October 4, 2023 • 22 mins
Ready to navigate the tumultuous waters of real estate investing? Experience the shift in investor behavior as we discuss the latest trend towards lower risk investment options, offering modest returns backed by hard assets like real property. We challenge the conventions of real estate investing, dissecting the role of a portfolio manager versus an investor, and highlighting the importance of understanding the return on investment while exposing the potential pitfalls of house flipping.
Ever wondered about the rewards, or the risks, of investing in private money or hard money loans? Richard Thornton helps us to peel back the curtain on these investment strategies, illuminating how the advertised annual yield might differ from reality due to the latency period between reinvestment. We'll also dive into the not-so-distant past, unpicking the impact of the 2008-2009 market pause on the risk factor of private money lenders. Listen in as we explore the advantages of having a larger portfolio, including the convenience of having someone manage the fund for you, and draw comparisons between investing in a fund and buying municipal bonds. It's a crash course in real estate investment, not to be missed!
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:
Facebook - bethebank
Twitter - bethebank1
Instagram - bethebankpodcast
American Note Buyers - https://anbfunds.com/
Monthly Broadcast - https://youtube.com/playlist?list=PLzc944w1xydt5aLDrrEPHJhdJeDkBjjD4
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Narrator (00:01):
Interested in real estate.
How about wealth?
Well, they go hand in hand, andhere you'll learn all about it.
Welcome to Be the Bank, apodcast where we discuss and
debate the topics centeredaround real estate investing.
Your host, justin Bogart,shares insights into investing
in real estate to create realwealth and passive income for
(00:22):
you and your family.
He'll share stories of realestate investments done right,
walk you through the process ofowning a real estate note and,
most importantly, educate you soyou can be the bank.
This is Be the Bank brought toyou by American Notebuyers.
Now here's your host, justinBogart.
Justin Bogard (00:45):
Welcome to Be the Bank podcast, season number
five, episode number 20.
Today, richard Thornton isgoing to be talking with us, and
one of the main things thatwe're going to discuss today is
kind of what it looked like tobe in a portfolio, like a fund,
or versus owning a couple ofnotes.
I'm going to dive into somespecifics on that, so stay tuned
, hey dude.
Richard Thornton (01:15):
Hey, you know I was worried there for a
section because I heard a littlefellow talk in the opener and I
thought he said with your host,jackson Begard, and I thought I
thought, wait a minute,something got screwed up here.
Justin Bogard (01:34):
It must be a latency issue.
Those of you that are listeningto us, we record this podcast
via our YouTube channel so youcan check out American
Notebuyers YouTube channel soyou can see what's happening
Pretty much.
Richard has this ongoingproblem with his computer where
all of a sudden his camera worksbut it doesn't, and what I mean
by that is that I can seeRichard on camera but he can't
(01:56):
see himself when we're on theapplication we're using to
record this.
So it's also given him somelatency issues.
So when he's speaking, hiswords come through quicker than
his mouth is moving on thecamera that we're seeing on the
video recording.
So it's quite interesting.
I just need to think faster,yeah, or maybe have your think
(02:19):
fast.
Yeah, think faster than yourwords come out slower.
Is you're able to move yourmouth before you talk?
Like a half a second, like itwould work perfectly.
Richard Thornton (02:27):
Telepathy is a good thing, which we may be.
So they know, musk is nowexperimenting with silicon chips
and imprinted in brains, andthey're doing it for people with
disabilities.
But you know, what's comingdown the road is the Borg.
So when you want to invest innotes, you'll know what notes
(02:50):
are immediately availablebecause you've talked to the
Borg.
You'll have a ready main marketand I'm sure, I am sure that
investing in notes will be atthe front of that list.
Justin Bogard (03:03):
They better be.
Richard Thornton (03:05):
Forget the stock market crap and all that I
mean.
Justin Bogard (03:10):
Well, speaking of the stock market, that's when I
get the most interaction withpeople is when the stock market
starts going sideways or whenthere's I'm using air quotes
here for those that can't seethe fear.
When the fear is out thereabout the economy possibly going
bad or something is wrong, orwith real estate, like, people
just get worried and it's justquite interesting.
(03:33):
So I don't know about you, butfor those of you who don't know,
richard is in Petaluma, whichis the in California, and I am
in Indiana, which is the Midwest.
So we see two totally differenttypes of individuals, investors
and even housing and realestate.
So we always think it's comicalhow we compare and contrast
things and just think it's justthe polar opposite, really right
(03:56):
.
Richard Thornton (03:57):
Very much.
So you know, I don't know Iwon't digress too much, but you
know they say the housingmarket's cooled down, and I know
it's cooled down some placesand it seems to have cooled down
here.
And then I keep getting thesenotices in the mail, like the
realtors send you, you know, andwe get houses that are being
(04:20):
sold for $100,000 or $200,000over asking, still Still.
Yeah, I'm going, what the heck?
I don't get it.
I mean, it's such a jumbledmarket out here, it's just
amazing.
Justin Bogard (04:33):
It's a new frontier for us in the real
estate world.
I believe in the, and I wasn'tinvesting in the 08, 09 and 10
era, but you obviously were.
