Investing in Mortgage Notes with Jorge Newbery

00:00

sequence of events in which i lost

00:01

everything and ended up 26 million

00:03

dollars in debt

00:04

uh so that ended up ended my

00:06

multi-family career uh but i rebuilt

00:08

myself through

00:09

um american homeowner preservation ahp

00:12

which started out as a non-profit to

00:14

help families at risk of foreclosure

00:15

stay in their homes

00:16

we started this in 2007-8 i used my

00:19

experience

00:20

from when i had when i was overwhelmed

00:24

with debt and i was able to use that

00:26

experience

00:28

with families across the america

00:30

millions of families who are now

00:31

um struggling with unaffordable debt and

00:34

i was able to use that experience to

00:36

devise strategies that were helpful to

00:38

them

00:38

uh we started out as a nonprofit but we

00:41

um

00:41

eventually

00:45

became a for-profit and started buying

00:47

the mortgages and that’s where we really

00:49

had uh the most success both in terms of

00:51

company profitability but

00:53

also in terms of achieving our social

00:56

mission we could buy these loans at big

00:58

discounts from banks

01:00

and hedge funds and uh in polls and then

01:03

we would um

01:04

share some of those discounts with the

01:06

families um and we were able to achieve

01:09

some

01:09

uh and have been some great results over

01:11

the last decade we’ve purchased more

01:12

than

01:13

10 000 distressed mortgages

01:16

across the country and we’ve also

01:18

morphed into

01:19

a couple of other businesses we still

01:21

buy mortgages but we’re also a national

01:23

servicer

01:24

hp servicing we service across the

01:26

country

01:27

um both for loans owned by ahp and loans

01:31

owned by third parties

01:32

and we recently started our last year

01:34

started a

01:35

another platform called pre-reo where we

01:38

are able to um

01:40

serve as a platform for hedge funds and

01:42

eventually banks

01:43

who want to sell their distressed

01:45

mortgages to

01:46

uh local investors who can simply buy

01:48

them one by you know one offs one by one

01:51

and many times we’re selling to you know

01:53

a real estate investor especially in

01:55

today’s market where there’s so few

01:57

reos uh many a times it’s attractive to

02:00

buy a pre reo which is the distressed

02:03

mortgages

02:04

a distressed mortgage earlier in the

02:06

cycle and

02:08

um and typically at a much greater

02:10

discount than what they could buy an

02:11

reo4

02:12

so that’s what we’ve been up to uh and i

02:15

think

02:16

you know with with uh with what we

02:18

anticipate

02:19

to be a significant you know market

02:22

disruption you know in the next six to

02:24

12

02:24

to 24 months you know everything we do

02:26

today is kind of geared up for that

02:29

okay very good uh thanks for for that

02:32

introduction

02:34

a lot of our listeners still are in the

02:37

commercial

02:38

field right a lot of them are

02:40

multi-family investors but also in

02:42

retail offices and so on

02:44

but i think it’s very valuable to hear

02:49

from from your end on the single family

02:51

side how

02:53

things are going uh right because

02:55

obviously

02:56

multi-family particularly in the b and c

02:59

class base where a lot of

03:01

private investors are investing in

03:04

it’s not in a back it’s not operating in

03:07

a vacuum right

03:08

whatever happens in the single family

03:10

world has a direct impact on multifamily

03:13

too particularly b and c

03:15

class properties and that’s only the

03:17

case when it comes to

03:19

to rent increases obviously with single

03:22

family homes as we know now

03:24

with kobe 19

03:27

having that massive impact with

03:30

with property values uh jumping

03:34

uh anywhere from 10 to

03:37

20 30 sometimes even more in certain

03:40

markets

03:41

and that makes affordability obviously a

03:44

big issue

03:46

which pushes more people into into the

03:49

renting

03:50

rental market which certainly short term

03:53

has an impact

03:54

a positive impact on the multifamily

03:56

space

03:57

particularly in the b and c class space

04:00

but i wanted to get a sense from you

04:04

how you see that uh what is happening in

04:07

in the single family world what has

04:09

happened over the last

04:11

uh over the last years since call with

04:13

19 hit

04:15

and how also

04:18

from an investor perspective what the

04:20

impact was for people that invested in

04:22

directly in single family homes as well

04:25

as investing

04:26

in notes that obviously you’re also

04:28

offering

04:29

investors a platform to invest in in

04:32

these notes

04:33

yeah i appreciate you sharing that

04:34

downtown we we’re powered by

04:36

crowdfunding so

04:37

actually investors can come to our site

04:39

ahpservicing.com

04:41

and invest in a fund that invests in

04:43

distressed mortgages and we’ve done

04:45

we’ve been crowdfunding since 2013

04:47

we’ve done this is our sixth fund uh we

04:50

did five

04:51

we did four 506 c funds which are funds

04:55

which you can crowdfund you can

04:56

generally solicit

04:58

but you can only take money from

04:59

accredited investors so that was the

05:01

first

05:01

four funds in 2016 we did our first

05:04

regulation a plus offering which allows

05:06

us to generally solicit

05:08

but also accept investments from

05:09

accredited and non-accredited investors

05:12

and that was a big um

05:13

um turning point for us in terms of um

05:18

accessibility to just almost anyone can

05:20

invest and

05:22

one of the things we did was we lowered

05:23

our minimum investment which was

05:24

previously ten thousand dollars we

05:26

lowered it to a hundred dollars

05:27

and so for a hundred dollars anyone can

05:30

invest online they could do it in a few

05:32

minutes

