#12 – 2020.04 – The SPC Greensheet

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Dear investor,

Our country has been in crisis this past month with two black swans: 1) Covid19 economic shutdown and 2) Oil price wars.

Let’s review the facts and keep things in prospective.

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Links to the PDF slide-deck.

Video format of this Month’s investor letter:

  1. How to Fill Out the New W4 Tax Form in 2020 & Should you extend?
  2. Can I Get a Home Loan if I am Self Employed?
  3. Do Commercial Loans Count Towards the Fannie Mae Loan Limit?
  4. How to Pick the Right Coach for You
  5. Save Money on Taxes – eQRP Changes for 2020 – Extended contribution period
  6. Save Money on Taxes with this Trick
  7. How Much Downpayment Should You do on an Investment Rental Property
  8. SDIRA/401K Retirement Account Killer the QRP
  9. SPECIAL CALL (20.03.23) – Covid19 Investor Action Plan
  10. COVID19 Greensheet

 

  1. Implications for Commercial Real Estate (March 3, 2020) from CBRECommercial real estate fundamentals entered this crisis in an extremely strong position. Moreover, labor markets are very tight, and companies likely will maintain their employment levels through the crisis. Nevertheless, property markets will reflect the broader economy, which is expected to see a short-term slowdown. Should the spread of the virus prove to be only seasonal, impacts will lessen as the weather warms, allowing for stronger growth in the second half of the year. Capital markets transactions likely will slow for the time being, but capital values should be resilient. Additionally, there may be some impact on leasing, as decisions on new space are deferred until later in the year. With the 10-year Treasury trading at historically low levels—below 1% for the first time—low interest rates will be a positive factor for property markets. Hotels: There has been a reduction in business and leisure travel, both globally and domestically. Using the SARS pandemic of 2003 as an example, the hotel industry could be severely impacted for up to six months. Retail: Near-term impacts will occur due to reductions in travel, particularly for food & beverage establishments, entertainment venues and fashion retailers. Omnichannel retailers could see some near-term upside as consumers avoid stores and shopping malls, but consumer sentiment may weigh on the sector over a longer period. Industrial: Manufacturing and distribution facilities may be impacted by lack of inventory as supply chains are disrupted. Broader economic impacts could further weigh on the industrial sector as reductions in both supply and demand ripple across the economy. Conversely, if the virus prompts more people to shop for goods and food online, this would bolster demand for last-mile distribution space. Office and Multifamily: Impacts on fundamentals in these sectors likely will be secondary and more closely associated with overall economic activity.

    Construction: Building material supply chains are being affected with significant backlogs at Chinese ports. Imports from other parts of Asia are also being impacted. Multifamily construction likely will feel the most acute effects due the importance of Asian-sourced materials for residential construction.

  2. See covid19 cheatsheet here
  3. The rise of remote real estate investingHousing Wire
  4. Public Housing Is Part of the Housing Crisis – MHN – [I think public housing developments like Trump Village in NY is the only killer to Value Class C and B housing] 
  5. FROM CBRE – Oil
    • Oil prices plummeted by more than 30% on Monday, the largest drop since 1991, putting financial markets on edge
    • The U.S. 10-year Treasury fell to a record low of 0.32%, down by 80 basis points (bps) in one week, and the S&P 500 fell by 7.6%—its largest decline since December 2008
    • Energy markets were roiled over the weekend by the failure of OPEC and Russia to agree on production cuts, which was followed by unilateral price cuts by Saudi Arabia
    • A rare dynamic of increasing supply amid lower demand is responsible for the rapid drop in crude prices.
  6. From CBRE – Interest Rate – March 16, 2020
  7. Interest rates cut to zero: The Federal Reserve cut short-term interest rates by 100 basis points (bps) yesterday to a target range of 0% to 0.25%.
  8. Quantitative easing to keep the cost of credit down: The Fed announced asset purchases of $500 billion in Treasury securities and $200 billion in mortgage-backed securities starting today.
  9. Domestic liquidity support to keep credit flowing: The Fed cut the discount rate that it charges banks for short-term loans during times of strain by 150 bps to 0.25%. Bank reserve requirements were cut to zero.
  10. Fed Slashes Rates Again as Coronavirus Pressure Mounts – CPE
  11. The federal income tax filing deadline is still April 15th, 2020. The federal income tax payment deadline moved to July 15th, 2020 for all tax balances less than $1MM. This means you still need to file or do an extension, by April 15th but you’ll have until July 15th to make your payment if you have a balance due. 

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Transcript:

0:01
This is a story about a dude named Lane he moved to the mainland and bought one place to stay. And then one day he went try to rent them out, and then he became one real investor May. Alright, thanks for joining us. This is the April 2020 edition of the monthly market update. You guys can find links to this as simple passive cash flow calm slash cream 12. Obviously, we all know what we’re talking about here today. And that’s the COVID-19 pandemic that we’re gonna be taking up most of the hour.

0:43
If you guys haven’t yet, please join our Facebook group.

0:47
The hooey is that we call it

0:49
and check out my podcasts. You can find it on Spotify, Google Play iTunes, I Heart Radio stitcher and also subscribe to our YouTube Channel, a bunch of other videos I post there that aren’t on the podcasts. And if you guys are in Hawaii join our Meetup group and like I said, the Facebook group here there. So let’s start off at the top of kind of created these in chronological order since the beginning of the month taking us to the end and some action items here. And some ways that I’m things that I’m doing some things my counterparts are doing and some things I suggest passive investors to start doing. So if we recall earlier this month, there was quite a bit of downfall in the market. Down Jones fell, the whole market pretty much fell a third of what it was worth, and that now just remind everybody, this is too big black swans that happen and black and black swans are known as events that just come up out of the blue. You know, most swans are white. And,

1:57
you know, you don’t see black swans, they’re pretty rare.

