Creating Wealth With Note Investing with Scott Carson: Unique Wealth Podcast featuring Michael Jordan

Foreign. This is Mike Jordan with Unique wealth education. I'm happy to have a special guest on the show today who is actually a mortgage note investor. He's incredible. He's one of the guys I feel is one of the top guys around the country and educating people on mortgage notes and has actually done over a billion dollars in buying debt. So debt is mortgage notes. So I'm going to welcome you guys. Scott Carson, thank you for joining the podcast today.

Hey man, I'm so honored to be here. Mike, thanks so much man. I'm excited you're doing this too. This is such awesome stuff, man.

Thank you. Scott. You know, I met you years ago in Dallas and I remember the first time I met you, the first time I met you, you were so welcoming, so helpful and you know, you're, you're, you know, someone that helped me out a lot with some, with a lot of things in my business. So I'm always appreciative of that. So you know, I feel that you're such a giver, you know, so that's why a lot of students, you know, that are, you know, in your mastermind and you know, listen to you on your podcasts and your webinars get so much from you. So this is great to have you on here and you know, some great education that people are going to get. So Scott, tell us about your business. We know that you're mortgage notes, so tell us about your business. Give us the meet and petition of your business.

So I've been, yeah, I've been an active real estate investor since 2002, since I graduated college. But I made the transition in 2008 to just focus on non performing mortgages as I started a mortgage company with a buddy of mine in 2004. And then when everything hit the fan, I just stopped from the origination side and started really dialing for dollars to the banks that we originating from and just really just knocking 50 to 100 phone calls a day trying to track down anything that had non performing assets that I could pick up, whether it was residential, commercial deals. So yeah, over the last 10 years it's amazing, I look at some of the numbers, it's over a billion dollars in debt that we've bought. Wow. Over the thousand plus deals done residential, done commercial. You know, we've bought debt just on just about everything when it comes to real estate for the most part and some of the different crazy deals. But our biggest goal when we buy this debt is when we buy the mortgage. For those that don't know when you buy, you probably, if you've ever got a house or got a mortgage, probably after you got it refinanced or financed, you probably got a letter in the mail that your mortgage was sold off to somebody or your servicing was being transferred. Right, well that's, you know, it's one of the assets we do. We buy these non performing notes from banks where the borrower hasn't paid in six to 12 months. We buy that debt at a discount because the borrower's not performing. So therefore once we buy that debt, we now become the bank and then we're reaching out to the homeowners are trying to, as I like to say, sort of rehab the property. We like to rehab the borrower, if that makes sense. Okay, yeah, absolutely. And our cash flow, our profits are made from getting them re performing. It's great. We get cash flow then after 6 to 12 months of them paying on time, that mortgage is now considered reperforming and we can sell that off to Wall street again or back to investors at 75, 80, 85% of the value. And so make a nice chunk of change there because we're usually buying, you know, the mortgage, like I said, 30 to 50 cents on the dollar. Now I wish that happened all the time. You know, 50% of the time we're still ended up having to take the property, foreclosure to take the property back because the borrowers don't want to work with us. But we buy in a variety of states. Love, love your back yard. Michigan is great. I gotta send you some lists of assets there actually right now. Yeah, Ohio bought a lot of stuff in God's waiting room or as we like to call Florida over the years too. But yeah, we just, I have a big passion for helping people. When I was first into real estate, I lost my ass in a couple deals. Got was lucky to get my assets out of a sling and I always promised that if I were able to make it, would be glad to help anybody along the way. And so I was very fortunate during those four years of the mortgage company. I had a mentor who was doing the creative financing, the wraparound mortgages, the buying and selling distressed debt. And so I, you know, very lucky that four year period really learn a lot about the creative financing and debt game because everybody, whether they believe it or not, is in the, in the mortgage business. They're in the debt game. Unfortunately most of you are making the payments the wrong way. You're paying them out versus coming in. So we're all on Paper whether if you got a mortgage, a truck payment, student loan, credit card debt, all that stuff is paper. And we just happen to play in the residential and commercial mortgage space.

Well, that's amazing. That's amazing. Actually, you answered one of the questions that I was going to ask you. As I say, hey, so what percentage of the mortgage notes that you buy from reperform? And like you said, when they don't reperform, what happens is you go through the foreclosure process and your collateral is the asset. So a lot of people when I first got into buying notes was around 2012 and 13. And you know, I bought mortgage notes and one thing I always felt comfortable about is that worst case scenario, I get the home back. You know, I have collateral there. So. So I've done about a hundred deals myself and you know, I pick up some through the funds out there that send it out and take a look at it. And the way I'm always looking at the deal is worst case scenario, if I get this home back, what position am I in? If I can go get it, re performing and have it, you know, cash flow, wow, I'm doing great. I think that's where you really do well when you get it re performing because you got it at a percentage of the market value. And one thing that's important that I always found is that, you know, make sure you do your due diligence, know about the first, the seconds, the taxes. There's a lot of encumbrances that come with that note. So make sure you do your due diligence. And that's one of the things that I also, you know, listening to you, you know, you teach about that, you know, know how to do your research and make sure you get your numbers right. And that's very, very important.

