Alec has Milton Manolis, Retail National Renovation Sales Manager, comes in to talk about the aspects of renovation loans and how he brings about a unique sales proposition to today’s industry
Your Snippet of this episode of the Modern Lending Podcast:
- Tell your customer to stop looking for the perfect house.
- There is untapped potential for a Renovation loan
- Prep the perception; education on what questions to ask
- Simplicity is key so don’t overthink
Alec Hanson:What’s up modern lending podcasters? Buckle up.
We’re going at Episode Five right now.
I’m bringing in Milton Manolis and we’re going to absolutely unpack and transform your business with the world of renovation loans. Guys, you are missing the boat if you’re not focusing on how this product, conventional, FHA and VA renovation can transform your business. We’re dropping golden nuggets from the sky, all day long. Here we go, let’s kick it off with Milton.All right everybody, here we are, another episode of the Modern Lending Podcast and like I said in the introduction, I’m here with Milton. This is going to be epic. Because, for those of you that have followed several of the podcasts, thank you by the way, that you for subscribing, thank you for listening, thank you for sharing, appreciate the love. This is a fun topic today, renovation. Renovation’s a fun topic. Milton Manolis:It is.Alec Hanson:A scary topic for some people.Milton Manolis:It is.Alec Hanson:But it’s really a game changer in the industry, on how you use it, on how you save transactions with it and so when I was kind of thinking who I wanted to bring on the podcast, Milton you were like right on the top.Milton Manolis:Oh thank you.Alec Hanson:Because you’re running our renovation platform nationally and you’re out there spreading the good word, you’re doing seminars all across the country. You’re really educating people on the power of renovation loans and so, let’s bring it to the podcast. Let’s bring it to everyone out there who is listening and say, “Why aren’t you using this incredible tool to grow your business?” And so before we get into the tactics and what you’re doing with it, let’s give everybody some of your background. Where’d you come from? How’d you get in the crazy mortgage world? What’s going on?Milton Manolis:Yes, thank you for having me Alec. Alec Hanson:Of course.Milton Manolis:Very lucky to be here. Born and raised on the south side of Chicago. Alec Hanson:Sorry about that.Milton Manolis:Well listen… And I try to hide that accent.Alec Hanson:No, bring it out. Let it flow.Milton Manolis:Oh my goodness, when I do these realtor events, I tell them, “Try and guess where I’m from?” And in the beginning, they picked it up right away. As we went on and they had a harder time figuring out it was Chicago, then I knew I was doing it right, right?Alec Hanson:Of course.Milton Manolis:Because I’m trying to… Basically, born and raised, south side of Chicago and I started very young, I entered the financial markets and I was a stock broker at the age of 19.Alec Hanson:What made you do that?Milton Manolis:I always loved numbers and I always loved to research and that’s what I was doing when I was a little kid.Alec Hanson:You’re like, stock broker.Milton Manolis:Yeah, that’s it. And I had some friends that got into it. I got sponsored. Became a broker, loved it. Had a blast. Alec Hanson:Didn’t you say you were the youngest?Milton Manolis:Yes, I was the youngest series seven.Alec Hanson:Dude that’s awesome.Milton Manolis:Yeah, for about, I think it was about six months or so.Alec Hanson:Before some other young-Milton Manolis:Yeah. Alec Hanson:… pup came in.Milton Manolis:Right, exactly. But it was a different business back then, right?Alec Hanson:For sure.Milton Manolis:It wasn’t so much asset management or money management as it is now, right? Alec Hanson:Yeah.Milton Manolis:You were more doing that research, making those recommendations and that took a toll on me after probably five, six years. I had to bow out. It was just way too stressful. Alec Hanson:The doctor said, “You got to get out of the stress.”Milton Manolis:Right, yeah. The doctor told me, “You need to change jobs. The stress is just doing you in.” And so I had a buddy of mine in the mortgage business. Alec Hanson:Oh my God.Milton Manolis:And I thought-Alec Hanson:Yeah, so what stress could there possibly be?Milton Manolis:… exactly.Alec Hanson:In the mortgage business.Milton Manolis:That’s right. And that was back in the mid-90s. I’m like, “So you’re just calling people and helping them save money?”Alec Hanson:Yeah, that’s it.Milton Manolis:And he’s like, “Yeah.” I’m like, “Well, how stressful could that be? I’m in.” And that’s how it started. That’s how I got into the business and I loved it because it was great to be able to interact with people and really help them save some money and I really had no reluctance. I understood how to overcome objections.Alec Hanson:Well that’s probably because you’re trained as a stock broker.Milton Manolis:Right.Alec Hanson:That probably gave you a big leg up when you came into mortgage and like, “Hey, call these realtors.” You’re like, “No problem.”Milton Manolis:Yeah, exactly. It didn’t matter. I didn’t know anything.Alec Hanson:I’m hiding in the corner, like can’t handle it, but you’re just like, “Yeah, let’s bang the phones.”Milton Manolis:That’s my first night there, that’s all. I took like five apps the first night. I knew nothing and I just picked up the phone and started telling people what they could save.Alec Hanson:Everyone out there is like, “I hate this guy. First day of the business, took five apps. Doesn’t know a thing.”Milton Manolis:Right, but that’s how I cut my teeth.Alec Hanson:So how did this end up… Man, you really have a passion for renovation.Milton Manolis:Yes.Alec Hanson:So, how did your career go in that route?Milton Manolis:I’ll tell you, one of the things I learned early on is you need to have some type of unique selling proposition, right?Alec Hanson:Have some kind of niche, yeah.Milton Manolis:Right. And so I would say, back in 2004-ish, right around there, 2004, being in Chicago, there was a lot of competition.Alec Hanson:Oh, I remember.Milton Manolis:Yeah, it was the heyday and I needed something to separate myself, so I went to a HUD workshop and I thought, “Okay, let me go to this eight hour HUD workshop and see what they’re teaching everybody about 203(k)s,” right? And seeing, “Hey, is this something that could give me that edge?” I went there and I spent all day there and it was brutal, but-Alec Hanson:Eight hour HUD workshop.Milton Manolis:… right, yeah. Alec Hanson:Sounds thrilling.Milton Manolis:Right, so by the fifth hour or so, they started calculating the loan amount and how you calculate the loan amount. And in that little nugget is where I found what I believed would give me the edge I needed, right? What I needed, the talking point that would bring value to my realtors and to my clients and so that’s what I ran with.Alec Hanson:Well see Milton, I love this only because to the parallels today is so relevant.Milton Manolis:Right.Alec Hanson:Competition is massive today. Just as it was in the pre-crisis days. There’s loan officers out there everywhere looking for a niche and they’re coming up