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219-TNG Radio – Mike & Randy Grigg 4-2-11

Friday, April 1st, 2011

Randy and Mike Grigg

President and Chief Auctioneer of Elite Auctions 


 

(Full Bio)

 

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This week Bruce is joined by Randy and Mike Grigg. Randy is the President of Elite Auctions. Mike is Randy’s son, who gradually got involved in the auction business. Mike has won awards for “Best Auctioneer”. He is very involved in real estate and charity auctions. 

Randy got involved in purchasing real estate while he was in the agriculture business. He started slowly, buying 1 to 3 houses per year. He continued doing this consistently for 25 years. During those 25 years, he learned how to deal with tenants and structure deals. 

Because Randy had a career, he considered his rental properties to be a side job. He rarely had trouble with his tenants and they stayed for a long term, so purchasing houses was not a distraction for him. After a while, the number of properties he owned grew fairly large, so he had to figure out a program to manage those properties. 

When Randy first began buying real estate, the most popular trainers were Mark Harrilson, Albert Lawry, Robert Allen, John Schaub, and Pete Coronado. Randy was living in Bakersfield during this time, and he felt that gave him an advantage. He paid $27,000 for a house in Bakersfield and his rent was $350. Today, that same house would sell for $45,000 and rents for $800 per month. Randy’s first investment houses had negative cashflow, but as values increased over the years, they eventually accumulated positive cashflow. 

95% of Randy’s home purchases were bought from the owner. He attracted sellers through ads in the paper. He bought a lot of houses by taking over the sellers’ loans. 

Randy chose not to buy and sell because he already had a career, so he did not need the immediate money. Also, a lot of work and time goes into rehabbing properties for resale. There are also occasional, unfortunate surprises that come up from low appraisals, which can take 5% away from your selling price. 

Randy’s beginning instructors told him to buy and never sell. However, Randy did sell a few of them. 

Bakersfield has had almost no appreciation. In 26 years, there has been no appreciation, but you can get a 50% lower interest rate, and there have been wage increases. The payment for a 2011 home purchase in Lancaster is 31% less than the payment equivalent in 1985. 

Some builders are currently investing their money in trust deeds, because they do not have enough work. Also, the builders are not offering market rates on many of the homes they are selling. 

Randy’s life did not change much when the housing market went from boom to bust, because he chose to hold his properties. However, he does wish he had sold some of his properties, because he feels his age makes holding onto property less valuable. 

Mike worked on some of Randy’s houses when he was younger. He feels it was a good experience, because he was exposed to areas he did not want to live in, which motivated him to provide himself with a better life. 

Mike wants to buy and hold properties and he thinks right now is the best time to do it. Bruce believes he can still wait a couple years if he feels the need to. Bruce believes it is good for people to gradually work their way into property buying, because there can be big consequences if you do not. Sometimes people come to Bruce asking for a $1 million investment loan, and when Bruce looks at their profit estimates, he finds they are completely wrong. 

Randy does not often buy and then rehab for resale. Most of his properties involve very little rehabbing. Most of the people that Randy puts into his houses have good income and poor credit, and most of them have a strong desire for homeownership. Randy puts these sorts of people into his homes, because they rent with the hope of eventually buying the home, and Randy is willing to sell the home to them should they wish to. 

Randy has had a few tenants for over 20 years, but the average tenant length is 6 years. It is John Schaub’s philosophy that you will not make money on a rental for the first two years. Vacancy is the biggest expense in land-lording, because you then have to re-prepare the home for a new tenant. 

Randy will finance any repairs his renters wish to do on his houses, but the cost of the repairs is probably market value. 

Many of Randy’s current purchases are made for other investors. Those properties come out of the MLS. The rest of his properties come from ball room auctions in Bakersfield. Occasionally, Randy has the chance to bid against the lender in an online auction. Many online auctions have almost zero competition. 

Randy’s website is www.sellwithauction.com 

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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The Norris Group Real Estate News Roundup 3/10/11

Thursday, March 10th, 2011

Today’s News Synopsis:

RealtyTrac reports foreclosure notices decreased 14% in January. The House of Representatives voted to end FHA’s Short Refi program. According to a Zillow survey, 51% of Americans said the housing crisis has not affected their overall willingness to buy a home. The U.S. government posted the largest monthly deficit ever last month.

In The News:

USA Today – “Foreclosure activity slows sharply in February” (3-10-11)

“Some 255,101 properties received at least one foreclosure-related notice in February, down 14% from January and down 27% from the same month last year, foreclosure listing firm RealtyTrac said Thursday.”

NAHB - “Optimistic Outlook for Multifamily Development, NAHB Indices Show” (3-10-11)

“The Multifamily Production Index (MPI), which tracks developer sentiment about new construction on a scale of 1 to 100, is at 40.8 –up more than 5 full points since the previous quarter and the highest number since the fourth quarter of 2006. The MPI component tracking developers’ perception of market-rate rental properties is at 51.7 – the first time this component of the index has been above 50 since the second quarter of 2007.”

Mercury News – “Mortgage rates: Average on 30-year fixed loans ticks up to 4.88 percent” (3-10-11)

“Freddie Mac says the average rate on a 30-year fixed mortgage ticked up to 4.88 percent from 4.87 percent the previous week. It hit a 40-year low of 4.17 percent in November.”

Housing Wire – “House votes to end FHA Short Refi” (3-10-11)

“The House of Representatives voted Thursday to terminate the Federal Housing Administration’s Short Refi program. The House Financial Services Committee cleared the bill, H.R. 830, last week. The House voted 256 to 171 to kill the program.”

Housing Wire – “Zillow accommodates growing pool of renters” (3-10-11)

“Although 51% of survey respondents said the housing crisis has not affected their overall willingness to buy a home, 33% said they would be more likely to rent their next home than buy. In January, 30% of Americans surveyed said they would rent a home the next time around.”

Housing Wire – “Securitization investors plan increased activity in 2011: survey” (3-10-11)

“Principia said 70% of investors and issuers said they plan to increase involvement in the ABS markets over the next year, with 50% expecting to ramp up activity in the next six months.”

Housing Wire – “Jobless claims rose 7% last week to 397,000″ (3-10-11)

“Initial jobless claims rose 7% last week, moving away from the nearly three-year low of the prior week although remaining lower than 400,000 once again. The Labor Department said the seasonally adjusted figure of actual initial claims for the week ended March 5 increased by 26,000 to 397,000.”

Housing Wire – “Mortgage modifications down 9% in January: Hope Now” (3-10-11)

“Mortgage servicers, investors and insurers participating in the Hope Now alliance completed 101,000 permanent modifications in January, down 9% from the month before. Of those that were completed, 73,000 were proprietary modifications, nearly three times the 27,957 done through the government’s Home Affordable Modification Program.”

