Learn the Art of Investing in Distressed RE Notes – with Scott Carson: REI for Cashflow Podcast with Kevin Bupp

You've been searching for the best way to generate passive income in your life and heard that real estate is a great way to do it. But you're tired of all the so called gurus who are all talk and no substance. Get ready to celebrate because Kevin Buck has spent 14 years successfully making it happen. This is the Real Estate Investing for Cash Flow podcast. Now here's Kevin Buck.

Well, hello again guys.

Hey guys.

Kevin Bupp here with episode 13 of the Real Estate Investing for Cash Flow podcast where our mission is to help you build and maintain massive amounts of cash flow through income producing real estate investments. This week we'd like to welcome our guest Scott Carson to the show. Scott is an expert in the topic of distressed note investing. He's the founder and president of Inverse Investments, which specializes in the acquisition of distressed real estate notes. In the past 18 months alone, Scott Scott and his team have purchased over 50 million in defaulted paper. He also travels the US and teaches on the topic of distressed note buying. In our interview today with Scott, you're going to learn the following things. You're going to learn how he got started in real estate and quickly became an expert in distressed notes, how he raises capital from private lenders to fund all of his note acquisitions, how he has built a massive Rolodex of relationships with fund and portfolio managers who continuously feed him deals. How he evaluates and performs proper due diligence on a distressed asset to ensure it's a win win property. The secrets to Scott's astounding success and how you can apply those same principles to your business and much, much more. Before we get onto that interview with Scott, I'd like to talk a little bit about my week like I always do. Just take a few minutes and if you didn't listen to my last episode, then you probably don't know that. As I'm recording this, I'm actually hanging out in my condo in Breckenridge, Colorado. I'm actually recording this live from beautiful Breckenridge celebrating me and my wife's fourth wedding anniversary and we both love skiing and snowboarding. I'm a snowboarder and she's a skier. So we shot on out here for a week and we're spending some time on the slopes and also doing some snowmobiling, hanging out with some friends, drinking wine, relaxing and just having a good old time. I got another thing to celebrate. We actually again, as I'm recording this, we just closed on our mobile home park in Atlanta that I've been speaking about. Gosh for the past few months now. It's been a long time coming and we just closed on it and we're starting work, got GCS lined up and making that happen. So that's very exciting. And today actually is my son's five month birthday. I know when kids are this young you kind of celebrate each and every month. So he just reached five months today, so that's very exciting as well. So I'm going to be short here today. Like I said, I'm sitting in my condo and I'm ready to go back out there and hit the slopes. My wife's out there actually making a few runs as I record this. So I'm going to make this quick and get onto the interview with Scott. But just a few more things before we do so Last week I mentioned about our Facebook page that we have for the Real Estate Investing for Cash Flow community. As of last week I think we are around 900 community members and we just went over the, I believe the 1100 mark. So be sure to join us there. It's free. If you're not on Facebook, get on there free. You'll definitely receive more updates and kind of an idea of what's coming in future episodes by joining the community there on our Facebook page. You can go to facebook.com realestateinvestingforcashflow again facebook.com realestateinvestingForcashflow again before we get on the interview with Scott, I got one more thing. Here's a quick word from our sponsor Joe Block with syndicatefast.com Are you an.

Active real estate investor who wants to take your business to the next level by doing bigger, better and more profitable deals but don't have access to all the capital you need? Then you'll have to join us at the upcoming Deal Making Syndication and Hedge Fund Symposium in Las Vegas on April 27th. To the 30th, nationally acclaimed syndication expert and hedge fund manager Joel Block will teach you how to successfully raise capital from investors via syndication for your next deal. Just like the big time real estate investors do. Discover why now is the best time to start syndicating your first deal. Obtain the tools and know how to set up your first syndication. Learn the secret to creating a compelling investor presentation that will attract money. Discover how to create 8 to 12 different revenue streams from just one syndication deal. Learn how to use the new crowdfunding rules to your advantage and much more. Join Joel and his panel of experts in beautiful Las Vegas to learn directly from a real estate expert who has successfully syndicated hundreds of millions of dollars of deals and and has taught countless others how to achieve the same success. To learn more, go to www. Syndicatefast.com. again, that's www. Syndicatefast.com. seats are limited and are selling out fast, so be sure to grab your ticket before this opportunity is gone. Now back to the show.

Well, hey, guys, like I mentioned today on the show, we're thrilled to be joined by distressed real estate note buying expert Scott Carson. Scott kind of started out in the industry 10 or so years ago. Actually, a little bit more than 10 years ago, he started out his life in the real estate business in the banking and financing industry as a, as a mortgage broker. Did that stint for a few years and then went on to become a senior real estate coach working with other real estate investors and then got to a point where said, hey, I wanted to go do this on my own. I know enough. I want to go out and make the money on my own instead of making it for someone else. So he started Inverse Investments llc, which specializes in the purchase of distressed real estate notes. And they're kicking butt. His group has purchased 50 million distressed notes in the past 18 months. So they're out there really making it happen. They're not just out there teaching, they're truly, truly out there making it happen in the market. So his successful track record and eagerness to teach what he's learned over the years prompted also for him to create another business which is weclosenotes.com which offers numerous training and coaching resources on the art of buying and profiting from the stress notes. And, you know, I'm sure his resume is a lot more extensive than that. So what I'd like to do first is welcome you to the show. Scott, thank you for joining us today.

Hey, thanks for having me, man. I appreciate it. Glad to be here.

Oh, great, great. And I'd love if you would just take a few minutes and kind of give a little bit more of a expanded background of kind of how you got into this business and what it really means to be in this business for our listeners that are out there.