I'm sure it was in that.
At that standpoint you werelike I don't know if I've ever
seen anything like this before,nor will I ever go through this
again, and I think we're allsaying the same thing now.
Richard Thornton (04:54):
Yeah, in a very different way.
But yes, I mean, things arejust a mess.
Markets are a mess right nowand there's a whole lot of
tumult.
That's the best way to put it.
I think there's some little hotspots in some places and not in
others, and it's just a wholelot of depends totally on what's
(05:15):
going on.
Like we've got a whole bunch ofold houses out here.
I mean when I say old, I meanmy whole neighborhood.
A lot of the stuff is built,you know, 1860 to 1920.
I don't know.
Justin Bogard (05:29):
That's interesting.
Richard Thornton (05:30):
But your previous comment about the
jitters in the market is calledflight to quality.
That is the overall term and alot of people start buying CDs
and things like that when theyhave so much tumultuousness in
the market.
I think that there is a bit of,as you've said, a bit of a
flight to quality in investingin notes and especially in
(05:54):
investing in a fund, because ifyou look at the difference
between buying individual notesas opposed to buying in a fund,
the funds easier and safer.
Justin Bogard (06:07):
It seems to be a pretty, almost clear answer.
For investors that I've talkedto recently, because of that
fear and that they see theeconomy feels like it's going
down, even though we know itjust really goes up and down and
that is a cause for concern islike where can I put my money to
(06:28):
get just a modest return?
And where can I put my money towhere there is a safety net
behind it, to where I know thatthere's a hard asset supporting
it?
And obviously you know our fundis buying real estate notes
across the country and all thesenotes are secured by real
property, traditionallyresidential property.
Richard Thornton (06:46):
Yeah, I mean when you look at it.
So I talked about this.
I'm for those of you who don'tknow, I'm making a small series
of videos regarding investing infunds and basically it's note
investing 101.
But one of the things Imentioned in there and I did a
little research to back this upis that a lot of is that I
(07:10):
compare what we're doing sincewe have, since we are investing,
and especially we're in a fundto investing in municipal bonds.
Why is that?
We are asset backed.
So, yes, we as a fund may havea little problem disposing of a
property, but guess what?
You still got.
(07:31):
I'm going through that right nowwith the property.
When I bought the note, theproperty, I was at 50% loan to
value on the house and we're nowselling the house and the house
is right now it's at about 30%loan to value.
(07:51):
So even if that defaulted, I'mgonna get out very well.
So to me, that actually isquite comparable to buying a
municipal bond.
You don't have the creditworthiness of a city or anything
like that, but you got a lot ofthere there.
And so what are you gonna yieldto you?
(08:11):
Getting on munis?
Well, munis are three to 5%right now.
Well, the fund starts at sixand goes to eight and a half
right.
Justin Bogard (08:19):
Six and a half to eight.
Yeah, I almost had it Right.
A couple of half percent off oneither side.
Richard Thornton (08:26):
I was short on the bottom and long on the top,
so I almost got it.
Justin Bogard (08:30):
You're being too generous, all right, that's
right.
Pull it back, pull it back.
Richard Thornton (08:34):
That's right.
So, anyway, I think a lot ofpeople need to keep that in mind
, especially when you invest ina fund as opposed to a one-off
note.
Justin Bogard (08:46):
The management of it is a lot different too.
Richard Thornton (08:49):
Oh, totally.
Justin Bogard (08:50):
One-off versus a portfolio.
So if you have time for it,then obviously build yourself a
note portfolio.
That'd be a great income foryou and keep things going and
you can be pretty active in thebusiness.
If you don't, a fund's a greatway to do that because
somebody's doing that for youand, quite frankly, if in a
large portfolio on a fund, ifone note goes bad, the rest of
(09:11):
them just absorb kind of thatbump in the road.
So I described this to somebodyearlier today when I was talking
with them.
I was just like you justimagine you're going down the
road and the fund is a shockabsorber.
All the other loans in thereare just shock absorbers.
So once they go over a bumpthey just, you know, the tires
and the suspension kind ofcompresses and then it
decompresses once it goes backover it.
(09:31):
So it's.
I think it's a really goodanalogy to show like how it's
pretty resilient overall andthat's why we buy assets that
are, you know, the 125 to 50,000range assets.
As far as the UPB, that we'rebuying the Unpaid Principal
Balance, and that really helpsus, as opposed to having a $10
million fund and you buy $10, $1million mortgages.
Like that doesn't make a wholelot of sense, right?
(09:53):
Because if one goes down, youlose 10% of your portfolio.
Richard Thornton (09:56):
Right, right, yeah.
And so also one of theresponses I get quite often is
as well, if I can go out and buya note myself and get a 9%
yield, why should I do somethingwith you guys and get a six and
a half or to eight?
Well, there's a pretty goodreason and you just went through
(10:18):
some of those.
You can be a yield hog or drunkon yield and if you look at the
actual dollars, you know per100,000 if you get an 8% yield
versus a 9% yield.
So you've got $1,000 differenceand is that worth the money?
