How Will COVID Impact Real Estate Investors – Part 1 of 3

How Will COVID Impact Real Estate Investors – Part 1 of 3

Joe: Hey, I’m Joe Crump. How will COVID impact real estate investing. I’m going to do a three-part series covering three different aspects of the pandemic and how it’s having an impact on real estate investing. The first part of it’s going to be about the market. What is it doing to the market? How is it changing pricing? How is it changing loans? How is it impacting people and what’s it doing to the population out there?

Joe: The second part is how to protect your business. The second video is going to be how to protect your business and how to keep it running and how not to go under. And the third video is going to be strategies that you can use to make more money because of this crisis, the opportunities that are going to arise from this process. So, let’s get started with the first one now, which is how is COVID affecting the real estate market?

Joe: I think one of the most telling things right now is something that was similar to what was happening in 2008. I went through a crash in 1991. I got caught in that S&L crisis that happened at that time and I had a $17M business at the time, heavily leveraged, lots of properties that we were building up in Hollywood Hills in California. And when the crisis came, and the values dropped on the properties at that time, the lenders, because I was building properties at the time, the lenders came to me and said, you’ve got to put more money into these deals or we’re going to take these properties back. We’re going to stop your construction loans.

Joe: And I didn’t have more money because I was fully leveraged out. And I didn’t have more cash that I could come up with. So, they took those properties back from me. And everything collapsed from under me. And I had to start over from scratch with terrible credit and with no money. And the techniques that I learned through that process made it possible for me to grow back again, so by the time 2008 came around I had built another nice portfolio of properties and when everybody else was crashing around me, and people were losing their homes and investors were filing bankruptcy it didn’t impact me.

Joe: I saw a little bit of loss in income, but not very much and it certainly didn’t take me under that time. Because I saw it coming and I knew what was happening. We’re getting ready to go through that process again, but it’s happening a little bit differently now because it’s being triggered by the pandemic. And the pandemic has put a lot of people out of work. We don’t know how long it’s going to last, but I have a feeling it’s going to last at least until they get a vaccine, which may be the end of the year, maybe next year sometime.

Joe: And then even after that, there’s still going to be a residual impact to the economy. And, before COVID happened, we already started to see problems with the economy, with the marker, we started to see that we were sitting on a bubble, that there were some problems that were occurring and that things were eventually going to hit us anyway. I think COVID just sort of sped things up. It also put a lot of people out of work and that’s going to have an impact on these other things.

Joe: Now, what COVID has done with the mortgage industry is, right now, according to Fannie Mae, seven percent of all mortgages out there in the United States are late, are not being paid. Seven percent. That’s a huge number for this market. And if that’s happening, if people don’t get back to work and if they’re not able to start making their payments again, we’re going to start to see foreclosures. Now, we’re going to have a period of time where people aren’t going to have to make their mortgages, pay those mortgages because they’re going to get deferments for a certain period of time. And the guess right now is that it’s going to be one year of deferments.

Joe: So, the likelihood is that this seven percent of mortgages, and I expect it’s going to increase over time, because as more businesses go under, more jobs get lost, I think we’re going to see more of that happening. But let’s say we get up to seven, ten percent of mortgages that eventually, after this next year, will go into foreclosure. It’ll take them another six months to get them into foreclosure, so we’re looking at probably eighteen months from now before we start to see a pretty big foreclosure market that becomes available on the market, REO’s – real estate owned properties that are owned by banks that are going to be available for sale.

Joe: Back in 2008 when that happened, we saw that market crash and over 2008, 2009, 2010, 2011, 2012, we saw so many thousands of properties that went into foreclosure, went to the bank and then went back on the market as REO’s. And we were able to buy properties, sometimes at twenty and thirty cents on the dollar during that time. So, we’re going to see these kinds of foreclosures again unless something dramatic happens with the market.

Joe: And I think the only thing that could really happen that could protect us and save us from that happening is if we saw some type of economic stimulus that was a long term stimulus for homeowners that had mortgages. We might see that, but I think it’s slim to think that it’s going to last for very long. And I think it’s even slimmer to think that it’s going to last for longer than the economic downturn will last. And I guess I sound a little bit doom and gloom as far as the economy goes. And I think that is going to happen.