Yeah, no problem. I was an investor, started back in 2002 when I bought my first home. Okay. First, when I was married, didn't like a lot of people. I was a big fan of HGTV and Flip this house. And the realtor that sold us our first house said, hey, have you thought about being an investor? It's a good time to buy. Interest rates were low. You guys get good credit. You probably buy Something with nothing down. And we were like, yeah, sure, my dad owned a hardware store. I know everything there is how to fix something. Sure, we'll be landlords. So we bought two properties and lost our tail on them. Yeah, exactly. The only person made any money was the realtor making their 3%. So you know, the market crashed, they went vacant for a while. I was laid off, it was not a good time. So you know, my good credit and the money that I had was all gone. And so I really kind of took it in the chops. And a couple years later, about two years later, I just kind of work at any odd job I could, waiting table, bartending. I, I got back in the finance industry as a banker and a buddy of mine called me as a mortgage broker and was traveling the country working with investors on a big national speaker stage. We started a mortgage company together and worked with them for a little while and saw that they taught on owner financing and creating mortgages. And I was coaching for them a little bit. About that time is when all the banks started going out of business and late 2006, 2007. So I saw an opportunity. So that's when I launched inverse and saw this huge amount of foreclosures happening on the bad paper out there and I saw what I thought was the, which I know has been the pot of gold at the end of the foreclosure rainbow and just, I stopped doing short sales, I stopped raising funds, I let my Frank take the mortgage company. Just really saw an opportunity here and literally just started dialing for dollars and calling banks and hedge funds. And we traded some assets and stayed afloat for about a year or two before the real rainfall started coming down. And it's been an amazing, amazing ride since then. We always have shares, ups and downs, but things that the market, it's never been a better time to be buying non performing notes like it is right now. I really think it's a perfect storm with the bigger banks moving stuff. The government really stopped buying non performing notes. The banks realized, the hedge funds have realized that investors like myself and those that are on the call today are really the ticket helped clear a lot of stuff. So like I said, there's never been a better time to buy either individual assets or buy smaller to larger pools. So it's, it's a great, great, great time right now.

Well, let's go back to the basics. I mean a lot of people on the call know what it means to buy an asset. They know what it means to go out and buy A single family rental or a small apartment building and rent it for the cash flow. But what does it really mean to go out and purchase a distressed note?

Well, to stress note, I like to say part of the phrase helps if you're an investor. Don't you like me? Helps you itch, all your itches. We all know that if you have a mortgage in the property, the first mortgage really controls the equity. I don't care if you've got equity or what is. If you're the bank, you really control that asset. So if you're buying the note from a bank or note, you actually become the bank on that asset. So if there's equity, you kind of control the equity. If it's upside down, you kind of control what the situation is and what the borrower can do. Of course, if the borrower hasn't paid you in a year or two, you have multiple exit strategies. You can go ahead and foreclose and sell the asset as an REO if you want to. A lot of times we'll buy the note and literally buy it at such a discount that when we foreclose, we don't even ever own the property. We just sell it to foreclosure auction for a profit. If nobody buys at the foreclosure auction, it becomes our reo. And so we can do whatever we want to with it at that point. Sell it, owner, finance it, rent it out, lease, option it, whatever. You also have the option if it's non performing. And we all know that bad things happen to good people all the time, whether it's loss of a job or illness or other things, act of God, whatever. There's a lot of good people out there that they were upside down, they lost their job for a period of time, that they couldn't make up the full amount of rear dues to the bank. I mean they can't make up a year of mortgage payments. But they're back on their feet now and if you work with them, they can start making their existing mortgage payment or they make something that makes sense to them. Maybe they can't come up with ten grand, but they can come up with two, three or four grand. So that's an extra strategy as well, is not only to do deferments on these mortgages or do a loan modification. In roughly 19 states out there, 18 or 19 states, there's something called the hardest hit fund, which is put together with a half and a half of what? This is a program that the government has given these states the hardest hit with Foreclosures money. Millions and millions of dollars. In California, 1.9 billion, actually. They're incentivizing the state to give money to lenders to do loan modifications and principal reductions. So they can give you, if you're the investor buying a note and it's an owner occupied primary residence and the owner is back to work, or the borrower, I should say the borrower is back to work because this program, the government will give you somewhere between 18 to 24 months of back payments and the average payment across the board is somewhere around $1,000 to $1,500 a month. So on several deals where I bought the mortgage for like 10, 12 grand on a $100,000 mortgage, well, the property's only worth 50. I'm getting a check for 25 grand from the state. I only pay 12 grand for the mortgage. Okay. So if the State's paying me 25, I'm dropping the principal balance of the mortgage from 100 grand to the to 50 grand. So it's a win for the borrower. They can stay in their house. They're making a traditional mortgage payment to me on that 50,000. Okay, so it's huge. I can't tell you. The returns are phenomenal when those goes through.

Sure, sure. I mean, that sounds like the perfect storm. I mean, is that a common situation or is that like a one in a thousand type setting?

No, no, I would say it's probably closer to about 10%. I'm not gonna lie. Each state's a little bit different how they submit their stuff. When we buy pools, we look for owner occupied houses and primary residents for that kind of stuff. We're able to cherry pick a lot of lists, but if you go out and search hardest hit funds, it'll tell you the states that's involved with all that. But it's a. You mean you have one of those and you're buying, you know, say you buy five notes, one of those fall into that, it really boosts the whole performance of the pool up, even if you've got a foreclose in the rest of them.

Sure, sure. So what I mean, you just mentioned all the pros there. I mean, it sounds wonderful. You know, one of the questions I had is why note buying and not just buying the asset itself? But you just answered that for us. But I mean, that's all the pros you mentioned. What are the cons? There's got to be a few cons.

