Reliant Financial Inc. has been a principal buyer of seller-financed notes for over 18 years. We were honored to talk with David Krunic, Founder and President, on their current investment guidelines and referral programs. Generous with his time and known for his straightforward approach, you are sure to pick up valuable tips for brokering, selling, or investing in notes.
What unique benefits does Reliant Financial provide?
Dave Krunic: We are direct, fast, creative and flexible!
1. You will always deal directly with a principal of our company – the final Decision-Maker for your sale.
2. Reliant uses its own capital to purchase each note. We have millions available instantly, and will respond to your inquiry with a Written Purchase Offer within 24-hours.
3. The Principals at Reliant have been purchasing commercial mortgages and difficult notes for over two decades. We are experts in creatively solving financial challenges and finding ways to buy your note. While we bid aggressively on vanilla notes, our strength is closing the hard-to-place deal.
4. Since we purchase for our own portfolio, we can buy notes with virtually any characteristics. We are not restricted by the criteria of outside investors or loan committees. This freedom gives us tremendous flexibility in the note types we purchase, and allows us to overcome negative characteristics that block other investors.
What type of notes or transactions will your company consider funding?
Real estate and cash flow notes secured by residential, multifamily housing, vacation/second homes, small commercial, large commercial, raw land, improved lots, industrial property, farm land, corporation as payor, and partial assignments.
We like to keep the investment in any one transaction under the $350-$400,000 level. That’s about where our knees start knocking and we stop. No matter what the story, we just stop.
We’ve got loans on bars, restaurants, taverns, churches, gas stations, convenience stores, mobile home parks, marinas, veterinary clinics, auto paint and body shops, strip centers, dry cleaning shops, muffler shops, and motorcycle shops. You name it we probably have one, including a pet cemetery!
We can look at real estate notes with virtually any characteristics whether it’s annual payments, no interest, negative amortization and even underwater loans . I mean it really doesn’t matter to us as we can structure a purchase plan that makes sense for everyone.
Do you buy in all 50 states?
Yes, we will consider notes across the United States. About 50% of our business is in Texas and Florida with the remaining scattered throughout the nation. There are states where the foreclosure process can take 12-16 months so we will keep sheer equity protection the principal source of repayment in those instances.
Speaking of equity, what sort of Investment to Value ratios do you target?
That’s something we consider real hard. Our maximum ITV is 60-65% but sometimes a deal will need additional equity protection. In these situations we offer a partial purchase for starters. Then after a couple years of timely payments, current taxes, insurance renewed without a fight, open communication lines with the payers, and a little additional equity through appreciation, amortization, or improvements to the home, we will consider going the rest of the way and converting to a full purchase.
Do you close a good number of partial purchases?
About 3 out of 5 transactions start as a partial with the majority converting to a full purchase down the line. This means multiple commission checks for the broker per transaction!
What are you looking at during the underwriting process?
Down payment and seasoning are truly our hot buttons. The more invested the payors are in the property, the more skin they have in the game, the more they’re likely to fight to hold onto the property – especially if it’s the roof over the wife and children’s heads.
When the market started to get shaky we promised our bank lines to “go down the rabbit hole” and closely look at “chain of sales price” and “curve of life issues”.
For chain of sales price we want to know, What was the purchase price and closing date of the note seller ? What amount of verifiable dollars have been put into the property resulting in the sales price and the note that we are contemplating purchasing. This is easy to research online in states like Florida with quantitative transfers. At times we must ask for additional proof. If someone is reluctant to reveal the information or wants to jump in and out of the shadows with the truth it is a huge red flag for us.
The second thing that I mentioned was curve of life. “Where in the curve of life are the payors?” I mean let’s face it. The payor is the fulcrum in any successful note transaction. Would I really want to buy a 30-year note paid by an octogenarian? What about someone in their 60’s or 70’s. You know possibly, let’s hear the rest of the story. A two income household with benefits coming through the front door is preferred. Extended family in the area is also comforting.
Do you have any minimum seasoning requirements?
I’d like to see the loan closed with one payment made or one payment about to be made while we are in escrow. As part of our due diligence we like to make sure it’s truly arms length with the title commitment in the name of the property seller. We then take an assignment from the seller to keep it a true secondary market successor assignee transaction.
When do you pull credit on the payer?
We request an authorization signed by the note holder granting permission as a potential investor under the Fair Credit Reporting Act. We also have copies of the note, mortgage, and settlement statement on hand to substantiate that relationship. At this point there is usually a transaction in place in the form of a signed agreement between the broker and seller.
Do you require the servicing to be released?
We are authorized to service for others with the ability to generate payment coupon booklets, transfer in or establish escrows, and to initiate credit reporting 60 days after the transfer at our option. To take advantage of these features we prefer the servicing to be released, especially with partials since we have a responsibility to the remainderment holder.
We have a few loans here and there that are still serviced by western servicing companies but the deals are fast amortizing with obvious equity protection. Our preference is to bring the loan servicing in house.
