SCOTT IN THE TITANIUM VAULT with RJ Bates III

Listen up, real estate investors, entrepreneurs and agents. You're in the right place. Unlocking the secrets to real estate investing and entrepreneurship. Welcome to the Titanium Vault, hosted by RJ Bates iii. Here's rj.

All right, guys. Welcome to the Titanium Vault. I'm your host, RJ Bates. Today I'm sitting down with my good buddy and fellow podcast host, Scott Carson. How you doing, buddy?

Man, I'm doing great. It is Valentine's Day, and I. Would you be my valentine today, rj.

Apparently we are going to be each other's Valentine's today because we have nothing better to do than sit down and create this podcast and talk about podcasting and creating notes. That's what we're going to do. So you and I were actually in the same building. We were at the Propelio event up in dfw and we had the opportunity to meet each other and we didn't make that happen. And so I'm at least happy that we get to be each other's Valentine's.

Hey, it wasn't from any attempt not to meet. It's just that you got bamboozled by somebody and then my timing coming up later was a bad thing. But the beautiful thing is we've known each other online. That's the power of social media. You know, I've respected it. I listen to this podcast. I love what you're doing and vice versa. So that's the thing. We're two kindred podcasts for real estate investing spirits.

Absolutely, man. So for everybody that's listening, and if they don't know who you are or what you're about, give them a quick synopsis of kind of what you've done in the real estate investing realm.

Yeah, so for those that don't know who I am, Scott Carson. I live in Austin, Texas. I'm kind of known throughout the country, actually kind of internationally as the Note Guy. I've been a buyer and seller and educator on how to buy basically non performing notes, non performing mortgages on residential and commercial properties for over a decade now. I've been investing in debt and an active real estate investor since 2002, but really just focused on the side of distressed debt since 2008, which is kind of funny because that was when everything was hitting the fan back then, but.

Right.

You know, I was a previous financial advisor, banker, and mortgage broker, worked with investors all across the country with my mortgage company that I ran from 2004 to 2008. And then when the market just started to tank, I jumped on the opposite Side because I had a couple really great mentors and people that I looked up to that made a lot of money during the RTC and the savings and loan crash crisis of the 80s. And for the last 10 years my sole focus has been dealing with banks and hedge funds and buying their distressed debt. And that's what I do. I buy, you know, I get a list sent to me monthly, quarterly from our resources. I got a list in last night from a fund out of Missouri, I'm sorry, a bank out of Missouri with these, you know, they had 67 properties that were in default of anywhere from 90 days to, you know, 60, 60, 60 months. And so I have the ability to buy these assets. Great looking assets, somewhere between, you know, 30, 40 and, and 50 or even, and even 70 cents on the dollar. And for the stuff that's barely non performing, but that's what I do. I buy distressed debt, I become the bank and then my whole goal isn't to take the property back to rehab it. We have a little bit different mentality in the note business side. We like to try to rehab the borrowers. And so that's what I do. We buy debt, we try to rehab the borrowers, get them reperforming. I'm all about cash flow. I would love to say that we are able to get a successful 100% reperformance on our notes that we buy. That's not always the case. It's about 50, 60 cents on the dollar that we're able to get reperforming for cash flow. And then the other 50, 50 to 40 cents, we're either offering up cash for keys or foreclosing or some other exit strategy.

So for the people that you gave a pretty good synopsis there, but let's dive a little bit deeper in it. You came from the mortgage side of things, so never actually. You never fix and flip. You never were a landlord or anything like that before you decided to jump in the note buying business?

No, that's a good question. I, I've been a fix and flipper. I was actually, okay, I had mortgage tripping here actually. I was, you know, fixing, flipping properties here, all around Austin, Pflugerville, Cedar Park, Round Rock. You know, I flipped a bunch of homes, I don't know, like 60, 70 homes here between 2004 and 2008. I've been a landlord. It's not my favorite thing. I mean I've got some rental property that we've bought the notes on, took the property back in there and we get People to pay us monthly on those in specific areas.

Right.

You know, I started off like many people, but in 2002, when I got out of college, I graduated from Southwest Texas State, back in the day in San Marcos. Go Bobcats.

Wow.

You know, the last graduating class with the. Actually, you could say southwest Texas. But anyway, out of college, you know, that's what I want. You know, I went into work as a financial advisor, was making good money, was married at the time. I grew up in the, in South Texas, a little small town called Ingleside down by Corpus Christi. And my dad owned the local hardware store. So from the time I was in the fourth grade on to when I graduated, went to college, I was, you know, working in that hardware store, putting things together on the weekends. I was out, I would say, being the slave labor, you know, fixing, you know, fixing properties or putting roofs on or laying concrete or working with the plumbers or electricals or digging ditches. You know, I, I was an entrepreneur from the time I was, you know, 8 years old. Basically gotcha. But, you know, flash forward moved to Austin. We graduated, was working, we bought a couple investment properties to be landlords. You know, my, my wife at the time loved HGTV and flipped this house. You know those fictional shows.

