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This is a story about a dude named Lane he moved to the mainland and bought one place to stay. And then one day he went try to rent them out. And then he became one real investor make
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a simple passive cash flow listeners today we have George Newberry, owner and CEO of HP. A lot of you guys have been investing in that fun for the past couple years. But he is going here to talk about a new business that he has created called pre reo. But and we’re also gonna be talking about what’s happening with hp through the pandemic. We are welcome George, this is a third time on the podcast. I think at least I appreciate you having me back lane. Oh, hope to continue a run of continued appearances. And this is probably like the fourth time recorded because one of the times I forgot about pressing the record button, but it looks like it’s it’s good. So we’re good. Glad to hear it.
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All right, George. So what is this pre Ario? Maybe maybe start the beginning, right? Because a lot of guys, you know, they may not be known investors. So what is sure? Are you absolutely right started? Yeah, absolutely. So pre aureo is a, it’s our term that we made up. But here’s here’s how we define it a pre aureo is a first mortgage that is in default, that is secured by a vacant property. And that property could be a house could be a condo could be apartment building, hotel, whatever it is, but those properties are vacant. So that’s what we described. So it’s likely to become an reo. Hence it’s a pre RTO.
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And, you know, the reason we started this was because we often have as an example, a first mortgage secured by a vacant home in, let’s say, New York and New York, it can easily take two to three years to foreclose, even if no one’s fighting. The foreclosure is just such a slow process and if we have a vacant property that’s out there, it can suffer from deteriorate.
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From vandalism people could break in someone has to cut the grass which is us shovel the snow neighbors can complain and say hey, you know the property kids broken over the weekend. So then the city comes to us and make sure that we do the work. So we do that, but it is a cost and there’s And meanwhile, we’re having to pay for property taxes for for insurance. So I always thought how do we there’s homes there and in some cases they’re rentable. In some cases with some repairs, they could be rentable. How do we make this into a generate some revenue while we complete the foreclosure process? So that that’s that was where the concept came from. So the when a lot of people will go after that’s just the regular Oreos again, that’s where somebody owns a home they’re good they fall behind on their mortgage, and I guess maybe maybe explain to us like what what what distinguishes just a regular Oreo in the pre Sure, sure. So an reo happens if we have a mortgage secured by a vacant or occupied
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property and we go all the way through the foreclosure process. Then we will offer that a home as a reo we now own it, it’s real estate owned, is the where the RTO comes from, and that is offered and that’s typically reo is used when it’s owned by a lender or bank. HP any hedge fund. They always if you buy notes, you’re going to end up with Oreos, but the pre Oreo is is is trying to buy that note before it’s gone all the way through the foreclosure process. And because it’s vacant trying to generate revenue during that,
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that interim process while while it’s being foreclosed upon, right, so once it hits foreclosure, then it’s reo. Then I guess once it once a foreclosure is complete, then it’s Oreo. Exactly. So we’re before the foreclosure is completed, but it’s already in default. So at what point like, is the person late? They’re late or maybe is it like 30 or 60 days and then before the bank
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Or the audio kind of says it’s it’s in foreclosure. That’s when it’s in this kind of this bucket exactly most of the time, most of the banks won’t start foreclosure till it’s 60 days delinquent, sometimes even 90 or 120. Today with COVID, even later, we’d expect, but nevertheless, it’s it. It’s past that period and before the foreclosure is completed, and in some states in New York, Ohio, Illinois, Indiana, Florida, these states are just examples of judicial foreclosure states, we have to go to court and go, there you go, and go to court. And it’s just a long, slow process. In all these, in your example, here, the blue states, Pennsylvania on these states is just going to be slow and average, I’d say is a year and in some states, you know, can be two or three years and that’s that time. You know, time is money sounds cliche, but it is especially when you own a defaulted mortgage, and if you’re going to recover if you’re going to make 10,000
