To learn from Eric and his team on how to do novations you can go to https://inc604.infusionsoft.com/app/o…

In this video, I break down the powerful novation strategy and how it can transform your real estate business. Novation allows you to turn dead leads into lucrative deals without generating more leads or taking on unnecessary risks. I’ll share insights from experts, real-world examples, and actionable steps to start implementing this game-changing strategy today. Whether you’re new to real estate or a seasoned pro, this is a must-watch to maximize your profits and scale smarter.

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Itunes – www.TonyJavier.com/itunes 

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Show Transcription:

Eric Brewer (00:00:00):

The one thing you got to get really good at with innovations is figuring out what CCRV is. That is current condition retail value. It means when I go and look at the comps, what properties and comparable condition are being sold to financed buyers, not cash buyers, and what is that value?

Tony Javier (00:00:18):

So Eric Brewer, Mr. King of Ations, he brought Ations to the scene several years ago and has been, I guess, a pioneer in bringing this to the forefront. Not a lot of people I think understand innovations like I’ve been in this business for 20 plus years and I’ve heard many different versions of Ations. Finally just hired Eric to train our team to start doing Ations. From what I understand, it should add quite a few transactions to what we’re already doing with the current leads that we already have. So Eric, thanks for coming on and sharing with us. So I’ll let you introduce yourself and then tell us, just give us a high level overview of Ations and then we can hammer you with some questions.

Eric Brewer (00:01:07):

Cool. I appreciate you having me from a little sluggish today. I apologize. My win would’ve been, took my 9-year-old daughter to the Philadelphia 76 ERs playing game last night and I was able to convince my wife not to have to drive back last night, about two hours for me. So we stayed at a hotel after the game, got a good night’s sleep, but got up around four 30 this morning, got in the car, got everybody loaded up, and so I’m operating on about three hours worth of sleep, hotel, sleep at that. So if I’m a little sluggish, I apologize. As far as Novation, one of the things that I don’t often get to do that I just want to give maybe some context real quick. How many people, if you are doing ovations or have done ’em, do me a favor and just throw a one in the chat real quick. Looks like we got about 23 people. Michael’s got his hand up. If you could just throw a one in the chat so we can get an idea of how many people here are doing ’em.

(00:02:11):

Cool. Looks like we got quite a few. Alright, cool. One of the things I think is helpful to understand the total opportunity that exists with innovations is to just get some context as to how I sort of ended up doing ’em. I was flipping houses in 2006 and 2007, as soon as the economic crisis started to unfold, one of the things that became really a bottleneck in my business is that every house that I was selling on the MLS team with an FHA buyer, and I was flipping my homes in three to five weeks, which means I only owned them for maybe 45 days or less. And every FHA loan requires 91 day seasoning before they can write a contract. And in 2000 8, 9, 10, all the way up to 12, there was nothing harder from what I remember than getting an FHA loan all the way to closing on a flip house that had more than like 50% increase in value.

(00:03:20):

Underwriters literally would look for a reason to decline. The loans appraisals were super challenging and nearly every one of those loans required two appraisals. So I just started looking for solutions. I was flipping about 200 homes a year, buying, renovating, and reselling and having to hold every property for 91 days. The volatility of appraisals and underwriting on FHA loans was really causing me some problems in business. And I was searching for a way to circumvent that process. And that’s how I discovered the practice of nov, which at that point was introduced to me by my attorney, and it had generally been used in his experience and every other type of contract. And even most of the time, like in construction, it’s really just called subcontracting where you can subcontract out a portion of your agreement with a client. And I started to really just take what I learned about innovations and try and figure out a way to make it help my case or improve my business in flipping homes.

(00:04:27):

So the first innovation I ever did was on a public auction. In Pennsylvania, there are super popular way for especially older folks to just liquidate in a state showed up at an auction, everybody had bid up to maybe $110,000. The seller said it didn’t meet the reserve, and they invited everybody to leave the auction that day. And I walked up to the auctioneer, the attorney and the seller, and told him I thought I had a way I could make the deal work. And we ended up writing our first innovation at a public auction with the attorney, the auctioneer and the seller present, listed it on the MLS, sold it and made 30 grand and 60 days or less. Seller was happy. They got, I think maybe 20 grand, more than the highest bids that they were receiving from other investors at the auction. And my mind was blown. I was like, holy crap, this actually will work. If you

Tony Javier (00:05:23):

Think about how did you get the idea, Eric?

Eric Brewer (00:05:26):

Just literally my attorney was like, listen, your whole seasoning issue starts when you record the deed. You just need to figure out a way not to record the deed right in his eyes. It was super simple and I’m like, well, that doesn’t work for my lenders. I can’t just not record the deed. And he introduced me to the concept of innovation and we probably spent six months just trying to pound out the contracts, the agreements, the scripting, how we would pitch it and all that good stuff. And I just had the guts to go pitch it an auction. That was a pretty popular way for us to buy stuff back then. And turns out it worked and then slowly just started incorporating it into our direct to seller business. So flash forward today, we do on average just shy of 40 acquisitions and sales a month, and roughly 50% of those are innovations.

(00:06:27):

So we’ll do over 200 innovations this year. It’s also the most profitable segment in my business. I make more on innovations than I do on fix and flips, turnkeys, wholesale deals. They are the most lucrative deals that I do. So one thing that a lot of people I’ve heard say, yay, I do innovations, and then when I ask them about how they do ’em, they’re really just wholesaling on the MLS. So I want to make sure that we cover today for anybody that’s maybe heard of innovations and not done ’em or is actively doing ’em, that you’re getting the full value out of this dispositions and acquisitions strategy. What I mean by wholesaling, the MLS is some people tell me they’re doing innovations and really what they’re doing is just getting an authorization list on the MLS. They’re putting it in the MLS, selling to cash buyers, investor buyers and notating their agreement.

(00:07:23):

While that is one benefit of innovations where you can go onto the MLS and find an investor that more often than not will pay more, I’ve said before, I think the MLS is the best buyer’s list in the world. Generally, inexperienced investors shop on the MLS. If you ask anybody that’s done any volume of deals to explain their first flip, they’ll probably tell you it failed miserably because they paid too much. They got excited, they had a little bit of fomo. So for us as real estate investors, that’s a great marketplace to be able to position your properties to sell to that otherwise underserved portion of the population. However, the best way to leverage the full power of innovations is to be able to pay more for nice homes that are already in your funnel, right? And we see a ton of these. Our number one lead source for innovations is television.

