- October 16, 2019
- Posted by: august19
- Category: Podcast
In every business venture, maintaining good relationships with people around you will always be key to any form of success. In this episode, Chris Seveney and Gail Anthony Greenberg re-emphasize the value of caring for your clients business-wise. They share how that paid for them in their huge package of deeds for assets that they acquired as part of a recently closed fund. What kept them going in the notes business is having great associations with clients and partners and how they do JV. With this, they share how relationships, honesty, and clarity impacts any business as well as business plans on deeds especially the performers.
Listen to the podcast here:
Handling Deeds For Assets Through Promising Business Relationships
Welcome to another episode. Gail, how are you?
I’m good Chris.
What happened is I stopped at the post office to pick up a large package of deeds for assets that we acquired as part of a fund that we closed. We did our first initial acquisition which we were working on due diligence on the second set of assets to acquire. We got the deeds and everything in place and going to roll into our show a little bit to talk about some of the things we have going on but more importantly, we’re going to talk about what?
I wanted to first of all say that this large acquisition, it’s the classic pig and a python. You have these little restful intervals where you’re waiting for someone else to do something. Basically pre-purchased, we had a big due diligence cram jam. After we had them under contract, then we did the real due diligence. That was an entire three or four day holiday weekend of you and me doing nothing but the reviewing collateral. We had this little breather in between where we were waiting for these deeds to get signed and now they’re here. It’s time for the next giant up the mountain effort on this thing to happen. Luckily, you’re not part of it. This one’s all on me.
To give people a time frame, I’ll say mid-September, around 18th or 19th, whenever it was. That week is when we closed on these assets. To get the deeds and stuff took several weeks alone, still we’re not transferred over yet. We’re still going through that process which will probably take another week or two. Sometimes people think, “I bought the loan. What’s next? What’s going on?” We’ve mentioned in prior episodes that this process does take three to four or five weeks depending on the size of the number of assets that you acquired.
The time feels especially long when you’ve got like this big bunch of things that you’re eager to start marketing. In some cases, the paperwork needs to be fixed. You’ve got to get that done before we can sell them or whatever we’re going to end up doing. Most of these are performers so we’re not in as huge a hurry to sell them because they’re paying us while we’re waiting for things to happen. Generally, we’re going to sell them off as we have good offers on them. You need to have all your ducks in a row before you feel like you can turn them loose and put them out there.
We wanted to talk about acquiring this large pool and we’re going to title this episode as How We Raised $1 Million in a Month?
My friends asked me what I’ve been up to and I was like, “My partner and I raised $1 million last month.” It does sound very good. We are truly overnight successes that took three years to do.
What I say is the inside joke on this is, “Yes, we did do.” It’s over $1.2 million was the final tally or whatever. The number is a lot but it’s not something that we woke up on September 1st and said, “We’re going to do this.” You’re getting on a plane when I decided to run this by you. It’s been years in the making. The point we’re going to try and make is the note investing business is not take a weekend course and think you’re going to go out and raise $1 million and make hundreds of thousands of dollars your first year. As they always say, “It is slow and steady race. It’s a marathon, not a sprint.” Those are some of the stories I want to share how we got to where we are.Time feels long when you have a bunch of things that you are eager to start marketing. Click To Tweet
This is very interesting because you and I certainly know a few people to have a good deal less experience than we do and time in the trenches. Some of them already have funds. It was very much that they had a timetable in mind like, “I’m going to learn notes.” I don’t know how many notes they decided was sufficient to be competent, an expert in note investing and having joint venture funders along the way. Some of those people did literally wake up in the morning and be like, “I’m going to start a fund.” They went and got the paperwork done by the attorney and they started making phone calls or whatever. I don’t know exactly.
For us, it happened rather differently. This is something that takes time in the business to achieve also. You and I had an opportunity presented to us. It wasn’t like other people didn’t have the same opportunity presented to them. You, because I was getting on a plane, got a pool of notes. I don’t know if you’ve started picking through them but at some point you stopped yourself, you called me and you said, “There’s this pool of 43 performing CFDs and we should make an offer on the whole thing.” I was like, “What could I say? It was time to turn my phone off and put it in airplane mode.”
