45 Years in Real Estate: My #1 Mistake | Real Estate Notes Show

Hey everybody, we are so excited to have this show coming at you today. If you're newer into real estate or you're just kind of getting started and you're not exactly sure where to go, this is a great episode for you. We've got Jay Heinreks there. Jay has been doing real estate since before Dave and I were even born. So he's got just a ton, a ton of experience in different things. In this one, he's going to talk about how he got started getting his real estate license, started lending out money, started doing different real estate deals into the timber business, back to lending and just all over the place.

So he's going to talk about all these different things that he's done over his life. Maybe that'll give you an idea of what direction you want to go. I highly recommend keep watching, keep looking at this episode. You're going to love it. Welcome back to another Real Estate Notes show. I'm your host Dave Putz alongside me as always, Mr. Nathan Turner. Hey, how are you doing? Good man. Our second show from the New Year's is exciting. Yeah. I hope everyone's New Year's was great. As we said last year's show, we get into some details, but on this show, we wanted to hit this year off with a big bang and bring in some really informational investor who can share a ton of information.

Before we get to our guests, how have you been? How are things going? Anything new in your space right now? I know the Illinois tuition in Cook County is finally resolved and all that good stuff. Yeah. Yeah. Finally, man, that five and a half years, we finally got that taken care of. I got the squatters out, man, that took forever, but you just got to do what you got to do. But anyway, we got it done. Listing for sale. Can't wait to get that off my plate and then just be done with it. Fortunately, the value of the property has gone up over the last five years. So that helps and just recoup it in their cost.

But but overall, you know, it took forever. But sometimes that's how the game goes. And for those who are first time tuning in, we both been the real estate note space since 2010, 2008. I've been real since 2005. We are buyers, creators of real estate notes nationwide. Get around a little bit. We're seeing market changes. We've been through the 10 years of non-performing. We're enjoying the performing, but we're starting to see a little shift. The space is definitely shifting in a weird direction. Twenty five point twenty five was a huge year for our moneylenders. It's also been a really big year to for the seller finance space.

It's growing immensely. But rap notes and things like that, seller finance stuff. But we have a lot of concerns. If you didn't watch our previous episodes, I would definitely look at that. We had the polio up in the year. We had melody right on from housing wire as well. A lot of data that shows the scary stuff. Yeah, just not to say you can't do it, but there's a right way to do it. And I think that that is a missing piece for a lot of people. And if you're doing it correctly and we're going to talk about that a little bit more today. But if you're doing it correctly, it's a fantastic strategy.

We're there as an exit strategy if they want to sell that note. So there's a lot of a lot of potential there, but just make sure you're doing it correctly. Absolutely. I'm going to be having a book coming out real soon. I've been saying it for a while. Try to finalize it in that book will help you go through that process based on my experience and my attorneys and networkers of I've, you know, connect with over the years. Yeah. But one of the big things that we always press upon is your networking. Who you set yourself around. Who are the people you you interact with the most in ensuring that those people will push you to the next level? Yeah, I know that there's a nice big event coming up in a few months.

This is time for a plug for those who are not aware of this. Let's get you all down to national may. Yeah, look for it. Man, we were so excited. We've got a really great, great conference coming up. Just the people are always what it comes down to. And we've got some amazing people that are going to be there. Some great topics, some really good stuff that's really topical and stuff that's going to help take you to the next level wherever that is. And can't wait. It's going to be so exciting and so much fun and can't wait to see everybody there. So make sure you get your tickets. That's live up on the website.

Diversified mortgage Expo dot com. Check it out. Come see us. We're there. We're there. We're happy to chat and hang out with people. So excited to be there. Absolutely. I got to take care of my dog. No problem. So before we get into our guests, which is awesome, daily back in a second, what we want to do for the year for twenty twenty six is really kind of hit home. We're going to we're going to flip back and forth between those who are creating notes, those who are buying notes and going to give you a grasp of it. So without further ado, we're going to introduce our guest here today. He's been on bigger pockets all over the place.

He's also been in the real estate game. I hate the age and probably longer. Nathan, I've been alive, which is amazingly awesome experience. So without further ado, Jay, thank you so much for coming on our show. How are you? Very good. Thank you. Thank you for having me. Before we dive into your vast knowledge for those who have no clue who we are, how did you get into real estate? And what have you done? Well, I got into real estate. My dad was in the real estate business. And, you know, as a typical teenager, you want to do anything but what your parents are doing. But the jobs and and keeping me busy is a big part of the job.

But the jobs and and keep in mind when I went into the workforce, the minimum wage was under two dollars an hour. And if you made ten dollars an hour, you were rich. Yeah. And so my dad was like, you know, the money's in sales. And so I I didn't enjoy college much. After one or two semesters, I came home. My dad like, go get your real estate license if you want to continue to live at home. And I got it. I went to college a year early, came home, got my real estate license shortly after my 18th birthday, went to work. Took me about four or five months to make my first sale. And there was a lot of heartache and tears and getting rejected, you know, as a salesman.

But when I closed my first deal and got that check for nine hundred dollars, that basically took me maybe four hours worth of work compared that to hourly wage, it's like, OK, this is what I'm going to do. So from there, I've I've pretty much done all sorts of different things that keep in mind. This is California. So at 20, I got my broker's license. And once you have a California real estate broker's license, you're also basically a mortgage lender. You can do hard money lending legally. And so I did real estate lending. And then as you grow up in the real estate business and you network, it's one of the neat things of having a real estate license is you meet all sorts of people, especially in the Bay Area.