05:32

and that was a um it was part of

05:35

marketing

05:36

because it it was wow they you can

05:38

invest for only a hundred dollars

05:39

but also i think it gave a really low

05:42

entry point a really easy entry point

05:44

for investors to

05:45

to participate and we literally had one

05:47

investor who put in a hundred dollars

05:49

and like three or four months later they

05:51

put in a million dollars i think the

05:52

first time it was just okay let me see

05:54

how this thing works and it worked and

05:55

so they put in a million

05:56

so there is a um uh i mean

06:00

people say crowdfunding how much money

06:02

can you raise we’ve raised almost 100

06:03

million dollars

06:04

online through crowdfunding so it’s been

06:06

been um

06:07

been really helpful now um

06:11

but we own tens of millions of dollars

06:13

in loans uh when covet hit

06:15

and i’ll tell you i was very concerned

06:17

both you know loans and

06:19

some reos and i was thinking oh this is

06:22

going to be really bad for our book you

06:24

know we’re going to

06:25

um there’s going to be some um value

06:28

adjustments and

06:29

and i was thinking it was me value

06:30

adjustments going down

06:33

what’s happened as you alluded to has

06:35

been the complete opposite

06:37

uh we started seeing it last summer

06:39

where we had our first one

06:40

we had we’ve actually foreclosed on a

06:42

home and i’ll just give it an example in

06:44

akron ohio

06:46

and at that time we had an agent go out

06:49

there

06:50

and i believe they think that hey if you

06:52

do a little bit of work we can probably

06:53

get the sold for

06:54

80 to 90 000 and uh but because of covid

06:58

we were not able to get the deed

07:00

until july and so now we were able to

07:03

get the need we could finally put the

07:04

property on the market

07:05

and uh and this is the sheriff because

07:07

the sheriff’s office they closed and so

07:09

we couldn’t even get the deed from the

07:10

sheriff for all

07:11

all this for months but now we put it on

07:14

the market we

07:15

and we send the agent out there say hey

07:16

you know let’s get it listed you know

07:18

what do you think you can sell for he

07:19

said

07:20

probably 120. so it went almost a 25

07:23

increase in in just a several months and

07:26

we put it on the market at 120 and again

07:28

this is last summer

07:30

uh multiple offers and we had one offer

07:33

which i think was 128 so 8

07:35

000 over asking and they said hey

07:38

there was some kind of clause in there

07:39

that if there’s any other offers

07:41

you know we’ll match them up to an

07:42

additional five thousand dollars uh so

07:44

that’s that’s the

07:45

the buyer we went with and uh that has

07:48

only escalated i mean everyone hears the

07:50

stories now we had one in

07:52

i mean it wasn’t ours i wish it was one

07:53

in california that sold for

07:55

a million dollars over asking price and

07:57

you hear these stories

07:58

uh that just across the country uh

08:02

like you said 10 20 30 appreciation

08:05

in in many times less than a year and uh

08:08

that has been great for our book so all

08:10

these assets that i was concerned about

08:12

in kova

08:13

it’s almost now great some of them were

08:15

were not resolved

08:16

uh before colgan because now we’re you

08:18

know to the extent they’re getting

08:19

resolved whether it’s

08:20

you know um whether it’s an reo being

08:23

sold or we get a deed and loot from a

08:25

family and we’re selling that property

08:26

or we are doing a modification of a home

08:29

of a of a loan and now selling that that

08:32

loan back into the market after it’s

08:34

performed for six or 12 months

08:36

in all cases the prices today are

08:38

significantly better than covid

08:40

and that’s been very very good for for

08:43

for um for ahp for our funds as well as

08:47

um i think just a lot of investors

08:49

anyone who was sitting on

08:50

on on assets when covet hit and was able

08:53

to make it through those first two

08:54

months i think by and large are doing

08:56

pretty well today

08:57

uh but that all said i get concerned

09:00

that you know with all this wild

09:01

appreciation

09:02

it’s we’ve seen this before i mean i’ve

09:05

seen it a few times and i’ve been in

09:07

real estate since 1990

09:09

and i you know usually these these wild

09:11

up

09:12

um you know there’s a site uh

09:16

this is all cyclical and at some point

09:17

you know goes up up up up up and the

09:19

more it goes up

09:20

you know the the the the greater the

09:22

fallen i really think there’s going to

09:23

be

09:24

um some correction coming up and i think

09:25

that will

09:27

as always you know the the distress

09:29

typically creates the the biggest

09:30

opportunities um

09:32

for investors whether it’s multi-family

09:33

or whether it’s notes or whether it’s um

09:36

it’s single families and i think that’s

09:37

uh that’s coming and with

09:40

it was obviously the end of the upcycle

09:41

when covet hit and i thought that was

09:43

going to be the trigger for it to go

09:44

down now it’s gone up

09:45

but it’s it’s there’s going to be

09:47

another side of this

09:49

yeah it’s really crazy right

09:52

also on the multi-family side we we

09:55

already thought that in

09:57

1819 that we really are hitting the

10:00

plateau right and it

10:03

was really entered into 2020 with uh

10:06

with the expectation that it really

10:08

cools

10:09

calls off they’re not and calling 198

10:12

everyone was scared

10:14

in march of of uh 2020

10:17

a lot of lenders accident particularly

10:19

on the bridge side cmbs side

10:22

and then things improved very quickly

10:25

obviously the

10:26

the forbearances that the agencies were

10:29

granting and

10:30

other lenders uh eviction

10:34

uh restrictions and all that blood

