Be The Bank
Be The Bank
026 - House Surfing
Join us as we, two seasoned investors, lay bare our future plans, preferred investment types, and our strategies to reduce daily tasks. We also reminisce about past investment experiences, with a particular focus on the significance of comprehending and following market cycles. What's more, we delve into the aspects of investing that bring us joy and fulfillment.
This episode is ripe with golden nuggets for anyone interested in investing. Tune in for some real talk about real estate and wealth creation!
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
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 Notebuyers. Now here's your host, justin Bogard.
Justin Bogard:Hello listener, I hope you had a fantastic, wonderful holiday, and this is the last episode for season five of this year. We'll be starting season six here in January, so today's a pretty special episode Not always the last episode, but my partner, Richard Thornton, is going to be on today and we have some cool little insights as to what's going on, so you guys should definitely stay tuned. Yo, what's happening?
Richard Thornton:Dude, it's a nice day in California.
Justin Bogard:You know that little music that plays in between the, the opener, and now I always had the volume up just a little bit too loud. So with these headphones that I have on, it's like ah that's too loud to turn it down.
Justin Bogard:It's like soundcheck real quick, real quick. Yeah, man, weather's been pretty good out here. We creep down into the 20s for a minute and then it just kind of warmed back up. So I mean I got all the windows you know open to sunlight in here now and it's it's already like 73 without even turning on the heater, and it's like 40 outside. So I'm liking it.
Richard Thornton:You know, I keep telling me these forecasts and I just I mean it's low 50s here, justin, it's clear, but it you know, it's just not that warm outside and I'm sure your nights have been a lot colder. But we've had, we probably already had, and I'm north of San Francisco, we've probably already had a dozen nights that are below freezing.
Justin Bogard:Do you have to take all your plants and bring them inside then?
Richard Thornton:Oh yeah, you have to cover up the sheets and stuff like that.
Justin Bogard:We just let them go here. Yeah, there's just time for them.
Richard Thornton:Also, you grow the right plants right so that they can take that.
Justin Bogard:Yeah, I'm talking about cannabis. By the way, we're talking about real, regular plants.
Richard Thornton:I don't know, I don't know, I don't know if cannabis can take the frost.
Justin Bogard:It can take the heat, from what I hear.
Richard Thornton:It's right.
Justin Bogard:All right man.
Richard Thornton:So that's the cannabis market is not a market that's doing all that well these days it's not hot.
Justin Bogard:There was a lot of talk about that a while back run there.
Richard Thornton:Yeah, yeah, I mean it's, it's. It's collapsing because of overproduction.
Justin Bogard:Doesn't surprise me. That's surprising. So what other markets that I've been kind of reading about is kind of the commercial real estate market. So do you know the guy John Burns in the CRE Daily? I do, okay.
Justin Bogard:So I've kind of subscribed to that newsletter recently just because I've seen some charts of theirs and it's like, oh, that's pretty cool data and stuff.
Justin Bogard:So I've been kind of reading a little bit and it was it found it founds other articles out there and it kind of puts all together. This newsletter is to kind of give you a good, a good round knowledge on the commercial real estate space right now. And and it had this article about commercial office real estate in certain in some of the bigger cities across the country, and particularly I think it was New York that it's been a few days since I read it. I think it said it was New York where some of these landlords are discovering that, you know, they're not going to get their tenants to bring back, you know, their office workers and fill the space like they want to, and so some of these guys are having to, you know, get out their leases and so some of them are actually considering and actually doing the full architecture remodel of some of these office buildings and turning them into luxury residential apartments.
Richard Thornton:Well, if you've got the window space and you can hollow out the core to create more windows space, I think that's a you know it's a viable opportunity. You've got a 40 story building with a single floor plate and no windows, you know, no interior windows. It's going to be kind of tough.
Justin Bogard:Yeah.
Richard Thornton:Good idea.
Justin Bogard:Yeah, reading further in that article, it also said that they were preparing for the future and thinking about autonomous cars being able to come into, like the building, so like kind of a ramp up into the middle of the building, somewhere to kind of pick up and drop off residents. So you know, to avoid, you know the going outside to get in, the, you know, do an air quotes here taxi to have that or not autonomous, you know regular, for example, Lyft or Uber drivers or whatnot for shared ride services. Reminds me you're saying.
