In this roundtable Bill Fairman and Wendy Sweet talk about the current state of the market. They also welcome a guest, Aaron Chapman.
He is an investor in the Phoenix area and is a conventional lender as well. What’s important to know is that he has so much market knowledge and insights.
At the same time, Aaron Chapman is involved in a group who lobbies congress and senate on behalf of private and owner financing industry.
Don’t miss out on his wealth of knowledge in this video.
Listen to our Podcast:
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Bill Fairman (00:02):
Hi everyone, this is Bill Fairman and Wendy Sweet of Carolina Capital Management! I have picked up the energy level from our last show because I was down in the dumps.
Wendy Sweet (00:12):
That was really good! I'm impressed.
Bill Fairman (00:13):
So our website is CarolinaHardMoney.com. If you are a borrower, click on the borrower tab, if you're interested in passive returns, click on the investor tab. Don't forget to like, share and subscribe to our channel, we do take questions and comments as long as the comments are nice.
Wendy Sweet (00:32):
And the questions are worthy!
Bill Fairman (00:32):
So you can type them into the chat, again, I don't know what your platform, how you see them but it could be to the right, could be to the left, could be underneath.
Wendy Sweet (00:41):
Or upside down!
Bill Fairman (00:41):
But there should be a place there for you to do live chat with us. So today's show we're going to do, we're actually going to talk about the current market, we have a great guest coming on later in the show, Aaron Chapman, good friend of ours. He's out in the Phoenix area, he is an investor, retail, okay, single family!
Wendy Sweet (01:07):
He's a conventional lender for investors.
Bill Fairman (01:10):
Single family investor lending but he's so much more, he has so much market knowledge. He actually is involved with a group that lobbies congress and senate on behalf of the private and the owner financing industry.
Wendy Sweet (01:31):
That's right, that's right! He's pretty awesome and he's been on before, we've had him before and we'll have him again. He has a lot of knowledge.
Bill Fairman (01:38):
And he also, he also represents the redneck community .
Wendy Sweet (01:43):
Yeah, in a mighty way! He's awesome, he's done dynasty in a mortgage suit.
Bill Fairman (01:50):
He's great guy, he'll be on later on in the in the show at the bottom of the hour, we'll say.
Wendy Sweet (01:56):
That's right, we'll call him AA-Ron Chapman.
Bill Fairman (02:02):
So we were talking earlier, you were at Tom Olson's good success mastermind last week, you want to go over to that?
Wendy Sweet (02:12):
Yeah, we were talking about, you know, the market and what it's like throughout the country and I have to tell you, I have been walking around this week with kind of a burn in my stomach, just a little bit concerned,
Bill Fairman (02:28):
Can't take Zantac.
Wendy Sweet (02:31):
Zantac, yeah. It's just a little bit nerve wracking when you really don't know what's going on. You know, what we see is happening today, you know, sales are doing well, you know, people are halfway working, we're seeing big changes going on, we just don't know what's going to happen. Interest rates are like under the ground, they're so low, we're just uncertain about what's going to happen and, you know, since, the end of February, we could do a market update every day and it'd be completely different, right? I've had this burning in my stomach because I'm watching unemployment continue to rise. I'm watching,
Bill Fairman (03:25):
Actually it was down today.
Wendy Sweet (03:25):
I'm going there! I'm watching, let's see, the unemployment. I'm watching the value of the dollar drop, I'm watching Corona Virus statistics, which may or may not be true, come back higher and higher and I'm just, was worried about it until I heard the radio today and they talked about how unemployment is lowered now.
Bill Fairman (03:59):
Fewer people applied for,
Wendy Sweet (04:05):
Yeah, unemployment is low. Yeah, that's it, fewer people. So they were expecting it to be like 1.2 million people apply for unemployment and it turned out to be in the lower 900,000. Whew! That's a big difference but it's still a big difference and even in our area, they're saying that the positive tests that were coming back had been averaging a little over 10% as being positive and COVID and now it's in the very low sevens, almost sixes so that's encouraging too. I'm really, really glad to see that but there's so many things that we discussed in this good success mastermind, there was a gentleman there in particular by the name of Eddie Wilson, who is one of the smartest guys I know .We're going to have him on, I think he's going to be on the week of the 24th, he's going to be our guest here, August 24th, I think if that's a Thursday but anyway, after the 24th, I know he'll be speaking so he's going to be talking about this is a guy who's in his forties and this time last year, he owned 83 businesses so he's got a little experience in and buying and selling businesses, he's heavily involved in the real estate industry but he's got a lot of different types of industries. He does some work for the Mike Pence campaign, he's just a guy that's truly in the know. He's full of great information and he gave a presentation that was very very in depth with what's going on and what we can expect and I I'll tell you, I can't get enough of that information from the circles that we travel and David Phelps is another person who has, just been so key and drilling down. What's going on in our market and what we can expect in the future and it's same thing with collective genius, you know, all the people that are in that group with Jason medley and it's just amazing to see what's going on around the country and we get to see that from, you know, front and center. We get to see that with all our friends and, hear what others are doing to protect themselves. So one of the things that we know is that if the employment situation stays in the same range that it is now, because you know, people are still filing for unemployment and you know, the filing might be down but we still had 900,000 people filed for unemployment, there's 900,000 jobs lost and as the government stops printing money, cause it's going to stop, they can't continue to hold up our economy, that's what they're doing. They're lifting it up and keeping it so that we're not Venezuela, you know, out of money, Peru, out of money. That people there that have money, they can't even buy food because there's no food, it's completely messed up their chain of life so in order to keep us from being in that position, they're printing money. They're printing money so that that people can pay their mortgages and pay their rent and buy food in the grocery stores they're lifting up that economy so it's false right now. It's being held up by two legs of a three legged stool and it's about to fall over as soon as they stop cause they're going to have to stop at some point, it's going to have to stop, we're going into a recession. There's no way around it, there's no way around it! The difference between a risk,
Bill Fairman (07:48):
We are in a recession, officially.
