The Good Stewards Real Estate Podcast

Due Diligence: Don't Let Down Your Guard During COVID

Episode Summary

In every industry in and outside of real estate, there have been changes in how business is done, overnight--bringing a lot of uncertainty with it. Economic predictions are worth about as much as fortune cookie predictions. Several U.S. industries are essentially on lockdown, also raising questions on the short and long term impact for real estate investors and the effect on the day-to-day operations.

Episode Notes

Terms May Shift, Build Your Banking Relationships:

4:18: Market shifts have moved rapidly in the last few weeks and banks may change their minds based on the information of today. This is whyThe way to approach your issue is to understand that it's going to happen. Now you understand why it is so important to build and then nourish your banking relationships.

6:30: Every bank is different in the same way that every investor, every agent, every property, every seller is different. Other banks are still lending.

Due Diligence During COVID-19:

8:00: Always go through every single unit in an apartment complex. In the event of COVID, these procedures have changed, so make sure you have a clause in your contract to extend closing if you’re unable to complete your due diligence.  

11:30: If you were considering or in the process of purchasing pre-Covid, don’t close post-Covid without additional due diligence. Ask yourself, “What if the residents in there no longer have jobs?”

13:41: Renegotiate the price and retrade only if you need to.

15:10: Negative cash flow is a losing proposition because there is no guarantee of appreciation. Especially iIn this market because of Covid-19 since there is possibly a guarantee of depreciation. You better be confident that the area is going to appreciate.

17:30: If it isn’t cash flowing, can you fix it? Reduce utilities, add a bathroom and increase rent, etc.

20:28: When a market crash happens, having cash reserves (1) makes you antifragile and (2) gives you the ability to jump onto future opportunities in a down market. 

24:21 Never see your equity as cash reserves. Equity protects you from going down, but having cash reserves is what makes you antifragile.

Will Coronavirus Kill BRRRR?:

27:16: Remember that the market was already tight in a lot of markets going into COVID. We’re watching for what will happen to the supply of foreclosures once the courts open back up and start processing them again. Will that increase supply? Will demand change? This is what affects home prices.

29:05: Bottom line is we don’t know. There were already signs of an impending recession to begin with last year. Home values were hurt the worst last recession and will probably not be hurt the worst in the next one.

31:00: The general rule of thumb is when you're buying on the upslope, you want to be aggressive. When you're buying at the peak, you want to be careful. When you're buying on the trough and upslope, you want to be super aggressive.

Books mentioned:

Antifragile, by Nassim Taleb

Connect with the Good Stewards:

Episode Transcription

Andrew: (00:00) Equity is great. You should always be aiming for high margins. You should never see your equity as cash reserves. The reason is that, that's like a secondary. I would actually, cash reserves one. Lines of credit two. Equity three. But you need, well you don't need the second one, although they're nice, but you need cash reserves and equity.

INTRO: (00:21) Welcome to The Good Stewards podcast, the only podcast dedicated to seasoned real estate investors who want to maximize the cashflow potential in their business. We are “buy and hold” investors with a thousand plus properties and markets across the U.S. who bring an insider's view into the nitty gritty details of real estate investing. If you're looking to develop the mindset teams and systems that can dramatically build your real estate business and network, you're in the right place.

Ryan: (00:53) Welcome to this episode of The Good Stewards podcast. I'm Ryan Dossey.

Amanda: (00:57) I’m Amanda Perkins.

Bill: (00:58) I'm Bill Syrios.

Andrew: (01:00) And I'm Andrew Syrios.

Andrew: (01:01) Hello everyone. Thank you for joining us. It's great to have you. We are going through the questions that are on top of people's minds. We've gotten some questions this week and we wanted to give the best answers that we possibly could. We know there's a lot going on. There's the Covid-19 pandemic, there's the lockdown, there's people yelling at each other. Social media is particularly fire. I've seen a notable uptrend in posts that have all caps, so I know people are a little cooped up and we'll try to get easier real estate answers as best we can here. So, we've got some questions on Facebook, on our forums and our articles and whatnot.

