Ep 676 - How To Make Better Owner-Financed Notes With Will Henning

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This is the no Closer show where you get the latest developments in distressed note investing and learn the secrets of how you can control millions of dollars worth of property. For panties on the dollar. Get educated and entertained by someone who has closed thousands of deals and lives to support you in achieving the same. Now here's your host CEO of We Close Nodes, Scott Carson. Good morning, good afternoon, good evening, everybody. Welcome to this episode of the Note Closer Show. As always, Scott Carson. Excited to be here today and I'm jacked up to have a buddy on that talked in a while. But one of the most important people, if you're a note investor out there, one of the most important people you want to know and talk to and can probably add some cha ching to your bottom line if you're any type of note investor, marketing anything online. And this guy is a rock star. Been doing what he's done for, I don't know, probably a decade. I think you back to it. But he's a VP at First National Acceptance Company many of you may know as First national bank and has been a leader in the note buying industry for over 45 years. The company has. He oversees a group of buyers in both Texas, Michigan and everywhere else who are buying private contracts in all 50 states. Last year alone, his team purchased over 1100 contracts with balances exceeding $98 million. He's the $100 million man. But before he joined the acquisition teams at Fnack, he had an extensive history with the company's REO department. So he calls East Lansing, Michigan home. So he's a big fan of Ohio State, well, as they say, but with his wife Hannah and their four kids. But I'm so honored to have our buddy Will Henning join us here today. What's going on, Will? How you doing today, man?

Man, it is good to see you virtually, but man, it is good to see you. It has been too long, but I'm doing fantastic. Thank you so much for having me on. It's really a pleasure.

Glad to. Yeah, it's been a while since I've been out to any note conferences, just doing everything virtually. But there hasn't been that much recently, you know, in the last year and a half, for the most part, you know, very quiet. But $98 million in purchase contract, that's a big feat. I'm sure Fred is laughing his way to the bank over there, huh?

Big Fred. Oh, yeah, we're keeping him busy. We'll break that this year. Oh, yeah, we'll break that this year. And frankly, we see nothing but blue skies going forward. So I'm tired of 98 million. I want to break well into that hundred.

Exactly. So let's talk a little about what you guys do for those that are listening out there. Because one of the things that I get all the time and when I say I'm a note, that's I get people all the time calling me and asking, hey, do you buy owner finance notes? And I'm like, no, I'm an institutional guy. But you can call you guys, you know, and you guys make it easy. Let's talk a little bit about what you guys are buying and looking to buy here.

Oh sure, that's man, that's my favorite thing to talk about. Whoever asked you a question like that? It's such a great question. So yeah, we buy loans, we buy them all over the country. Now we are a federally chartered bank. So we have access all over the country. Hawaii, Alaska, you name it. We'll buy anywhere. We'll buy any property type and really we'll look at almost any dollar size. Now we probably don't do a lot under 15,000. It's just hard to make money at that price point. But that's not necessarily off the table. You never say never when you're doing loan sales. It's first lien performing. We'll buy full transactions or we'll buy partials. So that's the broad picture of what we do. Now what does it look like in reality? In reality, most of our loans are going to be backed by single family owner occupied homes and credit. We'll look at any credit. But boy, you get below 5:50, it gets pretty dicey. Part of being a bank is we can get very aggressive on yield. Why we can borrow our money for so cheap so we can make very competitive offers, which means bigger broker commissions, more money to your seller and we'll still be able to preserve a very strong net interest margin at the end of the day because our money is just very inexpensive to borrow. So that's a real competitive advantage. Also. It's limitless. Like I said, I mean we did 98 million and my boss came to me a few days ago and said, why aren't we doing 200 million? So there's opportunity for growth and we've seen a lot of our brokers grow and, and boy, we got more than enough capacity to handle more. But we'll look at just about anything and everything. We just want it to be performing when you buy non performing. When you're dealing with this many Loans all over the country. You can't be that guy who specializes in the Indianapolis market, you know what I mean? You're not that specialized. Also, you're regulated. You have more hoops to jump through. So you can't just buy anything and everything. So there's money in non performing. Nobody doubts that. But we're looking at to buy paper that we think they're going to pay. We want to buy something where we.

Think they're going to pay or they've been paying and you think they're going to keep paying.

That's exactly right. That 20 yield doesn't do you any good if the guy doesn't pay. And so really that would be one of our things that I would make people know. We'll look at any and all transactions, but we want to make sure they pay. And some of the biggest indicators of the ability to pay are going to be your credit in your equities.

