Foreclosures, Insider Deals, & Investing with Your First Home: Listener Q&A | How to Buy a Home #79

Hi, everybody. Today I'm going to answer some listener questions about the housing market. People are asking about foreclosures, insider deals, and investing for first time home buyers. So if you're ready to take a walk on the wild side and learn the tricks of the game, let's do this. What's up, my how to buy a homies. Welcome back to the podcast and new listeners out there. If you're interested in these subjects, we'll go ahead and hit the like button and subscribe. And don't forget, things are changing all the time. So make sure you hit the notifications and we'll keep you up to date what's happening in the housing market for first time home buyers. So today what I'm going to do is I'm going to answer questions from the listeners who have been here for a while. My how to Buy homies. And it's another edition of the Reality Check podcast. I did one last time and they got some good feedback. I'm lying. It's not even out yet. I'm just making that up. I'm a terrible podcast host. Okay, the last episode I gave it gave some reality checks and I actually thought that it would be good for you guys to hear this stuff too. How do I take advantage of short sales or foreclosures? The other topic, how do I get an insider deal? And then we're going to talk about buying an investment home first because you know, you want to build an empire, right? Topic number one, how. How do I take advantage of short sales and foreclosures? Okay, first of all, totally with you, bro. Love that you're thinking outside the box, getting creative and not afraid of a little elbow grease and sweat equity. I'm buying your first home. Stoked on that. Super cool. Now let me completely burst your bubble. Number one, speaking of bubbles, this is not a housing bubble. So don't be looking for a whole bunch of foreclosures if you don't know what I'm talking about. Go back and listen to the other episodes. They're the ones that in the word in the title, it says the word bubble. Because I'm simple like that. I'm basic. And number two, foreclosures, they just don't exist in this market. Ta da. That's your answer? That's the end of what I'm trying to tell you. I wish I saw an easy way into this housing market for everybody. All right? For everybody in 2022, but I just don't. So how's that for Captain Positive you longtime listeners are like dude, where's my cheerleader? I'm not saying you still shouldn't look for a way in. It's probably still mathematically better move for most people, you know, than fighting an ever increasing rental market so you have to pay more each year. But there is some reality here. Are you going to see the huge 19% boom bump like we saw last year when people who bought a home? Nope. Blame the universe for not having you be mentally ready to listen to the podcast in 2019 when I was just a sociopathic dude in my living room scaring the crap out of my kids, screaming into a microphone at 3 o' clock in the morning in the middle of the night. Another question about this for foreclosures here that'll help you answer. Will you get another 10 years of the market appreciating so you can cash in? Nope. Sorry. Blame your parents for not getting freaky 10 years earlier. You came of age at this end of a decade of a long run up in real estate and there's nothing you can do about that. Unless you know Doc Brown. Will there be another huge crash so you can swoop in and get foreclosures for cheap? Nope. As of today, the numbers don't support a crash. Check the facts and figures in the episodes 47, 48, 57, 68, 70, 72, 73 and 74. That was too fast for you. You have a rewind button. Okay, fine, Sidoni, fine. But there has to be one sad sack out there who's tragically gonna lose their house and I can take advantage of them so I don't have to pay over list price like everyone else. Truth bomb alert. Truth bomb coming at ya. Time for some harsh reality with the emphasis on harsh. Don't hate me. I'm just a messenger. Do you think you're the only one out there who's thought of this? Do you think that if a home is a foreclosure, the bank's going to do a secret off market sale that only you and your realtor know about? When every home out there is getting bid up, you don't think they're going to put it out there and get all the desperate buyers in there to try to get the most money they can? After all, they are a bank and when they do list a fixer, a fixer upper, they're trying to recoup their loss. You know, suddenly that home appears on the market and in 2022 and if it's less than an HGTV beauty that sold on the, down the block for the, you know, last week, well, there were 50 people that didn't get that house. So how many of them are gladly going to fight for this house even if they don't do any fixing up to it and it looks like a fixer upper. That's the reality of what's going on. There just isn't anything out there. And let me back up my nuclear truth bomb with some facts and data. Facts and data, not ideas and philosophies. I'm going to spew on the Internet. I mentioned this to you before and I will again now because I want the best for everyone out there. These are the Orange county numbers. I'll give you the updated numbers right now. Where I live in Orange County, California, me and the housewives kicking it. There are currently 1,358 homes for sale. Now, the distressed homes, those are the