Be The Bank
Be The Bank
018 - Buyer Frenzy
Ever wondered how the fluctuation of interest rates affects the real estate market? Join us in a captivating conversation with Justin Bogard and Richard Thornton as we delve into this intriguing topic. We dissect Barbara Corcoran's prediction of a potential buyer frenzy if rates drop significantly. However, the picture is not all rosy and we consider the possible headwinds. Plus, we spice things up with a fun chat about movies and the challenge of finding the perfect show on streaming platforms.
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!
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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, Take 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 Bogard.
Justin Bogard:Well, hello there. Welcome to the Be the Bank podcast. This is episode number 18 on season five. I am Justin Bogard. Today we are going to be talking about I'll be talking with Richard Thornton again and we're going to be discussing I write an article and it talked about what happens with, what might happen or what could happen with when the rates finally drop down, or if they're ever going to drop down. So it should be an interesting topic for today. So stay tuned, richard, this is the best looking outfit I've ever seen you wear.
Richard Thornton:Yeah, it's called no outfit at all. Streamyard, for some reason, is just painting me black in my little avatar today, so I'm stuck with this. This is all I can do.
Justin Bogard:Well, that's too bad, because you're probably wearing some outfit that I could poke fun at and I'm not going to be able to now. So this is actually worse news for me.
Richard Thornton:I look at everything that I wear as an outfit. I'm also going to go see the new Barbie movie, so I can test out that theory.
Justin Bogard:Oh so, brian, I have two daughters, as you know, and I still have not seen the Barbie movie. I'm not worried that I haven't seen it yet, I'm just surprised that I haven't.
Richard Thornton:I'm actually told because I haven't seen it yet that it's actually a little bit more for adults than you would think. It's got a strong feminist overtone to it and it's not the bubble gum thing you would think.
Justin Bogard:Okay. Well, my daughters did see it. I think they saw it two times, once with their mom and once with my mom. They mentioned that they liked it, so I said okay, hey.
Richard Thornton:But you did see the more important movie.
Justin Bogard:What's that?
Richard Thornton:That was the new Indiana Jones movie. Oh yeah, I did.
Justin Bogard:Yeah, they liked that one. We had actually watched all of the Indiana Jones movies before that one and all three of us thought it was the best one out of all of them. I don't know if you had an opinion on it.
Richard Thornton:I mean to see Harrison Ford once again doing daring dues is quite something. So are you going to?
Justin Bogard:Yeah, it was pretty cool. I definitely thought it was a very good movie. So there you go, there's your, from Rotten Tomatoes to your Home. Richard and Justin, I've just told you what movies to watch next.
Richard Thornton:So this may be what I'm going to see right now, might be the best tidbit that the listeners and viewers are going to get out of this. But I did not realize. Maybe, maybe and has nothing to do with notes. I did not realize that you could actually go to the Rotten Tomatoes websites and just cruise through all sorts of movies and TV shows and things like that, because the library systems that Netflix and Amazon have are not really great. I mean, you see the 10 that they're promoting, but if you wanted to put in some really cool 1980s sci-fi movie, you wouldn't be able to find it. But you can find all that stuff on Rotten Tomatoes. You can just put it in under something like that, pull it up and then you can go go online and find out where it's playing and get new ideas, and so there's your little tidbit for the day.
Justin Bogard:You know what I'm going to put it up. Maybe we might go down a dark hole with this. Sure, yeah, what I watch is no, turning back now what I've been watching stuff. I agree with you. When you go to the different streaming services, everybody listening and watching probably has more than one or two streaming services that they pay for. We all thought we were going to cut the cable and we end up probably paying more than we did when we had cable. I agree, but I find that I can't ever find the movie that I want to have. One in my head be like, oh yeah, remember that movie and I'll go try to find on Netflix or go try, and I'm just like this is so annoying. Why can't I just, you know, I'm just like. I'm just like. I'm just like I'm just like Type it in somewhere and it tell me what service it on, a service it's playing on when I have the service available to me. That's the feature that I want. I don't have you.
