We try to systematize and automate processes in real estate, but at the end of the day, it all depends on the local market. That’s why it’s vital to ask around and pay attention to local case studies so you can see what you’re dealing with. Chris Seveney and Jamie Bateman’s guest today is Ian Green, who once did some joint ventures with Chris before going on his own. In this episode, you’ll get to hear Ian’s cool case studies in Florida. Chris shares his experiences with Florida assets, especially in the rehabilitation of the moldy house in Pinellas Park, how he works with his partners, and why going the conservative route is often the safer option to take.
Listen to the podcast here:
Case Studies: Florida Assets, Mold Rehab In Pinellas Park With Ian Green
We have a special guest, Mr. Ian Green. Jamie, Ian, how are you doing?
I’m good, Chris.
Thanks for joining us. Before we get into our trials and tribulations, I like Ian to talk a little bit, but I’ll mention where this one’s going to be going. Ian is somebody who I originally did some joint ventures, and he then went out on his own. I like to consider myself the master because I do have a little bit of an ego. Ian has been schooling me on that perspective. He’s got some cool case studies that we’re going to talk about including a deal that I passed on. Ian, thanks for joining us. Tell us a little bit about yourself.
Thanks for having me. I’m down in this Sarasota, Bradenton area. I have a full-time job. I work for ESPN. I travel a lot. I work in college sports. I work in the TV truck. Thanks to COVID now too, I thought maybe that business would never go away, but it started to go away, at least during COVID. Before that, I was a software consultant doing some software development, not loving it day-to-day, and as everyone else does, looking to expand into real estate. BiggerPockets Podcast, I started listening to all that. It was one of the early BiggerPockets Podcast with Dave Van Horn that I heard about notes and thought, “This is a nice little niche.” This was probably back in 2016, 2017 thinking everyone and their mom is flipping houses. To me, it sounded like a competitive space and I got interested in the idea of notes.The key in partnerships is that everyone has to have their role. Click To Tweet
From there it went to lots of YouTube videos, podcasts, reading, and free material out there. I ended up meeting Chris and we started doing a couple of JVs together. Chris, you always were nice with your time. You explained and taught a lot. Ultimately, it’s me and two buddies, a high school friend and a college roommate. We all live in Florida in all different parts of the state. To get this going we had to partner up. I did have some capital to start, but my wife wasn’t on board at the beginning. She wasn’t ready to take all our savings and jump into this thing that she didn’t understand.
Do you have a baby on the way too at the time?
Throw that in, your wife probably didn’t want to have you start throwing cash.
To me, I wanted to get going in this because I knew the baby was coming and I want to put in as much work as I could first before I lost all that time. It’s two of my buddies and me. We partnered up. We started our LLC. We’re in three ways and it’s been good. A lot of people say they don’t like partnerships. I do work well with these guys. The key is everyone has to have their role. I do take a lot of the actual note investing part of it myself. My one buddy handles more rehabs and working with tenants. He has his rental property. He can handle all kinds of that post–REO stuff. My other buddy has some money, some of his family money, friend’s money and helps us that way. We’re looking to grow. We don’t do a ton. We do 2 or 3 deals a year.
There’s a lot I can relate to here. Did you meet Chris, through BiggerPockets?
I met Chris through Note C.A.M.P.
I’ve met him through BiggerPockets. We did a JV deal together, which we did an episode on.
Ian has gone much better.
I’ve heard that Chris makes his partner’s money sometimes.
You got your check. After a year we realized, we made money on the deal.
I also wanted to back up because I’ve got a few more hours to tweak my March Madness bracket. Do you have any insight into it?
I went to the University of Florida. I’m a die–hard Florida Gator. I always go with them.
I did have them in an upside or two.
They’re not too good this 2021. Gonzaga is a good team.
You’ve done a handful of deals. How many deals have the three of you done together?
I went back into QuickBooks to take a look. Our first three were JVs with Chris. I counted up outside of those, we’ve done nine on our own in three years. It is only 2 or 3 a year. We all have full-time jobs, so that’s a struggle. We can’t put an infinite amount of time into this.
One of the things that’s neat about the note space is you can approach it from many different angles, and you can mold it to whatever works for you. When the three of you got together, are you only buying non-performers? How did you determine the first lien versus the second lien? How’d you decide how to approach it?
We’re sticking to non-performers, on the yield. We have had a couple of performers on the way, but the yield has to be there. We do firsts. Seconds interest me. I read Gordon’s book on seconds. I think they’re pretty cool. My one buddy is conservative. He talked to me off the ledge a lot, which is helpful. That’s another good advantage of having a partner because I’ll be all gung–ho on something and he’ll pull me back. When he feels good about a deal, then I’m like, “We’re pretty safe in this.” We do firsts, non-performers.
