Richard Haynes, the Shifting Market and What You Need to Know | EREI 65

Today Matt welcomes his long-time friend Richard Haynes, an experienced real estate investor from Southern California. They talk about how significantly Richard’s business has changed since he was last on the show (EPREI #19 & 20), why the business has changed so much, and why it will keep changing in the future.

You could say that real estate is a kind of moving target. Because it’s always on the move, you shouldn’t aim at where the target is, but instead aim for where it will be next. Listen to this episode to discover worthwhile insights on what you can do to ensure your business is successful in the future.

In case you haven’t yet downloaded it, get Matt’s free “How To Do Deals: No Money Required” course at FreeRealEstateInvestingCourse.com. And if you haven’t established yourself on the web yet, go to EpicRealEstateWebsites.com and get the tools that you’ll need to capture information from all cash buyers and motivated sellers.

 

 

Recommended Resources:

  • It’s been great meeting you virtually. Would you like to meet in person? Our next live event is right around the corner! Go to EpicIntensive.com for the details.
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  • Need time? Work on your business rather than in your business by leveraging the time of others.  Access free information and find real estate-trained virtual assistants to help you free up your time.  Learn more at VAsForRealEstate.com.
  • Need training? The ultimate training environment for real estate investors: Version 3.0 of The Epic Pro Academy!  New look, new lessons & new content – we’ve got everything you need to know to get your first paycheck!
  • Need someone to do it all for you? If you’re an Accredited Investor, you can diversify your portfolio by hitching your wagon to our train and share in the profits. Go to EpicWealthFund.com to download the executive summary.

 

 

Podcast Transcript:
(Voice Over):  Broadcasting from Theriault Studios in Glendale, California, it’s time for Epic Real Estate Investing with Matt Theriault.

Matt Theriault: Yeah.  Awesome show for you today.  Welcome.  Welcome and hello and welcome to another episode of Epic Real Estate Investing

Where I show people how to get out of the rat race using real estate.  And it begins with just a simple shift in mindset, a shift in focus.  Simply stop focusing on creating piles of cash and start focusing on creating streams of income.  What we like to call here in the real estate world, we call that cash flow.

And I created my financial freedom in less than four years.  And I created a free course for you to show you exactly how I got started, to show you exactly how if I were to do it all over again, how I would get started all over again, and you can access that free course at FreeRealEstateInvestingCourse.com. FreeRealEstateInvestingCourse.com.

Okay.  Today I’m joined in studio by a very good friend and expert real estate investor.  He has appeared on the show before.  In fact, we had to split his last show into two shows because there was just too much good information shared during that interview.

And you know I am not sure if we’ll be able to duplicate that.  It’s a tall order but we’re going to do our best in the studio ready to rock, ready to crush it, Mr. Richard Haynes.  Richard, welcome back to the show.

Richard Haynes:  Matt Theriault, thanks for having me.  Really excited to be here.

Matt:   Me too.  Super excited.  You know it’s quite, this possibly could, we can have an entirely different conversation today than we have last time.

You know the market is quite a bit different now than we had last time. You know the market is quite a bit different now than it was when we last spoke.  Isn’t it?

Richard:  It’s definitely a lot has changed.  It’s not your standard real estate market anymore.  It’s more like the stock market yet changing every few months or so.

Matt:  Uh hmm.  We are going to get to that absolutely in detail.  So to refresh everybody’s memory, you know, about two years ago when you were on the show, what was your main strategy then? And what did your business look like then?

Richard:  You know what?  Our main strategy then it was quick flips.  Flipping stuff as fast as we possibly could.  The market wasn’t white hot like it is today with something where you want to get your hands on it and get rid of it as quickly as you could before a bad comp came through the market.

Matt:  I see.

Richard:  So today, it’s a lot different.  It’s moved to where you can’t find deals anymore at all.  And you’re actually okay if you hold on to it a little bit longer so a lot of different strategy when it comes into that.

Matt:  Right so you know when you’re flipping and you’re going to flip fast, you’re, what area and what type of properties were you looking for?  What were you basically focused on then?

Richard:  That’s a good question.  You know with the quick flips (pauses).

Matt:  I have more of them by the way.

