Be The Bank

024 - Markets and Funds

November 30, 2022 Justin Bogard Season 4 Episode 24
Be The Bank
024 - Markets and Funds
Show Notes Transcript

Be The Bank S4 Ep24 - Markets and Funds

On episode 24 of season 4, Justin Bogard and Richard Thornton talk about Crypto markets and their new fund!

Key Takeaways:

  1. Crypto Currency
  2. Current Real Estate Market
  3. What a fund can do for your diversification

Resources and links discussed

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:

Narator:

Interested in real estate. How about wealth? Well, they go hand in hand . And here you'll learn all about it. About it. Welcome to Be The Bank, a podcast where we discuss and debate the topics centered around real estate investing. Your host just at Bogar 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. Bank . This is be the bank brought to you by Bright Path Notes . Now, here's your host just in Bogar.

Justin Bogard:

Hello, this is episode number 24, brought to you by Bright Path Notes. And we are going to be discussing what we're gonna be discussing with Richard Thornton. Again, my partner in business crime. We're talking about what's going on in the , uh, as it pertains to like the Bitcoin industry and real estate and rentals , and where you can park your money in a more secure and highly profitable way. Stay tuned. Richard. Hello, my friend. You are not in your normal setting, are you?

Richard Thornton:

I am not. I am traveling. So we are trying this , um, in , in in mobile and , uh, we'll see how it goes.

Justin Bogard:

As you can see, I got a new setup behind me right now.

Richard Thornton:

I know, man. I didn't know you could play the piano. I mean, you , you know , you're doing great. You know ? Yeah .

Justin Bogard:

That's what everybody thinks. They thinks, they thinks. You know how to play the piano just cuz you have a piano, but you can just buy a piano. Just have a piano.

Richard Thornton:

Oh , I can see you , see you sitting in the back there, you know, on that couch telling people about notes , eating bon bons . I mean, you know, this is the life dude . Yeah , this is the life . Papa Bon Bon Papa . Bon Bon .

Justin Bogard:

Yeah. For those of you just listening, we do record this on our YouTube channel, the Bright Path Notes YouTube channel. So you can go check that out, unfortunately . Yeah ,

Richard Thornton:

Unfortunately, yes .

Justin Bogard:

You don't have to , you can just listen. We prefer you just to listen. You don't have to look at us. Not not that big a deal. But anyways, I'm using a virtual background, that's why Richard teasing me a little bit. I'm teasing him because he's in a different location. So, anyways, Richard, how are you? And where are you at?

Richard Thornton:

Great. I'm in San Lu Obispo, California, working my way down the coast, down Highway one. Um, it's a very securous route. Have you ever taken it? And , but it's gorgeous. The whole coastline would take you usually four hours to , uh, drive the straight shot down the valley. Takes you 12 hours to go down the coast. So that tells you how , um, twisty and turning the road is

Justin Bogard:

Nice. Are you doing this in , uh, economical vehicle or are you doing this like in your truck?

Richard Thornton:

<laugh> ? Well, I'm not driving the Bentley, if that's what you're asking. No, <laugh> , <laugh> . Just , uh, you know , just my regular old Toyota. That's, that's all I need. Thanks ,

Justin Bogard:

<laugh> on . So Richard , uh, you read an interesting article recently about , um, the bitcoin slash uh , you know , digital currency industry, and I wanted you to talk about that a little bit and , and let's hear about what's going on.

Richard Thornton:

Well, it's just a lot about what's going on with ftx and it , it's whole bankruptcy. Um , I mean, it's a large enough group , um, so that it is taking a lot of financial world down with it. Uh , it, it owes its, you know, they had dis dis intermediation. Um, yeah , for those of you who don't know what that is, that's a , it's a banking term and it's when all of the , um, depositories all of a sudden want their money out at once. And the bank can't do that because they have, they can't , uh, pay it out because they've put it in dis investments and that's how they, that's how they make money. So , um, it has been disintermediated. It is , uh, now , um, officially bankrupt. They have over 130 subsidiaries. Um , and the fallout is supposed to be amazing in terms of , uh, the ripple effect that we're gonna have here. Um, if you're an investor , um, and you invest in anything crypto, I'm sorry , um, <laugh>, you may be , you may be money up and, and I hope, I hope you are. But , um, yeah, we're gonna be feeling the rip the ripple effects with all the different subsidiaries that they own here for quite a while .