Richard Thornton:that just reminds me, did you ever you were it's probably when you were did you ever listen to the car guys out of Boston, their MPR shell?
Justin Bogard:I might have. If you said the name of it, I might recognize it.
Richard Thornton:It was. It was Well as Ray and Ray and Tom Magliosi, I think, was their last name, and they bantered back and forth about how to fix cars and Things like that, and they had this fictitious Russian Taxi driver and two of them, and one one was named pick up and the other one was named drop off.
Justin Bogard:Come on, drop off.
Richard Thornton:Pick up and drop off For right there, I know I could be a name.
Justin Bogard:That could be somebody's name.
Richard Thornton:There's two Russian taxi drivers.
Justin Bogard:Well, that'd be interesting and perhaps maybe a lot of the bigger cities are going to figure out some sort of way to do that.
Justin Bogard:Because number one, I guess it kind of fixes the housing Potential problem that people that want to stay in that type environment Perhaps be more downtown-ish type of people. I guess around here we would call them millennials, because it seems like the millennials are the ones that want to have that downtown Sort of a living environment. You know where everything's close by and they could walk to and really not have to have a vehicle. They can just, you know, ride the, the rented scooters that they can just, you know, home across downtown area with or get shared ride services. And it seems like if they don't, richard, they might have some implications with. You know, you definitely don't want a big city to start being vacant, because I think you even mentioned before, like San Francisco, kind of got kind of bear there for a little bit to where there weren't a lot of as many shops around and just seemed kind of kind of almost dead compared to what it used to be when it was, you know, humming and buzz still is.
Richard Thornton:Yeah, if you go into the financial district during the day it is, it looks to me like a Saturday, which is not much, because there's not much else down there. That's a good way to put it like.
Justin Bogard:Saturday yeah.
Richard Thornton:Yeah, but so one other idea that I've heard that I actually thought was a pretty good idea and you can only do so much of this, but I think a lot of this infill will happen a little bit here and a little bit there Is to put data centers in some of these buildings, because you know that a lot of the data centers are going out on these Big plots of land in the middle of nowhere and you've got to run high tension lines and all this stuff to them. Well, you've got all that right there. So if you could take 10 floors of one of these buildings and stack it with servers, um, right close where they're needed, that's a pretty good idea.
Justin Bogard:Yeah, that makes a lot of sense too, because you can just go vertical as opposed to expanding out Out which ways and waste all that real estate.
Richard Thornton:That's right. Cool, that's right. So I I think the market's going to slowly Come around to better you know, to it always does to resolve the issue, but, um, it just may, uh, may, take a little while.
Justin Bogard:Yeah, I can see that. Well, uh, richard, I know you have an announcement that you would like to make and stuff, and so I'd like to give the opportunity to make your announcement.
Richard Thornton:Well, it's not much of an announcement. We all do this. I mean, I've got a lot of gray hair and I was 65 a long time ago when, as you, we know, most people retire. So I've just decided to retire, it's I? Um thought that, uh, uh, now I've, I've certainly enjoyed all of our, our efforts, but it really slowly kind of hit me that, um, if I work until I'm 80, full time anyway, uh, I'm not going to be able to enjoy much of uh, and I've got a couple physical limitations now. That really made me start to Wake up to that fact, and so I thought I should think about, um, you know, taking it a little bit easier. So, yeah, I'm, I'm going to retire for the most part, I'm going to keep my fingers and notes a little bit, but, um, I'm going to leave the a and b funds to uh, to you and you know, basically, as you know, wish you well and They'll help you, help you in any way I can, but it's it's time to to pull back a little bit.
Justin Bogard:That's awesome, man. It's it's been a fun journey. You know, we started this together knowing that at some point, you know, you were going to plan to kind of exit out. We didn't know when that was, and we didn't know when that was and and this is kind of cool how we always, you know, have good conversations about what's going on in each other's lives and kind of what direction we're going. So what, what type of investments now are you looking forward to doing, now that you're kind of don't really have to worry about Day-to-day specific tasks anymore?
Richard Thornton:Well, I think I'll continue to make loans to you for A&B to sort of make your life easier I've got.
