Brecht Palombo: Bank Asset Managers

Episode 327: Brecht Palombo: Bank Asset Managers

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Being a real estate investor and frequently going to the bank can be really frustrating. Software entrepreneur and the Founder of DistressedPro Brecht Palombo shares his ways on how to go direct to the banks with the help of BankProspector, a software that makes it simpler and quicker to locate banks and bank contacts. Join us today as Brecht shares more ways of dealing directly with bank asset managers.

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I have Brecht Palombo with us. He’s going to teach you how to go direct to the banks. It’s a very interesting concept because he’s making it easy for you. They have a giveaway where they’ve simplified where are the banks, who are they and what are their contacts. They’ve done a lot of leg for us. How are you doing, Brecht?

I’m fantastic. Thanks for having me on, Mitch.

We’re going to be talking about going directly to banks and finding some killer deals there. How long have you been doing this?

I started in real estate in 2000. I went independent and started getting ready to work with banks in late 2006. I opened this business and the software in 2009.

What were you doing before?

In the mid to late ‘90s, I was in sales. I sold a bunch of boring stuff. I sold sequel optimization software, database optimization software. I was also in training and consulting. When I got spit out of the first dotcom crash as opposed to the impending one, I said, “I can sell.” I was one of these guys that were running around selling vaporware. There were companies who were like, “We’re going to make something great. Go sell it.” I’m like, “What is it?” “We’re going to figure it out. Get out there and sell it.” When that ended, I said, “What can I sell where there’s always a product?” That brought me to real estate. I feel like it’s one of the few places where as long as you do the work, you can earn whatever you want regardless of the cycle.

I like real estate because if you pick the right strategy, you can do something right and it can pay you for the rest of your life. Are you a techie? Are you the tech guy?

I’m the business and in this business. I’m not the tech side. I guess I’m a good bridge between the tech people and the non-tech people. I won’t sit down and write code, but I know how to get it built. That’s where I am. I’m definitely a numbers guy. I didn’t complete my CCIM, but I’ve got a lot of investment training and stuff.

When I think about going to banks, I think about a lot of red tape and bureaucracy. No one can make a decision. It’s going to take a long time to figure all this out. I’ve shied away from it. We’re all limited by our beliefs. I’m interested in talking to you because I’d like to change that belief system. Where do we start?

That can definitely be true, especially depending on the size of the bank. If you’re looking to work with Bank of America, Wells Fargo and US Bank, these kinds of banks are big. They have many layers of all different levels of vice president, committees and special services. That’s a hard thing to navigate. On the other side, there are more than 11,000 banks and credit unions in the US that are huge bureaucracies. They’re only a very small slice at the top. The sweet spot if you’re looking to go direct is to work with your local community and regional banks. You’re going to find that these banks are regulated. For most people in real estate, the numbers are still big. The fact is that a lot of them run like a lot of small businesses would. You’ll have your CEOs and you’ll have your SVPs. They’re real people who you can get in there and you can have a real conversation with as opposed to some of these much bigger organizations with call centers.

I use private banks. I create notes but I don’t want to sell them. I want to collect the money, but I use private money to do that. I went to the big banks. They didn’t understand how to loan against the note. They didn’t want to know about it or they acted like they had never heard of it before in their life. I went to the community banks, as you said. A lot of times, the great grandfather started the bank. There are still people with the same last names sitting on the board. They’re business people. You can go in there and you can tell them about your business plan. They can rationalize that this is a good loan or a bad loan for them.

I believe wholeheartedly about what you’re saying about those community banks. There’s a lot more of them than you think. As you’re driving down the road, they just pass by. You don’t even notice them until you start thinking you need them for some reason. Then, you start to notice them everywhere. They’re all over the place. There are little bitty, tiny no-name banks all over the place. When you get to rural America, there’s not as much because it’s rural and small towns, but it seems all these small towns have their one or two banks that every one bank with down there and you’ve never heard of them in your life.

Bank Asset Managers: Get somebody who you want to be like on and off the field, in business and in life.

