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The Chicken Or The Egg
It is a little different episode. We’re going to talk about some stuff here. We’re going to title this The Chicken or The Egg episode or in the note business, it’s The Property or The Bank episode. What comes first? The chicken or the egg? The property or the bank? It spawned from a phone call I had with a potential student. He reached out to me and said, “I am working on a property. I found this property.” I started laughing. I was like, “Who’s the bank?” He’s like, “I don’t know who the bank is.” This is one question that I run into quite a bit with different investors and different students. We’re all excited about reaching out for the chicken. In this case, we use the chicken as the property, “I’ve got a property. It’s next door. It’s around the corner. It’s in my neighborhood. It’s in my backyard. I want to buy that,” and that’s not always the case.
Site Unseen
You’re going to want to take some notes on this episode because many of us are getting ingrained with the tangible side of real estate. What do I mean by tangible side? What I mean is being able to go out and touch it, see it, scratch it, smell it, hump it or whatever it might be. We get to that thing and it’s easy to see that. That’s tangible to see. I can understand that, plus every fix and flip, wholesale or TV show, is a visual thing. A lot of times, we as individuals have no imagination. As soon as we have some imagination, then that’s a great thing to have. What a lot of people aren’t necessarily comfortable with is buying an asset site unseen. Site unseen doesn’t mean it’s not have been seen. That doesn’t mean it’s owned by Mr. Invisible or it’s built by Wonder Woman and her invisible jet where you can’t see it. Eyes on a property are realtors, rehabbers or friends and family driving by. We have a lot of people look at assets that we haven’t look at. It is site unseen, but we have people that go out and take a look at them for us and then they report back.
What’s funny is this guy on the phone was like, “I want to buy notes on this deal.” I’m like, “Who’s the bank?” The guy was like, “I don’t know who the bank is but I have an idea.” I’m like, “Where is it located?” He goes, “It’s in Lenoir, North Carolina.” I’m like, “Give me a second.” I logged in on NETROnline.com. I pulled up the county records. I go to the county appraisal district. I said, “Give me the address.” He gives me the address, I type it in and it pops up two records. I chuckled because I see immediately that this is not owned by a major bank. It’s probably a contract for deed, knowing the value is in the 52 range but I recognized the name of the person that owned it.
The person has a company that we have dealt with. It’s another investment fund that we have dealt with and that we’ve bought assets from and sold assets to. Some of our students have bought from them in the past. I was like, “I know who this person is.” It’s probably not a traditional first lien. It’s probably a contract for deed. I asked the guy if it’s vacant or occupied. He goes, “It’s vacant.” I’m like, “Here’s who you need to reach out to. Here’s who the person you need to call.” I had two names and I say, “Google them and find their information online, easily go to LinkedIn and reach out to them that way.”
What’s funny is a lot of people wanted to do that. I get phone calls. I had an agent called me up who came in and said, “I got an asset right around the corner from my house. I want to buy the note on it.” I’m like, “Is it occupied or vacant?” He’s like, “It’s vacant. Bank of America foreclosed on it.” I’m like, “Once a foreclosure has gone through, there’s no note on it that we could buy.” Once the bank has foreclosed and has taken the property back, it’s an REO at that point. They’re going to list it with an agent for the most part. You’re not going to be able to do that. That’s one thing I want you to know. If you’re out driving for dollars like many investors are doing when they begin with or they want wholesale assets and you’re looking at properties that are around you. The first easiest thing to do is to jump online. Go to NETR Online, go to your county appraisal district or your county clerk and pull up the address. If you’ve got the borrower’s name or the property owner in the area, pull up and see if you can track down who the bank is.
Call your local agent. A lot of times, your local agents are looking at comps. There’s a button that can often be pushed on when they’re pulling up property information called the realist report. It will show who the most recent lender is on file. That will not reflect any assignment of mortgages that have not been filed, but it will show the most recent bank that has been filed with the county clerk’s office. If that’s a bigger bank, one of the top ten banks out there, especially the top five, you’re not going to be able to buy that note. You might as well move on and get to something else. There are no bits or buts about it. In this situation, that’s going after the egg. You’re going after the egg or the property because the egg was laid by the chicken.