10:36

combined with

10:37

with stimulus uh money that was

10:40

aggressively pushed out it just

10:42

helped to uh to alleviate that

10:46

that situation in the multi-family world

10:48

we

10:49

obviously hospitality and retail was a

10:52

very different story and

10:53

still struggling hopefully comes just

10:57

out

10:57

out of the out from from the bottom now

11:01

so i think what you’re

11:05

telling us here is very similar also the

11:07

multi-family side where

11:09

uh you mentioned for for your portfolio

11:12

for

11:12

for investors and i think also all the

11:15

various lenders

11:17

it was really uh very helpful with with

11:21

all these appreciations right you

11:22

mentioned there is not much of

11:24

of reo anywhere on on books

11:28

which is not really a surprise right

11:30

when you have all these appreciations

11:32

so if someone is in a in a house that

11:36

they cannot afford

11:38

in a typical market you have to

11:40

foreclose

11:41

right because they they cannot sell and

11:44

they cannot service that debt so it

11:45

needs to be foreclosed but now

11:48

instead of having to foreclose the the

11:51

owner just sells that property for

11:53

and very often even makes a profit and i

11:56

think we see the same thing really on

11:58

the multi-family side we have seen a lot

12:01

of

12:01

properties that have been mismanaged

12:06

the sponsors and operators are not do

12:08

really have not done a great job

12:11

but because the appreciation in rents

12:14

and then noi

12:15

and the contraction in cap rates they

12:18

were still able to sell these properties

12:20

at the profit for for their investors

12:23

right

12:24

so i think we have a very similar

12:26

situation on the multifamily side as you

12:28

see

12:28

on the single family side and it’s only

12:32

a concern of what is going to happen

12:36

going forward why because we have

12:38

extremely low cap rates why can cap

12:41

rates go lower we have inflation uh

12:44

pressure which will have an impact on

12:47

uh on the longer uh end of the year

12:50

curve which then has

12:52

an impact on borrowing cost which that

12:54

has an

12:55

impact also on the cap rates right at

12:57

some point

12:58

you cannot contract cap rates when your

13:00

10-year treasury moves up

13:03

so there is only a similar concern on

13:06

on the multi-family side the question is

13:08

when is it

13:09

when is it going to turn right

13:13

right now similar to what you see on the

13:16

single family side

13:17

at interest in multi-family by investors

13:21

is just

13:22

through the roof right everyone wants to

13:24

invest in multi-family

13:26

so there is such a high demand which uh

13:29

pushes

13:30

again cap rates even lower

13:33

and uh you have more and more people

13:35

that that are

13:36

investing in multi-family so do you see

13:39

the same thing

13:40

uh on the single family side with with

13:43

investors still

13:45

rushing into single-family homes too

13:48

investors and home buyers i mean

13:50

everybody’s caught uh you know is very

13:52

enthusiastic the low interest rates make

13:54

it

13:54

affordable i mean we we have an

13:56

origination army hp mortgage direct and

13:58

we

13:58

uh we are seeing situations where we

14:01

just did one

14:02

recently where the the

14:06

tenant purchased the home where she was

14:08

renting

14:09

from the landlord and her rental rate

14:11

was eleven hundred dollars uh

14:13

and her all-in payment principal

14:16

interest um

14:17

taxes insurance and mortgage insurance

14:19

was 455

14:20

so she cut her payment um her housing

14:23

costs by more than half

14:25

and that was just dramatic so when

14:27

people see those types of numbers hey

14:29

it’s cheaper to buy

14:30

than to rent uh we are

14:34

it makes financial sense to do so now

14:36

the unfortunate part is the reason

14:37

they’re buying

14:38

their their payments is so cheap is

14:39

because the rates are so cheap they’re

14:41

still

14:42

it makes them less sensitive to the fact

14:44

that hey this price is kind

14:45

is historically high what you’re paying

14:48

for the for the home

14:49

but if they can afford it it makes sense

14:51

and these are typically buying

14:52

fine today at fixed rates so um it’ll

14:54

keep their their housing costs low

14:56

but that is put you know look it’s

14:58

continuing to push these up and uh

15:00

it is a little bit um concerning now um

15:06

well concerning and also you know

15:07

there’s going to be an opportunity but

15:08

it also

15:09

what happens and what i anticipate

15:11

happen is today

15:12

like you said if a property owner gets

15:15

into

15:16

trouble they can oftentimes sell and

15:18

walk away with some money in their

15:19

pocket so

15:20

they’re happy but lenders today if a

15:23

homeowner isn’t willing to sell

15:25

some homeowners uh if they have um if

15:28

their income was disrupted by covet

15:30

then they are there’s foreclosure

15:32

moratoriums put in place for them

15:33

which is uh was the right thing to do

15:36

but then

15:36

there’s certainly some people in there

15:38

who weren’t impacted by covet but are

15:40

not paying their mortgage because

15:42

they can do it uh i think there will be

15:44

a um

15:46

once all these foreclosure moratoriums

15:48

left you know we’ll we’ll see which

15:50

families can uh get under some

15:52

longer-term modification or something to

15:54

stay in their home and which ones

15:56

aren’t and end up having to sell um

15:59

i mean having to get foreclosed upon now

16:01

that will create some more re inventory

16:03

once that supply increases

16:04

it’s got a it’s got its um

16:08

kind of temper this appreciation and

16:10

maybe even trigger

16:11

uh trigger downturn in all likelihood

16:13

and what happens you know all these

16:14

