Become Your Own Banker with Scott Carson: Wealth Without Wall Street Podcast

Welcome into the show, Scott Carson with We Close Notes. Man, so glad to have you on the show today, man.

I'm excited to be here. I really appreciate you having me here this early in the morning.

We need your energy, bro. I mean, obviously Russ and I are a little bit on the slow side this morning. I don't know what's going on.

Well, you guys are a heck of an hour ahead of me. I'm not even drinking coffee yet. I just got a little in here this morning. And as soon as I'm finished with this, I'm gonna get a cup of coffee and probably a Red Bull.

Yes, absolutely.

Well, we're gonna be talking about note investing, and it's gonna be great because Joey and I know very little about note investing. So we're gonna pretend to ask all the questions that we don't understand from our audience perspective, but really we don't understand what we're gonna be asking.

I'm gonna. I'm gonna take good notes.

That's one facet of note investing, I guess you could say, if you take notes and sell the paper off to somebody. But one thing you gotta realize is everybody out there, if they've got a mortgage or a car loan or student loan, any type of debt, they're in the note game. They're just on the wrong side of the payments.

Yeah. They're the ones paying the interest, right? Not the one collecting it.

That's correct, man. Exactly. That's why the banks are the biggest banks out there. And most people think that the banks are in for the real estate play. Especially after they've been through the downturn like a decade ago. That's not the case. All the banks out there want your money to do more loans on the way they leverage. Every dollar for dollar comes in. If they can lend that out 10 to 15 to 50 times, they're much happier paying out a half point to somebody on a savings account or certificate of disappointment.

That's a great one. And our audience is very familiar with that. I mean, we teach the concept becoming your own banker. And they know the banks are the.

Evil.

Calls, the snakes and dragons come.

To the dark side.

Yes, but we need to be. I mean, we want to be a part of that.

Right.

We understand the value of taking interest and pulling it into our favor. So we're going to be talking about note investing or really, I guess you're going to be talking about it.

Because if I'm talking about it, it's.

Not going to be very interesting.

That's right.

So Tell us why not investing. How did you get into this business?

So I was a funny thing. Out of college. I got my securities license. It was a financial advisor. I worked for a little company called Smith Barney here in Austin, Texas. I see you guys perking up when I mentioned that name.

I know that guy.

And then I was making good money here, six figures. Bought my first house here, 100% down. Cause I had good scores. The Realtor's like, why don't you be a real estate investor and buy a couple more? Like, yeah, sure. I watch HGTV and flip this house. And I grew up in a hardware store with my dad owning one for 20 years. It's like, I can fix anything. Sure. And boy, was I mistaken. Six months later, I walked into the office one day, and you never want to see an arrow. Say please. Everybody's required to go to the conference room. And they closed the office location here. And that was not a good day. And when I was a young kid, you're not really saving a lot of money. You're buying a house, buying the new truck, the toys, trying to go along with it. And that was not a good day. That was a very bad day. And about the same time, a little computer company called. That rhymes with hell here, called Dell, laid off a lot of employees, moved their manufacturing somewhere else. And so the houses that I had tenants in, they couldn't pay. So I became a deadbeat borrower. And so what's kind of funny is I was making. It's not really funny. Then, it is now. Six mortgage payments on a private school teacher salary. And. And we were very lucky. I met a couple guys, I was able to sell those two investment properties, were able to pull my ass out of a sling, keep our primary residence, avoid foreclosure with a loan mod, and just kind of, you know, that was not a fun day. So I empathize with borrowers, and I'll get to that a little bit later on. But Fast forward about two years, I was back in banking with JPMorgan Chase. A buddy of mine started a mortgage company with a couple investors here who are traveling the country teaching creative financing, wraparound mortgages, owner financing, you know, distressed debt. And so I was like, that's what I wanted to do. And so I started working with them. And for four years, I basically had an apprenticeship, not only doing mortgages during the hot times from 2004 to 2008. And we made a lot of money creating, originating, and stuff like that. But I also was able to learn all these really the right way to be a real estate investor. And then when everything hit the fan and in 2008, I just left the mortgage company and started buying distressed debt, you know, from the same guys that I was originating for, if they were still in business and just started literally dialing for dollars to the banks. And they were like, yeah, we've got something. Please buy, please buy. At that point, it was pennies on the dollar, you know, but, well, that.

