Be The Bank

015 - Inflation and Delinquency in a Post Covid Era

July 28, 2021 Justin Bogard & Super E Season 3 Episode 15
Be The Bank
015 - Inflation and Delinquency in a Post Covid Era
Show Notes Transcript

2 Wealth Show S3 Ep15 – Inflation and Delinquency in a Post Covid Era

 Super E and Justin talk about current economics including inflation and delinquency rates and provide an update on forbearance post Covid.

 Key Takeaways:  

  1. A Trip to a Pig Show!
  2. You don't know what you don't know.
  3. Inflation is Rising, Delinquency rates are going down.

 Resources and links discussed  

 
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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 
Justin Bogard:

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 was sponsored by BrightPath notes and Elizabeth Maora. You can find out more information by visiting our websites at brightpathnotes.com and elizabethmaora.com. Well, hello everyone. Welcome to episode number 15, and I'm Justin Bogard of the 2 Wealth Show

Elizabeth Sickes:

And I'm Elizabeth Sickles.

Justin Bogard:

Elizabeth, you are obviously not in your office right now.

Elizabeth Sickes:

I am not. It is 4H fair time and my nephew showed pigs today. So

Justin Bogard:

It showed P okay, cool. So what's that like?

Elizabeth Sickes:

Um, well, they did not have, which we do this. They did not have, um, championship pigs by any means. So my one nephew placed four, four out of six and another one placed fifth out the sixth.

Justin Bogard:

Okay. So I assume that they have these pigs on their farm at home and they like raise them and then the judges have some sort of criteria and they, they judge the pig on it, right?

Elizabeth Sickes:

That's correct. Yes. There's also showmanship involved. So how does the kid interact with the animal? And yes, there's a lot, a lot to it.

Justin Bogard:

Very cool. I've never been to a four H show like that before, but definitely heard a lot of people talk about it. And it sounds fun because everyone has a different animal, I guess, that they show and they do some more things to it. Or is it just like pig category and like cow and,

Elizabeth Sickes:

Oh, there's all, all kinds. Especially with cattle, you've got steers and heifers and Jersey, and then you have the different breeds and so much more complicated than just cows or pigs. Okay.

Justin Bogard:

See that that's my ignorance. I don't, I don't know enough about it talk intelligently,

Elizabeth Sickes:

So, and yeah, and it ties in with real estate because we have the farm prices that continue to increase. Right. God's not making any more land. And with, um, with farming now we've got droughts in a couple of different states. So some of the commodity prices, the commodity prices are all, all over the board right now. Um, but I expect those to go up if the droughts continue.

Justin Bogard:

Okay. Well, well we're from Indianapolis. We've been fortunate enough to have a pretty wet July so far. So it looks like the crops where I live in our area. Everything's nice and green and tall and, and looks really healthy, uh, versus, you know, last year I think it was Indianapolis we had pretty dry, pretty dry weather, pretty dry a week. A couple of weeks spans to where I think some of our crops, uh, had to be receded a couple of times during the course of last year. Yes, we're in a much better position this year. So what, uh, let's start off the conversation today and talk about, um, inflation. It is rising. So

Elizabeth Sickes:

This just came out last week. We've got the largest inflation and oh, I forget how many years now. Um, but overall inflation that 5%, um, which what that means is our money. Doesn't go as far as what, what we're used to going. Um, so an example that even if we're not even if you're not into doing real estate yet, if you're looking at real estate, I got noticed when I logged into Amazon the other day that some of our products, one of the smoke detectors combo, carbon monoxide detectors that we use went up 26% of another product, went up 25%. We had one product that we use a lot that decreased in price, and that was a 1% decrease in price, but everything else was increased.

Justin Bogard:

Okay. So not that you're an economist or I'm an economist, but what do you think caused the rise of inflation to be not just, you know, we've heard about lumber and we've heard about obviously real estate appreciating. Um, so these other, what say ancillary things that are happening that are commodities that we get for, especially, let's talk about your business, the cleaning business, and then the short-term rental management business. Um, there are a lot of little small house items that you need to get. Um, I'm assuming on a daily basis for the properties that you manage. So is it just, is it just you think because, uh, we have, uh, an employment issue as far as we don't have a lot of workers that are accepting jobs right now.

