Are you at a loss for strategies to apply in your chosen market? This episode is perfect for you to scale in the real estate industry. It is time to put that volume up and listen. This is the second part of the two-part series on Market Cycles – How to Profit in Real Estate with Bruce Norris of The Norris Group. In the previous episode, Bruce discussed predicting market crashes and protecting and positioning yourself to win in these very turbulent times.
Bruce is a veteran real estate investor and market forecaster who has made over 2,000 real estate deals with over 35 years of experience. He is one of the leading experts on predicting real estate market cycles and especially how to profit in any market conditions regardless of market circumstances.
In this episode, Bruce talks about the dreaded word, recession. With that, he gives hard numbers on this and his thoughts about the real unemployment rate. He gives us some incredible strategies for making money in a very crowded market, the five seller avatars and how to effectively manage each one of those personalities.
Market Cycles – How To Profit In Real Estate In Any Market With Bruce Norris – Part 2
This episode is the second part of the two-part series on Market Cycles – How to Profit in Real Estate with Bruce Norris of The Norris Group.
Welcome to part two of the two-part series, Market Cycles, How to Profit in Real Estate in Any Market. In the conclusion, Bruce talks about the dreaded R-word, the Recession. Are we headed into a recession? Are we already in a recession or are we not even close? Bruce gives us some hard numbers on this and reveals his thoughts on the real unemployment rate and why what we’re seeing out there might not even be close to reality. He also gives us some incredible strategies for making money in a very crowded market. He talks about the five seller avatars and how to effectively manage each one of those personalities. You will not want to miss what he has to say about this. Enjoy.
Do you think that COVID is going to affect our house prices if it keeps going the way it’s going?
Do you think we’re going to have round two? We’re going to be hunkered down again?
You’ve got a lot of businesses that are going out of business. When I’m driving down the streets, it is insane. Every commercial real estate is getting hit. I’m seeing businesses going dark every day on the roads that I drive. I’ve got to imagine, those are people that have lost jobs at a certain point. How is that not the domino?
That’s one domino. When you start having unemployment, you might have migration out because of that. That would make sense but you’ve taken out buyers that can no longer qualify. That’s just a math function. A lot of those people probably were self-employed, not the most favored of lending institutions to lend to but they’re not being able to make a living anymore. To be honest with you, I’m not buying the unemployment numbers that we’re seeing. I would think they’re higher than that. The number that’s still filing brand new unemployment claims is 4% to 500% more than normal, still. They also have another category of unemployment. The people that are no longer looking for work and that’s high. I expect that we probably could have another recession, which will be interesting for interest rates. Can they go lower? That’s interesting.
Can they go to zero? Is that a thing?
At the Nixon Library event that we have, a couple of years ago, when interest rates were crushed in foreign countries, Iceland, I think it was, had a negative mortgage rate. You could borrow money on your house and 30 years later, you would have paid them back less than you borrowed. It was bizarre. Just for fun, I put a text to all the panelists. That’s Chief Economist of Fannie Mae, Doug Duncan and everybody at the top of the heap of the industry. I said, “Hypothetically, why don’t we do this? Why don’t we do a 50-year loan to the country at minus two? We have to have a buyer of the paper and the dental pay itself off in 50 years. It will resolve itself.” It was tongue in cheek.
A few years ago, we wrote a report that said 2% mortgage rates, $40 trillion in debt. You have a very thankful offer that the 2% occurred. I didn’t say it was 2.0%. I said it would start with a 2%. I’m very happy. Whenever you write something, you’re stuck with it. People put it on their shelves. For a couple of years, I look at that and go, “That Bruce, he was a nut.” I was on an email with John Burns, who does a lot of consulting. I’m on email exchange and I’m watching the ten-year T-Bill going to tip below one. It goes down to about 0.5% and then I was like, “That’s not good.” That pressure will reemerge. I don’t think we’re done and we’re off to the races yet. You could have a recession round two.
What do you mean round two?
We had a very bad stretch where we had the numbers of the depression.
It’s earlier in 2020. We were technically in a recession.
Deal with different types of people so you can grow.
The numbers got to 25% unemployment. That’s a depression number. They resolved that by writing a lot of checks and that’s the other thing. I have to study in 2021. That’s why we’re doing the timing report in sections. I still have to come to some conclusions. I also have to see what they implement and what they don’t. To me, that’s important. That’s why I’m buying time. I’m going to do it quarterly. Let’s say by May, I know more than I did. That will help the second segment be more accurate when I can say, “They didn’t implement the wealth tax or they didn’t implement this.” That will have a bearing on what happens. What we’ll do all year long is take a look at the evidence and say, “This is the likely outlook.”
