SCOTT AND DONNA BAUER FROM THENOTEBUYER.COM DEBATE REGARDING NPNS

The views and discussion expressed on this program do not necessarily represent those of the hosts of the program, wmkv, Maple Knoll Communities, wlhs, the Lakota Local School District or staff and management. The information and advice presented are educational in nature and not intended to be taken as specific legal, accounting or other professional advice. Always consult with your own legal, accounting or other professional before making any investment. Welcome to Real Life Real Estate Investing, a show to help you gain financial freedom by investing in real estate. Brought to you by the Real Estate Investors association of Cincinnati and the Ohio Real Estate Investors Association. You're listening to Real Life Real Estate Investing on wmkv, WLHS and the Maple Knoll Radio Network. And now your host, Vena Jones Cox.

Good afternoon. I am Veena Jones Cox, and this is Real Life Real Estate Investing, where we work every single week to be your public radio source of the information and inspiration you need to start or grow your own real estate investing business. Sadly, we're not talking about real estate today. We are talking about a very closely related asset class that every single person who's ever been involved in real estate has touched and that every single real estate multimillionaire that I know is involved in. Would you care to guess what that asset class is here? I'll give you a couple of seconds of complete radio silence so that you can think about it. It's notes and mortgages, ladies and gentlemen. It's something that we've been talking more and more about here on Real Life Real Estate. And I don't know about you, but I get confused by all the different ways that people are making money in notes and mortgages. We've had guests here on the show who've insisted that, like, the best possible thing to do is defaulted notes. We've had people who've said, no, you want to buy property performing notes, and you want to buy them from banks in big packages. And then we've had this crazy person who said you should buy defaulted second mortgages that don't even have any equity in the properties. And it all sounds so good. And if you're anything like me, you're. You're left saying, it's something I want to explore, but I'm not sure. I'm not sure how to explore it. So guess what we're doing today? I've got two of the top note experts in the entire country here, Donna Bower, who's in the studio with me, and Scott Carson, who is joining us by phone, I assume, from his home in Texas. And we Are talking about both things because Donna's career has largely been built around seller held performing first mortgages, while Scott's has been largely built around bank owned defaulted notes. So we're just gonna let them go at it. We're just gonna, we're just gonna let them talk about. Because I've never had the opportunity to have you two guys in the same room together. I mean, I know you're not like officially in the same room together right now, but, but I have both of your attention. So, so I want, I want for, for our audience and for my guys to tell me whether I should be doing performing notes or defaulted notes because they both sound so good when I hear you guys talk about them. So we're going to start with how did you guys like get into your particular niche in the business? And I'm going to start ladies first here with Donna who's in the studio. What was it, Donna, that kind of made you go? Ooh, notes is my thing. And also I really like these performing ones.

Okay, well first, I gotta say Scott, I hope you have your gloves on.

Do we need a bell? Ding ding.

No, we really are friends. But this is gonna be fun. I started out many years ago. It seems like in a completely different. Well, it was a different century. But I started out buying a five unit building and some real estate and I found it to be quite a. Quite time and money intensive and decided to move into notes. Started buying the seller finance notes. And actually what a lot of people don't know is that I bought my first non performing Note back in 1990 and in the early 2000s we were running like a pipeline of 50 defaulted notes.

You know, you're kind of blowing your whole pouring notes are better argument here.

Oh no, I'm not. You just wait. There's a time and a place for everything. There's a time and place for everything. And there was a time when I did that, but I don't think that's the best way to go now.

Okay. Okay. And to expand on your story a little bit, literally when you started buying notes, some of the ass. Some of the, some of the resources that are available to people now, the Internet being one of them, literally weren't available. And, and I know you were going to the courthouse.

Yes, I was.

And searching through the little microfiche to find these seller held notes that, that you're sort of known for. And I would say, I would say it's, it's probably a safe thing to say that if some, if somebody was like you were. Except today. So they're a soccer mom. They're, you know, you were staying home with the kids at the time. It would actually be easier.

Oh, it's much, much easier than when I got started, absolutely. Because first of all, one of the easiest ways to find the seller, carry back notes, is to buy a list of the note holders and send direct mail letters. And like you said, I used to have to go down to the courthouse and get the names myself. And nowadays you can simply buy the list and send out the letters. And so it's a numbers game. You send out letters and people call you up and they want to sell the notes. And that's by far the easiest way to find the notes. But I will tell you the best way, and that is through networking. If you build a network of people who regularly either carry back the notes themselves or know people who do, then that's a great source of repeat business. And if you do that well, you can go for years and never market again because you'll have ongoing business all the time.

