On this episode of the Invest Four More Real Estate Podcast I interview Jay Hinrichs. Jay has had a busy and exciting life and had a number of real estate businesses and adventures. Jay started out in the real estate world as a n agent when he was 18. He worked primarily on land deals, but then moved into the lending business and owned his own mortgage company. He has also developed subdivisions, bought and developed timber land, been a hard money lender, owned over 350 rental properties at one time and much more. Listen in to hear his amazing journey and some great advice he has for real estate agents and investors.

Jay grew up in an environment similar to mine with a father who was in real estate. Like me, Jay wanted nothing to do with real estate when he was growing up, but he ended working with his father as a real estate agent when he was just 18. After seeing a few commission checks after selling land deals, he knew he was in the right business and he would keep going with the real estate business. Jay was a successful real estate agent for years, but saw opportunity in lending as well.

Jay and his father had worked with a mortgage guy in California for many years. This lender was getting older and wanted out of the business, and was considering just letting it go. Jay stepped in and said he would take over the company and continue lending to investors. Jay eventually turned the company into a 50 million dollar business and was bought out by a much larger mortgage company. After Jay was bought out of the mortgage business he saw an opportunity in the timber business in Oregon thanks to the contacts he had made selling land earlier in his career. He and his partner specialized in buying plots of timber land, clearing the timber and then selling the lots for home sites. This was one of Jay's most fun and profitable business ventures!

After timber prices dropped Jay decided to part ways with his partner and try something new. He had experience developing small parcels of land in the forest, but he wanted to develop larger subdivisions. When he started to develop land he saw a need for buildable lots and few builders developed themselves. He ended up developing hundreds of lots in the North West and selling them to builders.

If Jay had not done enough already, after developing land for sometime he saw a glaring opportunity in the Midwest. Jay had grown up on the West Coast and was used to very high home prices with little cash flow for rental properties. Jay visited the Midwest and saw the huge opportunity for cash flowing rentals. Jay did not buy up every property he could, but he did help Californians buy Midwest homes as turn-key rentals. Turn-key rentals are all over the place now, but this was before the housing crisis. Jay was a hard money lender and would give short-term loans to investors, who would then refinance with long-term loans and pay off Jay.

Jay was very successful with hard money lending for many years, but the housing crisis hit in the mid 2000's, which did not destroy Jay's business itself. What hurt Jay, was the lending guidelines changed for investors and the Californian investors could no longer refinance the properties they were buying. That meant Jay had millions of dollars he had lent on short-term loans that investors could no longer pay off. Jay ended up taking a big hit on the money he could collect and ended up owning about half the houses he had lent on.

Jay managed to make it through that mess without owing anyone any money, declaring bankruptcy or having to negotiate his debt down. He did lose a chunk of his net worth in the process.

Jay still lends money to investors, but for fix and flips and he is very picky about who he works with. Jay also builds homes, since the new lending guidelines made it very tough for many builders to get financing. I think Jay is also enjoying life and his airplane, which he loves to fly. Be sure to listen to this episode as Jay has a great story and some really good advice for investors as well. You can find Jay on Bigger Pockets.

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[INTERVIEW]

[0:00:58] MF: Hi everyone, it’s Mark Ferguson with Invest Four More. Welcome to another episode of the Invest Four More real estate podcast. I’ve got a really exciting guest on for today’s show. He has been in the real estate industry since the 70’s, has done a number of different things, which is really impressive. Been in the mortgage industry, the timber industry, developments, foreclosures, buying properties, hard money lenders, just amazing how many things he’s accomplished.

Jay Hinrichs, thank you so much for being on the show, how are you doing?

[0:01:31.4] JH: Very good Mark, I’m glad to be here and look forward to a nice conversation this morning.

[0:01:38.0] MF: Yeah, no, thank you so much for being on, I really appreciate it. I love talking to people who have been involved in so many different aspects of real estate. I myself get involved in quite a few things but I think you’ve trump me by quite a bit with everything you’ve done. I’m curious, now your father was in real estate when you first began, is that right?

[0:01:58.4] JH: yeah, that’s correct. My dad cut his teeth in the land business, what would be called the recreational land business and then did very well at it as a sales man and then within a couple of years, had his own company and ran that up until his retirement.

[0:02:16.9] MF: Very cool. Now, my dad was an agent starting in ’78 so I grew up in real estate myself and the whole time I grew up I told myself I’d never get into real estate because I’ve been surrounded by it so much and then I graduate from college with the finance degree you couldn’t really find the perfect job, and I was like, “I’ll just do real estate part time.” That’s turned into something pretty awesome obviously but did you always want to be in real estate when you were growing up or was that something you kind of fell into?