Yep.

And, you know, we were doing well. And then suddenly I got laid off for my job. The big computer company that rhymes with hell called Dell here laid off a bunch of people too, which those were our tenants. And so we became, I became a deadbeat borrower as well. We were trying to make six mortgage payments on a private school teacher salary. And that doesn't work. And so that gives me a lot of empathy today as I'm, you know, as we're working with homeowners who have gone through their own country western song, whether it's divorce or death in the family or sickness or whatever, you know, we really like to try to help people out as best we can. We don't like to foreclose. It's our least favorite strategy. But we really love helping people. And I make the joke that we're making America great again, one borrower at a time.

So let's talk about that real quick. So when you say a non performing note. So this clearly means that the borrower of this mortgage is now under some kind of financial distress and stopped paying their mortgage. That lender then comes to you and says, hey, they haven't made their payment in 90 days. Do you want to buy this from us? Is that kind of how that's working?

Yeah, very much so. I mean, we've worked hard over the last few years. Few years. I mean, well, actually last 10 years to reach out to a lot of banks and make those relationships. And there's, there's plenty of opportunities out there because, yeah, I mean, there's still a lot of defaulted debt out there. We still have a default rate of about three and a half percent in the country. There's still about three and a half million homes that are underwater from a decade ago. One out of 11 borrowers in a country is 30 days late in their mortgage right now. And then there's about 750,000 people where they owe 200% of what their house is worth. They're way upside down. So, yeah, we've made those relationships with the departments in the bank that handle this. And if anybody gets anything out of this, you know, this podcast, you know, you're not going to walk into your local bank, you know, your Wells Fargo or Chase, and say, hey, I want to buy your distressed debt. They're going to laugh at you. Your local bankers don't know what's going on. And there's specific departments inside of the banks that handle this stuff. And so those department names are like the special assets department, the secondary marketing department. Those are the two names that most of the banks have that handle the, the distribution of their distressed debt out to investors like me. And I like to make the joke that we kind of live on crumbs out there. I mean, we're not buying 50 million mortgages like you see with Goldman Sachs or Freddie or Fannie selling off. But there are a lot of regional banks. You know, there are a lot of banks that have branches in two or three states. You know, they have 50 to 100 branches or more across the country. Every bank has distressed debt. It just depends on how big they are and how money they are to move it. So, like you said, yeah, we get lists in from banks on a regular basis. We'll do an email blast out to our list and they'll send us a list of say, hey, I've got this stuff this month, or I've got this stuff this quarter that I'm looking to move. You can cherry pick it. Here's kind of the pricing they're looking for. We'll look at that, see if that makes sense for us. A lot of times we'll counter back in or come in a little bit lower. I don't usually like to buy over 50 cents on the dollar of what's the actual value of the Property because that gives us plenty of room in case we do have to rehab or do it before close. But yeah, we're getting list literally emailed to us. I don't do any direct mail, we don't do any door knocking, no postcards, no yellow letters. I've done that in my early days and there's a lot of people still doing. There's nothing wrong with that. It's just that I'm a little further up the, the totem pole and, and very close to the source for, you know, where investors are looking for deals. It just that happens. I'm seeing stuff 6 to 12 months before most investors ever see before it ever hits the mls. And then that gives us a lot of flexibility since we are buying it cheaper. You know, the bank takes our 50 cents on the dollar and they go out and re lend that out five, 10 times to make up what they lost on payments and fees. And I'm happy too because we got an asset at a discount. You know, I'll give you some numbers as a kind of an example. You know, say a borrower has a house, they owe 120,000 on it. Maybe it's only worth a hundred or they, you know, they owe that much because they're behind because they were out of work for six to 12 months and didn't pay. We'll buy that Note say at 50 cents on the dollar of value. So we'll pick it up at 50. And a normal mortgage payment on $120,000 mortgage is somewhere around like 800, 850amonth. So but if we bought it at 50,000 and I can reach out to them, say okay, hey John Smith, whatever you haven't paid in a year or two, you want to stay. Can you start making your existing payment? I know the old bank wanted you to bring all 12 months to the table. I know you can't that. Can you start paying your 800 month payment right now? And if he says yes, great, let's get you started doing that. If you can you pay a little bit extra, can you have extra $200 a month or $300 a month towards. And I don't care where you get the money from, you don't have to season it. I don't care if you've got a wicked jump shot or you're slinging crack rock.

Right?

You know, so if you look at the numbers on that, if I'm going to make you 800amonth, 800 times 12 is 9,600, 9,600 coming in over a $50,000 investment. That's about a 19% yield to me right off the bat.

