How to Start Note Investing With Scott Carson From The Smart Real Estate Coach Podcast With Chris Prefontaine

Welcome to another episode of the Smart Real Estate Coach Podcast. Your source for actionable real life examples and advice to help you move to the next level of investing. Each week we help you make a quantum leap in your business, your finances and or your life. We want to help you take back control, help you thrive during chaos, and lead you through the current crisis to a better tomorrow. For more resources, check out smartrealestatecoach.com and be sure to give us a rating and review on your favorite platform.

Good morning and welcome Wick Smart listeners. Thanks for joining me this week. This is Chris Prefontaine with another amazing guest. I got to hang out with him on his show. We've done some networking since then and it's just going to be an amazing chat. You get to hear it. You get to listen in on whether you're driving or sitting focused and listening. I always encourage you to listen for the nuggets. Listen for the possible action items. Listen for those aha moments or statements or thoughts that you can utilize them to go create an amazing life. Remember, our purpose as a company is to help individuals and families create the life of their dreams. These episodes, the nuggets that come out of them, can help you on that path. Be sure to listen at the end. Also, for the amazing gifts we give away every episode. The winners come from reviews and ratings that get sent in from you, the Wicked Smart listeners. Here's this week's review a must Listen I just want to take a moment and say thank you for creating such an impactful episode. I believe that we all have a voice that deserves to be heard. Thank you for putting this into the world. That's a really cool and genuine and heartfelt I feel reviewers, I appreciate that. I'll let you know what you won towards the end and who sent that in. All right, I've got a wicked cool announcement coming up, guys. We have for the first time back live, the Wicked Smart Summit. As many of you know, many of you attended. We had an amazing QLS Live event 22, which is the first time back in the ballroom for that event and it was a game changer for so many people. Lives are being changed right in front of our eyes. You can be next. We want to have you at that event and as such, as a Wicked Smart listener, we want to have you at the Wicked smart summit on March 29th and 30th and we want to offer you a 50% off ticket. That's for you for this week. For the podcast listener only. You're going to go to smartrealestatecoach.com forward/summit50. That's going to get you into the Wicked Smart Summit on March 29 and 30 for 50% off. Okay, buckle in here while we bring you the next master's class. Today I'm going to hang out with Scott Carson. Scott's been in the mortgage, finance and banking industry since 2001 and an active real estate investor since 2002. Guys, reminder, experience, right? That's who and what we bring to the show. He's been actively buying notes on residential and commercial properties since 2005. You're going to see Scott hanging out in the Wicked Smart community quite often in the ensuing months in years at some of the events. All right, Scott, so always good to hang out with you. Welcome to the show, buddy.

Hey, honored to be here, Chris. Just here to give, man, thanks for being. Thanks for having me on.

I appreciate it because I read about a two line bio. It's going to be good that we jump into your. And I, by the way, I love that because I hate the three page bios I get. So thank you. And I know you appreciate that as being a podcast host. So first and foremost mention your show because it's a writer downer and I've been on it. It's great.

Yeah. The podcast that we've had for four years now is called the Note Closure Show. It's focused on basically all things in buying, selling, and investing in distressed debt. It's about half the time of me teaching subject matter about and the other half bringing on experts, vendors, other investor students, and then other content experts like yourself. We've got you on the show and your show goes live actually November 2nd here.

Sweet.

In just a couple days.

It's a good gang of people. So let's dive in.

Scott.

Scott, you've been at this a while, as we talked about on your show, and I love that there's nothing better than talking to experienced people. So how did you land kind of in the note world, Right? And then give us something on kind of what you're doing today, focus wise, because I'm sure there's all kinds of things you could be doing.