Justin Bogard (10:43):
You're working a lot harder for that extra juice.
Yeah, yeah, yeah.
And do you have to go?
Richard Thornton (10:47):
through the foreclosure, and do you have to?
Yes, you're gonna get yourmoney back, like I was just
talking about, but there can bea lot of headaches between here
and there.
That's a pretty good comparison.
Justin Bogard (10:57):
I don't think we've done that before, but I
like what you said about that.
And when you're first startingout in the business and you
really want to do this full-time, that's okay.
Go ahead and do that, right.
You know, buy a few notes andstart getting your teeth cut in
the business, and that's finetoo.
A lot of people get into thisfor the knowledge, so that they
feel reassurance that this isthe right investment for them.
(11:18):
But then they figure out theynine times out of ten they don't
really want to do it full-timeor have the time to do it after
their nine to five job, and theyjust end up having a.
That's why we had the fund soaggressively priced for return
for investors, because we wantthem to, you know, get into the
fund because it just makeseverything better for the rest
of us.
We'll get better deals now.
(11:38):
We can buy at bigger discounts,we can buy in bulk.
We got all those advantages nowof having a larger bankroll as
opposed to.
You know, when it's just youand I in there, we're suffocated
on capital.
We only have so much that wecan use.
Richard Thornton (11:54):
Right, and it's a little bit like I mean.
So do you want to consideryourself a portfolio manager or
actively managing a portfolio?
What's the difference?
If I'm a manager, if I'm goingto be a manager at a job, I'm
going to go in and I'm going towant to do the job for a while.
I don't care what it is, ifit's plumbing, if it's
installing you know certaintypes of pipes, or if it's
(12:16):
running different types ofanalyses.
For I mean, I worked for asyndicator for a while, so I did
nothing but run spreadsheetsand I knew the investment and I
knew the spreadsheets in and outand I really knew what made the
numbers work.
And it wasn't until after I didthat myself that I could step
up and start to become a managerof other people doing that for
the company.
Investing in notes is a littlebit like that.
(12:39):
Sure, go out, cut your teeth,you know.
Get to know the product beforeyou step up and become the
manager of your own portfolioand putting your money with a
fund or something, because thenyou could say, oh, I know what
those guys are doing, I knowwhat's involved, I know why I
want to be just a manager andnot down in the trenches.
Justin Bogard (12:59):
That's a great explanation there.
I was talking to somebodyrecently about.
This is one of my new petbeavers, about flipping houses
and fixing and flipping themLike I get it.
Some people can make some moneyand on paper sometimes the
deals look really good whenthey're done with the ROI's.
But living through it, yeah.
(13:19):
Like what you said.
What you said was great,because I fully believe that's
what we should do as managers iswe should actually do the work.
Do the job so we can understandit.
So if we find you know simplerways to do the process or build
a better system running,obviously you're going to have
good knowledge on how to do that.
But yeah, I just don't get howfixing flippers actually make
and sustained money because ofhow much time they put into it
(13:43):
that you can't really put adollar value on.
And at the end of the day whichmy other pet peeves at the end
of the day, right, I don't thinkyou really make money Well, so
that's why I got out of it.
Richard Thornton (13:58):
When I was flipping houses years ago I mean
I got out of it in 2016, Ithink, 2014, 15, so on there I
was making 50 to 70% on my flipsand I said, if I can make that
kind of money in a six monthperiod because that's start to
(14:20):
finish by the house do thereconstruction.
You know renovation andactually be sitting at the
closing table.
That's what it was taking.
I was willing to take all thoserisks that you talked about,
but when all of the weekendersgot in there and and yield
started going down and you gotthe market being where it is
(14:42):
right now, where a lot of people, a lot of flippers, are happy
with a 15% return, I'm saying noway, no way.
Am I going to have thosesleepless nights?
Am I going to wonder if my HVACunits, c units, going to blow
out and I'm not going to be ableto sell the property or
whatever it is that goes wrong?
I mean, renovation, isrenovation right?
Yeah, it's a big world ofunknowns.
(15:04):
I agree with you.
Justin Bogard (15:09):
Let's switch topics quickly, but along the
same lines, and talk about thelender in those situations.
So lending short term for afixed-list project because
that's kind of your area ofexpertise is what we also called
hard money, meaning Richard isgoing to lend money out, or
anyone can lend money out on aproject, knowing that the
(15:31):
balloon is due, like in 11 and12 months and I usually.
Richard Thornton (15:34):
Usually PC term is private money, not hard
money.
Justin Bogard (15:40):
It's always been private and hard money.
I never knew which one wasright or wrong.
Narrator (15:45):
I hear more hard.
Justin Bogard (15:46):
Do you hear more private money where you're at?
Richard Thornton (15:48):
because I was here, yeah, yeah, I hear private
money and they say, oh, youwant me to make a hard money,
long go.
No, no, I said private, I don'tknow.
Justin Bogard (15:58):
No, I don't want anyone to know about.
This is in public.
Richard Thornton (16:01):
Everybody it's .
It's hard money, but yeah, sogo ahead.
I interrupted you.
Justin Bogard (16:05):
I don't know what I was gonna say.