people that bought the homes kind of

16:16

today

16:16

at what maybe the the height of the

16:18

market you know fast forward a year or

16:20

two and now

16:22

property values are dropping and they

16:24

may be able to make their payments they

16:25

may be making their payments but all of

16:27

a sudden

16:28

they owe 20 or 30 percent more you know

16:30

the house is worth

16:32

you know they bought it for 200 and now

16:33

it’s only worth um

16:35

140 or 150 and um they owe 190 they may

16:39

be saying hey

16:40

you know just like people did in 2008 9

16:43

10 11 12 where they were saying

16:44

why should we pay on a house that we owe

16:47

you know

16:49

20 percent uh more than it’s worth uh

16:51

and then you

16:52

then people that even can pay default

16:54

and that kind of

16:55

adds to the inventory adds to the

16:57

foreclosures and uh

16:58

you know kind of helps fuel the downturn

17:01

so there is going to be a turning point

17:02

to this

17:03

uh no one knows exactly when but once it

17:05

happens

17:06

uh the since we’ve we’ve appreciated so

17:09

high

17:10

there is high likelihood that it will be

17:12

a severe um

17:14

severe downtown yeah yeah uh

17:18

uh it’s it’s only if uh when we when we

17:21

look at

17:21

the borrowing calls today right it’s

17:24

it’s really a question of where where we

17:27

are going to be

17:28

in a in a year from now right i

17:30

personally feel that the 10-year

17:31

treasury

17:33

will be above the the two percent mark

17:35

in the

17:36

in the near future early in the year uh

17:39

i predicted it will hit the 150 when we

17:42

were at 1

17:43

110 and the month played we were already

17:46

at 150

17:48

now it has we were at 170 plus for a

17:51

brief period now we are down at

17:53

around 160 mark but i think the pressure

17:57

inflationary pressure is just very

17:59

very strong there right and that is only

18:02

also the fear on the multifamily as well

18:05

as single family side once these

18:06

borrowing costs move

18:08

up uh you investors just cannot pay

18:12

these uh these uh these entities that

18:16

services

18:17

uh once these rates move up so they have

18:20

to

18:20

offer less for for these investment

18:23

properties right so

18:24

obviously one one side is our actual

18:26

homeowners

18:28

uh that that may or may still be able to

18:31

afford it but at some point

18:33

it limits them and then they have to

18:35

offer less for for a new home

18:37

and then you have all the investors that

18:39

obviously run the numbers and once the

18:41

numbers do not make sense they cannot

18:43

pay

18:44

would have been willing to pay before so

18:48

one question have there on the single

18:50

family side i think

18:52

fha has come out with some new rules

18:55

when it comes to investment

18:57

property single family investment

18:59

properties

19:01

uh where i think the rates have

19:03

increased their

19:04

qualifications have also been tightened

19:06

so have you seen

19:07

already there a little bit of a more

19:11

more difficulty for investors to get

19:14

reasonable financing

19:15

terms on investment properties actually

19:19

i’ve not seen that yet

19:20

uh even if fha you know fha tending the

19:24

requirements there’s plenty there’s so

19:25

much capital sloshing around

19:27

in the economy right now there’s plenty

19:29

of lenders out there who are offering

19:31

options uh for investors so i think the

19:33

capital still

19:34

if an investor wants to buy a property

19:37

uh they can usually find the capital

19:39

um maybe not fha to your point but

19:41

they’ll find it um

19:42

there’s plenty of resources yeah there’s

19:44

plenty of sources

19:46

so that’s maybe a prudent move on fha’s

19:48

part i mean anticipating what we’ve

19:50

discussed is

19:51

hey we need to i mean investors going to

19:53

have the same issue and maybe even more

19:54

so

19:55

when uh they have a single family and

19:57

they um

19:58

you know property value drops so they

20:00

owe you know

20:02

you know 180 190 on a home that’s now

20:04

worth 150 and dropping

20:06

that will be a that’s a reckoning

20:08

they’re going to say hey and then it

20:09

goes vacant

20:10

or something like that are they going to

20:12

walk away from this are they going to

20:13

what are they going to do do a short

20:14

sale

20:15

what are the what are the solutions to

20:16

that um and with a business owner

20:19

it’s or an investment property owner

20:20

it’s typically you know they’re

20:22

making decisions based on the numbers

20:24

homeowners are often you know

20:26

uh also makes making decisions based on

20:29

emotion

20:29

you know i want to stay in the home my

20:31

kids are there and stuff like that which

20:32

is understandable

20:33

um but investors it’s it’s going to be

20:35

the numbers and it’s tough to justify

20:37

you know when you’re severely underwater

20:38

we saw it last time a lot of people just

20:40

walked away

20:40

multi-family too it just doesn’t make

20:42

sense and uh

20:45

from business perspective um so we’ll

20:48

see how it uh see how this one fares

20:49

it’ll be

20:50

you know interesting to have this

20:51

conversation in um

20:53

you know in a year and two years and and

20:55

kind of tie back to what we’re talking

20:56

about today and and

20:58

peop i mean my expectation we’re gonna

21:01

have this

21:01

we could have the same conversation

21:02

somewhere between a year and two years

21:04

and we’re going to be looking back at

21:06

this date april 15 uh

21:08

2021 and we’re going to say what was

21:11

everyone thinking

21:12

uh they’re paying prices that are just

21:15

ridiculously high

21:16

um and it just didn’t make sense so

21:19

people but people forget

21:20

i mean we’ve had this environment before

21:22

2008

21:24

and every time it gets like this people