with tag lines and slogans and trying to figure out how to differentiate themselves and so the same process you went through, people are going through right now. And so, when you found this niche, how did you play it?Milton Manolis:Yeah, so basically, the first thing I did is, I went to my agents and basically started talking to them about that value prop, not as a lead, but in the beginning as a backup, right? Because even myself, I wasn’t sure how exactly it would work, so I wouldn’t lead with a 203(k), but I would let them know that it’s a great insurance policy, right? Because even back then, you had issues coming back on appraisals with all these repairs and homes that were dated and people wanting to update or upgrade their homes and so that’s what I used it as a tool first to get me in the door and bring value to them that other people are not bringing. Alec Hanson:So it’s specific to the variance? Is that because-Milton Manolis:Correct.Alec Hanson:… okay, so let’s break this down.Milton Manolis:Okay.Alec Hanson:Let’s go peel the door back and bring it in there. Milton Manolis:Okay.Alec Hanson:You discovered in the HUD workshop that there’s a variance to LTV.Milton Manolis:That is correct.Alec Hanson:So how does that function? How does that work? What’s the guideline?Milton Manolis:So back in the day when they were putting this program together, they basically, the brilliant things that they decided was they knew that not everything a customer would do to a home would give them dollar-for-dollar value, right?Alec Hanson:Right and there [crosstalk 00:07:06] wouldn’t be total.Milton Manolis:The home is supposed to have a good roof and windows and siding and whatnot, so they said, “Okay, well let’s give them a little cushion there. Let’s give them a ten percent cushion.” And so-Alec Hanson:And we’re talking specific to FHA?Milton Manolis:… 203(k), that is correct.Alec Hanson:203(k) right now, good, good, good. Because there’s a lot of renovation programs we’re going to get into.Milton Manolis:Correct.Alec Hanson:But they allow an LTV variance. So how does it work?Milton Manolis:So basically, they’ll let you go to 110 percent of the subject-to value. Now technically it’s 96 and a half of 110, right? Because that’s how you calculate the FHA base loan limit, but for purposes of our conversation, you can go to 110 percent of the appraised value.Alec Hanson:Yeah, people today don’t even know that. People that are listening right now are like, “What did he just say?” They don’t realize with a 203(k), you can lend to 110 percent of the subject-to value.Milton Manolis:Correct.Alec Hanson:That’s a deal saver.Milton Manolis:Exactly the point.Alec Hanson:So this was your ace card?Milton Manolis:That’s right.Alec Hanson:You walked around with this.Milton Manolis:Exactly and so when I first heard it, I was like, “Wait, how does this [crosstalk 00:08:01] work?” And I started doing all the math, right? Because I love numbers and was running all these different scenarios and then I started doing research on what exactly is a 203(k) appraisal. What is it? And it’s a subject-to appraisal.Alec Hanson:Yeah, I was going to say, “What is it?” It’s a subject-to-appraisal.Milton Manolis:When the appraiser marks subject-to, they’re telling you what the future value is going to be based on the repairs that they called out.Alec Hanson:Okay, so I want to hit this at a different because I’ve heard you speak before, so I knew kind of what I was going to get into bringing you on here, but I love this because there are a lot of mortgage professionals out there, myself included, even when I was originating, who would get a subject-to appraisal and be like, “Ugh, I got a mess on my hands. The seller probably doesn’t want to fix this. What am I going to do?” And it always was a mess. And your niche, your little card said, “No, no. This is an opportunity.” Milton Manolis:Correct.Alec Hanson:Did it work?Milton Manolis:It worked wonderfully.Alec Hanson:You built a bunch of relationships with this?Milton Manolis:I did, yes. And still have one of my best relationships.Alec Hanson:Awesome.Milton Manolis:But it gave me the confidence and the power to go in and tell them, “You know, you can’t really afford to work with anyone else. You have to work with me because you’re not going to just call on me when you have a problem.” Alec Hanson:I need to be your guide.Milton Manolis:Exactly.Alec Hanson:So did you get turn downs? In the beginning, we’re you getting people who had subject-to and kind of didn’t know what to do, they’d flip them over to you or was this just a relationship building tool?Milton Manolis:This was a relationship building tool. I did get turn downs, but that’s not how I presented it.Alec Hanson:Right.Milton Manolis:I really presented it as, “Look, this is the value proposition I bring to the relationship, right? You don’t have to worry about your commission, okay?” And the three things I tell them, even to this day is, “How these loans protect their reputation, their customer and their commission.”Alec Hanson:So I want to break that down because we do actually have real estate agents that listen, which is epic. So we want to share this with them and get them educated, but I kind of want to kind of finish your storyline here in your career. So, you went out, started to niche the 203(k) option-Milton Manolis:Correct.Alec Hanson:… built your business up.Milton Manolis:Correct.Alec Hanson:And then, fast forward now, you’re running the national program for Loan Depot.Milton Manolis:Correct.Alec Hanson:How did that all happen?Milton Manolis:Just opportunities keep rising, you know what I mean? And when you get out there and I… Listen, being in sales since I was effect teenager, right?Alec Hanson:Yeah.Milton Manolis:One thing I really enjoy more than selling myself, is teaching others how to sell and I take joy in seeing other people become successful because of something that I helped them do, right? So that’s kind of what drives me and leadership role for renovation I think just sort of evolved naturally because of that drive and I’ve very blessed because of it. Alec Hanson:Well, okay. So let’s go behind the scenes. Milton Manolis:Okay.Alec Hanson:Like the Milton presentations that you do. For listeners out there, okay, now let’s pretend you’re part of the experience here. So I want to set up a couple of things for you and then we’ll let you knock it down because I think loan officers are missing an awesome opportunity with renovation. First of all, I think everybody understands in a lot of our core markets, we have inventory problems. There is not enough houses for sale. I think that problem is going to continue to get worse in 2020. I think there’s just not going to be enough inventory. Hook that on the side. That’s where renovation loans obviously comes in and plays a huge role.Milton Manolis:Correct.Alec Hanson:The average homeowner, statistically, depending on what you Google, is going to spend anywhere from 18 to 25 thousand dollars on their home in the first year.Milton Manolis:Correct.Alec Hanson:So, all of a sudden now, we have another opportunity because it’s like, “Well, where are you going to get that money? You going to put it on a high interest credit card? Do you have it saved