Preparing for the Next Downturn

[00:00:00] Mike: [00:00:00] Hey everybody. Welcome back to the show. Excited to have my buddy Phil here. He has just tremendous experience during the last downturn handling short sales and Oreos, uh, on a huge scale. And there is another downturn coming. I think some of us thought it would have happened before. Now. We don’t know when it’s coming.

It is coming for sure. But you got to prepare for it either way. That’s we’re going to talk about today.

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I’m glad you’re here.

Hey, Phil. Welcome to the show.

Phil: [00:01:11] Hey Mike, how are you?

Mike: [00:01:12] Good. Good, good, good, good to see a buddy. So, uh, I’m excited to talk about this, cause I think, you know, the truth is, is I, I really, I never did any short sales. We tried a bunch of stuff. We tried to work with people. It just never worked out. I was more of a marketing direct to seller.

A guy and, uh, really never had didn’t didn’t buy at the auction. I didn’t do a lot of it, but I saw a lot of people that were very successful with it. And it’s obviously, um, a big part of this industry whenever those busts happen, whether I’m buying directly from that, or just the fallout of the fact that the market is, is going down, um, Benefits all real estate investors.

I guess if you’re prepared, that’s what we’re talking about today. Being prepared for this, right? Whether you’re buying directly from banks or from REO agents, uh, or what you need to prepare for it. So, um, I’m just talking in circles now. So why don’t you tell us a little about yourself? Like how [00:02:00] you, cause that’s, that was basically how you cut your teeth.

You got in, uh, right before that time. So talk a little bit about your, uh, how you got started.

Phil: [00:02:06] Yeah. So, uh, when I was still in high school, Boucek enterprises was a regional property preservation or field service company in my area. Um, they were lucky enough to give me a shout as an employee. Um, I did my first eviction at 15 years old.

I still remember this day. I didn’t even have a license. Um, once I graduated from my school, uh, I opened up as an independent contractor and covered area, Niagara counties, uh, from the preservation aspect. As well as that, a little bit of traveling abroad, so to speak New Jersey and some other areas as a field trainer, due to the influx in inventory, we needed to Marfan tractors.

Um, after he had a couple of years off in the industry and I ended up developing a relationship with Metro, a local brokerage year, um, got in back into preservation, into the field service side of things and all [00:03:00] that I graduated into becoming a broker agent. Um, my primary job was to as is, and as repair values on behalf of the servicers.

Generally speaking at that point, there’s no bank involved, um, as well as developing liquidation strategy. Um, so approximately 15 years I’ve been in mortgage default services or, or foreclosures in general.

Mike: [00:03:21] Yep. And it fills in Buffalo, New York for those of you listening. So I think the shakeout happened differently, like in some Martin and I think in the Northeast, generally it took longer to unwind from the downturn in the market than it did like Texas or Southern markets where it wasn’t probably as bad.

They’re not litigation States they’re basically, uh, have

Phil: [00:03:40] litigation’s dates. Exactly.

Mike: [00:03:43] Yep. Yep. So it was just a matter of your Mar everybody listen to this, your market is different based on how they handle foreclosures, uh, that, that determines how fast and I guess, long this, uh, process or opportunity, I guess, takes right.

Phil: [00:03:58] Exactly. I mean, [00:04:00] you guys that are lucky enough not to be an attorney, judicial state are going to see the, the benefit far before us. Um, but that I guess comes down to brass backing, you know, truly looking for ahead of the curve. It may be there. Um, I guess as we were kinda talking a little before, it’s going to end up the new short sale position.

Uh, everybody’s going to be so over leveraged for the most part. Um, The banks didn’t have to be able to cut a loss on it. Um,

Mike: [00:04:28] timer on the banks will be a little bit better equipped to deal with short sales, more so than going through a foreclosure process and all that. I mean, do you think that they would prefer that right?

It’s faster and easier.

Phil: [00:04:37] So on every property assignment we get, ironically, the first thing it would say is if the process approaches walk away. So I’d like to think that they’ve learned from their mistakes in the past, and they’re going to handle this in more of a professional manner. But I mean, at the end of the day, it’s a financial institution.