And I want to come back to this idea of finding them because that's, you know, that's always the struggle in any. In any business where you are purchasing assets, is going and finding the assets. But first, I want to give Scott a chance to talk about how he got into the business. Because, Scott, you're. You're kind of. You're kind of. You're the new kid, at least. At least in this particular room. But you've had massive success in what, like 15 years at this point in the note business?

Yes, and I'll actually pull a down in there. I actually started off on the performing notes side of structuring and creating a lot of performing notes and wraparound mortgages until, you know, everything hit the fan in 2008, 2009, when I was doing a lot of short sales and loan mods and had banks say, well, we don't want to do a short sale, but we'll sell you the paper. And when you get a bank to send you A list of 500 notes that they want to sell at a discount, that made all the sense in the world. Oh, I don't need to do any more. Ever. Direct mail and try to get a 1 to 4% response. I'm going to focus direct on, go direct to the source, go upstream from everybody else, and just reach out to banks and asset managers. And that's what we've done for the last 10 years. We literally have banks that send us lists on a monthly, quarterly basis that we get a cherry pick from.

Very good. We're going to take a quick break. We're going to let you guys.

Take.

A deep breath, figure out, figure out what your, what your arguments are going to be here.

Go to our corner, huh?

Go to your corner. When we, when we come back, we're going to find out some things from these two very impressive folks about which one of these two strategies is easier, which one has more risk, which one has more return. And we're also going to take your phone calls just on the topic of notes today, folks, as at 877-772-9658. You can also send us an email. Just send it to AskVenaail.com welcome back to Real Life Real Estate Investing. I'm your host, Vena Jones Cox. This is an exciting day here at Real Life Real Estate because I have two of the most respected note buyers in the country on the show today, Donna Bauer from thenotebuyer.com and Scott Carson from weclosenotes.com and they're both educators, but they also both have very highly respected note businesses with, let's just say more than a decade sounds good. More than 10 years behind them in this business. The difference between them is that Donna is best known for buying seller held mortgages. So these would be mortgages that somebody sold their house and they carried back the financing and now it's a few years later. And, and they would rather have money than have payments. They'd like to trade those payments for cash. Scott, on the other hand, is best known for buying what's called defaulted paper, which means literally he's buying mortgages that he knows aren't being paid. That's why he's buying them, is because he knows that the debtor is not paying. And what I am trying to work out for myself and for all you folks is which of these is bad better because I've heard a lot about both. They both sound really interesting. We've got them both together here to talk about what they do and how they relate to each other. We're also taking Your calls at 877-772-9658 and your emails at askvena.com. so first question I have for you guys are defaulted notes or seller held notes easier to find? Donna, you said you can just buy lists of people who have seller notes, which is news to me, by the way. Thank you for teaching me something. I did not know that. I did not know that. So do you find it fairly easy to get people to respond if you send them some mail and say would you like to turn that into cash?

Yeah, I averaged a 6% response rate and a 1% close rate. So I, and, and what I found was I like to send letters out once a quarter so they get accustomed to seeing my name and it's, it's about developing a rapport, getting your name out there and that kind of thing. But if they're, and, and here's the thing that a lot of times they might say I got 10 letters but I liked yours the best. You know, you sounded the most real and like you could really help me in that kind of thing.

So I'm now related question just for the listeners edification. Do you buy your notes primarily locally or do you do them all over the country?

Oh, all over the country, absolutely.

So really your list is endless.

Yes.

You can have a 1% response rate on an endless list.

Yes. And here's the thing with defaulted notes. I wouldn't want to buy a defaulted note where I was not close to the property. Now Scott may differ in his opinion but, but having been there, done that, I don't want to rely on national companies and stuff to go check out the property and do things for me. I'm, I want to be there, kick the bricks, so to speak.

Okay, Scott, the gauntlet has been thrown down. Donna says, Donna says welcome, welcome to.

The 21st century everybody.

Call me old.

School, I don't care.

I like to be safe and secure.

Hey, that's completely fine and I'll give you some props. That's completely fine if you want to go kick the, kick the bricks. But if you really want to go big, you just look at what's going on. I mean if you look at all the banks that are half stuff out there and we still are sitting at a 4% default rate across the country, that's hundreds of thousands of defaulted mortgages sitting out there. And I like buying the debt that's non performing because I get it, it's substantial discount. It gives me the flexibility to be able to negotiate with the borrowers to try to create a true win win. Now we do foreclose a lot. You know 40, 50% of the time I bought in 30 states. But with the wealth of technology and a little tool called Google you can find your realtors that will drive by the properties for you or meetup groups all across the country like in your amazing group there in Ohio, people, other investors to go buy and take photos and give you a breakdown in the assets so you can buy more deals and get out of the rat race faster. And you know, there are banks that will send you lists on a regular basis. You buy what you want to buy. The ones that you don't want, you just don't waste your time with.

