JF1263: Creative Financing Specialist Tells All with Scott Ulmer

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Scott bought his first home when he was only 14 years old! Now he’s done over 1,500 real estate transactions and he specializes in getting creative with his deals. Scott likes to get creative when he buys as well as when he sells. To hear expert tips on creative financing from both the buying and selling side, listen to this episode. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Scott Ulmer Real Estate Background:

-Owner of Little Pink Houses of America

-Bought his first home when he was 14 years old, and started investing full-time right after high school

-Developed unique Lease-Purchase program coined “ABLE” (Assembling Buyer Lease Estates)

-Has done 1,500 real estate transactions, specializing in non-traditional, creative, no-money, no-credit style deals

-Say hi to him at www.pinkaffiliates.com   904-500-PINK (7465) ext. 2

-Based in Jacksonville, Florida

-Best Ever Book: Good to Great by Jim Collins


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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.

With us today, Scott Ulmer. How are you doing, my friend?

Scott Ulmer: I’m doing great, sir. How about yourself?

Joe Fairless: I am doing great, and nice to have you on the show. A little bit about Scott – he is the owner of Little Pink Houses of America. He bought his first home when he was 14 years old (boy, that’s young) and started investing full-time right after high school. He developed a unique lease purchase program coined ABLE (Assembling Buyer Lease Estates) and has done 1,500 real estate transactions; specializing in non-traditional, creative, no-money-down, no-credit style deals. Based in Jacksonville, Florida.

With that being said, Scott, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Scott Ulmer: Sure, I’d love to, and thanks for having me, by the way. So I was born and raised in a real estate family. In fact – kind of a niche story – I joke that my father who grew up very poor, not only did he have to walk ten miles in the snow to get to school, but he didn’t even have shoes; he had holes in them. So he’s kind of a success story, rags to riches; he read a book when I was I think eight years old, from Mark Haroldsen, How To Wake Up The Financial Genius Inside Of You, and from there he started doing some low-end wholesale type deals, and kind of segued into a career into real estate.

So I effectively was kind of raised in that environment. I did buy my first house at 14. There was kind of a story behind that; I had help, of course, but I really jumped in full-time right out of high school, I did go to college… Actually, I graduated a little early so I could get out and start working. I always liked making money and wanted to do that. My folks wouldn’t let me drop out, so I was required to graduate, which in hindsight was a good thing.

I ended up buying houses for my father. That was my primary job. We were a volume-based company, and that was actually in Ohio. We were doing about 150 deals a year; we were buying for cash, we would renovate them and we would sell them on what’s called a land installment contract, which is very similar to a lease option – it has a few different moving parts, but in the end the model and the premise of the model is really to work on getting our buyers not just credit-qualified, but mortgage-ready in a fairly finite period of time. So the genesis for what we do today at Pink really started with my father’s company; he was kind of a pioneer. This would have been in the late ’80s, early ’90s, where he was very much doing volume-based business.

In my biggest month I bought 32 homes, I bought six in one day… We just were buying like crazy. My father would borrow private funds and would use those funds to purchase and renovate homes. There was a lot of sloppiness, there were a lot of things that were done improperly, frankly. No malice, but certainly not done the way that they should have been done, and it ultimately led to the downfall and demise of his company, of which I was an integral part of, and our lives just were devastated and involved prison, and just a lot of very, very hard times. From that, it was one of those moments – kind of the Y in the road, that you either let challenges and adversity define you and map out who your identity is going to be the rest of your life, or you learn from it and you grow and you decide that you’re not gonna let adversity take you down, and in fact you’re gonna use it as a springboard.

Through some of the toughest chapters of my life, it propelled me to where I am today personally, professionally, and certainly spiritually. Currently, I’ve taken the knowledge I had with my father… There’s another gentleman in the real estate world named Ron LeGrand; Ron brought me down, I ran his real estate operation and did most of his high-level coaching for a period of years there, and then branched out on my own to start Little Pink Houses about four years ago.

We are in Jacksonville, Florida, we have a staff of nine, and we really have to primary focuses – we have a very cookie-cutter system, we’re niche-based, we deal with executive-level homes and we do lease purchase  — we call them executive lease purchase down here based on the price point and the targets that we ultimately go after. We also have a training arm which is intended to work with folks who would be potential partners for us that could open up our affiliate in their own market.

Kind of a condensed back-story of myself – 22 years full-time experience and a lot of mistakes. Kind of cliché, but it’s true. That’s kind of how you get from point A to point B – learning from those mistakes, and we’ve certainly made our share of them… But we’re proud of what we have today, and I’m certainly excited to be talking about it with you here.

Joe Fairless: You ended up going to prison, right?

Scott Ulmer: I did.

Joe Fairless: Okay, so when you got out, what were your immediate next steps to build up your career again?

Scott Ulmer: Sure. It’s a great question; I don’t know that I’ve had anyone ask me that. First of all, I had a young daughter and a wife who stuck with me, and that really strengthened our marriage. I saw a lot of folks go the other direction where marriages didn’t quite work out in the same scenario, but… LeGrand actually reached out to me before I got out and had made a job proposal to me, or maybe a job request. It wasn’t an offer, it was kind of “If you’re interested, give me a call”, and literally, within 30 days of being home, he flew me down, interviewed, offered me the job on the spot, and 3-5 weeks later I was down full-time. So fortunately, things kind of fell into place for me, but that certainly could have gone a lot of different directions.

I was very open to anything… You know, a lot of people looked at real estate – who were in it before 2008 and after – that maybe it wasn’t the vehicle that it was cut out to be, or the vehicle that was gonna separate them and earn them wealth and all the good stuff that comes with that. The reality is that real estate is cyclical, but what everybody went through in 2008, including myself, it didn’t deter my interest in real estate.

I’m a life-long real estate guy, I knew that real estate was going to be the path that ultimately would lead me to my destiny and my dreams; I never had any doubts about that. LeGrand showed up, frankly out of nowhere, and couldn’t have been a bigger blessing. I was tremendously grateful to him for the opportunity. He candidly, Joe, helped me from the lowest spot of my life and I’ll forever be grateful for that.  I was very fortunate that I had that opportunity waiting for me.

