Be The Bank
Be The Bank
021 - Leasing Ground From The Crown
Ever wonder how the world of real estate impacts our global economy? In our exciting new episode, we unfold this mystery, taking you on a journey from the heart of foreclosures, their profound effect on lenders and borrowers to the key role of government assistance programs in these tumultuous market conditions.
Switching gears, we reveal a compelling investment opportunity in a small farming fund and the ambitious plans of tech giants to construct a new city in California. We delve into the intriguing dynamics of how external money shifts the real estate market and the various types of ownership around the world. This episode is a treasure trove of stories, insights, and education on real estate investment. Join us!
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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American Note Buyers - https://anbfunds.com/
Monthly Broadcast - https://youtube.com/playlist?list=PLzc944w1xydt5aLDrrEPHJhdJeDkBjjD4
Interest 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 Bogart, 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 Notebuyers. Now here's your host, justin Bogart.
Justin Bogard:Hey, hey folks, this is Justin Bogart here. Season five, episode number 21 of the Be the Bank broadcast Today. We're going to be talking about a couple of case studies, a couple foreclosures that are going on Well, it's actually some of our investors, so it's just kind of interesting to talk through and we also want to mention about the recent activities going on in the Middle East area between Israel and Gaza, and we'll have a moment of silence for the people out there and hoping everybody can be safe for the ones that are kind of caught up in this by accident. Just a moment of silence for them. Okay, let's get on with the show. Hey, hey, petaluma, richard, how you doing, sir, doing? Okay, the weather is cooled off quite a bit. It's where I've had the windows open most of the time in the house, and so it's kind of a nice change. I don't have to run the air conditioner.
Richard Thornton:Nice, nice. Yeah, Weather out here can't make up its mind. It's humid one day, humid one hour, then cool, the next then a little bit of rain, then sunshine, then kind of like okay.
Justin Bogard:Make up your mind, darn it.
Richard Thornton:Yeah, do I put on a raincoat or not? Come on.
Justin Bogard:Yeah, we, the girls and I well me, but the girls will be on fall break, my daughters next week, as we're recording this, which is the week of October October 10th actually is the day that we're recording this. So, yeah, next week is spring break, fall break, and most of the people around in Indiana actually have their fall break right now, so we got kind of a delayed schedule, I guess, compared to most folks.
Richard Thornton:Yeah, see, we don't get fall break here unless you're in year round school, that's it. And then you get the whole month of October off. Wow, yeah, but that's but. But you don't get summer off. Yeah, that's your round school. But most schools here the fall break is unknown. A bunch of the schools have started to elongate Thanksgiving holiday because you get paid schools get reimbursed by the number of heads in the classes and so many kids are absent because they're going off on vacations anywhere. That they said, well, look, we might as well give everybody the time off we're not losing headcount and we just add the days on at the tail end of the year.
Justin Bogard:Yeah, it's like we go to fall break here for a week and then we are in school for a couple more weeks and we have a Thanksgiving break. Our Thanksgiving break is just three days it's the day before Thanksgiving, it's the Thanksgiving and then obviously the Friday after Thanksgiving.
Richard Thornton:Right, right.
Justin Bogard:And then we get like two, two weeks in a day, I think in winter, over the winter holidays.
Richard Thornton:That's nice.
Justin Bogard:Yeah, so you know, do you like skiing? The girls they like to tube, they do the inner tube stuff. They haven't actually done skiing yet. Here in Indiana, man, we got flatlands, we have little bunny hills, so we don't see any mountains, so they're not. You know, I've done a couple of times, I've skied in a mountain before, which is awesome, but the girls haven't got to experience that yet.
Richard Thornton:So I have to get you on a snowboard sometime.
Justin Bogard:Yeah, that's what I used to do. I've actually never done skis before, I've only done snowboarding.
Richard Thornton:So that's fun.
Justin Bogard:Yeah, it definitely is. But so when I opened up the podcast today I talked about, you know, the war going on over there in the Middle East and so with that stuff going on, how it's, you know, obviously very unfortunate that we have to see that and hear about that. Hopefully, you know, nobody close to anyone listening to this podcast or the two of us have anybody. You know that's that's going to, you know, have something bad happen to them because of it. But economically this can make some changes and ruffle kind of the world economy from it. Richard.
