All Forum Posts by: J. Mitchell Bernier

@Jordan Blanton

Dont think there is a wrong answer. We personally have a mix, some are on 15yr, 20yr, and 30yr. Reason being is we have good w2 roles and were looking for minimum monthly cashflow and once we hit that we were happy to pay more towards the loan to build up equity. Plus, we use local banks so to get access to the equity is not hard if we need it. 

As a banker and investor, I have a hard time understanding why the extra little cash flow you get from the 30yr is better when your rate is 8% or higher. Any loan over 7% rate I want to pay down faster anyway. Paying down a loan at 7% is a better deal than stocking away the extra cash every month in an account earning 5%.... 

Quote from @J. Mitchell Bernier:

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@Stan Sugarman All things you said are true regarding demographics, but rent growth is attainable. We buy in Albany and from landlords who think this way and spend a little money and have been able to increase the rents every time. Now is it going to be astronomical, no, but the cash on cash return has been consistently above 20%.

Albany is a place where if you are smart, knowledgeable on the areas you buy in you can get great cash flow, but I would agree with you don’t plan for appreciation at all. Which we don’t

 Hey Mitchell,

Are you buying in Sylvester? Or how do you feel about that area in general? I have a connection with a wholesaler/investor that has a property under contract there with the option for sub-to and I'm trying to figure out if that's a solid area to invest. I wasn't sure if Sylvester was close enough to Albany to generally have its same characteristics from an investment perspective. 

 So personally, I don't invest in Sylvester. It is fairly close to Albany and prices are similar to Albany but will not reach the higher end that some Albany/lee county area properties can get too. Rent rates are about the same. Avg ranges from 700-1100 for decent areas. 

Hope that helps! 

 As for my thoughts about the area, it is a good community of with agriculture being its main industry. However; that also means you are not going to see major appreciation if any. So needs to purchase for the purpose of cash flow and it will grow with inflation. 

Quote from @Erin Church:

Quote from @J. Mitchell Bernier:

@Stan Sugarman All things you said are true regarding demographics, but rent growth is attainable. We buy in Albany and from landlords who think this way and spend a little money and have been able to increase the rents every time. Now is it going to be astronomical, no, but the cash on cash return has been consistently above 20%.

Albany is a place where if you are smart, knowledgeable on the areas you buy in you can get great cash flow, but I would agree with you don’t plan for appreciation at all. Which we don’t

 Hey Mitchell,

Are you buying in Sylvester? Or how do you feel about that area in general? I have a connection with a wholesaler/investor that has a property under contract there with the option for sub-to and I'm trying to figure out if that's a solid area to invest. I wasn't sure if Sylvester was close enough to Albany to generally have its same characteristics from an investment perspective. 

 So personally, I don't invest in Sylvester. It is fairly close to Albany and prices are similar to Albany but will not reach the higher end that some Albany/lee county area properties can get too. Rent rates are about the same. Avg ranges from 700-1100 for decent areas. 

Hope that helps! 

We have let the property managers handle that for us and just let them know that rent is going up and that they need to sign a new 12-month lease. I wouldn't jump it up 20% immediately, but just bring it up over time personally. 

We work with multiple small community banks and they have done this for us multiple times. Try some small local institutions and even credit unions. 

Quote from @Robin Simon:

Quote from @J. Mitchell Bernier:

@Nick Belsky and @Robin Simon are most of the loans rates starting to come down a little more with the movement in Treasuries? I know on the conventional/owner occ side it has, but was curious if the DSCR and non owner occ side is seeing similar things. Or doe these DSCR loans even mirror treasuries at all?

Thanks again! 

Yes, rates are coming down - FYI DSCR Loans generally are tied to the 5-Year Treasuries (vs. conventional thats generally tied to the 10-Year Treasuries)

 Interesting. What type of spread is common between the 5yr? 

@Nick Belsky and @Robin Simon are most of the loans rates starting to come down a little more with the movement in Treasuries? I know on the conventional/owner occ side it has, but was curious if the DSCR and non owner occ side is seeing similar things. Or doe these DSCR loans even mirror treasuries at all?

Thanks again! 

I may be wrong, but I don't think there was a law preventing this. I know some in my market have been offering them for a while now. 

Quote from @Carlos Ptriawan:

also ZH is correct we may see event if Fed stopped BTFP program in March

https://www.zerohedge.com/markets/bank-depos

Yes, I was at a FED round table in Georgia with some members of the Atlanta office. I asked point blank what the plan for March when the program is supposed to end and liquidity is still an issue and bonds are underwater? They said the plan can be extended if need be. So my guess, is they will extend until they lower rates enough through 2025 and then it will truly end. But then again, once they start a new program it never really ends.... 

