All Forum Posts by: Hunter Vigneault

Generally speaking, they are unsecured lenders. There as positives and negatives for that, but if you want to qualify for a $100k loan (I haven't looked in a while but that was the largest they used to offer) you will need to have great credit and very strong income.

Unless things have changed since I last looked, they are also repaid on 3-7 year terms that are fully amortizing so your monthly payment will be very high compared with a "normal" hard money loan, which is often interest only or on 20-30 year amortization schedules.

A private lender might let you do that as long as they had the first mortgage. I don't think any bank will let you take on a second like that, especially given the current economic environment.

I think I get the spirit of your question, but May 2021 rents is a fine thing to get excited about if you don't own any property now or sit on substantial reserves. May 2020 is very important to people - particularly small investors - that own property now. For some people, not getting enough rent in May 2020 (or May and June) could mean not getting to see how your property does a year from now.

It shouldn't really matter in a practical sense, but I'd probably just have them sign a new lease. I think that would be the cleanest way to do it.

Let me start off by saying I am not a financial advisor, and I can't speak to your financial situation specifically, but there are two main factors I would use when considering what to do: how much cash do you have and what does your cash flow look like.

First, it sounds like this would be all the cash you have after reserves. I'd encourage you to make sure your reserves number is a real number. I think 6 months should be a minimum and 12 months a goal, but the number will depend on who you talk to, and I think should depend on your line of work - if you work in a highly specialized industry or role, maybe you are indispensable or maybe it is just harder to find a new role should your current one go away. In that case, I don't mind hanging onto a payment if it lets me hold the cash. Bank rates are down somewhat recently, but you can put that extra cash into a high yield checking account to pick up some interest and help net out the effective rate, if that makes sense.

Second, I think paying the loan off is a very easy way to put an extra $6,600 a year net of expenses back in your operating budget (granted...the cash came out of your pocket and is paying down debt on a depreciating asset). It would likely be difficult to get the same kind of cash flow from a rental asset with a 30k investment even if it went smoothly. If $6,600 is a relatively small number for you, then maybe it's worth looking at investments that may have a higher overall return because of the difference in terms (5 years or whatever for the car note and potentially 15-30+ years for an investment property). If you choose the investment property, remember that you need to reevaluate your cash reserves balance because you will likely want to budget for the same number of months of debt service/repairs.

The one thing I would say is the "wrong" thing to do is pay the loan down but not off. It allows you to shorten the effective term of the loan and move more of the payment to principal, but uses your cash buffer and doesn't change the ongoing monthly expense number. You're out $15k (for example) but still on the hook for $550 per month if you lost your job etc.

Depending on your current rate, maybe you could split the difference and pay down a portion while extending the term and dropping the rate. I'm not sure the number here will be big enough to be worth the headache, but doesn't hurt to evaluate the option.

Ultimately, you'll need to make a call about your own lifestyle and risk tolerance (sorry I can't make the decision for you!). Hope that helps to frame the potential thought process somewhat.

It depends on the type of real estate you are buying and the relative continued strength of your market, but you can simply add in longer than normal contingencies. It is definitely what I have been advising my commercial buyers to do, and I have spoken with sellers that are open to the idea of contract periods 2-3x longer than they normally are. Of course, they aren't thrilled about that potential, but they get it.

I've heard anecdotally that residential is still moving well in both Houston and Nashville for now (my markets), but I'm not really in that space so I can't say for sure. If that is the case in your market, you may find your offers to be less competitive than necessary to "get the deal." That said, in this environment I would rather lose out on a deal because I was being conservative than win the deal with overly aggressive terms right now.

As others have said, it's really too early to say that any market has tanked. I am a little surprised when I see realtors/investors who say that the market is still going strong - not sure if they mean their existing deals are still moving for now or if they are still entering into contracts. A pullback in activity, at least temporarily, should be expected. My feeling is in those posts, there is still a lot of optimism trying to will itself into reality. A slowdown can lead to a "tanked" market, but let's not jump the gun just yet.