I was just trying to comparethe.
Richard Thornton (16:09):
Lender a little bit, yeah, so.
So when I'm trying to, I'mdoing my different networking
groups and things like thatPeople ask me the legitimate
question why should I invest ina note, a long-term note, where
I'm gonna make?
I want 9%, 8%, whatever it isthere we go.
Justin Bogard (16:25):
Okay let's go down this path.
Richard Thornton (16:27):
Yeah, versus 12 or 13 in some cases.
Out here from a flipper.
Well we're talking aboutinterest rates.
Justin Bogard (16:36):
Let's let's Clarify this.
We're talking about interestrate, so when Richard says 12 or
13, he's saying just theinterest rate annualized 12 or
13 percent right.
Richard Thornton (16:45):
So I mean, the first glaring factor is is that
If you're only making Ownedelse, if you're making 9% or 10%
, you're making that all yearlong, whereas, and for many
years.
Justin Bogard (16:58):
Whereas on investing in a note right.
Richard Thornton (17:00):
Right right, investing in a note, whereas if
you go and you invest in a hardmoney or private money loan,
your money is probably onlystanding outstanding six to
eight months at the most and,yes, you're making 12%.
But then can you get itreinvested.
You know there's always gonnabe a latency period there of at
least one or two months beforeyou Can get it reinvested in the
best of cases.
(17:21):
So if you look at your annualyield, it's not actually 12%,
it's, you know, what you got atyour in your pocket.
At the end of the day it'sprobably closer to 10.
Justin Bogard (17:31):
Yeah, there's drag on that.
Richard Thornton (17:33):
Yeah.
So that's the one thing.
Another thing which I think isEspecially out in here in
California A lot of people havebeen lulled into, is that they
do not realize that when Joerenovator or Jesse, or you know
him, him or her, whatever thenames are put in a half a
(17:54):
million dollars on a, on a house, and You're making a loan,
that's 75% loan to value, assoon as you do that, soon as
they get into the renovation,you were over lent, you do, you
are, you are lending at thatpoint probably 130 or 140, if
(18:14):
not more, percent of the valueof that house because they've
got all.
They've got all ripped to shredsand nobody's gonna want to go
in and and it's not worth whatthey paid for at that point
because it doesn't have drywall,it doesn't have a kitchen, it
doesn't have, you know, whateverit is there they're doing.
So you've got a huge riskperiod there and that's actually
inevitably why I got out of themarket.
(18:36):
The market paused for a whileand I realized that I had debt
services $10,000 a month.
That was sitting over my headand if the market didn't turn
around quickly, I was gonna beunderwater very quickly.
And a lot of people don'tperceive that risk because they
haven't been bitten yet.
Justin Bogard (18:57):
High risk, high reward.
Richard Thornton (18:59):
Yeah, and a lot of you know there was a lot
of in 08, no 9.
There were a lot of hot shotprivate lenders out here that
you know basically were Drivingbeamers and Maserati's and they
act like they had it all figuredout too.
Yeah, I mean, and they'retalking about the subprime guys.
If you want to see, you knowwhat the subprime guys are doing
(19:20):
.
Just watch the big short,because they portrayed it very
well.
Those guys were out theremaking loans and buying trailers
and boats and you know allsorts of Stuff, and they had no
idea what they were doing.
These aren't the subprime guys.
These are guys that said I'minvesting in 65% loan to value
and I know what I'm doing, andla la la, and they all went
south.
I mean I would.
(19:41):
This is Not an exact numericalnumber, but I'd have to say that
probably one out of ten Privatemoney lenders made it through
that period.
That makes sense.
Justin Bogard (19:56):
Yeah, because you're.
You're You're investing intothe current, as is, value of the
property.
On top of that, you're alsofinancing some of the rehab work
.
So you're banking on theappreciation of the asset from
when it was purchased at theclosing table and you're raising
the loan to when it's actuallygonna be finished, and you don't
know if it's gonna get finished.
And you yes, you have a drawschedule.
(20:16):
You don't have to give them allthe money up front, but you
still have that, that high riskfactor of you've got a lot of
money into this project thatisn't really finished, and so
are you banking on the value ofthe home being sold at a higher
rate.
But you're also banking on theindividual that's borrowing the
money, that's gc in the job,that they're gonna do it right.
(20:36):
So there's a lot more risk thatpeople Maybe don't realize.
That's you know on the surfacethere.
Richard Thornton (20:43):
Yeah, it's a game of musical chairs that you
may not really like a way to putit yeah, you may not realize
you're playing because if themusic stops, guess what?
You better find that chair.
You better find that chairbecause everybody else is gonna
be trying to find that chair andsomebody's gonna be out.
Yep and that's what happenedout here in 08 no 9, and I have
a lot of very nice propertiesthat were just all of a sudden
(21:07):
worth worth half, if that.
Justin Bogard (21:11):
Geez, alright, richard.
Well, we are just running up onthe clock here.
The think this is a goodstopping point for a
conversation today.
Thanks for being on our podcastagain.
Obviously, this is episodenumber 20 of season 5 of the be
the bank Podcast.
