angel investing, business, character, confidence, COVID-19, customer care, entrepreneurship, finances, growth, leadership, marketing, relationships, strategy
While working for Pepsi Co in Ireland, Paul Birkett came to Florida for a conference and discovered a magazine in the hotel lobby that advertised homes for $100K or less. That led him (literally) on the road to buying over thirty rental homes and then, eventually, to buying nearly $20 million in mortgages.
The model for buying delinquent mortgages often involved removing the homeowners and flipping the house, but Paul imagined a more humane business. He realized there was an opportunity to make money and help people keep their homes.
That’s what his company Automation Finance is about.
Discover Paul’s winding road of a story, the challenges of convincing people he’s there to help, and what you can do if you are unable to pay your mortgage.
Listen now.Read More →
Chris Graebe 0:00
All right before episode Get started today, guys, I want to tell you about something special going on over at startupcamp.com. You may be thinking to yourself, you know what, I could never be an angel investor. You’ve watched shark tank and you thought it’s cool to watch and you wish you could get in on a company just like that. What startup camp we’re trying to help everyday retail investors just like you get started in the world of angel investing, and we put together something for you that can help you get started. Absolutely and totally free today. If you head on over to startup camp.com slash Angel startup camp.com/Angel, we have a free gift for you and we’d love to help you get started on your journey towards angel investing. A lot of times it comes down to knowledge and all you need is just a little bit more knowledge. Take that first bold step. guys get started with angel investing today head on over startupcamp.com/Angel let’s jump into this episode.
Paul Birkett 0:51
Wouldn’t it be much better to own all of these loans forever work with the borrower solve their problem? And then the borrower will say hey This guy’s a good guy. He fixed my home. Because no one stops paying their mortgage just for the fun of us. They’re paying because they’re unemployed because the economy, but you know, never bet against America. Eventually the jobs come back eventually people get back on their feet. And if I can buy these loans at a discount, which I can, I can make money over the next 20 years, and not just try and make a quick book now, and then move on to the next one.
Chris Graebe 1:29
Welcome to the startup camp Podcast where each week we’re going to bring you inspirational founders and angel investors. They’re going to give you the inside tips and tricks on how to build your business and become a successful angel investor. I’m talking about founders like Brendan Synnott, a co creator and founder of bear naked granola, Eli Crane featured on Shark Tank for his company bottle breachers Rachael Cruz, the creator of the Rachael Cruz show, and founder and author Simon Sinek, who wrote the book Start With Why we bring you interviews from inside In the world of angel investing, interviewing Scott Belsky, Paul Foley, and Jeff clavia, just to name a few. It’s a fresh season. I’m your host Chris Graebe and the StartupCamp Podcast starts right now.
On today’s episode, we’re gonna be speaking with Paul Birkett. This man has literally been building his company for the moment that we are about to walk through right now. I’m talking about housing crisis. See, Paul, he saw in the last great recession that there was nothing, no vehicle, no opportunity, no company out there to really help people refinance their homes. Rename negotiate their debt and help them stay in the home that they have always dreamt of. Well, he fought his way over the last few years when times were good, preparing his company for a moment such as this. And now we’re here with a global crisis in front of us and people not able to pay their mortgage. Paul has got the company and it’s called automation, finance. He talks about how he built automation, finance and how he’s helping people stay in their homes. Guys, I really respect Paul. I love our conversation. I know you will as well. So without further ado, here is Paul Birkett.
Paul, welcome to the show, man. We’re glad you’re here.
Paul Birkett 3:47
Thanks, Chris. Thanks for having me on.
Chris Graebe 3:49
Well, I cannot wait to talk about automation finance and what you guys are doing. It’s really timely for what’s happening in our world with COVID-19 and just the markets in the Our whole economy is kind of on the fritz right now. And I think what you guys are doing is gonna be really, really important for so many people. So we’re gonna get to that in a second. But before we do that, I want to help our audience understand a little bit about you, who is Paul and someone says, Hey, Paul, what do you do? Who are you? Where do you live all that what do you tell somebody?
Paul Birkett 4:19
Well, it’s like, I guess I’m a reformed corporate guy. I was a, if you if you go back to seven or eight years of age, I was the guy with the lemonade stand. I was the guy who mowed lawns. I was the guy who washed cars. at college, I had a cell phone store actually had three retail outlets once that’s how old I am cell phones were the new hot thing. Oh, yeah. went to college, did a marketing and accounting degree and then joined Procter and Gamble, thinking I would do it for two or three years as a corporate guy, make it to brand manager when that was a big deal. And then leave and three years in, I got a call from Pepsi and my ex boss from Procter and Gamble had moved to Pepsi. And they offered me a job. Three times my salary. So I thought, whoa, that’s just outrageous. Now, Procter and Gamble was a very bad payer. And Pepsi was a very good payer. So but still three times is still three times. And so it started…
Chris Graebe 5:16
at the age of what?
