Big Multifamily and Commercial Foreclosures 2024: Alpha Dog Capital Podcast

Oh, Alpha Dog, I love that.

Welcome to the Alpha Dog Capital Deal Flow Channel. This is where we talk about alternative investments that you cannot find on Wall Street. Listen and learn about deals, funds, syndications and business ventures. We are not investment advisors and we do not give investment advice, but we do talk about investments you may want to consider. Don't forget, always do your own due diligence. Well, welcome to another edition of the Alpha Dog Capital Deal Flow Channel. And today I'm talking with my friend Scott Carson. Once again we're going to be talking about note buying, but specifically I want to focus on commercial property and what's going on with, with foreclosures and big apartment complexes and other commercial property and Scott is going to fill us in on that. So Scott, welcome to the podcast.

Good to my Alpha Dog howl. Basically. Glad to be here, John. Glad to be here, man. And good to see you, buddy.

So yeah, good to see you. I see you all over social media every day. And for a couple of years I've been hearing from, you know, contacts that I have in the industry that apartment complexes are going to be foreclosed on and you know, commercial is really going to take a nosedive. And you know, I've seen it a little bit myself, but they've been kind of, let's say, not forthcoming with specific information. But man, you are on there showing pictures of these commercial buildings and giving specifics of prices and when it was bought and what it might be sold for, for clothes for now, what the value might be. So just from a big picture perspective, before we get into any specific deals that you know about, what is going on with is it commercial property in general or is it specific multi family or just kind of define that as well.

So I will tell you that history has a habit of repeating itself. Right, okay. And when I first got, actually I'm celebrating my, like in a week and a half I'm celebrating my 20th year anniversary as an entrepreneur, real estate entrepreneur, where I left my last job.

Congratulations.

Thank you very much. Thank you very much. So basically back in 2008 we started getting bombarded with distressed commercial debt. You know, and the commercial stuff in 2008 and 2009 happened before the residential stuff because the residential stuff is delayed with foreclosures and all sorts of bankruptcies and banks, stuff like that. But we started seeing a lot more commercial loans going to default to kick off the recession. A lot of it was small balance in apartments that were overpaid a few years earlier. Well, as I've been Watching this multifamily, specifically office space too, for the last few years prior to Covid, was really overpriced. It was the most expensive asset, most overpriced asset class out there. And you had people that were just buying it. Banks were glad to finance it at 60 to 70 cents on a dollar. And investors could technically kind of afford that even if they're paying it $0.70 on a dollar, because they were getting cheap interest rate loans and then they were bringing the other 30% on average to the table in the form of syndications. And private investors were funding that backstop. Well, that makes a pretty secure loan for a bank in a lot of cases. Well, most of these multifamily apartment investors, the whole idea was, oh, we'll hold it for three to four years or maybe five, and we'll refinance, we'll regentify the asset and we'll refinance out, cash out our investors and make a million bucks and go toodaloo down the road. Well, we all know what happened. Covid kicked in and then also the rates went through the roof. And the thing is that when these loans are starting to mature, which is what we have happening right now, we're going to have, I don't know, something like $100 billion in matured loans coming to maturity here in the next six months through beginning. I think that was much bigger than that. I think that's just one market. Banks, the paper isn't worth what was written on beforehand. Now, with increased interest rates and obviously management on a lot of these multifamily deals, the debt service coverage ratio, DSER, which they usually shoot for, is like one in a, you know, 125% of cash flow coming off of the debt coverage. Well, that number is not being hit in a lot of cases. And when a interest rate on a loan now is going to be double or triple what it was, that's going to reduce your net operating ground. That reduces the value of these apartment complexes on a cap rate basis. So now the banks are going, say, listen, if you're going to refinance, that's great, but you need to now bring an additional 20, 30% to the table because we don't value it at 10 million anymore. We value it now. It's, you know, at 6 million, you know, and you've got to do that. And so that's what we're seeing. We're seeing a lot of these hotels off. Office space is a whole different thing we can get to in a second. But hotels, apartment Complexes, commercial properties that people overpaid and they now they can't go, go back to their investors and ask for another 23% in cash. In a cash, you know, in a cash call to, to get it. They're basically losing. The banks are foreclosing and the banks aren't. I mean some of them are working it out trying to maybe a pretend expense mentality but for the overwhelming part of the stuff where this has been, you know, privately financed or Wall street financing and stuff, they're just foreclosing because look, if I, they can foreclose, they're going to wipe out any junior liens. And we've seen some of these properties that had huge liens attached to it from vendors and rehabbers and city liens, municipalities where they're not paying what they need to pay because people got in over their head and banks are foreclosing. I mean in here in Texas especially, you know, I'm repping with my UT hat today because I'm in Austin. Austin's been one of the darlings of the, the real estate markets out there. San Antonio just out there. But San Antonio is literally, I can almost hear the, the nuclear bomb going off in the multifamily market. This, this month alone 95100 million dol basically over 4 to 5 apartment complexes is set to go to the foreclosure auction here on July 2nd. And that number's probably going to be doubling each month for the next six months.