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Quote from @Chris Seveney:

Every year I like to provide some predictions on what I think will occur in the upcoming year as it relates to seller financing, mortgage note investing and the like. So here are my predictions, feel free to offer up your own:

1. We will see an increase in inventory in 2024. This is probably going to be an easy one to predict since inventory was very low in 2023. It did pick up though as the year went on. In Q1 we say about $300M worth of loans cross our desk, Q2 was about $300M/mo and Q3 and Q4 we had weeks where we saw $300M.  Toward the end of the year, we started seeing a big uptick in down payment assistance loan failures (2nd position loans under $10k to help with down payments that were in default. We saw over 5,000 of these loans alone...)

2. The bid/ask spread will close the gap, but you will not see 2018 prices again. Right now, still a decent gap between the asking price and bid price, but as property values decline and taxes and insurance increase, sellers will be more willing to sell. I would expect the reperforming loan market to stay around a 9-12% return to investors and NPL's ticking from high teens back into the 20%+ range.

3. Real estate prices will decline in most markets even if interest rates drop. Why do I say this? While there will probably be a quick bump if there is a drop in interest rates - small businesses are tightening their belts, bank liquidity is tightening as well. Throw in income has not been able to keep up with inflation and home prices and its going to give. Will it crash, I do not think so, but I do not see gains, especially in lower priced markets.

4. You will start to see significant cracks in the seller financed space.  - This one honestly, I feel is a slam dunk. Why do I say that? see #3 above. Also a significant number of people either sold on subject 2 with their low rates or did seller financing with poor underwriting on the borrower. If prices continue to fade and unemployment increases (which is going to happen), then these borrowers who have no equity will say screw it and walk away. Especially as rent rates come back down or stabilize. Saw this happen in 2010-2012. 

5. I will buy at least $30M in notes next year :) - hey had to throw one of my personal goals in there. Make sure to share yours. 

 1. Agreed on all accounts.  Getting to point #3 on this, I think this happens artificially to a degree due to the amount of agents withholding properties in Q4 of 2023 because of seasonality. So many expired listings have told me they'll back up in March, I mean I'm talking 70-80% of them.

2. More houses were withheld on the market than demand in 2023. I think it's a very safe bet to see the inverse true, and then when you classify demand out(the one's who are interested but cannot qualify) it'll get even wider.

3. Agreed, but long term wise, the better markets will bounce back higher & better. 7 years +, 10 years + ideally. The trash markets will see an exodus of REI speculation.

4. The people with balloon payments with 5% equity on an asset that barely appreciated. There's a turnkey provider with 5% down, 2 year balloon payments. They sell neighborhood specifics like that, so all of 2025 you have people racing to the bottom to get out of their loan all next door to each other. This area is the most up foonr explosi, and buying the  notes behind it for someone that can manage that process may yield as the best investment in 2024. 

5. I intend to grab another 20-30 properties; depending on quality, price points, etc. Will enter probably 5 new markets. 

 @Chris Seveney, Curious as both of you think prices will decline on the overall asset class next year, but both of you state you are purchasing more. Is that due to the long term projection looking better? I am less worried about what happens in the next 12 months as I am the next 12 years. 

So both of yall are very bullish long term, correct? 

 Right. If we invested for just a 12 month thing, most investments do not make sense especially real estate. I'm thinking 7 years + to trade equity, 12-15 years for material wealth generation.  The main purpose of my investments is to put cash some place else, just anywhere but cash. Even if a bank is paying me 5%, I know that's only for a short period time relative to my peak years left of living. 

 Based on equity curve , investment is making sense after we hold it for 18 years only considering zero appreciation…

However once we are pro in RE we know we can crush that number by investing properly.

2024 would be like 2009, a pivot year! This is why forecasting 2024 is so important lol

 By Pivot year, are you referring the Fed pivot or are you saying its pivotal in regards to the structural changes that could be coming as @James Hamling is mentioning when it comes to the FED action? 

My day job is an AVP for a community bank so I follow closely on the bank side and the investor side. From what I am seeing, the FED will do more as the BTFP has grown over 20% just this month and outlook for certain sectors, manufacturing and agriculture, are not pretty. Couple that with a Consumer who has been fighting inflation on gas and groceries, and as James mentioned, could be fighting more rent increases. So if they do nothing and let the BTFP just expire, liquidity in the markets will be toast. Which as we have all mentioned is unlikely in an election year. 

Question is how much does Washington and the FED do? 

 Both .. Fed pivot because they are panicking or part of the plan

I heard btfp growing because banks wanna do risk free arbitrage ? Not sure about that but make sense

 Yes that is part of it, but as technically the program ends next march and then you have a year to pay it back. So unless you are flush with cash, and most banks aren't now, and you match up duration, which as SVB showed us that many don't, it is not really the best play.