Ernst & Young Potential Tax Changes

Done for you – $10,000 grant & loan setup from the 2020 CARES ACT services – Sign up here

ACCESS CRISIS KIT HERE

WEBINAR ON STIMULUS PLAN – HERE

 

20.05.6 5-Year NOL Carry Back notes

A result of CARES ActNOL is when deductions exceed gross receipts (includes depreciation)Tax Cuts and Jobs Act – can offset 80% of taxable income & can be carried forward indefinitelyNOW can go back 2018 (from 2013) -2020 (from 2015)Effective for those who are Real Estate Professionals on taxes (REP)Need to have a businessCould be a good time to cash in some gains and take the tax hit now.

 

20.04.24 Updates (Source – Morgan Stanley)

20.04.19 Updates

The following is a working list of possible action items surrounding the COVID19 crisis:

CoStar on March 25th, 2020 –

Doom & Gloom

#Wait&see

Cares Act (March 2020)

1. #1 – Payroll Protection Program (PPP) – Applied to anyone under 500 employee (see more below)
2. #2 – Small Business Loans
3. #3 – Grants
4. #4 – Others

#1 – Payroll Protection Loan (PPP):

If you work in the Gig Economy, are a 1099 worker, a 1 person business, independent contractor , work for hire, self-employed, YOU ARE ELIGIBLE FOR A PAYROLL PROTECTION LOAN along with any business with less than 500 employees

#2 – Small Business Loans:

1. SBA 7(a) – up to $10M
2. SBA Express – up to $1M
3. EIDL – up to $2M – Payroll

I would suggest having your CPA apply for you on these. Let me know if you need a referral.

• Link to Small Business loans guidelinesGet a Government backed loan for payroll – Small business under 500 employee, $349B of loans for SBA, 6-12 month delay for first payment. Take 2019 average payroll x 2.5 loan equals loan cap. Likely to include owners compensation. Cap at $100,000 per individual (including you). We do not know if it include 1099s. You have to be update to 2018. Deadline is June 30th to start loan. Said in another way…  $100,000 or 100% of your balance, whichever is less and you don’t have to make a payment until 2021 then 5 years to repay from then. Any outstanding loans you can now skipping all future payments in 2020. Salary, wages, tips, all count. If you don’t bring back your employees back this turns into a loan. This does not include overseas virtual assists.Every bank has a different form
• You are going to need quarterly payroll reports – 940 and 941 forms, most recent 2019 payroll report, earning report from 2019 and YTD 2020 detailed by employee
• There is a lot of confusion between banks on how 1099s are being interpreted (it changed three times in late March)
• Perhaps you can prepay your leases and get a discount from your vendors in a time where cash is king… just make sure 75% is for payroll. Lets get creative: severance package, employee bonuses, they want you to spend money NOW (two years)!
• SBA resources –https://www.sba.gov/disaster-assistance/coronavirus-covid-19https://www.sba.gov/funding-programs/disaster-assistance

  https://home.treasury.gov/system/files/136/PPP%20Borrower%20Information%20Fact%20Sheet.pdf?fbclid=IwAR0U0rFUM7PCnPMWOb4I0Cyds0Hq6ZYteLOn5Mfti-tRq_Vcvdd1o63CDjQ

• 

#3 – Grants:

1. EIDL $10,0000
2. PPP for 8 weeks – not taxed
3. Extra $600/week un-employment
4. $1,200/tax payer – this is what the common man is getting (Use 2018 return or 2019 if filled already)
5.  

#4 – Others:

1. IRAs/401k – $100,000 withdrawl from your retirement accounts penalty free. You have 3 years to pay back taxes too. You can also choose to pay back in three years. Another option is $100k loan and have 6 years to pay back. These loans can stack on what loans you already have. Waiver for without a 10% early withdrawal period for 100k out of your retirement account you will have to pay the income tax over the next few years. You can also take a loan up to 100k too. Available to:
   • A taxpayer (or their spouse) who has been diagnosed with COVID-19;
   • Experienced adverse financial consequences from being laid off, furloughed, quarantined, hours reduced or unable to work due to childcare.
2. Estimated payments – You currently pay these four times a year but now 4/15, 6/16, 9/15 are now due on 10/15/2020.
3. Net Operating Loss Carry Back – The stimulus packages incentives people who buy thing now. However it appears to be able to back to 2017 and amend your past tax returns.Here is what I am seeing – the new law does remove the limit of pass-through losses of $500k. Prior to this, 2017 Tax Reform limited the amount of pass-through loses to $500k, so if someone had say W2 income, or capital gains in excess of $500k the K1s could not offset all of that income.Net operating loss rules – This is exactly why I told people to delay your taxes to October always
   • Old law – can only be carried forward and be used against the 80% of the taxpayers taxable income. NOLs cannot offset 100% of income.
   • New law – CARES Act removes the 80% rule and allows taxpayers to offset 100% of income through the use of NOLs. The act also allows taxpayers to use NOLs created after Dec 31, 2018 to be carried back 5 years!

4. Federal Student Loans – Taxpayers now have the ability to pause the payments on your federal student loans for six months until September 30, 2020.

   • Interest shall not accrue during the suspension period.
   • These 6 months will count for purposes of any student loan forgiveness program

   Employers can pay up to $5,250 of your student loans tax free to the employee.

 

 

Cares Act II (TBD)

1. I believe there will be another stimulus package coming online not because the Covid19 epidemic will go into the summer but congress will likely forget somethings and there will be more to come.

 

Investing in the Future:

Based on our Hui Deal Pipeline Club survey (April 2020):

Most non-accredited investors are falling like flies. This makes me a little sad because these are the people who need to invest the most but they were too slow to take what little money they had out of their stocks/mutual funds and run around with their tail between their legs.

80%+ of my Accredited investors are licking their chops getting ready for this 2-3 months of crisis to be over because they see it as a double white swan event (oil and Covid19).

