July 23, 2019

Dealing Directly With Bank Asset Managers with Brecht Palombo

Episode 304: Dealing Directly With Bank Asset Managers with Brecht Palombo

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REIS 304 | Dealing With Banks

 

Going to the bank may seem like a daunting task for many real estate investors. For starters, choosing one to go to is already quite confusing. Doing a lot of legwork for us to make it easier is Brecht Palombo, the Founder of DistressedPro – home to BankProspector, the fastest and easiest way to find banks and bank contacts with non-performing loans and REO. We have to open up our limiting beliefs against the notions of dealing with banks and talk directly to them to find some killer deals. Brecht shares the advantages of doing that and offers some great education through Bank Direct, Bank Prospector, and more.

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I have Brecht Palombo with us and he’s going to teach you how to go direct to the banks. It’s a very interesting concept because he’s making it easy for you. They have a giveaway coming on later in the show where they have simplified where the banks are, who they are, what their contact names and numbers are. They have done a lot of legwork for us. How are you doing, Brecht?

I’m fantastic. Thanks for having me on, Mitch.

We’re going to be talking about going direct to banks and finding some killer deals there. How long have you been doing this?

I started in real estate in 2000. I went independent and started getting ready to work with banks in late 2006. I opened this business and the software in 2009.

What were you doing before?

I was part of the dot-com in the mid to late ‘90s. I was in sales. I sold a bunch of boring stuff. I sold sequel optimization software like database optimization software and training and consulting. When I got spit out of that first dot-com crash as opposed to the impending one, I said, “I can sell.” I was one of these guys that were running around selling vaporware. The company is like, “We’re going to make something great. Go sell it.” We’re like, “Great, what is it?” They’re like, “We’re going to figure it out, just get out there and sell it.” When that ended, I said, “What can I sell where there’s always a product?” That brought me to real estate because I feel like it’s one of the few places where as long as you do the work, you can earn whatever you want regardless of the cycle.

I like real estate because if you pick the right strategy, you can do something right once and it can pay you for the rest of your life. Are you a techie? You’re a tech guy.

I’m in the business end of this business. I’m not on the tech side. I’m a good bridge between the tech people and the non-tech people. I won’t sit down and write code or anything like that, but I know how to get it built. That’s where I am. I’m a numbers guy. I didn’t complete my CCIM, but I’ve got a lot of investment training and stuff. I’m definitely a heavy-duty numbers guy.

Real estate is one of the few places where, as long as you do the work, you can earn whatever you want regardless of the cycle. Click To Tweet

When I think about going to banks, I think about a lot of red tapes and bureaucracy. No one can make a decision so it’s going to take a long time to figure all this out. I’ve shied away from it. We’re all limited by our beliefs. I’m interested to talk to you because I like to change that belief system. Where do we start?

That can definitely be true depending on the size of the bank. If you’re looking to work with someone like Bank of America or Wells Fargo and US Bank, these banks are big. They have lots and lots of layers of all different levels of vice president, committees and special servicers. That’s a hard thing to navigate. On the other side of that is there are more than 11,000 banks and credit unions in the US. The ones that we’re talking about that are huge bureaucracies are only a very small slice at the top. The sweet spot if you’re looking to go direct is to work with your local community and regional banks. You’re going to find that these people are regulated and for most people in real estate, the numbers are still big. The fact is that a lot of them run like a lot of small businesses would. You will have your CEOs, your SVPs or whatever. They’re real people who you can get in there and you can have a real conversation with as opposed to some of these much bigger organizations with call centers and that kind of thing.

I use private banks. I create notes and I don’t want to sell them. I just want to collect the money, but I use private money to do that. The big banks didn’t want to understand how to loan against the note. They didn’t want to know about it or they acted as they had never heard of it before in their life. I went to the community banks as you said. A lot of times the great grandfather started the bank. There are still people with the same last name sitting on the board. They’re businesspeople. You can go in there and you can tell them about your business plan and what your plan is. They can rationalize that this is a good loan or a bad loan for them.

I believe wholeheartedly what you’re saying with those community banks. There’s a lot more of them than you think. As you’re driving down the road, you’d just pass them by. You don’t even notice them until you start thinking you need them for some reason, then you start to notice them everywhere. They’re all over the place. They are the little bitty tiny no-name banks all over the place, especially when you get to rural America. There’s not as many because it’s rural and small towns. It seems like all these small towns have their one or two banks that everyone banks with down there. You’ve never heard of them in your life.