2:00
And we just happened to get whacked by two of them. One was the Coronavirus COVID-19. And the other one was the Saudis and Russians started to wage this price war against the small oil and gas producers in America. Now all the Exxon Mobil’s the Chevron’s, I think they’ll be all right. But it’s all the smaller

2:25
frackers

2:27
that I think they’re kind of they’re kind of going after and just went into one of those deals in December. So not the best thing. But you know, I’m not too concerned, it’s not like we’re really going to be sucking oil out of that thing for next six months at least. So I’m pretty sure that this stuff will at least restabilizing me not get up to 30 $40 a barrel quite yet, but definitely rebound off this bottom. So there’s a little bit of the timeline. I think the unusual thing that happened was the Fed drop rates very quickly and for those of you guys who’ve been fed Following the previous webinars that we do every month here, you hear me use the same of interest rates are sort of like dry powder. When times are good, what you want to do is increase the interest rate so that in times a bad like now you can lower the Fed funds rate. And you could kind of stimulate the economy that way. But in my opinion, the Fed kind of blew their their whole load early in March. And now we’re pretty much zero percent. And we’ll talk a little bit later about the cares act and some other stimulus that’s coming down. Down the pipeline. I think it’s some of the these are some of the preliminary the first round of the stimulus, but oil prices plummeted more than 30% on around the first week of March 10. year Treasury fell to record low point three 2% down 80 basis points from the previous week. And First week, SMP fell 7.6%. And I think that fall, it’s I haven’t seen volatility this high. I mean, it seems like every day it’s going up 800 to 1500 points, or 15,000 point 1500 points in the Dow, like I said, so here’s what basically is happening as the Russians and Saudis are sort of colluding with each other to, which is price war to get the small oil producers in United States out. It’s, they just kind of, I think they picked the wrong, just a bad time. To do this. It’s a very rare dynamic,

4:38
says CBR E.

4:40
This is a update from CBR. E early in the month, and I’ll say this probably multiple times, but you can see how the story changes from the beginning a month to where we are now. Now an April, how sediment has kind of changed and, you know, we’re kind of reaching At that point of, you know, things are seem really, really bad. Whereas, probably the beginning of the month, you know, most people were sort of still, you know, downplaying this whole event. So CBR it says here that they said this spread of the virus poof. They think it’s only going to be seasonal, and impacts will lessen as the warm weather comes along, along for stronger growth in the second half of the year. Obviously, none of us are thinking that, you know, I think we’ll be lucky. If the growth comes back in the second half year. I’m still optimistic for fourth quarter 2020 and hotels. There comment on hotels early in March using the SARS pandemic of 2003. As an example, the hotel industry could be severely impacted for up to six months. I think today a few weeks just a few weeks later, we’re thinking hotels are absolutely destroyed. Hit. And there’s another layer on top of this. The retail particularly in food and beverage establishments, and now now with a lot of these food and beverage establishments and restaurants out for a few weeks at the very least, a lot of them are going to come back. And it’s a little sad. office space is is impacted, obviously because people aren’t at work and the demand is down. Everyone’s working from home. I’m the one nice thing about this whole thing is construction sort of been labeled as a necessity. necessity. Therefore they haven’t really been impacted. cvra says that supply chains haven’t been impacted with significant backlogs at Chinese ports. imports from other parts of Asia are also being impacted and a lot of multifamily construction is in impacted by Asian source materials for residential construction. So Mind you, this is in the beginning of the month. So we follow along in the story and as the month progress more of the same and here was like a 2300 point decline in the Dow, middle of March, interest rates were cut to zero, and basically went into another round of quantitative easing to keep the cost of credit down. The Fed announced the asset purchases of 500 billion in Treasury securities and 200 billion in mortgage backed securities. So the what the feds doing is they’re trying to cut the discount rate that charges banks for short term loans during times of strange by 150 basis points to 0.25%. And then they’re eventually cut to zero. So we closed on a rate locked on a deal on March 6, and that was absolutely the best time to close alone. The next week later the Fed struck the rates and you would think that the rates would go lower. But it went absolutely the opposite for the first time, I think since forever, the 10 year Treasury and the which is what the interest rates are, what we pay our lenders and the federate decoupled. I don’t entirely know what what caused this phenomenon. There was a podcast, I listened to it. But that’s where my understanding ends there. I honestly don’t really care. It is what it is. So a little bit of a history lesson here, just for some context in December 2007. The Treasury rate was at 4.2%. And that was a good time in and that 4.2 can be representative of how much dry powder there was in the banking system. And in December 2019, the Treasury was at one Point 761. So that was sort of at the pre.

9:03
Last week, it was at 0.75, if you kind of calculate it, and you kind of normalize it for what it was in 2007. So just a little bit context, fed slashes rates again as crona pressure mounts says, crucial property executive as the month moved on. The tax filing deadline got moved back. tax filing deadline is still April 15. However, the Fed income tax payment deadline move to July 15 2020. For all tax benefits, less than $1 million. So this means that you still need to file or do an extension by April 15. But you have until July 15 to make payment if you’re have a balance do me personally, I always just file an October I don’t know anybody does it in in April.

9:57
I mean, that’s what most people do out there, but I don’t understand.

