Buying Notes With Scott Carson From Alpha Dog Capital With John Marion

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. Welcome to another episode of the Alpha Dog Capital Deal Flow Channel. And today I have a special guest, Scott Carson. And Scott is in the note buying business. So Scott, why don't you take a few minutes to introduce yourself and tell everybody what you do.

Yeah, thanks John. Honored to be here. Oh Alpha Dog, I love that. I guess you guys say I'm the note dog. Basically. For the last 15 plus years I've been buying distressed debt mortgages on residential commercial properties all across the country for my own portfolio where we buy that debt direct from banks and lenders. Awesome. Texas home. I've been a real estate investor since 2001 when I bought my first home and really, really love it. I've been a full time investor since really haven't had a normal W2 since 2004. So for 18 years I've made my way in the real estate industry as an entrepreneur and investor out there. And so we buy in about 30 different states across the country. Like I said, buying both residential commercial notes and then working to really kind of keep people in their houses or keep property owners in their property can by either modifying the loan, restructuring the debt or you know, working with a borrower walk away without them having a huge judgment on their, on their record or anything like that. So yeah, so that's what I do. I buy notes about over a billion dollars in distressed debt in the last 15 years. And you know, my company's name isweclosenotes.com. so that's exactly what we close note. It's a one off note all the way up to a larger portfolio of 100, 200 notes.

Well, I definitely want to take a deeper dive into what note buying is about, but you said a few things I just kind of want to back up. Before you got into note note buying, you were doing real estate deals or you were investing in real estate. What were you doing?

Like many investors, I was wholesaling property, I was doing some rentals. I took some stuff over subject to when I first got into real estate Back in 2001, we bought our first house and we immediately bought two investment properties back then because we had such great credit and it was Very easy to get financing back in the day if you fogged a mirror. And so I always thought I would be the next, you know, rental king, you know, the landlord king here in North Austin or Round Rock, Texas. And then unfortunately, I mean I was working at a full time job. I got laid off. My tenants got laid off from their job working at Dell Computers. So we were trying to make six mortgage payments on a private school teacher salary. Okay, not, not very pleasant. I empathize people who are behind on the mortgage because I was a deadbeat borrower back at that time. We were just doing whatever I could. We got rid of the two investment properties, kept a primary, kept it going to foreclosure. And so I licked my wounds for a couple years as we got our, got my assets out of a sling, I guess you could say. And I was fortunate enough to meet up with a couple investors here in Austin and a buddy of mine introduced me to them and we started doing mortgages. In 2004 I left corporate America and started doing, we ran a mortgage company that was traveling the country and doing investor loans for, you know, fix and flippers and then also cash out refis. And from 2004 to 2008 it was really nice, John. I kind of had a four year apprenticeship with these investors. They were traveling the countries, speaking at all these investment seminars and expos And I was in the back room listening and learning and I applied, I took what I learned and applied it in my in market. So like I said, I was buying real estate and doing light rehabs and fixing flips and rentals and doing like many investors and trying to be a jack of all trades, you know, adding tools, my tool belt. And then when everything hit the fan in 2008, I sold my part of the mortgage companies for a buck basically. But I'd already started buying mortgages because that's, saw an opportunity there and I had a couple mentors that taught me that space. And that's all I've done since then, really, just buy debt.

Okay, so let's, let's jump right into that. What, how, how do you buy notes?

What? It's a good question.

A lot of people have no idea what you're talking about.

So when I, let's, let's let me bring it back to what is a note. A note is a mortgage. I make the running joke that we're all in the mortgage industry. If you are paying on a mortgage your student loan payments, your credit card bills, medical office, I mean medical debt or whatever, it might Be, oh, your credit cards are. You owe your brother Bubba down the street 500 bucks. You're in the notes space. You're just on the wrong side of the payment screen. You got it going out. Well, you want that payment coming in. And that's what we do is we actually, we reach out to a variety of different banks and lending institutions and their internal departments. I mean, you're not just gonna go down to your local Wells Fargo and say, hey, I want to buy a note. They'll laugh at you. So we contact these asset managers at banks and they. Every bank has non performing debt. And by non performing debt, that means where somebody has not paid on their mortgage in at least 90 days, it's actually in default. And, you know, debt buying has been around for centuries. You know, it's not anything brand new, but it is a very small niche within the overall lying picture of real estate. And so we contact these asset managers and banks and they send us lists. It may be one note, it may be 900 notes of people who are not paying or mortgages that they want to get off their books, that they would rather sell that debt to us at a big discount because they're not paying, that we. Then we buy that debt a big discount and we work it out. It's a win for the banks because now they get 50 cents on the dollar versus not getting anything for a while. They can take that 50 cents on the dollar and go out and rinse and repeat and lend it back out again. Whereas we, if somebody owes 100 grand on a $100,000 house, if we bought it at 50, that. That gives us a lot of flexibility, John, to talk to the borrowers and listen, what happened, you know, what kind of country western song have you gone through to get laid off, Divorced, you know, grandma got run over by a reindeer. What happened? You know, how can we get you back on track? And that's kind of what we do is we're buying first liens, mortgages, and then that's our biggest goal, is not to take the property back and rehab the property. Our biggest goal is to actually, I like to say rehab the borrower. And I like to say that we are making America great again. One default to borrower at a time.