I was talking to this guy. I was like, “I understand you’re trying to invest in North Carolina.” He’s like, “I want to invest in my own county.” I’m like, “The notes are not for you.” He got all upset with me, “What do you mean they’re not for me?” I was like, “If you’re trying to focus on one area, a couple of zip codes or a county, that’s not saying you can’t find stuff if you were in Ohio, Michigan, Illinois or Indiana. Are you going to find some stuff in North Carolina? Yeah, you’ll probably find some stuff, but it’s not going to be the easiest thing to do. You need to go upstream to who laid the egg to the chicken. You need to go to the bank.” That’s what I was trying to say to this guy. I was like, “You’re searching a one-off deal here. Why don’t you go to the bank or go to other banks like we teach and start reaching out to asset managers? Get a list sent to you that you can share versus trying to track down one freaking note deal.”
It’s funny, someone was always telling me, “Once they get aggressive, you hit them in the head with something that they can’t quite grasp.” People get quiet and come back with a question that’s completely on the opposite side. This guy was like, “Are you going to give me the name of the person?” I’m like, “I did. If you weren’t listening, I went through and told you to go to such and such. This is the company name. They’re either out in Arizona or Oklahoma knowing that one of the principals graduated from Oklahoma. It says Oklahoma on his LinkedIn profile. There you go, search. I don’t have a phone number for you.” He’s like, “Okay, I’ve got to go.” Many of you out there are probably banging your head because you’re sending out yellow letters to ugly properties or out of state owners, trying to track down the borrower of the property or the owner of the property. You’re trying to get them to sell you their one house.
I know that’s the old way of doing things. That’s the way that has been taught for decades. Send a letter out to foreclosure, to unoccupied owners, to out of state owners or to your landlords. I get that but if you want to be in the 21st century and be somewhere in rarefied air hunting the chickens that are laying the eggs or hunting the banks that are delivering the notes, you’ve got to go direct to the source. That’s not the same thing as driving around for hours and then go back and do research, just pull up a list and start dialing for dollars. If you find that an ugly property you’re looking at is with a smaller bank or institution and it’s got an LLC that owns it, do research and pick up the phone. That’s great, but if you find regional banks or smaller bank, there you go. Use that lead. Don’t get emotionally attached to that asset because you can touch it, feel it and see it.
Get Dozens Of Eggs
Use that asset as a warm lead into the bank to get the rest of their lists or to get the rest of the eggs. You don’t want to buy one egg and that’s what you live off of. You want to get dozens and dozens of eggs. That’s the whole point of being an investor. It’s not just one deal and then you have to go out and rehunt. Why don’t you get one source that keeps feeding? It becomes a golden chicken. It keeps laying golden eggs to you on a regular basis. I love what I saw on Facebook, Laura Blunk posted from Silver Hammer Investments here in South Austin posted about the fact that she loves it. Sometimes you get a list of 300, sometimes you get a list of three and sometimes you get a list of one. It’s all golden eggs. That’s the beautiful thing about the note business. You don’t have to be constantly sending out 500 to 1,000 yellow letters, postcards or direct mail pieces and hope that people can send you a deal. Let’s face it, direct mail is going to have a 1% response rate most of the time. If you get a 4% response rate, you’re doing something good. It’s probably a smaller list.
You have to realize that you’ve got to keep that thing going. It’s going to cost you. If you drop 1,000 letters in the mail, that’s $0.55 a postcard. That’s $550 right there, but then you’ve got to do it again. That doesn’t include the printing, your time and buying the envelopes. That’s a lot of work to chase down one egg or two eggs and hopefully, somebody calls you back. If you’re calling a distress list, the borrowers on those properties are facing foreclosure. They are not going to call you the day they get the letter. If you’ve got a short foreclosure timeframe, like the lists come out here in Texas the first Tuesday or come out the following Tuesday, you’ve got less than two to three weeks to get those lists, mail it out and hopefully get a response back. That’s difficult.