Not getting ahead of ourselves COVID19 like SARS might be an annual occurrence however not to this extent. It is important to note that Green Street Advisors released research which estimates the property value declines in different sectors of Commercial Real Estate. See a few of the percentages below:

• Senior Housing: -49%
• Student Housing: -30%
• Malls: -29%
• Manufactured Homes: -28%
• Apartments: -23%
• Single Family Rentals: -19%
• Self-Storage: -16%

Don’t know what the above asset classes are? Check out our guide here.

 

Forbearance Information – For Large MFH over $1M loan size (Not 1-4 unit) (Updated 20.03.28):

First off the catch is you can’t evict anyone until the forbearance is paid off

Government was asking (and praying for landlords to be kind to their tenants):

BUT….

On Monday 3/23, the Federal Housing Finance Authority (FHFA) issued a press release that spoke to steps that Fannie Mae would be taking to provide relief to their many Borrowers.

Generally…

Borrowers will be offered a 90-day/3-month forbearance during which time the Borrower will not be obligated to pay principal, interest or escrow contributions (the previously required monthly payment).

• Additionally, during this time, there will be no late fees assessed to the loan and no interest charged to the Borrower.
• At the expiration of the forbearance period, the forborne amounts will be required to be repaid through 12 equal installments.

Other Sources:

https://mf.freddiemac.com/COVID-19/

https://multifamily.fanniemae.com/multifamily-covid-19

https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Moves-to-Provide-Eviction-Suspension-Relief-for-Renters-in-Multifamily-Properties.aspx

https://freddiemac.gcs-web.com/news-releases/news-release-details/freddie-mac-announces-nationwide-covid-19-relief-plan-affecting?_ga=2.109225548.89832450.1586375221-115104478.1585941257

https://mfguide.fanniemae.com/node/14026?view=recent_guide_communication

When can Borrowers take advantage of this program?

Borrowers have between April 1, 2020 until August 1, 2020 to commence the forbearance agreement.

What does a Borrower need to provide to take part?

A “Hardship Letter” or the like expressing real challenges in making timely payments. A Borrower must evidence inability to make payments (realized or anticipated) in order to qualify.

A Delinquency Report or a current rent roll that outlines units that have vacated due to the current pandemic or are expected to vacate/not pay due to the pandemic. Borrowers will be required to execute a pre-negotiation letter with Fannie Mae. The forbearance agreement contains language outlining that if a Borrower enters into the agreement, that they will not evict tenants for non-payment for 90-days after the forbearance agreement effective date. Fannie Mae guidance includes the longer of 90-days after the forbearance agreement effective date, or until the mortgage loan is brought current. The forbearance agreement is non-negotiable. If a Borrower does not wish to comply with any part of the agreement, then they will not be eligible. If, after the 90-days/3-months, any Borrower requires additional forbearance, Fannie Mae will need to collect additional information in consideration of that need.

Other items:

Required Repairs (as Identified under Schedule 6 of the Fannie Mae Loan Agreement)

Green Program repairs–loans with Green repairs due through 6/31/2020 will be given a 90-day extension. Any additional extension will have to be reviewed and approved by Fannie Mae.

Inspections – During the life of the loan, lender may inspect for 1-2 years

(Guideline inspections) depending on several factors. Fannie Mae has indicated automatic extensions of 60 to 120 days depending on the previously rated condition of a property. By and large, these extension windows should carry most due dates for inspections well into the summer or early fall, when, hopefully, the pandemic has subsided.

Reserve Disbursements – For our Borrowers seeking reimbursement from a Repair or Replacement Reserve escrow held with us, we are offering to wire these reimbursements for free, upon approval

20.03.23

 

Transcription:

0:00
Want to spend the next 30 minutes or an hour going over a bunch of news articles and action items I’ve composed? And I’ll do a little bit of time for question and answer at the end. 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 the Hawaii call HP for short. George Newberry once apartment owner operator and mentor to me is now sponsoring the podcasts 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. Find something else better out there. Well, let me know. Feel good knowing You’re 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 bernsen book, please send me an email Lane at simple passive cash

1:15
flow calm

1:19
That’s a lie.

1:28
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 we live but still may have to invite it to this call our current live investors and sponsors at like 250 of you guys nowadays. And the two biggest things of course that are the inspiration or the cause for today’s calls is of course the corona virus and Also the oil issues that’s been happening. I’m not giving any legal or tax or any other kind of investment advice. And I’m certainly staying away from any health advice here. Kind of acting as a funnel for different news opinions out there. And today’s presentation is, you know, we’re not going to have a lot of answers, but I just want to capture everything for you guys. Just to summarize, obviously, we all know that the stocks have been getting killed went down, you know, a third of what it was then gets, like the most the quickest drop, like ever, a lot of the news obviously is reporting that the corona virus is the cause of this decline. But I think a lot of what a lot of people don’t realize is it’s also a issue with oil prices. The Saudis and Russia are basically having a big price war to get America out of the game in terms of the shale, which is a sort of a codename for fracking,

3:09
or as I

3:10
like to call it stimulating wells. I’m, I’m not too excited about this. I went into an oil deal back in December by myself just to try it out. And that’s how you learn. You got to put money in the game. But I think we’ll be fine. I think that people are going to get hurt with these oil deals or the guys using debt for it. I mean, we’ve made this a little bit sidetrack. You want to go into those oil deals with no debt. Because if anything changes, now the banks call your note do very, very nasty