Here’s the thing about migration. First of all, go to population. California, if it has population gain, 100% of it is birth over death. That kid’s a day old isn’t going to buy a thing. Literally, all of California’s population gain is not an adult anymore. It’s a baby over somebody dying. That’s the number. What it means is you’re losing lots of adults and you are going to lose them for a considerable length of time out into the future. That is less buying people. That’s who rents your property. That’s who buys it. In Florida, it’s almost the opposite. They haven’t more elderly population. The birth over death is very close to even but they lead in population. Eighty-five percent of their population gain is migrating families and adults. That’s a big deal because they come ready to buy and ready to rent. Enormous money is flowing into Florida.
I don’t have to go to the library and write this manually down anymore. I can stay up at night and think, “I wonder where all the money migrates go.” You’ll type into Google, “Where does all the money go?” You’ll see Florida number one. You look at the actual numbers. Florida is more than numbers 2, 3, 4 and 5 combined. Billions of dollars are landing in Florida. I try to look for a safe business model. I read a study that said, “This is how it works when you grow older. You need more medical people.” That makes sense. When you’re 65, you need two medical people in your life. When you’re 85, you need seven. Think about that. When you have a senior, you’re going to induce the migration of 350% of your number to that area. That’s an astonishing thing.
When I built my rental houses, it’s near a place called The Villages. The Villages is the number one track building in the whole country at this point. There were 2,600 units a year. It’s seniors. You live in a nice circle. All your stuff is there. You have a golf cart. You go to the store and you go to golf. It’s all contained and then they do it over and over again. I felt my renter would be a senior that didn’t want that lifestyle. That’s not what happens. It’s a nurse. A hundred percent of my renters are people that work to take care of those people. That I didn’t expect. Coincidentally, the second-fastest-growing track in America is where I live. It’s a track of nice homes that are in little pockets of gated areas. They’re doing it. When you drive around in Florida, the one thing you realize is there’s a lot of lands left. That’s why I’m here because I trust the business model of migration being the surest thing that I know to create demand.
I’ve been long checked out of California for a while for the real estate stuff. I live here. I’ve got kids. I’m stuck here for a while until my kids are eighteen and then I will likely move. The reason I went virtual was I was a house flipper. I noticed that my margins were getting skinnier and skinnier. I had to offer more and more to compete to buy these properties that were distressed properties. Every seller I was dealing with had eleven other offers come into them.
My margins were shrinking. It was starting to become very risky to flip a home. It made no sense. There are my other friends that are in other states, not having to take skinny margins the way I am. Why don’t I go somewhere else and I’ll see if I can make it work? At the time, I had seen that you were doing some deals in Florida. I thought, “If he’s doing it, that’s an indication that I should consider another state.” That’s the beautiful thing about going virtual. I didn’t have any mentors. Nobody told me what to do. I literally had to put this together piece by piece but my first venture was Nashville, Tennessee.
I bought some lots and built houses because that was what you did. I had no idea what I was doing but that was what you did in Nashville. I went on vacation to Nashville and I noticed that there were all these houses being built. I met somebody on the side of the road. I’m not making this story up. I asked him, “Are you the project manager here? What are you building? Why are there all these houses being built? What’s going on?” He ran the numbers and it was still very easy to buy a deal there, to get a deal. At that time, you could buy a deal from a wholesaler that made sense. In California, you can’t do that. It’s very difficult. I hate saying you can’t blanket statement because there’s always someone reading that’s like, “I bought a deal from a wholesaler in Hemet.” I’m like, “Have fun in Hemet.”
It would be $120,000 in Hemet.
I heard Hemet is half off. Have fun there but it’s more difficult. You have to have a lot of cash behind you to compete here. You are competing with a lot of people. I know pretty well Tarek Buys Houses Group, Tarek El Moussa from HGTV’s Flip or Flop. If I were to be doing direct-to-seller marketing in California the way I was, like direct mail or cold calling even, I am competing with a group that has a six-figure marketing allowance in Google AdWords and Facebook Ads to purchase homes to be on a TV show. There’s so much money here. There are iBuyers. It is so hard. For me, it was like, “What about the little guy?” The little guy can’t compete very well. It’s difficult. It was so much easier to go find an area that was less competitive.