One of the things I get a lot is people like, hey, I originated a note, an owner finance note, single family property. I want to sell it immediately. Let's talk a little bit about newly originated versus something with some seasoning on it. You like newly originated or are you like, yeah, I'd rather, let's get some seasoning.

I'm going to blow your mind. Scott, you ready?

Yes, go right ahead.

Give me credit, give me equity. I don't care about seasoning.

Very nice. Wow, that's new. That's good. Well, equity, the equity takes away the seasoning aspect of that. I think a lot of times, which you got.

The only good thing about seasoning is it's given you time to build up equities. But I think I'm starting to realize more and more, and I don't want to phrase it too strongly, but I'm starting to realize more and more if you don't have skin in the game and you don't have a history of paying your bills, the seasoning is, is not going to overcome those objections. So if, if they've got good equity, good credit, and it's a newly originated note, that does not bother us.

So let's talk about that on the origination side. Structuring, creating the right type of paper for you. I've, you know, we've always, you know, always talked about how it needs to be somewhere around an 8% interest rate, at least 10% down of some sort. Prefer a 620 FICO or greater. I know there's, you know, you guys have a formula, but, but if you give folks A little bit of guidance if they're structuring it. Because look, we see people all the time, oh, I'm an owner of finance and give somebody a 3 or 4% interest rate and I'm like, you're probably not going to find a very good buyer for that unless you do take a big discount in some sort, huh?

Yeah, it's a great question. I kind of like to break that up into two sections. There's finding your yield and calculating your yield so you can find your yield. And like you said accurately, the higher the coupon rate, the better the equity, the better the credit, the less risk that's going to be. So we're going to want to retrieve a lower yield and frankly we're getting into some very low yields. If it's good quality paper, Scott, man, we'll pay for it. We get it. You want to get fat equity, you want to get fat credit, you might have to get down into the sixes at least, but that's fine. We're willing to do it if it makes sense. But so having a loan that's structured with good equity, good credit will get you a lower yield because the risk will be lower. But how do you calculate that yield? If it's a 30 year loan, that's going to be a lot different than a loan that has a balloon coming due in five years, you're going to collect your money a lot sooner. So it's going to be a lot easier to get that yield. Or for another example is if it's a low interest rate, low interest rates are going to pay off at a slower pace. So if you've got a loan with big money down and big credit, but it's a 1% rate on a 30 year, even though it's a low risk, you just have to price it to get any of your yield because you're so far off in your coupon and your remaining amortization. So I would say you want to write a note that's really going to get you top dollar. Give us, by the way, we'll look at anything. But you want to get really top dollar. Get us 20% equity, get us over 650 credit, give us a loan that's 20 year or less amortization, or give us a five year balloon that's going to be really boom, boom, boom. You're firing on all cylinders. Those loans, they get what we call premium pricing. They get mighty mighty aggressive. They're almost 100% pull through rate with underwriting. We close them in a Matter of a couple of weeks. We love them. The commissions are fat, the offers are aggressive. It's just. That'd be top shelf.

Exactly. And 20% equity, that's a combined of loan to value. You know, whether it was a 90% LV and then they brought another 10% down to give the data.

That's correct. You hit the nail on the head, Scott. The only caveat I would make is we don't give a lot of LTV based off the appraisal if the evaluation is under a year old.

Okay.

So right now a lot of things are appraising, man, now's a great time because you might have 20% equity, but if the loan is two years old, it's going to appraise. And now you might have 40% equity. But just from a practical standpoint, some people submit loans with one month of seasoning, which is no problem. They got 10% equity and they say, well, the home's going to appraise to give me 20%. And we just. Maybe there's a good reason, but we're going to be a little suspicious that you're going to get 10% equity in a matter of a month for no particular reason. Yeah.

You don't live in Austin.

That's right. Yeah, yeah, yeah, yeah. That's right.

Let's do the flip side. You have a lot of, I hate to say these gurus out there, like, well, you're the bank. You can make the loan for more than the value of the appraisal because you're technically the bank where you see it's 105, 100% LTV on a loan like that. And I'm always like, bang, like, that's not a loan that's salable at a point where it's at without taking a big discount to get to that point. What's your counsel to people out there looking to structure a loan above where the, you know, the upb the balance is over, what the appraisal is because of that idea.

Okay, so the question is, somebody's got a loan with a UPB of 50 and it appraises for 40.

That or they overwrite the loan. The owner finance a property, but they make the loan for 110 when the house really only appraises for 100. Because I'm the bank, I can set the value. You know what I mean?

