Data Driven Real Estate Podcast #1 – Will Foreclosures Impact Real Estate In 2020? Welcome To Our New Podcast DDRE#1

Aaron Norris and Sean O'Toole launch the Data Driven Real Estate Podcast. The first episode explores why the universe needs another real estate podcast. Aaron and Sean talk about how the ended up in real estate, the biggest trends set to disrupt real estate, how Main Street can effectively compete with Wall Street disruptors, and whether we're about to see a wave of foreclosures due to the pandemic. Have questions or feedback?

Each show is posted on the Data Driven Real Estate Podcast #1 in our community. This is where you'll catch pre-show research and continue the dialogue online after the show. Connect, subscribe and like on: YouTube, iTunes, Spotify, Stitcher, TuneIn, Google Podcast

Show Topics

• 00:19 Why another real estate podcast?
• 02:38 How Sean O’Toole got into the toughest part of the real estate investment business?
• 03:12 How Aaron Norris got into the real estate investing business at age 5 and the cockroach story
• 05:15 The uncomfortable real estate transaction that made Sean exit California real estate in 2005 and the start of ForeclosureRadar
• 12:12 Emerging technologies that may have big impacts on real estate
• 15:10 Will Covid-19 cause people to rethink living in dense urban environments?
• 18:00 Why is small business so important?
• 19:13 What does it mean to do things that don’t scale and why is it so important to small business?
• 19:36 How access to public records data changes the game for small business
• 23:12 The big mistake Main Street small businesses are making
• 27:44 Top reasons why targeting absentee owners in 2020 is a good idea
• 31:00 The top lesson Sean learned from a grocery store owner that he applied to business
• 36:30 What every single flipper should be doing during Covid-19 to compete with ibuyers
• 44:09 Will there be a wave of foreclosure because of the pandemic?
• 48:52 What different about forecloses in 2020 compared to 2008?
• 50:49 Does the ability to repay rule for loans matter?
• 56:18 Can you have the economic downturn and real estate do well?

Show Transcript

Aaron Norris: [00:00:03] Hey, welcome to the Data-Driven Real Estate podcast. The podcast for real estate professionals dedicated to driving business success using data. I'm Aaron Norris. And with us today is co-host, Sean O'Toole. Welcome, Sean. [00:00:14][11.0]

‍Sean O'Toole: [00:00:16] Great to be here. [00:00:16][0.4]

‍Aaron Norris: [00:00:17] Oh, my goodness. A new adventure. Why the heck are we doing another real estate podcast? [00:00:21][4.1]

‍Sean O'Toole: [00:00:24] There's certainly a lot out there, but a lot of folks aren't data-driven, and I'm not hearing enough about that, I think, and it covers such a broad set of topics across real estate that, you know, I think it's, I think it's needed still. [00:00:40][16.3]

‍Aaron Norris: [00:00:41] I am so excited to be with PropertyRadar. I've been stewing in data for the last 15 years. I'm a fellow data nerd, so I'm very excited to tackle this and all the variety of topics that that can encompass. I think data-driven real estate makes it sound like we're just going to talk about real estate. But so many different things impact real estate, which I think is why I'm so excited we get to cover so many different topics and strategies and whatnot. I guess. [00:01:09][27.8]‍

Sean O'Toole: [00:01:09] Only do so many things impact real estate, but real estate impacts so much of our daily lives. [00:01:13][3.9]

‍Aaron Norris: [00:01:14] That's true. [00:01:14][0.2]

‍Sean O'Toole: [00:01:15] In both directions. [00:01:16][0.5]

‍Aaron Norris: [00:01:17] Covid-19 and so much going on in the world. We're in an election season. Man, we're going to get to cover a lot of juicy stuff just this year alone. [00:01:24][6.5]

‍Sean O'Toole: [00:01:25] There's very little as important as housing and basic shelter and, yeah. [00:01:28][3.3]

‍Aaron Norris: [00:01:30] The hierarchy of need. [00:01:30][0.8]‍

Sean O'Toole: [00:01:32] Exactly. [00:01:32][0.0]

