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all right well uh good morning everybody happy saturday to you i'm uh excited to be here i i love having people online that we can we can talk to and share this information it always motivates me to continue to do research i was even researching later last night uh about some key people and the upcoming administration changes and and everything else so i've got a lot of good information for you i'm going to try my best to keep it at an hour i'm a little over prepared for that right now but if i have to condense some things i i can certainly do that for you but i want to deliver as much information to you as i possibly can and in addition to covering the industry at large i also wanted to give you some things that you should really start to look at right now in preparation so i've narrowed that down to four things i have more than that but these are our four components that all real estate and real estate note investors really should start doing right now to prepare for this this next year because there is a lot of misinformation out there as well there's a lot of knee-jerk reactions to things and i've been monitoring this as i do every year i constantly research what's going on in the marketplace and largely i started doing that as a result of my failing to do that before the last crash and when that last crash hit we all should have really seen it coming we knew it couldn't last but it happened so quick it happened almost overnight it seemed and the depth of it was more than i think what most people imagined so i committed myself after 2008-9 to say i'm going to focus on on the market and keep up on research and everything else which i do on a regular basis here so uh first of all every year i i've done this which has been about the last 15 years i do my best to do projections i've been pretty darn accurate on on those and and this year it's it's a little bit different right we've got a lot of things for 2020 and 2021 that we're we're looking at all of which you're probably familiar uh with which of course was the coven 19 the amount of spending and stimulus money that the federal government is is pumping out state governments have come in and changed some rules and regulations things like you know the evictions and and foreclosure moratoriums uh that sort of thing we still have and it's getting worse unemployment issues right now again largely as a result of the covid corporate bankruptcies chapter 11s are up personal bankruptcies or not we'll talk about that as well a lot of people now figuring out we don't need to go to the office anymore we can we can move in our homes and that's causing people to move outward uh from the cities into other areas so that's affecting real estate as well uh the changing workplace and of course when are we really going to be able to start the economy back up because there's still a lot of people not working and a lot of businesses that may not come back i know you're all familiar with this but i want to kind of start with this because now we also have of course which we've had for the last you know several years as well but all of the politics and the legislation and i mentioned this because there's a lot of things that can change virtually our industry overnight through legislation and also through technology so we have to make sure that we're on top of those things so i'm going to cover a lot of things that are impacted by this and again i'll give you some guidance as to what i see in the marketplace because there are with all of this going on there are some things that we know and there are some things that we should focus on because they are factual all the other noise going on we need to be observant of we need to study the marketplace at some level but if we focus on what we can factually determine it's going to help you guide through this uh next year for example when these um when coveted happened and a lot of people lost their jobs virtually overnight there were people in the industry project projecting just a massive collapse things are going to be absolutely horrible it's going to be worse than the last crash and i was one of those voices saying i don't know i don't think that's going to be the case it might be but when the government can turn on that printing press which they've done and artificially keep things going yes in a way it kicks it down the the can down the road i get that we'll talk about that but i cautioned people and said don't start to stockpile and retreat and just say well i'm going to wait until everything crashes then i'm going to come in because you may not see the type of crash that some people were anticipating uh with all of my clients we continue to invest because there are great deals in the marketplace i'm going to focus really on on the note portion of the marketplace right here but i'm sure many of you have found that in the more traditional bricks and sticks of real estate as well and there's new people constantly entering the note industry many of them from the real estate side understanding that real estate notes is the financial side of real estate it is real estate so when you combine uh their they're kind of opposite sides of the same coin combining real estate real property with real estate financing the note business that will give you more opportunities it will lower your risk and it will also yield greater returns for you when you do that and that's what i encourage people to do all the time and that's whether you're new to the business or advanced by the way because i've taken clients i just want to show you some deals that any one of you could have purchased through this last quarter of of the year we are very busy all the way up through closings through december and not stopping identifying the market when i saw a lot of people just retreating and they've missed out on some good opportunities such as this let's see there we go ah slides not advancing here we go okay um again a thirty four thousand dollar property cleveland ohio a brand new investor less than a month in the business was able to purchase this for just under twenty thousand dollars making fifteen percent now again on the note side i know many of you are familiar but in case there are people who are not familiar in the note business you get the cash flow but you're not the landlord right you don't you don't own the property uh the borrower owns the property you simply collect the the cash flow from it you are the bank uh in in that particular case so you don't deal with all the same issues that that landlords do as well it's just a pure cash flow play on this one so great deals and part of the inventory that's available right now in the note business are very mature notes these were notes that were probably not performing back in 2009 and 10 that were purchased under non-performing became re-performing notes and now they're very very well seasoned notes and when you add in all of the price increases that that we have had the equity positions in these it makes them very very safe investments but yet as you can see high yielding so there's a really