Exploring Note Investing and Distressed Debt with Scott Carson from Big Mike Fund

Welcome to the Big Mike Fun Podcast where you learn about advanced wealth building strategies from real estate investing to creating massive ROI and secured retirement profits. So pour yourself a cup of coffee, grab a notepad and lean in because Big Mike has got the mic. Starting now.

Welcome to the Big Mike Fun Podcast. I'm the Big Mike, Mike Zlatnik. And today it is my pleasure and a privilege to welcome Scott Carson. Hey, Scott.

What's up, Big Mike. Good to see you. Good to be here.

Good to see you too. Thanks for coming on a podcast. Let me go through formal introduction. Scott has been an active real estate investor and entrepreneur since 2002, focusing on the niche distressed mortgage notes. Since 2008, he has purchased over a billion dollars in distressed residential commercial properties all over the United States. He's helped thousands of real estate investors and entrepreneurs create wealth through his classes, helping his students close thousands of deals. That's wonderful. He also hosts the podcast called the Node Closer show podcast and avid sports fan. He spends his free time traveling, gardening, making memories. He lives in Austin, Texas and he's got cats. Few cats. So. So I have a cat. You have a couple of cats. It's pretty cool. Cats are cool. And if you're a dogs fan, dogs are cool too. Cats are different. The big difference, this is what I learned about dogs and cats and I don't know dogs enough, but from what I hear, dogs love you unconditionally. Cats, you have to win the admiration and usually you love cats more than.

They love you, but yeah, yeah, that's. I would definitely agree that. Well, I'm more of a dog guy. Had a dog, golden laugh for 17 years. She passed away a few years back in my. Been a cat lover, had cats long, but my better half is more of a cat mom. And I'm. I can say I'm officially a cat dad now with our, our couple cats here. We were on a trip, Ridley stealing and the two of the cats would not come out. Of course we're worried. Where are the cats at? They're not coming out in two days. Are they starving? Are they surviving? Sure enough, they're fine. They made their appearance as soon as we got home. So yeah, that's that. I would totally agree to that. Cats, you have to earn their love, earn their respect. Dogs will love you no matter what. Just gotta rub their belly and take them for a walk every once in a while.

That's right. That's, that's, that's the words of the wise. So Austin, you said that's the, that's that's home and you do a lot of notes. So let's dive straight into just a little bit about your notes education, helping folks buy notes, sell notes and other real estate. Just tell the audience a little bit more about you, kind of your genius zone, what you do you'd love to do.

So I was like many real estate investors out there. I got started going local real estate club, you know, bought my first property, we ended up moving, rented out. The first property was the worst landlord out there. I do not like being a landlord and was found myself in a distressed situation as I was laid off from my job at the time. So trying to make a couple mortgage payments on a private school teacher salary is not a good thing, especially when your tenants aren't paying their rent to you. So luckily for me, we were able to get out of that bad situation, licked my wounds for a couple years and got into the banking finance side. We both love finance, love numbers and ended up starting a mortgage company with a buddy of mine here in Austin, Texas that worked with real estate investors. We traveled the country on the Ron McGregoin Circuit, learned about creative financing. We're both friends with Ron and when everything started hit the fan in 2008, I've been learning about, you know, creative real estate investing and note investing in the debt side of the thing, not the just the owner finance side. Most people when they think of note investing, they give originating a note creating an owner finance transaction. I'm a much more nichier aspect of that because when I left the mortgage company in 2008, I started contacting the same lenders I was originating for to buy their debt because I knew they had non performing notes out there. I mean it was a different time in 2008, but I started getting these lists sent to me, apartment complexes and other types of commercial properties that I could buy the debt at a big discount and started getting lists of non performing residential notes I could buy at a big discount. I was like, oh this is great. I'm getting all these deals sent to me. I don't have to do a lot of the normal work. I mean they're all across the country, which I found just valuable. I mean I can get deal flow that I have to do a lot of work. If I made a contact with one bank, it fed me deals every month and they were often at bigger discounts than what most people are paying. So I said, heck with trying to do traditional real estate. There's nothing wrong with everybody's got their niche. You like that you like that. And I love Austin, Texas is home here, but I don't invest a lot here because it's the fastest foreclosure state in the country and distressed debt here isn't as profitable as it is in other parts of the country. So I've been buying distressed mortgages on residential commercial properties for about 20 years now. And I like being the bank. I call it the sexy side of real estate investing. When you're buying the debt at a big discount and then like, our biggest goal is not to rehab the property, but to kind of rehab the borrower. Now, that doesn't mean sending them to the Betty Ford clinic to dry out, but sometimes you feel like you got to do that, have a little psychology or talk with that borrower and get them back on the right track in a lot of cases.

