Joe Varnadore gets interviewed by Justin Bogard and Super E in the 9th episode of season 2.
Joe Varnadore shares his intimate knowledge on bank and lending during cycles.
Key Takeaways:
Resources and links discussed
Sponsored By: Integrated Health Solutions
We are passionate about your health and wellness and we know you want to enjoy a vibrant, pain-free, active lifestyle, but when you are in pain this seems almost impossible.
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About the Hosts
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!
Super E – Real Estate Investor specializing in short-term rentals and the management of them. She connects investors with short-term tenants and manages everything in-between.
Connect with the Hosts:
Joe Varnadore gets interviewed by Justin Bogard and Super E in the 9th episode of season 2.
Joe Varnadore shares his intimate knowledge on bank and lending during cycles.
Key Takeaways:
Resources and links discussed
Sponsored By: Integrated Health Solutions
We are passionate about your health and wellness and we know you want to enjoy a vibrant, pain-free, active lifestyle, but when you are in pain this seems almost impossible.
In order to be pain-free, move fluidly, and enjoy an optimal level of functionality, you need a personalized yet integrated, research based and clinically proven approach and that’s what we do.
To learn more visit us at
ihsindy.com
cryotherapyindy.com
About the Hosts
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!
Super E – Real Estate Investor specializing in short-term rentals and the management of them. She connects investors with short-term tenants and manages everything in-between.
Connect with the Hosts:
Welcome to the, 2 wealth show a show that shares how you can create real wealth for you and your family. I'm one of your hosts, Justin Bogard. And my cohost is Elizabeth Sickles, AKA super E. I am a real estate note investor specializing in performing residential real estate debt. I find the deals acquire them for my own portfolio, as well as educate investors while walking them through the process of owning a real estate note, my cohost, he a real estate investor specializing in short term rentals and the management of them. She connects investors with short term tenants and manages everything in between. Our show is sponsored by BrightPath notes. And Elizabeth Maora. You can find out more information by visiting our websites at brightpathnotes.com andelizabethmaora.com.
Elizabeth Maora:Hello everybody. Welcome to episode nine. We have a very special guest and I am Elizabeth Sickles-Maora.
Justin Bogard:Well, hi Elizabeth, I'm Justin Bogard with bright path notes and we do have a special guest today. It's special guests while it's on my screen. This way is mr. Joe Varnadore around a round of applause and the crowd roars and they're all there. I, uh, I have dubbed Joe Okeechobee, Joe Elizabeth. Yeah, so we had a, we had a meetup last week that I had, Joe was my guest on and, uh, was talking about all this stuff about notes and stuff. And so I did a little thing at the beginning to where, um, I found a picture of Okeechobee and I put his headshot next to this building that says welcome to Okeechobee. So I just started greetings from Okeechobee because Okeechobee is a small town in Florida, just like where I live in lapel. Indiana is a real small town in Indiana. So just kind of funny, we went back and forth with that. So that was a lot of fun. So anyways, I call them Okeechobee, Okeechobee, Joe, and Okeechobee means big water. Right. Very good. Um, I do with aqua Largo Largo. There we go. So Elizabeth, Joe is a note investor, not only as a note investor, but he's one of the note investors, he's at an elite level. And I actually got training from Joe. Joe is my mentor. And Joe is actually the person that got me into the note business. Mmm. Joe came into Indianapolis one time at our local REIA club and he was talking about note investing. And I always tell the story, everybody I'm just like, what the heck would someone invest in mortgages? And then he's he taught this class. I'm like, okay, I need to hear this stuff. And then I, my eyes were just like this, the whole looking at whatever he was showing and how you make money and all this stuff. And ever since then, I just, I've been a note guy. So thank you, Joe. Justin. You're welcome. And you know, you were what we call a note school, an action taker. You're not a question maker. You're an action taker and action taker. I like that. I'll take that. Thank you. So anyways, Joe has been in the business for, gosh, I don't want to date him, but he's definitely, he definitely had his first flip, uh, when I was born, I just said I was born sometime in the seventies. So off screen, I'm making some kind of gesture there. Yeah. Oh man. It's always wanted to have you on Joe, but you never know. Right, right. That's right. So Joe, so Elizabeth, Joe, he knows these are the, everything in the note business from commercial notes, the residential notes performing nonperforming. Seller financing, well, we call it partials. He's, he's not at all. So he's going to be a great guest for today. But what he does know is he's been through all these cycles in real estate general and especially in the note business. So he has a very, uh, intimate knowledge if you will, of how the banking industry does and how the lending practices are during all the cycles, especially right now. So I think some of the topics today are going to be more around that. And so, um, Joe kind of, kind of, we'll just jump into it here. So, um, the G S E is the government sponsored entities, is that correct? Government sponsored? I always say entities. It's actually technically enterprises, but enterprises. Okay. So do that for me. So you would have said entities because I always say