Wendy Sweet (07:51):
Well, we're going into a bigger one.
Bill Fairman (07:54):
Okay.
Wendy Sweet (07:54):
It will be officially worse but the difference between what's happening now and what was happening 2007, eight, nine is it's not caused by the housing. We didn't have the the housing market to help us back then in the mid two thousands, we have the housing market to help us now but what part of the housing market will help? We've got that, you know, what sectors do we need to be concerned about? Hospitality, commercial, strip centers,
Bill Fairman (08:30):
I would say retail.
Wendy Sweet (08:30):
Retail commercial, we need to be,
Bill Fairman (08:34):
Office is going to, depending on where it's located.
Wendy Sweet (08:37):
That's right, we've got people in one of our groups that are talking that they're going to start taking these strip centers and turning them into single family housing, I don't know how that's going to work. We're going to a meeting in a month, we'll be at our collective genius meeting and I can't wait to hear and see what people are thinking about doing and what is that going to look like but, you know, we need to understand that that's a market that that's going to hurt and it's going to affect all of us. When, you know, one person hurts it, all of us are gonna feel it so we need to be prepared for it. One of the things that we're talking about too is the value of the dollar is going to drop, there's really no way around that. We've got all this monopoly money out there and it's going to drop so how do you fight inflation? How do you fight a recession when the value of the dollar drops cause hoarding cash isn't going to help all that much because the cash isn't valued at what it was. So, you know, then we started talking about precious metals about buying gold, about buying silver, you know, what the cost is and they were talking about, I thought this was really interesting, They were talking about how silver, you know, gold has always outpaced silver as a precious metal but that the silver is also used as an industrial metal. It's used in computers and so many other things so proportionally, silver should increase in value more proportionally as compared to gold.
Bill Fairman (10:25):
That would happen as the economy comes back.
Wendy Sweet (10:28):
That's right and we're talking about real bullion, not buying it in paper. Buying the real bullion and sitting on it.
Bill Fairman (10:37):
Yeah, why would anybody buy precious metals certificates?
Wendy Sweet (10:40):
Yeah, it doesn't really make,
Bill Fairman (10:40):
It's not worth very much.
Wendy Sweet (10:42):
That's right.
Bill Fairman (10:42):
All right, that's it and Erin will also talk about it but great way to overcome inflation and to actually benefit
Wendy Sweet (10:55):
Is to bury your head in the sand and ignore that it's there.
Bill Fairman (10:58):
Benefit from inflation is that if you buy a rental property, utilizing a very low interest rate mortgage,
Wendy Sweet (11:08):
Which you can get around here.
Bill Fairman (11:09):
And you get a 30 year mortgage and you're paying that mortgage with today's dollars and further into the future, those dollars continue to be worth less but the house continues to go up in value and it's producing you an income. That's the best head because as much as, you know, precious metals can be a hedge, you can't rent your precious metals, you can't get an income from it. The only thing you can do with it is if the economy totally does collapse, you can use it to buy stuff with, you can use it as currency or the only other way you're going to make money with it is by selling it for more than you paid for, that's all you can do with precious metals. I'm not saying it's a bad thing to have but I like the real estate side of it before I like the precious metal side.
Wendy Sweet (12:09):
Well it does have to be either, or, right?
Bill Fairman (12:10):
Because when a house doesn't go up in value, rental property is what I'm talking about, investment real estate. When it doesn't go up in value, it still pays you an income
Wendy Sweet (12:25):
That's right, hopefully.
Bill Fairman (12:27):
It goes up in value, and listen to, and that's not why you buy it. You don't buy it because you want it to go up in value.
Wendy Sweet (12:33):
That's the cherry on top, right.
Bill Fairman (12:33):
You buy it to produce income, cashflow and if it does happen to go up in value, not only do you have a, let's compare it to a growth stock that pays you a dividend. Most stocks that paid dividends are not growth stocks, they're giant blue chip kind of companies and kind of stay steady but they pay you a dividend. They're not expected to grow because they're already behemoths, right? But if they invent something new and all of a sudden they've got a new capital markets to exploit, then it will go up in value so now you've got appreciation and you've got cashflow so those are good things. Here's another thing that's going to ease your mind interest rates will remain low for quite some time and you want to know why?
Wendy Sweet (13:28):
Cause nobody will be able to qualify for them?
Bill Fairman (13:29):
Because all your governments are in debt.
Wendy Sweet (13:32):
That's right.
Bill Fairman (13:33):
And if they can keep the rates low, they can continue to borrow more money and they don't have to pay it back at exorbitant amounts and do you think the governments are pressuring the federal banking system to keep rates low so all this money they're borrowing, they don't have to pay back at exorbitant rates so the rates will stay low for a while cause it's in the government's best interest to keep the rates low. It's not very good for savers, that's why you see the stock market continue to go up because if you put it in money many markets, you're getting squat, you put it in the bond market, you're getting squat. Eventually you're actually going backwards.
Wendy Sweet (14:16):
Yeah, negative and that negative is a reality.
Bill Fairman (14:18):
Again, you go into real estate that provides an income. Now, we all know that you can get an income from active appreciation and then the sale that's what we do in the fix and flip market. That same thing can happen in commercial markets, you just got to get into one where they're redeveloping existing properties cause you're going to be able to get retail, hospitality, those types of properties, a lot cheaper going forward. The problem that I see with mortgages, getting delinquent or getting battered and bruised, you're going to have a lot more companies that are going to sell the notes that are scratching dent so there's opportunity there coming up and then yes, there's going to be foreclosures but I see the prices of single family homes in most markets, most areas and I'm not talking about their very high end properties. I'm talking about the properties that most people can afford, they are going to stay high because let's face it, we're we're still growing as a population and I can just about bet you that we're forming many more new households during the quarantine and there was already a housing shortage to begin with.