21:27

say well this time is different because

21:29

dot dot dot whatever the reason and it’s

21:30

never different there’s always a cycle

21:32

there’s always a downturn

21:33

um that that that follows um you know

21:36

the significant

21:37

um upturn yeah uh certainly a very good

21:40

point

21:41

right as as we have seen on the single

21:43

family side in 2006 2007

21:47

uh everyone was investing right

21:50

obviously money was

21:52

readily available and that that helped

21:55

so now uh forward to today money is

21:58

readily available

21:59

as you mentioned try to uh to finance

22:02

some of these acquisitions

22:04

particularly on the investment side

22:06

right

22:08

and so we also see that

22:12

on the multi-family side i would say

22:14

there are very good operators like that

22:17

that are doing it as a true business

22:19

they have a an

22:20

understanding of the risks and no

22:23

operations well

22:24

but we certainly see plenty of people

22:26

that are

22:27

entering into multifamily uh that have

22:30

been

22:31

uh in a in a very good spot because the

22:34

market helped them

22:36

uh rescue them in previous deals that

22:38

have done over the last

22:40

five to seven years they really have

22:43

won and made good money for themselves

22:47

and then investors

22:48

not because of their operational

22:49

performance but because the market was

22:52

essentially helping them and i think

22:55

that brought

22:56

more more investors into the marketplace

22:58

with with the view

22:59

oh multifamily is easy

23:03

right you you make money here that’s

23:05

that’s all the returns that you can

23:06

generate and i think

23:08

what we see is a lot of operators that

23:11

that are not really that should not be a

23:14

multifamily at

23:15

all and we’ve ice

23:18

i predict that we will see some

23:20

opportunities there because these

23:22

operators will not

23:23

will not be able to perform once the

23:26

market turns

23:27

right once once rent again

23:30

not just flatten but potentially go down

23:33

but also

23:34

operating cost goes up right even if

23:36

rents stay the same

23:38

inflationary pressure is also on the

23:40

expense side and

23:41

a lot of them will not be able to

23:43

operate that

23:44

at the profit that they predicted

23:48

and you just need some cap rates uh

23:50

going up and then suddenly to realize as

23:53

you

23:53

as you mentioned or now i don’t really

23:56

have any value

23:58

in that property so what i do now i

24:01

think it’s not worthwhile to

24:03

to spend our time here because i’ve as a

24:06

gp as a general partner sponsor i spend

24:09

all my time here and i likely will not

24:12

see any money anymore

24:14

still and that’s when typically the

24:17

the tight turns uh so i completely agree

24:20

with you what we have seen

24:22

back in in 2000 uh

24:26

five six and seven with that frenzy

24:29

we really have a very similar frenzy

24:31

today

24:32

right it’s uh uh and it’s um

24:37

it doesn’t mean that one should not

24:38

invest right if it’s if it’s smart

24:41

investing but there’s only

24:43

a lot of players that are just trumping

24:46

him

24:47

and hope for the best and we see a lot

24:49

of operators

24:51

and sponsors that haven’t bought a

24:53

property for more than a year

24:55

that are very experienced so you always

24:58

have to wonder why is it that the ones

25:00

that are really doing

25:02

their due diligence they are vertically

25:04

integrated they know what they are doing

25:06

why are they not buying by newcomers or

25:09

just

25:10

gobbling up one property after another

25:13

it’s true you made a comment earlier

25:15

which i think is very accurate that um

25:17

even today because of the appreciation

25:19

about a weaker operator can look like a

25:21

big success story

25:23

um but remember i think there’s another

25:25

part of that which is

25:27

uh in a in a downturn in a bad market

25:30

even a strong operator

25:31

can look bad uh so i think it goes both

25:34

ways so right now everybody looks good

25:36

anybody you know was holding assets when

25:38

and was able to make it through um

25:40

covet real estate assets are generally

25:41

doing very very well

25:43

and i think um but now you know you hold

25:45

too long

25:46

i hate to say it but this is you know

25:48

these are almost like

25:49

these market frenzies make real estate

25:51

seem like a pyramid scheme

25:52

you know everybody makes money except

25:54

the last guy to buy the last person to

25:56

buy

25:57

um and they are the ones that the market

26:00

turns

26:00

they’re holding the property and and all

26:02

those gains are given back

26:04

and the primary collapses so uh we’re

26:07

i mean for anyone out there buying i

26:09

really have to say

26:11

um and and i think antonio made a good

26:14

point you know

26:14

a lot of experienced buyers are on the

26:16

sidelines right now or they’re probably

26:17

sellers that they they have

26:19

have stuff to sell uh because we we’ve

26:21

got to be right near the top of that

26:22

pyramid

26:23

yeah certainly it’s only very close and

26:26

the question

26:26

is how much upside is still there other

26:30

than just a speculative

26:32

element to it right yeah so

26:35

uh will be very interesting to see

26:38

what’s uh what’s

26:39

uh happening over the next uh year or

26:42

two

26:42

so we certainly should follow up in a

26:44

year or two from now and see

26:46

how how things have evolved and who

26:48

knows maybe

26:50

we we are still in that frenzy so

26:52

somehow it’s

26:54

uh it’s it stretches out more and more

26:57

right because of additional stimulus

27:00

money

27:01

and or forbearances that are being

27:04

further pushed out who knows

27:06

right but as you said at some point it

27:09

needs

27:10