Housing Wire – “Two mortgage trade groups suing Fed over loan originator compensation” (3-10-11)

“The National Association of Independent Housing Professionals sued the Fed for its final rule on loan originator compensation and yield spread premium disclosure under Regulation Z. The NAIHP states the rule will put mortgage brokers ‘at a significant and a permanent competitive disadvantage and will stifle competition in the mortgage lending industry to the detriment of consumers.’”

Bloomberg - “U.S. Posts a Record $222.5 Billion Monthly Budget Shortfall” (3-10-11)

“The U.S. government, facing a record annual fiscal shortfall and a congressional impasse over financing, posted the largest monthly deficit ever in February, reflecting increased spending. The gap totaled $222.5 billion last month compared with a $220.9 billion shortfall in February 2010, according to the Treasury Department”

Bloomberg - “Home Remodeling to Rebound in U.S. as Rising Confidence Spurs Renovations” (3-10-11)

“Spending on remodeling probably will rise 9.2 percent to $125.1 billion in the first quarter from $114.6 billion a year earlier, according to Harvard University’s Joint Center for Housing Studies. A 13 percent increase forecast for April through June would be the largest jump in five years, a report by the Cambridge, Massachusetts-based center shows.”

Looking Back:

One year ago, the MBA reported that mortgage loan application volume had increased by 0.5 percent. The percent of first-time buyers increased to 47 percent in 2009. FHFA was sued over attempts to secure records of political contributions from Fannie Mae and Freddie Mac. John Burns claimed that the real estate market was still in bad shape.

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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The Norris Group Real Estate News Roundup 2/11/11

Monday, February 14th, 2011

Today’s News Synopsis:

Million dollar home sales in California increased by 21%, according to MDA DataQuick. Freddie Mac reports mortgage rates increased over 5% this week. The Treasury said half of all renters spend over 33% of their income on housing.

In The news:

DQNews - “First Gain in Golden State Million-Dollar Home Sales Since ’05″ (2-11-11)

“Last year 22,529 Golden State homes sold for $1 million or more. That was up 21.0 percent from 18,621 in 2009 and the highest since 2008, when 24,436 homes sold for $1 million-plus, according to San Diego-based DataQuick Information Systems. Million-dollar sales peaked in 2005 at 54,773, after which they declined each year through 2009.”

Los Angeles Times – “Obama administration releases plan for overhauling mortgage market, calls for phasing out Fannie Mae and Freddie Mac” (2-11-11)

“The 32-page plan calls for phasing in an increase in the down payment requirement for loans guaranteed by Fannie and Freddie to 10%, while reducing the maximum size of mortgages they can back — a move that would affect Southern California and other high-cost areas.”

CNN - “Mortgage rates break 5%” (2-11-11)

“The national average interest for a 30-year, fixed-rate mortgage surpassed 5% for the first time since May 2010, according to Freddie Mac’s Primary Mortgage Market Survey.”

Housing Wire – “Treasury report advocates slashing GSE jumbo loan ceiling” (2-11-11)

“Reducing conforming loan limits at Fannie Mae and Freddie Mac will help reduce the GSEs’ dominance in the mortgage market by driving jumbo mortgage financing back to the private sector for financing, the U.S. Treasury said in its ‘Reforming America’s Housing Finance Market’ report on Friday.”

Housing Wire – “FHA could replace Fannie, Freddie in rental housing market” (2-11-11)

“Half of all renters spend more than one-third of their income on housing, and 25% spend more than half of their income. For every 100 extremely low-income American families, 32 adequate rental homes are affordable for them, according to the Treasury white paper.”

Housing Wire – “Higher GSE guarantee fees may increase cost of homeownership” (2-11-11)

“The GSEs currently provide 95% of housing finance in the U.S.; any reductions of their involvement in supporting mortgages mean interest rates will have to go up to induce private lending”

Housing Wire – “SEC brings fraud charges against three former IndyMac executives” (2-11-11)

“The Securities and Exchange Commission charged three former IndyMac senior executives with securities fraud Friday.”\

Looking Back:

According to the NAR, home sales increased in 32 states from the 3rd quarter of 2009. Statistics from the CBIA show that the construction industry currently provides only one sixth of the jobs it provided in 2005. Some speculate that Fannie and Freddie’s purchasing of debt could get rid of all mortgage debt within a year. RealtyTrac reports that foreclosure filings increased by 15 percent from last year.

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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The Norris Group Real Estate News Roundup 1/3/11

Monday, January 3rd, 2011

Today’s News Synopsis:

Tom Wind of J.I. Kislak Mortgage expects refinancing activity to drop by nearly 66% in 2011. Moody’s Investor Service forecasts lower supply and higher demand for rental apartments in 2011. The 50 state attorneys general probing U.S. foreclosure practices will first settle with Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial. Rick Sharga believes foreclosure activity will improve in Orange County during 2011.

In The News:

Bankrate.com – “Zero-down mortgages endure in rural areas” (1-3-11)

“borrowers must demonstrate they can afford the mortgage payments by meeting the USDA debt-to-income ratios of 29 percent for the housing payment and 41 percent for the overall debt to gross monthly income.”

Housing Wire – “J.I. Kislak expects higher purchase loan activity in 2011″ (1-3-11)

“Tom Wind, managing director of J.I. Kislak Mortgage, expects the refinancing activity to fall to $350 billion in 2011 from $1 trillion last year.”

Housing Wire – “Moody’s sees multifamily REIT credit strengthening in 2011″ (1-3-11)

“Moody’s Investors Service expects lower supply and higher demand to stoke growth in rental apartments and subsequently help the credit of multifamily real estate investment trusts.”

Housing Wire – “Ginnie Mae moves up multiple issuer deadline” (1-3-11)

“The cut-off time for issuers submitting multiple loan packages into real estate mortgage investment conduits (REMICs) was three days before the end of the month. Ginnie is now moving that up to six days before the end of the month.”

Bloomberg - “BofA Resolves Fannie Mae, Freddie Mac Loan Dispute” (1-3-11)

“Bank of America Corp., the biggest U.S. lender by assets, paid $2.8 billion to Freddie Mac and Fannie Mae after the U.S.-owned firms demanded the company buy back mortgages they said were based on faulty data.”

Bloomberg - “Foreclosure Deals to Start With Big Lenders, Iowa Says” (1-3-11)

“The 50 state attorneys general probing U.S. foreclosure practices will first settle with the five largest loan servicers, including Bank of America Corp. and JPMorgan Chase & Co., Iowa Attorney General Tom Miller said. No settlements have been reached yet, Miller said in a telephone interview today. The other three are Citigroup Inc., Wells Fargo & Co. and Ally Financial Inc., said Miller, the leader of the 50-state investigation. The five have 59 percent of the market, Miller said.”