Joe Fairless: How do you think about the challenges and adversity that you come across…? Because you mentioned earlier we can either let challenges and adversity define us, OR we can learn and grow from it. And you’ve chosen the latter, to learn and grow from it, whereas others wouldn’t… So how do you think about it? How do you process that in your mind?

Scott Ulmer: It’s a great question. I was sharing prior to the recording that everytime we have trainings here, I share really the entire back-story; it takes me about 30-40 minutes, and if I’m being totally honest, I get emotional every time I tell it, because I have a little bit of a slideshow in there, and there’s a picture of my daughter and I hugging on the beach when I first got to Florida, and I’d be lying if I told you that those emotions were not still very raw inside of me, because they are. But I guess — again, some of this may sound cliché, but it’s true… In life, there are a lot of things that happen to you, some of which you cause and others that just kind of happen, and it’s how you choose to respond to them.

When the proverbial bottom fell out of our life, at a time when everything really kind of went down — I was 26 at the time my father’s company went out of business, I was 31 when everything kind of came to a head… So at that point in my life I had a daughter and a wife that were certainly much more important than myself, and it was at that time I just said, you know, you’re gonna have those pity-parties every once in a while; my mom has a great saying – she says “Look, you’re gonna have your pity-party… Have it, 15 minutes, and get past it. It’s your choice how you wanna respond to it.”

I think processing the adversity for me – there were many times it felt overwhelming and I didn’t wanna go on and all those thoughts that are probably very common when you’re going through a tremendous adversity and a trying time… But I allowed myself a couple moments to kind of wallow in the pity, and then it was time to suck it up and get back at it. In the end, it was just a conscious decision to say “You know what, I don’t like what happened, and I’m gonna try to make the most of the situation. I’ve got a lot of life left to live, God willing, and I wanna try to make my mark in a positive way as best I can.” So it was a choice at how I wanted to respond more than anything, and again, it took a lot of reminders to myself and certainly a lot of digging deep. I would be lying if I said otherwise.

In the end, I believe that I had some great experience, I had some great knowledge that was very specific to a niche of real estate, and I just believed that there was a lot left for me, and I surely wanted to try to make the most of the life that I had and the adversity I had to go through. I felt that there would be opportunities for me to share that with other people that have gone through their own adversity and hope that maybe I could be a small inspiration to some people in the end.

Joe Fairless: So now let’s talk about your business that you have, Little Pink Houses of America. You said you have two different arms of business. One is the executive lease purchase, and the other is your training arm. So basically, an affiliate program for others to open up what you’re doing in their market. What is an executive lease purchase?

Scott Ulmer: Great. So our elevator pitch is fairly simple. We work with folks that can afford a mortgage and a down payment, but for a multitude of reasons may not be able to walk into the bank and qualify for a traditional loan today. Perfect example of our target demographic – husband and wife decides it’s time to buy a home; good jobs, income is sufficient, crediting [unintelligible [00:10:58].03] they go and they contact a local realtor, the realtor takes to an in-house finance company, they get this magic pre-approval letter that we always chuckle at, and with that, of course, they go look at a dozen homes, they identify one they love, they negotiate on it, it gets accepted – of course, contingent on their final financing being approved.

When they go back to the loan officer or loan originator, unfortunately, for one reason or another, they are denied at the finish line, so to speak. That’s our buyer – someone who is close, who has enough merit to get a pre-approval, has money saved up, has a down payment, can afford the mortgage payment that the income matches up, but can’t walk into the bank today.

Joe Fairless: Why would they get denied in that example? Because it sounds like everything is good.

Scott Ulmer: Well, they get denied for a lot of reasons. In fact, there are a ton of reasons right now. A lot of them are very, very quirky. I will tell you, one of the biggest demographics we work with is self-employed. Self-employed – they show a very good income, but they also show a lot of write-offs, and loans are based on net income on their tax returns, so after the write-offs are taken out, their net income shows not enough for the bank to loan on.

There are others where maybe an old credit blemish may have popped up that they didn’t see originally. We have folks that have been denied for – oh, my goodness – not enough time on the job, and… I mean, there are a lot of quirky reasons. At the end of the day the banking restrictions subsequent to 2008 have become very stringent, they still are. The reality is somewhere between 70%-80% of our population today in America can’t walk into the bank off of the street and qualify for a traditional mortgage.

Unfortunately – or maybe fortunately for us, because it’s what our business is really patterned after – we don’t see any real end in sight. People can be denied; they can be pre-approved and denied at the final for many, many reasons. Some make sense, some don’t make sense, but ultimately it’s just the nature of the world we live in today. So a lot of reasons, but that really is our target buyer and that’s who we really go after.

Joe Fairless: Okay. So this couple finds you, and then what?

Scott Ulmer: We have a very thorough vetting process. Obviously, we do our marketing and they will find us through a variety of maybe 3-4 primary marketing mediums that we use. They find us, obviously we show them the home, they love it… We have a very thorough vetting process. It’s one of the things, by the way, Joe, that I think really distinguishes us from any other folks out there or organizations out there that do something similar. Our platform is designed to provide a successful bridge or stepping stone for these folks to become mortgage-ready and ultimately successful in their financing… So we take them through underwriting.

We have a company that we work with that is a national lender, and they understand the nature of the clients that we work with. So when we take them through underwriting, we’re not looking for a surprise or “Hey, they are really qualified” in the end. We know the folks we’re working with are not qualified, and in many cases we have a good idea as to why. Every once in a while, folks just don’t quite know and we kind of discovered why through this underwriting process… But we know why, so by taking what they’re underwriting, they’re providing 2-3 years of tax returns, 90 days worth of pay stubs, 90 days worth of bank statements, any other pertinent financial information that would govern whether or not an underwriter would say yes or no to issuing a loan to a prospective borrower.

So through that process, we are told 1) why they can’t get a mortgage. So we are told the specific things and specific reasons. And then 2) through that process, we are devising a blueprint that is custom-made for every borrower we work with that has requirements for them to undertake during the process of our agreements, which are typically 6-12 months, with our buyer, before they’re required to get financing.

