In this week’s episode, Mark is joined by Nick Ameluxen and Kyle Marcotte, real estate investors from Austin, TX. We’ll be discussing the current state of the world, including the coronavirus, how to navigate downturns, and when the right to jump back into the market is.
The current market conditions can be a bit intimidating, what are you doing to come out of this on top and ready to pounce on new opportunities?
What You’ll Learn In Today’s Episode:
Act now and do whatever you can to shore up your reserves.
If you’re struggling already, reach out and take advantage of the resources that have been made available to you.
Keep a positive mindset, don’t let drama wear you out.
We’ve all got down time now, so use it, work on your skills.
Be patient, now is not the time to rush in.
Ideas Worth Sharing:
“Control what you can at this time, focus on areas you can focus on” – Nick Ameluxen
“Get your cash position in as good of a condition as you can.” – Mark Hentemann
“Keep internally disciplined and move towards your goals.” – Kyle Marcotte
Resources In Today’s Episode:
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Mark: Hey everybody, and welcome to the Wild West Real Estate podcast. My name is Mark and today we have a bit of an unconventional episode. I have with me, Nick Ameluxen and Kyle Marcotte. Hey fellas.
Kyle: Hey Mark. How’s it going?
Nick: Hey Mark, thanks for having me on.
Mark: Sure. Thanks for joining. Nick and Kyle work with me at Quantum Capital. They’re based in Austin, Texas. I’m in Los Angeles and we thought we’d do an episode about Coronavirus and its impact on the world, the economy, and more specifically the real estate market. Things have been day by day lately. Each day is like a snapshot, like a moment in time. It’s constantly changing, but we’ll try to capture this moment, but also talk about the long-term effects of coronavirus. Where are you guys right now? What are you dealing with on your end?
Kyle: Yeah, I mean for me it’s a lot of dealing with family, as we’re all cooped up. It’s great having everybody home, but I’m sure everybody’s starting to get a little claustrophobic. But obviously on the property side, just kind of waiting with bated breath for next month collections and seeing where we land.
Nick: Yeah. And for me it’s a lot about just keeping on my routines and habits. I’ve noticed that my discipline is definitely slipped, being home constantly surrounded by just nothing but my own thoughts. And then as one thing kind of slips in your routine, the whole routine kind of comes tumbling down after it. So for me it’s just been trying to get back on the wagon of doing things every day that move me towards my goals, even though we can’t have meetings in person and we can’t really go and do any property walks. So just trying to keep internally disciplined and moving towards my goals.
Mark: Yeah, I know what you mean. Setting an agenda for your day, high priority activities and trying not to get derailed. Kyle, you’re probably on the other end of the spectrum, but I’ve got a family and there’s four other people in the house and calls and emails that are coming in. It’s constantly playing defence on getting derailed from what you’re trying to accomplish.
Kyle: Exactly. Yeah.
Mark: But yeah, like you said, Nick, a lot of what’s on people’s minds at this moment in time is rent collections as owners or dealing with the Care Act, the government stimulus, SBA loans and the various forms of relief, and then a lot of people as investors are worried about lenders, how they’re reacting. If you’ve got an agency lender, you’ve got federal forbearance that’s been mandated. However, private lenders, it’s all up to them, so there’s a lot of negotiations happening right now. And then also meanwhile, everybody’s reading the news probably a lot more than they typically did. Every day I wake up and get the morning news and then I check in at midday because things are moving so fast. We’re seeing where the stock market is, where the death rate, the infection rates are going and seeing what’s stabilizing, what’s happening in China, but everything’s changing quickly. What are your guiding principles at the moment to help you get through this?
