Note Investing 101 From the Discount Real Estate Podcast featuring Mike Slane and David Dodge

We are asked over and over again, how do you find the right phone numbers for the properties you're trying to buy? It is pretty simple. You skip trace the owner and property address. What does that mean? What does skip trace mean? It means you go and find the contact information of the owner of a property. But you don't want to do that one time. Real estate is a numbers game and a people business. You need to work a lot of leads to find motivated sellers. We use an awesome skip trace service that you can upload a giant list of names and addresses all at once and a few minutes later you have a ton of phone numbers. For prospecting, visit www.dpipodcast.com skiptrace. All right guys, we are back. This is the Discount Property Investor podcast and I am your host, David Dodge coming to you from St. Louis, Missouri today. Today I have Scott Carson on the show and Scott is going to educate us on a type of real estate that we don't talk about all that much on this show. And Scott is with the Note Closers show. He has a podcast as well. So, so let's welcome Scott to the show. Scott, how you doing buddy?

Hey David. Honored to be here, guy. And honored to be on here. And you guys are listening. David's doing a great job. Make sure you hit the subscribe button and leave him a five star review while you're thinking about it.

That's right. Take that advice, guys. Scott, you're the man. You're the man. Well, Scott, let's jump right in. What is the no Closer show about? And even before we get to that, actually let's talk about that first. Let's talk about that.

So for the last three and a half years I've had the podcast called the Note Closer Show. It's focused on the niche of distressed note investing, non performing notes. I've been an expert on that niche of real estate investing for the last decade. Actually been doing it since 2007. So for the last 13 years and started I've been doing videos and webinars and stuff on this niche of real estate investing, educating the public and kind of a largely unknown or overlooked aspect of inside of Real Estate. And started a podcast three and a half years ago and we're syndicated across the United States and 17 radio stations and millions of downloads and listens per month. So that's kind of what it's about. We talk about little niches and nuggets each day on either what's, what's going on in the node industry, you know A bit of due diligence, a bit of education. I'll bring on investors in the note industry as well, talk about their journey. We bring on vendors and then we also mix in the occasional bit of business mindset and marketing along the way to help our listeners really take their businesses to the next level.

Nice. You guys have a pretty good global feel for all things considered real estate, but I would imagine that you're focused on the notes, so that's awesome. Let's start simple. What is a note?

Everybody's in a note space, so let's start with there. If you've got a mortgage, a car payment, credit card, student loan debt, medical bills, an IOU is a note.

Okay, so it's a loan essentially or it's the paperwork that states that you owe somebody money.

Exactly, it's the paperwork. And we focus on the niche of note investing in first liens on residential and commercial properties. So if you've got a mortgage, that's a note. And what we primarily focus on is non performing notes. Whereas the borrower, the property owner, has stopped paying the bank or the lender for a variety of reasons, whether it's job loss, death, divorce, the property values have dropped, or something like that. We've made our bread and butter on buying distressed notes from banks and different hedge funds across the country. We make our profit by buying at a huge discount and then working out with a homeowner and some sort of exit strategy to either try to keep them in the property in some sort of modification or trial payment plan or something like that, or looking to liquidate that property with a foreclosure if we have to. But we sell the property short sale, a loan assumption or even I know it's a favor to your listeners, even can wholesale that note to other note investors out there too.

Yep, we do a lot of wholesale coaching and teaching on this podcast, so that would fit in rather nicely. Very cool. Very cool. So when it comes to notes, are you mostly focused on the performing side of these notes or the non performing side? And if you're new and you don't know what the difference is, a performing note is a note that the borrower is making payments on it's current and the non performing note would be one that they are past due or they maybe haven't made payments in a few months. So are you focused on both or what do you guys typically like?

So we like both. I spend most of my time in the non performing space because that's the bigger discounts, the better yields and buying Something that's Non performing at 30, 40 cents of the value of the property. And we make our money by a, either getting the borrower to start paying on time in some sort of fashion because since we bought the note at a discount, we're the bank now. And so we have a lot of flexibility in working with the homeowners or the borrowers to either keep them in the property or move on. As we like to say, you no pay, you no stay. Okay. Or. And then we like to convert them to performing notes that we've got a great yield that we can sell off either to other investors, keep for cash flow or sell back to other lending institutions on a secondary market. So I sell people that you can't be in the performing and the non performing note space without being in the other field as well.