[0:02:44.3] JH: No, I was the same way, you usually don’t want to do what your parents are doing or whatever and I tried a couple of different types of jobs and my dad had encouraged me that, “Get your real estate license and obviously if you don’t like it, you can go find another job.” And I got my license when I was 18 and I had gone to college for a little while and I just was burned out of school and felt I wasn’t really learning anything and I was wasting money and I told my dad I really just want to get to work and start earning money.

So it took about 90 days to make my first sale. But when I did, commission was $600 and that was in a $1.25 minimum wage market where friends of mine that were 18 that were pumping gas were making $60 a week and that transaction took me all of maybe three or four hours to do and I was thinking, “Hmm, this looks pretty good.” From then on I just, within six months I was bringing in three to $5,000 a month in commissions and probably spending that much but life was great at 18.

[0:04:08.7] MF: That’s awesome. Were you doing residential sales or what kind of sales…

[0:04:12.4] JH: I started in the land…

[0:04:12.9] MF: …were you doing?

[0:04:14.3] JH: My dad’s stuff. I was selling land which was a great incubator for our real estate salesman because my dad owned the land and he also financed it. We were able to just side step a lot of the traditional real estate. There was no lenders, no appraising, my dad has his own escrow apartment. Someone said they wanted to buy this piece of property on a Saturday and I was at their house on Tuesday with all the closing doc and it recorded that way until it was done and I was paid. It was a great business.

Anybody who read like hunting and fishing magazines over the years in the back of them, you see 40 acres in Colorado, which was probably in the high desert somewhere for $35,000, $5,000 down, $200 a month refinance, that’s what we did. And there’s land guys all over the west with that stuff.

[0:05:13.5] MF: Very cool. It’s always interesting to hear the different ways that people get into it. How long did you do that as a real estate agent?

[0:05:23.2] JH: I sold land for about 10 years until I was about 28 or so and then at that point and probably the last three or four years I moved into, actually worked for other people, taking listings and my skill and finding land was pretty good and I was very good with maps, this was pre-GPS obviously so I could read a topo, I could look at the topo, get back in the national forest, find that 360 acres, walked it with people and sell it. In those days we got 10 to 15% commissions on land sales, was customary.

And so you would take a listing and you would take it for one to two years because it took a long time but when I would sell something for let’s say a big ranch for 2$50,000, I’d have 20 or $30,000 commission. Again back when that was a quite a bit of money. The other reason I like that is because the folks that I worked for, there was no bank involved, this was all loaner financing. I just had to find that person that would buy and then I could have a pay day.

I sold a lot of ranches in northern California, some Vineyard land and some trophy ranches to very wealthy people that are still my friends today. Get to use their ranches occasionally to fish and whatnot.

[0:06:52.7] MF: Nice. There’s a few different perks to selling land.

[0:06:56.2] JH: Yeah. I’m more than certain you have land brokers out in your neck of the woods too that sell probably big trophy ranches and where there’s elk running and all sorts of game and what not. It’s a niche and it’s a fun one.

[0:07:12.2] MF: Yeah, for sure. And I have seen those advertisement for land up in the mountains in Colorado, 40 acres and whatever it is and they seem like, “Wow, this doesn’t seem like a bad deal.” Of course I don’t think they’re very close to anything but it’s what you use it for, that’s what it’s meant to be.

[0:07:30.0] JH: It’s for people who like to ride their ATV’s or shoot their guns or they’re off the gridders, the have a dream of living there when the whole world implodes.

[0:07:44.7] MF: Then, after doing the land sales, you guys have mortgage business, is that kind of how the timeframe went?

[0:07:51.8] JH: Actually I went from there to working with a big syndicator, what you would call guys that you see on bigger pockets that are putting apartment deals together that are syndicators. I went to work for one of those and I was there for about four, five years and they were doing a lot of apartment buildings in Northern California. They were over a billion dollar company and they wanted to branch into land and sub dividing and I had done a lot of that and I’d also help my dad with — in California you can finance subdivisions with bot, municipal bonds. And so I had a background with that as well.

That’s how I got hired on, there was a big project just outside of north of Sacramento that was 520 lots and they hired me to put the financing package together, the marketing and all of that and then that spawned a working on that deal and also buying them about 20 other projects in the gold country of California. As we went through that, I had a contact from my dad had used a local hard money lender in Oakland for 25 years to do this land deals.

