Real Estate: What Changed and What’s New? with Charles Karich | Part 1

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Charles Karich is a local California real estate investor, realtor, and broker who has been serving the real estate market for over 43 years. Charles began his journey with Century 21 Masters in Walnut, Ca. before moving on to South Coast Properties.

 

He was instrumental in building South Hills Properties to one of the leading independently owned non-franchised firms in Southern Charles’ knowledge, expertise and background in the residential resale market is extensive.  Long-standing working relationships with banks, financial institutions along with a network of experienced real estate agents have made Charles and South Hills properties a company is well known for its exemplary service.

 

Charles believes in giving back through volunteering and financially supporting local and international charities that includes Habitat for Humanity, the Sheepfold and Royal Family Kids to name a few.  Helping others in need are part of his company’s heritage and a core pillar.

 

 

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 today we have a special guest Charles Karich. Charles is a local California real estate investor, realtor and broker who has been serving the real estate market for over 43 years Charles began his journey with Century 21 Masters in Walnut, California, before moving on to South Coast properties he has, he was instrumental in building the South Hills Properties to one of the leading independent owned non franchised firms in Southern California. Charles knowledge, expertise and background in the residential resale market is extensive, long standing working relationships with banks, financial institutions, along with a network of experienced real estate agents have made Charles and South Hills Properties the company is well known for its exemplary service. Charles serves or believes in giving back through volunteering, and financially supporting local and international charities that include Habitat for Humanity, the Sheepfold, and Royal Family Kids to name a few helping others in need are part of his company’s heritage and a core pillar. So Charles, welcome back.

Charles Karich  Thank you, Bruce, always good to see you.

Bruce Norris  Good to see you. What is Royal Family kids do.

Charles Karich  So, that is a camp for kids that are in foster care, and they do our annual summer camp every year, and bring the kids and just really spoiled them. These kids that have really been some of the harder oppressed kids in our culture and without parents. And so they look forward to once a year going on the special camp retreat. And they just spoil the kids completely. And it kind of changes the trajectory of their lives. It’s pretty amazing. They think about camp all year long. It’s pretty cool.

Bruce Norris  That is, that is very cool. All righty, well, I’ve got to, you know, you’re, you’ve got a different perspective, I think, than most people, because you wear so many different hats, you know, so you’re, you’re an investor his own rental properties. But you also have been an REO agent that’s not a common combination. You also do listings for people, and you flip houses or by a trustee sales and all of that. So, you’ve got a wide spectrum of information coming at you. So, that’s one of the reasons definitely wanted to talk with you today. Because from your perspective from so many sources, so I think the first one I want to first category is you as a landlord. You know, as you know, I’m in Florida now. And our rent increases have been rather astonishing. So, I just wanted to touch bases with what was possible, or what you experienced in California, and as a matter of fact, wasn’t even allowed to occur?

Charles Karich  Yes, well, good question. So, we have been navigating through the rent control that was enacted about two years ago. So, it does limit our rent increases to the CPI plus the 2.5 I believe it’s the the index. So, currently, we’re able to raise rents just below the 10% threshold. But what I’ve found is that rents have escalated a lot more than the 10%, roughly. And with inflation, I know they’re talking about that at 9. something but you and I know Bruce, that that’s not the right number, gas has doubled. So many of our costs have doubled, the cost of a gallon of milk has doubled. That’s 100%, 100%. So, maybe, well, you would know better. But at 10%. We’re not keeping up with inflation. If the property has become vacant, then we can…

Bruce Norris  Yeah.

Charles Karich  …bring it back up to market but it’s really hard when we have all these pressures on us. We went to go buy some lumber not too long ago, a couple months ago and we ordered short. This was not lumber, it’s actually based baseboard. Let me bring it back to what it actually was. And the price, we ordered a few sticks short, we had to order some more 16 foot length boards, and we ordered about two weeks later and it was over 20%. Yeah, let me double check. And then it was over 20% And that was in about a two week time period.

Bruce Norris  Yeah, you can imagine trying to build a house and putting a lumber order in thinking your price is going to be stable for whatever length of time. You’re ordering windows six, seven months in advance of needing them.

Charles Karich  That’s right, that’s right, the rents have remained strong, there’s still a strong demand. And we’re just having to be extra cautious and careful, because it feels like we as landlords who are trying to provide a great service to people are not protected legally. And and with the laws protecting really moving away from the property ownership to the people that are renting the property. So, it’s been difficult in that legal climate train.

Bruce Norris  You see that improving or not?

Charles Karich  I don’t Yeah.

Bruce Norris  What are you doing there, man?

