From Broker to Banker and Buying A Billion in Notes - Stay Ready Real Estate Podcast

Welcome to the Stay Ready Real Estate podcast where we stay ready so you don't have to get ready. I'm Emeka, your host and this podcast is all about real estate investing in real estate. I invest in multifamily and I'm here to show you that regular people can invest in real estate. You don't need to have billions and millions. It's regular people like you and I who can invest in real estate today. So on this podcast you'll hear from myself as well as I'll bring different real estate professionals on from around the world to talk about their investing journey, strategies, market insights, or how they got into real estate. So you can get started today as well. Stay ready, my friends. Hope you enjoy.

All right, my man Scott, you want to tell a little bit? Do you want to tell the world a little bit about what you do, who you are?

Yeah. I'm known across the country as the note guy. I call Austin, Texas home. But for the last, God, it's hard to believe. Almost 20 years as a real estate investor, actually 21 years of real estate investor. In the last 15, I've been focused on the world of buying and investing in distressed notes. That's why we have the company called We Close Notes Note Night in America, the Note Closer show podcast. It's all about buying and investing in notes or mortgage debt that's backed by residential or commercial properties. And I focus on the niche of buying non performing notes direct from banks. And what is a non performing note? That's a note where somebody hasn't paid in six months or six years and we buy that debt at a huge discount because they're in distress, become the lender and then work with the homeowner in some sort of fashion to either get them back on track, liquidate the asset, or if they won't play ball, then we foreclose. But I've called Austin, Texas home like love helping investors out, love what you're doing for your community and just here to help educate anybody out there looking, getting the real estate, investing notes, raising capital, whatever it might be for you.

No, I love to hear it. I'm from Austin, so I, I love everything about Austin. I know it's a tough market to be in, but if you get in it and stay in it, you're going to be there for the long haul. But have you always been into notes? Is that how you got started? Where did, when did you become the note guy? And why notes?

So I lost since, you know, I went to school in Southwest in San Marcos, just south of here at Texas State University. And no, I. When I first started off as a real estate investor, I actually bought my primary residence about a couple investment properties and thought I was gonna be the next landlord here in Central Texas. But I lived in Round Rock, my two investment properties were up there and the employer for my two tenants laid them off and then I got laid off for my employer. So I went to be in a distressed bar pretty fast and did not like the rental market at that point. I'm not good at toilets, tamps and trash outs. So I got rid of those two investment properties, kept my house from going to foreclosure by doing a loan mod and then kind of said, okay, I'm not, I'm not ready for real estate investing. I don't know everything from watching Tim the Tool Man Taylor and growing up in a hardware store, you know what I mean? I think the only person that made money on those deals was our Realtor at the time. But fast forward a couple years, a buddy of mine was starting a mortgage company with a couple real estate investors who were traveling the country speaking about real estate investing, doing owner financing, create creative financing. And I went to lunch for him with him and realized this is what I want to do. At that time I was one of the top bankers for JP Morgan Chase here in Austin and state Texas. But I still had the entrepreneur bug and so I said okay. Went on talk with a wife at the time, she's like, well, this is.

What you want to do, we can.

Always go back to banking. So that's what I did. So started doing mortgages for real estate investors and basically had like a four year apprenticeship where I learned from Bob and Jamie who were teaching me all these creative ways to do real estate and then learning from the back of the room, from sitting in hundreds and hundreds of conferences from and seeing people speak and mastermind events. So I said, well, I like this note space, you know, I started doing note investing and real estate investing the right way. And then when everything hit the fan in 2008 in the mortgage market, I just kind of gave my half of the mortgage company away and dove head first into calling the same banks I was originating for to get list of notes sent to me. And like I called Wells Fargo Financial, I had a guy Steve over there who sent me a list of like 300 notes that I could cherry pick from. And it's been a love affair ever since then. And now if you fast forward now, we've bought over a billion dollars. I think we're coming up on $2 billion in distressed debt, residential commercial stuff. And I, I like the note strategy because as you said, Austin is a competitive market. So actually about 99 of what I buy is outside of Texas, in other states. But I do it from living here or traveling to Dominican Republic on vacation or Barcelona. I like it because it's not so I'm not so focused on me having to do all the work. That's what I like. You know, once you've rehabbed properties, dealt with tenants, it can be a very non passive game. And I like the fact that we do a lot in finding deals and raising capital. But once we close it, I know we hand that over for servicing to a servicing company. If we're going to foreclose, we hand over the attorney and then we go from there. I'm not having to talk with the borrowers. I mean sometimes we'll negotiate some things, but for the most part it's kind of hands off without having to deal with a lot of stuff besides via email and spreadsheets. For the most part.