And you start to look at other opportunities. And that led me into, you know, real estate development and and lending money and all sorts of different things. So and things tend to go in, you know, five to 10 year cycles of what's hot and what's not. So what year is this approximately? That's cool. Nineteen seventy five. I get going from seventy five to seventy nine. And then the Carter years hit. And that's when we created a company called California Wrap. And and we started buying properties on owner contract and then wrapping them for many years, hundreds upon hundreds of those. And then as that cycled out, you know, moved into more traditional hard money lending and all the while I'm selling, I'm selling real estate on the real estate broker.

So I kind of had to do both. Right. Yeah, that's awesome. I mean, it's it's great to hear you took advantage of it. I'm shocked you're doing a wrap notes during the quarter years. The interest rates probably will increase. But you made opportunity. Did your family do wrap notes or how did you learn about wrap? Yeah, my dad and my dad, my dad and my dad's lawyer in Oakland. And, you know, I'm a 17, 18, 19 year old kid and I was at my dad's lawyer's office almost once a week. How do I do this? How do I do that? And he was like, you know, what you need to do is you need to do this. How do I do that? And he was like, you know, what you need to do is learn the courthouse and learn the back end of real estate back end of real estate is learn escrow.

I mean, today's modern real estate agent, depending on where you're at, they have no clue how escrow works. They write a contract, hand it over to a closing company and duck. Right. So I learned, you know, and in those days, the title plants were still written in in the big books. So I would go into the title plant. If I wanted to look at a property, the title officer would open up the big book and we would do a chain of title right through the big book. Wow. Reading books that were done by. So I'm definitely dating myself. Yeah. That's where you learn, you know, you learn the basics of how real estate.

Yeah. And not many people that are on the sales side of their entrepreneurial side know that end of it. Like a title officer would work. Yeah. Interesting. So where'd you move from there? This is early 80s. Where'd you move from there on? Well, towards the later 80s, I worked with a syndication company that hired me as a consultant and I ran their land development division in the Sacramento foothills. Got a couple of really large projects approved because through that whole scenario, I learned about the real estate agent. So I learned about doing bond issues for developments because very in California, you can use public bonds to build infrastructure.

Most states, you can't do that. So there's a whole process to do that. I learned it and I brought in the first bonds for Lake Wildwood in Nevada County. And it was a Mella Rus act, which anybody from California knows what a Mella Rus is. So I did the very first Mella Rus in Nevada County and it was a $10 million offering in 1989. And so what you did is you put the bond issue on the development. And then with the bond issue, it allowed you to go to the bank and get a $10 million construction loan. Build all the infrastructure. Then when all the infrastructure is done and it's handed over to the county as county improvements, the bonds are released and they pay the bank off.

And then the bonds are attached to your tax bill. And that's how that went. But unfortunately, the earthquake and the war, the project stalled big time. And actually the guy was working for lost it. I mean, lost the project. At that point, I had to pivot and found myself kind of out of a job. And I literally I stumbled on to the land and timber business up in Oregon. And so I got with the guy up there, started buying land and timber, you know, because my background in real estate and selling rural real estate. I didn't know anything about timber. I thought they were all pine trees, you know, turns out there's fir trees and cedar trees and all sorts of stuff.

And that worked out really well. I mean, that was a very lucrative run from 91 to about 99 because the Japanese were paying insane amount of money for export quality logs. And the best export quality Douglas fir comes from Oregon and Washington. So we were we were we did quite well with that. And now I know why they have the term timber baron. That's awesome. That's cool. That petered out in the late 90s when the Japanese economy cratered, log prices dropped in half. Harvest cost to harvest kept going up. So your margins got completely squeezed. And at that point, I went I was able to I had gotten with a local community bank, which I am a strong proponent of community banking.

And I started with a young banker. I was young. He was young. He gave me my first lines of credit to buy timber, $100,000 line of credit, which ended up getting up to like two to three million dollars by the end of the 90s. And I was able to talk him into switching that over to buying foreclosures. And so I started buying foreclosures at the courthouse steps, ton of work. And then I went back to him and said, hey, I know about mortgage lending because I've done that all the while in California. I'd like to turn these into guidance lines and go into mortgage lending. So they did that. And he raised that up to 10 million dollars, which was a pretty good sum for mid 90s, you know, small hard money banker.

And I was able to use that and five other banks that I got, you know, like five thousand five million dollar lines from right up until I was getting ready to retire, sell my business to all my employees and what happened in 08. So the sad part of my whole career is between 08 and 2012. I got wiped out. All my banks got all their money. Every one every one of them, some of them had to lower their interest rates, but they got all their principal back. I had to basically I lost all my equity. I lost I lost eight figures and humbled myself. Everything was gone. All the trappings of you've worked for for 40 years.

Airplane, cars, houses, all gone by 2012. And I had to start completely over. Oh, wow. And so I've been but I so I decided to am I this is why I like my community banker. He kept a one one million dollar line of credit for me. Great. And that I was on a 90 day revolver. I had to give him financials 90 days because the feds were trying to call it. And they had foreclosed on a bunch of lots. OK, so I've I had builder contacts. So they were feeding me lots at unbelievable prices, allowing me to use my line of credit to buy the lots from them and then giving me the vertical loans. So I now am a home builder.