Richard:  You have more what?

Matt:  Good question.

Richard: Oh good question.

Matt:  Of course you do.

Richard:  So you know, the where we were focused on and how we were doing it where the trustee sells. I think we talked about that bidding with cashier, checks, purchasing right on the spot didn’t take a long time.  And we were focused on the low to middle income areas.

Areas where it was pretty much lipstick on pig everything was the same.  You’d buy the same three-bedroom, two-bath house.  You’d do the same fix up.  Your contractors would know what you wanted and you went in a month and you’re out and hopefully had it in escrow two weeks after that.

And the reason why we did that is because FHA was the only thing that was working right then.  People were having trouble qualifying with conventional or jumbos and there weren’t just comps for there.

Anything in the low to middle income areas, you can get appraisals because it just couldn’t get any lower.  And you had people where it was like, oh my goodness, I can buy.  And it’s cheaper for me to have a mortgage payment than it is to rent so you could move the stuff.  And that was really was working back then

Matt:  Got it.  So bring me up to speed now, fast forward, how are you acquiring your properties and what areas and what types of properties are you looking at?

Richard:  So today we’re acquiring our properties is we have to work a lot harder.  We used to be able to go the MLS two or three years ago and say, ah, I like that one.  Ah, I don’t like that.  And you could choose whatever you wanted and you made an offer and you got it.

Today you got to work a little bit harder.  You got to slide in on the short sale that’s falling out of escrow.  You have to have a really, really good connection doing REO agent if they are even getting REOs anymore.

Or you have to be on track for inside deals.  Or you have to do direct mailers and talk with sellers directly and do that grunt work that pretty much no one else is willing to do to dig up deals in today’s market.

Matt:  Uh hmm.

Richard:  Additionally, the Hedge funds and all the other investors and all the positive news in real estate now has driven up the prices in the low income and middle income significantly where they’re buying it for cash flow.

So we aren’t even playing in the low and middle income game anymore.  We’ve actually moved to the higher end homes. We’ve been flipping million dollar plus homes.  Because of just the market forces and the way Hedge Funds and people buy for cash flow.

You can’t buy high-end homes and cash flow it so there’s a little bit competition.  There’s now buyers out there to buy that stuff.

Matt: Got it.  Okay.  So what were some of the science you saw in the market that you suggested that things are or are about to be different? Was it gradual? Was it immediate?

Richard:  So it was gradual on the fact that we were getting our butts kicked at the trustee sales and not being able to do it.  And we went from being able to buy two or three properties a week to maybe one in every three weeks.  It was gradual that way but in real estate terms, it happened rather quickly.

You know six months, this just doesn’t work anymore.  And as that you know I heard a great investor one time who ended up selling his big apartment investment manager like you know a couple million-dollar fund.

And he sold all of his apartment buildings in 2006 except for two.  And he said it wasn’t that I predicted that the economy would go down.  I didn’t predict that the credit crisis would just go down.

He goes it just didn’t make sense to buy anymore anywhere.  And he goes so we became sellers.  And with the middle income and low income game buying and flipping, it just didn’t make sense to buy anymore and flip so we sold that idea.

And we said, well look there’s still some pretty ridiculously good deals in the high end and what we saw were is this there’s a lot of wealthier individuals.  You know vice president of companies in Los Angeles that live around the beach cities that make $200,000; $300,000 a year.

But they’re just building their balance sheet.  They maybe got 300 or 400 grand in the bank.  They can buy a $1.5 million home but they can’t buy a $500,000 fixers, scrape it, and build a brand new home.

They need the finished product and they don’t have the time nor the patience nor the experience to put up the house like that.  So we saw kind of a niche there that wasn’t being fully served and went after it.

Matt:  Awesome.  Awesome.  So just to be clear buddy that’s listening. Richard is upgrading in the Southern California market.  That’s exclusively right now right?

Richard:  Yes.

Matt:  Okay.  And you have moved from a lower income area to a more via a luxury type home area. Right?

Richard:  Correct.

Matt:  So when you make that shift from one type of neighborhood to another and that type of neighborhood.  How do your, I don’t know, how do your, how are your conversations different?  How are your resources had to change?