the mar it needs to adjust right

27:14

because there is only so much that that

27:16

one can stretch and

27:18

uh as we have seen with the stock market

27:20

they can go on

27:21

for quite some time uh there it’s the

27:25

same frenzy right when

27:27

everyone and and their friend

27:30

is investing in in stop anything else

27:34

that’s exactly that was on the tip of my

27:36

tongue when you said it yeah yeah

27:38

that’s uh it’s not based on like the

27:41

the underlying stock it’s all

27:42

speculation at that point that’s right

27:45

short term people make a lot of money

27:46

and that’s uh and you know

27:48

good for them but somebody somebody

27:50

bought it at that top price and didn’t

27:52

do so well

27:53

so yeah that’s right so uh hopefully

27:57

uh uh no one who is listening will be

28:00

at the top of the of the mountain on the

28:04

buying side why because it’s only

28:06

and if someone is then hopefully they

28:08

have enough

28:10

equity in the property and a lot of cash

28:12

reserves that they can

28:14

run it through two to three years of uh

28:17

of a tough situation right and i think

28:20

that is

28:21

when we look back to 2008 9 and 10

28:25

uh even the ones that uh

28:29

uh had a cash flowing property if they

28:32

had to refinance

28:33

right at that point they still lost the

28:36

property

28:37

right because the value as you mentioned

28:39

right once the value drops to

28:41

you mentioned the single family property

28:43

of 200 000 now 150

28:46

if you have to refinance right at that

28:48

point

28:49

even though it was cash flowing in the

28:51

with your previous mortgage to service

28:53

that that

28:54

no one is willing to refinance it for

28:57

the previous loan

28:58

so you need to bring equity to the table

29:00

and if you don’t have that

29:02

well you you essentially have to walk

29:05

away

29:06

and the same thing happened also on the

29:08

multi-family side

29:10

where someone uh if someone was caught

29:13

right there to refinance

29:15

uh during that tough period where values

29:19

dropped by

29:20

around 20 right at the on the

29:23

multi-family side

29:24

doing a relatively short period but it

29:27

doesn’t matter whether it just drops

29:30

by 20 uh for one year and then recovers

29:34

after that

29:35

if you have to refinance right at that

29:37

point it doesn’t matter

29:39

yeah exactly a lender doesn’t say well

29:41

let’s wait

29:42

for uh for another year and see where

29:45

the values are

29:46

right so i think the

29:49

the message there probably is only on

29:52

the multi-families i make sure that you

29:54

don’t

29:54

that you always have a cushion of two to

29:57

three years

29:58

so that you are not forced to refinance

30:01

and i do not know how it is on the

30:03

single family side where you have a

30:05

similar situation where

30:07

some investors are more into short-term

30:10

loans where

30:11

the risk obviously is much higher if you

30:14

are forced to find another

30:16

loan if the market turns right

30:20

yeah that’s it’s the same thing i mean

30:21

any anybody especially on a for

30:23

investors who are taking out

30:25

fix and flip or bridge type financing

30:27

for a year or two hoping to add value

30:29

and then resell

30:30

um you know they get caught midway then

30:33

uh

30:34

when the market turns that’s you know it

30:36

is impossible very difficult to

30:37

refinance they have to bring cash in the

30:39

market values dropped

30:40

that’s why every time these things the

30:42

market turns there’s always some

30:45

you know big construction in this in the

30:47

um

30:48

you know in big buildings that are half

30:51

done and they’re left half done because

30:52

everyone walks away

30:54

and the lender gets to figure out what

30:55

to do with it

30:57

absolutely right and uh we already have

31:00

seen it right have

31:01

some friends that are in the fix and

31:04

flip

31:06

world and there was already a phase in

31:09

2019 when when it happened where

31:13

particularly in high value markets in

31:15

along the coast

31:16

in california where they were caught

31:19

with

31:20

with buying a property too high thought

31:23

that they can

31:24

rehab it and sell it and then some

31:26

realized uh

31:27

there is not as much demand as it was

31:30

just a few months earlier

31:32

and they’ve as you know right once you

31:35

have these million plus dollar

31:36

properties the carrying costs with hard

31:38

money loans or just

31:40

through the roofs and a lot of them they

31:45

already back then

31:46

had to sell at the loss just to get out

31:49

of it

31:50

and that was just a slight dip before a

31:52

brief period of time and the markets

31:54

kind of cooled down uh so i i would say

31:57

that’s kind of a

31:59

just a sign once the market really turns

32:02

then things

32:03

start unraveling very quickly

32:07

so yeah it could be weeks or months i

32:09

mean it’s not very long

32:11

yeah you and you don’t be caught i mean

32:14

uh

32:15

right now we’re trying to sell

32:16

everything we can and and uh

32:18

and i think that’s uh

32:21

you know do that because it does you’re

32:22

right it happens very fast and no one’s

32:24

saying

32:25

you know hey it happened it’s just so

32:27

many people start hey

32:29

start hearing hey stuff isn’t selling

32:31

there’s more supply on the market or

32:33

or or whatever the the components

32:35

interest rates rise

32:36

and and we start seeing and then there’s

32:38

something like cova it didn’t happen

32:40

this time but usually there’s like one

32:41

event

32:42

which you know then the news is all

32:43

talking about hey the market’s crashing

32:45

and

32:46

and um so that’s going to happen

32:49

i mean i it just happens it happens

32:52

every

32:54

1990 you know 2000 um

32:58

