There is no downplaying the effects of Coronavirus all over the world. It is disrupting so many lives and straining almost all business sectors. Situating this current event to this episode, Scott Carson discusses how the Coronavirus pandemic has affected the note and real estate industry. He breaks down some of the things to watch and look for in your note and real estate investing business, and why, amidst all the chaos and panic it has caused, it is important to stay calm and work with your borrowers and tenants.
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How The Coronavirus Pandemic Affects The Note And Real Estate Industry
I want to talk a little bit about what’s on everybody’s mind right now. There are a lot of people that are at the point of stressing out about the pandemic, the Coronavirus and things like that. I thought I’d come on and talk a little bit about how that can affect your note business. How it can affect your real estate investing side, whether it does or doesn’t affect it. First, I want to start off by simply saying for everybody to take a deep breath with the recent cancellations of South by Southwest here in Austin, Texas and the Traffic & Conversion Summit, the biggest marketing event being delayed, postponed or canceled in San Diego, along with Major League Baseball and NHL and the NBA all suspending or delaying things. What we have to do is precautionary measures. It’s a great thing to be precautionary.
Here’s the thing you realize. It’s still a relatively smaller amount of cases and has a high recovery with what’s going on. If you get sick, you’ve got a 14 to 19-day quarantine and that can affect not being able to work or things like that. That’s what I want to focus more so than anything else. What are the long-term effects? I don’t believe we’re going to have millions of dead. I don’t think it’s the zombie virus. Are people going to get sick? Yes, they’re going to get sick and they’re going to recover. What you find is the elderly are the most affected. Those with underlying conditions, heart disease, diabetes and older.
When you start to get numbers in from China and seeing the recovery rights there versus those who have gotten sick. I’m not trying to minimalize this at any means of the imagination. I’ve got a family that is elderly. I’m worried about them. I’m trying to hope that they’ve taken good care. What it comes down to more anything else is make sure and do a couple of things. One, washing your hands, good health strategies, drink plenty of fluids and then also avoid bigger crowds. That’s the beauty of this world with Facebook, social media and virtual meetings. You can do still get a lot done of work-wise without even having to be around the crowd.
That’s one of the things that we’ve done for the last few years is making sure to separate ourselves in doing online events. It would be much more prevalent. When you look at the cancellations of these Major League sports teams or spending the seasons or these big festivals, there are ripple effects that you have to keep in mind. The ripple effect is the government buildings being shut down for 30 days. The first riffle effect being more than anything else is that people are going to be out of work, laid off or don’t have savings for the most part. Eighty-five percent of the United States doesn’t have a month of savings. They are one missed paycheck away from being a default.
Are we going to see more defaults over the next 3, 6, 9 months? Yes, we will. I’m not trying to come on here and say that’s an opportunity. It’s not an opportunity because what’s going to happen? What we’re going to see a cash inflection of money coming in from the government. There’s going to be some bailouts. You are going to meet some people doing some things. What’s going to happen more so than anything else especially if you’re a note investor? We’ll talk about notes and then we’ll talk about real estate.
Here’s a precautionary thing that you want to do as a note investor if you’ve got people that are performing notes. You’ve got a portfolio of the owner finance industry. You bought nonperforming notes or you bought performing notes. One of the best things that you can do is relax a little bit. Hopefully, you know what your borrowers are doing or your borrowers are doing good things but if you start seeing things happen by defaults happening, people not paying. You’re going to want to make sure and not sit around on that, jump on the phone or get your servicer involved to reach out to the borrowers, to reach out to what’s going on.
If they’ve been affected being laid off, a lot of people here in Austin especially our service staff, your first-time buyers, your service industry people, bartenders, waitstaff, hotel management, and things like that, they don’t have the savings. They don’t have the income and they’re not getting the money in for a lot of things. South by Southwest laid 1/3 of their staff off. That’s not a huge amount. That’s 1/3 of 175 people, it’s 60 people roughly, 59, 58. It’s around there but it’s still an impact. You may see more of that happening as people, employers and businesses are having to tighten up the ship a little bit because not so many people are coming in.
