Covid-19 for Real Esate: Impacts, opportunties, and America with Bruce and Aaron Norris #688

This week’s radio show and video guests today and for the next few weeks are The Norris Group’s very own Bruce and Aaron Norris.  Some of their VIP subscribers are with them today as they tape the radio show. They will be giving us an update on what is happening in the world with COVID-19 as well as answering their subscribers’ questions.  See below for full video and resources.   

Episode Highlights

• What should we expect over the next two months, and what are businesses doing to help?
• What was some good advice Bruce gave to different groups of people during this time to help each other out?
• Are there still opportunities during this time?
• Could the cost of packages result in more taxes?
• Would the government stop Section 8 for any reason?
• Where can you find resources for landlords as well as resources posted by The Norris Group?
• Will the Norris Group still be lending, and has it changed?

Episode Notes

One of the reasons we’re doing this early – a few reasons. We actually do put this up on the radio show. For those of you listening to this later on, it’s a visual presentation. So if you go to our blog, thenorrisgoup.com/blog, you’ll be able to find the video there or the YouTube channel. So there are some visuals today if you’re just listening. You might want to check that out. Also doing it a little earlier, hopefully you won’t experience as much Internet traffic. So that’s one of the things we have to consider. But know that we are recording this on our side. And thank you for being here today. For those of you VIP subscribers and borrowers on the line, you’ll be able to ask questions later on. We’ll get to you.

It’s obvious every day that we walk around in our life now that things are different. And sometimes that’s concerning, and that’s why Bruce wanted to talk about what we’re going through together and what our industry is going through and maybe the likely outcome. Yesterday he was in a drug store once again reminded that things were different. He had to go get something. And when he went in line, there was square X’s on the floor six feet apart. When he got to pay, there was like a plastic sheet, a little hole for the person’s face and hands to go through. Every time you do something, you get reminded that, yeah, these are different times. Maybe we’ve never had a time like this in our lifetimes. So what do we do? So first thing to do is remember who we are collectively. After 9/11 happened, Bruce had a really unique experience. He went to an Angels baseball game, and forty-five thousand people were there. National Anthem always starts the game, typically forty-five thousand people stand. The singer sings, and that’s the end of that. Well, needing no prompting, 45,000 people stood and sang the national anthem, many with their hand over their heart. And it dawned on him. Collectively, we get it, we don’t have any differences today. We’re just Americans. And that’s the cool thing about America and Americans, is that we can show up with our best game when we need it. And we need it, and he expects that that’s exactly what we’ll do this time.

There was an event in Boston, the Boston Marathon. In 2013, there were two bombs that went off 12 seconds apart, killed three people, injured hundreds. The natural reaction would be to think, “Well, next year there’s going to be a remembrance of that. And a lot less people will show up.” And guess what? That is not what happened. Over 30 percent more people showed up basically saying, you can kiss my butt. We’re going to run anyway. And that’s who we are. So that’s who we are as a group. When you get discouraged, you have to remember who you are capable of being on your best day. Bruce really respects Jim Rohn, and he changed his life. In 1981, he attended a seminar, went home that night, and wrote goals, and he wrote goals that were so far away from where he was in so many categories. But that’s what you do. You write things that you’re determined to be. He wanted to be a millionaire. He wanted to own a business. He wanted to speak in public without discomfort.

He wanted to be a black belt. Of all the things he wrote, that one seems the most remote, and he’s not sure exactly why, but that was too big. The next year he was after all of the other goals and he would attain all those, but he crossed out being a black belt. When his first wife died, Marsha. he was sort of casually training, and he got serious, and he trained twice a day for several years. And then one day he got asked to test for a black belt. And that same old fear came over him like, Wow, that’s incongruent with the picture I have in my head of myself.” His sensei who fought in the ring many times, very brave young man, knew hewas having trouble with it, and he gave Bruce a book called The Mind Gym. He didn’t have to read the whole book because he read an important line. It said, “When an athlete is afraid, they play small.” He really got irritated at himself and thought, “You know what? On that night, the only thing I want to do is leave the karate dojo with pride,” that he gave it everything I had. That’s all he wanted to do.

The way the test works is you have two hours of basically the hardest thing you’ll ever do and you’re fighting multiple people that have very, very high skill. And there’s your peers, people that have been there for years, some of them have eighth-degree black belts, there watching you, and they’re the ones that decide if they let you be one of them. On his best night, they said yes. That’s the best day he ever had as an athlete. You have that inside of you as well. So don’t play small right now. Find the best you. Bring it forth every day for the next several months. We can get through this.

He listened to a guy on YouTube. It’s called valuetainment. He’s got some great content, but one of the most important things that he said – he has a business where he has over a thousand employees, and he really hires a lot of immigrants. He said, “They have a chip. They have something to prove.” Bruce really related to that. In 2008, he was speaking in front of a group of about 400 people. There was somebody that came up and he was really well-meaning. He’s an employee of a very large company in a very high position. And he had entered the business of buying houses and all that. And at the end of their short conversation, he said, “I really feel sorry for you.” Bruce said, “Why is that?” He said, “Well, because of the size of your competitors, there’s no way your business is going to survive.” Bruce asked him for a pen. On his business card he had handed Bruce, he wrote 951-780-5856, the Norris Group phone number, and he said, “I’m going to give you back your card.” He said, “Call me in five years. I guarantee you I will pick up the phone.” That was 12 years ago. They’re still picking up the phone.

Last week, big buyers pulled out of the real estate market, not buying houses. Individual investors have not done that. In the last couple of days, some Wall Street lenders certainly changed their lending programs. The Norris Group has not. Every year for the last 12 years, they they’ll raise past the million-dollar mark. And many people maybe would think, “Well, you’re probably going to cancel that event this year.” And no, they are not. They are going to continue to do what they do. Wherever that guy is who told him his company wasn’t going to make it, thank you. You put a chip on his shoulder that day. Bruce said he can look at having employees in a setting where the business is uncertain and wonder, “Hey, what should I do?” And then he remembers, “Oh, yeah. On my best day, I’m a black belt who doesn’t give up and I get up every time I’m knocked down. So find your chip, and let’s kick some booty.

