January 22, 2018

JF1238: From Seller Financing To Loan Mods - Getting Creative For More Deals with Adam Adams

Adam and his company specialize in creative real estate investing, hence the name of his podcast “Creative Real Estate Podcast”. He’ll also help struggling owners stay in their homes by helping them negotiate a loan mod. If you want to learn more about creative financing strategies in real estate, listen to Adam on this episode. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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Adam Adams Real Estate Background:

-Multifamily investor with BlueSpruce Holdings, LLC and Host of the Creative Real Estate Podcast

-Started investing through Tax Deeds in 2005, became property manager 2006, then started a remodeling company

-2008 he bought his first multi family apartment building

-Claim to fame is ability to negotiate win-win scenarios through structuring creative ways to buy and sell real estate

-Owns portfolio of owner financed and private lender rentals

-Say hi to him at https://bluespruceholdings.com/

-Based in Denver, Colorado

-Best Ever Book: Rich Dad, Poor Dad


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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.

With us today, Adam Adams. How are you doing, Adam?

Adam Adams: I’m doing great, how are you?

Joe Fairless: I’m doing great as well, nice to have you on the show. A little bit about Adam – he is a multifamily investor; they’ve bought a five-plex, a fourplex, a three-plex, and they’ve got almost a dozen homes. His company, Blue Spruce Holdings is based in Denver, Colorado. In 2008 they bought the first multifamily building, and they own a portfolio of owner finance and private lender rentals.
He and his business partner DJ are the hosts of the podcast called Creative Real Estate Podcast. With that being said, Adam, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Adam Adams: Yeah, definitely. I come from Utah and I focused most of my efforts in the beginning because my dad made me do real estate against my will, in college, when I didn’t save money, like he was trying to make me do, so I had to get into creative real estate. That’s why so much of what we do is owner finance things, some lease options and subject to’s, is mostly out of necessity, but I’ve found that even when we had money in the bank, it just seems easier to think a little bit outside the box. You can create a win/win pretty well.

I’m well-versed in real estate, and that’s why we have the Creative Real Estate podcast, at RealBlueSpruce.com, that DJ, Manny and I run.

Joe Fairless: Outstanding. Let’s talk about some creative real estate deals. Can you tell us about one deal that’s top of mind, what the challenge was and then how you ended up structuring it so it was a win/win?

Adam Adams: Definitely. The first one that comes to my mind, the challenge was that I didn’t have two years tax history; I was making good monthly income, but I was not able to qualify it for a traditional bank loan. The way that I structured it to make it kind of work is I offered a friend of mine to buy out the whole triplex with cash and partner with me, and to loan me the rest of the money, and put a mortgage note against the property that I would pay regularly every month. It did work, so it was a no-money-out-of-pocket deal. I was able to close on a multifamily property in a time that it was difficult to, regardless of my credit standing. I had a good credit score at the time, but you just need that two years.

The seller sold it for the price they wanted to sell it, a friend was able to make some money as we go, I was able to be a multifamily owner years and years ago, so it really helped.

Joe Fairless: So you found a deal and you liked it, you weren’t able to get a loan, so you went to a friend, the friend purchased it all cash, and then they acted as the bank, where you are paying them a monthly (essentially) mortgage payment… And you are the owner of that property, but they’re the bank, or how does the ownership actually work?

Adam Adams: It was a joint venture agreement. They were a 70% owner and I was a 30% owner. My portion of the property was done by an owner-financed bank note, so they put a mortgage against the property or a deed of trust, and then we filled out a promissory note that I’d pay  a certain amount for a certain amount of time, and we were partners.

Joe Fairless: Okay. So they still will retain ownership after you pay off what you borrowed to get the 30%, correct?

Adam Adams: Exactly, for that one property, and the end of — if I would have paid off, because I’ve already sold that a  long time ago, but if I would have just stayed in it and stayed in it, and not given him his portion back when I moved to Florida, then in that case I would have owned 30% with no note, and he would have owned 70% with no note.

Joe Fairless: Got it, cool. Very clear. How about another deal?

