15 Nov Make an Impact Doing Overage Deals
Bob Diamond is a practicing real estate attorney and investor with years of experience in real estate law, investment, development, and is also the author of three books on real estate investing. You may be familiar with Bob from his appearances on Fox, NBC, CNBC, NPR, or Flip That House television show on the TLC network. Bob graduated from Villanova University with a degree in finance in '87 and from Temple University School of Law in 1993. He became a Pennsylvania licensed attorney in '93. During his career outside of the real estate world in law, Bob worked for Meridian Mortgage in their default and REO department. He also worked for Arthur Andersen and Coopers & Lybrand as a business consultant and for the international law firm, Cozen O'Connor, as a real estate attorney.
Bob has been investing in real estate for over 20 years and has participated as the buyer, seller, and/or attorney in over $100 million in real estate transactions over the past 20 years. Bob has been teaching real estate investing since 1999, so you have probably heard of Bob in the investor world out there where he's known as the guru's guru. Because of his legal expertise and experience as a real estate attorney, he's actually sought after for his advice and counsel.
Bob, welcome to the show today.
Thanks, Chris, great to be here.
I think on two occasions now, I've had the luxury of interviewing attorneys/investors and it's always intriguing. As I said to you before we started, your stuff is particularly intriguing. I'd like to dive in here.
If you could take us behind the green curtain so to speak and give some context to our listeners of the when, how, and the why you got started in this. I'm going to let you define the particular niche that you're in, but tell us how you started at first.
I started, I think, like a lot of people. I started as a young guy with big dreams, sitting in a cubicle, working away. I was working with Coopers & Lybrand as a business consultant. That was my first job out of college. You're doing a lot of the grunt work and low-level interviews and write-ups, and it's just boring as all get out. Honestly, I sat there in my cubicle and I calculated one day how many days I had until retirement. Since I was 22 years old, I thought I was a little young to be counting how many days that I have to suffer through that job before retirement, so I started looking around at what could I do where I could make money, be my own boss, not have to deal with the nonsense that's inherent with every organization? There's always nonsense to deal with, mostly people related. So I started exploring real estate investing.
There I learned foreclosure investing, flipping houses, and I started doing that. It was very interesting, and I did well with it. Lots of bruises and bumps and scrapes along the way but overall I did very well with that. That started off my career and I've gone since then from flipping single-family houses to buying them as rentals then onto apartment buildings and office buildings and now I own commercial buildings with restaurants in them. Just a lot. I own a lot of larger real estate as well as my old stuff. My single families and triplex and things like that.
Along the way, I made a lot of mistakes and learned a lot of things. I eventually went to law school just to get to really for the exercise of it. I loved knowing the rules and I thought law was interesting. I also thought, as sad as this is Chris, I thought that lawyers make a lot of money per hour. And if I could just work like a day or two a week as a lawyer I can make enough money and spend the rest of my time real estate investing.
It's a little radical to do that, to go to law school for a job to work by the hour but that's what I did. And as it turned out that was a great investment. I now know a lot. It's really helped me in business. It's helped me to just do more than I ever could have done. One of the reasons I wrote the books that I've written on real estate investing is there's really a need for good solid information from people who do the business, but also from someone who kind of knows the rules of the road and the ways that smart investors make things work. A lot of my clients are very smart investors who do very sophisticated things. It's served me well and I enjoy it. I enjoy the teaching.
Coming forward to today what I do now is really something that's related but different. I think it's most important that it's something everyone out here could do. That's the most interesting part about it. What we do is we help people who've lost their property at tax foreclosure sale recover the extra money that's left over after that sale. I don't know, Chris. Have you ever done any like foreclosures, like buying at foreclosures or buying at tax sales?
We have done foreclosures and most recently just dipped our toe in the water with some help with from Ted Thompson in the tax world. So it's all new to us, and I can tell you confidently that 90 something percent of our listeners on this show are not 100 percent familiar but may be like us. I've been in the business 26 years and didn't not really understand deep down what happened.
It’s very good for you to dive in.
That makes a lot of sense because whatever strategy you're using if it's not a tax sale or mortgage foreclosures then there's no reason you'd know the ins and outs of it. So let me just for everybody's sake go over the basics of what it is. A tax foreclosure sale happens when someone doesn't pay the real estate taxes typically for three or four years. Those taxes pile up and then the government forces the property to be sold at an auction to pay off the taxes. They have to do that. I mean they have to pay for the schools, the firefighters, the policemen. Their hand is really forced. They can't not do it. So people get three to four years behind, they will auction that property off at a public sale.
Here's the interesting part, Chris, money that's leftover from that sale over and above the taxes that are owed is claimable by the owner. Let me just give a scenario. Let's say we had a sort of average house in America which is a little over $200,000. So for simplicity's sake, we'll use $200,000. So we got a $200,000 house. When it sells at a tax foreclosure auction it's going to sell for somewhere in the neighborhood of 70 percent of its assessed value. Maybe a little higher if it's a desirable neighborhood, maybe a little less if it's a less desirable neighborhood, but it's a good benchmark 70 percent. So our $200,000 house is going to sell for approximately $140,000.
[bctt tweet=”“Money leftover from a tax foreclosure sale is claimable by the owner.” – Bob Diamond”]
Now, if you're behind three or four years in taxes, that is not $140,000. Your taxes in America average 1.7 percent of the home value per year. Of course, it varies a little by state. Let's just round it up for simplicity's sake to two percent of the home value per year. So if you have a $200,000 house two percent of the value per year is $4,000 a year in real estate taxes. If those get behind, worst case scenario four years, then you're $16,000 behind in real estate taxes. You're following me so far?
