Discounted Note Investing Tactics With Scott Carson From Money Tree Investing With Ben Graham

Foreign podcast listeners, welcome to this week's show. My name is Kirk Chisholm and I'll be your host. So today we're talking with Scott Carson. Hey, Scott.

Hey, Kirk. How's it going, man?

Hey, glad to have you in the show finally.

Hey, I'm honored to be here and deliver and just deliver to the money tree audience, man. It's, it's a, it's a good day when you wake up six feet above ground, especially when you've been ill and not feeling so well.

Yeah, I know. Well, for the listeners who didn't hear on any other prior episodes, I feel like I had to plague in the last week. So I'm glad I'm back at the Living. So thank you.

Amen.

Yeah. So Scott, for the people who don't know you, tell us a little bit about your background and kind of what you've been up to.

Yeah, so I'm kind of known as the, the note guy. For the last 15 years I've kind of focused as on one specific niche of real estate investing that's buying distressed debt. Previous, you know, mortgage broker and banker with JP Morgan Chase and a financial advisor. And that was kind of my background back in the day. But in, in 2004 I left the banking and finance side and started a mortgage company with a buddy of mine and it did that up to 2008. And then when everything hit the fan, then I jumped from the, basically the mortgage origination side and started buying debt, buying notes. And that's what I've been doing for the last 15 years is we buy mortgages on residential, commercial property, usually non performing notes where somebody hasn't paid in six months to six years and we buy that debt and try to work out with the homeowners. And that's what I've basically done. Like I said last 15 years, bought over a billion dollars in debt over thousands of deals in about 30 different states. And that's what I do. That's kind of my niche and that's why they call me the note guy.

Nice. Nice. Well, that's a good start. So one question that came to mind that I think is probably on people's minds, you said you bought over a billion dollars in debt. You know, I'm sure you made good money in your years, but having a billion dollars in your, in your bank account's probably not, not what you have. So how does somebody, you know get that many notes? Like what can you talk a little bit about, you know, that and using your own money or how does that work?

Yeah, it's a great question. Billion dollars in debt doesn't mean a billion dollar in cash. That means that's a billion dollars in debt is, that's what the mortgage balance was on a lot of stuff. And we bought, you know, we bought some big, big portfolios, you know, anywhere from, and we'll buy anywhere from all like a one off note all the way up to like a big portfolio. 250 mortgages at one time in different cases. So like I'm, I'm bidding on a portfolio or a list of 60 assets right now, another one of 40 assets right now. So with notes you're, you're buying that debt. The borrowers still owe a billion dollars in debt, but we bought it at a substantial discount below that because it was non performing. And so we buy that debt somewhere at, you know, varies anywhere. I bought anywhere from like pennies on the dollar all the way up to like $0.70 of the asset value of that property. So it just kind of varies on a case by case situation. You know, some states we pay a little bit more like Texas or Georgia, which is fast foreclosure, you know, Illinois, Florida, or as I say, Florida is God's waiting room. A little cheaper because it does take longer to foreclose in the, in a state like that. But you know, we buy the beautiful thing is that when we were buying at a discount, the asset still has underlying value. And that's what we really base a lot of our bids off of. Make sure that we're coming in at a good investment to value. And then the numbers make sense that if the bar does want to start repaying or we can get them back on track, which is what we want to do, it's a good yield to us. And then of course, if the bar won't play ball with us in one of nine different ways, we'll go the 10th route and then go the legal process to foreclose and then take the property back that way. But we, we use a lot of, you know, about 95% of what we bought has been with OPM. Other people's money, self directed IRA. Investors love it because it's a great way to put their IRA to work and make an above average return and you know, be invested in an asset that's got a lot of upside to it. You know, equity on a value or equity with what the borrower owes being a lot more than what we paid for that note.

Okay, cool. So it sounds to me like you're buying a portfolio or a Number of different loans with other people's money and then you're helping them perform and then do you sell them or do you keep them or how does that work?

Great question. Yeah, it's kind of, we prefer to hold them, we can't, you know, we get the borrower back on track and they bring a little bit of money to the table to modify or reinstate their loan. We like to hold on to that asset for at least 12 months, if not longer. I mean I've got some notes that are still paying we've held onto for multiple years, you know, five, six years. And then what you have to realize if you buy a non performing note and let's just use some simple numbers, simple math. Let's say a borrower has a house is worth a hundred, they haven't paid because of COVID sickness, job loss, you know, divorce, and they owe 110 because they've got six months of payments or more that they haven't paid. They might come in and buy that note at $50,000, pay for the debt. Bar slows on 10, but they got a 6% interest rate on that note and we can get them back on track, just start paying on time again. Since we bought the debt at 50 cents at 6%, it's really like a 12% cash and cash return for us, which is great. If we hold on to that note for 12 months at least, then it's reclassified as a re performing note or as a performing at that point and we could turn around and sell that either to Wall street or other mortgage investment companies or REITs that want to buy that performing debt. We can sell it to them at 85, 90, 95 cents of the dollar. So it's kind of the thing, we buy the debt, we get it working, cash flow along the way, some cash flow on the front end from the borrower for them to stay in the property. And then the back end we can sell it off for a sizable chunk on the back end. Now of course, if the borrower doesn't pay, then we got to go the route to foreclose and each state's a little bit different on that aspect. But I want cash flow. I don't honestly don't want to own real estate. I actually had a deal today in South Texas. I was buying. The house is worth about a hundred, one hundred ten, depends on what kind of conditions the inside is. But it was occupied. The borrower only owed like 65 and they just, they'd been divorced and we were willing to work with them doing all our due diligence. Well, turns out the bank that we're buying it from, the borrower, just signed the property over and walked away. Well, we have it under contract for 47,000 and that's what our, they're accepting our bid. So now we don't have to foreclose. Now we basically bought a hundred thousand dollar assets for 47 that will either just list on the MLS or you know, rent for about 900amonth, which is not bad. And we may turn it into a rental or section 8 it or just, you know, depending on what the market's doing there. I gotta pull comps and have my realtor do that for me. But there's a lot of strategy, a lot of moving parts with the note business, which is, it makes it exciting doing the same thing day in, day out, over and over again. You know what I mean?

Yeah, no, that's great. So one thing kind of came up. You said that you, you don't like owning real estate. So every real estate investor I ever talked to, they love real estate, they won't ever do anything else. It's all real estate all the time. But you're saying you'd rather not own it. So, so tell me about that. What's what, what's that all about?

