Rehabbing Borrowers, Not Houses: The Power of Note Investing with Scott Carson from the Peak Profits Podcast

Hey real estate investors, this is Scott Carson. I'm known across the country as the note guy and I've been an active note investor focused primarily on the niche of non performing US distressed mortgage notes on residential commercial properties for almost 20 years now. My company is weclose notes.com and I know there's a lot of different things when it comes to the note world. Are you buying performing notes? Are you buying owner finance notes? Are you buying institutional debt? Like I would focus. Are you buying first seconds contract for deeds? There's a lot of questions and it can be very confusing about what you can or cannot do. So one of the great things that we've hosted for the last couple of years that we do on just about a regular monthly basis is we host our one day class called Note Weekend. If you go to noteweekend.com you can register for a free three and a half hour class. We'll talk to you and share with you how you find fun and flip non performing notes. And yes, you can buy non performing notes from banks, hedge funds and a variety of different hard money lenders out there for your own portfolio. No, you don't have to have millions of dollars to dive into the non performing note game. We've got students that have bought plenty of deals with 2530 grand getting their ball rolling using their self directed IRA who are tired of dealing with toilets, tenants, trash desks, tired of battling contractors and GCs to get properties rehabbed. We all know the market is changing and while it may not be like 2008, 9 and 10 again, it we do see a lot of distressed debt out there on both the residential and the commercial side. So if you're thinking about diving into the note game, becoming a note investor, a lean lord as you'd like to say, versus the landlord. Or you just want to figure out what it is about the sexy side of real estate in the note space. We'll check it out. NoteWeeking.com doesn't cost you anything. We host it live usually the first or second Saturday of each month. You can go today. Register at the website note weekend.com Register for the next live class we host. You'll get sent a replay to the previous class so you can start learning about the note business today. No questions asked, no credit card needed. This is a great way for you to dip your toes in the water and see if it's warm because I guarantee going through our 31 day class, you want to dive into the deep end and become a note investor. So check it out noteweekend.com you can also go to our website weclosenotes.com check out our podcast. Check out our YouTube number one YouTube channel. We are here to help support you. Whether you're experienced investor or you're brand new investing, Note Weekend is a great place for you to get the ball rolling. People often say we cover more in our three hour class and most people cover in their three day class so check it out. Love to have you be part of our Note family but get signed up today@noteweekend.com thanks and have a great day. I think we're going to see well I just know my my crystal ball of my economic forecast show that we're probably going to see. Every market is going to see probably a 10 to 40% reduction in values over the next 12 to 24 months. Values are going to drop based on wages, defaults, interest rates, stuff like that.

Welcome to the Peak Profits Podcast, your guide to maximizing returns in passive real estate investing. Hosted by Brian Morris and Chris Ward of seven Peak Capital, we dive into conversations with industry experts sharing insights, strategies and stories to elevate your investment portfolio. Whether you're a seasoned investor or just starting out, this podcast is designed to give you the edge for financial freedom. Get ready to unlock new opportunities, discover the secrets of successful investing and take your passive real estate investments to the next level. Let's get started and reach those Peak profits together.

Welcome back to the Peak Profits Podcast. Today's guest is Scott Carson, President and CEO of weaklose Notes, host of Top Rated Note Closure Show Podcast, and one of the most recognized educators in the debt buying and note investing space. Scott has been in the mortgage and finance industry since 2001 and actively investing in real estate since 2002. Since 2005, he's built his business by buying distressed residential and commercial notes and helping thousands of investors do the same through his classes, podcasts and coaching programs. Scott, we're pumped to have you on the show. Thanks for joining us man.

I am honored here to be here with you guys and here to deliver peak results to the Peak Profits Podcast. Trying to say that three times fast. The ppp. Hey, you down with ppp? Yeah, you know me, I love it.

I love the energy. I'm excited to get on and deliver some peak results to the listeners today about Note investing and what you focus on. So could you elaborate a little bit more on on, you know, what I opened up with? You know, you've been in the industry for some time now, so maybe bring us back to the beginning on how you got started.

Well, can I do one thing and. And define what note investing is, and then I can go back to my journey as a young, you know, growing up as a young black man on a, you know, dirt floor or whatever like that. But, yeah, no, I'm a note investor, and I do it a little bit differently. I actually buy distressed mortgage debt, debt from banks and hedge funds. So when people think of note investing, they think about people kind of, you know, buying on terms or selling a property with owner financing. And that's. That's one inch of note investing. I just am kind of the, oh, the big short side of the business, where we're literally looking at portfolios of residential commercial mortgages backed by real estate, and we buy that stuff. And my journey into kind of getting to that space is kind of a unique aspect. I mean, like many people, I started off as a real estate Investor back in 2001, bought my first house, bought my two first investment properties that were gonna be rentals, and then proceeded to lose my job along with my two tenants. And I was a distressed borrower. You know, I was facing foreclosure, like many folks back in the day, able to get out of that, dust myself off, work for a little while, take a little siesta from the wannabe investor side of things, and went back into work and then met a couple real estate investors that were traveling the country teaching creative financing, owner financing, note buying, stuff like that in 2004. Surprising. It's been 21 days since I gave my notice at my last official W2 job this week, basically, which is kind of funny, and decided to go join them doing mortgages. And for four years, I basically had an apprenticeship learning about creative financing, real estate investing as they were traveling the country, teaching all these workshops and speaking. And I was kind of the mortgage guy in the back of the room, but also just got to really be a sponge and soak it all in. So I started buying, buying debt besides originating debt. And when everything hit the fan here in the States in 2008, Ryan was, well, I sold my part of a mortgage company for a buck because that was about all it was worth. And then started just dialing for dollars. Instead of originating notes. I was de originating notes and calling banks and lenders to see what kind of portfolios, or tapes, as we call, which is basically spreadsheets of their bad notes, or as I call them, naughty notes, with the goal in mind to buy this debt at a big discount, which is what we do. And and then working to rehab the borrowers versus rehab the properties. And now fast forward, we've bought over, I think we're coming up on a couple billion dollars in distressed debt on residential and commercial assets, all types of assets from anywhere from a $7 note in Baltimore, Maryland, I bought for seven bucks, flipped it for five grand, all the way up to 386 notes at one time from a major bank. So yeah, it's never a dull day in my line of work. Before I got on with you guys, I was actually making offers on 30 non performing notes in 12 different states a second ago.

