How to Buy Notes with Scott Carson in Generational Wealth Through Commercial Real Estate with Will Smith

Foreigning to the Generational wealth through Commercial Real Estate podcast. Your host, Will Smith is a former NFL player that found his passion in commercial real estate. Every week you will learn from industry experts everything you need to know to get started investing in commercial real estate to build generational wealth.

Tuning in to the Generational wealth through Commercial Real Estate Show. Got a very special guest lined up for you today?

We're going to.

But before we get into that, if you're watching this show for the first time, do me a favor, go ahead and hit that subscribe button and if you haven't left a review yet, you know, go ahead and leave me an honest review. You know, I want to, I want to read your reviews. I want to see what you think about my show. I want to get better at podcasting. So leave me honest review and I promise you I'm going to check it out. All right, so let's get to today's show guest. It's Scott Carson, also known as the Note Guy. Scott Carson is a nationally syndicated radio and podcast host of the popular Note Closer show podcast with millions of listeners each month. He has been an active real estate investor and entrepreneur since 2002, focused on the niche of distressed mortgage investing. For the past 10 years, he has been helping real estate investors and entrepreneurs create wealth through his teachings and strategies. He is a highly sought after speaker and podcast guest with thousands of speaker appearances at events across the country. He has also been featured on many media outlets including Investors Business Daily, the Wall street journal and inc.com. he spends his free time traveling to new places and making memories. He calls Austin, Texas, his home. Thanks for coming on the show today, Scott. We happy to have you here, man.

Willie, I'm honored to be on here man and here to serve your audience and you in any way that I can, buddy. So, yeah, honored to be here and excited to share the power of notes.

Yeah.

Yo, man, that's very, very interesting concept and it's something that a lot of people don't know about and I don't know about it. So I had to get you on the show to learn more about it, man. So before we get into the whole note investing, man, tell us, how did you get involved in real estate initially?

That's a really good question. So I grew up in a very small town in South Texas called ingleside, roughly about 3,500 people. My dad owned the local hardware store. So as a young kid, like fourth grade and beyond, I was always like the weekend help. Like if an electrician came in Or a plumber came in, or somebody came in, need help, they would hire me out for like two to four bucks an hour. And I would go out and work on these houses. Whether it was putting roofs in or foundation, whatever, I could do it. So fast forward to graduating from college, you know, get married. We buy our first house in 2002. And at this time, you know, our realtors, like, man, you guys got great credit. You should really think about being a real estate investor. I'm like, oh, yeah, I know how to fix anything on a house. Sure, right. You know, we were watching, you know, those fictional TV shows, Flip this House, you know, all the, how they're real, you know, they're not real. So. So we ended up buying two investment properties, 100% financing, because we had such great credit scores, we were going to be the next landlords, you know, in our neck of the town. Well, fast forward about two months later, I get laid off from my job as a financial advisor.

Yep.

My six figure job gone. And our tenants in our two properties also got laid off from their company at Dell. So we went from being performing, you know, making six figures to two rental properties, to being a distressed borrower very quickly, where we were trying to make six mortgage payments. Three first three seconds on a private school teacher salary. So my first foray wasn't a very successful one. I was very stressed out. We were facing foreclosure. Luckily for me, I was able to get rid of the two investment properties, our primary residence. We went into a forbearance agreement with Wells Fargo and literally saved it from going to foreclosure like a week later. So I empathize with a lot of people that are struggling right now because I was there at one point, so. So, you know, I licked my wounds for a couple years. I'm like, okay, what do I need to do? You know, I met a buddy of mine that was working with me as a financial advisor. He started a mortgage company with his sponsoring broker, was another investor that was traveling the country with him and his spouse.

Yep.

And he and she were teaching owner financing, teaching the note business, creative financing, how to create an originating note and sell at the closing table. They were also doing rehabs here in Austin, Texas, so realized, oh, let me learn real estate investing the right way versus watching TV and think I know everything.

Right, right.

And so for them, for like four years, I had to basically an apprenticeship where not only was I originally, you know, doing mortgages in 30 states and, and learning from Bob and Jamie, but I was also Traveling like every other weekend to these big real estate expos.

Yep.

So, you know, have you ever heard of Ron Legrand out of Jacksonville, Florida? Ron's been around for years. So I was traveling to all these events and, you know, 500 to 1500 investors in a room. And so I was sitting in the back of the room and take copious amounts of notes, right. And started doing options and wholesaling and then some light rehabs and was doing really well, some new rental properties. And then 2008 hit, and luckily I sold off my side of the mortgage company. I was able to get out of most of my deals that went underwater. I had to. Basically, the last two big rehabs I.

Bought.

