Organizing Note Tapes To Find Your Deals

Foreign.

This is the no Closer show where you get the latest developments in distressed note investing and learn the secrets of how you can control millions of dollars worth of property for panties on the dollar. Get educated and entertained by someone who has closed thousands of deals and lives to support you in achieving the same. Now here's your host, CEO of We Close Nodes, Scott Carson.

Good morning, good afternoon, good evening everybody. Welcome to this episode of the Nut Closer Show. As always, Scott Carson. Excited to be here today. Today's episode kind of spawns off a little something that we worked on this past Saturday. This, this past Saturday we had a two hour live stream where I kind of went into a tape of over 400 assets. There was actually 422 performing and non performing notes and some of them were brand new, still performing, some were kind of scratch and dent where they hadn't performed for a little while. And then there were some very heavily distressed assets that had not been performing for years, in some cases up to a decade for a lot of people. And I've gotten this from people that watched the episode that were, you know, or watched the live stream on YouTube or they, you know, you know, signed up to be a part of it because who haven't been through a class. They were like, man, how do I, how do I filter through this stuff? How do I see exactly what I have when I get a tape in? How do I determine what do I target? And that was one of the most important things that I shared with people in the first, really 30 minutes is figuring out what the heck you got. Because we had stuff in 30 states or actually 35 states total, 17 states with 10 or more assets. And it was a mixed bag of low values, low balances all went to some decent high values and high, high balances. And I've seen experienced investors kind of freak out, get overwhelmed because they don't know where to begin. There's a lot of information on those tapes as far as is columns. You know, from rates to you know, first last names, mailing addresses to physical addresses to loan numbers to last payment dates to legal balances and bankruptcy and foreclosure literally can be very confusing. It's kind of like looking at the matrix. You look at it and some, once you've been doing this you see what everything looks at but if you don't know how to read it, it looks just like green lines, right? So the first thing that I did, and I highly recommend that you do this is you have to if look at one or two columns all Right now, depending on how big your spreadsheet is or tape that comes into you, it's pretty easy to figure out what you have. If you got a small tape, you know, look at the last payment date or number of days behind. That'll tell you performing and non performing. Right. If it's performing and there are no late days, current payment, you know, next due date is this next month. That's a performing list of notes and you're probably gonna probably want close to par for that or full value of the unpaid principal balance. In a lot of cases you want to make sure it's not. If it's government loans, you're probably just gonna waste your time looking at government loans. Fannie, Freddie va, stuff like this, which is performance because they're to sell that stuff to you at a discount. But in this tape it was a pretty good list. Obviously, you know, mixed bag of stuff. And so that's what we did. The first thing I did is say, okay, let's take a look at. They didn't give us the how many months past due. They did say last payment date of you know, months ago. And so what I did is, okay, that's the payment date. But it also gives really great comments. A number of days past due based on the date of being December 28, 2022 when the, when the tape was actually pulled. So number of days due. So what I did is I basically inserted a column and just said okay, divide this number of days past due by 30 days to figure roughly the number of months. Well, some of these came back zero because they were performing well. Great, that gave us a chunk. That's basically performing. What I did. If it was less than 90 days of non performing, I said okay, that's pretty much going to be an easy performing. Even if they're less than 90 days or up to 90 days past you, that's a pretty easy conversation with a bar to get back on track. Okay, so that's the first group not behind. They're still paying on time, even up to 90 days. I still consider them as being performing. And you're going to pay the most for those probably 80% of UPB based on numbers, maybe a little bit more, maybe a little bit less. You know, the interest rate will vary and what you make an offer at obviously on those very directly. So if it's a 7% interest rate and you want to make 14, you're going to offer 50% cents the dollar. If it's 3% interest rate and you want to Make 12% you're only offer 25 cents of the dollar which they're probably not going to accept. Okay, so you got to have cheap money. Next thing. Now the next way to look at that tape is okay, if the rest of these are non performing, how do I determine which non performing ones do I spend my time with? And I always like to ask people, okay, what's your focus? And most people's focus in the note industry isn't just to take the property back. They don't want to get in fix and flips because they're usually in the notes base because they're getting out of fix. Right. So the thing I did next was okay, let's re. We've got our performing. Let's color code these blue, blue. Hey, pretty good. Then we look at the. Then resorted the spreadsheet by last due date with the most recent to the latest. Right. A to Z basically. Well we'd already pulled, you know, up to 90 days. Well that left us a big chunk the rest of the list that was non performing. Right. At least 91 days and greater. Well how do you identify? Well I liked, I'm the guy that looks at said, okay, we've had some major stuff happen in the last couple years starting in 2020, right? 