Posts from November, 2009
Bruce starts by asking if teaching will be a new venture for Tony. Tony talks about The Norris Group giving him his first speaking chance several years back and how doing so forced him to think about what he brought to the table as an individual. Tony had to figure out why he was different in the business. Tony talks about how building relationships is so important and how those relationships can build unbelievable business relationships and wealth.
4 Ways to Listen
- Click HERE on the player launch below to stream our shows as you surf the web.
- Visit our Radio Archives to download shows in mp3 format.
- TNG Real Estate Radio Show is now on iTunes! If you have iTunes installed click HERE or simply do a search for "The Norris Group" while in iTunes.
- If you use an RSS Reader: Click Here
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Bruce asks why a Realtor is better off building a relationship with an investor. Tony says many of these REO houses are going into escrow multiple times. Tony has built his relationships by performing. He has never put in an offer to an REO agent he didn’t close if it was accepted. Agents begin to understand he stands for performance. That strong performance gives the agent ammunition for their asset manager and makes his offer stand above the rest.
Tony discusses coming out of bankruptcy and how he started investing in Palmdale. Tony talks about how he gets in the door with REO agents. These REO agents are busy and they can’t stand newbie investors and the amateur mistakes they make. REO agents eventually end up relying and trusting an investor only after they prove they are an asset.
Tony goes over an example of what he had to deal with when starting to work with REOs in the Antelope Valley in the 90s. Tony talks about approaching an REO agent and how he got the door open. One relationship made him millions and he returned the favor when the market changed.
Tony and Bruce discuss trying to make connections with people. Tony says he’s never met an REO agent that was from Mars. They’re people. There’s always a way.
Bruce talks about Tony and why he is so loved. Some people think Tony is the greatest negotiator but Bruce says why he’s so good is because it isn’t the intent. Bruce talks about love and what Tony brings to the table.
Investors have to not only know what is working to make deals in this California real estate market but they also must understand what they bring to the table as individuals. We as individuals must know what we’re good at and why each of us is different so we can use that in our daily lives to impact people around us. Tony put it best: The one who gives the most gets the most.
Tony Alvarez has been a successful Real Estate Investor and Certified General Appraiser in the Southern California area since 1981. Tony has bought, sold and rented hundreds of properties from vacant land to condos, single family residences, and apartments. More recently he is investing in commercial developments in Arizona, Nevada, and Southern California.
As an appraiser Tony worked as a staff appraiser for Great Western and Glendale Federal Bank and is approved by hundreds of Lenders, Insurances Companies as well as Government Agencies.
He has worked for Fanny Mae, Freddie Mac, FHA and the FDIC.
He has an in depth knowledge of the inner workings of Lenders and their REO (foreclosure) departments. Tony’s knowledge of real estate, appraisal, finance, and investing is vast and varied. He brings a unique perspective to the real estate investment community.
Thanks Tony for joining is on the radio show. Best of luck with you training in Los Angeles this weekend. Next week, a very important interview with Joe Magdzriaz from the Appraiser Institute.
The Norris Group
6391 Magnolia Avenue, Ste. C
Riverside, CA 92506
www.TheNorrisGroup.com
Bruce starts by asking what the MAI designation means. MAI used to stand of “Member of the Appraisal Institute” but now means a members holds the highest professional designation for appraisers. The SRA designation is for residential appraisals and once again gives you the highest designation for that profession. These designations are given by mandated educations and experience.
4 Ways to Listen
- Click HERE on the player launch below to stream our shows as you surf the web.
- Visit our Radio Archives to download shows in mp3 format.
- TNG Real Estate Radio Show is now on iTunes! If you have iTunes installed click HERE or simply do a search for "The Norris Group" while in iTunes.
- If you use an RSS Reader: Click Here
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In 1989, the FIRREA Act was passed. The FIRREA Act was put in place to create barriers to entry for those seeking to become professional appraisers and also to standardize the appraisal process. While it didn’t clean up the appraisal institute completely, it did put in place important systems. In 2008, the Appraisal Foundation brought education and review to a new level. This is still a work in process.
Joseph says on-the-job training is probably the most important aspect of a trainee becoming competent in the world of appraisals. Bruce asks what the stimulus was behind the FIRREA Act. Joseph tells him that at the time there was huge losses going on and lenders were able to hire whoever they wanted and they sometimes had no experience. This lack of experience was seen as a huge part of the problem during the S&L crisis.
Bruce talks about the current markets and asks if appraisers are taking some of the heat for the foreclosure problems. Joseph mentions the Appraisal Institute just got back from a Washington D.C. meeting with Congress and other groups in related industries. The Congressional Research Services gave them a copy of a report that was done on all the causes of the current crises. Out of 26 key areas that are listed as the cause of the real estate and mortgage backed securities issues, the appraiser world is not listed. Joseph says it’s good but it doesn’t mean the organization is perfect yet.
Bruce asks if Joseph sees legislative changes coming regardless of who is at fault for the current real estate crisis. Joseph says the Appraisal Institute’s president, Jim Amorin, is testifying before the Congressional Housing and Finance Committee speaking on the Housing Valuation Code of Conduct.