good inventory right now of those type of notes for those who are interested in that and they're all over the place this one was in birmingham ninety four thousand she got this one for twenty five thousand dollars so imagine investing twenty five thousand it's backed by ninety four thousand six hundred dollar home and she's making twelve percent on her money if property values go down which we'll talk about as well uh are you able to absorb any decreases in in prices certainly in cases like this uh our investors are here's another one in illinois 25 000 they purchased this and what they got in return it's basically in the note business you're trading present dollars for future dollars so they traded if you will they purchased they invested twenty two thousand five hundred dollars in return they're getting 163 payments of 344 dollars per month which would if you run that through financial is calculators to tell you that 16 per year these are all deals purchased within the last couple of months of the year and largely from uh investors who can't find inventory uh or they're tired of of the landlord concept and they want to at a minimum diversify their portfolio and some people are are just starting to focus just more on notes in the current market conditions and they go all over i showed you some lower price band by the way i'll show you some higher ones yes um just to clarify um these are not when you say deal they didn't buy the house they bought the mortgage on the house that is correct okay that is correct um so again we're in the in the note side of this as i was saying we're we don't own the property the borrower owns the property we are acting as the bank if you will we take over as as the lender so this person has invested in this i don't have the price on that one but he bought 118 payments all the remaining payments of 386 dollars a month which is almost 16 and his investment is backed by the collateral is the property itself so for example on this one in san antonio the property's worth 120 000 he paid 57 000 for that note very very safe if the person doesn't pay worst case scenario happens there's a foreclosure he's going to get his money back i mean that property would have to dramatically drop uh before he wouldn't get his money back in something such as as that but with these very mature notes where people have a lot of equity they would sell the house before it goes into foreclosure so very very safe positions and there's a lot of that inventory out there right now so i bring those up just to show you this is not a time to panic this is not a time to retreat it's a time to examine the marketplace and find these deals now these deals aren't going to show up on mls they're not going to show up in foreclosure listings that sort of thing it's in the financial side of the business which is another important aspect that we'll talk about so the doom and gloom of everything the knee-jerk reaction went to a very high level when coveted hit back in march of last year in fact moody's was projecting now moody's for those who are not familiar their bond rating company if you've ever seen the movie the big short you know who i'm talking about if you haven't seen the movie the big short watch it is very very very very interesting and they do a great job of explaining what happened behind the scenes on the last crash moody's was a big part of it okay so moody's in their economics department had projected back in march april may of last year they said that we are possibly looking at 30 percent of all mortgages to go delinquent 30 now that may or may not mean something to to all of you so let me further explain what that means because i was thinking there is no way that's going to happen because it does there's going to be way way way more problems in this country than we've ever seen before because in the last crash which is represented here on this on this chart the 10 percent of all mortgages were in default that's factual we know that because that's historical data that's what the peak was in early 2010 delinquencies of all mortgages and now moody's last year was projecting 30 percent can you imagine that was the biggest bump back in 2010 this industry has ever seen that is actually what put the note buying business on the map because our inventory was massive the prices were extremely low uh to buy these things 20 cents on the dollar purchases were not uncommon at all uh so that was the historically the worst foreclosure or excuse me worst delinquencies that we've ever seen 30 percent would have been just beyond uh crazy and of course it didn't happen we are right now right there so i took a little put a little line there i'm going to show you in a different chart in just a second here but we're at 6.33 percent of all mortgages are currently delinquent which is still significant 10 percent was the worst that we've ever seen and we're at six percent so we do have a problem part of that problem is being kicked down the uh the road because we're stimulating people with income with unemployment extra income all those things that you all are familiar with and we're also saying you can't foreclose and you can't evict on certain loans we'll talk about that as well and if you can't foreclose because of these forbearance plans that are going on you also have to by the way under the care act report that those loans are current so you have to be very careful when you're looking at mortgage data to see if they have included the ones that are actually delinquent but declared with credit and everything else as current because that was a part of the care act let me take this chart and show you just a little different perspective of it this is the delinquency rate that you can see once again peaked in 2010 uh 2009 towards the end there and now we are over on the right hand side of your screen where we've we saw spike and now that spike has come down a bit to 6.44 in november and the very latest numbers which i put together last night for you right here are six point three three percent so that's the last latest data that has come out that's reflecting back on november it takes several months for this data to get compiled here so that's up 79 year over year um it's not the 10 percent but it is significant now why that's important to you as a real estate investor and or note investor is this one of the other numbers that you're going to see on there which i'll spend a little bit more time on later on but i want to highlight it here is the number of foreclosure starts nationwide there were only four thousand four hundred foreclosure starts in november nationwide four thousand four hundred foreclosure starts in november the existing inventory of pre-sale what they call pre-sale foreclosure inventory in the united states 176 000 homes there's a big reason for this and it really goes all the way back to dodd-frank banks have been getting away from massive foreclosures since the dodd-frank act was approved in 2009 or 10. and the reason they do that is there's penalties built within dodd-frank that puts pressure on banks to get those delinquent loans off of their books they