Investing in Notes: Scott Carson's Recession Proof Strategies: Cash Now Homes Podcast

Podcast with our host, Mark Anderson, Albert Zeha, and myself, George, and our very special guest on Video feed, Scott Carson.

Hey, man. Hey, guys. I'm honored to be here today. Awesome. You guys are doing a great job. Keep up the good work.

Thank you, thank you, thank you, thank you. All right, so, Scott, we. We kind of normally start the show. What got you into real estate?

Tell us a little bit about it.

Tell us a little bit about what changed the mindset and got you going.

Yeah, so I was like many people back. I graduated from college here, south of. I'm in Austin, Texas, so it's a pretty competitive market. So I graduated college in 2001, went to work, and I grew up in South Texas and my parents owned the local hardware store. So on the weekends, I would say I was the indentured servitude of digging ditches and mowing yards and doing whatever I could with the different contractors and things like that. So kind of learn real estate with my hands on hammer and nail kind of approach aspect of things. But when I, after I graduated college, me and my ex wife or wife at the time, got settled down. We bought our first house. And then of course, our Realtor was like, hey, you know, it's a great time to buy real estate. This is going back to 2002, though, about being an investor. It's like, oh, yeah, I can fix everything. I'm like, Scott the Tool Man. And my wife's favorite show at the time was that fictional show, Flip this House, you know, where everything is accurate on there. And so we set about. After we bought our first house, we bought two more investment properties here on the north side of Austin in a place called Round Rock, Texas, where a computer company that rhymes with hell, Dell, or some people would say they work at hell. But anyway was there and we were going to be landlords, you know, so we, you know, did the work, got 100% financing, three first mortgages, three second mortgages with our primary and our two. And about two months into getting those leased up, I got laid off from my job. They literally closed the location. And then Dell did some massive layoffs and our tenants became deadbeat tenants. You know how that goes, you know, the whole.

Right, right.

And so I make the joke that I was a debit borrower myself because we were making six mortgage payments, three first three seconds on a private school teacher salary. Lucky for us, we were able to get rid of the two investment properties. But a couple investors step in and I was doing whatever I could to get to work to make money. We saved our primary residence, we did a loan mod, we were able to stay into it. Fast forward about a year later I'd gotten back into banking and finance and was doing really well making money. And a buddy of mine that I worked with beforehand said, hey, I'm starting a mortgage company and starting to travel the country and going to all these expos and big conventions as the big mortgage broker. Do you want to join on? And I was like, yeah, let's do that. So I met him and a couple of his business partners that were traveling the country teaching owner financing and creative stuff and wraparounds and subject to and options. And I said this is what I want to do. And so for the next couple of years, every other weekend I was on a plane at a different event learning. So I had a really great like four year stretch where I was like an apprentice. We were doing mortgages from 2004 to 2008, but I was also learning options and subject to deals and door knocking and short sales and started to really implement and do real estate investing a lot of the ways that are smart versus going out and just getting a traditional mortgage and being a 30 year fix. So that's kind of what got me into real estate investing. And then we all know what happened in 2008. You know the market. Yeah. And so I said okay, I sold my half the mortgage company, my buddy for a buck and jumped on the the note side, started dialing for dollars and started contacting the banks and asset managers at the banks that I've been originating notes from starting to buy some of their bad debt. And for the last 12 plus years, that's basically all that I've kind of focused on is the non performing debt side of real estate investing. Very small niche but very profitable aspect of really becoming the bank and buying debt from banks and hedge funds and then working to as I say, make America great again. One default to borrower at a time.

Outstanding. So. Well, so in the mortgage crisis, right, you said that you were already figuring out some ways of creative financing. So what brought about the note? Like how did that, how did that click in your mind when you're like, hey, you know what, I can be the bank.

That's a great question. The sponsoring broker, one of the real estate investors, had been a had non performing debt back in the 80s during the RTC days, the resolution Trust corporations, the savings and loan scandals and made a lot of money during that crisis. And when everything happened, I've been learning this creative financing of subject to's and wraparound mortgages and then owner financing notes and selling the notes, the closing table to another fund like Boston Note or Aegis Mortgage and stuff like that. And so when everything hit the fan, not only did he say, scott, this is the ideal time to jump back into the note business or get your feet wet in the note business. I had another investor that it was a private money lender of mine here in Austin that was lending me money. He'd made a lot of money there. He's like, oh, my gosh. He goes, I'm going away from the financing properties to just buying, buying debt, buying the mortgage. And so when I had two of my mentors, really, I was like, well, okay, let's do this. There's, you know, and here in Austin, you know, we had a pretty good stable market. We didn't see a lot of decline like other parts of the country, like you guys out there.

Yeah.