(01:38) And so, one of the first one we've seen, several we've gotten were about lending requirements. One that specifically I think the lender dropped, they dropped what they were willing to lend 12%, which costs $400,000 on the loan amount. And I've heard of this throughout here and there and whatnot, is people really getting hit hard on lenders basically saying, “Oh, yeah, we'll do this” before Covid. And then pre-Covid, post-Covid, you got PC. And I guess they're both PC, but whatever.

Amanda: (02:13) AC - After Covid.

Andrew: (02:15) Yeah, after Covid. Yeah. I was thinking post-Covid, after-Covid, during Covid - DC, is lenders really hitting us. In fact, we got hit on one. We actually had one experience with our Texas partnership where we had a loan that we had gotten a kind of a preapproval letter or at least a term sheet. And then once Covid happened, they really hammered us. I don't know if you remember off the top of your head exactly how much they went down on the LTV and up around the interest rate.

Bill: (02:45) Our strategy was, we were kind of excited because this a lender offered 30 year amortization, which we were on a 20 year and we were basically trying to lower our monthly expenditures. This was pre-Covid. And they also had about a point interest rate drop from where we were at. So, we were in the process of refinancing over 40 properties.

Amanda: (03:09) Yeah, about 46, I think.

Bill: (03:12) Yeah. And had quite a bit of money out in those appraisals. And all of a sudden, the lender said, “No, sorry. Here's our new term sheet”. Which was dramatically worse, a higher interest rate and lower LTV. And poof, that was gone. Now we will go back to them and knock on their door again in a month or two just to see if maybe things are different. This lender is not tied to a bank. The funds were coming from other sources like hedge funds and so forth. So, the interest rate dropped, did not help us there when their lending requirements stiffened up dramatically. So, it’s happening all over the place.

Amanda: (03:54) Well, it is a lender that we've closed properties with before, but it did feel a lot like having the rug pulled out from under you because we had sent in a significant chunk of money that we'll hope their terms can get back in line. I just don't know if they'll get back in line and still honor the appraisals, we’ve paid for on 46 properties.

Andrew: (04:18) The way to approach this issue though is just to understand that it's going to happen. Now we have had multiple, I've heard multiple. We've had this happen to us once in Texas. We’ve heard multiple people dealing with this issue. There are two things I would note. The first one is we have not had this problem in Kansas City nor Eugene I believe with the banks that we have very good relationships with once we have built relationships over with several years. So, it's important to build and then nourish your banking relationships. You always want to keep adding new relationships as you can because sometimes the bank will fall out. That's happened to us too. They're like, we're just not into single family investment properties anymore. No offence or anything like that.

Amanda: (04:58) I want to add one little thing in with that relationship. The relationship is more than just you borrowing money from them. We oftentimes, always times have to put money, significant amount of money and leave it in a bank because that's what counts as a relationship. So, when we're talking about building a relationship, it's not just going back and continuing to get loans. It's also making a commitment to put your funds with the bank. And unfortunately, it means we have funds spread out through many different banks. But our banking relationships really get us through in times like this, but it's taken years to build that sort of a network. Anyway, I just wanted to add that little.

Bill: (05:35) And also those relationships extend to private lenders and folks who've done seller financing. Yesterday, Andrew and I talked to a fellow who actually did seller financing on 97 properties that we bought from him. We have a partner in that and we're negotiating with our partner to see if can become co-owners of those properties. And it was just heartening to hear him say, “You're the best people I've ever dealt with in terms of a lending relationship”. We've been doing that now for over four years with him. So, your reputation, your follow through, your honoring your word, your credit, it's all really important. And if you're going to build over time and scale your business, you've got to put that front and center as a high priority.

Andrew: (06:30) Absolutely. And so, I mean your reputation is key for those relationships. But in addition, the main thing, some banks are really tightening up. Some banks are still lending. A lot of it depends on what is their cash out, how many delinquencies do they have? What do they believe is going to happen? Every bank is different in the same way that every investor, every agent, every property, every seller is different.