Okay. So you're, so you're kind of, you're. If you're in the space, you're typically in both for the most part.

People that like more passive returns don't want to be hands on. It would be better offset in the performing space. But at some point you're going to have a borrower miss a payment default if you do this long enough. So it's, you're going to be, need to be knowledgeable in both kind of both areas there David.

Got it. Okay. Why would somebody be interested in buying a note? So like for me, I've never bought a note but I have bought, you know, I bought a hundred houses last year and I've done over 400 wholesales. So I buy a lot of property but I've never bought a note. So why would somebody have interest in buying a note?

Well, isn't it all about the Benjamins? It's all about the roi, right?

That's right.

Now the biggest thing I like to tell people about too. There's another term that we use instead of ROI rot, a return on time. You know, I've been a wholesaler, I've been a rehabber, I was a licensed builder in Texas for a while years ago. You know, I don't want, I don't like fix and flipping. I like cash flow that gets delivered into my bank account via zeros and ones. And so what I like about the notes space and it's attractive is we do a lot of this without dealing with the homeowners on the front end. We're not dealing with, you know, mailing out postcards or yellow letters or door knocking or dropping marketing dollars into that. We deal directly with the banks and that's where we get our lists from. So you know, most people sitting out marketing, they're hoping to get a borrower, distressed, you know, borrower of some sort to reach out to them. Hey, I got one property I need help with. I want a bigger bang for my buck. I want a bank to reach out to me and say, hey, I've got some assets that you can sell. Like I got a list in a 77 assets yesterday. I got another list in today of 45, another one two days ago of 100 assets that I can cherry pick from. And they're all non performing. And that's the nice thing in non performing, depending on how far behind they are, we're usually going to be looking at picking up that Note somewhere between 30 and 60% of as is value, usually at 50% or less of what's owed on the mortgage too. So it gives us a lot of flexibility. So I like that. Great returns, access to a lot more deals with a lot less marketing costs. And then it's just we've got a lot of flexibility in the exit strategies that we can go.

So why would a lending institution or a bank or whoever that has the note that's selling it, why would they be willing to discount it, you know, 30, or discount it down to 30 to 60%, call it half for a couple of reasons.

It's going to depend on the state that the note or the property is in, which depends on the foreclosure timeframes. Like here in Texas. Texas is a fast foreclosure market, 21 days. I don't buy that much stuff in Texas because by the time the bank files the notice of default, they can foreclose in the next 30 days. So they're going to sell a much higher premium than they would say in Illinois, which can take you a year to foreclose. So a bank also here's a big thing. The department that handles the note sales is called the secondary marketing or the special assets department, not loss mitigation. So I think most people are used to dealing with loss mitigation for short sales or trying to negotiate that aspect of things. When we get a hot lead from a distressed borrower, from postcards and marketing, they're all about there to keep, to keep, to keep. And they'll tell you, oh, we don't sell their notes. Every bank sells their notes at some sort of fashion. Now don't call me asking to buy a note for bank of America, Chase or Citibank. They'll sell notes, but the $50 million pool okay, right, right. Here's the thing. A bank makes their money not on owning the property. They make their money on the money coming in and leveraging that out and arbitraging that and rents and repeating and leveraging that out 10, 15, 50 times what they have on deposit. So a bank would rather, when I'm contacting them in a state that's a longer foreclosure process or realize that, hey, I can get 50 cents on the dollar now versus trying to work this out and then taking another two to three months to foreclose. And then if I foreclose and if I don't sell the auction now, I've got to fix it up. And their costs are two to three times what I want to be for you and me, David. So it's all about the velocity of capital. If they get that 50% in now, they can turn around and lend that money out 5, 10, 15 times and recoup their costs faster. And they're happier now because they got a bad note off their books and let somebody like me come in and take it over and I can deal with that headaches and make it a win, win across the board. Does that make sense?

No, that makes absolute perfect sense. Absolutely. Time, time is very important. I love it. I love it. Go ahead.

You got to realize too, it also depends on how long, I mean, we talked about how long foreclosure process of a bank is 9/10 of the way to the foreclosure auction or trial or whatever. They may not discount that much because they've done all the heavy lifting. It just depends on what the banks has on the portfolio. It has what's going on with that borrower. I mean, I've bought notes where borrowers haven't paid in six years. And I don't know why the bank hadn't started the foreclosure process. They just had. It just depends on the lender's portfolio and where they're sitting at.

