Waterfall of House Foreclosures Coming in Fall 2020 (HA 1260)

Steven Butala:
Steve and Jill here.

Jill DeWit:
Howdy.

Steven Butala:
Welcome to the House Academy Show, entertaining real estate investment talk. I’m Steven Jack Butala.

Jill DeWit:
And I’m Jill DeWit, broadcasting from sunny Southern California.

Steven Butala:
Today Jill and I talk about how there’s a waterfall of house foreclosures coming in the fall of 2020.

Jill DeWit:
What’s the significance of waterfall?

Steven Butala:
Just, you know what, somebody wrote something in the media and I just thought it was great.

Jill DeWit:
Okay. I’m like is there-

Steven Butala:
It’s not exact financial term.

Jill DeWit:
That’s what I thought. I thought there was some reason you used that word.

Steven Butala:
I mean in commercial real estate, there’s this concept, it’s not a concept. It’s a distribution schedule called waterfall calculations, wow, people get paid-

Jill DeWit:
[inaudible 00:00:40].

Steven Butala:
Syndication’s use it all the time where somebody goes and raises a bunch of money, buys a commercial real estate. Like let’s say, Class A apartment building and the distributions and not everybody’s an equal partner, there’s other preferred shares and common shares. And it’s called waterfall calculations. That’s not what this is about at all. I could’ve used the word deluge. I could’ve used the word-

Jill DeWit:
I’m so sorry.

Steven Butala:
Title wave, tsunami.

Jill DeWit:
I take personal responsibility for asking that question. I had no idea how painful this would be for myself and for you. I promise. Next time I will gloss right over whatever weird term he uses and try to make it as entertaining as possible. I, sorry.

Steven Butala:
Yeah, what do you thinks going to happen if you ask me questions like that?

Jill DeWit:
What was that? My goodness. You know what I saw happening, you were about to get out a pointer and a whiteboard and I’m like, shucks, I don’t want this.

Steven Butala:
God, remember that? Just chalkboard, sitting in front of a teacher. That was like 180 years old. It’s got a little rubber pointer and a thing of chalk.

Jill DeWit:
Oh.

Steven Butala:
Terrible.

Jill DeWit:
My favorite was when they, remember when they got to the point where they just sit in the front of the room and they had the overhead projector and they could just sit there, drinking coffee, writing away on the overhead projector and not move. At least they were, you know, got up and moving when they had the chalkboard.

Steven Butala:
You know, I think about being a teacher once in a while.

Jill DeWit:
You kind of are.

Steven Butala:
I know.

Jill DeWit:
I’m a little confused.

Steven Butala:
But like in a conventional sense, like waking up this morning and going to teach a class, you got to be on. You know, you kind of have to entertain up there or you’re going to lose everybody. You’re going to lose everybody anyway, especially in high school, but you got to be, it’s a performance.

Jill DeWit:
I can’t even imagine one of my best friends teaches second grade and I’m like, Oh, that’s got to be rough. And she said, right. And she said, now try doing it online.

Steven Butala:
Oh my gosh, second graders?

Jill DeWit:
It’s comical. Yeah. She tells me these stories about all they want to do is talk about the pajamas. I’m still in my pajamas. And they’re waving at everybody. They can’t quite grasp the concept. They just think it’s fun, you know?

Steven Butala:
Uh-huh (affirmative).

Jill DeWit:
Oh, it’s hilarious. So-

Steven Butala:
Poor kids, they don’t know anything different.

Jill DeWit:
Nothings getting done. Yeah, hilarious.

Steven Butala:
That’s not good.

Jill DeWit:
Okay.

Steven Butala:
Before we get into the show, let’s take a question posted by one of our members on the houseacademy.com online community. It’s free.

Jill DeWit:
Natalie wrote Hello, I’m looking to get my first mailer done, but I am confused about how the equity planner spreadsheet, like the bright green yellow County tab is used with realtor.com County data. The column headings are a little bit different when I copy and paste them in. Anyone else had that issue? I think it’s a one word fix.

Steven Butala:
Well, Lori has perfect answer here.

Jill DeWit:
Oh, excuse me. I see someone wrote the answer. You put one in here. Lori wrote Hi, Natalie and welcome. You’ve come to the right place to ask questions. You’re right. The column headings are off as a result of realtor.com doing an update to their data format after Steve created the equity planner, Realtor.com obviously didn’t ask Steve about it first. That’s so good. Oh, that’s so good. Thank you, Lori. You need to look at the headings, to match them up and you can just cut and paste the bulk of the columns.

Steven Butala:
Yeah.

Jill DeWit:
A couple of spaces to the right. Good luck with your mailer Lori. Oh, that’s great.

Steven Butala:
Yeah. So this comes up for our, I’m saying this to ease our customer service burden. This comes up a lot. So, and I probably will at some point go in there and change it.