No, that's cool, that's cool. It sounds like it's less labor, less sweat equity that's involved or if it is, it's a different kind of sweat equity. But you came from the banking world, you said you're one of the top bankers for JP Morgan, but how does someone who's not in the banking world and they're watching this or listening to this, how do they get into this and what, where do they start?

Yeah, you don't have to be a ex banker to buy mortgage notes. I mean, I didn't buy anything from JP Morgan Chase because they won't sell you anything below $50 million. So don't let that stop you. Obviously it's good to have a good general base of real estate investing and what's going on and stuff like that. So going to your local real estate club is a great spot. Learning about what's going on in the mortgage space is always kind of a great thing. And there's things like the mortgage point or dsnews.com I think may have changed its name now. But to get started, I mean you, there's a ton of YouTube videos. You might check out the number one YouTube video for note investing called WeClosenotes TV, which is my channel. It could be the Note Closure show podcast, which we're coming up on our thousandth episode as well. But start learning, I mean, you can use your ira, your self directed IRA to buy notes. You could Borrow money from other people's IRA to buy notes. You don't need to have a million dollars to buy notes. We've had students that have bought a small note in Mississippi for 1500 dollars that returned 25 return to them. You know, with a small. I got another in a guy, Sterling out of Portland, Oregon, he bought a, a non performing note down in Florida, got it re performing and it's bringing in a 28 cash and cash return to him. I've got another investor, Keith out of Arkansas, bought a note for 15 grand on a $90,000 mortgage and the borrower paid him off in full in six months. You know, so you, you got to learn the process like any other niche. You got to get educated. That's one of the biggest things. And we have classes and stuff like that, you know. But the most important, most important part is not try to be a jack of all trades. I think that's where a lot of real estate investors fall flat in their faces. They're going from one strategy to another strategy to another strategy to another strategy. And each strategy is different when it comes to marketing and evaluating. So really spend some time learning on the one niche. If you like notes, great, go to our website, we've got a ton of material there for you. And then start looking at putting deals together. I mean we buy notes from a variety of either hedge funds or some mortgage companies, but you can often find a lot of notes for sale by reaching out to the right departments at banks or the right people at banks by using just LinkedIn. A free LinkedIn account can help you find deals.

No, cool. And just for those novice investors here, explain what a note is.

Yeah, so note is an iou. Most people are on the wrong side of the note business. If you've got a mortgage, credit cards, student loan debt, an auto loan, you're in the mortgage bit, you're the note business, but you're on the wrong side. You're paying to a lender, a banker of some sort. What you want to do when you buy a mortgage note is you want to be receiving the payments as a lender. And that's what we do when we're buying that mortgage or that debt, we're buying it at a discount so that we can start receiving payments that are going to be at a double digit return for us. You can buy first liens, you can buy second liens, you can buy, you know, mortgage notes, liens on all sorts of residential properties, property types, stuff like that. I like to prefer to be in the first Lien position, which means you're the senior lean position. Nothing's going to wipe you out except taxes and, or God. But that's why we pay for insurance on stuff. So. And you, you can buy the one off notes. You don't have to have $5 million or $50 million. There are some online platforms you can take a look at. The idea is just to start getting your feet wet like anything else.

No, I love that. And you know, basically it sounds like no matter if you know about notes or not, somehow some way people are involved in a note and it's just a matter of finding the right note or seeing if someone wants to sell their note or their debt to someone else. Is that correct?

Yeah, you can buy owner finance notes where somebody owner finance a property to an end buyer on terms and oftentimes those owner finance people, you know, investors that may want to sell that note to get a big chunk of cash flow after 12 or 24 months of period.

