Distressed Note Investing With Scott Carson From Creative Capital Podcast With Josh Ferrari

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I started getting these lists sent to me, these tapes, we call them, which is not a tape. It's an Excel spreadsheet with hundreds of assets that they were selling for pennies on the dollar. This is back in 2007, 2008, 2009. So I just started making offers and started buying some stuff. My first asset I bought was a piece of crap, a piece of shot in Detroit. I paid 500 bucks for it with a debit card over the phone from Wells Fargo Financial, and I flipped it for scrap metal for fifteen hundred dollars the next day.

What's going on, everybody? This is Josh Ferrari, host of the Creative Capital podcast. My goodness. This is another really honestly hilarious, but also extremely educational episode we have with us today Scott Carson, also known as the note Guy. It's not something we've talked about very thoroughly on the show is the concept of note investing. Distress note investing specifically. It's not necessarily the same thing as owner financing or seller financing. It's a little different, it's unique, it's lucrative. Come to find out, I haven't really done a whole lot of research or digging into the niche myself. And so being able to learn today from the guy that's been doing it for 10, 20, 30 plus years, there's so many nuances to the business, but it's also a very simplistic business. And he utilizes a lot of the same principles and fundamentals that we utilize in syndications and multifamily and regular, like single family investing, flipping, wholesaling. There's a lot of different ways that you can actually go about utilizing distressed investing. And he gives away, he gives away a golden nugget, a little tip. You gotta, you gotta watch out for it. You gotta listen. Because he talks about his exact strategy that he is currently utilizing to raise multiple tens, if not hundreds of millions of dollars from various past investors all across the United States for his different note investing deals. And he gives away exactly what it is that he utilizes and how you can do the same. So make sure you keep a listen out for that. Without further ado, let's jump right into the show. Scott Carson, man, the note guy, the note closers. We close notes, whatever you want to call yourself, the guy who buys debt this is a very interesting niche, not one that I'm very deeply entrenched in or know a whole lot about. But I appreciate you coming out on the show with us today.

You know, I am honored to be here, just here to serve your audience. Yes, I'm known as the note guy across the country. Been an active note investor. Focus on the niche of distressed notes. I'm not. Most people think about notes. They think about owner financing or buying in terms, and that's an aspect of note investing. But it's not the niche that I focus on. So I'm like, I would compare it to being the Christian Bale character or the Matthew Berry character in the Big Short. If you've watched that movie, I'm the guy playing the drums wearing a rock and roll T shirt, looking at spreadsheets all day in a lot of cases and rocking out of Metallica in my headphones or Megadeth or whatever. But yeah, I mean, I'm the note guy. We've bought over a billion dollars in distressed debt on all asset types at huge discounts. And then as I like to say, we bought anywhere from a single note for seven bucks all the way up to a multimillion dollar property, a one off note all the way up to our largest portfolio is 330 assets at one transaction in about 35 different states. That's properties across the country. So residential, commercial. We bought a lot. So that probably just threw your whole plan for the episode with a monkey wrench based on what you sent me before, Doc.

I mean, there's a lot of different things we can talk about, just a plethora really. But let's just start from the beginning. Let's go back to give us a little more of a background on yourself outside of, I guess, note investing. But then also walk us through.

What.

Ultimately was the initial interest in wanting to do note investing in the first place.