Jill DeWit:
It’s cute.

Steven Butala:
You just have to apply logic. That’s what Lori is saying. You know, if it’s a month over month or year over year, you need to get really familiar with these terms anyway.

Jill DeWit:
Right.

Steven Butala:
Jill will sit here and shoot me down and tell me not to talk like that.

Jill DeWit:
What? I won’t shoot you down, but I will fall asleep and try to save everybody.

Steven Butala:
Unfortunately.

Jill DeWit:
From the same fate.

Steven Butala:
Unfortunately there is a serious side to real estate investing.

Jill DeWit:
Fortunately.

Steven Butala:
You may not see it on this show, but in talking to Jill, you think it’s just all a lot of fun and we’re going to eat some brownies and make some money.

Jill DeWit:
That’s true. That’s exactly how I roll.

Steven Butala:
But the fact is you got to line these columns up right. And stuff changes all the time. We made a decision a long time ago.

Jill DeWit:
To not get to serious.

Steven Butala:
We can run around with our hands cupped like this, trying to catch everybody who falls just a couple of steps, and update everything constantly and realtor change. And no, I think instead we’ve accumulated some really, really intelligent members who can think for themselves, who take responsibility for their own stuff. And when stuff needs to get updated, apply logic. Well, I made that decision. Jill probably wasn’t involved.

Jill DeWit:
That is correct.

Steven Butala:
And maybe I just made that decision now.

Jill DeWit:
Maybe you did. So that’s why nothing’s changed. He’s like, I purposely did that, wink, wink. A long time ago.

Steven Butala:
Oh, yeah, this is all intention.

Jill DeWit:
Because I know y’all are smarter than this.

Steven Butala:
Yeah. This is all intentional. None of this is by the seat of our pants. We know exactly what we’re doing every step of the way here at Land Academy.

Jill DeWit:
It’s hard to say, so that’s the point too. I think that’s why our group is so good. We do have a smart group, we can figure stuff out, we’re going to take a look back going, Oh, I see the change. Yeah. Because some of the, even our own programs are changing and evolving. We went from ParcelFact, to NeighborScoop, who knows what the next level is going to be and what we’re going to add and change and update it with. I have an idea, but we’re not going to use it now. Anyways, stuff changes.

Steven Butala:
Today’s topic. What’s coming, a waterfall of house foreclosures and it’s coming in the fall of 2020. This is why you’re listening.

Steven Butala:
What the hell is he talking about now?

Jill DeWit:
Exactly.

Steven Butala:
Where there’s foreclosures, and a high number of foreclosures, there’s a high opportunity for you to send out mail and get a good return on your mail yield and a great return on your investment, your ROI. What foreclosure is, especially when they come in just a deluge, which is about to happen here. Well not about to happen, it’s going to happen in the last quarter of 2020, and then bleed all the way through, I think, to 2021. And I’ll tell you why in a minute. When those types of things happen, those zip codes get devalued and devalued and eroded and devalued because you can’t, even there’s houses that when so many properties go to auction, because they have been foreclosed on, REO, foreclosed, real estate owned foreclosed on, there’s a certain percentage of them, actually, it’s not a crazy percentage, that don’t sell.

Steven Butala:
So what do they do then? This is because there’s so many properties. Then they go to real estate agents, local real estate agents who have relationships with the bank and they ask them to list it and they don’t ask them to get the top price. They ask them to get this-

Jill DeWit:
Move them.

Steven Butala:
…piece of real estate out of my life.

Jill DeWit:
Move this inventory kind of thing.

Steven Butala:
To which a real estate agent says, well, if you want to do that, then we could, you know, you think it’s worth 120, or the market says 120, we’ll just list it for 60 and we’ll get it done real quick. When that starts to happen, and this will happen at the end of this year. That is when you strike with the mail, because there’s a certain number of regular people who haven’t been foreclosed on and don’t have any issues with paying their mortgage, their job changes, people pass away. It’s the regular customers that we have in the greatest of time. So it’s not the foreclosure customers that we necessarily care about. The foreclosure scenario in a given zip code. Is it a real good indication to us as investors to send mail there.

Jill DeWit:
It just happens. You know that. If you’re looking on your street and there’s three houses for sale at this price, and they look just as good as yours, you can’t possibly list it for what it was 60 days ago or whatever it was. It’s just a fact.

Steven Butala:
That’s right.

Jill DeWit:
And I feel bad for them, because you know, like, darn I’m not one of those foreclosure guys, but shucks, this is our new price point. I mean, that’s the reality of it. And they still need to sell.

Steven Butala:
That’s right.

Jill DeWit:
And they still need you. And I would also argue that they still are happy and they love us because we come in with cash and we’re easy and fast. You know, we’re not dealing with that mess over there and we’re not dealing with an agent. So you’re not losing that commission piece. We’ll let them do their thing, and we’ll buy this.