Richard: It’s actually changes a lot.  The main principles of investing are still there but the differences of getting that finished product or your completed house is a lot different.

Really the same rule that I apply to when doing these flips is you make money when you buy.  If you buy it at the wrong price, I don’t care what’s going on whether you’re in low income, middle income, luxury, or super luxury.

If you buy it wrong, you’re going to get hurt no matter what you do.  So that principle still stays in place with the luxury home flipping.  With these million dollar home flips, they end up taking a longer time because you can’t necessarily buy a house that’s lipstick on a pig because someone else who’s a retail buyer will buy that and will say no it will put 50 or 70 grand of our own money and it will be a great house.

In this market, you needed to add square footage or you needed to build brand new.  It was more like Urban and Phil. So you go to areas where there is, you know, one, $1.5 or $2 million dollar-home around the beach that are 2,000-, 3,000-, 4,000-square feet.

Next to it is an old 1940s 80-square foot, two-bedroom, one-bath home that needs to be brought up to its highest and best use.

Matt:  Right.

Richard:  So rather than looking at a thing where you go okay this house is going to cost me $500,000 for a bathroom this for a house in the low income areas.

Now you’re going you got to have a really good contractor who knows high end, who can look at stuff at price per square foot because you’re going to be adding 50%, 80% more square footage, a second story, or maybe even building ground up.

So you got to have a whole another set of tools in your toolbox to be able to come in and write your numbers out properly.

Matt:  Right.  So definitely different contractors that you are working with now than you were before.  Correct?

Richard:  My low-income contractors get my low-income deals.  My high-end contractors, they are completely different. They both have completely different skills set.  I don’t call one or the other unless it’s a deal that’s up their alley.

Matt:  Got it.  So when you find a deal you know you’re working a lot harder to find your deals.  And you found one and you submit your offer and you get accepted.

And you’re ready to start breaking ground with your contractors.  Do you have multiple contractors or you just have like one guy that you’d like to work with?  How does that process works?

Because I know the materials are much more expensive.  There’s a broader range of what you could use and some might you know show you a good profit.  Others might you know break you.

Richard:  Right.  You know for my first deal, I actually just got it in from one guy but he is a younger guy around 28 with a great resume.  And he just had a really eye on high-end luxury flips.

He really, he had no investors.  He really wanted to get in with an investor.  So I went around and after he gave me his bid, I shopped it to some other luxury flippers that I network with and they were going, holy molly!  That’s a great price.

So you know I didn’t necessarily have bids going against them but because he was there and spent 15 days during escrow going over every single little detail with me.  I felt confident enough in working with him.  He was just, he’s a sharp guy.

So I don’t recommend that route but I definitely double-check his numbers.  Another thing that allowed me to go forward with him is he is willing to put his balls on the line and wrote a fixed contract.

So there’s a lot of contractors out there who write for instance the deal that we did was about $400 or $10,000 of the construction contract.  Most guys will give you a bid, an estimated bid, and then they will give you change orders.

And that’s where they make their money.  A lot of the old gray hairs have been in the contracting business for a long time. They give you a bid and then you get change minds. Well we thought you wanted this and then you went with that.

That’s more expensive so we got to do a change or we’re on this.  This guy even without engineering and soil reports and things like that put his balls on the line and in the contract if he went over, he would have to eat it.

Matt:  Nice.

Richard:  So that really gave me some confidence that this guy wanted to grow with us and do a good job for us the first time so that he could get more business in the future.

Matt:  Cool.  That’s a good structure.  That’s a very similar that we have in the Midwest. They submit the bid and we submit our offer based on that bid because that kind of dictates what price we can purchase at.  And you know if that goes over, it’s up to them. You got to take care of it.

Richard:  Exactly.  It’s a great way to do it.

Matt:  It’s a good structure and I would highly recommend it to anyone that’s looking at working with contractors for the first time to suggest and you know almost demand it.

Richard:  Sure.

Matt:  There are plenty of contractors out there looking for work and you can get those terms.

Richard:  Absolutely.

Matt:  Awesome.  So basically what I’m hearing is you know you, it’s just the same as any business.  You just have to be in touch with what the customer wants.  And you just started serving a different customer.