So whatever’s going to benefit their checkbook. The most is, is, is gonna [00:05:00] shake down. Um, There’s so much the paper transfer so many times in the secondary market. Um, from the larger, I guess, institutional investors or people raising money, you gotta get yourself involved with the rates essentially are a step below, um, Wilmington, trust, karate, um, saline, Dakota.

I mean, it’s unbelievable how many times one house would transfer? We did get an initial lock change order for the same property and behind on behalf of five different servicers. So it’s just keeping track of who owns the asset. Yeah.

Mike: [00:05:37] Yeah. So talk a little bit about, uh, in terms of like preparing for this is we’re going to talk about today is, uh, you know, we’re gonna talk about relationships.

What are the right relationships to have, how to prepare from a funding standpoint? Because you know, one of the things that happened during the last downturn is a lot of people that had a lender. And they relied too much on one or two lenders. Like sometimes those lenders went away and they’re like, Oh my God, I’ve got all this opportunity, but I don’t have money.

[00:06:00] And so you got to prepare from a funding standpoint and then, um, how to build up your buyers list. Like if you’re looking to do a sign and wholesale more deals, Like the buyers that will be there again. They need capital too. So it might be a different group of buyers that you’re selling to after a downturn than you than you were over the past couple of years, because some of those folks might go away, you know?

So let’s talk about kind of relationships. What are some of the key relationships? Because as you know, There are some gatekeepers to access, uh, properties, whether they’re short sales or Oreos or whatever, um, what or who are some of those gatekeepers you should,

Phil: [00:06:33] people

Mike: [00:06:33] should start trying to build relationships with now.

So

Phil: [00:06:36] when your local foreclosure brokers in REO agents, um, get in touch with them. Excuse me, on second and develop a relationship. Um, Um, if, I guess you’re trying to bribe your way into somebody’s pocket. Maybe take your, your next rehab project and ask them to list it, or, I mean, in house and try and develop a relationship on their buyer’s list.

Mike: [00:06:59] Do you know who those [00:07:00] brokers are like now, where we’re at, where we can’t really tell there hasn’t been as much activity at some point, the activity just takes up. How do you know who those people are going to be now?

Phil: [00:07:09] So, I mean the strong survive, uh, at least in my market, there’s one or two names. Uh, Scott Walters, George Berea that have been in the industry forever.

Um, so I mean, I’d look in that direction as well for you, or if you’re familiar with your market, you should know the names. If not, um, if you’re familiar in the MLS, you can search the type of sale, whether it’s traditional bank going to REO, um, short sale, et cetera, et cetera. And you’ll see a commonality among the names.

Um, so that be the best way to get in touch with them. If you’re not an agent broker without access to the MLS, um, Zillow, I mean, they, they will say foreclosure on there and highlight, highlight that the property is bank owned and you’ll see a commonality in the names. Okay.

Mike: [00:07:57] Okay. So probably in, you’re saying [00:08:00] probably cause I know during the last downturn here, There were some really big, uh, brokers that they seem to just kind of dominate.

Right? So maybe look them up from the last downturn. Cause those guys probably are gone.

Phil: [00:08:11] Yeah. Auction platforms as well. A lot of the servicers are turning to auction back down zone hooves, Xu, uh, to solicitor to market that way. Um, so that’s a good, another Avenue of obtaining.

Mike: [00:08:26] Yep.

Phil: [00:08:26] Although right now there’s no inventory on there.

It’s a battle in itself to get anything, but. Um, any time the market has to share the big question of when.

Mike: [00:08:36] Yeah. So what other, what other kind of relationships are key, um, to have to kind of prepare for

Phil: [00:08:43] this, uh, So my buyer’s list ended up, uh, transforming into my lenders list. Um, being a foreclosure agent broker here locally, uh, I joke and I ever refer, refer to myself as a drug dealer.