Orange County Register – “Dip in O.C. foreclosures for 2011?” (1-3-11)

“Orange County foreclosure activity has been trending downward over the course of 2010, and may continue to improve marginally over the course of 2011. There are a number of reasons for this, including an unemployment rate that is better than elsewhere in the state, and the fact that Orange County doesn’t have as much excess housing inventory as other areas in California.”

Orange County Register – “No end to high-end foreclosures eyed for ’11″ (1-3-11)

“A recent study by the State Foreclosure Prevention Working Group found that nearly 3 years into the mortgage crisis, more than 60% of homeowners with seriously delinquent loans are still not involved in any loss mitigation/loan modification activity.”

For m ore 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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204-TNG Radio – Tom Anderson 12-11-10

Friday, December 10th, 2010

Tom Anderson

Chairman and Founder of PENSCO Trust Company


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This week Bruce is joined again by Tom Anderson. Tom is the chairman and founder of PENSCO Trust Company. He is considered by many to be the national expert on the topic of self directed IRAs. He focuses on how investors can increase their wealth-building potential with real estate and private equity investments. He has written articles for nearly all the nation’s and financial magazines. He was recently invited to Washington as part of the “Future of Finance Initiative” for the Obama Administration.

You can loan money to your IRA if you attempting to protect the existence of the IRA. You cannot loan money to your IRA to buy new lots. The loan must also be interest free. If it did have an interest rate, the loan would be considered self dealing, because you would be taking profit out of your IRA. Lastly, if the loan extends more than 60 days, you must provide the custodian with a note explaining that the IRA owes you money.

Tom recently spoke to a member of the Department of Labor who created this exemption, and the member confirmed that you could loan money to your IRA to bail it out of mortgage delinquency.

There are some IRA investments which may or may not be considered illegal depending on which government official is reviewing the investment. For example, Tom once heard of a man who used his IRA to buy a classic car. Because the car is a classic, there is good reason to believe the car will appreciate. However, a government official might consider this self dealing, because they may or may not perceive the classic car to be for personal use. If the government perceives the car to be for personal use, then the car purchase would be labeled self dealing. Depending on which day the car purchase was reviewed, and depending on who reviewed the purchase, this may or may not be a legal IRA purchase. You can perform a large variety of transactions within your IRA, but you must be careful not to purchase anything that the government might perceive as self dealing. If the government believes you are self dealing with your IRA, then your IRA will lose its tax-deferred status.

Bruce’s business is set up to buy and sell real estate. Bruce asks Tom if there is a limit on how much money, or how many houses, he could use for his IRA. Tom believes that this is up for interpretation. In Bruce’s case, he owns a real estate business, so if he performs many transactions through his IRA, the government may possibly perceive Bruce to be running a business through his IRA. All businesses must pay taxes, and if the government determined that Bruce was running his business through his IRA, then he might lose the tax-deferred status of his IRA. Tom believes that if Bruce was both working in his IRA for retirement investments, and out of it for business use, then it would be hard for the government to label Bruce’s IRA as a business. However, if Bruce was retired, and he only purchased and sold properties through his IRA, then the government may perceive Bruce to be running a business through his IRA. You should consult with your CPA to determine whether or not you will be subject to taxes.

A disqualified person is a term in the Internal Revenue Code 4975 which defines certain entities as people you cannot perform transactions with. The government does not want you to touch your IRA assets, because they want your assets to be there when you retire. So you cannot buy a condo in a vacation spot with your IRA, and then use that condo on the weekends. Disqualified persons include yourself, your spouse, your children, and the spouses of your children. Most people in your family are considered disqualified persons, except for siblings, nephews and uncles. If you deal with a sibling or nephew, you should not offer them less than market rates. Giving a member of your family the benefit of low payments through an IRA asset could be considered self dealing.

Bruce heard an unusual example of someone who was taxed for self dealing. An investor owned a commercial building, and his IRA owned the let next to it. The investor would park in the lot next door, and that was considered illegal personal use. You are not allowed to gain a personal benefit from your IRA while the IRA is growing. If a mistake like this occurs, you have 14 days to correct it. However, if the custodian was the cause of the mistake, then you can argue in court that the custodian should be held responsible.

Tom’s company will not accept any member that is not a part of a regulated institution. If he did not check to determine whether or not his members were being regulated, many bad people would have the opportunity to deal through them. A non-regulated company may enter into an agreement with a bank who is a custodian. All banks, credit unions and trust companies are automatically qualified to hold IRAs. If you are not one of those institutions, then you must be authorized by the IRS. There are 257 mutual fund companies, insurance companies, and broker dealers that are licensed by the IRS.

It is good business to protect the consumer, and the government supports that mentality. PENSCO will not help someone enter into a prohibited transaction. If a lender was involved in a prohibited transaction on an IRA, then they would be subject to a 15% tax on the amount of the transaction. So a lender that made a $100,000 bill would receive a $15,000 bill. If the lender was not aware of the prohibited transaction, then they may be exempt from the tax.

When an investor is told that he cannot buy a property from himself with his IRA, he may get the idea of having a friend buy his property, and then re-buying from his friend. However, this is still considered an illegal transaction. This is considered a linked transaction by the IRS. You will not go to jail for performing a transaction like this unless you fail to pay the penalty taxes. However, the IRS tends to not inform you of your mistakes until 3 years later, so you can get caught off guard if you are not careful.

If you buy a property through your IRA while using your brother as a lender, you will not be taxed so long as your brother does not receive more than his regular fee.

A Prohibited Transaction Exemption (PTE) is a request submitted to the Department of Labor when you anticipate that your potential transaction may be prohibited. A PTE is usually granted on the basis that there is no increase or decrease in value because of the transaction. You cannot submit a PTE after the transaction takes place. The exemption comes in writing, so the Good Day rule does not apply.

There are some custodians who offer check book IRAs. Tom believes this practice will probably be extinct soon. There are only two custodians Tom knows of that will do check book IRAs, and PENSCO is one of them.

Tom’s website is www.penscotrust.com

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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203-TNG Radio – Tom Anderson 12-04-10

Friday, December 3rd, 2010

Tom Anderson

Chairman and Founder of PENSCO Trust Company


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This week Bruce is joined by Tom Anderson. Tom is the chairman and founder of PENSCO Trust Company. He is considered by many to be the national expert on the topic of self directed IRAs. He focuses on how investors can increase their wealth-building potential with real estate and private equity investments. He has written articles for nearly all nations and financial magazines. He was recently invited to Washington as part of the “Future of Finance Initiative” for the Obama Administration.

Tom has been in the banking business for 41 years and in the self-directed investment business for 22. The government is paying more attention to retirement issues, because there is concern over social security. Unfortunately, we are still in the dark ages in regards to knowledge of self directed investments. Many people are surprised by the idea that you can buy mutual funds with your retirement account. Many Americans are unhappy with being locked into their 401Ks, other pension plans, and other IRAs. Those retirement plans only offer a limited range of investments, and most of the options are related to Wall Street, which many people have lost a lot of money on recently. The only commodity that hasn’t taken much damage is gold, but Tom thinks most people didn’t get into Gold until after it had already experienced increases, so gold probably won’t be a good long term investment.