Bruce says in California foreclosures are a huge percentage of the for sale inventory. Often the process starts with a BPO. He asks is appraisers are part of that process. With BPOs, Joseph says there is not accountability and the requirements are different. Joseph says there are different motivations and that appraisers are required to remain unbiased.
Bruce asks how Realtors and appraisers get along and if they typically agree on important issues. Joseph says the two groups differ greatly on the BPO issue and appraisers think Realtors and brokers should be held to the same standards when making real estate evaluations and appraisals. Many states have their own rules and regulations so the National Association of Realtors doesn’t have much control of this issue on a state level. There are 23 states that currently prohibit BPOs for lending purposes. Fannie Mae and Freddie Mac were unaware of this and called their management companies immediately and halted the practice in those states.
Bruce says a few years ago he was at a Five Star Conference and a lender was on the stage when a broker asked why she had never gotten a listing from the numerous BPO submittals she had put forward. The lender admitted to giving the listing to the highest BPO they received. Joseph says that doesn’t surprise him.
Bruce asks how much of a problem coercion is for appraisers. Joseph says it’s been a real problem lately and especially in states like California. There was recently a lawsuit about an appraiser getting blacklisted because he didn’t give a lender a certain price. The Home Valuation Code of Conduct should address this as a new hotline will be created so appraisals can report this when issues like coercion arise. Joseph says there could be a penalty if an appraiser was caught adjusting numbers or was influenced. The other side is not currently help accountable and that should change.
Bruce says he had read that appraisers may soon have to be bonded and asks how that would change the appraiser business. Joseph says it would be devastating to the business. This would raise an appraiser’s overhead $16,000 and that would be passed on to the customers. The lenders should be the one with the bond since they approve the loan.
Bruce talks about the cramdown in which a current appraisal is necessary. Joseph says it’s excellent for appraisers but it hasn’t passed it yet. Too many people did home valuation models and BPOs and not professionals appraisals. It would have helped. There is a downside to cramdowns so he’s waiting to see what happens.
Bruce asks about valuations models. Joseph says sometimes they are very good and sometimes they are really bad. Areas like San Diego where there are a huge amount of dissimilar properties in a neighborhood make these models less effective. AVM is a type of regression analysis reliant on historical data so it’s not always current. Sometimes these models aren’t updated for sometimes months. Bruce asks if this is the issue with review appraisers. Joseph says this is more of an opinion and not a real estimate. AVM stands for automation evaluation model.
Fannie and Freddie say they test and update their systems often but to not give details. Every time new data gets in the model changes. But once a downward trend starts, it will predict lower and lower numbers much like it did when the market was booming. It works best when markets are flatter.
Bruce asks Joseph what changes he would like to say in the business. Joseph would like to see more education and higher standard of competence for all appraisers.
Listen in next week as the interview continues. To read more on the Appraisal Institute, see appraisalinstitute.org.
Joseph C. Magdziarz, MAI, SRA is the 2009 vice president of the Appraisal Institute. He will become the president elect in 2010 and president of the Appraisal Institute in 2011.
Magdziarz has been an active member of the Appraisal Institute for 38 years. He has served in a variety of capacities at all levels of the organization.
At the regional level, Magdziarz has served two terms as Regional Vice Chair and two terms as Region III Chair. He has also been a regional representative for many years. On the national level, Magdziarz served two terms on the Appraisal Institute’s National Board of Directors. He has served as Chair of the Education Committee for five years and has also chaired the National Audit Committee, Instructor and Faculty Committees, and Education and Publications Committees. In addition, he has served on a number of project teams. Presently, he is serving on the ADAPT (MAI demonstration report alternative) project team and the International Education and Designation project team.
Magdziarz has been President of Appraisal Research, Inc. in Rockford, Illinois for 38 years. He resides in Rockford, Illinois with his wife Sandra of 41 years and his bulldog Bella.
Magdziarz is an approved Appraisal Institute instructor for 26 courses in the Appraisal Institute’s QE, AE, CE, and USPAP curriculums. He has also had international assignments in Naples, Italy; Istanbul, Turkey; Seoul, South Korea; and Beijing, Tianjin, and Shanghai, China.
The Norris Group
6391 Magnolia Avenue, Ste. C
Riverside, CA 92506
www.TheNorrisGroup.com
Tony got started in 1980 watching the infomercials on the television. He bought all the courses. It quickly led him to appraising. All the courses he had bought didn’t get him to the numbers he needed. The appraisals license really helped him take off. Tony was born in Cuba and his first exposure to real estate at a young age was very positive.
4 Ways to Listen
- Click HERE on the player launch below to stream our shows as you surf the web.
- Visit our Radio Archives to download shows in mp3 format.
- TNG Real Estate Radio Show is now on iTunes! If you have iTunes installed click HERE or simply do a search for "The Norris Group" while in iTunes.
- If you use an RSS Reader: Click Here
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In the 1980s the interest rate was high. Tony started buying little single family home sin Burbank. He expanded in “The Flats” and kept his job as an appraiser. He started working with two gentlemen from New Zealand. These guys opened his eyes to a new world of investing. Tony learned quickly that his preconceived notion on real estate investing had held him back from what was really possible in the business.
