#61 Do More Deals Using Novations with Eric Brewer
Since 2006, as a real estate investor, Eric Brewer has done over 3000 residential real estate deals in Pennsylvania and Maryland. His experience covers, purchase, renovation, direct-to-seller marketing, Novations, turnkey rentals, property management, and wholesale. Currently, owner of Integrity First Home Buyers, which does nearly 350 deals per year, and is comprised of 40+ members of the staff, including a COO and a full executive leadership team.
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Eric Brewer: (00:00)
When I started doing novations and taking my wholesale acquisitions to the open market and novating them the paperwork wasn’t much of a shock for me.
Tony Javier: (00:08)
You teach people how to do this themselves so they can do it themselves. You,
Tony Javier: (00:12)
Like I said, you can turn a lot of those so-called negatives in into positives.
Tony Javier: (00:19)
All right, welcome everybody to the show. Super excited to have my first live podcast interview. You guys are listening on my podcast and are not listening live. You can join a future live show. We’re gonna start doing this periodically. You can go to tony javier.com/join and you can listen in like others on the podcast right now that are in the back end. You can ask questions and at the end, we allow people to come in and interact with us so that you guys can ask questions. And it’s not just me asking questions, it’s our audience as well, which is super cool. Uh, so I’m Tony Javier, 20 year real estate investor. A lot of you guys know me as the TV guy. You guys wanna dominate your TV or your market with TV commercials, you can go to 10xtv.co. We’re actually now partnering with other investors with TV commercials, not just running them for them.
Tony Javier: (01:02)
So if you guys wanna learn more about that, please go there. So in the back, we’ve got a lot of people that I know and a lot of people that I don’t, which is super cool. Dan, good to see you. Darren Elliot, you guys are always on my calls, which is awesome. Jason, my flying buddy. What we haven’t flown together, but we’re both pilots and own the same plane, which is super cool. Michael, both Michaels McDonald and Smith. Ryan, good to see you. Stinson. What’s up bud? Matt, am I missing Lamont? I don’t think we’ve met before, but Daniel, good to see all of you guys. So we have Mr. Eric Brewer. This has been something that has been a topic of a conversation on a lot of our mastermind calls is notations. I’ve had several conversations with people that have done ’em, attempted them, maybe don’t understand them. I think I have enough, heard enough about them. I kind of have an idea of how they work. So it’s super cool to have Eric Brewer who’s done thousands of notations. He does, I think 300, 400 deals a year, which is insane. So he’s here to share how he does notations and how he can add value to you guys. So what’s up Eric? Good to have you, man.
Eric Brewer: (02:04)
Thanks for having me. I’m excited to be here and talk through it and saw a lot of the dialogue when you tagged me on the page. There was a lot of questions. So I love that stuff. I mean, it’s, it’s crazy that novations have been around for longer than you or I. It’s become a very popular topic here recently and I think it’s an exciting way for people to expand their business, obviously today. And you know, the changing real estate climate that we’re in, anytime you can pivot or add an additional tool to your business, I think it’s a great way to not feel, um, the correction the way that everybody else might be. So,
Tony Javier: (02:36)
Yeah, absolutely. Actually, someone said at one of our mastermind calls the other day, they’re like, we started doing ovations and we feel like that is what is going to allow us to take any revenue that we’ve lost from the hot market and be able to add revenue in because they’re making more money on deals and they’re taking deals that normally would’ve fallen through because they couldn’t give ’em the offer price they needed and allow them to do deals. So I guess I’ll just throw it at you. I’ve got a list of questions here, and please, anybody has questions, please put ’em in the chat, describe ins, you can explain it better than I can. And then just take people through the process and I’ll just start asking you a lot of questions that I know that I’ve had and a lot of our clients have had as well. Cool.
Eric Brewer: (03:14)
Yeah, so the dictionary version of what a novation is, is a replacement of an obligation or a term in a contract. And the reason I think it’s important to understand that definition is when you replace a contract, effectively the novation conditionally releases your original purchase agreement. So people are like, oh my goodness, well, what happens? How do I get paid? It’s okay. Like there’s a document process that you go through that ensures that you get paid, but when you cancel your original purchase agreement and you execute an agreement between the original seller, your client, and the third party buyer, it now becomes a financable transaction. So an assignment is not a financable transaction with fha, va, U S D A, Fannie Mae, Freddie Mac assignments can only be sold to either cash buyers or like a hard money lender, right? So even when we get a good deal and we buy it at a discount, we still have to sell it at a discount because we’re selling to a cash buyer by way of an assignment. The notation creates a financable transaction, which opens up every one of our deals to the highest paying portion of the buyer population, which is a financed buyer, right? So that’s the basic sort of, you know, dictionary explanation of novation. It’s the replacement of a contract, not the assignment of the contract. And that’s really important because it becomes financable where an assignment is not financable.
Tony Javier: (04:35)
Gotcha. Now someone, if you saw one of those comments, someone did chime in and say, you know, novation sounds sexy, but there’s a lot more paperwork and brain damage involved with it. Yeah. So explain that. I mean, how much more paperwork does it, you know, does it take to, and by the way, Eric’s gonna give his novation agreement at the end of this call, so, you know, stick around. But tell us how much more paperwork is involved with the novation compared to just
Eric Brewer: (04:58)
10 times more. Like a lot. So for me, that wasn’t as big of a shock. And I’ll tell you a little bit, you know, eventually about how I sort of stumbled upon novations and why it was important to me when I started doing it back in 2010. So I was predominantly a, a fix and flipper. I bought, I renovated, and then I sold retail on the mls. So I was already signing listing agreements and sellers disclosures and dealing with things like a change in terms after a home inspection. Like, so for me, when I started doing novations and taking my wholesale acquisitions to the open market and novating them, the paperwork wasn’t much of a shock for me. So if you’re a wholesaler and you’re doing a purchase agreement and assignment and that’s it, there’s 10 times more paperwork, right? So if you’re perfectly happy with the volume of business that you’re doing and you love everything about wholesale, there’s probably no reason for you to start doing novations if your desire is to keep it simple.
Eric Brewer: (05:52)
But here’s what I do know, it’s been this way forever, but I think more so today, has it become an issue for a lot of investors. It’s just harder to buy at a discount. We’ve seen that the seller perception of what their home is worth hasn’t kept up with the change in the market. So a lot of sellers want an unrealistic price for their property, and we can’t make it work from a wholesale perspective, right? Even, and I talked to a lot of people across different markets, they’re getting deals that look like $30,000 deals when they acquire ’em based on comps, they’re taking that deal to their buyer’s list and it’s crickets. They’re either not buying or they’ve drastically reduced what they’re willing to pay because they’re a little skeptical, rightfully so about if I buy this from Tony, I renovate it, and I go to put it on the market in three months, if rates continue the way they are, will the ARV be 25, 30% less?
Eric Brewer: (06:41)
And now I’m stuck with a project that I can’t sell and I got a bunch of money wrapped up, right? So it is certainly more paperwork. However, we’ve seen, and you mentioned earlier, for a lot of people, they would not be able to sustain the volume of business that they were doing. They may have had to reduce marketing, they may have to lay off people, they may have to suffer making less money had they not implemented novations. And now the correction that they’ve seen in the market didn’t really have much of an impact of any impact on them because they’ve added novations. And now instead of wholesaling a deal and making 10k, they’re novating that same deal in making 30. And maybe there’s wholesale transactions that they can’t make work anymore, but they’re bringing a different piece of inventory in. The average novation is in much, much, much, much better condition than a wholesale, right?
Eric Brewer: (07:26)
So now we’re taking that deal that we would generally pass on because we couldn’t pay the seller enough and we’re able to sell it to a retail buyer on the open market and make money that we weren’t before because we simply couldn’t make the numbers work. When someone had a nice house and they were motivated but wouldn’t sell at our MAO, we would pass on that deal or refer it out to an agent, and then we’d watch it get list and sold on the open market. And maybe if we had a referral relationship set up with the agent, we could get a small referral.
Tony Javier: (07:51)
So first question, from what you just said, do you feel like, or how much more do you feel like someone can get from a novation compared to Well, I,
Eric Brewer: (07:59)
I actually know because we have 294 people that have come in, we’ve taught novations to, and then we’ve watched, right? So typically, if you have a house, the average wholesale profit across 294 people in our community, average just shy of $20,000 per wholesale deal. Mm-hmm. , the average profit on a novation deal is just shy. 26,000. Right? So now watch that number change, right? Cause I can tell you right now, wholesale numbers and investors are changing pretty rapidly. And if you omit California and a couple other of the big markets from there, the average wholesale profit is closer to like 12 or 15,000, right? Those markets have, over the last couple years have driven up the average wholesale fee. For me, it’s about 30% higher on average than your average wholesale
Tony Javier: (08:45)
Product. Actually, you said California, that’s something a couple people said. Is this not, uh, legal or allowable in some states?
