How To Talk To Attorneys About Residential Back Fliptm Deals

 

real estate attorney

When I talk to new attorneys to find Residential Back FlipTM deals instead of saying “Hey I’m looking for deals”, take a totally different angle, especially when you’re first making contact with a new attorney and say something like this.

First off, I’ll explain what we do. “We do bridge deals, providing short term money to help high end home owners who want to complete a workout on their residential mortgage.”

“We run into a lot of home owners that are in this situation, they need our services, they need a bridge loan to pay off their overleveraged mortgage at a big discount. We’d like to help them but we’re really not comfortable working with owners directly.

Our model is that we only work if there’s an attorney involved and so we’re looking for competent attorneys. And I’m wondering if this is what you do because we run into a lot of owners and I need a really good attorney that I can refer them to. Are you open to that?”

So in other words, you go to attorneys and instead of saying “Hey give me leads” you go to them and you say “Hey I’ve got leads for you, are you interested?” So you are telling the attorney, “I’m going to bring you money, I’m going to bring you clients.” Almost everybody knows somebody who owns a residential property and they’re upside down.

I’m sending my good attorney contacts leads like crazy. This saves you time by letting your attorney work through these leads because I don’t want to dig into a deal that doesn’t already have an attorney involved and it’s already to a certain point.

So when I get a fresh lead on a high end property owner that’s upside down I don’t know where they’re at, I don’t know if their bank is willing to accept a discount – I don’t know anything yet.

And rather than get in and invest my time trying to work the deal on my own I’d rather refer them to an attorney, one of the attorneys that we have a really good relationship with that’s already in our network, and let the client hire that attorney.

Then we can let the attorney contact the bank and start working on the case and start figuring out this stuff, and then the attorney can come to me and say “Hey Jerry I’ve been working on that case for a month and we’re finally at a point where it meets your criteria. Now why don’t you come into the picture and take a look at this.” And so it’s an awesome way to weed through leads on possible Residential Back FlipTM deals that are just too early in the process.

So once you join our team you can be saying to every single attorney you meet, “We have a big network, we do these types of deals all over the country.”

I make sure to ask questions like “Can you do deals out of your state?” We have a lot of owners that we work with that are out-of-state, so once you join our team you can say that. This way you are able to build your credibility because you’re telling the attorney that you’re networked and that you can get a lot of leads for them.

 

What is a Residential Back FlipTM

Investing Real Estate

Investing Real Estate

The big picture of a Residential Back FlipTM is to find a high end home that is underwater, buy the loan from the lender, and then restructure the loan amount and terms with the owner so that the existing property owner can still keep their home. That’s what most people want. They want to keep their home.

We focus on high-end homes because the home needs to have a jumbo loan. These are bigger loans, usually about $417,000 or higher that have not been packaged up and sold off along with other loans.

The property needs to be upside down, that means that there is more owed on the mortgage than the property is worth. It’s not too hard to find houses like this in today’s marketplace. In most cases the homeowner needs to be current on their payments. Stay with me for a moment and I’ll explain why that makes sense.

So with a Residential Back FlipTM we take somebody that’s in a jumbo loan, and they are upside down but they’re not in default, and we’re actually going to go in and we’re going to negotiate the purchase of their loan from the bank from their current lender. Of course we’re going to buy the loan at a discount.

Right now, not for every house of course, but in some cases the banks are willing to sell off that loan at a discount. Then since we bought the loan at a discount we’re going to turn around and rework a new deal with the existing property owner.

The Owner Gets To Keep Their House

The cool thing is that we’re not making the homeowner leave the house, they’re not moving out. Because of this we’re not out working hard to find new buyers, we’re simply keeping the existing owner in the home. Once we’ve purchased the loan from the lender, we’ll rework a new loan with the owner at a much lower principal amount and then we’re going to immediately get the owner refinanced with a new lender and pay us off.

So for example, if we find a home with a loan amount of $1.2 million, we may come in and we buy their note for $700,000. Then we’re going to rework a new loan with the property owner for $800,000. Finally we’ll help the property owner to get a refinance so they can pay us off at $800,000.