It takes time to get the banks on the phone and get them to delay the foreclosures or get them to delay things that are going on. You’ve got to have time. You’ve got to get the borrower to call you in a timely fashion and then they got to send you the authorization to release information. If you’re trying to do a short sale or find out if it’s going to foreclosure, how much are you going to bring to the table? You’ve got to get that pay off request. It’s a lot of reports. I don’t like doing that. That’s too much work. I’d rather call the banks or reach out to the banks with the emails. I don’t send any direct mail out. It’s not worth my time. Pick up the phone, email, LinkedIn and dial for dollars if I have to and get a list of notes that we can take a look at. That is not one asset. If it is one asset, great. If it is three, great but it’s making that connection that feeds you again and again. I want chickens laying eggs. I don’t want to buy one. I want to buy a bunch. I want to get a lot of stuff flowing that feeds me deals.
I’ll give you an example. One of the things that we talked about in a previous episode was about Note CAMP Commercial coming up. One of the bonuses that we’re giving to those people that are signing up for our Commercial Note Workshop is a list of 1,500-plus banks. Not just a list of banks, but contact phone numbers, people in charge and then their updated numbers. What do I mean by updated numbers? How much in nonperforming loans do they have? How much do they have on residential loans? How much in commercial loans? How much are 90 days late? There’s a variety of difference. How many branches do they have? Anytime you can get that, unfortunately, there are no emails involved with that, but you can dial for dollars on that stuff. You can sort it by the number of banks or their default rates show. Now, you’ve got some hot leads. You’ve got some leads to the chickens. You can smell the chickens.
That’s a smarter way of doing things. If you think about this, 1,500 banks that all have defaulted debt. How many leads are potential with that? There’s a lot. I guarantee, if you made 1,500 phone calls, you’d find some deals versus sending out 1,500 letters. You might get fifteen responses on one asset. I could probably get fifteen assets on one list, let alone with these banks. You don’t have to work so hard if you are one of these individuals out there who’s putting all this together and trying to wholesale a list off. This individual that I was talking to, I was like, “How long have you been an investor?” He says it’s a full-time job, which is great. He’s like, “I want to wholesale ten assets.” I’m like, “How much has been your average profit on this?” He wouldn’t tell me how much it was.
Chicken Or Egg: You don’t have to work so hard if you are one of the individuals who’s putting all the phone calls and deals together and trying to wholesale a list off.
I’m like, “Here’s what you’ve got to keep in mind. If you’re looking to wholesale, you’re probably going to make somewhere between $1,000 and maybe $10,000 depending on the asset as a wholesale. Maybe you’ll make more, it depends on the asset. Those same people that are buying those deals from you are the same people that would end up funding your deal as well. You just have to tweak your marketing pitch a little bit. Maybe you can get to partner with them. Maybe you can bring them on and you’re working together on some stuff. I guarantee that they would much rather have access and work with you if you’ve got a bigger list of eggs coming down the hatchery versus one and then moving on. Most people are lazy. What’s unfortunate is most people are lazy because they get used to learning one subject of wholesaling or fix and flipping. They don’t want to take the time to invest in their chicken brain of learning how to go find deals elsewhere or learning how to go further upstream.
We get lazy, “This is the way I know the things. This is how we’ve done business for years. I’m not going to change.” I laugh because you all have to realize that things are going to change. You have to evolve in your business. Maybe you’ve gone from the residential side. Here’s another way to look at that. This thought comes to myself. It’s the evolution of real estate investing. It’s the evolution of the real estate investor. The thing that you have to keep in mind is that we all have to start off somewhere. We all begin somewhere and there is no wrong reason for starting off, “I just want to get my feet wet,” that’s fine. Somebody says, “I want to prove the concept.” I’m like, “Okay.”
This concept has been proven for years. You’re not going to go add anything new to the deal. You’re not going to add anything new to the proof of concept whether you make it or break it. The concept has proven that it works. A lot of people are like, “I’ve got to pull the trigger. Give me a cheap asset.” I’m like, “Why would you want to buy a crappy asset?” “Just to prove the concept.” That doesn’t make any sense. Why don’t you do a good deal? Don’t go out and buy a $3,500 asset just to be a crappy asset.
Your Place In The Evolution Of Real Estate
What evolution of real estate investor are you? Are you a student who’s a chimpanzee trying to learn? Are you a wholesaler who’s standing a little bit upright on their own, who still a little old knuckle dragger and does not understand tools? Maybe you’re a rehabber. You started using tools for a light rehab of paint and carpet. Then you move on to the landlord side. Now you are using tools on a regular basis. Maybe you got a stick. You are standing upright all the time or a note investor which is the evolution of cashflow. It’s the evolution of man out there and you have to figure out where you’re at. Are you in the dark ages? Are you the frozen caveman investor? “I do not understand fancy words like cap rate, a note, default or servicing.”
