Mastering Novation Agreements with Eric Brewer

Eric Brewer: [0:00] So a real innovation, the way that I teach it, the way that I've been doing it for about twelve years now, is a wholesale style transaction. So I'm not taking deed. I'm not renovating. I'm not partnering. I'm not funding the acquisition. On a property that's in wholesale condition being sold to a retail buyer. So just take like fifteen seconds and just let that sink in for a second. Wholesale style transaction on a property that's in wholesale condition being sold to a retail finance buyer.

Speaker 2: [0:33] Welcome to the Collecting Keys Real Estate Investing Podcast with your host, Mike DeHaan and Dan Austin. From wins, losses, horror stories, and tactics for optimizing your business, Mike and Dan take a real uncensored deep dive into the ins and outs of running a full time real estate investment and wholesaling business.

Mike DeHaan: [0:57] What's going on, guys? On this episode of the collecting keys real estate investing podcast, we have Eric Brewer. And shit, Dan, like that podcast is freaking crazy.

Dan Austin: [1:07] I know. I'm bummed I had a little bit of audio issue, so I couldn't ask more questions because he was shooting fire. And just another guy that actually knows what he's talking about, and he's not b s ing people, which I love.

Mike DeHaan: [1:17] Not b s ing people. Exactly. Yeah. So he is like the novation king. So in this time right now of high property prices, you know, hard to find deals, everyone's getting into creative financing subject to, you know, seller carries all sorts of stuff. And novation agreements, where a lot of people describe it as like you're partnering with the owner to flip the property, which he said he hates that description. But essentially, you have this arrangement set up with the seller, where you can go and like list their property on the market, and you can make a spread on that deal. Right? So you're almost like wholesaling it to a retail buyer. Right? And something that a lot of people try to talk about, most people don't know what they're talking about. This guy's been doing it for like ten years, like way before it was cool.

Dan Austin: [2:01] Yeah. Twelve, actually. Yeah. Was he and he said, and the funny thing is he said different reasonings for doing it Okay. Depending on the market conditions, is still finding a way to hit what he would call this band of like 30% of your leads that come into your CRM that you're not able to capitalize on.

Mike DeHaan: [2:14] Yeah. Just like exactly. And it's a way to capitalize on so many more leads than, you know, just trying to get things for cash offer or wholesale or things like that. And the knowledge that he drops on this is so, like simple, but it's so easy to understand and actionable. And especially when he gets to the end of it, we start asking about different, I guess, rejections we've had to the novation pitch. I love the equity prediction program. Yeah. You'd have to listen for that.

Dan Austin: [2:40] That is so cool. That's such a such a great nuance that is like, I'm using that from now

Mike DeHaan: [2:44] on. Exactly. Yeah. It gets into how he pitches it with like, as an equity production program. We know he has all these ways that he does like a staging program. And, you know, even how he helps people navigate these conversations with their attorneys. And honestly, this is probably one of the most impactful episodes we've done in just in terms of like true actionable content, you could take everything that he said, you could go and put this into your business tomorrow. And I guarantee you, you will be able to be successful with that. Plus, you know, he's active on Instagram. He's open to talk with people he hopped on this show after I just sent him a quick DM. I had no connection with him before it. So he's obviously very happy to connect with people. So anyways, guys, enjoy the show with Eric Brewer. Take notes. This is one you'll definitely want to share with anybody who's interested in investing. And you probably want to listen to it a couple times as well. So really hope you enjoy this episode. And on top of that, if you want to start getting off market leads, so that you can start using these novation negotiations in different opportunities, go to collectingkeyspodcast.com/free, and you can get your free five step guide to start generating off market leads. And then you can start making money like Eric does with not cracking buyers either. He does this with reasonable people, which make it even more aggressive.

Mike DeHaan: [3:54] So awesome, guys. Well, enjoy the show with Eric Brewer. It's a great one. I know you guys will enjoy. Alright, Eric Brewer, from Instagram, where we connected briefly, you are the novation king. And I am super excited to have you on because, you know, creative financing is all the buzz right now. But novations are one of those things that I feel like no one really has a good, I guess, like, good methodology of doing it correctly. You know, you can go and you can ask him forums, you can do all this stuff, it doesn't really, you know, no one has a good answer. But you're kind of the guy because you've done, like, hundreds of them. So I'm super excited to have you on the show. So I'd love to hear kinda like about your background, you know, where you came from, and what your business looks like, and how you're using these innovations to basically just print money, it seems like.

Eric Brewer: [4:40] I actually got started. I ran out of high school. I was in the US Army. After finishing up my time in the US Army, came home, didn't have an application for my MOS in the civilian life, so kinda kicked around a couple different job opportunities, ended up working at a car dealership, worked my way up, eventually got into sales and then management, and got a little burned out after about eight years of being in the car business, working seventy five, eighty hours a week. Super thankful for the experience. It gave me a great foundation and baseline to get into real estate, has played a big part in my development, and made the decision right after having my first child that I could be a good car guy or a good father, and one of those would have to take priority, so chose to do my best of being a good dad and hung up my car salesman shoes, and did some soul searching and tried to figure out what career path would be a good use of experience I got in car sales, but wouldn't be as demanding as, you know, the car business was from an hour's perspective. So somewhere along the lines, I got bad advice, and someone told me that the real estate business would give me more flexibility and time, which didn't happen right away. I can say that the first thing I noticed is I didn't have to physically be at a location like I did in the car business. So even though today in real estate, it feels like I'm sort of always working, I can do it from my phone, from my office, from home, from vacation, but does create a lot of flexibility with where I can work from.