Tony goes into detail about what many new investors say and how they fear getting in the market. Tony discusses the specific questions he asks new investors because he finds they typically make the same mistakes and they just don’t know where to start. They haven’t really thought about the details of where they want to invest and say that they just want a deal.
Bruce talks about how many investors are trying to either make up for lost time and/or trying to make up for losses which is not good. Hearing the desperation makes him nervous as many of these investors get led astray. Tony feels the same way. He himself struggled with this issue early in his career.
Tony talks a little about his “Third Element” concept. He goes into fear and how it really controls people and what they do and don’t do. He talks about fear and how it really gets in the way of real accomplishment. More people need to analyze how they make decisions and stop operating under fear.
Tony talks about people making mistakes because they are unwilling to learn from people already in the business and do not invest in education. He talks about his philosophy on education which is very much like Mike Cantu. Tony went to Mike Cantu’s training although he’s been a land lord for years. All it takes is one simple idea that can revolutionize how you do business. Tony talks about how much money he would have saved if he had been more careful with education in the beginning.
Bruce and Tony discuss how this business has changed his life and how he’s set up his properties to pay for his base lifestyle. It’s afforded him to do some interesting things.
It was a little long of an introduction but more is coming next week.
Tony Alvarez has been a successful Real Estate Investor and Certified General Appraiser in the Southern California area since 1981. Tony has bought, sold and rented hundreds of properties from vacant land to condos, single family residences, and apartments. More recently he is investing in commercial developments in Arizona, Nevada, and Southern California.
As an appraiser Tony worked as a staff appraiser for Great Western and Glendale Federal Bank and is approved by hundreds of Lenders, Insurances Companies as well as Government Agencies.
He has worked for Fanny Mae, Freddie Mac, FHA and the FDIC.
He has an in depth knowledge of the inner workings of Lenders and their REO (foreclosure) departments. Tony’s knowledge of real estate, appraisal, finance, and investing is vast and varied. He brings a unique perspective to the real estate investment community.
The Norris Group
6391 Magnolia Avenue, Ste. C
Riverside, CA 92506
www.TheNorrisGroup.com
Bruce talks about Ward’s reputation that is so important in this business. Ward talks about why it’s so important to stay on top of current trends and how his students help him do that.
4 Ways to Listen
- Click HERE on the player launch below to stream our shows as you surf the web.
- Visit our Radio Archives to download shows in mp3 format.
- TNG Real Estate Radio Show is now on iTunes! If you have iTunes installed click HERE or simply do a search for "The Norris Group" while in iTunes.
- If you use an RSS Reader: Click Here
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Bruce talks about the foreclosure problem and all the new “solutions” the government is throwing at the issue. Bruce brings up SB1137. Ward says this bill just delayed the inevitable and now they are coming back on the market. Bruce talks about fines being given out by the cities and how lenders are taking additional huge hits by way of code fines. Bruce met with a Southern California city that says they hired four employees that get paid only when they write code violations. He talks about a recent boot camp and a fine that was levied on the house for something silly. He sees fines upwards of $20,000 on some of these lender-owned California properties.
The quantity of foreclosures is making it difficult for lenders to handle it all. Bruce talks about the cities and counties that are now getting money. Ward likes the programs because a fair amount of the money is going towards the first time buyer assistance programs which help us. There’s also an $8,000 tax credit for certain buyers.
Ward’s view on the new Foreclosure Prevention Act won’t do much as there are plenty of investments that it won’t help. Ward talks about a large number of non-owner occupied homes that will be let go from speculators. Bruce asks where those stats come from because when he looks at County Records Research, Bruce finds that around 70% are owner occupied and 100% financed. Ward says some people coming to him say they were able to finance investments 100%.
Bruce talks about how quickly people went from a positive equity position to negative. Bruce asks Ward how he prepared for the downturn. Ward said he lined up lines of credit in 2006 but did not borrow on them. He owned several homes free and clear. He did a little spec building that worked out well at the peak. Now he’s in a great position.
Bruce asks Ward what he tells people who are having start over. Ward tells them to be a survivor and not a victim. They got caught up in the euphoria, don’t blame yourself, pick yourself up and start over. You have to get over it and get started on something new.
Bruce hears every quarter that now is the best time to buy real estate. Ward says as Option ARMs adjust it will only get better. Ward likes to eat every day and he feels the same way about investing. He makes money in all times of markets. It’s about the deal considering the market you in. Trying to time bottom is not important.
Bruce asks Ward how important it is to him to have his basic needs being taken care of automatic pilot. Ward’s “Dingbat Retirement” program has made him very happy. It’s important for him to have his keepers paying him every month. He has retirement section 8 that’s done quite well. Putting himself in this position allows him to make much more calm and wise decisions.
