012 - Get Creative to Survive Competition

2 Wealth Show S3 Ep12 - Get Creative to Survive Competition

On Episode 12, Justin and Elizabeth discuss how we are still in unchartered waters.

Key Takeaways:  

1. Understand Your Numbers 
2. Not a Short Term Problem
3. Be Prepared

 Resources and links discussed  

• Videocast on BrightPath Notes YouTube Channel 
• Videocast on Elizabeth Maora YouTube Channel 
• BrightPath Notes Website - https://brightpathnotes.com 
• Elizabeth Maora LLC Website - https://elizabethmaorallc.com 

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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: 

• @2wealthshow – Facebook/Instagram 
• @wealth_show - Twitter 

Transcript

Justin Bogard: 0:00

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 will walking them through the process of owning a real estate. To note my co-host super E, a real estate investor specializing in short-term rentals in the management of them. She connects investors with short-term tenants and manages everything in between. Our show was sponsored by bright path notes and Elizabeth Maora. You can find out more information by visiting our websites at brightpathnotes.com and elizabethmaora.com. Elizabeth, can you hear me so I can, okay. Sorry. The technical difficulties there of recording. So I apologize for that. Elizabeth, go ahead. You were, you started off the episode with, with something and I couldn't hear you.

Elizabeth Maora: 1:29

Oh, no, just we're here with episode number 12. Um, season three. So welcome everybody. And my background looks virtual, but it is not, I am in one of the properties that we hosted me. Yeah.

Justin Bogard: 1:42

That is amazing. It does like if you're watching the video cast of this on the BrightPath notes, YouTube channel or Elizabeth Maora's YouTube channel, it does look like a virtual background. Cause I had to ask you when you went on camera before offline, is that a virtual background? That looks pretty cool. You're like, Nope. This is one of my Airbnbs, Justin, how are you doing today? I'm doing very well. Um, you know, it's getting a little warmer. Uh, the rain is subsiding a little bit, so I'm just getting excited. School's almost out for the kids. So I'm going to have a whole new venture this summer of, you know, what we did last year versus what we're doing this year. Elizabeth is going to be a little bit different, right? Because we're going to be allowed to do certain things now that we couldn't do before, which will be fun.

Elizabeth Maora: 2:28

Excellent. And we have a very cool show for everybody today where we're talking about the current events, um, and kind of the implications of everything going on with unemployment and with the, um, the repo, not the repo market, excuse me, but the, um, the foreclosure market. Um, and so we just wanted to give a really encompassing show for, especially if you're a business owner and really more, I guess it's, especially for folks that aren't business owners, because we get to see a lot of things that are going on. Um, and you know, can kind of predict about what things we think are going to happen next because of current situations.

Justin Bogard: 3:07

Yeah. The situation, every time we do one of these episodes, it kinda changes. Right. Uh, so as we like to say, when we talk about current events, we are recording this in the middle of may. And so by the time this airs, it may be in June. And so the events might have changed or something different may have happened. So we're just going to focus on what we know as of today and Elizabeth start us off.

Elizabeth Maora: 3:31

Sure. So, and anybody out there that has employees or teammates knows that this is a very difficult time to try and find people. And I was just at a conference in Florida and it's resounding. So there were people from all over the us. And what's interesting is just the, the extent that we're going to, um, as far as monetarily wise, to recruit new people and then keep new people, one company who is actually doing, and this is in the vacation rental space, they're giving away a free car. Yes, there are. I mean, I'm, you know, I'm an owner, I have two businesses. I'm actually I'm in this house because I had to help clean it this morning. I've been looking for, for more cleaners for about six weeks now. Um, it is, it's crazy. Um, I'm just about to implement. So we have other cleaning companies that are, um, you know, my colleagues and other markets that they're doing. Sign-on bonuses, they're doing one month, two month, three month retention bonuses. And I'm not, I'm not talking 50 to a hundred dollars. Um, you know, and we're, at least for me, we're, we're already paying very well. And so, you know, one of the trickle downs of that is the consumer is always one that's going to pay. So what that means is that everything's going to be costing more, right? It's part, part of that inflation, um, from everything going on with the economy.