Kyle: I think the most important thing you can do right now is not panic. Realize that almost everybody else globally is going through similar thoughts and similar scenarios as you are. So just trying to kind of take that all in and justify that somebody else is having a hard time. Everybody’s having a hard time and looking past that to see what you can do in the moment to stay sane but also to grow your business, to grow personal skills. I mean a lot of people basically saying, I would do this but I don’t have time for it. Well now everybody hopefully has time for it. I understand you have kids home and everything, but it’s kind of unprecedented what we have going on. So what I’m trying to do is take that time and really use it to focus on areas of growth that we can control.
Nick: Yeah. For me, man, I think it’s just staying grateful, and I try to remind myself in the mornings what I’m grateful for. And then just going outside and going on a walk and remembering that as crazy as things are, the world’s still here and I’m still going to live going forward. And I know things are going to get bad, but no matter what the environment is, people have always found a way to be successful. So as long as you just keep your head screwed on straight and are willing to change and adapt, I think that there’s always just a way to succeed, no matter how weird things get.
Mark: Yeah, no kidding. Living in Los Angeles, I love the lack of traffic. The streets are empty. It’s quiet. I think Los Angeles was rated the cleanest air of any major city in the world like a week ago and that is a first ever. I mean Los Angeles used to be the worst air probably back in the ’60s but that’s kinda nice. There is a lot of fear and anxiety and it takes me back to 2008 and I remember as you were getting hit by these things day by day and you’re like, how am I going to survive? How am I going to get through this sort of anxiety? But it’s nice having gone through it because I know that I made it through the other side. Everyone made it through the other side. Some people had a more difficult time. Some people had a real struggle and lost buildings and it was more of a calamity than others. But you come out the other side and there are stages of what we’re about to go through, and it turns from devastation, struggle, panic, trying to survive, then it bottoms and then you start going upward. And if you can have some scope and perspective on where you are and where you’re going, there’s going to be some great opportunities to invest in the near future. Who knows whether it’s a year or two years, but one of the things that I’ve been concerned about for the last three or four years is there’s been so much enthusiasm for multifamily and a lot of it is from newer investors and it’s worried me a little bit because we have been late in the cycle for the last three or four years and the very best time to invest and to get in is when you’re coming out of a downturn and now we’re approaching that time. So for those who didn’t get in prior to now, you’re going to have an opportunity and probably a better opportunity than investors who jumped in in the last year or two. What other advice might you give yourself?
Kyle: Yeah, I would say focus on the things you can control. You know, if you’re an investor and you have a portfolio, I would just focus on what you can do for those properties at this time. Cut your expenses, shore up your reserves. If you’re having trouble meeting your own obligations, start talking to your lenders. If you’re not having trouble yet, which I think everybody was kind of relieved with how April numbers turned out, shore up for May, short up for June and keep a rational mind. Don’t act in fear. Opportunities will come. We’ll get out of this. There’s a light at the end of the tunnel, but in the meantime, control what you can control.
Mark: Yeah, it seems like we’ve gotten a couple of gifts recently because I think everybody expected April rents to be very low, and I think everyone’s been pleasantly surprised that they’re higher than everyone expected. And then secondly, we had this government stimulus that’s going to help as well. And so those are two things that are a little bit of a shot in the arm to help people get through it. Adding to using this little opportunity before May rents is, like you said, shore up your reserves and use your credit to secure equity lines if you can, or home equity loans. Just get your cash position in as good of a position as you can while you can. I mean the best time would have been to do it six months ago, but nobody knew this was going to hit us. I think there’s so much drama in real estate investing on a day to day basis that it’s taught me over time to just step back and it’s all fine. I have this attitude, maybe it’s jaded, but it’s just like, yeah, you get into spats with brokers, hard ball negotiations. You get bad news about what’s happening at your properties. You get good news as well, but there’s all these ups and downs and I don’t want the emotional roller coaster ride, so I’ve kind of just numbed myself to it. You just move forward. It’s going to be fine. It’s all going to be fine.