Yeah. So I was a banker back in 2002 for JPMorgan Chase and a buddy of mine came to me who was starting a mortgage company with another investor who was teaching creative financing, wraparound mortgages subject to deals, distressed debt, stuff like that. So I knew that's where I wanted to go. So I jumped ship from being the number one banker in Texas for JP Morgan Chase to starting a mortgage company. We're traveling the country going to all these big real estate expos. You've probably heard of Ron LeGrand in his neck of the woods. So we were every two weeks on a different event. And luckily for me, I was able to learn a lot of information from sitting in the back of the room besides just selling mortgages or giving mortgages to real estate investors. I learned from so many great educators out there, started applying that. And from 2004 to 2008, I. It was really like a four year apprenticeship with a guy by the name of Bob Leonetti who taught. Yep, you know Bob. Exactly. And so I was really able to learn how to properly invest in real estate versus traditional. Just go buy a home and try to rent it out or anything like that. So painful. Retail value. So was doing that. Started dabbling in real estate there. And then when everything hit the fan in 2008, I had Bob, I had others like, hey, this is a great opportunity. When everybody was getting upset about the foreclosures and distressed, we looked at it as an opportunity. So I went out on my own because the mortgage business kind of came to a standstill there really fast. And then I just started dialing for dollars, picking the phone, calling bankers, calling asset managers at banks to buy debt. And now we fast forward 13, 14 years later, we've bought over a billion dollars in debt on residential commercial properties, modified thousands of investors to help, or not just investors, but homeowners to keep them in their house. And so that's what I do now. That's basically all that I focus on, is just buying debt. We deal direct with banks. We get lists in from them on a regular basis of their, I guess you could say their problem children or their nightmares. And that's what we do. We buy the debt at a big discount off the value of the house. And that gives us a lot of flexibility to, to work with the homeowners to try to keep them in their house. If they want to stay, we can work with them to modify the loan, reinstate it, let them get back on track. And then they just want to be a pain in the ass and don't want to do anything. Then we go the legal route to foreclose and then take the property back and sell it off.

So, okay, so here's what I love. I thought of a few things and you're going to be highly likely, I think, talking to our community more and more and more about this, not just on the podcast here with the wicked smart listeners. But all events, what like when I look at someone buying conventionally, Scott, my brain goes right away, I want to shake them and go why don't you do what we're doing? In the terms world when you see the investors you must say the same thing. So what would you share with the wicked smart listeners? Like here's what you're missing guys, if you're not doing notes like I know this is a broad but just thoughts on this.

Well, the three big advantages about note investing I always listen to this one is we're seeing deals six to 12 months ahead of traditional foreclosure reo investors because we're getting these lists directly from the bank. That's the first thing is a lot of the deals I see never see the light of day in traditional investors because we've worked it out and we keep the borrowers on track. The second thing is we're not dropping thousands and thousands of postcards or letters. The banks are literally sending us lists on a monthly weekly basis, some cases so that if you're starting off it's a great way to get started without having that huge overhead of direct mail marketing. And then the third thing is the discounts. I mean we're as investors we should not be paying retail these days. Or if you're taking pick up something retail, you're picking up at a phenomenal term especially with the low interest rates. One of the things that we got hooked up initially was talking about subject to deals. And one of the ways that we approach these non performing we can't buy them or the bank won't sell us these deals at a big discount. We turn around and market to the borrowers for potential subject to deals. And so you've got to be creative. But that's the thing is if you're paying retail, look, you're overpaying because we all know the market is turning, it's going through some sorts of gyration right now. Look, to make sure that you're covered in buying a deal or you've got a phenomenal opportunity that is recession proof. You know, if the market does turn south, you're still going to be sitting there making capital.

So what's the best way? I'm always telling my students, look, there's all kinds of niches in real estate so don't get caught up in the shiny object. But at the same time I keep introducing notes to our commute to wicked smart community. What's the best way for them, Scott, to kind of like they don't know notes yet. They don't know this world. What's the best way to not get caught in the shiny object, but to start incorporating some of this, what are some ways they could ease into it to better their current deals? Does that make sense? Yeah.

So one of the best things, I mean, that's a really great question. I'm a big believer that you can't be a master of all, you can't be a jack of all trades because you'll master Vaughn. And I'm a big believer you got to stay in your lane so you've got that mastered and then adding things to it that makes sense. Don't try to go do 12 different things. I couldn't agree with you more than that, Chris. But the best thing that you start looking at, especially in the notes space, is everybody's in the notes space. That's what most people don't realize is that if you've got a mortgage, a car payment, student loan debt, you're in the mortgage space. You're just on the wrong side of receiving payments. Yeah. No. So that's the, that's the beautiful thing about notes is learning to start learning the different assets. Most people think that notes are just owner financing. We're, you know, we're doing a wraparound mortgage or we're going to finance the property. And that is an aspect of what we do. But with so much, so many borrowers out there being distressed right now, I mean, I think we're at still a this 4 to 5% default rate. I haven't looked recently, but there's millions of people that are struggling that the banks, if it's not government insured, the banks may be willing to sell the debt at a big discount. And that gives you a lot of flexibility to take over the loan, become the bank, and then, like I said, modify that loan, keep that bar in it. So you've got now cash flow coming in. You don't have to worry about legal costs, you don't have to worry about foreclosing and trying to flip it on the market. You can hold that note for cash flow for 12 to 24 months. You bought it at a big discount. Then there's the opportunity to sell it at a big profit margin in 12 to 24 months at 85, 90% of value without ever having to lift the hammer. As I joke, the pen is mightier than the hammer in the note business in a lot of cases.

