Bruce Norris is joined again this week by Peter Fortunato. Peter has been an investor for a very long time since 1965 and loves the business. 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.
One important thing he mentioned is that there is the high potential of repeat business when you deal with private parties, something of which not many people take advantage. Peter said he was amazed by this since as a very young lien he wanted to build a business that would provide him with enough potential income so he could earn enough surplus and have plenty of assets and be unemployed. It makes sense to him that investment brokerage enabled him to business again and again with the same people as opposed to being out there always pursuing new customers.
Bruce said one of the things that happens is we all have a beginning of some type, and at least for a while you think this is the way it is and the way it always is. When Peter started in 1965, did not have any money of his own, and was really forced to be creative, this was very different from the start Bruce had. He did not have personal money, but he went to work for a company that bought everything for cash. They were able to drive bargains with the cash, and that is how he learned the business. It has been much for difficult for him to sit across from somebody and do creative transactions because he will just ask what is the least they can take. They created a model out of basically getting discounts. Peter has gotten discounts in a different way in that he has gotten cash flow out of a property that they probably could not understand how to do if they looked at it all year.
Peter said he rarely discounts. Almost all the time his discounts and yields are structured in the currency he uses or the terms he negotiates. Today it takes little or nothing to give people a better return than they have potentially out in the real world. This is the world that has 95% of Americans starving or still working at age 65. Bruce and Peter were just talking about a transaction where he was basically telling a woman she could have certain prices, but it always came back to the same monthly cost to him. Bruce wondered if there is ego involved sometimes where it would be great if the price was higher, and if it ends up working for Peter on a cash flow basis it would all be the same.
Peter said a good example of this would be when he was trying to acquire a property in which there were nine heirs in seven states. You can imagine how much fun it would be to negotiate with this many. You get a committee who wants to make decisions, and they came up with a value for the property that was around a $70,000 retail, 3 bedroom, 2 bathroom, 1-car garage house in 1995. It would rent steadily at $750 and stay rented, which is an important part of what they try to do since their goal is to not be doing turnovers all the time. Based upon that $750, they knew the property would net $450 once it was rented. This meant they had to commit to debt service of $450 or less so that the tenant could buy the property from them. They said they wanted $45,000 cash, and they had come up with this by saying there was nine of them and they wanted $5,000. Peter then said that nobody really wanted cash and asked them what it was they really wanted was a car for each one of them. Peter said if he had a car lot, he would have come home that day with that house.
Instead of being able to make a deal, he offered to put $45,000 at what the rate was in 1995, which was high. He suggested $450 a month, to which they said absolutely not and tried to explain to him the error of his ways. They tried to make him change his terms, even if those terms were a double bank rate. The bank would not let them put the house in the bank, so they were not getting the bank rate on the house. Instead, he went and looked, and his friend who had IRAs that were self-directed, was a hard money lender. He knew a lot of his friends were since back in the day hard money was at 12%. He would typically write a one-year note, but he would never squeeze you since he was delighted to get 1% every month.
He also knew a friend who really liked to buy paper at a discount. He offered the estate the $55,000 first mortgage for the house, payable for $445 a month at 9% for thirty years. The people scowled at him and asked how he could be so stupid to think they would take the note just because he put a different number on the top. Peter then said he does not know anyone who would pay $45,000 cash for the house, but he does not someone who would commit right now and send the money to escrow to pay $45,000 cash for the note secured by a first mortgage. They bought the house for $55,000 back in 1995 with no money down, and they have been paying $443 a month ever since. The IRA that obtained it bought it for $45 cash. Had they been planning to put the house, he would have borrowed at 12% and then sold it for $70 and possibly made $7,000. It was not their goal to make profit, but rather to lock up a good asset that would be there forever.