So there's all the.

No, business is not as, as secret as you would think it to be. It is a smaller niche than like fix and flipping or wholesaling or landlords. But you know, there's, you know, when people, most people think about notes or note investing, they're like, they're just creating notes like owner financing property and that's one niche. But you can buy notes from banks and lenders and hedge funds and all that stuff. And the, the misconceptions out there that a bank won't sell to you because you're too small is stupid. It's ignorant. I mean if a bank will sell me a note, an ingle dink from Ingleside, Texas, they'll sell to you as well. If you just know what to say and what not to say, you know.

Cool. Well, the two things that's promised in this life here in America are death and taxes. So you talked about taxes very briefly, but how are taxes measured with this? Since if you're just receiving income, I'm assuming you're receiving interest as well, are you taxed higher? How different is it from owning an actual physical asset?

So great, let's talk about what you don't get. So when you buy a mortgage note, you're not going to get depreciation like you would on a building, being able to do that because you're buying the debt. And if you buy a non performing note and then modify it, like literally modify the terms, change the interest rate, change the balance and you do that in less than 12 months, that's treated as a short term capital gain. So it's at a higher tax rate. Okay. If you just work with a bar, make them trial payment plans and don't modify it till after 12 months, then it's just ordinary income and it's considered a long term capital gains if it's after 12 months and stuff like that. So that's the thing to look at is like we don't like to do permanent modifications till after 12 months. The nice thing is when we buy a note, we're buying at a discount. And so if we do forgive debt, one of the nice write offs is the 1099, the bar for whatever amount that you're forgiving them and then they can write that off and that reduces your tax consequences. As always, I'm not an accountant or lawyer, always seek advice from those professionals out there. But you know, it's got some different kicks to it. But I like the fact that a, we're buying stuff at a lot cheaper and so your ROI is a little bit higher. Yeah, the tax is a little bit different but you guess what, you off right. That with, you know, you're looking for some write offs based on the profits and the yield you're getting on stuff. And of course we do take some property back if we foreclose and it doesn't sell at the auction. Now we own that at rel and we can do what we want with that, keep it for long term, then do the cost segregation and things like that to reduce our tax accountability.

So is that, is a foreclosure the biggest risk that you'll have owning a note or is there any other risk that's involved?

Yeah, you, I mean, here's the thing. I always joke about this. You have to approach it as a banker's mindset versus a fix and flippers mindset and you got to take the, the rose colored glasses out of it. I always joke that a foreclosure is not a bad thing for us because it means a we're going to either sell it at the auction or we're going to take it back. And while I don't necessarily want to own real estate all the time, I still will take it back and then I can fix it up and it's just going to be a bigger payday if we do take the property back. The biggest risk really are not taking action. And that's one of the things where I see investors struggle with like, oh, I don't want to foreclose. Oh, I just, I want to help people like it's great to help people, but some people just don't want to be helped. So you'll run into those issues where a foreclosure drags on 12 months when it should have been six months. Or you'll run into something like what happened with COVID every once in a 20 years where foreclosures are stopped or shut down because of things going on that happened back in 2020 overnight we couldn't foreclose on anybody that wasn't paying. Luckily, most of the people kept paying, but you had a few folks that stopped paying and never started paying again. So we just had to wait, you know, 18 to 24 months to finish the foreclosures and go that route. Of course, you always want to double check taxes owed tax. A tax foreclosure will wipe you out in a lot of cases. So you want to make sure your taxes are always paid and then like I said, making sure that the borrower's got insurance in case of an act of God, a flood or hurricane. And if they don't have insurance, you as a lender need to put insurance on the property. We call that forced place insurance to protect your investment. You're not going to get into your access to a lot of these properties that are occupied because there's somebody in there. So part of the reason that insurance is so important because if they do trash the property or there's a mold issue or stuff like that that will protect your investment, protect your, your investors money, and then also make sure you get paid and taken care of.

