EP 383 – Note Market Trends with Kevin Shortle

This is the no Closer show where you get the latest developments in distressed note investing and learn the secrets of how you can control millions of dollars worth of property for pennies on the dollar. Get educated and entertained by someone who has closed thousands of deals and lives to support you in achieving the same. Now, here's your host, CEO of We Close notes, Scott Carson.

Good morning. Good afternoon, everybody. Welcome to this episode of the Nook Closer Show. As always, Scott Carson here for you. We are excited. We've got a very special guest on this episode. You might know him from his past, but he is out rocking and rolling out there right now in the industry. We're honored to have Kevin Schwartle from Pro Speak Productions joining us today. Kevin began his real estate career in 1985 as a commercial real estate appraiser. That strong foundation of understanding how to value property would be a key asset as he advanced into writing for a real estate development magazine. Started his own real estate brokerage, becoming a full time investor through the use of partners and mentors. He's involved in both the real property side and the paper side of real estate investing. So joining us from a little warmer area of the country than where we're at right now outside of Orlando. Good morning, Kevin. How's it going today?

It's going great. Thanks. Thanks for having me on. Appreciate it.

No problem, man. Well, you have. Why don't you share what you've been up to, man? You made a little bit of transition the last few months when you're out rock and rolling. I see the podcast, been listening to it, loving it. You know, we were talking brief a little bit before that. You're out kind of tackling some of the bucket lists, the to do list that you've been wanting to do for a while.

Yeah, I've been out teaching as you know, for six plus years and thinking about some different directions and really trying to find out what are the needs in the industry and what I can do to fill some of those needs. So I'm going slightly different, different direction. I'm going all the way from personal consulting with people who just want that extra hand holding all the way up to, you know, doing three day training still not quite as much as used to do. But I think there's some niches right there and I think, you know, some people are getting a little concerned about inventory and we're kind of in a little bit of a transition here. I think I can help people through that, as I'm sure you are helping people with it.

Yeah, you know, I still see plenty of opportunities out there. You just got to be able to kind of pivot a little bit, you know, whether it's being a little bit more focused on the real estate side or being more focused on the distress side or be more focused on the owner finance side of terms of things like that. Where do you think the opportunities are lying at right out there, out there for people right now?

Well, I think we still have untapped opportunities. I agree with you 100% on that. It's going through a little bit of a fluctuation right now. And I've seen this before. You know, I wrote my first book on this business back in 1999. So I've been around a while, seen a couple of cycles go through and even the regular real estate world, I saw inflation. Florida, it seemed for a year. There are a couple of years in the early 2000s where if you lived in Florida, it's almost mandatory that you have a real estate license because everybody was in it, you know, everybody was selling houses, you know, and it was just so easy to do. And then all of a sudden inventory shifts and then you really saw who knew the business. You really saw the people who had the knowledge, the skill in the industry and the rest just faded away. And I think you're going to see that in the note business. A lot of people got involved in the note business, but it was easy. I mean, go online, click and buy. And now it's going to get a little bit tight where you have to really have that depth of knowledge to really continue on.

That's the point. You're cracking me up there because I'm thinking back in the 0809 era when here in Austin, Texas there was like 12,000 realtors. Yeah. You couldn't throw a rock with three of them to try to help you with your house. And it literally boom. Two thirds of the realtors went away. If two thirds of the mortgage brokers, because you can basically fog a mirror, you could start writing mortgages. It's funny, I'd like to say it's the rats leaving the shit basically for the most part.

A lot of people, especially with non performing loans going like, oh man, we're going through a transition or the non performing loans because if you look at the biggest buyers of the inventory, it's still Goldman and their subsidiaries buying that and they're holding that paper a little longer because they want to get those re performing so they get the benefit from the debt forgiveness for their lawsuit and all this. So There are things going on in the industry and we're going to see that again. Same thing with the performing loans. So I think we're going to see a resurgence of some of the non performing. Five, six months for sure, after they season those up a little bit, the performing notes. I think you have a lot of REO companies and such that really created the bulk of that by going out and buying the properties and reselling them. They're going to continue to do that. It's just right now a lot of end of year funds, they're closing out of the funds, they're getting amped up for next year and it's going to cycle all over again.