Richard Thornton:It, can you know? I mean, on the one hand it's interesting. It's not that we don't always have a lot of different forces going on out there but the world's a really complex place right now, with war in Ukraine restricting oil flow. This quite possibly is going to restrict oil flow also. I'm going to very much see Saudi Arabia pulling back. The Fed was going to raise in rates, but from what I'm hearing now, they're saying maybe not. Let's see what's going to happen with inflation here, because if oil and other things start to go up, then they may not need to raise the rates. That may just cool things down accordingly.
Richard Thornton:All that's on the one hand. On the other hand, the stock markets are used to some sort of turmoil. I don't know to what degree they're going to be affected. The one thing that might play well for us in the mortgage market is that whenever there's turmoil like this, investors fly to safety, and so the mortgage markets and debt markets are very safe, Regardless of what goes on elsewhere.
Richard Thornton:You've still got the American housing market, even though rates are up and things like that, chugging along. I'm sorry prices are falling in some areas, not in others, but there's not doom and gloom in the American housing market, mortgage market, and certainly not in our end of the woods. So that would say, actually, I don't know about you, but I've had a couple of people in my portfolio, much to my chagrin, call me and say they're refinancing, They've got a lot of equity in their property and they're finally able to even though their credit rating may not be sterling, they are now able to since they've got so much equity. The lenders saying okay, fine, and ABC Bank or whatever will give them a loan and give them a much lower rate. So I've got some rollover in my portfolio, which doesn't make me very happy, but maybe we'll see a slowdown on that.
Justin Bogard:Now, you always like that passive income.
Richard Thornton:I do and a lot of my portfolios, you know, is partials, and so I made those partials thinking that my payday was going to come along in a couple of years. And now my payday is going bye-bye and I'm not losing any money and I made money doing the deal originally, so I can't complain too loudly. I was going to get potentially 10 or 15 years of income off of each one of those loans. So, you hate to lose that.
Justin Bogard:Right, just real quick, want to mention to our listening audience that we do record this podcast on our YouTube channel, the American Notebuyers YouTube channel, if you want to see the video stream of what we're doing as well, and we welcome you to do that as well.
Justin Bogard:Back to what you were saying about kind of the world economy, I did read an article recently and I want to say it was part of something in Yahoo Finance that I read and it kind of brought me down a tangent of other things and what caught my attention was the world like total market share of real estate, and so it estimated that property, you know kind of in general, was around, I want to say the number was about $5.2 trillion in US dollars, if you can equate the property across the world. And they said they could they see that growing. The projected rate that it's growing at is, I think, around 5% and that would put us at about over $8 trillion as a world real estate market and of that market currently, when they ended the numbers, like in 20, at the end of 22, the North America, which is mainly, you know, united States, north America alone was 52% of that.
Richard Thornton:Wow, wow, that's amazing. Yeah, that's amazing. You know, as you were saying that, what just came in my mind too is one place where this may week a little bit of havoc is that we in the US here are very accustomed to 20 or 30 year fixed loans. You get your mortgage, you put it away and thank you very much. But in most European countries UK certainly, and in Canada if you get a home mortgage, you're only getting like a five-year deal at the most, and so you have to roll your mortgage over every five years. And if you happen to be rolling over right now, I mean quite often they the bank will renew, but it is a complete renewal and underwriting and Pegging to a new rate. So if you were at three and a half and now you're gonna re roll over at five and a half ouch.
Justin Bogard:Right, and I wonder, if they do that they make the the term five years, so that banks don't need, like a fanny main, freddie Mac to Exactly we.
Richard Thornton:We have the most robust secondary market in the world. Yeah, and I mean you know that system as well as I do, in terms of Fanny main, freddie Mac acting as a secondary market. 70% of the mortgages that are made are sold to Fannie and Freddie. They turn around and securitize them, sell them to Wall Street, wall Street packages them and puts them into ABC pension fund and you know Everywhere else and do all their fun little stuff about tranches and wonderful things like that. That's what makes the world go around in America.