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dollars from this asset and you hold it for two years, you have to pay a couple thousand in taxes and insurance that that will erode your returns. But if you were to collect $500 a month or $1,000 a month in rent in the over those two years that would offset those costs and sometimes even allow you to make money during the foreclosure while the foreclosure process is ongoing. What percentage of pre reo inventory is from judicial states where judicial is harder for the bank to collect? It’s more painful for them. The vast majority I use, most lenders and and funds like HP are going to think okay, well in California in normal times pre COVID. I can foreclose in six months in Texas in most cases, I can foreclose in 60 days or even less. So in those cases, why would I want to go through the extra step of appointing a receiver and collecting rent when the foreclosure will take about the same amount of time and that’s absolutely right. Now today, during COVID its cow
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fornia foreclosures on hold many states across the country foreclosures on hold, in some cases, even if it’s a vacant property. And so you’re just stuck. But in normal times, it’s really much more appropriate for judicial states. And you’ll see you had a map a moment ago. And if you go to the pre our website, it has this map, which includes the entire country, and you’ll see that there’s a whole bunch of dots in the in the judicial foreclosure states, and then you go out west, and it becomes the concentrations become a lot less. Yeah, so we, if you guys are looking at the YouTube channel, have the map up of judicial and non judicial states. Most of us are on the west coast. So Washington, Oregon, California are non judicial states. So it’s it doesn’t have to go to that strenuous process and the courts that we’re talking about, but I think you have to overlay the political nature, right. Those are typically bluer states. So it is a lot more tenant friendly or
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homeowner friendly. Absolutely. Absolutely. So it’s not really
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It’s a republican state or a democratic state, nothing’s really to do with that. It’s just I don’t know, it’s kind of random, right? It is kind of it is kind of random. I mean, what East Coast, there’s more judicial states as you get to the west coast, you know, west of the Mississippi, many more that many more are non judicial states. And it’s a patchwork. I think it’s this is a good example of, you know, who cares about politics. It is what it is, is judicial or non judicial. That’s all right. Lester’s and I was excited to see that Hawaii, for some strange reason is a judicial state. And this is right, I got this crazy idea. Every time you see a Hawaii property, you kind of ping me and you’re like, Oh, this one? Yeah. Yeah. So even there are a couple of out. I mean, I’m pre Ario. A couple of vendors have listed assets in in Hawaii, which, over the years HPS bought a handful of loans in Hawaii. It’s not been a big market for us. And I’ll tell you, it is a slow, expensive foreclosure process in Hawaii. So for those
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Have you in Hawaii ambassadors with all the distress that’s coming up? Yeah, there you go the couple in Hawaii It is something where lenders car it’s going to take me a while to get a foreclosure complete in Hawaii and and that’s when you get a foreclosure attorney in Hawaii sometimes the attorneys you know to pay them to fly between the different islands so it becomes expensive and a hassle. The way I thought about using this is that this is nice because you know I’m not big into like being a bur investor or being a remote investor unless you have a JV partner kind of doing your you know, skin in the game working on your behalf you always want to have go into a deal where you have some kind of advantage in in this case you want to go in with you being able to do physical due diligence on the property and feel it touch it be around it is probably the only case where I advocate for being local to the property. So I the way I thought about it, I mean, tell me some other good strategies, George but the way I thought about it like this would be a cool way for me to actually buy my primary residence. I think a lot of people know
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I’m very against renting or buying a home to live in. It’s better to invest, especially if you live in a primary market like California, Washington, Hawaii, New York. But yeah, this would be a great way to pick up properties. If I wanted to get more hands on or maybe somebody might drop a two $4 million property I can get for a nice discount. Yeah, that’s absolutely right. There are there are some million dollar homes that are listed on the site. Those aren’t owned by HP, generally, they’re owned by other funds. And so there are other funds. So HP 2015. A plus is actually the owner of pre RTO. That’s where this concept was,
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was conceived and but now we see the opportunity to market to other other funds and they’re doing it they’re listing properties and we simply make a $2,000 fee for every property that’s transacted on the site.
