Rick Solis

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260-TNGRadio – Craig Hill 1-14-12

Friday, January 13th, 2012

Craig Hill

Hard Money Lender for The Norris Group

(Full Bio)

This week Bruce is joined once again by Craig Hill of The Norris Group. Craig has worked with The Norris Group since the company opened in 1995. Craig has worked with the real estate investors, helping them access money for their deals and trust deed investors who want to get a very safe yield on their money. Prior to working with The Norris Group, Craig was in the hard money loan business for years prior to that; and the expertise he brought with him has proved him valuable to the success of the company.

Today’s radio show focuses on the borrower side of loans. Craig deals with calls all the time and goes through the terms of the loan, and there will be some callers who are connected to the advertisements of 4% and are completely shocked when Craig tells them it will be 12.5%. They do not understand this side of the world at all. However, Craig said these calls usually come from people who have never done it before, so usually whenever Craig gets into a situation like this he tries to ask them how they funded the last deal they did. You really have to establish that this is a different world, and if somebody has been a property buyer for a long period of time, they have a better understanding. Sometimes if you get that person who feels they can do it, it might be best for them to pursue a loan at their bank under a non-owner occupied program. Craig tells them they might be able to get it if they have perfect credit and other things. There are a lot of different ways to handle it, but Craig said The Norris Group usually deals with investors who do this for a living and have an understanding of what the costs are going to be.

The real education is to go ahead and try whatever you think is easier or less expensive because the lending world is really not working very well right now. Bruce worked with a major bank where the manager told him the frustration they have right now where they cannot fund owner-occupied loans inside of 75 days. In the investor world, if you do not have speed, you don’t find deals. They have to be able to close their loans quickly, and they have to rely on the fact that the deal will close. People are always asking how they can save money, so they either try to list the house themselves or find their own money source. People even hold seminars about how people can find their own money, but it is really not that easy. It is not that easy to get trusted with money. You always have to ask yourself whether it is really cheaper or not because there is always something attached to it, including a no answer when you thought you already had a yes. The Norris Group gets a lot of these kinds of calls where someone calls at the last minute and only has three or four days or less and they need to close it. Someone had told them something didn’t perform. It is so competitive out there now, so you have one loan that does not perform then you can forget about doing business with your agent again or anybody that agent knows. You have to see that this was really the cost of not getting a loan as it exceeded far the cost of getting one. It is not easy to watch over the years people going through a process of trust. As a person, to start from scratch is just not a reliable source.

Bruce came through the hard money business first as a borrower of considerable amount of money on a regular basis. He really did not consider the cost as onerous at all; he just needed access to it. With reliability comes the ability to grow. It’s the same way with The Norris Group business as a whole and just like how it is with an investor. If an investor has either his own money, such as a limited amount like $200, they really are working under constraints. Once they have access to somebody who might have, for example $1 million, they can start and tailor their business knowing they have access to $1 million. There is a cost to this, but you also have to look at the benefits of this. The benefits are you can up your marketing and do many more types of projects. It’s like being a construction lender without having a lender. A construction worker has to have some leverage, or he is only going to build ten homes. This has been the same way with The Norris Group; the borrower side has always grown along with the money side because the money side is there and the borrowers need the funds. This is what a hard money lender is.

When Bruce and Craig met, their meeting came about because Bruce was seeing more opportunities than he could personally handle. He had a fair amount of cash and a credit line, and all these were active on free and clear things. He had a chance to go to HUD auctions that were tossing out $.50 deals a half a dozen times per auction. He also had the chance to buy a track of homes at the same number. He looked around and saw how he could not take advantage of it, and this was the start of their meeting. When Bruce and Craig met, this was not the typical loan for a hard money loan business. It almost did not exist, and this was in about 1992 or 1993 when for hard money lenders the rule of thumb was a house was worth what you paid for it. If one next door sold for $100 that was fixed up, then you bought one that was exactly a model-match right next door for $50 or less, then you could borrow $30 or $40 on that one. At the same time, The Norris Group could lend somebody who had never made a payment $60 grand on the other one. When Bruce first came to Craig, he had to fight very hard to get the first few deals through because it was not done that way. Now, in a lot of ways hard money is synonymous with that exact function for investors. Back then, however, it did not even exist.

Bruce said he remembered for one of the properties he bought at a HUD auction that was appraised, they had not discussed what he had paid for it. He asked for it to go ahead and be appraised and would be able to borrow X-amount of percentage on the value. When Craig told Bruce the value, he asked Craig if it bothered him that he would be giving him money back more than he paid. The first thing Bruce thought of was they had a really unique opportunity there and Craig was probably dealing with his type of the world for the first time, and Bruce had access to a lot of dough for the first time. Bruce told Craig he could rest assured and made six payments on the first loans, and all of a sudden it dawned on the owner of the company that they had never had anybody do that prior, so they either understood that Bruce understood it or he was capable more than their other clients had been. This was an important transition for the hard money loan industry because it followed with Craig hoping there were more people like Bruce. Craig spent three or more years until he had all the other loan officers ask him when he thought it was going to be done. Some of them never transitioned into doing that and Craig strictly transitioned into doing only that because he got used to the facts from Bruce and others thinking the process was very efficient. They knew how to make the most happen with the least effort.

Bruce has always been surprised because he remembered thinking when 1995-97 passed and it was the end of the REO world, they were really thinking from where all the deals were going to come from, and they did. The private party purchasing and construction started, and all of a sudden The Norris Group was even busier. Craig said this has been the one important thing that there has always been a niche for good borrowers and private money. If good people are out there doing something and making a profit at it, whether it be buying off private parties or lots when the time is right, there is always an opportunity and a surprise that no matter what the real estate market is like, there is always a space for hard money loans. Bruce is so convinced about this now that he has had the chance to go back and rub shoulders with the people who make decisions in the normal world and see how they view investors. He came back with a self-assurance knowing there will always exist a need for a private loan business because we just make decisions that are common sense, yet the infrastructure prevents this. For example, The Norris Group is not afraid of a home that does not have a kitchen because they have dealt with 1,000 of them and have not been damaged by any of them because they know a kitchen can reemerge for a certain amount of money. In the loan process, they retain the money that would cause a kitchen to show up if the borrower stopped paying. You start putting the pieces of the safety together and think you can make the loan, but it does take private money to fund it quickly and accurately. Bruce does not think we are ever going to have a lot of competition from the other side.

Craig is amazed how much conventional lending will not do. There are so many hoops to go through, and the borrowers The Norris Group is loaning to have wealth and credit. They have everything where you think you can walk in and get any amount of loans you want, and they can’t even get loan #1. Craig received a call from a borrower not too long ago who owned about 4 houses free and clear for about $120-$140,000 each. This is his money he put into them, but the bank will not work with this because they consider it cash out. Craig wondered if he would be a stronger borrower if he leveraged at 100%. Here is somebody with perfect credit with four free and clear houses and the bank will not work with him because they see this as cash out. It does not make sense to him. Somehow this puts him in less of a safe position that he owes, for example, $200 grand at 50% and has $200 grand of liquidity to make sure it gets paid. This is a decision-maker you’re competing with and you think you will be okay. With The Norris Group on the other hand, their response is how quickly they can get their appraiser out there.

Some people are disappointed that there are more hoops than they thought. They attend a seminar and get told that hard money only looks at one thing, and then they go elsewhere like The Norris Group and see that this is not the case. They were not really told what was really going on. Because of the nature of loans and more recent history, Craig said one thing that is very difficult for people to understand is if you are brand new, it is very hard to delicate the whole process and think you are going to have a good result. You don’t even know how to protect yourself. This is the most frustrating thing Craig sees from some of the national seminars because it is almost like they are a part of a group and are dealing with a mentor, while The Norris Group takes a look at the deals and sees they are not deals. The number one thing The Norris Group wants is to make sure people have a deal, or they are going to talk them out of it. Bruce said this is an important thing for people to know that there are companies that are built that way and companies that are not. It has to go through some filters. If The Norris Group is going to make a loan on it, then there is probably a very high success rate for the investor.