(00:08:20):

And what we’ve done through a lot of these case studies on innovations that we get through tv as we realize we make 30, 40, 50, a hundred grand on ovations that come through TV on people that don’t show up anywhere on our dataset. What do I mean by that? I mean, I buy, goodness, I don’t know, tens of thousands of records from these different lists that are pre foreclosure, probates estates code violations, someone sneezed two weeks ago, and a freaking data scientist tells me that means they’re likely to sell for a discount somewhere in the future. If there’s a list for sale, we’ll generally buy it. And what happens is we get these leads through tv, we know they to make 50 grand on a super nice house, and I look at my dataset and they’re nowhere to be found. So really what I’ve learned by combining innovations and let’s say just even the power of television and also social media for us, is we can monetize and make 30, 40, $50,000 on leads and transactions that show no visible sign of distress.

(00:09:25):

If you ever hear me talk about donations, and I’m sure we’ll talk about it today, is that I use this analogy of what I call a seller seesaw, that generally there’s a belief, and I think a portion of reality is that in order for us to get a good wholesale deal, two things have to be in play. The house has to kind of be messed up and the owner’s situation needs to kind of be messed up. If you think about it, the best deals that you get and buy at wholesale, generally that’s what we look for. I mean, there’s billboards out there that say we buy ugly houses.

(00:09:58):

The reality is of Novation is that there’s these tweeners out there of where the house is maybe somewhere between average condition all the way up to turnkey. And so the property condition doesn’t fit our normal MAO structure for a wholesale deal or a fix and flip or even a burr. The seller’s situation, oftentimes when there’s a nice house is that there’s no financial distress or other type of extenuating circumstances that make them desperate. And we end up with all of these leads in our lead funnel where it’s a nice house, the seller’s kind of motivated, but they’re not distressed, and we take ’em through a sales process. We get all the way to the end and we end up being 20 to $50,000 away on price. We get frustrated, we throw our hands up, we don’t make a deal, and the lead goes away and we go back to the grindstone and start pounding the pavement looking for a messed up house with a messed up seller.

(00:10:55):

The beauty of this is, is that you don’t have to generate any more leads. I just had a guy from Dallas Fort Worth text me yesterday. He signed up three weeks ago, he said, just landed our first $45,000 deal. Thank you so much for teaching this to me. It was a lead that was in our CRM from seven weeks ago, and they put it in, if you use Salesforce or Left Main or anything, they had it in a nurture sequence. That means probably wouldn’t have called the people for three to four to five months because they seemed unmotivated because of their unwillingness to move on price. So the real, I guess thing that I want to make sure that everybody on this call gets full value out of is I’ve found that about 40% of all leads that we generate through any lead source, it doesn’t matter, tv, cold calling, radio direct mail, P-P-C-S-E-O, 40% of all leads are what I call a balanced seller Seesaw.

(00:11:55):

They’re mildly motivated in their houses at or around, let’s say average to really good condition. Nearly 0% of the time are we able to convince those people to do a wholesale style offer. And that is the biggest opportunity where you can take those properties, pay above wholesale and below retail, and then position that property on the MLS. And the big thing that you have to do to maximize these deals, and most of the markets that we coach in is FHA va Fannie Mae, buyers with low to mid credit score, low to mid down payment. They are the demographic of buyer that will pay the most for properties, even if there’s a little deferred maintenance and it’s not turnkey or fully renovated or move in ready. And the reasoning behind that is is that between 2019 and 2022, that buyer, FHA va, Fannie Mae, low to mid credit score, low to mid down payment buyer could not participate in that low rate environment for three to four years.

(00:13:04):

That entry level borrower couldn’t get a deal. I mean, they were competing with hedge funds, they were competing with investors like us paying cash. They were competing with 20% down conventional borrowers waiving inspections and appraisal gaps and all kinds of crazy stuff. So what’s happened is the largest demographic of buyer that’s moved into the market in this high rate environment is low to mid credit score low to mid down payment, FHA, Fannie Mae borrower. So when you can place this inventory in front of that buyer, that’s where we found the sweet spot and we’re making massive amounts of money on otherwise dead leads.

Tony Javier (00:13:43):

So out of those 20 leads that you, or 20 deals you do a month, let’s call it 15 to 20, how many of those would not have been deals if you didn’t have ovations under your belt?

Eric Brewer (00:13:54):

Half,

Tony Javier (00:13:55):

About half of them.

Eric Brewer (00:13:57):

The other half I would’ve made less money wholesaling. It was still a deal, but I might have made 1215 grand on a wholesale deal. Instead, I made 30 grand on a innovation. It was one of them.

Tony Javier (00:14:14):

So what about the other 20? Why don’t you novate those deals? Are they just sellers that didn’t want to take advantage

Eric Brewer (00:14:19):

Of? You can deal with every deal we find it about. Again, I measure my leads in batches of 100. That gives me a large enough sample side where I can see trends and make decisions. And generally we find about 10% of those a hundred leads. I get to a wholesale style transaction, meaning I bought it at wholesale, 50 of those a hundred leads. There’s not a makeable deal, right? We’re just so far away on time or money or terms that there’s no deal to be made. And then 40% of those leads are a great fit for innovation or seller finance or sub two or something else.

(00:15:00):

So it’s only about 40%. The other people, if it’s a really messed up house and they got to close in two weeks, that’s not a great fit for innovation and not every person is open to letting us have access and putting it on the open market. We find that the best investors close about 15 to 20% of those 40 opportunities. So if you do a hundred leads a month, what that means is there should be six innovation deals in your funnel each and every month. If you’re a good sales operation, you’ve got a sales process that your staff sticks to, you train, you follow up, and you have the discipline to make the offer to every person that says no to your cash offer, those are the people that can convert at the higher end of that 15 to 20%. They do all of those four things with those 40 leads that are in their lead funnel.