That's amazing, Scott. So for people who have either never heard of what is a non performing note, it's something they may have heard of but have never looked into in, in much detail. Can you walk us through the process of identifying a non performing note? Right all the way to the, to the beginning, the start of what you're doing. You, you mentioned there just before this you were dialing for dollars. So the hustle is still there. But you obviously have some processes that you follow. You have some tips and tricks that you can probably share with those people that are looking to do something similar.

Yeah, so people like to chase like foreclosures. A lot of people are in the fix and flip business and they want to chase distressed assets, but they're approaching it from the property side. Well, almost all of these distressed properties that are facing foreclosure are going to foreclosure auction, stuff like that. There is a mortgage tied to it. So I approach things from that aspect is instead of going after the borrowers, the foreclosure list. I literally target banks and lending institutions by getting to the right department. You know, it's not calling customer service. You're contacting like the special asset manager or the whole loan trading department, which was an internal department of these banks. But these banks are all reviewing their portfolio on a regular basis and wanting to offload this non performing debt. Most of the time it's a little bit different depending on what's going on with that bank. But these lenders out there, when you look at the United states, has about 80 million homes with a mortgage on it. And we're running at about a 3 to 4% default rate every month. That's about 3 to 4 million mortgages with borrowers in default who are facing foreclosure where they haven't paid in anywhere from six months to six years. So when we reach out to these banks and lenders, they send us a spreadsheet it's got addresses, borrowers, names the payment stream, the details of the mortgage and they tell us, okay, is this a, you know, how far behind it is in a non performing note is exactly as it says or as it sounds, it's somebody who hasn't paid in a while. A performing note is somebody who's paying on times. For me means they're kind of paying two months here. Ms. A payment, miss a payment, make a triple payment, you know, make a, miss a couple months, make a payment here and there. So non performing. I always like that because I can buy those at usually bigger discounts off of what's owed. And while a lot of investors, I could chase equity, I create my technical equity because I'm buying that mortgage at a huge discount off of what's owed or below the value of the property. Now my number one thing is not actually to own the property. I don't necessarily want to own real estate in 30 different states. I like being the bank and owning the actual debt and the cash flow aspect of things. And that's why I joked about rehabbing a borrower. Because if somebody hasn't paid their mortgage in six years, you're probably not going to, you know, back on track. You're probably going to have to foreclose, which happens about 30% of the time. But if somebody hasn't paid in the last two years or the last 12 months, you know, based on what the lender provides us or the bank provides this, they'll give us all sorts of due diligence. They'll give us the servicing notes, they'll tell us, provide copies of the collateral file. Like I have one right here. This is kind of what I'm buying. This secures a $150,000 host in Kankakee, Illinois that I bought back in the day for 25,000. Okay. And it took me nine months to work it out with a bar to get them back on track. Unfortunately, they didn't stay on track. So we ended up foreclosing because we as the lender, which is what we become when we buy the note, not the property or we become the lender and we can go through the same legal right to foreclose like any bank could. So we get these lists in and it's just like looking at, okay, what's the value? What kind of condition is it in? What's the likelihood? We think the bar could reperform versus foreclosing. What is. The notes that this, like the bar was called in have been really nice. Hey, I'm trying to do something that we'd like that. But, you know, say Chris calls the bank and tell him to go pound sand. You know, we know we're gonna probably have to foreclose on Chris at that point. Brian calls it, oh, please don't foreclose. I lost my job. Give me six months to get back on track. We like those kind of people, you know what I mean? Unfortunately, not everybody can perform. And like I said, we're able to get people back in track about 70% of the time, 30% before close. And that's really where we make the, the lion's share of our money is. Okay? Simple math. So let's say somebody has a house and it's at a $200,000 value and they got a $210,000 mortgage on now because they're upside down or values have dropped a little bit, right? And they got like a 6% mortgage bank. Well, if I buy that note and they haven't paid in a year or whatever, and I buy the note at 50 cents on the dollar and I reach out to Chris and say, hey, what happened? He's like, oh, well, I lost my job, but I can start paying now. I just can't pay the full year that I'm behind on. Okay, we'll work with you. Because I'm buying it a hundred. I could be a lot more flexible with Chris than being the original bank. So if I can get Chris to start paying just his normal mortgage payment on time, which is a 6% mortgage, but I bought it at 50 cents. That's a 12% cash and cash return right off the bat to us, okay? And cash flow is nice. I don't have to rehab the property. I don't deal with toilet stands and trash outs, you know what I mean? Nobody calls me when the little Timmy, you know, flushes the toilet, you know, flushes the rubber ducky down the toilet, you know what I mean? Or the AC goes out, you know, or whatever, which is nice. I like being in the bank. I like to sleep. What's great is we buy these non performing ads at such discounts that if we can get the borrowers back on track for a period of time of 12 months, it's reclassified now as performing again. All right? And here's the thing. There are third party servicing companies that handle the collections. They handle the borrower outreach. So all I have to do is answer a few emails or talk to my servicing company. I don't have to go out and talk to all the borrowers. That's too much drama. I don't need that drama. You know what I mean? Let the professionals handle it. And if they don't pay, then we just kick it to our attorneys who foreclose. And you have to have an attorney in every state, but that's okay. But after 12 months of on time payments and Chris has been good, that's now considered reperforming or performing. I can turn around and sell that mortgage back to Wall street or other investors at 80, 90 cents on the dollar. So now I got a year cash flow. I got maybe a little bit of skin extra from Chris, maybe three or four months of payments to, you know, incentivize him to stay. And I bought it a hundred. Well, now I'm turning around, selling it at 160, 170 back to Wall Street. I made, you know, 90 grand on a deal that I only held for 12 months and never really owned the property. And that's, that's what we try to do. We will hold it for cash flow, obviously, but sometimes we sell, of course, if they don't pay. So I bought it at 100 and he and Chris doesn't pay. I have the right to foreclose. And that may cost me a grand if it's here in Texas where I'm located, or it might cost me say, five grand if it's in God's radio room in Florida. Unfortunately, I don't buy up where Brian's living in New York City because it takes three years to foreclose up there and is not lender friendly at all. So I don't buy in the Big Apple or your favorite, you know, fresh smelling air neighbor, New Jersey either as well, because it takes two years to foreclose there.