Ward rents to a very unique group of people. Ward rents to retired individuals. Ward learned early on he wanted to rent to those in their last 20 years of life. He wants people with no job and people who were settled. Retirees want peace and quite, individual units away from other people, don’t have to have a garage, no need for a yard, and overall just want something that’s simple to maintain and is cheap. Bruce asks what the age of these homes are and he says they are typically from the 20s.
Bruce asks about neighborhood safety. Ward says that it’s not too important. They want level ground for safety reasons and they, of course, don’t want heavy crime areas.
Bruce asks how Ward advertises his homes and gets the right people there. The inventory he has helps with that. Ward’s average turnover is 17 years. Ward is looking forward to picking up more.
Bruce and Ward talk about Fannie Mae raising their loans to investor back to 10. Bruce talks about the confusion between speculator and true investors. Investors need to be part of the market. We will need more than 10. foreclosureforum.com
Ward Hanigan is a full-time foreclosure specialist and trainer in San Diego County. He brings you over 37 years of real estate experience, with a degree in Economics and a Doctorate in Law. He has worked in California's foreclosure market exclusively since 1982, and as a consequence he has extensive experience finding cash, researching title, handling evictions, rehabbing, reselling, consulting, and is a "one-on-one" trainer and mentor to some of the most successful foreclosure practitioners in the Western United States.
Next week is Tony Alvarez.
The Norris Group
6391 Magnolia Avenue, Ste. C
Riverside, CA 92506
www.TheNorrisGroup.com
Ward talks about training people about trustee sales from different states. He does so to train investors how to specialize in their area. Different states handle foreclosures differently and he makes sure he caters his training to the area they are investing.
4 Ways to Listen
- Click HERE on the player launch below to stream our shows as you surf the web.
- Visit our Radio Archives to download shows in mp3 format.
- TNG Real Estate Radio Show is now on iTunes! If you have iTunes installed click HERE or simply do a search for "The Norris Group" while in iTunes.
- If you use an RSS Reader: Click Here
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Is the foreclosure explosion good or bad? Ward says its good it’s mind boggling. Comparing it to past downturns, there’s nothing like it. Credit is frozen, the stock market is bad, and unemployment is way up, it’s a bad combination. This is definitely the worst downturn he’s seen. Bruce says the speed has been surprising too.
Bruce asks what niches Ward sends people to. Ward says there’s some niches that work and some that don’t. Bruce brings up a sample of a 10 year old house that went to trustee sale that had no equity. Prices have really got hit hard.
Bruce asks Ward why people are losing their homes. Ward apologizes for his abruptness but says he doesn’t really care. He tried to figure it out but the end result is still the same. You can’t change personal situations and it’s whether or not you are going to purchase the house.
Ward says anything negative, including unemployment, frightens the average person. There’s less competition right now. That’s good for investors. Bruce says that many people think the foreclosure business is simple. Ward sees too many people who don’t do their due diligence and are buying seconds. Google Earth photo and Zestimates aren’t real research. No one helps other investors at trustee sales and even if they did, the person probably wouldn’t believe it. It’s a pros game and not to be taken lightly.
Ward talks about trustee sale buyers and how it is typically the only thing they do. It takes a lot of research and you don’t have time to do other things. Bruce says he knows very few trustee sale buyers that do other investments strategies.
Bruce and Ward discuss their first time bidding at a trustee sale and overbidding by $100. Both talk about if you don’t know your information, you better not show up. Ward teaches his students to over analyze the deal so they’re filled with confidence and nothing can rattle them.
Bruce and Ward talk about lenders now lowering the specified bids at auction. Ward says they are doing it so often and frequently he’s worried about competition showing back up. Bruce asks how much warning you get. Ward says hardly any if at all. Lowering the bid at the last minute doesn’t have the desired effect. If they don’t let the investors know, the investor can’t do the research. Some lenders are posting one day in advance.
Bruce and Ward discuss some new terminology they are using at the trustee sales. Drop bid means the bid is going to be dropped. It could also mean the lender can raise it on you, it becomes almost like a reserve auction and the caller is bidding on behalf of the lender. The lender, in this case, is fishing. Specified bid means the purchase price is dropped and it’s in essence an absolute auction. Ward talks about what he does with that information at the beginning of the sale.
Bruce talks about title. In the trustee sale business, you MUST have access to that information. Ward says title companies need the work. Now is the time to work with them and ask for access in exchange for a partnership.
Bruce and Ward talk about how Ward got into the business of foreclosures and trustee sale investing.
Ward says he is getting back to trustee sales now. He says people laugh at him because he still does it but he loves it. He’s putting together funds now to invest more.
Ward joins us again next week for the second interview. You can find out more about Ward Hanigan and Foreclosure Forum at foreclosureforum.com.
Ward Hanigan is a full-time foreclosure specialist and trainer in San Diego County. He brings you over 37 years of real estate experience, with a degree in Economics and a Doctorate in Law. He has worked in California's foreclosure market exclusively since 1982, and as a consequence he has extensive experience finding cash, researching title, handling evictions, rehabbing, reselling, consulting, and is a "one-on-one" trainer and mentor to some of the most successful foreclosure practitioners in the Western United States.