You’re like, “It’s perfect timing. Chris, you got to make the decision without me, so I can’t be blamed.”
I believe you arranged this whole thing exactly this way, but brilliance as always, Mr. Seveney. Point to you.
That was the first bit. Jumping back a little bit, Gail and I started talking about a fund. We had our attorney drafting the paperwork back at that time. Over the course of the spring, we had our attorney draft all the documents. It was Regulation D 506(c), which is a fund with accredited investors and you can advertise it. We had that drafted and we put it on the shelf. We’re waiting for the right opportunity. When these first 40 came out, we were looking at putting it into a small fund. What ended up happening is we had one individual partner on the whole deal with us.
We put it out to the group, “We’re looking at potentially doing a fund to take down this pool.” One person was like, “How much do you need?” “It wasn’t a huge number.” He was like, “I’ll do it.”
Round two came out and the seller came back and said, “You took down the last one, why don’t you take this one down?” That’s when Gail was getting on the airplane.
This was 90 some on the heels of the 40 some so it was 47 and then 93.People want to do business with people that they like and trust. Click To Tweet
It ended up being 40. I don’t even know what the last count was.
It was 85 because I did all the deeds for them.
A few of them, I got to go through with you. They had to buy them back because there were a few issues with a few. What we ended up doing is for this group, we ran it through a 506(b). We had the attorney finalize the documents, converting it from the documents we had from a 506(c) to a 506(b) which is a fund that you can’t advertise. It has to be people in your inner circle. The relationships that we have built essentially were what got us to where we are and how we’ve taken care of our partners over the last couple of years. When we brought this up to people, they were very excited about it. We’ve had good deals in the past with them.
We didn’t plan this in a way. You and I both started in notes the same way. It was like, “I’m not going to worry about finding the money. I’m going to worry about becoming competent at doing notes. Let me go take my lumps and get all beaten up using my own money or those of a few cherished close family members.” Not even, I don’t think either of us even uses family money. It was strictly like IRAs and such. As I felt confident and I know it was the same for you then I was willing to take people on as funders and carefully, deliberately, not being in a big rush to grow big and be able to brag about how many I had and how many JVs I have.
It’s step by step and let’s be focused on what we’re doing and not stretch too far where now we’re taking risks that we shouldn’t be taking. Stay within your competency level. What happened is that over a three year period, you and I had a lot of different JVs and had 95% good results and experiences and maybe your average is even higher. I had people that didn’t even have such a great experience in terms of the return that they got. Maybe they only got a little bit. Even they were very enthused because it’s true. In this and everything, what matters is relationships. Sometimes you have even a closer relationship when you work through something difficult. People want to do business with people that they like and trust. The best way to have those relationships is to be a good JV in individual deals before you try to do something a lot bigger with multiple people.There isn't a person in the world who isn't sensitive about wanting to know exactly what is happening with their money at any given moment. Click To Tweet
It’s funny you mentioned that comment about the relationship with people on the deals that are tougher. I sent out my monthly reports and I’ve got a few people who I’m like, “Borrowing is good because we acquired an asset that was nonperforming. The borrower immediately started performing and they’ve been paying on time for whether it’s four, six, eight, ten to fifteen months. It’s like, “My report is basically like payments are coming in. Borrowing is good and distribution checks will go out in next week or so.” I’ve got the others like this one that I’m teamed with Jamie Bateman who was on the show. This is a tough one. This one is very difficult.
It’s very challenging. I was on the phone with the attorney and going through some of the exit strategies on it, but I’m in constant communication. There are a lot of decisions that need to be made and as part of the JV, making sure the partners are involved in decision making. I’m reaching out to him and having discussions of strategizing, “This is what we should do,” or whatnot, forwarding him stuff and talking on a phone with him. You get to know people a lot better because even during those calls, I like to talk. I’d be like, “How’s the wife, the kids or what else you’ve got going on?” You’ll learn a lot more about people like David Chance who is somebody I talk with frequently now who has got two goats. Starsky and Hutch I think are the name of his goats. It’s amazing some of these things. We had an asset in Maryland that was a challenging one. It wasn’t a great deal financially and it took a while and stuff, but it’s building that relationship over time. As time goes on and you continue to build those relationships, it helps you in your business so much. That’s where starting out from the beginning doing things the right way and being open and doing what you should be doing. Three years down the line you’re going to be like, “Wow.”