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And you’re right it could be appropriate for us for future owner occupant be a big I’ll let you know though during that foreclosure period, receiver can be a
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pointed to rent it to repair it and rent it to a third party they couldn’t. The investor could not move in during that period. But once it goes to the foreclosure is complete the the investor can direct whoever they want to sell it to. So it could be done that way. If you saw something you want to eventually live in as long as you you can allow some lead time and that could be done. This is a great opportunity for like, No, just one of our common characters of simple passive cash flow group is you know, your tech worker out in the Bay Area. You make over 200 grand a year, you’re pretty busy. So you’re out you’re investing in passive investments like syndications after you’ve gotten your taste and your fill of the turnkey rentals, and you’re doing a little HP but you see a property like this, and you might want to put in a bid and is that kind of like the at one of the avatars you’re thinking, George that this really will appeal towards someone who can be local to it. Yeah, it’s definitely something where the local investor has the advantage they can get better
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Some repairs, they can get better. You know, we pay we’re in Chicago, somebody says it’s going to cost $2,000 to clean out, you know, home, we don’t know if that’s good or bad price. Some of you try to trust the people but it’s you never know they’re taking advantage of the fact that that were foreign, when you’re local and you can actually work with trusted contractors and see the work that they’re doing and make sure their bids are in line. The local person without a doubt has an advantage over HP over any bank or other hedge fund that is selling their assets here and that’s why they sell them because a local can execute this strategy of doing repairs and renting it out during the foreclosure process. Whereas we, you know, it’s it’s tough for us to do it remotely and you know, we’ve tried so we got a lot of Oreos here and there we said, if we only were selling these things, you know, usually in in knock re condition to a local Ambassador who then do some repairs and flip it to a home buyer who’s paying top dollar because it’s now a turnkey home that they can turn into move into and get FHA financing or some other other
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Affordable financing. It’s always tough to execute that strategy remotely or at least it’s not area of expertise, the local guy always has the advantage. Local investor always has the advantage. And that’s I think what we’re trying to do with pre reo is put these during the foreclosure process in the under the control of a local investor, I think that’s a I’m a big advantage. The way to do that is with this receivership, so you can’t just because you buy the note, you can’t just go in and start fixing it up and renting it, you need to have a receiver which is appointed by the court. So this is the step you know, kind of the first step is identifying when you want buying it. And then buying the note is what you’re buying. And then you are working with a law firm to appoint a receiver which could be a local real estate agent, a property manager, who can then work with you to do the renovations and rent the property during the foreclosure process. But you get a court order that allows you to do that, you know, step back, you were in a on the one on Pleasant Hill a moment ago in California. You know, some of these that’s a, what I just described was a fairly active strategy in terms of acquiring these but
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There are some like Pleasant Hill. This one is currently on the market for this is a fixin flip deal where somebody it’s took out a fix and flip loan, but they defaulted on the loan. But it looks like they’ve pretty much finished the property. And now it’s on the market for I think it’s in the 700,000 range. And so here they’re selling the mortgage holder, which isn’t HP is selling this mortgage, in all likelihood, using this one as example. That investor at some point is going to sell this for 707 5800, whatever number they sell it for, and then simply pay off the loan. Now they love they owe us looking at these numbers. Yeah, the estimated value is 796. But the
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they owe considerably, you have to log in to see the amount of the debt it’s probably in the range of 650. So the current owner sells it for 750 you get paid off at at 650 you or you bought it for around 500 that that’s something that local investors is going to be better able to to understand those numbers.
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First, the nuances in terms of what that value is, but they it’s something that would be a fairly passive strategy. And there’s a few like this and it’s very easy to determine which they are. You simply take the addresses which are available once you log in. And then you can go to Zillow and see which ones are currently for sale. There’s even some that are under contract. And that is a that is an interesting it’s in one of the Northern California ones I think was Pleasant Hill. But yeah, it’s a good example in terms of what has Pasadena
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been investing with hp since 2017. Buy distressed mortgages and discounts offer struggling families sustainable solutions to stay in their homes. When homes were vacant. He recognized that lenders frequently struggled as they tried to limit their losses. That’s why owner George Newberry founded pre reo, a platform that gets these vacant properties into the hands of local investors like us during the foreclosure process, which mitigates losses to lenders and accelerates returns for investors. a win win
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I’m very excited about this platform that connects local investors with board appointed receivers in their area to cost effectively repair, lease and maintain and rent vacant homes during the foreclosure process and ultimately make a profit. I’ve been checking out local properties here in Hawaii and I think it’s a great way finally pick up my home to live in. Even though I think homes the buyers aren’t probably the best, you can learn more about pre reo by going to simple passive cash flow calm slash re reo.
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So, another question that comes up and most sophisticated investors will ask, and this is kind of what I always ask is like, how how are you guys making money? Why are you guys doing this? Why would you pass on a deal to me, lowly investor, what’s the catch? And I think if I was reading between the lines here, so HP, the fund that George runs, we’ll talk a little bit about that the end here of how that’s going HP is more of a cash flow.