Now, Scott, you threw out a stat, so I'm going to throw it back at you. You said the default rate is currently about 4%, and of course it has been higher. And some of what you're working with is stuff that defaulted before. It's not, it's not necessarily stuff that's defaulting right this second. It might be stuff that defaulted back when the economy was worse than it is. But how many notes do you estimate are actually for sale? Because just because note is defaulted doesn't mean the bank's gonna sell it. How many would you say are available for sale to people who know how to buy them?

At the peak in 2008, 2009, there's about 15 million defaulted mortgages out there. I would still say there's about 5 million, give or take some from that period still. But we, I see notes that are in default that are 90 days late now that originated a year ago or two years ago. So it's just when you. What the beautiful thing is when you make those relationships with the asset managers, they send you the list out that they have available and you know, somebody may have gone default, they modified it, structured it differently, but then they fell back out of their modification again. So I say, I would, I would say there's still about 5 million plus loans out there. There's a lot of these HAMP, you know, loans that were modified five years ago that are starting to default as well on a monthly and quarterly basis that we see.

Yeah. And so, so because the default rate is continuing at 4%, you basically feel like you've got an endless number of potential deals out there because as soon as you buy the ones that are available, there's more available.

Yes.

Well, I'm going to have to call this a draw because both of you have, both of you have strategies that. Well, I mean, you know, there's some strategies where, like, there's only so many, you know, self storage units in the whole country. And yeah, they're still building them, but not at a rate where like 4% of Americans are creating new self storage units every month. So it sounds like we with the right knowledge, knowing how to make, in Scott, your case, the relationships with the asset managers, and Donna, in your case, how to effectively reach out to these folks with the seller finance notes. You really have kind of an endless pool of deals to go after that probably gets bigger actually as the economy gets worse. Is that correct? Like you guys do better business when the economy is worse. That's true, that's true.

Totally true.

Okay, so let's go on to the next question. In what strategy am I going to have the highest profit potential? If I got, if I get X dollars to invest like and I just want to maximize what I'm going to make, do I invest them in performing notes or in defaulted notes?

Scott, I'll let you start with that.

I wouldn't let ladies go first.

You know I'm gonna get you, don't you?

I don't think you're gonna get anything. This is great. First of all I say I absolutely love Donna and we're friends, so.

Yes, that is true.

I'm a big believer that you get a higher performance on the non performing stuff. The bigger discounts come with the more in default you see, you know. So for every month that a mortgage in default, the bank's usually going to take 5 to 10% off the value, give or take some depending on where the property's located, the foreclosure time frames the condition of the property, we make really good returns. And that's why I got into the non performing side. And I will tell you this, this little thing, if you're in the performing notes side at some point you're going to need to know the non performing gain because you're probably going to have something that goes into fault as well. But.

Well yes, but the opposite is true too. If you're in the, if you're in the defaulted side, you're trying to make them perform which puts you in the performing game, doesn't it?

Exactly. That's our whole goal is to take the non performing and instead of rehabbing a property, we want to rehab the borrower.

So Scott, what kind of returns are you accustomed to getting?

I don't like to do anything unless I'm going to see at least somewhere between a 25 and 30% on our side.

So, so is that, Sorry. So is that just, just again to clarify for listeners, is that on a, is that like the, the net average return on an entire package that you would buy or is that kind of what you're looking at per deal?

Yeah, well we always go off of the worst case with we've got to take it to foreclosure for 12 months. But we've had deals that we have made phenomenal, you know, 100% plus returns. Because we bought something, the borrower walked away, we sold the property in 30 days. So yeah, there's many, many deals that we're making three figures on. But I would rather under promise and over deliver.

Yeah. And I just wanted to clarify the idea of the package that you bought because Donna, you're largely. It's with a seller home note typically don't they just have one and you're looking at one note? One usually.

But like sometimes I'll get a pool of 50 land contracts or something.

But normally one, sure. Actually I have a pool of 50 land contracts that we need to talk about later. But a lot of times folks in the defaulted space like Scott is they do portfolio math. They don't do math that says I just bought these 20 loans and they all have to work. If one of them is a total loser, it doesn't matter because one of them will make me five times the money and everything in between will get me something in between. So I just wanted to. That's a thinking that's, that's weird for real estate investors. With real estate investors.

