A Great First Step Into Real Estate In Note Investing With Scott Carson From Not Your Average Investor Show With Gregg Cohen & Pablo Gonzalez

Welcome to the number one place you should send anyone trying to get out of the rat race and build a little wealth. When you're building your portfolio, starting from the ground floor, you need something different that you never thought you'd have before. A rabbit in the hat called the not yout Average Investor show to inspire you, entertain you, and teach you how to grow your dough. Surrounded by a tribe with a vibe you've been seeking for what people in your corner gonna make you really, really grow. But just how fast you'll grow, how big you'll go, you couldn't possibly know. Not at this point in time. But that's why we're here. Welcome to the not yout Average Investor show and Community where we figured that most of us trying to get out of the rat race need a little bit of education and a lot of friends to help us understand complicated asset classes. And that's what we provide here with a focus on helping you get into one of the greatest long term risk adjusted asset classes in the history of investments, rental income properties. But don't hear from me. Join us right now to our live show already in progress. Enjoy. We are officially live on Facebook for the Tuesday edition of the not your Average Investor show. I'm your host, Pablo Gonzalez, with me as always, the man that I affectionately like to call GC because he's got genius concepts, he knows how to generate cash flows. He's a great co host and cause his parents named him Greg Cohen. Say hello, Greg.

Hello everybody. Great to be with you.

And today, the star of the show, he is the host of Note Night in America, former football player, the host of the Note Closers podcast. He is an expert in note investing. He teaches folks how to do it. He has a turnkey service to help you get into doing it. He has been on over a hundred podcasts a year about investing in notes. The best expert we could find, somebody that I'm extremely jealous of, his acumen in marketing and reaching out to people and getting on podcasts. We're not going to talk about that today, but we got Scott Carson. Welcome to the show, Scott.

Honored to be here, guys. As I said, what's up Facebook, what's up podcast in the world. I'm here to deliver. You guys are doing a great job, by the way. Awesome stuff. Love your stuff.

Appreciate it, man. Appreciate it. And I appreciate you bringing the sound effects to the show. This is another, another level up move that I'm jealous about right now.

$10 on Amazon makes you sound like a million bucks, baby.

Amazing. I like this.

Oh, my God. I'm all in on this. All right, Scott. Well, the only trick I got is the roll call. You ready for the roll call?

Let's bring it.

Let's go. Drew Barnhill. Good afternoon, everybody. From Georgia, we got Gina managing the community. We call her G. Star in the house. Welcome, Gina. We got Carl Thompson saying, good morning, everybody. Bill Shields. Hola, Gente hermosa. Hola, Bill Shields. Good to have you. Lee Bishop, who's the MVP of the not Traffic investor show community. He says, great afternoon, everybody. He took a money broker certification last week and passed the test. Now he's a private money lender.

All right, now we're talking.

There you go, Lee. We got John Henning. Good afternoon, all. We got Danny Davies. Happy Tuesday. Happy Tuesday to you, Denny. We got Nadeem Shah. Good morning. Good afternoon from the West Coast. Lee says we must be cold. Lee, we're wearing blazers because we just had a photo shoot, just so you know. We got Anthony Ditta tuning in from South Florida. We got our regular Rosalind Riley tuning in from. Good morning, everyone.

Returning. Rosalind is back.

Returning Rosalind.

Where were you last show, by the way?

That's right. We miss you. Scott's checking in on the chat because he's a pro. Who else we got? We got Dean Curry. Good afternoon. From Columbus, Ohio. We got Karen, the matriarch of the first family of the not tr. Average investor show community checking in. She says the Malene fam is here. We love the Malene fan on the show. Who else we got? We are scrolling up. Noah Rundari is back. Noah, good to know you're here. He's here. Who else we got over here in the chat? Anybody checking in? Rajbantu. Hello, all.

Raj.

Welcome back to the show, my friend, Carlos Andres Lopez. Kyle just got back from Jacksonville. He's back in his homeland of Lima, Peru. Welcome back, Kyle. Good to have you. Oh, Karen is the daughter. Karen.

Ken and Carolyn Kennedy.

Karen.

We're getting the family tree down. Welcome, Karen.

You're building generational wealth with generational knowledge there for you. That's awesome.

Guys, this guy, I want Scott on every week, I swear. Alex Romansi. He's here from Brooklyn, New York. Welcome, Alex. Good to have you on board.

Alex is the wife. Phil is her husband. So happy to have them here.

Yeah.

All right. Good to have you. All right, we got the. We got the. We got the roll call checked in. As we like to tell folks, if you want to find out about owning rental income properties in your portfolio. You're in the right place. If you want to find out about best in class property management services for rental property investors, you're in the right place. If you want to get an edge on the Jacksonville market, you're in the right place. Today we're talking about another asset class where we're going to compare later on to rental properties. But if you want some personalized Advice, go to chatwithjwb.com Pick a Time, hop on a call with one of our experts. It's going to be a really good investment of your time. But today we're here to talk about node investing. Scott Carson, you're an expert in this. What is can you explain to us the 30,000 square foot view? What is node investing and why do you love it so much? Why are you Mr. Note Closer?

Well, I'm Mr. The Note Guy more than anything else. But I love notes because it's a great way to do real estate in a variety of different markets without having to actually be boots on the ground. As a previous fix and flipper and a lender and a landlord here in Austin, Texas, back over a decade ago, I got like many people got tired of toilets, tents and trash outs. And then we also got real tired of trying to fix and flip and deal with with contractors and things like that. And when everything hit The Fan In 2008, I left the mortgage company that I started with a buddy of mine and started instead of reaching out and mail out postcards and door knocking and getting shot at every once in a while, you know, got to watch out for the shots. I started just calling banks and calling the same lenders that I'd originated with for four or five years and started getting these lists of notes sent to me, list of these non performing mortgages that I could pick up at a big fraction of value, you know, 50, 60 cents on the dollar, discount, sometimes pennies on the dollar. I wish it was like that again. But it's just a great way to find a lot of real estate where we buy the debt, become the bank and then we make our bank by working with the borrowers to either keep them in their house, by getting them back on track, by reperforming. If they don't want to stay, they can't. If they don't pay, they can't stay. So we either will sometimes give them cash for keys to walk away or if they won't work with us, then we'll foreclose and then like any lender, take the property back and then sell it off or keep it. So I love the fact three big things, we see a lot of deals, we get a lot of big discounts on it, and we make a lot of profits on the notes business. So some of the things that I love about note investing.

All right, well, I'm really happy to have you here because JWB has done almost every single part of real estate in our journey here, but we've never actually closed a note package. And you know, we've toyed with it, we came close a few times, but it just never worked out. So it's something that I'm really curious about how to actually see one of these deals go through. And I'm really curious and I know our entire audience is to see what kind of returns here you can get. How does that relate to maybe some of the other options within real estate? Where are the pros and cons versus, you know, the more, I don't know, more well known ways to invest in real estate? So super happy to have you, man.

Well, you gotta. I'm glad to be here. But you gotta realize you're already in the note business. If you've got a mortgage or car payment, credit card, student loan debt, which a lot of people do, you're in the note business, but you're just on the wrong side of the payment stream, you know what I mean? But you being a hard money lender, you're in the note business because you're creating notes. And it's just a little bit different mindset when it comes to tweaking some things. Because if you're gonna buy a note, you're used to being probably in the first lien position and really controlling that aspect. Well, I only buy first liens and so how we securitize is a little bit different. But we are buying first liens at discounts. We've bought from hard money lenders, their paper and taken it back and worked it out to get either a re performing or we just modify it with a bar to make some things happen. So cash flow wise, it's a great business. There's also the aspect of buying non performing notes, the big discount or buying the performing notes for just the cash flow. No, I think there's a lot of.

Terms here that are. Okay, yeah, you want to take this one?