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type of they make money off cash flow and some of these properties like this one in particular, there’s a lot of value there. But I think it doesn’t really align with your guy’s strategy of, you know, quick, quick, small base hits specific, it’s going to take a while it might be painful. It just doesn’t fit the strike zone. It’s not your guys pitch, right? Is that yeah, that’s absolutely true. And we also have, we don’t have money to buy every loan out there. And what we want to do is we came up with this concept originally for some 2015, eight PLUS loans, but then we thought, hey, this could work for others, and we started talking to other funds about it and they started posting assets on there, we could simply make the $2,000 in the middle and that’s a would be a good
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you know, $2,000 doesn’t sound that exciting, you know, on a one off, but if you’re selling you know, we have one fund that’s putting on, they’re talking about putting on almost 90 properties in the next couple of weeks, all across the country so that it can become a business on its own collecting the
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2000 bar fees kind of like auction comm I think they charge a 20 $500 fee. So it’s modeled very similar to that we’re simply getting a transaction fee on every note that sold here, you know, good market bad market, there’s going to be an explosion in the amount of defaulted loans available over the next next year. And it would be naive for us to think that he could buy them all when I mean, or even some billion dollar hedge fund isn’t gonna buy them all there’s gonna be billions and billions and billions of this stuff. HP was going to be continued to be a buyer. But I think our relationships with a lot of these hedge funds gives us the opportunity to market it to local Ambassador who’s going to be willing to pay more than we would and probably more than anybody because a local investor would be the person who would eventually buy it as an reo. So think about the usual trajectory like we’ll use this one and pass it in as some hedge fund on wall street or buy this loan or currently owns this loan. They would go through the process, you know, in California foreclosures on hold so they’re not going to be able to foreclose for could easily be a year or more. And then they foreclose they list it with a real estate agent and
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They pay him or her a 6% commission and they play other closing costs. And so and in the meantime that year or maybe even more they’ve paid taxes and insurance you know, this property could get broken into squatter could move in all kinds of things could happen, why not get 75% of what what they’re going to get eventually take it today so they’re going to get less, but they’re going to get it now and then put this in the control of a local investor and I think it’s a compelling sale to two different funds and I think we’re going to see a lot of assets put on the site as a result and a lot of invest a lot of funds are probably going to do better than they would if they held it to the ultimate disposition and a lot of local investors are going to buy these things at less than they would buy them as reo. So I think we’re we want to become the marketplace between those two parties. You mentioned auction calm I think people are familiar with that. That they are foreclosed properties this pre foreclosure. Yep, social absolutely big difference. So auction calm, so so we were kind of following the business model, which is they make
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20 $500 an asset more or less, and but they will, as a buyer’s premium, they charge it to the buyer just like we charge $2,000 to the buyer, but they they usually only sell once it’s the foreclosure is completed, and they’re selling it as an reo. And so we’re trying to do it early in the process, so that the lenders can exit early and the local investors can buy an earlier at a greater discount. Let’s just kind of walk through this as a case study, George. Sure. I picked it because it’s a wrap. It’s a million dollars, and it just makes my life easy in terms of math. Yeah, make life harder. It looks like it’s pretty nice inside. You know, who knows, of course, there might be some things that fix up. So me as an investor, I see it on this site. And I’m like, Oh, yeah, this looks cool. You know, let me put in an offer bid and you know, pay my $2,000 program fee. Do I get access, I mean, all of a sudden kind of a walk around the block. Make sure this is not in the hood, but do I get access to the inside or really not. In some cases, they’re already listed and that there there’s access that we can get, but mostly
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Time’s just like with any no purchase you can only drive by maybe get out of a car look to the windows if it’s vacant, but you can’t you can’t get inside and so that’s a risk that you’re taking. You know this one that luckily it was recently it looks like it was recently refurbished. Again this was a fix and flip loan that’s gone bad. But it looks like a lot of the work has already been done to the home but again in many most cases we will not have access to the interior of the property so that is a risk but I think the discount more than compensates for that potential risk right no risk no reward Yeah, it’s always the case let’s kind of walk through these the numbers here you guys can check this out at simple passive cash flow.com slash pre Arielle how the money works, right? The sure compensation or the fee structure. So here’s how we’re, it works. A big wall street funds typically don’t want to sell to one local investor they want to sell to Counterparty that’s been vetted and whatnot. So HP falls in that category. So what we’re doing is all these loans are being sold even though they may be sold to us.