Yeah, definitely. And then you throw in the addition of the new non prime. Lenders have been writing paper for the last two years, you know. Yeah, you're rubbing your head there. You just kind of shaking your head. I have to kind of chuckle that because I'll give you an example. We got a couple mortgage here in my office building here, coffee talking. Oh, that's great. Awesome. So are you doing like 97%? He goes, oh no, 100%. Like okay, what kind of ficos? Oh, like 500. I'm like, oh. I was like, are you selling them off or you're holding on to them? I was like, well, here, take my card because when you go default, you're going to want to sell them somebody.

I think you sent something on LinkedIn or Twitter on an article that I had wrote, you had written one as well. And I kind of looked a little a different direction on some things and it's downright frightening. I mean it's like we didn't learn anything at all. I mean they are, they're doing 500. If you look at the mortgage monitor just came out again with Black Knight Financial Services and guess which ones have the biggest delinquencies. The FHA insured loans and the private loans. The non banks not qualified. It just, it makes sense and it's unfortunate. I think they're setting people up for failure on some of these loans just like they did before. It's future inventory for us. Probably not the best thing for the economy, but boy, it just seems like we don't learn and it's going that direction and then I'll perform all the.

It'S the same broken record, just, you know, eight to ten years later out there, stuff like that. I mean there's opportunity there and it's, you know, it's. I think with the increased interest rates and other things going on We've got some things to worry about, especially look at different parts of the market out there. They've recovered. And then you got a lot of people buying homes for their first time, especially new homes is what always concerns me. Because they're not taxed. You know, they don't have the right appraisal district, so they're not taxed properly the first year. And that's one of the biggest default rates we see, especially here on the side of Austin 10 years ago. You know, there's areas out there called Del Valley with all new homes, you know, $500 down. They came in and then six to 12 months later when they. The tax appraisal came on, reevaluated for the true value versus lot value. 90% default right across the board because people weren't budgeting for that tax increase. And, you know, we see that all across the country in different parts like that. So I see those big billboards. Yeah, you know, $500 down. I'm like, let me make a note of these addresses.

Exactly. It's coming. And I think a good byproduct that I like out of this whole thing is more and more people are starting to recognize notes as real estate. You know, it's always been, there's the real estate, there's the note thing, and then a divide a lot of people's minds that they're two different worlds and they're just not. It's the financial side of real estate. So I'm really excited to see a lot more investors combining real estate techniques with. With real estate financing or real estate note techniques, because that's going to make you a better overall investor without a question. That's where you can handle all these minor fluctuations in the industry, including the one we're looking at right now.

That's such a good point there, Kevin. If you're so focused on one exit strategy, you know, like I focus on buying debt, that's one of my biggest things. But my exit strategies, I'm flexible. However, I have to move it. Whether it is selling it traditionally or on terms or owner financing or. Or wholesaling out really fast. It's good to know those exit terms. But those that just get focused on one thing and one thing only, they're the ones that have the most amount of trouble not being able to shift or pivot a little bit as the market changes.

I've been saying it for a long time. The trainings that I do is just never go into one of these deals with one out. You might get lucky A couple times, hey, yeah, I'm just doing this and it's going great. But boy, you better take a look at four, five different outs, weigh all the numbers and just make sure that you're protected. Because I'm sure we're similar in the fact that, that when we look at note deals, it's risk first, then yield. And so many people just yield, yield, yield. Especially in the performance world, it's like it's not about yield initially, it's about the risk that you have on that because things can go bad and if worst case scenario happens and you're prepared for that and still make money, you've effectively eliminated or reduce your risk.

That's the truth. How's it been training, talking to people for years and stuff like that? What are some of the biggest things kind of pivoting the question here a little bit away from the market? What are some of the things that you see, kind of some ideas or features of those that are successful out there? What are some of those key points that you see with people that have success in the industry? Are they coachable? Are they flexible? What are the characteristics of successful investors out there that you see?

