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Hello To All:
I just arrived in Florida this morning on business. I have some time this morning before I go into meetings to write this discussion, and it is important. There is far too much negative activity going on and too much confusion on the part of new people.
What makes me qualified to write about this. In the 1980's and into the 1990's, I was very active in buying notes and portfolios. If you were on America's Note Network Forum back in the 1990's, you know who I am. I did very well but held onto many investments way too long, then the financial crisis hit and like many others, I have seen my wealth and my net worth take a nose dive. I have been a full time investor for over twenty years and to this day, I still purchase properties.
I locate properties for a prominent investment corporation, I work directly with a Hedge Fund and i have other activities I am actively involved with. Lets get this thing started.
There is no difference in the way paper is purchased and sold today than way back in the 1980's and 1990's. The opportunities are greater in some respects. The Resolution Trust Corporation is long gone, however, it could come back at any time. Hopefully it won't.
The hot thing today is Bulk Reo Opportunities. There is greater profits when selling in bulk, however, this is not why banks sell REO properties in Bulk. Most people don't even know why banks do this. This is the first indication that someone your working with is not worth your time. Lack of know how in how this game is played.
Banks are mandated by the Fed to clean up their balance sheets. The best way for banks to make this happen is to bundle up foreclosure properties and sell them, and this is how Bulk REO's come into the marketplace. As one very experienced person recently stated, these should be called Bulk Assets, not Bulk REO's. However, this is what everyone who plays or tries to play the game calls them, so this probably won't change anytime soon.
Now, there are a few major brokerage firms and entities that banks use, outside of their own efforts, to liquidate their paper or Bulk REO's. Let's get one thing clear, banks do not need to go outside of their own offices to sell their paper. Many do because outsourcing is actually cheaper and more streamlined for them.
In the Bulk REO marketplace, there are what is called wholesalers. These are firms that buy the paper using their own funds or investor funds. Once they acquire the paper, they take out the paper or properties they want to undertake themselves, leave in place what remains and wholesale the paper to other sources. This is where custom order portfolios come from. Does this make the paper any better or any worse? no not really, and this is subject to personal opinion of some people.
You now have the basics of how this evolves from one selling entity to a buyer entity and then back out into the marketplace. Now this is not the only way things are done, but it is a basis.
Now lets talk about how this whole industry, and yes by most standards it is a industry, has become really screwed up and yes, it is highly screwed up. This has been caused by individuals and entities who should never have entered the Bulk REO business in the first place. As I go on, you will see what I mean.
First, you need to change the language you speak in this business. There is no such thing as a Buyers Mandate, Sellers Mandate, Buyers Rep and Sellers Rep. This is language spoken by lower level players who really are where they are at, because they are bottom feeders. Did I insult you, boo-hoo, get over it. It is what it is. You will never find a hedge fund who will disagree with me. You will also never find a high level player, bank executive or high level buyer or seller who will disagree with me. These are self proclaimed titles certain people give themselves so those who are new to the business or fairly new, think they are dealing with key players.
The only key players in the deal are the actual holder/seller of the paper, the actual buyer, the attorneys, the closing agents, that's it. Anyone else has no real value in the deal. That's it, end of story.
Lets talk about how a deal gets screwed up and ends up more often than not as a chain. The deal begins with a seller, that's obvious. The seller opens up the deal to multiple parties when they advertise the paper for sale. They do this because they don't have a network in place where they can keep the paper for sale in house, so to speak. There is nothing wrong with making the paper openly available on the market.
So now broker A calls and is told, sign a NCND and a LOI and I will let you see what I have for sale. Well then Broker A does this and sees that he or she has something of value and then decides they need to show it to Broker B who then shows it to someone else and all along the way, A has signed docs with the Seller, then Broker B has signed Docs with A, then C has signed docs with B and this is just on the seller side and I won't even begin to get into what happens on the Buyers side. The outcome is not only a daisy chain or broker chain, but it is pay me chain.
A Pay me chain is all those parties who have a fee agreement in a particular deal. I had a deal just the other day that had 15 points going out the door, all on the sellers side with one person claiming three points for themselves and guess what, no one knew who they were and even that person can't even tell anyone what value they bring to the deal. All they know is someone in the deal signed a fee agreement for three points and they expected to get paid.
Lets talk now about something that needs to be pointed out. You inquire about a portfolio of Bulk REO properties and your told by the person you just contacted that they are direct to the seller and you know all your buyers will only deal direct with the seller. So you see that the portfolio is for $100,000,000.00 of prime commercial properties in a Tier 1 market, which are major cities such as New York City, Los Angeles, Dallas, Chicago, Philadelphia, etc, so this is valuable to any number of buyers out there, including yours.
