Investing in Mortgage Notes with Jorge Newbery

On This Episode of Peak Market Watch...

Investing in Mortgage Notes with Jorge Newbery

Jorge P. Newbery, Founder and CEO of American Homeowner Preservation LLC, and Anton Mattli will discuss with Jorge how to use crowdsourced funds to purchase past due loans at a discount. 

 

Episode Highlights:

  • Crowdsourcing funds for mortgage notes

  • Financing for single family space 

  • How the housing market has been affected by Covid-19

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Connect with Jorge Newbery

VIDEO TRANSCRIPTION

 

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