Now, let me ask you this real quick, because this is where I'm getting hung up on all this. Why would the bank not just foreclose? Why would they sell to you instead?

Because they have to go through. It costs them about three times the amount to foreclose. That does us because they've got. They've got such a huge portfolio. They don't want to waste their time with the assets that are, you know, 100 grand or less or $150,000 or less. They also, if they're going to take a property back, it costs them a lot more to, you know, protect it. You know, they. What you also have to realize, too, is they've got these employees that are talking to the borrowers that don't really give a rat's ass about the borrower, Right. They're paid their 18 bucks or 17 bucks an hour, and they don't care. They're just trying to collect, collect. But they've also got to go through foreclosure time frames. I mean, in Texas here, it's a little bit more expensive, you know, for assets because we have such a fast foreclosure process. So I don't really buy anything here in the Lone Star State. Most of the stuff I'm buying is in Florida, the Carolinas, Ohio, Michigan, Indiana, you know, Missouri, because I'm getting better discounts, because they're a little bit longer foreclosure process in most places. But the banks, they would rather take 50,000 or 50 cents on the dollar for me right now versus have to drag this out another six to 12 months. It's all about the velocity of capital for them. And they'd rather take a bird in the hand versus two in the bush any day.

So let's use your example of where they owe $100,000 and you buy it for 50.

They owe 120. Actually, the house is only worth 100.

Okay, okay, so it's 120. You're buying it for 50 or 60. Somewhere around there.

Yep.

Are you buying the asset itself or are you buying the note that now they still owe you 120, correct?

That's correct. I'm not buying the house. I'm buying the debt. So I'm basically becoming the bank. I'm stepping into the bank's shoes now. Instead of them paying the bank of Missouri, they're now paying Inverse Asset Fund or Inverse Ventures or one of my different entities. So I'm now the bank. Once we buy that note, then we have our servicing company. They're the ones that are reaching out to the borrower or our attorneys and they're like, hey, thanks for not paying bank of Missouri. You now have to pay us though. Okay. And the fact that we bought it at 50 grand, that gives us a lot of flexibility. Numbers wise to work with a homeowner. You know, if they want to stay, great, you got to start paying. You know, if they can't pay, can you have somebody comes in and take over the payment, doing a loan assumption or you know, sell the property subject to, to somebody if you want to, or if you want to sell off the property, great. We'll either approve it. Or you know, if you got, you need to do a short sale, we'll look at that as well. You know, a lot of times you.

Readjust the interest rates and the, the.

Yeah, I mean, that's the thing with the modifications. Rjs. Yeah. I have the flexibility to do whatever I want. So if they're like on an ARM loan, I can make it a fixed rate loan. If they're, you know that I can make it like a stair step on their loan if I want to. You know, we always. One of the big determining factors if we're going to modify heavily is we look at what market rent rate is for the property.

Right?

So if their payment's 800, but market rent rate is 1200, I'm like, listen, we're not going to adjust the payment down because if you wanted to stay in this house or move out, you'd be paying twelve hundred dollars a month, not eight hundred. So let's, let's get you started paying. Let's get paying on time for 12 months and then after 12 months we'll do a variety of things. Then we'll probably. Usually what we like to do is after 12 months of on time payments, we'll forgive the loan balance that's above the value. We'll readjust the loan amount for what it is to be as market value. So if, let's say 12 months goes by and it's still only worth a hundred, well, we'll forgive them 20 grand on debt. Or if they make an extra 200amonth payment, we'll forgive an additional $200 above and beyond their 200. So that's the thing, we get really creative with what we do. In some cases, you know, I've dropped interest rates to 0% for our homeowners because like this one lady wanted to do Been trying to do a loan MOD for four years. She owed 65,000. The market had dropped dramatically, was only worth like 35. She lived in a small town outside of Chicago, and she lived in the house, raised her kids for 18 years. Her house husband had gotten sick, had a heart attack, was back to working, but had been trying to do a loan mod for four years. And when you buy the debt, part of your due diligence is not only look at the property, see what's going on the property. You can't get into it, but you can still see pull values, have comps, things like. That's important. But you get the collateral files. You actually get the loan documents and all the servicing notes. Rj so you can kind of really see what's going on with that asset if the borrower has been, you know, calling in to the previous bank or they told them to go F off, you know what I mean?

Right.

So that helps us out there. So when we bought this note, I only paid 12 grand for this note. I mean, it was worth maybe 35. She owed 65. First phone call I talked with her, first name was Sheila. And I'm like, hey, Sheila, I see what's going on here. Can you start making your existing payment? It was like 500amonth or something like that. Four, maybe 455. She's like, yeah, I can do that. I said, okay, here's what I'm going to do. If you can bring $2,500 to the table, I'll let you start making your existing payments. I won't worry about the four years of back payments. We don't worry about that at all. If you make 12 months on time payments, what I'll do is I'll go back in and drop your interest rate from seven and a half percent to zero so that every penny you pay goes towards principal. And so that now you'll have your house paid off in six years versus 30 years.