We all live in Florida and we stuck to Florida. We know the areas between the three of us and people we know and friends. We can probably get eyes on the property. We’re not having a lot of time. When I look at a tape, I can jump to Florida. I know what those towns are. I know what’s in the middle of nowhere and what’s not. We’ve just started there. We have bought outside. We bought stuff in North Carolina and Michigan but knowing your backyard makes it a bit easier. We do have to branch out though and the goal moving forward is, “Let’s pick another state or two. Let’s get to know that as well.”
One thing I’ll mention, Jamie, and you can see why Ian and I get along is because we were a little aggressive on that perspective. Similar in the instance with you in one sense, Jamie is Ian started out. We did some JVs together and then he’s like, “I want to buy some notes.” I had some tapes and stuff of assets I was looking at. I know some stuff on there that I wasn’t interested in and I go, “Here you go. Are you interested in any of those?” The first ones, there was one in Margate, Florida, and another one from Florida. I’m buying these two in Florida and Ian’s going to buy two in Florida on this tape. I bought the two crappy ones. Ian bought the two good ones. Similar to like you, we started with a JV. The only difference is Ian buys the good ones from me. You buy new ones.
I’m going to start hanging out with Ian more.
Ian, why don’t you roll into some of these deals? I’ll start off by saying these were deals for me I looked at and they didn’t fit my portfolio or criteria. I looked at him and especially this one in Pinellas Park, some background story, Ian can talk about this one more. I was buying a tape and there’s this asset in Pinellas Park. My preservation company went out there. They did a crappy job. They took photos that were horrible. There were big stickers on the doors that have them try and go back out. The house, for me, was an unfinished new construction from a decade ago during the time of Chinese drywall. There’s a pond right next door. I’m thinking, “This thing’s probably got three feet of water in it.” Some of the pictures that were on Zillow showed holes in the ceiling, the kitchen is not done. I’m trying to close and he’s pushing me to close. This was a pretty expensive asset. I wasn’t comfortable with it. I said, “Pass.” Ian calls me up and asked me for a title report and I’m like, “Here you go.” Ian has to pay for due diligence on this one. Go ahead Ian, I’ll let you tell a little bit more about this story.
We were looking at the same tape. I was looking at a couple of Florida assets there. I bid on this asset in Pinellas Park, which is St. Petersburg, South of Tampa but 45 minutes from me. There was a house. It was new construction. It was never finished. It didn’t have utilities. It never got a certificate of occupancy.
New in what year?
It was in 2007.
One of my friends lives up in St. Pete. When I was doing my first due diligence on it, I asked him to go by it. He was into it knowing the area. He thought the house looked great. He told me that was the best house I’ve ever sent him by. A lot of the other stuff I sent him by is junk. Chris ended up bidding on it. Chris, you might bid a lot more that than I initially bid.
It was $87,000. They wanted $120,000 and I was like, “No.” I was down in maybe the $90,000s or high $80,000s or somewhere in there. They wanted $120,000 or $140,000.
They wanted a lot. You passed on it. I was approached by the seller as the backup bid. He sent me a title report. He goes, “Take a look at this. Let me know if you still want it.” If I remember, he might’ve gone back up in price. He wanted the $140,000s.
The number kept moving.
To reiterate, this was the first position non-performing loan. A vacant property for many years and board it up. What was the principal balance did you mention?
The full payoff was $450,000.
UPB is about $250,000. My BPO’s were coming in between $120,000 and $150,000. Originally, he had a BPO of $200,000. That’s why I was coming in with the $140,000, $150,000. My number came back at $120,000 because my original bid was $80,000 or $90,000. He wanted me to go to that number. I was like, “I can’t get there.” I wasn’t comfortable with the asset because it’s vacant for fourteen years in Florida. I’ve had horror stories with Florida and some of my attorneys. For me, it was not something I was comfortable dropping $80,000, $90,000, $100,000 on.
The thing you told me, Chris, is this is a likely property that you’re going to get back and you’re going to have to deal with the renovation or figure out how to dump it and a little bit more work. It’s funny because I know a lot of people like to have occupied houses. Most of the deals we’ve done have all been vacant. It’s either been a deceased borrower, vacant or squatter-like person where the owner or the borrower has been gone.
Your BPOs are probably pretty spot on. What I did is I only saw this house once. I drove up there one time to get a feel of the neighborhood. I drove up thereafter we bought it. I jumped on Facebook. That’s what I like to do. I like to join the local Facebook group. I think I joined the Pinellas County buy and sell trade group deal. We did that and there is a Florida Real Estate Investors Group. I posted like, “Are there any wholesalers in the Pinellas County area?” You start talking to some people on Facebook like, “I’m looking at this deal. I want to get your opinion on it. I want to drive by it.” You talk to 2 or 3 people and you start getting an idea of how much they would want for it. It’s a tricky deal because, as we said, we don’t know what’s inside. It’s boarded up. It’s old.
