This week we welcome long-time real estate investor and hard money lender, Bruce Norris of The Norris Group.Sean asks how Bruce got in the real estate game and how data has driven much of his success, how he evolved to educate real estate investors, and how Bruce went from investor, to California real estate timing expert.Sean and Bruce discuss likely trends in 2020 and 2021, foreclosures, interest rates, and some important things the US might need to consider as technology continues to displace workers.Have questions or feedback? Each show is posted on the Data Driven Real Estate Podcast #3 in our community. Catch pre-show research and continue the dialogue online after the show.Connect, subscribe and like on: YouTube, iTunes, Spotify, Stitcher, TuneIn, Google Podcast
- 01:02 Bruce Norris got started in real estate knocking on doors?
- 01:45 That one time in 1995 where Bruce bought a California house for LESS than a new Honda Civic
- 03:27 Do you need a real estate license to be a real estate investor?
- 06:35 Do you need amazing people skills to be a real estate investor?
- 08:25 The hardest real estate deal Bruce ever closed
- 10:13 When did Bruce make the move to hard money?
- 21:42 Bruce has no formal training in statistics, what was his process?
- 22:43 Why Bruce wrote the California Comeback report
- 25:55 How quickly real estate prices dropped in Stockton during the Great Recession
- 28:06 Should three morons raising their hands to buy a piece of real estate set the value? 28:30 An alternative to the current state of real estate appraisals specific to government-back loans
- 29:08 What did Bruce see that had his predicting the market crash in 2006?
- 31:07 How Bruce finally understood what a collateralized debt obligation was
- 37:51 The year Sean’s real estate partner called him crazy
- 41:28 A major reason there’s more competition at trustee sale (hint: thanks Sean!)
- 44:04 Where are we in the real estate cycle in California and Florida?
- 44:57 Will round two or three of Coronavirus have unemployment at Great Depression levels?
- 45:44 When Bruce and Sean, free pandemic, predicted a 2% interest rate
- 47:18 Who thought that interest rates would start with a 2% sooner
- 47:24 The trouble with independent mortgage banks and interest payments no one is talking about
- 49:43 Could the US interest rates mimic the journey of Japan’s?
- 52:44 The US government printing all this money means inflation! Right?
- 53:42 American needs to find out what to do with society when it doesn’t need 40% of the workforce?
- 56:19 Will corporate debt be a drag on the economy in 2020?
- 56:50 We are not living in a true capitalistic market
Sean O'Toole [00:00:03] Well, hi, everybody, and welcome to the Data Driven Real Estate Podcast: the podcast for real estate professionals dedicated to driving business success using data. I'm Sean O'Toole. And today we have with us, Bruce Norris. Hi, Bruce.
Bruce Norris [00:00:17] Sean, how you doing?
Sean O'Toole [00:00:18] Doing awesome. This is so awesome that the tables are finally turned. You've interviewed me and had me on your panels so many times over the last 10 years. And I've never had the chance to interview you. So, I'm really excited about today.
Bruce Norris [00:00:34] Well, you know, I've had so many individual conversations soon, so I can't wait.
Sean O'Toole [00:00:39] Yeah. Yeah. No, this will be good. I actually wanted to start way back at the beginning. And, you know, how did you get your start? Because you really started off as a real estate investor, right? Today, your hard money lender, you're famous for your data-driven real estate reports, but you really got your start knocking on doors.
Bruce Norris [00:01:04] Yeah, I was just flipping houses, you know, various ways to do that. Started at about nineteen eighty one, worked for a company for three months and then did it on my own ever since. And I probably did it for almost fifteen years and about 10 years into it I just had the feeling that I just knew the business really well and there was no such thing as California real estate going in reverse. So I built seven custom homes in Palm Springs right at the wrong time. It took me about two and a half years of getting that solved. And then Aaron graduated from high school. And I remember buying a Honda Civic, this is where the data started to get into my head. I buy him aHonda Civic for $15.7k and the next day buy a house in Riverside, three-bedroom house for $13.3k.
Sean O'Toole [00:02:02] Wow.
