All About Investing In Distressed Notes And He Shares His Secrets For FREE On This Episode! With Scott Carson From Bridging the Gap: Real Estate for Women With Atara Twersky

Hi, everybody. Welcome to my podcast, Bridging the Gap. Real Estate for Women.

Been buying notes since 2007, and then I was just flooded with so much stuff that we just started teaching classes and webinars. And the podcast that we have, the no Closer show, helps out with a lot of that stuff. But yeah.

As a woman in real estate, I know firsthand that women are underrepresented and still tentatively venturing into real estate investing. While that is slowly changing, my goal is to propel it forward. We can do this. I am Atara Twersky, an attorney and real estate sponsor and investor from New York City. I'm here today speaking to Scott Carson. Scott is the owner of WeClosenotes.com a real estate investment company whose focus is on buying pools of distressed assets on residential and commercial properties. Scott is also the host of a nationally syndicated podcast, the Note Closer show, which has millions of listeners across 130 countries. That's amazing. Okay, so I want to jump right in because, you know, I think many of my listeners are pretty savvy with their investments and they keep pretty diverse portfolios, especially if they're a public retirement fund. But many of them still don't know a whole lot about buying distressed assets. Right. So if you're an investor and you want to get into this asset class, like, what are the actual mechanics of investing in distress notes?

So, first of all, it's a different, it's a, it's a different animal. You have to approach it as a different mindset. Many investors, they come into real estate, they fall in love with hgtv, flip this house. You know, being a landlord, they love toilets, tents and trash out, said nobody. You know what I mean?

Right.

But that's the most common thing. Or their wholesale and assets, you know, getting a property contract and flipping it really fast, they don't have a lot of capital. But with the note side, you're buying the debt, you're not really buying the property. So you, so you have to approach it from a different mentality, is that you're buying the debt to become the bank, not the property owner. Now, yes, you never buy a note on a property you don't want to end up owning. We know there's enough people out there not making their mortgage payments, you know, because of COVID and everything going on with that. But that's one of the big facets is if you're buying distressed notes, you also have to realize you're not alone. A lot of people get into real estate investing, they think they're going to be a one man jack of all trades or a one, a one woman, you know.

Right.

Jackie. Of all trades in notes. It's really a vendor driven business. You have a servicing company that's handling the collections, making sure that you're staying compliant with the Consumer Finance Protection Bureau, state licensing requirements to be a collector of debt. If they don't pay, you have, then you're hiring, you know, attorneys, foreclosure attorneys to start the foreclosure process. So it's a little bit, you're more of like a general manager of an organization versus the guy or gal out there painting and picking out, painting carpet.

Okay?

So that's, that's, that's the first thing, you gotta approach it as a banker's mindset versus a fix and flippers mindset. The second thing, which is what I love, is when I got started buying notes, distress notes back in 2008, which there was a lot of, right?

A lot of the year to get distressed notes.

Scott well, it was actually 2010 was the peak with 15 million homeowners underwater. We still have millions of people underwater here. But here's the thing. You're not going out like a lot of investors and knocking on doors or mailing out thousands of dollars in postcards or stuff like that. You're not going to the foreclosure auction. You're literally going to the bank. And you're not going to your local bank and say, hey Jim, you're the vp, can I buy some notes? Because they'll look at like, we don't sell notes. And every bank will tell you that because I'm an ex banker, used to be a banker with JP Morgan Chase, top banker in Texas. And sometimes people come and ask me that question, like, we don't sell the notes. Well, Chase does. They just sell them to big institutions. So the beautiful thing is you're going to banks, there's thousands of banks out there, but you're going to, instead of just talking to the foreclosure part, you're actually talking to internal departments of the bank called like the special assets department, okay, the secondary marketing department, the chief credit risk officer's desk, whole loan trading. So these financial institutions that are carrying debt or, you know, provided financing or mortgages or bots and stuff, those are the departments that are handling that stuff. So it's, you can find these people not walking around or mailing postcards, but literally we find thousands of these contacts on LinkedIn and LinkedIn. You don't have to have the Paid version, you have the free version. So, so we like right Now I've got LinkedIn, I got a thing working on LinkedIn, to reach out to a hundred asset managers today, new ones, and just say, hey, what do you have in your books? What didn't you sell off the bank's books in the fourth quarter that you need to move this quarter?

