Become the Bank with Scott Carson - Cashflow Hustle Podcast with Justin Grimes

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Welcome to the Cash Flow Hustle Podcast. The show providing listeners with massive value through guidance, tips and stories from a broad spectrum of active entrepreneurs and thought leaders in the real estate, business, financial and personal improvement arenas. If you find yourself on the journey to financial freedom and independence and are looking to get out and stay out of the rat race, then buckle in as we take a deep dive to help you achieve the life of abundance and fulfillment that is rightfully yours. And now, here's your host and fellow cash flow hustler, Justin Grimes.

Hey there fellow cash flow hustlers, this is your host, Justin Grimes. I appreciate you tuning into the show today as we explore actionable tips and stories aimed at creating cash flow and ultimately a more fulfilling life. With us today is Scott Carson. Scott, how are you, man?

I'm doing great, man. I'm honored to be here, man. Ready to get our cash flow hustle on this episode, huh?

Yeah, absolutely. Let's do it. Yeah. Appreciate you taking the time to hop on. So, a little bit about Scott. He is president of WeClosenotes.com and host of the Note Closer show podcast, Active note and distressed debt investor since 2008. Austin, Texas is his home. He's helped thousands of real estate investors with distress notes to acquire them and maintain the cash flow hustle. So perfect fit for what all we're doing and something I'm somewhat familiar with, but looking forward to getting a further education in the space, man. You mind telling us a little bit more about your background and what got you kind of started down the path to where you're at today?

Yeah, man, I started off out of school, went to school at Southwest Texas State University in San Marcos. Business degree, got out, was in sales, got in the finance industry through some friends and enjoyed the numbers game. Bought a couple investment properties here in Austin, Texas. You know, early 2003, 2004, just when the market tanked here locally for rentals, when a little small computer company that rhymes with hell started laying people off my tenants, which I thought I'd be the next real estate millionaire because I could fix anything and we watched hgtv, boy was I wrong. You know, luckily we were able to get rid of those two properties, keep our primary residence. So I have a bit of empathy for distressed borrowers because I was one at one point. Fast forward a couple years, was in the banking side, converted over to the mortgage side. Started a company with my guy buddy from the finance industry was rocking, doing a lot of loans for real estate investors across the country up to 2008 and the market kind of changed, obviously the music kind of stopped. So then I jumped from the great originating creating mortgage and jumped over to the non performing side. I started buying debt. I was fortunate enough that while we ran the mortgage company and a couple mentors that really kind of taught me about non performing debt because they'd also run a mortgage company back years ago and taught me the power of paper, you know, the amazing cash flow you can have and all the great exit strategies you can buy distressed debt at a discount. And so that's what I did basically from 2008 on. Now man, that's all I focus is on just buying distressed debt. In 2010 I basically sold everything I owned here in Austin, Texas and jumped in the truck with my dog and we drove around the country basically for three years just kind of preaching on, preaching the love of non performing debt to real estate and clubs investors. You know I got asked to speak at a lot of conferences. I still speak on a regular basis but really helped me blow up my business. And with weclosenotes.com it's just been an amazing ride. Moved back here about five years ago. I love Austin, Texas. It doesn't mean I buy anything here though. I buy is outside of Texas and Ohio, Michigan, Florida, Indiana, Illinois and a lot of other areas out there as well. But that's a little about me. Just absolutely love what I do. It's great fun. Every day is different because you never know what kind of story you're going to, you know, come across from a borrower, your servicing company. And we just see a lot of deals that we're constantly working through. So this year we'll probably mark the fifth year straight that we've averaged at least of closing on one deal a day for sure for straight. So we buy and sell a lot. Bought over a billion dollars in debt in the last, in the last few years.

That's amazing man. Yeah, that's some serious volume. Let's talk a little bit about, you know, I guess kind of the model we spoke a little bit before offline. My brief experience with creating the mortgage notes through buying a distressed property, rehabbing it, and then putting an owner finance model in place. What you're doing is actually reworking the note from a bank that's non performing at the time. Can you kind of explain the basics of that model?