Paul Birkett 5:17
At 29 I was the managing director of PepsiCo, his business in Ireland, and Ireland is a small country, but still, you got six people working for you. The business made something like $10 million a year.
Chris Graebe 5:32
Three times at 29. I mean, that’s Oh,
Paul Birkett 5:34
yeah. I mean, I was 18. Yeah, I was looking at Maserati catalogs at 29. Right. Thankfully, I didn’t buy one. Yeah, that guy, but for you what I could have.
Chris Graebe 5:46
Paul Birkett 5:47
So I did 18 years at PepsiCo, and that was fantastic work with fabulous people lived all around the world and ended up coming to United States in 2010 to run one of the businesses. He The non carbonated side of the business here in the US so so it’s basically a marketing job with some general management. But I was a frustrated entrepreneur. In parallel to that I’d done five different tech startups exited two of them one quite successfully one very modestly, and the other three had really gone up nowhere.
Chris Graebe 6:22
But this was on the side. This is
Paul Birkett 6:24
yes, on the side. So I did an E Learning Company. I did a payment processing company. I did a few different things in software as a service accounting company and invoicing company and a few different things.
Chris Graebe 6:37
Most of the viewers scratching that entrepreneurial itch in the middle of your corporate safety kind of thing, which is well
Paul Birkett 6:42
that was that was it I just I didn’t have someone said I didn’t have the testicular fortitude to just leave and go and do this and you get comfortable and you get a little bit older and just earning money going out every month. So what I got us in 2010, and I was down in Marco islands, which is in Florida, it’s a fancy place where senior executives of big companies like Pepsi go to plan for the upcoming year. And at the lobby of the hotel, I found a magazine on the back page of the magazine had like, here’s where you buy your Gucci sunglasses, and here’s why you where you buy your fur coats or whatever. But there was a realtor ad in there, and it had picture of maybe 10 different homes for sale for around $100,000. And I was looking at them and thinking, how can you buy a house for $100,000 that has three bedrooms, two bathrooms and a garage in Florida, which is a beautiful place for $80,000. That just makes no sense. So rather than go home that Friday night, I rented a car and drove up to Cape Coral Fort Myers and drove around these houses and found that yes, they’re 80 grand. And yes, you could rent them for 1500 bucks a month. So I thought this was crazy because it was 2010 the economy was in very poor shape and buying rental houses seemed like a great idea. So fast forward about a year 18 months, I bought nearly 30 houses, maybe around 30 doors I think I did in total and had them rented out. And I thought this was a great passive business because I could do my my PepsiCo job during the week, and then at the weekend, I would, you know, count my money. But that’s anyone who’s in the rental. Anyone who’s in the real estate rental business will know that 30 houses is a full time job as a part time guy, because you’ve moved in every week, you move out every week, damaged, all sorts of stuff that needs to get needs to get fixed. And so it was like, I was very disappointed because I could have hired someone to do the work, but that would have taken probably half of the cash. So it was a lot of work then just for for 40 or $50,000 a year and I was taking a lot of risk if you like because, like personal guarantees out a lot of mortgages, and you try doing your tax return at the end of the year with 30 mortgages and you’re from overseas and It was just it didn’t turn it. I guess I hadn’t planned it out well enough. But like everything people come to me sometimes and say, You know what, I can’t find my passion and I’m not sure what I should be working on. And I think the lesson I always learned I think was just do the work in front of you. And as you’re doing it, something will pop up. And that’s exactly what happened here. So I got into the mortgage business by complete accident. I’m not an accountant. I’ve no history in the mortgage business. I only had mortgages as a consumer I mean really zero about the business. I was a soda salesman. But I started studying is when I got a call from a big bank that I negotiated a short sale with. So a short sale is where a bank sells a house or allows the borrower to sell the house for less than the bank is owed. So the house is 100 grand and our borrows 150. The bank says you know why? just sell us and we’ll take what we can get so the bank called me one day out of the blue saying we cannot complete that short sale. And the reason they couldn’t do it was because they had sold the loan. And I thought Wait, you sold the loan. Because in Europe, you can’t buy a loan you only a bank can own the loan. So I thought that’s very odd. So could long story short, I got to speak with the investor who both alone and they explained to me that they as an individual investor, just an LLC, a single guy lived in Pennsylvania was buying loans. And foreclosing taking the property and selling the property. So I thought that’s just bizarre so I started researching as I went to a few conferences and two months later bought my first loan and learned by doing just digging through the file working through the paper and you know, figured it out. And not only in America right to do this in Europe, people would you it’s actually illegal. You must be a Chartered Bank. You cannot be a lender without Being a Chartered Bank, and in my home country of Ireland, when you explain to people what I do, they look at me like it’s the most bizarre thing they’ve ever heard. Whereas we have conferences about us here in the US. So, one year later, I bought 30 loans, and went out to raise money and raised $20 million and bought nearly 1000 mortgages. So, from 2013 when I started to the end of 14, I resigned from PepsiCo, and I bought $20 million worth of mortgages, which was about six or 700 individual loans. So that’s why I say only in America.