So I'm buying in about 30 different states, okay. I don't want to own individual properties in all these different cities because that becomes like a property manager's nightmare. All right? Now I don't mind owning the debt as long as it's performing because then I can run it through a third party servicing company which is like our property manager. It's a note manager. They, they handle the collections, they handle the payments and stuff like that. The bar outreach, that, stuff like that. Now don't be wrong, we do end up taking property back. But if we end up taking property back, it's usually because it's our second strategy. Our first strategy being trying to get the borrower back on track for the most part part. Because as far as a bang for our buck, if I end up taking a property back, then it's dealing with fixing it up and then trying to get contractors out there. And when you're buying in a variety of different states, especially now, inflation, cost of goods to repair, you know, all that stuff has gone through the roof. It's hard to, you know, find a good property manager, one of these areas for the most part. So that's why I say that. Don't be wrong, something's in Texas I'll take it back if something's in. As you and I were making a joke about earlier, God's waiting room. Florida. I don't mind taking it back in the Sunshine State, but for the most part, I don't want to own the real side. I'd rather just own the debt because we're buying it at such a big discount. If we do take it back, let's sell it off and then we can take that money, that profit, and instead of buying one asset, we go and double or triple down, buy two or three more notes with it and go from there.

So it sounds like you like Texas and Florida. Any states you don't like when it comes to notes?

Well, yeah, don't buy. I don't buy in New York because it takes like three years to foreclose in the Empire State and you have to hire an attorney to talk to attorney to have an attorney there. Okay. And it's not landlord friendly at all. I mean, there's some. I know some people that haven't paid their mortgage in 10 years in New York. I don't want to be on that side. New Jersey is also a longer foreclosure process, about two years. Chicago. Chicago is not a friendly state to own debt in anything. Yeah, exactly. I call it Crook county or Chirac in a lot of cases. That's not saying the rest of Illinois is not bad. I mean, the land of Lincoln's not bad. It's just that Crook county is a. Is a rough state. I've lost money in there when I thought I was gonna come out doing golden. But if you live there, it's not bad. But if you live outside of Chicago, don't invest in Chicago.

I think we can all agree, even people who live there want to leave. So, you know, Chicago might be great, but anybody I've talked to that, you know, know that lives there, they don't like the taxes, they don't like the politics. Like, it's just. It's just a mess.

It's. Yeah, it's. I mean, I mean, great sports teams, great deep dish pizza, but yeah, real estate, that's a tough play.

Yeah. Yeah. So, all right, so I guess let's. Let's kind of take a step back because I know we kind of dove right in. But you said you like buying notes. Well, I know there's not just one kind of note. So are there multiple types of notes that you. That you buy or for. Let's start with the different types that potentially people can buy.

Yeah, so that's that's a really good question. I'm glad you brought up. And most people, when they think about note investing, they usually, if they're not, if they're, you know, hanging out on their real estate investment, they think of it's like owner financing. You know, we're going to owner finance a property and that's going to be a note. And that is one type of note, owner finance note. We don't buy a lot of owner finance notes. We buy about 90% of what we buy is actually institutional debt that was created, created by a bank or a mortgage company or something like that was originated and went through all that process of making the bar jump through hoops. There's first liens, you know, like a first lien mortgage. There's junior liens, like a second mortgage or third mortgage. We don't buy junior liens unless it's literally the second lien behind one of my first links. We like to stick in the first lien space because for a couple reasons, A, you can't really control the property and the equity by being the first lien position. The only thing that can really wipe you out is you not doing something or the taxes. And we're always making sure to check taxes on if you're buying junior liens. Not only, you know, you, you if you're gonna buy a junior especially non performing, you want to make sure it's behind a performing first because otherwise if there's a second lie behind my first leaning on I can foreclose and usually wipe out that second lien and they're not going to get anything. So I don't like to buy seconds, but it's also. Go ahead.

Actually, I want to ask you about that. But if you're in a second, aren't you required to notify them and then they can also buy you out and take your position.

They could. It doesn't happen very often. All right. Because usually I'm buying a first lien where you know, I'm at 80, 90, 95, sometimes 100 plus percent of the value of the property. Yeah, you know, I mean now that was definitely, I mean, seconds were a great investment a few years back when there was a lot more credit. About 10 years ago you could buy them for pennies on the dollar. But any second lien or junior lean investor would tell you, hey, you really need to buy four or five or six at a time because two or three you'll get worked out and some sort. The other two or three you need to put in a File folder and wait till either the borrower refinances or sells the property off. Yeah, and I want to be in the driver's position and I'm the first lean position. I can really kind of dictate and work with that bar for which strategy I wanted to go to or you know, I'm not beholden on the first lien holder or wait for the bar to do something. So, you know, second seconds aren't bad. It's just not nearly as cheap as they used to be. With, with values going and growing over the last couple years like they have and then just the inventory of them, there just hasn't been that much credit like there was previously. There's also commercial debt you can buy versus residential debts. Commercial debt's a little bit different ball game obviously depending on what asset class it's in. You really, if you're going to buy apartment loans, you really need to know the apartment business. You can buy self storage. It's important to know the self storage business. And that's a different animal all in itself just because you buy the note. And this is probably one of the biggest mistakes that we see investors make that come into the note space. They often think, oh, I'm buying the note, I own the property. You don't own the property. When you buy the debt, you own the mortgage and you can control that. But you've got to go through the legal process of foreclosing if you want to take the property back. And if the borrower comes to the table and pays you up then, then you're just the bank, you're not the property. So that's a big mistake. We see people make that, they think they're going to buy the property and they evaluate that note for like the same they would for like a fix and flip. They're like, oh, it's, I'm a, you know, 70% of value and my after repair value is going to be this. If I put four times like oh, you don't own the property, the borrower owns the property. You make ARV does not exist in the note business. What I like to say, you know what I mean?

Okay, so are there other types of notes that are not attached to real estate or do you prefer the ones that are associated?

Yeah, that's a good question. Yeah, you got, you have, you can buy debt on auto loans, credit card debt, student loan debt is probably pretty cheap right now. We won't go that, that round. I mean you could buy IOUs, you know, you have receivables you have equipment stuff. I mean we see a, a pretty big bag of stuff across the board. But we primarily, I mean, I bought a little bit of auto debt back in the day, but pretty much it's focused on residential commercial assets is what we look a loan that's secured by a first lien on, like I said, a property of some sort. Just what I know. You know, you can buy unsecured debt. You often can buy it at a big bigger discount. Some, a lot of times pennies on dollars in a lot of cases. But it's a whole lot more work trying to track down that asset or try to get the bar to collect on it. And I liked, hey, the bar is not going to play ball. Then we have the right being the bank to, to foreclose and take that asset back.

So explain the secured versus unsecured debt for our listeners.

So secured debt means that the loan is secured by deed of trust or mortgage on an actual physical piece of property. It's secured by a tangible asset. An unsecured is, it's not secured. It's basically just an IOU and it's a loan without anything attached to it. Versus the, oh, the, I'm drawing a blank on the person accountability or the, the borrower being responsible for paying it back as they would. I don't want to do unsecured debt. I like to do it because the, the assets, the stuff that secures that loan and makes it valuable is the actual piece of property. So unsecured debt isn't going to be secured by any type of asset or anything like that besides just the borrower's ability to repay that debt.

So what would happen if you had an unsecured debt and you needed to collect? You need to take them to court.