But we still had short sales. We still had 900 foreclosures a month taking place here. And so just sell the opportunity. So I started dialing for dollars. I said, well, what else is, you know, what else is gonna hurt me? I got two investment properties that I'm upside down on. You know, a couple things I bought thought would be good that were worth 300 when I bought them, and six months later, they're worth less than what I paid for them because of foreclosures. So I just, I literally just went gung ho and would make. Start making, you know, 50 to 100 phone calls a day calling banks, and I would get a lot of no's. But, you know, the first two days I made 54 phone calls and I got one yes from a fund that led to me buying really kind of helping put together a 5 million portfolio of loans in Houston that we made five points on. So it was a nice pay 250 grand that I split with a couple buddies of mine because we, you know, each had a piece and put it together, but I was like, 50 grand for 50 no's. I'll take one grand per no and just kind of work it. And so that's just kind of what I did. Is this going back before a lot of the new social media, the new websites out there, I just literally was doing that dialing for dollars and to get funding because I didn't have a lot of capital myself, I would just post the deals and what I was doing on Facebook and LinkedIn, and people were like, how are you buying that deal? How are you getting such a great deal where you find this stuff. And I was like, well, these banks just are falling over themselves with lists and they want to get it off their books as fast as they can. And so it was kind of a cool thing that way. So that's kind of really what dove me into the business. You know, 2008, 2010 is here in Austin doing that. I gotten divorced, a new business partner that went a different direction. And so what really kind of led to the biggest thing was I'm a baseball fan. As we have baseball coming. I know you guys have, you know, spring out there with all the cactus right time. I'm a big baseball fan. So I was like, well, what would it be like to plan going to all these major league baseball parks? You know, sitting at home on a March day like today and watching TV and they have all those Visa commercials and like $7 for a hot dog, $8 for a beer. Visiting every ballpark with your son, priceless. And I'm like, well, you know, people always taught me if I had to go write it down. So I write down, I pulled up ESPN.com I started planning what it would take like down to the day. Okay, if I'm here in Austin, I'll go up to Dallas for opening day and catch. The Rangers can go down to Houston the next day and catch again. Kind of do that planned out like this 30 week trip. Well, I've been already sharing on social media and writing blogs about what I was doing in the note business that over the next couple weeks, divine intervention kicked in and I started having different real estate investment clubs reach out to me and ask me if I wanted to come speak at their club. I'm like, okay. I thought about this and I'm like, when? And the days they wanted me to come lined up almost exactly perfectly when I'd be in that town for this fictional baseball. I was like, okay, time to do it. So I sold my last house in Austin, had a garage sale, sold everything except my truck and my dog and the truck I'd actually bought on a note and repossessed it as well.

Awesome.

You know what we thought would be 30 weeks turned to three and a half years of non stop travel. And that's kind of what led me to becoming what they call the note guy, where I'm buying and selling debt and one of the few people me in the real estate niche that teaches on a regular basis.

So can you explain for those that are not familiar with note buying, like, what is, what's the process? Like, what are you actually Doing?

Yes, that's a great question, Mark. I'm glad you answered that because that's a big question. So what I'm doing is I'm buying the mortgage. You know, that's when and then I become the bank. So we've all probably bought a house, got a mortgage, and like 30 days later a letter shows up in the mail, hey, thanks, your mortgage has been sold from ABC bank to Chase bank or something like that. In the mortgage industry that happens all the time. It also happens when banks have bad debt, when they have loans where borrowers haven't been paying on six weeks to six months or six years on a deal that I just saw today. And so on this distressed debt where a borrower hasn't paid in at least six months, the bank is willing to discount the note to a note investor to come and buy what they owe at a discount. And then me buying that note, I become the bank. I have all the same rights to the bank. And then I make my money and my profits by then really reaching out to the homeowner and saying, okay, what happened? What country western song did you go through? You know, did you go through a divorce? Did you get sick, you get laid off, your dog died, grandma get run over by a reindeer, you know, all that stuff. What's the issue? I know you're six months behind and you don't have six months of payments like the previous bank wanted to pay. But with me you don't have to come all the way to the table. If you can bring a little bit of money to the table or can you start paying again because you're working? You know, the fact that I buy that debt at usually a substantial discount gives me a lot of flexibility to kind of, you know, create a win win scenario where like, okay, you owe six grand in back payments. I know you don't have that. Do you have a grand? You got a grand? Can you start making existing payments? Okay, because if they got like a 6% interest rate and I bought that note at 50% of what's owed, even if they owe exactly what the house is worth, that's like a 12% cash and cash return because I bought it at 50, they still owe the full amount, you know, and so that's kind of what we get. That's what we focus on doing is we focus on basically trying to become, we are, we do become the bank and try to get them back on time and paying again now.

So then are these notes, these non performing notes, is there a timeframe that you Start looking at them. So say, for example, you know, they purchase a home a year, 24 months, five years down the road. Is that. Is there a timeframe that you're looking at when they stop performing and then that you acquire them?

