[Music] Hello everyone and Welcome to another episode of Selling Greenville your favorite real estate podcast here in lovely Greenville South Carolina I am your host as always Stan McCune realtor here in Greenville South Carolina you can reach me any way you want to email phone call text my contact information is in the show notes like you guys always always know and please if you love this podcast give it a rating or review I I plead with you guys to do that please it takes like literally two seconds I finally I I'll be honest one of my favorite podcasts I just finally left a review for so I get it I've been listening to that podcast for years I get it it's it's not an easy thing to bring yourself to to do those two clicks but I would appreciate if you guys could do that and and of course subscribe and download the show if you're enjoying these episodes you want to listen to more today we're going to be talking about this is just going to be a short episode I think unless I go on a rabbit Trail we're going to be talking about a very interesting development in the broader mortgage world this deals with Fanny May so Fanny May had was impacted by a treasury Amendment recently and basically the treasury is trying to limit its exposure to limit its liability when it comes to real estate so this is a this directly impacts us when the treasury does things with Fanny May and and I'm no expert in all these backdoor economic types of things but but my general understanding is that the treasury has agreements with Fanny May in place that involves stock purchasing and that types of of things with Fanny May and and it's this kind of convoluted way of the government backing our mortgages and if you remember back in 2008 that was what brought the crash was the government's involvement in the mortgages was not a positive there ended up being a lot of shady lending practices that happened because Banks were kind of of in essence they felt like they were guaranteed to get paid back one way or or the other and then well that ended up not happening we're not going to get into all of that but the point is it's gotten a lot stricter since then obviously it got very strict and then last year it was very interesting during covid we saw a tightening once covid happened Banks immediately started saying like I had one bank right away that I've used for for multiple investment properties over the years they said we are not doing any more loans on any investment properties we're not owner occupants only you know maybe some commercial some commercial deals but nothing on rental properties and that was crazy that was shocking to me I mean this wasn't even you know Midway through the year that they heard this and and you have to understand Banks they have a portfolio so to speak of the loans that they have they want to have a certain number of these loans certain number of these loans and they all kind of balance out and it helps them to mitigate risk but also have potential for reward as well so some of their loans you know are are higher risk higher reward some of their loans for instance to just a normal homeowner living you know in their home with great credit and getting a low interest rate those are low risk low low rewards so they try to balance it out with with all these different things well the treas Y is imposing on Fanny May a risk measure similar to what the banks did voluntarily last year when they started saying you know what we're we're backing off lending for rental properties and and the main restriction I'm interested in is that there is now a 7% limit on their acquisition of single family mortgage loans secured by second home and invest M properties in other words my understanding is that out of the Fanny May portfolio only 7% of The Fanny May portfolio can include mortgages towards second homes and investment properties well that's not a whole lot that is not a whole lot at all 7% and that's going to have a a ripple effect if you're getting a loan from you know if if if you're thinking that you're going to get for instance a conventional a conventional type of loan you're probably going to be impacted by this at some point you're going to see banks that also just follow suit that they see okay this is what vny may is doing we need to tighten up as well this indicates to me that the government is looking down the road and they're seeing risk of people purchasing investment properties and going into foreclosure that is the reality of the situation they're they're seeing something I don't know what they're seeing but they're seeing something that tells them hey we need to tighten things up on all these investors maybe there's a slew of new investors coming into the market in the past year or so and they're worried about that maybe it's something with Co maybe there's something you know that they have looked at how many people are behind on their mortgages or how many people took advantage of program programs last year and this year where they didn't have to make their mortgage payments or whatever the case and they're looking at that and they're saying oh man we're going we're about to have a lot of people in a world of trouble who knows I I I don't know what they're seeing but they're seeing something that makes them concerned about lending on investment properties and second homes if you're an investor that means if you plan to get normal Bank fin ancing and by normal I mean not hard money not you know from some kind of credit union it's just like a conventional loan or something like that to to purchase you know a duplex or a quadriplex or something like that you're going to potentially run into some struggles with that this year if you wait to the second half of the year that's what I think is going to happen they're they're putting this amendment into Motion in April and we're going to see Banks really tighten up from this in terms of what they lend out and again some of them might just tighten up voluntarily even if they're not dealing with a Fanny May type of loan just because they're concerned about what the government's seeing why is the government doing this what is what what's going on behind closed doors we're just going to follow suit as well and voluntarily do that this also makes me wonder what are they seeing of course I mean that that's what everyone wants to know are we about to see a flood of foreclosures come into the market that would be a very interesting phenomenon for sure and I don't think it's going to happen overnight but I think that we're in a situation here where where maybe there is something to this idea that maybe a year or two from now we are going to see you know these investors that that purchased properties for the first time because interest rates were low and they were really eager to to buy in and they're going to all of a sudden find out oh man I can't afford my my mortgage anymore and maybe they get a few months behind and of course the foreclosure process takes a while but we could very well I could very well see that happening and see us in a couple years having a little run on foreclosures who knows that is