https://carolinahardmoney.com/57-black-friday-1987-to-todays-crash/
Bill Fairman and Jonathan Davis talk about the present situation and what to do about tenants and their payments.
What happens to the government stimulus payouts?
How do you handle rent issues, deferment of payments?
If you own single-family homes you might have fewer issues with payments.
There are lots of hiring going on.
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Jonathan Davis (00:00):
Welcome. This is Carolina Capital Management. And we're coming to you live. I have Bill Fairman here with me. I'm Jonathan Davis. Thank you all for being here and we just want to get in and start talking about a little bit of real estate and maybe some things that are going on right now.
Bill Fairman (00:22):
Yeah, don't look at me. We're supposed to be separated. So you do different, do different cameras. We're actually, this is not the same room, so that's two different places.
Jonathan Davis (00:31):
We have the same background but we're not in the same room. Got it.
Bill Fairman (00:34):
Listen, I want to start off with a couple of things that Jonathan and I are getting tired of hearing.
Jonathan Davis (00:41):
What really grinds your gears.
Bill Fairman (00:43):
Our little phrases that we're hearing too much of. "The New normal". God, I'm so sick of that! What else?
Jonathan Davis (00:53):
Tell us another one.
Bill Fairman (00:55):
"Social Distancing". I've had enough of that too.
Jonathan Davis (00:58):
You did that before. It was cool.
Bill Fairman (01:00):
Yes. Well actually people did that for me. That was part of my personality, they just normally moved away from me when I started talking.
Jonathan Davis (01:11):
Yeah, mine is definitely "These uncertain times". It's like, when has any time ever been certain? The illusion of your certainty has been taken away. That's what's gone. Not that these are uncertain times.
Bill Fairman (01:24):
Yeah. That kind of reminds me of that builder sentiment survey that we get once a month.
Jonathan Davis (01:32):
How do you feel?
Bill Fairman (01:32):
Yeah, they don't really care about the actual numbers. It's, How are you feeling? What are your feelings on how things are going? I never did understand why that is an actual survey that economists quote, go by your numbers. So we're going to talk a little bit about how to protect yourselves now. And this is if you own property and you're collecting rents. And as well as if you're a small business and you're trying to get the government cheese as it were. And then if you're an individual and you're getting those stimulus dollars through the IRS, what to watch out for? You know, let's be honest here, neither one of us are attorneys. And we don't care to play one on TV either. These are just some personal things that we've gone through. You know, I've made it through the .com crash. Have been through the 2000. And said, alright, we're not supposed to be looking at each other. We're at separate rooms. I've been through the .com crash 2008.
Jonathan Davis (02:51):
Didn't you? What about the, weren't you there for a black Friday?
Bill Fairman (02:56):
Yeah, I was part of the depression. And you're talking about 1987.
Jonathan Davis (03:02):
1987 the year I was born.
Bill Fairman (03:03):
They had a crash then too. But fortunately I didn't make enough money that it even bothered me cause I wasn't in the market. I was happy at getting my $97 a week, taking them pay. That was the, now I might've been making $125 a week.
Jonathan Davis (03:25):
That's a big difference.
Bill Fairman (03:26):
Anyway. So if you're a landlord right now and you're a little worried about, you know, your tenants not paying and there's nothing you can do about it right now because there's a moratorium on evictions and that type of thing. Be proactive. Make sure that you're sending out with your rent that's due. Your notifications. Put in there the different ways that you can get assistance through the government. Make sure they know about you know, the different, the money that's coming in through the IRS and the stimulus money. If they've lost their jobs, I mean show some stuff in there on how to get your unemployment money.
Jonathan Davis (04:19):
Well, if you don't know what your tenants employment is, you should know this and this is one of the first things you should have checked because that's going to let you know.
Bill Fairman (04:30):
Well, it changes. I mean you can be on a lease and your application shows your employment, but you could have changed employment since then.
Jonathan Davis (04:39):
That's true. I mean, but typically leases are, you know, a year. And you know, most people don't change too much. But that saying is, you know, your tenants who are, have a higher, who are working in hospitality or something like that. Yeah. You can, you know, expect that they are going to be on government assistance right now. Those who are working in logistics are still working. You know, and, and if you, if they're asking for deferment of payment or whatever it is, you can, you know a little better how to handle that situation, then just say yes to everybody.