I’m running this business full time. We have a team and all that. I don’t take client work, but the last time that I did, I was working with a guy. He’s a private investor and they did hard money and note buying. He bought a little tiny gas station and convenience store note from a bank. This is a bank with two branches on a little island off Massachusetts if you ever heard of Nantucket. It’s a tiny little bank that nobody would ever notice. It’s on an island. You have to get on a boat or a plane to go see the thing. He bought that note. I think face on it was not quite $2 million or something like that.

He bought that note for a little over $900,000. We foreclosed and sold that thing to an end buyer in under 30 days for $1.2 million. I forget the exact numbers there, but I know that he ended up walking with about $360,000 from that deal that he bought and that we processed in under two months from a little tiny local bank. The reason is that they didn’t want to have this thing in their books. They didn’t want to get in the chain of title. They didn’t want the risk of having to deal with that. For that reason, they were able to do that. That’s just one bank. There are almost 11,500 banks in the US. Most of them, you have never even heard of.

The bank took a $600,000 haircut. Let’s talk about that. Is that emotional? They have $600,000 to you means one thing, $600,000 to a multi-billion bank or what value are these banks at.

They varied. You have to have a certain minimum even to be a bank. Beyond that, there are credit unions. You will have it smaller.

REIS 304 | Dealing With Banks

Dealing With Banks: If there are five to ten lenders who you can pick up the phone and do a deal with you, that’s a pretty good book of business right there.

 

My thought was, “It’s not emotional. It’s just a day in the life for them.”

That’s why I originally started pursuing banks. First off, the writing was on the wall in terms of where we were at cyclically in the economy. If things go south and they look like they might, where do you want to be? You want to be next to the sellers so you can still sell if that’s your business, which at the time it was. When I first started in real estate, I’m like every Joe on downtown Boston running around doing rentals. It’s pretty thankless work. You’re turning keys. You’re hoping something happens. I started thinking, “This isn’t the best. How am I going to build a sustainable business where I’m not constantly prospecting?” I started moving into the investor market. I started doing a lot of small individual investments sales because those are people who you could do multiple deals with over the course of a year. I went to this auction where I watched a guy sell 36 assets in about an hour and a half. It was $15 million or $20 million in sales.

I was like, “He did a year’s worth of business in an afternoon. Where did this come from?” It came from the banks. That’s the thing. Lenders are always making loans. Some of those loans are always going bad and then those loans will either be sold or they will be foreclosed on. This happens in good times and bad. In more difficult times, we see a lot more of it and we see deeper discounts. In times like these, where we’re a little peaky and little frothy, we’re seeing tighter numbers, but that doesn’t change the fact that this is a continuous cycle where they’re just processing it through. There are people that it’s their job. They’re not entrepreneurial people.

They come in the morning and they’ve got their briefcase with the baloney sandwich in it. They’re hoping to get out by 4:30 to see their kids’ soccer game and in the middle of they need to sell some assets. Files are landing on their desk and they’re hoping they can make these go away. They can look good for the boss and they can get a promotion. That’s their whole job. They are repeat sellers of discounted and distressed assets and it happens all the time. That’s exactly why I went after them. If there are five to ten lenders who you can pick up the phone and they will do a deal with you, that’s a pretty good book of business right there. You don’t even need more than that.

I did a bank deal. The house was appraised at $1.069 million. The bank let us buy the defaulted note for $400,000 more or less and the guy is $100,000 behind. We bought the note and we bought the arrearage. We sent out the foreclosure notice saying, “Bring the $100,000 and get the note caught up or we will foreclose on the house.” It looks like we’re going to get the house. That may be one of the sweetest deals I’ve done in my entire career. I deal in a whole bunch of little stuff, mountains of it. I would buy about 100 houses a year and I sell them with owner-financing. I sell them on 30-year notes, no balloons. I’ve worked out the underlying financing with private people. I was thinking I should apply myself more to the banks around here because I have a proven track record for 24 years. I can make some claims that most people can’t make. I should be trusted to close on their asset if I say I’m going to buy it.

I’ve liquidated a lot of stuff for banks, a few hundred assets, a couple of hundred million in sales. I’ve had plenty of them sold before they ever got to me. My contact sells it to someone like you. In my experience, the number one thing that the lender wants once they engage with someone like you, Mitch, is to know that you’re the real deal. They do not want to do a re-trade. When they work out a deal with you, you put something down on paper, if you get that all the way to the close, they will call you again. If you jerk them around, they will not call you again. You are off the list. It’s important that you stick to your word and that you perform.