Typically these loans, when the deals were originally put together and the bank gave the loan on these types of loans, how long is the term? When does it reset? It's baked in when they get the loan originally, right?

Yeah, it's usually in a, vary maybe a three year to five year term. I mean some people like to try to get 10 years if they can. And those that had those 10 year loans, it may be a little bit higher interest rate but it's, it's, it's fixes in for a while now those that were bought three years ago and five years ago, you know, they've got to refinance. Well, what's happened like I just one of the apartments I talked about yesterday, it was purchased in April of 2022. It doesn't even hit the three year mark. And since Texas is such a fast foreclosure state, when we can foreclose, you get 90 days behind. We foreclose in 21 days and the banks are like this is not getting any better. Your cash flow is not covering it. So instead of Us you continue to not pay and management to keep going down the drain and you know, things I'll be taking care of, we're just going to foreclose and take it over and try to, you know, get our money back, you know, on a resale side, some sort of operator for a while.

So a lot of them, from what I see you posting that even if the bank forecloses they, they're not going to get enough to pay off the debt that they loaned.

Yeah, exactly.

Does that motivate a bank to maybe slow down the foreclosure process or are they more motivated to get it off their books? Explain that world a little bit because there's a lot of moving parts there.

There is a lot of moving parts and it's all gonna depend on that individual bank's balance sheets. Now banks are heavily regulated. For every loan they have on their book that's non performing, they've gotta keep a specific amount of cash reserves. And if a bank is keeping cash reserves, they can't lend that money out 10, 15 times on mortgages or loans and that affects their profitability. Now what's hurt the banks previously is that many of them were, you know, bought in the bonds OR were at 2%. Now those interest rates have gone up, bonds are at 5. So they're losing money on those investments. They're losing money on these banks. I mean not in the banks on the actual apartments, the commercial stuff. So they're looking at like we need to get what we can now. We just need to write it off, get it off our books because we can get something back that bad loans no longer our books now we can make up a chunk of what we lost on new originations, new loans and stuff like that.

Okay, yeah, that makes sense. That's, that's like real insight into how this, this world works. A lot of people don't understand that. Why, why would a bank, you know, take a loss? But they're getting double jeopardy, right? They're, they're getting negative cash flow or no cash flow from the asset and then they're, they've got other capital T in addition in reserve. So it's better just to get rid of it, get rid of the debt and move on.

Yeah, I mean that's the thing. And try to get what they can and move on from there. There was a new. Let me pull it up here real fast if I can find it. There was a now San Francisco. Different parts of the country are different, especially the office space.

Yeah, yeah, that's a Good point. This is very market specific.

Yeah.

Surely with these types of deals and transactions and properties and.

Right. I was talking to a guy earlier today and he was talking about. And he was out in San Francisco now. San Francisco Francisco, it's going to be the next site of the newest Jake Plissken movie, Escape from the Bay. You know, you've heard Escape from New York, Escape Valley. Well, now they're, they're just. They're not gonna have to hire any extras because all the homeless and the druggies are. Look exactly like the zombies in those movies. Okay. And there was an office spot out in San Francisco that sold, I want to say it sold for 90% discount when it sold previously. 90%? Yes. Here it is. Here it is. I just pulled up. It's a. Let me pull it up here in a second. All right, so it's. Yeah. Previous owner paid 62 million in 2018 for 90,000 square foot building. Yeah. This sold for 90% less when it's traced. Okay. Yeah. It was purchased by Starwood affiliate for 6.5 million. Wow. Down from the 62 million it was sold for in 2018. But it's downtown. It's kind of in that no man's land down between the civic center and then the main area downtown there. Oh, it's at 995 Market street, which. Let me just pull this up.

And so this is an acquisition that was made prior to coronavirus or during.

Coronavirus 2018 prior to Covid, it sold basically at. Oh, what would that be? If it's 62 million and 90,000 square feet, you know, a lot. Basically 700 a square foot. Now it just sold for $72 a square foot.

