Investing In Distressed Notes Explained In Simple Terms: REI Mastery with Joe McCall Podcast

Welcome. This is the Real Estate Investing Mastery podcast. All right. Hey everybody. Welcome to the Real Estate Investing Mastery Podcast for a great treat today with the gentleman named Scott Carson. And we're going to talk about all things notes. Probably that's what I'm guessing because that's what Scott loves to talk about and I'm very interested in learning more about notes and so I'm looking forward to talking to Scott. But first, guys, I want to welcome you to the show. Don't forget, if you go to realestateinvestingmastery.com I've got a lot of good treats there. I have a free lease option contract that you can check out. I got a wholesaling 101 mind map. It's like a mini course teaching wholesaling 101 basics and got transcripts for the shows, got show notes. Been doing this podcast since 2011, so there's a lot of good episodes there. For instance, if you want to find a podcast about how to find buyers, go to the search bar. Just do a search for buyers. You'll see all the podcasts talking about buyers. But anyway, go check it out. I also want to give a shout out to some guys here who have been leaving some reviews on itunes. I really appreciate it. First one is Kenneth. 7:02. He gave me a four star. I appreciate it. He says, Kenneth, great show. Joe, you always provide valuable information. I appreciate that. Corey Woodman left me a good review. He says five stars, the best there is. My name is Corey. I've been following Joe on YouTube and other Internet based platforms for over a year and can accurately state he is the real deal. Joe gives so much free information along with his programs that will dramatically change your life so long as you apply it. I've done four sandwich lease option deals in the last 10 months from just taking action based on Joe's free information. What I needed to charge more money for this podcast. Seeking wisdom and counsel and taking action. I'm looking forward to joining his coaching group soon and learning how to make a system out of all this. I highly recommend you all listen. Thank you, Corey. Appreciate that. Corey, one more review. This is funny. Blackjack21, he gave me a 4 out of 5 stars. This is what he says. Good content. I just wish I wouldn't have to listen to two minute outros of a country version of Amazing Grace. So Scott, you don't know this, but on my, on the outro for my podcast I play this blues version. It's not really country, it's a Blues version of the song Amazing Grace. I've been doing that since 2011 and some people can't stand it. And I didn't think it was a big deal. You know, you can just fast forward if you have your podcast player, you know, just hit the fast forward 30 second button a couple times or move the slider all the way over to the right.

But anyway, some people you just can't make happen no matter what you do.

Well, I took music off and I had people complain that, hey, where'd your Amazing Grace song go? But anyway, Scott, I'm glad to have you on the show. How are you?

I'm doing great, man. I'm excited to be here. Thanks for having me.

Well, Scott, you live in Austin, Texas, and I'm gonna guess you played football in Texas because that's what everybody does down there, isn't?

It's a national pastime like drinking Lone Star beer and eating chicken fried steaks.

Awesome. Okay. But you're in the note business and I've met you at different masterminds we've been a part of. You're one of the best in the industry. You're one of the experts, and I'm glad to have you on because a lot of our listeners have no idea what notes are and they probably get a little intimidated by them. And I'm glad you're here. Can you just kind of start off with telling us about your background, how you got started in the business, what were you doing before? And then I want to start asking you some questions, like can you break down notes note investing 101, like basic stuff.

I'm glad to. And I got started as a real estate investor in 2002. Straight out of college, was working for Verizon Wireless. And my wife and I at the time thought we would be the next flip this house experts. You know, you would love the TV shows. So we went out and bought a couple rentals and then bombed when I got laid off. And then some of the big employers here in Austin, a computer company that rhymes with hell, let a lot of.

People off in the Austin area by any chance?

Yeah, in the Austin area, exactly.

Well, you know what the saying is, what the hell? Buy a Dell.

Yeah, exactly, exactly. So we, I got into real estate doing all the wrong things. The only people that made money on our real estate deals was the Realtors. And when we bought it and sold them at a loss. But anyway, a couple years goes by. I end up was in the banking industry with JP Morgan Chase. And I had a buddy of mine. Introduce me to this investor that was traveling the country teaching about owner financing, wraparound mortgages, creative financing, stuff like that. So I came aboard and learned. Was doing mortgages to traditional mortgages in about 30 states for a lot of investors. And for about four years, I had kind of a private apprenticeship with this investor who's no longer in the business now about creative financing and specifically distressed debt. Fast forward a couple of years. 2008 hits. We all know what goes on from 28 to 2010. I left the mortgage company and dove headfirst into just real estate. And in 2010, I stopped doing subject to and owner financing and wraparounds and all that stuff and just started to focus on buying distressed debt. I focused so much on it, I sold everything I owned in Austin, Texas. My house. I got. Did a garage sale, got rid of everything, me and my dog. I was now divorced at the time after Go through some financial hurdle hurdles.