So it depends on where they're sitting at their portfolio, the state in which the property is in, and then I guess how far along in the process, you know, if they're just a couple months late versus if you know it's already been foreclosed on or it's in the process of being foreclosed on. All of these things are a factor. Very, very cool. So typically when you are buying notes, what do you do with them after you go out and you find yourself a note? And I'd imagine that it's going to depend on where in the process for what you do next. But typically, you know, what are you doing whenever you're buying a note? Fill us in.

Good question, David. So I like occupied assets, which is kind of different than most investors. Most investors want to take the property and love on it.

They want to kick the guy out if it's not already out. They want to fix it up and they want to flip it. That's what I do.

I'm throwing up, okay? I want, if I, if I'm looking at a portfolio I get in, the first thing I'm going to do is look at the occupancy rate. Is it occupied or not? If it's not occupied, I'll look to see how, when was the last payment and figure out how long that borrower's been on the house. Because it's been an unoccupied asset, that means it's going to need probably a new air conditioner, some sort of internal thing. Either copper's bit, you know, the copper goblins have showed up, the roof needs work or it's been trashed out. And I don't want to do that. I want to be in the velocity here, Velocity Capital, okay? Occupied assets give me the most amount of exit strategies. It also gives me the easiest way to make money in note investing, besides wholesale on the paper, is that if I get the borrower in to start making payments again, to me, I have a, and in 12 months I have a reperforming asset, but I got cash flow coming in. So think about it. If I buy a note today and it's occupied and I like the ratios, I'm going to send a letter out immediately to the borrower in like the week after I close, trying to get the bar to start making payments on time. Because if I can start having to make payments. Listen, I don't care what life threw at you, what drama you went through, divorce, job loss, whatever. Can you start making that existing payment? If you can't make that existing payment, can you make a modified payment of some sort? I'm not worried about that.

Calling these people and trying to negotiate. You're sending them a letter.

Yeah, I mean we have servicing companies that do that. But a lot of times there's about a 30 day period before servicing companies will start reaching out to the borrowers because there's a whole transfer of assets from one loan, one lender to another lender. But what we do, we reach out in the first.

So during that, so during that period though, you guys are just sending a.

Letter, essentially Basically sending a letter to see because we're buying a portfolio. I'll give you an example. I bought 60 notes from a fund last year in a portfolio. We sent a letter out in the first seven days. By day 14, I had 36 of those 60 borrowers that reached out to us and like, no, we want to stay, we want to stay in the house. And so they were willing to start making payments by the end of the first month. Six months later, it was basically considered a reperforming asset. I bought those assets at 35% of value. I could sell those notes now somewhere else to 85%, 85% of value without having to do any rehab costs, no legal, no taxes, stuff like that. I've got cash flow and I've got increased value side on the equity side too from the getting reperforming. So that's. If you think about it, if somebody's got. If you bought a mortgage on a property and it was a 6% interest rate and you bought it at 50 cents a vote and got them started paying on time, if they just started paying on time, that's a 12% cash on cash return to you right there. Now we always like to ask the borrowers to bring a little bit extra skin. The game bring in three, four months of back payments. I don't care where they get it from. But if they now bring four more months to the table, that's gonna boost your ROI from a 12 to a 20, 25 plus return, depending on where they're located. Now you've got a great ROI the first 12 months and now you got a kicker at 12 months where you were in it 50, now you're selling at 80. That's another 30% profit in year one if you want to. Or you hold it for cash flow and just, you know, keep it coming in to retire. That's all it's all about is cash flow, you know.

Yeah, cash flow is the name of the game. I have learned that many years ago. And man, cash flow is the name of the game. I love that.

Don't get me wrong, we have plenty of note investors that use notes as a way to find assets and their markets that they're buying in and then they'll take them back. They don't mind the fixing, you know, the fix up or you know, putting a renter and hold it for long term for that way. That's totally great. I'm a big believer that investors, when they can focus on one or maybe two lanes and niches, they're Going to be a lot happier because they can streamline things. They're going to reduce costs because they're doing the same thing over and over and really turn into a system versus trying to pick 30 different tools to run out there and try to do 30 different things. I think the name of the game, and those are the most successful, the ones that, hey, focus on one or two niches, stick to it and then they have their marketing down, their systems down there a lot happier because they're not chasing their tail on crazy turkey shoots. You know what I mean?