Richard:  Correct.  It was really just an underserved customer.  And the beauty of it was is that in my opinion luxury tends to recover a little bit later on the cycle as a low end in the middle land start recovering.  People start reading about that.

The luxury homebuyers start feeling a little bit more comfortable so it’s really just a whole new customer.  If you’ve ever fixed and flipped before and you’re focused on the middle and low end.  It’s a whole different game because now we bring in interior designers, high-end stagers.

You’re looking at fixtures where you go, oh go buying some knobs at Home Depo for 50 cents a pop that we’re going to put in, you know, in this low income house. That doesn’t work anymore.

Matt:  Right.

Richard:  You might have an eight-dollar knob that you need to put in these things.  And they really do make a difference.  I never thought, you know, I went from going into a stove/range that I paid 500 bucks for to a Viking stove that cost me $12,000.

Matt:  Right.

Richard:  And I’m going really? Someone can pay twelve grand for a stove. And the more luxury comps you start looking at, you see the house that don’t have a Viking stove in it.

Matt:  Yup.  Yup.

Richard:  Don’t sell for this high.

Matt:  Yeah.

Richard:  And so it’s those little things that you have to pay attention to and you have to have a fabulous team with a good eye because on the luxury flip you could have all the right things.  Square footage that match with that sale that you’re trying to get, the location is the same.  And if you screw up on the fix up and the decisions you make, you’re dead.

Matt:  You lose big.

Richard:  Right.

Matt:  Right?

Richard:  Uh hmm.

Matt:  So as you shifted and you started noticing these little new ones because I know the market that you’re investing in.  That’s where I actually was a real estate agent so I understand the Viking and the Viking appliances.

I understand the sub zeros and stuff like that and that did add significant value to the property at least the motional value. SO when there’s motion involved people like to spend more money.

Richard:  Sure.

Matt:  How did you, you know, you’re so used to purchasing you know 50-cent knobs.  What kind of research or what kind of education did, you know, did you go through for yourself did you put yourself through to discover that, you know, now I need to buy 8-dollar knobs?

Richard:  So it was really, you know, you look at it and I hate to say it but it’s almost common sense because if you walk through a low-income house and you walk through a high-end house, there’s a difference.

You can just tell by the cabinets.  You know you go and do a lower end house and it’s just they’re pumped out on a machine.

They open and close.  They kind of stick in some places.  In the higher end house, you open it up.  It’s smooth. You push it forward. It’s got that soft close.

Matt:  Right.

Richard:  You can feel the difference so if you’re going in to a high end house and going like, hey, I can put in what I put in this low end house then real estate investing is probably not for you.  You might not have that knack.

Matt:  Right.

Richard:  I think most people do once they get over the feel or the fear of doing that their first couple of deals.  But it’s really just going, look, you can feel the difference of somebody’s products.  And it’s really just that.

And then you lean on your contractor to educate you because you go all right, we can go with these really nice custom windows or we can go with these mil guards.  And there’s a huge price difference by like 300% or 400%.  And windows are expensive.

Matt:  Right.

Richard:  And you go, know what?  Do people really get windows? Do they not? Does it still look the same?  And those are decisions that you have to make to save money in certain places.

Matt:  Uh hmm.  Cool.  So based, you kind of opened saying this that the basic principles of real estate investing are still intact regardless of which market.  And it’s still just a match equation.  You know you got what you’ve bought the property for.  You got what the repairs or rehabs is going to cost.

Richard:  Right.

Matt:  And then you carve your all day expenses of the transactional expenses then you carve out your profit there and then boom!  It kind of gives you what you think uh what you’re in it for.  And then you just subtract from I guess what you think you can settle for. Right?

Richard:  Exactly.

Matt:  Basically.

Richard:  Same thing.

Matt: Got it. I kind of want to put it out there because you know you can add an additional zero or two to the properties that you are purchasing and all the principles are exactly the same.

Richard:  Yes.

Matt:  Perfect.  Perfect.  So this shift in the market, I want to talk about this a little bit because I know you do a lot of research.  You do a lot of reading. You’re a follower of Bruce Norris.  Very recognizable and notable economist here in Southern California.