It’s funny that you’re talking about the conversations and the reporting. You posted in BiggerPockets about the reporting that you do to JVs. To me, and this was the point you made in your post, the communication and the accountability of producing regular detailed reports and sharing them with JVs, that is such a fundamental building block of a relationship. You go to note events or other events where you meet potential investors. You might feel like you have chemistry with people and you click with them and everything but when you’re the funding partner, and you hand over your money to someone then you wait and wait, and you’re in the dark about what is going on with your money. I don’t care how much money you have, there isn’t a person in the world who isn’t sensitive about wanting to know exactly what is happening with their money at any given moment.
I can be so much fun at a note event, particularly with a couple of drinks in me. It doesn’t matter because that rapport is not what is required in our relationship. What is required is consistent, clear accountability every day, all day, whatever’s going on being that person who answers every phone call, who gets returns every email, who is there to talk about everything for as long as the JV wants to talk about it. That’s the dedication. You and I did that for three years without having an agenda. We weren’t thinking, “Let me corral these people, let me rope them in and then someday I will ask them for a bunch of money and they’ll give it to me.” It wasn’t like that.
One of the things that I always mention to people is if you’re talking to people, you ask them about the deals and stuff and what they try and target or what they buy and so forth. One of the things I also ask is, “Who does your books? Show me a report that you provide about your books or a monthly or quarterly report.” See what they send to people.
You’re saying when you’ve got money to invest and you’re picking people to team up with, ask that person, “Don’t tell me how often you report. Show me your actual reports.” I bet there’s a heck a lot of people who can’t show you a report that they generate for a JV investor and at least they do not have them. You and I both know that the level of work and commitment required to log every single expense and track everything is a lot of work.
Is it? I don’t know. I have someone else do it for me. I’ll be honest, I use that as a selling point too because I say, “I use a third party to do my books.” If somebody who’s 2,000 miles away from me, so it’s not like my cousin Vinny who’s cooking my book. I used Debbie Mullins to do my books and she does a lot of note investors and she understands how to do the books. That way, she gets the reports from Madison and gets copies of all the checks and the invoices. She codes everything. Every month we hop on the call to go through anything or any questions and analyze everything. Back to getting to now and where we were looking over the past month, one of questions that I’ll pose to you, Gail, and we may have already answered it based on the discussion. What do you think is the most important thing when you look back over the last two to three years from buying your first note out of the gate with your own funds to the JVs to now just closing a fund? What do you think has been the most important component during that time to allow the growth path?
When I look at the people who joined our fund and the comments they made when they were joining the fund, it’s very clear that what has bonded them to us beyond the basic competencies, the inclusion, and the communication that you and I never set out to. There’s a lot of gamesmanship in not note investing but other kinds of real estate where people are very invested in puffing themselves up and acting like a big shot. It’s a fake it until you make it thing. You and I have always been incredibly authentic. It’s a value that we both share and one of the things that made us interested in partnering also. I was never out there pretending to be anything that I wasn’t.
When people expressed interest in working with me, I don’t try to snow them with exaggerated credentials and things, and I know you do the same thing. You have a funny answer when people ask you for your list of accomplishments or your resume. The fact that we’re not fake and I haven’t faked anything and I’ve been pretty upfront. I don’t lead with my disasters, but inevitably people want to know what hasn’t gone well. I’m honest about that too because I don’t want anyone getting into this thinking that I or anyone else can guarantee them a result. Even as experienced as we are, we still get some bad surprises at times. The one you’re talking about right now. You have to be incredibly real with people. Before you can be incredibly real with people, you have to be real, period. You have to know who you are and be willing to be authentic, vulnerable, honest and the whole thing. It’s not a business relationship, it’s a real relationship.