So what does your portfolio look like now? And how do you even like judge a portfolio with notes like obviously you're making income but you know, are you trying to get a certain amount of notes? Because I know in the, the asset world, real estate assets like you look, you're talking about the door count or multi family. But if I have five notes, those notes can be single family, multif family, commercial. It sounds like.

So yeah, but you're, but you're, but you're missing up one thing right there. You just put the real estate hat and tried to put the real estate hat on a banker's hat. Okay. As a note investor, you're looking off of cash flow for the most part. Yes. You a non performing stuff. You'll end up foreclosing. So we split our, our portfolio kind of into two different categories. One, the stuff that we're getting for cash flow coming in. And I know a lot of real estate investors out there, you know, shoot for a 200 plus or more rental difference between their expenses and profits come in. We don't even look at anything but like $300 a month cash flow. We want always to be higher than that. So that's the thing is to look at like my biggest goals is always to get a couple hundred notes in that are going to bring it in at least 250 to 300 on my side of the cash flow side. My splits coming in right now, you'll make bigger checks on those that you foreclose on and then on those you're going to look to make a 20 grand or more profit depending on where that asset's located and, and what the market is and what you're buying it at. You know what I mean? But a about a 20, 25 annualized return on the fix and flip side. And then we look for a 15 to 20 yield on the performing note side on stuff that we're carrying long term. That makes sense for you there.

That does, that does. So let's say I'm new, you know, I want to get into real estate. I just listen to you and now I'm obsessed with notes. Can you give the audience three actionable steps that you would recommend doing today or tomorrow to kind of get started in note investing?

Yeah, I mean you have to know your markets. That's one of the biggest things. People get overwhelmed because they think they're going to buy in all 50 states. You're not going to buy in all 50 states. The first thing is do a pick three. Three states, three to five states. The most pick a judicial state and then a non judicial state. And what meant by that is some states are very fast to foreclosure where you don't have to go through a court proceeding. If you're just, you know, behind by 90 Days and Eagle and file it at the county records, you can foreclose. Other states are a judicial foreclosure process like Florida, South Carolina, Kansas, Ohio, which can take a little bit longer to foreclose, like nine to 12 months versus you know like here in Texas it's 30 days. So pick, I always say pick three to five states. Understand what's going on with those laws as far as foreclosures and then start researching your markets. Even though you're in the note space, you still need a team. You're still going to need realtors to pull comps for you. You're still going to need vendors to pull o and you those are still pretty easy to get. We've got actually you know, ordered both of those things straight on our website. But the idea here is start researching values, knowing what's going on, what's the foreclosure, time frames and knowing what are the good markets and the bad markets in this. And stick to the major cities. You know, when you're starting off, avoid the podunk little towns and you know, never buy a note you don't want to end up owning the real estate is like the, you know, the ten commandments of note investment. That's number one. Never buy a note that you don't want to own. But understand, just because you're buying the note doesn't mean you're owned up with a real estate. You're gonna buying it from a cash flow perspective first. And that's one of the most important things. Okay, what do they owe? How far behind are they? What's it going to be like if I get them just to start making payments on time, reinstate the loan if I haven't bring a little skin to game, what's this going to look like based off what I'm buying? And then just start looking assets. You know, you can go to some different websites or reach out to me. We can send you notes to take a look at and start breaking those down. Start, you know, listening to some of our classes or take a class or two, our workshop to learn the notes, you know, the ins and outs. If you, if you can't afford that, hey, YouTube and podcasts are a great way to start figuring out, but start evaluating deals, start looking at stuff and, and look in the spreadsheets and start figuring out what you got going on. Not that difficult. It just takes a little bit time. So don't overwhelm yourself. Take it one line at a time. Because these tapes that we get, these Excel spreadsheets could be anywhere from one note up to like 2,000 notes. And I've seen realtors and people like start having stress panic attacks like, oh, 2000. No, no, let's pick three states. Let's look at the bigger city. You know, is it in a major city? Oh, it's in Ohio. Great, let's look. Is it in Columbus? Let's take it one level at a time because you don't have to buy everything. You can often cherry picker, as we call it, loan level price to tape for just one note versus, you know, 500 of them. And that's, that takes a lot of stress off in a lot of cases. You know what I mean, Amika?