Eric Brewer: [6:15] So after about sixty days of just taking some time off after the car business, my mentor from the car business reached out to me and had an interest in starting a real estate business. Him and I had worked really well together over the eight years that I was there, and we had lunch, and he kinda shared with me what he had found out about house flipping, and this was back in 2006. So wholesaling and fix and flipping wasn't quite as sexy as it is now, sort of a well kept secret, and it sounded super exciting to me. I had the opportunity to be a part of something, you know, sort of from the ground up, and made the decision to do that, and that's how I got my start in real estate. Flash forward to today, we have about 35 employees. Last year, we did three seventy some deals, predominantly in about a two, two and a half hour radius of Southern PA, just above the Maryland border, on the Eastern 0.5 of Pennsylvania, about an hour and a half from Philadelphia. So we do about 25% of our business is wholesale, Another 25% is fix and flip and turnkey. And about 40 or 50% of all of our deals for the last eight to ten years have been innovations.

Mike DeHaan: [7:36] The last eight to ten years. That's crazy. So you've been doing innovations way before these dudes like Pace Morby and these other creative gurus came out and started talking about it.

Eric Brewer: [7:46] I first found out about it 2008. Obviously, there was a major event that took place in 2008, and the way that it impacted me the most is when I was flipping my deals prior to the financial crisis, nobody used FHA financing.

Mike DeHaan: [8:00] Right.

Eric Brewer: [8:00] Everybody had a conventional mortgage, nonconforming, eightytwenty, bad credit. FHA was a bad word. Immediately after the market started to correct, everybody was using FHA. It was like the only way you could get a mortgage in 2008 through about 2012 unless you had a 900 credit score and 80% down. So that caused a lot of inventory management issues for me, because FHA has this seasoning requirement for flipped properties that require me as the investor to own it for ninety one days before I can even write a with an FHA borrower, and then they don't close for another forty five days. And then there were all these extra layers specifically back in two thousand and eight, nine, and ten of underwriting because they got absolutely slaughtered on loans that went bad that were flipped properties. So as they're repossessing these properties, Bank of America, Fifth Third Bank, Wells Fargo, all these lenders are going, We're getting absolutely just murdered on these flips where the guy bought it for 70, he sold it for 190, now we got the house back and it's worth 40.

Mike DeHaan: [9:07] Yeah.

Eric Brewer: [9:07] Right? So we're gonna be very strict about, regardless of what FHA says, they have all these. That's why I first learned the term overlay. If you've never heard of a mortgage overlay or a bank overlay, that means we're gonna take all of the rules of FHA, VA, Freddie Mac, Fannie Mae, and we're gonna oppose all these extra rules on top of that to make it really hard for you to get approved. So that's what was happening then, and I started searching for a solution to this seasoning issue, and my attorney introduced me to Novations, because in a Novation, you're never, much like a wholesale deal, you're never taking deed to the property, so it doesn't create a seasoning issue, and that's when I started learning about Novations. Luckily, early on in 2008, all the way through 2010, Congress passed a FHA flip waiver. They passed the spending bill to incentivize investors like us to buy up all the bad foreclosures, bank owned, and short sales, and they knew that that FHA requirement would inhibit our ability to be able to buy those properties in bulk and sell them after renovating them. So between 2008 and 2010, seasoning went away, and then in 2010, the old rules kicked back in, and that's when I really started cranking up the ovations.

Mike DeHaan: [10:19] Man, there is so much to unpack in that. So so people listening, I have kind of my own view about what innovation is. I would love maybe just take like a quick step back before we dive in. What is your definition of innovation? Like, how do you describe it to people? Because how I hear a lot of people sort of describe it is you're essentially partnering with the seller to flip the property.

Eric Brewer: [10:39] It sounds horrible.

Mike DeHaan: [10:40] Yeah. It does sound horrible, doesn't it?

Dan Austin: [10:42] It does sound it is horrible. We've done it before.

Eric Brewer: [10:44] Partner and flip sound awful. Those two things are like bad words, right? So I'll give you two descriptions. One is like an elevator speech of how to explain it to someone that's in the business, and then I'll give you a second more technical explanation, I think, that will give you the mechanics of it. So a real innovation, the way that I teach it, and the way that I've been doing it for about twelve years now, is a wholesale style transaction. So I'm not taking deed. I'm not renovating. I'm not partnering. I'm not funding the acquisition. On a property that's in wholesale condition being sold to a retail buyer. So just take like fifteen seconds and just let that sink in for a second. Wholesale style transaction on a property that's in wholesale condition being sold to a retail financed buyer. So that's like the flyover version, right? You guys are in the business, you can put the pieces together. The technical explanation of innovation, the word itself is actually just Latin for replacement or new. So if you think about the normal wholesale deal, it's an assignment where I'm taking my fiduciary interest, my equitable interest in the property, my contract, and I'm assigning that property to you for a fee. So I remain in the transaction, right? My contract is actually the mechanism that produces my profit. A novation, which means newer replacement, is actually a conditional release of the original purchase agreement in place of a new agreement. You're like, Well, Eric, why do that?

Eric Brewer: [12:16] When I replace it rather than assign it, it now becomes a financeable transaction, so I can sell that property to a financed retail buyer, which on an assignment, you cannot assign a property to an FHA, VA, Fannie Mae, Freddie Mac borrower. It's not an insurable lendable transaction. So for an investor, that normally means it changes everything, quite frankly, because it means that you have to buy at a deep discount so that you can sell to a cash buyer that's gonna fix up the property, and most often, that person that's gonna fix up the property is either paying cash or using hard money financing. So the assignment and the inability to finance, it doesn't really matter. But when you get lots of leads, which most people do, where the person won't accept their wholesale offer, and the property's in a condition in which it would be sellable to a financed buyer, we generally turn all of those opportunities away, which by the way, are about 75 to 90% of all the leads we generate, people say no to our lowball wholesale offer. It just doesn't work for Uh-huh. Right? So we start chasing ugly houses that need a bunch of work because we go, well, the only people that ever say yes to my crazy offer is someone that's super distressed, that has a house that needs a bunch of work, and those two kinda go hand in hand, and they're willing to sell it to me for 50¢ on That's the like such a small portion of the overall homeowner population. It's literally finding a needle in a haystack over like, we gotta find 200 needles a year if we wanna do big business, right? It's hard.

