#145: Short Term and Long Term Impact on Wholesalers

Welcome to The Accelerated Investor Podcast with Josh Cantwell, if you love entrepreneurship and investing in real estate then you are in the right place. Josh is the CEO of Freeland Ventures Real Estate Private Equity and has personally invested in well over 500 properties all across the country. He’s also made hundreds of private lender loans and owns over 1,000 units of apartments. Josh is an expert at raising private money for deals and he prides himself on never having had a boss in his entire adult life. Josh and his team also mentor investors and entrepreneurs from all over the world. He doesn’t dream about doing deals, he actually does them and so do his listeners and students. Now sit back, listen, learn, and accelerate your business, your life, and your investing with The Accelerated Investor Podcast.

Hey, welcome back to Accelerated Investor. Josh Cantwell here. I’m so excited that you’re joining me, whether you’re in the gym. Hopefully you’re back in the gym working out, taking care of yourself. I can’t even tell you how good I feel now that my kids are actually back in school. My kids are going to school and I have time to work out in the mornings. You know, everyone’s going to sleep a little earlier, getting up about five forty-five, six in the morning and getting in the gym. It’s so important to your mental health, my mental health to get into the gym and workout. So if you’re in the gym working out, listening to this, Awesome. 

I’m so excited to share a part of your workout. If you’re on a walk, if you’re hanging out, if you’re maybe working in your office, listening to this in the background. Pay close attention. Today, we’re going to talk about a couple things. One, we’re going to talk about the short-term effect of COVID on Wholesaler’s. I’m going to give you some feedback on actually what happened on some of my deals back in March, April and May of this year. And then I’m going to tell you about little bit more of what the opportunity looks like for investors, for wholesalers and for transaction entrepreneurs. About a year from now, I’m going to share some specific information, some specific statistics from Auction.com about the foreclosure backlog that is being created. 

And finally, I’m going to tell you a story about one of my deals on Woodbridge Avenue that we bought in the middle of COVID and actually why we got the deal, OK, from the wholesaler and some of the challenge at the wholesaler went through because all of their previous buyers backed out. All right. So let’s jump in real quick. Let’s talk real quick about what’s going on right now with foreclosures and what’s the opportunity for foreclosures? Now as you know, there’s been this foreclosure moratorium that happened back in March. They stopped all the foreclosures, did not process any more foreclosures when COVID originally hit in the United States in the middle to the end of March. 

And when that happened, it created a backlog that were literally went from about 2000 to 2500 foreclosure auctions per week. Literally two thousand to three thousand foreclosure auctions a week to literally zero overnight. So right now, if you look at the eight weeks that ended July 4th.  Eight weeks ending July 4th. Foreclosure auctions on Auction.com. The platform Auction.com. 

We’re at five percent of the level they were at in twenty nineteen. At the same time. OK. So the week ending July 4th. 2020 versus 2019, 2020 there’s only five percent of the total foreclosure auctions happening compared to the twenty nineteen levels now in the eight weeks ending August twenty ninth, very recently. The US foreclosure auctions in the week ending, August, August twenty ninth. 

They’re only up to 14 percent, so 14 percent in 2020 compared to 2019. So it’s been a slight uptick in the last between early July and late August. It’s gone from five percent of twenty nineteen to 14 percent of 2013. So that means that there’s a little bit more foreclosure activity and there’s more foreclosures actually happening. Now if you look at the total number of foreclosures that are happening around the country and nationwide, pre pandemic, pre COVID. Nationwide, there’s about 4,200, roughly 4,200 foreclosures per week brought to foreclosure auction, pre-pandemic. 

Remember that number. 4200. Post pandemic for the last roughly five months, there’s only been 345 per week. We went from four thousand two hundred foreclosures per week. Pre pandemic four thousand two hundred. To right now, just three hundred and forty-five, OK? 

There’s been a ninety five percent drop off in the number of foreclosures happening. So what does that mean? What that means is there’s a lot less inventory for buyers. There’s a lot less inventory for investors. If you’re looking for stuff that’s on the market, the stuff that’s on the MLS, on Auction.com, on websites, on home path and home steps and HUD home store, these different foreclosure Web sites for Fannie Mae and Freddie Mac, there’s a lot less inventory. 

