We’ll see you soon!