That's correct.

Like we're like every property has to make money.

So I think you bring up a very interesting point, Scott. I know that you do things on a very large scale and I will concede a little bit that if someone wants to build a huge business that perhaps defaulted notes might be a great source of profit overall. But having been there, done that 10 or 15 years ago and I had seven employees, a big office and all of that stuff, ran a pipeline of over 50 defaulted deals. Today I got six grandkids. And I sure don't want to be stuck at a desk dealing with all these people. I don't want to deal with pools of notes. And you know what I found? Since I downsized and I'm a one person shop, I actually make more money by myself doing one on one notes. And, and so I think a lot of it depends on the person. If you're wanting to build a huge fund and, and, and have this huge business. I think defaulted notes are a great way to go, but I don't think that's what the average person wants.

You know, you just echoed something that another guest said on the show either last week or the week before. It's been very, very recently. I was talking to Bill Cook about how it seems like some people are very successful in the real estate business because they are very good at processing inventory. Like Missy McCall Hammond, who was also on the show. She processes inventory like nobody I've ever seen. But when I look at her, I get exhausted.

I agree. I agree.

And then other people are very successful at the real estate business because they. They are very creative, and each deal is one that they can kind of get their hands in, and they like it and they manipulate it, and they make a lot of money on it. And he said, he said. He said, you're right. There's some people who can keep a lot of plates spinning, and there's some people who can't. And he said, I'm a person who can't. So I'm more in the. In the let's make one deal at a time and just make them all really good deals sort of thing. So. But you haven't answered the question, Donna. You're returned. Yeah.

You're gloating. I know, I know. Let me in. I'm anxious. I'm biting at the. So here's the deal. If you market for notes, I call it Virgin paper that's not being shopped all over. Don't go to an Internet site where they're all posted for sale. But if you send out letters and you find mom and pops who've sold their house and carried back a note, you can routinely buy these notes for a 25 to 30% return. Because these folks, they. They've already made boatloads of money off of this property that they held as a rental for years, and then they sold it and they collected so many payments. So you routinely lock in, like, worst case scenario, let's say you're going to make 25%, then you get an early payoff and your rate of return, it's Nothing to get 70, 80, 90% returns on your money. And meanwhile, wait till you hear this, Scott. Get ready. You don't have to deal with the tenants, the property with foreclosures, with negative cash flows, with liability, with rehabs, with gangs, and all of the things that come with the defaulted notes. You just sit back and collect the payments. That's all you do.

Wait a second. Now, don't be sitting here throwing a shade. We're negotiate exists. All right?

You.

You try to knock that down, because that's the truth.

Yeah, well, first. First of all, I don't buy in gangland, so let's just go throw that out of the way.

But you.

But you have to admit that you get squatters even in nice neighborhoods, because I've had that happen totally.

I will not. I will not disagree with you, but that's a rarity versus something that's oh, it's a rule to follow by.

But foreclosures are definitely a rule to follow by. And defaulted taxes and having to pay for insurance and assess building orders and all of those things all go with the territory of defaulted notes. And quite frankly, I don't feel like dealing with that.

That's great. I don't either. If it's going to go that route, I sell it to a fix and flipper, I get rid of it.

That's a good plan.

Keep it where it becomes re performing and get rid of that. And I run. You know, I don't have a huge staff. I have vendors that handle most of what we do. I'm not the person dealing with the borrowers. We have servicing companies, we have attorneys that handle most of that stuff. I mean, I just got back from a three week trip in, in Europe, you know, where I took basically three phone calls. We got six properties, six loans modified. And you don't see me stressing about it.

Wow. So, so on the actual question that I asked, which was, what are the returns? You both quoted the same returns. You Both said like 25 to 30 is, is, you know, expected. But then if different things happen, Donna, in your case, if somebody early, Scott, in your, in your case, if it's just one of these really good deals, you can make like literally triple digit returns. So I, I don't know what to say. It sounds like both of them have really, really good returns, but the question is whether you want them. Like it is investment. Like I put my money in and the returns and returns and returns and returns. Or in Scott's case, where some of these returns are coming from flipping the properties after either the foreclosure has had to happen or maybe you've got it re performing or something like that. So I'd have to call it a draw.

Again, guys, wait, wait, wait, wait, wait, wait, wait. That's not gonna work because the returns could be the same. But you haven't even dealt with the risk.

No, we're gonna deal with the risk after the break. That's the next question.