Justin Bogard:Yeah, the big short does a good job of explaining how that works. Now, obviously, they put bad loans in there that they shouldn't have put in there, but that's, that is how the other world works for a security stuff. That's a good job that you explain that, and that movie was actually good for other reasons as well. Yeah.
Richard Thornton:Yeah.
Justin Bogard:Well, yeah, so that that was interesting, as I was, I was gonna be surprised if you knew that information, because I never thought about the world Real estate market share in general and it kind of makes sense because US properties you know they have a lot of value to them.
Justin Bogard:A lot of outside money comes in from other countries. Like you know, china, russia and other places come into the US to buy the real estate and so real estate in other countries aren't, are not as valuable because their dollar isn't equating the same. So that's why they're saying in US dollars, air quotes there it's currently at about five point two trillion and grown and grow to like eight. Well, let's call it eight point three trillion. I think that's what the number was right so like by twenty, twenty thirty two.
Justin Bogard:Did I say that earlier? Twenty thirty two is what it's supposed to be. Okay, so I mean.
Richard Thornton:What's interesting also about that is that there's so many different forms of ownership worldwide. For instance, in UK, the crown owns most of London and so while different owners and quotes have Ownership of their properties, they're leasing the ground from the crown so they don't really own the dirt, and that's that's how the the Crown makes a lot of its money in the Marriott England. And I realized that Hawaii is a very small part of the world, but the King Kamehameha Foundation owns most of the land in Hawaii. Okay, and there's a lot of Just oddball what we would consider oddball different situations like that where people can't actually own land. So if you've got a five trillion dollar number, that's a pretty big number.
Justin Bogard:It is Pretty big number right. That's also, you know, land. It's also commercial buildings, residential buildings and stuff like that. I think that broke it down and residential was obviously the biggest part of the North America right a 52% market share Versus you know, the commercial and land. But that's pretty interesting.
Richard Thornton:Yeah, one thing that I've found very interesting that I really didn't know that much about as a friend of mine. He's an analyst, senior analyst, he's about my age, 70s For a small farming fund. So what this fun. When I say small I mean like four or five billion and they just invest in farmland and they it's a long, long-term play. But they are convinced that they can get three to five percent growth in farmland over the years and that it will be a very good investment. And they've got a lot of investors because the very secure investment Not a whole return, right, you know there, I mean XYZ pension fund might be okay with four percent.
Justin Bogard:Yeah, I mean, if they want something that's, you know, I can't say guaranteed, but they want something pretty, pretty sure, with a lot of security and a lot of low risk, that's, that's kind of where you want to land is a mix of that.
Richard Thornton:I mean, if you wanted to be in California especially, land's certainly not getting any cheaper here. And I don't know if you've heard about this tech group that wants to build an entire new city outside of San Francisco. I am not. That is gonna go. Yeah, the bunch of the tech giants Sam, sam Altman, the guys who started oh, what was it? I care what the other high-tech firms were, but there's maybe a dozen billionaires went together on a sleuth basis. They bought up thousands and thousands of acres in Solano County, right outside of San Francisco, and it just hit the press here about a month ago and what they're saying is hey guys, you know what? You've got an affordable housing crisis. You need more cities. We're going to build a city and we're going to do it smart. Now we're going to plan everything out and it'll all be computer-based and yada-yada, so we'll see where they go. But things like that are driving speculating land up considerably out here.
Justin Bogard:That's awesome. It'll be interesting if it's like a 10 or 20-year plan to get that all done.
Richard Thornton:So it'll be that it kind of reminds me of how the you know M-Rights build up.
Justin Bogard:You know what is it. Is it Abu Dhabi? Yes, or Dubai? And now they've built that place up from taking pictures in the 80s, when they first started getting by in all that desert and then turning it into just like they did all that. It's like amazing.
Richard Thornton:And they're still building.
Justin Bogard:So Right, but online is a real estate. So I have a couple of investors that I keep a close eye on to help them out with stuff. And they have reached out to me recently because of, like, some foreclosure stuff and having some questions. And so one guy had reached out to me because the borrower had stopped paying. So I went ahead and went through foreclosure and then kind of he didn't know what to do after that. So I was trying to help explain what's going on with that.