Okay, so you owe $16,000 in taxes. Of course, you're gonna have some penalties and interest. Let's just double that to $32,000 owed. Just, that's more than it really would be but just for sake of a simple example, this will do. So you owe $32,000, your house sells for $140,000. Well there's some money left over there, right? I mean $108,000 is left over. Does that make sense?
So that's the money we're talking about. That money is claimable by the former owner. It makes sense if you think about it. They're being paid essentially for the equity in their house, at least for as much as the government got. As far as the extra money goes, there's no reason the government should keep it. They got all of their money plus penalties plus interest plus cost of sale and so on. So they're completely covered. But that extra money is what we're talking about.
For someone like yourself who's starting to get involved with investing in a tax sale, it's definitely a strategy that you want to be involved with, and here's the reason. Say you go to tax sale — most tax sales are competitive, so there are going to be few people bidding — and maybe one time you get outbid. Now normally when I go to tax sale and get outbid, I would be frustrated. I'd be like, “Darn it, that guy showed up again. He pays too much. He pays more than I want to pay.” And you're frustrated.
But what if, let's say it was that $140,000 house. It sells for $140,000, guy at auction pays $140,000 for it. But you know that there's a $108,000 left over because once the taxes are paid there's $108,000 left over. That money is called overage money. Or sometimes it's called excess funds but typically overage is the normal way to refer to it. You can go to the former owner and say, “Hey, sorry you lost your house at tax sale. I saw that happen. But what if I could get you some money back? Would you be interested?” So typically for a percentage, most likely 30 to 40 percent of what you help recover, you help get that money back for the former owner and you get a fee in exchange for doing that.
So what you do is you keep track of money that's left over. You track down the former owner and talk to them, give them the good news essentially. Then for a percentage, you apply to the government to get the money back. It's a very simple business to understand, not a very difficult business to do. Obviously, it has some details like every business. When you're investing at tax sale you definitely want to be doing this business because those times when you get outbid or perhaps someone else is bidding on a house you're not interested in, maybe it's too far from your place, maybe it's just not the neighborhood you invest in. Anytime there's competitive bidding, there's virtually always an overage because the bidding starts at the amount of taxes that are owed. So if there are people going back and forth bidding that means there's going to be excess funds in like every case.
So for someone like yourself who is going to tax sale, you definitely want to have this strategy in your back pocket. But you can also make overage money on the ones that you do buy. It's nicer if you go to someone's house where you bought the place and you say, “Hey, I know this is a really tough thing. What if I could get you some money to help me get started over again? There's a $108,000 left over. I could get that money. You can pay rent while you're here and we can take that out of the overages money. It will take a couple of months to get it, typically three to four months. And at the end, you'll have some money to go get started over again.” Pretty good offer, right?
Yeah, I mean I can't imagine. I got a few questions if I can throw them at you here.
As I go through this because when I looked at your material I know I thought of these. So I want to make sure the listeners, I'm sure are thinking of them, I want to make sure they get the answer.
Couple of things that come to mind. One is super positive environment.
You're calling them and saying, “Oh I got some money to give you,” I'm just paraphrasing. Let me ask you two things. One is when I shared this with my team, which is my kids my family, their reaction was the same. Well, what do you mean the government just keeps if no one claims it? Why aren't the seller's educated? So that's my first question that I know is burning in everybody's mind.
Well, I would say the reason is people don't know about it. They don't go to the tax sale and watch their place get sold off to some bidder. Because frankly, that would be embarrassing, humiliating, upsetting.
They're also worried about the more practical side of life which is, “I need a new place to live. I've got terrible credit.” Because you can count on the fact that if someone didn't pay their real estate taxes like every other bill they have has gone unpaid either currently or in the past. Meaning cell phone bills, utility bills, car payments, all that stuff, so their credit's shot. So they're trying to find a place to live. They've got to tell the kids we've got to move. They've got to say something to the neighbors. They've got to get a U-Haul, get some boxes. They're worried about like the practicalities of life and they're not going to the courthouse to go watch the house get sold. It's just not something they are doing so they don't know about it.
It's not like they have a lot of means to go hire a lawyer to go get advised on this. These people are losing their house at tax sale. They don't have money to hire a lawyer. So they just don't know about it. And unfortunately, our government really doesn't do anything to inform them. The government doesn't like send out the sheriff's posse to go track people down and hand them a check. You wish they would but they don't. The ugly fact is that when that money sits with the government for too long then it forfeits to the government. There's a word, you're gonna love this word, Chris. If you've got a sense humor you're going to love it.
So lawyers, in law school they love to teach us words and word roots to kind of get at the core meaning of a word. The word, and see if you can get the root for this word. The word for the money forfeiting to the government is as escheat.
So the root of that word is, of course, cheat.
So what happens is typically after three years, now it varies by state but most typically it's three years. After three years that money forfeits to the government and it's gone permanently. You can't get it back. You could beg, you could plead, you could just wish all you want but they won't give the money back. It's a statute of limitations. They just say, “Tough bananas. We're not giving you the money back.” So the people have three years to get the money. Just statistically speaking, because I'm a, as you noted, a finance major in college, I like statistics. Statistically speaking 5.7 percent of the money is claimed each year.
