New lending standards, what’s your prediction?

Rental Property Investor · Ithaca, NY · Member since 2015 · 1k+ posts · 1k+ votes

I’m hearing on the internet, television, and BP the lending standards for big banks are starting to change. Some theorized prices for housing will fall, others think nothing will happen and we’ll all go back to our once “booming” economy. What do you think will happen?

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Cameron TopePro Member

Property Manager · Katy, TX · Member since 2015 · 1k+ posts · 1k+ votes

I don't think we'll have a housing market issue.

The jobs that are lost are mostly small businesses and low-paying jobs, which the trillions of stimulus money will assist. The high paying jobs are either furloughed (for a few weeks) or working from home. These people are still making mortgage payments and buying properties.

I don't think you're going to see the 10% appreciation growth like you have in the past but a more sustainable 2-3%. Rentals are going to be more popular because tenants are using savings (which they had saved for a downpayment on a house) for living expenses, making them tenants for longer.

I think the only people that are going to get hurt are the clowns that need 10% appreciation and rent growth to make their syndication deals look enticing to new investors that don't know any better.

The investors that buy (and continue to buy) solid cashflowing rentals will be fine.

[email protected]832-770-7090

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Matthew Irish-JonesBusiness Member
Real Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes
6y
@Nick Rutkowski. The banks are already getting more strict on lending. Houses are already sitting on the market longer than before.
I think a lot depends on how long this lasts. If it’s over by June we will recover quickly. If it lasts until September or longer it think we will start to see a larger impact.
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Nick Rutkowski
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Rental Property Investor · Ithaca, NY · Member since 2015 · 1k+ posts · 1k+ votes
6y
@Matthew Irish-Jones
Yeah I agree. So how do you plan on capitalizing on this situation?
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Cameron TopePro Member
Property Manager · Katy, TX · Member since 2015 · 1k+ posts · 1k+ votes
6y
I don't think we'll have a housing market issue.

The jobs that are lost are mostly small businesses and low-paying jobs, which the trillions of stimulus money will assist. The high paying jobs are either furloughed (for a few weeks) or working from home. These people are still making mortgage payments and buying properties.

I don't think you're going to see the 10% appreciation growth like you have in the past but a more sustainable 2-3%. Rentals are going to be more popular because tenants are using savings (which they had saved for a downpayment on a house) for living expenses, making them tenants for longer.

I think the only people that are going to get hurt are the clowns that need 10% appreciation and rent growth to make their syndication deals look enticing to new investors that don't know any better.