(06:56) I mean if you're caught in the middle of one, and a bank just drops it on you. Like we're going to lower the LTV a bunch, that's terrible. But nothing you can do there. But don't give up. There are other banks. Don't just take the bad deal or give up. It might be worth waiting. But the big thing is just, pound the pavement, go to your local REIA, get on the Bigger Pockets forums, get on Good Stewards. Just start asking around who's still lending, which banks are lending at full 75% LTV, same terms and the like and start approaching them. Long-term build up your relationships. Those will keep you through. Short term, just talk to other investors. Everyone is dealing with this. This is a worldwide thing. Everyone's dealing with it so everyone knows what you're talking about. And there are banks that are still doing it. So, the key is to look for those banks and hopefully you have those relationships. And if you don't, start building them. You can start now, it's not impossible to, and the rates are very good.

(07:57) Let's go on to our next question. One person asked about, basically they needed to inspect a very large apartment complex, 220 units. And we recommend always going through every single unit. Don't rely on the word of the seller. Buyers are liars and sellers are… Well, they're liars too. And so, if you are only going to see 30% - 40%, they are going to be the better ones and they're going to make sure to show you the better one. So, get into every single unit. I guess the problem was basically that Covid happened and now it's very difficult to get into those units. And so, what is the way to deal with this?

(08:34) Well, the first thing I would note is you should always have a clause in your contract that allows you to extend it. So, we always put into our apartment or portfolio contracts where we call it 30-30-30. Basically 30 days to do the inspection period where earnest money is refundable. 30 more days to close it. And then if we need more time for whatever reason, loan, blah, blah, blah, we can put down another earnest money and extend it 30 days more. So, you make it 90 days.

(09:04) That being said, I think this entire situation deserves possibly another clause that we should consider adding. And we all should consider adding is something like a disaster or something like that that makes it impossible to perform due diligence. It will automatically extend the contract until that disaster has been resolved or that pandemic. That would be something to consider. I don't think that would be a problem, but generally speaking, I do think you should consider putting that in. We are definitely going to talk to an attorney about that. But I think when in this instance, if you're under contract with somebody, they presumably want to sell it to you. They presumably don't want to put it back on the market.

(09:44) And I'm sorry, you're not going to find investors, these institutional investors who are buying 200 unit apartments who aren't going to do very thorough due diligence. And so yeah, they might not go through every single unit, not everyone's going to do that, but they're going to go through a lot. So, there's no investor that go, “Oh yeah. We'll buy a site unseen”. Or they'll do it but like, “Yeah, okay, we're going to pay 20 cents on a dollar” or something just absurd.

(10:05) So, in all likelihood the seller will work with you. They understand the situation, everybody is dealing with this problem. Just get in touch with the seller and asked to extend the due diligence. Or maybe just seeing like if there's some residents that… Get everything done that you can now. In most states it appears that the quarantine will be lifted sometime in early May or mid-May. I think in some place is already starting to reopen.

(10:37) And then you should be able to get a mask or two and make sure that everyone who go through has a mask, maybe have rubber gloves, don't touch anything, make sure that the residents know that they don't need to be there, that they're going to be in and out quickly, that you're going to be wearing a mask and stuff like that to help put them at ease. But the residents are still obligated to allow the management company to have access. So, it's not so impossible to do it even when people are nervous about it.

Amanda: (11:00) Well, and I would add something into it. Something that is just going to be a fact of life. Maybe something I was considering purchasing for X dollars pre-Covid, maybe I'm not as willing to close it during Covid or after Covid because without being extra diligent and looking at “All right, how many people that were living there that were paying rent now no longer have jobs and are struggling to make rent payments and looking at when the rents are coming in compared to how they were coming in”. Maybe it's a good enough property that it wasn't in an area that wasn't hit that hard, but maybe it's really bad and maybe it's just… I would be taking really a closer look at something and looking at it again every month as it goes through just to make sure it's really something that you want to close post Covid.

Bill: (11:53) A couple of examples in Eugene recently. One in which we got a $10,000 reduction because of Covid essentially and the uncertainty in the market. And another one, we went back to the seller and they owned it free and clear. It's a $350,000 property that we are going to flip in this case. And because they ended up free and clear, we propose to them that they do seller-carry for six months. And it's actually a lease option. So, we turned a contract that we would normally get a private lender on, into something that the seller carried it back. And what was so sweet about that is that they're doing it for $500 a month, which covers their taxes and insurance instead of what would it cost us to get a private lender on that. Plus, we'd be paying taxes and insurance. And so overall for four months we have it for $500 a month. That's a pretty sweet deal. And the situation allowed us that creativity and it made sense to the seller because of this uncertainty in the market.