I haven’t been running this business full-time. We have a team and all that. I don’t take client work but the last time that I did, I was working with a guy who’s a private investor. They did hard money and note buying. He bought a little tiny gas station and a convenience store note from a bank. This is a bank with two branches on a little island of Nantucket, Massachusetts. It is a tiny, little bank, nobody would ever notice. It’s on an island. You have to get in on a boat or a plane to see the thing. He bought that note for a little over $900,000. We foreclosed and sold that thing to an end buyer in under 30 days for $1.2 million. I forget the exact numbers, but I know that he ended up walking with about $360,000 from a deal that he bought and we processed in under two months from a little tiny local bank. The reason is that they didn’t want to have this thing on the books. They didn’t want to get in the chain of title. They didn’t want the risk of having a deal with that. For that reason, they were able to do that. That’s just one bank. There are thousands of banks. It’s over 11,000 to 11,500 banks in the US, most of them you’d never ever heard of.

The bank took a $600,000 haircut. Let’s talk about that. It’s not emotional. They have $600,000 to a multi-billion bank. What value are these banks at?

You have to have a certain minimum even to be a bank. Then beyond that, there are credit unions.

It’s the day in the life for them.

That’s why I originally started pursuing banks. I looked at the writing. The writing was on the wall in terms of where we were at cyclicality in the economy. If things go South, where do you want to be? I think you want to be next to the sellers so you can still sell if that’s your business, which at the time it was. When I first started in real estate, I’m out there running around. I started like every Joe on a downtown Boston running around doing rentals. It’s pretty thankless work. You’re turning keys, you’re hoping something happens. Then I started thinking, “This isn’t the best. How am I going to build a sustainable business where I’m not constantly prospecting?” I started moving into the investor market. I started doing a lot of small individual investment sales because those are the people who you could do multiple deals with over the course of a year.

Then I went to this auction where I watched a guy sell 36 assets in about an hour and a half. It is like $15 million to $20 million in sales. He did a year’s worth of business in an afternoon. Where does this come from? It came from the banks. That’s the thing; lenders are always making loans. Some of those loans are always going bad, and then those loans will either be sold or there’ll be foreclosed on. This happens in good times and bad in more difficult times. We see a lot more of it. We see deeper discounts. In times like these, we’re a little peaky, little frothy. We’re seeing tighter numbers, but that doesn’t change the fact that this is a continuous cycle where they’re just processing it through. There are people, it’s their job. They’re not entrepreneurial people. They come in the morning and they’ve got their briefcase or the baloney sandwich in it.

They’re hoping to get out by 4:30 to see their kid’s soccer game. In the middle, they need to sell some assets. Files are landing on their desk and they’re hoping they can make this go away. They can look good for the boss so that they can get a promotion. That’s their whole job. They repeat sellers of discounted and distressed assets. It happens all the time. That’s exactly why I went after them. For you to establish a little niche where you are and where you have, if you can have five to ten lenders who can pick up the phone and do a deal with you, that’s a pretty good book of business. You don’t even need more.

I did a bank deal and we’re in the middle of it. The house was appraised at $1,069,000. The bank let us buy the defaulted note for $400,000 more or less. The guy is $100,000 behind. We bought the note. We bought the arrearage. We sent out the foreclosure notice saying, “Bring the $100,000 and get the note caught up or we’ll foreclose on the house.” It looks like we’re going to get the house. It’s one of the sweetest deals I’ve done in my entire career. I deal with a whole bunch of little stuff, just mountains of it. I buy about a hundred houses a year and I sell him with owner financing. I sell them on 30-year notes. I’ve worked out the underlying financing with private people. I was thinking, I should apply myself more to the banks around here because I have a proven track record for 24 years. I can make some claims that most people can’t make. I should be trusted to close on their assets if I say I’m going to buy it.