Justin Bogard: 5:01

Right. It's interesting. So the government obviously is trying to help subsidize some lost income from those who obviously deserve it and checks are being printed. And it appears that those checks being printed, that people are able to get is a little bit more than what they make at whether whether a traditional job is or was, and it does affect, like you said, Elizabeth prices at that point, because if a company is not able to find employees that are skilled to do specific tasks or labor, then they in turn have to raise their prices to accommodate for the fact that they have expenses that they have to shell out and so on. And so forth it is kind of a domino effect, isn't it?

Elizabeth Maora: 5:47

Absolutely. And you know, we've, we've been screaming for a while now about the increased prices in the real estate market, from plywood to electrical, to, to every aspect and what you're going to see now, especially with the gas prices that just went sky high, if they even had gas at the pumps, which was definitely more of an issue on the coast and it was I'm here in Indiana. No, but what that means is if it costs them more to deliver, you know, bottled water to CVS or wherever they're going, that bottled water price is gonna go up. So, you know, we haven't seen it quite, we've seen a little bit. Um, and I'm sorry, I can't quantify that more than saying a little bit, but you know, we've seen some increased prices in some commodity, some consumables, but I think that the inflation is going to hit that really, really quickly because it has to

Justin Bogard: 6:44

Elizabeth, do you think this is a short term, uh, challenge or problem for businesses and business owners, meaning, you know, is when the checks are they stopped coming in the stimulus checks stop coming through? Is it going to revert back to the way that it was, or do you think things will change or do you think this is going to be an ongoing problem?

Elizabeth Maora: 7:06

Just from all, all indications from the economy? I would say that we're just starting to see inflation. So I think it's going to be a continued issue for a while. I think prices are still gonna, I think prices for everything is going to skyrocket. Um, I hope I'm wrong. Um, you know, I was, my conference was in Florida and there I was in, um, I was in Miramar beach and what was interesting was normally their season doesn't start until the end of may. They have been in peak season since the beginning of may. And you might think, oh, well, you know, basically that's a month, but that's a huge deal. As far as having all your employees ramped up, even the transportation guy, um, I stayed at a resort and they take you to the beach and wherever you want to go. Um, and he said, if this is a huge problem, because we need bigger buses, but we weren't budgeted for the bigger buses until the end of the month.

Justin Bogard: 8:00

Yeah. It makes total sense that it catches you off guard by surprise because you're not expecting it. If you didn't have the last five years of an issue and in may then, or March or whatever, then you wouldn't staff for it. Right. Because it doesn't make sense to overstaff for it. Cause you can't afford that the business can't bleed the money. So it is a fine balance and they, I'm sure they adjust the best that they can,

Elizabeth Maora: 8:21

You know, and it kind of Justin, it's a really good point that just to our last episode, episode 11, where we had Morgan from cultivate advisors and their focus, right. It's on the financials. So let's make sure we have that cashflow, you know, and especially since we're, you know, we're still in very unchartered waters, you know, with everything going on. So, um, you know, if, if I could have done, I mean, I've been hiring people all year actually, but man, if I could have had even some extra people in January before I needed them, that would be a huge help for me right now. And you know, we're at the end of may. Yeah.

Justin Bogard: 8:57

That's a great point, Elizabeth. And those that had businesses, I think in survived and thrive through the financial crisis of oh nine, they probably understood, you know, they needed to get a good cashflow coming in monthly so they could sustain some of these hips and valleys that we go through as business owners, uh, seasonally, or if it's just in, you know, in the cycle of the industry that they're in to where you, you find those low points and so how to recover from that. And so a lot of lessons were learned then, but a lot of us didn't go through that as business owners. So we didn't experience with this. So now we're experiencing these same similar challenges. I wouldn't say same, but similar challenges to where you, you have to understand your cashflow. You really have to focus on your numbers, wheat Elizabeth, you and I both harp on numbers a whole lot. And you have to understand the numbers of your business. You can't just, you know, make invoices and figure out I have income. I have expenses. Okay, great. That equals out to this, but you have to fine tune that. Right? You have to figure out what it is that I can sustain some sort of two or three month, uh, loss or some, or, you know, stagnant period to where I didn't have the correct income coming in. But I had reserves to handle, to keep my staff going to move them to different projects and, and this, that, and the other. So it is a challenging time,