‍Aaron Norris: [00:01:34] Let's cover really quick. Maybe some people in on the scandal and they've never they don't know either of us. How did you even fall into real estate and why? Why are you here? Real estate is an asset class. How did you land here? [00:01:45][11.0]

‍Sean O'Toole: [00:01:46] Well, you know, I was in tech three different startups in the Bay Area. And after the dot com crash took a little break from tech and was trying to figure out what I was gonna do next. I'd always done startups and two thousand wasn't a great time to start a tech company and actually got introduced to somebody flipping foreclosures and they said, hey, you should go write some software for him. There weren't very many people doing that. I didn't really have much interest. But, you know, I think everybody has a little curiosity about foreclosures and buying foreclosures. And I went to talk to him and ended up really interested in the business and ended up flipping hundred and fifty properties. Total accident wasn't in the plan at all. [00:02:35][48.8]

‍Aaron Norris: [00:02:36] Now you're talking about trustee sale, right? [00:02:37][1.6]

‍Sean O'Toole: [00:02:38] Trustee sales and foreclosure sales in California. [00:02:40][2.3]

‍Aaron Norris: [00:02:41] That is not an easy piece of the business to get into right out of the gate? [00:02:46][4.2]

‍Sean O'Toole: [00:02:47] No, no, it's the toughest. It's pretty much the toughest way to invest in property. And it really helped that I was a very analytic, data-driven person because out of all the ways to invest in real estate, it is the most hated man. So it's kind of perfect and really cool. You also didn't plan to be in real estate. [00:03:07][20.3]

‍Aaron Norris: [00:03:08] I did not. I was. Let's see. I grew up in the family fix and flip business. [00:03:14][5.8]

‍Sean O'Toole: [00:03:14] So we had that background. [00:03:15][1.1]

‍Aaron Norris: [00:03:16] My dad. Yeah. The very first memory I have is sucking cockroaches off the wall with a vacuum as my family members were pulling up carpet out of a house that was infested with cockroaches is an understatement because I was doing it all day, it was that bad. No wonder I did so well in New York. I'm not afraid of bugs and rats. But growing up, I ended up in the arts, so I moved in New York City to pursue, you know, Broadway. The only weird thing is I fell into acquisition and merger presentations at a Wall Street company. And I knew there was something wrong with me, when I'm like, this is really interesting. And, that's where I learned to do charts and graphs. I just sort of fell in love with the data piece and ended up moving back to California. I had a family member get ill. I was never expecting to move back to California and work for an architectural lighting firm. And I just sort of fell in love with real estate and all the different facets. I've always loved construction. And then I was about to go back to a Wall Street company when dad invited me in 2005. He wanted to write a report called a California Crash. I just happened to know how to create a 400-page book with a heck of a lot of charts. And the rest is history. So, yes, lots and lots of data over the 15 years. [00:04:29][73.5]

‍Sean O'Toole: [00:04:30] That is something we both have in common, right? We both came to the conclusion that the real estate market was in trouble at the end of 2005. And your dad probably gets credit for that more than you do. But you helped him make that case and you helped him do all the research and put that presentation together. And you save hundreds of people from losing their life savings. And you tried to save lots of others that didn't listen. [00:04:55][24.4]

‍Aaron Norris: [00:04:56] I hear both of those conversations a lot. Well, how did you land on that? I mean, at the time you had some of the biggest economists in the country that were butting up against that. And the media, everybody was just like, real estate is the darling, you breathe and you make money. How did you land there? [00:05:13][16.9]‍

Sean O'Toole: [00:05:15] You know, I sold a house in Stockton to a maid at a hotel and her husband was a fieldworker and, you know, both hardworking, honest, awesome people. But they were buying a four hundred fifty thousand dollar house. Both barely making more than minimum wage. And the only reason they could afford it was because of pay-option arm, which gave it a very low initial payment. And the pay-option arm was actually a great mortgage product. I had one when I was 18, my first house when I was 18, and we could talk more about that later. But it was a great product, but it got misused during the crisis in that they qualified people based on this low temporary payment. And I looked at this and I went, these folks are going to be able to make this payment. This isn't going to work. And it really is like I don't even feel good about selling them this house like I want out. This isn't OK. And that was really the first indicator to me. And then there were some others. You know, I started to see new construction subdivisions where suddenly they were offering a free swimming pool. And I'm like, but Joe down the street. Who had bad credit and got 100 percent financing? He didn't get a free swimming pool and he doesn't care about his credit. So when he doesn't get a free swimming pool, he's going to say, screw this, I'm not making my payment. And anyway, it was just it was a house of cards, which was, you know, that for 60 Minutes episode. That was the cover. This was called the House of Cards. And really, it was clear to me at the end of 2005, it was a huge house of cards and it was going to fail. [00:07:15][120.3]