up? Where?” Because very easily it could be a renovation loan. And so you kind of have all these opportunities like those bucketed around and then you come into town. Talk to everybody. What are the themes and messages that you hit in your presentation to 400 realtors in a hotel lobby or whatever it is, hotel convention center thing? What are the key messages and the CliftNotes version because we don’t have four hours to go into it.Milton Manolis:Right on.Alec Hanson:But, what do you got?Milton Manolis:The first thing I’m going to say is exactly what you just said, right? I have to let them know and part of the thing they need to understand is that they do spend upwards of $25,000 dollars in the first year, year-and-a-half of buying a home, but they do not communicate that to us. When they walk into a house-Alec Hanson:When you say us, you mean the loan officers [crosstalk 00:12:11].Milton Manolis:… loan officer and their realtor partner [crosstalk 00:12:14], right? When the real estate agent is showing them a home and they walk in and they look at a kitchen from the 60s, they’re just going to turn to the agent and say, “I don’t like the house.” But it’s really because they’re thinking about, “Where’s that money going to come from?” And they’re not going to tell us as the loan officer, they’re not going to share that with the agent, but that’s part of their decision process. Once they understand that, then we can incorporate that into a successful transaction. So, what we talk about is, how to identify those and how to let them know that up-front, that they have that option. They may not use the option, but renovation loans not only help you convert these transactions and help you go from a crisis to a commission saving these transactions, but people need to stop looking for the perfect house. One of the things I talk about Alec is all the HTGTV shows, right?Alec Hanson:Oh, they’re huge, they’re huge.Milton Manolis:Yeah and everybody sees them and they think, “That’s what I want.” And that does not exist. Okay?Alec Hanson:No. It’s a make believe TV show.Milton Manolis:Thank you. So we need to tell them up front-Alec Hanson:Have you seen the memes on the shows though?Milton Manolis:… yeah, it’s pretty funny.Alec Hanson:Where the one guy’s like, “I’m a butterfly collector.” And the other one’s like, “I fold paper airplanes and our budget’s 2.5 million dollars.” Right?Milton Manolis:Yes.Alec Hanson:It’s amazing. It’s not real people.Milton Manolis:So we have to prep them and control that perception, right? And that’s some of the things that we talk about. We go heavy in do scripting as well.Alec Hanson:I want to hear some scripts. I know some loan officers want to hear some scripts.Milton Manolis:Right.Alec Hanson:But I think what I’m hearing from you is the first step is you have to educate the realtor and the homeowner of what questions to ask.Milton Manolis:Correct.Alec Hanson:And the real estate and the mortgage guy.Milton Manolis:Right.Alec Hanson:What questions to ask.Milton Manolis:Correct.Alec Hanson:Like, “Are you going to do any improvements on your home?”Milton Manolis:Correct.Alec Hanson:During the 1003 process. I feel like some of our consultants out there in the mortgage industry are just so quick to fill out the 1003 as opposed to asking the real questions about what is important to that home buyer and they miss out on providing them all of the options that they should.Milton Manolis:Yeah, I mean doing exactly what you said usually converts them quicker, right? Everybody’s had those customers that have a difficult time finding something and that’s because they’re looking for the perfect house and three months later, ten pre-approvals later, they’re not finding or buying or getting into a contract, they’re frustrated and then they exit the game. They’ll say, “We’re out. We’re just too frustrated and we can’t find anything.”Alec Hanson:So I got to share this because you helped pioneer something with me here at Loan Depot that I thought was really cool, which was the open house kind of, what was it, design studio.Milton Manolis:Correct.Alec Hanson:Remember this?Milton Manolis:Yes.Alec Hanson:Okay, so this is rad if anyone out there is trying to get creative, we all know that when you’re out there looking at open houses and looking at your community, there’s some houses that need some love. Milton Manolis:Correct.Alec Hanson:And so you know when a home buyer walks in, the first thing they think is, “Ah, too much work,” or “It needs some love,” or “I don’t have the money.” Or whatever they think and they walk out. But they really want to be in that school district, they really want to be in that neighborhood, whatever the reason. The design studio that you helped me pioneer was this really cool concept where you would… Like in the kitchen, we put up a little popup and would have kitchen tiles, kind of like if you would walk into Home Depot, like a tile sampling-Milton Manolis:Correct.Alec Hanson:… paint sampling, appliance brochures and each room could have a different little kit, bathroom, kitchen, master, that would showcase kind of options. Almost like you’re walking through a new construction home-Milton Manolis:Exactly [crosstalk 00:15:23].Alec Hanson:… and the design studio. We’re putting these in open houses, actual open houses across the country and that starts the conversation. That someone walks in and goes, “What’s this doing here? Oh, I can have new cabinets.” As opposed to, “I don’t like the 70s stuff that’s here.”Milton Manolis:Yeah and that conversation springs from part of the conversation with these customers, “Pick your upgrades.” It’s not always about construction and renovation and rehab. It could be something as simple as upgrades. You want to upgrade your cabinets, your countertops, just like you said on new construction, so they can go in and pick those upgrades and then we’ll finance them.Alec Hanson:So let’s drop them some scripts.Milton Manolis:Okay. Alec Hanson:What should a loan officer or real estate professional be asking? What are the scripts to talk to customers with?Milton Manolis:So, initially at pre-approval, probably the most important script-Alec Hanson:At pre-approval.Milton Manolis:… at pre-approval.Alec Hanson:I’m trying to hit the point. At pre-approval.Milton Manolis:Right. When you’re delivering that pre-approval guys, you’re giving it to that customer, it’s just one sentence and it’s quite simple and I say it to every… It doesn’t matter if they’re a renovation loan now or not, obviously they’re not, you’re giving them the script, you’re just prepping them and you’re saying, “Mr. And Mrs. Jones, congratulations, here’s your pre-approval. If you find a house and it needs a little bit of work or you want to update something, no problem. Let me know. We can roll in the extra money and you could do those repairs or updates after closing.” That’s it. That’s all you say.Alec Hanson:That’s the whole script?Milton Manolis:That’s the whole script.Alec Hanson:Say it again.Milton Manolis:“Mr. and Mrs. Jones, congratulations, here’s your pre-approval. If you find a house and it needs a little bit of repairs or updating, let me know. I could roll in the extra money and you could do those repairs and updates after closing.” Alec Hanson:So, I