The Norris Group
6391 Magnolia Avenue, Ste. C
Riverside, CA 92506
www.TheNorrisGroup.com
Bruce asks about how Mike feels about the use of leverage in this market. Mike says leverage when buying at the right price is fine. Finding the long term leverage is the issue. It’s a challenge because banks want fully qualified and documented loans and stated income is out for investors. Bruce thinks this will change because they’ll have no choice but to open up to investors. It getting over the issue of investors being considered the “speculator” and everyone realizes we’re part of the solution.
4 Ways to Listen
- Click HERE on the player launch below to stream our shows as you surf the web.
- Visit our Radio Archives to download shows in mp3 format.
- TNG Real Estate Radio Show is now on iTunes! If you have iTunes installed click HERE or simply do a search for "The Norris Group" while in iTunes.
- If you use an RSS Reader: Click Here
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Mike talks about his long-term plan. He’s really built as a buy and hold guy. Mike talks about his overall strategies and his mentors.
Bruce asks about the difference between a “B” and “C” neighborhoods and how Mike chooses which properties he’s interested in holding. Bruce and Mike talks about how important being able to purchase below market was to his business.
Bruce asks Mike if he thinks 2009 will be the best buy and hold opportunity we’ve ever seen. Mike thinks that this year will be a great year. Prices for houses are very low in some areas and rents are still relatively high.
Bruce asks Mike where he’s buying his properties and how long it’s taken for some of the properties he’s buying to close. They discuss the extraordinary price declines. Mike says he’s still contacting people directly but not as much. He says 2/3 of sellers are still in denial of what’s happened in the market.
Mike and Bruce discuss about carrying paper to have deals make sense. Mike says he did that he did that in the 80s and 90s but not as much recently.
Bruce asks Mike if he had to do something over in 2006 what would it be. Mike says take a two year vacation! It was a lot of work for sometimes little results.
Bruce and Mike talk about different strategies and how it changes the outlook on what real estate is going to be for different investors. Mike has a large portfolio of rentals and he knew prices were going to fall. Mike has a different philosophy. He wasn’t too interested in leveraging them all to the hilt. Mike says he saw leveraging work for some and others it was their downfall.
Mike talks about each of his houses and having a job description for each one. Mike doesn’t plan to touch any of these. Sometimes people feel it’s sometimes unsophisticated but “unlocking equity” has its own risks and Mike says he’s very clear on what his portfolio does. He heard horrible stories of people’s lifetime of work being wiped out by being too risky.
Mike discusses his two piles of houses and his goal for each pile. Bruce asks how he thinks people can get back on their feet if they have lost everything. He says go back to the basics.
Bruce asks about his calmness level over the past few years as the market has tanked. Mike says he planned for this and knew it was coming. He went through it before and was determined not to make the same mistakes. Bruce said he was glad to go through the 90s. Going through the pain makes you learn some important lessons. Going through the 90s for both Mike and Bruce gave them a very different outlook and respect for down markets and they’ve done things very different this year.
Mike is teaching his Rental and Property Management Seminar for the first time in conjunction with The Norris Group coming up February 21st. More information available at thenorrisgroup.com.
Mike Cantu is undoubtedly one of Southern California's best real estate investors and a long-time friend of The Norris Group.
Mike Cantu has been a full time real estate investor for over 25 years. This is round three of a down market for Mike. He runs a buy/sell operation, wholesales, and manages a rental property portfolio.
The Norris Group
6391 Magnolia Avenue, Ste. C
Riverside, CA 92506
www.TheNorrisGroup.com
Bruce starts by asking Mike what he did before real estate. Mike talks about his background in professional skate boarding. Mike moved from being a skate boarder to a very young start in real estate. Bruce says in the 1980s the interest rates were not that great so was curious why Mike liked real estate. Mike Cantu talks about an info commercial that changed his life and how he started.
Bruce asks Mike about his education and why he is such a supporter of education since he’s already so successful in the business.
4 Ways to Listen
- Click HERE on the player launch below to stream our shows as you surf the web.
- Visit our Radio Archives to download shows in mp3 format.
- TNG Real Estate Radio Show is now on iTunes! If you have iTunes installed click HERE or simply do a search for "The Norris Group" while in iTunes.
- If you use an RSS Reader: Click Here
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Mike talks about his long-term plan. He’s really built as a buy and hold guy. Mike talks about his overall strategies and his mentors.
Bruce asks about the difference between a “B” and “C” neighborhoods and how Mike chooses which properties he’s interested in holding. Bruce and Mike talks about how important being able to purchase below market was to his business.
Bruce asks Mike if he thinks 2009 will be the best buy and hold opportunity we’ve ever seen. Mike thinks that this year will be a great year. Prices for houses are very low in some areas and rents are still relatively high.
Bruce asks Mike where he’s buying his properties and how long it’s taken for some of the properties he’s buying to close. They discuss the extraordinary price declines. Mike says he’s still contacting people directly but not as much. He says 2/3 of sellers are still in denial of what’s happened in the market.
Mike and Bruce discuss about carrying paper to have deals make sense. Mike says he did that he did that in the 80s and 90s but not as much recently.