‍Aaron Norris: [00:07:16] Did you share your opinion with a lot of people? [00:07:18][2.0]

‍Sean O'Toole: [00:07:20] I did not do what your dad did, right? Your dad got out there and really said, hey, everybody. I instead went kind of the other direction. I thought I wasn't keeping it secret. By any means. But like, I tried to put together the big short. Right. I went and rounded up some Wall Street friends and the rest and showed them the data and said, here's what's coming and I want to put my life savings into shorting new century Countrywide and these various lenders. And had I not gotten talked out of it, foreclosure and PropertyRadar would have never had had existed because I don't want a private island. [00:08:08][48.5]

‍Aaron Norris: [00:08:10] Right. Gosh darn it. Well, I didn't know as much about the market timing stuff. And I know dead. How how much? Work he spent putting those 400 pages together when we did. And he got a lot of flack. It wasn't fun. I mean, we did the news media around line and we were sort of the opposite end of the spectrum because all the other economists are saying it was good. But the one that stood out for me the most was the building industry. John Burns had us out at the Builders Association and in 05 had told them, if I were you, I'd sell everything and buy everything 50 percent off in a few years. And he was almost laughed off stage because it was set up as a debate. And the other guy at the time started a PowerPoint presentation with the cute little girl blowing a big bubblegum bubble. And it was just like, oh, this is gonna be a soft landing. But I just remember that feeling. And he only got invited back in 06 up against the Wall Street builder analysts because the builders started to get uncomfortable. And the feeling was very different that year. But, you know, just a lot of people weren't wanting to listen because it was so good. Timing is so important. And if you're not data-driven, it's so easy to be emotional. [00:09:23][73.5]

‍Sean O'Toole: [00:09:24] So you and I have mentioned your dad a couple times. Just really quickly, Bruce Norris. Oh, yeah, it's true. It's hard money lender and really built a big reputation by going out and letting people know, at least in California and especially Southern California. And he was just I just a shout out to Bruce because he definitely. I think was probably one of the most vocal folks in the United States on getting out there. Pre-crisis and I, after not doing the Big Short, started a company called ForeclosureRadar, which was very well-timed to help people, to help realtors and real estate investors, government agencies and others understand what was going on with foreclosures. But obviously, that's that that yeah, that's how we got here. Right. [00:10:17][52.7]

‍Aaron Norris: [00:10:18] Did you develop that tool while you were buying at the courthouse steps or... [00:10:22][4.0]

‍Sean O'Toole: [00:10:23] Yeah, initially I built it for myself. For those in the software industry, I built it originally as a single tenant, a product that was made for me and only me. And so I rebuilt from scratch to be a multitenant architecture. And so so, yeah, I spent 2006 rebuilding it and lost it in 2007 just ahead of the foreclosure crisis. Obviously, you know, we'll talk foreclosures and lots of stuff, but there's lots of topics we're going to touch on here, right? [00:10:58][35.3]

‍Aaron Norris: [00:10:59] That's what I'm so excited about. Urban Real Estate podcast. Yeah. We don't have to just talk about economics. One of the things that I love the most is sort of looking outside of real estate and things that can impact real estate. And I think that's why the Doris group had this event called I ISAF Real Estate. And you were the most frequently requested guest star. I think you did 10 out of the 12 that we've done since 08. And it was a no match to the time in 2008. We start diversified real estate and I survived. [00:11:28][29.1]

‍Sean O'Toole: [00:11:29] Raised an off my name is great. Brought all the real estate investor clubs together, but it was awful lot of money for charities. First cancer and then children's make a wish. [00:11:39][9.9]

