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 · Cannon Falls, MN · Member since 2016 · 150 posts · 55 votes
    6y

    Some of you have never been through a crisis where your lender calls your loan due when you where current and had great cash flow and had all of the 5 cc of credit and want to believe everything is going to be OK in a short time.I hope it is!! There are a lot of other problems with our monetary polices in our county that every investor should be aware of.

      


    https://www.youtube.com/watch?v=Uu8PI69H_XU&feature=youtu.be



  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    6y
    Originally posted by @Mary M.:

    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?

     I watched a documentary last night on Youtube that chronicled the response in China. They were a little slow to get started, but once they put a quarantine in place, it was a military one. All roads closed, check points, criminal to be out of your home. Groceries were delivered to the entry point of the hot zone. Within 2 weeks, they had built from the ground up new emergency hospitals to hold 3000 people. Doctors entering the hospital were in full head to toe protective gear. They did 6 hour shifts and could not eat or go to the bathroom for 6 hours, so they didn't take off their protective clothing. They wear adult diapers! The doctors and nurses sleep at the hospital in a safe area, away from their families. They brought in 10,000 doctors and nurses from other parts of China. EVERYONE that was showing symptoms went to containment centers (not hospital). They could not leave the containment center until two days of negative tests. They split the city out by 1000 door grids and went door-to-door looking for sick people. They canvased the whole city taking temperatures. Anyone sick was brought to either the detainment center or hospital in a secure manner. Even outside the main contamination zone, they are still taking temperatures of employees when they enter buildings to go to work. Anyone displaying symptoms must leave immediately and they decontaminate the area. The documentary said in the initial outbreak, there were lines to enter the hospital and 50% of doctors/nurses got infected. 

    So yes the news out of China is encouraging, but we would only see similar results if we undertook similar efforts. 

  • Specialist · Cleveland, OH · Member since 2018 · 1k+ posts · 666 votes
    6y

    @Serge S.  with the dow around 30k, and everyone happy, AGAIN, !!  The media needs to shut up !! . I have not purchased stocks in 20 years or more, well I opened a Charles Schwab acct last week, Great opps out there.  When everyone is panicking, BUY, 

    All the best to everyone, be safe, but live your life!! 

  • Real Estate Agent · Houston, TX · Member since 2017 · 292 posts · 233 votes
    6y

    Some excellent posts here, and I really hope things end up falling somewhere in the middle between ROSY and END OF DAYS. 

    But I'm thinking of the economy as a huge Diesel engine.  If it grinds to a halt ( which it's 90% there, except for shipping goods )  and it's turned off for weeks, if not MONTHS.. you can't just turn it back on at full power like a gas engine. 

    Buckle up and keep cash in reserves, and be ready to buy (stocks & R.E. )  and out last the others. 

  • Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    6y

    Looks like congress could to do about a years+ worth of aid. This went from 500 bil to 3 trillion, I guess they read my post. Hopefully they don't play political football as this would likely shore up many sectors and save them from total destruction. If we can get real draconian on social distancing for about a month we can also partly stem the cascade effect. Easier said then done. I remember seeing videos in China where they had teams of guys in hazmat suits spraying the streets including spraying any peeps milling about.  Good luck! 

  • Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes
    6y

    Yikes! That's some crazy negative forecasting by the OP. I see the DOW heading south to 14k, then stabilizing, then taking 3-5 years to get back to where it was. But even that is not as negative as thinking the economy, housing market, and the world is going to collapse. I suspect some of us will make hay during the down times, and perhaps even come out the other side with even more resources (although my 401k will take longer than anything else to recover). 

  • Tacoma, WA · Member since 2014 · 78 posts · 92 votes
    6y
    Originally posted by @Mary M.:

    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?

     @Mary Mitchell , China handled this FAR different than we have or will.  They shutdown EVERYTHING instantly.  They took extreme measures that we are not to contain the virus.  The U.S. is not consistent with it's handling of this situation across the nation.  