Wow. 100% leverage home prices start coming up. So long story short, I've built 500 homes in the last instance since I just finished my my largest project, which was a 75 million dollar project. And at the same time, I'm also I'm still doing private money lending and have been doing that since. And I grew that from nothing up to oh, we might be out at 10, 15 million dollars at any one time. But I do that with myself and two staff members. And that's it. I have no interest to being Lima one or Chiavi or anybody. Yeah, yeah. We it's either our own capital or very close knit group of capital providers.

And what are your current rates right now? What are you charging your money? Well, I'm I have a niche and my rates are going to be higher than anybody else's. But I also do the sub one hundred thousand dollar deals. Yeah. OK. And so I have a very big niche in deals that other and I don't have a lot of money. So I can't I can't you know, 10 million or 15 million as a hard money lender is nothing. And the Bay Area, it's four loans. Right. Yeah. So I can. And even in Portland, where I just moved from, you know, that might be 10 loans at the most. But out in the Midwest, where I have serial flippers that are buying for 50, 70, whatever, I end up doing 100 plus loans a year.

And they are low balance. My fees are, you know, they're quite a bit higher than a normal hard money lender. But they they have such bigger spreads and percentage wise than West Coast flippers. It's like instead of I mean, who's going to do a loan for 50 grand for two points? Yeah. Most of the people we've had on the show who've done it range between like 13 and two. I think one person was 15 and three, which was shocked by. Are you around that same ballpark numbers? I'm higher. OK. Really? Yeah. Awesome. But when the deal works and if the numbers play, then who cares? Right. My people come to me.

That's why I'm a capital partner. Yeah. Yeah. Most of the stuff I do is as JVs. It's not actual true mortgages. Yeah. And and so it's usually works out to a 60 40 70 30 split. Higher side goes to them. And, you know, I run on a cruel because it's just me and one other person. I want to make monthly. I can't track monthly payments. Yeah. A big hard money company doing 40 loans a month. You know, I had to have to full time CPA full time ARAP people. You know, I didn't want it overhead. So I run everything on on accrual, even my fees. So there's no fees up front. So when I get a payoff, that's when I get I get the fees.

My interest and it helps people scale their businesses when they don't. I even pay the insurance. Oh, nice. They pay me back when it closes. So someone can come to me and if if they're good at what they're doing and know what they're doing and want to scale. But but liquidity is an issue and it's definitely an issue for most in the business. I'm able to take them from, you know, I can get them to the next level. So I lose clients because they've they've become successful and they don't need me anymore. Either self-fund or they sure they find somebody that will do it for cheaper or whatever. I'm hearing a question in the back of my head that I feel like guests will be asking.

What are some of the biggest things you've learned over these 45 plus years doing this? That's awesome experience. Right. Goodness. What would you say to someone who either, you know, just getting started or has been doing for five years? What are some experiences you've had where you say, man, don't do this. Definitely do this. Good life tips. Well, we're getting one because I work all over the country. Right. I like I just closed three new builds in North Carolina and building a house in Charleston right now. You know, a million dollars back home. Every market is different. So it's very difficult to just have one generic.

You need to do this. You have to kind of you have to take what your local market is going to give you or the market you choose to live in and and stick to that lane. And it's not one size fits all. Like you mentioned, Chicago. I did a lot of deals in Chicago. I got the values double. But they took years to get out of. I've never, never seen a more dysfunctional city government than the city of Chicago. Absolutely. For the real estate entrepreneur. Yeah. So, you know, pick your market, pick your lane. Nothing stays the same as we've seen with the interest rates up down. I mean, when I started my 90 home project up in Oregon, we were going along and then COVID hit.

And I'm paying $30,000 for a lumber pack. And within 12 months, I'm paying 60 to 80,000 for the same lumber pack. Thank God the houses went up 60 to 80 grand. That's where inflation happened. That was COVID. So what are some things if someone to get out of the house? So what are some things if someone wanted to get started? They would say, you know, you say, know your market. That's a big one, right? For real estate, know your market, know your sink. What was one of the what was your biggest mistake? You mentioned that you lost a lot in our weight, but I don't think it was something you did. If you can go back, how would you protect yourself better? Was it operational? Was it too much leverage? Where do you think you went that you could have came out of a way in a better spot? Well, for sure, if I had no leverage, which today I have no leverage, everything is with cash.

Except for the building, because I don't have that much cash. But for the hard money lending, there is no leverage. So if we do have to ride something through, we're not we're not paying. Oh, I was 100 percent levered. I had lines of credit. I had investors that were the equity. And and then that's why you find a hard money lender that was in business prior to 08. There's not many. Yeah, because they all had to retool. They all went through what I went through, which was your banks calling your lines of credit. There was no liquidity. There was no out. You couldn't sell anything. You could only sell stuff for cash.

