Overcoming Adversity & Creating Abundance Through Note Investing

You don't go online. You can go online. There are exchanges like Paper Stack and some other exchanges. That one was for Brett Berkey. But no, you can go online and buy notes on these exchanges and I buy and sell on Paper Stack and some others. But it's a very inefficient marketplace. The short answer is networking.

Welcome to the Next Level Income show where it's our goal to take your income, your investments and your life to the next level. I'm your host, Chris Larsen. If you haven't yet, get a copy of our book for free, free at our website, nextlevelincome.com. that's www.nextlevelincome.com. just click on the book link and I'll even send you a copy if you put your address in. On today's show, we have Jamie Bateman. Jamie's an experienced real estate investor and business owner who's been actively buying and selling mortgage notes since early 2018. He's acquired over 75 notes with principal balances in excess of $4 billion collateral across 20 states and growing. More importantly, he has hands on experience overseeing construction projects, managing properties, and has experience in both the title and mortgage industry industries, having worked for years as a real estate settlement officer and mortgage funding manager. Jamie Bateman, welcome to the show.

Thanks, man. Thanks for having me, Chris. I really appreciate it.

Absolutely. Well, I was fortunate enough to get to be on your podcast, I think when you were, when you were kind of getting it started. And really now I get to call you a friend. I got to meet you face to face out in Arizona or Mastermind here in, in the last month and I'm really excited for you to be on the show and share a lot about what you're doing.

Yeah, I appreciate it.

Absolutely. Before we get into that, I'd love for, love for the audience to hear a little bit about your background because you really do have quite a bit an interesting background, Jamie.

Sure. Yeah. So 19. January 6th, 1976, I was born. Yeah. So I am 46 years old, married, two kids. We live in outside of Baltimore, Maryland and great city currently. Absolutely. I'm currently a mortgage note investor and real estate investor and we'll get into that. Um, as far as my background goes, I grew up in Maryland and, and was heavily involved in athletics, played at Gettysburg College and then decided to actually once I got out of school, kind of typical athlete where didn't know exactly what I wanted to do, you know, all of a sudden my what I devoted all this time and energy to was, was gone. And I'm looking around and you know, tried to figure out what, what to do next, frankly. And so I ended up at a title company and that's when I realized I had no idea what title insurance is, how to read a settlement statement, any of that stuff. Even though my father had been a realtor for mayors, but so did that and then ultimately decided I wanted to do something with a little bit more in, in my, at that time, at least a little more meaning and purpose. And so I ended up joining the military, went to Iraq for a year. I served, I was in the, the Army Reserves for years. Did about four years of active d time in the, through the reserves and, and then worked for the Department of defense about 14 years and then I actually worked part time and as I was, I was kind of slowly building my real estate empire and, and then this year, this past March, I ended up resigning from, from my job. And so now I'm full time entrepreneur and business owner. I have a small team. I'm really into leadership and, and kind small business and entrepreneurship and obviously mortgage notes since 2018 is when I got it really kind of dove into that head first. So yeah, feel free to latch onto any of that and we can branch out where, wherever you'd like.

Yeah, that's fantastic. And I want to dive deep into the notes side. I got some, I've got some questions around that because some of the audience may have heard me talk about this. I, I, I invested in notes going back to like 2013, 2014, which I think you and I, I've spoken about.

Yeah, we talked about past.

I'd love to hear kind of how, how the world has changed with respect to that, but I think you said something interesting. You know, I've been through it. I know a lot of people on the podcast have been through it. We have a lot of competitive people, a lot of people that have had success in other areas in life. It's, it's really interesting when you take somebody that's an elite athlete like you were, and you played lacrosse, which my two boys are very fond of. What position did you play, by the way?

Fantastic sport. I played attack. My whole, my family was a big lacrosse family and so five of the seven siblings played in college. So yeah, I can talk all day about lacrosse. You have to. If you have me back on, we'll do a lacrosse episode.