Year one 5.7 percent, year two 5.7 percent, year three 5.7 percent. So even if you take a compounding effect into account about 20 percent of the money gets claimed, about 80 percent of it forfeits to the government. They just put it in their general fund and do whatever they want with it.
Absolutely incredible. So I imagine, and we can talk about this at the end and make sure that they have the right links. But in the show notes, we'll help these guys get all the materials. Obviously, one of the things you help them do is navigate through all those waters.
And get to that point. So let's fast forward. You've taught them how to do it. They're helping themselves out. They're carving out a fee for themselves. Is there a percentage, is there a formula as far as the fee side of it? Now that you use or that the listeners could use or expect, I should say, as they think through this process?
We charge 30 to 40 percent. Most typically 40 percent. I modeled it after what I did is as an attorney when it took a contingent fee case. It was typically 30 to 40 percent depending on the complication and the case. Typically you vary between 30 and 40 percent depending on the size of the claim. The average claim size for us is $38,500. That's statistically what the average size is. We're typically at 40 percent. So it's about $14,000 per claim that is our revenue from it. The person who lost the house keeps the rest of it.
Now it is a free country. You can charge whatever you want. I do think as a practical matter 50 percent is your upper limit. The reason I say that is if I came to you and said, “Hey Chris, I know you lost your place at tax sale, terrible thing. I think I could help you get some money back. How about if I do all the work. I'll do everything. You don't have to do anything, just sign an agreement that I can go do this. And at the end, we'll split it 50/50.” I think you can sell that. I think once you go above that it becomes just not something that someone's going to want to do with you. Like if you say, “Hey, we'll do it 70/30. I get 70, you get 30,” someone's gonna tell you to pound sand. I think it just seems unreasonable.
Yeah, I agree. When I started out in more the terms business, let's say, it was an easy, easy sell and I tell partners, my students this, to say I'll split the fee with you. So I couldn't agree more. As you were saying I said, “Yep. Right. Spot on.” So I agree. That's fantastic. So there's some good paydays there obviously, Bob.
Yeah. For the listeners. Super positive. Let me ask you this. You obviously work with additional profit centers. Not to mention, like you said, the education for anyone wanting to know kind of all the things that are out there so when they run into a tax issue they know all the nuances and all the profit centers. So let's assume that a lot of investors obviously work with you as your clients. Some are experienced and some may be just getting started. They stumbled upon you first. What do you see as the biggest obstacles to someone working the overage business?
It's fear of talking to a human. So what you have to do is you get the list, which are pretty easy to do. It takes us about an hour to train people how to get the list. Then you do skip tracing which is pretty simple these days. Just go on the computer and you can find people. Then you have to call them though. You've got to reach out and say, “Hey, Sam Smith. I'm so glad I got a hold of you. You're owed a pretty big refund and I wanted to talk to you about it and see if I can arrange to get it for you.” A lot of people are just afraid to talk someone on the phone. That is the biggest obstacle to success because nothing else is very hard. But for some reason, we have some humans that are afraid to talk to other humans these days. That's the kind of person that, unless they get someone else to do it, this won't work for.
For everybody else, it's great because honestly, you don't need much money. Most of these things take 60 or 70 dollars in hard expenses to actually process. That's like overnight mail and things like that, so very inexpensive. You don't need any loans or credit or anything to do it. You just have the gumption to just call somebody and say, “Hey, you're owed a refund. Would you like to work with me on it?” It's not hard. It's simple. That part, for some reason, some people have a challenge with. That's the person that I would say this business is not for. For everybody else who either can do that or say, “Hey, I can get my buddy who likes to be on the phone to do that,” it's a great business.
I think it fits in really well with real estate investing because if you're going to either tax sale, or mortgage foreclosures sale for that matter, you want to have this in your back pocket. There are gonna be times when someone else bids more than you bid and you're going to want to recover some money. Or you buy the property and it's good to be able to reach out to someone and say, “I know you lost your house but there's a big pile of money I can get for you. I'm gonna own the house in the end but you'll get this big pile of money to help you get started over again.” It's a really great strategy.
Or also even as a standalone strategy if you aren't involved but just say you know, I want to get into this in a way that's very low risk. Because your risk is really about $60 in expenses that you spend on these things. And some elbow grease, probably two to three hours of time. So it's low risk. You don't have to put out money. You don't have to sign for any loans. The way that I do it with my real estate business is I make money in the overages business and I use that money to buy free and clear rental properties, to pay down mortgages on existing rental properties. When you do that, it makes your wealth grow exponentially because free and clear rental property cash flows like crazy. You're literally years ahead of the game. You really jumpstart your success because normally if you have a rental property, especially in the early years, cash flow is kind of skimpy. It takes years to start paying down that mortgage. If you do what we do and you make 10, 12, 14, $15,000 on an overages deal … you take three or four thousand dollars and you put it into your mortgage.
When you do that month after month, very quickly mortgages get paid down. They get paid off and you're cash flowing like crazy. So instead of 10 or 15 years to good cash flow and wealth, you can literally be three or four years from amazing cash flow and wealth.
Yes, so you nailed what I alluded to earlier, the additional profit center. You just showed them how to fit it in as far as a wealth building as well. Then did I hear you correct? I got the overhead piece. They got that loud and clear I'm sure. Did I hear you correct on the timeframe? You're talking a couple of hours a deal is that about average?
Yeah. I would say from beginning to end, including looking up a list, skip tracing somebody, calling them, doing all the work, six to eight hours. At the beginning part when you're talking to people and seeing if it'll work or not, get them to sign things, two or three hours. So if things are going to fall apart you probably have two to three hours in it, maximum.