I mean, I had homes where I was writing checks 50, 60, 80 grand. Like one hundred and twenty thousand dollar loan. Perfect example of a house that was worth 160 in Atlanta. And the most I could sell it for was 35 grand. Wow. Yeah. I mean, and you do that times 100. And you can see where I got wiped out. And I had no no there was no choice. It was either that or bankruptcy. And I was not going to go bankrupt. I would rather sacrifice my, you know, my equity so that I could live to fight another day with my bank. And that's how I was able to start. What were some of your biggest good? I was just going to say, like, you know, hearing your story and you went from this to this and then that kind of petered out.

And so then you change this and then change directions over here, sometimes by choice and sometimes not necessarily by choice. But but what I'm hearing kind of overall is is, you know, know your market, know what you're doing, keep an eye on it. And when it's time to pivot, pivot. And as real estate investors and professionals, this is what we do is you keep an eye on it. And when it's time to pivot, you can. And so you do and you just change directions and go do something else because there's so many different ways to to do what we do like today's syndicate apartment syndicator. Sure. If they had known what they known five years ago, they would have been pivoting and not taking.

Oh, yeah, that was huge. Yeah. As all these investors get wiped out of their equity. But what were some of the biggest influences? Was it books? Was it a person? What were some of your biggest influences in life? They kind of helped you. I'm not a big I don't read business books, never have. My influences were my dad's real estate attorney. It was a top attorney in the Bay Area. I mean, he ran with the, you know, the guys that own the Raiders and Wayne Valley, who was the biggest developer on the east side of the Bay. And all those contacts that I that I got to network with. I mean, these were, you know, multi multi millionaires, you know, in the 80s.

And and I learned there. So I've me. It's more like, you know, my bankers been a really good influence on me, you know, not letting me get over my ski tips when I wanted to. And, you know, so but I'm not I'm not a big books guy. Do you mention connections and relationships? Yeah, that's awesome. And you're all over bigger pockets. I think you're one of the biggest contributors there that people trust in relying you. What are some of the biggest misnouners or mistakes you're seeing people make that if you can put the big bulletin board out there, what would you tell them? I think the biggest some of the biggest things I see going on, and it's not necessarily for the people trying to do the transactions, but it's this whole sub two thing.

And, you know, Mr. Morby got into it right at the right time when rates skyrocketed and sub two wraps are not, you know, we were doing them in the 70s and 80s. This is not a new concept, but it is for a site like bigger pockets, which is full of newbies and inexperienced investors. And my you know, they're all worried about what's going to happen to them when the real risk is the seller of these properties to somebody who's not really qualified to take on us a subject to. And then the fraud that's you're going to see a ton of fraud because I already lived through it because, you know, they get they get into them subject to they now realize they have no personal liability, you know, on the on the note.

And the next thing you know, they have a bad month. They keep the they keep the ramp, but don't pay the mortgage. Yeah. And this is why the AITD all inclusive trust deed was created in California. It gave the seller of these a vehicle to foreclose out these people. Wow. Really? That's interesting. AIT for AITD foreclosure. Whereas if you're doing a subject to and then just wrapping it with another mortgage, the people that sold the property, they don't have any ability to foreclose these people out. And I don't care what people are talking about on there. Oh, we'll just deed it back to them. And, you know, that that's not that just doesn't work.

You have all sorts of tax implications and whatnot. Yeah. So AITD is to get that document and read it. So AITD is a document that that a seller of a property with the person who's due to sub to portion. That's the kind of deed they would acquire and sign off on to transfer that that that property from the seller to the sub to buyer. OK, so you have a seller. Mr. Seller wants to sell and Mr. Buyer wants to buy sub to the property is sold on a grant deed to the buyer. The seller takes back an AITD mortgage, which right inside the mortgage, it's just get a copy of the mortgage. It's just a brilliant document, lays out the underlying mortgage and also has notice of default provisions in there.

So if there is a notice of default on the first, the person holding the AITD, the second will automatically get notified from the from the county recorder because there's a notice of default in there and they get just like a you know, and then that allows them as the beneficiary of that to create their own foreclosure. That allows them to start paying on the first again and wiping out the person who bought on the who bought on the subject to do they have to evict it if that person be the buyer of that of the seller, then wraps it with a new borrower. Does that original seller have to evict the person who's living in their house? If they don't get paid and they foreclose.

So it's a and it's a mess for you know, especially someone, you know, the you do sub to you wrap it, then you rent it or lease option it. I mean, it creates a you know, the person who sold on sub to will wish they never did it. Let me put it that way. Yeah. Yeah. I think the people that sell on sub to need to be much better educated and most people. It's crazy for them to do that. So let's just leave it out for a second option. The property we've had Jeff Watson on a show and we're trying to press this upon the whole community as a whole. You know, it's easy to say you're going to wish you did it right.

But lies people either new young and when you hear you're going to wish you did right. They're hearing just some bunch of words. What do you mean by you? You're going to wish you did right. What are some of the ramifications of this of what? So a young group of investors, they were in their 20s, the traveling buy on sub to and then lease option to people came through Portland and then make the delta, you know, they did about 35 of them. And the next thing you know, one doesn't pay and the delta on all 35 of those was like two to 300 a month. Right. So they're making five, six grand a month. Well, they get someone who doesn't pay on their lease option or if they sold to somebody and they don't pay now, they don't have the money to pay that on that one.