What’s going on right now?  What’s, let’s back up just one step or two, what led to this shift in market conditions in the last two years?  And then what does it look like right this second?

Richard: Okay.  That’s a good question and it’s maybe I, you got to give me a little time to answer it.

Matt:  Sure.

Richard:  What led me to this market shift was not only investor buying but there’s also a lot of manipulation in the market.

Matt:  Okay.

Richard:  If you look at the numbers and Bruce Norris, you know, I got to cite him on a lot of things that I’m saying but if you looked at the amount of foreclosures or homes were in default that should have been foreclosed upon, it’s unbelievable how many weren’t.

You had a lot of the banks and the government working together to hold back those foreclosures. You read those stories and saying someone’s been in their home for 500 days, 600 days.

Matt:  Uh hmm.

Richard:  That wasn’t a mistake.

Matt:  Without making a payment?

Richard:  Without making a payment.  Right.

Matt:  Right.

Richard: In foreclosure, it’s because the banks didn’t want to take a hit. And if they absolutely took a hit and foreclosed on every house that was under water, every bank in America would be bankrupt and gone today. And real estate could have literally gone to zero.

It was that bad.  And so they didn’t foreclosed.  Markets been manipulated by low rates. The banks are starting to sell a lot of their defaulted paper to note buyers.

So things that should have been foreclosed upon are now getting purchased by outside investors and they go back to the homeowners and they rewrite the paper.  And these people may have had $400,000 mortgages and now they have $250,000 mortgages.

So something that should have gone to foreclosure to a trustee sell buyer or an REO and then back in the market is now getting rewritten and you have people who borrowed way too much that are now the great mortgage with a low interest rate.  The guy who bought the papers are making a killing off of it because he bought it for 30 cents on the dollar.

Matt:  Right.

Richard: So anyway, go ahead.

Matt:  I was just going to say so that coming in the investors going in the back door and buying the note on the property instead of the property itself.  It doesn’t make the headlines.  It doesn’t create the panic and it doesn’t drive the properties down to zero.

Richard:  Right.

Matt:  Right.  So it’s preserved everywhere.

Richard:  Yeah.  So you’ve taken away all of the supply.

Matt:  Uh hmm.

Richard:  And you’ve taken away people wanting to buy homes for the last three or four years so this pen up demand.  There’s been no building and then you’ve got Hedge funds and investors like myself eating up all the other properties.  What do you get?

You get a one and a half months supply in Los Angeles county.  And that’s why we’re going up.  And as long as those factors are at play, you’re going to have low supply and prices are going to go up.

Matt:  Right.  You still think that’s happening right now?

Richard:  Yes, I do because as you have prices going up, you’re starting to see people come out from being underwater.  They can sell their home now and not get a ding on their credit.

They, now this isn’t for sure but if they’ve been able to hold on to their home over the last five or six years and moved up in their job, they’re starting to make more money.  Their investments have now recovered in the stock market. That’s a whole another topic

I mean if you look at the stock market was almost at $6,000 at the depths of the recession and now you’re at $14,000 so you have people who have in their portfolios have more than doubled over the last few years.

Everyone’s feeling more wealthy etc etc.  There’s just a lot of factors that are driving this market.  And it doesn’t look like it’s going to stop for a while.

Matt:  You know right now I’m looking for a specific tweet that I saw this morning.  And it cited that the guy CM Gates, do you follow him?

Richard:  I’ve heard of him before I do not follow him.

Matt:  He pulls every 30 seconds. It’s hard to track down what he posted but he did post a tweet this morning was a headline about the housing recovery might not be what everyone is thinking it’s going to be.

And it was the first piece that I really saw from the media saying the last year and all of the economists out there that are predicting the market and everything. That where it you know it was like maybe it’s not. That’s kind of where I have stood the whole time was he cited two things.

I’m trying to find this so we can, I can give you the other reasons. I never thought of these but my first one was I’m talking about employment.  You know the unemployment, it seems like the media really is or a lot of the media has the back of Obama and they want to show that he is doing a good job and he’s adding jobs.

And when you start looking at that and dissecting the actual numbers is not really the case.  We haven’t really added a whole lot regardless of what the number has done or we go three or four months up and then we lose it all in one month so same thing.