Good, good, good question. So I started off, I got a business degree from Southwest Texas State University, which is now Texas State. Big party school, yada yada. Graduated, went in the business world, got worked for a couple companies. Always been interested in finance and numbers. One thing I've always did. So I got my loan officer's license, also got started getting my securities license and then. But we bought our first house, you know, got married out of college. What's the next thing? Well, it's to buy a house. It wasn't to have a baby, it was to buy a house. We bought our house, a great credit and our realtor. This is back in 2001. And realtors like you got great credit. It's a great time to buy. And if you thought about being a real estate investor, I'm like, yeah. I mean, I grew up in a small town down in South Texas called Ingleside. It's on the bay most people drive through on the way to Port Aransas or Mustang on if they're going down for spring break and stuff like that. But when you grow up in a small town, your dad owns a local hardware store, you end up doing just about anything for money. You know, working on houses, digging ditches, roofing, electrical. So I was like, yeah, I could. Yeah, sure, I could be a landlord. I can fix all this stuff. I'll be the new, you know, landlord riches and stuff like that. We like flip this house that. That true TV show on HGTV. And then so we bought two other investment properties, 100% financed. And, you know, we thought we were doing pretty good. And then I get laid off and my two tenants get laid off from Dell Computers where they're both working at. So we went from thinking we were doing well to making. Trying to make six mortgage payments. Three first three seconds on a private school teacher salary with two of them being vacant. So I joked that I was a distressed borrower well before I was ever a real estate investor. I think the only person that made any money on that was the realtor, God bless her heart. But anyway, we were able to get rid of the two investment properties, kept it from going to foreclosure in our primary. And I was like, okay, that was my foray in investing. Probably not going to do this again. And got in the bank and got back into finance and did some other stuff. But I was working for JPMorgan Chase and doing well. There's a banker, number one banker in the state of Texas, and a buddy of mine that had worked previously at the finance company came to me. He was starting a mortgage company with a couple, I guess you call them gurus or investors who are traveling the country teaching creative financing, you know, buying on terms foreclosure subject to. On Ron LeGrand's circuit. I don't know if you know who Ron LeGrand is, but he's been around forever, over 40 years. Kind of a cantankerous old man who's taught a lot of people about real estate investing. But anyway, so I said, yeah, that's what I want to do. I said, yeah, I saw that they were flipping houses the right way. I said, I could learn something here if Worst case, I could always go back to banking. So it's quit my job in banking and started a mortgage company with my buddy Boyd. And then we were traveling and we, you know, for four years, for 2004, due to that, we were just originating a ton of loans to investors. And I was sitting in the back of the room at all these seminars learning how to do investing the right way. Not buying traditionally, but getting creative. And that was really such a valuable thing for me. And then in 2008, when the market just changed overnight, kind of like what we're seeing now in little cases, I sold my part of the mortgage company for a buck and then went 100% into just being a real estate investor. And those four years I flipped some homes, I had some rental properties, did some wholesaling, raised private capital, had a landlord, he was doing more of that stuff. But basically 2008 is when I dove headfirst in the non performing note space because I had this mentor that I learned from. For four years, I had a couple of my private money lenders, had made a lot of money during the 80s, during our, during the Resolution Trust Corporation days. And it made a lot of money buying debt then. And so my peers were telling me, this is an opportunity for you. So instead of me originating notes, Joshua, I just started calling banks, dialing for dollars. Hey, what do you have on your books that you're looking to get rid of? And kind of figured it out. I started getting these lists sent to me, these tapes we call them, which is not a tape, it's an Excel spreadsheet with hundreds of assets that they were selling for pennies on the dollar. This is back in 2007, 2008, 2009. So I just started making offers and, and started buying some stuff. My first asset I bought was a piece of crap, a piece of shot in Detroit. I paid 500 bucks for it with a debit card over the phone from Wells Fargo Financial and I flipped it for scrap metal for fifteen hundred dollars the next day, you know what I mean? Next asset I bought was a eight unit apartment complex in San Diego that I wholesaled in 24 hours for 35 grand. And the next one was at a portfolio of Houston notes for 5 million bucks. They sold it to us for, we made five points on it, flip it into another fund. So I got really excited about the note business because I didn't have to take the property back. I didn't have to deal with toilets, tenants and trash outs. And while I was initially wholesaling a lot. I started buying stuff that was occupied that I could get re performing or I'd buy it such a big discount that I could go the legal route and foreclose when the borrowers don't work with me and then sell at the auction and make a lot of good money. So that's kind of the short space. Fifteen years later, we bought over a billion dollars in debt. And, you know, I'm really excited what's going on the market right now. Not to be, you know, not to dance in anybody's grave because there's a lot. There is a lot of people hurting out there, but it's an opportunity because I'm a big believer that we. Our biggest goal first is not to take the property back when we buy this debt. And these mortgages, it's literally trying to work out with a homeowner if they're still there. You know, what do you want to do? Do you want to stay or do you want to go? What happened? What's your country western song? Can we fix it or a win win and let's go from there. If you can't fix it, then we'll give you money to walk away. If you won't play ball, we'll foreclose. But if you want to stay and we can make a numbers work, let's. Let's make it work. And we end up modifying or reinstating about 60 to 70% of what we buy too. So that's, you know, that's a little bit about me. It's basically all that I focus on now because I mean, it leads us owning real estate. Like I got a couple fix and flips that we got going on that were notes that we bought the mortgage first and then foreclosed. And we're rehabbing the property and selling it on the MLS at that point. But most of the time, like I said, our base goal is if we can get the bar to buy into us if they're still there and they want to stay. Since we're buying this debt at such a huge discount, it gives us the flexibility to restructure things and get them back on track, paying for 12 months, then it's considered a reperforming asset. And then we can either keep it for cash flow, which is usually a pretty good ROI to us, or B, we can sell it back to Wall street or back to investors. And if we bought it at 50, sell it back at 80, 85 and double down, go buy two assets or three assets from there. So that's a long Winded answer to how we got here. But I do love pina coladas and beaches, just not South Florida right now.

You know, if I didn't know any better, I'd say you got this thing figured out.

You know, when you've bought over a thousand deals and taught a lot of people how to do it, but talked with a lot of bankers. Yeah, I think we got it figured out. We got it down to a pretty.

Good T. Yeah, something like that. Well, okay, so my next, diving deeper into a lot of what you've just said now at this point, help us understand, help the audience understand and myself honestly a little bit more about the intricacies of distressed note investing, what that actually is, and then explain what are all of the different ways to actually go about investing in notes and how each way actually generates cash.