So it's a different mental process than the fix and flippers are used to. If you're an REO investor, you've got to come from it from a little bit different spot of being the bank. And one of the biggest mistakes I made early on as a debt investor is I was coming from the fix and flip side. You know, so I was overpaying or I wanted to foreclose on everything because I wanted to take the property back. And that was one of the biggest mistakes I made was there's assets I could have modified, gotten cash flow coming in immediately. So now that I'm not having to put out attorney fees and then, you know, repair costs, I could have had a reperforming asset that Would have blossomed, but I was too stubborn to think of it as the bank aspect of things. But I agree 100% with what you say. Worst case, I'm gonna end up with a property back. I wanna make sure that the value of the property is there. You're not gonna get interior views, but you still tell a lot about an asset by the outside and the collateral file and the servicing notes that you get. But yeah, I like it. Nobody calls bank of America when little Johnny flushes rubber ducky down the toilet.

Absolutely no tenants. No to no trash outs. What's that?

No trash outs.

Absolutely. Absolutely. So, you know, you know, I look at it like, you know, instead of being a landlord, you're a lean lord. That's right. You're a lien lord. So actually, I still own some of those notes that I bought from a long time ago. And they cash flow. So I look at it. How many, how much exactly? Cha Ching. That's right. I mean, it's amazing, you know, when you get that note and you're able to get it re performing, you actually help the person and, you know, you're making a lot of money. And what we do right now is we actually buy a lot of redemptions from the auction and, you know, we talk to the people and they redeem the house and we keep them in the house. So that's a form of buying, buying the note in a different fashion. Because ultimately, you know, maybe they. They do a deed to the home for you, and you turn around and you actually could either land contracted back to them, write a mortgage, or you could do a lease option with them. So it's a very, very, very interesting business. And it's really pounding the pavement and really seeing who has that debt out there. And a lot of people are scared of it because there's a lot of variables to notes, as you would agree, correct?

Yeah, you're 100% correct. There's a lot of different variables. With a borrower, with the payment streams, you gotta look at what they owe. How many months behind are they, are they working? You know, what's the existing market rent rate compared to what their mortgage payment is? You know, does it make sense for you to modify or do they just need them to reinstate? I mean, I always make the joke that every note is its own country western song. You know, you never know which way it's gonna go.

Yep.

Use your own adventure kind of deals, but you can still put a lot of streamline and systems in place so that you're going after the same thing. So like I personally, I like just targeting occupied assets.

Right.

I find out a property's vacant, it doesn't help me because then I know I'm going to have to do rehab on and I don't like to do that. I want to travel, I want to work from Austin, where I live or travel and do some stuff. So that doesn't mean I'm not doing rehabs. It doesn't mean I'm not doing things like I just paid a tax bill on a property and Flint just 20 minutes ago, actually.

Yep. So you don't lose the property because the taxes go with the property.

Exactly, exactly. So I'm avoiding, you know, avoid losing it because the borrower still in it and they've been making some payments and some things. But the thing, you know, I want to tell people there are a lot of variables, but honestly, what you have to realize is not bashing anything else is that the banks are the biggest entities out there. You know, they're in the business of making loans and that cash flow. They don't want to own real estate, they want to own the debt aspect of it. And so if you can get into the debt game, you're going to see deals 6 to 12 months than most fix and flippers or reo buyers and things like that. Because, you know, I get listed from banks on a regular basis that may have 50 assets every month or 400 every quarter or two or three every month. It's just that we've built relationships with these asset managers at banks that now we've got stuff and I'm not having to do a lot of the marketing, you know, postcards, the door knocking. There's nothing wrong with that. Done plenty of that my day. It's just that I, since I'm buying in a variety different markets, I can target those banks. And also, hey, instead of buying one asset from a borrower or dealing with an individual person, I'm looking at buying a hundred from a bank every year or every quarter if I can.

Yeah. You know, I want to point out a couple things that you mentioned here that are really important. So, you know, Scott, you're very focused on notes. You're not a guy that does, you know, you know, some notes, some fix and flip, some wholesale deals, you know, some rentals. You're very focused on notes. You know, your, your, your, your, your. The best note you can buy is an occupied home that you can go remodify. So that's your focus, you know, and you focus on those you probably steer away from the vacant ones, which I don't personally. I'll take them occupied or unoccupied, because I can take them and fix and flip them. So it kind of is, you know, my multi prong approach towards purchasing. So I put it as a funnel for me to get some deals. So if every year I get 20 deals from notes that I fix and flip, great. So that's one important thing that the focus that you have is incredible in, which is probably part of a slice of the pie of why you're at where you're at today, which is really successful, incredibly successful, because you're focused. Another point I want to bring up is that, you know, people that own notes, you got to remember that, you know, you could lose that note. You can lose that house to tax foreclosure if you don't pay taxes. So Scott just mentioned he paid the taxes on a home that he owns in Michigan because taxes are due, I think, at the end of March. So it's due on Monday. Yeah, it's due on Monday. So Scott made sure, you know, if you didn't pay it, you lose that house. So that's important to know. And in this overall process, Scott has, I think you've showed it. I've seen it before. He has a process map. And that process map actually shows you everything that could happen in the course of owning a note. And if this happens, you know, you got to do this. If you do this, this could happen. You know, if the person is in bankruptcy, you know you're going to collect from the trustee. If the, you know, the person, you could offer them cash or keys. You. If they don't want to do that, you could offer them a remodification. If they don't want to do that, you got to foreclose on them. So what's important is to understand that it's like, you know, a giant process map which, you know, you're playing a chess game. And Scott is really, really, really incredible at playing this chess game. So that's.