Elizabeth Sickes:

I think it's the combo of printing money because money's not free. And then also the fact that we have to, excuse me, continue to raise prices, because I think what maybe people don't understand is when prices, if people aren't working, we have to have somebody to work and to incentivize them to work the pain more. So, um, so I actually, I've had to raise cleaning rates because I'm, I've, I've been struggling finding people that want to work.

Justin Bogard:

And then if you do find somebody to work to, um, continue on with what you started with is that you have to give them such a, a high benefit, meaning their, their, uh, hourly wages to incentivize them to choose you over maybe a different place to be their employment. Right.

Elizabeth Sickes:

That's correct. And even like tomorrow, I'm introducing, I already do bonuses tomorrow. I'm doing introducing another incentive plan, um, for the cleaning team. So, and what that means is it it's if it costs me or if it costs me money as a business owner that that gets passed right on to the consumer, right. For anything it's always a consideration paying for it.

Justin Bogard:

Right. Cause the, the business owner couldn't sustain, um, to pay their employees much more and not be able to raise their prices, otherwise they would start to become an, a negative cashflow or, you know, their financials would be in the negative numbers and then they would go out of business. Right. So it kind of makes sense. So there's, there's a lot of interesting dynamics going on with the, uh, the, we'll say the national economy as it relates to, uh, unemployment and unemployment benefits right now. So I believe Elizabeth, unless it's changed, I believe September timeframe is, is when these unemployment, um, checks I believe are going to stop coming through because of the COVID-19 related issues in 2020. Is that your understanding as well? Yes.

Elizabeth Sickes:

Yeah. Right. Yeah. I think folks voting in continuing this unemployment, they do not run businesses. They're not trying to find employees.

Justin Bogard:

Yeah. It's, it's difficult on both sides, cause I'm sure there's people that desperately need that money and they just have a hardship or a situation that was just unavoidable. And those are the folks that obviously deserve to get the money and should be first in line. And then there's folks that could choose to do something to benefit their families. But, you know, they, they chose to go down a different path, which, you know, I guess at the end of the day, if someone can make X amount of dollars per week and not do anything and make a little bit lower than what that X number is and work full-time during the week. I mean, I can see that decision, uh, going very easily in one direction. Uh, you know, if one were in that position. So it's just an interesting dynamic, uh, that, that we're in right now. And like you said, I, I agree. I hope it does end soon. And it seems like I don't know of any business not looking for help right now. So I got us, I got to imagine our job growth is going to skyrocket once the checks stop being printed for unemployment. I, I hope so.

Elizabeth Sickes:

Um, and you can go to any state. I was just in Florida, every, every place you have out has, um, you know, help wanted hiring now. And, you know, I mean even, um, like the pizza hut where my ups boxes, they're paying 17 to$20 an hour. I mean, that's for delivery. That's, that's crazy. Not including tip.

Justin Bogard:

It's interesting. I know we're kind of getting off real estate subject temporarily here, but I think it'll be interesting to note that those, that chose to get a job as opposed to not taking unemployment. Um, if they got a higher salary because they chose to get an employment today versus employment in the future, those that try to get employment in the future after the checks go through, do you think they're going to get wages that are as high as the people that chose to get the employment during this, uh, economic time, and then will they be grandfathered in the ones that did like, it's going to be interesting and then there's, there's going to possibly be some resentment. So I can see some, some of this kind of, um, dovetailing into, uh, just a very interesting dynamic going into the future for employment

Elizabeth Sickes:

And you know, it, all, everything works together, right? So how this ties into real estate is when you go to Lowe's and if they've got the help wanted sign out there, they're going to have to raise prices to get more people to work there, which raises our costs, you know, to do whatever we're doing in real estate.