3:38
loan covenants with those things. And they they note oils as a commodity. So any reason that they can to take back those oil rigs with a smaller oil production producers, which that’s the deal I’m in, we’re looking to build six rigs with $3 million. So I’m not too excited about that, but I’m not using debt so we should be free. But nevertheless, I just wanted to highlight this what’s going on not oil because it’s really two big things. The coronavirus and the oil is which is causing all this. I’ve been kind of taking screenshots every day and it’s just man like you see, this is like the 2000 point, dow day. For those of you guys don’t follow the stock market, you know anything bigger than 400 500 point drop in the Dow is pretty monumental and you’ve had like several thousand plus moves a day. Some of the newer news coming out that I’m trying to follow is the bailout packages coming out. One of the big ones that they’re talking about first is building out the airlines. The airlines are kind of being a little sneaky here. What they’re doing is they’re buying back their own stock at a cheaper price kind of taken taking cash flow and hiding it there so that they look like better candidates for a government bailout. And look, I’m not trying to get political here but that’s just how it works and government We’ll probably continue to build these guys out. So it’s just not a matter of when or if, but when it’ll happen and how it’s gonna happen. So a lot of you guys, I kind of tricked you guys to come into this webinar with a survey, you guys weren’t invited to come to survey unless you either invested with us in the past or you did a survey for us. So I just wanted to poll my group and see at this moment, probably have like about 100 responses. So I think a pretty decent sample size. I just wanted to know, are you guys spooked? Or are you guys salivating over the fact that this is a true Black Swan event? And for those of you who don’t know what a black swan is, you guys can look it up on Wikipedia or, you know, just Google it, but basically, you know, swans are white. Once in a while you have that one black one. And sort of known as anomaly summarize, the economy was actually doing really well before this all happen. And then basically, this is a big stick in the bike spokes made things come to a screeching halt so most of the respond these who did my survey here were credited I don’t know why the 7.7% of maybe

6:13
I don’t know what you guys are thinking

6:16
it’s again accredited investors are a million dollars net worth and you don’t need to go get any kind of certification it’s kind of like being pregnant either Are you are you are accredited or not accredited. So most of credit investors do my survey and I got a few slides here some, you know, survey results just to give you guys some insights. Definitely it’s a self selecting group you guys are of investment minded and long term driven and not really driven by fear. Like most Americans out there, but you know, I’ll say I’ll caveat that I’m sure a lot of us are afraid a little bit what’s happening and I’m definitely fearful to different cautious moving for so 57.7% at the very least, chose my pre proper populated responsive Let’s buy into this black swan event. So you guys are excited about what’s coming up ahead. And then the rainbow colors represents that you guys obviously don’t like to follow my survey and you guys like to make up four pages of responses on your own. Which makes sense because you guys don’t like to follow the traditional path. Know what? How many of you guys are, you know, the red one right there is like was the one that I think I put was, it’s the beginning of and the world is coming to a halt and it’s a very small sliver there. The rest we’ve got I got to believe that 57% of that is more people who are bullish. So I think I’m willing to say that out of our group, most of us are pretty bullish on what’s happening head. You know, maybe I wanted to say that two thirds of us are I put out some survey questions. How do you guys want to invest? Right? A lot of you guys are looking to hoard cash. In an infinite banking policy to let me know if you guys are interested in that. I also had a question put in there. What do you in the next six months are you guys looking to pull out stock market stuff and put it into hard assets? A quarter you guys are looking to do just that just the next six months. And how are you playing the recent news and here’s that whole most of you guys are looking to stay put. The red there is simple for one or two months. The blue is move stock mutual funds to hard assets. The orange there is stay put for a couple quarters. I think I’m sort of in between the red and the orange stay put for like one or six months and we’ll get into that kind of how the coronavirus thing has been tracking. And then of course, you know, nobody can tell you guys what to do. Right You guys

8:55
have a plethora of other fun and

8:58
I appreciate the comments.

9:00
Definitely is entertaining for me to read those. To put things into perspective, I took this from the ITR report, which I use as an sort of an unbiased news source that isn’t trying to sell me on gold or something like that trying to make a referral fee of gold like everybody else. So they had this slide in here, outline. These are black swan events triggered by something. So for example, the 911 was probably the best comparison to what’s happening today where you can point to one specific thing that happened, you know, planes going into some towers to start up a war in that instance s&p went up 8.2% and the decline in s&p was just one month and then a few other if you guys remember in history if you guys were around, those are some other triggers. Today’s one is the coronavirus and the oil price wars but this thing that’s different, as opposed to the 911. And some of these others, like the economy kept on moving. It wasn’t like how it is, at least for the next couple of weeks where it seems like everything is just halted like complete stop, people can’t leave their houses. So I am in a mastermind and we had just wrapped up this call yesterday, there are over 100 of us in this call. And I wanted to communicate and bring filter down some of the topics that we talked about in this group. And just know that these are highly active investors. They do over 100 flips per year. So some of the not saying like some Kevin, this like this aren’t the things that you guys should do, but just giving some insights on what other higher level people closer to the action are doing. So what they’re trying to do is they’re trying to fill vacancies as soon as possible may need to reduce rents. They’re trying to lock up monthly numbers. month leases from six, nine or 12 month leases. And also, you know, it’s also the opposite, right? They might be turning guys to month to month leases, just to keep the person in the house, get occupancy, if their credit cards are trying to call up the credit card trying to prepay the vendors out of those tronic monetize the credit lines. They are cutting their direct marketing, which are those annoying postcards that I’m sure a lot of you guys get. But, you know, this is the kind of the level where these guys play it. They spend $5,000 a quarter million dollars a month on on a direct marketing campaign. A lot of them aren’t touching their TV ad and pay per click which are the online ads. Maybe part of that is we’re all stuck at home right? I mean, our Internet’s a little bit slower

11:51
and they are also decreasing the overhead

11:54
and I think that’s something to kind of key in on in the futures

11:59
are people getting fired.

12:01
Is that continued getting there he lock in cash now, because the nice thing about the HELOC is it’s cheap. The bad thing about the HELOC is that, in theory, the bags can just change the rules on you. And a lot of you guys kind of fight me on that. I’m like, Well, you know what? You can believe me or not, but when the bank does it, don’t come crying to me, because I told you, maybe if you’re not even using the cash out of your shoe, like maybe you just monetize it, stick it in the bank, of course, you’re gonna have to pay your your rates on that. But, you know, access the cast might be important, and these are for highly active investors, right? You guys are passive investors you may not want to do do the same thing may not be worth it to you. A lot of these guys are getting quotes to refinance their properties on interest rates that are hot, 5% or higher. This should help if any of the tenants struggle to pay rent and then they need cash to kind of overlay that They are recode quoting insurance rates to help lower your expenses. So if you guys are looking for a couple quick insurance referral sources and you want to price price them out because you got nothing better to do then fiddle your thumbs and you want something to do, and you don’t want to play with your kids because you’ve been playing with your kids for the past