Charles Karich  We did our first foray into Tennessee bought one property there. So it sure is nice to have things so simple and feel like you have your protections again, and….

Bruce Norris  Yeah.

Charles Karich  …tiny bit too. But yeah, it’s, it’s a shame what’s happening here in our state.

Bruce Norris  The other thing is, you have a you have a broad ownership of areas, let’s say, because of the trustee sale business, you know, introduced you to deals, not necessarily in your backyard, but you bought them and said, Okay, that’s great. And you kept a lot of them. So, have you noticed, are there different rules for different locations like, like if you’re in the city of LA probably would be more restrictive than Twentynine Palms. So, you still own a property in Twentynine Palms? I’m afraid to ask.

Charles Karich  I do. Yes. And you’re right, the city of LA, which fortunately, we never did venture in, because of all the different restrictions, and they had rent control before it was cast over the entire state. But it is very difficult there. I have some friends that own property in South Central LA, and it’s so difficult for them to operate.

Bruce Norris  Yeah. Well, it’s just scary. Like you said, you feel like the tenant, the occupant has more rights, even if even someone broke in and spent the night they have more rights than you do for quite some time. It seems.

Charles Karich  That’s right. It’s very strange. I don’t understand, but it’s very strange.

Bruce Norris  Well, I’m glad you broke into another area that’s being sincere about that I really am. Do you find that the tenant quality changes? I don’t know, if you have a lot of variance of time types of property. Do you have a condo or a single family or duplex? And is that creating a different experience for you tenant wise?

Charles Karich  Well, we do have the gamut of all kinds of different tenants, some intact families very strong, and some single families that are really experiencing a lot of difficulty. So, I think it’s more a broad spectrum across the economic stratus, where some are really struggling. And then others have great maybe city or government jobs are employed are really super strong employment. And they’re not being impacted as much. But I think that the intact families, the single single parents, they seem to have the hardest struggle or when there’s hardships in the family, of course, that it impacts their abilities. So, I see it more on, on their own unique family situation.

Bruce Norris  Okay. Putting your realtor hat on. Do you expect to see an influx of foreclosures? I know it’s been kind of put on hold legally. So, there has to be a little bit of pent up numbers of that. But I’m just curious, because you’re, are you still in that listing business that that occurs that you’ll have lenders giving you a call?

Charles Karich  Yeah, in fact, we just got one today, there was a pre foreclosure. And the property’s in the San Gabriel Valley area, East LA County. And this is a drive by subject to it’s actually slated to go to sale. I pulled it out right before this email came in this morning, scheduled to go to sale if it does August 4. And here’s what’s kind of indicative of what’s going on right now. Bruce, this will never see back to being reverted by the bank. It would be picked up third party even in our market that we’re in now, only because the debt to value ratio, that’s in owed on the property is so low this property is worth probably easily even in this market about 600 or 650. And it looks like the estimated amount which and that’s even if they don’t write it down in full amount, unlike before when they’re writing everything down. They take this out to full bid at 310. If you present a value, it will sell it to them, hoping with them servicing this for now. But there’s just and what I’ve seen on the pre foreclosures that we’ve been getting, all of these are pretty very similar that the debt to value ratio is so low, these will never go back to the bank. So, for now, we’re clear on that.

Bruce Norris  Yeah, well, that’s a, you know, that’s an interesting point. That just because it goes to a trustee sale, it doesn’t become detrimental to the market in general, because that comp doesn’t count, first of all, and it also doesn’t become a pile of REOs, that starts dominating the price.

Charles Karich  That’s right that’s right, this will be picked up by an investor and tried to command the highest possible price. And Bruce, I did some statistics for this last week in all of LA County, and we used to have hundreds and hundreds of sales a day, as you know.

Bruce Norris  Right.

Charles Karich  All of LA County, starting from today, working back to the 13th actually went to the 11th. So, a little bit longer, well know, roughly a week, anyways, 2 went back to the beneficiary and 6 sold third party. So, almost only basically, if you average that out, it’s basically almost one at one one a day, barely between either going back to the beneficiary or back to third party. But your question in the future? Yes, I think we’ll see an increase. I don’t think it’s going to be like 2009. And I think it’s, I think it’s a ways away, only because the process has been so cumbersome, so much in delays, I think it’s going to take quite some time. I don’t think it’s going to show up on our shores for a couple two or three years. I don’t know what you think, but and then, as far as showing up on our shores ready to be sold, it could be foreclosed, and then it can be another nine months or a year for an eviction.

Bruce Norris  That’s right. I forgot what state we were talking about. Oh, my.

Charles Karich  Yes.