That was a lot there. Sorry. No, that was, that was very detailed and very good and easy to follow, which I appreciate. And you explained it well, right. You kept it at a level where you can kind of visualize how you're going through the process, talking to the asset manager of the bank and getting these lists and, you know, it sounds like a lot of work on your end. And I'm sure you have a team, you know, that works with you that, you know, helps you sift through the opportunities. But so now let's go back to that $200,000 hypothetical example. Right? You know, you, you find that this might be a good note to buy. What is that process like with the bank? You just, you do tell them, hey, I want to buy this note. Do you have to contact the seller? What how does it transfer from the bank to like now you own it? And how are you collecting that next month's mortgage payment? Right. So those are some of the thoughts that came up in my mind.

I love it when you have thoughts. It's always a good thing when we're thinking here and answer those questions because.

I know sometimes, not all the time.

Yeah, me too, man. I don't know, like between three and five, I'm out. But anyway, so with most mortgage companies there's going to be a servicing company already attached to it who's doing the borrower outreach, they're collecting the payments. So when I get a spreadsheet, it's going to give me what the bank kind of values that asset is for. Like a BPO value broker price opinion, what they think about. Of course a lot of its time is just Zillow values. You know, they have these big portfolios and they'll tell me what their estimated legal balance is. And so I'll make an offer knowing that I'll have a week to 30 days to do deeper due diligence on that asset and that loan file if my offer's accepted. So like I just submitted these bids literally 30 minutes ago. It only took me about 20 minutes to go through 187 assets. Cause you just run some formulas, they tell you the P and I payment and they tell you what the balance is and they tell you if it's, you know, if it's, if it's non performing, I know I'm gonna make a lower ball offer versus it's performing right. So I just run some formulas in there, calculate, okay, what, what did they pay the last 12 months versus what they should have paid. If they haven't paid anything, what's it gonna, what's it gonna cost me to foreclose in that state? Give or take a little bit, so I can run some formulas pretty easy. And we're developing an AI model to be able to upload a spreadsheet. And it's spit back some stuff as well, but I always like to take a look at it. So we submit our offer. If the bank accepts our offer, then we enter the due diligence period. Then we're going to order a bpo, a broker price opinion, an external appraisal, basically because we can't get into these properties because people are living in it. So we'll pay 85 to 100 bucks for a realtor to go out, pull some photos, give us condition reports of the exterior. We'll order title update, not A title report to see what other liens are outstanding on the property that are junior to ours or if there's anything senior that we can't wipe out. We'll also look at the collateral file. We'll review these files, make sure all the documents are in it, that we have the right to foreclose if the note's been sold a few times. We're gonna make sure all the transfer docs line up so it's not difficult. Once you've done lending, you'll always learn more by doing your first deal. But if that checks out, then we're wiring money directly into the bank. You need cash, you can't go get like a, I mean you can get lines of credit and stuff, but you can go get like a hard money loan to buy. No, you've either gotta have cash or use opm, other people's money. We use a lot of self directed IRA funds from people passively. We're paying them a, you know, 7 to 10% return on their money for 24 to 36 months and it's a win win. But once we, why are the funds. It's about a two week to 30 day period for the actual transfer to happen where you've got the. According to fair debt collection practices, you've got to give the borrower time to respond. So the lender, the exit, the previous lender will send out what's called a goodbye letter. Like hey, thanks for not paying us, Chris. Now you cannot pay Brian here at this address, our servicing company. If we're using a new one, we'll send out what's called a hello letter. Hey, thanks for not paying. Now you have to pay us at this address. So that takes about 30 days. And so what we do is once that servicing kicks in place, place we've already sent our own letter. Like hey, we know that you haven't paid, we know you're behind. What's the issue? Do you want to stay or do you want to go? Because if you know, pay, you know, stay, right? And so we'll send out depending on what we look at what we find along the way. Like are they behind in taxes? Is the utilities on? Is it occupied or vacant asset? We'll send them three or four solutions. One will be to hey, just start paying on time again. One may be to modify it if they haven't already modified the loan. One might be a cash for keys or deed and a little like a friendly foreclosure where they can just walk away, you know, and we'll Forgive them that debt. Another one might be, hey, you got some equity, let's help you sell the property, you know, or if you're upside down let's, let's do a short sale, you know, or just you know, if they don't respond to any of those then we know that they haven't responded in like two weeks or three, 30 days. We know, just give it to the attorney and say hey, release the hounds, you know, start the foreclosure if they have, if the previous lender hadn't already started that, you know. So a lot of times we'll just take over existing counsel, you know and they'll go ahead and finish the foreclosure off. Like I got one we bought that goes to foreclosure in four months and we bought it at a big discount. The bank just wanted that 50 grand on that deal now versus waiting four months cause it's taken em about a year and a half to get through the whole foreclosure process, you know and they rather get the money now versus wait around for four months.

So, so what?

But when you are going to the banks, are you going to kind of like more local banks? Are you going national banks or are you really trying to focus on those local banks? I saw you nodding your head as.

