All Forum Posts by: Teague Anderson

Hey all,

I heard rumors of unintended consequences from taking advantage of forbearance programs. Specifically, when the dust settles lenders may deny loans for borrowers who took such advantage, or may want to see proof of 12-month continuous payment of their existing loans.  I heard from a guy, who heard from a guy that Wells Fargo was already drafting up such language for their borrowing guidelines.

Has anyone else heard such rumors?  If true, that would definitely convince me of not taking forbearance.  Good thing I was a good little investor and have reserves.

Thanks,

Teague 

It's been crazy to me how fast things have been changing. 10 days ago, the coronavirus was something I was aware of, but not something I factored into any of my plans. Today, it is the black hole around which everything is swirling. A week ago I was considering putting an offer in on a duplex listed on the MLS, and now I can't imagine buying something at essentially retail prices. I wonder how long it'll be until each day is not logarithmically crazier than the one before.

Like many on this site, I was a newly minted real estate investor during the last expansion.  Also like many on this site, I've been thinking and planning for the next recession and how best to seize the opportunity.  Now that it's here, it's definitely nerve wracking.  This will be the first major test of a lot new investors, and I would be surprised if they all make it out in one piece.

I was at the Best Ever Conference last month, and the mentality was still BUY, BUY, BUY.  There was talk, however, about how everyone's underwriting assumptions were getting more and more aggressive in order to justify the prices they were paying.  I can't imagine 100% of those deals staying afloat now.

I hope most people out there headed the warnings from the people who made it through the last recession. Account for vacancy, account for CapEx, have at least 6 months reserves. If we were all paying attention to the preaching by the veterans, then we should all still be real estate investors on the other side of all this. And then we'll join the ranks with the other battle-tested veterans!

-Teague

See you there.

Whether you self manage or not does not affect the NOI. For commercial property, the management expense is baked into the overall expenses regardless of who does it. Maybe you could self manage a 5-unit and reap the extra profit, but what about a 100-unit? Just because you're local doesn't mean you can somehow manage the property for free. Like other people said, a lot of times the numbers in the pro formas are baloney, particularly if the property is listed on the MLS or Loopnet. Some brokers actually have somewhat legit pro formas, with just a little biased tweaking, but you still want to verify those.

Something that I've noticed lately, is that some properties that are over 4-units, which should be trading as commercial properties and valued based off of cap rates, are trading more like single-family homes and are valued based on comps and emotion.  It can be frustrating, because you can make your case for a price based on cap rate, but then some other investor comes along and buys it for a price that makes no sense at all with a ludicrously low cap rate for the area.  It seems like some people are just looking for a parking lot for their money.

I'll see if I can make it for a bit.  Thanks for setting it up.

Not a cause, but a sign:

https://www.nytimes.com/2019/03/22/business/yield-...

I think the market is craving a recession.  Everyone thinks one is coming and they just want it to happen already and get it over with.

My armchair economist theory:  There are so many people waiting for the next slowdown, that it won't be a severe one, because there will be so many people waiting on the sidelines to invest in a trough again.  But then we may be more vulnerable if there's a true recession as an aftershock that nobody sees coming.

Every recession needs a cause.  Maybe this could be it.

https://www.nytimes.com/2019/03/18/opinion/wall-street-risk-debt.html?action=click&module=Opinion&pgtype=Homepage

A simple buy and hold duplex is a great way to get your foot in the door. There's not that much risk, and you'll establish relationships with an agent, inspector, property manager, maybe some contractors, and get familiar with the market. After that you can start following some wholesalers to see if you can BRRRR your second property.

Flipping seems really tight these days. One error in your estimating, and your profit goes to zero or negative. At least with a BRRRR, if you end up leaving some money in the deal you still have a cash flowing property, assuming you didn't borrow everything for the purchase and fix up, which I wouldn't recommend.

I went to the Best Ever Conference last month, and the keynote speaker was John Chang, Vice President of research at Marcus & Millichap.  He gave a presentation on the state of the market and economy, and one of the slides he threw up was of vacancy rate during the last recession across A, B, and C class apartments. According to his chart, A Class was affected very little, B Class took about a 5% hit, and C class took about a 10% hit.  

I think this caught the attention of a lot of people in the audience.  Someone even asked during the Q&A if John could elaborate on that.  He explained that A Class tenants generally have more secure jobs and savings, and C Class tenants generally don't have those things.  Makes sense.  But it always seemed intuitive to me that in a recession, people would get squeezed out of the A Class apartments into more affordable units, as well as people getting squeezed out of owning into renting.

I asked John more about this during a break and if he had any data on not just vacancy, but NOI, because I wonder if A class just hides their losses with concessions instead of lowering rent.

Anyway, what you say @John Warren and @Christopher Lombardi seems totally rational and what I would expect.  Maybe those numbers on his slide were affected by some of the hardest hit cities.  But then again, even there people gotta live somewhere...

Are there any old timers on here who owned apartment buildings through the last cycle? I'm curious what happened to your NOI. Did it take a hit, and by how much? Was is from increased vacancy, increased concessions, decreased rent, or all of the above. Also, what class was your building and neighborhood?

Thanks,

Teague