So for our contracts, we’re actually required to take some of these items on and ultimately help them get to the point where they can become mortgage-ready in that window of time.

After we have this vetting process, we get this report published for us… We even sit down with every one of our buyers and we have an interview – it typically takes about an hour – and I always say it’s analogous to a loan committee, if you will. We understand that there’s some really good folks out there that have good jobs, good income, and for a lot of reasons, as I’ve said, can’t get their financing today… So we wanna get to know them on a personal level, we wanna go through their report, their credit, find out what had caused them to be in the spot that they’re in, and most importantly, really identify with them and make sure that this is a good fit for them, good fit for us, and that they understand what will be expected of them through the course of their term with us, and ultimately what will be required for them to successfully complete our mortgage-readiness program, which the end point is ultimately to get their loan approved and ultimately a title in their name… And as we say, with a smile, but we’re sincere, we hope they live happily ever after.

Joe Fairless: So basically people are finding you or you’re finding them, who haven’t been able to qualify for various reasons, but for the most part they should be able to qualify; there’s just a nuance or two involved, and then you hook them up with a lender, and that lender identifies exactly why they are or are not approved, and then you help them put together a plan so that they are mortgage-ready. Then once they are mortgage-ready, what is the final step that wraps the bow on this?

Scott Ulmer: That’s a great reassessment. So once we all come to term and they are the right buyer for us and we feel good and they understand the expectations and frankly what the path looks like to success and we all agree and feel good – and we’re very big on relationships – we have what we call soft-closing, which means we close on the lease purchase, or the executive lease purchase. We do use a law firm for that.

Then after the closing we have a few systems that really govern it. They are required to work with a mortgage-readiness company that we work with as well. This company provides us monthly reports, they really do all of the work; it’s outsource, we just get the reports. We also put the buyer in touch with a local mortgage lender that we’re working with, who also works in conjunction with the mortgage-readiness company, which is similar to a credit repair company, but it’s not always credit with the clients we work with.

We specialize in homes anywhere from 200k to 500k in Jacksonville, which is a big swathe of the population, and folks that are fairly well-heeled, that can afford a 5%-10% down payment and ultimately the monthly payment in that range… So it’s not always credit, but we call it mortgage-readiness. So the mortgage lender and the credit repair company work with the buyer through the course of the term… And by the way, the mortgage lender is gonna be the one that writes the loan in the end, and so he/she is involved from really the first six weeks of them moving into the home, at which point they can finance with a loan at any time.

After they have moved in, we have a kind of post-closing process which I’ve just explained, and it’s all outsource, so the mortgage-readiness/credit repair company works in conjunction with the lender who’s going to write the loan, and ultimately our client. And it’s our intent to get them a loan as soon as possible. Again, most fall within 6-12 months; there are certainly exceptions to that, but most are not less than six. The majority of our deals are somewhere between six and twelve months, and a lot of it is because of the systems we have once the buyer is in there, that really mandate and force their hand to get their loan. That’s what we wanna see, that’s what’s best for them, assuming our agreements are predicated upon.

I learned in my experience that sometimes you have to force those – in a good way, of course. You’re really requiring them to fulfill the obligation on the other side of the contract.

Joe Fairless: And how do you make money on this?

Scott Ulmer: It’s a great question. In our real estate business we really have two arms. We work with for-sale-by-owner sellers, we work with expired listings, we have a few different target demographics that we’re going after, and we have a very simple presentation, our script is very good… It kind of lays out who we are and what we do. It is not for every seller. About four out ten for-sale-by-owner sellers that we work with or that we contact have the potential to work with us. The other six have their reasons that they can’t work with any sort of a terms-type sale.

So as we contact these folks, we’re kind of laying out the platform… Most of the for-sale-by-owner sellers we work with, Joe, earn an average of 11% to 14% more if they can wait to get a full cash-out anywhere from 6 to 12 months, versus selling traditionally today. So the reason sellers do this with us is really singular – it’s the economic benefits. If  you’re dealing with a $300,000 home, you’re talking about a $30,000 to $40,000 swing over the course of a year. It some cases it can be even greater than that, depending on whether or not they have an underlying mortgage or they’re just generating cashflow through the 6-12 months.

When we find these sellers, we will negotiate what we call a strike price. We have the terms and conditions that we kind of negotiate with them. Most of them are preliminary, but we have negotiated a price that they can live with, and then we will mark our profit on top of that. We’re very transparent, we share with every seller that we have a minimum $10,000 profit that we’re going to be looking to generate on every deal that we do.

So if you take the average home – let’s say someone’s at 279,9k as an asking price; ten out of ten sellers list it high with the intent to take a little bit of a lower offer. Typically, we’ll be able to get them from the 279k to maybe 269k, 265k, 260k, depending on the negotiations we have. [unintelligible [00:20:02].08] we do a market analysis, of course, on every home. We then will take it back out at the price that we believe is marketable, and we’ve kind of carved our spread out from that scenario.

Joe Fairless: In order to do this then you need to have a for-sale-by-owner home, and a person or couple who can’t qualify for a loan to match them up with it?

Scott Ulmer: Pretty much. By the virtue of our agreements – we’ve got very strong agreements; when I say that, they are — we retained two law firms when we first started. We wanna make sure that we’re fully compliant with any sort of real estate licensing laws and any sort of real estate laws, period. So we actually have proprietary custom-made contracts that are very simple to understand. I learned a long time ago that we need to Keep It Simple, Silly; make sure that everybody can understand it.