For those of you that are not familiar with anything The Norris Group has done in the past, they’ve earned the right to say perhaps what’s next in some settings. In 1997, Bruce wrote a report called The California Comeback. The little mark is where he wrote it. And then what happened? They said prices would double in the next eight years. Prices move steadily up. He wrote the California Crash saying prices could go down by half. That happened.

He wrote a report in around 2010/2011 – All In Or Fold, talking about it, really taking a look at real estate and saying would it ever come back since it had been flat on its back for about three or four years. He decided it was time to go all in. And the last one that’s on display is 2 Percent Mortgage Rates, $40 Trillion in Debt. And unfortunately, the Coronavirus has made probably both of them come true. The $40 trillion was a 10-Year figure, and unfortunately, we’re probably headed there. But all these reports have one thing in common. When he wrote the report, we were not where we were going. And it’s important that you have some ability to look forward and say what’s the likely outcome, because where we’re headed is maybe very different than where we’ve been before. So we’re about to go to a very dark place. When we get up in the morning, there will be bad news, and it will be increasingly bad news for the next eight weeks. So it’s wise and prudent to look at what’s likely to be next. And the answer is really going to be different depending on the length of this virus.

The damage path of the cycle is short and will be manageable, and we’ll talk about how this relates to other cycles that he has been in. The damage path will be much greater if the economic impact lasts a year or more, but Bruce doesn’t think it will.

Q: So what causes price damage to real estate? Most of the Norris Group history is in California. If you look at the chart, we have our cycles where we usually go gradually up and up and up. And then we have these times where we pause in the 80s and we sort of were semiflat from ’81-’84. And then we had a gradual decline ’90-’96, and then we had this big upswing, and we had a crash after 2008. And now we’re all the way back up again. But what caused these cycles is not what’s in place right now. This reminded Bruce a lot more of what happened in Grand Junction, Colorado. Grand Junction, Colorado was event-driven. Oil shale was a big boom for the area. When it came, tons of construction happened to house the people that worked in oil shale.

One day it closed. All of a sudden, there was a dominoes effect. It was almost the same dominoes, but it was event-driven, not affordability driven. So as soon as that event happened, there was massive unemployment, there were massive defaults, there was massive exiting of migration, and prices dropped 80 percent on fourplexes. So, this is the kind of situation that we’re looking at right now. We have an event-driven downturn possible, and so we have to take a look at and see where the short term impacts are that we’re about to face. We’re going to face a lot of bad news. We’re going to have terrible numbers of increasing virus contagion and deaths. That’s a given. As a priority, protect yourself and your family. Nothing economics is worth endangering your health.

What’s probably going to happen is you’ll have a low volume of sales driven by concern and restricted movement. So literally that’s a factor. You can’t have open houses. You don’t want to look at houses, so that’s really in place right now. You’ll probably have everybody’s income get affected and some people completely disappear. Bruce’s friend Glenn is a travel agent, and he literally had a thousand cancelations of cruises. He didn’t do anything wrong. He’s just sitting there. So there’s a lot of people that own restaurants; and all the things that you think about, “OK, well, we got nothing to do tonight. Let’s go out to eat.” Well, no, you can’t. “Let’s go watch a ballgame on TV.” Oh, no, you can’t. “Let’s go to Maui,” which I had just planned. Oh, I can’t. So this is what’s going on right now. So everybody’s income’s going to get affected somewhat. You’re gonna have people get laid off. You’re gonna have offices close. You’re gonna have unemployment soar. I mean, the evidence yesterday about the jobless claims were an unbelievable record number, and Bruce is sure we haven’t seen the worst of that.

For the time being in real estate, you’ll probably get lower comps because the only sellers will be the sellers that feel like “I’ve got to hit the exit before something worse happens.” Bruce thinks you have maybe a lot of listings, and it could be interesting. People that aren’t really that motivated could pull their listing and say, “You know what? We’re going to pass. We’ll wait.” That could occur. But you have maybe the likelihood of a lot more listings showing up and some of those sellers being motivated.

There are policies that are already beginning to be in place to mitigate the damage. What’s being done is really important. Some of this, we don’t know how it all finishes. The documents are still in play, but it’s obvious that the government is going to be sending people money for maybe as long as four months. It’s not a little bit of money. If you’re a married couple with two kids, it’s three grand a month. That’s $1250 adult, and this is not a one-time check. It’s four times. Of course, it’s maybe it’s up for review or whatever, but from Bruce’s understanding, it’s four times, not one time. It’s in the house today, and it’s going to get voted on, so it could change.

That’s what’s been discussed. You have Fannie and Freddie willing to waive payments. Bank of America said they would waive payments for a short period of time. Small businesses can get compensated for not laying off people and having their businesses affected. And Aaron’s got a Web site. If you go on thenorrisgroup.com under Free Resources, you’ll see Corona resource page, specifically for real estate investors. They are tracking the national and state response. So everything from the federal government also down to advice from places like the National Association of Realtors and then down to California, the California Apartment Association, the Association of Realtors here in California, trying to track what they’re doing legislatively. CAR has been pushing for realtors, independent contractors to get paid and make sure you’re up to date on what you can apply for as a realtor. If you have something that’s missing on there that you don’t see, just email info@thenorrisgroup.com and message to Aaron, and he will make sure it gets up.

Next week, Matt and Amanda Han are going to be here and talking about a little bit more in depth of what’s been being offered. They expect the bill to pass by Saturday, and that will give them a week to catch up and see what is being offered. They want to be able to talk about the different categories that they will go into later, what’s going to be offered to them. So they plan to do this for VIP subscribers and borrowers for the foreseeable future, Fridays at 8:00. Sometimes they will have guest speakers. Kaaren Hall might be next. She’s on the board of Retirement Industry Trust Association. Part of this package is that you can borrow from your retirement accounts and not face the penalties that you did before via alone or just actually taking it out, and several rules have been waivered. So as this weekend passes and they get more clarity on what it includes and then see how the state is responding as well, they will keep covering.

