Bruce Norris is joined this week by Jack Shea. Jack moved to Florida in 1978 and began investing in real estate. He is a licensed realtor and mortgage broker. He has done syndications in mobile home park development. He has also bought and sold mortgages on real and personal property. Jack has concentrated on buying options on real estate. He has been an investor on single-family and mobile homes. He operates a 1031 exchange facilitator business in Florida. He has taught classes to investors nationwide on lease-purchase contracts, note-buying, land trust exchanges, and IRA investing.
Episode Highlights
- What was the market like in 1980 that allowed for creativity?
- Who are the kinds of tenants Jack worked with, and how easy was the management?
- What is the market in Florida like, and what years did they first see volatility?
- What is the price point in Florida right now, and what cycles are we seeing?
- What helps Jack to have a more stable tenant?
- What has been his experience with mobile-home parks, and how do they compare to regular housing?
- What about the idea of stick-building a tract of rentals?
Episode Notes
Bruce became involved in the industry in 1980, and in a way the market he was introduced to allowed and almost demanded some creativity due to all the changes happening. Interest rates were very high, but there was a lot of mortgages in place with low interest rates. Bruce asked Jack if this facilitated the idea of creativity in his career. He said there were a lot of things on the market, and it was conducive to all kinds of seller financing and subject to were taken over along with VAs. Jack had grown up in Chicago, and his parents had investment properties in trusts. He had been in the airport for 7 years and corporate aviation world for 10 years and afterwards decided to move to Florida. His parents had lived there and gotten a license to buy real estate there, and this was where he got in touch with a couple investment groups and ran into Jack Miller.
Jack took many of their seminars, and they became mentors to him. Other things such as seller financing were helpful in that market because you could structure different kinds of deals. There were plenty of assumable mortgages available, and they even figured out how to take over non-assumable mortgages. There was plenty of inventory, and he concentrated on Chevrolet and the blue collar policeman/school teacher type of houses. They were pretty solid with 1 million people in Tampa and 1 million people in Clearwater. Because of this there were plenty of opportunities. He started buying, and Jack Miller had some option classes that he took. He studied this and found there was a way to increase his leverage. The requirement is you did not have to have much talent, money, or experience. At the time this was Jack’s bio.
When he started focusing on options, he would pass because there were plenty of opportunities. This is when he found out about the leverage and lack of risk and what really suited him. Bruce went into the business about the same time, and for him it was always about trying to get a discount for cash instead of term. This is why Bruce is fascinated with the world in which Jack is involved. Bruce asked Jack when he sits in front of a seller what percentage of them are open to the concept of an option as opposed to receiving a check at a discount. Jack said there is a whole list of candidates for that, including other investors. After a while he would go to a meeting and either buy or option all their houses. He could have 35 houses from one investor and see it as an income stream.
The basic person at the kitchen table was a person who had owned a rental house that was vacant, came off the listing, or was an out-of-town phone number. The management here was not easy, especially if they were not good at it. Jack would offer a long-term lease, around 3-5 years, and he would take over the maintenance and tenants. He would not argue much about the list price and would instead just say what it was worth. Eventually it was about a 2 or 3% up market, one that was steady but not like what we experienced a few years ago. The people were both owners and out-of-town candidates. Jack was not really bankable since he did not have a job, even though he had cash.
He never had to deal with the bank, and after several years now he is a bank. He is a serious lender who came from the cash flow when there were a lot of houses with mortgages and the seller buying down. With seller financing, he could jump through hoops because he was able to discount 95% of it at some point, whether it was in small pieces at a time or big chunks. There is another payday with seller financing. Bruce has had one seller carryback note in his life out of all the transactions he has done. One thing interesting was Jack had said he had an upside of 3%, and the volatility they experienced between 2006 and 2007 was literally the first time Florida had that type of a market. It was hard to measure since the prices were slow and creeping, so Jack would share with the others with whom he worked.
They were the same until 2007, but for many years it was like a train on a track and constantly steady with working people. Florida is not big on wages, but it has lots of school teachers and working people. Now people are back to almost 1,000 a day moving back to Florida again. You have a lot of migration, and the demographics are favorable because it is a destination for people who retire. Although there are a lot more service jobs and not much tech and manufacturing. It used to be a lot more retired people, but this is not so much the case anymore. St. Petersburg was God’s waiting room, and there were still lots of families and young and middle-aged. It is a good economy, and people like the weather.
Bruce asked Jack about the cycles and if he is concerned about the price point in Florida right now. Jack thinks it is pretty solid and inventory is thin while prices are increasing. However, he does not see a bubble happening like we did prior. 4% interest and less is pretty good, and he is not worried about any crashes on the horizon. One of the things he did learn was that when having an option. People who had options did not get hurt in the crash. When things went in half and a $200,000 house became a $100,000 house in Florida, over 90% of the actioners lowered their price to the market. Because of this, the people with options did not lose any money. The people who had $190,000 financing or an FHA loan lost the house through bankruptcy and foreclosures. They crashed, but option holders did not crash.