Yep, I know exactly what you mean. Focus is power. Focus is. It's powerful being able to focus your time and energy on one or two things. Like you said, Scott, I could not agree more. I think that's awesome. So what am I missing? I've asked, you know, why, you know, for I guess how, I guess maybe where. If I asked where, where are you going to buy these? You know, your. Every bank is selling these. Now. The bigger banks are obviously going to be selling packages or portfolios of these. But, you know, if you were me, let's try an exercise here, Scott. If you were me, you know, and all of a sudden I woke up and I said, I'm going to do what Scott does out of St. Louis, Missouri, where would you start? Would you start looking at the local banks in my area or no, I.

Mean, you're not going to walk into a local bank and say, hey, I want to buy your notes. Because the person or the department inside that bank may not even be in the same state. It may not be the same. So these internal departments, as I said, I mean, I used to be a banker for Chase and didn't know anything about this back in 2004. Okay, so the departments inside the banks that control this is called, they go by a couple names, the secondary marketing department, the special assets department, or the whole loan sales training department. And the best thing I would do is just stay in your pajamas, pull up your computer, go over to LinkedIn and type in those names. Special assets department, secondary marketing department. Because LinkedIn will help you find thousands and thousands of these professionals at banks and institutions all across the country. And then I would just reach out to them individually, say, hey D, what do you have on your books that you're looking to get rid of? You know, what's your, what non performing. What non performing stuff. And you don't need to have a paid version of LinkedIn. You can do this with a free version. And that's what we've Done. I mean, there's also some different websites you can go to to download lists of mortgage bankers that are originating. There are different funds out there that are buying and selling. There's no note MLS that lists everything. You've got to go out to the, you know, these banks and lending institutions to find this stuff. But every banks got some defaulted stuff. Now if they've only got like a 1 to 2% default rate, they may not sell, they may just work it out in house. But there's, I mean, we're having a record number of originations taking place in refinances in the economy right now, but we're still seeing about a 2 to 3% default rate across the country. That still leaves hundreds of thousands of newly originated or new refinanced loans that are in default. Or we still have roughly 3 million homes that are still underwater from a decade ago in different parts of the country. So get the list and then go from there. If you're wholesaling, you understand the aspect of marketing. If you see a list and it's not something in your backyard, we wholesale. We'll jump on meetup groups, we'll jump on Facebook groups, real estate clubs across the country in different cities, say, hey, I got a non performing note here in your back of the ground. Anybody interested? And work it that way. So that's what I started doing a decade ago when I was getting out of the fix and flip business because everything was hitting the skids then and just kind of just get a list in, identify an asset, work through it, do some due diligence on it and then market it to people that could take it down when I didn't have the cash to do it and then just started evolving. The big thing when it comes to notes is you're going to have to use cash to fund these transactions. You're not going to go out and get a loan or a hard money loan from a bank or a hard money lender. You're going to need OPM or your own funds to take this down. And notes are a great investment for IRA accounts and things like that. So that makes sense.

Awesome. Yeah, it makes perfect sense. I love it. I love it. So what is your typical timeframe whenever you're buying a note till the time that you sell it off? And I obviously, I know that it's gonna vary depending on the note and maybe even the location, maybe even the owner of that particular property. But is that typically the strategy that you're going for is buying them at 35 to 50 cents on the dollar, you know, trying to get them to re perform again. And it sounds like you have great success doing that and then selling those back off or are you buying for cash flow or all the above.