In fact, our initial agreement we used with our for-sale-by-owner sellers is one page, and it’s just a work of art; our attorneys get the credit for that. The contracts we use obviously govern the entire model and the entire system, but you’re exactly right. We effectively are taking a for-sale-by-owner seller who has the ability to wait a short period of time before getting fully cashed out, and we’re pairing him up with a buyer who doesn’t need a terribly long time before getting their mortgage together. We provide them an absolute blueprint or a roadmap to their successful financing, we have post-closing systems that mandate that they follow through on what’s required, we have a third-party escrow servicing company we use that will debit the buyer account, and if there is an underlying mortgage on the home, that we get paid first, so there’s no equity skimming, and if there’s any additional cashflow above the mortgage, depending if we get that or the for-sale-by-owner seller gets it (it depends on what we negotiated)… But again, that eliminates having to collect payments; we put furnished home warranties on almost every deal we do, so repairs become the buyer responsibility. We have a home warranty in place just as a back-stop. But in the end, the simple way to look at it is just that – we’re pairing those two up, we’re carving a spread out in the middle, and then facilitating them through outsourced third-parties to make sure that they get their financing in the window of time that we’ve agreed.

Joe Fairless: Just looking at it from how — and I’m not in this space, so excuse me for the ignorance if I’m oversimplifying what I’m about to say… But it seems like a lot of work when if I take a couple different approaches, I could make more money and do less work. For example, if I find a for-sale-by-owner home and I wholesale it – boom, done, off my books, and I just made $10,000 on the wholesale. I don’t have to go find a motivated buyer, let alone have to set them up with these third-party people and track the process.

And on the flipside, if I find a person who doesn’t qualify for a loan, then maybe instead of matching them up with a home and take the spread, maybe I buy that home or figure out a way so that they can buy it from me, and then I work with them personally; that way, I can make profits on the down payment on the monthly payment, and then ultimately when they buy it. So help me understand the benefits of this, from a business standpoint. I get the altruistic standpoint.

Scott Ulmer: Yeah, and altruistic is not a bad word for it, and then this may be an altruistic statement, but our moniker internally and in many of our marketing is that we create homeowners. That’s our niche, we are proud of that. We wanna try to make a positive difference in people’s lives, and Joe, it’s a niche that we’ve identified in good markets and bad; there’s always a segment of our population that cannot qualify today with a bank loan, but can afford it, and certainly since 2008 that number of population has certainly increased exponentially.

As far as directly answering the question, wholesaling is something I’ve done just by virtue of doing a lot of deals over the years, so I’ve done my share of wholesale. I say this often – I know folks that make their living wholesaling; it’s never been my cup of tea. Very competitive, very saturated, and in my experience – which is extensive – you’re usually not generating 10k a pop. Oh, can you? Sure. I’ve generated 25k on a wholesale deal, but in most cases, wholesalers are walking with 2k, 3k; you’re right, you’re done, wash your hands and move forward. 10k on a wholesale flip would be pretty good, but I don’t think that that’s gonna be the consistent number that you’re gonna achieve, number one.

Number two, most of our profits are gonna fall between 15k and 20k. 10k is a number that is realistic based on the formula that we use. We have always believed that if you can generate $10,000 without having to use your own cash or credit, in a fairly short period of time – most of our sales are 45 to 60 days – and there’s just this massive pool of buyers out there… I’m not suggesting it’s easy, because we work hard, and we don’t make [unintelligible [00:24:38].14] about it; it’s not a get rich quick scheme over here, but it is absolutely a niche that is ripe for the picking.

We think we can do better than wholesalers with our formula, and because everything is outsourced – I don’t wanna pretend that there’s not an element of handholding and involvement, because there is, but it’s very minimal, once the buyer is in the home. And as far as buying them (the house itself) and then working with the buyers – we do do that as well. It depends on the motivation of the seller, it depends on the deal as a whole, and we do have opportunities with some additional lead sources that we’re generating where we find that low-hanging fruit.

What’s neat about our system is that we enter into an agreement with a seller with really four preliminary terms – the purchase price of the home, what they would consider on a monthly basis for the payment, if in fact they’re requiring any money upfront (about 50% of the sellers we work with are not requiring money or they’re not getting money upfront, which really just comes down to negotiating), and the fourth is the window of time that they would consider; in a term, as an example, 6-12 months. So we’ve preliminarily identified those with the seller.

Once we take those to our market and the buyers we’re working with, we then go back to our sellers and we typically will carve out a bigger spread and a bigger margin. In some cases, we then can buy the home and then be ultimately the seller in that case to the buyer, and generate a bigger spread. So there are some variations to what we do that encompass exactly what you’re saying, but we’ve always believed that if you have a formula, you’ve identified a niche, you do one thing and you do it really well… And we believe we do this very well. We’re not perfect, but most of our deals succeed and most of our clients are very happy.

Now, again, we are not perfect and we certainly have made mistakes, but this is the niche we’ve identified, we believe in the platform, we wanna create homeowners, and in doing so we believe we can generate a good living, and frankly our affiliates can do the same.

Joe Fairless: What is your best real estate investing advice ever?

Scott Ulmer: Wow, that’s a great question. I don’t know that I’ve had someone ask me that…

Joe Fairless: It’s the name of my podcast, so I have to ask it, otherwise I wouldn’t check that box.

Scott Ulmer: [laughs] I probably should have put two and two together there, right? Actually, I did some research on you – a very impressive career up to this point, I want you to know that. I’ve gotta tell you, one of the things that is probably gonna sound maybe even on the cusp of cliché, but there are so many people out here that we call white noise, and don’t get me wrong, there are some really genuinely talented and bright folks that are out there in the world of real estate education, but it scares me frankly, because I’ve seen a lot of things… When I was with LeGrand, I had the chance to really go all over the country, and I spoke with different groups and I had the chance to just meet some great people… And the amount of educators and trainers out there scares me.

Too many people get into real estate investing without really taking the time to research the folks that they’re getting advice from, kind of the template or blueprint that they’re going to follow… I think that the biggest thing would be — and by the way, that’s how people get stung; real estate is not rocket science; HDTV and DIY, they have all these “Flip This House” type shows that make it look like it’s a piece of cake, and you know, you get out there and you do this, that and the other and you walk away with an $80,000 profit. Well, sure, that can happen, but they make it look a little too easy, and I think so many people get into it with the rose-colored glasses that said “This is a piece of cake. I’m gonna go in and do my first deal and make $80,000” without really researching and making sure that what they’re doing is based in not just fact, but fact from somebody that knows what they’re talking about.

