SCOTT AS A GUEST ON TECH GUYS WHO INVEST!

Hi, I'm Adam, this is Kevin and.

We are Tech Guys who Invest. This is the place for business people and investors to learn all about investing. We offer a fresh perspective on what it's like to have a day job while investing and we share lessons learned on our investing journey. Our vision is to educate and entertain you while adding tons of value to your daily commute.

Welcome to our show.

Hello everybody. Welcome to another episode of the Tech Guys who Invest podcast. On this episode, Adam and I get to interview an experienced note investor. So what you know is extremely exciting for me. Scott Carson, AKA the Note Guy has been an active real estate investor since 2002 and solely focused on the distressed mortgage and note industry since 2008 where he buys and sells non performing mortgages directly from banks and hedge funds on properties all across the country. Scott is the CEO of WeClosenotes.com, an Austin, Texas based real estate firm. He has purchased over half a billion dollars in distressed debt for his own portfolio and purchases assets in over 30 states across the United States while also helping thousands of others real estate investors make money along the way. He is a highly sought after speaker on distressed debt marketing and raising private capital. He has also been featured in Investors Business Daily, the Wall street journal and inc.com. scott is also the host of the popular podcast the Note Closer show and provides regular content across his YouTube, Facebook and other social media channels. An avid sports fan and reader, he spends his free time attending sporting events, concerts and traveling to new places. If you want to learn more about note investing, you definitely need to check out the Note Closure show or go to weclosenotes.com to check out Scott's free content or paid content and you will learn a tremendous amount about the industry, marketing and raising capital from Scott Carson. So without further ado, here is the conversation between the Tech Guys who Invest and Scott Carson.

Scott, thank you so much for your time today and being a guest on the Tech Guys who Invest podcast.

Hey man, I'm honored to be here. Thanks for having me today.

Fantastic. We want to jump right into this and have a conversation with you. So the first question we want to ask is what are the advantages of note investing versus say other assets in real estate?

So I think you kind of have to before you can dive in that notes is a whole different mindset than a fix and flipper or a landlord or wholesaling too. So when you buy a note you become the bank and while you control the asset, you don't technically own the property yet you're the bank. So if you think about this, everybody's in the note business, whether they believe it or not, whether you've got a mortgage, a car payment, a credit card, student loans, whatever, you're just on the wrong side of the payment stream. It's going out, not coming in. So the whole idea when you're buying notes is that you become the bank and then you buy. Especially like what I buy with buying non performing, I'm buying those notes at a dramatic discount of the receivable. The borrower still owes the huge amount. So that's the thing, if you keep in mind, it's more of a business transaction where you're becoming the lender. Now don't get me wrong, we do end up foreclosing or offering up cash or keys. A lot of time to take the property back. But the biggest mindset is that you have to think like a banker first, then a fix and flipper. That's where if you come into buying notes as a fix and flipper, you're gonna end up overpaying for the notes and then really getting a lot of trouble because you've got longer timeframe, especially depending on the state that you're buying in. So couple of the advantages that I like, the three biggest things is one is access to inventory. We're finding a lot more deals out there across the country than your REO refugees who are trying to find something, you know, and overpaying. The weekend warriors are just, you know, let me make five, ten grand. Well, five, ten grand on a half million dollar deal is not a good day. Agreed. Secondly is we've got a lot of different exit strategies. There's about 10 different exit strategies we can use when you buy a non performing note. If you buy a performing note, even better, you're getting a cash flow great. Third thing is a timeframe in that we see deals 6 to 12 months before they ever hit the traditional MLS or foreclosure list or things like that. So we're often dealing with a bank's assets when we buy these notes that a realtor never sees or traditional fix and flipper never cease. And then the fourth thing, I said three things. But the fourth thing really is if you're a note investor, you're not dealing with toilets, tenants and trash outs. Okay? That's the big thing. You're not. Nobody calls the bank when little Johnny flushes the rubber ducky down the toilet at 2 o' clock in the morning either. Those are a couple of the advantages of in the note business compared to your traditional fix and flippers or landlords aspect of things.

Yeah, that's pretty awesome. I think that that helps give our listeners a little view into what notes are because I mean, you know, a lot of people don't even know what it is. So I mean that's a pretty helpful initial view in. I have a question about something you said around the being the bank. Some. I know some investors who invest in property like like apartments or houses, like tax advantages and like to be able to depreciate some things and they get advantages from things like that. And I'm curious what you think about that and when you're thinking about note investing, how those type of thoughts might be approached.

Yeah, so I would totally agree to that. That you do often wanted to. Now we end up taking a big bunch of property back. We have those advantages that kick in after we take the property back. Okay, gotcha. But for the most part, if you're buying a non performing note and you get it re performing or you sell that asset off in less than a year, you're going to be able to short term capital gains. This is why I like performing notes. Because when you buy a non, that's why I like getting them turning into performing. Because when I get a non performing and it turns into performing, then it's gonna be a deal that's longer than a year. Okay. And although the irs, when you modify a loan when they want to according to IRS taxes, they want to start taxing you on the full amount of the note or the full modified amount, even though acting as if it's a performer, even though you haven't gotten 12 months of payments. An easy way to avoid that is just to have a third party like myself or somebody come in and give you a true honest valuation of that note. You know, it's not like a true appraisal but saying, hey, you paid five grand for this. They've only made one payment. It's really only worth five, you know, 5,600 bucks, not 50 grand at this point to avoid taxes on that stuff. But yeah, we end up still taking a lot of property back. I mean we end up foreclosing probably around 35, 40% of the time in some sort of fashion take the property back. You know, but the fact is that we're buying at a huge discount gives us a lot of flexibility that we're not. And that's the one big thing. Yeah, you got to have those tax discounts you're buying at 70 cents on the dollar to try to Squeeze some stuff out. But if we're buying it below $0.50 on the dollar, you know, it's a little bit different game when it comes to your taxes. And then the fact that if you're forgiving debt or doing other things, writing off debt, you have an opportunity to write that off your taxes as well. 1099 and the borrowers or other things as well, depending on how creative. And creative is a loose term. Your account, your CPA can be. I'm not advocate, I'm not a tax advisor or lawyer or accountant, but there's some pretty cool things that they can do.