He was retiring and he had no heirs and it was very tightly nailed, it was thin and my dad’s attorney, everybody knew each other and I just came in and said, “We’d like to — you’ve built us up for 35 years and it would be a shame just to let it go.” There was about 300 investors and buck a dozen a dozens for about 50 million and I went over there and mentored with him for about a year and a half and then he retired and I ended up buying the company from him.

Was basically given the company and just paid them out as we made income. I ran that for about three or four years as the owner of it and got a really good education and wanting money and this was all in the bay area and we did primarily seconds back then, this was going to be from ’87 to ’92 and to developers that would get a good deal on it first and then we would come in with like this seconds stack of a debt and short term stuff.

I wrote through my first traumatic down turn when I was there in ’89, the Bay Area had its own kind of melt down, there was the earthquake if you remember it during the world series and then the war started. The market, it crashed in the Bay Area, people had a lot of short memories but even in San Francisco and peninsula and everything, the hallowed ground of high priced real estate, some of that stuff fell 40 to 50%.

I had loans on quite a bit of it and I had to do a lot of workouts and took properties back, it was my first iteration of how to deal when things aren’t going well. We survived that and in ’92 I sold that to another mortgage company up in Sacramento and pivoted and that’s when I came to Oregon and of all things got into the timber business.

[0:11:09.3] MF: Yes, I think it’s amazing the different steps you’ve taken, how you’ve kind of gone from business to business but if you look at it as a whole, it kind of make sense when you hear a story about how you went form agent then kind of morphed into the syndication which had to do with the land then walked into the lending which I had to do with your father and I imagine the timber, you had some experience with because you’ve been selling land, it was forest country.

[0:11:34.4] JH: Yup, I had sold a lot of timber land over the days, I just never, I had always sold them to people like what I turned in to was a timberland buyer. I had always just brokered them and next thing I know within the year they’re logging them or thinning them. I’d never been on that side of the equation.

Remember, through this whole time I’ve kept my real estate broker’s license and always had some transactional real estate going along the whole time. I never — even when I was working with the other company and whatnot, I would still — if I got a land referral to list the ranch up in Sonoma or Napa wherever I would take that listing and worked it. Even when I had these other jobs going.

I was kind of double dipping there. Coming up to Oregon, I ran into a guy who my dad referred me to who it was a perfect marriage, knew nothing about real estate and I really didn’t know anything about timber specifically. I thought they were all pine trees, I didn’t know there was pine and fir and cedar and all sorts of different variety of trees and I had no clue as to how much money they were worth.

It was somewhat of a leap of faith, I was living in the Napa valley and I was commuting to Portland to do this work. He handled all the lumbering activities and I handled putting all the money together and the banking contacts and all the real estate aspect of it. So a lot of what we would buy, the scenario would go, we would find a 40 acre track that had timber on it.

It was owned, we could break it into four tens. Getting a harvest from it in Oregon, you can puncture your logging routes in with just a permit over the counter, it’s not like building a subdivision where you have to go through all the engineering of the roads and everything. It would just happen that our logging road would be right up the center and our landings which is where you bring all the logs to would be like a big home site.

Just happened to be right where we might have a future home. When we were done logging it, our road was already put in under logging standards and then when I came back in and did a four way split on it, it ended up with four home sites, my road was already in and all my home sites were already identified where we had cleared them out and flattened them using logging equipment which required no permits.

Once they’re existing it was quite simple. In the really good days, the timber would just about pay for the lands, sometimes we’d even have a profit on just on the timber and the land was free and/or we made cash out of it and then we sold the lots off to homeowners and that was how we derived our profit and it was the spectacular business for about eight or nine year run there through the 90’s.

That also led me into buying some subdivision ground in Portland and creating lots for home builders as well.

[0:14:39.0] MF: Wow. So how long would it take from the time you bought the land, harvested the timber, subdivided it and pulled it off, how long was that profit?

[0:14:49.6] JH: The logging went very quickly, this was the great part of the business and then on top of that, I pre-sold the logs. So I had two things, I had a bank line of credit to pay for the logs, pay for the land, and/or I could get a advance from the mill on the timber deed that would pay for the whole thing, zero interest, no points, no cash out of pocket. That’s how good it was in certain deals.

So I was either tagging my lines to credit with the bank or that would cost me money because I’d have to pay interest or I would get a mill that would come in and they would scale up all the timber and they would cut a check for it and take a deep at the timber deed which was good for a year and then you had to deliver the logs and as you delivered the logs, they’d tick off with them and at the end of the day, you usually made a profit plus you ended up with the plant, free and clear. This was how the timber industry has gone for 150 years.

[0:15:54.4] MF: I had no idea. Always learn something new.