What’s great about this it’s very aggressive. Obviously, this is an unprecedented amount of money. We’re talking about not only the government doing this, but also the Fed is stepping in. They created a lot of liquidity in the mortgage industry, which was really important. Everybody was starting to refi, but there was a big clog. And so all of a sudden, interest rates went up from three and a half to about four and a half. And the deals weren’t being able to get done and funded. And the Fed stepped in. John Burns basically wrote a short email. He said the Fed is going to own every mortgage in the country. So if that’s what needs to be done in the short term, that is exactly what’s being done.

You also have a moratorium on foreclosures. So that’s the big thing that will not be allowed to happen. If that were allowed to happen, first of all, how long does it take to foreclose? It takes a long time, not just a simple four-month process in California anymore. The lenders know that’s not what they want to do. Tthey would mitigate the damage by waiving payments or tacking them on the end. In Florida, it’s about a four-year process. There’s no way foreclosures are going to enter the market in Florida for a long time.

That won’t be their problem. If you have a market that’s not filled with have to-sell sellers, you’ll probably have very low sales. Bruce imagines prices will basically be stable. After 120 days, he thinks the market will start to return to normal and is normal by the year’s end. That would be his guess. So each of us play a role in making this easier or harder, not only on the people that we deal with, but also on ourselves.

There’s times Bruce had lunch with one of his favorite investors, who he won’t name because of what he’s about to say, but this is somebody that has twenty-five times a month more income than you probably need to live. They spent the first 15 minutes one lunch with him being really upset that somebody didn’t pay him twelve hundred dollars of rent. Bruce eventually just looked across the table and said, “You know, you’re having a feigned crisis. There’s nothing in that twelve hundred dollar check that will affect your life.” So right now, we can’t afford to feign crisis. We actually have a crisis. We can make it better or worse by what we do.

So here’s some suggestions. If you’re a landlord, the odds are you’re going to get paid the rent. You may get paid less than full rent, and on rare occasion, a small percentage, you may not get paid. So what to do? There are resources. So help your tenants search out the resources that will help them financially in the short run. And they may not know that. So don’t assume that they know that that’s available. Be patient. It’s likely that you’re a lot wealthier than they are and you can take a hit lot better than they can. So this is a sphere that we better have in the next three or four months. How about we treat someone else with the same kindness we would appreciate if we were in the same circumstance? They literally could be one step away from being homeless, and I’ll bet you we’re not.

If you’re a tenant, communicate honestly about your situation. If you can pay the rent, pay the rent. Bruce heard stories about 30 apartment renters who all had a meeting and decided collectively not to pay. That’s ridiculous. So what do you do? Come home to your kids and say, “Hey, we have an extra fifteen hundred dollars we can blow this month.” That’ll be prideful money to spend. Bruce will get on somebody’s case for that. You know you don’t do that. That’s not what you do. If you can’t pay, take advantage of new policies and then pay the rent then. But also, how about we treat the owner with some respect, too. Maybe they have a mortgage and their payments aren’t going to be waived. One thing we have to realize is none of us have created this mess. This is event-driven. So the more patience and the more honesty we can approach the situation, the better.

If you’re an investor or borrower, pay your payments. You still have the benefit of owning the property. If it’s a flip, no income was ever going to be derived from that until the very end. So make your payments. If your world turns upside down, and that’s possible. So let’s say your income stops, the flips you had in escrow fell out of escrow. The rents that you were supposed to get didn’t happen. Communicate with the lender as soon as possible. Be honest and talk with them. We have a temporary problem. How can we work together? The lender will have respect for your approach about being proactive and upfront. If you do it any other way, you won’t be met with a willing participant and partner. And that’s kind of what we almost have to have people do. The lenders are an important part of your business going forward as well. So treat everyone with respect and be honest. If you can pay a payment, do it.

If you’re a lender, there’s a really high likelihood you’re going to get paid as usual. In the event you don’t get paid, first find out why. Then go to solution mode and help solve the problem. And this may include taking unpaid interest and tacking it on the back end. It’s probably something that you can afford as well. So be patient in this situation. The borrower didn’t create the mess. If we get through it together, we get through it a lot easier.

So are there opportunities? There are some. Some people will be motivated to sell. It doesn’t mean they’re desperate, but Bruce doesn’t know if you’ve been where you would prefer to have more liquidity. That can definitely occur. Somebody owns 10 houses and thinks, “You know what, I’m going to sacrifice one, sell it, and liquidate and protect the other nine. That’s a very sensible decision. And so that may be who calls you on your mailers or your signs. So we’re still in business doing what we do. The small buyer, the local expert, will be the one who provides the seller with the speed and liquidity they need. So get a chip on your shoulder. Let’s kick some booty.

The big picture is hard to be accurate right now. Bruce thinks looking at what’s happened in China, there is a cycle that they’ve gone through and they’ve come out the other end with much less volume of new people being sick. Italy’s just about at the peak or crossed the peak. So we see what occurs over the next 90 days. We’re about at the front end of that. We’re about to go through tough time; but we can look at the model and say, “OK, once that’s passed, we’re on the other side of this.” Bruce didn’t really want to go talk about what happens if this lasts a year because he doesn’t think it will. If we do, he will create another video because that’ll be a game-changing event, and it will cause a lot more damage.

He sees the reaction of the Fed and the government, and he thinks they get it. This is just the first round as well. This is the first round of “OK, let’s do this.” They’re already talking about the next package. It’s smart because this is no one’s fault. You do realize how close people are to having one event impact their entire life. Many of us who have been in this industry for a long time have liquidity or no debt. We have a comfort level. But you can realize that you just bought your house and have a down payment that you put down. You basically have a couple months of reserves, and now you don’t have a job for no fault of your own. And it’s not going to be returning.