Yeah. I appreciate that wisdom. And of course, if you are the landlord, you buy the notes at a discount. You have all kinds of optionality, which you can do. You can get the loan to reperform. If you have the right type of borrower who is willing to even cut their balance on their mortgage if they're paying right, you could obviously complete foreclosure, maybe negotiate, didn't lose. By the end of the day, you're getting to the asset at a discount. Like an option to buy at a discounted price, in essence.

Exactly. And I. We actually make more money keeping people in their houses or in the properties for the most part. It becomes the biggest bang for the buck because, you know, every state's a little bit different. I mean, you can foreclose fast here in Texas in like 30 days, and New York could take you three years on a short time, you know what I mean? But if you, you know, you buy the debt at a discount, it's kind of a fresh start for the borrower. Hey, what's going on? What's your country western song? You know, did grandma get run over by a reindeer? Did your dog die? What caused you to not pay, Covid? You know, job loss, you know, what can you pay? What do you want to do? Do you want to stay or want to go? And that's, that's the thing I like the most. About 70% of the time, we're actually able to keep people in their houses or in their, their building. The other 30% of the time, it's just, it's, you know, they got to have that come to Jesus. Mean, hey, I just can't afford this. Or it's just not a, a good situation. Now Especially like right what's going on right now with all the different interest rates adjustments with commercial property. So in those cases where it's not a good thing, sometimes we do cash for keys or we try to say just do a friendly foreclosure. You just sign, sign the property over and walk away. Or sometimes we'll give them cash to walk. Just depends on, on the numbers and the deal. So it's, it is great to be able to be flexible with the different strategies. You know the biggest mistake I made as a new note investor years ago was I tried to foreclose on everything and that was the biggest mistake I made when I should have been like trying to work out more so with borrowers on the front end. But now, hey, you learn from your lessons and your mistakes and you, you're a better investor the second, third, fourth out of the round. Right.

Live and learn. And do you like working with lawyers or do you like to working with people? And I mean lawyers are people too. But if you want foreclosure, you'll be dealing much more lawyer conversations and it's a very dry crowd versus if you're a people's person and you can deal with individual situations, you can certainly work out deals. But let's dive straight into what's going on right now. So we're recording this very late August 2024 residential real estate. Most parts of the country, not everywhere is doing relatively well. Although there's been some corrections in Florida and Austin and Texas in the residential to oversupply. Right. That's kind of in the issue. But commercials corrected significantly higher because of the higher for longer interest rates. And residential hasn't seen that problem because a lot of mortgages were 30 year fixed.

Yep.

And supply is just limited because people just don't want to forego an existing fixed rate mortgage.

Yep.

So you're still seeing distress I assume in residential, but just, just a different type of distress. Not because the market corrected heavily, although maybe again some markets have corrected. Are you seeing interesting deals in commercial front where floating rate debt is squeezing owners and they are turning the keys over to the bank and then the bank is, is calling you and say hey, I gotta move this paper. Just curious, what are you seeing?