Or you'd have to. Yeah, exactly. You have to take them to court and get a judgment against them and through the court system to collect on their assets to either try to, you know, force them to sell a property or a business. It's a much messier process for the most part. Whereas the real estate, hey, I just want, I just want to take the asset back. And it's also much easier to calculate the value of that secured asset versus unsecured debt and what they may have.

Okay, now do you get involved with like tax liens at all? Because I know sometimes that comes into.

Play with notes, that is. We definitely do. We're not, that's not our main focus of going out and buying tax liens. But what we do is, you know, checking Taxes is one of the most important things we do as far as due diligence. So it's important to know how much is owed and what the, I guess you could say the tax foreclosure or the tax certificate timeline is for that state. Most states will start the foreclosure process or tax lien process if somebody's behind by a year or up to three years. So you really need to know what's going on with the taxes and what goes on in that state. Some states will have, have a redemption period if they fork. If somebody's bought the tax lien because the tax is delinquent, there may be a redemption period of six months or a year or two years where you go back and pay that, that lien off, that tax lien off to the borrower, to the person that paid for the taxes and still get the property back or get the mortgage back. Others like in Florida, if it's a tax sale, that it's gone. If you, if you screwed up and then pay the taxes. Somebody paid five grand taxes and then sent it to a tax sale. Yeah, your asset is gone, you know, and then, and that's not a good place to be. So that's why checking taxes is one of our number one things to make sure what's going on. Now some states like Texas, where I live in, is for tax. Tax Lien sales is one of the greatest states to invest in taxes like an 18. It's a 25% annualized return from the minute you buy it, which is really great. But you know, a lot of people will pay those off when it gets the day before they'll go get a third party tax lien, lien or loan against the property to pay off the property tax. So it's a lot of work and not a lot of merits. I like buying institutional debt because banks send me stuff, you know, lists of stuff that they have available either every week, every month, or every quarter in a lot of cases. So it's, I don't have to do a lot of prospecting. Once I've got a connection with the bank, they will often I'm on their buyer's list. So they send me a list and say, here's what our problem children are. You know, buy something or here's what we're looking for. And then it's a lot of back and forth.

So I know you had a background as a banker, so I imagine you, you probably have these connections, you know, people like myself or the listeners, we probably don't. You know, I don't, I don't have those connections. So, you know, how would a normal everyday person go about getting access to some of these, this inventory at a bank?

Great question. So I was a banker for Chase. I didn't know Chase sold their notes. I mean, most of your bankers don't have a clue of what's going on because it's a whole internal department. I mean, I can remember people coming, hey, I want to buy Chase nuts. I'm like, we don't sell our nuts. Well, Chase does, but they just sell them in a much bigger portfolio of them. If you go to LinkedIn right now and anybody can do this, you go to LinkedIn free version of LinkedIn and type in special asset manager or secondary marketing manager or whole loan trader or even note investor. You'll, it'll pull up a whole list of people that have those job titles. And one of the, one of our favorite prospecting Tools is using LinkedIn, typing in those, search those names or job titles and then just contact them. Hey, what do you have on your books that you're looking to get rid of? You know, what debt does ABC bank look to get rid of? Another great source that a lot of investors use is your foreclosure list. If you're buying a foreclosure list to target foreclosures that shows distressed assets. And often the foreclosure list is going to list the trustee or the attorney foreclosing. So you can often contact the attorney and say, hey, I see that you're foreclosing. Do you know if the bank would be, or the lender would be willing to sell the note instead of foreclosing? Or could you make an introduction? And that's kind of the back end way of doing it. You can also dial for dollars and call those same departments, but that's a lot more work. But for most people, jumping on LinkedIn is a great way to do that. Or there are some different websites out there that list non performing notes for sale. Some of the platforms that are available out there and it's pretty easy to do, but it's not like a, we don't have like a true MLS for the note business, unfortunately. So you've got to do a lot of prospecting because you got to realize this. A bank isn't always going to publicize that they've got bad debt that would, you know, if they did, it'd be a run in the bank or would really reduce their stock value. In a lot of cases, even though they have to disclose this quarterly to the fdic, it's still, they like to keep it hushed. So it's, you know, there's some times we've called banks. It took us 20, 30 times to get to the right person, finally get the right list. Other times it was one phone call and like, yes, buy something. You know, over the last couple years with COVID we weren't buying a lot because of all the foreclosure moratoriums. Banks didn't want to sell stuff off because they weren't forced to. But now since all that stuff has gone, gone away and banks are now tired of letting somebody live in a house for free for the last couple of years, they're now really starting the process of foreclosing or starting that legal process that you to take the property back if the bar doesn't play ball. You know, I joked it on the front end when you asked about business. I always know it's a good time for notes. When I get phone calls or emails inbound from bank asset managers versus me having to do the prospecting and being outbound. You know, people are asking, hey, what are you buying? What are you looking for? You know, would you take a look at what we've got or what kind of bid would you give us on this stuff? And we've seen a lot more of that in the last six months.

So you find that banks are willing to just share their bad stuff because I got the impression that they, you know, you gotta like pull teeth to get them to share that stuff.

It varies if you get the right departments. Let's say you're contacting a special asset manager department, you get a hold of special asset managers, say bank of the west out in San Francisco, they're going to make you sign a non disclosure agreement, you know, so that you're not going out and blasting it all out the Internet, stuff like that. And so yeah, you sign an NDA, then they'll send you the list. You know, literally they're non performing stuff, they're bad assets, they're problem children. And then you're reviewing that stuff. But you know, just calling, calling the normal corporate office for loss mitigation, say hey, I want to buy notes, they that's not the right department. You know, you've got to find the right decision maker. But yeah, when you look, when you realize how much banks leverage every dollar that comes in, if you've got a hundred thousand dollar non performing note on your books, that's really tying up 10 to 15 times that amount in fees and leverage the bank could use that money to go out. If it's not performing, they can't lend on it. It's really a non performing asset. So that's why when you start, if you ever get late on your mortgage, if you're getting seven days behind, you start seeing like SEAL Team six showing up your house, trying to call you and reach out to you, the mailman's knocking on your door, you're getting certified layers. The banks don't want that to go in default because it starts to cost them a whole lot more in leverage and build stuff so they don't want to publicize it. But yeah, every bank has non performing stuff. Even though we've only got like a 2 point, was it 2.8 or 3% default rate. When you think about that, we've got 80 million mortgages in America and we've got a 3% default rate. That's still 2, 2 and a half, 2.4 million homeowners that are struggling to stay afloat over their mortgage and default. There's about, about five times that with people that are 30 days behind that aren't in the true default stays, but they're, they're behind in their mortgage and it's, that number is getting greater every day with, when you look at inflation and people, you know, not being able to pay, you know, people are really, a lot of bars are having to look at things, hey, do I put gas in my car, Do I put food on the grocery, I mean, food on my table or do I pay my mortgage? Well, they can only do two out of three of those or one out of three sometimes. And the mortgage is usually the last thing, unfortunately in a lot of cases. So it's, I mean, that's why we like helping people. We can modify it or work with them. It's really a win, win. But there's a lot of people hurting out there across the country. It's just not all, you know, we're not going to see a huge, huge wave like we did back in, in 2010, but I still think we're going to see a sizable amount of defaults and foreclosures just because it's not going to be the real estate dropping. It's going to be other things that are determining factors in that.

