NIME 12 | Experienced Property Broker

 

With a real estate broker father, Jay Hinrichs grew up immersed in the brokerage industry. This episode showcases his commitment to the business and how it has helped him pull through a major loss to be one of the most experienced property brokers in the Midwest. Jay shares his insights on mass tutorials, the financial crisis of ‘08, and hard-money lending. He also tells us about his company strategy and the new note-investing model he’s currently pushing. Along with being a long-term landholder, Jay likes to spend his time helping others in BiggerPockets, and is even working on giving back to the community with his charity, Homes for Heroes.

Listen to the podcast here:

Why Experience Carries Weight In The Brokerage Industry with Jay Hinrichs

Mr. Jay Hinrichs, welcome to the show. How are you? 

Thank you for having me. I appreciate it. 

I’ve seen you over the course of time there as a large contributor on BiggerPocketsIt’s always an honor to see someone that has helped so many people get set up in the real estate space, in the note space to get to meet you in such a way finally. Thanks for coming on with us. 

It’s my pleasure. I enjoy the giving and taking on BiggerPockets real estate spin. It’s very good for me for decades now. I’ve found BiggerPockets about a few years agoI thought, I could probably help some of these people.” I type fast and I read fast. I get hooked. That’s like your morning coffee routine. 

What is it you get hooked to? Someone like you who raises millions of dollars for real estate projects, for note related projects, and you’re spending time on BiggerPockets. I say this respectfully with newbies in the industry. What’s your take from that? 

I enjoy it because everybody has to start their journey somewhere. When I started my journey in the 70smy dad was my mentor. He was a real estate broker. I hung around a lot of the guys that worked for him over the years. I got that personal training. In real estate in those days, if you wanted to be in real estate, you got a real estate license and did something in and around the brokerage industry. Nowadays it’s not so much. You see a lot of people skip that whole portion of the apprenticeship and they go right into investing. They don’t have a lot of the study and background, the vocabulary and understand how the transactions work. I enjoy getting on there and talking about it. 

I’ve done 5,000 escrows in 25 states. A lot of this information I have at the top of my head because I’ve done it so much. I enjoy giving back that way. I’ve worked in all these states. I continue to work in these states. I have unique knowledge. I fly 100,000 miles a year. I’m in my markets every year. I have a pension for human GPS. I remember where I’ve been down to the addresses so I can describe neighborhoods where some people maybe if they’d been there few years ago, could never remember how to get back. That’s not me. tried to share that type of information. Over the years when you’ve been doing it for decades, I’ve invested in a lot of different markets. Some good, some not so good. 

Let me ask you, Jay, because you touch on something significant. We see this on the note industry side and definitely on the real estate side, in general, people come in and they’re skipping the steps. Those steps are critical to building the foundation for themselves for success. Why are they skipping these steps? 

It’s because of the information age and the internetlate-night TV and frankly the how-to gurus. They get sold on, “You can buy my program and 60 days you’re going to be making $40,000 a month. You’re going to make the money you deserve. It’s grounded in MLM. That whole pitch is grounded in Amway of the 60s, 70s and 80s. It’s that same philosophy. Some people are smart enoughhave a background in college and business, understand contracts and can do it. Others, they’re taking a pretty big risk because they don’t understand how these transactions work, especially in the note space, which is way more complicated than going out and buying a rental property. Investing 101 is being a landlord, buying a singlefamily residential house and putting a tenant in it. That’s investing at its base. Everything grows from there, complexity, risk and you’ll learn it over the years. A lot of it you’re going to learn by experience, that’s for sure. 

With your thought on the how-to gurus that are presenting this as here’s my quick kit for success or quick steps to success. Would you also attribute it to people being in a desperate position for themselves and their families now where wages have been stagnant for many years? The price of inflation and people feel like they’re not getting ahead so they’re looking for something that will move them quickly? 

There is a big movement or a big push to be selfemployed. You see that with these people, I’ve got to quit my day job.” For whatever reason, a lot of these people think that being self-employed is going to be easier or that’s a lifelong goal to do. I’ve been selfemployed my entire life since I was eighteen. I got my real estate license. I’m here to tell you it’s highly stressful because I can’t go back to corporate and pay my insurance for me or whatever. 

Can’t you be a bureaucrat in some cubicle? 