Wendy Sweet (15:39):
That's right. One of the things they were discussing too while I was at this meeting is we were in the state of Indiana and I think believe they were saying that they had just been told that there were already 5,000 pre-foreclosures in their system which is, they were at 10% of that previous, before the COVID hit so it's really important to understand we are going to be flooded with some foreclosures, there's going to be cheaper houses out there so what does that mean?
Bill Fairman (16:17):
Short sales.
Wendy Sweet (16:17):
You know, do I, well, yeah, short sales but do I wait to buy property thinking that "Well, if I waited two to three to four months, are value's going to drop?" Because there'll be more opportunity out there, "Do I just throw it down?"
Bill Fairman (16:35):
Excuse me.
Wendy Sweet (16:35):
Sort it down. Do I wait for that? Or, you know, am I safe to be buying property now? "Am I safe to be buying property now?" Well, let's think about that. If you're buying property as rental income, we've already addressed, don't think about the appreciation on it because that's the cherry on top. You don't buy property based on the cherries or the chocolate sauce that you're going to drip on top of it. You need to buy it based on the income that you're earning off of it and that's not likely to change or it's not likely to go down, it's more likely to go up because as the foreclosures hit, now you've got these displaced families that need to find a place to live and they're looking to rent, not buy, right?
Bill Fairman (17:21):
Yeah, and real estate is local. There's going to be markets that are going to go down in value but it's going to be the unaffordable markets that are going to go down in May. Your affordable markets, the ones that have been maintaining affordability are gonna, and I'm not saying that there won't be a hit but I don't think it's going to be a decline value, it's just going to be a slowing of the appreciation because there will be a little bit of a glut, it doesn't mean you're going to get them cheaper and cheaper. You're going to have to get them off market or get them through foreclosure or get them through purchasing the note and then hopefully you can work it out with them and make some money that way but if you have to go through the foreclosure process then, you know, it happens.
Wendy Sweet (18:17):
And it's really important too, I think, to really keep an eye on what's happening in your particular real estate market. You know, when we order an appraisal, we're ordering appraisals based off what has sold in the past six months, that's what they're picking. Well, as they're doing these newer appraisals and using what's happened in the past six months, if the property values are dropping, if you don't really have your thumb on what's going on, those cops that they're using may have a higher value than reality. That's why we lowered our loan to value down to 65% because we weren't sure and still are not sure what's going to happen in that market, right?
Bill Fairman (19:09):
Yep.
Wendy Sweet (19:12):
So even though you've got these great deals going on, be careful about the percentage that you're in on these houses, make sure you're leaving yourself plenty of room.
Bill Fairman (19:24):
Right, and don't over leverage if you're using financing. Me personally, I'm trying to stay at least 75% loan to value or less only because we never had values drop, you know, less than that. By the way, Jonathan is on,
Wendy Sweet (19:43):
No, it's Aaron.
Bill Fairman (19:43):
No, I see Aaron, he's in the hole, he's in the green room right now but Jonathan had made a couple of comments about you know, inflation and right now inflation is running about 2.4% and I'm going to say that Aaron is going to argue with him about that because the actual inflation numbers that they produce pull out stuff that we actually use energy for one of them, the actual inflation numbers are actually higher than what they're saying but he's right and this aspect is that, the average return on these, you know, bonds, money markets, and that kind of thing is like two and a half percent so you're going either backwards or you're barely keeping up with inflation anyway but I know Aaron has got some numbers that are hiding.
Wendy Sweet (20:37):
That's right, so now it'd be great time,
Bill Fairman (20:38):
That they don't tell you about.
Wendy Sweet (20:41):
AA-Ron!
Bill Fairman (20:44):
Aaron was kind enough, he had a call earlier and he was kind enough to join us later in the show. How you been, bud?
Aaron Chapman (20:53):
I'm bad man, how are you guys?
Bill Fairman (20:55):
We are loving life. I just wish I was in an area like yours that didn't have near as much humidity.
Aaron Chapman (21:05):
Yeah, we just know it's hot as hell.
Bill Fairman (21:05):
Yeah, I know.
Aaron Chapman (21:05):
We have some of the best ACS in the world, I think only the Royal family in Dubai have very near that. Arizona knows how to run an AC, I'll give you that.
Wendy Sweet (21:17):
That's awesome, that's awesome!
Bill Fairman (21:19):
That's one of the few places that those little misting things actually work.
Wendy Sweet (21:25):
And they work well!
Bill Fairman (21:25):
You know, in our area of the country, all they do is make us more wet.
Wendy Sweet (21:34):
It's comfy-like.
Aaron Chapman (21:34):
So it feels like double shower in a day, right?
Bill Fairman (21:34):
That's right. So listen, thank you so much. I know conventional mortgage business is just through the roof right now, and I know you're busy as hell, thank you so much for giving us a few minutes of your time.
Aaron Chapman (21:50):
Well, anytime the brother of Wendy's Sweet, which reaches out I do that because he's a friendly guy. If it weren't for Bill Fairman, I didn't know Wendy existed, you may not have seen me today.
Bill Fairman (22:02):
Sorry. When Wendy and I first started working together, we were at some event and by the third day I just changed my name tag. I just turned it over and wrote on the back, Wendy's brother.
Aaron Chapman (22:14):
You've got a lot more more attention that way. Who is this jerk who follow me around and talking?
Wendy Sweet (22:24):
Yeah, who is this jerk? So Aaron, other than it being busy as hell and we touched on this with the real inflation numbers, you want to chime in on that? Cause I know you have a lot to say about the inflation.