So the best advice I would give someone is before jumping in with both feet, make sure you’ve done your homework and make sure whoever you’re choosing to follow or be trained by really knows what they’re talking about, and didn’t do a couple of deals last year and now they’re out there training people. Unfortunately, I’ve seen that in more cases than one. So do your homework and educate yourself. There’s so much good stuff out there, so many great free pieces of content online, and of course, a lot of great trainers across the country. Align yourself with the right person and make sure you do your homework before you jump in. That’s how people get stung, by getting in over their heads because they didn’t do their homework and preparation ahead of time.

Joe Fairless: Are you ready for the Best Ever Lightning Round?

Scott Ulmer: I’m ready.

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [[00:28:38].18] to [[00:29:29].03]

Joe Fairless: Best ever book you’ve read?

Scott Ulmer: Good To Great, Jim Collins.

Joe Fairless: Best ever deal you’ve done that wasn’t your first and wasn’t your last?

Scott Ulmer: I did a deal in Naples, Florida while I was on vacation. We bought it for 2.6 million and sold it for 3.3 million.

Joe Fairless: What’s a mistake you’ve made on a transaction?

Scott Ulmer: Where do I start…? I think the one mistake that keeps coming back to me right now, Joe, is I lose every time I lose my cool. That should speak for itself. Always maintain composure. Sometimes with homes and houses people can become emotional, and if you’re not careful, you can as well. So you always wanna maintain a good composure, a level head… I lose every time I lose my cool, so when I can just keep composed and connect on an emotional level in a good way, I can eliminate those types of unnecessary mistakes that have to do with the relationships as a whole.

Joe Fairless: Best ever way you like to give back?

Scott Ulmer: Wow, that’s one of the biggest things we like to do around here. Time – we like to give back in time; anybody can write a check, and we’re believers in financial, but we have a charity that we support, Little Pink Houses of Hope. It’s a breast cancer charity, and yes, that does come with a check, but we believe in hands-on, and I won’t get up on my soapbox, but we’ve had three or four things recently (just in the past two months) where we’ve been able to actually go out in the community and give time, not just a check. The meaning for that is just we’re very honored to be able to do that, and we try to do as much of that as we can.

Joe Fairless: What’s the best ever way the Best Ever listeners can get in touch with you or learn more about your company?

Scott Ulmer: Our primary real estate website is LittlePinkHousesOfAmerica.com. Joe, I didn’t ask you if you left when you heard our name; I’m assuming you did, most people do… But we love it. It certainly wouldn’t be my first choice for a color scheme, but it sticks out like a sore thumb and people remember us, and that’s part of our branding. So LittlePinkHousesOfAmerica.com and then PinkAffiliates.com discusses our affiliates and the opportunity that you can work with us and train with us here in our office in Jacksonville, Florida.

Joe Fairless: Well, thank you for being on the show and sharing your story and the challenges and adversity and how you have taken an empowering meaning from it and applied that to what you’re doing now, creating homeowners, and the business model behind what you’re doing, how you make money, how it benefits others, and the business that you’re in now. So thanks for being on the show, I’m really grateful you were on the show. I hope you have a best ever day, and we’ll talk to you soon.

Scott Ulmer: Joe, thanks for having me. It’s been a pleasure.

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JF1208: How To Find The BEST EVER Commercial Loans with Austin Peek

Listen to the Episode Below (25:40)
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Today we will get a breakdown of commercial loans and lenders. Austin has originated over $60 million in commercial mortgage loans since founding RiverStone RECAP four years ago. He’ll tell us the difference between a bank loan vs. CMBS (commercial mortgage backed security) and CMBS vs. life insurance companies. We also get great advice on vetting your mortgage broker. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Austin Peek Background:

– Founder & Principal of RiverStone RECAP, a CRE mortgage firm

Started RSR 4 years ago and he’s originated over $60MM in commercial mortgage loans across the country

– Recently launched a podcast: Millionaire Interviews

– Based in Jacksonville, Florida

– Say hi to him at: https://millionaire-interviews.com/best-ever to get the FREE quote matrix and CRE Lender List

– Best Ever Book: The Real Estate Game


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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any fluff.

With us today, Austin Peek. How are you doing, Austin?

Austin Peek: Good, how about yourself, Joe?

Joe Fairless: I’m doing well, and nice to have you on the show. I’m looking forward to diving in. Austin is the founder and principal of RiverStone RECAP, which is a commercial real estate mortgage firm. He’s originated over 60 million dollars in commercial mortgage loans across the country of the last four years, and congratulations, he recently launched a podcast called Millionaire Interviews… So you’ve got a lot of exciting things happening, congrats on that!

Austin Peek: Yeah, thank you very much. Just something different to do other than just real estate, so I figured I’m gonna go ahead and give it a try.

Joe Fairless: Absolutely, and I’m sure that it ties into your business in some form or fashion, at least I hope it does.

Austin Peek: Yeah, it definitely does. I have some real estate guys on, but for me, I talk to people in all different types of industries, so… I just wanna become a popular podcaster like yourself.

Joe Fairless: Cool, good stuff. You’re based in Jacksonville, Florida… Besides that, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Austin Peek: Yeah, I am in the commercial real estate mortgage side, [unintelligible [00:03:19].11] I only work on commercial. I generally deal on loans with one to ten million in origination size, that’s kind of my sweet point, and can do deals all across the country. So even though I’m in Jacksonville, Florida – this is one of the nice things about what I do… If one of your listeners says “Hey, I wanna get into real estate but I don’t wanna just stay in one market”, what I do is I work on deals in South Carolina, California, New York, wherever. I never even have to go see the property, so that’s one of the beautiful things about what I do on the financing industry – it’s really just about the numbers, and not so much about going door-to-door and selling people on buying a home.