Yeah.

Me and the dog, princess.

Okay.

Jumped in my truck and we started driving around the country for three years.

She's a female, right?

Yes, yes, yes, exactly.

Okay.

Had her for 17 years. And finally. She finally passed about a month and a half ago, but.

Oh, sorry to hear that.

Oh, it's okay. She had a great life. But anyway, that's what I did. That's kind of my background. And the last eight years since then have been just amazing. We've closed on a lot of deals.

Let me rewind. Like, why did you sell everything? You're starting to buy distressed debt, which I'm assuming is that means you were starting to buy notes from bad mortgages, right?

That's correct. I was.

So why'd you sell everything? What?

Because I wasn't buying anything in Texas. I wasn't buying anything here. And I want the. One of the big things I wanted to do was get out on the road and start talking to everybody. It was kind of interesting how it happened. And I was sitting there, I sold my house. The house as it was a rehab project that was way upside down. That's. That's one thing. It was. When I bought it, it was gonna be worth 300. And then over the next, you know, six months, we had a bunch of foreclosures take place on the market in that neighborhood. That really dropped the value down below what I owed. So I was able to get out of it and. And write a big check at closing to walk away from that house. It's part of the reason I sold it.

Okay.

But I was sitting there watching baseball, watching, you know, I don't know, espn. And the commercial comes on about people, you know, buying an RV.

This was 2011, about. Right. So you're probably watching the Cardinals beat the Texas Rangers in the World Series.

I think it was, it was 2010 actually, but pretty close.

Yeah, well, they lost both years twice in a row.

They did, they did, exactly. And so I decided I was going to plan this mythical journey around the United States, going all these ballparks and I just kind of wrote up this idea and looked at the dates and didn't really think too much about it. And then divine intervention kicks in. And over the next like two weeks, I had like five real estate investment clubs reach out to me from blogs that I'd written or videos that I'd done and asked me if I could come speak at their investment club. And I went back to this piece of paper that I'd written this stuff down, you know, a couple weeks earlier. And I look at it, I'm like, oh my God, these dates are perfectly coinciding with when I would have been there for this mythical trip.

Yeah.

So that was enough for me. I sold what the rest of the stuff I own, like I finished my house up and sold it, got out of it and then jumped in the truck and literally what I thought would be, you know, like an eight month trip turned into three years of traveling across the world or across the United States at least non stop buying assets, meeting with bankers and, and talking to investment clubs.

Wow. So you would just, where would you live?

I would rent hotels, I would crash on friends couches. I had, I rented a place down in Marco Island, Florida for three months, this mansion on the water for fifteen hundred dollars a month that I stayed there in the off season. So I just, it just, I just hopped from hotel and event and place for a while. Some friends all across the country, they're like, hey, come stay with us for a week.

Wow.

You know, it was just, it was just awesome. And my business absolutely exploded from that point forward because I was really like a grassroots politician, you know, drumming up support for the Distress Note game.

Okay, so that's your main game, Distress Notes. Are you settled down yet? Are you living at, in one place?

Yes, I'm back in Austin. Back in Austin. Love it here. Absolutely love what's going on here in Austin. It's got a hot market I don't buy, I haven't bought anything here in Austin or Texas in the last few years as far as investment wise anyway. But it's kind of midway between because I Do travel quite a bit. So it's kind of mid part across the country. So if I don't have a two hour trip to Florida or to our trip to California if need be.

Okay, cool. Let's talk about distressed notes. Like you still can buy distressed notes today.

You sure can. And in 2010, with the worst of the financial crisis, we had over 15 million homeowners that were underwater or owed more on their mortgage than what their house is worth. Still to this day, we still have about three and a half, four million homeowners that are underwater. Actually one out of nine Americans are still underwater are facing default.

Well, how many are, how many are still little to no equity and underwater?

Like I said, one out of nine. One in nine Americans are still underwater or negative equity.

Okay, one out of nine. But how many have like little equity? Maybe they're not underwater.

I don't know the little equity part. I just know that they're underwater or they're distressed.

Well, I bet you it's at least if you consider then people have little to no to negative equity. I bet you you're at two out of nine.

Oh, I totally agree with you there. If not worse.

That's amazing.

Isn't. Totally is. And people in California and Florida and parts of Texas here, stuff like that. We don't really think about it because we've had great markets. You know, it's values are above where they were 10 years ago. But then you look at parts of like Ohio and Michigan and Indiana, Illinois, parts of Tennessee, Pennsylvania. There's a lot of areas out there that still haven't recovered or still slow to recover. And there's still a lot of debt out there that can be picked up at a fraction of what the current market value of the property is to make really good investments.