Aaron Chapman (22:38):
Oh yeah, I get to spit in the phone about that kind of thing when people comment that, you know, inflation at 2%, when actually the Fed is talking that it's a sub one, which recent stuff because it was now. It's probably come up a little bit more than that, It's over 1% based upon what they're claiming. In fact, yeah, It's just over 1% when you look at what John Williams is producing on shadow stats as what the Fed's claiming so, and I'll ask you a really, really, really heavy question here, Bill, what are the four things that person, the humans need to survive?
Bill Fairman (23:07):
Food, energy,
Wendy Sweet (23:10):
Shelter.
Bill Fairman (23:10):
Yeah, housing. I'm not sure about the last one
Wendy Sweet (23:17):
Clothing?
Aaron Chapman (23:17):
Falls under shelter so it's food, water, shelter, and air.
Wendy Sweet (23:23):
Oh yeah, air.
Aaron Chapman (23:23):
They only figured out how to tax air, right? You pay for the weather in that state. On those two, there's other three things, The Fed is not factoring the food costs, energy costs, which is basically water, right? And then they're definitely not factoring parts of housing. So we start getting into those things, considering the meat index alone is an 18% year over year inflation, we're seeing the next inflate of 18%, you know, and that include the last numbers I've seen, then when you start talking about water, what's water, what's the cost of water during now, especially if you're in California, we just talked about them taxing air, their water costs are going through the roof. Everywhere, resources through the roof. In fact, if you watch the big short, you know, talked about Michael Burry in there who is the one who predicted a stall, this is because of what he saw coming when you read the mortgages that's what produced all those people jumping in on the big short. Well, they said at the end of that movie, he's heavily invested in water because of how much of that resource is going up so when you think about those things and you start looking at John Williams shadow stats, we're right now looking at, we're just between 8 and 10% on the national inflation. Go to chapwoodindex, I'm gonna pull it up. chapwoodindex.com and that will show you the inflation based upon where a person lives so if you look in like Northern California, you were double digits like New York, its five year average is 11.4%, LA 11.7. You get into San Jose, California, highest in the nation at an average of 13% so that willfully that I get into that and really digging deep into understanding inflation because real estate investors who have the capability to work with me on the financing piece, that conventional 30 year fixed, you start realizing that it's no longer spending money and going to debt when you have somebody willing to willing to put up 80% of the capital for your investment but says, 'Hey, you can pay me back over 30 years and then you come to the realization that you're not being beat to death by compound interest over 30 years, what you're getting is you're getting the ability to pay them back with a declining instrument like the dollar, we just proved that of where inflation really is. Let's say it's only 7%, that's where inflation is being is kept out when you average it out because maybe you're not spending money the way most Americans do at 7% inflation if you're borrowed 80,000 and paid state 65,000 in interest at the 145,000 principal and interest over 30 years but paying it back with the declining instrument like the dollar, it's 7% inflation. You're only paying back 61,000, they're about in actual dollar value so why the hell would you not leverage high leverage along and payoffs wealth? That's what you don't pay them off any faster, ride that 30 year out as long as you possibly can. So the website that details inflation, Tim, just put that up there, go to shadowstats.com and then I pay the a hundred bucks a year to have the login. So when you go to shadow stat, you want to go to the top, along the top, you'll see alternate data hover over ultimate adapt and how you see inflation click on inflation. There's another really sexy thing on there below that, the CPI calculator where you can put in, you know, what was a hundred dollars or 30 years ago? So if I put a hundred dollars in, what was the value of a hundred dollars back in 2000, 1980, or excuse me, 1990, holy crap! 30 years ago in 1990?
Bill Fairman (26:51):
Yeah, that sucks.
Wendy Sweet (26:51):
My shoes are older than that.
Aaron Chapman (26:58):
Dude, I know! I've got this cross some clothing, I think I still wear, I don't know. That's the benefit of trucker hats, man, they never go out of date and can be worn out forever. So a hundred dollars today is equal to $8 and 38 cents in 1990.
Wendy Sweet (27:18):
Wow!
Aaron Chapman (27:18):
So flip that around, I was actually talking to an attorney yesterday, said that when he graduated college in 1989, his dad gave him a hundred bucks. He thought he goes, he was walking big with a hundred dollars in his pocket, just like, well, let's go back and look at 1990, that'd be like me giving my son $1,193 today. That's the gap! So when you think about paying this off over 30 years, that very last payment, that $405 a month payment, 30 years from now, it'd be like paying like 38 bucks, that's not going to be the cost of a latte.
Wendy Sweet (27:54):
That's right.
Aaron Chapman (27:57):
Probably a really small latte.
Speaker 1 (28:00):
That's right!
Bill Fairman (28:00):
Is that what it calls now?
Wendy Sweet (28:04):
Yeah, not even a grande!
Aaron Chapman (28:04):
I think you can get two for that. It's amazing what we're willing to spend and sit in line for, for a cup of coffee, get the package and do it at home, guys.
Bill Fairman (28:17):
I was getting ready to make a comment on that but then I have this long diatribe I have to get into and you only have so much time. So how has business, for you, has the,
Wendy Sweet (28:32):
Has the underwriting changed, for one?
Bill Fairman (28:34):
Has it gotten tighter? I know you're really in tune with the secondary market as well, are you seeing any issues there that we might be worried about?
Aaron Chapman (28:45):
New things to talk about there? So the underwriting has changed in the general basis just because a lot of people are still fearful of the real estate investor. Are we going to have another real estate bubble? Is that going to affect the investors? Are people buying too many houses? Well that's because people understand the real estate investor. You know, I I've worked my ass off since 1997 to really understand that the mindset of the real estate investor and we get back, sorry about this, this is Google Meet for my sister. [Inaudible].
Bill Fairman (29:26):
[Inaudible].