Oh, gotcha. The coachability is a huge factor. In fact, when I'm doing a training live, I might have written this in a blog as well, but I even went to a psychological study that outlined this. Is it better to hand write notes versus typing in notes? What happens with retention levels and are you receptive to that? And without fail, you do have to open yourself up to coaching. And I know I've seen in the past, you may have seen this as well where you know, you train some people, they've got all the advantages, they've got some capital to get going, they've got some real estate background, some financial background, they're sharp and going, man, they're going to take off and run. And then you see other people who are going, oh boy, they're starting. It's going to be rough. You know, they don't have capital to get going, but they've got ambition. They really have the desire to do some things. And tell you most of the time the people that do better are the ones that had the ambition, the ones that were willing to learn and go out there and do as you instructed versus the ones who just never got around to it because they had everything kind of working in their favor. So I, for those of you who are looking at starting in the business, I mean, that's the thing, follow the proven plans that most successful People in the business have done just one more quick comment on that. But I also have had some of the most advanced people who do really, really well in the business. They'll come back. And I've gone up to them a couple times going, oh, God, I know at some point I've got to be boring you, you know, I've got to be boring with this, this example. But as you know, part of the business is the business. You have to teach the core component. They're going, nah, you know what? Every time I listen to something or I see something new, it takes my business a slightly different direction. And I think that's important.

Yeah. I call it the absorbance factor. Because if you're brand new, you're so new. Especially there's so many different terms and different ways of looking at the business versus a property. We don't always absorb things the first time around. I mean, I'm a little thick headed. Sometimes it takes three or four times for things to finally kick in. Yeah, yeah.

And it does. And you're right. It's just the simple things like the verbiage. Most people wouldn't even bring that up. But you've got to understand the tempo of the business, the flavor of the verbiage of the business. And the only way you can do that and shorten a learning curve is you got to get on your podcast. My podcast. You know, you've got to go out and go to some of these conventions, you got to start to meet people, you've got to see what successful people have done and simply model your business behind that. It's really been the only proven way to shorten a learning curve that there is.

Yeah. Because if you, you can learn from those that have taken steps before your learning curves, success factors a whole lot faster versus trying to go out and reinvent the wheel. And there's a reason that we do things the way we do. We've been to the circus and gotten our hands slapped.

Right? Yeah. You learn through the experience of other people. And that was a good result or bad. But boy, one of the things that can be a big momentum killer in this business. And for some people it happens on their first deal, some people it happens later on is they make a mistake that sets them back. You could avoid those mistakes. If again, going back to what we were saying, think about the exit strategy. Make sure you checked all your due diligence check marks. Don't start to cut corners on things. Listen to what other people have learned through experience and that'll save you it's tough when somebody hits one of those bad deals. And I'm sure you got these questions before, too. It's like, okay, so here's what I did. Was that wrong? Was that. Should I not have done that? It's like, you know, it's like, talk to me ahead of time. Let's talk these things through before you go out there and make a steak that can set you back.

Yeah, it's okay to call the phone. It's okay to call me. I'm not gonna chew your head off. Trust me. I'm gonna try to save you. That's what I love about the note industry. It's much more of a welcome, warmer kind of environment because it is still kind of a smaller space versus the wholesalers, the fix and flippers, or, you know, traditional realtors and mortgage brokers out there. They're pretty cutthroat out there because I've been around those areas for a while. But with the note space, it's a lot more friendlier. Hey, let's use a vendor to use or. No, no, no. Did you check this or did you not check that? Asking a couple questions or asking for advice, asking for counsel is a better thing from those that have been down that road before.

Yeah, and I think part of the other reason, too is there's more reception in our industry is we do. Our inventory is not limited to a neighborhood, you know, because I've done a lot of real estate, too, and it was always location, location, location. Know your neighborhood, know this, and you had designated areas and property types that you were looking for. And in the note business, you start to put your banker hat on, if you will, your lender hat on, then you go, wow, I can open this up anywhere. And you want to share with other people because, you know, you want them to share back at some point in time. So formats like, like this and blogs and things like that are great today for people because you're right. Much more sharing, you know, when I was in more of the traditional real estate, bricks and sticks, if you will. You're right. There was a lot of people like, I'm not giving you my. My roofer guy, my painter, you know, that part of that. I want them for us. You know, it's kind of like back. My son was leaving a little bit earlier ago, but back when, you know, you were young parents, you don't want to give up your babysitter and tell your neighbors who that was. Right. Because they're going to be out Friday night. You know, you want to be out on Friday night kind of thing. So it's a lot more protective by here. But in the no business. You're right, man.