We do know from old listings that it doesn’t have utilities. We have an idea of how far it’s gone, but in that old listing, there were pictures of water damage in the ceiling. We don’t know what possible mold there is. You do have to consider worst-case scenario. The big thing I was talking with these guys was, “If there is mold and potentially Chinese drywall, where are we at?” We got to do a full gut. I felt pretty good the property was worth $125,000 having to do a full gut. The ARV on it is probably $350,000-plus. I felt at $125,000, there was enough room. It’s only 2,400 square feet. You could put $90,000, $100,000 into it and still make some money. I felt pretty good at $121,000, $125,000.
Have you and your partners have done rehabs before up to this point?
We’ve done one. That was one of the Florida deals where Chris and I split a tape. We had to kick a meth guy out. It was one of those deals where the house wasn’t worth what we thought it was. To get our money out, we had to rehab it. It happened to be near him.
When you’re approaching this deal, do you know you’re probably going to be exiting through the property but you’re comfortable with doing a rehab potentially? Was your primary thought is that’s your exit or did you think you could throw $2,000 into it and then sell it?
We were fully prepared to do a full-out rehab on it. It’s 45 minutes from my house. I was ready to get it. I wasn’t going to do as much work on it. Even though it’s close, I will still probably be going to get a GC, but I was close enough where I can manage him and go up there once a week. Us not doing so many deals, if we can grow what that asset’s worth through rehab, I was perfectly fine with it. The funny part was the seller came back to me and he goes, “Here’s a title report. Take a look at it.” I opened the title report and it was for Chris. I texted Chris right away, I was like, “Did you bid on this Pinellas house?” He called me back right away. We talked about it. Being from far away and most likely to do a rehab from far away, Chris wasn’t comfortable, but I was like, “I’m going to keep looking at this.” There was a question on city liens.The real estate market is on fire. Click To Tweet
That was the other one. I couldn’t get a response from the city on the liens. There was something on the title reports because they were older liens, “Are they still valid? How much were they?” There were a few thousand in liens, not significant. Those can multiply or if there are penalties where they add $500 a day or something, those can get spooky as well.
There were about $8,000 in liens. They’re all from cutting the lawn. I went on the County’s website. I paid $25 to do a lien search. I got an official city report. Nowhere I saw they were accruing, but I did talk to the attorney. I talked to some other those wholesalers or rehabbers in the area on Facebook, “What have been you guys experienced with liens in the city?” For the most part, you probably can’t get out of the principal balance on those liens, but if they do accrue, you can negotiate them, but I still felt there was room. My biggest deal when I negotiated this was the Chinese drywall. It’s highly likely that there was Chinese drywall based on the time. One of the rehabbers in the area on Facebook told me that was an Asian street. He felt like that area was a lot of Chinese drywall. That’s what he meant by a lot of Chinese drywall.
Can you briefly explain what that is for people?
It’s drywall from China. It’s legitimately Chinese drywall, but there’s a lot of stuff in the drywall, sulfur and stuff that when it sits, it erodes and it’s not healthy to breathe.
The Chinese drywall was between formaldehyde and some of these other chemicals that they were using to make this drywall. They come to find out that it was creating a lot of indoor air quality and getting people sick in these buildings and houses. If you had Chinese drywall, you had to rip all the drywall out of the place. This was huge in Florida, back in the boom years, because housing was on fire back then. Typically, drywall comes from Canada, but now it’s making its way from China to Canada or China to here. What it was is because there were so many requirements. They were now cheating the system and making drywall that was unsafe. It was huge insurance claims now. Insurance companies won’t stop insuring against it. It was a part of the massive disaster of 2008 crisis.
There are a few ways to know. It gives off a bad sulfur smell. It’ll make your copper pipes and copper wires turn black. If you can see the backside of the drywall, usually it’s got Chinese on it. I ended up picking up the property or the asset for $78,000. It had its judgment hearing right before I bought it. We bought it post–judgment. The legal balance was $450,000 that all went through judgment.
It wasn’t a foreclosure. It was the attorney who I have already fired two times in the past who screwed up every foreclosure I’ve ever done. I’m sitting here thinking as part of my process too is, “Him again. How’s he going to screw this up and cost me more money?”
We’re almost at the end of the road here. How can it get screwed up?
He’s done that for me twice where we get to the end of the road and he didn’t file something or he screwed it up. Those Florida assets you foreclosed a year before I did. We bought them at the same time.
