Real estate expert and entrepreneur Eric Brewer shares some creative strategies to try in today's real estate market.
Join real estate investor and expert, Eric Brewer, and I as we dive into today's real estate market. Today's real estate market is very different than what it was a year ago, let alone a couple months ago. In today's podcast, we go over the Brewer method and his innovations in the wholesaling market and also the importance of having a secondary income when the market is down.
Since 2006, as a real estate investor, Eric Brewer has done over 3000 residential real estate deals in Pennsylvania and Maryland. His experience covers purchase, renovation, direct to seller marketing, novations, turnkey rentals, property management and wholesale. Currently owner of Integrity First Home buyers, that does nearly 350 deals per year, and is comprised of 40+ staff members, including a COO and full executive leadership team.
ERIC'S SOCIALS
LINKEDIN: https://www.linkedin.com/in/eric-brewer-7b6564a/
FACEBOOK: https://www.facebook.com/eric.brewer.79
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ERIC'S WEBSITE
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Today's real estate market is very different from what it was a year ago, let alone a couple months ago. Today on the podcast, we have real estate expert and entrepreneur Eric Brewer talking to us about creative strategies to try in today's real estate market. We go over the Brewer method and his innovations in the wholesaling market, as well as the importance of having a secondary income when the market is down.
I got an amazing guest, Mr. Eric Brewer with me. Eric is an amazing leader. He's been a real estate investor for many years. He's an amazing man. He's part of the leadership team at Collective Genius. He's a coach. He's a family man and he thinks outside of the box and thinks creatively. If you feel like you're stuck in the real estate world, then you're not alone. He helps you think outside of the box, think creatively, and of strategies, and he gives some amazing pieces of advice on what to do if you're feeling stuck and thinking.
Before I introduce you to Eric Brewer though, I want you guys to go over to our website, www.IronDeep.com. We get a brand-new men's awakening adventure coming up. It's in Helen, Georgia. We rent out this amazing log cabin, and we will have about 25 to 30 real estate entrepreneurs, mostly real estate guys, and other business owners. We're going to be there for a singular purpose. 1) In our faith. 2) We're going to be building deep relationships with God and each other, and it's going to be an amazing men's awakening experience. This is an introduction to our community. Would love for you guys to be there and check that out. What's going on, Eric?
What's up, Brett? How are you?
I'm doing fantastic. Thank you so much for being on the show. I’m super excited. I've known you for quite several years. We're part of the Collective Genius Mastermind Group, and I know you're part of the leadership team in that Mastermind organization with Jason Medley. That's how we know each other. Honestly, getting to know you and watching some of your presentations, you're a family man. You are a community man. Also, you're an amazing real estate investor. You're very creative, grounded, and down to earth. We're going to talk about that a little bit, but let's ask this question, who is Eric Brewer?
First and foremost, I've been a father for many years, but I have 4 children between the age of 8 and 2. Father used to be part of my resume. Now it's at the very top. It's the thing that I seem to enjoy the most and allocate the majority of my time. I got four daughters. I'm trying to be a good father to my kids and be present as much as possible for my wife. Balancing work in there somewhere in between is a 30,000-foot view of who I am.
That's quite the age range, 19 to 2.
It took a little hiatus there. I had my son Camden, who's my oldest. He's graduating high school this 2023. I met my wife when he was four. I had him before I married my wife Sonya now and then we were together a couple of years before we had our first. Camden was eleven when I had my second. Maya, who's my oldest daughter, is 8. About every two years, almost like clockwork, we accidentally decided to have another baby and I kept having all these daughters. My wife's pregnant. We have a little boy coming. Eric Jr.'s scheduled to arrive in May 2023.
Congratulations. That's awesome. We'll start over again. Hit repeat. Rinse and repeat like the housing industry. You are also a master at it. You've been in real estate for decades now. Done a few thousand deals and we don't say that lightly. Fix and flip out of Pennsylvania. You have about 350 deals a year and have built this amazing business. Take us in. I don't want to start out back at the beginning. A lot of people say, “Tell us your origin story,” but take us into it right now because we're entering a season that a lot of us haven't quite known or maybe experienced. You may be experienced it more than other investors that I've had on the show. What's your mindset coming in 2023 with real estate?