We all want you now. For those that have not listened to your podcast, I have. I love it. Some of the things you're doing with it. Why don't you talk a little about that? Any surprises have been come from since you've been podcasting? You know, kind of the biggest surprise for me, everybody I talk about, there's some people that do really well with it, but you're doing a great job. And then people get started for it and they just fall off the cliff not following up with it. And I think it's one of the best ways to get the word out and what you're doing and spread the word. And I know you see the same power in that as well.

Again, it's one of those things going back to the very beginning about a list I've had of doing. And I think I started it two years ago, did one episode, took that off and about a year later did one. You know, I think it's. If it's not on my calendar, not on my schedule, it doesn't get done because I'm also writing blogs and monthly content, all kinds of stuff, traveling. And you can make a ton of excuses like I just did on why I didn't get the podcast done. But what I have found. Yeah, once you started and I even joke on my podcast about I don't have the fancy intro yet and all this kind of stuff, I just go on there and talk. I will eventually have that build that a little bit better. But it's the informational in the day people are coming for. But it's opened up. People like yourself contacted me and I'd love to have you, by the way, on a schedule online. And I was podcasting from a live event in Raleigh and out of that I ended up doing a radio show. I did another podcast with Mitch. I know Mitch has been on your show. So I'll tell you, it happens pretty quick. I still got a small audience and I think that's what also discourages people. And go. I just got a few. Look, everybody started with a small audience at some point in time and go let it grow. So I'm. I enjoy. I like the format quite a bit.

Yeah, it's. I've always put it away the best way to get out and touch the audience.

You're doing four now, aren't you? Yep. Four different podcasts.

No, I have. We have the note Closure show podcast. This one we have Note Night in America, which is just a. That's a podcast, but let's just say upload of the Monday night webinars we do most of the time. And we have another podcast called Note Camp, which is just a replay of our Note Camp convention from six months ago. And then I'm dabbling with the fur babies podcast that Stephanie is trying to get launching. I'm helping her, kind of pushing her, producing it. You won't see me being the cat guy or the cat girl. That's. I guess there is four there. Yeah. Thanks, Kevin. Appreciate it.

Gotta get the plugin for that one.

It doesn't count until we hit 10 episodes. It helps. Yes, it's helpful, but until you get to 10 episodes of the fur babies podcast, it doesn't count.

And I tell you, I like the format too, because you download it and you can listen to it from anywhere. I try to walk every morning and put the podcast on, learn some new things, and I think it's great.

Yeah, definitely. It's been interesting because we've been getting people from not only all across the country, But I think 68 countries now, people responding. A while back I posted, hey, if you're international, send me a flag. I have flags showing up from all across the world from people listening. And I'm like, all of a sudden.

I have two different countries and I'm going, how did that even happen there? So, yeah, that was kind of interesting for me. So you're.

So what opportunities do you see kind of happening this next year? As we come to the end of 2018 and enroll into 2019, what kind of opportunities do you see for investors out there?

Couple of different things, two different directions. And it kind of depends on where somebody is starting. I think one for sure. I always look at the inventory levels with three different funnels, you know, coming from the more traditional sources through the big reo, through the big monthly sales. Fanny and Freddie stuff the reo, creating, performing, reperforming. And what's been largely ignored is the individual. I refer to him as mom and pop notes. But somebody just owned a home, inherited a home, and sold it. I think that's inventory that's been untapped. And I believe that there's enough there to kind of go back old school. I'm talking. I remember literally sitting at the kitchen table with my wife Kendra, and folding letters and licking envelopes and putting stamps on letters to do direct mail to tap into that inventory. And of course, you don't have to do that today, you can outsource all of that stuff. But I think there's a big play to be made there. And the second big one I think is still going to be, and it's going to continue to grow is that concept of combining real estate and notes again, which is acquiring real estate hopefully through non performing note to do it the right way. But if you're investing through foreclosures or what have you short sales, if they even exist anymore, it could be a possibility. But selling with seller finance, you know, and creating a note portfolio that you can sell partials of, that you can hypothecate, borrow against all those sorts of of things, I think those are going to be the two big areas.