Wow.

And so that's one of the easiest ways to start, is start that conversation. If they've got something, usually a lot of times they'll make you sign a non disclosure agreement, making sure that you just don't go out and blast people's Social Security numbers or other information. Right. They're going to send you a tape, which is an Excel spreadsheet, tape is the lingo and then it's going to have all this information. The borrower's name, the property address, the terms of the note, when the last payment was made, if it's the special servicing information, is it current or is it in foreclosure to the bar file, bankruptcy? All this information that can be very confusing, like reading braille. But once, once you realize what you're looking at and that you're buying the day, okay, when was the last payment made? How many months behind are they? You know, what do they owe, what's their legal balance, not just their principal balance, but what's their legal balance, is that above the value of the property or is there a lot of equity above the payoff? And that's one of the biggest mistakes real estate investors get into this business is they think they target, they're used to targeting properties with a ton of equity, like, oh, I can buy that Property, it's got 50,000 equity. Well in the note business that we don't actually do that because if there's a ton of equity, the bank that's holding that non performing note, they're not usually going to sell it at a big discount. They're going to sell it at 80, 90 cents of what's owed. And that doesn't leave a lot of room for profit earning because that equity, if we have to foreclose and go to the foreclosure auction, we can only, basically our highest bid is what's owed. And so if it sells above what's owed, that profit or equity doesn't go to us, it goes to the borrower. And so that's one of the biggest mistakes we see people making is they, they start bidding on equity and that's not the case. I prefer to deal with borrowers that are Underwater, where they owe more because they're not going to fight for that equity. That's another thing. They got a ton of equity.

They're going to let it go.

Well, yeah, if they have negative equity, they'll let it go. If they have a ton of equity, they're going to fight you. They're going to file bankruptcy, they're going to get a TRO temporary restraining order and delay this thing another 90 days. And so keep that in mind. You know, you talked about, well, you know, we talked a little bit about financial literacy. And people need to know what's going on out there in the markets. Well, when you start getting to higher value properties, like in your neck of the woods, there's a lot of people, you got to make some good money and be pretty educated to make that kind of money. So you have friends like yourselves that have Esquire after the name that can drag a foreclosure out and, you know, people like, I'll pay my attorney $1,500 a month to drag it out this foreclosure, instead of paying $15,000 a month. You know what I mean? So, so the real sweet spot we find is really that first, that first tier level of home buyer, really that and every market's a little bit different. But if you look at average across the United States, about $250,300,000 value property or below, that is where is where we have the most amount of bang for a buck. Our biggest goal isn't to take the property back. It's actually to get back in a conversation with the bar and get them back on track to, to start paying on time again. Because we bought the note at a big discount. That gives us flexibility to then modify the loan, work out a payment plan to keep the borrower in the property, and then after a period of, say, 12 months or greater, if the borrower is back on time, that note is then reclassified in the industry as a reperforming note and the value just goes through the roof. So if we bought, let's just say, average number, we bought a note at 50% of value. Let's say they owe more than the property's worth, haven't paid in a year or two, we get the borrower back on track. They've made payments for 12 months. We usually ask for some skin in the game, you know, a couple months of payments to do a modification or a trial payment plan. And then after 12 months, we can then sell that note back to Wall street or other investors at 80 85, sometimes 90 cents on the value.

So this is actually. You touched on something that's like, kind of my favorite part, because, you know, in everything that we do, I believe we have to find meaning no matter what. Money is only important when you don't have it, I believe. Right. And there's a person. What I love about what you're saying is, like, there's people behind all of these notes. And what you're saying is that at some point you get to engage with them and really try to make a difference. Right. In their life. Like, we don't want people to be losing their properties. That's not a good thing. So I love this whole aspect because I. When I'm thinking about, you know, distressed debts notes, and I wonder if I'm thinking, you know, maybe a lot of my listeners are feeling the same. Like, I'm thinking, like, a pool of assets. And, you know, you never really get to, like, speak to a borrower. But it sounds like you're saying that's not true. And you are dealing with individual people.