Because it's not worth the risk.

We're gonna get.

We're gonna deal with the not worth the risk to do the defaulted notes.

We're gonna do the risk after the break. And we're also going to take listener questions about the note business at our phone number here in the studio, 877-772-9658, or via email at askvinamail.com welcome back to real life real estate investing. It's the great note debate today on real life real estate with Donna Bauer and Scott Carson who are arguing their various sides about whether Scott's defaulted note business or Donna's performing note business is the easier, more risk free, etc. Now we should let people know a couple of things here. I'm getting a lot of emails from folks saying this is so great, this is so funny. These guys really are friends.

Yeah, we really are. We really are.

They've been in the note business together forever. They see each other at conferences all the time. Also, they are going to be together here in Cincinnati on August 11th and 12th when Cincinnati RIA is holding its first ever Note Summit. And this is an event for people who are, I would say, starting to kind of intermediate in the note business. Maybe you bought a few notes but you feel like you could, you know, use some connections with other people who are in the same business or who've got notes to sell or services or whatever. It's not, it's not a real high level. You know, some of these note conferences that I go to, I don't understand half of what's being said said because everybody's talking about stuff I don't understand. So this is, this is for folks who are trying to get their, their arms around the different things that you can do in the note business. So we're going to have discussions on performing on defaulted, we're even going to talk about defaulted seconds and we're going to talk about creating your own notes to sell and we're going to talk about how to invest in other people's notes and all of the different aspects. And most of the speakers are going to be local here to the Cincinnati area. So we've got a lot of people who just, you know, they do notes and they going to come and talk about a deal that they did. It's a really, really good event. And listeners who are not in the Cincinnati area and who are always writing me and saying, why do you always announce that stuff for Cincinnati RIA? Buy a plane ticket. It's a two day event. It's 197 bucks, two days. And you get to spend them watching Don and Scott fight and also listening, listening to other. And we're going to talk about, you know, just, just real practical stuff like what software do you use to manage this and all of those sorts of things. So cincinnatiria.com go to cincinnatirea.com, scroll down until you see the thing that says Note summit on August 11th and 12th and that'll give you more Details and an opportunity to sign up. And I mean, I know you guys go to a lot of events around the idea of note buying, but I think this one's really unique because it's being run by a nonprofit, number one. And number two, it's so focused on the practicalities of kind of getting started and getting going as opposed to for the professional note buyers who are already buying a thousand deals every year.

It's going to be great. Yeah.

And we look forward to seeing the.

Looking forward to it.

Yeah. We're going to put you on different days.

I think we should have one of these, like, can you set up a ring and I'll bring the gloves. Scott, wouldn't that be a great idea? We'll have a debate. Oh, come on.

So let's, let's pick up a couple of listener questions because they're actually about to. They're actually asking some of the questions that I was going to ask. Anyway, we have a question here from Brava who says, how much money do you need to get started in the note purchasing domain? And is it possible to use other people's money to facilitate the deals? So we'll start with Donna. How much money do you think you need to get started in performing notes and can other people's money get involved?

Well, I was babysitting for a dollar an hour when I got started. So obviously you don't need any money to get started. If you follow, there are several different techniques that you can use where you use other people's money and you buy the note and you resell it to an investor and you pick up the spread and you don't have any of your own money invested. Well, you might have 250, $300 in an appraisal. Okay. And that would be it. So it's a great way to get started when you don't have any cash of your own.

Can you get started in your business with no money, Scott? Because you're buying, sometimes you're buying multiple loans at once. It's not just like, I got to buy this one.

Well, there's still plenty of students out there, investors out there buying one off non performing stuff. So yes, you can do the same thing by using other people's money to fund the purchase. Since we're buying usually a substantial discount, there's even room a lot of times to add a little bit extra in as a management fee or a wholesale fee for you finding the deal and going out and making it happen.

Okay, very good. All right, so let's move on. To our next question, let's see, JC from Las Vegas would like to know, can their two deal, can their two different kinds of deals both be done in some sort of a self directed plan like an IRA or a 401k? Absolutely.

They both can.

Absolutely.

Okay, so next question up for the two of you. We talked about how to find them, what the profit potential is. If you can step back for a second and put yourself back in the position of being a newbie. Like you've done the education, because you have to do the education in the note business. This is not something that you are ever going to figure out on your own. Which one do you think is actually more accessible for a newer investor?