Really excited that I bought at 60 cents of value as an REO. Within a matter of six months, I was at 105% of LTV. I was upside down. So sold those off, wrote a couple checks at closing, and I was like, what the heck am I going to do? I was like, well, let's just start. Let's do this note business. So I started dialing for dollars, making 50 to 100 phone calls to bank asset managers and started getting lists sent to me. And I would, okay, like, I wholesaled one, made five grand. I was like, ooh, okay, I can do this. You know, I found a big portfolio of $5 million in loans from a Houston lender that was going out of business. And we flipped that for 250 and I made my cutoff that was 50 grand. You know, I was like, okay, I found a seven unit or nine unit apartment complex in San Diego I got from Capital One. I flipped that made $35,000 wholesaling fee really quick. So I was like, this is the way to go. So I literally said, okay, notes is all I'm gonna focus on. Because obviously we had a lot of distressed borrowers. I got to the point, you know, that was 2000. I got divorced later, 2008, I'm sitting here in Austin, Texas. I'm like, you know what? Get out of town. Let's do something. There's all these markets that I've seen stuff in that I don't really know. So I literally was sitting one night watching, you know, the start of baseball season. You know, they had that commercial, you know, where they talk about, oh, beer, $5, hot dog, $6 going to all the major league baseball parks with your son. Priceless. I was like, oh, let's do that. So I literally planned out like a fictitious trip. I was looking at all cities, and then in A matter of a couple weeks, I started having all these investment clubs calling me that were getting the blogs or seeing the Facebook posts or the videos I was doing on YouTube about the deals that I was working through the due diligence and breaking this down. They asked me to come speak. Yeah. And when they told me the dates they wanted me to come speak, it lined up perfectly with this fictitious trip.

Wow.

And so I'm, and I'm here standing back every time I talk about this story. So I look at that as divine intervention. Somebody was telling me I needed to do something. So, yeah, I sold everything I owned except my truck, some clothes and my dog and in my truck. And we expected to drive around for like 30 weeks. That turned in three and a half years of basically nonstop travel. Not just going out and talking to investors, but meeting with bank, meeting with bankers, meeting with other investors, looking at real estate deals. I mean, I was walking on Miami beach looking at condos that the bars owed a hundred grand, two hundred grand that I could pick up the debt for five grand.

Wow.

You know, and then, you know, it would take me an 18 month time to foreclose, but we still come out smelling great in the long run. So that's what I did. And Fast forward now, 10 years later, I've bought over a half a billion dollars in distressed residential and commercial debt. We've helped a lot of investors on both sides, investors on finding this stuff and making money for their own portfolio. But also second, a lot of people that were distressed borrowers that we were able to either buy that debt at a discount and then work out the situation with them to modify it or let them walk and then sell the property off as for profit. So it has been an interesting roller coaster ride and I think we're going to see a big chunk of defaults and foreclosures here in the next six to 24 months as we go get through this whole pandemic thing.

Yeah, yeah.

You just said a whole lot there. I feel like I just got a master's class in like 10 minutes.

I can talk. I can talk, baby. I can talk.

So let's, let's unpack that, man. So, you know, there's, there's people listening to this that, you know that light bulb is going off now in their mind, like shots. I didn't know you can buy debt. So let's talk about it. Where do they first, what is the first steps? Let's go through the steps of actually doing this process. Yeah.

So the first thing everybody has to Realize is everybody's already in the debt game. We're already in the note game. Everybody is. You're just on the wrong side of the payment stream. If you're paying out to your mortgage, your car, you're in the debt business, okay? You're just, like I said, on the wrong side. The idea is to get it coming in versus going out. And here's a big thing to keep in mind. Well, I've been a wholesaler or, you know, a flipper landlord. The biggest institutions out there besides Apple or Alibaba is your banks. Okay? Your banks aren't in the seasonal rental business. They're not in the fix and flip business. They're in the debt game of taking in money, you know, and giving a half percent on your savings account and then lending that money out at 7 to 10 to 20% credit cards and understanding the power of leverage. And so that's the beauty about the note business. So, and what I do is I just target residential and commercial property debt only for only senior liens because I want to be in the driver seat.

Oh, no, hold on. Let's, let's stop there for a second. Now explain the difference between senior liens and junior liens.

Great, great question. I'm glad you asked that. Senior lien would be like your first mortgage. A lot of people will go out and they'll get a mortgage on their property and it might be 100% of a loan that's a first lien. In some cases they'll break it up and do like a first and a second lien, like an 80% first lien and a 20% second lien so that they can avoid paying mortgage insurance. Because anytime a bank does a loan over 80%, they're usually going to ask the bar to go get private mortgage insurance in case they default that they're covered.

Right.

And so I don't like to buy second liens because, I mean, you can buy those relatively cheap, but they don't haven't originated very many of them in the last 10 years. Yeah, you're often, if you're going to buy a junior lien, you're going to buy it cheaper, but you're behind a first lien and you're at the mercy the first lien. And so that's why I like to buy first lien because then if there is a second lien, I can wipe them out in foreclosure.

Right.

Or I could offer to buy them at 4 pennies on the dollar for what I would pay in legal Costs. So yeah, I like that. I like to be in the driver's seat. Whereas if the borrower doesn't pay, doesn't work out with us, especially for buying the debt, we always try to keep them in the property. So if they don't want work with us, then we do can foreclose and wipe everything else out behind us to take the property back. It's kind of a. The basic for the first lien. It's also easier to raise capital when you're in a senior lien position because you kind of hold the keys to the castle. The only thing you can really wipe you out is taxes.

Right.

Or hoa. If you don't do that, if you don't do your work. But I'm not going down the local bank and walking and saying, hey, I'll buy your loans. The first step is to identify the right departments in the bank and lending institutions. And they go by some different names. They go by special asset managers, secondary marketing chief, credit risk. Some of the bigger institutions will have whole loan sales departments. And these are guys and individuals that they're paid to look at the bank's portfolio and identify what are the good, the naughty and the nice list, as I like to say. Okay, who's paying and who's not paying. And you know, pay, you know, pay, you know, stay. Tell me. Yeah, it's not, it's not as extreme like that's a little funny. But here's the thing. Here's. If you have a mortgage and a lot of people are, you know, 11% of Americans are in default right now where they're at least 90 days or later, net number is going to. We're going to see a worse. Sorry. 11% are in default. 7.8% are in serious default.