can be penalized up to 10 times now i'm not going to go into all the details of that i'm trying to keep this on on focus here but that really changed the foreclosure market virtually overnight because what banks figured out is i've got to get these bad loans off of my books now versus going through foreclosure which might take them over a year and what they started doing was bundling up all of these non-performing loans and selling them they can sell them at an auction and be gone and have them off their books within a month versus paying penalties uh severe penalties and keeping them on their books by going through foreclosure for a year so there's been a dramatic shift on that which obviously infects real estate investors who are looking for deeply discounted property your inventory and you've probably all experienced this your inventory level has shrunk on those types of properties why because the bigger lenders are getting away from that and they've really shifted to more of a note transaction they'll bundle up the notes billions of dollars per month and i'll show you that later and just sell them and they're they're finished with them okay that's a dramatic shift that a lot of people are not aware of uh in our in our marketplace and need to be because how you uh work your business around that uh is is very very important to you so again another little chart here and then i'll move on uh but you can see that spike once again and you can see in 2000 in the second and third quarter is when things started to go up again this is creating future inventory for real estate and best investors but not in the foreclosure market the future inventory opportunities from this spike is going to be in the financial side which is the note business because these properties will never go through foreclosure they'll be bundled up the notes will be bundled up and sold that's where you're going to find those opportunities not at the courthouse not at the pre-foreclosure market because you won't see that okay that's a change in t e marketplace now i know i've spent a good amount of time on the same topic here and i have a lot of things to get to but it's very very important topic and illustrated by corelogic now corelogic is a a big company national company and they they're one of the sources that i use for all of this data and you'll notice i do source everything here but i want to point out some things i know there's a lot on this slide i cut and paste right from their latest report economic reports that that came out and what i want you to see and i'll highlight it here is as they track this data and they saw the spike going up which i showed you in the chart already in april and now it's come down a little bit they went back and looked at 2008. and what they saw on the mortgage-backed securities you can see it there is interestingly enough in 2008 in april there was a spike in 30-day delinquencies in may there was a spike in 60-day delinquencies in june there's a spike in 90 days delinquency and that's when people get on that slippery slope when people get to 90-day delinquency the percentage that will ever get current again just falls off there's there's nothing there 30 days they can catch up 60 days a lot of them can catch up 90 days they're not going to be able to catch up and that's when it gets worse and worse and worse and eventually foreclosure or loan modification or deed and lose that will come into place here so what we're seeing in 2020 was a reflection really month to month of what we saw in 2008 and that's why corelogic is projecting that we could see as many as three million homes in series delinquencies that's 90 days or more series delinquencies by the end of 2021. that is very very significant to all of you but once again that inventory if that happens those three million homes that's not going to be in the foreclosure arena it's going to be in the financial side why because banks will not keep those homes on their books and go through foreclosures because it's too expensive with all the penalties on there okay so imagine you have a million dollars worth of of non-performing notes on your books as a bank and the fed is saying you've got to hold 10 million dollars 10 times in cash reserves that's too much of a penalty so what do you do get them off my books those will be sold and they'll be a funnel where these notes are sold on auctions it'll go to big companies those companies will break them into smaller pieces and that'll trickle down to individual investors in certain markets okay so this is going to be a bit of a repeat albeit smaller than what we saw in 2008 and corelogic tracks this on a monthly basis they put out monthly reports and they have a very good blog system and everything else what's been holding a lot of this back already has been the care act right so the care act is the one uh that said you can't foreclose you can't do this we're gonna provide stimulus we're gonna do this and that relief bill was signed into place now some of that was set to expire in december 31st many of you are probably familiar with this but they have extended this already the foreclosure and reo evictions through january 31st 2021 but the way they wrote it and this is right from the federal housing financial agency is until at least very high likelihood that this is going to get extended to what point now not all landlords are going to be affected by this not not all note owners are going to be affected by this these moratoriums are the ones that are backed by federal money the enterprises as they're calling them in this article fannie mae and freddie mac okay so when this paper is is traded and the government backs all of these loans that the banks are doing and non-banks by the way to a high degree these days those type of loans automatically fall under these categories if you're a landlord who has borrowed money and that borrowed money is backed by fannie and freddie you can't do evictions on there now in addition to this some states um and counties have enacted their own moratorium so this is a bit of a game changer especially for landlords i would bet anything that there are some landlords right now on this webinar that are going yeah i've got people who are not paying rent i've got this and and that happening and part of it is public perception and in our business if i do a seller finance loan to somebody none of this applies to me right none of it applies to my borrower i'm not that i'm not backed by federal money right so i can still foreclose i can still uh evict and that sort of thing but in my world it's more of a foreclosure i can still do that if my courts are open and that's what happened here where i live in central florida our courts just said we're not taking these non-essential um actions or judgments anymore so for a long time even though i had a right to foreclose i couldn't do it because the local courts so we have to look at both we have to look at the federal level we have to look also at the local level one thing that has really been working for us and this is a significant to you as well because this is the proof that you're not going