Yeah, we're seeing all that you're seeing. There's. There was a gap I would say about 12 months ago between what banks wanted to sell some of this floating rate debt at versus what we wanted to pay for it. It just didn't make sense. There's still a gap. Well, that Gap has gotten thinner and thinner and thinner as time has gone on and these property owners bars have gone further into fault, you know, and cash flow is subsided with rents not increasing to offset a lot of these losses. So we're seeing a lot more stuff. The thing is though is that depending on how that loan is, is financed, whether it's, you know, it's got a first or second or mezzanine did on it, sometimes we're still at a gap because the banks may not want to let it go for they've got their numbers. Okay, great, we got, you've got a number. But I still, for me to take that over, I've got to be at a better spot. It all caught, it all comes into with what you're paying for capital too, what it costs for you on your fund and from your investors, what you're paying them on, what the, you know, expected cash flow is and what the turnaround costs can be if you do end up having to take that asset over or if you're just on the debt side play. But yeah, we're seeing stuff. I mean, you mentioned it when you're on my show. There was a big fund that was selling off their stuff, billion dollar trades or they've sold off a billion dollars in their notes at like 50 to 70 cents on the dollar on their commercial stuff. Now a big chunk of that was office space. It was trading at the bigger discounts of about 56%. But the multi family stuff was trading at 70, 71, 69% of the underlying debt. And that was out just I think, what, two weeks ago in the Real Deal advertiser, it came out and it.

Was interesting to hear that There was around 70% average trade and maybe, yeah, office is worse than of course, offices would be a deeper discount.

And that's, that's the thing is too, it varies on where the assets at, you know, location, location, location, how hard that market is hit. You know, the Sun Belt's been hit very hard on oversaturation, I say, by syndications and multifamily investors gobbling up stuff, I think overpaying for assets with the idea that they were going to, you know, regentify the asset, fix it up, keep that low interest rate and then turn around, sell it off in three years. Well, that hasn't happened. And you've got ton, you've got companies like archbay Capital out of New York or the TIES Group out of LA that are literally just struggling not only in operations, but also like archbay. They financed a lot of this Stuff and the value of their portfolio is $0.50 of what it should be because all their stuff is now non performing and not performing assets. So it's, it's an interesting time and it really all comes down to. I kind of joke about that in the, on the commercial side you almost have to be a little like Sherlock Holmes on your due diligence aspect of things. Sometimes the borrowers are good about providing the information, the cash flows, the rent rates, things like that, leases on their properties. Other times they're not. And so you've got to try to figure out what's going on with it. One of the most unique things though that we see a lot of is a lot of times when you're buying debt and you're dealing with a, a servicing company on the loan use, you're going to have kind of like the, beneath the kimono notes, servicing notes. What's going on? What's the issue, you know, with the asic, the story behind the story, I guess you could say what's caused this? So that gives you a bit more insight that you may not see that if you're just buying a traditional asset in a lot of cases. And so that's, that's been really nice to see and understand that hey, this bar really wants to work it out, they can bring somebody to the table. So that helps us when our bidding, you know, our due diligence on the front end to see if we can work that or like hey, they, you know, they're, they're walking away from it or there's a huge crime population, you know, issue, you know what's making the news right now is the 199 unit apartment complex in Aurora that a New York investor bought four years ago that the city just shut it down for roach and code violations. But they're not, the city's not talking about the Venezuelan gang that's taken over the property that's made it impossible for the landlord to collect rents as well too. So the bank on that one is very willing to sell that note at a very cheap price. If you want to come in.

Yeah, yeah, of course you have to do what you just described is not only you have to do the node due diligence, you have to do the asset due diligence and feet on the ground. What's going on. Is it legitimately an extremely difficult situation where you have uncollectible rent and the whole thing is insanely the value, the collateral value is suppressed to the ends degree versus pure liquidity pressure while the asset is still fundamentally solid and you could work with a borrower. And do you, do you go even try to. Are you allowed when you're trying to buy a note, I assume you're allowed to go talk to the borrower. Try to connect. I mean most of these commercial. Let's talk about commercial. So you're dealing with commercial assets, multifamily, 200 doors, whatever, whatever the. Can you go at least talk to the property management, whoever's got feet on the ground. I assume you can do some clever due diligence. You can do secret shopper, all kinds of things, right?

Yeah. On the residential side you could do the same thing. Kind of have a realtor knock on the door if it's non performing and say, hey, I want to buy the house. Are you interested in selling? You can't really talk to the borrower in a residential property. Hey, I want to buy your note. What can you do? That's actually a violation of fair debt collection practices. Unfortunately, it would seem it would make.

Sense to do that.