So kind of all the above. Here's the thing. If I buy and I get them re performing, I'm going to want to hold on to that reperforming note for at least 366 days. I don't want to do it. I don't want to sell that note off before one year because then it's a short term capital gains. All right. I want to hold that note for at least one year in a day. So that's long term capital gains for the most part. If I end up selling it. Okay, sure. Now the biggest thing I tell people out there that we focus on is if a borrower, once you bought a note, if a borrower has not responded to you or the servicing company sending out a notice or anything in the first 60 days, start the foreclosure process. If it has not been started, get that legal aspect started. And you know, you can foreclose in different states relatively quickly. Georgia's pretty fast, 30 days. Missouri is a pretty fast foreclosure state, about 90 days. And so then it all depends on kind of the situation of where it's at with the house. And there are a lot of times we'll sell the note by selling at the foreclosure auction on the county, in the courthouse, or we'll end up taking it back and then doing some upgrades to it or light upgrades. I don't like to do heavy rehabs anymore, but we'll sometimes go that route to sell it as an REO later on if we can do some value add to it. But for the most part, I prefer to hold it. Reperforming. It looks like it's going to be a pain in the ass with a borrower. Move it to somebody else, let somebody else deal with that headache. The beautiful thing that we get, David, before we end up closing is we're looking at the loan file. So we get all the origination docs, we're looking at the call history, the call logs from the servicing company. So we can tell if the borrower's tried to do a loan mod or stay in the house or told the servicer to go to F off. You know, we get all that stuff. We always put eyes on the assets as well with realtors and other local investors to drive by, give us an idea what the house looks like. If the house is listed for sale, you know, that's a good thing. We can sometimes see with the interiors, but for the most part, we're gonna make our decision based off of what we see on paper and the exterior of the property. And you can often tell a lot about the interior by looking at what's going on with the loan file and by what's going on with the exterior of the house, too. And then of course, we'll do some social sleuthing on the borrowers to Facebook LinkedIn and see what's going on there. I was looking at buying a note and I thought it'd be a re performing note. But when I got on Facebook and tracked down the borrower, I saw that she posted, well, do I make my mortgage payment this month or do I go to Disney? We're going to Disney. I'm like, yeah. Then I saw another one where the borrower went through a bit of a transition. He was paying to have implants done in his life and choosing to make his mortgage or use his money for that versus his mortgage payments. So, you know, there's a. There's a lot of things that we can track down and find out in social media and, you know, the loan file that help us to make educated decisions before pulling the trigger.

Wow, Scott, you just educated the hell out of me, man. That's really cool. Very, very cool. So what am I missing, man? I feel like I have a pretty good grasp on this. Let's talk about some of the risks. Yep.

So here's the biggest thing we see happening with real estate investors that come over the note space is they approach it like a traditional real estate investor versus the banking method. Okay. One thing that we don't chase, it makes it difficult for us is we don't chase notes where there's equity. So let's say the house is worth 160 and they only own 100. Now, that would be a very desirable thing of your traditional realtor or a real estate investor trying to get that property. Have all that equity right with us. It works counterintuitive. The banks don't want to take that big a discount when there's a lot of equity. If you're going to have to foreclose, the borrowers are going to fight you for that equity. Your maximum bid, the foreclosure auction would be what they owe, not, you know, so if it's sold, you're only going to get what you're owed. That sells above what's owed. That money is going to the Borrower, not to you. So you've got to change a little bit of a mindset on what you look at things. You always, always want to check title to making sure what's on title. If there's liens and judgments, go take a look at that. You want to make sure to check taxes and make sure that the note hasn't been wiped out via tax foreclosure. You always want to try to get accurate values as best you can and then just hire professionals. A lot of people want to get, hey, I want to make those phone calls to the borrowers. I'm like, no you don't. There's a little thing called CFPB and there's more rules regarding debt and in the lending industry. And so you need to let your third party vendors handle those conversations. For the most part they're licensed in that, they've gone through classes and every state's a little bit different when it comes to licensing part Some states you need a license to be a mortgage broker or banker. Most states, as long as you've got a servicing company that's licensed in that state, that'll solve that issue. But you've got to do a little bit more due diligence and you're looking at the paper. Engineers sometimes will have a hard time with the notes space because it could go a variety of different ways. Kind of a choose your own adventure kind of exit strategies. If the borrowers work with you or they don't work with you versus a specific I'm buying the property, I can fix it and go this route. So that's the thing, it's a little bit different with each deal. Some deals you think are going to be straight up modifications or reinstatements and it turns into being a drawn out foreclosure. Other times you think they're gonna be a foreclosure and suddenly the borrower shows up and brings 10 grand to the table to reinstate the loan. So it's a different type of strategy. The beautiful thing is that we're six to 12 months ahead of where most people see deals at because we're way up the food chain, close and direct to the source. And that's the thing that we like. It's just, it's creative and I like doing this from wherever I'm at. You don't have to be in your back yard or as long as you got Internet and a good connection, you can be a note investor.