Aaron Chapman (29:26):
What happens is you had to create, I had to create an account just to get my license in state in Missouri for the office I built out there, which was my cabin and all that. I won't even go, I'm sorry. When it comes to the real estate investment understanding, that security national, the company I'm with right now, this firm gets it. Now, it's not like they got it overnight. It took them about five, about four years to really start to really understand what I was bringing to the table with the real estate investor and what it took with having a history of understanding both products. So we have an organization that's pretty heavy into the first time home buyer, which in my opinion, has always been the riskiest prospect for a bank.
Wendy Sweet (30:02):
Absolutely.
Aaron Chapman (30:02):
When giving money, not only give them money but you're going to finance the highest percentage possible of their new purchase with product high record of how they pay for that home. On top of that, many times, you're going to give them their down payment and both of it or some sort of some sort of benefit for being a first time home buyer. What happens when things get remotely Rocky for a person who has been used to getting stuff handed to them?
Bill Fairman (30:25):
Oh yeah. Listen, besides that, these are people that have no idea, ongoing maintenance for owning a home, never had the owner lawnmower or any of that kind of stuff.
Aaron Chapman (30:36):
They didn't know the cost if what it is to take care of this, right? So during the first couple of years I was here, we had this big audit habit, they were auditing everything that I was touching nd I'm like, guys, what's going on here? Why are we auditing all this stuff? And they said that you don't help you cause you know, there's some high risk to real estate investors like, well, let me ask you a question, we do a ton of first time home buyer, can you tell me what is the percentage of delinquencies in your portfolio? Because they service a lot of their portfolio on your first time home buyers versus my investors, like while it's a good question. We went back and looked, they were seeing close to double digit percentage of delinquencies, not defaults, delinquencies. People that are making late payments and I ask them, go take a look at my portfolio, you know, there were servicing right now, they're servicing like close to, my memory is telling about the 1800 loans that I've written and not counting the ones that were in forbearance. We're looking at cause there's four barons with people at job losses, I get that and that was literally like 30 or 38 people but outside the forbearance, it's only one person with a late payment.
Wendy Sweet (31:37):
Wow.
Bill Fairman (31:39):
Wow.
Aaron Chapman (31:39):
So it gets to, it goes to show you, it's like, wait a minute. It's not this big risk that we're talking about with real estate investors so that, they've embraced a lot better. So because of that, now we are really, really slammed with people buying real estate investments and I've been blessed to build a business that has me all over the country. I mean, hell, I'm talking to you guys over there in the Carolinas right now and I'm out in Arizona, I've got 25 staff members and I have everybody from the initial phone call, employed on my staff all the way to the funding so underwriting, processing, funding, they're all on my staff. You'll see Scotty back here behind me, he's helping me on the phone call side deal with all the conversations that I have to have that I'm missing all the time because I don't have the time and I can only talk to one person at a time and sound coherent. So, and it's really the same conversation, I should be able to just put everybody and say 'everybody I'm going to be on zoom for an hour today, just jump on, we'll all talk together cause it's gonna be the same end result but people want that personal discussion, I get that and as far as the guidelines themselves, we're not seeing a lot difference for us. There's some little nuances but it doesn't affect my investors much. But a lot of the nuances with conventional guidelines out there for conventional as a whole, the biggest thing that we've seen in the secondary market today is, well, one, secondary the market has been blessed with a massive flow of cash from the Fed. The Fed is dumping $40 billion a month into the mortgage backed securities pool.
Wendy Sweet (33:04):
Wow.
Aaron Chapman (33:04):
It's absolutely insane, if you go all the way back to 2008, when we had the crash and you get to January 1, 2009 when the Fed started quantitative easing dumping money into the market, they're doing 80 plus billion dollars a month to the tune of about $1.25 trillion between January 1 of 2009 to the end of March, 2010 so that to us was just massive numbers. Well, they did that between March 20th and March 30th, they did nearly that same amount of money and dump that much into the mortgage back securities to get interest rates back on track when the mortgage backed securities pools dumped. And the only reason they really dumped that we could tell was when the, when the stock market crashed, all the banks that were holding people's capital, they had it on deploy, right? Banks don't just take your money and stick it in a vault.
Bill Fairman (33:51):
Right.
Aaron Chapman (33:51):
We've got to somehow, well, there was enough money out there in the market on margin that when those margin calls came in with that crash in March, they had to meet those calls so when they moved those calls, they had to sell assets. What assets did they sell? A lot of bonds, treasury, corporate bonds and mortgage backed securities so that killed the interest rates overnight. And so that month of March was just tough until the Fed jumped in and dumped in that money but they've continued to put it in there currently at about $4 billion a day.
Wendy Sweet (34:20):
Wow.
Aaron Chapman (34:21):
$4 billion a day! I mean, you could try to wrap your head around it so we've had trillions of dollars being dumped into the mortgage backed securities pools so in reality, the federal reserve is funding oranges right now, that's what's happening. I don't know if that's a good thing or a bad thing, It kind of scares the shit out of me if I want to be just blunt that the federal reserve is the one who pretty much owns, has been owning the mortgages for the last few months and the amount of demand on the re fire people are refinancing like crazy. You know, the industry as a whole can probably push about $2 trillion worth of loans per year through we're getting that kind of demanding in a two month window.
Bill Fairman (34:58):
I think that's just perpetuating the problem because you know, in the secondary market, you know, they're, they're paying above par for alone and for our audience, you don't buy alone for what it's worth you buy it and the person that sells it to you has to make a little bit of a profit and how do you make that profit back? When you get that over the next four to five years in payments, that's how you get that money back on that but if everybody refinances every year,
Wendy Sweet (35:30):
They're not making it, yeah.
Bill Fairman (35:30):
They're not making it so they're not buying those things at par or even above par, they're buying them at less than par so now you're having the sell and a discount. So I think as long as these rates keep continuing to go down, you're going to have to have the fed going in there and buying them because they're the only ones that are going to buy them at par.