Justin Bogard:

Wow. Okay. So this is the cryptocurrency market. Uh , I'm not in crypto. Are you in crypto?

Richard Thornton:

I am not. I have looked at it several times and have just never been able to get comfortable with it. I know a number of our other note brothers and sisters are , um, but fortunately from what I can tell, they're all in it and sort of what I would call dabbling fashions. They've got a couple thousand here and a couple thousand there.

Justin Bogard:

Right. It's not their entire nest egg, it's just , uh, they're sampling it to see, see what's going on.

Richard Thornton:

Yeah. And unfortunately, what this is gonna , this is gonna upset the banking world and everything else. That's how it's gonna start to affect our world.

Justin Bogard:

Okay. Explain that.

Richard Thornton:

Well , uh, I mean, a lot of people , um, took out loans to put money into crypto. They had a lot of , uh, these crypto , uh, groups , um, have huge lending lines and things like that. Um, and now they're all going belly up . So , um, the banks are going to be short money , um, or short to , they have got some big loans to , to work out here. And we're not talking about small dollars. We're talking about, you know , billions and billions of dollars. So , um, that's gonna affect them, the bank and world and our world.

Justin Bogard:

Okay . So what's going on in real estate right now? Are you seeing prices in California , uh, as far as coming down aggressively, coming down moderately? Or are they staying about the same?

Richard Thornton:

Yeah, so I , um, looked as this is Bay Area. Um , it's interesting. We act at , just yesterday I looked at a Redfin report, a Zillow report, and one other. And I think the consensus is that real estate prices have dropped about 3%. So that's, that's not a lot. That's a drop. No , but there's no , it's still still starting to sag.

Justin Bogard:

Right? So in this Midwest market here in Indiana, we've seen prices go down. I don't know what the exact percentage is, but I, what it feels like to me is it's not a big drop either. It may be a few percent , um, just because they're trying to correct things from when we talked about last time in an , on our broadcast that we did monthly in our November broadcast, we talked about how , uh, we're in a correcting market in most markets. Mm-hmm . <affirmative> mm-hmm . <affirmative> . Some are more correcting than others because some were more overinflated than others.

Richard Thornton:

Right.

Justin Bogard:

So I see things calming down. We do see a, a lot more, and I mean a lot more , uh, opportunities for seller financing. We have been approached, you and I have been approached , uh, many times during the week and continue to be approached about how do you create a seller finance note? How can I sell that note once I create it? And what are the best , uh, attributes to put in this note for someone like you buy in the secondary market?

Richard Thornton:

Right .

Justin Bogard:

So that's been a conversation of topic that's been happening , uh, pretty regularly. I , I'd almost say daily, but it's not quite daily, but it's definitely several times a week of having that conversation with somebody. And they're usually a real estate investor, like a wholesaler or a fix and flipper that's got themselves into a situation where they can't sell it on the MLS within a few days like they were used to about a year ago. Right,

Richard Thornton:

Right, right. And I'm really looking forward to the , let's call it , uh, somewhat of a market correction here because it makes it , um, better for our notes. Uh , we can buy at values that , uh, I think are a little bit more secure. Not that we weren't buying anything that wasn't, but most of the stuff that we're buying is 50% loan to value. So it can, it could take quite a fall and we still be fine. Um , right . But , um, yeah, I think we're gonna see more and more again with, with all of the , um, uh, disruptions in the market. I think the stability that notes offer , uh, will be welcome to a lot of people.

Justin Bogard:

You know , I think the rising interest rate helps as well. Right. The, the rising interest rate is up to, I don't know what it is cause I haven't looked at it actually a week because I've always seen it over 7%. I'm not sure if it's gotten up higher than that or lower than that today. As of right now as we're recording this , I think it's, it's around 7% plus or minus 30 BPS maybe.