Right.

And I'll forgive. I'll drop the balance from 65 down to 35 after 12 months as well. And she was like, are you serious? I'm like, yeah, for sure. Well, they've been on time. I mean, I got. You look at the number. I paid 12 for it. I got $2,500 when she signed the modification agreement. She's been paying 455amonth for ever. For the most part, she's almost paid off. She was able to bring another $2,500 to the table over six months by paying a little Bit extra. So in the first year I got five grand cash from her and another almost five grand in payments from her. I got ten grand in that first year on a twelve thousand dollar investment.

Right.

You know, and I've, I've made a bup. She's happy. I found out that her and her husband, when they showed up to the attorney's office there in Illinois to sign the paperwork, he cried. And then funny stories. About two months later, I get a card from her. She had, her daughter was 21 at the time and they'd had a grandchild. Well, they named a grandchild Carson after me.

Oh, wow, that is, that is amazing in a situation like that. I mean, obviously you're, you're doing it because you're helping out. But is there also kind of a desire of not having to worry about such a small loan amount and her defaulting and getting back into trouble? You know, you kind of just want to get that one kind of wrapped up in the next six years. Is that kind of also the thought process there?

Yeah, that is for the smaller stuff like that. I totally agree. Yeah. I mean the smaller, the assets. Yeah, we try to get it, you know, let's try to come to some sort of agreement in the first 90 days. If you're not going to reach back out to me in 90, you know, 90 days, I mean, actually in 30 days, if you're not gonna reach out to me in 30 days, we're gonna start the foreclosure process. And sometimes you've got to fire that, you know, that shot across the bow to get them to do something with you because they've, they're used to not opening their mail. You know, they're used to not wanting to meet the, the mailman at the door to sign the certified letter. They just got in the way where they're like, oh, I don't, I'm not going to be able to forward. Something's going to happen. They don't realize they have some of these different options.

Right.

So when we buy a portfolio or a one off note, our big thing is once we close, once we wire, we immediately that first two weeks we're dropping a letter out to them, we're skip tracing them, trying to track them down either at their house or their office, calling their neighbors, trying to, well, even I like to say we, we social sleuth them or Facebook. Yeah, I've seen some funny, interesting things by doing that. I've seen a bar one time in Orlando is like, well, am I gonna make my mortgage Payment this month or we gonna go to Disney.

Right, Exactly.

I'm not, I'm not gonna lie, I do the same thing with some of my tenants when they stopped paying me as well. I mean, the world we live in, you know, it's like you, if you're gonna put yourself out there, just realize if you don't pay your bills, people are going to track down and figure out what you're doing.

Exactly. I had another guy who went through a transition, so he was using his. His payments instead of paying his mortgage payment. He was used to get his breast augmentation surgery.

Yeah, yeah, well, you know, priorities.

Yeah, exactly.

It's a place to live when you know you got to do that. So when you get the list from the banks and the hedge funds and things like that, do you have any sort of due diligence? How long do you have before you can say, hey, these are the ones I want? And what kind of due diligence are you performing?

Oh, that's a really good question. So sometimes it varies. Sometimes we'll have just 48 hours before they want to bid in, sometimes we'll have longer. It just depends. It's coming from a hedge fund. They usually want us to get a bid in a couple days to them. If it's from a bank, we may have a week or two before their loan committee meets monthly or every three weeks to submit a bid in. So we got a little bit of time with those. But the beautiful thing about this is we do a little due diligence on the front end and then we submit our offers and wait for them to either come back and accept them or counter them. And then we have more due diligence after that if our bids have been accepted.

So when you say a bid, obviously they're sending this to multiple people. And are you out of the 60 that got sent to you yesterday, are you going to go through and be like, okay, these are the 10 that I want, and you submit a bid for all 10, and then they look at that as one whole collective bid, or are they going to go individually on each note and you say, okay, on this one I'll give you 12, on this one I'll give you 10. And they pick and choose on the individual bids on the properties. Or is it one big portfolio?

It varies. It varies with the banks a lot of times. Well, let me restrain that. Yeah, it's basically what they call that. They call that loan level pricing. So, yeah, I mean, there are. Sometimes I make a bid, a flat bid on a Whole portfolio. I've done that before. Hey, I'll give you a million for all these, right. And you can figure out the pricing for each asset. But other times, most of them, yes. Submit a bid on the 10. Here's I am an offer 50 for this one, 65 for this one, 12 for this one. And they'll compare that with other bids and either come back. So, okay, you're accepted on these six or these four, or we got higher bids on these. Do you want to counter and go back and forth like that?