[0:16:00.1] JH: Most people don’t. I don’t want to just say this deals are like just sitting out there to be plucked. When I got into the business, I analyzed it old school it was the old mills and they would just have an ad in the paper with a log buyer, right? No one was going after these people. I used my training I learned as a real estate broker to go after the people and solicit them.

What I did and again this is all pre Internet basically and pre Google and all that stuff. I had a guy — laptops had come out. I didn’t know how to run one but I hired a kid that did and in Oregon you have very good aerial photographs right up the counter of the planning departments. I had him going in to the counties that I worked, identifying, going through the plot maps one at a time, looking at an aerial. If it had 10 acres or more of harvestable timber that you could see on the aerial, and it wasn’t owned by a timber company or some corporation, that became a lead and then we would just go in to the records, figure out who it is. And then we were able to do the reverse directory to get the phone numbers.

So I put that database together, I had about 10,000 properties between Oregon border and just south of Seattle, that was our target and I had telemarketers come in twice a week just like top agents have people calling on listings for listing appointments. We would just call for an appointment to give them a free evaluation of their timber. That’s how we created the leads. And believe me, no one had ever called these people, they had never been tele-marketed.

[0:17:50.9] MF: Kind of like the modern day driving for dollars when you're driving around looking for vacant houses.

[0:17:56.6] JH: That’s how long it used to buy timber. My partner when I met him, that’s what he was doing, he said, how did you get these deals? “Oh well I just drive up the driveways and knock on the doors.” Well that is totally inefficient. Why don’t we do this and it was great, we were, we did quite well.

[0:18:16.3] MF: You said that helped you move in to subdivisions and housing developments, how did that happen?

[0:18:23.0] JH: Because of my background with my dad, I had done a lot of the stuff that the land that he had done was also on a residential lot, smaller lots and for houses, and I had put those deals together and I had put the financing, the bond issues together in the early 80’s. So up here in Oregon you can’t do that, you can’t use public bonds to build private infrastructure.

So in the Portland market, in those days, the builders were not vertically integrated. You had two distinct developers, you had the group of guys that bought land and created lots and then sold them the builders and then you had builders who just bought lots from land developers.

There was again a niche in time where I was able to be a land developer because at that time I was a home builder and it was just a natural progression of what we did out in the forest to come into the city and buy a five acre track and whack it into 15 lots. Right? And I did that, I did about seven or eight sub divisions, probably totalling maybe 300 lots or so.

Then what happened was, and we had the first real big run up towards the end of the 90’s, the builders, because land was getting so scarce, they just stepped right in and they started buying the lots that the land themselves and developing themselves. So the lot developer, pretty much went away at about 2000 in Portland. Very rare to find somebody who only does lots now.

I don’t’ know anybody that does that. Everybody in the business now is, land is so hard to get and so scarce because of our urban growth boundary that the builders have to have their own development team in house, and buy their own land, put the streets and roads in and then build; vertically integrated.

[0:20:21.2] MF: I see a lot of that here too where there’s not lots for sale, it’s almost all builders who come in by the way and do development themselves and then one primary builder will build most of the lots, maybe he’ll sell some lots to a few other builders but yeah, it seems like the builder is doing more development than anyone else.

[0:20:42.4] JH: Right. So as I rolled out of that, and as partnerships go, I had a great partnership with my guy in the timber business, we’re still great friends but it was time to move on, I was ready to — and the log market had died. Part of what made the log market so good when I did it was the Japanese log. When the Japanese economy hit the skids, our $1,200 log went down to $600 or $700 bucks.

So the profit margins weren’t in it like they used to be. So there really wasn’t room for two executive salaries in that little company and since this was his ground and he knew all the logging, I wasn’t going to be a logger. It was best for me to leave him his, and it was his company that he invited me in to. It wouldn’t have been right for me to take it. I stepped out and I got back in the kind of my real estate roots in California and I started chasing court house step foreclosures.

I did that exclusively for a couple of years, extremely competitive in our market, sat down with my accountant one day and he said, “You know? You really should be lending the money.” And I said, “Well,” “Instead of doing all this work and chasing all these bills.” I said, “Well I have experience doing that, I ran a $50 million dollar business there for five years.”

I really don’t want to go back in to corralling 300 different investors though. In California, to make a loan, you can fractionalize a deed of trust and that means you can basically do it kind of in common on the deed of trust. So it was always if I had a $200,000 loan, Mark put in $20 grand, Jay put in $50. So there’s a lot of back end accounting that had to be done to run it that way.