Was a good time. That was a good time to buy at a discount.

Great time. I mean, biggest regrets in life is I didn't buy more back then. You know what I mean? But, you know, I have a lot of empathy for borrowers out there because I've been through there. And that's one of the big things. I know you've got some. Your listeners are probably thinking, oh, you're buying a debt to foreclose and take the property back. That's literally my least favorite activity to do. I would much rather get, you know, buy the note. And we're buying still at a discount, you know, at 50 cents on the dollar or less for the most part. And reach out to the homeowner, try to say, listen, I know you've been through a hiccup. What happened? You know, sing me your country western song. And let's, you know, let's work to kind of get beyond that and create a win win. Let's get you back on track. And. And that works for cash flow for me. And really, we end up making the most amount of money by doing that.

Okay, so, Scott, I gotta jump in here. Someone is hearing this and saying, okay, I'm gonna ask the question that everybody's thinking, okay, you can buy notes. Like, what does that even mean? I mean, there's some people that are saying, okay, you can actually call up a bank and they have a note and they will sell it to you. Like, what does that process look like? Help somebody understand that.

That's a great. I'm glad you asked that question. And let's make a clarification. You're not gonna call bank of America, Chase or Citibank and try to buy your mortgage from them. That's not gonna work. Okay. Hey, hey, hey.

I'll call you back. Bank of New York.

I'll call you back. Yeah, yeah, hang on. Sorry. You sure as hell not gonna walk into the local branch, say, I wanna buy your notes. They're gonna say, you're crazy. We don't sell our notes. But on the truth Factor, every bank has bad loans. It May just be a little bit. If they're, you know, they're a one small branch, they're gonna be very aggressive in their underwriting, and they may not be able to sell a note at a discount. They may have to take it back. But the bigger banks that get going, they have plenty of stuff in their portfolio. And it's not going in and calling customer service, it's not going local bank talking to the vice president. Because when I was a banker, I didn't know this as well. But there's departments inside of your larger institutions. If anybody gets anything down out of this, the department's names go by basically two. They're either the special assets department or the secondary marketing department. Secondary marketing or special assets, not REO department. You call that department, they're just going to forward you to a black box that disappears. Okay. Or call the agent. Because once a property is taken back or foreclosed out and it becomes an reo, there's no more note on it. It's just the asset. And the bank is just going to list that with a realtor and move on. But yes, if you can call banks, you can call the corporate office a lot of times and reach out to the people in those departments that handle either the residential or the commercial portfolio, whatever your flavor is. And they'll have a variety of lists available that, yes, you can purchase. You used to have to have somewhere between 2 to 10 million dollars to play in that realm prior to 2008. But a debacle and shit hitting the fan will make banks change a lot because a lot of the buyers want to wait that point. And I say, I've joked around that it's been the wild west the last 10 plus years because it opened up an opportunity because the banks had this stuff on their portfolio. They still do to this day. It's not as extreme as it was. You know, at 2010, we had 15 million homeowners across the country that were upside down. You know, now it's still about three and a half million homeowners are still underwater behind. One in 11Americans are actually at least 30 days behind their mortgage right now. Think about that. Wow. And then there's about 700 to 800,000 people that owe twice on their house than what it's actually worth right now. So there's still a lot of opportunity with all the, you know, the origination side of new mortgages, all the boom going on. Right now we still are sitting at about a 3 and a half, 3 and a quarter percent default rate. In America. So that still means that every month there's about a half million homes that are going default depending on what's going on.

So business is good. Especially what you're saying. Opportunities there. It sounded like you described Joey and I's condo that both of us bought separately. As far as being worth half of what.

Yeah, we've agreed.

Located at is what I want to know.

Yeah, exactly.

All right, so we're going to do note investing for dummies. I mean Joey or dummies.