So let me ask you this, because majority of my listeners are wholesalers. Fix and flip landlord people, maybe even dabbling in owner financing or Airbnbs. The majority of those strategies, everybody tries to get into the properties using other people's money, not using their own liquid cash. Is that possible in your business strategy?

Oh, yeah. We use other people's money all the time.

Okay, so walk me through how that works on, on the, these particular strategies.

So good. It's a good question. So, and I can, I can hear the question behind the question because the, the internal rehabber is like, oh my God, you're making a bid without seeing the interior.

Right, Right.

So the thing to keep is, this is one of the things that we look at is I only like to try to make offers on occupied assets.

Okay.

If it's occupied, then somebody's living in it. Somebody's usually keeping it up pretty decently. Am I? The air conditioner hasn't walked off on vacation. The copper goblins haven't showed up to strip out the copper and electrical. Somebody's living in that property, maintain it. They're mowing the lawns. You know, I know that I'm going to end up probably having to put paint and carpet in each one of my assets. I'm probably going to replace at least one system, depending on how old the note is or how long they've been in the property. The thing you have to keep in mind, since I'm buying these assets so much cheaper than most people are, I've got that flexibility that if I have to do, if I've got to put 20 grand or 30 grand in a rehab, I've got plenty of room to do that most of the time. Now what I look at too, is I look at their payment history. So if a borrower has made some sort of payments in the last 12 months and they've, you know, hit remaster, they've been trying to, to make some payments, I can see what's going on with the call logs. I can have somebody, I'll have a realtor drive by the property once we get a bid accepted, if the bids and if they drive by and I see that it's trashed out, I just cancel the bid. It's not. I don't put up a lot of earnest money. I don't put up hardly any, or I don't put up earnest money at all as I'm buying a large portfolio. It's an indicative offer. It's just a basically preliminary offer. If it's accepted, we both realized, myself and the sellers, that, you know, if I only had 48 hours of due diligence time, I'm not going to know everything about that asset. So if my bids accepted now, I've got a week or two weeks or a month sometimes to do a lot more due diligence. Checking out the borrower, driving by the property, taking pictures. You're looking at the collateral files, Facebook stalking them, and being able to tell a lot about what's going on with that asset. And I know it's hard, oh my God. There'd be a problem inside. And occasionally, yeah, you'll run into a problem if you're foreclosing, maybe the borrower pours concrete down your drains. That happens occasionally. That's why you buy insurance.

Right.

And that's the thing, is if somebody's living in a property, it's usually going to be in better condition versus being vacant. If the house is vacant and you know it's vacant, it's been vacant for a while, it's going to need a lot more work. And I try to avoid it because everybody here, no offense, is in the mortgage game. The landlords, the fix and flippers, everybody's in the mortgage gang.

Absolutely.

You're just on the wrong side of the payment streams.

Right.

Trust me, I realize this constantly, every single month when I'm constantly writing checks to other people.

You're writing checks up, uphill. That's the thing. I love getting. I don't get, I don't get checks in the mail. I get wire transfers in for my servicer. You know, they handle, you know, dealing with the tenants or not. The tenants are the borrowers. You know, they're the ones seeing the letters out. I basically review, you know, with them on a monthly basis. Where are we in these assets? Who's performing, who's not performing. You know, somebody stopped paying this month. Let's get, make sure we get letters out to them. You know, they paid on time. Great. That's awesome. You know, if a Borrower pays on time for six to 12 months. And I picked it up at 40 cents on the dollar. It's now a performing note. I could sell that note now to somebody else for, like, 80, 85. 90 cents on the dollars sometimes.

So, real quick, I kind of want to share a story, because you talked about occupied properties.

Yeah.

And. And you said something that just reminded me of something that's happened to me. You said, you know, the air conditioner didn't get up and walk off, and the copper piping didn't get up and walk off. I actually had a property where the tenant called me and said, hey, someone stole our AC unit outside. And I'm like, man, that sucks. Okay, call. The AC Guy goes over there, and he replaces the AC unit. And then a couple months later. Now, mind you, we took preventative measures on securing the ac.

Put a cage around it, Right.

And a couple months go by, and. Oh, man, rj, Someone stole the AC unit again. I'm like, okay, well, let's go ahead and get that fixed. So we got it fixed again. Now, if you've ever been a landlord and you realize I've replaced two AC units, I'm severely upside down on this property. And if you haven't listened to my episode with Grant, Grant Kemp from a couple weeks ago, he breaks down exactly how upside down I am on this property for probably the next six years. So we do that, and then a couple months later, it's, hey, rj, you know, we got some plumbing issues. So sent a plumber over there, and the plumber calls me, and he's like, Mr. Bates, I don't think they have plumbing issues. Pretty sure they're stealing parts of your house and selling it for the drugs they're doing inside your house. And, yeah, lo and behold, what they were doing was they were selling those AC units, getting me to replace them, and then ripping the copper piping out of their house and selling it. So, yes, sometimes Scott properties are occupied, and the Mr. AC man does just walk off while they are occupied, occupied. But that's a pretty unique situation. But it was funny while you were telling that, I was like, oh, man, I have to share this because this has actually happened to me.