Justin Bogard:And so he had somebody go out to the property and notice it was pretty much, you know, looked like it wasn't taken care of at all and that nobody lived there and stuff. So he was, you know, kind of concerned on what to do and he had invested. I think he only has about $40,000 into this non-performing note that he got foreclosed on and then you know, with all the costs and expenses, that's kind of what he has into it. But the neighborhood values of, you know, a rehabbed house that's livable are going anywhere from 150 to 180. And so I was telling him like, man, you're, you're in the, as Eddie would say, you're in the catbird seat, right.
Richard Thornton:Yeah, yeah.
Justin Bogard:And I was like, man, you're sitting pretty good. I was like, even if you wanted to put 50, 70, 80K into it, just do rent-ready type of stuff. And you know, because these houses are old, they're kind of like your nice houses, you know, with 1800s, built in the 1800s and stuff. So they've got some. They've got some seasoning to them, right.
Justin Bogard:So, what you expect to have. You know uneven floor or some little bit of rot. You know some wood boring insects, you know that are down there in the in the crawl space in the basement. I was like man you're, you're sitting, good, no matter what Cause. I think a wholesale would pay, you know, probably double what he has into it just to get the property back. So it's all, it's all good things. It's like sometimes you get these notes and they go non-performing and because of all the appreciation that's happened the last, really last, three years, three, four years, right it's. It really makes the opportunity of some of the legacy notes in our portfolio. They're not that dangerous, you know.
Richard Thornton:So does he have the ability to work with a contractor to renovate it, or what's it going to do?
Justin Bogard:So he actually has a rental close to that city. This is actually in Indiana. I actually know where the city is at and he is using the property management company to kind of put eyes on it, secure it and kind of give him an estimate of like what, what's it going to take to make this property right? And when I told him the values in that area I was like this is, this is going to be a pretty good deal, because people are looking for again affordable home ownership.
Justin Bogard:And and this is the going market rate for these little like on American style bungalow. Is it bungalow? Yeah, bungalow. American style bungalow houses that are built Craftsman. Yeah, craftsman, like they started in 1800s and they redid them like in the 50s and stuff Right, Right, Right Added on to them and stuff like that. So this is exactly what they need and the thing is, is not not cookie cutter, but they're all very similar looking. So they all. I already know the problems with it.
Richard Thornton:Yeah, so I'm. You know, I must admit, as a California I'm jealous of some of the, because I've been to see some of my properties in Illinois and around and and you go to these little towns where the population is 20 or $30,000. And, like you say, it's full of a bunch of little, these old craftsmen houses that were built in the you know turn of the century or whatnot, and they're cool little houses and we would die out here. I mean they go for a million dollars out here, big ceilings open space, big hallways, like.
Justin Bogard:It's like real wood, not laminated wood. You know, the walls are plaster, the ceilings are plaster. You know, hopefully they've been updated with electrical and plumbing, but yeah, that's pretty cool.
Richard Thornton:I just about fell over this last week, so about four blocks from my house here this lady who lived in her house. She bought it in 1952. Just passed and her family sold it and it hadn't been renovated since 1952. I'm sure they'd done a little bit in there, but for the open house they just opened it up and there was a little bit of yellow construction tape around the floor in some places because it was definitely rotted through, like you said, and the house is about 2,200 square feet. Nice little house, but they sold it for a million too and I'm going my God, you've got a half a million dollars of renovation just to make the place livable. It's crazy.
Justin Bogard:Yeah, our other investor that we're helping is going through a situation kind of close to Mobile Alabama around that side of the country and a situation where the borrower they started off pretty well like I could probably say, seven to eight months, and then they had some trouble making payments.
Justin Bogard:They got some government assistance and they got actually behind by about, I think, seven or eight months total and the government assistance program caught them up and also paid forward about five months.