My response is building that relationship, the honesty and the trust component to it. When we look at the people who have invested in the fund, it’s people we know we’ve worked within the past, they trust us. One of the things that I tell people is when they call and they ask what do I do for opportunities and so forth or they ask what they should do. I tell people the same thing all the time. Every person’s situation is unique. I tell people, “If you’re going to go joint venture on deals, a joint venture with two or three people.”
I always joke, “It’s a horrible sales pitch but the reality of it is there might be things I do very well and there might be things somebody else does extremely well, which is different than what I do.” If you’re learning from three people who do three different things very well, that makes you a better person to understand the investment. If you want to get into the business, you’re learning from multiple people, not one person. It’s like working at the same company for 30 years and under the same person. Is it a bad thing? No, it’s not but you’re only going to be learning what they are providing the guidance on. If you’ve worked at five different companies or wherever it may be under five different individuals, you’re going to have a broader understanding.Before you can be incredibly real with people, you have to know who you are. Click To Tweet
You’re saying when people come to you to fund things, you encourage them to work with other note buyers as well to learn from all of them.
People may think it’s nuts. The other thing I tell people is they’ll ask questions and they’re like, “What else should I be asking?” I rattle off six other things and I’m like, “You should ask me have I ever filed bankruptcy? Have I ever been to court? Have you ever been to this? Have I ever been that?” I’ve rattled off five or six things and I’m like, “Here’s the answer to every one of them. Here are the things you should be asking everybody.” It’s an education with them as well. That’s one of the things that make us a little different and unique is at least I know for myself and I know you’re very similar, everything’s customized based on the person I’m dealing with.
I don’t put every single person in the same box as, “You should JV on this deal.” I’ve had a phone call with somebody and where they’re at in their life and so forth. It was somebody who was younger. I said, “I think you’re better off starting to buy a low-dollar performing note, learn the process, learn the servicing, learn about who the players are and then maybe make your way to a JV or buy a nonperforming note. Don’t jump into a nonperforming note when you don’t understand how servicing works to transfer where to order reports and stuff.”
Getting all those accounts set up with all those vendors and everything, it’s a lot. People are very surprised at how much there is to it. I understand that the normal arc for people is if they don’t have money and they want to be note investing and they want to have a note investing business. They don’t have an option other than to find people to fund deals for them even their very first deals. I’m not criticizing people for that. You and I had the option of not doing that and that was what we were most comfortable with. The thing is that people are so transactional. They want money to do deals so they can have a note business. They’re prepared to give people what they know they want. If you want honesty, I can do honesty, but the thing is don’t do honesty, embody honesty. This is not about polishing yourself up and polishing your image up to appear to be a great person to do deals with. This is about becoming that person who’s great to do deals with. I don’t know if this is a distinction that people will understand what I’m saying or not. Do you understand the distinction I’m making here?
Yes, I do. Gail throws all these big words at me that I don’t understand. You can do a whole Saturday Night Live skit on it that I have to go to Google or Wikipedia to look up these words. I don’t understand that. I’m Mr. Dumb Engineer, I understand numbers. What are words? I don’t care about words.
You certainly need to Google things when it’s time for me to find a formula that you use as easily as breathing air. “What’s NPER? This is what it is.” I’m like, “What?” Don’t do note investing, be a great note investor and be incredibly solid and consistent. It was extremely touching to me when we put out the information about the funds to people that we had worked with. There were so many people who are like, “I’m excited to do this because it’s you.” I honestly wasn’t expecting that. We’ve done deals together and it’s been fun. Sometimes it is not always fun but generally, we’ve done okay.” I was surprised how much people expressed the fact that it was because it was us that they wanted to do it.
What was different about this fund was we already had the assets pegged. Most of the times, you go raise money for a fund, you raise the money and then it’s like, “I better go find something to buy because that money is burning a hole in the pocket.” We already had the assets so we have an idea of what we needed to raise and we almost doubled what we needed. The whole component to it was we reached out to people and it was a very informal either phone call or reach out, “I’m doing this. I’ve got the assets and I’ll share whatever you want with you.” People were ecstatic or excited. It shows based on the fact that we ended up having to raise the limit on the fund as well as now doing due diligence on a second round or a second pool.