I love. Yeah, there's a map. If it goes this way, then you have these options and it goes this way. Have these options.

Yeah.

If anybody would like that, they just can email me. We'll have the email address. I'll be glad to send that process map for free. But yep, you know, and we'll definitely.

Contact out at the end of the.

Yeah. Yeah. So I am in Austin, Texas. I want this to be very, very clear on something. I'm in Austin, Texas, very hot. And I think overpriced market we were talking about before we got started here. Today I haven't bought anything in Austin in a decade. I mean, I have bought most of my stuff outside of my home market. So I don't want to do deal with contractors because I don't want to rehab properties from, from states away. Now the only state that I really like doing rehabs when if it was in Texas, other than this would be like south Florida because I have a great team on the ground there. Sure, you have a great freaking machine of a business. I had a little bit of peanut butter and jelly when I came to your offices. I'm not gonna say I was not turned on. I was turned on by your operations. Smooth operator, you.

Thank you. Thank you very much. I appreciate when you came in here and you took a look at my operation. For someone that I respect as much as I do you, Scott, you know, it was, it was such a compliment for you to say that because I've worked hard on building the systems and the processes up because ultimately what we want to do is we want to deliver a service to our clients, which is our, you know, our buyers, people that invest with us, and that's returns. We want to deliver the highest returns possible and we want to have the best communication possible. And, you know, that's why I really appreciate that, you know, that kind compliment. I really do.

The thing is, you know, your market and that's what's great, is you've brought in, you know, your pie and you know you're gonna get probably 20, 30 deals a year from the note space because you're focused on your market. And I mean that'll. And you do fix and flips, you're not afraid of vacant ones because it's in your backyard, which is great. Me, it's different model. And that's what I love about note business is you can tweak this for whatever you're focused on. Now if you live in California, I'm sorry, you're not gonna see a lot of notes up. Right. Everything's overpriced there. But if you're in Michigan, Ohio, Indiana, Illinois, you know, the Carolinas, there's often plenty of deals in your backyard. That's often all that you've got, need or have to focus on for the most part.

Absolutely. You know, and I look at it like you take fix and flipping, wholesaling, buying hold and really to get the deals. It's a multi pronged approach for our company. And what we do is, you know, you Know, from The postcards to RVMs to text messaging to, you know, dialing for dollars to, you know, MLS to, you know, dealing with wholesalers, auctions, it's, you know, you really have to dig for those deals with your business. You know, you have those relationships where they're constantly going to send you over the inventory and you pick and choose. You've built those relationships up where they know you're going to perform, you're going to close. And that doesn't happen overnight. You know, banks don't just send people lists overnight. You got to prove yourself to them because they'll be wasting their time. So they ultimately, you're doing them a favor. You're getting the debt off their books. And the banks aren't in the business of going and knocking on doors and this and that. Sure, they'll try to, you know, remodify and whatnot, but not like you. So tell me, what is the difference between the bank remodifying and you? Why do, you know, I just mentioned they want to get the debt off their books, but why do they ultimately sell it to you for such a discount?

So it's all about time, value and money and the velocity of capital. So banks, for them to take a property back and then to put it on the MLS and to fix it based on how big and bulky they are, it's going to cost them two to three times what it costs for somebody like me or you to go out there and rehab. So a bank would much rather settle for 40 cents on the dollar now versus having to wait six to nine months to foreclose and then go that route. It's like a bird in the hand. Oh, I can get 40 cents on the dollar, will take it. Because now they can take that 40% and now reload it out 5, 10, 12, 20 times in a year to recoup up what they would have lost on that note. So, you know, I've been buying direct from banks since 2000, 2008, 2009, and it's not as difficult as most people think it is. It's easier actually now to get direct ahold of bank contacts and asset managers. Banks really just want you to buy something and fund. They don't care where the money comes from. Oftentimes they're not requiring earnest money. You know, they just want, hey, here's a tape. You know, you got, you know, make an offer, accept the offer. Okay, great. You got 30 days to close or two weeks to close. You know, it's a beautiful thing that, like, because it gives you some opportunities to raise capital as you need to if you don't have any capital yourself and be able to market that asset to your database to help raise the funds. But the reason banks want to send it to us at a discount because people ask, well why wouldn't they just do it themselves? They don't have the time. You know, think about this. Every called in and talk to loss mitigation at a bank. You know, they're call centers. You got somebody who's a 15 to $17 an hour employee who doesn't really care. They're overstacked with files for the most part. Especially their short sales. They don't care. They're just processing through. It's not their money on the line with the bank. So the banks have realized that, that hey, let's get this thing sold asap. This is why if you ever go late on a mortgage, why your phone starts ringing non stop or the mailman starts knocking on your door to deliver a certified letter to you, they want to reach out to you and make that right party contact. So they have a solution, they have something they can work on with you sooner than later. You know, you look at other things too, like the value of the asset too. I buy a lot of sub $100,000 mortgages in houses that are 75 to 150 grand is bread and butter. I don't buy a lot of high end because I want to deal with a homeowner that I can really negotiate with sure higher end assets. They're going to have people with friends that are attorneys and lawyers that can drag foreclosures out. So I like dealing that bottom. I won't say the bottom of the barrel. I don't like to buy anything below 25. But I added value to the banks cause they can move that lower valued stuff off their books which is really just eating up in fees and taxes and other things.