Aaron Chapman (35:48):
What you're talking about the servicing side of the industry is what you provide is the mortgage back security itself that had up until this point, mostly it was like pension funds and people's foreign K's and IRA's and mutual funds and all these things putting their money in there and they were getting the note rate. So let's say the note rate today would be 2% for an owner occupied, they're gonna need to return on their investment. Well, then they're going to offer you a stay at 2.75% rate because like you said, those people in the middle got to make their money. The guys on wall street, the people writing the loan, all that hurled up there, there's a margin in there. Well then the service needs by the industry, once the loan is written and done and packaged and wall street's taken it, somebody's got to collect the payments.
Aaron Chapman (36:28):
So in traditionally those would buy it by $10 billion blocks and pay 1%, right? That 1% is, let's say it's a hundred thousand or a loan, they're playing a grand to get the right service back. Now, what do they get out of that? They get to keep maybe $300 a year of what they collect, not very much. They may be collecting a thousand dollars a month on that or not even a thousand dollars a month, they're going to collect probably 400 and say $400 a month, they get to keep 300 a year. What they collect, like you said, it takes them about four years to break even when you consider overhead plus the initial expense. Well, that side of the industry came out in March and say, guys, we're no longer buying it. In fact, we know you wall street, guys can't service it, we're the ones built for that so you're not only going to give us the loan, you're going to pay us to take it and not we're putting 1% on that to take it so we're getting paid to take the servicing. So now, you know, they've worked it into the system worth working, now I'm starting to see a little bit more buying going on out there in the secondary market for servicing, not as much still, there's a little bit of a dynamic there as far as an additional margin in there to pay those guys to take the loan. So understand those who are getting loans, even though it's, if you understood MBS and you're like, why is my rate of lot, not lower? Well, we've got to pay people to service you, you know, that didn't sound right.
Wendy Sweet (37:48):
They should be so lucky.
Aaron Chapman (37:49):
Yeah, we're not doing that kind of service.
Aaron Chapman (37:52):
So when [Inaudible] and accepts your payments and manage your account for you. Now, another interesting thing that's happened in the secondary market today is spending May came out last night. The FHFA, the Head Federal Housing Finance Administration came out with, I think that's what it is.. Too many damn letters in this business! We came out like last night, it was after hours and they tapped a half a percent onto everything.
Wendy Sweet (38:16):
Wow.
Bill Fairman (38:16):
Wow.
Aaron Chapman (38:17):
And they're attacking on to enter the refi world. And as I, here's what I'm thinking, it's one of two things either to slow it down cause we're just getting inundated with refi request. When you start thinking about the cost to produce these transactions and wire that money out and do all the auditing in the background there, they've got to either kind of try and slow it down a little bit, I don't think a half a percent on the price is going to do anything in reality but then also have to consider they're paying people to do the servicing and if what's happening is people are refinancing costs, I got people to call me up the refinancing literally six months ago, say, "Hey, the rates went down a little more, can I refi again?" I'm like, "You've paid five grand for that, why do you want to do that again?" But they do! Because we have been trained, we were a bunch of monkeys that are, when we hear the song, we start dancing and it's the banking industry that's trained them and the reason why they've been trained to do that is what is the first five years of your amortization table look like?
Bill Fairman (39:12):
It's all interest.
Aaron Chapman (39:12):
All interests and if you can convince people to refinance every four years, what do you get?
Wendy Sweet (39:18):
Interest.
Aaron Chapman (39:19):
All interest and they never knocked down the principal so you're literally getting, you at Carolina Capital would love it if you could hand somebody alone and say, guess what, here you go and they just pay you interest and they pay you back your principal. After a period of time, make 12% interest on an annual basis plus you're always just getting your principal backing, you've never seen people knocking it down and dragging that principal payment out over 30 years when you're getting with the declining instrument, like the dollar. Of course, they want them to pay it back and refi every few years, right?
Bill Fairman (39:45):
Yup.
Aaron Chapman (39:45):
But what it was is now, this is their Chapman's belief. You know, I could be completely wrong here but now it's coming back to bite him in the ass because now people are refinancing every six months. That doesn't play into the end of the equation at all but who would benefit in my opinion, is the people over on wall street who are doing these trades. It's a trade, it's no different than your stockbroker going out there and trading for you constantly or you're making no money on your stock but he's getting the fees every time he sells them home, right? The same thing. Wall street is able to make that trade and make money somewhere, there's money being made somewhere and I really don't believe it's the person refinancing every six months. You know, they're paying cost to do that. Somebody is making it but it's also becoming back to bite people in the ass and that's why I recommend up these margins.
Bill Fairman (40:30):
Yeah, I just hope that your loan officers out there and nationally make sure that they stay in touch with their, I know the refinance business is big right now but make sure you stay in touch with your realtors because eventually,
Wendy Sweet (40:45):
Refi's will drop.
Bill Fairman (40:45):
You're going to have to rely on purchase moneys,
Aaron Chapman (40:53):
Maybe we're living off of refi all along there. They're never going to be purchased guys, I get it. They had to put a shop all along ever since, was it 2000? No, 1999 so I really decided that I'm the purchase guy and start shaking my ass out there like I'm late on rent to get those deals. It works on deals all the time, let me just tell you. It's constantly illumined overhead but you're right, they need to get out there and do that or decide if you're a refi guide, then there's going to be a common time soon, you have to get out and find some other career because the refinance are going to drop and not only the refi's are going to dry up, when the market catches up with where it should be, now they're going to refi's, you're going to dry up because people have already refied, right? Those are going to dry up because why would I buy a new house when I've got a $600,000 home now, right? At two and a half percent, why would I go buy something else? When my interest rates can be four or five or six unknown occupied?
Wendy Sweet (41:45):
Right.