Yeah, and you mentioned, you know, the default rates 2.8% and I think, you know, for a lot of metrics, defaults even from corporate debt, you know, their historical lows. And we're heading into a period where, you know, interest rates going up is not a sign of fewer foreclosures, it's a sign of more. So what do you see? I mean, 20, 20 aside, because I think that was a little bit of a one off hopefully. And, but I think with the change in the, in the underlying fundamentals in the market with inflation, what do you see changing or what do you, you know, how should people be thinking about this market and what trends are probably going to, to come up in the next few years?

Well, I'll, I'll speak on an investor basis. If you've got money sitting on the sidelines, not in something that's returning a solid asset, a piece of property or not something that's performing on a regular basis, you need to do that immediately, need to put it in something and not everything is great for you. Invest in stuff that you understand. That's the number thing. Learn about it, understand it. You know, a lot of folks were excited about crypto back in the day and it was great. And then it took a big, big dump in a lot of cases. I mean, Odell Beckham, sorry, buddy, you lot, you, you three million dollar salary for the Rams is like worth 75 grand at one point. But get it, get it performing because you, if you're losing buying power each day, if things are getting more expensive and you're not, that money's not generating anything, your dollar is now worth, you know, 90 cents or 85 cents and it's just going to get worse out there for you. So that's the biggest thing. Start, Look, I mean there's plenty of opportunities. A lot of people think you need to have 2 million, 5 million to invest in debt or real estate. No, no, no, we, we buy, like I said, we buy in about 30 different states. And instead of me buying like one, one asset for a million bucks since like California, I could go buy 20 properties and, or 20 notes in like Columbus, Ohio or Kansas City and have my money leveraged out there. So a lot of investors get into the note space, you know, 50 grand, they buy one or two notes. They have a third party servicing company that's handling the workouts. They've got attorneys to handle the foreclosure. They're, they're investing using their self directed IRA to do the purchase, which is a great way to get started. A lot of our students and investors get started using their self directed ira. So that's the thing is you got to be investing, I mean rates, even though, oh great, now your, your savings account's gone from 0.01% to half a percent, that's still, still really bad. So become a bank in some sort of fashion. Take your money, either buy something that's performing or lend it out to other investors that know what the hell they're doing and make an above average return.

I mean, I'm sure you've been seeing like 10, 12% probably recently, you know, or up till recently anyway, you know. Cause I know with private notes you can get, you can get better rates. But as rates start to climb in, you know, today, probably in another 20 minutes or so, they're going to announce another probably 75 rate basis point rate hike, which will bring us about three and a quarter. So that's still ridiculously low. But let's say we get up to four by the end of the year, right? So, you know, what are you going to start to see? Rates on the, on the private note side? Like, what if we get to six or eight? Like, what is it going to show there? Because ultimately inflation is still 8.3, which means you're losing 8.3% a year. So what does that look like from your perspective?

Well, we buy a lot of stuff that's not newly originated. And so when we're buying the debt, we're taking that in consideration that it goes into our discount. When we buy, we buy at a bigger discount when rates go up a little bit. On the, if you're lending side, you know, there's a lot of capital sitting on the sidelines. And you know, in the past where we were getting people that need to do something that were lending money at four or six because they're just happy because they were making four times what was in their certificate of disappointment. You know, their CD is not performing. You know what I mean? Or their 401k was now dropped down to a 301k or 201k, stuff like that, it's, you know, rates go up. You got to understand what's going on in the market and the opportunities. Maybe, maybe your private lending, we started to actually see this more. So they're still landing at a lower interest rate, but they're taking a participation part in the, in the appreciation. I saw that. I was talking with a guy yesterday. We were looking at his note. The bank modified his mortgage rate to 4%, dropped it down from where it was to 4%, but they took a 25. You know, they're taking 25 of the equity. Whenever he sells the property, which I hadn't seen too much of that I think you're going to see more of that as properties continue to increase, just got to know your market in some cases and know your time frame. If you're lending to somebody, make sure they've got expertise, make sure they've got the vendors that are doing it because that, that, that makes all the difference in the world. You know, what we have found is oftentimes while people are interested in rates, private investors are more interested. Hey, can I at least get my principal back? B Can I trust you? Do you know what the hell you're doing? And see, the return is often the third or fourth thing down the road, those first couple things that are the most important thing. So okay, if, if your money's making zero and you're happy with six, great. If you're happy with eight or 10, you can get that, by all means do it.

Okay. So you know, one thing that kind of comes to mind because I think a lot of people listen to the show. This is, I mean this, I love this asset class by the way, but I think a lot of people who don't have the background you have, you know, how can people get involved in this space? Because you know, there's a lot you have to learn about note investing and obviously workouts. So you know, what do you suggest people go to learn about this sort of thing?

Well, there's a little podcast out there called the Note Closer show that we kind of post 700 plus episode. But that's the thing. There are books on debt buying, debt investing. We've got some classes that we've been teaching for years on people how to get started. Our YouTube channel has a 1500 plus videos on it with a lot of knowledge out there for you. So that's, that's a great place and there's a. I'd love to that. We've got a one day class that we teach every third Saturday of the month that we love to give away as a bonus to audiences when we speak on. It's called Note Weekend and it's basically nine hours of live teaching me going through how to find these deals, how to fund them and then how to flip them and Then also another 9 to 10 hours of other training. Like what's, what's a servicing company? What's the foreclosure process look like? So while it can be daunting, if you've been an investor, you probably understand a lot of the things that are going on. Just really kind of twisting the, the mindset, the view from being a property owner to being a banker. And that's where you have to kind of approach as a lending mindset versus a property mindset. But it's a, you know, if you've been in real estate, it's just a little bit different view on stuff. You know, a BPO is a bpo. Market value is market value. Payment history is payment history. It's just learning how to approach it a little bit differently. And it's some, there's some learning curves to it. But that's why we always tell hey, it's a marathon, not a, not a sprint. If you're buying debt, it's not, it's not at all get rich. The one of the biggest differences is the deal flow is time frames longer than like going, buying a fix and flip. You know, fix and flip could be 90 to 120 days in and out with a note. You better expect it to be at least 12 months in a lot of cases, if not 24 to 36 depending on the state it's in. So if you're buying in judicial states, there's nothing wrong with that. Just expect a longer foreclosure time frame. If you got to go that route, it's a non judicial, it's a faster foreclosure time frame. But I always tell folks, plan on buying that note and be being leased into it for 12 or 24 months. Okay, cool.