There we go. Yeah, I might have to change. I'm going to start a new podcast to talk about like sports and business, but I'll Tell you what, I used to love. Love to hire athletes, and perhaps. Perhaps, let's see, I. I had two. Two hires that really stick out in my mind. One was a former Ranger, actually, Green Beret, and one was a former professional lacrosse player. So. Okay, yeah, they got a little overlap there. But I think the big thing that you mentioned, Jamie, is that, you know, you spent all your time in this thing that you loved and were devoted to, which was lacrosse, and there was that void. Yeah, absolutely. I think the. There's a lot of similarities when you. You leave a job and you did both of these things. So can you talk a little bit about, you know, what. What did you learn from sports? How did you fill that void? You know, what, What. What helped in your. In your kind of your first career in the military?

Yeah, absolutely. So, no, that's. I'm glad you. You asked that because for one thing, I really haven't. I've got my own podcast, as you mentioned, and. And I. And I've been on other. Other shows, and I've never really kind of gone down this. This path too far. But, yeah, it's. It really was a big life event. We were. We were number one in division three in lacrosse my senior year, and then we. We ended up losing and kind of kind of choked. And we. The two teams that were in the national championship, they each had one loss, and that was to us, Gettysburg. So we. We had both of those teams. I realized nobody cares right now. That was 1999. But all of my energy and all of my focus, not all of it, of course. I, you know, had other things going on, but good bit of it was focused on that. And so all of a sudden, boom, it's gone. And, yeah, I remember graduating and just being kind of a little bit, like you said, a void. There was a big void. And if you haven't been an athlete or been a part of kind of a team like you might find in the military, like you mentioned, well, you may not fully appreciate that, but I just had no, you know, direction or. Or sense of purpose at that point, and so felt kind of lost, frankly. And, you know, from a human standpoint, that was a. That was definitely a struggle, for sure. You know, certainly people deal with. With bigger, more difficult things. But, yeah, I mean, as far as what I'd learned from. From sports and things like that, teamwork, I mean, is just, you know, and I. I talk to my kids about this all the time, whether they want to hear it or not, but it doesn't have to be Sports, it's got to be. But you got to be part of something that's bigger than yourself. It's not all about you. And we touched on this slightly before we hit record, but very slightly in today's world, it's, you know, we're so obsessed with ourselves and immediate gratification. And I think through sports, it taught me to put the mission first and put the team first. Certainly I wanted to succeed, you know, for myself, but, you know, just being a part of something bigger than yourself and putting that, the mission and the team first is really the biggest takeaway. And I would say the same thing with the military. It's just obviously being. Being a part of a much bigger organization, much bigger than just me. I think that really allows for a healthy perspective and just allow success later on. So those are a few of the takeaways, for sure.

Oh, I think it's huge. And I think I went through. Like I said, I went through the same thing. And when you have a bigger purpose, there's something that pushes you forward. And I do think you. In today's world, people are. People are struggling to find meaning, to find connection. And we have these apps, then we connect to people through. And Covid pulled us apart. And a lot of people are trying to find that. And it's something where, whether it's sports, when you're younger, you find that bigger meaning, that bigger draw. But it is challenging when you remove that and it's like, how can you translate into something else? Is. Is very important for sure.

And, you know, and I, I think I've come to realize personally that, you know, it may not always there. I'm never going to get over it. You know, it's. It's okay as far as the. How it ended and things like that. I'm. I'm a competitive person, but. And, And I may not ever fill that exact void the way that it was before, but you, you know, still, through family and other. My business team and through the military, previously, there. There are other ways to serve people and be a part of something bigger than yourself.

Yeah, yeah. And I think that's important. That's. I mean, I, I think when it really hit me, Jamie, is, you know, I did have a void. I was going through a lot. I've talked about the loss of my best friend before, which actually you have. Jamie has a phenomenal podcast and just share that. Actually share the name of that with the audience, just so you can check it out.

It's called From Adversity to Abundance. And I Actually just checked right before this, and you were episode 12. So we're up to 33, probably maybe into the close to the 40s by the time this comes out, but. So I'm super excited about the podcast. From Adversity to Abundance.