Yeah. Wow. So that. That's incredible. It's astounding when you think of the numbers just kind of pausing just a bit. So a 60 million dollar deal, typically the investors would borrow what, 75% of that, let's say.

Or they probably would borrow something around 60 to 70 at the highest. You know, really difficult now usually what we're seeing now too, with new loans, especially new financing with banks. Used to be if you got a loan with a bank, you just got a loan, you get a broker that reached around to find favorable rates for it. You know, she kind of shopped them all. Well, these days banks aren't allowing you to shop it. They want to have the actual banking relationship with you so that their deposits are in hand as well. So now it helps them with the reserve. Reserve balances they need to keep by actually having a Banking relationship that makes it even harder to get stuff done.

Right. So they're loaning, let's say, just Hypothetically, it's a $60 million purchase. The bank is putting up $36 million.

Yep.

And what is that for the investors?

About 24 million.

24 million. So this is like private investors that family friends and not family friends necessarily, but family offices.

You could throw that in there.

Yeah, family offices, syndications, people investing their retirement money or whatever. Private individuals putting up $24 million and the assets sold for. What did you say? 7. 7 million?

Yep. So the bank took a huge discount, took a huge haircut on that.

The investors lose all their money in that situation. They're wiped out and the bank takes a huge haircut.

Yeah, exactly. And that's the thing is if the banks. I don't know what they're thinking. You know, some are. Some of them are trying to work it out. Like we just had the Fairmont Hotel here in Austin, Texas, that was on the commercial watch list. Means it was starting to f. The debt service ratio was starting to fall below 1.25. Well, they just refinanced the lender, refinance them and extend the loan for a few years because they don't want to take the hotel back here. And it's right downtown, 6th Street, Rainey street, beautiful hotel. And so it's all dependent on what the bank's at. Some banks are more desperate. I mean, the big telltale sign is that banks every quarter have to file their. Their quarterly report on where they're at with their loans, their profitability, how much loans are in default, residential, commercial, how much is in basically coming down the pipeline. It's already starting to be defaulted at 30 and 89 days. So you can kind of tell Yahoo's in trouble ahead of time. And there was a report out that they said there's about 68 banks where their commercial debt, the loans they had in their books was not. Was 100, like 130% of actually the value of the assets. So they're up. So the banks are upside down on this commercial debt, which is crazy. So there will be more bank failures. There's going to be some funds that have already gone out as syndicators. Definitely. I feel, I feel sad for the guy out of Dallas. What's his name? Last name is Wolf. He bought back, you know, in the last four years he bought three big office complexes. One in Fort Worth, one in Dallas, another one in Cleveland with a goal of converting that distressed asset office has been Distressed since COVID obviously.

Okay.

Completed the construction on retrofitting and putting turn into a multi family apartment complex. Well, the Dallas one went to foreclosure six months ago, Fort Worth five months. And Cleveland goes to foreclosure this month. Three out of four and one in Atlanta. One in Atlanta is. The next one is set to go to foreclosure next month too.

I saw a post by you on that and the one that you just mentioned that they converted to a multifamily. So you know, I remember when that was happening and during COVID that, that was like a big play that the commercial guys are talking about. Let's, let's convert all this empty retail space into apartments. And now, now they're supposedly coming online, but if they're upside down, they're, they're just. So we have these renovated commercial office buildings that have been, you know, transfer. Trans. What do you call transferred?

I guess transferred or transformed. Yeah, they've gone through the transformation basically.

You know, so now it's an empty apartment building that is upside down on their mortgage. They're going to get foreclosed. Somebody, somebody's going to pick up really good deals.

Yeah, I mean, you know, if you can, if you got some dry powder. And there's a lot of Wall street guys have been sitting on the sidelines waiting for this. I mean, it happens, it happened back in the 80s during the RTC days or the same as the loan crisis. A lot of commercial real estate was picked up for pennies on the dollars. That happened back in 2008-2014 on that. And so we have it happen again. And, and the thing is, is if people are saying, oh, it's, you know, real estate's great, the markets are great. Look, this is the big domino that's fallen. I mean this leads to a lot of other defaults, distress in the market, you know, and it's just not, it's not something can be stopped overnight. It's that we're going to see this for another two, three years, I'd be willing to bet. And it's just, you gotta, you gotta work with it. You gotta, if you've got, you're in a syndication, you need to be really touching base with the, the operators. Hey, where we stand, one of these loans mature and be proactive and talking to the bank ahead of time.

