Justin Bogard and Richard Thornton shares insights on the current debt ceiling debate, we also take a closer look at the challenges facing smaller syndicators. Discover the potential consequences of over-promising and under-delivering, and explore various investment opportunities and strategies, including simple interest vs compounding interest. Don't miss this value-packed conversation that could redefine your approach to investing!
Resources and links discussed:
- Videocast on our YouTube Channel
- ANB Funds Website - https://anbfunds.com
About the Host:
Justin Bogard – Note Investor specializing in performing Residential Real Estate Debt. He finds deals and acquires them for his own portfolio as well as educates investors while walking them through the process of owning a Real Estate Note!
Connect with the Host:
Facebook - bethebank
Twitter - bethebank1
Instagram - bethebankpodcast
American Note Buyers - https://anbfunds.com/
Monthly Broadcast - https://youtube.com/playlist?list=PLzc944w1xydt5aLDrrEPHJhdJeDkBjjD4
Justin Bogard and Richard Thornton shares insights on the current debt ceiling debate, we also take a closer look at the challenges facing smaller syndicators. Discover the potential consequences of over-promising and under-delivering, and explore various investment opportunities and strategies, including simple interest vs compounding interest. Don't miss this value-packed conversation that could redefine your approach to investing!
Resources and links discussed:
- Videocast on our YouTube Channel
- ANB Funds Website - https://anbfunds.com
About the Host:
Justin Bogard – Note Investor specializing in performing Residential Real Estate Debt. He finds deals and acquires them for his own portfolio as well as educates investors while walking them through the process of owning a Real Estate Note!
Connect with the Host:
Facebook - bethebank
Twitter - bethebank1
Instagram - bethebankpodcast
American Note Buyers - https://anbfunds.com/
Monthly Broadcast - https://youtube.com/playlist?list=PLzc944w1xydt5aLDrrEPHJhdJeDkBjjD4
Speaker 1: Interested in real estate. How about wealth? Well, they go hand in hand, And here you'll learn all about it. Welcome to Be The Bank, a podcast where we discuss and debate the topics centered around real estate investing. Your host, Justin Bogard, shares insights into investing in real estate to create real wealth and passive income for you and your family. He'll share stories of real estate investments done right, Walk you through the process of owning a real estate note and, most importantly, educate you so you can Be The Bank. This is Be The Bank, brought to you by American Notepad. Now here's your host, Justin Bogart.
Speaker 2: Welcome to episode number 11 of the Be The Bank podcast. This is season number five. Today we are going to have Richard Thornton on again helping me tear down a couple of topics. We'll be dabbling in a little bit of land notes discussion, talk about the current debt ceiling in our economy and just mention to you about the different type of interests that you can be making as a potential passive investor. Stay tuned, hey, richard.
Speaker 3: Mr Justin, how's it going this morning, how's this afternoon for you?
Speaker 2: It's going very well. Weather is very nice. We have not had any rain in over a week and we don't see any rain in the forecast for another week, which is kind of rare. But it's also very hot around this time, which is unseasonally hot. It's Indianapolis 500 week here in Indianapolis.
Speaker 3: How did that go, or is it going?
Speaker 2: As a recording. this is going to be in the next three or four days where the race is going to happen. on Sunday It's Memorial weekend, so we're recording this before Memorial weekend and that's what happened. So there's a bunch of pageantry the day before There's the last week they had a bunch of practice and qualifying for the race and so it's a big ordeal. So the month of May in general is a busy, busy time at our track.
Speaker 2: and our track for those of you who don't know is basically it's not an oval, it's just a big stretch of track. Yeah, it's a mile on each straightaway and the turns are a quarter mile. So from turn one to turn two is a quarter mile. so together it's a two and a half mile track, but it's pretty much straight. The driver are doing four lefts and that's it, and they get up to speeds of around 243 miles an hour. when they get into the turns at full throttle They pretty much have the gas pedal mashed the whole time and then they just downshift like maybe one gear and they're in between a couple gears.
Speaker 3: So there's big festivities going into the race.
Speaker 2: Yeah, so there's a lot of festivities going into the race So we won't get into all that, but yeah, it's a pretty big deal. Here in Indiana There's a lot of people that travel from out of state, even out of country, to come watch the race. They call it the greatest spectacline racing Is the ND500.
Speaker 3: Very cool, very cool.
Speaker 2: Cool, excuse me, so anyways, i heard you lost your phone.