love it. I love it because you talk about after closing. Which is like, “Hey, buy the house. Get the close.” Because some people worry about that and there’s some demystifying that needs to happen on these deals. You also say, “Roll in the cost.” You don’t mention renovation. Milton Manolis:Exactly.Alec Hanson:You just tell them the truth, which is, “We can do it in one loan.”Milton Manolis:Yeah, don’t overthink it. Right, “We’ll just, whatever you want to do, we could finance it in and you could do that work afterward.” And doing that over a span of years, what I noticed, finally, it took me a while to pick up on the responses, but what I noticed is there were really two responses that the customer would give. The first one would be, “Okay. Great.” Alec Hanson:“Yeah, I’ll keep you in mind.”Milton Manolis:Exactly. But it was the second response, which was anything other than okay. If they asked, “How does that work?” Or, “Wait, can you explain that to me again?” Or, “I don’t understand.” As soon as I got anything other than okay, I would deep dive on them right there and I would ask them, “Have you seen a house that you liked that needed some work?” And I would say two-thirds of the time, answer was yes. And then I would find out about that house, I would get off the phone, I would call that agent and I would say, “Hey, did you know that Mr. and Mrs. Jones liked that house, but they didn’t have the money for the updates? Or they were concerned about how dated it was?” And it really allows you to bring extra value to those agents.Alec Hanson:Oh I bet, because you’re putting together a deal for them.Milton Manolis:And potentially convert it faster. Now if that property is still available, you’re helping the agent complete it.Alec Hanson:Well, you got to imagine, right? If there’s a property that needs a little love, it’s probably not moving exceptionally quickly unless it’s in a key neighborhood, key market, but those things tend to sit.Milton Manolis:Correct, correct.Alec Hanson:Do you have another script for a loan officer to a customer?Milton Manolis:That was to the customer.Alec Hanson:Yeah, that was to the customer. Milton Manolis:Yeah, yeah. So we have one that goes to the agent as well, almost the same. Alec Hanson:Let’s hear it.Milton Manolis:And I would say, “Mr. and Mrs. Agent, here’s their pre-approval,” because we deliver it to them and we let them know and I let them know, I say, “Listen, when you’re showing them a house, if you get the sense they don’t like something, there’s something that’s wrong with it, they want to update or anything, let them know that we could just roll in those repairs. Just let them know.” And the visual there is that this customer walks into a house, sees a kitchen from the Brady Bunch, turns to the realtor and says, “I don’t like it.” I want that agent to be there and say, “You know what?”Alec Hanson:“What don’t you like?”Milton Manolis:Exactly. “And Milton said we can roll in, you can upgrade those cabinets and we’ll get you new hardwood floors.” And then once that customer hears that and remembers that I said the same thing, that’s how you’re able to convert your pre-approvals faster.Alec Hanson:Okay, so I’m in. I’m in the game now. I got the pitch, I got the angle, I got the script. But we still have to demystify the process. There’s still agents out there who would see a 203(k) or reno-deal come across and be like, “No thank you.” They’re afraid of it.Milton Manolis:Correct.Alec Hanson:They think it’s going to blow their deal up. Milton Manolis:Correct.Alec Hanson:So let’s get real. What does blow the deal up? What does take a long time? How do you demystify this and provide clarity into the process? What do you say to people?Milton Manolis:Well, listen. As far as the realtors reality, right?Alec Hanson:Yeah.Milton Manolis:Other than mentioning renovation on the contract, the only other thing they need to do is give access to the property for the contractor. The contractor, in certain markets in the country, that tends to be the biggest delay, right?Alec Hanson:Good, let’s break it down. Functionally, for someone that’s never done a renovation loan before, right? We already kind of hit the big point that you need to get a subject-to appraisal and that subject-to the future improvements. If I’m Johnny Homeowner or Home Buyer and I want to do a new kitchen, new bathroom, those are my improvements, what do I have to do to get my renovation loan lined up?Milton Manolis:So, everything normal, just like any other mortgage, any other loan but in addition-Alec Hanson:Documentation, same documentation requirements.Milton Manolis:… same everything, right. Same requirements. You’re going to get a contractors bid, just the contractor that you choose to use, we need a copy of that bid because when we order the appraisal, we’re going to give the appraiser that bid and we’re going to ask the appraiser to give us the future value based on those repairs.Alec Hanson:Based on the bid.Milton Manolis:Correct.Alec Hanson:So, let’s oversimplify this. How do they find a contractor?Milton Manolis:They can pick it, yeah, we don’t recommend contractors. They’re free to pick any of them. A lot of times, I’ll have customers go to Home Advisor or Angie’s List and pick a contractor, but they pick whoever they like as long as they have insurance and they’re licensed and they’re in good standing, we’re good.Alec Hanson:So pro tip for all you real estate professionals listening right now, pay attention because if you got a house that you know is going to need some love, you know it, then go find some contractors who are your friends, who are in your community who work with you, alongside you, get them ready to go because when that home buyer walks in and they go, “I need a new kitchen.” You go, “I know, I’m listing it. Definitely new kitchen.” Here’s Billy Bob the contractor, this is the cost for a new kitchen and basically that parts done at that point.Milton Manolis:Yeah, I mean we get the bid, we order the appraisal and we move along just like everything else, right? We want to make sure that the appraisal supports the repairs that we’re doing, but here again, on a 203(k), it doesn’t necessarily have to.Alec Hanson:Because you’ve got the 110 variance.Milton Manolis:Exactly.Alec Hanson:I just want to make this really simple. It sounds like the only thing I need as a home buyer in order to get a renovation loan, besides the normal documentation I’m going to provide, is a bid for the work I want to have done so that you can order an appraisal and get a subject-to value based on the bid.Milton Manolis:Correct.Alec Hanson:I mean, so I just need a bid.Milton Manolis:Correct. We don’t really-Alec Hanson:I know it sounds simple, but people are over complicating this thing.Milton Manolis:… big time. So if somebody’s buying a home for $450,000 and they’re doing $30,000 in work let’s just say, we’re not asking the appraiser to tell us if it’s worth $450, we want to know is it going to be worth $480.Alec Hanson:Correct.Milton Manolis:That’s all. Very simple math, yeah. That’s it. Alec Hanson:Okay, so now I’m in escrow, I got the bid, the appraisal comes back subject-to, what other things happen on the… Let’s get real tactical on the operations side, what other things