Yeah, there's cons. It takes longer. I mean, it's not when you buy an asset, you control that asset from the time you leave the closing table. Okay. When you buy the note, you still, if you're going to have to foreclose, you still got to go through the foreclosure process. So in some states where the foreclosure process is long, like New York, New Jersey, that's a con. You better buy that note cheap enough so that if you've borrowed the money, private money to buy that note, hopefully your money costs don't eat up any profits. And so that's the biggest thing. Time frame takes a little while. It can drag out a little bit in foreclosures. You know, Florida, you know, when you're over a year in the foreclosure process, for the most part, contested foreclosures, they can drag on. You know, in Texas, you buy now, you can foreclose in basically 90 days, which is fast. You just got to know that. You also need to know, hey, you gotta check taxes, you gotta check liens. You are not going to get inside inspections on most of these properties. You're not gonna be able to see what it looks like inside. So a lot of times you have to kind of evaluate the property from the exterior. Well, somebody living in it still. So. Well, it can't be in too bad a shape. It should have all the copper, it should have all the wiring. Hopefully, like, if it's in Florida, somebody's living. Hopefully there's not Chinese drywall or mold.

Yeah.

You know, so it's a little bit of a guessing game a little bit on that, but that goes into what you pay for the note. So if it's in a state that's longer, like, I would pay less for a note in Florida than I would for one in Texas because the foreclosure time frame is longer in Florida. Okay, makes sense. You know, and then if it's. If the borrower hasn't paid in three years versus three months, I'm gonna pay a lot less for that mortgage that I paid for three years versus three months.

Right.

So you still have to evaluate the property for value, you know, exit strategies, comps, things like that. But you also, you gotta think about it, like, I don't mind buying those in Florida, where it's going to take me over a year to foreclose because the values are appreciating just about everywhere. You know what I mean? So I'm like, if I'm in at 50 cents on the dollar of the value by buying that note now, I'll probably be at 40 cents on the dollar when we finish this thing up in a year. That's why some people are so used to instant gratification. Well, if you buy 10 notes, you're probably going to have two or three that are D blues where the borrower is going to give you the property and walk away. You're probably going to have two modifications, whether it's through the hardest hit fund or you do own modification yourself through the servicer. And then the rest you're going to have to foreclose. You're just going to have to go ahead and sit at the foreclosure and be done with it.

Okay. Which I imagine can be an expensive process, especially if it's contested and takes year, year and a half to get done.

It can. I mean, you're looking at three to five grand to foreclose in the longer stakes for the most part, which isn't too bad. I mean, if you're buying an asset at 50% or value or less and you've got some room there to still be in a good situation.

Right, right. Well, do us a favor and kind of walk us through, you know, a deal step by step and what it looks like, I mean, from beginning to end, like how you find the deal, doing your due diligence research, you know, how determining whether it makes sense or not, finding the money closing and whatever your exit strategy is. I don't know what that may be, but kind of walk us through the process.

I'll go through one today that actually was on the phone with my servicing company just a few minutes ago. We, I got a list from a hedge fund out of where they. Out of. They were out of New York. They have these lists that come across the board across the desk all the time. Had a list of 150 assets all across the country. I saw two condos in Florida actually down in Coral Gables, 700 Biltmore Avenue, actually the address. So the unpaid balance on this was on the first one was 120. That was up on the top floor. There's another one there. The unpaid balance is 85. Okay. So the first thing I'm going to look at is, okay, I'm going to ask the bank and the hedge fund, what's the pricing going to be? Well, they were willing to let both fees go for roughly about 24 grand each. Okay. So to buy both fees, I'd be paying at 48 grand. Now, I always have a realtor pull CMA or I get a BPO done or somebody do a drive by at Least to give me updated comps in the market. I always do that. I don't go off of Trulia or Solo. You know, those are great little guidelines, but I still want to have somebody that's in the market. I want a local market expert, full comp. So they pulled comps and we were seeing that things were selling reo selling the building, were selling anywhere from 70 grand up 130 grand. Okay. So I'm like, okay, if I'm buying at 24 and worst case, they're worth 79, I'm in at about 35 cents of the value. Okay, like that. A little bit in taxes. Erode only two years of taxes. I'm like, okay, that's fine. So we submitted an offer back, which is basically an email with a spreadsheet attached on which ones I wanted to make an offering on. Hedge fund said, yes, you're good to go. Sent me a contract, signed off on it, sent the contract back. We had no earnest money. The beautiful thing about notes, most of the time you don't put earnest money into it. So I had the opportunity with these deals, I could have either wholesaled them for a quick 5, 10 grand profit to another investor. Some people like doing that. I like owning real estate or owning the notes and writing appreciation. So we didn't plan, we didn't do that. Although I had several offers from investors that I worked with. It were like, oh, hey, we like that deal. Can we buy it from you? I'm like, no, it's too good. I want to hold on to it. Anyway, the bank or hedge fund and already told us that the foreclosure process had been started. So we just contacted the attorneys and said, hey, where you are in the process? And they're like, it's going to take another at least six months. They kind of contested when the guy filed bankruptcy. Like, that's fine. Just continue the process. So we called pull title. There weren't any junior liens on the properties. There weren't any IRS tax liens. If there's IRS tax, we don't really sweat about that because that can get removed usually in 60 to 90 days at the worst. But so we liked everything on title. We liked kind of what the condition looked like. I actually had a realtor walk up and we saw that one of the properties had been previously listed on the mls. We saw interior photos. And so we said we'd like to take due diligence. So we said, great, we're good to go. We wired money to the hedge fund. Hedge fund Next they sent us assignments of mortgage, which basically we recorded. That's the ownership document. Kind of like instead of like a deed, it's the assignment of mortgages and note buying.

Right.