Yeah, I love the name. And when you told me you're like, hey, would you consider coming on? I was like, hell, yeah. Like, this sounds awesome. Because it. It kind of. To me, it reminded me of something that Malcolm Gladwell calls desirable difficulties. And, you know, when you go through challenges in life, if. If you have the right framework, and I think that may be the challenge. The. The criticism that some people might levy on this is if you don't have a support structure and you're faced with a challenge, you fall apart. And that's why I think sports are so important, because even if you have a child that might not have the right family structure at home, if you have that connection, that bigger meaning, it teaches you so much. For me, when I was leaving my W2 role, I struggled. And I was like, wow. Like, for me, I was like, all right, is the money there? Is the cash flow there? Is the money in the bank. Can I do this? And the answer was, yes, yes, yes. And I was like, well, I better wait a little longer. And then the answer was, yes, yes, yes. And then my accountant's like, hey, you should do this. You can do it. And I was like, I'm not sure. And what I realized was I really became a little introspective. And I thought about it. I didn't know what my purpose was going to be when I woke up, when I quit my job, and I thought, wait a minute, you know, is somebody who. And I think this is true in our society these days especially. And maybe people might say, yeah, you shouldn't say that, Chris. But as men, we define ourselves by our careers and how successful we are in our positions. And, you know, oh, I'm a provider for my family at least. You know, I felt pride in that. And I was like, well, shooting. If I'm not, you know, going to work in the morning, and somebody's like, well, what are you doing? I'm like, well, I don't really do anything. I just, you know, sit at home, which isn't really what I. I would. I'd be meant to do. But more importantly for you, that.

Doing that.

Yeah. Yeah. I was like, more importantly, what if I'm not relevant? And that thought popped into my head, kind of like something I wasn't. I was trying not to Admit. And then it hit me. I had to find a way to become relevant, and I had to go and search for what my true purpose was.

Sure. Yeah. Another. Not to make this podcast about my podcast, but another episode the listeners may enjoy is one with Josh Kalinowski talks about.

Amazing.

Yeah, a professional baseball career. And that ended abruptly. And then now what? And so his entire identity was wrapped up in that. But. But yeah, it's. I've changed my views on retirement. I. I don't plan to retire.

O.

And I have heard the. I have heard the. The. The saying should. Look, it's about retiring to something as opposed to retiring from something. So, yeah, I'm all about not saying I'm going to grind 80 hours a week, you know, into my 80s. But I think you. I think work is good. You know, it's. It. It provides purpose and. And identity and direction.

It certainly does. And I think, look, if you're listening and you're working towards financial independence, if you really want to get there faster, figure out what your purpose is, figure out what your big goal is and how you're going to have a bigger impact. Because what happens, at least in retrospect, is that you develop that hunger and that desire to make that impact faster, and you have a bigger future in front of you. And that's fun. That's fun when you're going towards something bigger. So that being said, I appreciate you sharing that, Jamie, because it really is. We kind of went through that. It really kind of hit me, you know, how meaningful that is and how we kind of shared a very similar pathway there. Let's talk about the fun part, like getting there. Right. Getting towards financial independence. I think some in the audience may have heard about investing in notes before, but let's start kind of, kind of very fundamentally, Jamie. So basically, people are like, what's a note? How do you invest in a note or a mortgage? Like, how does that work?

Sure. So, you know, essentially you become the bank, and. And what that is, is you. You buy the debt. So if I'm investing in mortgage notes, I'm buying the mortgage note itself. And what that essentially means is I'm not buying the property. The property is the collateral to the note, and I am buying the debt. So I'm sure most of your listeners can appreciate having a mortgage. They've potentially written a check to a mortgage company or paid online however they pay. Right. Many times that loan gets transferred, that mortgage gets transferred to another company. Nothing changes with the terms of the loan, with the monthly payment or Anything like that. It's just who you're making payments to. Well, that loan was purchased by a new investor or lender, however you want to phrase it. So that's much like what we. And so in the most basic terms a note is a promise to pay. You have car notes, you have unsecured notes, you have notes all over the place. A note is just a promise to pay. The world that we run in, in our, our space is the first lien mortgage note space. And so the mortgage is the document that links that note to the property which is the collateral. So there are all kinds of rabbit holes we could go down. But essentially we buy that debt, we become the bank and now the borrower owes us that, that those payments. And so we can get into performing notes versus non performing, you know, different positions of notes, different, different strategies within note investing. But that's the basic concept right there.