I bought this for $78,000. It was post-judgment. In my mind, we’re waiting two months to go to auction. My first thought, “We’ll figure out what to do with this house when we get it.” We close and I got a property preservation local guy to come out. I want to know what was in the house, but one of the windows wasn’t boarded up. I want him to fix that and do his best to see what we have. The guy went out there. The garage door was open, he was able to lift the garage door. He was able to go through the house. I got a five-minute walkthrough of the house.
This was after we bought it. He was able to board up the window. The house has no electricity. I got a good five-minute walk through the house and nicely surprised about the condition of the house. It had a lot of old squatters. It was filled with junk. Looked like a lot of people were living there for a while and a little sad, kids, Nerf guns, but overall, the house was in good shape. It was 80%, 90% done, some flooring needs to be done. The kitchen needed to be finished up, but most of the cabinets were in, good window trim, crown molding.
We were able to tell that people haven’t been there for a while. There was a bag of dog food that was expired. This guy, when he walked through the house, he told me he did not smell sulfur. My big thing to him was, “I know you’re not inspector, but you’ve been on enough houses. Can you let me know what your best guess on this Chinese drywall is?” He thought I was pretty safe. We boarded up the house. We were happy with the video. I then worked to get an actual inspector in there. I didn’t care about the roof. The roof was fourteen years old. I was probably going to redo it anyway. I didn’t care about the AC. The unit inside the garage was brand new and never turned on, but the unit outside was gone. It was something where we’re going to have to replace the whole thing anyway.
I just wanted a drywall inspection because I knew if that house didn’t have Chinese drywall, the value would have jumped up tremendously based on not meeting a full gut to the studs. That turned into my new mission is, “I know this is going to auction. Let’s find out as much as we can about this condition of this house so we can aggressively price it at auction and know what we have.” I got an inspector in there. I got $100 to go in and do all his visual testing. We never got it lab tested, but he went in. He took the electrical panel down. There was no corroding of the wires. He looked at the copper from the AC unit. There was no corroding. The coil in the AC has no corroding. He was able to write up a report to me telling me that he was confident that this was not Chinese drywall and from there, we knew the house went from $100,000 rehab down to maybe $50,000.
Were there mold issues at all?
There was a spot in the ceiling from this old listing back in 2011 when they tried to short sale it, but otherwise, both of them didn’t find any more locations. There was probably one spot where there was water dripping in from the roof, but otherwise, both the property preservation guy and this inspector didn’t see any noticeable molds.
I’ll throw in a quick Note and Bolt here for people relating to mold. I’m not saying mold is not serious or that you should ignore black mold, but there are a lot of shady companies out there that will charge you tens of thousands of dollars to sell you on fear. Oftentimes, it’s way exaggerated. As long as the area’s dried out, it’s oftentimes not a big deal. If you go outside and throw a mold tester up in the air, you’re going to likely test positive for mold. Mold is everywhere. Don’t panic when you hear that four-letter word.
That’s one thing how much I deal with mold all the time and my full-time job is if you test the outdoors versus indoors because the only way to tell if you have mold in your house is if there’s a different source. If what you have outside and inside are the same, you don’t have mold. They’ll sell you like, “You have mold in your house.” It’s the same mold that is outside. Molds are everywhere. Ian sent me the video of the inside of the house and he was excited. I think you made a call to me too. That’s when I started using his name a little bit in vain. That’s when the head slap came through when I saw it.
I love the fact that we had Dominic on. This is the second episode we’ve done, where Chris, you passed on a deal or told someone else to pass and they did well on it. We can follow up on that. I’m giving you a hard time.
I still make a little bit of money. It’s interesting though because when he sent me a video and he mentioned like, “This place is trash.” I’m thinking, “This was right when I had this house, a $9,000 cleanout I have now. It’s all relative.”
There would have been some work there to clean up. It was funny, my property preservation guy was like, “There’s some good stuff in here.” I’m trying to look at the video. He FaceTimed me that day. He was excited to do the cleanout. There are tools and appliances. My plan, I was probably going to let him do the cleanout and take everything and try to do it for free. When you talk about mold, sometimes, just get the drywall down. They come in and do a little spray. I’ve had another deal where I got high quotes for mold remediation.
Walk us through where does that deal stands now.
We figured out there was no Chinese drywall. My plan now was to get with a realtor and knockdown ARV, the After-Repair Value on this house to figure out how much it’s going to take for us to rehab it versus selling it at the auction. I was very gung-ho about, “Let’s go in, let’s rehab it.” I was ready to put $50,000 in and get another $50,000 out of it. If we put in $50,000 and made another $20,000 or $25,000, that’s a great return. This house was probably worth $350,000 to $400,000 done. I was going back and forth with my conservative partner and I was like, “If we put $50,000, that’s like buying a $50,000 note. If we could get a 40% return or 50% return on the rehab, I don’t care if we do a note or we do rehab. Let’s go.”