to see some huge crash okay it'll be a degree of a crash because the care act forbearances has worked out pretty darn good so we had a total of 6.48 million people apply for forbearance and they could apply for 180 days and they could reapply for 180 days and then it got extended by the way to 12 months okay so what's happened since then well as of november 2020 out of the 6.48 million of people that got into forbearance plans now just to make sure everybody knows what a forbearance plan is if you're a borrower and you're making payments on a loan and again federally backed alone you had the right to file for forbearance because of covet in the care act and the cdc and everything else and what that meant was is that you don't have to make a mortgage payment for 180 days and then you could reapply for another 180 all the way up to 12 months and essentially if you ask for it you got it now there are some little things in there i could talk about but let's just stick with stick with that and that's that's how this worked first of all having people make no payments i think is a big mistake because they get a habit of making payments and i told all of my people i said look if you have a seller finance loan or you purchased a loan a private loan and you're going to give somebody some relief that's fine but don't make it where they're making zero payments because guess what they like that they're going to stay in that habit and it's going to be very difficult for you to get to get them going again work with the people if they're payment 600 a month but they can afford four have them pay for don't have to pay nothing so these folks didn't have to pay anything on this but the results now that have panned out are pretty impressive i have to say so you have on the lower left 35 of the people who entered this 35 percent of the and a 6.5 million people they got their term extended that's where that's where we are right now as of november 17th but 39 up in the upper right hand side there 39 percent have been removed from the program or it's expired but you'll notice it's performing so two and a half million people who had forbearance protections that program either ended or they voluntarily removed from that program and they're continuing to perform on their loan payment so the stimulus programs and these sorts of things have impacted this to a great degree is what the experts are indicating here just underneath that one it says removed expired and delinquent but active loss mitigation what does that mean so the seven percent there the 434 000 people who are in that program their their forbearance plans expired okay but they still weren't able to perform the difference here is that they're under loss mitigation meaning that the lender is working with them okay there's a reason for that and i'll talk about that in just a second because this is a very different crisis than what we had in two 2008 okay it's important to know the difference there so banks are working with these people big reason is there's equity in the properties today there wasn't in the last crash remove the expired delinquent so two percent of all the six and a half million people only two percent their plan expired and they're continuing to be delinquent that's pretty small pretty small number interestingly enough nine percent of the loans were paid off people are in forbearance they came up with the money and paid off the whole loan and then you can see the active forbearance original term they're still under the original 180 uh 360 whatever it was planned at this point in time so again the big difference in all of this is there is equity in properties and when there's equity in properties lenders can work with you if you go back for example in the crash 2008 we bought a lot of loans where the property was uh uh initially worth two hundred thousand dollars now it's worth 100 grand but the people still owe 180 000 there's no equity in that and you can't it's very difficult to work with borrowers when you have that when borrowers have equity then there's more willingness for banks and bigger lenders to work with people now that growth rate as you can see is slowing which means property values are starting to peak out which shouldn't be a surprise to everybody we've had tremendous growth in property values uh since 2010 uh but now they're starting to peak out in fact many uh uh experts are looking at key markets and the property values are way way way above what they were in the last bubble so there's a lot of speculation that we really are already in a bubble for that march is going to be an interesting month with all of this forbearance because in march you'll see that 26 or so of the active forbearance plans those expire okay so the 12 months plans we didn't have that much in january and that's why the numbers which i'll show you again in just a minute they didn't change that much but in march it's going to be a big deal and we'll see what happens april may as to are these folks able to make the payments again or not and that'll be an indicator are we going to hit that 3 million of severely delinquent or are things going to kind of smooth out just a little bit here so foreclosures is not where the marketplace really has moved to uh from from the lender side it's gone over to packaging these notes and and selling them and to give you an example of that by the way uh this sale i just pulled this last night this was the fourth 18th overall but fourth sale uh that fannie mae did now fannie mae's just one entity that does these sales but they're the easiest to track and and look at so i just pulled pulled that they had um in october they sold 63 a hundred loans with a principal balance of 734 million uh the sale before that was eight billion by the way or i'm sorry over the year it was eight billion my apologies so it was a couple billion the month or two before that one so this was a relatively smaller sale but my point is just showing you what these entities are doing when banks create loans they really sell the paper to fannie mae and when those loans go bad they're they're looking to rework those loans that's what re-performing is but if you read into the article some of these loans may be up to 90 days delinquent they're they're not performing okay they're at that that slippery slope right here so fannie mae is not as active of taking these properties and selling the properties what are they doing they're bundling the paper and selling the paper okay that's what eventually trickles down to us where we can buy non-performing and re-performing loans okay bankruptcies is another issue i know it's kind of a hard shift here from that topic to another one but in bankruptcies it's something else that that has been an interesting thing to track here personal bankruptcies have gone down quite a bit since 2011. in the in the crash of 2008 9 and 10 you can see million over a million people uh had filed bankruptcy and that has dramatically fallen off and it really dropped down in 2020. experts are projecting that this number may go up why because landlords many landlords are not being paid but they still