Yeah.

So here's the thing. If you start missing a payment a week after your payment day, the phone's gonna ring and start getting certified letters because the bank wants you to stay on trust for every month that you're late. The value of that paper, the value of that mortgage reduces by 5 or 10% every month. So we're usually buying debt from banks from these apartments that are at least six months or later in default so that, so that we can get a discount on. A discount will vary on the value on the foreclosure time frame. The asset class, like apartments will be a lot more expensive than say a single family or a mobile home. You know what I mean? Because the asset. But you can buy a lot cheaper. It also depends on the foreclosure time from like we don't buy in New York, New Jersey, because it takes forever to foreclose there. Now you're in North Carolina, it's a hot state.

Right.

You can foreclose relatively quickly. There's. But in a faster foreclosure state, the price goes up on the debt because the bank, they understand that you can do that. So it's a lot of, I say fuzzy math in evaluating these assets. But the beautiful thing is you reach out to these banks and you say, yeah, I'm looking to buy your debt. I don't mention anything about REOs because that would take them down a whole other road. So I'm looking to buy your distressed debt. What do you have on your books with anything with any hair on it, you know what's ugly? And the banks will often then send over, they've got something, they'll send you over a non disclosure agreement to sign on and send it back in. And then they send you something called a tape. Now, now what a tape is, it's just an Excel spreadsheet usually. Yeah. And it's got an Excel spreadsheet. It'll tell you the borrower's name, their FICO score. Sometimes you'll see their Social Security numbers. That's why you got signed an NDA, Right. The address, the details of the loan and like usually the last 12 to 24 months of payment streams.

Yep.

Now our biggest goal when we're buying this debt is obviously to get it at a discount. So it makes sense for you. So we don't usually pay above 60, 65% of as is value of what the property's worth, not unpaid balance. Cause if somebody's defaulted, they may owe 120 on a house that's worth only 100. Now okay, so scenario, say $120,000 mortgage, let's just say 6% interest rate. We'll just say interest rate, keep it number 7200 a year. So their payments are roughly $600 a month. So if we bought that note, house may only worth to be 100, but they owe 120. So we may pay 50 cents on the dollar of value. So we pay 50 grand for that note. Okay, now that we bought it at a discount, we can go to the homeowner and say, listen, we're now your bank. You've gotten a letter from your previous bank saying thank you for not paying us. Now you cannot pay. Scott Carson.

Right.

If you've ever bought a house, you probably got a letter 30 days after you close and your mortgage was sold. It's kind of that same thing.

Right.

So we reach out to the homeowner, say, hey, what's going on? Hey, Willie, what's going on, man? Did you lose your job? Did you go through divorce, get sick, it laid off, what happened?

Right.

Do you want to stay or do you want to go?

Yep.

And most people want to stay and that's, that's fine. We actually make more money by keeping in their house. So then our thing is, okay, let's figure out something. You're six months behind, you have that six months. And, and most people say no. They don't. Okay. Can you start making your existing payment of $600 a month? And if they say yes? Because a lot of times people can start making their existing payment, it's that the banks though, they want you to often bring that full. Well you're behind on. So since we didn't originate it, we can be flexible. So let's say they start paying $600 a month.

Yep.

Okay. 600 times 12 is 7200 in income. 7200 over a $50,000 investment. What it's about a 14% cash and cash return right there.

Right, right.

That's a good thing. Now we try to get them to pay a little bit extra to get caught back up on when we do. Usually we'll do like a one year trial payment plan that as long as they do what they're supposed to do, we'll do something on our end. Maybe for every extra payment they make, we'll forgive an extra payment.

Yep.

Or if they pay for 12 months on time, we may reevaluate the loan and forgive what they're over encumbered. You know, if they, at the end of the year they owe 110. The house is only say worth 100. We'll forgive that 10 because I'm not going to get that money back. You know, if they were in a high interest rate loan, we might drop it down a little bit. We can get really creative with the workouts. But our goal is after they've been paying for 12 to 24 months, is now at 12 months. We can evaluate that loan as a re performing note now and look to resell that note back to the banks to the secondary market. So let's say our borrower has been on time. 12 months on time. Great. We could probably sell that now. Let's just say 85 cents on the dollar now. So a value. So we bought it at 50, we selling at 85. We got 35 grand in profit, plus an additional 7200 in payments on the minimum side. So we just made $42,000 roughly on a $50,000 investment in 12 months.

Man, that's nice.

That's nice.