So call the servicer, got servicer set up, got servicing transferred, make sure we're good with the attorneys. And they've been doing their thing. They've been calling, they've been working through the foreclosure process. We're now at the time one of the borrowers on these is willing to do a deed in lieu with us. Okay. He's willing to walk away. Another one wants two grand cash for keys, which we're like, that's fine. The one that has two grand cash for keys has somebody willing to submit a cash or a short sale offering where we would net 60 grand after everything was said and done. And so we're toying with that idea. You know, we're in at 20, 24 for the purchase of note, about 5 grand. With servicing and foreclosure costs, we're at 29. You know, if they can come with 60 grand cash, it comes to me back at the closing table. I'll say yes to that one.

Sure. Yeah, that's a beautiful thing.

The other one. Yeah, the other one we're just gonna take. We're just gonna finish up and then probably list it when we go to the. When it goes to the foreclosure auction, we'll probably just go ahead and list it at a number about 85, 90% of current market value, what we see there, and see if we can sell it to the foreclosure auction. That doesn't happen. It'll be. Mario will go in and touch it up with just paint and carpet for the most part and sell it at $90.95 on the MLS and try to get it sold pretty fast.

At what point in time do you guys hold on the properties or do you pretty much always, you know, worst case scenario, fix them up a little bit and just sell them at a slight discount?

Well, we like holding on. We've got a formula for that. That's a good question. I'm not a big proponent of holding on to high value property. And I mean high value property that varies by market. A high value property could be a million dollar property in California and be a doghouse here in Austin.

Right, Exactly.

I like if I'm going to hold onto a property, I want to be able to rent it. And with the rent rates minus expenses, I still want to be netting at least a 20 to 25% cash and cash return. Okay. And when you start getting the higher priced values of the properties and you start getting over really 150, 200 grand, it's hard to have that just because as we all know, poor people pay more for rent. So I don't mind buying, I'll buy a lot of condos and hold on to them for long term because, you know, I'll give you an example. I'm buying a condo in Orlando, it's worth 40, I'm picking it up for 16, it rents for $1200 a month.

Wow.

I'm gonna hold on to that thing forever, you know what I mean? So I like those little small deals where a lot of other investors don't, I don't mind it not making sense the first year because it'll make up for itself, you know, year in, year out, going forward. So that's one thing, you know, a lot of investors. Well, I only want to buy notes on values of properties over 200 grand. Well, that's great. But when you do that, you really remove an exit strategy, being able to rent it in cash flow at a decent rate. You know what I mean?

Yep. Well, there's always a demand for affordable housing and demands only getting stronger as we go down the tubes in our economy. So those, those smaller deals are ideal deals for renters and people that can't, you know, don't have the credit or don't have the wherewithal to ever buy. So I mean, it's a perfect situation.

Exactly. Plus, you think as an investor too, if I'm stroking a check for that on my own money, great, it's fine. But the return on investment that I'm getting allows for me to bring in another investor. Thank you. A whole variety of different strategies. If I've got somebody who's looking just to make 8% return, I could bring their money and give them 8%. Still freaking make a rainfall of money by, you know, subbing out or refinancing my money out, but keeping involved in the deal. So there's, you know, that's what I like to do. The strategies to make people get people involved.

Well, speak to me about that a little because I feel like that's the big, biggest missing link a lot of times with new investors that are getting into this business, whether they're no, buying or buying actual assets themselves is the money portion of it. You know, I know you guys have been doing this for quite some time, so you probably use a lot of your own funds. But what do you teach in your classes or your training sessions. I mean, where do new people find the money to do these types of deals?

Next door to each other. One of the hardest things that most investors have is marketing themselves as being knowledgeable and knowing what the hell they're doing. Okay. Most, a lot of people though too haven't ever had to use somebody else's money, okay? They've never had to go down the streets and be creative, you know, lose two homes and be working, you know, shaking the change of their, the couch, your sofa to put money in, the gas, gas in their car so they make it to work, be working for the night. I mean, I've been down there. It's not fun. You have to learn to talk to people, you have to go network with people. You have to hang out where money's at, you know, go to wine clubs, hang out. If you can't afford to stay at Four Seasons, go hang out and drink water at the bar. Four Season. You know, there's so much money out there sitting in IRAs and 401ks that were one and they're now 101ks were dying to invest something. I'm friends with several subdirect IRA companies and they're like, well, there's over $7 trillion in private money on the sidelines. It's waiting to be invested. You know, good deals find money. That's one of the things I always, I see when new investors is they like, well, I'll wait to invest if I find the money. Well, most investors don't want to waste their time talking to you if you don't really have something tangible. So go find the deals, alright? Go find the deals with the hedge funds or whatever you're doing. Go find a good deal and go back and talk to your investors. Investors will fund good deals.

And it's very true. I mean, it was tough for me to swallow when I got into this business. You always heard people saying, you find the deal and the money will come. I'm like, bs Come on, come on.

What is this Greens? Come on over there. Shoeless Joe, come on. It is true. You have to build a network. I mean, it all comes down to I've, I'll give you a great example. I worked with a lady by the name of Jamie out of this Taylorsville, North Carolina. Taylorsville's about an hour and a half north of Charlotte. She'd been a mortgage broker and a CPA for 15 years in her town. And so she knew everybody in town. And we were talking and her and her husband were doing some deals with their own cash, but they were running out of their own funds. I said, well, Jamie, you've got this huge network. Let's send an email out to your database. You've got this deal. You're looking for a joint venture partner to come in on you. Let's. Let's talk about this deal. She's well, okay. So I helped her write this email out that went to her warm market, what people she knew. She just didn't blind carbon copy a list. This went to people that she knew. So she sent this email out, and she called me back up, and she's like, okay, send it out. And I'm like, well, Jamie, how many people did you send it out to so we can keep track? I sent it out to 15. I'm like, 15? I said, you only know one person for 15 each year for 15 years? Like, well, no, Scott, that's the only. Those are the only people that I knew that had money. And that is the biggest thing. I think a lot of new investors, they're like, well, the people that have money won't talk to me. The people that I know that have money are my friends and families, and I've already burned that bridge by trying to sell them vitamins or cookies or some MLM thing they don't really believe. And I tell people, listen, the deal. Believe in the deal, and people will believe in you. Investors will believe in you. So I told her to send it back to her whole list, which she did. She went ahead and resent the list of the email out to everybody in her database that she knew. A week later, she gets a phone call from a lady in Toledo, Ohio, who is one of the minority owners of the Toledo Mud. Hence, okay, got a million dollars there. They're in my league ball club. But she had a million dollars to invest with, Jamie. She's like, listen, I got your name and number from my cousin who lives. Who's on your list. Forward it to me. I've got a million dollars looking to invest. What? I'm willing to send you some money to do some deals.

