This week Bruce Norris is joined once again by Shawn Watkins and Angel Bronsgeest. Both own the Investors Workshops in Orange County, and they have supported I Survived Real Estate every year that it has been around. They are investors and do a lot of their investing out of state.
Prior to real estate, Shawn Watkins was a deputy sheriff in Orange County, which he did for about ten years. During this time he got to see a lot of changes and went through bankruptcy himself at the time when Bob Citron was in charge and getting an I.O.U. What is interesting is when you look at the debt levels in certain cities, you can see this being replicated in the future. Orange County seems to have survived a bankruptcy fairly well as this was not 40 years ago, but rather 1993. At that time it seemed like all was forgiven pretty fast. Shawn said it was one of the biggest magic tricks as we had two months of I.O.U.s, then it was business as usual. The only difference was Shawn didn’t own anything. Maybe Valeo has it right and we should forget paying everybody and start over again.
Another interesting thing is the skill set. You have people who are into teaching and brand new to it, but they are not brand new to life. Bruce wondered what Shawn did to gain the tools necessary to do his job now. Shawn said what he did was real integral to what he does now. He was a training officer where you are taught to come into a situation; and in ten seconds or less you have to control the situation, make a decision, and deal with the consequences for the rest of your life. With real estate, it moves much more slowly than that. However, because he had been trained to look quickly, he has a tendency to see more of the situation than other people do and be willing to mentally go farther than other people. It is almost like he can slow down the situation and see things deeper. Bruce said it’s like when he spars the guy who he spars with who is a tenth degree black belt, there is not anything he could do that could surprise him. Shawn does not claim to be this good; but when you are especially dealing with emotional issues, the core of his business is dealing directly with the homeowner.
As every situation is a little different, a lot of the same things are duplicated to where there is like a tape playing when you feel you have heard the exact same scenario. You then see the path you know you are on. Others don’t even know they are on it yet, but we are going to end up there eventually through a process. There might be some off ramps for one individual, but we’ll still be on the ramp on the other side when we’re done. In a way, this is our job as real estate investors. If you are really educated in this business, this is very important. You could be sitting in front of somebody who needs the direction of someone who has seen it a few hundred times to know it is solvable. They can then give them a couple suggestions. This is very important for somebody on the other side.
Bruce remembered his training in foreclosures where they would actually go out and knock on doors. The scariest thing you could do to somebody was tell them they were going to leave a problem up to them. Part of the issue here is their insecurity that they have anything good or of value to offer. When somebody is really an expert, they realize they need to talk with others. There is some baggage that comes, but this is part of the branding.
Angel has been up in Ogden for a while, so Bruce wondered if the business has been branded as being a reputable business. Angel said this was the case as they have a very good reputation in the area and are the go-to people. There is nobody else who even competes; and it is interesting because Utahns there do not see the value that her company sees. When Bruce was in Grand Junction Colorado, the same thing occurred. No one would buy anything; and we’re talking about $10,000 per door of 3-year old condos. You wonder how this could get messed up. It was hard to see through their eyes, and it was impossible for them to see through his. He had just come out of state and was looking at them thinking, “You were buying at four times this level before with both hands. Now you won’t touch it.”
As far as price damage from the peak to now in Ogden, it is not a volatile market like California, so the damage is less. You get very hyper-local when you are talking about A city in A county in A state. Ogden was the place where everybody went to buy cheap things. If you were a rehabber, this was where you went. For them, they made huge swings. They were able to get things that were at the time $.40 on the dollar; so where the fall came for them was not that the price did not go up as much but that the market simply fell out for buyers. If you bought a $100,000 house for $40,000, ended a very light $2800 rehab, and sold it for market at $100, you were seriously making some home runs in that market. Only 18 months later, no one was touching it. Now, for everyone who got into these things, even though they got in what they thought was the right price, it no longer was because it was invaded by non-owner occupant people who had no intention of living there. It was completely turned on its head, and this created the opportunity for Shawn and Angel.
There was not a lot of new building; which was interesting as most of the markets actually had too much inventory for a while when there was a lot of building in areas such as Phoenix and Riverside. However, Shawn and Angel were not dealing with this. They instead had an existing base shifting around. Angel described this base as a 3×5 mile radius shifting around with 80,000 people in it. There is no land to build anything on, so we are talking about a very impacted city. This was a railroad town that boomed for several years, and the cattle train was real important there, bringing in cattle to auction. Then, in the early 80s, everybody abandoned the downtown hub and went north to build north and south. The main part of the city was just choked out by blight crime, gangs, and prostitution. It was like south central Utah.