Richard Thornton:Actually, one of the things I'm going to do is I'm going to buy back a lot of my partials. I have a lot of 10-year partials out there and I think you know that I was kind of struggling to find really good notes. And there's a clause in your partial that allows anybody who has used the notes school paperwork to buy it back basically whenever they want. And I thought, wait a minute, I've got notes out there that I bought a long time ago that are kicking off a 15% to 18% return, which we struggle to get that right now, and at this point they've been paying for four or five years or more. I thought why don't I just buy these back? They're great little income streams. So I'm going to be doing that After the first year we're going to go to the Galapagos here in January and tootle around South America a little bit, and after that I'm going to start buying back a lot of the partials that I did.
Justin Bogard:That sounds pretty good. So your plan obviously is not to be an active investor, but you're definitely trying to get into the stay in the note space. As far as that's concerned, buy some older partials from previous investors that you've sold them to and just get a really good cashflow stream going to where you're just not having to have the headache of just real property. Is that sum it up?
Richard Thornton:Yeah, I mean I'm fortunate. I had enough notes over my career, which hasn't been all that long in notes, but I've got a nice little stockpile From the pandemic hit. I sold off quite a few of my notes and took profits there, but I've still got a nice little portfolio and I can use my Roth IRA funds and buy back some more. So I'm going to be just fine. It's sort of what every note investor wants to do, which is basically live off of that steady, any mailbox income. What I don't want to do is to get back into a lot of the day to day, which is going to happen eventually, inevitably anyway, but at some point somebody's going to fall or somebody's going to have a trailer in their front yard and I'm going to have to call them and blah, blah, blah. I want to try and minimize that.
Justin Bogard:Yeah, not nearly as much effort as it is today, as it will be tomorrow, so to speak.
Richard Thornton:Yeah, and just the marketing. I mean, as you and I said, I just kind of hit a wall with marketing. I surprised myself. I thought I was going to be in this with you for another five years or so and I started to get everything going and just realized that I've climbed this wall twice before in the big marketing era and did it very successfully, and I just realized that it was going to be a longer, longer, higher wall than I wanted to climb this time.
Justin Bogard:What, looking back on your investment kind of history, what was what space did you find the most interesting and the most fun as far as investing in? Because I know you've done a lot of different types of investing, with not just real estate but other types of investments as well.
Richard Thornton:Well, I'd say, the most fun. First of all, one thing that I thought I would mention is I think some of us get stuck in doing one thing and you really have to in retrospect. You really have to follow the cycles. So when I had my mortgage banking company, my commercial mortgage banking, when we built it up and it was great volume and we were finally bought out by a bank and wonderful, wonderful, but it was the cycle the Fannie Mae, freddie Mac and FHA, which we were making a lot of their larger apartment loans $10 million and up were starting that whole effort. So we rode that wave and when the banks woke up to how lucrative all that could be, it was time to sell.
Richard Thornton:And so at that I noticed that senior housing was hot and it was. You could get great returns Maybe it'd be at 15% plus after being in a deal for three years and do triple net leases. So I jumped into that with my old clients. So it was just constantly looking at where the cycles were and taking advantage of those. You don't want to try and swim upstream, but I'd have to say that overall I had the most fun in senior housing. I really enjoyed working with the clientele, working with a lot larger because we did $20 million deals and that was with the financing. We'd finance get a $15 million loan from FHA. But that was fun. That was a lot more set it and forget it, but it was just fun business. I just enjoyed it.
Justin Bogard:How long would it take from the time that you find the opportunity to actually start funding it? How long does that take with senior housing facility?
Richard Thornton:Well, that was one of the drawbacks. You were usually looking at maybe six months to the acquisition and somewhere between eight months to a year to get it purchased and the money raised and the deal done, and there again you got to be in a very small niche. I was very fortunate. I had a bunch of well-heeled clients and I could call them up and do just very simple shirt pocket syndications. It wasn't a big deal to raise $5 million. We're struggling to raise $5 million in the note market, but that's where those guys wanted to be and they don't want to be in the note space. They don't want to be in something that's as small as we're doing.
Justin Bogard:Right, yeah, they're used to dealing in a lot bigger numbers.
Richard Thornton:Yeah, they're bigger numbers and that's just where some people want to be. So, right time, right place.
Justin Bogard:There's a lot of that. Is there anything that you invested in in your career that you just despised doing that? You're just like why the hell did I do that?
Richard Thornton:That's a good question. I loved flipping. I thought I had the most fun. You said where I really had the most fun.
Justin Bogard:I did too. Even though I didn't make much money, I still had fun doing it. It was just going to be.