9:59
I mean, as we’ll talk a little bit once, you know, the cares act got approved this past week, and there’s some pretty nifty things you can do by going back to old tax returns in this tax return. If you follow that already, you would have to pay the filing fee. So it really to me, it makes no sense why you would file early. It’s, of course, these are all my interpretations. And I’ve got the disclaimer at the end, but there’s the link irs. gov. You guys can read this all by yourself and make your own interpretations. More news headlines here Federal Reserve cuts rates to zero and launches massive 70 billion quantitative easing program. Interesting that they they did that the markets still responded negatively. And the Dow futures pointed to a drop of 900 points. So that’s scary when they say they’re going to print money, and the stock market still acts negatively about this middle of the month. Especially in the blue states, cities and counties start to halt evictions and miss the corona virus pandemic. And here are some smaller stories that I picked out. These These are some sort of newer stuff developments in the past in the second half of March that scare me a little bit first Marriott to furlough two thirds of domestic international corporate staff. So Marriott is pretty much indicative of the hotel and travel industry Cheesecake Factory. I know a lot of folks love them out there, but they notified their landlord that they will not be making payments to their rent this month. Kind of scary gap. Macy’s and Kohl’s have announced separately that they’re planning to furlough a majority of employees at their stores and some distribution centers. So I think we’re starting to see, you know, I think America can survive like something like this for a week, but we’re starting to get a little bit deeper into this. You know, Zero production quarantine stage and starting to see the first signs of the destruction. Some of this can be reversed. But you know, the more we more we stay into this, the harder it’s going to be to come out of it. Multi housing news says Coronavirus release package awaits final approval and this is on March 25. And we all know now that it did get approved $2 trillion stimulus. If you write that out in numbers, like I had to Google a trillion that’s bigger than billing is it was a lot of zeros. It’s just an unfathomable amount of money. And we’ll break down the cares act in the end but just to keep up with the chronological order of the sequence. Probably about the middle of the month is when I got together with my mastermind. You know, people were freaked out. We paid $25,000 each to be in this group. So it’s a it’s a group of highly active investors. They only outlet in like the top, a couple people in each metropolitan area. Essentially you got to flip 100 houses per year to get in or syndicate deals and apartment deals so some of their action items and mind you this doesn’t really apply to passive investors but I just wanted to put this in here just so you guys see get a mindset of what a more active investor who’s really you know got their ear on the ground so what they are trying to do is they’re filling vacancies as soon as possible even though they need to reduce the rents five to 15% call their property managers are a lot of these guys are actual property managers and what they’re trying to do is they’re trying to fill the units within one week even on a six month lease and even if you’re having to offer a large reduction in rent, the whole thing is get people in beds and get them in there lock up month to month leases if you have to. And you know, work with your tenants, whatever they want six 912 month lease, now’s not the time they get picky. Normally, you know we’re trying not to have leases ends in the fourth quarter of the holidays. season was a tough time

14:00
when not many people are moving around. But,

14:03
you know, with this pandemic, this is the, you know, you’ve gotta gotta do it. It takes a lot of these guys were using credit card lines and just prepaying their vendors and monetizing those lines, get turning it into cash and just holding it hoarding cash is the term a lot of these guys will do direct marketing. So I’m sure a lot of you guys who own rental properties, get these really annoying postcards, you know, these are the guys these guys send out 5000 to a quarter million dollars of direct marketing a month, you know, just for one person. So they cut that back, but they kept doing their TV ads and their pay per click online ads because we’re all at home, scrolling on our social media feeds and watching TV. And what a lot of these guys did was cut staff cut overhead, which obviously you don’t really like to do as a business owner. Me personally I’ve kind of ramped up my hiring and you know, whenever you He’s firing I want to kind of hire and I’ve been trying to increase my hours for my guys, part two here on the slide. These highly active investors are getting he locks monetizing those key locks, getting it into cash, get quotes and refinance properties with mortgages of 5% interest or hire in getting that debt equity out to cash, because cash is sort of like oxygen cash will help you write out a few months of tough times. These guys are recruiting their insurance rates to help lower your expenses. And I’ve got a couple, two or three insurance guys, if you guys need a referral to shoot me an email Lane at simple passive cash flow, you guys can do that. While you guys are stuck at home. But yeah, find ways it’s 2008 2009. Again, find ways to cut costs. So here’s one of the new programs with the cares act. This is you guys can go to sba.gov slash funding dash programs. So these apply If you’re a gig worker, gig economy, 299 worker, a one person business independent contractor, you for hire self employed. Essentially, you’re eligible for a payroll protection loan as long as you have a business with less than 500 employees. So you might be a W two working professional and have a real estate portfolio and I think you still might

16:25
apply this might apply to you.

