Pt 2 Kathleen Kramer. What we know, what we think we know and what we don’t know.

Kathleen Kramer thumbnail


In her 25+ years as a licensed Real Estate Broker and Mortgage Originator, Kathleen Kramer has closed over 2500 transactions for more than $1 billion in volume.  She ran a successful Real Estate club in Huntington Beach from 2002 to 2006.  She and her husband, Michael, have personally invested in a variety of real estate-backed investments including single-family, multi-family, office, land development, reg D syndications, and non-performing notes in several states.

Investing in real estate gave Kathleen the financial liberty to take a sabbatical from her Real Estate and Mortgage Brokerage business for the last two years.  She spent the time rehabbing her house in Huntington Beach, travelling, homeschooling her daughter, caring for the older generation and planning what is ‘next’.

Kathleen earned a degree in Business Economics from University of California at Santa Barbara in 1990.  Besides being a licensed CA Broker, she holds certifications in Commercial Real Estate, Private Lending and Mortgage Planning.  She is a regular speaker at the Orange County Real Estate Investor Association, providing monthly macro-economic and local Real Estate market updates.  She enjoys leading a Girl Scout Troop, teaching classes on real estate due diligence, and coaching her clients on moving up from single family to multi-family investing.

Bruce and Kathleen talk about what segment of the real estate market may be in danger.  Migration in the United States and what event to look out for.

See below for full video and resources.

Episode Highlights

    • Segments that are in danger now
    • California Legislation
    • Migration
    • What we know, what we think we know and what we don’t know
    • What event should you look out for that will have the biggest impact on Real Estate

Episode Notes


Narrator  This is the Norris group’s real estate investor radio show the award winning show dedicated to thought leaders shaping the real estate industry and local experts revealing their insider tips to succeed in an ever changing real estate market hosted by author, investor and hard money lender, Bruce Norris.

Bruce Norris   Hi thanks for joining us. My name is Bruce Norris. And once again we are with Kathleen Kramer. And we’ll pick up where we left off last time talking about the United States economy and the recovery and how real estate is doing.

Kathleen Kramer  Remember we talked about government irrational exuberance, right and they’re they’re not regulating the marketplace? Well, this time around the banks and the rating agencies all decided that apartment multifamily housing was the place to be. So you had some banks notably Chase in California market. Chase was doing one of those fog the mirror type loans on apartment buildings. And basically, if you just hit a certain debt to that debt ratio, you could borrow, you know, 70% of the value of this apartment building in that C class space. And so a lot of people came in and bought these apartment buildings at rates of return that didn’t leave enough meat on the bone for a downturn. So I don’t want to get too technical with cap rates and all this kind of jargon. But basically, if you think about it, most of these transactions on these apartment buildings are going out with only a profit margin of three to 5% and 5% would be high. So that would be a home, that’d be a home run, like, Hey, I got this cap rate of 5%. You know, that would be Woohoo, party, you know, but what it didn’t take into account was a high enough vacancy factor. And what if your collections go down significantly, like we’re going to see and we’re going to see how this experiment turns. out here in the next 60 to 90 days, because the with the lack of subsidy unless the Congress comes back and works out a miracle and they all of a sudden hold hands and sing Kumbaya in Washington, DC and come up with some return to this federal minimum income that they’re doing. You know, unless that happens, I think we’re going to see it in the next 60 days or so, where and we could probably just watch that national multifamily Council. Rent tracker would be a good indication to see how deep that might go.

Bruce Norris  Well, there’s also a move to get out of apartments and get to a single family home, you know, where people were living close together, they want to have some space. So the apartments definitely had its run and part of the part of its run was on the backs of all the foreclosures that occurred to 2008 2009, etc. Where you had people’s credit ruined for the first time in their life, and they could not get back in. So they were a renter for seven or eight years. And now that time is over.

Kathleen Kramer  And again, we’re going to have a variety of outcomes. You have some apartment owners, mom and pops that have owned these buildings for 20 or 30 years, right? They got in investing, really they own the property, you know, and they’ve owned it and managed it themselves mostly. And I think they’re going to be okay, as long as they didn’t, I think it’s going to be the transactions that were done in the last five years that are in trouble. Because this is where the valuations got crazy, the loan to values are high. And I was talking with an investor yesterday, and he’s a single family home investors got a nice portfolio of seven properties and, you know, some in different parts of the country. And he was asking me, you know, he said, you know, is this the time to get into maybe a joint venture of an apartment syndication You know, and I said, Well, you know, yes and no, I think you might want to wait for a little while until the dust settles with all of this subsidy. But then I think it might be a good time because here’s what happens when income goes down on an apartment loan. So think about the financing for a minute. And this is a different concept for people to grasp if you’re used to getting a Fannie Mae 30 year fixed rate loan on your single family residence rental. Because if you get a single family residence rental, Fannie Mae 30 year fixed rate loan, and the tenant moves out and as long as you make that mortgage payment, you’re fine. But that’s not how it works in commercial lending. So it’s completely different way of managing that asset. The bank is really your partner on those transactions. And they’re going to require that you submit your income statement and and your rent roll and your financials for the bill. At least once a year, if not more often now because they’re going to be watching over these assets very closely. And these loans have covenants and clauses written into the loan agreements that would require that if your income goes down substantially and there could be a clause in your mortgage that requires that you bring additional capital in and pay that mortgage down to keep the income to debt ratio,at a certain level.