Wow. All right, so then distressed notes, those are non performing notes, are these properties that have, they've not gone into foreclosure yet, right?

That's correct. In a lot of cases the banks may have started foreclosure, then the mortgage got sold off to another bank or another institution and they haven't started the.

Foreclosure process, but they're at least three.

Months behind, at least, if not worse. Most of the time we're seeing stuff that's at least 6 to 12 months or greater behind.

Wow. So even in today's market, banks are still not foreclosing right after the three months when they're late.

Yeah, we see a lot of this happening. They drag it out. They drag it out. Now in Some states there's a lot, it's a longer foreclosure timeframe. Like I'll give you an example, like South Carolina, Florida is a year to foreclose. Ohio is about nine months to foreclose. But we still see stuff in like Michigan, which is a fast foreclosure state, or Georgia or North Carolina still drag on.

That's amazing.

Yep.

Okay, so where do you buy these distressed notes from?

We buy them from banks and hedge funds. I'm going to tell you right now, don't call me up or reach out to me and say hey Scott, I want you to buy my non performing note from Chase Bank. The big guys out there aren't going to sell them in small pools. You know, we buy a lot of one offs. We also buy smaller portfolios, you know, 200 assets or less. But Chase, Citibank, Wells Fargo, those guys aren't going to say anything, anything less than like a 50 million dollar portfolio. So they're just not, they're not in the habit of selling for the most part to a small guy like me or even a midsize guy. They're selling to like countries like China and things like that. But there's still a lot. There's, you know, there's still 45, 4600 different lending institutions out there that have paper, that have, you know, created a mortgage or written a mortgage loan money to a borrower out there that have the stuff sitting on their books that they want to get rid of it. And the further into fault the borrower is, the more of a discount they're willing to take off of what's owed or off of what the property is worth to make it valuable for me to come in, step into the bank's shoes, become the bank and then try to work out some sort of situation with the borrower if I can.

Okay, so let's say you, you find a little small bank or you find a hedge fund that has some bad debt and they're willing to sell you a note about what kind of discount do you like to see or do you should you expect?

So I don't like to pay above 50 or 55 cents of as is market value. So I'll give you an example. Say a borrower owes 100 grand on a house is worth 60. I'm not going to really pay above 30 grand for that debt. So that's 50 cents on the dollar value. It's about 25 cents on the dollar for the debt. That way I've got some leniency in there, if I've got to foreclose or I've got to do some rehab of the property, worst case to still make money on it.

All right, so if it's, if they owe 100, it's worth about as is 60. You're going to try to buy it for 30, 35?

Yes, sir, that's correct. Okay. Now if it's in a longer foreclosure state and there's got a bunch of taxes on it, I'm going to discount the value some more down to take that into consideration. But if it's in a faster foreclosure state like Georgia or Texas here, they may want a little bit more closer, you know, to 60, 65 cents on the dollar here. So each state's a little bit different based on the foreclosure time frame. But that's kind of a, you know, at 50 cents on the dollar for a one off asset is usually where I'm going to be at or less for the most part. Now if you buy in bulk, you know, 10 or more assets, they'll probably give you a little bit more of a discount. The more you buy, the cheaper you'll get across the board.

All right, so when you buy it, you got to wire them the money, right?

Yep, yep.

And so you're using either your own money or you have private money that you work.

That's correct. Other people's money, self directed IRAs, stuff like that, we use a lot of, to fund these deals.

All right, so let's say you find a $30,000 note and then what do you do with it? You now own this note of a bad debt of somebody who's a year behind on payments.

Right. So the thing, one thing to keep in mind is we do a lot of due diligence on the front end. This is important. We wanna make sure it hasn't got a tax foreclosure. I prefer to buy occupied assets because I want, my biggest goal is to rehab the borrower. I don't wanna rehab the property. All right. I wanna keep the borrower in there. I wanna try to give him the second chance to start paying on time. Cause let's, let's run some quick numbers. If I'm paying 30 grand for their $60,000 asset, and they had $100,000 mortgage, their mortgage payment be like 700, 750amonth.

Yeah.

Well, if I can get them start paying on time, $700 a month times 12 is 8,400 bucks. 8,400 divided by $30,000 investment is a pretty good deal. Pretty good rate of return to get them reperforming.

I'd say. So I'm gonna do this right now.

Sure.

750, is that what you said? Times 12?

Yeah. 750 times 12 should be like, right. At nine grand.

