Many homeowners find themselves struggling to pay off their mortgage or past-due loans. This episode’s guest, DeAnn O’Donovan, helps those in this situation pay off their debts and remain in their homes. She is the President, CEO, and Director of AHP Servicing—a specialty servicer of past-due residential mortgages. Host, Monick Halm, sits with DeAnn to talk about how her company works out a solution for these homeowners. She shares how they take these non-performing notes and distressed loans and get them to reperform again. Learn more about the great things about investing in distressed loans and the ways it allows you to invest even for as little as $100.
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Investing In Distressed Loans – Interview With DeAnn O’Donovan
This is our podcast where we interview amazing badass women in the real estate investing space. I am super excited for our guest who’s no exception to the badass rule. She is Ms. DeAnn O’Donovan. DeAnn is the President, CEO and Director of AHP Servicing. It’s a specialty servicer of past-due residential mortgages. In her role, she oversees the company’s direction, strategy, staffing and operations. With more than twenty years of experience leading profit centers, overseeing workout plans and corporate strategy, DeAnn is primed to change how mortgage servicers conduct their operations. Prior to joining AHP, O’Donovan served as Executive Vice President and Chief Administrative Officer for Wintrust Mortgage, which is a division of Wintrust Financial Corporation where she grew loan volumes 34%, revenues 38% and net incomes 17% by transforming her team’s culture into one of accountability, talent development, and operational excellence. I am excited to have her here. Welcome, DeAnn.
Thanks, Monick. I’m glad to be here with you.
I’m excited because you’re the head of AHP. It’s a fund that I have been investing in for a couple of years. I’m excited to share that with you, your story and what you do with our audience because I love the mission that you have as well as how you do well by doing well. We share different women’s stories on this show. Tell us how you got started in real estate investing.
I got started working for a real estate investment trust. Quickly out of school, I started in new business development and acquisitions. At that time, I was purchasing large commercial assets and that was a great proving ground to learn the ropes of the real estate business. The things that I’ve learned in my time there carried with me throughout my career. I also had the benefit of early ongoing through a workout situation with that company. They had a large number of their tenants that went bankrupt. That was a great introduction to the workout side of the house, what you do when you’re acquiring a nicely performing assets. Those things have all been instrumental in my career and come in handy every day at AHP Servicing.
When you’re talking about workout, that’s somebody who has a mortgage that they can’t pay and then you have to workout a solution for them.
It’s restructuring the debt.
Are you personally invested in real estate or is it something that you’ve done through your career?
I am personally invested in real estate in a small way. I’ve got a few rentals, as many of us do, but the vast majority of my professional career has involved either commercial or residential real estate.
What got you personally investing in real estate at first?Don't just know your own asset class, know the related asset classes as well because any one of them can bring down the whole house. Click To Tweet
It’s a great source of passive income. It truly is easy to do on a passive or almost passive basis unlike a lot of other investments. Over the years, I have looked at other commercial real estate investments that are less passive, but it’s been hard to find that fit and I worked hard. I probably work on average 60 or 80 hours a week. Something that is not passive does not work for my life. You still have to pay attention to your investments and the assets that you purchase. Keeping it small and simple with good property managers has been the right path for me.
Your AHP deals with non-performing notes for the most part, can you describe it? Because until a few years ago, I had no idea what that meant. Can you share what exactly does that mean? What are non-performing notes and why do you like them as an investment?
A non-performing note is a mortgage loan that’s past due. Think about a friend or a neighbor who takes out $100,000 mortgage and then they have a change in their life event. It might be a medical issue, a divorce or something else happens and they can no longer afford to pay that mortgage. That’s a past-due mortgage. What we do is we buy packages of those past-due loans and then we work with the homeowner to try to modify the loan, make the payments more affordable and keep them in their home. In situations where they’ve already vacated the property or they’d like to get out from under the debt or the property, we’ll work with them on a cooperative solution. I often get people asking, “How do you guys make money doing that?” They had to stand the social responsibility component, but they don’t understand the profit component.
We might buy that $100,000 mortgage for $30,000 or $40,000 and then we’ll work with that borrower to restructure the loan, lower their loan payments and then that becomes what’s known as a re-performing mortgage. We’ll season that re-performing mortgage, which means we’ll make sure we get at least six months of on-time payments under that new payment plan. We can either hold that asset and get the yield on the investment, which is the interest rate that it would pay to us or we can resell that mortgage as re-performing. We might buy a non-performer at $0.30 on the dollar and sell a re-performer at $0.50 or $0.60 on the dollar. That’s one of the ways that we make money. We also make money when we take property into what’s called real estate owned. We might take the property back in a deed in lieu of foreclosure if they’ve already decided that they don’t want to keep the property. We make money on the difference between what we bought that loan for and what the property is worth when we sell it.