That you're playing with fire there. You don't have skin in the game. You don't have a reason to stay. You don't have a vested interest that Maybe the rate is high enough that it makes sense. Or maybe you just have a real comfort level with the neighborhood where you say, look it, if I take it back, I know I can get 150, so I don't care. So there might be an inside secret on a deal by deal transaction where it makes sense, but from a 10,000 foot view, that's playing with fire. By the time you do your appraisals, it costs us about ten grand to foreclose and take a property back and the values tend to drop by about 25 to 30%. That's using 10 years worth of foreclosure data.

Hang on a second. I want you to state that again because you're one of the few people that says that actual number on that. I love it because I've been saying it too. Whereas a foreclosure impacts a neighborhood, it's just not that house. It impacts the whole neighborhood with what you just said.

Oh, yeah, yeah. If you were to look at 10 years worth of data, on average, we go about 10, about 12 months without collecting a single payment. So be prepared for that. Average foreclosure expenses is around 10,000. That's collections, that's attorneys, real estate agents. That's lawn mowing, that's cleaning the pipe. That's the whole 90 hours. That's not just not collecting payments, that's in addition to not collecting payments. And on average, if you look at the value prior to foreclosure, then you look at the value after foreclosure, on average, I'm using 10 years worth of data, it drops about 25 to 30%. Those appraised values, Pipes are gone, roof is bad, windows are busted. Sometimes you, you do all right. You know, it's not like it doesn't happen. But big picture, foreclosure is a big deal.

Yeah, I'm glad you said that because part of that's upfront with the foreclosure, but then also it's the back end side of it. Property preservation, the landscaping, minor fix, eviction, clean out, you know that stuff well.

And it's a question we get asked and we have the data to be able to help supply the answer to say, well, I don't think so. I know so. And everyone likes to think they're the exception of the rule, but boy, if you play the odds, you win some, you lose some. But at the end of the day, this is what it shakes out to.

Well, and that's the great thing. You have those numbers, you understand that, and that works. In your favor by figuring that into. Whereas a lot of people like oh, I can get away without doing that. Like eh, you may do. But the law of numbers don't lie. When you've got a proven track record 45 years. There's a lot of learning that's going on. 45 years there.

It's like with the seasoning, it makes good sense. You know, kind of using your gut and seasoning isn't going to hurt the transaction, but it's not going to overcome the other problems like you say.

Now let's talk about. Because let's talk about partials a little bit. And I know you guys buy a lot of partials. We don't see many partials in the distressed debt space. We're dealing with banks a lot of times most of them are wanting to sell the full note off or buy the full note. They don't want you to partial. But you guys really do embrace the partial side, whether it's two years or five years or whatever payments. What's kind of the, the structure of that for you guys for what you guys are focused on?

You know what we'll do is it's a, it's a little bit of a twist. It's not terribly different from what you said. We just make a technical distinction. We say that we're going to buy a portion of your balance and then it will amortize to five years or four years. But just like with any loan, if they pay off fast or they pay off slow, it's going to go shorter or longer. And we do that maybe just for clarity's sake so that people understand, hey, this might go more than five years. But as far as partial goes, you know, we certainly are agreeable to them. We don't buy nearly as much as we'd like to. I think a lot of note sellers just want to be done with the transaction. Just kind of want to wash their hands of it. I'd be happy if we bought even more. The yields on those are going to be pretty comparable to the yields that we get. Most of them are going to be five to seven year partials. We do a lot of back end partials. So we buy five years. But it's very, very common for us for a year or two later to come back and buy some more and buy some more. I'd say partials are always welcome, but they're most often used in exactly what you'd expect, vacant land. We do a lot of commercial. Nice to me a partial. If they're not going to pay, you shouldn't buy the deal. But a partial helps you if you don't understand the value. If you think this is a good guy, he's going to pay. But I don't understand what this restaurant is worth. The partial helps preserve your investment, but it doesn't magically make a bad deal. Good. If anything, you better be careful because you can lose money real fast on partials. If anything, they need to be even stronger buyers. Because think about this for a second. There's less meat on the bone, you have less of an investment. So even though you might be getting a 15 year old, if it's a $25,000 investment, you do a couple of collections calls, you pay for your closing expenses, you pay for title work, and your money's gone, it's lost. So maybe you foreclose and you recoup your expenses, maybe you don't and you got to drag it across the finish line. But it's eaten up so much time and expense and there's so little meat on that deal, you've lost money. So you really gotta be careful with partials talk.

A good question you brought up about commercial notes, especially partials. What do you guys see a lot of now? I mean, restaurants, mixed use. What are you seeing that you're buying a lot of commercial space? I know it's gonna. That's a million dollar question. You know, that's gonna depend on asset location, location, location and what's going on. But are you seeing any trends?

