Becoming a Samurai Note Invesetor - Slice & Dice

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This is the no Closer show where you get the latest developments in distressed note investing and learn the secrets of how you can control millions of dollars worth of property for panties on the dollar. Get educated and entertained by someone who has closed thousands of deals and lives to support you in achieving the same. Now, here's your host CEO of We Close nodes, Scott Carson.

Good morning, good afternoon, good evening everybody. Welcome to this episode of the Note Closure show. As always, Scott Carson. Excited to be here with the day and today's topic. I want to share with you a little thing like people get tapes in or we call a list a tape. You know, basically a pool of notes. Well, it doesn't mean something you're swimming in or peeing. And if you got little kids, a tape is not something like duct tape or masking tape or packing tape. A tape is basically an Excel spreadsheet that gives us a list of notes. And I'm always amazed and I get it. It's kind of normal when I get a tape in of something of that size, of any type of size, not, you know, like I'll give you a great example. This last week I bid on 11 performing notes that came in on one tape. Performing. I also got a tape in of over 250plus assets, another from another hedge fund with a mixture of performing and non performing notes. And I got a bunch of other one off deals to take a look at. So how do you filter through what's really a deal? I mean, without being overwhelmed? I mean, I've literally seen realtors and investors have panic attacks or come to near, I mean literally break down. They literally start crying because they can't come up with the. They literally cannot understand that not every note that they're looking at is a deal. I mean, let me give you an example here. I'm literally, if you're watching the video, you can see this screen here. This is a tape of 100 and some odd assets. We already got rid of like 75 off. Okay. I got rid of everything in New York and New Jersey for that death trap of a foreclosure. But it still left me with a tremendous amount of deals that I got to take a look at. Right, and how do you determine the deals from the dud? How do you take all the tape and turn it into potential deals to make offers on? Well, that's what I want to go through with you here. It's really pretty simple process I call it. It's like the Jim Belushi samurai guy. You remember the old Saturday Night Live sketch. This may be before so many times, but look at the samurai dry cleaners or samurai accountant Jim Belushi. And Saturday Night Live had a character he played which was a samurai who did a lot of normal. You know, it's a hilarious skits with my favorite Jim Belushi skits on Saturday Night Live. Of course that film before my time. But I've seen plenty enough the replays. Go check it. Jim Belushi Samurai DRY cleaner Go look it. Okay, but if you want to be a samurai, you have to start slicing and dicing your tapes to get rid of the stuff that's not worth your time. And you gotta know first and foremost you gotta know what you want to focus on. All right? Now that's the hardest thing. You know, I've seen realtors that when they get these lists in, they think every deal, every property on here is a deal because there's a buyer for everything. And yes and no. But you gotta realize we're not buying the actual property on these lists. It's the note, it's the debt. Now yes, if you go through the foreclosure process or you offer up the borrowers cash keys, you can end up with the property. But that's the first cardinal mistake that people that don't understand notes is you don't end up with a property. You have to assume. And I know, yes, assume means make an ass out of you and me both. But you have to prepare yourself that, okay, depending on what the tape tells you, the details of the spreadsheet, a big chunk of these may not be asked to be Montreal. And that all depends on what your buying criteria is. If you're looking to be passive and you don't want to do a lot of work because you work too much and you're looking just to invest your own funds and make a decent return, then what you need to do is look at the assets on the tape, the list and look at those that are performing, those that have recent payment streams. You know, I wouldn't look at anything beyond, you know, a few months and behind those that haven't paid in a year, it's a possibility to get back on track. You get a bigger discount buying non performing. But if you really don't want to do any work, then look for the ones that are performing that are making payments and get rid of anything else that's not performing. Now if you'd like a good higher yield like I do, don't mind doing some of the workouts and a bigger discount then you would look at non performing stuff that maybe they haven't paid in the last two or three years. And what my kind of filter is, I look at the last paid date and if it's right around, you know, fixing the, in the, you know, 20, 18, 19, 20. Okay, I'll look at it, see if it's still occupied. I will look to see if taxes are paid. Taxes are up to date, that stuff. That's a possibility of me getting that borrower back on track because I can buy that note, you know, at 60 cents of the dollar. If they're underwater now, I'll get rid of assets that have all this equity. You know, usually they show you the value, it's determined somewhere between Zillow or Trulia or they pulled appraisal. They give you a date for the valuation. They'll give you the unpaid principal balance. They'll usually give you the legal balance. They don't give you the legal balance. You can legally go see how many