90 Eddie Speed, Notes, Foreclosures and The Next 18 months
Wendy Sweet and Bill Fairman of Capital Carolina Management are joined by Eddie Speed in this Financial Roundtable.
Eddie discusses the current factors in the market while Bill and Wendy provide their own thoughts in what is happening. This is a great episode to help people understand what is happening in the industry today.
Eddie Speed of Note School talk the outlook for the next 198 months. It will be a time of tremendous opportunity and massive caution.
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We’re proud to say that the NoteSchool community is home to the most active group of investors in the business.
If you’re ready to join them, the best way is by attending a live class. At most classes, about half the attendees will be current students who are there to network and stay current on the latest strategies, and they’re really the ones who can best tell you about how well our programs work.
(If you want to hear from current students, check out what they have to say here.)
We also offer Mentoring Programs if you want the fastest path to building a successful note business.
Carolina Capital is a hard money lender serving the needs of the “Real Estate Investor” and the “Small Builder” borrower who is striving to build wealth and generate income for themselves and their families. We offer “hard money rehab loans” and “Ground up Construction Loans” for investors only in NC, SC, GA, VA and TN (some areas of FL, as well).
As part of our business practices, we also serve as consultants for investors guiding them to network with other investors and educating them in locating and structuring transactions. Rarely, if ever, will you find a hard money lender willing to invest in your success like Carolina Capital Management.
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Bill Fairman (00:00:02):
Hello everyone! It’s Bill Fairman and Wendy Sweet of Carolina Capital Management, I hope you’re doing well. We have an awesome guests today.
Wendy Sweet (00:00:10):
Yes we do!
Bill Fairman (00:00:10):
Eddie speed of Note School. We we’ve known Eddie for a long time, we’ve been in the mortgage business forever and it wasn’t until we attended notes school that we figured out that, Hey, we’re in the note business.
Wendy Sweet (00:00:26):
Well, what’s funny for me is I had to go three times before I figured It out.
Bill Fairman (00:00:30):
That’s even worse.
Wendy Sweet (00:00:31):
It is. But I’m telling you, I’ve learned so much from Eddie Speed, it isn’t even funny and not only is he an incredible guru but he’s a great friend, he and his wife. We love some Eddie speed for sure.
Bill Fairman (00:00:47):
Well, one of the great things about the Note Space is that it opens up so many different strategies in your real estate investing, you know?
Wendy Sweet (00:01:02):
Bill Fairman (00:01:02):
It’s the old adage that if everything is a nail, your only tool is a hammer. Right?
Wendy Sweet (00:01:11):
Bill Fairman (00:01:11):
And we find this, just in our business when we have somebody that does single family fix and flips. They’ll buy a piece of property, they’ll come to us and they’ll say, yeah, we’re going to build a house here or we’re going to fix this existing house up and did you see the best, highest and best use for this property yet? You know, you put four townhomes here and you’re going to triple your money. Oh, well, I didn’t look at it that way. The note space helps open your mind as to all the different opportunities that are available in a particular investment strategy and if it doesn’t work with one, it may work with another.
Wendy Sweet (00:01:51):
Exactly. I tell everybody, I know if you understand notes, any deal that comes across your desk, you can make it happen! So let’s see Eddie, where’s his face? It’s coming, there he is!
Eddie Speed (00:02:04):
Bill Fairman (00:02:08):
How’s it going, Eddie?
Eddie Speed (00:02:09):
How are y’all?
Wendy Sweet (00:02:10):
We’re good. We’re so glad you’re here, willing to share with us. I like that picture in your background.
Eddie Speed (00:02:17):
Yeah. Actually my aunt painted that, she was a professional artist and believe it or not, it’s an oil painting. I learned something about 20 years after I had it and they have a cover for it, you can hear me knock on it and they say that over time that the oil will go away and so it’s a non-glare cover, so you actually can put a cover over it and I just like it so much, It’s kind of in my studio.
Wendy Sweet (00:02:43):
Yeah. It’s neat, it’s really neat.
Eddie Speed (00:02:46):
I’m sort of a cowboy, you know that Wendy?
Wendy Sweet (00:02:46):
Sort of. You have a little cowboy experience in your background, just a tad.
Eddie Speed (00:02:54):
Bill Fairman (00:02:54):
So Eddie and I and Wendy are in several together but the one that I’m referring to,
Wendy Sweet (00:03:06):
The one that’s legal. Collective Genius.
Bill Fairman (00:03:06):
Wendy Sweet (00:03:06):
Bill Fairman (00:03:06):
Unfortunately I’m not one of the geniuses, apparently. But Eddie did a presentation for the group a few weeks back that I thought was really timely.
Wendy Sweet (00:03:23):
Yeah, it was awesome.
Bill Fairman (00:03:23):
And I wanted to share it with our audience and it has to do with, you know, current factors in the market. Where are you going to do a little presentation or you just want to talk off the cuff about it?
Eddie Speed (00:03:37):
I mean, I’ve got some great slides if y’all want to do it.
Bill Fairman (00:03:40):
Yeah. I was going to say, I think the slides are really important because it really shows some good stats that people really need to understand these things and what the bigger banks around the country are wanting to do.
Wendy Sweet (00:03:54):
Eddie Speed (00:03:55):
Bill Fairman (00:03:55):
So I’m going to turn it over to you, Eddie.
Eddie Speed (00:03:59):
All right. So I’m going to share my screen and then I’m going to try to find the correct spot on PowerPoint here and I’m going to start. All right? But y’all are going to stay on with me and criticize me, right?
Wendy Sweet (00:04:16):
Well, yeah the screen. We get joy on it.
Bill Fairman (00:04:19):
[Inaudible] the screen
Eddie Speed (00:04:21):
Well, as you can tell, thank you, Bill and Wendy. My wife and I are very good friends with Bill and Wendy and have been for a long time and just have really enjoyed them and really all they bring to the industry. And thanks for inviting me. The one thing that I really wanted to do is, I’m going to give you some bad news today.