That's, that's really cool because in my business now there are lots of People out there that are virtually wholesaling houses. I like to do it in my own market because I can get my eyes on those houses. I personally like going to the properties and meeting the people and walking through them. You never know what you're going to find in those properties. And I'm a people person. So me sitting at home, you know, versus being out in the field, you know, I just, I choose the latter on in that scenario. So I do it all locally. But I love how you guys aren't locked down or, you know, limited to just your neighborhood or your county or your city. You can do this all over. So what are you in all 50 states or are there certain states that you avoid?

So don't buy New York or New Jersey because it takes. In New York, it can take you like 36 months to foreclose. And you need to hire an attorney to talk to an attorney to have an attorney. Okay. Illinois is great except for Chicago and Crook County. Okay. Chirac is a place that's very difficult to foreclose on. It's very corrupt when it comes to legal to take it 12 to 18 months till the foreclose in Chicago. Now, other parts of Illinois are great. Other than that. I mean, we don't see a lot of stuff on the west coast that makes sense because it's just overpriced. I mean, California, the land of fruit and nuts. And with all the droughts, you just got nuts out there now. So they sell stuff at ridiculous pricing. So it doesn't make sense. We're buying a lot in. If you're a football fan, the Big Ten, Southeast Conference, parts of the country, the acc. I like Ohio, I like Michigan. We're getting some really great bang for our buck up in those states. I love Missouri. I've bought stuff in St. Louis and Kansas City and Columbia and that neck of the woods.

Kansas City. Missouri side or Kansas City? That's just a joke.

I know it's a joke. It's a different story, though. But you're like, Kansas.

There is a Kansas City in the Kansas side. It's on the river. It's on the border. Guys, if you're not aware, it's just like 90% of it's on the Missouri side.

Yeah, but Kansas has a longer foreclosure time frame than Missouri, so.

Oh, wow. Okay.

Totally is. And so Florida has been great. I was buying in Florida 10 years ago when everybody was running away from it. I was buying condos for five grand and taking 12 to 18 months to foreclose. Because the investors were international and then selling them for 60, 70 grand at the foreclosure auction. So, you know, the thing is, we've had such a great up, you know, appreciation. The market's recovered. It is time for the market to change at some point, you know, everybody says it's going to be this year. Someday it'll be after the elections. We're due for a market correction.

And that's the we. Absolutely. Yep. So that was my next question, Scott, is is there a way for you to kind of see it coming? Because I would think, and I didn't mean to interrupt you, I apologize, but I would think that if you were in this business and maybe you were in 2005, 6 and 7, you would see that there was a lot more and more people getting foreclosed on or a lot more of these notes for sale. Are you starting to see that trend again or no?

So in 5, 6, 7 and 8, I was a mortgage banker, a mortgage company. I mean I bought notes, owner financing, wraparound, stuff like that a little bit in the non performing commercial side. But I'm seeing like my spider sense is going off right now because back then we were seeing not, you know, subprime mortgages, we were seeing, you know, 5, 1, 71 ARMs, stated income loans, stated income, 100% financing or zero down, you know, zero down payments or just ridiculous stuff that just didn't make sense. People didn't need to get a house.

Ridiculous, right.

We're seeing that same stuff. Repeat again. ARMS have been back for a couple years. Lenders are doing 100% financing.

I saw some of that in the news just the other day about how the 100% loans are back and it's like crazy. I just don't get it.

You know, people that there's lenders out, there's lenders doing 100% financing or loans with people giving loans to people. The 520 FICOs in every state in the country right now. I had a phone call with a mortgage banker, one of the big shots up at bank of America a couple days ago and asking about his program, he's like, oh, we're just killing it right now. We're donating the down payment and then we're contributing $7,500 towards closing costs. I'm like, oh. I'm like, what is this? Are you requiring 20% down? He was like, no, we're 100% financing the first time homebuyers. I'm like, you're telling me people that are getting In a house without any savings, 100% financing on new builds, too. He's like, oh, yeah, new builds. I said, what happens when the tax value gets adjusted and the person looks at their budget and they can't afford it anymore because they can't pay the taxes now. Now that's going to go foreclosure. Now they have no skin in the game, they said, no incentive to stay in the houses. We're going to see maybe not quite as catastrophic as it was a decade ago, where we had 15 million homeowners underwater in 2010, but we're definitely going to see something happen again, sooner than later again. And so I see the signs. I talk, I track foreclosure rates in cities and states and see things. I see an uptick in some things. I mean, here's a disturbing thing for you, David. One in ten Americans is already a month behind on their mortgage. Ten already.