13:19
week, shoot me an email and then

13:22
maybe with how many properties and I’ll kind of connect you with my

13:24
folks there. Hopefully you can save some money and just be aware that people’s jobs and incomes will be affected by the crisis lobbies, guys are boots on the ground, they are interfacing with tenants, and maybe that’s some of us too. And we’re just trying to prepare financially for tenants to be laid off. In on my operational

13:44
side as a general partner and a couple of dozen of these apartment

13:47
deals. Our action plan is pretty much the same across the board. We are upgrading sanitation procedures staying at home for guidance of CDC. Closing the local offices and moving more towards the remote just to comply with local guidelines. We’re still working telling our tenants or doing work orders. But we’re being smart about it right. We’re not fixing things just to fix it. And I think we have a little bit of grace from our, our tenants to know that yeah, it’s it’s interesting time, that we’re not going to go fix all something that doesn’t need to be fixed right away. Also saving a little bit of cash there too. With some of the salaries of the property management staff and the work stuff. new prospects are being directed to the websites and some self guided tours are being given with proper identification so they don’t screw up the property. And then we are highly reinforcing that rent is still due. A lot of folks out there they are reading the news. Some of them are just learning about this whole Corona virus thing. A lot of the tenants are Maybe just like kids, they’re just selective on hearing. So they hear all this stuff about Oh, now they don’t pay the rent. But here is an example of kind of what we’re sending out. We’re firmly reminding people that look man, you got pay your rent dude, man or something like this, maybe if you if you’re a landlord, doing it yourself maybe wouldn’t be a bad idea just to reconfirm things. And I will talk about this a little bit more in the presentation. But I think the important thing is just to be compassionate. Everybody is kind of suffering through this thing. And then on the right side there I’ve been kind of looking at all kinds of different things. I mean, a lot of groups and this came up this tenant protector plan supposedly for like nine bucks a month or something like that. They will cover occurrences on skip eviction and coverage. If you guys are looking for something like that. I have a couple options like that in the in my bag of tricks. If you guys want to shoot me an email, I can connect you with them. I personally don’t Don’t don’t like to use that stuff because you know, there’s a reason why these guys sell insurance, it’s to make money. And if you’re an investor, there’s a certain amount of risk that you need to be taken to make money. Again, as General, as a general partner, and sponsor these deals, some of the higher changes I’m making is I’m staying away from C class deals because they are the probably the first ones to lose their job and they have absolutely nothing and savings. A lot of times, and especially the smaller deals are the ones that are kind of struggling, I would say struggle or struggle more in tougher times because you just saw the economies of scale. Number two, under an anxious perspective, we are using a 4% interest rate and only two years of interest only on kind of running our initial projections. The last deal that we closed, we rate locked on March six. That was Friday. And that was the very low of the rates at current times, we got a phenomenal 3.23% 15 year term that is unheard of most of the past deals we’ve done were like seven 812 year at them, I think the 12 year was the longest but now we have a 15 year on a 30 year amortization and four years of interest only, but still we are going to underwrite with 4%. And two years and just only just to be conservative, and from an earnings perspective on the numbers of two years and just slowing, it doesn’t change the total return too much, but the rates a little bit more impactful. And we are also increasing our assumed economic base could see just add a little bit of cushion into the model also. So that’s how we’re changing up our underwriting and acquisition standpoint, still looking for deals out there. Just being a little more cautious. I think there’s a lot of anxiety, even amongst you guys. And I just want to remind you that this is exactly why you invested in multifamily In real estate and real estate in general where you’re catering to workforce housing regular people so if you want to follow this track each of these boxes moving from one box to the other could represent a few days or maybe even a few weeks. But to get to that point on the upper right hand corner where it actually impacts us takes a while so if you follow this you know the Black Swan event Yeah, that happened definitely fear has been setting in stock market retracts 10 to 20% that has happened. This is income decreases you’re upset about new progress and rolling out gas real estate is now excited to watch out for executives and be careful when not seeing my new mastermind program which consistently

18:47
with 27 and that is when attended by weekly group video conference calls throughout whatever he read half of the calls will be centered. Why do we invest in real estate and housing Hmm, Learn the wealthy and boy back to back like what was a landlord maybe and the secret thing to do now is to like get on them I know what you’re thinking I know another flippin Facebook Let’s be compassionate see what else are gonna be different in the process man no cheap to rent Don’t forget coaching individual clients can work here now figured out what I’ve been hearing guys in a Costco offer incentives they will argue before the first move your shoe pricing for exactly anything to get the collections up and then on the right side market vacancies go up decreased market rents and at that point you’re talking months into the future here for lower income operating income which means less income and then affect the caps. This is more guided towards you guys passive investors. These are just some potential action plans. And I’m not advocating for all these or any of these, I’m just giving ideas. But number one, figure out what your personal job status is. I’ve only heard of like maybe like two or three of you guys getting fired or laid off or a couple of you guys actually are using this as an opportunity to cross your fingers and get a severance pay, because you are going to quit anyway. Good job there. But figure out like what is cash flow, whether you get it from properties or your job is the same cash flow is your oxygen, you need oxygen to survive and put food on the table. So figure out that first. And from there, hopefully, you’re good. Number two, might be a good idea to cut some costs. Like I said, we do have some insurance quotes. Reach out for me for those referrals there if you’re looking for something to do. Number three, monetize some lines of credit. And then number four, I’ve talked to a few you guys This past week about this you guys have some California rentals with a lot of equity a few hundred thousand dollars of equity or more. Dude, now’s the time to be either selling that thing or harvesting that equity because the Fed rates went lower, but a couple weeks ago at the interest rates sort of spike temporary spiked higher. And you guys can read that that podcast on it where the normally the 10 year Treasury tracks the interest rates and it tracks the Fed rates. But the 10 year Treasury and the Fed rate actually decoupled. I don’t all understand it. You can listen to it right there if you’re an academic type of person. In my opinion, I think a lot of like the California markets, the frothy areas, a class areas of primary markets, well, maybe not the eight classes but the primary markets where this thing is hitting the hardest, where there’s a lot of density population where California and Washington got hit the hardest initially. And now in New York, I think there’s just a lot of fear and housing prices in those areas because it’s residential is governed by comps that is going to get hit the hardest. You know, that’s why you invest in commercial real estate man, right? Like it’s all numbers, net operating income, not really any emotional involved before you. You know that that starts to take effect, the fear starts to get in and you know, leach into residential home prices might be a good time to lock in that appraisal, and get that key log or that debt equity out with a new refinance. Some other things to think about, especially for credit investors. You know, for those of you guys who have money to lose, and are willing to take in a higher level of reward in exchange for risks, might be time to follow what the pros like. Can macro is doing and getting too heavy value add and distancing yourself from the amateur Rei group. He’s out there buying those C class properties, they buy those properties and especially the small ones because they don’t have money, you know, citing that podcast by Ken McElroy that he did with the real estate guys maybe a few weeks ago, I would take a listen to that a lot of good ideas there. And, you know, a lot of people will say, well, there’s no cash flow, I’m like, well, you’re a credit investor, you shouldn’t need cash flow from this deal. Some of the deals you go into are going to be shoot for the moon type of deals where you don’t need cash flow for three, four years. And but as long as you go out and property capitalize so you can complete all the construction and get through the initial lease up phase should be fine.