Richard Thornton:You can do that. I on IMDB. So if you go to IMDB, calm and put in the name of that movie, it'll tell you what platforms it's on.
Justin Bogard:Well, I'm one step lazier, Richard. Oh, I'm talking about when you're on your TV. Yeah, you're a controller in your hand and you want to. You know, I'll get on the microphone for the controller and say I want to watch Indiana Jones and if it comes up, it'll just give me the ability to rent it on Whatever platform to rent it on, but it doesn't show me like what service is, like trying to stream it for free.
Richard Thornton:That's what I'm trying to get across. That's too late, man. You're sitting there with your jammy's on popcorn beside you, you know beer in the other hand. That's too late, dude. You can't do your research then jeez.
Justin Bogard:Come on it's. I need that instantaneous streaming knowledge of where the dang movie or TV shows playing.
Richard Thornton:So your kids haven't told you that there's no microphone in your, in your remote? You're just talking to the wind.
Justin Bogard:Probably am. This shows a picture from microphone, but I probably Doesn't work this thing working yeah no microphone. Yeah, I digress. Well, richard, we are. We are gonna get to the beat of our conversation podcast. No one. Everyone's tuned out so far the first minutes of this podcast. I'm sorry, folks. Anyways, do you guys know the name? Barbara Corcoran? No, as Richard says, rebecca.
Richard Thornton:Yeah, yeah, that's close as close.
Justin Bogard:Barbara Corcoran.
Justin Bogard:Corcoran is a well known for being a shark on just TV, abc TV show, shark tank, and so I had read a quick little Snip it on one of the social media feeds I I want to say it was yahoo or or Facebook that I saw this on and and she had done maybe it was an interview with yahoo news or yahoo real estate and anyway, she was talking about real estate and she was saying you know, watch what happens when the interest rate Currently it's at over 7%, watch what it drops back down to five like low fives or even below five Said it's gonna be a buyer frenzy and she can see that real estate market jump up like 15, 20%, as far as you know appreciation on on pricing, and I thought that was kind of interesting.
Justin Bogard:So I read it and I respect Barbara and I, like Barbara and I was thinking you know what this lady is is seeing something that at least I didn't focus on when I Was trying to research, you know and get a feel for what's gonna happen next with our trends and stuff and residents real estate. But yeah, she's right, I could, I could definitely see, after having the rates jump up so quickly and then if they start to take back down and they even get back down to the high fours, low fives, like we hope that they do, I Can definitely see everyone that's been on the sidelines waiting for those rates to come down Just jumping ship, selling the house and then getting a new mortgage in a new house. So, richard, what do you?
Richard Thornton:think. Well, I think I think Part of that I agree with part of that. One is I think there's a little bit of headwind here. First of all, I mean In a broad sense I totally agree with her, because After every time that the Fed has raised rents and lowered rents, guess what? There's been, you know, a Russian housing, so that's not all that big a deal. To claim whether it's going to be 15% or not is kind of Okay, but there are a couple headwinds.
Richard Thornton:I was kind of digging around in a bunch of different reports and I looked at the Harvard 2023 housing study and some other stuff and Now they're saying that 49% of Renters in the market today Can't afford to move. They can't, can't even become. They're hardly be meeting their rents today, much less pulling together enough equity to buy a house. So that's a real headwind. Materials prices and lands prices are going through the roof, and so we've got to get that part of it under control. And production is still down. Production is 30% lower than 2019, which was the lowest Production year in an on record. Homebuilding yeah, homebuilding, right, I'm sorry for the last 15 or 20 years.
Richard Thornton:So you got to have a, you have to have people get more income, you've got to get and and the the biggest demand is going to be on the lower end of the market, right? I mean, it kind of always is first-time home buyers and how they're going to get in and blah, blah, blah. Well, if a large pool of them come from the renters and they can't even afford their rent, how they're going to buy a house? So I agree part of what she's saying, but there's a lot going on in this market.