Kyle: Yeah, I think that that point is powerful, and I know it’s one thing I struggle with, Mark especially, I know we have conversations where and I know we talked and I’m like, Oh the sky is falling. I wouldn’t call jaded, but I would probably say grounded and yeah, I think that’s a good skill to have if you don’t have to develop, because you’re right. I mean most times when I thought the sky is falling, we took a step back and realized it’s not that big of a deal and it passed and I can’t even remember now a specific example other than I know that it happened. It’s drama in the moment, but in the long term you kind of forget about it.
Mark: Yeah. I think if you get too emotional about things on the day to day or all the ups and downs along the way, you are more likely to get burned out as an investor and quit. But I think if you could step back and always have a little bit of detachment during the roller coaster ride, the ups and downs, you’ll have more staying power. So I think that’s good advice. Also, I was just going to add communication at this point in time. I know that that’s not always my strength. If something goes wrong, I know personally I don’t want to talk to my lenders about it. I don’t want to talk to the tenants, but it’s really important and I think it should be a priority.
Kyle: Yeah, I agree. I would also throw in there your investors. Make sure you’re staying up to date with your investors because they’re probably spooked right now as well.
Mark: Absolutely. You know, any investors out there who are struggling or tenants. There are programs available. You may be aware of the Payroll Protection Program or the PPP, the Economic Injury Disaster Loans or EIDLs. There’s the SBA loans, there’s unemployment benefits, there’s the Care Act. There’s a lot of options available that frankly weren’t available in the past.
Kyle: Yeah, definitely. A lot of programs out there. I don’t know of anybody personally who’s received anything from those yet. I think they’re kind of bombarded.
Mark: There’s a lot of confusion over how it works.
Kyle: Yeah, it seems like the guidance changes daily. I mean, I know just for our properties, I’m looking at the EIDL. I’ve looked at it a few times and it seems like each time it’s a little bit different. So I’m sure they are figuring out just like we are as they go along.
Mark: Right. Hopefully we’ll all get some clarification soon. So last night we had a meetup by Zoom for the first time and it was fun. We had a good group. We had people from Austin, from San Francisco and from Los Angeles, and we had a good discussion. Obviously everyone was concerned and we talked about a lot of the things that we’re talking about right now. One thing that happened is one of our investors, a newer investor, as we were talking about the impacts and about collecting rents and these kind of things, he said he was a new investor just jumping in and was excited to become a multifamily investor and wanted to buy his first four-plex and was hoping to do so and make some offers now. Everybody kind of responded to the timing like is now a good time, especially for a newer investor to be jumping in? And maybe that’s something we could talk about.
Nick: Yeah, my thoughts are just try to learn from the mistakes that everyone’s made in the last year or so leading up to this, cause obviously we can’t predict this, but me and Nick were on a call earlier today talking about people who are just over leveraged and maybe now I’m going to consider putting more down when I buy new properties. And also banks are requiring that you give kind of an audit of where your tenants are employed now. And I think that’s another great thing to do just going forward, regardless of the environment. In the future, just having a really good idea as to where your tenants are employed on your property. Trying to learn as much as you can from this situation and not necessarily be overly negative. Just see where you can grow and where you can adapt in the future.
Mark: Yeah, and I remember this specifically in 2008. It was very much parallel to right now in that prices had been going up so much for so long and they were high and everybody thought everything was overpriced, and then 2008 happened and they slid and when they were at like a 10% drop, people were salivating. I was one of them and people wanted to jump in. I bought a 16-unit building when it had dropped like 10 to 15%, and I thought this was the deal of the century, but we were halfway down the drop and it continued to go down. You know, accurately assessing or predicting the recovery is kind of huge right now. I mean it impacts real estate investors. How long this is going to take to recover is going to have an impact on pretty much everyone on the planet. There’s almost nobody that won’t be affected by it.