So it's just like in multifamily, if you get to a certain amount of vacancy factor, you can't debt service. Well, if you're writing a bunch of rap notes and you have a certain amount of those go bad, unless you have wherewithal reserves, which most of these people don't have minimal reserves. And if any, they're they're stuck. They can't make the payment and they have someone living in the house for free. So all of a sudden, the seller is their mortgages and getting paid and then they're getting notification that, you know, they're in default. Now they're pissed. So these people, they get ended up getting turned into the AG.

And I stepped in, I rescued maybe 10 of them or I paid them off that they actually had equity and at least retired those those mortgages for them. And then they ended up coming to work for me doing door knocking. But we had so how on our show a couple of months ago or so, and he was sharing that if the borrower is not properly under wrote written right in, I think if they have up to three years in that board defaults. The rap borrower, they can actually rescind the deal. Right. And the buyer, the person B can literally have to owe them all principal and interest payments back to that new borrower because it didn't underwrite correctly.

And then they would have to evict the people out of the house that they got basically all this money. So right. And in the meantime, they're supposed to pay the first and the poor person who sold it to them, some mom and pop who have no idea what they did. Yep. Yep. End up getting and in a state like Texas that has deficiency judgments on owner occupied. They could end up in a seller. Those could end up in big trouble. I know. Great. These can be done right. These can be done correctly. These can be done properly. We're not saying wraps are totally bad. We're saying that there is a lot of risk and a lot of problems with them.

I have a bottom line to me is you can do a rap. If you're well capitalized like we did hundreds of them. But if we have not a problem with an underlying we just cut a check. Yeah. And most of your investors can't, you know, especially where mortgage, especially if they're taking on high value mortgages, you know, 250, 500, whatever. They can't cut checks for that. They're like, oh, we'll just give it back. We'll do this. Well, by the time you get a notice, your sellers already their credits already trashed because now they have 60 day late, 90 day late. So there's people who want to get into these rap because it's exciting.

Right. You can get the Delta, which for those who don't know what it means, you have a 3% 2% first lien. You charge nine and a half. There's a difference between it. That's your Delta. So your payment is whatever 500 bucks and you're bringing in 900 bucks a month. Sweet. Now you're making $400 a month. So that person is saying this is easy money. And then they hear this conversation. They get scared. What would you recommend them do differently because they have the drive. What would you say? Do this differently to leverage this idea? This interest? Well, it seems like to me, if you had third party servicing, that would help.

Right. And instant notification of a default. When you're talking about the three year rescission, that's on an owner occupied Dodd-Frank. And I think this works best in the investor realm where they're non owner occupied. I sold one house, one of my REOs to an owner occupant. And of course they paid for two years went into bankruptcy. I mean, it's just, I will never do that again. Yeah. You know, there's no way banks are set up to do owner occupied. I don't want anything to do with owner occupied. Right. Because they have so much power over the lender. And, you know, that's why defaulted notes have to be bought at such a big discount.

Because you can get them forever. Right. It costs a lot of money. It can take you five years to get a squatter out of your house in Chicago. We've been, we've done tons of foreclosures and number of foreign space. And for the longest time, that's what we love doing because that's what was the market. And we had a pivot. You've seen the market shift. Right. And we've been waiting for this market to change since COVID. We knew that when COVID hit, it was supposed to shift then it didn't. Where, you know, what do you think is right now holding the market up? Recently, some days of markets definitely increased.

What's been holding the market up for the last five years? We all kind of thought that cycle would have happened. Well, I think, well, one, it's regional. I mean, you're definitely seeing price compression in the markets where there was, you know, FOMO, Texas, Florida, some of those areas. I know up in the Portland market, I sold 81 out of the 90 homes I built. And the last four or five are just, you know, all of them were sold at CFO, right? I couldn't certificate a occupancy. Boom, close. And it's taken me four or five months to sell them. And so added debt services and having to do specials.

And, you know, I'm down to the last, like I said, five. And if I don't make any money, I don't make any money because we killed it on 81. Thank God. If I was going into a new home project right now with the same, well, I wouldn't do it. You know, it's very scary right now. Because the bigger companies, Lennar, Ryan Holmes, DR, all those guys, they have back end financing that and completely different debt structure than us small guys. And they can talk about pivot. They can totally pivot with the market. They can basically own or finance if they want, bundle it all up as a security, get their money, whatever.

So they're still going. I mean, part of my money, capital partner businesses, I provide money to developers for soft cost. And because soft costs can be 500 to a million dollars per project. Four of those going right now, which are all million dollar plus deals. And I was realizing some people may not know. Explain what soft cost is for those who are. They get into contract on a property, but you have to take it all through the entitlement process with the local jurisdiction. So you have to hire the engineers, all the consultants. And believe me, depending on the county, that'll be 10 to 40 different people.

And so the old days of putting a map through in some states, it probably is still the same or in the rural areas and just basically draw on a map and recording it. And now you have a subdivision. I mean, that's over. So we're in like Loudoun County, St. George's or Frederick County in Virginia, highly scrutinized counties. And it takes time and it's average deals, a million dollars to get through. And so that's funding that's joint venture style because there's there's no security other than the purchase contract. And so it's turning out OK. And then the other two I did one is in Oregon. And I got another one in Georgia where Ryan Holmes, same thing.