You can check out our Americannote buyers YouTube channel.
See the video stream of thatand all the videos that we do as
(21:31):
well and in Richard's videoseries will be up there shortly
as well.
So we got that going for us,richard.
I will catch you later.
My friend, it's in.
Richard Thornton (21:44):
Bye.
Narrator (21:50):
Thanks for listening to be the bank.
We hope you learned somethingfrom today's show.
If you enjoyed this episode,please rate, review us.
Plus, check out our channel onYouTube and follow us on
Facebook and Twitter at be thebank and on Instagram at be the
bank podcast.
Be the bank is sponsored byAmerican note buyers.
Thanks again for listening.
Interested in real estate.
How about wealth?
Well, they go hand in hand, andhere you'll learn all about it.
Welcome to Be the Bank, apodcast where we discuss and
debate the topics centeredaround real estate investing.
Your host, justin Bogart,shares insights into investing
in real estate to create realwealth and passive income for
(00:22):
you and your family.
He'll share stories of realestate investments done right,
walk you through the process ofowning a real estate note and,
most importantly, educate you soyou can be the bank.
This is Be the Bank brought toyou by American Notebuyers.
Now here's your host, justinBogart.
Justin Bogard (00:45):
Welcome to Be the Bank podcast, season number
five, episode number 20.
Today, richard Thornton isgoing to be talking with us, and
one of the main things thatwe're going to discuss today is
kind of what it looked like tobe in a portfolio, like a fund,
or versus owning a couple ofnotes.
I'm going to dive into somespecifics on that, so stay tuned
, hey dude.
Richard Thornton (01:15):
Hey, you know I was worried there for a
section because I heard a littlefellow talk in the opener and I
thought he said with your host,jackson Begard, and I thought I
thought, wait a minute,something got screwed up here.
Justin Bogard (01:34):
It must be a latency issue.
Those of you that are listeningto us, we record this podcast
via our YouTube channel so youcan check out American
Notebuyers YouTube channel soyou can see what's happening
Pretty much.
Richard has this ongoingproblem with his computer where
all of a sudden his camera worksbut it doesn't, and what I mean
by that is that I can seeRichard on camera but he can't
(01:56):
see himself when we're on theapplication we're using to
record this.
So it's also given him somelatency issues.
So when he's speaking, hiswords come through quicker than
his mouth is moving on thecamera that we're seeing on the
video recording.
So it's quite interesting.
I just need to think faster,yeah, or maybe have your think
(02:19):
fast.
Yeah, think faster than yourwords come out slower.
Is you're able to move yourmouth before you talk?
Like a half a second, like itwould work perfectly.
Richard Thornton (02:27):
Telepathy is a good thing, which we may be.
So they know, musk is nowexperimenting with silicon chips
and imprinted in brains, andthey're doing it for people with
disabilities.
But you know, what's comingdown the road is the Borg.
So when you want to invest innotes, you'll know what notes
(02:50):
are immediately availablebecause you've talked to the
Borg.
You'll have a ready main marketand I'm sure, I am sure that
investing in notes will be atthe front of that list.
Justin Bogard (03:03):
They better be.
Richard Thornton (03:05):
Forget the stock market crap and all that I
mean.
Justin Bogard (03:10):
Well, speaking of the stock market, that's when I
get the most interaction withpeople is when the stock market
starts going sideways or whenthere's I'm using air quotes
here for those that can't seethe fear.
When the fear is out thereabout the economy possibly going
bad or something is wrong, orwith real estate, like, people
just get worried and it's justquite interesting.
(03:33):
So I don't know about you, butfor those of you who don't know,
richard is in Petaluma, whichis the in California, and I am
in Indiana, which is the Midwest.
So we see two totally differenttypes of individuals, investors
and even housing and realestate.
So we always think it's comicalhow we compare and contrast
things and just think it's justthe polar opposite, really right
(03:56):
.
Richard Thornton (03:57):
Very much.
So you know, I don't know Iwon't digress too much, but you
know they say the housingmarket's cooled down, and I know
it's cooled down some placesand it seems to have cooled down
here.
And then I keep getting thesenotices in the mail, like the
realtors send you, you know, andwe get houses that are being
(04:20):
sold for $100,000 or $200,000over asking, still Still.
Yeah, I'm going, what the heck?
I don't get it.
I mean, it's such a jumbledmarket out here, it's just
amazing.
Justin Bogard (04:33):
It's a new frontier for us in the real
estate world.
I believe in the, and I wasn'tinvesting in the 08, 09 and 10
era, but you obviously were.
I'm sure it was in that.
At that standpoint you werelike I don't know if I've ever
seen anything like this before,nor will I ever go through this
again, and I think we're allsaying the same thing now.
Richard Thornton (04:54):
Yeah, in a very different way.
But yes, I mean, things arejust a mess.
Markets are a mess right nowand there's a whole lot of
tumult.
That's the best way to put it.
I think there's some little hotspots in some places and not in
others, and it's just a wholelot of depends totally on what's
(05:15):
going on.
Like we've got a whole bunch ofold houses out here.
I mean when I say old, I meanmy whole neighborhood.