Soon as I said this is a great, I love this question because it's funny, somebody called me the other day, well Scott, I walked into my Wells Fargo bank and they wouldn't sell me notes. I'm like well yeah jackass, you know, they don't know you from Adam, you're not going to walk into a Bank of America Chase or a Citibank or Wells Fargo and just say hey I want to buy notes. Those bankers don't even know what the heck you're talking about. I mean I used to be a banker. Like what are you talking about? We don't sell our notes. Well, every bank sells it but some of those bigger top 10 banks, they're not going to sell a one off. No, they're going to sell like a 50 to $100 million tranche, a big pool to you know, JP Morgan, somebody else. But there's still plenty of opportunities on those mid sized regional banks is where we see a lot of the better deals in a lot of cases or even the smaller banks like the one single branch in a little small city, they're too tight on their deposits in a relationship to sell a note at a big discount. So you want to find a, a bank or lender that's in a couple states with a couple branches or more. We usually target banks that have five or more branches up to those bigger guys and Target them on LinkedIn. Or we've been doing that for a while, so we can. Now we've got a pretty good list where you just do an email drip marketing campaign to them, or you jump on like, LinkedIn and do a search for like, by job titles like special asset manager, secondary marketing, whole loan trader for some of the big REITs and insurance companies. They'll sell stuff off and go from there. You could also. I mean, what's nice is there's, it's a much, much smaller niche of people doing this than, say, wholesalers or fix and flippers or landlords or Airbnbs or all the apartment syndicators out there crying in their milk right now with the market being like it is. But, you know, you can buy commercial debt as well. When I first started, I bought a lot of multifamily debt at big discounts. And we, you know, we go through that. And every state's a little bit different on the foreclosure timeframe compared to each other. So you gotta keep that in mind a little bit. That makes sense. Yeah.

And you, you kind of alluded to this earlier, but you need to buy the note in full cash, so you just need to wire them. For example, you said you have a $50,000 note that you just purchased that is four months left on foreclosure. So you wired up being $50,000 for that note that they agreed to pay you for 50 to sell you for 50,000. And now that house might be worth 100.

Worth 120. It's worth 121 20.

Very nice.

The borrower's 140 on it. They're upside down, you know, hadn't made a payment in two and a half years. Right. And their monthly mortgage payment is 855amonth. So if they pay 855amonth, I get back on track for 855amonth. That's what, just under 10 grand a year? 10 grand on a $50,000 investment? That's a pretty good ROI right off the bat.

Yeah, damn right.

If they don't, if they don't play ball, then we foreclose in four months. Neither a sell at the auction, which I'll, you know, I'll make my offering at the auction through my attorney and say, hey, just, just, you know, try to sell it at 85, 90% or see how bidding goes. If it sells to the auction. Great, we're done with it. If it doesn't sell and we take it back now we own the real estate. We could fix it up and sell it. You could owner finance it, turned a rental. I usually just like to fix them up and get them moved as best we can. Some people want to hold on to that stuff and that's completely fine. But when you're buying in 20, 30 states, I usually only want to hold real estate in one or two states that I'm familiar with. You know what I mean? Or live like in Texas and I'd.

Imagine maybe do you work with wholesalers that like, if you buy the note that doesn't perform, you end up taking a foreclosure. And then, you know, you have that house for 50,000 and you know, it might be worth 120 and someone comes in and says, hey, I'll give you 80k now and you make 30k on your money quick. Is that something that you, you do and work with or is that not Totally?

Totally. Depending on the rehabs, you know, if there's a bar in place where you have to evict them and then go there and see what kind of condition it's in. Yeah, we'll work with wholesalers, we'll work with realtors to list it and get it going. I mean, realtors are key core routine. Because if we're buying notes, we're usually sending a realtor out to kind of get an idea of the value and condition the property. We sent a realtor out to one today in Pennsylvania with a bar and responded to knock on the door and deliver like, hey, do you want to stay or do you want to go? What's going on? We're getting ready foreclose in a couple of weeks, you know, so to get them get a feel. And they're also filming area so that if we do take the asset back, they can immediately start marking that property, you know, via photos, changing the locks and having an idea what kind of repairs we needed to do. So we can speed up, you know, the velocity of capital that people like to say to get things moving, you know.

Yeah, no, that's. That's awesome. So I just had an additional question to follow up on that. And it's. It seems like a pretty complex process, right, with how you build out your systems. And I'm sure you've been doing this for a long time. So you have a system in place where you're able to look at 186 loans 30 minutes ago and Determine, maybe I'll buy these, maybe I won't. So you help thousands of investors and you do so by coaching as well. How does someone get into this industry if they're just getting started, right. And they walk by their front nurse note?

Yeah, by their first note, I mean just start looking at notes. It's like anything else. I mean, yes, it seems complicated, but the first rehab you ever did was complicated. Right. The first wholesaler did seem like it was like trying to read Hebrew, you know what I mean? To get give everything done. And so that's the thing. There's some laws and rules that you go by. You never buy a note you don't want to end up owning a property on. That's the first thing, right. If you want to get stuff cash flowing, you buy stuff that's occupied versus vacant. If you want to do more rehabs and you buy more stuff that's vacant, for sure, you know, so there's some different rules and stuff like that. I always say, like pick one, two or three states. And if you're in some states, like Ohio, Michigan, Indiana, there's a lot of opportunity there to take a look at. If you can start local, great. You know, if you're in God's waiting room, Florida, plenty of negative stuff down there right now. You know, if you're in Texas, the Lone Star state, you want to make sure it hasn't flooded or hasn't been hit by a hurricane and other things to look at. So it's just like any other market. Get to know what's going on in that market. And then that's why you send somebody out to always view an asset. Let's see what it looks like in a condition. We had a guy that bought a note site unseen. And I'm like, why did you do that? Well, the numbers seem good. He owed 30. I could buy it for 18. I'm like, where the hell is it at? Oh, it's in some Poduk town in Pennsylvania. I'm like, okay, do you want to own the asset? Not really. Then why the hell did you buy it? You know what I mean? Stupid is a. Stupid does sometimes. But that's why we. I mean, people. I had started teaching classes and workshops because I was getting all these lists in like from Capital One and US bank. And I could understand it, you know, I could see the matrix code of the deals and where it was from. And you just had to start teaching people how to think differently. Looking at the numbers as a debt buyer is different than looking at the properties. Of fix and flippers. So it's just understanding the niche. But you can, there are platforms out there that you can go buy individual notes off of right now that you can actually go and target foreclosure lists and contact the attorneys, the lenders directly in foreclosure list. There's some platforms like exchange loans, auction.com, you sell a lot of notes, paper stack, there's a few others out there. You don't have to buy a big pool of like 200 or 187. You could buy one, you know, and start off learning the process with one note. I mean using your self directed IRA to fund the deal if you want or use somebody else's IRA to partner with them and pay them a flat percentage and just go through the process. It's what I like about it is there's always inventory. I mean one of the hardest things that most real estate investors do is all about finding deals. And they spend so much money on direct mail or driving for dollars or lists or paper click to get people to click on things. We don't pay any money on leads because once you've made contact with a bank and they have a list, they will usually send you their list once a week or once a month. If something's not on this list this month, will you wait until next month? Or you contact or you have a list of note buyers and say hey, I'll wholesale flip you this note on this list that I don't want to buy it, but I could make five, ten, a hundred grand on the deal depending on what type of deal it is. And so you can wholesale notes just like can real estate. So that's usually where a lot of people want to get their feet wet is they may flip a nut or two, get a feel for it or buy a small one and get the ball rock and rolling. And it's very possible. We just had a cpa, his name is Sterling, out of Portland, Oregon. He bought his first note for 8,500 bucks on this little property in Mayo, Florida. The borrower owed what do you he owed 60. The house was worth about 50. And he bought the note like I said, cheap at 8,500 bucks with his IRA. But the borrowers first phone call from the new servicing company. The guy was willing to start paying $500 a month to get back on track and he brought four grand to the table. So Sterling's investment's going to be a phenomenal return his first 12 months and then after that it's going to be about a 35% cash and cash return for the next nine years until the borrower pays off. And then if he doesn't pay, then he forecloses and outlands the property in Mayo, Florida. Wow.