Bruce Norris  Wow

Kathleen Kramer  so this, this is what happened with a lot of syndications in 2008 and 2009. So apartments, syndicators, got excited rates had recently had gone up, if you’ll recall, at the very end of the cycle, the last time rates were going up. So these syndicators went out. They bought these properties. They assumed the loans that had been existing. Most of the commercial loans on an apartment building are not 30 year fully amortized. They Come due in five, seven or 10 years, and you have to roll them over and basically re qualify for the money. So what what what is more likely to happen is that the distress will happen faster, because in the apartment space because the banks are going to have to be protecting their balance sheets. And if they if they have to go in and look at a lower income profile on a building, they could be calling in some of these covenants. You know, this is the danger in the commercial real estate space. So you’re already starting to see it happen. I was reading articles this morning about the hotel space, and some of the retail spaces, especially in the big cities that are already renegotiating their loan agreements with their lenders. But, but I think it’s going to come in the apartment space. And it’s just a matter of when

Bruce Norris  well that will be some bad news, especially connected to rent control legislation. And, you know, the tenants having inability to maybe pay as quickly, or as much that type of thing. So that might be, might be the wrong asset class to be in in 2020 for a little while, for sure.

Kathleen Kramer  I agree. It’s also where the most opportunity may be in the real estate field for our listeners, you know, for the people that are in our world, who may want to still manage their own properties. I mean, you have to have nerves of steel to be to manage your own properties in California right now, because the rules change about once a week. And every time you turn around, they’re putting another ballot initiative on for rent control and rent boards. And you know, if prop 21 you know, goes through that’s that could really decimate our mark our rentals and you know, that that legislation now, you know, they’re calling for single family owners to be affected if you have more than two properties. So That could be a significant game changer for the rental single family rental market in California,

Bruce Norris  When I would, you know, I looked at charts that looked at charts for the last 30 years pretty diligently. And sometimes you look at a chart, and you think you’ve looked at it and got it completely, all the information that’s going to give to you. And then I was looking at a population gain. And I don’t know why, but it just occurred to me, California has a lot of population gain, but I didn’t pay attention to what it was made up of. And I did that last year for the first time. And virtually 100% of population gain in California right now. And probably going forward for the next decade or so. Is birth over death. It’s not having anything to do with people coming here, over people leaving. So California, you know, it’s interesting to me about you know, thinking about demand for real estate. It’s basically got all the adults that are going to be here. I mean, it’s sort of as many adults is going to be here are here already in California. We know there’s there’s people leaving and people coming, but people leaving our outnumbering the people coming in. I don’t know, do you know the diversity of their income? Do people with less income leaving and more income show up because of migrating from other countries?

Kathleen Kramer  You know, I haven’t dug into those statistics. So, so no, I don’t know what that makeup is.

Bruce Norris  Now, what was interesting was the makeup of population gain. So I just moved to Florida. Almost 95% of Florida’s population gain is migrating adults and families and their birth over death rate is almost identical in number. So all of Florida’s population gain is an adult, family or an adult that moves in Ready to rent or buy something? That’s a very different population gain.

Kathleen Kramer  Yeah, I guess I haven’t looked at that. Because in our world of buying second trust deeds, we don’t buy anything in California. Isn’t that funny? We live in California. And but we don’t buy notes in California because we have found that they are. There’s still a psychological belief that they’re worth more. And so it’s our belief that the investor you’re buying the California notes are overpaying. So we tend to stick with where we can get the deepest discounts. And that seems to work better for our business model. And so we’ve made bids on California stuff, but we just don’t we don’t end up getting them because we’re just not willing to overbid. So I think the old saying, you know, it’s, it’s what you pay for something that really gives you that run on your investment. You know, and don’t get, don’t get lulled in or or swept up in the in the herd and overpay for an asset. You know, even if you think that asset is going to be strong in the long run, it’s better to make your money on the way in is kind of the way that I’ve, over the years that we’ve, you know, started to do more. That’s how we do our investing. Now.