Yeah, you know, recently I seen, I think it was about a month and a half ago I seen a deal that you know, one of your students got and you know you showed them how to get to the asset and whatnot. And you know they showed me the deal and I was like how much did you buy that for? And they told me and I'm like you bought that for that much? I'm like that is an amazing, amazing, amazing deal. Well you know we have a formula that we use. I know that you teach people how to use a certain formula. Their return on their investment is great. And then I told Them I said, hey, listen, if you go to foreclosure, call me, I'll buy it, you know, and then, you know, they could, they could sell it, they could wholesale it, they could put on mls, whatever they want to do with it. So, you know, really, it's about buying, right? I think that you really make your money just like a real estate with notes I'm buying, you know, for the right price. So when you say 40%, are you seeing 40% of the value or. Or 40% of the UPB, which is the unpaid balance?

That's a really good question, Mike. I'm glad you brought that up. Cause it varies. So I'll give you an example. If the borrower owes 120 grand on a house that's worth 100, okay, we probably not going to offer more than 50 cents of the as is value. So that'd be like 50 grand. Well, 50 grand on $120,000 mortgage comes in the 40s, right? Yes, 40%, roughly. So it varies. I mean, we don't usually go above 50% of value of as is. Value of the house is usually our highest point. We offer on right now. Now, if there is, if they don't owe, I mean, if they only owed 50 grand on $100,000 mortgage, then we would drop it down to like 50% of the unpaid balance. Whichever is less is a good, good starting tool. That doesn't mean we always end up there. Sometimes we're below that, sometimes we're above that. You know, looking at how long it takes to foreclose an estate, you know, how many payments the borrower's made in the last 12 to 24 months. So it's not hard, fast pricing all the time. And I call it kind of fuzzy math, because you have to take a lot of considerations into place. You know, has legal been started, you know, has it been serviced for a while, or has it been sitting on somebody's books and nobody's been touching it? You know, what's the neighborhood look like, what stays on market? You know, there's a lot of variables that go into what our bidding aspect of is.

But it's not cut and dry where there's just one way to do it. And that's, that's the one thing with notes. You really gotta plan and understand the different, you know, situations. Like you said, maybe, maybe in wintertime, you know, you're more likely to, you know, make a different move because homes move slower on the, you know, on the market, you know, in certain states. So you may be More likely to, you know, work with the, with the homeowner there and maybe work out a payment plan instead of going to foreclosure. I mean, you know, they're just. This is something that's popped in my head because I know that 40% rule.

Yeah, 100%. Right. Because especially in the upper states where it gets a little cold and you had a few cold days up there this year.

I don't recall any cold days in Michigan. It was all short sunshine, 85 degrees. Being on the beach in Michigan. I don't, I don't recall any cold days.

There you go. So the thing you got to realize is you don't want to end up with an interior waterworks or a underground ice skating rink. You know what I mean? Of course, this is part of the reason we also just go after occupied assets. There's usually somebody keeping the heat on, paying the utility. Also, the air conditioner doesn't usually leave the house. Or the copper goblins don't show up on an occupied house like they do in a vacant house.

Or the furnace doesn't grow. Grow legs and walk out, you know.

Exactly. Exactly.

Oh, that's funny. That's funny. So, so, yeah, no, that's interesting because, you know, I just want, you know, people to know that it's not so cut and dry where, you know, 40% mean just 40% of value. Like you said, you know, sometimes it's, you know, 40% of the lesser. Right. You know, so, you know, you just have to learn it. You got to understand that there's a lot of variables in there. So you said, you know, I look at it like there's a lot of lenders out there that, you know, produce notes or hard money lenders or institutional lenders. That really is a note business too, because.

Oh, totally is.

