Peter is a libertarian and a capitalist. He believes that transactions which you can be proud of result from carefully conceived goals and plans followed by purposeful actions and scrupulous documentation.
Upon graduating from high school in 1965, Peter went right into the real estate business. His motivation was his desire to be self-employed until he could afford to be unemployed.
Pete says “Everyone who knew me believed that I was unemployable. They were right. I still am!”
Peter was excited about being free to build his business and his future. He attended seminars and read at every opportunity. He sought out and learned from many mentors and benefited from the example and counsel of his father who always encouraged and supported him.
Pete finished college with a clientele and an investment portfolio. By 1975 his investment income had eliminated his need for fees from clients to fund his lifestyle.
Peter continues to teach and to attend real estate and investment seminars and meetings regularly. He is respected for his clear and patient explanations of investment concepts and
transactions. He has been building, structuring, manipulating and managing investment transactions and portfolios for more than 45 years.
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 joined by Peter Fortunato. And we’ll continue our discussion. You know, I kind of believe that the way you start in real estate, it’s sort of like you almost have to force yourself out of that mold because you think that’s how it is. So, when I got into real estate, I got into it watching a flipping model.
Peter Fortunato Yeah.
Bruce Norris And that’s what I saw. And I thought, Okay, well, that’s, that’s how you do it. It was, it was years of prodding by Jack Fullerton before I started thinking about keeping something because it was, I would weigh you know, that’s the thing. Let’s say I’d buy a Fourplex, typically I buy it for 60 grand, it would sell for 130. I put 30 grand in it. And after closing costs, you make 30, grand 30 grand, or a semi lousy area rental that might produce $300, that was not a close contest to me. Now, unfortunately, those things went to 500 grand. So, it was pretty easy to see the winner. Had I kept the 24 plexes I bought, you know, instead of making 20 times 30 grand, I could have made whatever it was a crazy amount. So that’s. But that took a while for me to break away from the model that I thought that was the only one.
Peter Fortunato Yeah, well, when I started, I was buying small Maltese while I was in college. And then I had a, a decent portfolio providing me with a significant percentage of my cost of living. When I got married, in June and I got married, I wanted to be spending more time, wanting more free time. So, I traded every one of those in the nicer single family houses. And then later on when I had 30, little over 30 houses, we had four kids. And we wanted more free time. And we wanted easier income. So, I traded the 33 houses that I had an 82 into 22 houses and a $300,000 note portfolio, it was very specifically aimed at what my family needed, because value is so personal and so different for one person to another. John and I have have done single family houses most of our lives. So, we’ve all done a lot of different other things. But we have a friend who’s done only multifamily, and she’s aggressive as blazes, and she’s done better than we’ve done. If you’re measuring it in terms of wealth.
Bruce Norris Right.
Peter Fortunato People are so very different. Again, going back to the allies, every person I ever did business with, I stayed in touch with. And so I do business with them again and again.
Bruce Norris That’s a very unusual, very unusual model.
Peter Fortunato We cannot not be usual, you these are people you helped and who helped you. Why would you lose contact. But I had Gary Johnson asked me if I would do a presentation on the, the relationship between relationships and wealth building. And so in preparing for that, I found that in my 50 years in real estate, I had done 71 transactions with four families.
Bruce Norris Wow.
Peter Fortunato They ended the repeat and referral businesses ever so much easier.
Bruce Norris Yeah, uh, one of the things that you said, you know, when when I listen to seminars, and I’m making notes on like, Oh, that’s a keeper. One of them was each transaction is the seed.
Peter Fortunato Yes.
Bruce Norris And that’s a tremendous thought when you realize, okay, we don’t have to this is not the end. It’s the beginning. Well, that’s a pretty important idea to have in your head.
Peter Fortunato Yeah, well, I mean, I talked about my friend, John Bojack, who just was a remarkable, remarkable man who had some multi families when I was still in college, and I bought a property from him. And that’s where I met him. Well, I bought that property, no money down, subject to the first, seller carried second. He introduced me to quote his banker back in ’69. And we did 27 transactions in the next 30 years before he passed away. He referred me to a number of people I’ve done other deals with his family. Well, it’s madness to, to have done that first deal not to talk to him again. That’s it without me in touch enormous help and mentor to me and I to him.