Looking back, some of the best deals I’ve ever made were through the banks. It gets down to that bottom line. They’re not emotional.

That’s right. It’s all numbers-driven. That’s one of the things that we try to focus on when we’re talking to people about how to approach this. You begin with the numbers and understanding what their numbers are, which numbers motivate them, which are indicators that they’re good sellers or maybe they’re not, and how that all works. They are very much numbers-driven and not emotion-driven organization when it comes to sales.

The number one thing that the lender wants once they engage with you is to know that you're the real deal. Click To Tweet

We got a couple of giveaways we talked about. What do you get to offer to give people a taste about what this business is about? You said there was a little flash course that was about six videos that could get your eyes open to what’s going on. It was a mini-course called Bank Direct. You also have a free streaming webinar. Are you offering to give both of those away? Are you just going to give one of them away? What do we want to do?

It depends on how people want to consume it. For me, I like to be able to sit down and get the whole picture and go through it. If you’re that type of person and you want to have an understanding of that, you should attend our free streaming web class. What we do there is I break down the entire process from the numbers that you need to understand to a systematic approach to find these deals. In the end, we will give away what we call our DIY kit. If you go through the web class, we make an offer at the end. You can decide that you want to get more involved, but if you decide that you don’t want to get involved, we’ll give you a ZIP file that has everything that you need in order to go do this stuff yourself. You’re going to do your own legwork. You can do your own research. That’s about an hour-long course. The other thing that you can do is we do have a six-video mini-course. That’s a little bit lighter touch. We don’t get as deep into it. If you want to get a glancing blow on the thing and understand it a little bit better, that’s a good way to go without a big-time commitment.

Go to REInvestorSummit.com/GoBankDirect. That will get you to the mini-course Bank Direct and to the free streaming webinar. Pick the one that you want. If you’ve got enough information and you’re one of those triple-A ready, aim, fire people and you want to go out on your own and take a run at it, you’ve got plenty of information there and forms. If you think you need a little coaching, then you will have that choice as well. I always say you’re going to pay for the education one way or another. The street is going to charge you either in lost deals or money you stepped over that you didn’t see. You need a coach. It’s a lot less anxiety to pay a coach and go to your corner when you’re getting the hell punched out of you. Have someone to talk to you about how you’re going to keep from getting your nose broke on this deal. It’s always been my opinion. I’m not saying it has to be me or him. Get somebody who you want to be on and off the field, in business and in life. You don’t want to stand next to people that are turds in their personal life. It will all rub off somewhere. Tell us about the BankProspector. This is something you’re selling, is that right?

The software has been around since I created in 2009. What happened was I was out there banging my head against the wall looking to get bank direct deals. At that time, I had a couple of projects of my own. I was also a full-time broker and an auctioneer. I had licenses in all the New England states. I was out there looking for how am I going to find these deals? Much to your point about mentorship, I ended up finding this guy who knew what he was doing. It costs me a lot of money, mostly in commission splits over a period of years. It’s funny when I hear people talking about the expensive courses and that kind of thing. I go, “Expensive courses try splitting deals for a few years, then you want to talk about expense. We’re deep into six figures for that.”

What I learned from him was a lot about how things worked internally at a bank. I learned about these numbers that the FDIC and the FFIEC put out, which gives some indicators about who’s got what and who’s a good seller, but it is time-consuming. You have to download these giant spreadsheets, pull them apart, figure out what you’re doing with them. It’s not made for this purpose. What we built was a software that goes out and it pulls in all of the bank and all of the credit union data. We’re talking about millions and millions of rows of data.

What we do is only pull out the parts that are important to people like you and me. We make that easy to search, then we pair that with contact data. We have full-time contact managers. They have a special web interface that we built for them and their only job is finding, vetting, cleaning and getting contacts for people. What we try to do is eliminate all this research work that you’d have to do and get you right down into the source. Instead of weeks or months of digging through spreadsheets and stuff, there are few clicks and you’ve got the right person to talk to. That’s our goal.

Is this data that you’re pulling out show us? Is that the foreclosed properties? Is it showing you what they have that they need to liquidate? What data are you showing us?