There are several filters. For one, you might look at the sheer numbers and say it is not a deal, and then you have an appraiser who goes out with a lot of experience in investing and says that the numbers make sense but it is really a dangerous property for specific reasons. The filter The Norris Group has for people who borrow money from them is second to none. Bruce trusted himself and said he would actually have cause himself if he had found a deal. If someone like Rick Solis had gone out there and told him he really needed to take a second look, then he would. You really cannot put a value on this type of filter, and sometimes The Norris Group will get calls from people who are thinking of buying all cash, and Craig tells them to call him when they have their numbers. If they have something in escrow that they are thinking of doing, then they need to take a quick look at it because it is very easy to see where somebody can make a mistake.

For people who don’t have experience, they really don’t realize how expensive the journey will be, so there are surprises and repairs. All these things start taking away, whether it is a percentage here or there, and all of a sudden a deal at, for example, $.82 on the dollar that seems like it is going to make you a lot of money actually costs you a lot of money. If you get over 75% of what the house is worth in repairs and the purchase price, you are really starting to deal with a very thin margin. Craig will back out everything and start at 100%. He will ask them if they are going to sell it themselves or if they are going to have a commission, because now more people are paying incentives such as 2 or 3% of the closing cost. If you have something and then you have the cost of the loan, pretty soon they can see that what something is costing and being sold for is not leaving anything in the middle. You are going on a 6 month journey, and this is where the experience comes in. You are going to hire a construction crew you have never dealt with, and the odds of this not working out are higher than dealing with one you have dealt with twenty times. Everything that potentially goes wrong in the business is especially likely to occur to the first-time person. For that individual, having a deal is critical. The first step is the person needs to have a deal.

The second most frustrating thing for people is they really are told that they don’t need to have any money or need only a very little money. We are looking at things in terms of the borrower needs to have survivability and a successful outcome. Years ago Craig had a client who had a house and made payments like clockwork, then all of a sudden he stopped making payments. He called in and said he had a specific amount allocated for that, and Craig said it was quite a surprise. This was years ago; so more and more The Norris Group has had the philosophy that the really liquid cash is very important because it gives them survivability to only to protect The Norris Group and their investor, but it really protects their down payment and what they put into the property. It gives them the ability to get out of a situation instead of lose a situation. It is also really a benefit for them to make a monthly payment.

Craig has always been asked if the payments can be included in the loan, and he learned years ago from making an unwise transaction with his baseball cards that once the money was long gone he made payments on it every month. Every time he wrote the check it was a lesson to not do it again. In the same way, if you are making a payment on a property you realize that it is costing you money. Just because you might have payments for six months, you cannot just sit around and wait. You have to take action since the problem is not going to solve itself. The payments are either not a high priority or the borrower has a tendency to not think about making payments. The Norris Group used to do seconds for people so they would not have as much in, although this is something they do not do anymore. They realized that not everyone is disciplined. The Norris Group not only looks at the deals, but they also try to help people be disciplined so they have successful outcomes. You cannot try to do three if your limit really should be one. Stick with the one because you are really going to have a successful result on that one. One of Bruce’s favorite statements Craig has made is, “Lost another loan; made another client for life.” In this case, the client was told the truth they actually needed to hear to see that they now have confidence that they have a backup system they can trust and will not get hurt by their loan officer.

There is almost as many people out there who would thank The Norris Group for not doing deals, talking them out of a deal, or explaining how it works. It is very satisfying because what Craig tells people when he is talking to them is he can tell by their voice when they are a little disappointed, but he tells them he can deal with that. Being a little disappointed right now with Craig telling you no or what is the real deal is much better than the client having a deal three weeks from now where they are going to lose the deposit or having a deal nine months from now where you lost $20 grand. This is going to be a lot more disappointing. The philosophy at The Norris Group is to deal with it as it comes, and people are usually very appreciative of the fact that TNG tries to give them good advice.

Bruce mentioned the home shows and how one of the things he noticed was how frustrating they were because some of the reality was missing. On the show, you are shown a property in the beginning that needs a lot of repair. It’s a perfect opportunity for two investors, but then you come back four months later and they look like they want to get a divorce. Then, the realtor comes back in and tells them what they left out. Going from A to B is an expensive process, and it just shows there are deals that do not fit the level of experience of certain buyers. Craig always tells them when they get their first deal; he tells them they did not find the deal, it found them. There were several people who passed on that deal who were experienced investors, and the newer people need to stick with what they know and what is the simplest process. You have to leave the other things for the other people, and conversely in their group of clients they have a lot of clients who are experienced. They have one right now out in Orange County who is buying a property for $220,000 and are putting about $125 grand into it. This is a very experienced investor, but it is also a niche because not a lot of people are going to be able to accomplish what he is going to accomplish. You have two sides of the scale; one that can tackle these kinds of things, and the newer group that needs to stay away from this. Most often these are the deals that the new people find that other people had passed on originally.

Be sure to visit our website, www.thenorrisgroup.com, for more information on trust deed investing and our loan programs.

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.

Tags: 12.5% loan, appraisal, bruce norris, Craig Hill, hard money loan, HUD, loan officer, norris group, owner-occupied loans, real estate investor, realtor, reo, Rick Solis, riverside
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239-TNG Radio – Rick Solis and Andrea Esplin 8-20-11

Friday, August 19th, 2011

Appraiser/Investor

(Full Bio)

Andrea Esplin

Appraiser/Investor

(Full Bio)

This week Bruce is joined once again by Rick Solis and Andrea Esplin, both investors in Southern California.

Rick first noticed when things went from an up market to a flat market to a free dive in the summer of 2006. It was getting harder sell, there were less offers, and the excitement was beginning to fall off. He noticed the free dive in 2008 when things got really bad. Bruce said prices were dropping about 3-4% a month. You could buy things 30% below market value, and only 10 months later all your equity was gone. We were not in the buy and hold, but sometimes you almost got there because it was tough to sell, so it was a scary time. For business at the time, Rick and Andrea bought two rental houses in 2008. Although Andrea wanted to buy a lot, Rick was not buying as much because he saw what was coming, and in 2009 he sat out the whole year and didn’t want any part of the market. In 2009 Andrea was buying from all REO inventories, so it completely changed from where she was chasing the deal before with absentee mailers. Now she was building relationships with agents. She wants to build relationships to where she can have repeat business. She quit going to lunch with her investors and started going with realtors. This is the advantage of being around for a few cycles in that you realize the skill set you know how to do, in her case meeting with people, really does not play a part in the current cycle as much as it does building a relationship that is repetitive. It’s almost like having an account where you call on a store that you own where you have a product, and you would be able to only show up once in a while and take an order. This is what this cycle, this quadrant 2, is like. You are building relationships that have legs, which is very different from a one-call closing skill like in 2003 and 2004 that you would need. You want long-term relationships. For people who are in this business for the first time now, the assumption is that this is how it works.

