All Forum Posts by: Aaron Norris

When you live in Los Angeles and invest in the Inland Empire, it's almost like investing out of state, right? (kidding)

All of my rentals are in the Inland Empire. I have been investing a little out of state via notes, but I am far more comfortable being close to home. I'm still relatively new to the land lording game and I wanted to do that myself, at least the first few years. 

I think a number of the comments here are spot on. 

We have several of our hard money clients that do very well in Lancaster, Palmdale, Bakersfield, etc. You don't necessarily need to come east. I'm a little more conservative. I like newer houses with decent cash flow in decent areas. The Inland Empire still has those capabilities. 

When you're talking about rough areas in Los Angeles, you're typically not talking new inventory. So you're getting the double whammy of bad area and older houses. If you're brand new to the scene, that would concern me. Doesn't mean you can't take it on, I'd just be careful. 

The IE and North LA County are not as good as a few years back, but the numbers can still work. And if you can qualify for cheap leverage and you're going long, who cares if prices come down a little? I have several houses where I just plan to pay off and hold. I like the thought of not having to chase the market every cycle.

I guess I'm uncomfortable out of state mainly because I'm so busy. If I had an issue (like 2013 which was my year of exploding water heaters), I know people and have a network I really trust. Out of state is definitely doable, but I'm glad I at least have some experience locally and now better questions to ask as well as the kind of tenants I'm looking for. 

If you've listened to my Dad (Bruce Norris) this year talk at the local clubs, he's been saying he doesn't see a huge bust on the horizon (yet). Key factors are not in place. So while this year has been...meh, the factors aren't in place for a big bust (overbuilding by the builders, no crazy loan programs, etc.) There's still room in many markets in affordability, especially considering our interest rates. Maybe not in San Jose and San Francisco, but many parts of Socal.

However, Dad is also not planning on taking on hugely speculative investments like high dollar flips along the coast, risky building projects, or inventory that's been run up by the hedge funds. Don't get me wrong, money can be made there. He's just not interested in inventory where fewer people will lend and where buyers come in smaller quantities. He talks a lot about speculation vs. investments and that's important. The last downturn, speculators gave investors a bad name. Investors add value. Speculators show up thinking everything they touch turns to gold. They buy expecting price appreciation while not adding any value. That's not what our community is doing.

It sounds like you're really wanting an investment and going a little longer. I love multiple exit strategies. But, again, if you're going long and the cash flow makes sense, I would just be careful about the rough area. If you feel like you have to long your door while driving the neighborhood, maybe that's not a good starting place. 

If you were able to catch the live feed of I Survived Real Estate this year (do a search on Youtube for it), I think the insight provided by all the panelists are really important. Much of the content was California specific so definitely check it out. 

We like California. We're just being cautious. There's room to go up, but we're certainly watching for government interference, the lending world, interest rates, the construction industry and jobs, and those darn Milliennials!

Favorite call about a month ago was a new investor that wanted to buy a rental before she owned her own home. She didn't want to get tied down. Millennial much? 

Happy Halloween all. I'm currently eating my weight in chocolate.  

I've heard the same thing about the hedge funds getting into the hard money lending space. Many of them have drastically changed their programs since they got in about three years ago. They answer to Wall Street and are creating programs that have to work nationwide. That's no easy task as real estate is certainly micro. We're still hoping the government comes around and allows us more access to financing. We've tried! But, investors/speculators are still the bad guys from the bust. They don't see the difference and politically, we're not sexy. 

@Jeff S.sometimes loans don't make it to trustee sale (deed in lieu). I've only heard of very small private lenders putting an investor in a deal they couldn't handle, hoping they would not perform in hopes they'd get the property for their personal rental portfolio.  

You are correct, any seasoned lender would not fund something like this. The strategy for hard money lenders in the business would be to do multiple deals, not one-and-done. That would be a little silly. 

I was just pointing out what we look for as a hard money lender and to be cautious if he's presented something else. 

@ba r., liquidity is so important. Hard money lender are not like a regular lender looking at your W2 income as most of our real estate investors don't have a "real" job. This is critical on fix and flip projects in particular. It's capital intensive and we want to see investors have the bandwidth to get through it successfully and deal with those uh-oh moments that are bound to happen. 