When you have an option and you say you are not getting a bargain today, Bruce wondered if you are locking in a known price. Jack said he does and will put in option tenants. Back in the 80s when he had done this the judge said he could not evict him since he had a title right in the property. He and his attorney at the time, Mark Ward, went to the court and the judge said they would have to do a foreclosure. Jack created a contract for option about 25 years ago that solved that problem. This way they do not have an option but an agreement for an option after 36-48 payments.
Bruce asked Jack when he occupies the property if he finds that has resulted in him having a more stable tenant. Jack said yes and that he kept a lot of data on rental properties and option properties. They were better but not perfect. They had 25% less maintenance on a five-year average tenancy versus 4 with rentals. They had less maintenance, but they could not find a tenant who would put a roof on the house, even though the contract said it. They did minor maintenance, and it turned a lot of those people into homeowners, and the single moms after four years or more would come to a closing because they already had about $2,000 into it. However, they would have a deed without coming to the closing with even a dollar. People would receive the loan, Jack would cash them out, and exchange into some of the 50 options he had on the shelf. Jack did not fall in love with any of the houses, they would just sell it to the people at the right price if they wanted it.
They were strong retail, but they were happy people who had been buying into a house. They did not kick holes in the walls of a house they intended to buy, so the houses were in better shape. They could convert 75% to owners by not putting in the house unless they ran the credit report.
Jack deals with a lot of mobile-home parks with 1031 exchanges, and his experiences were not real good. In the county where he lived, there were 60,000 mobile homes, more than anywhere in the country. A lot of the retired rural people live in these, although the crowd Jack had was rougher. Jack acquired the first one by making a loan on the place, and after a few years he had to foreclose to take it back. It had gotten in worse shape. For Jack, things like this are a lot of work and time. With his experience, they were a lower slice of the rental houses he had. People were getting paid by the week and living in this 14 x 60 structure. He did not like it because of the strata he was in with higher rents.
He can see some people transacting now, buying 140-unit parks at a more stable income. These were more jammed together with older homes. If you don’t take care of mobile homes, they will self-destruct. It is just like with deals when the people are delusional and think they can collect payments in 4-5 years but do not do any maintenance. Jack deals with a lot of people who are happy in a niche. Around here you would see $500-$700 a month lot rent, while the people in the niche Jack sees are a higher lot rent niche. This is pricing a lot of the seniors out of that market.
Bruce asked Jack his thoughts on stick-building a tract of rentals. Jack said this would be better since you have a home that is bankable and people who are also bankable. They tend to have jobs that are more stable, and the cost to do it on a program basis is strong in Florida right now. The lending all tends to go off the cliff at the same time as they did before they were all building. They either did not get the news or were just in a rush. Jack said he would do it in steps and keep his eye on the horizon.
Bruce asked if he had a preference, would he rather own a trust deed or a rental? Jack said right now he would take the trust deed. He is buying and creating trust deeds as well as converting several houses to seller financing. This is strong because they do it in the land trust, and he holds the beneficial interest as security for the loan. This way he does not have to foreclose, and Florida is a judicial foreclosure state. It has been almost two years now, and Jack did his one year in court for a foreclosure. He does not do this anymore. He will get some money down, and he will hold the beneficial interest of the trust. He will not just grab it like the car out of the driveway, but rather he will give it 45 days to make the payment.
Bruce asked what part of the home they own if you still have beneficial interest at the end of the transaction. Jack said they are the 100% beneficiary. They get the homestead exemption, the tax benefits, mortgage payments, taxes, and insurance. They have temporarily assigned an assignment of their beneficial interest as collateral for the loan. They are the 100% owner on the tax record, and he is holding their cards on the table. The crash took a lot of the houses back, but most of the people, especially investors, would blame the rules every time a deal was done. It was not their fault when they went off the top, but they crashed and brought him the keys. Sometimes the 65% owners became 100%, sometimes even more. Jack even still employs when of his handymen today who would help him to refurnish his houses back in the day.
Bruce had someone like that where they were spec building houses in California, but unfortunately he owned a lot that the other guy used to own. Any deals with tenants are like mobile home parks since the people would have had no clue who Jack was in the deal. Because of this, they do not really have anyone at whom they can be mad.
For more information, you can visit Jack’s website at www.jackshearealestate.com. Here he has a training schedule, and there will be a two-day training on July 16 and 17 where he covers options using your IRA for investing. Jack has a great reputation and is a great person to work with on things like this. He goes over land trusts, personal property trusts, checkbook IRA trusts, anything helpful for people to step up in their investment career.