For sure, for sure. So that's One, you owe me. Two more actionable steps.

Search more actual step to get know your market and start reaching out to investors because you're going to need private capital to fund these deals. You're not going to go and get a, a bank loan to give you a note or a hard money lender is not going to give you a note. So go out and start networking with your local investors in those areas or start finding real estate clubs in those markets via meetup.com or Facebook or stuff like that and start reaching out to investors in that area. If it's in your warm market, go to a local investment club and start talking to people. Don't be an introvert and not talk to. Go up to the president or the person that running the club say hey, I'm kind of new here. Do you have any other note investors here in the, in the thing that I should network with or who's your private funders in the air? Those are some of the great ways to network. And the third thing, even if, if you don't go to the investment club, the third thing is you can go to county appraisal districts and start pulling lists of investors and start marketing to those investors to, to raise capital to fund your deals. There's a lot of IRA investors out there. Like here in Austin. I go, I can go to Travis county appraisal district, type in when it asks for an owner name, I can type in Equity Trust or Pensco Trust. And that's going to pull up everybody that's used their equity trust self directed IRA account to buy a piece of property. And I know instantly that they're real estate investors like you and me. They've got money invest, they're looking for deals. And the great thing about IRA investors, it's got to be passive. They can't be going out and touching it. And so notes are a great, great investment source. And it's actually one of the biggest categories of self directed IRA funds is into the note business. So those would be the, the three things. Start looking at, you know, start understanding your market, start networking with local people and start raising capital. Start marketing for money.

I love it. I love it. And with that, we're going to the next segment of the show where I asked everyone the same three questions. So question number one. What are the two books you recommend the aspiring investor to read?

Oh, it's, that's easy. The first one is Think and Grow Rich Outwitting the Devil by Napoleon Hill. Have you read that amica?

I have. I love those books.

That's a great one. I mean, the Outwitting the Devil is one of the ones that'll change your mind and keep you focused. And then Gorilla Marketing, or the E Myth would be my book number 2A and 2B for sure.

Oh, cool. Those are all great book. I haven't, haven't read Gorilla Guerrilla Marketing, but I haven't looked at, look into that one for sure. But question number two. What speech or lesson has inspired you in your career?

Oh, that's, that's easy. I, I going back to where we're at now. I was in Las Vegas at a conference a few years ago in, like, back in about eight, nine years ago, and I heard two people speak at this conference in Las Vegas. One is Gary Vaynerchuk. I think we all know who Gary Vee is, right? And then Robert Hershevik, one of the guys from the Shark Tank, and they both got up there and said, you cannot be a secret agent in whatever you want to accomplish. You've got to get the word out. And that, you know, Gary Vee. This is where he, before he started doing like, Ask Gary V, he's like, you got to go out and leverage video. You got to go out, start sharing your message, because people are dying for that message. And I was sitting there in the awesome. I'm looking at my better half like, okay, we're gonna go home. We're gonna start doing videos daily. We're gonna start a podcast. And we did. Completely revolutionized to where I'm at Now, looking back 10 years ago. So both, it was similarly eerie. They're both like, leverage. Everything is going to video. You gotta embrace that and go that route to help you market finding deals and raising capital. And I can guarantee I've, I've raised a whole lot more capital and closed on a whole lot more deals because I was doing video and sharing what my message and what I was focused on. And a lot of investors are scared of that. Don't be scared. Embrace it. Because everywhere else is going there, so you might as well go. Embrace the suck is one of the key terms. I've always heard you're going to suck at first, but you get better every day. You move forward.

I love it. And last question. If you can have dinner with anyone, dead or alive, who would it be and why?

That's, that's real, real, real simple. I'd have, I'd have dinner with my father. My, my father passed away about 16 years ago. Growing up, he was my hero and gave me a lot of faith. A lot of work ethic. He was an entrepreneur, you know. My mom is also still alive, thank goodness. But I'd have, I'd have one more dinner with my dad is what I would do definitely because he's was wise beyond his age and just an amazing man. I was very blessed to have him as a father and that would be very, very simple just to have one more dinner, one more conversation. My father would be, be what I would choose.