entity cause I'm a good student, right? So Fannie Mae, Freddie Mac and Jenny may are the three main ones. Correct. So Elizabeth in 1929, what happened? What was famous in 1929, that market crash and the great, great, great depression, right? Well, this is when those, those entities, those enterprises were created as about 90 some years ago and their job, their number one job is to basically gobble up the loans from the big banks for them. So they can have liquidity and they can originate more loans. And that's the theory behind it. Just cyclical there, it's just circle and circle circle. So this is who, from my understanding, and Joe's going to jump in and talk about this as well as who really dictates, dictates what the banks will do as far as their lending practices and their lending, um, criteria. Right? So one of the big headlines, uh, I want to say it was last time we're recording this in may. Just so the audience knows. And one of the headlines, I think in early may or late April was chase bank. Mmm. Needs 20% down and a seven 20 credit score right before that February is probably like, like 2% down and probably a 600 credit score. Well, it was, it was a six 20 and a 5%. Yeah. So you weren't far off there, Justin. Yeah. That's, that's incredible change. Well, and you know, there's been so much happened in the last 60 days. Um, I mean, who would have thought in, you know, the thing with 0809070809. If you were, if you had a brain, you saw that country, right. I mean, you knew that real estate prices, weren't going to go up 20% a year forever, but this time it was, it was a big surprise.
Joe Varnadore:Right. And so, um, all of the, and the crazy thing is that, so there are, there are a lot of what we what's called forbearances going on. So if your, if your loan was guaranteed by Fannie Freddie, you know, the government sponsored entity slash enterprises, then you could call when you could get a, what is called a forbearance, meaning that, okay, we'll just throw your next three payments onto the back of your loan. Right? So there were so many calls coming into them to get this forbearance that these entities and enterprises, they just, but randomly just said, we're getting too many calls. We're just going to let everybody have a forbearance. Okay. All that's good until some of the people that have a afford that didn't know they had a forbearance. Now they go to a lender wanting to refinance their loan because the rates are so low and they can't get it because you're on a forbearance. You're saying you can't make your payments. And then now you want us to refinance. No, we're not going to do that. Right. You can't have your cake and eat it too. Right. Right. So we've got that going on on one side. And then on the other side, I mean, you know, when you hear these rates, Justin, you know, 2%, two and a half percent and all this kind of stuff, I mean, those are for those select you that, you know, have a big job, their best income ratio is 43% or less. And, and, you know, they've got perfect credit. Right. Um, then those are called qualified mortgages and then everybody else falls into this non-qualified, which means, you know, your debt to income ratio is more than 43. Um, so you're, you're, you know, you can't prove your income. I mean, you, and you know, the three of us, you and Elizabeth and I we're entrepreneurs, right. I mean, in our biggest job at tax time is to reduce our income to a level that we don't have to pay legally. Right. I'm only thinking about funny stuff I'm talking about legally. Right. So, and we don't get a w2, we give ourselves a 10 99, or it is what it is. Right. So we're those, we fall into that non QM non-qualified right. Which, you know, we're going to pay somewhere between five and seven or eight or 9%. And that's where many people, you know, ended up being well, when this whole COVID thing started, that was really the first thing to shut down. Was that okay, we're not going to, those are a little more risky. So we're just going to shut those down. So non QM mortgages, almost, almost some almost gone away, which means there is a huge credit crunch, meaning that you can't go to the place. You could have went to two and a half months ago to get a loan. Right. Right. And then to top it off on Friday, um, and this wasn't very widely, unless you get some of the trade, the information from the mortgage, from the lending trade and the investment banks and stuff like that, the, uh, the feds had to go in and they had to inject some liquidity into the market, meaning that these loans that the, um, the big banks have made the feds went in and bought those Hmm. To give some liquidity because there wasn't a, there wasn't a secondary market for that right there wasn't because they, they didn't hit that 720% down, but they were already in the works. So the banks already closed them. And so it's a, it's a, it's a, it's a time right now. That is right for folks like, you know, they're like us that are investors to use to buy the seller financing. And, you know, not only that, but the, the landlords that are out there that are going, you know what, this isn't as passive as I thought it was going to be. Right. I'd rather have passive income and buy notes. Get it. You know what I mean? So I, I'm going to let you interject some things in here, Justin. Sorry. No, you're fine. This is a good conversation because you can just sit back and listen to Joe talk and he just knows so much about the business. Um, but that's, that's okay. Lightly in a sense, that's, what's kind of going on with lending practices and why is this more challenging to get loans, which is why Elizabeth you've heard me preach this soap box for over a month now about seller financing and the opportunities. And this is, this is great information leading into that saying, okay, it's okay.