have to happen for a renovation loan to close? Milton Manolis:Other than your normal loan process-Alec Hanson:Yeah, underwrite, yeah stuff that we do all day long.Milton Manolis:… that all stays the same, but we have our renovation operations team and what they do is they reach out to the contractor and to the homeowner, to the client and they basically execute the additional disclosures, get those e-signed. They ask the contractor for a copy of their insurance, their liability insurance.Alec Hanson:Yep, they track down all that stuff.Milton Manolis:They do it all, right. And they put it all together. They clear those conditions, they update the numbers once the appraisal comes back so we can make sure we have the final figures and that’s it. And I don’t mean to oversimplify it, but I just think that for so many years, so many people have tried to make this thing magic and it’s really not. It’s really simple. And I get that a lot. Once people are trained and they’ve closed a couple, they’re like, “This is really simple.” That’s what they tell us.Alec Hanson:So what happens after the close?Milton Manolis:So after the-Alec Hanson:I mean now the realtor and the seller are fine.Milton Manolis:… right.Alec Hanson:They’re done, but just to keep the story going, what happens to the home buyer now?Milton Manolis:They start work. We, Loan Depot controls the funds and so as they need money and as they do work, we disburse those funds. Alec Hanson:So this is a cool point. I’ve heard you sell what’s kind of like an asterisk to… If I’m doing a refinance and I’m going to do a cash out refinance for my house, but I know it’s all going to be for home building, like reno stuff, would you recommend a cash out refinance or a renovation loan?Milton Manolis:Well, I would recommend a renovation loan.Alec Hanson:Why?Milton Manolis:Well, I just think that it’s a smarter overall option and I think it would put them in a better situation, really.Alec Hanson:I’ve heard you explain, when the lender controls the disbursements of funds, you actually get some protection.Milton Manolis:Always, yeah.Alec Hanson:Because if the contractor and there’s always horror stories about you pay a contractor, they disappear, they go away, but when the bank’s controlling the disbursements, you actually get a lot of protection on that.Milton Manolis:Yes and when you’re doing a renovation refinance, the appraisal, because it’s based on the future value, it’s based on the work that you’re doing to the home, so you could find yourself in a position, depending on the work that you’re doing, where you can access maybe more money, right? To do more repairs because the appraisal comes in higher giving you equity or perhaps you’re able to remove mortgage insurance.Alec Hanson:Dude, that’s a great con, of course that’s why it makes more sense to look at renovation loans than cash refinances because you’re going to get a renovation loan based on future value.Milton Manolis:Correct.Alec Hanson:You do a cash out loan on existing value.Milton Manolis:Correct.Alec Hanson:So you might need that future value to access more equity to do what you want to do.Milton Manolis:And that’s worked wonderfully for our VA renovation loan, for our veterans. Alec Hanson:Yeah, I want to unpack that too. I definitely have time to talk about VA renovation, because I’m very passionate about that. I lost my train of thought here. Let’s go back to your presentation with the real estate agents. You’re educating them on the right questions to ask. You’re queuing them up, you’re demystifying the process, what else should they be aware of or afraid of? Or did we cover it all?Milton Manolis:Well listen, I mean there’s other scripts and tips that I give both the agent and the loan officer and it’s basically to let the customer know that they need to stop trying to find the perfect house, right?Alec Hanson:Oh that’s great. Milton Manolis:Yeah.Alec Hanson:That’s a great message. Hundred percent.Milton Manolis:Yeah, we tell them, “Find the perfect neighborhood. Find the perfect school district, subdivision, where you want to be and let us make it the perfect house.” Because back to those TV shows, which I love, I watch them, but these people think that home exists and that’s what they look for and they want to find it in that subdivision or in that neighborhood and when they can’t they stop and we got to let them know that, “You know what? That doesn’t exist. Find the perfect neighborhood. We’ll make it the perfect home.” Once they understand that, that’s again how you’re able to convert these transactions and bring it home.Alec Hanson:You know what else I remember that I think I want everyone to hear as another pro tip, when you are thoughtful and you ask the right questions and you find out that… You made a really good comment earlier, that sometimes with a lack of inventory, people go out and they get discouraged. They can’t find what they want. They end up coming back home and if you were smart as the loan professional, if you talk to them about their needs and their wants and you told them about renovation financing and how it works, they might go back home, look at their existing home and go right into a renovation refinance. Milton Manolis:Yeah, there you go.Alec Hanson:I mean, [crosstalk 00:27:07] I’m speaking from experience-Milton Manolis:We all are.Alec Hanson:… right? I’m looking at maybe buying a different home and I’m looking around and I’m discouraged that everything is either super priced up and I’m not willing to kind of go there yet or there’s not enough inventory and then I come back and look at my house. I’m like, “Well, maybe I should just do work here.” I mean it’s great. No, so you’re getting to get business everywhere. And that’s why I joke too about the renovation design studio concept in open houses because everyone has lookie-loos from the neighborhood that comes in because the house is open and they want to see what’s going on-Milton Manolis:Correct.Alec Hanson:… and then if they see the design studio, they go home and they go, “Honey, we should get a new kitchen. I just saw this design studio that Milton had up and I want to do it here.”Milton Manolis:Correct, yeah. Alec Hanson:Aw man, the opportunities just seem like it’s endless. Milton Manolis:Yeah and to that point, one of the other things we’ve communicated to loan officers and agents, realtors is that after the construction’s done or after the rehab or renovation’s done, a lot of customers they want to have an open house. People love showing off their home so they invite their family and their friends and they have an open house and you need to be there because the first thing your customer’s going to do is grab their family friends, walk them into the kitchen- Alec Hanson:They’re like, “This is the guy.”Milton Manolis:… and look at this kitchen. Exactly. And then point and say, “This is the guy who did it for me.” It’s a great way, not only to show respect to your customer, but also to-Alec Hanson:Killer.Milton Manolis:… pick up more business. Alec Hanson:I’ve talked to [inaudible 00:28:21] about house warmings and it absolutely, whether it’s renovation, refinance or obviously a renovation purchase, to celebrate that new house with the homeowners and be there is gold. Okay, so