It’s interesting you bring that up. I’ve liquidated a lot of stuff for banks. A few hundred assets, a couple hundred million in sales and I’ve had plenty of them a sell before they ever got to me. My contact sells it to someone like you. I can tell you that in my experience, the number one thing that the lender wants once they engage with someone like is to know that you’re the real deal. They do not want to do a retrade. When they work out a deal with you, you put something down on paper, if you get that all the way to the close, they’ll call you again. If you jerk them around, they will not call you again. You’re off the list. It’s important that you stick to your word and that you perform.

Looking back, some of the best deals I’ve ever made were through the banks. I guess it’s that it gets down to that bottom line.

It’s all numbers-driven. That’s one of the things that we try to focus on when we’re talking to people about how to approach this. You begin with the numbers and understanding what their numbers are, which numbers motivate them, which are indicators that they’re good sellers or maybe that they are not and how that all works. They are very much numbers-driven and not an emotion-driven organization when it comes to sales.

We’ve got a couple of giveaways. What do you have to offer to give people a taste of what this business is about? There was a little flash course with about six videos that could get your eyes open to what’s going on. It was called a mini-course called Bank Direct. Then you also have a free streaming webinar.

Bank Asset Managers: The number one thing that a lender wants once they engage with you is to know that you’re the real deal.

It depends on how people want it and how people want to consume it. For me, I like to be able to sit down and get the whole picture and go through it. If you’re the type of person that you want to have an understanding of that, you should attend our free streaming a web class. What we do there is I break down the entire process for you, from the numbers that you need to understand, to an approach to take, like a systematic approach to take to find these deals. In the end, we will give you away our DIY kit. We have a zip file package. If you go through the web class and we do make an offer at the end, if you decide that you want to get more involved. If you decide that you don’t want to get involved, we’ll give you a zip file that has everything that you need in order to go do this stuff yourself. You’re going to do your own leg work. You can do your own research. That’s about an hour-long course. The other thing that you can do is we do have a six video mini-course. That’s a little bit lighter touch. We don’t get as deep into it. If you want it, get a glancing blow on the thing and understand it a little bit better. That’s a good way to go without a big-time commitment.

Go to 1000houses.com/GoBankDirect. There are going to be links to the mini-course, Bank Direct and to the free streaming webinar. Pick the one that you want. If you’ve got enough information and you’re one of those AAA ready, aim, fire guys and take a run at it, you’ve got plenty of information there and forms. If you think you need a little coaching, you’ll have that choice as well. I always say you’re going to pay for the education one way or the other. You’re going to pay for it. The street’s going to charge you either in lost deals or money you stepped over that you didn’t see. It’s a lot less anxiety to pay a coach.

Go to your corner when you’re getting it punched out of you, then go back to your corner, have someone to talk to you about how are you going to keep from getting your nose broke on this deal. That’s my opinion. It has always been my opinion. I’m not saying it has to be me. I’m not saying it has to be him. Get somebody who you want to be like on and off the field, in business and in life. You don’t want to stand next to people that are turds in their personal life. It will all rub off somewhere. Tell us about the bank prospector. This is something you’re selling.

I created this software in 2009. What happened was I was out there banging my head against the wall looking to get direct bank deals. At that time, I had a couple of projects on my own, but I was also full-time as a broker. I was an auctioneer. I had licenses in all the New England States. I was out there looking for how am I going to find these deals. Much to your point about mentorship, I ended up finding this guy who knew what he was doing. It costs me a lot of money, mostly in commission splits over a period of years. It’s funny when I hear about people talking about the expensive courses. I go, “Expensive courses? Try splitting deals for a few years.” If you want to talk about expense, we’re deep into six figures in that. What I learned from him was a lot about how things worked internally at a bank.

Then I learned about these numbers that the FDC, FFI and EEC put out, which gives some indicators about who’s a good seller. It is time-consuming. You have to download these giant spreadsheets, pull them apart, figure out what you’re doing with them. It’s not made for this purpose. What we built was the software that goes out and it pulls in all of the banks and all the credit union data. We’re talking about millions and millions of rows of data. What we do is only pulling out the parts that are important to people. We make that easy to search and we pair that with contact data. We have full-time contact managers. We have a special web interface that we built for them. Their only job is finding, vetting, cleaning and getting contacts for people. What we try to do is eliminate all the research work that you’d have to do and just get you right down into the source so that instead of weeks or months of digging through spreadsheets and stuff, it’s a few clicks and you’ve got the right person to talk to.