As I like to say, “Note investing is so easy. A caveman could do it,” but it’s not always the case. There are a lot of cavemen running around out there that had this big thick forehead that keeps banging their head against the wall doing the same old same old. You want to be the evolution. You want to be standing tall. You want to be the smart person, not the person who’s running around like crazy trying to wholesale a deal for scraps when somebody else is out making most of the money. The thing I want you to realize is, unfortunately, a lot of us never evolve. A lot of people never grow up. A lot of people keep trying to do the same thing because they’re scared. There is scarcity. They have a scared mindset, “I can’t do that.”
Whether you’re correct or not, you are correct. Whether you’re right or wrong, you’re correct. You can’t do anything that you say you can’t do. You have to go beyond that mind block. You’ve got to take time to do some things. I’ve got a good friend who is a successful investor but he is always constantly creating more chaos. He has been like, “What if I go do this? What if I do all this marketing? What if I go do all this stuff?” I’m like, “Settle this crap down. Chill out.” Quit making more jobs for you. Quit creating more work for you. Quit trying to run all over to meet with two or three investors and do something smart. Evolve, become an upright investor, get rock and rolling, become the person.
Let’s face it, whether you believe it or not, when we start talking about real estate or assets and things like that, the biggest institutions out there are Citibank and Chase. Those are the two biggest institutions. Do you know how they’re making their money? It’s not on real estate, it’s on real estate loans. It’s not on taking the property back. It’s on making loans and doing the loan stuff. That’s why you have banks that are doing amazing things out there as far as growth and finance industries because they’re making loans. They’re using the power of paper to chase down plenty of chickens they’re leading. In their case, their chickens are us that are depositing money in their banks that are hatching eggs to them. What do I mean by that? If we go deposit money in the bank making 1%, if we can get 1% but partial upper percentage 1/10 of 1%, they’re taking that money and going out and lending it out at 8% or 18%.
What’s the return on that? It’s not a 7% difference. If they’re paying you 1% and they’re lending it out at 8%, that’s not a 7% difference. That’s a 700% difference because it’s ten times roughly of what you are doing. They are out there leveraging that money. It’s not a 6% difference. They’re making 600% on their money. That’s why you have these firms that have come in and bought up all these portfolios REOs. They got cheap money out there. They can overpay at $0.80 to $0.85 on the dollar as Goldman Sachs has done with a lot of the notes stuff. They’ve gone out and realized, “I’m going to go buy all this stuff because we got cheap money.” We’ve got money from people depositing money in their savings accounts and things like that we’re paying crappy rate of return to and we’re arbitraging that difference.
“We’ll pay you half a point and make fifteen points so that we make a 3300% return on our money.” That’s why they have the biggest banks, the tallest buildings, and things like that. That’s why they’re the largest companies out there. They understand the power of paper. They are not in the fix and flip side. They’re not in the wholesaling side. They are on the side of going out and raising capital, cheap and going out and making loans on a variety of things and arbitraging the difference between. That’s what you all have to realize. It separates most people in the real estate business from the ones that are making things happen versus the ones that are hustling. I get the having to hustle as work ethic. Gary Vaynerchuk has made it positive and popular to always be hustling. If you’re hustling but your hustle is on a hamster wheel running in circles, running around like a chicken with your head cut off, that’s not a smart thing.
You have to evolve and you have to tweak what you’re doing and learn from your mistakes. Learn from others and not be hard headed that you end up doing something different in your business. One of the best ways to evolve and start chasing the chickens versus the eggs is to start chasing the banks instead of the actual properties. Stop driving for dollars. It’s a tangible thing and you get excited about looking at other properties, but you’re not a fix and flipper. Most of you don’t have the experience doing it. Most of you are going to lose money. Most of you are going to overpay for assets, to begin with, because you’re going to get excited. You’re going to get dealitis and overpay. You’re going to be screwed because you overpaid for an asset.
