#329 - Tips for Buying or Selling Notes BHPH United 2024

This is the Independent Dealer Podcast, Education by Dealers for Dealers. Now here are your hosts, Luke Godwin and Jeff Watson.

Hello and welcome to the Independent Dealer Podcast brought to you by Buckeye Dealership Consulting. Tax season's over. We've been going like chickens with our heads cut off all over the place. Time to take a vacation. Luke, you're heading out of town? Where are you going?

Yeah, yeah, we've had a international student with us for 10 months, so we're heading to Spain to take her home. And so a little break from, from the monotony of being a car dealer for, for the first quarter and a half of the year is much needed vacation. I'm sure everybody out there understands that.

Yeah, yeah. I'm heading out this week to go do a week long cruise Eastern Caribbean with the family. So pretty excited to take some personal time, go have some fun, unwind, come back even more excited to be in your dealership. So this week we're going to bring you a recording from Buy Here, Pay Here United that we were at a couple months, a month and a half ago down in Vegas. This was our dealer led roundup session, or wrap up session you could call it, where Luke and I hosted and we answered questions from dealers. Right. What else did we cover, Luke?

Yeah, you know, it's, it's, it's kind of the, the wrap up of the day is kind of bringing all the things that you learn in those sessions back to the forefront and getting questions answered that you maybe had during those, you know, those sessions. So a lot of good information here, a lot of things to talk about. We talk about AI a lot. I know it's on the, on the forefront of it, of everybody's mind, but there's all, all kind of good information. Talk about finding, you know, money and, and things like this, but make sure that you check this out and, and then when you do go to convention, which there's one coming up very soon, an IDA convention in June, about two weeks, write those questions down, go ask people, go ask other dealers, ask vendors, ask people in the know. Because if you go there and you don't get these answers, then you really have not done anything. It kind of keeps you in the dark. You don't know that.

Yeah, the other great thing is when we're there, you're able to interact with the vendors and of course this is a great time when you're at convention, talk to the guys at Buckeye, discuss your reinsurance plans, how you're making back end profit, how you can increase your CPI coverage. And also, you know, we chatted with the people at blitzpay and we talked about their cash network coming out. We talked about, you know, some of the ways that we can increase our auto pay penetration, get people moved over. So going to convention, having your questions answered by dealers and vendors is, is just, it's the best way to really tweak the things in your dealership that need to be tweaked. Right?

Yeah. And, and one of the good things about the NIADA convention coming up is that pretty much every vendor will be there, so you can really get a lot of questions asked and you need to support your association. So please get out there if you have time, make that your vacation. If you're not able to take other vacations and, you know, learn from other dealers and, and learn from the people that, that are experts in our industry. Cool.

Well, here goes. I guess we're just going to have the same outfits on, huh?

It's okay. Nobody cares.

Hello and welcome to the Independent Dealer Podcast brought to you by Buckeye Dealership Consulting. Luke and I are still on vacation, so we are bringing you another session from Buy Here, pay here, United 2024 happened down in Las Vegas just not too long ago. So if you weren't there, you do have this opportunity to hear a session that Luke participated in, right?

Yeah. It was led by our friend Russell Moore from Conroe, Texas, and it's about purchasing accounts. And now everybody out there may not. That may not interest you, but what we found during that session was a lot of people who sell accounts are also sitting in that purchase session and, and they were trying to understand the mentality of someone like me. Purchasing accounts or Russell purchasing accounts. Interesting topics. I come in on the, on the latter half of it, you know, and talk about my purchase that we just made, you know, less than two months ago. And by the way, Jeff, it's performing it about what I thought it would perform at. Even during a hard month like May, that's hard to collect. I'm sure everybody out there sees that it's. It's really doing well. So hopefully this is something that we look forward to doing more in the future.

Cool.

Yeah. Again, this episode brought to you by Buckeye Dealership Consulting, as always, and Blitzpay, our good friends up there at blitzpay. So if you need help processing your credit cards, you. You're buying a portfolio or selling a portfolio. Getting those customers integrated into your automatic payment system is crucial. And like Luke done, getting them integrated into his CPI system, his product. And so those are two avenues of integrating a new portfolio into your current portfolio. Say you're buying a competitor or you're buying some notes from some other finance company. Having the ease of getting those people into your systems is super crucial. And of course, Buckeye and Blitzpay do it. Excellent. So hope you enjoy the episode. Here it goes.

So Luke just purchased a. Right here is a good friend of mine in my 20 group. He purchased a portfolio about 30 days ago. I want to hear if he did any of this stuff because we talked before he did see what his experience was. So, Luke, tell us your experience on.