If you are following along here, since we paid $700,000 we walk out of there with $100,000 profit. No rehab, no marketing, no finding a new buyer, no nothing. We simply buy the note at a discount, rework the loan terms with the owner, then get the owner some exit financing and make a quick $100,000 dollars.

Even though I’ve explained all these steps as if they happen one at a time, most of the parts of a Residential Back FlipTM deal are put together before we ever go in and buy the note at a discount.

I had mentioned that the house needs to be upside down, that is, the homeowner needs to owe more than the house is worth. I also mentioned that we prefer the owner to be current on their payments. So why would a lender take a discount on a home that they are currently getting payments on?

Why Would The Lender Take A Discount?

The reason is that the mortgage is written on most homes where it states that if the value of the house goes below the amount of the loan then the loan is in default. It’s called a technical default because the owner has not yet defaulted on the payments but the loan is at risk – there is a good chance that the lender will end up getting the house back someday, and they know it.

So with a Residential Back FlipTM we are able to help out the lender by offering a solution to this pending problem that they have and it’s great to be able to help out a property owner by cutting their mortgage down to size and reducing their payments.

Of course as an investor doing Residential Back FlipTM deals you can make some pretty good money too.

How I Discovered Residential Back FlipsTM

residential backflip

residential back flip

Real estate investing is impossible. That’s what I thought when I first got started over 20 years ago. I was working as an auto mechanic and had an O.K. life, but a part of me wanted more. A bigger, better way to live.

I was intrigued by the commercials on TV that advertised different “systems” that promised to make it easier to get started investing in real estate.  Everyone around me that I asked about real estate investing was pretty negative. “Don’t throw your money away on that crap!” said one of the other mechanics that I worked with. “My uncle has a whole closet full of those courses and he’s still working as a plumber.”

I knew that I needed to do something different because simply working as a mechanic wasn’t going to ever get me anywhere close to living the lifestyle that I wanted.  I couldn’t get my mind off of real estate investing.  And since I didn’t go to college I didn’t have a lot of options.

One night I was up late and saw a gentleman on TV with silver hair offer his complete real estate investing system for just $99.00.  He said, “You can buy real estate with no money down.” I figured that I qualified for that since I had a grand total at that time of about $1,500 as my life savings.

So even though $99.00 was a lot of money for me back then, I figured, “what the heck, I’m not going to change my life unless I do something different, and it’s got a money back guarantee, what do I have to lose.”

So I went ahead and bought my first of many real estate investing courses. Each course or online training that I’ve gotten over the years has helped me along the way, some more than others.

Buying With Owner Financing In A Strong Market

When the value of real estate was going up, I was able to get into properties using owner financing. I’d find an owner who was motivated to sell that didn’t need all their cash out to buy their next house. My favorite method of finding these sellers was to look for vacant houses. If the house was vacant, then the seller probably already lived somewhere else and most likely didn’t need their cash out.

It was a simply matter of sitting down and getting the owner comfortable with accepting payments from me. I didn’t have to get a great deal on the price since the value of real estate was going up so fast, it didn’t matter in a strong market.

What To Do When Real Estate Values Go Down

I was in trouble once the value of real estate started going down. I ended up getting out of almost all of my deals without losing any money but the simple formula I had used for years didn’t work any more. Even though sellers were plenty motivated, most of them owed more than the house was worth. And it didn’t look like real estate values were going to be increasing any time soon.

So my old methods of using owner carry financing or getting a long term lease with an option to purchase no longer worked in a down real estate market.

It was about this time when I first met Jerry Norton. He was a young stud making a ton of money buying properties using all cash offers. During my very first conversation with him I decided that I needed to shift gears by adopting a different model of investing than I had been using up to that point in time.

So Jerry and I began doing fix and flip deals together initially and then we discovered that we could make even more money by doing Commercial Back FlipTM deals. We’d find an overleveraged property and buy the note at a huge discount from the bank. Then we’d restructure the note with the existing owner, making a nice sized profit without having to own or manage anything.

