JF2183: The Texas Property Manager With Danny Webbers
Danny is a real estate broker, and owner of The Texas Property Manager and The Texas Builder. Danny shares his expertise in purchasing notes and how he plans to continue to grow his personal business.
Danny Webber Real Estate Background:
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“Find a mentor, and pay him if needed. You need someone you can call anytime you have a question” – Danny Webber
Theo Hicks: Hello, Best Ever listeners and welcome to the best real estate investing advice ever show. My name is Theo Hicks and today, I’ll be speaking with Danny Webber. Danny, how are you doing today?
Danny Webber: I’m doing great.
Theo Hicks: Great. Thanks for joining us; looking forward to our conversation. A little bit about Danny – he is a real estate broker, the owner of The Texas Property Manager and The Texas Builder, he has 15 years of real estate experience and he’s done approximately 150 flips, over 40 wholesales and over 30 notes. He’s based in Austin, Texas, and you can say hi to him at myhomesimple.com. So Danny, do you mind telling us a little bit more about your background and what you’re focused on today?
Danny Webber: Sure. Background going way back in military and law enforcement. I’ve got an MBA in Business Management and Finance, lots of hands-on experience. I believe in getting dirty on job sites, learning how to do all the trades, which is one of the reasons I started the construction company. My focus today primarily though, is I’ve been liquidating a lot of rentals and getting cash-heavy, just with all the craziness going on in the world. I really have a lot of dry powder on the side, ready to deploy as deals become available. So focus for me right now is macro and micro economics and trying to take the big macro picture and drill down to how it specifically is going to manifest itself in Austin’s market because we’re a little bit of a strange market comparatively speaking to most other places in the US.
Theo Hicks: Let’s talk about that a little bit. So you said you have a lot of money and you’re in the researching, educational phase right now.
Danny Webber: Mm-hm.
Theo Hicks: Okay, perfect. So what are some of the things you discovered particularly about your market?
Danny Webber: Well, there’s a lot of dynamics going on, and obviously with what we’re going through with the pandemic and everything, and so what I’m doing right now is I’m following the macroeconomic picture, meaning the Fed money printing the financial stimulus and incentives from the government, and then how that’s affecting current mortgage market and real estate market, both nationally and locally. So for instance, in normal times, in a nondistorted macroeconomic market, when the Fed prints trillions and trillions of dollars, and then they’re deployed to the folks on the ground, typically you would see some type of inflation, or typically you would see some type of devaluing our currency, but we’re not seeing that because there’s such a shortage of dollars in the world, which is counterintuitive to a normal macro investor or even a real estate guy… Because as a real estate guy, when our currency devalues and you’re in fixed long term debt, that’s good for you. When a loaf of bread goes to $10 and the house that you paid $100,000 for five years ago, now costs a lot more just because of the devaluation of our dollar – it’s good for you, especially if you’ve got long term low-interest rate debt. So throw that in the mix with the deferments of the evictions, the foreclosures, and then add on top of that the fact that a lot of the lenders that did that are going to want three months plus one when the deferments are over.
The increased delinquency rates on both autos and home loans– I can go over 100 other macro and micro indicators, but you take all that information and you’re like, “How is that going to affect Austin?” because Austin’s one of the strongest real estate markets in the country. It’s been that way for probably a decade, and there’s no signs of that slowing. So some of the problems that we face in Austin, for instance, is our rental prices have not kept up with our purchase prices and sales prices. In addition to Austin not having state income taxes, we’ve got a high property tax rate. So if you looked on the MLS right now in Austin and specifically looked at single-family residents, and you were looking, “Hey, I want to buy a rental, I’ve got the traditional 25% down, going conventional. Let’s just say, four, four and a quarter percent interest rate”, you’re not going to find probably more than five properties in the entire MLS that would cash flow with their traditional 25% down investor purchase, which is a big problem for us. So we end up having to go further and further out in the concentric ring theory until we’re outside of Travis County proper, we’re outside of Williamson County. Although you can still get some deals in farfetched Travis, farfetched Williamson, but you need to go into two or three counties away to get deals that make sense for monthly cash flow.