So luckily my friend Russell had. Had done this and kind of had a bit of a road map for me. And similar to him, I bought from a franchise store. They had shut down operations for their buy here, pay here space about two years ago and started with probably 400 accounts. And they were just collecting out. And the way I ran across it, a wholesaler I bought some cars from sold me a repo or two of theirs. And I said, well, that's interesting. I said, let them know that I want to just buy all their accounts. And this was probably a year and a half ago, and he put that bug in their ear. And I get a random phone call from a random number one day, and I don't typically answer random numbers, but I say, I'll answer this. And it was the guy who ran the store for the new car dealer. And he says, hey, I'm 76 years old. We've got 100 accounts left.

I'm ready to shut down.

Do you want to buy the accounts? And I said, 100%, I want to buy the accounts. And so we start going down the rabbit hole. And it took us. He kept going back and forth on some things, and it took us about 30 days for him to decide he was ready. And at that point we started digging into their information. And just like Russell said, new car stores, they don't let anybody on their computers. Everything is stuck on a server. And that created multiple issues for me. We closed on the loan, I believe on. But on the purchase on April 8, and he was running Comsol, and I heard of Comsol, didn't have any idea what it was. And I run idms. So we had to. We had to hire people to go in there using thumb drives, download reports, and then build it back up into idms. It took us two weeks from the time we closed until we had them loaded into our dms. And you want to talk about some sleepless nights, we had no contact with these customers. Customers were calling their store, then they would call our store. We couldn't collect their payments with credit card. As everybody knows, most people want to pay on credit card now. So some people came into the office and paid us cash. But we had a two week period of some real stress and luckily we're all last Thursday afternoon. We got everything loaded in. We've touched every customer that we can so far. Like Russell said, you're going to repo some people pretty much right then. But we're trying to contact the customers before we make a decision on repossession and some of the things we've done. I don't know that if you did this, but what you find out is people don't collect like you and I collect. Right. I collect differently than Russell collects, Russell collects different than Chad collects than whomever. Right. So what we made a decision on was okay, we're going to touch the customer and we're going to get a payment. As soon as we get that payment, we are going to defer them current so we don't even worry about what their past pay history has been with the other company. We want to train them to pay on our, our process and learn how we do business. Only bought 90 accounts. I would love to buy 250 accounts. I think it would be just a wonderful situation. But we want to teach them to pay our way. And everybody that we have spoken to currently has been super excited that they don't have to deal with those people anymore, which is interesting. We have a service department. They did not. We have the ability to offer them warranties. They did not. We have cpi, they did not. And so our goal is to get every customer, we're giving every customer a free oil change to introduce them to our service department to get them using our service department when they get in there. We're going to, we're going to talk to them about cpi. First thing we're going to try to do is trade them out. That's number one off the bat. We're going to try to trade them into one of our cars. Luckily we paid 55 cent on the dollar, so their payoff may be way out of whack. But we have room to work. And so our plan is to get 45 of those 90 people back into new cars with higher, with higher principal balances.

A good thing about you though, Luke, is you have a better car source. Right? Your inventory is a little bit better than what mine is. So you're, you're going to Have a lot better success, I think at that. Converting.

Yeah. And Russell was talking about, he was going from a place where the people were in really nice collateral. The portfolio, portfolio I bought are cars I would not sell. So I'm able to move them up. The only problem I'm going to have there, Russell, is their payments are a lot lower than my payments. Their average payment was about 380amonth. Super low, right?

Yep.

And so our average payment is about 530amonth. So we're going to have to, we've got a little finagling to do, but I think we can get them there. I pulled in like Russell talked about and I think it was in my brain from Russell that the first thing we want to do is try to figure out an MMR value or whatever you want to book the cars at and you don't want to pay over that amount for the portfolio. Right, right. It gives you a lot of protection. We ran, I ran the MMR on every car I could and came up with a low balance of about $303,000 worth of cars. The principal balance was 470. So I just knew I needed to pay below 303.

Yep.