Joe Fairless: How do you decide what range of loan space that you wanna be in? You said you’re in the 1 to 10…

Austin Peek: Really, after you do above one million dollars, basically every transaction is almost the same. So I can do up to 200 million dollars, and there’s plenty of guys that say “Yeah, I do the one million dollar range to 200 million”, whatever, but really, once you get above ten million in the loan amount… Again, I can go up to 20, 30, 40 – basically, it’s gonna be the same type of lenders that do a 10 million dollar deal, are normally gonna be closer to a 100 million dollar deal. But a lot of those originations that get above 10 million dollars – there’s usually private companies that are buying office buildings for example, so they don’t normally need a mortgage broker… They don’t even normally come to me, an independent mortgage broker; they already know what guys to go to, and normally they own billions of dollars worth of commercial real estate. So they usually don’t go to any brokerage companies, and they just do it all in-house.

Joe Fairless: Okay, so you have the ability to do above ten, but you don’t have as many potential clients.

Austin Peek: Exactly, yeah. So my niche just happenstance has been one to ten million, because I found out that’s a niche where I can help the most owners, because if you’re going underneath the one million dollar range, usually those are just a local bank; like, if you’re buying a very small single-tenant office building that might be worth 500k, or whatever. So those are usually just small bank loans. I deal on the intermediate where maybe a grandma or a grandpa owns a Walgreens, and they need financing on it. And that Walgreens happens to be in Tennessee, but they live in Florida. Well, what stinks for them is that usually they can’t get financing in Tennessee because they don’t live in Tennessee, so usually that loan range is gonna be in the one to five million range, so they don’t know where to go, so I’m the perfect guy to help them when you’re looking in that loan range… Because they’re obviously smart enough to be able to buy commercial real estate and be able to get a loan amount that high, but they’re not doing commercial real estate day to day; they’re probably only refinancing every five or ten years, so that’s where I help out the most owners.

Joe Fairless: Where are you getting the loans from?

Austin Peek: Most of my lenders are called CMBS lenders (commercial mortgage-backed security) or life insurance companies. So life insurance companies actually lend out just like a bank, but their terms are a little bit different. So those are usually the two types that I go to on a regular basis.

I can go to Fannie and Freddie as well, but some owners like to go to them directly. It just depends on where the property is and what the owner is looking for. Like I said, most people I work with, they usually own probably three to ten commercial properties… And again, this is just general; some of them own one, some of them own 20, 30 or even more. But generally speaking, they own a few, so they’re refinancing all those loans every couple of years, or every five or ten years, and they’re just rolling at different times. So usually they call me, because hey, they don’t need to look at the loan market but every one year or two years or every three years.

Joe Fairless: Let’s talk about the pros and cons for CMBS insurance companies and an agency loan, so Freddie or Fannie.

Austin Peek: What I like to do, if it’s alright with you – we’ll first talk about the difference between let’s say a bank loan and a CMBS or a life insurance company loan. So what I was talking about earlier – I live in Jacksonville. If I own an office building in Jacksonville Florida that’s worth two million bucks, and I want just a one million dollar loan, 50% loan-to-value, some of these people might go to a bank, and what bank usually does is they’ll have a loan term that maxes out at three years, or five years, or sometimes just one year, and they just have different options. So every one, or three, or five years I’m usually refinancing that, or doing the loan again with them. And usually, that amortization schedule is like 20 years, so it’s not very long.

Then also, the other thing is that most of those banks require a recourse – it was just one episode right before this of your podcast, where… I think a lot of owners find out what the difference is between recourse and non-recourse when you’re signing a loan… So almost every bank requires a recourse. There’s some special exceptions, but I’d say 95% of them require that.

Joe Fairless: And recourse, real quick, is if something goes wrong, the bank can come after you financially, versus non-recourse it can’t, unless you trigger some sort of obscure clauses.

Austin Peek: Exactly. So that’s the number one difference between, say, a local bank – if I wanted to go do a loan with that local bank at one million dollars, or if I went with the life insurance company at one million dollars. Usually, if it’s a lower LTV, the life insurance company is interested in it and they usually do non-recourse loans. So even if something went bad with the property, if it’s a single tenant and they left, they can only go after the loan amount, and not your personal property and everything else.

So that’s one difference between a bank and CMBS/life insurance companies. The other one is usually you’ll get a longer amortization schedule, and also it depends on — there’s gradual differences between all of them, but you can lock in a term, generally speaking, for a life insurance company up to 25 years. So it could be like a 25/25, so at the end of the 25 years you pay zero.

One of the negatives is that there are pre-payment penalties if you’re doing a life insurance company loan or CMBS loan. So you can’t pay it back early; usually, you can only pay it back three months before the maturity date. So if it’s a ten-year loan, usually you can pay it back nine years and nine months right after that you can start paying it back without penalty. So those are the subtle differences between a bank and a life insurance company/CMBS.

Joe Fairless: Just so I’m summarizing it correctly, and these are just generally speaking – local bank, the loan term maxes out between one to three years, whereas with a life insurance company, that would be the opposite end of the spectrum. You could do maybe 25 years on a 25-year amortization.

Austin Peek: Exactly.

Joe Fairless: Most banks require recourse, whereas CMBS and life insurance it can be non-recourse. The disadvantage – one of them that you mentioned with CMBS and life insurance would be the pre-payment penalties tend to be pretty steep, compared to a local bank that might have more flexibility, which really if it’s a 1-3 year term, that doesn’t even factor into it, because it’s such a short period of time.

Austin Peek: Exactly, so that’s part of the reason that they don’t even worry about it, because usually your term is so short anyhow. It’s not worth negotiating.

Joe Fairless: Okay. What about the fees involved for bank versus CMBS? You basically steered us  in the direction of grouping CMBS and life insurance into the same category, versus banks.

Yeah, I can differentiate between those. I know we only have so much time, so… The difference between CMBS [unintelligible [00:10:31].15] life insurance companies, they’re both non-recourse, again, but usually CMBS is gonna cost you a lot more as far as closing costs, because attorney fees can range up to $25,000 for closing a deal, and that’s even when we’re talking a single tenant. We can get it lower to maybe 20, I’ve even seen 15, but the big thing is because they’re using New York lenders, and New York lenders use New York attorneys. So that’s why the fees for closing a CMBS loan are usually higher, but the amortization schedule for them, they can usually go out to 30 years, versus a life insurance company – usually we’re talking about… Depending on the loan size, again, we’re talking about a 1% to 1,5% closing costs; that’s without a broker fee.