Now, the flip side of that is that the appreciation often is pretty substantial compared to a lot of other places in the country. So some of the strategies the investors’ using this area is they’re okay breaking even every month or not making any money or even being upside every month because the appreciation rates are so high. I don’t necessarily agree with that, but that’s what a lot of folks are doing. The other thing we’re doing a lot down here, and we have been for years, but we’re really, really trying to acquire properties through non-qualified loan assumption strategies, and then doing mortgage drafts on them so that we’re carrying notes and not rentals. Does that make sense?
Theo Hicks: Yeah. Do you mind expanding on that? So you said, instead of buying the property, you’re buying the notes on those properties?
Danny Webber: Typically what we’re doing – I’ll give you generic numbers here – if we find a distressed home seller or even a non-distressed home seller, and they’ve got a $100,000 property, which is nonexistent in Austin, but we’ll just use that for simple math, and you do the research on the tax database and you find out that their payoff is approximately $87,000. So they’ve got $13,000 equity minus closing costs, commissions and everything. You would go to that person and say, “Hey, I want to take over your note, non-qualified loan assumption for five years. I’m going to give you $10,000 at closing and I’ll have the note paid off or refinanced in five years.” So what that allows you to do is it allows, number one, a quick closing, assuming title work and the property checks out. It allows a quick closing, no banks are involved, no approvals are involved, and you can put that property in whatever entity you want it to be in, so you can avoid the debt to income ratio hit on your normal credit. You’ve still gotta do the tax thing at the end of the year; there’s no tax implications, but you can at least avoid the debt to income ratio hit on your credit. So from there, say I have acquired a property in Company A, non-qualified loan assumption; I could then put it on the MLS the following week and sell it to Buyer B at $110,000, $115,000 because people are going to pay a premium for owner financed properties. I’m going to hold the note to the end buyer and I may have an underlying lien from the person I bought it from at for 4%, 4.5%. I’m telling it to the end buyer at 7%, 8%, 9%, 10%, 12%, whatever the negotiated interest rate’s going to be, and I’m pocketing the interest rate spread from the underlying lien to the rep note to Buyer B every month, and I’m avoiding the maintenance, late rent and all this other crazy stuff that I have to deal with. And if the person never stops paying, then I just foreclose on the property versus evict him.
Theo Hicks: Let me just say this back to make sure I’m grasping this properly. So you find out someone who owns a home and when you say they’re stressed, that means they’re delinquent on their taxes, they’re delinquent on their mortgage payments…
Danny Webber: It could be any and all the above. It could be notes, taxes, they got HOA liens, or the other thing we’re going to do a lot down here is people just want to sell the property quick. They don’t want people in their house checking it out, kicking the tires, nickel and dime; they don’t want negotiations. So they’ll just say, “If you bought my house today, how much would you give me and can I live with that?”
Theo Hicks: Okay. So you need to determine how much debt they have in the property. So in your example, you said a $100,000 house with $87,000 debt, and so you’ll go to them and you’ll say you’ll take over their note, you’ll give them some down payment, and then you’ll pay that note off in five years. So I guess one thing I have a question on is, are you just paying them, and then they’re paying their mortgage? Or are you actually paying the bank directly?
Danny Webber: No, I make it sound simple, but there’s a few moving parts. So when we sign the agreement and we’re at closing, we get obviously some really tight POAs and borrow authorizations to communicate with their bank. We typically want the login for their bank system, and then we change the address for all correspondences with the underlying lien and bank; and then from there, typically, what we’re doing in my operation is we’ll just set up the payments going out auto-draft every month so we don’t have to worry about them. But if we can’t set up auto-draft, then we’re just gonna hit a local branch every month. We’ve got a few that we do that with. We don’t like [unintelligible [00:10:46].04] reality. And we make the payments directly every month, and then the person that we sell it to, they pay us. So the selling point for the underlying lien holder borrower is that we’re going to help your credit. We’re going to have 100% on-time payments for the next 16 months.
