All Forum Posts by: Michael Masters

I thought I’d share my towns experience thus far with COVID-19 since many here still think it’s nothing.

Two weeks ago there was a going away party in our town for someone who was moving overseas. There were about 40 people in attendance. After that person went overseas they tested positive for the virus. Less than a week later 14 of the people who were at the going away party went symptomatic.

http://connecticut.news12.com/story/41882965/officials-westport-possibly-dealing-with-coronavirus-outbreak

A week later we got the news that 31 people in town were tested and 20 came out positive. Word on the street is that only people associated this party were tested. So out of 40 people in attendance, 20 got the virus!  Some may have gotten ill subsequent to the party from being around other infected, but still an alarming spread rate.

http://connecticut.news12.com/story/41901326/first-selectman-marpe-20-people-test-positive-for-coronavirus-in-westport

I’ve heard about how some of these people were at other social gatherings and that many more around our small town are showing symptoms. Some were students in our High School and attended school over the course of the week before testing.

The only reason we knew there was a problem was because someone got tested OVERSEAS! We likely would know nothing if this person stayed within the US where testing is difficult. In fact, I expect most towns around us to be in a similar situation given how many commute to NYC.

The official count for Westport is 21 now I think, but reality is much much higher but we've tested almost no one. If you’re near a large city then you likely have a lot more cases near you than you think.

This thing spreads like crazy and is a pretty effective killer.

Be safe!

FYI, I sent the following to my loan officer to see his response:

"I am getting in touch is to find out about ability to get additional borrowing or to cut loan payments back to interest only. I really don't need this money now but I'm worried about what COVID-19 could do to all of us landlords in the future. Cash flow could get tight if renters stop paying. I'd rather be ahead of the curve with getting prepared."

His response:

"We understand the concerns you have regarding the COVID-19 virus and the effects it will surely have on our Borrowers. We are working closely with our investor partners, and have a meeting scheduled with them this Wednesday to discuss all options. In the past, we have seen Freddie Mac give forbearance to Borrowers who have been directly impacted by catastrophic events. I believe this will be what we see this time around as well. I will be able to provide you with more information after our meeting with them.

Since it is likely that this will get worse before it gets better, we are encouraging our Borrowers to increase their strategic reserves by creating a 1-2 month debt service reserve. Also, any large capital improvement projects might need to be shelved until the cashflow has stabilized. Thank you for reaching out and let me know if you have any questions. "

As far as the virus goes, things will get worse before they get better. The truth is we have no idea how far this has spread on the US due to lack of testing thus far. I’m pretty sure my town has got it, the local hospital one town over had an employee test positive and 80% of the families have one parent who commutes to NYC.

If we’re lucky, COVID will die down over the summer months but I expect next winter to be the real problem. Any vaccine will not be in place until at least a year which means we have to wait until after next winter season. The virus will have a better foothold at the start of next season so it will be much more prevalent.

I think the mortality rate isn’t as high as stated mainly because the denominator (number of people with the virus) is understated.

This could impact the travel industry in the long-term as businesses figure out how to better use technology to meet and permanently cut back on travel.

@Engelbert Devera

I have a different approach on offers. I always put a time limit on the offer as others have mentioned. However, in addition I tell my agent if the seller comes back saying they want more time for other offers then tell them my offer after time expires will be lowered a small amount. In your case, an 82,000 offer today will become an 81,000 offer tomorrow.

This will give the seller second thoughts about shopping my offer. Also, if they shop it and fail then my offer is clearly above market so it should be lowered.

I never tell the seller my approach up front as it may offend, only if they come back with “awaiting better offers”.

Oops, in my example their is no 30-year amortization as it was interest only payments!

I'm not sure all "yield maintenance" formulas are the same but here is how mine works in a simplified example: $1,000,000 Loan $5% interest rate 30 year amortization Balloon payoff at year 10 For simplicity, interest only payments Formula = (Loan Balance) * (Years Remaining) * (Lost Interest Yield) Where Lost Yield = (Mortgage Interest Rate) - (Treasury Interest Rate on payoff date) If we paid this off in year 3, we would have 7 years remaining. Because this is interest only, the balance remains at $1,000,000. If the Treasury Yield on a 7-year note was 2%, then the lost interest yield is 3% (5%-2%). This gives the following: Yield Maintenance = ($1,000,000) * (7 years) * (3% per year) = $210,000 The formula you see in the contract is done using months not years. The hard part is predicting what the Treasury Yield will be in the future when you payoff early.

My numbers confirm Mike Ablan's reply: Freddie Mac 4.6% - 4.9% Fannie Mae 4.7% - 5.4% These are based on my last deal's specifics (LTV 55%, DSCR 1.30, loan of $4m).

Hard to choose without getting into the difficult calcs on option 2. I personally chose "yield maintenance" (your option 2?) because I thought interest rates couldn't go much lower. It also came with a lower interest rate than option 1. Are you being offered the same interest rate with both?

@Robert C.

You just gave the answer, there are no books on going from $1m to $5m.

Write a guru book on how to do this and run seminars. Easiest way to make money is by charging other people to tell them how to make money. 😁

For a little background, I own two buildings in central Boston, an 8-unit and a 9-unit with total annual revenue of about $600k. I purchase a $1m occurrence / $2m aggregate GL policy with a $5m umbrella above it. I will likely increase the umbrella to a $10m limit next year as I know how easy it is for claims to get enormous these days. I have replacement cost, loss of income (12 months), and equipment breakdown. It does not cover floods or earthquakes. I have no need for Cyber (not big enough) or Employers Liability (I have a property management company running the buildings). One question for you: do policies typically cover claims from an AirBnB apartment? I do not operate AirBnB but some of my tenants may do this without my knowing.