ROI Calculations With David Putz | Real Estate Notes Show

granite to be honest with you so but the pool was so much bigger and it wasn't as many investors back then and there was today I mean but we buy a pool and we'd be at 36 cents on a dollar and things are just cheap it was great it was fun be nice unfortunately I missed that part of the market so yeah you know today we talk about you know what percentage of value and what not and we stuck at 35 cents and I'm sure we do I talked about stair-stepping mm-hmm then it was easy to do today it's not as easy to use a stair-step method to bid on anything because the numbers don't work out as they did back then yeah and then the stair step method for those haven't heard about it's basically a rule of thumb that says based on the you know BPO value of the property assuming there's no equity you know you'll bid a certain percentage of BPO and then that percentage kind of increases the higher the value and it's it was good it's kind of good for beginners because it'll keep people out of trouble like you said like you you're buying me a 35% and you're off by you know 50% on the value you can still come out yeah okay the big problem with it nowadays is if you bid with that you get accepted it'll keep you out of trouble but you're never going to get accepted yeah never gonna get any bids accepted really so so you know today if you increase that stair-step up to 50 55 60 and you use that method to buy you miss a lot of the factors at 35 sevens forty cents we're at back then that stair step method was a real quick calculation and expenses would never kill you if you're buying at 60 cents on equity deal nowadays it could really kill you mom or it was a really underwater asset the stair step method were great when it really wasn't [Music] welcome to the note investor podcast will guide you through the ups and downs of note investing and teach you all about the nitty-gritty details of the business that other people won't talk about your host damn teppan is a former aerospace engineer and product manager who transitioned away from cubicle life to full-time note investing in 2018 our website is www.pevs.com [Music] and joined today by dave putz Dave how you doing doing well man how are you good good so I know you've got a lot of experience in the industry and we're actually one of the first people I met in into no industry so once you tell us to like a little bit about your background and what you've been up to sure where I was in rentals back probably you six of seven ready to hide the market and just got into a bad situation with some landlord situations and needed some differently a change a very popular friend the space got me into Knudsen Chum 10 he started a small fund at that time he brought me on just do valuations and at that time we're looking at a couple thousand assets at one time and all ideas evaluate them and decide what the value was how even what can we what kind of market was in if there's bars and the windows or not and we went ahead and processed the asset list he went ahead you to do due diligence on it and bought it in the farmed I did that for about two years to ten children 12 Asst and then I went on my own and so our buy privately by notes moley you know small and surly and was build up over years so then into the 15 I started my company when I was buying privately started the company up and started buying through the company starting some JV work and then God knows trace where we had enough funds to do it privately so our companies now have private equity we have capital we buy we sell of course a ton of assets and we've met amazing people that space some sure like yourself and really enjoyed the ride over the years and learned some really really good lessons and made some good profits as well so yeah what was it like looking an SS back in 2010 had a lot of them hit the market yet or was that almost it was a lot of assets I mean our tapes nowadays are you know if you hundred is big there's a couple thousand so you would go through you know a thousand two thousand assets and you would try being the first because there were so many by the crazy part back then is that they're priced at 35 cents and before I knew it I couldn't understand why we by him was anything long as no bars on the windows for anything and not knowing valuations back then I was a prize where we're buying these kind of a set of us what I found was that even if I was 50 percent wrong back then on value that's 35 cents you couldn't go wrong well yeah it was fun back then you know I didn't realize I wish I appreciate now but it's we wouldn't buy about 40 cents on dollar back then even equity eels whatnot and it was a lot of assets whose tongues yeah we're buying those with us like directly from banks or was that for my cage funds or we boil awesome granite back to in granite was popular we bought a lot from whose a lot of the hedge funds are still around today we were buying from back then penny Mack and whatnot you know we're we were buy some from dream builders Condor times but I think ultimately we're buying a lot from that big of a deal now I'm sure we talked before about this said we don't bid based on percentage of anything it's a we call byproduct of our bid we bid based on the return someone said hey what are you buying that I can buy it 90 percent of value or UPB for 20 percent it's a byproduct of what my my bid is it's not driving my bid I shoot for a return and run through a calculator to figure out and if it's 20 percent if it's 40 percent 80 percent it to meet it doesn't matter anymore because at the end of day you don't put your percent to be peeling your bank you put your returning the