Yeah. I actually, you know, I buy some notes from, you know, lenders that have foreclosed or that are, that are, that were hard money lenders and the person didn't pay. I buy to know, or what I do is I buy the asset after they're done with foreclosure. So it's important to understand the entire process. And what I mean by that is, you know, you have a home, right? There's a mortgage written on that home. And then there's. There's a process that goes on that homeowner pays or that investor pays. If they stop paying, it becomes a non performing note. That's what Scott is a specialist in, is that point in the market when the note becomes non performing because he's buying it at a discount and there's a huge opportunity out there. So listeners, you know, you think about real estate, he's hitting a certain niche of the market, right. When a note becomes non performing and defining a note, it's a mortgage note, It's a mortgage. It could be a land contract, it could be a deed of trust, but it stops performing and he sees the value in it and buying it at a discount. Is that correct, Scott?

It's totally correct. Now give your audience some numbers here. Like in 2010, at the worst time in the market we had 15 million homeowners were underwater where they owed more on their house than what it was worth. Great time. Bought a lot of stuff. Biggest mistake I made was not buying more. Okay, today, fast forward. We, you know, nine years a lot of stuff's been cleaned off the books. But we still have roughly around somewhere between 3 and 5 million homeowners are still underwater.

Sure.

You know, they still haven't been foreclosed out. It's been dragged on their mortgage, been sold a couple times. And what's scary to think is that today we still have about a 4% default rate. But literally 1 out of 10Americans are already a month behind their mortgage, 10% of the country is a month behind. Now that doesn't mean they can't get made up. It's not that a bunch of those weren't government employees that were laid off or were getting paid for a little while that happened. But that's a scary number to think about because when you start thinking about the other forms of paper, the auto debt, that's at all time highs and defaults, credit card debt, student loans, medical bills, we've got really a lot of distressed debt out there. That's just not the, I mean not the mortgage debt. But a lot of people there are trying to, you know, rob from Peter to pay Paul. You know, they've ridden that, appraised, you know, that increase in their value up and then took out a line of credit to buy some stuff. But what's going to happen when the market turns south again? Well, I don't know. I don't have a crystal ball when that's going to happen. But when you see things that were going on 10 years ago, like I'll give you an example here. You've heard of a little thing called subprime mortgages, right Mike?

Absolutely.

You know, Top Flight Mortgage in Flint was one of the biggest sellers of that was like default, I mean like ground zero. Well, they got really Creative. The bankers did, and they came back with a new name for subprime. It's now called non prime mortgages. Okay. And there are lenders doing non prime, 100% financed in all 50 states now. And it's been going around for a couple while. So it's not brand new to the market. They've been around for a while. But I could go online right now and look at, and pull up lending programs and see that they're lending 100% of like five 20 FICOs. 100% with a 520 FICO is somebody who should not be in a house. They have no motivation. They're not paying their bills on time already. But let's give them a mortgage. And that stuff's gonna end up in default in 6 to 12 months. And so I track that stuff to who's creating that, who that company is selling those mortgages off to, and that's who I track to find deals, you know, six to 12 months down the road.

Big tip there. He uses data to find his deals. Thank you for that, Scott. There was a little bell there for the audience because data is important. Knowing what's going on in the market is important. We, we actually earlier, you know, I had a call recently and actually was on our podcast with a gentleman named Dave Steck. And, you know, he talked about, you know, you have 400, approximately 400 MSAs in the country, and 100 of the 400 MSAs is experiencing a softening or declining market. So what does that mean? That means that, you know, eventually there's going to be more bad debt. People are going to, you know, there's going to be, you know, people that are losing their homes. It's always going to happen. I mean, right, Scott? I mean, this is not something that is, you know, when the market, when the market's hot or the economy's hot, the. There's still bad debt. I mean, there's always someone unfortunately losing their job or, you know, you know, something bad happens and they don't pay their mortgage or whatever it may be. Well, you know, just, just be ready. I think that preparation, when, when preparation meets opportunity, that's when, you know, success happens. And that's where you could buy some really good notes. And that's what Scott prepares for. And I think another point I want to bring up is I look at it like, you know, Wells Fargo Chase, bank of America, all these major banks, they don't want to be the big bad wolf that goes and forecloses on people because they want that Walk in business, that deposit business and whatnot. So they sell their mortgages, right Scott? So if they're in default, they're most likely going to sell it, you know, as a non performing loan and it'll eventually get to someone like you and they won't look as bad. And what they'll do is they'll write it off against their, against their profits. Is that correct? Yeah.

So bank of America Chase, the bigger banks, they're not going to sell a one off note. I mean they'll sell, yeah, they'll sell a tape or we call it or tranche. But it's like a $50 million portfolio, distressed debt that they're selling off. So guys like me aren't gonna buy from those guys. But who they sell that tranche to, those $50 million, that's may get sold to one company who splits it up three or four ways and they keep the top 5 or 10% and sell the rest off. And so I'll come in, maybe I'm buying a three. One or two. One or two, two. It's not the three bedroom, two bath, 1500 square foot house or greater built after 2001. I might buy some that's built in 1949.

Sure.

But there's as these pools get chopped up. Yeah, there's stuff that's the very bottom of the barrel that really doesn't make any sense. But the banks will give that stuff away. A lot of times when it's like I bought a, a two bedroom, two bath townhome on Jefferson Drive in Baltimore for seven bucks a couple years back it was boarded up.