have the right to sue for that money so there's an expectation that there will be some lawsuits that are going to be filed on a national basis which will increase the number of bankruptcies now what importance does that have to a real estate or real estate note investor in the real estate note business we look for bankruptcy notes we can do a uh we can make a very good profit we can get free money in bankruptcies we can work with the consumers to keep them in their homes and still make it very very profitable for us again a bigger topic here but so i'm just kind of highlighting it for you but bankruptcy can be a big deal for a note investor we pursue those types of deals i've got case study after case study that shows you why ultimately that we do that is because we can get free money in addition to the regular money on a workout modification so it's one of these things that you keep an eye on and look in the marketplace because most real estate investors shy away from bankruptcy okay because they're on the equity side we're on the debt side and with us we pursue those so i'm looking to see what the opportunities might be in for that arena as well okay so focusing on what we know loan modifications forbearances foreclosures and bankruptcies are absolutely going to be a part of the outcome of the current market condition we know that that is factual information i just basically outlined all of that for you over the last uh however many minutes i was talking on on that topic there so action plan i would say number one if you're not familiar with loan mods forbearances of forbearances i should foreclosures and bankruptcies get familiar with it because it will be a part of what you're doing in the real estate industry especially if you're if you're in the note business doing proper modifications do we have to be concerned with dodd-frank what can we do do we have to rerun credit do we not have to rerun credit if we do a forbearance can we add that in can we smooth out the loans there's all sorts of things that we can do and if you're not sharp on that uh and foreclosures of what's going on in your local area what might be going on in other states you're investing in and what happens if people go into to bankruptcy if you're not familiar with that you need to be why because that's coming that's going to be a big part of what's going on in 2021. the government programs are really starting to push loan modifications they want to work with with the borrowers they don't no administration wants to see millions of people lose their homes right so study up on on those would be a great idea for you to do real estate and real estate note investors here's another good one for you let's talk about this the prop prices on on real estate have been going great since 2010 right and if you've been investing in real estate if you have rental properties i'm sure that you've seen great appreciation in those what about affordability though so we can see the medium sold price of existing homes has continued to go up now this is on a national basis right all real estate's local your prices may not be that they're certainly not that in central florida where i live and they're probably not out there in most areas of of uh kansas and missouri where most of you are but nationwide this is an overall trend and when these overall trends happen the government takes notice of this because they're thinking in terms of affordability we've had an affordability crisis in this country for many many many years and it continues to grow because again medium home prices they've outpriced what people can afford and it's more challenging to get loans today so when you look at these key areas it opens up well there's an opportunity there okay if this is a problem what's the solution and maybe i should focus some of my efforts as being a part of that solution because problem solvers make good money in this business right every real estate investor essentially you're a problem solver every node investor essentially you're a problem solver so identify the problem come up with a solution and apply it and you're going to do very well so of course as property prices are going up you're seeing the supply uh go down right naturally so there's fewer there's more uh competition but again affordable housing has been out there in the forefront for many many years and again with dodd-frank banks don't do small loans anymore they can't afford to they lose money in some states if a bank because their state law that affects also in addition to some of these federal laws like dodd-frank in some states a bank can't even do a hundred thousand dollar loan and make make money because dodd-frank limits how much they can charge to originate alone so these headlines are really really easy to find and bank of america america for example you go right in their website minimum mortgage 75 000 bucks that's it okay they don't go below that why because at 75 grand they're breaking even that's really where they are they're at break even point on that but they have to provide that type of loan because the neighborhood stabilization act et cetera so anyhow it's difficult for affordable housing because people can't get loans we can provide loans we can buy those properties cheap we can provide those loans that's a solution okay and that's something that all of you should really take a look at because that's going to continue to grow especially when i tell you about a person in the bid administration you want to pay attention to and see what they're doing i've been researching a lot on him lately okay i mentioned this is a different crisis as well and this plays into this as well this is called the mortgage affordability excuse me mortgage credit availability index and without having to go into what it does and how they calculate it there's a baseline you can see on the bottom as 100 for statistics but let me just point it out this way back in 2005 6 7 how hard was it whoops how hard was it to get a loan it was very easy right that's where we had the no no income no statements no doc loans we had pick a payment loans 110 financing it was very very liquid so what this index looks at is how easy is it to get a loan how loose is the monetary policy and you can see we got absolutely crazy in 2005 everybody could get a loan you know you had a pulse you walk in a bank you get a loan right remember those days and of course we know what happened the big crash followed that and then lending tightened up right new rules new regulations new legislation legislation coming in and we want to drop back down to that baseline where it was more challenging to get a loan okay then by 2013 and 14 they started loosening the purse strings up a little bit you know uh tweaking with what kind of credit score what kind of down payment do people need that sort of thing and it started a gradual climb as you can see on this indicator and then all of a sudden in march 2020 it dropped down again why things tightened up and of course we had covid and everything else so i'm going to take that portion of this chart and magnify it for you and what we saw is a 30 drop in