Tony Javier (00:15:52):

Gotcha. So just so everybody understands, a typical wholesale deal, let’s say you offer 80,000 seller accepts it, you get it under contract, you market it out for let’s say 120,000, you sell it for 110, you make 30,000 that same deal. You offer $80,000. The seller says, no, I want a hundred thousand or I want 120,000. That’s a deal that you probably can’t wholesale or maybe may not be worth it. You only make a few thousand bucks. So innovation, basically what you’re doing is you’re saying, okay, I can come up to $100,000 or $120,000, but in return, you’re going to allow me to, you can tell me the wording that you use Eric, but you’re going to allow us to market it to the public, basically put it on the MLS, and that’s a way for you to get it out to your best buyer’s list, which is the MLS. And then you’re telling the seller that they will get 120,000, let’s say, and anything above and beyond that you get to keep for facilitating that transaction That I, is there anything that I’m missing there?

Eric Brewer (00:17:02):

No. And generally, yeah, the a hundred percent accurate in exchange for what we call reasonable access and the seller’s permission to take the property to the open market, those are the two concessions I need from them. We are willing to come up to oftentimes what is a considerably higher number than what a cash wholesale style offer would’ve been.

Tony Javier (00:17:26):

Do you know about what that spread is? Let’s say you can be at 80,000. Are you seeing that you have to come up on the Novation side of it, like an average of 20, 30, 40? Do you have that number?

Eric Brewer (00:17:40):

Each seller is different, but I would say the model is at least 25 to $40,000 on when you look at an aggressive MAO for a wholesale fix and flip style transaction versus a very minimal to no risk innovation style offer, right? You’re not getting any closing costs. You don’t have any transfer tax funding fees. So depending on the purchase, I would say your example of a house where you’re maxed out at 85 on a wholesale deal, you could probably pay one 10 to one 15 for that house. And a retail buyer, if it’s in financeable condition, would pay say one 40.

Tony Javier (00:18:24):

That’s pretty substantial because we typically miss out on deals that were 10 to 20,000 apart and they’ll end up going with somebody else because they’re willing to give that higher offer or may keep fishing around. They may not even have anybody. So if we could go to them and say, Hey, we can get you that number, but here are the things that we need to do. I mean, we could get a lot more deals from that. So do you have the statistic on, let’s say you present that to 10 people, how many of those 10 people are willing to go the novation route and how many of those are basically throw their hands up and say, I don’t understand it, or I’m not comfortable with that, or whatever the reasoning is

Eric Brewer (00:19:07):

On the low end. If you present it, and I mean, let’s just say you’re not the best with words, you’re kind of clunky. You’re stumbling your way through it. If you just say, Hey, listen, if you give me 60 to 90 business days to close you, let me have a key and a lockbox so I can show this to buyers over the next 90 days. I’ll give you $115,000 if you literally just said that, and there’s some additional disclosures you’d have to go through when the actual contract, but if you just said that to each and every one of these sellers that said no to your wholesale offer, you should get 10% of those people to opt-in.

Tony Javier (00:19:42):

So make 10 ation offers in at least one. If you do a bad job should commit.

Eric Brewer (00:19:50):

Yeah,

Tony Javier (00:19:51):

That’s pretty substantial. That’s pretty substantial. I mean, gosh, we have 20, 30, 40 leads in a month. We don’t do anything with that. We are that far apart.

Eric Brewer (00:20:02):

And then there’s a lot of hidden stuff. One of the case studies I go through in my market in Pennsylvania, our median price is two 70. So as a rule, if I get a lead on, let’s say a deal and it’s an okay house to flip and it’s a 4 99 a RV, I don’t generally want to do those deals. It’s too risky. The nature of the rehabs outside of my experience, the margins that I’m going to want to be able to do a deal like that, I’m offering the seller just a super low number. They never work out. So you may actually see those leads when they come in to your CRM and it’s on a $800,000 house and you like to flip below half a million. A lot of investors just go, I’m not even going to call ’em back. I can’t do anything for those people. I’m just going to refer ’em to an agent.

(00:20:55):

And then if you’re a wholesaler, your buyer probably thinks very much the way I do when I look to flip that house, it’s risky. I got to get it dirt cheap. My carrying costs are super expensive days on $500,000 homes in markets where the medium price is two 70, that’s how investors go out of business. They get a little big for their bris, they swing for the fences, they try and do a half a million dollar flip. They put lamb in when it should have been hardwood. They put vinyl in when it should be ceramic tile. I speak from experience because I did that and lost 200 grand on a house in 2007. When I say they, I mean me.

Tony Javier (00:21:33):

I have one right now. I’m doing Eric. I partnered with Inexperienced Flipper and I funded the deal thinking it was a home run and same thing, it’s a six 50 price point. The renovation’s just a little bit wrong, and it’s in a price point that people want something nicer. So I’m in the same boat with you there.

Eric Brewer (00:21:52):

So those leads typically are trash and you pay for ’em. That lead costs the same as the home run wholesale deal that you get, right? It’s three, $400 a lead if you’re doing a good job in marketing. And if you get 10 of those, that’s three or $4,000 that you’re literally just lighting on fire. So there’s that whole other segment. We do about one six figure innovation deal every 60 days, and it is always on a $400,000 plus house that we are miles away on a wholesale offer. We’re not even close. And generally that house is pretty nice. It just may have been renovated like 15 years ago or so. And that’s the thing, when you look at houses in our business, if someone has a 15-year-old kitchen, 15-year-old roof, 15-year-old shutters, 15-year-old flooring, when you flip the house, it generally needs to be replaced.

(00:22:47):

So it doesn’t matter if it’s 150 years old or 15 years old, a flipper’s going to rip it out. A homeowner looking at that house doesn’t see it that way. A 15-year-old kitchen may be perfectly fine at that price point. So the one thing you got to get really good at with innovations is figuring out what CCRV is. That is current condition retail value. It means when I go and look at the comps, what properties and comparable condition are being sold to financed buyers, not cash buyers, and what is that value? And then you really just work back from that value the same way you would an MAO on a wholesale deal.

Tony Javier (00:23:27):

By the way, TJ and Joe DiMaggio who are on here, you taught their team how to do innovations, and I think in the first 60 days they did at least one 30,000 innovation. I think they may have done two, and that was months ago. So I think they’ve done many since then.

Eric Brewer (00:23:43):

That’s amazing.

Tony Javier (00:23:44):

Yeah. I know that you’ve taught a lot of people in your program work. So the thing that people look at with ations, and I even said this when I first learned about it, was like, okay, if the seller is agreeing to do this, why would they not put it on the MLS themselves? Because it’s probably a little bit more work for them to find the agent, put it on the MLS, do the paperwork and negotiations and all that kind of thing. So how do you convince them to do that opposed to them just doing it themselves?

