How does this story end? Prediction for 2020

How does this story end? Prediction for 2020

Rental Property Investor · Scottsdale, AZ · Member since 2010 · 390 posts · 599 votes

I am perpetually game planning future moves and this exercise inevitably requires taking a position on how the near future will unfold and the best way to benefit. I am interested in hearing what BP users think is about to unfold. Here is how I see it:

Stimulus provides very temporary tenant relief. April bad debt spikes to 5-15%. 

By mid April the banks tighten lending. Bridge debt disappears. 60-65% LTV becomes norm. DSC minimum over 1.5. Cash out refi impossible to get. Multiple appraisals required. Frozen capital until the market resets to new normal.

By summer economic vacancy of 15% becomes the new normal.

Vegas condos in trendy hotels like Signature MGM, VDARA, Palms are selling for $150-250k.

Hospitality assets will be trading on ten-x auctions and $1M will buy you a 100 key Quality Inn in a decent metro like Tucson, Houston, etc.

Multifamily holds on the longest as operators scale back cap ex and race to the bottom on concessions, rent price, etc.

Retail strip centers in urban sprawl suburbs sit vacant no debt market or tenancy demand. 

Syndicators that purchased in last 24 months in "hot growing" markets like Vegas, PHX, at 3.5% cap rates etc get cleared out by 2021. No point to run large capex value adds without the rent bump but can't pay mortgage without the rent bump = disaster. There will be a whole class of very disappointed investors. 

2019 Hottest SFR markets will become worst performing by 2021. Homeowners get bailed out and are allowed to refi and ride out job loss.

Media pins economic disaster on Trump, Biden gets elected and quickly passes stimulas #2,3,4.

Hoping none of the above turns out true but I've seen this movie before. 

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Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
6y

6-8 weeks and everyone is back to work. 2mm people collect 1-2 months of unemployment and get the government stimulus check. Rent gets paid by 85-95% of all tenants for April and May, then back to normal by July. A few properties that had no reserves are foreclosed on or sold distressed. The overall stock market and real estate market stay stagnate for a few months, with real estate lagging behind as usual by a few months. By the end of Q3 we are back in positive GDP territory and by the end of 2020 we are a net zero growth for the year as a whole. 

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  • Investor · SANTA BARBARA, CA · Member since 2017 · 22 posts · 27 votes
    6y
    Originally posted by @Bryce Deeney:

    I put a large put option on Zillow two weeks ago. Not because I want the housing market to fail, but because I believe it will, and hard. 

    Screenshot of the transaction from your trading platform, plz. At a min: strike price, opt expiration, and date of execution. Diff between bid/ask (even at- or in-the-money) on thinly traded options like ZG, let alone their IV, make them virtually un-tradable. 

    "deja vu..."? Huh? Doesn't that term, by definition, indicate we've been here/done this/seen that before? I don't think there are many RE moguls from 1918 on the BP forums. 

    I've got my head on a swivel, am on the lookout for opportunities, etc. setting up contingencies, wargaming this (remotely, of course) with my teams, etc. but we are in freefall with no end in sight. Things we wring our hands over today will seem quaint in another 48-72 hours. 

    I don't think of myself as over-leveraged and/or under-capitalized. I own C/B SFHs (w/ mortgages) in mkts with growing populations, colleges, industry, etc. A number of my rentals are in the Charleston, SC area--home of Boeing, a huge USAF base, and, until recently, one of the country's most bustling tourism mkts. Not sure how or if I'll weather this storm. That's not capitulation; it's just being real in the face of very, very grim possibilities. Panicked? No. Fearful? A bit. Anxious? Oh yea...

    Wish I'd read Taleb's Incerto books sooner :(  Re-reading Black Swan right now. Damn that guy's a prophet.

  • Rental Property Investor · Virginia Beach, VA · Member since 2019 · 23 posts · 25 votes
    6y

    @Scott Mac

    I am in the insurance business and the company I work for will not cancel anyone for non payment during this time.

  • Rental Property Investor · Virginia Beach, VA · Member since 2019 · 23 posts · 25 votes
    6y

    @Serge S.

    Do you foresee interest rates getting better or worse in the near and distant future?