I think it is also worth pointing out that it is hard to say "the market" tanked. If you want to say STRs did already...I'll probably give you that. I spoke with a great operator the other day who said he went from 92% occupied to 8% over two weeks. He has reserves, but my feeling is many STR operators won't and will need to get out before a significant turnaround is possible.

Along the lines of what Fred said, now is a good time to do it. There might be a better time in the future, but today is still good.

I usually tell people the best time to do something is while you can. Maybe rates will be better in three months and you'll kick yourself over the $25 (or whatever) per month you could have saved in interest, but maybe if you wait, the credit markets will freeze and you won't be able to take out any cash for 6-9 months. We can't ever know what the future holds, but if it seems like a pretty good business decision for you today, then I say do it.

I had a number of potential sales clients over the last few months say they wanted to sell but dragged their feet for various reasons. They had mostly rational reasons for it, but it doesn't change the fact that they would not get the price today that they would have three months ago. 

I've given a slightly more in depth version of this elsewhere, but I expect commercial real estate here in Nashville will slow somewhat over the next month or two while investors and owners figure out what the landscape and future might actually look like. There has been a lot of economic and governmental information to digest recently, so it only makes sense people need to be a little more cautious than they might have been earlier in the year. Personally, I am seeing a wide range of activity on both the buy and sell side right now, but I can give two generic examples:

We have spoken with the owner of a small off-market office. The owner is willing to consider a substantial price cut from a few weeks ago because the tenant will be vacating, and the immediate outlook to refill doesn't look as promising as it used it. I think it will trade and be a good investment for the next owner, as this "downtime" can be used to prep and market the space. Once things come back, I expect small office demand will still exist and at an attractive rental rate compared to the sale price. 

On the opposite end, we have a few listings for large scale multifamily developments that are still seeing interest at close to pre-COVID levels because the development cycle is much longer than a normal buy and hold deal. While there are certain to be some long term effects of the current market disruption, good land is good land, and from what I have seen the majority of economists are assuming this downturn could last 6-9 months. Even if it is closer to 12 months, that is still short of a normal development cycle.

I don't have any inside knowledge, but I do think there is midterm risk in the lending market, and I would encourage anyone with maturity dates in the next year to start working (or press ahead) getting a sale or refi done. Losing an otherwise performing property because the balloon was due and you couldn't place new debt would sting...and is a possibility I believe most owners discount.

Best,

Hunter

As said by several people earlier, office and retail will likely have some lasting issues as an asset class. I think large corporate offices are more likely to be affected by a systemic shift in the way they are leased - as tenants were already in the process of cutting the sqft per employee over the past decade or so. There is a chance that everyone working from home becomes more permanent and further reduces that metric (not to mention having fewer employees overall if layoffs/furloughs become permanent).

I expect small retail will have some immediate challenges, as many of these smaller tenants simply don't have the necessary balance sheet to survive an extended quarantine scenario. Borrowing will help bridge the gap for a little while, but unless the loans are truly forgivable, it just kicks the can down the road and makes a weak balance sheet weaker. That said, those tenants may need to shutter but I expect the demand will still be there once things kick off again. New operators/concepts/etc willing to take on a smaller space in a neighborhood strip center.

One other asset I expect to have an extremely difficult time is STRs. They have been so successful over the last few years that smaller investors have also been pouring into the class. I don't have data on ownership breakdowns, but I expect many of those owners do not have sufficient reserves to carry their debt for any meaningful period without revenue. Any mortgage forgiveness or deferment is likely to be temporary, especially for investment properties. It would be great if all these owners bought with the backup plan of riding out a few months of economic storm and then renting at lower long term rates, but I would be surprised if that is the case for most.

Just my thoughts as of today - time will tell, but in the meantime I am working with my clients to pare down portfolios where necessary and get set up for the buying opportunity that I am confident will arrive.