The Norris Group just had a boot camp where two people were doing short sales. However, the word short sale was not even understood for a decade at a time in California. They have a business model that is working perfectly until it doesn’t work, and then it will be nonexistent for a long time. This is what is tricky about what The Norris Group does. You really have to have different skill sets for whatever phase you’re in at the time. Rick said it seems a lot of the investors are good at one thing and not the rest, so people like those in short sales are only in it for a few years. Either they have to change or find a new job because short sales are going away at some point. It’s like saying you’re really good at attending HUD auctions, but the last one they had was back in 1997. Even trustee sales are going to be very slim. In 5 or 6 years from now, there will not be as much trustee sale business. It will be interesting since the Norris Group does this now, the margins are very tight. The quantity of people interested in it is very big, but Bruce said they used to fund people, who were doing it before, and their margins were good but there were fewer people and fewer properties. Therefore, the ratio actually turned out to be fine. What has changed, especially in the REO business, is the accessed information is so much easier and quicker to come up with an intelligent decision that they have people walking in to a business that don’t know very much that become close to 80% capable inside of two months. This is hard to compete with. Even for the ones that leave, there is a whole new wave showing up that only needs two months of training and are then pros. It doesn’t mean they are coming to accurate conclusions, but they think they are. It wouldn’t be hard to do an appraisal if you think just pushing a button and getting an opinion off of a site like Zillow that’s accurate. Oddly enough, the flatter the market is, the more accurate Zillow is. Bruce just pulled ten recent sales because he wanted to see, and it was only 1 out of 10 properties that were wrong by 10%. Most of them were within 2%. In a flat market, even the assessed values are pretty tight. It gives somebody a false sense that they know what they’re doing, especially if this is all they have seen and they think Zillow is correct all the time, whereas a few years ago it was not even remotely correct.

The type of inventory that Rick and Andrea are buying and holding is different from the buy/sell inventory in that the buy/sell inventory can include much bigger houses, houses with pools, two story houses, or nicer areas. This is absolutely necessary because this is what the retail buyer really wants. Because of the interest rates, if he is going to buy he is going to be able to afford the inventory that he wants. If Rick and Andrea tried to sell inventory they have in Victorville they’re renting, even if the price per month would be nothing, they said it would be a challenge.

There is a huge difference between buyers with the two properties Andrea has in Anaheim and Rialto. The Anaheim property is a single-family house that Rick flipped to her. The house originally was a mess and needed a lot of money to fix, and this is what has changed as far as what they sell and one of the reasons The Norris Group shifted to the trustee sale inventory. 75% of what they have is newer than 2000 and bigger than 2000 square feet, and this is really the sweet spot for the retail buyer. This would not make a good rental. For most of their rentals, they have less than $100,000 tied up in the rehab and the purchase price. If you’re over $100,000 and you’re getting hard money financing, it’s hard to make that pencil out. You have to end up with the farther out and older things. You’re not going to get a lot of Ontario, Upland, or Rancho Cucamonga rental houses right now unless you’re putting a lot of money down or you can be one of the very few people in the United States that can get an investor loan from a bank. Bruce thinks a lot of this is going to change; and he got a sense of this when he was back in Washington. They’re trying to figure out how to make it palatable to whoever they have to make happy. However, it has probably dawned on them that they’re not going to fix anything by selling things one at a time to owner occupants. Rick said he is positioning himself to take advantage of that when the financing becomes available. In Victorville, for example, one of the charts Bruce has shows that 76% of the people are over encumbered from either 10% to over 100%, which means that they’re either stationary, going to be in REO, or they’re going to be short sale. If you go up and look at how many percentages of the transactions are REO or short sale, it’s probably 80%. This means that 80% or more of the time, a buyer does not emerge from the sale of that property. Those people are going to buy. You have an extra family looking for a rental or to move in with themselves, but they don’t produce a buyer. This means that at a ratio of 4 to 1 you have to have another occupant buyer move in to their Victorville property. This is not going to happen.

In their Victorville property, the aforementioned situation is perfect for rentals, and they are getting the best renters they can. The tenants are people who just lost their house, and they think very much like a homeowner, which means they are used to taking care of things themselves. A lot of the tenants they have come in contact with are solid, hard-working, blue collar families that don’t make a huge amount of money but make a good living and can get by. They also happen to end up in a first-time buyer situation where they’re paying $400,000 for a house that’s worth about $125,000. Everybody would walk from that situation. You’re paying three times your mortgage than for what you can rent the house next door. You can understand the rationale between to know when you can’t continue to doing it forever.

Both Andrea and Rick manage the properties, although Andrea does about 80% of the property management. Rick said he doesn’t really enjoy the 20% that he does, so he is really looking forward to buying rentals. Also, when you have the thought of creative financing, you never get rid of anybody. You’re buying with a wrap, you’re selling with a wrap, and everybody is still with you. One guy who worked out in the desert used to have a $100 spread on 100 houses. This was his $10 grand a month. This would be perfect if everybody pays. He was showing Bruce this, and Bruce was thinking that if 10% of the people would pay him, he’s gone. Bruce likes the spread and buying at a discount, but he also likes being by himself and having a great life. This he said is cleaner.

Andrea and Rick were more aggressive with their purchases in 2010, but not so much in 2011. Rick misread the market and thought that with the way things were taking off that demand was coming back because of the government stimulus. He really thought the government was going to keep rolling this out, so he thought they had bottomed, making the houses cheaper and there being plenty of inventories. At the time he wanted to load up on as many as he could at that point. Once he noticed that property values were dropping, inventory levels were shrinking, and every investor and their brother was entering the market, he started losing motivation. When he notices we are bottoming again and can get good financing, then he said he is in with both of his feet. But it’s not clear how long this is going to be.

Rick and Andrea usually draw the same conclusions and are on the same page with a lot of things. All the rentals they have gotten have been from forming relationships, although now most of their inventory would be down as well as far as the REO agent themselves. They have one in particular they know will call them on a weekly basis. They’re calling now with things that don’t make sense, but they’re desperate. When Rick is appraising, he usually gets a sense of areas that are either going up or declining in different price bands or different counties. If you’re selling something over $500,000, in almost every market where you have something like this the market just seems like it’s gone. Even the really good areas like Glendora, Upland, or Claremont seem to have so little demand for the product that it’s tough. Rick doesn’t really see any areas that are going up in value, although he is mostly in the Inland Empire. He doesn’t really know about areas like Orange County or West LA County. Rick said it seems like things are gradually declining in most areas. The listings are usually higher than the sold that closed a couple months ago, and it seems like they’re dropping on average about ½% a month. Sellers are also kicking in a lot of closing costs, which translates into another 3% you’re paying out that you weren’t a year ago. Andrea has not had any appraisal issues when she was selling the property, but she doesn’t really try to squeeze it for everything. She wants it to be well-priced from the get go. She put $100,000 into her Anaheim property for repairs alone, something she knew about going in as it was a big rehab. Right now it’s listed at $485 for its resale price.

Rick believes rents right now are pretty stable. You can usually get a good tenant within a month. There are a lot of landlords that are renting to lower quality tenants and getting higher rent, but overall they have a lot more evictions, vacancies and problems that it balances out to the landlords that are pricing them at market rents. Rents are only down about 5-10% over the last 3 years. Andrea and Rick usually put their rents a little lower than market, and they try to fix their rentals as best they can, even a lot better than some landlords do. Rick sees a lot of landlords that do terrible work from missing screens to broken appliances and heaters that don’t work. These are usually the landlords who end up with the problem tenants. Rick and Andrea try to fix everything so everything is working. They want to attract the best people they can attract. The Norris Group did the same with a lot of the rentals they had in Moreno Valley. This was an area that got hit like Victorville, so you would have a fair amount of people looking at it, but you would have only one house that had repairs The Norris Group did, so it was kind of easy to pick the best one. They have not had challenges of kicking people out or with people who have missed paying their rent. One of Bruce’s thoughts was when he resold the house, he would not have to do a major rehab again because things like the granite were still going to be there.

Similar to Mike Cantu, who was on the show a couple weeks ago, Andrea finds her reading time very important to her and something non-negotiable. In addition, she also works out on a regular basis. It not only keeps her in shape and a time for her to be alone, but it is also the time she comes up with good ideas. She can decompress and think clearly. Bruce does something similar. He will have his headset on during his workout because he uses this time to think. It’s a good diffuser for him. Andrea will keep a notebook with her during her workout because she will think of things that she knows will immediately go away. It’s amazing that the ideas don’t stick around, and these are usually the best ideas.