Andrew: (12:57) Yeah, I mean people are afraid of people backing out. We were selling a flip house and just unfortunately got hit right at the time. We had two sellers back out. Both we got on our contract against closing here in a second. I don't want to jinx myself, but it's about to close hopefully. But not at the same price and we had to do more repairs. So, it's one of those things people are thinking about this. And it might be worth backing out. It might be worth retrading. It might be worth backing out. Those are things to consider.

(13:28) I mean, you don't want to go back. You don't want to go into a deal planning on retrading. That's not the right way to do business. And you don't want to back out if you don't have to.

Bill: (13:39) What is retrading, Andrew? Some people might not know.

Andrew: (13:41) Retrading is just renegotiating the price after it's under contract. It's just the real estate jingo for it. But yeah, you don't want to go and planning to retraite. You don't want to back out if you don't have to. But sometimes you do. I mean that's the best part of the business and you shouldn't be afraid to do it when it's necessary. I think we should probably move on along to the next question.

Amanda: (14:03) Okay. So, the next question is, “How long is too long to hold onto a property that's not cash flowing?” I think that depends on so many things. Are we talking about $10,000 a month of negative cash flow or are you talking about a couple hundred or are you talking about $100? I mean, I think first of all, how much money you're going backwards every month is a big deal. If it's a little bit…

Andrew: (14:28) Absolutely.

Bill: (14:29) Yeah. I was brought a deal yesterday by one of our partners that basically was going to lose about $1,500 a month and he was thinking we would wait three years until we could see this turnaround. I said, I'm absolutely not interested in that. Even though this had some creativity to it, because you could cut off the back lot and build on the back of the property, cut it in half. And I said, well, I'd much rather just sell the front property right now so we can kind of see where we're at and then get to work on constructing a house on the backside lot which you can do in this particular city.

(15:10) I think negative cashflow is kind of a losing proposition in general because there's no guarantee of appreciation. Particularly in this market there's probably a guarantee of depreciation, if anything. So, in this market, negative cashflow is even more negative than generally assumed. So, the only positive about waiting is that you're paying down your loan if you have a lender loan from a bank. And so, you're paying down the principal. Weighing that out, how's your cash reserves? Are you able to really handle that?

Andrew: (15:48) I think there are a couple things to note. One is, it's a couple of other things to note. Generally, you are right. You don't want to hold it, especially if it's a large loss. The only exception if you know it's a loss that you would want to hold in my opinion is if you are highly confident that this area is probably going to appreciate it. You can never know for certain, but if you're buying exactly on the path of progress and it's about to get hit by, let's say you're right next to downtown, they are expanding it. There's a street car going by it. Something along those lines. Or I would say these are very rare instances and generally it should be a very small part of your portfolio you're willing to do this with and you should probably be a seasoned and experienced investor to do this.

Bill: (16:26) Or forced appreciation, which is basically value add by doing something to the property that really increases its value. That would increase its value to sell or possibly as a value to cash flow better.

Andrew: (16:39) Well, that would be to increase the value of the seller. Yeah. Which is kind of leading in the next point. Can you fix it? It's not necessarily easy to tell whether you are cash flowing, especially if it's a house. One bad turnover, one resident who doesn't pay rent for a few months - That year is lost. You are going to lose money on the house that year. But that doesn't mean the house is just destined to lose money forever. So, it's sort of tricky to do that. You got to run with estimates. Like is your vacancy 10%? Well, probably will be that. Your repairs will probably be $800 to $1,000 a year with maintenance and turnover expenses. But there's just going to be a lot more.

(17:20) So, if you have other houses or other in your portfolio, look at those. See what similar houses are doing in comparison to that. And just see like, or is it fixable? So, first of all, is it actually not cash flowing and also is it fixable? And that is like, is there something you could do? Could you subdivide off the back lot and sell it as a fly lot where you have the property here and then a driveway that goes to the back and the back lot there and make that income, reduce your loan amount or something like that. Can you turn it into a duplex? Can reduce the utilities? Maybe utilities are just too high. Can you increase the rent? Can you add a bathroom and increase the rent?