Bruce Norris [00:02:03] Yeah. And it just those numbers happening right next to each other. And I had just emerged, you know, mentally from a market five years before that where real estate could do no wrong. And everybody's house went through the roof. So that was the mindset until about '90 when it reversed. And then in ninety-five, I'm buying a house for $13,000 to make it even more profound. It was a VA home that's on a VA list. And you don't even get to buy the house until it goes through the occupant group. So no one in existence wanted to buy the houses on the list for $15 grand. And then it went to the investors and I was literally the only bidder in the nation. And I got it for the maximum underbid. When you go to escrow and you're the only one in America that wants a house, you think about that.
Sean O'Toole [00:02:58] Yeah. Yeah, no kidding. Now, like, you know, coming back to, like, first getting started. Right. Like, I know we see folks all the time saying, hey, I want to get started. I want to get into real estate investing. And I know this is dialing the clock way back, but I just meant you didn't have. Did you have like a formal education in real estate or anything else? I mean, how did you make that very first step?
Bruce Norris [00:03:27] Someone that I knew said, you know, why you might be good at what I do. So he worked for a company that bought houses and. And I thought, you know what, it was really not even a formal introduction. I actually was told that to even apply for a job, I had to get a license will back then. You could accomplish it very easily. I took a two-day Lumblo class, got my license, and went applied for the job in front of the owner, who is a 28 year old, you know, and that's what I was. And the first question he asked me was, how long have you had your license? I said one day. And he laughed at me. He's the largest home buyer in Orange County. And he laughed at me. So, yeah, there's no place for an inexperienced agent. So that was supposed to be the end of the interview. But I was from sales and I just thought, you know what? I'm not going to accept that in my head. That's not the answer that I want. I said, well, let me ask you a question. I said, Isn't the bottom line around here whether you buy properties for a profit or not? He says, Yeah. I said, you'll know in 30 days and I can do that better than anybody you have. You know, I guess I passed the first test of being a property buyer, didn't take No as a final answer and he says, Okay, pal, you got it. So I didn't know anything. I knew nothing about real estate. I didn't even know. I didn't know what a grant deed was. I had no training. I went into office with five other buyers. He ran a full-page ad in the back of the PennySaver all over Orange County and Riverside and San Bernardino. And when the phone rang the sixth time it was all mine. I still had a job. I was selling electrical stuff for the first four hours a day, came in at noon, and I had 30 days to prove myself. So you know what? I didn't know what a foreclosure was. I didn't even know what escrow was. But what I did know, and I got pretty quickly the concept was that he had cash and you had equity in his stuff's better than yours. And I could sell that proposition. And so in the first month, I literally bought 10 houses and made a year's worth of money in commission. And I did the second and third month as well.
Sean O'Toole [00:05:34] You know, like I had I found my success in trustee sales, which you found success in later with your son, Greg. And I really like trustee sales because it was a very I've always been a data-driven person. Right. And it was very analytical. And, you know, we can argue whether or not I'm a good people person. I would say that I, you know, was not as good at. I don't think I would have had your success back then responding, you know, to answering those calls that came in. And, you know, so strong people skills. Right. Would you say that was kind of the key to understanding that or was there something more?
Bruce Norris [00:06:21] Yeah...
Sean O'Toole [00:06:21] There is other pieces. Is it like understanding, reading the person and understanding their needs? What what what's kind of the key to being successful when you're taking those calls that, you know, when you buy houses, calls?