  • Rental Property Investor · Maryville, TN · Member since 2009 · 529 posts · 414 votes
    6y

    To the Op, the story is never ending till you die! We go up we go down, we make a killing we get killed, the one constant is we continue to learn, stay calm and carry on!

  • Rental Property Investor · Scottsdale, AZ · Member since 2010 · 390 posts · 599 votes
    6y

    I sincerely hope the optimists are right and this is all but a short term bump in the road. At this point though I'm not sure there is an easy way back. If we get anywhere near the predictions of 20% unemployment and 20-35% Q3 GDP drop then there simply is no quick return to "normal." This isn't really a recession its more of an Ice Age and the big question mark is how long it lasts. 

    @Joel Owens its been a while. Yes I am a value investor indeed:) Agreed that it will be mom and pops retail feeling most of the pain but I wonder how shopping changes in the near term and how many of the chains can wait it out. The government can't bail out everyone and my guess is retail is pretty far back in the line waiting for bailouts. I think that the fast growing population growth cities that were already a good 20% overvalued will be in trouble. I don't see how Vegas goes back to normal.

    The problem we are in will surely be solved and hopefully sooner than many expect. The issue I see is not the current problem but the effects that we will now be dealing with in the long term. You can go from 3.5% unemployment to 20% in 60 days but how long does it take to go from 20% to 5%? What happens to population growth when LA  becomes affordable and Phoenix/Vegas has no jobs? Does population continue to grow unabated in the Southwest and Sunbelt? You don't add $3T in government debt without consequences. 

    I have spoken to many a savvy investor and many are well capitalized and ready. I have been a seller for the last two years and sold a number of multifamily assets and nearly all SFR assets in 2018-2019. Multifamily valuations became so out of line with reality, you literally had to underwrite a perfect economy to make these pigs look tempting to under educated investors. Fees and promises have been the name of the game. Post correction there simply is no viable strategy if you were purchasing peak priced assets valued on tomorrows rent. Lawyer up and join the witness protection program.

    If you have been around the block you know that RE valuations do not adjust overnight hence take the anecdotes from your brokers and realtors that its business as usual with a grain of salt. The biggest difference I see right now is that lenders are willing to work with owners day 1 as compared to last time it took years and the government is more proactive. This will just delay the inevitable.  

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    6y
    Originally posted by @Serge S.:

    I sincerely hope the optimists are right and this is all but a short term bump in the road. At this point though I'm not sure there is an easy way back. If we get anywhere near the predictions of 20% unemployment and 20-35% Q3 GDP drop then there simply is no quick return to "normal." This isn't really a recession its more of an Ice Age and the big question mark is how long it lasts. 

    @Joel Owens its been a while. Yes I am a value investor indeed:) Agreed that it will be mom and pops retail feeling most of the pain but I wonder how shopping changes in the near term and how many of the chains can wait it out. The government can't bail out everyone and my guess is retail is pretty far back in the line waiting for bailouts. I think that the fast growing population growth cities that were already a good 20% overvalued will be in trouble. I don't see how Vegas goes back to normal.

    The problem we are in will surely be solved and hopefully sooner than many expect. The issue I see is not the current problem but the effects that we will now be dealing with in the long term. You can go from 3.5% unemployment to 20% in 60 days but how long does it take to go from 20% to 5%? What happens to population growth when LA  becomes affordable and Phoenix/Vegas has no jobs? Does population continue to grow unabated in the Southwest and Sunbelt? You don't add $3T in government debt without consequences. 

    I have spoken to many a savvy investor and many are well capitalized and ready. I have been a seller for the last two years and sold a number of multifamily assets and nearly all SFR assets in 2018-2019. Multifamily valuations became so out of line with reality, you literally had to underwrite a perfect economy to make these pigs look tempting to under educated investors. Fees and promises have been the name of the game. Post correction there simply is no viable strategy if you were purchasing peak priced assets valued on tomorrows rent. Lawyer up and join the witness protection program.

    If you have been around the block you know that RE valuations do not adjust overnight hence take the anecdotes from your brokers and realtors that its business as usual with a grain of salt. The biggest difference I see right now is that lenders are willing to work with owners day 1 as compared to last time it took years and the government is more proactive. This will just delay the inevitable. 