Right. Divided by 30,000 that you paid for the note.

Yeah.

That's a 30% ROI.

Exactly. Now, that's not including. If I can get the bar to pay a little bit of extra.

Yeah.

To get caught back up in 12 months. It's also not. So I'll have them pay for a year, and then after a year, I can sell that note off at 80, 85% of value as a reperforming note.

Okay. So in one year, you resell that note or you can for 80 to 85% of 60. Okay. Of as is value. Even though. Okay.

So it doesn't matter if I can get them reperforming.

I see, I see.

Most funds will look at that as. Okay, they've been reperforming for six months. 12 months. We'll take it at that. And they're looking.

Are you reducing the principal owed or does that stay the same?

Yeah, no, I can do all that sort of flexibility. I do that a lot of times. I'll tell the borrower, like, listen, pay on time for 12 months will forgive the year you're behind on. Or we'll adjust what's owed down to something that's more in line with what market value is. So that's the beauty of it. Or just let it ride for a little bit longer for another year, two year before we forgive any principal. The fact that I bought the debt at a discount gives me the flexibility to really modify that mortgage anyway I see fit. I've forgiven principal, I've dropped interest rates to 0% for people. I've done a structured where it was like 2% for a year, 3% for a year, went from there. Or they, you know, for every dollar they paid above their mortgage payment, I forgave two bucks. You know, there's a lot of creativity that I can do with buying the debt at discount and really create a win win scenario. That's good for me, good for the borrowers, but also great for our investors that are backing us up as well.

Nice. Okay, so you get a. You buy a note from the bank, you talk to the, the person that's living there, and let's say they work something out, but three months later they're behind again. What do you do then?

Then we foreclose we start the foreclosure process. You know, if they're not going to pay, you know, pay. You know, stay. All right.

I'm not going to pay you to live in my house for free.

That's right. I don't run a charity. I donate to charities. I don't. I'm not one. So we just get the attorneys involved in. You know, the beautiful thing about this business is there's vendors, like servicing companies and attorneys that do most of the heavy lifting. I don't want to talk to borrowers, and most people should not be talking to their own borrowers because it's a country western song. You know, you said there was people complaining about your outro with your music. Trust me, they'd be complaining more about the borrowers and all the sad songs that we had. I mean, I had one bar who had five grandmothers die, you know.

Wow. Really?

My grandmother died this month. Wait a second. You use that excuse last month. You. Yeah, it's the other grandmother. You know, I'm like, you know, we hear all sorts of stuff. It's. But it's a country western song. And the point I want to get with people is like, listen, we're glad to help you, but if you're not going to help yourself, I'm not going to sit here and bend over backwards to help you. You know, we. You still got to pay to stay. I'm the bank. I could be your. Your, you know, your knight in shining armor and allow you to stay in the house and create something that makes sense. Because, you know, I've been through bad things. I think most of Americans have been through a financial hurdle at some point. Yeah, but if you're not. If you're going to say you're going to fall through the payment plan and you don't, and you get more than, you know, another month or two late or just quit answering the phone calls or bounce a check to us or lie to us. I'm not going to play around with you. We're. You know, we'll move to foreclosure. Sometimes we'll offer up cash for keys or de blue or a short sale, but for the most part, people don't help themselves. So we've got to get the attorneys involved to finish the foreclosure.

All right, so then you foreclose. What? You know that house That's. They owe 100 and it's worth 60. They're just gonna. They're gonna walk away. You're gonna foreclose on the house. Then what do you do with it?

So we will often list it for sale at a price at the foreclosure auction. That makes sense. So we'll list it like 80, 90 cents on the dollar at the foreclosure auction and see if we can sell it there without having to do any work. Now if we do take the property back to when he buys the foreclosure auction, then we're gonna either fix it up and then sell it. Some investors like to turn around and turn those into rentals. Other people like to, you know, turn around those. Do those as like lease options or, or rental, you know, rentals and stuff like that. I prefer just to sell it because I don't want, if I have, you know, 40 grand or 30 grand of equity tied up in a property, it makes. I want to get that equity out so I can double down. I can take one note, sell it, you know, go through the process. Now I have money enough to go out and buy two notes and do that aspect of things.

So you bought the note for 30. Hopefully. You're gonna just try to sell it right away to another investor?

No, we'll do retail, but we'll list it. If it's in good condition, we'll try to list it at 90 cents of the dollar because people are paying stupid numbers at the foreclosure auctions these days.

Right. Okay, so you'll still make like on this example here as is, it's worth 60. So you'll try to sell it. Well, if you don't fix it up, you just try to sell it at the auction. You'll try to get maybe 50 for it, right?