What say you've, you've talked through the process, you've mentioned this a few times. Like you always have somebody go and check the property. Like in terms of risks, I feel like the condition of the property has to be one of the biggest risks because you can only see ex the external side of the property. That is really only not even one half necessarily of the puzzle. Right. Like what about the inside? What about if there's any issues with the foundation or like really the entire house?

Right.

Like how do you manage that, that risk? And what other risks are there associated with notes? Because again, there's always the, the upside, the 30% IRR that. Right, like all of that. But there are obviously risks associated with every investment as well.

Yep, yep. A lot of hiney holes tightening up there, Chris, as you're talking about that stuff. And it's so true. People like, oh my God, you can't see inside the house. I can't make an offer. So here's the thing. You gotta realize if somebody's living inside the property, nine times outta ten they're taking care of the interior of the property. You know, you're gonna have to replace paint and carpet and probably appliances. All right? So that's pretty much a given. The great thing about it is a little thing called insurance or forced place insurance. When we buy a note, we can only look at things that we can see. You know, the roof, the exterior, stuff like that. And when we buy a note, we put force place insurance. So if something pops up, like we open it up and it's a hoarder living in there and there's black mold everywhere. Guess what? We're going to file a claim with the Force place insurance to cover our asses. That's going to take care of us. Okay? So insurance is a big thing. If the borrower has insurance on the property, that's great. If they don't, we'll buy it ourselves and, and that way it protects. I mean I bought stuff, I bought a small 10 unit apartment complex in Chicago a few years back that had four retail units and from the exterior it looked nice. Well, when I got inside of it, all 10 of the units were just shit shows. Like one borrower had a hole in his ceiling in the tub, which is dripping sewage into his tub from the unit above. One person left Their water, hot water running in their bathroom the entire time with a pair of pliers. I mean, we couldn't see this stuff, right? Thank God for insurance, you know what I mean? That's. That covered our butts on that stuff. As far as other risks involved not looking at your property, I said something, I make sure it's still there. People that buy in Louisiana or Houston a few years back, you know, a guy sent a realtor out to look at it and didn't verify address in the actual street number on it and thought it was this pretty house versus a slab next to it. And so that's the thing. You just got to verify addresses like you would with anything. And always using like a good. I mean, you can pay 85 to $125 for a BPO agent, go out anywhere in the country and send you back a report. If it doesn't show the street address where I don't have all three, four sides of the house, I'm sending them back out. So. And that's also too. Since we're buying at a discount, it kind of gives us a little bit of oh factor. Okay. We gotta replace, you know, a fridge or appliances that's gonna be 4 to 5 grand, depending on where it's located. So that's why buying at a deep discount is good. That's why I also like buying occupied properties because it's usually in better shape than something that's been sitting vacant for a while. But it's vacant. I'm. Well, first and foremost I can peek in the windows and usually not, not get shot at. You know, I mean, if it's a hud, if it's a HUD mortgage note, usually they've got a lockbox. We may be able to get in that because we do buy reverse mortgages. So sometimes we will get inside if it's a, it's been listed for sale. We'll often maybe see online photos from the current listing, stuff like that. So it all comes with, you know, understanding your risk tolerances with anything else. You know, don't buy something you're going to end up rehabbing that's, you know, a thousand or two thousand miles away. Pick a, pick something that you're in. And I always tell folks like, pick something that you'd probably get re performing and get the feel for it first before you dive into the foreclosure side of things or looking at something you can't see into. I mean, we all know, like, I'll give you an example. We were looking at this Property in Spring, Texas about a year ago. And from the online photos it looked pretty decent. It looked like it was a little outdated, but it was vacant. So the realtor came by to take a look at it and she, the door looked locked and then like she went up and the door opened up and inside was the worst rat and roach infestation we've ever seen in a property. Right. You just take a look at that. We didn't buy it. Yeah, thank goodness. But if I'd have walked around the back, you'd have seen the back doors kicked in and looked at that stuff. That's why you always send somebody out to take a look at it, bar none, you know, is it vacant? Occupy? I mean the great thing about being the lender, two guys is I can call or have somebody on my team call the actual county or the city utility department, say, hey, I'm represent the bank. Is water on, is power on, is gas on? You know, if those things are on, somebody's usually taking care of the property. Those things are turned off. Like. Okay, when was it turned off? Oh, it's been off for like 12 months. Okay, that's gonna need some work. Especially if it's up in Detroit, Michigan, where it's, you know, cold, a little bit of time, you know, so those are things you just learn. But it's like anything else, you know, you start off one note nearby. Yeah. You kind of work through it and go from. It's just like any other niche. I mean I've seen, I mean, I mean you have people that are buying, you've met all these apartments in the case. People like overpaying and thinking they could raise their rents. Well, there's a reason the rents weren't raised because they were all shithole, you know, tenants or lifers or they didn't want to let anybody in. And it just is different, you know, it's so it's guys. You know, one thing you always check is the taxes. Make sure taxes haven't been, you know, have been paid or it's not going to tax sale. Looking at collateral file to making sure there's assignments. If there's an assignment of mortgage, which is what the transfer is. It's not a deed transfer, it's a sign up mortgage. Transfer gets filed. Making sure that's filed or that's in the file folder or making sure that there is this, actually this. You're not going to get this physical file till after closing. So you always want to make sure to look at the scan folders and See what's in the, the scan. If something's missing, just say, hey, I need a copy of this document that's missing from your file. If you don't have it, then I'm not going to fund. Or hey, they tell you the value is 200 and your BPO comes back at 130. Well, I need to reduce or fade my bid. If they say no to, well great, I don't need to, I'm not going to buy it. So you can cancel your bids if something shows up at due diligence without being penalized or blacklisted. So that's the things that help alleviate some of the risk others think they have going into it, you know what I mean?