I guess you'd say, you know, from where I sit on the bus, I wouldn't say I'm seeing like a trend as in an influx of restaurants or an influx of pizza joints or anything like that. We get a pretty good smattering of anything and everything across the country. We've been a little bit more agreeable to full buyouts, more than we ever have recently. And they've turned out, they've proven to be, I think, pretty well performing. But yeah, we see a little bit of everything. I'm trying to rack my brain. No crazy stories. You know, usually I've got some crazy story where we bought like a church that was a. Turned into a gas station that turned into a repair shop, you know, that exploded one night or something. But we're not buying as much commercial as we did in 2019, but we're certainly working our way back up. But I think a lot of the same rules apply. One thing I would say is in commercial, if you want to buy commercial, ITV is obviously an issue. Yield is an issue if you're able to get financials and I realize that's not common.

Right.

But if the seller is savvy enough to get financials that is so powerful to see that this is cash flowing, to see that they are very responsible makes a big difference. Now if it's not personally guaranteed, the compensating factor is the equity. 40%, 30%. The more you can get, the better. That shows you're in it to win it. And the opposite is true. Someone with good credit, generally speaking has the savvy to pay the bills or to have an exit strategy. But that's still probably a smaller portion. I wish we did more commercials to tell you the truth. But that's still probably a smaller pocket of what we do.

I think it's so much of still figuring things out on a market by market basis too for it. Because if you've had a lot of smaller banks small, they say that a lot of the banks Finance was 70, 67% of the commercial small balance 5 billion below this time around compared to Wall street last downturn we had. And you see, I mean if somebody goes late or they lose a tenant, you know that, that noi, you know, reduces that cap rate. Reduces, reduces the value very quickly. You go from having 40 to 30 to 25 to 20 very quickly. If you're not putting tenants in place in a regular basis. Right?

Yeah, we're very careful with commercial. We'll do it. But you just don't know. You just don't know what it's going to be worth when you take it back. I mean I told you I used to work in the REO division for a, a long time. I've seen too many pizza joints, too many oil change stations, too many things where it can just be an environmental hazard, the whole nine yards. That's a complicated sector to get involved in.

Will's hated things. The top three things that you don't like to buy notes on, could it be like New York, New Jersey because it takes forever to foreclose there? Could it be a specific asset class like you said, gas stations or other things? What's the things you like when you see those?

I would say there's a couple transactions fact recently where the bank just had no appetite. So if the bank hates it, I hate it and the bank, they just had no appetite for it. And I was a little surprised. But the more I thought about it, the more I think it makes really good sense. And the first one is going to be vacant land that is out in the middle of nowhere.

Sure.

And I don't care if it appraises. We've had some transactions that look good on paper, but it is rocky, barren, no man's land and it doesn't matter. We're not buying 10 acres in a 20,000 acre sand lot. So we're not opposed to vacant land, but vacant land that is totally off the beaten map. Nope. The other one would be commercial if it is not operational. So we have seen recent transactions, good credit, good equity, the whole nine yards. But it is not operational either. They're doing reconstruction either it's shut down for the pandemic and they're going to open up. Doesn't matter. Fits in a business. It has to be actively operational. Call us back when you're up and running. We've closed several notes where we said, you know what, the guy looks solid as a rock, the equity is there, but until he's up and running, we're not buying something out of the gate we know is not operational.

How has your guys portfolio been over the last 12 to 24 months? You see a big increase in forbearance or late a year ago? Has it been very lower than expected? What's, how's your guys portfolio performed?

Yeah, so when the pandemic first hit, there were forbearances as there were all across the country. And so I think a lot of people kind of hold their breath. What does tomorrow bring? I mean, you know, who knew, you know, weird times. We really shut down a lot of our purchasing because we just didn't know. But at the end of the day the portfolio has remained unbelievably strong. We have record setting low delinquencies.

That's awesome.

Which is wonderful, man, I got to tell you, we hate foreclosures, you know, and to see that people are thriving and making their payments and that delinquencies are low and that they have been for some time just is really encouraging. So no, the portfolio is I would actually say very healthy and a very strong. Yeah, it's good.

That's good man, I like it. That's a good place to be in. You know, we've had a lot of conversations with other lenders out there. They're like, we've had rough at rougher times depending on what they're focused on. Now one of the things I know that you guys were buying back and I don't know if it's still that way or not, but you guys were even looking at, is it any type of property type or contract for Deeds, but performing contract for deeds and you like to convert them to first mortgages. Are you still kind of that same philosophy?