Speaker 3: I lost my phone. It is sitting on some desert trail in Utah right now. We went to see a number of the geologic wonders there, one of which is called the wave, which is all these sedimentary rock And you can go online And if you just put in the wave in Utah it'll pop up. But yes, in hiking back I was wearing a pair of shorts that I always like to hike in and apparently slid down a rock And my phone is on one of those rocks.
Speaker 2: And some lucky animal is making calls with your phone.
Speaker 3: Yes, yes yes, And I will say I always have my real estate or my note hat on, regardless of where I am. So I guess I hadn't focused on this before. But Utah is very much a mobile home market. Here in California the last thing anybody wants to see is an RV park or a mobile home park or anything like that. They have hundreds there. They're very except especially the RV parks and the mobile home parks, And it's very acceptable to have a one or two acre lot And you have a double wide on it. They've got the little garden around it and the whole nine yards. So I think there would be a lot of opportunities for note buyers in that Utah market. I was surprised to see that.
Speaker 2: I don't think I've ever seen a note in Utah that I can remember off the top of my head that I could have purchased.
Speaker 3: Nor I, which is curious for both of us, because we've been in this affair a long time And to not see any, there's got to be a lot of private finance in that market. I don't know where it's going.
Speaker 2: Yeah, i may have skimmed past it on a large tape and just not considered Utah as something that was part of my filter, but definitely like a one off note, i've not seen one.
Speaker 3: Yeah, and these would be. I mean again, i've got California eyes, you've got more Midwestern eyes and maybe you're more used to this type of stuff. But I have to say when we first learned of notes on mobile homes in South Carolina and North Carolina, i said, no way, i'm never getting into anything like that. But once I got used to it and I could see some of what was there, i thought, oh, these could work Well. I am all the more convinced now in seeing, because a lot of these they're nice little houses. Yes, they're not exciting, but they've got the picket fence and the yard and the driveway And there's nothing wrong with these homes. So, and you can buy them for probably $100,000. They're nice little houses. There would be good. I would lend against any of them.
Speaker 2: Yeah, that's great. Glad you mentioned that, because I hadn't thought about that before. the Utah markets And perhaps we should go out there and just see if we can find somebody that would sell some notes.
Speaker 3: That's right. So what crazy things are our federal government doing today, are we? Oh jeez, tell me a little bit about what's going on there that you can see.
Speaker 2: Well, not that I pay attention too much about this, because we know the problem is going to get solved somewhere or the other, but it's always the sky is falling. The sky is falling when the debt ceiling is mentioned And right now, in our economic climate, there is a debt ceiling window of opportunity to make some changes or to make some corrections, because we have a June 1st 2023 deadline to pay off, to pay on some debt, or we as a country go into default, as they say. So there's just a bunch of talk on that right now. I don't think they have resolution yet between the house and what the senate wants to do Republicans and Democrats.
Speaker 2: But yeah, i mean it causes a bunch of unnecessary drama, i think, because it will get scary as to what can happen. It's not like we're everything in the country is going to flip upside down and we're going to fall into a black hole. It's just, you know, it's a part of what happens. I don't know if this is by year. You know every other year or what I always hear about the debt ceiling, how it gets to be raised, and, in all, the economics have to do with the macro economics of the country. Anyways, that's a bunch of buzz that's going on right now and I don't really know what it means yet, because we don't have resolution, or if they're going to raise the debt ceiling or if they're going to cut some things to make ends meet.
Speaker 3: Right. So I always think it's interesting because I personally think they should do away with the debt ceiling. I think it originally was instituted when it was necessary because they were talking about we just come out of the civil war. We had a lot of expenses based on what the economy was at that time. We had a lot of debt. We'd actually had to go to European countries and borrow, and the North was able to borrow and the South was not able to borrow, and so they wanted to get that amount of debt down. But it's like a lot of other things, it's obsolete, you know. It's like believe it or not I could check me just to make sure But I think it's still illegal to walk down the streets of Los Angeles holding hands with a man and a woman. That's still in the books. There are a lot of obsolete laws like that there out there that just need to be done away with, and the debt ceiling is one of them.
Speaker 2: That is. That is strange. If I've never heard of anybody getting in trouble for that, that'd be quite guess be kind of funny, because it's like, really you got in trouble for that.