months behind when the last payment was made. So if it was four years old, well then you take 48 months times the P and I payment. That's a good, add that to the upb. That's a good rough estimate of your legal balance. Now of course there's latent fees and other things involved, but they don't have that on there. Then that's what you have to kind of go off of. And if that balance is more than the value, that's an upside down asset. Yay. If it's that legal balance or attentive legal balance is below the value and there's equity, then you're probably going to be bidding somewhere around 70, 80, 85 cents of the legal balance if it makes sense for you. Now you got, you know, what you have to look at to is get rid of the states you don't want to buy in New York, New Jersey on Keon. No, no offense to the folks there. Just takes too long to foreclose. But say if you live in New Jersey, it might make sense for you to buy in your backyard, especially vacant property, because it has a fast expedited foreclosure. You know, six months to foreclose on a vacant property, that's good. New York doesn't have that. But if it's occupied. No, I would, I wouldn't waste my time. I'd get, I'd get rid of states also that are difficult, like Chicago in Cook County. I get rid of anything in Cook county for the most part. It's hard to foreclose. There Kentucky's got some weird licensing requirements for bond. So I'm just getting rid of the stuff that honestly the states don't make sense. Maybe I'm not comfortable with. If they show me the property type like if it's a mobile home and I don't want that or raw lane, I'm getting rid of that. Anything else, you know, as long as it's not a mobile home. And in Texas I'll look at those. I'll even look at stuff in Florida too for the most part. But I prefer single family homes, condos. I will look at duplexes and triplexes, fourplexes too, you'll see some of that on there. But I'm gonna get rid of the states. I don't want to get rid of the assets, I don't want asset classes. If I want it to be performing then I'm getting rid of the non performing. If I'm okay with the non performing then I'm good, I'll keep, I may look at the performing stuff and then I'll just start running some numbers. And that's the thing is looking at some of the stuff you probably want to get rid of the low balances where it's like below $30,000 upb, you probably want to get rid of the high end assets, you know, anything over a half a million I'll get rid of most of the time because borrowers that can afford that will drag shit out for you. Okay so there's no reason to especially a million dollar asset you're going to expect to go the full length of the foreclosure. You better figure that out. So then it's all a matter about okay then looking at interest rates. If I'm looking to get a borrow back on track, what's their existing interest rate and if I get them back on track I would take the principal and interest payment times 12, divide that by roughly what I'm looking to offer any type of pricing suggestions that the seller has given me and I'll take a look at it and that's going to give me a rough ROI to get them reperforming, you know, rough because I'm not going to do a deep dive in every dollar and sent, you know, you know, nickel and diamond has been along the way because I'm, I want to get a bid in as fast as possible. So if that ROI looks like 15 to 20% that's a pretty good deal to bid on. Provide that I get at a good percentage to value because if I have to foreclose. I want to make damn sure I'm probably going to make around a 20% cash and cash earned return if I foreclose based on what I'm paying for the asset and then adding somewhere around five grand or more in foreclosure cost depending on the state. Now here's the thing. Most investors, they're not going to be able to make an offer. Look at 180 assets like I just did in basically 30 minutes and I'm not doing a deep dive. What I did is I got rid of New York, New Jersey, I got rid of the really, you know, like I said Cook County, I got rid of that. I narrowed down my list from that brought me about 180. From 180I took that down to 138 when I got rid of really low balances and then really high high values. And then I ran it by calculating legal balance. On this tape it had legal balance which is nice. So I basically took the market value minus legal balance to give me the amount of equity and then I took a percentage. What is that equity percentage as far as estimated value here. And then I re ranked it by equity percentages. Anything that had over 20% equity I probably kicked to the curb. If it had negative equity, I'm fine with that because I don't mind buying. I can buy the note at a cheaper price and go from there. And then I also looked at the numbers of the P and I payment, the principal and interest payment. If it's below 250, I, I really got rid of it. Unless it's a low balance that I can buy with my IRA. You know 250 is just small. Especially you have a ninety dollar a month non performing enough. It's a performing now and you pick it up. Okay, might be a different story. But you're using other people's money. It's really hard to make a lot of money on 250amonth payments. I prefer to be higher. But what did I do next? I also then looked at what was what left me with. Left me with about 70 notes that fit my 70 to 100. Somewhere around 70 to 80 actually if I remember correctly. And then I narrow that down by looking at the cities. If I don't recognize the cities, it's a rural property out in the middle of nowhere. I don't recognize it. I just got rid of it because I want to stick in most of the major cities now unless I already own assets in those cities and I own some stuff. Ohio and