Yeah, specifically in Texas, it's really falling out of fashion more and more. It's just people aren't doing CFDs.

Right.

And I guess I not familiar with other states well enough. We have a processing team, an attorney, attorneys that will help us on state by state. But specifically for Texas, it pops its head up once in a while, but it's rarely an issue. We just get it converted.

Well, that's the thing is too, you've had such property values increasing over the place. You know, most, most mortgage brokers don't want to do a loan on a house that's less than 100,000 because there's no way to make any money on it. And but these days of values going up and up and up, $100,000 mortgage is much more common in an area like middle of Ohio or Indiana where lower values were predominant at the last downturn. But those markets have recovered.

I think one of the things that's also really helped our portfolio that I kind of mentioned earlier is we are still hungry for any and all transactions. But we kind of recognized if you have a good loan, you have to be willing to pay for it. And a guy with 680 credit and 20% equity, he's not going to sell a double digit yield. You know, I mean you're looking for a needle in the haystack. And so we want to get a good yield and we do retrieve a good yield, but we're also willing to pay for good paper. So that means we buy more good paper and you don't have to pay for servicing. They pay their bills. It just causes less waves. And I think for a long time we bought very low dollar paper at really high yields. But you can still make good money on those deals. But servicing will gobble that money up. And you might have 40% equity, but 10 grand might drop you to 5% equity. When you're dealing with small numbers, you just have a lot more elbow room. And I'm not talking 500,000, we're not crazy. I mean we're talking 100, 200 normal size transactions. You just have so much more elbow room on deals like that.

So true. Now talk a little about the balloons. A lot of people like, oh, five year balloons are illegal out there because of Dodd Frank. And I hear that from people all the time like, no, they're not illegal to do. There's specific ways to do them. Right.

You got It, Scott, you know, as normal, you know that's right, man, we buy balloons all the time. You're not a creditor. If you've originated more than a certain number per calendar year, believe it's five. Unless it's vacant land, you're just not considered a creditor. So we have to go through that process with each loan to verify verbally and in writing that, hey, you're not a creditor. But if you're not a creditor and we've done our due diligence and you've signed it, we have in good faith, reasonably or not, you can do that. You can structure these loans, you can ask for no money down. You can ask for a balloon, you can put in. Man, we see some weird payment streams, you know what I mean? It's an orchard. So the payments go up September through November, then they go down in the summer, in the wintertime, you can do all of that. So yes, balloons are perfectly fine. The only thing I would note is that if it is a high coupon rate, the threshold to become a creditor is a lot shorter. So you might only have to do two deals depending on the length of the loan and the coupon rate. So some people say I've only done two. Yeah, but you did them both at such high rates, you're actually now a creditor and that sort of takes them off guard. But if it's a normal loan, I'd write that balloon, man. Five years, seven years, something like that. It's good for you. It's good if you want to sell it. It's good for your purchaser. I mean, you can always amend it if you need to. I'd say that's probably. We see quite a few balloons and it's certainly going to help your pricing. No doubt about it.

Right, that makes sense there. And one of the things I always like to ask too, beyond that is, do you how valuable is having an RMLO write your paper for you when you're under financing? Is it one of the. Does it add value to the paper? Somebody's doing a one off for themselves or. So you're still going to go through the checks that your T's and cross your eyes in a lot of cases.

Well, yeah, you're still going to go through cross your T's, dot your eyes. It's not terribly time consuming. We're going to get an updated policy, you know what I mean? We're going to go through a closing. If it's professionally done, I wouldn't say it's A deal breaker. But I got to tell you man, I've seen more than my fair share of backwoods loans that are put together and oh, I forgot to put in the payment amount or oh, I forgot to mention that the guy's name, I mean just some really sloppy stuff. And now you've got to rewrite the contract, you've got to amend it, you've got to get the purchaser involved, but the purchaser doesn't like it that you're buying the loan so they don't cooperate. So now you're five weeks into the transaction and you're at a standstill because you didn't create it. Right. So do you need a professional guy? It's not a mandate. You don't have to, but I would just, if you're a newbie and you've never done it, I would just really think through and be careful. Maybe call one of those guys, if only to double check yourself because even though it's well intentioned, we see a lot sloppy paper and you just can't, you just can't buy it that way. Oh, I forgot to ask where we had one not too long ago. I forgot to put in an escrow. So now we can't collect for taxes or insurance. Well, that's a big deal. I just never forgot it was an accident. But you just, you wouldn't get away with that sort of stuff if you went through a more professional.