Yeah, I mean, it's a people business. You're dealing with people's houses and their mortgages. And so you've got to engage with them at some point. You can't do it before you buy the note. That's actually a violation. Fair debt collection practices. You can tell a lot about a bar. One of the beautiful things is when we're doing due diligence, is that we're getting the notes from the existing servicing company so we can see if the bar has been responsive, if they've sent in hardship letters. Like, hey, we tried. We're wanting to do this. This is what happened. So you kind of see behind the commode a little bit. We also do what we call a little social sleuthing or Facebook stalking on every bar to see what they're doing. You know, we've had borrowers say, do I pay my mortgage or do I go to Disneyland? I'm going to Disneyland. I'm like. Or like, we research to see what they're doing. We found, like, one guy that was in Chicago and he'd had a broken leg, so he was out of work for six months. He was an author. So, like, I. I'll, you know, I'll empathize with those folks that have gone through hardships, lost their jobs. We're glad to work with. I mean, at one. One point, you know, 20 years ago, I was a deadbeat bar. I lost my job and was facing foreclosure. And so I empathize with folks that go there. So I'm like, listen, you're not a bad person. Good. I mean, bad things happen to good people all the time. But you got to communicate with me. So when we do buy these notes, we do a lot of immediate borrower outreach with phone calls, letters, just trying to get them to come to the table and give them some options. Because most people don't know their options. You know, they. They're sitting here worried about. They know that the note has been sold. They're worried about. Because they know they're behind and they just. When we give people a phone call, it's not meant to be, you know.

You know, adversarial.

Exactly. Hey, hey, what do you want to do? If you want to go, we can work it out. You can go. If you want to stay, you still got to pay. Let's. But let's figure out a plan that makes sense across the board. Now, if you're just going to pound tell us to go pound sand and tell us go F off, that's fine. You can deal with my trainings going forward. And you're not going to win. You know, you may be able to drag it out another 3, 6, or 12 months, depending on which state you're in. And that's one thing too, in your state, no offense, New York is like the worst of. It's horrible to foreclose and you have to hire an attorney to talk to attorney to have an attorney.

Right?

Yes.

Agreed. Yes.

It can take three years to foreclose in New York, two years in, like, New Jersey, you know, I don't. A year plus in Illinois. So what's great about notes is that we're buying in about 30 different states. I'm not, you know, I may see something in New York unless I'm getting it really cheap. And it makes sense. I don't buy it. I'll buy another state. So that's a lot of times that people don't realize. Most people think you've got to have like 5 million or $10 million to get in the game. And while that helps, there's plenty of investors out there buying. I'll give a big shout out to one of our students. Larry. He just bought a note in Akron, Ohio. The house turned out to be worth 80. The borrower owes 65 on it. He's paying. He actually picked up the note, paid 13,000 for the note. As a guy still a year behind, but he's been paying intermittently. And it's going to be a good. About a 20% yield to the guy with servicing, somebody handling the servicing and getting the bar on track. And found out he closed on it, found out that the bar just needed to change the payment date, and he could be right on track.

Wow.

And the existing person that owned the loan and servicing company didn't really reach out to him, didn't talk to him that much. And so it was just one conversation. Boom. Fixed the guy's back on track.

Wow. So it's kind of like the collaborative approach to buying notes, where you kind of. Right. Like you sit down with them and if you can have a conversation where they, no pun intended, buy into this and say, yeah, I want to do this, just help me. Then you're in a really good position for you and also for them, which I think is ultimately the goal. Because you don't want to be that person just taking away the place that people live.

No, I don't. Because honestly, I don't want to get into rehabs. I want to keep people mask. If they keep. If they're in the house or keeping the maintenance up, they're adding value to the neighborhood. The emotional equity among the lawn, paying the taxes. That's great because they don't. And it goes to foreclosure. One property not only affects that property, but also affects the neighborhood because it reduces the value, the county, the whole area with reduced values and negative trends. And we don't want to do that. We want to keep them in their house. And then you compare it to something we play, as I like to say, we play real world Monopoly. If you like Monopoly, hey, you're going to love note investing.

