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You can postpone mortgage payments with forbearance. If you collect rent payments from your tenants, can you pocket it all and not pay your mortgage? What a windfall! (Complete episode transcript is below. Read along as you listen.) In crisis times, your cash flow is your cushion. Last year, the publication "Emerging Trends In Real Estate" forecast that the chances of a pandemic roiling the economy were low. The CARES Act's effect is discussed. Payments follow five links in a chain: employer - renter - investor - mortgage servicer - mortgage-backed security holder. What's the difference between a lender and a mortgage servicer? Ethics and greed. Are there deleterious consequences of forbearance? Resources mentioned: Read episode transcript at: www.GetRichEducation.com/290 CFPB Video on CARES Act: https://www.consumerfinance.gov/coronavirus/ cares-act-mortgage-forbearance-what-you-need-know/ Mortgage Loans: RidgeLendingGroup.com QRPs: text "QRP" in ALL CAPS to 72000 or: TotalControlFinancial.com By texting "QRP" to 72000 and opting in, you will receive periodic marketing messages from eQRP Co. Message & data rates may apply. Reply "STOP" to cancel. New Construction Turnkey Property: NewConstructionTurnkey.com Best Financial Education: GetRichEducation.com Follow us on Instagram: @getricheducation Keith's personal Instagram: @keithweinhold Complete episode transcript: Welcome to Get Rich Education. I'm your host, Keith Weinhold. You can potentially collect your rent income from tenants and then, turn around and NOT pay the mortgage loans on those properties for a few months, pocketing a nice profit. But should you? In the pandemic-induced world of eviction moratoriums and mortgage loan forbearance, there will be winners and losers. I'm helping you sort that out so that you can be one of the winners - and more - today on Get Rich Education. ____________________ Welcome to GRE. From Olympia, Greece to Olympia, Washington and across 188 nations worldwide. I'm Keith Weinhold, this is Get Rich Education, and we are all living in strange times. The squeeze for some of us, I think is encapsulated in Jerry Constantino of Queens, New York's situation. He's talking with owners of the roughly 500 units that he manages, who are worried what's going to happen if the rent checks stop coming in. As part of his Property Management duties, Jerry is talking with tenants, many of whom he assumes will be delinquent this month because they either lost their jobs or they're just choosing not to pay. Jerry's a hard-working guy and he knows that the tenant in Unit 31-A has paid his yet, and it's a few days past due. But yet Jerry knows that this tenant hasn't lost his job and ought to be able to pay rent on time like he always did before the pandemic. Jerry sees this tenant from Unit 31-A in the hallway and says, "Don't mess with me dude, where is the rent?" And by the way, Jerry got a little gruff and his words weren't exactly "Don't MESS with me…" but that's the version that you get here on this unapologetically squeaky-clean lyrics show. And besides MANAGING property for others, Jerry is also in discussions with banks, trying to figure out how he'll make mortgage payments because he's got properties that HE owns HIMSELF during this worsening global health crisis. And, a lot of people find themselves in a situation similar to what Jerry is in. Some large property owners have already rolled out payment plans for their tenants - and halted evictions - because they legally have to - as the coronavirus outbreak roils the economy. Many apartments in the U.S. are essentially small businesses that tend to have less financial flexibility and will need some help ... in the coming months. Now, there are some choices for the millions of Americans who lost their jobs and have no clear prospects for when they'll get them back. Three things that are aiding TENANTS right now, helping them pay the rent are: eviction moratoriums, unemployment benefits and cash payments - like those $1,200 stimulus checks - from the federal government that can help many keep a roof over their heads. Nearly half of the nation's 44 million renter households were already stretched financially: before the pandemic. The University of Chicago found that ONE-THIRD of adults can't cover necessities after missing just … one ... single paycheck. One in four tenant families pay over half of their income just to make the rent payment. We're basically going to break down Jerry Constantino - the King Of Queens' - situation here, being mindful that .... In general, the average Get Rich Education listener is better off than the average real estate investor for a number of reasons. For starters, one of our core principles here is that we invest predominantly in residential real estate. That is due to its durable utility. Coronavirus has changed a lot in society, but it has NOT changed the fact that people still need a place to live. You've got to be grateful that we focus on residential because it's recession resilient. Most landlords are still getting 80 to 90% of the rent income, even 100% if you've got