Yeah, I'd be glad to. So there are still about four and a half million homeowners underwater there from 2010. We were at the peak at 2015, I'm sorry, 2010, of 15 million homeowners. And we still have a national default rate hovering somewhere between three and three and a quarter. So that's still a lot of people that are in default are upside down. I mean it's 1 out of every 11Americans is behind on their mortgage right now. Okay. And so what we do is we reach out to the banks and the different real estate hedge funds that have financed the organization originating loans, and we buy that debt at a discount. And the further in default that a borrower is, or more months that they're behind in the mortgage, the cheaper and the bigger the discount that we get by buying the debt. So some easy numbers, borrows 125,000 on $110,000 house, they're upside down, haven't paid in six months. We may come in and buy that mortgage at 50 cents on the dollar of either, the lesser the value of what's owed. So we could pick that mortgage up, say 50 grand. That gives me and my team a lot of flexibility to work out a loan modification, a trial payment plan, trying to keep that homeowner in the house. Cause that's what we ultimately want to do is instead of rehabbing the property, we want to rehab the borrower.

Yeah, sure.

So we can have that cash flow coming in on the right side versus us having to put cash flow out for repairs or attorney fees and things like that. So we buy those debts, we become the bank. We have all the same rights that the banker does. And it's like I said, it's just kind of trying to help the homeowner stay if we can. About 60% of the time we're pretty good at helping them stay in the house, which works out really well for us. The other 35, 40% of the time we're in some sort of foreclosure or asset liquidation. We're offering the borrower up cash for keys or deed in lieu. And a chunk of the time we're foreclosing because they just don't want to be helped anyway or they got their head in the sand. And in that case Then we take the property foreclosure and usually sell off the auction or list it as an REO and sell it off.

Okay, you guys, or you mentioned a little bit earlier some of the places that you invest, and I'm not so familiar with all the places. Maybe that's not such a friendly place to invest. Perhaps as far as the eviction or the foreclosure process goes, any of those stick out to you? Do you have any horror stories from any of that stuff?

Yeah. Do not buy in Crook County, Illinois. Crook often goes by Chicago or Cook County. Okay. They're horrible there to buy debt. They're just. It's not a great place to do it. Now, that doesn't mean other counties like Lake county is pretty easy to foreclose in or other areas of Illinois are great. But a couple other areas you don't want to buy debt in for the most part is New York or New Jersey. It just takes forever to foreclose there. You know, I bought stuff in California in the past, but right now, I mean, it's the land of fruits and nuts and the land of droughts. There's just nuts left available there. Distressed debt goes extremely expensive. They're like 90, 95 cents a dollar. So it just doesn't make sense. So I focus on the, like I said, the blue collar areas. I like to. If you're a football fan or a college fan, the Big Ten, the Southeast Concert, Southeast Concert, the ACC and the Big 12 conferences basically is what we're.

Buying as those are your strategic regions.

Yeah, exactly. Well, that's, you know, one thing just unites all of us is roi. Right. You know, we are all looking for roi. And I just like to go where the bigger bang for the buck is. If I was just trying to buy debt here in Austin, Austin's really overpriced for the most part. Just doesn't make sense. So years ago, had to go find and find deals. And when you have banks that are feeding you hundreds of assets a month on lists, you know why, you know, go where the. Go where the sources are.

Yeah, sure. Can you kind of talk maybe for the beginner out there who hasn't maybe been to a seminar, taken a course, or even even learned about notes, how are you finding these deals with the banks? You just walk into a neighborhood bank and have a conversation. Or just a little more sophisticated than that.

Or it's a little bit more sophisticated than walking in with a gun. I mean, we do feel like we're stealing a lot of times from the banks, because we get such great deals. But there are specific departments inside of every bank or lending institution that handles this distressed debt. And if anybody gets anything out of the podcast that you're not going to go buy, first of all, you're not going to go buy a bank note from bank of America, Chase or Citibank. Those guys are just too big. They sell them in $50 million portfolios. So if you can write a $50 million check, then drop me an email and we'll talk. But other than that, most of the banks that we buy from are like regional banks and, you know, a multitude of states, usually a couple hundred branches, but we're buying directly from within the special assets department or the secondary marketing department. Those are the two major departments inside of these lending institutions that they handle the distressed debt. And so if you just go to the local bank or call customer service, they'll often tell you, well, we don't sell our debt or we don't do that. Well, every bank, every bank sells their debt. You know, it's constantly being done on a regular basis. And you can, you can go to fdic.gov websites, you know, check their quarterly reports to see what kind of stuff they have available, what they're moving off their books. But that's who we buy from directly. Asset managers, secondary marketing managers. Inside the banks, there's also a lot of residential and commercial financing, like hedge funds, big financing organizations that are doing things not through a bank, but funding with private individuals. And they've got distressed debt off their books. So we buy from those. We also, you know, there's a variety of other smaller lenders, smaller note investors that we buy from, you know, throughout the country. Kind of a small, small group of rebels, I would say, you know, there's maybe 5 to 10,000 true non performing note investors out there.