Well and as far as the fear of talking I mean, first of all, everyone I've interviewed in the real estate biz says some shape, form, or fashion of the same thing. Look, you've got to want to talk to people. And then when you look at your business the more I listen to it, study it, and hear about it, clearly, the call is more positive than any call we do.
We're all about, you know, in the 90s when I was a realtor I used to cold call. But then the more we mature in the business we obviously have people attracted to us. But you just took all that, any doubt, any uncertainty away I would think. You're calling someone with a gift essentially, in my translation.
Yeah, and I found the best word to use is refund. “You're owed a refund.” It's obviously simplifying things down but when people hear it they're like, “Oh, I understand that.” You don't have to get into a big song and dance about tax sales. By the way, this system also works with mortgage foreclosure sales as well. That's just when there's money left over, over and above the mortgage. So it works in both.
We're still primarily doing tax sales just because there's so much business and so many deals that we can't keep up with anywhere near the flow that's out there. Right now there are 3,000 properties each and every business day sold in America at tax sale. It's just it's impossible for anybody to keep up with that. We do, on average, 300 deals a year. Think about it, there are 3,000 properties per day being sold at tax sale.
You have Rhode Island on the ocean, we may as well like take a bucket, walk into the ocean, lift it out and walk away with that water. There's still just as much water in the ocean.
So the abundance mindset with everyone listening is an understatement. There's more than enough to go around. It's not going to get eaten up and it's not going to be absorbed by everybody.
And if it ever did in tax sale side we would move to the mortgage overages side. We do occasional mortgage overages because we'll bump into them just being in the business but that's three percent of what we do. It's just it's a ridiculously abundant fishing ground.
So if the fear of, let's just hit that one more time because that's any, well any area of real estate I think. So if a fear of talking is an issue, communicating, that probably shows. And if you're a listener hearing this, I hope if it applies to you, watch for this answer here or listen. That shows your weakest point I guess. So how do you get them past that in your world of training? Or do you not? I mean so how do you handle that if you have a student that can't get past that?
We have call scripts and we have specific training on what to say. Sometimes for people, it's just they don't know what to say so they're afraid to say anything.
So we have very specific call script. You literally just read it and it guides you through the whole conversation. So that's the training part. So if someone's issue is just not knowing what to say we cover that. If their issue is they just don't want to call anybody then I've two suggestions. Number one, don't make a business where have to do what you don't want to do. Then you're going to have a successful business that you hate. So instead what I would do is partner up with someone or hire someone, whatever your finances allow and whatever you're predisposed to do. Partner up with someone who does love the phone. Because there's lots of technical things to do in this business like looking up lists, skip tracing people, and turning in the claims that is sort of the technical side. Maybe you're the person that loves to do that. You're organized, you use the computer, wonderful. You don't talk to anybody in those parts of the business.
Then you bring someone in who has sort of the gift of the gab and loves to talk to people and they do the calling. Frankly, the person who loves to talk to someone probably hates the technical side. They'd rather just talk to people. So my suggestion is just bring someone in. Or if your problem is training we'll train you. If the problem is that you just don't want to do that, you would dread it every day of your work life, bring someone else in. Because I don't want to make you good at something you really hate. But I think you're correct Chris, that in the real estate business you have to talk to people. If you're unwilling or unable to talk to people it's not the right business for you. You need to do something else but not the real estate business.
[bctt tweet=”“In the real estate business you have to talk to people.” – Bob Diamond”]
Yeah, no question. Kind of a side note here for the listeners. If you have not gone to the show where I interview the famous Dr. Joe Vitale, go listen to that because he talks about what Bob just alluded to about just you've got to like what you're doing. You don't want to go and do something you hate. He also talks about blockages, all kinds of cool things that relate to that one issue that Bob and I discussed.
Bob, before I transition a teeny bit into a little bit more about you, you mentioned and I mentioned in your intro some books. Can you give the book titles for the listeners because I know almost every listener sorry, every interview we do we throw some cool books out and I want them to know what those books are that you wrote.
My first book was “Your Fortune In Foreclosures.” That was about, essentially about pre-foreclosures. I covered buying at the auction and buying after the auction so it was Your Fortune In Foreclosures is number one. Number two was about Probate Investing. So it was buying properties out of probate. Number three was “Wholesale Commercial Real Estate.” I did a new take on wholesaling because as I had at that point started investing in commercial real estate and I realized there was a need for people who would find commercial deals for me. I built a course around that. So someone who maybe didn't have the finances to buy a 30 story apartment building or to buy an office building could act as a finder. For people that were financed like me, it was great because I could have people bring me deals all the time. Those finders fees on commercial are enormous compared to residential. So that was a good deal for everybody.
So those were the three books. Now the latest book is called “Hooked On Overages.” This is the new business we're doing. What I do, by the way, if anybody is wondering why all these different books. So as I developed and matured in the real estate business after I've gotten good at something and done it successfully I've written books about them and done courses on them. It's only after when I do them and get comped and after we're making money that I educate other people on it. I'm usually looking for some way to work with other people. Meaning like I think the best example of that was the commercial wholesale. I was hoping that people would send some deals my way. And they did. So I ended up buying some good properties. And other people did great. They found local commercial investors, they wholesale them deals and those are six-figure referral fees. Which you can't do that in residential, you can only do that in commercial.
