Bruce Norris Joins Greg Norris on the Norris Group Real Estate Radio Show #547




The Norris Group

(Full Bio)



Bruce Norris is joined this week by his oldest son Greg Norris. Greg has really taken over the buy/sell business for the last twelve years.

Episode Highlights

      • What was Greg’s background before joining real estate?
      • What were some of the first projects he and Bruce worked on?
      • What was the average time table for a housing project, from start to finish?
      • What percentage of properties did they buy which they never saw the inside?
      • How many trustee sales has he been involved in over the years?
      • When did online auctions kick in, and how did they change the game?
      • What percentage of the properties he worked with were owner-occupied?

Bruce asked Greg to let the audience know what his background was before joining the Norris Group’s real estate business. He said he started out in fire alarm sales, which he did for a couple of years. Afterwards, he went into building a spec home, which he built with a man who taught him and another with Bruce. After pulling away from this, the Crash occurred in 1990. After this, he spent 12 years doing electrical work.

When Greg was 18-19 years old, he came to the door of Bruce’s house with a set of plans he had given him. Bruce told Greg he did not want to see him until they had the house, and he did it. Bruce always had more faith in Greg than he had in himself. Bruce said Greg has a retention for this type of thing like he has never seen. He sees something one time and can do it. When Greg was two years old, Bruce was trying to put his toy car together before leaving for work. He did not have time to do it, but when he came home it was put together and on the track. Greg had put it together himself at a young age.

Mechanically, Greg retains what he sees. He was the guys helping someone else who knew how to be a builder. He took extensive notes as he was going through the process with him. Marsha would do the same where she would see something from three years before and recognize it, even if it had changed. Greg said it helps to physically do it and see the outcome of it.

Greg did a lot of estimating and running of pretty good size crews in the electrical union. This really came into play when he took over the Rosamond project. They had bought 93 building lots for next to nothing, but there was a lot of process to get to the building stage. They were rough lots that needed a lot of help to get to where they needed to be buildable. Just looking at the size of the project, he remembered thinking how the common areas alone were staggering. The first time Greg came when they were doing the manufactured homes, he was looking at the size of the crews and said they were in trouble. This turned out to be true.

Greg had to compile everything from scratch, which before, was not something he had done. Many times he actually tried to talk Bruce out of letting him do it. He got the quotes for it, and Bruce told him he could do a better job. This really pushed Greg, and he really grew as a general contractor at this point. This allowed him to understand how to be a better project manager and understand the intricacies of putting together a project from the very beginning to the very end. It was a really good growing experience. Bruce said if he had not gotten Greg involved, he would have sold 90 building lots with free manufactured home models. He would have only made a little money and called it a day.

The first set they did were manufactured homes. This was a different process and was a struggle due to the contractor not being set up for volume. There was something about the manufactured home where even though it showed up done, it seemed like the contractors struggled with getting all the other pieces. It could have been the quality of the labor, although Greg said there were multiple factors. Greg said they knew by the time they were done with the manufactured homes that it did not really cost that much less to put one down over building a stick-built home. The quality of the construction crews was much lower because people buying a manufactured home are going to spend as little as possible.

The market for expensive, manufactured home and construction labor is pretty low. It was definitely a non-desirable process. They did not realize the 30 houses they did that were manufactured homes were a mistake and they needed to go to stick-built. They had also had a falling out with the contractor because it was going so horribly and taking a long time. Making that transition was not easy since they were now in a completely different world. He was now putting together a quote for a house when before he was putting together a garage. This transition scared him since he did not know how long it was going to take. Fortunately they had a little more time and decided early on not to do it anymore since it was not going well. They were able to transition to the stick-built homes pretty quickly and get that process going, which included plans and all the things that needed to be changed.

Bruce asked how Raleigh came to be the contractor. It seemed like there were a few people prior who had different pricing with which they were not comfortable. Greg said it was through his friend Gary Horn. He went to talk to him, told him what he was up against, and he was a mentor on the commercial side of real estate. He referred Greg to an insurance company he thought could do rapid insurance. Oddly enough they ended up not using this company for the insurance, but he did end up using a referral they gave him.

Bruce asked how long it took to go from start to finish on the single-family home, whether it was four or five months. Greg said a phase was 16 homes at a time, and he was typically taking a little over four months. Bruce asked if chunks of them were ready before the others, but Greg said they were going through the same thing at the same time. You stagger it so that you can have a little time for the crews on the different homes. They scheduled it so they would be kicked out every 4 ½ months, 16 at a time. One of the things that happened was they had hired a sales company that set the tract, and they had three models. Every time they had a different phase, Greg was aggressive at telling them to bump the price.