And then the other thing was talking about interest rates or not interest rates but you know the ability to get a home owned, it’s still very challenging as low as the rates are, as great as they are.

You know the housing market will absolutely recover if more people could get access to the money. Right? So you know out there you’re in the real world, how do you see those dynamics coming into play?

Richard: So the thing that I think is a big factor.  It’s not the only factor but it’s housing affordability.  That’s a number that really sticks out and it’s another thing that you know we reference.

You got to cite Bruce Norris on.  And he talked about how and the worst part of the recession affordability was at 54, which was never heard of.  It was crazy.  And now I believe we’re down to a 36 and what Bruce said is that a 36 is back, goes back to the last time we were at 36 was in 1999.

Right? So right at the beginning of that up cycle.  So even though employment maybe hasn’t recovered quite as much.  People can agree that it’s starting to slowly getting better.  Maybe at a minute place or at least cut the jobs from being cut anymore and we’re kind of just bouncing along.

If you’re at 36 and at 1999, I look at ‘99, 2001, and ‘02.  That is the market just started to go up and then in ‘04, ‘05, ‘06, it was fueled by crazy lending standards that allowed to push it to bubble territory.

So I look at it and go if you got affordability even with not so great employment, we still have some room to run. If employment doesn’t get better as affordability starts to go down, down, down then we got ourselves a problem.

And then to your point about the loans and saying how hard it is to get loans.  I agree.  If you don’t have over a $700-credit score, you’re going to have a real tough time getting a loan these days.

Matt:  Right.  Even the credit score is not sufficient though. I mean it’s just a portion of the equation.  There was a time where the credit score was all you needed to get approved.  And now that income ratio is looked at with such greater scrutiny.

Richard:  Well and actually as how hard it is now to get a loan, I think that’s another argument as to why the market will still go up because lending can’t get anymore difficult than it is today.

Matt:  Right.

Richard: And so what I’m starting to see is and what normally what gives you the cue is how many emails I start getting from hard moneylenders? And how many hard money lenders are going, oh, we’ll finance your non owner occupied property 90% at under 10% for a couple of points. Where was that two years ago when we really needed it?

Matt:  Right.

Richard:  So lenders are going to start loosening their standards because now that real estate is back, lenders are fighting for each other on loans.  And if you can get 10% return on your money as a hard moneylender, and you go, well, I can lend 90% and the market is going to jump 10% next year.  I’ll feel very comfortable.

Matt:  Right.

Richard:  As that starts coming in the market, lending is going to get easier. It may not come from Fanny, Freddy, or FHA.  But we’re going to start seeing private money I think makes things a little bit looser for us. And you’re going to start having people buying properties maybe at 8% interest rates but their debt to income ratio doesn’t have to match up.

Matt:  Right. Good point.  Good point. I found this article. It’s on NPR posted today August 15th.  And if you want to look this up, the title is “Pent up demand is boosting home sales but can it last?”

So that’s the whole article but I’ll give you just the bullet points.  They talked about, I’ve heard about this a lot frequently.  And I’m not sure exactly how it’s going to affect home sales but they talked about one of the factors that might you know stifle the growth that’s bloated student debt.

I’m not a big economist. I don’t understand how that works but that’s another thing. Declining birth rates, I think that would have to take since we had more babies born in 2007 than ever before.

That declining birth rate I think would have to take awhile before that really affect I would think.  Unless they’re just speaking of families growing and their need for house but I think we have enough demand here.

Walking on earth to fuel us for quite a long time.  And then we talked about elevated unemployment.  They just actually just say it’s elevated. It’s not improving at all.

Tight credit and here’s another thing. This is also very interesting. Changing attitudes about home ownership.  People are starting to notice that maybe owning a home is a little riskier than you know what they’re raised to believe.

Have you notice, I mean you’re a younger generation.  And you know I know you’re still in touch with your college circle and your network, you have a very large group of friends.  Have you heard any kind of conversation like that that attitudes about home ownerships we’re changing?

Richard:  Uh hmm.  What I’m finding is my echo boomer generation as they like to call us is delaying home ownerships.  So I don’t disagree with that at all.