I told my accountant, “If I can go to my bank that I now have a 12 year track record with and if I can talk them into giving the facility for a hard money loan, I would do that. That way I don’t have to deal with investors.” We were blessed, we had some capital and in the day, figuring circa 2002, I could leverage that four to one. So with a million dollars of capital, I could get a four million dollar line of credit, which is what I did. From 2002 to 2006, I ran that right back up to about $35 million.

I also got introduced to turnkey investing at that time. It was — I was specializing in loans to California folks that were buying turnkey investments in the Midwest starting in Detroit ending in Jackson, Mississippi and every city in between that. So I had an extensive book of business. I began because of my real estate background and my marketing background, I loved the way these guys were setup. They had marketing companies in LA, they had radio shows, they had all the high credit borrowers out of the west coast who were priced out.

You see this going on online now and on bigger pockets, “I’m priced out of the west coast so I’m going to go out to the mid-west and buy a rental property because they’re cheap. So what we did is we did the original bur they call and buy, fix it up, re-fi it and repeat. Instead of people paying cash for it, I was a hard money lender putting the retail client in the title and then the turnkey operator would do all the rehab put the tenant in and once they got a 442, our loan was already set up.

The lender was in LA, was doing all this loans through country wide or Wells Fargo or whoever. We rolled out of these in an average of 91 days was our average. So someone would go in to, they would pick a property in Indianapolis or Memphis or Detroit or wherever. I’d put them in the title and 90 days their Re-fi would come through. I‘d be paid off and we would just do it again.

Between 2002 and 2008, the last few years I was in it, I had warmed that up pretty aggressively and I was doing anywhere from 40 to 60 loans a month and I was in 12 markets and life was good. Well, we all know what happened in October of the late, investor mortgages stopped happening and I was stuck with about 450 California folks with hard money loans with me and they had no way to exit.

I had to work through all those, I work through about half of them, I got paid off in some manner. The other half I ended up owning and I had to work through those REO’s and I actually moved out to the mid-west and spend a year corralling all that stuff and have since sold it off.

I actually, in about 10 days now I’m going to pay off my last line of credit, gets paid to all that stuff off. I got through that time with personally losing a lot of equity because you just can’t — we were making loans, I look at this one property in Atlanta in particular. It was worth $150.

It was a nice 2,000 square foot, six year old home, running for a $1,000 a month and the price for 150 all day long we put a loan on it for 90, they couldn’t get a refinance. By the time 2009 came around and I ended up owning it, the LA people went dark on me. I ended up selling that house for $35,000 just to get out of it. Lost $55,000 on it.

The problem I had is I had pressure from my lenders and I had two partners that were up in age and they were like, “We just want to exit.” I’m like, “We need to keep this stuff and rent it out. No, we need to balance the portfolio.” It was a conscious decision to, part of it was we didn’t have a decision but things were calling our lines of credit because they were all one year revolvers.

Anyway, I triage that and lost of substantial amount of my own personal net worth but I got through it with credit intact, every lender got paid off, nobody took us short, everybody got all their interest and we lived to fight another day. As I saw that happening though, I saw the value proposition in these homes out there and 2011 I started buying them and I ran that up about 350 of them. I sold out of that in 2013, I bought a bunch in Atlanta with different partners, I bought a bunch in Atlanta and ended up flipping those to a hedge fund, we did very well.

I was not going to get caught like I got caught the last time. If I got a deal that came in and I was going to double my money, I’m not going to hold them, I going to just going to take the money of the table and get cash up again. That’s how that all played out and then in the last three and a half, four years, I’ve just been basically doing joint venture funding for folks here in Portland and a few markets around the country and then I did my own building now instead of selling the lots off, I started about three and a half years ago.

I figured well, if I’m going to take the lending money to builders, I might as well build them myself and get all the money instead of just the lending fee. Because at the end of the day if the builder goes bust, I end up owning it anyway. I might as well take that. I’m taking the risk anyway, we had a very unique situation happening in the United States where a lot of the builders that had all this experience went bust from 2008 to 2011 and these guys were having a hell of a time trying to get restarted again.

They had no credit, they couldn’t get loans, they failed chapter seven, they didn’t have the capital. It allowed me especially in the Portland market here. I’ve got two builders now build as a fee for me that I would have never gotten. These are the guys that have built 500 homes and we’re quite wealthy at one time.

They need to restart, I saved my credit and my core bank here in Portland I still have substantialized credit with. I’m able to go out and actually go toe to toe with DR Horton or R&R, something like that. Then I stumbled on Charleston, South Carolina and I’ve done about 20 homes there in the last 18 months and that’s also a very vigorous market and then I have all my other just fix and flip stuff in certain markets. That’s what I’m doing currently and loving life so far.