So what types of deals only waste your time? The ones where you would like to say, “Just don’t bring me ________!”
Broker Daisy chains… additionally…
I wish people wouldn’t bring me deals on Casinos in the Bahamas and paper in Canada. We buy solely in the U.S.
We are not interested in the 20 million dollar deals or tapes of non-performing paper.
We don’t like the shotgun approach where some folks send quotes requests “en masse” to every investor they have on file. We are in the age of the Internet and instant connectivity, but still must focus on relationships. That’s where we shine. Ultimately the shotgun quote folks usually exhaust themselves and eventually fade out of the picture.
How did you get your start as a note investor?
I was initially a stockbroker down in South Florida working in the Investment Banking Division of Sun Bank. During the market crash of the late 80’s I was able to help several customers protect and grow their portfolio. This led to an opportunity to work with some RTC and FDIC portfolio transactions and then access to funds for individual note buying. Reliant Financial was created about 18 years ago to further facilitate that line of business (to portfolio Seller carry back paper to full term as a principal).
What do you consider the best methods for finding cash flow notes?
Our business is referral based. The bulk comes from note brokers. We also have referral relationships with bankruptcy trustees and probate attorneys and lately direct via our web site.
Many of the brokers we work with have been sending us cash flow notes for 12 plus years or better. They have been around long enough to also develop recurring business. They work with real estate professionals, insurance agents, CPAs, and local networking groups like the Chamber or Rotary Club.
We also see most of the marketing trending online and it’s moving very fast now. It’s becoming where direct mail is kind of the Stone Age and you can cast a bigger net on the Internet with a website and social media.
Do you have any tips for building referrals in the note business?
Send handwritten thank you cards to everyone that participates in the transaction. Whether it is the opinion of value broker, the real estate agent, the insurance agent, or the gal at the title company, they are all potential referral sources in every transaction. Make sure you thank everybody, offer to help, and ask for future business. This is one of those little things that many brokers don’t do. It’s what separates the successful brokers from the ones that struggle.
How do you handle commissions to note brokers or consultants?
We send payment to the broker when the transaction has finalized through the closing agent. We can also overnight or wire the note referral fee to the broker upon closing if they cover those related costs.
We pride ourselves on protecting brokers on all remainderment purchases. If we buy a partial and the seller wants to sell additional payments later we contact the broker to coordinate the payment of their additional commission.
What advice would you give to new professionals just starting out in the industry?
I would really suggest they get up to speed with the time value of money… How to work that calculator backwards and forwards; how to read documents and interpret them; how to know you have good numbers using amortization software.
I recommend the T-Value amortization software as it ties back to the penny with the handheld financial calculators used in this business. T-Value is widely accepted for all servicing and foreclosure efforts and known coast to coast. Use the software to provide complimentary amortization schedules to sellers, and to further explain partial purchase options with a Schedule B.
Be of service to the seller and offer something unique. I know it’s hard to do on a live lead, but don’t chase that seller across the center line of the highway. First listen, and look to solve problems, and build rapport allowing the seller to perceive you in the same light as their tax preparer or insurance agent.
Position yourself as a trusted and knowledgeable advisor. Take time to educate the seller on the importance of being listed as lost payee , additional insured or first lienholder on the hazard insurance declarations page. We use this as an important educational tool to build rapport with the seller.
Do you have major concerns about the Dodd Frank Act that goes into effect the first part of 2014?
Well, as a private investor buying directly from folks that owned the home most of the notes we buy fall under the exemption. Of course this law doesn’t even apply to commercial or other non-residential transactions.
What are the most common mistakes you see people make in the note business?
I challenge brokers to take ownership of their opportunities. Research the transaction like you’re selling the note into a parent’s retirement fund, your own retirement account or a fund that you’re running. Good Sales people know what they are selling.
Do not be afraid to take control of the conversation with the seller. You are the Specialist. You have a tender 15 short minutes to build rapport and ask the seller a line of questions that forces them to admit both the strengths and weaknesses of the deal. Then in a roundabout way you have reduced any lofty or unrealistic expectations.
This is a people business. When the surf is up it is time to surf. I mean, if you are going to roll out a marketing campaign you need to be there when the phone rings. You need to catch those calls and be in a quiet spot where you can have that interview. This is your chance to apply for the job of cashing a commission check. You should bring your “A” game and build rapport, defuse and re-program. Ask those difficult questions as to chain of sales price and curve of life; And in the process you get paid handsomely… and your Investors will appreciate further opportunities to work with you.
Where can someone contact you to obtain more information?
David M. Krunic
9801 Westheimer Suite 211, Houston, Texas 77042
Toll Free: 1-800-483-3544 x 4
Local Phone: 713-334-2559 x 4
Is there anything else you would like to share with our readers?
The investor is the true customer on a note purchase. So, it’s not about what that broker can do for me or what I can do for that broker. It’s what we can do together. Where are the opportunities to solve someone’s problems? Then in the process I get a good investment, the seller gets cashed out, and the broker receives a commission.