Mm.

And she's blown away. I mean, it happens all the time. I see people. It may not be a million dollars, but maybe it's 25 grand, maybe it's 50 grand if it's a hundred grand. So you go do that first deal, and. And then you brag on yourself. All right? You literally say, hey, here's a deal that I did. Here's what kind of return was. Then you really have Investors flock and you'll be beaten. I mean, they'll be beating down the doors and trying to take you out to dinner and coffee all the time, trying to help you find your deal.

The first deal, the first deal is the hardest. Get that first deal done. Make sure it's a great deal and you're right, brag about it. Just, you know, just talk. But you have to be willing to talk. I mean, if you're not willing to talk, if you're not willing to get out of your comfort zone and go introduce yourself or network with someone new that you've never met before and spark a con, then you need to learn that talent and that art first. And it doesn't. I mean, you don't have to be an expert at it. Just talk. Just have a conversation, basic conversation, and talk about what you do or what you're planning on doing and what your game plan is. And it's funny, you know, I was actually just on vacation with my wife last week. We went to Turks and Caicos with, actually, my wife's a sales rep for a electronic medical records company and she won the president's club. So they sent us there on this trip and we stayed in a hotel that I wouldn't even stay in. I mean, like, I mean, it was fifteen hundred dollars a night. I mean, just. And everyone that was there were business owners. But so this goes back. What I'm getting at is I'm going back to the point of you saying, just go the Four Seasons and have water. So during my days at the pool, hanging out, I, you know, I love talking, I love meeting new people. And every single person I met there, and I'm not even joking, every single person was vacationing there that wasn't part of our group, were very successful business owners that either had just sold a company or we're currently owners, presidents or CEOs or VPs of a very large multimillion dollar company. And talking about, you know, they always, their immediate response is, well, what do you do? And perfect opening. This is exactly what I do. And I actually walked away there with two great contacts, became friends with them over the couple days we were there and got their contact information and they're interested in deals. When we come across some. We do mobile home parks they want to talk about, mobile home parks they want to learn about. They want to put their money into something. So that's it. It's all about blabbing your mouth.

You can't be a secret agent or James Bond in real estate. Investing in when you're not gonna happen. Somebody told me the quote the other day, God saves the rest of us have to invest.

Yeah. So true. I love that. I like that a lot. I'm gonna use that.

Go right ahead, man. It's yours.

Yeah, I'm making a note right now.

Love this content. Want to avoid the most common mistakes.

That most investors make when they're looking.

To get into multifamily investing? Download our free guide to the seven habits of highly successful multifamily investors by visiting kevinbup.comguide today. All right, let's get back to the show.

So do me a favor, Scott. I mean, you make this sound very easy, but I'm sure there's some very misunderstood components of note buying. I mean, give me some of the most common misunderstood components of doing this type of deal.

Well, you always want to make sure you're buying it first. That's my belief. There are some people out there that buy seconds, but they're trying to buy seconds behind performing first. And that's a whole different investment strategy. Always want to buy first. Always want to check your taxes. You want to make sure that the borrower's name on the mortgage actually matches up with the borrowing records. I had an investor who went out and bought a couple deals that didn't pay any attention. They just took the advice of somebody without listening or doing any due diligence. And the property had gone to tax sale two years ago. And I'm like, well, didn't you check the names with the county records? And you check call tax authority? Well, no, they said it was good. I'm like, you know, there are also a lot of. You want to be direct. I think this is the biggest thing to be direct to your source. There's a lot of joker brokers out there that have these old lists floating around and they're trying to just try to squeeze something out of it. Squeeze blood out of a rock. And these lists. One of my students call me yesterday and like, hey, Scott, I got this list. I sent it to you. And I looked at it immediately. I'm like, oh, this list has been out for over a year. How do you know that? Well, look at the title of it. It says January 1, 2011 or 2012 was the name of the file. I'm like, dude, it's old. Don't waste your time with it. Plus, there's a couple addresses I saw that I recognized from bouncer. No, it's just a broker list. Don't waste your time. Get rid of it. Another thing that people don't focus on is looking at the actual loan files. You want to make sure you have all your assignments, make sure you have all your launches endorsements. Make sure you have the original loan or the original note or mortgage. If you don't have that, make sure you have a lost note affidavit. There are some things you've got to know, but it's literally once you learn these things, it's like rinse and repeat. It's just a cycle you go through. Okay, check, check, check. Good. Check, check, check. Nope, I don't want to deal with that and just kick it out. I see a lot of people spend a lot of time on crap that just doesn't make sense versus realizing, hey, there's a lot of low hanging fruit out there. Go through low hanging fruit. Don't try to squeeze a square peg into a round hole.

Right, Yep, very true. Well, I mean, so the relationship part of this is the biggest thing with having a relationship with the bankers and the hedge funds. How does that happen? I'm sure they get approached every day. They probably get emails on LinkedIn, they get calls from people that, you know, no offense, but that just came out of a seminar that maybe have no past experience. And I mean, so how do you, how do you get to, how do you forge through that and really make a true contact, Someone that's going to trust you and send you deals, not be second and third in line?