Eric Brewer (00:24:19):

So I have some really good answers to that. What I want to do though is go one step backwards and I’m going to ask a question to shift your perspective. I think this question comes from a set of old limiting beliefs. So just put that out there for a second. Let that sort of marinate for a moment. Tony. Let’s say you’re an active in a bunch of markets. You provide a valuable service to investors all across the country. How many people are having a ton of success buying good fix and flips and wholesales off the MLS?

Tony Javier (00:24:55):

Not very many. We are actually on a call yesterday where there was someone that said, there’s still, I think it was Scott here that’s on the call, said he’s still buying on the MLS, but not

Eric Brewer (00:25:02):

Very. Some guys have gotten really good at it, but generally in most markets when there’s a decent lip opportunity that comes up, what happens to the pricing and the offers?

Tony Javier (00:25:12):

Oh, it’s crazy. It just gets bid up and somebody stupid pays a stupid price.

Eric Brewer (00:25:18):

So it would be fair to say that fixer uppers when listed on the MLS sell quickly for top dollar or what some might say is a stupid number.

Tony Javier (00:25:27):

A hundred percent.

Eric Brewer (00:25:28):

So now that we’ve established that, why does any seller need to sell you their wholesale house?

Tony Javier (00:25:36):

They want a quick, easy solution

Eric Brewer (00:25:38):

Maybe, but quick it would sell on the MLS quick and easy, wouldn’t it?

Tony Javier (00:25:42):

Sometimes

Eric Brewer (00:25:44):

We

Tony Javier (00:25:44):

Just send it all time. Well, their perception though, their perception may be that it could take a while.

Eric Brewer (00:25:49):

Yeah, so this is the same thing, right? So there’s a couple questions number. So what I really want to anchor there is that the wholesale deals that you’re already doing, the reality is the seller generally does not need you. They do not. They could list it on the MLS with a real estate agent, pay 6%. It would sell in a week for more than what you pay. Let’s just accept that now we offer a valuable service in the sense that we operate in this space and the normal retail real estate agent does not. A lot of times we meet with people where they had an agent come out and they just told ’em they couldn’t list it, but you’d have to fix this. You got to clean this up. I need to have access. So in the world of fixer uppers and distressed properties, the majority of real estate agents do not know how to navigate through that process and may even refuse the listing.

(00:26:42):

So in that aspect, we function in that space and we’re a little bit more knowledgeable, but every seller that you buy a wholesale deal from could get likely the exact same thing that they get from you from someone else, and probably more money for sure. When we think about innovations, and the reality is that you have to bridge the gap between what their expectations are for a sale. If most people say as is, I don’t want to mess with repairs, I don’t want to mess with appraisals, I don’t want any of that stuff to impact my ability to be able to sell my home. And when you come in and I buy it, let’s say from Tony and his wife and I say, Hey, I’ll buy it from you as is. However, when I list it on the open market in the MLS, I’m going to offer inspections and financing and realtor commissions. That inherently raises the value. If you were to list two properties that were the exact same condition and location and square footage and one was being sold as is and one they were offering financing, would it be fair to say that the one where they’re offering financing and inspections would generally demand a higher price?

(00:27:54):

Of course. So our willingness to really ensure the transaction when it comes to realtor commissions, inspections and appraisals will allow us to demand a premium, and it’s certainly fair for us to be able to participate in that. Right.

Tony Javier (00:28:10):

So when you say we will do 120,000, we want to take it to the open market, are you promising them that you were going to close on it for 120,000 and if not, or even if you are and you can’t get that number that you need to pay them the one 20, what do you do from there?

Eric Brewer (00:28:29):

This is where underwriting comes into play. If I know for certain it’s a one 50 house and I can get it under contract for one 20 with reasonable access, yes. If the seller pushes back on due diligence and all that stuff, we will agree to buy it at the end of that 90 days or 120 days. The more committed we are, the more flexibility we want, meaning terms, I mean, most houses go to settlement pretty quickly, 60 to 90 business days. As long as you have reasonable access and there’s no hidden defects in the property or something that blow up an inspection, you should be able to close. If we’re really pushing the price and we can only get access from the seller for two days a week and a three hour window, and the house is a little bit edgy and we’re concerned about inspections, we’ll write a due diligence period in there and fully disclose to the seller that, Hey, we’re going to rock out here for 60 days and give it the old college try. However, if this doesn’t sell in 30 days, we’ll give you formal notice that we’re going to as a result of due diligence, be rescinding our offer. So you have the ability just like you do with your wholesale contracts to say, Hey, we’re closing 30 days. No contingencies, no nothing. It just comes down to how confident you are with your underwriting on the deal.

Tony Javier (00:29:44):

Yeah, you just got to be transparent about it too, right?

Eric Brewer (00:29:46):

Yeah.

Tony Javier (00:29:48):

Cool. What questions do you guys have? I’m kind of running out of questions here. So what about the paperwork? I know there’s been some talk about what kind of paperwork do you use? Do you use a power of attorney? Do you use a different type of document? Talk everybody through that on how hard or easy the paperwork is for innovation.

Eric Brewer (00:30:11):

Gotcha. So the agreement of sale, literally to just write a good innovation contract, you only really need one additional line of text that’s very similar to assignment language. It just needs to say, buyer reserves the right to nova property. That’s it. The second key thing, a topic that comes up a lot with innovations and title companies and brokers and stuff, is the use of A POA. You do not need a power of attorney to close innovation. It is not necessary. It does make the transaction quicker, easier, and smoother, but it is not required. Okay? So that’s number one. Number two, it’s a limited power of attorney. So you’re not getting a general power of attorney that gives you full control and function over this person’s finances. It’s a limited POA specific to this transaction. Third thing is an attorney. In fact, document is not a legal document.

(00:31:11):

There’s some folks out there doing innovations, and I think even teaching ’em and having use an attorney, in fact, an attorney in fact is a person. It’s not a document. The only document that can assign someone as an attorney in fact is a limited power of attorney. So an attorney in fact is a person that is named in a limited POA. I think what happened is there were some people that were kind of winging it and doing innovations on their own, and they were getting some resistance from sellers on POAs, and they tried to water down or modify the document trail and went with an attorney in fact, and found it easier to get signed. And while that’s innovative, and I appreciate the creative problem solving, it’s not a legal document. You can’t act as a POA with an attorney. In fact document. You have to be named an attorney. In fact, by a limited POA notarized limited POA,

Tony Javier (00:32:13):

From what I understand, the advantage of A POA is so that the seller doesn’t necessarily have to sign the closing documents because when you go to closing, the amount of money you’re making is going to be on the closing document, right?

