REIA 403 Nathan Turner: How to control a property without owning it!

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Hello, enlightened investors, and welcome back to Real Estate Investing Abundance. I'm your host, Dr. Allen, and it is indeed A great pleasure to have you with us again today. You make our show. And so we are excited today to have with us a person who is going to tell us how we can control a property without owning it. Nathan Turner is passionate about mortgage notes and its unique approach to real estate with its multiple exit strategies and win-win situations. He is excited to take the roller coaster out of investing for his passive investors and allow them to sit back and just enjoy the ride. So, Nathan, take us into the show and share a memorable experience that helped you to be the person you are today.

A memorable experience. That is a great question. Thanks for having me on the show. This is great. I'm glad to be a part of this. Man, I have had so many experiences, it's kind of hard to choose one. But I will because you asked. So let's go with this one. So in high school, this was more than 20 years ago now, but I was a wrestler. I joined the wrestling team mostly, I think, because my brother had done that. He's a few years older than me, and so he had done that, and so I thought that would be a cool thing to do. Probably one of the— there are so many lessons I learned from wrestling, and that was a big deal. Just about you know, keep going and you don't quit until you hear the whistle and you've always got more in the tank. And, you know, all those kinds of things that where it's just, uh, it's a very difficult sport. It's, it's incredibly physically taxing and demanding and, and mentally as well. Like it, it really takes a toll. But I learned so many lessons from, from my years at wrestling. It was just determination and just don't quit. I think that was a, That was one of my major takeaways that I can look back on now about just, you just keep going. You can do it. You've got more in the tank.

Keep going. Yeah, I have heard that, that same kind of thing from, from high school wrestlers and how in so many ways it changed their lives. Yeah. Often, you know, I mean, you just, you don't think of that in terms of wrestling, but I have heard that from other wrestlers. So, yeah. Thanks for sharing that, Nathan.

Thank you.

So let's, let's get into real estate. And how is it that you got started in real estate?

You know, like so many people, I got into real estate when everything was looking so rosy. Back in 2004, I started watching— back in the day, it was TLC. And there were all those flipping shows about these people that were going in and flipping properties. And my wife and I would watch those shows not for entertainment but for education, and we kind of figured out how we would do that. And then the opportunity came up, and so we did. And in that spirit of determination, we just thought, you know what, we can do this no matter what. So I actually was living in Montreal at the time, and the houses were in Saskatoon, Saskatchewan. So for those— For geologically challenged people, so Montreal is just above Vermont and Saskatchewan is just above nowhere, like Wyoming.

Montana, right?

Yeah, yeah. Montana, Wyoming, kind of that area. So, it was the other side of the country really. And, you know, in our spirit of adventure, we would buy these properties sight unseen. I was working with a realtor and they would help us figure out what we were buying and then we'd plan like crazy about what we were going to do to this property to improve it. Then I would pack up my suitcase full of tools, fly out, and it was tools in a sleeping bag. So I'd have my tools and just work on the house for a couple of weeks sleeping on the floor. And by the time I left, I usually had that house sold. And this is again back in 2005 and '06 when everything was really rosy. So fast forward a little bit, we went through the big downturn. I ended up being a landlord for a little while just because there's own property I couldn't sell. And that's all I knew about real estate is you can sell or rent. So I was renting it. I figured out very quickly that I really liked cash flow that came from rental. I didn't like anything else. There was nothing about being a landlord that I enjoyed except for that cash flow. And then fast forward a little bit more, I was introduced to this idea of selling houses on terms where I had been given a portfolio of properties from a group of investors that got stuck with, with a bunch of these properties and didn't know what to do with them. So this is fall of 2008. So it was right when everything was going haywire and they were stuck with these properties. And so they, they gave it to me and my old partner and said, okay, we don't know what to do. These are— they were in California. These are all Midwest. So I was relatively close. They said, just do something, you know, make as much money as you can off of these and we'll work out some kind of payment arrangement. So my partner and I, we thought we'd kind of invented seller financing where we were selling the houses on terms. And, you know, we're making it up as we went along. A couple of Canadian boys, we didn't know how that worked or if it worked or anything. And then just the more I got into it, the more research I did, the more I found that there was a community of these people. So I went to my first note conference in 2009 down in Louisiana, and it was a room full of people that knew exactly what I was talking about and far more. And that was, that was really refreshing. So that was kind of, kind of the journey, you know, one thing to the next to the next. And then ultimately, just this year, I put together my own investment fund. So now I'm running, you know, a portfolio of performing mortgages. And it's just, I just think it's the best job in the world. I love it.

Well, Nathan, explain to us what you mean by fund and what it is that you mean by running a portfolio of notes.

