2 Wealth Show S3 Ep7 - Money Today is Cheaper than Money Tomorrow
On Episode 7, Justin and Elizabeth discuss investment strategies.
Key Takeaways:
Resources and links discussed
Sponsored By: Integrated Health Solutions
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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:
2 Wealth Show S3 Ep7 - Money Today is Cheaper than Money Tomorrow
On Episode 7, Justin and Elizabeth discuss investment strategies.
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:
[inaudible]
Speaker 2: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 co-host 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 co-host super E 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 bright path notes and Elizabeth May aura. You can find out more information by visiting our websites at brightpathnotes.com and elizabethmaora.com. Hello everybody. And welcome back to the 2 wealth show. This is episode number seven, I'm Justin Bogard with BrightPath notes and my cohost
Elizabeth Maora:Is super E Elizabeth Maora with Elizabeth Maora welcome.
Justin Bogard:That is so great to see you again. I love how we can do this stuff online. I know I was thinking earlier today, Elizabeth, we used to actually record this kind of like a news reel and we were in this really nice setting. We had these beautiful lights set up with these high definition cameras and we looked so cool. And then, and then, you know, COVID happened and we're just like, Justin, what are we going to do now? I'm just like, I think we're just going to have to do zoom or something like that. Right. So we've been doing that pretty much for the entire second season. I would say we, I think we got about five, maybe six episodes in of a we'll call, regular, regular podcasting. And then we had to do this online thing. So I don't know. I think it's worked out pretty good. Elizabeth, what about you?
Elizabeth Maora:I do, I need a little bit different lighting to make it more professional, but other than that it works.
Justin Bogard:Yeah. It's uh, I think it makes, well, it makes travel easier, right? Cause we don't have to go anywhere. We don't have to, you know, have time to and from, and then setting up and breaking down all that equipment. It was, uh, it was a lot to do. So this turns out to be a lot more efficient for us.
Elizabeth Maora:That's true. It does where it is. I should say.
Justin Bogard:Yeah. Elizabeth, as you probably realize we've got a credit crunch going on, that's continuing, continuing, continuing to crunch even more. All right. This is known, um, even more prevalent if you will, because Fannie mae is, came out with some information that says they're cutting back on buying some of these loans. Okay. So what does this mean at GSE? The government sponsored enterprise Fannie Mae is one of them. Freddie Mac is another Ginnie Mae is another. And so their job for those of you that are listening and watching and Elizabeth knows this is to buy these loans that the banks create. Okay. And why would you, why would a bank so alone? Well, they want to get liquidity, right? Elizabeth. So they create a loan. They charge fees for it. They charge for appraisals and loan, origination fees and all the things like that. They may hold the paper and they may hold the note loan on that at their bank and service it for a few months and then sell it. But traditionally they're probably gonna sell it pretty quickly to Fannie or Freddie because their job is to buy these loans from the banks so that the banks can be have liquidity and they can go originate more loans because they do it in volume. Guess what? They ended up having the biggest buildings downtown they're on every street corner and the bank somehow make money through any economic times. So that's, that's the secret sauce right? There is one of them. So Fannie Mae, like I said before, has decided to cut back on buying some of this paper from banks now, not all paper Elizabeth, but specifically the investment type property paper, and the second home type paper. So this is like non-primary resonance type of mortgage notes that are created. So they're doing this because of a credit crunch. They're starting to see that they need to have tighter restrictions on people because they're probably seeing the writing on the wall with inflation and people borrowing more money than they can afford to pay back. And so this is what happened. And the 2006, 2005, 2007 timeframe where people were just handing out money left and right, you can get a half million dollar house and make$50,000 a year. I know that's probably an extreme example, but you get the idea, right, Elizabeth. So that's a problem, right? They probably can't afford it. And then we had foreclosures and then there was an after effect and you all remember more than likely what happened then and what was the aftermath of that? So the banks, when they sniff where they feel like there's some sort of problem like that, they start tightening their restrictions because they want to make sure the borrowers, somebody like me or Elizabeth or whoever is going to be able to pay back that debt and be consistent about it. Right. They don't want any problems. They don't want to deal with any buddy missing their payment and being too high to debt, to income ratio. So that is the story that came out and that's kind of what's happening. So Fannie Mae's one of the biggest ones, right? So you would imagine that the others are going to follow suit to some extent. So what I'm saying is when I'm reading this information, I see an opportunity and I see a little bit of a problem, right? The banks, if they continue to create these loans, they are going to have no one to buy them. Well, someone's probably going to buy them. It's just at what price, right? The banks will start writing them off on their books and they'll figure out at what price point do they want to get rid of it or do they want to keep it longterm and trying to work it out more than likely they'll probably sell it off, but Fannie and Freddie and those other GSCs, they really dictate exactly what the banks are going to do because the banks know like this is my end client, that I'm going to sell this to what is it that they want? And I'm going to model exactly what they want. So I'm creating a product that I can deliver to them. And so that's what I see happening with that article.