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Hundred as an example to 100 different investors, they are all in sold into hp. And then HP provides participation interest to the local investors. And we will finance at this point we’re financing at 75% of the of the purchase price and get a 12% return and then the local investor puts up 25% of the of the price and that gives them the right to get earn everything over and above the 12% annual return would go accrue to the ambassador. So they all the upside goes to the local investor, we get a $2,000 program fee, we also get the servicing so this you almost every state requires that a licensed mortgage servicer services alone and these are loans during the months before or even some cases years before it becomes reo than it needs to be serviced by a servicer so obviously HP servicing is more than happy to provide that service we charge for pre arias we just made it a flat $50 a month so we would service we also have an affiliated law firm which is called activist legal
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Which can handle nationally they can facilitate both the foreclosures and the receiverships through a nationwide network of attorneys. So it’s pretty turnkey. It’s not like you’re gonna have to go to a let me find an attorney who’s going to understand how to do this. It’s something that’s fairly unique. And so we have attorneys that are familiar with with with the process. So here’s an example just to to to show how how the money flows. Let’s say you purchase a note for $100,000. And a year later, you sold it for 175. Once it became reo, you had put some money into it now you sold it and got 175. So it was held out for a year. Here’s how the money would flow when it was first purchase, then the local investor would put up 25,000. That’s 25% of the cost of the note when he or eventually is going to be pre IPO but right now it’s HP will put up 75,000 which 75% of the cost of the note the local Ambassador would not only pay the 25,000 that’s in the 20 they pay a $2,000 program fee.
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At the outset, and then on a monthly basis, they pay the 12% return. So it’s kind of like you guys are you’re kind of servicing like a lender, right? Like a short term lender. Yep. At 12%. Some investors might think, well, that’s kind of high. But you know, Hey, guys, like you got to think of like, at the end here, the potential profit, right? I mean, every deal is different, actually. Yeah, build it into your process right now, eventually, I think we’ll have that money available cheaper. We’re trying to get another wall street fund to put up the money right now he is putting up the money to prove the concept, but eventually some Wall Street fund will probably go in there and offer the money at nine or 10%, probably 9.9%, or something like that. But I think you’re absolutely right. When people make the bids, they they factor in the program for you that 2000 and they factor in the the cost of the capital, which in this case is 12%. You know, if that cost drops to 9%, they’ll probably be able to pay a little bit more and if it were going to go up to 14% then they probably be willing to pay a little bit less. But in the end if it sells for 175,000 and they bought the note for us
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Hundred, and they put in 25,000 in rehab $2,000 program fee $9,000 in in lending and lending costs, then they made Sep 39,000, which in a year is a pretty good return. And we’ve got, you know, our nine, our 9% back plus we earned the $2,000 program fee. So that that’s the model that we that we have. And I think it serves a purpose and getting these vacant properties or without this, you know, there’s a community benefit too, if any of you have lived next door to a vacant property, it’s not the ideal neighbor, probably the lot, the grass gets cut less frequently. The you know, something bad happens to the property gets broken into there’s a pipe burst or something like that, you know, this, someone has to call it in getting in touch with the owner come out and shut it off or do whatever needs to be done. So those are all things that having an occupant in there, even if it’s attended to this point, it’s going to be better than having it sitting there vacant. So and especially in some of the lower
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low to moderate income areas where he works is definitely having an occupant is a huge advantage and benefit to the neighbors and the community in addition to the free area ambassador for the guys who are like what’s in it for me go to stay there and all that stuff and you can see it on the on the YouTube channel here but yeah, kind of like what, like a two x equity multiplier in a sample in one year or so. Yeah, exactly. It’s a significant return in a it’s a significant return now it is that in many cases it’s going to be active This is something where you could do a lot of it from behind the desk but you’d want to go out I mean, I think you’re the advantage is realized when you go out to the property and just like any any of your investors who work either you know owned apartment buildings or done fixing flip rehabs, there is some value to being right out there on the property and and seeing what’s going on, you know, on your own instead of relying on photos or reports from for employees. But if you buy these near, it’s easy to execute that and and you can be rewarded
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hands away. And if you’re just like an accountant or dentist, you’ve never done construction work, maybe you you screw up and you two times pay the rehab work where there’s still profit probably profit for you, if you screw up and you kind of run out like an amateur. That’s the beauty of these things. And you have to learn if you say you really want to do and then I mean just in anything you do it you screw up, you learn, how can I do better and after a few times right now, now I’m doing pretty well. But the first few times, you know, you always end up paying a little bit more than you could and you figure out ways to to improve on subsequent tries. So what happens if you if I click the button I want to buy it I send you guys the money and then the guy in pre foreclosure actually pays what’s, what do we do? So? Yeah, no? Good, good question. So here’s what happens. All these are offered, I shouldn’t say recommend to the sellers of the offer these either at 75% of the reo value so they think the reo is worth 100 sell for 70 offer for 75,000 or 90% of the debt. of the total.