Sure. So a fund is just, it's an investment fund. It's kind of like a syndication, where it's, it's technically a Regulation D 506. So it's an SEC-run structure where investors can come together and we put it all into a pool, and then I can go out and manage that and buy out these different mortgages. So when I'm talking about buying mortgages, so I buy the mortgage on the property, not the property itself. So whoever's living in the house, they went and got a mortgage with Chase or Bank of America or whoever, US Bank, I don't know, whoever, Wells Fargo. The bank at some point decided they wanted to sell the loan. And many people listening to this, they probably experienced this where you get a letter in the mail that says you're no longer paying us, now you're paying somebody else. It's exactly the same thing. So I'm one of those people where I step in and now I'm the somebody else. So you'll get that letter saying now you're paying Earnest Investing Fund, Nathan Turner, and if you have any problems, call him. So that's it. So, so the person living in the house Nothing really changes for them. They still own the house. All the terms that were set up in the original mortgage still stand. Now, instead of paying Bank of America, now they pay me. So that's my job, is to find these and to just kind of manage them. If and when people have problems making their payments, I call them and we work something out. And that's, that's become my, my job, my livelihood, and over the last few years.

That's interesting. So how do you make money from doing this?

So one of the fun things about mortgages is that they're always traded at some kind of a discount. Whoever the seller is, is willing to discount the total owed to sell it, you know. So let's put numbers in it, just make it easy. So let's say there's a $100,000 balance on your mortgage. The bank then says, you know what, I will accept $80,000 or $75,000 or $70,000 or whatever that number is right now so that I can have that lump sum of cash today versus collecting these payments over the next 20, 30 years. So it's worth it to them to have that money in the bank, all of it, or at least most of it today versus over time. So that's how I do it. So, and then the, whatever the interest rate is, that's kind of how I calculate my return. So the person who's in the house, maybe they've got an interest rate, if they're doing that today, around 8%. So then I come in and I say, okay, I will buy that $100,000 mortgage, the balance of it, for— I'll give you $80,000 for it. And then because I bought it on sale, instead of collecting 8% as my return, it actually jumps up to something more like 12% return for me. So then I pay my investors and then I keep whatever's left on top of that. And that's, that's how that works.

Well, why would a mortgage holder want to sell a mortgage at a discount?

So in the case of a bank, it's mostly just they're looking to recapitalize. They know that they can. So let's say they've got somebody at, at a 3% interest rate. Well, if they had that money that they had lent out back in, now they can relend that out at 8%. So it's worth it to them to sell whatever mortgage they can to get the money back in so that they can go lend it out at a higher rate, or they'll go and invest it into something else or whatever banks do. In the case of an individual who has just created a mortgage, this happens a lot where somebody has a second property. And then they've sold it on terms. They've been collecting payments for a little while, and then whatever, they're tired of it. They don't want to do it anymore. Maybe it's a family member and it gets a little awkward at Thanksgiving. You know, who knows? Whatever it is, maybe they want some cash today so that somebody's, you know, little Johnny's going to college, or Martha wants to redo the kitchen, or who knows what it is. But for some reason, they would rather have that lump sum of cash today. Versus overtime. And so then that's where I step in and I say, I'm happy to do that and, and collect the payments on your behalf.

So why notes instead of traditional real estate? You mentioned the one aspect that you don't like being a landlord. Are there other reasons?

Yeah, that's, that's like one of my favorite things is that I don't own the property. So Just again, to illustrate, to make it a little real, I don't have to fix the roof. I never have to set aside money for repairs to the property. I don't fix the toilet. I don't even shovel the walks. None of that is my problem. That's the person living in the house. It's their house. They're the one taking care of it. So that's number one. I really enjoy that. Gosh, there are so many reasons. If somebody is in trouble and they're not able to make payments, I am— I'm not a bank. I'm far more flexible than a bank. So that allows me to talk with the borrower, the homeowner, and say, okay, $800 a month is too much. Uh, could you do $600 a month? And they say, you know what, that would be great. I had lost my job. I got something, you know, some other job to replace that one, but it doesn't pay as well. No problem. So let's have a look at that, and then we can get on to the financial calculator, start plugging in numbers, and whatever works for them and works for me That's a deal. And then we modify the loan. So those are the new terms going forward. They get to stay in the house. I get to continue making payments or collecting payments. And it's a total win-win. And I really enjoy that. That's a lot of fun for me. And I mean, I could go on and on and on, but we've got limited time on the show. So I don't spend too much time on that, but it's just really rewarding. And I find there are multiple exit strategies versus when I used to just own property.

Enlightened investors, if you haven't done so already, be sure and click that like button and also click that share so others can take advantage of the content. And finally, be sure to subscribe so you don't miss a single one of our upcoming episodes. Well, I don't know about the tax laws and what have you in Canada, but one of the reasons that people like to purchase property are because of the fantastic tax advantages.