Kyle: Yeah. Personally as we’ve discussed looking for deals going forward, I’m probably going to wait at least until people can start going back to work, and then from there just being very, very critical of what’s coming across our desk. Speaking with a few brokers out here in Austin, yesterday actually, and they were saying pretty much the only people buying right now that they’ve experienced are people on 1031 exchanges, like you mentioned, Mark, who have to find a place to put funds. I would think right now is not the time to be buying. I think now is a perfect time, even if you’re trying to get it on your first deal, to really learn real estate, to see what happens when it starts going down when disaster or tragedy erupts, and to see how people pivot and how they exercise their playbooks to come out the other end, so when you come out with them you’re poised to jump on new opportunities. So to new investors trying to get in, I think especially if you’ve been waiting for a while, wait a little bit longer. Don’t be too antsy to jump into something because you might be missing an opportunity coming up. Still look for deals, but don’t take the bare minimum just because you feel like that’s what you have to do in this point and you’re going to miss out if you don’t. There will be more deals coming.
Mark: It’s going to be very hard and people are anxious to get that first deal, and it’s hard to restrain when you see prices going down. But I kind of learned that it’s good to really wait for the right thing and really pay attention to the economy and read what economists are saying, listen to what economists are saying, and right now, there’s a lot of talk about is this going to be a V-curve recovery or a U-curve recovery? And the difference is, particularly for a single factor cause like Corona virus will it be a V-curve which will go down sharply, a sharp drop in the economy. But then once that single factor is that caused it is solved, for example, a vaccine for Corona virus or something that allows us to end the quarantine, will the economy snap back to where it was? Or will it be a U-curve, which is more often with recessions, there’s a U-curve where it goes down and kind of slowly, slowly recovers over time. Personally, I haven’t heard anybody say this, but I think it’s going to be like a check mark recovery because I think we’ve already experienced the down in it. It went down very steeply very quickly and it’s just a matter of how the recovery will happen. I think that the longer it takes to undo the quarantine and people go back to work, I think there’s just going to be a ripple effect where the lost incomes, the unemployment, the business closures, and the lost GDP is going to be at a point where it’s going to take maybe six months to a year to recover from that, and who knows? Possibly longer.
Kyle: Yeah, I would agree wholeheartedly, and one thing to think about V versus U is if this goes on till May, till June, July, we’re recording this April 9th so who knows? Tomorrow we could figure out some completely different news, but retail, restaurants, hotels, there’s some of them that won’t come back out of this. They don’t have cash reserves. They didn’t have especially if they’re leasing and not owning their property, there’s no forbearance programs that help out, and if you do take forbearance, depending on how they structure it, that’s not forgiveness. That means three to four months or six months or however you did it, that payment is due. So you might delay it, but if it doesn’t snap back, which I don’t think it’s going to snap back as soon as these people want it to, you’re still going to be in trouble maybe three to six months down the road. So this can be more drawn out than people are realizing.
Nick: For me, I think that 2020 may still be on the table, but I wouldn’t say the next couple of months would be an absolutely great idea. Just number one, because of the inspection issue. You can’t really even go and check out that property in person because of these restrictions of shelter in place and things like that, and also the lending atmosphere is very hectic right now and volatile. But I’d say if you are patient, we really don’t know what’s going to happen towards the latter part of this year. It could open up and it could actually be a great time to buy. It may take a whole other year for that to happen, but I would just say maybe not right now, but if you wait until maybe October, November, December, it could be a different environment, and then also going into 2021 could also be a great time to buy. It’s definitely shifting to a buyer’s market. I’m just not sure when that shift is actually going to fully come into action.
Mark: Yeah, it’s going to take some time, and you were talking about that, the printing of the money. The weird thing is that’s been on my radar for like two years. It’s very unprecedented. It’s never happened in the past, but the Fed has been just printing billions and trillions, and we started quantitative easing back in like 2018 and we’ve been doing it for two years when we didn’t really need it. It was never a tool that was used before and I was becoming very concerned. I think it was done to make sure that we had a robust economy, but the downside is that just printing money is going to dilute the value of the dollar. And also the effect that it was having was that money, those dollars needed somewhere to go and the recipient of those dollars seemed to be the stock market and assets and real estate assets.