Yeah, yeah. Listen, I play the noble fool on the show because I am fool, right? Like I don't know so much about real estate as you esteemed gentlemen and I don't know if anybody else. That's new, right? That for by the way, we got Steve Lacks backs in the house. Welcome back, Steve Lacks. We got Scott Belo, he's back as well. And we got Jen Filson, the fairy godmother of the not Traffic investors community checking in as well. But for those of you, any of if you're new, I would love for you to check in in the chat, comment on the Facebook feed, let us know that you're new so that we know you're here. Me, I'm new to note investing. I honestly don't know what it means outside of that, like that brief conversation. So when we're talking about notes, I'm hearing you essentially say you are taking responsibility for somebody else's mortgage and benefiting from the cash flow of that mortgage. Can you explain just a very like 101 asking for a friend named Pablo what note investing is?

So we basically step in and anybody for a movie fan, and you've probably watched the Big Short a few years back, right? So we're kind of like that where we get these lists in from banks and hedge funds of all these mortgages where people aren't paying and they may not be paying for six months or six years in some cases. And so we evaluate the property, the borrower, and then also the collateral files. But when we're buying the note, we're literally becoming the bank. So let's say, Pablo, you haven't paid your mortgage for six months. You owe $150,000 on a house that's 125 because you've got back payments and stuff that you haven't paid on it. Well, since you haven't paid in six months, your bank or lender, or you may reach out to your bank or lender or they may contact us, say, hey, we're interested in moving this loan. We need to get rid of it because it's not, it's a non performing asset. We're not getting any cash flow off it. It's tied up. 100 grand on our account we can't lend on. So we'll probably pay 50 cents on the dollar for that note. And then our team reaches out to you and say, okay, hey Pablo, thanks for not paying your mortgage, but now you got to pay us, right? Let's. What happened? Did you fall out of work? Did Greg kick you to the curb? Do you know to go through a big D? I don't mean Dallas, you know, that kind of stuff. Everybody goes through financial hiccups. You get laid off. What can we do to get you back on track? And we'll do a variety of things of either a, okay, let's modify the loan payments or let's just take the back payments and put it towards the face amount of the loan and extend the mortgage by two years or hey, you can't pay, you're out of work. You know, let's give you some cash to walk away if you can't get back on track and go from there. Oh, you want to sell the property? Okay, let's list it and do a short sale real fast for you. So we literally are stepping into the bank shoes. We have the same rights as the bank does when we buy that debt. It's just that if you paying bank of America or Citibank, you're now paying Inverse Asset Fund or Inverse Investments, one of our different entities out there. And so we literally do a lot of good by helping a lot of Americans stay in their houses by modifying their loans or working with them to try to create a win win scenario. But when it comes to making the money, that's what we do. If you, let's go back to your mortgage there. If you owe 120 plus thousand, you know, if we bought that at 60 grand, 50 cents on the dollar, and your mortgage payment for a normal $120,000 mortgage, let's just say is 800. 800 times 12 is 9,600 a year, 9,600 divided by our $60,000 investments, a pretty good return on investment right there. Now if we get you to say, hey, start making your existing payment, but can you get caught up? Let's have you pay an extra hundred or two hundred dollars. That ROI goes up pretty good. Well, our goal is to hold it for cash flow where we don't now don't have to deal with toilets, tenants and trash outs. You're still living your house, taking care of the property. You feel good because now you're not thinking about losing your house. You're actually had somebody gave you a fresh start and we don't have to pay the repairs. You're still, you know, starting to pay your taxes again. You're keeping insurance on the property. You pay on time for 12 months. In the industry, if a person's not paying, that's called non performing. We know there's been plenty of people out there haven't paid their mortgage in the last two years. But when you start paying on time or you've been paying on time, that's called a performing note. And if you go from non performing to making 12 months of on time payments it's considered re performing. And the value of that note, the value of that mortgage goes up. So now where we bought it at 50 cents on the dollar, we can now turn around and sell that note back to the market, back to Wall street, back to IRA investors at say, 85, 90 cents on the dollar because it's a good return to them in the single digits. And now we made a year cash flow plus a little bit extra each month. We bought it at 60, we're selling it at 90 cents on the dollar. 90 times 120 is 88, 102. So we just pocket another 30 to $40,000 in 12 to 15 months afterwards without having to repair the property or deal with contractors. Now, let's say you didn't pay. You're like, I don't know, I can't pay, Pablo. No pay. Okay, then we go the legal route. Like we try to keep you in the house. Can't do that. Try to get you out of the house. Like incentivizing with cash or, you know, letting somebody else take over the payments. If you got somebody, if you want to talk to Greg, Greg, can you come make my payments, we'll let him assume the loan, but if that won't work, then we go the legal route and start the foreclosure process. And we will hire our attorneys to foreclose. We've got a servicing company that's handling the borrower outreach on a monthly basis with our borrower. So I'm not on the phone talking to people. All I look at is basically spreadsheets and say, okay, let's bid this, let's bid that, and let's go from there. Does that make a little bit more sense for you guys?

That right there is what I call a golden nugget that we're going to clip out and post on the JWB YouTube channel. If you're on YouTube, check it out. And while you're at it, you may have noticed that this is being done live in front of an audience. If you want to be part of the show, go to nyais.com that's not your average investor show n y a I s.com register and join us on a Tuesday or Thursday at 1230 Eastern. Trust me, it's as fun as it sounds. Now let's get it back to me and GC kicking it with our new not your average investor homies. Way more sense, right? So now, now that you explain it that way, I envision it does sound a lot like real estate. Right? Like it sounds like you have the opportunity to buy and hold or has sounds like you have the opportunity to flip, right? Kind of. Kind of. Kind of is is what I just heard. And it sounds to me. So I'm, I'm thinking about it. If I'm, if I'm looking to get into note investing, I need to be thinking about where I'm going to find a note that somebody wants to sell me, be able to evaluate it based on can I get this thing to cash flow in a way that it wasn't cash flowing before, or can I do something else with that asset, put some effort into getting it to cash flow, be it cut a deal with the person that is supposed to pay down that note or find somebody else to live in that home that will create that cash flow scenario for me. And then I'm thinking of what my exit plan is, who I'm going to, who am I going to sell this note to, depending on how long I'm going to hold it. Is that kind of the considerations Pretty damn close.

That's. You're, you're no dummy. Do you're Pablo. No. You're in the know there, buddy. That's really good. So, yeah, the beautiful thing is that we know what's, when we're looking at assets, we get the spreadsheet and we get a lot of, I say behind the curtain kind of due diligence. We're able to see what the borrower tried to qualify, what they qualified. So we're looking at their existing loan package, you know, their financials from when they, the loan was originated. We can see if they've been responsive to the servicing company, the previous lender calling them or making payments or trying to get back on track, or if they told the previous bar to go F off, go pound sand. We can see if they're being aggressive. Of course we know what the value of the property is because we're running comps, we're looking at neighborhood sales, stuff like that. We don't get interior view, but if somebody's living in the property, we kind of know they're taking care of it. Now if it's vacant, oftentimes we can peek in and go from there, but that also determines our bid on that. And so, and then each state's a little bit different in the foreclosure process. So let you guys live in the. I love where you guys live. God's waiting room, as I call Florida. Okay. It's a longer foreclosure process of at least nine months to foreclose. In Florida versus like Texas where everything is faster, fast highways, fast foreclosures, fast execution, executions. You know what I mean? Right. So it's, it's notes here in Texas cost a little bit more because we don't have that nine month time frame to foreclose. We can foreclose in 30 days. So it'd be a little bit more expensive here in Texas, where, Florida, since you've got that nine months, I'm get a little bit bigger discount because if I'm buying the note and I've got to foreclose, I've got this holding period before I can ultimately cash out of the deal.