Yeah, I've heard that there's a lot of investors in these syndications. You know, private individuals, they don't really understand that this is coming. They've got money in A project, they think it's great, it looks good, the pictures are fantastic and all the verbiage coming from the, the GPS or the general partners of these syndications are you know, always as spun, as positive as they can make it. But you know, somebody like you Scott, you have access to data and information that the average investor doesn't really bother to search for, doesn't know or, or doesn't have access to or whatever. And this is really important for investors to understand they, they, their money might be totally jeopardized of losing everything they put in.

Yeah, I mean there's a couple of resources I'd be glad to give your audience. I mean these are. You can always go to crexi.com if you're in the commerc estate side, you're probably familiar with them and reach out to the data side that they've got like a monthly membership where they can actually pull up all the loans that are maturing. But I actually like crediq@c r e-iq.com and what cred iq does is they're really linked into all the special servicers at the banks and all these third party and I think they'll give you a week for free. It's kind of expensive like 500 bucks a month to have access otherwise but that's a small price to pay if you're really doing these bigger deals, you know. But they got, these guys are so good at pulling information off from the special servicers behind the scene notes, what's going on with the asset point, the cash flows, who the operators are, the LLCs. Literally it's a, it's a treasure trove of information. If you're interested in the commercial credit side and I can search, you know what's going on in Texas or I can search by specific asset. So that's one great thing that is just valuable. We get a lot of our information from and then just trying to share. Of course anytime you have a foreclosure notice it's about public record. That's public record. People can see that every month and so keep an eye out. Every state's a little bit different how they diagnose foreclosures. If you're in a judicial state there's going to be a lis pendants filed before the foreclosure. If you're in a non judicial state you're probably going to have a notice of default. In most states Texas doesn't have a, doesn't file their notice of default. But what we do have Here that we track is a, is an appointment of trustee where the bank will hire a new entity, a new company to go in and start that foreclosure process, usually 90 days out. So I track that as well.

Okay. And that happens real fast, very fast in Texas.

We do it fast, baby. Fast highways, fast foreclosures, fast executions. You know what I mean?

Yeah, yeah, know it. So do you have any other examples? I mean you've posted a lot, you know, not. I don't want to catch you off guard, you know, but do you have anything that stands out in your mind of all the projects that you've been posting about? Is there about the one in San Francisco and yeah, I mean the one.

I came across yesterday, this 324 unit in San Antonio was bought just a couple years April of 2022. It was part of a CLO, a combined loan. Oh, I can't even never remember. But basically it's combined cross collateralized with another loan, another apartment complex of 276 units. So between these two properties, 700 units that the hedge fund, that Wall street fund basically paid $55 million for. All right, that's what they paid. Okay. Not what was, you know, that's not all it was financed. But both of those are going, they're going away, they're going to the foreclosure auction next month. That one really surprised me. Collateralized loan agreement basically is what it is, the clo. So collateralized loan obligation.

So it sounds like a leveraging one asset to purchase another asset. Almost like taking a line of credit out on one asset too.

Well, basically we're gonna, it's a, it's just a cross collateralization. Now there are some of these big firms that had hundred million, a billion dollars in dry capital to go out and buy these properties. Almost like they pull them together. So if one goes down, guess what? It takes the other ones with it. Yeah, I saw there's a 600 unit, 624 unit literally about a mile from my house here in Austin that I drove by last week. Not a bad looking house, but the, just the, they can't afford the, the syndicators, operators aren't paying management, the property management filed like $150,000 lien against the property. So they hope they can get paid. But in a foreclosure, guess what, that's a junior lien that gets wiped out, goes away.

Wow. So what's your sense? This may not be up your alley, but you probably have an opinion anyway. I could see 2017, 18, even 19. It was really hard to predict that coronavirus would come and then interest rates would shoot up as fast as they did. But it seems to me that there were a lot of syndicators in the middle of interest rates going up, or as interest rates were going up pretty sharply, they were promoting deals, multifamily deals, and getting into them. And I don't know, you know, why the banks would go along with that. You know, seeing that there was a high degree of uncertainty and the whole world was turned upside down and they were raising a lot of capital to get into these deals at a time where interest rates were already going up. So do you have any opinions about that?