They had hired a company to help bump the price, and Greg thought it wasn’t good enough. He wanted to try more, and fortunately he happened to be right. He had seen something in the market that seemed like it was going up much more aggressively than the company they had hired was advising them. Tony Alvarez lives in Lancaster; and when they first met, he had about 50 rentals he was going to sell. Bruce was dragging his feet to start Rosamond only 9 miles away from there. What he was looking at was the MLS, and everything was pending in two or three days when they started the project. There is nothing that survives when that happens and they could get aggressive with the price increases.

Bruce remembered the ending price was somewhere around $280, their highest being $300,000. This was the very top one with the view. At one point they had people camping overnight to get a shot at some of those homes. Rosamond was the craziest housing market. Greg really helped them get through it since they had gone pending on the last phase, and two of them fell out. They auctioned them and got $70 grand less inside of two months. Tony actually bought one during the downturn at $45 grand. Greg said he could not imagine most of them being sold unless they were free and clear. There were some exchanges done for this, but they were very fortunate with the timing.

After going through this, they suddenly got to the next part where there is almost nothing that can work. Greg was meticulous about showing Bruce where the prices were going, and they were dropping 3% a month in Riverside. Greg was having to figure out how long it would take them to fix it and knock 15% off the retail price when he arrived four months later. He remembered thinking it was his job to say no. The one thing they tried he was sure would work was the auction. This was the one thing they fit in between Rosamond and doing anything else.

Bruce knew there were big foreclosures coming. They worked really hard, and ended up only selling one house that was as-is. To this day, Bruce is glad they did not continue it because this was not going to be their gig. They had somebody making phone calls to confirm attendance, and over 200 people said they were attending. Greg said it would have been fortuitous since this probably was mostly the fact this was at the very beginning of the downfall. Suddenly, nobody was interested in real estate because it was so absurdly priced. It was poor timing, but it worked out for the best.

Bruce did not remember working harder for nothing. He could tell it was not going to work since they had 13 houses and 28 people. However, he had never been more proud of an effort. They knew it was not going to be what they continued with, so in a way it was good to know. When they got to the next phase Greg was involved in, it was buying at trustee sales. This had not been something he had ever done because he always thought the margin was too tight. What he did not realize until they started funding loans for the person who did it on a regular basis was that he was buying far superior located properties. Therefore, his margin did not have to be as big.

Greg did some rehabs with Bruce when he was young, and they were usually heavy rehabs that needed $40-$50,000 worth of work. Some of them needed carpet, paint, and a cleanup of the grass. Where they were doing the fixer-uppers, only 20% of the world would rent or live there. Buying at a trustee sale is scary. You are sitting there with a cashier’s check; and when you win it, you win it. Greg remembered the nervousness he had the first month, and it took him a while to get over the fact that he might accidentally bid on something that was a second and throw away hundreds of thousands of dollars buying something he should not have bought. It took a little time for him to get the confidence that he really did have the right kind of information. He had the information; but when you have never done it before, it is a little scary as you are afraid of the unknown and may be a little unsure of yourself. It was an interesting process for sure.

Bruce had gone to trustee sales very few times. With the first one he went to, he bought in the Poly District. It was a first at 60%, and no one else came. It scared Bruce because he did not understand why nobody was there. He received a call from Wells Fargo, and they had a second that they did not protect. They asked Bruce if he had bought it and told him they had messed up. Bruce also mentioned how he had bought the wrong house on his second trustee sale. He went to the units he thought he bought, was happy, and he thought he was the owner, only to find out the owner had changed the address on the property. It was a huge mess with grease thrown out the window. This can be a problem sometimes.

Bruce asked Greg what percentage of the properties he bought where he never saw the inside of them. He said it was about 95-96% of them. Bruce is still baffled to this day on how accurate you can be on something that you do not see. It makes it really easy on the really clean ones since after a while you start seeing what needs to be done. You get a feel for the age of the home. If it is from the 1970s, you will probably be dealing with updating the kitchen. Greg said it is about a lot of repetition and making a few mistakes. Greg’s motto is you never die the same way twice; so when they made mistakes they usually recovered from it. Fortunately, it was not too terrible.