When Tom was in Washington, he was surprised by how interested the government was in hearing about his industry. The Retirement Industry Trust Association, which represents 90% of the self-directed custodians in the U.S., was invited to write a white paper on the need for more diversification in retirement accounts. Unfortunately, many of the government workers that Tom was speaking to before have been replace, so he has some influential ground to recover. He does feel though that the government in general has become more open to new ideas on improving retirement savings. As the president of the RITA, it is Tom’s goal to use any opportunity to discuss retirement issues with the government.

IRAs were created in 1974 as part of the ERISA Act. You could self direct an IRA back then. You could buy real estate in New Zealand if you desired to, but most people weren’t aware of that, because the securities and mutual fund companies began lobbying against real estate as a prudent retirement investment plan.

Real estate is a great long term investment. Real estate generally out paces the stock market on a long term basis. In California, you can buy properties that cashflow. When there is a down turn, it’s a great time to take advantage of real estate and ride the curve up.

Before 1974, there were pension plans but no IRAs. One of the reasons IRAs were created was because trustees were abusing their privileges. The trustees were spending the money they received to buy yachts and they would frequently lose the money given to them. Because of this, the government felt it was necessary to allow people to save on their own.

Self-directed is a frequently misunderstood word. IRAs are IRas regardless of where they are held, and the rules are dictated by the IRS. Depending on where the IRA is held, the custodian may limit what an investor can do with their IRA. There are two types of self-directed IRAs. The first is known as a self-directed brokerage account. With a self-directed brokerage account, you can pick from stocks and mutual funds to invest in, but you cannot invest in real estate or private equity. The other type of IRA allows you to invest in anything permitted by law. Some of Tom’s clients have bought companies in Spain and properties in New Zealand. When you buy outside the country, you have to consider the exchange differences. If the foreign monetary value increases against the U.S. dollar, then you can profit from both the investment and the monetary change.

There is a level of sophistication required to invest in certain categories. Tom encourages people to stick to what they know. If you own a gas station and know about gas as an investment, then you may want to use your IRA to invest in another gas station.

There are some laws regarding who and how you can deal with your IRA. There is that limits one’s ability to work with more than 3 unaccredited investors. In some cases, you cannot work with any unaccredited investors. To be an accredited investor you must have a minimum net worth of $1 million, and at least $200,000 in income for the last two years. The SEC may change their definition of “accredited investor”. Tom believes the requirements for an accredited investor will increase, because many people have lost money in stocks and private equity.

If someone wants to buy a trust deed or rental unit, they are free to do that, even if they only have $80,000 in their account.

Tom believes that IRAs are a great form of capital formation in the U.S. PENSCO started out with no assets and now has $3 billion worth of assets. PENSCO is also now funding thousands of companies that could not be started without IRAs, because they couldn’t get funding from traditional sources. There are about $4 trillion in IRA accounts.

Tom had a client who opened a $300 ROTH IRA. His company charges a $375 fee, so Tom knew the client must have had a plan. The client instructed PENSCO to send a $10 check to a lawyer in order to consummate a real estate option contract. This contract gave them the right for 30 days to buy property from a developer. The developer needed cash for $350,000. While the contract was being negotiated, the client found a buyer for a property for $525,000. Once he took the $525,000 from the buyer, he paid the seller $350,000, and moved the profit into his IRA account.

A ROTH IRA offers tax free growth for life and a great rate of return. One of Tom’s clients started a ROTH IRA with $1,800. This client used his ROTH IRA to develop a successful venture, and in 2002, that client cashed out with $32 million. He then took that $32 million and invested in other start ups. He has now increased his IRA holdings into 9 digit levels. Bruce thinks it is hard to believe that the IRS isn’t suspicious of this kind of tax free profit. Tom explains that this client helped create thousands of jobs. This fortunate client stimulated the economy and created tax revenue. 40% of new jobs are from start ups, and 70% are from small, private companies.

We still have 35 days to take advantage of a one time opportunity. Your IRA is now a portable pension plan, and can be converted into a ROTH IRA regardless of your income. Before 2006, this was not allowed. Before January 2010, if you made more than $100,000, you were prohibited from such conversions. You also have the opportunity this year to do the conversion to ROTH IRA and defer the taxation on the converted amount to 2011 and 2012. This means that if you convert in 2010, then in 2011 you must claim 50% of the converted amount on your income. The other 50% of the 2010 amount must be claimed in 2012. If you are expecting to be in a lower tax bracket in the future, this is a great opportunity for you. The government is very supportive of these conversions, because they get to collect the tax upfront.

If you bought assets that are currently depreciating, and if you have these assets in your IRA, then you can convert to a ROTH IRA and pay tax at a lower amount. This can allow those assets some time to recover. It is much better to convert a depreciated asset than an appreciated asset.

Capital gains rules do not apply within an IRA. When you take money out of an IRA, that money is taxed at a normal rate. However, if you have a ROTH IRA that has existed for 5 years, and if you are at age 59 and a half, then you can take out all your money tax free.

If you have a traditional IRA, at age 70 and a half, you have to take out minimum distributions. However, if you have a ROTH IRA, you can leave the money in the IRA as long as you want, and you can leave it to your children after you have died. There is also no estate tax, because the taxes have already been paid.

The use of leverage to purchase real estate is allowed with a ROTH IRA. It is possible to borrow up to 70% on any income producing property types on an IRA. You must put at least 30% down on the property though, because if the loan is recourse, then you would be self-dealing, which is prohibited. The 70% limit is according to bank policy, and they have had great success with this limit. They have very few foreclosures. Rates for loans are generally two points above prime. Many things can be negotiated as well.

There is actually a rule which allows you to bail out you IRA. If you got a 70% loan on a $100,000 house, and you put $30,000 down with your IRA. If you lose your tenant, and you do not have enough money in your IRA to make the payment, then you would typically be foreclosed on. In this kind of situation, there is a Department of Labor provision called AD-26, which allows you to lend money to your own IRA without limitation, so long as the money is being used to bail out the IRA account.

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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201-TNG Radio – Alvarez, Cantu, & Solis 11-20-10

Friday, November 19th, 2010

Tony Alvarez

Veteran Investor

(Full Bio)

Mike Cantu

Veteran Investor

(Full Bio)

Rick Solis

Veteran Investor, Appraiser

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This week Bruce is joined by Mike Cantu, Rick Solis and Tony Alvarez. Mike Cantu has been an investor in the Inland Empire for over 25 years. He has been a builder, rehabber and property manager. Rick Solis appraises all of The Norris Group’s loans, and he is also an investor. Tony Alvarez has been an appraiser, residential and commercial property buyer and author.