Bruce Norris [00:06:35] For me, you know, when I went on my own just 90 days after my first phone call to anybody. And I continue to buy houses on my own and I thought the success that I had was because I was honestly listening to the person's situation and bombarding it with solutions. That many times didn't have anything to do with me. So there were times I'd get calls and I go, OK, well, I don't think it's necessary for you sell that house to an investor, who don't you just listed with a Realtor. And you know, what I found out is that the person was going to sell me the house. And this is an actual conversation. There was home in Corona. Guy told me it's worth about $135k, I owe $76k on it. And I just want to I just want to read it to somebody. That was the real conversation. I said, why would you do that? Why aren't you listed as I was that. So want you read or enter more than a payment. And I gave him a few more and he goes, you know, you run an ad that you buy houses. Do you want to buy a house or not? I said, Are you telling me, like, you're going to find somebody to deed the house to today? He said, yes. I said, OK. So I went over to see it. And when I'm talking to him, I said, I'm going to buy your house but I'm Completely confused about, the why. Why is this important to you? Because I could tell when we signed the deal. His shoulders relaxed and the pressure of the world came off of him. I said, I don't understand that. What's the deal? He said, I've never owed money in my entire life. I have income from a New York building. It's $10 grand. I don't need debt. I just don't want it. I said, OK. And I realized, OK, sort of like CarMax, it was run your house by me. Let me give you an all-cash offer. You can say no, but I realized there were times that people wanted to say Yes, if you could give them a pretty good rationale for it. The hardest one I ever bought was a 7,000 square foot house in Orange County. And this guy was a hardcore business owner of like a call center that had 100 or 200 people that cold call. So he was the owner of that business. He can imagine his mentality. So I came in with an offer at 65 cents on the dollar of a home in Orange County. He took it to his accountant, the account came back and said, Yeah. Don't do it. Well, he had explained me a situation. I thought he should do it. So the next day, I came back and I had a nine-page explanation of why you should do it. And when he saw me. So I told you, I don't want to talk to you. I said, yeah, you told me that for all the wrong reasons, sit down with me for five minutes and you'll make a better decision. And he did. Well, you know, when you're buying $700 grand of real estate, getting paid three percent, that's a $20 grand check. And for me, that was a big deal.
Sean O'Toole [00:09:17] Yeah.
Bruce Norris [00:09:18] So, you know, I think, you know, getting back to why it works. I think you have to have a pretty big why. Why do I need to make this happen? And I did that, I was a very motivated person. I saw a chance to get out from under. You know, making and living the normal way and, you know, living $30 grand. You know, I honestly, before I got that job, I thought making a grand per year per year you were old was my goal.
Sean O'Toole [00:09:51] You were making twenty eight thousand dollars per year at twenty eight.
Bruce Norris [00:09:55] I had just passed 30 and I thought, I've reached it then. And then you made $30 grand the first month doing something different. And I just went, holy cow, that is astonishing. And I just got jazzed about the potential.
Sean O'Toole [00:10:10] Yeah.
Bruce Norris [00:10:11] So yeah. I was motivated.Sean O'Toole [00:10:13] Yeah. Yeah. Yeah. For sure. When did you make the transition to hard money. Was it straight from buying houses to hard money or was there something in between?
Bruce Norris [00:10:24] Was quite a long time because of the Norris Group really didn't open for hard money till 1996? !997. Quite a ways, quite a ways after that. And how that occurred is that I was, I was really just working on my own guy in my 30-40 houses a year out of my house office, going to auctions, going to HUD auctions, all that stuff. And there was somebody that wanted to promote my seminars and she wanted to promote a boot camp. She says, you really do something very unusual. I could sell you an audience of 10 or 15 people out every month at three grand apiece. And she went off. She went after me for about a year on that and I finally thought, OK, you actually probably would work. So I decided on Sunday night after speaking in San Diego that I would find a commercial building. This is a true story. I look at Sunday night, I come home, open up the paper. And there's a commercial building that's got like a square box ad, it said, value three-hundred grand for sale for one hundred and twenty. I said, OK, well, that's got my name on it. So I called up and the guy and her partner were splitting up. They owed seventy-two grand on a property and they want to carry the paper at four percent. I said you guys take $10 grand and split it and forget it. They did. So I bought it for $82 grand. And when I, and it was only a five-year old building when I went to the bank. I wanted to purposely assume there long because I wanted a relationship with the bank and get a credit line. And when the guy looked at the purchase prices, he says, is the building still there? I said, well, why do you ask that? He says they paid $90 grand for the building lot. And I thought, oh, that's good news. So I had myself a five-year-old building. But. I was only going to use it three days a month in the education space and then. But I had been borrowing a lot of money from Craig Hill and I was their biggest customer. And, I called them. I said, would you consider coming to work for me instead of where you are? And that's how it started. So for years, I was the biggest customer of the Norris Group had on the lending side.Sean O'Toole [00:12:41] Now. Yeah. Yeah. Fund your own deals.
