I Survived Real Estate 2018 Part 2 #612

On Friday, September 28, the Norris Group proudly presented its 11th annual award-winning black-tie event, I Survived Real Estate. An incredible lineup of industry experts joined Bruce Norris to discuss perplexing industry trends, head-scratching legislation, tech disruption, and opportunities emerging for real estate professionals. All proceeds from the event benefitted Make A Wish and St. Jude Children’s Research Hospital. This event was not possible without the generous help of the following platinum partners: the San Diego Creative Real Estate Investors Association, InvestClub, Inland Empire Real Estate Investment Club, ThinkRealty, Wilson Investment Properties, Coach Fullerton, First Lending Solutions, PropertyRadar, the Apartment Owners Association, MVT Productions, and Realty411. Visit www.isurvivedrealestate.com for event information, and see Amazon Prime or YouTube for past events.

Episode Highlights

  • How did Jay “Fixer Jay” Decima impact people’s lives?
  • Did John Burns or Doug Duncan see anything happen in the industry over the last year that surprised them?
  • In his book Big Shifts Ahead, what are the four big influential factors he discusses that impact the market?
  • How long does Doug Duncan expect the economy to stay strong?
  • What new government policy came out just recently that is significant to real estate?
  • What usually causes a recession to start?
  • How does the big population of those 65 and older affect housing?

Episode Notes

This segment opens with Bruce’s presentation of the Rohnny Award. This year’s winner was Jay “Fixer Jay” Sherman. This award was created in honor of Jim Rohn, a man who changed Bruce’s life in three hours in 1981. He drove to a seminar he did not want to go to, sat at the very front table, which he hated, and was told it was a three-hour long deal. He did not think he would make it. Ten minutes in, he wrote his first note on top of the page. This is one of many notes he still has today in a binder.

The Rohnny Award was created for people who have had an amazing impact on other people’s lives. Today, Fixer Jay was added to that list of distinguished people. This list of people is very different, but they have two things in common. They positively affected the people they taught, and they had a great reputation. Jay “Fixer Jay” Decima is a seasoned real estate investor with nearly 50 years of experience. Since the early 70s, he has specialized in fixing up ugly homes and small apartment buildings. Today, he spends the majority of his time managing and overseeing his investment houses and training others who wish to pursue the lucrative profession. They put together a video that showed people whose lives he impacted.

John Schaub said when he thinks of Jay, he thinks of three words: smart, funny, and a gifted teacher and writer. His writings and teachings are easy to understand and always entertaining. As his students testified, they really work. Diane Machado said through his books, lectures, and seminars, he shows the way to buy ugly properties, or fixer-uppers, rent them, and turn them into cashflow and profit. Tony Vatsula said he has an awesome model he uses that is very unique and not a lot of people are using. He will give you all the data you need to get that mastered. Dan Shea said one time after Jay helped him buy 85 properties, he thought he was a hot real estate investor. One day during on his their telephone mentoring calls when he had a problem, Jay told him he really just had his name on 85 deeds. Dan asked him what he meant, and Jay said you have to manage them now. If you get into management, this is where you will make the big money over the years.

David Granzella told him how inspirational he was in how to run a business and treat people fairly. Steve Love first met Jay back in the mid-90s. He was so impressed with him, he drove ten hours to Redding, California to take his great bootcamp on buying houses. Paw Lim told Jay how he was full of knowledge and wisdom, and with his white hair and gold teeth, he is handsome. Most importantly, he is a genuine, real McCoy. Robert Taylor said he was such an inspiration and help to so many people, both his friends and himself, with his books and classes. Jay Parker said he appreciated his books and wisdom. David Granzella and NorcalREIA all thanked him for the decades and help he had given them. Mike Cantu said he is one of the few people he will always refer students to and the real deal if there ever was one. Mike Butler told his story about how Jay invited him to speak on his cruise, where he met Dan and Victoria Shea. Jay told him how he liked his writing style back in the day and style, and he called Mike’s senior editor to convince them to let Mike write a book as an unpublished author. Diane said she had known Jay for 20 years. In that time, he has been her friend and mentor. She could not say enough about his professionalism and extensive knowledge of the real estate investor market. Laurel Sagan said you will be a better real estate investor and person for working with him. Tony said he has a way of really making you believe you can believe in yourself and do this for yourself and get it off the ground.

Michael Morrongiello told him how much he loved learning from him over the years and really enjoyed all his knowledge, discussion, and information. More importantly, he enjoyed his wisdom and thanked him for sharing it with everyone. Robert thanked him for his input into both his life and his friends’ lives. He thanked him for helping everyone think about real estate in a different way. Dan Shea told him how he always said to make this business a business and not a hobby. David Granzella reminded him how grateful he was for the inspiration, leadership, and the integrity with which he taught him to run a business. Steve was grateful to Jay for always giving him and his wife such great advice. Mike said he was one of a kind, a category of one. The segment ended with everyone giving one more thanks and telling him how much he earned the award, and NorcalREIA even gave him a standing ovation.

