Getting the Most out of Professional Pivot

Getting the Most out of Professional Pivot

Most everyone on the planet is familiar with Instagram.  First launched in October 6, 2010 on the App Store, it became the top photo-sharing app that same day.  Eighteen months later, Facebook acquired the app for $1 billion in cash and stock.  But did you know the first concept of Instagram was called Burbn.  Burbn was a multifaceted app that allowed users to check-in, post plans, and share photos.  It was more of a FourSquare competitor than the photo-sharing powerhouse it is today.

What caused this professional pivot? The founder of Burbn, after receiving venture capital investment, started building out his team.  The two eventual Instagram founders, realized that photo-sharing was the most commonly used component of check-in apps, while also seeing that other mobile photo apps had cool features, but lacked any social component (does anyone remember Hipstamatic? ).

So how does this story of a company pivot have any bearing on you?  In today’s economy, many people will be forced into making career pivots.  We have seen teachers become private tutors.  Uber drivers become GrubHub drivers.  And of course, most have had to pivot from working in an office to working from home… while watching kids who are not in school.

How are you making that pivot?  Have you been laid off or your business closed due to social distancing and need to change careers or adapt to a “new normal”?  Let’s look at some other examples of pivots people have made.

Other examples of pivots are:

  • Alcohol distilleries are creating hand sanitizers
  • Sommelier offering virtual wine tasting and pairing menu, shipped to house
  • Wedding and family photographers are becoming graphic designers
  • Journalists are becoming copywriters
  • Manufacturers moving to medical supplies
  • Restaurants becoming grocery stores, selling the raw foods to make your favorite foods at home
  • Professional seminars going from in person to recorded video lectures combined with live

For some of these examples, the effected person adapted an existing skill set: teachers becoming tutors, sommelier’s offering virtual wine tastings. But others have become more creative: restaurants selling their raw goods or distilleries moving from spirits to hand sanitizer.  But what is the underlying theme here?

As you look to make a pivot by choice or being forced to, the first step should always be self assessment.  What are your natural talents and what do you enjoy doing?  While we cannot always love what we are doing every day, finding enjoyment and meaning in your job allows you to bring a passion that will help carry you through the lulls of any day.  And of course, your natural talents will allow you perform at the highest level as quickly as possible.

Once you have taken stock of your own abilities and talents, look for a hole that needs to be filled.  If looking for another role within a larger company, this comes from job postings and networking.  But if starting your own business, or adapting an existing business is more in the cards for you, finding a chokepoint and creating a way to relieve that chokepoint will lead to success.  Instagram saw it in connecting the features of other mobile photo apps and creating a social platform around that.  Airbnb saw the lack of hotel rooms when major conferences come to town (as well as offsetting high rent costs). Restaurants are operating like grocery stores.  Personal trainers and boutique fitness centers are loaning out equipment and doing virtual sessions.

We are all adapting.  Even if you are still in a secure job, working from home is an adaptation.  While we all want to return to normal, none of us know what that will look like. But using this time to innovate with your pivot can help you and those around you grow in ways you may have never known was possible.

About the author:
Evan is the Investor Relations Consultant for Ashcroft Capital.  As such, he spends his days working with investors to better understand their investment goals and background.  With over 13 years in real estate, he has seen all sides of real estate from acquisitions, to capital raising on the equity and debt side, to operations, and actively invests himself.  Please feel free to connect with Evan here.

How COVID-19 Has Impacted Rent Collection for Landlords

COVID-19 has caused a lot of uncertainty for landlords and property managers over the past few months, especially with the recent changes to rent collections and evictions. In an attempt to help tenants who may be struggling financially, many states are beginning to restrict evictions during the pandemic. For landlords, this can be scary as it may translate to less rental income with no ability to evict and find a new tenant.

Changes in rent collection during COVID-19 are expected. However, recent rent collection data shows landlords may not be as impacted as they initially expected.

In fact, data shows that rent collection is down by a few percentage points. While new eviction laws may be scary for landlords, the data shows it is not as bad as it seems.

Here’s what you need to know about COVID-19’s impact on rent collection for landlords:

Rent Collection is Down

Understandably, rent collection has dropped – but this was expected. Going into a recession of any kind means people have less money. Sometimes, this even means missing rent payments.

Luckily, rent collection hasn’t been affected as much compared to previous economic downturns. In fact, as of May 2020, rent collection is only down 1.5% from May 2019.

Better yet is that data shows rent is up over 2% from April of 2020, which also indicates  landlords may not see a massive decrease in rent collections.

As for rent collection percentages, 80.2% of tenants paid rent by the end of week May 6th, 2020. This is only a 1.5% change from the 81.7% of tenants that paid rent by the end of week May 6th, 2019.

Source: National Multifamily Housing Council

Year to date, rent collection is down a total of roughly 3% from 2019, but this is promising. For the time being, the spread of the virus seems to be slowing down. Additionally, steps are being implemented to get the economy rolling again, meaning in the short-term, the worst may be over.

Of course, we don’t know any of that for a fact yet, though. What we do know is rent collection is down only slightly – a good sign for landlords.

Why is Rent Collection Down So Little? Will it Get Worse?

The obvious reason for this is government stimulus checks are finally hitting bank accounts. With many stimulus checks making their way to citizens towards the end of April, it makes sense tenants are able to pay rent.

Of course, as of now this is the only stimulus check confirmed for Americans. There have been talks from President Trump about distributing a second round of stimulus checks, though. The main reason for this is because data shows that 63% of Americans will require a second stimulus check in order to pay bills within the next three months.

Depending on whether the economy reopens, the next few months could prove to be unstable. The good news is many states are ramping up unemployment help efforts, as nearly 15% of the country is unemployed.

With all the federal and state help citizens are receiving as of currently, it is likely rent collections won’t fluctuate too much. Again though, none of this can be said for certain.

Eviction Routines are Changing

Perhaps more important to know than the current rent collection numbers are the change in evictions laws. While not all states have implemented new evictions laws, many states have – and they are important to know.