Right? Yeah, it's a little different space, maybe more intimidating because of some of the regulatory nuances and things that you gotta understand or at least know about. But you know, it's. At the end of the day, it is possible. Yeah. You mind talking a little bit about some of that stuff that scares people off traditionally?

Well, it does because most people, most investors are used to doing everything themselves. They're the jack of all trades, the guy fixing the property, picking out the paint and carpet and hanging the for sale sign. In debt investing and note investing, it pays to have a team. And by team, I mean vendors. Like, I have a servicing company, Madison Management, they're out of New Jersey. They're the ones that Are communicating, you know, sending out statements. They're the one collecting payments. They also start the foreclosure process with our portfolios. We also have attorneys like I work with the Singer Law Group out of Irvine, California. If I, when I need, when I buy a portfolio, I have them do a lot of the heavy lifting up front to reach out to these borrowers to make sure that, hey, what's going on? Do you want to stay or do you want to go? You no pay, you no stay. All right? And we have attorneys that handle that. We have a servicing company. Most people think they're gonna be on the phones communicating with the borrowers. And that's, that's not correct. That's a violation. Oftentimes you're gonna violate fair debt collecting practices. Alright? You know, and it's better just to let the professionals do it and you be the investor that's going out finding more deals and raising more capital and then you're really just making your decisions and off the spreadsheets or emails from the vendors out there.

Okay. For somebody interested in getting in the space, I know we'll kind of, at the end, we'll wrap up with how to get in touch with you and all that good stuff. But you kind of talk about, you know, I mean, does somebody need X amount of capital or you know, what are some ways that people could get involved in this space.

So I will tell you this, the best thing you need to do is get a little education first and foremost. And I'm not here to pitch a class, but just be saying there are some basics. If you're brand new to real estate, you're trying to make money in 30 days. This is not the phase for you because there's a process to this. I mean, our average deal timeframe is probably 12 to 18 months. To get it, buy a note, get it re performing and then keep it for a while or buy note, try to work out with a homeowner. Then you start the foreclosure process. And that can vary from a month here in Texas to nine months in Florida or a year in South Carolina. So it's a little bit longer timeframe for that stuff. But starting out with capital, you're gonna have some overhead costs, attorneys, some workout fees, some servicing. You know, there's plenty of other people's money out there too. We do a lot with raising of private capital. And the beautiful thing is that since we're buying this debt at such discounts, it gives us the flexibility to add a little bit in, you know, 5 or 10% more on what we're paying for the note to the balance that we're getting funded to cover those fees across the way. So we got plenty of people that are funding, you know, getting this business without having hardly any capital, all because they're raising capital. But, you know, it doesn't hurt to have some money there because you're always going to have a expense across the way, whether it's in apartments or residential or whatever. You want to have a little bit of money put aside just to cover that. But most of the stuff that we do, about 90, 95% of what we fund is with other people's money.

Okay, yeah, perfect. Let's see here. As far as. Can you kind of go through maybe a case study on your typical business model? I mean, are you guys holding these notes for the term or you getting them re perform and flipping them and making some turnover that way on your cash flow?

Yeah, that's a good question. It's kind of a mixture of both. So, like, if it's a really great deal and I can get it in my IRA or keep it for myself, where it's gonna see like a 35% yield on, you know, we bought it cheap enough and we get it re performing great. You know, we buy a lot of contract for deeds as well that are like 9, 10%. And so we buy those at 30 cents on the dollar, get the homeowner reperforming and their interest rates at, you know, 9, 10%, get them re performing and they're rocking and rolling along. That's a 30% yield to us based on their payment stream. You know, we're always asking for a little bit of extra skin to gain for the bar to reinstate too. But oftentimes we'll buy at 30, 40 cents on the dollar. We get them re performing depending on the payment and the modification of the trial payment plan. Usually I'm performing for six to 12 months. Then we'll look at selling that note off somewhere between 80 and 85% of the unpaid balance. So it's a really nice 30 to 40% markup in six to 12 months. I like cash flow. Who doesn't? Cash flows, king? That's all. We're on the cash flow hustle here, right?

That's right.