Justin Bogard:It's confusing because I I appreciate your, your dialogue with this and your your side of of how you interpret that story and what you see happening. So I thought the 15% to 20% increase in real estate was surprising to me as well. Of course, she doesn't have a crystal ball. She's not saying that she's, you know, betting her life on this or anything. She's just saying I can see this happening and I can just. So I believe the trend would be that real estate will go back up again.
Justin Bogard:I don't know how much, but this real estate game has been so different since after the Great Recession Right, it was in 2009, 2010 and all this stuff doesn't make sense. The economics doesn't make sense sometimes, why this is going on. I think just people are making decisions and then we're feeling the ramifications of them and the effects of them after that's done, meaning like, okay, the rates went way down, right, and now COVID happened and the rates went way up and housing went way up, and it's like everything is just just proportional and it doesn't logically make sense why it's happening.
Richard Thornton:Right. And now you know there's still we're still going through a macro change, which is that they say I think I can't remember what the projected year was, 2080 or something like that that 98% of the population, country's population, will live on 2% of the land mass. So you still got that overall migration. Look at all the people who are moving to Florida and Texas and you know Carmel, indiana and all those.
Justin Bogard:Carmel. Stop saying Carmel, carmel, as you say. Come on, man, you're killing me.
Richard Thornton:I got to get it right, so that's still going on, but so the demand is there. Clearly there's no more land. If you're in Texas or someplace like that, there's a lot more land. But a couple of the cities out here are starting to do something, which I applaud, because Norway has been doing it for years and I have thought that we need to do it, and that is you know.
Richard Thornton:There's also all these rent control initiatives and my thought is well, why should we penalize the private sector owners with rent control? They can't raise their rents, they can't. Basically, it sort of leads to slum lord type of properties. That's the edge, old, if you go to some places like Norway and a lot of the other Scandinavian countries, the government builds housing. I mean, they build large apartment buildings and houses and things like that. They buy them and they sell them to people and or they rent them, but they put a cap on it. So if you buy it, they say, look the cap that you can, the most appreciation you can get is like 5% per year or whatever that is, and that really, really really increases the affordable housing pool and doesn't penalize the private sector, and so you're starting to see more of that happen here in California and I support that type of initiative because that would help a lot of the problems that we're talking about today.
Justin Bogard:Yeah, it definitely seems like affordability and I'm just going to key on that word that you said. It definitely is a problem right now and you're right, rent is the only way to go. If you can't buy a house, that's really the only option Live, move in with somebody else or just rent on your own your own house or condo or apartment. And rents aren't going down. No, they're not. They are going up and they keep going up. And I'm going to argue one thing that you said back earlier, where if they can't afford a rent they can't afford a house. I think they can afford a house if they have a private mortgage. I think it's cheaper for someone to have a private, to get a private mortgage on a house, than it is for them to rent the house.
Justin Bogard:And I'm only speaking because I live in Indiana. I don't live in any of the state, I'm not, you know, seeing what's going on but in Indiana because it's where Midwestern state rents are typically a little bit higher than what you can get on a mortgage on a house. That's a little bit bigger than what you're renting. So I can see that being more of a strong real estate selling cycle is seller financing here, like in the Midwest. I obviously I don't live in California. I don't know what you see. Maybe it's the complete opposite in California, where mortgages are 16 times higher than rents, I don't know. But in Indiana at least I can see on lower value properties it's actually easier for someone to get to pay for a monthly mortgage payment than it is a rent payment, just because the numbers are a little bit smaller.
Justin Bogard:On a mortgage as opposed to rents right now.
Richard Thornton:So the trick, though, is to save up the equity. I mean, that's how I got. I was very fortunate. My mom and dad, when I bought my first house, had enough money to lend me the down payment. They charged me interest on it, but it got me into the market. How dare they? How dare they, can you imagine?
Justin Bogard:But it got me Kind of lenders, are they?
Richard Thornton:Yeah, that's right, and I paid them off. But you know, in the first I just I was living in DC at that time and got very lucky, and I probably made a half million dollars on the first two houses I bought. Wow, but that got me started, you know, in the race and I would have had a terrible time getting in. So just to go back to one of the factors, though, that I read about, and that said that the median homeowner cost rose 20% from last year to this year, and it's now $117,000. So the average family has to be making $117,000, or the median family, not the average. Well, last time I looked, median income was only $70,000. Oh, wow, so you got a huge gap there and saying that those people still can't afford to get into a house.