Steven Butala:
And then a couple of days from now on Thursday, actually, we’ll talk about exactly where these markets are in a given MSA. So I don’t want to cover that here now, but it’s a very predictable and easy way to look at which zip codes, where this is going to happen and why. So we’ll talk about that on Thursday, what’s important to know is that this is going to happen and then understand this. This issue of forbearance is brand new. It’s never happened in the U.S. market history of the housing market. Forbearance is, Hey, you don’t have to pay right now. We understand your health may be at risk. We understand it’s the government’s way of saying, we’re all in this together. You don’t have to pay right now, take 120 days, get your stuff straight. But the bank is going to tack it on to the end of the loan.

Jill DeWit:
Right.

Steven Butala:
Or the banks going to handle it some other way. You have to pay, just not these next three months.

Jill DeWit:
You don’t get a pass.

Steven Butala:
History shows that not necessarily with mortgage forbearance, but with other things, when you get a break like that, you don’t pick up a substantial percentage of the people just never pay again. They just stop. So from forbearance becomes foreclosure. Forbearance, in most States, it’s very state and local market specific, is 120 days as I understand it. And then it takes about 120 days of not paying after that, where the foreclosure action happens, three months, so it’s six months altogether. Which is the magic of fall of 2020. If this all starts in March and you can see every Thursday, Jill and I have a House Academy webinar where we look at these statistics, we look at how many properties are in forbearance, how many properties are in the country and in local markets and why we believe that market, what’s going to happen when it does happen.

Jill DeWit:
You can see it coming.

Steven Butala:
Yeah, we’re usually pretty correct.

Jill DeWit:
He can see it coming. I don’t see anything coming.

Steven Butala:
You know how there’s the comedy and tragedy mask, you know, that’s Shakespearian thing. I’m the tragedy and Jill’s the comedy.

Jill DeWit:
Yeah, exactly. Everyone.

Steven Butala:
Can you say forbearance more, you know, better.

Jill DeWit:
Give me waterfall again.

Steven Butala:
Say forbearance.

Jill DeWit:
Waterfall, foreclosure, forbearance. What else you got?

Steven Butala:
We put a transcript of all these shows on YouTube and wherever the podcast airs. But forbearance and foreclosure is like 90% of the words.

Jill DeWit:
Oh my gosh, that’s hilarious. Hey, I’m going to, little side note, if you want it, so he just talked about our Thursday afternoon webinars. It’s a zoom call that we do with our House Academy members and if you want to sit in on it, you sure can. Reach out to, we give everybody a one time free invite if you want to just check it out. What’s going on and what we’re talking about. So just send a note to support@houseacademy.com and tell me you heard us on the podcast, Jill opened her mouth and said, Jill said I could, but yeah, just let them know, hey, I want to get on the House Academy call once. Can I get in there? And they’ll get you an invite. Thank you.

Steven Butala:
Happy you could join us today.

Jill DeWit:
Oh, is that it?

Steven Butala:
Yeah. I mean, I could sit and talk about this forever.

Jill DeWit:
Oh, gosh.

Steven Butala:
The fact is-

Jill DeWit:
I’d like that.

Steven Butala:
But the fact is late 2020 and early 2021, probably throughout most of the year of 2021, this COVID thing is going to die down and everybody’s going to have to get back to normal and a substantial number of people, up to 8% of the people who have mortgages are not going to pay. And the people who have properties that are rented out, they stop paying, the renters stop paying. There’s going to be foreclosures there too. So it’s going to drag the prices down and we haven’t seen it yet, but it will dramatically, in certain markets, drag the prices down, which is a huge acquisition opportunity for us.

Jill DeWit:
Exactly.

Jill DeWit:
Happy you could join us today. Every Monday, Wednesday, and Friday, we were over on the Land Academy show. Tuesdays and Thursdays right here on the House Academy show.

Steven Butala:
Tomorrow the episode on the Land Academy show is called, how to save a ton of money running your land business.

Steven Butala:
You are not alone in your real estate ambition.

Jill DeWit:
Look it, I’m looking at that timing.

Steven Butala:
Isn’t that amazing.

Jill DeWit:
That’s perfect. Well, we got one out of, what show are we on? 1260.

Steven Butala:
1300.

Jill DeWit:
Great.

Steven Butala:
We have one show out of 1300 timed correctly.

Jill DeWit:
Maybe we’ll get in the next 2000. Oh boy.

Jill DeWit:
The House Academy show remains commercial free for you, our little listener. So wherever you’re watching, wherever you’re listening, please subscribe and rate us there.

Steven Butala:
We are Steven and Jill.

Steven Butala:
Information.

Jill DeWit:
And inspiration.

Steven Butala:
To buy undervalued property.