16:28
I’m working with some consultants who’s gonna pretty much do all the paperwork for you guys. And make sure they do it right and if you guys don’t get paid your $10,000 grant, which is penalty free, tax free interest free, they won’t charge you anything. So if you guys are interested in that, you may not like that simple passive cash flow. But if not, you should be able to go to this website sba.gov and apply there don’t know if you’ll get approved, right? I mean, that’s the nice thing. That’s why I’m just gonna pay my 25 grand or 20 $500 have some have a pro to do. Cuz I’ll be honest, I probably wouldn’t have done it. Anyway, kind of lazy like that. So here’s some qualifications. Again, the biggest one is fewer than 500 employees operates sole proprietor is cool. And an independent contractor, basically, if you’ve been impacted by the COVID-19, which is should be everybody here. So the intention of this SBA loans is for this money to go out to business owners to stimulate the economy. So when they do this, you know, lenders and the SBA guys, they’re pretty lenient on, you know, really helping you trying to get at this money. So there’s a lot of, you know, nuances suits these things, I would just go to sba.gov. Or, you know, again, if you want to do it, the simple, passive and lazy way. Shuman, email, we’ll have the consultant work with you guys. There’s a lot of equations and how much not the loans are different thing. There’s a With the grants and then you know, that’s the one with the money back guarantee. But the loans is another one that the consultants can help you on, on, I mean, you can get up to a million dollars of loans at like 3.23% to 5% on these things, I think this is really where the consultant really comes into play. And you can get some really nice long term money I believe, you know, these are backed by the government and I believe I don’t know if it’s non recourse or recourse but it’s pretty sweet debt. A lot of times that, you know, the reason why they’re giving you this is that you’re not firing your employees or laying them off. Of course, you know, you you, you might have an employee that you don’t want to have and this is a great time to get rid of them. Of course, follow your all your human resource practices to do that so you don’t get sued. But this is not an all or nothing type of thing. So here is what we are doing. going at our properties, I’m a general partner and 3500 units, first week of April here, we still don’t know if we’re going to be impacted very much. And in terms of this COVID-19 thing, a lot of investors have been a little excited. But, you know, this is the exact reason why you invest in workforce housing. You know, hard assets, it the value just doesn’t disappear overnight, like the stock market. And to me, I call those fake it’s all fake money. I mean, a lot of people are saying, well, it’s down. I’m gonna go go in now as it bounces, but I’m like, whatever man, like, you know, you must be smarter than I am. I’m a dummy. I’m just going to invest in these hard assets that produce rents. So what we are doing you know, what we’re, we’re obviously doing all the you know, the legalities in terms of committing cating to tenants. Yes, COVID-19 is Real and Steph is upgrading sanitation processes. We are following the stay at home for guidance of the CDC government agencies. We are addressing work orders but becoming more of a remote work arrangement for the property management staff where possible, and we’re getting a little selective on what maintenance items we are doing because we don’t know how this is going to play out as the quarantine goes in. And we all know at some point people run out of cash reserves

20:32
and they have trouble paying the rent.

20:35
new prospects are being directed to websites and some self guided tours with property proper ID and some of you guys are looking to sell properties or buy properties you know, you can do it virtually. But definitely a lot of the air has gone out of the man for buying properties, especially in California. Where the that was worth The Coronavirus sort of hit first and one thing we are doing is we are constantly reinforcing that the rent is still due but we’re being pretty tactful not to draw too much attention to it. Because, you know, if we draw too much attention to it now our tenants will start to think that they are entitled to not paying, like how a lot of people in the blue states are thinking, um, a lot of the properties that we have tenants in are in the red states and they haven’t officially cut off evictions, like a lot of the blue states. But we just don’t want to give them any ideas. Right I mean, it’s still business as usual. You live there, you got to pay rap. Simple. Here’s a list from wallet hub of the most over leveraged cities and the least over leveraged cities, and I just pulled this because I just want to sort of see of, you know, where the hotbeds for the people who are going to have the most trouble Now that the tide is sort of going out a little bit this Coronavirus, some of the notables are the most over leveraged places are a lot of California places. I think we can all know which ones they are Beverly Hills, Santa Monica. couple places on Hawaii of a beach in Hawaii. And then the lease over leveraged cities. So this is the list you want to be on. A bunch of places in Ohio, Ohio. A lot of the smaller towns you guys have probably never heard of, I think the most Decatur, Georgia, Naples, Florida. You know, a lot of the more blue collar towns, I think is on this list. tips for you guys. Now, lords. Listen to your tenants. You don’t have to make a deal with them right away. But just gather information and try to come to a win win. I mean, we’re all stuck in this together requests. You know, maybe requested offer from the tenant that’s negotiation one on one. Don’t Name your price. If they want an abatement, a rent concession or different deferment, hear them out what do they think that they can do? Maybe it might be less than what you’re willing to give them. Some news in the shopping center space, halting evictions for 90 days, avoiding rent increase for 90 days creating payment plans waiving late fees, identifying government and community resources to help secure food, financial assistance, healthcare and other services. You as a landlord can give resources maybe they don’t know how to apply for unemployment if they’ve been laid off. Helping them helps you in the long run. Here is a sample letter that one number in our hooey gave their tenants not saying that you should use it. I didn’t use it. Like I said, I’m taking the moral stance that we are. We’re not trying to draw too much attention. into it, or senses rent is still due but weren’t Yeah, we’re not gonna give people any ideas that it’s not. So it’s up to you if you want to give your tenants something like that. Some bigger changes that I’m doing for future future acquisitions. Overall I’m pretty bullish and wants to come after we get through this. This Coronavirus and oil crisis, the light at the end of tunnel we don’t see it yet. But I’m getting ready because you know, if you want to get on the next deal, you’re going to have to put it in contract 30 to 60 days, due diligence 3060 days and then ultimately, you know, these things drag out 36 days so you could be looking for a quarter or two before you actually get in have to put down money for a deal. But one thing I’m doing is I’m staying away from class C deals and especially smaller deals. And I’m only going to do a class CTF it’s in a super strong area. No like in Arcadia. Arizona Phoenix, Arizona, Arcadia is a sub market.

