Bruce Norris is joined this week by Rick Solis. Rick is a real estate investor, property manager, note buyer, options investor, real estate appraiser, and a good teacher.
Bruce asked Rick who influenced him in his life to do better than average. Rick said it was his dad, uncle, and grandparents. He asked what model he saw that he liked better than others, which he said was his grandparent. In 1976, when he was 8 years old, he went to stay with them. They were both retired marines with their pensions, and they lived in a little house in Boulder City. They had an RV, and it really motivated him. His grandma had inherited some farmland back East which she had received a small check from as well as two military pensions. Because of this, they were able to jump in their little RV and travel the country. Rick said this was what he wanted. It came out of something with Zig Ziglar where he had wanted a car and drive as far as he could half the way and back all while on vacation.
When Rick was in high school, he would read things that not everybody else would be reading. During his freshman year of high school, he had to do a book report. His uncle had given him a book called Think and Grow Rich. He did his book report on this, and his class hated it. His teacher wasn’t even interested, and they all thought he was a freak. This was back in the early 80s when you had interest rates at 18%, so Bruce wondered if there were books out at that time about nothing down. Rick said he had started reading about this out of high school when it had just come out. It was in regards to the same type of thing as the other books he read about getting rich quick.
Napolean Hill had also written a book about making money. This was actually one of the early books for Bruce too and talked about thinking about other than where you are. This could include thinking about wanting to make money and projecting your way. You had to come up with a plan, and implement the plan. To be a success at anything you need to come up with a plan and aggressively pursue it.
Bruce asked Rick how appraising became a part of what he did. He said he started buying properties right out of high school and had no clue what he was paying for or how much they were worth. He was focused on no money down, just acquiring as many as you could. If you could get the rent to equal the payment, you were good to go. His mom was a loan processor at that point, and she mentioned the appraisal world to him. She had mentioned this to him, and he realized someone was going to pay him $250 to do an appraisal report and check out houses. This way he would know what they were worth when doing his investing. This was when he started doing it, and there was no license required at that time. Back then, all you needed was a clipboard and a business card.
Bruce asked if this became his livelihood rather quickly. He grew up lower-income and did not have a lot of money, so when somebody was willing to hand him a $250 check for 5 hours of his time, he sold every waking minute of his time. He would do 80 appraisals a month while a normal appraiser does 20-30. He loved it in the beginning because he could not believe someone would hand him $250 to go look at a house. This was serious money at the time. This fueled his capability of investing on the other side, although he had started in the hole since he had bought a lot of properties. This did not end well since he was way buried in credit card debt while married and without insurance. Most of the money in his 20s went toward paying off his debt, getting established, buying a house. He had a couple investments going and had funded his retirement account, but there was not a lot of extra money.
Bruce asked Rick if he was flipping or holding everything in the 80s. He said he bought about 10-15 rentals from ’88-’89, and he gave away or sold at a loss all of them expect for 2. By 1991 he only had two left. Bruce asked what residual came out this going forward and what he learned from it. He said he knew when he was done and would put his $250 checks behind him. Through the 90s as he did appraisals, everyone was buying, fixing, and selling. He saw a lot of this going on, and it was about 1995 he decided to jump back into it. This was really good timing since it was close to the bottom.
At this time Rick was not buying houses, but rather non-performing second mortgages from finance companies. In 1995 this probably could have worked, which it did and amazingly well. In 2000 he started doing houses again, and the only reason he went to houses was because he ran out of the money on the note buys. This was because they were something you could not finance since it was not leverage. He had borrowed every penny he could off of credit cards, credit lines, business lines of credit, home equity loans. The only way he could keep moving forward was to buy houses, fix and sell them, and keep moving forward with the money from that to buy more loans.
For almost ten years Rick did not want to go after real estate. During that ten years he learned a lot about himself and realized he did not like owning residential real estate houses unless there is appreciation occurring. Even then there has to be a lot of it. He is not much of a buy/hold/cash flow/rental house guy. If it is not going up in value, then there is no point to it. For him, there is a lot better investments out there than a rental house. There are not too many people out there right now who will say there are a lot of good choices even though there are a ton of good choices.