The real estate market was on fire. It still is but if somebody reads this in a year or two from now, it may not be, but at that point, houses, especially in Florida, were flying off the shelves.
There’s still a little bit of unknowns. He told me to back off the ledge. We didn’t have to do new AC and roof. There were some windowpanes that had to be replaced. You still don’t know what you’re going to get into once you dig in there. We ended up coming up with a number that we felt good about at the auction where if it doesn’t sell, no problem. We’ll rehab it, but if it sells at this number, we’ll be happy. It’d be one less rehab to do. It’s going to take a handful of months and a lot of trips up there. I ended up turning my attention to trying to sell this foreclosure auction to local investors.
I had a drywall report from an inspector that said it’s clean. I have a five-minute video of the interior. For people, I’ve never been at the foreclosure auction, but you don’t know what you’re getting into. Maybe look at it a couple of days out and buy some properties. I started to try to message guys in these Facebook groups like, “Who buys at the foreclosure auction? We have a property coming up. I think it’s a deal.” Being able to share with some people a video of the interior and a drywall report, gave them some confidence. I was trying to spur some interest. We were owed $450,000 but we listed it for $229,995.
How much were you in it for?
$81,000 or $82,000. We bought it for $78,000. We had $1,000 in legal. I had to get something written up for the property preservation. Some costs for the auction and inspector.
It’s $85,000 even. $30,000 to $85,000 is $145,000. How did the auction go?
We listed it for $229,995. We had one bidder at $230,000 on a number. I didn’t get the bidding war I was hoping for. It was funny because I had a guy call me that afternoon of the auction and he’s like, “Did you sell it? I was going to log in and bid, but I got busy, and I didn’t have time to get on.” We had one bidder. It sold for $230,000. A couple of weeks later, we got a check for $230,000.
How many hours do you think you’ve spent working on this?
It wasn’t nothing. I spent some time on due diligence. I was on the phone with some local guys.
Is it a week, 40 hours?
Ian makes $140,000 in 40 hours. We probably don’t make that in a full year.
That’s why I said I’m going to start talking to Ian.
Like, “Why do people listen to us?” We spend twenty hours a week trying to do this thing and I pass on the deals that he makes.
It was a big number. I spend all this time on the computer. She thinks I spend all day on it. I don’t. She likes to give me a hard time because we have partners. I told her, I said, “We made $150,000 on this field.” She goes, “It’s split three ways.”
It’s like my wife, “You made how much? That means we have to pay this much in taxes.”
I was like, “Our share is $50,000 of that deal. Would you like me to give it back?”
The best was Ian. He was afraid to call me. He’s like, “I was afraid to call you because I was afraid to tell you.” I was happy for him.
We talked about this attorney that finds ways to mess up. They got the check from the County. I was going to ride up there because his office is only an hour for me. I’m nervous.
You have issues with him in the past too.
Yes. We got through those deals. I wanted to ride up there and pick up this check-in person because I’m afraid of the mail and COVID and everything’s delayed. I said, “I couldn’t get up there, can you mail it?” They ended up dropping the check in the mail. I was like, “Can I grab a tracking number on that?” His secretary said, “No, there’s no tracking number. I put it in the mail.” There were about 3 or 4 days when I couldn’t sleep because of this check for almost $250,000. Maybe this is standard procedure.You need to have the patience to not get yourself in the bad deal because it can be addicting. Click To Tweet
I’m sure the County didn’t FedEx envelope to him. It was a big check with a stamp on it. I was nervous. It took maybe took two more days until I finally got it. Here’s a good Note and Bolt. If you haven’t signed up for the USPS delivery inside the delivery email, we get those emails every day or the app on your phone, you can see what’s coming in the mail. I saw that coming in the mail. It was a good feeling, but then the other trick is getting it to the mailbox. In my neighborhood, we got a community mailbox. Those mail people put things in other people’s mail all the time.
My next-door neighbor got a check for me. She didn’t know. She Googled me and our company and then contacted me through my website and then I ended up getting the check. How long were you in this deal all told?
We closed on November 4th, 2020. The auction was on January 13th, 2021 and the check was deposited on February 8th, 2021.
I don’t even want to calculate the return because the problem is people will read this and think they can go out and do that.
I’m spoiling my partners too because I brought this deal to them to look at. I did spend time on it initially even before Chris probably bid on it. We all spend our time looking at it. I keep saying, “It’s not normal.” I’m telling him, “Don’t even go tell people about it because it’s not fair.” On this deal we did, we had some friends and family money. A flat loan thing.
Have any of your deals have you lost money on?