let’s talk about, there’s different types of renovation loans. You have conventional renovation loans. You’ve got 203(k)s and you’ve got VA. We talked a little bit about 203(k), the variance that kind of sets it apart, but what are the characteristics of a conventional renovation loan for somebody who has never… I mean if you’re a loan officer who is brand new, right? I’m just learning what renovation is. Let’s start there.Milton Manolis:Conventional loan guys is basically, it’s a Fannie Mae home style is what it’s called and it’s a straight conventional product where we allow you to finance the purchase and the renovation. On a 30 year fixed loan, everything is exactly the same. It’s a straight conventional loan, we’re just wrapping in that additional renovation-Alec Hanson:And we’re lending off the subject-to value?Milton Manolis:… correct.Alec Hanson:So whatever the subject-to value is, then you look at the down payment requirements, the guidelines, they’re all the same. Milton Manolis:Exactly right.Alec Hanson:Rock & roll. Milton Manolis:Exactly. Again, if the purchase price is $450 and they want to do $50,000 in work, your acquisition is 500 so you’re down payment, your loan amount-Alec Hanson:Your 10 percent or 20 percent down has to be off the 500?Milton Manolis:… correct. Off the total. The combination of the two, as little as five percent down.Alec Hanson:That’s right, that’s right.Milton Manolis:Yeah and-Alec Hanson:By the way, investment. Milton Manolis:… investor on a single family.Alec Hanson:Yeah, let’s do it, let’s do it. So investors because there are people that are investors.Milton Manolis:There is. Alec Hanson:And when they buy houses, they might likely want to fix them up a little bit before they put a renter in there.Milton Manolis:Correct.Alec Hanson:So how does the investment reno work?Milton Manolis:So the investor renovation is 15 percent down, is the minimum. So it’s an 85 loan to value of the total, right? Purchase price, plus total rehab, 30 year fixed, there’s no prepay-Alec Hanson:That’s awesome.Milton Manolis:… or restrictions. They could do whatever they want. I have investors that are customers and I’ve explained to them, I say, “Guys, you got to stop looking for those homes that you’re going to go buy, you’re going to put $20 grand into and flip it. Those days are over. You have to really find that ugly house, right? That needs an addition, that needs some major work, that’s where the money is right now.” Because those are the homes that your home buyers that are going to occupy, they’re just driving right past those. They don’t want to have anything to do with those.Alec Hanson:No and I’ve heard 50 percent down minimum.Milton Manolis:Correct.Alec Hanson:You could build in the upgrade cost-Milton Manolis:Correct.Alec Hanson:… and you’re rocking & rolling.Milton Manolis:Correct and the only other option these investors have is hard money, which isn’t a viable option.Alec Hanson:Yeah. Okay, so conventional is awesome. FHA, I mean VA.Milton Manolis:VA.Alec Hanson:VA.Milton Manolis:It’s our pride and joy Alec. Alec Hanson:So give everybody the background on this product. How did it come into existence to the best of your knowledge?Milton Manolis:So, back I would say five years ago, Loan Depot was the first company to really roll this out. I mean we believe we have a moral obligation to our veterans and [crosstalk 00:31:07]-Alec Hanson:Go ahead.Milton Manolis:… yeah, they were in a tough spot. They were finding homes that they wanted to buy, but the homes needed work or there’s work that they needed to do to the home and they couldn’t write an as-is offer because everyone needs to remember, all renovation loans are as-is offers. Doesn’t matter what condition the property’s in. So our veterans were getting priced out, right? They couldn’t make a move. And so what we did is created a VA renovation loan that at the time was great. I mean we hit the road with it, promoted it, did wonderful.Alec Hanson:It was kind of mirrored a streamline, right?Milton Manolis:It was. It was a mirror-Alec Hanson:$35,000 cap.Milton Manolis:… correct, nothing structural and 90 days to complete the work, right? And it was great, but it had those limitations and then last year, we really revamped it. Opened it up, set it up to mirror the 203(k) so now, you’re limitless. I mean you could tear a house down and build a brand new house if you want and you can go exceed $35,000. You can go to your limits and as you know with the recent change on the VA loan limits.Alec Hanson:I was going to say, no loan limits. I mean you’re talking a massive renovation loan.Milton Manolis:Right. Which is wonderful and we’ve done quite a bit that make the home accessible for disabled veterans.Alec Hanson:Yeah, so this has always been really heavy on my heart and I’ll share a story for everybody paying attention. I took this out of Milton’s book, during every new hire orientation, I ask everyone in the room, we had 100-something loan officers last month, a few weeks ago and I’ve done this for like seven years, I asked everyone in the room who has served to raise their hand. And you’re going to always get a smattering of people who have served, it’s amazing, right? You get to cheer them on and thank them for their service and then I ask they keep their hands up and then the rest of the room, “If you had a parent or a child who has served? So a direct relationship to someone who has served, raise your hand.” Guys, every time, it’s like 70 to 80 percent of the hands in the room go up. And this is across the country. These are people from all over the country, every demographic and we are all touched by that. They have impacted our lives. No matter where we live, what we think, we’re related, we’re connected to vets and Milton when the VA renovation loan first came out, even when it was $35,000 dollars, the passion, the excitement I have around educating veterans who don’t know it exists and now that it’s unlimited.Milton Manolis:Correct.Alec Hanson:God forbid that you have a disabled veteran, but the greatest loan in America is a loan for a disabled vet at 100 percent financing with all the renovation costs built in to make their home handicap accessible.Milton Manolis:Exactly.Alec Hanson:It’s the greatest loan in America. And when I ask everyone in the room, “How many of you guys have veteran non-profits in your community serving veterans?” Are they educating… Now there are wonderful non-profits who help disabled veterans, so this isn’t like the miracle cure all, oh my God there’s no resources for disabled vets, of course there’s resources for disabled vets, but this is also a resource for a disabled vet and they need to know it exists because if they don’t, if they’re not able to access other resources to help them and they don’t even know this is here, it makes me pissed off. I get mad. And so I encourage loan officers, if you’re listening to this, this product, I mean you have a moral obligation to go into your community, to into your veteran non-profits and educate them that they have a resource. They have a tool. It doesn’t mean they have to use it and mortgages, it’s not for everybody guys, we know this. There’s an underwrite, there’s a whole process, but man that’s an incredible