Jay came up to receive his award. While up there, Bruce thanked him for all he’s done and let everyone know he had sold over a quarter million books. This is incredible considering not very many of us have even sold one. Jay commented how heavy the award was; and Aaron joked that if you cannot hurt somebody with an award, it does not count. Jay then retorted by saying he didn’t have a foundation on any of his houses that was as strong.

Jay thanked everyone after Bruce jokingly reassured him the people in the video were not paid to say what they did. He talked about how he had been in the business for over 50 years. When Bruce called him a few months ago that he was getting the award, Jay asked him if it was anything like an Oscar. Bruce said it is about as close to what an old fixer guy like him would get to Hollywood. As far as he was concerned, the award was just as good as an Oscar. Something different was he said he would not say anything to bad mouth the country or the free enterprise system that made him a successful real estate investor.

Bruce went up to the podium to introduce the first people on the panel. The fun part is Bruce asks them questions he wants answers to himself. The first to come up was Doug Duncan, Fannie Mae’s senior Vice President and Chief Economist. He is responsible for providing all forecasts and analysis on the economy, housing, and mortgage markets for Fannie Mae. He is considered one of the top real estate economists in the world. He has also been a big supporter of real estate investors, having gotten several to speak their mind and convince them to extend financing to investors.

Next up was John Burns, the CEO and founder of John Burns Real Estate Consulting. He helps business executives make informed housing industry investment decisions by giving them the most accurate analysis and portfolio investment advice possible. John is co-author of Big Shifts Ahead, a book that makes demographic trends easier to understand, quantify, and anticipate. Bruce worked 18 hours on his questions; but as soon as he got into the room, everything marked with blue was a change or addition he made. You never know what will change, and Doug said his forecasts are the same way.

Bruce began by asking they had seen any surprises that he did not think would occur. He said he did not think we would have the tax act. This was a big stimulus to the economy and a big change. This was the biggest thing that surprised him. Doug said the same thing and that this was not in Fannie Mae’s forecast at the time. However, they were not surprised by the fact that there was not a healthcare bill.

John wrote Big Shifts Ahead, one of the best books in the industry. It only took him 9,000 hours to get a $20 product proofed, and he doesn’t have 250,000 sales either. His book can really help people understand what is coming, which is important. There are four influential factors he discusses. Everybody talks about the noise: what’s this, what’s that? However, it helped him to group it into four things. Usually, there is some government policy that has some major changes, and the Tax Act would be a good example. The second is the economy. You cannot control the economy, but the economy has a big impact. However, it is important to remember that it impacts people differently depending on how old they are at the time. During the Great Recession, for people aged in their 20s-50s, it impacted them all very differently.

The third would be new technologies. Everybody talks about the self-driving cars being a good example. The fourth would be societal shifts that are very hard to predict. This would include people getting married after having kids instead of before having them. This is one of several things that can cause housing demand.

Bruce asked Doug if he is surprised by the strength of the economy. He said no and that the question is really how long it will remain strong. The bet that was in the tax bill was if you cut corporate taxes, would business investment pick up? The hurdle rate for new investments is lower, so you have to ask if this will generate productivity. On the personal tax side, the question is if we will see an increase in tax returns after going to work. Are there people sitting on the sideline who will come in and do this, and will the Fed see all this as inflationary when employment gets too low? Fannie Mae’s view when looking at the data was that there were people still there to go to work. The complicating factor that questions how long this will go is that after the tax bill, there was this huge spending bill that had no related revenue. This will increase our debt and deficit, and the Fed will respond to that.

With the initial burst of growth, Fannie Mae did not originally forecast it as high as it was at 4.2, but they were above 3. Right now, we are in our ninth year of recovery, which is unusually long. However, we did have a recovery about that long in the 80s, and we had another one in the 90s. It has been unusually weak to be that long, and this is the weakest recovery post World War 2. Bruce asked if this gives it a reason to have more legs. Doug tells people that just because it is old, it does not mean it will die.

The reason this is important is a lot of people at the event that night attended a seminar Bruce taught a couple years prior. The title was “2% Interest Rates and $40 Trillion In Debt.” Bruce thought there would be a recession by the end of 2018 and a reduction in interest rates. However, this did not occur. Before the tax cut, there was a recession near term, but this changed. If you’re going to forecast, forecast often.