There's no question about it that doing the seller finance notes is much, much easier. First of all, it's easier, it is faster and it can be virtually risk free. And you don't have that with defaulted notes because for one thing, defaulted notes take a long time. They take calendar time to get the deal worked out and they take a lot of hands on time. Whereas I can close a seller finance note and flip it off to somebody and collect a nice profit and I've got maybe 15 hours of work in it and I've made my money in 30 days.

Okay, Donna, you said, you said, you asserted, I think would be the proper term, that dealing with seller and finance notes is easier. But in what way are they easier for a new investor? Like, what is it about it that's easier?

Because you don't do anything. You buy the, it depends on if you're flipping the note, then I call that being a dealer. You're going to buy the note and resell it. You never have anything to do with the note again. You've collected your money and you're out of the deal. If you're going to be an investor, let's say you have money in your IRA and you're going to buy a note to hold it. Well, if you do your due diligence, the chances of that note ever going into default are very, very slim. So basically I call it mailbox money. You're going to sit back and collect the checks. Whereas if you buy the defaulted notes, all kinds of things can happen. First of all, you don't know sometimes, sometimes you know ahead of time that the property's vacant. But they might tell you people are there and you're planning on doing a workout with them. And you get there and hey, they're long gone and the property is trashed. You know, you there are too Many variables with defaulted notes. And the biggest thing that I tell newbies is unless you have money to back yourself up, you don't want to buy a defaulted note because there are too many hidden costs that can come up. And yes, if you have cash behind you and you can deal with all those, ultimately you might make a good profit.

Oh, Scott, she makes a good point. Defaulted. When you buy a performing note, if everything goes like it's supposed to, you've made your investment, you're done, you sit there and collect money from then on. She's right. In a defaulted note, you don't know immediately if you're looking at a workout or a foreclosure, a deed in lieu, or if you're going to end up doing a rehab. So can newbies really do your thing?

Sure can. I mean we have plenty of investors that are actually flipping non performing notes like a wholesale deal. They're making a quick finder's fee and flipping it. And it's really easy these days in the 21st century to find out if a property is occupied or you know, call the power company, see if the power's on. Ask me, drive by there a couple times. There are companies that will do that for you that will check it out there. You don't have to kick the bricks every time. There's so many, so many ways to double check your stuff there. Yes, I agree there are things that can happen, stuff that we thought that we would modify or get re performing turn to a foreclosure. But the beautiful thing about what we're doing is that there are so many deals we're not waiting, we're not sending out 50 letters waiting for two to three people to respond to decide whether we're going to do it or not. We're dealing with banks that are sending us plenty of options. So if I've, I got a list of 400 assets today, I've narrowed that down to 30, 40 by just using some of the, the free tools and a little thing called Google. You know that little bull that's been around for a while?

He's just going to keep coming back to the fact that you predate the Internet. Donna, he's just gonna.

I invented it.

Sorry, I couldn't read it.

She's not using it.

Just joking.

I will tell you this, if I will, I will get, I will concede that. Hey, if you just want a flat return and you're wanting to do something that's not, not work, that's fine, go performing all day long. Most of the time, it's gonna be a pretty flat rate return. There's plenty of performing notes out there.

If, if I can get a flat return of 70, 89%, totally passive without doing anything but initial due diligence and buy the note. I'll take that over what you do any day of the week.

All right, that's great. You can enjoy it with your grandkids.

Unfortunately, I don't like your tone. I don't like your tone, Scott.

All right. Ad hominem attacks, not allowed here in real life, real estate.

Nothing wrong with that. That's the beautiful thing about the note business.

You're right.

There's so many different ways technically, skin the cat. Define what your niche is.

That's right.

You like what type of notes you want. There's a plenty of ways to find. And that's why Don and I get along so well and we refer people back and forth to each other because, hey, non performing may not be for you. Go to Donna's route. Performing isn't enough action or not as good returns. Let me go to the performing or the non performing side.

Very good. We need to take one more break. We're going to do a little bit more discussion on some of these issues and then also answer some questions from listeners who've sent them to ask vena mail.com that's a S k v liken Victor e n a gmail dot com. Or you can call your question in at 877-772-9658. Welcome back to the great Node debate on real life real estate investing. Donna standing over in the corner, they're, they're squirting water in her mouth. She's punching her, punching her boxing gloves together. I don't know what Scott's doing because he's in Texas.

I'm dancing.

I got my feet up.

Scott is unworried. Okay, guys, we have a couple of questions from listeners that are actually really good ones. So I want to kind of get to these before we finish out our big questions. This is the second question from Brava. Who says, do your guests prefer deed of trust states or mortgage states.