Take a recent case in Minnesota, for example, where a landlord was charged for evicting a tenant during the pandemic.

States are beginning to require landlords to allow tenants to live in their property even if they cannot pay rent. As of now, there are 15 states which have suspended or changed eviction laws until further notice. Each state’s new eviction suspension is different, so be sure to stay updated on your current state’s eviction laws.

Most states who have changed their eviction laws require landlords to keep tenants in their homes even if they cannot pay rent. New York, for example, declared an eviction and foreclosure moratorium and prohibited late fees for up to 90 days, even allowing tenants to use their security deposits to pay past rent.

Luckily, these changes have clearly not changed rent collection too much – yet. But it is still something that should be prepared for. At the very least, be willing to work with tenants during this difficult time. Even if you are able to evict tenants, finding new ones during this time may not be easy.

Remember – It’s Temporary

Though we don’t know when, the economy will recover. In fact, real estate investments like apartment investing may even come out of the recession stronger than before.

While rent collections have been slightly affected, it’s nothing too concerning as of now. Just be sure to stay on top of your states’ eviction laws and suspensions during the pandemic and prepare accordingly.

For more reading, c to find out what you can do to help “recession-proof” your real estate investments during a recession.






You Shouldn’t Do Deals During the Coronavirus Pandemic: Multifamily Myth Debunked

Let’s debunk another multifamily myth.

Click here to read my debunking of another common money-raising myth – that you need a strong track record in multifamily to raise money.

The myth I will debunk in this blog post is “I shouldn’t be doing any apartment deals until the coronavirus pandemic has passed.”

The key word is apartment deals. This blog post will focus on how you can continue to do apartment deals during the coronavirus pandemic.

My company recently renegotiated an apartment deal that we placed under contract before the coronavirus pandemic. My consulting clients are still actively looking at deals and putting them under contract. Active investors I have spoken to on my podcasts are still doing deals.

In fact, many active investors I have spoken with who raise money for their deals are saying that they are seeing an increase in demand. With the amount of uncertainty in the stock market, people are looking at passive real estate investing as an alternative.

What is allowing investors to continue to do apartment deals during the coronavirus pandemic? Because they understand what changes need to be made to the underwriting assumptions.

When analyzing apartment deals, you input your income and expense assumptions. Then, you determine the purchase price that will result in ROI projections that meet your passive investors’ financial goals. If you use pre-coronavirus underwriting assumptions, you are virtually guaranteed to overpay and fail to meet your projections.

Therefore, if you want to do deals during the coronavirus pandemic that conserve and grow your passive investors’ capital, here are the four changes you need to make to your underwriting process.


1. Year 1 Operations

It could be expected that there will be an increase in vacancy, bad debt, and concessions throughout 2020. Once things settle down a bit and the economy reopens, it is possible that some residents will no longer be able to afford living at the apartment any more.

Therefore, year 1 projections should assume some softening of the rent roll. That is, higher vacancy, bad debt, and concessions than the T-12 and typical market rates.


2. Rent growth

The rent growth for 2020 in the vast majority of markets is projected to suffer as unemployment rises. However, most of any rent lost in 2020 is expected to be recovered in 2021. Therefore, rent growth in years 1 and 2 should reflect the immediate area and demand in the market. This information will come from your experienced property management company.


3. Debt

As of right now, most private lenders are taking a “pause” from bridge lending. However, lenders that are still active are being extremely conservative with their loan proceeds and terms. The agencies are lending, yet they are also being conservative on their underwriting and requiring large upfront reserves for debt service payments. Therefore, more conservative proceeds should be underwritten and the underwriting needs to include these upfront reserves as it will impact the equity required to fund. Make sure you ask your lender or mortgage broker about the new LTV, upfront reserve requirements, and other terms prior to submitting an offer on a new deal.


4. Value-Add Deals

Depending on the deal, we have seen many owners pause their interior renovation programs until the markets re-stabilize. When underwriting a deal, it may be wise to assume that the value-add program does not start until the overall market stabilizes.


Overall, it is a myth that you shouldn’t be doing deals during the coronavirus pandemic. But you will need to make the correct updates to your underwriting assumptions:

  1. Underwriting higher vacancy, bad debt, and concessions during year 1,
  2. Underwriting a lower rent growth during year 1
  3. Include any upfront reserves that are required by your lender
  4. Expect to delay your interior renovations if you are a value-add investor.

If you make these four underwriting changes, you can continue to do apartment deals during the coronavirus pandemic.


Are you an accredited investor who is interested in learning more about passively investing in apartment communities? Click here for the only comprehensive resource for passive apartment investors.


Lessons from Recessions

Lessons From Recessions: Advice From My 80 Million Dollar Mentor

Mentors are essential to your success. A mentor can come in many forms, in person, through books, videos, podcasts; the list goes on. I have mentors in various sectors of life including wealth, health, personal development and relationships.

Today I want to share with you some insights from one of my high-net-worth mentors who has been a full-time passive investor since the mid 1990’s after he sold his company for….mega millions. Over the past few years, he has taught me some incredible investing lessons and below are a few reflections from his investing experience during the Dotcom Crash in the early 2000’s and the Great Recession of 2008-2009. I hope you find these takeaways valuable. Enjoy!

Reflecting on both the 2000-3 and 2008-9 financial crises, here are the five lessons I learned:

  1. Reserve/preserve cash. Preserve for liquidity, reserve for opportunity. Develop a sense of where and when I should pounce on deeply discounted assets.
  2. Reconsider equities. The stock market has averaged a 10% return for the past 100+ years, but that has come with 20-70% volatility. When there are large dips, reconsider publicly traded equities.
  3. Rarely sell, but do monitor. In hindsight, I’ve seldom found selling to be the right move. By the time I decided to sell, it was too late (damage done). The hardest part has been convincing myself to get back in.
  4. Re-evaluate my liquidity needs. I’ve found the ill-liquidity premium to be a major driver toward superior returns. By giving up instant liquidity, I’ve often been able to move from 2% to 12%.
  5. Reset my asset allocation. I can’t live with “100 minus my age” — the percent of equities I should have in my portfolio, according to traditional asset allocation theory. I have stayed diversified and susceptible to far less volatility by moving from 60/40 to 5/5/5/5/10/20/30, using a blend of multiple asset classes.

