Here’s how one experienced real estate investor managed operations during COVID-19.

Real estate investors had been musing about a market correction, but no one was ready for the impact of COVID-19. Still, it’s not all bad.

A seasoned real estate investor can see beyond the fear mongering and bleak forecast. However you want to view this particular time, one thing is certain—from misfortune comes fortune.

Starting Point
There is no doubt the high unemployment rate is having a devastating impact on the economy. Eventually, life and real estate investing will resume, just at different levels and with different players.

For me, business had been booming. Right before the shelter-in-place orders, I was rehabbing two properties that we acquired with hard money. Our exit strategy was to owner finance them.

Where We Headed

So, here’s a recap of what has happened.

First, I completed a cash-out refi with a new local community bank. They were easy to work with, and all their decisions stayed in-house. The property was the collateral for the loan, so there were no huge stacks of paperwork to submit. I did have my credit run and provided three years of tax returns. The appraisal was conducted via pictures I submitted of the property. From start to finish, the timing was just under 30 days.

I met this lender by popping into the bank one day. I was introduced to the decision maker and was able to lay out my investing strategy. I told them I was looking for a lending partner that would enable me to continue to grow my real estate investing business.

Through every step of the loan approval process, I was in contact with the decision maker, who kept me informed. Yes, he had an assistant who was kept in the loop on correspondence, but I appreciated the personal touch of this lender who was intent on building a true business relationship that benefited both parties.

Second, here’s how the exit strategies, for three properties in different stages of rehab, were impacted. Our original exit strategy:

• Purchase with hard money
• Refinance with private investors, typically from their IRA accounts
• Rehab the property as needed
• Owner finance the sale to retail buyers (typically first-time homeowners)
• Season the note for 6-12 months to show a pattern of payments
• Sell off part of the note, retaining second lien position with first right of refusal on first lien sale

We ended up purchasing one home with three of our IRA accounts, each one owning
a percentage. After closing, we did owner-finance that property. The property was
in a secondary market, so the days on market were a bit longer than we usually see in the DFW area. We’re happy to report the buyer is on time with payments and, as of this writing, has not asked for forbearance.

On the second property, we finished the rehab and refinanced out of the hard money with our private investors. We have a network of individuals who are happy to lend us funds out of their IRAs. We’re up front about our exit strategy and negotiate a longer term and lower rates. This allows us to market the property for owner financing, get a sizable down payment and season the note a minimum of 12 months. We then sell off a portion of the note, pay off our private investor and continue to receive a monthly note payment.

Our third property ran into some contractor issues. We met the general contractor we hired through our hard money lender; he was one of their inspectors.  I cannot stress

enough a responsibility to run a check on contractors. We ran into serious problems with our rehab under this GC and ended up firing him. Thankfully, our lender was supportive of our report about this person’s integrity and agreed the inspector would no longer have access to other investors who are their clients.

Due to the problem we ran into on the rehab, we were not able to finish the property before the due date of the note with the hard money lender. We also noted a change in the market with our owner- finance potential buyers.  Although we had plenty of interest, people were reluctant to let go of the 10% down payment we were requesting.

So, here’s what we did.

First, we reached out to our hard money lender. They extended our loan without any additional points or higher interest rate. As long as we continue to make the monthly interest payments, they are willing to work with us and not penalize us for what is happening in the market.

By now, we had a lot of our personal money tied up in this property. With a price point of under $200,000, the government announcement of forbearance guidelines and holds on evictions, we knew we would have no problem selling it. In fact, when it went on the market, we had 52 showings (many of them virtual) and 10 offers in four days. The property is under contract.

What We Learned
No matter what’s happening in the market, people will always need to sell their home. We continued to do business as usual. We had to get a bit creative with sellers, doing video walk-throughs and lots of Zoom calls. We purchased two more properties within the first 30 days of shelter-in-place and used private investors to secure the properties.

The lessons learned from this crazy shift in the market?

• You can never have too much cash on hand. Be ready to take full advantage of a shifting market.
• If you build your lender network when things are going well, you will still have those relationships and access to lenders in a downturn.
• Lenders need to work with their real estate investor clients. Most are hardworking and want to grow their business.

Never get too complacent in the market. Leverage your debt wisely. Always complete due diligence, not just on your properties and contractors but also on your lenders. Are they able to weather the storms with you? Remember, we are all in this together!