There are a couple of things. There is no reporting of the status of individual whole loans in the US. This is different if you’re a mortgage back security or CMBS or something like that. There’s detailed reporting because it’s a security and there needs to be this public-facing stuff. If you’re looking for the status of Joe Jones’s loan across the street, that thing is not reported on an individual basis anywhere. The next best thing that we have instead is portfolio-level data by asset type. That’s one of the things that we show you. The other thing that happens is there are many systems out there where they’re trying to show you all the REOs. I will give you an example. I had three different banks that I worked with. If you were tasked with going and finding which properties these banks owned, you would never ever find them. The reason is that a lot of banks have a bad bank. They have a little corporation or multiple corporations that hold bad assets in their name.

REIS 304 | Dealing With Banks

Dealing With Banks: You’ve got to be at the top of mind awareness with lenders. You’ve got to stay in front of them.

 

You’re not going to log on or you’re going to go somewhere and pull up TD Bank’s REO because they don’t hold it under TD Bank. They hold it under completely separate corporations. What that means is it makes a lot of the reporting that you see out there for REO balances not that accurate because it’s not clean data. You’re never going to know which banks are doing this or what their corporations’ names are and all that. Our approach is rather than an asset level and then crawling your way up approach, rather than I’m going to find 123 Main Street, then I’m going to find out who the lender is.

I’m going to find out who the special assets person in charge of this asset is. What if we start at the top level and we say, “Which institutions should we be going after? Who in that institution is responsible for the portfolios?” They give you the list of assets because that’s how you create the backchannel and you get the back door. It’s not by going through public records because you’re going to miss an awful lot like that. It doesn’t tend to be the way banks work. Banks tend to work with people. You end up going in there, you find a person and you engage with the person.

That could be a problem if they were disclosing personal information in the public forum saying so and so is behind on their mortgage. That will never happen. I get it. You’re trying to talk to the REO asset manager and impress them and get their list of viable candidates to liquidate properties. It doesn’t sound like rocket science. You’ve just got to do the legwork, got to make the phone calls, got to make friends and got to create your network.

What we’ve tried to do is compress all that stuff that you said and eliminate a lot of that work for you.

Is there a follow-up with these guys like Christmas cards and all that stuff?

Yeah, we talk about a couple of different systems. I strongly recommend that you have an introduction system. This is going to be how I’m going to introduce myself to these lenders so they will know me by the end of it, then a follow-up system. The thing about these people is that while they’re there day-to-day, you might call them now and they might have nothing. They could have a file land on their desk tomorrow that their superior wants out the door before the end of Q2. You need to be there when that needs to go.

You’ve got to be at the top of mind awareness with these guys. You’ve got to stay in front of them. If they’re doing their job, they don’t have a lot of delinquents. When one comes around, they need to think, “Brecht Palombo, I’m going to call him.” It sounds like there are more minutiae to it than meets the eye. If you are interested in hooking up with that software, go to REInvestorSummit.com/GoBankDirect. There will be a link for BankProspector too.

On the free streaming web class, we teach seven questions you can answer about your prospect before you ever pick up the phone. We’re going to teach you the three-step proven prospecting system and then we’re going to give you some of the tools to implement with that. We have people who regularly will go to this class multiple times, take notes, go off and implement on their own without engaging us at all. We’re happy to do that. We’re happy to provide that depth of information for people.

If you could get a couple of repeat sellers in your quiver, that is a good way to insure yourself and your business. Click To Tweet

I don’t normally do this, but you’ve got me curious and I want to know. I’m going to preface it with this. Brecht had this software out since 2009. It’s been working as something that he probably has to keep updated all the time. He has the right to change his price anytime he wants to. How much is it now?

We have contact level pricing. There are a couple of different things. We have training and we have software. What happened was I released the software and I had a lot of people sign up for it at the beginning and they said, “I don’t know what to do with this. I don’t know who to call. I don’t know what to say, none of this.” I’m a numbers guy. I thought I’m giving all these people these numbers and they will be excited and that will be great. They were but they didn’t know what to do with it. We had to create some training. We’ve got different levels of people. Some people come in and they’ve never done anything before.

Some people come in and they’ve done more deals with banks than I have. Those people don’t need the training. For the BankProspector, for just getting the software, we have three levels at $100, $200 and $500 a month. That is based on your contact volume. Some of our customers will come in and maybe their hedge fund and they get a power dialer. They’re going to sit somebody down and their whole job is to take our data and plow through it. They’re on the $500 a month plan so they can get all the contacts. If you’re looking to work locally or even regionally, that’s either the $100 or the $200 a month. If you do a year, we give you two months free. That’s the way that works and then various training, depending on what you need.