Richard Thornton:

Yeah, I think I looked , um, yesterday and it was 6.87. That's what my guys were quoting me. So that's right there.

Justin Bogard:

Yeah. So it was, you know, a few years ago, as we've talked about before, it was down to 3% and sometimes below 3%, depending on what you're getting, like maybe a 15 year or maybe some sort of unique arm that was a lower rate. But traditionally it's been up about, it's about three and a half percent from when it was mm-hmm. <affirmative> , uh, at its at its lowest point. And so that changes our market a little bit too, to where we're seeing , uh, more high balanced loans at higher rates than what we're used to seeing. Like we're used to seeing them at two, three, 4%, 5% interest rates and now they're six, seven, 8% and even balances over $200,000. Uh , so it's very interesting time right now. It's a very good time to be in solar financing and creating solar finance notes and buying solar finance papers . Well , that isn't bank originated. Nothing wrong with bank originated notes. It's just this is a really unique time to where you can take advantage of having a very strong investment. Like Richard said before, you can be in a pretty low pennies , not pennies on dollars , pretty low from 70 to 50% of as is value of the home. The borrower has a significant down payment, let's say that lowers at 20% and then you're getting it , uh, at a discount as well. And you could be getting that discount , uh, for various different reasons. Uh , it could be interest rate might be too low from, from previous years when they created these notes. Uh , the interest , uh, the term might be sented too long for a short note. Uh , I often have this analogy with people where they'll create seller finance paper on very low balance loans, let's say 30,000, $40,000 loan , nothing super high balance. And they'll write , uh, a moderate interest rate, let's say six or 7%. And then they'll stretch the term out 30 years <laugh>. And what that does is it lowers the monthly payments though much to where the borrower really doesn't make a dent. There's a ton of interest up front , which is good for the investor if they plan on holding it for a very long time, 20, 30 years. But if they're trying to sell that paper, that is gonna be discounted for heavily because the time value of money theory to where you're trying to , uh, buy something that's 30 years out and you see that the term is so , uh, small, insignificant as far as a loan amount versus the term, it just becomes a problem for the ones that on the note . And that's why sometimes our discounts are so big because we have to, we have to play that time value of money theory .

Richard Thornton:

And Justin , what's your, what's your thought about some of the reperforming notes that we're starting to say right now?

Justin Bogard:

I'm pretty impressed. Um, I had, I have to say , I have my reservations. I was being optimistic about the REPERFORMING loans when we knew these were coming through , uh, during the covid forbearance period, we knew those loans would be reperforming, strongly reperforming because we kept seeing the stats every month on black night financial data. It's going from, you know, 40% of them were reperforming to 50%, 60, 70, 80. Now this mid 80% of all those loans that were in forbearance are now Reperforming. Mm-hmm . <affirmative> . And they're performing , um, at a , at a good clip. Real estate prices really haven't dropped that much to affect their equity and the borrower's equity. They actually actually rose quite a bit. And then it's , it's kind of deflated back down to what normal is. So they're , they have a lot of good equity in there, so it's easy for them to refinance if they want or if they keep the same loan, they're just paying like steady s So we haven't seen , uh, very much default rates actually since then. Mm-hmm . <affirmative> mm-hmm . <affirmative> . And so these reperforming loans that we are seeing on the market today, they look like they have a good 10 to , uh, 14 month pay history of showing just consistent on time payments. And so those Reperforming loans are very strong and you get 'em at a , just a little bit of a clip lower than a performing note as far as a discount. And so it's a really good note to invest in. And so that's what we're looking at a lot right now.

Richard Thornton:

So what about the quality of Reperforming paper now as opposed to what came out of the recession?