This data that you’re pulling out to show us, is that the foreclosed properties? Is it showing you what they have that they need to liquidate? What data are you showing us?

That’s a good question and I’m glad you asked that. There is no reporting of the status of individual whole loans in the US. This is different if you’re a mortgage-backed security or CMBS, there’s detailed reporting because it’s a security. There needs to be this public-facing stuff. If you’re looking for the status of Joe Jones’ loan across the street, that thing is not reported on an individual basis anywhere. The next best thing that we have instead is a portfolio-level data down to the by asset type. That’s one of the things that we show you. The other thing that happens is that there are so many systems out there where they’re trying to show you all the REO.

Let me give you an example. I had three different banks that I worked with. If you are tasked with going to find in the online registry, you can see everything. If you were tasked with going and finding which properties these banks owned, you would never ever find them. What a lot of banks do is they have a bad bank. They have a little corporation or multiple corporations that hold bad assets in their names. You’re not going to log on and go somewhere and pull up TD Bank’s REO. They don’t hold it under TD Bank. They hold it under completely separate corporations. It makes a lot of the reporting that you see out there for REO balances not that accurate because it’s just not clean data. You’re never going to know which banks are doing this or what their corporations’ names are and all that.

Rather than on an asset-level and then crawling up, rather than finding 123 Main Street, then I’m going to find out who the lender is, who the special asset person who is in-charge of this asset, instead of doing that, what we say is, “What if we start at the top level? Which institutions should we be going after? Who in that institution is responsible for the portfolios?” Then they give you the list of assets. That’s how you create the backchannel, you get the back door. It’s not by going through public records. You’re going to miss an awful lot like that. It doesn’t tend to be the way banks work. Banks tend to work with people.

That could be a problem if they were disclosing personal information in a public forum saying, “So and so is behind on their mortgage.” I get it. You’re trying to talk to the asset manager or the REO asset manager. Impress them and get on their list of viable candidates to liquidate properties. It doesn’t sound like rocket science. You’ve got to do the leg work. You’ve got to make the phone calls. You’ve got to make friends. You’ve got to make a network.

It’s a lot of work. What we’ve tried to do is compress that and eliminate a lot of that work for you.

Is there a follow-up with these guys?

Bank Asset Managers: Get a coach in your corner that knows what they’re doing and has been down the road.

Absolutely. We talked about a couple of different systems, but I strongly recommend that he has an introduction system. I’m going to introduce myself to these lenders, so they’ll know me by the end of it. Then a follow-up system. The thing about these people is that while they’re in there with their bologna sandwich day-to-day, you might call them today and they might have nothing. They could have a file land on their desk tomorrow that their superior wants out the door before the end of Q2. You need to be there when that needs to go.

You need to keep the top of mind awareness with these guys. You’ve got to stay in front of them because if they are doing their job, they don’t have a lot of delinquents but when one comes around, they need to think, “I’m going to call him.” It sounds like there’s more minutiae to it than meets the eye. If you the audience is interested in hooking up with that software, just go to 1000houses.com/GoBankDirect. Is that what you call a brank prospector?

Yes. On the free streaming web class, what we’ll do is we’re going to take seven questions you can answer about your prospect before you ever pick up the phone. We’re going to teach you the three-step proven prospecting system. We’re going to give you some of the tools to implement with that. We have people who regularly will go to this class multiple times, take notes and go off to implement on their own without engaging us at all. We’re happy to do that. We’re happy to provide that depth of information for people.

I don’t normally do this but you’ve got me curious and I want to know. Brecht had this software out since 2009. It’s been working. It’s something that he probably has to keep updated all the time.

Full company, developers and all that.

He has the right to change his price anytime he wants to. How much is it?