It's pretty nice. I wish it always worked out that way. Sometimes we'll hold onto it for cash flow because the return on investment is really good. If they don't pay, if they just say, oh no, screw you or don't respond or messages, then we'll go the legal route. Starting the foreclosure process. We've approved short sales for borrowers, or we'll offer a cash for keys. Instead of going through the process, here's five grand for you to sign the property over and walk away. Yeah, you know, unfortunately we're getting about 40 to 50% of the loans we buy to reperforming about the other 50% is split between deeds and lose or foreclosures. And then if you foreclose, then you can take. You take the property back and do what you want with it. You know, either keep it, you know, turn it into rental. If it's single family. If it's a commercial property like the apartment complex, you would obviously reach out to the tenants and say, okay, hey, I'm now right. You know, we're not in the landlord. Let's look at your, you know, look at your leases. Either extend it or end them. Depend once the states and where they're at. Or, you know, if people file bankruptcy, that's actually a good thing for us because now we have an attorney to talk to and a bankruptcy on a residential. Go chapter seven or chapter 13. Yeah, you know, one's either a payment stream like a mod for five years in chapter 13, chapter seven to take the property back in commercial properties. Cause I know you're a big fan of commercial properties. If the borrower files bankruptcy on us, we have the right to take over in the commercial debt, take over the rents in receivership and start operating the property going from there. We've done that quite a few times where the borrower filed bankruptcy and we basically got them out of the picture and then took over operations, finished the foreclosure process and sold it at the auction at full value and really came out doing really well or took the property back if we was over encumbered.

So yeah, yeah.

So, you know, I know I think about this, you know, if I'm buying a property and you know, I got a foreclose on that guy, man, tell us a horror story. Of what you've seen on a property that you had a foreclosed. These people are pissed, man. They're getting kicked out their house, you.

Know, for the most mass majority, actually, if they know it's going to foreclosure.

Yeah.

A lot of times we try as best we can to say, listen, if we're going to foreclose, let's try to make up. We'll give you two grand to move out or something. We've had, you know, we've had people pour concrete down the drains before.

Yeah.

You know, one guy lit his house on fire and I just laughed. I was like, okay, that's insurance.

Goes to us.

Thank you. I mean, come on, you weren't really thinking about that. And then, of course, you don't like to evict people, but sometimes you do. Yeah, we always. I have worst situation. I'll tell people right here, don't buy debt in Chicago. Okay. Chicago's a horrible market to be buying debt because it's a very corrupt city. Takes forever to foreclose. They're not strict on the evictions. I had properties where we would evict the borrower and he or the tenant and he would move back in the next day even after he secured it. You know, you have people that steal the copper, the air conditioner. I usually like buying occupied assets to avoid that situation. If it's a vacant asset. Yeah, you know, you're replace that stuff because the copper goblin showed up, or if it's pulled, you might have an indoor swimming pool in the basement. If you know that. We've had that happen before.

Yeah.

If it's occupied, somebody's leisurely living in it. Somebody said some private ownership. So it's a matter of like, okay, what can we do to make this a win Win? Okay, you got to pay to stay. If you can't pay, can we bring somebody in? Do you have. Somebody wants to take over payments? You know, you're way underwater. So you're not. There's no value to you in equity. If there is equity, we'll often offer them, you know, some sort of portion of that equity to walk away. But it's all about communication. More so with your borrowers. The more you can communicate, the better. I mean, you're going to have some people pissed off. It is what it is. They're pissed off no matter what. But our biggest goal at first is always trying to keep the bar in the proper. If we can. It just. It's a. It's a. It saves us on Legal costs. It saves us on timeframe that if I can get somebody to start paying now, in 30 days, my ROI goes up by 8% every month. It also reduces on the, you know, the legal bills on the back end because it costs to foreclose, you know, and time frames take place. So the beautiful thing is I'm not the guy doing it all. You know, a lot of investors out there, they're the guy that are, you know, they're mowing the yard, painting the house, showing the property. We don't do any of that. In the debt game, there are servicing companies that handle most of the borrower outreach. These are people that are paid to call the borrowers. They're handling the mailers out there. So we have a really good servicer that I have a phone call usually once every two weeks. Sometimes it's just an email back and forth with a breakdown of the portfolio, who's performing, who's not performing.

Yeah.

Hey, this borrower told us to F off. Okay, send it to the attorneys. Let's start that process. Or, you know, this borrower hasn't responded to our outreach. Do we want to send a door knocker out to go talk to them?

Yeah.

Or call them at their office, try to negotiate. So there's a lot of different moving parts. But the beautiful thing is you can do this. Whether I'm in Austin, Texas. I mean, Austin's been home for a while, but I haven't bought anything in Austin, Texas, in, like, 15, 10 years, to be precise.

Wow.

90% of what I bought has been outside of my market because I've gotten better deals in other states that aren't as expensive. A bigger bang for my buck. You know, 250 grand might buy one property here where it might buy 10 properties in Columbus, Ohio.

Yeah.

You know, or five or five and Concord or Charlotte. You know, it just depends on the different markets.

Right, right, right.

No, that's. You bring up a good point there. Because I know people thinking, like, what's up, man? That's. It seems like a lot of work to be going and buying debt and, you know, evicting people and then foreclosing on people, whatever that, you know, that has to happen. So talk to us about the team side of it, man. Like, who's on your team? Because I talk a lot about a team on. On the multifamily side. I imagine you have a team with everything you got going on there.

Yes. And here's the thing. If you're a jack of all trades and try to do that you can't. You've got to learn to delegate more than anything else. To be successful in any type of real estate, whether it's in rentals or fix and flips, you gotta have a team. Very blessed. You know, we've got my team that works remotely for the most part. You know, we've got a lady in New Jersey who's my asset manager. She's the one in negotiation. It's talking with my servicing company.

Yeah, she's.