Rick doesn’t really have anything non-negotiable. He has to have 7 hours of sleep a night, which is really the only thing non-negotiable for him. Although, he said he has offered to sell this to people. If they need a rush appraisal and are willing to pay a couple thousand dollars, he will give up a night’s sleep. When he was younger and more motivated he did read a lot, so this was non-negotiable for him back in the day.

When asked about Rick’s best quality, Andrea said he is a really great guy and has good integrity. They have been through good times, and it is easy to go through good times because of his integrity. They started out with nothing, and they had a lot to overcome. It is during moments like this you really find out the kind of person with whom you’re working. He always had her back, and they would figure things out together. It is very important to know who you’re working with especially during the tough times. Bruce has often talked to people who assumed something was in place, and he would then ask them if they had been through tough times together. He and Mike were at lunch, and Mike told Bruce he had seen a lot of people’s character change in the last couple years. Bruce replied he didn’t see the change, he saw the change revealed. This is what shows up when bad times hit.

Andrea’s quality is she will never give up. She will fight to the end to get to the finish line. A lot of the time Rick will look for the quickest and easiest solution, but Andrea will look for the best solution. No matter how bad things are, she will get to the finish line, and it usually works out a lot better than the way Rick would have gone.

Rick read a book by Dan Kennedy called My Unfinished Business, which told the story of his life, all the business he had done and how he carried out the business. He told about his failures and how he would get back up again. Reading is something you get into the habit of doing, and it becomes hard not to do it. Andrea’s bed is full of books, while Bruce has about five he’s reading all right now. What is interesting is all of his books are wrapped together. There is not one real estate book amongst them, but they are all connected tissue. One of them is about how people get to be great, and you find out you don’t have to be the most gifted person in the room. You can be the person who finds out they can try harder, work harder, and end up with the best reputation. He enjoys reading these books because he can relate to them as most people can. Most people have average skills and often ask themselves how they can become excellent. Bruce has talked with someone who has been a karate master for 40 years, and he told him the people who were the best students were not the ones who came in already gifted in karate and could do 70% of what he was going to end up doing naturally. These people very rarely have the character to take it to the level of somebody who has to struggle with every piece of it and finally emerge. This is usually how it is with investing. Starting out not having much is probably the best favor in the world because then you’re not putting too much emphasis on the things.

Tags: Andrea Esplin, bruce norris, California short sales, Claremont, Dan Kennedy, Glendora, HUD, Mike Cantu, My Unfinished Business, Orange County, property management, rentals, reo, Rick Solis, the norris group, The Norris Group Real Estate Radio Show, trustee sales, Upland, Victorville, West LA County, zillow
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238-TNG Radio – Rick Solis and Andrea Esplin 8-13-11

Friday, August 12th, 2011

Rick Solis

Appraiser/Investor

(Full Bio)

Andrea Esplin

Appraiser/Investor

(Full Bio)

This week Bruce is joined by Rick Solis and Andrea Esplin. Both are real estate investors in Southern California and have been doing it for a long time. Rick is also the appraiser that appraises most of The Norris Group’s hard money loan situations.

Andrea got started in real estate investing right around 2001/2002. Her timing could not have been better because everything she touched probably started to go up a little bit, but as she was going through ‘03/04 it started going up a lot. Andrea said at the time she was too ignorant to know that, so she lucked out in that sense. Bruce said one of the things that happens is you immediately assume that whatever you’re experiencing is normal. If that is the only blueprint you have, then you think it is really how it works. This has changed. Andrea has gone from the most ridiculous upswing to the most incredible crash. In Bruce’s opinion, her having gone through that is an interesting experience. Andrea started out buying notes, and the first house she bought was actually a result of her taking one of The Norris Group boot camps. After the bootcamp, she came back and followed everything to the T. The first house she bought was in December 2003 on Orangetree in Fontana. At the time she attracted it through a non-owner occupied mailer. Prior to 2001, Andrea had a bookstore in La Verne that sold books on tape, so she gained a lot of skills here that helped her in the property-buying business. It’s all about helping someone out and the different ways that can be accomplished in closing your transactions.

Rick bought his first house in 1998, a HUD repo in Montclair on Princeton Street. It’s easy for him to remember this because he closed escrow one week after his 20th birthday. He decided to start really early after watching the late night infomercials as well as when he was that age he was looking to get rich quick. At that time he thought he was going to be a millionaire by 25 and be all done. Both Andrea and Rick had opposite experiences. Rick came in at the end of the cycle when he would have been blindsided for what he thought would have been true for two years but ended up not being true for seven. Rick was actually blindsided twice because he thought the 90’s was just a fluke and wasn’t really going to go down. When things were booming again in 2001, he really thought things were going to stay the way they were. He overestimated the success and, although he sold a lot, didn’t sell everything he should have sold. He knew bad times were coming, but he never suspected things would be as bad as they were. No one suspected anything, even though Bruce wrote a report called “The Crash” where he talked about the worst case scenarios. Rick did not suspect the worst case scenario was going to happen; he thought things would only drop 20-30%.

When Rick bought his first property, he held it the whole time just by the skin of his teeth. He lived there for the first year, renting out the bedrooms to individual tenants. After that, he rented it out, but things were plunging at this time. He was having trouble keeping the property afloat, so he gave the new tenant an equity-split deal. The tenant took care of the maintenance and the payment. He finally sold the property in either 2005 or 2006, and it worked out pretty well. When Rick was younger, he was loading up on the “nothing down” concepts from Robert Allen. He had tons of books by him which he picked up from the bookstore every week. He was reading a lot on creative financing, and interestingly enough Rick has no interest in any creative financing now. If there is no equity in a deal, then he is not interested. When Rick got started in real estate at age twenty, he didn’t really tell anyone what he was doing and didn’t care what they thought. He came from a lower-income area, so he didn’t tell any friends and kept it pretty quiet from everyone. When Bruce was younger and was selling electrical supplies in hardware stores, he knew at that time in his life if you told anyone what you were planning to do with real estate, you wouldn’t get much support for it. A lot of the time it is solo for a while until you start cashing a few checks, then all of a sudden people come around, which is really nice.

Andrea met Rick through her bookstore, and she actually started buying seconds as a result of Rick. He was the one who referred her to the bootcamp. They had not planned to be in business together. She started buying seconds in 2001, which was a real safe time to make these purchases and therefore worked out well since they were not kept past 2006. Timing has a lot to do with how things work out. You can have the perfect blueprint for the wrong era and have a real problem. This is what is unique about the real estate business in that timing aspect might seem good but won’t work for another three years. Rick just started buying notes again. There is a lot more available to buy, but he has noticed it is much harder to get the borrowers to make any kind of payment now. Even if it’s in their best interest, you can’t even get them to pay $100 a month because they’re so used to not paying that it is a bit of a challenge. Andrea thinks this is because they have been dealing with the banks that were not doing anything about them not paying. They’re used to this, so when they’re sent a letter saying that their house will be foreclosed on, they think this means a year from now.