The investors that buy (and continue to buy) solid cashflowing rentals will be fine.
[email protected]832-770-7090
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Matthew Irish-JonesBusiness Member
Real Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes
6y
@Nick Rutkowski by doing all the same things I have always done. Looking for solid assets, with good cash flow, that have a long term appreciation play.
For this specific situation... I will probably throw more cash around and offer quick closings personally. I think with the uncertainty in the market people will jump on cash offers. I walk through the places myself so I waive home inspections for places I buy as well. That usually makes my lower but safer offer more enticing.
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Nick Rutkowski
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Rental Property Investor · Ithaca, NY · Member since 2015 · 1k+ posts · 1k+ votes
6y
@Cameron Tope
Solid response. I like the optimism and your point about tenants using their savings for a downpayment on rent instead of buying a house. Would you say the single family construction will feel a big hit?
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Nick Rutkowski
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Rental Property Investor · Ithaca, NY · Member since 2015 · 1k+ posts · 1k+ votes
6y
@Matthew Irish-Jones
Solid, good luck man. Buffalove!
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Matthew Irish-JonesBusiness Member
Real Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes
6y
@Nick Rutkowski For sure, go Bills LOL.
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Scott Mac
Austin, TX · Member since 2019 · 5k+ posts · 5k+ votes
6y
The economy we are in right now was born of a collapsing oil market 35 years ago where eventually 10 Thousand companies went out of business.
Along the way it has received various band-aid props, and lately began to really get back on it's feet.
But the weak link in the chain may be banking.
The reserves of the banks are being tested by this because people are afraid to go in and borrow money, and if the banks can’t put money out on the streets that means the banks don’t make any money. And if he banks don’t make any money the only way they can make any money is to start to call loans. And when they start to call loans, it becomes a domino effect.
Will that happen? Time will tell.
Also, we probably have to wait another 30 to 60 days to see if renters continue to (BE ABLE TO) pay their rents (still waters run deep, and if renters have to go into survival mode and not pay they may not all call you on the phone and let you know).
Non-government assisted Class C may be the hardest hit, but will banks segregate those assets out for different treatment? Another question we will have to wait and see.
Also if the areas with Covid non-rent-pay laws require the tenants who skip the payments to pay them back, similar to the loan forbearance being offered on some loans. Will that happen?
It seems like there will be a subset of renters who will not pay this back balance out of irresponsibility and some out of inability, and in some areas recovering back owed rent through collections or the courts is unlikely. So we have that possible pressure on the lenders also (as well as the owners).
Based on the above (and other factors) I think the banks may continue to be flexible in their standards until we are sure we are out of this virus situation.
Then they may go back to how it was, or they may do something different.
It seems like right now there are too many unknown factors, making it at best just a guess.
Just my 2 cents.
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Alex Olson
Real Estate Broker · Kansas City Metro · Member since 2015 · 2k+ posts · 1k+ votes
6y
@Nick Rutkowski Lending standards will always change but what doesn't change is a persons need to live in a place. Invest in multifamily and you will be fine. Banks are more favorable on MF loans and therefore more open to lending on it. Hope this helps!
2 Reply
Cory H.
Boise, ID · Member since 2015 · 26 posts · 21 votes
6y
I usually do business with a local small bank. Sounds like they aren't stopping loans, but are pausing them for a few weeks due to manpower. It's all hands on deck apparently to dish out SBA loans!
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Nick Rutkowski
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Rental Property Investor · Ithaca, NY · Member since 2015 · 1k+ posts · 1k+ votes
6y
@Cory H.
Yeah my small bank is the same way, unaffected still underwriting loans, but only the 50% of the people are working.
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Nick Rutkowski
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Rental Property Investor · Ithaca, NY · Member since 2015 · 1k+ posts · 1k+ votes
6y
@Alex Olson
That’s a solid piece of advice. If I didn’t live in NY I’d pull the trigger on MF. Aside from tighter lending standards, NY has tenant laws that favor the tenant, a huge tax bills, and a legislature that favors huge government. I moving over to hospitality...seeing how that industry is taking a massive hit.
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Rich Weese
Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes
6y
I am in the middle of seeing a huge change on multi family finance. I have a transaction involving 128 units in the Dallas area. The loan was supposed to close the 27th of this month. The borrower received a loan commitment from a lender that has now changed the terms on two items.
1. The lenders shaved $1 million off the loan amount.
2. Lender is requiring the buyer to leave $725,000 in an additional account to take care of the mortgage, taxes and insurance for 12 months.
This is a $13 million transaction that is now on life support due to the extra amounts required by the lender. The attractiveness of the transaction has been reduced considerably by the lender and buyer is having to eat both those items.
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Nick Rutkowski
OP
Rental Property Investor · Ithaca, NY · Member since 2015 · 1k+ posts · 1k+ votes
6y
@Rich Weese
Hope everything works out. This virus has thrown a wrench in a lot of people’s plans. I saw FL is opening back up, that must be a good sign. Do you know how hospitality is doing? I’m looking to get into small motels/hotels.
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Rich Weese
Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes
6y
I've never been involved in that segment of investing. Houses, apartments, Development and storage units Have been my cups of tea. I also live in an area that is in comparable with any other areas. The villages in Florida is one-of-a-kind. Top-selling retirement community for the past 10 years! I would assume hospitality would be management intensive and I have no interest in getting my hands involved.
Good luck
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Brian Ploszay
Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
6y
When lending tightens, it gives a reason for real estate values to decrease. Or at least not increase. There will be less competition to buy deals.
I've only talked to a couple banks, to see what is going on. They ranged from being on pause, to tightening their standards to some that are supposedly still lending. One is crafting a type of estoppel to determine what rents are not being collected because of the virus.
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Account Closed
Niskayuna, NY 12309 · Member since 2018 · 12 posts · 9 votes
6y
Hi Nick,
I live in Niskayuna, NY right outside of the Capital District Region of Albany, NY -- the seat of State government, the central office for the State University of NY (SUNY) which has over 64 university centers, four year and community colleges throughout the State and two major hospitals -- these three entities employ the bulk of the people in our region --- they are known as "Anchor Institution". These type of institution do not pull up stakes and move to a foreign country or another state for tax subsidies every few years. They remain in the community regardless of the economic turmoil.
What I have found is that the housing market remained relatively stable in the Albany, Schenectady and Troy area of NY during the 2008 recession for this reason. With the a stable job market based upon the State workforce, SUNY and our hospitals -- and a chip plant (they manufacture the chips for the Samsung phones) in this region. The value of house while it slipped a bit, there was no massive sell off that was seen is TX, AZ, FL and CA back in the 2008 market down turn. Additionally, we bounced back quite quickly.
Not all areas of NY -- which are upstate -- are problematic. Perhaps you can look for other city centers with a relatively stable workforce to invest, and "Anchor Institutions", rather than needing to leave NY altogether. I believe Syracuse and Rochester may be worth exploring.
During this age of COVID-19, I'm really okay paying the taxes necessary to keep my community safe from the spread of this virus. Not trying to throw shade...just finally recognizing the need for a well funded and competent government. There are pockets throughout NYS that are still good investment regions.
Hope this helps.
1 Reply
Calvin Thomas
Developer · New York City, NY · Member since 2015 · 812 posts · 718 votes
6y
Originally posted by @Nick Rutkowski:
@Alex Olson
That’s a solid piece of advice. If I didn’t live in NY I’d pull the trigger on MF. Aside from tighter lending standards, NY has tenant laws that favor the tenant, a huge tax bills, and a legislature that favors huge government. I moving over to hospitality...seeing how that industry is taking a massive hit.