Yeah, I think there's a lot of opportunity out there being flexible on your exit strategies and things like that. Especially if interest rates start increasing a little bit and as people's maybe don't have the best credit, stuff like that, but they've got the cash to put down, I'm a big believer somebody's got some cash to put down. I'll overlook obviously some hiccups in the past because before too long, I mean having a short sale, default or foreclosure in your credit was just like having a normal scar. You were homeowners or real estate investors through 2008 through 2010. It's hard to get away from those.

Yeah, absolutely. I mean down payment can overcome bad credit. And I think a lot of people's credit is starting to come out. You know, we're in that 9th, 10th year now coming out of that, where foreclosures and of course credit changing rules have come off or they've taken off property taxes and things like that. So I think credit is, you know, if people don't have good enough credit, I guess to get loans, let's just make them have better credit somehow. That's been a part of it too, which I don't like. But at the same time with us in the note business, there's other variables, more of a down payment, you know, and some kind of track record that they might have from rent and those sorts of things. It'll overcome a lot because I don't see, you know, Dodd Frank and such changing the motivation for lenders to do traditional loans in that so called lower price. The motivation simply not there. And the private banks don't, they're not a part of the Community Reinvestment act, so they're not, they're not doing those types of loans. So that again, that opens up the opportunity for us to fulfill a need in a marketplace that's been ignored. And that's where you can take low band real estate and turn it into a really nice passive return just by combining.

That's definitely the truth out there. Get some great nuggets and it's. You mentioned something earlier. Best of the bigger funds that bought a lot of the reo, bought a lot of the rental property portfolios, put people in them and they're starting to move. Not just now, they've been there for a little while, starting to move some of the portfolios off. You know, they're starting to sell some of that stuff off at 80 cents on the dollar. And I'm always like, wait a second, if this has been such a great thing for you, why are you selling them off? What are you telling us? Are you seeing something that's going to happen here in the next 12 months? Because I think it was Bayview was selling a portfolio, their performing notes off that. I noticed that they bought some of it all at 80 cents of UPB right now. It's like, wait a second, you guys, what are you telling us here? You see something? Are your quants giving you warning signs that you're trying to dump it right now? I mean, because most of stuff, they were picking that up at 40, 50 cents or better. You know, they've had it for a while. You know, what are we seeing that you're not telling us?

Right, right. Or is it something again, seasonal or cashing out of one fund to go a different direction as well? I don't have a great answer on that one for you either. It's, you know, they're private companies so there's not a whole lot of disclosure. I do, I do research all the time. So Fannie and Freddie, you can kind of get a better idea fha, what's going on. But with some of the private companies you can't. But maybe they're following Carrington. I mean, Carrington got back into the lending business. Why? Because there's more money there. They're borrowing. I mean, they only have 5% cash position in their portfolio and they're borrowing warehouse lines of credit for 95% of the money and they're doing those lower price band loans, making some pretty good bucks on that. So it may be something that some of these other companies are starting to look to get back into that direction as well.

Yeah, I've had some conversations with some of the guys that cashed out a decade ago from the subprime market and they bought portfolios, they bought rental properties. And they're selling those on now because they see, oh, we're gonna get back into lending now. We can make more money lending now. You know.

It'S just like when they. When they all jumped when Wall street recognized single family homes as an investment class for really the first they buy up all these properties and then try to rent them. Number one found out what a nightmare that could be trying to do that nationwide. And then they switched over to, well, finance them. And then once they got rid of those portfolios, the market shifted and they got back into the lending business, which is more along the lines of what they understood, the rental market. Everybody is still controlled by small investors. The big players cannot make that. Haven't been able to seem to find a way to make that scale. Certainly smaller investors can. But you know, again, most cases, why rent when you can sell it with seller financing?

Right, exactly. Not to worry about toilets and tenants. You mentioned earlier you've been working on a book to come out next year. You want to talk about that a little bit?