Theo Hicks: Perfect. So you have some agreement with them paying you something on top of the mortgage payments? So the mortgages plus 4.5%, you said?
Danny Webber: Yeah, it’s gonna be a negotiated rate. Back in the day when QM came out, Dodd Frank and all that other stuff, there was a max overage for lending rate; I think was 3.5 APOR, which is the average rate of the day, and so you were locked into that. And then as Dodd Frank lost his teeth in the QM standards, they didn’t go away, but they’re just not enforced right now at all. So the last three to five years – not a specific time, but there’s a lot of national lenders that have non QM products, non Dodd Frank compliant products, and so everybody just went in that direction now, where if you ask somebody about Dodd Frank, QM compliant, it’s really not an issue, whereas before when it first came out, the world was ending, the sky was falling, and you couldn’t do owner-financed deals, you couldn’t do adjustable rate mortgages, you couldn’t do this over five years… So there was a lot of issues, people were scared, but that’s gone away now. I’m actually a mortgage broker in our [unintelligible [00:12:04].00], so I do a lot of the compliance side. If I get an industry that says, “Hey Danny, I know I don’t need to do this, but I want to make sure that this is as close to QM, Dodd Frank compliant as I can get,” and what we focus a lot on is focusing on the end buyers’ ability to repay the loan and making sure that if at some point you’re saying, “Hey, we didn’t take advantage of this,” but it wasn’t like the old days in California where they had the option arms and you could put out $300,000 yearly salary working at Walmart. So we actually dig deep, we verify income, verify assets, pull credit and look at atleast one or two years tax returns, and that gets the ball as close to Dodd Frank QM compliant as you can get, even if you are charging over the 3.5 APOR on an interest rate. I’ve got some investors I know that have done 12% interest with an underlying lien of 4%. So they’re pocketing 3%, 4%, 5%, up to 8% in interest per month in a note, versus $150 to $300 per month in rental income, minus vacancies, minus maintenance. So it’s a much stronger strategy to use. It’s a lot more hands-off, and to date – I’ve been doing this for about a decade – to date, I’ve had to take back probably three properties, and all three of them have gone the route of cash for keys. So here’s a couple thousand dollars, here’s a deed to sign the property back over to me.
I think the biggest part of the strategy that’s the most exciting for investors is you don’t stay out of pocket. On that same scenario, the $100,000 current value, $87,000, let’s say that I give the underlying — so the $10,000 and then I’ve got another $3,500 in closing costs. So I’m out of pocket $13,000, let’s just say $14,000 for easy math. Typically, when I’m reselling that property on the MLS or [unintelligible [00:13:52].20] there’s a bunch of agents that do nothing but owner finance deals and so they’ve got buyers lined up… I will get back about 80% to 90%, sometimes 100%+ of my cash out of pocket on the deal.
So if I’m doing a $20,000 down payment – follow me on this – to the Buyer B, I’ve got to pay a commission out of that. So I’m a few thousand dollars out on a commission. I’m a broker, so I don’t have to pay sellers; they get commissions. But long story short – it’s about you pay a commission, I get all the money back that I put into the deal, meaning the first $14,000, I paid a $3,000 commission, and then I’ve got $1,500 in closing and I’m up to $18,000, $19,000 at the second closing. Well theoretically, I’m completely whole out of any dollars out of pocket, plus I’m a $1,000 above. I’ve made $1,000 plus, and I’m getting monthly cash flow in the form of a note versus rental income. So that happens less than 50% of the time, but it still happens where you’re made completely whole at the end of the transaction, the second sale, and the other time that it’s not [unintelligible [00:14:48].00] you’re out of pocket $3,000, $5,000, $7,000, $10,000, but the benefit is if I bought this property traditionally, I’d be out of pocket 25 grand upfront, just for the 25% down, plus closing costs.