She's also the one that's doing borrower outreach. She's got, you know, 10 years of experience and working for companies and so she's one of the most focal points. She reports back every two weeks. We talk back and forth on stuff. You need realtors in every city that. That to pull values. A lot of the real estate message like, oh, you don't need realtors. I'm like, oh, you do need realtors. You need to know somebody who's looking at that ass. It can be your eyes.

Yeah.

You know, and understand what's going on with the market and know the values and the days on market. You're gonna need real estate attorneys that can foreclose in every state out there. You know, it's not hard to find. You can go to Legal League 100.

Yep.

It's a great website. Or your servicing company will have people. Of course, there's always if. You know, we do a lot of bank outreach. We don't do a lot of phone calls. I mean, once or twice a month, I'll make, you know, 40 to 50 phone calls to banks and introduce myself and talk with them. Some people have a VA that will do that for them. I like having those conversations because they lead to further, you know, referrals and stuff like that. But most of the time you need to have an assistant who's helping you as well to handle the paperwork of making sure things get filed properly at the counties or as notices come in for taxes owed. That. That's it. You need to have an insurance company like you would any type of real estate to look at, you know, to insure the properties in case the borrower does light the property on fire, pour concrete. There's enforced place insurance. You know, if the bar does have insurance, you can have your insurance removed because your place is a payee on a policy. So there's different moving parts. But it's not the same as like a fix and flipper where, oh, you got to have a general contractor and rehab. Don't get me wrong, we do get into Rehabbing some properties. I stick to Florida and Texas because I've got two amazing teams and I know those markets. But everywhere else we actually make more money, bigger return on investment and on time. Because if on time, great. You know, we're not having the legal costs, we're not having the foreclosure, we're moving right along without having to repair the property and somebody's living in it, taking care of it, loving it, paying the taxes, paying the insurance. They're not calling you at midnight when Johnny Jr. Flushes the rubber ducky down the toilet. And you've got to clean clogged for the most part. So you know, you got, you gotta have that stuff. You know, it's like anything else. If you're raising capital, you gotta be marketing for that. So you've gotta have, you know, we've got VAs to help out with a lot of that stuff. I've got a podcast is all that we do and I've got a full service production team that handles it. So all I gotta do is jump on record and. Yeah, and then send the fongo from there. So you gotta learn to delegate more than anything.

Right, Right, Yeah, yeah, that's, that's, that's definitely key. Now the first lady you mentioned was the one that's doing a reach out and talking to the people, you know. Is that a title that's, that's associated with that or maybe somebody can look up online if they're trying to do this. Like what's the title of that person?

We call her our asset manager and. Or special servicing moderator. Yes, that's called loan servicing. And you've usually got to take a class to be Consumer Finance Protection Bureau. That's the main government firm that's. You gotta basically go through a training class. Like you can't be calling after like 9 o' clock and harassing the borrowers. Pay now, pay now or I'm sending Willie over to beat you up. You know what I mean? Right. You gotta follow specific guidelines. You can't harass them. There's things you get sent out, so you gotta be compliant with that. I also like having somebody else talk because it's that separation. They're not as emotionally attached.

Yeah.

And that's one of the big mistakes. I see a lot of investors that get into, they wanna talk to the borrower. No you don't, because they're gonna tell you. I'll give you an example. We bought a note in Milwaukee. Lady calls me up and says, oh, I'm behind I'm behind, behind. Like, okay. Well, then suddenly we get a phone call from the city of Milwaukee talking about how he had applied to start a daycare in her house. I'm like, that's okay. She was like, yeah, but I want to make sure this is your signature on the document. And I'm like, this is the first I've heard of this. She literally forged. Forged my signature saying, because she didn't own the. Didn't own the property. It was a contract for deed. It still showed my entity as being in the property. I was like, oh. So we had a quick, we had a quick come to Jesus meeting on the phone and it was amazing how fast that loan got paid back and back to re performing.

Yeah.

Because I said, listen, if you're not going to perform with us, I'm going to call the city right now and tell them that, hey, you forged this document.

Yeah, yeah.

I'm like, come on. And then, and then we've got other people too, that, you know. You know, some people like, oh, you're, you're late this month. Okay, we'll wait. Well, if you let that borrower be late another month or you accept a partial payment instead of the full amount due, the court views that, like, oh, you were forgiving of this. So if you, if you tried to foreclosure your foreclosure because you're letting the borrower pay partial payments. So you run a business, you don't run a charity, Unfortunately. A lot of times borrowers understand what they can do and what they can get away to give an inch. A lot of times they'll take a mile. You know, like, we do due diligence. You'll find this story lady in Florida. We're looking at buying her note from the bank. And we track, you know, we're socially sleuthing, Facebook stalking. Okay. She literally says on there, she's like, oh, question. Big question of the month. Do I pay my mortgage or do we go to Disney World? We're going. We're going to Disney World. I'm like, oh, you ain't modified. Or another borrower. Another borrower. We bought. She's like, oh, I can't pay. I can't pay. Well, we jumped online and checked out her social media profiles. This lady had just bought a brand new Lincoln Town Car.

Oh, man.

Had some church revival and she was bragging about all the money they made from that. So we had a quick come to Jesus. Mean, like, listen, you just bought a Town Car. I can see this on the pay or we are going to go start the foreclosure process. We had another one was in a professor, professor for the University of Missouri. He was going through a transition. You know, he was using what he should be paying his mortgage to pay for his implants. You know, you see other things that you call the city. Here's one outside of Charlotte in Lenore. Lenore, North Carolina. You know where that's at, I imagine.