Okay, so we'll start first kind of the basics. What is a non performing note? What's a distressed note? And a performing note is somebody who's paying on time. And most of America's paying on time, which is great. A non performing note is when somebody stops paying and we don't really get excited unless they're at least 90 days beyond, you know, haven't paid in three months. We prefer somebody who hasn't paid in six months or longer. And when a borrower has stopped paying that amount of time, it's usually a variety of reasons, maybe death or job loss, divorce or you know, Covid hit. They think Uncle Joe is going to help save them and it's not going to happen. Or you know, there's a, they want to get away with, you know, taking it, you know, hopefully get a mile. But since that note is no longer performing the value on it, on the, as we like to say, the secondary market of the market is it starts to really lose value every 30 days that the borrower hasn't paid. And this is why if you ever become like seven days late on a mortgage payment, you're getting bombarded. Like Seal Team 6 is trying to show up at your house to get you to pay the mortgage on time. You know what I mean? Because they don't want that note to go beyond 30 days because then it starts losing 5 to 10% value each month. And so what we do is when we get these lists in is, okay, we're evaluating, okay, is it occupied or vacant? Because I prefer occupied assets. I don't actually want to own the real estate. And when you buy that debt, you're controlling the real estate, but you don't own it all Right. You're literally stepping into the shoes of the bank and you have all the rights the bank does. So if a bank sells you a note, let's just use silly numbers. That makes sense. If the borrower owes 100 and they haven't paid in six months, they may owe 110. Well we might buy that note at 50 grand. The bank is happy because they got 50 grand now versus having to wait a year to foreclose. And then like in Alabama where you're at, there's a one year redemption period too. So they may not be able to take that asset, do anything with it for two years. So they're happy to get 50 grand and they go do their deeds of repurposing and lending it out and arbitrage and all that stuff. Well, we're happy now because we have $100,000 asset that we control for 50 grand. And let's say the what is rates are 7%. We just say they're average 6%. Well since we bought it at 50 cents to the dollar, if we can get the borrower to come back to the table and say hey, what happened? We're out of work. Okay. You know, can you pay your six months now? Okay. Can you start paying on time again? Yes, I can. Okay, great. Let's see if you start paying on time again. Well, if their mortgage rate is at 6% and they start paying on time, great. That's cash flow, that's money in our pocket. Right. If they bring some extra to the table, that's money in our pocket. So they pay on time for 12 months. We would have outgotten their full year payments, which is six grand. And let's say they brought three more months to the table, that might put us over. Instead of a 12% cash and cash return, it's closer to 15 or 20% just on the payment and the extra scan. Now we can sell it now at 12 months of on time. We're not collecting those. This business is very heavily service run. So we have servicing companies that do the borrower collections their license in each state as a debt collector. If we have to foreclose, we use attorneys to foreclose in every state. But our goal is that cash flow, you know, and we're looking for a, at least a double digit return on that because we're using other people's money to fund these deals. But let's say 12 months on time. Well now I could sell that note to on the market. If it's worth a hundred, I could sell it say 85, 90 cents of the dollar to another fund or Wall Street. Well, I'm in at 50, I sell it for 90. That's 40 grand profit plus a year of payments, plus some skin in the game. I made a really good roi, my money by doing that. Okay. If I can get, if they're in a low interest rate and I buy cheap enough and then I modify what they can affect or bring some extra, pay extra that my RI goes through. So that's our biggest goal is the cash flow is the skin in the game. From the bars is also profit. And then on the back end of either a selling the note or holding for cash flow. And then on the other side, if they won't play ball with us, then we go the route to foreclose. If we're in at 50 and it takes us five grand to foreclose and handle servicing and attorney fees, then we're in at 55. We probably sell it at the auction at like 90 cents of the dollars that we usually started off. So then we made 35 on our $55,000 investment on it and make money that way. Or if we end up, nobody buys it at auction, we can take it back and do whatever we want with it, fix it up, keep it as a rental if you want to do that, or you know, owner finance it, which I don't usually do, we usually just list things on the MLS and sell it and be done with it so that we can get all our profit back. And then now, like I said, one deal turns into two, two turns into four, four turns into eight, and we kind of go from there. But that's, that's really where most people make their money is, is buying for cash flow, buying for those bigger checks to foreclose, or buying to take property back that they add to the portfolio. Another way people make money is you can wholesale notes just like you wholesale property. And that's a pretty. I'm sure your audience knows what wholesale and is for the most part. But that's where you get something under contract at a good price and then flip the paper to another investor shark like Joshua or me. And we pay a commission and it's still a win win for us in a lot of cases.

So help me understand the excitement that you have for the chain, the changing of the market, because from what I've heard from a couple of people, there is potentially going to be. And of course I personally don't think this is going to be an issue as far as like rentals go. But I haven't done much research on the actual home buyer perspective, but some people are saying they think there's going to be collections problem and the Fed is saying they would like to increase the unemployment rate by like 2%. And there's all this, that and the other going on. So when you go and you buy a note in a changing, shifting environment that could be going to recession or if we look at it from the definition of a recession, we're technically already in one, but we're just not, you know, identifying as one. So we're not in one yet.

And it's, and then it's, then it's even depending on the individual, what they're going through individually versus what everything is going on. You know what I mean?

Right. So I'm just curious, what's the excitement on your end of this shifting market? How are you actually going to make money at this ultimate question if collections are bad and you're buying non forming notes?

So because the ultimate factor this is what's one of the great things about note investing is that a, we see so many deals. Most investors when they're doing their direct marketing, they're sending out postcards or yellow letters or bandit signs or door knock and they're getting chasing one asset, right? One deal. Well, me, I don't chase one deal. We chase banks and lenders who have portfolios of stuff. So like in the last week alone I've had a pool of 19 that I could share to pick a pool of 20, a pool of 150, a pool of 75 and then a bunch of one offs or two, two off notes that have come across my table that I can cherry pick from. And by cherry picking I just can pick whatever I want. I don't have to buy the whole thing. And then you don't have to have like 5 or 10 million dollars to do this either. We had a lot of investors. I got some students that bought their first note for 1700 bucks down in Natchez, Mississippi. They borrowed 30 grand, they paid 1700 bucks for the note and the guy made his first payment of 221amonth. So it's a pretty good yield to them on that. But I'm excited because here's the thing, since we're buying it, such a bigger discount than most people are used to seeing. You know, if you think about what people have been paying for property and overpaying, you know, you know, I know a lot of people that would kill their slice of grandmother's throat to buy a property below 70% of value these days. Right. But we're not. 70 is like the highest I'll ever go. So the fact that we're buying at 50, 60 cents or less, that gives us so much more flexibility to try to work it with a borrower to make it numbers make sense. So let's, let's just discuss the elephant. People are struggling. A lot of people are struggling. I think the default rate's just under 3% right now. Something like that. On 80 million homes, that's about 2.4 million homeowners that are struggling, that are. But in default. Let's just put it there in default. Now there's another probably 5 to 6 million homeowners that are somewhere between 30 and 90 days late. People are struggling to pay their mortgage or put gas in their car or pay for groceries or other expenses. Right. Well, if they raise and if companies are struggling because of, you know, they're not having people come in as much, or if they've got to raise the minimum wage, they can't afford to keep 12 people only going forward, six, you have layoffs. People just struggling to try to make it. So people are going to either a, pay for the groceries and pay for the utilities, which was it. They say 20% of Americans are behind their utility bills and then they're behind the mortgage. They're going to pick two out of three of those and usually the last one is going to be the house because they got to feed themselves and they got to drive to work or try to find work or drive their Uber around on the weekends to make side money to pay for things. So I get excited because I have a lot of flexibility. If the market drops 20, 30%, I'm still sitting in the black and can still sell it. You can't make a payment, okay, we'll just foreclose and sell it as a handyman special or sell it below value. But we're still making profit. And that's what gets me excited, is that the amount of distressed assets are going up and banks are moving more stuff than they did a year ago. And we're privileged to seeing a lot of numbers that most people do. Now, the banks, they have to file quarterly reports with the FDIC to share how their portfolio's doing. And we, that's what things we track. So we can see which banks have an increased amount of distressed debt, how much more. Banks are putting money in reserves, which is usually a sign they're looking to sell. And then the number one thing is when my phone rings or my email Dings with incoming emails or incoming phone calls from asset manager asking what I'm buying versus the other way around. Where me making outbound phone calls or my team, you know, doing a direct marketing campaign. That's the sign like, okay, banks are looking to move. They know they've got to move, get the stuff off their books because the end of the year is coming. They don't want to have bad end of the year financial report. So the fourth quarter and the first quarter of the year is always our busiest time. But you just look at the economic factors and just apply common sense to it. If people can't afford things, interest rates going up, people can't afford basic things. In a lot of cases, they're going to struggle and they're not. The mortgage they're going to put in the back end because they got to pay for everything and get survive. Does that make sense, Joshua?