Hey, you know, I used to call my class that Note buying for dummies. So we're in the right spot then this morning here.

Or you can just start substituting dummies for Joey. It is the it is equivalent.

Really?

Dude, why'd you. I hope you got a joy.

We just met. Dang.

All right, so here's the thing. First, let's go back to the beginning, right. I want to start for me who has never bought a note. I can spell the word note because it's behind your head and I can see it. But as it relates to, I'm going to be looking at this as a potential asset, I guess like so one what, what asset is it to me? How does it benefit me as a potential buyer of this note? And then take me through those basic steps.

Yeah, no problem. I knew we were gonna go there. So the thing you gotta realize about buying, people always ask why would I buy a non performing note? You know, why would I, as I like to joke, a naughty note, why would I buy that? Well, the mortgage is still secured by the property. So we're only buying mortgages that are first liens or first mortgages. Some people buy seconds. I don't think it's a wise plate with the market being right now. But buying a first mortgage, there's a property attached to it, right? So with our due diligence, we look at two things. We look at the assets. So if we do have to foreclose, we know what we're gonna what that asset is worth. And that's why we're only buying about 50 cents on the dollar of as is value. Because if we do foreclose, then our plays then to sell the asset off either as an REO or keep it and originate a new note on that for cash flow or keep it as a rental. Whatever you want to do. Right. But our biggest goal is trying to get the bar to get re performing. So what we do is we look at what's their principal and interest payment look like and compare that to what market rent is? If rent rate is higher in an area for the same type of property, same location, then we know the best play is to try to just get them re performing, you know, so you feel. Let's run some numbers, make it kind of simple.

I think people spell that out for me. Yeah, I'm a little slow.

N O, T, E, S. Okay, so you get you guys in Birmingham. What's the meaning? Like, home price there in Birmingham right.

Now, probably like 222 30.

Okay, so let's say the house is worth. You say it's $150,000 value. Let's say they owe 170 on it. All right, so normal mortgage payment for 170, $180,000 house is probably about 1,000 bucks when you figure that out. Yep, yep. So a thousand bucks if we're buying at 50 cents on the dollar of what it's worth, usually or less. So it's worth, let's say it's worth 150, like I said. So we're buying the note at 75,000.

Okay.

All right.

So the bank's selling the note that they, they, they have at 175 all the way down to. You're buying it at 75,000.

That's right. But the borrower still owes the 175.

Right, right.

So we just, we buy the note, the property still shows in the borrower's name. It's just a transfer, an assignment of mortgage. So basically, the bank is just selling their receivable to us at a discount.

Right.

So we buy.

Just to clarify, the bank is willing to do this because why?

Good question. Because the borrower's way behind. Yeah, they haven't made a payment in six months, 12 months, sometimes four years. It depends on where the asset is located and the foreclosure timeframe as well. So you guys being in Alabama, you got a little bit longer foreclosure timeframe than say, like Texas, where we do everything fast here, you know, we're fast highways, fast foreclosures and fast executions. You know what I mean? Yeah, exactly. So bought the note for 75,000. If we can get the borrower paying on time again, that's our first goal. Like, hey, you're two, you're a year behind. You know, we have our servicing companies handling the phone calls, or attorneys are calling the bar. Hey, we're now your, your bank. And if you've ever bought, you know, got a mortgage, you probably got a letter 30 days after you close saying your mortgage been Sold. So it's that kind of thing. Hey, thanks for not paying ABC bank, but now you got to pay the bank of Scott. All right? And so that's our goal. Get them start performing. Hey, market rents 1500 your payments a thousand. What's going on? You know what's like I said, what's your, you know, what's your Hank Williams Jr. Song? Did you get drunk? Did you go through the big D? Did you get laid off? There's a whole variety of reasons. You know, we're willing to give people, you know, helping hand out. Okay, like I said, forget the 12 months right now can you start making your payment on time? A thousand bucks a month. Great. You can do that. Awesome. Let's get you started with that. Let's see, can you bring anything extra to the table? Because most of the time the banks want the borrower to bring the full 12 months to the table. And we all know most people don't have that much saved, right? So we say, well, can you bring a little bit? Can you bring two months, can you bring four months to the table? You know, let's work that out. Or if you can pay a little bit extra each month you bring two grand to the table. Now let's add $200 a month to your payment to get you caught back up and then we'll go from there. And one of the things that we like to do, if they're over encumbered, where they owe more than it's worth, after they make 12 payments of on time, we'll forgive the difference and re modify their loan down to full market value so they're not upside down anymore. So if we go back to the numbers, $1,000 payment times 12 is 12 grand. 12 grand over 75,000, what's that come to? It's about a 13% yield. If my numbers were right this morning, if the coffee isn't kicked in. Hang on, I want to make sure of this. I know it's early, but hang on, let's make sure of this. So if we've got basically 12,000 divided by 75,000 what we paid for the note, it's a 16% yield, right?