No, but I’ve only done twelve deals in three years, not a ton, but so far, we haven’t. Part of that going slow route is we try to be conservative. We try to be confident in what we have. Sometimes I get frustrated like, “We got to do more.” Jamie, you’re growing. Chris is up to 1,500 loans probably. We go slow, but we haven’t lost money on a deal yet. I’m happy about that.
I’ve known Ian now for few years and worked with him and he’s run deals by me. Ian is conservative on his pricing, but when I say that, it’s conservative in the fact of similar philosophy that is me, are you take the worst-case situation, play it out and what’s that look like. We’ve talked about deals in Florida that looked at $100,000 UPB and people want $75,000, $80,000 and we’ll run it by each other. There’s no meat on that bone. I know sometimes there’s frustration, and Ian gets frustrated sometimes because like, “I just closed the deal. I’d like to get another one.” Having that patience also to not get yourself in the bad deal because this can be addicting especially once you start making some money, it’s like, “I want to buy more.”
You could be cautious in some sense as well, especially on some of these higher–priced assets to make sure you don’t overstretch. It’s not something that happens every other day. If it happens once in your career, that’s great from that perspective. Part of what I want people to realize too is there are still some deals out there and you have to look for them and focus some time and effort on it, which Ian did on this one, I didn’t because I was also buying 45 other assets on this tape. I didn’t have the bandwidth to focus on this one, unfortunately.
On the overall value, my acquisition was about $500,000 so this was maybe under 20% of that. It was one of those things where I had to focus on the other ones versus this one. In that tape too, I was buying a $300,000 asset that was in Maryland. I did what Ian did on that one. I want to show people that are out there, it’s not easy, but I know people get frustrated. This isn’t from some guy who nobody knows about, this was a tape that was sent to the masses, but everybody and their brother and mother and cousins saw this tape. There’s still cherry-picking some of these assets on these tapes. You can still make some money.
Even if this house had Chinese drywall, the numbers still were fair. I thought the house was probably what was worth they do it right on, they were priced too at $125,000. If it needed a full gut, I still could have sold it at around $125,000 as the market was going up, maybe more. Being in the deal for $80,000, we still could have probably sold it $120,000, $125,000 and that would have been a super solid return in three months.
Lessons learned for our readers are from what I’m understanding, you played to your strengths. You continue to play to your strengths. You have boots on the ground, each partner has different strengths that they bring to the partnership and you’re not afraid to go where other people are maybe scared of. Most new note investors, they’re not touching a vacant property, let alone one that’s been vacant for a decade or more. Right there, you weeded out 90% of at least newer note investors and having boots on the ground.
Also, you talked about Facebook, making phone calls, talking to people and networking. Can you go out and do this again? Maybe not, but you can replicate it on some level because you’re playing to your strengths, you’re willing to network and understand the risk and mitigate that, but also taking action and not just sitting behind a laptop and crunching numbers all day. Lastly, although you recognize this was a good deal, it seems like you’re remaining humble about it. I know a lot of people will start to think, “I’m a genius. I am so smart.” That’s when you get burned.
It was a lot of luck that have lined up. Chris backed out a deal and it’s a thing where I got lucky like when the last person sometimes gets the deal. The fact that Chris pushed back and the sellers probably now, “I need to get rid of this. I need to sell it.” He knew I was interested and I was able to negotiate it down a little bit more.
You’re now positioned as a local expert there. You’ve talked about potentially wanting to expand into other states or you have a little bit, but that’s another key point for newer note investors, is don’t try to bid on assets in 20 or 30 states right out of the gate. Focus on what you know and then grow from there. There are many different approaches to this business, and you can be successful with different approaches.
You’ve dealt with receivership. You may have only done a half dozen deals, but you’ve seen some crazy and bad stuff out there.
We had a receivership deal down here in the Fort Lauderdale area on a property that had a deceased borrower where it was a 55-plus community. There was an HOA where our receivership was put in place to protect the HOA. The HOA was owed $6,000. The receivership comes in and says, “We will fix this vacant property up. We’ll put someone in it. We’ll split the rents. You’ll get paid out and we charge you nothing.” It turned into a big legal fight. The borrower was deceased, but that was supposed to be a basic foreclosure and that turned into $25,000 in legal. We’ve had to fight these guys in court because we went in to get rents as an assignment of rents and the court put a receiver in place for us where these guys were a receiver for the HOA.
We had to fight them. They extorted us. We had to pay them off to go away because we were not getting awarded any attorney’s fees. They put attempted to put money into this house to try to get some equity where they could go to court and ask the judge at the foreclosure like, “We put $30,000 in this house to get renters in here for the HOA. We deserve to be paid out.” It was some crappy accounting on their part. We had to fight them. We ended up having to settle for them to go away. That was a mess.