Bruce Norris  Oh, my goodness, what you know, it’s interesting, what would, you’ve dealt with a lot of people that have had homes foreclosed on, if somebody has a 50% equity position in a market like this, not that this is a great market, but in their head, maybe they’re not even familiar with any change, why, why do you think that made it to trustee sale, when they could have certainly done something else?

Charles Karich  That’s always perplexed me moving through all the years past, even when we’ve seen situations where there was a lot of equity. And they did not do any, any remedy to try and save it, which was always strange to me. But what I found most of the time is a lot of dysfunction. Either maybe in the family or maybe even in the system. Recently, we have one property that is a foreclosure from, from the bank. And the person was telling me I tried to work with the bank, we had it all set, and then it all fell apart. And I that particular person, I do believe they, they did have that going on. But I guess there’s a lot more to the story than we hear all stories sound good. And when you only hear one side, but maybe the bank side was tired of dealing. Maybe it was a two year time period that all of this is going down. And they finally just said enough. But what I found is a lot of dysfunction, maybe divorce or illness or alcohol or drugs, not in all cases, but in a lot of the cases where it just kind of abandoned all attempts to do anything or sadly, are in denial or it’s really going to happen.

Bruce Norris  Well, now we just talked about the numbers of trustee sales that are imminent, which is very few. What about NODs?

Charles Karich  I just targeted my friend at the title company from Orange Coast title a few days ago in preparation to talk with you. And he did say that he noticed that the NOD filings are up quite a bit. But that, that’s hard to really grasp, right? Because if you’re going from zero to…

Bruce Norris  Yeah…that’s exactly right.  Like what you said, you said those numbers, you know, you, you’d get hundreds a day. And now, now if you’re in the news media, you can say oh my gosh, you know, NODs are up 3,000% which means they went from three to something, you know, it just is meaningless.

Charles Karich  Right. Exactly. Exactly.

Bruce Norris  Okay. Short Sales, did they? How many people could be upside down after you know the stuff we’ve experienced? It’s that would… Are there any short sales?

Charles Karich  It’s funny, we’re actually looks like we’re going to have to do one right now. It’s very funny. We have a listing, actually referred to it by the bank about six years ago. And it just be if for whatever reason at that time, the seller decided not to sell it. They called recently and with the debt on the property, I think the payoff was the closest 600, we had it listed at 639, it looks like we’re gonna have to do a short sale because this property, the value just isn’t there with the condition and the location of it. So, in fact, this week, I think we’re gonna have to engage the services of the bank. But that’s extremely rare. When you go and pull up an area before you would see all those distressed sales. The only distressed sales now you may see are probate or trust sales where maybe the home has not been improved in decades, and they’re selling it reflecting the condition of the property. But those are kind of the new normal of the sales where you’ll see considered to be a distressed but the REO and short sale is almost nil. It’s just it’s just not there. What, what’s the attitude of the, of the lender? And how is it different from let’s say, the 2007, or eight lender mindset? Well, it seems like the limited amount that we’ve had, it seems like everybody’s kind of in slow mode, that the attorneys that are processing the evictions, and probably the foreclosure as well that they’re all really overly cautious about the entire process. And it’s allowing this this enormous amount of time to continue to go on. I don’t know if some of that was engineered in an appreciating market times your friend in a depreciating market times your enemy. I don’t know if they were thinking and the longer we wait, the more the asset increases, I’m not quite sure I have a feeling it’s more with policy, more with double checking, double crossing the t’s and double dotting the i’s to make sure everything’s in compliance. Because I think there’s an enormous pressure for for compliance.

Bruce Norris  Yeah. Because you could so easily get involved in some of them legal process that could take a long time.

Charles Karich  That’s right.

Bruce Norris  Yeah. Are you working with buyers?

Charles Karich  Well, so we’ve always focused, being in the real estate, the length of time I am very early on learn if, if you’re going to have any lasting time in real estate, that you must work with sellers that if you don’t control the inventory, it’s very difficult. So, in the past, though, we have at times do work with buyers. And previously, not lately, but let’s say six months or a year ago, it was very difficult, where some of our buyers just fatigued off where non of their offers accepted.

Bruce Norris  Yeah, you get exhausted.

Charles Karich  Oh, yes, over and over and over. And if they were a conventional buyer, they get knocked off by cash.

Bruce Norris  Right.

Charles Karich  One family was very difficult. They needed a place that a young family and we offered strong offers, and they just kept getting knocked out. I think they’re still renting.

Bruce Norris  18:02What percentage of let’s say of the offers were cash. If you had multiple offers, take us, you know, back six, nine months ago, something came on the market was there was predominantly a cash buyer offer or was most of the offers financed?