2019, I guess you could say that, but we'll just say 2020 because that's literally right now three years from where we're at today. Okay. If Sony went non performing, they start making payments up through the first, you know, through 2020 or really 2019 and then 2020 kicked in. Anything that's non performing since 2020, I actually give it a pretty good shot at getting the bar back up. Now depending on a couple things. This is a big tape and I can tell that the sellers of this tape or the owners haven't done a really great job in borrower outreach. There were some servicing notes on the far end side. Not really servicing notes but legal notes. Have they started foreclosure? When did they, when do they submit it to start? Legal aspect on it. And obviously these that were greater than 90 days even some of the ones were less than 90 days default. But 90 days to January 1, 2020 is the last payment date. There was a lot of that like legal description on there. Well okay, yes, you're going to foreclose or you're going to try to get the borrower back on track and modifying or payment plan, something like that. That's going to be your biggest shot. It's also gonna be the bigger discount. Now you Gotta, you gotta sort that list a little differently. Ones with equity, ones without any equity. But if that's where, if that's your target, like mine, buying non performing that I can get at a discount and then work to get the borrower back on track. That is my favorite niche right there. That's the cut. That's as I call, that's the, the filet of your carcass. Okay, Tom? That's the ones where you're gonna get the bigger discounts. Probably somewhere between $0.50 on the dollar up to 80, 85 since depending on the legal balance or payoffs. And. And the ones with no equity are upside down probably at the $0.50 mark to $0.70 mark. The ones with equity somewhere between 65 and 85% of the legal balance, provided that there is equity above that. Still got to be careful, doesn't mean it's a true thing. But that's where I start figuring. Okay, let's take our 12 months of payments, 12 months of P9 payments and then divide that by roughly 65% of UPB. If there's no, if you know, 65% of value if there's no equity, or 80% of the legal balance if there is equity, that gives me a quick number of quick ROI number that I can then target. I can resort that, that middle chunk, the fillet as I like to say. And that's where I can spend most of my time. Obviously get rid of states I don't want New York, New Jersey, you know, get rid of Kentucky, get rid of some, you know, Wisconsin, because it's high taxes for the most part, low balances, rural assets. But that's the one I'm going to probably spend the most amount of my time in. And that has actually been where I spend time. Now that leaves us a third cut. Now I don't want to say this is the fajita meat or the strip steak aspect that because I make good fajitas. And you can find some good deals in this other list where it's more seriously in default beyond really at the point, three years in default. Because there's not really an excuse now there is excuse. Maybe the seller or the owner hasn't really done a good job of following up or this tape's been sold a variety of times. I've made some things work with those, you know, delinquent assets where you reach back at the bar and say, hey, I know you've probably been sitting around waiting for the shoe to fall or somebody called, but now it's the time to pay the piper or we're gonna go to legal right now with that heavier distressed list. I will look at where is the legal side, where is the legal aspect of it? Where are taxes? You really got to double check that list for taxes owed, how much in back taxes. You also have to look at that list, especially when you start getting beyond four years and five years and six years and some of these later ones. You really gotta cross reference that list and last payment date with that state's individual statute of limitations and what you can collect from because that will determine your collectible balance. Yeah, they may have a legal balance of 150,000 up 100, 100 grand in late payments they've never made. But if it's eight years and you can only collect on four years, well that cuts half of your late fees that you can't collect on or late payments. So you gotta be very careful on that. All right? So that's, that helps you determine obviously if you're using your own funds, you want performing notes, you're gonna be that very first cut of the performing stuff or that second cut with less delinquent, maybe, you know, a year or less and no pays. If you're like the scratch and dent side of things, right, Say the turning, you know, rehabbing the borrower side of things, you feel the Betty Ford clinic in your note business, come on, then that's where you would buy, you know, make offers on the ones, like I said, that are delinquent of about three years or sooner. And then if you don't mind dealing with some ugly properties or foreclosing specific states and maybe you've