Adam Adams: A large portion of all the times that I’m talking to sellers that are in a foreclosure situation and offering them a lot of different strategies, most of the times it always ends up that I’m really good at selling them on  a way for me to contact their bank for them and to help to structure a loan modification. Most of my transactions that don’t count towards my portfolio, but they count towards creative real estate, happen to be because I was able to talk their bank into restructuring their loan for them, so they could stay in the house. Unfortunately, on a lot of those I didn’t make money, but I was able to help the homeowner with a creative strategy with loan modifications.

Joe Fairless: And you actually call the bank on their behalf and negotiate the modifications for them?

Adam Adams: Yes, and every bank’s slightly different, and actually every person at the bank is slightly different, but yes, I call… Sometimes we get power of attorney, sometimes the owner is just with me and they just have to say to the bank “Adam can talk, and I’m right here, just while Adam figures this out.” Then we’ll just kind of talk to them for a while, and ask if a lease option would work, if a subject to would work, try to make solutions with the bank… And a lot of times the bank just says “You know what, let me drop the loan” or “Let me forget 20k or 30k that’s owed, and if you start making your payments again you don’t have to pay the arrears.”

There’s been about a dozen of those, where they’re all a little bit different, but the loan company will modify it enough to keep the homeowner in the property, and the property owner can still pay. With that said, what I like about that is should there ever be another problem where they fall behind again, I think they’ll trust me, I think they’ll call me and see if I could help out. In that case, maybe we’ll take a property over subject to or do a lease option, because they understand that I started out with their best interest.

Joe Fairless: Yeah, that’s phenomenal to approach it that way. Now I’m putting on my business hat and I’m wondering, to put it point blank, what are you getting out of it, other than warm fuzzies? From a business standpoint is that it, just the warm fuzzies?

Adam Adams: Mostly the warm fuzzies, because I like to actually just help, but I know that if they tell their friends, and their friends tell their friends, eventually we’ll do enough subject to rentals, or maybe we have the story to go on your podcast, and it will be more than just a warm fuzzy… Maybe somebody who’s going through foreclosure right now will say “I’ve never even heard of a loan mod. Let me call my bank.”

Joe Fairless: Right. Well, we’ll take it. Just staying with that business angle though, have you seen business results as a result of you doing these modifications and going with someone to the bank and reworking — have you seen something come out of it from a monetary standpoint?

Adam Adams: There have been two times that because we worked with somebody, somebody else heard about it or they told their friend and we got a call, said “I heard that you’re the one who can solve this.” One of the times we did a lease option; I offered a subject to, but it ended up being a lease options structure where we did a fix and flip, we just paid the guy’s mortgage while we were doing it, we put in $50,000 while we were doing it, we sold the property, gave him his price that he wanted in the beginning that we couldn’t do ahead of time because there was $20,000 that we would have had to give to a hard money lender, and then when we sold it, he got his price and we were able to make a decent amount of money (about 30k) on that one.

So to answer your question shortly, yes, I do believe that because we do it, we do and will continue to make a little bit of money here and there.

Joe Fairless: How many modifications would you say you’ve done, or attempted to do?

Adam Adams: Attempted, between 10 and 12, I believe. I don’t have a number, but about a dozen.

Joe Fairless: Okay, that’s pretty good. And again, warm fuzzies aside – I get that part of it, and believe me, I’m with you, but just also looking at it from an analytical standpoint, from a business standpoint, if you’ve helped out or attempted to help out about a dozen, and that has resulted in good stuff for most of those people, but then also a couple deals that have come your way where you’ve made on average, how much, on those couple deals that you’ve mentioned?

Adam Adams: Maybe like 15k on one of them, and about 30k on another.

Joe Fairless: There you go, $45,000. So basically, if we look at it – and again, you’re probably thinking “Why are you talking about it from a business–“, I’m just looking at it from a purely analytical standpoint. So basically, every time you go with pure intentions – and hopefully I’m not tainting your pure intentions by doing this analysis… But every time you go with pure intentions to go help rework a loan for someone, it’s netting you $3,750, because so far it’s resulted in $45,000 profit as a result of your pure intentions. So basically, you could make the case that you’re getting paid $3,750 to go help these people for free.