Eric Brewer: [13:52] Ain't there's hardly that many needles out there. Versus innovations, yet innovations, it's more like, well, the the whole haystack becomes an opportunity because, you know, when you look at a normal novation deal on a property that has a current condition value of $2.50 plus, as investors that know how to do novations, we can pay up to 85% of current condition market value. Wow. So you think about that, how many people did you talk to last week, that if you could offer them 85% of current market value, they might have said, maybe. Probably a pretty good number.

Mike DeHaan: [14:24] Right. In this market, of them, Right? Because everyone's sitting on, you know, inflated houses still. There's a little bit of teetering in the real estate markets making people nervous. You know, no one wants to spend, like, except 65% minus repairs, which is what the wholesale prices are right now. 85 So percent though they take that all let me me

Dan Austin: [14:42] ask the question then, on the technical side of things, you're talking about the Novation agreement. So when you're going in and and you do get a seller to say yes to your 85% of current value, are you actually having them sign a purchase and sale agreement, and then the novation is going to your end buyer? How does that look?

Eric Brewer: [14:58] Yeah, so the mechanics are, we arrive at an agreement, I disclose that, and Mike, Dan, in order for me to make this deal work, and come up from, say, my 150 offer to what sounds like would be a good number for you at 185, the only way for me to make that deal work is if I can take the property to the open market and somehow negotiate with a retail buyer where they buy it in its current condition, or maybe they want me to do some repairs because of an appraisal or an inspection. And it sounds like you wanna avoid that stuff. Like, you're not really interested in appraisals and inspection. Like, no, no, no. I don't want anything to do with that stuff. I want, like you said, cash as is sale. Okay. So if I could take it to the open market and make a compelling offer for a retail buyer to come in and buy it in its current condition, or maybe with one or two upgrades that they're interested in, I can make the deal work, but I do need reasonable access to the property. And then I want to be sure, I need your permission. I want to make sure that we're on the same page. I'm going to take it to the open market. So you're likely to see it on Zillow, realtor.com, the MLS. I often put a sign in the front. That's the only way that I can expose it to the retail buyers that are out there that are going to need an appraisal and a home inspection to make them feel comfortable moving forward. And if and when the time comes where I successfully negotiate a deal with that buyer, I'll come back to you and we'll have to update the paperwork a little bit, but when that time comes, I'll be more than happy to reach out to you.

Eric Brewer: [16:24] I'll share exactly what we sold it for and how that deal's gonna go down. The good news is the number that you and I agree on today is exactly what you're gonna get. If I sell it for a $100,000 less, has no impact on you. Have a big impact on me. I'd be pretty upset if that happened. And if it sells for a $100,000 more, good news is you stick out the exact amount of money that you and I have agreed.

Mike DeHaan: [16:45] That brings up another question, which is a common one. So you have the situation, they want 185, you do go sell that property for 285,000. Then negotiation you typically have with the seller, is it basically like this is your price that you're gonna get and I get everything above that. I know I've heard about people doing these like splits where they'll like give everything above a certain price, they'll do it. Or one of the things that you hear some of these people like these other sort of gurus out there, they'll say like, oh, you fixed in like a $15,000 fixed fee for yourself. You know, they're kind of like leading with the seller in mind, And worrying about having to have that hard conversation at the closing table. But it sounds like you don't necessarily worry about that. No, I just I worry about it on the front end. You're being transparent up front and treating them like a human being. Yeah.

Eric Brewer: [17:30] Everything else that we do about splits and partners and all that stuff is we're diluting the fact that we're gonna make money, right, and we're dancing around a little bit, which I generally It's not really an opinion. I've found success in just being upfront, and I think generally we've gotten so conditioned in wholesale because the normal nature of the business is, I'm buying it. I'm paying cash. Well, I'm not actually. Someone else is gonna buy it, and I don't really have cash. So a lot of wholesalers figure out the level of sort of gray that they're comfortable operating in, and everybody has their modified version of a little white lie that they tell. Where if you're listening to this and you want to do innovations, I would encourage you not to unless you're 100% committed to being fully transparent. Because when you start to involve retail agents, retail buyers, lenders, and you bring all of those people into a transaction, and then you have seller issues where the seller's freaking out because you danced around the topic and you didn't disclose, and you know, I've had people that say they have sellers that are upset because they're making $10,000 It's not necessarily the amount of money. It's how big of a gap is there between what you told them and what they're experiencing, and that indirect correlation is what affects how they respond to understanding you make money, not the profit, So if you make $10,000 is a relatively small amount of money for what we do, and you gave them very little information about what to expect, and the gap between their expectations and what really happened was huge, it's a disproportionate amount of money to expectation, they're gonna freak out, about 8 to $10,000.

Eric Brewer: [19:13] If you're crystal clear about the expectations, and you deliver on the promise, and you make a $100,000, they'll generally have no complaints. Sure. So the resistance you get on the back end is all about how you position the conversation, the amount of transparency that you're willing to operate in, and how good of a job you do on the back end of fulfilling the promise that you gave to your seller.