And as a result, the stock market was at a never before seen multiple of like a 25 multiple was the average multiple for stocks. We all buy real estate and we usually try to get like a 10 multiple. So those are like astronomical valuations. Like you said, there were already pre-existing issues. And the weird thing for me is I was wishing that they would stop printing all that money. It didn’t seem to be doing any good. But at this moment I think it’s absolutely necessary. I mean this is the moment when they should have been saving it for, cause now flooding the economy with money right now can do a lot of good.
Nick: Yeah, I agree. And I think that the only thing that would maybe cause it to be a longer downward position is just because of the fact that although it is a single event that’s definitely kick started this whole thing, there has been some underlying issues that people have been pointing out for several years with the amount of money that we’re printing and things like that. And not to make any sort of economist predictions or anything like that, but it definitely seems that the economy has some other issues aside from the Corona virus that the coronavirus is just bringing them to light and making them kind of very apparent. And then also just the unemployment going to be an issue down the road as well. I don’t see that. I think it was what? 10 million people filed for unemployment in that first month in America, so I don’t necessarily see that snapping back too quickly just because of the logistics of 10 million people having to find new jobs, things like that. and just the lost income as well.
Mark: You guys brought up some other good points is that this experience is going to change the economy. It’s going to change the world. Look at the almost immediate shift to everyone is now working by Zoom. We’re doing this by Zoom and also anybody who wasn’t using Amazon prior to this, maybe a lot of the baby boomers, everyone is now shopping online and working online. The technologies that support that are going to flourish. I mean unfortunately for some aspects of the real estate business, retail is probably going to suffer long term erosion because of this and also office space. I am a little worried about how that’s going to fare moving forward now that everyone is going to realize how easy it is to work remotely.
Kyle: You know, I have a wife who’s an educator and it’s amazing to see how well everybody’s adapting, given the circumstances to learning through that platform. I can see long term effects where schools maybe transition to more for the children that can, and the families that can to maybe a remote learning or some sort of hybrid.
Nick: Yeah, I’d love to see schools have some sort of a change. I mean, as you two both know, I’ve left school about a year and a half ago now. And when I was at school at UC Davis in California, a lot of my earlier meeting classes that would have meetings at like 8:00 AM, the lectures were recorded so I would take my time. I’d sleep in and I’d watch them at noon and the Power Points were included and I wouldn’t actually show up to the lecture hall, and a lot of my peers did the same thing. I’m seeing it be a very viable option going forward and potentially having the ability to lower tuition potentially because since people aren’t actually needing to be there at the school and not needing to actually. Maybe they can stay at their hometown where they live with their parents, maybe save some expenses and maybe we can solve some of that loan issue that a lot of students have. The loans that they can’t escape even for bankruptcy that they have to take out in order to get educated in this country. It’d be great if they could save a lot of that cost by being online.
Kyle: Yeah, I agree. I think we talked about this before, but I think it will be interesting to see coming out of this what all these people who maybe have a passion or a skill that they have or are developing, or whether it be something they could do from their home or just starting to develop now what they bring to the market after they had this time to kind of sit and play around with things.
Mark: All right. Well this was fun. This was good. I think hopefully helpful to some people, and just to wrap it up, what advice would you give, not necessarily for the nuts and bolts of what to do, but a lot of it is the mental game, and what kind of advice would you give?
Nick: Yeah, I think what’s important right now is to keep a level head, realize everybody’s kind of in the same situation and do what you can to take a step back and look at the overall big picture. I’ve found myself going on walks more often, but then also just reaching out to people. I mean, this is kind of an interesting time where people I’ve been trying to get on the phone or on a Zoom call, who are usually too busy now are just sitting it at home. We’ve been able to connect with some awesome people and I would take that opportunity to do so.