Michigan And Indiana out there is not the biggest of cities, but they've been performing stuff that's been really good. That is a decision that you have to make individual. Okay. You have to take a look at your assets and look at the list and say, whatever. What do I want to spend my time on? What do I have relationships with? If you live in Texas, but you got relatives, say, in Indiana, okay, great. If you got relatives that live in Florida, great. As long as it's not on the West Coast. You know, southwest Florida that got hit by Ian, that might be a little tougher. Me, what I also like to do is I like to immediately when I get a list in, I look at three states to see if there's stuff in three states. Texas, there we go here. I look at Florida. I love Florida. I also would like to look at Nevada for, like, lost Vegas, Reno in those areas. And then I also. Then I start looking at cities for, like, my students. Like, you know, like, I've got some students that buy in South Carolina. I've got some friends in Myrtle Beach. I've got some friends in New Orleans and Baton Rouge. I got some friends in Kansas City. I got some friends, you know, in Indianapolis. I start looking at those to see if there's something that I can leverage my relationships for potential buyers or potential wholesalers I could put that note to if they're interested. Or somebody can be my eyes and ears if I do end up taking the property back or as a potential future buyer. Okay. Now, one thing you may also want to look at, too. If the tape shows it, the spreadsheet shows it is, is it occupied or is it vacant? If it's vacant, you know, right off the bat, you're probably not going to get it reperforming. Okay. If the borrower hasn't paid in 10 years, it's probably not going to be reperforming. If there was once a bankruptcy on it and it's been discharged and that the current owner hasn't done anything with it in five years, it's going to be a foreclosure that may drag out a little bit. So these are things you got to take a look at. And how do you get better at looking at stuff? It's just experience working through it. You know, I'm not spending a big chunk of time worrying about value. I look at Zillow, and if you. My bids accepted, great, then we'll do it. Order a BPO to ensure their value or the drive by cma. If I know the area now, if there's assets. If there are assets on any tape you get that are in your backyard, okay, they're in your city or they're near where you're at, it will do you good to go out and look at the. Look at them, look at the properties. Drive by, don't go knocking on doors. But if you see the property's vacant, okay, go take a look at it. But if it's not vacant, don't. You don't wanna get shot, okay? You don't want the cop showing up. Cause I've had that happen before. Kind of a funny story I'll share with you at a later date. But here's the thing is go out, take some photos and use those photos. Use your map. You know, if you do use Batch Geo as a great service to map a huge list, save that map and say, hey, I'm. Where can I tape at? 254. And out of 254, there's four or five in my backyard. And you have individual photos of those properties that are in your backyard. That works. Even if you don't end up making any offers on a tape, you can still use that tape to market your business. Say, hey, I didn't find anything that makes sense. Or the ones that we thought we were gonna make an offer on turned out to be duds and not deals. It looked good on Zillow or Google Maps, but when we got out to it, it was trash. Okay? I can't tell you how many times that happens. Now, here's another very, very important thing. Every tape I get in, I save. I save it with who I got it from and the date of the tape. Now, most of you may not know this, but you can actually look at when you get a spreadsheet to see the info of it, when the tape was created and who was the creator of it. And sometimes they'll show, and other times it will be like an updated date relatively soon. You also want to look at the payoff date or the pull date, the last payment date. Like, the tape I just got in showed an Aug. 31 cutoff date. That means they pulled all this information as of August 31st. Well, it's a month and a half ago, okay? They're trying to figure out what they want to do. They pull some values. That's. That's normal, but the cutoff date is like six months ago or a year ago. You're dealing with a joker broker, and it's probably not going to be worth your time to target those deals, okay? And another thing that you want to do is pull three or four assets and go on the county records and see if you can't track down who the actual seller is. If it's the seller person you got it from, great. But for the name on the seller on the assignments, match up with somebody else and not the person you're buying from. Ask hey, are these your assets or are you brokering them? Don't care if you're brokering them. If you're going to make a commission, that's fine. But I don't want to be in a daisy chain. I don't be three, four or five or more. So that's, that's the thing, you know, get rid of the stuff you don't want. Get rid of the states you don't want to waste your time when focus on three to five. Identify. You know, part of why I look at Florida, Texas and Nevada is if there's anything pop up there, I'll remember the address pretty good. Or I can take an address and go search it and see up. Yep. I looked at this tape earlier, you know, and that's the case. This tape of 254 is actually left over from 900/990 assets we got six months ago. So that tells me something very valuable. The seller is motivated to move these because this is the tail end of the trade. Yes. Can we make bulk offers? Yes. Can