Bill Fairman (00:04:45):
Eddie Speed (00:04:46):
But I’m going to tell you that we’ve never had a warning signal bigger than this one. I started doing this in 1980 and the warning signs are the hurricane mornings are six months in advance, right? This is the timeliness of a hurricane today, right?
Wendy Sweet (00:05:04):
Eddie Speed (00:05:05):
And they got about four days, normally. The timing for most black Swan crisis is not very long but this black Swan is got crazy warning signs and crazy opportunity. If you think nothing’s going to happen, I don’t know what, after you watch this presentation on what say, right? Maybe we’re just on a different page but if we do get on the same page because of some data and some facts and some information, what I want you to see is that I named this presentation, double your net worth in post COVID. Alright. So Wendy you know, I don’t have a crystal ball but I do have a rear view mirror. You know what I’m saying?
Wendy Sweet (00:05:52):
I know what you’re saying.
Eddie Speed (00:05:54):
So we’re going to talk about a black Swan event and obviously I would’ve talked about black Swan events I’ve lived through, okay? And I started in the industry in 1980 and interest rates were 20% and every realtor and home builder thought they were out of business. I came into the business with a different angle and it was a Bonanza best thing I’ve ever seen, all right?
Bill Fairman (00:06:18):
Eddie Speed (00:06:18):
So that was a market condition that I knew how to take advantage of and people yet, they, I was brand new 20 years old and wet behind the years for sure but yet I had a strategy in how to work that angle that other people didn’t have, I had a piece of information they didn’t have, right?
Bill Fairman (00:06:37):
Wendy Sweet (00:06:39):
Eddie Speed (00:06:40):
Then come along 1980 and all the banks in Texas and the Southwest went out of business and later formed a government entity just to liquidate all those called the resolution trust corporation right? And biggest debacle since the great depression in Texas in the Southwest and then in 1998, and Wendy, you probably remember this, you know, you were in the mortgage origination business and they had started doing all A lending and all of a sudden, overnight it stopped, right? No more altar, no more subprime lending, right? And then of course the terrible crash in 9/11, right?
Wendy Sweet (00:07:16):
Eddie Speed (00:07:17):
And then the monster of the mortgage crisis in 2008 and those are all black Swan events that let’s just say I had a front row seat in and obviously this black Swan crisis here and most people at the moment don’t call it a black Swan pride crisis. I had three people in my office yesterday, one of them owns a real estate brokerage business and they sell 600 houses a year.
Wendy Sweet (00:07:45):
Eddie Speed (00:07:45):
They also own a loan portfolio in the eight digit reign of range of equity.
Wendy Sweet (00:07:50):
Eddie Speed (00:07:51):
Friday night, they spent the day with me and we talked about some things that I think are significant warning signals and things that I think they significantly need to look at and change and they’re believing every bit of what I’m saying yet they are telling me about offers I had over the weekend and so my 18 offers. Okay, so we all understand we’re just in a weird situation where everything’s hot and most people in real estate think it’s all good.
Wendy Sweet (00:08:19):
Eddie Speed (00:08:20):
Bill and Wendy and I, sometimes I see people post stuff on Facebook and they’re fixing a load up with rental properties right now and I’m going, Ah, okay. So anyway, you’ll start to know where I’m going. In the end of this though, this is the greatest window of opportunity I think I may have ever seen so there it is, that pretty girl married me.
Wendy Sweet (00:08:53):
We can’t see your screen yet.
Eddie Speed (00:08:55):
Oh, well heck! Critical moment.
Wendy Sweet (00:09:01):
They were looking at me thinking you were talking about me.
Scott Paton (00:09:05):
I thought you was,
Eddie Speed (00:09:06):
So I share my screen,
Scott Paton (00:09:06):
At the bottom, yeah. Share my, share your screen and then you can actually pick up the PowerPoint application if you go one tab over. It shows you your desktop and then go one tab over.
Bill Fairman (00:09:20):
And those of you who don’t know who that is, that’s Ernest Hemingway up there in the corner of our screen.
Eddie Speed (00:09:28):
Sharing my screen. I clicked share my screen.
Bill Fairman (00:09:31):
Now you have to click on, there’s three tabs at the bottom, the top, even though it doesn’t look like it. Pick on the one that says application.
Eddie Speed (00:09:41):
Three tabs at the bottom.
Wendy Sweet (00:09:43):
Scott Paton (00:09:43):
Top or, I can’t speak.
Eddie Speed (00:09:50):
Let’s see, that’s crazy.
Scott Paton (00:09:53):
When you click share the screen, a window should pop up.
Eddie Speed (00:09:55):
It does and then it says window to share my screen, select this decision Firefox. Allow it but it doesn’t let me allow it.
Scott Paton (00:10:09):
Oh, are you on Firefox?
Eddie Speed (00:10:11):
Scott Paton (00:10:12):
Firefox does not work with Streamyard. Do you have Chrome or, do you have Chrome?
Wendy Sweet (00:10:21):
You have Chrome or Chrome?
Eddie Speed (00:10:24):
Scott Paton (00:10:25):
It just occurred to me that the other one I was going to say doesn’t work either, so
Eddie Speed (00:10:30):
You know what, let’s just go with some things here.
Bill Fairman (00:10:33):
Eddie Speed (00:10:34):
All right, let’s do this. I’m going to talk to you about some things that have happened in the market and I think I can get us there and I think I can get it to where I want to be and I’m going to give you guys an opportunity to get some more data and facts anyway.
Wendy Sweet (00:10:50):
Eddie Speed (00:10:51):
So if you decide that you want to dig in a little deeper and a much deeper level, we can do a more official presentation cause that’s a giveaway I wanted to give you anyway.
Wendy Sweet (00:11:04):
Awesome, thank you.
Eddie Speed (00:11:07):
So I’m married the prettiest girl in Hattiesburg, Mississippi be in 1982.
Wendy Sweet (00:11:12):
Yes, you did.
Eddie Speed (00:11:14):
And in 1980 when we met and started dating, her dad was in the note business. Now he was a landlord and very active in the business, you know, rental properties, multifamily and fixing and flipping and all that stuff but he was a fireman so he became the millionaire fireman. And then he retired in the fire department because he started really young, he’s retired from them at about 45 years old.