Chris Graebe 11:41
Oh my gosh, okay. That was that’s a story man. That is a quite a journey to get to where you are today. So did you did you offload and sell your properties in Florida?
Paul Birkett 11:54
Yeah, I sold them all because my problem with Florida was here I was with 30 houses, okay. And so I I get home from work late on a Friday. And I would go usually go out and Friday nights. And then on Saturday, I would spend all day Saturday and all day Sunday, talking to property managers signing leases, doing the accounting, because your property managers got a big incentive. much as I love property managers, their incentive is to invoice and bail as much as possible. And they are great at doing that. When I had rental houses, the toilets broke every month. But when I managed them myself, they never broke. So I don’t understand what’s happening. As soon as I hire a property manager, everything breaks. So that was just on non scalable, and it was miserable because I worked a tough job five days a week at PepsiCo, and then at the weekend, I was doing, you know, entry level bookkeeping. So the mortgage thing was so much better because when you own mortgages, you’re not responsible for maintenance, you’re not responsible for any of that stuff. The homeowner has to do all of that stuff. And they’re incentivized to do it because it’s Their house, not your house. So it just seemed like way, way better and business. And when I got started with those first 10 loans, I had the worst possible outcome. And I say that because I bought 10 loans, and the returns were spectacular. So I concluded as any logical person would conclude, whoa, I am brilliant that this is my calling. I am the golden child. I can make everything perfect. So I tell
Chris Graebe 13:27
everyone, you never want to hit a grand slam on your first time up a bat. Yeah. Because if you do that, you think you’re Midas and you’re gonna, you’re gonna find out that you’re not as good as you think you are. Right? Especially on the front end. And that’s what you had so so keep going. So you get these 10 you’re like, this is Piece of cake. Sign me up, then what happens?
Paul Birkett 13:48
Well, worse than worse than thinking your mind is worse than thinking your grace is telling everyone. That’s your grace. Oh,
Chris Graebe 13:55
yeah, that’s even That’s double and triple. how great you are.
Paul Birkett 13:59
Oh, My gosh. So the good news was I was able to go out and raise money because yeah, I, you know, I’ve been selling for a long time. So I understand how to do all of that stuff. And I’ve been buying rental property for a long time. It wasn’t like this is my first rodeo. And so you could see how you could go from rental property to two mortgages, because I’d laid it out and I was good at explaining it. And I knew how to do it for 10, especially 10, where there were no problems. So you know, going to 100 Well, I was kind of hanging on by my fingernails at 100. Because 100 is, is isn’t quite 10 times harder than 10. But it’s twice as hard at least. But when we got into the several hundred and 1000, that’s when the wheels the wheels really came off. So by by 14 and into 15. I remember the day because when you buy a big pool of loans, the loans come to you. So you can picture a FedEx truck pulling up at the door and the guy banging on the door and coming in with a trolley with all these legal boxes. You probably see As you know, those famous movies from the guy’s leaving his office, he’s leaving his cube and he has this legal bug. Well, it’s like that, except there’s a lid on it, and it’s heavy. And the guy comes in with a handcart. And there’s four of the monitors, I thought are so excited, my loans are here, and then another hand card, and then another hand card, and then another hand card. So you’ve now got 50 or 60 boxes of paper, which filled almost the entire little office space that I had. And I’m scratching my head going, Oh, like that famous scene from from jaws? No, we’re going to need a bigger boat. So I started opening the box. This is like, oh, what have I done? Because the previous trades that I bought were from small investors and from smaller institutions. This was the first deal I’d done with the bank. And the bank sends you a whole lot more documents. So I just started working through them.
Chris Graebe 15:49
So when you when you stumbled upon this, right, this is you’re saying this is 1314? Right?
Paul Birkett 15:56
This is 14 now Yeah.
