Today I’m going to discuss some of the topics covered during the Real Estate Guys Summit that happened a few days ago. I’ll talk about three main things:
- The state of this crisis and what the outlook is.
- How you can leverage the 3 loan options from the government and what does each of them mean.
- Things that you can do today and what you should be thinking about for the future.
I’ll be quoting from various speakers throughout the 3 day worth of content, so let's get started
1. The state of this crisis and what the outlook is:
- This is far worse than 2008.
- The implications of this debt is ultra low interest rates, forever.
- The debt is so high that they have to go into negative interest rates.
- In 2008 it took months for things to happen, this one is taking weeks, everything is compressed.
- The 2008 crisis started out as a real estate market crisis, this one is an "everything" crisis.
- We can’t go back to where we were because it was already inflated, the bubble popped and now we don’t have money to pay for all of this.
- The government collects $3T in taxes and just spent $7T.
- If there’s any move to back the dollar with gold, by, say 20%, the gold prices can go up by 4x.
- Gold demand has grown significantly for the last 10+ years at the Central Bank.
- Dollar is already going down and silver still cheap.
- The only reason we can afford to pay the debt is because the interest rate is zero.
- Invest in the stock market because if the economy goes down, the Fed prints money, so you’ll gain either way. But this will destroy the value of the dollar.
- Every dollar that the government spends is a dollar in taxation.
- The only way to stop inflation is to raise interest rates, and our economy can’t tolerate interest rate increases.
- We learned that no amount of debt is too much debt…
- They will print money until the currency is worthless, and that could even happen this year.
- There are no other currencies that could replace the dollar to be the reserve currency, maybe we will start backing up the dollar with gold again. We’re the only country that benefited from not being in the gold standard.
- If China or another country comes up with a currency that’s partially backed by gold, that could be big.
- Every time the fed printed money to “save the economy” they were bailing out the rich.
- There will be lots of opportunities in 6, 12, 18 months.
- 90% of an attorney’s calls today are for syndicators forming funds.
- Insurance and taxes likely to go up because small businesses aren’t paying many taxes. Why? Federal tax revenue has plunged, and insurance will go up due to looting.
Robert Kiyosaki, author of Rich Dad Poor Dad.
He thinks that we are at the end of the Roman Empire, people are getting tired of getting taxed. He thinks that the USD will be strong for the next 10 yrs but he thinks it’s the end of the American empire, the government has become so corrupt.
He mentioned that who you spend time with is more important than ever before, chose them carefully.
Why don’t they teach people about money in school? Because it’s too profitable to keep them stupid.
2. How you can leverage government programs and incentives for your properties, and what does each of the three available loans mean (Tom Wheelwright).
NOL (Net Operating Loss) – under the Cares Act, you get to carry back 5 years if you had losses up to 5 years ago.
Heroes Act – it's the next Cares Act – they are taking NOL away and you may not be able to carry that back.
$500k Loss Limitation – if you had business losses in excess of business income, the net loss can only be used to offset $500k of other income (i.e. wages). This loss went away in the Cares Act.
100% charitable deduction – there's now no limit on what you can give away.
$100k IRA withdrawal – you can take up to $100k out of your IRA with no penalty, (you lose all of the tax benefits if you invest in real estate through IRA). For this to apply, you have to show that your business hours were reduced, or that you got the Coronavirus, or that someone in your family got it. This one is very specific. In order to qualify for your business hours to have been reduced, it must have been the government shutting down your business, or that they diminished your business hours.
Much of the unemployment will be over in July.
He believes we are definitely not over this crisis.
He’s recommending to his clients not to turn down any opportunity to get a loan. Borrow from the bank when you don’t need the money, we don’t know if there will be another package from the government.
PPP loan changed significantly over the last few days, he is recommending people to not give it back now because you don’t know what will happen. Maybe in one year, if you didn’t need it, you can give it back.
Three loans available:
- PPP – Originally: you had to use it within 8 weeks from the time you got the loan, you needed to use 75% of it for payroll, and 25% for rent, mortgage, utilities. There were no payroll tax deferral if you took the PPP.
Now: you have 24 weeks to use it, and the number is 60/40: 60% must be used for payroll, and 40% for rent, mortgage, utilities. And now you can defer 50% of payroll taxes until December 31st.
- EIDL – gives you $10,000 per employee. When you apply for this grant, you’re applying for the loan, and the SBA is granting these loans, the maximum amount you can get is $150,000 per company, regardless of the number of employees. If you have a management company and a real estate company, you get $300,000. You have 1 year deferral, so you don’t have to pay the loan for 1 year. This is a 30 year loan, at 3.75% interest. Pay close attention to terms of the loan, and get the opinion of an SBA expert.
- Main Street loan – it's backed by the Fed, not an SBA loan. There’s no 500 employee limit, talk to your banker for clarity.
All 3 of these loans are bank loans, you have to go to the bank and apply, and the SBA pays the bank back.
You can get both PPP and EIDL. If you already got the PPP, you can also get the EIDL.
Apply immediately because these funds might be relocated to somewhere else.
3. What are the things that you can do today, from looking at your existing properties to how you can negotiate for new properties. And what you should be thinking about for the future.
Victor Menasce had my favorite presentation, Victor was a guest on our podcast before and shared a few tips for doing deals during this time:
Stay away from auctions that will come up because lots of people are looking for that.
Hotels are at 22% occupancy, there will be lots of defaults on hotels. Lots of major hotel operators have reserves until October, they have $700-800 fixed cost per door per month.
Example of a deal he just did: It was a stadium, that cost about $13M to build, it is not being used currently, and has an income from a cell tower on the property, the income from that is $50,000/year. The seller has been trying to sell for just over $1M, two of the previous offers fell through. They came in and offered $900,000 cash, they sold cell tower right away for $700k at closing ($50k income/month at 7% cap) and now they purchased an entire stadium for $200,000!
Restaurant example: he showed us 5 restaurants, they are not distressed, all of them will be closing down. The owners are older and have no energy to restart the business from scratch when they reopen. Most operators are tired. Why not rent the kitchen as commercial kitchens, or maybe do deal where you pay royalty for a recipe that's popular. There are lots of kitchen deals because they don’t want the.
Properties with no income – you can use for tax purposes.
Conservation easement – IRC170 – deduction for highest and best use! Must meet conservation criteria, appraisal for valid highest and best use.
Action Items To Take For Your Real Estate Investments:
As far as your existing properties: trim fat and cut expenses
As far as preparing yourself for the future:
Look into Captive Insurance – need to learn more about it, but it sound like it’s something that you could do to prevent future problems like this shutdown. Will do a podcast about what it is.
Invest in Blue cities in Red states.
Look at Industrial - Instacart can pick up from industrial instead of supermarket
Become valuable to valuable people.
Help people solve complex problems.
Now is a great time to build a great team.
Ask yourself “How can I?”