A lot of people, I want to hold those notes that are reperforming for a while for term if we can, you know, hold on to it for, you know, three to five years, if not longer. But we all know a lot of people sell their houses to go from there. But that's the big goal. So let's, let's get it going. That's why I tell people, look, if you've got overhead, if you're working and you've got a job and you want to replace that income of five grand a month, you know, so you're 60 grand a year, just start looking at these assets, start just checking them off. You know, if you get. If you're gonna buy a note that's bringing in $500 in income and you're gonna split that with a JV or funding partner, great. You got 250 coming into you. That's. You only need 20 more assets like that to help you leave your job and start really checking those things off. Because you really build a lot of financial independence with the cash flow side. Now, I wish every loan modified. I wish every borrower was willing to work with us, but that's not the case. We still end up foreclosing about 40% of the time. And that's not bad. It's better than the national average. And when you foreclose or we take a property back, those often lead to bigger checks because then we're either selling the asset off as an REO or wholesaling to somebody else to make us good money.

Can you talk about that a little bit? We hadn't spoke much about that on the show. Selling it off as an reo, Some of the basics of that.

Yeah, I mean, well, the beautiful thing is we're the bank. And so if the bar won't work with us, we hire the attorneys. Attorneys start the, you know, the foreclosure process. We'll often offer up, you know, the homeowners a couple grand to walk away. We can't cash for keys or deep in lieu. They won't work with us. And that's fine. We'll take it to the courts and start the foreclosure process. Well, we being the banks, we can set the opening bid amount at the foreclosure option. So my biggest goal is I'd rather sell it at the foreclosure auction and be done with the asset. So we'll list it at 80, 90 since the opening bid. A lot of times with the way people are buying assets these days, that helps it get it sold. Boom. We just take the money back and then we go and double down, take that money and buy two assets down versus one. But if we don't sell the auction, then we take it back. Hiring, you know, real estate agent to Help us list it. And then we're listen, looking to sell it as at retail or pretty close to it, you know, somewhere between 90, 95 cents the dollar. I am not a fan personally of offering up for as an owner finance deal. I don't like that because then it ties my capital up for another six to 12 months before I can really get it out for the most part. So I'd rather sell it at 80, 85, get somebody in there who's motivated, maybe get an unbidding war. So two or three people are bidding against the same asset. So they're going to drive the price up. They're going to eliminate the concessions that they want to get it closed. Now I can take that money and get the velocity of capital flowing again. And I said go buy 2, 3, 4 more assets and just rinse and repeat and get the money rocking.

Nice. There you go. Well, Jim Cramer stuff there.

That's right, baby.

That's awesome with just for somebody. So we talked before the show. I mean, you guys are looking at doing roughly one a day now for the guy who's starting out and who's head spinning, you know, can you kind of talk through some of your first deals? What was your first year like? What's, you know, that that's just a huge volume.

Well, it is because I've been doing it for a decade and there are plenty of people out there that get in the business. You know, it usually starts off they buy their first one or two or three. And a lot of our students are buying, you know, 20, 30 deals in their first year, 12 to 18 months. It just takes some time to put systems in place because it's a different, you know, you're not picking up paint, carpet. You're dealing with your servicing company and figuring out, okay, are we going to foreclose or wait on a loan mod to come through those kind of things. So the best thing I can tell you, this is something that I absolutely love about the industry. We are a small, like I say, small group, maybe 10,000 investors, but really a very friendly group of people that are, let's say we coined the term coopetition. We're all working together, sharing resources, sharing vendors, maybe not sharing private investors quite yet, but sharing a lot of sources for our own business. So for those that are interested, we get a lot of REO refugees, people that can't buy and flip REOs anymore. We get a lot of tired landlords. We get a lot of wholesalers that, you know, can't find the deals that make sense. They come on over here and we spend a lot of time with the raising of capital. But they gotta keep in mind too, there's a lot of capital sitting on the sidelines not making anything. And so it makes it easier because we do really focus on a lot about the marketing side of the business. If you know how to market, you should be able to raise capital and be able to market up to asset managers either through LinkedIn or Lane Guide or something like that to find these deals. And it's just about you being a deal engineer to put the two together.

Perfect. Can you kind of talk real quick about your team that you've built together now? I mean, it's not just you. Like you said. I know you talked about vendors and things, but even behind the scenes there at your business, who all you got involved or how many people?

I've had, you know, staff of 10 and also staff of a solo here. When you're solo, you're doing a lot of things. You got to be really focused on your time. But we've got, I've got a full time marketing person, Shannon, who helps out with a lot of our marketing as far as on social media and LinkedIn and things like that. We have, I've got a team member in Orlando who also does a lot of due diligence on the assets. I've got several VA's that we pay when we get a spreadsheet in. They jump on and do a lot of the due diligence and help us eliminate the things we don't want to bid on. And get myself here. And then I got two other people that are asset managers that really spent a lot of time working and coordinating with our servicing company and our attorneys to make sure things are running smoothly.