deal.Milton Manolis:It truly is and I tell people, “We’ve all been in those situations where you’ve been at a closing and you have emotional customers, they’re buying their first home and they’re there and just emotions, happiness.” Right? And you feel pride and you’re happy that you’re able to do this for them and they’re emotional. You do a VA renovation loan for a disabled veteran, you’ll be the one that’s overcome with emotions, right?Alec Hanson:Oh, no kidding.Milton Manolis:You’ll be standing in the corner looking and it’s a special thing man, it really is and I’m really proud of it. I love it.Alec Hanson:Yeah, I mean I just want to encourage loan officers out there that this product, you should be screaming it from the mountain tops. You should be educating everybody you can on this deal because it’s a gateway product to everything else. You’ll get other loans. I mean, how many times do you see loan officers run seminars on reno and they get tons of conventional loans. Milton Manolis:Exactly.Alec Hanson:Education is education. It doesn’t mean you’re only going to do 203(k) loans.Milton Manolis:That’s correct and guys, that’s how I kind of made it work.Alec Hanson:Made your business.Milton Manolis:I use renovation loans and I want you to use renovation loans to get non-renovation business. The renovation loans will come. It’s not about the loan, it’s about the value proposition the loan gives and what it brings to the relationship. And that’s how you have to approach it.Alec Hanson:The other thing that I forgot that’s kind of a byproduct of renovation, is you’re actually increasing the value of the neighborhoods. Milton Manolis:You are.Alec Hanson:I mean this is important. You’re actually bringing the value up for all the neighbors there. That’s epic and if you’re a real estate professional or a mortgage professional and you’re revitalizing a community, man that’s badass. Milton Manolis:It is.Alec Hanson:That’s really cool.Milton Manolis:That is pretty cool, yeah.Alec Hanson:I mean you could have pride driving through the neighborhoods being like, “I’m bringing the value up of this community.”Milton Manolis:Right. When that neighbor orders an appraisal and that appraiser is going to mention, “This comp was rehabbed and so-on and so-forth.” Yeah, absolutely.Alec Hanson:Okay, so let’s go back for some tips and tricks. Let’s get real tactical for some loan officers here. You gave some good scripts. What else do you cover in your seminar? In your presentation? What have we skipped over?Milton Manolis:Well, you could use renovation loans for future listings, right?Alec Hanson:Go, break that down. What do you mean?Milton Manolis:So basically, we tell our realtors, our agents that if you’re on a listing appointment and you see a house and it needs some work and you think the numbers will work, right? Where maybe they could do some work and list it at a higher price and net out a little bit of money, you can absolutely do a renovation loan for a future sale. A renovation refinance.Alec Hanson:Oh, that’s really smart. Because there’s a lot of agents out there who are looking how to improve their listing presentation conversions and so if that’s you or if you’re a loan officer and want to educate some realty partners, when they go on our listing appointment, they should encourage that seller, future seller to consider a renovation refinance and make their home beautiful and let’s say they put 50 grand into it, well they might net 80.Milton Manolis:Correct. Alec Hanson:And as a real estate professional, you know that. You know the value of like, “Hey, if we do a new kitchen and all this stuff, I can sell this for more.” And so man, that’s a great education tool.Milton Manolis:And then you’re locking down a seller that you’re doing a refinance for and you’re going to do their purchase down the road.Alec Hanson:Heck yeah. I mean you’re going to get both loans. For sure.Milton Manolis:Exactly.Alec Hanson:But this is really cool because the seller, the complaint is, “I’m selling my house, I don’t want to put more money into it.” Well, if you finance it, it’s just about carrying costs at that point. That’s a different [mathic 00:38:19] education process. It’s not about, “You need 50 grand to do the rehab.” It’s, “Hey the carrying costs of this for after completion is probably we’re going to sell it in three months, so your interest costs for three months is this, let’s go.” Milton Manolis:Correct.Alec Hanson:I mean, it’s much less.Milton Manolis:And I’ll add to that in certain parts of the country Alec, there’s a lot of un-permitted additions. Alec Hanson:Oh, okay. We got to break that down.Milton Manolis:Yeah, so there’s people who put un-permitted additions onto their home-Alec Hanson:Of course, of courseMilton Manolis:… and now they want to sell and you can’t get value for that.Alec Hanson:No. Milton Manolis:So that’s where-Alec Hanson:No you cannot.Milton Manolis:… yes, you’re right. But we can finance that for either the existing owner or the one buying it and finance the cost of making that addition legal.Alec Hanson:Oh, say that again. Let’s pretend the seller doesn’t want to do anything.Milton Manolis:Okay.Alec Hanson:Because they’re selling.Milton Manolis:Right.Alec Hanson:“Whatever, it’s my un-permitted ADU,” or whatever it is. But the buyer, through a renovation purchase can get that all done before they close.Milton Manolis:Well, we would finance the cost of making the addition legal into the loan.Alec Hanson:Yep, into the loan.Milton Manolis:So then they could do it afterward.Alec Hanson:That’s killer.Milton Manolis:And then the appraisal would be based on that addition being legal.Alec Hanson:That’s killer. That’s a great pro tip and I hope people pay attention to that one. That’s gold. What else do you got?Milton Manolis:Guys, I would tell you that you want to understand that customers buy location. That’s how they shop. Where they want to be, the neighborhood, the school districts, like we said and so we need to put them in a position to understand that if they do not find something in their price range, that they may be able to find something for less that needs work, right? So I get it, they’re looking for a home that doesn’t need any improvements, right? Alec Hanson:Yep.Milton Manolis:Their dream house and they’re looking at $500,000 and they can’t find it. Well, maybe you could find that $400,000 dollar house that has some mold damage or you know what I mean? Just needs that $100,000 dollars in work and they can make it perfect.Alec Hanson:That’s good. Milton Manolis:So just remember they buy location and we got to work within that sphere.Alec Hanson:So let’s recap some of the big takeaways here.Milton Manolis:Okay.Alec Hanson:Let’s give it to them. Let’s give them the script again. The script again for a home buyer.Milton Manolis:Is, so basically-Alec Hanson:At time of pre-qual.Milton Manolis:… yes. Yeah, the script to the home buyer, “Mr. and Mrs. Jones, congratulations, here’s your pre-approval. If you find a house and it needs a little work, you want to update or repair something, let me know. I could roll in the extra money and you could do that work after closing.”Alec Hanson:Killer. Okay, we landed that. Let’s hit the variance again. Because that is a