[0:30:13.3] MF: That’s incredible, all those different avenues you’ve taken and things you’ve done. I’m curious on the building because I’m in Colorado and we have an incredibly hot market right now. One of the highest appreciating in the country and what I saw was for almost 10 years, there was no building here because ourr market was down, the supply foreclosures and people didn’t have to do it, they couldn’t make any money building because prices were so low. I think that created a huge shortage of houses because people kept moving here but there’s nothing being built.

Have you seen that in other markets as well? Where there’s just a shortage of homes?

[0:30:50.9] JH: Absolutely. I just actually posted on BP, there is a thread going about our way in another bubble again and a lot of people were talking about macroeconomics and all this other stuff and my post was really as simple as the new home construction stopped in ’08, and then a lot of markets, it still hasn’t started or it just started back up in the last year or two. You still have in migration of people moving in that need homes and many of this markets, Portland, Denver, Charleston, probably Austin, there’s just an acute shortage of construction and the banks just like with my bank here, they let me go but I can only have

12 spec homes at any one time and I got to thinking, in the old days I could do this with zero cash out of pocket. Now, when I look at my deals, I might have $225,000 loan on a $375 house. Even if you had a retreat in values, the bank is safe. They’re requiring me to bring in a lot of equity compared to what they used to. This is also between equity requirements and the banks only loaning to people they really know and trust, they’ve constricted the supply and if you have to go hard money, you know how expensive that is.

It can take the profit out of the deal pretty quickly. I agree with you. The building’s coming back but it’s not at the pace to keep up with demand. It has gotten hot.

[0:32:36.9] MF: Yup. I’ve seen that here. I’m still… I talked about this before. I’m thinking about selling some of my rentals because our market is so hot but I don’t see a huge… another housing crisis come in, I don’t see that happening. I might see it levelling up but it just seems like a completely different environment than where we were at five to 10 years ago with the crazy lending going on.

[0:33:01.9] JH: Yeah, you have a lot of things going on there. I looked at prior to late, I was a pretty heavy duty foreclosure buyer as I was running up my hard money company and I saw a lot of HUD’s. So many of the deals were no money down, 80/20’s. I look at the stuff we’re selling now, depending on the subdivision but we’ll get an FHA loan and then we’ll get two conventional.

We’ll actually have a cash sell, you never had that 10 years ago, never because people were taught, don’t pay cash for that house, leverage it to the hilt you know? In my mind, this new run up going here, your borrowers are 10 times stronger, especially out in the “Cash flow rental markets.” Tremendous amount of those houses have been bought with cash, a lot of foreigners paying cash for them.

You may have values stop rising in some markets and maybe retreat a little but you’re not going to have the strategic default and, “Hey, I’m giving up on this,” I have no equity to get back to the bank you know? That’s my personal opinion. Not that you can’t have regionalized issues with values and banking and whatnot. I don’t’ see, I’m like you, I don’t see the same scenarios that led to the ’08 debacle.

[0:34:34.9] MF: I’m curious, you having been in California so long and prices in the Bay Area it’s crazy right now. What’s your opinion? Do you think the bay area can support those kind of prices or do you see a fallback in that area coming any time soon?

[0:34:51.5] JH: Well, if history repeats itself, it can definitely fall back. By 1989, houses in San Francisco primed, I had a loan on that and think about house on Green street, I had a loan on, I had an MAI appraisal at two million, the guy had a $900,000 view first and I made a$ 200 second. With my investors that’s when I was… That thing went to foreclosure and the first wiped us was out.

It had dropped 50% in value and after the earthquake and stuff. It can happen. Whether il or not, I don’t know. The area is that much more stronger than it was in 89 to 92. Apple, Google, all those people were the huge home run, you even have all those companies were kind of in their infancy and now they’ve matured. You have that much more purchasing power there. You have the whole bunch of Asian money coming into that area and I mean a lot of those people pay cash for stuff so they can ride it out.

Even in the LA thing like I grew up in Cupertino and lived also. Prices. The Cupertino house, got to a million too in the down and ’09 maybe it got down to maybe a million or you had a little bit of retrenching but it came right back up. I suspect if you had a massive earthquake again, kind of like what we had in ’87 or you had disruption in the services and all that that can cause them to shoot stuff.

If you look at it globally and you look at some of the very expensive markets in other parts of the world, they’re on par. You can’t go in to the prime areas of London and buy anything under two to five million dollars.

[0:36:51] MF: Right. Australia’s the same way, especially Sydney.

[0:36:55] JH: Yup, Sydney, Brisbane. I was just over in Singapore and although a lot of that is government owned over there but the privately owned real estate there is a private home over there is five to $20 million.