Eric Brewer (00:32:28):

Yeah.

Tony Javier (00:32:29):

So if you don’t do a power of attorney and the seller sees that, what kind of feedback have you gotten from the seller on, Hey, you’re making 30,000, you’re making a hundred thousand. What’s the pushback on that?

Eric Brewer (00:32:42):

A lot of this will vary based on how transparent you are on the front of the deal. In our sales process, we don’t discuss a RV reno and profits with our sellers. I’ve just found it to not be a relevant piece of information that most sellers that we have a good chance of doing business with care. We focus more on what they got going on in their personal life and what’s motivating ’em to think about selling and what’s maybe made ’em consider going an alternative route. And we make an offer and negotiate based on their flexibility and price. So one thing I see people goes, well, I told ’em I was only making 25 grand and my innovation has been making 50. I was like, why in the hell did you tell ’em you were only making 25 grand? Where does that show me any sales process where it says disclosure for profit?

(00:33:36):

I think there’s guys that go, Hey, Tony, your house is worth four 50. I got to spend a hundred to fix it up. My carrying costs are 50 and I want to make 50, so I’ll give you two 70. The problem with that outside of what we’re talking about is I don’t know about your experience, but every seller would argue a RV. They thought their house was worth more. Most people were salted when I told ’em their house needed that level of work and whatever amount, if I told ’em I was making 10 grand, they thought it was too much, so I just stopped doing it. All it did was trigger all these arguments. It’s like I don’t want to argue with people, so I just don’t talk about profit on the front end. And then if you’ve ever heard me pitch this before, I mean, really what I tell a seller is when I take it to the open market, I’m going to go out and try and find one of three buyers.

(00:34:23):

One is someone that will buy it as is, but they have to be, they need an inspection. They have to pay a realtor and they have to do an appraisal. And sometimes there’s things that pop up there and the seller may want me to fix it or give ’em a credit, and that could be anywhere from 2000 to $20,000. I’m prepared to fight that battle when it comes. Sometimes it’s just me having to be a hard negotiator and tell ’em, no, no, no. Sometimes I got to concede and I might give ’em a couple bucks credit towards a roof or towards a furnace or towards a kitchen. Every once in a while I’ll find a buyer that’ll buy the house the way it sits, but they want me to finish the basement. They’ll literally make me an offer and say, you have it listed for 200, I’ll give you 2 25 because I know it costs $25,000 to finish your basement.

(00:35:06):

Tony, I wouldn’t never want you to worry about that. I wouldn’t finish your basement while you’re still living here. If I ever do a deal like that, it wouldn’t be until after you and I have settled up and go into closing and the seller has paid me up front for that point. Does that make sense? So a lot of times, I think because I would do that, if someone came in to me and said, I’ll give you 2 25 and finish the basement, I would close on the house. I would finish the basement and I would charge ’em 2 25. I try not to do those deals because frankly, renovating homes and dealing with retail buyers on renovated homes gives me high blood pressure. Dealing with contractors and renovating homes is far from my favorite part of this business. So I try and avoid doing renovations on property is all cost if I can.

(00:35:48):

It’s one of the reasons I love innovations, but it’s all just about the disclosure and the process in which you disclose your intentions with the seller. I mean, I tell you five, maybe 10 times in the last 15 years I’ve been doing that, I’ve had a person just absolutely throw a fit the day of settlement or signing docs and just tell me they’re not going to close. And at least 50 to 70% of the time, I just gave ’em more money and all of a sudden they were fine. They couldn’t say they didn’t know what was going on. They couldn’t say, I didn’t properly disclose. They couldn’t say my paperwork wasn’t tight. So I think as long as you’re doing that stuff, you’re disclosing, you’re walking ’em down the path. I would even say sometimes I would say, Tony, I mean, hey, before we move forward, I just want you to know, I hope I make $200,000 profit on this deal, and you know what they’re going to do.

(00:36:46):

You’re not going to make 200,000. You and I both know that, but let’s say I make $200,000 or less. Are you and I going to have a problem? I just think a lot of times people are scared to have that conversation. But just doing that alone, I mean, say a million bucks, if you want to say, I hope I make 1 million on your $70,000 crap box, literally say that and you’ll anchor ’em. Where if you end up making 50, it almost becomes laughable. It’s a theory in sales that’s wildly talked about. It’s anchoring. If I say a hundred thousand dollars and I make 50, the 50 seems reasonable, a hundred to not. So yeah, you’re going to have people that are going to get pissed off. I mean, that happens on wholesale deals. We wholesale deals and assign ’em, and we don’t do blind hus and stuff like that, or they find out what we’re making somehow, and people get a little fussy, they have seller’s remorse.

(00:37:43):

I would tell you in our sales process, we go back and I can say, Tony, we talked about this. Do you remember all of the reasons that you told me you didn’t want to go to the conventional route? Now that I’ve taken on that additional burden and I’ve got us towards the finish line, basically what I think you’re asking for is to participate in the upside that I’ve created without participating in the downside. Is that what you’re asking for? Right. So it just comes back to the short answer would be you actually have to be a decent salesperson

(00:38:12):

Or

(00:38:12):

You’re going to have some problems. But I think that would apply no matter what you do in this business, if you just don’t have good salespeople that can overcome and qualify objections, you’re going to have problems when you make the offer, when you sign the contract, when you assign it, when you try and get access at closing. So just generally good objection handling skills. I think we will make that, again, we do 200 of ’em a year. If we have five people a year that get fussy and push back and give us flack, that would be a lot. We generally don’t have any issues.

Tony Javier (00:38:47):

Cool. This is really good stuff, by the way. Oh, I was just going to call Jimmy out. He just left. So we’ve got a couple of questions in the chat, but before I forget, Jimmy is a commercial agent. He just popped out here. Does this work for commercial real estate? Have you ever done it for commercial real estate or has anybody you’ve seen do it for commercial real estate?