Yeah, exactly. That depends too. If it's, you know, one of the things that we do, we do a lot of drive bys. You know, realtors drive by, see what the property looks like. I mean, we don't have interior inspections reports, but if it looks pretty decent from the outside and somebody's living it, great. Now one thing we also do is we often will offer the borrowers up cash for keys, you know, 500, 1,000 bucks to walk away from the property, leave it in good condition and then sell it that way. Yeah, but not, you know, we still end up foreclosing about 40% of the time.

All right, let's talk about how to find these notes.

Yep.

You, you drive around the country and you just network and flap your lips and, and talk to people. Somebody that doesn't want to do that, how do they find deals?

Well, it's, it's easy to do this, there's a couple apartments in each bank out there that have a specific name, individuals that you reach out to at banks and institutions. And if don't. People don't get anything out of this, they write this down. The name of these departments are the special assets department. Okay, Special assets. Or you also have the secondary marketing department. And there are websites out there that track the internal departments like Lane Guide, or I can jump on LinkedIn and type in special asset managers, and it'll give me like a list of a hundred thousand of these individuals at different banks across the country. All right, We've over the last 10 years, built a pretty good list of these contacts. And we just drip market and we drop them an email once a month. Hey, what do you have on your books this month? What do you have on the books this quarter? What are you looking to get rid of?

Okay, nice.

And that's one thing that we do. So it's easy. Another thing that we do is we reach out different to different real estate hedge funds that are, you know, are buying mortgage or, you know, bought from Fannie Mae or Freddie. We reach out to them after about eight months of them closing on a trade and buy from them as well, because after a year they can look to move that stuff off their books. There are all sorts of other private investors that we deal with, like you and me that have notes on their portfolio that we reach out to at different networking events. And then of course, we'd like to reach out also to servicing companies and speak to somebody in their business development side because they often will be representing investors like myself and you, Joe, that have notes and they may know somebody who's looking to sell a portfolio off to raise capital or has some stuff on their books that they don't really want anymore.

Yeah, that makes sense. Are you worried about competition? I know somebody's thinking, listen to this, like, oh, man, Scott's got a big business. He's going all over the country, sending emails. How can this little ME investor compete with that?

I only wish I could buy it all.

Yeah, yeah.

There's still so much in default. I mean, nation's default rate is still at 4.1% across the country, 4.1% is still the national default rate. I actually think that's low because I think there's a lot of lending institutions that stop reporting that stuff. But the thing to keep on, there's plenty of opportunities, plenty of lenders out there. I can't contact everybody. Not everybody wants to deal with me. Asset managers of banks don't often keep lists. It's often who shows up on their email the most recently. There's so many different ways to find debt that you can buy at a discount, especially on the residential side or even the commercial side that's off market. I mean there is no MLS for notes business. There is no general listing service. There's a lot of lenders that have different things at different times. But the one thing I like about this business, Joe, is that if I make a connection with like a bank, oftentimes I'll get stuff from them on a quarterly or monthly basis. Yeah, it's not like on the traditional real estate side where if I send out a postcard to somebody who's an owner finance, they might have one note for me that's ever. So I got, I don't do any really any direct marketing via postcards or mailers anymore like I used to do when I was a brand new investor. All mines via emails and you know, LinkedIn and some websites like that.

You can get a VA to do that too for you, couldn't you?

I do. We've had a VA build a big list for us over the years. Go out and connect with a lot of asset managers.

Amazing. Very cool. All right, so you're not worried about competition?

Yeah, there's, there's plenty to go around. We've got students that are closing on 50 deals in the first year. I mean I've done, I bought over half a billion dollars in debt and we're always looking to close on new deals. So there's, there's plenty of opportunity out there across the board.

Talk about private money a little bit, Scott. You got to buy these notes, you got to have some capital behind you to do that. What, what do you recommend to people who want to get started in this on how to find private money?

So I'm going to give you a real easy tip of what we do and how we farm our private money source. So if you go to any like appraisal district, like county appraisal district in most parts of the United States, they don't do this in California, but other areas like I could go to Travis County Appraisal district and where it asks you for the address or the owner's name of the property you're looking for. If you just type in the name of a self directed IRA company like Quest IRA or Equity Trust ira, just type that into the owner's name, it'll pull up a list of people who have used their self directed IRAs. To buy an asset, to buy a property.

Okay.