And you can play it for hours and hours, which equal years and years and years.

And that's. And that's the good is. I mean, you don't have to. That's one big thing. If you're looking at fixing, flipping, stuff like that, you've got to have overhead, you got to have cost, you got to have cruise and stuff like that. That's. I've done that, been there, got the scars, you know, flipped a bunch of property here in Austin, Texas. But the beautiful thing about notes is that we're buying a variety of states, but if you've got Internet and a phone, you can do this just about anywhere. I mean, we've closed deals when I was traveling or abroad or on a cruise ship and stuff like that. That's. That's the beauty, because you're getting a spreadsheet and you're looking at numbers now. You've got to have a servicing company and you got to dictate to them what you want to have have happened. But they can help guide you. Well, we can do A, B or C. Well, let's go with C or, you know, we bought these notes, let's offer the ball, rose up A, B, C or D and then go from there, you know.

Okay, so let's go back to the mechanics because I think like a lot of people, you know, who've never heard about this will be interested in really understanding. You know, you get that spreadsheet, like you said, it's a whole other language. So is that where you or somebody like you could come in and say, like, okay, I can help you really understand this?

Yeah, that's what I've been doing. Golly, going back to 2010. I mean, I've been buying notes since 2007 and then I was just flooded with so much stuff that we just started teaching classes and webinars and the podcast that we have, the Note Closer show, helps out with a lot of that stuff. But yeah, it's all about. It can be very overwhelming. I've seen literally like realtors break down crying. They get this spreadsheet and they come like there's a buyer for everything. Well, that's weird. I really don't think every realtor sounds like Mickey Mouse. But anyway, they're literally like, oh my God, what do I do? What do I do? Just. You'll get rid of the. If you don't like mobile homes, manufactured homes, those are on there. Get rid of those. If you want performing notes and get rid of everything that's not paying on time. If you want to deal with non performing, okay, great. Then get rid of the performing notes because you have bigger, bigger discounts on the non performing. Then you filter it by state. So like what I do is I get rid of anything in Chicago because I hate Crook County. It's horrible to foreclose.

I don't want to deal with it.

Don't want to deal with Chirac. Okay, we get rid of them. New York, New Jersey, New York, Goodbye. Bye. Or else. If. I mean, I've got some funds in New York that love to buy there, so I'll just send them that part.

You don't want to deal with that.

It's not worth my. So I'll look at the cities and then I also. Then I'll look at a couple of things. I look at balances, what's owed, anything below really 50,000 owed. I'll get rid of anything really above 500,000, I'll get rid of it. Unless it's in like Florida or California or it's on the water somewhere. Then we'll look at it. But then I look at cities. If I don't recognize the cities, if it's PO Dunkville City, I don't recognize it. It's below, below like 50,000 people. I'll get rid of it. I'll take it. Because it's just too small an area.

Okay.

For me to spend time and resources on. Because if it's a small, it may be a great deal. But if there's nobody living in that town, there's no realtors or fix it crews. You just bought really a, you know, an anchor to drag your investments down.

Got it.

You want to be in the process of basically having a very streamlined system of what you're buying, where you're buying, and then making offers and go from there. And I sold everything I owned back in 2010 and traveled the country for roughly what I thought would be like 30 weeks for baseball games. That turned into about three and a half, four years. And I lived a big chunk of my time down in southwest Florida. Fort Myers, Cape Gore. I lived on Marco island for a little while when nobody was out there during the summer. It was just beautiful. So I do love God's waiting room. It's one of my favorite markets. But I also am passionate about buying, like up in Michigan and Ohio, because I can buy for what I would pay for, like one property in Naples, Florida, I could buy almost like a block right in, in Cincinnati or Columbus, Ohio, or, you know, yeah, Detroit. Detroit's got a bad name. Everybody thinks of Eminem, you know, and the, the gang. And yes, there are some rough areas, but Michigan, I mean, you've got some great cities. There's Lansing, Ann Arbor, Bay City, you know, even Dearborn or other places around that neck of the woods. You realize people want a roof of their head. They're blue collar workers.