You’ve hit on 2 or 3 things that most known investors have never even dealt with.
I’ve seen that. I’ve had a Florida eviction. I’ve had an insurance claim. I’ve seen a bunch of different things in only the handful of deals that we’ve done, but they all ended up okay. If you’re confident in your area, you’re confident in your lawyers, which sometimes you can’t be, you’re confident in your pricing and it all comes down to collateral. If you’re confident in what it’s worth, you can put some money into getting the deal worked out. You can put some money in through time. As long as you have enough room in there and confidence in what the value of the property is.
What’s one thing that you would say you would do differently? Whether it’s this deal or any other deal or the arrangement of your business or anything you would go back and tweak a little bit.
I want to focus on what those properties are worth. We’ve had two deals where the property as is wasn’t worth what we thought it was. One, we had to get out of it by doing rehab. We were lucky that it was over by my other partner. He bought his own primary residence. It was a foreclosure that he had to rehab. We had to get out of that by rehab and bought an asset that we got back REO that the only reason we’re making money on it was because a hurricane came through and hit it and we’re getting an insurance payout.
Maybe you’ll be adjusting your collateral value potentially a little bit.
I know that’s hard for everyone and you don’t know what the interior of the house is. Now my go-to is these local wholesalers and rehabbers themselves, “I got a deal over here. Do you mind talking to me about it a little bit?” I might get this back REO. If you’re a rehabber, you’ll be the first one to go to take a look at it. “What do you think it’s worth?” Sometimes even realtors, especially if the house isn’t that expensive, you feel like they‘re not really into giving you a quote on even a $100,000 house.
Real estate investing, as much as we try to automate it and make everything systematized, it’s all local. It’s inefficient. If you’re willing to do that legwork, that gives you a leg up and that creates opportunity.
That’s a great Note and Bolt about the wholesalers because agents, the challenge I’ve found is a lot of people go to your standard Century 21 or Redfin or some agent like that. Mine is a group called the NRBA.com, which is the National REO Broker Association. It’s all agents who deal with REOs, because those are the ones who know these types of assets much better, as well as wholesalers, compared to get in some person who’s used to selling the four-bedroom, three-bath and nice painted red front door. Ours are painted red front door from blood maybe.
Ian, is there anything you want to touch on before we wrap it up?
No. I got Note and Bolt related to the receivership and assignment around so I can get that on. We’ve had two deals where we’ve gone and done these assignments of rents. In theory, they’re nice. You’re like, “Someone’s in the property renting it. You have the right as the first lien holder to go in and do an assignment of rents, get the court to have those rents sent to you instead of the borrower.” It’s all nice when you think about it, but it can play out in different ways. That one property in South Florida played out pretty rough where there were tenants in there by the HOA’s receiver, put tenants in there, we went in to do an assignment of rents. The receiver that the court appointed us, they appointed us a local attorney down there. We had no choice on who our receiver was. The guy ended up charging $260 an hour. He had to go to court four times because the HOA’s receiver fought the order, which I blame the court because the judge put the receivership in place for us not doing his own homework knowing that there was already a receivership in place for the HOA.
That ended up costing us 3 or 4 hearings where not only did my attorney have to go, but the newly appointed $260 an hour receiver receivership attorney had to go. We did get maybe three months of rent so maybe we recouped for $4,000 or so, but we got a bill from this receiver attorney for $8,500 that even my attorney was shocked. He was like, “I had no idea.” Discuss it with your attorney. Make sure you know what you’re getting into and what could happen because you might collect a few months of rent, but you could get a hefty legal bill on the other side as well.
On the flip side, we had another deal where it worked out well, where a tenant was in the property. I got a voicemail from the tenants saying, “I’m getting all these foreclosure letters in the mail. Where do I send this rent to?” We did an assignment of rent, but for whatever reason, this County, my attorney was able to be the receivership for the receiver and they weren’t going to charge me for it. I said, “Go for it.” It worked out well. We’re in court. The borrower was arguing that it was a family member staying in the house and they were paying $0 in rent. It could have been a family member, but they said, “Where do I send these rent checks to?” He ended up showing that to the borrower’s attorney. They fired the borrower as a client because they felt they were lied to. Ultimately, they backed down and they said, “We’re not going to fight this foreclosure. You can go to summary judgment.”
That’s interesting because in my Jacksonville deal dealt with a similar issue where it was family members renting to the borrower who was not paying her mortgage, but I never even considered the assignment of rent thing. It worked out in our case. That’s a good Note and Bolt.
It worked out both ways, but be sure before you do it, get that experience from your attorney because you might end up with an $8,000 legal bill to try it again. It’s not even from your attorney, it’s from another attorney.