I went to the, to the dealer and said, I'm gonna pay you 50 cent on the dollar. He was a little shocked. He was a little shocked, right. Well, I've got this company down in Florida. They're going to buy all of them, but they're not going to buy all of them. They're going to buy a portion of them for $75,000. I said, well, there's a big difference, right? I'm not cherry picking. I'm buying every single account. There's no recourse. You wipe, you wash your hands, you're out. About two days later he says, I think that's a great deal. Let's do it. So he went back to that other company who's a, you know, who will be at the expo at Niada, you know, and said, hey, I want you by everything. We're not going to buy everything. That's the benefit that we have as independent dealers is that we can make our own rules. If we can write a check for it, we can make our own rules. We may be able to, if we've got a line of credit, we may be able to do the same thing. But it's a great way to increase principal balance and accounts really quickly. Any questions? I'm in the middle of the process of getting ready to sell 113 at 90% with I think it's a 20 day three course buyback and 10% hold. Do you have any suggestions or opinions? That seems like a fair deal. I think that's more than fair. I don't think those are the right numbers honestly. Russell, do you have it?

That seems that, that seems extremely high for what the market is right now. I truly. It's.

That's what, that's what I was getting to. It's. There's no way it's going to be 90%. I think you're gonna. What state are you in? Okay. I mean that seems super high. If you can get 90% which I don't. You're not going to. I haven't sold accounts since my dad. When I took over the business in 01 we quit selling accounts and back then I remember they were, they were paying 80 cent net dollar with a 20% holdback. Right. You know how much that hold back we ever got? Anybody want to guess?

Zero.

Zero. You're never gonna get your hold back. I'm just letting everybody know that if you sell in your accounts you're not.

Gonna get a hold back and everybody they can't get a hold to, you're gonna get every one of those back. Every one of them.

So that nice that 90% your recourse is gonna be probably pretty high especially 20 days. That's, that's really short.

Yep, sure.

I've done two portfolio sales in the.

Last 12 months now.

Last one I got 86 cents and.

The most recent one it was 83, 84 cents and a 30 day course on that. But you didn't sell your whole portfolio.

Correct.

You let them come in cherry pick? Yeah, yeah. So I mean when you come in and cherry pick. I mean yeah, they're going to pay you a little more for those.

What was the whole back? The whole back was I want to.

Say 10% but the clean money was only 80s almost clean money up front.

Interesting.

Jeff, you know have you heard like. So I got the opportunity to buy 480 accounts. Right. We're still in the middle of it. We're still collecting about half of it left. But I was thinking I was going to be able to get quite a few of the trade which same town. We're competitors. Right. Similar vehicles. So I say that I probably have a little. My, my ACV definitely higher than his. I didn't attack but I guess I can. I was thinking when I purchased I was going to be able to switch quite a few of them.

I want to say I Think I just busted.

I think it's number 10. Okay.

I mean, we're talking.

I did this December of 2022. Right.

I think I just traded a customer.

I think it's my 10 customer filing.

And I don't know, I just thought.

That was a rule of number. Once you have.

Well, you said seven.

I only had seven. So I would say this. If they're paying, who cares at this point? I mean, yes, you would like to start them over. Like in my case, they were low interest rate on a couple of them. They were low monthlies. And those people are not going to give up those cars. And so I understand that. I get that. So. But it's going to be interest on me at the end. So I just kind of added so average like.

So I. We struggle, we struggle mightily trying to trade low balance people. And that is something that I've been just harking on for years because what will happen is as soon as we get below $6,000, these people see the end of the rainbow and they're just paying, paying, paying, trying to get paid off. And so I don't think it'd be any better percentage than what our low balance trade is, you know, oh, we're going to trade 50% of them. There's no chance we're going to trade 50% of them. If we trade 25% of them, I'm going to be super happy. And we don't, you know, my, my hope is for low balances that we trade 10% of the rolling every month and we're not getting there. So I don't know. Yes, sir.

So I've done a purchase on about 35 notes only once in my lifetime. You mentioned something that you did that I wanted to do and I couldn't figure out, and it was resetting the installment contract to be with your program. How did you manage to do that?

No, I just rolled current. I just deferred. Yeah, yeah. And I'm not sure how legal it is. Steve, don't just close your. I could, I could have refiled. I could. I have a, I have a South Carolina bowfile license and so I can do, I can do whatever I want to. I'm a finance company. But do I want to get everybody in there and refi. No, I'm not, I'm not going to do that. Deferring them current is something that, that is easy for us and it's easy for the consumer to understand. So that's, that's what we did. If you're In a. If you're in a state with a triple C, three triple C. Or New Jersey or New York or Massachusetts, what I, I would probably do something different than what I did in South Carolina. I'm not all that worried about it. I'm, I'm on the, the board of the Beaufi. So.

Good old Boy network.

Yeah, good old boy. Yes, sir. I think Russell said that. I think you mentioned that you notified the customers, your new customers. Did you have the same experience? Yeah. So Steve Levine, stand up or Wavy Hansie, if you're going to do this. You.

Steve.