Chris Graebe 15:57
Okay. So we’re, you know, we’re coming out of The recession things are starting to, you know, you know, look up and whatnot. And so, you know, obviously there’s a lot of bad guys that were involved and a lot of greed, a lot of whatever that kind of contributed to the recession, everything falling apart. And so you look at all this and you think to yourself like, okay, you know, there’s people who need help out there, right? opportunity to make money. What is your personal ref like your you know, wrestle to try and figure out like, Where do I fall in this and how do I play my part in making money helping bring returns for people at the same time? You know, maybe being the one of the good guys on the thing. Was there a wrestle for you in that like, what were some of the things you discovered is you were like, I’m gonna jump into this deep into the swimming pool, or was that like,
Paul Birkett 16:52
well, it’s funny, the hot the hardest things are not the things that you you think of because my initial Thought while I was going to conferences and meeting with other investors, and the established business model in the industry was a bit like the shows that you see on TV, flip that house or you know, renovate and sell. So the idea was you buy the loan, foreclose, kick the family out, renovate the home, put a sale, sign in the yard, and sell it. That’s what everybody was doing. And I thought that was a terrible idea. Leaving aside it’s bad to kick people out of their homes. But I also thought, wouldn’t wouldn’t it be much better to own all of these loans forever, work with the borrower solve their problem, and then the borrower will say, hey, this guy’s a good guy. He fixed my home, because no one stops paying their mortgage just for the fun of it. They’re paying because they’re unemployed because the economy, but you know, never bet against America. Eventually, the jobs come back. Eventually, people get back on their feet, and if I can buy it These loans at a discount, which I can I can make money over the next 20 years. I’m not just trying to make a quick buck now, and then move on to the next one. So I thought, well, isn’t this a win win? If I can buy the loan at a discount and restructure it, so the borrower can afford to make the payments? So let’s say they’ve missed 10 payments, because they were at a job. Okay, let’s just pretend you made those things. Let’s just wipe them away. Because I bought this loan at 60 cents on the dollar. So whether I get $6,000 of payments in one year, or I don’t, doesn’t change the overall numbers, not much, so let’s just wipe them away. Right? Sounds like a good deal. Doesn’t sound like even to me. Yeah. You would not believe how hard it was to get borrowers to understand what I was doing. Wow. Because the big mistake I made or the thing I didn’t understand was, if you go into the newspapers, if you do a Google search, certainly if you did one in 12, or 13, you’ll find that they all say foreclosed, foreclosed I lost my house pictures of people holding will work for food signs. No one was doing what I was doing. So as soon as someone heard that there was someone calling from the mortgage company, which was me, they assumed, oh, no, we better hide, this guy’s going to take my house, the longer I can hide, the longer I keep my house. So the most difficult thing that we had to do was to convince people that we’re actually here to help and we do not want their house. So out of the first 2000 loans that we processed, we had to take 60 houses back out of 2000. And that’s typically because the borrower in the house either wouldn’t talk to us, they just basically ignored all of the letters and just wouldn’t do anything or they’d abandoned the house. Because some people just set off. I’m moving to California, they gave up on their house in New Jersey, literally locked the door and walked away. So there are some cases where you can’t help people and some people say hey, I don’t care what you say, I’m not paying you I’m never paying you go to hell. There’s always people that We’ll say that you’ve got to deal with each person in each case, individually. But since then we’ve saved about 2000 people from losing their houses. So pretty good ride so far.
Chris Graebe 20:11
Wow That’s amazing. So okay, let’s talk about automation, finance, like, just, I mean, you’ve given us kind of a breakdown somewhere what happens when someone says like, What is it? What do you do? What’s the elevator pitch that you give them for everyone who’s listening out there.
Paul Birkett 20:26
So, if you think of a bank, a bank is in the business of making mortgage loans, they’ve got all of the processes set up perfectly to make the loan. And then once the loan is made, they actually sell those loans to Fannie or Freddie, which are government sponsored entities, which allows the American people to have home to have homes with mortgages based on the credit of the United States, so a lower rate than they would pay normally. But though banks are not set up for and this is not intuitive for people, they’re not set up for people who do not pay They don’t want loans that don’t pay. So typically what they do is they sell those loans because making a loan is an entirely different business than doing all the paperwork when the borrower stops paying. There’s a lot of work that needs to be done. It’s expensive and specialist. And most bank, folks are not experts, nor have they ever worked in that area. So what automation finance does is it buys those loans, goes to the bank and says, Hey, bank, you’ve got loans for the borrowers are not paying. The bank says yes, we say we will buy those loans. And we buy them. Well, it depends on the market, but at the moment, we’re paying like 50 to 60 cents on the dollar. So if the house is worth $100,000, and there’s $100,000 mortgage on us, we’ll pay, let’s say $60,000 for that mortgage, so we can have got a $40,000 cushion between what we paid first and what that is is worth. We use that $40,000 to negotiate with the borrower basically so will forgive past due payments will reduce their interest rates will extend the term of the loan and get them back on track. And that’s what we do at scale. So there’s 26 of us, we currently have about $200 million under management. And that is about to balloon in the next 12 or 18 months with the current Corona and crisis. We’re already seeing the green shoots of new loans coming our way.