Okay, now from your experience as an experience and tenured real estate investor and note investor, other than buying notes at a discount, why do you invest in non performing or toxic assets?

So toxic assets, it's a funny term. A lot of toxic assets. Define not only non performing notes, but also the zombie homes that are sitting out there. Okay, so the vacant properties. And I don't buy those. I honestly don't want to buy vacant properties. And some people like, well, aren't you a real estate investor? Didn't you want to take that property back? Well, in our history, we have found that if a property sitting vacant, it often ends up needing a whole lot of work. The air conditioner decides to take a vacation and go leave. The copper goblins show up, you know, have a dance party inside your house. You're in the northern part of the United States. You know, you may end up with an indoor ice rink during the winter and an indoor swimming pool during the summer when that happens. So the reason, here's something to think about. The bank always gets paid. Think about that. The banks are the biggest buildings. The banks are the most wealthiest companies out there. You want to be in the paper game. You want to be the bank. And at some point you're going to realize there's two. There's kind of two numbers, as I say, unite all of us as real estate investors. One is roi. We're all looking for a good ROI rate return on investment. There's a second number that most people forget about and that's rot the return of time. And if you think about how much time you have going into and how much time headaches can come in. You know, I fixed and flipped a lot of properties. It doesn't mean I want to deal with general contractors, right? Doesn't mean when I go pick up paint and carpet, when you start looking at all the other things that take up your time and fix and flipping, oftentimes a lot of the fix. And flippers, especially with the margins getting tighter and tighter, are often working for less than what they could be making flipping burgers at Burger King. You know what I mean? If you think about this, it goes on, especially if you're working full time, you have a full time gig. You know, it's hard to flip properties in the side. It's hard to be able to meet somebody there, the contractor, especially a lot of new investors out there, they just don't have the experience and they're getting overpriced, you know, or they're overpaying for. I mean, somebody at the auction here the other day overpaid for an asset. Immediately posted something on Facebook. Oh, my God, I thought I bought something different. I didn't do right. Due diligence on it. And I'm like, yeah, forget that. I don't. I, you know, I've bought plenty of homes and flipped plenty of homes. And, you know, don't be wrong. It's fun after a while when you want to feel like you're living that HGTV flipper, floppity, flippity flop, fictional shows that they show on tv. Yeah, I just want to get paid. I don't want mailbox money. I want to know that I got wires coming in every week as our borrowers are making payments. You know, if we're buying at 40 cents on the dollar and a bar pays on time for six to 12 months, I can now, no matter what condition really the property is in, I can sell that asset for 80 cents of what's owed on it, 80, 85. Without having to put any work into it that pay any attorney fees to foreclose. I mean, I have some servicing costs along the way to get the bar right on track, but, you know, cash flow is king. That's as they say.

Yeah, man, that's interesting. Scott, when you do have to foreclose on a property, what are some strategies you have for dealing with it? What do you do with the property, things like that. For people who may not know, that's a great question.

Glad you asked that, because foreclosure is actually our least favorite exit strategy leading up to a foreclosure. We're always trying to make right party contact with a borrower. Hey, what happened? What's the country western song that you're going to sing us? Everybody's got a song. Every deal is different. It doesn't mean I'm laughing at them, but I do empathize because I was a deadbeat borrower at one Point, we all know people have been through ups and downs over the last 10 years, especially 10, 10 plus years ago with a downturn. But I talk with people and say our team talks to people. What happened? Can you start paying on time? Can you start making your existing payment? We'll worry about the back payments. Can't do that. Well, can you do a modification? Let's do a trial payment plan. Or do you have somebody that can come in and assume the loan, whether you would be in a co borrower or something like that, or do you want to do cash for keys? Or we'll give you some money to walk away or offer up a deed in lieu of foreclosure. Do you want to short sale the property? Can you pay off the property if we negotiate a short payoff? There's all these things that lead up to foreclosure, which we try to knock out of the woods if we can, because it's faster for us to do that, to take the property back to the waiting 6 or 9 months or 12 months plus to foreclose. So in states like Texas here, you can do things really quite fast. I mean, we're the fastest state when it comes to highways, foreclosures, and of course, executions. All right.

Where do you store these noises?

I got like 16 of them on one here. I get really mad. I got 16 ways to say the F word. All right, we won't use that one today, but no, thank you. Yeah, I've got a bunch of different noisemakers around that I use. It's fun stuff, but, you know, foreclosure costs will vary by state. Like in Texas, you can do it for like, you know, less than 1500 bucks or less. But then you have states like New York, which can take you three years and can cost you ten grand. And you gotta hire an attorney to talk to an attorney, to have an attorney, basically.

Wow.

So I try to recommend that people avoid those longer foreclosure states if they can.

Something about what you were just saying there when you were describing this, that struck me as really a cool thing, is, you know, I hear you helping people. Like you're helping people not foreclose, which is a bad experience for them. And that's sort of part of what you do as a note investor who sees that thing happening. And I just thought that sounded really cool, is, you know, you're making money also, you're really helping people.

We're trying to. Our goal isn't to rehab the property, it's to rehab the borrower.

Yeah.

