155-TNG Radio – Randy Grigg 1-2-10

Mortgage and Lending with The Norris Group Hard Money Lending 02129911

This week Bruce is joined by Randy Grigg. Randy is the president of Elite Auctions. He spent 30 years as a pest management consultant, and gained a large portfolio of rental properties during that time.

Bruce begins by asking Randy what gave him the idea that real estate was a good investment. Randy read a book by Mark Hearld which persuaded him that he could make big money in real estate. Bruce also owns Mark’s book, and he believes Mark did a good job at marketing it. Randy also received some training from Jack Miller in 1983. He started buying a couple properties in 1976.

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Randy had a very slow method for buying real estate. He had a career when he started, and he continued investing as he continued his education. His beginning goal was simply to break even on his net cash flow. He always used the seller to produce the financing, because he did not want to frequently use the bank. That is very different from how Bruce got financing. Bruce thinks that, in the future, sellers will have to be more willing to carry paper for financing.

When he first started, Randy attracted offers through Realtors. Randy would make approximately 20 offers per week. Doing this, he would get one to three properties every year. Later on, he started using ads as his primary source for getting deals. Eventually, he also used letters to neighborhoods he wanted to buy in.

Bruce also used ads for quite some time, and it gave him a great education in dealing with people. He eventually learned what kinds of people were or were not worth his time. He also learned some patience, as he had to sit through 100 calls before he would get the 1 call he wanted. At one time, Bruce would not make deals unless he could personally meet the seller. He only had so much time for doing this, so he became very efficient.

What is interesting about Randy’s and Bruce’s philosophy is that Randy kept his, and Bruce sold his. Bruce believes that Randy’s philosophy for buying worked better. Bruce sold properties for profit, but Randy kept his properties for income. Randy learned this philosophy because the area he invests in (Bakersfield) does not have much price inflation. Mike Cantu has a similar buying philosophy and he is also happy about his outcome. Bruce has learned from Mike and Randy, and now he also keeps properties as rentals. Bruce feels that having rental properties helps his decision making process. People who have cash flow above their expenses do not have to make risky decisions. If you own 15 rental properties, you will be provided with a nice and steady lifestyle.

Randy and Mike started their auction company 8 years ago. It was easy for Randy to buy homes, but he did not like the unpredictable aspect of selling. Randy attended a public auction in his neighborhood, in which he tried to buy a property, but the people attending out bid him. This taught Randy that auctioning was an effective tool for determining a property’s market value, so he decided to sell his homes in auctions. He had a lot of trouble using auctions when he first started. He sometimes lost 20 percent of his equity on a sold property. He slowly learned how to better set up his auctions, and he discovered new ways to attract the buyers he was looking for. In 2004 to 2006, Randy’s typical seller was someone who wanted to capitalize on the appreciation that occurred during that time.

Bruce feels that most people do not think of auctions as a good way to maximize your selling price, but it is. When you sell homes in an auction, you place all of your potential buyers in direct competition with each other.

In 2004 to 2006, Randy’s typical buyer was either a speculator who thought that prices would increase forever, or an owner occupant. At that time, Bruce noticed that people were desperate to buy property. People were not concerned as much with appraisal values.

In 2009, Randy’s selling clients were people who had a better understanding of the cost of selling. During the downturn, some people felt that if they did not sell their home quickly, then they would lose the opportunity to.

Selling a property is not an easy or guaranteed to happen. Being in escrow does not mean that your sale will surely finish. In 2007 to 2008, if you had a 60 day escrow that didn’t finish, then somebody made you lose 5 percent. In 2009, selling was not as problematic, but it was still difficult for people to qualify for a purchase.

When people put money down in an auction, there is a better chance that the sale will close. If buyers cannot finish a sale, then Randy splits that down payment with his selling client.

In 2009, 25 percent of auction buyers paid with cash, and 75 percent paid with conventional loans with large down payments. Randy only had one FHA buyer in 2009. Sixty percent of his buyers are long term investors, and about forty percent are parents who are buying homes for their children or owner occupants. Bruce thinks that is amazing. Randy’s auctions sell for an average of 107 percent of comp value.

In 2010, conventional loan providers may change their policies to match FHA. Wells Fargo changed their seasoning policies, not long ago.

2009 ended much differently than Bruce envisioned, because many rules changed. The HVCC and the 91 day FHA selling rule made it difficult for Bruce to sell. Because of this, his business shifted from FHA inventory to conventional inventory. At the beginning of the year, Bruce was buying properties for 60 grand in the beginning of the year, but after June, he started buying properties for 250 grand, and selling them for 350 grand. Those more expensive properties were much cleaner properties, and they were easier to sell. This change made Bruce feel like he had died and gone to heaven. This experience has taught Bruce to have flexibility. When rule changes force you to change your business plan, there is always another way to make money.

In 2010, Bruce estimates there will be “big dollar” foreclosures. Randy is beginning to see Bruce’s estimation come to life more and more. For example, in Riverside, an 8,000 sq. ft. home, in a nice area, was being sold with $1.7 million worth of financing. The owner lost this property at a trustee sale. The opening bid at the trustee sale was 608 grand but there were no bidders. This property is now listed for 525 grand. It is $1,100,000 less than any other property on that street, and it is not pending. The problem is that people cannot get financing for these homes. This may be the next market for Randy, and he would be happy to deal with these expensive properties, because he earns a lot more per sale with expensive homes. His income has decreased dramatically because home prices have greatly decreased. Realtors have also experienced a great decrease in their income because of these price decreases.

Randy bought properties in 2009. 85 percent of these homes were bought through other auction companies who do not have selling models which maximize sale prices. The rest of them have been bought from private sellers and banks. These low-price auction companies deal with large sums of properties, so they do not spend as much time properly valuing them. Randy’s company sells fewer properties, so he has more time to properly maximize his sale values.

The number for Elite Auction is 661-325-6500, and their website is www.sellwithauction.com


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Aaron Norris, MBA, APR

Hard money lending and real estate investments.
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