Chris Graebe 22:27
Yeah, let’s, let’s talk about that. Because obviously, this is your first first turn on the on the downturn train. Because, you know, 14 to today has been, you know, quite quite a ride for our economy. So, um, talk to me about, you know, I mean, we talked a little bit before we jumped on the actual podcast, how you’ve been been grinding hard and economy’s good, and I’m sure you’ve been, you know, sounds like you’ve been getting great deals on houses, but I have a feeling even better deals are coming in. What What have you been forecasting and modeling? What are you seeing? I mean, we’re literally as we record this right now, was it March 25? I think yeah, it’s March 25. Right now, we’re literally in week two, two and a half ish of people kind of staying in their home and we still have some ways to go. We haven’t even seen with a tail on this looks like from where you’re sitting. What are you seeing? What are you projecting? What can we learn from 08-09? And how are you positioning yourself for what’s about to come?
Paul Birkett 23:33
I think we will see a repeat of Oh, ah, oh nine. Unfortunately. I think delinquencies will get up to approximately 25% of the entire mortgage book of the United States. So about 60% of all homes in the US have got mortgages, so we’re going to see maybe 18 or 19% delinquency That it peaked at 10%. I think maybe it was 11 in 2009. So it’s going to be twice the amount. The difference this time will be. I think that the contraction and recession, we will certainly see will hopefully be a lot shorter. Because housing was the cause of the problem last time, housing is not the cause this time. But But at the end of the day, housing is driven by affordability and affordability is driven by employment. So the mortgage industry today is is an 80/20. industry, the top 80% of mortgage loans are insured by the government by Fannie and Freddie. The bottom 20% is where the problems are going to be. So those are they used to be called subprime. They’re now called non prime or non qm mortgages. And they’re the people who have the worst credits under 600. Or around 600. Let’s say There are the people who are paying much higher interest rates than the average interest rate you’ll see advertised on TV or in the newspaper. And there are people who are often hourly paid, and work in all the industries that we read about that are being hammered by the current outbreak, hospitality service industries where you’re paid by the hour. And that’s going to be a huge problem. Because every homeowner has to make the same kind of decision, which is you you’ve got all your monthly or fortnightly revenue coming in from your job or in many cases, your jobs. A lot of these people are working two jobs. And they’ve got to put gas in the car and they’ve got to put food on the table and they’ve got to pay for their cable. If they have cable, they’ve got to pay for cell phones. So those things going to get paid first and the mortgage is the thing that’s not going to get paid because the median American household has $11,000 of savings and has outgoings in Three, around $3,000 per month. So we’re now in March by May or June, they’re going to be running out of cash. And it takes a few months for people to realize where they are to realize that, Oh, dear, I’m going to need to start hoarding cash. And so they stopped paying the biggest expenditures, and that’s going to be mortgage. So we’re watching a number of markets right now. And the credit spreads market has has exploded. They those treasuries used to trade in the 10 2030 basis points. Now they’re trading in 700 basis points. We’re seeing big mortgage pools that would typically trade these are performing loans or mortgages that would trade between the big big banks, they would sell at par, so 100 cents on the dollar. Nothing is closing in the 90s. So the seller is saying I want 100 the buyer was saying I’ll give you 90 so the loans don’t sell well. In next next week or next month. Those trades will be in And then the delinquencies will start coming on. So I think that the next 90 days we’ll see a seminar curve. First people say it’s not true, then they get scared, then they realize it’s true. And then there’ll be some, you know, more more forced selling. So, what we’re trying to do is to scale up in a period trend, you know, revenue is hard to come by, because we know that there’s a huge huge wave of delinquent loans coming. And those loans need to be solved as work needs to get done. The payments need to get processed, they’re not going to get processed by the current banks and servicers are going to need to come to to people like us. So we’ve kind of learned how to do it in the last four or five years, six years. So the next year or two because going to be a lot of loans we’re going to the silver lining is hopefully it will be a lot easier to convince people we’re here to help than it was. Last time, but that’s going to be a big challenge for us for the next 18 months.