What’s interesting about Florida’s model is they are used to closing a lot of stuff. They have a lot of people come seasonally. It’s not unusual for them. They get hyper-busy, and then they get dormant. So in a way, this is just happening early for them. They’re almost used to this kind of cycle. Bruce hadn’t really thought about that until just last night. He thought Florida probably handles this better because they’re used to it. He doesn’t know what percentage of the population shows up seasonally, but it’s a lot. They just went home early. There was this gap, and by the time it’s time to come back again, it will probably be pretty much business as usual at that point. Having come back last Saturday and having talked to the realtors that were there as people were leaving for the season, Bruce found out people were writing a lot of offers, oddly. He doesn’t know if they’re going back to the east coast or wherever they get the majority of visitors from. He is almost rethinking their urban existence. It will be very interesting to see in the next couple of months if that came through fruition. Quality of life and the cost structures is so different down there.

Then, you have New York City where you have millions of people stacked vertically, and it’s hard to not have contact with people in a big city. You’re going into neighborhood stores. That’s all there is on the sidewalk, and the sidewalk’s filled with people. There could be states that get a lot more migration and people finally just say, “You know what? That’s not what I want anymore.” Florida is a big recipient of New Jersey and New York’s migration out. That could definitely increase.

They next went on to take people’s questions. First, Aaron mentioned when it comes to resources for your tenant, they are at the very bottom. You really need to pay very close attention if you’re a landlord because the governor basically has given the authority to the local counties to make some decisions, local municipalities and counties, on eviction code. So there’s not a lot of clarity. Everyone’s like if you’ve been affected by the Coronavirus, but there’s no clarity on how you document something like that. So unfortunately, if you’ve got rentals all over California, you need to be paying very close attention at the local level, but also pay close attention to the resources.

So what the national and state is doing is one thing, but you might be able to point your tenant to things like what is happening in Riverside where there is a nonprofit that’s putting together a fund where they want to be able to give families five hundred dollars. Just a check. Just a gram. You’re at home. Just pay attention. You might be able to find your tenants some resources that they might not know exist.

First question from Rick: I’m doing a 1031 exchange. He’s in Florida. He’s about to pull the permits. Would it be beneficial to wait a few months before those get started? Or if it were you, would you just go ahead and proceed on new construction right now?

Bruce said he would proceed. He is proceeding on a fair amount of deals right now himself. They were under construction, and there were two builders that they were involved with. They are being considered a necessary business. It may get to a point where they have to go into hiding mode for a time, and that’s that’s just fine. And you know what? With the 1031 exchange, they will have to deal with the fact they have of extending your time. Bruce is very confident that this is a once in a lifetime event. So if you miss your 1031 exchange date because nobody could show up to your job site for 45 days. You are not going to get penalized for that. So I am not concerned. I mean, we’re even inspecting houses. They have projects that are approaching permit status, but they will be ready and completed close to October, which is exactly when he wanted them to be done.

Bruce always calculates the most likely outcome pretty carefully. He has calculated that that’s probably a very wise thing to have inventory available when people come back because they’re going to make decisions to stay. He thinks maybe there’ll be other people that don’t build and sit there in the corner and don’t do anything. He thinks that’s a mistake. He is not trying to be careless. That’s not who he is. He is very calculating.

Question: all these packages cost a lot of money. Is it going to result in more taxes? Any thought on where this $2.2 trillion is going to land?

It will be more than that. It’s going to land on the budget. The budget is going to go and soar. We have completely low interest rates, so maybe the deficit will grow by four trillion dollars in 12 months. He doesn’t know if it’s this calendar year, but certainly in a 12 month period, you’ll have a big absence of income taxes coming in because the revenue is low and you’ll have the big expenditure. He doesn’t know that he is smart enough to answer at what point when we get to $40 trillion, is that the day we go, “OK, we can’t pay it back?” Or is it $80 trillion? He doesn’t know the answer to that. Does the government refinance at negative interest rates? Yes. There you go. He did that kind of tongue in cheek with the panel. He said hypothetically, if you had you had $10 trillion in debt, you could get minus 2 percent for 50 years. At the end of 50 years, it would just pay itself off. Everybody’s mind is blown.

Sarah asked, “My tenant is Section 8 with one hundred percent rent paid by the government in Alabama. Do you foresee government stopping Section 8 for any reason?” No. As a matter of fact, you think that they would be putting that on steroids. The safest of all tenant is a nonparticipant but getting the rent paid. No, that’s probably safe.

Dave was asking about 1031 exchanges. On that resources page on the Norris Group Web site, they linked to the IRS page where they typically track disasters. And the National Association of Realtors has been advocating for this. It’s on their list of things that they’re asking for. They expect that and opportunity zones as well to be extended; but they’re doing a lot of 1031 exchanges, and they’re behaving like nothing’s changed for now. They expect that to get updated, just no word yet.

Bruce talked to his buddy Alex, and he said construction is still going and doing normal. The National Association of Home Builders is advocating that construction continue to move forward, meeting with the economic development. One of the departments in Florida, that’s one of their main economic engines. And so they were going to do whatever possible to keep the building department permits open and inspections going. So it’s a priority for them. And it was actually really good to go to Florida and get that perspective. Bruce thinks most cities are going to be saying that.

Jeff: Could you say again where the list of resources are for landlords?

Yes, at thenorrisgroup.com/resources. Or, if you just go to our Web site, there’s a tab called Free Resources. It’s the very first option on the dropdown. There’s no extension approved. Yes, correct.

Are you still lending and how has it changed? Yes, we are lending, and it hasn’t changed. However, the Norris Group is asking you to be a little bit more flexible on timelines. If it’s a Barstow condo, no thank you. But that’s never really changed. So it makes sense lending right now. The long-term program is still viable. They are doing a few of those now, but they need to be good deals. You have to be in a good position. We’re selling you. So help us out.

What do you think the next real estate downturn will be given the current pandemic? Does it really change your forecast all that much?