It wasn’t too long after that when we did our first Residential Back FlipTM deal. It was the same process we used with commercial properties but instead it was with a  high end house. Nothing to manage or own, and the profits are pretty good.

So compared to buying a property, fixing it up, renting it out, and then waiting for years while continuing to manage and repair the property, Residential Back FlipsTM are so much easier it’s not even funny. I think everything else that I did through the years was a necessary part of my progress, but for someone who’s just starting out today, real estate investing is not only doable, it’s as easy as pie.

 

 

 

How We Discovered Commercial Back-FlipsTM

Commercial Backflip

Commercial Backflip

The Commercial Back-FlipTM is a new concept even though commercial lenders have been doing workouts on commercial properties for years. The difference is that in today’s distressed real estate market lenders are willing to take huge discounts in order to get out of commercial loans that are in default.

My business partner Jerry Norton came across our first commercial flip deal when he found a commercial property in a good location and realized that the property had a mortgage on it for $1.4 million in 2005.  He took control of the property by getting it under contract for $285,000.

Then here’s what he did next. He went and knocked on the door of the building next door to the commercial property that he just got under contract and said

“I’d like to talk to the owner… Hey I just bought the property next door and I’m interested in selling it.”

After a discussion that included a bit of back and forth on what a fair price would be, Jerry assigned his contract on the commercial office building for $350,000 dollars and was able to make $65,000 dollars on the deal with very little time or effort in it.

Then what happened next was that Jerry and I were doing a number of other real estate deals together and we started talking to the attorneys that were involved in that first commercial flip transaction.

The attorneys said to us “Hey we’ve got some other deals do you want to look at those?” And so we jumped in and looked at a number of other commercial workout deals that were in progress and that’s how we ended up falling into this whole commercial workout business.

The most common reaction when real estate investors hear about the Commercial Back-FlipTM is that it seems hard to believe…

Common questions we get all the time include:

Lenders will really take discounts that big?

It’s ok if the existing commercial property owner that is in default ends up getting their property back?

I don’t have to manage the property or find a new buyer?

I can make up to six figures on just one deal?

For some real estate investors the Commercial Back Flip TM seems too easy compared to traditional commercial real estate investing.

Most commercial real estate deals with an upside require a large down payment, usually thirty to forty percent of the purchase price. Then the existing property needs either additional capital to improve the property and increase the value, or you have to put in the time required to find commercial tenants and lease up the property.

With a Commercial Back Flip TM  you don’t have to put any money in the deal provided you have a company like Mentor Financial Group that can give you access to it’s money sources.  And because the existing commercial property owner is going to be keeping the property you don’t have to sell the property by going out and looking for a buyer.

On top of all this, when the deal closes all the pieces are in place already, so you won’t have to take on the risks that are normally associated with commercial real estate investing.

Who would have thought several years ago that it was even possible to do Commercial Back Flip TM  deals?

Why Commercial Lenders Are Willing To Dump Their Properties

back flip blueprint free courseOne recent change in the commercial real estate market is that commercial lenders are now suddenly willing to dump their properties or the loans they hold that are secured by commercial properties. The reason’s for this are varied, but it’s been coming for a long time since we’ve seen most commercial lenders over the past few years taking steps to avoid foreclosing on commercial property.

Many commercial property owners have either gotten the lender to accept interest only payments for a period of time, or in some cases commercial owners have simply stopped making payments on their commercial property only to see the lender delay the foreclosure process, offer to modify the payments, or be open to participating in a “workout” of the commercial loan.

The main reason for this is that if a commercial property is worth $2 million dollars right now when it’s occupied and well managed, if the lenders forecloses on a commercial property when they get it back it may very well be vacant and in need of repairs.  The lenders know that in most cases the property is going to be worth a lot less when they finally get it back after going all the way through the foreclosure process. That’s the number one reason why commercial lenders are willing to dump their properties, or discount the loans for much less than what they’re worth.

A couple of other factors can affect the way lenders make decisions on commercial properties that are in default. In one case that we were involved with recently, this particular loan was sold three times in a package from one lender to another before it was purchased by the existing lender.