bag yeah and I need the challenge for a lot of fun especially when they're starting out as the rules of thumb are nice because they don't necessarily have the time or know how to build a fancier spreadsheet to take into account all those factors or they don't even know what factors need to be included and we've been asked many times and sure you as well is that you know King you help me build a calculator and that's difficult because every person's streets is different the returns are different so JV partners if they're using them still are different their capital limits different there's a lot of factors go into a calculator that I can give to you but unless you build yourself and understand how it works it's hard to use it and adjust it right but I also think that unknowing what your goals are and you don't know as a beginner that becomes problematic mm-hmm it just does yeah cuz I know I've always been surprised on things by within deals especially a contract for deeds or you get hit with like random water bills and other things that you're never gonna have in a model yeah absolutely models there from a reason we try being conservative with our model won't flate here and there just to be careful you don't know what's gonna happen you don't know when the letters in hit or a Bek situation is gonna happen you get the 5000 are clean you don't know those kind of things so you want to inflate a little bit to a point but you know it's real hard to be exact because you can't predict the future and I've heard lobules say listen why don't you go through an exit strategy and you know go for that extra well it's not up to me to do what the ex judge is the borrower if I want to modify that I can't get ahold of them there's nothing I can do with that right it's tough yeah absolutely you build some pretty fancy tools to do some of this I know I've seen some of them so you maybe talk a little bit about that yeah I'm big an automation I make the joke if I got automated taking the garbage out I would I've just begun not doing the same tasks over and over again there's some tasks that you have to be able to do BPOs evaluations and phone calls can never be automated what caveat to me is the process of getting what the bedrooms and bathrooms with square footage and and the annual tax amount and data points can always be automated those kind of things just go to the internet and grab go to the neck crack we've all gone to Zell and Brazil estimate and put our spreadsheet well if you do it over and over again you can automate that so we created a ton of all donations from bulk emails to gathering data to getting REO Asians and automate that process to the point we can do it we then made the step to automating emailing out investors who are local to a market and asset so we don't trust BPOs as much as most people do from the fun level 35% of Appeals were completely wrong so well my best strategy was to reach out to friendly note investors and ask them hey listen you tell me about your local market his house what we feel value is or what not we need next step up and build a calculator right so we can tell them 14 I built the process of taking my calculator and automating it through multiple assets and run them through the calculator we've talked to other investors who manually do that where they plug and play every asset into the calculator and it spits out something I can literally run through 50 assets and minutes and shoot out a big number based on the return on the exit strategy to make a mixed strategy it falls into and the return I want for that to strategy calculate a bid number that I can go ahead and quickly give out to a seller within minutes it's great I think automation in that facet is awesome it's just what you do over and over again if you're doing it over two times you can more likely automate that process because no reason to email 50 people individually anymore use MailChimp or whatever so what a mission became something I used a lot for time but also efficiency because Eric we meet quickly and that's the scary part yeah that is especially as the margins get tighter where there's less you know room for air in that but uh but no um most people you know they they drop their returns right oh I'm mocking assets one well don't job drop your returns a point you don't like it we talked about reinstate and being a big concern lot of people doing factor in like taxes for the year when you have a situation where the borrower can reinstate and that coupon rates at three percent if they reinstate and they only put down three four thousand dollars your return could be five percent so you need a factor in and those other kind of things that some people missing their calculator if they do build one he's like well how did they reinstate in the arena seat amount he's a year and a half behind they put down three grand they're back to the original coupon rate and you can't modify that so you can't modify it up that would be kind of hard to do yeah yeah I wish you don't think if they don't if your intuition where they can't reinstate you can you offer the modification if they choose not take it that's on them but if they reinstate there is no modification to be odd I just they're back to square one your returns you know your purchase price my serene Steven amount and that's it so I think people got a truly look at that when they're bidding on stuff yeah I don't want to be in a position where if they reinstate I'm unhappy exactly so we don't matter so yeah when I was gonna say because usually I always like to be able to reinstate if possible because I find why I end up taking the property back the variability in the returns goes through the roof