Well, Scott, I really appreciate you coming on the show. What are some final thoughts you can leave our audience with?

You know, get in the game. You know, the only thing that you guarantee by not taking action in this market, whether it's up or down, is failure. You know, we all have. I wish I shoulda, shoulda, coulda, woulda. Well, you know what? Quit shoulder and actually go out and take action. And like I said, there's, there's plenty of opportunities. I love notes. It's my niche. It's one of my, my flavor, my flavor flav of what I like to focus on, which is great but you know, get started. If your money sit in the bank account, you're losing it. Don't sit there and let fear paralyze you. Take the action and go get things done. If you're interested, yes, you can always sign up for that one day class. Noteweekend.com was the link. Use the code Moneytree, all caps, no space and we'll let you in for free.

All right, we'll put that in the show. Notes for all the listeners and yeah, where can people find more about you, Scott?

Really easy. Just go to our main website. We close notes.com. you'll find, you know, the different training you're looking our podcast or different webinars that we do. You know, we just really love to share the information and help people out. I mean, at one point I was a distress borrower back in 2001. And so I really empathize with folks that are struggled to get back on track because of financial hiccups. Not many of them, not things that they couldn't control. So check out we closed notes.com we're here to help people. You know, it's like we like to say we're making America great again, one defaulted borrower at a time.

Well, Scott, I really appreciate you joining us on the show and sharing your wisdom with us. Thanks again for joining us.

Thank you so much for having me. Guys, make sure you hit that subscribe button and leave Kirk a five star review. He's doing a great job here with his podcast. These podcasters love to hear from our audience. So subscribe, leave a 5 star review.

I live in the great state of Massachusetts. I may be the only one who calls it that. But I digress. The great state of Massachusetts has a commercial funded by the state that says you can't win the lottery if you don't play. For the moment, let's ignore the fact that there's a state sponsored commercial suggesting that you go out and spend your hard earned money gambling on lottery tickets with odds of over 100 million to 1 of winning. But it's true, you can't win if you don't play. I'm giving you the same opportunity here in the show. The only difference is I'm not asking you to buy a lottery ticket. I'm only asking five to 10 minutes of your time. But I will pay you at least 100 million Zim dollars for your time. We do have some foreign listeners, so if you don't like Zim dollars, we may have some other currencies as well. If you want to earn over 100 million Zim dollars, go to www.moneytreepodcast.com free money to get your free money today. All right, well that was a great interview with Scott. Really appreciate him coming on the show and sharing his wisdom with us. I know he's a, he's a big player in the, in the private note space and there aren't many, but there's, there's a few and Scott's one of them. So highly recommend, you know, check out his resources because they're, they're quite good. Now we're into the panel portion of the show. We have our very own Barb Freeberg. Hey, Barb.

Hi. Happy to be here.

Great to have you on. And we also have our very own Doug Hagren. Hey, Doug.

Hey, Kirk. How you doing? A little late sporting the logo here, but you know, we're always here to promote the, the wonderful podcast that this has become.

Great. Well, I'm glad to have you on once again. So. Yeah. So as we kind of dive right in here, Barb, what were some of your takeaways from the interview?

Mortgage debt. Distress debt. Okay. So you're actually buying mortgages where people aren't paying. That's what we talked about. So, yeah, it's a viable asset class.

Yes.

I think you can get some really good returns on that. But can you buy it in a fund? I don't think so. I certainly couldn't find it on the ETF or mutual fund search. So that means you're going to have to go in, find that debt, make sure that it is something that, that you can handle. Then you have to collect the payments from the defaulted borrowers. Then if they don't pay, you have to foreclose on the real estate so you can get your payment. So does it have financial applicability? Absolutely. Can you get really good outsized returns? It's likely. Is it a ton of work if you do it yourself? I'm thinking yes.

Well, I think that's a great perspective, Barb, and we're going to come back to this a little bit. But Doug, what were some of your takeaways?

Well, you know, it kind of makes me think about 2007 a little bit and 2008 and in the fact that, you know, obviously mortgages were becoming an area of higher risk at that time. The difference this time, because back then looking at mortgage backed securities, a lot of people were putting their money into mortgage backed securities thinking that this was a place to get safety. Fortunately, this time there's obviously a little bit more transparency. And with this, with this strategy, you know what you get into, Right. You know that you're going after people who already are struggling to pay the debt. And at least that's been segmented off. Now the question is, and this always comes back to any type of lending. Right. And one of the problems I think we ran into in 2008 is that we got to a point where there was risk out there, but there wasn't enough of a premium surcharge for that level of risk. And we know mortgage rates have been absolutely, you know, historically low. There's no risk premium for any of the money that's being due out there. You know, it reminds me, I think I've talked about this before of turning on advertising and you know, try not to go to bed after midnight, but you see some interesting stuff when you do. And I've seen lenders out there saying, hey, if you need money, we'll give it to you. And then you look at the fine print and it's 100% interest rate on it. Right. And so I think in this scenario, the concern that I have is, as times are shifting, is that this mortgages could end up being like a high yield bond but without the high yield. And to me that's a concern.

Yeah, I think it's, it's interesting. I mean I love this asset class because I think it's just one of those areas that there's so much possibility and depending on what your interests are, there's many different types of notes. And I know we were talking about mortgage notes primarily, but you know, there's equipment leasing. I have a client who does equipment leasing. There's, you know, there's, you know, private notes based on businesses. I mean you could, you could pick any asset and if you're, you could find a way to lend off of it. I think what's interesting is we've had a historical low rate of yield for the past like 10 years and now rates are going up and all those asset classes that were really unattractive for years are now becoming interesting again. This is an example. But I think the lesson here is you have to do your homework. I mean, Barb, you're a real estate investor. You know, this is just another form of real estate, isn't it? I mean you, you had to put a ton of work when you're investing in real estate. Right. It wasn't just like, oh, I'm just gonna go buy, you know, Carlton sheets course online and go put a bid on a house and just go and just get it and I'm all set. Right. Like it's not that easy, right?

Absolutely. And I think you make a really good point, Kirk. If you want to get into this, it's not a simple deal like go go to your brokerage account and buy a fund. You're going to have to spend some startup time figuring out what you're doing. And if you want to do that, it's a legitimate asset class. And I think there's some good money to be made. But don't think it's quick or easy.

Yeah, I think that's, I think that's an important point. And, you know, another point which brought up the interview I want to kind of hammer home, because I think it's important, is there's really two different ways you can get paid and. Or should look at private notes. And one is if you want the interest, and the other is if you want a total return. Right? So we're talking with Scott about mainly total return, right? You're buying a mortgage at a discount because it's not performing. You make it perform and then it's.

Worth a lot more.

That requires work, right? That's going to require potential risk, understanding how to deal with foreclosures, working with people. But if you're just buying it, if you're just investing for income, it's a. You have a different type of borrower, right? You're looking for a different type of person. Because if you just want the income and you don't want the headache, you know, maybe that rate is lower, but maybe the risk is lower. So.

