This week’s radio show guests are The Norris Group’s very own Bruce and Aaron Norris. Some of their VIP subscribers are with them today as they tape the radio show. For the foreseeable future, they will likely give a presentation with an update of what is going on.
- What was Aaron’s biggest concern about the results of the coronavirus?
- What are some encouraging things they are seeing happen in the midst of everything?
- What do they see happening in the different business facets in California?
- What are the 3 Ts, and what impact could they have on rentals and rents?
- What can we do to help others through this?
- What are Bruce’s current thoughts on California vs. Florida?
- Will construction continue to be a priority?
On their website thenorrisgroup.com/resources, they are cultivating a list of resources for real estate investors and realtors, giving you direct information at the national and state level of what to follow so you can weed through the stuff that’s happening in the media. They’ve played pretty nice this week, but it’s hard to read through and there’s so much going on. On the Web site, you’re going to find everything from IRS resources. One of the things they’re following is 10:1 Exchanges, getting dates change. Taxes have changed. Also at the state level, the California Association of Realtors, the California Apartment Owners Association, things to talk about with renters and what not to. These things that you might not have thought about.
They began by letting people ask questions in an interview style. First, as of last night, California is on a little bit of a lockdown. This means shelter in place, besides emergency services, which is pretty interesting. It was an interesting day to have the interview. Aaron went through something similar with 9/11, and he will never forget there were many people at the time who didn’t like the sitting president. Being in New York City at the time, they were on lockdown, so he knows exactly what it feels like to go into a store and see the shelves empty. It’s really scary. But the media, the politicians, left and right, all banded together. At the time, we really didn’t have social media. Aaron is watching this from a very PR mind, watching what’s happening and thinking what he feels needs to happen. He is pretty happy with what has happened this week.
Bruce was happy too. He is proud that people set aside their differences. It does in a way, remind him of the baseball game that he attended right after 9/11. He had season tickets, and normally the singer usually sang the national anthem. Everybody stood and that was that. However, at that game, 45,000 people stood and all sang the national anthem. That was just a very moving moment. You just looked around and realized they all actually collectively got it. They were the same and forgot their differences. That’s where we’re at right now. We’re in an emergency situation, and the best thing we can do is think about taking care of our loved ones and realize that other people have to do the same.
It’s changing so quickly. Aaron is currently in Florida. They made the decision last Saturday to cancel their bootcamp. He was on the phone calling everybody to make sure that they didn’t hop on the plane and get over here. His fear was if they went out there, they were not going to be able to get back, and the experience here in Florida would be poor. And it is. They’re still in high season. You’ve probably seen them this week. Florida is getting a lot of flack for spring break parties at the beaches. As of yesterday, they finally started locking down the beaches. He is very lonely at the hotel, but very glad he didn’t have a lot of investors to take care of while he is here. So far, he thinks he is going to be able to get back. He was actually hoping for a national quarantine since he thinks next week the numbers are going to be so bad. The testing has got to catch up, and those numbers are gonna be very frightful. However, he is not personally worried about the virus. He is worried about the economic fallout.
When you look at the economic fallout, you just think about all these industries. There’s no one at a movie today. Life for the next 60 days as we know it is basically going to stop. We’ve not faced anything like this. This is like a combination of having a hurricane in the sense that you can see and a stock market crash where you now have to stay at home and you probably can’t go to work. Everybody’s gonna get affected. Bruce said he would rather own the asset class that they own because he can see that things will stay in place and stall. However, when it comes to the stock market, you can see every second, when it goes up and down. So it’s down some 35 percent, silver down 35 percent. They are already preventing that by saying you can’t foreclose. Bank of America came out and said they were basically going to shine on the payments. All of a sudden this is getting a little safer because it seems like it’s a team effort across the board. So that’s an important thing.
We are in round one, and he thinks there’s going to be at least a few more of these rounds of support. Aaron was really pleased to see them not go back home. Congress did not take a break, and they’ve committed to getting these rounds of things put out. So he was really happy to see that happen.
Bruce said when it happened, he did not really take it seriously until they closed Italy. That got his attention. Then there were all the sports. You start realizing all these things are happening,and it is the first time in his life any of these have happened. Warren Buffett comes out and says, “Yeah, I guess I had to wait eighty-nine years to see this.” So that’s a big statement coming from a guy like him. Then we do the radio interview with Raoul Pal and he uses that word depression. That’s why Bruce asked if that was a word he had ever uttered in all the years he had done this. When he said no, that was meaningful. Mohamed El-Erian just used the word depression yesterday. This is serious stuff and we’re getting on to what we need to get on. We’re trying to mitigate the damage and also the health risk. That’s why this is necessary. If we lock down really well for 60 days, we’re probably on the other side of the curve of death and new cases. If we don’t, this is a much longer deal.