But if you don't own the note yet, you don't do that. But on the commercial side, yeah, most of the time you're going to see financials and notes and what the borrowers tried to do, hardship letters and then sending somebody out to actually walk the property to inspect it. You know, one of the things that we used to do and still do occasionally is we'll contact tenants. Call the, hey, I'm trying to reach the owner of the property or the property management. Can you give me the number? And oh great. You know, you know, how do you like living there? You know, what's going on? And you'll get people that will just dump. Oh yeah, you know, I got sewage floating in my apartment or there's two, you know, units have burnt out that the apartment complex painted but they didn't fix. You know, you get all sorts of stuff that's just kind of, you know, information that you just wouldn't get looking at a spreadsheet or a PDF document, you know.

Yeah, that, that's, that, that's, that's very powerful where you can do real field due diligence and you, you can, you can discover I guess a lot more through. I mean it's part of the realtors. At the end of the day, if you're buying, you know, commercial. When you're buying an oath, your due diligence has to be similar to the buying the property. I mean, you're buying underlying debt on the property. But you will, you will in inherit all the good, the bad, the ugly or the property.

Well, that's the thing. It's three, it's really three phases of due diligence. It's the property, make sure the value is there, the borrower, what's going on with that, you know, obviously the collateral file, making sure everything is fine in the loan docs, the servicing, the tr if that loan's been sold a couple times, making sure all the, the transfer docs and the title issues are good there. And then of course checking to see what's on title. If you do take the property, do you want to, you know, buy that note and then take over the problems that are following you on title mechanics, liens and stuff like that? Or I mean that's when you look at title reports, seeing what's on there, that will often dictate your exit strategy. Well, if we're going to take this back, we've got to foreclose to clean up the title. So it gives us that equity if we end up selling it or we can offer if there's mezzanine, go to the mezzanine lender said, listen, we'll give you 10 cents on the dollar for your position or we're going to foreclose and wipe you out unless you want to do something else. So and of course, if the borrower is filed bankruptcy, that can be a good and bad thing. I'm not opposed. I actually think bankruptcies can be a good thing because it can be a way for maybe not to wipe you out if you're in the first link position, but a good way to structure some of this back debt, back payments and other stuff to make it a little bit easier for or to maintain ownership of the property and still pay you along the way because you know the bank gets paid. If you're in the first link position, the only thing that's going to wipe you out would be taxes, which you got to double check, make sure those pay or God, and that's what insurance is for. But that's a whole nother expense right now that people are running into, especially in Florida, Houston, other parts is insurance costs have added that as you were saying, a tidal wave of problems for many, many people out there.

Yeah, I appreciate that explanation and it makes a lot of sense what kind of your target rate of return you you're looking by participating, trying to buy this stuff because it's basically it's a strategy. It's a niche business. You have to be a specialist. And especially if you're going into commercial notes Level of sophistication is much higher. You're not buying mom and pop residential note, it's very different. Although both can be great opportunities. But you're on a much bigger scale here.

Yeah.

So what kind of target rates of return, how big of a discount and what, you know, after all the sludge and all the issues you expect to have, what are you trying to generate.