Eric Brewer: (08:51)
Yeah, so one thing is it’s legal everywhere. There, there, there is no state that makes the replacement of a contract illegal. I have heard that a lot from California. The reality is, is everything is more challenging, particularly when it makes profit in California. I’ve come to find out, but I have off the top of my head, I know one particular person that has averaged six figures on their novation deals in California, specifically in Los Angeles. So what would happen though, from state to state, might be the governing body of your MLS may have different requirements about what is required in order for you to bring a deal to the mls. Like we have a client came on that we’ve taught novations to, that’s based out of Omaha, Nebraska, and apparently in Omaha, Nebraska, you cannot list on the MLS with equitable title. However, when you do novation, the seller, the actual owner of the property is the person listing the property, not the investor.
Eric Brewer: (09:42)
So that mechanism, that path doing novations has actually allowed them to not only novate deals, but to take their wholesale deals to the mls. I mean, what we found today, because people are, you know, everybody’s freaking out about dispositions, I gotta get better at dispositions. I gotta, you know, figure out how to sell my properties. What I’ve found through a lot of aggregating data and the people that we buy lists from, the highest buyer population in every market is a first time investor. And the first time investors make up more acquisitions, more transactions, than any other segment of the investor population. And by the way, they also pay the most. So when you can sell your deals to a first time investor, you’re gonna sell more of ’em and they’re gonna sell for more. The problem is they’re not on our list anyway, because they haven’t bought a property yet.
Eric Brewer: (10:25)
So you can’t pull a list of people that own property that’s not owner occupied or paid cash for a house within a three mile radius and have that person show up. They’re a first time investor. Those people historically are shopping for their first deal with a real estate agent on the mls. So novations is actually a great way if you never novated to a finance buyer, it’s a great way to sell to first time investors for a higher price than you normally would because you’re shopping it to a whole different segment of buyer, investor population that isn’t gonna show up on our investor list.
Tony Javier: (10:55)
So let’s go back to the beginning and dumb it down. So let’s say someone jumped on here and they’re like, I have no idea what you guys were talking about with No. Yeah, so wholesaling is pretty simple. It’s you, you get a contract, you find a backend buyer, you assign that contract, you get your 10,000, 15,000, yep. $20,000 assignment fee, whatever it is. So tell me if I’m wrong, no’s, a big difference is, is that you are, you have a different contract, or maybe it’s the same, but you’re doing a power of attorney so that you can sell that property for the investor in which you’re promising the investor is a certain dollar amount. And anything you sell that property for above and beyond that dollar amount, you’re able to keep yourself. So tell me if I explain that right at all, and, and
Eric Brewer: (11:35)
Yeah, generally that was the case. What I would say is one thing is you do not need POA. That’s a big misconception. And I think that’s where a lot of people get hung up and they say, my title company won’t do it, can’t do it in California, can’t do it in any state. And a lot of that pushback that I’ve found that comes from, from title companies specifically, is around the POA. They just generally become uncomfortable with the fact that you bought the house, you sold it to a third party, and you executed some of the documents on the back half of the deal on your own. The reality is, and listen, I’ve been doing this for 11 years. I’ve done well over a thousand of these transactions. I’ve bought these at public auction with the estate attorney at the auction, right? And then I’d settled with an outside title company that had a completely different set of eyes that reviewed the documents.
Eric Brewer: (12:20)
And I’ve done all of that by POA. It is legal, it is moral, it is ethical, it all goes back to the way that you facilitated growth. There’s a right way and a wrong way to do a POA. There’s a right way and a wrong way to handle the listing documents. There’s a right way and a wrong way to facilitate the closing documents. So the reality is you don’t need a POA. It definitely makes the transaction because without that, you literally have to go to the seller and they’re signing listing documents. They have to initial any offers that you get that you may counter offer. They have to ratify the final purchase agreement with the end buyer. Um, they obviously have to sign all of the, the settlement documents. So it creates a, a lot more work than there would be if you had a POA.
Eric Brewer: (13:03)
What we found is more than around 50% of the time, you’ll, you’ll find sellers very willing to give you POA if you just do a good job of explaining the benefit and how it’s gonna be used. When I say power of attorney, the general response to people is, whoa. Right? What we use is a limited power of attorney only gives us the ability to execute the documents, to sell the property that remain consistent with the original agreement. We’re not using the POA to sign a purchase agreement with the seller. They’re executing and say, Tony, I’m gonna sell you the do, I’m gonna sell you the property for $150,000. We’re gonna settle owner before 90 days. You have access to the property, the ability to assign it or notate it, and everything we sign as POA after that is in complete compliance and alignment with the original agreement. But you don’t need a POA to do the deal. It just requires more interaction with the seller every step along the way. So it makes it more convenient. Yes, it is not right. Do
Tony Javier: (13:54)
You do a PO POA
Eric Brewer: (13:56)
On yours? I tried to, yeah. With every single one. But we buy a lot of properties from estates. You can’t do a POA for a poa, you can’t do a POA for an executor. And some people just say, you know what, Eric, I don’t wanna do a poa. I’m fine with this additional, you know, sort of aggravation that you’ve explained to me that comes along with it. I’d rather just see all the documents myself and sign it, and that’s okay
Tony Javier: (14:15)
Too. Okay. So if you don’t get a POA, basically when you get an offer that comes in, when you have documents, you sign for the, for the transaction, the seller just has to sign. But the downfall will do that is that they would see what you sell it for. So if you sell it $50,000 more, you know, you just have to explain to ’em like, this was our agreement and they just have to be okay with it. Right?
Eric Brewer: (14:33)
Yeah. And here’s the thing, like, you know, a lot of people are convinced that in wholesaling, the seller doesn’t know that you’ve made a profit, right? Like they see it on the, the assignment fee on the hunt. They probably pay attention to it post settlement, and they’ll see on Zillow realtor.com, the public record, they’re able to tell ’em like, people are okay with you making a profit as long as you are transparent about the way that you’re gonna go about it, right? Like, I think I remember, and you’ve been doing this a while, right? I remember when buyers would have a problem with our assignment fee. Like I, I would have buyers that would go, no way, man, you’re making too much money. We haven’t heard that. I mean, I don’t know about you, but buyers don’t care anymore. They’re just so happy to get the deal.
Eric Brewer: (15:12)
If you’re making 50 grand, you’re making 50 grand, right? But we always had this, some of it was driven by actual fact that buyers would flake out if they thought we were making too much money as the guy, the wholesaler, right? They’re gonna do all this work and fix and flip it to make money. They just didn’t think it was fair that we made money selling ’em a piece of paper. The way that we teach, the way that we, um, transition into s when we’re talking with the seller, we are, and that’s what I love about s it forces you to be transparent. You actually, you have to tell the seller, I’m gonna take this property to the open market. I’m gonna sell this to potentially a retail buyer with financing. So in the very beginning, when you’re pivoting over to permission to take it to the open market and moving into a novation deal with a seller, you really have to disclose that you’re gonna go out and shop for a retail buyer to buy this.
Eric Brewer: (15:58)
And that’s what it takes for you to make the deal work. So, I mean, all I can tell you is, is, is very seldom, and we make at least three to five times a year, we do s that are six figure. Our average profit is around 25, 20 $6,000. And, you know, consistently we do 40, $50,000 and we just don’t get pushback from the seller because we’ve explained to ’em on the front of the deal with our GoIT, where typically with a wholesaler, it’s like, I’m paying cash, I’m gonna fix up your house, and then I’m gonna resell it. And then it turns out I’m, I don’t actually have cash. I’m not gonna fix it up. I’m gonna bring a contractor by to look at the property, which really means I’m gonna bring 30 people through the house and hopefully one of ’em will pay me what I’m asking for it, or more than I paid you.
Eric Brewer: (16:40)
I mean, let’s just be honest. Like there’s a lot of wholesale language out there that’s not completely transparent. And because we’re selling to a cash buyer, because the transaction on the back end is so easy, a lot of people are able to get away with limiting their transparency when they’re talking to a seller. When you’re gonna put it in the MLS at a price that’s 40, 50, a hundred thousand dollars higher than the agreement you have with the seller, you need to make sure that you’re flushing out any of those potential objections on the front end, or they’re gonna have a problem with it when they see it listed for more than what you pay. It’s not gonna take until you get the settlement. You’re putting it in the mls, it’s gonna be in Zillow, it’s gonna be on realtor.com, their neighbor’s gonna see it, their coworkers are gonna see it.