I love it. I love it. So I'm curious, as you were saying that and thinking about your biz and what you said you do kind of. Where are you headed with your biz? Is it status quo like you said? It's all I do now, or is there something else on the horizon? Because I know you don't sit still, so you gotta have something next for you.

Well, yeah, I think that's all of us as real estate entrepreneurs. We're never going to retire. I think we're going to die looking at real estate.

Yeah, why not? It's fun.

It is, exactly. It's not really work. So we've really doubled down this last 12 or 24 months with COVID That was a big kind of a hit in the gut a little. But not being able to foreclose or evict. A lot of folks out there that we bought, but a lot of people that we bought debt on were willing to get back on track and start making payments. We had a lot of modifications. So we're actually, we're working on a fund. We should have a fund done first year or sorry, Q1 2022 that we're really raising. Going to be raising capital for because we see this as a big opportunity. I learned from the last mistakes in 2013 is that I should have bought a whole lot more back then.

Yeah, no kidding.

I'm not going to make that same mistake. I mean, we've bought a lot, but really doubled down. We've really done a great job of reaching out to asset managers. That's one thing that we do on a regular basis is reaching out to these internal departments at banks that sell this stuff and just educating, sharing what we're doing. Really, when anybody Googles don't investing, we're really the ones that pop up the most about it because we've really doubled down on marketing so that we own that niche. And that's one thing that I would tell people out there. Look, we're all in real estate, yes, but we're all in the media business too. So the more you can share of what you're doing, the good you're doing, what types of deals you're doing, share it out there. You'll, you'll never know who has seen it. And we've actually had banks reach out to me because of our videos in our podcast and say, hey, I've got a portfolio or I was recommended to you by somebody else as a peer to buy some stuff. And so that's, that's, that's what I. We're always constantly doing. We're double down on the podcast. We're doubling down with more video and doing a lot of not direct mail, but drip marketing constantly, once every two weeks to our big list of asset managers. Because you never know when a bank is going to be ready to pull the trigger to sell this debt off. They can't always do it. They've got to build reserves up over time. And there's a little bit of training to that, but it's public information. The banks have to file a quarter report with the FDIC sharing how much defaulted debt they have, sharing what percentage of the portfolio is. So it's literally like you can be like shooting fish in a barrel if you know where to look. And there's people up there that tell you that, oh, you can't buy notes direct from the bank. You're not big enough, they won't deal with it. That's not true, ladies and gentlemen. Many of our students are buying one off deals from notes. They're buying 25 $50,000 individual deals in Ohio, Michigan, other places out there that turn out to be phenomenal investments for it. You don't need to have $5 million in a bank or fund. You can get started using your IRA or savings to really tap in and do a lot of good and make an above average return for it. But banks are motivated, banks are distressed. You're not going to buy from bank of America, Chase, Citi, Wells Fargo, those big five guys, they're going to sell on $50 million portfolios. But there's still thousands of other lending institutions, mortgage companies, portfolio lenders that have bad debt in their books, that they're looking to move at a big, big discount.

All right, so, so I don't get caught up in our chat, which I can do real easy because I could go for hours in this stuff. I want to make sure like what's in my brain is how can they kind of step into what you do? And you and I were talking off the air about a one day. I think it's a one day event. And so can you talk about that so we don't forget?

Yeah, no. So we started teaching. I mean, I've got workshops and all sorts of stuff out there, but really we like to call it the biggest bang in the buck in the notice trees. We've started teaching a one day class. We call it Note weekend. And it's a one day class from basically 9:00am to 2, 3:00 clock in the afternoon. It's basically. My students call us the Cliff Notes. The high end aspect of note investments. We talk about how to Find the deals, what to say, what to not to say, how to market for them, how to raise capital, how to structure your deals, and then the different exit strategies. So it's a great dip your foot in the water to see if you like this aspect and then you can do a deeper dive in with our other classes and stuff like that. But it's a one day class very easily. It's normally 49 bucks but for your guys, we're giving it away for free.