My first venture was in Nashville, Tennessee. I did my thing there. Nashville started heating up. Nashville became very well-known as the number one real estate market. It became too competitive. I was like, “How about a balanced market that’s not in the news for anything, just a regular place? What is a regular place in the middle of America?” I looked at more rental markets like places where people were buying rentals. That led me to Oklahoma. That was my second virtual market. I’m in four different markets but that was the first market that I enjoyed because it’s a different seller conversation. They’re not as hostile. This is the one thing. Someone told me this. I love the way you said it. In California, your California sellers are very much aware of their property value more than anywhere in the country.
If you start losing people, you’re going to have problems.
They put a lot of emphasis on that. I understand exactly what you’re saying. I’ll tell you a funny story briefly. I went to visit a cousin in West Virginia. Amazingly, they rented. They didn’t own. I couldn’t understand that. I said, “I’m going to help you buy a house.” I ran an ad in West Virginia and drove it to my 1,800 number in California. The first day, I get a call. I have two houses on the lot, rents for $800 total. I said, “What do you want for it?” He says, “$10,000.” There was a little pause. I said, “What do you need to $10,000 for?” He says, “It’s deer season. I need a Winnebago.” That was the emphasis he put on his life. It was Winnebago time. I called my relative. He lived in one house and rented the other one. He lived for free and he owned it. It took a day in that area because real estate wasn’t the ticket, where in California, it is.
That’s why we came out with a virtual coaching program because there were so many students that wanted to get into wholesaling and house flipping but they lived here. They were trying and doing all the things. There are these gurus out in these different states, Florida and wherever right in there. The California student would do exactly what the Florida guy was saying to do but it wasn’t working in California the same way. They were not closing deals. They were not making money. The sellers were lacking them off the planet and they were frustrated. Comes me one day going, “I live in Orange County but I invest in Oklahoma.” Everyone was like, “Why would you invest in Oklahoma?” I’m like, “It’s because I was tired of getting yelled at by California sellers.”
Have you been to Oklahoma?
I have but in my virtual markets, there are some I’ve not been to. I figured out how to open up a market without having to go there with just utilizing people, utilizing key contacts that are there that can be your boots on the ground. I made it work. It’s cool when you open up the country to yourself like that because the sky is the limit.
The first time I did that was in Grand Junction, Colorado. It was about ’84 or ’85. I had a friend’s dad move up there. Once in a while, I’d be like, “How’s your dad doing?” “It’s great. He’s kicking butt up there. He’s a realtor.” About ’84, I asked that question, he says, “You got to go up there. It’s devastated.” I didn’t pay attention. In the next year, he said it again. I thought, “I’ll go take a look at that.” Fourplexes that were sold for $200,000 was listed at $90,000. I was interested. I ran an ad in the newspaper. My local ad got about 50 calls a month. I got 50 calls a day and people were offering me $10,000 to take over their loan.
I said to the guy, “I got to go back home with my tail between my legs until I figure out what is going on. If I’m going to buy something, I need to see five-year history of listing books every quarter.” I mapped out what happened. I told him, “You’re not at the bottom yet but I’m a buyer.” Within a year, we bought all of the HUD repos that were fourplexes for $40,000 apiece. Here’s the other bad news about that. Two things, I was the only bidder in America that wanted it. I’m signing a stock of papers and closing. You’re there with the seller and their agents. They’re all getting their checks. I’m realizing there’s no competition.
I know that because when I offered $40,000, it was six months before they accepted it. They countered at $85,000. I didn’t say anything other than $40,000. It went all the way down to $40,000 six months later and no one ever outbid me. That’s one of those moments where the hair goes back up on your neck and goes, “Am I doing something stupid?” This is interesting because you’re in markets where real estate is cheaper than it costs to build. That’s a really important factor. In Grand Junction, I had to ask myself the question, “Are they ever going to build another fourplex?” If they do, it isn’t going to be for $40,000. That was why I bought them.
You have to leave your California brain at home. I learned that when I was in Grand Junction. I talked to the property manager. We’re having our first meeting. I said, “I’m thinking of doing a certain type of advertising.” She said, “Do you think people are going to drive twelve miles to go to work?” I was like, “Twelve miles is a problem?” In Grand Junction, it was. They didn’t do that. I had 50% vacant for two years. One more funny story, if you don’t mind, because this is what happens. You make some mistakes when you’re a rookie.
She said, “It would help if we had washers and dryers.” “I can’t buy washers and dryers new for every unit. I’ll do twenty and I’ll do use.” My friend in Florida came out. We drove twenty sets of used washers and dryers from California to Grand Junction. As they were going to install them, we’re walking up with the first set. By the way, old washers and dryers are very heavy, made of real metal. We started to install the first set and all of a sudden, he starts laughing. I said, “What are you laughing about it?” It’s hard enough where he’s not breathing. He paused. He just had the strength to point to the wall. We had brought gas dryers, two electric hookups. I had to get rid of them all.
