E98 Deal or No Deal | Tycoons of Small Biz featuring Scott Carson

It's time for Tycoons of Small Biz, spotlighting the true backbone of the American economy. The true tycoons of business in America. The owners, founders and CEOs of small businesses. The show's hosts, Austin Peterson and Landon Mance are registered representatives of Lincoln Financial Advisors Corporation, a broker, dealer, member SIPC and registered investment advisor. The views expressed by your hosts, Austin and Landon are not necessarily the views of Lincoln Financial Advisors. Backbone Planning Partners is a marketing name for registered representatives of Lincoln Financial Advisors. Now let's lean in as Austin and Landon connect with this week's tycoons.

Good afternoon, tycoons and welcome to today's episode of Tycoons of Small Biz. I'm your host here as always, Austin Peterson coming to you live from the beautiful town of Gilbert, Arizona. It's actually cooled off the last couple of days, so it's only 66 degrees today. We were approaching 90 on Sunday, so we're happy with 66 for today. If this is the first time you're listening to our fledgling little program and you're wondering what we do here at Tycoons of Small Biz, I'll just kind of fill you in real quick. So we are a small business podcast by small business owners for small business owners. And our intent when we started this podcast in May of 2020 was to basically provide a platform for small businesses to share their story, share advice, share what it is that they're doing on a day to day basis. The reality is small businesses are truly the backbone of the American economy and they need to be celebrated and they don't get nearly as much notoriety as the larger companies that are out there. And most people in our country work for a small business and they should be celebrated. So we put together this program like I said in May of 2020. I've got a co host and a partner in my business, Landon Mance. We own a small business, of course, and then we have two other partners of the program that co host from time to time as well. We've got Ryan Weissmuller with Finntrepid Solutions and Gary Braun with Pivotal Advis. And we all believe that the small business owner is somebody that should be celebrated. So we put together this program and we're happy to do it week in and week out. With that being said, today we definitely have a tycoon of small biz on the on the program with us today. We've got Scott Carson, CEO of President, excuse me, CEO and President of WeClosenotes.com coming to us live. From the. What do they call it? There's a. It's the heart or it's the capital of the live music capital of the world, Austin, Texas. Took me a minute to get that one out, Scott.

Hey, you know what? You keeping it real. Yes. Live from live music capital, the Austin, the keep it weird side of Texas. Yeah, it's a beautiful day here. It was 92 degrees on Saturday here, and it's nice and cooled off a little bit, but, yeah, honored to be here, man. Been a long, you know, a business owner for many, about 20 years now. Grew up in small business. Dad owned the local hardware store. So, you know, working with small business owners is something I really enjoy doing. We do a lot of good to help a lot of people out there. So.

Yeah, that's great. I mean, we, you and I got connected on LinkedIn, which I think is, you know, probably the best thing that ever happened to small businesses in our country. Gives us all an opportunity to really connect with other small business owners as well as, you know, great employees. And there's just so many good things about LinkedIn and that that's how we got connected. So I'm grateful for that. So, Scott, before we jump into the business side, and I know you've got all kinds of things to talk to us about with what you do from your, you know, your business and your podcast and you got all kinds of things going on, but let's start with what I know is most important to you and most important to me. Let's start with your family. Tell us where you grew up. Tell us. You know, obviously you mentioned your dad owned the local hardware store, but, you know, what was it like growing up as Scott? And what does your life look like today? And anything you'd like to tell us about in between? Right. School, education, we'd love to hear it all.

Sure. So I grew up in South Texas, down by Corpus Christi, Texas, actually lived there for a while. And my dad and mom opened up a hardware store in a little small town called Ingleside, Texas. Most people don't know where the heck that is. It is famous for Mustang grapes, because the weird thing, the French Bordeaux grapes are having a hard time. So they literally, France, France came over and is taking this wild grape from Ingleside, Texas, to help rejuvenate their, you know, French wine history. The inventor of the wishbone offense invented it at Ingleside High School back in the day. Emory Branch, who ended up, you know, going on to be an assistant coach at the University of Texas and helped all that back in the day. But it was a small, small town when I first, when we first moved there, 3,500 people. Dad owned the local hardware store for about 10 years and then opened up a craft store, woodcraft, stuff like that. So grew up there and graduated in 95. So I'm an Ingle dink from Ingleside, Texas, as we like to say, for the most part. So, you know, I was fortunate enough. I had an academic and athletic scholarship, went off and played college football for a couple years at what's now called Texas A and M University in Commerce, Texas, outside of Dallas. Played it for two years, took a year off trying to figure out what I wanted to do and got into business, marketing and management and graduated from Texas State University in San Marcos, Texas, formerly Southwest Texas State, which is basically smack dab in between Austin and San Antonio, and settled in Austin. And Austin's pretty much been home since then for the last 20 years, for about, about three and a half years where I was traveling non stop across the country working with investors and kind of teaching what I do with my, I guess you could say I want to say my 9 to 5 because no, no small business owner works just 9 to 5 most of the time, but travel the country working with investors, entrepreneurs all across the United States. And so I still live in Austin, I live on the north side and I love what I do. I'm kind of known across the country as the note guy because I focus on a niche of real estate investing where I buy notes, buy distressed debt on both residential and commercial properties, first liens from banks and hedge funds. And we actually, how we make our biggest bang for the buck and make our money as an entrepreneur is actually working to keep people in their houses, working to keep, you know, business owners in the businesses or working to modify those loans. Especially these days, especially after Covid. So many small businesses are hurting out there. We work with a lot of property owners to keep them in their property and modify the loan to keep them back on track. So that's what I've done the last kind of 15 years and honored to be here, man. Any way I can to help out your listeners out there, I'm here for.

Yeah, no, we, we appreciate it. So obviously you played football at Texas A and M, but you're in Austin now. So are you a Longhorns fan? Are you an Aggies fan? Where do, where do you.