A lot of the stuff is built,you know, 1860 to 1920.
I don't know.
Justin Bogard (05:29):
That's interesting.
Richard Thornton (05:30):
But your previous comment about the
jitters in the market is calledflight to quality.
That is the overall term and alot of people start buying CDs
and things like that when theyhave so much tumultuousness in
the market.
I think that there is a bit of,as you've said, a bit of a
flight to quality in investingin notes and especially in
(05:54):
investing in a fund, because ifyou look at the difference
between buying individual notesas opposed to buying in a fund,
the funds easier and safer.
Justin Bogard (06:07):
It seems to be a pretty, almost clear answer.
For investors that I've talkedto recently, because of that
fear and that they see theeconomy feels like it's going
down, even though we know itjust really goes up and down and
that is a cause for concern islike where can I put my money to
(06:28):
get just a modest return?
And where can I put my money towhere there is a safety net
behind it, to where I know thatthere's a hard asset supporting
it?
And obviously you know our fundis buying real estate notes
across the country and all thesenotes are secured by real
property, traditionallyresidential property.
Richard Thornton (06:46):
Yeah, I mean when you look at it.
So I talked about this.
I'm for those of you who don'tknow, I'm making a small series
of videos regarding investing infunds and basically it's note
investing 101.
But one of the things Imentioned in there and I did a
little research to back this upis that a lot of is that I
(07:10):
compare what we're doing sincewe have, since we are investing,
and especially we're in a fundto investing in municipal bonds.
Why is that?
We are asset backed.
So, yes, we as a fund may havea little problem disposing of a
property, but guess what?
You still got.
(07:31):
I'm going through that right nowwith the property.
When I bought the note, theproperty, I was at 50% loan to
value on the house and we're nowselling the house and the house
is right now it's at about 30%loan to value.
(07:51):
So even if that defaulted, I'mgonna get out very well.
So to me, that actually isquite comparable to buying a
municipal bond.
You don't have the creditworthiness of a city or anything
like that, but you got a lot ofthere there.
And so what are you gonna yieldto you?
(08:11):
Getting on munis?
Well, munis are three to 5%right now.
Well, the fund starts at sixand goes to eight and a half
right.
Justin Bogard (08:19):
Six and a half to eight.
Yeah, I almost had it Right.
A couple of half percent off oneither side.
Richard Thornton (08:26):
I was short on the bottom and long on the top,
so I almost got it.
Justin Bogard (08:30):
You're being too generous, all right, that's
right.
Pull it back, pull it back.
Richard Thornton (08:34):
That's right.
So, anyway, I think a lot ofpeople need to keep that in mind
, especially when you invest ina fund as opposed to a one-off
note.
Justin Bogard (08:46):
The management of it is a lot different too.
Richard Thornton (08:49):
Oh, totally.
Justin Bogard (08:50):
One-off versus a portfolio.
So if you have time for it,then obviously build yourself a
note portfolio.
That'd be a great income foryou and keep things going and
you can be pretty active in thebusiness.
If you don't, a fund's a greatway to do that because
somebody's doing that for youand, quite frankly, if in a
large portfolio on a fund, ifone note goes bad, the rest of
(09:11):
them just absorb kind of thatbump in the road.
So I described this to somebodyearlier today when I was talking
with them.
I was just like you justimagine you're going down the
road and the fund is a shockabsorber.
All the other loans in thereare just shock absorbers.
So once they go over a bumpthey just, you know, the tires
and the suspension kind ofcompresses and then it
decompresses once it goes backover it.
(09:31):
So it's.
I think it's a really goodanalogy to show like how it's
pretty resilient overall andthat's why we buy assets that
are, you know, the 125 to 50,000range assets.
As far as the UPB, that we'rebuying the Unpaid Principal
Balance, and that really helpsus, as opposed to having a $10
million fund and you buy $10, $1million mortgages.
Like that doesn't make a wholelot of sense, right?
(09:53):
Because if one goes down, youlose 10% of your portfolio.
Richard Thornton (09:56):
Right, right, yeah.
And so also one of theresponses I get quite often is
as well, if I can go out and buya note myself and get a 9%
yield, why should I do somethingwith you guys and get a six and
a half or to eight?
Well, there's a pretty goodreason and you just went through
(10:18):
some of those.
You can be a yield hog or drunkon yield and if you look at the
actual dollars, you know per100,000 if you get an 8% yield
versus a 9% yield.
So you've got $1,000 differenceand is that worth the money?
Justin Bogard (10:43):
You're working a lot harder for that extra juice.
Yeah, yeah, yeah.
And do you have to go?
Richard Thornton (10:47):
through the foreclosure, and do you have to?
Yes, you're gonna get yourmoney back, like I was just
talking about, but there can bea lot of headaches between here
and there.
That's a pretty good comparison.
Justin Bogard (10:57):
I don't think we've done that before, but I
like what you said about that.
And when you're first startingout in the business and you
really want to do this full-time, that's okay.
Go ahead and do that, right.
You know, buy a few notes andstart getting your teeth cut in
the business, and that's finetoo.