Elizabeth Maora: 10:23

You know, and part of that too, right. Which is what we deal a lot with also in the, in the actual investing in the real estate is, you know, am I going to take on debt? What type of debt do I want to take on a partner with that instead? Um, you know, there's a lot of, there's so many things and we can be so creative in the real estate world, uh, which, you know, it's such a great world to play in as long as we know our numbers.

Justin Bogard: 10:48

Yeah. I like how you use the word creative. You're exactly right. Being in the real estate world, being an investor in what real estate pot that you're in, you get to be creative and you'd have to be creative too, in order to survive or to be a little bit better than your competition or give you an edge up or sustain longterm cashflow because there are no real rules, hard and fast rules to run a business in real estate. It's just, you have to figure out how to get, if you want to take on debt, like you mentioned, which was a great lead into that. And if you don't want to take on debt, if you just want to build up cash flow and reserves, uh, so it, there's no wrong answer. It's just your business and your situation and your town or city or the geographic area that you invest or build your business around are going to be specific to you. And unfortunately there's no handbook for it.

Elizabeth Maora: 11:40

That's right.

Justin Bogard: 11:42

Yeah. So if you're an engineer and you need checklists, this isn't for you, it's not going to happen that way. It's going to be a fail forward, as I say, right.

Elizabeth Maora: 11:52

A lot of, a lot of flexibility and speaking of which, and just kind of, you know, our in our talk on, okay, what's going on in, in the economy. Justin, can you talk to us about what's going on with the, um, here in Indiana specifically? Um, what do you call that? Oh my gosh.