I was around in 2008 and there was a set of circumstances that created opportunity for some and created a lot of frustration and anxiety for others. I was one of the fortunate ones that was able to persevere through 2008. Probably around the middle of 2022 when interest rates started to change what we saw from buyer activity, there was all this tension and worry, specifically in our niche of business, and rightfully so. There was a change that was happening that a lot of people saw as a potential crash or a correction.
For me, I see it as what it is, change. It's not better or worse than what I was experiencing in 2019 and 2020. Frankly, I prefer this calmer atmosphere, fear that we're in right now. COVID was frantic, and post-COVID was bananas. While from the outside looking in, everybody would say, “You're in real estate. Prices are through the roof. You must be doing great,” it was easy to sell a house in the last couple of years. It got hard to buy because there was a lot of hyper-competition around discounted properties and then it expanded to where you didn't even need a discounted property. You just needed a property. You could become a wholesaler or an investor because of the way interest rates were and make a profit and make hay by getting an asset.
For the first time ever that I can remember, you didn't even have to buy it at a discount. For me, in 2023, is having an awareness of the change that's happening, not being paralyzed by it. Finding what I believe will be some significant opportunity that's created by other people not responding to the change. When everything was very predictable the way it was, in 2019 is where I felt like the market was as good as I could ever imagine it. Post-COVID, it was twice as good. Depending on what you consider good, it was good to be a seller. It was tough to be a buyer.
Now that we've seen this cooling off, I believe that somewhere between 30% and 50% of wholesalers or fixing and flippers may be out of business, maybe took a hiatus and were uneasy about the volatility of the market or the perceived volatility and won't ever go back into the business. I know a lot of people that in certain markets saw a 25% decline in values in a short window and sold some flips and lost hundreds of thousands of dollars and did it five different times. I'm no math genius, but I think that's $1 million. Even if they stay in business, that person then modifies their behavior and becomes super conservative, understandably. They're probably not as aggressively looking for opportunities because of their experience at the end of 2022. I was impacted like everybody else.
There was some anxiety, some worry, and some uncertainty that settled in as the market started to unfold. I tried to stay consistently aware of all I was dealing with. It's not the end of the world. It's not the end of real estate. It's not the end of me. It's just change. I wanted to be aware of how opportunities were being created in that change and be someone that benefited from it, not saw it as a negative. I've tried to reprogram my brain that what we're going through right now in this correction is a positive set of circumstances that if leveraged correctly, I would hope that I could look back on years from now.
I will say, “Do you know what pole vaulted my business or portfolio? I did well in 2023 because as the market cooled down and everybody was stepping away, I doubled down. I picked up some assets, or I made some decisions.” One thing that we've been able to acquire during this cooling-off period has been talent.
We've hired two business owners. The pending anxiety that the market correction was creating made them tap out and go, “I don't want to be an entrepreneur anymore. I want to go work for someone in an entrepreneurial atmosphere, but I want someone else to worry about keeping the lights on. I want to work for someone else that'll think five years down the road, I want to show up, do my job, and go home.” We've been able to acquire some significant talent, in addition to a few assets we've bought that I don't believe were available years ago not at the prices and the terms we were able to get. I'm excited for 2023. Cautiously optimistic, I would say.
I love how you talked about it. It's nothing but change. Being aware of the change and how are you going to respond. Even me included and a lot of the guys that I'm around, I'm having these conversations about some of the anxiety and stress and sometimes that paralyzation that we're dealing with. One of the things that I keep coming back with is how we can be more creative. The last few years made a lot of us lazy. It's made some of our sales guys lazy. It's made some of our business owners lazy. We think it's easy. We've forgotten that sometimes, running a business can be challenging and it got us soft, I believe.
Now we have to better put our big boy pants on and try to think creatively. When I think about people thinking creatively, I think of you. You're doing a lot of different creative strategies. You have The Brewer Method that I want to dive into with Novations. One of the things you talked about is doubling down, and finding talent, but what are some of the other ways that you're having to think more creatively during this time?
I bought my first office building this 2023. When we look at opportunities in single-family residential, that's where I've been for many years. I'm buying and selling 3-bedroom, 1-and-a-half-bath ranchers on a quarter acre. This started with CG probably years ago, and Phil Green and Erick Gydesen were on stage. Those guys are from San Diego, California. Trends probably start 6 months to 1 year on the West Coast, specifically California before they make their way to the Midwest and eventually, the Northeast where I am. Those guys were going through it, they were seeing values plummeting strongly. They were seeing a correction of values and rising inventory, and they were making adjustments.