One in ten.

One in ten, yes.

What, and that's a nationwide statistic?

The nationwide statistic, Yep.

Holy cow. That's scary, Scott.

Yeah, it's gonna scare a lot of people here.

Holy cow.

I would be saying holy shit. I'm sorry. Holy shit. Yeah.

No, holy shit. That's.

I'm all for it.

So, Scott, is that a new trend or has it been that way for the last 30 years? Like, like, where do we stand on, on that stat in terms of the, you know, the history? Like, is that alarming right now or is that normal?

No, no, no, it's alarming stat. We didn't start seeing that number increase until right before everything happened 10 years ago. It's on pace to do that. Here's another disturbing thing for you. In 2008 and 9, the banks were leveraging every dollar they had in 15 to 1. So for every dollar they had in, they were lending it out. Fifteen times that number is now more likely 50 to 55 to 1 is how much they've leveraged money out. So, you know, if you've ever watched the Big Short or read the book.

I love that movie. I've seen it 10 times.

You know, we're going to see things. You're going to see banks going out of business again. It's like the RTC days that happened in the 80s, the savings of the loan scandals, single and stuff. You have 10, 15 years of growth. You know, they're sending, selling off these credit swaps again. Like that led to a big downfall in 2008. 9. Like they did in the Big Short. We're already starting to see those Being repackaged on Wall street again. So Wall Street's getting greedy. We're seeing increased defaults. Yeah. Supposedly the economy is doing great, but there's a lot of people that are struggling to get by right now.

And yeah, 1 in 10, it seems like. Yeah, 1 in 10. Now you said 1 in 10 are.

Are already at least 30 days behind.

Oh, man, that's crazy. Holy cow. So is there. I mean, is there a lot of people that get behind and then get caught back up and that's like a. And that's kind of like a. Like a back and forth, like a swing, or do you. Is it typically when someone gets behind, that's it ends up getting. I guess it kind of varies, obviously, but. Well, what's the go ahead?

You realize that here's the thing. Here's another statistic that'll scare you. 85% of people are a one missed paycheck away from being, you know, in trouble. And that. That happens when you have people. Well, it's just when you have people that are used to trying, they look at overtime as being their base salary. And then you look at all the retail companies going out of business. You see all these other companies that are laying off. You see all these lower people that can't afford to live in parts of the country anymore because it's getting too expensive there, and they can't afford to pay for it. To keep up with the Joneses, they got to look at either paying for power or paying to live.

Right.

Okay. So all these factors of growth, I mean, we see that here in Austin. Home affordability is a big issue in a lot of places across the United States. And the more you see that, the bigger divide happens. So, yeah, you see people that will behind by 30 days, they'll make up a double payment or they'll, you know, they bought toys with their income, now they're selling the toys off to pay for their mortgage. I used to joke that we were in a. In a garage sale economy over a decade ago. We're starting to see more and more of that. So track your garage sale notices and you'll see an increase in that. And that's usually a sign that people are trying to sell off whatever they can to make the payment to survive.

Interesting. Wow, that is crazy. One in 10 people are late on their mortgage currently, and 85% of people are one paycheck away from disaster. I believe the second quote. I mean, I believe both of them, obviously, but I know a lot of people live check to check. The majority of people. 85% is the stat, I guess, But I had no idea that 1 in 10 people, America, are actually already 30 days late on their mortgage. Wow, that's. That's crazy. Unbelievable.

Yeah. Nobody talks about that, but you can track that stuff. We pull, you know, we pull stats from originations and defaults and talking to the banks and stuff like that on a regular basis. And it's, It's, It's. It's gonna be more so that middle class to lower class, you're gonna feel the biggest.

Of course. Yeah, yeah, absolutely. So, one last question before we wrap up, Scott. You know, in terms of the fact that the markets are cyclical and you're gonna have ups, you're gonna have downs. We haven't had a down, you know, like a, like a correction or a significant dip in over 10 years now. And I know that you don't have a genie in a bottle by any means, but are you. Are you thinking that we're gonna have one of, you know, something along these lines in the next six months, or are you foreseeing this more like, you know, maybe one or two years out?

