[Note: To follow is an excerpt of an interview with Joseph Haymore, co-founder, CEO and Managing Partner of United Capital Group and United Capital Fund, whose firm has partnered with an global network of investors, selling over $400 million in real estate, and Kevin Peay, Associate Director of Marketing for RealSource, whose firm boasts the track record of placing thousands of investors in the right properties in the right markets at the right time. To listen to the show archive or download an MP3, go to www.IncomePropertyInvestmentTalk.com/072209.]

Mosca: It seems like there are quite a number of groups out there offering investors the opportunity to invest in Bank REOs. That makes me a little bit uneasy. Can you tell us about Bank REOs and why your company United Capital Group is unique?

Haymore: A year ago I remember explaining to people what REOs meant. Now it is a common language for everyone, but there are a lot of different ways in which banks try to sell assets. We are in unprecedented times, liquidity being hurt, banks being in a freefall and wanting to get rid of assets any way that they can. Generally speaking, what a bank does it is they will generally put an asset on the MLS and try to sell it at about 85-to-90 percent of its value. If an asset is sitting there for awhile, they will then try to do an auction to still get close to 70-to-80 percent of its value. They will then start to do some bulk discounts at maybe 60 percent of its value and then after it’s been sitting on their balance sheet for long enough and they just need it off, they will then come to people like us and offer it at literally pennies on the dollar.

That's why having a partnership with RealSource who can direct their investors to a firm that has been doing REOs for a while and knows how to evaluate when to pull the trigger and when not to and be able to execute is a good thing to have. The reality is on the MLS there are some good deals in local markets but if you want the big, bulk discounts you have to be able to buy in bulk and you've got to be able to move quickly. We are unique because we evaluate the packages that you are buying from the bank to make sure that it truly has the value that it does. Secondly, when you are buying these assets, which could be all over the country, we have been able to liquidate on a nationwide basis. We have moved hundreds of homes by not only being able to acquire them, homes that have value, then being able to liquidate, earning a great return for investors and creating a very good track record.

Peay: RealSource for 20 years has been looking at markets and professionals across the country. As you go through certain programs and certain levels of due diligence you begin to sift out organizations, individuals that really rise to the top, who really know their stuff, who know how to work with clients, who really understand the market. We work hard on finding that right fit for the strategic alliance that we have with certain organizations and individuals and professionals. United Capital Group came to us by way of referral. We’ve looked at the packages and we’ve gone through the numbers. This particular strategic alliance is sound and we get the best information for our clients. We are excited about this relationship as we move forward because it is a powerhouse in understanding what the right information is out there in REO world.

Haymore: The great benefit of having a strategic partner such as RealSource is they have a smart business plan that allows all to participate instead of just institutional buyers. Whether large or small or just testing the waters or jumping in big, there is an opportunity for anyone wanting to get ahead and make a wise investment.

Peay: It’s important for people to be able to talk to a client adviser to be able to understand whether they are accredited, if they are non-accredited, and the accreditation process is a step-by-step process based upon real estate owned and knowledge. Non-accredited would be for those who have IRAs and then some cash and want to be able to purchase the REO asset off-line. We go through a lot of the processes helping the client to understand what they are trying to accomplish, the steps necessary, compliance issues, the checks and balances, so they can sleep at night.

Mosca: Are there any hang-ups? Why would an investor not move forward on this?

Haymore: That’s a great question. The most often question I get asked. People need a better understanding. The best example that I have is we all know that Washington Mutual Bank went under and J.P. Morgan then bought Washington Mutual. At the time that Washington Mutual went under, they had $221 billion of loans recognized as non-performing, loans that were either in foreclosure or going to foreclosure -- essentially what doomed Washington Mutual. Well, at that time they also had almost 60% of that $221 billion as single-family resident loans. J.P. Morgan bought Washington Mutual for $2 billion. That means all of its assets, all of its real estate, all of its holdings, the name, the company, all of it for $2 billion.

So, if I am J.P. Morgan, what am I going to do to those assets that doomed Washington Mutual? I'm going to write down all of those assets to essentially have a basis of zero and if I am J.P. Morgan I want to get rid of those as quickly as possible. That's why, unless you understand the background, it seems too good to be true. That said, you do have to be cautious of what you are buying. The banks want to unload it as quickly as possible, any way that they can.

On a slow week we might see anywhere from 3,000 to 4000 properties; on a busy week will see two to three times that amount. We then use online research, what we call an automated valuation module, or AVM for short. AVM is a sophisticated model that they use to give you a distressed price for the particular asset or assets that you are buying. We do place a lot of emphasis on the AVM. We have used a lot of different services over the last few years and have found the most successful is the AVM. Once I have that, I can then start to drill down and see what is going to be my true return on this package. It’s important to make sure that you can sell it and that you are truly buying assets that have value.