We sent three letters. A goodbye letter which we did from the old dealer with a quote with his signature. That was the first letter. And it went out almost the day. I mean two days after we bought it. Then I think in that letter it says within five days you'll receive a new letter from us. The new letter from us goes out welcoming them. Give us a call. This is what we're going to do. And then the third thing was the privacy notice. Our privacy notice goes out to them. Is that right? Yeah. The buy letter is very important because there's a lot of fraud out there and a lot of consumers are going.

To think it's fraud.

So they need to hear from the seller.

This is real.

Yeah.

And they still will end up calling the. The selling dealer. And I don't know how many times they. They've already it. It probably out of that 261, I bet you 30 or 40 of them called the selling dealer just to verify.

Did the opt ins transfer as well for text messaging? Did you guys use that at all or does that succeed? Is that you guys get a new opt in, you're fine. Yeah. You know, I think the text. The text portion of compliance is a lot different than it used to be, especially if you have it signed. Did you do offer calls? When did you do them? During that cadence of the later going out. And what was success rate talking to you?

Mine was probably. We did went to one of the goodbye letters, the welcome letters went out. I waited two days before I started making phone calls. We probably, we called out of the 261. I probably got a whole 2:30. I mean it was just they. And it's no different. If I went out and looked at my customers right now and wouldn't have out of the 600 customers, I'd probably get 100 of them. It's just they don't answer the phone now. We did put them into our texting platform and we started texting Them we had better success with the texting portion after that.

Before we even got them into our dms, I built a spreadsheet with phone numbers, payment amounts, and they got two phone calls from us. First from collections, second from the service department to schedule their free oil change and a text blast. So that was done the day we closed on the loans. I had the benefit of the old dealer told them, had been telling them for a while and they were closed. Hey, we're closed. We are going to be selling these accounts. Get ready for it. And so they had already primed the pump. And so even before we hit close on the loans, they were telling the customers, galva Motors is buying the accounts. Galva Motors buying account. You need to call those. So we had tons of people calling us, which made it great for. I mean, made it great for us. And we've had super success. I was actually looking at the collections of it. Out of those 90 accounts, two have already paid off and so we're down to 88. And we had promised to pay on all but five accounts as of yesterday, so. And we'd already rolled Forward something like 17. And we've already collected in this. I mean, this happened this month. We've already collected $11,000 this month, this half of the month from that portfolio, which I think it seems to be a good success for us so far.

Absolutely. Chad Russell, were you.

Were you tempted to change your inventory.

Mix at all to keep those customers.

Couldn'T put in the cars that you had?

I did think about it and I did own a few of them. But at the time, this was. Inventory was stupid. I mean, I just couldn't afford to do it just to try to get those few customers converted. So what? I just, I just kept my same old program. I mean, I looked at it for what it was. This is a shot in the arm. This is a chance for me to make a little bit of money over the next couple of years. You know, just help things out, pay off some things and buy some new shining things and new cars, trucks and stuff to play with. But that, that's what I look to do with it versus, you know, really trying to. After the dust had settled, I could have done some things different and that may be one of the things I would do again. Right now I'm looking at a couple of different portfolios right now. It's just, it's tough to get on the, you know, the capital requirements on. I'm not going to be able to stroke a check on this next one. It's it's a lot bigger. So you know, those are the things that you got to look at. But I still will do the exact same process when I'm looking at it as well.

One last thing is when I told you it took us two weeks to get get our, get that portfolio into ours. What I should have done was started that process before we closed. So if any of you out there are doing it, what I would recommend, because there's going to be a little bit of due diligence before you close. I would have everything set up so the day we close we would go straight into to IDMS or into your DMS because that was a two week window when I lost some sleep. If I would have done, if I would have done what I should have done and that would be figured out. Okay, what reports do we need? Can we get them and when we close, download it right then when I handed in the check, got them to sign those documents, I should have stuck the thumb drive in the computer, downloaded it, sent it to Corey, Corey uploaded it right then is what I should have done. But instead I waited to the day I handed in the check to start doing that. And I had and already had Corey on retainer to do it. He was watching the eclipse the day after that, so he couldn't do it those two days. It just, it was, it was bad on my part. I screwed up. So if you're going to do this, have how you're going to get it into your DMS set up before you hand him a check. Because it created some problems.

And I did do that. Luckily I did. AMS was set up on a computer back at my place. So is all I did was I went over, handed him a check called Mike on the way back to my place. By the time I got back over there, everything was already switched over to the second portfolio on my ams. So it was very simple process for me. But then I had to teach my people how to work ams at that.