Bruce Norris [00:12:44] Yeah. That's how it started.Sean O'Toole [00:12:45] Wow. OK, now, so you mentioned there that you were recruited to do seminars. So was that the first time you started teaching and coaching or were you doing that before?
Bruce Norris [00:12:56] You know, I kind did it. I forget what it was. There was a program where you could just go talk at night. And I like to teach. I started speaking at clubs a little bit, so I enjoy it. And there was a there was a lady that was actually pretty good at promoting. And I actually paid to go to her seminar so I could hand her mine. She took it and she called me back. She says, I've never seen anything this good in my life. She says, I can definitely promote you. And so that's how that started. And she promoted the one day or two-day seminar. And then she said I could promote a boot camp for you. And that's that's kind of how it went. So it's in some ways, it was very gradual. I did enjoy teaching and I needed to get better at the speaking part of it. And I never intended to speak, to be honest with you, Sean. That is not it was not in my head to do that. That came about very accidentally, too. I was I did a trade. I couldn't get rid of some duplexes in Palm Springs. I traded for, I don't know, half a dozen mobile home lots in a park where you own the lot. So I had to figure out how to sell the lots by putting a mobile home on it. So there was a club in Orange County. They had a mobile home speaker that night means literally the day I decided I needed to get that, I talked to somebody and said, there's a talk about that in Orange County. So I went to hear it. Jack Fullerton was the club owner. And the first thing he said that night to the audience was anybody who says they can flip houses for immediate profit in California's is lying. I thought, wow, that's what I do. So I thought I was. I thought I was gonna help him by letting him know that it was possible. So, you know, you know, at the end of the meeting that there's one lingering person that's usually gonna be like, no problem. Yeah, well, I was his problem. So I said I said, Jack, I just want you to know that with what you said can't be done. I do all the time. And in the parking lot. And this is kind of funny because I had a brand new nineteen eighty-six gold Mercedes 426 SEL and he had a Ford Pinto and he was worth probably 20 times what I was, but he just looked at that car and wrote me off like there is no way this guy is serious. So it irritated me, so I took one hundred pictures of houses I had flipped with the numbers, put it in a package, and sent it to him really just to say, you know, Kiss my fanny. He calls me back and says, I've never seen anything like this. You can speak to my club like that was auditioning. I said, speak to your club? I don't want to speak to your club. And though he was persistent. So I went to speak to his club. And that was a big deal. It changed who was in the audience. Also was a guy named AD Kessler who own Creative Real Estate Magazine. And he said, you know what you're doing. How about writing for my magazine? So it was crazy that that whirlwind got me into the education side and I enjoyed it. I enjoy teaching. I really did.
Sean O'Toole [00:16:01] This was the late 90s and so it was nineteen ninety-seven, you wrote your first. I think it was your first report, The California Comeback.
Bruce Norris [00:16:09] Yeah, that was January 1997.
Sean O'Toole [00:16:11] And so here you are, a guy flipping houses. You start a hard money business, mostly to help with your own house flipping business. How do you make the jump to writing reports and you know, that report, you know, which really called the fact that the California real estate market was going to come back, followed by your report in two thousand, six, seven, six. And the 2006 right. Where you called the coming crash was that was I mean, those two things really kind of, I think. When I meet a real estate investor in California, right. They've all heard of Bruce Norris and they've all heard it because you made both those calls and you did it in in these big meaty, full-of-data reports. You know, so here's a guy is a people person, closing deals because he's a good listener, and you jump from that to writing these like in-depth industry reports. What prompted you to do that in 1997?
Bruce Norris [00:17:24] Well, when Aaron graduated in June of 1995. And I bought that house for 13 three. I realized, OK, I've been doing real estate flipping for 15 years and I have no idea what moves the market. Nothing. And I thought, well, somebody probably figured this out, so I went to the library and I pulled up every article in every newspaper and magazine for twenty-five years and read it about price movement.
Sean O'Toole [00:17:52] Wow, yeah.