got a rental portfolio in Indiana. You want to focus on Indiana assets or Illinois or other places like that. That third cut, like I said, would be where you spend the time. But you've really got to make sure, put eyes on the asset. If it's vacant, you really got to look inside, make sure it's not trashed out. Because we've seen some really ugly assets that have been trashed out. People stripped it, the, you know, copper's gone, the air conditioners gone on vacation, there's water damage or there's vagrants or bums living in the property. They've trashed the property. So that's really. We had to look at that three, three phase aspect of. And like I said, you can't just run formulas. One of the biggest mistakes I see students making is they run one formula and they run it all the way down. They based off that formula, but they're not really understanding that this one tape is really three tapes. The performing is going to be valued differently, the non performing is going to be valued differently whether there's equity or no equity. And you also have to look at it versus newly delinquent in the last three years or heavily aged delinquency and the age delinquent stuff, you're going to get a much bigger discount on stuff. But it's also you got to filter through more of that stuff. You can make money, but this is where it is important to leverage your network, leverage your database of people around you or your Facebook groups or meetup groups to connect with other folks who can be your eyes and ears without you spending a lot of money on due diligence on looking at crappy assets. So, and this is, you know, one of the greatest things you can do that we have found is that really people do love looking at. If you, you're near there, go out and drive by. If you, if there's a group of assets in an area, it may make sense for you to jump on a plane and go take a look because those assets probably aren't going to go anywhere. You know, if you can jump on Southwest and fly out, take a look at it in a day and come back, it's well worth it. Or a weekend, you know, make it a trip to understand an area. One of the, one of the greatest things I think we ever did was go and drive around Ohio for five days or drive around Michigan and look at a lot of assets in a weekend or drive around Florida in a week and take a look at stuff, you know, Kansas City, Indianapolis, Chicago. You know, these are some of the cities that I've driven around and take like Houston, Dallas, you know, Austin, San Antonio. You know, it's like a buying tour. But it honestly it gives you a better feel for the neighborhoods. It gives you a better feel for the city as you drive and see what's going. Especially you're not from there. You know, you can reach out to realtors and rehabbers or friends and if they're not in this business on a regular day, they're really only good enough to give you photos. I mean realtors can suck at giving you photos. You know, we, we've reached out to realtors in the past. They come back with blurry photos or like two or three photos. Like did you even get out of the car? Or you sent me like six photos, but it doesn't give me. You just focused on the floor or focused on one spot in the in the ceiling is every room like that. And so you got to be very specific. Hey, can you do a walk through video with me slow or record something or just take a lot of photos to make sure. And that's, that's, that's the hard, hard thing. A lot of times I can see this on inspection reports from asset managers and another tape I got in from a California hedge fund. The inspection report has like eight photos, three pages of photos. And they're the same eight photos. I'm like, and they're blurry, dark. I'm like, this really doesn't help. I really need to get inside the, the asset. If possible, if at all possible, you can. So that's what I wanted to go through with you guys. Really. Don't be overwhelmed. Realize that not every asset on that tape is a deal. Not every asset on there is an asset. Some of them are liability. But keep that in mind too. If you see some ugly stuff, it might be worth you offering on a good asset and then asking them say, hey, throw this asset in cheap because I know you ain't getting rid of this. I know it's a piece of shit. It's cost you money each month in the form of servicing taxes, liability, manpower. If I want to buy a good one enterprise, give me a hell of a deal on this one that I know you need to get off your books because it's going to take you a while. The more months that this drags on your portfolio, it's going to cost you more for non performing 4th place insurance and all that other good stuff. And oftentimes expenses can outweigh the opportunity for folks to get out there. And here's what you got to realize too. A lot of these big funds, when they buy a portfolio, big portfolio, we're talking 100 or so assets, they're going to really kind of rank that portfolio in three phases differently. The top 25% of the pretty assets, the ones they know they can move the most, they're going to hope to make back their investment what they paid for those assets for the most part, or a big chunk of that percentage with that top 25, 30%. Okay. The middle 50% for the most part is where they can make the most amount of profits. These aren't going to be grand slams. They're going to be okay, assets occupied, non performing it back on track or you know, medium sized assets, not going to be the knock it out of the park, you know, the assets that everybody falls all