Elizabeth Maora:So you mentioned that um, Frannie and then Freddie and Fannie, it's confusing. Did you say GSE?
Justin Bogard:GSEs government sponsored enterprises. Okay.
Elizabeth Maora:Okay. And when that happens, so when they start selling those off, Justin, do you buy those as a note investor or who do they sell those to?
Justin Bogard:So they would be selling them to probably very large hedge funds. Like, let's just say Goldman Sachs or, you know, big wall street firms will probably start buying those. And we're talking about the big banks, like the big five, if you will, you know, the bank of America's the chase, you know, the who, whoever were the big, the Wells Fargo, you know, all the big ones. Those are loans that we as small time note investors can buy from because quite frankly, we're just we're peanuts to them, right. We don't have billions of dollars backing us to buy their inventory. Now, when you get to the smaller branches or the regional banks or the small, you know, one, two to five, uh, branch, excuse me, type of banks, then they'll have a conversation with us and we might be able to get in there and buy some loans from them. But traditionally, no, it's not going up to the big banks on it to the smaller banks that are going to be suited for me. Okay.
Elizabeth Maora:Okay. Excellent. That's good to know. And what is the, excuse me, what is the good side of them in the note world?
Justin Bogard:The good side of buying that paper of this happening? Well, if, and of course I don't have a crystal ball. I say this all the time. So if Fannie, Mae's not going to buy that product from the bank. Well, who do they have to sell it to? Well, someone's going to buy it like I said before, but it's just not going to be at the price point that Fannie Mae would pay for it. Right. Cause Fannie Mae and Freddie Mac and those other GSEs, they're going to pay pretty much top dollar for these loans. Like, we'll just say 97 cents on the dollar or some number up there really high up there. Right. But they're going to do it over a grand scale, you know, thousands and billions of dollars worth of loans, thousands of loans, but billions of dollars worth of unpaid balance. Right? So that's, that's what their quandary is. So I, I don't see them having an issue selling it. It's just who they sell it to. And at what price point were they willing to buy it for? So at the silver lining, I guess, as investors is that inventory could come and this is, and we're talking about non-owner occupied properties. So the second home is really a non owner occupied property. Cause that's more of a, it's a second home. So they're not, they don't live there full time, right. It may be seasonal or they may rent it out like as a, as an Airbnb or they may rent it out as a, as a true rental or a vacation rental or a seasonal rental. Uh, so those will be non occupied. So those don't fall under certain rules and regulations. So true owner, occupied homes like the home that I live in or that Elizabeth lives in, or that you live in, that's an owner occupied loan and they have rules at the fall, the Dodd-Frank and CFPB guidelines. So with them tightening the restrictions on those non-owner occupied type of loans, it means that they see an issue with potentially with borrowers and they want to make sure they have the cream of the crop type borrowers that are getting these loans from the banks.
Elizabeth Maora:Okay. Excuse me. Very interesting. Yeah,
Justin Bogard:It is. People may have glossed over that if they read that, but I'm reading a little deeper into it to have a better conversation of what, what do I think that means and what it could look like? This could not be a problem at all. They could change their mind and realize, you know, okay, well we'll still make a deal with you, but we'll change our price point. But right now, when this article came out a few days ago, I'd say seven days ago. Um, it just, they were alluding the fact that you're just going to get tighter on that stuff. So I'm just assuming they're going to follow suit just like when COVID-19 hit back in February and March, chase came out with an article that said, well, if you have a seven 20 credit score and 20% down payment, you can get a loan, right. And maybe a month or two, before that it was a seven 80 credit score. And maybe not as big of a down payment, we'll get you a loan, a conventional loan. So this is, this is just what happens in these economic times.
Elizabeth Maora:And I do, I just want to, you know, just a special note to everybody. We are educational only. We're not, um, you know, it's, this is not, um, things that you need to do. We're not giving advice. These are our own thoughts. What we see from the industries that we work in. And I say that because there are some different schools of thought about what can be done because we are the two wealth show. So we're all about educating people on ways that you can invest your money. And so one of the things, if you say, Hey, you know what, I see this as an opportunity for your investment strategies is to borrow money, right? So that you can take advantage of maybe being a private lender, doing hard money. There are different courses. And depending on what state you live in, you'll need to have license or different permits or whatever is required for that. But then also, you know, there could be like Justin was saying an opportunity on the note side, um, of this. So at any rate, there's always, there's always an opportunity. There's always a plus and there's always a, a minus, but you know, just to make sure you really know, Hey, you know, is this something that you would want to and invest, invest in, excuse me,
Justin Bogard:Elizabeth money today is cheaper than money tomorrow.
Elizabeth Maora:That's great. That's exactly right.