So my sort of way of operating is I do something, get good at it, then write about it. And in overages what ends up happening is that some of the technical work ends up in my lap. Especially the more complicated deals where people maybe are brand new and don't know how to do it. Or maybe it's a probate deal where they don't know how to handle the estate part of it. So my law firm ends up with some of that work, which is great. It's not required or anything — it's just nice. I found that a good professional way to promote a law practice is to give people information. They do lots on their own. It's wonderful. I make some money on the course, that's great. Other times they think of me when they have something complicated they're trying to deal with. They're like, “I gotta call Mr. Diamond's office because he knows how to do this,” and I do.
We handle, at any given time, 100 or so of these overages deals. Anywhere from 90 to 110 depending on what's coming in and going out, but it's nice. It's built a nice law practice for me. I enjoy the work. I love — and just between you and me, Chris, hopefully, the guys in the black helicopters aren't listening — I love not letting the government keep that money. It's just it's so much fun because this is like free money to them. They love to just scoop up this money.
Well and everybody reacts the same way as I said to earlier when they find out what it is that you do, and certainly our team they all react, “Are you kidding me? Why is …? I don't understand that.” They're just baffled that the government can and would do that. Crazy. Crazy. So you're spreading prosperity with your kind of your you operandi and your protocol and we appreciate it and you got super good energy by doing that.
Let me change directions a little bit with a few questions here. So I love asking all the people we interview. Obviously, every single one of them have made some mistakes along the way.
They're here because they've had success but they've had mistakes.
And my book starts at the 2008 debacle, so I'm open about it. But by the same token, the successful people don't let any kind of speed bump get in their way or define who they are in any way. So tell us about maybe a failure or a challenge and how you achieved success because of it.
So I'd give you two. The first one, let me give you the one that's probably nearest and dearest to everybody's heart. And that will be 2008, the same as you. I don't know your exact story with that, but my story was I had three houses I was building in North Carolina as vacation homes. I had two apartment buildings that I just bought and was renovating. I had an office building with a restaurant in it that I bought and was renovating. I owed the banks at that point $7.5 million and everything fell apart.
My investors were supposed to be putting in cash didn't have the cash to put in. The houses that were finished weren't selling. My apartments weren't renting. I had two restaurants consecutively fail. Where they were supposed to come in, build out the space, and open up, two of them failed in a row, tying me up for a total of three years and leaving me with $275,000 in mechanic's liens from work they started but was never finished or paid for. And I literally, Chris, I spent five years shoveling money into those projects and getting them to completion. It was awful, absolutely awful.
I also during that time had the joy of going through a divorce which lasted a total of seven years. It was like a seven-year plague of locusts. That was a really tough time. I mean it was, it took a lot of just stick-to-it-ness and just getting up every day and going to work on the problem of the day or the problem of the minute. Dealing with upset people, dealing with upset bankers, and just slogging through it. One of the biggest learnings I had from that was to try not to be in businesses where you have to borrow seven and a half million dollars. Things can happen like the whole market collapses, which had nothing to do with me. I didn't make that happen, it just happened. I saw it as like I was outside and it started raining really hard and I got wet. I lost literally millions upon millions of dollars in that time in cash that I was shoveling into projects plus and decreases in selling prices. I did sell some things at fire-sale prices just to get out from under them. I paid a lot of investors when I wasn't making anything. These people were friends and family I'm just like here's a check, here's all your cash back, and thanks for participating. That was brutal.
What I learned is that if you just keep working you'll work through things one way or the other and never get despondent. Always keep working. I also learned that those are really learning experiences. Those are the times when you learn the most and you learn who you really are and what you're made of and you just need to be resourceful. Sometimes you walk away from deals. Sometimes you just cut your losses and move on. I had some raw land where I cut my losses and moved on. Sold them at a loss and just moved the army on. You don't want to hang onto a sinking ship. Sinking ships are sinking. You can go down with them or you can get in your lifeboat and row away and not worry about your losses but just move forward.
[bctt tweet=”“Don’t hang onto a sinking ship. You can go down with them or get in a lifeboat.” – Bob Diamond”]
So fast forward to 2014 when I started this overages business. The overages business doesn't take capital. I spend $60 in a couple of hours on a transaction. If for some odd reason it doesn't work out then I lose $60 and a couple of hours. No big deal. You don't owe a bank hundreds of thousands of dollars or millions of dollars. I really have very little to worry about. People might ask well why don't things work out? Well, occasionally something will happen like we get the wrong claimant. Like we have the person with the same name but it turns out that wasn't the former property owner. That can happen. Just little goofy things but most of the time it's fine. We recover the money. Sometimes takes a little more time, sometimes a little less time. Typically it's three to four months. It can take several months off if you end up in a complicated one with the states. Can take as little as, our best one was two days which almost never happens. You turn in a claim, small county, and they're like, “Oh yeah, we know the claim, here's your check.” That's rare but it happens.
I love that there's really no risk in this business and nothing to worry about anyway. I'm not going to cry for 60 bucks and a couple of hours. I really like that because it's very clean. I also like the fact that it's project-based and I noticed about my personality, I very much like projects. Like as a lawyer I love to like have a real estate transaction come in. I help people get the agreement of sale, help get it to settlement, help with the financing, and then it's done. The file's put away. I really like that. I know that's my personality. So this is project based. This one I get a list, I talk to the people, sign them up, go get the money, cut them a check, close the file, and it's done. I love that. But I love most of all I don't have financial risk and nothing to even think about. I love that.