Richard Thornton:Well, that's it. I had one. There was this sort of exclusive seaside residential area around here and I thought, oh, I'm going to branch out and go out there. And I did a flip out there and I just lost my shirt on it. Boy did I get a. That was probably the dumbest thing I ever did. It was an hour's drive and I totally missed the market and it was exclusive. But what I didn't realize was it was a home depot market. People they wanted home depot kitchens Got you.
Richard Thornton:And I put this really fancy thing in there that well, these are expensive houses and these people are in the exclusive place they want, but they wanted toys. These are people who had garages with five stalls. And they had an RV and a boat and a you know a Porsche and you know this and it was, it was, you know it was a toy market. It was, and I totally missed that, oh well.
Justin Bogard:Okay, did you ever get into traditional investments, like in the stock market, or like oil and gas or anything?
Richard Thornton:I you know. I went through the first dot com boom and bust and I lost my shirt in the first bust. I probably should have held and stayed and I would have been much wealthier than I am right now. But I got nervous and got out at the bottom and I've just never been much for stocks and bonds. I've been more of a real estate guy.
Justin Bogard:Yeah, oil, oil, gas or coins or anything Never looked at any of that.
Richard Thornton:No but you know, I think, I think, no, I think flipping land like Eddie does, Eddie speed does, is is I sort of wish I'd gotten into that at something like that. It seemed like that's a nice gig.
Justin Bogard:Absolutely yeah. He definitely cut his teeth with that stuff, didn't he?
Richard Thornton:Yeah, but there again, you know that's a little bit hard. It's harder to do in California because the numbers are so big. You could do that in your backyard. Yeah, it's really easy to do that in Texas, but you know you're spending $750,000 for an acre of land here.
Justin Bogard:Wow, that's unheard of.
Richard Thornton:It's a little bit different.
Justin Bogard:That's very different, absolutely Well. Do you ever recall of off top of your head with since flipping was your, was the most fun for you and, honestly, it was the most fun for me? Do you ever recall a return that you made flipping a house? That was that you just couldn't believe that. You made Like, like, can you draw one off the top of your head and be like I doubled my money in this or what have you like your best return in flipping a house?
Richard Thornton:Well. So one of the reasons I got out of flipping was because a lot of the weekenders started to get into it and the markets got to scale. But I got into. I started flipping in 2010 when prices were really low and I made 50 to 70% 75% off of everything. I did everything. I flipped, and I did that for four years, so that's kind of what I was used to. And when things really started dropping and guys were making 20% off of a flip, there's a lot of guys out there right now that think, hey, look, I can hit it out of the ballpark if I'm making 20% off of it. Yeah, right Now again, the numbers were bigger. I was having to buy things at half a million dollars and put 300,000 into it and yes, I mean by the at the. At the end of the day, I was making 200, 300,000 dollars.
Justin Bogard:But you get six of those going.
Richard Thornton:Yeah, yeah, you get six of those going at once. Which?
Justin Bogard:is what I had. Yeah, I never had more than than like two and a half projects going at the same time of flipping, because I just don't see how. I don't see how you could do that with, or anybody can do, six of them, you know, in a row, without a lot, a lot of help, you know, with managing it.
Richard Thornton:Well, I mean, I didn't do any of the construction myself. I had a construction partner, so he did all. He did all the construction and he did his work at cost, and then we had a split agreement.
Narrator:Yeah, and he always made.
Richard Thornton:yeah, he'd always make 10 to 20% more than he would have made had he done it, you know, and just made me a regular paying customer. So he was willing to take that risk and I was willing to make that split because I also knew that if I did that I wasn't going to get fleeced on building costs and everything else.
Justin Bogard:It was just, was he the same guy that did all six of those at the same time, or all of your properties? Or did you have multiple contractors?
Richard Thornton:I did, I did all my flips with one contractor.
Justin Bogard:Okay, so it was just a general that had all the all the subs that you guys needed to complete the job.
Richard Thornton:Right, this guy, you know I did my first. He actually did a deal that we bought for my mom. We bought a house from a mom up in Northern California. I got to know him and I approached him. I said, well, do you want to do a, do you want to do a deal? And so we did one, just for straight profit, and that worked out, and so we just built from there.
Justin Bogard:That's very cool man. So how, how long have you been investing in real estate then?