I could, I can give you insight on this because here's what happened. The people that were around for 2008, 2014, those people have all retired, got their golden parachutes and moved on. And what you have happening now is banks still need to make profits, financial institutions, Wall street still needs to make profits of some sort. And so, yeah, they're willing to finance if a property papered out and it could fog a mirror at that 1.25 DSCR and somebody was willing to bring 30% down where they're sitting in a decent leverage position. Nobody has a crystal ball, you know what I mean? And the way they look at it, it's like, well, if we do have to take it back, we'll take it back and we can operate it as an asset and put a receiver in it and operate it for a while until we sell it off. But you just have people at these banks and institutions that weren't around for the last crash. They now need to make money. They need to show their investors positive returns. And so what you're going to see, I'd be very surprised if a lot of bankers or bank presidents aren't retiring early, taking their stock options to, to head off into the, into the sunset. But it's just, that's, it just history repeats itself, you know, area get, they get greedy. We need to do this and everything keeps going up. Nobody wants to think ahead. I mean, 2020 is all, I mean, hindsight's always 2020. Well, I shouldn't have done that. I shouldn't have done that. Well, you should have thought about this beforehand. And like me, I've been through an up and down before. I'm like, why people are paying these ridiculous prices at 90, 95 or 105% of the cash flow right now doesn't make sense. But hey, they get investors to show up to seminars and fork over their 50 to 150 grand in an IRA to get it fun. You know, that's what happens.

Yeah. So is it still happening right now or is it kind of the tables totally turned the other way where syndicators have backed off and say no, we can't oversell this anymore with the cat's out of the bag.

I have seen, I've seen articles and I've heard, I've talked to some folks where there have been some contracts canceled, some purchases canceled based on what's going on. And so that's a good thing right now. You know, people are like, no, the numbers just don't make sense. Or we move into this kind of like driving a brand new car off a lot. We're going to buy it now and lose 20% value in the next year. The minute we drive it off because of comps up like that. That's kind of what's happening. The real play here, that I would tell you if I was this big apartment syndicator, but being the debt side of things, is any type of, you know, when you start looking at these lenders and these companies who are foreclosing a lot of our portfolio lenders are small banks, I would be reaching out to them and say, listen, I'm willing to offer you an offering after you foreclose. You know, let's figure something out. Because a lot of times these banks will carry financing. If they can get somebody off the books, they have to carry it. So it might be an opportunity like you know, $6 million property in San Francisco if a bank bought it or bank took it back. You know, they might be, if you could bring a million down, they carry the 5 million for a while. You know, you really got to be conservative in your, your, your, you know, noise and your cash flows and stuff like that to figure that out. But I, there's a, there was an article up, but more, I think more private investors can get together and offer longer term financing. 10 years, 15 years on a lot of these commercial plays. They kind of will go through this up and down peak just to kind of let sit out and let the market settle for a little bit instead of being smart.

What, so what is the play, you know, for somebody like yourself and what you do and buying notes, you know, it's, you know, if you can buy a note before it forecloses at pennies on the dollar or 10 cents on the dollar, is that a good play?

Let me correct you. We're not buying 10 cents of the dollar anymore for the most part of value. Now it might be 10 of what was owed based in the market value.

Right, right.

Hello. But it's all about what you do with the asset. If you're in, take the asset back. Part of, part of the reason that foreclosure is so nice, and I hate to say that foreclosures never use that, but it's nice if you're notice is it cleans, it cleans the assets so you don't have any, you know, junior liens or outstanding obligations. You really technically.

Yeah.

You know, and that's the thing is if you can pick up something, you're probably still going to want to end up foreclosing and then expect to operate it. I mean, this is where partnering up with some apartment operators or office operators, if you've got cash that can take it down and they're around for the long haul, that's going to be good. I often, I often think about the movie the Big Short, one of my favorite ones, you know, and I think about Christian Bale's character in there, Michael Barry, who he plays in real life, and how for like six years his investors were like demanding him to cash out. And it was like a negative return, negative return. But he knew there was a big payout at the end and so when everything, finally the dust settled, he was able to give his investors a huge return because they hung around and he just told them, no, I'm not returning your money until this plays out. I think that's what's going to happen. I think you're going to have to obviously hold these for a period of time and if you can break even in your investors or you were happy breaking even for a couple years, it'll rebound. As long as there's an asset class that's still needed. I would be buying office space to hold for office space. I'd be looking for either turning into, you know, multifamily, it's affordable, or if you're in a town that's got a lot of issues, maybe turn it into homeless housing. Maybe you can get some government grants, Section 8, stuff like that, because we, we still need a lot of that stuff in different cities. I, I made the joke today about that San Francisco thing. Hey, well, if they, if they started turning into a homeless housing, they would probably fill it up pretty fast and have the government pay them on a per person basis. That's kind of like what Blackstone is doing up in New York State. They bought a lot of these single family homes above Value at peak of the value. And now they're getting 400 or 600 per person in each house, in each room. So if you have five people that, you know that house is now throwing off 2500amonth in rent when market rent might be 1200.