    While China is slowly bringing back employees to work manufacturing, supply chain, etc., they are not out of the woods by any means.  It's FAR from normal and not back to pre COVID-19 levels.  There is still major disruptions and they are trying to keep a flare up of cases from happening.  

    There will likely be at least 10% unemployment rate very soon.  The current stimulus packages I have seen are not enough.  The hotel industry wants $150 billion. The restaurant industry wants $145 billion. The National Association of Manufacturers wants $1.4 trillion. The International Council of Shopping Centers wants a guarantee of up to $1 trillion.  Some airlines will go under within months if help does not come soon.  They want $60 Billion.  It's across the board.  Every industry is impacted across the board.

    Some will get bailouts but most will not.  Right now commercial RE is in a free fall.  Look at all the REITs right now.  All time lows.  Commercial mortgages are on the verge of catastrophic collapse.  Majority of real estate syndications will not be able to service their debit and be in serious trouble very soon.   

    This is NOT going to turnaround in a few months...

  • Rental Property Investor · Columbus, OH · Member since 2014 · 148 posts · 177 votes
    6y
    Originally posted by @James De Stefano:


    But I'm thinking of the economy as a huge Diesel engine.  If it grinds to a halt ( which it's 90% there, except for shipping goods )  and it's turned off for weeks, if not MONTHS.. you can't just turn it back on at full power like a gas engine. 

    100% right. A governor can remove shelter in place restrictions, but they don't have a switch to open up all of the closed restaurants. It can takes weeks for a smaller operation to get back up and running. The FED can't push a button and make consumer sentiment return to December and January levels. That can take years.

  • Lewisville, TX · Member since 2015 · 344 posts · 264 votes
    6y

    @Jay Hinrichs

    Remember my multiple threads on the crash? Some extremely popular some not so much. The Corona has exposed the markets many other issues & bubbles!

  • Rental Property Investor · Centralia, WA · Member since 2017 · 75 posts · 85 votes
    6y

    @Todd Dexheimer

    I like your optimism! We will recover this year and the economy will reset to start another bull run. It’s good to have cash on the side. Although , some stocks aren’t cheap as I want them to be. Just have to wait a bit longer. And real estate hasn’t crashed. It’s also a good time to buy a new vehicle! Anybody got an email from Chrysler/DodGe/Ram this week? 0% financing for 84 months, no payments for 90-120 days. Ram 1500, here I come! LOL!

  • Real Estate Agent · Jacksonville Beach, FL · Member since 2019 · 77 posts · 43 votes
    6y

    @James De Stefano are you looking for a few indicators during the summer (ie China’s economy recovering smoothly) or just a general increase in confidence?

  • Member since 2019 · 9 posts · 8 votes
    6y

    I’m not an investor... I stalk this site to understand the trends hoping that my market (Bay Area) becomes more affordable. Sadly my prayers have been answered... only a matter of Time before massive walk a ways from underwater mortgages. What is not being talked about is the connection between stocks and RE here. 

    I can’t say the company for insider trading reasons but I know of a specific company that had a million dollars in day revenue three weeks ago and are sitting at 20k a day today. Their incomes were tied to options which were essentially tied to their houses. 
    They laugh at the government saying keep employees. What is happening here for some companies is no where near a v shape recovery potential. They don’t have the money to ride this out.
    yes I wanted the market here to soften... at least so I wouldn’t have to fight the bidding wars but what is to come is going to make 2008 look like a party. This time stocks and housing are married together...at least here and if this falls so to the rest of the country. This isn’t even taking into account the corporate debt bubble crashing simultaneously or the work from home movement will encourage more companies to leave this area especially if it means life or death! Good luck. 


  • Member since 2019 · 9 posts · 8 votes
    6y

    Also since stalking this site for the last year I have noticed the number of newbs looking for advice and are told time and time again not to over leverage and to keep a safety net. My gut feeling is most ignore this because they don’t have the patience and they are going to go belly up in the correction. 