(18:05) All of these questions should be asked before giving up. And then also the other final question is, “What hit are you going to take if you sell it?” Are you going to make a bunch of money? Then probably, yeah. If you're going to take a huge hit, maybe it's worth holding onto it. So, it was mostly like a series of questions to ask more than just a direct answer.

Bill: (18:22) The other possibility is if you're cash poor, maybe you know somebody who's cash rich. And if there's a value in this property, it could be something that you'd want to partner with or bring somebody in on say, “I don't really want to sell this even though I need the money. What do you think about you coming in with me on it and let's share this together?” So that's another possibility of keeping it.

Amanda: (18:46) Next question. So, it basically has to do with, we talk a lot about having your cash reserves and being strong that way. And some people, it's going to take a really long time to get your cash reserves saved up and that sort of thing. So basically, the question is, do you recommend that any cash flow earned off your investment properties stay in your business to build up reserves until they're built up and then buy another property or keep buying and not be as mindful about the reserves? Like what's your… I mean, say you're getting started in the game. You want to keep building, but we're also saying like, you want to have the cash reserves. All of those things maybe aren't possible for you at the same time. What do you prioritize?

Andrew: (19:38) This was in response to a point that we made about the importance of having cash reserves. Basically, not having cash reserves is what more or less started the financial crisis in 2008 and as the people who are really in a big trouble now are those who didn't have cash reserves. Having cash reserves as well as stable private lenders and long-term financing or no debt, which is even better. But if you don't have high interest, short term financing but long-term financing, stable private lenders, high occupancy, well-established systems and cash reserves are what make you antifragile and that's a term from Nassim Taleb, which you should definitely read his book, “Antifragile”. But the idea is basically, when a crash happens, are you going to break? Like come out of this fragile, are you going to survive that's robust or are you going to be able to take advantage of it?

(20:28) Because when crash has happened is when stuff is cheap. And so that's when you can take advantage if you have the cash reserves and private lenders and you're stable and you can handle those losses. That's when you can buy up stuff very inexpensively and you can take off and actually grow from crashes. You are antifragile. So that was what the question is in response to. And I think, again, it depends, but I think generally speaking, you want to build up those cash reserves. If you find the deal of the century, you jump on it, you find a way to buy that property. But at the same time while you're building up your cash… Real estate is not something you have to do one or the other. I mean, you don't want to do everything, but if you get a great deal, but you're trying to build up your cash reserves, you can also sell that great deal and make a bunch of money and then your cash reserves are even higher and then you can go look for another property.

Bill: (21:22) I think that that's the key Andrew, particularly when you're starting out, because most people aren't going to have a lot of cash reserves starting out. And so, buying with a margin in my mind is the critical thing that you can always turn around and sell. When I first started, my thing was if I can turn around and sell this and I can make $1 on it, including paying all the closing costs and the real estate cost if there are some, then I'm convinced. I'm absolutely convinced I could take a loss, but I could make a dollar out of it if I could sell it. That helped me realize I had cash reserves in a sense in the margin that I was buying properties. So if you're looking for properties that they are 25% lower than what a similar property would be, as you comp it out and you can value add to it and you increase your margin, so to speak, your safety margin, then I think you have to take some reasonable risk in those kinds of situations.

Andrew: (19:31) Well, I’d push back a little bit here.

Amanda: (22:33) But I want to say, I want to push back too, because you weren't doing that in a very appreciating market. And would you have made that same decision if the pandemic happened in the 90s when you were realizing this very… You were in a market that was… Basically you could make a mistake at that moment in time. Would you make that same decision today?

Bill: (22:55) If I was convinced I had a 25% margin, I guess I would probably do it. Again, how do you start from scratch and say, oh, I need a bunch of cash reserves right off the bat. You just can't do it. I mean there is a risk here, but the risk I think should be reasonable.

Andrew: (23:14) The way I would refer to it is there are a couple of things. One, starting with nothing like the gurus would say, no money down, you don't need any money to start. That is really not… I mean you can start with a partner who brings the money. I think that's a thing. But real estate does require some money. So, you do need to build up. Some say that might be just be $10,000 - $20,000 but starting with $0 it’s just like a credit card, that is really not an approach that makes sense. That's a way to buy guru stuff. Not a way to invest in real estate.