The other exciting thing is that within the last 24 hours, it looks like there’s been several different moves made for treatment, a vaccine. They’re running full steam ahead on several different paths to try to mitigate the virus. It’s just great news. Aaron is always a glass half full guy, so he is really excited for Main Street in particular. We got news this week that Redfin and OpenDoor are out. The Norris Group was hearing from people that don’t usually use them for hard money. When he had a conversation last year with one of these Wall Street hard money lenders that quit and came to them wanting to buy their paper. The strategy was if you originated at 9, I’ll take it down at a seven. We’re taking on Wall Street style leverage. We’re packaging it up and selling it as bond rated paper to pensions.
You’ve got these Wall Street companies that are very reliant on these lines of credit. Aaron asked if that will disappear. Bruce said it definitely could. That’s why the Fed is preparing to do, if already in place, well over a trillion dollars to back business bonds. They may be the buyer instead. Normally that’s the buyer of last resort. That’s what’s been going on in the repo market. You come there with your assets and expect the buyer to take it for a very short period of time. That buyer has been stalling or not wanting it. Now you have the Fed stepping up and becoming the end of that trade. So this is definitely a very unique time.
If they say they are going to build a hospital in ten days, they’re just able to do something without permits push it to the end. Bruce likes the fact that we’re taking this on on the medical side. He is sure there’s usually a progression of going through and it could take a year and a half. This can’t take a year and a half and we know it. We’ve got a lot of smart people that can work on this simultaneously. That is encouraging because you do see how we’re working on things that are not only prevents it when you take it but also mitigates it. It’s exciting to see the brains in our world working really hard at this.
For the Main Street investors and realtors, this is where we get to shine as these Wall Street companies pull the plug on operating in the markets. They disappear as competition, and he doesn’t know yet if they’re going to decide to come back. This has forever changed their business model, and he was already very excited about certain realtor brands like Keller Williams and Compass doing it.Those local boots on the ground would be so important anyway, because context and flavor of a local market is just really difficult to replicate with artificial intelligence, and it’s just not there yet. Aaron thinks investors and realtors are going to have a unique opportunity to shine. He created a video on Monday that some people thought might have been a little bit early. He has seen people do some really stupid things with marketing. Now it’s just the time to take a step back and realize that some people are taking this really seriously. All of us have never been through this before and dealing with being scared if you’re gonna be able to get food or not. It’s jarring. He already has friends posting online that they were told to come in and pick up their last paycheck.
They went on to talk about the different facets of the business and how they’re feeling about them. Aaron asked what he sees the flipping business looking like in the foreseeable future. Bruce said having flipped a ton of properties, he knows you don’t expect income from it until the end. That’s not a surprise, so usually you’re not taking on debt that you can’t support so far as the borrower side. That’s not a shock to their system. What might be a shock to their system is you’re probably going to have very little to no progress on repairs. You probably will have a pool of buyers that are frozen for a while. You are probably tacking on two months to year cycle at best. This means if you’re a real estate investor, just include some extra time in your calculations.
You just have to realize that the buyer right now is like the deer in the headlights and you can understand why. It doesn’t mean nothing will sell. First of all, we are not even supposed to be out showing houses. This is just a once in a lifetime event. If you own stuff with debt on it and you are capable of making your payments, Bruce would encourage you to do that. He has been there where someone said, “I have six things in escrow and six things fall out. I’m a small guy, small flipper. That could be an impactful thing.” Bruce thinks the Norris Group could play a role in that by having that conversation. If that’s gonna be an issue, call them and let them know. They will call the lender and have a reasonable conclusion. We’re in this together. It is a once in a lifetime event on both sides of the table.
We have great lenders that understand the business and have been through tough things before with us in 20008 and 2009. We all survived that and did fine. On the borrower side, he was able to go back in with Aaron to present in Washington, D.C.. Member. They had that little circle in 2009 or 2010 with their current ratio as far as payments being made on a hard money loan with an interest rate over 10 percent. It was ninety nine percent plus current, and we’re talking about to Fannie Mae, who had way many times more delinquencies on their A paper. They were having a discussion about making more loans to investors.