Unfortunately, there are some borrowers that have been just falling through the cracks. Their net loans been sold four or five times. They don't know who to pay, they want to pay in. Other times we've gotten in loan files that are like, yay deep. You know, they've got. They try to do a short sale for four years and one's been sold every time they try to do a loan mod. You know, those are the people you really enjoy helping. You know, hey, let's, you know, the buck stocks with me. What would you like to do based on what you sent me here, what's in your loan file or the servicing notes that we get, you know, we know what you want to say. And then there's also those that try to take advantage of the system. You know, I have one person right now that's bounced a check, just found out. They were all, yes, yes, please, please. I'm like, okay, you gotta go make a payment. Sure enough, they made a payment, but there was on a fraudulent account, you know, and it bounced back at. I'm like, I'm just done with this one. I'm like, let's just, yep, send it to the attorneys, let the attorneys deal with them, and we'll start foreclosure process on this stuff. I'm just, I just don't, you know, I can be somebody's best friend and help them, you know, I can be there shining white night, riding on the white stelling, you know, I'm here to help, you know, or I can be the devil, you know, and I don't like being the devil. If somebody's gonna work with me, I'm gonna help them out any way we can. I mean, we've paid moving costs, we've paid, you know, up to ten grand for cash for keys to help someone get started again, you know, and forgiven thousands and thousands of dollars in debt so that they can move on when we took the property back. But, you know, if unfortunately it is a stressful situation and people do stupid things when they're stressed out, that's very fair.

People doing stupid things when they're stressed out. And that's why you're talking to motivates others to help them kind of work with the situation. In your opinion, why haven't more people heard about note investing? To me, it sounds like this ideal that, hey, this is where you want to be at. Maybe I'm biased, but I'm curious as to what your thoughts are on that.

So people, there's not an HGTV show on Flip this house. That's what it comes down. People fall and fantasize about going out and touching and feeling and hugging. You know, I'm picking up paint colors and carpet. You know, they oh, I'm doing something. People like to polish a turd sometimes, you know, they want to take it from leaning this way to straight. People have heard about note investing because if you think about the Big Short, that movie, you think about too big to fail. You think about Field of Dreams talks about note investing. Heck, we were watching replays of Game of Thrones talking about the Iron bank and its loan against the Lannisters. I was like, oh, that's a note. That's a note reference. Awesome. You know, I joke about this stuff, but people like the tangible aspect. Most people want to invest in their backyards if they can find it. Because I feel comfortable. You know, it must have been around for a long time. It's just really become in the last 10 years, this whole secondary market for smaller investors like you guys and me and other students of mine has really blossomed because all the big buyers of notes stopped buying in 2008. 9. It left all this inventory with these banks and hedge funds with no place to turn to. So they started turning to the investors. I mean, it was the Wild West a decade ago. I was calling asset managers, making 50 to 400 phone calls a day. It's gotten a lot easier now because all the technology and things that you can do, some of the software programs that are available, but you still have a lot of people that like the tangible side. They want to be a weekend warrior. They want to get their hands dirty and they don't want to do the work. Note investing is not a get rich quick scheme. It's a get wealthy over time scheme. If somebody came to me and told me they were going to quit their job to do this, I was like, whoa, you're the biggest idiot out there. Start this. And that's what we tell people all the time. Hey, start this on part time. Everybody's got a 7pm to 2am hustle. You can start this on nights, you can start this on the weekends. Learn, build a plan. So if you've got a job, you want to leave because you hate it, then let's figure out how many deals you need to get close in the next 12 months to replace that income, build it with cash flow and kind of go from there, if that makes sense.

I love it, man. I feel like you're speaking to our listeners right now because a lot of people who Listen to our show are professionals. Kevin and I both were in tech and they're looking for ways to invest on the side and to invest passively. So that was fantastic.

Well, there's two, there's two kind of. I like the non performing side because I can buy the debt at a discount and get it worked out. And a lot of people that are working full time or are a little bit older, they don't want to do as much work. That's totally fine. They like performing notes, you know, or buying notes that we're sutton on performing, that are not performing that they can get a decent double digit return on. You know, there's nothing, 12% is nothing to laugh at these days. That's better than most of the markets are doing. Yeah, especially it's on the performing side. I mean I got a bunch of stuff that we've worked through in the last year and a half that's now been performing. You know, the bars are performing six to 12 months. They have on time. You know, we're gonna sell those at a 12 to 15 yield depending on the situation and what we're into them for. And it's gonna be, it's gonna be a win win because it's a win to an investor whose Money is making 0 or negative 3 to 4% depending on inflation. When you look at the markets where the best investment last year in 2018 was to have your money in cash, 1.9% yield, that's not exciting for the most part. So that's kind of the two facets, you know, when you get, I've changed my business model. I used to want it when I first started off the buy and take everything back and try to foreclose on everything. And I totally messed up on that. Coming from the real estate side, I could have reinstated a lot of loans or modified the loans and immediately had cash coming in. But I was stubborn, thought I knew everything. I started to foreclose. Now I'm paying attorney fees out and then I gotta pay to fix the properties up. I mean I made good money, but I could have. I look back and I just kind of want to beat my head with a bat like, you idiot, you should have done things a little bit differently. But it gives me an opportunity to teach people and how to have them learn from my mistakes.

So Scott, what do you think? What is a good way to look at markets? So, you know, what would you look for in a market that would indicate it's a good market to invest in, especially for somebody who's New and maybe, maybe they're like, I don't even know where to start or how to pick a market.

Great question. I'm so glad you asked that. So the first thing I would do is I would look. I would look at and talk to other local investors. You look at your inventory and like Austin. I mean, I live here in Austin, Texas. Hook Em Horns, great place to own property where increased in value. Not a great place to buy debt because everything's overpriced. With it being a fast foreclosure market, everything's wanted to buy here in Texas is like in the mid-70s. And I could just, I could buy an reo for cheaper for the most part. Wow. So you're gonna look at something in markets where there is growth, there is people moving to it. I mean, Adam Data, Attom Data has some great stuff out there that's, you know, CoreLogic will give you hot maps where you can see parts of the country that are doing well. You want to look at days on market. You want to just talk to investors who are buying stuff there. Like a couple years ago, I wasn't really buying much in Ohio and Michigan. Well, now those are my two favorite states. Just because I can find inventory there that's cheap. You know, I get a bigger bang for a buck. You know, I can make 50 grand, buy like three assets there where 50 grand in California might buy you a doghouse.

If that.