Justin Bogard:

Yeah. So I think we can both agree. It's just an interesting dynamic. And unfortunately we don't have a crystal ball to see what's going to happen. So one thing we can do is absorb as much cost as we can stand. And then obviously you have to pass along some of that, right. That increased, uh, in your material costs or your, you know, and then for your services as well. So I totally get it. I totally hit it. It's very interesting. Yeah. Switch switching gears on a, on a slightly different topic, we wanted to give an update on kind of how the forbearances and the mortgage industry is looking right now. And the national delinquency rate, Elizabeth has actually back down to under 5%, which is a very strong indicator that things are getting back to normal. Uh, we still have a lot of seriously delinquent loans because the forbearances that were entered in about 18 months ago still haven't expired yet. So we're, we're yet to see everybody go through the forbearance, uh, moratoria moratorium to see what is actually going to be delinquent loan volume versus, uh, performing loan volume. And as we got into COVID and the total forbearance is, is you can argue it's in between eight to 9 million, that folks that were able to take advantage of the forbearance of rules. Let's just say for those mortgages that are, you know, FHA VA, Fannie Mae, Freddie Mac, Jenny may, you know, the big portfolio loans, the, the big securities from the big banks, uh, all those loans is let's just call it about 60 million of those. Um, that's the data that we're looking at, and there's a whole other set of data, Elizabeth, and we'll say another 50 to 60 million that is just, um, you know, not part of that data set because it's more of these mom and pop sellers. I'm just throwing that number out there. I, I could be way off, but it's just a set number. We can call it, you know, 10 million, 20 million w what have you we'll call that kind of shadow inventory, because we don't know how to track that as well, because it's not regulated through the normal bodies. You know, like government sponsored loans, that's easier to track. So what we've seen Elizabeth in that data set of the eight to 9 million for parents is we seen about 64% of those come out of forbearance in a positive direction, meaning the loan got paid off, or it got Reaper forming at some point. So the whole, and we've harped on this a lot, the home appreciation factor from, uh, to end of 2019, all the way through 2020 to 2021 has, has saved a lot of people from being underwater, potentially underwater on their mortgage. So those that saw themselves not being able to pay their mortgage, they could simply go out and refinance, right, with a lower rate possibly, and they'll get the debt paid off because their home appreciation went up a lot in value. So they had that, what we call tappable equity. So that's how a lot of these, so 18% of that data set that I talked about, the eight to 9 million got paid off early, because basically they're able to sell their house for a heck of a lot more than what they have into it, even if they were behind on payments, they're still not really underwater because they, they got so much equity in from this rise of home price appreciation, which is, which is pretty neat. So it's a completely opposite scenario of what happened in 2009, 2010, where real estate dropped out of the market. And then everyone's mortgage pretty much went underwater, uh, you know, kind of overnight that was, that had very little skin in the game, meaning like maybe they had 5% equity, 10% equity in their house. So it's just really interesting right now. So it's a very positive sign going forward that a lot of these forbearances are going to come out and just be Reaper forming, or they're going to be paid off or some way shape or form in a positive direction. Now there is going to be a sliver of that. We'll, let's call it, you know, 600,000 to a million. That'll probably be delinquent. And it may not be able to go through loss mitigation and get caught back up or, or be re-performing, or have some sort of, um, uh, you know, extended forbearance on those loans. So that data set will be interesting. And that'll, that'll flush a new way of, of non-performing loans through pipeline. Now, what's also interesting to note and we'll find out here in the future is if the non-performing inventory, is it all going to flush at once, or is it going to be a steady stream of non-performing loans that go through this process through foreclosure throughout the next 18 to 24 months? That'll, that'll be interesting to see, I think it will be the latter of the two. Well, it'll be a slower stream as opposed to hitting it all at once, because from what I'm hearing on our side of things, and then, you know, our guests, uh, Alex Goldovsky that we interviewed a few episodes ago, you know, he confirmed that a lot of these big banks are trading some of their paper because they're not able to handle all the loss mitigation that they want to with their, with their mortgages that they are servicing. And so that would make sense to me that they're trying to piece that off. And, and everyone realizes it's really best to work with the borrower and try to figure out how to get them to re perform as opposed to just going straight to foreclosure because there's, you know, time and there's money involved. And then there's just, um, you don't want to hold that mortgage if it's delinquent, if you don't have to, unless you're investing in it on purpose.