They have a three million dollar deposit that's been passed through the subdivisions being built. And I just put up, you know, bridge capital for that. We have a lot of young people who are really getting into this space, which is awesome. Right. And I think it has to do with some of the popular people in space making great videos are very attractive. Right. Wrong or different. We really want to help them get to the next level. Where would you say for them to look at? Where would you tell them to expand on? And, you know, I think becoming a wholesaler is great in a door knocker, you know, in a just a don't it's, you know, someone to look out there for properties and kind of get a feel what's good or what's bad.

What would you recommend this eight year old you? How would you get started? Well, in my mind, well, one wholesaling is is is really being regulated in Oregon just passed laws, Iowa. It's illegal. You know, Illinois, you can need a real estate license. So to me, if you're going to get in the business, the transactional side of the business, you need to get a real estate license. I know a lot of people don't want to get one, but you need to get one. And then because you're now going to network with people that are actually doing transactions, wholesalers and I fund a ton of stuff that comes through wholesalers.

But these are guys that are very well put together, very organized, and they have extremely large marketing budgets. By that, I mean, twenty, fifty, hundred thousand dollar a month marketing budgets, and they're just doing transaction, transaction, transaction with if you're just starting out and you have limited capital, the real estate license allows you to make money on transactions. Or if you want to wholesale, you can in areas where you need the license, you know, you're doing it legally. But as much as anything, just the networking with other real estate people that are successful. I mean, that's how I did it.

You know, I don't know why it would be any different today. To me, I can't see a tougher thing to do than to be a private individual to go out there and try to wholesale real estate. You might not. You might blow through your credit card money. Yeah. And then the other thing is, you know, as it relates to the bigger, bigger pox, this is generally in my mind is a rental, you know, everybody's got the idea they're going to buy rental houses and retire. I mean, yeah, you know, I mean, that's just it. I need 10 rental houses and then I don't have to work anymore. Some reason real estate attracts people that hate their jobs.

And and I don't want to work for the man and I don't want to do this and I don't want to do that. They I don't think they realize as someone who has never worked for anybody, even when I was working for the big developer in California, I was an independent contractor in 1099. When you start working for yourself, you now have to pay all your own insurances, all your own stuff. You know, having that job that gives you stability income, you need that to get loans. I mean, I still to this day, it's hard as hell for me to get a mortgage loans. Yeah, one, I have so much going on. My tax returns are five inches tall.

You understand them. Well, what's this? Why are you buying property in South Carolina when you live in Oregon? And this about Mississippi. Yeah, so it can make it more difficult when you're self employed. But the rental game is people want to get into it. There's nothing wrong with buying houses, sitting on them, pick your lane and know that it's a long term thing. Get your properties paid for the best you can. I mean, you have the big arguments on bigger pockets leverage versus cash. At my age, I've been through the leverage game. We have no debt. I want no debt. And I don't care if my returns are not levered up to create these.

Yeah, she returns. I would rather have no debt and just live my life. So in there, done that right. Yeah. So so people starting out, though, leverage is necessary. And, you know, I think in my mind, you know, you pick you pick your lane. And if you want to be a landlord, you know, start, try to choose correctly and just realize that it's a long game and don't get discouraged when you realize having five rentals is not going to get you into retirement. So how easy or hard is it to get your real estate license? Because that was the first piece of advice he gave. So is that something that anybody can do or anybody with a high school education? For sure.

I mean, look at look at all the people that English is a second language have real estate licenses. Sure. And I can tell you they don't do the courses in foreign languages. Right. It's an English. So it's a course and then some money and off you go. Yeah, it's cheap. You can get a real estate license for 500 bucks even today. And where I think some of it and this is why wholesalers and I deal with a lot of them, you do have to go, you know, if you have a bad criminal background, you're going to have to explain it. So that's why in wholesaling, there's no licensing usually required. And who knows what the heck they're doing and what their credit is and everything else.

And then to go into the mortgage lending industry. I mean, that's another great industry. If you can work into it, stay in it 10 years and get up to be a top M.L.O. I mean, they make very good money and they make it on referral basis and they don't have to risk their own capital. They're lending your capital and they can fees. And if you can grow that. But again, you have to and I had a mortgage banker license and I was an MLS license. I've let it go because I'm not going to use it anymore. But you have to go through the full FBI criminal background check there. And so if you're so all your M.L.O.s out there for people out there listening to you, if they have an M.L.O.

and an MLS license, at least, you know, they've gone through criminal background checks. It's good. That's good. That's good. You know, one of the big ones go along with hard money lending last year was fix and flip people, right? People who were new to investing see a house and go, man, I know the house can be fixed up and in and flip and I can make a good amount of money. And a lot of younger people who were, you know, out there being aggressive, which is great. What would you recommend to them who go to you for hard money or go to me and Nathan for hard money loans? And they're about to fix and flip a property.

What are some concerns or encouragements you have for those kind of younger generation? Well, they need to get some cash together. You know, even even in my program, to start with me, you have to have some cash. It really helps to have a background in construction and or in real estate. And it's it's it's a tough thing to do. Now, me personally, I only have maybe 10 clients, but I know them all. I go to their markets. I walk through what they're doing. I mean, it's not unusual for me to fly seventy five thousand miles a year because I'll leave here and I'll go to my market and I'll spend four or five days with my clients going through their houses, trust and verify and try to set up a program for them.