Let me, let me clarify. This is a smaller version of A and M. A and M Commerce. So Division 2 school. It's not the Aggies. It was. We were the East Texas State University lines back in the day, and we made the playoffs. I am a Longhorn fan. I grew up being a Longhorn fan, but they didn't want to offer me a scholarship. So no offense to any Aggies out there, but I got plenty of friends that went to both schools. And living here in Austin, you got to be a Longhorn fan. I just hope that they do a little better this year than a six or seven games losing streak with the Sarkeesian, you know, Stark here. Now as a head coach, we have to give a big shout out to. All right, all right, all right. Matthew McConaughey for being a big fan. But right now, it's soccer season. The Verde. The Austin Football Club's in full, full array right now for the city. So that's got a lot of, I guess you could say a lot of excitement going. Last year was the first year. I think we came in third to the last. And then they're doing pretty well so far as this season's getting off. It's been, I think, going on for about a month now. We're doing pretty good. So, yeah, Austin's a great place to live. It's a little interesting city. Obviously excited. We got Tesla that moved here, you know, Elon down South Austin grand opening for that is in two days, Thursday. I think we're trying to get tickets to go visit that and do a walk through the plant. But it's just a. It's a great young city, a lot of great music. But we were hit hard, too, with everything in Covid. A lot of the restaurants and bars shut down, and it's nice seeing things starting to get kind of back to normal. But we just had. South by Southwest was through here. F1, you know, Formula One has a race going on, I think, this week here, so lots of people coming and going here in the Lone Star State.

Yeah. Well, I have to rib you a little bit on the. On the Longhorn thing. So, you know, as a. As an avid Longhorn fan, if I say that, if I say the name Taysom Hill, does a shiver just run down the back of your spine?

Yeah, it sure does. Yeah. Just a little bit.

Yeah. So, I mean, I figure what happened at the. At the University of Texas, they said, you know, if Taysom Hill, the quarterback at byu, did that to us two years in a row on our field and at Lavelle Edwards Stadium in Provo, Utah, then we probably better go out and hire ourselves a former BYU quarterback. To run our program.

Well, you take it a couple ways, but yeah, he ran all over us. I was at one of the games here in Austin and I mean, that guy's a beast for the Saints now. I think he's still with the Saints.

He should be.

I think he just renewed there used to be the start of this year since, well, Jameis left finally. But yeah, that guy was a beast here. Ran throw. I mean, just absolutely murdered us here back in the day. So, yeah, I was there for that debacle of a game. We were predicted to win it and came out getting our ass kicked.

Yeah, it was. Yeah, he's something else. I mean, he's a freak of an athlete. I've met him personally, spent a little bit of time with him, very little time. But I'm a lifelong BYU fan. I grew up in Provo, Utah, and so you know Steve Young and Ty Detmer and I mean, there's so many big quarterbacks that. Steve Sarkeesian. Right. So many big quarterbacks that came out of BYU and just had incredible careers there. But, you know, Taysom's a great quarterback, but he's really just a freak of an athlete is what he is.

Yeah, he's not your typical. I mean, I've actually had a chance to hang out with Ty Detmer a few times here locally. Speaking of, you know, the. I think the number. What he. He set all sorts of NCAA records and he was at the game actually, and we were part of a. An event there at stadium and he was just dancing up and down the sidelines, laughing, having a good time. But yeah, Tayson is a freak of an athlete and I mean, he can play with five, six different positions and has played that for the Saints and that's. And I think it's one of the. You learn a lot about that. He is very flexible and has been very. Been able to pivot or fit his skill set to what needed to be filled a gap in. And I think it's very. A lot of similarities there with small business, too. You got to be able to adapt and overcome or find the gaps and be able to plug yourself into it. So just. Yeah, great guy. You see anything. I had a chance to meet him, but everything you see online is just a great. Anybody that's willing to. You put themselves from, you know, being a punt returner and a fullback to quarterback to tight end says a lot about the character of guy.

Yeah, I couldn't agree with you more. And like you kind of alluded to there on the business side, there's there's a lot that can be learned there, right? I mean, so another great person, great individual, great athlete, you know, coming out of the University of Florida, Tim Tebow, right? So his, his path was a little different. He, Taysom Hill did whatever it took to get on the field. He just wanted to play, right? And Tim Tebow was, I'm a quarterback. They tried to get him to play tight end. They tried to get him to play running back. They tried to get him to do all these things that would have got him on the field. And he, and he chose not to do that, which I think was a big mistake. Now he's done just fine, right? I mean, he's doing just fine on the media side. He does all kinds of endorsement work. He's doing just fine. But if he truly wanted to be on the field playing football, he needed to pivot. And business owners have to be willing to do whatever it takes, play whatever position it takes on the field to make that team or your business go.

So it's funny that you bring up Tim Tebow because I actually had dinner one of a small, intimate gathering of 3,000 people with Tim Tebow a couple weeks ago in Corpus Christi's, who's speaking for an event down there that my mom had tickets to. And he actually alluded to that, you know, he got drafted 24th overall by the Denver Broncos. One of a few quarterbacks to win a playoff game and then not start the following season on that. And so I've always been a big fan of Tim. I think Tim, you're right, he was very stuck in, hey, I'm just, I want to be a quarterback, I want to play quarterback. He should have evolved. He even jokes about that during his speech. He's like, yeah, I was probably the worst tight end. I would have been a whole lot better tight end if I'd have done it. Made that transition five years ago. You can think about another quarterback who started for the University of Oklahoma. Blake Bell was behind a couple great quarterbacks and ended up he was their goal line quarterback to go in and rush the ball. And he ended up converting to tight end and now is the starting tight end for the Kansas City Chiefs. Opposite of the other guy that catches is the quite the pass receiver. But you know, things change, businesses change, skill set change. You got to look at the market with the market offers sometimes, you know, like in the NFL and other professional things, sometimes we're flush with talent positions and you've got to figure out, like you said, where is the gap where can I plug myself in? What do I have to do to make myself most approachable and most valuable by being able to play a couple positions or be willing to change positions if need to.