that's where you know to your point of you don't know exactly what's going to happen there's a lot of uncertainty in the cost you can't really model everything ahead of time that variance shoots through the roof when you start doing foreclosures and even deed and lose and stuff like that yeah you piss off the borrowers you you get no house you may not want we don't buy anything under fifty grand because one kitchen repair can kill a deal one bath remodel one roof can kill a deal at that price range but you're right it's when you take it a step back a lot of your variables open up you don't know what's behind that door we try getting product reservation reports we buy an asset iOS sells for that because I want to see what what happened what do they know about the property that I may or may not know and product preservation pictures are amazing to see it's it's a awesome insight and looking through servicing notes to see what's in there if there's something not presenting to me I'm asking for it but I think that's some of things that the beginners don't realize they can ask for it always you have for surgery notes it tells you what's going on the deal and make up our due diligence yeah there are some gems in there I mean it's interesting like I've read some in the call notes where you can understand why the borrower hiccupped and why it's okay and I feel a lot better about it and then I've seen other things in the call notes where the borrower called in and said well you know the AC bro the heater broke and it needs a roof and I don't like this and sometimes they'll list like things that are wrong yeah yeah tells you everything wrong with the property or hey listen you know this is and you're saying whoa whoa they're arguing what the servicer and it's just that it's a sign of something I may not want to get to or I'm gonna price it accordingly to make sure if I'm buying a problematic situation my returns are you know adjusted to a deal with that risk level right that's you know again are we we're coming out with soon is a calculate that other people can use and we always target our worst-case scenario because if you perform and it modification happens that's a better situation I don't want to calculate them the easy quick best scenario I don't know what my worst-case is so I don't want to bid hoping something may happen I want to bid that knowing that if all goes wrong I'm still an okay position I don't bid performers basins truly only yield I brought it through the model and it says if it if I have to foreclose on this thing even's performing what is my stration Ike because if I buy performing and great yielder but i've if i have to foreclose three months later and I'm in a bad spot well I'm gonna buy that even at a 15 yield it just doesn't make sense so everything that's wrong through the calculator to automate that so I get away from the emotions out of it but we can quickly calculate yield I mean you've done some great videos on the ROI vers yield and we can quickly do that but there's more to it than just that yield number right yeah if you don't have any equity in it or there's a difference between a high yield with more things I always like to look at on performers is what happens if this goes sideways can i how can I recover yeah yeah if it means you're gonna take a beating that I need a way way way higher yield yeah people look at equity and they they say what's wrong with equity well if you go to auction you can't sell for equity you can't get that equity out if it sells the auction itself third party you're only getting illegal balance and if you're calculating that your take action you're gonna take it back and the REO and you're excited someone can outbid you at the auction and all you're getting back is what your bounces you don't put more money and it's fine but that's another one of our exit strategies that we're building out that allows users to figure out making sure that if they little auction what return and sells third party what return do you need to make you happy and that's that's a great situation where we've argued hedge funds well why you bid so low in the house well well if you take it back it's a great equity situation yeah but if what if I can't take it back but if someone else out bids me the auction well you know the hell off does that happen it doesn't matter how often right if you're buying a hundred of them it's not a big deal but if you're buying a pool three or four or five or six of them and three of them go sideways you can really lose your shirt versus a hedge fund who buy by a thousand at time yeah now might be a lot easier if I could buy a thousand at a time it also opens up doors with with sellers you know as I've started to look at you know buying some we're really smaller pools but of you know several hundred thousand dollars versus onesies twosies there are a lot more people who will sell to you the more that you can buy so yeah you know and we we talked a lot of new vests ters interview as well anyone had died and my always advice to these new people is that learn these kind of things but do some kind of bartering you know give me a skill that you have that I don't have and get into it that way we see large brokering streets and where he'll pass the tape along I encourage people to be careful with that you know pass the tape alone doesn't add value and more likely we've seen it and I don't know you actually know the seller so that's you know take asset understand how to calculate the risk level and and in sent to me as an asset if you can finance that I am seen before you calculate all out and you understand all those parts I'll work with you but I think beginners just need to know