A broker fee is generally 1% as well, so I say all-in you’re looking at about 2% on a life insurance company loan. To close that, there is way less closing costs and there’s usually way less headache, because the CMBS, again, it’s just all these lenders that are securitizing a group of loans, so your one loan is usually a package of maybe 50 loans. They basically package all those together and then sell them on Wall Street.

Joe Fairless: I wanna make sure I heard you correctly… Will you repeat the life insurance estimated closing cost and the CMBS? You said 2%, but I wasn’t sure which one you’re talking about, because I think it got mixed up in my head.

Austin Peek: I would say generally speaking that — and again, CMBS, what they can do is they can work it into the rate. So it’s gonna look maybe about the same on the closing costs, but all in I would just say for both of them it’s slightly higher with a CMBS loan, because instead of the $5,000 attorney that you’re using for a life insurance company loan, you’re using usually a $25,000 attorney for a CMBS loan. So you might be adding $15,000 to $20,000 to the closing costs, but in general if you add them all up I’d say it’s 2% for closing these loans.

Again, the smaller the loan — it really doesn’t matter if I’m closing a one million dollar loan versus a ten million dollar loan. It’s not gonna be 2% on the ten million dollar loan. We’re gonna talk less than 1%. So it doesn’t really change much, it’s just the smaller the loan amount the higher the percentage. Because all these are fixed costs – the appraisal, all the third-party reports etc.

What I try to do for my clients, and I don’t think enough brokers do – I put it in what I call a quote matrix where I’ll put three or four of our best lender quotes, put it in Excel, say “Hey, put the terms, the amortization, the differences between each one”, so you can compare apples to apples. Because I know especially talking over a podcast that maybe it gets confusing talking about all these different things, and trust me, I’ve been doing it for almost ten years, so it gets even confusing to me just saying it verbally. But when I put it in a quote matrix so you can actually compare apples to apples, see which guys and what your overall rate is after you pay the closing costs – that’s what I try to do, so they can make the most wise decision for them.

Joe Fairless: What are the components of a quote matrix, what categories?

Austin Peek: You have the term amortization, and then I’ll put in closing costs, because that matters obviously a lot. I’m bringing up one right now, so I make sure I can just read off exactly one. Then I put in the interest rates, so we can see what the actual spread is. Also, for a CMBS loan – here’s the difference between this and a life insurance company… It’s that they’ll usually acquire reserves for tenant improvements and leasing commissions, and also for capital expenditures. So I’ll put that in the quotes matrix saying “Hey, this lender requires 80 cents per square foot of reserves, versus this one only requires $1,15, or this one requires actually zero, because it’s a life insurance company and they don’t care about that part.”

Basically, I’m taking a lot of different calculations where I put it all in one where they can look, “Hey, this is my interest rate if I add in all the closing costs.” So although the interest rate might look higher on, say, a life insurance company, but overall it might be lower because if you factor in the closing costs of the other one, even though the CMBS lender might look a little bit lower, once you add in all those closing costs, you’re like “Oh, my overall rate is actually not as good.”

When you get 15-page documents from these lenders, it gets complicated. I’m there just to try to make it uncomplicated, and try to put it all in a simplified form for them.

Joe Fairless: And do you have pre-payment penalty in there, too?

Austin Peek: Yeah, [unintelligible [00:14:48].10] Some of them are like — what it is for CMBS is there’s defeasance, it’s called the pre-payment penalty, and then the pre-payment penalty for life insurance companies is yield maintenance. They used to have their own calculators; CMBS is pretty complicated as far as defeasance penalty.

So yeah, I’ll put that all in there for them. Again, I’m just trying to simplify it, even though it might not sound like it from me talking right now… But I promise you, I’m a visual person, so that’s why I try to visualize it and put it all in something that they can actually compare it to.

Joe Fairless: And then you’ll probably have the loan-to-value, right?

Austin Peek: Right, and then there’s usually a minimum debt coverage ratio, or there’s also a minimum debt yield. All these lenders use different percentage or terms to make sure that “Hey, I make sure that they get their loans amounts”, so I look at what the actual NOI (net operating income) is of the property, and make sure we’re meeting their loan-to-value. Because it could quote a higher loan amount, that they’re willing to do a higher loan amount, but if it exceeds their loan-to-value the way they calculate it – because each lender is gonna calculate it a little different… And hey, we’re not gonna get the loan amount that they’re quoting. They might be quoting a two million dollar loan, but hey, using my matrix, and if I’m using 75% LTV, and based on their underwriting in the past, I think the maximum amount we’re gonna get is 1.8 million.

So those little calculations, those really make the difference to make sure the owner picks the right lender. And then also  I tell them which ones are the easiest to close with. Because some of them are very difficult. It might take three times longer with one lender versus another, so I’ll just tell them my past experiences on who’s been the easiest to close with.

If you send me your quote matrix and just black out or erase whatever private information you have, can we share it with the Best Ever listeners?

Austin Peek: Definitely. Actually, I’ve put something else together, too… I’ve put a list together of  150 commercial real estate lenders. I put a link on my website, and I can put another one where it directs to both of them.

Joe Fairless: Oh, let’s just do that. So how can they get that, where do they go?

Austin Peek: It’s Millionaire-Interviews.com, and then if you do /bestever, I already have it set up so you can see what it looks like. All you’ve gotta do is put in your e-mail address and you’ll be sent a list of lenders that has 150 of them that… Basically, I put “Hey, this guy likes to do this type of deal” – retail, office, or multifamily, and what their general loan ranges are. I try to be as transparent as I can, because I thought that would be the most useful. But I can also put a [unintelligible [00:17:12].17]

Joe Fairless: It’s be good. I’ve obviously gotten a bunch of quote matrix for our deals, and it’s fascinating to look at, and look at all the different ways you can analyze it, and since you’ve mentioned you’ve got one that you’ve put together, I think the Best Ever listeners would enjoy that. Your URL, what is it again?

Austin Peek: It’s millionaire-interviews.com, and then if you just do /bestever, then it redirects you right there.