But what it’s creating is, one, there’s no inventory on the market. So for wholesalers and transaction entrepreneurs who are successfully able to get deals off market to work with motivated sellers, drive for dollars, direct mail, get deals. And if they’re able to bring them to market right now, guess what’s happening? Bidding war. Bidding war. Because there’s no inventory. There’s no inventory for retail home buyers, mom and pops, husband and wives who are moving in. There’s also less inventory on the market for real estate investors. I was just talking to my sister in law who is a listing agent and a buyer’s agent. She’s like, look, I’m having to bring, she works with investors. I don’t work with my sister in law. But she brings investors, other investors to deals. And they’re like, we’re having to offer 10 and 15 and 20 percent over the asking price. And we have to offer on the day it’s listed in order to get a deal if it’s on the market. 

OK. Meaning again, it’s on the MLS, on LoopNet, on Zillow, on Auction.com. So no inventory.  So what are we learning so far? Ninety five percent of the foreclosure inventory is way, way, way, way down. We also are learning that you’re having to offer over asking price if you’re buying properties that are on the market. You’re having to buy properties the day that they’re brought to market. 

But here’s the opportunity long term. Check this out. Black Knight, which is a data aggregating service. It’s a nationwide one of the leading data providers to the real estate industry is estimating that roughly 45 percent of all these forbearance plans, these foreclosures that, you know, were caused by COVID that are not actually going into foreclosure because they’ve entered some sort of forbearance plan or loan modification plan. 

Black Knight is assuming based on historical data, that. Forty five percent of the people that have entered these forbearance agreements and loan Motts will not be able to cure their house payment. Fifty-five percent will be able to cure. OK. 

Forty five percent will not be able to cure. Which means that there’s roughly two thousand one hundred per week that are becoming this backlog of deals, this backlog of potential foreclosures, people that lost their jobs, people that are going through divorces, people that are going through distress because of covered. There’s this backlog happening. So by the end of the year, let’s assume that the foreclosure moratorium was lifted at the end of the year at the December 31st, 2020. Black Knight is estimating that there’s going to be a total backlog of 88,000 new foreclosures. There’s going to be roughly 42 weeks of foreclosure activity. Forty-two weeks at roughly two thousand one hundred deals per week that are going to enter into foreclosure that will not be cured that will become foreclosures next year. 

OK, so here’s the opportunity of what’s going on right now, guys. Right now, as a real estate investor or as a transaction entrepreneur, getting deals that are off market is hugely important. What we’ve done is we’ve gone the extra step to demonstrate to wholesalers that we’re a cash buyer. 

I’ve got 14 million dollars of equity cash available right now that I’ve raised from mom and pop private investors, both accredited and non-accredited, that we’re buying cash flowing properties, we’re buying apartments, we’re buying multi-family properties, we’re buying large apartment, small apartments, anything we can get our hands on. 

And anything that we have to sell. Okay. Our last sets of rehab flips that we’re doing. We’re getting those on the market as fast as possible right now. Any defaults that we have? You guys know I have a bunch of open private lender loans, about eighty-five open private lender loans. Really pushing those borrowers to get the properties finished rehab and get them on the market as fast as possible, OK? 

Because here’s why: there’s no inventory right now. 

Next year, there’s going to be this new 88000 minimum of new foreclosures that hit the market. And those are gonna be inventory for people to buy. And if that inventory hits the market, there’s going to be more inventory for people to buy. So prices are going to stagnate and not go down. 

Right now, prices keep going up because there’s no inventory. It’s simple supply and demand. It’s simple supply and demand. So we’re anticipating, this foreclosure backlog is this kind of delicate dance of delaying distress. Right. Right now, OK. 

If you look at the total number of deals that are in foreclosure, let’s compare the 90-day delinquency from 2008, 2009, 2010. Compare that 90 days delinquency right now to July, August, September of 2020. OK. Believe it or not, there’s actually more 90-day delinquents today than there were in 2008, ’09, ’10. There’s more 90 days delinquency now, OK? More 90-day delinquents today, than there were in two thousand, eight, nine and 10. OK. Historically, think about this. Historically, the ratio of people who are 90 days delinquent to the people that are turning into foreclosure inventory. So 90 days delinquent compared to foreclosure inventory is historically a two to one ratio. Historically, for every two 90-day delinquents, there is one property that’s in foreclosure inventory. Think about this. 