Bruce does not think it will. Now, if you had a government that had no response, and in four months you had a ton of foreclosures because people missed their first payment or they got evicted, then this could be a big deal in three or four months. But everyone’s doing what they need to do. If you’re a family of four, you’re going to get thirty-five hundred dollars a month. You can pay your rent. He thinks they’re mitigating it as much as they can. The worst thing we can do is overreact. That’s why he broke down all the pieces. If you can perform on your rent, do it. If you can perform on your loan payment, do it. If you’re on the opposite side of those transactions, be patient if there’s really a reason. There can be reasons. You think about all those Americans standing up and singing the national anthem. We had to think about that part for the next three or four months. Not to get taken advantage of, but also not to harm people needlessly. There’s no point in that.

Drew has a question about sort of a crystal ball when it comes to prices over the next 12 months. Aaron worded it differently as it depends on different price categories. Having the conversation about if the Inland Empire will do better because people maybe rethink the price point, he thinks maybe people could get a little bit more conservative. Will the million-dollar plus go from, like in Orange County, eight months of inventory? If jumbo lending disappears, will we have three years? He thinks it can be so different depending on area.

Right now, our spread is way too high. The 10-year T-bill is at point seven. You should have no more than a 2 percent spread to a 30-year mortgage. That’s 2.7. You give this market a 2.7 mortgage rate, some very interesting dynamic is going to happen. First of all, you’re going to refi 80 percent of the loans in the country. And all of a sudden people are going to decide they will stay there forever. Think about the ramifications of that. And that’s why they didn’t really think about putting it on the program. But one of the things that they had talked about is if you’re in the lending business, you’re probably going to be so busy in the next six months. And then what are you going to do after that? Since half of your business is usually refi is, that’s over. So if half of your volume is gone permanently for a long time, that could be an issue. We have to think outside the box, and right now it seems to be that we’re in the mood to do that.

Bruce suggested we should have a nothing down purchase loan program. And we should make that loan completely a simple assumption going forward. Somebody else can take it over if they bring it current. A foreclosure process is a national process. It’s not every state having a choice. It’s one foreclosure process. You don’t make the payments six months after you miss a sale was held,. the opening bid is your late payment plus the fees. So on a tour of a $50 grand loan, your opening bid is $8 grand. $8 grand and you take over a two and three-quarter percent fixed-rate loan for 30 years. How’s that going to go back to the bank? There is no way. No, I think we need to get on the horn and start talking to more people about that because now would be a good time.

It does two really important things. It gives the group that feels they’re disconnected and don’t have a part in their success in going forward a chance to own. 10 percent of them are going to fail. It’s just the way it is. You’re going to have 10 percent failure rate. They’ll go to the trustee sale. They can get up by other owner-occupants that don’t have to qualify. They just have to have the money of $8 grand or an investor. If there’s an overbid, I guess it can go to the former owner. That’s no penalty there. They get some money. They can do the same thing over and over again. But you’ll have maybe 5 to 8 percent more families own. That’s a big deal at the end of this is that we if we could do that. And the big problem with nothing down the way we’ve ever done before is it gets foreclosed on, and that glut causes price damage. If you take that away, this is a really smart thing. It also lowers your cost. And the other two and three quarter mortgage in Florida, the $230,000 new house is $450 less than rent.

It’s a smart idea. Just because it’s isn’t mentally stuck on the idea it’s going to cause damage, it’s not. Use your head. It’s not. It’s gonna give a lot of people a chance to own. At the end of their life, that’s a big deal. You’ll pay that thing off. They’ll be secure. We have to go there. It will give lenders something to do and builders something to do. So think about the industry’s about to stop. I think I’ll just stay here. It’s not a listing. I’m not going to refi. It’s not a loan. Not going to buy another one. That’s not a loan. Home Depot doesn’t get to do the typical seller stuff when people move in. There’s a lot of impact.

So let’s think about that. Let’s give people a chance to own something. 90 percent of them are going to pull it off. For the 10 percent that don’t, it’s going to go forward and somebody else will take over the financing. So it’s not going to create losses. If we’re thinking outside of the box, we have maybe a twelve-month period to have a 30-year impact on our country.

Considering the homeless population, if you have a housing first program to where you get somebody off the streets and you give them some excitement, you’re already surrounding them with services. The government’s already spending money, a lot of money on housing and services, and they have the chance of ownership if they can follow some guidelines. It’s such a cool idea what we’re talking about with affordable housing. But the problem with that is always a subsidy. LA gave it a shot with a couple of billion dollars, and the average cost was $530 grand. But if it’s a two and three quarter, that’s affordable housing. In other words, maybe it doesn’t have to be subsidized. The subsidy is in the interest rate payment. We need to take advantage of that.

Q: Will jumbo loans be a priority? Right now, jumbo loans aren’t big refinance. Do you think we’ll get back to jumbo loans in California? Are we out of the business? A lot has happened with jumbo loans.

Bruce said it’s because of the liquidity in the mortgage market, and they are working that out. Like John Burn told him earlier today, the Fed is going to be buying all of those mortgages. That’s the lender of last resort. They know that they have to have liquidity. You can’t have people just not be able to get a loan. That’s a little frightening. We’ve already had that. We’ve had people with refis where the lenders backed out because they don’t want to get stuck with the paper. So anyway, I think that’s going to get solved. This has been a problem. You have some REITs like mortgage REITs that have gone down like 80 percent. So it’s a big deal.

Vicki’s asking a question about refinancing on a rental. Aaron said he is having the same issue. He is actually in a refi. He built a property, all cash, in Florida working on the lender. He didn’t lock in his rate, and he could have gotten four and a half. They finally came back, and he is going to end up getting four and three quarters, even though it should be lower than that. Lenders across the board have raised their rates because they just don’t know what to do. They’re trying to slow down volume. So that’ll probably get fixed in the next couple months. It’s the same experience. Maybe just wait if you can. All commercial lending currently suspended for 30 to 180 days, says Paul, at the moment.

Q: Property owners with Fannie and Freddie loans were just provided some federal protection. Do you know if this is extended to property owners with loans held by portfolio lenders?

