In this video, we delve into the impending storm that is the credit crunch and its potential catastrophic impact on the housing market.
Join us as we analyze the intricate web of factors contributing to this financial crisis and explore the ominous signs pointing towards a looming housing market crash.
From the intricate dynamics of real estate to the far-reaching consequences of credit constraints, we break down the complexities of this impending crisis and provide valuable insights for homeowners, prospective buyers, and anyone with a vested interest in the real estate landscape.
Don’t miss out on this crucial discussion that could reshape the way we perceive and navigate the housing market amidst the looming threat of a Credit Crunch.
Stay informed, stay ahead!
Transcript:
Josh Shine 00:00
The other thing that’s causing us to be busier than then, I guess I would say normal is just a credit crunch, right? The stressors out there in the banking community, I wouldn’t say that all the stresses in the banking community and everything we’re reading about, has definitely trickled through to every product offering out there. But I am getting more calls and literally three this week, which I don’t normally get three in one week, for some larger transactions. So our bread and butter sort of traditional residential rentals, flips hold berm method, that kind of thing.
Having said that, we do commercial transactions as well, small multifamily, small commercial building small meetings, sort of one to 3 million commercial, retail strip center, mixed use, etc. I’ve gotten three calls this week from people who were working with banks, to or working with banks, and the bank is getting tougher and tougher as the loan process goes on, which I think is indicative of whether it’s officially handed down from that bank or not, as far as a loan term change, they’re passing along, I need to see this and you double see this, they’re drilling down further and deeper and deeper, even towards the end, or what the client thought was the end of the loan process.
And then another one is having their loan called, or sort of not meeting the loan covenants on a larger commercial deal, which isn’t title default. And so this guy’s two years ago, maybe a year and a half ago, the bank would have been like, look, you’re gonna technical default. Let’s work this out. I’ve got some great products, I’ve got access cheap money, the world is great. Let’s work through it. Now. It’s like, technical default. You’re out of there. We’re calling it you have X amount of weeks to get it done. So he’s coming up being like, what can you do? I’m like, here for
Chris Bounds 01:39
mixed on that that. I mean, that that happens absolutely contract Lee it can and right, maybe should happen. But but also, banks, especially those who went through 2008 are being a bit more cautious on flooding their balance sheet with with Oreos, having an incentive to see if it can work out now if there are certain things they probably won’t look past. But if it’s just the DSCR, and it’s maybe a basis point or below minimum zone, maybe
Josh Shine 02:16
I think you’re one you’re completely correct. I’m curious how it’s gonna play out. I think it might result in the bank, shareholders, leadership, etc, saying, hey, let’s unload anything that’s not clean, perfect. And if we mark it to market isn’t performing incredibly well, let’s let’s let’s make an attempt to try to maybe unload that get them paid off, etc. Having said that, if they don’t, let’s definitely look at it through a different lens and with a different perspective. So we don’t end up holding on to some junk and we figure things out, we get creative, we figure out do we take short pays? Do we do we help them find other resources? Do we really dig deeper and try to figure out ways to still make this work in a positive way to your point of not having to hold on to a bunch of stuff, but but their real concerns any which way you hold it? Because the numbers are fleshing out to if and when you mark to market, all of this bank debt and the large, these larger commercial transactions and the other assets that you’re holding, it’s pretty deeply in the red. And that’s
Chris Bounds 03:15
the number of CBRE loans that are not suitable it was, it was a considerable number, I want to say it was like 30 or 40%.
Josh Shine 03:24
The mind blown, right? But um,
Chris Bounds 03:28
there’s definitely there’s a record number of bridge debt that’s that’s coming down this year. And one of them, even if they did get some recaps, it still doesn’t really matter. When it comes to refinancing, it’s going to be at market rates. Correct.
Josh Shine 03:44
But that’s our approach. And this ties in to what you’re saying, and really ties into a little bit of our approach as a local slash regional lender, we take a very common sense approach to things we look at right? Very common sense. Can you afford this? Can you not afford this just the exit work? Does the eggs not work? We’re very conservative. And maybe that’s really the end? Or the answer to the question or comment I’m gonna make right now, which is buying transactions large commercial, or certainly a small property to have to think about and not base my cash flow and projections based on that three year rate. I guess I’ve just been around the mortgage industry long enough to see the fluctuations and the ups and downs to say, just because the three year arm or the five year ARM has given me this tremendous rate, I still got to do my math, and I’ve got to sort of stress are shocked has this property I’m buying to see what’s going to happen if things do go south, when they do go south because they always do inevitably. Now this was a heck of a run up for all these years since the triple rates and months. Exactly. And that would never happen. Well, it didn’t just happen away.