Like, OK, here's how I'm going to take you from A to B to C. And then maybe by the time you get to D, you won't need me anymore. How what what can they do to become successful in a fix and flip if they're doing their first home? What should they do to become more successful so they can be doing twenty or thirty these things? Well, they have to be highly organized. You have to have a funnel to to find and you know, that's one thing about the Midwest. That's why I like the lower value Midwest. There's no shortage of inventory. Same thing when I went in and did, you know, 50 loans in South Side of Chicago.

There's no there was no shortage of inventory there. I mean, I'm looking at these brick duplexes that would cost seven hundred eight hundred thousand dollars. This is twelve years to rebuild and they're picking them up for 30 grand. Yeah. You know what I mean? And so it's like you use use logic. The flip side of a city like Chicago, though, is, you know, how hard it is to do things there. And then you also have you have to be careful in a lot of these markets with crime, crime and people stealing your stuff. So I can tell you how many air conditioner units I've had stolen over the years. HVAC systems and water heaters.

Yeah, it's been the hundreds. Yeah. Yeah. So now, depending on the market we're in and those tend to be the best cash flow markets where investors want to buy rental property. We don't put them in until the tenant is going to move in. So the house is occupied. And then in Chicago, we use the dog system, which you're probably familiar with. Yeah. Yeah, that's what I just put up. And it was funny, actually. So real quick, I posted about this Chicago house after we got it done and told how I put the dogs on there, everything. And somebody wrote in and said, oh, if you know, if it's in a neighborhood where you need those, then maybe that's not the kind of neighborhood you want to be buying.

And I said, oh, no, no, no, it's not the neighborhood. I'm worried about the people breaking back in. They've already done that three times. So this is nothing to do with the neighborhood. This is about these squatters trying to get back in. So a lot of times in the, depending on the neighborhood, the, you know, they're, it'll be their cousin that comes back in. They'll let somebody know, hey, I'm moving out. This house is vacant. Yeah. They may not do it, but their cousin might. Yeah, exactly. Yeah. So it's all to do with that. Not, you know, I'm not worried about the neighborhood. My very first hard money loans were in Detroit.

And the guy there that was doing the rehab and fixes and the marketing company selling them was out of L.A. And I called the radio roundtable and Nick Virtucci, if you ever heard of him. And this guy was genius. I mean, he would go into the houses. If there was copper pipes, he would paint them gray. So when they went in night, it didn't look like it was copper. He figured out that most of the thieving was being done by the con somebody who worked for the contractor coming back after they knew they just put in a new stove. They just come back and feel it. What he did is he got retired Detroit police officers to be on site.

And when a contractor came in, he got pictures of IDs, list of names. And once he did that, his thefts went down like 95 percent. Interesting. So these are just things you have to do working in areas. And most of your investors out there don't live in areas that are like that. No, that's true. So they're unaware. They're never even thinking about that kind of thing. Yeah. Although it's creeping out, I mean, city of Portland, I've people in the nicer million dollar neighborhoods are getting their stuff stolen. Yeah. So, Jay, I mean, this has been fantastic conversation. I've heard about everyone's stories and somebody who's got so much experience.

I love hearing about that. Just there's a there's a different way to do things. So zigzag, whatever you got to do. And there's always a way. They can. And, you know, for your cashed up investors that have cash, a lot of money in IRAs, I'm a total proponent of buying notes. Yeah. Yeah, absolutely. As opposed to using your IRA to, say, buy a rental property. Right. Right. Unless you're in an area, you know, that thing is going to skyrocket. You've you've smoked the deal and it's going to go up a ton. We encourage them to buy partials by a bunch of parcels and being as really better spot where they kind of protected with a partial versus being any, you know, in a note working default.

And then you're getting messy. Yeah, absolutely. Dotes the great spot for that passive investor. Well, in California parcels, we call them fractionalized. I did hundreds of them as a hard money lender there. And you can do up to 10 fractionalized and then after that you have to do some sort of PPM. So, and again, they came out with documents to protect the investors because I did have a loan on a house in San Francisco where I had a fractionalized I like six people in it. And this was the 89 meltdown, 90 meltdown, and two of them wouldn't kick money in. Yeah, it's got lots lost a fork. So partial a little bit different where I would sell Nathan 60 months of payments when they're not really fractionalized.

It were actually displaying the payments where he takes 60 months and he is IRA. It's in the 60 months of payments in fall. And after 60 months, it reverts back to me. Then the actual. What's the security for that? No, he owns a note. Then he owns it. So actually doing a assignment in a assignment in a launch to Nathan. Nathan's IRA gets 60 months of payments and then he owns 100% of it. Yep. I like that. Yeah, that's good. Yep. Yeah. Well, that's been great. With your experience and what you've seen in market cycles and everything else, what are you seeing for like, let's call it the next 24 months, 2026, 2027.

Where do you see the market going? What's the new opportunity? What's what's something people should be looking at? We have our guests come out here. We always want to get that inside knowledge. And we all know it's a crystal ball. What do you know that we don't know? Yeah, a crystal ball. So the question is, well, what do you know about the future of real estate? Yeah, I think for real estate is it's going to be a little bit more expensive. Yeah. I think most of this has to do with sentiment, employment and interest rates. We got totally spoiled with those super low interest rates. So, you know, people are like, well, 6% is too high.