So it’s interesting. You’ve got the federal response. Fannie, Freddie, FHA loans have a different process. Banks in California have signed on with Newsom to provide some level of support. But he hasn’t gone into each of the individual lenders. Yes, a lot of them have participated, but they’re not forced to. They’re just being a good partner. So there’s a lot of confusion there. And you literally have to go to every bank, wherever your loan is, and see what their process and profile is. I don’t know if you’re having the documents you need or whatever it is, but you’re going to have to dig down to the company itself.

Part of the problem is there’s a servicer that gets involved in the middle of that. Their requirements are they have a payment to make to the lender, whether they get paid or not. With their servicing fees, they pay a point to be the servicer of the loan, but they’re only able to charge a third of a point a year. They have three years to break even basically and then make money. When you get interest rates that are really low, you could have somebody refi a mortgage that’s only been in place for a year and they literally lost money on the servicing. There’s a problem there. There’s only so many problems you can deal with in one day, but Bruce thinks somewhere along the line they’ll be looking at that going, “OK. We’re going to enact the emergency policy for the next twelve months, and here’s what it is.”

None of these servicers or lenders are prepared for the volume that they’re getting. The federal government isn’t prepared, and their sites are crashing. So we are just going to have to be a little bit patient. One of the questions is will we get relief for our non-QM loans? So stuff that’s not standard. Aaron’s response would be maybe, maybe not. But keep in mind, if you’re a small business and you can document that you’ve been impacted, consider looking at the SBA resources because they may end up doing some forgiveness on the other side. So maybe get creative. Don’t just get stuck thinking about the loan side. Look at the SBA stuff. They will cover this more next week when we have Matt and Amanda on the call. But you might end up getting some resources somewhere else that would help with that.

Should all commercial lending applications stop originating and processing? Bruce didn’t know the answer to that since it’s not something they do. They don’t have a market right now.

We are seeing jumbo loans canceling at funding lenders writing seven to eight-figure calls due to the drastic drop in rates. But all be paper. Bank statement has left market. How do you see this part of the mortgage market coming back quickly? So the more creative stuff. We’ve already heard some of the Wall Street lenders overnight just stop funding, laid off half their staff. What’s interesting, it’s going to depend on how people are structured. So if you’ve got on the other side the government willing to buy all kinds of paper, are they really going to ball by all kinds of paper?

If they’re going to buy corporate bonds to create liquidity, the answer probably is yes. They realize that they have to put their finger in the dike. They might buy all kinds of paper. But whether they’re doing it today or not, maybe it’s a progression of them adding something as well.

Maria brings up a really good point, and Bruce was actually on a call with a local city who’s asked me to be on a call about ideas of some of the local things that they want to implement to help. And the question is, “Not that I want to foreclose, but if lenders cannot foreclose, what incentive is there for borrowers to pay anything, I.E., the group who decides not to pay together.”

His suggestion to this specific city is going to be you need to be very careful at the local level. If you’ve got builders and lenders looking at you, seeing the kind of policies you employ and that their typical process you’ve absconded with and there’s not clarity and a sense of fairness, you could be singled out. They just won’t lend there anymore. So as to her question, it’s a little up in the air. A lot of this is new. It’s sort of subject to availability. And as things progressed, this might last two months, it might last four. So federal and state, just something that we’re going to have to follow. I don’t know what incentives and if the government’s going to require. He doesn’t even know how they’re going to operationally track all this stuff.

This is where leaders come in to play. You would think that somebody like a governor of a state would come out and say it’s time to be honorable with each other. Not “Hey, you don’t have to pay your rent.”

Steve’s understanding was it was a twelve hundred per adult and then five hundred for kids. But there is a limit on income.

If you make one hundred and fifty grand, that’s the max. If you go past that, there’s a deduction on what you get. After a certain amount, it’s zero. So it’s seventy-five for a single person, $150 for married, hundred and five for head of household.

Aaron thought it was just one month, but Bruce’s understanding as four. They don’t know if that got moved to the next package or if this is immediate, and it might be. This will be covered next week when everything is signed and there’s a little bit more clarity if anything changes. Currently, the Fed buying is increasing the problem with the margin calls.

Q: Gurus and mentors advising to cut all non-essential expenses, but not marketing. Is this advice for investors rehabbing?

Good question. Aaron said they had just been told that you’ve got your Wall Street competitors off the market. So for those of us that are local who are playing the SEO game, it might get a little easier. And if you’re paying for ads, so search engine marketing stuff, your rates should go down. So hopefully it will get a little less expensive, which would be good. He doesn’t disagree if that’s your game. Obviously, you’re probably not gonna be door-knocking right now. People are going to answer the door and it’s inappropriate. If this is your game and you’re out there buying houses, this is the time that local shines. He is excited for Main Street because even down to the appraiser, he posted something on Facebook yesterday. There is an appraiser that they worked with at San Jose who had to cancel because he is in quarantine and his mom died of the Coronavirus. And it’s just when you get that local impact. What he wants right now as a lender is that local expertise. He doesn’t want a middleman like an AMC. He wants the guy that’s been in that neighborhood and knows street by street what’s up? This is such a unique opportunity for the local experts to shine. Main Street. Wall Street’s already true to fashion. Show their color. They’re about scale. Greener pastures. It will be interesting to see if they come back. He was talking about this with a few people on LinkedIn, possibly depends on who’s funding them in the background. They haven’t been making money this entire time. Is that sustainable? And will the federal government look at that and be like. “Yeah, that’s a speculation. You guys are cute. We’re looking. Our tribe part priority is food, shelter and utilities for the consumer. So good luck.”

What is your company planning to do with borrowers if they can’t make their interest payments? – Steve

Well, it’s really not a company decision, but they’ll be in the middle of that, so talk to whoever borrowed the money, and find out if it’s an attempt not to make a payment they can make. Or if, in fact, something’s happened where that becomes not possible. If that’s true that it’s not possible, then Bruce will make a call to the lender and we’ll have a discussion. Bruce is a big fan right now of cooperation and honesty. If he finds either one missing when he thinks it’s absolutely expected, the black belt side of him will come out.