Eric Brewer: (17:16)
So you have to handle that objection really up front. And we just generally don’t see any pushback. You know, sometimes if, you know, I, we did a deal last month that we bought for 1 61 of our investors offered us full price, $200,000 we had simultaneously listed, which is our process on the mls. And we wait for 72 hours before we accept any offers from our investor list. We listed it for 2 29. We had someone, an investor paying cash offer us 3 0 5 80 $5,000 over list price. I double closed on it. I’m like, I’m just not gonna run the risk, you know, showing someone $145,000 profit. But I, I wouldn’t have done that deal. I wouldn’t have taken it to the MLS if NOS were not an option. So I, I created this opportunity to sell to a cash buyer for, you know, after commissions and everything else. We, we certainly netted way less than 150 grand, but it was north of a hundred, right? And I wouldn’t have had that opportunity had I not taken it to the mls and I wouldn’t have taken it to the MLS if I wasn’t familiar with.
Tony Javier: (18:13)
And what if you can’t find a buyer? What if you take it to the MLS and for some reason you can’t find a buyer? Do you not close on it? Do you still close on it?
Eric Brewer: (18:19)
Good question. So here’s what I found. One of the really challenging things about wholesale deals is you have to factor in renovation. So let’s say, uh, you know, a wholesaler sends me and you a deal, right? And you and I both walk it, we’re gonna have probably very different rehab. You may be able to get your work done for a little bit less money because you know, you got longer relationships with material suppliers and you have a really good contractor that does quality work at a discount. And I may outsource and sub all of my stuff out and use a gc. And what you see is a 50k rehab, I think is 80, and the wholesaler said it was 30, right? And the wholesaler told us ARV was 299. And you and I both think it’s 260. All of that stuff impacts what we’re able to sell our wholesale deal.
Eric Brewer: (18:59)
So a lot of times it’s difficult for us to project what a wholesaler’s gonna pay. When you’re looking at novation comps, you’re looking at what comparable properties in similar conditions sold for to a retail buyer who by the way, does not factor in rehab. They’re not rehabbing the house, they’re factoring in MI approved for it. Will it pay us a home inspection and an appraisal and can I afford the payment? So when you look at comps for ARV on a rehab, a lot of times we’re using properties that are in good condition and we’re saying, Hey, our property yourself for 20 or $30,000 more if it’s rehab. The one problem with that is appraisers don’t always see it that way. I can tell you I’ve been rehabbing homes for a long time and my property gets rated in C3 condition on an appraisal, which is the exact same thing as someone that has a house that they’ve lived in for 25 years, is in clean condition, but hasn’t been updated since they bought it. So
Tony Javier: (19:48)
In order for this to be clean novation, you typically don’t want something that’s in really bad condition.
Eric Brewer: (19:54)
No. That that should be a wholesale deal that today is still a wholesale deal. And here’s, and here’s what I found. If you take a hundred net leads, right? You do a ton of advertising, you work with a bunch of, of, of, of, of, uh, investors that, that do a ton of marketing. When we take a hundred net leads and I break that down, typically 10% of those leads are able to be converted to a wholesale style acquisition. So now I have 90 remaining leads. What I found is about 50 or 60 of those net leads are long-term nurture opportunities. These are not properties and sellers that are able to be converted now at anything close to a reasonable price. And that may be because they have unrested pricing, you know, expectations, there’s multiple maybe decision makers and they’re not on the same page. They don’t have a whatever, it’s not a deal that can be converted.
Eric Brewer: (20:38)
Now 30 to 40% out of every batch of a hundred net leads, these people have a reasonable amount of motivation and they have a property that’s in okay condition, just a, a tad above at or below average condition. And we historically cannot make those deals work as investors because we can’t buy it, take it down close on it and wholetail it because all of our profits chewed up by holding cost and, you know, um, funding costs if we’re using hard money or private money. Um, and then if you’re selling to an FHA buyer, you gotta hold that property for three to four months before you can sell it, right? So the ideal novation is that 30 to 40% of your leads where the people have, they’re saying things like, Tony, this all sounds great, but I’m in nowhere. You know, what you’ve said so far about the convenience and all that stuff, and that sounds awesome, but I’m not gonna give it away. That’s the type of language that you’re gonna hear from these people and they’ve discounted it and they’re ready to sell. We’re just not gonna discount it down to a wholesale style number. But they will provide you two things, reasonable access and permission to take it to the open market. That’s what you need to the seller, the seller to agree to in order for you to be able to do novation with limited to no frustration or blow back from the cell.
Tony Javier: (21:47)
And do these people ever live in the property? Do you recommend? Yeah.
Eric Brewer: (21:50)
Yeah. I mean, it’s obviously easier when it’s vacant, but what we found is more of those vacant properties fit into the other category of the 10% that we should be able to buy at wholesale. Um, we do these deals all the time with that are tenant occupied. Owner occupied. That’s the part that requires a little bit more lifting because you have to coordinate showings. You’re gonna have to maybe sometimes apologize three to five times because you’re, it’s inconvenient. It’s a tougher sell than, Hey, I’ll close in seven days. Cash as is no showings. But what you have to realize is you’re not making a deal with these folks right now. So is it more work? Yes. Is it more paperwork? Yes. Does it take longer? Yes. But you get paid for it. I’m not saying do this instead of what you’re doing now and make the same money. I’m saying if you want to do more deals with the leads you already have, if you want to make more money with the contracts you already have, then you should consider doing a little bit more work.
Tony Javier: (22:39)
And you said the difference between a wholesale novation that you’ve seen is $20,000 to 26, right? Yes. But that’s not including deals that would’ve made zero that make 26, right? Right. So there’s some deals that people may have passed up that because the seller’s holding the property and they’re paying the utilities and they’re paying, um, you know, they’re, they’re basically taking all your, holding the costs away from you. You’re able to make those numbers potentially work even if it’s a $15,000 profit.
Eric Brewer: (23:04)
Yeah. So here’s, here’s, and I’ve been able to measure where that opportunity lies and, and actually put a number to it. So remember I told you there’s, there’s about 40% of all of your leads that are good novation opportunity. That means they have reasonable motivation. Cuz here’s what happens. The 10% of people, I call it a seller seesaw. So if you imagine a balancing point here and you have a seesaw, right? When you do a wholesale ti style deal, you have condition on one side and motivation on the other. As condition deteriorates, motivation goes up, that’s the normal wholesale seller that we’re dealing with, right? They’re gonna sell at a deep discount. The other 50%, the 60% of people that are not a deal and aren’t even close to being a deal for six to 60 months that we need to put up into follow up.
Eric Brewer: (23:42)
It’s reversed motivation’s way down here. Here there’s zero. And typically it’s because the condition of their property and the condition of the life circumstances is perfect. They got nothing driving them to, to sell their home unless it’s under ideal circumstances. The balance that I’m talking about, of the 40%, there’s a reasonable amount of motivation and the property’s in pretty good shape. That’s the core group of people that we can pitch this to, that are likely to say yes. And here’s what I found. People that suck at sales aren’t disciplined enough to present it to each and every customer and do a crappy job of follow up. Still do 5% conversion on those 40 leads. So if you get a hundred net leads a month, you should be doing two novation deals a month. Even if you’re not very good at any of those three, if you still suck at sales, but you’re disciplined enough to present this to every person that says no to your wholesale offer and you’re still not good at follow up, you should be doing eight to 10% conversion.
Eric Brewer: (24:32)
If you work at sales, you train your people, you role play, you hold ’em accountable, you pitch it to every seller, and you do a good job of following up, you manage the crm, you’re staying in touch with them. You’re not just focusing on low hanging fruit. 15% is a reasonable amount of those leads to convert to to ins. So at a minimum, you should be doing two. If you run a tight organization that has a good crm, you got good acquisitions, people that’re trained, right? You should be getting 15%, which is six transactions. So if you do a hundred net leads a month and you add six transactions at 26 k, that’s an extra carry. The 350 Yeah. Multiply that times 12. It’s, it’s north of a million dollars of found revenue. Hmm. Now if you do a crappy job of all of that, it’s two deals, let’s say, and you do a crappy job of selling and you make 20 grand, it’s 40k. Well,
Tony Javier: (25:21)
Even if you do one, even if you do one deal a month, a 20k, yeah. That’s adding and multiple six figures a year to you, right?