the mortgage credit availability which means it's more difficult right now to get loans in general okay that's all that that means but there's a several groups that are more impacted upon that which again is a problem that you can provide a solution to so what is that borrowers with lower credit scores much more difficult to get loans these days because again banks don't want to take on bad debt right now they've got enough right they they understand what's going on in the overall economy uh when are we starting again people aren't making money what if the stimulus stops what if the extra unemployment stops what's going to happen so they're pulling back a little bit increasing the required credit scores uh higher end loans are affected by the way as well by the way jumbo loans harder to get they're not doing jumbo loans over 700 000 in most places now they've lowered that further down because they don't want to get these big loans mortgages with higher loan to value ratios meaning you put smaller down payments those are tougher and tougher to get these days as well adjustable rate mortgages fannie mae announced that they're not buying them so if they're not buying them banks aren't going to create them so there's no adjustable where you can start low and then and build up and then finally non-qualified mortgages okay we used to call those subprime right in the subprime days those where anybody could get a loan days they changed it over to non-qualified essentially means the same thing a lot of the non-qualified loans are also done by non-banks non-banks are not under the neighborhood stabilization act and without getting too far off track here what that means is not banks don't have to set aside money for affordable housing for lower income they don't have to do that if bank like a bank of america is lending in a certain area they have to make a certain amount of money available to lower income moderate income people they have to do it okay even though they take a loss on originating those loans that's why they've retreated from that a lot of banks are looking at credit cards and business loans and things like that and they're letting the non-banks non-banks in the united states for years now do more loan originations than banks do and they're not under the same guidelines so non-qualified mortgages by non-banks the non-banks don't have to give them in affordable housing areas once again that's an opportunity for us because we can do those loans we can create them okay where banks aren't doing that so there's going to be a big play within this and also in opportunity zones that's coming up as well here so once again what do we learn from this we'll focus on what we know historically seller finance loans always fills the void left by traditional financing so if banks aren't doing the low loans if non-banks aren't doing those loans we have a huge problem of affordable homes where are people going to live they need financing we can fill that void with seller financing i hope that makes sense to everybody so that should be a part of what's on your radar screen of providing that type of housing now traditionally some of you have probably done that through rental properties but again what's going to happen in the future with with landlords is this new administration going to be landlord friendly pro-landlord or maybe not so much a more pro uh pro tenant uh who gets paid first equity position debt position these are things you need to think about and i'll talk about that a little bit more in just a minute so action step number two start selling properties with seller financing even if you have existing tenants convert your tenants over possibly again i i think a lot of you would take a look at your portfolio and say you know what i'm gonna at least take this many create these folks into property owners get away from tenants here and again maybe you keep some as tenants i'm not one of those investors who says everybody has to do notes and that's it no notes is simply a part of real estate but look at your portfolio and see if it makes sense to convert some of your tenants into property owners removing yourself from that role but still getting the cash flow with that with that property and then you don't have to worry about such things as evictions and and all of that you're now on the debt side of things for those of you who are buying real estate inexpensively where you can turn around and sell it i'm going to encourage you instead of just buying a property fixing it up and and just selling it for lump sum run numbers that show what if i sell or financed it for somebody you know what if i went direct to a consumer and sold the property and created a note instead of just getting that lump sum what would that look like and i'm encouraging you to do that because i think many of you will see you know what maybe i should sell or finance this one especially when you understand that when you create a good quality note it has a market value you could create a seller finance note for somebody and i know the the the concept here a lot of investors go yeah i can't do that because i need to cash out well what if you could create a note in a way that's so marketable that you could create and turn around either right away or three months down the road and sell a part of it and get all the money that you need see that's a game changer for people and then have that back end of the note best of both worlds you get all the money that you need out of that deal lump sum but then you own payments into the future which also have a sellable value okay so that's what i mean by there's techniques here that you can apply as a real estate investor with the finance side it just gives you so many more opportunities so many more ways to make a return on investment and it actually lowers your risk because we don't absolutely know what's going to happen in 2021 there's some factual things but there's also a lot of things that can dramatically change and if you have both sides of the coin in your toolbox you'll be able to adapt to those a heck of a lot better than just keeping the blinders on saying i'm just focused on long-term rentals or i'm just focused on flipping properties so start selling with seller financing especially affordable housing why because that's where the opportunity is right there i've shown you that home space and build relationships with investors who are creating notes one of my newer clients he's from south america he's been in the country for for two years got started with me in in the note business leandro and he he was looking at some notes that i was helping him with in my consulting sessions and i said look this person knows how to create a good quality note they know how to borrow money to buy a property they fix the property up they sell it with seller financing they pay off the underlying loan they know what they're doing their paperwork's immaculate i went through the whole deal i said this is an investor you need to build a relationship with he's now bought four notes from that same investor all right he says go to note buyer when this investor creates it