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debt. So if if only $80,000 is due on the note, and it’s worth 100, then offer it for 70 70,000. I think that is. And so if the homeowner comes back in, you know, six months later, and says, Hey, I want to pay off my loan, I want to I want my host house back, or I win the lottery, I just inherited this money or whatever, however, they they came up with the money, they can do that. But they’re going to have to pay everything that’s due on the note, which is $80,000, when you started, when you bought it in that example, plus the legal fees, additional interest, any monies that you’ve put into the property that were used for by the receiver to preserve the property, those are all recoverable. And so that’s so you would, let’s say you ended up putting 20 into the property. So you would get the 80 that was due when you bought it for 72. You’d also get the 20 that you put in and there’s probably additional interest of six months which could be you know, another few thousand dollars. So you would get
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All that, but that is something that is unlikely to happen because in, in most cases, I mean, there’s always or should always be vacant. And as a result, so most cases, the homeowners just just walked away. Now there are some like I pointed out where the homeowner where the property owner was an ambassador apparently ran out of money for whatever reason was unable to pay, but they’re still trying to sell the property. And so they’ll either sell it for more than enough to pay off the loan, in which case you get paid off in full in capturing that discount that was made when you bought the loan. Or, you know, they could come and say, hey, I want to do a short sale. So some of these are sold it for considerably less than what the what’s due on the note, but it’s also because the property values less and then they could come in, you could say Hey, I’ll take the short sale, not take the short sale, then it’s up to you. But the homeowner, so his property owner shows rights they do. But they are served with the receivership and the foreclosure documents and they can appear in court and say, hey, I want to do you know, I’m coming up with the money or whatnot. But if they don’t show up and they default, then the process continues and they’d have to come
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Back at a later time and, and and have to come up with all the money that’s due it seems complicated but I mean you got activists legal on your side as and you’ll be their client probably the kind of take care of all this and kind of just walk you through the timeline and then absolutely Bob has come up you just kind of work your way through it between the servers here you’d always have a dedicated person at this at HP servicing another person at age activists legal in order to to answer your questions along the way. So if it sounds complicated, maybe because it is but it’s actually a
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once you probably do it, I always I’m always learned by doing and we’ve done a few of these I you know, as kind of a test so they worked well. So I think the Learn by Doing and we’re gonna be there we’ve done it and we can guide you every step of the way. It’s like evictions. I mean, I don’t really know how to do them. I know it as like a black box. You know what comes out the other end I know how long it takes, but I don’t really exactly not
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happy to do it for me. Yep. waxiness legal just as a
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As a quick plug, they do evictions nationwide. They can certainly assist you no matter what state you’re in. Yeah. So yeah, if you guys need a eviction, let me know. And we’ll connect you with the right, folks. So let’s switch gears a little bit, George. And as we wrap up, you know, a lot of investors, they’ve known about HP servicing for quite a while I’ve invested with you guys since 2016. Ish, or something like that. 17 I got into first fun at 12% No, it’s at 10% paid monthly, which is cool. It pays my car payment. Never ever told you that? I think Yeah, that’s great. So how, how are things going through? COVID? You know, I know like, from what I hear about a lot of my investors is like a few of them. Were trying to you know, they had to rob Rob liquidity from certain places. And one of the places they tried to get it from was HP because you guys have a great liquidity type of caveat there. Yeah. What are you seeing from your end? What are investors out there doing? You can kind of make sense of the madness.
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No good. I appreciate you bringing it up. So HP I mean, everybody had effects of COVID. And like you said, when when COVID hit, we had all time record redemptions in March and then April, those are the two biggest months, it’s now settled back down. But those redemption requests in March and April are very significant. We heard from people who need to pay payroll, hey, I need to pay, I need to cover a margin call. You know, my business is struggling I need I need the money for assorted reasons. And we were and historically in our documents that states that we will
31:36
offer we offer best efforts liquidity so if you request the money, we’re going to undertake our best efforts to return your investment within
31:44
30 days and historically, we’ve been able to do that COVID hit no longer able to do it. And we’re still digging out from that march april demand. And you know, I think in the last last week or so, we are the last week of the month, I think we returned about a quarter million dollars.