When you invest with capital in today's market? With the amount of deal flow and distress we're seeing, we're really trying to be in that double digit return on the commercial side, you know, 10, 12% or greater depending on the asset, of course, location, foreclosure, time frames, that all dives into it, whether it's in a faster market like Texas to foreclose or longer. In Florida, we don't usually go beyond 12 states have a longer foreclosure time from that residential. We're looking for a 15 or higher on a non performer that we can get the bar back on track and keep it performing for a period of time. Or if we have to foreclose and then sell the asset off, that's, that's what we're kind of looking for, those targeted rates. It's kind of what we're looking for in the front end. And we're pretty conservative. You know, we, we expect to probably close on probably around 10 to 20% of the offers actually that we put out. So 1 out of 5, 1 out of 10 just because there's a amount, this huge amount of deal flow starting to come across the desk. You know, a lot of people that get into, oh they got to do a deal and they do a skinny deal and then they're in trouble because the numbers don't all work out for them. You got to be patient, you know, you got to follow up. You know, there's many deals that we made offer six months ago that the bank didn't like. Well, we're following up with them a monthly basis and we're getting closer and closer, closer to the price that we want to pay, that the bank has become more desperate, especially the closer we get to the end of the year. And when you look at banks too, they've got like, and we talked about when I had your mind, reserves, They've got to have a reserve relationship or amount of reserves for every non performing note they have on the book. So as their reserves are getting squeezed, they've got to offset these non performing notes to, you know, bulk up their cash reserves in a lot of cases. So that's the thing. And you know, pricing varies. If you know how distressed a bank is by looking at their quarterly, you know, FDIC reports or what you can find out that helps. If a bank's got a ton of reserves and not a lot of distressed stuff, they're not going to sell that stuff off, usually at too big a discount. But the, the more aggressive banks, more aggressive lenders that do have a huge portfolio are going to be, you know, more enticing to bid on because they're take a bigger discount because they've got to turn into cash. I mean, if you look at. There's a. Florida Atlantic University released a report on three different things in the banking sector. It covered about a thousand different banks out there. Not fund, but just banks that it talked about how a. It ranked their commercial portfolios, how much of their portfolio was in commercial real estate and how overvalued that was towards the underlying value. How many of them had negative deposits that were insured where they had, you know, a billion in deposit but only half a million was secured by fdic. And the third thing was unrealized investment losses, which basically goes back to where they bought bonds and Treasuries at low interest rates a couple years ago. And now the interests have gone up. They're, they're less valued with this. Out of those thousand banks, there's about 94 that are not looking good. And now that 94, there's really 23 that are negative in all three of those categories. All right, 94 that are negative about two to three of those categories. But the biggest one being the commercial real estate portfolio being upside down. And so there's some bigger names on there like City Chase. I don't expect those guys to go under. But there's smaller institutions, different parts of the country that are really struggling. And those can be opportune opportunities if you know who to talk to. And then reach out to the bank to see what they have because oftentimes reaching out to these asset managers, they've got a portfolio that they're managing and that's what we do. Reach out to the banks and lenders and what do you have on your books you want to get rid of and let's see if it makes sense. And what we're looking to buy in an area that we want to buy and an asset that we want to own or service.

So yeah, I appreciate the explanation. I'm sure the, the big banks are too big to fail. They are not good candidates. They will be given exceptions and additional capital from The Federal Reserve, if they run into deep problems. The real concern of the smaller banks, smaller banks that, I mean we had a few failures year and a half ago when Signature bank failed and Silicon Valley bank failed. But the number of other, or maybe large numbers of the other smaller banks with exposure to commercial real estate, some of them floating zombies and their regulators, I guess giving them enough slack, maybe interestingly enough post election some things will start coming out, who knows, right. Because basically right now it's all done disturb what's going on?

Well, it's, it's the pretend and extend mentality that we saw pretend happening.

But I'm hearing something interesting. It's sort of. We talked a little bit about this and you know, I just wanted to kind of just bring up this concept and just curious. So on commercial real estate, this is happening today. The banks that are, if they're upside down, meaning that the mortgage amount is approaching or has already exceeded the value of the asset, they're very nervous and concerned. So these, these folks typically reach out to the borrowers and they start asking for additional monies, additional escrows, collateral, etcetera, etcetera. But the closer you are to being upside down, the less motivation the owners have. So you can't really squeeze them for much because they will have a very limited interest. The deals that do still have reasonable amount of equity behind them, maybe reduced, but reasonable. There's a little bit of leverage there. So I'm just curious, sort of from your experience, you've seen a lot of cooperation from the borrowers or it's more of a you buy the note first, able to then have a more constructive discussion because it's a tough situation when the equity is thin. The borrowers don't really have too many options to, to get additional capital. So it's extended pretend, but work with the borrowers at the same time. It's so thin then even if you take the asset, you don't, you don't have a margin of safety or minimal marginal safety.

No. When we see that like if there is a little bit of equity or not, you know, negative zero to none equity banks are trying to get lenders trying to get 80 cents on the dollar of that. And that can make sense in some places and other days that's too high.

For you to, to buy the note.