Or I don't want to really look at anything that's less than 120 days late because the banks usually still want too much. If it's less than 90 days, they'll want 70, 75, 80% of what's owed. And I like bigger discounts. And the fact is too, we're usually looking at portfolios. It may be five assets or it could be 500 that we get a cherry pick from. So some of these portfolios we get, the borrower hasn't paid in six months or a year or like six years. And so the bank is willing to take a big discount because they'd rather get something in, right? Yeah, exactly. And then they can re lend that money out, leverage it 10 to 15 times to make up their loss that way. I come in, hey, the asset may be worth 100 grand. They may owe 110 cause they're behind a few months. I pay 50 grand for that debt. I guess if I can get them to start paying on time by doing a loan mod or forbearance agreement, great. It's a good return. They pay on time. If I get them going on time for six to 12 months, I can then resell that note back to the on the market as a performing note again for 80 to 90 cents in the dollar. So I made 30 to 40 cents in the middle. If they won't play ball with me, you know, if they're just gonna be an ass, tell my team to F off or fight foreclosure. We'll just go ahead and foreclose and then take the property back, either that way or sell it to foreclosure auction or offer deed in lieu cash for keys to walk or, you know, offer a short sale. You know, if they want to do that, they owe more than what the property's worth. So we got a whole variety of ways that we're making money.

Wow.

But it's like with anything else, you make your money on the buy. You just don't realize it till you sell it.

Right, exactly. And you guys tend to get a lot of those that say, no, we're not. We're not interested in helping you.

Or it just depends. Are you talking about the borrowers or you talk about the banks?

The borrowers. The borrowers.

Okay.

Bought the note and you give them a call. I mean, I'm sure.

Yeah.

Is that, are you making the calls? You have a team? Yeah, right? You have a team?

Yeah, there's a team. And what's beautiful thing is there's servicing companies and vendors out here that do that. I don't recommend people do this on their own.

Yeah.

Because you're gonna run into a lot of trouble. You need to have third party servicers and things like there's companies that do this, attorneys that will handle this. You know, we've got a team, we've built a team. But most people like, hey, you hire a servicing company, they're the one that's collecting the payments, they're the one that's sending the statements out. The ones making four to five phone calls throughout the week to try to get the borrower back on the phone. And we like to target owner occupied assets versus vacant property. It's a little bit different mindset because we're a bank. So if we get it and they're occupied, there's more opportunity to make money with exit strategies for them to stay in the house and modify. If it's a vacant property, we know we're gonna have to probably foreclose or he's gonna need some work with like either the air conditioning going on vacation or you know, the, the copper goblins showing up. You guys are familiar with that out there in Arizona, right?

Heard of that?

Yes.

So, so do you get a lot of questions? Do you get a lot of wholesalers calling you for these?

We do get some wholesalers. The thing about, I mean you can wholesale a note just like you wholesale a piece of property. I mean I love your guys website. It's like kind of what attracted me originally when I reached out to Mark. Cause I saw that one deal you had I think is selling at 379 worth $4,999. And that's a great wholesale deal for somebody out there. What it's different is that people don't understand that they're not necessarily getting the property when they're buying.

Right. They're just getting the note.

Yeah, you gotta still go through the legal proceeding, they still gotta go through foreclosures, that kind of stuff to take the property back or offer like a cash for keys or D balloons.

That's right.

But if the numbers work.

Yeah. Right.

Yeah, yeah. I mean I was, I was seeing all sorts. I mean if I could go back in time. The biggest mistake I didn't do 10 years ago was buy more with the markets Improving like they have the last 10 years. You know, you guys, you know, there was 14,000 reels. I mean, we were seeing banks in Arizona just begging for us to buy anything. Same thing in Florida, Nevada.

Yeah, I know, right?

Crazy time. I mean, I think we're gonna have something like that happen again. Maybe just not as extreme because, I mean, you guys have seen it with the markets just coming back and doing well.

Yeah, so. So is wholesaling notes part of your strategy as well? Yeah.

Okay. Yeah, we, you know, we'll get a portfolio in like I'm working, looking at a portfolio of 468 assets right now. And we'll probably take down 70 to 75 of those assets ourselves. We've got people that are looking for notes as well. So we May wholesale off 3, 5 notes here and there to other people that understand it, you know, make a little bit of wholesaling fee on something. The beauty is that since we're buying say 90 versus 70, we get a little bit better discount across the board because we're buying in bulk versus so just going out, buying five.

Yeah.

The scariest assets and be the most expensive may not be that big a discount. Gotcha.

Okay. Okay.

The nice thing too is we're not dealing. And I've done wholesaling, I've done fix and flipping. I've done postcards, door knocking. I mean, I've been shot at three times door knocking before. Okay, that was in Gary, Indiana, in Detroit, but not in Phoenix.

You know how rough it is.