Elizabeth Sickes:

That's very interesting. Yeah. And just how different it is Justin from 2008, 2009, because I was in Detroit at that time. So we really got hit hard because automotive took a huge tank. You know, they had a, a huge bailout, um, and I'll never forget a conversation I had with my neighbor saying, there's no way I would invest in real estate. And I mean, that was, that was the best time to invest in real estate.

Justin Bogard:

It's funny, it's funny what you don't know when you're ignorant to a subject matter. It's so funny. Like when we were talking about how, you know, I was ignorant to the 4H process and I, I have no idea what, what goes on how much passion you can have into it and how fun and neat it is. And same thing, like, like you ran to in real estate. And I would, I would've thought the same thing when I was going through 2008, 2009 is, I don't know why would I, why would anybody get in real estate? But you don't know what you don't know. And then once you know what you didn't know, then your whole world can change and you can, uh, you can benefit from any economic cycle and any economic time and especially being a real estate, everything is cyclical. And so just because you don't want to be a one, one stop or one trick pony, I should say. And so, especially in the note space, there's a lot of different ways that you can, you can adapt and adjust and invest in notes, just like in traditional real estate, you know, outside of the note business too. It's just so interesting. And it's so fun to see the opportunities that you can. Number one, obviously you and I both agree. We want to help somebody out, right. How cool is it to help somebody out, especially the one that lives in the house or the investor that's investing in the property to benefit somebody else? You know, like short-term vacation rentals. I mean, those are obviously the biggest boom right now and correct me if I'm wrong is the vacation rental, because everybody's just wanting to escape from their, their confined space that they've been in for, you know, a year. Um, and, and I'm one of the customers as well. I mean, we, as soon as we could, and then school was out, we just, we went right to a vacation rental and, and, you know, had our time at the beach and stuff. And, and we're doing a couple more over the summer, uh, this year as well. So

Elizabeth Sickes:

That's great. And I'll tell you our, um, gross, nightly, this includes cleaning, but from just on one of the platforms that we're on from January to this month, we are doing, um, over three times what we did in January, holy cow, this, this is going to be our best month ever. Um, so people want to come to Indy. Yeah,

Justin Bogard:

Well, the law of averages kinda will play into this, right? Because we had kind of an, uh, vacation rental drought, we should say for an extended period of time. And I don't recall exactly what a month timeframe that was the drought, you know, your business and where you're at versus other people's business and where they're at, but you've got to, we're making up for lost time. Right. So hopefully we'll get back to what normal is to where, you know, what you saw in losses and was a scary times is gonna be, is going to be made up for now because you held things together and you, and you survived and you got through some rough times, uh, and, and folks like you, um, you know, so it's really cool to see that. So I really believe in the law of averages, just like in the financial crisis of 2009, 2008, you know, real estate prices drop, but you'd be a fool if you didn't know that real estate prices were going to eventually go back up. Right. And so that's just, you know, life has shown us that real estate is always going to appreciate, you know, two, three, 4%, you know, year over year. Uh, even though some years may be 25% and some years may be negative 10%. Everything's going to average out in the long span of things, just like the stock market in general, you know, it's all you're going to have severe ups and severe downs, but then that steady curve, a steady graph is just going to show you that linear line going, you know, whatever that return is, let's just say a five, 6% return.

Elizabeth Sickes:

And, you know, if for our listeners and our viewers that, you know, maybe you like the mainstream media and, you know, hear all these fear stories all the time and how everything's, you know, going to heck in a hand basket, but it's always important to remember that there's always opportunity. So when you know what's going on and, you know, what's behind it, just like Justin sharing the forbearance and where we are with that, you can plan for it and you can invest so that you can make whatever goals you need to make, or there's always always opportunity. Right.

Justin Bogard:

So, Elizabeth, I'm kind of, kind of switching topics for maybe the last part of our conversation here. So you were talking to me offline about, uh, sheds and I kind of want you to get into how we started this conversation if you don't mind.