probably the most likely scenario whereby at least the way things currently are whereby we would see the market flip from the insane sellers Market that is right now into more of a buyer Market I I don't see again I don't see that happening you know anytime soon it could happen in a couple of years yeah yeah it absolutely could and I will say this I see PE people all the time purchasing duplexes duplexes are are an easy one to to look at because most of the time people buy duplexes they're not living in them almost always they're renting out both sides of the duplex and you can get a you can pretty easily extrapolate what a duplex is going to rent for I mean we've got pretty standard rental rates for for multif Family Properties in this area it's pretty it's pretty predictable and I see all the time people purchasing duplexes and properties like that for prices that I know their cash on cash return is either really low or they have a loan on that property and and that loan combined with the property taxes and everything else they are probably not matching in terms of the the income that they bring in they're expenses they're probably losing money on those properties well what's going to happen over time those people are going to need to get out they're they're going to realize that that they need to get out of those properties and some people will learn that before it's too late and they'll put their property for sale and and sell it but the thing that people are assuming is that home values are going to continue to go up at the clip that they have and that might be a faulty assumption as well particularly when you're talking about investment types of properties if if you buy a duplex and the purchase price you pay for it makes it to where there's no way it can cash flow unless the price of rent goes up quite a bit you know in in the future in future years how do you think that you're going to then turn around and sell that duplex for significantly more than what you paid for it It's tricky because rental properties appreciate in a different way than owner occupied primary residences appreciate they they you know primary residences appreciate just pretty formulaically but rental properties their appreciation is both a it's a combination of of several different things it's a combination of the area It's a combination of if they're in a transitional area is that transitional area in improving at a faster clip than than other areas what rent are they bringing in you know if you can take a rental property one of the one of the best strategies for adding value to a property get a rental property purchase a rental property from someone that hasn't raised rents in 15 20 years their tenants are paying 350 a month and the property is in disrepair you can repair the property and maybe you can get rents up to seven or 800 a month I've seen this happen well you have just added a ton of value value far beyond just the repairs that you did now you've made that rental property much more valuable just based on the cash flow so so they appreciate in a different way at some point the cash flow becomes more important than the area to be completely honest for for some of these properties that are particularly multif family that are uniquely going to be second homes and investment properties now if it's just a single family home it's it's not quite the same a a standard single family home even if it's used as a rental property will be less pegged to how much rent money it's bringing in but but for a lot of us multif family is really the best way to to cash flow rental properties in this market but you have to be careful because we're seeing these warning signs now that maybe there will be some landlords that get in over their heads you don't want to be one of them obviously additionally however you might find yourself in a situation here in a few years where maybe there is an influx of opportunities there's not a lot of opportunities right now to purchase these good multi Family Properties to purchase these good invest these good rental properties you have to be very selective maybe a few years from now we're going to find that people got in over their heads which is not a good thing I'm not celebrating that but just being realistic just being honest here maybe that will open up the door for some more opportunities for investors we don't know there's more questions than answers when it comes to why Fanny May is doing this but I think it's an important development it's an important consideration it is going to impact people this year it will impact them we already saw it impact them last year to an extent as I already said but now Fanny May tightening things is going to cause everyone to tighten things a little bit more than they did even last year so keep that in mind as your game planning for the year it may become difficult for you to get financing on investment property is the second half of this year I could totally see that happening or it could be month-to-month some of these Banks they may look at it month-to month and they may say okay this month we're not taking any more next month we'll re-evaluate whether we want to take on more loans on on rental properties I'm not sure I'm not exactly sure how they're going to respond to this it's it's it's kind of uncharted waters to a certain extent it it's a it's a strict response in my opinion to whatever it is that the treasury is seeing and so we'll just have to monitor it I just know last year second half of last year I had an awful time getting financing on a couple of properties that I wanted financing on that that were rental properties that said I was finally able to pull it off with a few headaches and so that's something that I can help you guys with as well if if you do run into a situation where you're struggling with getting financing you're probably looking too conventional you're probably just you know looking at the wrong Banks usually there's someone out there at least until the fourth quarter the fourth quarter can get a little dicey but at least through the third quarter there's usually someone out there that is willing to finance investment properties if the numbers make sense and so I can help you guys with that that's part of what I do part of the value that I provide is that I've networked and worked with all these lenders in a lot of different spaces over the years and and I can help you guys out with that out with that I don't know what just happened to my throat I can help you guys out with that as you need it just let me know all of my contact information as always is in the show notes that's it short episode today I just wanted to bring this to you you guys to your attention because I think that this is something we don't have all the answers to it yet but it's an important thing to follow but you can reach out to me for any reason with my contact information in the show notes please go ahead and give the show a rating a review hit the Subscribe button I appreciate all my fans out there I appreciate you guys thank you once again for listening I hope you have a great rest of the week [Music]