Bruce Norris You know what’s interesting? Again, when you’re, when you’re shown one model, it’s a little hard to get it out of your head. So, you know, I used to run an ad that said, I bought houses, and I would sit across from people. And the only thought in my mind was I have cash, you have equity, I’m going to exchange mine for less than yours. I mean, that’s the only thought that went through my head. So, but that’s usually the thought that was in their head. So, how do you transform somebody from thinking you need to get a check?
Peter Fortunato It’s easy, because no one in this was specially today wants that cash. The only, the only reason someone will take cash is because it’s exchangeable. It’s an,, cashes a note, without collateral or interest or payments. So, who the heck wants that? You want it because of the greater full theory, someone else will accept it. So, when you can determine that they want that cash to buy another house, to buy a car, to send a kid to college to pay medical bills to pay for advertising. Now you know what they need. But for example, this year, what happens if someone gets cash, they go down to Bank of America, Wells Fargo, and get 1/10 of 1%. So, just let my tenant or they say, Boy, you know, I’m I’m not taking any risks. Like I don’t believe that FDIC insurance stuff. I’m going to put it in a treasury. And I’m going to get one and a quarter percent for 10 years, and really flee to safety. Well, can we beat that? Yes. But you have to pay attention to the people. I listened to a panel where a bunch of real estate people and accomplished people spoke to some of the REIT, a group of REITs. And every one of them uses their topic, how to raise money. And that’s not how you start. You raise funding not but, you raise funds to solve a problem. What you should be seeking is the problems. The job to be a problem solver, help that person, get that bigger house, get that smaller house, move back to code, to be closer to family. You know, I have a lady here who had a four bedroom house two storey. And she lived in her life, her life, her kids have grown up and gone away. And her husband had now passed. And then when I asked her, Why would you sell a nice house like this? She’s I’d love not sell my house. But the doctor said I can’t do stairs anymore. She raised her family there. So, we, we traded her after we discovered her friends in the church were closer to her than her extended family. And staying close to that church was critical. We traded her a condo in an elevator building with no yard to take care of, for her house. And those are the kinds of things you, that you have to go find out, you got to care to start.
Bruce Norris Yeah. That’s, that’s very cool. You know, as I grew into the business, I had some of those conversations. Were listening to the people, it dawned on me. Honestly, the first door knock I ever did over foreclosure was a real eye opener, you know, just knocked on the door here, here to, here to talk to you about your loan problem. Oh, lady was probably 75 or so husband the same age Oh, we knew you’d show up eventually. Come on in. I sat down with him. And she said, Well, just, with this deed to the house, we just don’t want any wood put on our windows. And I’m like, “wood put on your windows?” Yeah. Because you know, whenever somebody is in trouble, so they were ready to deed like a 40 grand house for 10 grand, and just get I said, Oh, can’t do that. So, I’ve sat there and basically said, “you have kids?” “you know, and one of them’s on the way”. So, I waited until he showed up and I didn’t want to do that transaction. In other words, there’s got to be a better way. You don’t want to be homeless. And so, but I know that that’s how you feel about things, you, you, you get the whole scoop if you can, and then you’re bombarded with solutions that make sense to both of you. And that’s, that’s fun.
Peter Fortunato I try not to bombard them because people can get swamped.
Bruce Norris Yes.
Peter Fortunato I try to make an offer and they get a response. And they say, Well, no, that won’t work. And I say why? And then I will come up with another proposal. I’m not going to give up. But it’s really important that you make that ally, because the ally is much more valuable than the property. Because the ally, the repeat and referral business which will go on for years.
Bruce Norris Yeah, I think that’s, I think that’s a lost notion in the training business. But it’s, you’re right. It’s, it’s, it’s awesome. And I’ll tell you why, you know, how that plays. A role is hard money loans, money sources, you know, that type of thing. Because if you get a trusted money source, you have a trusted money source still, they’re not here.
Peter Fortunato Yeah. Yeah. Almost everyone I’ve, I’ve ever borrowed from, started out as a seller carry. I bought a house. They didn’t give me money. They gave me a house. But I kept my promise. And they knew I was doing real estate. So, then they come and make a deal, make an offer to lend me money.
Bruce Norris Right. Yeah, a lot of times, you don’t know how many zeros are behind somebody’s life until you prove that you’re trustworthy and all of a sudden, you go Oh, yeah.
Peter Fortunato Yeah, …the other day. And they had gone to a realtor to buy a property, very, very expensive property here $2 million property. And, of course, the realtor assumes, and so the realtor says, well, they want all cash. Well, that’s absolute nonsense. They want the cash to do something.
Bruce Norris Right.