Justin Bogard:

Well, we've talked about that before and this , I'm not sure if it was this podcast or the one before, Richard. And we , we touched on this and I'm glad that you brought it up cuz it needs to be talked about again, the difference between the re performer back in the great recession was mortgages were underwater. So a reperforming note was, was already forgiven a lot of principal balance , uh, to get them to where they were. Their mortgage payment or their mortgage loan amount was lower than the as is value of the home. So today we have a lot more equity and we didn't really lose any equity over this covid stuff per se. So now their mortgage balance just stays the same and they're just reperforming. So the fact that they have equity in it and the fact that they are reperforming mm-hmm . <affirmative> , it was really no fault of their own. It was just a covid situation and we all were affected by it in one way, shape, or form. So it wasn't to their own fault why they were going through forbearance. More than likely it was just because of, you know, the circumstances around them with job losses because people were not going to work and just, you know, other facets that we've all lived through the past couple of years.

Richard Thornton:

Yeah . I think it's also significant that post recession , um, a lot of people didn't have jobs that they could go back to, was there just wasn't that much employment there. Now we've still got , uh, 3.6% unemployment rate. Um , everybody's clamoring to find more workers. So it's very easy to get back into a job, get back into the job that you had before. Yeah . Um , so I just think it makes the reforming reperforming market just a whole lot stronger. I'm , I'm really , um, excited about buying into those. Now one thing that we have to note, and this is uh , perhaps a good segue for us is that a lot of these reperforming notes are gonna be larger than we , um, usually look at. Correct . Because you've got a lot of middle , middle America, a lot of medical mineral America wasn't affected by the recession. Um, it was more or less the fringes. Uh , in this case though, you've got, when I say middle America , I mean houses that are anywhere from 120 to $350,000. Right. A lot of our individual note buyers won't be able to handle those kind of balances. But in our fund we will be able to You wanna talk about that a little bit?

Justin Bogard:

Yeah. So we have a fund that we are starting, and we've mentioned this a few times, we're in the process of getting all of our paperwork finalized and that fund gives out investors a certain rate of return depending on the investment amount that the , uh, the investor pledges to the fund. And that fund is a debt fund. It's, it's basically gonna go out and buy performing reperforming in some non-performing loans for the purposes of getting cash flow and getting loans reperforming and then cashing out of them by , uh, selling those assets , uh, before the fund sunsets. And so it's a pretty simple fund. It's nothing really complicated about it. It's pretty secure as far as the , uh, investment that is being made is on debt on properties, which ultimately is the real property that is being securitized to that loan. And so that's what we have going for us. And so this is the type of stuff that we're gonna be investing in , buying in. And so like you said, it's a good opportunity for us to take a lot more capital to buy these, these middle band price homes, which, which is gonna be a great opportunity for us , uh, to get in hold in , in our, in our fund.

Richard Thornton:

Right. So I need to offer just a little bit of disclaimer there. What Justin just said is not financial advice. Um , we were already telling about something we're doing , um, and no, no , uh, guarantee will be given in terms of any returns, but um, yeah, we're, we're very excited about it. It's , as far as investors are concerned, it's pretty much said it and forget it. Um, yeah , very passive and I think very much market rate when we finally, I'm not gonna discuss rates at the moment, but I think it's very competitive for what you're gonna see out there in the market, especially given the stability that it offers.

Justin Bogard:

Yeah. Investors have a couple different options once they get into the real estate world, right? They can invest in traditional real estate, they can get their hands dirty, they can be a fix and flipper. They can go out and be a landlord as well and have rental properties and they'll be in the process of dealing with tenants and toilets and trash and those things that Richard and I really don't like to get into. You have wholesalers that you can get to , wholesalers to where you get properties under contract and you resell them to other people. Uh , and then you have the note business as well. So all these things are active investing , uh, so where you can make more money obviously, and you can get yourself trained and , and go through the processes of that. And then you can run a business with this as well. You can leverage your retirement account and stuff as well. And then the other aspect of this is investors that really have full-time jobs or professionals , uh, they may be licensed professionals and they have their own businesses and they just don't have the extra time to dedicate towards being an active investor in real estate because it does take a lot of time as Richard and I both have discovered as we both are active real estate investors and we both have been active traditional real estate investors and now we're both active , uh, note investors. And so it is a full time job for us and that's what we do. So most people like the idea of like, Hey, I like these things. I like the security of what we're getting , uh, except I just don't have time to go out and find it. I don't have time to go out and do it. I don't have time to go out and manage it. But I do like the , the rate of return that I would get and being a very passive investor, and this is where the fun kind of solves a lot of people's problems. And so this is why, a big reason why we are setting up a fund .