Why would you pay so much? I mean Scott, you overpaid, really. You could have got it for 600.

I wholesaled that the next day for five grand to somebody who wanted to come in and fix it up. You know what I mean?

Absolutely, absolutely.

But that's the thing is Fannie Mae came out a couple years ago and talked about, you know, if you ever bought a hud, foreclosure and things like that. There was a lot of them. Well, I think two years, three years ago they came out, announced they'd be stopped really selling the REOs because they're selling most of their stuff off in portfolios to investors like me because we have a lot more flexibility than they do. We can be creative in that loan modification and make it work for us. Whereas the bigger banks, the bigger you get, the less agile you are to be able to making moves, being able to work deals out or capitalize on the market.

Well, Scott, if you look at it, a bank that sells it to you and knows or a fund or whomever it is that took down that big tranche of, you know, 10, 15, $20 million or a bank that you buy directly from banks too sometimes, right? The smaller community credit unions and maybe the smaller banks.

Well, no, I don't buy. I would not recommend buying from like a small branch where it's got like less than five bank branches because they're going to be too conservative on their financing.

Right.

They can't really take a big discount. So what we do is we target your medium sized regional banks. They're usually at least five or more branches and usually a couple different states. But I have bought from Capital One. I have bought, sure lasted From Wells Fargo, U.S. bank, who's another big one out there, Colonial bank, you know, bank of the west out in California, things like that, National Bank. I mean every bank has distressed debt. And sometimes for those that are listening, that are commercial investors, sometimes buying commercial debt's a little bit easier from the bigger boys. Like Wells Fargo won't really sell off their non performing notes on the residential side because they've got their systems with Premier Asset Services sure handles it. But their resident, their commercial stuff. Yeah, I can go to San Antonio, I can get a list pulled on the commercial stuff all day long and cherry pick all day.

So you know, with the banks that you do deal with and you know, how do they, when you go there and your goal is really to keep, you know, the homeowner in the home, that's your strategy. I mean that's really, it's not only your biggest money maker but it's, you know, but it's also keeping someone in your home, which is a great thing. You know, you kind of double dip. You're making a lot, you're making a lot of money, you have less risk and it will triple dip and you keep that homeowner in their home. So do they view it as a positive? Do they sometimes give you a better deal because of that? Talk a little bit about that.

So depending on the size of the bank, they don't want a PR nightmare. Okay. So like we were just negotiating with a bank here in Texas, a San Antonio bank that had a specific lending platform. They had like 33 loans that were in this one lending platform. They did. It was smaller valued stuff that they just want to get off their books. They wanted to sell it to somebody as a bulk offering because they didn't want to be the bad guys foreclosing like you talked about. So they were able to discount this stuff and 2/3 of the portfolio was performing but they sold it to us at 55 cents of value and there's a lot of 55% unpaid balance but there's already equity. So we end up technically picking this portfolio up like 34 cents of true value with 2 thirds of it performing. And when you figure, calculate what the performing yield off that portfolio, that was an 18% cap rate on those alone, not including the equity. And then the non performing stuff, we were able to sell that off.

Probably paid for some of your performing stuff. You probably. Yes, exactly.

What we did, we sold the non performing to help us buy more performing stuff. And that's one of the things that I look at when I buy a, a non performing. So get it re performing, keep it for a while. I may keep it for cash flow depending on how cheap I paid or what they're paying. But if I after 12, 18 months then we'll look to sell that asset off and then double down. One deal will become two deals, those two deals will become four, those four will become eight. And that's kind of the way that we've built our business over the last 10 years.

A tape or tranche like that, to me it just sounds like a home run. I mean, you know, you just, you, you had a third that's not performing. You probably turn around wholesale and sold it. That third of the money you paid for part of the other, you know, you almost, I mean I don't know the exact numbers but it sounds like you're out of pocket very little because you know, you just made the right moves.

Yeah. So we, one of the things that we did it was a 1.1 purchase price on all 32 assets. We were actually able to sell some of the performing notes off to a hedge fund the day after we closed. We had them pre price it so we were able. Yeah. So we ended up, and then we ended up walking, keeping eight, sorry nine of the S's performing free and clear. The other eight that were non performing were basically selling as REOs and you know, closing them out. We're gonna come out, yeah. Making some pretty good money on that, that portfolio.

So that was relationships planning and you know, really putting that deal together. And I mean, and that's amazing. I mean, you know, you just look at stuff like that.

It was a new relationship. We actually used a service called Distress Pro to track banks here to see what kind of percentages and I jumped on the fdic.gov website to look at this bank's quarterly report. And they had increase in their 60 to 90 day accruals. They were also increased their 120. So we picked up the phone and called them and it was even a relationship. Yeah, I didn't, it was a brand new relationship from just dialing on different banks and talked to the special asset managers. That bank was called the secondary marketing department is the other department I go by got on the phone, they were willing to work with us, very friendly. They never sold a loan before and it was great. They gave us initially 30 days to close. We ended up asking for another 30 to work it creatively and yeah, 60 days. I didn't have to put up any earnest money, no money of my own out of pocket because it was all funny with other people's money.