Elizabeth Sickes:

Sure. So I was at a conference last month in Tennessee, and one of the other attendees is from Louisiana and what they're doing down there, because rents, you know, they do, they actually have workers down there. Um, but rents have gone up so high and they don't have enough housing that they are using sheds. So if you think about Menards or Lowe's the tool shed, not even tool sheds, just the garden sheds that you see outside they're, um, making those little efficiency. So they'll put in a little kitchen and then a bed and they're renting those out. So they're doing these whole little communities on the outskirts of towns. Um, so it's a great opportunity for real estate investors, whether you want to be the landlord, if you want to finance one, you know, if you want to be the note holder, you know, with Justin's business or even if you want a short term rental them as well, but that's, uh, that's something going on, at least in Louisiana.

Justin Bogard:

That's, that's pretty interesting. It, when you say that, mainly obviously I think of the tiny houses and like, I think they had an HGTV show about tiny houses and how people would turn, you know, smaller buildings into, um, you know, their dwelling place. I imagine the sheds probably going to be a little bit tighter space, but, um, you know, it's almost, I picture it almost the size of like a college dorm, you know, so where maybe the ceilings are going to be taller than, than normal because you know, a sheds volted. Right. And I can see, I can see these being pretty, pretty interesting. So, um, I want to look this up after we get off of our recording here and just see what some of these are cause, um, you know, it's, it's just interesting how somebody who's creative enough to figure out how to make that space a livable space. And then someone's always going to be creative enough to figure out how to monetize on that space or to make a business out of it.

Elizabeth Sickes:

That's right. And you know, if you think about it, it's quick housing, it's inexpensive, you know, it's, I think it's a great idea. So, especially for, you know, and I don't know what type of price point they're using, but you have people that need price points at high and low. So why not fill that void?

Justin Bogard:

Right. And you can imagine a typical parcel or typical lot is usually, you know, a rectangle size, let's say like one 20 by 80. And so you might be able to fit three or four of these on like one parcel. If you wanted to, if you had a cluster of land and you would make, like you said, a community out of it, and you can have like, you know, an a and B apartment or B and C or what have you, and you could get a lot of, uh, people to fit in there. If you, if that's the album you wanted to go down, or you can buy a piece of land, have more land with a smaller house footprint, three, have more yard space as well. So it's really, that's really interesting. So I'll have to look into that a little bit more, but, uh, you know, it sounds like a cool thing that if you could put it on a trailer and pull it behind your vehicle, it could be like, you know, um, a different version of a camper, if you will. Exactly.

Elizabeth Sickes:

Yeah. You got to love the U.S. Right. We can make anything happen. Yeah. Right.

Justin Bogard:

Well, Elizabeth, do you have any closing thoughts for today's episode number 15?

Elizabeth Sickes:

No, I think it's just ending on the sheds. Um, you know, just always keeping an open mind. It might be sitting in the parking lot.

Justin Bogard:

That's right. So the next time you drive by a shed for our listener here, um, think about if somebody has actually got their kitchenette in there and their bed in there. So

Elizabeth Sickes:

That's true.

Justin Bogard:

Great place to, to, to put like a guest house for your, you know, your student that goes off to college. So when they come back, like got like their own space, they can mess up. Right. That's what I'm thinking of right now, since your teenagers out there, right? Yeah. You go out there and mess that place up. Don't come in our house anymore. All right, Elizabeth. Um, I'm Justin Bogard for the listener, uh, with BrightPath notes, don't forget to check out our YouTube pages or I'm sorry, a YouTube channels, the bright path notes, YouTube channel, and Elizabeth May, or his YouTube channel as well to catch the video stream of this podcast that we're doing right now. So Elizabeth, as my mentor would say, I'm out of soap.

Elizabeth Sickes:

All right. Well, thanks everybody. We will see you or a chat with you the next time. Bye. Bye

Justin Bogard:

To wealth show is produced by Justin Bogard and super eek sponsored by Bryghtpath notes and Elizabeth Maehara. Thanks for listening and watching for our show.