Yeah.

Now there's areas that won't be hit hard. You know, there's areas like Austin, San Francisco, Louisiana, Parts of San Diego, stuff like that. They'll be fine because they just got people coming in, coming, and they're going to keep gobbling up stuff. It's more going to be those tertiary markets around or the secondary markets around, those bigger areas that are going to struggle the most.

So everything that you're buying, are you primarily focusing on the individual buyer, the single home buyer? Are you also doing commercial multifamily? You're buying the big stuff too.

Yeah, we do both, and it all depends. Now here's, here's the thing. Multifamily, we see stuff, but anything really over 5 million or 100 units is getting gobbled up by Wall street and they're overpaying for this stuff. The, the big opportunity in multifamily space is that smaller 100 units or less is where we see that. Because that's, Wall Street's not interested in a lot of that stuff. It's too small for them. They want something that's 5 million or greater for them to get excited about Wall Street. And when you look at what happened after 2010, a lot of your regional banks or your smaller banks financed like roughly 70% of the commercial stuff. Well, those are the banks that are struggling the most. And so, yeah, we see multifamily stuff. It's just a matter of do the numbers make sense. There's still a gap between what the bank wants to let that distressed stuff go for and what we're willing to buy it at. And that that number, that gap is getting Narrow and narrow each month as goes by. That's making sense. We're actually made some offers and some multifamily spaces recently and we're in that due diligence period or that 90 day period before we actually go hard to contract on that stuff. So yeah, we see commercial, we see a lot of malls coming across their desk, but nobody wants to buy a mall right now. You know, retail space, big box stores, we see a lot of that stuff. Hotels, you know, a lot of hotel debt. During the peak of COVID it was like 50% of all hotels were in serious distress and most of the hotels have yet to recover. Now there's still, you know, especially in Austin, it's one of the better hotel spots. There's still a lot of hotels that aren't downtown that are only operating like 40, 50% of what they were pre Covid. And those can be opportunities. Especially if it's a non flagged hotel, you might be able to convert it to a multifamily. We got some more students that are doing that or some people are working with the local cities and converting hotels into senior housing or homeless shelters for the city and working on that stuff. So you know, we've got some friends that have bought some big box stores and converted them to self storage facilities and pivoting there. So you got commercial is a much bigger game and you've got to really know what's going on with that asset individually. Single family is pretty easy. You can pull comps and pull a BPO and stuff like that. It's much easier to work through. I mean we do both. I mean I started off buying apartments and commercial was the first stuff we bought most of the time. But yeah, there's opportunities. The great thing that I like about what I do, Joshua, we're reaching out to asset managers at banks via LinkedIn or email. There's usually a residential asset manager or a commercial asset manager that we talk to. And so often banks will have different people handling either side of that ball game. And the smaller the bank you get like the small one off branches, we don't usually target them, they're just too small to take too big a discount. But we're usually targeting banks that have at least five branches or more in reaching out to them to get the right person that can, that has. They have usually a big enough lending platform or lending area that they're willing to take a discount because they can make it up lending wise.

There's so much that, you know, I mean just, just ask it. I asked like one question, you got there's like 15 answers to the question because there's so many nuanced things.

They slayer to it to the business.

But at the end of the day, even though there's a lot of things involved, it honestly sound, sounds like you, you talked about your students a couple of times. It sounds like this is something that you could get into in what do you think, 60, 90 days or less. I mean you learn a couple of things. You need. You got 1700 bucks. Swipe to card.

They bought this, you know, yes you can. I mean there's a lot of that small valued stuff. I mean you can buy stuff all over. It doesn't. I wouldn't have bought the note they bought, but they bought it and worked out. It's just I tell people, look, avoid real rural areas. You don't want to go out there and have a shotgun meeting you. You know what I mean? Because I mean it's good, it's for them, but if they had to sell that asset, it's harder to get somebody out there to evict. It's harder to get a rehab crew out there. It's harder to get people out there to be a buyer. So I always tell folks like, you know, yes, the United States is your oyster. Doesn't mean you're going to buy in every state. Like you're not going to buy in New York because it takes you three years to foreclose there. So don't buy in New York, you're not going to buy in New Jersey because it can take you two years to foreclose. Doesn't make sense. You're not going to buy in California because the communist state of California takes forever to foreclose and it's not easy. Do you need a separate whole license for buying in California? Most states don't require you to have a license beyond a debt collector's license. And the good thing is if you've got a servicing company which is a third party, if they're licensed to collect debt in that state, it usually covers you about 80% of the time that you don't need to get an extra license. There's a few states that want you to get a little more of a license, like a debt collector's license or pay your pound of flesh so you have a certificate so you can do that. But in most states that we're buying in, we buy like most of our stuff is in Ohio, Michigan, Indiana, Illinois. Do not buy in Crook County, Chicago. Just, it's horrible to foreclose there, especially if you don't live there. Alabama, Mississippi, Tennessee, Florida, which I call God's waiting room. There'll be a lot of distressed asset, larger stress loans obviously in the southwest part of Florida over the next couple of years just because of everything happens there. Texas, Oklahoma, Missouri, Kansas. But you will see stuff in, I saw something in Arkansas that made sense. We bought, we see stuff in Hawaii as he trying to say, hey, let's go out for a business trip to scout out three properties out in Hawaii, near Honolulu. But there's distress stuff everywhere. Just doesn't always make sense to buy something in California. They're still going to want 90 cents to the dollar. And for what? I can buy one property in California. I can buy like a block of notes in St. Louis, you know, or you know, eight or 20 properties in Columbus, Ohio in a lot of cases. So we leverage our risk across multiple notes so that we know if we buy 10 notes we'll probably get 5 or 6 re performing 2 to 3, that the bar will either deed the property back to us or we'll give them cash to walk and then there's a two to three that we'll have to foreclose on and go that legal route.