If that. Exactly. So that's the thing you got to look at. I mean, if you're looking. If you're in California looking for stuff or really Nevada, Arizona, no offense, you're gonna. You'll find some stuff there, but it's gonna be really overpriced based on the demand. So what's really hot markets right now for the. No business stuff. That's where there's available. So I said like Michigan, Ohio, Missouri, because it's a faster foreclosure state, like 90 days. Kansas is a judicial state. It's a little bit longer, but still deals there. Indiana is a nice market because it's close to the big, you know, the big three up in the auto industries like Fort Wayne, Purdue, Anderson, South Bend. So I kind of make the joke that I invest in larger Division 1 university areas. If you're a football fan or March Madness fan these days, the Big Ten, the Southeast Conference, the ACC and parts of the Big 12 for the most part. Wow. I don't buy anything up in the, you know, upper New England areas for the most parts. Too expensive. Longer foreclosure timeframes up there. Mostly the stuff that we're buying is like $150,000 value or less for the most part.

Yeah, that's, that's really interesting that you mentioned some rust belt areas because I know as a, I'm an apartment investor, so I focus on larger multifamily apartments and I have to be really careful about looking at rust belt areas that people are moving out of.

Yep.

When you said that my ears kind of perked up. That's interesting.

So that's the thing. I'm glad you bring that up because I think apartments are really the most overpriced asset right now for the most part. Because everybody's, oh, I'm a, you know, I'm gonna want to be an apartment investor and everybody's putting their money together. That's great because you know, if you, especially if you're buying like a C class, you plan to move to a B or meet a B. Moving to an A if you can re gentrify to really find something that's undervalued or under market rents, stuff like that. But you gotta be careful. Cause what's gonna happen in three years? Are you gonna be able to get refinanced out? That's your goal? Is the financing gonna be available for that stuff? What's the market gonna do? So I look at stuff like that too. Like I like Columbus, Ohio things a great market. It doesn't mean I wanna buy or buy properties in sub markets. So we really wanna look at cities that have preferably 50,000 or more people in there. That way they've got realtors, they've got people moving there. If there's a decent sized university, hey great. Worst case, you turn into a rental and maybe rent it out by the bedroom, which is a pretty popular thing to do. But you've got to be just, you know, you double check, talk to realtors, talk to investors. I like joining online meetup groups in those areas and then reaching out to the people that run those investment clubs because then I'll can talk to people who are doing, pulling the trigger. I can find my team and vendors there and talk with them and then, and go from there. In worst case, since I'm in Austin, Texas, I'm really just a two hour Southwest flight away from about 90% of the country anyway. Pretty much be there relatively quickly. So that makes sense.

Yeah, that's great stuff there.

Yeah, avoid rural areas. Some people are like, oh, I found this great deal for five grand. It's in a house worth 50, where's it at? I'm like, I don't know where that city is. It's like 5,000 people like, yeah, well good luck. You're gonna own that asset forever. You know what I mean? I hope you love it because you just bought that thing for a while.

Yeah.

Okay.

Now Scott, there are a lot of very smart people that I've been hearing on podcasts, reading articles, they say that this a correction or something is coming, it's imminent danger. How does this affect note investors?

Man, I wish I had a crystal ball. Yeah, I look back, let me do this, let me make that two part question. Let's look where I think the market going and how's it. We'll answer the second part of that. We're due for a correction. It's just the truth of the matter. And you see values going up but then starting to soften. Days on market getting longer. Value starting to drop in your higher end areas like Miami, Denver, Dallas is even seeing a lot of that too. With the market softening, the higher end homes, foreclosures are starting to climb up a little bit. You know, I think we are going to see something. I don't, I unfortunately I don't think it's going to be. I think it might be worse than what we saw 10 years ago for a couple of reasons. One is we don't have any new construction really being built for the most part. First there's not really a lot of places to go. I mean really the only thing being built right now is new apartments because it's cheaper to build an apartment complex from the ground up than is to buy a lot of times. But we're seeing, you know, here in Austin we don't see a lot of growth construction just that was the slowest financing aspect of return. But we're over such we have record levels of credit card debt in default, record levels of medical debt, record levels of student loan debt being in default. And then the biggest thing is like the auto industry, when you look at the auto finances, highest levels of all time defaults that route. So you have this really kind of paper houses, as I like to say, you know, house of cards. That's really kind of doing the shaking thing. Is it gonna stake for a while? Are we gonna see a major correction? And then the big kicker is being an ex mortgage banker. I'm always looking to see what kind of products are available out there. You know, that's the way I tell, okay, how greedy is Wall street getting? Because it's, you know, oh, 10% down. Okay. Oh, we'll fund you 95% with a, you know, six, you know, 620 score. Oh, no, we'll go down to six. Six from six, 20, 600. Oh, no, we'll Go to 580. There are. Whether you believe it or not, subprime is back. It's been back for a couple years now. They just call it a different name. They get really creative. They call it non prime loans now. Okay. And there's lenders doing 100% financing in every state to subprime borrowers. Some as low as like 500, 520 ficos. Wow. Okay.

That's scary.

That is scary because they're financing people, no offense. That probably shouldn't be in a house.

Right.