so there's all kinds of ways you can do do these sorts of things all right shifting gears into the uh the rental space here again doom and gloom articles came out you know may june july 40 are at risk it's continued everybody 40 million look this just came out i just pulled this article last night it came out actually in december 11 2020 uh cbs news up to 40 million americans could lose their homes that congress doesn't act it's just that just so blown out of proportion it's it's absolutely ridiculous and it scares people okay so we have to drill down to the facts now this is a harder number to uh to to figure out here but there was a study done and they looked at 11 and a half million apartments that were all professionally managed it's a sample it's not a direct reflection of the entire market that's a very small sample considering all the tenants that are in the united states i get that but it's the only way that they can do it so the experts um all the way through the government this is a study that they they looked at and what they found was believe it or not 93.6 percent of the rents are being paid by the end of the month now this is based on again 11.5 million apartments this is not a big global this is a sample statistical sample here so your experience might be completely different i'm just delivering the facts of what they have said here so what they do is they look at this statistical sample and then they project that within the entire industry here and that could mean that over 3 million renters could be facing eviction okay still a big number okay but certainly nowhere close to the 40 million that they're projecting on that but again if you're in the rental space you've got some alternatives there you can convert to tenants you could then do loan modifications you could do evictions or again you you wait and see what the administration is going to to to do so be aware of that it's not the sky is falling it's obviously a concern but um again that's just a statistical sample of there's estimated 107 million tenants on there so you can look at those studies so a couple of things that you need to think about will property values continue to to rise well i've shown you that the equity positions have have leveled out and that's an indicator that property values are reaching a peak again all real estate is local but on a national basis it looks like things are starting to peak if things get worse are we looking to see worst case scenario property values dropping now all of a sudden people's equity is starting to be diminished are we gonna start up the economy again are businesses going to come back there's a lot of things in question so as you're investing you have to think in terms of could i absorb a 20 drop in in property values you know could could i absorb that and still be okay and that's something that you would need to look at in your own portfolio again i encourage you to look at the note site if you're not in it already because who gets paid first by the way when things go bad debt owners are equity owners always debt owners always debt owners and that includes in the stock market right with the company goes belly up who gets paid first the debt owners the bondholders get paid first right if there's any equity after that the equity owners get paid in the real estate same thing if we own the debt on that property and things go worth that's our collateral okay we get paid first other lien holders behind us don't get anything uh and and equity owners don't get anything if it's worst worst case scenario so if you've got portfolio of just real estate it may again be time to start to look at maybe i should start to diversify a little bit more if you're new to the business and you're looking at getting involved in real estate and you're you're new to the whole concept here again do the same thing look at the notes sideway away your wrist look at the equity side and all of this and and work accordingly but i think diversification is going to be the key here oftentimes the cash flow can be more predictable than appreciation okay because there's a lot of things that we can't control with with appreciation that happen on a more national basis where cash flow has a tendency to be more localized with the borrowers that we work with okay so um good we're in good shape here um take note of this individual okay jared bernstein okay jared bernstein was the keynote speaker as you can see this is just a snapshot from the national association of realtors at their uh december 2020 residential issues and trends forum jared bernstein has been a chief economist advisor to uh to joe biden since he was vp okay many of his decisions in the obama administration were played out it says here on their keynote likely appointment he was appointed and not only was he appointed he's going to run that council so this is an important person that has the ear of uh joe biden and there are some things that he talked about at this forum that should uh should pique our interest if something to look at and continue to monitor because a lot of what jared says that ends up happening okay so you can google search him he's got a blog it blogs a little a little stiff if you will it's a little boring he mostly talks about the economy right now and he doesn't contribute that much but he does enough articles and things that you can you can read about and get an insight so what i started doing was going back and saying okay what did he do excuse me what were his ideas in the last crash because it's likely that if he liked those ideas then he might like him again here and he's got the ear of the incoming president right so what did they talk about at this a home buyer tax credit of fifteen thousand dollars at the closing that's a nice incentive for people to to buy homes that sort of thing so hopefully that increases uh people buying but we still have a supply problem that's not going to help the the supply supply problem but it is a motivator for people to look at homes they're talking about expanding the 1031 exchange i hope that includes from real estate to notes don't know if that will happen but it's something to keep an eye on they're increasing the type of properties that you can exchange for they talked about re-examining fannie and freddie's role in in all of this they always do that that's always a topic and again if you're not familiar fannie mae freddie mac they are the big secondary note buyers for our lending industry when banks originate loans 90 or more of the loans they originate they sell to fannie and freddie most people don't see that because the bank maintains the servicing rights you're still making to the payments to the bank but the bank already sold the paper right lenders are in the paper business banks sell their paper at a discount to fannie and freddie that's why when there's a foreclosure you see the bank for closing at the very end they do an assignment a foreclosure position and then fannie mae has that those assets on their books and they either sell those or they sell them before they get uh to that point they also talked about biden's going to have or