There is another government policy that is significant to real estate very recently. This is increasing the standard deduction, and Bruce wondered how this influences real estate. John said the standard deduction has not been an issue for people buying homes in most parts of the country for quite some time. When it got to $12,000 and mortgage rates were 4 and the home price was $250, you were not getting a deduction. Outside of California, that has been disappearing for a long time. It is benefit and a hurt to the young, affluent people that are trying to buy along the coast. However, it is not a major issue. If people still want to buy homes, they will figure out a way to do it. This may hurt you, but you also have a 4 ½% interest rate that is not too bad. The bottom 30% of income tax filers have never itemized. They have all taken the standard deduction. John said it is only hurting a small percentage of people nationally.

Bruce next went on to ask Doug what causes recessions to start. He said normally it is some imbalance, whether in the good sector or oversized inventory. It could even be in the credit market. It is a little different every time. If somebody tells you with certainty what will cause the next recession, you should be suspicious. There are some things out there that are worth watching, like commercial debt and the level of this debt that is out there. Dodd-Frank changed some things regarding who makes markets in some kinds of credit markets. It moved out of the banking sector and into the shadow banking sector. The question is if there is a shock in the financial market whether they will have the balance sheet to allow the continued liquidity in that space. This is one of the things people are worrying about today.

John Burns said 11 of the last 12 recessions, going back to the one in 1929, were caused by excessive debt. This was brought on by industries who grew too fast and borrowed too much money to do it. The only one that was different was the Bretton Woods Act in the 1970s. Consistent with what Doug said, you have to look at who has been growing too fast and borrowing too much money. There are a lot of areas you can look at, particularly in the bond market right now. It is not the housing market, but rather other industries.

Doug mentioned a fun fact. At the peak in 2007, global debt to GDP was 287%. Today, it is 295%. Mortgages are down, but everything else is up. John was really concerned about the health sector. Publicly traded health companies have 300% more debt than they did in 2009. The bond market has been wide open. S & P and Moody’s have both said that if you add up all the ratings they have done of companies that have borrowed, it is the lowest ratings ever. Why not? If you are running a business, you can get fixed rate debt or adjustable debt rates super low and really cheap to grow your business. So, of course you are going to do it.

Bruce said one of the problems with the last debt cycle is there were bets against the outcome called collateralized debt obligations. Bruce wondered if we have that in great quantity but different industries. John’s understanding is that they have cut up the corporate debt markets just like they cut up the mortgage market last time and are selling all sorts of things to insurance companies. There has been articles in Bloomberg and other places, so it is public info. It’s just not getting a lot of attention. Potentially, we have something there that would cascade into other areas. John said it is not his area of expertise, but he wants to know more about it.

Another of the four factors John talked about was societal shifts. During the next ten years, those over 65 will grow by 10 million people. The next category down will grow by almost none. The category under 45 will have 3.3 million. Bruce asked what the ramifications are for housing in those sectors and how investors can do the right thing. He said one of the ramifications right now is the move-up market is slow. There literally are fewer people in their 40s than there were ten years ago. You would typically buy a move-up home in your late 30s or early 40s. It is not down dramatically, but it is not a growth market. Then, you throw on top of that the fact that those people are moving up, but their current mortgage is 3 ½.

John Burns Real Estate Consulting surveyed 8,500 homeowners, and about ¼ said they would not move in that scenario. They think it is on about the 11% reduction overall to existing home sales volume they are going through between the demographics and the rising interesting rates. It is not a death note for housing, just fewer transactions. It is also fewer homes on the market. People forget this. It is not only fewer buyers, but people are not listing their home. This is why you see fewer transactions.

Bruce next asked about the ten million more people turning 65 and over. He wondered how this affects housing, which John said he thinks it is actually 18 million over the next ten years. The shift in people’s thinking is they used to think they were hitting retirement and were going to play golf. Now, they want to go where their kids have a job and where the grandkids are. We are seeing people moving to these areas, and we are doing a lot of feasibility work where people are selling their homes or keeping it and renting it out. They are turning around and becoming renters. Older homeowners are turning into renters for a variety of reasons. One may be the lack of a tax deduction.

The Norris Group would like to thank its Gold Sponsors for supporting I Survived Real Estate: Coldwell Banker Town and Country, Guaranteed Rate and Nathan Chabolla, In A Day Development, Inland Valley Association of Realtors, Jason Thorman with Coldwell Banker, Jennifer Buys Houses, Keystone CPA, LA South REIA, Las Brisas Escrow, Michael Ryan & Associates, New Western, NorcalREIA, NSDREI, Orange County Real Estate Investors, the Outspoken Investor, Pacific Premier Bank, Pasadena FIBI, Pilot Limousine, RealWealth Network, Rick and LeeAnne Rossiter, SJREI, Spinnaker Loans, South OC REIA, Tri-Counties Association of Realtors, uDirect IRA Services, White House Catering. See www.isurvivedrealestate.com for event information.

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