Yep, yep.

We were looking at an Aplex from Capital One a few years back and I was pretty excited about it because it looked like it was occupied. Well, we called the local zoning department. He kind of chuckled. He's like, you need to call the police department on this. I'm like, okay. So I call the police department and they tell me like, oh, we know that. We're very familiar with that 8 Plex because it's a working brothel. I'm like, what?

Wow.

Does that mean I. Does that mean it's cash flowing?

Oh, my goodness.

Wow.

You know, we've seen other things, like capital will send me a list every once in a while and they accept me this 70 units apartment complex in Miami Beach. I'm like, ooh, Miami. Yeah. Vida la Miami. So I called my buddy Osmani, who's my realtor down there, and he goes, drives by and he sends me back these photos. He's laughing on the fingers. I don't think you want this. I'm like, why? He goes, because it's just a crack house. I mean, it's vacant except for all the crack guys. And they're like hiding behind or they're like posing gangster style.

Wow.

We send the photos to the asset manager. I'm like, yeah, I'm gonna pass on this one. And she calls me like 10 minutes later. And I can hear her and her team laughing as they're looking at the photos, like, oh, can we pay you to it off our hands? We gotta realize is these asset managers that control these portfolios, they're looking sometimes in managing sometimes thousands of notes, thousands of properties.

Yeah.

And so they may pulling maybe pulling values off of Zillow because they're also trying to minimize the amount that they're having to pay for upkeep and due diligence because it costs them.

Yeah.

So they don't have nearly the amount of teams to make things happen. So if you're a local investor and you can see an asset and really know what's going on there, that can work in your favor when you're submitting a bid to the banks and listen, I've driven by it. Here's the property or I have somebody, here's what the situation is, here's the zoning that can really help you not only get a good deal, but also be on that banker's radar, that special asset managers radar when they get other things in that state or in that area that they trust you and then go from there. Because dealing with a bank, you don't have to buy in bulk all the time. A lot of people are worried because oh, I gotta buy 5 million to 10 million in bulk. Like no, now bank of America, Chase, Citibank, you're gonna have to buy in bulk from them. And they usually want like a $50 million trade on the residential side. But there's thousands other smaller regional banks out there that will let you cherry pick, do one off deals or mini bulk. On the commercial, commercial side, all the banks will let you buy one off commercial notes for the most part. Yeah, even here's the thing too, if you start looking at that higher value, especially over a million dollar loan amount on a commercial property, if you're planning on taking that asset back, or the bar, working with a bar on it, or the bars removed and walked away, a lot of times if you can put together a team of experience where you maybe don't have a lot of experience in operating an asset, a lot of times the bank will finance that purchase and move it from the non performing side to the performing side and give you a new loan on that note or that property. Now maybe you only got to bring 10% down versus bringing the full loan. It's a nice thing.

Yeah, that's pretty awesome. Now the realtors that you work with in these different markets, how are you paying them? Are they getting part of the deal or you just give them a fee up front?

How does that work? Yes, ask the realtor, who's curious. Right. It's a variety of things. So most of the time if we're working with a new realtor, what we have them do is we need them to drive out and look into the property, make sure it's still there. Yeah, give us, give us a rough valuation, pull a CMA BPO. And so in that case we'll pay them for BPO, a flat fee for CMAs or whatever to do that. On the, on the front side, we may not own the note yet, but we need somebody to look at eyes and eyes and ears. When we do close it. Then we're a, a if we start the foreclosure process, then they become Our REO agents, if it's. If we take it back and keep it as a rental, then they'll become our leasing agent. A lot of times I've got several great agents that are used to doing rehab, so they become actually my gc if you got a rehab. And then we give them 10% of the net profits on the flip, as long as they come in on time. So that other times the agent's like, oh, I like this deal. Can I buy it from you? And we'll figure out a fair price and either wholesale them the property and then, you know, make a quick buck. Cause if I can make five grand in a day versus taking, you know, 50 grand in a year, I'd rather take the five grand now and be able to rinse and recycle my money for the most part. So, you know, it varies. We like to work with them. I think you know, this. Not all agents understand our investors themselves.

Yeah.

And unfortunately, you know, when we find a really good agent, we really love to take care of them. It's hard to send stuff to an agent you don't know. I haven't worked with you because they may Flake after 40 hours. They may like, oh, I'm not going to get a listing right off the bat. I'm like, well, I'm a bank. If you want to be an REO agent, you technically want to work with me because I'm going to have stuff in your neck of the woods on a regular basis, you know, from there. So.

No, that's.

That's. Good points, good points. Now we. I think we heard everything. Excel, once you get the debt performing, how do you go and sell it back to the bank?

That's a good question. So we market it just like anything else. There are funds, investment companies out there that have these lines of credit, you know, that they're paying the Fed 1% or 2% or they've raised their own capital. And so there are funds or investors like me, like you out there, that have money in their IRA account. That's not making them anything that they're looking for cash flow. So we'll market it to note buyers. There are some portals out there, some websites you can log onto. There's not like a national MLS for notes, but there are different portals and websites you can go to and post your notes for sale and sell it to investors that have an ira and then you transfer the servicing and transfer towards that. So that's what we do. First thing we'll usually do is send it out to Our list of investors. If somebody doesn't buy on that, then we may list it at a website. We may then pull a list of investors in that market. People. Because you can jump on like the county clerk or the county recorder's office and actually do a search for people who have lent money out of their ira. So we'll target them as potential. Hey, I see you lent money out. Do you want to buy a note to add to your IRA that you need a first lie position. So we do that as well.