Yeah, I got you.

Now if we add another, we're gonna bring another four months to the table where it's now 16,000 divided by 75,000, that's a 21% yield.

Yeah.

Okay. Now our goal is get them re performing on time so that after 12 months of on time payment, sometimes six months, we can sell that note now at about 80, 85 cents on the dollar of value. So if we take values at that point 150 times, let's say 0.85. Now we're selling that note that we bought for 75,000 at 127,500.

Wow.

So we've got another, you know, that's another 52,500 in profit over 12 months because it's now reclassified as a performing loan with the payment history with a little down payment skin in the game in a payment that's still below rent so it's affordable for the borrower. So that's, that's our game, you know, that's the goal. It's not a 90 day fix and flip strategy that a lot of real estate investors like. I'm not picking out paint and carpets. Woo. Mine is a borrower play. And if they don't pay, hey, great, yeah, we make a good return because then we foreclose and then, and then take the property back. It's worth our time to go through a year foreclosure because we bought it so cheap. And then, you know, Alabama is one of the states that's got a year redemption period after foreclosure. Often pay the borrower a couple grand to give up the redemption rights or do a cash for keys to help them walk. If we can speed up that foreclosure.

Yeah, and that's a good thing for if you, most people don't know what cash for keys is. So explain that to them because I think that's a strategy that really can help you.

Oh, it totally does. Because, you know, foreclosure costs, you know, cost, you know, 1500 bucks here in Texas, 3500 if you're in like Ohio. Florida could be like five grand. Alabama's about five grand as well. But that's what we look at. It's like if I can give the borrower five grand to have them just sign the property over and walk away and that speeds up my velocity of capital. There's a Wall street term for you, right?

That's right.

That's a banking. Now, that's a banking term right there.

It's a Wall street term because we bring Main street to Wall street is what we do. I'm all sorts of terms this morning. Brain and blueberries are firing on full cylinders this morning. But, but what I'm, what I'm getting at is what was I gonna say now? Now you got a loss of your loss there, Joey. Thanks, bud. The whole goal is, you know, if we can work something Out. Look, we don't want to foreclose. You know, we'll allow people to do a short sale if they need to do that. We can get that. If people don't realize that. But our goal is, hey, let's give you some money, let's let you walk. You know, we've paid deposits on apartments or we paid moving costs for people to move out of the property. You know, we want to work. And the last thing I want to do is have a deadbeat bar, you know, trash my house. Which happens from time to time occasionally it's not as prevalent as you think because once you get involved and you send some letters and get an attorney involved, you know, hey, let's, we're serious about this. I'm glad to help here. You try to turn your nightmare into a dream again. But let's, we got to be serious about this. So you've got to make a decision in 30 days. Are you going to stay? If you're going to stay, you got to pay because you know, pay, you know, stay.

Alright, so let's talk through the bankruptcy situation, right? Because we, I know that that's got to fall in there some sometimes where you're going to have somebody that's going to go into chapter 11 or whatever it may be. And how does that affect you as a note buyer?