  • Real Estate Agent · Jacksonville Beach, FL · Member since 2019 · 77 posts · 43 votes
    6y

    @Rob Massopust Zillow ads are a total racket here in Brooklyn NY too. I pay a small bit in the zip code besides the one I really want to work in to create leads at a fraction of the price but even that is seeming more and more frivolous.

  • Real Estate Agent · Chantilly, VA · Member since 2016 · 245 posts · 61 votes
    6y

    I see investors betting on appreciation in markets like Austin and Denver getting a hit, I always encourage to play the rent game more and the appreciation less

  • Investor · Winston Salem, NC · Member since 2016 · 60 posts · 18 votes
    6y

    Just to put some meat on the hypotheticals of this thread: I am in my 180-day period for a 1031 exchange with $2mm in escrow and two properties under contract: a stabilizing self storage deal in a growing but small market and a NNN deal with three QSR tenants in Tampa. I had intended to close on the NNN deal and to syndicate the storage deal, but that was two weeks ago...

    I have NO idea how to move forward with either property and my 180 days is up first week of May. Financing for NNN QSR is basically frozen - my really attractive CMBS debt got pulled, though the local bank says they think they'd still fund it - and the possibility of rent abatements or the spaces going dark in the next six months certainly seems like it could be a possibility. And while I have the reserves to float a longer lease up for the storage deal, the prospects for continued growth in population/rents in that market suddenly seem much less attractive.

    Because my 1031 cost basis is so low, I'll pay basically 45% in cap gains if I don't close on either deal. But paying the taxes and having $1mm cash on the sideline all of a sudden seems almost attractive!  

  • Ridgewood, NY · Member since 2015 · 50 posts · 14 votes
    6y

    @John Teachout

    Wouldnt say the exonomy was good - id opt to say, “the house of cards was a little stabler”

  • Member since 2019 · 9 posts · 8 votes
    6y
    Originally posted by @Joshua Myers:

    100% right. A governor can remove shelter in place restrictions, but they don't have a switch to open up all of the closed restaurants. It can takes weeks for a smaller operation to get back up and running. The FED can't push a button and make consumer sentiment return to December and January levels. That can take years.


    it’s yet to be seen whether this is depression level stuff we are talking here BUT people’s changed habits from suffering the effects of that trauma lasted the entirety of that generation. Like mentioned in the quote above... the Fed doesn’t have a button this! 

  • Real Estate Agent · Houston, TX · Member since 2017 · 292 posts · 233 votes
    6y
    Originally posted by @Ralph Chiaia:

    @James De Stefano are you looking for a few indicators during the summer (ie China’s economy recovering smoothly) or just a general increase in confidence?

    Ralph I think it's hard to fully trust the news out of China.  But it would be very nice to see other economies recover and bounce back.  

    Confidence will be very important to us, but I've heard lots of reporters and articles talk about this just shows HOW much can be done virtually, and that maybe good for the bottom line of many companies, but there will be job losses that maybe never come back. 

    And if unemployment really does drop to 20 - 30%?   ohhh boy... Maybe that's just temporary, but that will send shockwaves to far too many people that are paycheck to paycheck

  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    6y

    @Christopher Brown, Hang on by your fingernails (when you're not biting them).  If/when the IRS eases the 45/180 deadlines it could be a deal savor for you.  And as much as it could sting - some private money for a short time could give you the runway to complete that exchange to save the tax and then refinance.  No perfect answers in a perfect storm.  Just shades of suck!