Looking to buy a hotel or NNN lease?

0 Reply
Shaun McQuiston
Real Estate Agent · Saratoga Spgs, NY · Member since 2017 · 34 posts · 9 votes
6y
@Nick Rutkowski credit score requirements will probably stay higher. I think banks will lighten the requirements when this is all over.
2 Reply
Nick Rutkowski
OP
Rental Property Investor · Ithaca, NY · Member since 2015 · 1k+ posts · 1k+ votes
6y
@Calvin T.
Mom and Pop motel/hotel, small under 35 rooms. I own short term rentals and looking to level up. Something within an hour from where I live if I was to operate on my own. With partners, I’ll go further out but I don’t know how much use Id be due to my lack of experience.
1 Reply
Nick Rutkowski
OP
Rental Property Investor · Ithaca, NY · Member since 2015 · 1k+ posts · 1k+ votes
6y
@Pamela Swanigan
I’m from Syracuse, the market is starting to pick back up. Big business wants to move in and apparently Syracuse is one of the first cities it’s size to get 5G. So that’s a big step up. Thanks for your insight.
0 Reply
Calvin Thomas
Developer · New York City, NY · Member since 2015 · 812 posts · 718 votes
6y
Originally posted by @Nick Rutkowski:
@Calvin T.
Mom and Pop motel/hotel, small under 35 rooms. I own short term rentals and looking to level up. Something within an hour from where I live if I was to operate on my own. With partners, I’ll go further out but I don’t know how much use Id be due to my lack of experience.

That's pretty cool. Always considered buying a hotel. Right now though, it must be a bit of a nail biter. No?

0 Reply
Martin Grizzanti
Investor · Rochester, NY · Member since 2015 · 499 posts · 169 votes
6y
I invest in Rochester ny-- feel free to ask any questions.
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Stephen KeigheryBusiness Member
Rental Property Investor · New Orleans, LA · Member since 2018 · 716 posts · 555 votes
6y
@Nick Rutkowski If people's borrowing capacity is reduced then people can't pay as much for properties. If the changes are significant it is highly likely that it flows through to property prices.
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Matthew Peterson
Developer · Atlanta Ga · Member since 2011 · 47 posts · 37 votes
6y
@Nick Rutkowski

I closed on two rental properties in the $300K each range this month and have one more to close on. My lender (at Chase) said he had 11 deals fall through in the past 3 days. We spoke yesterday. I’ve personally backed out of 1 deal and am closing on 1 more for now. I’m fairly liquid and am keeping a lot of dry powder ready for whatever happens in the next 12 months.

He stated that Chase standards as of Thursday afternoon were 30% down and the buyer must have liquid capital of 18 months PITI in the bank. So even on a 200K house, that's 60K down and roughly $1,500 x 18 needed in your checking account on top of the down payment. Majority of US primary residence buyers don't have $100,000 cash sitting around. For those in rental markets dependent on the income, I feel for them. The value of liquidity has never been so evident.

My lender sounded devastated because of all of his deals that fell through. He reminded me that most folks buying a primary are putting 3-10% down, which is why there will be a deluge of deals falling through with the new standards. He mentioned BofA isn’t even originating new loans. Not sure if that’s valid but that was his statement.
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