Definitely some good learning points. And I'm sure over the years you've probably seen so many different scenarios that you've learned from, you know, that you've taken away different experiences so you can try to avoid in the future.

We had a deal in Dayton, Ohio. We bought a portfolio of notes of about 25 notes at one time. There's one in Dayton, Ohio and nobody had heard from the borrower in three years. Why the existing lender hadn't foreclosed on it, I don't know. Ohio is about a nine month foreclosure process. So we go over there, we find out it's, you know, it looks like it's vacant, completely vacant, nobody's responding. So as the bank, I have the right to protect my asset just like anything else. So my realtor went over, the locksmith, popped the locks, I put a new lock on it. And she walked through the house and found that the bar had died. He'd hung himself in his closet, you know what I mean? Nobody had known what's going. There's just a skeleton basically enclosed in the closet at that point, you know. Yeah, we bought a note one time where the bar had been deceased. But his young son who was dealing with that's mental issues was living in the basement and he was working at McDonald's but he was coming home at night, suffocating into garbage bags and peeing in a milk jug. So when we finally got into the house down in the basement there's like a hundred milk containers of just urine, you know what I mean? Like something out of Howard Hughes movie, you know what I mean? The Aviator, you know where. And then just all these bags of just shit and toilet paper wrapped up and at least he wasn't just stored in the corner storing trash bags. But that was a little bit interesting, you know. We bought, we bought another one that was a crack house. You know, we had to strip that one all the way down. We would definitely file the claim on that one. But yeah, you know, the thing was when you're buying notes from like banks, they usually have some sort of idea what's going on. You know, you have people that will sell their owner finance note too as well, and that's something like that. But I always like buying direct from banks because it's cleaner paper. Most of the time, you know, it's usually they've got all the documents they need. They've got some sort of servicing history or at least some sort of communication history with the borrowers. We can tell, hey, do they stay? Do they want to go? If they want to stay and they can start paying through some sort of payment plan, hey, let's do it, let's keep it. So I don't ever have to worry about the inside in some cases. Yeah.

And so that's some incredible scenarios that you've been through. And it's not surprising because I'm sure if you buy enough houses, you'd be shocked how some people are living or what's inside. But with that said, the market's been through a lot lately. What do you feel like the opportunity is in today's distressed environment or kind of where we're at, I guess within the last few years with the rise of rates and you know, where some banks are struggling with their balance sheets? Are you seeing more products at the market? Are you seeing more banks being willing to sell some of their portfolio? You know, where, where do you feel like we're at and where do you kind of foresee, you know, the future? I guess in the foreseeable future.

Great question. I just got my crystal ball in yesterday, so I can answer this.

Yeah, tell me. And then I'll just.

This part is going to be removed so we can go to Vegas. Okay, sick.

I'll meet you there soon.

Yeah, exactly. I think we. I see stuff 12 to 24 months of most real estate investors because we're seeing the debt side of things and it's kind of a domino effect and delayed domino effect. Like Florida takes a year plus to foreclose in a lot of cases versus Texas takes 21 days. Right. So stuff here happens faster, It's a little bit more expensive. But in Florida, stuff drags out. We start tracking defaults and when you look at the default rates going up, people having a hard time paying, there's some been some cracks in the system for the last 12 to 24 months. Really since COVID I mean, one out of nine Americans is at least 30 days behind their mortgage. If they have a mortgage. That's not a good thing. You know, you look at the record number of defaults on credit card debt, student loan debt, auto loan debt, being in high default rates. Those are all part of the house of cards when it comes to the American economy, when it comes to how we finance everything. Right. There was an article out the other day too, when it was about six months ago, talking about how 68 the top 110 markets, it's more affordable to rent versus owning based on interest rates and everything and the cost of property, stuff like that. Well, that doesn't make me. It's affordable and also it's harder for people to buy a house or to stay in the house when they start going through these hiccups. You know, I think we're going to see. Well, I just know my, my crystal ball of my economic forecast show that we're probably going to see. Every market's going to see probably a 10 to 40% reduction in values over the next 12 to 24 months. Values are going to drop based on wages, defaults, interest rates, stuff like that. Of course, if interest rates go up, it does not going to matter. The existing that's been around for three or five years, you know, I mean.

It'S all about buying.