more the functionality and the best way of doing that is to barter your time or your experience or your knowledge you're great at spreadsheets and and I don't want time to do it wonderful if you're great at marketing you'll be very content broker that for experience and knowledge because for me to get a phone somebody or yourself I need to get something in return and not just share my experience now that just doesn't work for me so well then you do have some tools out right now that people can use you know a little bit about your sure pricing tool that you were showing me so howdy in there sure yeah so what we're coming out was a full calculator that actually takes an input spreadsheet tape we call it and runs through any asset that you choose to want to evaluate and what you're gonna set as your valuable so what return do you want if you foreclose rehab sell what rehab is your estimate rehab and what are all your scenarios of returns so what's gonna happen is that you're going to say I want evaluate this one this one this one okay you go ahead through the process and you're gonna actually run every asset missing your protective returns your expenses if you're gonna run BPO what you're servicing costs are because we all use different servicers and we'll evaluate that based on your numbers and allow you to in turn get a bid number based on our mathematical formulas and give a good number that will actually give you the worst case scenario bid so that you can go ahead and quickly efficiently and reduce errors come up with a bid number within minutes I think that those kind of factors are amazing and using the experience and spreadsheets you've seen are big cap is very similar if there's a lot into that and for a newbie to understand the mathematic part of it is sometimes overwhelming yeah I notice a lot of people kind of get stuck but but that's but that's pretty cool that people can use that because pricing is like this it's like this like the most dark and mysterious part of no investing like even like you know very expensive training courses and things will not include any any real like bid calculators or anything like that so it's kind of a rare thing to be able to get it absolutely we added into it I'm sure you've seen our in our Facebook group we have a bunch of resources from service or fee schedules to what states are involved with two agents two attorneys and so what our calculators can actually include are those resources that people have shared with us so what's the name of the Facebook group cuz you got one of the bigger fit note investing Facebook groups out there but I know the name is kind of long and it's a mouthful and I yeah so it actually came from a local meetup we had here in Jersey a few years ago and we started a small thing and it blew up East Coast distressed note investing Jersey style think it's nickname and I've thought about changing over the years but people just knew it and recognize it so we didn't change it but it started back in 2014 it's just a place where I didn't find Facebook have a group for new investors so I started it for that facet and I think what we do differently than a lot of groups is it's not about me it's about everyone kind of sharing knowledge I'm not looking to make it only about you know certain people so we always encourage people to not bold and more toasted which is share information share knowledge ask questions and we have no problem people our causing it as long as there any contact but what we did then was we create a spreadsheet of all con different things including a group directory so if you want to meet selling your local market go check a look at the group rectory and see if there is somebody there or better yet you've been asked it in a certain city go check the group directory find out to the note investor local to it and reach out to him we have a bunch of resources there is a Google spreadsheet we're big Google people in a game or Excel yeah we use a lot of Google sheets to assist people to go to different links and whatnot and we talked about having Excel verse goggle sheet competition because I think it's you just have to find your niche but our spreadsheet allows people to utilize all the resources we made available from our asset list we have all over a hundred forty assets right now currently available then go get that list from our spreadsheet what's your second point to class the other thing people are looking for is where to go buy assets I don't want that to get get missed by folks because you know people list assets on there so that's a good place to go to list qualify what's yeah biases or list assets there right we do share that that would get big on sharing content and blending with investors yeah absolutely looking to buy or if you haven't asked to sell we do charge a small very small fee just to list it I think where people get overwhelmed with a seeing that's kind of quality quantity of assets and give questions just reach out to us and ask we're open honest with everything you have to sign NDA and then we give you access that list that's available to anyone we love to add new messages on there for buyers as sellers so yeah if you look to buy or sell feel free to reach out to us yeah it's a really good Facebook group I mean that's where I post a lot of my stuff between you know yours and then Chris seventies are kind of the two where I put the most stuff people have asked me if I'm going to create my own but honestly there's just kind of enough out there I don't know if we need another yeah it gets splits up right hang out on the ones that already exist it's topical you know those groups are splitting up and you lose that you know the