It actually is a good thing. Whereas a lot of real estate investors, they don't like bankruptcy because it drags out. For us, it's a bonus, okay, because it gives us somebody to talk to. They've got to hire an attorney and you know, they're going to pay their 1500 bucks retainer and they're going to usually file bankruptcy. Well, what they do when they file bankruptcy is they really open up the kimono and we can see everything. You know, if they're following a quick, what's it called, a quick report, like a nine page report that they've got to file. We can go to pacer.gov and check all the bankruptcy court, you know, with their information and they tell us what do they have in their savings, what do they think their property's worth, how much are they making? They literally tell us everything. And so when somebody files bankruptcy, it's going to fall into one of two categories. Usually either a chapter 7 or chapter 13 for the most part.

Right.

Chapter 7 is a liquidation. It means we're taking the property back, we're going to finish the foreclosure and take the property back. Some people think, oh, I'm foul, we can't keep the house. No, it doesn't work that way. Your attorney will tell you it doesn't work that way. In a lot of cases. We'll get, if the court, you know, if they follow a plan of bankruptcy, chapter 13, that's a benefit for us because that's basically going to be a loan modification for five years while they're working to get their payment plans back on their feet. And if they don't make, you know, they don't follow the payment plan, we can get the discharged and then finish the foreclosure process. But there are actually I've got a buddy on Wall street who runs $150 million note fund that all that they focus on is buying these BK Chapter 13 loans because it's cash flow.

Oh, okay.

And so that's actually adds value to the asset because it's more likely to be a reperforming note that we can keep for cash flow for a while. So I don't get scared of bankruptcy. It's a beautiful thing because now we have a person that we can talk to, we can really work things out with them and go from there.

Scott. Okay, that's awesome. I have a couple questions based on something before I. So I want to kind of tail back here a little bit. When you were talking about the initial investment, you bought this note for 75,000, you didn't say this, but I know that there's even more behind the curtain a little bit. That 75,000 may not always be your money. Correct. So walk me through now. You've leveraged potentially borrowed money to buy this asset and then still have those same returns, but now those returns go through the roof.

Yeah, right. A lot of investors are using their, they're self directed IRA funds, HSAs, ESAs, Roths, solo 401ks, they're using that, they're using lines of credit to fund these things. If they've got a line of credit. Some people are using home equity lines to purchase this stuff. The thing is, you're not gonna go to a bank and get a loan to buy a non performing loan. It just doesn't happen most of the time on the commercial side. Sometimes the banks that own the bad paper will, if it's a million dollar loan or greater. A lot of times if they know that you're buying the note and once you take the property back, or if they've been working with the borrower to get them out of the situation, sometimes they'll recast that loan and just move from the non performing Side of the books to the performing side. I've had that happen a couple times.

Interesting.

Because they don't want to lose the paper and a million dollar loan, it looks bad and their books is not performed. But if they can recast it now as they're performing their books, their bookkeepers and love that for them, you know, it's math. Isn't that great?

That's like our government, right? Pretty money. Wait a second, we just did away with our debt. It's gone.

Well, the thing you gotta realize is I think it was Clinton that passed laws. It was either Bush, Clinton or both of them did some things where they allowed the banks to recategorize their non performing assets, all their reo. Especially this for the bigger banks. They can move their portfolios of REOs off their books into offshore companies that made their books look good domestically.

Ah, nice.

That sounds fair.

Yeah. Especially the average Joe like you and me, let's just go ahead and move our bad debt, our bad credit card stuff into an offshore company that we're not responsible for anymore.

Yeah, I'll call the Bahamas later on today.

But this, what's scary is at 2008, 2009, 2010, we were leveraged across the country. The banks are leveraged like 15 to 1 in today's number it's 50 to 1.

Wow.