Everything has its goods and its bads. I wake up every day and do whatever I want to do. At the end of the day too, if I’m not successful, it means I don’t pay my bills. Whereas if you go to your job, you have a good job and you do a decent job, you are at least going to get paid on Friday or at least you will if you’re working for a reputable, large corporation. There are pluses and minuses to all that. A lot of these is based on MLM. They have all their buzzwords. Little or no money, no credit, earn the money you deserve. You deserve to be self-employed, all these things are all subliminal buzzwords. They lead with their fancy cars or picture in front of a jet airplane, all that stuff that gets people thinking, “I too want a LamborghiniI too want to be able to run a jet or own a jet.” They feel that real estate is the way to get there on their own. It can be. For certain number of people, they definitely get that successful. A lot of them had good business backgrounds. They knew people with a lot of capital or they had a lot of capital on the start. 

NIME 12 | Experienced Property Broker

Experienced Property Broker: Real estate is like any other business. Some of them are going to do it and some are going to fail.

 

see it from both perspectives. It’s interesting because I’ve been selfemployed for several years now, my wife and I. I started training on a small level. I did it because some people asked me if I could train them. It was interesting because I see it from both perspectives. If you do train, you should at least be successfully active in the field you’re training in. In other words, you should be doing it for a living and be successful at it. As an offshoot, help some other people up. 

I agree with that 100%. I don’t want to give the wrong impression. I am not antitraining or anti paid training. I’ve paid for a lot of training on how to be a better salesman. My wife was a trainer for Floyd Wickman. A lot of people are not old enough to know who he is. You probably know who his son is, Gino Wickman. He wrote Rocket Fuel and a couple of other good books. Russ Whitney came to mind, but that’s a whole other story. Floyd was the original, how to be a good real estate salesman before Brian Tracy and those guys. We’ve lived it. I’ve done a lot of funding for Armando Montelongo students, Nick Vertucci students, people that go to Rich Dad Poor Dad. 

A lot of backend stuff that nobody would know that I’m doing. I’ve helped a lot of those students. Real estate to me, it’s like any other selfemployed or business. You’re going to have people that go into business. They start a coffee shop or they start a restaurant or whatever. Some of them are going to do it and some are going to fail. I’ve been to those meetings400 people will come in and you’ll have 250 buying units in there and about 20 or 25, we’re going to walk out of there and do something with the information. The rest are not. Now I have associates and colleagues that have done the training like what you’re talking about, which ione-on-one. Some of them have paid six figures for one-on-one training. They were serious. They had six figures to pay. They didn’t have to go borrow it. They were put into the business and they’ve done quite well with it. It depends on what training you go to. Some of the training that you see out there on the internet is rehab information and a lot of those people don’t have the sincerity. It’s all about them making a lot of money and if you do, fine. If you don’t, it doesn’t matter because they go to the next person. 

Let’s jump into your background. You hopped around from the Bay Area and you went to Mississippi. 

came to Oregon. I went to Mississippi in ’08 in the meltdown because I had about 600 loans out at the time that I owned. We had mass defaults all across the asset classes. I went to Mississippi to be in the middle of where all my assets were. I have a small airplaneI was able to fly within an hour to Atlanta or an hour to Memphis or I was able to get to everywhere as opposed to being up in Oregon. I don’t have a big enough airplane to go across the country. 

Tell us 600 loans. How are these loans sourced, created, maintained? 

This particular pool was all geared towards landlords and to the BRRR strategy. The BRRR strategy, a lot of people think it was invented on BP and happened. I got into funding turnkey operators in 2001, 2002 in Detroit is where we started. We went to ND. I ended up in fourteen markets. My portfolio, put the money up to buy the asset and rehab the asset. My borrower was in LA, generally New York, Miami. I made at least a couple thousand of these loans to the turnkey operators of the day and how the business worked in those days, it was all burned. They would get the person that wanted to own the turnkey rental through their marketing company in LA, usually a bunch of aggregators or brokers. We all know who those people are. You see among VP. They would get the borrower. I would put the borrower and title through my hard money loan and usually at 55% to 60% ARV. A great first loan for me. would control the rehab as a rehab lender. The property gets to rehab. The people are already entitled. We get a 442 and they would refinance out. Normally, they’d get all their cash out and a lot of times they’d get $4,000 to $8,000 on top of it. 