Yeah, well, so I'm just going to continue with the metaphor and take it one step further. Right. So as a business owner, early on, you're going to wear whatever hat you need to wear, right? Everything that you need to do to be successful. But the problem is a lot of business owners get stuck and they don't ever take hats back off when they should to be able to grow their businesses.

Oh, so true. If you, you know, Michael Gerber talks about that in the E. Myth, the Entrepreneur Myth revisited, how there's basically three hats we're always constantly wearing. And most entrepreneurs are best at the innovation, the coming up with new ideas and tweaking things. It's when we have to get sucked back into the research and development or customer service or bookkeeping is often that we are limit our growth. Because a lot of times, let's just face it, most entrepreneurs are control freaks. We've got to do it all. Or like, oh, I can't afford to hire somebody to do that stuff. Well, you really can't afford not to hire somebody to maybe wear those different hats or hand those. Pass those hats off to a little bit so you can keep, you know, keeping in your power lane or your keep focus on the strength that you're great at and delegating your weaknesses is one thing that we see a lot of entrepreneurs, business owners, we see that a lot in real estate. We see that a lot in other places out there as well. You get so used to trying to, you know, spin plates. It's never a good thing to add more plates to spin. You end up dropping quite a few. And that can be, you know, very, very costly in the long run if you're dropping too many plates.

Yeah, yeah, no doubt about it. So, all right, so let's talk about weclosenotes.com so you kind of alluded to it here in the beginning. You explain, you know, what it is. You essentially go in, you buy, buy notes from the bank, and you try to modify them to help people stay in their homes or in their businesses or, you know, whatever, to really have a good outcome for them. And then, of course, you make money along the way. So just kind of back up a little bit more. First, tell us how you got started in the niche and then explain more clearly. For those who haven't heard of this or don't realize how this works, how it does actually work.

So we closed notes became was a pivot. It was something that was going, taking place. I was been a banker. I was a banker for JPMorgan Chase back in the day, going back to 2002, 3 and 4. Enjoyed being a banker. But a buddy of mine that I previously worked as a financial advisor with Smith Barney prior to my banking days, started a mortgage company with a couple of real estate investors who were traveling the country teaching creative financing and working with these big huge real estate investing expos. And so I knew that's where I wanted to go. So started doing mortgages. From 2004 to 2008, we were doing mortgages, originating loans in 30 different states as a mortgage broker made good money. But then we all know what happened in 2008. The music started to slow and stopped. We were doing both performing, I mean a paper loans and also subprime loans. But when 2008 hit, started the recession, my mortgage business basically went from right to basically zero overnight. Really, a lot of people stopped. And so instead of just going back to taking a job, I said, well, here's an opportunity. I learned some skills along the way. There's an opportunity here with this much distressed debt. And so luckily for me, I had a couple mentors along the way that taught me the theory of buying notes, of buying debt. And then when everything hit the fan in 2008, I pivoted, originating loans for banks and mortgage companies. I started calling them, said, hey, I know you've got some bad debt on your books. Are you looking to move this stuff? You know what, can I take a look at that? You want to get off your books and go from there? So that's literally what I started doing. Literally February of 2008, I sold my half of the mortgage company for a big whopping $1. Okay. And then went out and just, I just started dialing for dollars made, you know, started making 50 phone calls to banks and lenders, you know, Tuesday, Wednesday, Thursdays. And I started getting these lists, these spreadsheets of these mortgages where people were behind by six, 60 days, six months, sometimes a few years. And that's what we do. So we started buying that debt, buying that mortgage at a big discount off what was owed or the value of the property. The borrowers still owed it, but we would buy it at a discount using investor funds. And then our way of making money is like, listen, hey, you owe 200. Your house is only worth 100. And we might have bought that note at 50,000 they owe 200. Hey, let's modify the loan. If you'll start making your payment on time for 12 months, we'll forgive you, we'll revalue the loan. And if the loan's, you know, the house is only worth 110, we'll forgive you 90 grand off your debt and you'll be back on track again. And so we did that for a lot of people. We bought over a billion dollars in debt in the last 10 years. And we do that for, especially commercial properties. You know, what's going on with the tenant, what's going on with the, the owner, you know, where are you at? I know. You know, during those days, the market values dropped quite a bit. You know, the people were underwater. So we really were able to keep a lot of people in their houses and businesses these days. Obviously, we had Covid kick in over the last couple of years, and so we've been very busy evaluating stuff from banks and buying stuff from banks and same thing. Hey, what's going on with the, the tenant in place or the property owner or the restaurant owner, you know, the business owner that's in a place, you know, what do they need help with? How badly was their business affected by Covid? Okay, let's figure out if we, you know, we started off and give them a hand up, can they stay in there? Can we adjust things back up and help them get back up to normal, you know, normal business operations over the next 12, 24 or 36 months? Because I don't really want to own property. I like owning the debt, and if I have to take property back, we will. We buy it at a discount. That makes sense if we have to, but we actually prefer to keep people in their businesses or in their houses because it's actually more valuable for us versus a foreclosure or a vacant property that really depreciates the value of the assets and can take longer to sell. If we can keep somebody in their house and get them back on track for 12 months, then after 12 months, it's now considered what's we call a performing asset or performing note, and it has a much higher value. So if we buy it at 50, we can turn around and sell it in 12 months at 90, 95 cents on the dollar and do really good. Keep people in their houses, keep people in their businesses, they're back on track. We gave them a hand up, forgave some debt for, gave some back payments, and we'd be very, very flexible on what we're doing with the asset. Class at that point. And whether it's a single family home or apartment or strip mall or, you know, we're looking at a. Right now I'm looking at a student housing complex in Missouri right now. You know, 40 doors that struggled really mightily during. During COVID It's been vacant for a little while and the investor wants to keep it, that owns the property. And we're sort of just trying to negotiate with him. Okay, what do you need to get back on track? You know, what kind of payments plan would you be able to make and then see if it makes sense. If it doesn't make sense, then, you know, we'll probably end up forgiving some of the debt or letting them walk scot free and then take the property over, put it in hands of a management team to handle it there locally. So I know covered a lot of stuff there, but that's kind of, kind of what we do to make our magic.