Justin Bogard: 12:14

And you're thinking of the F word. Yes. Thank you. That was your little hints for foreclosure forbearances foreclosures. Reverences uh, so the mortgage industry update, we talk about this when we do our monthly free broadcasts that we do on the second Wednesday of the month on our YouTube channel. And it has been since July of last year as well, we reached our worst, uh, national mortgage delinquency rate, which is about 7.7, 5% delinquency. And we had a lot of forbearances started in March of 2020 and April, 2020 and may of 2020. And a lot of those have reached their 12 to 15 month marker as to which they've been in forbearance. Now, stepping back, talking about the mortgage delinquency, we noticed since July, August, September, October, November, December, January, February, March, April, and then now may we noticed the delinquency rate did start inching down quite a bit. And last month, interestingly enough, it made its largest jumped down. It went from about a little bit over 6% to about 5.02% national delinquency rate. So it tells us that things are cooling down as far as the forbearance, um, that's coming around and also the delinquency rate. So mortgages are being paid back. We've talked about this a few times in past episodes where all these reifies in the real estate, boom prices have really helped this delinquency problem to where it's not as much of a problem as what it appeared to be or appear to be coming down back when we were doing episodes in March and April of last year in 2020, excuse me. So these refiles are allowing people to escape some of this debt because their, their equity has grown quite a bit in 2020 because of the appreciation of real estate has been so big. And the fact that housing has been so short. So when someone comes out and looks at their house, they realize, oh, you really have an extra$25,000 of appraised value on top of what it was last year. So when they get behind their payments, they can escape out of it and they can refi into probably a lower payment. So a lot of these forbearances Elizabeth, probably 55 to 60% of them. They're becoming, re-performing, they're getting out of their forbearance and they're becoming re-performing by either getting paid off because they got new loan or a different loan, or they become re-performing because they can start repaying it again, because maybe they restructure their debt, they restructure their mortgage. Um, and so let's, let's be a little clear about who qualifies for the forbearance. So I'm not sure if we've talked about this in too much detail, but if there was a mortgage document that was written by, you know, Fannie Mae, Freddie Mac, a F H a F H a VA, those types of government loans and federal, um, you know, conventional and type of loans, those loans are the ones that qualify for a forbearance. If they meet the certain criteria, uh, based on the government guidelines work, the loans that we typically invest in are going to be more like the seller financing loans to where it wasn't a big institution or, uh, or written on government paper like Fannie and Freddie. For example, those loans don't fall into that category because they're not government sponsored enterprise type of loans, GSEs. So those seller finance loans like Elizabeth, if you sell our finance your property to me, and you carried back the note, you would be the seller financing. So you may have done an LLC. Maybe you've done a lot of them, but you wouldn't be considered, uh, a big, uh, corporation that does that. So that's the type of loans that we're talking about that didn't, uh, weren't able to get this forbearance program and they can go into forbearance if the lender allows it, but they weren't, uh, they didn't get the, the, the ability to go do it because the government said so, right. So counties are not, are, are stuck in a moratorium, a moratorium where they're not allowed to foreclose, I believe until now, till September for those mortgages. All right, we got a piece of the pie that's here and we've got a piece of the pie that's here. So the seller finance mortgage is even before COVID or during COVID, they could go through foreclosure process, the stop gate to that. If the county would allow them to foreclose. So now you're seeing some of the county's opening up the doors a little bit and allowing those foreclosures to happen. So we're starting to see an uptick of foreclosures happening. So right now, Indiana, from the month of February to the month of March, it went up 26% and foreclosure starts, which is one of the states set up as higher up on the list of all the 50 some states. So that's telling us that we're starting to reach closer to the end of this, uh, of this COVID pandemic forbearance issue. And, and at some point the flood gates are going to be open. And right now it looks like in September, now it doesn't look like the 9 million people that were in forbearance. There's going to be 9 million, you know, foreclosed loans on, because like I said before, 55 to 60% of them were just becoming re-performing. And another chunk of them are probably going to go through loss mitigation and start to get reworked again. And there'll be a chunk left over Elizabeth. That'll probably go through the foreclosure process, whether that's, you know, a million, 2 million, 500,000, we don't know what that's going to look like yet, but when it does happen, we're going to see a different environment to go after and invest in. So I hope that explanation kind of cleared up kind of where we're at today and what's going on. So we know that the moratorium is kind of stretched all the way to September, I believe. And those forbearances that make it that far. Uh, they have the option at the end, right? They're either need to start paying again, or they're probably going to start the foreclosure.

Elizabeth Maora: 18:20

So forbearance that's pre foreclosure. And does that mean they still have the opportunity to pay back or to,

Justin Bogard: 18:29

Yeah, so the forbearance is just take saying, you know, I'm not able to make these payments today. Can I take those payments and maybe a stretch of them in the future and those six to eight of them and throw them on the back of the loan. They have to repay that debt, right? They can't give it away. They have to repay that debt, but they just move it from today to sometime in the future. So they don't, they don't get behind right. This called a forbearance. So it's like they put a pause on making their mortgage payments. So essentially they get a live in their house and not make a mortgage payment. And they're just penalized by just paying it on the back end. Now they are accruing interest in this process, but it does help the borrower in the short term to get over some hips and valleys, as I said.

Elizabeth Maora: 19:16

Excellent. Thank you for the explanation. What's kind of, so you said we're at 26%,

Justin Bogard: 19:23

So yeah, the Indiana has gone up from month to month from, uh, February to March, about 26% are, are 26% and foreclosure starts. I want to be specific about that stat

Elizabeth Maora: 19:35

and when you say for closure starts, what, what does that mean?

Justin Bogard: 19:41

It means starting the process of allowing the foreclosure to go through like a Sheriff's sale. Like we have in Marion county, Indianapolis is Marion county and they call it a sheriff sale to where the bank has gone through the process of foreclosure they've, they've filed their judgment. They've gone through the legal process and now they're ready to have a sale slated. They become an REO or someone can bid on it in the process.

Elizabeth Maora: 20:09

And what's so pre COVID, right? So like just in vacation rentals. So we're measuring everything from 2019 to 2021. Um, what's what was the average, um, for, or excuse me for closure starts per month.