Speaker 3: Yeah, exactly, that's a lot of esoteric out there. So, anyway, something else that's happening that I'm starting to see more of in the news and coming from a commercial background, and lending against a lot of apartment complexes. The apartment world seems to be changing. There's still, i think, the more what they call core product out there, where you've got the large syndicators who have not over promised some of them have, but who have not over promised that are doing You know, they're doing projects that are two, three, four hundred, five hundred units, that that type of thing, but they're only promising returns in the maybe seven, eight percent rate. But you've got a lot of smaller syndicators, maybe guys like us, maybe people who are doing a hundred unit, maybe fifty unit buildings, things like that. They're starting to get some bad press because they over promised and they're under delivering, and the scathing article in New York Times and Fox this last week about how these guys are not making their numbers And they're turning to two notes to try and private notes to bail themselves out.
Speaker 2: Yeah, the indication world is is. I guess you can just say it's in trouble. Really There's some good operators out there that are probably going to make it through and be just fine, but there's probably going to be several operators that are not going to make it through And we do know of a few that are trying to make their way into the note world and do a real estate debt fund somewhere to the fund that we have And in this world. If you don't have a lot of seasoning in this world and you don't have a lot of connections, it's really hard to find inventory. We're fortunate enough.
Speaker 2: We've been in the business for about seven years, full time. Seven years I should say we're longer And it's just. It's all about who you know, right, it's how you get the connections and how you can make that stuff happen. So it's not as difficult for us to find inventory, but somebody getting into the space for the first time It can be pretty challenging, especially right now when there's not a lot of trades going on, because I think people are kind of holding back some bigger trades to see kind of what happens with some of this non performing inventory that's kind of getting held up in some of the bigger markets or the bigger Wall Street firms.
Speaker 3: Yeah, i think it is kind of a little bit of a difficult time to get in, and even more so to raise money right now, because a lot of you just don't know where markets are going. We're not in a bull market. People aren't saying, yes, yes, let's jump in and invest, and blah, blah, blah. This debt ceiling thing is causing problems. We all know what's going on with the banking situation. Part of what this article was saying, too, is that if a lot of these syndications go belly up, that's going to cause problems in a lot of the mid-sized lenders, which is going to cause further disruption in the banking world. Where it has been the larger banks, it can now go down into the smaller banks.
Speaker 2: There's peripheral, conceptual ambient noise going on. The average person that's not hyper-focused in a certain market or certain area probably just gets this ambient noise and they just see a lot of it from different directions and it just gives you the bad feeling. By the way, you can see the video stream of this podcast on the American Notebuyer's YouTube channel, so check us out there. Yeah, that ambient noise. It causes a problem. It makes somebody hesitate. It makes them get anxious money and put it on the sidelines to be like what do I do? What's the right move? They feel like they don't have an intelligent way to research to find out what the right move is.
Speaker 2: I think you and I have both learned that you just got to keep moving forward, no matter what. You may not make the perfect decision, but you just need to make a decision that just keeps your cash flow coming in and keeps you moving forward in a positive direction. It may be very low risk and super secure, or maybe a little bit more risky. If you see an avenue, By all means sitting it somewhere and not moving. It is losing you a lot more money than putting it somewhere and moving forward slowly.
Speaker 3: I would agree.
Speaker 2: I would agree. That brings up another topic. that is a conversation that I've heard. We haven't brought this up because, quite frankly, we just never really have the need to bring this up, but I think it's a good time to kind of differentiate between simple interests and compounding interests. Do tell.
Speaker 2: Simple interests is basically let's just call it like a hard money loan. If you are a lender and you are lending money to a what's it? say someone that wants to remodel a house Richard is a very experienced hard money lender because he did this a lot in a lot of different states Richard, he would lend money out and he would say, okay, I'm not going to ask you to amortize this loan, but I'm just going to say I just want the interest payments to come in. Then, at the end, when you're done with your project, i want you to give me my entire principal back. Let's say, richard lends out $100,000 and he wants a 12% interest rate. I think it will get interest-only payments that will come into him every month. or he gets it all up front or he gets it all in the end. However, he slices this up but he also gets his $100,000 back. The loan is not really amortized. That's kind of let's just call it a quick definition of simple interest. That's one way that Richard can earn money As the everyday person out there that has a savings account or a checking account.