Yeah, yeah. Or they want par. And that's the thing I always been laughing at, I guess, oh, we'll only take par. I'm like, it makes no sense for me to pay full value for your non Performing note. I'll just wait six months. You know, if you want this office. Yeah, exactly. You're going to be more stressed and then you're gonna have people telling you that you got to sell. Buyer sale. That's, that's the thing is it's, you know, if there's negative equity, that's where we're seeing the bigger discounts. You know, 6050 something cases depending on where the asset class, how distressed the area is, that kind of stuff, how hard hit, you know, we all know office space has been hit or we saw some debt trades on office space where the underlying people that bought the debt went and got finance refinanced in and took the properties and converted them to multi family spaces which is a, it's a, it's a very hard, not a short time frame, two, three year thing. Well, they're all getting foreclosed on because the three year time frame the banks are foreclosing on now their new lenders are foreclosing on because these aren't operating, not making things happen on completed properties. And I'm just like why are these banks, these lenders foreclosed and when they knew this was going to be, that maybe they want to own the asset now, maybe they think they can actually make this cash flow better for them. I don't know. It's, it's a, it's really, I don't, you know, when I was a young kid there's a book series I like called choose your own adventure. You know, you'd read a few pages, have two questions, flip to page 12 for question A or 15 and go that route. It really kind of feels a little bit like that without knowing what the answer is in some cases on some of these assets. But that's why, I mean due diligence makes so much sense. There's a service that we use called CredIQ, their website, Cred IQ that is tapped into a lot of these major servicing companies and is really providing a lot of the, the background information, the actual servicing notes, who the sponsors are, who's on the LLCs. And then when you're doing your skip trace in the borrowers, you can kind of see what else. You know, do the borrowers or the sponsors have more money or what else are they involved in? Can they borrow from Peter to pay Paul and go that route? So those are, there's some tools like that that help us really identify opportunities on a bigger scale that we can kind of pinpoint in on things that we like asset class, size, specific Asset classes and levels of distress as well.

Understood. So how do you work with investors today? So one comment that you made, and I didn't think it was super exciting, but I mean this with all due respect. You said you're targeting rate of return double digit. Well, double digit is almost given, right? Nobody's, nobody's ever done this business for single digit returns, right. So double digits. But he said something like 12%. I mean I assume it's a bare bones minimum. And, and if you're actively doing this stuff there's got to be rates of return significantly higher than that. Because the way the theory works is like this. I don't know if you have a fund or not or you're working with investors. Normally if you have a strong established strategy and you have operation and you already have a fund, you target to investors, passive investors, that low Double digit returns, 10 to 13%, let's call it that, that is very common in the space where passive investors participate. Now if you're active you need to be generating rates of return meaningfully higher than that because you have to justify your own fees and your own.

That's correct.

Performance fees, acquisition fees, management fees, etc. So the rates of return typically in these deals have to be I assume in high teens into 20s plus, right?

They are, they totally are. In a lot of the stuff that's distressed they have the distress of some stuff that we're buying. The reason we target a little bit lower aspect, sometimes the borrowers do perform, sometimes the borrowers do come to the table and so if they reperform and pay off the mortgage or not pay off the mortgage bringing the back due, it's, it's a nice rate for a year or two but then so not so attractive right after, after 12 months long cases because it's a performing debt cases. So if it's a performing process it's going to be a little bit lower rate. But hey it's, it's performing that's a good thing. The non performing stuff is the bigger, obviously it's bigger yields depending we pay for it. I'm a big under promise and over deliver aspect guy when it comes down to it. But yeah, we're looking for that minimum, you know, mid teens, 15% on a base level. Just even get the ball rolling. In a lot of cases we can often deliver a higher return because our goal is if we'll hold that note for a period of time and get it re performing for 12 or 18 months, well now we can turn around and resell that note in 18, 24 months down the road, we bought it at 50 cents, maybe we're selling at 80 cents now and that's a nice, nice profit two, three years down the road and get paid off. So yeah, I mean we've got a fund we've been working on for a little while depending on the asset. We work with individual investors too as well on the trades. So it's a variety, kind of a mixed aspect depending on what's coming across our desk on any given day.

So most of your investors buy notes for you or they invest in your fund?