That's really good stuff. I'm learning a lot here. You know, when, when I've been presented with opportunities to buy non performing notes, I always thought that the exit strategy was it's non performing. If I did this deal, I would be going to that homeowner and in essence I'd be starting the legal process immediately. And then I would be evicting that. Excuse me, I'd be foreclosing on that person, in essence kicking them out. And then I would have the asset undervalued and it would work for, excuse me, it would work for our real estate projects. And a part of that never really felt good to me and that kept me away from the business. So this is really enlightening to know that there is a path, of course, to being able to make a profit as an investor and help that person to keep them in the home. I guess what I'm wondering is from a business planning perspective for you and for your students out there, are they rooting for one angle or the other? Clearly we want to help people, but from a numbers perspective, do they make more money with one or the other on a return on investment?

So I'm really glad you shared that. Great. Because that's actually how I felt when I got in the note business. I'd been flipping homes, buying real estate and I had the mentality, oh, this deadbeat borrower. No, I'm not going to modify, no, I'm not going to let him reinstate. We're just going to foreclose. And I did that for the first two years of note business and I made a lot of money, but I was outlaying a lot of cash. You know, if you're going to foreclose now, you're paying attorney fees, then if you got to take the property back, you got to fix it up then remarket and stuff like that. Then when looking back, honestly, if you're in the note business, you're really not. Your foreclosures strategy isn't the number one strategy. The number one strategy actually is keeping people in their houses, getting them back on track for that cash flow period. So when I went back and evaluated the numbers, looked as if I would have approved a modification with these borrowers, I would have made money immediately in the first 30, 60 days, not had to foreclose, kept the value of that property and neighborhood because it wasn't a foreclosure on the market anymore.

Right.

You know what I mean? And now they've kept the private ownership, the emotional equity is good. Then I can sell that note off at what I would have made as a foreclosure sale or more. Because when you look at time value of money, you know, it's all in the velocity capital. And there's, I mean, there's notes I've had been paying for five years now, that's just been continuous cash flow doing well. Others, we get in and get out in 12 months. It all depends on what we end up buying that note for initially, that investment. And I wish I always knew which way the bars would go. You know, we love it when they want to get reperforming and get back on track. We love that. But we also know there's people out there that don't want to pay. You give people an inch, they take a mile. And I don't run a charity. I donate to charities, all right? And I'm willing to give people an opportunity, a helping hand, but they're not going to help themselves. I'm not going to bend over backwards. And that's, that's one mistake. A lot of people that get into the note business, they think, oh, I'm just going after the property, after the property. Well, you really, you have to go through the process to get the property. It can be very profitable. I mean, we've got a couple of deals right now where the borrower hasn't paid for the last two years. It's going to be a six figure payday. You know, the house is worth about a million bucks. The guy owes 1.2. We paid 450 for the note. You know, that's going to be a really good deal for us, but it's going to be a year long process for doing that. And then others, I got a borrower right now, house is worth 80. They owe like 45. Paid basically 13 grand for the note, you know, and he's going to start making, he's basically one Phone call, he's back on track, starting to pay his 340amonth. And so it's, it's, I don't know, we're all about the same age. You remember those books that choose your own adventure books. Yeah. You know where you'd read a couple pages and you had a decision to make and it went one way. It's kind of like that note investing. Yeah. You've got your main, your number one goal is to get them back on track. If that doesn't work, then you look to try to be as kind as possible to get them out of the property. Deed and loan because a deed and loan late pays will affect somebody's credit for just two years. Whereas if I got to foreclose it's going to affect them for seven years, you know, on their credit. So it's trying to, trying to educate people like listen, open your email, answer your phone, we're trying to help you. If you don't want to be helped, then I can't help you. But a lot of people worried about it. Well, what if they file bankruptcy? Well if they file bankruptcy that's actually good for us because now we have an attorney to talk to if they haven't responded to us. Plus in a bankruptcy filing they have to disclose basically everything. It's literally opening the kimono or in your guys case opening the blue blazer, you know what I mean? And we see what do they owe, what are they, you know, what's the value, what they have in rentals. And it's either if It's a chapter 13, it becomes a reperforming note for us because it's a payment plan. If it's a chapter seven, it's a liquidation and we're going to end up with a property. So you know, like I said, people get in, is trying to find, fix and flip deals. You will end up overpaying a lot of times because you're end up buying the debt. You're taking on that, I guess you could say that Freddy Krueger loan a little bit. But a lot of people, we find about 80, 85% of people are very responsive. They just want a second chance because they've been through some trouble. They don't have the year, two years of back payments that some of these lenders want. They don't even have like six months but they may have two, three, four months of payments. And that's a great way to work with them. We like to structure things. You know, hey, let's start paying $200 extra month, let's get caught back up on or whatever it might be. You know, we try to find a way but if, if they won't play ball then it's okay. You're going to be talking to my attorneys and you're not going to like the outcome of that.

Yeah, as I'm listening to this, this is very similar to how people actively pursue undervalued deals in real estate. You do a lot of, except you have to do a lot of work to find those deals. And I'd love to learn a little bit more about the sources for finding these non performing notes. Maybe we could talk about that in a second. But you got to source the deal. Typically you're finding undervalued real estate. So you're pounding the pavement, you're sending out direct mail, you're doing all this work, then you get the property and then you got to renovate it. It sounds like if I'm speaking in terms of non performing notes, right, you acquire the non performing note, you acquired the undervalued asset and then your renovation is really working with that person to rehab their situation so they can get back on track and paying. So it's really interesting. And I never really understood the re performing market. I think the thing that I could never really connect the dots on when it came to non performing notes is, is access, access to non performing notes in my area that, that, that, that I can make decisions on. And then the access to sell that now re performing note, that, that never made sense to me. Can you shed some light on, on how that can be something that can be replicated for everybody?

Oh yeah. So here's the thing is we like to say rehab the borrower. It's not going to like a 12 step program, but sometimes it is working with borrowers after get back on track. But when it comes to finding deals, this is one thing that I love about the note businesses. If you're pounding the pavement, knocking on doors or sending out letters, you're potentially going to find maybe one, two deals from that borrower distressed owner, right? Well, with us contacting banks and hedge funds that have these loans, they become a lifetime source for us where we may see a note from them once a month or once a quarter or a hundred. I mean I've got some lenders that send me tapes or list Excel spreadsheets. Tapes is a term that we use of notes that I can cherry pick from all across the country. And then one mistake a lot of investors make is that they're comfortable with their one market. Right. You're in Jacksonville. I know this area. You know, I'm a huge fan of the Jaguars winning season, the winning ways. You know what I mean? Not right. And that's a mistake. You got to realize that there's so many opportunities across the country. So we always tell people, look, if you're just looking in your one zip code, this is not for you because you're going to see stuff all across the country. Now, we will see stuff in Jacksonville, but we'll also see stuff all across Florida. We'll see stuff that makes sense in just across, you know, state line and in Georgia or South Carolina or North Carolina or other states out there. Because these days, with a little tool called Google, you can find vendors to help basically hold your hand through the whole deal or do what you need to do. The what we see, who we see struggling, or I hate to say this is we as entrepreneurs, especially real estate, we're all control freaks. Can we agree to that? Control freaks. Anonymous or non anonymous aspect of things.

Oh, yeah.