I love it. And it's virtual. Correct. I just want to confirm for everybody to hear that like, okay, so this is a no brainer. So for every wicked smart listener, granted we're in 96 countries but you, you guys have an option to just tap in virtually. Go to smartrealestatecoach.com noteweekend I'll put that in the show notes. But no brainer. What if you guys go to the event? And Scott, I'd like your opinion on this because I say this about our stuff too. What if you go to the event, you just kind of learn how to do like maybe a deal for yourself or your own home. Like this is lifelong knowledge. Would you agree with that?

Yeah, I totally, totally agree with that. Some people, we have a lot of different operators that are closing on tons of deals on the fix and flip side or landlord side and they don't want to dive headfirst into the notebooks because they like what they do. But they are using the tactics that we teach to find deals to get on the bankers list of investors that are sending them stuff that they can use to take down more property in their backyards that may not have seen because it was never a foreclosure, it was a distressed debt. So that's one of the great things about there. I mean just learning about some of the different tactics that we use and the ways of structuring pricing and stuff. You'll find deals that nobody else is looking at and just amazing returns on this stuff. I mean and it's whether it's residential or commercial, it's the same facet to go in and find these deals at the bank. So it's a great way for if you want to up your game or just add a little extra, a little extra spice or a little extra bam to your business.

No, no question. You just nailed what I was insinuating earlier, alluding to earlier, which is keep like cranking the terms deals. That's great. You're going to up the game. I promise you. When I started studying this, we upped the game in a bunch of little areas. And some of them were indirect because we got an idea from being around the right people, which is key. And some of them were directly related to notes. Does it matter what weekend do you run these constantly, Scott? Because this will get out there and stay out there.

So we do it every third Saturday of the month. If you can't make it live, the minute you register for it, you get the replays, the most recent one sent to you so you can watch the replays. And then of course you get a live ticket. If you can't make it this month, you automatically reserve for the next month. If you don't make it, love it.

So smartrealestatecoach.com noteweekend Scott, what do you have on top of mind that maybe I didn't ask like your show. Other shows of mine, I get off going, ah, I should have said this. So is there some, is there something you want to share as we kind of get to the end here that you think is important?

Yeah. When you're buying notes, yes, the properties are collateral, but you're honestly not going at the property. That's one. And I'm going to show that. So a mistake that a lot of people get into is they don't understand there's a difference between owning the real estate and being the bank. And a lot of people chase on the traditional real estate side, they chase equity deals. You know, the borrower only owes 150 on a $200,000 house. They want to take that over. That's great. But in the banking side, we actually don't like equity deals because when the borrower has a ton of equity, if we have to go the foreclosure route, they're going to fight you for it. They're not going to do a cash for keys or dean Lieu where we can just take the property. They'll walk. They want that equity. Also here we're only entitled, being the bank of being what's owed. So if we have to foreclose on the asset, our highest bid at the foreclosure auction or the highest number is basically the payoff amount. So if the property sells at auction above what's owed, those are the same numbers. Borrows 150 and $200,000 house and sells at 180 the auction, we don't get that 180. We only get the 150. That 30k goes back to the borrower. And so a lot of investors. I get it. I was there too. Decade plus. Ago. They think, oh, there's all this equity, it's a great deal. And actually, no, it's not because the banks realize there's all that equity. So they're not going to give you a big, big discount. They're only going to give us a partial discount because you'd be paid off in full at the auction. So that's something to keep in mind. You got to have that banking mindset or terms mindset I know that you like to use versus the real estate mindset of that aspect of things.

I love it. And then the other thought here, when you're going through that is because people do make mistakes. You said, is there another mistake you could throw out that they could maybe avoid as they foray into this world here?