Rick meets with many of tenants in his current buying market. When you talk with tenants, and ask them what they do and don’t like about a property, it helps one understand what they are looking for. Rick will not buy any property without two bathrooms. A property without a garage is practically worthless. Small bedrooms can be deal killers as well.

For Rick’s typical 3 bedroom, 2 bathroom, 1,100 sq feet house, he typically rents for $1,000 per month. If he can squeeze an extra bedroom into the house, then he can raise rents by $100. Rick’s rent rates are $50 less than most landlords.

All of Rick’s houses are upgraded with granite counters and wood laminate floors. Those 2 items seem to attract a lot of quality tenants. Most of Rick’s desert properties do not have yards. Tony calls that “desert landscaping.”

Mike’s rental property criteria is very different from Rick’s. Mike is less concerned with house structure, and more concerned with lot location. Mike has many 2 bedroom, 1 bath houses, and some of them have served as his best rentals. Houses wear down, but dirt goes up in value. Mike is very concerned with buying houses near good school districts. People will overlook the size of their house if they can get a home in a good school district. Mike’s average rent for his 2 bedroom, 1 bath houses is $1,095. He does not lose many tenants.

Tony will not buy condos in his market. The condos in his market are too condensed, and the percentage of rentals to owner occupied properties is not good. Some time ago, Tony was able to buy 2 bedroom, 2 bath condos for $15,000. If prices go down to that level, then he will probably start buying condos again. Tony likes to buy 2 bedroom, 1 bath houses and 3 bedroom, 1 houses.

Tony buys a combination of properties. They range from lower class to upper class properties. He finds that mixing up his inventory allows him to receive a variety of benefits. The last time Tony began investing, 90% of his renters were Section 8. Now approximately 50% of his renters are Section 8.

Rick tries to avoid Section 8, because he loses a couple months of rent waiting for inspectors to come out. He has also found that Section 8 tenants are not quality tenants. Rick says he is not opposed to Section 8 tenants if they can quickly move into the property and pay rent.

Tony believes that Rick’s problems with Section 8 are due to the difference in his market. Rick’s Section 8 tenants were from San Bernardino County. Tony has found that LA County’s Section 8 is more efficient. Also, the extent to which you know the Section 8 workers makes a difference in how quickly they service you.

Mike has no Section 8 tenants. However, he is not opposed to renting to Section 8 tenants. In the past, when Mike had Section 8 tenants, he lost all of them. Almost all of them had a problem with breaking things and not fixing them. Mike will not keep tenants who will not pay for the items they destroy.

After Mike receives an application from a potential tenant, he will give a surprise visit to their house. He checks to see if they keep their properties in good shape. If he is not allowed to come into their current house, then he will reject the potential tenant.

Back in the 80s, Tony developed a good understanding of the rhetoric for how bankers and politicians communicate. You have to carefully analyze what they say to understand what they really mean. Tony believes that they want to release the inventory, but they have a control issue over how the inventory will be released. Unfortunately, bankers are not as motivated to release the inventory now, because they are receiving large sums of money from the government. Tony believes that much of the inventory will be released between now and 2012, because that is an election year. They will want to get the pain out of our memories before the next election. Americans do tend to have short term memories for economic pains, but Tony believes the damage done by this down turn was too deep.

There was a bill that was recently rejected. This bill would have squashed most of the foreclosure cases we are having right now. There probably were some foreclosures where the paper work wasn’t completely done, but if you went back through history and looked at the paper work for every foreclosure, you would probably find just as many foreclosure problems. The bottom line is that if you aren’t making your payments, then you should be foreclosed on.

Mike has noticed a difference in the kind of inventory being released during the second half of this year. They are letting go of strange, derelict inventory. Typically, when Mike looks at newly released inventory, 8 out of 10 will be worth bidding on. Recently, when Mike analyzed the new inventory for his market, only 5 of the 18 were worth bidding on.

Rick doesn’t pay much attention to what people are saying about what is coming to the market. There are too many different opinions for him to take many of them seriously. He would rather just focus on what trends are currently visible in the market.

Tony recently talked to an REO agent who was very worried by some recent news released by Fannie Mae. The news said that Fannie Mae was hiring new agents, but they had to hire a racially diverse group of agents. Also, the news said that the experienced agents would be required to train the new REO agents, or lose their job.

There is a difference between a real REO agent and an imposter. The imposters are bulk buying companies. Some of the imposter companies are named Atlantic and Pacific. If you do research on their listings, they are all owned by one holding company. These guys are buying bulk and then trying to sell at high prices. Also, many of them are buying non-performing notes, not houses. That is not a true REO agent, and the information you will get from them is not accurate.

If you are buying $150 million of notes, that inventory will not hit the market in the typical way. It won’t be an REO that will go to 20 different agents, it will just go to the one company.

As long as Mike is in real estate, he will be a student of it. He goes to 8 to 12 seminars every year. If you work hard on your job, you will get paid money, but if you work hard on yourself, you will earn a fortune. A lot of bubble riders who are still in trouble, and he wonders how much of their failure is due to their lack of education. Mike believes that his success is due to his education. He likes to have a variety of education. He doesn’t want to be limited in any aspect of his education. Mike’s favorite trainer was Jack Miller, who recently died. Bruce is in Mike’s top 4 favorite trainers alongside John Schaub and Peter Fortunato.

Tony does not feel he has taken much education. He has taken some of Mike’s seminars. He got involved in real estate because he listened to a late night infomercial. Tony’s career was all about learning through his mistakes until he met Bruce. Before Tony met Bruce, Tony was only buying REO properties. Bruce taught Tony to look into owner sellers, and how to time markets. Bruce told Tony to hold on to his properties when Tony was about to sell. When Bruce told Tony to sell, Bruce said, “Would you rather sell to a euphoric market or an uninterested market?” Tony earned $3 million from the advice Bruce gave him, so Bruce is the person he listens to the most.

Rick has been reading books and going to seminars since he was a teenager. One of the teachers he listened to when he was younger was Dave Deldado. In the last few years, Rick has stopped going to all other seminars other than Bruce’s. Bruce is in Rick’s market and he respects Bruce’s market timing. Before hearing Bruce’s seminars, Rick was only buying 1 or 2 properties per year, but now he tries to buy 1 or 2 every month.

Thank you Mike Cantu, Rick Solis and Tony Alvarez for being a part of our 200th show.

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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200-TNG Radio – Alvarez, Cantu, & Solis 11-13-10

Friday, November 12th, 2010

Tony Alvarez

Veteran Investor

(Full Bio)

Mike Cantu

Veteran Investor

(Full Bio)

Rick  Solis

Veteran Investor, Appraiser

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This week Bruce is joined by Mike Cantu, Rick Solis and Tony Alvarez. Mike Cantu has been an investor in the Inland Empire for over 25 years. He has been a builder, rehabber and property manager. Rick Solis appraises all of The Norris Group’s loans, and he is also an investor. Tony Alvarez has been an appraiser, residential and commercial property buyer and author. This is The Norris Group’s 200th radio show.