It’s very short sighted. This is when we find out who people are. When you have everything going well, you really don’t know. Mike Cantu and Bruce had lunch one time. It was 2009 or 2010. He made a comment and said, “It’s really been surprising to me how many people’s character has changed. Bruce said, “Mike, it hasn’t changed. It just got revealed for the first time.” So that’s what happens right now as people’s character is revealed. We all have really good memories when we learn that lesson.

The Bay Area is a very unique thing, it’s almost like asking how you feel about New York. And then you’re talking about Manhattan. So it’s a different world. Obviously, if you look at a chart, their prices are off the charts, they’re literally 200 percent of the price at the peak in 2007, and no other place has done that. It’s so easy to look at that and say they’re so overpriced. Yet your job base is so ridiculously well paid. It’s like Manhattan. So it’s very unique. Bruce said be cautious. Don’t take big risks. He wouldn’t want to be speckling that you’re gonna have a big price increase or something. Tight now in the next four months, it’s just really about let’s get to July/August withmost of our chips in place and our sanity in our life.

Q: For the rent protection, does that apply to public storage companies?

Aaron said he hasn’t seen anything on that, but that’s an SBA thing. That’s a small business loan. Check out those SBA resources to what they have available. There’s gonna be two different routes for help.

Q: We have rentals in four different states. Can you give us some tips about finding local sources of assistance?

Go to the state governor’s office first. Find out what they’re doing at the state level. From there, go to the county departments and find out what the county is doing, and then go down to the local, local level. So the city level. So you’ve got unincorporated county areas and cities, and then you’ve got cities like Riversidein the county of Riverside. So you’re just gonna have to do a little digging of how they’re structured. But 211 is a really great resource. So it’s a nationwide. Aaron happens to be the board chair of the one in Riverside. So put in 211 and then whatever city that you’re in. You’ll find they serve by county. And go on their website and just start doing some digging. Probably most at this point are going to be the 9-1-1 backup. They are the backup for 9-1-1 in cases of emergency to take non-emergency calls off of 9-1-1. So they’ll probably have updated resources for you and the tenants. You might find some gold in each of those areas. So hopefully that helps you.

Q: What level of interest are you seeing your investors/lenders have in funding/buying your hard money loans?

Aaron said the one he sent out Monday had four deep, so he didn’t have a problem selling it at all. Obviously, it’s going to depend on the area of the house. Again, no condos in Barstow.

Q: How does this affect private lending, in particular, opportunity to go into the private lending space?

He doesn’t think it affects anything. They have had excess money for a long time, so he don’t know if that’s going to change. Everybody’s in a little shock mode right now. So you definitely would have the same feeling, you’re just kind of concerned. Everybody is waiting to see. The 1st will be an interesting thing. So a lot of us are have automated payments on loans and we have automated rents where that happens. In Leesburg, Bruce called the guy that’s managed property, and he just said, “What’s your take?” He said, “Well, almost 100 percent of your tenants are nurses. So they’re not gonna be out of a job.” The other way is that when people pay, I know right away by his Web site. So I think that’s gonna be really interesting. I think by the tenth of next month, we’ll have a pretty good idea if it’s gonna be business as usual as far as collecting rents and collecting payments.

This is how The Norris Group saved their bacon in 2008. They noticed an unusual activity. So somebody that had been with them for ten years, never late, is 30 days late on a payment. Bruce called them. It wasn’t like getting on their case. He knew it was unusual. So they had already proven they were a good borrower. But this is unusual. So his first question was, “Are you still pursuing a profit on this property?” And at that point, almost a hundred percent go “Man. no, I’m just trying to get you paid off.” Okay. Well, that’s a great conversation then, because we can cut to the chase on that and mitigate the damage and end it before it gets worse. When you go down 3 percent a month, people may want to wait a year and see what happens. No, let’s not do that. Let’s get out. .

Everybody’s built differently. There’s people that are built to react appropriately. There’s people that overreact. And I suppose if we have a big pool, we’ll have some of all of those types. We put a loan out, and we had a lot of response. We don’t think there’ll be a disconnect between the need of money and to be able to supply it, and part of it is people trust our process. So that’s already in place. People know we go through and only present them things that we would loan our own money on.

There are way they qualify people. They’ll have to have a lot of cash on hand, especially on the flip side. And then if they’re refinancing rentals at this point, there’s a lot of equity in it. Aaron talked to his property managers, and one of them said, “If they don’t pay the rent, I don’t get paid.” It’s not just your tenant. It might be your property managers that are a little bit in distress. You need to ask the question. I asked one of them if it is ok to dip in reserves for now. I can replenish it later. I want to make sure you get paid. I want to support you. And I think it was appreciated. I want them to do well, too.

You also want them to exist. You want to be a priority. Bruce had just gotten called yesterday by Peter Apostolos. The call was about this. He says, “I just want you to know that all the loans I have with you are my priority bills. I would not be where I’m at without you for the last 12 years. So I just want you to know that it’s not going to be an issue. Well, that was a great phone call. So you just found out a lot about Peter.

In a video Aaron did a couple weeks ago about his 9/11 11 experience, he said expect to see the worst, but expect to also see the most amazing things. You don’t forget the amazing. You just don’t. You don’t forget the other either, unfortunately. Bruce said just like at that baseball game at Angel Stadium, he expects much more of that than anything else.

Is it a good time to prepare to invest in out-of-state?

The Norris Group has been working with investors over the last year helping them. Aaron said it was a good thing he got rid of his dogs in California. He already know that if he still had some of the stuff that he owned, he would be dealing with nonpayment and then an eviction. He would be making loan payments and no income on that one particular property for a good year, probably. Aaron asked Bruce his thoughts on investing out of state at this point?