And I think it’s going to take a while for the echo boomers to impact the market but what I am seeing and my friends because people don’t get married as early these days.

Matt:  Right.

Richard:  Of my friends who are getting married, they want to own a home.  That’s the next step in their lives so I think you’re going to see a delay from echo boomers whatever you know the projections of our, saying, oh they should start buying in their mid 20s that might happen in their early 30s.

So that’s not a huge concern to me. I do think attitudes have changed about home ownership where people are happier to rent.  But you still got so many people that were foreclosed upon or kicked out of their home that are now renting who still want that American dream.  They’re going to recover just fine.

Matt:  Right.

Richard:  And they’re going to want to go out and buy a home that was cheaper than what they bought it back in 2006.

Matt:  Right.

Richard:  So it’s hard for me to project because I’m not an economist.  I’m not a, you know, I’m not a demographics guy but to me LA and the United States is just too good of a place to do business that we are, I think it’s too hard to fall in demand.

Matt:  Right.  Right.  I actually think that too.  I think about NPR, you know, who their listenership is.  It’s a little bit more of a liberal listenership.  You know, I think you and come from a world of capitalists and conservatives.

Richard: Yes.

Matt:  So.  Regardless  of how fast or when the market is going to recover, I think we both are in agreement that it will.  Right?  We agree to agree there.

Richard:  Sure.  Absolutely.

Matt:  Absolutely.  And you know I think there’s a window of opportunity for us to seize because even if we have experienced some decent amount of recovery or at least measurable recovery in the last year or two, still the conditions right now are better than they’ve been in a really long time to start acquiring real estate.

Richard:  Absolutely.

Matt:  Right?

Richard:  Yes.

Matt:  So I know you’re, I’m focused a little bit more nationally.  You’re very focused here in Southern California.  How do you see the California market or have you ever thought about it how you see the California market affecting the rest of the nation? Or are they completely separate?

Richard:  You know what? I think the nation, it’s everything is so interconnected these days.  You know the world is flat.  Well you know, the United States is flat. California, you know, from what I’ve read in the past because I’m not a guy, you know, who’s been through a lot of cycles.

But it used to boom and bust on its own.  Now that the mortgage market is secure at ties and run through Wall Street, everyone kind of play by the same standards.  And hedge funds are going after properties in LA to Buffalo to Memphis.

Matt:  Right.

Richard:  To Texas so I think we’re going to sell real estate rise and fall but I think you’re going to see California bust doors and bubble the most out of all of them.  And that’s why I like to play in the market for appreciation.

For cash flow, I think you’re going to see California start affecting markets that you work in because you used to be able to get cash flow back in 2010 if you are willing to get your hands dirty and a lot more active management in California, which sometimes is scary.

Matt:  Right.

Richard:  But as the prices rise in California, the prices in the Midwest and the regions that you work in, they’ve been recovering but not at a crazy pace.

Matt:  Right.

Richard:  And if California is starting to go nuts at a crazy place, those other markets are still going to follow.  So I still think it’s a good time to get into the Midwest because you can still get that great cash flow.  And you still I think have room for appreciation that hasn’t started to take off yet.

Matt:  Right.  Right.  You know the other thing I like about the Midwest and the south.  I want to actually ask you this question about California since you’re doing so much building.

The reason I like the Midwest and the markets we’re working in is because we’re still purchasing it about 50% of replacement costs.  Are you able to here in southern California, are you able to build new and self it for a profit yet?

Richard:  You well if you’re talking about big subdivisions and brand new housing, you know developments maybe.  That’s really not my expertise.  If you buy a deal and what we call urban infill where you got the big mansions by the beach and the old beach home.

You can build but it’s very competitive.  With what you’re saying because I don’t know the Midwest markets as much.  If you’re buying at 50% replacement value, it’s a no brainer.

Matt: Right.

Richard:  It’s an absolute no brainer to me as long as you got a city. You’re confident in the economy. You know, it’s, I don’t know anything about Detroit but I know three or four years ago, it went down and people got hurt but then there’s other Midwest markets like in Kansas City or Memphis that have strong economy or I’ve heard good things about North Carolina.  Whatever.  I’m just throwing cities out.