It is what it is. I see it time and time again. You’re going to bite off more than you could chew. You’re going to buy something that you shouldn’t have paid. You’re going to over-rehab it and then you’re going to get stuck. Either you can’t sell it for what you’re into it for or you have to turn around and rent it out for a while and you will become a landlord that you don’t necessarily want to do. One of the smartest financial guys that I know, a buddy of mine here in Austin. He is an extremely intelligent financial advisor. He bought a property, over-rehabbed it, he was upside down on the property because he put too much into it.
He wanted to put money into the fixtures to rehab it of what he would enjoy, which his tastes being high, versus what his clients should have been. He paid twice what he should have paid for carpet. He put in nice paint. He put in a way crazy fixtures. He put nice travertine tiles in the property versus laminate in the kitchen or tile. I’m like, “Why did you do that?” He’s like, “I want it to be like I lived in it.” I’m like, “Are you going to be the person living in it?” He was like, “No.” I’m like, “That’s the problem. Why didn’t you just lend your money out at 12% on this deal or 13% or 10% even? You would have made more money lending it out to investors than you trying to rehab it and pull the trigger yourself.” We were sitting down there looking through it as I ran the numbers for him and he kept banging his head. He’s like, “That’s not a good day.” I’m like, “You’ve got to learn to evolve.”
Is everybody perfect? By far means, nobody’s perfect. I love the post of our buddy, Mike Hambright from Flipnerd of how he got a property that he hated. He finally had it off his books. He sold it finally. Our buddy, Chris Johnson, from Houston bought a house on the river. He thought it would be a great deal. It took a year to sell and he’s glad to walk away from it. I got some assets I’m glad that we’re walking away from. It is what it is. No matter how good your due diligence is, something crappy will happen. God kicks in and his cousin Murphy shows up and it is what it is. That’s the beauty also of being involved in the note business and here’s why. You’re a wholesaler chasing one asset. You’ve got to try to make that asset happen and fix it. It’s not going to happen. You’ve got to do a bunch to try to evolve into maybe a light rehabber.
If you bought and use your own money on a property, if you’re doing one property and rehabbing it yourself, all your profit is tied up in that one deal. Hopefully, it does go well. If something goes wrong, you overpaid or the market turns out, you’re stuck shut. If you’re a landlord, you can ride out some of these up and down waves depending on your market rent rates and stuff like that, but it’s a little more labor-intensive because you’re finding new tenants in it. You have to show up for some things. You can hire a property manager. Good property managers are often difficult to find though. Then you’re dealing with toilets, tenants and trash out. It’s a revolving circle. Unless you’re Jeffrey Taylor, my buddy Mr. Landlord, who does a great job teaching people about that, that’s a smart way to go. You can get some depreciation, you have cashflow and things like that, but the assets.
Chicken Or Egg: No matter how good your due diligence is, something crappy will happen.
Leveraging Investments Over Assets
I liked the fact that it is taking the same amount of money, I could leverage the investment over several assets. I know the fact that I’m buying the debt, I’m buying the chicken and not the hatched egg to feed me on a regular basis. It’s like going to the feed store. I can remember one of my earliest memories, I was probably three or four years old. I can still remember to this day. All my family was pretty much from Minnesota. I grew up in South Texas. I consider myself a Texan boy but Minnesota roots and my mom and dad were farmers. My grandfather was a dairy farmer and we had chickens and things like that. I remember being a young boy going to the feed store and my grandfather’s going to pick up some chicks. He bought 100 chicks, little chickens.
I don’t remember the cost. We’ll say $100 and it was to be over these 50 chicks. It’s $2 a chick. You’re going to lose some of those chicks along the way either to disease, death, fox, eagle, you’re going to fall on them or whatever. Those 50 chicks are going to grow into hopefully 20 to 25 chickens, which hopefully those 25 chickens are now laying eggs on a regular basis. Instead of buying one egg or a couple of dozen eggs, you now have several dozen every month coming to you. That’s the analogy I want to use here for the note business.