Asset class analysis. After reading scores of 1Q20 commentaries and talking with multiple fund managers/GPs/RIAs, here’s my take on how the asset classes I’m invested in fared:

  • Cash. Based on the cash lesson above, cash is King and Queen right now. Money markets only paying <1%, but provide stability and optionality.
  • Bonds. Munis are marvelous because AAA paper now pays 80-100 bps higher yield than six weeks ago. My munis were down only 1.5% in 1Q. (Gov’ts are great for safety, but pay a paltry .6% yield — with rate rise risk. Quality Corporates are dangerous with 6-7% bid/ask spreads — HY spreads wider.)
  • Real estate. Has proven resilient so far. MF tenants are paying rents (at least they did in April), and asset values are holding (for now). Commercial a mixed bag: office above expectations, but malls getting crushed.
  • Public Equities. S&P off 17%, Dow down 20%. Significant recovery since March 23, but my sense is every rally has been a head fake.
  • Private Equity. No 1Q market to market reports yet, so values unknown. I’m not optimistic.
  • Venture Capital. Still waiting for my 1Q reports, but suspect valuations will plunge.
  • Alternative Income (Debt). Talking about RMBS, HY, RE lending, CLOs, etc. Margin calls, redemptions, and M-to-M pricing have pummeled these credits. Seeing drops of 5 to 50%.
  • Hedge Funds: L-S equity funds advertise the ability to profit in bear and bull markets, but when the market cracked, funds I’m in could not resist (1) covering shorts prematurely, and (2) buying more of their favorite, suddenly “really cheap” stocks. Hedge funds down 15 to 50+% in 1Q.

Conclusion from Travis:

I want to share with you a fundamental principle that has helped me tremendously over the past decade:

Pay close attention to the 1% of people who are actually DOING what you want to do and IGNORE the 99% who just like to give an opinion. Everybody has an opinion, but the only opinions that matter come from those who have actually accomplished what it is you set out to achieve.

Having these “1% mentors” in your own life can cut the learning curve by decades…

To Your Success

Travis Watts

11 Questions You Should Ask Every Sponsor

Passive investing is a great way to grow your holdings, income and wealth without taking up too much of your time. But being a prudent passive investor does not mean you don’t have work to do. As a passive investor, you should spend a lot of time vetting multiple sponsors in the field you want to invest in. While this list is not all inclusive, these  are questions I recommend you ask simply to understand the risks and aligning the interests of the sponsor with yours as the investor. Check out links at the bottom for more posts regarding how to vet sponsor.

How are you adding value or hedging against valuation reductions and rent reductions?

In January 2020 things were looking great, but by mid-March, most of the country was under stay-at-home orders due to Coronavirus. Business operations were dramatically changed, if not shut down all together. While this is situation is hopefully short lived and a one-off occurrence, planning for such uncertainty should be a part of each deal.

When the sponsor is talking through these hedges, the business plan should make sense to you. As Warren Buffet has said, he only invests in companies he understands. Does the business plan intuitively make sense to you?


Can I run a background check on your key people?

The answer to this should always be yes, without hesitation. You are placing a fairly large amount of your hard-earned money with this group. Confirming there are no red flags in the sponsor’s past should be the first step.


How frequently are you communicating with investors?

Like any relationship, open communication is key. Communication is the key to building trust. Ideally, you receive email updates each month and a less than 24 hour turnaround on any questions.

What is your financial review process?

Does the sponsor have a formal process to review all financials? This does not need to be a 3rd party audit, but having multiple people within the company review financials, and checks and balances for handling funds is the duty of any fiduciary.

What is the “worst case” scenario and how do you try to mitigate that?

Is the sponsor clear with you that you could lose money? If property value drops below the loan balance or cash flow goes negative, is there any additional liability the investors take on? Is the sponsor allowed to require follow-on capital calls and have they ever made any?

Capital preservation should always be the first goal of any sponsor. The upside of making money does not outweigh the downside of losing money. And while every investment has its own risks, the sponsor should be glossing over potential risks.

Can you send me investor references, current and on deals that have sold?

Much like the background check, this should always be answered with a resounding yes, followed by asking how many you would like.

In your return projections, are the numbers presented project level or net to LP?

Most apartment syndications have a handful of standard ways the sponsor gets paid.   These include fees at closing, ongoing fees, and a share of the profit. If the sponsor is reporting project-level numbers, the sponsor’s share isn’t taken out and the projected returns will look much better. However, as an investor your primary concern is how much YOU anticipate making. As such, it is important you seek out Net to LP returns for both past deals and proforma for reviewing upcoming deals.

How much liquidity do you keep as reserves in each deal?

Liquidity can take several forms: equity in the deal/loan to value, cash in an operating account, and cash flow from operations.   Ultimately, the more cash reserves the easier it is to ride out any downturns. Generally, the lower the LTV, the higher the DSCR, and the larger the operating account or cash reserves, the lower risk the deal is.

How much do the principals or company invest in each deal and at what level?

In order to align interests, you want the sponsor to have skin in the game at the same terms you do. I would not be set on a fixed percentage, as the sponsor’s ongoing fees and profit share help align interests. But should the deal go south, you want to make sure the sponsor is out some of their own cash, not just potential earnings.

Who will be managing the property and how long have you been working with them?

Even in a good economy where valuations are improving through natural appreciation, the single biggest mistake a sponsor can make is installing the wrong management company on the asset. This effect is compounded during down economies. Whether it be lack of focus, inability to execute on the plan, aggressive lease rates that inhibit lease-up, the reasons are infinite that a property manager is not executing effectively.