Bill Fairman (00:11:45):
Eddie Speed (00:11:49):
And then he started buying seller finance notes because interest were 20% and a lot of people created SAR finance notes because they had to, right?
Wendy Sweet (00:11:58):
Eddie Speed (00:11:58):
Cause to make mortgage financing available so that was a block I entered in the industry at a black Swan market. So Mr. Shomake my father-in-law, he was a long-term thinker, right? He was a long-term thinker and a little bit Bill and Wendy, I don’t know that he would even get the culture of kind of some of these Ninja guys like I’m not saying all of them and I’m not being disrespectful but there are some guys that make 500 to a thousand dollars a year income, and yet don’t have net worth. He wouldn’t get that, that didn’t make sense to him, right?
Bill Fairman (00:12:41):
Eddie Speed (00:12:41):
And so he was always about kind of controlling how much money you make today versus how much future wealth you can gain tomorrow. He was all about that, right? I never will forget, I sat down with him on like my first day to learn anything about the business. Mr. Shomake wore reading glasses and he wear those reading glasses right down the end of his nose Bill and he kind of had a long forehead, anyway. It looked like his forehead was nine feet long and they look down on the top of them reading glasses, and that when and he was real, he talked very Southern, right? So he talked real slow like that, he was smart as heck, he’s brilliant and he’d looked down and reading glasses and he’d lean over that desk, like it, and he talk real low and that’s when you knew he was going to say something important and he said, you know how to make a lot of money in this business? And I’m like, no, Mr. Shomake no, no, no, tell me Mr. Shomake. And he told me a riddle, which was related to buying notes. It’s where you buy the whole note and then you sell the front end of the note and you can make money today and then you own the residual income and the note towards the, you sell the note but you just sell a cash flow like 10 years of a 20 year note. Buy long, sell short, right? And that’s got some crazy math to it, Bill and Wendy have seen it and they agree with me but what he was saying was is just make all your money today. If you’re in an opportunistic market, make money today so you can eat and live but grow wealth. We have harvest markets, okay? So Bill and Wendy, we have a market situation that’s crazy. In every black Swan market I’ve lived in the past, It was those harvest windows that I doubled my net worth. I’ll be perfectly honest with you, I didn’t double my net worth in the last three years. I mean, I would love to say that I did, but I didn’t, right? Now, maybe if I had just started the business four years ago, I could have doubled my net worth in 19 or 2018, right? It depends on when I started but I’m old enough and season of the business, I didn’t double my net worth. I’m betting my best pair of Texas cowboy boots that I can double my net worth in 2021. That’s a pretty crazy saying, that’s kind of a crazy thing to say, right? I believe that the market is that big. Now, this sounds crazy because right now the distress is not even a word, right? People are running with money in both hands, everything is good good, right? And I usually make money when things, there’s something wrong and a big gap has to be filled, right?
Bill Fairman (00:16:10):
Eddie Speed (00:16:12):
All right. So let’s do some math, okay? The first math is really critical. The first math is that there are 5 million loans, you got that? 5 million loans that are sort of suspended in the air where 5 million residential loans that people aren’t making their mortgage payment and the mortgage company isn’t chasing them down. That agreement that they have is called a forbearance agreement, it’s kind of a frozen place. You got what I’m saying?
Bill Fairman (00:17:00):
Eddie Speed (00:17:01):
No words. We’re not going to mess with you and we’re not going to start foreclosure on you but when that forbearance is over, the jig’s up, meaning that you got to bring the loan current.
Bill Fairman (00:17:16):
Eddie Speed (00:17:17):
Okay. Now we can argue whether they’re going to have some government program and they’re going to do this or that and stuff but let me just tell you, that’s 5 million houses that have a mortgage on it that is in distress and it isn’t in inventory yet.
Bill Fairman (00:17:35):
Eddie Speed (00:17:37):
Bill Fairman (00:17:37):
Eddie Speed (00:17:38):
There’s another problem. In addition to that, there’s 1.9 million loans today according to the mortgage monitor, right? Which is a mortgage banker thing. There’s 1.9 million loans that are currently 90 days delinquent and not in forbearance.
Wendy Sweet (00:18:03):
Eddie Speed (00:18:07):
So we’re talking about 7 million loans that are just sort of frozen. Let me just tell you, after being around this old space for 40 years, that is definitely going to be a factor.
Bill Fairman (00:18:22):
Eddie Speed (00:18:23):
Okay? Good or bad.
Bill Fairman (00:18:27):
Well, it depends,
Eddie Speed (00:18:31):
Honestly, it depends on your strategy. If it surprises you, when it happens, let me just, let me scold you a little bit in a loving way, okay? If you’re in real estate and you are ignoring these signs because your realtor tell you they had 15 offers on a house yesterday, the sun was also shining brightly in South Louisiana two days ago. You got what I’m saying?
Bill Fairman (00:18:59):
Eddie Speed (00:19:04):
So the hurricane hit this morning, right? And Wendy, you know, I got family all over that part of the world. South Louisiana, Mississippi, you know, all over my son, Hudson, his fiance is from right outside of Lafayette, Louisiana.
Wendy Sweet (00:19:21):
Eddie Speed (00:19:22):
Right. They’re rice farmers so understand, they’re pretty affected so let me just say, though, they had four days to really get ready for this because they don’t know exactly where it’s going to go and they don’t know exactly how strong it’s going to be and stuff. We have had more warning signals to get rid of any sins that we need to get rid of right now than there could ever be.
Wendy Sweet (00:19:47):
Eddie Speed (00:19:48):
Right. Now, Wendy, you’re a woman of great faith, right? And God doesn’t tell us what he’s going to go do with us, it’s always in the future, right?
Wendy Sweet (00:19:57):
Eddie Speed (00:20:00):
Let me tell you something, we have all the warning in the world, in this real estate cycle to prepare for the market conditions ahead and the big banks, last of last quarter of last year, the big banks, let’s see, Wells Fargo, Citi, Bank America, and Chase, four big banks. They had combined, you know, their budget for like any problem loans was very, very small, okay? Like maybe a hundred million
Bill Fairman (00:20:43):
For loan loss reserves?