Justin Bogard:You know, it's obvious. Now, if one of the banking, you know, requirements are getting tighter and tighter that those people still need a mortgage, right? So it's when people that have the private money, the cash they're sitting on cash in their retirement account are sitting on cash. When they lend on real estate. Now that's where it's going to be huge for them. Right. Because they're going to be able to set, set the terms at the, okay. Not the premium level, but like the level of where it's appropriate for fair market, a mortgage interest rates. Well, and, you know, Justin, we, we, we preach so much. I mean, most people, when they think about, you know, seller, they were like, Oh God. And what they create is a super substandard note. Right. And then they want to sell it top dollar. You've never come across that in the note business, as I have probably seen a thousand out of a thousand of them, tell me, you did, you did more than that.
Joe Varnadore:You know, no deals last year, one of your businesses. Right, right, right. Yeah. Just because of how they acquire their borrower. Right. Well, no, or financing, nobody, no problem. No problem. Right. Instead of throwing something like this, which is basically private loan available with a well qualified buyer with a large down payment. Hmm. Private loans, not seller financing. So this is something special, right. And it's, it's, it's getting the right buyer, you know, it's talking to a guy that I know out in Seattle and, uh, I'm an airplane boat. Right. And he, where he test pilot for Boeing and he said, Joe, he said, I need your help, dude. He says, we're supposed to close, you know, and bought a house$330,000 house. I had a 10% down loan through the local lender. Well, we went to close, I got laid off for a little while and get close. And I said, okay, let's, let's talk to the sellers about doing seller financing. They basically did the same loan. That was a fight, was a six and a half percent loan, but he still put$30,000 down. And in this case, the borrower or the sellers were, they own this house free and clear. So they just created$300,000, 6% loan for 30 years. Right. And they were, would have rather done that anyway, because they wanted the cashflow. If they would've gotten that$300,000, they would have had to go out and find some place to invest it. Yeah, exactly. And it's 72 years old on the seller. They didn't want to go put it in the stock market right now. It's about preservation of capital.
Elizabeth Maora:Can you, do I follow Robert Smith Saki? And can you do a little bit of background, like, cause he was saying that the repo market was already an issue before, before covid hit. So there were things that are going to, that were going to be happening. So can you just explain what is the repo market?
Joe Varnadore:Well, you know, there are since 2000, really since 2007, the fall of 2007, when the proverbial poop hit the fan, um, the feds have tried to keep the banking industry propped up. Right. I mean, instead of, and Justin knows the story very well instead of saying, okay, let's go in and blanket foreclose on all of these properties. Let's just go in and, and, and let's just advise these banks and we'll just, we'll let them sell these lungs instead of, instead of foreclosing, right. And again, you want to keep the market, you've got to keep the market liquid. You've got to keep the market with, um, people have to have confidence in it because as Justin was mentioning there with these government sponsored entities, all of this stuff, all of these loans end up in, in mortgage backed securities, right? So create these loans. And then there, there you take all of, you know, 10,000 loans and you dump them into this securitization. And then those were sold to, uh, investment banks, teachers, uh, pension funds, the Fireman's pension funds are sold all around the world. And so in order to keep the confidence in the system, it has to be, it has to be constantly propped up. So based on, on all of those, yeah. I mean the, the, uh, the marketplace was not as cheery and as rosy, as it was all painted, painted to be for these last few years, because it was still government intervention kind of backhandedly right. Nobody really knew that the challenges that were going on in the marketplace, because I mean, let's face it, there are four and a half billion people right now that aren't paying their mortgage payment. They have a forbearance. Now put that into perspective, the servicers, the companies like mr. Cooper and, and the, the biggest servicers that received the payments and they, their deal was that whether the payment was made or not, they still have to make the payments. So they're making a payment on four and a half million loans that, or being paid on. Right. So that whole market, is going to change right. This whole servicing market, because they can't do that. Right. I mean, you have no money coming in. So there is a marketplace out there right now. And, and Justin, you and I have talked about this a little bit last week. Everybody's like, Oh, we're going to buy nonperforming loans again. Well, you're not going to buy them. Right. It's just like, it's a little too premature for that. Right. Right. We're talking about maybe January of 20, 21 before we see a lot of this, because the banks have a process that they charge these loans down and then they sell it.