Oh, yeah, yeah, yeah, yeah, yeah, yeah, yeah. Grandma pulled out a double shot, double barrel shotgun. You're not gonna steal my. You're not coming. I once got almost arrested out in your guys neck of the woods there in Camelback. There was a community that first Magnus had a mortgage on like 27 homes. It was a gated community up there. And the builder had gotten all the borrowers to go out and get individual construction loans. And they took 95% of the payouts. And then she flipped, she left. And so these houses are like 90% of the way done. You'd literally see like a ghost town, you know, And I had an investor brought me out there and I had to jump a fence to go walk around. So I like to walk around taking like addresses so I can go back and track this down and track the bank and these two cops pull up to me because I'm like literally walking there and walking into each house and walking in. Almost done. Immaculate, you know, three quarter million loans on each of these Things and the cops were like, what are you doing? I'm like wearing a suit. I'm like, look around for my investor. And the minute she saw the cop show, she took off and left my ass. And I'm like, oh, I'm an investor. You know, I'm obviously not stealing. I'm in a suit and I'm walking around here just coming from a meeting with a different bank there in Phoenix, and I hand him my car and he's like, oh, what are you trying to do? I was like, well, I'm just trying to go around and get the specific street addresses and numbers so then I can pull up, send it to my due diligence team to check out what's owed and try to work out with the bank. And they're like, oh, jump in. So I jumped in the back of their squad car and they're driving me around real fast there. And I said, can you do me a favor? And they're like, yeah. I says, can you arrest me? Can you put handcuffs on me? And then when we'll go, we'll show up at my investor's house and do the same thing. So they're like, oh, yeah, good stuff. So they sudo arrest me. My investor stuff. She's like, oh, my God, pull me out and walk up there. I'm like, surprise. But that was a, that was a. Give you an example. I was a 16. No, sorry. It was a $20 million, basically loan package that sold for 4 million. Bankruptcy deal that sold for 4 million in bankruptcy court because they bought the note. A builder went in then and redid everything and ended up selling it for roughly somewhere around 12 to 13 million on the net at the end of everything.

Wow, that's awesome. Yeah, so we have a lot of newbies, you know, new investors on here. So if a person wanted to go, you know what, because real estate, right, you can go all kinds of different directions in regards to it. But if they wanted to go into notes, specifically, what would you recommend? Like, how they could go about getting into it, Right. And how do you know, do they have to raise capital? Do what, what are, what are the steps that you think would be best for somebody starting off?

So that's, that's a really good question. I don't think everybody should just jump in. It's not the same thing as going to a wholesaling course or going to a weekend summit or something like that. Say, hey, I'm going to be a note investor. You're not going to walk into Chase bank or bank of America say I want to buy your notes. They'll call the cops on you. All right, you need to get educated. It's a different mindset. There's a ton of videos online. YouTube, we've got a lot of, we got about a thousand videos on there. Our podcast, we do a lot, we dive into it and the podcast name is the Note closure show. But best thing is to get educated. No matter if you're brand new, get educated, go to your local RIA clubs, you know, jump online, listen to these guys podcasts and by the way, go over and make sure you subscribe and leave a five star for review for. These guys are doing a great job with their show. But just get educated, learn it. You know, spend some time. Look at. There are some, some websites that you can start looking at note deals. There's not like a true note mls, but there are some different platforms out there that have some deals available that you can take a look at and start working through and talking to people. I mean you're learning the most from pulling the trigger first and foremost. But let's get you educated so you're not pulling the trigger on something that you should never bought. We want you to do a deal, not a dude.

Yeah. Now, now I'm sure when the crash happened you, I mean you were able to buy all these notes and everything, but you said you've been doing it already for quite a bit. 12 years. So has that part of the real estate continued to stay, you know, level? Has it gone down a lot?

Good question. So we, this all started back. I mean it was basically a very niche. We all that were in the industry were like saying, oh, it's, you know, this is a true secondary market. It just rung up with all these vendors that follow that aspect. I mean notes have been around for, you know, centuries and centuries IOUs. I mean we're all the note game whether you got a mortgage, student loan, credit card debt. You're just on the wrong side of the payment stream. Like I said, we were all thinking it was gonna be just a three to five year period and then it'd be rebound and go from there. Well, I mean we're still buying notes. There's not as much inventory. I mean in 2010 the market peaked at having 15 million home owners underwater that owed more in their mortgage than what it's worth. We had default rates up at 8%. These days the national default rates is somewhere between 2 to 2 and a half to 3%. Just varies on what you're Talking about. And values have come back. So as values have come back, the deals have dwindled down a little bit, but there's still a lot of origination. And if we see a 2% default rate on all the origination, that's still a lot of mortgages that you can pick up commercial notes. Defaults have increased. We see that. You know, you're not gonna. There's different parts of the country that rebounded stronger than others, but you're still gonna see stuff. I mean, we don't buy anything in California because it's the land of fruits and nuts. And it's just the drops just have nuts up there now. The banks want like 95 cents to the dollar. And that doesn't make sense.

You know, everybody's leaving California now too. Like, they're coming here. They're coming. They're going to Florida, things like that.

Yeah, they're going there to you guys. I mean, if California sneezes, you guys catch a cold. Or they're coming here to Texas. I mean, Texas is the number one relocation spot. And we want to sit in the back. But. But I've had to change the markets. I bought buy in because markets change. You know, I used to buy a lot in Florida or is what I used to call God's waiting room. You guys are familiar out there. Sun City and all the retirees out there. And so I used to buy stuff a lot cheaper then, you know, because they had a longer foreclosure period. It take like 18 months to foreclose in Florida. So the longer foreclosure timeframe, the bigger discounts. I mean, you guys are pretty fast. Foreclosures there in Arizona now, same thing here in Texas. So I don't buy a lot of stuff in these markets. I mean, still do, but it's just not like it used to be. I'm buying in a lot of Ohio, Michigan, you know, 250 in Michigan. I can buy a whole block versus just like one property.