Yes.

That don't necessarily come with the notes in particular. And interest is taxed at, well, it's taxed as capital gains, but it's taxed at a fairly significant rate.

Yeah.

So how do you, how do you make up for that advantage?

That's a great point. And, you know, so I'm going to point out 2 negatives with note investing. Number one, the taxes, like you mentioned. Number 2, I don't own the property. Therefore, that means that at the end of the loan, let's say it's a 30-year loan and I collect on that for the next 30 years. At the end of that 30 years, I don't have a property. So there's, there's nothing backing that when I'm done. Now the person now owns the property free and clear. The trade-off is that I haven't had to deal with any of the headaches along the way, but that's going to be up to the individual to see if that's something you want to do or not. Now for the taxes, what I would say for that is you can still buy notes in your IRA. So you can still make all of the money that you would make in your IRA tax-free as it grows. And that it's a fantastic vehicle for your retirement income.

Yeah. You talk about the fund and you said it was a 506. So that is implying to me that it has to be an accredited investor to invest with you. Is that correct?

That's right.

Yeah.

And is there, is there a minimum investment that you require?

Yeah, for us, it's a minimum $50,000 investment, maximum $1 million. It's a relatively small fund, just $5 million, and nobody can own more than 20%. So that's where the $1 million comes from.

That's where the $1 million— okay. What happens if someone stops paying their mortgage?

Yeah, and that's, that's one of the most common concerns, uh, and it's one that I certainly share, uh, and used to share, I should say. When I first heard about this whole opportunity, that is the first thing that came to my mind. Well, that sounds great, but what happens when they're not paying? Then isn't it just worth nothing? Not really, because the property is the collateral. So in that example we were talking about before, The balance on the house was maybe $100,000. The property value is maybe $125,000, $150,000, $200,000. It really depends. But in any case, even if, even if the value of the property was, say, $125,000, I already bought it for about $80,000 or $70,000 or something like that at some kind of a discount. So my investment to the value of the property is really low. So we're very well protected in case of whatever. they stop making payment, the market can go down, I'm still well protected in that situation. So it's a very, very well-secured investment.

So you— so even in that scenario, if you have to go to that length of foreclosure, which you already mentioned you prefer not to, and you prefer to be— to really make attractive terms to help the homeowner to stay in their homes, but if you have to go through that foreclosure route, you do have a number of exit strategies, it seems to me. Can you tell us about what those are?

Yeah, it's great. And this is, this is where it gets more fun. So number one, yeah, I want to keep them in their house, not just because it's a good thing to have happen. And it is, I would much rather have somebody stay in their home. But it's actually far more attractive to me to have them stay there and just continue to make payments. I don't want to deal with a house. I don't want to have the responsibility of fixing the roof or those kinds of things. It's just not something I'm actively looking for. So number one, we try to modify, and, and that modification can take so many different faces that we have all kinds of room to look and see what we can do. So that—

No.

More than 90% of the time, we can do some kind of modification and get them back on track. If that's not possible, like for example, maybe they passed away. In that case, obviously there's not somebody there to make payments anymore. So in that case, we're probably just going to go to foreclosure because there's nobody to talk to anymore. But let's say that didn't happen, where they're just not able to make payments for some reason. So we can offer to do like a short sale. So I can talk to them, and I know people have taught this and done this for years as well. I'm the bank in this situation, and I'm actually encouraging them to go and sell their property and use whatever money— the house is worth $125,000, so anything over and above what they pay me, whatever was owed on the loan, that $100,000, anything over and above that, they get to keep. So again, it's very much in their best interest to do something like that, especially if there's equity in the property. Go ahead and pay me off, then you can get yourself a little lump sum and move on to your next thing, whether that's into another home or to a rental or whatever it might be. So that's a situation that, that comes up. We can do a deed in lieu of foreclosure. So in the rental world, oftentimes referred to as cash for keys, and it's the same principle where somebody is not able to make the payments and, and for whatever reason they're not able or willing to sell the house to pay it off, then I can say, okay, in order to avoid a foreclosure— and for me it just takes time and money, and I don't want to deal with it if I don't have to— I would rather pay them. It could be, you know, the amount of money that it might cost me to hire a lawyer and say, so I will give you X amount of dollars to help you get moved into your next place. And instead of going through a foreclosure, you just sign over the deed to me and I will extinguish the loan and it doesn't follow you anymore. So that's another thing we can do and come to a resolution that way. And it's the worst case scenario. If we absolutely have to, we can go through a foreclosure and take it through that legal process to get the property back. And we do that as well. And it just kind of depends on the situation. We try to avoid it if we can, but ultimately it's not the end of the world.

It's not.