Eric Brewer: (25:28)
Yes. And I’ve found that most people can take 25% of their current wholesale deals and convert ’em to novation, right? So if you’re doing, you know, let’s say four deals a month, right now you’re, you’re, you’re doing 45 to 50 deals a month and you’re doing all wholesale by positioning this conversation and presenting the novation option to sellers when you move off of your price anchor, right? If you study negotiations, you should be starting at a number significantly lower than what you’re able to pay. And then when the seller says, Tony, I won’t do that, but I’ll do a hundred. When you agree to go from 60 or 70 or 80 up to a hundred, you should say, Hey, I could do it if you’d be willing to give me permission to take the property to the open market and you’d be flexible with reasonable access, they’re gonna say yes. 25% of your deals will say yes. Now you bought it at wholesale and you can exit at retail. So 25% of your wholesale deals, and on those transactions, you’ll double the profit. If you take what a cash investor will pay versus what a retail buyer would pay, it should double your profit on that one. Transac. So
Tony Javier: (26:30)
Ba so basically it’s like wholetailing a property without having the
Eric Brewer: (26:33)
A hundred percent,
Tony Javier: (26:34)
The expenses and all of that.
Eric Brewer: (26:36)
So it’s wholesale style transaction, wholesale style pricing, right? With a retail backend obligation for you to manage the paperwork and expectations.
Tony Javier: (26:45)
So how do you, how do you pitch that to somebody? So let’s say they’re living in the property and you’re like, okay, here’s the deal. I’m gonna do it this way, but they’re still gonna be showings, you’re still gonna have to sign the paperwork, all of that kind of stuff. So me as who I am, right? As an investor, someone presented that to me, I’d say, screw you. I’m going directly to an agent listening it on the s obviously we’re dealing with different people here, but how do you pitch that? I mean, there’s still gonna be some people that have that mentality of like, I, I kind of wanna list it and get maximum value. How do you overcome that objection?
Eric Brewer: (27:16)
So those people are in that category of 50 to 60% that I set, or they’re in the, the category of the 40% of leads that I tell you can be converted. But remember I told you like even the best are only converting 15% of those. So there’s 85% of these novation opportunities that are gonna say, you know, pound sand, I’ll do it myself. So all that we need to do is convert 15% of ’em and make 1,000,005 a year, right? So what I say is, and and again, this is not a magic bullet. It’s not like you can, you know, go out and start doing novations and put the language in your contract and all of a sudden you’re gonna make an extra million dollars a year. There’s some positioning, there’s some scripting, there’s some different language. Like notice I said permission to take it to the open market.
Eric Brewer: (27:54)
I didn’t say mls. Notice I said reasonable access. I didn’t say shown. Cause that language is indicative of, of real estate realtor transaction, right? So it might seem simple and maybe it doesn’t make a difference. I’ve just been doing it that way for 10 years and I’ve found tremendous success. So that’s the way I believe it should be done. So what I say is it’s like, Hey Tony, it seems like we’re at a crossroads here. I get a feeling you kinda like everything that we’re talking about, um, and you and I are on the same page except for when it comes to price, you’re gonna go, yeah, I just, you know, I’m not gonna give it away. And I hear you loud and clear. Now I get a little bit deep, you don’t have to do this, but I’m just sharing with you what works for me.
Eric Brewer: (28:32)
I, I would say, you know, Tony, you probably don’t know this, but as a house fire, 80%, 90% of the time when I meet with someone and make an offer, it doesn’t work out. Um, some days that can be hard, right? Striking out 80, 90% of the time is difficult. And as a company, we made a decision a while ago to try and figure out how we could offer people more money in an attempt to get more yeses. And where we kind of got stuck is how do I offer more money but still remain a smart investor? Cuz those sort of seem like it’s either one or the other. But we really put our heads together and uh, tried to figure out a way that we could give more people like you that have a nice house that wanna sell. But like you said, you’re not gonna give it away, but still be a responsible investor.
Eric Brewer: (29:16)
And we came up with a program, I don’t call it novations. Novation means absolutely nothing to a, a customer. What we call it is our equity protection program. This program allows more of our clients to protect a bigger piece of their equity in their property, but still have the convenience of selling to someone. Like, now, I don’t know if anything like this is of interest to you. Uh, maybe you and I are just so far away and you have other plans, but if you wanted to hear more about it, I I I don’t mind, you know, taking an extra 10 minutes or so and walking you through that program and they go, for those of you that listen to, you can’t see me nodding my head, but I was doing it violently. Most people are gonna say yes. And then what I say is, is that, you know, I think Tony, I could probably get you very close, if not all the way up to that number of $140,000 that you’re looking.
Eric Brewer: (30:02)
But something about the investment has to change for me. And there’s only really two things that I would ask of you that’s different than what we’ve talked about so far. I would need you to provide me with reasonable access. Um, and I’ll get into that. Basically what I’m gonna need to do is I’m gonna need to bring some perspective buyers through here and then I need your permission to put it on the open market. The original pricing you and I talked about, I’m fully confident that I can buy it and renovate it. I could sell it to one of my investor partners, I could rent it the numbers you and I are talking about those, that stuff’s becoming really tight, right? But if you’re flexible in those two things, I think this deal might, uh, of interest to you and they’re gonna go, yeah, okay, well tell me more about that.
Eric Brewer: (30:37)
Well, here’s what happens when I’m able to do that, I’m able to take your property and expose it to the open market and I’m gonna go out and look for one of four potential buyers. And this is where my opportunity becomes to be an investor. One is they’re gonna buy it as is just the way it sits. But they need financing. And with financing becomes an appraisal. And a lot of times with appraisals there’s, you know, some issues that pop up might be with FHA for example, there’s, you know, safety requirements. They have condition requirements and a lot of times that same buyer’s gonna want a home inspection. And what I heard you say is you don’t like that stuff. You’d rather avoid a home inspection and appraisal because you just really, you wanna be done with it. Is that is, is that correct? Yeah, yeah.
Eric Brewer: (31:17)
Yeah. I I don’t wanna deal with any of that crap. So what happens a lot of times, Tony, if you were to take your property to the market and say, I’m gonna price it as is, you’re gonna alienate that buyer because it’s gonna say right in the listing as is no fha, no financing contingencies, um, where I will go out and I’m willing to work with that buyer because I found that a lot of times they’ll bring back an inspection report and I won’t, one of two things fixed. And because of my experience as an investor, I’m able to get that stuff done for just a little bit of money. They can then move forward with their loan. They’re comfortable with the results of the home inspection and we make a deal. As long as they’re willing to pay me a little bit more than what I’m paying you, I can make that deal work.
Eric Brewer: (31:55)
Second option is they’ll buy it as is. They love the house, but maybe the wife is in love with a brand new kitchen and they’ll come to me and say, Tony, you’re asking 200, I’ll give you two 20. But here’s the catch. We want a brand new kitchen. We researched it and we know a kitchen costs $20,000. If you install that for us, I’ll buy the home from you. Now here’s the cool thing cuz of my relationship with, with contractors and my experience, Tony, that $20,000 retail kitchen probably costs me 10 or $12,000. And you know, oftentimes we’ll wanna do that after settlement. I don’t wanna put brand new kitchens in a house and then have the deal blow up and I’m back to square one. So that’s a situation to where we can make that deal work. Where by the way, you can do that if you wanted to.
Eric Brewer: (32:32)
You can put a kitchen and I’ll even connect you with my contractors and they’re gonna go, no, no, no, I don’t, I don’t wanna do that crap. No way, Jose, I’m not doing that stuff. Third option would be maybe they want a kitchen and that roof that you and I talked about that seems in pretty good shape, maybe they’re just a little worried about same deal. They’ll say, Hey, roof costs 15,000, we’ve added 15,000 to the price, but Tony, that roof only costs me $10,000. Now I’ve made a little bit of profit on those upgrades that the buyer selected because you and I have negotiated a price that really ties my hands, right? Fourth option is, and I hope this never happens, but it’s an option if someone comes along and they want the house completely remodeled, they wanna pick out everything from the carpet color to the style of kitchen, to the countertops, to the the finished basement.
Eric Brewer: (33:16)
Those are a massive pain in the butt. They often take us months and months to get closed. But you know what, if someone came to me, they paid me a reasonable price, as long as they were okay with me doing that after settlement and giving me a big deposit, I would probably consider it. So by you giving me permission to go to the open market, I can shop for one of those four buyers under those four different circumstances. And here’s the catch. If you look at a property that’s on the market and you’ve probably bought a house before or sold one, it’s one price. Take it or leave it. So this gives me a competitive advantage when I go out to the market that I’m willing to do one of these four scenarios to make the deal work for you, make the deal, work for the end buyer, and make the deal work for me. That’s it. Wow,
Tony Javier: (33:59)
That’s amazing. So that’s, that’s a lot of different things to, to talk to them about. Obviously it sounds like it’s more paperwork, it’s more work explaining it. But again, if there’s disconnect between the price that you’re willing to give them on a wholesale or a flip and what they’re wanting, that’s a way to, to get there. Right? What would you say is the difference in price between what you’d offer on a wholesale compared to a novation would you say, you know, there’s usually about a 20 to $30,000 disconnect. Would you say there’s a little more, a little less? And what gets you to do a novation compared to a wholesale?