23:46
Number two here, the ITR guys and I keep mentioning them. They’re unbiased news source in my opinion, and they’re big, big, predicting a big growth from the year 2021 to 2030. I mean all Lot of signs point that way, despite what you hear in the perma bear News Network, I mean, yeah, so ITR is saying that we’re kind of going on for another cycle. I am thinking Trump will probably win the election and just see what kind of you know tricks he pulled out of his bag, maybe even in negative interest rates to release socket to the savers out there who’ve been saving their money and you know, just create more growth, right? It’s a, there isn’t a third term for him, right? he can do whatever he wants at that point number three, whatever you do, I would say stop listening to the perma bears like Peter Schiff, Chris martenson, they are trying to freak you out and sell you on gold and their newsletter subscriptions. That is their passive income. The game is like they just call the next recession so they can put it on their website. So they can be the person who called the last. I believe that this is the time that go in now, which is why I’m personally You know, I’m probably gonna hold like a few months and we’ll talk a little bit more Corona virus is taking us but of course when I say going in I’m going in with a minority portion of my portfolio I reiterate that I want and that’s that was really the inspiration between doing this video report today was because I think a lot of times you guys would read my emails, maybe hearing an audio form but now that’s the form that we have today is you guys can ask questions at the end of this presentation and we can kind of talk through some of this stuff and it can kind of be a two way street and for a lot of every situation is different so I’m really trying to ramp up my investor calls with you guys if or if you haven’t talked at all. Let’s get on the phone like we need to have a personal relationship you guys that should be rule number one you don’t invest with anybody you don’t know like or trust anything I can help out let me know or just shoot me a quick email um, some other things to think about form your entity sooner than later. In in case the government offers says clothes are deemed that non essential I know on Kansas in Ohio, a lot of questions houses have close so they can’t assign their wholesaling contracts. You know, I mean, if you’re looking to form an entity get on that as soon as you can rent control and evictions, you know, with the government kind of stepping in here with some helicopter money, but in front of that, and I asked like, Why do you still own rentals and blue states makes no sense to me and while you still have that, I mean, it’s just going to get worse and worse and just remember all this is you know, we don’t have answers yet. I’m just trying to offer some guidance and directions and some things to cue in on and I put this image here. This is the metaphor that I’m using for what’s going on. Right now. Everybody has stopped working. And we’re all in this sort of traffic jam. Nobody can go anywhere. You know, maybe to get take this another level for the businesses or the big trucks, the little Class D Class B tenant in the cars you Hyundai there, you get the BMW there, we’re all stuck. Nobody can go anywhere. So maybe just a little bit of compassion is what what is needed here in this situation? You know, for the guy, little guy in the Honda, you know he can’t pay his rent potentially. Right. And I think that’s this is where the government is needs to kind of come in and this is what the government is made for. And you hear terms like universal basic income, which I know it probably makes the hair stick up in the back of your your neck when you start hearing that, but you know, we’ll see what the government comes up with. In terms of like, we need it, we need I need some help. I think average person needs some help the economic outlook moving forward, and here’s some things to kind of watch out and be aware of some knee jerk reactions by the government like the zero percent fed rate that happen think Monday and I apologize, some of these days run into one another because I’ve been self quarantine at home for the past week and I got a little bit of cabin fever. So they’re looking at my multiple rounds of stimulus going through. And a lot of this is done very hastily. And I think that is kind of nice. I think that’s positive. Because ultimately what they’re going to do is they’re going to pump a whole bunch of money into the economy,