For seller finance notes? It really doesn't matter because the chance of them going into default is very, very slim if you're buying defaulted. And you can correct me if I'm wrong, Scott, but most people will buy prefer deeds of trust because the foreclosure process is much quicker. However, living in Ohio, which is a mortgage state, I will tell you were accustomed to it taking six to nine months to Foreclose, you build that into your profit. It's really not that big of a deal. The only time it got bad was right after the downturn and the problem was that there were so many foreclosures. The issue in a mortgage state is getting on the docket. And in, in Cleveland, like in that, in Cuyahoga county, it could take two or three years just to get your hearing. Scott, how do you feel about that?

I would agree to most of it except it's not taking that well. The way the market is right now, it's six to nine months in states. I mean the faster foreclosure states like Texas, Carolina, Georgia, stuff like that. Yeah, those are nice. They are a little bit pricier on the non performing side because it's a faster foreclosure state. But it doesn't bother me. I've been buying in Florida for the last 10 years, which was taking up to 18 months at one point, but it's now down about 12 months.

But I agree, I was just speaking that it can get that high, but it's not like that now.

So. So Scott, you, you prefer the deed of trust states, but you're not going to like not do a deal because it's not a deed of trust state.

Yeah, the only states I would avoid is new is New York and New Jersey. Those are still long. And then there's other areas of the country. I avoid Cook county in Chicago because that just takes forever.

I don't like Maryland. Do you do Maryland?

No, you're right, Maryland, it does take a little bit longer, but there. Well, I've made some money in Maryland, it's been really good. And when we bought some stuff there, but it's not my preferred, it's not my top five.

Okay, so question from Brandon Z in New Jersey, of which he actually has a two part question. Number one, he says, what advice would each of your guests give to someone who has been getting educated. Educated, has been networking within this niche and is looking to now really get started in node investing?

I think that it's. I'm sorry, do you want to answer first? Scott? I don't mean to be rude and just jump in.

You can go ahead, just go ahead, be rude.

Okay. All right, I will. With your permission, I will. I honestly think that most people need a coach or a mentor. When I started, I had an attorney who taught me the business and quite frankly, I wouldn't be here today if he wasn't standing behind me, encouraging me and looking over my shoulder. So I would highly Recommend that he try to get hooked up with a coach and other than that, just do it.

Yeah. At some point you got to stop, stop learning and networking and actually, I don't know, pull the trigger and buy something. Scott, what do you think? What would you tell Brandon?

Brandon? I would tell you start doing something. You need a coach, you need somebody that's going to be there to answer your phone calls or your emails. I've had coaches, I still have coaches with different parts of my business and this is the most valuable dollars I could spend. But take action, that's the most important thing. Whether you're mailing out letters to try to find performing notes or you're reaching out on LinkedIn to asset managers or calling back, taking action, you're going to learn so much more about the note industry by actually doing something versus trying to be a book learner.

And doing something doesn't mean jumping in and buying a dumb note. No, but if you don't even have any notes to examine, if you don't even have any notes to like decide whether they're dumb or not, how are you, how are you learning anything? Brandon's second question. I think this one might be more for Scott. He says, would you recommend investing in performing or non performing firsts or non performing seconds when you're just getting started?

Oh, let's just go ahead and say something here. I think Don would agree with me. I think non performing seconds are just a waste of time.

I agree. Nowadays. Nowadays what?

Yeah, but it's that you don't see that many. They're overpriced right now because there's a lack of inventory. If you look back the last 10 years, there's basically 10 to 20 firsts being created for every second that's been created out there. I just don't like being, I want to be, I want to control the property. And he who holds the first position controls the equity, controls the property for the most part controls what the borrower does. If you're in a second position, you're relying hopefully that the first doesn't go non performing and wipe you out.

I had not thought of the, of the fact that new inventory is not being created in the second mortgage space. I just got a text by the way, from, from Matt, my significant other that says I totally disagree with Scott.

Because that's Go Matt, go Matt.

That's what he, that's what he does is defaulted seconds. But I have seen that there, there's less inventory coming across and that's more and more expensive And I hadn't thought about the fact that in 2005 literally half the people getting mortgages were getting seconds because that's how they, that's how they got you. The low rate on the first, when you, when your credit was horrible was they gave you a 20% second with a, which, with a much higher rate and that has, that's what defaulted. And now, I mean, can you even get a second mortgage on a house? I don't think I've even seen that offered in ages. You can get HELOCs.

So that's where, that's where primarily the seconds are there home equity lines of credit that can get stripped off pretty easily in bankruptcy. But you know, there are some being created. I mean if you got really pristine, pristine credit, you can get some, but it's just, you just don't see it that much anymore.