Here’s the thing that you want to do. You’re going to have to, and this in good nature, offer up some leniency on your payment plans or borrowers. You can do a short-term trial payment plan. Give them the window for 30, 60 or 90 days if they’re delayed or in default. Those are the things that we are planning here to do. We’re not going to be sending letters out immediately. We’re going to wait and see how this thing rises out the next two or three weeks and go from there starting in the first part of April 2020. The thing is that we will be avoiding events, travel less and stay at home and do more online as we’ve always done and that’s a great thing.
If you look at what you’re doing, many of you guys and gals out there as real estate or note investors can do a lot of your stuff online for Zoom, webinars or Facebook Lives to still communicate and sell some markets to talk with their clients. The biggest thing that you want to do is like many businesses, they’re sending letters out, they’re letting everybody know that they’re concerned about it and work on that. I’ve seen some people talk about how. We were in the process of buying a house. We need to go back, renegotiate and reduce our bids. You can do that. I honestly think the day-in-day-out operations for most of your normal businesses aren’t going to change.
People are still going to be buying houses. People are going to still be selling a house. People are going to be looking to move as long as this doesn’t spread into a huge high percentage of affected people across the country. You’re still going to see very normal day-in-day-out operations that may be a little less travel. People are staying home more, they’re working and they’re picking their kids out of school, but business is the last to happen. What will they do? Will they delay tax filing on April 15th to a later day? It’s a possibility. There is much to talk about that. They’re going to say, follow your extension like you would normally do anyway until October.
The next 36 days are going to be critical and seeing where everything’s going. If you’ve got cash, you’ve got things in there. That’s a good time to be stockpiling that stuff. Why? More banks are going to see the default and I guarantee a lot of the banks are incorporating similar tactics in a way to help their client base. If you’ve been affected or sick with this or been laid off due to the Coronavirus, they’re going to double-check this stuff. You’re not going to say, “I’ve been laid off for six months and I got laid off due to the Coronavirus.” That’s not going to fly as we all know. We do know and as we’ve seen another natural disaster, we could say with Katrina, the hurricanes where the banks will reach out to those that are in those areas say, “Don’t worry about it. We’ll figure something out over the next six months.”
I think we’re going to see more of that going on. The biggest thing that you have to do more than anything else is not dive in and be part of the chaos. Keep a cool, calm and collected mine. It is not the end of the world, at least we don’t think it is, anyway. Toilet paper will arrive for everybody to be able to do things with the toilet paper. Cleaning supplies will be there. What I want you to know more so than anything else though is take a deep breath, use common sense, do your biggest things and reach out to people. Nobody wants to be in a bad situation. The majority of the country is one missed paycheck away from being upside down or being the default. One out of ten Americans on average are already about 30 days behind their mortgage.
We’re no longer in a bull market. We’ve reached the bear market when you look at what the stocks and bonds had been doing and going from there. It’s a bit of time to tighten up a little bit. You need to take a look at what’s been running through your accounts and get rid of some of those things that you haven’t been using. If you haven’t been to the gym since January 2nd, maybe it’s time to cancel that gym membership. That’s another thing. I wouldn’t be running around in masks and surgical gloves for the most part, but make sure if you are going to a public place, you do keep clean. You do wash your hands. You’re not putting your hands in your mouth and your face or things like that. Be smart about what you’re doing and have some common sense. It’s the most important thing. The business still needs to go on and real estate is needed to happen. You’re still going to have people buying, you still have renters in place.
This also goes back to if you’ve got renters that have been affected, you may need to reach out to them depending on what part of the country or where you’re located at to see what’s happened. When you look at the number of people that it’s not just the sick, it’s affected from all the vendors. As we’ve talked about for all the people that support these teams, these conferences, these big events. Somebody mentioned that they’d heard somewhere before they expected that at least 1/3 of the big festivals will probably go out of business because they may not be able to afford the refunds or the cancellations. I don’t foresee that. We’re looking at a 60 to 90-day blip like we have with other things out there. I’m not being cavalier. I’m still taking precautions myself, washing and making sure to increase my Vitamin C intake and avoid bigger crowds.