28:16
it will probably impact the stocks favorably to the tune of maybe a 500 point gain here, or 300 point gain here, and eventually we’ll get back to where we were. Um, but I think what’s really going to happen is the real hard assets. That is really what’s going to feel get get the impact from that. I mean, yeah, they can sign something in the law. But that money is not going to get into the system until, like five to 10 years down the road. One of the last jobs I had was to do the 2008 Recovery Act, my project was about $80 million to build high speed rail or who knows what it was, by the time we built the damn thing. It was like 2012 And most of that time was through permitting and just like design work, and it’s just amazing how slowly the the government works and how slowly the money gets to people. Which is why you know, like, traditionally most people don’t like the UBI universal basic income or thousand dollar stimulus checks and originally I would agreed, but after seeing how slow the government actually works, you know, sending out checks pop maybe isn’t a bad idea, then giving it to jpmorgan chase those kind of type of people and habit, have the Monday filter through them as they take their cut. Number two, remember that the economy was doing well before the coronavirus and I personally believe that it is a true Black Swan event. And also the the oil issue is in there. Oil cannot trade at 20 to $30 a barrel. Again, the Saudis and Russians are trying to bury that price down to a point where the smaller United States operators can not compete, where it just doesn’t make sense to pump oil at $20 a barrel. And this is something you guys can kind of track it, you’re gonna have to proactively track this on your own because the the news doesn’t care about that they’re too concerned with the coronavirus. But a lot of people say that this is much more important than what’s happening with the corona virus at the time. And so one of the questions that came up is all right, what’s happening with if this kind of continues on? And here’s my analogy, I call it the great musical chair game. So I picked up a picture out of the internet with four chairs, and maybe you can construe it as class ABCD. But right now, right, there’s four people, four chairs, and I’d be willing remember, before this, we were in a housing shortage and we will be in a housing shortage in the future. So four guys, four chairs, there is going to be a point where right now The music is going to start playing and people are going to need to move around class v people, Class C people Class A people will probably have some displacement in their jobs. Or maybe they will just do a poor job of managing the personal finances and will be evicted or be forced to move voluntarily or involuntarily. A lot of things can happen but basically every you know, a good chunk of people are going to be moving around trying to find a new chair. And what that means is a period of nobodies in no butts are in those seats and butts in the seats means that landlords like us are collecting rents. So in a way, it’s kind of like everything’s up in there for that short time. But we all know that things definitely come back down at some point, but the thing is, like, how long is this, this moment of zero gravity going to take place in my opinion, now maybe a month, maybe a few months? Think that’s sort of reasonable to expect. And this is why the larger properties, I believe, have a better ability to withstand this because it’s not like you have a duplex and both the units go out. And now your person occupancy, you can’t pay the mortgage right with a bigger property. Now you’re talking on smaller scales in terms of either 62% occupied 71% point 5% occupied or it’s better steady state, tailwinds some good news here and the bunch. unemployment benefits should be also part of these stimulus packages, and these should help tenants. One thing I want to say about these unemployment benefits I hear both ways and the news people are getting far also hear stories. But then you also see like unemployment lines that are at the unemployment offices, and it’s like, dude, like we’ve only been like in this for like three days or a few days. Like, how much of it is just people trying to get a free handout? I don’t know. So that I mean, that’s why I look at news articles and I would encourage you to do the same.

33:10
Number two, a good news for us is it’s tax time. And although a lot of us are aware, or maybe are not aware, but the taxes sort of got extended to July, I recommend all you guys to always be filing in October anyway, I don’t know why people do feel like the taxes are due in April 15. But most of our tenants, that’s that’s the world they live in, right. That’s the normal conventional wisdom that they live in. So they will be most of them will be receiving a tax refund because they don’t know that’s the way the W four is created. So people who can’t kind of save money this is government tries to force save them. So that that helps sort of in the interim, that hopefully they have a tax refund coming back. The red states a lot of like the Alabama’s the Texas red states when I mean red states republican type of states where it’s landlord friendly, they are not restricting evictions yet like how they doing in California, a lot of the blue states, however, courts are closing or moving to the, you know, the limited services model. Number four your government programs to watch possible tax extensions. I know in one of the states we’re operating in the they said, Well, you don’t have to pay your taxes right away. And although most of ours are on escrow, you know, something if you’re kind of your individual landlord, you might want to look at maybe pushing it back, you know, no, no penalty, but figure it out for yourself and do your due diligence. I’m not telling you can you can’t just having you be aware, I don’t want you to not pay your taxes and you get a big tax bill, you know, you blame me. Again, something else to be a lookout for Cash Disbursements, the idea of sending out thousand dollar checks to everybody negative and then negative interest rates. I mean, Trump has alluded to this. I think that if he does it before he gets elected, for the average person who doesn’t understand how money works, they would think that they would get really upset, and they wouldn’t vote for him. But I think since a lot of us are investing our money anyway, in things that outpace inflation, and will definitely outpace the what negative 1% or negative half a percent negative rates that the Fed would put in place. I mean, that’s, that’d be nothing for us. But for the average American, it’d be like, it’d be a slap in the face, but I’d be kind of excited for that if that started to happen. I mean, that just I think that what that does, that just accelerates people who are investing the right way for it. Another thing to be on the lookout for I haven’t really fully vetted this thing, but it’s like the cares act. I think it stands for like Corona. something something something act. So some things that I’ve been tipped off, maybe you can take out $100,000 from retirement for we don’t know what maybe, you know, it’s probably for to pay your bills, but maybe you can put it into like hp. I don’t know. Right. Like he got it, we’ll see how this plays out. It’s alluding to extra leaf for people, cash checks, and then the FMLA is looking like it’s changing. Here’s a little bit of a chart again, I don’t know if this is set in stone yet, but this is some of the news that I’ve been reading like how, you know, based on your filing status or income, how much money might you might be looking to get how we’re going to pay for this. Who knows, but um, I think what it means in the in the midterm like 510 years is like, you’re going to start to see a lot of this money. You know, you got to inflate this out of the budget. And how you do that is you just inflate everything. And so the people owning real hard assets are going to be the beneficiary of the government inflating the money supply and and kind of making their debts dissipate.