Theo Hicks: I was gonna ask you, how do I find these types of properties to buy the notes off of?
Danny Webber: It’s the same process that you use to find properties in distress – delinquency lists, foreclosure lists, tax delinquent lists, and also what I consider a pretty advanced investor market compared to other areas that I have talked to folks in, is they’re still doing the door knocking and they’re still sending mass letters to areas, and one of the tricks is just to get on the MLS, and then there’s statistics out there that say people sell their homes an average of five to seven years after buying them, in most instances; some large number over, 50%. So if you just do a search on the MLS, the very neighborhood specific properties and areas that you want to be in, that property and just not the blanket, the whole city. Pick out a few areas, few neighborhoods, few zip codes, and just focus on those and just be the king of that area. So that’s what I’ve done.
I’ve got a few neighborhoods around where I live, really within walking distance of where I live, that I focus on, because it’s easy to reproduce success if it’s close. So you can just send out mailers, you can go bang on the door. As a traditional real estate agent, one of the big things I see in the industry is most people are just lazy. So if I walk to my neighborhood and just bang on every door on my street, just my street alone and said, “Hey, I’m Danny Webber. I’m a broker, I live down the street. I want to be the guy you call if you sell your house or you’re looking to buy another one. And oh, by the way, do you know what your house is worth?” 90% of people are never going to turn down an offer just to get a house value, because they’re gonna go to bed at night feeling better. “Oh, I guess that I’ve got $20,000 in equity or $30,000 in equity.”
Long story short is you’re just starting conversations, you’re building relationships. But at that point, once they say, “Wow, I would sell if I had $50,000 in equity,” and then you’re like, “Okay, let me run the numbers and see if you can walk away,” and long story short is you can’t walk away with $50,000 if we go traditional sales, because you’re paying 6% commissions, you’re paying closing costs, you’re paying that which is going to decrease– you’re gonna be 12%, 14%, 15% out of pocket at closing. But if you go on to finance, do a non-qualified loan assumption, I can give you $45,000, which is a net to you of $7,000, $8,000, $9,000 that you wouldn’t have in a traditional sales cycle. Does that make sense?
Theo Hicks: 100%. So it sounds like they don’t actually have to be distressed, either.
Danny Webber: They don’t.
Theo Hicks: So even without them being distressed, you just have to figure out how much cash they want to walk away with, and then see if it makes more sense for them to do–
Danny Webber: If you can make the deal work, yeah.
Theo Hicks: Yeah, exactly. This is very interesting, because I like the whole note idea. It sounds very, very complicated, and I think it actually is, but it sounds like once you do it a few times and you understand the process, you definitely talked about why it’s a lot more beneficial than going the traditional rental route.
Danny Webber: Yeah… And two things on that. So once you get used to doing these – number one, there’s additional disclosures, there’s additional paperwork. You have to go to a very specific title company that’s used to do these transactions, because most of your corporate title companies, if you brought them, they’ll say, “Hey dude, you’re crazy; you can’t do that,” and the reality is you can. You violate the due on sale clause, but there’s some disclosures that you sign from the seller that says, “Hey, we’re violating your due on sale clause because the property is changing hands,” and it’s really a who cares type thing, because at this point, it could change in the future. But at this point, banks are not calling notes due that are performing. They’ve got a performing Wells Fargo note that they’re paying on time every month at 4%. You’re not going to spend the $10,000, $12,000, $15,000 to foreclose on that property because you’re getting your money every month and there’s no delinquencies. So should that ever occur, there’s a couple of workarounds, because at that point there’s a defect on title, and the defect on title can be cured just by transferring the property back into the original seller’s names and Wells Fargo to approve, and then they go away, and then you can put it right back into your name. Again, I’m getting a little bit deep into this, but there’s a whole strategy and process behind it. It’s simple once you do it a few times and you see it laid out, but to wrap your head around it, the first time, you’re gonna have a million questions on how this actually works.