Eric Brewer: (34:31)
So I do that with every single, every single deal. I make that pitch to every deal. If, if I know I can pay one 50 and I start at a hundred and they tell me that 1 1 30, I’m still gonna say that. Cuz here’s two things it does. Two things. One, it creates the opportunity for me to notate it. Two, it justifies my original price. Too often what we do is we price anchor, they say no, but they say yes to a price that we can make. And we go, okay, I’ll do the deal. You don’t think that. Some people go, well what the hell was that original number? Oh, about Tony, did you just try and whack my head off? You started at 60, you came up to a hundred. Here’s the second thing that happens to people that say no and their number still isn’t good.
Eric Brewer: (35:09)
You, they say no. And you come up and you don’t explain why you came up. You’ve now conditioned them that all they need to do to get a higher price is to say no. So how do they know when, when negotiations are finished? They don’t know. When you have a compromise that each time you come up and price you ask for something in exchange, they’ll oftentimes stop asking for more money cuz they’re tired of giving up convenience, they’re tired of, of the compromise. They’ll go, listen, I’ll take 90, I’m not cleaning out the garage, I’m not mowing the grass, I’m not not cleaning the windows, I’m not taking all the stuff out of the house. We too often walk in as a, as a wholesaler and go, I’ll buy it cash, I’ll clean it out, I’ll close whenever you want. You’re giving away all of that stuff in the front when you should just lead with an offer, get a response.
Eric Brewer: (35:50)
And then when you come up say, well I’d come up, but would you be willing to clean out the garage? Tony, we, you know, oftentimes we’ll do that for you. But if you’re gonna ask for more money, it might be helpful if you’d be willing, um, to do that for us. And if they say no, right? They’ve said no to the higher price. So there needs to be an exchange for compromise and give and take when you’re in negotiations so that you set the proper precedence with a seller. So a lot of times what’ll happen is I’ll say, Tony, I can do a hundred not an 80 if you do these four options and they’ll go, no, no, no, I don’t wanna do that. Let’s go ahead and go with the 80. Here’s what I found. When you give people one option, sometimes you force them to seek out a second. And that might mean another investor, it might mean a realtor. If you give them two options, we’ve made it easier for them to choose one. If I give them three, four, or five, I’m probably gonna confuse them. Mm-hmm. . So that’s the other part about this. We’ve seen a lot of people that they, they they price anchor, they, they come up and say, I’ll do it if you provide me reasonable access and permission to the open market and the person goes back to the wholesale office.
Tony Javier: (36:49)
Sorry, I’m looking at comments here. Somebody’s thanks for the share today. I thought it was a question. Uh, fantastic. This is, this is like, this is gold. I don’t know if anybody’s really like paying attention to this and like taking really good notes, but I’ve got a ton of notes here and I still have a bunch of questions. I’ll be mindful of your time and try and wrap up here in the next 15 to 20 minutes. But, uh, lots of lots of things going through my head now. So with notations or, or excuse me, with wholesale properties, sometimes there’s clean out that’s done. Sometimes there’s paint carpet, sometimes there’s some minor renovations that are being done. Do you ever do that? Do you ever put money into the property?
Eric Brewer: (37:21)
Yeah, but here’s, I’m glad you asked that question cuz a lot of people heard about novations maybe two or three years ago or five years ago. And that was a very popular fix and flip strategy where you, you renovated the home, you quote unquote partnered with the seller and then somehow the proceeds got divvied up at the end. Um, pace Morby, who’s amazing at Creative Finance actually has been teaching ations, but that was his style where it was a fix and flip strategy. This is not what I’m doing. That may be great. And quite frankly, he knows 10 times more about that strategy than I do. This is, again, remember it’s the nice house that typically means they have minimal renovation. Like when was the last time you had a super distressed seller with a perfectly nice property, they go hand in hand, right? It’s like when there’s distress, there’s typically something that’s wrong with the property or a lot.
Eric Brewer: (38:05)
So these people that have moderate motivation are very minimal, oftentimes have very nice homes. Um, so you shouldn’t have to do things like a clean out. But, um, what we find on our deals is our average renovation cost is around $1,500 on our novations and it’s appraisal related repairs, inspection related repairs, um, I would call it punch list stuff like A G F C, um, a handrail on an attic, stairwell peeling paint on a, you know, basement window. Well it’s that kind of stuff, stuff. So you really don’t have to do renovations because these properties by design are nicer homes. But I wouldn’t, I mean sometimes it’s, it’s useful to, to, to maybe spend 500 bucks and do landscaping at the front, but we really never do anything up front when we see our cost for ins, it’s after the home inspection, after the appraisal.
Eric Brewer: (38:55)
We’re literally 10 days away from closing and I’m doing this stuff just to get through the underwriting for the loan and then I’m closing. So, and a lot of times you can even, uh, escrow it. Um, some lenders will allow you to escrow appraisal repairs. Now they will ask you for 150% of the cost mm-hmm. . So if they say, Hey, this is a $1,500 electrical panel, you’ll have to escrow 2250. Um, and then, you know, get post, uh, settlement, but you’re done. You’ve already gotten paid, you got your money to spend $2,000 when you’ve already made 26 or 28 is a, is there’s no risk involved. You’ve already gotten paid.
Tony Javier: (39:28)
And I guess that’s another pitch to the seller too is that hey, inspections are gonna be done. If there’s anything on there that’s not a major thing, it’s most likely we will take care of that for you. Right?
Eric Brewer: (39:38)
We 100% will. That’s, that’s your value. When you look at your contract and it’s two pages, right? And it says as is no commissions, no fees, none of that stuff. And then when you look at the third party transaction with a real estate agent that’s got a mortgage contingency and inspection contingency, the paperwork’s this big. The best way to illustrate to someone why I’m making money is look at the paperwork. Here’s your Ivy Hill, here’s the other deal. I’m responsible for all this other crap. If I can successfully get us through that stuff, which I’m really good at doing, whatever money shakes out, that’s different than when you and I agreed on, I get to keep, is that fair?
Tony Javier: (40:12)
But what if there’s a foundation issue? What if they find there’s a
Eric Brewer: (40:15)
20? You should know that we should know that you’re looking at that as a, that that, that that foundation problem would’ve popped up on your wholesale deal. That’s no different, right?
Tony Javier: (40:23)
Yes and no. I mean, there’s some, there’s some houses that we bought we’re like, ah, this doesn’t look like that about a foundation deal. And we realized that the whole thing needs to be dug up and redone and it’s 20,000 compared to five. So
Eric Brewer: (40:32)
How did you handle that?
Tony Javier: (40:34)
We either had to eat it and, and just realized that we were making really good profit on that if they weren’t willing to to come down or we’d have to renegotiate. So do you, are you able to renegotiate on your ins?
Eric Brewer: (40:44)
Yeah, so like you, you have, you know, the ideal novation contract would have a 60 to 90 business day settlement and have the due diligence period match that.
Tony Javier: (40:53)
Okay. Yeah, that’s a big question that people had was, you know, if you go through with this, do you have to close on it? Is there a way?
Eric Brewer: (40:59)
No you don’t. Um, but you know, it has a lot. So I, I did it, the largest novation deal I’ve ever done was a $200,000 gross profit. It was on a $600,000 property. So here’s one, you made a good point earlier. So what about all the deals you would pass on? I can tell you I’ve been flipping houses for a long time. I’m not buying $600,000 homes in York, PA where the median price is two 40. I’m just not buying the house, right? And I’m an aggressive investor. I’ve been doing this for 17 years, so I’m certainly not gonna be able to sell it to my buyer’s list if I’m not doing the dealers a good chance that the buyers on my buyer’s list aren’t gonna gonna buy a $600,000. So I made a deal with that seller for a 90 day settlement, but she’s like, listen, I’m not giving you very shrewd lady, I’m not, not distressed at all, paid off.
Eric Brewer: (41:44)
I’m not giving you a 90 day due diligence. That means 90 days from now if you can’t sell it or whatever, I’m just, I’m stuck. So she gave me a 30 day due diligence and 90 days to close, right? And I sold it within the first 15 days or something. So I was like, okay, I’ll remove the due diligence. Now if that deal would’ve fell apart, depending on where it fell apart, I would’ve had to take it back to market and find another buyer where I would’ve had to close on it. But I was willing to take that chance once I finally made the deal. Cuz I think I was at six 50 when she said that. I said, I’ll do that with 30 days, but I need to be at 600. And we made a deal. I knew no matter what happened, it was worth 700.