Got to learn to delegate. And many of The, I mean, 95% of the notes that we have bought over the years, I've never even stood in front of. We all had agents or BP agent or BPO agents pulling values for us, taking photos, you know, looking at online values or pulling numbers initially and then going from there. So it's not. I have to go see it. It's got to be in this one area. No, no, no. The whole United States is our oyster. You know, and like I said, we always try to get people buying in three places. I mean, I bought, I bought hundreds of notes in Florida. I love Jacksonville, but every, I mean, all up and down the coast, Miami, Fort Myers, Orlando, still buying stuff in. It's. You got real estate. Once you get your systems down on how to evaluate and you have your vendors that do most of the heavy lifting, you literally are more like a general manager or a franchise. Let's use the Cowboys because I know Gene is a huge fan of the Dallas Cowboys on there, you know, being from Philadelphia, born and raised. Okay, so like Jerry Jones, he's not the one slinging Miller lights and hamburgers and hot dogs. He's not the one calling the plays, although we know he would want to be. You know what I mean? He's sitting up there just directing people. And that's kind of what we do. We look at these deals. Once we decide we're going to pull the trigger, then we direct our team to go out and verify to Review things, communicate with the borrower. Hey, what's your issue? Then they'll report back to us, hey, this bought, these borrowers wanted to stay. These borrowers didn't respond for 30 days. Do you want to send it to legal and let the attorneys do it or do you want to send out a door knocker to kind of bother them? You know, so it's little reporting. Then we're going from there to really work out game plan situations and come up with stuff creative. But if I actually have to take a property back and rehab it, it's my least favorite activity because now I'm tying money up in repairs when I would rather, if I have to foreclose, I'd rather just sell at the auction at 85, 90 cents of the dollar. Because then I realized that profit then versus having to wait another 90 days or six months depending on what days on market or then having to go rehab it to just get an extra 10 to 15%. It doesn't make sense. When you look at the velocity of capital. That makes sense for you guys?

Yeah, yeah, makes a ton of sense, man.

Absolutely. Yeah.

Like listen, you're bringing up a lot of stuff that now I'm remembering our onboarding call and the things that intrigued me, right. Was these like multiple exit points that you have and this idea that you're really helping people. Right. I thought it tied in really, really well into the show. We got some great questions from the audience here that I'd like to pepper in before we get to indulge a little bit further. Um, and if you're watching on Facebook right Now, join us nyas.com so you can get your your question asked. If you're listening on the podcast, this is as fun as it sounds. Join us live120thursday nyais.com but let's start with Zach Correa's question. Zach, who may be the most interesting man in the world? Scott. You'll find out soon, he says. Aloha, Scott. Are equity linked notes a good investment? And how do we invest in notes? Do we need a brokerage account?

No, you don't need a brokerage account. You can invest in notes with your cash or what a lot of people do is they use their self directed IRAs to purchase notes. You know, so you now every now every IRA account, every trading account says they're self directed. But if you've got like a Schwab or a Chase, it's not really a truly. They'll only let you self direct in what investments they offer. You would need to open an IRA account with like a quest or an equity trust or a rocket dollar. And to be able to invest in real estate or note investing. Now, with equity deals where, let's say back to the numbers, I don't buy notes where there's a ton of equity because the equity, it really isn't mine as the bank. So we go back to Pablo's. Our scenario here. Let's say Pablo has a house worth 120, but he only owes 60. But he's not making his mortgage payment on 60. There's all this equity above and beyond that, if the bank takes it the foreclosure route, they're likely to get paid full at the foreclosure auction. So the selling entities won't sell that at a big discount. So if they he only owes 60, they might want 90, 95 cents to the dollar. Well, that's not worth me because if I got to now spend to foreclose and then take it the auction, my highest bid at the auction is basically what Pablo owes. If it sells at 90,000, he only owns 60. That 30,000 equity doesn't go to me, it goes to Pablo. Or if there's a second lien or any outstanding creditors, it goes in. So that's one mistake. A lot of real estate investors get in the game. They look at the value of the property versus what's owed and they start counting the equity in their head. Well, that equity doesn't belong to the bank. That belongs to the borrowers. Now, obviously the way to get around that is try to get the cash for keys, give Pablo five grand to sign the property over and walk away. But if you've got equity and you've paid down that mortgage for a few years, you're going to fight to stay in that house. And so that's the biggest issues we see is equity deals really aren't a deal unless the borrower has already moved and wants to get the heck out of Dodge. So we actually prefer to target notes where the borrower owes with payoff and everything owes exactly what the property is worth or owes more than the property value, because that takes away that emotional equity. And it also, they don't fight as much because when we come to them and say, listen, hey, let's, let's try to keep you in the house, they're much more open. Okay, yeah. Oh my God. You actually want to work with me versus pay, pay, pay. Yeah, well, we still want you to pay, pay, pay. But it's, let's, let's let's create something that makes sense. And that's. That's one of the biggest things that people make mistake on. It's like, oh, it's what, it's worth 200. Well, they only owe 150. Why are you bidding 180? You overpay for that asset when you don't have to.

And I just wanted to make sure that I clarify that if in that example where they owed 150 and you bid 180, that $30,000 goes to the. To the borrower, not to you.

Yeah, exactly. A lot of people don't know that. You're the bank. You're not the property owner. So you're only entitled to what the bank is entitled to.

There you go. And you literally just answered Zach's next question, which is when you purchase the mortgage notes, you're not buying the property, but instead rights to the mortgage and note, and therefore the mortgage and payment. So I think that's nailed it right there.

Oh, this is. This is a collab. This is basically what I'm buying. I'm buying the note, and this is what the stuff we're looking at, which is secured by the real estate, the IOU in here, secured by the actual property. So we have the same rights, but we're actually reviewing these to make sure we can foreclose all the notes and stuff like that. So when we buy clothes on this, we get stacks of these that show up. Not keys.

The houses has got sound effects and props. You know, what, are you gonna. What, are you gonna bring a little house in here? Yeah, maybe some keys to dangle it. All right. Lee Bishop, MVP of the not yout Average Investment. What was that?

That was a. Yeah, it's a good deal.

All right. I'm thinking of all the different side.

Effects we can't compare.

Lee Bishop asks, do you hook them up with a mortgage broker to help them work on credit repair?

No, I don't have to. I'm the bank. So I. As long as they start paying on time, that's going to be the number one thing to help them with their credit is on time payments.

Yeah.

You know, and so what's also great, too, is if they start paying, we'll report if they're not paying. I don't want to kick a dead horse when they're down, because a lot of times we see bars that haven't paid in two or three years. And so we do have some vendors that help people get back on track. They help them with, you know, get their credit Back to fundability, stuff like that. But I'm the bank, I don't need to pull their credit to modify their loan or pull their credit to give them a trial payment plan. I can just look at what they pay, talk to them or get their financials. Because oftentimes when we buy a portfolio non performing us, we'll send a letter out and say, hey, hey, we just bought your note. We know that you're behind by 12 months. This is what you owe. If you want to stay in your house, give us a phone call. We've got some opportunities for you to stay. And about 70% of the time the borrowers will call us like, oh my God, it's great to talk to somebody. It's great to actually be able to actually talk to an individual versus automated teller service. You know, something like that with automated questions where they can't get a hold of it. And a lot of people just, you know, like I said, they just need to vent for a little bit. Most people want to pay their mortgage, most people want to stay and you just got to go. That rest said, okay, what happened? Some solutions are simply changing the date that they make their payment. We had a borrower who's consistently bouncing checks on the spreadsheet we saw with a previous borrower. And I said we'll buy that, we'll buy that note. Because we looked at the survey notes and she'd been calling in trying to literally change her payment date three days so that it would give her time for a paycheck to come in and clear versus they pull. Well, I saw this, called him three times, it was never done. So I literally, I said we'll buy that all day long. So we bought the note. One phone call, I said we just bought your notes, we're now your new bank. She's like, oh God, no, no, no, I know you need to change your payment date. What date do you want to set your payment? And she's like this date. And so she's been on time ever since. Another borrower, when you're looking at financials, a lot of times she lost her job as wasn't making as much as previously was, but she was still working, trying to pay. And so we get on the phone and say, what's going on Telespot? She's well, I make so much per month and that what I make in my first, I pay my mortgage, but I don't have any money left for the rest of the month. I said, well, why don't we just do this? Why don't we just set up your payments and do it bi monthly versus once a month. You pay half your mortgage payment on the first paycheck, you pay the second half on the two weeks later. But this way you're not financially strapped and you're rock and roll. She's been on time ever since then. And so sometimes it's just talking with people and educating. Not everybody is the most financially intellectual person out there. And when you deal with lower valued assets, we do. I mean our biggest hit rate on getting notary performing is really that 250 and below as far as market value of the house is. Anything above that, we're probably going to end up having to foreclose or deed loom for the most part because people will fight you because they have attorneys as friends who can drag out the foreclosure process. So interesting. You know, you know when I give you a great example, I was sitting in Miami airport a little while back and there was this guy, just this bright ass, flamboyant shirt and he was talking on the phone. We had to talk. And because our flight was delayed, he asked me what I do. I said, well, I buy debt, I buy mortgages, I become the bank.

