48 State of Borrowing During the Coronavirus Crisis
Wendy Sweet (00:00):
Hi, this is Wendy Sweet with Jonathan Davis. We’re with Carolina Capital Management. And so glad to see you right now. Things are a little bit crazy, aren’t they?
Jonathan Davis (00:16):
Yeah, yeah, definitely new times about us, isn’t it?
Wendy Sweet (00:21):
New times. And I can tell you that when this first started, this virus thing first started, I really thought that it was going to be, you know, a few weeks down and we’re going to get right back to normal and, in no time flat. Right? And you know, I still want that in my head, but I’m not so sure that’s exactly what’s going to happen. From what we’re hearing. And I feel like we’re on town meetings and conference calls and all kinds of things with, you know, experts. And people across the country just trying to keep up with what’s going on.
Wendy Sweet (00:54):
And you know, it changes by the minute. But you know, it’s important for us as investors, real estate investors to really kind of get a handle on what’s going on. First thing that happened is our secondary market shut down. So we’re absolutely not able to, be able to, to do those longer term loans that we were doing. Right? So, we’ve got money. And we’d like to lend it all, but we’re kind of afraid to right now, aren’t we?
Jonathan Davis (01:25):
Well, you know, I don’t know if we’re afraid to, it’s, the issue is with everyone, we don’t know what’s going on. How long this is going to take or what the values are going to be, you know, and everyone’s worried like what’s the value going to be? Are we going to see like a 30% drop or something extreme like that? It seems unlikely. It seems really unlikely. The issue is that when we have single families that we’re talking about right now, if people go to far sell them to create liquidity for the short term to help them feel safe and secure, they are now creating comps for whatever happened right down the road. And so will there be a decrease in value? Probably. What is that going to be? That’s what everyone’s trying to figure out is right?
Wendy Sweet (02:12):
Yeah, yeah. In fact, Aaron Chapman, who’s a famous mortgage broker. And one of the greatest guys I know, was talking last night on a town meeting that we were in. He was talking and I thought what he said was really, really interesting. He referred to the rental market as, single family rental market, as possibly one that will become stronger and stronger from this because now that people have been in this stay at home phase and they’ve get their kids screaming in the background while they’re trying to work and wife talking in their ear, their husband talking to their ear.
Jonathan Davis (02:48):
They might want a little more space.
Wendy Sweet (02:50):
Yeah. So he was saying that he really thought that the rental market would pick up on something like this single family rental market.
Jonathan Davis (02:57):
Single family detached homes. Yeah, I mean that’s definitely, definitely a possibility. You know how, I don’t know the number behind that, like how many people with kids live in apartments right now? I don’t know. Right. I’d imagine it eventually gets to the big number. Then it becomes, can they afford to transition to that single family house?
Wendy Sweet (03:24):
Right. Well if the stimulus package really works like it’s supposed to and we’re all praying that it will. Yeah. That should blow over quick. The other thing though is how are they going to qualify? Because I hear that, just heard this morning that domestic violence is up 18%. I thought that was an interesting statistic and I don’t know that it’s just spousal abuse that’s going on or it could be with your kids too. You know, you want to strangle them.
Jonathan Davis (03:53):
Yeah. I mean…
Wendy Sweet (03:53):
Jonathan Davis (03:55):
It’s definitely an interesting time. I mean, I think a lot of us use work as a distraction from our families. Right. And now you’re being forced to do work with your families.
Wendy Sweet (04:10):
It’s hard to do!
Jonathan Davis (04:10):
And it’s a hard transition.
Wendy Sweet (04:12):
You’ve got two little ones at home. Yes. Hard to do that.
Jonathan Davis (04:16):
I was on a call yesterday and you know, I had it like they were upstairs by my office just screaming. I’m like, well what are you all doing? You know, get outside.
Wendy Sweet (04:28):
And they’re girls, so they tend to be a little louder anytime.
Jonathan Davis (04:32):
And they’re full spirited, that’s for sure.
Wendy Sweet (04:34):
That was well put. Well put. So, you know, I’ve been getting a lot of calls from two different, two different things that I was really, really surprised that people were calling about this. But, they’re nervous about refinancing their, their rental properties. And I told them not to be nervous cause I can’t do it right now anyway. It’s, the secondary market has just really shut down. So…
Jonathan Davis (05:05):
And if you don’t know what the secondary market is, that’s where all of these mortgage loans, conforming, nonconforming get pulled together and sold to large hedge funds or, you know, wall street or, you know, wherever it goes. And they collect the yield on those. Right. And right now it, no one knows what’s going to happen. Right. Primarily with the values, but also like, they don’t know like what they should buy these things at what premium for, because they have been buying that premium. So what do you buying at? That’s right. We don’t know. So everyone’s just kind of hit pause and now we’re, you know, we’re all feeling the repercussions of that.
Wendy Sweet (05:46):
That’s exactly the right.
Jonathan Davis (05:47):
You know, I wanted to refinance my house and now I’m just like, man, I’m going to wait a few weeks and see what happens.