The house went from $70 retail when they got it to $200, then back to $70, and today it might be around $90. None of that is important to them, but rather what is important is collecting $1,050 a month from a great tenant who had been with them for 8 years month in and month out. They were 17-18 years into a 30-year mortgage. Now they are actually down to $40 grand and below the $45. Had it been a been a full property and not an investment property, he would have gone the interest-only route and not the discounted route. He needed to know which catalyst he needed to use to make the deal work given his goal in making the deal. Everyone got what they wanted by his creativity. He got them their cash, and he obtained their house. In addition, the IRA holder has been doing good for a really long time.
Bruce asked what percentage of the properties has been free and clear on which he has negotiated. Peter answered 20%. Peter’s favorite scenario is when there is something that makes people feel uncomfortable that he can solve for them. He said he has a gentleman who had a house he and his wife built on the lake. When she passed away, that was the trigger that began the process of him selling the property. Peter offered terms to him, and he had nothing in terms of property to trade. He offered the terms and was turned down. One day when he was talking to him, he told him to get back with him if he changed his mind since he found a wonderful house right around the corner from his grandchildren. All of a sudden, he discovered that he found a house he would rather have.
This is a big change in his life; so instead of asking him why he would sell a nice house like the one he had, he asked him to tell him about the house he found. Peter then made an offer to him with terms that were equivalent to what terms an owner-occupied buyer could buy with in this market today that may be at 4% for thirty years. He told him he did not have the cash to give him the money he wanted for his house, but he could give him an income stand that would equal or supersede the payments he would have to give to the lender to buy the house. They could then go and buy the house they wanted and be near the grandchildren. Peter gave them a mortgage on those same terms. Matching the mortgage payments and enabling a person to go buy that other house with cash has been a very attractive way to enable the people to get where they need to go. One of the things that strikes Bruce about the example is that his potential position changed. He found that his attitude and position completely changed.
Bruce gave one example of being on the other side of this. He had just gotten into the business of buying houses for a big buying company in Orange County where Jack Fullerton is. So he was buying houses on commission for them and doing well, but he had a couple homes in an area where he had just gotten mailed an offer from an investment company. It just so happened that within a few days he had just gotten a chance to buy a home that was 2 ½ times the size he was living in for about 50% of what it was worth. All of a sudden he had a chance to change his potential position. When the listing agent got the offer for $15,000 less than the listing price, he did not even make it known to him until Bruce called him and he told him he had an offer he was too embarrassed to give. He told him what it was over the phone, and Bruce said he would only accept that offer if he could get the same for his current residents. There was a pause on the phone where he could not take in what he just said.
What happened was it became meaningless to get the last $15 grand for the house because the $60 grand he was getting facilitated what was at that point the buy of his life. He also needed the extra bedroom to accomplish an adoption. You really have to figure out potential position and point that gets them here or by checking back you see if things have changed. Peter said as an investment agent and broker, he would ask you to tell him about a deal you did that you are really happy with and of which you are proud. Once you tell him about the deal, he now has a template and knows what to go build for you. If you cannot give him anything, he will probably refer you to someone he does not like.
Bruce asked Peter about the people who he learned from and what they had in common. Peter said his dad and the realtors he learned from had enormous pride in that they could do real estate that no one else could do. He began taking courses he described as great numbers courses but weak on application. He was blessed because he went and took the classes, and he had a facility for numbers. He took them with his dad at his side, who was always relating it back to how different numbers and negotiations can fit different people in different circumstances. This was enormous for him, and he enjoyed the classes so much he took them over and over. He had already attended Warren Harding School, Jack Miller, and John Schaub since 1969. On average he would take at least one class a month. It is not fair to say today as much since he would probably teach ½ of those classes, and it is not quite the same. However, going to classes was huge.