Yeah, but let me clarify, Kirk, because if you're looking for income, you're not looking at distressed debt, because distressed debt, the borrower is not paying, so there is no income. But on the other hand, the sister type of debt is mortgage debt that you can get income, and that's easier to access. So. Yeah, sorry for interrupting there.

No, not at all. I mean, this is. This is the kind of thing that people need to understand, right? So if you're investing in real estate, Barb, you can look at, you know, you could be a slumlord and get really good yields, right, With a lot of risk and, you know, you have to go collect and all the other fun stuff that you have to do with that. But you can get a really good yield or maybe even mobile home parks, maybe those are the higher yield of the two, have a lot more risk, be a better return. Or you can go buy like, you know, beachfront property in Martha's Vineyard. Although maybe not now because we get a lot more people immigrating to. To Martha's Vineyard nowadays. But, you know, if you had beachfront property, you're going to get a much lower yield, but your risk is a lot lower. Unless you're on the beach, which case your house might get swept away in the wind and the. And the tides, like they do in Nantucket. So maybe that's not low risk. But I think the point is, is just understanding what the risk and reward is, and is it something that you want to take advantage of? So, Doug, what. What are kind of some of your Thoughts on this? Is this an asset class that you would subscribe to? Or what is. How do you think about this?

Yeah, absolutely, Kirk. And what I want to backtrack there because you mentioned something about mobile home parks, which I thought was interesting because that has actually become a very, very hot area of investment over the last couple of years. Matter of fact, Blackstone and Warren Buffett as well as a number of other big names have been funneling money into that over the last couple of years. So that'll be a fun one to talk about on another occasion. But I kind of, you know, to me, yeah, it's distress debt. So you have those inherent risks right now of whether or not the people that are going to be on your books are going to pay you. So when you talk about total return versus, you know, versus income, I think there's, you know, if it's distressed debt, it doesn't necessarily mean nobody's paying.

Right.

But it's certainly going to be more variable and less reliable, which is not something an income investor is generally looking for, you know, forward to. I think to me, it kind of reminds me a little bit of, as I said, high yield debt. And you know, I, you know, I just had a forum recently where they were talking about high yield debt being a really interesting alternative to equity holdings. I now, me personally have never looked at high yield debt as a, as a fixed income holding. To me it's too volatile and it really doesn't play the part in a portfolio of balance and stability and correlations that, you know, you would hope to get from traditional fixed income high yield debt. And I've made arguments in the past, you could almost build a portfolio where your entire equity portfolio is high yield debt against what is traditionally considered more safe and stable debt. And so in this regard, right now, while this is not considered high yield debt, I mean, there's a lot of big names that are getting out of the mortgage industry right now. Wells Fargo has looked at, has looked at what we are going to be facing at headwinds and said, and they have been the biggest player in mortgages for 20, 30 years. And they said, we're done. We're starting to hear about mortgage companies out there that are quite quickly becoming insolvent in this environment and we don't know when the end is going to come on this. High yield debt works kind of in a similar fashion. The timing really matters on it when we are in a very, very hot market and things have gotten to the point where they're peaking and at the verge of decline. That is a time to really start looking at deleveraging your, your, your exposure to high yield. Why? Because high yield comes back to paying higher interest and risk premium for who you're lending to. Right. Those that get high yield debt typically don't have the credit worthiness to go out there and get easy access to capital. Okay, so they're already struggling in a hot market. And if it's a hot economy and they're struggling, what do you think the prospects are for their ability to continue to be solvent and, and be able to pay on those premiums? Tom, when things start decline pretty low. Which is why high yield debt tends to become incredibly volatile in a declining, rapidly declining market. Because all of a sudden all those problems that were maybe getting brushed under the rug become very apparent. When's high yield debt a great time to invest? When we're at the bottom of a really bad bear market. Because you kind of look at it this way. These companies struggle, these people struggle. But guess what? Every day's looking a little brighter. The sun's coming up, They've made it this far and now it's going to.

Get a little bit.

But the value of that debt at that point is so low because of all of those risks that had already been apparent that now you can buy it at discounts and hopefully get a premium that comes back into that total return. For me, right now, do I think it's a good asset class to invest in?

Sure.

Long term. But I think you have to be really cognizant of durations. Long duration, as you know, Kirk, right now is not a place you want to be in. It's been beaten up. I think there's going to be a turn on that where long durations are going to come back because the values are just going to be so low it'll be worth it. And depending on whatever the Federal Reserve decides to do with interest rates and starting to shift back to lowering them if we truly go into recession. But would I want to get into it right now? To me, I think the timing is really poor. I think we are at that peak that's going into a decline. We've got significant duration risk, and again, we've already got people that were struggling to pay on mortgages at 2%, 3%, 4% that are still 2%, 3%, 4%. But now we're facing the possibility of losing jobs and, and rising inflation and other significant economic headwinds that they weren't facing before and they were struggling then. This is not an Area I would want to touch at least as an individual investor, maybe with the help of someone who really understands where to find those deals, at least for the foreseeable future. Because to me, I think the risks are only increasing rapidly.

Yeah, I love that input, Doug. And yeah, I'll share a secret with our listeners that you were touching on, Doug, so maybe you want to come a little closer to the speakers here. But the High Yield Bonds is one of those asset classes that Wall street will never talk about. And it is one of the best areas to invest in in a crisis. Everyone wants to talk about equities. Equities is not where the institutions go. Equities is not where the Warren Buffetts of the world go. Equities is for retail investors. The best place to invest in a crisis is high yield bonds. And obviously you have to know what you're doing. It's a very challenging asset class and quite frankly, most people are not equipped to do it. But if you can find somebody who's good at it, I mean you think about like 2008, people were making hundreds of percent return on high yield bonds because they were trading at blown out prices as if they were going bankrupt and they weren't. And you could make, I, I mean there were some, I won't name names, but there was, there was some that were making a few hundred percent returns because you just happen to know, you happen to look at the financials and look at them and say, yeah, they're fine, yes, the market's a mess, but this company is going to survive. And you know, people throw everything out when they're desperate and they will sell everything. High Yield Bonds is in my opinion going to be one of those areas that is going to potentially implode in a market crisis. Not because companies are bad, but if you look at the numbers we have, I don't have them in front of me, but if you looked prior, in the last few years, I think like 33%, 33 or 40% of investment grade bonds were, or maybe it's 50% are, are now borderline junk, which means they're triple B, which means they're still investment grade, but they're borderline junk. That number of companies has been increasing rapidly over the last 20 years. So there's so many companies that are on the edge that we go into this recession, we're going to have a tidal wave of new companies that are now considered junk bonds. And the crisis is going to happen because it's not because the companies are going bankrupt. I mean who knows? Some will, some won't. The crisis is all of a sudden you have these funds that can own investment grade bonds and of course they're going to own the, the lowest piece of crap they can because they tend to have the higher yields and they want to get the best yields. So they tend to buy, you know, borderline junk. But what's going to happen is you're going to have a tidal wave of these companies that are downgraded. And so all of these investment grade bond funds are going to have to sell because they can't hold them anymore because now they're junk and these high yield bond funds are going to have to buy. Well, that's great if you have a lot of money going into high yield bond funds. But of course, in a crisis, people don't do that, they sell them. So it is going to be a real, it's gonna, it's gonna be a real row when, when that, when that happens. And I think there are a lot of smart people been talking about this for over a decade. Part of the reason the Federal Reserve wanted to bail, wanted to buy high yield bonds in the COVID crisis was because they were aware of this. This is a big issue that I, I don't know if there's really a solution other than the Fed coming in backstopping high yield bonds, which they didn't actually buy any, they just said they were going to. So I don't know what's going to happen, but I do know there's going to be a tremendous opportunity there. Wall street is not talking about this. Brokers are not allowed to talk about this with the retail clients. This is considered, quote, unquote, risky in their opinion. And I would agree it is risky if you don't know what you're doing. But there are plenty of good managers out there that do this well and you need to be aware of what's going on. And I think for smart people who are looking for opportunity, there's going to be tremendous opportunity here in the next five years.