Well, a lot of these bankers and hedge funds have different lists that they will send stuff out to, such as reaching out to these guys that actually have sources, they don't mind sending lists out. But one of the biggest things is you've got to be specific. Maybe have a game plan or business plan of where you want to Invest. Focus on five states to begin with, five or 10 markets just to start off with. Have a good team there. If you approach a banker and say, listen, I'm looking to invest in these areas, these five, do you have anything, do you have anything else that you could be looking to get rid of? Be a little professional. You'd be surprised at what I see on LinkedIn profiles. I'll see somebody that says, oh, they've been a teacher for 30 years and then their next thing is, I've been an investor for two weeks. Well, bankers look at LinkedIn, they really do. You gotta have that. If you have a website, make it look professional. The simple thing of your email signature, if you don't have anything down for that or you have a email like tigerlilyahoo.com. come on, man. Yeah, you know, those little things will shoot you down right off the bat. The biggest thing I think also helpful is, is maybe pair up with somebody who's doing deals, you know, or is finding deals and joint venture with them. Hey, you know, if you have anything in this market, I'd love to take a look at it. I'm new. Don't be afraid to say I knew because we all have to start somewhere. Okay. And I, so I see that more so with a lot of the hedge funds that sell these deals off is that, hey, somebody calls me, I'm new, I'm looking to buy just a couple deals to get started. They love that. That's, that's fine with that. They're like, okay, that's great. Thank you for being honest.

Right.

They'll be a little more patient with you. The versus if you come in and try to, you know, oversell yourself. I had somebody call me on the president of a $50 million fund. I'm like, well, why are you the president of a few million dollar fund? Why the hell are you calling me? You know, well, shouldn't you have an assistant calling you? I mean, I can understand dropping an email to there, but if you're trying to buy $50 million from a bank, you would not be banging the phones out. Right.

You know, so. Very true.

Yeah, yeah. And you can, there's always, there's different events you can go to, there's different training events. There's also different, like five star conferences, you know, servicing conferences. You can go hang out. Mortgage Bankers association conference thing, you hang out and meet people there too.

Okay. Okay, well, answer this for me. That, you know, the government says our economy is in an upswing and that things are doing great and we're on the, you know, path to recovery. I think a little differently, but it's just my personal opinion. I mean, there's definitely a lot less foreclosures, less inventory on the market. I mean, do you find that these distressed notes are drying up or is there still an abundant source?

There's still an abundant source, I will say. I mean, at the peak of everything back in 2008, we had 15 million homes that were underwater. As of December 1st this year, that number was reduced in half to about seven and a half million homes underwater. Okay, so there's still a huge amount of inventory out there. There's still a lot of shadow inventory sitting out there where banks have been foreclosed on or haven't started. I mean, Florida is a great market, still leading the nation in foreclosures.

And just to clarify, that 7 million that you, that you mentioned, those are notes that are in default right now. So they're not REOs. I mean they're not bank going, okay, gotcha.

So there's still this 7 million homes that they're upside down, they're in default. So this will leads for a great. I'm not saying we're gonna have 10 years of this investment style. We may have three years, we may have five years. I'm only thinking we may have two and a half, two at the most, three comfortably. But I think we're gonna. This stuff, you know, government likes to spin their own wheels and blow smoke up their own tail. You know, when we see, I still think, I think, I think we're seeing housing bubbles in some different parts of the country, especially California, they have all this reappreciation going on, but they have no type of job growth, nothing being produced. Technically. It's a little bubble out there, there's nothing being produced. We see that in other parts of the country. I will tell you this, there's never been a better time to be buying real estate. It's never been cheaper. If you can borrow money, borrow it. You'd be stupid not to borrow money at 4% or 5%. People are always going to need a place to live. I like to fish in the biggest ponds with the most amount of deals. That's why I focus on properties that are under 200 grand for the most part. I stay away from California. It's too expensive out there, too ridiculous, too crazy. You know, focus on stuff and you know, you don't have to buy everywhere in the country. Buy 5, 6, 7, 10 markets, there's plenty around to go around. But don't. One of the biggest things is don't wait. I see so many people that suffer from over analysis paralysis and they never pull the trigger. And then a month back trying to buy a deal a month later and it's already gone. Some of these pick that up, you just got to act quickly. But buy right, you know, stay, you can buy right stable, low, you know, stay below 50, 60 cents on the dollar and you're going to be okay.

Yeah, I mean there's, there's money to be made in down markets, there's money to be made up markets. You just got to know what the heck you're doing and make sure that you truly are buying it, right?

Yes sir, that's correct.

Well, it seems like you've You've built quite the team there. Your organization can, you know, for those of us that are on the call right now, some beginners, some intermediate, and some advanced investors would love to be in your shoes in the next 12 months. So give us kind of an idea of what the structure of your team is and kind of what their roles are. Just so for those that are out there that are very ambitious and they want to get this thing going, they can kind of model someone that's already being successful at it, which is you.