Wow. Unbelievable. Well, the thing is there was a relationship. Yeah, Cha ching on that for sure. Probably three cha Chings. But I was going to tell you Scott, in that scenario there was a relationship there with you building, having the back end exit strategy with the fund. So you know, you might have bought the, you know, bought the distressed notes through locating it through your systems, but then you had the fund that was willing to buy it because you proposed it the right way and it was a good deal for them. So that's awesome. So when you bring up, you brought up other people's money, which is, you know, real estate investors, you know, love to hear this. And we're, you know, all of us are always looking for funds. I don't care if you're worth a million, 10 million, 50 million, 100 million. Everyone I talk to is either, you know, raising funds, doing syndications, borrowing hard money. I mean it's, you know, it's, it's, you know, it's, it's smart business. So you know, how did you raise your first capital to do your first deals?

So way I raised my first capital, we still do a lot of this today is I target self directed IRA investors. People that have money and Quest or Equity bust or Pensco, you know, some of those different self directed IRA companies out there. There's like 50 different vendors that handle that. And one of the things that I do and we still do this day, we have an assistant that does this is if you've bought a property or lent money out of your IRA on a piece of property, it's pretty easy to track down those that are pulling the trigger. And so we'll jump on the county appraisal districts and also the county clerk in different areas of the country and we'll just do a search by the owner name, like here in Texas. I'll go into Harris county, which is where Houston is, and type in Quest IRA or Quest Trust Company and it'll pull up a couple hundred people who have bought a piece of property where they're self directed ira. Well, I know something instantly about those people. One, I know that they've got money because they use their self directed ira. Two, they're real estate investors because most of the time real estate investors are the ones using self directed IRAs. And three, they're looking for deals to either purchase themselves or to fund. So we do that and then we'll often find their contact information or at least their mailing address and then we'll just reach out to them, either be a postcard or a letter or find them online and say, hey, came across your information, they'd love to visit with you. You know, if this was a real estate deal, we're looking for more investors to either fund our deals or take down bigger portfolios. And that's where we raise a lot of our private capital. That's what I did initially, I still do that today. It's what's helped feed our fund. And it's an easy, I don't want to say it's like shooting fish in a barrel, but a lot of people have money sitting on the sidelines. And I'm friends with Nathan Long, who's the CEO of eQuest. And they've got 1.2, 1.3 billion under management over there. But 34% of it is just sitting in 0% earning accounts waiting for somebody to call.

Yeah, they would like to put that money to work, that's for sure. So some guy comes to you as a hundred thousand dollars, two hundred thousand, half a million, you know, so how do they invest with you? Do you give them a promissory note? Do they own that note? So if one of the listeners wants to call you and says, hey Scott, you know, you know, you've been doing this, you've done a billion dollars worth of transactions, you have a phenomenal name in the industry, want to invest with you and make some returns. How do they, what's their, what's their, what's the process?

So it's a conversation, first and foremost, what are they looking for? What's their background? You know, what do they want with that money? You know, some people need to have income immediately. So in that case, that's the case. They're looking for a return to live on. We usually Just put them in a, you know, like a flat return, you know, somewhere above average return for them. I won't name any interest rates. You got to give me a phone call to find that out. But something that they were paying them on a quarterly basis because we're constantly buying. Now somebody who's want to be a little more aggressive, maybe they don't need that money for 12 to 18 months or it's going in a self directed IRA that they couldn't touch that money anyway. They will do, you know, kind of put them on a JV partnership or else on the transaction we'll do a lot of the workouts, talk with them. I kind of call it my learn while they earn program. And then when we finish with the asset, we'll pay them back, we'll get our expenses covered second and then split the profits up. However we a range on the front end.

So Scott, you know, part of, you know, with, with, with me being unique, wealth, education is I believe in hands on training. I believe actually in, you know, you know, helping people out on the transactions, whether it's a fix and flip wholesale deal, buy and hold, you know, apartment complex note, whatever it may be. So, you know, in the future, you know, I may have a lot of people that want to say, hey Scott, you know, can we, you know, do a JV deal on this and walk through the, you know, the deal with you and fund the deal. Would this be stuff you'd be open to? And then kind of, you know, they learn and earn?

I think. Yeah, totally. That's one of the best things that we did because when we got started teaching years ago on how to do this, people loved us when we were sharing stuff, but they didn't know what, what a note was. So we would teach them what a note was and show them kind of how we walked through. They're like, oh, that's great, that's awesome. I don't want to do that much work. Can I just write you a check? And I'm like, sure, write me a check, that's fine. We'll make sure you get to make a good return on investment. And we're only buying first liens, you know, we're only buying it, you know, 60 cents on the dollar or less. You know, we've got insurance, we've got the team, we've got the attorneys. You know, we've got the whole system behind us to help people really kind of churn and burn if we can.