It's worse than it was. But people don't hear that because now they've got this creative accounting to be able to do that. But anyway. But yeah, you can buy, you can leverage stuff. We use other people's money to take this deal down. You know, we don't pool money. I mean I have a private placement, memorandum reggae in the process, in the works right now. But a lot, I mean a lot of people, you don't need 2 million, 5 million, 10 million to get in the business like you needed to years ago. There's a lot of banks, a lot of hedge funds that have bought portfolios, these pools of notes that are selling stuff off on an individual or smaller little pool basis. You know, I'll give you an example. Picking up 64 loans that are pretty much performing semi performing for the most part for about a million and a half right now, 1.4 million. And so, you know, we've got a lot of investors are taking those off. They're buying 2, 3, 1, you know, for their IRA, kind of get it working and going from there. So there's a lot of opportunity out there. We are seeing a lot of fix and flippers and lazy landlords. You Come on over fixing floppers, so I like to call them, and over rehab the property and didn't realize that they put all that stuff into it because we see stuff six months out before it ever hits the mls. We're not having to do the traditional direct mail or driving for dollars. Once we get it into those departments that we mentioned early on, the banks are often willing to send out lists to us on a monthly or quarterly basis that allows to cherry pick.

Now, you did just say that there's a lot of opportunity. But the biggest opportunity I heard is that you didn't talk about people leveraging their life insurance.

Oh, my apologies. Yes.

I mean, what an incredible opportunity under your nose.

Yep.

Our nose, right?

That's correct.

In fact, that leads me to a question, Scott. Not just a plug for what we do. We talk about the hierarchy of wealth with our clients. Okay. At the very baseline, we're talking about the safest of assets. The most control is in cash and cash value. Right. Thank you for that. And so the next level up would be things that you know and control. Things like your own business, for instance, is one of the greatest investments because you have a lot more control, you have a lot more knowledge. The next rung up would be things that are collateralized, like lending opportunities and real estate and things like this. And then the fourth one would be pure speculation, which most of our clients never even have to fool with because it's not even. It's not even. We never even get there. Where would you put no bankruptcy?

Yeah.

Where would you put note investing on that hierarchy scale?

I'd say the second or third level, you know, it's not really speculation because the fact is we have a hard asset, right? We have a bar where we can look at and really kind of gauge risk, you know. You know, a lot of people, where people make mistakes in this business is not doing their homework and their due diligence like anything else on an investment.

That's what I was going to ask, like, for it to become. I mean, for us, the Level 2 is really investing in yourself. Whether that's the business that you own, or it's just investing in the knowledge base so that you can do investing like this. What level would you encourage someone to start at? I guess where's the starting part on how do I start learning about this? How much time should I invest in it before I put my first dollar out there?

Oh, that's. Oh, my gosh, I'm so glad you say it. Cause a lot of people dive in and they make mistakes early on, they shoot themselves in the foot and you need it. This is a thing. This is a niche. It's definitely a niche. There's maybe 10,000 or less note investors that are doing like what I'm doing out there. It's definitely a niche. It's not the huge fix and flip. You don't see a show TV about the note closers because I don't need every yahoo out there calling me like, hey, can you buy my note? You know, with Chase, you know, that doesn't work that way.

You don't, you don't want those phone calls. So we need to take your phone number off the show notes.

Well, yeah, exactly. Well, I'm glad for people, hey, I want to learn to invest. I'm glad to work with those.

Right?