37:16
So here is my comments on the whole coronavirus. We all know about the whole without measures and the protective measures the whole hashtag flexing the curve idea not going to get into into any of that because it seems like it’s really political and I seem to get super really fired up. The question here is like will the 14 day social isolation solution work? I’m not saying if it will work, it’s not but what is interesting about this black swan is we can sort of see with like, you know, how many cases there are increasing or decreasing. If the stuff we are working on works? Well, much to a point where Maybe tomorrow, we can see some traction. And we’ll be out of this in the next 14 days and it’s just life back to normal. Like sort of like the Hulk, getting all the five Infinity Stones snapping his finger and we’re just out of this. I would watch the what’s happening in China in Italy. I mean, of course, China has proclaimed victory against the coronavirus, but who knows we can trust what they say, of course, people are asking in terms of like investors in our deals like Well, what’s happening? It’s like, Well, nothing has happened. You know, that’s why I invested in multifamily real estate, I will see what happens in April collections. Most of our properties are at 95% occupancy with adequate reserves. So I think we’re pretty good going into this. A few of them are at 90%. I’d probably like it to be more at 95%. But at this point, we are suspending distributions for at least a month or two because you know, going back to point number two Here, will the 14 day social isolation solution work? Or will it be 30 days? Or will it be 60 days? We do not know. Number five, how much watch the government support right? Well that mitigate 28 day social isolation experiment. Here’s our steps that we’re taking, you know, of course, we have adequate cash reserves. And that’s the reason why we have it. We raise extra capital to withstand things like this. But we’re going to cut costs exhausts those cash reserves. And then it’s got to be a few months for this to start to happen. But the next step is to ask help from the lenders via forbearance. And then I am fully committed to coming in as a general partner and opening up my own wallet and feeding the beast making sure that these deals are cash flow neutral, essentially giving the deal a zero percent loan. Anybody want to be a general partner Now, let me know Because that’s what comes along with the territory. And then you know that last resort, of course is the LP capital call but you know if that ever comes into play, we’ll talk about that. You know, that’s that’s why investing and I but I think when you are in the arc of a larger gear, I think it’s more times better than kind of out there on your own. I’ve offered some advice for some of you individual direct investors with their own rental properties. We’re all kind of in the same same situation. Remember that the fundamentals of workforce housing are still there, everybody needs a place to live and there was a housing shortage initially and we might even see some of the institutional money wake up and like see the stability that multifamily or workforce housing mobile home parks bring, and since we’re already in might see a little bit of a windfall due to that, you know, member I don’t have any stock holdings, so I’m not wanting to give any stock Advice. I hear it all the time from amateurs. Yeah. Now’s the time to get back in now’s the time to slowly increase your holdings. It’s going to go back up. Or that well, the one that I don’t know is people will say, Oh, well never go into zero. Well, yeah, never go to zero, but it still does nothing, right. I mean, as long as you like not penny stocks, it shouldn’t go to zero. So I didn’t get any good excuse to me. Ross child said time to buys when there’s blood in the streets, and they do believe that there’s a little blood in the streets at this point. I think it could get worse, that’s for sure. And Warren Buffett says be fearful when others are greedy and be greedy when others are fearful. But a lot of investors I talked to that are have been doing this since like the Jimmy Carter years say that Hey, man, this is the time where I made a whole boatload of money because everybody was afraid with this black, a black swan event at that era. And I believe this is a true Black Swan event we’re in this is the opportunity sorry. If you got hit on the chin. Like maybe that’s the wake up call that you need to get out of the fake stocks. If you guys still doing that you probably know more than I do with that stuff. So I’m not I’m not willing to argue on that.

42:14
Of course the we all know the point of maximum financial risks is whether euphoria is highest and the point of maximum financial opportunity is when I don’t know what despondency is. But think of it as panic and depression fits. And I think we are at the stage of anxiety, denial and fear. I don’t know maybe like ask me in a month or two from now maybe desperation will start to set in one question and you guys can start putting in some of your questions here. I’ll start to answer but some questions I got. What are your thoughts in the multifamily investing space? I’ve seen your posts referring that class A will suffer the most and people will default to class B and below So saw that in some areas of the government has outlawed evictions due to a lot of questions in that question but faster the first one I’m so bullish and what they found me investing I mean, you buy where the numbers make right right that’s why we bought this stuff when it cash flows from the beginning. So the in times like this Well we all we do is maybe we slow down the rehabs and we just hold through the tough times I’m in a way this coronavirus thing is sort of like a natural disaster. Although I think we’re all kind of safer in our homes. I mean, luckily, there’s not bombs blowing off the top of our heads. There’s a lot of parts in the rover that’s happening. And but the cool thing is at any moment, you know, they could find a cure. The cases could just dissipate. And it could just be clear skies ahead. We don’t know. That’s what makes me kind of bullish and especially Now unlike the I hope that the government does all these stimulus activities out of fear Kind of inflates the money supply because as investors you know, we’re the ones who kind of benefit from that upward trend and inflation where it’s all the savers that lose out so I’m pretty bullish. We talked about the the great musical chair dance how things will move down and also caveat that class you know the class A’s I think will suffer but let’s break that down right like what kind of class A what kind of some market you haven’t walked that block you don’t know that some market Class C could be fine as long as you’re I think in a class A area there’s a lot of properties like that in Phoenix for example, and like take us some market like Arcadia, you have like a 1970s 1960s property a few blocks away from the main drag were all the yuppie bars and restaurants are that’s that’s I would go all in on something like that. What if people stopped paying imagine the sponsor to look for government? Yeah, we kind of talked about About the we’re still a couple months away from even enacting some of those options at this point, at this point, we’re kind of in, in a kind of holding pattern. And, you know, sorry to investors, but we just feel like it’s prudent not to pay it. We’re going to pay up distributions this month, but we’re just going to put a hold on that. We just feel like it’s prudent in wake of this unprecedented thing happening. Question here, what do you call Oh, some of the things I have on the screen here. So it is this these are some of the indicators that they are looking at and they are generally bullish, coming out of the coronavirus thing. I’m going to the question box here. What do you call heavy value add? Is it click Class A assets so heavy value add doesn’t necessarily mean that it’s a Class A, B or C or D. Heavy value add? I would define that as anything more than $10,000 of rehab development per unit. That can range from the some of some projects like in Phoenix, for example, where you have a class C 1960s property and you want to get it up to that where the market is. And you know, in terms of the sub market Class A sub market, you’re going to have to do 2010 to $30,000 a rehab per unit. So that means a lot more than your basic appliances and flooring. You’re basically gutting the whole thing, and you’re putting maybe in granite in there. And whole new bathroom. Yeah, it’s just a lot of money to do that. That is what I consider a heavy value, add. And heavy value add can also mean just total ground up construction to.

