What's happening, bigger pockets? This is Matt Faircloth. So we have an interesting
conversation today, and I see a lot of people talk about this online. Because people are
correlating what happened in 2008, 2009 to now, and yes, we're likely facing another
recession. The economy is going to take a dip and things are going to change, but people
are correlating now to what happened then.
Here's the thing, this now is not then, and then is not now. It's like a Dr. Seuss book,
write that down. We're not in the same type of predicament that we were then. In the last
recession, in the 2008, 2009 recession, in a big summary, I was investing in 2008. I
saw exactly what happened and I'm seeing what's happening now.
This is Matt's opinion. In 2008, that was a debt crisis. What was going on was the lenders
that were lending to real estate investors and lending to commercial real estate investors
and residential people that were buying their single family homes, those lenders were in
a crisis where the source of their loans, which are Wall Street backed securities were
mistraded, were misappropriated, were probably too accelerated because it was a lot of money
and trading mortgage backed securities back then.
Zero. B's, zero, double B's, zero, triple B's, zero. And then that happens.
What is that?
That's America's housing market.
And so for a lot of reasons, a lot of bad loans got written. Those bad loans came to
a head, a lot of the organizations that were involved in the financial sector that were
backing a lot of that bad money went down. Lehman Brothers and things like that. That
caused a crumble of the financial sector, and a crumble of the real estate market because
the real estate market was propped up on all those bad loans. I remember people were getting
mortgages for just a signature. That's all you needed, a pulse and a pen that ink in
it and you could get a loan. That's it?
This, now, is not then. We are not facing the same things now. Due to COVID and due
to corona crazy, we are facing a whole different thing, which is a disparity of income. Right
now nobody's making any money and nobody's taking the money they were earning and pumping
it back into the market.
There are things that are going to happen to foreclosures in today's market, and here's
what I believe is going to happen. The question of the day is foreclosures in today's market.
Where we're facing right now, and what foreclosures are going to look like. There's probably going
to be good deals that are going to be had, and watch until the very end of the video
and I'll show you how good deals are going to show up. And my 2 cents, again Matt's opinion,
is it's not going to be through foreclosures, but we'll talk about that in a second. But
stay until the end and I'll tell you where to get the good deals. If you're rubbing your
hands together, hoping that there's going to be lots of foreclosures and blood in the
streets and banks reaping properties back and selling them off as REOs and things like
that, I don't believe that's what's going to happen.
Yeah, boy. Yeah, boy. Yeah, boy.
Here is Matt's opinion on what's going to happen. And let's first talk about where foreclosures
are right now. If there is a property that's already behind on its mortgage and the bank
has already begun the foreclosure process, the courts are closed, okay? Right now courts
are not open so you can't go and take a property to court. Any landlord knows you can't evict
for nonpayment of rent. Your mortgage lender also can't take you to court or take a borrower
to court to go and accelerate the foreclosure process, to do a sheriff sale, to do a lockout,
whatever it is. Now, there's some counties that have worked around this and are doing
court hearings online. But for the most part, these folks are old school, if you will, so
they're looking to do it the old way, which is face to face. So these things are now delayed
and that will remain until the courts start opening up. So anything that was in the foreclosure
pipeline now is likely sitting in the pipeline, waiting on things to open again. That's number
one.
The second thing going on is that banks are doing workouts. So what that means guys, is
that banks are approaching borrowers and saying, "Hey, would you like to not have to pay your
monthly payments for a couple of months?" I mean, I'm being a little facetious there,
but they're pretty much going to borrowers and saying, "Would you like this? Because
we sure as heck don't want to take your property back and don't want to deal with the foreclosure.
So wouldn't you love to not have to make payments for a couple of months? You can get yourself
an order over there." So they're offering forbearance, they're offering deferments,
they're offering all kinds of different terms for the same thing, which is just a workout
on, on payment terms.
Again, it's not saying banks do, but they're trying to avoid this heavily. Those workouts
are going to allow a lot of people to get their feet back on the ground. And now that
we're about halfway through the corona crazy virus thing right now I think, but banks are
already offering another round of this because banks really don't want to begin the foreclosure
proceeding, don't want to deal with this. They'd rather just give a borrower a couple
months worth of forbearance to work with them versus begin the foreclosure proceeding as
soon as things come back around. And that is because, as I said before, the courts are
closed, that in general banks are ahead of this thing, meaning they don't want the properties
back. I believe it's going to prevent a lot of foreclosures and blood in the streets right
now in today's market.
In general, for the future, right? That's today. Now this is the future. In the future,
the immediate future, let's talk about the next year, okay? Not future future future,
but in the immediate future, there's still going to be a lot of money swimming around.