One way you can mitigate these risks is to understand who that management company is, and how long the sponsor has worked with them. Has the management company been proven over the years? Do they understand and have a record of executing on similar business plans? Ultimately it is the property level operations that will dictate your returns.


How many deals have gone south or sideways, and how did those effect your strategies?

Every sponsor with any track record has a deal or two that have gone sideways, if not fully south. This should be expected. As an investor, you are trying to figure out how they handled the situation and almost more importantly, what they learned and applied from those hard-taught lessons.


There can be countless other questions that come up. Understanding track record of the company, age of the company, and background of the key principals are all important as well. But as the economy has turned, asking these questions should help you understand the integrity of the sponsor and how they are limiting your downside as an investor.

Here are additional resources to fully understand your investments in real estate:



About the author:

Evan is the Investor Relations Consultant for Ashcroft Capital. As such, he spends his days working with investors to better understand their investment goals and background. With over 13 years in real estate, he has seen all sides of real estate from acquisitions, to capital raising on the equity and debt side, to operations, and actively invests himself. Please feel free to connect with Evan here.

Will Apartments Be Stronger in the Post-Coronavirus World?

JP Morgan Chase, the largest lender by assets and fourth largest lender overall in the US, recently announced that they are raising borrowing standards for most new home loans to reduce their exposure during the coronavirus pandemic.

JPMorgan Chase’s chief marketing officer for the home lending business said “due to the economic uncertainty, we are making temporary changes that will allow us to more closely focus on serving our existing customers.”

What are these temporary changes? To qualify for a residential mortgage at Chase, a borrower must have a credit score of at least 700 and will be required to make a 20% down payment.

Additionally, Chase also announced that they are temporarily halting HELOC loan offerings.

JPMorgan is the first large lending institution to announce major changes to their lending criteria. I think a fair assumption is that other large lending institutions will follow suit in the coming weeks and months.

What does this mean for real estate investing and, more particular, apartments?

First, if less people qualify for residential financing, less people will be able to purchase their own homes. As a result, more people will be forced to rent. According to Experian, approximately 59% of Americans have a FICO Score of at least 700. And according to MBA, the average down payment across the housing market is around 10%. Therefore, the majority – and possibly the vast majority – of the population cannot qualify for Chase’s residential financing. Even if someone has a 700-credit score or higher, they may not be able to afford the 20% down payment due to the surge in home prices during the post-2009 economic expansion.

One benefit from buying a home during the post-2008 economic expansion was the increase in the value of the property from natural appreciation. According to Zillow, the average home value increased from $175,000 in March 2010 to $248,000 in March 2020. That is an overall increase of 47%, or 4.7% per year. This means that on average, the value of a home grew by nearly 5% each year. However, the Federal Reserve March consumer survey said home prices were expected to grow by only 1.32% this year, the lowest reading since the survey began in 2013. Therefore, one of the main financial benefits from owning a home has been eliminated, which may make renting more attractive.

16 million people are out of work due to the coronavirus. As a result, the number of borrowers who requested to delay mortgage payments rose by 1,900% in the second half of March. Currently, there has been a federal halt on foreclosures. So the question is, will foreclosures resume before or after these borrowers secure new employment? If it resumes before, many people will lose their homes and be forced to rent.

Overall, tighter lending criteria, the lowest projected home value increase since 2013, and the massive increase in the mortgage delay requests indicates that more people will be renting as opposed to buying in the near future. In fact, we are already seeing this happen. In March, the National Association of Realtors announced that they expect home sales to fall by around 10% compared to historical sales for this time of the year.

What do you think? Do you think more people will be renting or buying post-coronavirus?

The Mortgage Crisis - Will You Be Affected?

The Mortgage Crisis – Will You Be Affected?

Have you noticed the news headlines mentioning a “mortgage crisis” lately? This topic can be confusing so I wanted to help break it down and make it easier to understand. More importantly, I’d like to discuss how you and I are likely to be affected by all this. For reference, here are examples of a few recent headlines:

Mortgage Crisis Prompts U.S. to Weigh Harder Line With Borrowers – …Bloomberg

Another financial crisis is brewing in the mortgage market – …Curbed

Coronavirus mortgage bailout: ‘There is going to be complete chaos,’ says industry CEO – …CNBC

The first thing to understand is that this “mortgage crisis” is not what happened leading up to the 2008 housing crisis where banks and lenders were giving out loans to people who could not reasonably afford them. That ended in massive foreclosures and ultimately a nationwide housing crash. For this “crisis”, we have to examine the impact of the 2 trillion-dollar stimulus package that was recently passed. An important detail in the stimulus package is that the Federal Reserve is now buying mortgage-backed securities (MBS).

mortgagebacked security (MBS) is an investment similar to a bond that is made up of a bundle of home loans bought from the banks that issued them. Investors in MBS receive periodic payments similar to bond coupon payments. The MBS is a type of asset-backed security.


So What Is The Crisis?

When a bank provides a mortgage to a borrower, the bank does not hold that mortgage debt on their books and collect a 3-4% coupon for the next 15-30 years. Instead, they often bundle these mortgages into an MBS and then sell that security to investors in order to get the mortgages off their books so they can make more loans to new borrowers.

The problem is, investors like you and I have slowed down on buying these MBS from the banks due to the current economic conditions (AKA there is fear and uncertainty in the market), so the banks were left holding these MBS on their books. This means the banks were running out of capital to lend out to new borrowers because they couldn’t offload these mortgage balances from their books. In order to keep the lending system moving, the banks decided to offer higher yields to investors to incentivize them to buy the MBS. While this is good news for MBS investors (they get a higher yield on their investment) and for the banks (they can offload these mortgages onto investors), it also means interest rates went up on new mortgages which is a bad thing for buyers and borrowers (they now can afford less and/or borrow less). In an attempt to “fix” this issue, the Federal Reserve jumped in and started buying these MBS securities to essentially back up the banks and keep the system moving.


Problem Solved – Right?