Bruce begins by asking Mike about what he learned from the 90s that helped in the most recent down turn. All things come full circle. A good market will eventually become a bad market. The down turn took longer this time, but it hit much harder. Sales dropped off the cliff, but fortunately, Mike began preparing for the down turn in 2004. Tony agrees with Mike.

During the evening of Obama’s election, a newsletter was put out, which was titled “Obama Administration Sings New Tune on Foreclosures”. The article is laughable. The media went from saying “no foreclosures” to “foreclosures are the answer to this problem”.

Rick began investing in 1989. He was not very active in the 90s. The main thing he learned from the 90s was that you can miss many opportunities when you ignore the market. A lot of people are afraid of the market right now, but Rick won’t let that fear control his investing plans.

Bruce believes that fear certainly is affecting the market now. People are afraid to buy properties despite the fact that prices have dropped 50% and interest rates are historically low. Its hard to believe that not buying could be perceived as a rational decision. Rick Solis has never seen a better time to buy houses since he began investing. Bruce definitely believes that it is the best time to buy and hold.

Tony just bought a completely rehabbed duplex. In 2007, it sold for $175,000, but he bought it for $35,000. The saddest part is that the duplex sold with multiple offers. The reason why so many people are afraid of buying is because they are paying too much attention to the media’s opinion.

Mike knows many investors, but only a small number of them are still investing. The number one problem that caused them to fall out of investing is their overly expensive life style. A lot of people learned how to make money in real estate, but not many people learned how to keep it. The investor pool has shrunken significantly. Many people would like to invest in real estate right now, but they made bad decisions at the top of the market, which handicapped them from buying. Mike agreed with Rick and Tony when they said that now is the time to buy.

Mike is a fairly frugal person. Bruce laughed when he saw Mike’s 1998 Toyota truck. It has 441,000 miles, but it runs like a champ. When a dog gets old, you don’t get rid of it, you just take better care of it. Mike has a hard time spending money on a vehicle when you can get a rental house for the cost of a new car. Every time Mike sets money aside for a new truck he ends up spending it to buy a new house, and he realizes that his truck is just fine.

Mike’s daughter recently began investing in real estate. Mike helped her develop a 5 year plan for buying cash flow houses in good neighborhoods. Their goal is to help her get $3,500 of cash flow per month, and they are half way there.

If Tony could have done anything differently throughout his career, he would have focused harder on one segment of the market place. He wishes he had been more aware of the value of his time. Tony spent a lot of time driving to deals that didn’t have much potential.

Tony prefers to buy and sell, but he currently owns 40 rentals. Before the peak, he had 100 homes. He wanted to get out before the peak, but Bruce encouraged him to not sell for another 3 years. Bruce’s advice helped Tony gain an extra $3 million in profit. Tony is now buying some of the same houses that he sold near the peak. In the past, Tony would buy almost any property he could. Some of the properties he bought and sold were in such a terrible condition that they have now been destroyed. He doesn’t buy properties that are that terrible any more, but he is still willing to buy wood structure homes and other properties that people tend to stray away from.

If Rick could have done anything differently in his career, he would have sold all his properties by 2006. Rick has accumulated quite a few properties, and he is glad to have them, but he is not looking forward to managing them.

Mike chose not to sell his properties despite the fact that values were sinking, and he does not regret that decision at all. Mike got into real estate for the cash flow, so that all his expenses would be taken care of. He knows people who are struggling right now and have to make a deal every month to keep food on the table. The value of his rental properties is immaterial to him. He has not had to reduce rents by any more than $50, and he has had no difficulty in keeping them occupied.

Mike was the person who introduced Tony to the concept of exchanged junky homes for quality rental homes. Exchanging for quality rental properties allows you to keep rentals in competitive areas, and it helps reduce the amount of time spent on property management.

Bruce has learned a lot from observing the business models of other people. When Mike told Bruce that he wanted to obtain 10 rental properties, Bruce decided to try and do the same. Having free and clear properties gives you sanity when making investment decisions. If you are playing catch up on equity, or if you are relying on today’s deals to pay tomorrow’s meals, you tend to make riskier decisions. Bruce and Mike don’t have to make potentially risky decisions because they both have enough cash flow to get by.

One of the big differences that Tony has noticed between 2010 and 2009 is that many investors have left his market. Also, approximately 80% of his purchases went from being new listings from agent calls to pending deals. Fifty percent of the deals occurring in Tony’s area fall out of escrow 1 to 3 times. This has caused Tony to become more cautious when buying. He has dropped his rents by 20% in the last 12 months. He has also lost some of his tenants.

Rick noticed that when the stimulus program was going on, entry level properties experienced up to a 10% increase in value. Moreno Valley and Corona had a big increase in activity. That 10% increase has now disappeared. Rick will not buy a house right now unless the deal can work as a rental. Many investors have recently bought homes they thought would easily resell, and they are now stuck with them. Bruce will not buy a home on leased land.

From the beginning of 2009 to the end, we went from a period of market uncertainty to confidence. In 2008, Mike decided not to do a retail deals unless he could keep those houses as rentals. Mike does not use any July comps any more; comps must be within the months of August, September and October. There is a 5 to 20% difference between homes being sold now and homes sold in July.

Mike believes there are still a lot of people who will not accept the fact that their home values have significantly decreased. A lot of the private market is still in denial.

Rick invests primarily in Rialto, Hesperia and Victorville. Rick and his business partner work with rehab properties. He rents his properties slightly below market value and they are in good shape, so he has a lot of demand. Many times he has a security deposit and a tenant lined up before he closes escrow. He does not have any trouble with rents dropping. His typical house is a 3 bedroom, 2 bath. He loves it when he can squeeze a 4th bedroom into the house by cutting the living room in half. He usually rents the 3 bedroom houses for $1,000, and the 4 bedroom houses for $1,100.

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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197-TNG Radio – I Survived Real Estate 2010 10-23-10

Friday, October 22nd, 2010

I Survived Real Estate 2010

I Survived Real Estate 2010


 

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September 17th, 2010, The Norris Group returns with its award winning event I Survived Real Estate 2010. The video also now available on The Norris Group website.

The Norris Group has assembled an incredible line up of industry experts to discuss the state of REO from the inside. Topics will include regulatory intervention and aftermath, bulk buying, myths and facts, and opportunities emerging for real estate professionals. 100 percent of the proceeds support the Orange County affiliate of Susan G. Komen for the Cure. This event would not be possible without generous help from the following platinum partners: Foreclosure Radar and Sean O’Toole, the San Diego Creative Real Estate Investors Association and Bill Tan, Investors Workshops and Shawn Watkins and Angel Bronsgeest, Invest Club for Women and Iris Veneracion and Bobby Alexander, Claudia Buys Houses, The Business Press, Frye Wiles, MVT Productions, and White House Catering.