Well there's some really cool parallels too. One of the myriad of reasons I wanted you on was you mentioned a few things. You mentioned about not borrowing, in your case, seven and a half million.
You also mentioned no capital, no risk, a lot of those things. In our entire model because of my debacle in '08, so we're similar in a lot of ways, is none of your own cash, not signing on personal loans, not putting yourself out there at risk. We share that and it's going to be fun to do some cool things together as we roll forward for all the listeners. You've been at it for a while then. They just heard kind of like the whole rundown. I know you've had some challenges as you just shared. What would you be, what would you consider rather to be some of the biggest wins and why? Or share one with us at least.
I think well, let's see, biggest wins. Certainly developing this overages business has been a big win for me. I love the work. I love calling people with the good news, getting them a check. I mean honestly, Chris, we're working with the widows and orphans of the world. Every one of my clients has had a very difficult time and it got so difficult that they lost typically their house at a tax foreclosure sale. And that's, you have to be really, really down on your knees for that to happen.
It's like you said in 2008, you had issues, I had issues. I lost millions of dollars, I didn't lose my house though.
Right. Same here.
I still kept a roof over my head and my family. You can imagine how bad it has to be. So these people are literally widows, literally orphans, and I'll give you a story that brought tears to my eyes. So about three months ago I was helping a woman who's in Fort Worth, Texas which is just outside of Dallas. And it wasn't a big claim, it was $23,000. One of our smaller ones but still worth doing for sure. I called her up and we'd gotten the check in. So the process that we get the check in, I deposit it into my business account, and then I call them up and say we got the check and it'll take three or four days to clear. I'm gonna FedEx you your portion of it. And so she said to me she said, “Oh, that's fantastic. But could you send it for Saturday delivery?” And I said sure, but I could get it to you earlier than that, you could have it Wednesday if you wanted. She said, “No, no, no. My sister will be in on Saturday and she'll help me and she'll help me with the check.
And so I'm being curious. I said, “Well what, why does your sister need to help you?” And she said, “Oh, I'm blind.” And I said, “I didn't know that.” Because I don't meet these people because they don't I don't need to in this business and they're scattered all over the country. I said, “Oh my gosh,” and she said, “I'm so glad the money is coming because now I can get the operation.” So now I'm hooked. I'm like, “What? Operation? What are you talking about?” So as it turns out, she had cataracts which were had gotten to the point where she wasn't able to drive, wasn't able to read, had lost her job. She was trying desperately to get on, I forget what she said, Medicaid or Medicare to pay for it, but she said it's just really frustrating. Said, “I'm probably seven or eight months from qualifying through,” whatever it is, Medicaid or Medicare. And she said, “But I can pay cash for the operation with this money.” And I said, “Wow.” And I said, “So what are you gonna do?” She said, “Well my sister is gonna come over Saturday. We're going to go deposit the check and then she'll take me to the doctors. I guess I'll make an appointment but maybe next week.”
Now I'm 52 years old so I've had a cataract operation. A little young for it but I have had one. Trust me it's the simplest operation in the world. Like when they fix it, which takes all of I think five or ten minutes. I was a little woozy during the operation so I'm not sure but I think five or ten minutes. When they fix it you walk out of there with perfect vision because it's like it's just a clouding over your eye. So once it's removed your vision's perfect. And I was so touched. It was amazing. The work we're doing is giving her the money to pay for this operation that otherwise she'd have to wait maybe seven or eight months to get.
The other thing that happened, I even hate saying this because I'm not saying this to be self-aggrandizing, but the doctor wanted a little over $20,000 for the operation. Which is very expensive for a cataract but she said there's some complication to her age and so on. So anyway she needed a little over $20,000 and she wouldn't have that once our fee was taken into account. $23,000 minus 40 percent is not $21,000. So I just said to her I said, “You know, let me just talk to my board,” which is just the other people in my business. I said, “But we have a program. We may be able to get you a little more money.” I just left it at that for the moment. Then I talked to the people that I'm partners with, my brother Ed and a couple other people. I called her back and said, “We're going to put you in our pro-bono program where no fee, you get all the money because that'll allow you to pay cash for the whole operation and you'll be done.”
Here's the funny thing, Chris. She actually argued with me and didn't want to take the money. Said, “No, no no, I don't want you to do that. Blah blah blah.” So then I finally, I'm a lawyer so I'm fairly clever, and I said, “Oh no, it's required that we do pro-bono work. If it's okay with you I'll let the bar association know that I did a pro-bono case and that'll help me.” And she said, “Well would it really help you?” I'm like, “Yeah.” And so she agreed.
That did it.
I'm not required to do pro-bono, but…
You're supposed to as a lawyer but I'm not required to and I don't have to tell the bar association, but that's how I got her to agree to take the money. I was so touched. I was like this lady who was so having such a difficult time, she can't see, she basically sits in her house all day waiting for something good to happen. She doesn't even want the money. She doesn't want me to give up my fee. For us giving up an $8,000 fee is not, it's not a big deal. I mean it's, I like $8,000 as much anybody else but this story is worth $8,000 to me. Like knowing that we did this and because we're in this business we touched someone's life that way. That's worth $8,000. I'd pay $8,000 for that and I guess in a sense I did.