‍Aaron Norris: [00:11:39] St. Jude's is pretty awesome in it and being able to talk about all the strange topics and you were always able to talk very succinctly about things outside of real estate. I will never forget the time that you brought up 3D printing. You bought up 3D printing to your son and then you start thinking about, OK, well, if I'm a Home Depot and I don't have to have an entire section of, you know, screws and bolts because I can print them on demand. I mean, I just love talking about the future. Is there anything? What are some of the key things that you look at that can impact real estate? Sort of in the future and then technology sector? [00:12:19][39.7]

‍Sean O'Toole: [00:12:20] You know, I think there's just so many different things. I think Hyperloop is really interesting. You know, I was traveling one time from Reno to Vegas. This. Right. And you go down this long section, a road, and it's dead town, dead town, with restaurants and gas stations, dead town, dead town, town with gas stations and restaurants, you know, like who picked which of these towns thrived and which ones died and what did the ones that die. Right. What happened? And I had this epiphany that it was all economy and range on cars and right. And back in history, when that fuel economy was lower and the range of a car was less, you needed each one of those towns to refill and you're quoting slower and you needed to refuel and maybe get some food and whatever. And as the range of cars improved and the speed of cars improved. Right. The need for those towns decreased. And you left ghost towns in their wake. And so you think about Hyperloop, which theoretically you're traveling 700 miles an hour. Right. And you can go from L.A. to San Francisco at 700 miles an hour. Is there a need for a stop anywhere in between? Right. Right. And what does that do for all those communities and all those economies? If you know stuff, people aren't flowing back and forth on those routes and going into the gas stations and the local stores and, you know, the fast food places and the rest. I think there's, you know, so I think transportation, vertical takeoff and landing, you know, aircraft changes so much. Right. Like and I don't think people really are fully appreciating how much of an impact transportation has on housing. So it's just as one example. [00:14:22][122.6]

‍Aaron Norris: [00:14:23] Well, and then you've got the juxtaposition of Covid-19 and a lot of conversation about people rethinking their urban existence. And this happened early on and COVA 19, where just even if you look at L.A. versus Riverside County, Riverside was one of the first that ended up coming out with a penalty. I was talking to some investors last weekend who had AirBnB, and they have a neighbor that's not very happy about it. And I asked them if they continued renting that they're like, oh, no, it was would've been thousands of dollars because the neighbor was on watch. So you had L.A. people trying to escape the urban environment, but so you've got something like a Hyperloop. And then are we rethinking urbanization? And do we want to live in a rural environment? What makes up a good city? Good stuff. [00:15:10][46.5]

‍Sean O'Toole: [00:15:10] And, you know, most people would talk about wanting to improving affordable housing. There are a big answer is vertical got to go vertical? Vertical development, greater density. All right. In a COVA 19, is vertical development greater density packing people into elevators? I don't know that's the answer. Right. So I think there is there is a lot to think about with that. And a great realization, I don't think people fully realize with work from home. You know, now it's you to go be someplace where maybe work isn't down the street, right, or work isn't within commuting distance. So that enables some re-ruralization. But I think there's a bigger one, which is Space X and others are now launching low Earth orbit satellites and low Earth orbit satellites could bring high-speed Internet to just about everywhere. And now you can be out in the woods and be doing this podcast and nobody will know you're miles away from everything rashly with your blue background. [00:16:18][68.0]

‍Aaron Norris: [00:16:20] Exactly. You'd never know it. You could swap out the background as a you know. Exactly. I just being able to go to CES the last few years. I love studying home technology, artificial intelligence, virtual reality. And I'm constantly running it through the filter of how is this going to change how real estate happens. So one of the things in a book I just bought is the future of education, talking about how some of these convergence of technologies is going to change. What if you're in a market like Riverside? We have four universities. What if we don't need four universities and we're reliant on fifty thousand students coming in every year? And you don't see something like that coming. And time to get out as a real estate investor. I just love this stuff. Right. [00:17:07][47.1]