This week The Norris Group Real Estate Radio Show is broadcasting I Survived Real Estate 2010.

Investors buy about 1/3 of Freddie Mac’s properties. Freddie Mac does not offer financing for most of those investor purchases, but Fannie Mae does. Fannie Mae has a program called Home Path. Many investors can qualify for Home Path financing on rehab properties. The financing on the rehab program includes the cost of repair. It is somewhat similar to the 203K loan. The problem Bruce has experienced with these programs is they don’t offer enough financing to significantly help investors. Bruce is usually only offered about $4,000 for rehab financing.

It is hard to pull a pool of properties together in a way that is just as attractive for an investor as finding one good property.

Inventory levels are increasing. Freddie Mac started this year with 45,000 properties in inventory, but today we have about 70,000. 55% of those properties are in the redemption, eviction and prelist phase. That phase is taking longer now. Approximately 55% of Freddie’s properties are becoming occupied. Freddie has about 15,000 homes on the market, and the rest are in the closing process.

As inventory levels increase, and as the 90-day strategies fail, then Freddie might move to a ballroom or online auction. However, if a property has had sale fallouts or could use significant improvement, then it may be relisted. Freddie’s goal is to figure out what selling strategy will have the best recovery rate. On day 75 of the listing, Freddie gives the broker a two week notice, and then moves onto the auction process.

Fannie Mae has a web-based portal for investors who desire to qualify for bulk purchases. You must provide information about yourself, provide your tax I.D. number, and allow Fannie Mae to do a background check on you. Once you qualify, you are given access to the web-based portal. This portal contains listings of properties, and it allows investors to submit a bid. This portal is for the larger pools. The properties in the pool are located across the country.

Bruce believes that tax payers could be saved a lot of money if properties were sold to investors rather than being given to NSP programs. Sarah Letts suggests that those investors go to the auctions.

In the last 12 month, Fannie Mae sold 30,000 properties to owner occupants during the first look period, and 5,000 properties to people using NSP funds.

Tommy Williams was the person who suggested that Bruce should read The World Is Flat. One of the most significant quotes in the book says, “No institution will go through fundamental changes, unless it believes it is in deep trouble and must do something different to survive.” Tommy believes that no other country in the world provides us with the same amount of opportunity as the free enterprise system of the U.S. That opportunity is built upon the initiative of the individual. We need to focus on turning that individual initiative loose. When you restrict individuals from making free market decisions, there are greater repercussions.

Tommy believes in the auction process. The stock market is like an auction, and everybody agrees with that auction every day. What if tomorrow morning, the DOW Jones said, “If Microsoft doesn’t bring us 25 dollars, we won’t sell”? It wouldn’t work. This is the problem we are dealing with in our current housing problem. Three years ago, the market told us that we had to rethink what houses were worth. Unfortunately, we have found out how accurate the market was worth. Tommy Williams believes that Sean O’Toole’s estimates are accurate, but he wises it wasn’t true. Tommy believes we have a long road ahead of us before we reach real market value. The quicker we get to that value, the better.

“Unfortunately, it has been too long since America had a leader ready to call on our nation to do something hard. To give something up, not to get something more, and to sacrifice for a great national cause for the future, rather than live for today.” – The World Is Flat

Tommy believes that if a politician actually had the courage to stand up and tell America the truth, the citizens would elect that person instantly. Unfortunately, we have been given so much bs that we aren’t accustomed to politicians being honest.

A crisis is a terrible thing to waste. We’ve had two in the last decade – 9/11 and the current financial crisis. Bruce has been to baseball games where everyone stood up after the 9/11 crisis. When we have a crisis, we can make changes, but we have to have someone that we can support in the government.

Thornberg is worried about where our fiscal debt is going. We are borrowing $1.3 trillion this year. We do not currently have that much debt, because most of it is in social security. Our net debt represents about 50% of the economy right now. That seems high, but Christopher doesn’t believe that is actually extremely high. However, if you are borrowing $1.3 trillion per year, that debt percentage will quickly turn into a number over 95%. Unlike Japan, we are a nation relying on external capital. If we keep borrowing, there will come a time where the world bond market will say “enough is enough”.

Thornberg does not believe that household, and local debt is that bad. We do not have that big of a debt problem. Our pensions are in trouble, but other than that, Christopher thinks we are fine. Consumer debt spiked in proportion to asset values. It also fell significantly when the asset bubble popped, and Americans realized they had too much debt. Most of American debt is in mortgage debt from Fannie and Freddie. Non-mortgage debt didn’t really rise at all. Overall, that debt is not too significant.

Stock investments have nothing to do with GDP. When we spend stock profits, that money does not get counted into GDP. When you pay taxes on your stock portfolio, those taxes are recorded in GDP statistics, but then they have to subtract your capital gains income from the total.

Thornberg is worried about where our fiscal debt is going, but he is not sure at what point he would say “enough is enough”. We’ve never had an unmanageable amount of debt, but we’ve also never had a government that is so unwilling to acknowledge the reality of our problem. The government claims it wants to fix the deficit, but it won’t raise taxes. Thornberg is a proponent of paying taxes, and he thinks all the Bush tax cuts should be taken out. He doesn’t enjoy paying taxes, but if the citizens of the U.S. actually have to pay, then we will finally stop the government from spending it. We have developed the delusion that the Federal debt is not our debt. If the government is borrowing $1.3 trillion dollars, a lot of that money will come from the citizens. It would take $4,500 from every citizen to pay that debt.

Thornberg does not believe that deleveraging is deflationary, because leveraging is not inflationary. In the middle of the leveraging binge, Alan Greenspan was worried about deflation. When you pay debt off instead of spend, you can decrease demand somewhat. Reducing demand can reduce the velocity of money, which can cause deflationary pressure. That is why Greenspan went through quantitative easing, and he did a pretty good job.

If you have a willing buyer and seller that come to a fair price together, then you have market value. That definition of market value will never be able to stop a real estate bubble. The Norris Group built homes in Rosamond. In Rosamond, the market should have been $150,000, but Bruce was selling those homes for $280,000. In the commercial world, the appraisal has multiple pieces. You have to calculate for comps, cost of building and income generated. Bruce asks Joseph Magdziarz if he thinks we should change the structure of how we come to the proper value. Joseph believes the definition does need to be looked at. During the boom, California prices escalated quickly, but rental prices didn’t change much. So prices changed a lot, but the underlying value didn’t. Unfortunately, the government created too much artificial demand in the market, and that helped cause the market. We created programs for people who couldn’t afford a home.

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.