Eric Brewer: (42:22)
So if I had to close on it, absorb closing costs and all that stuff, I’d still make 25 to 50 grand depending on, you know, whether or not I had to do some cleanup. It sold for 7 95 to a cash retail that waived inspections by, I mean it’s like a, I try not to use that as an example because it’s like, oh, if you do ins you’ll find cash retail buyers and make 200 grand. That’s once in 11 years that I’ve been doing these. Right? But my point is, is I never would’ve done that deal if I didn’t know how to take the property to the MLS and novate it to a retail buyer. And I had a second offer of $10,000 more to a finance buyer. And for obvious reasons, I went with the cash buyer with no inspections. So I could have made even more money and even if the cash buyer didn’t come along, I would’ve made that other deal and I would’ve had to fight through appraisals and inspections and stuff like that.
Eric Brewer: (43:11)
But, um, worst case, I’m gonna make a hundred K, but I just wouldn’t have done that deal if I, if I wasn’t familiar with Ations, I would’ve passed on it cuz I just, a 60, a $600,000 acquisition is risky. It had multiple barns and outbuildings. It was on 15 acres. We could look it up. 2138 Smith Station Road, Hanover, Pennsylvania, for anybody that’s listening to look that deal up, um, you’ll see it’s sold for 7 95. It’s probably been a year now since we did that. And we had that under contract at $600,000. If you ever go to, I did a bunch of webinars and stuff and case studies. I use it, the HUDs and all that stuff for part of multiple case studies that I’ve done and, um, didn’t have a poa. She signed all the documents. So she saw that I sold it for 7 95.
Eric Brewer: (43:57)
Um, and she didn’t complain. She didn’t push back. We, we talked about it up front. I said, I hope I sell it for a million, but I’m worried it might only sell for 700. And if I close on it and absorb all the closing costs, I will have invested $600,000 to maybe make 10. That’s not a great investment. This other deal is I just need you to be flexible in these two things with me in order to have a chance at doing that. If it doesn’t work, that’s all me. Yep. And, and it did, it worked out. I, I mean, I got it marketed. We paid for pro pics, we had drone footage. We marketed the, the snot out of it and it worked out out.
Tony Javier: (44:31)
Nice. Nice. So we got some questions coming in. I like this. Can you share an example of a novation you executed where the seller had attorney representation? Have you ever had attorneys representing the seller?
Eric Brewer: (44:41)
Yeah. Ever. I mean, we have, so we’ve done a bunch of deals in New York. I’ve done 50 plus ins in Rochester, New York, that’s an attorney state. Every deal we’ve done up there has been represented by an
Tony Javier: (44:54)
Attorney and they don’t have any pushback.
Eric Brewer: (44:56)
Yeah, they have pushback. Well, they have questions ins are so new. I can tell you this, and Tony, you probably remember when you first started the business attorneys wouldn’t do assignments. Mm-hmm. , it can’t be ethical, blah blah, blah. They wanted to tax us all kinds of stuff. Um, notations are so new that most attorneys, um, and titled companies won’t know what it is. Um, that’s part of what we teach in, in, in, in our course and what we do with our clients is we educated on how to have those conversations with attorneys. It’s, listen guys, this is not sketchy, it’s not edgy, it’s not illegal, it’s not immoral. Um, you just have to present it. Here’s what I can tell you. If you send over to a title company your purchase agreement, a poa, a third party agreement, a sale where you’re making 40 k a listing agreement signed by the power of attorney and you say, Hey, cut me a check at settlement, they will probably have a problem.
Eric Brewer: (45:47)
You need to have a phased introduction of the documents that say, Hey Tony, we wrapped up a new deal today. I’m buying 1 23 Main Street from Mr. And Mrs. Smith. You may notice there’s a little bit of different language in that contract than what we normally use. Um, we’ve added a novation, um, clause in there that gives us the ability to notate it. Um, let me know if you have any questions. Call him back a day. Hey buddy. Did you get a chance to look over my contract? Yeah, it’s all fine. No problem. Hey Tony, uh, the seller super interested in convenience. They’d rather not deal with signing any of the settlement documents or any of the stuff that happens between now and when we get it sold. Can they swing by your office and have you sign a limited POA so that someone in your office can execute the sale documents? Oh yeah. No problem, Tony. We do it all the time for sellers, by the way. They do a limited POA is normal practice for people doing real estate. My so
Tony Javier: (46:36)
Limited poa, what can you not sign? You can’t sign the closing documents. The seller.
Eric Brewer: (46:40)
Yeah. You can sign everything that’s associated and consistent with the original purchase
Tony Javier: (46:43)
Agreement. As long as the seller gets their net price that that’s on the contract. Correct.
Eric Brewer: (46:47)
Right. Which is all spelled out in the original purchase agreement. Talks about transfer tax, it talks about probations, it talks about inspections, it talks about commissions. So as long as the net proceeds align with your promise inside of the original purchase agreement, you can execute every document associated with that sale.
Tony Javier: (47:05)
Gotcha. Uh, if anybody wants to come in into the chat, um, and the conversation, we’ve got a little bit of time, you can raise your hand. Um, another question is we, how do we learn more in terms of details? Um, so Jason, can you expand on that? I’m not sure exactly what you’re meaning by details. Do you, do you have an idea what he might be referring to, Eric?
Eric Brewer: (47:24)
Probably. So what I told you about the pitch is like the easiest part, the hard part about these deals is the back end, right? So how do you get it listed? Um, how do I find a real estate agent? One of the things I’m huge on is do not use a flat fee listing service. I’ve been in this business long enough that I can tell you in a balanced market and especially in a buyer’s market, buyers agents will not show properties listed by a flat fee listing service for one of a couple reasons. Typically, they’re dealing with an emotional seller that doesn’t know anything about a real estate transaction and they’re just not willing to subject themselves and their clients to a deal that has a high likelihood of fallout. The other part is oftentimes that person’s using a flat fee listing service cuz they’re cheap and buyers agents have been getting their commissions whacked for three years.
Eric Brewer: (48:08)
They are ready to get back at all of these sellers that have been reducing their commissions for the last three years. Now, people were begging buyers agents to bring buyers. So don’t use a flat fee listing service. You can go out find a investor friendly real estate agent. Oftentimes, uh, my success is found with either boutique. They’re very investor friendly. A lot of agents end up at boutique brokerages because they’ll allow ’em to do their own deals. They’re flexible with their commission structure. They can do assignments. They’ll, they’ll let ’em do investment deals. Where some of the big box brokerages have very strict rules, um, about your commissions and, and what your, you know, your fee structure is. Keller Williams has honestly been the exception for me. They seem to be very investor friendly. They allow their agents to go out and build and run their own business.
Eric Brewer: (48:49)
I’ve been with Keller Williams for six years, um, and I have one agent who has done my last 1000 ation deal and I pay her 1% and then two and a half percent to 3% on the buyer’s agent side. So it only costs me three and a half to 4% to sell that deal. Do not use a flat fee listing service. Um, it’s another big thing too, when, when you have a novation deal that has a flat fee listing service, the communication from the buyer’s agent normally has to come back to you and they go, what’s your involved? You’re not a realtor, right? You’re not on the list. What’s going on here? And they’re like, ah, this just seems sketchy when you have a regular agent that listed for a buyer’s agent. It just looks like a normal listing. John and Mary Smith own 1 2 3 Main Street and they’re asking 2 49 for it. And Liz Hamburger, their real estate agent is the one handling the sale.
Tony Javier: (49:33)
Do you think that that, um, brokerages are gonna go to net listings because of notations?
Eric Brewer: (49:37)
So here’s the thing about net listings. Like in Pennsylvania, you, you can’t do ’em, right? And I think the general problem that people have with net listings is that as an agent, there’s a fiduciary responsibility to the seller. And if you’re making more than what they consider is a reasonable commission, people just aren’t uncomfortable with it. Mm-hmm. , right? Like it’s been generally accepted that 6% commission is acceptable. If you’re making what turns out to be 40% commission on the sale, uh, that’ll be heavily scrutinized. So no, I don’t think they’re gonna go to net listings because the agent is making what is considered. This is not me saying this, what is considered to be an absorbent amount of money to as a commission, it’s considered unfair. They’ve done this to lenders, right? Like they’ve capped lenders, um, post 2008 on what their fee structure was able to be, um, when they originate alone.