Bill: (23:43) But let me ask you, Andrew, if you were totally convinced that you had a 25% margin, you really did. Even in this situation, wouldn't you probably buy it?

Andrew: (23:54) I’d do it under contract but then you probably either find a partner or wholesale it but usually you won’t find that without marketing for it, which requires some money. So, it's like the people who start real estate investing with zero, you probably want to build up some savings first or find a partner.

Amanda: (24:11) Did you have $0 Bill? In 1989 did you have zero?

Bill: (24:16) I got a loan from my father. That helped me start.

Andrew: (24:21) The thing I wanted to push back on was not that. Equity is great. You should always be aiming for high margins. You should never see your equity as cash reserves. The reason is that… That's like a secondary. I would actually cash reserves one, lines of credit two, equity three. Well you don't need the second one, although they're nice, but you need cash reserves and equity. In a crisis your equity goes away. Some of it just disappears. You lose value in your properties, but you also, it's harder to get access to it because banks aren't lending. Private lenders are skittish all these and people aren't buying or at least they're not. So, you can get access to, but usually you are fire selling at that point.

(25:02) You don't want to sell your properties in the middle of when the properties have dropped in value a lot, you want to either sell them before that or hold onto them until they start to appreciate again. Otherwise you are basically being one of those people fire selling that other investors who have the cash reserves are using to buy. So, cash reserves need to be seen as separate than the equity in the property. Equity protects you from going down, but having cash reserves is what makes you antifragile. Because then you can use those cash reserves as well as the stable private lenders, those lines of credits to jump on the potential deals that are there. Again, early on, it's hard to have those. I think you need a little bit to start, but you want to be cognizant of building that. And one way is you can think of having early on maybe 5%, preferably 10%, probably 5% aim for that of your assets in cash.

(25:52) As you get bigger and bigger, you can go down a little bit because you have economies of scaling and you have more diversification. So, it's less likely to hit you as hard. Or some people think of it as months of say like you can get through all of your expenses for six months and for something like that would be a good way to think of it. Pick one, aim for it. It's something to build too. You might not start there but it's something to build to. And if you get that great deal and you're like, “This is going to cash me out completely”, well I mean you can sell that and make a big profit and then use that to start again.

Amanda: (26:26) Okay. Let's move on to the next question. As an aspiring investor, my concern is how the after-rehab values will be affected by the pandemic. If homes lose value, I foresee it difficult to use the BRRRR method. Yes.

Andrew: (26:43) Yeah, if you don’t got the skills. Just kidding.

Amanda: (26:45) So you want to continue being in the game. But we all don't know where this is going. Right now, we haven't necessarily seen the drop happen in home values, but we all expect that it will because foreclosures are basically not being pursued right now. But at some point, there are people missing payments, foreclosures in the market. There are a lot of people losing jobs, their ability to buy going down. I think these are all things that are going to affect home pricing in the future. Correct?

Bill: (27:16) It really is a strange market because going into this pandemic, there was such a tight market in many, many locations. And because of that, I think that is what has propped up the market and continues to do so. But over time and I think we're not even… there's of course, everybody has their own opinion. I think it's 2022 to even start really pulling out of this thing. And can home prices stay stable that long when as Amanda says, there's going to be a lot of people sadly who are going to be not able to make their payments and lenders coming to a conclusion that their patience has run out. And so, these are going to go into foreclosure. And when that happens, there's a lot of properties that hit the market all of a sudden, and that jacks up the supply, which is what drives down the price. So, it's really hard to say at this point. It's very unlike 2007/2008 which the market was just… People had overpaid, they had an over leveraged, they had very few of their own assets, money into it. They got liar loans. All kinds of things were happening and the market was at the very top. There was not this tight market that we have right now. And it was a much different environment. So, the outcome could be different. It's really hard to say.

Andrew: (28:49) I think another question is because I was predicting, although, economic predictions are worth about as much as fortune cookie predictions. But I was predicting that there was going to be a recession this year anyways. Is Covid just exposing, triggering and exacerbating a recession that was already here? Which would make it all the worse. So, I don't know if we're going to know that for a while. That being said, this time real estate is not the cause of the recession. It is going to be dragged down by the coattails of the lockdown and whatever else.