Yeah, you know, I wrote my first book, like I said, in 1999. I think I followed up with a smaller one a couple years later. And so this year it's time to do another one. I'm gonna have a slightly different direction to. It could be along the lines of what we talked about here, which is, you know, where is the best techniques in real estate and real estate notes moving forward. So I hope to have that completed. Well, January is my target, but I've got to have it done, you know, by March. So I'm a little flexible on when that deliverable is. And one of the cool things that I've done, I think anyway, is I invited some other people that I've met through the year that have done very well in the business and they're writing supplemental chapters in there. So I'll be writing the core of the business and here's how it works and then here's proof of concept through these other authors that are going to be writing a chapter in there. So I thought that would be a nice, a nice way to do it.

Really nice. Always good to get other people's opinion on that. That's awesome. When it's done, let me know. We'd love to have you back on, talk about it, help promote it out there as well for you.

Oh, that'd be awesome.

Cool. Now you're also still teaching on a regular basis.

I go out company called Inotesuccess and we're just starting to do some additional three day trainings and I still think there's a need for that. The bigger trainings, not all investors really need that. They want more personalized help. So I'm trying to identify the various niches there. But you know, that model still works whether you're doing them live or whether you're doing them online. It does take several days, as you said, to kind of learn that language and see the various case studies and understand the business. It's not extremely complicated. It's just a learning curve, you know. So I like the idea of the intensive trainings again, whether that's in person or online. I think it'd be effective either way.

Yeah, I think that like we said beforehand, got to be coachable and there's a lot of different moving parts. There's a lot of different terms, a lot of different things to structure the deals and it's a different mindset coming from the side of a banker versus a fix and flipper or wholesaler. It's a lot of things to consider out there. So that's awesome. When's the next class? Are you hosting?

Next class should be in California coming up in December, but I don't have a, have a date for you on that yet. And then we're already booking, you know, through January, February, so we got other people. I know success.com is the website, they'll have it listed there when we, when we do that. But I like the fact too that there's crossover, you know, there's, you know, people have different alternatives now and really should learn from people like you, people like me. We have a lot of people that we know that we've trained, co trained and done things together. And I think that's important too. And learning the different ways or sometimes it's just a different approach. You know, we might be saying the same thing, but it's approached from a different angle and that's what makes it happen there. So I think there's some good training out there.

Yeah, I totally agree because how I say it is different sometimes than how you say and people learn differently, people identify differently up there. So yeah, it's totally greedy. Hey, big advocate of training and promoting other people because I think that's, you know, if you can find somebody local in person, great, awesome. If you can't, you jump online, great. That's the beautiful thing about technology today. There's more opportunities to learn than there ever was before. So kudos. You know, you got raving fans out there as well, which is Great. Which is part of the reason you're on here, man. I was like, I gotta get. Reset the kev, get them on here. I have them on the show here as well.

You just cut out. I think I caught at the end how people reach out to me. Just go to my website. That's where I really have everything there. It's Kevin Shorttell. It looks like Shortl. It's K E V I N S H O R T L E dot com. And that's where I've got everything there. And I've got a simple list you can sign up on and that way I can keep you in touch and various things. Well, I like the book and other things and training events, everything else that I'm doing. Every time I put out another podcast or a blog or something, I always try to let people know on Twitter and LinkedIn, you know, that we've posted some new things there, but that would be the best spot.

Yeah, awesome, man. Well, hey, keep doing what you're doing. Love what you're doing, man. I don't think there's. That's a beautiful thing about the Note. You got some great people providing great content. You want those guys out there doing as well. So I wanted to say thanks for being here, being a guest on the Note.

All right. Thanks, Scott. I really do appreciate it and I look forward to getting you booked on mine as well.

Sounds good. Have a great day.

Okay, you too.

Alright, guys, that's gonna wrap it up for this episode of the Note Closure show. Like Kevin said, go out, get some training, check out his podcast, check out his blogs. You can follow him online there as well. Guy knows his stuff. Been around a while, obviously doing some things, but we look forward to some of the great things that he's producing and he's delivering some great content out there for those in the note industry. So go out, take some action and we'll see you at the top. Everybody, you. Bye.