But it's a different. But what I'm getting at is yes, you need to learn some stuff. There's some great books out there you can read. We got a book how to buy real estate at 40% off. You get on Amazon or shoot me an email. Be glad to give it anybody your audience for free. Just learn about cash flow. You know, check, check out that stuff. Learn about mortgages. Have a basic understand of the foreclosure timeframes and the foreclosure laws that you're gonna be investing in. I've bought stuff in 30 states. I tell people, hey, don't try to eat the whole elephant, right? Pick one or two states. Alabama. Great state to invest in. Ohio, Michigan. Go where the inventory is at because those are good return. I don't would not recommend somebody buying in California. It's overpriced. Texas, since we have such fast foreclosure laws and it's a desirable, friendly foreclosure state. It's expensive here stuff. I mean, I live in Austin. I haven't bought anything Austin a decade here because it's overpriced for the most part, right? So do your due diligence. I mean, we've got a ton of videos online there that really are there just to provide content for people to understand because there's a lot of little niches in here. You know, you can't evaluate the same as if you're a fix and flipper or landlord. You got to look at things well, what happens if it gets re performing? Because there's a variety of strategies. It's either a gonna get re performing or it's not gonna perform. And then you've got either foreclose it short sale or some sort of liquidation exit Strategy. So you got to really take the time to dive. Not only get the knowledge, but base, but then also, besides looking at the asset and getting Realtors to pull good values. Always putting eyes on a property. Never trust a Zillow estimate that a lot of people try to do. Never trust the BPO value that the seller gives. You always double check it yourself. Because I had a person that bought a note, they didn't. Oh, they just went off a Zillow. Well, Zillow showed the wrong property. Great looking property. It was. They're like, oh, there's an empty kind of burnout next door. Well, that was what they were buying the note on was a burnout because Zillow had the street address wrong. You got to check that. And then if you're, you know, I'm a big believer that you're gonna make more money and the numbers make sense by keeping people in their houses. You know, if you buy a vacant property because you want to add more to your rental portfolio, if that's what you want, you're gonna have to fix and flip. You're gonna fix it up. You're gonna have to pay attorneys to foreclose. And if it's been empty for six months or longer, often you're gonna have to replace something. Whether the copper goblins have showed up or the air conditioner's gone walking, or now you have an indoor pool in the basement. You know, some people like that.

Yeah.

But you have to always do the due diligence and then even due diligence on the borrower, checking their payment streams, checking the notes from the previous servicing company that was handling it. You get access to that during your due diligence time, checking the loan file, the collateral file, making sure all the paperwork is in there to make sure that you have the right to foreclose or you really are buying something that you gain ownership to. So there's a lot of moving parts to it. And I'm a big. I get people I want to buy a note, Okay. I ask them three questions. If they humble, then I'm like, you're not ready. You got to learn what you're doing like anything else. Because the last thing I want anybody to do is put money in that they're going to lose money on.

All right, so what are those three questions? Maybe you just said them, but I didn't say them.

I said that there. That was a softball to you there.

Okay, good.

Joey.

I do listen.

He does listen. The first thing as I've asked him, I asked them what are they invested in before, you know, what have you. Are you doing fix and flips? Have you bought notes before? Great. Second thing, who's your servicing company if they're buying a note? Because a lot of people make the mistakes that they'll try to service their own mortgages. Like, they'll do the collections. Oh, I want. They're gonna make because they're gonna try to save 20 to 35 bucks a month when they should be paying that to a servicer to do that. They say, I'm a servicer. I'm like, nope, sorry, I'm not selling you a note. You need to have a company like Madison Management down in New Jersey who services all types of notes. That's a cost of doing business. You know what I mean? They're the ones that are making sure you're not violating CFPB law, fair debt collection practices law, stuff like that. And the third thing I like to ask him, okay, where's the money coming from that you're looking to fund this? You know, I had somebody call me like, I want to use my 0% interest rate, my credit card. I'm like, that's a dumb play. Should not be investing. You need to go back to financial school.

Yeah.

You know, hey, I'm going to use my IRA or use my insurance policy. Okay, great, let's. That's awesome. You're savvy. You know, what type of education have you learned? Have you gone to some workshops? Are you kind of learning? Or did you just. Or did you just attend a webinar some idiot in Texas is hosting?

Did you just listen to one podcast and says, I'm in?

Oh, my God, I'm a note investor.

That's right. Let me ask you this, Scott. So one of the end goals, end results of our clients are looking for is to create passive income to make. The end goal is like, maybe I can step out of my job. Maybe I can take a much more passive approach in my business. And how does this ever, if ever, does this business turn passive?

That's a great question, because I think that's the ultimate goal for anybody out there. They don't want to be an employee or they want to be, not necessarily self employed. They want to be a business owner and work passively to do. You know, people are putting in, I think that, you know, if they've worked the 40, 40, 40 dream, you know, work 40 years at 40 hours a week to retire in 40%, that doesn't exist. So, you know, these days, just talking to our folks at the government.

Yeah, exactly.