Yeah, so I think that's very important and I think that the thing that can be confusing is you say well hang on Jamie, how am I going to make money just buying a mortgage and now becoming the servicer? Where's the profit in it? How do you make it a profitable endeavor?

Yeah, great question. And there are many different strategies that people employ. We buy performing and non performing first lien mortgage notes.

Okay so performing means that the, the borrower is paying, paying on time means they're full default or so there, there's.

A lot of gray with defining this to be honest. The tip, the typical definition would be that the borrower is at least 90 days delinquent. So they're at least three months behind in making their mortgage payments. You know, most people make their mortgage payments on time in general, you know, 95% ish. So most people that are not super familiar with node investing might not understand, you know, that of delinquent or defaulted debt. And so a non performing note is where the borrower is behind. It could be 90 days, it could be nine years. And so the, the most, the, the most, most basic way I like to explain how to approach making a profit or making a business out of note investing is purchasing performing or non performing notes. And the performing notes are much like a single family buy and hold rental property. They're not, it's not an strategy. There are differences of course, such as tax advantages on the rental property side. But you're buying a performing note for cash flow, that's what buying it for. So a lot of times one of the major benefits of, of note investing is the discount that we're able to purchase the note for upfront. So just a super basic example. Let's say that the this the interest rate on the note is 8%. We typically run in this world kind of 7 to 10%. They're higher interest rates. Well nowadays that's the norm I guess.

But yeah, back to normal six months.

Ago that was high. Right. So I'll buy that note at a discount which actually gets the yield at maybe say 12%. So if the value of the note is $100,000 principal balance, we might be able to buy that note for $90,000. Meaning the actual return to us over time becomes 10, 12, 14%. A performing note just to kind of keep it, keep it simple. The performing note strategy, you're buying for cash flow. So I'm buying this to get hopefully 12 to 14% yield. Every month a check comes in from the borrower, payment comes in and I'm buying that for cash flow. Keep the lights, run your business. You know, just like a, just like a buy and hold rental property. You want it to cash flow. And I know you're you know, in multifamily and many other. Cash flow. Cash flow. Yeah, cash flow is huge. Right. So that's the performing note side. The non performing note side is a little bit more like a fix and flip on a property. And so yeah that that will give you because you're able to purchase a non performing note at a greater discount. There's more distress with that. You know, your audience might say why would I buy a note where the borrower is not making payments to me?

Yeah.

So that's initially maybe counterintuitive. Well here's an opportunity. Right. And this is, you know, this is all about investing and, and entrepreneurship as far as this is how you, you make in. In the world is, is solving problems. So here's a problem note where the borrower is not making payments, they're behind. Right. There are several different exit strategies with a non performing note. The reason I use the fix and flip analogy is on a fix and flip property, you're buying a property that is distressed. It's got issues. It, you need to be able to add value to that property. So what we do is we go in and add value to this note and and again many different ways you can do that but you're. There's typically a well defined exit point on a non performing note. So you're buying it of greater discount, you're adding value and you're exiting hopefully at as a performing note. And so that's something we can talk about. I know I threw out a ton of different.

No, that's great. Very sequential and I think that you did. That was a terrific analogy. Buy and hold versus fix and flip. Because that's you know, that's essentially what you're doing I think. You know, I'm curious, what, what type of discounts do you see on the performing side versus the non performing side?

Yeah, great question. And it has changed since you dabble. 2013, 2014.

Oh dude, we were buying stuff for like yeah, like 10, 15 cents on the dollar.

Yeah, it's. You're talking right now. Non performing notes might be 50 to 70 cents on the dollar. And that dollar may be the payoff, could be the property value. But you're essentially targeting you know, 50 to 60 cents on the dollar for the non performing notes. Performing notes is more. I mean people are just been so much money out there chasing yield 90, I'll say 85 to 95% of UPB of unpaid balance. So still a discount but not nearly the discount on of that. You can get it on a non performing note.