    The 1031 Investor5140 Reviews
  • Real Estate Agent · Houston, TX · Member since 2017 · 292 posts · 233 votes
    6y
    Originally posted by @Andrew Galeano:

    @John Teachout

    Wouldnt say the exonomy was good - id opt to say, “the house of cards was a little stabler”

    agreed... the whole system we have has been stretched, warped, bent in so many ways.   Markets can go up forever, that's obvious. But with 340+ million people in America, many living beyond their means.... look out belowwwww

  • Real Estate Agent · Scottsdale, AZ · Member since 2019 · 448 posts · 320 votes
    6y
    Originally posted by @John Morgan:

    The curve flattens out in 2 weeks and our hospitals, medical equipment and staff survive this scare. People start going back to work soon after that. Restaurants open back up and the summer season barely salvages the travel industry. Real estate remains flat the rest of the year until Trump is re-elected. At that point the economy and stock market recover and life goes on. :)

    I wish.  Don't see this one happening.  Don't see the end of the world or an 18 month shutdown of the economy (same thing basically) either.  

  • Investor · Austin, TX · Member since 2013 · 443 posts · 174 votes
    6y

    Enjoying reading these posts! I am somewhat optimistic that the virus will fade as quarantines continue and the summer heat gives us a helping hand. China is our canary in the coal mine and they have already seen decelerating new cases. I see the same trend hitting Europe and the US in 2-3 months time. 

    The big fear I have is if this event will set off any other economic ticking time bombs that are on the brink. Industries and companies that are overleveraged or have no reserves can’t wait 3 months and will go belly up causing a domino effect. 

    Another factor here is what kind of stimulus will the government pass to shore up overleveraged companies so it doesn’t cause a domino effect.

    Coronavirus is just the tip of the iceberg. The real threat is from some type of credit crunch as companies default on loans. That could have an effect on the real estate market as it trickles into real estate loans.

    Best case scenario: corona wanes in 2-3 months and after that things return to normal with markets partially recovering by end of year.

    Worst case scenario: corona causes a cascade of defaults and this becomes a credit crunch more similar to 2008. Multiyear recovery.

    Personally I have started buying stocks and will continue to buy as the market decreases.  I am in it for the long haul so either way I will make money on this!


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

    Christopher Brown,

    Financing for QSR really isn't frozen in most cases IF you are talking parent corporation backed by thousands of locations with strong credit and discloses financials.

    If borrower is weak for liquidity and net worth combined with a weak tenant that is a small franchisee that is almost impossible to fund right now.

    I have some lenders that might look at low LTV for QSR medium franchisee but borrower has to make like 500k or more a year from their job or business and give a personal guarantee on the loan. Some lenders that were small dabblers are leaving the business and the more seasoned lenders who do almost all STNL and MTNL still are doing deals just much pickier on borrower and the property.

    You might look at bridge debt interest only options or could pay the tax like you said.

    Pharmacies with STNL and grocery stores are hot as they are going strong and one of the few places open right now.  So are gas stations with national brands.

    No legal advice given.   

  • San Leandro CA · Member since 2020 · 13 posts · 1 vote
    6y
    I don’t know that I trust what China says. Also, our reaction to this has not been anywhere close to China’s. 
    I think we’ll have a much better idea of what’s going to happen in the next couple weeks
    Originally posted by @Joseph Weisenbloom:

    Enjoying reading these posts! I am somewhat optimistic that the virus will fade as quarantines continue and the summer heat gives us a helping hand. China is our canary in the coal mine and they have already seen decelerating new cases. I see the same trend hitting Europe and the US in 2-3 months time. 

    The big fear I have is if this event will set off any other economic ticking time bombs that are on the brink. Industries and companies that are overleveraged or have no reserves can’t wait 3 months and will go belly up causing a domino effect. 

    Another factor here is what kind of stimulus will the government pass to shore up overleveraged companies so it doesn’t cause a domino effect.

    Coronavirus is just the tip of the iceberg. The real threat is from some type of credit crunch as companies default on loans. That could have an effect on the real estate market as it trickles into real estate loans.

    Best case scenario: corona wanes in 2-3 months and after that things return to normal with markets partially recovering by end of year.

    Worst case scenario: corona causes a cascade of defaults and this becomes a credit crunch more similar to 2008. Multiyear recovery.

    Personally I have started buying stocks and will continue to buy as the market decreases.  I am in it for the long haul so either way I will make money on this!


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