They incorporate which were getting close to wrapping up as well as they’re acquiring it. Within the first month, we’ll have our funds deployed which again goes to show a lot of discipline because a lot of times when you have those funds, it might take you two or three months before you do due diligence and deploy them. We were able to essentially deploy them on day one. It’s been a benefit for the people involved, in case we do one down the road or whatever the case may be. Is it stressful? Yes, but I don’t think it was ever overwhelming. It was a lot of work but part of it was the majority of them being performing assets, it made the due diligence a little simplified. In the sense of not having to figure out, “What’s my exit strategy?” or “How quickly can we get this one to come to some type of conclusion?” These already got money coming in the door. There’s no urgency on getting them re-performing or trying to figure out the next thing.
I’m glad we did what we did. Before we had a plan, we were getting the paperwork done. We didn’t know exactly what we were going to do. The attorney said to us, “Most of the people that I do this paperwork for never end up using it.” When he said that, I flickered through my mind like, “Is that going to be us?”
You knew the answer to that. Don’t put me involved.
I was frankly very nervous about the idea of raising funds and then hoping that we would be able to go find suitable investments that would let us deliver on what we were trying to do. This was a perfect storm of being ready, the opportunity presenting itself and having not easy but a very fluid, organic feeling about the way it all came together. That makes me excited too. The fact that we bought performing notes, we’ve talked about how in note investing circles, performing notes, people are way less interested in them than they are in nonperformers. In a fund type situation, it’s definitely such a plus to have money coming in, we’re not highly pressured to deliver on our quarterly distribution goals. Since we do have money, we’re not trying to reform a lot of bad notes.
It’s interesting you mentioned that too because I had a phone call with somebody. They’re talking about the different types of assets between partials, performing and nonperforming. I was joking because I said, “On a partial, you can get anywhere from 8% to 10%. On a performing note, you’re going to be anywhere from 10% to 13% or maybe 14%. Some people even try 15%. On a nonperforming, if you’re JV-ing, you’re at 12% to 15%.” They’re like, “Nonperforming definitely because of all that upside.” I’m like, “You realize that with the upsides, there are all the risks.” I don’t know if it’s me getting older. For my own portfolio, for the most part, I’d rather buy performing assets all day long because even if I target mid-twenty return on the nonperforming, you still have that risk.Don't do honesty, embody honesty. Click To Tweet
On these performers the ones with long pay history, the ones I have, I don’t do a thing. That’s a money making money and then on a nonperformer sometimes, the amount of work you got to put into them, it’s work. It’s not that I don’t like doing the work but it’s all based on the risk standpoint. When people go to JV, I’m surprised that people look at that shiny object and think they’re going to hit that home run of a deal and make 100% because they saw at some event, this guy up there showing ten deals that made 100% returns. That happens, but it’s like the 5’6” 120 pounds second baseman hitting a home run or a blind squirrel finding a nut. It happens. This episode before we roll onto any type of Notes and Bolts, is I feel a sense of accomplishment, but we haven’t accomplished our goal because now we’ve got to go manage them and provide returns for investors and exit it profitably for everyone.
We’re on our first step but the accomplishment of getting to the hurdle of where everyone starts out with doing your own deals, doing JVs and doing a fund, we’ve hit that peak of the mountain at that component. We haven’t hit the mountain top but we’re on one of the peaks. It takes time and takes effort. It goes to setting up your business the right way. Everyone talks about how you make your money on buying note. You make your money on how you manage the assets because you manage the asset, especially using investors’ money on how you report to them, how you communicate with them, how you deal with the servicer, how you deal with your attorneys, how you deal with everyone. If you bought the best asset but you don’t manage it well, it doesn’t matter. You could buy an asset that goes crappy. If you still work with those investors and shed positive light and communicate with them, nine out of ten chances, it comes back more.