The LA marketers were marketing, “Buy this Midwest cashflow rental. Not only is it no money down, but you’re going to get $5,000 out of it,” that you should put in reserves. Don’t go buy a jet ski. The house is going to make a couple of hundred dollars a month. Going into LA, I had this thing up and running. I was closing 60 loans a month. I was retired at that point. I was making a lot of money. Credit froze like the North Pole and the South Pole before global warming and nobody could get a refinance. Here I am with a portfolio of $35 million$40 million, which is all my money either through my own capital or on my own personal lines of credit that I had personally guaranteed. We had no investors and the people can’t refinance. On top of that, I learned that they’re not ready to be landlords either. They were terrible at being landlords. They were W2 owners that got sold this, “I want to own this turnkey rental out of state. Everybody’s going to do it for me like I bought an annuity.” 

That didn’t happen. Being the hard money lender, they start walking on you. I ended up dealing with 400 and some defaults, ended up taking over 200 plus houses and spent a year in Mississippi figuring that all out and all the different marketsI got out of it all. Luckily our ARVs were low enough that we took some losses on some property, like Atlanta cratered, others held. Long story short, I lost $7 million to $8 million in cashbut I paid all my lenders off. That’s how I operate because I never took a loss. I’d never bankrupted anything and everybody got all their money back. The only loss was me. 

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To the point of clarity on that, you had done these loans at a 65% ARV. When the borrower started to walk on you, rehabs were not completed at that point? 

The rehabs were complete because I was controlling them. The tenants weren’t paying. You had to foreclose to get the asset. You have to show up and you probably deal with this and the nonperforming assets, “I now own this asset. Who are you? I don’t know. I’m not going to pay the rent to you.” I found myself out there banging on doors because you can’t try to hire people to go do that for you. It was a Wild West. You had people that understood this was knocking on doors claiming they were the owners and ripping rents from people. They were crooks. They were thieves. 

At that point, in reading your bio, you started your profession in real estate as a young lad, hanging door hangers on doors for your father in his brokerage firm. In essence, you have that handson ability about you. You’re not going to sit back and wait for things to materialize. You relocated. You moved to where the properties were and you addressed the situation. 

If I had tried to do that like hire an asset manager, I couldn’t have got through it. I would have been cremated. I would have had to go into bankruptcy. I got out there, rolling up my sleeves and made sure I didn’t go bankrupt. I made sure I got out of it, still had some capital left to maneuver and still kept all my banking relationships intact. I changed my lifestyle quite a bit by necessity. I started all over again. 

In essence, it wasn’t a complete start because you honor the commitments with the relationships you had in place and everyone got paid. Everyone understood what was occurring with the economy, but the fact that you honored the commitments that had to set you up nicely for the next reinvention of yourself. 

I’m building homes now. I built about 30, 40 homes a year. Most of my competition was stuck in hard money because the builders went broke, didn’t pay their lenders, gave the keys back on houses and they can’t borrow from the bank. I’m borrowing. I’m still getting construction loans at a point and 5.5%, 6% and only on drawn money, not on the whole commitment of anything about hard money lending. I’m out there and I’m back up to $10 million, $15 million worth of credit, all at those very low rates. 

Can you tell us about hard money lending on the process for many of us don’t know what that is? 

When we were making hard money, we were doing the burst strategy for all these out of state people. 

The burst strategy is? 

Buy the asset as is, rehab the asset, refinance the asset, BRRR. A lot of people think it got invented in the last few years, I’ve done 1,000. 

It’s by Mr. Brandon Turner. 

I love him giving an advantageHe was not out of high school when I was doing that. What‘s happened now? One of the reasons you have all these crowdfunders get into the hard money space, lot of the bigger lending homes of the world, Lima One, Visio Lending, they’re all over the place. The commercial banks, unless you are that unbelievably strong borrower with a commercial bank, they simply don’t do rehab loans because they’re too risky. The whole rehab niche that’s out there has fallen to the hard money space. That’s why hard money has grown exponentially. When I was making hard money prior to this, there was only maybe ten or twelve of us and maybe only three or four that were semi-national like we were. Now, money is out there. It’s highly competitive and the rates have come down quite a bit. 