Eric Brewer (00:39:10):

Yeah, I have. I personally done it. I think we did a self storage deal. We novated, actually, I had an agent that brought it to me. It was listed for 7 95. We got it under contract for 500, lowered the price in the MLS while it was under contract, signed a new listing agreement and got it novated for like 5 95, never closed on it. I think we netted $35,000 on the deal. That was by accident. I wasn’t looking for the deal. It was a retail residential agent that happened to stumble into a small storage facility here in pa and seller was spinning and getting a little stressed out about it not being sold, and we ended up making a deal. But we’ve taught it to maybe a half dozen or so students we have that do it with land, land entitlement and development’s a big deal because those projects can be so cost intensive with upfront cost and engineering and stuff. So I’ve personally done a handful of coaching clients that have done commercial land entitlement deals. So yeah, you can do it on, I mean you can novate anything that has the definition of a innovation is the replacement of an obligation in a contract. So anything that has a contract and there’s obligations in it, it can be novated.

Tony Javier (00:40:34):

I’m going to start notating airplanes. That sounds like a lot of fun.

Eric Brewer (00:40:37):

You can.

Tony Javier (00:40:40):

Cool. Awesome. So a couple of questions here. So how do you handle repairs? Are you doing those on the front end or just relisting on the MLS relisting, you buy it.

Eric Brewer (00:40:50):

I never do ’em on the front end. It just gets messy, especially if it’s occupied. I just don’t like doing renovations on a property I don’t own. We do home inspections on the front end of our renovations, so that way, one of the bigger things when you sell retail, a big transition for a lot of wholesalers when they get innovations is they’re selling in a retail market that they’ve never done business in. So they get backdoored a lot by appraisals, home inspections, flaky buyers that get emotional and change their mind. Generally when we’re selling to a cash seasoned investor, they don’t change their mind very often. So we do home inspections on the front end. We posted in the MLS and we treat it as part of the negotiations. When we accept offers, we found that over 50% of retail buyers will waive another home inspection in lieu of the home inspection that we had done.

(00:41:46):

We use a local reputable company, been around for 30 years. I think that adds a lot of credibility to the process, and a lot of times what we found is things will pop up on the home inspection on these innovation deals that we didn’t know about. And it’s a major concern. We do ’em generally within the first week. So a lot of times we’ll go back to the seller and say, Hey, we can’t make this deal. There’s some stuff that shows up on the home inspection that’s going to keep us from moving forward, and they’ll ask you to renegotiate. I hate renegotiating. We only do it when it’s absolutely necessary. But on these retail style innovation deals, particularly on more expensive homes, we’re a big, big fan of getting home inspections up front to eliminate or certainly reduce fallout on the retail deal on the backend. But I don’t do repairs. And a lot of times FHA, you can’t do credits. But generally on these style homes, we’re doing punch list style repairs. So like handrails, peeling paint, g FCIs, swapping out some knob and tube wiring. We spend on average less than $2,000 per novation when there’s repairs involved.

Tony Javier (00:42:52):

Yeah, I was going to say I’d probably be okay with putting a thousand to 2000 into a deal that I know that would sell cleaning up and just doing some basic things that could dramatically increase

Eric Brewer (00:43:02):

The price. And you need to make sure that your appraisal’s done. It’s back at full value. You need to be sure you’ve gone through the inspection contingency period. You need to be sure that you have loan commitment. We’re not doing it until probably 14 days before settlement when the loan is clear to close.

Tony Javier (00:43:18):

Cool. So Adam asked, what are some of the basic mistakes when you started ovations?

Eric Brewer (00:43:23):

I, oh my, a long time ago, probably a ton trying to innovate everything. I think if I came across the house regardless of condition, if the seller wanted too much money, I would write it up as a Novation, slapped everything on the MLS. And then 30, 45 days later, I had to call these people back and explain to ’em why their house wasn’t selling. So it’s not a get out of jail free card. You can’t take the clapped out fixer upper and write novation in your contract and just think that because it goes to the MLS that it’s going to sell for top dollar. You need to be good at underwriting your deals and making sure that you’re putting a deal out there that you can perform on underestimating resistance on condition, like we’ve added a couple different documents and steps in our process. Now when it gets into tc, and when I tell Tony, I’ll give him an extra 40 grand and I need to have reasonable access, he hears what he wants to hear and he gets his house sold in his eyes, and then the first three times we try and schedule showings, he decline, declines them, declines them, and he’s complaining of the tc.

(00:44:30):

It’s going to all these showings. Bro, we talked about this. I offered you 80, you told me you had to have one 20, and the only way I told you I’d give you one 20 if you let me have access to the house for 12 hours a day for the next 30 days, remember? So we added some additional disclosures in our paperwork, our TC due weekly check in to remind people of important terms of the contract and update ’em on our progress, not doing home inspections on the front. I used to have a lot of deals that would fall out 30 days in on a home inspection, and now my contract’s running out, my due diligence running out. The seller thought we were going to settlement in 10 days, so did I. And now the deal’s blowing up because of a 18-year-old furnace or something stupid, not anchoring with a cash offer first and moving up to innovation. That’s a cardinal sin. And I see this now with a lot of students where they’re go, man, I pitched it to 15 people and I can’t get anybody to say yes. I’ll go, give me your pitch. And they’ll go, Hey, Tony, it sounds like you want way too much money. I can list it for you.

(00:45:34):

That’s not probably going to get it done. So you have to anchor with the cash offer. That’s likely what they called you for. They didn’t call you and said, Hey, can you come out and ate my house? They said, can you buy it quick, close as is, do all this stuff. And then what happens is when you anchor ’em at that price and you focus on all of those things, they’re going to go, well, Eric, but I’m not in a hurry. I’m not going to give it away. I know you’re paying cash, but I have a decent house that doesn’t seem like that big of a deal to me. And then literally you package all that stuff up and you go, well, hey Mike, what I heard you say is you’re not in a hurry. You don’t want to give it away, and cash isn’t that big of a deal to you. I think I might have a good fit for a program that would help you get more money and I would still be able to participate in the deal and make a reasonable profit. Are you open to maybe talking for another five or 10 minutes where I can roll out that program for you and see if it’s worth taking a look at?

(00:46:24):

So those three things, I would say three or four things I think were some big mistakes that I made. And I see a lot of people that get excited about innovations. They see others having success and they struggle having the success they should because of those same mistakes.