It should still be renting. You know, if you're. That's the big thing. There's a big difference in the default rates. If somebody puts 5% down or at least puts 3% down versus nothing, they don't put anything down. There's no motivation there to stay in the house. And when you do have new developments, new, you know, new housing areas being built, that's the biggest sign. Biggest place where they have the biggest amount of defaults in the first six to 12 months. Because when people get into buying a house that don't have credit, they're not the most financially intelligent people. I mean, we live in a highly uneducated society when it comes to finances. People don't read the fine print. They don't read or they don't check into. Oh, my. Mortgage payments, only 1,100. Awesome. Let's sign. I can afford that. Well, they don't realize that their taxes are based on a lot, not on improvements. So when that new year changes and now the tax system comes back and says, oh, hey, this is no longer an empty lot. You got a house, your taxes went up by $400 a month. That's when people can't afford it at that point. And you start seeing that in default. We saw that here in Austin a decade ago. We saw it all across the country. So one of the things, like I said, I track to see who's lending on what, and I start seeing where they're buying or where they're originating their loans at. And those are markets I know that we're gonna see hit in the next, you know, next couple years. Now when a market goes south, we start licking our shops as answers question. Because it means more inventory. Okay. With more inventory, means we get better pricing. The pricing will start Coming down. I mean, it's. The price of notes has climbed up some as more people have gotten into it. It's still very niche aspect, but when you start seeing default rates happen, I mean, I'm already starting to get more banks calling me directly, asking me if we're buying. And I haven't had that happen like it is in a couple years. But the last six months getting phone calls, answers or emails. Our students are starting to get more portfolios sent their way from private banks. You know, regional banks are looking to move stuff because they know something's coming. And so that's the thing, something's coming. I don't know if it's 6 months, 12 months or 18 months, but I'm preparing for, for that notageddon, I guess you could say. I don't think it's gonna be as bad as it was. It may be bad, it may be worse, maybe less. I don't know. I just, I'm not happy with where everything is financially in the country for the most part, if that makes sense.

Absolutely. I have student loans and it's. Yeah, I know what you mean. And it is scary. It is scary. What's what potentially could happen. And you talked about some team members already, like having a realtor local, some local investors that you would talk to in preparation for the note, Mageddon, if you will. What other team members would you advise people to have?

So you always need. I love realtors because you gotta have somebody go look at the property. You're not gonna, you know, unless you're looking at like 30 in one city or something like that, you're not really gonna jump on a plane and drive. I mean, some people would, you know, I've done that before, but not everybody will. I always tell people when they start off with, start off with like one or two states, keep it simple. You're not going to try to buy from all across the country. You're not going to have the expertise to do that. So pick a couple states, let's say Michigan and Ohio just for the heck of it. Then pick out the bigger markets, the bigger cities, the four or five bigger cities in those areas. So that would be like Michigan. Michigan would be like Detroit, Flint, Lansing, Ann Arbor. Who's another one? Maybe Bay City, you know, you know, Pontiacs, near, you know, Detroit. So pick air, you know, pick those cities and then go online and find meetup groups in those areas. So you find one or two meet clubs there and then that'll be a great way for you to find realtors you'll need an attorney in each state that you're foreclosing that understands the laws of that state. Okay. And then you also need to have a servicing company that can help you service those loans that you're buying in those states. Like we use Madison Management out of New Jersey. They are licensed to service in just about every state that we're buying. They're not in all 50. A lot of service aren't gonna be licensed in all 50 states because they just don't see a lot of inventory. There's no reason for them to get that license in that state. So they're, I think in 30, 35. They're in the states that we do business with, which is what matters. They do a great job. Is that you want your borrowers talking to your servicer. Especially if you're working a full time job, you don't have time to be negotiating loan mods and you're not the expertise at it. I mean, you want to hire experts in your field. So like I said, the servicer, you need your attorneys, you need your realtors, you need to have a company, maybe they can review the collateral files so you can look at. So you need a company like Richmond Oro or have your servicer hire a servicer that will do that for you or have an outside party that does that for you. Any insurance company like Ross Diversified Insurance, they insure our assets across the country. They work really well with our servicer. So I don't even have to worry about making a phone call when we close on a note and transfer it. Hey, I automatically haven't put the policy on there. And then depending on what you end up doing with the assets now a lot of people, like I said, want to get it re performing and keep it for performing paper. If it's not going to get re performed in 90 to 120 days. A lot of people that are looking to sell that off to somebody else. So you want to build a network around you as well. That's why, you know, that's why I like meetup groups. That's why I like real estate investment clubs, because those are the, the weekend warriors. The local weekend warriors are often looking for a deal that you can sell as a handyman special or sell to somebody locally who has less of a overhead because they're a couple blocks down or a couple miles away from the asset and can really dive into it more than I can being states away. That makes sense, guys.

Yeah, yeah, absolutely. That makes total sense. How long does it take to do A deal. I mean basically what's the average time it takes?

Well, that's a good question. And it all depends on the states that you're buying in.

Okay.

I always tell people if we're getting a doodle, expect to take like 12 to 18 months. Now I'm under promising and looking to over deliver, if that makes sense. Okay, sure. I'd say the average deal is gonna at least be 12 months for you. Basically what I mean by that, it's gonna be something that you buy. It's Gonna probably take 30 to 45 days for the collateral to show up to your office or to your servicer and the servicing to get transferred over. Okay. Then you've got some borrower outreach that takes place that time. So you're probably looking at 90 days before you have an idea of roughly where that deal's going to go, whether it's going to go performing non performing or start the foreclosure route. Okay. If you get it reperforming, then you're going to probably need to have about six months of on time payments to season that loan as a reperformer so that you can start looking to market it off as to sell it as a performing note. That makes sense.

Yeah.

You're nine to 12 months. A lot of states will take six to nine months to foreclose. So that's why it's important to start the foreclosure process. And then if you foreclose or can work out of cash for keys, that's why it's always good to offer that up as an option. Because I'd rather pay $2,500 to the borrower now and have the asset back in my, in my name versus waiting six months and still paying $2,500 in foreclosure costs. Right. It's all about speeding up the velocity of capital and getting your money back. And then it depends on what kind of condition the property is in and then also days on market inventory and how much you want to do to rehab that property.

For note investing. One of the things that I was drawn to is you can do it from anywhere. I like that. And somebody was maybe I read this and I am clinging off this idea, but there's an idea of passing passivity as a note investor. I guess maybe when you get things up and running. But in your opinion, how can someone be a passive note investor?