Well, we have students, so we have students that we've taught how to do that they're buying for themselves or people that, hey, I don't want to do this myself. I'd rather just invest with you. So they write a check and be part of our fund.

Got you. So how would folks reach out? I mean I have a couple more questions but it's the time in the show where asking how would folks get a hold of you?

Easy. Go to weclose notes.com or you can email me directly@scottclosenotes.com pretty easy to do. You know, we love to visit with folks figuring out what they're, you know, what their experience is, what they're looking to do. Sometimes it's a fit, sometimes it's not a fit. So it's a. Always glad to talk with folks because there's a lot of ways to get started even if you don't have a big chunk of change. That's why we started teaching people how to do this because you can often find smaller deals, one off deals that work well for you or your Iraq or if you want to do something a little bit bigger, there's some, some opportunities in the field right now.

Yeah, I appreciate. So we close notes.com is the way to reach out. Final few questions. Good book to recommend do you have any, any good reading? Any suggestion?

Just any book I, I'm, I'm a big fan of, you know, any books you're talking about note investing or specific real estate or any favorite book.

I mean you can ask me. I'll give you ten good books. Right? There's no right or wrong. So I'll give you like examples of books come to mind. They could be unrelated books like Richer, wiser, happier or sometimes you win, sometimes you learn. You just come up with a title. Whatever kind of makes you happy.

So one book that I think everybody needs to read is Outwitting the devil. It's think and grow Rich Outwitting the Devil is written by Napoleon hill back in 1938. It was never released back then because it's a conversation of Napoleon Hill sitting down with the devil, theoretically asking questions on how he's able to keep people from achieving their success. And the manuscript was discovered by Don Green, who's the president of the Napoleon foundation, given to Sharon Leichter, co author, Rich Dad, Poor dad, who's a friend of mine. And Sharon read the manuscript and said, okay, I'll rewrite the book, but I'll leave 90% of the same. But I'm only going to add a paragraph at the end of each chapter on what I thought Napoleon would take things in today's world. So it's really a great book. Talk about how to stay focused, how to avoid the shiny object syndromes, and how sometimes we're tempted with that shiny object syndrome that get us off path and drift away. And those that are the most successful, no matter what you're doing, are the ones that are more focused and say no to distractions and say yes to what they want to focus on what they want to accomplish. So that's one of the books I've probably given away, I don't know, 40, 50, 60 copies of that over the years, because I just think it's one of the most, most impactful books out there. Of course, think and Grow Rich. You can't go wrong with that. Tribes by Seth Godin is another one I highly recommend. And then, of course, you know, there's so many different real estate investing books out there. If you have a niche, learn about that niche. That's. That's one of the best advices I can give to feel, go research, listen to podcasts. It's not every niche is created equal. Some niches work better in other places than they work in other areas. So just dive in and learn. Don't try to be a jack of all trades when it comes to real estate investing, because then you'll be a master of none.

Yeah, for sure. I mean, for active folks, that, that is the right advice. They have to find their specialty and be really good at this. And for passive investors, they just gotta find enough of these active folks. As, as we talked on your podcast, I'm writing a book. And one of the most basic elements. How do you invest in real estate? You only have two primary theories, right? You have active investing. You are the active specialist, whatever the trade, whatever location, whatever specialty, or a passive one. And even as a passive one, you just got to find the right active Ones you want to invest with or invest in. That's the first step. And then you obviously leverage that with, with the right diversification.

So it's also, if you're invested in different funds, know what that fund is investing and you know the, the great questions in your book, the Top 10 Questions. Knowing what that, you know, that manager, the person with the fund is doing in understanding that asset class and how that asset class performs, especially in today's world, is important. So you ask the right questions to make sure you're in the right fund that you. So you can be passive with less risk.