Historically, it’s two to one. Right now, the ratio is 12 to one. Right now, the number of 90 day delinquents, there’s twelve of them for every one deal that’s currently in foreclosure inventory.  So it’s six times. There’s six times the number of 90-day delinquents than there are in a normal economy. The amount of distress is really starting to grow a lot. 

There is there’s a lot of really, really good information that’s out there right now. A lot of this is provided by my friend Daren Blomquist at Auction.com. Makes you guys check out Auction.com For deal flow. It’s really, really a lot of good stuff.  

So now we know that there’s no inventory today, but there’s going to be inventory 12 months from now because again, roughly half of the people who are going into forbearance and loan modification will not be able to cure their loans. Those will become foreclosures next year. We also know that normally the ratio is two to one. Two 90-day delinquents for every one active foreclosure in the inventory. Right now, it’s twelve to one. The amount of deal flow that’s coming is tremendous. So we know this backlog is happening. We know there’s an even more backlog coming because of all of the foreclosures that are being postponed. So that is the kind of mid-term and long term effects of COVID. 

Now, what happened back in in March and April and May was really interesting. So I got a call from, you know, we do a lot of investing and a lot of lending in northeast Ohio where I live and where I’m from. 

We own apartments in, you know, in Lawton, Oklahoma. Mobile, Alabama. Tifton, Georgia. Warner Robins, Georgia. We own apartments a lot of outside of Atlanta. We own a lot of that stuff. We own apartments in Cleveland. And we also make private lender loans. We’ve made private lender loans in almost 30 different states. 

But I do a lot of stuff locally. And locally, what I mean by that is that work we kind of have our ear to the grind stone and understanding what’s really happening with deal. So back in March, we’ve been doing a lot of lending. We were about to have a record month in March. We were gonna close almost 40 loans. Highly profitable month. You know, loan officers getting bonuses, making loans left and right. All of a sudden, COVID hits and literally lending stops overnight. 

Same thing happened in 2008 and ’09. But it happened over 18 months and this time in 2020, it literally happened in eight hours. Secondary market froze up. Nobody’s buying paper and people stop lending. 

So we kept in touch. You know, real estate is definitely a networking business, guys. You’ve got to stay in touch with wholesalers and realtors and people who are property managers, go to REA clubs, go to meet ups, stay in touch, get in a mastermind group, get in a coaching program, stay involved. So my friend Adam Ziegler from Lokal, who’s been on our podcast, Travis Thomlinson from Lokal, has been on our podcast, they call us up and say, hey, Josh, I’ve got this deal. It’s a great deal, OK? On Woodbridge Avenue in Cleveland, it’s in the Tremont sort of Metro Hospital neighborhood, which is a great opportunity zone. There’s a billion dollars going into Metro Hospital outside of Cleveland. It’s building. It’s booming. There’s a lot going on. There’s a lot of investment. 

It used to be a very low-income area because of the opportunity zone that was pushed by Senator Tim Scott. Created opportunity. So there’s a lot of money going into these inner cities now that used to be very low income. There’s a lot of cash going in, including some of my cash. 

And so Travis and Adam call and say, hey, I’ve got this deal 4012 Woodbridge Avenue. I had it sold to a buyer. Buyer freaked out because of COVID. They’re not buying it. I had it sold to another buyer. That buyer can’t get financing because a lot of people stopped lending, including Freeland lending. A lot of people stopped lending. So he’s not buying it. I’m looking for another buyer. Are you interested? So what’s the deal? I said, well, it’s 50-thousand-dollar purchase price. I’d like to get a five-thousand-dollar transaction fee or a wholesale fee. Doesn’t need a lot of rehab. So we looked at it. We ended up buying it. 

We’ve got a private lender to give us seventy-five thousand dollars. We paid the private lender 10 percent. Simple interest through a note and mortgage bought the property for 50 thousand, paid a five-thousand-dollar wholesale fee to Travis and Adam. Again, if you’re ever in Cleveland, check out Lokal, L-O-K-A-L which is a great real estate investment company. They list a lot of properties, great wholesaling company as well. And then we scheduled about fifteen thousand dollars in rehab improvements. 