Eric Brewer: (50:27)
Um, so there’s a lot of legislation around commissions and what’s fair, which whether you agree with that or not, it’s the reality of the situation. As an investor, you are able to make whatever you make because you’re taking the risk, right? I’m taking the risk of if there’s an appraisal repair and inspection repair that I might have to make that repair in order to get the deal done. And the general perception from the seller, and I can tell you from from anybody involved is that you’ve taken the risk, you’ve done this extra work, right? You’re due more money than an agent would be. And by the way, most sellers would gladly pay an investor $40,000 profit before they would pay a real estate agent, $10,000 commission because their perception of what a real estate agent does is minimal. They think they make way too much money and don’t do any work. I’m not saying that’s the truth for all the real estate agents out there. I’m saying that’s the seller’s perception of real estate agents that they put a sign in the yard and they make a bunch of money and they don’t do any work. I think we all know that is definitely not the case, but that’s what most sellers think. So
Tony Javier: (51:24)
Ryan asked, how can we educate really good real estate attorneys that nothing is wrong with this? And are there any resources that we can send them to to let ’em know that
Eric Brewer: (51:31)
It’s, Ooh man, I wish there was more. If you go into YouTube, there’s just not a lot of really accurate UpToDate information. Um, I’ve been doing these for 11 years. I’ve only been teaching it for about a year. And when I first started teaching it, it only because I was in a mastermind and I had to get up and talk about something that was unique or different. And this is the only thing I thought that was unique or different about my business. And um, when I left that, that presentation, there was 50 plus people waiting for me outside the door cuz it blew their mind. And I spent about the next three to six months helping those people implement it. Um, and as the word got out, quite frankly, um, I just couldn’t continue to help people unless I was charging for it. There’s just no way.
Eric Brewer: (52:11)
So I spent about a hundred thousand dollars building out vig video modules and training and education, um, and a document library. I have multiple opinion letters across different states where we’ve taken the time to go into these states, um, that have scrutiny around investor transactions. And we’ve got official opinion letters, um, that cost thousands of thousands of dollars about why novation deals are ethical and moral and legal in those states. And you know, so for, I’d love to be able to say that you can go out and find a bunch of information about it. I don’t think that you can, I’m gonna give you the ability to download the novation addendum, which is the thing that connects those two purchase agreement. I’m gonna give that away free to anybody that’s listening here and I’ll give you that, that slide or that QR code Tony, for anybody to get access to.
Eric Brewer: (52:56)
And you can post the link in the chat there if you want. So people have access to it. But you really just gotta invest time into learning it yourself. You can do it. It’s no different than wholesaling, right? This is just a, a little twist and a pivot from what you’re already doing. It’s, it’s different language, different positioning, different paperwork. It’s a heavier lift on the back end, but the upside is significant and if you’re willing to spend the time to learn it, you can do it yourself. You may make a couple mistakes, you may have some, you know, some heartburn as a result you may have a deal fall apart. Um, or we do coach it and teach it. Um, I have an entire course that people can enroll in where we have weekly coaching calls. We give them access to all the documents.
Eric Brewer: (53:35)
We have scripts about how to introduce it to a title company, how to introduce it to a seller, how to introduce it to a closing attorney. We’ve even created, uh, cuz we have lots of clients and attorney states like what we did in Rochester. We have a different cover sheet that’s now part of their contract that says, Hey, when you take this over to an attorney, they’re probably gonna have these five problems with our agreement. Let’s talk about that stuff now. Right? Like I remember talking to, as a gentleman by the name of Tommy Karell who does a tremendous business up in Boston and it’s a very litigious state, right? And he was saying, dude, these are incredible. I’m writing up, I have a voicemail from him. I kept, to this day he was writing up five notations a week. The problem was because he was doing business in attorney state, half of ’em were falling apart when the attorney got the paper mm-hmm. .
Eric Brewer: (54:17)
So we created a cover sheet for him and now he’s at like an 80% stick rate because I, I don’t know if you ever saw the movie, uh, eight Mile with m and m and you remember how he said his, the way that he won was at the end he said all of the bad stuff that the other guy was gonna say about him when he did his performance. And the dude had nothing to say. I was like, we need to use the eight mile approach on these attorneys and say you’re gonna have this problem. When they ask you why are you allowing him to take it to the open market and not doing yourself, what will you say? And Tony would say, cause I don’t wanna mess with the appraisals and the repairs. Got it. Then you should say that when he asked that question. Nice.
Tony Javier: (54:50)
So yeah, go ahead and pull up that slide. You said you were gonna give that away and I I, I didn’t know exactly what you offered as far as, you know, coaching and all that kind of stuff. We’re actually probably gonna take you up on that as well for our team. So Eric’s gonna give you a free document and excuse
Eric Brewer: (55:04)
Tony Javier: (55:05)
Tony. What’s that?
Eric Brewer: (55:06)
Can you see the QR code
Tony Javier: (55:07)
There? Yeah, I can see it. Yep.
Eric Brewer: (55:09)
So all you have to do is scan that and plus I, I have the, the URL in there that, uh, Tony, if you want to copy and paste that or I probably can and put it in the chat.
Tony Javier: (55:16)
Yeah, can do that. That’d
Eric Brewer: (55:18)
Be great. And uh, I’m giving you away the document. So if you have a purchase agreement that has one line, everybody goes, I wanna see your contract. Here’s the secret. It’s just like the one you have now. Put this language in your purchase agreement and you’ll have the legal right to novate a property, which is frankly 10% of the battle. But this is all you need in your contract. Buyer has the right to novate
Tony Javier: (55:38)
Property. That’s it.
Eric Brewer: (55:39)
That’s it. So you can’t obviously put that in your purchase agreement and then take it to the MLS and have a bunch of showings and bring the seller a contract for a, you know, a buyer that’s 50 grand more and have ’em go, what the heck just happened here. You obviously have to explain it, but the language is simple. The paperwork on the front end is simple. The back end is, is really where, you know, the, the opportunity for fallout is. I mean that’s where we focus a lot of our training and education and documents because we found that that’s where a lot of people end up, um, having some problems or fallout. But I’ll, I’ll go ahead and put that in the, in the chat so that someone could, could go back and copy and paste
Tony Javier: (56:15)
That. Are there, um, if they go to this domain here and they download the the document, are they able to see where your coaching and your, your resources and everything else that you provide for people as well?
Eric Brewer: (56:26)
Yeah, I mean I’ll put that in there as well. If you wanna skip that and you just want to go to our website where there’s probably two dozen or so testimonials from people that have, um, come through the course that we’ve taught. Brewer method.com. There’s a bunch of video examples there. There’s a ton of education, there’s a couple webinars that I’ve done, probably half dozen of those or so where you can see case studies and stuff like that. But I put the link in there that’ll take you directly, um, to that document. And then once you’re at that place where you can get the document, you’ll have access to the webinar recordings that we’ve done as well.
Tony Javier: (56:56)
And for those of you listening in and can’t see it, it’s brewer method.com/tony. That’s the free document that you can, uh, you can download from him. So. Awesome. Fantastic man. Well hey, I appreciate your time. This was mind blowing. This is something we’re gonna definitely implement in our business. I’ve been hearing it for the last six months, nine months, whatever it is, but I haven’t really understood everything about it. So I think you answered like probably 90, 75, 80, 90% of the questions that I had. The other 10% is really just diving in and doing the implementation and probably learning as we go. So we’ll, we’ll, uh, we’ll reach out to you or your team and, and you know, invest in, in everything that you guys have. Cuz I think it’s, I mean for, for what you said you charge, it sounds super reasonable. You know, if we can do one deal, it’s gonna be, you know, many times over return on our investments. Yeah.
Eric Brewer: (57:41)
Most, most people seeing within about 45 to 60 days, they’re doing their first deal. Again, if it’s, if it’s the average profit of $26,000, we have two options. There’s a $7,800 course where you get all of the documents, all of the training, um, access to our private Facebook pre page, a two hour teaching course that you can bring everybody in your organization. You get a two hour onboarding call and then access to the weekly calls. That’s 7,800 bucks. That’s where we’re really doing it with you. Some people are like, Hey man, I I just need the documents. That’s 5,000 bucks. We have a full library of 20 plus documents and all of these modules that I’ve trained where I broke down a novation deal from the first conversation all the way down to how you get paid into 11 different modules and videos, you get access to those two things for five grand. Um, or if you want a little bit of extra instruction, you can join the community, be part of the coaching calls and that costs us a little bit more money. So there’s two different options.
Tony Javier: (58:37)
7,800 bucks, that’s a no brainer to take advantage of all the weekly calls you’re you or your team. Cause you’re, you can, you can have your team jump on those too, right? Yeah.