Because notes like this are traded at a discount, if the total amount owed on the commercial note is $2 million, then chances are very good that the lender won’t have $2 million invested into the note, even thought that is the full amount owed by the commercial property owner. For all we know the lender may have invested something much closer to 40 to 50 percent of today’s property value which is the range that our offers to purchase commercial notes tend to come in at.

The third reason that lenders are willing to let commercial property notes go for big discounts is based on the decisions that are made in their board rooms, often when a reporting period or end of their fiscal year is looming.

This is because of federal lending guidelines that require them to meet certain ratios when they have nonperforming assets. Lenders are required to keep certain amounts of money on reserve due to the defaulting assets they have on their books. When you are working with a commercial lender who is trying to meet their numbers and they’re pushing up against the end of a fiscal year you can get some amazing deals.

So the big thing to remember in this distressed real estate market is that commercial lenders are running scared. They have gotten through the past few years by extending payments when commercial loans have come due and accepting interest only payments or allowing no payments at all to be made at times. When the commercial loan amount is much larger than the current property value we know that something is going to have to change in order to bring the market back into balance.

What’s happening is that commercial lenders are accepting all cash payoffs of existing commercial loans in order to clear the non-performing commercial real estate loans off their books. This gives the lender more cash on hand, which helps them to meet the federal lending guidelines and it also removes a non-performing asset, which also improves their position with the federal lending guidelines.

All of these reasons help to explain why right now is a great time to get commercial lenders to accept discounted payoffs, which is a key component to doing Commercial Back Flips TM.

3 Ways to Make Money Flipping Commercial Real Estate

There are three ways to make money flipping commercial real estate, wholesaling commercial deals, value add

Back Flip Blueprint

Back Flip Blueprint

commercial flips and the Commercial Back Flip TM.

To wholesale a commercial property all you need to do is find a screaming great deal, get it under contract and then assign your contract to another commercial real estate investor for a fee. The challenges with this method in this marketplace is in finding a buyer that is able to come up with conventional financing. One method that some savvy investors use is negotiating a commercial master lease purchase, or owner carry financing deal and then assigning their contract once the creative financing terms are in place.

The best Value Add Commercial Flips are done by finding a vacant commercial property, getting it under contract and then locating a suitable commercial tenant who is willing to sign lease with you, contingent upon your purchase of the commercial property. Then you can assign your contract on a property you negotiated a great deal on because it didn’t have any income coming in. With your new tenant the property now makes sense and thus is attractive to your new commercial real estate buyer.

The best method in this market seems to be the Commercial Back Flip TM. To do Commercial Back Flip TM deal you’ll look for a commercial property owner who is in default, not too hard to find in this real estate market. You can also look for commercial attorneys who specialize in helping commercial property owners who owe too much on their commercial buildings.

The Commercial Back Flip TM is typically structured like a 47 unit apartment building that we did recently. The apartment building was a 95% occupied building; it wasn’t distressed, it wasn’t run down, it was in tip-top shape and it was right next to a big university so they can keep it full pretty easily. So the commercial property was in a great location, and it was a great building.
The apartment building owner owed $1.2 million on this building and the bank was willing to let it go for $400,000. That price is, of course, way below what the building is worth in today’s market place. I am pretty conservative in my estimates, but I would put the value on this property at $950,000. In a good market it could be worth $1.3 to $1.5 million.

So if you could own that apartment building for $400,000, based on the net operating income that it’s currently bringing is, that’s a 25 cap rate. So why if the property is worth almost 1 million, will the bank take $400,000 for it? The reason is that if the bank has to go through and take that property back, they will spend a ton of money on legal fees, a commercial broker; and they will have to hire a property management company to manage the property. The property value will be diminished greatly by the time the lender gets it back.

So if you are thinking whether or not you should get into commercial real estate investing, that’s what’s so fun about flipping a deal. You are in and out and you are making your money right now, today. By doing Commercial Back Flips TM you can make some real quick money on these things.
The Commercial Back Flip TM is a cutting edge method and as of this writing, Peter Conti and Jerry Norton are the only ones who are sharing this information with other commercial real estate investors.

3 Ways to Make Money Flipping Commercial Real Estate