Not quite. When you or I apply to get a home loan, we lock in a rate on our mortgage ahead of time before we close. When we lock in a rate, the bank is essentially agreeing to give us that “locked-in” rate for our upcoming mortgage, but the bank doesn’t know what the actual interest rate is going to be at the time of closing. Because the bank doesn’t want to lose money on their bet in the event that interest rates change; the bank “hedges” or offsets their risk by betting against the investment.

Banks do this by shorting the MBS. But when the Federal Reserve steps in and starts buying the MBS, it drives interest rates down, causing the price of these MBS to go up. Since MBS trade similar to bonds, when interest rates go down, the price goes up and when interest rates go up, the price goes down. This causes banks to lose money on their short-hedged positions because they were betting that the price of these MBS would go down. To offset these losses, banks have to put up more capital and that means there is now less money to lend to new borrowers.


Hang In There…

There is one more layer of complexity to add to this situation. That is the “missed mortgage payments” you may have also seen in the news recently:

Mortgage Firms Brace for Wave of Missed Payments as Coronavirus Slams Homeowners – …Wall Street Journal

New York will let some residents skip 3 months of mortgage payments as coronavirus spreads – …Housing Wire

Homeowners hurt by COVID-19 can delay mortgage payments, but some say they’re anxious and confused about the real cost – …USA Today

Another section of the recent stimulus relief package includes potential mortgage payment forbearance of up to 180 days, with a possible extension of an additional 180 days. Here’s the kicker, even though people may not make their mortgage payment, the mortgage servicer (the one who handles and processes those payments) is still on the hook for making the payment. Mortgage servicers are obligated to keep the money flowing into the MBS, which are bought by investors like you and I who are looking for a safe and stable return on our money.

If a large number of people hold off on making their mortgage payments, then the question becomes…how badly will the mortgage servicers be hurt and how long can they stay afloat since they must continue making the payments even when the borrowers do not?


Practical Takeaways

· If you are in a position to invest right now, you might be able to buy certain assets at a lower price.

· If you are selling your home, it could be slightly more difficult to get a high price and/or to get a buyer who is qualified for a mortgage.

· If you are buying a home, the lending criteria might tighten up a bit


Bottom Line

This situation is likely going to affect banks and lenders in the short-term rather than having profound effects on you and I directly. I hope this blog provides some context and explanation for what’s going on, so the next time you read a headline about the mortgage crisis, you have some additional background and insight.

Please keep in mind, this is not financial advice and I am not an expert or an economist. This is only my interpretation and opinion of what is unfolding as of this writing. As always, I’m happy to be a resource for anyone looking to learn more. If interested, please select a time that works best for you.

To Your Success,

Travis Watts

Coronavirus and Commonly Asked Prospective Investor Questions

Coronavirus and Commonly Asked Passive Apartment Investor Questions

As everyone knows, the world has changed dramatically in a very short amount of time. It started with some warnings about a respiratory disease spreading across the Pacific Ocean, but quickly jumped coasts and ground our economy and country to a halt.

When I am speaking to our investors, my goal has always been to understand their goals and problems first, and then offer solutions for those goals and problems. However, as Coronavirus and the economic fallout has become the only news reported, those goals and problems have shifted from optimistic (retire early, passive income, doubling money) to conservative (how are you protecting my money).

So what questions are investors asking:


“How has your business model changed?”

First and foremost, Ashcroft and our property management partners are abiding by all CDC, WHO, and local jurisdiction guidelines. We are cleaning common areas and model units more frequently, maintaining more distance during showings, and allowing for work at home for our employees when feasible. Additionally, on the asset level we are doing far more virtual showings through tools like Zoom, Skype and Facetime.

On the investment front, we have always maintained extremely conservative underwriting standard. Typically, our exit cap rates assume a 10-bps increase in rate per year over our initial cap rate. For example, if we assume that we hold a property for 5 years, the exit cap rate is generally 0.50% higher than our initial cap rate. This makes the conservative assumption that the market will be worse when we sell when we purchased the property. When researching market rents for our renovated units, we historically underwrite rents that are below competitive properties in order to create projections that we are very comfortable that we can obtain. Additionally, the loans that we place on our properties are generally very flexible and help get us through slower periods.

As the markets adapt to a post-COVID 19 world, we will continue to use conservative assumptions when underwriting new potential acquisitions. Depending on the market and property, we may decide to further adjust vacancy, bad debt, rent growth, and renovation premiums to more accurately reflect the recovery of the markets.

Finally, for the assets we are looking at, we have not changed. These Class B assets in Class B neighborhoods have historically shown to withstand recession pressures best. With median household incomes in the $80,000 range, our tenants tend to not be the “first hit” when economic downturns arise. They have savings and can withstand a short period of uncertainty.


“With all the uncertainty, how are you protecting my investment?”

It starts with our conservative underwriting. Then we take it a step further. We run a detailed sensitivity analysis to understand how far off we can slide on rents, occupancy, and cap rates. When analyzing a deal, we look back at previous recessions, and confirm that we are still able to break even if occupancies fall below the low point of prior recessions. In our markets, the lowest occupancies were 87-89%. This allows us a certain level of comfort and certainty to maintain positive cash flow and distributions, thereby allowing us to ride out any downturn and never forcing a sale.


What are your thoughts on how things will play out?”

We do not have a crystal ball. But we do have data from the 2008 recession, which was not only kicked off by the credit crisis, but additionally we had the H1N1 global pandemic spreading in the spring of 2009. Multifamily as an asset class faired the best of all real estate during the last recession. After their grocery bill, the second bill consumers pay is rent.

In the near term, we understand that consumers and our tenants will feel some pain, as everyone is, and we are adjusting our underwriting on assets to account for this with increased vacancy, bad debt and lower market rents.


“Is real estate a good investment in these uncertain times?”

We continue to be bullish on multifamily real estate. While people may choose to not open a new retail store, or expand their company needing more office space, people will always need a place to live. When we provide a clean, modern space with all of the amenities of the newly built complex, but at 30-40-50% less in monthly rent, we will continue to see strong leasing momentum.