Bill Fairman (05:11):
And I think if you own a bunch of single family homes, you're less likely to have issues, I think because you're going to be more likely that folks are working from home if they can. And it's not to say that there might be one one of the family members that was in hospitality or the service industry here. But you can also, it never hurts to have information available for where they can find assistance. If one of them is unemployed that you know, you're sending out information on companies that are hiring. There's a ton of companies that are hiring right now. You may have lost a job, but you should be able to find one fairly quickly. Now, depending, you know, the field that you're in, there's still plenty of places out there that are trying to hire people. Now, your biggest problem is if you have a family and you have kids. And you can't take them to daycare. And they're not in school. So it's hard for, you know, no one to be at home.
Jonathan Davis (06:20):
Well, you know, we leave our four month old and you know, two year old at home all the time by themselves, you know, like they usually take care of each other. Yeah. But, not adjust but, but yeah, I mean it is difficult. I will say from the landlord perspective, I mean, if you've taken debt and you owe debt on your, on your properties, which most landlords do. You know, you can get payment deferrals from your lenders, but you still have to pay that. I think that's the same way with, you know, your tenants. I think there's a lot of tenants being told that, Oh, you know, you just don't have to pay. Don't worry about it. So what I have done personally is our property manager has sent out, like if you asked for a payment deferral, it is exactly that. And if you don't pay it, we will turn you over to collections. If you, you know, if you break the lease, whatever, it'll go to collections. Like it's not a freebie. Like because the house isn't free that you know that someone has to pay for the house. So you know,
Bill Fairman (07:25):
And, you know, Wendy and Jonathan talking about this earlier. With not taking advantage either. You still need to work with folks. You still have to have a heart.
Jonathan Davis (07:33):
Oh, for sure.
Bill Fairman (07:34):
But at the same time, you have bills you have to pay and you have income that you need and you're only getting that through the, through the rents. Let's talk about stimulus money. If you don't need the stimulus money,
Jonathan Davis (07:50):
Do not take it.
Bill Fairman (07:51):
Don't, well, what I'm talking about, you're still going to get it. They're sending it out.
Jonathan Davis (07:55):
Well it was if you make less than a hundred thousand.
Bill Fairman (07:58):
If you make less than, I can't remember what it is, but...
Jonathan Davis (08:02):
I think it's less than a hundred thousand, you're going to get that stimulus money.
Bill Fairman (08:04):
You're going to get the stimulus check in the mail. Don't just go out and buy something new with it. Put it aside.
Jonathan Davis (08:12):
I'd send it back. If you don't need it.
Bill Fairman (08:13):
You know, we...
Jonathan Davis (08:14):
Cause you're gonna have to pay taxes on it.
Bill Fairman (08:16):
Today, the employment, first time unemployment figures came out again, or first time claims and it was 3.8 million or 3.75 million new claims this week.
Jonathan Davis (08:29):
Wow.
Bill Fairman (08:31):
The good news out of that is that the continuing claims was in the $17 million range. While that sounds extremely high, you know, we were at 23 million already unemployed or 24 million prior to that. So with this three, seven new and then the 17, you know, we're right at 20 million. So there's 4 million people that have gotten jobs or have been brought back due to the paycheck protection program that has already funded. Yeah. Right. But if you're getting stimulus money and you don't need it, please just don't go out there and spend it on frivolous stuff. Save it for the rainy day as it were. We don't know how long this is going to linger. Each state is a little bit different. North Carolina. You know, if you look at the population we have, North Carolina really shouldn't be in a total lockdown. Neither should South Carolina. I'm not going to go any further with that because I'll be on my soap box. Next.
Jonathan Davis (09:49):
Well, thank you for that comment, Sohil.
Bill Fairman (09:51):
What was it? I couldn't see it.
Jonathan Davis (09:52):
He said, that's correct. They will extend a loan for the months that were not paid.