Joe: But I think that if we pay attention to this process, we’ll be positioned to be able to help people in these difficult situations and help them extract themselves from their mortgages, maybe get into other properties that they couldn’t have bought otherwise because they’ve trashed their credit. We’ll be able to do all those things for these people and of course we’ll get paid to do those things. So, it’s much better to have a business that is helping people and solving problems for people rather than going in and trying to take advantage of some old lady and steal her equity that she was going to give to her grandkids.

Joe: Instead, we can solve these problems in different ways that is more beneficial to them and still beneficial to us as investors so that we can build healthy, long term portfolios for ourselves.

Joe: The other thing that we’re going to see and we’re already seeing is vacancies going up. A lot of people have lost their jobs. That’s going to continue. And we don’t know yet as of the time of this recording whether or not the stimulus is going to be reupped, if we’re going to have a second stimulus. We’ve got the first one that happened and now that’s expired and the potential for evictions has really gone up. I have a feeling that it’s going to get extended at lease until the end of 2020 and maybe even beyond that after that. That puts real estate investors into a challenging position if they’re not taken care of as well.

Joe: But I have a feeling that if they do it right, if they do the stimulus right, they’ll make it possible for unemployment to be extended, and be able to give people enough money to be able to make their payments on their rent and on their mortgages and on their lease options so that they can continue and not be put out of their houses and made homeless.

Joe: In the meantime, they’re also going to put a moratorium, or, continue a moratorium on evictions. So we won’t be able to evict any of our tenants who aren’t making payments. I’ve got a few people that are not making their payments, but I’m surprised at how many people are continuing to be able to make their payments. I think it’s been because of the stimulus that we’ve had a lot of our tenants that have been able to continue making their payments without a problem.

Joe: We’ve also been pretty flexible with our tenants to help them you know, be able to catch up and be able to make partial payments and you know, we’ve just been negotiating like crazy with our tenants to make sure that they can get, you know, themselves taken care of so that they don’t have to eventually move out of the property. And, so that they don’t also get upside down because in order for us to keep our businesses running and to continue to pay the mortgages that we have on our properties, we have to continue to get income. If we stop getting income, then we can’t pay our mortgages and it creates problems all the way down the line and eventually you lose the property and they get kicked out of the property anyway.

Joe: So, we want to find a way that works for them, that works for us, and hopefully there’ll be some government stimulus to make some of those things happen and so then we can have a smoother transition. We know that doing the stimulus usually helps solve problems during a crisis like this. It certainly helped in 2008. It brought back, you know, so many companies, so many people and I think they should have done more stimulus with homeowners at that time so they wouldn’t have seen the kind of losses and the foreclosures that we had. But, that’s, I guess water under the bridge, now. Maybe they’ll do it this time. If they don’t, either way, we’re going to be in a position where we can make money at it because we’re real estate investors and that’s what we do for a living. We make money through a crisis and we could solve these problems.

Joe: loan. So, if you’re selling a property to someone who’s going out and getting a conventional loan, instead of taking forty-five days to get it closed, it’s typically taking sixty days or even more than that to get the deal done and closed. So, it’s putting an extension and a little bit of a cost burden on the seller to hold onto that property while it takes longer to get it sold. So, if you’re flipping properties to end users who are going out and getting loans, this is also creating a few problems like that.

Joe: So, I guess that’s it. I mean that’s kind of an overall look at where COVID is, what it’s doing to the market, and what it’s doing to impact real estate investors right now. I think the biggest take away from all this is that there’s opportunities now and you should make sure that you get some training, get some understanding of what’s possible and know how to deal with these types of deals and properties when they come on the market because I think we’re going to see a flood of these over the next eighteen months, a year, eighteen months, two years, we’re going to start seeing this come in. And I have a feeling that over the next three or four years, we’re going to have some really interesting opportunities to continue to build our portfolio and you want to be positioned properly, with the knowledge that you need and hopefully with the resources that you need to be able to buy those properties.

Joe: Remember, you can do all the stuff that I’m teaching without using any cash, and without using any credit. So, look at the other videos that I’ve got, and the other training programs that I’ve got to help you understand how to do that. There’s no reason you should ever have to spend money to buy a property. You only want to do that when that money is going to give you a good return and you have the money to invest.

Joe: But most of you don’t have cash to work with and many of you don’t have credit to work with. And even if you do, you probably don’t want to start that way. It probably makes more sense to start without money and credit, learn how to do it that way. They say you need money to make money. I say if you can’t make money with no money you probably can’t make money with money. So, learn this process. Learn how to do it and I think it’ll change your life. It’ll make a huge difference in the business that you’re trying to create.

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