So all in forabout 70, we got about 5000 dollars left over of slush money. And when we finalized, we finalized the deal and we bought it. We quickly renovated it. Painted the outside, fixed up the roof, fixed up some of the windows. Fixed up the kitchen, the bathrooms spun off fifteen thousand dollars in rehab renovations. And then we rented it out, rented out both units. And each units rented for about nine hundred dollars a month. So we’re getting eighteen hundred dollars a month in total gross income. 

Right now we’ve got a loan on it for seventy five thousand dollars. But my private lender agreed to defer. Check this out. Defer all of the interest payments until the re-fi. OK, so they defer it all till later. So we got to keep a hundred percent of the income right now. Hundred percent of the eighteen hundred dollars a month. The only thing that we have to pay is the taxes, the insurance, the utilities and some minor maintenance. OK, so we’re paying out about four hundred dollars a month for utilities, insurance, taxes, maintenance, out of the eighteen hundred. 

We get to keep the rest. We get keep fourteen hundred dollars a month, OK? We get to keep almost seventeen thousand dollars a year right now of income. It’s amazing deal. 

Now, when we re-fi, we’re going to refito a long-term loan. Let’s say we refinance into a long-term loan at eighty thousand dollars. We pay off the private lenders 75, plus we pay off the private lender’s interest. We put a new loan on it for 80 thousand dollars. Now we’re gonna have a principal and interest payment of five hundred fifty dollars a month, plus taxes. Seventy-five a month plus insurance. Sixty-three a month plus utilities, water and sewer, 240 a month plus maintenance. One hundred a month. 

Now we’ll have a total payment of about a thousand bucks a month and total income of eighteen hundred a month. We’ll have a loan on it for 80. The property’s going to praise for 150, so we’ll have seventy thousand dollars of total equity and profit. 

And we’ve got a stabilized deal that we don’t have to touch for five to 10 years.And so the reason why we’re able to execute on that deal in the middle of COVID is because we have cash. We have relationships with private lenders. So when COVID started the hit, we didn’t run from talking to our private lenders. We actually ran to our private lenders. We started calling them in advance, telling them what was going on. We started telling them that it was there was going to be deal flow. We started telling them there was gonna be assets that we could buy. We’ve started telling them that there was deals that we could find and there was. 

And they could fund those deals. They wanted to fund those deals for us. Now, the other lesson for all of you is, look, right now you’ve got to take extra steps with your lists. If you’re a wholesaler, you’ve got to take extra steps with your list to get motivated sellers. So here’s what I would do. I would log into our software, log into AI office. 

I would run a lead search for vacant out of town owners with high equity. Run that list, export it out of the software. Run it in maybe five or six, six or seven zip codes, the zip codes that you want to invest in. Then get in your car map out a route and go drive those properties, remember, the properties are vacant, according to the U.S. Postal Service. We know that they have high equity because we know the loan amounts. And we know that the owner lives out of town. And for me, I would go specifically look for multi-family properties, two to four units and up and drive those and see if those properties are vacant. They look distressed. You know, the grass is not cut. If there’s snow, if the snow’s not shoveled, if there’s newspapers piling up, there’s stickers on the front door, there’s eviction notices, there’s utility turnoff notices, drive the properties and then write that down. 

Because you don’t need to go after a thousand properties or two thousand properties or 3000 properties at a time, make a list of 500 properties, go drive all those. Then you may only find 30 to 50 of them that look like they’re distressed. 

And then we’re gonna start getting really aggressive with our marketing, with phone calls, text messages, ringless voicemail, direct to cell phone text messaging, postcards. We’ll save a lot of money by not just sending out a bazillion postcards, but by taking the extra step to actually drive for dollars by taking the extra step to actually drive that list of five hundred houses and keeping a list of maybe five to 10 percent of that, 30 to 50, you’ll be able to dial in your marketing to realize which properties really do have distress, which properties really are distressed. You don’t have to spend the extra money on marketing. Just a little bit of sweat equity is a little bit more time to get in your car and drive. 