Kyle: Yeah, I think that’s a great point, Nick. Definitely reaching out to people has been huge for me, and then another thing I would say is that, like I said earlier in the show, regardless of the environment, regardless of how unprecedented the economy looks after this, if that’s the case, there’s always a way to succeed. There’s been people who have been successful through 2008, people who have been a success as a result of 2008 and I think that we can make something happen with this as well. Even if it’s doomsday worst case scenario, there’s going to be people who become massively wealthy as a result of this. And if you just take the time, like you guys have been saying to learn in this section where everything’s kind of coming to a halt. And I think that there’s going to be ways to find opportunities to really prosper in this time, rather than just stay alive or survive. But I think actually thrive as well.
Mark: I think ironically, maybe a year ago we were at such a high mark in real estate values and I think most investors felt great and felt excited and had all this positive energy about real estate because they were looking backwards and had seen 10 years of phenomenal returns and how great of an investment this was. But you know, the truth is, is that they were at the end. This was coming to an end rapidly and it was inevitable. And now we’re in a different place where what’s ahead of us is depressed or as much as people are getting punched in the gut right now, given all the problems confronting them, right now we’re no longer in that place where we were a year ago. We’re now past one of the most devastating economic events ever, maybe not ever, but in the last hundred years easily. And what’s ahead of us is a recovery and then one of the greatest opportunities to build wealth that most people will ever see in their lifetime.
So if you’re getting down, just be aware of your mind-set, I guess I would say. Try to look down the road, recognize that we’re coming upon one of the greatest buying opportunities that we’ll experience, and also we’re all going to get out of this, get through this no matter what happens, even if you take some hits along the way. Look forward 5 or 10 years. You’re going to be past this and hopefully you can frame your mind to recognize what is ahead of you and the opportunities that are ahead of you.
Well, great. This was fun. Hopefully people got some kind of help from it or benefited from it in some way. If not, we at least enjoyed chatting with each other and listening to our own voices.
My great thanks to Kyle and Nick for joining me today and sharing some of their wisdom. Here’s a few key takeaways. Number one, act now and do whatever you can to shore up your cash reserves. There’s an ancient saying that goes in summer, prepare for winter. It’s not exactly summer anymore economically, but it’s still not too late. Apply for credit lines, equity lines, key locks. Even if you don’t think you’re going to need it now, you might. We don’t know how long this is going to take, how long it’s going to last, or what kind of curve balls it’s going to throw at us. So let’s be prepared.
Number two, if you’re struggling already, reach out and take advantage of the resources that have been made available to you mostly through the Care Act, but there’s others as well. There’s the Emergency Disaster Relief Loan, the Payroll Protection Program, the PPP, the SBA loans that are being made available, or reach out to your landlord. Reach out to your lender. There’s always ways to get help if you need it.
Number three, keep a positive mind-set. Don’t let the drama stress you out. Take a step back and distance yourself. We’re going to recover. We’re going to get through all this.
Number four, we’ve all got downtime now, so use it. Work on your skills, develop knowledge, expertise. Don’t squander it and filing. Number five, be patient. It’s unlikely the economy will snap back to where we were anytime soon. Now is not the time to jump in, even if you see discounted pricing. It’s likely we’ve still got a bit to go on this thing, and if you do decide to jump in, be very conservative with your expectations, stress test your underwriting, make sure that if the economy does not improve immediately or even gets worse, you’ll be able to survive. But do know that because we’re going through this correction, we are all going to see better pricing and more opportunity when this thing shakes out.
So anyway, good luck to everyone. Hope this was helpful and thanks for joining the Wild West Real Estate podcast.
Thank you for joining us for the Wild West Real Estate Show. If you like what we’re attempting to do here, please subscribe so we can continue sharing these with you. And if you want to check out our website, it’s quantumcapitalinc.com. You’ll find podcast episodes as well as multifamily properties we’re looking at and how you could potentially participate. Look forward to seeing you guys soon on the Wild West Real Estate Show.