Andrea and Rick’s first property they worked on together was the house on Orangtree in Fontana in 2003. They held it a year before they sold it. The bought the house at $.60 on the dollar, and Rick remembers after walking out the door everyone was giving Andrea a hug. At first he couldn’t understand it because the customer had just given away $40 grand and was hugging Andrea like they were planning vacations and picnics with her. Andrea and Rick are partners in a business that is hard to be partners in. Most of the time it doesn’t work because in a lot of partnerships you have two people who would be incapable of doing the business alone, so they partner together and don’t do it well in pairs. This is not the case with Andrea and Rick. Both of them are very capable of doing it on their own. In the beginning, Andrea said she was ignorant about real estate. She and her employees put together a letter, which her employees mailed out. She knew how to close a deal; this was her only true gift. She thought she would be able to figure everything else out, but if she couldn’t close anything, then what’s the point of having the knowledge. Rick truly has real estate values, so they would both take phone calls. He did all the values in the beginning, while Andrea sent all the letters and did all the negotiating. It worked out that she didn’t know they were buying their first house so cheap because she thought she was doing a service to everybody and was going to solve their problems. They both had different strengths, which worked out well. The reason why they have stayed together is because they both have the same type of character but two different skill sets.

Rick does not really enjoy negotiating. He usually did the best and picked up the best deals where it was people who were just calling him, telling him what they had, and mailing him an offer. He did best where all he had to do was get them an offer in the mail, then perform quickly and close it. He is not really good at establishing relationships and getting back and forth, but he usually cuts to the chase. He asks them what they have, what they want, then tells them the offer and that he can close in ten days. Andrea is the best at closing the hard ones where they need to feel very comfortable with the person to whom they are selling the house. A lot of people don’t realize they have a lot of the tools that are important in the buy and sell business, but they think they can’t do it because they don’t know real estate. Bruce had a very similar experience when he went to work for a company in Orange County in 1981. He didn’t know a grant deed from a trust deed, but he was able to understand the concept of what they had as he had cash and the buyers had equity. He understood this clearly, but he would have made the same decision on most of the deals that he was sitting across from. It made sense for him to get a yes answer. Rick also looks at the customers problems and says it makes sense to him that it would be an acceptable solution to what he has. The belief of this is very important, as Andrea agrees. You have to believe that you truly are solving their problem. Both Rick and Andrea have done some wholesaling, so in a way they are making the same decision mentioned before, but at a different level. They understand they are leaving part of the pie for somebody else, and it’s perfectly okay. It’s a big step once you cross the barrier because you realize there are circumstances where a piece of something is so much better if it is quick than the whole pie six months down the road. When you do some wholesaling, you all of a sudden really get it. You understand the service and don’t even mind being on the other side of it. This really makes you more persuasive because it’s not like you’re trying to get somebody to do something and are then shocked when they say yes.

When Rick and Andrea started in the business back in the early 2000s, they were initially only going to sell most of the properties. However, the ones Rick saw were the most profitable were the ones that were held on for a little while. Initially, they did sell quite a few, but they actually regretted it years later. They walked out with $10-$20 grand profit, whereas the houses they held for even just a year profited over $100 grand in profit. This was an error they had never seen before and would be hard pressed to see again.

Around 2004/2005, the mood of the investors was they seemed like they had just come out of a pep rally seminar for Amway and were really pumped. This made having any type of discernment not necessary because it had a front door and was going to make dough. At this time it was hard to make mistakes. This is one of the hardest things coming from the era where Andrea obtained her experience. At that time you could misprice something and be forgiven for it and sometimes blessed. Also, you didn’t have to repair properties as well as you do right now because the retail buyer was of the same mindset that they had to get something. So if they had a front door, then they were not picky about what was on the other side of it. At that time they did not fix their properties; there was no granite or floors. They usually were not handed repair lists from the home inspector. This is hard to overcome mentally when you come from an era like that to what amounts to the Great Depression of California real estate. To overcome this, Rick said he just stopped looking in 2007. Andrea said some of the pains they have had were blessings because they were able to learn quickly from them. She learned more going through bad times than good. In good times there is not as much to learn because you think you’re doing everything right. When things change, you realize if you really were doing everything right then how come you are in a bad situation. There were a lot of houses Rick kept that he now realizes he should have dumped. Life would be better now if he had not kept them, but you later just write it off as experience. He and Andrea now have a new plan that should get them in the same place, which involves buying and holding. Andrea said she still has to do retailing to make a living, but they have been acquiring more rentals. Last year in particular they acquired several rentals by going by Tony Alvarez’s plan. This was the first chance Andrea had to buy a property and still have a cash flow. When she started out she knew the long-term wealth was in holding and cash flow. Especially in this cycle this is true because the margins are really tight for buy/sell because there are so many people trying to buy/hold that they will pay a different level than we can buying and selling. That margin is tight, and for the first time you can buy something you don’t even need a super deal on to cash flow. If you get a deal, then it makes even more sense. Ever since 1988 Rick has never been able to buy something where the rent is way higher than the house payment, even with a hard money loan. Yet you still don’t have people breaking down the doors wanting to buy, and if they do they are not qualified. There is not very much demand. Bruce cannot imagine the perspective of coming into the market for the first time here because you would get a picture where things are normal when it is anything but normal. There are a lot of people that could buy houses or even just a home to live in are not motivated at all and don’t realize what a gift this is. A lot if it is mental, both in lender policies and buyer decisions. About 25 people Bruce knows are in escrow right now, and for the first time in their life 25 people are looking at every article negative to real estate, biting their nails and asking if they should borrow money at 4 ½% at a price that is 60% off. They’re really tossing and turning over it because they don’t have support. People made decisions back in 2005 because it was overwhelming that that was the right decision even though they were paying a ridiculous price. Now, it’s just the opposite. You know that your rent is going to be higher than your payment would turn out to be, and yet signing the documents is so permanent that people hesitate to do it. Rick said they don’t realize that they’re always going to need a place to live.

When Bruce was speaking in front of people a lot, one of the questions he started asking was if anyone renting houses was willing to give a 30-year fixed rent. Imagine if your life was blessed with a 30-year fixed payment at this level because at some point you are going to make a lot more money. When Bruce first bought a home with Marsha, the payments seemed pretty high since they were at $209. They stepped up to the next house where it was $310, and it was stressful. All of a sudden, five years later, you realize you basically have two car payments on your hands and it’s basically a joke. This is the chance people have now, but that mental problem is they’re surrounded by everybody that has gotten damaged by the product. The memory of the 05/06 era is gone. The optimism has now turned into the mindset of, “How long has it been since you made your payment, or when are you getting booted out.” The optimism came back really fast last year when the tax credit was put out. Buyers flew back into the market so fast, and Rick does not understand what has changed their minds so much now. It’s kind of unusual now that they either cannot qualify or are simply not interested. $8,000 was basically a down payment when you have a nothing down loan program. People need to look at how these loans have performed that people got back $8 grand. They would have performed wonderfully. They got $8,000 back and paid $20,000 more for the house. What’s interesting is mindset currently going on is it is all geared toward down payments being bigger in the future, 20% down being mandatory in most cases. This concerns all of them, especially since they’re making that decision based on faulty information. There is an assumption that that loan pile is safer than any other one, the best performing pile of loans for forty years is a VA nothing down loan. It beats the 20% down Fannie Mae loan. Bruce wants the people at the Nixon library to see a chart of this and take it wherever they go because it really fights the nonsense and is undeniable. Nothing down beats 20% down because they have underwriting standards, so it makes sense. Usually their underwriting standards have nothing down, and you will have people coming out of the woodwork and a lot of people buying houses.

Join us next time to learn the work Andrea and Rick do on a daily basis and their thoughts going forward for being a real estate investor and how it might change in the next decade as opposed to what they just experienced.

Tags: "The Crash", 30-year fixed rent, Andrea Esplin, bruce norris, California, Fontana, real estate, Rick Solis, Robert Allen, the norris group, The Norris Group Real Estate Radio Show, Tony Alvarez, VA nothing down
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227-TNG Radio – Craig Hill 5-28-11

Friday, May 27th, 2011

Craig Hill

Hard Money Lender for The Norris Group

(Full Bio)

This week Bruce is joined again by Craig Hill. Craig has been with The Norris Group since its inception in 1995. He has helped The Norris Group invest in approximately $40 million worth of trust deeds.