Mike DeHaan: [19:33] I love it. It's a people biz at the end of the day, and I I think you're completely right on the wholesale, and people tend to miss that. And also too, I think that there is an element, especially with new investors, they feel like a little bit of shame or things like that to be making that amount of money, especially if it's from somebody that they potentially had upside and that wasn't fully disclosed to them. Right? It feels dishonest.

Dan Austin: [19:55] Well, I think too on top of that to add to it is when there is upside people like, why don't they just go and take care of that upside? I'm like somehow scamming them out of the upside. It's like, no, that's not the case. In most scenarios, it's that those people are willing to pay you to not have to deal with that, or they have issues or concerns about their property that they just don't wanna deal with, and so when you're talking about that shame, it's like, let that go.

Eric Brewer: [20:15] It's so weird, right, that we somehow think that what we do is, it's really kind of egotistical if you

Mike DeHaan: [20:21] ask It really is.

Eric Brewer: [20:23] We believe that this business or this particular niche is so much different than anything else. Most people have bought and sold and traded in multiple cars, by the time they reach 30 years old. Every single person that trades in a car at a dealership has always taken less for that trade in than they couldn't have knowingly, out of matter of convenience. And no one ever says, Well, why don't you sell it on your own? It's generally accepted in that industry, and somehow we believe that every home seller out there is always it's one of the, I think, the grave mistakes that real estate agents make, and they miss a massive opportunity to work with investors, is they have this sort of narrow perception that every seller that's ever contacted them is only interested in getting top dollar for their property. Property. They don't see that there's this blend of convenience versus value. Right? So they have plenty of people. I've bought so many properties off the MLS. It would make you sick. Where the seller called me, it's been listed for four months. I'm having a meaningful conversation with them, and I'm like, hey, why not just continue with the real estate agent? It seems like you guys have it priced close to what it would sell for. I'm like, yeah, that price came from my real estate agent.

Eric Brewer: [21:36] I really wanna get out of here in like the next forty five days, and I'm just not super I know that I can get more money for it, but that's less important to me than the peace of mind and getting done. And I'll call the agent after the contract's written. I'll go, hey, Mike. Great news. I'm gonna be sending you a 5% commission check at $1.40, which is the price that me and your seller arrived at. That was fair. We're gonna close in forty five days. I just need you to move to the pending, and then show up at settlement to collect your check. You don't have to work through the appraisal or any lending issues. I'm gonna pay cash. Is that cool? And they're

Mike DeHaan: [22:03] like, oh.

Eric Brewer: [22:04] They never had a conversation with the person about what was actually going on, and they just make this assumption that every single person wants maximum amount of money for their property, and it's frankly just not true. As wholesalers, we do it all the time. We turn around and sell it to someone that's gonna make probably two or three times the amount of money we are. They're gonna do more work, there's a matter of convenience to us, and we don't have to fund the property, and we can settle in three weeks, we don't have to wait three months to get the renovate, but somehow we believe that we're different than the people that we're servicing, it just doesn't make good sense.

Dan Austin: [22:35] Yeah, it's not true. Yeah, that's a great point. So, on that same vein, because I know people, listeners are probably going through their head of like, well, what does this look like? What kind of seller is this? So, could you maybe talk about kind of the ideal, seller persona, what you're kind of targeting for those types of transactions?

Eric Brewer: [22:52] That's a great question. I appreciate you asking it. It often gets overlooked. There's two answers to that. One, these people are already more than likely in your funnel. You're already communicating So with on a very broad scale, it's anybody that has a house that doesn't need a complete remodel that wants more than you can pay. So that's very broad, right? That's who you should be offering it to. Now let's talk about who likely accepts it. The person that will likely accept it, oftentimes what I found was let me take a step back. I do this in batches of 100, what I call net leads. And what I found is out of 100 net leads, about 10% of the people are likely to convert to a wholesale offer. And then I go, okay, what do I know about that 10% of people? I call it a seller seesaw. If you imagine the old playground and the seesaw, and on one side, there's condition. On the other side, there's discount and motivation. As condition deteriorates, what happens to discount and motivation? It goes up, right? And the condition, by the way, is the property or their life circumstances. They either have a messed up roof or a messed up marriage. There's something going on, and as condition deteriorates, it's just weight displacement. Condition comes down, motivation discount goes up. So this is what your 10% of net leads wholesale book looks like, right? Distressed seller, property that needs a bunch of work. Those two, like I said before, kinda go hand in hand, and they're willing to sell it for 50¢ on the dollar or close to that.

Eric Brewer: [24:21] Alright. So now what's the other 90% of my leads look like? Well, about 60% of those are reversed. Conditions way up here. There's not much going on in their life, and you know what? The house is perfect. Doesn't need much of anything. Well, discount and motivation's down here. I wish I had a solution for that. I don't. If you tuned in for that, I have to apologize, you're gonna be let down. We just put those people into a long term nurture sequence. Generally, it might sound morbid, but we hope that something changes with the property or their situation, that that might get back to balanced, or maybe even an extreme search, it'll completely flip flop. Right? They lose their jobs, someone passes away, they get sick, the house has a major catastrophe that they can't afford to fix, something has to switch. But I can't do anything with those people other than just put them on a meaningful long term follow-up sequence that's generally automated, right, because I don't wanna waste time talking to a bunch of people that have zero motivation. So now what's left? Well, it's 30% of your leads, right? 10% distressed, high discount, high motivation. 60% flip flopped, no deal, no way, unrealistic price.