Exactly. Those are standard in working that there and having a professional. It's their job to do that. Make sure it's good looking paper there for you. Now one of the things I think is one of the biggest underdeveloped and unknown facet of what you guys do, and I think it's such a strong point in your success is your broker desk, is the fact that you're willing to work with note brokers out there. And you saw a little, I saw a grin on your face there and I'm sure. $98 million in 1110 contracts. Do you know the breakdown, how much that came from you guys and how much that was with your broker network?

It's about 50. 50.

Wow.

About 50. 50, 2020 slowed down at the broker desk. Sure we saw guys drop off, we saw a slowdown, but 21, we're climbing back, getting back to 2019's numbers, but we do a lot. In fact, we have an entire broker division. And they only work with you. And not only do they work with you. Scott, I really think this is kind of cool. Maybe it's just Me. And I'm nerdy.

No, I think it's cool too. Trust me, it's why we're talking about it, man.

Well, what I also think is cool is some of the things we've started to implement is we have reporting as a broker that we give to you, where we say, hey, you know what? Last week you gave us seven loans. Two of them I don't think we can buy. But these five where we at, we give you automatic updated reporting so that you can stay on your leads. So even if you're maybe not the most organized or you don't have the tools, we try and give you the tools so you can follow up with your leads. We also give you more competitive pricing and we track things with you. So let's sit down, say you're a new broker. Let's sit down and say, you know what? Here at the broker desk, most people convert one out of five quotes. Do you want to be there or do you want to be at 40%? I want to be at 20 like everybody else. Or maybe you say 40. We say, okay, great, let's have that be our goal. You and I, let's partner together. And every week, every month, we have data we send to them. We say, you know what, you've given us 10 loans and you've converted five of them. Awesome. Or you know what, you've given us 40 and you've only seen to convert. That's really bad. We're not where we need to be. What can we do to turn this ship around so we're more than just, oh, you give us the data and we spit you out a number. Anybody can do that. We don't work at McDonald's. We're not order takers. We're here to actually grow the business. So we help you know your conversion rates, we help you know your leads, so you're working on the same is true for back end partials. We always preserve your back end if you do a partial. Also, we have sales tools we've developed that we're looking to release very soon that are PDFs that you can use with your sellers. So, for example, Scott, people hate the word discount. If you're saying discount on your sales call, just stop it right now, okay? Discount equals loser. They're not losers. They're wise with their money. And think about what a lump sum can do. What if you took that lump sum and you reinvested in the stock market? What would that earn you? What if you invested it in a CD where it can gain Interest. What if you paid down debt? What would that look like on your mortgage in money you would save as opposed to money you could earn. We have different data and graphs for all that stuff. So you as the broker can take that and have a better, more compelling sales presentation than saying, oh, you're owed 100, we'll pay you 80, yes or no? Have it make sense for them. Show them, wow, you might be taking 80 right now, but you reinvest that in a stock rate that gets you 5% and you're only earning 3 on this loan, which is losing interest daily, you're going to end up 10 grand ahead over the same period of time with less risk, no early payoff, more liquidity. But who develops tools like that? We can help give you the tools to be successful. Anyway, I know I got off on a tangent, but I love it. A broker desk.

That's a broker desk. But you also really good of talking. I mean you guys are getting bids back very quickly to your brokers to give them an idea of what you'll pay and then working with them, holding their hand to help them. You make a commission, be the middleman to make some. You know what the average commission was last year or this year so far? The average that you see in your brokers per or not they sell to you guys?

Yeah, you look at that and that is about 6% of the upbase, which comes to about 4,500. And again, I mean we got some brokers, their commissions have just shot through the roof. They're taking advantage of this new pricing and they're really doing well. I would say another trademark of our most successful brokers is they have a little bit of more of a long term view in mind. And what I mean by that is if you're going to juice every deal, you're going to close way less and make less in the long run. So we want you to make as much as possible. But I'm telling you, the data doesn't lie year after year. Our brokers that do the best do more quantity as opposed to trying to go for the gold every time and make a 10 grand commission. You just end up not doing as well.

Well, that's the thing. It's a repeat business, builds long term success with it. Yeah, you could try to slice and dice and make a big chunk, but that note holder is not going to come back to you there and go shopping somewhere else for the next ones they have.

That's exactly right. You only have so many cracks at the these offers. So if you come out with a commission, that just doesn't make sense. Sometimes that happens. Sometimes there's a need and you can fit that need and still make a good margin. More power to you. But if I could say a word to the broker community, be reasonable, you'll do better in the long run. But by and large, it's about 6% of the UPB is the commission. And you negotiate that yourself. You know, you work that out, we give you the gross offer, you go back to your seller with that difference and then whatever you can negotiate, that's what you keep. We keep that separate from the seller. So we have a separate agreement with you that's paid outside of closing. So again, we really try and keep our seller out of that conversation. That's just between the two of us.