You’ve got stories backdating the ’80s but it’s still very relevant. You talked a lot about quadrants. We’re running out of time but I would love for you to educate our readers, who primarily are all wholesalers. A lot of people are starting out. What I want you to give is some real practical advice on how they could use it. What is the opportunity? We’re primarily a wholesaling channel here. I love being a wholesaler. It’s good at night being a wholesaler.
I’ll be as brief as I can. Why I divided the whole real estate investment world into four quadrants is because skills are very different. We’re in quadrant four where prices are escalating. You’re not going to need to build a relationship with an REO agent or a short sale agent because they don’t exist but in quadrant two when prices go down, you better have them because most of your deals will come from relationships not talking to human beings. It’s a very different skillset. You are building a team member that’s going to go and call you first with deals. That’s a very different skillset than closing the seller in quadrant four. It’s a different pursuit. You’re not doing mailers in quadrant two. You’re doing door knocks and getting yourself wedged into a relationship. You know it’s repetitive.
This would be the thing that would happen. I would see a deal in the MLS with an agent I never dealt with before. I would come in with my deposit check. It was the full price of the house. I don’t care who was number one before, they were now number two. In their brain, they just said, “Bruce is the easiest commission check I will ever get. I’m going to give him a shot at everything I have.” That’s how you capture inventory when foreclosures are high. When it’s just like this, you’re doing exactly right. You’re talking to the human being that owns a house. They all have different reasons for selling.
I love our business because all we do is solve problems. Sometimes, if you get a phone call and it’s somebody who’s got a relative living in the house rent-free, that’s my favorite. They can’t kick them out but I can. I don’t own the house anymore. When you hear that, don’t you go on buying this house that you had? If it’s vacant or all of those things, you realize. Here’s the problem with the seller. They have problems they don’t even know. “How long has that house been vacant?” “It’s been vacant for a year.” “Did you know you’re not insured?” You’re not. That’s important.
If somebody trips on it, you could lose a lot more than just that house. “I’ll fix it myself. Have you ever done that? Have you ever hired contractors? Do you think you’re going to give them a deposit before they go to work? If you do that, your deposit is going to go somewhere. It’s their job to finish it and you may never see him again. Here’s the way you can save yourself. All that grief is to get a check.” Understanding that we are like CarMax for real estate. You drive your house up. You leave some equity for us and you go on with your life.
Sometimes your basis in the houses is nothing. “How did you get the house?” “A relative died three years ago. It’s the first time I’ve ever been in town.” They’re in a Winnebago. I used to get calls from payphones. It’s the same thing. They’re on a payphone and they’re in their vehicle that’s leaving the state here in five minutes. We had one guy say, “I’m here to dump my last house.” I was like, “That’s a good sentence.”
These are good lines. In the direct-to-seller land that I play in because I do a ton of direct-to-seller marketing, it’s like five avatars. There are five different types of sellers you talk to. The freeloading family member is one who inherited this property but didn’t care about it. It’s out of state. You have these canned lines that you say. When they say free-loading family members, I know exactly what to say to get them to be like, “I want to sell my house to you.”
One thing that’s important is that investors realize how differently people think of their residents as opposed to another house. I’ll give you the perfect example. In Moreno Valley, I had done a mailer that I had priced to offer. I didn’t say I buy houses. I had driven the neighborhood and had seen half a dozen, not such good houses. I mailed him an offer at half of what the retail was. When the guy was signing one of the contracts, he was signing on his residence, looking at the rental house across the street, three doors down. As he was signing it, he says, “You couldn’t get this house.” It was the same model exactly. He said, “You could get this one for less than $75,000.” I bought that one for $35,000.
The disconnect was he didn’t plant the flowers over there. The renter had nested up for the fifteenth time. He was done but it was the same house. That had no value to him and no sentiment. That’s what you do. You think about, “How can I solve problems?” That was the fun for me. I was trustworthy. When you, first of all, don’t have your profit at the forefront, you think, “If you’ll trust me and tell me what your situation is, I’ll bombard it with answers.” Sometimes they don’t want any part of that. In other words, you could list it and get more. You could rent it and get a cashflow. They’ll get frustrated and go, “I thought you bought houses for cash.” I said, “Are you telling me you want a cash offer?” “Yes. I had a guy who sell a house that was worth $135,000 to me for $74,000 and the loan was $74,000.” He calls on my ad. He said, “I want to give you my house.”