at least he's going to advise biden have a looser monetary policy that means that that um a credit availability index we were talking about look for that to go up look for uh new loan programs uh to come out uh for for people again this can affect a variety of different ways for for people in the real estate business but expect to start to see um probably within the the second quarter for sure i would say you're going to see some new loan programs that are available to people so that should be interesting to play out possibly extend the mortgage forbearance okay now again this is on loans that are backed by the enterprises fannie and freddie this is not seller financing so if i do a seller finance loan i am not under any obligation to do a forbearance at all it's a private private loan i want to make sure that we're very very clear on that that's just on the federal level here but again what's going to happen are we just going to continue to kick this can down down the road and build up another bubble which will eventually crash at some point in time people have got to stay they got to pay to stay ok so it'll be interesting to see what they what they do on that i'll be keeping an eye on that they talked about affordable housing this guy's big on affordable housing if you google search him he's talking years ago about the crisis of affordable housing we need more affordable housing you'll also see articles where he's talking about opportunity zones and how they want to change those and envelop some of the affordability within that there's going to be good opportunities in here and again if you're able to purchase homes in those areas and offer financing you've got the best of both worlds there's going to be a lot of money to be made in that area the scary part they talked about was the temporary lockdown of the overall economy and again if if that happens there's got to be more government spending because people aren't going to be making any money businesses are going to have some problems uh there and that's going to affect real estate so that's why we have to prepare can we absorb in our portfolio or the loans that we're going to be buying or the real estate we're going to be buying can we absorb a little gut punch can we absorb a drop in those uh those prices and i would get ready for that another thing that i'm hoping comes back and it may uh because they've done with um oh i thought i had it in here uh the um uh you all should know that there's rental oh i got on the next slide that's why okay we'll talk about rental subsidies in just a minute here but what i'm hoping is he was a big proponent of something called hardest hit funds now michelle and and kim and all that they know what hardest hit funds is all about if they re-enact the hardest hit funds which expired at the end of december 31st 2020 uh that they could open that program back up again if we start to see these non-performing loans come into play so on that projection i gave you a core logic where it's showing potentially three million homes and serious delinquencies one of the programs that they put in the last crash was called hardest hit funds and in hardest hit funds they pay the note holder a lump sum to prevent a foreclosure now back then if a house was worth let's say a hundred thousand dollars and the people owed eighty thousand dollars and you bought that note for 25 grand non-performing and they applied for hardest hit funds and they got approved for hardest hit funds which you pretty much know what the approval is if they can do it what's their income etc etc some states were paying you forty thousand dollars to catch people up on their loan what we call the arrearage account doesn't matter that you only paid 25 grand for the note okay because they owed 80. so imagine getting you paid 25 for the note 90 days later you get 40 grand from the government plus you now get the monthly payments on some kind of a loan modification now i'm not saying that program will come back okay so what i just told you is fantastically that was the reality of that program but this guy is a big proponent of that program so in my mind if he liked it back then he may like it again and if you're not in the note business if they do that you are just leaving all kinds of money on the table so keep your eyes open for that you can google search hardest hit funds you'll see the secretary of uh treasury sec website and i'm keeping an eye on that because if they open that back up it's going to be going to be very financially lucrative for anybody who's involved in the business and it's going to be good for the consumer that can stay in the home so keep an eye on that one so item number three then is learn and stay on top of all the new government programs including rent subsidies they put 25 uh they put a lot of money i can't remember the exact number of rent subsidies that are available some of these programs you can actually apply on behalf of the tenant the tenant have to sign off so don't rely on your tenants to follow these programs because they're not going to it's up to you to be proactive and by the way kim i think you put out something on twitter this morning about that that outlines some of those programs so so check that out uh rent subsidies mortgage relief there's going to be mortgage relief programs will it be hardest hit funds will it be something different than that don't know yet but i'm keeping an eye on it because that can be a dramatic uh impact on your bottom line and really help people as well and of course there'll be some more down payment assistant programs that are coming up there's going to be a looser monetary uh if again this guy has the year of the president we know that for sure he's done these type of things in the past so it's likely that they will repeat those so focus again on what we know which is this there are financial aspects of this business there's the brick and mortar of this business and if you understand both of those in other words combine the best of real estate techniques with no techniques more opportunities more flexibility within a changing marketplace including on the buy side on the buy side learn new techniques if you don't know how to buy subject to there's good opportunities in the market right now for that you can buy subject-to and actually sell it on a wrap-around okay so creating seller financing with a well-known well-played out real estate technique buying subject to the existing mortgage but how do i get out you can just lump sum it or sell it on a wraparound okay i've seen a lot of those come across my uh my desk as well so that's a very effective strategy right now and also combine options with seller financing sometimes we sell with two notes sometimes we do a lease purchase agreement where we lease the property for 12 months that gets us into long-term capital gains and then sell it with seller financing at that point in time better tenant better use of the property higher rent and then you turn around and sell with seller financing removing yourself from that role all kinds of things that you can do on that again to maximize your returns you