With the notes, you could put $200 grand into a house, rent it for $1400 a month, and maybe end up with $8-$9 grand a year in profit after paying property manager taxes, insurance, maintenance and vacancy. This adds up to 3-4% return on his money. His other option is lending the same $200 grand in a note and receive 7-8% and not have a renter.
Bruce and Rick both met around 2000, right about the time they both started going after real estate. Bruce had just started ramping up his seminar business, and he was one of the early speakers at Nick Manfredi’s meeting. At this time Rick was foreclosing on some notes, and as he got the houses back he would fix and sell them. As he did this he did an occasional buy-fix-sell on the side. He was only doing about 2-4 a year and would run an ad in either the Penny Saver or Daily Bulletin. He would have a deal maybe every quarter.
It was when Rick took Bruce’s bootcamp that things ramped up substantially. It was great and magical time for price aggression. Rick does not think he will ever see this again in his lifetime in Southern California. Rick hopes it will happen again and he has the energy and availability if it does, but right now he does not see it happening. There are two segments of time that stand out: that one and the 90s for REO and HUD auctions. Bruce would attend an auction with the mindset he was paying nothing over 50%. If you had this philosophy today, you would never buy anything. Rick had this philosophy from 2008-2010 when he was buying houses, and there were deals he passed for $1,000-$2,000 that now have $150,000 in equity.
Rick lived through a rough time after 1989, and this influenced him. Then, 2006-2007 showed up along with a lot of equity. When that downturn hit, Bruce wondered how this affected Rick and if he was more cautious. Rick learned a lot about himself, one being that he substantially over-estimated his intelligence level. This is one reason Bruce likes charts. Rick thought he was a genius and that everything he did was gold, so he just kept doing it. He thought he could sell the houses then take the massive intelligence he had and go into other areas of investment. He tried everything including apartments, commercial, and aggressive lending on properties on which he thought he would have plenty of equity. He did all kinds of things he should not have done, and he went back to appraising again.
Bruce had done this before where he had one too many quarter of a million piles, and you just keep on handing them over. Rick had so many wins from 2004-2007 that he thought he was bullet-proof. It was in 2009 he realized that was an unusual period of time and he got lucky. The nice thing will be if we can retain that knowledge and make it stick to where next time you do not repeat. Since he lived through 1989, he would have lived through 2008 and 2009 just like everybody else. This time he was not prepared.
Rick prepared a lot for 2008 and 2009, just not enough. However, he prepared more than most people, and a lot of the people he knew back then were wiped out and doing something totally different now. Rick had gotten out of real estate only to put it into another pocket that was not going to work. He still did some retailing back then, but instead of $50,000 profits he had $100,000 losses. He was actually happy to only lose this just to get out of those properties. He only had 2-3 of these going at a time when he saw other people who would have 20 and lost everything.
In this cycle after the crunch, Bruce wondered how Rick began accumulating the inventory he would ultimately be selling. Rick got started a little late after being scared off in 2008 and 2009. He was really studying it and watching everything he could. He started buying again in 2010 when the deals were really gearing up. He would have had a system going, contractors, and everybody in place. The real money to be made was in the second half of 2009, then things got crazy in 2010. By the time he really got on a roll, it was 2011 and the game was already starting to slow down by then.
The nice thing about an upswing is you can be late to it, but you cannot be late to an exit. Rick still did very well, but he could have done twice as good. Andrea partners with Rick on his business, which has worked out amazingly well because he does not have great follow through himself. He is good for the first 75%, but for the other 25% he is out. She is good the whole way through and has really helped. In 2014 they got up to about 60 rentals, and there was a massive rainstorm in the High Desert. One day, they got a dozen calls regarding roof leaks. On one of the houses, the back half of the roof blew off and the ceiling caved in.
When this situation comes, you are not going to have a dozen roofs fixed in 24 hours. He wanted to get rid of the houses right away, but it was a good thing he didn’t because they would have made way less money. Once he has had enough Rick is ready to tap out, but not Andrea. Bruce asked if started to gradually get rid of them in 2014 or waited until 2015. Rick said combined they had about 50 houses they had bought, some both had bought beforehand. They took the worst third of that group and sold them in 2014. They took the next half worse of what was left and sold them in 2015. They are selling all the rest this year, all of which are in escrow.