Um, [00:09:00] I’m selling a product that everybody monitored. It just seemed to happen that this product was real estate. Um, but by developing a relationship with, uh, the big guys in my area, uh, they have circuit or excuse me, I’m sorry. Um, have subsequently developed into the lender position in some or some relationships.

Additionally, again, I’ve sold them all. I don’t think I’ve mentioned sold about a thousand foreclosures in micro. Um, I know where, where to turn, um, the bigger property managers. I know they’re lucky for whether it’s in the Niagara falls or the South Buffalo North Buffalo areas. Um, the rehab guys, I know who the major players are and I know what they’re looking for.

Um, everything is relationship based.

Mike: [00:09:48] Yeah. Well, it’s interesting to, haven’t been in the business for awhile is I know like there’s so many people in the real estate investing industry now, like wholesalers and kind of newer folks that have come up in the [00:10:00] last few years, they don’t have the benefit yet of seeing a couple of market cycles.

But once you do you realize it. You know when you’re, when you’re a wholesaler and that’s pretty much all you do, like you can never stop buying. Um, so you don’t really see that there, you don’t see that there are some players, for example, that when the market is as hot as it has been, there are some people that just sit back on the sidelines and like, I’m going to let the, you know, I’m going to let the amateurs play for awhile and then I’m gonna get back in.

It’s just like the stock market. Like when the market gets overheated, people pull out and they invest in other things. And like you said, I bet you, some of those people that were rehabbers are buying deals after the last downturn, they probably turned into lenders, right? They’re like, I can’t make as much money on this, but I, I know the game and I’ll lend to people.

And they just kind of play different roles and you kind of, it’s like moving from stocks to bonds. I just going to shift around to different things based on the climate in the market. And so, so basically a lot of the people that have been lending over the last few years that used to be bigger rehabbers.

Like some of them will shift back into rehabbing [00:11:00] when, when effectively black Friday happens, right. Like things are going to go on sale.

Phil: [00:11:04] Yeah, no, you’re you’re correct. I mean, that, that exact circumstance happened here. A local investor of mine didn’t have the ability to pick up any more inventory and simultaneously.

Uh, not trying to have that money sit there stagnant. So it made sense to put up to work from, um, from the lending perspective. Yeah. Um, or anything

Mike: [00:11:24] I posted, so the message, uh, on Facebook, this is like a month or so ago. And I was like, it kind of in my, I don’t know if it was in a Facebook group, like a local Dallas Fort worth market market, or just posted on my page.

But I was like, who are, who do you think are the top 10 investors in DFW? And there were all these names that popped up many of which I didn’t even know it’s my market, which is pretty rare. And there’s some real big dogs that have been around for decades and like, Most of them didn’t get mentioned. And I’m like, it’s just this interesting observation.

I guess

Phil: [00:11:54] they know how to use the corporate umbrella. I’m the

Mike: [00:11:57] well, but, but I mean, it’s just like the people [00:12:00] that are out on social media that are showing up to the REIA events and, you know, driving around in fancy cars and they’re flashy about it. Like that’s not, I mean, there’s a bunch of people that aren’t on social media that are big dogs that just aren’t out there.

So I think that’s probably one other thing is like, What you see on social media? Isn’t, doesn’t fully encompass the whole real estate community in your market. There’s a whole bunch of people that are kind of below that radar, cause they don’t want to be that guy.

Phil: [00:12:27] Social media created another real estate market.

I mean, in my opinion mean look all. Yeah, I guess I’m old enough to say I was around before social media was the entire Facebook, Instagram, social media marketing, um, arenas. Relatively new, but it’s intriguing.

Mike: [00:12:47] Yeah. Yep. Yep. So let’s talk about, um, funding. So that’s another important thing is like, you know, we talked about it a little bit, but what you don’t want to do is when the market takes a downturn and then all of a sudden the lenders you’ve been [00:13:00] relying on are like, Hey, I’m I’m out.

Or, you know, for one reason or another they’re out is, um, Is it, I think it’s important to have more options to, to lend you. So you should be building those. If you haven’t been doing that already, you should be building more relationships. You should have more relationships than ever when we’re coming into a downturn, because some of those relationships are going to die or they’re just going to go away.