2008 uh there’s there’s there’s multiple

33:00

times this has happened over

33:02

over the over our lifetimes and it will

33:05

continue to happen yeah we should never

33:07

be surprised but they always seem to be

33:08

yeah definitely uh so obviously

33:12

there there will be plenty of

33:14

opportunity there right

33:16

uh i think it’s now it’s more important

33:18

than ever to invest smart

33:20

right so that you have that cushion in

33:23

whatever you’re investing that

33:25

uh either you’re on the beneficial end

33:28

if

33:29

if if things go go sideways or go down

33:32

or you have enough of a cushion that you

33:34

can ride out the storm right

33:36

i think these are the the two strategies

33:38

and i think you

33:40

it’s only with your programs for

33:43

investors you

33:44

you’re offering some alternatives there

33:46

before we

33:47

uh end i was just wondering

33:50

since we have a lot of in investors and

33:53

sponsors

33:54

that are also doing five or six speeds

33:56

five or six c’s

33:58

some of them are also considering the

34:00

larger ones the reggaes

34:02

sure so maybe you just can give kind of

34:05

a

34:06

a picture of how easy it was for you to

34:09

transition from a 506c to a reggae

34:13

offering obviously it’s costlier it’s

34:15

more time

34:17

consuming but how was your experience

34:19

there

34:20

to start out uh moving over from the

34:22

506c

34:23

side yeah so 506 cs are very i mean

34:27

in in relative regulation 8 plus are

34:30

very easy they can you can set them up

34:32

you don’t have to wait for the sec to

34:34

review everything you can just

34:35

if you comply with the guidelines you

34:37

can get a site up um

34:39

and an offering up pretty fairly

34:40

promptly regulation a plus

34:42

you need to put together the offering

34:43

statement package and submit it to the

34:45

sec and then

34:46

we we went back and forth several times

34:48

i think our first one took

34:50

um seven eight months uh to get it uh

34:55

qualified by the sec so we could finally

34:57

start raising capital

34:58

um and the second one took almost about

35:00

the same amount of time we’re working on

35:01

a third one

35:02

now that we’ve already submitted to the

35:03

sec a couple months ago

35:05

and um so it is a back and forth process

35:08

it costs a lot more money uh in legal

35:10

fees i mean i think the 506 c

35:13

i forget the numbers but it’s in the ten

35:15

thousand dollar ish range

35:17

whereas the regulation a plus is closer

35:19

to the seventy five thousand dollar

35:21

range

35:21

uh to get it up but regulation a plus i

35:24

mean the huge advantage

35:25

is that you’re you can accept money from

35:27

non-accredited investors which still

35:29

most not accredited investors have

35:31

limited investment options

35:32

uh so once that there’s a viable reggae

35:35

offering up there’s definitely interest

35:36

uh but certainly what we found i mean

35:38

both of our last two funds have had more

35:40

than a thousand investors each

35:42

and uh that has um

35:45

that’s it makes it i mean when we had a

35:48

506 c

35:48

we we’d be you know kind of marketing

35:50

the the fund i’m ever talking about it

35:52

on on a local radio show

35:54

and they uh and we had an investor walk

35:56

into our office with a hundred thousand

35:58

dollar check

35:59

and hey i want to invest i heard about

36:01

it sounds great

36:02

and but then we discovered he was not

36:05

accredited and we couldn’t take the

36:06

check we had to

36:07

sorry we can’t take it uh and that was

36:09

uh so those are

36:10

there’s definitely you’re gonna the

36:12

marketing that you do for

36:14

506 c will hit non-accredited investors

36:17

will attract non-accredited investors

36:18

and you’re gonna you have to turn them

36:20

away

36:20

for whereas regulation a plus there’s

36:22

limits on how much they can invest

36:24

but still they can invest and that i

36:26

think is uh

36:28

makes your offering much more scalable

36:30

so you know anything we do in the future

36:31

is

36:32

is regulation a plus um you know our

36:34

goal is to take

36:35

the next step uh to actually do a public

36:37

offering you know listed on the exchange

36:39

that’s fast forward a few more years but

36:41

that’s where we want to eventually get

36:43

uh but that’s our transition our we

36:46

first started out with uh

36:47

just a traditional in 2011 uh

36:50

traditional

36:50

um hedge fund where we had to print out

36:54

our i forgot what they were called our

36:55

prospectus we had

36:56

we didn’t number them when when we

36:57

handed them out uh and that was um

37:00

you know very we couldn’t market we

37:02

couldn’t if i talked to someone in the

37:03

media i couldn’t tell them what what we

37:05

paid and

37:06

our investors but that all changed with

37:08

crowdfunding in 2013 i think there’s a

37:10

it’s a lot of opportunity i’d encourage

37:11

investors to um

37:14

to uh go the crowdfunding route

37:16

definitely

37:17

yeah very good so that the actual uh

37:20

crowdfunding side do do you have your

37:23

own platform or do you have use

37:25

a third-party platform that manages it

37:27

all for you because that obviously is a

37:29

challenge

37:30

when you have investors that come in

37:32

with a hundred dollars a thousand

37:34

dollars

37:36

that’s the 506 c managing investors is

37:39

like of a

37:40

walk in the park in comparison

37:44

yeah so here’s uh my perspective um

37:46

which is probably a

37:47

outlier but i think it’s served us well

37:49

over the long term

37:50

when you go to a third party platform

37:52

and they handle all the back end for you

37:54

very attractive but the um

37:56

the downside to that is they own those

37:59

investor relationships when someone goes

38:01

to really t-mobile or apacheland or

38:03

you know any of the other sites that