I think it's a big strong point there. It's not somebody like, well, he's making 4,500. I want that. You do a great job of keeping that separate and protecting your brokers and taking that, I hate to say animosity, but sometimes people feel that way that, well, he's making five grand on my deal just to, you know, to sell it to. Why can't I just sell it to you and keep the five grand myself? You know what I mean? Or make it more.

Those relationships are very, very important. We a lot of awesome business from the broker desk. And the cash per broker has really gone up. The size of the transactions at the broker desk are bigger these past few years than they ever have been. So I don't know what these brokers are doing, man, but they're bringing good paper. You want to know what the pull through rate was within with underwriting. So you get a deal signed up. I'm not saying a quote, I'm just saying they say yes and they sign the paperwork. In the past three months, you submit what percentage of our loans get approved by underwriting. Where the bank says, yep, I'll buy it, I'll buy it.

I don't know, 50%, 93.

I mean what that tells you is we are open for business. You bring us the paper, if it's priced right and you give us the data we need, we're here to say yes. So the broker desk is, they're on their way back. But I mean the loans we're getting, commissions are strong, approval rates are high. It's a great business. We're excited to get kind of back in the saddle. Like you mentioned getting to conventions. We're signed up to go to a couple a Couple of broker visits. We love it. You know, we're excited to see everybody.

Can you give a little secret or can you give a little bit of insight in White House and the brokers are marketing anything that you see consistently working well without giving away any secret sauce.

Yeah, I can give you some stuff and I'll give you some stuff from first national as well. Online. There's certainly a presence there. It's a, it's a pool, you know what I mean? It's a smaller pool, but it is more cost effective to find these loans online. List still bring you business lists. And the reality is there was a lot of people that didn't know they could sell their note.

Yes, that's correct.

I would not be afraid of lists. I would also say don't be afraid to remarket. So just because you have a list doesn't mean it's the end of the story. Feel free to remarket. Use different language. If you've talked to them, your next letter should be phrased differently. If you've given them an offer, your follow up should be phrased differently. Guess how many of our loans we've had to quote at least twice. Like, not like, oh, I quoted it and then I recorded it a day later. I'm talking at least a 30 to 60 day gap between offers. How many of our total closings did we quote at least twice?

I would say probably at least 25, 30%. Probably 50. 50, okay.

So you're gonna get a pool of people that are gonna say yes. And I don't know if that 50 is good or bad, but it is what it is. Frankly, I wish we got more upfront, but that's the reality. Half of our closings we've quoted at least twice. Some poor soul we quoted eight times.

But motivation changes all the time.

The point is you get them once. If you're going to get that conversion, most of your conversion is going to happen in two weeks. Then after that it really takes a nosedive. But just because you didn't get them on that first round, we get a lot of business. Lot of business the second, third time around. So I would say don't be afraid of lists. Don't be afraid to remarket. Make sure you have different verbiage for people. Avoid the word discount. Fair market value, cash, cash. Now, things like that. Things that accentuate the positive.

Like 1-800-cash.

Now I need cash. But things like that really do resonate with people. Also, our marketing have it work for them. We can pay you more for your loan. We can get your money right now. How is this going to help you right now we are here to make your life better. Verbiage like that really, that really resonates, really resonates with people.

How much of your the loans you guys purchased was stuff out of that was a self directed IRA investor was the originator or lender on that? Do you know by any question I.

Don'T have my finger on the pulse for how often that happens but it's not, it's not terribly often we can buy them, no problem there. It's not personally guaranteed so we do like to see some equity.

I meant where somebody originated they wrote the loan out of their IRA for somebody where they were like they owner financed a house, bought an owner financed note and then wanted to sell it off later on.

You know I really don't know. It shows its head once in a while. But any number I could give you would be a guess. But I would not say it's any meaningful amount. Like 20% I use definitely less than 10%.

That makes sense because people that have something pretty savvy and then looking they don't mind holding it for cash flow because if they can't touch it for a while. So it's different in a lot of cases that way. So good stuff there. The beautiful thing is that you guys your broker desk very easy to go on to enter all the information have all the information when you enter in to get a bid correct. One of the most important things I'm.