Charles Karich  Most were cash, I would say 75 or 80% of the offers were cash.

Bruce Norris  Wow.

Charles Karich  And 50% seemed like the old 10% or 20% down payment. So, you either had cash or a huge downpayment. If you had to go 20%, you felt like your down payment, you felt like you’re really reaching down.

Bruce Norris  Okay, interesting. So, if you put, so, you’re really dealing with sellers, which makes sense. Has their attitude changed yet about what they own? Or did they still think it’s off to the races and we can get whatever we want?

Charles Karich  Well, we don’t have a lot of regular listings. So, I can’t really honestly tell you a lot about that. However, I did talk to a couple friends that are really active in regular residential one is more really active in the residential in the greater Los Angeles area, and another is further up north in San Francisco. I call my friend up there uncle Ray the canary in the coal mine. What happens up North seems to happen before it happens here.

Bruce Norris  Okay.

Charles Karich  I talked to both of them. And one of my friends you know him Larry Harmon great, he guy said that. Basically, it’s much harder to sell the properties. He’s very involved in listing traditional sellers. And he said that it’s really much harder. There’s a lot less offers on the property four or five months ago, he was getting six or seven offers. Now he’s lucky to get one offer. And I can conclude the same thing as well, where we would get like eight or nine or 10 offers and now, we do have one listing it just drag drag drag we had one offer, it fell out of escrow, and now we’re having to resell it. And so you said it’s becoming much more difficult. Inventory has doubled in the last three or four months. Again, we’re going from an ultra low number, at of times, I would check in some areas, we used to have different radiuses. You remember the old Thomas guide, Bruce, we can…

Bruce Norris  …drving around the…

Charles Karich  …radius that would put a certain block, but you can still do that in a different way with MLS, it times are being maybe zero active, and three or four pending. And now you may see 8 or 10 active and six pending, there’s still an ample amount of pending. But it’s basically a totally different market. And you’re seeing where sometimes you’re having to reduce the price as well, until the property gets sold. Larry was mentioning, reducing the property, the price of the property every two weeks until you find a buyer.

Bruce Norris  And then you know, that’s a good I’m gonna I’m gonna call Larry and interview him because of what you just said too, you know, he’s this is his natural business. And he’s also an investor, that’s an own property. But so the the buyer, do you sense? Okay, let’s put them in two categories. Do you think people that are buyers say I’m just going to now I’m just going to wait until prices go down? Or is there any urgency about man, I didn’t get in at 4% interest? And maybe now it’s six? You know, is there an urgency to in the buyer side saying I don’t want to pay any higher than that.

Charles Karich  I think I think the buyers are kind of at their end that they feel now it might just be better to wait, the prices are so high and interest are so, interest rates are up so much, that it’s just better to wait and see what happens. Maybe prices will come down. I’m not so sure they’re thinking interest rates are going to come down. But I think they’re feeling like this might not be the right time to buy.

Bruce Norris  Okay. When you, when you put a property on market, let’s say it’s worth 800,000. What, what do you want your seller to agree to listed for?

Charles Karich  Well, I’ve always been a fan of pricing it right to begin with and not playing the bid to price to get a listing. So, if the value is 800, I would say that should probably be listed for about 814,  9, maybe that’s only about two or 3% higher than what you’re trying to get it sold for I’ve always kind of thought that you need to be priced real close to what you want to sell it for. In this last market, it would even blow up way above the list price. And we’d strike out the appraisal because the property wouldn’t appraise but even more so now it’s important to price it right. Have a little pad, I’ve never been a big believer in a big pad. If you have a big pad, then you’re overpriced.

Bruce Norris  Yeah. And in that mark and this market, that’s very different than six months ago, you could get rewarded for almost anything six months ago.

Charles Karich  You know, I used to say about six months ago, people be afraid your listing at too low. And I said you don’t have to worry about that. There’s a danger of over pricing. But if it’s listed too low, the market is going to rise to the level that it’s gonna rise to and then you get into a frenzy and bidding competition and the price just elevates to where the markets at it always does.

Bruce Norris  Well, yeah know that you have so much more experience in listing properties. We had a, you know, let’s go back five months ago, we had a property we were building what we originally thought was worth four and a quarter. And we went and asked five and a quarter in a bidding war and sold, with and I’m talking within hours, you know, back then, and so there was probably 11 all cash offers and one financed offer. And they went for 576 and produce three other buyers for similar houses for what we had.

Charles Karich  Wow. Now, what do you think would have happened iIf you listed it 425? You think it still would have pull the price at 476?