Yeah, I love to learn and earn an aspect because you know, you know, a lot of people invest with us and they get tons of passive income. You know, we pay out, I mean hundreds and hundreds and hundreds of thousands of dollars every month to investors. And you know, I like actually when, you know, someone wants to learn and earn because we could show them the process because they could go eventually off and do it on their own. And I don't look at it as competition. I look at it as I'm building more bridges. Success is also defined by how many bridges, you know, do I have built. I can text you anytime, Scott, and you text me. Anytime you, you need something in Michigan, you text me. Likewise I do with you. And we answer each other's questions, we build that relationship that has been years. So I look at it as, you know, when you build those kind of relationships with people and you help them make money and learn, I mean, you know, how many relationships you have to me also can define how successful you are. So that's, well that's the thing is.

It'S not all about who knows you or who you know is who knows you. And your network is your net worth.

Absolutely. Your network is your net worth. Be close. Close proximity to, to, you know, to wealth is, you know, the close you are with your proximity to wealth, the wealthier you're going to be. So I think that's very important. So, so on one of these deals, if someone wants to do a deal with you, you have a promissory note with them, you know, because I know in a, in a real estate transaction, you know, we do a mortgage and they record it on the property and they also that we do a promissory note and that's the way that a lender does a deal with us, with you. If they want to do a deal, they have a promissory note. Is a note collateral or how's it done exactly?

Great, great question. So we'll do a joint venture agreement, separate agreement, talks about it and then we'll do one of a couple things. Some people will put them on the actual assignment of mortgage at transfers. When you buy a note, it's an assignment of mortgage that gets transferred. So we'll say 50% interest to Michael Jordan or Strategy Investments and then 50% interest to Scott Carson IRA, if somebody wants to do that. Or we'll, you know, depending on the size of the trade, we'll create a special purpose LLC just for that purpose and put them on in as a, you know, as an operating man or a manager in the operations agreement so they co own it. That works A lot. Because if people don't want their name and their IRA out the public records, a great way to kind of shadow that as well. So those are kind of the. The two major facets of things for the most part. We can also do an assignment of collateral as collateral for a promissory note as well, too.

So, listeners, you heard that there's three types of protection when you're doing a deal, and Scott does it well. He's done so many of these deals and you could simply be on the assignment. You could have a special purpose llc or last but not least, you mentioned that you could also. What was the last one was the assignment of collateral assignment. So assignment of collateral. So basically, it's like holding them. You're holding the mortgage, you know, so that's three different ways that you can do it, and that's the way you protect yourself. So that's, that's huge. Thanks, Scott. That's some huge tips there for, you know, for some of the listeners. So, guys, you know, one of the things I want to mention to you, we've taken up a good amount of Scott's time and we really, you know, Scott, I really appreciate having you on here because, you know, you're a gentleman. You're so knowledgeable and very successful. So it's always for me, the more I talk to guys like you, you know, it's just, it's great for myself, great for my listeners. And, you know, it's, it's, it's incredible. So some of the things that Scott has going on that I want to mention to the listeners is that he has a book, which it's called you can go to noteblueprint.com so you can download that book. Learn more. There you go. He teaches you how to buy notes. Download that book. I would really suggest it. Even if you're a fix and flipper, you're a wholesaler, you're buy and hold guy of rentals. If you're a lender, whatever you do, I mean, we're going to talk about all these different investment strategies throughout the years on this podcast and through the show. But I think it's important to read that book. You'll learn a lot. You even learn about when lenders lend to you that technically that's a note. So read that book. Scott also has podcasts, so you can go on there and look at the we close notes. It's a show. So you can download that on through the podcast app. He has free webinars. So if you go to text 72,000. You can get updates on events. You could get updates on deals, and.

You got to text the word notes to setting 2000. So text the word.

I'm sorry, text the word notes to 72,000 and you get get updates on events, deals and webinars. And last but not least, you could also go to his website, which iswe close notes.com and you can reach out. He has a staff. And, you know, if you want to talk about something in particular, find out about events that are coming up. Scott used to travel so much. I mean, he was one of the biggest travelers. I think that every time I would text him or, you know, call him, he's in a different city or state, so he's always traveling. So someone you know, he has an office of staff, so they'll get back to you. But, you know, I know he does have events and you could find out about those, you know, when he does have them or when he's speaking somewhere. So that's important. But, you know, listeners, I hope you got a lot out of it. I sure did. Scott Carson, thank you so much for being on this show on the unique Wealth Education show. It's been a blast. And you know, one thing I want to ask you, will you join us in another six months or year to talk a little bit more? Because I'm totally glad to help out.

Mike, I echo everything you said, man. I love you, love what you're doing.

Likewise, buddy.

Don't spend as much time together as we should because you we were both running big things, but anytime we get a chance to hang out, I always walk away something. Absolutely. So, yes, be glad to come back anytime you want to have me. I'm honored to be here.

Scott, you're a great friend. I appreciate you very much. And you know, we'll, we'll hopefully we'll talk to you soon. Listeners, thank you for listening to the podcast and we'll hopefully catch you on the next one.