They can do it. One of two ways to be a passive note investor. They can either a be buying performing notes that are performing. They have at Least six months of seizing performance behind them. Never buy a note as a performing note if it has less than six months. It just doesn't make sense. There's too much of a hiccup that can happen. Okay. Plus, I have known some borrowers who've made a payment or two to try to get things rock and roll and then they fall off after two or three months. Or secondly, you could be investing with other people that are buying performing notes and you're getting a flat return on investment by lending that money in either a funding agreement or a joint venture agreement. So that's the thing about passive. If you're looking that you don't want to do any work, then just buy performing or sub performing notes. It all depends on what kind of money you have. If you're using your own funds, great, that's awesome. You can do that. You're self funded, but at some point you're probably gonna run out of your own funds and you're gonna raise other money from other people. That's why I like the non performing side because the returns are higher, there's a little bit more risk involved. But if I'm buying something at 40 cents and I know it's worth at least 80, 90 cents, when I take the property back and rehab it or can sell it as is, I'm. I'll wait the 12 to 18 months to drag that stuff out if I need to be. Or if it does drag out, I mean to be able to move and make some money on that stuff.

Fantastic. A few more questions for you, Scott. What are the biggest misconceptions that people have about note investing?

Biggest conception is I get this all the time. They called me yesterday, I got a million bucks, I'm going to be making 30% of my money. I'm like, that's great. This is not for you. The reason was, I'm like, listen, it's gonna take some time. You know, you can't expect to do this in, you know, you can't go out and close on a hundred deals your first year unless you've got a lot of experience. What I tell people is like, it's a, there's a strategy to this. 1, 2, 3 notes will help you get your systems down, figure out what's going on. You're gonna learn more from buying your first note than anything else, any book, any workshop and things like that. And I do it highly recommend people get educated because this is a whole different ball game. There's a lot of moving parts. You need to learn about, but, you know, give it some time, be patient. You know, that's what a lot of people struggle with. They don't have the patience. It's a lot of hurry up and wait. Oh, we got a collateral, okay, now we got to ship it out and wait for the attorneys to do their things. Okay? Oh, all right, now we got a court proceeding in 60 days we got to go to. You know, so there's a lot of this hurry up, wait, quick actions, okay, Hurry up, you know, wait, let's get things rocking and rolling. And so that's one thing. Another thing is that you. This is really a game or investment strategy that requires vendors. You cannot do it all. Even though some states will allow you to self service. That is not a good idea. You can get a lot of trouble, you can screw up a lot of stuff and you don't want to risk losing the availability collect on that debt because you do something stupid trying to save 50 bucks a month. Okay, so rely on your vendors. It's a different pricing model. You can't come into it thinking the MAO minus repairs, maximum allowable offer. You know What I mean? 70% of ARV minus repairs that doesn't work in the note space just doesn't do it. And then thirdly, if you really want to grow your business, and I think this is for anybody who's a real estate investor and I'm proud to hear that you're doing this. Kevin, we talked about this before. The show is, I think the biggest way to get successful faster, especially if you're working full time, is to hire an assistant. I think that's the. One of the biggest things that people can do immediately, especially they're working full time because they can give. It doesn't have to be 40 hours, it could be 10, 20, 30 hours a week. Give your assistant the stuff to do. They can help you with your social media marketing. They can help you with the due diligence on the assets. They can help you with your collateral review or documents or answering your emails while you're still busy working the nine to five. That's the big misconception I see note investors getting. They get like 20 deals and that's about all they can handle because there's moving parts going on. You know, I gotta follow back up. And not every collateral file is clean. Sometimes you gotta get stuff redone or there might be a file or two missing. So that's why I tell people, hey, you can probably buy 20 notes that point unless you're one of the most systemized and intelligent people out there to be able to hook all these things up, systems and stuff like that. You really need an assistant or two to come in and really help you if you want to grow this to 50 to 100 deals in your first 24 months. Because hiring that one extra person, while it may cost you 50 grand a year, an assistant should make you six figures extra per year to make me able to allow you to afford it. I mean, what's giving up a cup of coffee a day for a va? You know what I mean? Online help you out with that? But that's a big misconception. You got to know it's a different type of business. You're not taking the property back immediately. It's the note aspect of it. And you can really run yourself ragged with all the little things that need to be taken care of once you buy the note. So hire an assistant, and it'll make life a whole lot easier for you. Wow.

There were some real nuggets in there, both for people who are like me and Kevin, that work full time, and also for real estate investors in general outside of notes. Like a few things you said, for example, get educated. That's huge. I mean, I didn't realize that until I invested in education for myself, how crucial that is to your success as a real estate investor.