25:05
Number two underwriting deals with 4% interest rates and only to two years of interest only. Like I said on March 9, we close the deal at 3.23% 15 year term with a 30 year amortization and four years of interest only payments, that was phenomenal. We couldn’t have timed it any better, but not from here on out which use that 4% and two years of I’ll just be conservative, so we don’t get surprised. And we’re also increasing our assumed economic vacancy going forward just adds a little bit cushion to the model. If you’re listening as a passive investor some potential action plans is I would say first, figure out what your job status is. If you’re a government worker or you’re, you don’t really see yourself getting fired, you know, that’s step number one. Number two, if if you’re having issues with that cut costs, again You know, find ways to, you know, save money, redo insurance quotes, for example, you know, I’ve got, I’ve got folks for that and other things. Other people are then just trying to list out all their expenses and see what they can cut out. Um, number three monetize lines of credit. This is the same thing that the active guys are doing, you know those key locks you never know when they can be pulled away. harvested equity. And that’s the www dot mortgage news. daily.com had a great podcast on what exactly happened when the 10 year and the federate decoupled. Other notes here. What I’m seeing I did a survey with my investor group, and it’s a little sad but the non accredited investors are sort of dropping like flies, you know, they’re having to dip into savings. And they’re, they’re sort of gun shy but from the creative Investors side, the vast majority are kind of licking their chops at this point. We’re talking to a pretty experienced developer a couple weeks ago. And that guy was saying, Yeah, you know, Jimmy Carter years, you know, this is exactly what happened. I mean, he’s saying this is the textbook Black Swan event that we’re having right now. And that was when he made a ton of money when everybody was fearful. And that’s a Warren Buffett, quote, when people are fearful, that’s the time to be greedy. So we’re trying to get into better assets more B class a class just so we can distance ourselves from other groups, you know, who are trying to get in the game, you know, after getting those classy assets that do seem to have I’m in a couple classy deals and it’s just harder. The tenants are just they don’t have any resiliency you know, the the the can’t work at Burger King for a week and they can’t pay their rent. Second thing here I read this report The ITR report and it’s pretty unbiased In my opinion, they’re not trying to sell you on gold and trying to make you think that the world is going to end. And they’re still predicting big growth for 2021 and beyond. You know, guys like they come from bears like Peter Schiff, Chris martenson, they’re always trying to freak you out too. So you go and their newsletter subscriptions. That is their passive income, that’s their wealth strategy. If you guys want like to use that strategy, you guys can make your own podcasts and newsletters and sell it for people for 3999 or whatever it costs. And a lot of these guys, you know, everybody’s trying to predict the next recession, right? Like they want to put that that banner on their website. So what they do is they try and predict the, the last 12 of the last two recessions. I personally believe that it’s time to go back in but I’m gonna hold back on the fan till we see a light at the end of the tunnel on this crona virus and I’ll talk a little bit about, you know, my thoughts on you know, where as the Coronavirus is taking us, and will the quarantine, social distancing work? If you have to form entities try and do that sooner than later since a lot of the government offices and courthouse are deeming that non essential and be aware of the rent control and no eviction rules. And if you still own properties in the blue states, you know, why the heck are you doing that man like this is this should be a wake up call for you.

29:35
Economic Outlook moving forward, you know, we’re probably going to see, I mean, we already saw this knee jerk reaction by the Fed to go to zero percent. multiple rounds of stimulus going out to Americans $2 trillion already went out. And I think that’s the first round of stimulus. I think there’s going to be another one, especially if this corn is initial two to three quarantined doesn’t work. I mean, unofficially, Trump kind of put a line in the sand that he said everybody should be back out, you know, mingling come Easter, April 12. But he, he recently pushed that out to me. And I think every time that happens if that happens another time there’s probably going to be stimulus to on the works or cares to or whether they want to clever thing they want to come up with. At the end of the day, remember that this economy is doing very well before the Coronavirus and it is a true Black Swan event combined with the oil trade Black Swan event, you know currently 20 to $30 a barrel is crazy. If you’ve been following my journey, I’ve been selling my initial real property and transitioning into syndication deals lately for more purely passive investment strategy. One critical part of my portfolio is the American Home preservation fund, or what folks in we call HP for short, George Newberry. Once apartment owner operator and mentor to me is now sponsoring the podcast is private fun, which by the way also accepts non accredited investors cuts the middlemen out and allows you to invest directly with him to fight the mortgage crisis in America. join him by purchasing distressed mortgages while getting a double digit annual return paid monthly.

31:21
Find something else better out there. Well let me know

31:24
feel good knowing that you are helping families stay in their home after buying their underwater note at a huge discount invest as low as $100 by going to HP servicing comm slash investors and if you want the free burns on book please send me an email Lane at simple passive cash flow calm

31:45
Well, that’s a light bill.

31:53
So people want to know you know how is real estate doing these days and I’m just talking about rental real estate So I have this picture here of four chairs. I call this the great musical chairs game. So you can call each chair Class D, cb and a rentals. And there’s four people walking around right now. Well, maybe not yet. Maybe in the next week or week or month or so people will start to be displaced people who cannot afford where they are or being evicted or having to move out because they cannot work. Or they maybe they got laid off too, right? Maybe the guy making 200 $300,000 at their cushy, white collar, oil and gas job is fired. And you can’t even find a $60,000 job because it’s not in the oil gas field. Maybe they’re displace, but what you’re having is, you know, everybody’s dead. At some point, everyone’s gonna be dancing around and they’re gonna need a place to sit. But in the meantime, you’re gonna have things up in the air and sort of weightless and as landlords we need to survive that and that’s where nice cash reserves come into play and work. With tenants. Here’s a little table that I took from ITR. And this has a lot the past Black Swan events from the Russian crisis y2k 911 sovereign debt crisis of 2011 2015. Oil prices plummet. Number one, the oils went up to like, super high and then the recession started nine months prior to 2018 trade concerns. So what they said was, today’s Coronavirus is very similar to the 911 terrorist attacks attacked and where it was extremely sudden. The difference is that with all these type of Black Swan events, it never happened where the economy was sort of shut down. Like you weren’t had to stay at home. There’s never been something like that. So we don’t really have really good data but in a way Once we get the go out and mingle and hang out with your friends again order, we should go back there should be some pent pent up demand. And we can emotional we can. I think what you’re going to see is people are going to be it’s going to be night and day. It’s not going to be like 911 happens and people think that it’s a different world that we’re living in. Commercial Property executive reports that the Coronavirus will hit the hotel beats the hardest, and I’m just going you know, we’re all picking on the travel and hotel industry here. These guys are getting beat up really bad. So here’s a little table that I made for the steps to get to a point where the commercial properties and real estate property start to go down. So right now the Black Swan event which is the Coronavirus has happened fear has definitely set in which makes the stock market go down 10 to 20%. business income is decreasing, right i mean last month Things haven’t been open. And companies have started to cut jobs. I think that is very evident. And you’re seeing some very scary numbers from unemployment numbers coming in. We don’t know how much of that is just people, you know, thinking pent up demand or people thinking that there’s free handouts there because they see all on the news, the cares act, and they think they want to get theirs. But right now we’re at the stage of, you know, we don’t know if tenants can’t pay rent. And hopefully, you know, we don’t get to the very end of this, sort of like a, you have to kind of fill up the buckets to get there. The next thing that’s the domino ready to fall as the market vacancies go up, as people start to move around, and then decrease market rents. But remember, before we got into this, there was a housing shortage initially. So going back to the analogy of the great musical chair game, there’s four people and three chairs still. So we’ll see what happens and of course the last two dominoes have lower operating income, which means less income, which will then impact higher cap rates, which equates the lower property values.