Chris Graebe 28:06
Yeah, you’ve been, you’ve been putting in the work and preparing for this. Let’s talk about, you know, you talked earlier how you, you know, you decided to do this and you went and found $20 million of people saying, Yeah, I’ll get behind you all invest in this. from what I gather and what it looks like you, you guys basically are open to folks buying into what you’re doing so that they can become a part of this, you know, you talk about maybe a guaranteed return but what you’re seeing from the average return, so to talk about that from the investor side of things, how does that work inside of your model?
Paul Birkett 28:40
So how I started is like, I always put my money where my mouth is, so I started the first three deals, I just funded it myself, I sold a few houses, the first deal was $40,000, the second was 100. The third was 250 or 300,000. And then I brought in a few investors people I knew for 50 grand and then I brought in a few More investors ended, I think four or 5 million. And then I did one and I remember the pitch very well, anyone who’s been Japan station in Manhattan, it was in the seller lounge, which is basically a train waiting room where I was taking an investor, professional investor through my PowerPoint. That was not the first or the last meeting. I had tried to raise the money, but it was bizarre that it was noisy, public environment. At the end of which we ended up doing five or six deals with that particular investor went up to 20 million. And after that all of our money has been institutional. So there’s professional investors who will invest in these deals. And in 2014, under the Obama administration, the JOBS Act was enacted. And Regulation A 1940 companies that allowed companies like us to undergo SEC qualification which we did and then 18 and 19 at the end of the beginning of 2018. Gotcha, we got qualified by the SEC, which allows us to go directly to the public and accept investments directly from them. So right now, investors come to our website directly, we still do all the institutional stuff. But the Why should it be only for institutions? Like what is the reason for that? We’re underwriting all these deals, we’re buying them at a significant discount. Why wouldn’t we share those returns with ordinary investors like me, you? Why is it just for big guns? So we launched a crowd fund in November, December just after we got approved last year, and we’re raising money from as little as $250. So actually, some small investors with just $250 to invest have common invested with us. Now we investors in the millions we’ve investors in the hundreds of thousands, but even like with the small Ambassador with just $250 Can, can be part of this. So you go to the website, sign up, follow through some processes takes a couple of days to get the account opened. And we make payments every month. So, investor gets their return every month. Most people choose not to take the return, they choose to reinvest so that they can compound those earnings. And that’s what we do now. It’s very important. This is an SEC qualified funds. So although we’ve made mid teens returns every year since we started, past performance is no guide to the future. Who knows what the future could hold? I know it’s going to hold an awful lot more work. But we will need to raise you know, I don’t know how much we’ll need to raise but probably hundreds of millions of dollars in the next year or two.
Chris Graebe 31:48
Wow. Yeah, I love I love the model of the distributions. And even I didn’t realize you did it monthly. And or people could drop that back in. I think that’s that’s genius. And again, I mean, you know, at StartupCamp we’re all about the retail investor giving opportunity to alternative investments like this. Because I know what we do is consider alternative the startup world and yours is also Am I correct?
Paul Birkett 32:12
Yeah, I mean, we’re essentially just getting going. Everyday is the first day I remember. I don’t know who it was. But some someone I think it might have been Jeff Bezos, even Amazon every day is the first day. The reason we make monthly dividends is because a lot of investors when I started researching this, thought it was too good to be true. They’re used to getting maybe 1% in the bank. Now, we’re not a bank. This is not an FDIC insured investment. But our target return is 8%. We paid 8% since we started, we’ve never missed a payment. We’ve never lost any capital. That just seems like a loss when people are used to getting 1%. So I thought, well, if we make payments every month, people could see the cash coming out every month and they will see that it’s real. Because in reality, when you go to a big investment bank, They’re charging 8% sometimes more, why don’t I pay it to me instead of an investment bank?
Chris Graebe 33:07
Yeah, it makes makes a lot of sense. So I love the model and I again I love that you’ve opened it up to the retail investor I think it’s just so so important. Look, there is some interesting times ahead. I think you guys are poised and think you’re one of the good guys and you know, I think everyone out there is trying to do what they can but there’s some people that that know that they’re just doing it for a buck but sounds like you’re gonna make a profit and also help a lot of people which is really cool, I guess for where we’re sitting right now. What do you see coming? What do you think you’re going to be able to get these these properties for what percentage I mean, you’re at you know, trying to have your margins great if you think it’s going to be what do you see coming just for rates and housing market and everything I’d love to kind of get your overall and I look, I know we don’t have a crystal ball. We don’t know what will happen. Hopefully this thing will all die down in two weeks so we can get back to the world that would be great. But Things are showing that it’s not going to be the case, but to what you kind of seeing when you model out what’s going to happen on what you can purchase houses for, for your fund and your company. And then also just what you see coming in the market in general.