I went over there. It was a nice house in Corona. I tried to talk him out of it. He finally got as desperate. He says, “I just want to sell a house.” I said, “Are you telling me you’re going to deed a house to somebody?” He said, “Yes.” I said, “I’ll do it.” As we do it, I said, “You got to help me. I don’t understand.” He said, “This house is distressed to me. I have an income from New York that’s $10,000 a month. I don’t need to have a house payment. I just want it gone.” That was stress to him. It wasn’t distressed to me. That’s the thing. The stress went away for him but I didn’t adopt it. It wasn’t on a railroad. It didn’t need a roof. It was okay. His circumstance was overwhelming to him.
When you’re in markets where real estate is cheaper than it costs to build, that’s a really important factor in a grand junction.
I loved working with sellers in California when I did use to work. There were more deals here in 2013. Some of my sellers were very wealthy, a lot of them because they own California property that was sitting vacant. I can remember this one guy. He got a property and it was his brother’s. His brother died in the home. He’s a very wealthy guy. He had to fly in from New York to handle his brother’s affairs. He posted an ad on Craigslist. I used to go on Craigslist. That’s how easy it was back then to buy houses here. You can find them on Craigslist but that dried up really quick.
I saw that on Craigslist. I met him that day and he’s like, “I do not care. Let me sign the contract. We’re closing in fourteen days.” That was the one thing about California is you have to be on your game with closing. I always had a close in fourteen days, where in Oklahoma, 60 days is fine. Next year is fine but in California, you’re closing tomorrow. “Are you going to give me the check?” That’s the thing. I had to be so competitive to work on this one. I thought, “I want to maybe deal with different types of people.”
If California ever goes back to where it was at one point where there are more deals, where there’s more inventory for investors, I will be backflipping homes because I loved it. That was one of my favorite things to do. It gave me a lot of pleasure. For now, it’s still very tough. I’m all about going virtual and that’s why I coach it. Do you think that we will ever see house prices get low like that again in California?
Ever is a long time. All you have to have is a circumstance that things get out of hand. What if you do have a lot of migration for companies? You can create that. If it goes wrong, in other words, if you start losing people, you’re going to have at some point a problem but I don’t think that’s immediate. I hope it doesn’t happen. I have nothing against it. California treated me great. A lot of people I care about are there. I want that to do well but for me, I made that decision because I realized they can change rules without me having a say and not even knowing the timeframe. I didn’t like that.
How can we get ahold of your quarterly newsletter?
We’re going to put the quarterly timing report. We’ve done timing reports for years. Normally, we have a place where we can give it. Every time we give it, it sells out. It’s got 450 people in it. It’s a ball. I can’t do that in 2021. We’re going to do that report and it’s going to be available only to people that have a subscription to the website, which is a great education on its own. How you’ll get it is you’ll get signed up for the education portal. We’ll be giving the seminar live four times during the year quarterly. The best thing to do is to contact Joey@TheNorrisGroup.com.
If you’re interested, begin getting a membership to the education portal.
Get the timing report.
You have a show as well. I think it’s The Norris Group Real Estate Radio Show and Podcast. You have a lot of great speakers on it. Bruce, it was so great to have you. It’s truly an honor for me. When I first got started, I looked up to you and you taught me a lot about market cycles and surviving in this business. In fact, I know I have not been to your event. I Survived Real Estate is what it’s called. I want to go to the next one when we can do events again. I survived real estate because of you.
Thank you. The nice thing about it is that event has raised a little over $1 million for charity over the time that we’ve done that.
I’d love to be a part of it. Bruce, thank you so much for coming. Thank you so much for reading. Remember, if you want to learn more about virtual wholesaling, check me out at www.VirtualInvestingMastery.com. We have an awesome coaching program. We talk about all things virtual investing. Thanks for reading. Until next time.
- Bruce Norris
- The Norris Group Real Estate Radio Show and Podcast – Apple Podcasts
- I Survived Real Estate
- The Norris Group
- Virtual Investing Mastery
About Lauren Hardy
Lauren Hardy is a Virtual Investing expert and Real Estate influencer who owns multiple companies in the real estate industry including real estate investment, coaching, and software companies. She is also a Wholesaling Inc coach and co-host of the Wholesaling Inc Podcast.
Her experience in the last decade has been focused on real estate investing and creating products and services to serve the real estate investing community. If you are interested in investing in real estate virtually, house flipping, or virtual landlording, Lauren’s your girl.