ones that are foreclosures and short sales. They made up only 0.2% of all the listings. There are only two foreclosures and one short sale available to purchase in all of Orange County. Three distressed homes on the active market out of 1,358. That's 0.2%. And last year, in the middle of the pandemic, when we really thought this was going to happen. Yeah, there were only six. So if my county represents, you know, what's going on in the rest of the nation in Canada, which talking to all my folks, it is, then what are the odds of the 0.2% homes in your market matching your wants and your needs? And like I said before, it's still going to have a bidding war, just like the beautiful turnkey flipper down the street. Okay, now let me get into the details of why you wish your parents had gotten freaky and conceived you 10 years earlier. Well, because 2011 was the best time in the last 25, 30 years to buy a home. I know, but hey, that's the facts. So hindsight's 20 20. Oh, hindsight's 20 20. Yet the present is 20 22. Ooh, fun with numbers. I am a goober because unfortunately, the crash of 2008 and 2011, when all those foreclosures hit, it's not happening again. I went back and I researched a whole bunch of articles that I read and I saved for the last two years on the potential foreclosure crisis and why it's not coming this time. Now, the first article I read was from March 19, 2020. Anyone remember what was going on back then? This Is direct from the article. Here we go. With all the havoc being caused by COVID 19 many are concerned we may see a new wave of foreclosures. Restaurants, airlines, hotels and many other industries are furloughing workers or dramatically cutting their hours. Remember all that game. Without a job, many homeowners are wondering if they're going to be able to afford their mortgage payments. In spite of this, there are actually reasons we won't see a surge in the number of foreclosures like we did in the housing class of crash of 10 years ago. Here are just a few of those reasons. Now this is back in 2020. These are the reasons they're giving you March 19th when the pandemic was just starting to shut things down. First thing is the government learned its lesson last time the old crash happened. But what's happening now is during the pre. Well what they said was during the previous housing crash the government was slow to recognize the challenges of homeowners and they waited too long to grant any relief. Today, action's being taken care taken care of swiftly. Now that was back in 2020. Just that week they they pumped out the mortgage forbearance. More about that in a little bit. The other thing that was big difference was homeowners learned their lessons from last time when the housing market was going strong in the early 2000s. I've told you this before, Homeowners gained a tremendous amount of equity and guess what they did. They began to tap in that equity using their homes like ATMs. It was insane. They were buying luxury items with and putting it on their house. Cars, jet skis, big vacations. And then when prices drips, many found themselves upside down. That's a negative equity situation where the mortgage is actually greater than the value of the home because they punched it all up by taking all the dollars out of the house and spending it on goofy stuff. So what happened then? Well, some people walked away leaving the banks with no other option but to foreclose on the property. I've been screaming about this fact since 2011. This is what I think is one of the biggest reasons for the crash that happened back in 2008 and it is not happening today. From 2005 to 2007, homeowners cashed out $824 billion worth of from home equity refinancing. From 2017 to 2020, they cashed out only 232 billion, less than 1 third of what we saw before the last crash. Now at the time of the article that was written here in 2020, 37% of homes in America, they had no mortgage at all. And that was back in 2020. And 16% had 50% over equity. So even if prices dip, and again, most experts are not predicting that they will, most homeowners will still have vast amounts of value in their homes and won't walk away from that money. So that's what they wrote back in March 2020. Ah, good times. Remember the shutdown. Whoo. Tiger King. And sure, prices dipped a little bit in the early pandemic, but you know what? It freaking lasted only eight weeks. Then things went up. And during 2020, we saw bidding wars happen. Now, they happen with people wearing gloves and masks and hazmat suits. And every single open house that I went into, there were Clorox white boxes that people bought in bulk at Costco. And people still. They fought through that, and they started buying. And in 2021, prices jumped 19%. So all those people that were afraid about gonna lose their home for. Well, even if they lost their job, their home still went up 20% since 2020. And they were sitting there on a ton of equity. Equity cures everything, which is the reason why you're not gonna be able to find as many foreclosures today. Now, I kept reading through everything, you know, being the real estate nerd that I am, you know. Cause I'm super, super sweet. I've got my laptop filled with all kinds of detailed real estate articles. And in the middle of 2020, I started to see more articles coming out and then more as foreclosures and the government giving forbearance. And I've been watching this the