So you sign the documents that you are told will be needed to give you access to the tapes for this deal, and thinking your actually dealing direct or in this case your buyers will be dealing direct with the seller, you get excited because one point or 1% of the deal goes to you and that is a life changing pay day for you. No shame in that, we have all been there at one time or another.
Well let me explain what direct means. That scenario above is not being direct, however that same scenario spells out 98% of all the deals out there. Being direct to the seller, means that you are dealing direct with the decision maker. When there is a Broker involved on the seller side, known as Broker A, you are two away from the direct seller, when there is Broker A and B involved, you are three away from the seller. Hardly being direct!!!.
These types of nuances in deals keeps the deals from closing, causes chains and causes buyers to drop you as a person they will do business with. It takes awhile to build a network and losing a key player in a network can happen very fast.
Stop looking for the one shot, big pay day deals and focus on building a network of buyers and direct sellers. Do your research and locate those key players who actually buy direct from the bank and build a relationship with them, so that when they do have paper to sell, it is you they are calling.
Before I close this short novel out, lets talk about one more thing. When your deciding whether or not to deal with someone, and they tell you they have recently sold this $50,000,000.00 portfolio or they just syndicated a sale of a $500,000,000.00 portfolio, ask them for the contact information of those key players in those deals, so you can do your due diligence on them before you sign their docs. Also take into consideration the email address they use.
Anyone who uses a free gmail, yahoo or email address as their primary business email, has never closed any of those deals and probably has not closed any deals. Now, some use a free email address for emails that they know will result in webinar invites, solicitations for courses to buy from infopreneurs, and that is fine. But if this is their primary business email address, ask yourself this.
What are the chances that this person has ever been a player in real deals? Let me give you an analogy. If your closing a deal and it is with Bank of America and you need to wire funds and the request came from BofA @Yahoo.com, and not BofA@BofA.com, would you wire the funds? probably not, so you need to begin using simple logic when screening people.
I hope I was able to shed some light on things for you. I welcome any and all comments. Good, bad or indifferent.
It's great to hear your thoughts on this. I knew I wasn't the only one thinking it. I'm very tired of people who talk what they perceive to be a good game, but then can never seem to deliver what they promised. I would be interested in speaking with you more on this subject. I hate people who need to feel important as they make up a title for themselves. I'll give it to you straight. I'm a real estate agent in FL and I've been fortunate enough to meet a couple pretty good clients. They are in search of SFR bulk property here in Central FL and in Colorado. If you have access to anything of that nature or know someone who might, I would appreciate if you gave me a call.
Carlisle Realty, LLC
Thank you for the comments. I know what where your coming from. When I worked on Wall Street at JP Morgan in NYC, NY, we used to have a saying. If you ask for something and they don't give it to you, it's an oversight. If you ask twice and you see nothing, then that person has nothing to show you period.
Sometimes it takes asking the tough questions to save a deal from people who don't belong, but more importantly, it goes a long way toward saving your credibility. In the Hedge Fund Business, we have a saying, credibility is key.
Paul: I appreciate your candor. I have a home in Texas and a home in Miami, FL. Because of family and my businesses main office being in Fort Worth, TX, I get home to Florida only a few times a month.
I would enjoy speaking with you this week. I am in Jacksonville today and tomorrow for important meetings than going back to Texas. If the meetings wound up today, then I will go back home today. I have my wife, my mother in law, 4 dogs, my attorney, all in tow. It is turning into a circus today.
Anyway, I will make contact with you this week. Thanks.
Great post James. Couldn't agree with you more. The "pay me chains" or "daisy chains" are all over sites like this. It's very hard to differentiate the real sellers from the muck. I make a lot of inquiries to people with portfolios but rarely are they in any position to talk and are just looking for the signed agreement and hope to get paid thousand of dollars for doing nothing.
My company bought over $2 billion in notes and hard assets in 2010 and we are looking to equal or exceed that number in 2011 and 2012. If there are some real sellers, my company is focused on assets on the West Coast (CA, WA, OR, HI). NO INTERMEDIARIES! We're real, look us up. www.kennedywilson.com.
Dan, I am aware of Kennedy Wilson, good firm, good reputation. I think we could work together. Send me a note with your contact information away from here and I will get in touch with you by weeks end.
We will have our new and improved website up either Friday of this week or by Monday of next week. This way, those in doubt of us will see that we are a real entity, very knowledgeable.
I agree with you, it is very tough to find who the real people are, however, I have stop gaps designed to weed them out. It is 99% infallible.
Good article. I would like to send you a private mesage.
When I tried the above link , the "friend" command came up.
With no other alternative , I clicked the "friend" request link.
Seems presumtuous to call myself "friend".. but thats the system
Anyway.. I would like to communicate privately, if you dont mind.
L Truett Phillips