Bill Fairman (09:56):
Right. And here's a thing that a lot of people don't know too. If you go, if you're a, if you're a mortgage, if you're paying, a mortgagee, you're the one paying, if you request a forbearance, and I don't know if we may have gone over this before, but an actual forbearance isn't just putting two or three months off and adding it to the end of the term.
Jonathan Davis (10:24):
No, that's not a forbearance. That's a deferral.
Bill Fairman (10:26):
A forbearance is if I need three months on the fourth month, you're going to have to pay four months worth of payments. And most people aren't going to have that.
Jonathan Davis (10:38):
Well, it's not helpful either. I mean, if you can't pay one, two or three months, how is not paying that? And then on the fourth month you owe all those months together. That's not helpful.
Bill Fairman (10:49):
And then we have, you know, a big servicing issue. Not to mention you know, there's a lot of refinances going on. There's a, I don't want to get too deep into the weeds in the secondary market here, but most mortgage brokers are mortgage brokers. The banks or mortgage lenders, you have other mortgage lenders who are not banks, but in reality they are mortgage brokers because they have a giant warehouse line of money. They make these loans.
Jonathan Davis (11:25):
What is a warehouse line? So if people don't know what that is.
Bill Fairman (11:29):
A warehouse line is a pool of funds. It's like a line of credit. And you're making loans. You're pledging the collateral to the bank that is providing you with Atlanta credit.
Jonathan Davis (11:43):
But most of them have what, a 30 to 90 day term on that asset on the line. Yeah.
Bill Fairman (11:48):
So let's say you're a mortgage broker who has a giant warehouse facility. And during that 90 day period, half of your borrowers have already asked for a forbearance before you've been able to. And what happens with this warehouse line is you keep it for 30 to 90 days. You then take those loans and you sell them to wall street investors. That's called a mortgage backed security. So you're offering them to the people that buy these things. And then you get the money to pay off your warehouse line. Now you can make new loans. Well, they have already started the, the people that are buying the mortgage backed securities, if somebody has requested a forbearance before you can do the mortgage backed security sale, they are selling and somewhere in the 95% range. So in layman's terms, a hundred percent means I'm selling a $95,000 loan and you're going to give me $95,000 for it.
Bill Fairman (13:05):
That would be par. That means my income is the origination fee and any other fees I collect, I'm selling you the $95,000 loan for 95,000, and you're going to collect the monthly payments. If somebody now says, I'm only going to pay you 95% of the 95,000. Multiply that by all the loans you've done. And these people haven't missed any payments. They've just requested forbearance. So you're going to have a lot of people with a lot of warehouse lines that they're going to have to bring money to the table. That's in stock market terms. You're getting a margin call.
Jonathan Davis (13:47):
Yeah, you are.
Bill Fairman (13:48):
And that's not a good thing. So again, that there's going to be some opportunity down the road. I know Scott, our producer thinks October. But there's going to be not just some foreclosure stuff, but you're going to have some issues with some bigger lenders exiting the space because they're not going to be able to...
Jonathan Davis (14:12):
some really big lenders are going to be exiting the space.
Bill Fairman (14:16):
The shame of this is that it all goes back to the big banks again. Remember after 2008, the only people that were lending were the big banks. And they are not very efficient at doing mortgage loans. I mean, that's why 60% of all mortgage loans are done by brokers because they're more efficient.
Jonathan Davis (14:35):
They don't even understand real estate like the people like, Oh, you go get it. You go to the bank and get a mortgage now. No, they don't even understand real estate. Oftentimes. Now there are bankers who do. Not trying to say they'd all don't. But not going to generalize them. But oftentimes most of the banks that I deal with, they are not real estate savvy.
Bill Fairman (14:54):
Well they, yeah, they're not taught. They don't think outside of the box. Yeah. I was looking at the clock. We have a one o'clock show. We have great guests on. We have Kevin Kim of Geracy Law. He's a securities attorney. Mike Zlotnik of tempo funding is going to walk us through a conversion of a two star hotel into affordable housing. And then we have Glen Stromberg.
Jonathan Davis (15:23):
Real estate.