a small portfolio. Just think about how many businesses aren't getting nearly 80-90% of their income now? The restaurants, and bars and gyms, airlines, cruise ships, hotels, on & on … are they even getting 30%? Though it's the exception, some businesses, like large retailers might be getting 105% of their usual income now. We also focus on investor-advantaged markets here at Get Rich Education - with the principle that the market is more important than the property. And so many people get that backwards. We discuss the advantages of being invested in multiple markets so that your tenant income streams are from diverse employers. Anyone that doesn't adhere to that is in more trouble. Also, we focus on buying property that cash flows on the day that you buy it - where the monthly income exceeds the monthly expenses on your settlement day - on the day that you buy - not "maybe it'll cash flow sometime in the future". Look, in times of crisis, your cash flow ... is your cushion. Here's what I mean. To keep it simple, if every one of your properties rents for $1,000 and has $800 in monthly expenses, you've got a $200 monthly cash flow on each one. You'd have to lose - just outright lose - and never recover wholly 20% of your income and then you'd still break even on a monthly basis. This is what I mean that in crisis time, your cash flow becomes your cushion. If you have a 10% rent loss, your cushion is half-eaten, and your cash flow becomes $100 per door. You can't kick tenants out for a while because there's an eviction moratorium. But, you can also be granted loan forbearance and not have to pay your mortgage. So you might be able to profit wildly at this time. Each of these things - an eviction moratorium and mortgage loan forbearance are part of the recently-passed CARES Act. I've got way more on that later … whether you're in Jerry's situation or you're better off. Let's pull back and look at how unlikely this Black Swan Event known as the coronavirus pandemic really is, first. Here's some perspective. Last year, the publication called "Emerging Trends In Real Estate" launched a survey that's just so, so interesting now that we have the benefit of hindsight. They launched a survey last year called "The Importance of ISSUES for real estate in 2020". They were FORECASTING the following year - this year. A pandemic was NOT forecast to be an important issue at all for real estate this year. In fact, the #1 survey answer was predicted to be the political landscape. That could make sense as this is an election year, and divisive partisanship sure is not abating. The #2 predicted factor was … government & budget issues. The issue forecast to be the 3rd-most important real estate issue for this year was .... immigration. OK, makes sense. That was a hot topic for a while. And greater immigration creates more housing demand, sure. #4 was Global conflict. OK, makes some sense. We had growing trade tensions with China, political tensions with Iran and North Korea. The real estate issue predicted … last year … to be the fifth most important for this year was … Income inequality. How long do you think that it will take us to get to a pandemic … or epidemic. No one foresaw this. Sixth was Rising education costs. That definitely intersects with housing as giant student loan debts increasingly prevent people from forming a first-time homebuyer downpayment, which keeps them in the renter pool. The seventh most-important real estate issue for this year was predicted to be Social inequality. Eighth was terrorism. That's going lower on the list as major terrorist acts in America continue to recede into memory, gratefully. And number nine - yes, last year, what was predicted in "The Emerging Trends In Real Estate" survey for THIS year is … Epidemics. All those other factors were deemed to be more important. And that's from a pretty respected publication. That source, Emerging Trends in real estate, is partly compiled by the Urban Land Institute. So, it just goes to show you that, no one, not me, not you, not the expert economists that come here on the show with us - no one really knows. Now, there was one Get Rich Education episode where I had a "glass half-empty" segment, maybe one year ago, where I was talking about all the things that could go WRONG in real estate investing. I did mention a plague. I used the word "plague". And what I was thinking about was, what if an awful bubonic-like plague wiped out, say 20 million Americans - which would be more than 5% of our population. Well, that sad event would reduce housing demand, of course, if there are substantially fewer … live humans. And as sad as COVID-19 is, no one is predicting that it will be fatal to even one-half of one-percent of our population. And I certainly wouldn't have predicted that by this year we'd be practicing things like sheltering-at-home or social-distancing. It still all seems like some sort of bad dream. We're talking about, "Do you get free money? Should you take mortgage loan forbearance?" here on Get Rich Education Episode 290. In fact, if you'd like to read along while you're listening, the entire written transcript for today's