A lot of people get into thisfor the knowledge, so that they
feel reassurance that this isthe right investment for them.
(11:18):
But then they figure out theynine times out of ten they don't
really want to do it full-timeor have the time to do it after
their nine to five job, and theyjust end up having a.
That's why we had the fund soaggressively priced for return
for investors, because we wantthem to, you know, get into the
fund because it just makeseverything better for the rest
of us.
We'll get better deals now.
(11:38):
We can buy at bigger discounts,we can buy in bulk.
We got all those advantages nowof having a larger bankroll as
opposed to.
You know, when it's just youand I in there, we're suffocated
on capital.
We only have so much that wecan use.
Richard Thornton (11:54):
Right, and it's a little bit like I mean.
So do you want to consideryourself a portfolio manager or
actively managing a portfolio?
What's the difference?
If I'm a manager, if I'm goingto be a manager at a job, I'm
going to go in and I'm going towant to do the job for a while.
I don't care what it is, ifit's plumbing, if it's
installing you know certaintypes of pipes, or if it's
(12:16):
running different types ofanalyses.
For I mean, I worked for asyndicator for a while, so I did
nothing but run spreadsheetsand I knew the investment and I
knew the spreadsheets in and outand I really knew what made the
numbers work.
And it wasn't until after I didthat myself that I could step
up and start to become a managerof other people doing that for
the company.
Investing in notes is a littlebit like that.
(12:39):
Sure, go out, cut your teeth,you know.
Get to know the product beforeyou step up and become the
manager of your own portfolioand putting your money with a
fund or something, because thenyou could say, oh, I know what
those guys are doing, I knowwhat's involved, I know why I
want to be just a manager andnot down in the trenches.
Justin Bogard (12:59):
That's a great explanation there.
I was talking to somebodyrecently about.
This is one of my new petbeavers, about flipping houses
and fixing and flipping themLike I get it.
Some people can make some moneyand on paper sometimes the
deals look really good whenthey're done with the ROI's.
But living through it, yeah.
(13:19):
Like what you said.
What you said was great,because I fully believe that's
what we should do as managers iswe should actually do the work.
Do the job so we can understandit.
So if we find you know simplerways to do the process or build
a better system running,obviously you're going to have
good knowledge on how to do that.
But yeah, I just don't get howfixing flippers actually make
and sustained money because ofhow much time they put into it
(13:43):
that you can't really put adollar value on.
And at the end of the day whichmy other pet peeves at the end
of the day, right, I don't thinkyou really make money Well, so
that's why I got out of it.
Richard Thornton (13:58):
When I was flipping houses years ago I mean
I got out of it in 2016, Ithink, 2014, 15, so on there I
was making 50 to 70% on my flipsand I said, if I can make that
kind of money in a six monthperiod because that's start to
(14:20):
finish by the house do thereconstruction.
You know renovation andactually be sitting at the
closing table.
That's what it was taking.
I was willing to take all thoserisks that you talked about,
but when all of the weekendersgot in there and and yield
started going down and you gotthe market being where it is
(14:42):
right now, where a lot of people, a lot of flippers, are happy
with a 15% return, I'm saying noway, no way.
Am I going to have thosesleepless nights?
Am I going to wonder if my HVACunits, c units, going to blow
out and I'm not going to be ableto sell the property or
whatever it is that goes wrong?
I mean, renovation, isrenovation right?
Yeah, it's a big world ofunknowns.
(15:04):
I agree with you.
Justin Bogard (15:09):
Let's switch topics quickly, but along the
same lines, and talk about thelender in those situations.
So lending short term for afixed-list project because
that's kind of your area ofexpertise is what we also called
hard money, meaning Richard isgoing to lend money out, or
anyone can lend money out on aproject, knowing that the
(15:31):
balloon is due, like in 11 and12 months and I usually.
Richard Thornton (15:34):
Usually PC term is private money, not hard
money.
Justin Bogard (15:40):
It's always been private and hard money.
I never knew which one wasright or wrong.
Narrator (15:45):
I hear more hard.
Justin Bogard (15:46):
Do you hear more private money where you're at?
Richard Thornton (15:48):
because I was here, yeah, yeah, I hear private
money and they say, oh, youwant me to make a hard money,
long go.
No, no, I said private, I don'tknow.
Justin Bogard (15:58):
No, I don't want anyone to know about.
This is in public.
Richard Thornton (16:01):
Everybody it's .
It's hard money, but yeah, sogo ahead.
I interrupted you.
Justin Bogard (16:05):
I don't know what I was gonna say.
I was just trying to comparethe.
Richard Thornton (16:09):
Lender a little bit, yeah, so.
So when I'm trying to, I'mdoing my different networking
groups and things like thatPeople ask me the legitimate
question why should I invest ina note, a long-term note, where
I'm gonna make?
I want 9%, 8%, whatever it isthere we go.
Justin Bogard (16:25):
Okay let's go down this path.
Richard Thornton (16:27):
Yeah, versus 12 or 13 in some cases.
Out here from a flipper.
Well we're talking aboutinterest rates.
Justin Bogard (16:36):
Let's let's Clarify this.