Eddie Speed (00:20:45):
Loan offers. And the four biggest banks in America, okay?
Bill Fairman (00:20:48):
That’s not a lot.
Eddie Speed (00:20:52):
Okay. Well, let’s multiply that times 10.
Wendy Sweet (00:20:57):
Eddie Speed (00:20:58):
Bill Fairman (00:21:00):
Eddie Speed (00:21:01):
There that’s their budget they’ve set aside in the second quarter of 2020.
Wendy Sweet (00:21:08):
Eddie Speed (00:21:08):
Okay. And by the way, I’ve got great stats and data and stuff if you want to go plug in and we’ll give you some more training. We’ll give you access to a lot of stuff so I can justify anything I’m saying, it’s not Eddy saying it.
Wendy Sweet (00:21:23):
Eddie Speed (00:21:24):
Okay? All right. So the other thing is like, where’s the market going and who believes what? Now, Wendy and Bill, you and I know we can get around a group of real estate investors and some of them think that everything’s going to be good. In fact, they’re dying to go buy the next long-term property hold, right? And there’s other people that don’t think that’s the case. I will tell you this nationals, I’m reading the stats as I’m saying this so I don’t misstate it, okay? National Association of Realtors, Mortgage Bankers Association, National Association of Home Builders, CoreLogic, Fannie Mae and Freddie Mac all say one thing. The client in real estate values is coming.
Wendy Sweet (00:22:11):
I said that this morning on film,
Eddie Speed (00:22:16):
It doesn’t matter, like it could be after the, it appears to be after the election and they don’t all agree on the same percentage but they all agree on this, okay? And to take that further, CoreLogic had an article that they wrote that was released a couple of weeks ago and it’s making, it’s showing where we are this year in June and showing when they project we’re going to be next year in June and it ain’t so good.
Wendy Sweet (00:22:50):
Eddie Speed (00:22:50):
Okay? Now you may not buy into any of this. You’re like, Oh no. I called my mortgage broker and everything’s good, okay? I believe that this has unveiled the greatest opportunity known to man because the mortgage industry has already made preparations for things that the real estate industry doesn’t seem to have made preparations for. In other words, the mortgage industry is, for a bad golfer like me, Bill, they’re playing the fade. They know they’re going to hit a hook shot and so they’re already playing the fade. They want the ball to go this way but they’re pointing this way to do it, right? You got what I’m saying?
Bill Fairman (00:23:38):
Eddie Speed (00:23:38):
So the idea is the mortgage industry already is anticipating this and they’ve made some serious drastic changes in mortgage underwriting to do that, okay? Now, if you want to go do some research, here’s a great little website where you can do your own homework, okay? You ready to write this down guys? It’s elliemae.com and Wendy, I’m sure you’re very familiar with elliemae.
Wendy Sweet (00:24:07):
Eddie Speed (00:24:07):
Right? elliemae.com/millennial-tracker. Now where you can take any municipality in the country and go type in and it will tell you the mortgage production within that market. It’ll tell you the profile age, size of the loan, loan to value type of loan they got and any municipality in the country. What people are surprised to know that I pulled up Dallas Fort worth, right? Average loan to value in the last 120 days, Wendy. Average loan to value is 84%.
Wendy Sweet (00:24:55):
Eddie Speed (00:24:58):
Okay? So everybody thinks everybody gets a conventional mortgage and only pays 5% down. There’s just no data to justify that.
Wendy Sweet (00:25:10):
Eddie Speed (00:25:10):
And I’ve got multiple monitors that we do to track the average down payment of new loan originations for the last five years. The average down payment this year, the average down payment this year is 16%, okay? Now, Bill, if I’m owner financing somebody and the traditional mortgage industry has done as said some people can’t get a loan today and who can get alone has to have a bigger down payment, doesn’t that make the potential of people that are just missed in the mortgage industry? Doesn’t that make that a lot bigger ball of twine?
Bill Fairman (00:25:56):
Eddie Speed (00:25:57):
Okay. So let’s talk about mortgage credit tightening, okay? So the mortgage bankers association, they call this the “mortgage credit availability”, okay? Now, if you’re like us, I’ve got an executive team that came from the mortgage banking world and was pretty at some fairly significant responsible positions. So they pay attention to the what I called the rags, Bill and Wendy, you know, like DS news and mortgage report and all, I mean probably 10 different sources, right?
Bill Fairman (00:26:37):
Eddie Speed (00:26:37):
And they look at stuff literally like on a daily basis. So when the virus came out, all of a sudden, the circle around my office goes, man, the mortgage, the people that could get a mortgage in February and can’t get a mortgage in April, that is a crazy number and it just kept going down and down and down. Now it’s tipped back up a little bit, maybe three or 4% but let me just give you a safe number, this is inside the safe zone. 30% of the people that could get a regular mortgage in February can’t get one in August.
Bill Fairman (00:27:23):
Wow, that’s a big number.
Eddie Speed (00:27:25):
That’s a big number, okay? But I see that as a big opportunity.
Bill Fairman (00:27:30):
Eddie Speed (00:27:34):
By the way, our nation is sitting on more cash than it ever has in the history of America.
Bill Fairman (00:27:42):
That’s because bonds don’t pay squat.
Eddie Speed (00:27:43):
And it’s a huge, it’s a big deal. So we had a huge cash position after 2008, right? People were sitting on uninvested funds that you guys used to hear me refer to it as dry cash. Well, that number is even like 15% bigger than it was back then. So we’re talking about trillions undeployed cash. Okay. So let’s talk about where we are today, all right? What I’ve said is a storm’s coming, right? It doesn’t feel like it, the sun’s out everybody’s happy, right? But a storm’s coming, right? We have a warning sign that tells us a storm is coming the longest warning sign that I’ve ever seen in any cycle I’ve ever seen in the past. Part of that, Bill and Wendy, a big part of that is we fully understand that people say, “Oh, Eddie, there’s no inventory” and when there’s no inventory, there’s pressure to drive the market up, right? Or at least it’s sells quickly and that is an absolute true statement, okay? Let me tell you where some potential inventory is that could change things, okay? 5 million loans in forbearance, okay?