Kirk, I want to add to that there are some fund and ETF companies that are talking about. This is actually at the forum that I was at. But that's where in order to find them and know who you're working with and who you're investing in, in order to get access to people that are actually going to be honest and tell the truth about what's going on, that's where having a professional that, that can really guide you is going to be really important. Because like, you Said a lot of brokers and a lot of fund companies do not have the, the, the, do not have the, the bravado to go out and talk about and make these moves in a proactive approach that could end up being an incredible opportunity. Unfortunately, they will figure it out too late.

Yeah, I agree, Barb. I mean, you're a former portfolio manager. I mean, what do you think of, of high yield bonds and distressed debt investing even in the public realm?

I'm glad we, we're talking about fixed income because over the past, like you've said, 10 or so years with yields down near 0 to 1 2%, everyone's going, don't even invest in, in fixed income. Fixed income's dead. Well, obviously it's not dead, it's just not giving you a great return, a good coupon rate or interest rate. And the problem that investors need to understand is, or they probably already understand it if they have any debt in their portfolio or bond funds is when interest rates go up, your value of your bonds are going to go down. And that is because the investors can get higher yields in the market. They're going to sell their fixed income in order to get a new issue of a bond that pays you a higher yield, thereby driving fixed income values down. So the question is, what do investors do? And this applies to high yield and it applies to, you know, quality debt as well. I think investing in debt is legitimate even though during this market we're going, there's no place to hide. Stocks have gone down, bonds have gone down. But what you're not seeing is yields are going up and at some point bond values will stabilize. And so Doug was talking about duration. Duration pretty much is, you can use the number of duration and equate that to years and that kind of gives you an idea of how, how much time it will take in years for you'll be, for you to be repaid by a bond's total cash flows. And in plain English that means use duration to figure out how much your bond's going to fall when interest rates go up. So a two duration bond kind of means the average term of your bond is roughly, or bond fund is roughly two years. So if interest rates go up to 2%, then your bond yield, your bond value is going to fall 2%. So in simple terms, keep your duration short as interest rates are going up because that way you're not going to lose too much principal. But as interest rates start to, to kind of level out and they will, and I just want to throw out a Statistic here. Historically, corporate bonds, 10 year government bonds, they paid in the range of 5 plus percent interest over many, many, many, many years. And so at some point we're going to get back to an equilibrium where you can get a decent yield on bonds. Now would I play the distress debt game of trying to figure out when to get in and is it a good asset class? Look, I like distress debt. I have bought individual low rated bonds, gotten very nice yields and they've never defaulted. And you know, maybe I've been lucky, I don't know. Like, like Doug and Kirk said, there's great managers and you can hire and you can get good yields. But I want to bring this globally to give you the investor tips on what do I do with my fixed asset class now.

And Barb, if I can add to that, I think what you just teed on, which I think is really important, those investors didn't default. And again, with bonds, duration doesn't mean anything if you're going to hold it to maturity. Right, Right.

So duration matters in a fund.

Correct.

Really good point, Doug. In an individual bond, if you're buying individual bonds and the theory with buying individual bonds versus funds, if you've got this is kind of a rule of thumb. If you've got $50,000, you can afford to buy a diversified bond portfolio. If you have less, you typically should buy bond funds. So anyhow, back to you, Doug.

Well, I wanted to also add too because you were talking about the long term yield on 5% on those bonds and that's actually a lot of that thinking is what went into some of the calculations that came up with the 60:40 bond. 60:40 portfolio. And, and also what went into the now highly controversial 4% withdrawal rule and also went into some of Dalbor's original studies about how much you should be saving for retirement. Unfortunately there are some very loud talking voices out there which I will not name on this podcast, but that can drive me crazy that still talk about, well, you should only put 15% towards retirement. Again those, the math on some of that stuff came from assuming that you were going to get X percent return on stocks and you were going to get X percent yield and return on bonds. But we have seen a significant decline in which the actual total return on secondary traded bonds, which is what you're getting in mutual funds and ETFs that has resulted in those calculations being woefully wrong. And that's where companies like Dalbar have come back and said, you know what, eh, 15% maybe not for enough for retirement, you might want to be doing 20 and 25, which is where a lot of that advice you're listening to is really outdated. Giving you 30 year conversation when there's been lots of things that have changed over those over, over that time. And you got to stay current with the advice that you're receiving so that you are able to understand what is you're currently facing and what that means. And bonds just have, have not been in a position to pay the interest rates and have the return that had historically been calculated. The last thing I wanted to say on that is we talk about bond. You said, well bonds, what does that mean? Oh, bonds are bad. The aggregate bond index, which is typically what people are referring to, they're either used, they're either referring to long duration US Treasuries or they're looking at indexes. And again, this is an area where even Vanguard, the king of indexing funds has come out and said use active management in fixed income. It's too tricky. It one, one size does not fit all. The aggregate bond index basically includes mortgage backed securities, investment grade, corporate core bonds, invest government bonds and tips are all in there. Some examples of things that aren't in there, senior loans, high yield bonds, preferred securities, municipal bonds. So when you're talking bonds or fixed income, it is way too broad of a category and way too many different types of fixed income income that you can look at. Plus long duration, short duration, government bonds, private bonds, weight revenue bonds, tax based bonds. There's just way too many different things in there to clump it all into one category. Which is why if you are doing passive investing in bonds, you're setting yourself up for failure. And even those that push index and passive investing the most have silently said all along that's a mistake.