And that's valuable. You also do the thing of the county clerk to see who's lent money out of their IRA to other investors doing the same thing. Yeah, we pull these lists of IRA investors locally and in different parts of the country and then we'll reach out to them. Then we will send a letter to them or a postcard to those people because we know that they're IRA investors. So they've got money, they've pulled the trigger. They're also probably looking to do more deals and it's a great way for us. We've raised a lot, millions and millions of dollars in private capital from focused on just self directed IRA investors for the most part. And they may use their self directed IRA or they may use other cash they have available. But it's much easier of a conversation when you deal with somebody who's already pulled the trigger and who has money at Quest or Equity Trust or something like that.

And then how do you reach out to them and contact them?

I'll drop a postcard, say, hey, we saw your postcard or a letter. So hey, we came across your information online, saw that you bought this property. Was this for a real estate investment? If so, great, let's talk some more. If it wasn't just this, just throw the letter away. But it's basically just to get them, hey, here's what we're, you know, we're a real estate investment firm buying assets in your area. We're looking for people that want to buy these deals from us and also want to partner up.

Simple, but doesn't sound too complicated.

It's not something, I mean, it's very simple. The hardest thing is just doing it.

Yeah.

You know, mailing letters out and you know, we get a pretty good response rate. If we send out 50 to 100 letters, we'll probably get somewhere between 17 and 30 phone calls. So yeah. And once or they will get, you know, we'll put a link in the postcard on the letter that they can go to and watch a video about what we are and who we are. And that'll get them to opt in to our videos or send us an email and want to find out more information and we go from there.

So are you always marketing for private investors or once you have, you know, a handful of them that you're good?

I do both. There's often, we have ebbs and flows. So like it's with the fourth quarter of the year right now we're doing a Little bit of reach out to some bar, some investors to raise some capital to buy some bigger stuff here at the end of the year because the fourth quarter is when the banks are often looking to move most of their stuff they have in their books. I mean we have other investors that we use on a regular basis. We just it's not a thing you keep in mind with notes. It's not like a 90 day in and out thing. We often having people's money tied up for 12 to 18 months or longer depending on what's going on.

Yeah.

So as long as we're able to provide them a good return on investment, communicate them with them on a regular basis, they're happy to let it sit there and ride because we're giving them updates. Especially if the loan gets re performing. They like to get those quarterly checks from us on a split of the payments and things like that.

Right on. So talk a little bit, Scott, about the future of the market. Do you see? Well, it doesn't sound like to me it's been slowing down in the last little bit since the market has gotten hot, but things are maybe slowing down a little bit or plateauing or whatever. But do you care at all what the market's doing?

That's a good question, Joe. And I get that all the time. And I do care what the market's doing and I'm not one of these people that's spewing rainbows and roses out of my beer. You look at some of the economic sides, default rates are still at 4% but they're starting to inch up. Areas like Florida, Texas lead the way, which is kind of surprising to Texas, but that's kind of from the hurricane from a year ago and we'll have more of that with the other hurricanes that have hit. But default rates along the coast are up. You have unemployment starting to inch up with the kind of the backlash from the trade wars and the tariffs and stuff like that. You also then look at like the higher valued homes are starting to drag. Those prices in those markets are starting to soften up days and markets are starting to extend out. We're going to see a repeat of 2008, maybe not exactly as extreme as it was, but we're going to see a downturn again. I mean real estate can't keep going up and up and up. It's got to recover at some point. And we're starting to see markets that have that happening in different areas of the country. So I believe we're going to see some major changes. Take place over the next six to 12 months. I think 2019, we're gonna see a lot more paper hit the market default to paper. I mean Fannie and Freddie, you know, and HUD basically Hud stopped selling REOs because HUD was selling off all the, their debt to investors. So there's a lot of opportunity out there right now. The next six months are gonna be interesting to see what happens with the midterm elections and things like that too. But there's a lot of opportunity. I think we're, we're gonna see a lot more distressed debt hit the markets here in the next year.

Wow. So what do you see? Are you changing anything with what you're doing? Are you going to be doubling down and doing more?

I'm doubling down. I mean I buy as much as I can right now. This will be marked the fifth or sixth year that we've bought at least, we've averaged at least one asset bought per day on an average basis for the year. We see a lot of opportunity. We're buying a lot of assets in parts of the country. I'm very gung ho on like states like Michigan and Ohio and Indiana where there's been a lot of recovery. I can buy properties that are cheaper, especially buying the debt for a fraction of what it costs to build a property. And the rent rates are really nice there. So we use kind of rent rates as a leverage to say, hey Mr. Mrs. Bar, instead of you moving out and paying 900amonth in rent, why don't you stay here and make your payment of 500amonth? You know, so I, I love what's going on in the market. Whether it's an up or down economy. We still see distressed debt. Yeah, I make, I see more deals when it's a down economy than an up economy. But you got to know how to, how to buy, right. Not make sure you don't overpay for something.