I love that. It's funny to think about that, but really, I love it because you're really helping people out in a significant way. These are people that probably were dealing with a big bank where they can't have a personal conversation with anybody. And then you come along and you Own their note and start talking to them. Tell me about those kinds of conversations that you have with people when you get on the phone with them.

Yeah, so let me, let me, I want to clear something. We're not buying from Chase or Citi or Wells Fargo or Bank of America. Those are the bigger five. If you want to buy from them guys, you're buying $50 million at a time and it's not really affordable and they're not good, but that's okay. That's at least like 4,000 plus lending institutions across the country. So yeah, it's, I mean those conversations are always unique. And the beautiful thing is this is a very vendor driven business. So I'm not literally, if I buy a hundred notes, I'm not having 100 conversations. Borrowers, it's. We have a third party servicing company that handles collections and handles the borrower outreach. Make sure that everything is Dodd Frank compliant or that we're not violating any Consumer Finance Protection Bureau laws or anything like that. So that when you're dealing with debt, you've got to follow some guidelines. You can't be calling say, hey, pay me now or I'm gonna show up and kick your ass. You know what I mean? Can't do that. You know what I mean? You gotta follow some guidelines. Some states have stricter licensing guidelines in other states, others are just, if your servicer is licensed, you're okay. So. But we do, I mean, I do hear what's going on with borrowers. I get a report from my servicing company and attorneys and it's always, hey, this borrower would like to, you know, do a modification. And it's always like, okay, well what can they bring to the table? I mean, they haven't paid in a year or two years. Cause of COVID you know, what can they bring? You know, can they bring a thousand bucks? Can they bring four months of back payments to the table? You know, what's, what's, why did they stop paying? Do they get sick? Have they been unemployed? You know, some people will like to hide their head in the sand, but you'd be surprised what they share on social media these days. You know, and we do it, we do a little social sleuthing and you know, you'll find it like, you know, like we had a guy who's a professor for the University of Missouri, he been sick, he'd had cancer. Well, that's kind of a logical reason why I can't pay his mortgage, you know what I mean? And so we were able to work with him and his spouse keeping the house. We had another one where the guy was out of Illinois and he was an author and speaker, and he broke his leg. So he couldn't speak, you know, for a few. For a few months. And kind of got him behind the ball and kind of this, you know, this avalanche behind him. And we stepped in and said, okay, I see what's going on. We see that you're doing this. Let's get you. Can you start making your existing payment now versus the six months you're behind? You're like, yeah, I could start making existing payment. I could pay $100 or $200 extra to allow me to get caught up. At the end of the year, I'm back normal. I was like, let's do it. Let's just do that. That'll work for us. And so you love helping people. And then you also got the people that, like, am I going to pay my mortgage this month or going to go to Disney World? We're going to go to Disney World. And I'm like, yeah, no, homie, don't play that. Baby. You. I get it. You want to have fun. But guess what? You can. You can get Disney plus versus going to Disney World. You know, we've had another guy who was going through a transition. He was, he was paying for his breast implants and his breast enhancements for versus paying his mortgage. I was like, okay, great, you're an entertainer there of some sort. But no, no, no. Yeah. And we've had most, most of the time, John, 80, 85% of people out there, they want help. They, they, they're willing to work with us. They, you know, they want to stay in their house. They don't want to lose their house because if they know pay, they know stay. You know, we try to try to modify. Or if, you know, if they've got a lot of equity, we could help them sell the property. Or if they've got a 401k, they could cash out that 401k and pay us off. Or, I mean, we, we're pretty easy to work with if a bar will talk with us and be honest with us. But if they're going to lie to us or not answer or be really gruff on the phone or tell us to go pound sand, I'm like, well, then what we do at that point is we just turn it over to our legal team, our attorneys in every state, and they start the foreclosure process from there.

Yeah, so. So I really like what you're doing in Rehabilitating the borrower. I think that's a great model. A lot of, A lot of companies, Companies I don't think would really. I. I don't know. I don't know the space well enough, but I imagine it could be pretty cutthroat and, and there's a lot of eviction, not evictions, in this case, foreclosures and, and a opportunity to seize people's properties and that sort of thing. But you're taking a slightly different approach than what I imagined that space, you know, could be.