over. So. Oh, that's so cute. That's a beautiful property. It's such a great sense. No, no, no, that middle is, I call it your blue collar. It's where you and I guys are going to make the most amount of money and the biggest returns because we're have our feet on the ground and we have our relationships. We know that market, we've got the vendors be help us take that down. And then of course you run to the last really top the bottom of the barrel. That last 20, 25%, some cases 10 depends how well the, the asset you know the fund bought. But then that's the tail, that's the, that's the fertilizer, that's the, that they don't want to carry on. So if you can buy, okay, I'll give you a price for a good ass. And you got to expect to pay at a premium for the prettiest of the assets of the tape. You also got to okay that middle, that value add where you make your money by being able to work it out to really come to a situation that makes sense for you with one, two or three different exit strategies. And the bottom of the barrel is literally, hey, just give this to me and I've got my fix and flippers or I'll wholesale it to somebody or you know your cost basis for what you buy when these crappy assets offsets your profits and gives you a few more write offs against your, your profit margin on the the top two segments. So that's something, I mean we've bought from the tail before today. Throw these in with our good one and just, you know, we can't give it to you for free. That's right, just write it. If we're going to give you what you want for this one, then just write the contract up so that the total purchase price of these four or five doesn't exceed what we want to pay for this one. You know, seven bucks, 100 bucks, 300 bucks and then 18,000 for the fourth one. And then we were knew that we could probably move the one for seven bucks. We did. It was in Baltimore. We flipped it for a five grand wholesale fee to somebody. Well that made sense. The other two we didn't, we worked on, couldn't find a buyer. Fortunately we just let them go, let them go to tax foreclosure. So that's the thing. Don't get overwhelmed, look at what the tape does. Remove the emotions, remove the, the eyes from it and focus just on the numbers, focus on the date. Okay. Performing. You know, you may want to get Rid of the states you don't want to waste your time with or your top three states or top four states or top five is what I always say start off with, but don't just look in your backyard. You have to. As a note investor, you got to get outside of your backyard because there's still a lot of opportunity out there. If you get a tape and you know what the hell to do with it, guess what, Pick up the phone, drop me an email, be glad to jump on a call with you, take a look at it, help you break it down. If there's a deal on there that I want to buy, I'll be the one to tell you, hey, I'll buy this, or hey, you can wholesale flip this to me or I've got some buyers that are interested in stuff. So. And that's the whole reason we started teaching years ago, was to literally leverage ourselves and build a network of people across the country that hopefully they get tapes and pools. And you're, you're calling me, who are you going to call? Scott Carson? Who are you going to call? Note busters. You know what I mean? So that's the thing. Look at it. Don't get overwhelmed. Realize that if you break it down methodically, you'll find the, the nuggets that you really want to spend your time on. And there may not be, they may be like, hey, this is just all crap. This is all fertilizer. I don't want to waste my time on that stuff that doesn't fit with my portfolio or my long term goals. That's fine. A, okay to do that and just say move on. But here's the thing, you get a tape in, even if you're not going to bid anything. Don't want to just sit on the sidelines and rot. At least reach out to the asset manager, say, thank you for sending this to me. It doesn't meet my portfolio. Do you mind if I send this to a colleague who I know is interested in this kind of stuff? And you know what they're going to say, yeah, sure. By all, I mean they may require you or me to sign another non disclosure agreement. That's totally fine. It's better that way versus somebody bidding on stuff and coming in blind. Or you definitely don't want to make it part of a daisy chain where somebody's blasting out their entire network. Don't do that. Don't be that out there. Okay? But there's a lot of great ways to methodically look at your assets and look at what your goals are and make sure that the assets match up or to filter the spreadsheet down so that you're just focused on the assets that match your investment criteria, your long term goals or your expertise or all the above. So I hope that was helpful. Don't be afraid. Like I said talkwithscottcarson.com you can book a call with me directly and be glad to talk with you, walk you through the process and even jump on zoom and and break it down for you. Like I said, that's the whole reason we started teaching was to share our knowledge and to use folks as an opportunity for for bird dogs out there to make something happen. I'd rather you make something on a bird dog. A wholesale impe versus making nothing at all. Right? Plenty of deals out there guys and gals. Don't be intimidated. A lot of asset managers, a lot of banks, a lot of funds looking to move stuff and now's a great time to be a note investor. So go out, take some action buddy and we'll see at the top. Bye everybody.

Sam.