Justin Bogard:Speaking of money and inflation, uh, what, what else is going on? Let's talk about not specifically notes, but on the, uh, let's call it the building side.
Elizabeth Maora:So this is really interesting. Um, most of y'all know that I do teach once a month for Syria, the central Indiana real estate investors group, and last night or association that group, um, I had a special guest who's my insurance agent, um, excuse me. And one of the things that came up was that on your policies, whether it's your own, your personal property or your investment properties, there is something called that you're either insured for replacement value or market value. Okay. And those are two very, very different scenarios. And his advice to everybody is to do, um, replacement cost. So, and you might be thinking, Oh, but real estate is appreciating. It's going up. It's going up right now, but we don't know when that's going to end. And the other thing that's really important with replacement value is the fact that we've seen huge material costs increase on wood, on electrical components as well. And as you know, most of the time when prices go up, they're not going to come back down. So it's really important that you are insured for again, my guy recommends the replacement value of your property. And then there's also something on policies called. I'm just going to look at my notes, extended coverage, um, which could be, which also just goes into effect whenever you have some different amenities in your property and to make sure that additional things are covered. So you might think, you know, before, whenever I would meet with my insurance guy, just be like, Oh, I just need this, this and this. No, no, no, no. It's very, very important that you are covered both in your personal property and in investment properties.
Justin Bogard:Absolutely. I couldn't believe how much the prices of materials have changed because when we were remodeling our house over last summer, we were told that by the contractor is like, well, you may look at, they have sticker shock on this price, but I'm telling you the materials that we're getting, we have no control over the price. And it's, it kind of is what it is like our labor is this cost, but our material went up by this factor because of, you know, this, that, and the other and lumber was, was a big one and treated lumber was, was even more difficult to find as well. So we had to wait quite a bit for some of our materials to come in, to finish the house. So we remodeled over the summer. So I can't imagine what it is now because I'm sure it's spiked a lot higher than what it was over the summer, or I'm sure the material won't, it's probably not as short. Is there a shortage of material as well? And the prices are going up or prices are just going up.
Elizabeth Maora:It depends on what you're going for. Okay. Yes. And I'm sure the area depends also as well. So I know just, um, three, three lots down from where I live personally, they're building a brand new house and there was a lot of lumber in that. Here, um, you know, I don't know if there was a delay in that, but there was a significant amount, but at one time we did have as well, um, we had some electrical, cause my electrician was here to do some work and he was actually starting to save, um, some items just to make sure that he had them for, for customers.
Justin Bogard:Wow. I mean, that's, that's a good thought. Right? That's good, good heads up on that. That person's part.
Elizabeth Maora:Absolutely. And you know, just one of the things we've talked before about prepping for if there's a natural disaster or something, one of the things they also say, just because we're talking about building here is to also have screws, nails, um, those on hand as well.
Justin Bogard:That makes a lot of sense. So do you think that the fix and flip real estate investors are struggling right now because of this material shortage because of the inventory shortage? Like, are they, is it becoming even more challenging for them?
Elizabeth Maora:I don't think so because they're making the money up on whenever they sell it. So, so actually I should say that while their costs are going up, the customer right now is willing to pay that increase money for the property because we have this property shortage.
Justin Bogard:Okay. Well, that's good.
Elizabeth Maora:It's great. We actually, we did a construction clean, um, a few weeks ago and um, my client bought the property for$130,000. I don't know what he put into it. Not, not a lot of money, uh, but he was selling it for$260,000 in five months. And you know, that, that's how you make money, You know, and part of that is knowing the right areas to buy, what are the ARV? So the after repair value of the properties, doing your research or having people that you trust that can give you accurate value so you can invest for whatever, um, you know, needs for whatever your, your reasons are.
Justin Bogard:Are you involved with a lot of appraisals from traditional appraisers with properties? Not,
Elizabeth Maora:I am not. Now.
Justin Bogard:I was wondering if the, maybe it's a real estate agent that we should ask this question too. Is, are they just going with the purchase price and giving it its value or are they truly, cause it seems like if values keep going up in certain areas, how are they using their subject property against the comparables? Are they just going with the purchase price that's on the contract or higher?
Elizabeth Maora:Okay. So I do have to say, I am a real estate agent and the re, even though that's not what I I do. Right. But I'm just thinking that clarification, Justin, because in the state of Indiana, if you manage for other people, you are supposed to by law have your real estate license. And I'm making kind of a point of this also because we had the attorney attorney general for the state of Indiana Todd Rokita at our CIREIA meeting. And that was actually a big item that came up. And he's finally going to go after people that are managing properties that are not licensed real estate agents. And the reason, one of the reasons that this is a problem, is there a certain protocols that we have to follow as a real estate agent, especially whenever we're leasing properties. I can't ask people. I can't ask them hardly anything. How many kids do you have? I would never ask that question. Oh, I can say is how many adults? And I can say, okay, this property is limited to two people per bedroom. Um, so there's a lot of things that you have to be really cognizant of when you're an agent. So in this, you know, just kind of ties back also to, we talk a lot about now, especially being involved with your legislators, your local legislators as well. And because we had that meeting and we brought it to his attention that, Hey, this is a huge problem in real estate that he's going after it.