Yeah, no, I think it makes sense. I'm sure that most of our listeners picked up on, you know, what you were explaining there. So, you know, 2008 was really, really bad, right? I mean, there you had opportunities to buy bunches of bad debt. Right. And there may be some of that going on even more now and will start to come as some of these moratoriums come off and, you know, different things like that on foreclosures and whatever. But 2008, I think was unique. There was a lot of stuff that went on in the financial markets that kind of led to that that I don't think exists today. But I guess the first question that I have is back then, I know for a fact, just based on a lot of people that I knew and you know, that really struggled during that period of time that the banks were also trying to modify the loans themselves. They had their own loan modification departments and they probably still do. It's just not something that I, you know, that I follow that closely. But explain to us why a bank would choose to sell the debt to you at a discount as opposed to just modifying it themselves.

Great question. And here's the thing. When people stop paying their mortgage or stop opening their mail or stop answering the phone, it's hard to modify when you can't get a hold of somebody. And I'll give you a great example. Like bank of America, they were a big buyer of negative amortization loans or pickup pays. And they had all these loans that were negative. And they bought originally from Countrywide, and Countrywide had bought them originally from the New Century Back in the day and these people hadn't paid like two years and we're upside down. So they literally were trying to reach the bar. Well, they literally sent a letter out said, listen, we will automatically modify your loan for you. All you've got to do is sign on the dotted line and sit in. We're automatically approving you. They had a horrible response rate like 1% because nobody opened their mail. Okay? Nobody. They knew it was up. Bank of America. Never mind. I know I'm already a year behind. Never mind. So then bank of America turned around and sent out another letter. Hey, we're automatically going to do this whether you tell us not unless you tell us not to. And I just bring that up because that's one of the bigger banks out there now. You're not going to buy a one off mortgage or even a portfolio from like bank of America, Chase, Citi, Wells Fargo. Those companies have huge resources. You know, they're leveraging every dollar coming in at somewhere between you know, 20 to 40 times. Okay. We don't really buy from those big, big top five, 10. What we do, we buy from a lot of smaller institutions. I mean we buy, you know, like Capital One and US bank, we've bought from some big companies as well too. But you know, here's the thing. When a bank has a non performing note, a couple things, they're going to take a look at it. First of all, the state that it's in, each state has a different foreclosure process. Okay? Some are fast, like here In Texas it's 21 days to foreclose. I mean it's fast foreclosures, fast highways, fast executions Here in Texas, right? And so we would, you don't buy a lot of debt here at a big discount because banks realize it's so fast to foreclose here, they just go ahead and do it most of the time. But states like South Carolina can take a year to foreclose. Florida, God's waiting room as I like to call it, you would take 18 plus months to foreclose back a day still takes about nine months. So bank will evaluate the deal and say, listen, it makes more sense for us to get 50 cents on the dollar. Now depending on where they are portfolio wise, residential and commercial being evaluated differently. Let's get 50 cents in on the dollar now. Let somebody else deal with the foreclosure. Let somebody else deal with the attorney fees. If they have to take it back, fix it up. Because if we take in 50 cents now, we can leverage that out monthly six or seven times and make up what we write off the loan. And that's the thing to look at, especially a lot of banks, you know, especially on commercial loans these days. It's different this time around than it was 12 years ago. 12 years ago or it was actually 2000, actually more than 12 years ago. That's what's it 20, 14 years ago, Wall street really financed a lot of that commercial debt. So we know Wall Street, I mean they're high, they're robbing America in a lot of cases and don't get penalized for that though this time around, 70% of the commercial loans, commercial real estate has been financed by your smaller banks, your local banks. And they can't take a, you know, they don't like to see a lot of big hits and stuff like that. So while it's not the big debacle that it was as far as property values, banks are still selling stuff off because they would rather still get, okay, let's get it at 70 cents of the dollar or 65 cents a dollar. Now they finance most of the stuff at 65. Max is 70% on the commercial side. But they're not like, hey, let's get this and be done with it. Let somebody else deal with it. Let's get money in now. We can re lend it out, make up what we're losing on and go from there. Residential side. It all depends too if the, if it's government insured by Fannie, Freddie, Jenny and all those that, you know, government insurance helps a lot of mortgage companies and actually the homeowner is in place too because they're not willing to, especially right now. You've had basically two years of plus of not having to make a payment, but said non government insured stuff that banks are looking to get off their books because they don't have the government bailing them out and those type of mortgages. So yes, some they'll work through it, but if it's in a longer foreclosure state, you know, using longer than 90 days, the way they leverage things, they give us 60 cents on the dollar, 70 cents on the dollar, 80 cents, you know, and we'll call it a day and let you, you know, take it. And that's where we, you know, we work our magic, making sure to look at, okay, what, what kind of discount can we buy that, you know, can we reinstate the bar? What kind of return are we going to get if we can reinstate the bar? Do we need to modify, do we need to give them cash for keys, to let them walk if they can't pay or if they're going to be a pain in the ass, not want to work with us, then we'll go the legal route to foreclose and go from there. So there's a lot of moving parts when it comes to it because we're besides just evaluating that note, we're evaluating the property and also evaluating the borrower and see we think what's going to happen with them.