Eric Brewer: [25:28] They don't wanna move for two years. Multiple decision makers, nah, can't do anything with them. Now 30% of your people are what I call a balanced seller seesaw. There's a little bit of reasonable motivation. They wanna make a deal, and the property is at or around just above or just below what I would say good condition. So let's talk for a second. Only two of these categories of the three that I gave you are monetizable for us as investors. The middle part, 60%, can't do anything with them. 10% of these leads can be monetized by way of wholesale. 30% can be novated, seller finance, sub to. All of those people kinda fit into that category. And then inside of that 30%, there's like, landlords are more likely to do seller finance than an owner occupant. Because they're an investor, and that makes sense to them. So you mean I can go from getting a thousand dollars a month rent and dealing with maintenance to $600 from you? Cool, I'll do it, as long as you pay me my price. So inside of this 30%, there's a couple different smaller categories of people, all of which can be monetized if we make a compelling offer that aligns with their desired outcome. So the point is there's three times more opportunities in your lead funnel if you learn how to do novations in these creative deals than there is trying to jam everybody into a wholesale box. So the normal person is that. They like to make a deal. They're relatively motivated, but not distressed.

Eric Brewer: [26:52] They're not they're saying things like, Mike, that sounds good, but I'm not in a hurry. Dan, that all sounds great, but I'm not gonna give it away. There should be an alarm that goes off in your head when you hear that that goes, no wait. No wait. No wait. No wait. Right? Because now when I say, well, I could probably do a deal, but it's gonna take maybe three months to get this buttoned up, Mike, is that something you'd even consider? I already heard him say ten minutes earlier, he wasn't in a hurry. I know the answer to the question. It's rhetorical at this point. Right? So those are the people I'll generally tell you, wholesale deals were solving like third world problems. Financial distress, like dire straits. Novation deals were solving first world problems. Convenience, discretion, stuff that we don't understand why people would do, but they're willing to pay a premium for that stuff because it's important to them. So hopefully that shines a little light on the difference between, like, what a wholesale deal looks like and who you're getting people to accept your offer now versus what these folks would look like.

Mike DeHaan: [27:53] Yeah. That's huge. And and I think that you outlined perfectly with the, I'm not in a hurry. I'm not gonna give it away. I mean, I'm gonna definitely make sure that all of our sales guys listen to this, because they bitch about those people all

Eric Brewer: [28:04] the time. It's like a great house.

Mike DeHaan: [28:05] Because that's like

Eric Brewer: [28:06] Right, sometimes we'll actually get a wholesale deal accepted on those deals. One of the things that we don't talk about enough with novations is if you position and anchor all of your negotiations with a cash offer, and any time you increase your offer, you suggest that we do what I call the equity protection program, because novation doesn't mean anything to a seller. You say, Well, Mike, I might be able to get you approved for our equity protection program, which may allow me to come up a little bit in price, but I'm not even sure that that's something you would consider. And they'll go, Well, yeah, I'd love to hear more about it. So let's say now we anchor at $100,000 Seller says they'll make a deal at 150. I propose the equity protection program. We move and land at a spot that's 150, but now I have their permission to take it to the open market and have reasonable access, that's a property deal that you're already making, and maybe $1.50 is a max allowable offer, but you would have only sold it for $1.70 to a cash investor. Now you can take it to the open market and sell it for 1 seventy's an investor price off market, $202.10, to an on market retail buyer, so now you can increase your deals that you're already doing. What I found is when people get really good at innovations, about 25% of your existing wholesale deals will become innovations, on those I deals, the profit is normally

Dan Austin: [29:26] can see how you're doing hundreds of these, because this is just like, just that small nuance, the equity protection program, because we've been caught doing this ourselves, woah, what about innovation? Hey, you're right. They don't know what the hell that means. They don't even know what a wholesale means, let alone this complex document called innovation agreement.

Mike DeHaan: [29:43] Yeah. Yeah. That that's awesome. So, as you're going through that, do you do any work to these houses to get them kind of like market ready? Like, even if carpet, paint, you do anything at all, or you just kind of just throw them up?

Eric Brewer: [29:56] No, remember, like the general property that was the ideal fit was in really good condition. So normally, situation that's best suited for this, and the seller that's best suited for this, is attached to a property that's in what I would call move in ready condition. So I also would apply a disclaimer that says for the last three years, you could put an overpriced peach's junk on the market and it would sell. What we're starting to do now is what we offer is like a staging service, is what we're gonna call it with our sellers, where we'll go in, we'll do some behind the scenes, what we call decluttering. I wouldn't say that to a seller because it could be perceived as offensive. Straightening up, cleaning, preparing for really good professional pictures, and then we wanna make sure that when we go to show the property to a retail buyer, that it's appealing to them. So we're starting to do this now. We're doing a home inspection on the front end of all of our innovations. We're including that home inspection document on the front end of negotiations because we don't wanna think we have a retail buyer at a solid profit locked in, and find out three weeks from now there's something about the property that they're just uncomfortable. And it may be something trivial or something that we don't think is a big deal, but again, remember, you're selling to a retail buyer.

Eric Brewer: [31:10] They're emotional. They're probably a little nervous. They got three or four other people telling them they paid too much. You should have waited for interest rates to come down. That house needs way too much work. Right? You should have got a better deal. So we want to really manage the buyer transaction at a very intentional level, and those are a couple of things that we're doing on the front end of these deals to make sure that we go under contract, and we go back to the seller and say, great news. We said ninety days, we're actually gonna be able to settle in forty five. We don't wanna have to go back to

Mike DeHaan: [31:41] them and get an extension or bring bad news. Nice. That makes sense. And and what you're doing, right, at at the very base of business is you are making sure that it appeals to your customer, right, which is the retail buyer at the end of this house, who's going to be monetizing it. That's me that I think it's very heavily lost as a lot of people look to explore these situations. So that's interesting. So yeah, the staging service, again, a lot of it's about phrasing about it. Because like, you're completely right. You could go and say like, oh, yeah, we're gonna go and do some some fix ups to the property rights and repairs and decluttering. That kind of sounds offensive to people if they don't see there's anything wrong, and it can immediately kill that rapport.