It's pretty cool. It's a business where you get opportunities like that. I'm not saying you have to waive your fees. You don't. But just by doing the business you're helping people that otherwise are alone in the world and just feeling really lousy about themselves and they feel terrible about the situation, they feel like losers, and you come in and you really represent hope. You represent a helping hand when they didn't have any before. I mean I guarantee you, they've reached out to people asking for money to help stop the tax sale, and for some reason, it didn't happen. They have like not a friend in the world, but then you call with this good news, and before they know if they have a check and you'll get a lot of thank you cards and a lot of Christmas cards. Trust me.
[bctt tweet=”“By working in the overages business, you are helping people.” – Bob Diamond”]
It's super cool and the key thing you said you don't have to lower anything.
No, you don't.
You don't have to do anything and I appreciate your candor in sharing all that. The bottom line is you, by putting them in this business or helping them add this profit center to the business you give them the option to do that if they want to. It's the coolest thing. I think I alluded to earlier, to this whole situation being positive energy quote unquote. It's the same as our business. I remember my son joining us and he was a realtor at the time. He said, “Wow, it's a much healthier environment, Dad.” And it is. So what we're doing, again, has a lot of parallels.
Okay kinda my last question for you, Bob, and then we'll wrap up with some closing thoughts and get these guys some direction here. Let's imagine for a moment that you're standing in front of a room of, well let's say brand new investors. So they're going to battle their way through what? The same old stuff, the same fears, the same anxiety, the same uncertainty. Whether or not they made the right decision to either become an investor or to get in the overages business in this case. So what would be two or three strategies you'd recommend that they focus on to best ensure success in general?
I think a couple of things. One, look honestly at yourself at what you what your skills are and more importantly what you want to do. You don't want to do something just because you think it can make money. You want to do something that you really enjoy doing. Now for some people, that's fixing up houses. They may find a lot of happiness and meaning in making an ugly eyesore beautiful. I know I like doing that and fixing up houses. But look at what the work involves and if you really like it. Like in that business of buying fix and flip houses, you've got to buy houses for 65 to 70 percent of its retail value minus your fixed up costs. Those are just the numbers on it. That means that you have to be willing to offer people very low amounts of money to buy their places, and if you don't want to do that then that's not the business for you. You need to do something else.
[bctt tweet=”“Do something you enjoy, not something you think will make money.” – Bob Diamond”]
So I would take an honest look at yourself. I think the easiest way to identify is what really attracts you? Aside from the money, like what work really appeals to you? I know for me in the overages business helping these down and out people really appeals to me. I really love it. I get energized by it. It's fun. It's exciting. I'm proud of it and I'm very proud of the work that we do. So for me, it's the perfect business. I'm like this is great. I also like the fact, because I guess like you, once you've been burned by not your own mistake but sort of the general business environment, you start looking for ways to limit that exposure. That's what I did and it sounds like the same thing you did because you just say, “I don't want to be exposed like that,” because you are. When you're in a business where you have millions of dollars at stake, or even hundreds of thousands, or sometimes tens of thousands depending on where you're starting from.
Look at that and I do recommend businesses where you do limit your risk and you don't have all of your capital, you don't have your life savings tied up. And you don't have something where if you lose the money, your spouse is going to be absolutely furious. That's also I found it a bad idea. I can go more into that if you want but you can imagine. I think low risk is good. And I agree with you that if you're going to be borrowing money, you don't do personal guarantees. Because you don't always know and you don't always have control over everything. Sometimes things will go wrong when it's not your fault and everything looked great. You don't want to be sitting there completely exposed. It's not a good place to be because you can lose what took you years to build up can be lost in a very short time.
I think an honest self-assessment is number one, and then I think you go with what your heart is. It's not where your heart following where you think the biggest payday is, but your heart falling with what is the work actually involving. Is it something I really would like to do that even if I wasn't paid all that well, I'd just love to do it anyway. I know, for me in the overages business, I love calling people with this good news, talking to them. Yeah, I've got to get them from the point of a little skepticism because some strangers calling them up saying you're owed all this money. Like, “Yeah, ha ha ha ha. Is it April Fool's day? And to tell them, “No, this is real,” and then offering to help them. Which it's like my sales, like, “Would you like our help with this?” Of course, the answer is, “Yes, I'd like your help.”
By the way, we don't tell them where the money is, that's proprietary so we don't tell them that, so it’s not something that they could just easily go do by themselves. We do tell them about the money, we offer the service to go get it, and we always do it with no upfront charges. If for any reason it doesn't work out, it doesn't cost him anything. I'd say to people, “Look, we get paid if and when we recover money and even then only from a percentage of what we recover. The check comes to us, goes in our business account, we give you a copy of the check and your portion as per our agreement.”
People when they don't know where the money is have no idea and frankly are pretty down and out like they're not energetic in the sense that they're going to go be entrepreneurial and go find money. A lot of them have just been hurt so badly they're kind of just sitting there begging on their knees for someone to help them and help pick them up and dust themselves off. It's not, these are not, they're not the entrepreneurs you'd know from your list. These are people who have really been kicked hard and are having a tough time so they like the help and they need it.
You mentioned two things, Bob. Well, you mentioned a whole bunch of cool things but there's two things that you mentioned that I want to put up big asterisks on and highlight and underline 30 times for the listeners. That is the way we both operate, coincidentally, which is not putting yourself in harm's way with little to no risk, without going out and borrowing all kinds of money and helping people. And I think those two, I don't think, I know those two things because you and I agree just and we just met recently. Those two things will help you put your head on the pillow at night and we'll help you sleep better period. I think that's a safe bet.