As far as the capital raising side of this thing goes, are you syndicating these deals just like you would a regular commercial deal, especially if it's a large portfolio or what does that look like?

Yes. On a commercial portfolio, if you're doing one off deals, you're just partnering with an individual investor in their ira, you know, doing a flat lending agreement. Or if they're, you're not pulling money to buy one note, that's no, no, don't do that. Okay. But for us, if somebody's got less than 250 grand, we're like, okay, we're just going to borrow money from you at that flat percentage rate for 12 to 24 months. We sell the deal off, you're gonna get paid back plus your percentage. If somebody wants to partner with us, then we're doing, you know, a syndication or creating a special purpose LLC for that transaction.

Okay, wow. So you're, you're basically utilizing the same tools that most people use in the real estate space.

So how, let me share a nugget with you here with your audience. You want to know how we're raising millions of dollars and finding investors all over the place that want to do deals.

What do you got?

So the beautiful thing is if somebody has a self directed IRA and they have bought a property or they have lent money out of their IRA in a property. There's two places you can go to find in every county to find investors. So if you go to the county appraisal district and do a search for self directed IRA custodian. So like if you go to what's your county that you're in right now? What's your county?

I'm in Mobile County.

Mobile County. You go to Mobile county appraisal district and search for equity trust. It'll pull up everybody who's used their equity trust account to buy a property. Equity Trust, FBO, Joshua Ferrari or FBO account number 1, 2, 3, 4, 5, 6, whatever. Okay. It gives you a whole list. Some counties will even allow you to download this list via Excel. So you can do a mail, a direct mail piece. That's the only direct mail that we do is just sending out a postcard or letter to these IRA investors. Say, hey, saw that you bought a property with your ira. You're looking for more deals. We already know by doing this that these people are investors. They've got capital. And what is every investor looking for? More deals. Right? Duh. So that's what we do. We reach out to them. Hey, let's talk. We've got deals, you know, let's talk and see. And then most of the time, like, I don't want to do the work. I'll just write you a check or lend with you in a lot of cases now, you can also go to the clerk or the recorder's office and do the same search, do a deed search, same thing. Equity trust, Quest Trust, whatever came up, Land, Mid Atlantic, whoever, all 50 plus of those. And they'll pull a list of anybody who's lent money out of their ira and you can actually see who they lend it to and how much they lent out to. Or you do a release of a release of lien and see how many people who've just had their loan paid off. Now they've got cash to lend on. I know you're taking notes there. You want to write that down. That was, that was. Some people sell that, that 10, you know, that five minutes for 1500 bucks. But it's yours for free. All right, Because I'm giving to your audience. Ferrari. So you go buy a Ferrari with that information.

Okay, well, yeah, I got to execute on it first and make the cash and then, then we can go to that. Unless we just cut that snippet out and I sell her 1500 bucks.

You could just make sure you give me a affiliate split on that there for you. But, but, but, but that's the thing. Most people are. So when they think about real estate investing, the sexy side is the real estate. Like, oh, I love looking at deals, but you got to have the capital to do it right. Most people are very scared about that conversation because they think you're going to be talking to somebody that doesn't know anything. And it's a really good conversation talking with IRA investors because they're educated, they've got the thing in place for it and they especially right now when some around 30 to 40% of all the money under management at self directed IRA companies is making zero, they're really motivated to put it into something that can return them a 6, 7 or 8% return for an extended period of time versus a, you know, a negative account because of inflation or a certificate of disappointment or their 401k is rapidly dwindling to a 101k.

Oh goodness, this has been great. All right, we're not even done yet. So I have one last question before we transition to the next segment of the show. And that is concept of note investing. Give me the best note deal you've ever done. Why it was the best deal. How did you find it? What's, what's the like five minute story on that?