But yeah, there's. You can. One of the biggest things is that we love helping people, you know, hit that kind of passive and be able to walk away and do whatever they want and call the shots. And so the thing I always tell people is like, okay, let's look at what you need to bring in. What do you need to live comfortably on? And let's set that as your first goal. You know, maybe for some people this is a hobby. They've got 10 hours a week. They want to do something great. 10 hours a week. You can look, you know, look down if you want to bring in five grand a month. Great, five grand a month. Let's divide those numbers up. So if you're gonna buy a house that's got, let's say $500 a month coming in on payments just as a low inside, that means you need to close on 10 deals between now and the end of the year. That means. And most people have a closing ratio of about making 10 offers, getting one accepted and working through it. So that means you've got to make a hundred offers over 12 months. That means you eat. I make eight offers a month or basically two a week. That's not unheard of. A lot of people are doing that. So we really set those expectations up. Okay, so you need to put five grand. Hey, this one's going to pay your car payment, the one you bought. Or it's going to pay the electric. Electricity bill. Because that's the way you get to financial independence, is paying off the things that you need to do. And I did a webinar, those that are working. Hey, great. You're awesome. You've got your, your bills covered. You got that safety net to allow you to ramp this thing up as you need to without doing something stupid and diving into something that you don't have any income coming in. And because this is not a get rich business, this is not a, I'm gonna make a hundred grand in 30 days. You know, this is a. You got to put some work into it. And it's building wealth and cash flow over time. And you want to make sure that you're buying the right type of assets.

Yeah.

You know, and at the right price. That makes sense because I'm a big believer and I was talking to people last night at networking event. Especially when you start seeing hard money lenders pop up everywhere, you're like, that just doesn't feel right. I've been talking to mortgage brokers across the country and 100% financing it back and they're doing 100% loans like on the 520FICO. We're going to have a repeat of what happened 10 years ago. It may not be as extreme, but we're going to see that stuff happens and you got to be prepared for it. And so it's just like anything else. Put a plan in place, figure out who get your vendors, get the people, your team around you, you know, your servicing company, your attorneys, the collateral review companies that will help you out there for a nominal fee, those things in place, and really build your systems in place so that you can transition, whether it's in a year or two years into someone that's full time. If you want to make six figures, you can. I mean, we've got quite a few students have left their jobs, you know, making 152 grand a year because they focused on it. And, you know, they put a plan in place and at the end of two years, they bought 125 assets that they were working on, getting, performing, and now they're not having to work near as hard to do what they want. But it's all. It's like any type investment. You want to be focused on it. You want to learn as much as you can about it. Don't be a squirrel chaser, because you're not going to. And that's the big thing I see with a lot of people invested in real estate is they're trying to chase five different things. And that's, that's not smart, that's stupid. You're gonna waste your energy and you're getting burned because you're gonna try start applying rules from one niche of real estate investing to this other niche, and that doesn't apply.

That's great. Well, thank you for being a contrarian in the space. I mean, we ought to expect that from someone who is in Austin. Keeping it weird. Keeping it weird, right?

That's right, baby. Well, I'm just not wearing my soul glove this morning. Smoking weed on 6th street like a lot of people. You know, they talk about legalizing marijuana here in like the next year. Basic terms, nothing will change.

That's right. Well, thank you so much, Scott, for sharing value with our audience. We really appreciate you. If someone wanted to reach out to you or get more information on what you do, how could they do that?

Really easy, you know, just go. We close. Notes.com is our main website. Everything kind of runs through there. We have a podcast out there called the Note Closer Show Podcast. That's we're episode. Like 415, 420. Nice. So we really focus on a variety of different things with little niche stuff in the note space and vendors investors on. But we close notes is the best way to find us. You Google Scott Carson, the note guy, you'll find out way more than you want to see as far as content, but that's. That's the whole goal. I'm a big believer that if you give people the tools and the knowledge, those that really want to do something will step forward and do something.

Word on that.

Awesome.

All right, brother, thank you so much for your help. We loved having you on the show.

Hey, man, thanks for having me. Glad to be here.