Right.

You know, those are great places and people want to stay. And sometimes you get a bigger bang for your buck. And if, you know, and you look at, oh yeah, I can buy 12 notes that are going to. I'm probably going to get six or seven of those. Get reperforming in the first 90 days. The other, you know, 40 to 50% of them, I may have to go to foreclosure or try to offer up a, a deed loo or cash for keys. Let the borrower go away. You can really spread your risk out across the board in a lot of cases. And so I always tell a lot of new investors, like, if you've got money and you're not, you're not just buy some performing notes, get that stuff cash flow, get your systems in place and then step out into the non performing side. Because there's. It's like a choose your own adventure book in some cases. Every deal, every deal is a little bit of a Hollywood drama story story.

Right.

You know, and so you just got to kind of figure through that. Or it's like we say it's a, it's a, it's a country western song, you know.

So at what point do you say, okay, like I know we try to be collaborative with you, but it's not working. Like, how does that work?

We usually try to give folks a 90 day window. You know, now with, now with COVID and everything happened there, we had to give people 18 months in some cases.

Okay.

You know, in some cases there's some states and cities are just getting back. Like Vegas is an area that I love that we like to invest in. They canceled all their foreclosures till the 1st of the year. So we just had to sit around and wait. And we tried to reach out to people and a lot of people needed a little bit of help and then they got back on track and that was great. Or one of the things that we really did is we started researching state programs or local programs and we start providing that education to our borrowers. Like, listen, hey, you're in Milwaukee, they've got a special program. Or you're in Texas, they got a $1 billion fund that you could tap into. And so the borrowers went and did that. That was great. They didn't. We just earmarked them to start legal as soon as we can. And you know, I glad to help people. Like I said, I empathize with it. But if, you know, I'm not, if you're gonna, I'm gonna give me an inch and you try to take a mile, I'm take that mile back.

Right? Yeah, you have to do your share. That's the whole point. It has to be a two way partnership. Okay. So it's interesting. It sounds like individual investors can purchase these notes, but also like if we have retirement systems, so they're buying pools of this, how does that work?

So yeah, you'll have like pension plans, insurance companies, they'll buy a big portfolio of paper. Usually they're buying like newly originated stuff or stuff that's government insured, you know, like buying, buying large pools of Fannie and Freddie Mac, stuff like that. But people can, if you've got a 401k or an IRA, you can move that into a self directed IRA, self directed custodian and use those funds in there to purchase notes with your Iraq or buy a pool if you need to. There's ways for you to do that. I mean you can't go to like Schwab and say hey, can I roll it into you? Because they'll say they have a self directed account. It is, it's only self directed for the funds that they offer up.

Okay, so usually like would the hedge fund be managing these pool of assets?

Yeah, I mean, yeah, hedge funds will buy a big portfolio, they'll manage them, they may raise capital with their own fund. You'll give a flat return on investment, 4 to 6% to folks and let them. And then they're going out making you know, 8, 10, 12, sometimes 25%. Depends what's going on in the deal and glad to pay the investor. I mean it's just like, I mean a bank's paying you what, 0.01% on a CD or savings account these days. They're going out and making you know, 4% in a mortgage, 18% on credit cards there. So you basically can become your own private bank by okay, you know, I'm going to buy a note that somebody's going to pay me 6, 7, 8%. It's a pretty good deal. Especially when you start looking at inflation these days or if your money's sitting in an account not making anything or negative.

Exactly. Okay, so now we're talking a lot about residential notes, right? But you also deal with commercial notes, right? So what's the difference? How does that work?