You’re going out buying these little chicks. You’re working through the asset manager or your asset manager servicing company. You get him to start paying you off. If they don’t pay you off, do you know what you’ll do? You have yourself a chicken dinner. You go out, chop that head off, grab it by the legs, drop the chicken in the boiling water, pull off the feathers, slice it up. Now you have chicken. You’re having breast, chicken legs, thighs, chicken chops, whatever you want to have with that. That’s the thing you’ve built up. That happens in the note business. I love it when somebody gets modified. We had a borrower reach out to Hazel and say, “I want to stay in my house in Ashtabula, Ohio. I can bring $800 to the table. I can pay $650 a month, which is about $300 over my existing payment. Would you allow me to do that? I’ll stay in the house and I’ll keep making that payment if I’m caught up.” I’m like, “Sure, I’ll take that little egg every month from you.”
Waiting For the Hatch
It’s a pretty good return on investment for us when you start figuring what we paid for the asset. I don’t have to rehab the property and that will, in twelve months, becomes a full-fledged chicken that’s laying eggs on a regular basis. It becomes to golden chicken. Now I can sell that chicken off, that house off, that note off at a higher return than what we paid for the asset. I’m willing to put that to work. Why not? Who wouldn’t be interested in that? We’ve talked a lot about analogies of chickens and eggs, but what you have to realize is that’s where it all comes down to. You don’t want to have to run all over to hunt. You don’t have to run all over trying to feed yourself with either wholesale and trying to fix and flip in or whatever it is. Wouldn’t you rather walk outside to either the mailbox or preferably walk to your chicken hatch, your chicken hunt. What they’ll call boards and grab your chickens and that’s your eggs. That’s the action. That’s the way that we look at with servicing.
Every week we get a wire that comes in or a deposit comes in from what chickens have hatched their eggs or what chickens have laid eggs. This borrower made a payment. This borrower made a big payment. This borrower made a $10,000 payment they get caught back up. This borrower made a $5,000. This one made a $1,500 payment they get caught back up. Those are chickens that are starting to perform. We had to wait for a little. Some of them evolve over faster. Some are getting done immediately. Some of them are taking 60 days, 90 days, six months. Some are taking as you’re getting ready to foreclose. They’ll come back and say, “I would.” You have to weigh that. Does it make sense for a chicken dinner now or is he or she going to start laying eggs on a regular basis? You have to make a decision. That’s still a good decision because you’ve got multiple chickens laying eggs for you, multiple notes performing, which is the whole goal to figure that out. Here’s a good analogy. If you’re a wholesaler out there and your average wholesale fee is $5,000, you need to do twelve deals a month making your $5,000 to make $60,000 a year.
You have to do that every year for ten years. If you want to do that, that’s 120 deals you have to do over ten years to get to $600,000. Let’s say you buy ten notes that are paying you $500 a month, that’s $5,000 a month. That’s $60,000 a year on those ten deals. Hopefully, they perform non-stop. That’s ten times less the amount of work. That first year, you’re going to be working and working to get these ten assets that are feeding me every month. At that point, then you’ve got cashflow coming in. Now, you do not have to go back out hunting. You’re not going to have to go back out chasing more chickens or more ugly houses or more dilapidated properties trying to make a deal out of crap.
That’s what I love about the note business. It’s something that can feed you on a regular basis. Our buddy, Wayne Snell, has done a great job. He bought 300-plus assets in his first three and a half to four years. Now, he’s only buying stuff off the cashflow that he’s bringing it off his existing asset. He’s having fun. He’s laid back. He will take time to spend time with his mom or spend time with his dad or go to the Swiss Alps and go hiking. The thing is now he’s like, “I’ll do whatever I want too. I’ve got plenty of cashflow coming in and I have money. I can do whatever I want. I can live wherever I want.”
That’s the thing about note business. If you structured this stuff right, that’s not saying you don’t have some borrowers that fall off the wagon. You don’t have some chickens that stop laying eggs. Maybe they get sick or they need whatever. Send it to legal to start the foreclosure process. Send it to your attorneys. Get your servicers onboard to start the foreclosure process to refer out to things. That happens but it’s still easier focusing on let’s say 10% of your portfolio that you have to replace every year. That’s still a lot easier chasing the note business than it is chasing chickens that you try to get hatched every time or trying to get the ugly property out there.
That’s why this topic is all about not the chicken or the egg. A lot of us are chasing the egg first or chasing the property first and we get disappointed. I get phone calls every week from people like, “There’s this property” I’m like, “Who’s the bank on that?” “It’s Chase.” “It’s not going to happen.” “It’s Bank of America.” “It’s not going to happen.” “It’s Citibank.” “It’s not going to happen.” One of the smart things that you might want to look at doing is if you know realtors that their big focus is short sales. Short sales are a great way between the chicken and the egg aspect of things to find some great deals.