Yeah, and one of the things I see is real estate investors, too. That just drives me bonkers. And I only say this because I was like, everybody wants to go to all these workshops. They go from one workshop to another workshop to another workshop with the idea, I'm gonna put a tool, another tool in my tool belt. I'm like, you're not even using the tools in your tool belt right now. Okay. A lot of people want to be a jack of all trades. Well, if you're a jack of all trades, you're a master of none of them. Okay? That's the thing you look at. The more specialized, the more focused you can look at. In real estate investing, it doesn't have to be with notes. If you just want to focus on apartments, focus on apartments. You just want to focus on wholesale and focus on wholesale. You just want to focus on mixed use or whatever it is. Those investors that are the most focused are the ones that are the happiest. They're also the ones that are probably the most profitable because they're not off chasing squirrels or going on wild turkey shoots trying to, you know, oh, I'm going to get this one weird thing. Well, they end up spending all their Time and energy on that one weird thing that doesn't pan out when they had this golden goose that was paying them. So that's why I only really focus on that avenue. I mean, I get things sent to me all the time to invest in this other stuff. And I'm like, no, I don't do that. I just focus on this. I want to keep my attention because then I can be more focused and be a lot more successful, you know, you've heard of the parental principle. The 80, 20, 80% of your income is made from 20% of your activities. Well, what if you could take 100% of your activities, focus on that 120%. It'll end up quadrupling your income if you think about that. And unfortunately, most investors are too busy shining up. I'm going to go to an apartment seminar this weekend. Wait, I'm going to another commercial deal. I'm going to go to a note thing. Oh, I'm going to go to a wholesaling thing. And I'm like, oh, reel it in, reel it in. You know, that's another thing that kind of, you know, this is the thing with the note aspect. A lot of people like to talk about owner financing, and I think owner financing is a great strategy if you can't sell the property any other way. People ask me, oh, dude, when you take your property back, do you own or finance? I'm like, no, I don't owner finance them. I want to get that money. If I take a property back and I have to turn around and owner finance it, I'm going to end up tying up that equity for another couple years that I can't touch. All right. I would rather take a 10, 20% discount and sell it cheaper. Get the income in and then be able to go out and buy two assets now versus having that one asset tied up. And this is a big thing I see with owner finance educators out there. Oh, it's a great thing. You can sell for 110% of the value. I'm like, yeah, you can, but what happens when you need that capital? Right? You're gonna take a discount. You're not gonna structure that note properly. Yeah, you can sell it for 110% in a note deal, but doesn't mean anybody else is gonna buy it at 110%. You know, that's the thing that drives my. Oh, I'm gonna give a 5% interest rate on owner finance. I'm like, why would you do that? The borrower can't go get that Themselves, you shouldn't be doing it all from 7, 8%. That's a true market rate. If you give them 5% and you need to sell a note to me, guess what's gonna happen if I want a 10% return on my money, I'm only going to give you 50 cents on the dollar. Right. And that's the thing, don't get me wrong, I love people, I'm an owner. Financing carry cash flow. That's great if you've got a lot of money in the bank and you can sit on it. But for most investors that are trying to double down or speed up their retirement date or their freedom date as we like to say, I think if you take a property back and owner finance it, you're only extending your doom. I think you need to turn around, sell it, double down, take that cash and then go immediately buy two more properties and then do the same thing. To have those two properties turn into four properties and then those four properties turn into eight properties. You know, that's the thing. Now if you can get financing and leverage it by taking your equity out with financing, that's great as long as it's cheap. But what's gonna happen when the markets turn south and the banks want you to get refinanced out in three to five years? Can things work? Personally, we like to take them. If we get a re performing, we'll hold on to them. We can always do an assignment of collateral to get refinanced down or bring in somebody's investor who wants to make an 8, 10% return on their money, make sure their money's protected that way. Given that, still keep the cash flow and then allow us to go in and double down if we need to.

So we're talking a little bit about education and I believe you provide some education services. Right. Could you tell us a little bit about what you provide?

I'll pay you later for that.

That was a sound effect. Awesome.

Yeah. I've been teaching people how to buy and sell non performing notes since 2010. I've been called the note guy. We've got a ton of videos online. Almost a thousand plus videos on YouTube. Wow. On different webinars. We do, I mean we did a webinar last night as well. A couple hundred people. And we do have a training program. If you go to weclosenotes.com it's my website, you can see the different things that are available. But you know, my goal is I want to give. My big belief was that I was very fortunate when I got started in this business that I had a couple mentors that really helped me out, you know, through especially a rough time in. When I first graduated college in 2004, I was a deadbeat borrower. Bought a couple investment properties in the market, went south here in Austin. So I was able to get my assets out of a sling. And I always promised that, hey, if I got where I was ahead, I would help as many people get there as possible. So I'm a big believer that if you give people tools or teach people how to use the tools, those that want to be successful will be successful. So, yeah, we've got training, you know, we've got online training program called our note buying blueprint. I think it's the best in the industry just based off the fact of the success that a lot of our students have had going out and closing on 100 deals or 50 deals or 20 deals or 12 deals. Depends on what their goals are. So I'm kind of a no nonsense approach. If you want warm and fuzzies, I'm not the guy for you. If you wants me to blow smoke up your butt, I'm not the guy for. I'm gonna tell you exactly like it is because I don't want people to struggle. I don't feel make stupid mistakes. I mean, I called some guy out the other day, he called me up like, what the heck are you doing, dude? You just got blacklisted. You're looking like a joker broker than an actual investor. You know, he had, he posted something like, oh, I want to buy your commercial notes and your owner finance notes and your non performing notes, I want to buy them. All these asset classes, I'm like, that just screams joker broker. You know, focus on one thing, get good at one thing before you dive into something else and you'll be a lot happier.

Okay, so one thing that I've been hearing about is there's this stigma about wholesaling notes. Or you mentioned joker brokers. How does that work in the note space?

So you can wholesale a note like you can a traditional piece of property. But why would you. Yeah, I know you want to probably make quick 5 grand or something like that. The same people that are gonna buy your deal, if you're a wholesaler, would probably fund your deal on a joint venture deal. And you could still both make a good return on investment. So it takes the same amount of work to build a list to blast it out. And if you're making five grand, great, you're probably leaving 50 grand on the table or 20 grand on the table? Cause you're like, oh, I don't have the wavos. And everybody's got wavos, ladies. Yours are just a little higher up that, you know, if you just twist the discussion, hey, instead of wholesaling it, hey, I know that you've bought property from me in the past, but hey, here's a deal that I want to stay involved with. I'd like for you to fund the deal and work through it, because that's one of the people, like wholesalers run around trying to find people to buy from their deal. And if they just did some due diligence on the actual deal, they could see the merits and then change the discussion from Jo. Hey, buy a deal. You know, buy my deal. Well, hey, fund my deal. Let's talk about this. Fund my deal and see the advantages. And you'll make a whole lot more money in the long run.

And that's brilliant.

You know, it's just. It is what it is. Wholesaling is like, oh, it's sold on the fact that nobody has to do any. You're not involved. You're just kind of putting people together. That's great. But you're constantly have to work. You're never gonna get ahead. You always go out and go hunting every night. Well, I don't want to hunt. I want to take a month off and sit in the Caribbean if I want to. And still have to get paid every month.

Right on.

You know, with other people's money that funded the deal. And they're still getting paid and I'm getting paid. It's a great thing. If you're just a wholesaler. Yeah, you might make quick buck here and there, but then you're constantly to go out and find your next deal. And it's just, you know, it's. That's not. That's not the way to get ahead in life.