Well, that's fascinating. A 4.1% default rate. Yeah, people forget that there's still foreclosures going on. There's still people doing short sales.

And another thing too is that there are like every state now has a, as a non prime lending opportunity. There are lenders, there's over 90 plus lenders doing 100, you know, different types of subprime or they call it the new non prime now they're giving loans non prime. They got really creative with a new name.

Awesome.

But you know, 100% financing or you know, if you got a 500 FICO, we'll do it for 90 cents a dollar or a day out of foreclosure, day out of bankruptcy, we'll give you a brand new loan. Ninja loans are back. No income, no job. That's okay. We'll give you a loan now.

Wow.

Yeah, it's not as extreme as it was, but, you know, I'm sure you've probably seen this. When I drive around or travel across the country, I look for new home signs and construction's back. But when you start seeing, you know, 500 down or no down payment, I mean, there's a lot of lenders that are even donating like the three and a half percent down for a Fannie Mae loan, which is, which is scary.

So. Well, that's fascinating. You know, Scott, I'll be honest. I've always been a little intimidated with notes because I've just never understood it. But I've. I don't think I've ever heard somebody explain it as well as you have. Just right there.

Well, I tried to, man. I'm not the smartest tool in the shed.

That's good. There's two of us.

That's. Yeah. But you know, the thing is I, I mean, I hear a lot of people out there that say that they're scared because it comes from the debt side. And there are people out there that over complicated it. It's. This is not a complicated business. There's a lot of moving parts to it. You just got to talk with the vendors. And that's what makes the note business so much easy or now I say much easier because there are good days and bad days like anything else. But the fact that you have professionals and vendors that are doing a lot of the heavy lifting for you. You don't have to be the person talking to the bar. You don't have to be the person handling the foreclosure process. You make a decision and often counting it. Talk about how we are often like general managers of our own professional sports team. We're not the Dak Prescott's or the, you know, or the, you know, the head coaches. We're the general manager directing our team to perform. So like I get spreadsheets, I get emails from my servicing company like, oh, this borrower, you know, we just got contact with them. They want to put two grand down. Will you accept that? I'm like, yeah, can they start making a payment on time? Yes. And the same thing like, oh, hey, the borrower told us to go pound sand or f off like, okay, great, that's fine. That's they can tell us to F off. We'll just send it straight to the attorney, start the foreclosure process.

Wow. So, all right. I wanted to ask you, before I forget, performing notes.

Yep.

Why don't you do anything with performing notes?

So I like performing notes, but I liked. I like creating my own performing notes. So, like when I take a non performing note and get it re performing, and that's a performing note for me at that point. I like that I get. And I would have gotten it at a much cheaper rate. Now most performing note investors are. It's great. There's nothing wrong with performing notes, but they're usually buying it somewhere between a 12 and 15 yield. That means they're somewhere buying it between like 80 and 90 cents of the dollar, which is okay. But especially using your own money, it's completely great. But if you're using other people's money to raise capital and they want an 8% return on their money or 10% return your money, there's not a lot of spread between that 10% and that 12 or 15 that the note is paying. So that's why I like non performing. I get better discounts on the paper. And through our due diligence process, we're pretty good at identifying opportunities that where we think the bar is going to perform. Is the power on in the property? Are the utilities on? What's the yard look like? You know, we do a lot of social media stalking. You know, we had one borrower that we're getting ready to buy a note on. She literally posted on Facebook, well, should I take my dirt girl to Disney World or pay the mortgage this month? I think we're going to Disney. And I'm like, and you're gonna get foreclosed on next month. You know, wow. Yeah. I'm like, you can't. We people share everything online. So we found people and what they're doing. We have people. One bar told us that she couldn't afford anything. And we saw on social media that she just bought a brand new car.

Wow.

You know, so we, you know, we check that out. We call the utilities department, says the bank that, you know, the cities and the counties will give us information about is the power on? Is there the borrower on a payment plan? Because they want to get paid too. And so that's great. And then we also get the servicing company provides us the notes. You know, have they talked to the borrower in the last six or 12 months? You know, how's that work? Did they want to do a Loan modification. And we also get a copy of the collateral files of the loan files. So we can often see what's going on in there as well before we buy. You know, I can see if a borrower has tried to do a loan mod, you know, three or four times. I can see the hardship letters. I can, I can see what they were doing as when they took out the loan, were they a loan officer or realtor or other things. And that helps us kind of paint the picture of what's going on with that borrower and then go from there. You know, like I said, we're pretty good about 60, 65% of the time. We get them to reperforming or get the property back relatively easy. It's another 35 to 40% where we do have to foreclose. It's a bit of a drag and, you know, but the returns are there. You know, if it takes us 12 months to foreclose, you better believe I bought it at a nice price to make some money on the back end.