facet of where to go and if you have too many groups I always felt that people start splitting up and you lose attention from different people right the new group may have lost you let me post something the other group doesn't see because they just didn't check it out so well I you know I agree I think that starting a group is is difficult when I encourage people listen I think all the groups are amazing I think they're great content and a lot of stuff is free out there but there are certain knowledge you need to reach out to other investors and either pay or to consult with them like yourself and say listen Dan how do I do this well yeah the groups are great for content small content stuff so I I want to make sure we stressing the fact that new investors who get nervous and what we Kurt will do is is to talk to dad talk to people and just reach out to him a lot of new investors feel like they lost and I was there we're both there it's it's can be difficult yeah I mean it's a very opaque kind of challenging industry with a lot of nuance and and you don't know what you don't know yeah and it's very easy to get overwhelmed like I know for me a couple times early on I kind of hit a point where I'm like how is this really worth it or not and then I plowed through but I think a lot of people get stuck so like a lot of those tools you provide like being able you know place to go to buy notes or you know some of the ROI calculator stuff really makes it a lot easier for people to kind of get unstuck and it was a really cool market once you crack the code on it it's very worthwhile but yeah it does take a little bit to get there it's not quite as you know dirt simple as some of the you know gurus will tell you or someone like the BiggerPockets post like oh this is great you just buy a piece of paper and you don't have tenants to worry about and it's Easy Street it's not quite that simple but it but it's definitely worthwhile we've we've bought a lot of assets with individuals who just don't in because that's recurred to just go out and buy and we've bought a lot of assets from those people who just bought who didn't know what they're getting about with and they were scary about it now it's interesting yeah I haven't run across too many of those people what I run across to the people when I'm selling they get big it scared and they just don't all through at that branch is it worried about messing something up yeah so to wrap up what's going on I think you know definitely take a look at our East Coast group stay plugged into our calculator we're coming out with I think that you know stay tuned in to all the groups we have we have a Facebook page as well for our business but you know reach out to us and talk to us and see what's going on we have a lot of automation tools we don't share with a lot people I can pull Oreo agents I can pull we have a whole scraper that we can trade data from but there's a lot of things we just don't share because he could overwhelm people I'm looking forward to being able to share things like that but there's some nuances that we just can add to it well you don't want to get you don't you want to tee people up to get lost in the details like I've talked to some folks as well who just enjoy kind of the minutiae of the stuff they're diving into but doesn't necessarily lead to them getting a deal so you don't want to get stuck that way one question I had to do you have a way any ways to pull delinquent taxes for me that's my one of my Bugaboos because I like to look at that before I bid but for me it's been largely just just a manual process I guess there are some services and things you can do but they get kind of pricey if you're doing you're not you're not necessarily gonna pay what is it black knight or there's some other folks out there for a whole tape unless I know I already have them so we encourage people to is to when they make an offer don't be scared when they make their initial offer because everything's subjected to the you know due diligence period so get your offer out there and make it contingent on a bunch of points openes all those kind of things but to pull it amaze we're looking at a few EP is we're manually doing it through a process of using some V agents of technology to do that but we're actually talking some API people to create that a little bit quicker a little bit easier and some sources that we're using which is not there yet to share but once we do we're actually in cooperate with our calculator then we need a button and grab delete when grant taxes grab all stuff so it reduces people's need to manually go could capture that but again it's amazing what technology can do but I would encourage people not to get stuck on hey I don't know what the angle that what the back taxes are when I put my bid in spin you can you know make it a part of your contingency plan on your your due diligence part of it until a seller hey I'm part of my you know big it is a fact that I'm gonna pull a no Andy and if there's back taxes my bids can be reduced based on that be open honest with sellers and more likely that's fine unlike typical real estate where yeah they were the upfront to due diligent notes is so much broader where you put a bit in and subject to everything from Oney to BPO to everything you know we have a thirteen list of what we asked the seller for thirteen different items nice they think somebody I definitely want to have you on some more and we need to get into we really get into it this time but you know using Google versus using Excel because I've enjoyed that be great all right awesome all right well thanks again that's a reference for everybody we'll talk to you next time [Music].