Richard Thornton:Well, I mean you have to qualify that. But yeah, I mean I.
Justin Bogard:Okay, I'm making it your full time job.
Richard Thornton:Gosh, my full-time job. Oh, 30 years, 35 years, something like that, I mean you know again riding the waves. I was buying my first houses in the early 80s and at that point the game was to buy into a 100 plus unit townhouse project.
Justin Bogard:Yeah.
Richard Thornton:And you'd buy into the first phase before they actually had any units that you could occupy. And so your money sat there for six months while they were building the unit and they finally got it. And then they started to sell phase two and phase three. So they built in. You know they had $20,000 to each phase. Yeah, so you had this built-in appreciation. By the time you get through phase four or five you'd made $100,000. You wait until after they sell out in phase five and you sell. Oh sorry, you sell your unit.
Justin Bogard:Yeah.
Richard Thornton:And I probably did that four times. So we just house-served and probably House-served.
Justin Bogard:That's a cool way of putting it. That's awesome. Did you ever have to calculate like I need this much to live off of and as long as I get that passive income to come in, then the rest of it I can just funnel into the retirement account and then start living off that in the future? Did you ever, or were you ever, somebody that did that?
Richard Thornton:Yeah, that was my goal point. I mean, that was my. I truly worked from the start from your goal and then worked towards that. And if you haven't made it every year, you haven't made it every six months. In other words, if you're so far afield that you're not gonna make it, then you better do something. And I'm not to get too personal here, but I, when I had my mortgage banking company, I was making a whole lot more money than I am right now, so I had to write some huge checks for my divorce and that severely knocked me off my goal towards, and so I had to scramble. And then we both know about the recession, so there wasn't a straight path.
Richard Thornton:As much as I would like to have been Right, I probably would have retired 10 years ago if I had not done all that, but you would have never met me and had all this fun right.
Justin Bogard:I know, I know what you missed out on. I know, I know, I know. So what are you gonna do now with your time? Are you gonna try to vacation more? There are certain areas in the world that you want to visit.
Richard Thornton:Well, yeah, I mean, there are certain areas that we wanna visit, and I'm gonna certainly do a large part of that. But I went to school and got an urban planning degree and a finance degree, as you know, and so the city of Petaluma needs some help. When they're general plan, they're really good at planning. They need some help when they're general plan, they're redoing that, and I joined a couple of typical retirement stuff. I joined a couple of urban planning groups that are citizen oriented and I'm gonna look for some houses. I would do another flip with a money partner or something like that, a construction partner if I could find one. I'm afraid of construction costs right now. Right, yeah, so I'm gonna, you know, like I say, buy back my. I'm gonna continue to look for opportunities on a limited scale, and I think that's the best way to put it in and travel a little bit and do things that I just find enjoyable.
Justin Bogard:That's awesome, man. Well, I wish you the best in your retirement. I know this isn't goodbye or anything, but we definitely wanted to congratulate you on all the success that you've had throughout your career. It's been fun. I've learned a lot from you.
Justin Bogard:My most favorite thing that I've learned from you is kind of when I first met you I think it was around 16 or 17, 2016, 2017, was you were telling me how you would make sure that you recycled your money like three times a year. I was like, huh, that's a really nice perspective because that makes a lot of sense, because it kind of pushes you for a goal and it's like, if you're trying to, you know that's when we were able to flip loans like there was no tomorrow, right, because there was a lot out there that were good deals, and if you can recycle that money two or three times in a year, I mean that's a pretty good velocity going. So that always stuck with me. So I was appreciated you sharing that with me, especially in all the other things in your investing journey that have helped me along too, because I wouldn't be able to set up the fund without you. So I do appreciate that.
Richard Thornton:Well, you've been a good partner. You've been a very good partner, I have to admit. I admire just seeing how you live your life. I admire how you handle yourself with your kids and you've been very responsible and responsive and that means a lot, and has been a lot to me.
Justin Bogard:You're welcome, my friend. All right, guys, this is episode number 26 of season five, the last one of the year. We hope you guys have an awesome, safe, happy new year and we will see you guys in the first episode of season six here coming up in January. So, richard, thanks again, my friend and audience, check us out on our YouTube channel, the American Notepad, as YouTube channel, so you can watch the video stream of this podcast as well. Until then, guys, have a good new year.
Narrator:Bye. Thanks again for listening.