    I am not commercial or MF expert.. but do a lot of SFR work in new construction and such.. and i agree with you 100% lenders are not going for a repeat of the GFC.. they will just dust off their loss mit departments and start to keep people in their homes.. for investors they may not get the same treatment as those are for pofit or loss business's. One of my bizz partners is a big commercial property and MF owner but they have no debt.. many would ridicule them for this as people could not understand why they did not want to juice returns..

    I sold all my rentals a few years back but i do have new construction projects that will come out of the ground later this year. 

  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    6y

    Serge the economists an analysts I have listened to have GDP going nowhere near that level negative. 

    I agree multifamily has been overvalued for awhile. I have a family office client that owns over 1 billion in multifamily but all class A stuff. They haven't bought in awhile because their time is worth a lot of money. They won't do market turn in offers and rounds of bidding crap. You have 20 offers and only a 5% chance of winning the deal and then chances of overpaying are high.

    They only want to deal with the owner off market one on one negotiating or they do not even want to talk to them. It can be easy pickings for some listing brokers to puff the pro-forma's and sell to newer syndicators who want to do a deal to live off of the acquisition fees going in.  

    I have some friends also sitting on a lot of cash tens of millions and some even more. For me as a commercial broker it's great because no matter the cycle clients buy unlike residential agents where home sales can dry up and the home rental investors have just a few houses on average and get in trouble when the tenants can no longer pay the rent.

    The buyers that bought from you likely will be okay if they can HOLD ON for the next up cycle which as you know could be a decade or more in some cases and areas. If they view it like a stock long term and hold,hold,hold it might go up and might go down some but the quality properties tend to hold value over time. Your buyers likely bought at such as level where everything has to be almost perfect and any blip they can get into trouble. I like deals with tons of room. 

    I am closing retails deal right now. Lenders are still out there wanting to lend. They might analyze the deals more for location and quality credit but still want to put money to work. For food brands I feel most will be okay and get back to normal. Eating out is cheap entertainment for lots of folks. I don't see that stopping anytime soon once this virus subsides. These brands often have very deep pockets and some could go the rest of the year without sales. If economy starts moving in a few months again with stimulus package I am not that concerned. If it is prolonged closer to  election time then a lot bigger hole to dig out of.

  • Real Estate Broker · Santa Ana CA [South Coast Metro] · Member since 2016 · 459 posts · 202 votes
    6y
    Originally posted by @Nick Rutkowski:

    @Serge S.

    The Great Correction. I think it all depends on when the government will allow everyone to go back to work. If it’s within a few weeks then we might have saved ourselves from an absolute destruction if our economy. If it’s a few months and the Fed keeps pumping Americans with money then stagflation will be the mid to long term killer.

    As you said and I agree Hospitality, restaurants, and loan options will go first, followed by multifamilies.

    We should have faced this head on in 08 when the problem was smaller. Now we’re about to see the house of cards fall. Who’s up for owner financing deals?

    Few weeks, try like few years

  • Peoria, IL · Member since 2013 · 967 posts · 383 votes
    6y

    2020 looking kind of :(

    i was sposed to be on a cruise right now.  instead spending time on BP. hmmm

    I was supposed to fly to FL for dad's bday june1.  most likely no go

    I would call it an ok finish to year if i spend bday with my mom in nov

    Then little bit of an upgrade if i get some quality time at Christmas with my family

    & pretty decent if gf & i get a reservation for q1 2021 cruise when her vacation schedule comes out in Nov.

    & of course people I'm around stay healthy! 

  • Real Estate Broker · Santa Ana CA [South Coast Metro] · Member since 2016 · 459 posts · 202 votes
    6y

    I got a list of distressed sellers in my area about a month ago for marketing to, before this collapse really took off. It had the usual NOD, Probates, divorce etc between 100-950 households all total about 1000 or so, also in that list is the pre NOD's you know the 30,60,90 day lates with out a recorded NOD just late. 7553 was the record count, Hmm you think the banks are going to want to do anything about that, Nope its going zombie and wait and see and defer mortgages. By end of year its probably going to be 20x that.