Justin Bogard:I guess, richard, I'm going to walk myself back on my previous statement, that is, rent payments versus mortgage payment. So if you just compare those two line items, right in Indiana the rents are going to be higher than mortgage payments. To try to be in a comparable house of home ownership, meaning like if you have a 1200 square foot apartment and then you get a 1200 square foot house, like the rent on the apartment is going to be higher than the mortgage payment on that set house. Okay, that's what I'm trying to compare to and obviously the locale is dependent upon that as well. But you just brought up something that I didn't really take into consideration when I first made that statement and that was all the things that go into home ownership.
Justin Bogard:Okay, and I think what you're alluding to in that figure is saying like, okay, it's not just the mortgage payment, it's the insurance, it's the taxes, it's furnishing the house, it's cleaning the house. It's, you know, keeping the outside with. You know the yard scaping or the hard scaping around you know, by the house. It's, you know, doing maintenance on the yard, doing maintenance on the house. It's, you know, repairing and keeping up with the mechanicals in the house, like all that stuff needs to go into consideration, and I can definitely see why the cost of home ownership is definitely yet to consider that, more than just the mortgage payment itself, because you can't just live in a house and not do anything to it or else it's going to turn into, you know, one of the breaking bad houses where they build methods.
Richard Thornton:Right.
Justin Bogard:That's going to be all overgrown, and just you know.
Richard Thornton:Yeah. So it's very interesting. I to me, I mean if you're living. So some people just say, hey, look, some of my investors said this is the best. They rent, you know, they rent very, very nice apartments, but they rent because they said, just for the same reasons, everything you said they said by the time I pay taxes, and blah, blah, blah, blah. I'd much rather have my money in in in different investments. Unless you're in a major metropolitan area uh, in a lot of instances New York, San Francisco, wherever and you get a great deal of appreciation, Um, it could not be worth it to be a homeowner because you're just not getting that much appreciation or anything out of it. So what's the big deal?
Justin Bogard:There is that banter going back and forth, and one in one of my local real estate clubs, uh, that we're we're talking with, and there's there's two, two people that are more well known for doing high volume and house, uh, wholesaling and flipping and stuff.
Richard Thornton:Right.
Justin Bogard:And they are bringing up the same point and they're saying um, why do you? Why do we own houses? And you know, obviously, if you own a duplex, you know your house hacking you can have someone else pay your mortgage because it's really not a cash flowing asset. Yeah, you can borrow money against it in the future once you get some equity into it. But, um, you know, there's there's always a good argument on. You know what's your lifestyle, right? So should you own a house or should you rent? So right now, we currently rent it's.
Justin Bogard:It's because we're in between, figuring out where we want to go, what, what part of town do we want to live in? Do we want to build? Do we want to buy and rehab? I only have about, let's see, eight years left until my oldest gets into college and then maybe I want to move down where my parents are to be closer to them. Like you know, there's all these these things. So I'm I'm like in the short term muddy water situation of like, do I just rent? Do I buy condo? Like I need more amenities to have somebody take care of stuff than I do, trying to build equity or appreciation in the house, cause, you're right, richard, like it doesn't really appreciate in the grand masses as it does, like in those major metropolitan areas. Now I say that, richard, and I do have some updates for you.
Justin Bogard:Okay, so I had and this bothers me because I happened to look at it today and I shouldn't have looked at it cause I knew it was going to bother me but I had bought a house in 2017, 2018, I believe and I put some money into it to to flip it. I ended up living in it for a while and then I ended up flipping it. So I look at that house and I don't know what I paid for it. Let's just let's just call it Um, I don't know. I know what I sold it for. I sold it for around 240. So that's a. That's a pretty average priced home in a nice, uh, nicer city where I live. It was a, I think, richard. It was a 1700 square foot home, so I had three full bedrooms and two and a half bathrooms, and it was two levels, just a main floor and an upstairs. Uh, so no basement, um, but it was a. It was a brick front home with, with you know, vinyl around all the other sides of it the not the non street sides. And so then I sold that home, I think in 2019. So I think I got it in 2017.