He goes, oh.

He laughed. He's like, you would not like me. Why do you mean? I said, well, I have this mansion here on Miami beach, it's worth 4 million. I haven't paid a payment in two years because it's cheaper for me to Pay my attorney $1500 a month to delay, delay, delay, delay, delay. So. So yeah, those people, there's a special place in debt hell for them that. But for the most part, you know, America, the blue blooded, salty folks out there, they just need somebody to get on the phone and try to come up with a solution for them that they may not know. Because we all know most of your traditional banks aren't really educating their clients about their options. And I'm glad to educate. Hey, you could do this or we could do this. Let's pick something that makes it work. If you can't pay, hey, let's just have you deed the property or we'll give you some cash to walk away. I need a rent apartment. Great, we'll pay your deposit, we'll pay your moving costs to get you out of the house. Because it's a win for them. It's also a win for us because then we can take that asset back in 60 days versus 6 months or 12 months we had to foreclose. Good stuff.

I got a lot of questions. But I want to leave space for our other folks that are asking questions.

Yeah, let's get some questions in here. By the way, pro tips tip. If you're in the Miami airport, eat at La Carreta, the most legit Cuban food. And it's right. It's the move, right? All right. Anyways, Drew Barnhill has a question. He says why would the bank sell the note so cheap rather than foreclose them themselves?

Great question. I get that question all the time and it's a variety of issues. One, I'll give you a great example. There's a community bank in San Antonio, Texas. They had a lending platform, a lending program for their local that are community bank. So they knew the actual borrowers coming in. They did not want to be the bad guy foreclosing on the folks. So they sold that portfolio to us at a big discount so that we could be the bad guy. You know, I mean that's one thing. Second thing, depending on what's going on with the state, you know, they've got a long foreclosure process like say South Carolina's 12 months. They would rather sell the note and get 50 cents on the dollar for it now because now they can go out and relent that money 12, you know, six to 12 times in a year and we take it over. Now not everybody, now not every bank's gonna sell at a discount. Some won't. If their banks have to report quarterly earnings and things like that to the fdic. And if they're sitting flush with cash, they may not want to sell their distressed debt. And if it's in like a state like Texas or Georgia where it's a fast foreclosure process that it makes more sense for them just go ahead and finish the foreclosure out a lot of times in a speed period versus trying to sell it off. You're not going to buy a note from bank of America, Chase, Citi, Wells Fargo, those big guys because first of all they don't know who would sell it inside house anyway. They're such a freaking mess. But they're going to sell a portfolio of 50 million at a time. They're not going to sell a one off note. So don't call me. Say Scott, can you buy this note, this empty property down the street? I'm going to say, well it depends who's the lender, what's going on with that lender? Who really? What's the situation? Are they sitting with a lot of non performing notes and they need to move Some of it or are they sitting fat with cash and they don't have to take a big discount? So every lender is different. Like we buy a lot of notes from real estate investment trusts who bought portfolio of loans to do it and work it out well then if they can't get the borrower back on track, they don't want to foreclose. So they'd rather sell it to us at a 5 to 10% markup of what they paid above when they bought it as a pool because they're still making good money and let us take it over and make our money on the, on the workout and being creative and the borrower outreach. So that's a yes and no to his answer. Some banks will, some banks will. Now a big opportunity right now is on the commercial side, especially the small balance commercial stuff. That's what's really clogging up a lot of your smaller regional banks, community banks is that they financed a lot of the stuff back two years ago and we all know what's happened. So if it's sub $5 million in balance and value, Wall Street's not really targeting that. There's a lot of opportunity locally. You just need to know what's going on in that area as far as ass. And we all know due diligence is going to be a lot different on a self storage unit versus a single family home or a apartment complex is going to be different than your duplex down the street. So you got to know what's going on that asset class and know how to evaluate which is totally different than buying a single family home.

Awesome man. I love, I love the identification of opportunities. Right like and it seems like commercial real estate has, has some like undervalued stuff that everybody is kind of poo pooing on these days and we're kind of bringing that to light. I like, I like this. Scott. Before we move on to another segment of the show, I'm going to ask you one more question. Maybe we can get back to the crowd questions. But we talk a lot on this show about how there is different markets in the United States that favor or don't favor rental property investing.

Right.

There's like five cash flowing markets, Cleveland, Kansas City, Memphis, Dallas, Jacksonville. Out of that, Greg is a big fan of Jacksonville because it has the highest appreciation rate and at the end of the day the longer you hold the appreciation is a big deal. Is there something like that for note investing? Lee has the question, Lee asked the question. Do you find more bad notes in Certain markets like Baltimore and Detroit. But are there certain markets, is there a profile of a market that is favorable to note investing?

Yes, yes, very much so. So like I don't buy a lot of stuff in California. No offense to our friends out from the land of fruit and nuts. California, it's just way overpriced. People will slice their grandmother's throat for a 3 cap or 3% return. So California, the banks don't sell stuff at very big discounts. Now it doesn't mean you can't find stuff that really do a lot of due diligence, reaching out. But for the most part, I don't even see stuff in California. Washington State, Oregon, everything on the west coast is way overpriced. Texas is a little tougher because we do have the fastest foreclosure, like Austin. I don't see anything here in Austin because everybody's overpaying for assets. You might see that also in parts of Aviva la. Miami is a really hot market. But on the outskirts of Miami we're talking like Homestead or Hialeah or even Hollywood Wood. There's a lot of other stuff you'll see in that small, less valued markets for the most part. So yeah, you got to know. Yeah, he mentioned Detroit. I'm not buying south of eight Mile Road. I'm not going to go hang out with Eminem's mom or grandfather because that's a rough area. But other parts of Detroit are really good. You know, other parts of Michigan are phenomenal. So we do like one of the things we look at is we look at what the rent rates are in an area as an idea is if we need to be spending time with it, whether it's a one gun or a two gun. Let's process like so a couple of years ago, Columbus, when we look at something in Columbus, Ohio, we wanted to make sure the rent was at least above $500 a month. It was below 500. That was a sign. It was probably too rough a neighborhood. If I don't buy in Chicago, because Southside Chicago, it's horrible. I hate Chirac. Okay. Cook County, I call it Crook county because it's hard to foreclose in Cook county if you don't live there. If you're an out of state investor, they're always going to side with a borrower. It's like nine months to foreclose anyway. Nine months to evict. So they keep giving extensions. So I just. Anything I see from Chicago, I just eliminate. Now if I live there, it'd Be a different story because I live there, but other sides. I want to find markets and invest in markets that are pretty easy to deal with. You know, like I love Florida. I think Jacksonville, which Jacksonville in your guys market was really the last major city to really kind of rebound from 2008. It just literally kind of if you looked at the coast value started going up the coast. Jacksonville was kind of the last city there and it's literally the gem of Florida. I say because market values are still good, you still got a lot of hot people moving in there. People are looking for deals. So you have that growth rate compared to other parts of like Tampa. Tampa's way overpriced as well in a lot of cases. So I think you're in a good spot there in Jax. But yeah, look, you also too. I always tell people if you're going to be investing in notes, look at cities that have at least 50,000 or more unless you have like carnal knowledge of that small town. So like I grew up in south Texas, down by Corpus Christi in a little small town called Ingleside, Texas. There's like 10,000 people still there to this day. I would buy there because I have friends, I have family. I know that area. I don't mind taking that property back. You never want to buy a note on a property that you don't want to take back is one of the carnal things there too. So knowing your markets and know what's available, rural areas, I stay away from them because then it takes forever to get realtors out there people to rehab. I don't like vacant properties because vacant properties, especially in areas where there are people often get vandalized or the especially summertime, the air conditioner goes on a walkabout for some reason just mysteriously disappears. The copper goblins show up. I don't want to buy a vacant property in Michigan or Minnesota right now because it's probably going to have an indoor ice skating rink. A good for the hockey players, eh. But not good for a real estate investor. You know what I mean? So.