Justin Bogard:Wow. So what, let me ask you a question because maybe I don't understand exactly what that means. And so my question to you is if you are a landlord and have one property, are you technically managing it? And then if you're managing it, are you having to get your real estate license? Is that what you're saying?
Elizabeth Maora:So if you manage for other people, you don't have to have a license for your own personal,
Justin Bogard:Okay. So like if your, if your company is a management company to manage properties that other people own and have tenants in, okay, now I understand.
Elizabeth Maora:Yes. So for me, if I manage only my own properties, anybody that was on my team working for me, we don't have to have them cause they're my properties. So that makes sense. And what's interesting too, Justin, and for all of our listeners is that when the, somebody raised the question and, um, attorney general, Rokita had his right-hand man. Um, his first name is Derek there and he said, Hey, is this, is this actually a problem? And Derek said, uh, we've had over a hundred calls this week about it.
Justin Bogard:Are you, are you, do you remember what the question was?
Elizabeth Maora:Yes. Is, um, as far as is, um, having people that are basically well, people that are managing properties that do not have their realtors license and it, yeah.
Justin Bogard:Wow. So just that week they had just a hundred phone calls on it,
Elizabeth Maora:Correct. Saying, you know, either reporting people that are, you know, that are acting as realtor or, you know, as real estate, um, you know, people are managing other people's properties.
Justin Bogard:Wow. Well, good for us getting the change going then.
Elizabeth Maora:Yes. Cause you know, I paid the money I pay it's about, um, somewhere around 1500 to$2,000 a year for me just to have my license. So that's a, that's a pretty significant, you know, cop business cost.
Justin Bogard:Absolutely. It is,
Elizabeth Maora:You know, so, you know, I took the time to take the classes and pay for the classes. And um, so, so yeah, so it's, it's, it's important. Know the laws and regulations of your state. Yeah.
Justin Bogard:Yeah. It is important. And that's great to have a local group like where we're at CIREIA and then our in-state REIA as well to have folks like you and, and bringing in the attorney general to talk about this stuff. That's great. Otherwise, I honestly wouldn't know about the state regulations unless I heard of somebody that got in trouble for something or unless it was an article that came out that was in some sort of my newsfeed. Right. So that's great to have. So if you do have a local real estate group or real estate club and, you know, close to you, I encourage you to go visit it.
Elizabeth Maora:Absolutely. And if you don't then go ahead and start, start your own. Cause there are plenty of real estate investors that, you know, need help and want to not only need help, but they want to congregate and network with other real estate investors. So we can just continue to get better.
Justin Bogard:Otherwise we wouldn't have been able to have our Indiana state REIA if we didn't have smaller REIAs around our state to get together, to realize, Hey, we have a common problem. Let's pull our resources and our knowledge together to see if we can come up with solutions. And lo and behold, we've, we've been able to make some changes and some headway for Indiana specifically. Right?
Elizabeth Maora:Huge, huge, huge headway. Two bills passed in three years, which is almost unheard of. So
Justin Bogard:Two bills passed in three years. Very nice. And so speaking of Indiana state REIA, um, I believe coming up very soon when this episode airs is probably going to be a couple of days, but it's April 15th and 17th,
Elizabeth Maora:17th,
Justin Bogard:The 17th, it's going to be partly on zoom and partly in-person and where can we go to get tickets for that?
Elizabeth Maora:Um, Indiana state REIA. So R E I,
Justin Bogard:Wait real estate, R E I a thank you.
Elizabeth Maora:Dot org. Um, yeah, we'd love to have you, um, like Justin said, it'll be both zoom and in-person so whatever you feel comfortable with, we do have a VIP dinner of that Friday night as well with a meet and greet with Trey Hollingsworth, who is the representative he's us, um, congressional representative. And we have some other lawmakers coming as well. So whether you live in Indiana, but if you invest in Indiana, we would absolutely love to have you. And it's important that your voice is there and your voices heard
Justin Bogard:Absolutely it was. But I think that's a great way to end today's episode. So this was episode seven. If you're listening to this on a podcast, remember that we also video cast this on the bright path notes, YouTube channel and Elizabeth Maora has a YouTube channel as well. So I'm Justin Bogard with BrightPath notes with me. All right. See you next time, guys. Thank you 2 wealth show is produced by Justin Bogard and super E sponsored by Brightpath notes. And Elizabeth Maora. Thanks for listening and watching for our show.