I think Florida is set for another huge economic crash. I mean the New York Times just labeled Cape Coral as the worst market in the country. These all sound doom and gloom for me. I get excited because it's more distressed debt for me to buy a bigger discount. So I bought back in Florida when it was 30% vacant back in the day. I used to buy condos on A1A and Miami beach for like five grand a pop. It take us two years to go through the process of foreclosing and selling it. But I think there's a lot of opportunity if you know where to look because people are always going to need houses. It's just that we have a bit of a, a big correction now. I don't mean to scare by saying like 10 to 40% because some markets are just straight up over overvalued right now. Like here in Austin we've been overvalued for about five years. Last 12 months we saw about a 5% correction, not a crash. My numbers show that we'll probably see a 10 to 10 to 15% drop in values just because, you know, it's a correction more than a crash in a lot of cases. So each market's got anything, but there's more people hurting every day with the job markets and all the other stuff that's going on, you're going to see more people struggling to pay their mortgage. That leads to more foreclosures, more debts, more bankruptcy filings. As people try to find a way to say stuff. I mean, what's unfortunate, I think if you map some of the other companies out there, like you map Doordash or Uber, where people are high in those areas, I think you're going to see those areas hit the most because people are just trying to get by. I have a buddy that does a lot with like, he's called the flea market flipper, where he goes to all these different things and flips, you know, things at the flea market. It's kind of a garage sale economy. If you look back to what happened in 2010, 2011, the lead up to that, people were just living high in the hog, you know, like cashing out their equity and not using to invest but to go buy toys. Well, if you go to any online classifies now, since we don't read the paper anymore, and you start driving around your neighborhoods, you'll see more and more garage sales of people having to sell off the toys they once had to try to pay for their existing mortgage. So it's, it's maybe a little bit doom and gloom. It'll vary a little bit state by state, city by city, obviously, but there's going to be a correction and we're already seeing increased debt from banks and stuff like that. Sending me more lists. And it's always interesting when banks start calling me to get pricing versus me call them for deals, you know what I mean? And we're seeing more of that.

That's really interesting. I'm glad you got your crystal ball up out there for.

I can share the list with you. I mean it is, it's literally, I got it yesterday. I was like, oh shit. Well, okay, you know, what's the timing for this? And you know, it's just, it's like with anything, you gotta learn to pivot. As an investor. Not everything, not everything works in every market. If you're just stuck in one zip code and things change in the market, you gotta learn to pivot a little bit. You know where you're at, Chris? You know, there's a debt buyer's market in London, in England and stuff like that, but they only allow like major institutions to trade in. We're really unique here in the United States that we, you know, just this old ingle dink from Ingleside, Texas can buy debt out there as well too know.

So with that, Scott, like you've not just helped yourself and your family with this. You mentioned earlier you've helped thousands of investors and you've specifically mentioned self directed IRAs. I think two or three times now I've invested using my self directed IRA. I think it's probably one of the worst kept secrets or best kept secrets. I don't know whether it's a good or a bad thing that it's a secret. But not a lot of people really know that they can leverage their self directed IRAs to make investments. First of all, can you talk about how that works in the world of buying notes? How does somebody come to you if they've got a self directed IRA and they're interested in potentially investing with you? Talk us through how that works in your world.

Yeah, so there's roughly about 50 to 60 different self directed IRA custodians or trustees out there. And yes, if people say oh I have a self directed Iraq, yeah, but if it's with Schwab or A.G. edwards or your bank, it's only self directed to allow you to invest in the funds that that lending institution or that financial institution allows. The largest self directed IRA custodian in the country here is Equity Trust. Quest Trust out of Texas is a bigger one. They've now changed or sold off to Advanta. There's a bunch of them. You can literally go Google 50 ultimate list of self directed IRA custodians. All right, so you, to set one of these up, you start like 500 bucks. You, you could do a rollover from your 401k into a traditional. If you have an existing Roth, you can roll it over and set it up there for you. Usually they want you to. If I'm incorrect, it may different a little bit. They usually want you had at least 500 in there or more to do to do something with. And you can sell an option, you can put an option on note and sell that option on your IRA too. But anyway, so if you're going to buy an ira, it's gotta be with a third party. You know, you gotta be passive. You can't be going out and touching the asset, fixing it up. It's gotta be passive. And that's great because you're buying performing paper or sub performing paper, stuff like that. There's a third party servicer to help handle that. Collections and wiring into Your accounts. If you're buying a performing note, you fill out the directional investment form, all the details of the note in your self directed ira. Because honestly, notes are the largest asset class actually held in self directed IRAs out there. Most people don't know that roughly 30 to 40% of all money sitting in self directed IRAs though is sitting in 0% interest bearing accounts waiting for a deal to happen, a deal to take place, which is just crazy, you know what I mean? But it's an opportunity for you. So if you're going to buy a note, you're just going to fill out the directional investment form, all the details of the note, who you're buying it from. Usually the self directed IRA custodian is going to need to see a copy of the alange, which is the transfer docs for them to release funds to the bank. Once that's done, the seller will send over the assignment of mortgage. Of course it's going to have to be labeled like if you have an equity trust account, let's just say equity trust for the benefit of Chris Ward IRA account number 123-4567. You say Brian doesn't want his name to be out there. So it could be the equity trust for the benefit of account number 123-45678. You know, if you want to leave your name off so you can buy and start collecting the servicing companies will wire funds from the borrower wherever you want them sent to completely fine. Now if we are using other people's money to buy and partner with us on stuff, we're just giving them a flat 7, 8, 9, 10% return. So they're going to sign a funding agreement. The lending agreement is a flat return. There's a couple different ways to do it depending on how much they're investing or if they're looking to do if they want to put a chunk of money with us, we'll then open up usually a self, I'm sorry, a special purpose IR self purpose IRA special purpose LLC and have them be partners with it on that. And then that LLC is buying the notes and is funded by the IRA company. Other times we'll have the borrowers, not the third funding sources be code named on the assignment. So the assignment mortgage rate gets transferred, says 50% interest to Chris Ward IRA and 50% interest to my LLC. So there are a couple different ways that we can structure deals because of course we've got a fund so people can invest in. Just like going into a fund system as well too. For those out there that like to do that. So there's a couple different ways depending on where everybody's at. And we've had people buy, you know, notes, as little as five, you know, 1500 bucks for their eye in a small little note or all the way upwards to a million dollars. And we had in their ira, that's a pretty good IRA account to have. You got a million. You know what I mean?

Absolutely.

Awesome. So you take self directed IRA money. I'm assuming you also take cash from investors who would want to invest with you as well. Cash is cake.