whole time, and I've seriously seen, you know, anywhere from fifty to a hundred different articles on this stuff. And they pretty much are all saying the same thing about forbearance. If you don't know what forbearance is, forbearance is the government basically telling people, don't worry about it. You don't have to pay your payment. Now, this. This is the thing that everyone thinks. Elvis smarty pants out there telling you there's going to be a bunch of foreclosures. This is the reason why. But here's the latest update on the real numbers. Because when the mortgage forbearance plans were first announced, that was when the pandemic was surging back in early 2020, a lot of homeowners, they. They didn't. They got to pause their mortgage payments. And a bunch of analysts were concerned that once the forbearance program Ended. Who knows if people are going to be back to jobs. So. So the housing market would experience a wave of foreclosures like the one that happened the old bubble. But here's a look at why. Now that we've gone through all that, the forbearances are closing. That is not gonna happen. The first reason why we're not gonna see a crash like we did on the last bubble, because there are fewer homeowners in trouble this time. Like a lot fewer. After the last housing crash, over 9 million households lost their homes to foreclosures. 9 million people lost foreclosures or short sales. Or if they just like, gave it back to the bank, which still counts as a distressed property. Many people believed that millions of homeowners after Covid were going to face the same fate. However, I have something really interesting to help you understand that that's not true. It's called data. Facts. There are many homeowners that their forbearance plan, they're fully caught up on their payments or. Or they with a plan from their bank, they've actually reconstructed their loan in a way so that they continue to start making their payments. The latest data from the Mortgage Bankers association, that's the NBA. I want to see the NBA play the NBA in a game. Bunch of mortgage nerds getting dunked on. That'd be fun. Anyway, the MBA studies, this is how people exited the forbearance program starting all the way back in June. Back in June 2020. Back in June 2020, people were already getting out of the program. Here are the findings. Number one, although a lot of people projected that 30% of all mortgage holders were going to enter the forbearance program, in reality, only 8.5% of the entire nation entered into this forbearance program, where they put a pause on their payments. And coming to the end of 2021 and into 2022, there's still only 2.2% left. Okay, so what happened to all the people? Now, it was only 8.5% of the country, but what happened to all the people that came in and are no longer in the program? Because we're all the way down to 2.2. Well, here's the math. 36% left the program paid in full, with 6.9% of those people actually paying off their loan in full. So they're free and clear, no more loan. But 38.6% of the people are back in and paid off. 44% negotiated workout repayment plans. And that means. And you know A bunch of them receive loan deferments or a loan modification or getting an entire repo repayment plan. And 16.8% of the people left the program still in trouble without a loss, medication in place. But most of them, they have the equity on their home, so they can sell that and just cover the debt. I don't know what's going on with these people. You know, these people are just stubborn or they're hiding under the covers. And you know, you ever have those days where you just don't want to deal with anything? That's what they're doing. But they've got the equity and sooner or later, when their backs against the wall, they could sell the house. The second piece of data they were giving us was the number of homes in forbearance today is extremely low compared to the crash times back then we told you 9.3 million people lost their homes to foreclosures as of January, the total number of mortgages still in forbearance, only 890,000. Now, I'm not a mathematician, but I believe the technical term is 890,000 is precisely 1.3 buttloads less than 9.3 million. Is that correct? Not sure. And in 2022, those 890,000 people who remain in forbearance still have the chance to work out a suitable plan with their banks or. And the deal is the once you get a loan, it goes to a servicing company from the banks and the servicing companies for the mortgages. They're under incredible pressure by both the federal and state agencies. Now, Rick Sharga, who's the executive vice president at RealityTrack, he said this recently. He actually tweeted it. Pretty cool for numbers, dude. The Consumer Financial Protection Bureau, the cfpb, and the state attorneys generals. Attorneys general, sorry. They look like they're adopting a zero tolerance approach to mortgage servicing enforcement likely that will limit foreclosure activity for a good part of 2022. While Service Explorers explore all possible loss mitigation options, that means getting a deferment or getting a deal with basically just going to work a deal with the person instead of foreclosing on them. And then like I said, one of the other things they talked about in this most recent article is that, you know, there's 16.8 the people still left in the program. Many of them have enough equity to sell their house. Of the 1.22 