Yeah, right.

It's all about knowing the markets expanding. I always tell people, like, listen, if you're gonna look at something, start in like, two states, get to know those states, because each state's foreclosure laws and timeframes are a little bit different. And work your way up into doing stuff. But with the thing of today, with so much social media and meet at groups and real estate clubs across the country, you're just a couple clicks away from having somebody help you out with due diligence or go put eyes on a property and you never know too. Some of the deals that we have seen have just boggled my mind on what the borrowers do for a living or what they did or didn't do.

I bet. So. So when you first started off, did you have any issues raising capital? Right, because I'm assuming, you know, you're, you have to partner up with investor. You know, if you're starting off, you don't have any money to, you know, buy these notes. And especially if you come up with a bulk, a bulk buy. Right. How do you, how were some of those challenges that you, that you had, how'd you overcome those in the early days?

That's a good question. So I started off wholesaling, just a few here and there until I made some money. But then what I did is just like anybody else, I went out, networked, I literally went out to real estate clubs and I discovered some self directed IRA companies that were hosting events. So I would go out there and I would get up anybody say, have a deal, like, yeah, I got a deal, here's a deal I got. You know, I started sending an email blast out once a week to my network and posting on social media. Hey, if you guys are looking for some deals or looking to put your lazy assets to work, you know, is your, if, here you go. Is your CD a certificate of disappointment? That's a good one.

I love it.

Is your 401k now a 101k? You know, are you getting a higher rate of return from just burying the money and putting it in the ground? We can help. So I literally just started emailing and then another thing that helped me out tremendously is like I gotten divorced, I was single, got rid of everything. So it was the nice going out and actually networking with people in local markets. I was seeing lists from all across the country that I couldn't possibly buy at all. And I couldn't take the time to jump on a plane and go look at every asset too. So I literally went out and started going around and meeting with people and teaching people how I did what I did. The biggest thing like how do you find these assets? So one day I jumped online and recorded a video of me calling banks for like three and a half hours.

Oh, wow.

And getting hung up on or the conversations that would happen back and forth with that. And so I just started documenting little things and that helped people like, oh, hey, this guy actually knows what the hell he's doing, even though he's looked like he's sweating his ass off. And that Led, you know, the deals. I was like, listen, I'm buying this at 50 cents on the dollar. You know, I'm buying a 12 unit apartment complex in San Diego. It was worth 800, I could pick it up for like 375, you know, fully occupied. If you just take it over, there's 200, 300 grand, instant profits there. You flipped it to somebody else if you had to foreclose. And so I would make money that way and just started showing people. You know, a lot of people are scared to pull the trigger when it comes to investing their money. They would rather learn what you're doing. But then they often are too lazy and don't want to do the things that need to be done. They don't want to hustle, they'd rather write a check and make a decent roi.

Yeah. Now a lot of these notes, like you said, like just an example, like the one that you said, the one in K, California, the Fort or whatever. Do you ever, or did you ever take any of these properties down yourself?

Oh yeah, I took quite a few down and kept for myself. I bought a lot in Miami Beach. I bought a lot of condos for five grand, ten grand here because they were just, that's the first place to go in a foreclosure. Your condo market's always going to hurt first, but it's also going to be one of the first that rebound back. So I bought a lot of stuff cheap to get the foreclosure, kept it for a little while and then it took like 18 months to foreclose. So by the time the values started to rebound back, I didn't care if it took 18 months, the values would go from $0.30 on the dollar now back to 60, $0.70 on the dollar. And it would make sense to foreclose or keep as rentals if I need to for a little while until the market rebounded back. And from there, yeah, I mean I bought some apartment complexes, we held for a while, we gentrifated, got the rents back up and then resold them all off. And know we still, I still got a portfolio of about 400 notes that we have from across the country that are in some sort of, wow, performing non performing, you know, they turn into rentals or stuff like that.

Oh, nice.

That is pretty cool. Yeah, good cash flow there too.

It's decent. I'm not gonna complain. You know, every month is different. You may have some people perform, other people we sell off. I mean I have a deal right now in Miami that the guy's doing a short sale on. And I'm like, I'm fine with that. We'll forgive you five grand. Cause it needs some work so you can make. You can sell the house and get out from underneath of it. You know, it needs about 35 grand worth of work. It'll be worth 160. You know, I bought the note four years ago for like 10 grand. And I'm like, okay, I'll take 75.

Right?

Yeah, that's awesome.

So that's, you know, it's not as extreme as that. You. On average, we're probably paying some around 50 to 55 cents on as is value.

Yeah.

Okay.

Yeah, I can sure. It's still owe more. And we still find some sweet spot that just comes from work. A lot of people have kind of come over into the note space, into the dark side or the sexy side of real estate because they can't find, you know, they can't find reos at priced out anymore. They're tired, they're lazy landlords that don't want to deal with toilets and trash shows. They'd rather deal with the. The passivity of performing notes, which is a great model. Or they're trying to catch up and buy non performing where they get some of those big returns. I mean, it takes a team more than anything else. And you guys know this. You're gonna fix and flip houses. You need a team. You don't want to be the person doing all your stuff. So I couldn't do what I do without our team of vendors, like our servicers or attorneys and of course our local realtor relationships and things like that too. Help us out. Are my eyes and ears on the ground?

