Bruce Norris is joined this week by Peter Fortunato. Peter is a long-time real estate investor and trainer. He is a libertarian, a capitalist, and he believes that transactions result from carefully conceived goals and plans followed by purposeful action and scrupulous documentation. Bruce has known Peter as a trainer for many years, and even the most experienced investors learn from him and come home with their head hurting when they are done.
Off air they talked about how he started in the business in 1965, and he is now 66 years old. When Bruce started doing the math he said this was not enough time to only be 66. He asked him why real estate was of such an interest so early. Peter said he was in high school before real estate, and during this time he was not happy. At that time he did not like rules and being told what to do. The guidance counselors would get upset when they asked him what he wanted to do when he was out of school, and he would tell them he would like to be unemployed. He had to tell them what he meant was he wanted to be happily unemployed, which meant he wanted his assets more than his time and labor to fund his lifestyle. He was blessed to recognize this and therefore to set a goal while he was still in high school.
This kind of a concept does not occur to most people who are seventeen years old since they have not even been exposed to it yet. Bruce asked Peter what he saw that he wanted to mimic, or did he invent it from scratch? Peter said it started with his family having their own business. They had their own ice cream stand, so he was a fat little kid. When he was a little older, they had a department store. It was in 1957 that they started a real estate and insurance business. One of his grandfathers was a barber, and the other was a contractor. His mom’s uncle was a realtor, so he was blessed enough not to see a job and did not fall into that trap. He was very uncomfortable with people telling him what to do, so when he got out of high school he wanted to be unemployed. Since he could not afford to be unemployed, he had to be self-employed. He acquired and saved surplus, then he began investing. It took him almost three years to get his first property, and it took him ten years to get enough properties to where he no longer had to work. During those ten years he was a realtor, and during the next half-dozen years he still represented some old clients from whom he was unwilling to walk away.
At some point he put in almost fifteen years wearing a realtor hat and always having the thought of becoming independently wealthy. He has been trying to get the cash flow, which is a different model. A lot of people think they are going to buy and sell a property and make a chunk of money. His goal was to build a cash flow that was big enough to where he did not have to work. Peter said he was almost completely focused on building annuity. The very first property he bought was a three-unit triplex in Beverly. This property was subject to a first, a home improvement loan, and his entire life savings. He tried to get the seller to carry $1600 and he was unsuccessful.
Turning to the only person he thought might have faith in him, he borrowed the money from his parents in his first really creative negotiation. This included no interest, no payments, and no security or due date, and he had the extra $1600 to buy his first property. It did not cash flow, and tax shelter was an extremely important thing to him when he was not yet earning $16,000 a year. He did not know there would be much appreciation, if any. He was not buying it under market, but he knew when he 44 it would be paid for and he would no longer have to send the payments to the first and second mortgage. Peter literally made it a conscious thought that if he held onto it for the whole duration he would own something free and clear. The properties he acquired while he was in college are for the most part still owned by his family.
Bruce asked Peter who his early mentors were that got him into the business. He said originally when he was a little bit light on properties and cash he could not get his arms around so big an investment. Working for himself, it was natural to become a real estate agent because it meant he did not need to have a location or an inventory to sell. He could sell a house and afford to do it. He enjoyed learning and could apply this to selling other people’s houses and exchanging. This earned him a living and a reputation in the real estate community, thus allowing him to earn until he could start investing. The deal grew up and ultimately provided him with the cash flow that was enough to allow him to stay him if he wanted. He really enjoys real estate and does not do anything else. He literally has no other life outside of it, and he spends all his time talking to friends and family and helping them whether they like it or not.
A lot of people have a faulty idea of who an investor is. From Peter’s reputation, Bruce said if he had a problem situation, sitting in front of somebody who really understands very creative ways to solve things is a big advantage. To be able to sit in front of them and say there is only one way to sell it is advantageous. Peter said there is a million ways to make a deal, and only one is cash. Cash is usually wasteful and expensive, and he does not understand why people do not see beyond doing the same as everyone else. When you look around America and see that 95% of Americans reach age 65 and cannot retire, you see that the majority is not doing it right and you have to rethink differently.
Bruce asked Peter when he first started in real estate in the mid-60s, he wondered what state it was in at the time. Peter answered Massachusetts in the Boston area. He also wondered how real estate was viewed as far as a product type. He wondered if it was an investment or just something in which he lived. Peter said California was the only place where the populace was infected with the idea that you could not just relax and enjoy your house, but rather it was going to be an investment. However, when Peter was growing up, in most places there were investors but not every homeowner taking their equities to bed with them every night cherishing them. It was unusual to go to California and see that. The big deal for him in the 60s was that he became a real estate agent at 18 since his dad already was one. He had seen this since 1957 when he was ten years old, but he watched his dad who was an extreme people person and great mentor.
His dad was a residential real estate agent, and he has always been intrigued that realtors seem to always want to do residential. All of Peter’s dad’s customers and clients would come back to him and do business, and the next generation of that family would come back to do business with him. His family bought a house every ten years, so Peter went to the investment side because he felt for investors who bought 2-4 houses a year. He got to do repeat business without waiting a decade, so it has always intrigued him that more realtors do not pursue that avenue. The same with true with Bruce’s hard money loan business that is specifically meant to loan to investors since they can bug you ten times a year as opposed to once every five.