Eric Brewer: [32:16] But to answer the second half of that question, we do inspection and appraisal related repairs after we've accepted an offer, after the home inspection and appraisal, we have mortgage commitment, you know that the deal's 99% likely to go to settlement, because we've gotten through all of the because that's all the stuff where a deal can die. The appraisal, the home inspection, and the loan underwriting. Once we've gotten through those three major hurdles on this retail deal, we'll go ahead and do appraisal or inspection related repairs, or in a perfect world, you just go, Hey, we got estimates of about $2,500 to fix that stuff. Would you be okay if we went ahead and gave you a credited settlement? Now you're I mean, that's the cleanest way to do the transaction, but on FHA, VA deals that often won't fly, the repairs have to be done before they'll fund the loan.

Mike DeHaan: [33:03] That's great.

Eric Brewer: [33:03] So you just have to work through those. The differences between the loan products will dictate whether or not

Mike DeHaan: [33:07] you gotta do it before settlement. Nice. So then you're never coming out of pocket until it's pretty much a done deal. Yep. Awesome. That's super great. So one last question on, I guess, like this whole process with the seller. So once it's signed around, once it's novated, you have the end buyer. The seller has to go to closing, right? Like, how do you keep the seller from becoming like a flight risk or getting nervous before the end of it?

Eric Brewer: [33:29] A lot of what we talk about on the back end of the deal is dictated and predetermined by the upfront conversations that we've had. So one really cool part about these deals is you can get a limited power of attorney on the front end of the deal, and then you're able to sign listing documents, third party agreements, releases, reply to inspection, change in terms addendums, settlement documents, HUD's. You can assign a POA, a limited power of attorney, that is the seller, So then they don't have to attend settlement. They can just get a wire at the end of the day, again, which a lot of people remember, we're solving first world problems. Convenience is a reoccurring theme with a lot of these folks, and they're trying to find this balance between, I want to get more money than a wholesale deal, but I like the convenience of what this offers. So we get, I would say, limited power of attorneys on over 50% of our deals, and we just position it as a convenience. Hey, Mike. As we discussed, in order for us to get the property on the open market, there's a stack of paperwork I need to come over and get you to sign in order for us to take the property to the open market. But I wanted to let you know, a lot of folks in your position select to sign not this stuff. We have a one page document that authorizes us to sign that stuff for you.

Eric Brewer: [34:45] You can pick whichever one you want, this paperwork or this paperwork, whichever you choose is the best fit for you. Just let me know which one you wanna do, and I'll either bring the stack of documents or the one page document. And if you go to the one page document, you and I won't have to talk until settlement where you'll just get your check. Whichever one you choose is fine with me. Just let me know which way you wanna go.

Mike DeHaan: [35:06] Nice.

Eric Brewer: [35:06] And people are like, What do you mean? What's the one page dot? What's the limited power of attorney? It gives us the ability to get the property on the open market. You know, someone's gonna make an offer, hopefully, unless I grossly misjudged the deal that you and I made. Someone's gonna make an offer, and a lot of times we gotta go back and forth, back and forth, back and forth till we finally get to a deal, and each one of those back and forth offers and counter offers needs to be initial. So yeah, a lot of people just try and skip all of that and go one page document. But again, whichever one you wanna use is fine, Nice. So no. But we Let's go with the one page document. I don't I don't care what you guys do as long as I get by two hundred.

Mike DeHaan: [35:43] Yeah. That's no brainer. So we've done we've done a couple of novations, and one of them we did a power of attorney like that. And I'm just curious to hear what's your typical responses to this. But the seller that we worked with, they went to their attorney, and was like, hey, so these people want me to sign a limited power of attorney regarding the sale of this property. And, you know, attorneys see that and they're immediately like, you know what, you're gonna give up your rights to your real property. And that's something that we face a lot. It's funny. Dan and I, we we write a joke about this. How many of our sellers have lawyers that they that they probably can't afford, but they all apparently have someone in their back pocket. So do you ever have that situation come up, and kinda how do you face it?

Eric Brewer: [36:22] Yeah. It doesn't happen for us very often, although we have a bunch of students in attorney states where every single person has an attorney because it's the way that the the law that takes property is exchanged. So we just created it. It's kinda like, I remember I was going through this, this is with an investor out of Boston, he does some other deals in the Northeast, a guy named Tommy Caffarello, and he was like, Hey, man. He's got this real strong Boston accent. He's like, We locked up about 50 of these deals, but 25 of them fell apart when it got to the attorney. I need your help. As we were talking through it, I referenced you remember the movie Eight Mile with Eminem, where his final performance, he says all of the things that he knew they were gonna say about him, and then he hands them the mic and goes, there, tell them something they don't know about me. Well, we pulled an Eight Mile on him, and we created a cover sheet, and we said, now Mike, when you go to your attorney, he's gonna have a bunch of questions. It's kinda what they get paid for is they ask tough questions. For our deal, we already know what questions they're going to ask. Let's go throw them together. He's going say, why would you allow them to market the property on the open market? I've listed the three things you told me were important to you. No inspections, as is, and you want a predictable outcome.