episode is in the Show Notes. You can access those at GetRichEducation.com/290 and follow along that way if you like. In order for you to understand mortgage loan forbearance - and forbearance means that you can postpone making payments, understand the big picture. You can best understand this as part of the five links of a chain. Yes, forbearance allows you to BREAK a chain. The five links in the chain follow the money. They follow the payments through: Payment goes from Employer … to Renter... to Property Owner... to Loan Servicer... to finally, the MBS Investor. They are the five links. Now, let's look at what happens here. The first and second chain links involve that payment from Employer (first link) and the Renter (the second link). Economically … how bad is it? We don't yet really know how high the unemployment rate will get, though we expect it to be substantially higher than that of the Great Recession of 2008, when it was 10%. Chain Link 2 to 3 is the Renter's payment to the Property Owner. This is a link that you're clearly quite concerned with. This is your rental income. This is the income that Jerry from Queens is trying to scrape together. We don't yet know what the eventual rent payment DEFAULT RATE will be, of course that's going to vary among geography and asset type and many other things. But be aware that at this point, about 75% of Americans have lost at least 25% of their income. About ¾ of Americans have lost ¼ or more of their income. As you know, during coronavirus, most areas have an eviction moratorium. Meaning that if the tenant can't pay the rent, you can't kick them out for a while. Now, what if you - the income property owner - Link 3 - don't have enough rent income to pay the mortgage to Link 4, which is your bank or your loan servicer? If this is your situation, you want to call the company that you pay the mortgages to. You pay your mortgages a mortgage servicer. Now, what is a "mortgage servicing company", anyway? A mortgage servicer is the company that handles the day-to-day administrative tasks of your loan. They send you your monthly statement, they receive your payment, and they manage your escrow accounts. This is different from your mortgage lender. Your lender is the financial institution that gave you the property loan in the first place - back on your closing day. So that is the difference between a mortgage LENDER - and the servicer whom you're dealing with now. Now, a mortgage servicer could either be a bank or a non-bank. A bank "mortgage servicer" would be names that you've heard of like Chase or Wells Fargo. A non-bank "mortgage servicer" could be a name like Suntrust Mortgage or AmeriHome. They're names that you're less likely to have heard of. So, to review, money flows from your tenant's employer, to your tenant, to you (the investor), to the fourth chain link, which is this mortgage servicer. Now, if your mortgage is backed by the government (those would Fannie Mae, Freddie Mac, VA, FHA, or USDA - and it often is) - if you tell your mortgage servicer you're having financial trouble because of the pandemic, your mortgage servicer has to let you stop paying your mortgage for up to 180 days - that's six months - with the possibility of another six month extension after that - and you will not have to pay late fees, and there will not be any foreclosure on your property, and there will not be a ding on your credit score either. It gets even better than that. Because at last check, there isn't any additional interest beyond your scheduled amounts accruing on your missed payments while you're in forbearance either. Now, you WON'T magically see a portion of your principal balance disappear though. This all pertains to both primary residences and your rental properties for government-backed loans. If your loan isn't government-backed, you still might receive some similar-type of relief. This is what is being granted to you during these exceptional times. And the mortgage servicer isn't going to ask you for a bunch of paperwork or documentation of your hardship either. But they might just ask you some questions over the phone - details about your income, expenses and other assets, like cash in the bank. They're just granting you the forbearance - letting you postpone your mortgage payments. Now, that must sound great. And it is a good start. Look, if you CANNOT make your payment due to economic hardship, then you should ask for the forbearance. And don't just stop making payments if you CAN'T make payments. Alright, you can't do that. You DO have to ask for forbearance. But it will be granted. Now, what if you CAN make your mortgage payments and you call up your loan servicer and ask for forbearance. In this case, say that your total monthly rent income is $10,000 but you only got paid $9,000 of rent this month due to pandemic layoffs. And your total mortgage payments are only ... $8,000. Well, you could make the payment but you don't have to. So … could you pocket your $9,000 of rent this month and skip out on paying your mortgages completely & then have a $9,000 cash flow month in…
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