Do you happen to know Bobby SharmaHe runs the San Francisco REIA group. 

don’t know him. 

It’s a large group. He has over 10,000 members. I’m going to be in San Francisco speaking to his REIA group. 

I’ve done the San Jose REIA and Jay Martins event down there. The Bay Area is ground zero. That’s a great place to be. 

We have a question, “Can you please ask Jay what the likelihood of 2008 is happening again? 

NIME 12 | Experienced Property Broker

Experienced Property Broker: The financial crisis of ’08 to ’10 statistically was worse than The Great Depression.

 

As long as credit doesn’t freeze, the desire for people to buy rental properties because of what we’re talking about is as strong as I’ve ever seen it. The prices are starting to go up a little bit. It’s constraining inventory a little bit. I’ve lived through three or four of these now. They were all caused by completely different reasons. Being a Bay Area guy myself, the 89 to 92 crash in the Bay Area was the earthquake and the Gulf War caused a pretty deep recession in the Bay Area. People don’t realize that. I was hard money lending in the Bay Area at that time. I had a loan on Green Street, big 5,000 squarefoot house right next to where Meg Ryan lived. 

made a loan on it. It was appraised at that time in 89 to $2 million. I made a loan on it for $1 million. The guy has everything froze. He stopped paying. We went to foreclosure. No one bid it. We ended up wholesaling it off for less than half of what it was worth three years before. A lot of people think of the Bay Area as, “It can never go down.” It went down in those days. I’m not predicting that by any means. That was caused by the earthquake and the war. You had the dotcom bubble that happened. That was a little more of a blip. I was with my banker and some clients. He was like, “The ’08 to 10, statistically was worse than the Great Depression. 

The only reason it didn’t get like the Great Depression is that back in the Great Depression, there was no safety net. We had a safety net. We had TARP. Whad the government coming in, printing money and saving a lot of these banks. The amount of money that was lost, it was greater than the Great Depression. It was pretty bad. I always use the analogy of how many Cadillac Escalades are going to be sold if you’ve got to pay cash for them. How much is real estate going to get sold if there’s no financing? That’s what happened from ’08 to ’10. As long as you have financing of some sort that’s out there for the masses, I don’t see a meltdown. If financing all of a sudden for some reason, no loans, like what happened in ’08. Everybody was calling their loans and it fed on itself. 

It goes even a step further with people’s disposable incomes. There’s the psychology behind having them pay their obligations, etc. I have another question, “What is your current strategy for your company? 

For me, my current strategy is maximizing profit in the least amount of time. I’ve identified a couple of markets where building new construction does that for me. We still do a lot of ultrashort term lending, 90, 120 days, 180 days, with clients of mine that I’ve had for two decades. What I can do is based on a long career, thick Rolodex and a name in the industry. Even though most people don’t know who I am, in certain parts of the industry. I do have a reputation of being a pretty strong funder and especially out in the Midwest. I have a reputation for funding and not with a lot of red tapes. I’m not brokering. I don’t have to go out and get permission. If I go out and find an operator that I’m going to help scale to the next level, I look, if I like it, I’ll take them to the next level. 

What are you looking for in a borrower? They come to you and they have an opportunity that they’re seeking funding for. What are some characteristics you’re looking for in that person? 

I don’t fund individuals. I only fund companies. I’m looking for a young company that’s got some experience, probably done 200, 300 deals. They’re doing two or three a month. They want to get to that ten a month. If we look at the dollars it takes to do ten rehabs and sell to a buyandhold investor, even in the Midwest, the guys are going to be in those houses, $50,000 to $70,000 each. They’re going to sell them and make their $10,000, $15,000 profit. They usually need about four months of inventory static at any one time. That’s 40 houses times $50,000 to $70,000. They need $2 million t$2.5 millionIf they have to go traditional hard money, that means they need $250,000 to $500,000 liquid. They’ve got to be making payments usually at about 12% interest on a couple of million dollars so $24,000 a month. I come in with more of a high grad program where I help them with their cashflow to allow them to scale like that. I’m not looking for someone calls me off the internet or from LA and, I want to go buy this one house in Indianapolis.” I don’t do that. I’m not in retail. I’m business to business. 

That business is not going to go to portfolio loan route. They‘re going to go to you for what advantage? 