Bruce asks Mike if he had to do something over in 2006 what would it be. Mike says take a two year vacation! It was a lot of work for sometimes little results.
Bruce and Mike talk about different strategies and how it changes the outlook on what real estate is going to be for different investors. Mike has a large portfolio of rentals and he knew prices were going to fall. Mike has a different philosophy. He wasn’t too interested in leveraging them all to the hilt. Mike says he saw leveraging work for some and others it was their downfall.
Mike talks about each of his houses and having a job description for each one. Mike doesn’t plan to touch any of these. Sometimes people feel it’s sometimes unsophisticated but “unlocking equity” has its own risks and Mike says he’s very clear on what his portfolio does. He heard horrible stories of people’s lifetime of work being wiped out by being too risky.
Mike discusses his two piles of houses and his goal for each pile. Bruce asks how he thinks people can get back on their feet if they have lost everything. He says go back to the basics.
Bruce asks about his calmness level over the past few years as the market has tanked. Mike says he planned for this and knew it was coming. He went through it before and was determined not to make the same mistakes. Bruce said he was glad to go through the 90s. Going through the pain makes you learn some important lessons. Going through the 90s for both Mike and Bruce gave them a very different outlook and respect for down markets and they’ve done things very different this year.
Mike is teaching his Rental and Property Management Seminar for the first time in conjunction with The Norris Group coming up February 21st. More information available at thenorrisgroup.com.
Mike Cantu is undoubtedly one of Southern California's best real estate investors and a long-time friend of The Norris Group.
Mike Cantu has been a full time real estate investor for over 25 years. This is round three of a down market for Mike. He runs a buy/sell operation, wholesales, and manages a rental property portfolio.
The Norris Group
6391 Magnolia Avenue, Ste. C
Riverside, CA 92506
www.TheNorrisGroup.com
Bruce and Christopher continue their conversation about paying the debt we are currently giving our children. Christopher talks about World War II and how quickly we paid the debt back. Christopher doesn’t have a problem with raising money but government has a problem sometimes paying it back.
4 Ways to Listen
- Click HERE on the player launch below to stream our shows as you surf the web.
- Visit our Radio Archives to download shows in mp3 format.
- TNG Real Estate Radio Show is now on iTunes! If you have iTunes installed click HERE or simply do a search for "The Norris Group" while in iTunes.
- If you use an RSS Reader: Click Here
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Bruce brings up that the State of California can’t raise money so how do you fix the issue. Christopher says California’s problem is $40 billion of a $1.8 trillion in economy which is only 3.5%. It’s not that big of a number. California is 18th in the list of states as far as paying taxes. We’re a little above average. We just collect them in strange ways. Instead of taxes on a ton of small things, we have larger taxes for a smaller bunch of things. Christopher says we have the most regressive property tax. There’s a small group of people who pay a larger portion of the taxes. There’s other ways to make California more tax friendly and pay off debt.
Bruce brings up Prop 13. Christopher thinks Proposition 13 is ridiculous. Voters would have to overturn that proposition.
Bruce brings up Citibank and the concept of cramdownsn which they agreed to cooperate with in bankruptcy court. Bruce asks if that’s possible and Christopher said it is. There’s a new president and an administration that’s more left leaning. Certainly some would pursue bankruptcy as a way to do so but it does incur costs above and beyond just losing your home. Other assets will be at risk. Christopher asks if judges will really consider this alternative as some of these people lied on their loan applications. Bruce says we haven’t put much pressure on the people who exaggerated income. Christopher says the FBI came out early and said they would not be pursuing the consumer. He finds it hard to believe a judge would take the same stance if a consumer blatantly lied on their application and then were seeking a cramdown.
Christopher talks about the huge issue of people going in to default after the payments are adjusted through loan modification. Reports suggest 50% go back into default.
Bruce brings up TARP and the term crawl back which is when CEOs have to give back bonuses if the banks restate their earnings. Christopher says they should have to give it back. Christopher says the problems in the market stems from the problem with executives in the financial system because they were grossly compensated for short-term returns. Christopher talks about some of the ways these executives made millions. He brings up a Lehman executive who made $400 million in six years and how he did it. Executives need to have some skin in the game.
Christopher says mortgage backed securities were used to hide risk. Bruce brings up what they used to call these instruments in the 1900s and how they were made illegal. Christopher is not apposed to derivatives, they’re just extremely complex. We just need to understand them more and the motivation for why people use them.
Bruce asks what the next shoe to drop will be in California. Christopher says asset values are now returning to normal. Savings rates are ridiculously low and debt is way up. Americans thought they were rich. Wall Street tricked these people into believing they could retire early. America has to get spending under control. It’s healthy but painful in the short run. Our economy is too reliant on feeding consumers what they want. It’s not we are buying too few cars today; we bought too many the past few years.
Bruce brings up that the consumer spending was a lesser percentage of the GDP in the past as it was in recent history. Christopher expects that to get back in line. Huge trade deficit was also part of this equation. There was a trade deficit and a savings deficit. In two years, there will be more exports, less imports, and less consumer spending and then we’ll have a healthy economy ready for growth. Bruce brings up that China won’t appreciate it much.