So, Scott, what do you recommend to somebody who's interested in getting more education on this? Maybe get started dabbling into note investing.

Well, I'll tell you this, you don't want to go do it right off cold turkey. This is something that you can get in a lot of trouble if you do the wrong things. When you're dealing with debt and somebody's mortgage, you got to deal with like, fair debt collection practice. So education is very critical. There's a lot of information out there. We've got literally thousand plus videos online for people to learn from and different webinars. We do, we do have different workshops that are available every quarter. And online training. But getting some education, I mean, that's the big thing. Go, go binge on weclosenotes tv. There's a lot of, like, a lot of great stuff there. We've got our podcast as well that you're gonna be a guest on here shortly as well.

Yeah.

Where we bring on investors and vendors and really just share the good, the bad, the ugly of the business. And I think education is just critical no matter what you do, no matter what asset. If you're coming into real estate investing, you got to get trained and understand the ins and outs of what's going on in the business. So you don't have an oh, that costs you a lot more than what a class would have cost.

So weclosenotes tv, that's where all our videos are at.

That'll take you straight to our Vimeo Channel or you can go to weclosenotes.com for our website and other things.

Weclosenotes.com Yep. You have a very entertaining podcast, too. I want to commend you for that. It's fun to listen and watch your show. A lot of energy. It's not boring and we try to.

Keep it entertaining, man, you know, you.

Don'T play any boring blues Amazing Grace music either.

No, you know what? There's nothing wrong with Amazing Grace. It's okay to have it out that if that's what you enjoy, play it by far, Joe, because the people that love that are your tribe and those are the people that love you. And you got to realize something, everybody out there, you're not going to make everybody happy. A long time ago, I had a mentor of mine, Greg Reed. Tell me about the rule of 33. 33% of people are going to love you because of your family, your friends, they're just going to love you. And then you got 33% of people that are going to hate you. No matter what your color, your sex, your race is, whatever you wear, how much hair you have or you don't have, whatever, they're just going to hate you because they got an ugly heart. What you got to focus on as an entrepreneur is the 33% of people that love you and then that middle 33% that don't know you, that are on the fence. So focus on the 66%. You'll be a lot happier. And eventually that 33% that hated you, they'll either come around and realize, man, I knew Joe back when he really does know how to do what he's talking about. He. I do really admire him. I want to be a part. I want to be like Joe. And so that's the great thing. And quit worrying about what that 33% thinks. Just tell them to go F off. They're not paying your bills.

Grief, you know what I mean? Yeah. Okay, well, I'm not going to tell this guy to F off. He still gave me a four out of five star.

You know, you say, hey, thanks, man. Hit fast forward. You can tell them to fast forward off.

Okay, this might be a good time to transition to the close of this podcast. Go fast forward off. All right, Scott.

Nothing but love. Nothing but love. Come on, man. Four stars. Come on. Give a five star for my man Joe. Come on now.

All right, well, this has been a good interview. I appreciate it so much. Scott. Scott Carson, guys from Austin, Texas. If you want to learn notes, go check out weclosenotes tv or weclosenotes.com I know Scott. He's a good guy. He's one of the good guys. He does what he says, does what, practices what he teaches. And I'm assuming, Scott, if somebody works with you, you possibly could even partner with them on notes, right?

Yeah, we'll do that from time to time. Depends on the situation. So, yeah, definitely.

Cool. All right, man. Anything, final words of advice that you want to say?

You want my Jerry Springer final thought?

Yeah. But I bet you. I bet you you could do. You could one up him.

I will tell you this, guys, no matter what you're doing, you're in a great spot. This is a great show. Joe does such an amazing job with his podcast. And no matter what aspect of real estate you dive into, take action. If it's notes, great. If it's lease options, if it's wholesaling, whatever it is, take action. Because the only thing that you guarantee by not taking action is failure.

Good stuff, man.

Thanks, bud.

That's really good. All right, guys, go to realestateinvestingmastery.com if you're listening to this on the road and you want to get show notes later on, just do a look, a search for Scott, and you'll find this podcast. And then you get the notes, maybe the transcriptions. I don't know if we're still. We should be transcribing these. I need to look at my website. It's been a while.

Better, dude. It's SEO optimization right there at its best.

I know. All right. Hey, thanks again, Scott. Appreciate it.

Thanks, Joe, for having me. Appreciate it, man.

Bye. Bye.

Jam Sam. It.