Commercial notes, it's a different ballgame. Whereas I mean every asset is completely different. With residential notes it's pretty easy to pull a broker price opinion or have an appraisal done or a compared to market having a realtor pull comps. I mean you can jump online, take a look at that Zillow, which is okay to look at but it's not the hard fact with commercial it's all about cap rates, it's all about rental rent rates and stuff like that. And then each location is different. So like I'll give you an example. We're looking at a self storage facility right now. Well you know, you have to understand the numbers behind self storage, how they calculate their numbers and then looking at not only what is performing, are not performing with that asset Is the borrower goods the management rate, what's the lease rate? You also have to look at the surrounding area and see because a lot of people will sell you. Oh, on the upside, it's only at 60% vacancy. You've got 40% upscale to lease it up. Well, if you reach it out to other self storage facilities and they're at 50%, you're not going to lease up faster unless you drop the payments and that's going to kill the market too for you. So I always say if you're going to get into commercial notes, you really need to be an expert in one or two classes. Everybody calls me weekly, hey, do you got any apartment notes that I can buy, you know, or multifamily?

I'm like, multifamily?

Yeah, everybody loves that. I'm like, well it's also the banks love it because it is the most overpriced asset right now. And so you've got to keep that in mind too. With what's going on in the market. In commercial notes, you often feel a lot like Sherlock Holmes. You got to do a lot of research on that asset because a lot of times the borrowers are not giving updated rent rolls or updated financials to the bank. So you've got to kind of try to track that down and figure that out yourself. So don't get me wrong, it can be great on the commercial side, I mean that's actually how I got started was buying a lot of small balance commercial debt from Capital One back in the day.

Oh wow.

They literally when I reached out to them and got to hold the right person there, after a couple weeks of calling around, they sent me a list that was 33 page PDF with all their commercial assets below a million bucks in like 6 point font. I could barely read it. And they're like, and I'm like, I can't buy this all. They're like, no, just buy something.

Please buy anything.

Yeah. So for those that are interested, a really valuable niche in the market right now is that small balance commercial in New York. I'd say anything under 5 million across the country, 2 million in a lot of cases. Because a lot of what happened this time around is a lot of the local banks, the community banks financed a lot of this debt on commercial products versus Wall Street. It was actually about 67, 70% of the commercial debt finances by small banks. Well, don't get me wrong, Wall street, they've been saving money for this downturn. So anything over 5 million, they're going to gobble up and run with that. But that sub 2 million value, sub 2 million debt, there's a lot of opportunity there if you're local and have a, a restructuring plan or a workout plan for it in some sort of fashion. But you really got to know what's going on with that asset. So it's a really, it's a whole different mindset and kind of due diligence aspect also costs you. The price point's a lot higher in commercial in a lot of cases. But of course, you know, it was nice too sometimes and depending on the bank, sometimes the bank will even finance your commercial purchase of their own debt.

They'll loan you money to buy it.

Well, they won't really loan it. They'll just move it from one side of the spreadsheet to the other. It's all zeros and ones. But yeah, they'll like especially if the existing borrowers walked as an operator as one expressed interest to walk away and you've got a management team in place or they can handle it. We've seen that happen. We're like, okay, we'll partner with you or we'll finance your purchase if you just bring 20% down or 10% down or we're so we want to get this off our bad side of the spreadsheet. Sometimes we'll do it and do nothing. Right now we'll give you a year to get back up track. So that's what's so great about commercial is it's banks don't want to lose that big balance loan. But if it's non performing, it's a non performing loan. That loan is really costing that bank somewhere around, you know, 10 times in fees because they're not able to churn that or leverage the funds that are, that would be coming off the payments and the balance sheet as well.

Wow. So interesting. So that's even another way that investors could look to purchase multifamily, I would think.

Am I right? Well, yes, multifamily just, it's just not allowed. It's non performing. I mean across the country, if I remember correctly. I think the numbers, I haven't checked the most recent but I think it was like 90% of all multifamily apartment loans were the bars or the renters were on time.

Right.

Now the one caveat or one niche of that is student housing. You know, at universities because people weren't going to classes and they canceled classes. Yeah, exactly. So that was a niche that people have been targeting. You also look at hotels. We had so Many hotels get bought up. A lot of people are looking at the distressed hotels and say, okay, this is. It's not flagged, doesn't have a name brand. Can we convert it to multifamily? Can. Can we reach out to the city? Do they need to. Do they need a place for Section 8? Do they need a help for homeless housing that we can get tax credits or stuff for? So those are the two niches that I think it's blossomed in the last, really, two years when it comes to commercial.