You don’t have to make many deals to make that work. Is there anything you want to say to the audience? This audience is probably a good prospect for exactly what you’re showing here. You’ve got me more interested in it. I may become one of your customers myself because we’re always looking at different avenues, we call them lanes, to open. I have four acquisition managers that every morning when they wake up, all they’re doing is trying to find the next deal. They don’t do anything else but that in my company. This looks like a great lane. I would like to explore it myself a little bit if it’s a pretty viable course in my area, whatever, it should be. If you do the work, I’m sure it pays because it’s like the other strategy. They all work if you work them and they don’t work if you don’t work them.

You’re in San Antonio. I’ve got a customer who bought a package of 31 assets out of a tiny little bank based out of San Antonio. The reason they sold that little portfolio notes was because they weren’t even nonperforming, they were not a covenant, they no longer fit their lending box. They took a haircut and moved these things along. You never know what reasons they have or what motivations they have in there to sell. If I was going to leave you with anything here, in real estate, most of us, at least in the beginning, it’s all private sellers’ stuff. The problem with private seller stuff is most of the time it’s one deal. You do all this work for prospecting and then you do one deal.

I’d encourage you to think about what would it look like if I had a small number of institutional sellers where we do repeat deals quarter after quarter or year after year? It doesn’t take very many in order to have a good book of business if you’re doing repeat deals. When you know that you can count on at least a little bit like that, it relieves some of that constant pressure that anybody in this business has, if you want to keep the deal flow happening. You’ve always got to keep marketing. You’ve always got to keep prospecting. If you could get a couple of repeat sellers in your quiver there, then that is a good way to insure yourself and your business.

I’ve done several bank deals in my career, not nearly enough. I always have shied away from it. Now you’ve got me interested in thinking maybe there’s another lane here, to add to one of my acquisition managers’ repertoire or to do myself because I like talking to the bankers. When you talk to all the bankers, when you get with those guys, they’re the ones that take you to the basketball games and you sit on the front row. They’ve got tickets to every event in the world. Maybe that will be one when I do myself.

It’s more of a socializing thing to me. That’s of how I’m going to do it is raising private money, dealing with banks and finding more funding. It fits right along with what I do. You’re probably going to hear from me. Go take advantage of the mini-course Bank Direct, the little six videos, 30,000-foot overview. You will watch the free streaming webinar. It’s a little over an hour long. Brecht says that people go back and watch it over and over again because he’s not selling on this thing. He’s teaching in this webinar.

We do make an offer at the end, but I don’t want to waste your time. I’m not going to show you pictures of checks and that kind of thing and then ask you to put in your credit card. I’m going to make sure I leave you with something and you understand what you’re doing.

He said something very interesting, I don’t know if you caught it, but he says, “If you want to go ahead and start doing it yourself, go ahead.” He’s going to give you what you need to start but if you think you need some hand-holding and some coach in your corner that knows what they’re doing and has been down the road, you will have the chance to do that too. It’s a reasonable thing to ask. If you don’t want to do it, he’s still educating us for over an hour on these free streaming webinars. Go to REInvestorSummit.com/GoBankDirect and that will get you there. I appreciate you taking the time to come on, Brecht.

It’s my pleasure, Mitch. Thanks for having me.

I’d like to thank everybody for stopping by to get you some Brecht Palombo. I hope you are achieving your goals and stay out there. Keep getting educated. You’ve got to stay educated or else you can’t get anything done here. You’re shortening the learning curve. We’re out of here. Thanks, Brecht.

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About Brecht Palombo

REIS 304 | Dealing With Banks“A man is a success if he gets up in the morning and goes to bed at night, and in between, he does what he wants to do”

I bootstrapped distressedpro.com from concept in July 2009 to a thriving online business serving real estate investors and brokers across the country.

Members of distressedpro.com are professionals looking for the edge in their REO or note business. They use the software and training to find, qualify, and connect with banks and credit unions with distressed real estate assets, C&I and credit card debt.

Before starting distressedpro.com I served independent real estate investors and developers to maximize their return in the acquisition, reposition, and disposition of commercial, multifamily, and construction projects.

As an auctioneer I worked for lenders, special servicers, attorneys, court-appointed trustees, receivers and businesses and provide them with rapid commercial real estate, multifamily, and construction property or note disposition services via online auctions, live auctions, sealed bid, or hybrid bid formats. I act as a single point of contact for real estate auctions nationwide.