Yeah.

I was going to ask you, like, do. Do you go and actually, so I mean, obviously you came over here in Arizona to look at. To acquire an asset. Do you still do that now? I mean, every single property you're looking at, every single note that you're.

No, no, I couldn't do that.

I mean, right. I love Austin because I'm two and a half hours away from 90% of the country on Southwest airlines if I need to be. But I only really will jump on a plane and go look at stuff if it's gonna be like a cluster. Like last summer I flew to Michigan. We were looking at buying 30 notes from a fund and I already owned like 15 up there. So we spent a day and drove around. Look. I mean, three days and drove around. Look at 45 assets in three days. And that helped us out with that as well. But in other areas, like if I bought a portfolio last summer, 67 notes, it was in 12 states. There's no way to do that. So I reached out to our realtor network. I reached out to my students, reached out for those. I couldn't find places. There's, you know, BPO companies go out and pull a BPO for me or drive by and take a look and then report back.

So, yeah, now you just mentioned students. Are you also mentoring then?

Yeah, that's the one way that I was able to raise capital or really help me buy more deals because there's so much inventory out there is. I started teaching back in 2011 because I was like, I can't. I can't buy all this stuff I got. You know, there's plenty of deals to go around. There still is. And so, yeah, we teach. I teach people. I teach a workshop three, four times a year. You know, we do. That's what we started the podcast. We teach a lot of people through our podcast episodes. You know, we dive into a nugget here and there on something specific. Like, I did an episode that came out yesterday on the Texas markets and where to find notes there. And, you know, we sprinkle in motivation and business, you know, business lessons and things like that along with. Okay, you know, what's a. What's a performing note? How do you evaluate a performing note? You know, how do you do your due diligence? You know, how do you raise capital? All that kind of stuff. Because there's a lot of moving parts. You guys know this.

Yeah.

You know, divide and conquer the content. And that's what we. That's what I've been doing.

So.

Nice, man, that's really good. So. So what, 13. What? 13 years?

You said 13 years. Yeah, it's hard to believe.

Exactly.

Craziness. And the funny thing is, got buddies that are in the mortgage business, and they're telling me some of these things. Like, I was on a phone call with a guy up in New York who's kind of high up in the evil Empire bank of America, and he's telling me, like, they're, get this, this is the craziest stuff. On originations, new originations. They're donating the FHA down payment. Donating. And then they're also contributing $7,500 to our closing costs.

Wow.

100% financing. And they're doing this as low as like 580 ficos.

They're asking for it.

Yeah, they're asking. Salivating over here like Gonna happen. When is this down? Now the Fed cut rates by half a point today. I'm like trying to offset the coronavirus. I'll drink Corona beers all day long.

So. And that's good thing that you segued into that. So, so right, the market had like a 4, $4,000, 4,000 point drop last week. Right. So how does that impact notes on your end? I mean does it impact you or is it a buying opportunity, selling opportunity?

We don't really get bogged down into the day in, day out market immediately. Something like that. That's too knee jerk reaction, you know, I mean obviously if you've got a portfolio and your stock price drops, you're kind of crap and people are getting laid off. That's what affects us more than anything else is when we start seeing things like that. Those are our kind of big, big, I guess you could say KPIs. We look at key performance indicators of a market. If default rates are up, I'll give you an example. Houston. Houston, Texas, the armpit of the coastal bend. Okay, I know I'm not a fan of Houston, but when the hurricane hit, it laid a lot of people off. A lot of people lost their, got their houses washed out. People had to fix it. They were out of work. We see a change 6 to 12 months later. Really? When the banks get tired of being nice now they've got to start collecting. Then they start foreclosing or people aren't back to work and can't pay that stuff off. I mean here's a statistic that'll. There's two statistics. One, 87% of people, if they miss one paycheck, they're behind, they have no savings. So the coronavirus, if their people aren't working because they're. Oh yeah, you know, that's gonna affect. They don't have food, they don't have stuff to pay the bills. Where they gonna pay them, Chase? Are they gonna pay for food? They're gonna pay grubhub. Okay, but there's another thing that scares you. It should be scared. This is the thing that is one in 10Americans are 30 days behind in their mortgage already. One out of 10Americans are already at least 30 days late. And you know, like there's a variety of factors that caused that. And so I see a downturn and the market can't keep going up and going up. It's got to change. We're four years past, you know, an average increase in the market's must be seven, eight years. We're four Years past that. So it's got to come down at some point, you know, and so who knows what happens if we have this pandemic and people get laid off or jobs closings or the trade war with China cuts back, makes it more expensive for your iPhone, you know, you're paying 1,200 bucks versus 900 bucks. Or you know that there's a lot of things that go into it. We're always like a six month later kind of thing, you know, okay, we'll start really seeing things that trickle back to us after the banks and then the governments come up with their programs, then those programs go away and people are hurting again. And that's when we step in and.

Right.

Look, we try to keep people in their houses if they want to stay. We try to work out something. But you no pay, you no stay.