‍Sean O'Toole: [00:17:09] I just learned, though. You know, what kind of a failure you still are at remote education, right? Like, I mean, I think a lot of people just learned that remote education is not ready for primetime, especially with younger kids. [00:17:22][13.0]

‍Aaron Norris: [00:17:23] Yeah, I agree. I don't think parents are well equipped. And all of a sudden, probably teachers are going to be much more appreciated as soon as they're allowed to take kids back for sure. Well, OK. So we're going to get to cover lots about the future. I think marketing is another really big passion, certainly of mine using data. It's gotten for me, it's very much a conversation about Wall Street versus Main Street. I saw on the Web site somewhere you sort of had a quote saying that Wall Street was really destroying small business. Why are you so passionate about small business, by the way? [00:18:03][40.6]

‍Sean O'Toole: [00:18:05] Well, you know, small businesses, who gives to the local soccer team and, you know, football team and supports the local economy and supports the local non-profits and all the things that do good in your area. They also employ folks locally and, you know, they create wealth locally and not wealth that's respent locally. And sorry about that. And, you know, if to the degree that that wealth gets sent off to big companies, someplace else, that's how communities die. Right. It's the old joke about, you know, thriving small town. Wal-Mart comes to town. Everybody starts shopping at the Wal Mart. All the local businesses go out of business. Nobody has jobs anymore. Nobody has shut shop at Wal-Mart. The Wal-Mart goes out of business. And the end of the town. Right. I mean, it's over a simple vacation. But you think about that with e-commerce and Amazon and the rest. Right. But I'm a free markets guy. Like, I'm not saying, hey, there shouldn't be a Wal-Mart or hey, there shouldn't be an Amazon. But what I do think is it's important for small businesses to have the same tools and the same abilities and the same capabilities and a chance to compete. And the chance to do things. I love the term do things that don't scale. That's something that got popular in my business, the tech world. Right. Like to get a business going. You've got to go do things that don't scale right. Like air BMB. The founders of that are famous for having like drove around and take pictures of each house to make sure that each one looked really good. They can't do that on large scale. But when you're starting the company, you have to add local businesses can do things that don't scale on. They can differentiate themselves. [00:20:01][115.6]

‍Aaron Norris: [00:20:02] I think that's what our industry is really going to need to focus on to. It's really that qualitative versus quantitative conversation, that quality piece being so key because quality doesn't always scale, especially those high touch points and data coming out from the Builders Association. The National Association of Realtors shows that even Gen Z is looking at buying sooner than their Gen Y cohorts. Millennials, for the most part, they want to use realtors. So it's just us using that kind of data to more effectively talk to the people that we're trying to reach. So you've got these Wall Street companies that have that kind of data and we as Main Street get more sophisticated in what we're doing? [00:20:45][42.8]

‍Sean O'Toole: [00:20:46] Well, you know, I think I think something that, you know, I fell into it. I came out of Silicon Valley tech companies using data to drive everything. And by happenstance, ended up working in the foreclosure business and drove a public records to find foreclosures. Right. At first, I was just like looking in the newspapers. Right. And then I realized I would go down to the steps and they'd be calling some address, and I'm like, that wasn't in the newspaper. Well, these things can postpone for a while. Oh. So I got to go look in the old newspaper. So I go look at the old newspapers and I'm down at the steps and they call an address and I'm like, well, they didn't call that one. It wasn't in that newspaper. It was in some little tiny newspaper because they wanted to hide the fact that it was going to foreclosure. [00:21:33][47.0]

‍Aaron Norris: [00:21:34] Oh, man. [00:21:35][0.2]

‍Sean O'Toole: [00:21:36] Then I discovered the county recorder's office and that every single one had to be recorded there by law. And OK, now I've got a reliable source of data and holy moly, all this other data that's there, too, and the county assessor's office and the county court clerk and the rest. And I'm like. Oh, my gosh. Like, this is a treasure trove, especially for local businesses. And I learned later that big businesses do use this right. If you take out a home equity line of credit on your house, you're probably going to get an ad from Home Depot. You're not getting an ad from your local hardware store, from your local home furnishing store, your local swimming pool dealer. Why not? Right. That data is there. And, you know, so with foreclosure radar, you know, we started surfacing that public records data and now with PropertyRadar, that's really the big goal is to make sure you can know every single customer in your market by name, have some idea of, you know, the amount of net worth or income that they have and know how to reach them and know how long they've lived there. There's a lot of that stuff that's just public record and is freely accessible, you know, to use. So, you know, I think there's a huge opportunity there to level the playing field for Main Street. Unfortunately, where Main Street is going right now is relying more and more on big tech companies like Google to send them business or, you know, send them business or Amazon to send them business. And I think they can create their own. [00:23:22][106.0]