But, but the real issue is what you said before, Scott, that the problem is that they were so sexy for so long that you have all these people chasing them and people are paying a fortune for them and there's no way they're going to make money on them. It's just they're not going to.

Well, the thing with seconds is you have to look at buying five or six, six at a time and you know, you probably get two or three that'll do something. And the other half you're gonna sit, stick in a file door and wait around for the bar to sell the property. At some point that could be 5, 10, 20 years and you better know.

Who you're buying from and that you can trust them and you're not overpaying for them. I wouldn't recommend them for a new person, that's for sure.

Amen to that. Amen to that. Donna, I'll let you slide that little jab in there.

All right, so we've covered you guys opinion on whether performing or non performing is easier to find. Which one has the highest profit potential, which one has the highest risk, which one's easiest for the newbie, the question that always comes up, and we don't want to assume that. We don't want to assume we've got a bunch of listeners with no cash. There's a lot of people out there sitting on tens or hundreds of thousands of dollars in their IRA or something that they would like to invest. But for the ones who are sitting there thinking this is not for me because these people are talking about buying whole packages of mortgages or investing in a whole first mortgage and I'm picturing I'm picturing big dollars and I don't have big dollars. Which one? And let's just say that if you're not using your own cash, you're using someone else's. It's not that there is no cash involved, it's that it's somebody else's cash. Which one is easier to get people with money interested in so that they will invest their cash with you starting with Scott?

Well I spoke at an event last night actually and we had a tremendous amount of people when they IRAs excited about it. Some had invested in performing notes and they were okay with that. But they still have plenty of time. If you know the rule of 72 for every if your money's making 12% or greater, your money's going to double every six years. People a lot of times they want to make up for that downfall the last 10 years. So they need to get a little bit more aggressive with the return. So I, you know, I like like what we do. We have plenty of people that are putting their money, their IRA to work, buying for their own portfolio and making it happen. And then other people, you know, they just want to chill back and get a flat return and there's nothing wrong with that. All depend on where you want to be.

I prefer to get to be aggressive and get the top returns but I want to do it risk free in the easiest, fastest way possible and that is with seller finance notes. And it's very, very easy. I have so many investors that want to buy the notes for their ira. Doctors, lawyers, engineers, people who don't have time to do all the things they don't have time to even get on Google. You know, they don't have time. And so they buy the seller finance notes and they get it all set up in the IRA and guess what, their check comes every month and they never have to look at it again.

Now I saved this question for last on purpose. This came in from a listener, John here in Cincinnati. He says can't you do both performing and non performing notes? It seems like there's a lot of overlap in the knowledge.

So can I let the secret out.

Of the bag now? You may.

I do also buy non performing notes, Scott. I don't know if you know that or not and I would I will tell you why I still buy them because I use the note as a back door to get the property and that's how I'm buying building my real estate portfolio. And that is the one thing that I will give you on this debate is that they are Great for acquiring properties. Everything else I'll fight you two things, nail on. Because I think seller finance notes are better.

Scott, you got any input for John?

You can do both. We have, I have a big chunk of my portfolio is performing notes that started off non performing that bring in a really great return every month to us. Great double digit return for our investors as well. I don't like owning property. I'll just tell you that I want to own the debt. I want to be the bank. I don't want to deal with toilets and tenants and trash outs. That's not what I want. And that's why if we end up with a deal that look like it's going to own the real estate, I immediately get our realtors involved or start marketing to other investors who want that so that I don't have to deal with that. I want to focus in my niche, stay in my lane and be great for that. But yes, the beautiful thing about the note business is at some point you're going to have non performing and some point you're going to have performing. That's why Donna and I get along so well with everything that's going on in the business. And that's one thing I think a lot of people don't realize. The note industry is probably one of the friendliest communities out there because we are a smaller niche versus the fix and flips and the wholesalers and stuff like that. You find a lot of resources from just talking and networking with people. That's what I'm so excited about this event in a month, getting a chance to hang out with several hundred other potential note investors.

And Scott, when I see you there, I'm going to give you a big hug.

If you're interested in hanging out with bunch of very friendly note investors, you can check out the Cincinnati RIA Note Conference coming up on August 11th and 12th here in Cincinnati. Worth getting a plane ticket for? Go to cincinnatire.com for more information. Just look at the calendar. Check out August 11th and 12th. We'll be back next week with more information to put you on the path to financial independence through real estate investing. Until then, happy investing.

Sam.