There was a financial analyst that spoke at that meeting. I can't think of the guy's name, but all he does is study. He's the type of guy where you go, “What's your opinion on this?” He doesn't have an opinion. He'll simply recite what the data would indicate. He said, “We're at an affordability index of X percent. The next time interest rates go up, the affordability goes below the historic.”
For centuries, every time affordability got below this amount, there had to be a pricing correction or he used the word pricing damage. He said, “My opinion is that things will probably continue the way they have the last couple of centuries. Next time interest rates go up a quarter of a point, there has to be pricing damage.”
He talked about stacking cash and how when there's pricing damage, people that have large institutional-style money swoop in, buy a bunch of assets, and then they never sell. That's his pitch on how the wealthy become wealthier and how wealth is created in times of uncertainty, prices come down, they buy them at historical discounts, and then over the course of 40 years, they 1000X their money. I'm sitting there going, “I don't have institutional-style money or cash.” I do pretty well, we manage our finance as well, but I don't have reserves that I can go buy $100 million worth of real estate and say, “That's it. I'm done for the next fifteen years. I'll see you in the next recession.” Who are the people that do?
Now more so than years ago, hedge funds are more visible. What do hedge funds struggle with deal flow? They haven't been able to figure out that customer interface where they can go out and run marketing the way that companies like ours do, and figure out that emotional aspect of selling a property to discount and solving some of these unique problems our customers deal with. I said, “If those people want to buy a large volume of assets and they have the money, but they don't have deal flow and I have deal flow, but I don't have institutional money, why wouldn't the two of us work together?”
From that meeting until where I sit now, I've allocated a specific amount of my time every day, every week, and every month to try and find alignments with people at a local level that have either access to or manage institutional volumes of money that want to acquire single-family or multifamily assets but lack direct access to those assets and would benefit from a relationship with me. I could bring deal flow, they bring capital, and there's this marriage that makes a lot of sense.
Now I have two of those that within a short period of time, will be legally binding consummated relationships. It wouldn't be a transactional exchange where I'm either selling or wholesaling the house or renovating it, selling to them. I would have the opportunity to retain equity in these transactions and acquire these at an institutional level, like hundreds of millions of dollars of acquisitions over the next several years.
When I talk about change, as the depression was setting in that I didn't have institutional-style money to capitalize on the recession because I had this modified mindset of, “It's just change. Figure it out. Be part of the change. Don't be an observer.” It’s crazy to think about me. I barely graduated high school. I'm a good old boy from Pennsylvania that stumbled into sales when I was a 22-year-old kid and got good at it, and luckily, made a pivot to real estate many years ago. For me to sit in front of someone that controls a quarter of $1 billion is extremely intimidating. When I sit across from that person and I'm like, “These guys graduated Ivy League schools, they're worked on Wall Street, and they’re brilliant.”
Yet they have an admiration for an entrepreneur and a salesperson that's able to grind and put deals together and sell. The skillset that's created, and the opportunity for them to manage institutional-style amounts of money is almost opposite of the skillset that it takes to be an entrepreneurial sales driven assertive, socially active person. They never operate in these dark offices stuck in analysis and they're looking at trends and data many years down the road. I can't spend 30 seconds looking at data. I get practically anxious. That's an example of changing my mindset which was tough. I was paralyzed for 90 days. “Why is this happening to me? I can't believe it. I've worked too hard. Woe is me.”
I almost think if I could have smacked myself, I would've and I was like, “You can either watch this happen to you or you can be part of the change and be the guy that's out in front carrying the flag saying, ‘Follow me. I'm going to charge to battle and come out the other side a warrior.’” It gives me goosebumps to talk about that because I'm hoping that in these relationships, decisions, and audacity I had to think bigger than I have before. It's either going to cause me to crash and burn miserably and I'll start all over, or it'd be something that when I look back years from now or I imagine what decisions I make now could impact the people I care about. I'm of the belief that what I do these next 12 to 24 months will result in a legacy that I'm proud of.
We go back to thinking creatively and searching for that opportunity. It sounds like you went through this period of time of paralyzation and then you came out and started thinking about these hedge funds, these relationships. It always takes me back to when you first got started. You were thinking about real estate, but you didn't how to do it. You finally got in. You started doing it. Now, we need to go back to those ideas and how we level up during this season.