That's very interesting. So I guess the lesson for investors is to think really creatively, because you could take something like you're saying a hotel and turn it into something else, but you have to think outside the box, which I think is really what you've done with your whole business. I don't want to end this show without hearing because you're such an interesting person and you've had such a great trajectory, like how you got started to begin with in the world of real estate.

It's an interesting story. Like many people, I graduated college with a business degree, got married. I came from a small town in South Texas called Ingleside. My dad owned the local hardware store, so I was like the weekend labor for all the people. You know, I've built houses from the ground up. So graduated college, had a good job, making good money, and was like, hey, let's, you know, my realtors, like, you got great credit. You should be investors. Like, oh, yeah, we should. So we bought two rental properties almost simultaneously and rented them out to people like, oh, I can fix anything. I'm Tim the Toolman Taylor. We know how that goes.

And were they single family rentals?

Single family. And then I got laid off. I got laid off. And then my two tenants that worked for Dell Computers, they got laid off.

Oh, goodness.

And so we had a little bit of savings, but not much because we were in our 20s. And so literally, we went from making, you know, doing okay to trying to make six mortgage payments. Three first and three seconds on a private school teacher salary.

Wow.

Didn't work. So got rid of the two investment properties. Thankfully, I was doing whatever I could on the primary, and we kept our house, avoided foreclosure by about a week. And so I was like, oh. So like, for two years, I was doing whatever I could to make money, you know, and then got back, got into finance again and started working at a bank at JPMorgan Chase. Did really well there. And a buddy of mine that worked previously had also been laid off he had started a mortgage company with two investors that were traveling the country speaking at all these big real estate summits and expos. And he was. This is the time of like 2004, when mortgage industry was just going crazy. And so I joined, we started the mortgage company together and immediately, like a week later, I was on a stage in front of 1500 investors at the LAX Marriott talking about mortgages and investment loans. And so for four years, from 2004, 2000, I really had a four year apprenticeship and how to do real estate the right way with these investors. They were doing owner financing, buying and selling notes, fixing and flipping property. I learned all the creative ways from not only them, but I was sitting in the back of these big rooms taking copious amount of notes and really took that time to learn the right way of doing things. So that when everything hit The Fan In 2008, I left the mortgage industry and then just started dialing for dollars and calling the banks that we had originated for and buying debt. And you know, that's, that's sold everything. I ended up going through divorce. But then in 2010, like I said, I sold everything here in Austin and I thought, let me get on the road for 30 weeks. I'm a big baseball fan and along the way I would meet with bankers and stop and talk with asset managers, stuff like that. And just, it was an amazing, amazing ride there. And 2010, I was named the note educator of the year. I'm sorry, 2014, I was a noted career of the year in my industry. And it's just been, it's been, you know, you have ups and downs. I mean we've had amazing deals that do well, then we have amazing deals that drag out and just like any type of real estate too. So it's, it's fun.

Just tell me like what is. I get what the upside is, obviously what happens when it goes south?

Good question. So let me give you a couple examples. There's. I had a conversation last week with a fund who bought a portfolio of notes, $5 million. They spent it. They're used to buying foreclosure homes. Well, they bought notes. Well, they know what the heck they were doing. So for the last like three, four years, these notes hadn't been touched. So when you don't do any action, you're not keeping up with the taxes that are owed. The bar is not paying taxes. You've got to pay the taxes or can go to tax foreclosure and get wiped out or the property goes vacant, people leave and then you don't keep the property up so it gets trashed out, vandalized. I've had. We've had some investors that bought notes and then they moved to Europe and never called the servicing company. And so the servicing company's like, trying to track them down. Like, we got a borrower that wants to do a loan bond, but we got to get your approval because you're, you know, do you approve it or do you not approve it? So that's the thing is you got to know what's going on. You got to know the foreclosure time frame. You know, there's some cost to it. Like, it can cost you in a fast foreclosure state, like Texas, like 1,000 bucks to foreclose, but like up to $10,000 in a longer foreclosure state. So you got to have that kind of budget in mind. If you've got to take the foreclosure and then you've got to have insurance on it, too, which is not bad. Most of the time you can get the borrowers to pay for their insurance, their homeowners insurance, but if they don't, then you put force place insurance on it. I had an investor buddy of mine who had a property in Fort Myers. They got totaled by the tornadoes that just landed there, like last week. He's paid in full. His borrower is taken care of on the house because he had insurance on it, which will pay off the mortgage, which he owns. And he's made whole on that. So act of God can happen. That's why you have to have insurance. So it's just like anything else you got. Check the asset, make sure it's following up and taking action to do some things. Now, if something happens like Covid, where they delay things for a year, hey, it just happens, right? And this is, you got to roll with it. This is why it's going to be diversified along a variety of different assets so that if one goes south, you've got another six or 12 or whatever to make sure everything looks good in rock and roll.