Yeah, yeah.

Now I didn't know you can get that information from the county clerk about ira.

Here you go. Here you go. So if you can go to your appraisal district.

Yep.

Or your clerk. So somebody buys. Let's just use Equity Trust. They're the biggest self directed IRA company out there. If you go to your county and type in on the appraisal district. Now somebody buys a property array, it's not going to say Willie Brown or Willie Smith. It would say Equity Trust for the benefit or FBO Will Smith and then your IRA number. So if I go into the county and type in just Equity Trust, it'll pull up everybody in that county who owns a property in their Iraq.

Nice.

If you go to the county clerk, I mean the county, the deed, the recorder's office and do the same thing. Look for, you know, a deed search, same thing. Equity Trust, Quest Trust, it'll pull up everybody that's lent money out of their IRA in the last 12 months.

Wow.

So that's like shooting fish in a barrel.

Yeah.

When you're raising capital because it's people that, you know, they're real estate investors because they usually wouldn't have a self directed ira. Two, they've got money to invest and third, they're probably looking for deals. So it's really one of the easiest conversations. One of the big advantages I like about note investing that is, I think is an advantage over traditional investing is we don't do any direct mail in like mailing out postcards or yellow letters. It's all emails and LinkedIn for the most part. Or phone calls.

Yep.

The only direct mail we do is actually to IRA investors sending out a postcard or hey, we've got a deal or hey, here's my ebook. You might be interested in learning about the note business. So that's, there's a go. That's a fifteen hundred dollar class there in five minutes on how to find IRA investors.

We appreciate it.

Here to serv, man. Here to serve, man.

Yeah, yeah, man. Well we here at the end of the show, but I just want to ask you a couple questions and lightning round. All right, man. What's the best book you've read in the last 12 months?

Ooh, last 12 months, golly. I listened a lot of different books out there. I would say. The Art of Not Giving an F.

Yeah.

That'S a good one. A book that I. One of my favorite books of all time, though, is Outwitting the Devil by Napoleon Hill and Sharon Lecter. And it's one of the best books that talks about delegating and being focused to find success. It's actually a story that was written in 1938 by Napoleon Hill, who's the author of Think and Grow Rich. And he's having a conversation with the devil about why, how the devil is able to be successful or how is he not successful? And the conversation goes that those that are the most driven, the most focused, that get rid of distractions. Yeah, they're the most successful. Those that don't drift. And it was re. Released. It was released for the first time a few years ago. The Napoleon foundation approached Sharon Lecter, who's a co author of Rich Dad, Poor dad is actually a friend of mine. Sharon took the manuscript and wrote it, left it basically the same, but then added in paragraphs what she thought Napoleon Hill would think about the world in today's world versus 1938. And it is an amazing read. I mean, we've given away hundreds and hundreds and hundreds of copies of this book to our workshops and other training stuff like that. But, yeah, well worth it. Anybody that reads it will say, hey, that's a top five top ten book for you.

Awesome.

What's the best advice you ever been given?

Best advice that I've ever been given is fail forward. All right? Embrace the suck. You know, that's the thing, is that nobody starts off perfect, all right? Nobody is perfect at anything. And the only way you get better is by honing your craft, practicing, getting knocked down. You and I both been knocked. We love football. You get knocked down, plenty of time. Get back. You knocked down 7. Get back up 8.

Yep.

You know, and that's the thing is you can learn. You can literally learn everything via videos and YouTube, but you really don't learn it until you start taking action. So I think if the army or the Marines have the phrase embrace the suck. Yeah, embrace the suck. You're gonna screw up to begin with. But what you learn and just fail forward, you're gonna get better. You can get better. You know, it takes what, 10,000 hours of doing something to be proficient at it, I guess. You know, nobody. You learn more from the first deal that you do than you ever will from a book or a class. So just learn to start. Start getting out there and taking action. Get off the bench, get in the game and you'll learn a whole lot more.

Right, right, right.

What are some rituals that you're doing right now that's making you a better person or investor in general?

So here. Wow. A couple things. So I've cut out red meat. Here's a big thing, diet. We talk about diet. Why it's making me feel healthier because I've got bad knees and bad back from playing football as well. So cut out the red meat. That's helped me feel a whole lot better moving around a lot more. I've got. I was getting energy. I like to start off my mornings by going outside. We're stuck at home like many people are. So in the last couple months, we've turned kind of our backyard into. It's like our own tropical forest. So it's been really nice to kind of get back out, get dirt under my fingernails on the weekends and put that together. But in the mornings, I come out with a cup of coffee or my glass of water and I'll sit there and just kind of spend 10 to 15 minutes just kind of centering, focused on my day. I'll usually put on Tony Robbins and listen to him for 10 to 15 minutes and kind of do get my breathing in prime. And I've started doing that over the last four weeks and it's really made a difference. Day approaches and my energy levels, that's the biggest thing, I guess to say our bodies are a temple. Take care of yourself. And that's one of the big things I think is making more productive on the business side. The more videos I do, whether it's podcast interviews or training videos. One of the big thing that we're doing right now, we're in the midst of a five week push where we're focused on 40 different individual markets across the country. And so we're going in and profiling those markets with their, okay, what their foreclosures look like, their default rates, what's the commercial market look like, what's the real estate market look like, and doing these videos, hour long videos on each market, and we're getting some traction of it. But our goal is we're planting these seeds for the next six to 12 months as more people are in these markets looking for information Our videos will pop up first on the search engines forum. So that's.