Joe Fairless: So how about you just e-mail my assistant afterwards, and then we’ll make sure we have that link in there, because it might get misconstrued… That’s kind of a long, ugly URL, so we’ll get it so they can easily get there.

Alright, cool. So that’s that. Based on your experience as a lender, what is your best real estate investing advice ever?

Austin Peek: Make sure you read the loan docs and understand what you’re really getting yourself into. With Google out there, you can kind of google all the ups and downs, and I would just make sure you do your research.

Joe Fairless: What are some things that a client of yours who hasn’t worked with you a lot, but is working with you on the first couple deals, they tend to overlook?

Austin Peek: The ease of the transaction. So again, just because one lender is quoting maybe 100k or 200k in the loan amount, if their metrics are not being met, then they’re gonna cut the loan proceeds right before we close, and then my owner is gonna be ticked off. So the main thing – that’s what I try to get over and tell them, I’m like “Hey, these guys give us the best interest rate and they’re giving us the best loan amount, but I want you to know that these guys can be difficult to deal with.” Over a two-month, three-month closing, sometimes they’ll say “Hey, we need to cut the loan term”, or whatever. So that’s the main thing, trying to get over that hurdle with the owner.

Joe Fairless: Yeah, and that has happened before… I’ve interviewed guests on the show for who that unfortunately took place, and they weren’t able to close on their loan, because the lender said on the closing day that they weren’t getting approved. Episode 599 is titled “Big Money Raised, Investor Partners Set, And On The Closing Day The Lender Says…” Mark Mascia, he’s a billion-dollar real estate developer and a friend of mine; he is the interview guest and he talks about that disaster situation where just that happened.

Austin Peek: I know which ones do that, because I’ve had one or two do that to me before where they do it a day or two beforehand, where they’ll try to cut the loan amount or raise the interest rate 0.5%, and being a real estate owner, these guys — it’s not even about the extra percent, it’s that they to screw them at the end and they’re gonna remember that, and then they’re like “Hey, I’m not gonna do the loan with you.” Those are the lenders that you’ve gotta watch out for; they might have the best terms, but if a broker hasn’t closed with them before, it gets a little iffy.

Joe Fairless: Absolutely. It is not just about black and white, it’s the grey space in between, and knowing who’s an ally of yours and what type of relationship you have with them.

Austin Peek: Exactly.

Joe Fairless: Are you ready for the Best Ever Lightning Round?

Austin Peek: Let’s go!

Joe Fairless: Let’s do it. First, a quick word from our Best Ever partners.

Break: [[00:20:28].16] to [[00:21:21].17]

Joe Fairless: Best ever book you’ve read?

Austin Peek: I’ve got two of them right here. One is called The Real Estate Game, by William Poorvu, and he’s Harvard Business School, and if you wanna get into commercial real estate, he has all these different stories about different property types and how to look at it. I love that, I’ve read it six or seven times and highlighted and underlined things.

The second one is if you’re trying to get into brokering, even though I’m on the commercial side, Your 1st Year In Real Estate; I think it’s like a $15 book, but it gave me a lot of ideas on how to grow my own mortgage brokerage business. Little tips that you don’t think of, maybe one you want to start a business, they’re in there. So I recommend those two books.

Joe Fairless: Do you invest in deals?

Austin Peek: No, not investing. I’ve done some residential flips, but I’m not getting in the commercial end yet. But best ever deal that I’ve done personally – it’s probably my first one, because that gave me the confidence to go ahead and do other deals. It was called the Austin Laurel Building, which is funny because that is my first name, and there was a girl in high school who used to hate me, and her name was Laurel. So the Austin Laurel building in Tampa, Florida. That was my first deal.

Joe Fairless: What’s a mistake you’ve made on a transaction?

Austin Peek: Probably not supporting the owners the whole way as far as checking in or hand-holding. To me, what I’m really good at is doing all the upfront stuff, throwing in quote matrices, making sure I can compare them and give them apples to apples comparisons… But I’m not the best at “Hey, I wanted to let you know where you’re at”, every week checking in, letting him know. Even though I’m doing that on the backend to make sure the deal is getting done… Just communication I think is always key, so that’s probably always one thing that I need to work with as far as just letting the owners know where we’re at all the time.

Joe Fairless: What’s the best ever way you like to give back?

Austin Peek: Really, it’s been now through my podcast. I wanted to do something new and I felt like it was a way to get back to the people who wanna start their own businesses. I was making a lot of old rich guys more rich, is what I like to say with the commercial real estate and mortgage brokering, and I wanna do something a little different. So I’ve been doing that and that’s been my best of giving back I think so far… Just trying to interview entrepreneurs and inspire people who wanna start their own businesses.

Joe Fairless: How can the best ever listeners get in touch with you?

Austin Peek: The best way is Austin@Millionaire-Interviews.com.

Joe Fairless: Cool, and I have since discovered the link, and I guess what was throwing me off was that dash… Millionare-Interviews.com/bestever. You don’t have to remember it, it’s in the show notes link, and I am officially subscribed to your newsletter, I’m going to get that guide for the lenders and their contact info and looking forward to seeing that matrix too, once you have that up and running.

Thank you for being on the show. This was jam-packed, full of practical and specific insight into the lending world and how to think about it, pros and cons of bank loans, and CMBS and insurance companies, what to think about, what to compare against, and the overall approach that we should take in terms of it’s not just about the numbers, it’s also about your relationship with the lender to make sure that even though the numbers look good, the relationship is ever better, so that everyone delivers on what they say they’re gonna deliver on.

Austin Peek: Yeah, absolutely. One last word of wisdom is with financing there are a lot of sketchy guys. I’ve got my CCIM, which is the top 1% of commercial real estate, and I’ve got my masters in real estate, so… Make sure that there’s people that you’re dealing with on the financing that have some credentials, because I will tell you, time and again I feel bad for the owners that get screwed by it, because there’s a lot of sketchy finance guys with hard money out there that are trying to screw the owners out there.

Joe Fairless: I agree, there are a lot of people who are not of integrity, especially in that space; I’ve come across it. So thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Austin Peek: Thanks again, Joe.