Bill Griesmer was on our Open Mic and he did a great history of an asset that started as a performer and it became not only a nonperformer but an absolute mess of a property that was so underwater in terms of his investment and what he could get from it. He diligently worked through it. That’s what an investor wants to see, that commitment and perseverance and that you’re not somebody who’s going to throw your hands up at the first sign of trouble. It was a very good reminder that things don’t always go as planned. If you are ready to do Notes and Bolts.
Mine is going to be not on one thing but it’s to share the experience that I’m going through right now. I’ve got some properties I took back and I’m trying to sell them with the owner financing and using my MLO. I have to say it is very challenging, making sure the communication between you, the potential borrower and the MLO in regards to what the expectations are on when you want the paperwork, what you want for paperwork. It’s something that doesn’t happen. It’s like dealing with the servicer in a sense or dealing with a regular borrower because a lot of times, these people may have never gotten a mortgage before or own property, so they don’t know.
When you mentioned to them, “I need your W-2,” they may not know what a W-2 is. You need their tax return and they send one piece but not the other or getting pay stubs from them or getting them to fill out the applications, the 1003. It’s something that I want to mention because I’ve got several borrowers where I’m going on a month and trying to accumulate and get this paperwork. Part of it is my fault because I haven’t stayed on top of it or set the expectations but it’s something I’m going to throw out there as a Note and Bolt is when you do this, it’s anything in this business. It doesn’t happen overnight without any effort. It takes follow up commitment and staying on top of them to get the information.The relationships that you have built way back can essentially get you to where you will be. Click To Tweet
We’re all familiar with John Lennon and his famous phrase, “Life is what happens to or you’re busy making other plans.” That’s a lyric from his song, Beautiful Boy. It’s true. Our business is full of people who are trying to plot a very straight line from where they are now to where they dream of being. I want to encourage people to consider that there are a lot of things that move you along your path that you can’t predict or command them to happen at a certain time. I feel like you and I had these things happen to us. We got our funds. We are having the fund experience now because we created the conditions where a fund could happen. We got an attorney working on the paperwork before we ever knew that we would have a fund. We hoped to have a fund. It reminded me of when I dreamed of having a winter home down South that I can flee to from my wintery home in Philadelphia. For several years now, I would ask people, like if people asked me what I wanted as a gift, I would tell them, “I will need things from my home down South. Get me something that I could use in my home down South.” People think you’re crazy because you don’t have a home down South.
I believe there is something that almost even happens internally. I do believe in manifesting and if you’re a fan of Napoleon Hill’s Think and Grow Rich. I’m surprised how many people who are not into any mysticism love that book because that’s a book about manifesting. That’s about Think and Grow Rich. What he’s talking about and what I’m talking about is creating the conditions that will allow something to happen. I couldn’t make my house down South materialize at the moment I wanted it. What I could do was believe in it, plan for it and in a way, when you do that in a conscious and intentional way, everything internally, emotionally and in every other way, subconsciously starts pointing you at it. It becomes incredibly powerful. You and I didn’t make a decision, “Let’s do a manifesting experiment. Let’s pretend we’re going to have a fund and we’ll go through all the steps and then it will happen.” It wasn’t like that. It was like, “We dream of this so let’s put a foot on the path. Let’s proceed as if it’s happening.” We did it and it happens. It’s a pretty amazing and powerful experience when you have something like that.
It is. Speaking of the fund, we should do a follow-up episode of our lessons learned from getting it created between having the attorney draft the documents and going through that process and some of the lessons learned because we’ve got a lot to share while they’re fresh in our head to the whole procedure. It would be beneficial for people to hear what’s involved. It’s actually pretty interesting between working with the attorney and working out the terms. Putting what needs to go into the documents, the subscription agreement, the PPM, the investor questionnaire and the investment summary. The whole component would be good to spend 45 minutes on a future episode.
It’s probably not the most entertaining episode but certainly, one that a lot of people would be interested in.
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- Jamie Bateman – previous episode
- Bill Griesmer – previous episode
- Think and Grow Rich
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