Tony Javier (00:46:41):

I think another thing people do is give too many options When you go, you don’t want to say, well, cash offers here and Novation Price is here and giving too many options is going to confuse them. And just like Eric said, give ’em the low price and then once you come up with a higher price, they’re more likely to probably take that if you sell it correctly.

Eric Brewer (00:47:02):

Yeah.

Tony Javier (00:47:03):

So Trey says, have you run into issues with buyers title companies not understanding ovations and creating issues prior to closing? How do you handle that or do you require all parties to use the same pre-approved title company?

Eric Brewer (00:47:16):

Let me answer that in order because they’re two really good questions. I started doing these 15 years ago. Every deal I did 15 years ago, the title company was killing the Deal. I’ve been doing it long enough around here now that every title company has probably done a handful of them and finally understands it. So I don’t have many issues anymore. However, I do see students and clients that have issues with title companies, and one of the things I see that they do that I think causes confusion is they send over the whole deal at one time. Here’s my purchase agreement, here’s my POA, here’s this resale contract. So if you’re going to onboard it to your title company for the first time, I do a phased approach. Hey, I want to take a look at my new purchase agreement. We add some language in there, we’re going to start innovating some deals and selling our deals to retail buyers.

(00:48:07):

Do me a favor and look over that language. Make sure you’re comfortable with it. Two days later, hey, just want to make sure you had a chance to look over my purchase agreement. Everything okay? Yeah, it looks fine, no problem. Second thing is, hey, a lot of our sellers we found are asking for more convenience. They don’t want to sign all these additional documents and settlement documents. And when we sell all retail buyer, there’s this much more paperwork. So we have an example of a limited POA. Can you take a look over that and would you be willing to have our sellers that we bring to you to do title sign these, have someone at your office notarize it, and then use that POA to give them maximum convenience? Most title companies are going to say, yeah, no problem. And then, hey, I want you to take a look at a retail contract that I have, the property that I, let’s say our sample property, whatever that I gave you, we’ve now found a retail buyer.

(00:48:52):

I want to send over the retail contract for you to look at, and if everything looks good, that limited POA that you have for Stan Smith, would you be able to go ahead and execute this third party agreement innovation addendum? So short version is when you onboard your title company, do it in a phased approach. Don’t dump all of the documents with no context or explanation behind it. Most people and most title companies will reject what they don’t understand, so you don’t want to create issues there. The second part is, one of the other benefits of A POA is before you would ratify a retail agreement, when you have a POA, it’s super easy to say, Hey, Josh, super excited to maybe put this deal together for you and your buyers. I know my seller’s going to ask, so I want to make sure we have this conversation.

(00:49:39):

Now out of the other offers that we have, yours looks pretty good, and I think I can maybe get you the deal. Would your seller have any problem selling at a BC title company? They’ve already done all the title work and the POA that you see, the limited POA for the seller actually works at that title company. So it would be super convenient for my seller to be able to close there. Would your buyer be willing to do that? I know it would go a long way. Me getting your deal accepted. When you try and do that after you have ratified, 90% of the time it’s a lost cost. So use that as leverage on the front end. Everybody wants to get their deal accepted and why wouldn’t they close at your preferred title company? So once you get your title company on board, especially the deals that you have a POA on, it’s really important.

(00:50:27):

I know we all get anxious and we want to make a deal and we don’t want to cause problems, but it’s better to get that flushed out in front. And then the final thing is, even when the seller or the buyer’s title company blows up the, they can’t blow up the deal. It’s a legal moral transaction. The only reason they would kill it is maybe because of the POA. I’ve had that happen before, but they go, we’ll close it, but we’re not going to allow you to sign this POA and just go back to the seller and have ’em sign the originals. That’s generally the only thing titles company get fussy about. They don’t understand this even though they use POAs all the time for other transactions, anytime there’s an investor in there and someone’s making money, this POA all of a sudden becomes a problem. But you got to stay. I mean, it’s just like anything else. I mean, title companies blow deals all the time for a thousand other reasons. It’s just one of those things where you got to hang in there, re-explain to ’em the process. You may have to go back and get the seller to sign originals if they don’t like the POA, but you should still be able to get your deal closed.

Tony Javier (00:51:24):

Awesome. Trey said also, you mentioned the POA is not required, but makes it easier. From your experience, what does that look like when the seller does not want to sign the POA?

Eric Brewer (00:51:38):

I probably wouldn’t sign one. I wouldn’t take the extra 20 minutes or whatever it takes for me to bless the documents I get. It’s additional hassle for me. I think some people are just skeptical naturally, especially when they’re dealing with investors and wholesalers and flippers. We don’t even, realtors, we don’t necessarily as an industry have the best reputation. I think our ability to be able to properly explain it will contribute to, I think we get over 50% of our sellers all willingly give us a POA, but I don’t think it’s a testament of, maybe the nature of your question is are they likely to back out or I think there’s half of our transaction will give us a POA and we still get the closing. So yeah, I think it’s just a matter of some people just won’t do it no matter how good you make it sound. And then our ability to be able to position it as a thing of value for them, it does. I mean, if they’re looking to maximize convenience and reduce inconveniences, it is a worthwhile tool and you can’t do anything with it that they didn’t already agree to. I mean, that’s the thing about that the only thing you can do is get a deal to settlement to get them the money that they already agreed to in the contract.

Tony Javier (00:53:06):

So the downfall of the POA is not only will they see the closing statement, but they also could kill the deal because they may not sign right if they see how much you made,

Eric Brewer (00:53:15):

But even still mean I had one. I mean, you could just enforce the contract. Then they always go to settlement. I mean, you have an enforceable contract, you can ’em for specific performance. They can kill it that month but if your paperwork’s tight and you did what you were supposed to do, I mean in our area it takes six to 10 months, it’s going to go to closing, I’m going to buy it.

Guest (00:53:35):

Yes. I guess what does that process, what does that process, if they don’t sign that limited POA, do they sign all the listing agreements? Do they sign the purchase agreement? So you just

Eric Brewer (00:53:45):

They got to sign everything. Yeah.

Guest (00:53:46):

Okay.

Eric Brewer (00:53:47):

Got

Guest (00:53:47):

It.

Eric Brewer (00:53:49):

Yep.

Guest (00:53:50):

Very nice.