I don't know if that's necessarily true for everyone. And I'll tell you, I get that there's a lot of bond, different bond classes as you've just rattled off. Investors that want to have access to all those different types of classes can also diversify their bond ETF or mutual fund investments. And so whether you go active or passive, I like the idea that you're paying such small, small fees that you really, you don't have to search for a great fund manager. And if you want access to mortgage backed debt, so buy a mortgaged etf, a mortgage debt etf. If you want high yield, buy a high yield ETF or mutual funds. So I don't think it's a blanket rule. You have to go Active management.

Well, I think, you know, I think it's a good, good debate and I think personally one of the challenges with high yield bonds, especially not so much in the, in the more liquid space, but bonds are not necessarily liquid and I think most people think about stocks and they think, oh, I could just buy or sell a stock, I just click a button and I buy it.

Right.

Or a mutual fund, just click a button and it's there. With bonds, it's, they're not necessarily as liquid. And you know, I think what's been interesting is in 2008 a lot of the trading desks were, were pretty much closed. So we don't have the same liquidity in the bond market. So if we do have a kind of an epic fail in the bond market, you know, it's going to be a lot harder to find people, buyers and sellers and to match them up, which means that there's going to be a lot more chaos in there. Personally, I like active managers in the bond market. There's certain areas I think in, there's certain asset classes that you need active managers. I think emerging markets is one of them. You know, I would argue that even Europe is probably even better. But that, that's, I'll give that, give or take. But emerging markets, definitely high yield bonds are two asset areas that I would not do myself in part because it requires a certain level of expertise and knowledge and understanding of the markets so that you don't get taken over the coals. But I think the illiquidity of that is the problem. Which like I said, that's why the Federal Reserve in my opinion stepped up and said we're going to back the high yield bond market because if, because everyone's aware that that's a problem and if there's no liquidity then you're going to have what you had back in 2014, where three days in a row, three separate mutual funds close their doors because there were no buyers, nobody was bidding on their stuff. So they had to freeze the, freeze the fund and slowly liquidated over time. That's what happens when you have liquidity problems is they just shut the fund. You have no access to your fund and hopefully with some time within the next six to 12 months to liquidate it and you'll get your money back. So that's a problem. It doesn't happen often. It happened then and it happened because of the contagion effect, in large part because the oil prices were dropping from over 100 down into the 20s and people were just Selling everything that they could. And so a lot of these bond funds, high yield bond funds at the time, owned a lot of these oil and gas assets and they couldn't liquidate them because nobody wanted to buy them. So those are some of the problems that I think people should be aware of. Not saying that everything's going to blow up and the world's going to end tomorrow, but you should just be aware of these risks because these are the kind of things that are going to happen. You're going to say, what happened? I didn't know. Well, now you know, because we told you so. Don't, don't, don't play dumb. Now you know, now you're aware. Just be, just figure out how to manage the risk in your portfolio. Maybe you don't even have these assets because you don't trust them. That's okay too. There's no rule that says you have to own bonds in your portfolio because otherwise it, you're going to, you know, you're going to be a leper and no one's going to talk to you. Own whatever you feel like you need to own and don't own the things that you don't like. If you don't want to own emerging markets or high yield bonds or Treasuries or whatever, then don't own them. No one, no one's going to penalize you. You're not going to go to jail. Just find something that works for you and you understand and something that you can feel comfortable about. So we're going to wrap it up here. But Doug, final thoughts from you.

I like what you said. Own what you. Own what you like and own what you know. Right? There's a reason Warren Buffett didn't invest in airlines for a long, long time. And then he did and he regretted it. I think he's back into it with Delta, but I can't remember. But you know, again, the other thing is too, and I like what Barb said, fees matter. Make sure if you're going to do active management, that the fees are reasonable. But like, like Kirk was saying, emerging markets, things like that, the more things there has to be uncovered, the more things that could change. There's thousands and thousands of emerging market companies. There's thousands and thousands of small cap companies. There's only so many. There's only 500 companies in the S&P.

500.

A lot harder to do better in active management. And when you're taking a look at the same 500 companies as everybody else, so different asset classes I think do much better with active management than others. And like I said, even some of the kings of passive aggressive, of passive aggressive, passive investing, maybe I'm being passive aggressive also. Agree, agree. And have written white papers on that. The other thing, Kirk, is like you said, don't act like you haven't been, you haven't heard, you haven't been told. I'm going to steal from Pat McAfee. If you're listening to this podcast, be a friend, tell a friend, right? If you're listening, you've heard it. Somebody else there hasn't. So turn them onto the podcast and let them hear information that's going to help them make smart decisions with their money. That's what this is all about. But Kirk, I appreciate it. Just to remind people out there, my name is Douglas Hagren. I'm a founder and owner of Pro College Planners, which is a financial planning financial services firm helping with the college planning problem. Families are trying to get into the right school. The best school is not necessarily the best school on the list. It's the best school for your child. There's money out there. You want to pay the best price, you want to get the best return on investment, and more importantly, you don't want to spend too much time on this. It could take you six to eight weeks. Just in school selection can bring that down to just two hours and ensure a great outcome for your child. They're going to get out in four years and leapfrog on Friday on that stage, collecting their diploma right into their career on Monday. And you can all do it for the right price. So find out more pro collegeplanners.com It's October 1st coming up. It's FAFSA season. If you've got a child in high school, let's have a conversation and talk about how we can make this entire problem easier for you.

Great.

Well, thanks for joining us again, Doug. Barb, final thoughts from you.

Yeah, we've been all over the place basically talking about fixed income today. I want to summarize, break it down so you walk away not feeling overwhelmed and confused. First of all, if you're a do it yourselfer and you want to have some bond exposure in your portfolio, I'd say you can go super simple with some ETFs. But if you feel like you really need some help and information, check out investopedia.com check out morningstar.com, check out etf.com they have great learning resources and Vanguard also has wonderful educational resources so you can educate yourself and become a little more knowledgeable about the asset class because frankly, most of us during the past 10 years were like, who cares? The returns suck. So now that they're getting better, let's bone up on our education. If you just don't want to do that, hire a financial advisor, Kirk, Doug, someone like them who can guide you through this to a portfolio that's going to fit in with your goals. I'm Barbara Friedberg. You can find me on YouTube at Barbara Friedberg Personal Finance and at Robo Advisor Pros. Thanks for having me, Kirk.

Bye. And thanks again for coming on Barb. That's the show for this week. Thank you again for joining us on Money Tree Investing Podcast. My name is Kirk Chisum, Wealth Manager of Innovative Advisor Group. We don't just manage your wealth, we make your life better. You can find more about me@innovativewealth.com and of course, you can find me every week here on this show. You can also check out our show at Money Tree Investing Podcast on our website. You'll have access to the show notes, resources and the archive shows. Please remember to subscribe on our YouTube channel for immediate access to the new shows when they're released. When you subscribe to the show, it allows us to get access to some of the top minds of investing in personal finance. While you're here, please leave a comment and question if you want us to address it on the show. Have a great week ahead and remember, no one will care about your money like you do. So invest in your life.