we make many bulk offers? Yes. Can we make a one off offer? Yes, we could, but I'm not going to make a mini bulk off. I'm not going to make a one off offer. My goal is get an offer in almost immediately because I've got about a week of somewhere around 50 to 100 assets because my chance of getting something approved at 50 to 100 a 5 or 10 goes through the roof. Now if I just make an offer on 1, 2 or 3, my chance to get something approved goes down dramatically. That's a big key. It's a big, should be a big aha for you. Don't look, don't let what you have in your bank account or your checking account or your savings in retirement dictate what you bid. Okay, you've probably heard me say this before. If you've been listening to the podcast any at any time, start making offers, look to make a ton of offers and go from there and then start running some numbers. What's it going to look like if I get this reperforming? If I make an offer at $0.60 on the dollar of UPB when what does that look like if I get them re performing if I had to foreclose. And that's a longer thing that you can learn best in one of our workshops, my three day workshop, no buying for dummies.com that's the best place to do that because we spend a big chunk of our time on Sunday. That's day three of that going through that aspect. You don't have to attend one live. You want to get signed up where you can you get the replays and start learning that stuff without having to wait for the class. But it just takes time to look at deals and if you need help, you get a tape in, please reach out to me, reach out to talkwithscottcarson.com or email me at scottaweedclose Notes Hey, I gotta tape in. What do I do? I had that happen with one of my students today, Cal. He reached out to me saying Scott, I gotta tape in of about 60 assets. And we spent 20, 30 minutes going through it said listen, here's where your numbers are wrong. You're bidding on assets here that have a ton of equity. Like it's a non performing underwater. You got to change the model. If you're looking at assets with a ton of equity, you're going to change your bidding percentage compared to those that have no equity or negative equity. Otherwise you shoot yourself in the foot by over bidding or under bidding dramatically and you don't want to do that. And inverted breaks. It just takes time. This is not. It's not like pulling comps and figuring out arv. This actually can be a lot easier. But it's a whole different mindset of being a banker versus a fix and flipper. And like I said, easiest way, just get rid of the stuff. Slice and dice. What you don't want to waste your time with rural areas, small valued assets, small upbs, rural stuff, states. You don't want to waste your time whether you have no connection with and and focus on some things. Do not. I've seen tapes and so it's the hardest hit fund. Like if you're pulling a list off a paper stack. Oh, hardest hit funds. Yes or no? Forget that. Hardest hit funds don't matter these days. They're gone. All that money's been dried up for years. So don't target job. I'm just gonna target hardest hit funds. No big mistake. Okay. Because those money don't. That money's been gone cyanr for years now. So it doesn't give any billing. But you probably want to avoid longer foreclosure states like Chicago, probably something you probably want to avoid like South Carolina, Florida, because those are at least a year, but you got relationships there. It's an occupied asset. You may very well get the bar back on track if they buy it right, and they're not too far behind. Part of the key of our due diligence is getting a look at the servicing notes and seeing what the borrower's done or what the bank has done or the lender has done in borrower outreach. So make an offer, let the borrower come back or the not the borrower, the lender come back and give you more due diligence to help you quantify and clear your bid up. But don't sit here and stress about things. Don't sit here and oh my God, I gotta be perfect in your bid. Be perfectly imperfect on your first round of bids. Get a bid in something that's pretty close, that makes sense. And then see what they say as you can always counter, you can always spay. But the idea is you want your bid of 20 or 30 or 10 is going to be a lot look a lot more attractive versus somebody who's just doing a one off bid, okay? And your chance of getting something accepted is higher. And here's another thing, ladies and gentlemen, if you're not reaching out to every lender, every bank, every seller you ever dealt with in the last three or four years, if you've been around for a while, you better start doing so now. Now is the perfect time to do that, being the fourth quarter. I had a student reach out today who bought a portfolio four years ago, 31 assets. And he's like, okay, I'm ready to buy some more notes. I'm like, it's a different market. Why didn't you go and buy more assets over the last four years? Well, I was busy. I was like, let's stop the. You just got lazy. Yeah, I was lazy, but that's okay. You know what, it, it's like planting a tree. Just start doing, start getting your ass out there, start talking to people, start networking, start making offers, start looking at tapes. And feel free to pick up the phone and call me or email me, say, hey, Scott, is this a deal or is this a dud? And we're here to help you close more deals. That's what we're called. We close notes, not we talk notes. Because we've closed thousands of deals and helped students close thousands of deals as well. So go out, take some action, everybody. We look forward to seeing you at the top and looking forward to seeing new clothes. Some more deals here in 2022 and into 2023.