You can show up with a, you know, you can show up with a suitcase of cash. I'm just joking. No, yes. I had one guy do that. One time I show up with that, I was like, dude, I can't take that. I don't, you're, you just can't laundry your money, you know. No, but yes, it's gotta be wire. So yeah, somebody's got, if you got checking account, savings account, some money, you know, sitting on there, you can use line of credit. So I never, you always want to know what that line of credit is going to cost you. So that you're making sure that you're getting. We had one lady, God, said she was going to use cash. She was going to fund $70,000 to buy two notes to fund two note deals in Florida. And I asked her where the money is coming from. She goes, those coming from cash. I'm like, okay, great. So we set it all up with her and I said, this is a Florida deal. It's going to take a year to foreclose because they're not paying. Here's all the agreements. She's like, yeah, yeah, I'm fine with that. And she'd taken my classes and been other real estate. Well, six months into it, she calls me up and says, hey, I need my money back. I'm like, what are you talking about? Well, the interest payment on my credit cards, where the money came from is causing me to lose it. Like, what are you an idiot? You pulled cash off your stupid credit cards at 19%. Yeah, I'm like, no, I mean like you're signing an agreement and I can try to work with you on that and try to get refinanced out or put somebody else, but it's going to take. Oh no, no, you know, so always ask where the money is coming from because you'll have people that are stupid out there and it just isn't any, any niche out there. But anyway, good times, good times. Yeah.

Awesome. Well, you have shared some incredible stuff. Where do you see we close notes going in the future and how can people get in touch with you if they're interested in investing, if they're interested in taking your course, if they're interested in learning more about what you do? I think you shared a lot of really quality content today.

Yeah, it's real easy. Just go to weclose notes. Com, that's my main website with their podcast classes. Check out the. We've got the number one podcast coming up on our thousandth episode here in the next week or two, the Nut Closure Show.

Congrats.

Thank you. A lot of work, man. You know how it's a lot of work. You know what I mean?

There's a lot going into everyone.

Yes, there is a lot of love. A lot of love. But we close notes dot com. We've got a free class that we teach once a month there too. If you go to note weekend, you can sign up for a intro class at no additional cost, but that's always the best way. But before you do anything, what you guys need to do there, listening to the shows, make sure you go over and hit that subscribe button and make sure you leave a five star review for Brian and Chris. Because we as podcasters, not only do we love to hear from our listeners, but we love to see hey. That you're actually listening and we're not just talking out into the void. You know what I mean? So do that. But check it out. Weclose notes.com Easy way to get a hold of me. I'm really the only Scott Carson the note guy out there. There's a. Actually Chris Ward, you being from England, are you a fan of football or true football?

I. I am a fan of the true football, but there is a Scott Carson and he played for teams that I hate.

Okay. So on the other hand, Scott, with your crystal ball, you're.

You've been okay so fast.

You know better than that. Scott Carson. Yes. You gotta. As. We. I as. I think I could joke to him in the gap because he's got a big gap in the middle of his front teeth too and stuff like that. But yeah, I think he just left Manchester City or something like that too. Denny. Or retired or got kicked to the curb because he's a backup for years. But who's your. Who's your favorite team over there now that you're saying you're Manchester United? Yeah. Okay, there you go. He. He obviously probably had.

You know how they say the QB2 has the best role in like football. He was the third string goalkeeper. So they often are just the locker room guy. Like his responsibility is just to be fun, I think.

Exactly.

Game in like five years. Something.

But he still got plenty of pounds for his. You know, that's. And then didn't. And I guess he won as a backup for Manchester City and something like that. Or we won't name that. We won't name that. That's that soccer team. The other side.

Right? The noisy neighbors.

They call them noisy neighbors. I love that.

I love that. Exactly.

Brian, you got a favorite team, buddy. Since this. You're a big side too.

I don't follow it as closely as. As Chris. I know. Right here in MetLife we've got the. The FIFA club championship going on. I think I started at three, actually. Yeah, yeah, I'll follow it. But big NFL guy. So American football, which.

So you're. You've got to be a Cowboys fan living in New York. That's what you're saying to me.

Yeah, right. Unfortunately, one of our friends is. And you know, we give him hell all the time about being a Cowboys fan living in the Northeast. Like they haven't even won anything. So I even.

They hadn't won anything in years. And I am a Cowboys fan. Are a huge Cowboys. Yes. It's like somebody's talking the other day, like, why are Eagles fan. That's all. Eagles have actually won two championships in the last 20 years. Same thing with the Giants have won two championships and the Cowboys are sitting around still dealing with Jerry Jones. I mean, that's a distressed asset. We should get rid of Jerry. You know what I mean?

I mean, if you keep going at the rate you're going, maybe one day you'll buy the Cowboys and then you could.

Well, you know, Dak keeps getting hurt. That's a distressed asset right there. I would be paying for that. I would pay a whole lot less for that distressed asset because he's a brick of thumb. Pull a hamstring or fall down. Keep throwing interceptions, though, you know What I mean?

$5 million a year for that.

$55 million a year to be the other team's best player on our team.

We've just got the perfect clip to start this podcast as you just on the Cowboys. And I love it.

But hey, it is what it is. I mean, you know, that's the great thing I think about stuff the sports and stuff like that. I have become a bigger fan of soccer recently. Some of the things are going on. Like I think Ryan Rails done a good job with Brexham, but then also some of these Amazon, you know, different shows and, and behind the scenes or stuff like that, it's always good to see that. But, man, when you think real estate investors are goofy, when you start listening to how some of these players talk or how they act or just they're like, man, you got some crazy people out there. We're all normal, then we're pretty normal, right?

That's for sure.

Absolutely right. This has been an absolute pleasure, Scott. The only good Scott Carson that I've ever heard of is you, but we.

Really do appreciate you taking the time.

It's been an incredible episode. There's a ton that people will take away from this. So everyone do go on to weclose notes.com go and take a listen. I definitely will. To Scott's podcast as well. We will put everything in the show notes so that people can just click immediately on there. But thank you so much, Scott. This was amazing.

Hey, thank you guys. Y' all have a great day and we'll see you back here stateside for a pint sometime soon, hopefully, huh?

Absolutely. Thank you.

Thank you for tuning in to the Peak Profits podcast. We hope today's episode was not only inspiring, but packed with actionable insights for your passive real estate investments. Subscribe so you never miss an episode. And if you enjoyed the show, please leave us a review. Your feedback fuels our passion to bring you even more valuable content. Stay connected with us on social media and visit sevenpeakcapital.com for exclusive resources and updates. Until next time, keep striving towards your financial goals and let's reach new peaks together.