I'm gonna say it's gonna be in the next. In this year. I mean, we're already seeing things in some parts of the country dragging on in places, so it's not gonna be quite as crazy as it was before, but it's gonna. I see things this year, taking this year.

Yeah. I 10. That's why I ask. Because I like to ask some of the tough questions, you know, and I feel like that is. I feel like I'm in that same ballpark with you. I feel like it's sooner than later. I really do. And I'm right now working with my business partners to pay off a lot of our line of credit debt and debts that could essentially be called due whenever, you know, shit does hit the fan. And we're working diligently to put ourself in a situation or a position that whenever we do have, you know, that. That day that comes that, you know, bank stop lending and everything else that we're positioned, you know, rather well. So here's.

Yeah, here's the big thing. If you've got properties with a ton of equity, I would go get them refinanced. I would put. I'd pull some cash out, because that cash ain't gonna do you any good sitting there when you could put it, bring it in and lend it out. You know, make 8 to 12%, keep it if you can. I mean, we're still very lucky that we've got low interest rates out there. I'm not saying refinance at 100%, but if you can refinance out up to 65, 70, 75%, you know, I think you'll still be good. If we see a downturn, you want to make sure that your property's cash flowing. Several hundred bucks a month, not 100 or 200. Because if you've got to adjust or reduce your rent because.

Yeah, yeah. Reshoot for 275 at a minimum.

Yeah, yeah.

300 bucks.

Yep. 250. 300 in positive cash flow above, you know, Piti and everything else that goes along with that. That's the important thing. Reduce your expenses. I mean, whatever you can. You know, that's the biggest thing. Try to have as lean an organization or lean as a lifestyle as possible. Not saying not go out and eat, but I think we all can do good by looking back at our expenses every six to 12 months and getting rid of things that we signed up for and, you know, sock away. I mean, put money in your IRAs, put money away. Save it for a rainy day because you want to have cash. When things do go south, you can really capitalize and buy, you know, two, three, four properties versus what you could pay for one, so.

Totally agree. Well, Scott, how can I, how can I direct some traffic your way? You know, if we have quite a few listeners and if they, if they're interested in learning more about you, obviously, go check out the Note Closer Show. That's a podcast, guys. It's also syndicated out to several radio stations across the country. So if you are not aware or haven't checked it out yet, check out the Note Closer Show. But, Scott, how could people connect with you directly? What's, what's the best way?

The easiest way is just to go to our website. We close notes.com that handles all our events or trainings, the podcast, you can always go there. And then we've also. You want to learn more about note investing? I wrote a book that I'm glad to give away to anybody that's interested free. I mean, you pay $19.99 on Amazon if you want, but I'll just shoot me an email@scottclosenotes.com, i'll be glad to email you a copy of my book, no questions asked, but it's a really good kind of intro to note investing and kind of diving in and getting your feet wet a little bit there and understanding a lot of terms. There's people out there that over compliment complicated talk above your heads. I'm a like normal. Hey, give me the layman's terms. And that's how I wrote my book to help people understand that note investing what it is and what it's all about.

Give me that website one more time.

We close notes.com guys.

It doesn't get any simpler than that. Reach out to Scott if you want a free copy of his book. And Scott, thanks for offering that to our audience. Much appreciated. Or go check him out on his website at we we close Notes Calm. Did I get that right?

You got it perfect, David.

We close Notes calm and Scott has training and live events and all other types of goodies for you guys at that URL. Again, that is we close notes dot com. Scott, thank you so much for coming on the Discount Property Investor podcast today. It has been an absolute pleasure. I learned a lot. I'm confident that our audience did. We're going to have to have you back in a couple months and do this again. Any, any parting words for the audience, Scott?

Well, I don't care what avenue of real estate you're in. Take action. Do something. The only thing that you guarantee by not taking action is failure.

Love it. Absolutely love it. Guys, don't forget you make your money when you buy. You get paid when you sell. So if you are buying properties retail, you are losing. We teach you how to buy these properties at a discount. Don't forget, check out our free course at free wholesalecourse Comm. Scott, thanks again for coming on the show. We are signing off guys. Until next time. We will see you then. Thanks again.