Short Sale Listing
What do we know about a short sale listing? Usually, they’re up to the bank and owed more than the property’s worth. The owner of the property is looking to sell and walk away. They don’t want to stay in that house. They’re willing to walk away. Often the banks will take a short, a discount on this thing. The idea here is that you can get the discount below what market value would be. If they owe $100,000 that you’d get it at $85,000 to $80,000, maybe even $75,000, but someone has to come in willing to pay $85,000 to $90,000. You can make that money in between what you’re getting in the bank to short off versus what the property is worth. It’s not quite as extreme as it used to be years ago, but it’s still a phenomenal way to speed up the transaction on a short sale.
With the implementation of Equator and some of these other software programs in the short sale industry, it’s gotten faster to do short sales. It’s not taking six to nine months for the most part. If you’re on it, you’ve got a good short sale edge, they can usually be doing this in 90 days or less. It’s all about two things. One, marketing the property correctly so you get a quality asset or quality contract coming in from a buyer. The last thing you want is a retail buyer who wants to move into the house in 90 days and then have a deal that takes nine months. That contract is not going to stick around because if it’s a retail buyer, they’re going to go out and find something they can move into immediately. Especially as you come to summertime and then also the end of the year, those are the two biggest times of the year that you’ve seen properties move. It may happen year-round, but that’s what I’m trying to get when people have kids, moving schools or are changing jobs.
If you can find a short sale agent or properties listed for short sale and you can jump on the county to find out what bank represents that. If it’s a smaller institution or a regional size bank, you might be able to squeeze yourself between the transactions of buying the note at a big enough discount, that you can then turn around and prove the short sale. You’re making that spread between what you paid for the note and then what you agree to sell it off. Some people are like, “Why won’t bank always do this?” Because most people don’t know that you can do this.
Most investors are too busy chasing what they’ve seen on TV or what they’ve learned from a wholesaling class from another wholesaler who doesn’t understand the note space. I had a realtor for 25 years in my office tell me like, “I didn’t even know this existed.” I’m like, “You did because you’ve got the letters. You didn’t know that you could tap into it.” You didn’t know that the chickens are out there that are laying eggs, that you can go straight to the source first and having to wait and see what falls out of their caboose. That’s the thing here. What are you chasing? Are you chasing the chicken? Are you chasing the egg? Most people are out there chasing eggs because they’re getting one asset, one deal and they’re hoping they can make it happen. It’s not going to happen. You can make an omelet. You can bake a cake, but you’re not often going to grow another chicken out of one egg.
You got to do it multiple times to build cashflow. If you want to build cashflow, then go upstream and go direct to the banks. Use some tools like Lane Guide, Scotsman Guide, FDIC.gov, DistressedPro. Use some of the software to track down who do I need to talk to? Who’s the special assets manager? Who’s the secondary marketing professional? You’ve got to get trained. You get to learn what you’re doing. Otherwise, you’re going to end up burning some bridges thinking you know when you don’t know everything that you need to know. You’re not an expert because you’ve been a wholesaler for a year. You’re not an expert because you’ve been taking somebody’s class for a year. If you didn’t know that the note business existed, you’ve not been in the finance side of this thing, you didn’t come from a bank, or you didn’t come from mortgage broker side, you have a little bit more of a learning curve out there. I don’t care how successful fix and flipper, realtor or title rep you are, you’ve got to learn what goes on because this is a different model of evaluating assets.
Chicken Or Egg: Most people are out there chasing eggs hoping they can make more. It’s not going to happen. You can make an omelette or bake a cake, but you’re not going to grow another chicken out of one egg.