Yeah, I absolutely agree with you. It's a, you know, it's an evolution. This is a passive investor evolution. We've seen this and I'm not going to spend much longer. It becomes a very interesting discussion, but there's been a lot of, let's call it volatility challenges in the last few years with passive investors. Many wonderful folks written checks into challenging situations. It's not, not easy. And you know, we've had challenges with our deals and funds too. The market, the market has been incredibly difficult. So folks that write a check need to also think about risk tolerance, risk profile strategy, upside, downside, and again, recency bias. I've talked about this quite a bit now. A lot of people are dealing with recency bias. They are heavily discouraged from new investing because a lot of deals they've invested in or operators or even shysters. I mean it literally. It's so crazy. And I'll, I'll kind of wrap up which we. This is intended to be super positive. I think there are great opportunities ahead and, and folks who have recency bias, difficulties with a bunch of deals not going well. And it's something not easy to overcome. It's something that psychologically takes time to manage. But at the end of the day, you got to move on. Most people should move on, at least understand what you got. And if you got a bunch of difficult situations, accept it and deal with it, move forward because it happened the world of investing. As you know, I'm writing the book the Journey of Becoming an Extraordinary Investor and there's so many things that I thought through as part of the book. It is not simple or easy to always select radios. There will be difficult deals. You will get unlucky even with the best due diligence. And there will be periods of time when everything you touch turns to gold and everything. The periods of time where everything you touch unfortunately runs into trouble. It's another reminder that you have to diversify in time too. So folks who don't diversify in time, they do discover sometimes there are very bad periods of time when the market just goes south in whatever could be stock market, could be gold, could be silver, could be bitcoin, could be real estate. It just happens these are periods of time of extreme volatility and things go in the wrong direction. And even if you don't like Wall street, only like real estate, or if you only like stocks, don't like real estate, there's a valid argument for every portfolio to be diversified enough that no single asset class, no single operator, no single strategy can cause massive problems. This is the whole beauty of, of the right diversification is to do enough of it that you know, no single event can knock you off your feet. Then you can't get up again. So it's kind of a. As I've been writing this book, I've been thinking through the process because we've seen this and it's a tighter way that hit real estate industry. And now the crazy part, all those people who sitting on sidelines now is the time be greedy when others are fearful. And the fear factor is high today it was completely the reverse. Couple of years ago people were knocking on our door 21:22 Take my money, put it somewhere. Right. And that's the problem that it was at that point low fear. And that's the time to be careful. And now the fear is high. That's the time to get little more.

Exactly.

Greedier Warren Buffet.

Exactly. He's had, he's pulled enough. He's had his power powder sitting dry for a while. He's starting to put it back to work in a lot of cases.

So he's, he, he's sat on cash for a long time. He's not shy to sit in cash. And he's proven his theories that he has very. It's almost unique. Not many people can do this. And him and Charlie Munger, by the way, one of the books I mentioned, I'm going to mention this again worth reading. Richer Weiser, happier Charlie Munger is quoted there. And those investors. It's a collection of thoughts on some of the experiences on some of the best investors of the world of all times. What they do is not often. Most of us can do, most of us cannot do what Warren Buffett does.

Right.

For the reason that most people will not sit in cash this much cash with this much discipline. And not only that, most of those people will not see the opportunities Warren Buffett will see. So it's Kind of one of those things where there's nothing wrong with what Warren Buffett does and a number of other best investors in the world. But it's not for everyone. For, for most people, just normal, prudent diversification is the way to go. Rather than go find these absolutely asymmetric opportunities where you have so much confidence and upside and write gigantic checks at the right time. Right. Meanwhile, sit on cash and wait for it.

Yeah, exactly. Exactly. Well, that's the great thing about what you're doing. Mike, I love, I love your podcast. Been listening to episodes. If you guys are listening to this out there right now, make sure you do Mike a big favorite. You hit the subscribe button and you go on over and leave them a five star review. We as podcasters love to hear that, see that from our audience. And as much work as we put into this dude, that's a small favor you can do for Mike. So he didn't ask me to tell you that, but go do that for the Big Mike Fun Podcast. Leave a review five star and tell them that you love them.

Scott, you're too kind and I greatly appreciate you. Thank you so much.

Thank you, Mike.

And once again, your website.

We close notes.com easy.

Thank you for listening to the Big Mike Fun Podcast. To receive your copy of Mike's how to Choose a Smart Real Estate Fun book, head to bigm.com or visit Amazon and type Mike's slot name. Keep listening and keep investing. Big Mike style. See you on the next episode.