Mosca: Listeners who go to our Web site at incomepropertyinvestmenttalk.com/072209, and they fill out that form and it goes to one of your client advisors and then that client advisor will talk to the listener. Can you walk us through that process?

Peay: There are a number of different checks and balances that we need to address and find out where the investor has been, what their appetites are for, and really educate in regards to how this will best, if it makes sense for them, suit their needs. So when an investor calls a client advisor, there are a number of different things discussed based upon historicals, based upon where we are headed as far as our programs here and matching them up with the programs such as United Capital and making sure that they understand all of the things that are associated with timing, expectations, and some of the things that can be managed there. The key is we tailor something that fits their strategy and to make sure that they've got the right information in doing that. We have been able to see enough through the years that will really help the investor and help us direct the investor to what it is they are looking for. That’s where coming to an advisory group like RealSource and being able to couple that with the strategic alliance with UCG becomes a powerful combination in directing people to the right investment at the right time.

Mosca: Joe, are you at liberty to share with our audience the number of investors or the quantity of homes that you have sold so far in 2009?

Haymore: Absolutely. We have a number of different investors from individual investors to what we would call ‘mom and pops’ who have combined money together to then purchase properties to your institutional funds. We have dealt from people who maybe had $10,000 or are dealing with their IRA to try and get involved with the game to people who can write a $10 million check plus. Sincethe beginning of December of last year, we are now in excess of having bought and sold over 6,000 properties, from a single-family move up or starter home to high-end mansions.

Peay: We are going to be seeing more and more commercial come on board in the next six to 12 months that will propose some great opportunities as well. I think it’s simply important for everybody to understand that there is a process of actually being able to see the property. When a tape is purchased and it goes to disposition in regards to an event or goes online or there is a strategy to be able to have that asset be sold then that is when you can start to really understand what the property type is, where it is located, those types of things. For those who are interested in understanding whether they are accredited investors and if there is an opportunity to seek a little bit of an opportunity to play in purchasing a tape then that's one thing and then once that tape has been purchased, then we have the ability to start down the disposition mode, which UCG in cooperation with RealSource and then the strategies that we have in cooperation with them, we are going to find the best solution to disposition so people can get quickly to the information so they can determine if that asset really works for them in a location and what type of asset they want in their portfolio going forward.

Mosca: Does it boil down to risk tolerance levels?

Peay: Absolutely. I've had a number of clients that have called in and the number of potential seekers who are trying to understand this. We had a lady on the phone yesterday when we started talking about REOs and she shied away from it. Another person calls in and says I am strictly about REO, I am moving from the market from my mutual funds and everything that I've got and I want REO. My risk tolerance is high right now. It’s a process of communication and getting the realities to people, and good information really helps.

Haymore: As far as the risk that is there, you are buying for less expensive than what a replacement cost is and most times you are buying for less than what the land cost is and you are buying a whole asset. All of the packages that we have done, all of the homes and tapes that we've been apart of, every single one of them has returned a healthy profit and has done well. There is an inherent value of something that’s there because you bought it for less expensive than what the dirt costs.

Mosca: What is your golden nugget for today?

Peay: When you combine RealSource’s experience of 20 years in researching markets, looking at econometric models, understanding the market and how they play into investment strategies like this, you can’t help get good solid information. Those that call in and want to understand, “how do I fit,” “how can I participate based upon who I am and what I've experienced in the past, what is my net worth and really what I am trying to accomplish in my portfolio,” we are going to help match that up and give them the realities of where things are and what makes the best sense for them.

Haymore: There are three things that separate us from anybody else. A lot of people claim to be direct and deal with the banks directly; we do and that would be the first one. Secondly, we are able to truly understand what the value of what you are buying on a nationwide basis and third, is being able to sell that on a nationwide basis, making sure that you are getting a good return for the investor.

Published: September 10, 2009

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Peter L. Mosca is president and founder of BAK Communications, Inc. He has over 22 years of communications and media consulting experience, serving a variety of nonprofit organizations, including the CCIM Institute and the REALTOR Association on all three levels – national, state and local. He is the Spokesperson Trainer for the CCIM's Jay Levine Academy and trains hundreds of residential REALTORS nationwide to be effective industry spokespeople. He is consistently ranked as "excellent" by about 90% of those who attend his presentations. While his principal consulting focuses are public speaking and media relations development and content delivery and management, Peter is also the host of the Voice America Network's weekly radio program, "Income Property Investment Talk," a one-hour program that brings the powerhouses of commercial and residential real estate to property investors every Wednesday at 11 a.m. EST. Peter is married 17 years to his wife Barbara. They have two children: Ashley, 15 and Kelli, 12. Hence, the name BAK Communications, Inc.