And I get the stock market's dropped quite a bit, which taken a lot of money out of the
economy, but banks will remain well-funded and more and more lenders will come back in
and there's become more and more incentive packages and things like that to pump in to
prop things up financially. So I think there will continue to be money in the market, which
means there'll be liquidity, which means it'll be flowing and banks will be lending again.
And it'll be easier, it'll be not just as easy, but still easy enough. It's not going
to be the brakes on like it was in 2008. We're going to see more liquidity now than we did
in 2008. So I think that right there is going to prevent a lot of foreclosures.
The next thing that I think that we're going to see in the future is refis. At the end
of the day, it's easy to refi, right? It will be easy to refi in the future. You know why?
Lenders are going to get more conservative, they're going to change their guidelines.
They're not going to lend 80, 85% loan to value on properties. They're not going to
give all these great terms and things like that. They may pull back on and be a little
more conservative on a lot of their deals, but rates are still going to remain low. There's
no indication that rates are going to go up anytime soon. And what that means is the debt
to income ratio that it takes to cover your debt on a property is going to be low, which
means your property's not going to have to make tons and tons and tons of income to qualify
for a mortgage because rates are going to be fairly low.
Now you might not be able to pull out lots and lots of cash when you refinance, but at
least you don't lose your property. You can maybe refi out of a high interest, bad debt
loan that you have into a better interest loan that you have as the market rates continue
to stay down.
Sum it up. There's a lot of money in the market. Still looking for a home. Rates are super
low and that's good, that's going to help lending. And this is a bad thing, but it's
not going to be that bad, lenders are going to change their guidelines for moving forward
on deals. Things like loan to value and the covenants on what they're going to lend to
you on, and things like, that are all going to change, but that's going to change bankability
in the future, but it's not going to change to the point where it's going to be come impossible
to get a loan.
Values are going to go down, this time not based on banks, which means it's not going
to drop 50% like a lot of people are hoping for it to do. Shame on you for hoping that
to happen to other people. But you might see like a five to 10% drop in value on overall
real estate simply because a lot more people aren't going to be earning as much. So the
income side of things are going to drop. But earnings aren't going to drop 50%, they're
going to drop 10, 15%. That'll reflect directly in real estate. And I think that if you're
looking to refinance a property and get access to those low rates, as long as your property
has some income, you're going to be okay, but income is going to be key in the future.
Again, Matt's predictions for the future again here, values may go down 10 to 15%, income
is going to be key moving forward in the future. That's what I think is going to drive your
ability to refinance even more than it is now. That's going to be the absolute factor,
the end all, be all. If you've got a property with income, the world is going to be your
oyster.
I said in the beginning of this video on how you guys can get deals. Now, like I said,
if y'all are out there rubbing your hands together, and I see posts on Facebook and
Bigger Pockets, shame on you that are out there being like, "I'm rubbing my hands together.
I can't wait for all these bank owned foreclosures to hit the market," and things like that.
And, "I'm going to go buy all these deals." Then is not now. We're not looking at a 2008
recession. It's not going to look like that. The place that I do think you're going to
be able to do really well is in tired owners.
Tired owners is going to be the place to go to pick up properties. These are people that
were thinking of selling before coronavirus. Those are the owners that you want to seek,
and there are ways that you can find them. If you guys want me to teach you how to do
it, leave a comment in the comment section below, and I'll shoot another video on my
YouTube channel and we can talk about how to find tired owners. Tired owners are where
to go. These are people that were thinking that they could get this based on a 5% capitalization
rate. Now they're realizing, well, they're probably going to have to refinance and deal
with tenants that are having income issues and things like that. And maybe just, I don't
want to deal with it. I want out. I want to take my money and go somewhere else. Those
are the folks that are going to be way more realistic and there's not going to be blood
in the street, but they might give you a 10, 15% discount off of what something was selling
for before.
Remember it takes over a year for a foreclosure to hit the market. Again, I was investing
in 2008, 2009. We didn't see the really good deals until 2010. That's when good stuff started
to come out. So don't worry about foreclosures right now. Don't worry about buying them because
they're going to take a while to work their way through. Look for this. Look for people
that are ready to go right now, ready to sell right now if you give a realistic number with
a good closing price and good closing terms that'll sell to you at a great number with
a clean closing. That's how you're going to do a deal now, not by bank-owned foreclosures.
But again, this is my opinion on the foreclosure market. And that's my place to go if you guys
want to get good deals today.
Okay, guys, leave comments below. If you agree with me, love to hear from you. If you disagree
with me, I'd love to hear from you too. Leave a comment below also. Either way I want to
hear from you because it's all good conversation and it's all here to help aid the Bigger Pockets
community. So I appreciate you guys. Thank you for watching. And as I always say, have
a great and profitable week.
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