32:00
So we are making progress on these but it’s incremental progress and we’re balancing you know, we priority for us is to run the business number one. Number two is to make our monthly distributions which we haven’t missed any and numbers and we don’t expect to. And number three is to, is to do these redemptions. So we can’t you know, if we were to satisfy all the redemptions we don’t have any money for distributions that would be obviously problematic for everybody. So we I’m sorry, I you know, it’s unfortunate that people are waiting longer than they than they wanted for their for the redemptions. But it is something that you know, we are expecting to get through and expectations when COVID hit, you know, how this is going to be 60 days or something like that, because at the time, you know, when COVID we first had that first shutdown everyone saying well, this is two weeks, I you know, shelter in place for two weeks, then this then everything’s back to normal. At least that was how I think people interpreted including us because it was so early and then then it was extended and extended and
33:00
You know, now it’s, you know, several months into this going on five months into the COVID era and things still are back to normal I in many cases, there’s foreclosure holds across the country, there are states where we have foreclosed on properties in January of this year and we’re still waiting on the deed, they are situations where we foreclosed and or we’ve gotten a deed in lieu, we can’t complete an eviction and so these are all kind of slowing our ability to to move forward and realize gains and and, and revenue that we would normally have accessible. So I think those are challenges also, in some cases, you know, Sheriff’s Office closed can issue deeds can record or closed or working from home running behind, tough to record deeds in some situations. So it’s a it’s a slow process that’s getting better, but it is still creating challenges on the upside. I was a little bit nervous.
34:00
When when this all hit in terms of, you know, we had a lot of Oreos over 100, which is normal, you know, how does this impact are these prices going to, you know, is the value of our Oreos, our notes going to have a significant impact and post COVID in the last, it’s not post COVID. It’s mid COVID, I guess, or depends on your perspective. But in the last 30 or 40 days, days, arios the ones that are out on the market are selling better than pre COVID prices, which is great. And no, unfortunately, so accounts, closed them off because of assorted issues like county recorders or county offices being closed, but we’re getting them under contract at very strong prices and our inventory is shrinking. which is I think good for the moment because we are recapturing premium prices now fast forward six months or a year and all these foreclosure holds go off. There’s a significant inventory coming out of the market. I would anticipate that the pricing should go down just based on normal normal economic cycles. How
35:00
With the low interest rates, I think that’s kind of the wild card that keeps, that’s propping everything up strongly. So it’s hard to say what the future holds. And that’s why if you’re waiting on redemption, they are in process. We are processing some every, every few weeks, but it is something where it’s, it’s taking longer than expected. And hopefully that’ll return to normal soon. I pick up the old info page, simple passive cash flow.com slash HP, but there’s a little screenshot of Oh, sure. Activity back in this a couple years ago. I think I draw this is I withdrawn at one point in 2018 55 grand and I think I replaced it later before the fun closed. Yeah. I mean, what’s your mentality on how much percent cash reserves do you have in your your fund and with like, the mentality of like, all right, when you feel comfortable to go out and take some of that cash and buy more stuff when we’re buying I mean, we bought about $4 million worth of loans last week. And so we are actively buying loans again, the business a priority is running a successful business. That’s
36:00
Gonna be benefit all of our investors. So we did have a good opportunity last month, we’re working on a few opportunities pools for this month. But there are opportunities that we’re seeing that we are taking advantage of. So it’s a balance of, you know, new acquisitions, having new acquisitions and operating a profitable business. And then penguin distributions, which right now, I’m guessing. I mean, this is just over the all the companies we probably have, I don’t know the exact numbers, but we probably have 800,000, roughly, and cash available right now, at this very moment, but you know, we’re doing distributions in a couple days, that’ll be a considerable amount that goes out. But you know, there’s new payments that come in New arios that say that cell, that cell, so there’s always money coming in and money going out, but at any given time, we do have a decent amount of cash on hand. I try to keep it as low as possible, just because that money, we’re paying investors on that money, so I’d like it to be invested. So it’s a bit of a balancing act, right? Because I mean, the way it is like it’s 10 pref. Right. So yeah, you want to
37:00
Keep it most of you can make some money, right? Yeah, absolutely. Yeah, the money sits in.