Well, I think I'm a huge believer that when you're starting a new investment, a new venture, anything new, it's like you got to go to school. So I think that's really what you've created in this. In this niche where, you know, people have heard of distress notes, they don't really fully understand how it works. And I think that you are a huge wealth of information on this in a really, like, digestible way. You make it Easy and digestible. So I'd love you to just tell our audience like, where can they find out more if they want to get started? Where can they find out about your classes, about you?

Yeah, it's easy. You just go to the mothership of our website. We close notes.com and you'll find our classes, you'll find our different podcasts and we've got a webinar we do every Monday night. It's open to the public. Talking about a different topic in note investing. We offer a one day class, we call it note weekend on it. We offer monthly, on the third Saturday of every month. It's pretty inexpensive actually. If you, if your listeners at once. I don't know when this is coming out, but for listeners go to noteweekend.com and type in the code. We'll just make it. Ari, Ari. That work? All right.

For my youngest daughter. Perfect. I love that.

Perfect. We'll make it for you and this daughter there, Ari. And they can get in for free. It's normally 99 bucks, but we'll compliment for free.

Oh wow. I love that. I love that. That's really great. No, I think this is really very interesting and like I said, I think you just make it kind of, you simplify it and make it like it's obviously not simple when you're doing it, but for people to get into it, you make it tangible. And I really appreciate that. And it's great talking with somebody who does that.

Well, that's the thing, is it? It can be very confusing. If you're a brand new investor, you're getting bombarded with all the TV shows and real estate clubs and all these people coming to a city near you. Yes, you can flip homes in New York City. Nothing down and no money. You know what I mean? And that's scary. And so we've always prided ourselves that. I think back to those days when I was struggling and I'm like, listen, if I ever get through this, God, thank you. Let me try to help as many people out there do. I charge my time. I charge my time. But I'm also. We give a lot of resources to folks out there, unlike a lot of other people in the industry. Like, listen, here's what you do. This webcall, our three day class, note Buying for Dummies. You're going to walk out of there able to find fun and flip non performing notes and we'll show you how to raise capital. Three days, you'll have more knowledge than 95% of people out there.

I love it. I really love it and I think it's a great opportunity for somebody who really wants to learn and for smaller individual investors and also for the larger investor. So I think it's fantastic. Thank you so much for coming on, Scott. It was really great having you.

One thing here, you have to realize this everybody. If you've got a mortgage, a car, credit card, student loans, any type of debt, you're already in the note game. You're just on the wrong side of the payment stream. You know what I mean? So learn how to become a bank, learn how to do that stuff and you'll be it'll add value to it because literally we they're talking about all sorts of doom and gloom happening this year next. It's opportunity for you to take advantage of what's going on. There was more wealth created from millionaires in the last recession than in a positive time and we're going to see that again. And then for you guys and one last little thing here for you guys that are listening. We as podcasters love to hear from our audience. We love to listen to our followers. So ATAR is doing such a great job. Go over there while you're listening, hit that subscribe button and then hit that five star review. Kicking ass and take making names and excited. This podcast that she just shared with me will soon be coming to a video screen near you as well.

Yes it will. You heard it here first. We're going to start doing everything, not just audio but video. And then we'll have to have Scott on again. He's so entertaining, it'll be easy. Thank you so so much. Have a great rest of your day. Scott.

Hey, you too. Thanks for it's been an honor.

Sam.