Paul Birkett 34:12
Well, I think there’s a few questions wrapped up there. The first one is, what do I see coming based on the infection rate in New York, which is growing at 30% a day. That means the cases are doubling every three days. We’re going to have 500,000 cases in New York based on the last three days alone. This is not getting solved in two weeks. This is going to get solved in two or three months. And the lockdown, tedious as it is for everybody is absolutely crucial. And unless of course you don’t like old people and babies because this is it’s a dire choice. So we need to stay home and we need to beat this and we will do this what does that mean? for housing, well, it means that the people who are out of work for three weeks are going to be out of work for 13,15, 18, 20 weeks, maybe three months. That means they’re going to fall behind on their mortgage by two or three months. And so the banks are going to sell those loans. And I expect if delinquencies peaked at 10, in the last recession, they’re going to peak at least 10 to maybe even higher. So I expect the loans to sell to sell at reduced prices, but they actually trade off. Knows because it will be largely dependent on what kind of federal support programs there are. If there are no programs, the last time around these loans were selling at 20 cents on the dollar. I don’t expect that to happen again. But that’s what the low point was the last time I don’t think it will get that bad. I think it will probably come down with our model suggests housing prices will fall by 20%. That’s what our model says. Now, in unprecedented times, the model is a blunt instrument. But if you plan on a 20% ban housing cost, that pushes down your price 20% that would take 60 cents on the dollar, maybe down to a 52, something like that. It’s a it’s a it’s a significant extra distance.
Chris Graebe 36:29
You know, it said, it’s got to be that rare place for you that you, you know, you’ve you’ve been building and you’ve been working hard and things have been really, really good in our world. And it’s that that probably the interior like okay, we’re we’re here and we know people are going to need us in any economy. But right now, you’re like, our arms are open, we’re ready to help we want to serve and you know, it’s like that bittersweet thing. It’s like how we don’t want the world to fall apart. But guess what, if it does, and your world falls apart, like we want you to be able to come turn offs. And so, Paul, um, I just want you to know we’re cheering you on. And I think there’s probably people out here listening right now they’re going to listen to this podcast here in the in the middle of what we’re going through and some of my catches in three months, in the midst of missing two or three payments. So where do people I mean, first, if someone wants to be a part of investing in this and be one of your investors, where do they go? And then if there’s somebody who’s listening, who says, I think I’m in trouble, I want to talk to this Paul guy, or at least learn some more about this so that I’m better prepared if I am unable to pay my mortgage. Where do people find you and look you up?
Paul Birkett 37:37
Okay, so let’s do the last question first. So if if you are struggling, you need to go to your loan servicer, so the loan servicer will be found on your monthly statement. Fannie and Freddie have already come out with programs which will afford the top 80% of borrowers which are those who have got Fannie or Freddie loans. Up to 12 months payment holiday. So they have nothing to worry about. It’s if you can afford to pay your mortgage you should pay. If you can’t afford to pay, you should apply for one of the programs. It’s a lot of work to apply for one of those programs, but it’s well worth this. And so that’s that’s 80% of people, for the 20% of people who do not have government sponsored entity loans. And there that will also it’ll be on your your mortgage statement who owns your loan? You need to call your loan servicer and see what kind of forbearance programs they have. And that will vary greatly. So there’s no real one answer to to all of those things. The business that we’re in is buying the loans that are non performing, and getting them performing again, I’ve proven mathematically over four years, five years now that we actually make a better return by working with the borrower. Then by foreclosing, selling and selling house, you actually make more money. Helping people. So we have no interest in buying the loans to foreclose evict, rehabbed the house and sell it doesn’t make sense. People can invest with us we’re open to you do not need to be accredited. Any investor with $250 to invest comm just go to the website, click on invest. Now, read the prospectus. It’s very detailed and qualified by the SEC. But there’s videos on there, there’s all sorts of resources on there, make sure you go through them, watch some of the videos that we made with the borrowers who we saved. Because they’ll explain. It’s not just me saying this. This is true. There’s maybe 15 or 20 videos on there that explain various people from states all around the country. How people get behind and how we help them and don’t bury your head in the sand. So if you’re struggling with payments, you reach out to them because someone is somewhere in a mortgage company needs to make a decision. Are we foreclosing or are we not foreclosing If you’re engaging with them, they will postpone foreclosure for as long as they can. Bad news does not age well. If you have bad news for your lender, go to your lender and tell them it will. It will make life easier in the long run.