[0:37:09.6] MF: That’s crazy. Well, good thing you have a shortage of land and a lot of people, that’s what’s going to happen.

[0:37:16.2] JH: So you have that right now. In the Bay Area you have it because you have the bay in the middle and then not allowing you to fill it anymore like they used to like foster cities all built in the fill. Then you go out there the hills and you can’t put them so they’re in the mountains. So there’s just a shortage of land. In Oregon we have what’s called an urban growth boundary, which ties up lands for anywhere from 25 to 50 years.

We just have a governmental shortage of land. In our area here if you wanted to, you could bring in 20 million people because you got flat land from Portland all the way to Eugene but you’ll never touch it, it’s all ag land, it’s never going to change. Ergo we have a huge shortage of build-able land that’s been created by government.

The reason — and then Charleston, we’re in that right now is the same thing. That city’s on a peninsula, it’s surrounded by water, there just isn’t any land and it’s a very popular place to be and it’s got a lot going on for itself. Like Denver, I mean the Denver area is a quality of life. You’ve got the ski areas in the mountains and major airport to get places and people look at those things

[0:38:37.7] MF: Yup, for sure. That’s a lot of great information. I’m curious, changing course here a little bit. Looking back at all the things you’ve done and all the businesses you’ve been in. I mean I know it’s probably a hard question to ask, but what do you think you had the most fun doing or what was the most exciting for you out of everything?

[0:38:55.8] JH: Well, I will say the timber business was the most fun, hands down. It was really cool to walk out on a property and be able to convert one asset to cash so quickly and so easily. On a business aspect, that was great and you didn’t deal with — in Oregon because it is a timber based economy or had been all its life. You just don’t have the red tape to be in the timber business like California where it’s next to impossible to log or Washington that’s even that much harder.

Oregon is over the counter and you get a cutting permit in three days. It’s quite easy. I had as much fun doing that as probably anything that I’d ever done. I’m having a lot of fun now with my guys across the country that I’m helping supply capital for to do their fix and flips. A lot of them I’ve helped quit their day jobs or get to the next level so that that’s also fun. We’ll just keep doing that as long as the markets hold out and give us the opportunities to do that.

[0:40:10.0] MF: Right. And I think we, I do fix and flips with my father since 2001. We went through. The whole housing crisis, I don’t think Colorado got hit as bad as some other areas, we definitely had a down turn but it wasn’t immediate, it took a few years for prices to go down and I think investing in flips the right way with the current market in mind and not hoping that prices will increase. I think you can keep flipping through most any market but I think people get in trouble when they start thinking, “You know, I’ve got to pay more money to this house, it should be worth more in six months because our market keeps going up,” I think that’s where people get in trouble.

[0:40:48.0] JH: That is totally, I agree with that 100%. The big syndicator I worked with in the mid-80’s, as smart as they were and as big a company as they had, they started to have that mindset. “Oh we can buy that land in Sacramento because in two years we’re going to develop this lots and even though we’re going to be on them 80 in two years in two years it will be worth $110.

Go ahead and buy them. Well, that didn’t happen because in the late 80’s we had the recession in California and went the other way, they found themselves in some trouble.

[0:41:23.0] MF: Yup. All right, well great interview so far. I have one more question, I think we’ve covered a ton of stuff. We talked a little bit about this before we started recording but there’s a lot of people out there who want to get started investing in real estate. They see how awesome it can be for some of us who have been doing it for a while but they don’t have any money, they don’t have credit, they just want to somehow jump into the game and start making money. What’s your advice? Is investing is the right route to go into or should they be doing something else first?

[0:41:53.1] JH: Well that’s a great question and I’m going to start that off with one, it’s regionalized and in certain areas it’s absolutely in non-starter and that would be obviously the better markets we’re talking about, you're totally wasting your time. You can go in to other markets where you see houses like Michigan or Ohio or some of the rest stop areas where houses are trading in five and $10,000.

Somebody with no money could probably wiggle their way in and get something in contract and flip it and make a couple of thousand dollars but even at that, you have to have the money to be able to market to them and then be able to somehow have enough experience about how transactions work to actually make the deal go.

I mean I get approached by a ton of wholesalers because I’m buying for cash, all this property all over the country and boy, a lot of these people that I either talked to or write to me are just, they don’t have the experience really to put one off and you can tell talking to them. I only really know one way to do it and that’s the way I did it. I started as a real estate agent so that I learn the vocabulary. I learned how transactions worked.