Peter Fortunato And so the realtor was confident enough to let the gentleman who came to my house to ask me about it, talk to the seller on the telephone, until they talked on the telephone, and they got a little bit of a rapport. And so I said to him, “go down to this, to see the seller at his house”. “So, can I do that?” Probably. It’s not hard to go see him. And so he went down there and spent four hours the other day. And the gentlemen, the couple needed no money, not a cent. But they’d love to have 3%, which was 30 times what money in the bank would cost.
Bruce Norris Wow.
Peter Fortunato It’s foolishness to miss that by not going face to face with people you want to see. Not just hear, you don’t want to read a text. You want to see those tears in their eyes from laughter or from anger, or from sadness. We’re face to face. The business we’ve done is just remarkable.
Joey Romero Bruce, I’m just wondering, how active Peter are you and is everything you’re doing in Florida?
Peter Fortunato Yup.
Joey Romero Or you still do transaction an out of state?
Peter Fortunato I don’t do transactions away from me. Aside from with friends, I was at the exchange meeting the other day, and an out of state house was presented, which has a rent, which represents an 80% cash flow on the cash required to buy the house. And but it’s out of state. And so because it’s in a state where I do know some investors, I do have friends, I wrote a contract, assignable contract. And then I’m going to use that contract to just assign it to one of my friends and let him buy the property. Or I would buy the property and least option that says I need someone who I trust and owns properties, where, where the property is, I don’t want to own property and just say a Hail Mary, I want to recognize what happens when the market changes in that neighborhood. And if I’m not in that neighborhood, I don’t see it. In 2004, I bought an auction from a guy out in Winter Haven to buy a house into long term option was an investment I expected about 20 years. And in 2007 called me, he said “Pete I know you want this for a long time. But my market is slipping. I can see the market deteriorating, we should sell out now.” And we sold out. And I turned $19,000 into $30,000 in two years. But I wouldn’t have recognized that if I’ve just done that myself back here in Madeira Beach. But it’s because I did a deal with someone who I knew and liked and who was actually competent in the real estate business. He was, he has, he was working that market every day and he saw the change coming.
Bruce Norris Just, I’m just curious how you, how you feel about 2022? Is it comparable to another year in our past? Are you concerned about where we are in price, I guess?
Peter Fortunato Oh, I’m not all so concerned about price. And demand, we’ve got a greater supply of dollars and a lesser supply of goods and services. Does the government put people out of business. And so they eliminated jobs in businesses in the small business sector of America. So the goods and services that are available and that would be increasing, should be increasing, I have been lost. And the money supply is grown by 40%. My friends here, are happy because their $200,000 house from a year and a half ago is now $300,000.
Bruce Norris Correct.
Peter Fortunato And then I point out that there, the $2 gas from a year and a half ago, it’s now 350. So, the falling behind unless the leverage. But indeed, recognize, you have to be very aware of real value versus nominal value. Because people are getting paid in dollars, which are nonsense. They’re just a conduit, they’re just a mechanism for the exchange out of something you like less than there’s something you’d like, more, and the more dollars are out there. That’s devaluing things, if you think in terms of real value, the example I use my class all the time, in 1965, I got out of high school, and I met Bruce and I borrowed $1 from them. And I took that dollar. And I bought 21st class stamps and sent out letters and ended up buying the house. Now, I bumped into Bruce tomorrow in Sarasota, and said, “Gee, Bruce, I owe you that dollar,” and I pay him back. See, if you’re not aware that the fact that I paid him $1 doesn’t mean he was a giant loser in that deal, because of the real value of the dollars. And that’s what I see. I don’t see the government even for a minute, stopping once they discover that inflation is a way to steal from everybody. And because you’re the counterfeiter, you get to spend it first before it devalues. I expect more and more and more dollars. In 74 hours in Argentina, and I stayed with a gentleman whose base was full of tools. And he said the reason I have all those tools is because the peso is losing value at last 27% In the month of September, these tools don’t use lose value, because they have utility.
Bruce Norris Right.
Peter Fortunato I was four years old, I was horrified. Imagine that, now I’m living it.
Bruce Norris You know, there, Cal Poly Pomona in California, had a very interesting thing they did in the 70s, from 70 to 80. They basically got a quote, to build the same house every year from contractors of every type. Yeah. And so the progression of the price escalated a lot. They also had labor rates. So, what did you pay the plumber? The electrician, everybody? So from 70 to 80, especially if say 73 to 80? Everyone’s wage doubled. But what you’re saying also happened their buying power was at about 75% Even though it doubled. Yeah, so they lost ground.