Yeah, I know what you mean.

Eh. Hey, hey. Going to go down the store, get a popping some loose kafisk.

All right. I got something I want to talk about right now. Scott. So you mentioned this a couple of times, right? We want to have a segment on the show when we have these other investors. You're giving us a ton of value and you talked about how you like Jacksonville. You're into the market, right? So we'd love to kind of start a new a New segment called Ask Greg a Question, where you ask Greg, you know, if is there anything about either rental property investing or the Jacksonville market, Anything specific that you want to pick this guy's head on?

So I want Greg to be on my podcast because I love focusing on specific markets and we've been looking for somebody to talk about the Jacksonville market. So this is a match made in podcasting heaven.

Amazing. I got to get my sound effects.

Ready to go though. Yes, yes. Hang on a second. Yes, yes. Well, yes, yes, yes, yes, yes, yes, yes, yes. Okay, so Greg, when you're looking in the Jacksonville market at a property, is there a. And like I just said, is there a base rent floor that you'll look at where it's got to, you know, it's a property, it's got to have at least $1,000 a month in rent or $800 a month, what's that floor? And I know it's going to vary on zip code and market, but when you're seeing stuff initially, do you see rent rates at like, what, what's that number that you're like, okay, it's probably not in a bad area.

Yeah. You know, and for us, part of our strategy has been investing in the same neighborhoods in Jacksonville ever since we started in 2006. So, you know, we're, we know what those base rents are in those neighborhoods and those neighborhoods make sense because they are high rent compared to the purchase price and they're surrounded by jobs. That's kind of our criteria. You know, within those neighborhoods, you're, you're looking at a low rent of maybe, I mean, if it's a small house, if it's a two one, maybe $700, 750, maybe the minimum.

What about like a normal three two, you know, what's the normal.

Normal three two, you're looking at 1200 bucks now or so, you know, and, but there are certainly other neighborhoods out there. I think your point's really valid too. If, if I didn't, if I was somebody that was investing in notes and I was going to different parts of the country, you know, and I was looking at Jacksonville. There are parts of Jacksonville that rent for a lot less than 750, even three bedroom, two bath houses in the rougher neighborhoods in Jacksonville and you know, we wouldn't go there.

Yeah, exactly. You want to avoid that two gun flak jacket there. Now with the growth with Jacksonville really kind of rebound and stuff there, what outlying areas are you kind of keeping an eye on? I know you got your initial Stuff, but like in the path of progress is what they always say, growth. Like here in Austin, Texas, we've got Leander and north Williamson counties. What's areas around Jacksonville that you're kind of keeping your thumb on the pulse or keeping an eye out for.

You know, everybody loves this term, the path of progress. And I love the path of progress too. If you tell me where the path of progress is, I'm going down that path.

Right.

It's just, it sounds amazing. I mean, so for us, when I'm setting expectations for a new client coming in to buy and hold rental properties, everybody wants to believe that this neighborhood today is going to be much better than tomorrow. And so much of what we do is try to focus on what we can control, which I really can't control that I think I could certainly talk about the new restaurants that are coming in and this new beautiful Wawa gas station that's here and all this stuff. But it detracts from what I think the real value of the rental properties are. So when we'll spend a whole lot of time identifying those areas as being path of progress because I think it could set people up for the wrong expectations and really attract the wrong type of investor. But I will tell you that JWB is buying in outskirts of our neighborhoods right now. Right. And we do this quite often, Right. We put our own money into neighborhoods that are just outside of where we have been investing years and years before. We actually bring them as cash flowing investments for clients. So if you just looked at kind of, and we have a map and I'll share this with you, Scott, afterwards, and if everybody's interested, it's something we share. With new clients coming on board, maybe.

You can tell them the profile of the neighborhood that you invest in so he understands what you're talking about.

Of Gotcha. Yeah, we're looking for below middle income neighborhoods, right. We're looking for those neighborhoods, like I mentioned, that are surrounded by jobs. But these are neighborhoods, if you think about middle income, right. We're in that, you know, 25 to 50% median income right there. And so these are not going to be the nicest neighborhoods out there. They're not going to be the most appealing. We choose that because these are the best risk adjusted return neighborhoods that we can, that we have been investing in for 16 years. You have positive cash flow there, which is, I know a core principle of your strategy as well.

Right.

So much of what you've been sharing with me today, Scott, it's a different way to skin the cat of what we do here for rental property investing.

Right?

There we go. Yeah. So if anybody was curious and you wanted to see where JWB is buying today, it's actually expanding our neighborhoods. We do this, we've been doing this for a long time. Right. And then we put our own money into it. We make sure that we can hit our return expectations, make sure we can limit maintenance and vacancy in two or three years may become a neighborhood that we may, it may be extending the current neighborhood that we have. It might be opportunities for our clients.

Yeah, Scott, and a couple of the other things that we talk about a lot on the show is. So it's those below middle income neighborhoods within a 15 minute drive of a certain amount of jobs, right?

Well, yeah, I mean, we know the major job creators out there. So we're, we're roughly about 45 minutes away from the JWB office. But then we're looking for those neighborhoods that are like for example, near a 15 minute drive to downtown where we have 55,000 jobs or near NAS Jacks, which is the major Navy base here in Jacksonville and there's 20,000 jobs there or the Amazon Center. So there's always these job creators that are very close to our neighborhoods and that's of course by design because we need to have wonderful residents.

Big job creators. Here are the government. Right. Like the naval stations, logistics, the airfields. Right. Like it's hospitals. It's hospitals, stuff like that. So, so that you can add that to your, to your rapport. Not violent crime neighborhoods.

Right.

Because. Because of the property management side of it.

Absolutely.

Am I missing any other, any other detail?

I think you nailed them.

All right, Cool, man.

Well, I've been doing this for a while now.

So you know, you know your avatar. And that is so important for real estate investors out there to know their niche. Yeah. To not get outside their niche. I think that's the biggest mistake I see a lot of investors make is they come in, they try to do 12 different things at once. You know, I'm going to be a wholesaler and I'm going to be a landlord. I'm going to take over such two. And they get stressed out because they don't have any type of success because they're all run all over like a chicken with their head cut off. Focusing on one asset class and learning it, it's like vanilla. Vanilla may not be the greatest thing, but vanilla pays every month. Right. What's one of the biggest mistakes that you've made? Was it a property or Was it a deal? What's probably, I guess you say the biggest failed investment you've made.