I’ve been doing it for a long time. I’ve got attorneys down here that do the transactions and they manage the transactions, they have their title companies, and it’s all pretty flawless. Mistakes are still made, but as long as you’ve got a good relationship with the seller, anything you need to get defined later or get done later, you’re not gonna have a problem.
Theo Hicks: Yeah. Okay Danny, what is your best real estate investing advice ever?
Danny Webber: Best advice is to not think you are Superman because you went through a two-day or one-week course. One of the biggest problems I’ve seen – and it’s been that way for a long time – is somebody getting some business cards made that say, “I’m an investor”, they take a weekend course, they could take a one-week course that costs them $50,000, and then they fail. Being a real estate investors – it’s not equivalent to putting a band-aid on your kid’s finger because he’s got a cut and you’re a doctor. That’s not the way it works; it’s in-depth. So I think people fail to do proper planning, proper homework and proper preparation before they become an investor. They think it’s easy and it’s really not. Statistically, I think 60% or 70% of investors lose money the first year or two because they just don’t know what they’re doing and they just don’t have the right team of people around them.
I absolutely believe in mentorship. I think it’s the best money you can spend, I believe in finding a local mentor that’s in your market, that is doing the same strategies that you want to do, meaning if you’ve got a real estate investor that doesn’t do a lot of non-qualified loan assumptions, mortgage wraps, but they do a lot of flips and you want to do flips, well stick with the guy. But if you’re a long term investor and you want more cash flow, more notes, payments coming in, and you’ve got a ten year game versus a one year “I need cash” game, then you need to find that specific mentor and pay him. Mentors do not come free. If you want him to pay attention to what you got going on, then you’re going to have to pay him something whether it’s $100 bucks or $10,000, who knows? But you need a paid mentor that’ll answer your phone and answer your questions when you have them.
Theo Hicks: Okay, are you ready for the Best Ever lightning round?
Danny Webber: Let’s go.
Theo Hicks: Okay, what is the best ever book you’ve recently read?
Danny Webber: I don’t have a best ever book, because I get a little bit of greatness from all the books that I have. I’d say a topic that I’ve been reading a lot about lately around last year is minimalism and how to filter out all the non-productive, the non-value added tasks and things from your day so that you can work less, but be a lot more effective and efficient while you’re working. So that’s a big body of knowledge that I’m really into right now and it’s already paid off, in my opinion.
Theo Hicks: What is the best ever deal you’ve done?
Danny Webber: Well, in dollars, it’s probably going to a flip. I made a couple of times $100,000+ on flips, but what I think is a cool transaction, I did three wholesale assignments in one day at one time, and I made $20,000 per assignment. So this was back in the day when in Texas you could do an A to B, B to C, but the C buyer was paying off to A’s lien, a double closing. The title company just got away from those in Texas, but I made $60,000 sitting at a table with the title company, same title company, in probably about an hour and a half. That’s as long as it took me to buy three properties and sell three properties at the same table. I made 60 grand, without thought. It’s just a neat thing.
Theo Hicks: And then lastly, what is the best ever place to reach you?
Danny Webber: Probably my email. The firstname.lastname@example.org is probably going to be the most efficient place, because I’m on that every day. email@example.com.
Theo Hicks: Perfect. Well, thanks for sharing your email address and also sharing your in-depth explanation of how to do note buying. I’m not gonna try to explain it again. I’m probably gonna have to listen to it again, just to make sure I fully understand it, because it’s one strategy that I personally haven’t talked to people about a lot. So I think this is gonna be a very valuable episode for Best Ever listeners, especially as you mentioned during these strange times. So Danny, I really appreciate you coming on the show and speaking with us today. Best Ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you tomorrow.
Danny Webber: Yes, sir. Thank you.
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