You’ve gotten it at $0.30 on the dollar and you’re able to sell it at $0.80 on the dollar.
On average, we sell our REO at about 80% to 85% net of the appraised value, but we might be buying that loan on a value basis versus the underlying collateral at $0.30 or $0.40. You’re still making that 40% spread.
This can be a lucrative asset class. I can see why you like it. Tell us a little bit more about AHP, your fund and how that works.
We are a socially responsible company and what we’re trying to do is do well by doing good. Our current fund launched in November of 2018. We’ve been raising a little under $1 million a week, so we’re off to a great start and somebody can buy into our fund for as little as $100. The money that people invest in our fund is used to go out and purchase those loans and cover operating expenses as well. We pay our investors a preferred return of up to 10% per year. We don’t take any profits until we’ve hit that 10% threshold for our investors and then any profits after that would go to the company. It’s a nice alignment where it’s a win-win-win if you will because it’s great for investors, for our borrowers, and the communities that the properties are in. Our employees love the business model because you can work in this sector of the business and know that you’re doing something good.
I love that it’s lucrative and beneficial. A lot of women ask me, “How do I invest? I don’t have that much money to get into the game.” For the fact that you can invest for as little as $100, that’s awesome. It’s democratic, whereas in a lot of passive income opportunities, you need $50,000 or $100,000 minimum and you can get in for $100.
I love that you said democratic because that’s the word I use to describe it. I do think it’s important, even with a lot of the other real estate crowdfunded place, the minimum investment is somewhere between $1,000 and $5,000 and then you’re not getting a diversified portfolio. You’re getting a fractional share of one asset versus somebody can buy into our fund with as little as $100 and we buy thousands of loans. It’s more similar to investing in a mutual fund, which is diversified. If you buy the S&P 500 Index, you’re investing in 500 funds. If you buy into our offering, you’re investing over time in thousands of loans for that one initial investment.
Are your properties all over the country? Where are the loans from?
We invest in all 50 states.
It’s diversified in terms of the market. I started investing in non-performing notes a couple of years ago and still experiencing some of the effects of the last downturn when there were many foreclosures or many non-performing notes. How is that business doing now? You’re hearing that the economy is much better. Are you still able to get that inventory that you need in order to do this fund?
Yes, we are. We’re still seeing a lot of old originations from the financial crisis that are floating around. You had hedge funds and other companies like that that bought large baskets of them. They worked out the easy stuff if you will and they’re selling off their remaining portfolios that are more difficult. We’re also seeing an increase in newer originations. In the last couple of years, government loan programs and the agencies Fannie and Freddie had been pushing low downpayment originations again. Unfortunately, we’re starting to see some of that paper go bad. We’re seeing buying opportunities there as well. There’s always some percentage of the population no matter how good the economy is that have life events that make it difficult for them to meet their obligations.
I invested and the returns were a little higher in the fund we did. It’s hard to get 10% for most investments. Switching gears, you’ve personally been an investor and your co-career has been in real estate investing that in some ways, shapes or forms. You’ve been involved in the business for quite a while. What would you say is your biggest mistake in the real estate investing career and what did you learn from it?
My biggest mistake was in 2008 before the financial crisis hit. I decided I wanted to leave the REIT that I was working for and go out on my own as a broker because I had such great industry contacts. Within about three months, I had over $20 million in commercial real estate that I was brokering and then the market fell apart. I quickly took stock and I was like, “I need a job because none of these deals are going to close.” That’s what I made the switch into the banking world.
What did you learn from that?
Timing matters quite a bit. I did not see those tea leaves coming.
What do you think you could have seen differently or what did you not pay attention to? What would you do differently now?
Interestingly, I saw some of the broader financial indicators. I pulled back in my investment portfolio and did some other things to move my finance to a more conservative position. I had been working in commercial real estate, so I didn’t understand at a deep level what was taking place with these securitized deals in the residential mortgage space. The lesson there is don’t just know your own asset class, know the related asset classes as well because any one of them can bring down the whole house.Get mentors and sponsors because it is lonely at the top if you don’t bring other people with you. Click To Tweet
We’ve had quite a long stretch of recovery so far. The crash is good for your business, but what are your thoughts on where we’re headed?