You know, I have. I've bought houses where the bars were dead. Beats like that. Yeah, I mean, you. You'll run into that sometimes. Some hoarder houses. I bought an Apex outside of Charlotte that was a working brothel.

Oh, wow.

Nice. I bought. I bought a house in Dayton. I bought a mortgage on a house in Dayton. Ohio. That turned out it's part of a pool and nobody had been to the house or heard from the bar for two years. And I had to my realtor over there and they, with a locksmith, they opened up and walked around and found the guy dead in the closet. He'd hung himself. Oh, we. I bought a note on a, a decent house. Where was it? It was up in Indiana where the, the borrower passed away. But the son who was a, he was a little off, was still living in the property. Power got turned off, water got turned off because of non payment. He was still living in the basement and he was starting a fire in there to stay warm at night in the basement. And when the toilet stopped working, he started defecating in trash bags and just putting trash bags in the basement into milk containers. And so when my crew went in there, we got him out. It took two, two dumpsters to pull out all the trash bags and all the now very, very brittle. Oh, milk containers. They had to work. My crew, once we took that over had to use wear hazmat suits and stuff like that. And those.

Unbelievable.

Yeah, yeah, those will make you skin crawl a little bit. But those are far and few in between for the most part.

Yeah, absolutely.

You know, I tell people all the time to be focused. A lot of people, you know, you don't want to be buying in 30 states. You focus on two states that have three or four markets. Get to know those markets, build a good team. They're good realtors, you know, good. And your realtors that are working with investment, they'll have crews and go about there and securing a property. Always, always, always, always put eyes on a property before you close on it, making sure you're bidding on the right asset. You know, don't trust Zillow. I had a student who didn't take my advice. He made a bid on an asset because the property looked amazing on Zillow and he was amazed it was such a cheap price. I'm like, did you have somebody go buy. Oh yeah, Zillow. I was like, dude, you gotta have a realtor to drive by. Oh, no, no, it's all good. Well, turns out Zillow was off.

Yep.

He bought the note on the burnt out show of a house in the lot next to him that had, you know, caught fire a year ago. Well, the, the picture that showed online was from three years ago.

Right.

So that's why I always say you have to do some due diligence. And you know, we've got a exit strategy Thing, things like that. It's a different mentality in landlords, fix and flippers, REO rehab, you know, refugees that aren't finding deals these days. So people are coming over to the other side. But you've got to look at it as a different thing. You don't go off of after repair values. We don't look at that. You always have to go off as is. It's a different mentality being the banker than being a fix and flipper.

Absolutely. And here's the thing. I'm glad you brought up Zillow, because I haven't talked about it in a while. Zillow is a tool and it provides you with some information. Some of the times that information is not accurate.

Yeah.

And you always have to trust. But verify is what we call it. And just case in point, we're brand new to the Birmingham, Alabama market. One of my property analysts, she found a property on Zillow. It was listed on MLS. It looked amazing. It was listed for $40,000 and all the houses on Zillow surrounding it were for sale for 200 to 220. The problem was Zillow put it in the wrong area. It was not in that neighborhood. It was on the other side of town. Same street name was like West 34th street, you know. Well, the problem is in Birmingham, Alabama, there's two West 34th Streets and one is in a $40,000 neighborhood and the other one is in a $220,000 neighborhood. And so we had just, you know, us being ignorant like, oh my goodness, this is amazing. Offer them full price. Well, we would have ended up screwed. So yes, trust but verify on, utilize Zillow for what it is, but always verify it with a licensed realtor, drive by the properties, things like that, going back to the money, the private money and how you actually purchase these notes. So I'm assuming that you, because you're buying it such a steep discount, you can almost pay your private money investor a larger interest rate than what you're actually receiving on the note itself. Is that right?