The city started to turn itself around with the new mayor who was elected in 2006. They dumped in millions of dollars, hoping to make it as far north as Park City. As a result, you had redevelopment, rezoning, and redistricting. Coming from law enforcement, Shawn began to see the changes they were making and seeing beat cops walking the street making it a place where they made it feel like the war in Afghanistan. The locals just could not shake the image that it had in the 80s, which lead to a complete undesirable reputation. The conclusion was still the old one. Shawn went to Ogden because he was told to by Bruce. He said Utah had a higher median sales price in ’97 than California. Shawn was the out-of-state person who told the civilians they clearly didn’t know who he knew. They didn’t understand what they were paying for in the town.
Before going into real estate investing, Angel was a paralegal. She first worked for a medical op practice defense firm about 9 years, half of her career. The other 18 years she worked for a sole practitioner and worked with personal injuries. She left this practice in 2007 after the boom, so all of her real estate experience is really not the kind that generates $100,000 profits by magic. Before she became a real estate investor as a layman, she learned the lessons she needed to learn. She and her husband bought their first condo in 1989 at the top, and they sold it 8 years later at the bottom. It felt like they put a $30,000 deposit on an apartment because they walked away from $30,000. In turn, the attorney she worked for allowed them to purchase a home again in a market at the time when no one wanted any real estate.
They looked at five abandoned houses in Tustin California that had already gone to auction and been denied. The next step for the bank was fix them up and put them up for sale. They picked the one they wanted and put a bid on it, but she knows now she could have bought it for cheaper and bought it for $.65 on the dollar. They put enough in it to live in it, and it was a much bigger house than they needed. Nine years later they sold it at the top. As a layman, she learned the lessons she needed to learn with two houses, and she did not cash in on it. When they sold, their house went up four times what they had sold it for at the top of the market. When you have a movement in Tustin, it is a serious movement. Bruce hopes in the next report they can make a color map that shows the price move by turning green and seeing where it goes first.
Bruce wondered how Angel’s legal background lends itself to what they do now. Angel said it helped a lot with contracting and putting contracts together. She is not an attorney, but it certainly helps with putting the contracts together. Mainly for her the job was primarily one of the liaisons from the client to the attorney. People get a little intimidated talking to attorneys, so it was her job to listen to them and hear what hey had to say and help them get their questions answered. Eventually they talked to the attorney and would still have to call her back and tell her what their attorney had told them. She found that she learned very quickly how to filter. She has to know what a person needs, what they are saying, and let them talk but be able to extrapolate information from them at the same time.
Shawn said with 99.99% of their deals they are talking directly to the owners. Between 1997 and 2005 the buying business was all of this, but now it is almost none of this in California. Shawn has a lot of financing that would probably work. He has been making offers in California and getting lots of positive response. The particular challenge in California right now is time. Shawn wants to make sure people know that running out of state and buying is not easier than buying in-state. They cannot just pick a state and buy there because you heard someone tell you to do it. His office is twelve minutes away from his house, and he knows that he can drive and touch every property that he owns. An important factor is Utah is his home state; so he knows if you take your eye off the ball for a fraction of a second, you are going to lose money.
You also have to start thinking through the locals’ eyes. At Grand Junction Bruce remembered thinking he was going to have to leave his California brain at home, which he did during the purchase but not the rent-out. He remembered thinking he did not know why they had a 50% vacancy factor. He did not think through the market that he was about to enter. He thought about how easy it was to rent something in California, and it was quite a rude awakening six months later to have 50% vacancy despite all of his efforts. Angel believes Grand Junction is a little bit different than Ogden in that it is a lower economic environment. The people who do rent, even if they could technically pay less if they bought it, will always be renters. This is a very different economic world.
Angel most likely looks at different numbers and sees how they don’t make sense as far as numbers go. It is this way in Texas. You could go to Texas, rent for $1400, and own for $900; but the other parties involved want nothing to do with it. Finally, you decide you want to interview a few people and find out why they came to a specific conclusion. In Texas you change jobs more often. If you can get extra overtime you can go to another company, and you are very rarely rewarded for owning a particular product in Texas called real estate. It does not escalate. Somebody could get a property, move, lose money, and they are a renter for the next 40 years. You have to be acclimated to the way they think instead of how California has rewarded ownership of real estate. Yet, Shawn and Angel are being rewarded for owning real estate in Ogden; so Bruce wondered what they are looking for that others overlook.