So where your mind, where is your mindset when things like that start to unfold like a massive recession, like 2018?

So I what my mindset is, okay, let's make sure that we are. Well, we're usually doing it six to 12 months ahead of time. Like we've. When we see we've been in a big liquidation period, any properties that we took back, that we've held on to, we've sold off. You know, let's get rid of it because we capped out. Okay. If it goes another 5%, Whoopi freaking do that. We're way up. We're in the. Yeah, let's not sit here and wait for the extra 5% when we're up 90. You know what I mean? Yeah. Making sure that we've got always increasing our marketing for raising capital for people because that's when the opportunity, when those markets have a tendency to hit like that, that's a buying opportunity. Unfortunately, most people buy at the top because they want to get in them, but they're too late, they're overpaying. And that leads to a lot of opportunities for people coming and buying more on the back end. So that's the. And we track foreclosure rates, default rates, you know, job loss in different markets. When a major employer goes out of business, that we can check that stuff as well too. And that leads to. If somebody like a Conoco Phillips a few years ago in Houston laid a lot of people off, a lot of those people had really big, you know, big 401ks that they were able to roll over into IRAs. That's an investment opportunity. Hey, you're not working to retire. You want to put your hard work Money to work, you know, invest in something or passively or, you know, worst case, you won't learn how to do it. We'll teach you how to do it.

Yep. That is awesome. Yeah, that's great.

So always. So basically, you're just hunting for tragedies?

Yes. I'm a deal junkie, just like you guys are. I'm a shark. I've been called anywhere from an angel to the devil. Depends on who you're on. No.

So question. So when. When Detroit had the. Their auto plants, right, Closing down and.

Right.

It's still not 100% recovered. Right. There are some investors that are going in there. They're starting. It's starting to work. What did you notice? What did you notice, like, when you first started hearing that these auto manufacturers were going out? I just kind of want to see what the mind frame, the mindset that you had when that first happened.

So I got a portfolio. When all that stuff started to happen, I got a portfolio. I start reaching out to banks that are lending in those areas. Okay, so like, I can track who lends in Michigan. I can pull a list of who's lending in Michigan, who has offices of Michigan, and start reaching out to their internal departments. The departments that handle the note sales aren't customer service or loss. It's the special assets department, the secondary marketing department. So I start reaching out to those contacts, and when they start sending you a list, you start seeing an uptick in the list, you're like, okay, thank you. I'm not ready to buy. I'll call you back in 30 days or 60 days, because usually it gets cheaper the longer they have it on the list. Okay, so back over a decade ago, I got a listing from Doral Bank. Okay, no, no, Banko Popular. Sorry, Banco Popular. Big bank out of Puerto Rico. They had a big portfolio up there. They were selling homes. Three bedroom, two bath, like, you know, 1960s, 1970s, but like 59 square foot. I was buying houses for 1500 bucks. I paid for one on a debit card. I paid 500 bucks for this one. It was needed some more. And I sold it for scrap metal for $1,500 the next day. You see, there's a lot of opportunity. I had a buddy of mine who's got some money from over in Shanghai. He is a crazy rich Asian, and his family came in and bought 800 whole big portfolio from a bank. Ridiculous. Cheap, like 2, 3 cents on the dollar. And their whole goal was like, hey, market rent would still be $500 or more. Let's just buy these internees into rentals. You know, it took them six to 12 months to do a lot of workout with the homeowners on a case by case basis. But there's still opportunity for something like that. So Michigan, people get scared of Michigan. I love Michigan. I think it's a smart market. Detroit is a great freight market. There are some rough areas, you know where M and M&8 mile is rough, right?

Flint water.

Yeah, exactly. Well, you know, Flint water. They literally will bring water out to the houses. So I actually own about a dozen properties in Flint that are all performing that I was able to buy at a discount. So here's the thing. Banks will sometimes get scared and you can use that scare tactic to get a better discount and a bigger deal. We've got a. There's a bank in San Antonio, local bank, I'm not gonna name any names. In San Anton, they had a lending program that was subprime back a couple years ago. Two years ago, they had a portfolio was subprime, like 65 borrowers. And all these people lived in like a two mile radius to the bank. And half of the borrowers were in default. Well, the bank did not want to be the bad guy foreclosing because these people would throw up, show up at their house or their bank and egg them, you know what I mean? So they were like, hey, we were selling the whole portfolio. And they sold the portfolio at literally it was ridiculously 45 cents of what was owed. Most of the borrowers had quite a bit of equity because they'd been there for five or ten years. Two thirds of the portfolio was performing.

Oh, wow.

And they just wanted to get rid of the portfolio so that they didn't have to be the bad guy. No. So it was a $1.1 million trade right out the gates. We were making a 17, 18% cash and cash return just off the performing stuff. And then we reached out to the homeowners and you know, they had money. They were just trying to make ends meet. So we worked and negotiated with those people and were able to rock and roll and help them out.

Wow, that's awesome. That is really good.

That's slow clap.