Oh, well, yeah, of course we do. I mean, that's the thing is, you know, if our goal is to foreclose, I mean, the fact that we're at 50 cents of the dollar roughly gives us a lot of flexibility on things. And you know, we've got kind of two different things that we, I mean we use a lot of self directed IRA money. I mean, we're one of the largest referrers of new accounts to quest on an annual basis anyway. Awesome. You know, top three for the most part for the last three or four years. But Quest, if you think about Quest Trust, I was having this conversation with Nate Long. Nate long ago, most of their portfolio, a good 60, 70% of the portfolio is actually their clients are invested in notes. Whether they're owner financing, originating them or they're buying notes. Whether it's a performing note or investing in non performing like what we do. So yeah, I mean it's, we use a lot of other people's money. It's pretty easy process. I mean Quest's got a pretty straightforward thing. If you're buying a note, you just gotta provide some copies of the assignments or the alanges. You know, if you're buying a property, there's a deed that's transferred. Well in mortgages there's not a D. We don't have a traditional like closing going into title company closing. It's an assignment of mortgage. It's basically a form that just basically transfers ownership from ABC bank to Scott Carson bank. And that's what's filed at the county. So it's a little bit different. I mean we do use some escrow accounts where investors will wire money in and then we wire that out to the bank. Usually the next day the bank overnights the assignments to us so that we can go get. That's what kind of transfers the ownership aspect of things. And then we get to get that recorded. And now we're the bank. And then the bank, the selling bank will usually have to hold on to that file for about two weeks to notify the borrowers that hey, your mortgage has been sold. They'll send out a goodbye letter that says hey, thanks for not paying us. Now you not pay Scott Carson. We send out a letter, hey, thanks for not paying them, but now you got to pay me.

So let's, let's kind of wrap up the conversation on this full circle here. You know, you get the list, you put your bid, you get the, you actually purchase the note itself. Then your, I call them debt service company, is that the correct term there? Your debt service company is reaching out and you know, you kind of give them a 30 day period that you need to hear something before you're going to take action. Assume that they don't respond and you have to foreclose and you actually go through the foreclosure process. Now you actually own the asset itself. What are your exit strategies at that point in time?

So if we haven't heard, then we hire legal, we have our attorneys jump on it and Start the foreclosure process. And you'll need a different attorney in each state because each state's a little bit different. You know, sometimes we'll send a letter out to the borrower and offer them a cash or keys or deed loan kind of saying, hey, here's the options that are available to you. You've got to, we've got to hear from you in the next 14 days. But we start the foreclosure process now. Some borrowers will file bankruptcy. That's fine. We love it when they file bankruptcy because now we've got an attorney that we can talk to in the bankruptcy courts. And when a borrower files bankruptcy, they've got to file, you know, bankruptcy letter. They've got to work with their attorney and file it to the bankruptcy court. And so we'll just jump on pacer.gov and take a look at that, you know, nine plus pages, you know, where they disclose everything. It's like they open up the kimono. We can see, you know, all their debts, what they have for retirement accounts, what they value the house at, you know, what their other debts are. And that really gives us a lot of opportunity to kind of structure something. If it's a BK chapter 13, it usually is going to turn into a, a mod for, you know, 60 months. If it's a BK chapter seven, a liquidation, we're basically going to take the property back and then foreclose.

So let's assume you've already foreclosed. What do you do then?

So I'm, I'm gonna sell the property. Sometimes if we at the fork, we'll sell a lot of times at the foreclosure auction. RJ, we'll just list it at 80, 85 cents of the dollar to sell it there to some yahoo who's gonna overpay.

That's me, I'm the yahoo.

Or we'll take it back in. You know, that's where my, our realtors are such a valuable asset to what we do. If we take the property back, we don't have to foreclose. We, you know, do deed or cash or keys. We'll get our realtors out, change the locks, you know, and then take a look at, hey, what's the property worth? What's a 30 day quick sale price? Does it make sense for us if it needs some more to go in a rehab? It, you know, I, I'm selling an asset in Chicago. It's got, you know, it's got some issues. I'm not going to rehab the Property because I bought it so cheap, you know, it's worth 50 as it sits. I paid like 12 grand for it. Hey, I'll just sell it as it is. You know, some people will take those properties back and then turn them and add them to their rental portfolios.

Do you ever sell a moan or finance and create a note the other way?

I don't do that very often. It's not the best use of my money. Everybody loves talking about that. The only time I use I do that is if it's in an area that I can't sell the property. Because if you think about it, and you know, that's a great strategy if you can't sell the property. But let's use our same example that we talked about earlier. If the house is worth a hundred, okay, and I take the property back, it takes me a year to foreclose. I got seven grand or it was just a five grand in expenses. Let's say it's in good condition. Well, I'm down to that asset for 55, 60,000 bucks. Well, if I owner finance it now at 8 or 9% and I get even 10% down, I get 10 grand down. But I've still tied up that 40 to $50,000 in equity that I can't do anything with it. It's got to sit there and wait for another year. Whereas I would rather sell the asset, get back my, my money, pay back my investor a good amount, he puts the money back with me. I have another 40, 50 grand that I can now go out. Instead of buying one asset, I can buy two assets now. But if I just, if I just put it in an owner finance note while I'm sitting there, this equity's tied up for another 12 months. I can't really pay back my investor their money. We gotta be into it for another thing. So it works if you're using your own capital. But it literally, I really only want to owner finance and create a new note if I can't sell the property traditionally, because if you look at dollar for dollar and you compare apples to apples, roi, it's not the best effective use of your money. And that's one thing that you have to keep in mind. We're all numbers, basis investors. Yeah, it's fantasized. Let's create a note and that's great. But you're tying up your equity there. And if you want to really get ahead you, I, I could call it like the double down effect. If I buy one asset I want, it eventually turned into two Assets. And I want those two assets to turn into four assets. You know, if I get re performing great cash flow, I can resell that note off and then double down. But it's the same thing. I don't do that very rarely unless it's my last resort.