38:06

they’re

38:06

they’re going there and that’s they

38:08

identify hey i’ve invested this

38:09

opportunity on realty mogul and even

38:11

though it was

38:11

you know your your um your fund or your

38:14

apartment complex that they’re offering

38:16

and so when you do it on your own and

38:19

you build up a brand as

38:21

you know xyz you know apartment um

38:25

investment fund and you and you build up

38:27

that brand

38:28

over time you know you’re developing a

38:30

an email list and

38:32

and uh and and a group of investors who

38:36

identify with xyz apartment investing

38:39

fund and i think that’s a huge value so

38:41

if you’re looking to do this

38:42

long term raise money uh then uh we

38:46

we did it that route and uh it was

38:48

slower going at the beginning because we

38:49

couldn’t plug into

38:51

you know one of the big uh platforms uh

38:53

existing network of investors

38:55

so we had to build up our own investor

38:57

network so i’d be on pod i mean a

38:58

podcast like today

38:59

i’d be on radio shows i’d be on blogs uh

39:02

speaking at conferences but all of it

39:04

was to kind of build um

39:06

our investor bait build awareness of ahp

39:09

and as a result build our our investor

39:11

base and we

39:12

kind of control own those relationships

39:15

we put up webinars

39:16

in which we do periodically pretty

39:18

frequently and give investors updates

39:20

uh and that’s our audience so i think

39:22

that’s um

39:23

huge value if you’re looking at this

39:25

long term i think that’s a and do

39:27

multiple raises

39:28

i think there’s a lot of value in doing

39:30

it on your own and there are plenty of

39:31

plug-in

39:32

uh services that you can use kind of for

39:35

your back-end so

39:36

even though they’re going to in our case

39:38

an ahp site or hp servicing today

39:41

then and investing on the back end we’re

39:43

oftentimes delivering

39:45

uh different technology solutions or

39:47

different service providers

39:48

uh to process those funds uh but that is

39:52

i mean it’s like amazon i wrote a book

39:54

called burn zones about you know all the

39:57

building up that portfolio 4 000 units

40:00

and then losing it all

40:01

and i sell it um directly through my own

40:05

site and i sell through amazon and the

40:06

majority of the sales go through amazon

40:08

and the problem with amazon is they know

40:10

that

40:12

they own that customer relationship i

40:13

just get royalties and i don’t know who

40:15

bought it

40:16

i’d love to have those uh those book

40:17

buyers in my um

40:19

database so i can you know build

40:21

relationships with them so

40:23

same thing uh a lot of value if you’re

40:25

doing this long term i definitely

40:27

encourage you to

40:28

have your own portal and um and build up

40:31

your own um

40:32

investor following yeah excellent point

40:34

right

40:35

on on your client right and all your

40:38

customers rather than

40:40

someone else that’s a really excellent

40:43

recommendation

40:45

uh one more question on the on the reg a

40:47

plus

40:48

side from in terms of of reporting and

40:51

auditing from the sec

40:53

side have you had some some issues there

40:57

or

40:57

no issues yeah no no issues it’s just

41:00

it’s an additional layer of work is what

41:02

it is i mean not in a bad way we have to

41:04

have audited financials so you have to

41:05

get your financials audited each year

41:07

and then you need to

41:08

file you know the audits you need to

41:10

file other filings with the sec on a

41:12

regular basis

41:13

uh and you know it but it’s fairly easy

41:16

to map out like they’re due on such and

41:18

such a date

41:19

and um and you need to get them done and

41:22

that

41:22

is um so

41:25

yes there’s more requirements but i

41:27

don’t think it’s um

41:29

i don’t think they’re extraordinary and

41:31

they’re predictable um

41:32

so you so it’s manageable if you’re

41:35

doing this at scale for long term i

41:36

think i think it makes sense i mean our

41:38

goal is to use our experience

41:40

having audited financials you know

41:41

public you know reporting through edgar

41:43

through the sec site

41:44

uh you know as we keep growing into

41:47

larger and larger funds and eventually

41:49

hopefully getting listed on exchange

41:50

that’s all good experience

41:51

um because we’re going to need to do

41:53

that on on an increasingly um

41:56

um robust level sure yeah and uh

41:59

obviously having all the financials also

42:01

helps the the confidence by

42:03

investors right absolutely so they can

42:07

can trust it obviously there are always

42:09

cases that the auditors miss something

42:11

but it’s definitely

42:14

an additional layer of protection there

42:16

is no doubt about that

42:18

so jorge thanks again for adding uh

42:22

so much value to our listeners today

42:25

uh how how can they reach you obviously

42:29

you have different investment platforms

42:31

uh from a hp

42:34

as well as pre-reo so

42:38

why don’t you give us your contact

42:40

details so that the list sir

42:42

reach you yeah absolutely you can go

42:44

learn about our

42:45

um hp servicing our crowdfunding

42:47

opportunity you can go to

42:49

ahpservicing.com

42:50

if you’re looking to buy a distressed

42:52

mortgage or learn more we also sell reos

42:54

you can go to prereo.com and uh

42:57

you know on there there’s plenty of

42:58

contact information if you want to reach

43:00

me or anyone on our team

43:02

um so i encourage and welcome um any

43:05

inquiries feedback uh

43:06

thoughts uh please reach out we’d love

43:08

to talk all right

43:10

great thanks again for coming on and

43:12

sharing

43:13

all your knowledge with us i appreciate

43:15

that anton

43:16

thanks for having me on yeah thank you

43:18

all right talk to you later bye