Eric Brewer: (58:45)
Tony Javier: (58:46)
That’s amazing. Amazing. Awesome. Good stuff, man. Any, any last thoughts you wanna leave anybody with? Um, and you covered a lot already. I, I, I think you know, I’ve, every single question that I think I had on here was answered. I added a few more that you answered as well. Anything else anybody should know about? Let
Eric Brewer: (59:02)
Me just show you this, this illustration right here. If you have three more minutes, I think this would be, go
Tony Javier: (59:07)
For it man. It’s all about, uh, your time.
Eric Brewer: (59:09)
Like this is a normal deal, right? So here’s a normal deal that you would wholesale right now. Two 50 arv, 75% of ARV minus repairs is 1 67 5, right? If you wanna make a $20,000 wholesale fee, you gotta buy it for 1 47 5. Make sense? Same lead, right? Introducing novation, getting permission, like we talked about during negotiations. Same house, two 50 ARV minus repairs. You also have to discount a little bit because they’re not just gonna buy ARV minus repairs. Price it at 2 18 5. You bought it for 1 47 5, there’s $71,000 spread in that transaction as opposed to your 20. That’s a deal you’re already doing.
Tony Javier: (59:51)
Are you doing those repairs though?
Eric Brewer: (59:52)
No, I’ve just adjusted the pricing for it. See, I’m, I’m, I’m saying it’s a two 50 ARV and I’m listing it for 2 18 5 and
Tony Javier: (01:00:00)
That’s if a retail buyer buys it because they don’t need the spreads,
Eric Brewer: (01:00:03)
Right? Yep. $71,000, that’s like doing three deals. So if you’re, if your production is down by 50% and you add novations and you don’t do new deals but on the deals that you’re doing, you double and triple your profit, you’re not impacted at all or very little by the change in the market. Here’s how that deal looks when you can’t buy it for 1 47 0.5, right? So you wanted to buy it for 1 47 0.5, maybe you can go to 1 67 0.5 if you’re actually gonna flip it and take it down. But the seller says, no way, I need 200, I owe 200. Right? Max offer 1 67 0.5. Seller wants 200 as is values two 50. You pay out a full agent commission of $15,000. I’ve accounted for a little bit more than what our normal is 1500. I’ve said, okay, let’s account for $2,500 in here plus normal closing cost nets.
Eric Brewer: (01:00:52)
2 26 2 50. You gave the seller 200, you make 26,002 50 on a deal, you would’ve turned away before. So you can go, there’s your answer. You said, how much more can you pet? 32 to $52,000 more on an average deal and still make 20 cents. Wow. There’s a good friend of mine, Matt Ager. Andrew said, he goes, when I taught him this, he goes, the only reason he wouldn’t do these is because you don’t know how , there’s no other reason. And you know, so this is what happens, right? We talked about like this is the normal wholesale deal that we buy. Conditions of drag drives up motivation to where it becomes distress, right? That’s the normal deal that we buy the novation deal, this is balance. The seesaw is balanced condition’s, pretty good motivation’s medium to moderate. So that was it. I thought those images were were helpful.
Eric Brewer: (01:01:34)
It might be something of value and we got dude again, 294 people I’d bore you to death with testimonials. Like this is not something new. I’ve been doing this for 11 years, I’ve been teaching it and sharing it for two years. I just recently started charging people a year ago cuz I couldn’t keep up with the demand. Um, Jerry Green, this guy teaches, he teaches sales, he’s got a sales course, the sales team’s cranking out new deals, 3 novations in a week. You do the math at 75 grand in a week. So it’s a game changer, man. I can’t imagine, like I’ve been doing, my version of real estate has included this for 11 years. I would not go into a market, I would not start again if I wasn’t able to do this. It’s too hard doing business without, this is way too hard. Way
Tony Javier: (01:02:15)
Too hard. Good stuff man. Appreciate your time man. This is something that’s gonna allow, allow us, I think to do more deals. It’s gonna allow a lot of people that implement it to do more deals. This is something I really wanna push my clients that are running TV with me to do because it’s going to increase their roi, it’s gonna get them to do more deals and uh, really just for anybody right now who is looking to take the spreads that they were getting with the, with the market the way it was appreciating, they’re not able to get quite those spreads now. Um, this is a way for them to get more spreads and also to do more deals that normally would’ve passed out
Eric Brewer: (01:02:47)
Thinking a tv Tony. Two things, listen to this. When we target motivated sellers and we buy list, most of those have visible signs of the stress, which means historically they may have a nicer home or they might have a a home that’s in bad condition. TV is my number one lead source, but I often get leads from more expensive homes where people don’t have visible signs of distress, right? And then people always ask me, where can I find notation leads tv, the general lead on TV that I, I’ll buy a lead or buy a deal and have it come from TV And I always go back and look at all this money I spend on lists from all these data providers and oftentimes this is a plug for tv by the way. I’ll buy a $40,000 novation deal that wasn’t anywhere on a motivated seller list.
Eric Brewer: (01:03:31)
What I love about TV is it’s timing is always impeccable. If you’re not going TV and you’re buying pre foreclosure list or you know utility, it takes months for that stuff to show up. When you’re on TV and someone loses their job and they see your commercial boom, the solution is there. Someone’s not gonna send them a postcard for three to six months. So TV and ins work phenomenal together for those two reasons. A lot of people that come into our funnel by TV aren’t as distressed, right? And TV also gives you what I call assumed credibility. People just assume when you’re on TV that you’re reputable. They just do. The guy on TV’s, more reputable people say it all the time. They call us on TV and I go, how’d you hear about it? I like, well I got 10 postcards but you were the guy I saw on TV so I decided to go with you. And a lot of those leads that come in aren’t overly distressed. There’s enough of ’em in there that it’s still my number one lead source. But you’re gonna find with tv, TV novations is a deadly combination.
Tony Javier: (01:04:24)
I love it. You just created a Facebook ad for me so I’m gonna clip that out, put it on Facebook and I’m gonna stop.
Eric Brewer: (01:04:29)
I’m just, it’s the truth man. Totally.
Tony Javier: (01:04:32)
I totally agree with
Eric Brewer: (01:04:32)
That. You know that after doing tv, right? Like you get some, it’s my best deals come from tv, it’s my number one lead source. But if anybody were to ever complain about, it’s that we get our unideal wholesale seller that comes in because you can’t really control who TV goes to. Like you can advertise on a show and hit a certain demographic, but there’s a lot of unmotivated people watching TV that’ll call you.
Tony Javier: (01:04:54)
Actually I have something even better for that. What about those that are, and you may get this, do you get leads from really small towns where you’re not wanting to take those down, right? Are you notating those deals?
Eric Brewer: (01:05:04)
Yes. I listen, I’ve got TV leads where people were in Pennsylvania, I did one last month, but were from Indianapolis so they called when they were here cuz they saw the ad and they wanted to sell their house in Indianapolis. And I’m not taking that down, but I notd it, I put it under contract, found an agent through my mastermind group, got it listed on the MLS and sold it to a retail buyer. And we didn’t make a ton of money. I made 1516 grand, but I would’ve just told ’em no thanks before.
Tony Javier: (01:05:30)
Eric Brewer: (01:05:31)
Yeah. So with TV you have this not to Indianapolis when you’re in Pennsylvania, but I get a lot of leads from outside my market that I just don’t want to have to rehab and really don’t want take down and have to worry about or even property manage as a rental.
Tony Javier: (01:05:44)
There you go. I love it man. I love it. Well, good stuff. Any last thoughts? I know you’ve got probably a hundred more things you could share, but anything else crucial you wanna share?
Eric Brewer: (01:05:53)
I think we’ve, I think we’ve, we’ve taken up enough of these peaks, these, these folks time and hopefully I’ve done a good job. Um, if not, if you end up, you can look me up on social media. Instagram’s the best place to get me is Eric Brewer invest. He me if you have any questions, but I shared two links there I gave away, which is the first time I’ve done that. By the way, today I gave away the notation addendum. That might seem like a piece of paper, but that’s 11 years in the making. I’ve invested tens of thousands of dollars and getting my documents clean and legal and easy to understand for people. Um, I’ve gone ahead and shared that document with you that you can get, um, on the link that we share the QR code that we had up earlier. If you have any other questions, just message me. We have an entire sales team that’s able to answer questions and calls for people to help ’em figure out if this is something for them. So just text me and we’ll start the conversation and go from there.
Tony Javier: (01:06:38)
Sweet man. This is good stuff. I love it. I love it. Well thanks guys for, for listening in. We still have a lot of people that have, uh, stayed on with us here. A lot of our, a lot of ’em are my TV clients, so hopefully they’ll be able to implement it and get their, you know, increase their roi, been doing more deals and greasing their, their profits. So until next time, thanks for listening in and we’ll see you on the next show. Thanks. Thanks Eric. See you.