COVID-19 Impact on Real Estate and Note Investing… Personal Ramblings on How to Navigate

Watch this special video replay with Dawn Rickabaugh and other Real Estate and Note investors who came together to share their insights and thoughts for how to navigate through the COVID-19 impacts on...

What a time to be alive. We are witnessing unprecedented events and there is no way back... we will be forever changed. And ultimately, I believe that is a good thing.

In so many ways we have absolutely no control over what is happening, yet we retain the incredibly powerful faculties of imagination, inspiration, prayer and meditation. How will we use them?

We are each participating in the birth of a new paradigm. A new earth.

Having given birth to three children, I can personally attest that bringing forth new life is painful, bloody, messy... it asks more from you than you think you have to give, requires digging deep to mine inner resources you didn't know you had.

As we are all now forced to dig deep, do we trust we will hit a vein of gold? Financially, emotionally, spiritually? Or are we afraid to drill down, secretly fearing we might find a vacuous, haunting emptiness?

There are two parts to this post... the first related to the business of real estate and notes, the second related to my personal philosophy and world view.

Admittedly, I have a hard time distinguishing between the two. I am constantly reaching for a wholeness, an integration of seemingly disparate concepts.

Part One

April 1st will be interesting... April Fools Day. What 'pranks' might be afoot? That's when we'll see what our renters and borrowers will do, and when we will see how each of us are willing and able to approach our various financial obligations.

Some private note holders are, in advance, throwing the next two mortgage payments on the back end of the loan in cases where there is high probability of financial strain, such as in areas completely dependent upon tourism. Landlords are doing workouts with their tenants as appropriate on a case-by-case basis.

Inevitably, even some borrowers and tenants not directly affected by the lockdown will be opportunistic. I will be requiring proof of unemployment or other hardship, as those requests come in.

If you can pay your rent and mortgages, do.

Lenders and landlords can afford to extend deep and meaningful help to those experiencing a valid financial crisis if they have money coming in from their unaffected payers to cover basic overhead.

Evictions and foreclosures are on hold in most, if not all, areas. Technically, only federally insured loans are forbidden from foreclosing, but no one is willing to hold a foreclosure auction because of the "no more than 10 people" edict. So even the guy who hasn't paid me a dime over the last year will get to milk another couple months out of the pandemic.

Many courts and recorder's offices are closed. That means that you may, or may not, be able to close any pending real estate or note transactions. Counties that offer electronic recording are most likely going to support 'business as usual' operations.

FNAC, the largest institutional buyer of owner-financed notes has stopped buying notes secured by properties in the following states they deem will be hardest hit: CA, WA, NV, IL, OH, NJ, NY.

That means that there will be amazing opportunities in these states IF you buy properly. FNAC has enormous statistical data to draw their underwriting criteria from, so go in with eyes wide open.

They have also completely shut down all loan originations. That's right, until further notice, NO MORE NEW LOANS.

Other lenders are dropping all non-QM mortgages. That means that even though the rates have dropped substantially, and banks can borrower at near 0%, they won't be passing any of that cheap money along to any but the cleanest of borrowers.

There are 48-hour-before-close income verifications, door knocking, all sorts of unprecedented behavior to ensure that a loan isn't being made to someone who just filed an unemployment claim.

Even people that can afford to own won't be able to get bank loans. This exaggerates the liquidity gap.

That gap will need to be filled one Mom n' Pop to another... owner financing and notes, and other custom approaches to problem solving.

The challenge is to know how to balance risk and reward. How do we construct fair, ethical, intelligent transactions that meet the needs of all concerned?

This is what many of us have been passionate about for years and it's critical that more people become empowered with these tools.

On the wind at night I hear rumors of debt forgiveness... debt originated from the central banking system that has been siphoning off our wealth for decades. I do not believe it would affect private contracts.

As I like to diversify and hedge my bets, this potential makes me quite comfortable with, even excited about the prospect of taking a property 'subject to' the existing mortgage.

If the property will service the debt as a traditional rental, or if I can make a comfortable spread by wrapping that mortgage to an end user, then awesome. There's a chance I'll end up with a free and clear property in the event of a jubilee.

There is admittedly some controversy around this tactic and it needs to be approached ethically, with all parties having full disclosure of the potential risks and rewards. There should be a 3rd party servicer involved.

As I have stated several times on my monthly Virtual Coffee calls and at my local MeetUp group, I am also excited about lease option/lease purchase opportunities.

If you can prevent yourself from being gripped by paralyzing fear during this time, there is and will be unprecedented opportunity for all to prosper.

Part Two

Coming soon...