Amanda: (29:25) Right. The loss of jobs it’s going to…

Andrew: (29:26) And so probably, it won't be… Real estate was hit the worst last time. It will probably not be hurt the worst this time.

Amanda: (29:32) I mean, I think these are hard questions to answer because we don't know. We have not lived through something like this. So, for the whole economy and country to come to a screeching halt basically over the course of five days in March, now we're just sort of waiting for things to open back up and what that looks like. People getting back to work. If I was somebody wanting to come in and start my investment career right now, I might be in a “wait and see”. I don't know. I think a lot of it would be depend on if I can get the private loan in place, can I cash flow this property as is for the long-term and can I kind of make that happen? That would be like my question. Can I do this without being able to BRRRR out? I mean I think a lot of those depend on your current circumstances.

Andrew: (30:26) Yeah. If you've got a bank that you know is financing 75% like the first question we were talking about, if you don't have a bank right now, then you probably should be more cautious. If you have a bank that you know will go at 75% and you have a relationship that's all the better. I think the general rule of thumb for this situation, as with any situation where you're buying on the down slope, because real estate market is cyclical, it goes like this. And so, when you're buying on the upslope, you want to be aggressive. When you're buying at the peak, you want to be careful. When you're buying on the trough, you want to be aggressive but not super aggressive. When you're buying… Actually, when we want to buy at the trough, you want to be super aggressive. Never mind, I'm sorry. You want to be super aggressive in the trough, in the upswing. Then you want to want to be very careful at the top. During the down slope, you want to be super careful because you need a bigger margin. And so, if you were buying at 75%, you should be looking for 70% or even 65% after repair value.

Bill: (31:22) It’s hard to catch a falling knife. That’s the thing.

Andrew: (31:25) It’s hard to catch a falling knife but there are catchable knives that fall. Particularly butter knives, which aren't even sharp.

Amanda: (31:35) So look for the butter knives, that is the advice there.

Bill: (31:41) I think that's the title of this podcast. Don't you think? Look for the butter knives out there.

Andrew: (31:46) Catch the falling butter knife.

Amanda: (31:48) And realize you won't even know if it was a butter knife until you get a year down the line, but catch them, no less. Do it.

Andrew: (31:55) Be more careful than you would have otherwise and look for a better ARV than you would have otherwise. And if you're just getting started, I mean it might be a time to like, what better time to learn. You're cooped up in your place. You're in quarantine. I mean just binge watch or listen to The Good Stewards. You got like hours and hours there. You'll be an expert afterwards. I got a book coming out. You can buy that. Read it. You got blog posts. You got my posts on Bigger Pockets. You got our blog posts on The Good Stewards. Ryan's got his videos. We've got other videos. Just go to town. Like it's a good time to learn. Probably a little bit of a “wait and see”. Especially, I don't know exactly when this episode will come out compared to when the quarantines will start ending, but I would want to see… especially if you’re getting started, I wouldn't want to start until at least a month after the quarantine ends. With that we should be able to assess the damage better than. And then that way you can be like, “Okay, this is going to free fall. I need to wait”. Or “It's bad, but it's not too bad. I'm going to get in it. But I'm going to be more careful and go for 65% - 70%”. So that is the first thing. But the second thing is you got a lot of time on your hands, you're in quarantine, whatever, start reading, start listening to podcasts, learn all this stuff. There's a lot to learn and what better time to do it than now.

Bill: (33:10) And all real estate is local. So, every locality is going to be different in terms of the supply/demand and a way that in the balance as well. Less desirable areas are going to be a harder hit. Places like condos are going to be a harder hit, I think. At least they were the last recession, so you got to weigh those factors as well.

Andrew: (33:33) I think that about wraps it up. We've had a good little discussion here, touched on a lot of topics and answers. I know a lot of people are antsy, very nervous, a lot of questions regarding Covid-19, regarding the lockdown, regarding the state of the mortgage industry, regarding real estate values, regarding what to do. And since we're all licensed epidemiologists and PhD economists, we can give you those answers with complete degree of certainty. And so, I hope you've enjoyed our show here. Please join us next time and check us out at thegoodstewards.com. Thank you.