Aaron Chapman (41:45):
That's why I've targeted the real estate investor as where I focus my energy and my education understanding and helping them be successful in their business because no matter what the market does, rents keep going up. Inflation prints up no matter what the rates are doing, rents are still going up. You can still capitalize, there's still deals out there.
Bill Fairman (42:07):
Yeah, before you came on, Wendy and I were talking about precious metals versus income producing real estate or cashflow in real estate and which one was the best hedge and, you know, we both for the most part stick with real estate, of course, you know, we're biased.
Wendy Sweet (42:26):
Yeah. I like real estate but I don't think it's an either or. I think you need to dabble in both.
Wendy Sweet (42:32):
Well, I do heavily dabble in one, which is one precious metal, I think is probably the trump over everything out there, investment that's copper jacketed lead. [Inaudible].
Wendy Sweet (42:46):
I get that.
Bill Fairman (42:48):
Especially now there's a shortage of it.
Aaron Chapman (42:51):
There was a point when it was the most precious metal. I mean, it was going up faster than anything else out there.
Wendy Sweet (42:58):
Really?
Aaron Chapman (42:58):
And when you consider what was going on during a certain window in the last 10 years. Yeah, last 10 years, I mean, you couldn't get 22 rounds. I mean, something that was costing a couple pennies, you'd have to spend dollars to get your hands on so in that respect, yes. In a precious metal sense of it does have some huge value for the weight plus what you can do with that thing, right?
Wendy Sweet (43:19):
Yeah.
Aaron Chapman (43:19):
I mean, I don't know if you've noticed but it is easy to know and to sound drastic, you think that I don't have [Inaudble].
Wendy Sweet (43:27):
So what do you think of gold and silver?
Aaron Chapman (43:29):
Man, it's something that I definitely agree that person should have. The problem that me personally, that I run into is it's not just that the acquisition of what you got to pay to get it, right?
Wendy Sweet (43:42):
Yeah.
Aaron Chapman (43:42):
I pay so much to get your hands on it and be able to have then you got to store it and all those kinds of things and it's definitely something that's worth having. Then you have stop and break it down in certain ways so it is an actual tradable commodity. It's not necessarily something that, that you want to stacking bars. What am I going to do as a bar?
Wendy Sweet (43:58):
Right.
Aaron Chapman (43:58):
It's really good to a point where it's a type of system where you're going to have to employ that into the market and be able to put it to use. I am not going to trade a bar for a loaf of bread. You know, we don't know where the world's going to go and that might be too much of an Armageddon, this thought process to even consider but if to get it into a broken down method door, it's actually usable in a day to day economy is the one thing that I would definitely want to caution people about to be sure that whatever is you do get. Bars are cool, it's a cool thing to break out when the boys are talking about who's got the biggest utensil but that's not something you're going to benefit if you really need to use it.
Bill Fairman (44:36):
You have to pull out the pocket knife and start taking a little slices off.
Aaron Chapman (44:41):
Exactly and then you've got to keep the sharpener close cause that knife ain't going to last very long.
Bill Fairman (44:48):
Right, the you're gonna have to go bag scales so you know how much it's worth.
Aaron Chapman (44:49):
How much of that bar do you have to shave off the bite word damn scale, right?
Bill Fairman (44:53):
That's right.
Wendy Sweet (44:54):
That's exactly right.
Aaron Chapman (44:56):
[Inaudible]
Wendy Sweet (44:58):
What are you saying on the commercial side of life? I know you're doing mostly single family but what are you seeing on the, on the commercial side?
Aaron Chapman (45:08):
Man, that's something that is definitely, it's a scary thing to consider what's happened in the commercial side because we've changed human behavior with this COVID thing, right? People are moving in place, people are living at home, they're working from home. I can imagine that the office side of things are really going to get hit pretty hard. The other thing the, I worry about the multifamily because when you think about what we've got here, two bedroom, one bath with two kids trying to work from home and they're trying to school from home, you know, there's still a lot of people that have come out embraced homeschooling more so than they ever have in the past. We're having an effect on what people would have rented that apartment building or that apartment, right? So also think you think about what's happening to our unemployment. Unemployment is definitely still bigger than what people I think are really understand, it's hard for a lot of us the state because we still live in a world where we're doing very, very well. You know, I'm very, very blessed when I look around, I don't personally witness the unemployment that people are witnessing. My family's all in the medical side, I'm in this side of it so the medicine side is doing very well. My wife's a nurse, my daughter's a nurse I'm knowing my daughter is par of attack over at the hospital when we went to the nurse that, some of us was in the military, my son is in shipping so he works for FedEx, they are all very, very, very well employed at this point. So I'm not seeing the effects of that personally but I know many are going on there and you're living in an apartment and you got the guy next door that's been out of work for a certain length of time. What is going on in that shared wall, right? There's gotta be some fighting, there's gotta be somethinggoing on, there's things getting broken. You don't want to share a wall in a situation like that so those who are in those scenarios are wanting to be in that single family residence, they want that gap between them and their neighbors. So your single family investor, I believe, will continue to feel the benefits of what our economy is creating and the habits of humans but as a result of that, the commercial side of it I'm afraid is probably hasn't seen the full result yet.
Wendy Sweet (47:07):
That's right and I'm wondering what that is going to do. How is that going to topple over and affect the rest of the real estate world? You know, How will that affect us?
Aaron Chapman (47:20):
Well, hard to know. I think if we want to understand how it's gonna affect us, think about how humans are going to react to things. You're going to have to sit there and get mind into a dark place for a minute to really put yourself where things are going to be, you know, with our current trajectory and what that might look like and then what does the individual have to do for the day to day to bread their table and how's that gonna affect where they do their work from? That's going to be the question. Well, maybe the commercial play is prisons.
Wendy Sweet (47:50):
Well, I met a guy last weekend at Tom Olson's good success mastermind and his dad is highly educated but he's driving for door dash bringing home $8,000 a month, driving for door dash! Now he's working 12 hour days, 6 days a week but hey, that's not bad income, right?