Bruce talks about a report Christopher Thornberg wrote called “Waiting to Save” which is about the habits of the younger generation (24-34) and their saving habits. Bruce says this generation will be picking up some tabs that they didn’t even create. Christopher says this generation grew up in a market where you borrow to speculate. People have to learn to live within their means.
Bruce asks about defined benefit plans. Christopher says for the most part they have left the room and only reside in government. He’s afraid these benefits might never happen and we might figure that out in the coming years. Many of these programs have lost much of their value.
Join us next week for a chat with Mike Cantu before we release his Rental and Property management seminar February 21st.
Christopher Thornberg is a founding partner of Beacon Economics. Dr. Thornberg is an expert in the study of regional economies, real estate dynamics, labor markets and business forecasting. He has been involved in a number of special studies measuring the impact of important events on the economy, including the NAFTA treaty, the California power crisis, port security, California water transfer programs and the September 11th terrorist attacks. Prior to launching Beacon he worked with the UCLA Anderson Forecast where he regularly authored the outlooks for California, Los Angeles and the East Bay as well as performing a number of specialized forecasts for regions and industries. Dr. Thornberg lectures on a regular basis at a variety of public and private events, has appeared on CNN, Fox News and CNBC and is widely quoted in the press. He received his Ph.D in Business Economics from The Anderson School and his B.S. in Business Administration from the State University of New York at Buffalo. He specializes in International and Labor Economics. Dr. Thornberg continues to teach in the MBA program at UCLA and previously held a faculty position in the economics department at Clemson University.
The Norris Group
6391 Magnolia Avenue, Ste. C
Riverside, CA 92506
www.TheNorrisGroup.com`
Bruce asks what Christopher thinks about the phrase, “Since the Great Depression.” Christopher says it’s a bit of an exaggeration and there are definitely sectors that have been hit hard but it’s not that bad. Some assets are still holding well.
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Bruce asks about the benchmark numbers that clue us in on a depression. Christopher says that before World War II, every recession was a depression. The word “recession” was created so there could be talk about economic downturns without alluding to the Great Depression which might cause panic. He says you could categorize a really bad recession as a depression.
Bruce asks about employment and if they’re measuring differently as there are several categories including under employed. Christopher says employment numbers are measured the same and there have always been those other categories. We’re mainly talking about people who want to find employment but can’t.
Bruce asks if Christopher thought he would ever see these big financial corporations fall. He said he did about six months before it happened because they had really leveraged themselves and it was unsustainable. Debt to equity ratios were 80 to 1. It became apparent any turmoil would cause a failure. The thinking was the more leverage, the more return. During bad times, that same principle works the other way; it magnifies losses. Now the government is picking up the pieces.
Bruce talks about the rating systems that we thought were independent and we find out they were getting commissions. Christopher says people who listen to Moody’s and S&P need to understand the system a little more. Many of these assets they were rating were new and didn’t have much history. Their ratings came from modeling so there was not a complete knowledge of risk. Bruce says that’s an issue because people were looking to these companies and they thought they could trust them. Christopher says people have to do their own due diligence. People stopped looking at fundamentals and weren’t doing their homework. When the market was working, people got lax. Bruce and Christopher talk about Bernie Madoff and how he could possibly get away with that for years without getting caught.
Bruce asks why it seems that when our bubble popped it seemingly caused the rest of the world to collapse. Christopher says that the U.S. is definitely the financial guerilla in the world at 25% of the world economy. However, the U.S. was not the only place where abuses of the financial systems were going on. The kind of borrowing going on in Eastern Europe is a perfect example. Some countries are in much worse shape than we are currently.
Bruce asks Christopher if there are ramifications to the U.S. and its reputation because of the fall. Christopher says there won’t be. Our dollar is good by comparison. In the U.S., you know what you’re getting and we have a very diverse and large asset base. U.S. Government debt is considered the best. The talk that everyone was going to Euro was all talk. In 2005 there were some issues but the problem spread to other banks in other countries and the dollar got everything back that it lost in 2005.
Bruce talks about TARP and if Christopher thinks the first half was spent wisely. Christopher said yes. Congress is upset that there is not enough oversight. Christopher says TARP was not meant to force banks to lend money. It was meant to stabilize the banking system. The system is still in horrible shape. There was an enormous increase in asset value and not just in real estate. The delinquencies on all sorts of debt are way up. Banks will possibly lose trillions. The banking system needs to keep going and we have to step in and help the banks recover.
The initial TARP program Christopher did not like. They were going to go in and overpay for assets. They’ve been taking chunks of the money and give it to banks that are too big to fail (Citigroup, Bank of America) and small banks that are healthy that haven’t participated in the debt frenzy to allow them to expand. It allows these banks to pick up other banks as they fail.
Christopher says the TARP money is all borrowing and the government creating Treasury bonds. The government is also facing a huge fiscal deficit so they need t borrow.