So let me tell you, the first two years I got into the note business, I came from the fix and flip mindset. And that's one of the big mistakes that we see a lot of investors make when they come from the landlord space or the fix and flip space because they want to take the property back. And that's how I thought the first two years as a note investor. And I learned that my biggest bang for my buck, my most profitable strategy, is actually to keep people their houses. Because instead of me starting the foreclosure process, which can vary state by state, I mean, you're in Georgia, you're one of the fastest foreclosure states in the country for 30 days. Texas, we're faster at 21 days. You know, fast highways, fast foreclosures, fast executions here, you know what I mean?

Yeah.

Compared to like New York, which is three years, New Jersey, which is like two and a half years before close, Florida, God's waiting room can be, you know, 12 to 18 months, you know. Okay, so the thing that we started, I started looking back at like, man, this bar did express interest in doing a little mod. If I'd have modified it, I would have made a bigger ROI by immediately starting to get cash flow coming in versus having to pay out attorney fees, servicing costs, and then foreclosure costs, then repair costs, you know, I don't end up with the real estate and my profit till 18 months later. I thought, man, it would have made more sense to have them back in the house. And then if they paid on time for 12 months, I could then take that note if I bought it at $0.50, since the borrower's paid on time for 12 months is now reconsidered a reperforming loan. I can sell that note back to Wall street or other investors at 85, 90 cents of value. What I would have yielded at a foreclosure auction after all my costs and expenses and stuff like that. Well, I should have just done that more so. And so I learned that the hard way. Don't get me wrong, we made a lot of money. Foreclosures were dragging out in different parts of the country, stuff like that. But like I said, usually our biggest bang for the buck is to keep people in their houses or if they can't pay, they can't come up with a payment plan. Then we'll, a lot of times we'll do a deed in lieu of foreclosure or give them cash for keys and let them walk as well too, in that case.

So let's take a deeper dive into the investment side of this business. So I don't know if you have millions of dollars in your pocket and you're just buying notes out there because you have so much money, how does that part of it work? Obviously, there's an opportunity for investors to partner with you or you have a group of investors. How does this work?

Yeah, so we use opm, other people's money. Back in, when the mortgage industry was in the tank, I didn't have a lot of capital at that point. So I had, I was getting deals in and started marketing those deals on social media and just sharing what I do and buying notes because most people aren't familiar with that. So we started teaching people how to do this. I started sharing how we do this and how we find these deals and how we evaluate them and how we offer on them. And so, yeah, we work with investors, we use other people's money, like I said, to purchase these notes at a discount, either give them a passive return, or depending on if they're investing, they can get more of an active return. It just depends on where, what the investor's looking for. But, you know, we've, you know, we've got 14, 15 million on the market in capital raised over the last few years has bought a lot of debt. We're always kind of recycling that as deals close and investors cash out, or as investors new deals that we're finding, they'll roll that money into new deals. But I will tell you right now, we're really excited about what the market has in store for us. We're already, over the last six months, we've already started to see an increase in deal flow, which is a little bit different than most investors. Most investors are struggling to find deals. That makes sense. Well, the great thing about when you buy debt, John, is that you're going to see these lists. So we see these lists from banks and asset managers sent to us without any of the expensive costs Direct mail, stuff like that, they just email it to us on a pretty regular basis. But we're seeing these deals almost a year before they would ever hit the traditional markets. You know, at least six months in a lot of cases before hits the foreclosure auction or before a notice of default is filed or that kind of stuff. So it kind of gives us, you know, we're at the front of the line and seeing these deals and we can cherry pick them. Some people are concerned, oh, I got to have $5 million to buy debt. And that's not the case. We work with a lot of deals that are. I'll give you a great example. I just closed on a deal last week that we paid 55,000 for. It was a note that's worth 100, 120, you know, I'm sorry, the property is worth 120, the guy owes 130, so he's a little upside down. But the seller sold it to us at such a great discount that you know, we've got a lot of equity between what we bought the note at and what he paid at. The great investor, the investor that funded the deal, he's getting a seven and a half percent return on his money which when it was making zero sitting in his ir, he hadn't done anything, this money would have been sitting in his IRA account for two years making zero, technically negative with inflation. But now he's got a 7.5% return that'll last probably about 12 to 24 months depending on what, which way the borrower goes on this deal. We could modify it or they won't play ball. Then we'll foreclose and just sell the asset at the auction. So, but that's, that's, you know, we work with other people's money. We are constantly raising, we like to tap into and we're not exclusive to this, but we use a lot of self directed IRA money. When we're buying deals in specific counties, we'll actually jump on the, the county appraisal districts and the county clerk look for self directed IRA investors and market to them, say hey, see that you've used your IRA to buy a property or lent money on. Are you looking for more deals? We've got opportunities if you're interested.