One of the ways that you've been able to level up is you gave a presentation at Collective Genius about years ago about Novations. You've been doing this strategy for a while, but you didn't think that much about it. This has become a big thing a lot now. Some of the big players in every market are talking about Novations.
Can you dive into that a little bit? I know you have a system called The Brewer Method about Novations. This is a great method for wholesalers that they don't have maybe the cash to take things down and they can be able to list things on the MLS. Talk to us about The Brewer Method real quick about Novations because that's another very creative strategy.
I'll give you a little bit of context to help anybody that's listening to this have the right idea. Novations have been around for centuries. It’s a longstanding general business practice that at its core, the definition means the replacement of an agreement or a term inside of an agreement. What does that definition start to mean when you look at the application of wholesale-style real estate? If you think about the normal wholesale deal, it's an assignment. It means I have a contract with the seller, I'm going to assign my interest in the property to a cash buyer that's going to fix it up and sell it. Fundamentally, that's the mechanics.
When you replace your agreement, it's like, “Eric, why would I replace my agreement rather than assign it?” The challenge with an assignment is it's not a lendable transaction. A retail borrower cannot buy an assignment. FHA, VA, USDA, Fannie Mae, or Freddie Mac, they cannot lend on an assignment. It's not an arms-length transaction. It's not able to be insured because the wholesaler is a party to the transaction, but they can't insure the wholesaler. Novation, which is replacement becomes a financeable transaction. Now if you start to go, “What does that mean for me?” Imagine if every wholesale deal you got, you weren't forced to sell to a cash buyer at a discount. You could sell the property that you bought at a discount for retail value without closing on it, funding it, or renovating it.
If you checked out at this point, you had to get out of your car, and you had to leave, it's not a fix-and-flip strategy. For a long time, there were some people that used Novation as a fix-and-flip strategy. They would partner with the seller, which sounds horrible to me. They would do renovations, which is my second least favorite thing to do. It's tough. It's challenging. It takes a ton of cash. It's the reason why I don't have hair like Brett right now, dealing with contractors. It's a beautiful process to watch a house go from beat up to fully renovated but the in-between part is excruciating. The way I would describe Novations is a wholesale-style transaction on a property that's in wholesale condition being sold on the open market to a retail buyer.
Now when you understand that, like the wholesale condition that I said, when people look about generating leads, generally in a wholesale business, they look for fixer-uppers. Driving for dollars, you look for the worst house in the neighborhood. If you get a list, you look for code violations, evictions, and pre-foreclosure. The whole way we've been taught to do wholesale real estate is to go find a distressed seller who has a property that needs a ton of work and will sell it to you at $0.50 on the dollar. Good model. It works. People have made a gazillion dollars doing it.
A couple of challenges. 1) There are fewer sellers now than there were years ago. The inventory's down. Whether it's distressed or whatever, fewer people are selling their homes. 2) Hypercompetitive. Every person that gets into wholesale real estate is buying the same list, cold calling the same list, mailing the same list, and competing for the same Google ad. I use this analogy of the business of wholesale as finding a needle in a haystack that's a fixer-upper owned by a distressed seller that'll sell it for $0.50 on the dollar. Once we buy that needle in the haystack or get it under contract, we got to go sell it to another needle in a different haystack.
A cash buyer that's crazy enough to fix up a house, sell it, rent it, and hope that they can make money. When you start to do Novations, which are properties that are not necessarily owned by a distressed seller, the house doesn't need a bunch of work. Novations are straight-up turnkey, the houses are perfect or at or around the average condition. Now when you start to imagine, what if I could novate or do wholesale-style transactions on every property? Any seller that wants to sell becomes a Novation opportunity. I'll give you a quick normal math on a wholesale deal like ARV, 75% minus reno is MAO. It's ABC, MAO, ARV, all this stuff.
When you look at a wholetail Novation-style property, you can pay 85%. The only number you want to focus on when you do Novations is the current condition retail value. If I took this property in its current condition, listed on the MLS, and said, “FHA, VA, buyers, come buy my property.” Go ahead and do your home inspection, get a full-blown appraisal, what would that person pay for it? It is tens of thousands of dollars higher than what an investor would pay for it. Now when you have this tool in your toolbelt, how many times do you have a seller that says, “Brett, this sounds good, but I'm not going to give it away. Brett, when you guys say sounds pretty attractive, I know that you can close quickly. I'm not in any hurry though. I’m going to hold onto it?”