Additionally, we are not relying on market appreciation for our investments. We view each property as a standalone business; one which we know how to grow income. Regardless of the market cycle, we can add more income by implementing our value-add investment strategy and force appreciation. And that stronger income stream will always have a value to a future buyer, even if the cap rates relax.

How inflation can benefit you over the next decade

How Inflation Can Benefit You Over The Next Decade

With all the new money being pumped into circulation by the Federal Reserve, have you considered the impact this will have on inflation? The Fed just printed 2 trillion dollars in cash to distribute and by the time this is all over it could be closer to 4 or 5 trillion. For reference, the amount of money in the US money supply was under 4 trillion dollars as of November 2019, according to the Federal Reserve.

If we double the money supply, will there will be inflation?

Here’s the definition of inflation according to Investopedia:

Inflation is a quantitative measure of the rate at which the average price level of a basket of selected goods and services in an economy increases over some period of time. It is the rise in the general level of prices where a unit of currency effectively buys less than it did in prior periods. Often expressed as a percentage, inflation thus indicates a decrease in the purchasing power of a nation’s currency.

Here’s another way to look at it. If inflation increases in the near future, your salary will most likely go up, creating the illusion that people are making more money and everything is just fine. But consider this…what if your salary goes up but so does everything else? What if your grocery bill doubled? What if your monthly bills doubled? What if child care doubled? What if your health care and insurance premiums doubled? If the money in your bank account has half the buying power it had a year ago, would an increased salary make up for all that?

Bad News = The Fed is doubling our money supply

Good News = YOU can win in this new environment if you know how inflation works

Let’s consider inflation in terms of real estate investing. If the value of the dollar is declining due to inflation, then the debt you owe is losing value as well. Take a minute to let that sink in… Here’s a short story to put this into perspective. I recently looked up the historical sale prices for a house that my wife and I bought and sold a few years ago. The house was a Tudor home built in 1932. This is an example of inflation in practical terms:

  • In 1932, the original sale price was $5,000
  • In 2010 the home sold for $235,000
  • In 2015 we bought the home for $480,000
  • In 2017 we sold the home for $600,000
  • In 2020 the comps are around $700,000

So, here is the lesson. If you acquire long-term fixed rate debt (a mortgage) then inflation is GOOD thing for you. Today, what is available to you and I today is the ability to obtain debt at historically low interest rates and pay them off with cheaper dollars as inflation rises and the dollar declines in value.

A Few Practical Takeaways:

#1 Consider refinancing your home so you have cash during this market correction. Forget about the 3% interest rate you would pay, because inflation will be more than that.

#2 Consider investing in real estate assets that have a conservative amount of debt or “leverage”. This could mean a home, but this could also mean investing in multifamily apartment syndications as my wife and I do.

#3 This could be an amazing opportunity to get started in real estate if you haven’t already!

How Today's Market compares to that of 2008's great recession

How Today’s Market Compares to that of 2008’s Great Recession

It’s natural to want to compare what’s going on in today’s economic climate to what happened during the fourth quarter of 2008. During our Cincinnati Best Ever REI Mastermind webinar, Peter Chabris, owner of The Chabris Group, joined us to give us his thoughts on this subject and he admitted that it’s scary.

“It was horrible. There was fear, for sure, just as there’s fear now,” said Peter. “I think the big difference is that in real estate, there were a lot of people who felt like it wasn’t going to impact real estate as much as it did.”

Since this is happening in real time, it’s difficult to make comparisons but Peter points to two very distinct differences between 2008 and today. Peter points out that since the recession, the country has had a completely different emotional mindset when it comes to real estate. The years leading up to the crash were filled with greed, from the loan originators all the way down to the consumer and there was denial in 2008. Furthermore, this time it’s different because inflation, interest rates, GDP expansion and other economic fundamentals had been strong up until the pandemic hit.

What Peter is paying closest attention to right now are lead indicators.  Lead indicators are when someone expresses interest in real estate, gets qualified, and then chooses to enter the market at the moment. Lately, his lead indicators have pointed to a pretty steep drop off of activity.

“Our team’s conversion rate is about 4%, meaning, on average, for every 20 – 25 people we talk to, one will agree to work with us to purchase, sell, or invest in real estate. In the last three weeks that has dropped down to 1.2%. So, that’s a lead indicator of future demand.”

Peter also believes there is indication that buyer activity is waning and within 2-3 weeks, we’ll see a corresponding shift in prices throughout the market.

Check out this clip of Peter’s interview with our REI Mastermind host Slocomb Reed.

Everything You Need to Know About the Coronavirus SBA Disaster Loans for Investors

The US Small Business Administration is offering low-interest disaster loans that can be used as working capital for small businesses who’ve been financially impacted from the Coronavirus.

The following is taken directly from the website about the disaster assistance in response to the coronavirus.

  • Any such Economic Injury Disaster Loan assistance declaration issued by the SBA makes loans available statewide to small businesses and private, nonprofit organizations to help alleviate economic injury caused by the Coronavirus (COVID-19). This will apply to current and future disaster assistance declarations related to Coronavirus.
  • The SBA’s Office of Disaster Assistance will coordinate with the state’s or territory’s Governor to submit the request for Economic Injury Disaster Loan assistance.
  • Once a declaration is made, the information on the application process for Economic Injury Disaster Loan assistance will be made available to affected small businesses within the state.
  • The SBA’s Economic Injury Disaster Loans offer up to $2 million in assistance and can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing.
  • These loans may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact. The interest rate is 3.75% for small businesses. The interest rate for non-profits is 2.75%.
  • The SBA offers loans with long-term repayments in order to keep payments affordable, up to a maximum of 30 years. Terms are determined on a case-by-case basis, based upon each borrower’s ability to repay.
  • The SBA’s Economic Injury Disaster Loans are just one piece of the expanded focus of the federal government’s coordinated response, and the SBA is strongly committed to providing the most effective and customer-focused response possible.
  • For questions, please contact the SBA disaster assistance customer service center at 1-800-659-2955 (TTY: 1-800-877-8339) or e-mail

I took a look at the application and here is who does and doesn’t qualify.