Gotcha. All right, so I want to take a moment just while we have kind of this opportunity. We'll play a quick call to action for our listeners and then I want to come back and just ask about, you know, what it takes to get involved in this. I'm sure plenty of our business owners have some extra cash and they're thinking, man, if I can buy bad debt and get a little bit better rate of return and it's secured by real estate, I may be interested. So let's take a quick break for that call to action and then we'll come back and talk about that. Hey there, tycoons. Austin Peterson here, co host of Tycoons of Small Biz. If you think you have what it takes to be considered a tycoon and you're wondering how you could become a featured guest, please follow and then Message us @tycoonsofsmallbiz on LinkedIn. We'd love to have a conversation with you to see if it is a mutually good fit and if so, we'll get you scheduled for an interview. If you're unsure about being a guest on our podcast but are contemplating selling your business over the next few years, and you'd like to know what your business is worth, please also follow us and then Message us on LinkedIn for your no obligation, informal valuation of your business. We look forward to hearing from you. And thanks for listening to the Tycoons of Small Biz podcast. And now back to today's program. All right, tycoons, welcome back to today's program. I'm here with Scott carsons, President and CEO of weclosenotes.com and we've already talked a little bit about, you know, how you got into this and, you know, why you do it, how it works, the ins and outs, et cetera. But what is the average guy out there, the average business owner that's listening to this program, what does he need to know about this and how he or she can get involved?

So let's, let's talk about a couple things. There's a lot of people that are nervous out there with what's going on in the markets. With inflation being seven and a half percent, is it going to get worse, can get better. And if you've got money sitting on the sidelines making nothing sit in the bank, you know, and you're getting a big whopping 0.01% maybe from Wells Fargo, 0.02 from Stuff or you've got money in a certificate, you know, CD as I like to call it, a certificate of disappointment. You don't need a lot of money to be in the note space. Most people think you need to have millions of dollars to buy debt and that's not the case. There's a lot of times that we get and help people get started investing in notes by buying. If you got, you know, 25 to 50 grand, you can usually pick up one or two notes, whether it's performing or non performing and see an above average return. You know, a lot of times we help investors buy if they're, I don't want you, I don't want to be active, I don't want to deal with the foreclosures. I want something that's just going to give me a good return on investment. There's plenty of performing notes out there that you can pick up at somewhere between like an 8% to 15% return. They may have been a non performing note like that I bought at a big discount, got the bar back on track and then I'm now looking to offload that to recoup my capital, my profit, but still a win, win, win for me. And when for the investor to buy that deal, whether using their money in their savings or checking or maybe they've got an IRA sitting on the sidelines that's not making anything they want to put to work and where that, that profit is tax deferred or tax free dependent say a Roth or a traditional ira. So you know, there's, there's things that you look at, you know, most people don't realize that we're all already in the note business. You know what I mean Austin? Whether you got a mortgage or a car payment or student loan debt or credit card or you owe Bubba down the street a hundred bucks, you're in the note business but you're just on the wrong side of the payment stream. And it's what we want you to do is get on that, on the payment receiving stream where it's, you know, coming on a monthly basis and paying you on a regular basis. And so that's the thing is it takes a little bit of understanding. It's not like these fictional TV shows, Flip this House or Flippity of Flop or you know, hgtv. We all know those are not true shows. But it's a little bit different. I compare it a little bit more to like a much smaller version of the Big Short. If you like movies, the Big Short, a great book. It's also a great movie. Steve Carell, Brad Pitt, Christian Bale. I'm a much smaller version, I guess you could say, of like the Christian Bale character. I am looking at lists and lists of notes on a regular basis. But you can cherry pick. I mean, there's lots of real estate funds out there, some websites out there that allows for you to go cherry pick one off notes or two notes. I mean, I'll give you a great example. I've got a student, Larry, who's out of Cincinnati, Ohio, works in IT. He's got about 25 grand sitting in his Iraq, came from a previous job and he wanted to make a better return because it was just sitting there, not really making anything or really lose. So we started working with him. We got on a website, we found a note in South Augusta, South Carolina. It's a duplex. The house is worth about 80. The guy hadn't paid in a couple years. He's renting out both sides because he was laid off right at Covet. So he's renting each side for $500 a month. Now he only owes about $45,000 on the mortgage. So he's got a little bit equity there. And so we did a little research, properties, got some equity, did a little research on the borrower. Okay, we see that this note had been sold a couple of times from funds, but it didn't really look like anybody had ever reached out to the guy. And so we were able to actually buy this note. Guy was 45. We bought it for 13. They wanted 15. We got them down to 13,000. The borrower's monthly mortgage payment supposed to be 340amonth. And we said, listen, this guy wants to hold on the property he's renting out. I bet if we reach out to him and either threaten to foreclose, he'll come to the table and pay. So sure enough, we fund another deal. One phone call, the bar. The bar is like, yes, I want to pay. I want to keep this property. I've been trying to, but my loan's been sold like six times and nobody's ever reached out to Me to set up a payment plan. And so the borrower immediately, he's like, he sent $2,500 in immediately and he's going to start making a $500 a month mortgage payment instead of the 340 to pay a little bit extra to get caught back up on the couple years he's behind. So it's a phenomenal. It's a win, win across the board. You know, Larry's basically in his first year on this deal. He's basically getting $500 a month times 12. That's six grand plus the 2,500 the borrower brought to the table to start that payment plan. So he's got $8,500 in on a $13,000 investment in this first year. After the first year, it'll still be $500 a month payment for at least 12 to 24. So that's a pretty good return on investment. And then you figure $340 a month times 12, what does that come to? 4,000. It's about a 30% return on investment form on this small little asset that'll pay him for the next 12 years on the deal. And we see a lot of small deals like that. You know, I love Austin, but I don't buy anything here in Austin, Texas. It's too expensive. So I buy a lot of Ohio, Michigan, Indiana, Illinois assets. And we also look at some bigger assets actually out in your neck of the woods, Gilbert, Arizona, we're looking at a little bigger asset. It's worth 1.2. I'm sorry, it's worth 1 million. The borrower owes 1.2 he hadn't paid in four years. And the fund that owns it bought it a couple years ago, funded the deal. And the guy stopped making payments after like 60 days. Okay. He's been dragging out with an attorney who's dragging the foreclosure. And Arizona's a fast foreclosure state for the most part. Well, we bought the note. The fund just was ready to dump it. And so we bought the note at 441,000, basically 30 cents on the dollar for debt. It was about 60 cents a dollar of value a year ago. Well, that's property has appreciated from 795 to 950. Now we foreclose next month. We just got the approval on it from the judge and everything. Or sorry, the attorney, our attorney said, yep, foreclosing six months. Our opening bid at the auction is going to be roughly 850 to 900. So we'll make somewhere around 350,000 on this deal after our expenses and our money costs along the way. And you know, that's, you know, we see some nice big assets like that. We see some smaller assets. It's just there's, you know what, you know, some people get so excited about buying bigger assets and that's great if it's a win, but it also, when you deal with high valued assets, people will often pay their attorney $1,500 a month to drag it out versus paying their $15,000 a month mortgage. And so it's, you never know what you're going to get. Sometimes the borrowers are really easy to work with with one phone call. Others they'll drag it out a year. You know, that's why you just got to know what you're doing, know how to do a little due diligence on it, know you know what to expect and kind of understand it's different than, oh, I'm gonna go buy this. Don't I get the proper. Just because you buy the note doesn't mean you own the property. It means you control it a lot because the bank always gets paid and it's good to be the bank.