Yeah.

And they're just holding it for a period of time. And I wouldn't be surprised. We see more of that happen.

Yeah, yeah. Hey, earlier you mentioned something about hotels and you kind of. I think you had it in a different category in your thought process. Tell me about hotels. What's going on?

So that's a. It's the same similar thing. Overpriced or areas that haven't recovered. What you saw do well, probably during COVID have struggled as people have gone back to the. The normal, normal living. And you know, they're not living. Somebody's so rural or stuff like that, they're looking to basically get back a little bit more. You know, hotels have been a mixed bag. Depending on where it's at. Some places are doing well. I've recovered. Others are just downright in the dumps. And you know, that's the thing is that something like that a hotel I saw, I saw at the COVID I saw people had a new hotel, turn it into apartments because it's a pretty easy conversion and something like that. Or people turned it like we've got a hotel down the street here that the city bought and it's going to turn into elder care, senior housing and stuff like that. Yeah.

Okay.

So those are some things to look at in a city by city basis. What the city needs, you know, maybe they're willing to sell. I mean, the guy that owned the hotel here was ridiculous. You know, something maybe is only worth five or six. They were able to sell for 11. And you know, just ignorance, ignorant spending by cities. I mean, heck, if you got a hotel in San Francisco, sell it to the city for.

Yeah, yeah. Whatever it takes to cash out. Right.

Yeah. I mean, hotels have been stressed for a while. You know, there's stuff in Orlando. It's one of the big things. There's so many hotels down there that are struggling as things get more and more expensive. People are, you know, cutting back on vacations. They're not traveling as much, and the tourism industry is directly rated like that. And hotels are struggling.

So is there a parallel that you see between multifamily apartment complexes and hotels? Or they. Or the tracking a little bit different? Because it's a different. It's a different business model, actually.

Yeah, it's a different business model. I mean it's a real estate play, but it's, it's a different business bond. It all depends on the financing and you know, how, how well that asset's been performing right now and how you, if you can squeeze any more capital out of it. I got a buddy of mine who bought a hotel in Hot Springs, Arkansas. The and he bought it direct from a hedge fund. Hedge fund. Had foreclosed on it in 2020 and had operated it for two years. And he was, he bought it for seven, seven and a half million. It's a historic hotel right next to convention center, the Hot Springs hotel, basically. And he bought it and the bank financed him. 100% finance. They just wanted off the books and they said, well, we'll give you a mezzanine loan for the 30% down that we want you to bring, but we'll give you that for five years. So he's got five years basically to refinance out the hedge fund on that second lien position, but he's got long term financing in place on the first. And so that's an opportunity, if you can see that and see what's going on and put effective management and market an asset to, you know, drive in new rents, increase your rents or drive in more heads and beds in the hotel aspect of things. That's what it comes down, comes down to more than anything else.

So I want to transition in a minute to what you do and the note buying business and, and whatnot and note selling and all that. But is there anything about what we just talked about that I didn't ask you or that you want to add in terms of the foreclosure looming foreclosures on these big commercial deals?

You know, every state's different. Every state has a different foreclosure time frame. I mean, you're in Georgia, second fastest to here in Texas, 30 days there in Georgia. States like New York, you know, two to three years of foreclose. Yeah.

What's a foreclosure?

Yeah, yeah, exactly. You can just, I, I know a guy that I had a guy that had a rental property, had to pay a mortgage in seven years, never been foreclosed on. You know what I mean? He kept renting. It was making cash flow each month and never paid the bank on.

I'm just like, there you go.

So here's the thing. I would, I would highly. If you're gonna be looking at buying some stuff, you definitely want to identify states that are friendly to lenders, landlord Friendly. Those are two of the biggest things. Make sure there's, you know, most of these things aren't going to have a big redemption period. But you definitely want to check your taxes out on, on these things, see what's going on. If you can get the cash flows or the financials on these. That's one of the most important pieces of due diligence. I mean you often have to feel like you're Sherlock Holmes because if the borrowers aren't operating, they're probably not providing updated financials, the bank or the lender too. And that's what's leading to part of the foreclosure process. Just really do your due diligence. This is not something that you should look at today and then go make an offer tomorrow. Do a deeper dive, see what's going on in the residential note business. You know, we can send realtors and other people out pretty easy. It's pretty easy to pull comps with a CMA or BPO or have a realtor right from the, on the commercial space. It's much more in depth process. You want to walk it, you want to see what's going on. Talk to the city if it's going to be a transition of an asset and really get a feel for what the issue is. And if there's an opportunity, there's just going to be some of these assets. They're just going to turn into zombie commercial buildings, vacant, you know, that nobody can do anything with because they're just too expensive. Maybe the banks don't want to take a discount and then they go to tax sale, you know, and then you got to know what to do then too.