deal saver.Milton Manolis:Correct.Alec Hanson:So let’s break down how that works, let everyone really understand it.Milton Manolis:Basically guys, this only applies to a HUD FHA 203(k), you can go to 110 percent of the subject-to value.Alec Hanson:God that’s killer.Milton Manolis:So, if it started out as a 203(k) or if it started out as a 203(b) and-Alec Hanson:Don’t say 203(b) bro. No one knows what that means.Milton Manolis:… okay.Alec Hanson:You just mean an FHA loan.Milton Manolis:Yeah, an FHA loan. I dated myself. Sorry brother. Alec Hanson:203(b). Everyone’s like, “What?” FHA loan guys.Milton Manolis:FHA loan and the appraiser comes back calling out repairs, right? You can finance those repairs and go up to 110 percent.Alec Hanson:So that’s killer guys. That’s nugget number two. Nugget number three, conventional.Milton Manolis:Correct.Alec Hanson:But I like the investment kick.Milton Manolis:Correct, yeah. Alec Hanson:15 percent down-Milton Manolis:Of the total.Alec Hanson:… of the total investment reno. That’s clutch.Milton Manolis:Right.Alec Hanson:And then, what’s the next-Milton Manolis:I would say, the script to the agent is letting them know that, “Mr. and Mrs. Agent, here’s the pre-approval for Mr. and Mrs. Jones. If you’re showing them a house and it needs some work and you get the sense that they don’t like it or there’s something that turns them off, let them know we could finance that in.” No obviously at that point, with that agent, you’re going to make a slight variance for agents that you have a relationship with or it’s wonderful for your first-time agent, right? The agent you’ve never spoken to, okay? The client came to you, they already had an agent, now I’m picking up the phone, calling them and they’re going to ask questions as soon as you give them that script. And that’s how I explain it them and they’re going to say, “Well, do you mean a renovation loan?” I’ll be, “Exactly, but it’s an as-is offer. We can convert it quickly. We’ll finance those repairs. You’ll be able to convert this customer.” I mean there is just so much you can haggle with that.Alec Hanson:… yeah, that’s nugget number three.Milton Manolis:Correct.Alec Hanson:Nugget number four that I pulled out of here is the fact that if you do educate your buyer on rolling in the cost and what renovation can do and they don’t find the home, you’re likely going to pick up a rental re-fi.Milton Manolis:Correct.Alec Hanson:So there’s the next one. Then we’ve got the VA renovation loan. The power of that with our veterans in our communities, the power of leveraging that with our VA non-profits is just a gold mine and it’s under leveraged and it’s under served and it’s just full of opportunity and that’s another gold nugget for everybody and then the design studio.Milton Manolis:Correct.Alec Hanson:The design studio is putting these up in these houses in your communities guys where… We all have dated communities. We do. Across the country that just are old and putting design studios up on those houses and door knocking and letting people know there’s going to be a design studio in, everyone’s confused and bringing people in, man, you’re going to farm that. Milton Manolis:Correct.Alec Hanson:You’re going to get a ton of business from that.Milton Manolis:And I’d like to add one more nugget.Alec Hanson:Please.Milton Manolis:We’re starting to see a trend moving forward, it’s called age accessible housing where you have people who are retiring, but not moving out of their home, but they want that addition, they want that master bedroom and bathroom on the first floor [crosstalk 00:44:12]. That’s going to be a big trend three to five years from now guys. Be mindful of it and be ready for it because there’s going to be a lot of seniors that are going to need that help, right? They can’t navigate up and down those stairs, they want a ranch style, but they don’t want to move. Alec Hanson:Yeah they like their… Yeah.Milton Manolis:Exactly. Alec Hanson:Man, that’s just like, how do we continue to educate our past customers on that stuff because those are our past customers.Milton Manolis:Correct.Alec Hanson:Sitting in those houses.Milton Manolis:Correct, yes.Alec Hanson:That now want to do something different and you need to educate them. Man. All right, so Milton thank you by the way, this has been just gold nugget after gold nugget.Milton Manolis:Thank you, thank you.Alec Hanson:I’m imagining people just pulling these things out and radically enhancing their business. So we’re winding down. What advice do you have for an originator in 2020, whether they’re seasoned, they came through the crisis, they’re ready to continue to evolve into the next roaring 20s or they’re new, they’re newer to the industry and new to doing loans. What advice would you give them around renovation loans?Milton Manolis:Guys, like we said in the beginning, how we opened, you want to use it as a unique selling proposition. Don’t overthink the actual renovation or the word-Alec Hanson:Smart.Milton Manolis:… renovation. Don’t use words that could overwhelm a customer, construction and renovation and rehab, I mean you got to keep it simple because it’s really not that hard and just open up that dialog with the customer, talk to them and if you see they’re having trouble finding a home or if you learn that the house they currently live in, their family’s grown and they need to build out, there’s really a lot of opportunity. Embrace the option and leverage it as a tool and like I said, use it get non-renovation business. Discuss it [crosstalk 00:45:46].Alec Hanson:Yeah, it’s a gateway product. [crosstalk 00:45:48]. You’re going to get non-renovation business.Milton Manolis:Exactly.Alec Hanson:And the last thing I do guys, I want to encourage you, first of all, hook up to Milton online, he’s always sharing great stuff and really pushing the reno world forward, so thanks for all you contribute there. And I just want to land this whole episode with this guys, if you’re a loan officer in your local community, you have a tremendous opportunity to be an educator on this wonderful product. To the real estate professionals, to the community there and to your veterans there. You have an unbelievable opportunity to be an incredible educator and in my opinion, transform your own business in the process. I mean, it’s clear in your history, as an originator, it transformed your business and there’s nothing stopping you guys. All the resources are at your fingertips, so go and take on the world and educate our vets on this incredible, incredible product. Anything else to add?Milton Manolis:That’s it.Alec Hanson:We nailed it.Milton Manolis:We did.Alec Hanson:All right.Milton Manolis:Thank you brother.Alec Hanson:Thank you guys for tuning in. Milton Manolis:Thank you.Alec Hanson:Hey, by the way. Reminder, please. If you stayed through the whole thing, man I love you. You’re like the true fans because everyone else is just going to listen to the first 30 seconds and peace out. That’s okay. It’s okay, I love them too, but thank you for staying tuned the whole time. Please subscribe and share and drop a nugget in the comment, let me hear what stood out for you guys. It helps us get better. Thanks, have a wonderful day. We’re out.Milton Manolis:Thank you.