Justin Bogard:I sold it 2009. So only lives in about two years, and when I sold it, I sold it for around 240. So I I didn't make a lot of money, but I made enough to wear, you know, okay, it seemed like a decent, a decent profit, but it wasn't a large profit. And then fast forward to a seat. Whoever I sold it to, they sold it in 2022. And so what they bought it for was, you know, around 240. And what they sold it for was 350. So they hit the market perfectly and I could not be more irritated because, richard, I went through and rehab that thing real and I did most of it myself.
Justin Bogard:I only I spent about 30 or 35 on it, but that was like all brand new cabinets, all brand new countertops, all the bathrooms were redone, all the floors were redone upstairs and downstairs, all the brand new paint, you know, landscaping. I did myself to save some money, but I did. I did all these things except, you know, update the mechanicals, and that's the only thing they did. They they replaced a couple of the mechanicals and they resold it and they made all that money on it and I'm just like going that's all that work.
Justin Bogard:I don't want to make that much money on it. But it's all about timing. So someone was brilliant when they, when they bought the house and they thought maybe they paid a little bit too much for it. But then after COVID happened, and then what happened all around these, these random pockets and I want to say it was in the early summer of 22, when it was the biggest busts and a boom. I'm sorry here in the Neppos area, but yeah they, they came out making, making a lot more than I did, yeah.
Richard Thornton:That's how exactly, and that's an anomaly.
Justin Bogard:That doesn't. That's not typical.
Richard Thornton:Well, it can be that I mean you're right, you have to, not for where we live.
Justin Bogard:Yeah, this isn't. This isn't. That was a San Francisco type of appreciation, Right.
Richard Thornton:You have to look at your, your, your timing in the market, because that's how to go back to my previous statement how we made so much money on houses our first couple of houses in that we were living in an apartment building they turned it to condo, they gave a residence a discount to buy and by the time they had gone through the four phases of selling them all out, we made $70,000 before we even you know, before we, even they even finished the last phase. And knowing that was going to happen, we bought into the first phase of a of a single family housing development that was going to be several hundred units, and they jacked the prices five times on those before they sold out two years later on the on the next phase. So you, you're, you're surfing, you know, I mean your price surfing is what it is and it's that that's exactly what your, your buyers, did.
Justin Bogard:Yeah, panned out for them pretty well, so kudos to them.
Richard Thornton:Yeah, but not everybody could do that. I mean no you know, as we. As I said earlier, according to the stats, 49% of all, all renters can't even come up with, can't even they're, they're living beyond their means, just to make the rent much less. Do that and save up equity also. Yeah.
Justin Bogard:Well, richard, this was a fun conversation today. It let us down some odd paths. So, to the listening person and the viewing person, we apologize if this was too much for you, but hey, guess what? You can probably watch this in two X and just speed it up and get it done. You know so 25 minutes. It'll only be like you know, 12.
Richard Thornton:Yeah, what if we do that? I talk very fast. I want to talk very fast. You can never know. Let's see.
Justin Bogard:Let's see the transcript script. Keep up with that. That's right. All right, I'm Justin Bogart. This is Richard Thornton with American Note Buyers. This is who sponsors and who. This episode is brought to you by episode number 18 on season five of the Be the Bank podcast. Don't forget to check out our YouTube channel, american Note Buyers YouTube channel, and our website is a and b fundscom. Until the next time, guys, we will see you later and maybe I'll fix my video by then. Yeah, maybe we'll have pictures of you Not just a picture of you, but a video of you.
Justin Bogard:You know they may like it better without pictures of me.
Richard Thornton:This could be an AI.
Justin Bogard:Can we talk in AI right now? We don't know. That's right, see you.
Richard Thornton:Bye.
Narrator: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 Twitter Be the Bank and on Instagram at Be the Bank podcast. Be the Bank is sponsored by American Note Buyers. Thanks again for listening.