That's right. That is for sure. All right, so I mean, it sounds like you can obviously start with a small amount. Right. But it sounds like also you have a fund that's set up that people can invest into if they choose to. Right. So you know, you're raising capital for notes. I guess other people could technically, you know, raise capital for notes as well. But just explain that process real quick and then, you know, maybe we'll kind of round it out with where do people go to find these types of deals themselves? Obviously they can reach out to you, but you know, what are their other opportunities as well?

Yeah, you could. You mentioned link. Let's start with first how to find these deals a little bit, then we'll dive into that. So like if you go to LinkedIn, our favorite social media platform, and this is how we find a lot of deals. We type in note investor and it will pop up, people. I just did it an hour ago with one of my students and we found over 6,000 note investors in Florida for him. He's out down in Broward County. So he's contacting those folks not only to potentially buy but also potentially fund his one off deal. And so that's a great place. Note investors are note trading, a whole loan sales department. They go by about four different titles on their special assets manager is the department at the banks that handle these note sales. So we reach, we use LinkedIn to reach out to asset managers. Hey, what do you have on your books that you're looking to get rid of? Yes, they also go by secondary marketing managers, another name that they have for banks. Individuals at the banks that handle this note sale, you know, you don't call customer service. You don't walk into your local bank and say, hey, I want to buy notes. They'll have security walk you out. All right, so it's internal departments when it comes to raising capital or funding these deals. Yeah, we partner with investors all the time. We've got our fund that we're really excited about, especially this time of, with what's going on in the this year. We also will depend on if an individual investor has a chunk of change. We will usually basically either set up a special purpose LLC for that one individual investor. We're buying notes and they're partnering in the profits. If somebody looks for something more passive when they're not very active, hey, we can set up an agreement. We're basically paying them a flat return on investment and their money's secured by the note of the asset, or we cross collateralize it with another asset that we own free and clear, so their investments protected that way. So, you know, we have folks that get started, you know, $50,000 is usually what our minimum is if somebody wants to get rock and roll. Because that way gives us the opportunity to leverage them and use their one or two notes to start off individually to kind of get their feet wet and see if it's a good fit. If they like working with us, we might work with them too.

Yeah. So you mentioned your guy earlier that had, you know, $25,000 in his IRA. You went out and bought his first deal for 13 grand. I mean, the return on that, I mean, $8,500 return in his first year on a $13,000 acquisition. I mean, that's an insane rate of return. I would say that's probably not typical. So what, what should an investor kind of expect in their first year? And you can break it down if you want and say, you know, if you've only got 20,000 and you should expect this much, if you got 100,000, expect this much. And you know, I'll let you answer that however you see fit.