So somebody who's maybe new to, to investing in this way with their ira, they may not even have a self directed ira. So which, which is a thing. So, so for new people, newer people describe the process of like somebody sitting on the ira, it's like doing nothing Right. Now, how do they get into, you know, setting up a self directed ira? You know, that could be done, but. But how do they get into note buying then after they have their self directed ira?

So here's the number one rule when it comes to investing. Never invest in something you don't understand. That's the number one cardinal rule. And notes may not be for everybody. Some people like the more tangible side of buying a property, or they're doing like what you're doing and buying property and landing there and fixing and flipping it. Just get. You got to learn stuff. That's part of how we started and why we started teaching people how to do what we do. Because it was like, hey, it's a different process of buying a note than going on buying a property. You know, there's a lot of different things to look at. So the first thing I would tell people is to get educated. We've got a wealth of knowledge out there. We have classes that we teach on a regular basis. We've got a podcast, the Note Closer show, with almost 700 episodes. Every every Monday night, we do another episode of our other podcast, Note Night in America, that's on a variety of different topics. So you gotta get it.

I love the name of that note Night in America. That's like, everybody should tune into that.

Exactly. It's a total ripoff of Football night in America, Hockey Night in America. You know, I was like, you called the Monday note. And I'm like, yeah, you know, but we've been doing that since 2011. You know, we've been doing it for over 11 years, almost every Monday night. I mean, we average 35 episodes a year on that. And it started off as a conference call and it's now been videos and zoom. But, you know, we'll get five. Like, we had 504 people registered for it this Monday night. We talked about conversations with investors. You know, what do you say? What don't you say? What do you ask? What don't you ask? It's just, it's been. It's one of our greatest assets in that we just touch base with our audience on a kind of almost a weekly basis. Just, it's open to the public. If you want to be. If you want to listen in, you can always go to Nope Nights in America dot com. It's free to register for it and it's on any podcasting platform. Our YouTube channel has what, 1500 videos on it as well too, for folks to watch and learn. But that's the thing. You got to get educated. And the second thing is understand what's going on. The biggest misconception that people get when they look at notes. So I'm going to own the property. That's not necessarily the case. You can end up with a property if you go the legal route or the bars walked away. But a lot of cases you're not getting the property until you've gone through that legal, legal process. And so we see investors that come into it from the fix and flip or the. And they end up overpaying for an asset, a note and thinking that they're going to get the property. No, no, you just overpaid for it. That borrower is in it and still has the right to make up the loan or reinstate it and go from there. So that's the biggest thing. You got to get knowledgeable on any niche that you're going to focus on. You know, don't. I'm not a, you know, I'm wrong. I started out like many investors, I was dabbling, doing different things and I was, I was okay in a bunch of different activities, but I wasn't good until I really focused on one or two activities. That's.

You definitely found your niche, that's for sure. I mean I love everything you're saying and so. So if people wanted to connect with you, is it notenight in America.com is that the best way?

The easiest way is just to go to our weclosenotes.com that's the main website where you'll find all of our podcasts and stuff that's out there and deal flow. So Scott, my email is really easy scottclose notes.com so it's not a difficult. Easy. It's an easy thing. You know, you Google Scott Carson Real estate, you'll find a lot of great stuff out there as well. Yeah.

Yeah, that's great. Well, is there anything else that you want to add that I haven't asked you about that you'd like people to know about?

So one of the things that we could do. I'd love to give a gift to your audience, any listeners, if you're interested. Every third Saturday of the month. We've been doing this now for two years since COVID kicked in. We teach a one day class called Note Weekend. It's kind of an introductory dip your toe in the water kind of class to where talking about how we find out a fun how to flip. It's normally 99 bucks if you go to noteweekend.com and type in the special code Alpha, you'll get it for free. Oh, I love my gift. That's my gift to your audience is over a thousand dollars of bonuses. They don't if they can't attend on a Saturday, not a big deal. They get the replays to the previous class and they can learn. Start learning about note investing that way. So it's noteweekend.com and if you use the code Alpha, it'll drop it down to zero and you'll be, you'll get the class for free.

Oh, that is awesome. I love it. So that's available for anybody that goes to noteweekend.com Yep. Awesome. Well, I love it. Scott, I really appreciate you taking time to talk to me today about buying notes and if there's anything, anything that you want to follow up on, shoot me an email. I'm going to put all this information in the show notes so that people that are driving in their car listening, they can go back to the show and they can get all this information, get the links.

That's, that's great, John. I just want to make sure and throw give a big shout out to everybody that's listening. If you're loving what John's doing, he's kicking ass. Taking names podcast. Make sure you hit that subscribe button and make sure you hit that button and leave a five star review for John. We as podcasters love to hear from our audience but do so hit that subscribe button, leave them a five star review. If you don't have a five star review, shove off.

I love it, Scott.

Well, thank you.

Yeah, that I appreciate the promo.

Anytime, buddy. The checks in the mail.