I think a lot of, a lot of investors, this play of these buying these foreclosures is really for people with deep pockets and a long time horizon.

Yeah.

And it's not for the average Joe jumping into it.

No, I mean it's not. I mean if you can, if you. It all depends on how motivated the bank is to the lender on this. I mean the more motivated, the more stressed they are. They, they may be willing to play, you know, take a little bit more of a haircut and be more flexible on offering you financing just to get off their books so it can be turn into a cash flowing asset for them of some sort. You know, that's, that's something that, I mean it does help to have bigger pockets but you got to be patient. This is not a, you know, I'm a buy and fix and flip it and get rid of it in six months. This is like you said, it's a longer term play. But this is where we're going to see more wealth created in the next four to five years. And there's also going to be some folks who have had a lot of wealth that are struggling. I think New York City is a great example of that. Some of these well known families are taking it on the chin. I mean people are trying to sell. I had people reaching out to me in code during COVID trying to sell me fully leased apartment complexes in New York at 50 cents on the dollar. And I was like, there is something that smells really wrong with this. And I'm like, yeah, it's not worth the 50 cents. It may look like it's cash flow wise, but.

Right.

Long term wise. No, it's not.

Right. So let's, let's talk for a few minutes before we go here about your business and your note closing. Note buying. You've got some podcasts and you've got a lot of valuable content that you deliver and I think opportunity for investors to get into the note buying business. So let's talk about that a little bit. Just tell us about what you do and what's going on.

Yeah, we're very fortunate. I mean we, I've been a big proponent that marketing is one of the first things we do every, every day, in and out. And we've got the number one podcast. No, the no closer show out there. I released episode 871 this morning.

Congratulations, that's awesome.

Yeah, thank you, thank you.

We've got the number one a content, a social media content engineer or company.

Is I work from home. I don't have to run around trying to do a million things. I worked here from the bat cave. Okay in the most part, but it's, it's, this is all I do. I mean I don't have kids that. Not that I know of. You know, I don't get the four legged kind. Yeah, you know we, we love Austin here. It's nice. Austin's getting crazy though. But this is, this is what I do. I love it. It's a great way to share information. I mean I was very fortunate. When I first got started as a real estate investor, I had like a four year apprenticeship learning the note business of the mortgage business and attended so many conferences and seminars. Being a guy in the back of the room taking copious amount of notes that I, I like sharing that information. And we've got the number one YouTube channel, weclose notes TV. We teach classes on this. We have some coaching but we make the majority of our money off of the actual deals that we do. And so we help people buy notes whether it's a, you know, portfolio of notes. Like we've got an investor that reached out to us at a portfolio of 12 first liens that they're, we're helping them sell. You know, it's somebody that reached out to me and said hey, can you negotiate on our behalf to try to buy this note on this commercial building? Like yeah, I can reach out to the bank and I know what to say and what not to say to see about getting us brand and make some money off of that. But it's, it's an interesting time and I'm one of the few guys in the industry that actually talks about the distress side of note investing. It's a niche within the niche. Most people think note investing, they think of owner financing a property and going that route. Well, I've been buying direct from banks for over 20 years and so we just, we just show you how to do that. So I have a free class if you'd like to learn kind of the basics. Doesn't cost you a dime, don't even need a credit card. If you go to nopeweekend.com you can take my yep, one day, three half hour class, kind of learn the basics of note investing and that can help you on, on the path to being more educated and going from there.

Okay, so tell me, describe the typical person that the avatar if you will of the person that would connect with what you do, that, that would benefit by what you have to offer. What, what kind of. I want my audience to really think about their situation and to see if this might be a good fit for them.

So it's funny, I have students that are 17 up to 85 but the normal avatar of our listeners students is college educated, has a sales position, management position, homeowner 35 to 65, making 75k to 250k a year. They're tired of working the rat race or as if they're a real estate investor. They're tired of dealing with toilets, tins and trash outs. They're tired of dealing with rehabs and want something a little bit more passive that they don't have to worry about. You know, working so hard they can buy this stuff and do stuff all from all across the country from where you're at on the case side. So they're looking for passive income whether they're more active, maybe the non performing side. They want to be more passive, you know, buying, performing or reperforming notes that they can get at a, you know, eight to double digit return or more.