I was around other real estate agents that were successful, that were making money and actually in my line, the land business, I was around some guys that were professional sales people. You know in your real estate business that not everybody is successful at real estate. Some people don’t have the sales skills to close on a deal, you still have to answer in your order, you got to know how to do it. That would be two things. One is kind of get in the game where you can get in with a real estate company or get on a big team and have half the people teach you how to do it.

Then take some sales training classes so that once you do get a lead, you know how to handle it and you don’t just fumble through it. That would be my advice to and/or you need to — most of the  people that I see that are successful investors and of course I’ve dealt with them my whole career, they’ve usually made money in their day job and they’ve saved it and now they have some money to invest in real estate. That’s what I call an investor.

Someone with no money and no credit is not really an investor. They’re trying to act basically as a transactional agent making money by doing a transaction. So I see that as two completely different things.

[0:44:28.1] MF: I would agree with you, it’s more of a job. It’s not investing.

[0:44:29.0] JH:  Even how are you going to buy a rental house? Yeah, you can talk some people in really low value areas where they just want to dump the property, you can talk to those people and giving you seller care backs and stuff like that but even at that, you’re making the delta between rent and have all your payments are still a hundred or $200 a month. You need to have scale, you need to have a way to get to 50 or hundred homes if you’re going to be dealing in that asset class.

Otherwise it’s just, you’re never going to get anything that’s more than a job and not that well-paying of a job at that. That’s my opinion on it.

[0:45:18.1] MF: That’s great and people email me and ask me questions and say, “How do I get started with no money? I have bad credit/ What do I do, how do I buy houses and my first question is, why don’t you have any money?” I’m honestly asking them. Try and fix something else before you jump into something new that you have no idea about and the more money you can save, the better off you’re going to be no matter what you do in life. Yeah, I think sometimes priorities get mixed up about what’s going to help you in the long run.

[0:45:44.9] JH: Well, a lot of this is promo gated through late night TV there are out there. Frankly, I know most of those guys personally because I’ve funded a lot of their back end deals and then, I’m new to Bigger Pockets but that is very much moved forward on Bigger Pockets with, “You can do it, yeah, go ahead, you can do it. I did it.” People get the peanut gallery telling them that yeah, no problem, keep adding, keep your chin up, do all this but it’s nice to say that and nice to be positive but it’s not actually reality in most instances. Especially if you live in a market where the real estate is medium prices, $280,000 and you’re competing against professional buyers and buyers that have cash and whatnot.

[0:46:45.0] MF: I totally agree with you. Jay, been awesome having you on this show, you did an awesome great job. I learned a ton myself. If people want to get a hold of you, is Bigger Pockets the best place to find you?

[0:46:56.5] JH: Yeah, they can just find me on Bigger Pockets and I have my email at the bottom of I think my bio or whatever page you can go on there and I’m happy to answer short questions. I do get a lot of people that are very nice that ask, you know, they’re looking for a mentor. I’m not a mentor, I don’t have the time to sit down with folks and help them through their life struggles and trying to get in to real estate. My way of giving back is doing this podcasts and just talking about what I would do on Bigger Pockets and my opinion on things. Which again, with a grain of salt, it is just my opinion.

[0:47:37.5] MF: Right.

[0:47:38.3] JH: Not necessarily the right way to do it, it’s just what I’ve done.

[0:47:42.0] MF: You are, you're very active on there, I know you’ve always chimed in when I had questions or talked about different subjects. So I’ve always appreciated that and I do think you give solid advice, it’s not always kind of telling people what they want to hear. Which a lot of people too. I always appreciated that.

[0:47:59.6] JH: It’s my pleasure and one thing I learned in high school to do is to type. For me, I’m not a hunting pack, I’m a 40 to 50 word a minute typer so I can get on there and type a couple of paragraphs and it doesn’t take me very long to do it and I’m happy to do it.

[0:48:19.0] MF: Great. All right, well Jay, thank you so much for being on, anything else you want to add?

[0:48:24.6] JH: No, that’s it. Next time I’m out in Denver I’ll give you a call, maybe we can meet up in person and you can take me for a ride in your Lamborghini.

[0:48:35.1] MF: Hey, that’s a deal. I’d love to, as long as there’s no snow.

[0:48:39.2] JH: If you get out to Portland I’ll pick you up with my plane and give you the royal treatment and the fly around the north west which is quite pretty as well.

[0:48:48.4] MF: Awesome, I would take you up on that.

[0:48:50.5] JH: All right.

[0:48:53.3] MF: Thank you so much, I really appreciate it, have a great rest of the week.

[0:48:56.5] JH: Okay, you do the same. Bye.

[END]