We’re bumping along the top of the market. We’re going to see increased volatility or continued volatility in 2019 in a lot of markets. We’re likely to see a real estate correction in the near to midterm in high-end multifamily new construction. I live in Chicago and one of the anecdotal indicators I’ve seen is a lot of high-end condos and rentals going up. That’s the first thing to get hit. Unfortunately, when you look at when they’re going to come to the market, they’re going to come to the market in 2020 and 2021. All of the economic indicators indicate a slight slowdown in 2019 and more likelihood for a recession in 2020. There’s going to be some blood on the streets in that segment of the market and also some opportunities for companies and people who are opportunistic.
When something’s going down, that’s the time when you can have bargains. Properties go on sale. What are you most proud of?
I’m most proud of everything we’ve accomplished at AHP servicing in 2018. American Homeowner Preservation has been around for ten years and we’ve celebrated our tenth anniversary in May 2019, but we also started this new business, AHP Servicing, to bring our loan servicing in house. 2018 was an amazing foundational year for us. We finished the largest fundraiser we’ve ever had on our last fund. We’ve got a great start to this fund and we’ve got all of our systems in place. We brought servicing in house. It’s been amazing to see it go from this idea to this well-run company.
To what do you attribute your success?
A couple of things. One, I’m a lifelong learner and when I take a look at myself, what gets me up in the morning and what gets me passionate about work, I love working and I’m a builder. I left a comfortable job to come work for essentially a startup company or a small company, to scale an organization that’s doing something great. It was more appealing to me than sitting around in a corporate job until I retire.
The learning and wanting to grow things is being led by your passion. I could see that. What advice do you have for a woman just starting out in this field? You’ve been in this field for a long time and it’s male-dominated.
Almost every job that I’ve had in my entire career in commercial real estate and in banking, I have been the only senior female leader in the company when I started. One of the things that I would encourage young women to do is you need mentors and sponsors, but you need to look at both male and female mentors and sponsors. It’s only lonely at the top if you don’t bring other people with you. Pay it forward as you go.
In our events, one of our mantras is, “I am here to be financially free and bring others along with me.” That’s probably why I have a passion for women because I feel like we are oriented to help others and bring others along when we have a little bit more. I love that that’s your philosophy, too. What do you wish you’d known at the beginning that you now know?
It’s much about the people as it is about the assets and that’s what helps you with your success. One of the reasons we were able to accomplish so much in 2018 is I have several people who came with me from that course of that twenty-year career. Having people that want to follow you and want to be part of something, makes a huge difference.
It’s a credit to you that you have people that want to follow you. That says a lot about you and your ability to build a team and cultivate the talent that will want to stick with you. You’re a rising star, so kudos to you. Before we get into our trinity, which is a brag, gratitude and a desire, what is the best way for people to reach you and to find out more about what you do?
They can reach out to our company at www.AHPServicing.com and they’ll find contact info for me as well as information on our latest offering. They can also connect with us at (866) AHP-TEAM. I’m also on LinkedIn, so they’re welcome to connect with me there as well.
It’s time for our famed end of show trinity. What is your brag? What’s one thing you’re celebrating?
It’s the successful launch of the latest offering. We launched it a little bit ahead of schedule and we’ve already raised over $7 million and that’s over the holiday season when typically it’s slow, so we’re excited about that.
What is one thing that you’re grateful for?
Last but not least, what is one thing you desire?
If I’m being perfectly honest in what I desire, it’s spring because I’m in Chicago and it’s supposed to be fifteen degrees below zero. Maybe I should say being in LA. That’s what I wish.
So shall your desire be or so much better than you can imagine. I went to college in Canada, in Montreal and 20 below and 40 below are not unusual temperatures and I was traumatized, which is why I now live in LA. Thank you. That was great. You guys can connect with DeAnn on LinkedIn or go to AHPServicing.com to find out more about this fund, what they do and to connect with them. To connect with me in Real Estate Investor Goddesses, go to REIGoddesses.com. You can join our sisterhood of women from all over the world who are investing in real estate and find out about our classes, our events, and our investment opportunities there, too. Thank you again, DeAnn. Thanks to you all for tuning in and catch us next time for another Real Estate Investor Goddess interview.
About DeAnne O’Donovan
Innovative & strategic executive with 20 years of experience successfully building operations, corporate and professional services, profit centers, setting strategy, and leading M&A and growth initiatives.