Leverage and cashflow because the portfolio lender is, one, they’re going to put them through the wringer. A lot of these guys that deal with me, it’s too hard. Try to get a big 100-house portfolio a month. You’ve got insurance money. They put you through the wringer and a lot of these guys, it’s like, “I’ll pay you a little bit extra. I don’t want to do all the red tape.” I’m a non-red tape facilitator. Not everybody is going to deal with me because to do that I charge more when I bring value. 

We have another question, “What is your forecast for the Midwest market? It’s a twopart. Let me ask the second part too because it may tie in“What adjustments have you made since 2008 to your BRRR strategy? 

The first adjustment is I don’t loan to individuals. I don’t do the BRRR strategy. I do the same type of lending. I’m buying the asset as is at the wholesale. I’m helping with the rehab money, but I’m getting cash out when they sell it to the turnkey person. don’t put the turnkey buyer in the title. They’re not getting a BRRR through any of my people. They’re buying them with 20% down and not doing the BRRR strategy. If a couple of my vendors do the BRRR strategy and same thing, I get paid off when they make a small little spread. When a Midwest operator sells something, whether it’d be BRRR or not, they have to make a spread. They’re in it to make a profit. If they do sell it on a BRRR strategy, I get cashed out at that point. They handled the BRRR for the client and the refinance for the client. 

Would you be open to sharing some of your favorite markets in the country? 

The ones that I work init’s all the ones that everybody knows about. You’re talking about the Deep South, Birmingham, Indianapolis, Kansas City, Ohio has gotten very popular, Cincinnati, Dayton, Cleveland, Philadelphia has gotten a little expensive, but I like it. A lot is going on in Philadelphia. I’ve done some work in Chicago and that can be a good market. The operators there probably have the toughest job in all of America, getting through the construction red tape with the city of Chicago. 

There’s Cook County in general. 

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love Northwest Indiana if you can get the inventory. Some of the guys that got in there early that I know I’ve done some deals with did quite well, buying several years ago. The inventory is firmed up. All the markets still have a swath of all their homes and the new construction is being done around the beltways and sprawling out. Some of these cities, and I’ve been involved in, like Charleston, South Carolina I love. It’s not a buy and hold market because it’s more like the West Coast. It’s five caps, six caps. For buying and building new construction info, we’ve done extremely well there. It’s hard. It’s not easy. I have a team set up to do that. I love Charleston. Boeing moved in. Volvo has even got their plant up and running and it’s still booming. Mercedes hasn’t even got their plant up and running yet. That is a market that I would be looking at strongly. Let me put it this way. If I wasn’t 62 and I was 42, I could tell you where I’d be living right now. I’d be at Charleston. 

It’s interesting when I had a government contracting business for a bunch of years. I drove across the country quite a bit because I was servicing different military installations. I’ll never forget spending time driving through Alabama a dozen times and seeing monster car manufacturing operations all over the place. It’s something if you go through and see what’s going on in that Deep South. 

It’s like when Nissan moved into Jackson, Mississippi. There are 6,000 people there and that kept Jackson from probably imploding. I’ve done a ton of business in Jackson. There’s a lot of interest in Jackson right now. There are good price points to rent, but like everything you still go into these markets and you still have to use commercial real estate lingo. You still have A Product, B Product, C and D. It doesn’t matter what city you go to. If you’re still trying to get the best return and the best cap rates and everything, you’re going to get thrown down into that D and low C product and that is still highrisk product. If anybody’s read anything I’ve ever read on BP, I’d never change even though I funded a bunch of that stuff and I still do to this day for the appropriate people that know how to handle it. For the person sitting in LA, trying to buy C and D class, that’s some pretty risky investing. It usually doesn’t work out. That’s why their inventory is always cycling. That’s why when people say, “Isn’t it going to run out? No, because you’ve got too many people buying the same product. A couple of years later they give up and let it go. It becomes REO again. 

Let’s talk on the subject of newer folks trying to break into the industry. You have a model. I believe the title is nonowner occupied sell and note model. Can you tell us about that and how that might be advantageous for someone breaking into space? 