Wendy Sweet (05:56):
You know, if you’re just now joining us again, my name is Wendy sweet. This is Jonathan Davis. We’re with Carolina Capital Management. And if you have any questions you can go ahead and type those in. We can answer them for you right now cause we can actually see that.
Jonathan Davis (06:12):
We’ll do our best.
Wendy Sweet (06:12):
That’s exactly right. And if we don’t know the answer, we’ll make something up really good. Also please remember to, to like us, and, what some of the other things they can do when they like us and promote us and give us the thumbs up. Share us! That’s the other thing. Is share us with other people. In fact, yeah, subscribe. We are, also at one o’clock today getting ready to do another presentation that will actually, I won’t be on it, but we’ll have some pretty incredible fund managers and real estate investors across the country that will be on here just talking about, you know, what they’re faced with everyday.
Jonathan Davis (06:56):
Well, let me ask you like if, are you personally pressing pause on buying properties, investment properties?
Wendy Sweet (07:02):
Well, that is a great question! And the answer to that question is, NO! I’ll tell you how it’s changed me. I am looking at everything as a possible seller finance deal. And as a lender, I hate to hear someone else say that, but it’s a fact. This is a great opportunity for those sellers that are really anxious to get things sold that maybe at this point they will consider doing seller financing. Even if it’s just for a balloon payment and in one year. Or a balloon payment in six months. That’s enough time for me to get in there, get it rehabbed and get it on the market so that when things do bounce back, I can either hold it as a rental property.
Jonathan Davis (07:45):
Well, it’s a, it’s a win win for everybody. Cause there’s seller financing, they’re going to get some kind of money down, which gives them liquidity what they’re looking for and allows you to go in and, and take on this project and see what happens in six months.
Wendy Sweet (08:00):
That’s exactly right! So, as a lender, and, and I love that you were the one who actually came up with this idea first and that was to reduce our exposure. So, if we’re doing it as a lender, you as a buyer need to do it as well, right?
Jonathan Davis (08:15):
No, I mean, yeah, I mean we’re, we’re pushing our LTVs back and everyone who is still lending, who hasn’t hit pause or are closed, they are, I mean, you can expect between 5% and 15% lower LTVs across the board for everybody. So, with that in mind, know that you should probably be offering a little bit less calculating that into your, into your offer.
Wendy Sweet (08:41):
Right, right, right. Well, I mean, we’re sitting at 65%. The other thing that we’re doing is we’re collecting interest at the closing for up to six months.
Jonathan Davis (08:50):
Six months of interest that close. 65% LTV. But we will, you know, if you find a good deal, and that’s what we’re saying, put, you know, calculate this in. If you find a good deal in North and South Carolina, we will still fund a hundred percent of the purchase and rehab as long as it’s under 65%. That’s, that’s what we do that no one else will do in the Carolina.
Wendy Sweet (09:12):
And it’s protecting us. But it also protects you. That they have a great saying that, if your lender won’t do the deal, it’s because it’s probably not a great deal.
Jonathan Davis (09:23):
Well, yeah.So we only make money if we make loans. If we we’re refusing to make a loan, there’s a probably a really good reason for it. And you should reanalyze that offering.
Wendy Sweet (09:35):
Yeah. I had a guy call yesterday, we, we’ve been working with him. He highly qualifies for a loan. He’s got plenty of money in the bank. He’s got a great credit score. He, he’s just upgrade bar, good experience. He’s trying to buy a quad in a small town in South Carolina and we got a call from the appraiser saying, Hey, you know, the closest comp I can get is, you know, 20, 30 miles away. So, as a lender, that doesn’t really scare me cause I get it. It’s a small town. There aren’t a whole lot of quads that sold in the past 12 months that are going to be really close by. So, as a hard money lender I can think inside that box. But that’s not what I’m worried about. What I’m worried about is getting him out of our loan cause no other lender, no conventional lender is going to refinance that out of our loan with a comp that far away. And then, and so as I’m telling him about this, I also said, you know, you need to think about your exit strategy too. Are you going to own this quad for the next 20 years where you think you might sell it in five years? Cause your buyer’s going to run into the same problem that you’re running into and then your exit strategy is cut short.
Jonathan Davis (10:42):
Yeah. The only way that you can really exit stuff like that is local banks and small credit unions that are all local who understand that and want to help their economies. Yeah. If you try to go to a bank of America and get that thing, it’s going to be tough.
Wendy Sweet (10:55):
And then he had to weigh, he said, well, you know, I’ve got the cash. I can just pay for the whole thing myself, but do I want to really let go of my cash on hand at this time? Well, you know, that’s a great question. My crystal ball doesn’t work anymore. It broke in 2007.
Jonathan Davis (11:13):
Well, I will tell you this, in a good market, the most expensive money that you can use is your own. In a poor market, just, you know, figure that one out.
Wendy Sweet (11:23):
Same thing! We thank you so much for listening to us today and I hope that you’re going to join us at one o’clock today, you can go to Carolina Capital Management. Is that our Facebook page? Or Carolina Hard Money Facebook page. To get online and see that or right here at this YouTube channel, right? Yeah, exactly. Awesome. Thanks so much!