36:12
Some good news.

36:14
The government is definitely stepping in here. unemployment benefits are for tenants to get to hopefully pay their rent. It’s tax time for most of our tenants who pay their taxes in April and a lot of them were getting a tax refund. I tell you guys, you don’t really want a tax refund because you gave the government a interest free loan, but that’s not how our tenants thing. Thus far red states have not been really restricting evictions. However courts are closing or limited. And we’re starting to see the government programs come and bail us out with everybody’s getting I guess the 1200 dollar check in deferment options and just last weekend, that was more 2829 Fannie and Freddie finally came up with the ferment options for our bigger deals on possible 90 day deferments on our mortgage payments, but the deal is we just can’t evict people. So dissect in the cares act here and we’re going to have a webinar on April 15. Probably the only webinar you’ll ever see on April 15, from a CPA, because normally it’s tax day, but we’re going to be talking about breaking down all these SBA loans the Care Act, what it means for us. And so you guys aren’t just hearing my interpretation or what I’m talking to my other people, you guys can hear it straight from a CPA tax attorney. So one of the big things that I’m reading is you can take $100,000 from withdrawal from your retirement. So a lot of you guys that I have calls with, you might have $500,000 a million dollars in your 401k or IRA. And the whole, most most people’s strategy is to take that out and start investing it, but you’re gonna have to turn it into income and pay. it’ll, it’ll make your adjusted gross income go up temporary that one year as you take it out. Now with the carousel, you can take up to $100,000 out of there penalty free. So gotta pay your taxes. But there’s some deferment on the taxes that you pay on that. I think it’s like three or six years. I think I got a slide in here later on that cash checks going out to everybody. Well, that is if you are in a certain income level. This chart that I found here is the best way of trying to calculate how much you’re able to get essentially for single filers 1200 dollars is going out. Married, married filing jointly, you’re going into double that. And then for each kid you essentially attack on 500 bucks. There’s a phase out after 70 $575,000 up to $100,000 for single filers and for couples. The phase out occurs from 150,000 and pretty quickly up to a little over $200,000. Some changes FMLA with additional leave some of your employers have given people extra week of vacation or or to stay at home. Well, it’s not because of them. It’s because the government’s giving that to give to you. Again, SBA loans, it confuses you like it confuses me. I mean, I’m just probably gonna pay a consultant to get all that stuff done for me and just pay him. Let me know if you guys are interested in that by emailing me. credits for retaining employees so they want you to not fire your Your employees, so there’s credits for that. And then this one was an interesting one that I don’t quite understand myself. It’s a qualified improvement property. So it provides 100% bonus depreciation for costs associated with the interior improvement of non residential property by changing the tax life from 39 years to 15 years. And here’s the important thing made retroactive for improvements after September 27 2017. So you can go back and possibly change or amend your tax returns and recover some some money there. And I know a lot of CPAs are probably just going to ignore this and hope their clients don’t ask them to do that because it’s probably not worth the fight. refiling fee that they charge their clients. And, you know, but that’s what uh, that’s, that’s what a lazy CPA does, right. And that’s why they stub a jlb breaking down the $2 trillion. Where did it all go on 250 billion went to unemployment, 300 billion went to direct payments. Those are the 1200 dollar checks to Americans 500 billion went to large businesses.

41:15
I don’t know if the the I heard there were airline bailouts included in there. I don’t, I’m guessing that that is included in that 500 billion. But for small businesses, the SBA loans that we’re talking about and the grants 300 billion is there. To cover payments for rent, mortgage, utilities and payroll, these even loans have been converted into grants at the end of the year, if used for intended purposes. So, you know, I think everybody should be able to get $10,000 if they do their application, right. So yeah, let me know if you guys want to get on, get that free money up for grabs, but once it’s gone, it’s gone. That’s how those grants work in the public sector under 50 billion is going to state And a few hundred billion dollars are going to some hospitals and some miscellaneous stuff. But, you know, like I said, when I quit the last slide, qualified improvement property, were you able to go back a couple years? You know, that’s just just as an example of you know exactly what this headline says in the New York Times The Bonanza for rich real estate investors tucked into the stimulus plan. The world, the United States needed a lot of help, you know, how are people when they can’t work at Burger King or can’t go work as a hotel cleaner at a casino? What happens while they need these checks, but in this $2 trillion stimulus package, a whole bunch of stuff got put in for real estate investors. And here’s how I think of it. You know, when you’re a kid and your parents, hopefully you had these good childhood memories, sorry, if you didn’t, but You know, if your parents said we can go by you and Nintendo and you’re at the checkout line, you want to throw in some extra game or two, or some gum or candy, you know, that’s essentially what’s happening here. I think the cares to is happening soon. So it might be extend that analogy might be throwing in some gift cards in there too.