Right.

Phil: [00:13:21] Absolutely. Um, I mean, local lenders, your, your local banks and credit unions, developing a relationship there. Um, everything I’m more in tune with it’s done through broth IRAs or retirement accounts. Um, and for that matter, uh, just, just excuse me, 401ks as well. Um, but at the end of the day, it comes back to relationships.

I developed relationships through a proven sales history with them making investments and making money, but that got me access to, to the lending side or, or to those funds. Um, yeah. Okay.

[00:14:00] Mike: [00:14:00] The other thing too is, uh, I know. So during the last day, cause I started in Oh eight, so I kind of started when the downturn was starting really, is that back then, you know, people were a little more diligent with proof of Fonz.

Like they wanted to see. Uh, a bank statement and not just some write-up that a hard money lender gave him the said, Oh, he’s approved for up to $2 million is like, you give those to everybody. Right. So they wanted to actually see, do you have proof of funds? And so I think it’s important to not just have somebody that says the land, but somebody that, uh, that can prove that they’re going to land right.

People because most lenders would be like, You know, I want to, I want you to prove it. Like, don’t just, don’t just show me a piece of paper, like show me that you have the funds or that your lender has the funds. So

Phil: [00:14:45] that’s $2 million for your approval letter. Is it actually cash equivalent comes down to who is the lender, right?

I mean, can they can perform in a limited time cycle? And then the industry that I’m in, it all comes down to solving [00:15:00] the seller’s problem. Then a lot of the times the problem is the timelines. It needs to be done immediately, or it needs to be done. Open-ended using suitable housing contingency or something along those lines.

But I mean, liquidity is King. If you don’t have yourself personally. And I can’t say that I am personally, but, or surrounded by individuals that are liquid it’s, it’s difficult to make it in the real estate market. Um, no, I mean, Buffalo compared to Texas we’re much lower value develop utility when the market does correct is not going to be as instrumental.

Um, we haven’t seen the same growth that you guys have or that’s accesses the floras where there’s going to be major opportunities. Statistically speaking, we’ve we’ve always been poor. Um, I mean, uh, single family, residential, suburban. Started her home in our area, one 50 to 200 and it’s axis, correct me.

What’s what’s 2000 square foot, one for in Texas or [00:16:00] 1500 square foot.

Mike: [00:16:01] It’s really not. It’s gone up a lot here, but I’d say I used to say the median was like one 80. I think now it’s probably closer to two 80 over the last, like five or six years median price point. But you could still, you know, you still get houses for a hundred, hundred 50,000, not many anymore.

Um, and of course you can buy really high end stuff, but. Yeah, I think media is probably, I haven’t looked at this this year through all the COVID stuff. It’s probably close to two 80. I

Phil: [00:16:24] mean, my specialty is single family, residential. And even when the market does correct, there’s still going to be FHA and VA insured loans and buyers out there in the starter home, single family, residential already.

Um, so in my opinion, I’m not as exposed as other individuals playing in the multifamily and the. The bigger markets.

Mike: [00:16:45] Yeah. Yeah. You know, the interesting thing is back in Oh eight, it’s from like 2008, 2008, 2012, let’s say in this market here, we would still, so I was primarily rehabbing. I just always preferred to rehab.

So depending on what your exit strategy is, for those of you that are [00:17:00] listening generally believe when, um, you know, the Mar there’s going to be less. Wholesalers it’s, it’s easier. It’s it has been easier to wholesale. And when you’re in a major market, like if you’re in any major market, there’s always an ecosystem of people doing all these things.

Right. But I think, um, you know, when we were listing houses, rehabbing them and listing them, Oh, eight Oh 12, it was rare that we had a house on the market for more than seven days. And people think that’s crazy, but it’s like, well, I just build a better mouse trap. Like I bought it,

Phil: [00:17:33] it,

Mike: [00:17:34] I can sell it at a fair price and it’s the nicest product.