Bill Fairman (15:24):
Yep. And then Jacob Vanderslice and Randy Lawrence on, and they're going to give us their perspectives. It's you know, Glenn single family. Jacob is doing self storage. And Randy does multifamily. So we're going to have a good mix of stuff going on there at the one o'clock show. So join us at one o'clock and thanks. Yep. See you soon.
Welcome. This is Carolina Capital Management. And we're coming to you live. I have Bill Fairman here with me. I'm Jonathan Davis. Thank you all for being here and we just want to get in and start talking about a little bit of real estate and maybe some things that are going on right now.
Bill Fairman (00:22):
Yeah, don't look at me. We're supposed to be separated. So you do different, do different cameras. We're actually, this is not the same room, so that's two different places.
Jonathan Davis (00:31):
We have the same background but we're not in the same room. Got it.
Bill Fairman (00:34):
Listen, I want to start off with a couple of things that Jonathan and I are getting tired of hearing.
Jonathan Davis (00:41):
What really grinds your gears.
Bill Fairman (00:43):
Our little phrases that we're hearing too much of. "The New normal". God, I'm so sick of that! What else?
Jonathan Davis (00:53):
Tell us another one.
Bill Fairman (00:55):
"Social Distancing". I've had enough of that too.
Jonathan Davis (00:58):
You did that before. It was cool.
Bill Fairman (01:00):
Yes. Well actually people did that for me. That was part of my personality, they just normally moved away from me when I started talking.
Jonathan Davis (01:11):
Yeah, mine is definitely "These uncertain times". It's like, when has any time ever been certain? The illusion of your certainty has been taken away. That's what's gone. Not that these are uncertain times.
Bill Fairman (01:24):
Yeah. That kind of reminds me of that builder sentiment survey that we get once a month.
Jonathan Davis (01:32):
How do you feel?
Bill Fairman (01:32):
Yeah, they don't really care about the actual numbers. It's, How are you feeling? What are your feelings on how things are going? I never did understand why that is an actual survey that economists quote, go by your numbers. So we're going to talk a little bit about how to protect yourselves now. And this is if you own property and you're collecting rents. And as well as if you're a small business and you're trying to get the government cheese as it were. And then if you're an individual and you're getting those stimulus dollars through the IRS, what to watch out for? You know, let's be honest here, neither one of us are attorneys. And we don't care to play one on TV either. These are just some personal things that we've gone through. You know, I've made it through the .com crash. Have been through the 2000. And said, alright, we're not supposed to be looking at each other. We're at separate rooms. I've been through the .com crash 2008.
Jonathan Davis (02:51):
Didn't you? What about the, weren't you there for a black Friday?
Bill Fairman (02:56):
Yeah, I was part of the depression. And you're talking about 1987.
Jonathan Davis (03:02):
1987 the year I was born.
Bill Fairman (03:03):
They had a crash then too. But fortunately I didn't make enough money that it even bothered me cause I wasn't in the market. I was happy at getting my $97 a week, taking them pay. That was the, now I might've been making $125 a week.
Jonathan Davis (03:25):
That's a big difference.
Bill Fairman (03:26):
Anyway. So if you're a landlord right now and you're a little worried about, you know, your tenants not paying and there's nothing you can do about it right now because there's a moratorium on evictions and that type of thing. Be proactive. Make sure that you're sending out with your rent that's due. Your notifications. Put in there the different ways that you can get assistance through the government. Make sure they know about you know, the different, the money that's coming in through the IRS and the stimulus money. If they've lost their jobs, I mean show some stuff in there on how to get your unemployment money.
Jonathan Davis (04:19):
Well, if you don't know what your tenants employment is, you should know this and this is one of the first things you should have checked because that's going to let you know.
Bill Fairman (04:30):
Well, it changes. I mean you can be on a lease and your application shows your employment, but you could have changed employment since then.
Jonathan Davis (04:39):
That's true. I mean, but typically leases are, you know, a year. And you know, most people don't change too much. But that saying is, you know, your tenants who are, have a higher, who are working in hospitality or something like that. Yeah. You can, you know, expect that they are going to be on government assistance right now. Those who are working in logistics are still working. You know, and, and if you, if they're asking for deferment of payment or whatever it is, you can, you know a little better how to handle that situation, then just say yes to everybody.