    Take away people were already maxed out before all this. This next phase is going to be unprecedented

  • Real Estate Broker · Santa Ana CA [South Coast Metro] · Member since 2016 · 459 posts · 202 votes
    6y
    Originally posted by @Will G.:

    You guys are so doom and gloom, come on man, the fed (that caused all this btw) is going to save EVERYONE, Banks, credit unions, trust and mortgage companies, investment banks, underwriters, brokerage firms, hard money lenders, stock speculators, the airline, auto, restaurant,hotel, bar, retail, casino, and travel industries,money market funds, the repo market, the global fx market, the stock market (direct purchases soon), the bond market, the derivatives market (oop's sorry ronin capital), consumer spending (helicopter money only 3 weeks away), your local bowling league and oh yea, air bnb.

    Don't worry the largest financial event of our lifetimes, BY FAR, will be over in a jiff and you will be rested and ready to get back to work!

    Yep $4 Trillon so far, really after 3 weeks where is that going. the bottom of a pit and the FED has unlimited liquidity to spend. WTF where where they before. The wall, the homeless, we cant lower taxes etc. This is going to be epic

  • Real Estate Broker · Santa Ana CA [South Coast Metro] · Member since 2016 · 459 posts · 202 votes
    6y
    Originally posted by @Bryce Deeney:

    I put a large put option on Zillow two weeks ago. Not because I want the housing market to fail, but because I believe it will, and hard. 

     Yeah I saw that a few months ago when Steve Eisman [from the Big Short fame] did that. Thats when Zillow was buying houses like crazy and only losing on average of $100k per home. But their stock was on fire and trending upward. Lose money make billions.

    Now they have stopped all buying properties, agents are canceling their extortion agreements [i mean advertising agreements] and ZIllow is going to take a hard hit. Surprised you found a buyer. Maybe I'll do the same. Whats your date on it?

  • Member since 2020 · 40 posts · 31 votes
    6y

    @Rob Massopu 4/117. The money makers will offer these in any market, but the lower their stock goes the higher premium you pay. Be cautious, the price has already gone up several hundred percent in the past 10 days,

  • Member since 2020 · 40 posts · 31 votes
    6y

    04-17*

  • Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    6y

    I don't see it as being all grim or the quarantines and shutdowns lasting past end of April if people are distancing themselves as advised.

    The Spanish flu of 1918 was spread on over-packed ships and train cars that whistlestopped all over the country.  Family came to the hospitals to visit their sick vets, then took it home.  Crowds and crowds and no guidance or protection. It is good we are distancing  and it's getting hotter out.  Viruses probably don't like warm fresh air.

    But I don't follow the minute to minute or day to day much. I just wonder how a 'VERY successful 15 year business' (one of many profiled on different radio programs like Marketplace) has only 30 days of operating capital/cash before it will close forever.  Ever heard of savings? Retaining earnings?

    I estimate we will be getting back to reason-ish in June-ish. 1st world problems like vacation and travel will be re-prioritized for you. Slim savings people and businesses will be re-aligned. The gross over-stock of agents, designers, stagers, STR arbitrage-ers, syndicators and phoo-phoo non-essential providers will also be re-aligned. A lot of niches got too big for their britches. The easy money gravy train is ending. Time to do real work again.

    Memories are short for most.  I don't play with hard money, blanket, cute, commercial or car loans, so I'm enjoying this time with my family.  Stay healthy out there and maintain your distancing to make this as short as possible👍

  • Real Estate Broker · Santa Ana CA [South Coast Metro] · Member since 2016 · 459 posts · 202 votes
    6y
    Originally posted by @Bryce Deeney:

    @Rob Massopu 4/117. The money makers will offer these in any market, but the lower their stock goes the higher premium you pay. Be cautious, the price has already gone up several hundred percent in the past 10 days,

     yeah I think that shipped has sailed. 

    Zillow might come out of this the winner after 50% of the real estate companies go bust. IF they can keep some revenue going, there are alot of shorts out there. They will keep all the traffic and if they can pivot to a better model. I think we will have a 50% fall off rate of agents over the next year, much more canceling zillow ads. I know I canceled my Zillow ads, they suck. They keep calling me and promising the world and never deliver. Granted I only take a small position in a hyper competive market that usually cost about 10x what I am paying. Its a pay to play on their platform and its the 80/20 rule for sure. Some agents in my market are paying $6000 per month for one zipcode. 