37:04
We’re paying 10% on a million bucks that’s sitting in, in a bank account that’s paying us at best 2%, then we are, you know, that’s a negative negative 8%. So we want to keep that as little as low as possible. I think we’ve been doing that. I mean, it’s just as a point of reference. When I came in here a year ago, I came back into the CEO role. We had over $8 million in the bank, not a good, not a good situation. And so we’re, I was able to invest that it took a few months, though, because a year ago, the opportunities it was it was difficult to invest. And that’s why if you remember, a year ago, we had stopped accepting new investments because we had a lot of money come in, it was difficult for prior management to find opportunities and fairness it was when I came in, it was difficult to find good opportunities. Myself they were. The market was very heated in order to generate strong returns. We the offerings were few and far between, we’re able to buy stuff and
38:00
and deploy that money but it took several months. Fast forward a year, the markets now we see it opening up with these with great opportunities. And we think that’ll only increase over the next next six months to a year. So we’re getting we’re taking the best ones we can find now, and and we’ll continue to do that. So what’s uh, I got into the 12% fun right now the 10% fun is still open, where do you think you’re all heading? Right? Because the Fed funds rate is like zero for the past six months. It’s heading down.
38:29
And yeah, they’re getting more popular, right? Yeah, exactly. So the next so HP servicing this fund will close in, I believe it’s the first week of November. That’ll be the last investment that we can take and and it’s, it’s imposed by the SEC, we have two years to raise money. So that two year period ends at the beginning of November. At that point, we will close HP servicing no more 10% we will have a new find up then or hopefully shortly thereafter. That will happen
39:00
For a similar type of strategy, but we think the returns would be less. Right now it’s we’re working on the on the submission to the SEC, we think it’d be around 7%. And that sounds lower it well, it is lower. But compared to what the you know, the prime rate and the different indexes are, it’s still a very generous spread. We’ve we’ve we’ve we’ve toggled between, should it be seven? Should it be six? Should it be eight? I think in the end, it’ll be seven. But it could could end up we decided a little bit lower a little bit higher. But right now I’d say seven. Yeah. And so the challenge is out there for you guys. I’ll give you 100 bucks if you can find me something better that pays a better rate of return that has a better risk profile. And with the liquidity that’s the big thing here the ability to click this little redeem button and pull some money whenever you want. So there you go. There you go. bounty hunters out there. Let me know
39:56
anything else you think we missed, George? No, I think we covered a lot of ground
40:00
And hopefully that’s hopefully was helpful to your audience and they’d be interested either in pre audio or kept updated or interested for the first time maybe in hp. Certainly reach out to us. We’re here to help and answer any questions. There’s, there’s my book guy. Yeah, that’s me. That’s me when I was probably like 20 years old. Racing in Arizona.
40:21
That was a race. If anyone knows Arizona, it was it was called Yuma life Yuma. So it started in Yuma, Arizona. The race went up to blight, California and back down to Yuma was about 200 miles and as you can see, it was fairly hot. What in the desert? What does that one called? I don’t know. They do it anymore. But it was Yuma life Yuma. So just the three said the two cities, the three city names, one after another 200 plus mile bike race. Not that David Goggins the one he did in his book. I don’t know I don’t, I can get through Death Valley or something like that. Yeah, it’s not like it’s not was not in Death Valley, but it’s certainly
41:00
The terrain was probably pretty close. Right? There is a you may be thinking there’s a running race across Death Valley bad water, which is pretty awesome. I’ve never done that. That does sound like a lot of fun. Well does sound like quite a challenge. Yeah. Let me catch myself up fun. So if you guys want to learn more about HP go to simple passive cash flow.com slash hp. And if you guys are interested in playing around with pre reo go to simple passive cash flow.com slash pre reo and we did a little tutorial video going through the website earlier for you guys and you guys can kind of digest these numbers and how it all works. But yeah, great way for you know passive investors if you want to kind of invest from your desk, you know and do a little white glove investing. This is a way to do it. If not a lot of other passive investing ways turnkey rentals have set off and of course syndications and private placement.
42:00
Appreciate it. George. Thanks for joining us, man. Thanks lane. always appreciate it.
The trouble is that an unsophisticated investor or an outsider (in terms of having a poor network) is figuring out which of these deals transcends the two sides of coin and is on the edge. Stating the obvious (though often ignored by many)… starting out as an investor is going to be slim-pickin’s due to the lack of network. But you have to push through this rough part. You are not able to decode the noise until after a few deals or having someone mentor you.