I've heard of loan-to-own hard money lenders that will purposefully let investors get in over their head because they want the deal. I don't recall hearing that occurring in our circles. Anyone?

As far as the rental side, cash is a little less important especially if there's equity in the property and there's a good track record of rents. We do check credit. Doesn't mean it has to be perfect. But if you've got a history of just not paying bills in general, that's not a good sign for us. We understand a foreclosure, short sale and BKs. Life happens. 

I like what my Dad says about private money. It's called "hard money" because it took someone a lot of time and effort to save up that much. It shouldn't be handled casually. If it was your money you were lending, I think you'd probably be looking at a similar combination of factors.  

We use First American in Riverside for Title. 

Correct. We've looked at the affordability at the county level just for the sake of comparing the peak to now. However, the state-wide number is what we look at for a market shift when we expect a slow down. Or, at least, when we'll decide to be far less aggressive. It's worked pretty well for us thus far. We're still at 30% for the state. 

Affordability, as produced by CAR, includes multiple factors. It's been the only thing we can really point to.  Believe me, there are many that don't like affordability. Sean O'Toole always give Dad a hard time and I know he will tomorrow night as well. I've already been warned it's a conversation that will be had. 

I think the earlier comment about us focusing less on years per cycle is important. We want to look at the market dynamics and outside factors that could be influencing the market. Since building has been slower than expected, what if Governor Brown pushes for environmental reforms on rehab specialists? That would be fun! 

Anyway, we don't have the builders doing tons of spec. We also don't have lenders being overly aggressive giving out mortgages to anyone with a pulse. Without those two important factors, it would be difficult to have a crash. Maybe if the hedge funds and foreign buyers dump all at one time?  Where would all the distressed inventory come from? That's what I'm looking out for. 

Bruce is very specific about affordability and what he thinks it means. He watches for the state-wide number.  He has chatted a ton about coastal areas and several areas where the affordability has gotten tight. Could we increase in interest and be fine? Yes. Especially in areas like the Inland Empire where there is room. However, areas along the coast are getting pretty close to their peak. If we get past affordability peak on the backs of life-time low interest rates, he's not excited about being part of that equation. 

I'm seeing a lot of investors that are now semi retired not interested in speculating. They are moving to solid investments that cash flow so it won't matter what the market does.

On Friday, October 16, The Norris Group will be live streaming "I Survived Real Estate" via YouTube. We start at 7pm PDT and go until around 10pm PDT.  

This is an unusual event bringing together real estate experts at the national and state level to talk about everything from the economy, to real estate regulation, to forecasts for the coming year.

I Survived Real Estate Panel:

• Doug Duncan, Chief Economist Fannie Mae

• Leslie Appleton-Young, Chief Economist of CAR

• Sean O’Toole, CEO of Property Radar

• David Kittle, Senior VP of Federal Solutions

• Eileen Reynolds, Chair of CBIA

• Bruce Norris, The Norris Group

We are live streaming I Survived Real Estate via YouTube. Technology willing, we hope it is uninterrupted. Please know if we do get booted for any reason, we will air the entire show via our radio show and podcast. 

www.isurvivedrealestate.com and the feed details are under "Watch Live." 

I'm really interested in finding out how difficult it is and how expensive it is to install.  I think it could definitely work in higher dollar areas where utilities are very expensive. To my knowledge, there are no current gray water system rebates at any of the local utilities just yet.  I think investors miss out on some free money when they don't check out some of those sweet rebates for things they are already doing (windows, insulation, ceiling fans, toilets, plants, etc.).  

I bet part of the issue is it's not only a utility issue it's building code. That requires to entities or departments actually communicating. :)

Hi @Boyd Hunter, there are three wonderful clubs in San Diego, all highly recommended including SDCIA (San Diego), NSDREI (Vista area), and San Diego FIBI (Carlsbad area).  Not all clubs are built the same and liken them to churches. Attend and find ones that fit your needs and personality. I see you found our site and all the links to those clubs are there. More than happy to help if I can. California is lucky to have some great clubs.  Temecula to Orange is just not going to be a good bet with the 91 and 15 freeway construction. But "it will be sweet when it's complete" as they say.