And so we would list houses and the house across the street, might’ve been on the market for three months. We buy it, rehab ours, list it, sell it close on it. And that one’s still listed it’s because there’s people that. Are emotional buyers. Like they’re not investors they’re more of, or they pay too much as an investor, but there, they lived in the house.

So like, well, I painted that used to be my son’s room and I painted it like the next person does not care at all. Right. And they’re [00:18:00] like, they’re looking at their tax value, which hasn’t gone down, even if the market’s gone down or they’re looking at what the market value was two years ago. And it’s like, none of that matters.

I’m an emotional buyer and seller, like, I’m just trying to get the first in line and that’s how you got the position.

Phil: [00:18:16] So that’s a huge misconception. When you said tax value of that property assessments and property values have the same, um, Just, I guess  attention as you mentioned it. Yeah.

Mike: [00:18:30] But people think that though, they’re like, Oh, my word, my house is worth 300.

It’s like, according to who, I was like, well, there’s the tax value? It’s like, well, are they bringing you a check for 300 right now? Or they just, they’re just. You know

Phil: [00:18:42] what I mean? Coy pods don’t have a place in an appraisal adjustment

for that. Men are in ground pools and things along those lines, you’re talking more marketability than, than valuate. The contributory value is not there. Um,

[00:19:00] Mike: [00:19:01] yeah. Awesome. Well, for those of you that are listed, I think, you know, hopefully we get our point across the years. The ship is coming. You know, I’m not going to be a doomsday person and say it’s going to be terrible, or, but it always creates more opportunity for us.

And so this is a big opportunity for us. I mean, most real estate investors make the most money during downturn. So just people prepared for that. Anything, anything to add on

Phil: [00:19:23] that field? Um, it’s a big question. As when, um, dot COVID was going to burst the bubble. Does the election burst the bubble and how long can it stay artificially stimulated?

Um, you can answer those questions or if I could answer that question, I’d be rich.

Mike: [00:19:40] Yeah, no doubt. No doubt, but Hey, you’ve been a member of investor fuel for a little while now. Um, would you mind just kind of sharing a quick testimonial on how your experiences in with investor fuel?

Phil: [00:19:49] And, um, thank you guys for everything.

Uh, it’s been truly beneficial. Uh, I was kind of anticipating no hard feelings, the RA upsell, uh, [00:20:00] environment. And that is absolutely not the case. Um, I understand now why they call it the fuel family. Um, everybody’s very open and there to help every, but one another’s business girl. Um, There’s an extreme amount of value of knowledge.

That’s the most valuable asset in my opinion.

Mike: [00:20:20] Awesome. I appreciate that. Yeah. We don’t even have anything to upsell. Maybe we need to come up with that, but awesome, man. Well, Hey, folks wanted to reach out to you if you’re, of course, if you’re in the Buffalo area and you want to do any deals or, or if you just want to follow along with what Phil’s doing, where’s a good place to connect.

Phil: [00:20:35] Uh, they can shoot me an email [email protected]. Uh, shoot me a mass message on Facebook, either through Buffalo, brick and mortar, or my personal page or Philip grinder. Uh, also finding it on the web. Broken Buffalo, brick and mortar.com.

Mike: [00:20:53] Awesome. Awesome. We’ll have those links down below Phil.

Thanks for spending some time with us today,

Phil: [00:20:57] and I hope this wasn’t too painful for you.

Mike: [00:20:59] Good [00:21:00] stuff, and everybody. Hey, thanks for joining us today. I hope you got some good value. We’re going to keep it coming at you. I think we’ve wrote we’re well over 1500 podcasts now across FlipNerd investor fuel and the professional real estate investor show that we would do.

And so got a lot of great content. You can access all of it on flippa.com. Of course you can see all of our investor fuel shows on investor fuel. Dot com if you’re interested in checking out investor fuel and learning more about it, just go to investor fuel.com. You can schedule a call with us and we’ll jump on the phone and see if it’s a fit for you.

So appreciate your time. We’ll see you guys in the next show.

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