Bruce asked about interest rates in the mid-60s. Peter said in January 1966, he lost his first sale because interest rates jumped to 6%. The average house price was $79k for three bedrooms and two bath. This blew the payment up over $120. People said they were not buying until it went back to under 6%. Since he was still 19 years old, he did not have the backbone to tell them to buy the house. To this day, when he visits Massachusetts and drives by and sees them still living in their apartment, he feels guilty since it would not happen to him once he had a little more confidence. At least they did get below 6%, it just took 45 years. As investors, they owe it to whoever they are sitting across from to listen to their situation. They then use their experience to say that if they were in their seat, these would be the options he would consider. When you recognize you are about to make a mistake, doing it in a credible way and having enough backbone to tell them they are about to make a mistake is the way to go. It is funny how very long ago this was, and it still troubles Peter when he is back home in his home town knowing that this is occurring.
Peter went into real estate at 18, and he and the other realtors would go in caravans to look at other houses. None of the people were jealous of the others knowledge. There were about twenty different agents who helped him to learn how to do the business and showed him how deals went together and fell apart. The pride within the group of realtors in the Boston area was extraordinary. Those guys knew they could do real estate like no one else could, and this was why they were professional. He now finds this in the investment community in which he spent his time. It may exist out there with realtors, but it was everywhere on the north shore of Boston when he was starting in the late ‘60s.
Interest rates were reasonable until the mid to late 70s when they suddenly changed a great deal. Bruce asked if subject to buying prevalent in the 60s and early 70s. Peter said it was, especially in California where it saw an explosion. Prior to that they were not doing sales; and prior to that judges were saying they had made a 25 to 30-year loan. If they had wanted it to have an adjustable payment or an adjustable due date, they should have put it in the note. Then, the due on sale issue changes the 30-year note into 30 years or until sold. Worse yet, they have the securitized loans that made real estate much more dangerous for a lot of people.
Peter said when he talked to an acquisition group, he looked back at the single most important deal of his life that was done when he was around 21. He bought a 3-family building in Boston from someone who was 47. He bought his equity for $12,000 and gave him a note for it. It was $150 a month at 8% until paid. He bought subject to a mortgage, and the person he bought it from took him to the bank and told him he wanted to do it but not behind the back of his lender. Peter bought the property after the bank told John they had lent him the money, and if he did not pay him they were coming after him. John said he had faith in Peter since he was young and still optimistic, so he was going to pass the burden to him. They had him sign an assumption agreement, to which he assumed the loan of the bank.
This three-unit apartment building was the most important deal of his life because he became a life-long client. After John passed away in June of 2000, they had done 27 transactions with him and his family. He could not tell you how many properties were sold, but it was around five different properties from the same bank that referred him to different people. This was one of the things he tries to get across when he speaks. Every deal is a seed, and it could grow into a harvest if you could just do a good deal, do what you say, and stay in communication. He is always surprised by the people who make a deal with someone and never talk to them again. This is weird but completely common. 98% of the industry does one transaction per human being, and that is it.
Bruce’s focus on numbers and demographics is very different from Peter’s since he never looked at the marketplace except as a big backdrop. All the business he does is nose to nose with human beings. He is not talking about the market in the United States, in California, or Florida. He is talking about the market the individual is experiencing. Forty-five years ago he took Warren Harding’s class, and he taught them that every opportunity is born of uncomfortable circumstances. His job is to give his goal so he knows what is there for him, then discover one of the uncomfortable circumstance of ownership so he can help make a deal.
Uncomfortable situations may be very personal. Uncomfortable ownership could include a railroad behind the house, but this is not the situation when you buy. Uncomfortable situations he buys are usually solved by the second by the second ownership transfers to him. A common vehicle in Florida is that the doctor told the people that they could not handle stairs anymore. This did not mean the house changed or was less valuable or that the market behind it was less valuable. It meant that to these people the house was less valuable. With the first property he bought with the $1600 from his dad with no interest and no payment, when he asked the people who owned the property why they would own a nice property like that. They said the owner got a job 1400 miles away from the house, so the house that was of little use to him and had an enormous cost. The house had not changed, but rather his situation had changed. That is always where he is doing business on a personal level.
He always takes about value being subjective, and he has a note he carries with him or writes it on a piece of paper. He will write “present position.” He then puts down a fee, and on the right-hand side he puts “potential position.” He will have the people write down where they are now. Where they are now could be they have a house 1,000 miles from their job or has a $400 a month tax bill. A critical problem and uncomfortable circumstance for a lot of people is they have an ungrateful relative living with them. Peter cares enough to find out why they would sell such a nice house. Once he finds this out, then he has the potential to make a deal.
Bruce asked if it is easy for him to get people to tell him the truth. He said it is, but sometimes they have to tell themselves the truth. He gets people all the time who lie to him and to themselves and say they want cash. He knows no one wants the cash. When he was 19 he had no hope of having cash, so he had to find something other than cash. He will ask them if they really want cash. If they say yes, he will ask them that in the event that they could do one certain thing, is there any reason they would not consider it? At a hypothetical level, they can explore with you a little bit. He tells them if he gave them $20,000 cash and piled the Federal Reserve notes on their table, would they really take it and give him a deed to a really nice house on the lake. They will nod vigorously. In the event they do this, he will enjoy the house on the lake, and in six months he will come back and they can sit together and look at all the Federal Reserve notes on their dining room table. They always laugh when he tells them they will not be there. The people will tell him the money was for other things like medical bills, sending someone to college, going towards a car, pay off debt.
No one wants the dollars since they are usually a conduit to something they left and liked more. If you see this, then you can help them do business. If they do not see it, then it is hard to help them since they are doing it in a different world. He typically trades a promise for a property, and other times he will trade properties for properties. However, he will virtually never trade dollars for properties. When he trades a note for properties, the other party will ask how much he is paying and what the price is. He will tell them he does not care and could give them $60,000 at 4 ½% for thirty years or $50,000 at 6% for thirty years. In all these cases, they are getting $300 a month for thirty years.
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