Speaker 2: this used to be more prominent when savings accounts were a lot richer as far as interest rates are concerned, because I remember when I had a savings account I think it was like maybe a high yield savings account was like 4% or 5% when I was probably in high school and college They would also have this word compounding in it. They would say you can compound your interest on it. That sounds interesting. What is that? Without that, you can earn the interest and put it back into your principal. Say you have $100,000 in your savings account and you earn whatever 5% interest That money that you're making monthly on it. you just keep it in your savings account and then the next month or the next day when it compounds again at 5%, it's $100,000 and $5 and then it does 5% on top of that. It slowly gets your interest to be a little bit more.
Speaker 3: That sounds a lot like reinvesting the dividends like we do in the fund.
Speaker 2: It's exactly like what people do in the stock market, to where their money stays in the stock market and then they just keep making more money. I guess that's a bad analogy. Let's stick to interest and savings accounts, because that's more realistic. Yeah, exactly So instead of taking your dividends or distributions from the fund that gives you your quarterly or annual distributions, you just keep it in the fund and it's new principal balance now, and then you get your interest on your new principal balance as opposed to your original principal balance. So then every quarter, every year, it's going up, up, up, up, so your overall return on investment that's annualized becomes greater than what you were promised when you signed the fund documents.
Speaker 3: Yeah, and actually I hadn't thought about it until right now, but that's a lot like the tenure model that we talked about where.
Speaker 3: So for those of you who don't know it, i'll give you a very quick thumbnail. We've got a video on our American Notebuyers website. Or A&B funds either, one where we take five notes $50,000 piece, $250,000, and you buy a note with. You buy five notes with those, you take the dividends especially good to do inside of a self-directed IRA and within 21 to 24 months you can buy another note just from those dividends. You go out another 21 months and, guess what, you can buy another note and you keep going on that trail. It goes from like 24 to 21, 18 to 17,. And this, if you look at that over a 10-year period which is the reason we call it the 10-year model surprise, you have more than doubled your money, which, if you think about it, if you're in your 40s or your 50s and you've done that, once you've made that initial investment, you've basically done nothing. It's pretty attractive. That is another form of compounding, like Justin's talking about.
Speaker 2: This is just two ways to compound that money and get also what we call yield override, where you're just compounding that yield on top of it. On top of it. That's what we do in the fund. That's what we offer as well. It's totally up to the investor. Most people would prefer just to keep it in their ride, unless this is a large amount of money that they are basically living off of. They'd be like, yeah, i'm just going to live off the interest of this investment. They'd be like that makes sense too. No problem there.
Speaker 3: Right, right.
Speaker 2: Richard, I have an opportunity to buy a land note. It's a land note in an area that I'm unfamiliar with. It's actually in the desert area. We'll call it Joshua Tree, California, and stuff. It's interesting and it reminds me that there's still a lot of good deals out there for land. You just have to be a little bit careful if you're not a traditional land buyer, because there are some things that you need to understand When I talk to you about it. You brought up some good things about easements. This particular parcel that I'm looking at is a very small parcel that the purchase price is very small. It's under $10,000. It's a perfect fit for a small, balanced IRA that we have that we haven't really started leveraging on. Looking at it and talking to you about it and you say, hey, Justin, I know you said it was landlocked in this area, but did you know? and then go ahead and explain what this is in California.
Speaker 3: What my question to Justin is and I have to search this out to my knowledge was more or less illegal to have landlocked property. In other words, you had to have an easement that gives you access to it someplace. You can own it, but you can't finance it or anything of that sort if it's landlocked. Now it could be that there's a whole bunch of easements to get you there, but that's got to be something that's part of your due diligence. I'm actually going to check with counsel and can report back to everybody to find out if that is the case or not. If you're listening to this and you're from California and you're a lawyer, please let us know.
Speaker 2: Yeah, it's interesting. It's a new area for me to invest in It's land. It's something that I don't have much as experience as I do with single family, but so I reached out to some other land guys that I know and asked them some questions and getting some feedback from them on values and stuff. Yeah, it's good to know a lot of different people in a lot of different areas so that you can overcome some of these obstacles, because it isn't a very large investment, like I said, but it's worth it to make a phone call or bringing up to somebody. If Richard wouldn't have said that, I wouldn't have thought of that being a problem for me just because I don't deal in land that much that I wouldn't have thought of it.
Speaker 3: Yeah. So here's part of the problem or question. I mean, you're at Joshua Tree. It's the middle of the desert. Joshua Tree is very hot now No pun intended with the desert heat, but it's just a very hot market, especially if you're in Airbnb's And it's very desirous for people who like to have sandbuggies and go out there and ride around things like that. Well, it's great to own a piece of land, but if you have absolutely no way to legally get to it, what's the use? You can't go out there and take your RV on it or anything like that.