Oh my gosh. God, there's so many to think about. Okay, I'll give you a great, I'll give you a great story here. Small, small deal. It was one of like $44 buying at the time. It was this little property in South Beloit, Illinois. Bar had lived there for over 20 years. It wasn't worth much. They originally, they lived, you know, they'd raised their three daughters there, husband and wife. He'd gotten sick, had a heart attack and was out of work for three years when we came across our desk, I guess it was part of a pool we were buying. They owed 60. The houses may be worth 35 to 40. All right, I could buy that note for 12 grand. All right, so I bought it at 33 cents on the dollar of what was of the balance and was it 1/5, 20% of the value. And when we were looking at the due diligence, because as a note investor you do due diligence on the borrower, the property and then also the collateral file, the loan docs to make sure you have the right to foreclose still. So we got this, this huge PDF email to us and it had like these hardship letters. And this lady had been trying, her name was Sheila, been trying to modify her loan for four years. And her loan should get like the point where it'd be modified, getting ready, and then it'd be sold to somebody else. So she faxed in her bank statements and tax returns and hardship letters, and we saw. We're like, this is a no brainer. Why has this not been modified? I mean, her payment was like 465amonth. So I said, let's do it. So we buy it a week after we close. I actually called her. I said, calling you, sheila, is this Mrs. Drummond? And she's like, yes, it is. And you might need to block that up. But no, she's. She's good. But anyway, she's like, yes. I said, well, I'm calling you because we are now your lender. And you could hear her just go, oh, really? It's been sold again. Like, oh, no reason to be upset. This is a good call. She's like, really? It's like, yeah, I've seen all your notes. You want to stay in the house, right? She's like, yes. I said, what's going on? I said, well, the previous lenders have wanted me to bring like all four years of back payments to the table. I'm like, you don't have that? She's like, no. I'm like, well, that's. Duh. I said, can you bring some. Can you bring five grand to the table? She's like, no, I can't do that. Can you bring 2,500 to the table? She's like, yeah. Can you start paying 465amonth? Is your husband back working? She's like, yeah, we could do that. I was like, okay, bring 2,500 the table, start paying 465amonth. Can you pay $200 extra on top of the 465 for the full year? First full year? She's like, yes. I said, okay, you do that. I'll make you a deal. You break 2,500, 465, 12 months, plus $200 extra at the end of 12 months. What I'll do is I'll modify your loan. I'll recast what you owe for the value of the property. So if your house is worth 45, we'll drop what you owe from 60 down to 45. We'll forgive you 15 grand. Okay? And then I'll also do you one thing. We're gonna keep your payment at 465amonth, but we're gonna drop your interest rate to zero. Cause it's like 9 10%. It was like a subprime loan. She's like, are you serious? Like, yes. So every penny you pay will go towards principal. Instead of taking you 34 years to pay off the mortgage that says it'll take you six years. And she goes, you're shitting me. And I'm like, no, I'm not shitting you. You can go meet my attorney. If you go to my attorney's office, I got an attorney not too far from me there. If you go meet him, tell everything. Make sure you bring cashiers check so we can get this all done. Sure enough, her and her husband showed up. Her husband broke down crying at the table because they were so stressed out about losing their house. And this has been weighing over them for four years. Can you imagine that type of stress? Yeah, six months goes by. Every time she's gonna be like a day late. She was calling like, no, no, you don't have to call me. You call the servicing company. You're good, you're good. Six months goes by. It's Christmas. I get a Christmas card in the mail. It's got a family portrait of them. And they had a new granddaughter. The eldest had. Had a baby, and they named the baby Carson after me. And that's great. I love helping people. It's a great thing. Now, did I. Did I make some money on this? Yeah, of course. $12,000 investment. I got five grand the first year, plus another 5,500 plus in cash flow. That's a pretty good ROI. My first year, she paid 465amonth for another six years straight. And it was just a win. I didn't want to own that property. In South Beloit, Illinois, out in the middle of nowhere, was the biggest property, but it was their castle. And so that's, you know, that's. That's the good we do. Now I got another one that we bought. It's a higher valued asset. When you deal with higher valued assets, you deal with more assholes. People who fight you to stay in the house. They'll file bankruptcy, delay things. That happens, okay? Doesn't happen below 250, but when you start getting above half a million dollars, it'll drag out. And we've got one that we just got the certificate of occupancy. Being able to go back and evict the tenants. It's been a 15 month process. Borrowed like 900 grand initially when we started, yeah, the value of the house was a million. It's appreciated like 1.2. No, it was. They owe 1.2 now because of late fees and everything, but we bought, you know, paid 440 for the note, so it should be a good day. We went to foreclosure. Nobody bought the auction, so we're evicting and we'll sell it, you know, list on the MLS for 950, 900 and stuff like that. And it'll be, it'll be good payday. It's just, that's taking a lot longer. But, you know, it's a. People think we bought it so cheap. Our investor was very happy being in a passive relationship because it takes you as long as it takes you. Hey, I'm glad making my roi. So, you know, we've, you know, I usually like to see things that we're making at least 250amonth in cash flow from our side. And we also like this will. This might be the biggest. No, it won't be the biggest check we've gotten, but it'll be a nice six figure check.

Yeah. Wow, that first order is heartwarming. Yeah, that was a good story.

It's a good story, man. I mean, that's what you have to realize is that every, most Americans are just, just like you and me. Well, I mean, I can't vouch for you, but they're usually pretty good people. You know, they're usually pretty good people. They want to stay in their house, you know, they want to raise their kids, they want to have a job. And that's 85, 90 cents, 90% of people out there. And those people are really easy to deal with. It's just having a conversation. Hey, what's going on? Let's, let's work a solution here. And then you've got that small percentage that want to try to get everything for free, you know, or they try to drag things out. And we have, you know, we got one deal. I joked about Chicago earlier. I lost a half million dollars buying 10 notes in Chicago. It took me forever to foreclose and evict. And I got sued in federal court from one of the tenants that got kicked out of court. But it was just a nightmare in that area since I don't live there. If I lived there, it'd been easier because then I got a judge. I live here. Let's quit giving these people three and four chances. But that's Chicago for you.

All right, well, moving on now, transitioning down to the, the next segment of the show. This segment is called the Pod deck segment. If you ever listened to the show before, you know, you know what's coming. If you haven't, you have no idea. And I'm about to tell you. So Pod Decks is literally just the car company company decks, cards. So you know, you know, you know. So that's good. So basically I picked a random deck here. This complete and utter random questions.

Just so you know that if you're listening to this, he didn't like pull it out. He like hit it under camera. He's probably got three sticking out or a loaded deck here. No loaded deck. You're.

You're choosing your own fate here. This is going to be. Pick a card, any card. I'm going to tell you when to stop.

And.

And I feel like you're feeling pretty spicy today, so we're going to pick four cards, okay? And whatever question you get, that's your question for today.

This segment of the Ferrari Capital podcast is sponsored by Pod Decks. So.

Exactly. So you just tell me when to stop.

Stop, stop, stop, stop.

You feeling good? Good about your decision?

I am feeling like Johnny Carson with the swami. You know what I mean? Back in the day. That might be before your time, but.

Anyway, this is going to be a good time. I can already tell. All right, first question. What are most people afraid of that doesn't scare you?

Oh, jumping out of an airplane. I've been skydiving a couple times. That does not scare me. I used to be scared of heights. But it's funny, when you jump out of the airplane, you really get over that really quickly. Okay. Yeah, so it's been a while since I went skydiving. But yeah, that's the thing that doesn't scare me is jumping off an airplane or public speaking. People get scared to speak in stage and it never bothered me to be on a stage talk.