The other thing about the speaking was when he was 18 years old; he was a real estate agent hoping to become an investment agent. When you are 19 and you still look like you are 14, there is a problem. He always tells people when he is doing the transactions that people want to see competence and trustworthiness. He was blessed with his family, but there was nothing about an 18-year old with suggestive competence. He had to learn and learn so he could convey to the people that he knew somebody in a similar situation. He had always been in school where his English teacher would tell him he had to speak in front of the class. He would just tell them to give him an F since he did not want to speak in front of them. His teacher reminded him that he had been with these kids since kindergarten. Then, he found himself one year in the real estate business, and he was trying to get customers and clients. He ran an ad in the Beverly Times and the Federal News that said “Free Real Estate Discussion: Call the Fortunato Office.” For one hour it was free; and at first his secretary/receptionist/mother would answer the phone and ask if there would be another coming up soon to add to the list. They had ten people they would call back, and typically eight of them would show up. They would sit in the office around a family room with a chalkboard, some coffee and Dunkin’ Donut holes. He would talk about income, profit, the thrill of management, amortization, appreciation, tax shelter, and the need for security. He would spend ten minutes on each of these topics and answer a couple questions, and as a result of this on average two people would come back to become customers or clients. The speaking became a very important part of his real state career as an agent and later as an investor.
Bruce asked when the first time outside of this was that he actually did a seminar and if it was by himself or in partnership with somebody else. Peter said because he was taking courses, he would come back to the board of realtors, who was always looking for speakers. They would have him synopsize when he got into the course. He would see the speaker at a board of directors dinner, and the talks would run anywhere from 20 minutes to an hour. That brought him co-workers. They would find an income property and call him, and some business brokerages even came to him as a result of that. He then started talking with a few investor clubs that called him. One day in the late ‘70s, John Schaub and Jack Miller met with him and his friend Jay Turner. He was a stronger real estate person, and Jay was a stronger note guy. Together, they had a lot of fun. He always teased Jay, who was the best numbers guy he knew, and he told him God gave him those number skills at the cost of any people skills at all.
John asked them both to teach, and Peter said he may someday. He was in the office one day, and John Schaub called him to ask him if he had received his Florida real estate exchanger’s mail yet. John told Peter he would be in his office and to call him when the mail came. Shortly afterwards, a flyer came in the mail saying “Peter Fortunato and Jay Turner Present Profits and Mortgages.” John told him he sent the flyer out to 1,000 people, and they are really going to be angry if they do not show up. Both he and Jay were paid to go down and speak. They sat in Jack Miller’s living room and prepared to go and speak, and they did a two day class. The Florida Exchangers was the first real formal class that he ever did.
Peter just completed a course called “Beyond the Cliff,” which he does with John Schaub. He just completed the acquisition class, which is his basic class in which he talks about capitalism. When he does some of the other classes, they are a lot more advanced than this. However, he talks about capitalism and the fact that capitalism is most honorable, an efficient way to make money, and to build our future. People get it that every time a capitalist does business, he gives more than he gets from the other people. If he did not give them something they liked more than they gave him, they would not do the deal. People will not do a deal if they do not like what they are getting more than they like what they are giving up. This does not mean that everybody always foresees the future, and it always works out.
In 2006 he held a property in which he received an offer for $865,000 cash. He chose to keep the house, and today it might be worth $350,000. His goal is not to sell and pay taxes since he gets very unhappy at the thought of paying taxes. Chuck Considine sat down with him and told him he can show him how to use three corporations. If he could earn $435,000 and only pay $1900 in taxes, then earning the $435,000 would not even be necessary. Chuck told him this was the sign of a really bad attitude. Mike Cantu has been a student of Peter’s, and even he sometimes had the attitude of not wanting to have a normal job. One of the most rewarding things in teaching, especially the way he has done it, is that he is able to take people with really no money and allow them to buy properties that can create wealth. Peter said he has seen so many of his friends surpass his greatest dream and make him so proud and happy. He has a page on his computer titled “Sometimes I help.” It is full of letters and emails from people thanking him for helping them and that it was very important to him.
Bruce asked Peter how someone gets in touch with him. He said it is various ways, whether by telephone or people calling him. He will usually tell them to call them at (727) 397-7196 or send an email to firstname.lastname@example.org.
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