Eric Brewer: [37:28] So that's why we're doing it that way. I would encourage you to share that information with him when he asked that question. He's gonna wanna know what happens if we don't buy the deal. I've covered that right here. I put those two things in here. It's a very easy explanation. If you chose to go with the one page document that allows us to authorize the documents to get it to the open market, he's gonna wanna know why you did that. Let's talk through that, and I'll fill in these two blanks here so that you can answer that question when that time comes. So it was like one extra document that we did at the beginning of that, and then when they went to the attorney, he's like, Well, you know, why are you doing this? He goes, He said you would ask that. We talked about that. It's X, Y, and Z. Oh, well, about that? He goes, Yeah, he said you would ask that. We talked about it. The reason I decided to give him a limited power of attorney is I don't wanna be bothered with all the back and forth documents of signing all that stuff. By the way, he mentioned that if you had an issue with that, no problem, we would assign you as my power of attorney, and then you could do the back and forth documents. So up to you, attorney, did you wanna be the POA, or should I let them handle that for me? Oh, well, no, as long as you're good with it.

Mike DeHaan: [38:31] I like that.

Eric Brewer: [38:32] I don't wanna be bothered with that. Oh, okay, cool, me either. So like, we just created a cover sheet, then gave it to them with the contract, so they went to the attorney, it was like, they were handling the objections for you, because if you don't talk about them, and then they ask those questions, it makes the seller feel stupid, and when people feel stupid, they're gonna pull away. So that's what we did. We just created a one page document that says, hey, here's all the reasons someone would tell you not to do this. Let's just talk through it now, because if it's a problem, I'd rather know today than to have you three or four days from now feeling like you made a mistake, and then I'm calling you, you're not calling me back, I don't know what's going on, you don't wanna talk to me because you might be embarrassed to tell me the truth. Let's just skip all that stuff and hash it out right now.

Mike DeHaan: [39:13] Man, I love that. I love the know you are back to the attorney. Exactly. Like, ultimate I mean, it's perfect because every attorney you write is gonna be like, oh, no. I don't wanna do that. So your tactics are so simple, but so brilliant. I love it, man. It's so much good stuff.

Eric Brewer: [39:31] We know I got that, I think, from my grandfather. He told me that when you tell the truth, you don't have to have a good memory. If you look at all the stuff I'm doing, I'm just telling the truth. Then if you talk to my TC, my dispo sales rep, my agent, my attorney, they're all going to say the same stuff because they're just telling the truth. Yeah. So you don't have to worry about, well, don't tell them this, or don't tell them that, or I say, hey, I just want to let you know what I told them. We're bringing our insurance guy over today so you can get our buyer in there. When that's like Absolutely. Your truck that has the come on, man. Like, what are we this is a circus. So if you just tell the truth, you don't have to have a great memory.

Mike DeHaan: [40:10] I love it. Man, we've had a string of really good interviews recently, Eric. And I think this might be my favorite one, because Well, thank you. I honestly, the stuff that you're saying, it's so actionable. Anybody can do it. And here's the crazy thing, Eric. I can tell you're telling the truth right now. You're not bringing a bunch of fluff. You're not bringing a bunch of bullshit. You're talking about how you run the business and your authenticity is really coming through. And that's why you're crushing it, man. I love it. Super, super good stuff. Alright, well, we're kind of coming up on time here. Unfortunately, I could stay here and keep talking to you. But as we go into the end of the show, we have three questions that we ask every guest that comes on this show. And the first one, which is always the the group favorite. What is your craziest real estate investing story? Oh, is a good one. And this can be a, yeah, could be a big win, crazy seller, whatever you got.

Eric Brewer: [41:01] This is a good one, if you ever heard me do any sales training, you'll hear me reference this, where I talk about at the front end of your sales process, you need to build enough trust with the seller that when it comes time for negotiations, you can make an insulting offer without getting punched in the face. So to that note, I had an acquisitions agent of mine that went out, this is, gosh, probably ten years ago, he's still here by the way, the acquisitions agent, not the seller. Back then I really played in like, let's say, under $200,000 which was above our median sales price. Our median sales price back then was like 130, And he went out to a house that was in really good shape, and the guy didn't wanna do innovation. He wanted a quick close, and he wanted more than our general offer model. And the acquisition, he came back, he was like, Man, I think we should buy it. It's tight, but it's a really good house. It's on a golf course. I think it'll sell for $2.19, but I was at like $1.99. I want you to go out and meet the guy. If you say it's worth $2.19, it's a slam dunk. I was like, alright, set up the appointment. Let's do 06:00 Thursday. He's like, alright, done. So it was out by where I would take my son to drop him off for football practice, and I helped out with coaching back then.

Eric Brewer: [42:07] And I'm like, hey, I gotta drop my son off at practice about ten of. I'll be there right at 06:00, set it up for that. He goes, okay, done. So I get the football practice, I'm dropping off my son, none of the other coaches are there. And there's 12 kids running around. I'm like, shit, what am I gonna do? So I wait, I call Joe and say, hey, can you let whatever the guy's name was know that I might be a little bit late, could be thirty minutes. I can't leave. There's 12 kids here that are under the age of 10 years old. I gotta stay here until someone gets here. Literally, like three minutes later, the coaches roll up, and like, hey, sorry, we're late, blah blah blah. I drive my son off. I drive to the house. I park at the bottom of the driveway, because he's got a, now that I think back on it, it's weird every time I tell this story, but he had like a 25 foot motor home in the driveway that he lived in, and the house was vacant. It all very kinda peculiar, but at the time, I was like, everybody we talked to has got kind of a weird situation going on. By the way, I'm five minutes late, but twenty five minutes earlier than what Joe called him and told him I would be, because I said I might be thirty minutes late. So I'm anticipating no big deal. He's standing up on the front porch like this, and I'm walking up the driveway, and I start to cut across the grass. He comes down off the steps and standing on the sidewalk, and he goes, he's ground about something about pay me a thousand dollars for every minute you're late. I kinda laughed, and I said, hey, let's go inside and look at the house.