Yeah. Yeah. All right. So we wouldn't be tech guys who invest if we didn't ask you some fun question about tech. And so is there a favorite piece of tech or some sort of gadget or software or tool or. It doesn't even have to be work related. It could be a fun thing that Scott Carson likes.

So I'll give you two pieces. One is in the note business. And this actually works really well for anybody in real estate. We worked with a guy to kind of develop an easy software tool where you can just drop, copy, paste in like addresses, and it pulls a lot of the online due diligence, like the zillow high and low values. The rent rates, the last paid date, the beds, bad square footage year Built you a link to realtor off realtor.com and also gives you a map link and then also pulls in the API information for crime maps off of Trulia.

Wow.

Yeah. So it's really kind of a cool thing if you're a residential investor. You don't use it just for notes but it's called note pros. It's pros with a Z. Noteproz.com I think you get like seven days for a buck. If you want to go test it out then after that's like 29 or $49 a month. But it also he built a scraper too that goes on and scrapes information in the 12 biggest states that we see deals to find asset manager emails and contacts as well. And then he also has a CRM kind of built into it. So I don't know exactly what the price is if you add the CRM but for the asset manager stuff and then they scraping the info for the due diligence it saves a lot of time. So you hunting, pecking, going back and forth from website to website in one spot. It's not. It's not a final valuation. It's an AB online. I want to make sure and say that like a Zillow value. But at least you get something to take a look at and then go from there. So no pros. Calm. I don't get paid to promote it. I just think it's a phenomenal tool but a lot of people can use and it's most people don't know about it. And then as far as I'll throw this out for marketing Buffer using Buffer especially if you're working full time. A lot of people worry about marketing and they don't you know about posting even hootsuite it's free. You can get a free Buffer account and a free hootsuite account and set up your social media profiles. But just spend a little bit of time Saturday night or one night you can pre schedule all your marketing to go out to Facebook and Instagram and LinkedIn. If you just take a little bit time and preplan it out an hour on Saturday night or an hour on Friday night. If you don't have a life or a loved one, get a loved one. Friday night should be date night for something. But spend a little time and preplan your weekend ahead of time. Look at the calendar and Buffer's a great way. People always ask me like my God, Scott you're everywhere. And the reason I'm everywhere is I've got a really great assistant who uses Buffer to schedule our marketing. I mean, we have our own podcast, so she takes the episodes and makes like eight different things out of them. We not only do have the audio, but we have the video. We have a blog. We have images, you know, we have quotes and pictures of properties and things like that. We just take it and throw it up on there and change the time frame that goes around so people think they. That were. People think I'm constant. Like, if you're like 24 hours a day, those are two tools I'd highly recommend to anybody out there as a great way to help you with the due diligence of the note pros, but also help you with your marketing. Because this business, real estate, is all about finding deals and getting them funded. That's where you make your money on the buy, right? The exit strategies, stuff like that. You can often have vendors help you out with, especially the note business. But the way to get ahead in America is to be doing the most productive thing at any given time. And in real estate, that's finding deals and raising capital. Marketing and raising capital all comes down to just the marketing.

Scott, you've added a ton of value to our listeners today. We really have enjoyed having you on. And I'm going to have to go rewatch our or re. Listen to our shiny object syndrome after talking to you, man, because I'm, like, ready to go out and invest in notes right now.

Come on, man. Come on.

Come to the dark side, Adam.

There's still a lot of debt. I mean, in 2010, there was 15 million homeowners underwater. There's still about 3 to 4 million homeowners. They're still underwater today. Here's a nugget. One in 10Americans are already 30 days late on their mortgage.

Wow.

Yes. Think about this. All these government employees that were not working for like two months, they got behind, you know, Trust me, we are in for. Not again.

You heard it here first, folks.

You call me Notre Damas.

Okay, Notre Damas.

You are everywhere.

I kind of want to stick with that name. Where can ideally people find more from Scott Carson and your note Education?

Easy. Just go to weclosenotes.com our website, weclosenotes.com when you get on there, you'll see a link, you know, menus to our different classes and education stuff. You'll see a link to. Actually, if you want to buy assets, get in there and I'll ask what Your top three states are. And then we've got different trains, we've got, you know, training groups, we've got some coaching. Actually got a mastermind that's taking place the end of April here with we'll have 50 plus of our coaching students coming in, hanging out for a couple days, working on each other's businesses and going from there. But we're all over YouTube, Vimeo, you know, check us out. Google Scott Carson. I am not the soccer player. Although you're more welcome to buy I heart Scott Carson. He has a fan club shirt that that way. But I'm not that guy.

All right, Notre Damas, thank you so.

Much for your time today. Yeah, I really appreciate it. Thanks, guys. As always. Glad to help out any way I can. And guys, if you're listening to this show, do these guys a favor. They're taking time out of their busy schedule. Do this. Go on over. If you're listening to this on itunes or Stitcher or any of the podcasting platform, hit the subscribe button. Go on over to itunes and leave them a nice five star review. Do them a favor. They're working their butts off. That's the least that you can do. Show a little bit of your gratitude to these guys.

Awesome.

Thanks.

What he said.

Yeah, I'll look for that hundred dollar bill later on.

All right.

All right. Thanks, Scott. Thanks, guys.

That's it for this episode of Tech Guys who Invest.

This is Adam and this is Kevin.

Thank you so much for listening to us. Don't forget to join our Facebook page where we're building a community of investors so that we can share ideas, tips, and other ways to help us get out of the rat race. If you found value in this podcast, it would mean the world to us if you could share it with your network. Lastly, we love feedback. It's how we get better. So if you wouldn't mind spending 30 seconds and leaving us an honest review on itunes or Stitcher or whatever platform you're using, that would be so super sweet. If you want to get on Adam or Kevin's Calendar, go to tgwipodcast.com contact we want to help you invest safely, wisely, and ultimately get you out of the rat race. Thanks again.