Bob, listen, this was really, really awesome. I mean from the knowledge that you shared to the candor to just opening up totally. I mean from the beginning of the interview to the end I really, really appreciate it.
Okay smart listeners, my closing thoughts, as always you can listen to this and other episodes that we've got featured here over and over. I encourage you to do so, especially this action-packed one we just finished. But in order to experience a quantum leap that I mentioned at the very beginning here, you've got to take action. Bob shared several books with you. I'm gonna to have him share my thoughts with you on what you can do to take action by going to the show notes. But for goodness sakes grab one, two, or three of these action items and go take action.
Bob, I think you're gonna, you have a couple things or maybe one thing that you're going to give to these guys that we can feature in the show notes.
However you wish.
Absolutely. So in the show notes, we have a short book that I wrote and it's just very short, quick read, like 20 pages short. Where it really goes over overages, what it is, kind of the great, the okay, and the challenges. So all three of those things. Because my belief is that you should get involved with things knowing what it is going in. Then for me the overages business the toughest thing going on is you have to be someone who's willing to talk to a human. If you're willing to do that then I can help you with the rest. But yours or someone that you're going to bring in has to be willing to talk to another human being. And so there's that.
And if you say hey this is something I definitely want to add in, then if you go to ChrisDoesOverages.com we set up a little website where I have a presentation that's about two hours long in total. Where I really go in-depth to like every aspect of this. I show you some less, so you can see lists of people actually owed money. You can see how it works. You'll understand sort of the whole business process from beginning to end. If you like it at the end of that then you can get our course and you'll get our office supporting you and helping you out. You can call in and get help with your deals. You'll get the opportunity to do that.
What I can give you and I think what's fair to say is I can give you a really good straightforward assessment of the good, the bad, and the middle about this business. If you say,”Yes I want to do this,” then I give you the education they need. Like I said, people ask, well what's in it for you? Well just to be clear, two things. One, I make some money on the training, which is wonderful. That's part of being an entrepreneur. Secondly, I'm hoping that sometimes when you get a more complicated deal or where you say I want to just do the calling part that you work with our office and we'll handle the back end of the deals. We're a law firm so it's nice to get work. So it's good, not a requirement in stretch of the imagination but it's a good, for me a good professional way to promote our business, which I like. Because I educate people and educated people are great customers and remain great clients.
So if you go to ChrisDoesOverages.com you can see that you can just register and you can see the video. In the show notes, you'll see the link to the free download where you can learn more about this. Just read the 20 page PDF and it really gives you a good overview. My goal is to give you a good honest assessment so that you can decide for yourself as an adult if this is for you. I think it's a wonderful business. I think from the feel-good aspect, from the good energy aspect, from the being proud of what you do aspect, and for being a really profitable business. I mean it's you make a lot of money. I mean we do 300 deals a year. Average deal size $38,500. Our normal percentage is 40 percent. So you figure it out. It's a lot of money.
Yeah, good stuff. I was going to highlight that, Bob, because you said something about earlier. We get a modest training fee, right. But not even remotely close to the return on investment-
That they can realize. You said something else that again, the two of us didn't even realize coming into this interview and that is you share kind of the good, the bad, the ugly, I'll call it. Well, I have a whole chapter in the book that's called What Can Go Wrong. Because you and I both, it sounds like, share the exact same philosophy. This isn't about fluff. This is about rolling up his sleeves, getting work done, and you will hit speed bumps and let's show you what they are first.
I love that we're on the same page.
That's just treating people with respect, which is something a great believer in. Also going in with your eyes open. I walked in and a lot of what I've learned as an entrepreneur especially early in my career was I was kind of do-it-yourselfer. I'm a smart guy I can figure this out. And then went and figured it out and what I found out is that the school of the streets has a lot of bumps and bruises in it and sometimes a good old kick in the stomach. As I've gotten more experienced, one of the things that I have moved to is I ask people who've been down the path what can go wrong? What's the best approach to this? And I learned from their bumps and bruises.
There's no, I don't need to have the bumps and bruises myself. I can learn from other people's experience and I think for me that was something I needed to learn and I did by getting a couple of kicks in the stomach. That's when I really learned that. That's not necessary. So one of my messages is learn from people who know. So if you want to do whatever it is, you want to do apartment buildings find the best apartment building investor that you can and in turn if you have to buy their course if they sell it, sit at their feet and learn but learn from their experience and your success will come much faster and that's. Another thing I'd congratulate people, Chris, is that being on this podcast and learning from a guy who's done it. Like you said, I had I was doing great and then I wasn't. And here's what I learned. That is so much less painful, to learn that way.
It sure is.
And you also get sort of get the end of the story. You're like well here's how it worked out in the end. You also get the good ending because now you're doing fine. And so am I, I'm doing great. So I think it's a lot faster. Life's too short to learn from your own bumps and bruises, it really is.
Couldn't echo that louder, Bob. I appreciate you sharing it with us and guys just I say take action. Go to the show notes now. Download the free piece. I've gone through it. Get your butt on the presentation and Bob I know we all have, and you know, from coming from the attorney world, we have the same 168 very definable hours every week. I'd like to sincerely thank you for sharing one of those hours with us today. It was much appreciated.
Thanks, Chris, it's been a real pleasure. Keep up the good work. For all you out there, keep trying, keep striving, and keep doing things because it's the doing and taking action that's going to get you to where you want to get to go. So don't be an armchair quarterback. Get in the game and play because that's how you score goals.
Thanks much Bob.