Bruce Norris [00:17:54] It's just like you and I went back to the Library of Congress and spent days looking at interest rates that I was looking at. I figured there's gotta be somebody that predicted this stuff and there wasn't. And I didn't know what I was even after, so when you're when you're starting from scratch, you don't know what chart matters. And so I thought, OK, I'm going to try to figure out what makes prices move up and move and go backwards. And for the next 18 months, that's all I did was collect data. And it wasn't easy like now or you punch in, OK, low interest rate chart for last 50 years pdf. Well, I had to go literally to libraries and with a pad and write down every number when I found the data and then make a chart of it. And then that took 18 months because they didn't know what I was looking for and I didn't want to eliminate something that might have mattered. So consumer confidence, I had those charts and. When I finally went to Maui, I had all the charts. Now, you're coming from a computer background, will laugh. But this is the only way I knew how to do it is I laid them on the floor. All these charts and I had yardsticks and we had boom and bust cycles already. And so I was able to move the pieces on the ground to see if I could see a sequence of events. And then if it replicated in both of the boom cycles and bust cycles, then I, I thought, OK, I've I'm happy. And that's, that's what I look for. So that was the first chart. Now, what's interesting about a report,if it's timely, it's too early. Right.
Sean O'Toole [00:19:33] Right.
Bruce Norris [00:19:34] What good is writing a California crash in 2010? It's a little late. Thanks for the help.
Sean O'Toole [00:19:39] Yeah, right. Right.
Bruce Norris [00:19:40] So the mood of the participant in the audience is usually like the guy's got a hole in his head. Now, sometimes you're happy somebody's saying something positive. Well, when I was walking around in 2006 saying California Crash, that foreclosures are going to go up by thousands of percent, you could get hit by half in price. That was not a popular thing to say. And it was not even believable. So I debated, john Burns had me debate a couple of years back to back. I think it was 05, 06 against Ph.Ds in economics. I've got a high school diploma and some street smarts, and I was standing my ground saying, guys, when I come back here next year, you're not going to be happy. And so when that stuff happened, you know, that was so they weren't in the mood to hear it, which is exactly kind of what you want. You want it to be before the event, but you have to be able to see charts, charts that clearly tell you it's on its way.
Sean O'Toole [00:20:40] So, you know, coming back to the data-driven side, right. High school diploma versus these PhDs. Like, how did you even get to the point, you know, it's charting and statistics, right? There is there's lies, there's damn lies and there's statistics, right. But, you know, having done a lot with statistics and data science myself over the years. Right. It's pretty easy to go wrong. We've got, one of the reasons I started this podcast is because I regularly see some really bad data in the market from big companies, even from folks who have PhDs who are putting up charts and don't really understand what it is that they're putting out there. How did you self educate on that enough to be able to actually put all those charts together? And, you know, I mean, it's one thing just even just to do the charts and then to come to the conclusions is even harder. But like, how did you what was your process there?
Bruce Norris [00:21:43] I think the process, first of all, it had a purity to it. I didn't go into it with a conclusion in mind. That was probably the best favor I did for myself. I wanted to understand how it worked. So that was that. By the way, whenever I do report, it's the same thing. Because you and I have discussed things that you and I disagree with, that you're locked in, you know, and we've been very kind to each other.
Sean O'Toole [00:22:05] I've rarely locked.
Bruce Norris [00:22:08] Yeah, you kind of you can always open to learn, especially if you respect the other person's processes and what you're kind of asking, you know, when you disagree with me, I go, OK, well, you know, Sean's an honorable guy. For him to land on a different square, I'm going to listen. That doesn't mean ultimately I'm going to disagree with my former conclusion, but it's always added another slice to what I consider that's absolutely true. So for this, there was no blueprint. I didn't know what mattered. And so I literally started with those charts on the ground finding the sequence that looked like it made sense. And to be honest with you, why I wrote the report had to do with my son and my dad because I thought California was gonna take a run and my son got married at 18. My oldest son, I thought. And if you own a home now, it's gonna be a big deal because this is gonna crank. And my dad, he hadn't didn't prepare for retirement really well. So if you owned an extra home, he'd make a big difference. That's why I wrote it. And sure enough, you know, there was really Michael Carney was PhD at Cal Poly Pomona and they had the best data going way back maybe 40 years in the construction industry. As a thank you, I send him a copy of my report because I had found a lot of data with his reports and he looked at it. He called me up. He says, you know, I really disagree. I disagree with your conclusions. That cover said California Real Estate