Eric Brewer (00:53:51):

And a lot of times once you start taking ’em, all those documents, they’ll go, Hey, didn’t you mention that there was another way to go about this? This is an awful lot. So a lot of times once we start getting them to sign all of these additional documents, they’ll actually bring up the POA, right? Because they get a little annoyed by all of the interaction they have to be a part of. I mean, the list of house and sell a house. It’s a big old stack of paperwork, especially to a retail buyer. FHA mandatory clauses, standard contracts. PAR contracts. In Pennsylvania, you got probably 25 pages. It’s a racket, it’s a hassle.

Guest (00:54:30):

What does the fee look like on the hud?

Eric Brewer (00:54:34):

Most of the ones I see, it’s called a release fee.

Guest (00:54:37):

Okay.

Eric Brewer (00:54:39):

If you think about it, it makes sense. I mean, effectively one good way to explain a notation is they’re paying you to get out of the original contract so that they can legally sell it to the third party buyer with no upside for them, basically.

Guest (00:54:57):

Okay. And then do you record a memorandum of contract on these? We

Eric Brewer (00:55:01):

Call it NOI, but yeah, it’s very

Guest (00:55:03):

Simple interest. Okay.

Eric Brewer (00:55:04):

Yeah. And then that’s the mechanism that a lot of title companies, it’s like clearing a lien or a judgment or a payoff. Got it. So yes.

Tony Javier (00:55:15):

Thank you.

Eric Brewer (00:55:16):

You’re welcome.

Tony Javier (00:55:18):

Cool. Good stuff, man. Well, hey, thanks for sharing with us Eric. Eric does have a program like I told you that we bought into, I’ll put the link in the chat here. And his team did agree to do a discount, so it doesn’t look like they changed the code on the link. Eric, if they purchase with this code, what kind of a discount will they get back from your team?

Eric Brewer (00:55:42):

I do have another link I can send you. It retails for 2,500 bucks we have in here for your group, a $2,000 discount. So it’d be $6,000. And then we do you get all of my documents, I have over 30 videos training on each of the 11 steps for innovation. And then we do weekly training calls every Wednesday at three o’clock where we dive into q and a. We do role play sales marketing, so it’s a pretty extensive group, but we will coach you all the way through your first two to three transactions where you’ve gotten closed and paid. And Tony, I’ll make sure you get the

Tony Javier (00:56:22):

Update. Actually, it looks like Mario’s here. He put it in the chat. So if you guys look at the last comment there. So yeah, we hired Eric to train our team. I mean, think about it. It’s kind of the reason that you guys hired us to do TV commercials. We have the process. We have the system make it super easy for you. We wanted the documents, we wanted the scripts. We wanted my team to be able to just watch videos and be able to understand it instead of me having to train them coaching calls, being able to have them come on and ask questions and talk about seller objections and all that kind of stuff. So I think that’s super valuable. So I hope you guys jump on that. Like I said, tj, and I know there’s at least three, four or five people that have said something about them buying the program, loving it, doing deals, and I mean, you’re exponentially going to get your money back if you work the system. So any last words, Eric, appreciate you coming on again. I mean, you’ve done probably more deals than anybody else that I know and definitely more innovation deals. So I know you have a lot of experience. So is there any other words of wisdom or any other tips you can give to our people here?

Eric Brewer (00:57:33):

Yeah, I would just say this, man. I just don’t know why you wouldn’t do it. A friend of mine, Matt Andrew says the only reason you wouldn’t do it is because you don’t know how. If you’re spending money on leads, especially as you start to look at a lot of the legislation that’s cracking down on wholesaling and compliance and the need for brokers to be involved, or even for people to get licensed, facilitating these transactions in a transparent way on the MLS, I think is a wise move with or without the additional profits, the ability to make an extra six to seven figures a year without generating another leads like a big old massive cherry on top. But I mean, I’ve been teaching this for three years now. I’m amazed at how many people out there are still paying tens of thousands of dollars a month for leads and not doing these.

(00:58:26):

I mean, it’s silly. I do understand it’s difficult to learn a new trick, to learn a new trade. For those of you that have teams, like Tony said, you don’t have to learn it and teach your team. You’re allowed to bring your staff to our coaching calls and give them access to the coaching program. So you can have someone on your team, maybe be a designated person. I’ve seen them do that before where you pick one acquisitions agent and they become the novation expert. But just, I mean, start doing it. It’s silly not to. If you do 10 deals a month right now or 10 deals a quarter, you should see a 25% to 40% increase in your business. So I mean, you think about that, that’s depending on the volume of business that you’re doing. It’s no less than a quarter of a million dollars a year in increased profits.

(00:59:15):

It’s just silly not to do it. And it takes most people in our program inside of 30 days to get their first deal locked up and they’re getting paid within 90 days. So it’s a short time investment. You do have to spend time to learn it. You’re going to have to spend some time on the phone with your title company if you’re not actively using a real estate agent now to sell your flips and your wholesale and everything off market, you’re going to have to establish a realtor relationship in your market. So there will be a time investment, however, it’s an immeasurable ROI. So whether it’s with me or you just kind of figure it out on your own or you partner up with someone that’s doing ’em and you JV or something, just don’t do yourself a disservice and spend one more month not doing these and reaping the benefits.

Tony Javier (00:59:59):

Yeah, I remember I went to Tony Robbins Business Mastery over 10 years ago and he said, take your current business and figure out how to optimize your business without any more, without anything else other than the optimization. And so I looked at my numbers and I’m like, we’re doing 50 transactions a year, so if we can negotiate a thousand dollars better on the front end, a thousand dollars better on the backend when we’re trying to sell, and then look at our construction and maybe save another thousand, there’s $3,000 we could save on 50 transaction, that’s an extra $150,000 on the same transactions. And with that mindset, we literally were just negotiating harder on the front, on the back, and then really dialing in our numbers on construction. So this takes it a step further with taking your leads and just optimizing them. And gosh, if you can even do two to three deals a year and make an extra 20 on each of those, that’s an extra $60,000 to the bottom line. So yeah, I’m super excited to get this going. We hired another acquisitions person that’s actually going to take this on and run with the program, so we’re super excited to get it going and seeing how it goes. So yeah, thanks Eric for jumping on here. If anybody wants to stay on after I’m more than happy to mastermind with you guys and solve any other problems or talk about anything else you want. But Eric, thanks for coming on, man, and we’ll talk to you soon.

Guest (01:01:26):

Thanks, man. Appreciate it.