Yeah, that's brilliant.

So I guess that you kind of answered this question on the last one. But what is the one thing you're doing to improve your business right now?

And I would say for my business is literally, you're gonna laugh at this, but it's coming down to picking up the phone and dialing for dollars. You know, the marketing is great, marketing is great for raising capital, other things. But literally with my business, it's still pick up a phone and call them and leave them messages. You know, bankers will read their email, but bankers are often very busy, especially the people that we deal with. So it's literally dialing for dollars. So at least one day a week. Sorry, one day a month at least. Usually the middle Wednesday, I'll pick up the phone and I'll dial 50 to 100 phone calls in an afternoon.

Yeah.

And that out of 50 phone calls, I'll probably talk to 14 people. Out of 14, I'll probably get four non disclosure agreements and I'll get one list or two lists sent to me out of that four.

Yeah.

That leads to new deal flow. Not just then, but for the next year.

Right.

Because we'll follow up with an email blast or a phone call after. And they send stuff out in a quarterly month. I mean like, I'll give you an example. Like Quicken Loans.

Yeah.

I've been getting their quarterly loan sale report for the last six, seven years that came from that. Okay. With a phone call. But also reaching out LinkedIn to these asset managers and communicating with them that way. So really being focused to make these connections. Yet they may be in kind of a holding pattern, waiting to see what the government does or what happens. But planting a lot of seeds now will eventually sprout.

Absolutely.

If you can give your younger self one tip in regards to investing, what would that be?

Be coachable. You don't know. You don't think you know. You don't know as much as you think you know.

Right.

You know, the best thing I do, biggest mistake I made early on was trying to think I knew everything. And not taking education, not going to workshops, not networking with other people. Part of that is because I didn't know that real estate investment clubs really existed. And I found that out the hard way after I did a couple of deals. So network with as many people, be coachable. It's somebody who's got is in his shoes where you want to be and they're giving you counsel. Not Advice. Everybody can give you advice like an ass. They've all got advice like assholes. Okay? Counsel is what you want to get from somebody out there who's done it. And they tell you don't do that because they probably did it. And experience. And most. The most successful people that I know are also the most approachable. So leave your ego at the door. If you're dealing with something, reach out to somebody who's where you want to be. Oftentimes they'll give you a lending earring, give you the easy solution, and just be coachable. If people are giving you counsel because they care, the thing you got to worry about the most is when people stop reaching out to you is when they've given up on you.

Right? Right.

Last question for you. What's the worst job you ever had?

Worst job I ever had, young kid. Ingleside, Texas. Now, Ingleside is in South Texas, down by Corpus Christi. And back in 1990, they thought that the whole ostrich farm was gonna replace the beef farm in Texas. So South Texas was rampant with these ostrich farms. So I worked on an ostrich farm, having to basically suck waste out of these pens attacked by ostriches. You know, I had to mow the pens and they would be running at you. So, yeah, sitting in 6 inches of rain and slush and ostrich piss and shit. You know, Ron Legrand says the smell of shit pisses the smell of money. It's not that on an ostrich farm. But you know what the thing is, you got to realize if you've done, I mean, I've dug ditches, I've dug septic tanks, you've got to be willing to get your hands dirty. And it's because of that, doing that stuff as a young age and what my parents and working, it's helped build the work ethic that I know that through thick and thin, peaks and valleys, good and bad, I know that I'm gonna come out as long as I keep working and keep showing up on a daily basis. So I have to give some, some kudos to Ken Gibson and the other people that employed me to do that as a young kid.

Awesome. Awesome.

Hey, Scott, man. That's the end of the show. Tell my listeners how can they get in touch with you?

Thank you. Appreciate. Yeah, easy go. You can go on over to listen to the Note Closer show podcast anywhere that else that you subscribe or listen to podcast close your show. You always go to our website@weclosenotes.com that's the mothership where our podcasts, our blogs or videos. Also, you can find out what kind of trainings that we're doing on a monthly and quarterly basis for note investing. Go there. If you drop me an email@scottclose notes.com and tell me you heard me on the show, I'll be glad to send you a copy of my 73 page book on how to buy notes at 40 to 60% off for free for you. So it's only 20 bucks on Amazon. I'm willing to send you a hard copy for free if you go and mention the show. So and do like Willie said. Go on over, leave him a five star review and subscribe to his podcast. He's doing an amazing job. Look, I'm just honored to be here. You've done such a great job, Willie, and you can see it from listening to the first episodes of where you're at now. Just growing and getting you getting in your groove brother.

You're doing a great job man.

Keep up the good work. I appreciate it man. Appreciate it.

Thank you for listening to the Generational wealth through Commercial Real Estate podcast brought to you by Onyx Capital Investments. Onyx Capital Investments works with investors nationwide to invest in income producing real estate in emerging markets. Connect online at www.onyxcapitalinvestments.com to learn more about what we are doing. If we have added value to your life, please leave us a review.