Aaron Chapman (48:12):
No, that's well, yeah and if you've got a cheap enough car. And that kind of thing, it's amazing how that is something we're seeing a lot more in my house. You know, I'm just, we're calling and having it delivered more often than we ever had. Actually we're having our groceries, not really deliver. You pull up and they fill up the back of your vehicle, we're not doing the shopping thing anymore so human services are going to continue to grow, I think. People that are willing to perform work for another person and I'm finding I'm doing that on a greater scale as well. Even my daughter was laid off from a, she's 18, she was laid off from a bakery. I got up one morning and I was realizing I was late to try and get to my next call cause I was trying to try to make some breakfast or at least get something in my belly before I started for the day and I just kicked her out of bed and I said, "Get out here!" I said, "Are you back to working for the bakery?" She goes, "No, they haven't opened back up again". Like, how much did you make per month, she told me. I got my checkbook out, I write out a check for $200 more and I slid it to her. She goes, "What's this for?" I said "I'm never making breakfast again, I won't be making lunch, nor I'm making dinner. That's going to be waiting for me at these times and this is the basic idea of what I want to be eating so I can eat healthy cause I don't have time for that." So I brought that part of the economy into my own household and it's helped me because I don't have time for it.
Wendy Sweet (49:29):
And now you charge your rent.
Aaron Chapman (49:32):
I haven't thought about that. Well if she's going to ask for a raise, that's the case. We have the same dollar amount as rent, right?
Wendy Sweet (49:40):
That's right.
Bill Fairman (49:41):
Well, you know, things are just going to evolve and you've probably heard that Amazon is in talk with Simon properties, owns all the malls and Amazon wants to take over the Sears and JC penny spot in these malls they're going to start paying rent that they're not getting, which is good. They're probably gonna add a smaller grocery component but they're putting, you know, distribution or fulfillment centers inside of these, most of these old Sears and JC penny parts of a mall or two story so they need all those different levels.
Aaron Chapman (50:18):
They will work for it in inside, even inside the space so you have the space itself, which is retail and then that warehousing behind it so a lot of space there. What I'm surprised, they done is they haven't made the second level like a retirement community, we got the bottom levels where they can all go shopping and do their thing. Why have they not done that yet?
Bill Fairman (50:35):
Yeah, they can ride the escalator down, do the mall walk and then back up to their house.
Wendy Sweet (50:39):
That's a great idea, we have new business, that's awesome!
Aaron Chapman (50:43):
Yeah, Carolina Capital, you started buying the upper levels and turning that into a retirement community that the other people, that the Amazon's of the world take over the bottom stuff and then you guys can send them around and you only have to give me 3% of that company for giving you the idea.
Wendy Sweet (50:54):
That's right, that's a segment that is hurting right now and I'm praying that it's short lived but the senior living, assisted living communities, you know, they've taken a hit because of the virus but it's gotta be short-lived. People aren't gonna, you know, take care of their parents for a long time, they're going to get tired of doing that. I know that sounds cold but it's a fact, right?
Aaron Chapman (51:21):
Its not a matter of tired of doing, it's just do they have the financial wherewithal to do it? Because the inflation, the cost of living is screaming through the roof and one of the things we're also not taking into account with cost of living is how many people inside your household or a draw on that dollar. You know, we're not looking at the fact that you have what you have a compounded cost just because of inflation itself, now you've added people to it, you've had children to it. Now you have that additional demand on that, now your expenses are tripling, quadrupling going up then you go and add in, you know your parent. Now we all should having to be willing to take care of parents, I'm going to pop my mom in and in fact, I'm closing on a property tomorrow. so I can be able to have wherewithal next door to do that because they're getting older, right? We've gotta be prepared to do that but not everybody's going to have that capability. It's just a sad state of affairs., I'm thinking that we, as a society might be going backwards just a little bit in our, in our social structure or more of a family compound, if you will, having multiple members of the family there to help cover the cost of things, because covering it all by yourself is tough.
Wendy Sweet (52:23):
Yeah and that's a good thing, although I would like to get rid of my teenagers.
Aaron Chapman (52:29):
Good luck on that. My dad says they come back and bring more.
Wendy Sweet (52:33):
I know I did!
Bill Fairman (52:38):
Thank you so much.
Wendy Sweet (52:39):
We're so full of it, I mean information.
Aaron Chapman (52:43):
If you want to know about the other stuff, I'm cool.
Bill Fairman (52:46):
So how can people get ahold of you?
Aaron Chapman (52:50):
Website. AaronBChapman.com. A A R O N, B as in Bravo, not my middle name, C H A P M A N .com and that will get you started.
Bill Fairman (53:00):
Excellent, you're a wealth of knowledge as always, I appreciate your time. You're so kind to give us that time, I know you we're just swamped.
Aaron Chapman (53:10):
You got hold with the right people, Bill to get me on here.
Bill Fairman (53:15):
Well, that's cause I got Wendy as a sister, that's it. I get it with the right folks anyway.
Aaron Chapman (53:21):
Well, I thank you both for allowing me to come and take time with your folks and I appreciate those who've been listening and asking questions.
Wendy Sweet (53:28):
Thank you.
Bill Fairman (53:28):
Absolutely. Once again, thanks folks, we appreciate it. If you want to know anything about us CarolinaHardMoney.com. If you're a borrower, go to the borrower tab, if you're an investor looking for passive income, go to the investor tab, Don't forget to share, like, subscribe, all that stuff and you guys can continue to add questions and comments into the chat space. Like I said earlier, we have someone that scours those things and we can answer those questions on upcoming show, right?
Wendy Sweet (54:00):
Absolutely!
Bill Fairman (54:00):
So you guys have a wonderful day. We'll see you next week.
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