Yeah, well, I'll tell you what, everybody needs an assistant. I'll tell you that. I've got several assistants that are phenomenal that handle different aspects of my business. My, my right arm, Stephanie Goodman, handles a lot of my day to day operations. She makes sure that I know where the hell I'm going that day. I also have a lady handle sales for me, Sandy Shaner. I have a group of students that do a lot of due diligence for me. So when I get like a tape in, it's across the country. I'll send them the tape to take a look at it because they've been trained by me, they know what they're looking for and they'll highlight a few deals and then we'll either join Metronome or I'll pay them a fee for doing that. I think everybody should have at least a virtual assistant. I know maybe you can't afford a personal assistant, but everybody can afford a virtual assistant for three to four bucks an hour. And they may not do 100% of your work and they may not get it right the first time. But most people have to realize that us as real estate investors are often control freaks. Oh yeah, Nobody can do it as good as I can. Well, that's correct. But would you rather have somebody do it at 70% of you the first time and at least double your outtake of work? Or do you want to still be doing the stupid things that are wasting time? So that's one of the biggest things I always focus on. What day? What am I doing today to generate revenue? Are we doing deals? Are we raising funds? Are we selling deals? We have. And when I sat down myself against five, six years ago, I had to focus. Okay, what am I going to focus on today? I'll wait for all the little peddly stuff. I'll balance my checkbook later. I'll go take care of that later when I need to. I'll spend my Facebook marketing time when I'm at home in front of the TV at 7 o' clock at night and watch the game. I'm not going to waste it in the middle of the day. That's where a lot of investors struggle. They're not doing things that don't make sense. They're scheduling a 30 minute lunch that takes two hours to do and they waste their whole day getting stuff done. They're not making sense. You focus on the money and that's reaching out to people, reaching out to banks, finding deals and focusing on money deals, money marketing, those are the three things that you should be focusing on.

Okay, good. That's plain and easy. I like that, I like that. No, it's very true. Everything you're saying is very true. So it's just taking action. Get out there and take action. But take action on the items that really matter and learn to become a master delegator. You know I actually going back to the virtual assistant side. I have a separate company outside of real estate that I started a few years back. It's an E commerce company, it's a clothing, a clothing company. And we are entire, our entire business except for a few production people here in the States. Our entire business is all virtual. They're not insistence because they worked me for a number of years. Now they're full time employees in the Philippines and they're wonderful educated. I mean they're very loyal, speak great English, easy to communicate with and they're just wonderful. And I think now I've given them multiple raises over the years and they work 40 hours a week and I think the most expensive person that I'm paying now is about 450amonth. A month, that's for a hundred. I don't even know what that comes down to hourly but it's 160 hours of time. And these are college educated, have bachelor's degrees in computer science and intelligent people. Beautiful thing. So we covered a lot of things today. But what are some things that we may have missed Scott, that are super important for people to know about? Buying distressed notes or getting into this business? Is there anything.

Yeah, some people want to go back to the control freak thing. Most people want to try to control negotiating the deep loans and the foreclosures and all that stuff themselves. Don't do that. You need to hire a servicing company like fci, Land Home, bsi, BP Law. You have to have a servicing company these days that handles really it's going to sound silly but they handle the paperwork, they handle the little stuff that have just been implemented by the consumer finance protection Bureau out there and the government, you need to have a servicing company that's servicing your loans. That means they're the ones holding the notes, they're the ones negotiating with the borrowers. Your time is better spent working finding deals, not negotiating with the borrower. Pay somebody else to do that. With all these new licenses that have come out and finance protection things. You don't want to get sued for 50 grand. If you get sued for 50 grand for one error, that can really put a hurt on you. Let somebody else handle it. And if they get sued that bigger companies like that, it's because they goofed up and it's not coming out of your pocket.

Sure, sure. And I'm assuming they get to get paid a percentage of the face value of the note, is that correct or is there a different method?

Yeah, if it's a performing app, it becomes reperforming up. They get a small fee each month. If it's a non performing out and they're having to make phone calls or negotiate, I mean they're doing a lot of the back end stuff. They're negotiating the loan mods, they're negotiating with the hardest hit fund, they're negotiating with the deed loans. So they get paid a monthly fee. It's anywhere from 30 bucks to 80 bucks a month. And then there's an a la carte menu as well when things go from there. But they're so well worth it because that's your team as well. That's very important, having a good team. Whether you got 1 note or 100 notes or 1000 notes. Important to have that your time is better spent with the things I told you. Not handling the $7.50 an hour employee job.

You're basically outsourcing the headaches well. So your website. Let's talk about your website a little bit. You got a ton of information. I've spent some time on there reading through your blog and reading about your coaching program, your live events, your mastermind. Can you speak a little bit to the different things that you offer there on the website and the different training programs that you have?

Yeah, My website is weclosenotes.com and I'm a big proponent of giving a ton of information away. I think it's important. I was very lucky to learn the note business as an apprentice for somebody for a couple years who was very open with the information they gave out. So that's what I tried to do. I've got a couple hundred videos, three to five hundred videos on YouTube. Most of it's educational stuff. I offer a four day workshop called weclosenotes.com I'm sorry note. Buying for dummies is the class. It's a four day workshop where I focus on the find the fund, the flip the three Fs. And what I do is I literally bring in asset managers, I bring in hedge fund guys, I bring in a servicing company, I bring in actual professionals that are doing it so that you get to pick their brains. And oftentimes these asset managers or servicing managers will have actually deals that you can cherry pick in class. That's the biggest thing once people come into the class it's afforded, literally work out, we roll up our sleeves, not wearing a tie, no suit. I'm not that kind of guy.

I see, I've seen that in your videos.

Yeah, yeah. Say laid back. Come on in man. It's laid back. It's how I operate. And so we do a lot of work in class. It's a big, you know, 200 plus page manual. Literally I give you my contracts, I give you my forms and I get, you just, you get to actually meet the people that I work with. You meet my servicing. You need a couple of hedge fund guys that we buy from regularly. I like to make the introductions. It gives people a lot more warmer feeling versus oh hey, you've come to a workshop. Now let's upsell you to another workshop or let's upsell you to another workshop or let's upsell you to another workshop. I'm not that way. I mean do I have a coaching program? Yes, I have a coaching and a mastermind program. I'm not going to lie about that. I do. It works really well. It's a lot more advanced, a lot more one on one stuff. There's a lot of connections that come with that. But I have a lot of people that you know, come to the workshop and they close deals after the workshop within 30 days and or faster. So that's, I love that just I'm all about people getting deals closed because that's really, I think how I truly, that's what I truly believe that we're only going to change what's going on in the economy, the housing market by us investors changing each neighborhood one house or one investment at a time. Yeah, I mean I show you how to raise money, how I raise money. I give you actually emails and scripts I use, you know, I want people to walk away. And we often, well most of the time and often we have people walk away, say the best workshop they've Ever been to.