43:24
We talked about the qualifying improvement property.

43:28
net operating losses can be carried back five years and excess business losses or temporary acts suspended. And the again the waiver of the 10% early withdrawal penalty for retirement accounts. And this kind of doesn’t really mean anything. It’s so negligible, but you can have a $300 above the line deduction on charitable donations. So take a break from the Coronavirus a little bit and the current crisis. I read this article from housing wire the rise of remote real estate investors. It’s a map it’s a heat map of where out of state buyers are coming from which are pretty much the California west coast of California. It’s heavy in Nevada for some reason. And where our out of state buyers are buying where’s the money, where the where the investors investing in a lot of it in?

44:23
Only 6% of it is going to California.

44:28
But most of the states, about 20 to 30% of it is, you know, coming not from originating from the state that pulled an article from multi housing news, which is the public housing is part of the housing crisis. The same public housing authorities across the country are struggling and federal programs aren’t always the answer. So what they’re talking about are sort of the class B developments that are Pretty quickly become classy housing projects like the Red Hook houses in Brooklyn, New York or the Trump village in New York. So, I put this in here because I think these public housing developments are the only killer to those investing in, you know, the value based Class C and B housing, on the workforce housing. And from this article, it’s saying that the, these government programs aren’t really working to have these types of housing. So what will likely happen is it’ll make more sense for the government to infuse capital into better loans, Fannie Mae Freddie Mac programs or HUD, HUD programs for syndicators investors to utilize. Here is a chart from costar probably one of the best sources of commercial real estate data, what they’re showing here Is the vacancy rate tracking? And this is what their forecast is based on the Coronavirus. And this is the what’s what I like how these guys put together is they they’ll put together a forecast of what they think is going to happen. And then what is severe downside. So I put the severe downside one up on the screen and this is basically the doom and gloom gloom. But you see how, you know middle of 2020 where we’re at now, they can see will sort of peak it’ll jump up from 6.5% up to 8% and then slowly go down after 2022. You’ll see how the net deliveries will come down, get cooled off, how absorption which is the inverse of vacancy will. We’ll go down later on the year but it’s Pick it right up back up in 2021. Green Street advisors released some estimates on how some reads are doing and I’m not a big fan of reads because read cert, you know, just essentially like mutual funds. And they suppose the whole real estate but there’s just a lot of, you know bloat in those funds, but just in relative, you know, relative to each other senior housing is getting killed. And so student housing, I think we all understand the reasons why they’re shopping. And then comes the apartments, single family homes and self storage, and the mobile home parks. other good things that I personally am happy about, about this, the outcome out of our cultural changing COVID-19 experience is maybe we will finally have less meetings. You know, we see all how effective zoom meetings are and that’s the platform that I’m using today. Maybe people that work with start to realize you don’t need to have all these freaking meetings anymore. Number two, everyone’s spending a little bit more time with family. There’s less sports, there’s no ESPN, there’s less distractions and more time to exercise. And later on in the month, we’ll have a do a workshop for who remembers you guys can join it simple passive cash flow calm slash club. There’ll be a live webinar, we’ll be going over the COVID-19 economic survival guide. You guys can get access to that right now. It’s simple passive cash flow calm slash COVID-19. However, it’s a work in progress at this point. So if you guys have any, any questions, feel free to type it into the question answer box, but I’m just going to give a little update on what I’ve been up to personally. So first category is growth. I’m trying to I urge everybody to do this guard your mind There’s a lot of BS out there on social media you know just a lot of negativity This is the analogy I like to use we’re in this big traffic jam nobody’s going anywhere. You know the big trucks, the small trucks, the nice luxury cars we’re all stuck in this together. I think everybody needs to live with a little bit more low Han and be a little bit more compassionate.

49:26
And yeah, so I mean if you guys are in the in the week club, I just announced that I was going to let you guys try out the ecourse for free while you guys are stuck at home. Sony available for a little bit little time on while you guys are stuck at home but I just try to find ways to you know give back to the simple passive cash flow community and I don’t know I mean, I try to do what I can to keep, you know, buying my takeout food and you know, keep paying my bills and keep paying my service. provider’s, you know, do it do what I can to keep them in business because it’s the right thing to do because I’m fortunate enough to not have to really worry about you know, having to go to a job that is now stopped. See, and also using the time to kind of protect my body and exercise. Luckily, I have a squat rack and pull up bar at home. But I know a lot of people are just the only thing they can do is walk around or or run that’s all they have. Things are difficult.

50:29
And things are changing, but that is to be expected.