Adam Adams: It makes sense, I like the way you look at it.

Joe Fairless: And I know you don’t look at it that way, but I was just wondering how that works from a business standpoint. Okay, cool. What’s the last deal that you’ve purchased?

Adam Adams: The last deal that I closed on was a fourplex in St. Louis. I didn’t have quite enough money in the bank to close it, and I didn’t realize on a Friday that we were supposed to close on a Monday, so I had to call up a couple private lenders and say “Hey, I need you to do this and I’ll give you a good return”, and both people said yes, and I went with the one that gave me the better terms. So it was a $50,000 note for 15%. They closed it in one day, so we were paying them $625/month, and cash-flowing really, really well on that fourplex.

Joe Fairless: Wow. How long do you plan on having that 15% interest rate on the 50k note?

Adam Adams: It’s a three-year interest-only note, and I plan on refinancing it about a year early.

Joe Fairless: [unintelligible [00:12:39].19]

Adam Adams: We’re making a lot of cashflow… The property – just how much is it ensured for is 600k+. We bought it for 60k, so I came out with just a few grand… We got a really, really good deal on it, or else I wouldn’t have been able to just call anybody up and say “I need 50k, I’ll give you 15% interest” and know ahead of time that I was gonna be able to pay them that and still cash-flow really well.

Joe Fairless: Did you say it’s ensured for 600k but you bought it for 60k?

Adam Adams: The purchase price was 60k. In the area right now it costs more to build than you can buy, so because we want to have a replacement cost insurance policy, it’s ensured for around 650k, but our purchase price was 60k. It’s probably worth around 100k, 120k right now.

Joe Fairless: That’s interesting. I’m glad you talked us through that. You’re in Denver, right?

Adam Adams: Yes, sir.

Joe Fairless: This is in St. Louis… How did you find it?

Adam Adams: A long time ago I was researching wholesalers, and because we have a couple of other houses there through a wholesaler, our property manager knew what our criteria was and they came to the table and said “Hey, here’s a fourplex. It makes plenty of cashflow, would you like to close on it?” I said yes, and I forgot about it until the — the business day before, I was like “Oh, crap…!” I still haven’t financed my houses, so I have a couple of houses that we own cash, and I was planning on getting a loan on those, so I could close on the fourplex, and we got so busy I never did that.

Joe Fairless: The part where you said you didn’t realize you were supposed to close on Monday – can you elaborate on that part?

Adam Adams: The property manager gave me a call and he said, “Hey, Adam, I just wanted to make sure that you were good to go to close on Monday”, and I was like “We’re closing this Monday?” He goes “Yeah.” I go, “Give me 20 minutes.” So I hung up the phone, went and called the private money lender, said “I’ve got 26k in the bank right now. This is like 60k. I’m gonna need a little bit of liquid”, so I said “If you could give me a $45,000 note, I will give you 18% interest.” They said yes.

Then I called the next one and I said “If you can give me a $50,000, I’ll give you a 15% interest.” They said yes, so… We just got our butts kicked really hard, because we’d been trying to buy larger apartment complexes with Blue Spruce Holdings, so…

Joe Fairless: Wow. Great story, thank you for sharing that. Based on your experience as a very resourceful real estate investor and team that you all have, where you were putting together some deals in truly a creative way, what is your best real estate investing advice ever?

Adam Adams: I would say follow up. That would be the biggest one. I think that most people lose out on what they do because they’re not following up with sellers or following up with brokers. That would be the biggest one. If you wanna be successful, be relentless and go out and do it, follow up. The fortune is in the follow-up.

Joe Fairless: Tactically speaking, what do you have in place that helps you with the follow-up process?

Adam Adams: A team, because I can’t do it very well on myself. We hire or bring in partners or employees that are really good at that kind of stuff. They’re good at systems, like Podio and other online systems to kind of make sure that you’re actually going through to the next step with people. But I can’t do it on my own, so I have a group of people…

Joe Fairless: Based on the follow-up process, what’s one lesson that you’ve learned along the way that you’ve optimized your approach?