46:40
So again, doesn’t necessarily mean that you’re building class eight assets. Although when you do build something new, especially development, it makes no sense to build a Class B or C asset because you’re already in there. You already tore it up. You already have your mobilization, costs, etc. that if you’re gonna get in there, it’s a no brainer. You got to make it classy with quantitative easing, and the Fed pumping fake money into the system. Doesn’t that expand the current see crisis? Current thoughts on inflation and how long do you think paper money will exist? I don’t know how to answer this, my friend. I’m not a huge expert in currency. And I just know that that certain like there’s a certain percentage like one third of an average person’s salary should pay the rent, or the mortgage. And I don’t really get into like trading forex, right like that. I try and focus on finding deals that are under market rent that I can buy for less than what I should be. So I know all I can comment on is inflation. I mean, as I understand it, like to pay for all these bailouts to pay for all this like fake money to pay to pay everybody $1,000 or 100 to 200 million. Put People are getting those texts you’re going to need, you’re going to have this huge run up in debt. And the best way to get rid of that is to inflate how much money you have. By inflating your money, you essentially make that debt smaller. And this is the this is the exact reason why, you know, buying real estate is such a good thing because you know, you buy your parents bought a property maybe 50 years ago, at $10,000. And their mortgage mortgage was $10,000. So they owed $10,000. Today, well, maybe 30 years later, that that $10,000 is nothing right. A lot of you guys could probably pay that $10,000 mortgage in a matter of a few weeks. And that’s sort of the premise that is the best way for governments like United States to get rid of their debts by just it’s sort of insidious way of doing it because you Instead of raising taxes which pisses people off, and makes people not vote for the politicians, they just inflate the money supply and and in a way you can kind of trick on sophisticated public that it wasn’t it wasn’t my fault. It wasn’t democrats it wasn’t the republicans it was just inflation. It was just this ghost that kind of took everybody’s value or their their buying power away. How do you feel about mobile home parks this year? I think mobile home parks are definitely a recession proof asset. Just like you know, solid class be in, in better markets. We had a call yesterday we’re going to talk going through some of the proactive plans we’re doing we’re having some run ups and people looking to inquire for mobile home parks. So that’s good news. But it’s still too early to tell. Right? I mean, we were all taught I’m just talking in theory, right? In theory, it’s all feels feels fine. This is the exactly place you want to be because when people get foreclosed on their house, or can’t pay their class B or Class A apartment, where do they go? Well, they go to a mobile home park. A lot of good people in America, solid tenants making 20 $30,000 a year, this is their only option. If you had 100 grand in 401k, would you start to pull all of that out right now be ready in the next six months to invest rather than let the s&p 500 chop forever? It seems to be about timing right now if we are on the downslope of the curve. I don’t know which if the market is going to drop even more or go up. I don’t know.

50:48
But I

50:50
don’t know how to really answer like if it were me, I would I don’t have any stocks or mutual funds. I think that’s all retail fake investments. Death. I think a lot of people are reading Realizing that maybe their strategy that had the run up in the last five years maybe wasn’t working and if this is part of it easy come easy go. All I know is like if you don’t invest, you don’t start to learn about it just like how I put money in this oil and gas do and I might lose money the first year, I might not make any money in the first couple of years. But unless I started the process, I would have never learned about it. So that’s what I’m kind of doing now before I tell you guys about it. If deals come up where your cash flow, I think you can’t go wrong, but it’s tough, right? Like when you’re in a lower network situation. You’re still trying to put food on the table where a lot of credit investors You know, I think a lot of credit investors are kind of salivating over it like Yeah, not that let’s get into this, but it has to start somewhere. But some parting words here. You know, number one, guard your mind because a lot of just nonsense out there, especially social media. It’s all negativity. Number two, protect your body. And now you guys can’t go to the gym. We’re going to Do some burpees after this you guys would like to join us. Number three here live Aloha and although it’s kind of a ubiquitous term but I’m like be compassionate you know chill out dude like I get it like we all need to kind of stay at home and do our part but like I don’t just try and be more compassionate to our tenants to like people who you know aren’t playing around with this coronavirus things and guys who are like taking it like very emotionally I think we all just need to just relax and slow down and you know, things are changing but it’s expected to be changing. Very interesting times we’re living in later on today 5pm Pacific let me know shoot me an email if you guys would like to join in on our webinar, we’re going to do some burpees I hope I can do it in less than 10 minutes

52:51
because it’s 10 minutes long time to do anything.

52:54
But this is the final call for any last minute questions. Question How will this affect cap rates and property values in the near future? As I said earlier with this diagram it takes to go from one box to another could take maybe a few days could take a few weeks. Right now I would say we are at this first spot, or this third box, and maybe even this fourth box. So after that happens, attendants are going to have to can’t pay rent. And this is why I don’t know what’s going to happen. I’m just offering guidance and what will happen in the future. Maybe we do another call like this. There is no light at the end of time. At this moment. There’s not a cure. And we don’t know the 14 day porn team will work. You know, we seen what happened with Italy, South Korea and China but we don’t have a communist state where people actually follow directions, right like Hawaii has like a 14 day ban. on like, people or not 14 a band, but 14 day quarantine where people fly into Hawaii, they have to register and they can’t leave their place of shelter, which is a hotel or where they’re staying. But like Mike, the question is like, How the heck do you regulate this thing? Right? This isn’t Japan where like you see something and people actually follow directions. This is America. And this is what makes our country great right? Indians and this is why I got like 50 different responses to the same question on the survey from you guys. I’m just this one population. So to answer that question, will this affect cap rates in the near future? Yes, it will. If we keep moving down the steps, right. It’s going to take systemic vacancies and systemic lower market rents for this to bring down the cap rates, but then I argue like who cares, right, like if you’re in a deal with like, long terms I mean, just hold out. That’s that’s part of the hybrid strategy. And while everybody is if that continues, you can imagine what’s happening to your equities or stocks or mutual funds. I mean, now you’re talking about people losing an additional 20 3040 50%. In their, their stocks. I mean, it probably could go down. I would say if, if that continues for another two to three months, and there’s not severe government intervention, I would say the stock market goes the Dow goes down to like 15,000 or 10,000. And if the worst is that, you know, you got to kind of feed to keep your properties and weather the storm. I think it’s, um, I think you’re better than most. I mean, it’s like having having four cases of toilet paper where everybody else has like, a sick spot. I think. I think as long as you’re not the worst in the group, or the population, I think you’re probably going to be Bass better off

56:03
if there’s any more questions

56:04
appreciate you guys coming out. And if we haven’t chatted before make sure you guys set up a call so we can talk and thanks for listening like this website offers very genuine information concerning 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 at 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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