Speaker 2: You drop in on a helicopter, Richard.
Speaker 3: Yeah, right. So I mean, people are out there. Nobody's sitting out there with their surveyors gear saying, all right, fine, this is your corner and this is your corner and you can't cross here. Let's face it, it's wide open land for the most part, But so I think you would want to own something like that, if you think that can somehow be assembled into something bigger, Unless you're in a downtown or close to that. I don't see any real. or maybe you think a golf course is going to be put there. I don't see any real advantages or that. I don't see that happening, But nevertheless it might work.
Speaker 2: Right, So it's good to know people. That's why we have a very good network of folks that we can lean on for stuff like that, right? So, richard, what's the latest thing that you've been looking at for investment? Well, you've been on vacation mode for a while, so you.
Speaker 3: Yeah.
Speaker 2: so I would say I'm putting on the spot there.
Speaker 3: No, no, yeah, we went to Utah for those of you who don't know and did a whole lot of hiking and have a I've got sort of a vacation-workation mode that I go into where I'm able to hike in the morning, work in the afternoon, come back and then work some evenings and it seems to work pretty well. Yeah, i would say that one of the things that has surprised me again and again is the Airbnb market. You can go into little markets like we were in. we were in Canab, utah and places like that. buy a house for 150,000. People can. You don't have to be right next to like, in this case, zion National Park and things like that.
Speaker 3: There's 15 or 20 miles of it, these houses. I've asked a local management company there. I chatted them up. They're renting a lot of these houses for 200 nights a year. We looked up the house that we were in. Its improved value was $250,000. You can buy something like that, put $150,000 mortgage on it and if you're paying $800 a night for a house, a three bedroom house, you're making some pretty good money. That's not new to a lot of people who already have their eyes open to that. That's one thing that just piqued my interest a little bit.
Speaker 2: Yeah, it does. There's a lot more that goes into it. It's not as simple as you get the short-term rental and you're all good. There's a ton more maintenance involved. There's a ton more cleaning. There's a lot to it, but it can't be looked at, which is why people get into the short-term game to make that their investment portfolio.
Speaker 3: If you could actually get in front of some of those people and write mortgage notes, that could be a good thing, because a lot of those people are not financeable to the degree. If they get five, six or seven of these going, they can't get another loan. You could make a decent loan that's fairly conservative on some of those. You have a nice investment.
Speaker 2: Yeah, that's a great point. I've tried to reach out to a few people here locally to see if they are interested in doing seller financing some of these things that they buy just to sell, or finance the whole package as one cash flowing short-term rental note. if you will, We'll see. Maybe there will be a market for it soon, but I haven't had much luck pinning that down.
Speaker 3: Right, that's what has been rolling around in my mind. I'm still interested. I think the NPL market is still somewhat overpriced, from what I can tell You, and I have come across some good what I will call wholesale opportunities, just because we're out there trolling for things. By and large, if you're going to go on bigger pockets or anything like that, i still think things are overpriced.
Speaker 2: Right, yeah, if you're looking for stuff, there's a lot of people out there just waiting in the waters to jump on opportunities. It's similar to the regular real estate market in my houses and stuff. A lot of people are just looking for good inventory and real property.
Speaker 3: Right To your point here in the Bay Area. Have prices gone down? Are things sitting? I think you'd have to say yes, yeah, again, the correctly priced house, a priced house I'm sorry, that's a nice house is still going over asking. We had one down the street that was listed and it went for $200,000 over asking. It took it five weeks as opposed to five days, but still 250 over asking. Come on, it was not what I would call underpriced. Really, it's that in-between market where out here anyway, it's not soft soft by any means, got you.
Speaker 2: All right, richard, we are out of time for today. Thanks for the conversation, as always, and the podcast here on episode 11 of the season five Be The Bank podcast. We will see you guys next time and have a good Memorial Weekend, even though you're going to hear this after Memorial Weekend, but we do wish you a good Memorial Weekend.
Speaker 3: Have a good one.
Speaker 2: Bye.
Speaker 1: Thanks for listening to Be The Bank. We hope you learned something from today's show. If you enjoyed this episode, please rate and review us. Plus, check out our channel on YouTube and follow us on Facebook and Twitter at Be The Bank, and on Instagram at Be The Bank podcast. Be The Bank is sponsored by American Note Buyers. Thanks again for listening.