Richard Thornton:

Yeah. And I think, I think you, you just brushed on something that's very important. Um , a lot of people that we know , uh, who are note investors are very part-time, meaning they've got a day job. Um , they like notes, they like investing in notes. Um, I've had a number of , uh, just regular active note investors come to me when we started to mention this at the expo and places like that come to me and say, look, I really want in because , um, it's time consuming to invest in this . Yes . Um, and , uh, they've got day jobs , um, and they wanna know their money's working for them. So that's what they're doing. And , um, you know, just because you are, you have a couple of active note investments, doesn't mean you can't put put away, you know , whatever you want into the fund. Our minimum's gonna be $25,000, but there are step ups for those who will , um, provide more funds.

Justin Bogard:

Yeah. So you brought up a , something that just jogged into my, into my memory bank here. And those , uh, investors that, you know, aren't as want to be as active, there's a lot more of them out there. Right. There's a lot more of 'em that we've run into. Like you said , we've talked to them at different conferences recently and we've talked to them, you know , just through our daily interactions with different, different folks and stuff. And so it's, it wasn't surprising to hear the people that were kind of really interested in wanting to find out more once this actually goes live, which , which should be pretty soon, soon as relative. Right . A few weeks to a month really by the time we're recording this. And so it's really nice to hear that investors are able to , uh, understand how they can diversify their portfolio. We still have investors that invest in notes that are also in the stock market. We have investors that also invest in, in the cryptocurrency. We have investors that do , um, different sort of investing , um, and they like to diversify their money. And so the best fit for this fund and for those that wanna diversify their money in a different, in a different segment so they can have certain percentage of their money here, certain percentage of their money there, and a certain percentage of their money in these really passive investments like this, they're all kind of passive to them, but they kind of , they're kind of directing their, their investment different ways. So those are the , those are the investors that are really turned on by this idea .

Richard Thornton:

Agreed.

Justin Bogard:

Yeah. Agreed.

Richard Thornton:

<laugh> , I agreed.

Justin Bogard:

Right.

Richard Thornton:

Not , not much of a response , but agreed. It's you , you said it. Well,

Justin Bogard:

Yeah, so diversification I guess is where I'm getting at. So it's, it's not , it's not recommended by anyone that is, that knows anything about , uh, how to grow your wealth to say don't, don't put all your eggs in one basket , uh, so to speak, within a basket, like within note investing. There are many different verticals to go into, believe it or not. It is a niche business that has more niche verticals inside of it, which, which can be pretty interesting. And that's the stuff that Richard and I kind of live in every day . Uh , but for the average investor, it's good to have, you know, your money tied up, chunk of your money here, a chunk of your money there, a chunk of money, you know, over here. So funds are a great way to diversify your money.

Richard Thornton:

Exactly. Exactly. And so that , so if you invest in a fund, you can buy a nice piano like you've got and

Justin Bogard:

Everything we can Yeah,

Richard Thornton:

That's right. That's right. <laugh>. Yeah .

Justin Bogard:

Yeah. As they say in the business, your first money in, first money out. So it's kind of the best seat to be in your investing . Mm-hmm.

Richard Thornton:

<affirmative>. Mm-hmm. <affirmative>.

Justin Bogard:

All right , Richard, that is about all the time we have for this episode today. This is episode number 24, brought to you by B Bright Path Notes, and we will catch you on the next episode.

Richard Thornton:

Very good. Good to see you.

Justin Bogard:

All right , see you guys. Bye.

Narator:

Thanks for listening to Be The Bank. We hope you learn something from today's show. If you enjoyed this episode, please rate and review us. Plus check out our Bright Path Notes 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 Bright Path Notes . Thanks again for listening.