So the typical person that, that comes into your sphere, if you will, are they partnering with you and your company on deals or are you training them to do it? Be an independent contractor if you will and do it.

Yeah, I don't, I'll partner with a few folks, we'll make, partner some of our coaching students. But for the most part, if people are coming to it, I mean, we'll show them how to do it. Well, you know, I'm available for phone calls. You can schedule a phone call my, my calendar at any time by just going to talkwithscottcarson.com and the way I've always looked at it, John, is if I teach a person, if I give them a fish, you feed them for a day. If you teach them how to fish, you feed them for a lifetime. And my goal when I started teaching years ago was to show people how to do this because hopefully when they do get a list of notes in or tape or an individual asset, hopefully they remember, hell, let me call Scott, let me go talk with Scott Carson and see if he can help me out in the deal. So we'll, we'll do some of that partnering or hey, you got to tape in. Well, I'm interested. I'll buy those, these assets and then call this person to buy those assets. So that's the, it's a whole goal for education.

It's a win, win. Yeah. Yeah, that's great. Yeah, the net, the networking, the value of networking in real estate investing. As investors. I teach my, I teach a monthly meetup and I put, I put not, not the, the amount of content that you put out on social media, but I put some content out there.

You do? Yeah.

I tell people all the time that the networking, coming to the meeting live is no substitute for that. That's how I, I do it locally here and the local investors to meet. And I learned real estate investing by doing exactly what you're describing. So anyway, you're bringing great value to people that may not know. There's probably a lot of people listening that may not know and fully understand the tremendous value there is to doing that and connecting with you and the content that you have. So that's awesome. Want to just give everybody an encouragement to sign up, log on, sign up and, and get connected with Scott.

Well, we're here to help. If you're listening to this or watching this, make sure you hit that subscribe button, make sure you leave. John a five star review. We, as podcasters and content creators, we like to hear from our audience and listeners out there and see how we're adding value to you. Sometimes it feels like we're out talking to the, you know, into the space, but it's, it's good to hear back from you. So I appreciate that, John, but you're, you're doing an amazing job and we met from a networking event out in Vegas a couple years ago and we, you know, I still talk with probably half that group. Yeah, that's funny. My phone's, my phone's been ringing off the hook. Or email has been ringing off the hook a little more often now on the distress side.

Yeah, I bet. That's great. Well, good, Scott. I'm going to leave leave notes in the comments in the notes section where people will have your contact information, links to your website and all that. Is there anything else that I forgot to ask you about or anything else to hop. Hop off this episode?

You know, I think the biggest thing is get educated. Educated. It's important. If you come from the fix and flipping side or mortgage side or the real estate side, that's great. It's good to have a knowledge. But this is such a different niche, real estate investing, it's a different mindset. Especially when you're going with a banker's mindset that I have to take and then the investor's mindset, you have to flip back and forth a little bit to see what makes sense. Because sometimes your investor mindset is going to tell you to do something that would not be good as a banker mindset. So get trained is what we've got, the free class for you to take, to learn. And if you really are interested, then let's, let's jump on and carry on a call and see if it's the right fit for it. For some people, it's not a fit, you know, and that's okay. But I'll tell you this. Get in the game doing something. It's still a great time to buy a real estate. I mean, real estate basically doubles every seven years on the residential side or sooner. Um, if you can afford to get into it, just get in the game somehow. Get networked, partner up with people. That's the most important thing. That's where I'm at today because I've just partnered up with people and learned and networked my ass off.

Yeah, that's, that's great advice, Scott. And I'll just add or, or emphasize what you said this way that there are so many different ways to make money investing in real estate and whether it's note buying or buying rentals or whatever and market conditions may dictate maybe some of those strategies aren't good but it sounds like the note buying business is always good if you know what you're doing and you have the right training.

So you know, we've had, we've had ups and downs. I mean there's sometimes where it wasn't as much inventory on the normal side of things that we would see but there's always distress debt. I mean with 80 million on the residential side, if there's 80 million mortgages out there, we have a 2 to 3% default rate. That's still a lot of distressed stuff in the markets and we're just going to see those numbers.

Yeah. Yeah, absolutely. Well, Scott, thank you again for coming on today's podcast. Great seeing you.

Yes, thanks for having me, John. Honored as always, Buddha.