Shawn said the thing you have to remember is anybody can engineer a deal in California right now. There is money available to cash flow, but you have to spend a lot of time getting another person in front of you as it is clearly a time-intensive process. Shawn can literally do 20 to 1 deals from his home market to California. The reason why is because Utah is an energy state and very dependent on natural gas, oil, drilling, and drilling related services. They are in a boom right now, so it is a good time for them right now. What happens is you have people who have very short time frames for what they need to do. A lot of the owners they deal with are heirs and have inherited it from a descendent, have been given an estate, or are accidental landlords. They thought they were going to flip their way out, and now they are completely miserable on this slow road to wealth. Shawn finds a lot of these people are in-state owners, but he also finds a lot of county owners. Up in Utah, for example, 45 minutes is a lifetime. They want to own something closer to where they live when they really don’t live that far away to begin with.
Bruce knew a lot of the properties in Grand Junction would be filled fast because there was a college 3 ½ miles away. Mary Simpson was his manager, and he mentioned to her that he wondered if the students would really go 3 ½ miles to go to school, which was not the case in Grand Junction. Shawn said Weaver State University is right in the middle of his market, and he rents to zero students. He has found that because they are at a local school they will probably live with their parents. If they are going to try to play and have the fun college experience, they won’t pay their bills. They are the first people who won’t pay because they are too busy doing college kid things.
What has resonated with Shawn and his business is they are willing to do the management. They recognize really fast that the only way to ensure they were going to be able to keep their doors open was to manage the properties since they tried really hard to find a management company that was only management. They could not find it. You had realtors who did it on the side and a few management companies that dabbled in it. By and large, when you call them you only get voice mail. In that market, people may only have 72 hours to get their housing situation straight before they are gone for a month in the fields drilling. If you are not there answering the phone and taking their deposit money, then your business is not going to be very successful. You cannot be successful unless you are really ready to answer the phone. They will usually give them a $50 cash bonus if they give them someone who ends up renting from them. This really pulls people in, especially around Christmas.
Bruce wondered when they get someone who rents what size deposit he likes to get. Angel said they take no deposits, which would give them a competitive advantage because this is not normal. They thought it through to where it would not have risks and started morphing with the training she took with David Tilney. No deposit means that they can get in for less and don’t have to come up with a first, last, and a deposit. This means they can also charge more per month, and she never has to give this more-per-month back. Angel does not really like writing checks to tenants. The interesting part is psychologically people tend to treat their place better if there is not a deposit. Shawn said they usually give the people a list and tell them what things cost. If you break the ceiling fan, it is $100. If you break a window, the tenant is given a bill ahead of time and told to sign it and if they break anything they will be billed for it. There is something psychological about the tenant not wanting to break anything and be billed for it rather than moving out and taking out their last month’s rent.
Shawn and Angel mentioned David Tilney again and talked about how he had a system that may not work lock stock and has not been used completely, but he has terrific implementation. For Shawn and Angel, opening themselves to other people’s experiences is certainly a short circuit way to get where they need to go. In the same way, Mike Cantu, for example, was not a speaker at first, and you were pulling teeth to get him to speak. Now, he has a lot to offer; and whenever Bruce hears him speak he thinks that he has more information per minute as you hear a lot of condensed information from him. Shawn does not think a day goes by when he does not quote Mike. Shawn really likes his quote, “money is the lubricant that lets you go through life,” since he is saying it lets you slide through life with the least resistance.
In the mid ‘80s Bruce was the new kid on the block with Aidee Kessler, and the fact that he allowed him to write for his magazine and gave him an audience was an honor. When he heard Tony Alvarez speak for the first time, he knew he was going to knock it out of the park. It is fun to watch people really add value to other people’s lives, and this is what Shawn and Angel are really starting to do. When you are speaking for a long time, you can have some really strange experiences with clubs that have very bad intent. This is not their club; theirs has a very good feel to it. At the very beginning, Bruce had a bad experience with a club. He was asked to speak on someone’s television show he was invited to do, which he did not think was normal since they did not even know each other. He later spoke at his club, where the man was not even present. Five minutes after it was time to start, Bruce decided to go ahead and speak. The man came much later; but when he arrived the whole demeanor of the room changed, and they hated the guy. Bruce then talked to Kessler, who told him to ask before going to talk to somebody. When you are a speaker and have done it as much as Bruce has, when you get in front of a club you can get the sense if the audience has been abused or not. Shawn and Angel have an audience that has not been abused, and this is good. They work really hard to make sure this happens. What really helps one feel like they have done their job is when somebody comes to them and tells them they did not do it because they heard someone else do it, but rather because they did it themselves.
Tune in next week as Bruce continues his discussion with Shawn Watkins and Angel Bronsgeest.
For more information about The Norris Group’s California hard money loans or our California Trust Deed investments, visit the website or call our office at 951-780-5856 for more information. For upcoming California real estate investor training and events, visit The Norris Group website and our California investor calendar. You’ll also find our award-winning real estate radio show on KTIE 590am at 6pm on Saturdays or you can listen to over 170 podcasts in our free investor radio archive.