Justin Bogard: 20:25

That's a great question. And I want to be specific about that stat again, it just meant whatever, if there was 2000, uh, if there was a hundred foreclosure starts in February, I means there's like, let's just use some easy math, like 126 foreclosure starts in March. Right? It's just, the number is just saying, we're starting to see more foreclosures happen. The actual finite number specific to Indiana or specific to the country, as you know, I think is a few thousand, let's just say over the cross of the country. So Indiana may, may be out of, it's really a low number, 20, 30, 40, 50, you know, maybe starts have, have been, have been happening. So I just want to be clear about that number in that stat. I don't want to confuse and say like 26% of things are going through foreclosure. No, it's just, it's an uptick. Meaning we've allowed more foreclosures to happen because the counties are being a little bit, uh, they're they're able to go through the process and not w with the COVID restrictions being light, starting to lift.

Elizabeth Maora: 21:27

Okay, great. Thank you for that. And in talking about inflation and every, just kind of everything that is going on with the economy, you know, there, there are a lot of experts obviously talking about, you know, inflation and things and, you know, and what they say is that cash, you know, actually having cash on hand, which again, we are not, um, we're not lawyers, we're not CPAs, you know, we're, we're just here to advance investing the right way, uh, running your numbers and, you know, um, but when, so they say, you know, cash is one of the worst things to have on hand because it's becoming devalued all the time. So we can do is by appreciating assets, right? So you're looking at real estate, silver, gold, uh, you know, things like that. So just be thinking about that as you're watching, you know, everything that is going on, and how are you going to position yourself, your family, to make sure that you meet those goals that you have.

Justin Bogard: 22:25

That's a great point, Elizabeth. And you're right. If you're holding a lump sum of money, because you're, you're on the sidelines waiting for something to happen. So you can jump on opportunity. I totally get that. And it logically makes sense. But the adverse effect to that is exactly what you said. It's, it's inflation. It's like that money is going to be eating a hole in your pocket and it's going to be losing its value. So what you could have bought six months ago with it, versus what you bought today with it is going to be a little bit lower, lower valued. What's the say an asset it's not going to not going to be worth as much, but if you had bought an asset with it, like you talked about gold, silver, real estate, real property, six months before, and it's obviously appreciate a lot more in value. It just, it, it increased your value of your wealth quite a bit, and you didn't do anything. You let the economy or the appreciating asset do that for you. So you're exactly right, Elizabeth, thanks for bringing that up.

Elizabeth Maora: 23:19

Yeah, you're welcome. One of the things that's really coming up as well and just different conversations I'm having and, you know, we've, we've talked before that. I became a prepper last year. Um, it was just the fact of being self-sustainable. So, you know, what can you grow? What kind of vegetables, fruits can you grow? You know, anything that you can learn to do yourself is going to be really important moving forward, especially, um, you know, whether it's one thing, if you're into alternative health or health, excuse me, if you're into hunting, you know, just having a lot of skills, if you can, can, if you know how to prepare food, those are all just really important. Those are assets, you know, that we don't really think about as, as assets, but they are. Um, so think about just the investing that you can do in yourself. And then, you know, maybe in friends and family members, especially family members that have different interests in those areas.

Justin Bogard: 24:12

Absolutely. And those of you that are listening, don't forget that we're also streaming a video cast of this episode, episode number 12 of season three of the 2 wealth show on the bright path notes, YouTube channel, and Elizabeth Maora's YouTube channel as well. And, uh, Elizabeth, do you have any closing thoughts for today? I know we're getting short on time already. See, it seems like went by pretty quick.

Elizabeth Maora: 24:32

It did, uh, just keep your head above water, make sure you know what's going on so that you can plan accordingly.

Justin Bogard: 24:39

Absolutely. Well said my friend. All right. I'm Justin Bogard with bright path notes.

Elizabeth Maora: 24:43

I'm Elizabeth with Elizabeth Maora.

Justin Bogard: 24:45

All right. Thanks for watching episode 12, listen to episode 12 until next time guys. See ya. Thank you The 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.