Bill Fairman (00:29:19):
Eddie Speed (00:29:23):
1.9 million loans that are not in forbearance that are currently 90 plus days delinquent, okay? The person that can’t buy a house today because only 70% of the people can qualify for a mortgage so there’s a shortage of credit, okay?
Bill Fairman (00:29:51):
Eddie Speed (00:29:51):
And here is another variable, there’s 18 million residential doors, these are like one to five units. There’s 18 million residential doors that are rentals more than there was in 2010.
Bill Fairman (00:30:11):
Eddie Speed (00:30:12):
Okay? What’s the happy factor of people that own rentals, right? Well, there’s some percent are just happy as they can be and life couldn’t be better, right? But let’s be fair about it. There’s a percentage of people that own rentals, even though the property is appreciated in value, their headache factor is knowing on them and so this is a little bit wild, Bill and Wendy, but I’m gonna go here today with you, okay? What happens if the market starts showing a tip? What happens to somebody that’s an unhappy landlord with equity?
Bill Fairman (00:31:04):
They want out and they’re going to sell cheap.
Eddie Speed (00:31:05):
And they have equity.
Bill Fairman (00:31:09):
Yeah. The return on effort isn’t what it used to be.
Eddie Speed (00:31:15):
Okay, what does this all lead to? Okay Eddie, you got bad news, I thought you said I was going to double my net worth, I’m going to get to that part, right? The idea is this guys, the reason that real estate investors are successful is because traditional real estate is unsuccessful. There’s no other reason for a house buyer to be to exist, right? Bill, if every real estate brokerage scenario worked, you could never buy a house at a discount.
Bill Fairman (00:31:51):
Eddie Speed (00:31:52):
Bill Fairman (00:31:52):
Eddie Speed (00:31:54):
Okay, so only thing that real estate investing does is fix the inefficiency that real estate brokerage doesn’t fix. Is that a fair statement?
Wendy Sweet (00:32:06):
Bill Fairman (00:32:06):
That’s a true fact.
Eddie Speed (00:32:08):
Well, If that’s true for real estate investing, how does creative financing fix the inefficiency of traditional lending?
Bill Fairman (00:32:19):
Well, number one, it makes credit or the ability to buy a home. You get more availability and then at the same time, if you need the inventory, you’ve got the folks that can’t stay in those homes any longer so it kind of fixes itself.
Eddie Speed (00:32:37):
So historically if the estate market tips, right? And you may say the old man’s crazy and there’s no way it’s going to tip. Okay, all right, maybe so. By the way, we haven’t talked about commercial. Cause that’s just too, that take longer than an hour to unpack but let me just tell you that ugly factor is already up on the wall at about 20% reduction.
Bill Fairman (00:33:04):
I agree there.
Eddie Speed (00:33:05):
Bill Fairman (00:33:05):
Eddie Speed (00:33:06):
And I’m telling people don’t buy yet, okay? So by the way, 2008 is the only cycle that I ever dealt with in a black Swan market that I didn’t deal with a lot of other assets other than houses. So I’ve always used creative financing for other asset classes, alright?
Bill Fairman (00:33:26):
Eddie Speed (00:33:28):
But what happens when there is a crunch like this and the mortgage industry is already, mortgage industry knows what their delinquency is so they’ve already adjusted variables in their business because they already know the bombs coming. You can’t find some guy that runs some gigantic service in shop that’s asleep at the wheel and doesn’t realize that this massive amount of blooms that are just sort of in the freezer right now, they haven’t thought out yet, so to speak, right? All right, they’re just frozen over there and they are completely aware of the problem, right? But what happens is mortgage tightens up as property becomes in any kind of distress manner, they just protect themselves so they tighten up the credit, which loosens up the credit for what I say that seller financing really solves. Seller financing fills the gap that conventional lending doesn’t fill
Bill Fairman (00:34:34):
Eddie Speed (00:34:37):
And the make seller financing a real legitimate model. It’s not to go sell a crappy piece of property to a crappy buyer. It drives me crazy, that’s a complete misapplication for seller financing, right?
Wendy Sweet (00:34:55):
Eddie Speed (00:34:56):
You can sell premium quality properties with seller financing if the conventional mortgage business is partly out of business and that’s where we’re at and that market is going to change. So I want to go back to something I was telling you about yesterday. So this guy, these folks are in my office, clearly very sophisticated people, right?
Bill Fairman (00:35:26):
Eddie Speed (00:35:28):
I don’t know why they’d come see me, but they did.
Bill Fairman (00:35:32):
Eddie Speed (00:35:32):
Anyway, they come to my office and they asked me several questions and he says, okay, I’ve got a significant rental portfolio. Now he’s in a well-known market that Wendy and Bill, you would call hot, it’s a hot market. He’s got over a hundred houses, average value is a couple of hundred grand. Probably average debt’s about 80 grand.
Bill Fairman (00:36:00):
Eddie Speed (00:36:02):
So just do the math. This is significant amount of equity, right? And he said, what do you think I should do? I said, I think you should sell or finance everyone out and he said, okay, I’m all ears, tell me why. I said because if that house drops by 15%, let’s just use some fairly easy math, right? Let’s say that he owes half of the value of each one of those house. Just for some easy math so people can follow it in their head, okay? House is worth 200, he owes a hundred, okay? I said, if that, so your equity is a hundred thousand per property, right? Fairly easy math, your equity’s a hundred thousand per property. If that house goes down by 15%, your net worth drops by 30%.
Bill Fairman (00:36:51):
Eddie Speed (00:36:54):
If the property value drops to this, half of it is leveraged, right? So his equity is the top part but that house drops in 15% in value, you talking about at 30% of his net worth. Put that over eight figures.
Wendy Sweet (00:37:10):
Eddie Speed (00:37:15):
It was a process, right? And we mapped it out and we dollared it out, and we did this, we calculated this and we ran, you know, so it was a process that we went through and at the end of the day, I’m fairly sure they left my office with a plan.