Many investors do not understand the concept of putting up money for loans. This is a very unusual idea for many investors, and mentioning it to investors may make them feel like you are asking them to take a suitcase full of money to Vegas and spend it.

A trust deed is attached to real property, and that property covers a large gambit and many different lean positions. Many people falsely assume that a trust deed is the worst case scenario. Trust deeds have different yields and different risk rates. Bruce and Craig have been investing in trust deeds for a long time. Craig has found it is very difficult to persuade people to invest in trust deeds. Bruce feels that trust deeds are a better investment than a stock or a bond, because trust deeds allow him to have some control over the outcome of his investment.

Craig has been monitoring TNG’s investor base for a long time, and he has noticed that the longer these people work as investors, the more money they invest in trust deeds. The longer you invest in trust deeds, and the more you understand them, the more you appreciate them, because they have a great risk vs. return rate.

When trust deeds are mentioned, many people assume that you are investing in a second or third position loan. The Norris Group only invests in first trust deeds. Trust deeds can be used to lend on anything from a single family residence to raw land on a slope. TNG only lends on single family residences. These residences will be fixed by an investor, and then either sold or rented.

Borrowers interested in using TNG’s 12% return program are borrowing to flip a property. TNG also has a 9% yield to investor program. Borrowers using the 12% program will receive a larger yield, but their money comes out of the property, so they do not receive any more interest until they find another trust deed. If the 12% program users do not have a trust deed investment for just 2 months out of the year, then their yield will drop to the 9% level. Craig uses the 9% program almost exclusively, because his return remains consistent over multiple years, and he doesn’t have to waste time searching for more investments. Also, many of the trust deeds being invested in right now are at the bottom of the market, which provides a safe LTV. The LTV ratio will get more absurd later on.

Craig loaned a $40,000 trust deed on a $65,000 house in Apple Valley. During the peak of the market, that house was selling for approximately $250,000. This means that Craig now has a $40,000 loan on a property that was once $250,000. Even if this property only went up to half of the value it once was, that value would be $125,000.

TNG’s trust deed program has never had a property come back, but if a property did come back, there would still be many profitable options for TNG, because renting is very profitable in the current market. If a property comes back in today’s market, you then own a home free and clear, and you can collect rent from the property, which is even more valuable than the original trust deed payment.

People who are new to trust deeds are very concerned about what happens when they do not receive payments. When a new client comes to Craig, he shows the client all the loans TNG has, so they can see how few of the loan payments are late. If you went to Bank of America and asked to see their list of loans, you would find far more delinquent loans. People get too concerned about “what if” scenarios. They think of trust deeds like stocks that can dramatically devalue very quickly. When the “what if” scenario is a free and clear house, your level of risk is significantly lower than a stock.

Typically, people who invest in trust deeds have established some wealth. At some point, you don’t want to risk principle, and you want to get a safe return. Bruce does not know of a safer and more passive way to get a good yield.

90% of TNG’s trust deed properties are bought with cash, and then refinanced. Generally, TNG loans 60% of a property’s worth.

Craig always checks to see if the title on a property is ok, and he always purchases fire insurance.

If Craig is working with a new investor, he sends them a copy of the appraisal. Once the new investor looks at the appraisal, Craig will allow them to ask questions about the deal.

Some trust deed investors like to try and work on their own. This is hard to do if you do not have experience. The Norris Group has performed 2,600 loans, which have come from 20,000 conversations. This is the one industry where working with a broker makes more money than working on your own. Also, people who try to work on their own often come across legal issues due to usery.

Craig had the good fortune of being contacted by another lender who was going out of business. The lender was contacting Craig because he thought Craig could help his former clients. After receiving a list of 200 clients from the lender, Craig decided that only 2 of the listed clients were capable of fitting in with The Norris Group. The people who invest with The Norris Group are not speculators; many of them are full time investors and are highly educated.

When you invest in a pool, the leader of the pool can attach any property they want to onto your pool. This can be a good or a bad thing depending who is leading your pool, and their motivations for investing your money.

The Norris Group’s website is www.thenorrisgroup.com

You can download our trust deed investment booklet and other investor training material.

Tags: appraisal, appraiser, borrower, bruce norris, cashflow, Craig Hill, experienced investor, hard money, hard money loan, lending strategy, norris group, owner occupant, real estate investment, REO property, Rick Solis, short sale
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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

(Full Bio)

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 200^th show.

Tags: agent, condo, Dave Deldado, education, fannie mae, foreclosed, foreclosure, foreclosures, inventory, jack miller, John Schaub, Mike Cantu, norris group, Peter Fortunato, properties, property, rental, rental market, renter, rents, reo, Rick Solis, Section 8, section eight, tenant, Tony Alvarez
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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

(Full Bio)

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 4^th 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.

Tags: business model, buy and hold, California, comps, down turn, escrow, foreclosure, foreclosures, hard money, investing, investor, Mike Cantu, norris group, properties, rent, rental, reo, Rick Solis, short sales, Tony Alvarez, trust deed investing
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177-TNG Radio – Rick Solis 6-5-10

Friday, June 4th, 2010

Rick Solis

Appraiser and Investor

(Full Bio)

This week Bruce is joined once again by Rick Solis. Rick wears many hats. He is a real estate investor, he is the appraiser for all of TNG’s hard money loans, and he occasionally trains people to appraise in TNG’s REO investing boot camps.

Rick bought his first house a week after his 20^th birthday. This house was in Montclair. He sold it at the peak of the market, but then 10-31 exchanged the money from that property into another one, and eventually lost all the profit. He owed approximately $250,000 for the Montclair property in 1988, and he sold it for $450,000. He was paying for the home with the tenant, so they split the profit earning $100,000 each. In 1988, he read the Robert Allen books. Using that information, he found a realtor who helped him get a loan for this house.

The books Rick read helped him to think creatively about investment. However, Rick no longer uses creative investment techniques. Today, Rick is primarily concerned with buying properties below market. When you invest creatively, you usually owe 100 percent of what it is worth, and you do not have an equity option.

Rick and Bruce first met at a Nick Manfredi meeting in which Bruce spoke. Bruce was offering a deal on his product Selling Systems. Rick bought the book, and liked it so much that he came back and bought the rest of Bruce’s books.

Rick had a difficult time building an investment relationship with Bruce. The first time Rick asked Bruce to help him invest in a property, Rick was looking at a 5-unit property in San Bernardino. After describing the property, Bruce simply said, “No, that is not something I would be interested in.” Bruce thinks he might need to do a better job of explaining his decisions in the future. The reason why Bruce was not interested in this property was because he had previously tried buying similar properties in San Bernardino and that experience did not end well. Sometimes investors just get used to a specific niche and choose not to work with anything else.

Bruce bought a lot of 4-plexes in Moreno Valley during the 1990s. He sold these properties for $139,000, and their value peaked at $600,000. One of these properties recently opened for bid at a trustee sale for 1 dollar. This type of property has a tendency to cause a domino effect for other similar properties in the area; when one goes bad the rest usually follow. A lot of towns just tear these properties down.

Rick met Andrea at a book store in 2003. Rick told Andrea about Bruce’s boot camp, and she decided to attend it. At that time, the boot camp was pretty basic, but it told you exactly what you need to know when buying houses.

In the past, Rick advertised through the newspaper. Andrea advertised through letter campaigns. When Rick started working with Andrea, they were doing 1,000 letters per week, and they averaged 4 to 6 houses per month using this method. Their business relationship worked to their advantage, because some people do not want to work with men, and others do not want to work with women. Rick and Andrea have very different selling strategies. Rick’s selling strategy is straight forward; he looks at what you have and gives you an offer. Andrea can sell anything to anyone, even at a discounted price. Andrea’s ability to sell is more than a technique, it is a natural gift.