Hang on a second. Hang on a second. There you go. There you go. Thank you. Thank you very much. No, that was sound effects. And that's the thing for every bad borrower that's calling us to F off and all that stuff. Like, you're not going to take my house. Like, hey, we're trying to help you. Yeah, we got a lot of people that really just, you know, they hit the skids for no reason of their own. You know, life happens.

Yeah.

And like I bought a note on a lady in Illinois. She'd been trying to do a loan mod for four years. Four freaking years. Her, her loan file was literally like two foot tall from all the short sale paperwork that she backed in and loan my docs and been sold. And so like when I get this, I'm like, okay, here's a lady that wants to stay. And she'd lived in the house for 18 years. Her and her husband, they'd raised her two kids. It wasn't a huge house. You know, they owed 120 on the rise up before 2008. They took out a cash out refi to pay medical bills because he had a heart attack and buy an RV and put one of the girls through school. The market tanked. The house was only worth 35 and they owed a bunch. And I bought the note for like 12 grand because it was only worth 35 at the time. So I reached out to the borrowers, listen, see what's going on here. You want to stay in the house? We'd like to keep in the house. Can you bring a little bit of the money to the table? We'd like you to bring five grand to the table if we're going to modify your loan for you. She's like no, but I can bring 2,500 to the table. I'm like okay, can you make up, can you make your existing payment of like 450amonth plus 200? And she's like yeah. I said okay, do that. And what we'll do, for every dollar, every penny you bring to the table, we're going to apply it towards principal. We're going to drop your interest rate to 0%. So every pain you make a payment on time. We're gonna drop the from what you owe down to a market value of 35 grand. We're gonna forgive a bonus debt cause I'm not gonna get it anyway, you know. And so. And you'll have the house paid off in six and a half years. Okay? She just paid off the house literally like two months ago. Six months into the deal, you know, I found out, I found out when she showed up that my attorney's office signed paperwork, her husband was crying and they had a daughter. It was 20, 21 was pregnant at the time. Like I said, six months after they're going to deal, I get a letter from them in the mail. And they're like, thank you so much for helping us out of a bad situation. Our daughter had her son, and we named him Carson after you.

Oh, wow.

I'm like, oh, I don't have any kids that I know of. Those are the things that you love. I mean, helping people. Not everybody's a deadbeat bar and they're running a brothel out of their house. You know what I mean?

But that's great that you've done so.

Many of those deals.

Like, so many deals. And then you remember these little moments that. Where you've helped somebody greatly.

That's awesome. That is freaking awesome.

Now there's a. You know, we bought a nun in a house where a lady had passed away. Our son, who was a little mentally challenged, was living in the basement. He was working at McDonald's and coming home at night and defecating in trash bags and pissing in milk containers and starting, like a small fire to stay warm, you know. And so we finally get into the house, we see all this stuff. It's a dumpster of, you know, crap and piss. You know, stuff like that. You're like, oh, Even the. You know, the health department was like, oh, this is a problem. You know, we remember stuff like that. I bought a note on a house in Salt Lake City with the bars and walked away from it, and it turned out to have the worst roach infestation in the county. Even the gut. The gut junk guys didn't want to be able to. All the stuff. Every deal is different. Every deal is like, kind of got its own choose your adventure kind of thing. Yeah, beware. I mean, that's the thing. You really need to know the different strategies in which way. There's some times that we think the borrowers are going to modify immediately because it's just stupid if they don't. And then it turns into a foreclosure or things that we thought would be a foreclosure because there was no response with the bank. The bar is finally show up and they modify immediately. So it's. The thing is. Yeah, you never know. You need a team. You need vendors to do this. If you try to do this on your own, you're end up losing. Losing your ass.

Yeah.

And you got to really surround yourself with good people and learn the right way doing things.

That's awesome. That's awesome.

Well, we want to wind it down. We appreciate that you came on the show a wealth of knowledge. Can you give us, like, your social media handles and your. Your website and everything?

Yeah. You want My Social Security number. No, I'm just joking. Easiest thing is just go to our website, we close notes.com. that's the main website. You can see our different podcasts and webinars that we do all the time. Or you can find me online at One Scott Carson on LinkedIn, Facebook, and Twitter @OnScott Carson. But we close notes.com is our mothership, which everything is at. Okay, check it out. And then that's the best way to connect with me there, Scott, @weclosenotes.com.

Awesome. No, man. We appreciate you being on the show. The wealth of knowledge. We learned a whole bunch right now.

Yes.

Definitely had a good laugh.

That's the whole idea, man. You can't have fun. Come on now. You guys are doing a great job, man. I bet. And listen to your show. Keep up. Keep up the good work, man.

Appreciate it. Appreciate it.

For those listening, make sure you, like, subscribe us. And also, we are looking for capital investors. So if you want to check us out on Facebook or any of our links in the show notes, hit us up if you're looking into investing capital.

Absolutely. Batch skip services as well. So if you need skip tracing lists, all of that, go ahead and go to batch skip tracing.com and some of the links are down below. Use code CNH and they will give you 15% off.

Awesome.

All right, guys, thank you very much.

Thanks, man.

Okay, so now we got to go on his show.

Yep. Yep.

All right. There is no when you're ready.

All right.