Bill Fairman (00:37:33):
Eddie Speed (00:37:34):
I’m pretty much a hundred percent sure, they left my office with a plan. And that was, they are now convinced that we are in a seller finance cycle, not a buy and play the lift on real estate value cycle.
Bill Fairman (00:37:50):
Eddie Speed (00:37:50):
Does that make sense?
Wendy Sweet (00:37:51):
Bill Fairman (00:37:51):
Eddie Speed (00:37:53):
By the way, let me just tell you something really important. I know that may somewhat affect your hard money lending business, the hard money lending business adapting to some hybrid lending where you make a hard money loan and they do a seller finance second, I see that full out as a play.
Bill Fairman (00:38:16):
Eddie Speed (00:38:17):
So I don’t think there’s any way and I’m sure you’ve already mapped this out in your head but do you guys have some very good days ahead of you relative to what you do but all of us, whether it’s what I do or what you do, we’re going to have to show people different kind of ways to structure the financing that are just than what we’ve kind of gotten used to in the last five years.
Wendy Sweet (00:38:37):
Eddie Speed (00:38:37):
Wendy Sweet (00:38:41):
Bill Fairman (00:38:42):
So ,are you suggesting that when you’re buying these properties that are kind of distressed because we do have a lot of equity in the properties. Let’s say they’re in forbearance, they can’t come up with the additional money, they have a lot of equity. So are you suggesting that most investors try to buy subject to give them some cash and then do the seller financing with the existing financing in place? Is that going to be the vast majority of the seller financing?
Eddie Speed (00:39:19):
I don’t think sub two. I mean, it’s going to be a piece of the business but it’s not going to be a significant measurable piece of the business. I coach some extremely active real estate investors, what I call the ninjas, right? Now, I coach people that aren’t ninjas but I coached definitely a bunch of ninjas, right? And really about 25% of what they bring me has anything to do with subdue. I mean, this is showing them how to buy a property with creative financing. It’s a piece of the business but I don’t believe like we’re going to look back and there is a hundred thousand sub twos that happened in the market. I just don’t think that’s going to be the case, right? I think that what’s going to happen is right now, people are not forced to make a decision and go put their properties on the market.
Bill Fairman (00:40:12):
Right. Not now.
Eddie Speed (00:40:14):
Bill Fairman (00:40:14):
Eddie Speed (00:40:15):
But there’s 7 million loans that are in distress and some of those loans have some fairly decent equity.
Bill Fairman (00:40:23):
Eddie Speed (00:40:23):
They’re delinquent but they’re not, it’s not like 2008 and they owe a dollar and a dime of what it’s worth, right?
Bill Fairman (00:40:30):
Eddie Speed (00:40:31):
It’s not that market cycle.
Wendy Sweet (00:40:33):
Eddie Speed (00:40:34):
So there is some equity in these properties and there is going to be a point where people look at it and go, yes, there wasn’t any inventory but now all of a sudden, listen, it doesn’t take a lot to change how much inventory looks like a lot, right? When you have 7 million potential loans, even some piece of those end up in inventory, you change your inventory numbers fairly significantly. So I’m just trying to answer the obvious question was any realtor you call today, any appraiser you call today, he says, there’s no inventory. How can the old man say, we’re going to decline in value when there’s no inventory.
Wendy Sweet (00:41:18):
Bill Fairman (00:41:19):
Well, I see, even in the best case scenario, there may not be a decline in value but there are certainly not going to be any appreciation in certain markets. So if you’re buying it the value down the road, that’s not the reason to buy it.
Eddie Speed (00:41:37):
Well, and once again, there’s two important points that you’re bringing there, right? One of which is nothing is going to be nationwide exactly the same, right? So somebody’s listening and they’re going, okay, well, I’m not in that market. I’m not wanting any one of those on fire markets and my market’s not going to decline that much. No, not every piece of real estate in your market’s going to decline but the real estate investor type product is going to be affected. Now let me just say something, in the middle of all this, my punchline is you can double your inventory because you know how to fix a problem other people don’t know how to fix. We got addicted to the wholesaling model, right? Alright so Bill and Wendy, I was in a mastermind with you guys, Collective Genius for one, for sure, right? I was in a mastermind with you guys and when we around 2012 is when all the hedge funds started literally coming in to CG and saying, Hey, we need to do business with all you Ninja Guys, right? Because hey had the horsepower to go buy a hundred million dollars worth of houses. They just did not, they had the capital to buy a hundred million dollars worth of houses, they didn’t have the horsepower to do it because they didn’t have the marketing machine and then that’s when real estate investors started flipping their contracts before they ever closed and they flipped their contract to a hedge fund, right? So that’s started around 2010 and it started sunsetting somewhere around 2015. I’m not saying zero on either end, I’m just saying, you know, that was the peak of the market, right? And then about the time that hedge funds started sunsetting a little bit, who comes along? HGTV, baby! Right? HGTV bye guys. Oh, if you thought the hedge funds would pay a price for a property, HGTV guys would pay a premium because they didn’t feel like they had the horsepower to go find the deal and do all that stuff, right? And so that, so once again, they weren’t, as you know, they were kind of new in the business and so they were willing, they were anxious, let’s just say, right? Well, let’s look at the HGTV buyer today, okay? He’s buying but is he up cash buyer or is he a buyer that is reliant on credit capacity down the road, right? Because he’s buying to rent it or buying to resell it to another consumer and so if mortgage financing effects either one of his exits, does that affect the house buying business?
Wendy Sweet (00:44:38):
Bill Fairman (00:44:40):
Eddie Speed (00:44:40):
Okay. Well then even if the house 123main street in a certain market doesn’t go down, does that mean no houses in the market can go down?
Bill Fairman (00:44:49):
Eddie Speed (00:44:50):
That’s kind of my point, right? In other words, if we understand the fringes, we start realizing most every state, now, once again, I see this as opportunity.
Bill Fairman (00:45:02):
Eddie Speed (00:45:02):
The guy that’s not going to see it as an opportunity is a guy that doesn’t know how to adjust his business.
Bill Fairman (00:45:10):
And that’s why we’re in these groups together, so we can teach each other to adjust their businesses and best practices as well. Man, I don’t want to say that you were painting a terrible picture because it isn’t.