I have such mixed emotions with the skydiving situation because I've always wanted to do it because why not, you know, why not try it at least once in your life? But then you hear so many stories. Like just literally last month, I heard a story of some chick that had just gotten her like certification to be able to do it on her own. And, you know, I don't know how many times you got to do it before you can do that. But she jumped out, parachute didn't go, and she died. And she was like 25.

Yeah, we had one guy that bounced here. He literally bounced, went to the hospital, but survived here in Central Texas a couple years ago. But I do it tandem. I'm not going to take the eight hour class, so I'll just do it Tandem. Let somebody who's much more professional do it than me packing my own. Shoot in a lot of cases.

Okay, second question. If you had to design a playground for adults, what is one thing you'd put on it?

Gotta put a stripper pole. Playground for adults. Can I have a stripper pole?

Okay, where is it at?

What's, like, surrounding it? The merry go round to get the merry go round, or you have a merry go round where multiple stripper poles that are revolving? I don't know. That's. If it's adult playground. That's what would pop in mind, I guess, for the most part.

That's so funny. I asked my wife the same question.

And what did she say? The swing.

And she said her first thing was literally, she wanted a safe spot to put her kid so that she could. So she couldn't be adult. I was like, that's such a woman's thing to say. That's funny. All right, next question. What's something weird that you do before bedtime?

Something weird that I do before bedtime? That's crazy. You know, I guess it's always the glass of water in the bathroom for the most part, but I have a CPAP machine, so that might be weird. I sound like Darth Vader, you know, like Luke. Who's Luke? Who's your father? So I sleep with a CPAP machine. So I was gonna go clean that out to make sure it's clean before, but that's. I don't really think that's anything weird for the most part.

That's not too weird. I was thinking you were gonna say, you know, sit on the bodet and have a nice little butt massage.

No, no, no. That would be on the something. Your adult playground for sure. Definitely.

Oh, good times. All right, last question. Question number four. What is something that you were accused of that you never did?

Wow. I'm trying to think here.

Tough question.

It is a tough question. That's a good question. Accused of that you never did. We had a deal that went south that we took care of a while back, and the investor wanted to accuse me. Oh, yeah. We had a deal. Two notes in Florida. Attorney was buying the notes from us, and I couldn't find the collateral files. Couldn't find it. The collateral files. So he accused me. I canceled it. Never took a dollar, never took a dime from the attorney. And he accused me of selling them to somebody else. And I'm like, no, we didn't sell them to somebody else. He sued me in Court for 150 grand. Because that's what. How much profit he thought he was going to make. And when the judge saw it, he's like, this is stupid. He kicked it out in like 15 minutes. So that would be one thing I got accused of that I've never done. You know, like, I never took a dollar from you. I mean, I can't find the collateral files. And he was, he just said, well, I'm gonna see you just being asked and make your life miserable. I'm like, okay, do whatever you need to do. But I'm. You know, when the judge saw it, he just laughed. My attorney actually took that case on for free. He's like, I just want to screw this guy. I'm good. I'm like, okay, great, great.

Awesome.

Love it.

Okay, now transitioning. Last second of the show, Core four, same four questions we ask every guest. First question, what is your favorite business related book?

Oh, that's easy. Outwitting the Devil by Napoleon Hill and Sharon Lecter. Great book. If you've never read it, you need to. It was written back in 1938, but never released until about. About 10 years ago. And it's a conversation where Napoleon Hill is actually sitting down with the devil, asking how the devil is able to be successful in stopping people from succeeding. And he talks in a book about how the devil puts opportunities or shining object syndromes or distractions and causes us to drift from our focus. The thing about the most focused, most successful people, they're the most driven. They also say no the most to things that would take them away from their main cause. So Sharon Leichter got the manuscript from the Napoleon Hill Foundation. Napoleon's wife would not let him publish it because it was too risky at the time compared to what is now. And Sharon left it pretty much the same, but added a paragraph or two at the end of each chapter discussing how she thought Napoleon would think of the world in today's mindset. Stuff like that. So great book. I don't know. Giving away 100 copies of that. I think it should be in everybody's top 10 read. Outweigh the Devil by Napoleon Hill. Wow. Yeah.

I've never heard of it. I'm had to give it a read.

They're supposed to have a movie movie coming out for it as well too.

Oh, must be a good book. There's gonna be a movie about it maybe.

Yeah. You know what I mean? Unless it's like Skinimax or something like that, who knows?

Second question. What do you think your unique skill is that helps you become Successful.

Oh, that's easy. My doggone determination. I'm not the smartest person in the room. Definitely not the dumbest, but not the smartest person. Sometimes I might be the dumbest, which is okay. But my work ethic and just being consistent in what I do, that's what people say. I just don't give up. I don't take no for an answer. I just keep on it. No matter what's against me. I just keep. The best thing you do is be a troll or tell me I can't do something, and I'll go and prove you wrong. And that's what's helped me more than anything else. I mean, we've been doing this for 15 years. We've got the number one YouTube channel for note investors with the number one podcast. I mean, we record over a thousand episodes across our three different podcasts for not investing. And that's. That. That would be the number one thing. Just the determination that I just, you know, I find a way to make things happen. I just stick to it and stick to it. Stick to it.

Love it. Number three, tell me something that's true about real estate that almost nobody agrees with you on.

It's best to be the bank. All right, that's the number one, because most people are used to the fix and flip and the wholesale and they love that. To go touch a property and rub up on it and pick out paint colors and carpet. Nobody ever loved that. They may think they do, but when you get into it, nobody wants to do that. So that's why I say it's note investing is a sexy side of real estate. You know, banks don't own real estate for a reason, because they don't want to deal with crap. They don't deal with toilets, tenants, and trash outs. They don't get phone calls in the middle of the night when little Timmy flushes his rubber ducky down the toilet. Nobody calls me for that stuff. They call the property owners. But that's the thing is, I really do believe note investing is a sexy side because we see more deals with less lead gen costs than most people, we see bigger discounts, and then our returns are often higher than owning the profit. Wow.

