Primary market
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Generating Wealth by Understanding the Complexities of Bank REOs
you hoping to accomplish in the future with Rescue LLC? Griffith: We are in Michigan and there was a recognition that the market was certainly going south fast with the economy. Me and a number of friends of mine who are leading developers and builders looked at the situation and realized we had a lot of information we could provide, and we could help out our friends who were bankers who were struggling with the amount of property they were going to get back. We thought that we ought to take advantage of the knowledge that we had and put together a consulting firm, which we could then offer them some services on helping to position their properties. The problem with an appraisal is that it gives you a flash of where the market was in comparison to other properties at a certain time point but it doesn’t say, “ How are you going to get out of this property?” It just says what the value could or should be. We felt that there needed to be some more sophistication to the process of determining the value and the exit strategy for the property and typically the people we knew who were bankers were great at their job but weren’t necessarily good at that part. Mosca: Are you reaching out to other states or regions? Is this something you plan on taking nationwide? Griffith: What we’re finding is that nothing anymore is just local. We are now talking to other brokers throughout the country who might want to also link up and learn some of the information that we’ve learned and share their information and give some unity to the name so that when people go looking they can look up Rescue LLC and find a name that’s familiar with them. They may wish to learn how we set up the management arm for our business because the banks were seeking that, helping them understand how we set up a program to stabilize properties. They may want to also just to talk to us about our experience so far in actually getting in the door with banks and offering our services to them. Mosca: So, it’s not just about the property sometimes. Is it? Griffith: Exactly. We’ve found that we’ve had to stretch ourselves. Luckily by having a partnership of builders and developers we have the ability to have those people already at our fingertips that think that way. They were thinking that way before I had to learn to think that way. One of our bank presentations we’ve made to the Michigan Bank Association, and key statement was don’t do nothing. Bad grammatics but the reality of it is that just sitting on it isn’t going to get it done and having no plan to get rid of it is not going to get it done. You need to have a plan and that’s where the professionals we’ve become and others go in and give them a plan, give them something, a plan to put their hat on. Mosca: If an investor came up to you and said, “ Hey Scott, you know I’m thinking REO.” What would you say to that investor? Griffith: The first thing you’re going to want to state to them right out front is they’re going to want to do homework. They’re going to have to be prepared to go do market research. I don’t care how they’re going to buy, whether they’re going to go to an auction, or whether they’re going to go into the local bank. They’re going to need to be ready to do homework and have a facility to do homework. That means they’re probably going to have to partner with some sort of professional who has access to real estate data and so forth so that they can make the investment that makes sense. Just because it’s REO doesn’t mean it’s going to be the right piece for you. You may want to change it or reposition it in the market and you may not be able to do that without knowing more about the financials of the market. Do homework and have resources available. It isn’t just a gift on a platter to you when you walk in. Mosca: In other words you don’t have to assume what’s called inherent risk. You can actually do some due diligence ahead of time? Griffith: The secret to any good investment is to take the risk out of it. The way to take the risk out of this one is to do the homework but you’re going to do it all yourself or you’re going to have to partner with someone who has the access to the information to reduce your risk. Mosca: What do you say when hear the words ‘lowball offers?’ Griffith: Everybody has their definition and I’m sure we all know stories or heard a story about somebody who got this phenomenal deal but at the end of the day the banker is trying to realistically get rid of their property in a reasonable amount of time. They have an obligation to maximize the return for the corporation. It’s the corporate assets you’re playing with. To think that you can make a lowball offer and the bank will take it is totally a misnomer. In fact, many either won’t or can’t consider offers below a certain level that may have been established by an appraisal. We’ve been seeing banks actually ask for a second appraisal. So, you really need to get to as few conditions and as few contingencies as possible to make yours the best piece. Obviously at the end of the day, price is always trump. It’s about buying right but it doesn’t mean you have to buy at the lowest point. Mosca: What is your golden nugget? Griffith: The whole concept of the REO is a golden nugget for the investor. The investor needs to be in a position to be able to perform on it, and that may be to get you in a liquid position, to have the cash and be able to perform and be a credible buyer.Pages: 1 [2]