Joey Romero  it sounds like more of the same reason that Bruce and the Norris group are in Florida.

Kathleen Kramer  I completely agree. And I don’t see any issue with you guys go to Florida, I think it’s a very savvy move. You know, it’s kind of sad. I think that we wouldn’t be moving our business out to if it weren’t for our adult parents that were taking care of and being with while we have the time to be with them, you know, rather than uproot the entire multi generational family and all try to move to one place, we’ve made a decision, a business decision and a family decision to stay in California as residents until we you know until the parents, you know have have moved on. So it didn’t really I can I can make arguments for going out of California, I still think there’s money to be made in California in real estate investing. there’s money to be made in any market. It’s just how much can you pay for that asset? And then are you willing to learn and play the rules of the game that the government is going to set up?

Bruce Norris  It helps to know what those rules are? Yeah. Yeah, exactly. Yeah. That’s the biggest disadvantage. And for me is that I’d like to know the rules of engagement, you know, give me the rules. Let me let me understand the rules can I decide to play or not, but when I am in midstream ownership, and I find out that you have the ability to change the rules that I thought had to get voted on. Those are the things that that bother me. You know, Aaron sent me an article about taxing wealth. It never dawned on me. That That could be a state function. I thought that would be a federal function. And so now the state of California has to come up with an I don’t know, how does that get passed? vote on that? I doubt it. That’s a, that’s a scary thing. Does that get proclamated into existence? Because some of these things will have pretty good ramifications. When you think about, I would say less than 3% of the households pay 50% of the state tax in dollars. And so you’re going to raise taxes on the small group of people that pay an awful lot of dollars, even if it’s not a high percentage. That seems to be a bad theory to end up with net, less dollars and more problems to me.

Kathleen Kramer  Absolutely. And you know, you don’t have to have an economics degree to understand how that works. people vote with their feet. And I think we’re seeing it in New York. We’re definitely seeing it in San Francisco. People are moving out of the city. And there’s the vacancy rates are skyrocketing on apartments, but across all the levels, you know, high high net worth individuals, Elon Musk, you know, taking his business out of California like he threatened to do and he’s making good on his promise down and he’s gone to Texas. So, you know, it’s it’s interesting to me and you know, we’re really kind of in a wait and see profile right now to see what happens with the general election. But I don’t see there’s that there’s much hope for California in the short term. Because what the problem that we have is we have this super majority of one party in our state legislature, and they have the governor’s office, they and the you know, the Attorney General and they’re all on the same page moving in the same direction, which is a direction that we don’t necessarily agree with as real estate investors and that’s the issue if you are on the welfare Roll. You’re loving it right now, because it’s getting easier for you. Right? So it just depends on where you sit. I think it’s going to be very telling. And you wonder when it reaches that peak climax, right at that point of recognition, the hundredth monkey so to speak. If you know that analogy, where the conventional knowledge in in the population, the awareness gets to the point that Oh, my gosh, we’re going the wrong way. You know, I don’t know. That’s a good question.

Bruce Norris  I don’t know. It’s a great question, not just on the state level, but the national level too.

Kathleen Kramer  That’s right. That’s right.

Bruce Norris  Yeah. So on the wealth tax, do you know, do you know how that gets implemented? If it if it ever did is that instead of a vote of the people or is that a vote of people that are in government power?

Kathleen Kramer  Well, I would hope that they would take it to the people. I think that it I think that if they want To change policy, they would have to have something go through the legislature. The governor can’t just change the tax code in California, on its own. So I would think that the California taxes is that what you’re talking about? Are you talking about at the federal level?

Bruce Norris  No. In California, because I get a feeling this you have sort of an emergency power. It’s, it’s kind of amazing what you can come up with and say, Oh, we can do that.