There should be an alarm that goes off in your head when someone says, “I'm not going to give it away, or I'm not in any hurry.” You should be having a Novation conversation with this person. I stumbled on it back in 2008 because prior to that, for every flip that I sold, no one ever used FHA financing. Prior to the financial crisis, you could get 80/20 loans, 100% financing with bad credit. There was a surplus of loan products. No one ever used FHA. Immediately after 2008, every single buyer that had an offer on my property was using FHA. There's this thing called seasoning requirements for FHA that as a flipper is a bad word.
That means, “Brett, you got to hold the property for 91 days before you can even write a contract to sell it to an FHA buyer.” They won't close for 60 days after that. I went from holding properties for 60 days to having to hold them for 6 months because of FHA seasoning requirements. That's when I started looking for a solution.
I discovered Novations and slowly I started to incorporate it into my direct-to-seller business. I did about 2 or 3 of these and made $25,000 on deals that everybody else passed on. I was off and running. Now 50% of our business accounts for about 75% of my profit. I make more money on Novation deals than I do fix and flips, wholesale deals it's the most profitable part of my business.
You've dug deep into that. Again, it's that creativity. You're exactly right. The wholesale business, in and of itself, is completely different than it was years ago. It's so competitive like a needle in a haystack. Everyone's doing it. I get 10 texts and 50 emails a day from other wholesalers. It is completely competitive. If you are a wholesaler and you're interested in that, what other tools can you have in your toolbelt to buy the properties that you can't buy or that you're not going to buy anyways using Novation? Where can you get that method?
You go to BrewerMethod.com. We even have a few free tools on there that'll help you wrap your head around how Novations work. There are a bunch of testimonials on there and a couple of educational videos. It has a link to my social media. I talk about this stuff every day on Instagram and Facebook where I'm saying, “Here's what a Novation seller sounds like, and here's what you should say to them to get them to be receptive to this style deal.” I do that stuff every day.
We checked it out guys and we purchased that. We're looking to do Novations here in Indianapolis. Thanks, Eric, for putting that together. Eric, before we wrap up this show, coming into this season, you're thinking creatively. You're making these other relationships doing Novations. You're also coaching a lot of different individuals as well. I know that you're part of the Sharper Team and the CG Leadership team, and you see a lot of other businesses out there.
I know you're in the trenches of your own business, but what would you advise other entrepreneurs and business owners, especially in real estate right now? We've already talked about that a little bit, thinking creatively and looking for opportunities, but what would you say to them right now, especially coming into transitional year, 2023?
Two things. 1) Keep going. Don't quit. There are going to be people that pivot, are creative, and don't change a thing. The common thread for anybody that is able to navigate through this tricky time period that we're in real estate is the people that kept going. You don't change a thing, but perseverance will be rewarded. 2) Double down on relationships. I've started doing it inspired by a guy that I coached. He put up this text or this Facebook post and he said, “Any wholesaler in my market, I'll take you to lunch.” Every day this dude's taking selfies of being out at these restaurants with wholesalers. I was like, “That seems like a pretty good idea.”
I talked to him, and he's like, “I'm getting 1 or 2 referrals a month from it. At the same time, I'm creating some friendships and relationships with people that have been 15 minutes away from me for 15 years. We both would walk past each other all the time.” Now twice a day, I have a breakfast meeting before I start my day at the office. I typically have a lunch meeting every day around the afternoon. Those relationships are the things that when you say be creative, it's like, “How do I be creative? How do I know the right thing to pivot to?”
Having one relationship with someone that's already doing something that may be creative to you but has become ordinary to them is the type of thing that could get you out of a little bit of a slump, 10X the results that you've been seeing over the course of this very stable, lucrative market. I would double down on relationships, be intentional about it, and put it in my schedule to go out and either resurrect a relationship that's gotten stale. Take somebody to lunch, to breakfast, grab coffee with them, and invite them to your office. Go visit them and keep going.
I'm going to take that wisdom myself, double down on relationships and keep going. Thank you so much, Eric Brewer, for being on the show. I appreciate you. Guys, check out BrewerMethod.com and we'll see you guys later. Thanks so much, Eric.
Thanks, Brett.