Justin Bogard:So after they got caught up, I think it was around $10,000 to $12,000 with corporate advances and stuff with taxes and insurance they paid the next five months one month at a time and so it was kind of nice that the investor got that. And then the borrower just couldn't hold a job or couldn't get a job that was sustainable to afford that because I think it was a single mom, they had a couple of kids, so it was just obviously it was tough to get all the income they need to afford the house and so they actually walked away from the house and moved into an apartment unbeknownst to the investor and just found this out recently. And so the borrower just said I recognize I can't afford it, but I was too embarrassed to say anything about it. And then the servicing company offered say, hey, why don't you just sign a deed in the lieu, and that way we don't have to foreclose on it? And they're just like, oh, how does that work?
Justin Bogard:And it's just kind of cool when you have the conversation and they're just like, oh really, so the investor pretty much gets the property right back with avoiding foreclosure, and then they just, you know they need to do any repairs to it or whatever. They can just sell it as is and just kind of move on to the next investment, or they can resell it with seller financing again.
Richard Thornton:So just yeah, so one of my properties in Illinois that's exactly what happened to me is that the gal was living in the house with a boyfriend. They got into a spat boyfriend moved out, she could no longer make the payments and basically she said look, what do I do here? I said, well, why don't I just take it back? And she said, fine. I mean she was happy that we didn't have to go through a whole bunch of foreclosure proceedings and everything else.
Justin Bogard:Yeah, it's interesting that as long as I've been doing this, whenever the borrowers communicate well, I have high assurance that even if the loan goes sideways, that I'm gonna be able to make money on it pretty well. Because the more that they communicate and the more that they're open and transparent about what's going on, the easier it is for them to be like yeah, here's the property. You know, even if they have equity in it, they're just still, they're willing to walk away because they just, you know not that we're trying to fool them about anything, but like if you just give us back the property, that's great, you know, and the property is worth 110 as is, and then you have you know what's to say $70,000 into it. I mean, that's a lot of free money that just came your way.
Richard Thornton:Yeah, and especially if you've been transparent along the way. I've got a borrower who turns out I'm not gonna have to foreclose on Okay, and he I've helped. I mean, he went through a nasty divorce so the wife lived in the house for a while, he moved out you know all sorts of travails like this and he's just barely been able to keep up on his payments. But he's deferred a whole lot of maintenance.
Justin Bogard:Okay.
Richard Thornton:And so we figured out that he's got like almost $100,000 worth of equity in the house. So he's going to sell it and pay me off, which I'm fine with because I'm getting that whole. He gets to put close to $100,000 in his pocket. That's great. Yeah, he needs that money and so the main point is that I've been really transparent and helped him and worked with him over the years, so he has not been trying to be difficult with me at all.
Justin Bogard:Yeah, it goes a long way as the lender just to kind of empathize with their situation or sympathize and just say hey look, I know you're having struggles, don't feel bad about it, life happens Right. Tell me what's going on and let me see if there's an option that we both can benefit from and use it. The first thing I say, like, go get some government assistance. Like there's tons of programs out there for people that lose their jobs and stuff like that and it works out great. And or if they just can't afford to stay there, I mean obviously like, just, you know, let's try to get you something else that you can't afford.
Richard Thornton:Right. So the woman you were speaking about earlier, who got the government assistance I mean, even though she's not able to hold on in the long run, she's a good example of why the huge foreclosure tsunami that we all thought was going to happen has not happened and is not going to happen Because a lot of those people I don't know what the actual statistic is, but I'll say I would think well above 50, maybe 70% of those people have been able to maintain and get back on their feet and be just fine, and so the program worked.
Justin Bogard:Absolutely All right, Richard. We are running out of time today. Thanks, again for hanging out on the podcast and bringing some feedback. This was a good discussion today on some of the world market conditions and also a little bit of stories on foreclosures. It's always fun to see happy, happy endings when things start going sideways.
Richard Thornton:That's right.
Justin Bogard:That's right. Don't forget to check us out on our YouTube channel, the American Notebuyer's YouTube channel. I'm Justin Bogart. This is Richard Thornton. This is season five, episode number 21 of the Be the Bank podcast, and we will see you guys next time. All right, bye guys.
Narrator:Thanks again for listening.