million homeowners currently in forbearance, 93% have 10% equity in their home. That's plenty of Money to sell your house and get out of there scot free without having to go into bankruptcy or foreclosure. That's an important number. That 93% have 10 equity. Because 10%, if you take 6 or 7% to sell your home, they've got plenty of room to do it. The fourth thing they talked about in this article is that over the past couple years, we're seeing the banks are working with people. Even in the midst of a pandemic, there have been far less foreclosures than there were even just in 2017, 18 or 19. I mean, we're talking 400,000 foreclosures that normally would have happened did not happen. And then the biggest pieces is number five, this market can absolutely absorb. You want to be a negative Nelly? I don't care. You want to be a hater? Rock on. I'm telling you this right now. If a million new listings hit the market, we'd be fine. A million. Now you heard my numbers. We're not even talking close to that many people that might get dumped out of the forbearance program. Look, here's how it worked back in 2008. They added the oversupply of homes that were already happening. Well, they added to that with the foreclosures. Well, today's inventory number, when all the foreclosures hit in 2008, our number today is lower by 600%. 600%. I know some of you are pulling out your calculators right now just to figure out how you even calculate that. It's exactly the opposite today of how it was last time. The total housing inventory at the end of November amounted to 1.1 million units. Now that's the end of November, 2021. Now, they've got this weird stat in real estate where it's called a month's supply. So 1.1 million units based on the demand, everyone trying to buy the house is 2.1 months of demand. It's also called an absorption rate. It means that if no more homes came on the market today, if everything froze, how long would it take for all the active buyers out there to buy up the 1.1 million homes? Well, it says it would take 2.1 months. I think that number is way too high. I think it would take 2.1 weeks. But anyway, you know, let's stick with the real data. Fine. A balanced market means that we have approximately six months of supply of inventory. So at 2.1 months, the market is severely understocked. That means we can take A million homes, drop it on the market. Even if a million people went into foreclosure and there still wouldn't be enough inventory to meet the current demand, Forget the crash, it wouldn't even meet demand. It would barely slow it down. I don't even think prices would drop if a million new homes came out. I think it would just satisfy the people who are out there and we might flatten at worse. Now, all of this is why my gal, Ivy Zellman, a woman who I am convinced is a mystical sorceress, because of that awesome name. She's the founder of the major housing market analytical firm Zellman and Associates. She was on point when she said the likelihood of us having a foreclosure crisis again is about zero percent. So that's your foreclosure topic. Let's get into topic number two. How do I get an insider deal? Now, if you're new to our home buying game and you're super bummed out because you know our first topic, you thought you were going to be able to really get a deal and sneak in and grab a foreclosure. Well, you found out that's probably not going to be happening in the current market. And guess what? Now I'm going to burst your bubble again. If you're a hater and you love the drama, the snarky headlines, cool. This is for you. Gone is your positive cheerleader, old man. Drink. He's not going to be here for this segment. Sorry, that's. That's not what I'm doing. I'm going to read you a listener email I got a long time ago. And guess what? If you love the drama, cool. I'm gonna rip this to shreds. Now, of course, before I do, I want to make sure that preface by saying that I don't blame this guy. I love any young entrepreneurial person out there trying to take on the world, especially an excited new home buyer. I know there's not enough information out there for you, so I want to change that. I admire this spirit. Go for it. I mean, look, if you think I'm not out there cheering on people that have ideas that they don't know if they're going to work. Look at me. Nobody in real estate thinks what I'm doing is a good idea. And I'm three years into this craziness. I just want to help delineate fact from fiction. I know it all sounds easy because you read a couple of books and you listen to a couple podcasts and you think you can get rich quick in real estate. And now you're pumped. Until you call me with your six months of knowledge and you're ready to buy a home for super cheap and then flip it and make a ton of money. Wish it was that easy. So don't call me a hater for dropping some reality on you. I'm doing this out of love. This listener question me came with an an email, I believe, and it was entitled our current flexible mindset. That's how they titled it. I was like, great, flexible. Let's see what you got. I would prefer not to liquidate all my brokerage stocks unless we can find a single family home or a condo at 15 to 20% of under market value. Under market value, as I understand, this means finding off market deals using either realtor connections or deal machine. Okay. I get so bummed when I understand that first time buyers go out to