Adam Adams: Well, it’s pretty simple… The lesson that I’ve learned is that how important following up is just because sometimes somebody will think that you’re done with the situation, nobody’s ever gonna call back. I’ll tell that sales person, the acquisition person, I say “No, you’ve gotta keep calling until they either tell you no, or you just keep calling.” I’ve had salespeople mad at me and upset; they’re like, “No, but this is really not going anywhere.” I go, “Seriously, if it was me, I would just call-call-call.” So they call again, and the result is a sale. That’s the lesson that I’ve learned with my team – even if you don’t really have full faith in the scenario working out for you, just follow up anyways until they say “Don’t call me again.”

Joe Fairless: Are you ready for the Best Ever Lightning Round?

Adam Adams: I’m gonna try to be ready.

Joe Fairless: I think you’re ready… You’ve got a podcast, you’re ready for it! First, a quick word from our Best Ever partners.

Break: [00:17:34].23] to [00:18:23].17]

Joe Fairless: Alright, Adam, best ever book you’ve read.

Adam Adams: Definitely… Um, what is it? I say “definitely” and then I can’t even think of it. Rich Dad, Poor Dad, by far… By far.

Joe Fairless: Best ever deal you’ve done that’s not the first one or the last one?
Adam Adams: The best ever deal I’ve done – it’s similar to some other people on your podcast, and it’s so true… It’s the ones that you walk away from. it’s when you realize that it’s not gonna work out and you walk away and you don’t lose money.

Joe Fairless: Which one specifically? Can you give us a specific example?

Adam Adams: Yes, there was a 2,246-unit, seven-building complex that my company was working on, and I think that we were just in over our heads to be able to close it for 180 million dollars. I think we would have had a really, really bad lesson. But there was a lot of equity in it, and we really believed that we could just do a refinance in a few months and pull out many, many millions. But I think by walking away and going to one that we were more comfortable with, we were able to solidify that we’re not losing a whole bunch of money on making a transaction like that.

Joe Fairless: What’s a mistake you’ve made on a transaction?

Adam Adams: Letting my tenants live in my property.

Joe Fairless: What?! [laughs]

Adam Adams: I had friends be my tenants…

Joe Fairless: Okay, I was like “Wait a second…” Alright, so don’t rent to your friends.

Adam Adams: I would say it was very bad for me to rent out to a family member, to a friend that I was close with, because when they can’t pay, it was very difficult for me to keep it business. And that won’t be the case for everybody, but that was my first mistake – letting one of my best friends come and move in with me and pay all this rent… And I continued to support him when he lost his job and stuff like that. That was definitely the biggest one. I would rather just keep it business, let a property manager manage the property, have them bring in the people, have them put in the three days notices, and you never have to worry about me with my big heart saying “It’s okay, okay. You’ll give it to me Friday, no problem”, and doing that for months and months and months.

Joe Fairless: Best ever way you like to give back?

Adam Adams: Through the podcast and through our group at Downtown Denver. I love offering to bring these strategies to other investors. So for me right now it’s just running a free meetup group and running a free podcast to help other people understand the strategies that have helped me get to where I am.

Joe Fairless: And how can the Best Ever listeners get in touch with you?

Adam Adams: If they’re interested in apartment investing things, that’s just BlueSpruceHoldings.com. Or if they just wanna see the podcast, it’s RealBlueSpruce.com.

Joe Fairless: I really enjoyed our conversation, Adam, and thanks for talking about specific examples of deals that you all have done, and the challenge and how it was overcome through creative financing, whether it was the joint venture, the first deal you’ve talked about, or the deal where you borrowed money from someone who paid all cash, or the transactions where you go in with good intentions and you’re able to help others out with the loan modification process, and then we just reverse-engineered your actual profits on that, which you weren’t doing before, which is great, because that’s what keeps your intentions pure, but you really are doing well on that, helping others and then also benefitting through deals that come from it.

Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Adam Adams: Thank you, Joe.

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