That's great. That's great. Yeah, I actually watched a couple of your testimonials and seems like people really enjoy themselves and learn a ton, so that's fantastic.

It's fun. I mean, you got to have fun at what you do. And I try to make it fun, you know, I'm a big, goofy guy, you know, and, you know, I'll poke fun at myself and do the classic poke fun at me, which I'm fine with.

Right, right. Yeah, you got to keep it fun. As soon as it stops becoming fun, it's a job.

Yeah.

And who. Who wants a job? Right?

Yeah. No, not me. I'm unemployable, right?

Yeah, exactly. Well, Scott, you've shared some awesome information with us today. And, you know, before we go, I always like to have, like, this little golden nugget segment where I ask you, like, what is. What is one thing that, you know, one piece of wisdom you could leave with the listeners today that may inspire and help them on their path to success. And real estate investing, whether it's investing in real estate as an asset or as a distressed note, what is that one golden nugget you'd leave with them?

We all spend time going to workshops and taking classes and listening to webinars. That is a lot of education. You got to take action at some point. You would not go to school to be a brain surgeon and never operate in a brain. And a lot of us out there are either a professional, professional learners, or they're educated idiots because they haven't pulled the trigger or anything. All right, I'm just speaking straight from the heart here, guys. I mean, I went to plenty. I still go to seminars myself, but if I can't implement what I learned in a seminar within a week or two, I consider a waste of my time. And you all have to value your time for what it's worth. Attorneys, doctors, lawyers, their value their time on an hourly basis, 250, 500, $1,000 an hour. You got to value your time. And then when you value your time, then you need to be doing the things that are worth that. You don't see doctors and lawyers changing their oil. You don't see them mowing their yards. They hire professionals for that. Go out and hire professionals for the little things, but take action more so than anything else. Don't be afraid to pull the trigger. Get with somebody. Have a team of people. Have a hard money lender look at your deal. Have another investor that you admire look at your deal. They'll Tell you if it's a good deal or not. If they hang a lot of times they'll bring money to the table and want to partner with you on it. Take action. Don't sit around waiting around because if you do, you're gonna be kicking yourself in six to 12 months. A little quote I heard from somebody is, hey, everybody's a basket case. In the first deal, even Moses was. Alright.

That'S great.

Just, just pull the trigger. Don't be afraid to pull the trigger and learn as you go.

All right? All right. Well put, Scott. Well, we appreciate you taking the time to spend with us today and share all your knowledge that you have on distress notes and investing. And for everyone that's on this call here to learn more about Scott and to access his website and the different trainings and resources he provides, please go Visit him@weclosenotes.com and it's spelled just like it sounds. Weclosenotes.com and that's all we have for today. Scott, again, we appreciate it and we'll talk with you again soon.

Sounds great, man. Thanks. Have a great day. We'll talk.

Alright, guys. Well, that's it for this week's episode. I hope you enjoyed the interview we had with Scott and I hope you learned a ton about distressed note investing. If that's something that you're interested in, I definitely recommend you going to Scott's website, which is weclosenotes.com again, weclosenotes.com he's got a bunch of free content on there, free videos. He's got a great blog and he actually sends out, if you get on his email list, he sends out some very good articles on a regular basis. Before we go here, I definitely want you to also go to my website, kevinbup.com and download the free guide that I have there available for you guys. It's called the 7 Habits of Highly Successful Multifamily Investors. But know that it's actually not just for multifamily investors. All these principles that you learn in this guide can apply to any type of real estate that you invest in. Go Download that. It's KevinBup.com guide again. KevinBup.com guide. This week we'd like to give a shout out to Ross all the way from London, England for downloading the free guide. Ross, if you have questions, feel free to reach out to me. Questions regarding the guide or anything regarding your real estate business, you can reach me directly@kevinevinbup.com and that goes out to the rest of the audience as well. If you have questions about the guide or about real estate investing in general, you can reach me directly kevinevinbup.com or you can contact me directly through my website, which is kevinbup.com you can either leave a direct voicemail or go to the Contact Us page and reach me either way. Also, be sure to friend us on Facebook. To stay up to date with everything that's new with me and the show, go to facebook.com realestateinvestingforcashflow again facebook.com real estate investing for Cash Flow One last thing. Take a few minutes. I want to learn about you guys. I want to learn about your investing career or what you're doing. Are you new, are you an intermediate or are you advanced? Are there topics that you want to learn about? Are there questions you have for me? I'd love to learn a little bit more about you guys. So take a few minutes and send me an email. Let me know a little bit about yourself and what topics you'd like to hear on future episodes, what kind of guests you'd like us to bring on the show. Again, reach me directly my personal email. This is my only email, so reach me@kevinevinbup.com if you send it there, I will respond. And that is it for this week, guys. That's all I have for you. I hope you enjoyed the interview, but for now I'm actually going to head back out to the slopes and join my beautiful wife on the slopes of Breckenridge, Colorado and go get a few more runs in before the day is done. So thanks again for listening and as always, go make some cash flow happen.

Congratulations. Now you've got more of the best tricks of the trade in building massive amounts of passive income from real estate. For more amazing resources, visit realestateinvestingforcashflow.com and we'll see you next Monday morning.

Sat.