If you’re talking about the note investor space, because of my having to deal with foreclosures, I never want to deal with another one again. I know how to buy bad debt. I bought bad debt by nonperforming. I’ve foreclosed on them, taking the home back, resold them and did well on it. It’s a lot of work. If I was going to be in that space, I’d move $20 million into that space and I’d be in that business. What happened was I ran into a guy that had a CiDRA 401(k) solo set up company and we were talking one day. He wasn’t a custodian. He did the LLC and was able to sell that. He did a nice business out of it. 

He’d done about 3,000 or 4,000 of those over a twelve-year period. In talking to a lot of people that he would set up the solo 401s for, a lot of those people move the money and never invested it. They didn’t know where to put it. He first tried to sell. They ended up getting with the wrong turnkey investors in the Midwest. They sold some lowend product to them. It didn’t work out. He got frustrated because if someone didn’t pay the rent, why aren’t they paying the rent? We run into each other. We happen to both be in Portland. I said, “What you need, Bob, is note model that’s consistent, that you can’t lose. You need the notes to be non-recourse because people that are doing these in their IRAs, they have to be a non-recourse. 

Non-recourse, can you elaborate on that? 

They’ve got to be made to the people that if you’re buying a home, an IRA and you’re borrowing money, there can be no personal guarantee. It has to be what’s called a non-recourse commercial. That’s how we started off. We did have people buying properties in their IRA, but they didn’t have enough money to pay cash for them. We created a note model for them that was non-recourse specifically to buy rental property. We started that in Orlando. It was monster successful. We did about 300 or 400 of them there. We have all of these investors. We had about $300 million, $400 million sitting in these accounts. All those people were not like they are Merrill Lynch broker and we pull the money. 

We have to talk to them. Out of all those people, about 10% to 20% of them liked the idea of notes because this is retirement money, they wanted that consistent cashflow. These investors are not like the BP people that are getting on there. They’re not looking for the highest return basis point. What their number one goal is capital preservation and a decent return. I created a note model that did that. The basis of that was one, to have your borrower be a professional landlord. Two, have your rents be at least two to three times debt coverage ratio, not 1.25 and have the notes be based on freshly bought and freshly rehabbed homes. Not a fifteen-yearold home that they’re trying to refinance that you don’t know what’s wrong. These are all fresh rehabs. The borrower owns 50 to a couple of hundred of these. 

What’re the criteria for professional landlord? 

It’s volume. You’rin the business. That’s what you do. That’s what we do. I had one client in the Deep South. I’ve done in the few years, I took them from to 250 doorsI financed them all. There’s no way he would’ve got, at least at that time, it couldn’t have gone to Corvest. They’re not going to make one loan. How do you get to the ten or twenty houses before you can refinance in a portfolio? They’re getting to the place right now where they can take their 100 homes to refinance out, which will be cheaper than our interest rate, cash this out and move on. 

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We have a question, “Who were the IRA investors lending to and how did you make money? 

We make a brokerage fee like any other broker. It’s paid by the borrower. That’s what I like. There’s no load to the investor. The interest rate is the interest rate. We have a thirdparty servicer. We never touched the money. They don’t need a servicer because these are private commercial loans. They can service their own note if they want, if they don’t want to pay for it. The borrower, these are clients of mine over the last couple of decades. They live in the market. They live within ten to twenty minutes of every one of these houses. That’s what they do for a living. They are professional landlords. They are the people you see on BP. I got 40 doors. I’m retired and I’m living on my rentals. That’s what they do for a living. They run rental property for a living. It’s a job. They work very hard to do that. We helped them scale. 

The question of servicing, with the institutional notepaper especially buying nonperforming notes and you’re doing it through your selfdirected IRA, you’re always going to use a servicer to give yourself separation from yourself personally to the note that’s held within the IRA. That’s not the case with the scenario you’re posing here. You could self-service. 

You’re setting up, you do not have to work at it. They set up an ACH. We make them set up an ACH and they automatically send in the payments first of the month. There’s no nonperformance. There is no service. They‘re going to track. Because it’s in their IRA, there’s no tax reporting or anything. 

The other thing that stood out when I was reading your bio is hurricane Katrina’s disaster in 2005. That’s what you alluded to. The question that came to mind was when you started seeing some default, spikes, how long before you packed up and moved down there to address it? 