The thing I want you to get at more significant is the way the world works these days. We’re not all required to show up to see something. Use the technology that’s available to communicate and if you’ve got some time off, put some assets in place and buy assets. Start putting some things online. Start developing your marketing list. I’m not saying that banks have defaulted notes right now to buy from but in six months, in three months, you may see an increase in default rates across the country. We’ll follow back up with that as well. What I want more than anything else out there for you that are reading this is to make sure you know what’s coming. Don’t be a bigger part of the problem, but take the time and think through things. Don’t be a knee jerk reaction and that’s the worst thing that you could possibly do.
A lot of people will be knee-jerky, start doing stupid things, rush out and do horrible things. That’s the last thing you want to do. Be smart about it. If you’re in the note, in the real estate game, communicate with your borrowers, renters and talk with them. Hopefully, you’ve put some reserves aside and you’ve got some money in the bank. If you haven’t, now is the time to start putting that money aside, start planning, start putting the money in your IRAs. Start putting something aside of reserves in case something does happen to you to make sure that you’re prepared if you’ve got to go an extra 30 days or if you’ve got to go two weeks up there.
If you know somebody who is struggling, it’s the time to, “We’re not going to worry about this month’s mortgage payment. We’ll put on the back the face of the month. We’re not going to make you in default, we’re going to give you a month or two months to get back on track.” That’s the logical thing to do especially if your borrower has been paying on time and if they are affected, communicate with them. Talk to your tenants and buyers. I would not go back say we need to go shake down 5% or 10%. You could do that. It’s totally fine but I always like to have the golden rule.
What would I like? If it’s not affecting us right now at this minute and you can close this week or next week, let’s get it done. If your money is coming from the bank, I don’t have to show up to 1,000-persons or 200, even 100-person spot to talk or to sign documents. I don’t think things changed that much if we are focus on things. Here’s a couple of things I’d be more effective more than anything. Your short-term Airbnbs are going to have a bigger impact. People aren’t traveling as much especially to different places like San Diego to Orlando, to San Francisco, to Vegas for some of the different events.
Those that have events that are going on in those places, they’re doing a big reach out. They’re double-checking down. We’ve seen several events over the last couple of days, send out notices like, “Here’s what we’re doing to take part and helping us. We’re going to go ahead and delay or we’re going to postpone.” Keep that in mind. If you don’t have to travel, stay at home. If you can’t avoid big crowds, that’s the best thing. The last thing you want to do is make fun of this, be a carrier or spread things everywhere else out there. Use the tools that are available these days. Use the internet, Instagram, Facebook, video to share what has got going on.
If you’re home, now is a great time to start filming some assets and videos that you can use in your marketing, in your real estate business and your note business to get the word out and what’s going on. That’s what I have to say. Common sense isn’t always common in a time of stress but honestly more than anything else, take a deep breath, make some preparations a little bit. This is going to be a short blip in the market. We’ll see what happens with the stock market, with anything else that’s going on, with the elections and things like that. Be prepared. It doesn’t mean go out and stock out twenty cases of toilet paper or bleach. Don’t be drinking any bleach to clean yourself out. Do the right things. Keep in mind, keep calm and invest on.
That’s all I’ve got for this episode. I wanted to get out there and say there will be some long-term effects with defaults and people unemployed. Will that number increase? It may increase. Will the rates decrease? I think the feds are going to infuse more money into the market. Even with bailouts, that takes time for that money to get in the hands of people. A lot of the people that are affected are going to be your first-time buyers. The people in the service industry and the tourism industry are where you can see the most amount of problems, whether they’re your renters, your buyers or your borrowers on your deals. Be safe, be smart, God bless the USA. We look forward to seeing you all at the top.
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