Peter Fortunato Exactly. You got to be aware of the the nominal value versus the real value.
Bruce Norris Well, the the other thing about that is that Cal Poly also tracks, two charts where you have existing home prices and new home prices. And only three times in history have the existing homes been more expensive per square foot than the new this is in California and today is one of those times and so that literally means that my use wall is worth more than Lunars new one yeah and that’s that’s a protection against inflation. When you have a rental property you have not only labor you know your basket of labor but you have all these supplies that are going up if you’re gone building houses right now you know, lumber changed. Well, you’re used house price change to because it’s full of commodities and labor and land. So, that was that was really interesting to learn.
Peter Fortunato That you really need to be aware in my market there’s, there’s less concern now you’re hearing and talk about, GB interest rates have gone from two… three and a half.
Bruce Norris Yeah, oh my god.
Peter Fortunato That’s going to hammer house prices. And it’s not because you’re talking about house prices in terms of the paper dollars that if you put it in the bank is no reward. In statistics you’re losing every, every month. So, those cheaper dollars are fleeing to property and the tools and the lumber and the cars and we look at the used car prices about 39% last year, because people want to dump those dollars. That’s really important. The risk in real estate is what we’re seeing with property taxes because government gets to steal. My son bought a house two years ago, the taxes for the seller was $748.
Bruce Norris Right.
Peter Fortunato His taxes are 8600.
Bruce Norris Yeah. Wow.
Peter Fortunato See, that’s a lot less than a half a percent the interest rate now.
Bruce Norris See, what’s what’s really interesting about the assumption on the ye,ar a lot of smart people say when interest rates go up, of course, real estate prices go down. And that’s why I love charts. Because all you have to have the two charts. So, from 74, to 80, interest rates went from seven and a half to 15. California prices went from 34 to 102.
Peter Fortunato Yeah.
Bruce Norris When interest rates doubled. So, at least you can’t say that’s an absolute because there’s a cycle there that prices, everything escalated, but real estate prices went up as interest rates doubled.
Peter Fortunato Yeah.
Bruce Norris That you wouldn’t have ever thought part of what also happenes Pete, you know, you have people that, I for whatever reason, they’re, they’re upset that they didn’t, you know, they’re, they’re waiting till it gets to 1.9 or something. And then so they miss two point something, well, you get, you get kind of urgent, you don’t want to get to five.
Peter Fortunato Yup.
Bruce Norris And you become a buyer, maybe because you don’t, oh shoot, I missed the two’s. But I don’t want to miss getting into the other four or five. And so you start pushing it. So, I’m really, I’m really interested in so you don’t, you’re not concerned about price levels going down in Florida at any…
Peter Fortunato I don’t see how price levels go down when you’re paying them with pieces of paper. The highest and best use of $1, one day is going to be toilet paper. I’ve told my kids, my grandkids that the houses I’m buying today for them. One day, they’re gonna decide whether they take that rent check that comes in and go to lunch or pay the mortgage off.
Bruce Norris Oh my gosh, okay, so you’re very much in the we’re gonna have a high inflation.
Peter Fortunato Well, you can’t print all, it’s truly supply and demand. You can’t print all those dollars. No, it’s like, if you had a little tiny microcosm economy where there were $10, which was total currency, and there were 10 workers, each one’s essentially going to get $1, but all of a sudden, double the amount of dollars. So, there’s twins, everyone’s getting $2.
Bruce Norris Right.
Peter Fortunato Because you’re still dividing up the same number of goods and services. So, in the event that you had a technology kind of thing, where genius further provides better goods and services, then you have a deflation, and your money buys more, which is what it should be. But the government has destroyed productivity. We look at the people I’ve got two tenants who moved from high tax states here, because there are a lot by their companies to work off site to the techie people with computers.
Bruce Norris Right.
Peter Fortunato And then so they kept their jobs, they moved from one from New York, one from Connecticut. So this year, for the first I’m sorry, 21. For the first time, they didn’t have to pay those crazy taxes in New York and Connecticut. So, they get this giant raise. And both of them were told that they were going to be fired unless they don’t get vaccinated. Destroying those people’s productivity as well as their incomes. With that kind of damage being done to supply of goods and services. At the same time that they’re inflating the money supply, I see no alternative to higher prices because the paper is just worthless. If you really go back and read about the the inflation after the Weimar, World War One and you’ll find it was a, it was a mirror of what’s today, I was reading a book which had some quotes from diaries of people in the, in the 1920s. And those, the lady that they were featuring in there, talked about how, well they started by talking about the the German government found that the war effort was very unpopular. So, they decided, let’s not tax people, because that will make it more unpopular. Instead, we’ll just print the marks to fund the war.