Bruce Norris  I think, you know, it’s interesting. I never even thought that but it would have created at least as much if not more craziness.

Charles Karich  Right.

Bruce Norris  So, you’d still end up with there but maybe you didn’t you sucked in 10 more people that was like he’s crazy.

Charles Karich  Right, right.

Bruce Norris  That’s almost like the theory of you know, there’s companies that do auctions, right. See the opening bid going? Oh, you know, but I think only probably inexperienced people think that’s even remotely possible to buy at. And unless you have an absolute auction?

Charles Karich  That’s right.

Bruce Norris  What do you think about an auction? And I’m being really serious, because we’ve got some properties that are coming up, where there’s huge margins, but also concerned about, okay, I’m not so sure we’re not headed for interest rates that are very high. So, you know, I look at that and go, we still have a market that’s still decent. And, you know, I just think about the prospects of having an auction where you almost freeze the buyers in that market.

Charles Karich  Mm hmm.

Bruce Norris  You know, so I just said, ‘You’ve marketed a lot of properties. If you have something for auction and say, it’s going to be auctioned off in 30 days,’ and your prospective buyer for a new house in that area, you probably wait.

Charles Karich  Well, maybe I’m biased, because I’m a broker. But also, from what I’ve seen, I’ve never felt auctions are the best way to sell the property. Even with the banks using auctions to sell their distressed property. I always remind whoever listened. It was a failed auction that got you the property to be right. So, I’ve seen so much dysfunction with the auction.

Bruce Norris  Oh, yeah. Well, taking advantage of some of it.

Charles Karich  Yes. Yeah.

Bruce Norris  Glad you’re so bad at what you do.

Charles Karich  So, I always believe in using a broker that is strong on the ground with an excellent track record, with a great reputation that’s been in the industry for a long time that knows the market in and out, listing it at the right price, offering the right commission and structure for whatever the market is, and going with their advice and doing it.

Bruce Norris  Yeah. What do you just mentioned? You know, we haven’t had, we haven’t had to think like that. Okay. So, bonusing commission’s is that entice your property to more people?

Charles Karich  It certainly did in last market, for sure. I mean, when, when we were struggling at times to sell properties, during the height of our worst market in 2000, period of time. 2010 and 11 and 12. Absolutely. Or even before that, and my 34 years in real estate, there’s been times when we’ve offered and all these young people in the industry that have been here only in a decade will never will be shocked when I say we’ve offered 5% commission to the selling agent. And they’re seeing maybe one and a half or 2% right now to the selling agent. But there’s been times when we did, we’d have to offer four or 5% Commission to the selling offers, just to try and get them to go look at the property. When they’re say 30 homes for sale. All things being equal. You entice the buyer, buyer’s agent by doing that. So, absolutely. I’m a firm believer in that.

Bruce Norris  Okay. What about buying down interest rates? So, let’s, let’s say you had a listing and say, okay, instead of reducing the price 40 grand, let’s say, Well buy the interest rate down to four fixed.

Charles Karich  I think that’s great. But Bruce, maybe interest rate isn’t as big of a thing as you think right now, I think, aren’t we switching to an adjustable market? I think most of the buyers out there right now are going on a seven or 10 year and they’re getting back to what we had the 30 year fixed added about 3%. And they’re not worrying about it right now. They’re just thinking I’ll get out of this later and fix it. That’s what I think they’re thinking right now. But I still think though, that could be a good strategy with a new home. I think new homebuyers, maybe are thinking more long term than a resale buyer, maybe the new home builders thinking I’m going to be in this home a long, long time. So, I would like my financing to be more secure, where a resale may be more of a stepping stone. And they may not be looking at it as long term as a new build. So, for you as a new build, I think buying down the interest rate would be a really good idea.

Bruce Norris  You know what, there’s another and I remember this all the way back in 1980. There was, you know, peak price in the market came in at 80, 81. And you know what the dominant who the dominant buyer was? A VA buyer.

Charles Karich  Oh wow.

Bruce Norris  Can you can you imagine? Can you imagine being a VA buyer in the last three years trying to get an offer accepted on a zero down loan?

Charles Karich  Oh my gosh, it was it was nearly impossible. But we did one, one time with the VA about five years ago and it was because the seller was a VA himself and really had a heart to help another veteran and and it turned out for all your radio listeners. It turned out amazing. They were able to get the loan I was worried about the appraisal price. And I think that by are in the lender we’re so happy to be able to get this. They jumped through mountains to make it work and close it.

Bruce Norris  That’s cool. Well, that’s a niche that I think will re emerge feels as that group of buyers have had probably had no luck finding something to own.

Charles Karich  That’s right. That’s right.

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.

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