Point brought up something super important. If you do this, keep your normal portfolio, your normal portfolio that you create in one silo, as in one portfolio and inside your dms, whatever you buy, put it in another portfolio. That way you can run separate reports, you know what's going on with your normal originations and what's going on with what you buy. Compare and contrast, see what it is so that way you can learn next time. And what we did is my dad and I are 50% partners in pretty much everything we do. And so I didn't know that he was going to want to do this. So I went to him, I said, I'm buying these accounts. And he's like, well, okay. I said, do you want to come in? Well, how much is going to cost me? Right? And so I said, you need to write a check for this. I'm going to write a check for this. We're going to buy them, we're going to loan the money to the company and as we collect out that portfolio, we're going to pay ourselves back. And so we have siloed everything. We're going to pay our finance company a percentage for collecting. But other than that, that money is going to be directly to us. We're not going to pilot back into the business. It's just kind of side money.

I'll add another thing. So whenever I wrote mine out of the reinsurance account, as you all know that have the reinsurance accounts, you know, you take a distribution on it, you're going to pay taxes and do all that stuff. So I think, Hugo, correct me if I'm wrong, I think we took care of ours the first year with the reinsurance company with the distributions and took care of that and absorbed it in because I had the tax burden at that point to take advantage of the distribution that I took from the reinsurance account. So instead of taking a loan on it, I took the distribution, took the tax savings and went on moved on with that. Yes sir.

Any other advice for sellers looking to like maximize the value of their selling? And in addition to that, how did you like handle or do you pay for value your CPI account? Because I know the lead holder changes and I can't maintain a cpi. So kind of want to understand if it makes sense to build CPAC knowing that intending on selling the account.

Well, I didn't hear the first. So tell me the first part.

Well, he. How can, what can he do to maximize if you're going to sell accounts? I think the best way to maximize selling accounts is know your crr. Yes. And keep it as high as possible collateral recovery rate and you should keep up with that number monthly. And I think in general, you know, if you get within 10% of what your CRR is, it's pretty good sale, Correct?

Correct. That's a good number.

So make sure you know that CPI wise when you sell the account, it really doesn't matter to you anymore. I wouldn't, I wouldn't worry about it.

Other than you're on the hook for the next 30 days. Your reinsurance is on the hook for the next 30 days till it's gone and then that's something. But you, you need to collect that and make sure that everybody signed off. Jason, is that fair on that?

Yes. So CPI is specific to the link holder and the date that the actual transaction happens. At that point in time, CPI would go away. So the minute that a new lean holder takes over that paper, then consumer would either need to go get their.

Own insurance or that they would be.

Active on the new owner of the CBI policy.

And I would add to whatever you're trying to make the portfolio look better, make sure your delinquency is looking good, make sure everything that you should be doing now is. And I'm not harping on you and saying you're doing bad. Just saying if we're not doing everything to maximize our delinquency and our sales and everything right now, it's not going to look good to somebody else, a potential buyer. So do all the things that you would that you really need to be doing now so it looks good later on.

Also make sure your paperwork's in order, you're using the right risk, you're following every state law to the T when it comes to financing, cure letters, all those type of things. Because you're charging and calculating interest properly, you're using a proper DMS that does those type of things. If you're reporting to credit that you're actually reporting properly, anything out of the ordinary can make it so that you can't even sell your paper. So make sure that you're doing those things right. If not, your paper is really worthless. And I've known dealers to be in that situation before. And then you have to worry about someone like me coming in and just paying you essentially nothing just to take them off your hand at the end, which I would do.

Mine was horrible. When I took it over, it was 38%. So within. So whenever I started repoing and cleaning it up, I think we had it within 30 days. I think we had it down to like 28%. Then it was got back down. I'm collections is kind of what I like and I really stress in my dealership. So we usually are single digits or 10% most of the time. So we had to bring that down. That just whenever you start putting it all together and it brought my portfolio out of whack. I didn't like seeing that on reports. So we really worked hard on the collections to get that going and we did.

I'm more concerned about recency and so I couldn't even tell you what the delinquency was. I can tell you this, that they only had eight or nine accounts over 30 day recency, and that's what mattered to me. And that's what I looked at. I run. I run a high delinquency rate anyway. The highest in my 20 group. I have the lowest charge off rate in my 20 group. So I think delinquency is just one of those numbers that it may matter, it may not. Recency matters, though, especially on what accounts you're buying. I think we're about out of time, Mike. We out of time.

All right, thank y'.

All.

Thank you for listening. Please leave us a review. We'll catch you in the next episode.