Bruce asked what the price difference was percentage-wise between 2014 and 2015 and 2015-2016. Rick said it was not enough to hold them, having gone up on average about 3% a year. These are $200,000 houses that a year ago were $194. It worked out to about $150 a month, and every year the tenant is in the house is another year on the water heater and septic tank. The rehab will be a little bit more, so it is not even $150 a month you are making but rather $100. When splitting it with a partner, they are both making about $50. Does he really want something in his life for just $50?
Bruce asked if a lot of it was leverage. Rick said they leveraged everything. Andrea took hard money loans, mostly through the Norris Group, for the purchase price. Rick’s retirement account would put a second on the property for the rest of what was required for foreclosing costs, the down payment, the difference between what was loaned and the amount they were in it, and the rehab. It was all leverage between the Norris Group and Rick’s retirement account. What they were selling at the end was more than what they paid for it in debt plus a rehab on the way out, and they were splitting the difference. Fortunately, it was multiplied by 50-60.
Rick was really surprised and completely miscalculated the profits. He really thought they would have been a lot higher than they have been. At the peak price of the inventory you are talking $200 in 2016. Bruce wondered what it was in 2007, which Rick said the same exact house they are trying to sell at $200 was going for $300-$350 in Hesperia and Victorville. Rick said he is probably selling too early, although there may be another $50 grand. He does not want to deal with another Hesperia tenant again for this reason, even if it is another $200,000 house.
Rick said when he was in the cycle of selling in 2006 and 2007, he gave each of the tenants an option to buy. He also gave the same offer to people in 2015 and 2016, and the result was less than 10% took them up on the offer. The ones who did are almost out of pocket nothing. When you factor in the security deposit and the rent being payable a month in advance, this almost pays what it cost them to get in. They are giving them back 5% of the sales price for closing cost, and there are all kinds of new loans out, so they are really getting in for nothing. Their payment is usually within 20% of where their rent was. This is known as PITI, and they are not interested.
Rick offers and sends them comps, but he will not sit down with them and ask them why. If the interest rate is less than 4%, he does not want it. He wants to call the landlord when something goes out and not have to deal with it himself.
Bruce asked how the building is in areas such as Hesperia. Rick said he did not notice a lot of building. You really cannot at $200 grand. Bruce then asked him why becoming financially independent was important to him, which he said it is because he has worried about running out of money. Maybe this has to do with how he was raised. Bruce was raised in a lower medium neighborhood, and Rick thinks he was raised in a similar area. However, he has always hated selling his time for money. When he is financially independent, he does not have to do this anymore. He is free and has tried to be since he was that 8-year old kid.
Many times he thought he got there but then had to give it back. The plan was to be there at 35, but then he stopped working a couple months before his 35th birthday in 2003. This lasted until 2008, but he was investing at this time as well as had rentals. He was not working or worrying about money since his investments paid for the lifestyle. He would take the summer off and live off his investments, but then they imploded in 2007 and 2008. Bruce said for him this takes a lot of resilience. There were a lot of people who may have been there in 2007 who were not there in 2009 but did not come back again. This was the case with most of the people Rick knew, and they are now doing something totally different.
The hardest thing for Bruce is coming back from something that takes you down to 0. Rick did not get near 0, but 60-70% of his net worth flew away. It was a battle, but he had been dreaming about being that kid driving the RV since he was 8. This was why he did not want to be working doing something he did not enjoy until he was 70. He did everything possible to get out of this. Bruce asked if he always had confidence in himself, which he said he did not have a lot of confidence in most areas of his life. However, when it came to the business he has massive confidence. He could sit across the table from anybody and work out a win-win deal where both parties are happy. He has never had any doubt in his ability to get to that RV and be financially independent, which is a lot less for others.
Bruce went through a period of being fired five times in a row, and after the fifth firing the confidence level about work was so low that at every lunch he read the Want ads. He would always look for the next job until he realized what really motivated him. If you can get to what you love to do, then you are not working a day in your life.
Tune in next week as Bruce continues his discussion with Rick Solis, talking about his experiences as a property manager and what he does for investing with non-rental real estate.