Katrina was a couple of years before the crash so that was different. I went down to Katrina to take care of the GO Zone, to invest personally in the GO Zone. I was making 40 to 60 notes a month. We were printing money. The GO Zone allowed Section 179 writeoff. I stacked up $3 million to $4 million worth of real estate in the writeoffs. 

It’s the portfolio build that you later had to service by going down there. I’m a little slow sometimes. 

The Katrina stuff for the GO Zone, that was my personal real estate. Those were my personal rentals. Going down there and unraveling the business rentals was completely different. Those rentals made it through the downturn because one, they were brand new construct. You have to buy brand new construction. You couldn’t buy used houses. These were all brand new houses that were only two or three years old. During Katrinathey did very well. There was a big demand for rentals because a lot of people lost their homes. 

Do you only invest with residential or do you do deal with commercial at all? 

I’ve owned mobile home parks, storage, commercial buildings and I’m a big longterm landholder, a path of progress landholder. I’ve got some pretty substantial holdings in that. 

What is the path to progress? 

I figured out where the city’s going to go and I buy from the farmer several years before it’s going to happen for farmer prices. I bought a piece of property in Rohnert Park, California. Bobby will know where that isfour acres. I paid $30,000 for it in 92. It was unbuildable because it’s a wooden park. Lo and behold, the Grand Casino built next to the city moves out. Now I’m zoned multi-use residential. I got an offer on it for a little under $3 million. I have strategic holdings like that in many different states. You can’t talk about that on a site like BP because it’s all about cashflow. They would think I’m an idiot. Why would you buy that? You’re getting no cashflow. 

NIME 12 | Experienced Property Broker

Experienced Property Broker: If you’re buying a home on an IRA and you’re borrowing money, there can be no personal guarantee. It has to be what’s called a non-recourse commercial.

 

I see the value play. Reading over your bio, that’s the thought that comes to mind is that you’re looking at the whole value chain of the whole process and you’re trying to tap into where you can make money on each of the components of the value chain. 

What I like about the land is there’s no managing the land. I’ve done very well with timber property because when you buy the timber, you don’t have to manage it and it grows. You buy Pacific Northwest timber and the standing timber alone will make you anywhere from 10% to 14% cash on cash by doing nothing. You don’t manage it. You don’t do anything as long as it rains in the Northwest, which that’s a good bet it’s going to happen. It gets bigger and bigger, that means you got more volume, which means you have more wood to send to the mill. That’s how you make money. We’ve done extremely well with timber ground. Those are long term. Those are 10 to 30-year plays. If they’re not making any money immediately when they buy it, they’re pretty much on the internet these days or most of the people, you don’t want to buy anything if you can’t get cashflow. I get that. For a lot of people, that’s what they do. For me, I don’t need the cashflow because I make a lot of money in my business. I can afford to buy stuff, sit on it and go for the home run. 

That’s well played, 40 years of experience right there. I want to tell you that’s it’s been a great honor having you on. I‘ve learned so much. I know that a lot of people on here have learned a lot as well. What strikes me is that the level of giving back that you have. You don’t have to do any of this. You don’t have to be on BP. You enjoy the giveback. I want to say thank you for that. 

It’s my pleasure. I would like to announce something that some of the BP members and I have done, at Christmas time and this has to do a charity, so please bear with me. At Christmas time, I’m trying to think of what’s going to be my charitable giving coming forward. I’ve given a duplex away on BP to a deserving young manI gave it to him literally for free. I work on it. I’ve given numerous homes to Habitat for Humanity over the years. Some of my REO that came in, I didn’t want to fool with it. I gave it away. At Christmas, I think what can be my next thing to do? 

I thought up that we have a lot of servicemen. We have a lot of fire, police, EMS. We have heroes out there that are finally being recognized like they should have been all these years. I went to some of the other BP members that I know that are prolific and successful in their business. I said, “What I want to do is create an ongoing giving where we go into one of our turnkey markets with one of our turnkey partners, we’ll put up a house. We’re going to create a 503 nonprofit. We’re going to get it out on the internet. BP is going to help us market it by putting it at the top. We are going to move from market to market every six months, giving away a home, a nice home, a B or A home to a deserving, and we call it Homes for Heroes. 