Sure you're only hurting yourself. Pay it forward. It's I can't tell you how many brokers I've said look at if you're bringing your car to the auction. You don't run it through the mud, you don't not clean it. You don't let your dog hang out in the back of it. The cleaner, the nicer it is, the better it's going to be. And that's very true with loan submissions. But the more we know the better we can sharper we can get. And if you can find out what the seller wants, what, what are we doing here? What are you looking for 100%. Are you looking for 90%? What, what kind of money are we talking about? I mean can we make that work? Are we going to fill your need or are we just showing throwing darts at a wall and hoping something sticks? Because sometimes it feels like that, well, I don't know what the guy wants. Well how can I meet his need if I don't even know what he's needed. Also, how can I get a pricing exception or anything like that if I don't know what the guy needs? Any data like that, it just helps all parties involved. You get better pricing, you get faster approvals, there's less re quotes, there's less drama with the seller. It really is just a benefit to everybody.

That makes a lot of sense. Yeah. Because you need another motivation. You need to know the story behind the story so you can make an accurate answer and an accurate quote for that.

You know that the sales people talk about a sales funnel.

Yeah.

We actually like to talk about a sales cylinder. We'd rather have maybe a little bit less because that's all waste. Give it to us and just let it drop right down to the bottom.

There you go. Exactly. Now, I did have one question I want to ask you about when people are structuring a deal.

Yeah.

And they do an 80, 20 or they do an 80. 10, 10. 10% down payment, 10% second, 80% first. Do you have a problem buying that first and leaving that second in place?

Not necessarily. We would just need to figure out what the true equity is.

Right.

So I don't, on the surface, have a problem with that. We would just need to figure out what the second lien is, how much of it's been paid down to figure out your true equity. But, yeah, that would be. I don't think that would be a problem.

Cool. Awesome. Well, I want to thank you for coming on here on the no Closer show today and sharing your wealth of knowledge. Love it, love it, love it. I think that you guys. I get people. People call. I said, like, hey, just call fnac. They're going to give you the better price. And on that, they're going to be easy, make it easy for you. Even some of the big names in the industry are like, hey, like, just call. I'm like, just call them. Come on, let's quit bullshitting, beating around the bush, Get FNAC a phone. What's the best way for people to reach out or to jump online? What's the best way for people to connect with you?

Will, you know, I would just go to fnacbrokers.com. we got our phone, we got our email. You want to give us a buzz and shoot the breeze? You got a loan, you want to submit it? As soon as you do that, we'll get you set up with a loan officer. We got a very seasoned staff. They'll call. They'll walk you through. And we actually are working on. And I think we have a little Bit of a sales presentation. So if you're new, we'll meet with you for maybe just 15 minutes and say, look at, who are we? What do we like to buy? How does this process work? The more clarity you have upfront, the better. But I think the best way to get that conversation started is just hop onto our website, check us out and whether it's one deal, whether it's 100, whether real estate agent, and you only got one, no worries. We're happy to work with everybody.

I love it. Well, will you guys keep rock and rolling? Tell Fred I said hello. It's been a long time since I've seen him. You still got Jay Jack Daniels over there working for you guys or no?

Oh, man, he's a crazy dude. Something about the node industry, just like it appeals to these off the wall guys.

Yeah, it actually attracts some interesting characters, these free thinkers. Yeah, never been called out before, but it fits the description there for you, Will. Thank you so much, man. You ready for football season? Big fan. Ready for things to even get rock and rolling.

Are you kidding me? This is Michigan State. We played Northwestern on Saturday. It was an awesome game. We got a game on Saturday. It's Youngstown. You know, I mean, a little. That should be a layup, but boy, we came out of the gate strong this year, so, yeah, it looks to.

Be a good football season.

Big tens coming back this year, you.

Know, it'll be like Big Ten, Big Pac 12. It's going to be some weird things over the next couple of years, but yeah, good stuff there for you, brother. Well, hey, be safe and thanks for coming on the show and sharing your knowledge there, Will.

Hey, Scott, thank you again so much. I really appreciate the opportunity and thank you again.

Welcome. All right, guys and gals, there you go. You heard from Will. $98 million bought last year. They're buying a lot of stuff. They're being aggressive. They got some cheap money being a bank. They could be aggressive on pricing. Look, the minute you put your note investor out there, you're going to start people asking me, hey, do you buy owner finance notes? Take advantage of this. Go out there. As you heard them average 4, 500 commission. That's not on everything but across the board. Use it to work a great tool in your tool belt as a note investor and make some money. While you're looking to raise capital or to find some other deals, whatever your niche may be, this is a great thing to have in your tool belt. So go out, take some action, everybody, and we'll see you all at the top.

Bye.