There was, it reminds me of the scene in the Big Short. You know there was a lot of crap shall we say in those, in those tickets and those in those stacks that we were buying. So yeah, the tapes. Tapes we were buying.

Right, right, right.

But yeah there was, there was a ton that we waited through. So. Okay, how do you find them?

That's the million dollar question. It is an extremely. It's not. You don't go online. You can go online. There are exchanges like Paper Stack and some other exchanges. That one was for Brett Berkey. But no, you can go online and, and buy notes on these exchanges and I buy and sell on Paper Stack and some others. But it's a very inefficient marketplace. The short answer is networking. You know that, that really is how to find other find notes. One one way that I over underestimated in the beginning of my note note journey was other note investors. So you know, there might be a small fund closing. For example we have a, we have two note funds. One is a non performing note fund and one is be ending in about a year and a half. Well if I haven't fully exited all of those assets, I may need to sell off some of those notes because we're liquidating the fund. So I may be someone to reach out to, you know in a year and a half if you're looking for notes. So I, I only bring that up because I didn't quite Understand that in the beginning that other note investors, note funds are a great source of, of notes.

Yeah, I think it's a great point. And again, people say like, well, Chris, why would anybody sell this multifamily asset that you guys are buying if it's such a great deal? It's like, well, we all have different strategies, right. And we have different timelines and yeah, different.

It might be a different business part of your business cycle or I've bought some notes from, you know, older note investors who were just getting out. They were just tired of actively managing notes and there, there was nothing wrong with the notes. Not. You can't get ripped off because you certainly can. And you, you know, you've got to be educated and, and don't just start bidding on notes and buying notes without knowing what you're doing. But doesn't mean that the, the asset itself is, is bad.

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Yeah.

No, and it's, I think and this is terrific because I was, I wanted to talk about this part, but you really, you're kind of cutting to the core which is, you know, when it comes to all these assets, specifically when it comes to value add, real estate or like you're doing value add note investing, essentially it comes down to the operator. So Jamie, what makes Labrador lending different when it comes to the operations side?

Yeah. We are a small shop. I have a small team. I've got a couple of people in the US who work for me and a couple of people outside of the US who work for me. And it's, I say that to say it's not a 50 person team. 100 person office where you're going to become a number. We really pay attention to each investor, each, each client, each person we with and each note that we buy. We're really very hands on with it. So that's one way that we separ ourselves. And you know, this is, this is what I do. I mean this is, you know, 85% of my professional focus is mortgage note investing. So it's not one of, of 25 businesses I have. We did start a loan servicing company that's a whole separate. That's another, that's after the lacrosse episode. We'll do one on the loan servicing. But it is nice to be able to have that kind of control of a, of a loan servicer as well. That is one nice benefit with working with us. We can buy notes that fit well with Bifi loan servicing, our loan servicer and you know, have that kind of element of control there as well. So if I could just. One other quick thing on our performing note fund called the Integrity Income fund that is currently open for capital. One of the things that separates us with that, that particular fund from other note funds that are out there is that we have a 12 month lockup. So you know, is crazy upside with our fund. No, there's not. It's a, it's a monthly payment. It's. It's pretty boring and predictable which nowadays is not necessarily the worst thing.

That's all good.

Exactly. So. And we don't have a five year lockup. So when you're comparing asset classes, and again I don't. Every class, every strategy has pros and cons. I love multifamily. I love, you know, other, other asset classes. But if you don't have seven years to lock up your money, you might look at our note fund which is only a 1212 month period of that you have your, that you're committed to.

Yeah, no, I think, I think that's a great, that's a great aspect of what you're talking about, you know and we, we ultimately ended up after learning the business, going through it partnering, we ended up as investors. It was great because we were getting cash flow every month and we got a really, really solid return over the period of the fund which was, it was a good fit for what we were looking for at the time for that portion of our portfolio. Jamie, you also mentioned you love multifamily. I know you have a pretty sizable portfolio as well outside of notes. Share with the audience a little bit of what else you like to invest in. Not only in the past. But what you're looking at over several, excuse me, several years here as well.