Matt: Sure.

Richard:  If you’re buying below replacement value when that market fully recovers, you will sell your property for replacement value plus land value.  And you’re going to make a good amount of money.  Will it happen as quickly?

As California, will it go as high as California?  No but if you want a safe study investment, buy below replacement value. I mean it’s a no brainer.  You could buy below replacement value in California.

In the depths of the recession, that is gone now.  And I was going, man, I wish I bought a hundred times more because it’s incredible when a market goes back to normal and building becomes profitable again.

Matt:  Right.

Richard:  That’s when you bought replacement value, you just doubled the value.  If you’re buying at 50% replacement, you just double the value.

Matt:  At least.

Richard:  Right.

Matt:  Absolutely. Absolutely.  Cool.  That’s why I was kind of curious because you know one of the indicators, one of the, you know, I guess the measurements or the headlines I’m really looking for is to really notice when new home builders start entering the market again when they start to build again.

And you’re seeing housing starts up 18%.  Housing starts up 12%.  But if you look at where they’re measuring that from, you know, here in Southern California.  This is actually from Bruce Norris and forgive me if I got the numbers wrong but I’m going to get the principle correct is that last year there were only 10 new homes built.  And if it’s up 18% this year, okay?  So there were two more homes built.

Richard:  Exactly.

Matt: Right?

Richard:  It’s miniscule.

Matt:  Yeah.  Exactly.  So it’s nothing to get all excited about yet but you know it would appear that it’s moving in somewhat the right direction. And that window would be closing slowly.  That’s how, that’s what I’m deducing from that.

Richard:  There’s not a lot of supply being added.

Matt:  Right.

Richard:  Exactly.

Matt:  Right.  So yeah awesome.  You know, Richard, right now with your business I’ll give you this opportunity.  There’s a lot of people listening.  We are now the number one real estate investing podcast on iTunes.

Richard:  Mr. real estate radio. Big upgrade from the last I was on. This recording studio is unbelievable.

Matt:  Thanks, buddy.

Richard:  It’s nice.

Matt:  You look good over there with your headphones.

Richard:  Thank you.  So do you.

Matt:  Anyway you know is there anything specifically that you need or want that you would like to throw out into the Universe?

Richard: Well you know I mean the thing that we’re always looking for are flips.  And in today’s day and age I know you educate a lot of people on the show, on wholesaling, and digging up deals. I know personally you’ve dug up wholesale deals.  And you even wholesaled me a deal that we bought.

Matt:  Right.

Richard:  You know so what I’d be looking for and if there’s any you know first time real estate investors out there, you know, wholesaling tens would be a place where you get started and make your first kind of massive income.  I’m looking for luxury flip deals in LA, the beach cities.

Matt:  Okay.

Richard:  If you’ve got a great deal that you’ve dug up that could use some value added square footage where I could scrape and build a brand new home to flip.  Talk to me. I’ve got a couple of million bucks I want to spend right now and would love another project so.

And hopefully you know someone digs up a great deal.  And we can make them a lot of money as well.

Matt:  Awesome.  And so if they should find such a deal, how would they contact you?

Richard:  You know what? They could go ahead and call me on my office line.

Matt:  Awesome.

Richard:  That’s 310-

Matt:  Get your pens and papers ready.

Richard:  379-1724

Matt:  310.

Richard:  379-1724.  Give me a little time to get back to you but if you’ve got a good deal, just let me know the area that it’s at and any interesting details that you think I need to know.  Beach city area of Southern California, LA county area, that’s really what we’re looking for.

Matt:  Got it.  Super.  Well thank you, Richard, for taking time out of your busy schedule and sharing your words of wisdom with us.

Richard:  Thanks for having me, Matt.  This is great. Yeah.

Matt:  It was a pleasure.  So if you happen to have a question, comment, or concern that you would like me to answer or address here live on the show, you can share those with me at or on the Epic Real Estate Investing hotline at 1-888-891-7203.

That’s 1-888-891-7203.  So that’s it for today another episode of Real Estate Investing in the books.  We will see you next time.  So to your success, I’m Matt Theriault.  Living the dream.

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