We have contact-level pricing. There are a couple of different things. We have training and we have software. What happened was I released the software and I had a lot of people sign up for it at the beginning. They said, “I don’t know what to do with this. I don’t know who to call. I don’t know what to say.” I’m a numbers guy. I thought I was giving all these people these numbers and they’ll be excited and that would be great. They were but they didn’t know what to do with it. We had to create some training. We’ve got different levels. Some people come in and they’ve never done anything before. Then some people come in and they’ve done more deals with banks than I have.

Those people don’t need the training. For bank prospectors, if you’re getting the software, then we have three levels at $100, $200 and $500 a month. That is based on your contact volume. Some of our customers have come in. Maybe they’re a hedge fund and they get a power dialer. They’re going to sit somebody down and their whole job is to take our data in and plow through it. They’re on the $500 a month plan so they can get all the context. If you’re looking to work locally, even regionally, it’s either the $100 or the $200 a month. If you do a year, what we do is we give you two months free. Then training varies depending on what you need.

You don’t have to make many deals to make that work.

About a little less than one.

Is there anything you want to say to our readers? Our readers are probably a good prospect for exactly what you’re showing. You’ve got me more interested in it. I may become one of your customers myself because we’re all at different avenues. We call them lanes to open. I have four acquisition managers and every morning when they wake up, all they’re doing is trying to find the next deal. They don’t do anything else but that for my company. This looks like a great lane. I would like to explore it myself a little bit. I think it’s a pretty viable course, which it should be. If you do the work, I’m sure it pays because it’s like the other strategy. They all work if you’re working and they don’t work if you don’t work.

You’re in San Antonio. I’ve got a customer, Joe Bayarena, who’s bought a package of 31 assets out of a tiny little bank based out of San Antonio. The reason they sold that little portfolio of notes was that they no longer fit their lending box. They took a haircut and moved these things along. You never know what reasons they have or what motivations they have in there to sell, but I’d say this if I was going to leave you with anything. Most of us are all private sellers stuff. The problem with private sellers stuff is most of the time they have one deal. You do all this work for prospecting and then you do one deal. I’d encourage you to think about what would it look like if I had even a small number of institutional sellers where we do repeat deals quarter after quarter or year after year. It doesn’t take very many in order to have a good book of business if you’re doing repeat deals. When you know that you can count on, at least a little bit like that, it relieves some of that constant pressure that anybody in this business has if you want to keep the deal flow happening. You always got to keep marketing. You always got to keep prospecting. If you could get a couple of repeat sellers in your quiver, then I think that is a good way to insure yourself and your business.

I’ve done several bank deals in my career but not nearly enough. I always have shied away from it. I like talking to the bankers because when you talk to all of them, when you get with those guys, they’re the ones that take you to the basketball games. You sit on the front row and they got tickets to every event in the world. That will be one. I do myself. It’s more of a socializing thing to me. That’s raising private money and dealing with banks and finding more funds.

It fits right along with what I do.

He said something very interesting. If you want to go ahead and start doing it yourself, go ahead. He’s going to give you what you need to start. If you think you need some hand-holding and some coach, you’d get a coach in your corner that knows what they’re doing has been down the road, then you’ll have the chance to do that too. He’s still educating us for over an hour on the free streaming webinars. I appreciate your taking the time to come, Brecht.

It’s my pleasure, Mitch.

Important Links

• REInvestorSummit.com/GoBankDirect
• REInvestorSummit.com/TaxFreeFuture  
• REInvestorSummit.com/Moat  
• REInvestorSummit.com/100
• REInvestorSummit.com/101

About Brecht Palombo

Before starting distressedpro.com I served independent real estate investors and developers to maximize their return in the acquisition, reposition, and disposition of commercial, multifamily, and construction projects.

As an auctioneer I worked for lenders, special servicers, attorneys, court appointed trustees, receivers and businesses and provide them with rapid commercial real estate, multifamily, and construction property or note disposition services via online auctions, live auctions, sealed bid, or hybrid bid formats. I act as a single point of contact for real estate auctions nationwide.

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