Eric Brewer: [43:29] I'm sure I got and the guy punches me at my face. Wow. My instincts kick in and I shrugged it off. I stumbled back. There's fire in my eyes, and I charged at the guy, wrapped him up, drove him back into the building. Oh slow motion, his head, like, hit the thing and he's and falls down to where he's, like, hunched over. And I was like, oh my god. I just killed And I'm standing over top of him, ready. I didn't know what was Is he gonna kill you? We're in a tricky business. Like, guy can be tried to shake me I or didn't know what was going on. And so I backed up. I cussed at him, called the cops, went down to my car. They came. He denied it. None of the neighbors saw it. It's in a high density residential neighborhood at four or five in the afternoon, whatever time it was, broad daylight, and yes, I got punched in the face. Didn't buy the house.

Dan Austin: [44:21] That is a first for me. I've never heard that.

Eric Brewer: [44:24] Never even got a chance to give him a number. He was just something was so aggravating to him about me being five minutes late that he unleashed on me with like a think it was like a right hook. But he did knock me down, and I got the last I got the last crack in. So that's my story.

Mike DeHaan: [44:41] There you go. That's a good one. Yeah. I don't think we've had any any physical confrontations with anybody in our team yet. We I was walking a house once where a tenant in a landlord got into a fistfight. And that was great because they was a 65 year old lady and an 80 year old lady. But like straight out of Jerry Springer, but no one's been struck on our team. But welcome, you know, you're able to come out on top at least. Alright, so the second question that we always ask is, what is the number one tip you would give to either a new investor looking to get started or a small investor like take their business to the next level? Get a mentor. There you go. Easy. I absolutely fully support that. That was the biggest thing for Dan and I as well, we started going was found a mentor that we vibed with. And our business escalated far larger and faster than we ever would have predicted. Do have any advice on finding a mentor?

Dan Austin: [45:38] Because like, there's a lot

Mike DeHaan: [45:39] of gears out there that are full of shit.

Eric Brewer: [45:40] I'd probably go to mastermind route first meet up, spend some time with folks, get acclimated to their style, like I see it now that I've never done any coaching until about eighteen months ago, and I only do a little bit of what I would say like CEO coaching for people that are trying to scale, and innovations training, and then I see people who I've actually coached that claim numbers that I know aren't true. Like, I did 10,000,000 last year, and it's like, you've been in the business five years, and you haven't done 10,000,000 total. Why are you telling, you know, because it's gonna get flushed out at some point. Yeah. So yeah, I think it's good to join a mastermind, spend some time with these folks, and tap into the people that are at the same season in business that you are, and from that, you'll find mentors that may not cost you anything. Masterminds are filled with potential mentors that you can tap into. So, yeah, I would probably go the mastermind or meetup route first.

Mike DeHaan: [46:35] Yeah. I think that's great guidance. I mean, you know, it's all the real estate especially is so prevalent for people trying to have, like, a dick measuring contest. You know, I've always talked about their door count and all these sort of things. It's like, sure, you say you have a thousand doors, but you're in a bunch of LP positions on syndications. You don't own shit, man.

Eric Brewer: [46:53] And it's the same way with volume. I know guys that do 25 deals a year and make $5,000,000. Right. And then there's guys out there grinding over 500 deals that make 700,000 or 200,000, right, because they're super inefficient and got a ton of overhead. And I don't know that I think we assume that there's a lifestyle that comes along with those numbers, and sometimes it's very much different than what you would anticipate. The bigger business oftentimes doesn't come with the freedom, I think, that we assume.

Mike DeHaan: [47:18] Yeah. Super valid. I like that. Alright. So last question. Where can people find you, follow you, and reach out to you if you'd like them to do so?

Eric Brewer: [47:26] Instagram's probably the best place to stay connected with me. I put out two or three videos a day where I'm just kinda talking about like what the three of us talked about today, what's going on in my business, what's going on in my personal life, what I'm seeing in other, I'm part of several masterminds, so I have sort of a unique insight as to what's going on across the country in different niches. Best way to find me on Instagram is ericbrewerinvest, or you can find more about our innovations course at brewermethod.com.

Mike DeHaan: [47:58] Awesome. Perfect. Well, thanks so much for coming on, Eric. And everybody listening, absolutely reach out to him. If you guys couldn't pick up on how much of a wealth of knowledge Eric is on this podcast, then you need to go look in the mirror because your judge of character is extremely poor. Because he dropped such an an insane amount of knowledge on this about a topic that is not talked about with a lot of accuracy. So Eric, thanks so much for coming on, man. We really, really appreciate

Eric Brewer: [48:23] your time. Appreciate it, fellas. Have a good day.

Mike DeHaan: [48:25] Thanks for listening, everybody. If you enjoyed the show, please share it with anyone who might find it interesting. And if you want to start generating off market leads to be able to put these novations into action, go to collectingkeyspodcast.com/free, you can get our free five step guide. And aside from that, guys, thanks much for listening. We'll talk to y'all next week. Thanks for listening, everybody. Please make sure you subscribe and leave us a five star review wherever you listen to your podcast. Also, please make sure you go and you share this with other people within your network. We are really trying to grow this thing, the best way for us to do so is by you telling other people to come and check us out. You can also follow us on Instagram. I am at Mike underscore Invest. Dan is at investor man. Dan, you can follow the podcast at collecting keys podcast. And if you wanna learn how to make real money as a real estate investor or you want to grow your already existing real estate investing business, please go and check out instantinvestorprogram.com and book a call with either Dan or myself, and we will see if you'll be a good fit. Thanks for listening everybody, and talk to you next week.

Speaker 2: [49:29] Thanks for listening. Please leave us a review on iTunes or wherever you get your podcasts. And check us out at collectingkeyspodcast.com for tips and guides on starting your own real estate investment and wholesaling business.