Bruce asked Greg how many trustee sales he has been involved in over the years. Greg said it exceeds 650 now over the last seven years, which is a lot and a lot of volume to deal with yourself. Bruce asked what was harder: running a tract of new homes or dealing with 40 houses at one time from a trustee sale. Greg said it was the trustee sale, no doubt about it. Running a tract of homes was a joke compared to the trustee sale business. At the beginning, there were three different sales sites that all had 2-3 different times of day where sales were being held. They had to coordinate people going to see the houses with arriving at the sale on time. They also had to have it appraised and have the title work done on it. It was quite a challenge.

Greg remembered someone asking him what the big deal was about showing up at a trustee sale and bidding. The answer is there is a lot of preliminary work for 100 properties you do not buy. Bruce said when they first started, the margins scared him. He would say he was buying something at 80% of value minus repairs. However, it would work and ended up being a good deal. The formula was 83% minus repairs when they first started. Through time and experience, they tightened it up to as much as 89% for certain inventory where they were confident on the repairs and could make a profit. The margins can go down to what seems absurd levels just because of the volume and experience level they had. Sometimes they were not making more than 3%, which is not bad for a couple months of work. The man hours devoted to it were literally less than 30.

The competition also started to emerge. When he first started, the margins existed because there were only a few people. All of a sudden, it grew. Bruce asked what changed the popularity of trustee sales, whether it was the number of opportunities or the hedge fund world emerging at that point. Greg said when the hedge funds came in, there were probably 3-4 very large hedge funds that came in and really messed things up. They were typically buying around 86% minus repairs at that time. When they came in, they would pay retail. It was quite a challenge because they had literally billions of dollars and were buying almost everything. During that two-year period of time where hedge funds were coming in and buying like crazy, it became very challenging. You had to be prepared for absolutely everything to attempt to get anything.

Bruce asked what was different about their model. If they were in the resale business, they would have lost money on a lot of properties. Their motto was “buy anything at any price” because they felt like it was on sale and going to work out in the long run. They had a long run to spend it, so Bruce wondered if they were flipping or holding the properties. Greg said as far as he knew, none of them were flipping them. The only thing the hedge funds were doing was buying and holding. They were collecting inventory and getting paid for buying it.

This is a tough competitor. Not only were they going after trustee sales, they were going after everything in the MLS too. Greg saw houses they had just sold the year prior being resold at $100,000 more value. This was primarily because of the pressure they put on the system. Almost everything was being bought with cash at that time. If you were not a cash buyer or high down conventional loan, your offer was junk.

Bruce asked when online auctions kicked in and how they changed the game as far as access to information. Trustee sales never went online in California and was somewhat dominated by one particular company. Greg said took about 50% of the auctions while the rest were still being held at the courthouse. Fortunately over time, Riverside County finally got smart and decided to put all of the auctions into one location. It got progressively easier in some ways and tougher as time went along. The easier it is, the more people participate and show up with their first pile of money.

Bruce asked what percentage of the time these properties were occupied and whether Greg would prefer it to be tenant occupied or a former owner. Greg said in California the percentage is about 80% occupied. They found by far that the better person to have in their was the renter, which surprised them. Since they were renters, they did not have a sense of ownership. They did not come to them and say that they installed the tile, and if they were not paid for it they were going to take it with them.

Bruce asked what percentage were okay with just taking cash for keys and being done with it quickly. Greg said it was a high percentage, around 75%. Greg learned a lot about fighting evictions. Some people were so stubborn they would play so many games and still stay in a property. You just wonder how you dream up enough things to keep it going because they have had crazy costs for some things. It is really them abusing the law. This has been the very frustrating part.

Bruce asked Greg how he found the best way to fuse the stress. Greg said he got smart enough to hire some help, which probably took some of the pieces off his plate. Stress was a very challenging thing to deal with when working with trustee sales. When you are dealing with 40 properties at the same time, you are not dealing with one contractor. You are dealing with a lot of them. Greg said they were pretty good at doing the project management. They did their best to arrange the general contractors who handled a lot of the subs for them. When they put out a contract, they would usually try to include everything within his contract. They would specify he was overseeing all of it, but he would need to use one sub for one thing and another sub for something different.

At one point he was even buying the materials and having them delivered in the garage. This was how they first started. They would buy the materials in bulk because they would prefer to do this rather than give a general contractor money they were not sure was actually going to be put towards their projects. They were putting together the list of materials, bulk ordering it, and having it drop shipped to the garage. It did not take long for the general contractors to figure out that if they bought the materials themselves, they had an advantage on the bidding process. They were not giving them the discount for the materials.

Thanks for joining us this week. Tune in next week as Bruce continues his discussion with Greg Norris.

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.

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