find information on actually buying their first home and the only thing they find are these podcasts and other resources out there that are strictly made for people who are looking to invest. You know, they've got bigger pockets. That's why it's called Bigger Pockets. And I get so bummed out they listen to biggerpockets, Deal machine or other real estate podcasts or books. They're all about growing your wealth through real estate. And so a lot of people think, okay, cool, I'm going to get a jump start on this. I'm going to do this at the beginning. I'm going to do this with my very first home. And it's cool because I'm going to use the leverage of the bank. I use that word now, leverage. I understand that. And I'm going to start with a low down payment. It's an easy way to start building wealth through buying my first piece of property, my home. Okay, this is far more complex than it seems. And to do this, you have to have an investor mindset. And that mindset is predicated on not all deals work out for investors. And in this case, your first deal, which you have to be able to walk away from, or even worse, have to be able to get into and then be able to have it go sour. Well, that's gonna suck if that's the place where you live. The minute you tie your personal home into that equation, you stop being an investor because now you're personally involved in it. And that changes everything. Now let's get to some of the factual reasons that this plan is flawed. Even if you don't give a hoot about where you Live. And you're like, I don't care. I'll take any great time for truth bombs to shed some light on this. You know, for that, that person out there who thinks they know what they're doing, you've logged all of 50 hours reading about real estate. Woohoo. Good for you. And you think anyone can use a realtor connection and get an off market home for 15 to 20% off market value? Whoo, man. Can I please have some of that crack that you're smoking? Seriously. In a slow market, the average home sells at about 95 to 97% of the list price. And an average slow market, that's called the list price to sales price ratio. And if you don't know what that is, stop asking me to buy a home for 15 to 20% off market value. So if a home is 3 to 5% off market value in a slow market and not even close to your 15 or 20% that you're looking for, you know, since 2020, actually most homes have been selling above their list price. That's 101, 102, sometimes 110 sales price to list price ratio. So God bless you for, for digging deep and doing your research. And I don't know who's telling you that, but they are so far off of what you can buy a home based on where it is for the market value. It's just straight up bs. Here's how it works. Any home that far off the market. First of all, I never see him, but let's just say some of the day I did. Any home that far off the market value has big problems and you're not going to be able to get a loan to purchase it because banks don't lend on big problem homes. So the reality is the home is going to be purchased cash by a cash investor who really understands the game and they're going to be happy to sell you that home for 5% above market value after they rehab it with the team that they have on retainer to do the work. Cheap for them since they work on volume with multiple different properties. That's the game they're playing. It's not whatever you heard from people who are trying to get you to do their webinar. The cash game is deep pockets. It's experience and understanding how things works and it's buying things multiple different homes and not all of them have to work. It's not just one purchase which what happens when you're buying your primary residence? So I ask you, you ready for that homie those cash peeps can afford to lose money on one home because that's not their only deal. This month they've got at least 8, 10, 12 deals that are going to be in the black, so they can eat a few. But what if that home is your home and because you're just doing one for one, and what are the odds that doing one for one, you're going to end up being better than them? But if you don't want to liquidate your stocks to start and be a cash buyer, then you have to get a loan to buy homes with the rest of us lowly buyers. And they all play by a different set of rules. So then continuing in the email, he says to me, we don't want to string along an agent. You know, with a tough search like this. I understand sometimes it can take months. No property nor the first deal is ever perfect, and you can't wait forever. So, you know, at this point right now, we're just not going to invest to own any property without making sure that it improves our financial situation. Okay, longtime listeners, you might want to plug your ears because this is not the Dave Sedona, you know. Really? Really. Okay, math man, let me ask you a question. Which way the market's been going? And how about interest rates? Can you show me the spreadsheet that shows that waiting four months, even just four months, for a home to try to find one that's even 5% of the market value is cheaper than buying a home at market value four months ago when the rates were lower by half a point and the prices were lower by 5%? Did you understand that? No. Okay, so maybe at this point, you got to trust me a little bit. See, you wouldn't be stringing good agents along because if you brought this formula and this.