It's not a terribly complicated process in most cases, and in most states, I should say, and we can get that done. And now we've got this property that far exceeds what we paid for it in value, and we can either sell it or we can now sell it on terms and create a new note. And I've done all of the above.

Yeah, well, Nathan, tell us how we can get in touch with you to work with you, uh, and to invest in your fund.

Yeah, absolutely. So I'd be happy to talk to anybody. Reach out to me directly if you'd like. My email, nathan@earnestinvesting.com, or you can call me 312-860-3747. Uh, now that I gave out that number, I'm probably going to get a bunch of spam calls, but that's okay.

You'll probably not notice the difference. Uh, if your phone is like mine. So all of that information will be in our show notes as well, listeners and viewers. And so Nathan, let's go into our last, uh, segment here and share with us one of your most difficult setbacks in life, and how did you come through that time, and what did you learn from that?

Ah, we'll stick on the business level. I've had some, some personal things that have been difficult to get through, but we'll stay on the business level. So Uh, my first business, my first real business was a franchise. It was a Curves franchise, which is that gym for women that people might remember. It was very popular back in the day. By the time we were able to sell, we had 2 locations, my wife and I. By the time we were able to sell, we had to combine the 2 into one, and we sold at 10% of our original value. And so it was a fairly major loss. And that was difficult, not just financially, but, but, you know, psychologically, that was, uh, that was kind of a blow. And I think it kind of goes back a little bit to, uh, my wrestling days, whereas like you just get up and you keep going. And that was kind of both of, both of our attitudes, my wife and I, where we just said, you know what, we're bigger than this, we're stronger than this, it's fine. And so we, we were really able to do that. And we started— that's It was before we sold the Curves, but it was, uh, that's when we started doing real estate. And, and being entrepreneurs, we saw how we could dig ourselves out of that instead of just, you know, on a fixed income where we were dependent on somebody else's paying us. Uh, we knew that we could overcome that, and we have, and it's been fine. And, you know, money I would rather not spend, but, uh, but it was a fantastic education, and it's been a good thing in our lives ultimately.

Yeah, some of those worst times in our life are our best educators. So, 3 good experiences in the last 24 hours.

Last 24 hours, let's see. Um, it snowed here. I love the snow.

Yeah, I do too.

And so I got to go out. We were in Montreal up until last year, so we, we came back out to Alberta. Uh, and I love Alberta. I grew up here and, and So I went out to go shovel the snow the other day, and it's a different kind of cold here. And so I had— I'd actually just worked out, so I had my workout shorts on. I was below freezing, and I just had a jacket and my toque, and, uh, I think I had gloves, but I probably didn't even need them. But it's cold, but it's a dry cold, and it's much more— yeah, easy to—

much more enjoyable. Yes, I— yes, I grew up in Colorado, and I live here. Live here in Appalachia now, and you just can't explain to people until they've experienced, but it's entirely different. Yeah. Yeah.

So 2 more. Let's see. Uh, yesterday it was a very busy day where I was just on the phone all day, uh, and it was actually great. It was just one call after another and talking to potential investors and talking to friends that I haven't connected with for a while. And just catching up, finding more deal flow for myself as well as these potential investors. So that was a good day, very productive and very meaningful just catching up with everybody. Number 3, I would have to say at the end of each day, my wife and I, typically you'll find us just in front of the TV. We'll pick a show, something on TV, and we'll watch for 45 minutes before we head off to bed. And it's just nice. It's a good time for us just to unwind and hang out together.

Well, wonderful. Well, how are you putting your success as a— as an entrepreneur and investor to work to create universal well-being?

Well, great question. Um, we actually just are in the very final stages of opening up a nonprofit, which is very exciting. Uh, and, uh, we're— the goal of the nonprofit is to be able to provide low-income housing for people all over the state of California. So we're, we're taking advantage of a program that's there that allows us to be able to help out in that way, and we're very happy about that.

Well, wonderful. Well, I imagine you have come to the end of your life, and as you lay on your deathbed, what do you look back on with your greatest sense of joy and fulfillment?

Oh boy. So I've got 3 kids. They're 14, 16, and almost 18. And so far so good. They're really fantastic kids. I anticipate that, you know, 40 years from now, 50 years from now when I'm on my deathbed, that I will continue to be very proud of them and how they have— right to now, I see a very bright future for them.

for all of them.

And that's— it's rewarding to know that I've hopefully done something right. I've taught them something that has helped them to become better people.

Well, Nathan, it's been wonderful having you. Thank you so much for being with us today.

My pleasure.

And Enlightened Investors, as always, it was a delight being with you. Thank you for being with us. And please take a moment to like, share, and please comment. We'd love to hear from you. Also, Subscribe, and please go to Apple Podcasts and leave us a rating and a review. Until next time, Enlightened Investors, live abundantly, and we'll see you in the next episode.

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