It's beautiful. Now how can the audience reach out to you? What do you need from the audience? Yeah, let us, let us hear it.

So if you want to get into notes, there's a very easy way to get started. We've got a one day class we, we teach about once a quarter. It's called Note Weekend. You can go watch. It's about three and a half hour. I call it the Cliff Notes version of our three day workshop. But go to noteweekend.com you can register. It's a three and a half hour video going through how we find, how we fund, how we flip these things for deals, for cash flow, for money. It's a great starting point and always you can go to our main website weclosenotes.com to book a call with me to pick my brain to check out our podcasts, our videos and our training as well for you. So that's where it's all at and we're here to help him. But you have to do one thing for me, guys. You're listening to this. Amica is doing a kick ass job and we as podcasters, we always love, love to hear from our audience. So make sure you go over, hit that five star review and, and subscribe and make sure you leave a comment for Amika.

If you don't like me, tell me.

You don't like me, that's fine. But we know you love Amica because you're showing up and he's bringing on great best. I'm just at Ingle Deep from Ingleside, but we want to hear you, you know what I mean?

I appreciate it. I appreciate it. Well, thank you so much for coming on the show. I think the audience is going to love it and then maybe we'll have to have you back on in 365 days.

Hey, sounds good amica. Have a great day, buddy. So honored to be here and keep kicking ass, man.

Appreciate it. Thanks for tuning in to the Stay.

Ready real estate podcast where we stay ready so you don't have to get ready. If you enjoyed this podcast today, please give me a like and subscribe and tune in next week so you can hear another one. If you ever want to reach out to me, I'd love to talk to you about real estate. If you're ever interested in any of the deals that I have a base here in Central Florida, reach out. My information is below.

Hope to see you next week.

Stay ready.

Hey Real Estate investors, this is Scott Carson. I'm known across the country as the.

Note Guy and I've been an active.

Note investor focused primarily on the niche of non performing notes, distressed mortgage notes on residential commercial properties for almost 20 years now. My company is weclose notes.com and I know there's a lot of different things when it comes to the note world. Are you buying performing notes? Are you buying owner finance notes? Are you buying institutional debt?

Like I would focus on Are you.

Buying first seconds contract for deeds? There's a lot of questions and it can be very confusing about what you can or cannot do. So one of the great things that we've hosted for the last couple years that we do on just about a regular monthly basis is we host our one day class called Note Weekend. If you go to noteweekend.com you can register for a free three and a half hour class. We'll talk to you and share with you how you find fun and flip non performing notes. And yes, you can buy non performing notes from banks, hedge funds and a variety of different hard money lenders out.

There for your own portfolio.

No, you don't have to have millions.

Of dollars to dive into the non performing note game.

We've got students that have bought plenty of deals with 2530 grand getting their ball rolling using their self directed IRA who are tired of dealing with toilets, tenants, trash desks, tired of battling contractors and GCs to get properties rehabbed. We all know the market is changing and while it may not be like 2008, 9 and 10 again, it we do see a lot of distressed debt out there on both the residential and the commercial side. So if you're thinking about diving into the note game, becoming a note investor.

A lean lord as you'd like to.

Say, versus the landlord. Or you just want to figure out what it is about the sexy side of real estate in the note space. We'll check it out. Noteweekin.com doesn't cost you anything. We host it live usually the first or second Saturday of each month. You can go today. Register at the website note weekend.com Register for the next live class we host. You'll get sent a replay to the previous class so you can start learning about the note business today. No questions asked, no credit card needed. This is a great way for you to dip your toes in the water and see if it's warm because I guarantee going through our one day class. You want to dive into the deep.

End and become a note investor.

So check it out noteweekend.com you can also go to our website weclosenotes.com check out our podcast. Check out our YouTube number one YouTube channel. We are here to help support you. Whether you're experienced investor or you're brand new investing Note weekend is a great place for you to get the ball rolling. People often say we cover more in our three hour class than most people cover in their three day class so check it out. Love to have you be part of our note family but get signed up today@noteweekend.com thanks and have a great day my friend.