Thank you for being a Gold Sponsor for I Survived Real Estate 2010: Adrenaline Athletics, Benton Investment Group, Community RE-Invest Group, Delmae Properties, Elite Auctions, Entrust California, Everlast Photography, Inland Empire Investors Forum, Keystone CPA, Landwood Title, Las Brisas Escrow, Leivas Financial Services, Mike Cantu, North San Diego Real Estate Investors Association, Northern California Real Estate Investors Association, Personal Real Estate Investor Magazine, Realty 411 Magazine, San Jose Real Estate Investor Association, Rick and LeeAnne Rossiter, San Jose Real Estate Investor Association, Starz Photography, Summit Solutions, Tony Alvarez, Wealth Point, and Westin South Coast Plaza.

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191-TNG Radio – Mike Novak-Smith 9-11-10

Monday, September 13th, 2010

Mike-Novak-Smith

Mike Novak-Smith

REO Agent


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September 17th, 2010, The Norris Group returns with its award winning event I Survived Real Estate 2010. The Norris Group has assembled an incredible line up of industry experts to discuss the state of REO from the inside. Topics will include regulatory intervention and aftermath, bulk buying, myths and facts, and opportunities emerging for real estate professionals. 100 percent of the proceeds support the Orange County affiliate of Susan G. Komen for the Cure. This event would not be possible without generous help from the following platinum partners: Foreclosure Radar and Sean O’Toole, the San Diego Creative Real Estate Investors Association and Bill Tan, Investors Workshops and Shawn Watkins and Angel Bronsgeest, Invest Club for Women and Iris Veneracion and Bobby Alexander, Claudia Buys Houses, The Business Press, Frye Wiles, MVT Productions, and White House Catering.

This week Bruce is joined by Mike Novak-Smith. Mike has been a household name in the REO business since the 90s. He has gained national recognition for his work in the REO industry.

The first REO Mike ever closed was in January of 1991. RT Resolution Trust Corporation was the first REO client he ever had. That company took care of the failed savings and loans assets from the 80s. He thought using that company was a good idea because he sensed a changed in the market at that time. Resolution Trust called and offered him listings that no one else was interested in, and Mike believed he could handle them.

Mike reads a lot and he pays attention to the market. He viewed REOs as a way to survive every month. He knew that if he got 2.5 percent of the deals on the market, then he could make the house and car payment. Once he started doing it, he liked it, because it was more like a business than chasing deals. The audition for the business was hard, but once you have experience, its much less stressful.

There are a few surprises for agents wanting to get into the REO business. First, you have to do a lot of work. Second, you have to put out a lot of money to get properties sold. Third, you get treated rather harshly, because the people you work with are busy and they don’t have time to sugar coat their messages to you. A lot of people can’t wait to be an REO agent, until they become one. You have to be a superior skill level to do REO work in comparison to retail work. It is a very competitive business. If you make a mistake, there are 100 people who want your place.

In the 90s, the peak years for Mike were from 96 to 98. Mike had been in the business for a few years prior to 91 doing retail jobs. All the way through January, 2004, he had a lot of REO deals. From 04 to 05, he did not have any REO deals.

In 2003, Mike closed 110 REO deals. When the REO deals started drying up, Mike was one of the last people his clients were using. When the REO deals came back in 2005, he had 3 REOs within the first month.

Most of the people that Mike knew from the 90s have moved onto bigger things. If they did well during that time period, then they probably moved up to corporate positions.

In the 90s, much of Mike’s inventory consisted of new 4 bedroom, 3 bath houses. Mike gets a lot of new homes as well. He even gets homes that haven’t finished construction.

Currently, Mike’s business is somewhat unpredictable. He might have a several week period where he gets a large number of REO deals, but then the following week he will get zero. This could be a function of the trustee sales changing their bid prices.

The people REO brokers work with do not entirely know the policies of their employees. You hear a lot of rumors, but the only people who really know, are the ones working at the top of the business. Mike occasionally receives calls from corporate leaders in which they ask for his opinion on certain policy changes. Mike does not believe that anyone has complete control over policy changes, because the government makes frequent policy changes as well.

At the peak of this cycle, Mike had over 900 files, and maybe 600 active files in the MLS. Currently, properties spend months in preparation before being listed. Once they are listed, they usually sell fairly quickly.

Properties now require a bit of time before they become vacant. Occupants understand now that they can get money to move out. The magic number for convincing an occupant to move out tends to be between $2,000 to $4,000. Some of these occupants have severe financial problems, but for many of them, its just a game.

The length of time it takes for a property to become an REO after delinquency is 15-18 months. When the property actually goes into foreclosure, the renting tenants are often surprised. Mike advises renters to get their rental property from a broker who manages rentals. Don’t try to just rent a house off of CraigsList. Quite frequently, people will begin renting a house and end up in foreclosure two months later. Bruce was once personally asked by his own potential tenants if he had a loan on the rental house and if it was current. These renters had obviously had this experience in the past.

Most asset managers now communicate through proprietary websites. Offers come in electronically through email. There is not a lot of verbal communication, and fax machines aren’t being used either.

Asset managers have the power to take offers when the asking price is normal, but when an offer is unusual, then the offer must be taken to the next level.

When Mike gets a listing, he often gets the property directly from the lender, but there are also many properties that are outsourced to other companies. Some lenders have received too many REOs for their own labor force, so they have to outsource their work. Outsourcers typically use the same system as the lender.

Mike gets paid back 99 percent of the time if he follows the lenders standards. You cannot do all the work yourself. You must have staff to take on the work load of an REO agent. As an REO broker, you wear many hats, and accountant is one of them.

In 2007, lenders were openly admitting that they would list their properties with the highest broker opinion. Bruce believed that was the perfect system to fail. Lenders have now become more willing to listen to reasonable BPOs, and they often ask for multiple price opinions. Many BPOs today are being performed by inexperienced brokers who will do the work for cheap. Mike thinks this is unwise. When BPOs are done by experienced brokers, the price opinions usually come out fairly similar.

Short sales are becoming more popular right now. Mike closed a couple short sales last year, and he is doing more right now.  He does not prefer short sale deals, because those deals can often take more time than they are worth. Bruce is confounded by the length of time required to do a short sale. Short sales should not take six months to finish. The last short sale Mike finished took six weeks to close. Many short sales involve PMI companies, loan investors, servicers, and possibly an HOA law suit. You have to get all the people involved in the deal to take a loss, and that negotiation takes some time.

There is no compensation for an REO broker until he finishes the short sale. Someone getting into the short sale business could be six months away from a check for every deal they work with. If the broker cannot get someone to help with the paper work, then that short sale is not worth the time.

Mike sees REO levels increasing in 2011. These REOs will come from failed loan modifications and state programs. Short sales will probably increase as well. In the 90s, short sales were very popular, but loan servicers and investors eventually realized that it was easier just to foreclose, because then they could control the process.

Right now, if an inexperience broker attempts to perform a short sale, they often take up to six months to get the deal done. When this happens, the loan servicer will choose to have an REO.

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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