50:33
So if you guys want to access that, go to simple passive cash flow calm slash ecourse. The coupon code is kokua kay Oh, you owe it scratch that k or k u A. That’s k o k ua. And you guys can get that free trial there. Some other things of significance that I’m working on. Um, you know, I mean, it’s, I think those of you guys who own Real Estate would agree that at this time where everybody is getting killed out in the stock market, you know, that’s why workforce works. Everybody needs the place to live. And there’s still a housing shortage, and I have no stock holdings. And I don’t worry really what the stock market is doing every day. I don’t care. I can focus on the one thing that I do best, which is sourcing deals. And as much as I think that the vanguard Energy Fund is something to be bought right now I try to I’m just sort of a spectator. I don’t really want to spend my, my mental bandwidth to kind of watch that thing or put money into it. That might be different for you guys, but that’s just me personally. We all need a little uncertainty in our life and we’re definitely getting it now. I’m just my son my short comments in the Coronavirus because I think you see a whole bunch of opinions out there, especially on social media by non doctors. Oh, you know, we don’t have any answers yet. Just guidance and direction here. So the question is Will a 14 day social isolation solution work or 28 day or 48 day we all understand this initiative of flattening the curve and the part of it is just so we don’t tax our healthcare system capacity. But is this just prolonging the inevitable? We can watch China Italy for examples, but you know, who trust anything that comes out of China, they said they they beat this thing, but who the heck knows. And Italy is not the same like America. Japan’s another example, but you know, their society tends to follow directions a lot better than the United States and be a little more orderly so it’s very differently. Um, we’re still waiting on the April collection. See how that’s coming in more updates on that next month, and how we are reacting to what’s going on, we’ll be sure to report. But, you know, most of the deals that we’re in, we’re seeing at 95% occupancy with adequate cash reserves. But we’re suspending distributions because we don’t know how things are going to play out these next couple months at least. At this point, with the whole Coronavirus situation, we’d have no light at the end of the tunnel. We haven’t seen the cases taper off. Some things of certainty here. So we pulled the hooey investor group, most of which are accredited investors who at least took the survey of 100 or so people I would say at least 60%. So the funny thing about this, these surveys I do with you guys is like you guys are a bunch of like world changers and independent thinkers that Can I give you guys the option to type in your own answer? And I get like a plethora of like, non categorize questions that definitely give me a little humor throughout the day of what you guys come up with but it’s hard to get really good solid data but I’m going to just assume here that it like at least two thirds of you guys believe that this is a black swan event. And you guys are going to be buying into this Kip. Those of you who don’t say about a bunch of you guys 7.7% are looking to move stocks into mutual funds or at least 7.7% I’d probably say about 10 to 20% of you guys are looking into this based on conversations I’ve had last couple weeks and if we haven’t had a chance to talk you know, let’s let’s connection and email plain and simple passive cash flow and let’s kind of connect them this time of social disconnection. stain most of these guys And I put myself in this category stay put for a couple months let’s just see a light at the end of the tunnel before we make any moves.

55:07
Um, the last thing that we all need is love and connection. And this Thursday we are doing a zoom webinar where a bunch of us are going to be doing 100 burpees so if you would like to join that please shoot me an email and I’ll shoot you the invite out to that. But yeah, keep your keep your mind right keep your body in shape is a part of this. Here are the new podcasts and articles you guys have any questions on this? type it into the chat box now we can kind of dissect any of these. But we had I have new YouTube videos on how to fill out your new w two form. Should you extend your tax returns? Can you get a home if you’re self employed, how many commercial loans count towards your Fannie Mae loan limit? How to pick the right coach for you. Saving taxes all about the pure EQ RP we had david on the podcast this week if you guys want more information about the GRP go to simple passive cash flow calm slash q RP get the free book there. How much should downpayment should you do on an investment rental property the and we had a call which is probably a little bit obsolete now but the the past COVID-19 investor action plan call that went out to who he investors and then the this COVID-19 green sheet that we’re doing today and then we are going to be doing a webinar on April 15. Some of the barriers and resistance that I faced this month is just staying away from the negativity on sometimes I find myself getting into that. But I did spend some money I bought some doodads here. On the on the one on the right side here the bed with the multiple screens that you never get out of bed with the junk food of the nightstand is kind of a joke. I didn’t buy that. But I just thought that was kind of cool. But I did buy that exercise bike that Echelon, because I need a my cardio sucks. And hopefully, that will help me in my endeavors and I’m stuck at home anyway. So the interesting about these bikes is like it’s on back order to me, because everybody is stuck at home and there’s a huge demand for him right now. Other lessons learned I read the go giver book, and that this is the book that we’re going to be talking about in our next book club on April 25. If you guys want to join our free online book club, go to simple passive cash flow calm slash lean hack, but it’s all about this book is all about giving out to others without really feeling any, any kind of necessity for anything coming back with a quid pro quo thing. I mean this maybe this is where the inspiration of just letting people on trial the course for free came about on the ecourse I think I sell it for like 800 or 900 bucks. At first I have to kind of like maybe I should not do this because then people won’t buy it later but I was like asked for it you know people are stuck at home. Times are tough we don’t need to make life harder for people. So enjoy that little perk while that lasts the rest of this month. passive investor accelerator mastermind is taking new applicants go to simple passive cash flow comm slash journey. We have over 50 members now we do a bi weekly conference call when we talk about this these things interactively. The last meeting we did this cool thing where we split everybody up in groups of four and that way the numbers got to really get to know each other a little bit better and work on an individual problem. And they went kind of round robin so we had like four or five different breakout rooms, each with four numbers and people thought that was pretty cool, but we do that from time to time and then we bring in guests. And it’s you know, it’s more than deal vetting, investing, right. You know, somebody who’s looking at a deal, we’ll take a look at it. You know, more than that we share the best practice for tax legal, infinite banking and legacy creation with a mostly accredited group. Some things that just for fun, it’s just to remind you guys that you know, although we’re stuck at home and maybe our mutual funds, portfolios tanked and we don’t know if our tenants are going to pay rent come in this first week of April. And just be thankful that there’s no bombs going off over our head. And here’s the legal disclaimer not giving any tax legal consult your own personal advisor there. And if there’s no questions in the question answer box. We will see you guys next time. Thanks for joining.

59:57
This website offers very general information concerning In real estate for investment purposes every investor situation is unique. Always seek the services of licensed third party appraisers inspectors to verify the value and condition of any property you intend to purchase. Use the services of professional title and escrow companies and licensed tax investment and or legal advisor before relying on any information contained here and information is not guaranteed as an every investment there is risk. The content found here is just my opinion and things change and I reserve the right to change my mind. Above all else, do your own analysis and think for yourself because in the end, you’re the only person who is going to look out for your best interests.

 

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