Kathleen Kramer  Well, yeah, I don’t think it’s that surprising. I mean, I, I understand what you’re saying. And it is shocking to see what they will do on their own. They have the super majority. So it’s pretty much the only thing that’s keeping them from going to full complete rent control. full complete, you know, socialist type of agenda is the lobbies. You know, we have the California Association of Realtors, we have apartment owners. We have other pro business type lobbies that, you know, do still contribute to campaigns and so on and so forth. And, you know, every once in a while they can stop some of this madness, but the amount of legislation that is coming out, and the types of rights that they’re taking away, they’re just pushing stuff through and hoping that it sticks. So it it to me, it’s crazy, you know, and I think that I think it has to come to some kind of a crescendo. I think they probably could go a lot longer than we hope they can. But you know, there is there. They are collecting 2 million signatures to recall Gavin Newsom. So you know, that there is a groundswell. It’s starting to come from the grassroots of people acknowledging that, hey, you know what the pendulum has swung too far. We need some more reasonable, reasonable reactions. And I wonder if the school issue isn’t going to help push that change of sentiment. along, because it’s pretty well known that the California teachers unions are the ones that are keeping us from opening our schools again, you know, in the fall, and I just don’t I just don’t think that people with school aged children, even if they vote Democrat, I don’t think they appreciate that. You know, I don’t think they like the fact that teachers unions put all kinds of recommendations into their plan for reopening, such as socialized medicine, single payer medicine for all in California. That was in their recommendations to come back and reopen that was a condition that they were suggesting for reopening the schools. The list was very, very long. And so in fact, I tried to stay out of social media, political arguments, I got baited and I responded to a post and about that issue, and you know, oh my goodness. So I hesitate to bring it up. A lot of teachers or investors, you know, but it’s not really the teachers. It’s the unions that are the issue. So I don’t know. I, you know, I don’t know that I have the answers to that. And I think that I think that in California that even the statistics, so we’re data people, right, you and I are data people, but even the data is unreliable.

Bruce Norris  Well, that’s when you kind of when you lose trust in the system, you have to rethink a lot of things. And it’s troubling. I remember this is goes back to 2008. Just watching Squawk Box in the morning that they were going to vote on the the tarp fund bill, the $700 billion. And Warren Buffett was being interviewed and he said this, he said, Well, he said, to be honest with you, if they don’t pass it, you need to go to your room and pray and that scares the heck out of me. So I went back to get you know, like a year’s worth of money. Well outside the There was a line that was 40 people long, not with masks on with IO use in their hands, because at the time you couldn’t get cash , right? You have to like order your cash. And that’s, that’s the kind of stuff that, you know, this year, you thought, okay, you know, I’ve got most of my ducks in a row and all that and then you realize, Wow, you can have a virus turn in, turn the numbers into Great Depression. And then you realize there’s a lot of people that are months away from big problems in their life, months away from going through all their savings, and, you know, being evicted or being, you know, foreclosed on. I don’t know what percentage those people are. But it’s it’s a lot more. And I think that’s also makes you It makes you nervous.

Joey Romero  20:52

Kathleen, I’m so fixated on something you said you said earlier that you don’t think it’s going to be a V shaped recovery. Do you have an opinion on what kind of recovery it’s going to be? How long it’s gonna take? Or is it more of if a happens, then this B happens then this?

Kathleen Kramer  21:09

Yeah, I think that I don’t know that we’re necessarily going to be able to know in advance what shape the recovery is going to look like. I think there’s just too much that we don’t know. And in my last talk, I really tried to break my talk up into a little differently than I normally do. And I broke it up into what we what we know, what we think we know, which was kind of the employment situation. And then what we don’t know. And the list, believe me for what we don’t know, is a lot longer than the list of what we do know right now. You know, from my perspective, I think that a smart investor, if you understand your market, and it’s local enough, and you understand the rules of engagement, as Bruce mentioned, and then you You know, keep going doing what you’re doing, you know, you don’t need to completely go into a fetal position. However, if you’re new to investing, you might want to sit and watch for a while and build your cash reserves. Do some small short term stuff, if it makes sense, but I would really wait for a lot of this government intervention to settle down at least past the election. And then depending on who’s in charge after the election, then, you know, try to make a few more assessments after that time. I don’t think we’re gonna see a huge single family crash. We just don’t have the inventory, excess inventory. People have equity, even if credit gets tighter. I still think there’s going to be people that can qualify and buy these homes most from us. So I don’t think we’re going to have huge distress there. I do think there are going to be more opportunity in the apartment, re-purposing the commercial property like the hotels redevelopment of hotels into different uses, you know, there’s gonna be, there’s gonna be a clearing. You know, I mean, maybe some of these smaller hotels need to be senior housing. I don’t know what it’s going to look like. But I think that what we could do is we can figure out what are the things that we’re looking for?

Joey Romero  Well, that’s it. That’s one of the things that you said, right? You end it with the long list of events to watch. So my question for that was, what’s the most important event to watch? that’s going to impact real estate.