No, no, no. Great. I'm glad you brought that up because I was about to say that too. I mean, smaller deals, oftentimes you end up at a pretty good return on investment because it's a Smaller asset, somebody's usually looking to get rid of a smaller asset. Banks usually don't like to hold on to assets below $75,000 in value. So oftentimes you get a much bigger discount from that smaller asset class. We always tell people like, listen, if you're going to buy and you're looking for performing very you can find these days you can find anywhere from an 8% to a 12% return by buying a note. A performing, there's hard money lenders or mezzanine lenders out there that will actually they're originating notes at 12, 13, 14%. They're glad to sell it off to you, you know, at an 8 to 12% return depending on what they're lending on. That happens all day long. You can Google hard money lenders. Hey, you got any notes that you're looking to sell off that they've done all the work for? If you're looking to be more active and make a high return, non performing is what you should probably be looking at. And it's going to take a little bit of work on your part. But what we say as a note investor, you're not really the, the jack of all trades, the fix, the handyman, the fixed man. What's great about the note business is it is really service oriented. There are servicing companies that are handling the borrower outreach, the starting the foreclosure process, sending out letters. You're not going to go knock on doors trying to collect rent. You're going to use attorneys to foreclose. You can use servicing companies collect and you know, you start dealing with consumer finance protection bureaus and fair debt collection practices. You want to make sure and have those third parties do it for you. But non performing, you're buying an asset at say 50, 60 cents on the dollar. There's a good chunk of equity above what you paid for the note. You know, it's very feasible to make, you know, high teens, if not 20, 25% on your notes. If you're using your own funds, if you're using other people's money. Yeah, it's still very feasible to pay 6 to 12% for somebody else's money to use that money to go buy another note and still make yourself the opposite of the split of that, you know, and that's what we tell people to do and show you how to do it. Like listen, if you're bidding, you need and you're be active on this, you want to not do a skinny deal, make sure that you're covered because there are Costs along the way, cost to foreclose, cost for servicing. If you got to take the property back, you've got to rehab the property and do some things like that. But, you know, that's why you stick to your guns. You're not paying 90 cents on the dollar for a note. Some like, I was just on the phone earlier this morning. He's getting ready to pay 90 cents of the dollar for a note. I'm like, why are you paying for that? Well, I just want to do a deal. I'm like, no, no, no. There's no reason just to do a deal. Let's be smart here. You know, what about if this happens? You're not going to make any money if you have to foreclose, you're going to lose money. That's not a good thing to do. You never want to invest in something to lose money right off the bat, right? Austin? That's not, not a good sign. That's not smart. Be a smart investor and realize that right now as we sit, there's roughly about 81 million loans in the United States right now. Okay? Our default rate is somewhere around 4.5, 4.65 based on Q4 numbers. That's still approximately about 3.7 to 3.8 million loans in default where somebody has not made a mortgage payment in at least 90 days. There's a lot of opportunity. You just got to know where to look. Unfortunately, it's not like the mls. Call your agent to see what's on the mls. It doesn't work that way. You've got to do a little bit of work, either marketing to contact the banks directly through LinkedIn or email groups, or you can go to like, websites. Like there's some other websites out there that have a few hundred here and there. Paperstack.com, buddies of mine out of Orlando have a website that they have. I think you got 230 available for sale, auction.com as many people are familiar with that from the commercial side. Auction or 10x com, they sell commercial debt. You know, there's dead X is a bigger platform that sells a lot of portfolios off for banks. Or you just, like I said, Google for note investors on LinkedIn and ask them, hey, are you looking to sell anything? You have anything on your books you're looking to sell? Because every note investor I know is a buyer, a seller and a funding source. So it's a great way to find deals but also find funding as well. And you don't have to have your own money to do this business as well. You're interested, there are ways, like I said, leverage other people's money, other IRA investors who aren't making anything that you want to make an above average return or something that's going to keep up with inflation at least. And that's how we end up funding most. About 90, 95% of the deals we do is using other people's money. Gotcha.

All right, so let's wrap this up with the Note Closer show podcast and the classes that you teach. I mean, tell us, tell us what we, what somebody should expect to get there. If you want to, you can talk about what it costs to go through one of your classes, those sorts of things, but just give us kind of the breakdown of that.

Yeah, I mean we started our podcast five years ago, the Note Closer Show. It started off as a Facebook Live, just kind of sharing, hey, what are we focused on day in, day out? Be a fly in the wall. And it's really blossomed. We did 150 business day or five months straight on Facebook Live and said, okay, let's turn into a podcast. Now we're at episode like 7,705, 1.2 million downloads. It's just a really good mixture. About half the episodes are me teaching a nugget or a lesson. The other half is me interviewing vendors, investors or other people in the industry as well. So it's a great way to go. And I'll tell you what, you got to love what you guys are doing here. If you're listening to this on your favorite podcast, go ahead and hit that subscribe button. All right. I know Austin would love to see it, but plus leave a five star review for it because these guys are kicking ass and taking names and doing a great job with their podcast. So sorry if I, you know, but I think that's important. We as podcasters love to see that, but got a lot of information there. I, I will tell you this. My peers in the industry say all the time that Scott gives more content than anybody else out there because we've got 700 episodes. We got about 1500 videos on our YouTube channel as well. For you to learn about the note business side. Our classes, we have kind of a couple tiered process. We have a one day class every third Saturday of the month called Note Weekend. It's noteweekend.com it's usually 99 bucks to sign up for it, but if you go there and use the code tycoon, all caps tycoon, I'll give you the class for Free for listening to this episode. It's a live Zoom class we teach every third Saturday of the month. You know, we go how to find, how to find, how to flip these deals in one day. Then we have every quarter we teach a three day workshop, which is the Nuts, Nuts and bolts, the A to Z. We really do a deep dive on how to get started if you're, you know, new to real estate investing, but or also new to the note world. And you know, that class is. And we've been awarded a couple of times. I was the note educator of the year a couple of times in our industry and was the number four real estate investor to watch out for 2022 by US Reporter magazine. So I love to give. I was. I'll share a story. Early on, when I graduated from college in 2001, I got married, my college sweetheart. We bought our first house roughly a year later, 100% financing back in 2002, 8020 mortgage. And our realtor was like, oh man, this is a great time to invest in real estate. You got great credit scores. You should buy a couple more. So we did. We owned three properties and then I got laid off. And so we were trying to make six mortgage payments, three first three seconds on these three properties because our two tenants also got laid off. So I was a deadbeat borrower back in the day. I was facing foreclosure. So I really empathize with people who've been through financial hiccups or going through something. And then we love working with people, helping them, you know, help them get back on the right track. It's also really rewarding working with investors who close their first deal and they're like, oh my God, this seemed harder than it was, but it actually turned out to be a lot easier when you have somebody holding your hand and talking you through the process.

Yeah, no, no doubt about it. I mean, I think there's the human side to it, right? Which I love that you're kind of leading with that. You're trying to help people stay in their homes, right. Or keep their businesses, their strip malls, their, you know, whatever in place so that their business can recover, which, you know, I love. But the other side of it is so many people in our country believe that the only way to invest in real estate is if you either have cash to buy property or you have borrowing power to buy property. Right? And this is just another way to invest in real estate that can get a really darn good rate of return and is still secured by real property that's correct.