I got one right now where it’s nineteen apartments in five buildings, but it’s in a state that the attorney’s like, “Don’t even bother. It will be dragged on for two years. You’ll be able to foreclose before then.” You get to focus on the state because in several instances I’ve looked at it, one was in Indiana, the attorney was like, “You’re much better off going through the foreclosure and focusing on that versus from money. By the time, if you run a parallel path, they’re both probably going to end up finishing at the same time.”
Mine is about New York foreclosures. It’s not related to Florida. If you end up having to go through foreclosure in New York State, make sure you file with the New York DFS, Department of Foreclosure something or other. You have to register through that website and that portal before you can send out a 90-day letter initiating foreclosure.
North Carolina is the same by the way.
That can be your Note and Bolt. I’m dealing with this now. It’s my fault because it’s my business, but there was a particular law firm that may have also dropped the ball somewhat. I was under the impression that our 90-day letters had gone out. It costs us at least six weeks. The Note and Bolt are to make sure you register with the department before you initiate legal.
Jamie, you’re going to get everyone else investing in New York. Everyone’s so afraid.
Jamie, I have a question for you though. I’m curious. Is your servicer that charged you for foreclosure coordination?
I have twelve notes with that servicer, but five of them are in foreclosure or are headed there. They have not handled it the same way on each one. They have not yet charged me for that, but it’s coming that they will.
You’ve got the attorney who can flap around a little bit, but also your servicer, if they’re charging you for foreclosure coordination, what does that mean? What are you coordinating because you’re not doing anything?
I’m going to get charged. There’s a whole backstory with that.
My Note and Bolt are more related to your situation. For me, I had to drive two hours to go to a court hearing where I was supposed to testify to say, “Yes, I’m in possession of the note that was assigned to me. They owed me the money. They haven’t paid since this date. Mr. Judge, can you please allow us for a foreclosure sale and provide us with a judgment for the remaining balance or any balance that we don’t receive at foreclosure.” That’s what I drove two hours for. We get there. They call our case and the court magistrate says, “Yes, judge, we received a letter last night from the defendant requesting for a jury trial on this case and continue for a motion for continuance.”
My attorney’s like, “We continued this last time. We’re here to get a judgment today.” The judge says, “Noted. Jury trial approved. Pick a date.” The first date was November. The attorney’s like, “I can’t make that date attorney. I have another trial on that day.” They said, “The next day is July of 2022.” My attorney’s like, “I will have someone else from my firm here in November 2022. What do you want to do?” I’m like, “Any will do.” One of the things that my Note and Bolt that I like to talk about a lot is two things. One is, yes, it’s discouraging, but you got to keep moving. Second is the courts are such an unknown variable. I don’t think people talk enough about that. Some of these foreclosure sales and some of these other things, this is Virginia, it should be, “Wham-bam, done.” This one’s been going on for a long time. When you’re putting in things for your calculator, the cashflow expo unknown costs. This is going to happen and you got to be aware of it. Unfortunately, there’s not much you can do about it.
Hopefully, the pandemic and shut down shed some light on that for people with all these factors.
A good Note and Bolt is whenever you can avoid court, avoid it. I had to fight these receiverships in Florida. We went many hearings. We kept winning and we were never awarded attorney’s fees. It didn’t matter how many times these guys brought us for no reason to a hearing and we’re wrong and we asked for attorney’s fees, you were never awarded it to the point where the judge ordered them to come back to talk to him. They didn’t show up and it still didn’t matter. We just settled it. It was one of those things where you can get dealt pocket aces and you’re sitting at the best spot, but you can still lose with pocket aces, especially in the courtroom.
What happens when you win? You take your chips and then the dealer comes back six months later, says, “Let me take those back.” I’ve had that happen. Six months after we got the property back, “We can evict the person because of COVID.” The person does a verbal motion to overturn the foreclosure ruling and the judge is like, “Sure, why not?”
Is this in Indiana?
That’s where maybe the vacant properties work out.
Ian, thank you very much for hopping on and sharing your lovely story. I’m going to go soak a little more on this. The first deal Ian and I did, I told him, “This will probably never happen to you again.” We bought a vacant property we JV–ed on in High Point, North Carolina, that was JV-ed on 11-22-17, he got a check on 02-22–18. It’s basically three months. He is in the deal for $20,000. We took it back, sold it to a realtor and our net proceeds are $35,000. At that point in time, he got probably about a $$9,000 check on a $20,000 investment in three months. That’s a 45% return. That’s not going to happen again.
That didn’t happen but something much better happened.
Thanks again, Ian, for coming on this episode. As always for all our readers, go out and do some good deeds. Thank you.
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About Ian Green
Manager/Partner at PNG Group LLC & Senior Graphics Interface Coordinator at ESPN
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