It would never happen. It did just happen. Right? All the things that everyone says will never happen and all the smart, brilliant Wall Street people say we’ll never have but they do happen. And so it does. It is so Trump somewhat mind blowing, where you think about people who are buying large, large properties being like, well, I’m at a 2.8 rate for 36 months. Yeah. But then what it doesn’t work, if that goes up even a little bit, let alone double triples. And so it’s just shocking to me. And so when we’re looking at, and right now, this ties what we’re doing right now, obviously, we look at everything through an adjusted lens in light of the interest rate environment, and light of the potential exit opportunities can this client get out of this deal or not more of our clients now are doing holds, then we’re doing flips, those flips have gotten harder to make the kind of profit margins they were making three years ago, the supply chain is slowing things down.
For us, the permit process is very long and daunting. And overall, when you’re buying at such a high price, and the costs are up that high, it’s just obviously eating into the margins, the flips have become a little less, a little less, a good bit less common in our in our region. And the holes are much more common. I can take a long term perspective and look at this. But we’re helping people out with that berm that that in looking at that. We’re still trying to figure out and really make sure we’re doing that math, not necessarily based on what rates are this minute. But what could rates be and want to make sure there’s a little pattern there. Does that make sense? And it doesn’t mean won’t do the deal. But we’re very transparent in talking with the client and saying, I just want to make sure you’re aware of what the math could could and may look like.
Chris Bounds 06:23
And that plays out mainly for the landlord investor, right? Who’s gonna flip it and then refi
Josh Shine 06:28
Correct. Yep, yep. Yep, they got it right by rehab, right that that helper method, and then so when you’re looking to do that, that you’re gonna rent it and you’re gonna refinance and repeat it on that refinance? Is that gonna work? Yeah, because the LTV gonna work and is the rate gonna work. And having been in the mortgage industry long enough, I say to myself, right now you can refi at a 75, LTV, maybe 80s. But 80s are tougher to find. And you’re currently right now in I’m gonna say seven and change, there’s a few opportunities to maybe get below seven, because rates got a little bit better over the last 10 days, with the 10 year and five year Neil being down. But maybe we should assume it’s in the sort of the low sevens. And so when I talked to someone, I say, that’s what it is right this minute.
But you’re not going to be done with this property for three, six, maybe nine months, depending on the size of the rehab, let’s just sort of shock test it and say, if that LTV gets squeezed a little bit with this sort of credit crunch, and everyone’s saying, we need to tighten up our guidelines, and maybe our LTV is 70. And I can’t get to 75. And if the rate does go, and it’s eight and a half, until you can refi out, are you going to be okay with that? Can you afford it? What’s that going to do to your cash flow? Financially, it’s still worth it. And it may be depending on how that math works. But I think it’s important for people to look at be more realistic. On a worst case scenario, outcome is not always sunny skies and rosy scenarios.
Chris Bounds 07:49
At the end of the day, the rental, like the worst case scenario is you have more cash out of pocket, because that’s how you solve the problem. You just got to put more money down on it. As long as you have that liquidity. And you’re okay with that scenario, you’ll be fine. That, of course, affects your returns and all that. But as long as you’re okay with that, that covers you, if this problem happens, can I solve it? And what are my solutions? Is that okay? And then from there, yeah, you just make decisions. That’s
Josh Shine 08:20
exactly right. But But human nature results in so many people that we talked to, we talked to tons of people all the time, wanting to have the outlook always be the best case scenario.
Chris Bounds 08:30
No, of course, I get mad whenever they told me five and I get down there and they’re like, oh, it’s gonna be five and a quarter. I’m like, we’re having a five. Right? Right. Right. Right. happy about it. But at the end of the day, I own the asset. Right. So downs, refi. Well, that’s the line I always
Josh Shine 08:47
use is at the end of the day, long term holds, you’re going to pay it back, make money be profitable. It’s a question of how long it’s going to take to get there and maybe the longer than you’d hoped, maybe a little shorter than you’d hoped. But you’ll turn out positively over the long run. That is how real estate does work
Chris Bounds 09:04
as long as you cashflow, including vacancy, repairs capex as long as as long as you cashflow after that point, it’s my opinion, it’s assets under management, you’re letting that tent you’re letting someone else pay off your mortgage time works in your favor. You know, everything else being equal, so
Josh Shine 09:23
and the rule the rule always is that I always say this and this is from me as well as everyone I’ve run into. You know, everyone says I wish I bought more and I wish I bought it sooner. Not I wish I bought when rates were lower. Not I wish I bought only at this time. If I want a year more in 10
Chris Bounds 09:38
years, you’re a multimillionaire once a year for 10 years. It’s very simple. You can do that with a full time job. Very boring once a year, but in one of your five years, correct, you’re not gonna retire early.
Josh Shine 09:50
But you got nothing. Well, you got some money. Got some equity. Absolutely. Yep.