Perfect. Yeah, I appreciate that. The team that makes it all work. All right, man, you can't be a.

One man band in this business. I will tell you this. If you're a one, if you're a lone wolf, you're gonna die. I will tell you that right now. You're gonna get overwhelmed with the paperwork. And don't get me wrong, you can usually manage somewhere between 20 and 30 deals by being a one man band. Other than that, you really got to look at bringing on an assistant or bringing on an asset manager. Help you stay out of trouble.

Yeah. Awesome. Makes sense. All right, man, you ready for the rapid hustle round?

Bring it on.

Let's do it, man. All right. First, a word from our sponsors. If you have ever considered investing in real estate, syndications but found yourself overwhelmed by the variety of content and all of the places that you needed to visit just to learn the basics. Then I've got just the solution for you. Goodegg Investments has come out with an online course called the Passive Real Estate Investor Academy, which truly provides a comprehensive overview of syndications, how they work, and how you can get involved in putting your money to work using these tools. I have personally taken the course and really wish I had this tool two years ago when I was just starting out. The learning curve is significantly shortened with this resource. Just go to thecashflowhustle.com course and click on the link provided to sign up for complimentary early bird pricing. What is your favorite resource, book, podcast or other that you found useful in your cash flow hustle journey so far?

Man Always thinking Grow Rich by Napoleon Hill. But one of the better books out there would be Outwitting the Devil by Napoleon Hill and Sharon Lecter. It was a book that was written in 1938, I believe by Napoleon Hill, but his wife would not let him publish it because it's him, in his words, having a conversation with the devil. And what keeps the devil successful by keeping people that are successful away from their focus. So the book talks primarily about how those people that are successful, the ones that are more focused, they they're not drifting and not chasing other squirrels. Their focus allows them to really accomplish a lot of things and do big things in life. So I would say that book by far is one of the best books that's helped me stay focused in life. Because let's face it, in real estate we get a lot of shiny objects thrown at us on a regular basis, especially when you're marketing or doing other things. I always come back to that book. I got to stay focused. Can't drift. Can't drift. Can't drift.

Yep, gotcha. All right, perfect. Great advice. Thank you. If you could give yourself one piece of advice, maybe in line with that or other, what would it be?

I wish I would have gone back and bought more deals when I started off, you know, And I think it scares a lot of people. Like, oh, I can only buy what I have available to fund in my accounts that time. And when I started off, I felt that way when I should have just gone out and bought so much more because things were so much cheaper. I mean, people, banks were literally giving assets away some point. And so I look back at that and so it's the same thing I'm always looking at now. Keep bidding, making more offers, realistically you probably only close somewhere between 10 and 20% of the offers you put out there as a new note investor. So make more offers, send out more emails to asset managers and funders. And look, you can go from 0 to 60 relatively quickly. It's just a matter of how much you want to market into it and be focused on it.

Got it.

Okay.

Awesome. Finally, how can the Cash Flow Hustle listeners get in touch with you moving forward, man?

Pretty easy. I mean, if you go out and go to we close notes.com it's we close Notes calm. We got all our great information on there. You can also, if you google the note guy or Scott Carson, I am not a soccer player in England, I'll tell you that. Okay. But we close notes.com we got a wealth of information on there. If you go to YouTube, we've got a couple, I think a thousand plus videos of webinars and training we have out there. We, we believe in giving the tools to people and the people will tell you if they're going to be successful or not.

Perfect. Yeah, I appreciate that. We'll have all that good stuff in the show notes and blast it out on social media as well when this thing launches. So really appreciate you taking the time to come on, educate us a little bit in the non performing and reperforming note space and look forward to continuing to watch you. And we Close Notes grow, man.

Hey man, thank you so much. So honored to be on here. Absolutely love your show. If you're listening out there and you're not subscribing or you haven't left a five star review, shame on you. Go out there, do that for Justin, man. Come on, subscribe and leave a five star review. It is worth it.

There we go. That's gonna be a commercial from now on. Awesome. I appreciate it. All right, we'll talk soon. Thanks, man.

Thanks man.

Thank you for joining us on this episode of the Cash Flow Hustle. Don't forget to subscribe and leave a review on itunes, Google Play or the listening platform of your choice. Also, please check out thecashflowhustle.com find us on Facebook or reach out on Twitter ashflowhustler for more useful content to help you on your journey to financial freedom. Until next week, embrace the journey.