You qualify for the program if one of the following applies to you and your business:

You do not qualify for the program if one or more of the following apply to you and your business:

Click here to apply today!

How to Get Up to $100,000 From the Coronavirus Stimulus Bill

Most people are focusing on the direct cash payments from the $2 trillion coronavirus stimulus bill. However, it also includes provisions to have individuals can used their retirement accounts, such as a 401(k) or IRA.

In the past, if you wanted to withdrawal money from your 401(k) or IRA, you would be required to pay an early withdrawal fee of 10% and income tax on the distribution. Now, you are allowed to take a coronavirus-related hardship distribution of up to $100,000.

Individuals who qualify are people who are diagnosed with coronavirus, spouses or dependents who have coronavirus, or those experiencing financial consequences from quarantine, furlough, layoffs, or having their houses cut due to coronavirus. But the rules are loose and retirement plan sponsors are told to rely on employees’ word that they’ve eligible.

Therefore, this provision may be able to help your residents pay rent, help you or someone you know cover living expenses, or help you cover business expenses.

The up to $100,000 distribution is also tax free for 3 years, at which point the money must be replenished or an income tax will be incurred.

If you haven’t experienced a coronavirus-related hardship, you can still access up to $100,000 from your 401(k). In the past, the maximum loan amount you could take against your 401(k) was $50,000 or 50% of the vested amount, whichever is higher. With the coronavirus stimulus bill, the maximum amount has doubled to $100,000. The loan process is the same, which means you need to pay back the loan with interest or else it will be treated as a withdrawals which is subject to a fee and income taxes.

This loan can be used to cover rent, living expenses, or business expenses. Also, many investors use 401(k) loans to acquired investment property.


If you have a 401(k), IRA, or other retirement account and experienced a coronavirus-related hardship, you may be able to access up to $100,000 without paying an early withdrawal fee or paying taxes for up to three years. If you haven’t experienced a coronavirus-related hardship, you can still access up to $100,000 by taking a loan out against your 401(k) balance.

Click here to access our other coronavirus-related content.

How the Fed Can Prevent a Mortgage Crisis

How the Federal Reserve Can Help Prevent a Mortgage Crisis

According to CNN Business, unless the Federal Reserve provides more emergency lending, a surge in missed mortgage payments could crash the real estate market. This is because, even though homeowners are being provided forbearance on their mortgage from the Coronavirus Relief Bill, the mortgage servicers are still required to pay principal and interest on the mortgages to investors. It’s likely that, as of right now, mortgage servicers don’t have enough cash to cover all of the missed payments. There’s a real threat of these defaults creating a housing crisis.


So, what’s next for mortgage servicers? This article explains how the Fed will invoke emergency powers to prevent a credit crisis.

11 Tips for Collecting Rent During the Coronavirus Pandemic

The first of the month is right around the corner. In the previous months, rental property and apartment owners knew that the vast majority of their residents will submit their rent in full and on-time. It was something that they really didn’t even think about. However, this first of the month will be different. It will be the first time rent is due during the coronavirus pandemic.

Between now and when rent was last due, many people have lost their only source of income. They’ve been furloughed indefinitely or laid off.

The US Senate passed a $2 trillion stimulus bill March 25th which will be voted on by the House this March 27th. According to MSN news, “the bill would extend $1,200 to most American adults and $400 for most children, create a $500 billion lending program for businesses, cities and states, and establish a $367 billion employee retention fund for small businesses. It would direct $130 billion to hospitals and provide four months of expanded unemployment insurance, amount other things.”

This is good news for real estate investors, as they may be able to take advantage of the $500 billion lending program and their residents can cover a few months rent with the direct cash payment. However, even if the bill passes through the House on Friday, neither you nor your residents will receive the benefits before rent is due on April 1st. So, what do you do?

I’ve scoured the Internet to see what other real estate investors are doing to collect rent this month and here are the top 11 tips I came across:


The first pieces of advice came from our Best Ever Show Community on Facebook.

Justin Wright’s plan is simple: offer a small discount to residents who pay their full rent early or on-time. For those who cannot pay their full rent on-time, he will offer a re-payment plan to allow residents to make up for unpaid rent later (more information on a potential rental repayment plan later on in this post).

Julie Fagan came up with a very unique approach to collect rent on the first of the month. First, she will allow her residents to apply their security deposit towards a reduced monthly rent payment. For example, if a resident has a $1,000 per month rent payment and a $1,000 security deposit, their monthly rent is discounted to $500 so that they can cover two month’s rent with their security deposit. In return, the resident must sign a new 12 month lease and sign-up for security deposit insurance. The residents pay $10 per month per $1,000 in security deposit insurance, which covers damages and unpaid rent.

The next two ideas came from a Best Real Estate Investing Advice Ever Show podcast interview Theo did with Daniel Purcell (which will air in early April). The first tip is to communicate with all of your residents to understand their ability to pay rent in full and on-time. You definitely don’t want to skip this step. Not every single resident will have an issue paying their rent. All of Daniel’s long-term rental residents will be able to pay rent on-time (it is a different story for his short-term rental portfolio). Click here to learn how we are communicating with our residents as a result of the coronavirus pandemic. You need to understand who will struggle to pay rent to determine if you need to take any extra measures to maximize your rent collections.

Daniel’s other strategy was very interesting. Half of his portfolio consists of long-term rentals, which – as I mentioned – he doesn’t expect to be impacted by the coronavirus. The other half of this portfolio are Airbnb rentals, which are obviously impacted immensely by the coronavirus. While he is attempting to pivot his strategy on those properties to traveling nurses, he doesn’t expect to find renters for all of this units. Therefore, rather than have the units sit vacant, he plans on volunteering his units to professionals who are traveling to help with the coronavirus, like Red Cross workers. He said “the worst case scenario is that you help someone else.”