Actually it's one that has to do with, with notes. I don't know how. Well, it's not exactly with non performing notes but it screwed up something that we in essence should have seen when we bought a property at auction. Just so last year actually we bought a property at auction and somewhere along the lines in our normal title search of where we would see the liens on the property, somebody made a mistake. We rely on a lot of external teammates to help us with our title searches and all this good stuff. Listen, you buy 992 properties last year, you're going to make a mistake every once in a while. This was a costly mistake though. We bought a property and long story short, there was an additional lien in place that we didn't think was there. We bought this property, we paid way more than we should have for this property and analyzed what to do with this. The decision was to do we just cut our losses and sell it or do we take this asset, renovate this property and hopefully salvage this property? And like Scott was talking about, the velocity of money is really important. So we cut our losses and we lost over $100,000 on one property. So.

Was it a second lien foreclosing and it was the first lien foreclose. Yep. That's usually, that's one of the biggest things.

Exactly.

If it doesn't. Yeah. So basically you could have taken it over subject to and just paid the existing mortgage on it, but depending on the value what you paid. Yeah. Sometimes it's easier. Let's just cut our losses and get what we can in and make it up in the in velocity.

And you know this, the active approach to real estate, I mean it's, there's risk. Right. And if you, and that's why, you know, you got to surround yourself with experts. Clearly Scott, you're an expert. Right. If somebody is thinking about getting into non performing notes, I mean that's a, that's a business that scares me and I've been doing this for 16 years and I bought thousands of thousands of properties I wouldn't go into without some mentoring, some advice, being a student of this because people think buying houses is easy. Even the professionals who have literally bought thousands of houses lost over $100,000. Imagine if this was our first deal. I wouldn't be sitting here with you.

So you're a big fan of those fictional TV shows called hgtv, right? Look at this house. Right.

Oh, it's always that easy, right, Scott?

Not.

Let's put the spotlight back on you, Scott. Right. We've been developing this investing scorecard and we want to ask you to rate these, to rate notes on a couple of different parameters that we have. Gc, you want to take this?

I do. All right, so, and Scott, thank you for sharing this with us. You know, what we're trying to leave the audience with is a way to speak apples to apples for this asset class versus other asset classes. And so we've identified our six criteria that all investors really strive for. So if it's okay, I'm going to walk through these and if you could just give me where you think investing in non performing notes lines up on a one to five scale, five being the best, one being the worst, then we'll be able to kind of arrange how this fits in others portfolio. So first we'll start with cash flow, right. Higher the better, positive the better. And the higher the positive cash flow, the better. Then we're going to look at volatility, then we're going to look at upside, then we're going to look at liquidity, we're going to look at entry point. And last we're going to look at effort. How easy is it? So let's first start with cash flow, one to five scale. And you know, if I'm thinking About this, for JWB rental properties, we earn a 7 to 9% return on investments, about 100 bucks a month for cash flow. I'd call that A4 for our rental property investments. Where do you think yours would fit?

5.

Yeah, that's what I was thinking too.

I'm not going to do any, I'm not going to buy any note that we're not going to realize. At least $250 a month, positive cash flow.

Love that, love that. And what's your typical investment there? Your, your entry point?

You're going to laugh. Most people think you need to have millions of dollars to buy notes. That's not the case. It's under a hundred grand. Oftentimes, you know, we're buying a single note here, there, maybe we're 75, 80, 100,000 different parts of the country and we're coming below that. So a lot of investors get started for 50 grand or less. In a lot of cases, 50 grand.

Or less and making 250amonth. That's, that's, that's, that's great to see. So 50 grand a month. So what's, what do you think the lowest entry point would be for note investing.

I tell people avoid houses under $30,000 in value. It's just if you have an air conditioner or somebody runs off to get your profit margins shot. And if you're buying a property that's below 30,000, you better not be paying more than like five or seven grand for that note just because of foreclosure costs and stuff like that. So I prefer assets of $50,000 values or greater. It's not saying like I've bought plenty of houses up in Detroit that were cheap under 25,000 and that were bringing in $400 a month, you know, a contract for deed, stuff like that. But it's best, like I said, look at a property that you don't mind taking back if you have to. There you go.

And 50 to 100 grand is typically what people will be investing in, in rental properties as well. So good to see some similarities there. All right, let's talk about volatility.

Well, I'll tell you this. Last few years have been when the government's not stepping into foreclosure and more foreclosure moratoriums. It's pretty normal. It's pretty actually, hey, because we're the bank, we have the rights all dependent on state by state basis as far as foreclosure. So 2020 and 2019 were pretty rough because of that. Now saying that 85% of our borrowers that were paying before COVID kicked in continued to pay or they were only on like they need a 30, 60 or 90 day forbearance agreement to get back on track. So it wasn't too bad for that. But when we were looking at buying new deals, it was harder because the banks weren't looking to sell because they didn't have to. They were paid by the government. So volatility Normally is about a 3 to 4 in weird cases of COVID and stuff like that, it's. It ranks low like a one or two in a lot of cases. So gotcha.

Appreciate that is. So do you have, do you go into this like. So in rental properties we've got our vacancy rate and that. I could just work this into my numbers, right. Do you guys have like a. The equivalent of a vacancy rate? Right, Like a non payment rate which would obviously increase the volatility for you guys. How do you handle?

So we know that if we're going to buy 10 notes, we're probably going to get five, five to seven back on track of some sort of performance. We know that we're probably at 2 to 3 where we have to get deed lose cash for keys and then another two or three that we're going to foreclose on. And that will vary a little bit by state. Like I don't buy in New York or New Jersey because it takes two to three years to foreclose up there. Those are big. No, no states. But when we look at stuff we like to be that if we had to foreclose we want to be at 12 months or less and we want to make sure that that borrower from what we can find and what we base things off of, we're going to give them 60 days at the most to start either engaging or getting back on track. Otherwise then we're going to go to the foreclosure route and go from there. So it kind of makes sense.

Yeah, it makes sense. So basically the cash flows when they're performing are really strong, right? There's inherent volatility because a lot of these are non, these are non performing when you're buying them and you know, call it 40% of them are going to remain non performing and have no cash flow coming in.

The biggest thing when we're buying is if we're buying a non performing note, if the bar will not bring skin the game, they're not going to stay performing. If they won't bring a little bit to three grand to the table, I guarantee you 90% of them will default again in the next 90 days.

Yeah, gotcha. All right, we, let's go rapid fire lightning round, right? All right, let's go upside here. Talked a little bit about upside earlier. Strong, right?

Very strong. Buying at a big discount and have a lot of the equity on the back inside of the note equity, not the property equity. So there's 10 different ways to really 10 different exit strategies. You're buying a non performing note. So depending on which way that the borrower or you decide to go, if.

It works really well, what's your return on investment if it gets to that repayment option and then you sell that note, what type of returns are you looking for?

We're looking for mid-20s if we, we can take it to that point because we're usually buying at 50 cents on the dollar. So there's a lot of that stuff on the back end side.

And the more and more we talk about this is very similar to rental property. It's just a different way to skin a cat. Liquidity sounds pretty simple from the way I'm hearing it. To acquire and then to Sell back to the market out there. Is it really liquid?

Yeah, there's a lot of people looking for notes. There's a lot of IRA investors out there. I mean there's millions and millions and millions of dollars sitting on the sidelines making zero to negative right now. I mean you look at certificate of disappointment rates at 0.01% or you know, savings account that really aren't high yield savings. So there's a lot of investors looking to put their IRA to work. And that's, that's a great market if you get back on track to offload it to that. And then of course there's a lot of local real estate investors looking for deals that you can flip it to as well. If the bar, if it's in a deal, an area that you don't take the property back.

So how quickly, like how many days would it take to like sell a note? Let's say you want out of a note, you need some cash in your pocket. You know, it's not a Robinhood account. Right, but is it like a 30 day process?

60 day process, 7 to 14 days.

Are you selling it to a mom and pop investor or are you selling it to like a bank or an institutional client?