Bruce Norris Okay.
Peter Fortunato Then all those extra marks were there and you had enormous inflation after the war. So, then what happens is the government says all those evil laborers and labor unions charging too much for their labor, those terrible businessmen charging too much for their product. Those awful landlords charging too much rent, so they immediately put price controls in to protect people. So, in the in the story, I was just reading, which had the diary, this lady was a single mom with three kids. And she rented a house, which was a rent control house. And she then rented one of the bedrooms for 10 times what she paid for. So, she was AirBnb-ing in the middle 1920’s. And we’re seeing the same thing today.
Bruce Norris Wow.
Joey Romero Yeah, I’m asked this question, because John Shelby told me, it was a great question last time when I asked him.
Peter Fortunato Uh-oh.
Joey Romero So, you know, inevitably, when, when I’m at presentations with Bruce, you know, he tells, you know, everybody what’s going on, and he does this presentation. And then right, as we’re walking out, you know, you got people stopping him. And they want to give him their like, their basically their problem, their issue, their, the thing they’re thinking about doing, and “Hey, Bruce, what would you do?” So, not, not, not necessarily that but what would you tell somebody that’s just brand new getting into real estate in 2022? From your perspective, what would, what would be your advice to that person?
Peter Fortunato If they didn’t have good people skills, I tell them be very wary. I’ve always taught capitalism and acquisition to all the young people I’ve been around. But the last two years with the end of freedom in the United States, do I know too many people who bought a house made a promise to make a payment, and then rented the house to people who were told by this, CBS News, they didn’t have to pay the rent. And so in my lifetime, people were expected to pay the rent and expected to pay the rent. And they were actually looked down upon by their neighbors and friends and family, if they did. Today, you will find that young person who buys that first property and his, his mortgage payment is $958. And he’s got a renter for 1000. And then in March of 2020, the government says, Oh, you guys don’t need to pay the rent anymore. So, they stopped. Now, when that happens to someone who’s got some seasoning, and got some staying power, that’s, that’s one thing. But when it starts, when it comes to that brand new first home buyer, that’s very, very, very serious problem. Now, if they’ve got some skills in management, and they used to communicating and talking with the people, they’ve got a chance to survive it. But if they don’t have any of those skills, they’re taking more risks than I’ve seen people take in getting started. The other thing is, I’m pretty old. So, when I started, a typical cap rate was 10%. And it was 10% mostly because it was easy math. But aside from that, the the money that was put in the bank where it was, called “safe”, was in the bank at two and a half to 3%. So, the rewards you got for taking your money from the safety of a bank and investing it in real estate, was you tripled your yield. Today, your money’s in the bank at 1/10 of 1%. When you buy a cap rate of four, you’ve increased your yield by 40 times. And so, it’s the greatest reward for taking risks that’s existed in my lifetime. But with that increased reward comes the responsibility to, to know you got to have a relationship with the people whose promises you accept. Because it’s got to be relationship based because it will no longer be legally enforceable.
Joey Romero By the way, John’s answer that question was eliminate fear and just go do it.
Peter Fortunato Oh, John, John and I were at a class John was teaching. And some young woman said to John, you know, “how long did you and Pete study before you reached your first deal? How many packages and CDs…” and, and John said, what Pete and I had in common when we started is bravery. And that was a great answer.
Bruce Norris I did this because that’s exactly how many courses I had. Well, Pete, I’ve enjoyed getting to talk to you today. I appreciate I’m just curious if you’re, if you were now forget about having a rental. If you’re a renter, and you had a chance to buy a home. Is that something that you would do?
Peter Fortunato Yeah, and we’re seeing in my market right now. People who want to pay $1,200 a month, and they can still buy at $1,200 and they cannot rent a $1,200.
Bruce Norris No, the rents have gone crazy, too.
Peter Fortunato Yeah.
Bruce Norris Crazy. Crazy. Okay. Thanks, Bruce.
Joey Romero Thanks, Peter. Appreciate it.
Narrator For more information on hard money, loans and upcoming events with The Norris Group, check out thenorrisgroup.com. For information on passive investing with trust deeds, visit tngtrustdeeds.com.
Aaron Norris 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 www.thenorrisgroup.com and click the Hard Money tab.