We're talking about interestrate, so when Richard says 12 or
13, he's saying just theinterest rate annualized 12 or
13 percent right.
Richard Thornton (16:45):
So I mean, the first glaring factor is is that
If you're only making Ownedelse, if you're making 9% or 10%
, you're making that all yearlong, whereas, and for many
years.
Justin Bogard (16:58):
Whereas on investing in a note right.
Richard Thornton (17:00):
Right right, investing in a note, whereas if
you go and you invest in a hardmoney or private money loan,
your money is probably onlystanding outstanding six to
eight months at the most and,yes, you're making 12%.
But then can you get itreinvested.
You know there's always gonnabe a latency period there of at
least one or two months beforeyou Can get it reinvested in the
best of cases.
(17:21):
So if you look at your annualyield, it's not actually 12%,
it's, you know, what you got atyour in your pocket.
At the end of the day it'sprobably closer to 10.
Justin Bogard (17:31):
Yeah, there's drag on that.
Richard Thornton (17:33):
Yeah.
So that's the one thing.
Another thing which I think isEspecially out in here in
California A lot of people havebeen lulled into, is that they
do not realize that when Joerenovator or Jesse, or you know
him, him or her, whatever thenames are put in a half a
(17:54):
million dollars on a, on a house, and You're making a loan,
that's 75% loan to value, assoon as you do that, soon as
they get into the renovation,you were over lent, you do, you
are, you are lending at thatpoint probably 130 or 140, if
(18:14):
not more, percent of the valueof that house because they've
got all.
They've got all ripped to shredsand nobody's gonna want to go
in and and it's not worth whatthey paid for at that point
because it doesn't have drywall,it doesn't have a kitchen, it
doesn't have, you know, whateverit is there they're doing.
So you've got a huge riskperiod there and that's actually
inevitably why I got out of themarket.
(18:36):
The market paused for a whileand I realized that I had debt
services $10,000 a month.
That was sitting over my headand if the market didn't turn
around quickly, I was gonna beunderwater very quickly.
And a lot of people don'tperceive that risk because they
haven't been bitten yet.
Justin Bogard (18:57):
High risk, high reward.
Richard Thornton (18:59):
Yeah, and a lot of you know there was a lot
of in 08, no 9.
There were a lot of hot shotprivate lenders out here that
you know basically were Drivingbeamers and Maserati's and they
act like they had it all figuredout too.
Yeah, I mean, and they'retalking about the subprime guys.
If you want to see, you knowwhat the subprime guys are doing
(19:20):
.
Just watch the big short,because they portrayed it very
well.
Those guys were out theremaking loans and buying trailers
and boats and you know allsorts of Stuff, and they had no
idea what they were doing.
These aren't the subprime guys.
These are guys that said I'minvesting in 65% loan to value
and I know what I'm doing, andla la la, and they all went
south.
I mean I would.
(19:41):
This is Not an exact numericalnumber, but I'd have to say that
probably one out of ten Privatemoney lenders made it through
that period.
That makes sense.
Justin Bogard (19:56):
Yeah, because you're.
You're You're investing intothe current, as is, value of the
property.
On top of that, you're alsofinancing some of the rehab work
.
So you're banking on theappreciation of the asset from
when it was purchased at theclosing table and you're raising
the loan to when it's actuallygonna be finished, and you don't
know if it's gonna get finished.
And you yes, you have a drawschedule.
(20:16):
You don't have to give them allthe money up front, but you
still have that, that high riskfactor of you've got a lot of
money into this project thatisn't really finished, and so
are you banking on the value ofthe home being sold at a higher
rate.
But you're also banking on theindividual that's borrowing the
money, that's gc in the job,that they're gonna do it right.
(20:36):
So there's a lot more risk thatpeople Maybe don't realize.
That's you know on the surfacethere.
Richard Thornton (20:43):
Yeah, it's a game of musical chairs that you
may not really like a way to putit yeah, you may not realize
you're playing because if themusic stops, guess what?
You better find that chair.
You better find that chairbecause everybody else is gonna
be trying to find that chair andsomebody's gonna be out.
Yep and that's what happenedout here in 08 no 9, and I have
a lot of very nice propertiesthat were just all of a sudden
(21:07):
worth worth half, if that.
Justin Bogard (21:11):
Geez, alright, richard.
Well, we are just running up onthe clock here.
The think this is a goodstopping point for a
conversation today.
Thanks for being on our podcastagain.
Obviously, this is episodenumber 20 of season 5 of the be
the bank Podcast.
You can check out our Americannote buyers YouTube channel.
See the video stream of thatand all the videos that we do as
(21:31):
well and in Richard's videoseries will be up there shortly
as well.
So we got that going for us,richard.
I will catch you later.
My friend, it's in.
Richard Thornton (21:44):
Bye.
Narrator (21:50):
Thanks for listening to be the bank.
We hope you learned somethingfrom today's show.
If you enjoyed this episode,please rate, review us.
Plus, check out our channel onYouTube and follow us on
Facebook and Twitter at be thebank and on Instagram at be the
bank podcast.
Be the bank is sponsored byAmerican note buyers.
Thanks again for listening.
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