Justin Bogard:Exactly. Yeah. There are definitely people out there. So, Joe, exactly what you said, there's a be prepared now, get ready to right now, it can't, it's not possible for them to be available tomorrow. Just like after, you know, unfortunately when that hurricane went through in Florida and in Texas, like they were non performing loans that came out of them, but they shared it. And half the next month. Yeah. There is, there is one thing that history has taught us, Justin, the bank's not watch your house. They don't really, truly, they don't, they're in the money business. They're not in the real estate. It's like when you pull through McDonald's right. McDonald's is not in the burger business, they're in the money business, the guy that runs and owns that McDonald's franchise he's in the burger business.
Joe Varnadore:And so the banks will, you know, look, this is a, this is a crazy opportunity for the people that, that know the strategies behind all this. And I know, you know, with your meetup and everything that you do, Justin, I mean, you, you, you do a great job on educating the folks that, you know, that follow you, but I, but what's going to happen is, well, is that Justin you, and I've talked about this over the years. There has, there has been, we call it a deal, scarred yield, starved environment there. Now all of these folks that weren't invested in the stock market. And if you'll recall a phrase that I just started saying again last week, basically. And if you remember, during, when we were buying crazy buying nonperforming notes, three and a half, four years ago, we called it the stock market refugees. I remember that. Yeah. So now you've got not only these folks that were, you know, burnt out landlords and all that wanting to take and invest money. Now we've got all these stock market refugees that took their lumps. They moved out of the stock market and now they're sitting on a lump sum of cash. Yeah. So there's a lot of dynamics going on right now. And of course, you know, a lot of fake news going on. Right. Absolutely. Very true. Right. True.
Justin Bogard:Well, I, uh, I, for one, Joe, thank you for being on today. Um, it's been, it's been a quick, a quick few minutes that we've got to talk about this, but we did hit all the highlights and I'm glad you were able to explain with your experience how this, how this works and what this looks like and what, well, we can look forward to as far as if you're looking for other places to invest and to notes, especially. Mmm. You know, Lending on real estate is just, you're not, I don't know if you'll ever see a time like this. That'll be so apparent that's needed, but certainly if you take advantage of it, I don't think you'll be disappointed. Well, and Justin, you know, I've had people that, you know, just as a closing thought here, just to kind of give everybody the light, the bright light at the end of the tunnel, look, you know, somebody said, well, you know, what about our notes?
Joe Varnadore:And I said, look, guys, you, when you invest in a note, you're not investing in that note at 80 or 90% of the value of the property. Right. Right. We have something called and I'm sure Justin has taught called investment to value. So the house is worth a hundred. We may be in that we may have bought an$80,000 note for$60,000, right. Or five or$70,000. So let me tell you something, if the real estate market dropped enough, that that dropped 30%, your note would not be, that's not going to be your biggest problem. Right. Exactly. So, yeah. You know, we just say, you know, stay the course, keep investing. Um, I like the old saying, you know what, keep calm and carry on. You know, I like to say, keep calm and note on. And that's a good way to credit for that twice, Justin, then you can own it. I like it. I'll I'll do it. Yeah. I want you to keep him, you know, keep him, keep his head from getting so big right here. Got, keep me grounded. Pull them back. You guys are doing out there. Absolutely. Yeah. Thanks for providing all that information today. Really appreciate it. And Elizabeth, do you have any closing thoughts for today? I don't, but thank you for your knowledge show and for explaining everything. I appreciate it. We appreciate it so much. Joe's got to say settle in. So, all right guys. Well, this was episode number nine. I'm Justin Bogard from bright path notes. We've got our guests today, Joe Varnadore and my mentor, my friend. I love you, Joe. I love you too. And of course we got the amazing, super E, woo. Check out this video cast on the BrightPath notes YouTube channel or Elizabeth Maora YouTube channel until next time. Thank you
Justin Bogard:2 wealth show is produced by Justin Board and super E sponsored by BrightPath notes and Elizabeth Maora. Thanks for listening and watching for our show.