Bruce talks about interest rates and its effect on inflation and trillions in deficits. Christopher sees about another two trillion to total 11.5 trillion. It will be 15% of GDP. It’s all relative and it’s not that bad. And they unfortunately have to pick up next week. More about Christopher and Beacon Economics at beaconeconomics.com.
Christopher Thornberg is a founding partner of Beacon Economics. Dr. Thornberg is an expert in the study of regional economies, real estate dynamics, labor markets and business forecasting. He has been involved in a number of special studies measuring the impact of important events on the economy, including the NAFTA treaty, the California power crisis, port security, California water transfer programs and the September 11th terrorist attacks. Prior to launching Beacon he worked with the UCLA Anderson Forecast where he regularly authored the outlooks for California, Los Angeles and the East Bay as well as performing a number of specialized forecasts for regions and industries. Dr. Thornberg lectures on a regular basis at a variety of public and private events, has appeared on CNN, Fox News and CNBC and is widely quoted in the press. He received his Ph.D in Business Economics from The Anderson School and his B.S. in Business Administration from the State University of New York at Buffalo. He specializes in International and Labor Economics. Dr. Thornberg continues to teach in the MBA program at UCLA and previously held a faculty position in the economics department at Clemson University.
The Norris Group
6391 Magnolia Avenue, Ste. C
Riverside, CA 92506
www.TheNorrisGroup.com
Bruce and Rick start by talking about market value. Rick says market value is what a ready, willing, able, and knowledgeable buyer is willing to pay for a property. Bruce asks if this definition is being held up with lenders in today’s market. Rick says that lenders are not. Bruce talks about how real estate auctions do not reflect true market value compared to fixed inventory. The majority of the inventory needs fixing and must be sold in a certain time frame.
4 Ways to Listen
- Click HERE on the player launch below to stream our shows as you surf the web.
- Visit our Radio Archives to download shows in mp3 format.
- TNG Real Estate Radio Show is now on iTunes! If you have iTunes installed click HERE or simply do a search for "The Norris Group" while in iTunes.
- If you use an RSS Reader: Click Here
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Rick says the market is very different from the 90s. In the 90s, Rick says that there used to be a box that said “declining market”. If that box was checked, the deal wouldn’t go through. Now, the lenders will do those transactions but lenders require more comparables. It becomes difficult to find similar inventory. The banks will want to see the appraiser adjust for the market. Appraisals used to be good for 6 months. With a declining market, comparables need to be 60 days or less from the day of funding. Lenders want at least 2, preferable 3, comps within 60 days of funding.
Bruce asks how long appraisals are accurate in today’s market. In some areas, Rick says prices continue to drop quickly so not long. Every area is different. Bruce says in the last 60 days, appraisals are becoming more of an issue. Bruce talks about a recent example of an issue with an appraisal on a property with multiple offers. Bruce asks Rick what will happen if lenders don’t change their stance on valuing properties and creating comps that reflect perfect condition.
Bruce heard recently that lenders are considering doing refinances without appraisals because of the price declines which Rick has heard as well. He thinks that’s an interesting way to solve the issue. Rick says they keep throwing whatever they can at the issue. Rick says they did the same type of things during the Great Depression. Bruce talks about similarities with policies from the Great Depression and now.
Bruce asks if before and after pictures on properties are helpful. Rick says videotaping properties before and after would be a great help but if there are too many repairs they may want to see permits. He says to document all multiple offer situations.
Bruce and Rick then start talking about the principle of substitution. Bruce says there’s a short supply of good inventory. There’s a glut of inventory that needs fixing. Bruce feels bad for appraisers who have to fight for real prices and they have to be careful. Banks are only looking at pictures and don’t really understand what’s happening in the area. Rick takes many more pictures than is required to show banks why prices are where they are at.
Bruce asks about arms-length transactions. Bruce asks about what would happen if The Norris Group carried its own paper and created higher comps. He asks if that would be a conflict because of arms-length transaction rules. Rick discusses the potential issues and uses the example of builders.
Bruce asks what percentage of sales has concessions in the current market. Rick says almost 100% of transactions on properties that are on the market for two weeks or more have concessions although it’s not always easy to figure out what those concessions are. Appraisers don’t always know the concessions.
Bruce asks what percentage is allowed for condition in appraisals. Rick says condition can be about 10%. If you adjust more, it can become and issue. It becomes easy with comparables but more difficult if the data isn’t there to support line item adjustments for over 10%.
If the appraisal comes in wrong in the eyes of the bank, you get blacklisted and there’s a possibility of not getting paid. Rick says review appraisals were not as common when the market was going up. Some did but they were way more lenient. Review appraisers typically do a desk review and never go see the property. They are looking at online information. These review appraisers are typically hired independent contractors.
Bruce asks Rick what he would like to see changed. Rick says not having the lender paying for the appraisal would be better. That way there would be no pressure and more honest appraisals could take place.
Next week is Christopher Thornberg with Beacon Economics.
The Norris Group
6391 Magnolia Avenue, Ste. C
Riverside, CA 92506
www.TheNorrisGroup.com
| Website: | http://www.thenorrisgroup.com |
| Phone: | 951-780-5856 |
| Fax: | 951-780-9827 |
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