Bill Fairman (05:11):
And I think if you own a bunch of single family homes, you're less likely to have issues, I think because you're going to be more likely that folks are working from home if they can. And it's not to say that there might be one one of the family members that was in hospitality or the service industry here. But you can also, it never hurts to have information available for where they can find assistance. If one of them is unemployed that you know, you're sending out information on companies that are hiring. There's a ton of companies that are hiring right now. You may have lost a job, but you should be able to find one fairly quickly. Now, depending, you know, the field that you're in, there's still plenty of places out there that are trying to hire people. Now, your biggest problem is if you have a family and you have kids. And you can't take them to daycare. And they're not in school. So it's hard for, you know, no one to be at home.
Jonathan Davis (06:20):
Well, you know, we leave our four month old and you know, two year old at home all the time by themselves, you know, like they usually take care of each other. Yeah. But, not adjust but, but yeah, I mean it is difficult. I will say from the landlord perspective, I mean, if you've taken debt and you owe debt on your, on your properties, which most landlords do. You know, you can get payment deferrals from your lenders, but you still have to pay that. I think that's the same way with, you know, your tenants. I think there's a lot of tenants being told that, Oh, you know, you just don't have to pay. Don't worry about it. So what I have done personally is our property manager has sent out, like if you asked for a payment deferral, it is exactly that. And if you don't pay it, we will turn you over to collections. If you, you know, if you break the lease, whatever, it'll go to collections. Like it's not a freebie. Like because the house isn't free that you know that someone has to pay for the house. So you know,
Bill Fairman (07:25):
And, you know, Wendy and Jonathan talking about this earlier. With not taking advantage either. You still need to work with folks. You still have to have a heart.
Jonathan Davis (07:33):
Oh, for sure.
Bill Fairman (07:34):
But at the same time, you have bills you have to pay and you have income that you need and you're only getting that through the, through the rents. Let's talk about stimulus money. If you don't need the stimulus money,
Jonathan Davis (07:50):
Do not take it.
Bill Fairman (07:51):
Don't, well, what I'm talking about, you're still going to get it. They're sending it out.
Jonathan Davis (07:55):
Well it was if you make less than a hundred thousand.
Bill Fairman (07:58):
If you make less than, I can't remember what it is, but...
Jonathan Davis (08:02):
I think it's less than a hundred thousand, you're going to get that stimulus money.
Bill Fairman (08:04):
You're going to get the stimulus check in the mail. Don't just go out and buy something new with it. Put it aside.
Jonathan Davis (08:12):
I'd send it back. If you don't need it.
Bill Fairman (08:13):
You know, we...
Jonathan Davis (08:14):
Cause you're gonna have to pay taxes on it.
Bill Fairman (08:16):
Today, the employment, first time unemployment figures came out again, or first time claims and it was 3.8 million or 3.75 million new claims this week.
Jonathan Davis (08:29):
Wow.
Bill Fairman (08:31):
The good news out of that is that the continuing claims was in the $17 million range. While that sounds extremely high, you know, we were at 23 million already unemployed or 24 million prior to that. So with this three, seven new and then the 17, you know, we're right at 20 million. So there's 4 million people that have gotten jobs or have been brought back due to the paycheck protection program that has already funded. Yeah. Right. But if you're getting stimulus money and you don't need it, please just don't go out there and spend it on frivolous stuff. Save it for the rainy day as it were. We don't know how long this is going to linger. Each state is a little bit different. North Carolina. You know, if you look at the population we have, North Carolina really shouldn't be in a total lockdown. Neither should South Carolina. I'm not going to go any further with that because I'll be on my soap box. Next.
Jonathan Davis (09:49):
Well, thank you for that comment, Sohil.
Bill Fairman (09:51):
What was it? I couldn't see it.
Jonathan Davis (09:52):
He said, that's correct. They will extend a loan for the months that were not paid.
Bill Fairman (09:56):
Right. And here's a thing that a lot of people don't know too. If you go, if you're a, if you're a mortgage, if you're paying, a mortgagee, you're the one paying, if you request a forbearance, and I don't know if we may have gone over this before, but an actual forbearance isn't just putting two or three months off and adding it to the end of the term.