    Keep me posted on how it goes

  • Real Estate Broker · Santa Ana CA [South Coast Metro] · Member since 2016 · 459 posts · 202 votes
    6y
    Originally posted by @Bryce Deeney:

    04-17*

    At what price

  • Tacoma, WA · Member since 2014 · 78 posts · 92 votes
    6y

    Wow, I'm shocked at what I'm reading here by some people's rosy predictions.  In just 6 weeks everyone is back to work and everything is back to "normal" by July??   My child's school will be lucky if it's open in 6 weeks.  Some states have already shutdown schools for the rest of the year and many more will likely follow.  Olympics probably won't be happening this July.  Canada and Australia are already out.  

    We haven't even seen this Thursdays jobless claims report.  During the financial crisis, the WORST month was 800,000 in March of 2009.  That number will be CRUSHED this week.  The claims will be in the millions.  

    And the government can't even agree on the size of the stimulus package.  But even $1k checks aren't going to help most people at this point.   


    Until there is a successful therapeutic drug or vaccine (which is 18 months out being optimistic) the economy for the most part will be in shutdown for many months.  We are not taking aggressive measures like China did to contain the virus.  Even Singapore and Hong Kong are seeing a second wave of infections.  


    We are still in the 1st inning...   

  • Real Estate Agent · Santa Barbara, CA · Member since 2016 · 518 posts · 283 votes
    6y

    @Serge S. With me buying up a bunch of mall and hotel REIT's why there on discount

  • Rental Property Investor · Member since 2019 · 72 posts · 33 votes
    6y

    @Scott MAC

    Insurance wins unless Covid19 get classified as an “act of god”.

  • Rental Property Investor · Portland OR · Member since 2018 · 2k+ posts · 3k+ votes
    6y

    Just curious- china is going back to work and schools are reopening..... does this change anyone’s prediction?

    I think we see a month or two of shut downs.... people will go on unemployment or get disaster relief aid and the govt will send out 1200/mo per person for as long as needed....  

    Businesses should start applying for SBA disaster loans....

    It will be bad....but if china is any indicator, maybe a few months of bad then we see a slow return... oh and as for school.... so kids have an extra couple months of summer vacation.... not sure how that spells the end of the world?

  • Warsaw, IN · Member since 2017 · 229 posts · 270 votes
    6y

    @John Teachout I agree with you and the others not preaching doom and gloom on this.

    For perspective, I was in the US Army and deployed to Africa in 2015 when then President Obama sent the military to help prepare for Ebola.

    Long story short: November 2014 forecast was 1 million DEATHS (not cases, which was a far higher forecast) per month by January 2015 in afflicted areas. Then containment and prevention practices already begun were fully proliferated.

    In January 2015, there were 47 cases in the country I was deployed to (Liberia), and some thing like 135 total in Africa. Not 47,000 or 47 million cases. 47...as in the prime number and answer to the “meaning of life” from the movie Hitchhikers guide to the Galaxy.

    The point is that Ebola, a more deadly virus than Coronavirus, turned positively more quickly than it got negative. And nobody seems to remember how big a scare it was, and how quickly it receded.

    This too shall pass. In my non medical, amateur but fact based opinion, by mid summer, when everyone goes back to work, everything goes back to normal, and politicians on the campaign trail vie with Kim Kardashian for the American voters attention.

  • Investor · Boston, MA · Member since 2015 · 1k+ posts · 3k+ votes
    6y

    With BP having a lot less "synidicators" hawking their wares in hopes of making up the $20-40k they spent on "mentorship" programs. 

  • Rental Property Investor · Maryville, TN · Member since 2009 · 529 posts · 414 votes
    6y
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    6y

    You have the economy on the macro and on the micro level. Higher income areas tend to have more net worth and ability to make moves faster in response to situations like this. They tend to have assets and income with reserves that can last years or longer if needed.

    It's the medium to lower income areas that are highly populated that live hand to mouth that can really be in a bind. In those areas creditors tend to pull back on extending credit as they do not want to be left with a bunch of defaulted debt. I didn't forget 9/11 or last cycle downturn of 2008,2009. Those that hope for the best but plan for the worst and don't believe the hype tend to do better.

    At the end of the day each investor can make investments they feel comfortable with based on their knowledge level within certain asset classes.

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