But now you’ve got a super targeted list that you can acquire that property and then either wholesale it like Travis and Adam did. Or buy it, rehab it, sell it or buy it and keep it in your rental portfolio. 

Right now is the time to take the extra step because there is no inventory on the market. You’ve got to take these extra steps to go find more inventory. You’ve got to take the extra step to drive four dollars. Look for deals, drive four dollars. Realize you’re not going to blow a lot of money on marketing expenses. That way, you might spend a little bit of money on gas, but you spend a lot less money on direct mail. And now you’ve got a strategy is really going to work in today’s market. So that’s a lesson that you can implement from this podcast. 

Secondly, be aware. Next year, there’s going to be a lot of foreclosure inventory going to be a lot of properties that are hitting the market. We’re delaying right now, the problem that COVID created, it’s not going to be Armageddon like two thousand and eight. But there is going to be a lot more inventory on the market next summer in the summer of 2021. Look out for that. And I think you’ll really love the opportunities that real estate is creating. 

Guys, listen, thanks so much for being on Accelerated Investor today, as always. Like it. Share it. Leave us a five star rating review. We’ll send you a free Accelerated Investor T-shirt. Thanks so much for joining me today. Oh, yeah. By the way, also, we’ll put the link in the show notes to our software to Accelerated Investor Office. Make sure that you click the link. Listen to the little blurb that we’ll put in this podcast somewhere. Go check out the software because you can export leads for free. An unlimited number of leads, get your comps, do your deal analysis all inside the software. You’ll absolutely love it. Thanks for joining me today on Accelerated Investor. We’ll talk to you soon. Take care. 

Hey, Josh here. And do you want to win a free Accelerated Investor T-shirt? All you have to do is give Accelerated Investor our podcasta rating and a review on iTunes. OK. Do that now then send us a screenshot on Facebook, Instagram or Twitter. What we’re going to do then is every week we’re gonna pick our favorite rating in review and we’re going to send that person a free T-shirt and maybe again, some other cool fun stuff as well from Accelerated Investor. So, again, don’t forget to take a screenshot, leave a rating review, take a screenshot, send it to us so we know exactly who you are. And then once a week, every week on the podcast, we will announce a new winner. Don’t forget to take a screenshot and send it to us so we know exactly who you are. We’ll announce a new winner every week.

You’ve been listening to Josh Cantwell and the Accelerated Investor Podcast. Leave a comment on our iTunes channel and let us know what you want to learn next, or who you’d like Josh to interview. While you’re there, give us some five-star rating and make sure to subscribe so you can be the first to hear new episodes. Follow Josh Cantwell and his companies, the Strategic Real Estate Coach and Freeland Ventures on all social media platforms now and stay up to date on new training and investment opportunities to start your journey toward the lifestyle you’ve always dreamed of. Apply for coaching at JoshCantwellCoaching.com.

If you want to navigate the current housing market, you need to be prepared to employ two very different strategies in a short amount of time. Using stats from Auction.com, I’m going to lay out what wholesalers should do right now to position themselves to take advantage of the tsunami of foreclosures that are coming.

Throughout COVID, the housing market has seen a 95% dropoff in foreclosures, and that has tightened up the inventory in an already tight market. If you’re looking to buy right now, finding properties off market is going to be key in beating out other real estate investors, and that means you need to have those relationships in place that make you the go-to person for other wholesalers, investors, or brokers.

The current backlog of foreclosures is a delicate dance of delaying distress. Because of the unprecedented decline in foreclosures when the courts were shut down, and because of the historic data we have over how many homes never get out of forbearance, we have a good idea of how many extra homes will hit the market at the first of the year.

Think of this as our strategy session: Right now is the time to take the extra step to find properties because the inventory is so low. But in six months, you need to prepare to pivot completely when the market is flooded.

If you loved this episode, I would appreciate it if you shared it on any of your social media channels as we get the word out to wholesalers about the shift in the housing market. Give us a review and let us know what you thought of today’s episode.

What’s Inside:

  • Why housing prices continue to rise right now.
  • Solid numbers on what exactly the coming foreclosure crisis will look like.
  • The surprising way the delinquency rates compare to 2008, 2009, and 2010.
  • How driving for dollars will help you dial in your marketing.

Mentioned in this episode​

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