The longer Rick and Andrea did letter campaigns, the harder it got. When they first started they could find plenty of people with just a couple hundred, but by 2007 the lettering campaign become too expensive to pay for itself.

Most of the properties they bought were flipped in 2006. One of these properties was flipped to Bruce’s auction, and it worked very well for Rick. Unfortunately, the auctioning business did not work well for Bruce. Bruce started an auctioning business with high hopes, but discovered that it was very difficult to attract buyers. Rick tried helping Bruce by wearing TNG t-shirts and posting signs, but he was only able to get a couple people to attend his auction.

At the end of the boom, Rick got cocky because of how easy it was to buy and sell. Rick decided to 10-31 exchange into other properties in order to avoid taxes. Unfortunately, he reinvested too much and he lost a lot of the profit he gained from his California properties. Next time, Rick plans to just sell his properties, pay the taxes, and live happily with that.

Rick finds all his properties through the MLS. Sometimes agents bring deals to Rick. Lots of investors are entering the real estate business. About ¾ of the buyers are investors now. Unfortunately, many investor offers do not close. Some agents are now refusing to accept offers from investors now, because of the bad reputation investors now have for not closing.

Right now, the best-working strategy for Rick seems to be driving around and looking at properties. He does this 1 day per week, and Andrea does this 3 days per week. They both buy 3 properties per month. They hold 2/3 of them as rentals, and they intend to sell them as prices increase. After the next price increase, Rick intends to sell all of his properties and stop.

Rick and Andrea invest in the High Desert area. There are not many resale opportunities in that area, so they are primarily renting there. Many of the people in that area have bad credit, and will probably always be renters. Andrea has a sixth sense for knowing when a person is going to be a good renter. She is able to meet the potential renters, look at their application, call their employers and their landlords to see if they will be good renters for Rick and her.

Rick decided to quit investing in real estate around 2007, but Andrea continued. Andrea got great deals on six houses last year, and she was able to convince Rick to start investing again.

Business is completely different now. It is a much bigger challenge now to deal with owners and resale. Rick thinks this aspect of the business will become easier in the coming years.

Rick has been using his IRA to invest in mortgages since 2000. He began using his IRA to invest in houses since 2003.

Rick’s target rental property is less than half an acre. Properties with lots of land have a tendency to collect lots of junk. He prefers single story houses, and he is completely uninterested in rental properties with pools. Rick does not like investing in houses built before 1978, and he prefers the house’s square feet to be between 1,000 to 1,800.

In the High Desert, Rick typically gets 1 house for every 10 offers he makes. In areas near Fontana and Corona, Rick typically gets 1 house for every 50 offers. Rick does not make offers before he has seen the home and made repair estimates.

Rick likes Tony Alvarez’s business model, because Tony gets properties to cash flow. Rick does not like the buying, fixing, and selling business model right now, because it is very difficult to get to the finish line with a first time buyer, FHA loan, two appraisals and a review appraisal.

Tags: appraisal, appraiser, bruce norris, California, hard money, HVCC, investing, investor, podcast, Radio, real estate, Rick Solis, the norris group
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176-TNG Radio – Rick Solis 5-29-10

Friday, May 28th, 2010

Rick Solis

Appraiser and Investor

(Full Bio)

This week Bruce is joined by Rick Solis. Rick wears many hats. He is a real estate investor, he is the appraiser for all of The Norris Group’s California hard money loans, and he occasionally trains people to appraise in The Norris Group’s REO boot camps.

Rick started appraising because his mother was a loan processor when he was a teenager. He was also interested in investing, but he was overpaying for properties. He began appraising to become a better investor. When he first began his appraising career, the only thing you needed to be an appraiser was a clipboard and a tape measurer. However, Rick believes that appraisal qualities were better back then than now with all the education requirements. In the past, appraisers had to be approved by each bank you wanted to appraise for, and you had to submit six work samples to prove you were able to do the job. Once licensing came into play, the banks eased off of those restrictions.

Rick closed escrow on his first house 1 week after his 20th birthday. Rick became attracted to the real estate business because of infomercials from Dave Deldado and Robert Allen.

Rick enjoys working with hard money lenders, because they actually want to know what the property is worth and what is wrong with it. That is the complete opposite of an A-paper appraisal job. All people involved in the A-paper transaction, other than the investor, do not want to know that information, because that information can kill the deals. Information like termite problems cannot be disclosed on an appraisal.

The investor is typically a private person with money, but you can also have a hard money loan with a different kind of intent. Some lenders are pressured to provide lenders with a specific appraisal value. Rick has had this experience with lenders in the past. Those lenders put a lot of pressure on appraisers, but he does not receive that kind of pressure from The Norris Group’s loan processor. Craig, TNG’s loan processor, would rather skip a deal than skew appraisal values.

In May, HVCC was passed. This new rule requires appraisal management companies to check on all appraisals for accuracies. Unfortunately, appraisal management companies are taking 40 percent of the earnings from appraisals, which means they must work much harder to earn the same income. This has caused many of the veteran appraisers to leave the business. Rick knows an appraiser who has found a way to cope with HVCC and make his job more efficient. This appraiser only takes appraisals that are close to him, and he looks at the properties before he accepts it. If there is anything wrong with the property he is looking at, the appraiser will skip it.

People often think of the appraisal process as being easy, because now they can push a button on Zillow which gives an estimated home value. However, this is very inaccurate. It is very difficult to come up with an accurate appraisal. It is also difficult to make an appraisal which meets all the guidelines of the lender and the investor who the lender is selling to.

FHA significantly loosened their requirements in the early 2000s. FHA once had a 2-page checklist of everything you had to check for on a property. For example, if the crawl space under the house didn’t have 18 inches of clearance the house had to be fixed. If there was any chipped paint on the house it would need to be fixed. However, they will allow some things like dirty carpet. FHA will accept non-permitted home modifications just as long as there are no health hazards. However, many banks and underwriters will not accept that. If non-permitted additions add value to a house, then you are supposed to account for it in an appraisal. It is very difficult to find comparable houses for a house with non-permitted additions.

In the current market, if your house is in average condition, there is not much you can do on repairs which will add a significant amount of value to your house. However, if your house is in bad condition then you can get a decent return on the cost of repairs. Regardless of how much money you’ve spent rehabbing, appraisers will not adjust the price by any more than 10 percent.

Cost basis appraisals are no longer being used. No appraiser who spends half his day looking for land sales is going to come up with an accurate land value.

Bruce Norris brings up an example for when the cost based appraisal may be useful…

Bruce: “If you were making an offer on a custom home, and you wanted the lot value to be emerged from what a custom home would be once it is done, then that would be like a residual value. This could be used to prove to a lot owner that it was once worth x value, but once you subtract the costs and the appraisal then the lot will be worth x. ‘Is that a useful idea?’”

Rick: “Possibly.”

Rick has never done this kind of appraisal, but Bruce wants him to. If you can look at the comps and subtract the costs, then you will have the residual dirt value. Rick thinks that is so simple that you probably wouldn’t need an appraiser to do it.

Around 2006, people were concerned about buying homes with awkward floor plans. Currently, investors no longer seem to be concerned by this. This may be due to the fact that these types of homes represent the largest portion of the current “for sale” market. They are taking a price hit on those homes, but they are still able to make a profit.

Appraisers account for pool values using comps. For example, if an appraiser is looking at two homes that are very similar except for the fact that one has a pool and the other does not, then the pool value will be calculated by subtracting the value of the home without a pool from the value of the home with the pool. If the home without a pool has a value of $200,000, and the value of the home with a pool is $210,000, then the value of the pool is $10,000. The value of a pool can change dramatically depending on where you live. In some areas a pool adds little value to the home, but in other areas a pool can add a lot of value. Rick has noticed that pools typically add up to 0 to 5 percent of the house. Also, the value of a pool can change dramatically depending on what season you sell in. If you sell during a hot season, the pool will be more valuable.