You’ll see a big blast on BiggerPockets for Homes for Heroes. I’m hoping that all the people at least on BiggerPockets and the people I meet here will spread the word and that we’ll be able to raise money. No donation is too small. None is too big. We will move around the country finding these heroes and giving them home free of charge. All of us that are doing this, the founding members. I have a lawyer. We have our CPA. We’re all doing it for free. There’s no management. There’s no money being taken out of it. It’s a true give back. I want to show the community and the Homes for Heroes that us real estate people, us landlords, us hard money lenders, us note investors, we give back to the community and that’s what I’m hoping to do going forward. 

If BiggerPockets gives you a link, I’d like to share here with my group. 

I will definitely let you know. I’m not very savvy on that stuff. I don’t care about it for my personal wellbeing because I’m fine, but I do want to put some effort into getting to know how to do that stuff for my Homes for Heroes. That’s going to be my charity going forward. I’ve got a great group of guys and gals. We’re going to show America that us, real estate investors are not all about making money, that we can give back. 

We’ll stay tuned for that. When you do figure out how to get the link, put together and send it my way. I’ll definitely circulate it. 

couple of the other guys, a couple of the other founders out don’t know how to do it in a heartbeatIt’s the first time I’ve publicly announced it. Opening here and I’m counting on the real estate community that $20, $50, $100, whatever it takes. We’re going to do some nice things for people going forward. 

It would speak volumes to have cohesion in the note and real estate space where we can come together, everyone’s in their silos, doing their own thing. To be able to come together for something like this is definitely worthwhile and needed. 

When I went and got my other founders, every one of them was within 30 seconds, “That’s a great idea. I’m on board.” Everybody has picked their part of what their expertise says. The launch will be Memphis. We‘re going to move right around the country doing this in every big city where there are a lot of landlords and investors. 

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Thank you. We have one last question, “How do you define Class A, B, C and D homes? If the average income in the US is $42,000, how can they afford a Class A home? 

I don’t look at the average income statistics. Talking with the banker, there’s a big transference of wealth. First, to take the first question A homes, there are no rentalsIt’s almost all owneroccupied. B, 70%, 80% owneroccupied, C, 80% rentals, 20%, D, all rentals, are never going to be anything but rentals. That’s how I define the A, B, CD. There’s a huge transference of wealth. We were at lunch and my client was up from the Bay Area. He lives in Menlo Park and he said, “My house cracked $1,600 afootI have a 2,000squarefoot house, it’s $3.2 million. How does anybody afford that?” That’s every house in the Bay Area. I said, “Come to think about it, prior to ’08, I also had the largest foreclosure buying business in Portland during those years as well, about probably 100 houses a year and flipped them.” Virtually every one of them was a zero down if it wasn’t FHA, it had two loans on it, whatever. 

As I look at my contracts coming in on the new construction that I’m building, which is $400,000 to $1 million. There is none. The only ones that we see are VAs. You can tell we’re very strong with VA. A lot of builders won’t take VA. We will take VA. They get zero down. You’ll have a few FHA, but the rest, everybody’s putting anywhere from 10% to 20% down. This never happened. The 23 houses I’m building in this one community right now, four of them sold for cash. I don’t know how you can take the $42,000 the average income and equate that to how you buy homes other than, it’s one of the reasons there’s a big strong run on rentals because not everybody’s going to own a home. There’s going to be a lot of people that are going to be renting and that’s going to continue. You have a lot of people that will continue to roll up equity that can buy a nicer house. They’ll put more money down to afford it. 

NIME 12 | Experienced Property Broker

Experienced Property Broker: Most people don’t want to buy anything if they can’t cashflow.

 

I‘m in the DC market and we have A-Class properties. I’m a landlord. I own A-Class properties that I rent to. We have a lot of servicemen and women that are high ranking officers that are transient and they move in and out for two, threeyear stints. I know that’s a rarity. 

That stuff I bought for GO Zone in Mississippi would be considered A-Class. It was all brand new construction and I paid $200,000, $250,000 for them. They only ran it for $1,500. People would think you’re nuts. I did it for the tax breaks at the time. 

That’s a whole other webinar. Mr. Jay Hinrichs, thank you so much. We’ll be looking out for you on BiggerPockets. We’re going to promote the Homes for Heroes when that link comes out. We want to thank everyone for joining us and God bless. 

Thank you very much.  

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