Wendy Sweet (00:45:26):
You’re painting a terrible picture.
Bill Fairman (00:45:26):
No, it’s an opportunity and people need to know this and see what most people either don’t have access to that data or.
Wendy Sweet (00:45:42):
They ignore it.
Bill Fairman (00:45:42):
They’re too busy to look at it.
Wendy Sweet (00:45:43):
So many people are ignoring what’s happening.
Bill Fairman (00:45:44):
That they’re too busy in their business not working on it to see what’s going on around, right?
Wendy Sweet (00:45:52):
Eddie Speed (00:45:54):
Well, you know, I mean, we’re in a unique situation, right? The mortgage data became prevalent in the last real estate debacle. Do you want to know why?
Wendy Sweet (00:46:08):
Why is that?
Eddie Speed (00:46:09):
You want to know why CoreLogic and all those guys, it became so prevalent that mortgage data was important? Who entered the market? The las debacle who entered the market that had never really been in the house buying business before.
Bill Fairman (00:46:27):
Oh yeah. Well, that’d be your hedge funds
Eddie Speed (00:46:30):
Hedge funds are dated our data geeks, they don’t buy anything without data. So every other black Swan market I’ve ever lived in prior to that, there wasn’t this data. I mean, like all these charts and graphs and cool stuff that I’m talking about, that didn’t exist in the past. right? So the only this last cycle was the first time that everybody could look at. Y’all remember the expression shadow inventory? Okay, shadow inventory was houses that were going to be foreclosed on that weren’t foreclosed on yet and the mortgage industry in the REO world, real estate owned, which was foreclosed property world, that became the big term. What’s the shadow inventory? Well, I’ve just defined to you shadow inventory.
Wendy Sweet (00:47:21):
Bill Fairman (00:47:23):
Eddie Speed (00:47:24):
I mean, that’s a clear definition of what shadow inventory. So all of this data, in fact, Bill, I would love to tell you this is amazing, that my two best executives in our company that pulls stuff literally every day, honestly, they may have one or two sites that they pay some kind of monthly subscription of a hundred bucks for and the rest of it’s on the internet for free. I’d love to tell you it’s brain surgery and you just had to be in the inside group to do it but the truth of matter is they’re so disciplined to do it because they were both deeply, deeply, deeply involved working for some significant big box institutions that were work their way through the last 2008 cycles. So now that’s kind of their mindset is I don’t have to guess, all I got to do is look at data that tells me that the trend that’s doing it. One more interesting question, there’s a bank and I won’t name the bank but there’s a bank that is a giant that loans money to mortgage companies, a warehouse lending bank, right? And one of the top five people in that bank and the division that loans money to the mortgage companies, that’s how a mortgage company makes you a loan, you see, he had to borrow the money from the bank to do it. It’s called a warehouse loan, right? Well, one of the top five guys in that whole division happens to be a note school student, okay? And I have vetted everything I’m saying today by, I’ve run it past him, okay? Cause I don’t want to get on here and Bill and Wendy come back and say, Hey man, we had somebody reach out, there’s like really sophisticated and they’re really challenging all the stuff and he’s saying or whatever and I just want to be careful, right? That I’m not, you know, saying something that’s overstating where we are, but here’s the truth of the market and the truth of the market is that he’s saying Eddie you’re a hundred percent rating it right. Now I felt like it is because we spend a lot of time trying to figure it out. We’ve eliminated a lot of noise that you didn’t hear about it too, right? So here’s the thing about it. Traditional real estate is not going to do well with any market adjustments, can we agree on that?
Wendy Sweet (00:50:06):
Bill Fairman (00:50:06):
Eddie Speed (00:50:07):
All right. So traditional real estate brokerage, the traditional mortgage industry, they’re not going to do well with anything that’s outside of what they’re used to. So who’s going to do well when mainstream real estate is kind of confused and didn’t quite know what to do.
Bill Fairman (00:50:31):
Well, that’s why they’re in business in the first place, because there was a need that had to be filled. It’s always the private companies, real estate investors that know how to work within their, with what the market has given them.
Eddie Speed (00:50:50):
Yeah. So two or three things, I wanted to make sure that I left your audience with today, by the way, I’ve got some really good training if they want to get down and like, look at slides and get down to the granular level, I just did a little of a special link where you guys could link on, which was the NoteSchool.com/GetStarted, okay? So that if somebody leaves here and says, okay, I need to see this closer or whatever. This was more just to allow us to have a conversation today to do it. Two things I want you to leave here with today, though, right? Fix any sins you have in your real estate, you got a warning signal, as big as my dad would say, as big as a wagon wheel, Wendy, right? So if you got some properties that are up, that you need to fix, it be a really good time to do that right now. The second thing is, this is a real consideration for you that have some significant equity in rental properties to redo it and now this is significant statement to make because some people just don’t agree with this but there are market conditions where the market is overheated and the likelihood of a decline in value, according to all the sources that I named, right? According to all the sources I name a decline in value is a likely scenario and by the way, right now, you can be a lender to a better quality seller finance candidate and you could have been done in the last, who knows how long? 10 years for sure.
Bill Fairman (00:52:39):
Well, we’ve been preaching, every, at least for the last two months that if you have, you know, a rental property that you have good equity in that maybe it’s been given you a little bit of trouble, now’s the time to get rid of it, you’re going to get top dollar for it. Even if it has been making money, you have to look and see what kind of price you can get for it because there’s going to be opportunities coming down the pike that you can take that money and reinvest it and make significantly more and so we’ve been beating that drum for a while but I totally agree with you
Eddie Speed (00:53:16):
Fresh horses in the barn, that’s what they say, right?
Wendy Sweet (00:53:19):
Eddie Speed (00:53:20):
You don’t want tired horses in the barn when the opportunity comes out.
Bill Fairman (00:53:25):
Scott, if you’ll do me a favor and put that link to Eddie’s, that was on the screen into the comment side for me too, that’ll stay in there.
Wendy Sweet (00:53:35):
Billy tried to start on that but it’ll take him forever.