Yeah, here's one thing. A lot of investors want to do everything themselves. They want to be on the phone with the borrowers, they want to talk to people. No, you do not do that. When you're buying debt, you're dealing with different, you know, agencies out there. There's Consumer Finance Protection Bureau, some state license stuff. What I, I love so much about the note business, it's really a vendor driven business. You're going to use a third party servicing company to do the collections and the bar outreach. If the bar doesn't play ball, you put it to your attorney and let them handle it. You don't want to be the individual going out there knocking on the door trying to collect payments on that because a lot of times the borrowers will play what you're saying versus the attorney saying, versus the servicing saying and try to delay things. It's best to delegate in this business more so than anything else. And whether you're. I'm in Austin, Texas, but I don't buy my stuff in Austin, Texas, overpriced. I buy in about 30 different states. Out there you don't have to go see every asset. That's the beautiful thing too. There's parties out there, they'll drive, take photos and send it back to you. But I think one of the most magical moments. Aha. The last few years, Chris, that a lot of people start to get is when we get a list in. We don't have to buy it all. We can cherry pick, but you don't have to spend so much and do every bit of due diligence on the front end. Do some quick due diligence, make sure your numbers. And then we're cementing bids in sometimes 30 minutes from just online values. And if the bank comes back and Accepts our offer, then we go to contract. But if something pops up on that asset, whether maybe it's in bad condition or more taxes owed or it's in a bad neighborhood, we have the ability to fade or discount or bid or cancel that asset off, no penalty. And I think a lot of investors, when you think, oh, I got to make it be exactly accurate and what I'm doing, that stops them from really getting in offers quickly, they end up taking forever and by the time they get a bit in, that asset already been bidded on two or three times at higher bid. So that's, that's the thing to keep in. It's really throw shit against the wall and see what sticks. A lot of times just it is what it is, people. I rather make a bid for 60 versus 6. But the asset manager too, when you make a bid on 60, they would rather deal with one investor for 60 assets versus 60 investors for one assets. And that's the big thing is when we get a tape and we want to control that tape by making multiple offers on a lot of stuff, not just what we have in the bank account. I mean, we got plenty of time to raise capital with other people's money. If we're closing on a portfolio, we'll have 30, 45, 60 days to close. It's plenty of time to raise. Banks aren't going to usually ask for proof of funds. They're going to ask for earnest money down. So it gives you a lot of flexibility. If you're a brand new investor who are often. Those are kind of scary things like, oh, I may not have a lot of money in my account. That's okay, let's go make sure this is a good deal and then we'll show you how to market that deal. Because we all know good deals find money out there.

I love it. So if you're wicked, smile listener. If you haven't touched real estate yet and you're dabbling, wondering what you can do, Scott just dropped some serious nuggets for you. God straight and go full bore. If you're in the world of real estate now and you got a niche running like we both agreed, and you want to tack this on or use certain pieces of this, that's what I push big time through our students. So either is great. Scott, I appreciate you dropped three or four nuggets for more nuggets and hang out with Scott virtually. SmartRealEstateCoach.com forward/noteweekend. It's virtual. You have zippo excuse not to be there. Scott, appreciate you buddy. Thanks for being on.

Hey, thanks for having me and everybody. Chris may not need it, but go on over and leave that five star review. Click on the subscribe button hitting the five star review. We as podcasters love to hear from our audience. I know Chris is such a huge fan too from hearing from the wicked smart audience out there. So leave a wicked smart review as well while you're at it.

Love it. Get the lango down and everything. Thanks buddy.

Thank you man.

Okay then Wicked Smart listeners, that wraps up our time together with Scott Carson. If you enjoyed the show on any level, please take a few minutes to rate and review it so we can get you into the weekly drawing this week. Our drawing winner from the review I read early in the show is from Robert Wood. R.W. robert, you just won two things. I think it was a really cool review and it kind of hit me. So I want to give you two things. I want to give you a ticket to our next event which is the January 8th Wicked Smart Kickstart. You can learn more about that over@wicked smartkickstart.com It's a one day virtual event for everyone to hear this and it's going to set you up to have an amazing 2022. So Robert, you get a ticket for that and go to wickedsmartgear.com and pick out any three items you want from the gear store and go ahead and email podcastmartrealestatecoach.com we'll go ahead and load you up with three things on there. And while you're at it, if you don't have our bestselling books, go ahead and put a note in there and I will include our partner Peter Taunton's book the Impossible Hill. Okay Wicked Smart listeners, you just took 30 minutes or so out of your 86,400 seconds today. I appreciate it.

I don't take it lightly.

We as a team meet weekly to see how we can constantly up level. These interviews bring you experience, bring you people who have been through the different market cycles and the different storms that are going to happen out there in life so that you can improve your path along this journey to create the life of your dreams. We'll see you next week. Now just a brief thank you to our sponsors, Paul Dion, our tax specialist and CPA who can service all states for all your accounting needs.

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