‍Aaron Norris: [00:23:23] I'm excited. It's the democratization of data. But, you know, close to PropertyRadar, it's really changed the game as far as making it usable and all in one place. You know, it may be publicly available, but the thought of going down to your local county recorder's office, you're like what it was. [00:23:43][19.5]

‍Sean O'Toole: [00:23:43] It was pretty tough. And that is I realized the value of doing it for others pressure because I did it myself for quite a while and it's tough. [00:23:52][8.6]

‍Aaron Norris: [00:23:53] Well, and I there's sort of a philosophy internally about chocolate versus peanut butter, which I really like and I've been talking about for years. I think there's room for everybody in real estate and it's just finding out what you bring to the table. And then you combine it the where the peanut butter is. It's sort of the data that allows you to connect with the consumer. So I am very much looking forward to dissecting a lot of different channels and marketing channels, exploring funnels, maybe specific niches. And that leads into the next topic that we're going to cover a lot of strategies. [00:24:27][34.7]

‍Sean O'Toole: [00:24:31] I'm just going to say, you know, and, you know, I think for those just tuning in or wanting to learn what we're what we're trying to cover here with the data-driven real estate podcast. Right. Is. Really for any property-centric business. So Realtors, real estate investors, commercial brokers, property managers, home services companies like roofers. So they're right. All the rest. Like, we're gonna get into this podcast. Like, how do they reach local customers? What are the best methods? How can they do it themselves? How can they cut out that middlemen intermediary that they have to buy leads from today that can turn them off tomorrow? Because somebody else is going to pay more. Right. Like, I think. All of those kinds of how you build and grow small business in a local town, you know, or towns like, you know, and compete with the big guy, and whether it's using public records or other data-driven approaches, you know, is definitely a key piece of what this podcast is going to be about. [00:25:41][70.7]

‍Aaron Norris: [00:25:42] And I love that piece. I really think it is some very unique guests that we can have strategies, market timing, which we'll get to in a second. Market timing often dictates the strategies that work in any specific market. And they can be so different. I mean, you started with ForeclosureRadar and now, you know, PropertyRadar is about the people. But it just so happens right now, in this moment in time, even with Colvard 19, there's not a lot of distressed inventory to talk about. It's about equity sellers. And that strategy. My favorite. My absolute favorite is when I talk to somebody that's been through sort of like a big guru camp. Right. And they call it like I'm doing REOs. And you're like, oh, are you? And I'm like, great, you know, I'm going to help you out. Go online type and Bank of America REO, they're like, all right, I'm here. Type in a city, you know, type in Riverside. They're like, there's five, yes, there's five. So, you know, they've been sort of sold this idea. I'm like, listen, it's not that it doesn't ever work. It doesn't work right now. And where you're wanting to do this, this is where the opportunity is. So it's data, it's market timing and then understanding how to reach that customer. Some of the big what are some of the big strategies you're seeing right now, let's say, on the West Coast? Have most of my people are doing, let's say, you know, equity sellers and some people only do collecting. [00:27:05][83.1]

‍Sean O'Toole: [00:27:06] Real estate investors? [00:27:06][0.5]

‍Aaron Norris: [00:27:07] Yeah, for first for now, let's do strategies there. So I have some people who cold-call only doorknock. Some that do mailers. Some that do SEO and SEM work. But it's all about the equity seller. Any other strategies you see quite a bit right now? [00:27:24][16.9]

‍Sean O'Toole: [00:27:25] Well, you know, I think one thing is that, you know, real estate is still going up right now because of the lack of supply. But it's definitely flattening, right? It's not goin