The number of bedrooms within a house does not affect the price much. The square footage of a house is more important the number of rooms within it. Some families like two big bedrooms more than 3 small ones, and vice versa.

If you are appraising a property as an investor, avoid location problems. Stay away from atypical problems, especially problems that cannot be fixed. Old homes surrounded by new homes will not sell well, and dome home styles don’t sell well either.

Investors often make the mistake of assuming that an old remodeled home will sell for the same value as a new home in the same condition. Newer homes will always sell at a higher value.

Mello-roos homes can also be a detriment to home value. However, a lot of first time buyers do not always notice this difference.

Tags: appraisal, appraiser, bruce norris, California, hard money, HVCC, investing, investor, podcast, Radio, real estate, Rick Solis, the norris group
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105-TNG Radio – Rick Solis 1-17-09

Friday, January 16th, 2009

Rick Solis

Appraiser and Investor

(Full Bio)

Bruce Norris is joined this week once again by appraiser and investor, Rick Solis.

Bruce and Rick start by talking about market value. Rick says market value is what a ready, willing, able, and knowledgeable buyer is willing to pay for a property. Bruce asks if this definition is being held up with lenders in today’s market. Rick says that lenders are not. Bruce talks about how real estate auctions do not reflect true market value compared to fixed inventory. The majority of the inventory needs fixing and must be sold in a certain time frame.

Rick says the market is very different from the 90s. In the 90s, Rick says that there used to be a box that said “declining market”. If that box was checked, the deal wouldn’t go through. Now, the lenders will do those transactions but lenders require more comparables. It becomes difficult to find similar inventory. The banks will want to see the appraiser adjust for the market. Appraisals used to be good for 6 months. With a declining market, comparables need to be 60 days or less from the day of funding. Lenders want at least 2, preferable 3, comps within 60 days of funding.

Bruce asks how long appraisals are accurate in today’s market. In some areas, Rick says prices continue to drop quickly so not long. Every area is different. Bruce says in the last 60 days, appraisals are becoming more of an issue. Bruce talks about a recent example of an issue with an appraisal on a property with multiple offers. Bruce asks Rick what will happen if lenders don’t change their stance on valuing properties and creating comps that reflect perfect condition.

Bruce heard recently that lenders are considering doing refinances without appraisals because of the price declines which Rick has heard as well. He thinks that’s an interesting way to solve the issue. Rick says they keep throwing whatever they can at the issue. Rick says they did the same type of things during the Great Depression. Bruce talks about similarities with policies from the Great Depression and now.

Bruce asks if before and after pictures on properties are helpful. Rick says videotaping properties before and after would be a great help but if there are too many repairs they may want to see permits. He says to document all multiple offer situations.

Bruce and Rick then start talking about the principle of substitution. Bruce says there’s a short supply of good inventory. There’s a glut of inventory that needs fixing. Bruce feels bad for appraisers who have to fight for real prices and they have to be careful. Banks are only looking at pictures and don’t really understand what’s happening in the area. Rick takes many more pictures than is required to show banks why prices are where they are at.

Bruce asks about arms-length transactions. Bruce asks about what would happen if The Norris Group carried its own paper and created higher comps. He asks if that would be a conflict because of arms-length transaction rules. Rick discusses the potential issues and uses the example of builders.

Bruce asks what percentage of sales has concessions in the current market. Rick says almost 100% of transactions on properties that are on the market for two weeks or more have concessions although it’s not always easy to figure out what those concessions are. Appraisers don’t always know the concessions.

Bruce asks what percentage is allowed for condition in appraisals. Rick says condition can be about 10%. If you adjust more, it can become and issue. It becomes easy with comparables but more difficult if the data isn’t there to support line item adjustments for over 10%.

If the appraisal comes in wrong in the eyes of the bank, you get blacklisted and there’s a possibility of not getting paid. Rick says review appraisals were not as common when the market was going up. Some did but they were way more lenient. Review appraisers typically do a desk review and never go see the property. They are looking at online information. These review appraisers are typically hired independent contractors.

Bruce asks Rick what he would like to see changed. Rick says not having the lender paying for the appraisal would be better. That way there would be no pressure and more honest appraisals could take place.

Next week is Christopher Thornberg with Beacon Economics.

Tags: appraisal, appraiser, bank, bruce norris, builder, contractor, inventory, investor, lender, property, refinance, Rick Solis, transaction
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104-TNG Radio – Rick Solis 1-10-09

Friday, January 9th, 2009

Rick Solis

Appraiser and Investor

(Full Bio)

Bruce Norris is joined this week by appraiser and investor, Rick Solis.

Rick has been appraising properties since 1989. Rick says it was a perfect time to start because he got to see both cycles. In 1989, you didn’t even need a license. Education, Rick says, has not improved appraisals. Bruce talks about how he got his appraisers license and why. They both say much of the business is street smarts.

Rick got into the business because he purchased a Dave Delgado seminar. He started buying a lot of houses. He realized he needed to know how to evaluate properties.

Bruce asks if appraisers are under pressure to come in at a certain number. Rick says pressure is coming from several sources including agents, buyers, sellers, and banks. From 2004-2006 the pressure was for the appraisers to come in high. Today, banks put appraiser reports through many more hoops. They are looking for something wrong with it and they have review appraisals done. They also use an automated valuation model (AVM) to check numbers. In a down market, the AVM is not an issue. It’s a real problem in an up market. Everyone is just being much more conservative.

Bruce asks Rick how he compares this downturn from the 90s. Rick says this downturn is much worse. There was a more gradual decline over several years in the 90s. Prices are much more erratic in the current market and it varies from month to month.

Rick says areas with lots of new houses, where there are lots of first-time homebuyer inventory, and far out areas seem to have gotten pummeled. Sometimes 60% of the value disappeared. Rick tries to turn down appraisals for irregular products (dirt roads, manufactured homes, etc). It’s very difficult to find comps and arrive at a number.

Rick says in 2009 he expects to see drops in pricing every month for the Inland Empire. Rick says in his area in LA, sales seem to have dropped by 75%. Prices are still coming down there too. Bruce asks Rick what percentage of sales in Victorville were REO. Bruce says 92% of all sales in the area were REO. Reselling in that area would be very difficult. It would be very difficult to get an appraisal too. When 98% are vacant and need work and almost all sales are REO, it’s very difficult to get comps to substantiate a higher price.

Bruce asks what Rick is running into when working with investors. Rick says too many investors are going off the sales price in the MLS. The numbers are incorrect at times because of bad data entry or concessions. Some of the busy REO agents are having assistants enter in the data and they aren’t being careful.

Rick says he uses the MLS but confirms those prices with public record. He uses Real Quest and Dataquick to make sure his numbers are correct. Luckily, data is getting a little better and more complete.

Rick says listings aren’t so much calculated into his appraisals but he does spend more time on pending sales.

Bruce asks if the goal for appraising properties for an investor is different then doing to for retail buyers. Rick says working with buyers is different because the buyer is dictating the price. It becomes its own comp. The investor purchase is more difficult.

Tune in next week as the conversation continue.

Rick is the senior appraiser at Ace Appraisals. Rick has been a full time real estate appraiser since 1989 and a HUD approved appraiser since 1993. He has extensive investor and appraisal experience in residential real estate in the Los Angeles, San Bernardino, Riverside, and Orange County areas.

Tags: agent, appraisal, appraiser, avm, bank, bruce norris, DataQuick, Dave Delgado, house, inventory, investor, MLS, property, Real Quest, reo, Rick Solis
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