It’s a vacant asset and the guy is like, “I’m offering $0.60 on the dollar.” I’m like, “Why?” “I’m going to offer 60% of ARV.” I’m like, “That’s the most stupid thing you can do.” It’s a vacant asset. Once you offer $0.10 on the dollar, it’s a vacant asset in a distressed area, $5,000 if it’s a $50,000 asset. Try that and work your way up. I would not overpay for assets because then that limits the amount of availability. By buying a note, oftentimes you’ll get a bigger discount than the retail buyer. Go to the foreclosure auctions in your county on a monthly basis. Here in Travis County or Williamson County, our foreclosure auctions are the first Tuesday of the month. There’s not much selling off of those things. 20 to 30 assets may be going to foreclosure. There are hundreds of people there with cash or checks to buy stuff. You’re not going to win an asset at a foreclosure auction being a brand-new investor. It’s good to see what’s going on, but then go back and go market to places where other people aren’t buying. Go market for deals in other areas. Go raise chickens and go find chickens elsewhere. They will hatch more eggs if you’re not buying at the same place that everyone else is buying the chickens.
That’s where it all comes down to everybody. Be smarter about where you’re getting your deals from. The funny thing is this guy in North Carolina that came and said, “I’ve had four people trying to sell me this asset.” I started laughing. He’s like, “I was listening to your podcast and you talked about how the swing comes to you and ask for proof of funds before you even know the price if they’re joker-brokers.” I’m like, “That’s exactly what it is then.” They probably got this on the list from somebody else and they’re trying to sell it. The minute you make an offer and you ask for the collateral file and then they disappear on you. It means one of two things happen. They never control that asset, to begin with, anyway or the seller tried to come back with a higher price than you. They didn’t want to come back to you and negotiate because that happens a lot. People get lists and your joker-broker is going out there.
The best thing I can tell you if you get a list in is to do a little research. Go to NETR Online, pull up an address, see who the bank is or see who the owner is. That’s pretty easy. If you see where the email came from and it’s not the same person, you’re dealing with a broker. It’s not a bad thing that you’re dealing with a broker as long as their direct. Don’t be in a daisy chain of chicken hatchers who’s trying to upsell you on an egg that they could get for $0.30 and they’re trying to sell it to you at $0.60 and make that 30% difference.
Brokers should tell you, “I’m selling this on behalf.” They maybe have an email address, they know who they represent, they can represent you or you’ve dealt with them before. I’ve worked with brokers. I’ve got some brokers. I’ve got a broker selling assets for me. I also buy from a few brokers that represent some larger funds. What it comes down to is the funds of the sellers don’t have time to deal with one-off bids. They want to deal with somebody who’s that catch-all, that they can help facilitate the reach out. They’re accepting the bids, they’re reaching back out, they’re countering and the collection of paperwork and documents from one place versus the distribution. It’s a smart thing. If they start asking you, “I need to see your letter of intent and proof of funds before you even bid,” they’re joker-brokers. Don’t waste your time with that chicken blanker. They are going to screw up the deal and it’s not going to be a good day.
The last thing you want to do is spend time pulling numbers and doing due diligence just to realize that you’re not dealing with the right person, the decision-maker or the person is at least honest on the front end, collect these bids and share with you back and forth. If you make a bid, you should get a counter back in a couple of days, 48 hours for the most part. When we’re pretty good, bids came in last on Monday, we had counters out Tuesday afternoon and we’ve already got some acceptance and counters back and forth with some different people. That’s a good thing with making some things happen. If you’re chasing eggs, go upstream, chase the chicken and find out who’s laying those eggs.
That’s a source that’s going to feed you on a regular basis. I guarantee you don’t have to work so hard every day of your life chasing the wholesale deals. I get it. It’s quick cash. You aren’t really invested in the deal. Somebody else is, you’re putting a deal together and walking away. You can make money doing that, that’s fine but it’s a never-ending cycle. You will never get ahead in life by being a wholesaler. Build some strength in your business. Reach out to some banks. Reach out to direct sources and start putting those deals together. Instead of going into your wholesale investors to give you a flat deal, have them come in and help you fund a deal and partner with them. There are a couple of things that you can do to make more money instead of leaving so much money on the table. That’s what I’ve got for this episode of the Note Closers Show. Go out, take some action, forget about the eggs, chase the chicken and you’ll feel a lot better up there when you’re chasing notes versus the properties. Have a great day and we’ll see you all at the top.
Important Links
- NETROnline.com
- Note CAMP Commercial
- Flipnerd
- Lane Guide
- Scotsman Guide
- FDIC.gov
- DistressedPro
- http://www.NoteBluePrint.com
- Silver Hammer Investments