Bill Fairman (00:53:39):
Well, I’m trying to do my hunting and pecking and Scott was too quick to take it off of there.
Wendy Sweet (00:53:47):
There it is, thank you so much. Eddie you always,
Bill Fairman (00:53:55):
You bring it!
Wendy Sweet (00:53:55):
You do. You always just bring 110% to the table and so full of great information and your insight is just incredible. And I love what you’re saying because everybody’s, it’s so many people in this world, especially a lot of other hard money lenders. We talked about that earlier on our show earlier today is how people are starting to lend more and you know, they’re going from 65 now they’re up to 70% and it’s like there’s nothing going on in the background. Like, everybody’s just running around like a happy, like everything’s getting back to normal and I’m not feeling it. You know, I think we need to have some serious caution going on still and you’re bringing that right to the table. Thank you.
Bill Fairman (00:54:40):
And there are so many consumers out there that have no idea what forbearance means. They think there’s just a pause and then they’re going to add whatever they’ve been owing to the balance of the loan and I just start over again, that’s not the case. At the end of a forbearance, they gotta pay everything that was due in that time and who has that kind of money anyway? You know, they didn’t have it to pay the monthly payments, where do you think they’re going to get it from to bring it current?
Eddie Speed (00:55:09):
You know, even if somebody files bankruptcy to go bring up all their arrearage usually is a three to five-year period, right? They have to go make their regular payment plus make all the payments they didn’t make in the past. So this is drastically going to affect somebody’s cash position, you know, if they have a mortgage and stuff. So I’m not saying we’re gonna have 7 million foreclosures but the thing that I believe is different than 2008, I think a lot of these loans have equity and I think they become inventory and that’s pretty much believed throughout the mortgage industry.
Bill Fairman (00:55:51):
All right. So, before we go, is your belief that most of these financial institutions will sell these notes off better delinquent and or people can’t make those payments up.
Eddie Speed (00:56:05):
Yeah. That the historical pattern, the historical pattern is they sell them. They have to charge them down first, everybody’s all amped up by buying non-performing notes and everybody’s amped up about short sales and until that loan has been charged off and they start charging down at about 90 days, delinquent until it’s charged down and it’s 60 cents on the dollar, the lender’s not going to go sell it and accelerate taking a loss that they can kick the can down the road. So there’s kind of a, there’s an incubation period before it becomes a delinquent note that gets sold.
Wendy Sweet (00:56:41):
Bill Fairman (00:56:41):
Well, the, I would say the, what am I trying to say here? The little notation on that is that they have been setting aside a bunch of loan loss reserves in advance of this so it may not take as long for them to charge them down since they’ve already put the loan loss reserves aside.
Wendy Sweet (00:57:01):
Yeah. They’re treating it a little different than, you know, 2007,
Bill Fairman (00:57:04):
Maybe a little faster process
Eddie Speed (00:57:06):
It could be, you know, one point to remember, 2008, we did not see the decline in real estate values that everybody thinks they remember, that was not actually what happened. In 2008, everything was just not selling. It wasn’t that property was dropping in value 30 and 40% necessarily, it’s just that nothing was selling.
Wendy Sweet (00:57:32):
Bill Fairman (00:57:33):
Eddie Speed (00:57:33):
When the banks foreclosed on all of those houses, they’re the ones that hit the switch and started selling. That’s because those loans had no equity.
Wendy Sweet (00:57:42):
Eddie Speed (00:57:43):
These loans have equity so it’s a different characteristic of how the waterfall of this inventory starts moving.
Bill Fairman (00:57:54):
Wendy Sweet (00:57:55):
We got a question from somebody that says, “How will you double your net worth?”
Bill Fairman (00:57:59):
Wendy Sweet (00:58:01):
Was that us?
Bill Fairman (00:58:01):
That was the name of the show.
Wendy Sweet (00:58:02):
Oh, no, I got it. Okay. Okay. Sorry.
Eddie Speed (00:58:05):
The answer is that pretty simple. Is I’m going to be the bank when the banks out of business.
Wendy Sweet (00:58:11):
Yeah. So were you starting to do seller financing now? Or are you going to wait a little longer?
Eddie Speed (00:58:17):
I’m seller financing now because the pool of buyers I can sell to, Wendy is unbelievable.
Wendy Sweet (00:58:21):
Yeah. They’re already there, aren’t they? And a lot of them have cash to put down.
Eddie Speed (00:58:27):
Wendy Sweet (00:58:29):
They’re just not bankable for a loan.
Eddie Speed (00:58:33):
Good. Right now, just because somebody can’t get an, I mean, an average conventional mortgage, the average credit for conventional mortgage is about 750.
Wendy Sweet (00:58:42):
Eddie Speed (00:58:42):
That’s the average.
Wendy Sweet (00:58:43):
That’s pretty high.
Bill Fairman (00:58:46):
Yeah. Eddie, thank you so much and I, we’re past the two o’clock and I appreciate you spending all this extra time with us. Again, folks go to NoteSchool.com/GetStarted for further data on this. I think it was very important for you guys to check this out.
Wendy Sweet (00:59:07):
Bill Fairman (00:59:07):
Don’t forget to like, share and subscribe to our channel. If you are interested in getting a loan, go to CarolinaHardMoney.com, click on the borrower tab if you’re looking for, what is it you’re looking for?
Wendy Sweet (00:59:25):
If you’re looking to invest money in the fund or to do some one-off lending, click on the investor tab.
Bill Fairman (00:59:31):
The investor tab, thank you so much. Oh my God. Eddie, I’ve been so tongue tied today. Let me speak hardly on the first show now I am all worn out.
Wendy Sweet (00:59:39):
It was pretty good, It was good. And you know, it’s amazing too Eddie. We’re way over our time and nobody’s left the scene, everybody who’s watching live is still hanging in there so that shows you that there’s some serious interest in what you’re talking about. Great information, thank you so much.
Bill Fairman (00:59:56):
Alright so I’ll be able to speak completely next week, for sure.
Wendy Sweet (00:59:59):
Yeah, hopefully. Thanks so much, we’ll see you next week.
Bill Fairman (01:00:03):