All the above. If the more performing it is, if it's an 8% yield based on if we can sell it to them at an 8% yield, there's a lot of banks and funds out there that will buy it. If it's got 12 months of seasoning with a third party servicer, same thing. There's a lot of, you know, I don't like to sell stuff that's not got 12 months of replacement reperformance because that's not a big enough investment. So. But there's funds out there, they get a bar back on track for six months, they're selling it back to Wall street or selling it to other investors as a reperforming note. So it all comes into marketing. What's your database look like? You know. Yeah, that's number one.

If you were just somebody who went through your course, got the right education and started to sell, you know, buy and then sell their first non performing note. Do you think like, is that, do they have to spend a lot of time building up their buyers list or is it something they think that they could sell with relative ease?

Well, you've got a great Facebook group, Facebook communities, you've got LinkedIn, which is very easy to find investors in a specific city. Like if I want to look for note investors in Jacksville. I just type that in. It gives me all search to contact people, Facebook. You could also go to different groups or different sources like exact data and buy a list of IRA investors in a county For a thousand bucks they'll give you like 14,000 names that you could just drop an email blast out to. So it all comes in the market. I mean you got a little bit of marketing costs on a startup and stuff like that. But it's not, it's not like having to spend our average, the cost per leads less than 1000 bucks on a closed deal. You know what I mean? Cool. All right.

And then lastly this effort category, you know, more passive is a higher rank and if you've got to kind of build your own sort of business, you know, that's, that's probably the lowest rank. Where would you put this?

I would put it on a five because there's two different facets. If you want to be more passive, then you target performing or re performing notes and you're putting in 10 hours a week maybe on this stuff with a little bit of marketing and evaluating deals. If you want to be much aggressive, then you're going to need to spend more than 10 hours a week because then you're going to be diving into foreclosure timeframes, buying non performing notes that need a little bit more work in that handholding to get the borrower on track. But performing, they're already paying. I mean a monkey can collect on a performing note, you know what I mean? But if it's non performing, you know, it's going to need a little bit more work. What's going on? Time, time frames for that as well.

So for non performing give me, give me a total amount of time per month that you think somebody would need to invest if they're going down the non performing notes route.

So in non performing it's a lot of hurry up and wait. You know, you reach out to the server, your servicing company reaches out. The bar usually gives them 7 to 14 days to respond. Then you make a decision from there it can drag out if you're slow. You know, like there's one investor that will mail everything. Like why mail FedEx it or get a mobile notary to go out there and sign it off and speed it up. And then it's all about getting it with an attorney if you have to foreclose. So then it's a, you know, touching base with your servicer and attorney once every two weeks to touch base if it's non performing and then Deciding what you want to do when it comes to the auction time. Do you want to sell at the auction? So knowing what those numbers are or if you want to take the property back, then knowing rough what you're gonna have to do with it.

So it's keeping tabs on the situation, right. And then it's making decisions and then hopefully you have your team built out to do the work for you in different markets.

Okay, well great.

My friend Scott, we've gone over man, but you have a gift for our audience. And before people start logging off at the hour, I want to tag that so people get it. You gave us all this free value. You're going to give more value. You have a course about node investing.

So I've got for the last. I mean I've been teaching Note Investing for 10 years, been by about over half a million dollars in debt. I know it can be a deep dive. So I actually have a one day course called Note Weekend. We teach it every third Saturday of the month. The next one's February 19th. In just a few weeks, it's normally 99 bucks. If you go to noteweekend.com hit the opt in and use the code JWB. That's JWB. It'll give you the class for free. So join me on a Saturday. If you can't make it, still register for it and we'll send you the replays the day after. So over a thousand dollars of bonuses and replays and forms and contracts and stuff like that for you.

I'm in.

Scott, that's super cool, man. Thank you very much for making that available for our team and for our audience here.

Really appreciate that. The only other thing I want to say. Sorry, Scott, go ahead, man. I was just gonna say one more thing.

It's one most important thing. If you haven't hit that. If you're listening to this on your favorite podcasting platform versus on Facebook, make sure you hit that subscribe button and then make sure go over and leave them a review. Leave them a five star review, ladies and gentlemen. We love that as podcasters there, you guys do an amazing job of communicating with your audience. But we love to see that proof in writing. So leave them a great five star comment and hit that subscribe button as well.

Such a generous guy's the best.

The best.

Guy's the best. Guy's the best. Also, if you live in Northern California, we have our IRL meetup coming up Saturday, February 5th, Los Altos, California. Not Traffic Investor Show Community Meetup. Jen is in charge of that, either text her 408-833-9868 or shoot her an email Jennifer fills in@gmail.com. it's at the Malines house. It's going to be an awesome little event. Still got time to show up. I think we got like 25 people registered. The Marines signed up for something that they, I think is gonna be awesome.

I'm super excited. It's gonna be just a great thing. And I'm gonna be calling in as well. I can't, of course, be there in person, but I'm going to be calling in and saying hello to everybody, so can't wait.

Scott, super generous with your time, man. Really appreciate you. Even though we went over. You give gifts, you give a ton of value, man. Such a, such a, such a valuable thing. I want to thank you for being here. I want to thank our community for. We're going to give you last word. Don't worry, buddy. I want to thank our community. Right. You're with us for an hour and six minutes and you're still, still 40 plus people on the call that never goes, you know, without noticing that you spend an hour with us. That is the time, you know your, we value nothing more than your time. Right. So really, really appreciate that. Join us on Thursday when we go deep into rental properties and we do the JWB Rental Lego Property of the Week.

Week, week, week.

And you're gonna get, you're gonna get an education on jwb. We're gonna showcase a property that's available.

That's right.

That you can buy. We're gonna dive into the most likely. It's a hot market, people. And, and like we said, if you want to find out more personal treatment about owning rental properties in your portfolio, rental property investing, property management services, or the Jacksonville market, go to chat with JWB.com GC Scott, I'm gonna give you, I'm, I'm gonna give you whatever you want to say. Call out whatever you, you want to say and then I'll give GC last words here.

I will tell you this, guys. Great stuff. Can't wait to have you on my podcast. Talk about the Jacksonville market as well. But guys and gals, the only thing you boot, the only thing that you'll guarantee by not taking action is failure. Go out, take action. Jump on great stuff. Jump on the call, but don't be afraid. As we like to say, pull the trigger. And you're going to learn more from doing your first ever deal, whether it's Rental property, notes, fix and flips, whatever. Take action. We need more action takers in this world. Thanks for having me, guys. Absolutely.

And we need good people in real estate too, right? We tend to get a bad rap that a lot of us as real estate investors have brought upon ourselves. So I'm so excited to have Scott here to be a beacon of light here on the note investing world. Something that I really didn't know much about. I just. I learned a ton here and I know our audience really saw a ton of value. So, Scott, thanks so much for being here. Can't wait to have you back in the future. And thanks for the opportunity to be on your podcast as well, brother.

Thanks, guys.

Until the next one, don't be an average investor. I can't tell you how much I appreciate you listening to this podcast. Sending one of these episodes to a buddy or dropping us a review would be awesome. But what I really want you to do is go to nyah AIs.com register and join us live on a Tuesday or Thursday. Seriously, when are you gonna do it? When are you gonna be the next Lee? The next Jen? The next Nadeem? The next Ken? The next Marilyn Cotterman from Homosassa, Florida? The next Herve Francois? So I can butcher your name for a while and then become your buddy. The next Bill Shields to come up with a hilarious new way to introduce. Introduce yourself. Every time I do the roll call, you get the point. We got a bunch of amazing folks. We want you to be a part of it. Join us live on the show. Go to nyais.com register. Join us at least one Tuesday or one Thursday a month at 12:30. I promise it's as fun as it sounds. Hope to see you on the show. I promise you will not be treated like an average investor.