Chris Graebe 40:14
Such good advice. Well, I mean, my hope and prayers that everyone that’s listening to this is isn’t a good place that you’re healthy, that you haven’t been affected by this. But we all know that. As you mentioned, this thing is moving rapidly. You know, you’re in New York, you’re kind of at the epicenter of what’s happening here in the US. And so, you know, and I hope that people don’t have to, but I think that advice was so good, Paul. So thank you so much for sharing that with us. Thank you talking about your business, thank you for creating what you’ve created, and helping these families continue to stay in their homes and continue to kind of have a piece of that American dream and and you know, do best for their families. So, before we go, I like to ask these three questions and it goes a little like this. The first ones What’s an entrepreneurial book that’s impacted your journey?
Paul Birkett 41:03
I think the most important book that I ever read is on the business side is Coby seven habits, the Seven Habits of Highly Effective People that is crucial, it is important now when things are going wrong, it’s usually because I’m missing one of the habits, read up, that’s really good. Do what it says,
Chris Graebe 41:20
you know, there’s a, there’s a, his son did a children’s version. And we we read that to our kids all the time. So it’s, um, it’s really neat to help them learn those practical applications in their life. I love it. So, all right, if you’re going to start a business today know now that you know, what would you start and why?
Paul Birkett 41:39
Well, I mean, it’s not self serving, but I’d start this one now. Because it’s, it’s a mostly you start a business, you’re not sure whether it be demand for your service. This is a business you’d start or I already know there’s going to be more demand than I can realistically ever meet. So So that’s what I would. That’s what I would do right now. On the tech side, I think that we’re just scratching the surface in the FinTech world. I think most of FinTech is tech, with no fin. And I think there’s a big opportunity to make fintechs that are really rooted in finance, that add a layer of technology to make them better. And that’s something we’re working on actually here as part of what we’re doing. Because the one thing we didn’t talk about was, how do we manage so many loans with so few people? And the answer to that is, third of the people here are technologists. So all of our workflow and processes are things of beauty if you’re a technologist because we’re very process oriented.
Chris Graebe 42:52
Love it. Love it. Yeah, it’s so good. All right. And lastly, you’ve dipped your toe in the corporate world, the entrepreneurial space. A side hustler. Now you’ve got this fund in this company that you’re building. Who in your world do you think would be a great interview for the startup camp podcast? You could introduce us to
Paul Birkett 43:11
a guy called Eddie Murphy. Eddie Murphy is not the Eddie Murphy. But I often get his assistant book restaurants for me, because when someone calls up and says I’d like to reserve a table for Eddie Murphy, amazing how you can always get a everything opens up. Eddie is an incredible entrepreneur who invented a business that is explosive in growth. And is just super, super interesting. And I’ll make an intro for you,
Chris Graebe 43:46
Paul. I appreciate that man.
Where can people find you follow you say hi to you say they heard you here. We’re working on like you up.
Paul Birkett 43:53
I went on Twitter. I started on Twitter today. So this is my inaugural Twitter day.
Chris Graebe 44:01
Paul Birkett 44:02
Paul Burke is NYC on Twitter. I did my first tweet this morning. automation, finance. I’m on LinkedIn podcast. And that’s probably the key place to get.
Chris Graebe 44:15
You know, if you if you think you’re the, if you think you’re the last person to sign up for Twitter, you’re wrong. Because I don’t I don’t do Twitter yet. So maybe maybe I’ll fall in behind you and knock my person out today as well. Well, Paul, thank you for what you’re doing. Thank you for being here, man. We really, really appreciate you.
Paul Birkett 44:33
Another guy, you should get on to Seth Godin. If he hasn’t been on, I’ll make an intro for you.
Chris Graebe 44:37
I’ll take both of them Eddie Murphy and Seth Godin, but not the Eddie Murphy. But a pretty great guy. So yeah, no, I really appreciate that man.
All right. I hope you enjoyed this episode. As always, we’re cheering you on over at startupcamp.com. If you have not come to our website, you’ve got to come check it out. There’s so many exciting things happening there. And hey, look, if you’re ready to get started in the world of angel investing, or even just learn about it, all you have to do is go to startupcamp.com/Angel, startupcamp.com/Angel. We’ve got a ton of great resources and some free tools for you to learn more about it and know how you can get started today. You can get started for as little as $100. Guys, this is an opportunity The door is wide open. I’m inviting you to come join this journey with me and thousands of others who have stepped in the world of angel investing and who are changing their life. Don’t forget the website is startupcamp.com/Angel startupcamp.com/Angel startupcamp.com/Angel. Well, that’s a wrap for this episode guys. We will catch you next time on the StartupCamp Podcast.
Transcribed by https://otter.ai
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