Great question. I have a longer bit of experience in doing single family rentals myself with kind of the hands on Burr method and my wife and I were kind of slowly selling our own portfolio since 2010 and that's, that's been an important part of our portfolio from a kind of a personal standpoint. So my, my expertise is definitely more in the, in the single family space whether that's through rentals or oats. But I have invested in multi family. I've invested in senior living. I've invested in several different other, you know, income asset classes and strategies which I know you can talk all day about. One, one thing I've come to realize which you already said but it's all about the operator and I don't, I'm not going to become an expert in car washes most likely. Right. And so but I could still find a way to invest in a, in a car wash operation and so I don't have the time to be, to devote myself to everything. And so there are a lot of great asset classes and strategies out there still invest in without being the operator. So yeah, I didn't really answer looking forward per se but I think, I think some recession resistant, you know, mobile home parks, even self storage I think would be still, still a great option. I think notes are option actually going forward and you know, so, so just to reiterate with, with Node investing, I'm not buying the collateral, I'm not buying the property. We may end up with the property in some scenarios and we do.

Yeah. So which is good that you've been a house flipper because that's, that's. Yeah, that would be my first question if, if anybody's talking to somebody that's doing have you ever and have you ever done the other side of the business, kind of the dirty side? Yes or no.

Right. Yes, Exactly. And so having that experience with I've done, you know, from a distance I've purchased. If your listeners are interested in learning more about through a case study that we did or an actual case that we had that they can, that they can study. It's our Jacksonville non performing Notes study. And so performing note that turned into a rental property and we did a rehab from a distance. So there were many moving parts with that. I don't want it. My goal with notes is not to back the property. We're, we're working with borrowers to keep them in their homes. I'd Much prefer to do a loan modification or some type of workout with the borrower. That always possible, though. And so I am not afraid to take back the property and I have done that on numerous occasions. And so, you know, it's like parenting. Like you've got a, a lot of these borrowers, frankly, they need to know that you're serious and that you will follow through on your word and you will foreclose if you have to. I'd like to work something out, but if, you know, but yeah, the point to get to there is that I don't, I don't always know how every deal going to turn out, but I'm okay. I, I, you know, I'm okay no matter what if it takes a turn this way or that way. Yeah, we've certainly lost money on deals, Chris. I'm not saying haven't, but I do have that experience and you know, it doesn't always go the way I think it's going to, but if we buy right and we do our due diligence, we should be protected.

Yeah. That's awesome. And that's one of the benefits of investing in a fund, Jamie. And if listeners want to learn, if they want to get that, that case study that you mentioned, that actual case that you guys went through, if they want to learn more about, you know, the different funds that you have and about your operation, what's the best way to get in touch?

Yeah, I appreciate that. Labrador Lending.com really has everything right here.

In the notes section.

Yep, yep. So we've got what I realized that, you know, ultimately, I'm sure you've come to the same realization, Chris, is most investors being either an active or passive investor. And so we have, we kind of divided things up that way. So I do have a mentorship program. I don't really push it much, but for, if you really want to be an active node investor, we can work through that. But for passive node investors, we've got one fund that's open right now and that's the Integrity Come fund. We also have a free ebook which has 74 pages. It's chock full of content. And that, that case study that we mentioned is in that ebook. So that's where I would point our listeners to labradorlending.com.

Beautiful. Well, Jamie, thanks for sharing that. If you want to check out more on Jamie's business, on his opportunities, it's labrador lending.com which is here in the show Notes. And also one more time, Jamie, your podcast for the listeners.

Yeah, it's from Adversity to Abundance. I just launched it in March April 2022. So super excited. We've had some really good guests. So from Adversity to Abundance, please check it out.

Awesome. Jamie, thanks for being on the show today.

I appreciate it. Chris, Thanks a lot.

Hey Chris, here again. I hope you found this episode valuable. Now I have one more thing to gift you. We have a page for my coaching clients where you can get a free copy of my book as well as much more from previous guests on the show. Just check out nextlevelincome.com coaching to get a free copy of my book, audiobook and much more. I'll send you a copy of my book and cover all the shipping costs as a thank you for listening to the podcast. Also, please like share and take just 90 seconds to give us a rating on Apple Podcasts.