We have we have a great pool of honorable investors that make payments and a great pool of people that put up money and understand that when this kind of thing happens, I think we’re gonna be reasonable with each other and Bruce will encourage it if he gets in the middle of it. Aaron thinks this is where we’re going to get a time to shine as well. We are still lending in California and Florida. Florida has been interesting. When he got in, he happened to have a meeting with the Economic Development Agency in an area that they’re building. That was a great meeting. They put it together with the planning department, building department, economic development, and neighborhoods. So there were four leads from the city there, and they were discussing a lockdown. But it is their absolute goal to try to definitely keep the wheels turning when it comes to development. So it is a priority category for them. It’s nice to just at least hear that.
The other thing that was interesting is hearing that this is their seasonal time. March is typically spring break here. It’s their busiest month. People are leaving early. One of the things that realtors are experiencing, however, is on their way out. People are writing offers on homes. This is a theory; we’ll have to wait to see what’s tested. They get a lot of visitors from the Midwest as well as the East Coast. Aaron wonders if they’re sitting back and saying, it’s time. It’s been a good run in these states. It’s just too expensive. I need to rethink retirement. It’s going to be very interesting to see if Florida remains to be the number one in that domestic and the number two in immigration nationwide if that doesn’t actually accelerate because of this event.
John Burns had a report that he had put together for this virus. One of the charts he had showed the sales of new homes in Florida year over year were up over 50 percent, and that was right before this happened. Right before all this stuff hit the fan, Florida was selling a lot of new homes, even compared to last year. He is not sure exactly why that is, but it was a stark difference. Florida has a lot of migration of adults. They have a rental or they have to buy something because it’s reasonable. They are building houses that are worth $230 that you put the 3 percent mortgage rate on that, and it’s a pretty amazing payment.
In the flipping space when it comes to death, disease and divorce, this is a really interesting play. You might be dealing with as a local real estate investor with all three of those categories at one time in some of this stuff. Aaron asked everyone to be very sensitive to that. Please don’t send weird marketing to people about Coronavirus. As far as the Wall Street versus Main Street, he thinks it’s gonna be a really neat time.
Next up was tennants, toilets and trash, the three TS. Aaron asked what impact this could have on rentals and rents. The state of California has already been talking about an eviction moratorium. On the resources Web site, he has some tools for you as a landlord to be communicating with your tenant. You better really be careful what you say and don’t say to put yourself at risk. Just be very careful. Aaron asked Bruce what he thinks about the tenants and rentals in the foreseeable future for California? Bruce said he and Aaron both have their ideas. The difference between us and them is they might be one eviction away from being homeless. A lot of us have spent our life doing math and calculating our cash flow and our net worth and all that. The next 60 days or so isn’t the time to do that. He thinks the laws are going to come in place where you can’t evict people.
Bruce just had a really happy surprise. They were still considering to go going to Maui, and about three days ago he just decided it just doesn’t make any sense. He was supposed to show up Sunday. With five days notice, he said he can’t come. So whoever owns that condo obviously isn’t going to get that revenue. It’s an oceanfront condo and is not expensive. The property manager obviously was involved in it, but they already knew what the response was. The asked Bruce if he wanted it for another time. He said yes, he had already checked his schedule and can do it in November. Without charging him a dime, since it was all prepaid, they just prepaid the November one. So that guy is out a chunk of dough. He didn’t have to legally do that, and Bruce wouldn’t have been shocked if he did it. He just understood it. But he didn’t do that. Bruce said he will rent that guy’s condo till he is not here. People are going to have a really good memory of how they’re treated right now. They really will. You want a great set of tenants, treat them honorably in the next 60 days. They will not forget it.
People won’t always remember what you say, but they remember how you make them feel. Now is a good time for the good feels part. Aaron is reaching out to all of his property managers, setting the expectation on that. He will reach out to the tenants that he still individually manages today and ask how they’re doing and where they’re at. He was glad he did some 1031 exchanging. His tenants in Florida are very different caliber wise than what they’ve been in California. Aaron was glad he diversified.
Bruce said in Leesburg, 90 percent of his tenants are nurses. They had a conversation on the Florida Bootcamp call yesterday, and they talked about that. He talked to Joanna and told her to please reach out to clients, and she did. She sent an email. The majority of them are getting government retirement income or they’re in the health care industry or military. So she really didn’t have a lot of worries. But as a landlord, you just sort of have to prepare and map out how you’re going to deal with the fallout and the ramifications.
Oftentimes you don’t live in the county where you are investing. So, Aaron tells people anywhere they’re at to just go to Google and type in 211 and the county that is going to be your local health and human services hotline. In times of emergency, it is the b