Kathleen Kramer  I think right now, the most important thing to watch is if the Congress can put together an extension, a meaningful extension of the Federal unemployment subsidy, that’s propping up the apartment industry right now. And if that shoe drops, and we have a huge vacancy or a non payment collections issue in the apartment segment, I think that that could trigger the banks to tighten their credit across all the platforms. Because they’re already setting aside a lot of money for defaults in a commercial space, I know Wells Fargo just put aside 6 billion chase put aside 4 billion out of their profits in anticipation of these losses coming through, and the Fed is buying the bonds, you know, they’re supporting the interest rate market, but they can’t, they’re not going to do that forever. At some point, they’re going to allow that market to clear. And the true cost of credit is going to change the pricing model of these assets. So I think what we’re looking for is we’re looking for how is the government going to phase out this extraordinary subsidy that we’ve been providing? How fast can these jobs really come back? And I just don’t think we know I use it. To give you an analogy, I use a roller coaster as my graphic instead of a V shaped recovery. Because

Joey Romero  it wasn’t a typical roller coaster either in so many turns.

Kathleen Kramer  And you know, your experience on a roll coaster, it changes depending on where you’re sitting, right? If you’re in the front seat on a roller coaster, that’s the most adrenaline, that’s the riskiest spot, if you will, because if it’s going to go off the track, you’re going to be the first to go. Right. So these are our medical professionals who are on the front lines. These are people who perhaps contracted the disease. These are people that are holding huge hotel rates. These are, you know, the airlines. These are some of the people that are kind of on the front line of the risk, if you if you will, there’s a huge list of them. I’m just giving you a sample. Then you have some of the people that are kind of in the middle and then some of the people that are in the back. And when you’re in the back of the roller coaster, you see what’s coming ahead of you, right you can see maybe people are sitting they have a nice portfolio has a lot of equity, providing a lot of cash flow, they have high quality tenants, and they’re just going to sit and watch and ride the ride. You know, I think that the experience that people have will be very different. Depending on where you are in your life and where you are in the risk profile, you know, I just continue to look at the data, try to make good educated decisions, and then take action. And that’s, that’s what investing is all about. There’s always risk and it’s uncovering as much as you possibly can, and then making choices and then living with those choices. Sometimes they’re good, and sometimes they’re bad. But, but we always learn something from those choices. I know we’re probably close to wrapping things up. So I just want to say that I am working on a new project. I’m coming off on my sabbatical. And I’m working on a new project. We’re not really ready to launch it yet, but I have a partner. Most of the people on this call probably know who that know who the person is when they find out. And we’re going to be trying to convey to real estate investors the benefit of some of these lessons learned from some of our most seasoned investors and then help people try to To walk their way through these uncertainties, and keep their portfolio strong. So there’s enough of a hint that I’m excited about it and puts together all the different experiences I’ve had over 30 years, almost in the industry. You know, I’ve made a lot of mistakes. So we could talk more about those on another call. And it’s because most of the what’s what we learned from right. And so I want to hear people’s stories about the wins and the losses, but more about what they learned through those losses. And so that we can try to help other investors find liberty in their life, because I think real estate is still one of the best ways that people from all walks of life can change their situation. They can pull themselves up out of whatever situation they’re in and make something bigger and better out of their life through real estate. I really honestly believe it’s one of the last vehicles available to folks and it’s very approachable. Anybody You can do it. It’s just a matter of getting through that first fear that you have and taking action.

Bruce Norris  Definitely I completely agree. And I and I suppose we’re out of time. So thank you so much for joining us. Your website. Can you give that please?

Kathleen Kramer  Oh, yes, sorry. I forget to give myself a plug, don’t I. So if you want to reach me, it’s And you can email me at Kathleen And you can also connect with me on LinkedIn at Kathleen M. Kramer. I love connecting with folks on LinkedIn. And that’s really the platform that I like to use for my social media stuff. So if you want if you’re curious about what we’re going to be doing in the future, and want to engage that would be a good thing is just friendly, or connect with me on LinkedIn and then you’ll be in the know when the announcement happens. And good luck to you out there. Bruce, we’re all rooting for you. And you know, we Have you may have a few thousand friends following you to Florida

Bruce Norris  Yeah well I’m already up to my eyeballs you know it’s funny yesterday and it will have to wrap up yesterday I was driving the area where we have maybe 20 houses being spec’d and you cannot look down a street without seeing a construction toilet. There was no street I like to look down there was an activity that was just it was such a such a startling difference

Kathleen Kramer  maybe instead of a laundromat we should be we should be starting a porta potty rental company.

Bruce Norris  That would be big in Florida for sure.

Narrator  More information on hard money loans and upcoming events with The NorrisGroup. Check out For information on passive investing with trust deeds, visit The Norris group originates and services loans in California and Florida under California DRE license 01219911, Florida mortgage lender license 1577 and NMLS license 1623669. For more information on hard money lending go to the Norris group comm and click the hard money tab.


Scroll to Top