He said he can’t say anything about 48 other states. They are in Florida for a calculated reason: migration. Florida’s a number one state for net domestic and number two for immigration. And those are not going to change. They’re going to get stronger. We just did kind of a calculation. You may have seen it already. That was changed in California. There’s a 60 year period that I got to look at. Bruce never really thought about doing it before, but he divided into half. Thirty years of peace. And in between 1960 and 1990, 52 percent of California’s growth came from immigration, which is really important because immigration is an adult. There’s an adult in the mix. There’s either a single adult, there’s a married couple or there’s a family. And they’re ready to do something connected to real estate. They’re gonna rent something or buy something. In the last 30 years, 10 and a half percent of California’s population gain has come from migration or a combination of migration and immigration. Eighty-nine and half percent birth over death. That means a huge percentage of your growth in the last 30 years of people born, 83 percent of them are under 25. They can’t afford to buy a California piece of real estate. On the other side of the spectrum in Florida, eighty-five percent dividing that chart in half. Eighty five percent between ’60 and ’90. Eighty-five percent of people showing up to Florida were migrating there. In between 1990 and 2020, it was 85 percent. They did not change. The people that show up to Florida are adults ready to do something, and the numbers are growing, and the percentages are growing, too. So in the next decade, he thinks California will have absolutely no net migration from adults. That’s a very big deal. And Florida will probably get into the 90 percent of their growth being migration of adults. That’s why he is in Florida. The domino that he wants is in place. Migration creates all the other things.

Aaron has been tracking all that data for the last couple of years, too, since we’ve been out there. He is really interested to see that real estate data for the next three months. This is typically when their season starts to slow down anyway. We’ll see.

Q: If you’re a flipper in B and C class houses, how do you think this will affect business?

Bruce thinks the whole market is going to freeze. You’re not going have people looking at homes. You can’t hold open houses because there’s multiple people there. It’s harder to do that. He would expect the next 90 days to be like you hit the pause button. He just would expect that. But after that, he thinks things will return to normal pretty quickly. You have to remember, we’re really fortunate. We came into this with a 50-year low in unemployment as a nation. We came here with California having what everyone’s saying is a lack of inventory. What if we were already in a recession and unemployment was 8 percent, and then this happened? That would be a different game. So we’re coming off great charts into a time frame where you’re gonna end up with a three or four month, like the most ugly charts ever. But we’re not Grand Junction, Colorado and an industry that is left for years. How many restaurants won’t open again? Well, there’ll be some. That doesn’t mean the people aren’t going to eat out somewhere. They’re going to eat out somewhere else. And so that person will be busier. So there’ll be this pause button. And then he thinks we’ll want to get back to normal. I mean, it doesn’t dawn on you once a while you go, “I’d like to go. Oh, yeah. I can’t.” You know, that’s what’s going on right now Will. When we can, we will.

Rebecca asks a question. She’s in a 1031 exchange and they’re down to the last contingency and she’s worried about the appraisal.

Aaron is in something very similar. He challenged an appraisal that came in low in Florida, and it had a $41,000 increase. He did a really good job on his documentation. So far, the lender looks they’ve just locked his rate this week, and it looks like they’re going to move forward with the current appraisal. Go to the Appraisal Institute. They’ve got some guidelines, and it is posted it on The Norris Group resource page as well. As a real estate investor getting into the mind of the appraisal industry right now, you should at market value and them having to look at things like reasons and motivations for people selling. But if you can get through this process, the sooner the better. The appraisal should stick. At least his has so far. But hopefully that helps. But if you’re worried about it, go to the Appraisal Institute and see what they’re saying.

From the glass is half full side, if someone is well-capitalized right now, this is a crazy and unprecedented time we find ourselves in. Is this the perfect opportunity and time?

Bruce doesn’t think it’s a bad time to get into something. He doesn’t know how big of discounts there’s going to be. He thinks there will be some people that want liquidity other than the real estate they have. That would make perfect sense. He has sat in that seat himself where you have 12 and you’d like one of those turned into cash to make your whole life a little bit more comfortable. That’s why The Norris Group is here. They’re just like the CarMax guys that drive their car up to sell a CarMax. They are not destitute. They want simple. They want to leave with a check. People do that with houses. Obviously, Wall Street’s found out that that actually works, but they’re gone.

It may not be instituted, but there’s a 90-day seizing requirement on flips as part of this bill. He thinks that is going to apply to the Wall Street iBuying model. Their goal is to get in and out of that as soon as possible. They might not like that. We’ll see.

Everybody’s getting notifications of webinars and stuff, and this is replacing the typical newsletter that The Norris Group would do right about now because they’re really focused on that resource page for you guys and then these resources every week. So just once a week, they just ask for your time.

Florida. People are asking about areas in Florida to invest, and one was about supply being constructed. Aaron said it’s going to depend on whether it’s a public builder or private builder. For The Norris Group, one of the questions that they work with our builders on is “Are you sourcing material from China? Is there going to be a disruption in your supply chain?” And they don’t. They might have one lighting fixture that actually ends up getting imported from China. But those are the things that you have to start thinking about. And I don’t know the public builders, where they’re sourcing their stuff, if they’re well-capitalized, and how they’re feeling about this. So I don’t know about that side, but I know our side. As far as areas, there’s lots of different places in Florida. Orlando, Tampa, we’re in southwest Florida. I think it just really depends on what you’re looking for and getting out there.

Bruce has been investing in Orlando and Tampa with with Alex for years, but he doesn’t know that area. I just have had money floating around there. They flipped about 80 properties three or four years ago in Tampa and Orlando. He is a little bit more familiar with during that time. They got a lot more involved in Florida. They were building, and they probably have 80 houses that are going on or are completed at this certain time right now. They chose the area that we chose because of the charts telling them that that was very high up in the migration and quality of life, desirability to retire. So that was why they ended up where we ended up.

The Norris Group originates and services loans in California and Florida under California DRE License 01219911, Florida Mortgage Lender License 1577, and NMLS License 1623669.  For more information on hard money lending, go www.thenorrisgroup.com and click the Hard Money tab.

Resources: