Be The Bank

013 - High Risk High Profits

June 29, 2022 Justin Bogard Season 4 Episode 13
013 - High Risk High Profits
Be The Bank
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Be The Bank
013 - High Risk High Profits
Jun 29, 2022 Season 4 Episode 13
Justin Bogard

Be The Bank S4 Ep13 - High Risk High Profits

On episode 13 of season 4,  Justin Bogard interviews Richard Thornton.

 Key Takeaways:  

  1. Home Affordability and Mortgage Rates
  2. 17% of Millennials can afford a home
  3. Yield Drag on Hard Money Lending

 Resources and links discussed  

 About the Host

 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!  

  Connect with the Host: 

Show Notes Transcript

Be The Bank S4 Ep13 - High Risk High Profits

On episode 13 of season 4,  Justin Bogard interviews Richard Thornton.

 Key Takeaways:  

  1. Home Affordability and Mortgage Rates
  2. 17% of Millennials can afford a home
  3. Yield Drag on Hard Money Lending

 Resources and links discussed  

 About the Host

 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!  

  Connect with the Host: 

Narrator:

Interested in real estate. How about wealth? Well, they go hand in hand and here you'll learn all about it, about it. Welcome to be the bank, a podcast where we discuss and debate the topics centered around real estate. Investing your host, Justin Bogard shares insights into investing in real estate to create real wealth and passive income for you and your family. He'll share stories of real estate investments done, right? Walk you through the process of owning a real estate note, and most importantly, educate you so you can be the bank, the bank. This is be the bank brought to you by bright path notes. Now here's your host, Justin Bogard.

Justin Bogard:

Hello everybody. I'm Justin. Bogard your host of the be the bank podcast. And today we're gonna get into the home affordability aspect of what's going on the rising of interest rates. And I got my friend Richard Thornton on today. So I look forward to having this chat with him and stay tuned. This is episode number 13, and it's brought to you by BrightPath Notes, Richard Louis Thornton. How are you,

Richard Thornton:

Louise? Mm<laugh><laugh> don't know about that. Yes,

Justin Bogard:

But I got my jab in first. Richard,

Richard Thornton:

You did. You did well, I am, I am, uh, camping out, down stairs today because, uh, yesterday it was a whopping 104 degrees, uh, here in Northern California, which I'm sure will not be good for the wildfires.

Justin Bogard:

Oh, right. Yeah.

Richard Thornton:

Yeah. It, uh, dries everything out. And uh, although I don't know if you've been reading about it. The, the, the one largest fire right now in the us, um, was actually two fires and it is United. Uh, and it was set by the fire department as a controlled, controlled burn. It's burned, burned down over 500 homes and people are just furious about it. So I feel badly for those folks.

Justin Bogard:

Okay. That is very interesting. Mm-hmm

Richard Thornton:

<affirmative>

Justin Bogard:

Well, it's a hundred. It was 104 yesterday. Is it gonna be over a hundred today?

Richard Thornton:

It's supposed to be right about that. Yes. And it's supposed to be cooling to a mere 97 tomorrow.<laugh> cool. But, uh, yeah, I mean, usually the Petaluma area at north here north of San Francisco gets warm, but then it cools off cuz we've got an onshore breeze. So it's kind like what you, I don't know if you've ever lived in the coast, but what we call beach weather, which is you can have really nice warm days, but then an onshore breeze breeze comes on and it's chilly at night. That's, that's a usual Petaluma weather, but we're not experiencing that right now. OK.

Justin Bogard:

So then you could open up your windows and get all that hot air outta there pretty quickly towards the night and you can cool off the house. So the, at least the half the morning will be nice. Right?

Richard Thornton:

You could, but that does not seem to be occurring at the moment. So

Justin Bogard:

<laugh> well, well, we're both kind of in remote locations, I'm at a, I'm staying with a friend this week at a visiting in, uh, in Southern kind of south of Indianapolis. And so as you can see in the background, this isn't the typical team that I support. He's a huge, uh, Ohio state Buckeyes fan. Mm-hmm<affirmative>, I'm gonna tell you this guy is, uh, he's a diehard fan. I mean, you, you think of anything you can have that could have your team's name and logo on it, this guy has it. So,

Richard Thornton:

And so I'm sure he knows all the stats right. Involved everybody. And

Justin Bogard:

Yeah, so college football is like his thing. So he's got all the college football, national championship, sports illustrated issues and stuff. So he's, he's definitely a diehard fan and I have to commend him cuz he's been that way pretty much ever since I've known him since back in grade school and

Richard Thornton:

Stuff. So he doesn't have any of the sports illustrated, uh, um, magazines that, that show women on the cover though. Right? You, you would never do anything

Justin Bogard:

Like that. No, it's, it's just, it's just sports, just football.

Richard Thornton:

It's just sports. Okay.

Justin Bogard:

It's always good. Actually. He just buys it and they puts it right into a, uh, you know, a glass case if you will, like a framed case. So that stays intact. So he's pretty cool anyways, that that's why you see this stuff in the background. I gotta represent Purdue, uh, unfortunately found out yesterday that, uh, a Purdue basketball player passed away Y yesterday or the day before his name's cable Wangan

Richard Thornton:

I saw good

Justin Bogard:

Basket

Richard Thornton:

Player. Why, why, how did that occur?

Justin Bogard:

Well, I didn't read the entire article. I just kind of saw it last night, quickly. Someone actually sent it to me and, um, it, I think it was natural causes. I'm I'm not real sure, but I was kind of sad, but uh, his good basketball player seemed a great kid and stuff, but yeah, I think in 2000 seventeens was his last year at Purdue, I believe, but, uh, yeah, it's kind of kind stinks, but, uh, anyways, we're not here to talk about that. We're here to talk about home affordability in mortgage rates. So Richard, excuse me. Um, I don't know if you are aware today today's 30 year mortgage interest rate and we are recording this as of June 22nd, 2022. It is 6.05% for a 30 year average conventional mortgage for the national, the national average. Um, obviously you'll see some banks and credit unions be a little bit higher, a little bit lower, but that's the average rate.

Richard Thornton:

Yeah, that sounds about right. My, I, I get rates posted from two or three different, uh, bankers here in the area and they're ranging anywhere from 5.7 to 5.9%. So if they have national average is six, I'm not surprised.

Justin Bogard:

Nice. The 15 year fixed average rate is 5.3, 3%. So that's quite a bit of a jump between 30 and and 15 rate.

Richard Thornton:

Right. So it's interesting. I mean, obviously they jumped because fed raised, um, fed borrowing rate to three curves of point last week or, or, uh, you know, recently, so that it's what's, that is reflecting, but it's also saying that, um, investors do not expect, um, that rate to last because if they did the lower, the short term rate, the 15 year rate would not be lower. It would be up closer to the, the 30 year rate.

Justin Bogard:

Okay. That's a pretty cool, pretty cool stat there mm-hmm<affirmative> so let's talk about the affordability and how this affects. So Richard in general, um, the 6% interest rate in the scheme of the entire, let's say the mortgage system of the United States is not that, not that dramatic, right? Uh, we've seen mortgage rates in the, uh, close to 20% in the eighties and it kind of hung out there. 6% was pretty much the interest rate before the crash of oh oh 8 0 9, correct?

Richard Thornton:

Yes. And you weren't in the market, uh, early enough to, uh, judge this, but, uh, when I first, you know, started lending, one of my first jobs was a, a lending job in the, uh, early seventies. And at that point mortgage interest rates had hovered between five and six for 30 years. I mean, the fluctuations that we'd seen since that time were unheard of, they just sort of bobbed and it was a, you know, uh, a, a very stable market. Yeah. So 6% historically is it's not a high rate. Um, when you get, uh, north of 10%, then you're, you're gonna shut down the economy. And I have to admit that we are in a very different economy now than we were then. Yeah. We're a global economy as opposed to just a, a, uh, us economy. Right. So I don't expect rates to go that much higher because that would truly shut down, um, the economy, um, when coupled with, uh, the oil prices, I don't know if you've tried to, I'm trying to go to Seattle to see my daughter here in July. And, and, uh, I just found out that the airfare had doubled since I went last time. Wow.<laugh> yeah. And a lot of that's due to gas prices,

Justin Bogard:

Right? So the 6% is kind of what I experienced when I actually got my first home mortgage, which, uh, gosh, I don't know when it, when that was 2004, 2003, 2004, and it was around six, I think it was six and a quarter is what I, what I ended up having for mine. And I believe mine was FHA loan as well at the time, my first home mortgage. So, um, let's talk about what this does. So a few months ago, Richard, it had been as low as let's just call it 3%. Maybe it's a little bit lower. Maybe it's a little higher let's call about 3%. And so that 3%, it had been hovering there since probably Richard. What about 2015, 2016, it started dipping well below 4% and kind of hanging in there, getting close to two, then backing up to fours, kind of floating back and forth for a while. So finally it's jumped up to basically six today. So we haven't country and we have been very used to having a low interest rate. So we feel like this is just, you know, a horrible thing, right.<laugh> right. We've been getting away with a very low interest rate, which causes us to what be able to afford more of a house payment.

Richard Thornton:

Right, right.

Justin Bogard:

What is, what, go ahead. You were gonna say something, go

Richard Thornton:

Ahead.

Justin Bogard:

Cause I say my question to you, Richard is what is about the average, um, median price home in the Petaluma area out where you live

Richard Thornton:

Well, interesting that you would ask, um, bay area median is about$860,000. Okay. Um, Petaluma is, um, supposed to be less than that, but actually in this part of Petaluma that I'm in, I think it's closer to

Justin Bogard:

Let's call nine 20. Let's take that. Uh, today's interest rate is 6% mm-hmm<affirmative> and on a 30 year fixed mortgage, um, the payment would be$5,515 and 86 cents. So we'll call it 5,500.

Richard Thornton:

Right. So that's quite a bite$60,000 a year. That's

Justin Bogard:

That's assuming you had the mortgage. Let's not assume the mortgage was nine 20. Let's just take a hundred grand off there. Richard. Let's just call it eight 20. Okay.

Richard Thornton:

Okay.

Justin Bogard:

Cause there's gonna be a sizeable down payment right. For this, right. Let's just, let's just call it that. So the payment let's just call it 5,000. It's gonna be 4,900 and some change. Let's call it 5,000. Mm-hmm<affirmative>. So the, which isn't the point I'm trying to make. The point I'm trying to make is to show us how this affordability really just totally changes your, uh, your family's financial. So we go from a 6% to a 3% rate. Let's just say four months ago, it's 3%. And so that payment goes from 5,000 to 3,500.

Richard Thornton:

Mm-hmm<affirmative>

Justin Bogard:

Pretty big swing,

Richard Thornton:

Pretty big swing. And none of that, I mean, if you look at it, um, let, let, let's talk about, um, qualifying for that mortgage. So, um, to qualify for a Fanny or Freddie, uh, that number can only be 33% of your gross or 45% of your total debt limit. Well, if it's 33%, uh, and your mortgage payments are$60,000 a month, I'm sorry,$60,000 a year. The first aspect of that is if you're in the 30% tax bracket, that means your payment's rough, very rough math. I mean, you, you've gotta be earning about$90,000 a year just to make your mortgage to cover no other cost whatsoever. And I dunno if you've gotta catch plug that in what is, if it's$60,000 and that's 33%, what's your income gotta be to, uh, qualify

Justin Bogard:

33% of 60,000? Is that what you said?

Richard Thornton:

Yeah, mm-hmm<affirmative>

Justin Bogard:

So that that's 33% of 60,000 is about$20,000.

Richard Thornton:

No, no, I'm sorry that$60,000 can only be 33% of your income, so divided by.

Justin Bogard:

Gotcha. I misunderstood you. Uh, sorry. I have to lean in on my computer 181,000

Richard Thornton:

Uhhuh<affirmative> so you gotta make a hundred, you gotta have to be making 180,000 just to make your mortgage payment here in the bay area.

Justin Bogard:

Wow.

Richard Thornton:

Tell us about,

Justin Bogard:

Well, that's a little bit different, a little bit different, uh, housing market here. So I don't know what the exact number is, but I'm gonna call it two seventy five for the average price home in general for the Indianapolis and greater Indianapolis area, which is gonna encompass a couple of fluent areas in a couple of poorer areas. So we're just kind of, kind of get the big gambit here. And so we'll call it two seventy five, uh, is average price home. Let's let's call it 300. Is the average price home with a down payment of, let's say 50, 50,000. So we'll just have a two 50 loan amount. Let's just make some round numbers just so that the math comes out a little bit easier for us in the calculator. And so we set a 6% rate was today 360 month mortgage. That payment's about$1,500.

Richard Thornton:

Mm-hmm<affirmative>, that's still pretty steep.

Justin Bogard:

Yeah, it's pretty steep. So the, I, I wanna say the, the average paying job is, is probably, you know, more of lines of 40 to 60,000, depending on, so you could have multiple incomes in the same house, or it could be one, one income. Um, let's go to 3% interest rate. Uh, this is where you get to get, we're doing calculations on the fly here. Uh, so it's about a thousand dollars about thousand 50 mm-hmm<affirmative>. So went from 1500 to 50. So$450 swing in a monthly payment, which, you know,$450 here in, in Indianapolis area or the Indiana area. You know, your electric bills are gonna be anywhere from a hundred to, to$200 for the summer, um, right there. So that's that, that's, that's a huge difference as far as comparing it to other utilities and stuff. So having the 3% interest rate will allow you to afford, you know, obviously to pay other utilities and stuff. So that, that's what the swing is here is about four 50,

Richard Thornton:

Right? So since the media income last year, which is the, you knows latest year that we have stats for in the us was only$33,000. It makes it pretty tough for many, many, many people to own a house. Now you can buy a nice little for a hundred thousand dollars in, in, you know, some little pot town, um, a rural, I guess I should say. Uh, but, um, it makes it difficult. And I think that's part of the reason that we are seeing that the millennials, um, are buying so few houses. I mean, the, the renter's portion and the, the rental market is going crazy in the us. Um, I used to finance a lot of apartments and I syndicated a few small apartment deals and I got out of it because there was just, um, so many people looking for those deals and cap rates were getting, uh, beaten to death, right. Uh, but that has since turned around, uh, since millennials have not been able to buy the band is way up, rents are way up. Um, and, uh, home ownership is way down. Matter of fact, I read something earlier that said that only 17% of millennials are able to afford a house.

Justin Bogard:

Wow. That's a pretty low number. Mm-hmm<affirmative> so it's tough for them to afford the house. And then number two, do they want the house, do they want to be homeowners? I wonder if there's data on that to show, um, it seems like the millennial or the, the generation that's after the millennial who's, who's coming in through the mix. I don't know if that's called gen Z. I, I can't remember what, what the generations are called now, but is it, you know, they don't want the maintenance of the house, right? Maybe they want the more, the condominium style where the HOA is kind of taken care of all the things from the outside. They want to be in more of a community that can walk to different places for the, in, for the downtown Indianapolis, millennials and the generation after they let just call it that that's exactly what they wanna do. And they love it. You know, they, they want the, they don't mind the smaller space. They, they want to be able to walk to places or to ride a bike or the, the lime scooter that you can rent off of your app. Right. And take that from place to place because they, they like that part of it. So I, I can see it being both factors, obviously affordability is pretty apparent, but also the factor. Do they really want to own a house?

Richard Thornton:

Well, um, yeah, I mean, to me, that's always, it's always gonna be anecdotal to, to answer that. I just think it's very interesting trade off. I, I tend to be somebody who likes to have my space the way I like to have it. In other words, if I want a wall that's pink or green or blue, and I wanna move it from here to there or decorate it, according that's part of my living environment. But if you're renting, you don't necessarily have that choice, uh, to do that. Uh, and so they're obviously willing to give that up for that lifestyle. Um, I think part of that may go with, uh, the fact that a lot of people are adopting more of the European, um, model, which is you don't live in your house so much. You spend most of your social time, um, is spent outside. You're outside of cafes, you're outside doing things. Um, and so that's a whole different, uh, cultural lifestyle.

Justin Bogard:

Yeah, you're right. It is. Um, and it makes sense logically, when you think about like, if I'm not in my home 24 7, do I really need to have a big home? Do I need to have a, a big payment, but it's, it's all in your, I guess, your wants and needs right. When it comes

Richard Thornton:

To. Right. So I think though, that's going change, uh, once the millennials start to age a little bit and start to get families. Yeah. Because it's very tough to raise two or three kids, um, in

Justin Bogard:

Yeah, exactly. Right.

Richard Thornton:

It's done all the time, but you gotta have places for the kids to play. And it's just, uh, it's much, much nicer to be in a single family home.

Justin Bogard:

Exactly. Yeah, exactly. So the question I get asked often, Richard, in this, this new mortgage rate economy that we're in is the question gets asked Justin, you know, how does this affect what you do for a living and investing in mortgages? Does this, does this affect you in any way? And, and my answer is, is usually a pretty much blanket statement is that it doesn't, you know, it doesn't affect us too much as far as myself being in investor. Uh, it obviously affects the consumer, the person that needs to get the mortgage or the help to finance the home. It doesn't affect us too much because there's just so much of it out there. And so few of us that can buy these, um, that we don't really, we don't really see a squeeze if you will, of, of that mortgage share.

Richard Thornton:

Right. So I would agree with that. Um, do you find though that your investors are wanting higher rates of return because interest rates in general are up,

Justin Bogard:

You know, I don't get that question asked too often. It's usually the investor that expects a certain rate of return, or maybe it's kind of unreasonable. Let's just call it double digit returns and higher. Um, it depends on how much effort they put into it. So I, I don't get that question posed to me too often. They, they kind of have a return on time in mind, if you, excuse me, if you will. So they're looking for a vehicle that just invests, excuse me, their money. And then they're looking for a consistent rate of return, a predictable income stream that's coming in and that's usually their satisfaction. So to answer your question, unfortunately, I know I'm getting around it it's really kind of no ish<laugh> mm-hmm,<affirmative>, people are happy with the highest return they can get with the, you know, the most money they can put into it. Right. But at the end of the day, the old cliche is, um, what I tell people is like, well, how much activity do you wanna be involved in this? And if you don't want much activity, then this is, this is where you're gonna be. And, you know, the risk is minimal, right? The risk is low, the security is high. And the payment is a, is a constant stream of cash flow that, that fits your wheelhouse. So it comes down to what I call the, the three different buckets that people kind of fall into. So the ones that are more active that want to be more active with a higher return than, um, you know, they, they have to kind of harvest their inventory if we're out there looking for them and they gotta share some of that. Some of that return

Richard Thornton:

Mm-hmm,<affirmative> what I thought is interesting. Is that a number of, um, not my clients, but people that are or wanna be clients<laugh> yeah. Um, seem to have the 12% return number stuck in their head. So, uh, five or six years ago when rates were a lot higher, they said, sorry, turn off my phone.

Justin Bogard:

Well, we're on live TV.

Richard Thornton:

That's right, right. They said that, uh, they wanted a 12% return. And then that's when rates were, you know, eight, 9% then rates fell down to 2%, 3% and they still wanted a 12% return. Uh, they were not adjusting, uh, accordingly. Um, doesn't work that way, uh, as, as you well know, especially since stuff becomes more, uh, um, what we offer anyway. Um, a lot of, I sold, uh, two notes yesterday, uh, to somebody and one was at a 23, 20 3%. The other one was a 33%, um, investment to value. I mean, okay. You're just not gonna get more than like a 5% return on anything like that.

Justin Bogard:

Right. Because the risk is low. If the risk is low, you can't expect a large return because it's a very, uh, highly secured, low risk. I don't, I don't like to use the word safe, so I'm trying to purposely avoid that word. Right, right. Yeah. It makes sense. Right. High risk, high profits, that that's kind of the, the old saying there. Right. So Richard, I don't know where I was going with that, that last thought, but I just, I wanted to get your input on it.

Richard Thornton:

Well, so I mean, what I would say is that a lot of people don't account count for risk. Those people who say, gee, I want a 12% return. Um, you make the argument, as you stated broadly about risk and return, um, what they don't realize that a lot of those 12% returns, um, they're totally over leveraged. A lot of people think, oh, gee, I can get into a private money loan. Uh, I can work with somebody to flip a house. Let's think about that. They let's use lower numbers than I would here in the bay area, but probably higher than you may have. Okay. Um, you buy a house for, uh,$200,000 that needs a lot of work. Um, uh, and you get a good price on it, but if you had to put it on the market, uh, as it, as it was, it might be worth 2 25, but you got it for two. Um, and so they have to put in 75,000 to, um, make it, um, presentable to today's standards. So they're at 2 75, and there's a period during that renovation where they've got a house that's actually less worth, less than 200,000, because it's all ripped apart for renovation. If for some reason your, um, uh, folded got hit by a truck or, or whatever. Uh, if you tried to sell that house at that time or get another contractor to come back in and finish the job which I have had to do, and it is not pleasant at all, um, you know, it might be worth 150, so they don't take you into account that they're way over leveraged during that period. And they're always looking at the OG, I'm gonna make X amount of money later on. Well, not necessarily

Justin Bogard:

Richard. That is an excellent point. And that's something that I haven't point out to people before. And you did a great explanation of that, cuz you're exactly right. That's why the, the, what do we call this? The private lending or the hard money lending aspect of it is such a high return because you're expecting that velocity of money to come back a lot sooner. And then also you're taking on just inordinate amount of risk right there, because you're exactly right. Well, that happened every time, you know, but it can happen. And it's, it's, it's probably happened to a lot more people that we realize. So there's also that yield drag effect, right? With the hard money lending. It's like, yeah, you can get this air quotes here for folks that are listening on the podcast and not viewing us here is the 12%, you know, hard money rule. But like you just brought up. So yeah, you can make 12% on that specific project, but what happens when you're waiting from the end of that project to the beginning of the next project that your money's deploying, you may have a couple of months of drag time that takes that 12% down, even further. So you end up making, let's say you net 8% on it. And the risk was really high wouldn't you rather have an 8% or 7% return on something. That's a very low risk situation and it's not a variable change and it's across a longer period of time. And it's a very consistent, predictable cash flow. That's our argument against it.

Richard Thornton:

Yeah, very much so. And a lot of people get, get greedy for yield. And so I'm buying a note right now that I'm getting a very good return on, um, I'm probably gonna get like a 19% return on it. That's great. It's not that big a note. It's like a$34,000,$35,000 note, but I looked at it over the term and I'm only making 2000 on that note at that return. So the actual dollar return is not that great. Yeah. It's a great yield, but you really have to look at it, uh, in terms of what do you have at the, at the end of the day, the term is not that long on it. It's only got a couple years left on it. So I would much rather put it out, um, and get a lower return, get a 10 or 12% return or lower for a longer period because my money's gonna be working for me longer.

Justin Bogard:

Exactly. Yeah. Looking at a note portfolio is a little bit different than just saying, I want to average my portfolio of X amount of return. Yeah. That that's easy. Math has a crude way of looking at it, but there are other factors Richard, that you just brought light to, that you need to take into consideration. What's the risk on it? I tell people all the time, I have single digit return, uh, notes on purpose because the risk is so low. And I keep some of those in my portfolio for that reason, because it can help me, um, absorb some challenges in the future with other higher risk notes that I have in our portfolio that may project, you know, a lot higher return may call it, you know, a 15% return or higher maybe. Uh, but there's a lot of risk there. There's, there's a lot of opportunity for things can go wrong, but it's also, you know, the bottom of the ninth with two outs and you got your, your fourth position batter up there, ready to knock it outta the park for a grand slam to win the game when you're down by three, right. Are situations that you look at the portfolio and you kind kind put the, put the pieces of the puzzle in there.

Richard Thornton:

Right. And so the other thing that I didn't mention, um, about the private money loans in shorter term and getting 12%, uh, return is that it doesn't have to be something that's catastrophic at one point. Yeah. As you know, I, I flipped houses and we did have a period about 20 14, 20 15, but here in the bay area, the market just stalled didn't didn't collapse. It's just like, it just went into the pause mode. And I realized that I had an enormous amount cuz I had nine houses going at once, um, enormous amount, a negative drag. And there was a very good possibility that I wasn't going to make any money on any of those. Wow.<laugh> um, houses, not because anything catastrophic, but just because, um, all of a sudden it was gonna take me maybe three months market slowed down a little bit. It was gonna take me three months to sell the house. And my negative, my debt service was eating me alive. Yeah. Uh, before I could sell the property, so, well you gotta put all that into consideration and, and right in today's market, that is very much a possibility because a lot of these buyers, um, on flipped houses are gonna have to try and qualify for conventional mortgages, um, that are gonna be at the 6%, uh, that you mentioned, uh, at the opening.

Justin Bogard:

Yeah. Is a very good point. I, I know we got derailed from our affordability concept, but I'm glad that you brought up about the investors because it is a good conversation to have. And it's something that, you know, we don't get a chance to talk about too often to defend on what, why it's not an Apple's Apple's comparison. And I think we've illustrated really well about the risk there. Yeah.

Richard Thornton:

And it does all, as you say, it does all get down to affordability. As soon as that soon as the rates go up, um, your payments are larger, your down payments gotta be larger. And if you don't have somebody a, if you don't have the money yourself or here, here in the bay area, what we find is, is a lot of, um, a lot of grandparents are put making pretty big investments in their kids' houses for em, so they can, uh, get on the train.

Justin Bogard:

All right, Richard, uh, we're gonna take a, a quick break. We'll be right back. This episode, number 13 is brought to you by bright path notes. And we're gonna have a little bit of fun after this, Richard, thanks again for being on the podcast today. Um, thanks again for being my kind of partner in crime. I know we haven't talked about it too much, but uh, we kind of joined forces not too long ago, about a year ago. I think as far as trying to, to build a portfolio together and using our sources and our, our resources and our network to kind of come together and do things. And we've been going after a lot of seller finance notes, meaning people that create these seller finance plan contracts or these note and mortgages or note de to trust, depending on what state you're in. And we've had kind of, bit of fun in doing that. And, uh, you are on the front end of the, of the line here, as far as you are talking with the potential note seller mm-hmm<affirmative> and you are getting information, you're hearing these really amazing stories. And sometimes they're funny and sometimes they're sad. Um, and then I had the luxury of just doing the back end office work with all the other stuff right. That we do. And, uh, my question to you, uh, is, is just to, to bring a little bit of, uh, humor into this is, um, you get to experience a lot of the psychological part of doing the deal, right? Getting creative with trying to get to understand someone's pain on, on how you can solve that problem and in doing so, I know you get a lot of extra information from the seller that may not be that important to the deal, but it's just kind of neat to understand. And so, um, some, some of the stories that you've gotten that you've told me, I'd like to, you know, maybe talk about one or two just for fun. And so, um, come, come to mind, this is off the top of your head. I know I didn't plan on, on, I know you didn't plan on me asking this question, but, uh, what, what are some of the, the fun stories that you've heard recently? And I know you've been doing a lot of marketing in Texas, um, just because it's interesting to hear your stories from different states on how people sound, how they react, how they, how their mannerisms are. And so what, what have you heard from Texas so far? That's a story to where someone has gotten into a deal and, and they're ready to sell it and, and the reasons why to sell it.

Richard Thornton:

Well, uh,<laugh> I get a lot of divorce stories, a lot of, of, uh, Hey, uh, my wife got the house. Um, I don't have anything. Uh, and then I get these crying type of emojis. Um, there's, there's, there's more divorce driven, notes, sales out there and home sales, then you would, uh, then you'd like to believe I did get a humorous one, uh, response yesterday was talking to somebody I'd gotten their phone number. And, um, we texted back and forth, uh, just before we, we had a phone call and the person said, bro, uh, I'm only 13. I don't have a house yet.<laugh> yeah. And I texted him back and I said, what 13? You don't have a house yet. You should have at least two. And so we went back and forth like that. You know, uh, there are some people out there who, who, uh, like to have fun, uh, some things that

Justin Bogard:

I'm sure there's people on the opposite end of the spectrum. And we won't, we won't bring that to the, to the call today. But, uh, yeah, those are, those are funny. I, uh, Richard, I, I wanted to, to bring one last thing into this before we close today and, and to talk about seller financeers and we were talking with them because you tell me these stories and you get me kind of caught up to how the transaction came to be, how you were able to sell it, what their, what their challenges and issues are. And then, then I get to talk with them on the phone, after that, during the process of we'll go closing, going through the discovery, I'm looking at their documentation stuff, asking them questions and, and you'll tell me, oh yeah, this, this person is, is awesome. You know, this is who they are. You know, you give me kind of a general idea of the type of person. Sometimes I get on the phone and it's not, it's not the same thing. Um, as far, not, not mean anything bad. It's just, it's funny how, when you talk to somebody, you know, you may see this person a different way when I talk to'em, maybe they they're a little bit different. So I'm wondering if it's the passing of the Baton that changes kind of their attitude a little bit. But, uh, anyways, I think that's just a good salesmanship and you maybe a poor salesmanship and me<laugh> those stuff.

Richard Thornton:

No, I don't think so. I think it's, I think you're right. I think it's one is sort of anticipation because they, they, in a lot of cases wanna be nice to me because I haven't given them price yet, so they're sort of on their best. Yeah. Um, and, and you're right though, we do get the responses anywhere from a realtor who wants to sell three or four properties, um, or sell the notes so they can buy another property. And they're very quick and on top of it, um, we get, uh, you know, Ebeneezer, who's 83 and quiet. Can't hear what you're saying,<laugh>, you know, and, and doesn't, doesn't quite get it. Um, and we get the, the lady as you know, who has had, and I'm not kidding, five husbands and she's estranged from her sister and her sister is renting the house or bought the note for, and is no longer paying. And you get into these domestic stories and you go, I don't believe it. I don't believe that people live like this. So it's all over the map. It's, it's, it's I have to admit it is kind of fun sometimes,

Justin Bogard:

Uh, with all that said in mind it, I know you agree with me when I say this, it's, it's really a joy, um, when you're able to convince the sale, because, you know, you've gotten that seller exactly what they wanted. They're happy with getting, uh, the problem solved if you will, which is releasing themself of the liability of being the lender. If you will, then also, you know, that you have a borrower, that's appreciative the fact that now I can have a loan that's kind of professionally serviced and it's following the rules. So they know that, you know, they understand they're not gonna get away with certain things, but they also know that they're held to, you know, the standards and, and the regulations of the CFB, the consumer finance protection bureau. And so it's kind of a, a win for the seller, a win for the borrower. And it's a win for us, obviously, cuz we're in this business to make money. And so we, we obviously can get our inventory that way. So at the end of the day, Richard, I really like what we do. And I'm really glad that you're doing it with me and, and these, most of these stories are pretty fun.

Richard Thornton:

Yeah. Yeah. I mean, and, and, and you're right. I think in general, we are pleasing people. Um, in general, we're helping them sort of get on with their lives. There's the one fellow who's, um, got married, his wife cheated on him, they got divorced, she got the house. Um, he's tired of getting the payments because she's, you know, basic, she's jerking him around not making the payments. So now he's gonna get his full dollar and she's going to basically have to, um, not be able to jerk anybody around anymore. And it's just a lot nicer situation. So

Justin Bogard:

Yeah, it, people take advantage of family and friends when they do deals. And so this is why when they offload that problem, they realize, okay, there's a new sheriff in town, if you will. And we're the, the rules are gonna be enforced now. So

Richard Thornton:

Yes they are.

Justin Bogard:

Right. Richard, thanks again for being on the podcast today, episode number 13, which is brought to you by bright path notes and we will see you next time.

Richard Thornton:

Great. I always enjoy it and let's do it again.

Justin Bogard:

All right.

Narrator:

Thanks for listening to V the bank. We hope you learn something from today's show. If you enjoyed this episode, please rate and review us. Plus check out our bright path notes, channel on YouTube and follow us on Facebook and Twitter at be the bank and on Instagram at be the bank podcast. Be the bank is sponsored by bright path notes. Thanks again for listening.