Okay, so that's what, that's the part that I was missing. So you are, once you get these re performing, you are attempting to resell that note to someone else.

Yeah, after six months, 12 months of on time. That depends on what the yield is. If I, if it's something I'm getting like a 35, 40% yield on, I'll keep that one around for a while. Especially if I use my own money. Or I'll, if I've got an investor who's more like a joint venture partnership on the deal, once chunk, I'll get them or her refinanced out with cheaper money at like 4 to 6% from, you know, IRA. Investors are looking for something passive.

Gotcha.

Somebody who's got a certificate of disappointment making them negative for the most part.

All right, ma'.

Am.

Well, you have shown us all of your amazing knowledge here. For the people that are more interested to learn from you, connect with you. I know you have some education programs and also you're doing webinars. You got your podcasts. Pump up all the things that you do so people can find ways to connect with you.

Pump, pump the jam. Really easy everybody that's listening out here. You can find just about everything we do by going to my website. We close notes.com it's we close notes dot com. Yeah, we do regular coaching. Call webinars just about every Monday night. We have a Monday night webinar and podcast called Note Night in America. Throughout the week. We have our flagship 50,000megawatt torch podcast called the the Note Closer show. I mean the note in the note business is a much smaller niche than fix and flippers or landlords, stuff like that. There's probably truly only about 10, 000 note investors like me out there that are doing this because it's a, it's a, it's a niche, it's a longer, longer term play. But we share nuggets, education, I'll bring on vendors. Other investors are doing that on our podcast and we're pretty excited about that. But. And then we host, you know, workshops three to four times a year as well. But yeah, go to, just go to weclosenotes.com if you'd like to get some information. I'll do this for your listening audience if they'll pull off their smartphone and tech or their phone and text the word notes N O T E s to the phone number 70 2007-2 triple zero. We'll send them a link to our Night in America webinars. It's over 80 hours of videos and thing, and then also PowerPoint kind of on notes and kind of the nuts and bolts aspect of it. But yeah, text the word notes to Sunny 2000.

Awesome, buddy. Well, thank you for taking the time to sit down with us. Thank you for offering that to our listeners. And I'm not gonna lie, man, I learned a ton today about this, just going through this. Like I said, this is not something that. It's not in my wheelhouse. It's not something that I've ever done. But, you know, I look up to you as an investor for what you've been able to accomplish. And also as just a fellow podcast host, man, I said it before we jumped on here. You're probably the podcast host that I look up to the most across the industry, just because I've seen what you've been able to accomplish over the past couple years. Your podcast, actually, it hasn't even been out for two years yet, has it?

Well, not really. I mean, we started the pod, the True Podcast, in August of 2017.

Right.

And we hit a hundred thousand downloads in our first, like, nine months.

Yeah, me and you started at the exact same time that I. And maybe that's why I look up to you, because I've seen your stuff just take off, man. And it's, you know, you've done an incredible, incredible job just with the videos and branding across the board.

Well, thanks, man. I mean, that's. Yeah, we're all in the media outlet. We're not in the real estate industry anymore. Really. All in media these days.

Absolutely, buddy.

Well, thanks for kind words.

Yeah, well, thanks for sitting down with us, guys. That's our episode for this week. Please, if you're listening on itunes, stitcher, anywhere that you can leave us a review, please do that. Scott will back me up. The reviews are probably the most important lifeline to our podcast, so please do that for us. Only if it's five stars, though. If you want to leave me anything less than five stars, you can. You can not do that. Only five stars. And, guys, you know, I, like Scott said, today's Valentine's Day. It's going to come out on the 15th, but Happy Valentine's Day to everybody. Or belated Happy Valentine's day and we will see you guys next week. Thanks Scott.

Thanks rj.

Appreciate thanks so much for listening to the Titanium Vault with your host, RJ Bates iii. For more info and to stay up to date, visit www.podcast.thetitaniumvault.com and on facebook.com TheTitaniumVault if you enjoyed the episode, please rate and review and we'll catch you next time on the Titanium Vault.