And that's the thing is, well, there's things that we do, we always buy. You know, we don't pay above 70 cents on the dollar, the value of the property. So there's always equity above our position. We're only buying first liens, senior liens. The only thing that wipe us out would be God. And that's what we have insurance for, or taxes. And we're always checking, making sure the taxes are paid or paying the taxes we buy. And then we use professionals servicing companies, title companies, attorneys to close on the deals and handle the paperwork and then the borrower outreach. So that's, that's the great thing. Way to lose money in this business though, is not follow, not do your due diligence, not putting eyes on assets. You know, had an investor, you know, they looked at the paper like, oh, I'm only gonna pay like 8 grand for this one asset. And they never sent somebody out to take a look at the actual property. They just relied on Zillow. Okay, or Google Maps. Well, that property was no longer there. It'd been washed away. So they bought a lot. Luckily, they sold a lot off and made back their investment. But that's, there's things you have to do. You check out the due diligence. You got to ask me to put eyes on. I don't jump on a plane and fly and look at everything. I use Google or I use professionals to go out and take a look and take photos for me. So not doing your due diligence is a big thing. Not telling your servicing company what you want to do with the asset is another way to lose money. If you just think that they're going to have ESP and be able to read your mind, they're not going to act. They've got to have instructions. And then I hate to say this, but don't be afraid to advance it to the legal side. You try to help people, but some people just don't want to be helped. You've given them an inch, they'll try to take a mile. If they're not going to meet you halfway, then you don't run a charity. You donate to charities, you don't run one. And if you're not, if you're afraid to foreclose, then either a get it by performing enough to stick with that. And then if you do have to foreclose, it's best then just to sell to an investor who understands it's a numbers game and going through the aspect of it. But you know, if you're buying 10 notes, you'll probably get 5 to 6 of the borrowers to get back on track. You probably get two to three that you can give cash to for them to walk away if they can't pay. And then you'll probably foreclose 25% of the time because people will not pull their head out of their sand or will tell you to go pound sand as well, too. So it's just the law of numbers. But most Americans out there, they want that dream of homeownership. They want to live in a house, they want to pay their bills, they want to be good borrowers. And that's the beautiful thing about the United States is, you know, you don't have to have good credit, you don't have to have a ton of money. There's a lot of great investment opportunities out there. There's investment clubs, there's, you know, ira, self directed IRA companies, trustees that can help you kind of structure your stuff or help you find investors to fund your deals, if the deal makes sense.

Yeah, yeah, absolutely. I think, I think the biggest message that you gave there, the most important message that you gave is you got to stick to the guidelines, right? You talked about not buying more than 70%. You gave a couple of other guidelines. And that's where people get in trouble, regardless of what kind of investment it is. Sports betting, you know, whatever, it's. You have to stick to guidelines and not let your emotions get involved in things. Right? I mean, house flippers have the same problem, right? They want to, they want to redo the house the way that they would do it if they were going to live in there. Well, no, that's not the way you do house flipping.

It.

You got to take the emotions out, stick with the logic, stick with the guidelines. And the numbers have to make sense.

Yeah, you said a couple of things on there. You got to know what you're investing in. You got to take the time to research that. You got to understand what's going on. You got to get educated. I mean, you have a lot of people that are just throwing money because, oh, I saw this post on Facebook, or I'm going to spend a lot of money on crypto. And, but crypto has its advantages in some cases, but you got to know it's an investment, not a guarantee. Same thing with any type of investing. You got to understand the risks. You got to know what the heck you're investing in and get educated on it. If you don't do that, trust me, keep your money put it in the mattress because maybe you'll do better than with negative inflation for you versus you going out and just throwing money away and burning it.

So that's right. Losing purchasing power versus actually losing dollars is different. Yes.

Yeah. So I like, I, I'll give you. I don't like Chicago. No offense to any fans in the Windy City. I don't buy in Chicago. Chicago as I call it, Chirac or Crook county, it takes forever to foreclose there. Not a fan there. If you don't live in Chicago, things are going to be delayed. They delay, they delay the foreclosure. So if they somebody's living there, the judges will side with the tenants or the borrowers there again and again and again. So I'm not a fan of Chicago. I've lost plenty of money in the Winnie City. I love doing, I love deep dish beats on the sports teams there, but I just don't invest there. And that's the thing you got to understand each state's a little bit different. Know the pros and cons of each. If you live in Chicago, hey, great to investor. If you don't live there, you don't want to be doing rehabs, you know, 800 to 1,000 miles across the country either. So.

Yeah, no doubt. All right, Scott. Well, we're kind of up against it here so I'm just going to toss it back over to you. Is there anything else that you want to get out there there? You want to tell them how to get a hold of you, where to, where to find you? What, what else do you, would, you Honor, do you want our listeners to know?

Yeah, I mean it's easy. If you go to the website, we close notes.com, that's our main mothership of a website and go there, you can always go. You want to schedule a phone call and pick my brain for 30 minutes and ask more in depth questions. You can always go to talkwithscottcarson.com that'll take you directly to my calendar. That's talk with ScottCarson.com and I was glad to talk with you. You know, some people it's a fit. Other people it's not a fit for note investing. I'll be the first one to tell like hey, you're not a fit for this. You need to start somewhere else or get some knowledge and stuff. Like, and like once again we are given our one day class noteweekend.com. if you go there and register, if you use the code tycoon all caps, it'll get you the class for free and you can have the replays of the previous month sent to you immediately or attend us live on Saturday, April. I'm sorry, April is next month. Yes, Saturday, April 16th will be the next class we teach live.

Awesome. Well Scott, I really enjoyed the conversation. You got great energy, you share good content and appreciate what it is that you're doing out there hustling as a tycoon or small business.

Hey man, you guys are kicking ass and taking names too. Thanks for sharing and keep up the great work man. Honored to be here. Thanks for having me.

Thanks Scott. Appreciate it.

You've been listening to Tycoons of Small Biz, proudly hosted by Austin Peterson and Landon Mance. Austin and Landon are comprehensive financial planning professionals specializing in financial estate and succession planning for small business owners. Austin and Landon have offices in Scottsdale, Arizona and Las Vegas, Nevada, and represent clients in 14 states throughout the country. Join Austin, Landon and the featured tycoons live every Tuesday at 1pm right here on Business Radio X and your favorite podcast platform.