Well, when I was buying real estate, 20 years ago, 6% was a great rate. You know, so. What I don't understand is the government. Oh, we got to make things more affordable. Well, real estate is priced for, you know, willing buyer, willing seller. Right. And it's not you can't artificially lower it unless the government's going to come in and and subsidize it. Right. Yeah. I mean, I don't understand where the politicians are going with. Oh, we got to make housing more affordable. Yeah. The only way you're going to make housing more affordable from my standpoint, and you could, is like even in Oregon, before I even go vertical, it's going to cost me about 50,000 just for permits.

That just the sewer tap, the water tap, all that kind of stuff. So if you can take those away, you could definitely lower the price of the house because I have to borrow that's got to go into my construction loan. So I'm paying interest on it. Right. I don't know. I think. And then a lot of people were thinking 25, the rates were going to come down. I know a lot of syndicators were right. Right. Guys, that didn't happen. And 26 the stuff I've been reading, and I just read the same stuff you guys do Scotsman's Guide and stuff like that. They're not predicting the rates to come down much. So you kind of have to deal with, you know, the, the cards that you're dealt.

Again, for me, why I don't want to just run out and grab a bunch of debt, you know, so do you think value properties will be flat? Do you think they'll decrease 510%? Do you think? What do you think? I think it's totally market dependent, market dependent and job dependent. I've been doing a lot in Northern North Carolina. And, you know, they're building the new Toyota battery factory that's going to employ a lot of people. So there's some good, good values there. And people like North, North Carolina for other reasons, right? Not for other areas. Pardon me. It's not for notes because it's too regulated for notes.

Yeah, not great for notes. But yeah, yeah, I don't know. Bad end of it. Yeah. Chicago, you look at what's happened with the property taxes there that could crush values there. Taxes in my mind, property taxes are super high there. And that's always led to you're only going to have a certain amount of appreciation when your property taxes are skyrocketing like that. And then Florida, you have insurance. So every place has its different ups and downs. I'm here in Las Vegas. Markets, you know, some people say it's no good. Others, it's like we have the highest median going on. You know, it's just really market dependent.

And if hard money loans were 20, 25 biggest market, that's a grow immensely. What's your prediction for 2026? What do you be that would be the field of real estate that will do the best as a guest? Well, in my mind, hard money loans have always been there. I mean, I went to work, you know, when I started in the hard money and also in the late 80s for a man named Jack Langer at Langer Mortgage in Oakland. He had started the business in like 1952. So but a hard money loan in those days was a second because when you went to buy a home, an owner occupied home, the banks would only loan no more than 80 percent.

You know, there was no FHA VA like that 100 percent loan or 95. So you had to have 10 percent down if you wanted to own a home. And then Jack gave you a 10 percent second. Because there was no rules about owner occupied. So he did hundreds, thousands, 10, 20, 30 thousand dollar seconds at five and 15. Do you think you see more defaults coming up in 2026? You know, I don't I don't know if well in the sub to space for sure, there's going to be a bunch there. If there's going to be a concentration, it's going to be in the sub to space. Yeah. Because of undercapitalized people jumping into it and then the people they sell to stop paying.

I mean, I've I had the FBI in my office one day where, you know, this guy had done like 25 of them and never made a payment on the underlying on any of them. I was ripping the rents on everything. So once the criminal element understands, you know, you'll end up with the Somalian effect. You know, once once they understand how they can take advantage, the next thing you know, it's going to be a ton of criminals in their rip and rents. Yeah. Yeah. Yeah. Well, Jay, this is a fascinating hour. Yeah. The journey through your life has probably been amazing. If you haven't wrote a book yet, I think you should.

Wealth of knowledge, wealth of experience. And you've done a lot of different fields, which is tremendous. It has the ability to go from wood to, you know, the number I didn't even know you did timber before to do the rough notes. My absolute favorite occupation was being in the timber business. That's amazing. The shifting of gears and understanding that stuff is really amazing. When you go out there and you're in the woods now, you know, you're environmentalist, but Oregon is a timber place. You replant it. I've replanted millions of trees because we've logged so many acres. But when you could go out in those days and buy a 40 acre tract for 200 grand, log it 60 days later, get 400,000 in cash back and still own land.

That's a good business. Yeah. And I would sell those on terms and then I would hypothecate that note to my bank to pull cash out and go do it again. Nice. So there's all sorts of you got to learn the back end of real estate. There's also finance, you know, like you guys with your parcel really realize how that worked. Yeah. But that's if you're getting into real estate, that's why you need to get into it and learn the back end of it. Not just the marketing stuff you see on YouTube, wholesalers and, you know, right. People putting up checks. Yeah. Yeah. Well, Jay, I we're greatly appreciative you spend the time with us.

It's been a pleasure having you. We're definitely we're recommend everyone is a link below. Please feel free to the former you connect to any link to his website. Jay has a mental mission. Get on bigger pockets and follow him on there, too. He's posted everywhere. I think known a man, his experience, the second none. So I appreciate your time, your energy as well as just your experience. Yeah. Yes. Have a good day. And thank you so much for having me on. And anybody who does make a submission on my website, we answer everybody. That's awesome. Thank you so much. Yeah. Thank you so much. Take care.

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