Jonathan Davis (10:24):
No, that's not a forbearance. That's a deferral.
Bill Fairman (10:26):
A forbearance is if I need three months on the fourth month, you're going to have to pay four months worth of payments. And most people aren't going to have that.
Jonathan Davis (10:38):
Well, it's not helpful either. I mean, if you can't pay one, two or three months, how is not paying that? And then on the fourth month you owe all those months together. That's not helpful.
Bill Fairman (10:49):
And then we have, you know, a big servicing issue. Not to mention you know, there's a lot of refinances going on. There's a, I don't want to get too deep into the weeds in the secondary market here, but most mortgage brokers are mortgage brokers. The banks or mortgage lenders, you have other mortgage lenders who are not banks, but in reality they are mortgage brokers because they have a giant warehouse line of money. They make these loans.
Jonathan Davis (11:25):
What is a warehouse line? So if people don't know what that is.
Bill Fairman (11:29):
A warehouse line is a pool of funds. It's like a line of credit. And you're making loans. You're pledging the collateral to the bank that is providing you with Atlanta credit.
Jonathan Davis (11:43):
But most of them have what, a 30 to 90 day term on that asset on the line. Yeah.
Bill Fairman (11:48):
So let's say you're a mortgage broker who has a giant warehouse facility. And during that 90 day period, half of your borrowers have already asked for a forbearance before you've been able to. And what happens with this warehouse line is you keep it for 30 to 90 days. You then take those loans and you sell them to wall street investors. That's called a mortgage backed security. So you're offering them to the people that buy these things. And then you get the money to pay off your warehouse line. Now you can make new loans. Well, they have already started the, the people that are buying the mortgage backed securities, if somebody has requested a forbearance before you can do the mortgage backed security sale, they are selling and somewhere in the 95% range. So in layman's terms, a hundred percent means I'm selling a $95,000 loan and you're going to give me $95,000 for it.
Bill Fairman (13:05):
That would be par. That means my income is the origination fee and any other fees I collect, I'm selling you the $95,000 loan for 95,000, and you're going to collect the monthly payments. If somebody now says, I'm only going to pay you 95% of the 95,000. Multiply that by all the loans you've done. And these people haven't missed any payments. They've just requested forbearance. So you're going to have a lot of people with a lot of warehouse lines that they're going to have to bring money to the table. That's in stock market terms. You're getting a margin call.
Jonathan Davis (13:47):
Yeah, you are.
Bill Fairman (13:48):
And that's not a good thing. So again, that there's going to be some opportunity down the road. I know Scott, our producer thinks October. But there's going to be not just some foreclosure stuff, but you're going to have some issues with some bigger lenders exiting the space because they're not going to be able to...
Jonathan Davis (14:12):
some really big lenders are going to be exiting the space.
Bill Fairman (14:16):
The shame of this is that it all goes back to the big banks again. Remember after 2008, the only people that were lending were the big banks. And they are not very efficient at doing mortgage loans. I mean, that's why 60% of all mortgage loans are done by brokers because they're more efficient.
Jonathan Davis (14:35):
They don't even understand real estate like the people like, Oh, you go get it. You go to the bank and get a mortgage now. No, they don't even understand real estate. Oftentimes. Now there are bankers who do. Not trying to say they'd all don't. But not going to generalize them. But oftentimes most of the banks that I deal with, they are not real estate savvy.
Bill Fairman (14:54):
Well they, yeah, they're not taught. They don't think outside of the box. Yeah. I was looking at the clock. We have a one o'clock show. We have great guests on. We have Kevin Kim of Geracy Law. He's a securities attorney. Mike Zlotnik of tempo funding is going to walk us through a conversion of a two star hotel into affordable housing. And then we have Glen Stromberg.
Jonathan Davis (15:23):
Real estate.
Bill Fairman (15:24):
Yep. And then Jacob Vanderslice and Randy Lawrence on, and they're going to give us their perspectives. It's you know, Glenn single family. Jacob is doing self storage. And Randy does multifamily. So we're going to have a good mix of stuff going on there at the one o'clock show. So join us at one o'clock and thanks. Yep. See you soon.
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