Brandon Turner of BiggerPockets created a YouTube video with his strategies for collecting rent during the coronavirus pandemic. His five step plan included three great strategies. First was to keep an eye out for federal and local programs that will be created to help residents pay their rent (like the $2 trillion stimulus bill discussed earlier). Second was to have residents pay their rent with a credit card. Third, which is the last option he offers, is to offer an emergency rent deferral program. His program allows residents to defer paying rent for up to two months, at which point a 10 month repayment program will commence. For example, if a resident misses a $1,000 rent payment in April and May, they will owe the regular $1,000 rent payment in June and will owe $1,000 plus $200 per month for 10 months.

A few others ideas I came across are to provide a month of free rent to residents who can provide you with a financial hardship letter from their employer, stating that they have been laid off or furloughed due to the coronavirus. The other was to reduce rents to the point where you don’t make any money but are still able to cover all your expenses.


The 11 tips are to:

  1. Offer discounted rent to those who pay rent on-time or early
  2. Offer a repayment plan
  3. Allow residents to apply security deposit to rent
  4. Ask residents to pay for security deposit insurance
  5. Communicate with residents to see who can and cannot pay rent
  6. Volunteer your units for free to coronavirus volunteers
  7. Use federal or local programs created for landlords and renters
  8. Ask residents to pay rent with a credit card
  9. Offer an emergency repayment program
  10. Provide free rent to residents who lost their job
  11. Reduce rents to breakeven


What other strategies do you plan on implementing to collect rent?


The Families First Coronavirus Response Act

Whether you’re a small business owner, a W2 employee, or a self-employed freelancer, it’s important to understand the benefits available in the event that you, one of your family members, or one of your employees contracts COVID-19. The Families First Coronavirus Response Act was signed into law on March 18, 2020, and addresses the paid sick leave, insurance coverage of coronavirus testing, nutrition assistance, and unemployment benefits. This Act is the second major legislative initiative to address COVID-19, after the first was signed on March 6 to provide emergency funding relief for domestic and global efforts. The main impacts on small businesses and employees include the following.


  • Under the Families First Coronavirus Response Act employees of businesses with fewer than 500 employees, will be given paid sick leave for two to 12 weeks. Employers will be fully reimbursed by the federal government within three months via 100% tax credits.


  • Single household workers are eligible for 80 hours of sick leave with full pay, capped at $511 per day, or a collective $5,110 per worker, if they are unable to come into work or work remotely due to self-quarantine, Covid-19 medical treatment, are at risk for shedding viral debris, or are mandated to remain quarantined by the government. Part-time workers will receive a proportionate share of the benefits above.


  • If you are currently staying home to care for someone who has been infected by the coronavirus or is suspected of having it, or for a child whose school or daycare is closed, the two weeks of sick pay will be two-thirds of compensation and capped at $200 a day or an aggregate $2,000 per worker.


  • Sick-leave and family-leave payments mandated by the Act are exempt from the 6.2% Social Security tax component of the employer’s federal payroll tax that normally applies to wages. Employers must pay the 1.45% Medicare tax component of the federal payroll tax, but they can claim a credit for that outlay.


To get a better idea of how the Families First Coronavirus Response Act will impact small businesses owners and self-employed people, read this article by MarketWatch.


Solutions for Homeowners who need quick cash

Solutions for Homeowners Who Need Quick Cash

Many Americans may find themselves struggling to stay afloat during this Coronavirus pandemic. We’ve been warned that unemployment could skyrocket from 3.5% to 20% this year due to the economic impact of the virus. Hopefully, the Families First Coronavirus Response Act and the Coronavirus Relief Bill will provide enough assistance to get you through these difficult times, but, if not, you can find additional cash reserves through your home if you own.

This article on will tell you about some options you have to allow your home to help pay the bills. These options include:

  • Home Equity Loans and HELOCs
  • Refinancing
  • Equity and Appreciation Sharing
  • Leaseback

It’s also important to remember that foreclosures have been halted for at least 60 days on Fannie Mae-, Freddie Mac- and FHA-backed loans.

Coronavirus Relief Bill

An Update on the Coronavirus Relief Bill

With the $2 trillion Coronavirus Relief Bill unanimously approved by the Senate Wednesday night, we now wait for the House to take up the Bill and send it to President Trump to be signed into action. The expectation is that this will occur by Friday. As the largest fiscal stimulus package in modern American history, here’s a quick rundown of what you can anticipate coming from the Bill:


  • Single-households that earn $75,000 or less a year (as per their latest tax return) will be supplied with a one-time payment of $1,200. Couples who earn $150,000 annually will receive a one-time payment of $2,400 with an additional $500 per child within that household. These benefits are capped around the $99,000 income level and tapper between $75,000 and $100,000.
  • State benefits will increase to $600 per week during that same four-month window, and regular state unemployment aid will be extended for an additional 13 weeks. Unemployment benefits will also be expanded to include gig workers, self-employed contractors, and freelancers. These members of the workforce will have an approximation of their salaries remunerated on a state by state basis for the ensuing four months.
  • $500 billion of corporate aid will be supervised by an inspector general alongside a congregational board to properly administer provisions and prevent instances of fraud.
  • At least $350 billion will be supplied to small businesses to put toward payroll, and employers will be able to defer payment of the 6.2% Social Security payroll tax. Lost salaries will additionally be backed up by federal installments that operate like grants to allow business owners to keep their employees staffed during the economic downturn.
  • Companies will be given a $50 billion tax credit to facilitate employee retention.
  • Industries that have been critically impacted, namely airlines and cargo carriers will receive $25 billion and $4 billion in direct financial assistance respectively.


Whether you’re a landlord or an apartment investor, this is potentially good news, at least temporarily. The added unemployment benefits should keep your renters afloat for the next four months. We’re keeping a close eye on this Bill to see what, if any, changes happen between now and when it passes. Check back often to see how this unfolds and get expert advice from a multitude of sources.

You can read more about the Coronavirus Relief Bill here:

Joe Fairless