Got me intrigued. All right, last question. What one piece of advice would you give to our listeners wanting to succeed in real estate investing?

Very easy. Get in the game. That's the most important thing. I don't care what it is. If it's notes, great. If it's apartments, great. If it's wholesaling, if it's rentals, Airbnb, whatever your flavor is, if it works in your market, make sure you work in your work. Your market gets good counsel for people doing it in your market. But get in the game. The biggest fallacy is that it's for everybody. And real estate investing is not for everybody. And Honestly, only about 5% of those that take classes or go to workshops actually ever do something. And if you close a deal, kudos, you're in the top 1% of most people. Go take action. Quit being an educated idiot and actually, you know, apply what you're being taught in classes. The people that are teaching classes, they're sharing their knowledge a because they don't want you to make the same mistakes that they want to. But it's also easier. You can go through the school of hard knocks, but, you know, take classes, get a coach, learn how to do it, but then just take action. That's the, that might be the scariest thing, and that leads to people's fear. But we all know what fear stands for. False Evidence appearing Real. Just take actions. Go make some offers, go knock on some doors or whatever it might be. Just please take action. The only thing that you guarantee by not taking action is failure. If you take action and fail, you're still learning as you go. You're failing forward, but take action. That's the most important thing I could tell you.

Is that a legit statistic? Only 5% of people that get. Now, is that when you say education, you mean this is like college and higher class specific to masterminds, coaching?

Yeah, I'm talking like people. And I, I've got so many people. I mean, I've got classes and stuff like that, but I look back at those that have actually applied, what they've learned. It's, it's, it's 5 to 10%. I think the average is somewhere depending on the next. But when I talk to my peers who are also teaching or also teaching classes, it's really less than 5% of people will actually take action. And it's sad. And, you know, I hear that number 5 to 10% on average all the time across the board. So it's sad. And the biggest mistake a lot of people make too, Josh, is they try to be a jack of all trades. And you can't do that. You just got to focus on one thing and give it time and have patience and give it six months. And was it Grant Cardone said that to be an expert, you got to put 10,000 hours into something. You know, you got to give some time for seeds to, to nurture and germinate and market and, and give it time to take hold. But that's, that's. I mean if you never do anything, you just keep showing up and don't do anything. You're just wasting time and wasting money. Nobody wants to see that.

Oh man. Well, Scott, if anybody wants to learn more about you or your business, how can people get in touch with you?

Pretty easy. They can just go to weclosenotes.com that's our main website with all of our podcasts and education and we've got a one day class that we love to give as a gift when we're out on podcast. So it's a. We teach a one day class called Note weekend every third Saturday of the month. It's live on Zoom. It's normally 99 bucks. But if you go to noteweekend.com and type in the code Ferrari F E R R A R I all caps, I'll give you the class for free. And if you can't make it live, don't worry, we'll send you the replays and you intend that. But it's noteweekend.com Special code is Ferrari. My gift to your audience who want to learn. It's a great way one day class of yours truly teaching kind of the cliff notes version of note investing. How to find fun and flip and it's a great way to kind of see is this something that I want to pursue. So no, no cost obligation. You can learn. It's about total the live class and the extra videos and stuff that we throw in there. It's about 20 hours of learning content. When that business, no pitch fest, just all content.

Sweet.

I love it.

Scott, I thoroughly appreciate you coming out and joining us on the show today. Spending about an hour. I know I feel like I've because I didn't know much of anything about the Note business before 56 minutes ago. So. Okay, now I feel educated now you.

Learn a little bit. Now here's the thing. If you're listening are watching this, make sure you get over and hit that subscribe button on your favorite podcast platform and make sure you leave Joshua five star review. If you're on watching this on YouTube, make sure you hit that subscribe button to the channel and hit the pound button on the bell so you're alert every time you release the video. We as podcasters video, we love seeing that stuff from our audience. Make sure you leave a review, make a comment on the video, what you like or Dislike, whatever. Leave a five star review. Joshua's kicking ass and taking names here on the podcast. So do that now.

Appreciate it, man. Yeah, we got to talk about stripper poles and all kinds of good things on the show today.

That's right. Yeah. I have bought some before. I bought an 8 Plex North Carolina that I thought was a great little apartment. You know, eight Flex great. Turned out to be a brothel and there was a stripper pole in each single unit, which is kind of funny.

No freaking way.

Yep, yep. Bought a mobile home in Las Vegas and it had, when we went out and took a look, it had the whole site, you know, that flashing nudes, nudes, nudes. I was like, oh, that's a at home strip club there. Awesome. You never know what you'll see in the note business. We bought deals where people were dead in the house that passed away. Nobody known it for two years. And we bought a place in Phoenix, Arizona years ago that had a RV and two Harleys left in the garage that we took back. So it's an interesting time to be an investor. Get out there, take action and go kick some axe or.

But oh my goodness, what a show. What an episode. It was absolutely hilarious. Honestly, felt like I couldn't stop smiling from ear to ear and laughing. Also, again, a lot of education that I think we learned about today. He already covered the appreciation of what it's like when you guys actually do subscribe and leave a rating and review. So the last thing I'll say is that, guys, if you're wanting to learn more about real estate investing, if you're wanting to learn more about note investing, please go check him out. But real estate investing, commercial, multifamily, things of that nature, feel free to check us out as well. Go over to our website@ferraricapital.com or 3beach.com and you'll be able to see whether or not you can get involved both from a passive perspective or if you're looking to get a little bit more active. You may just be a good fit for my mastermind mentoring program that I actually started that now has 18 guys in there now. Three of them have already closed their first deal already on the second deal just within the first 60 to 90 days of starting. And I think it's because I've been able to really zero in and give them the customized support that they needed to see success. So if that's something that would be of interest to you, go check us out. Schedule a call with me over on our website@ferraricapital.com. That's all I got for you guys this week. This is Josh Ferrari signing off.

It.