The Goldmine of Real Estate: How Note Investing Can Multiply Your Income, with Scott Carson - W2 Prison Break Podcast

Have you ever felt trapped in a high paying job, chained to a life that's slowly slipping away? Day after day, the same routine, the same unfulfilling work, and the constant longing for something more. If you're nodding your head right now, feeling that weight on your shoulders, then this is the podcast you've been waiting for. Welcome to the W2 Prison Break Show. I'm Brian O' Neal and I'm here to tell you that you're not alone. I've been in that prison too. Sacrificing precious moments with my family, Feeling the regret and resentment build up inside. But guess what? There is a way out. And together, we're going to break free. Each episode, we'll dive deep into the stories of incredible individuals who have successfully made their escape, who have turned their dreams into reality, and who now live lives filled with purpose, joy and abundance. But we won't stop at inspiration alone. We'll equip you with the tools, strategies and mindset shifts needed to break through the barriers that have held you back for far too long. Together, we'll ignite your entrepreneurial spirit and unleash the business genius within you. It's time to take action, to shatter the chains that bind you and to embrace a future filled with unlimited possibilities. The W2 Prison Break show is your key to unlock the door to a life of purpose, fulfillment and success. I invite you to join me on this transformative journey. Subscribe now to the W2 Prison Break show and let's embark together on the the path to freedom. Remember, it's never too late to break free and live the life you've always dreamed of.

Hey everyone, welcome back to the show. Let me ask you a question. Have you ever purchased a home and wondered why your mortgage servicing company changes two or three times over the course of you living in the home? Well, that's referred to as note investing. And I brought on a guest today. His name is Scott Carson. He's been involved in real estate for over 22 years. 17 years in the note business and he focuses on buying distressed notes. Non performing notes. You're going to learn all about it. I want you to strap in, get a pad, get something to write with. You're going to learn how you can make money and good money buying these non performing notes. Let's get right to the show. Scott. Welcome to the W2 Prison Break show, man. I'm super psyched to have you on Brian.

Honored to be here, buddy. Just here to serve your audience and help your amazing audience break free of the W2 for sure.

Oh, thank you. Thank you for saying that. And we're going to be talking about a really, really cool topic today. I got a lot of interest in it, which is note investing. And I'm ready to learn as well. I got my pen out. The listeners, I hope that they're got a pad and a panel like this is just really, really exciting stuff. But before we get into note investing, which is the main topic of today, you're a real estate investor, you've been in real estate for a long time. So maybe just give the audience a little bit of background onto, you know, how you ended up here. But you were definitely doing something before this.

Yeah, I mean I've been active real estate investor for going back now 22 years. I guess I've been free of a W2 for over 20 now where I've been making it in real estate of some sort. The last 17 has been buying distressed debt. But prior to that I was a banker with a couple of the major banks, Chase Bank 1 and then also financial advisor. I spent a little time in the high tech industry here in Austin, Texas for about six months, but started a mortgage company back in 2004 with a buddy of mine and we were traveling the country going to all these big seminars and exposure, basically doing just financing for real estate investors. And so over that four year period I got a really great kind of indoctrination to creative real estate. Heard you know, from a lot of big names out there about how to do real estate the right way versus going out and buying retail and putting 20% down. Something wrong with that. But how to get creative with subject to deals and wraparound mortgages and creative financing in the distressed note space. And in 2008 when everything hit the fan, I left the mortgage origination side and just started buying notes distressed debt basically full time. And now fast forward, we bought over over a billion dollars in distressed debt. I buy a lot of first lien mortgages on residential, we buy some stuff on commercial stuff if it makes sense. And our biggest goal, as I like to joke about, is like we instead of rehabbing properties, we like to rehab borrowers if we can. I still end up fixing and flipping some properties and stuff like that. But I love this niche of real estate investing for a couple different reasons. I'm sure we'll get into it later on, but that's I'm the note guy. I started sharing videos online of me sweating walk around properties and going through case studies, stuff like that. And pretty proud of the fact we have the number one YouTube channel and number one podcast for note investors out there right now.

I love it. And I also heard what you said about a mortgage guy, said that creative financing is the right way to buy property. So I mean I just kind of, I didn't want anybody to miss that. I hope everyone heard that. Okay, so you are the note guy. This is such a cool topic. I don't think it's very well known. So I mean, obviously you have the number one YouTube channel, but it's just not something that's talked about a lot. So. Okay, I'm just going to ask you flat out, what is note investing?

Yeah, that's a great question. It is a niche, definitely a niche within a niche. And part of that is everybody gets used to going out and knocking on doors or dealing with ugly houses or those fictional TV shows on hg, you know, like flip this house and that stuff, you know, that's great. But that's not how real investing works. Well, note investing is being really close to the bank. And that's what I would like to say is I'm not technically when I'm buying a non performing note and what a non performing note is where the borrower on the mortgage hasn't paid the mortgage in at least 90 days or longer, usually six months to six years or 12 years. You know, we've seen stuff up to 12 or 15 years where a borrower hasn't paid on their mortgage. And so banks will send me lists of their problem children. You know, I get these huge lists, Excel spreadsheets of non performing mortgages that I get cherry picked from. And I buy this debt at a significant discount. We're talking 40, 50, 60 cents on the dollar of what's owed or value of the property. And how I make my money is I buy that debt, I then become the bank, become the lender and then I make my money by then reaching back out to the homeowner and say, hey Jim Bob or Joe Bob or you know, whatever, I know you were with such and such bank, you haven't paid in a while. What happened? You know, what's your country western song? You know, and a lot of times I'll know what the country western song is ahead of time because it'll all be in notes, stuff like that. But then we end up doing modifications for the borrowers, try to keep them in the house, maybe reduce their interest rate, reduce what they owe, put them on a payment plan and then we turn that non performing note now into a performing note with Cash flow. And if they won't play ball with us in some sort of fashion, then we'll look to either a, help them sell the property and cash them out, give them some cash to walk away, or if they won't play ball with us at all, I, the bank, I have the same right as the bank does to foreclose and then I can start the foreclosure process, take the property back and then do what I want with the property, sell it, keep it, rehab it, whatever I want to do with it. So most people think about note investing as just creating terms. You know, I'm going to get a property and I'm going to buy it on terms. I'm going to have the seller do it with owner financing or I'm going to sell a property. Owner financing, that is one niche in creating paper, but my niche, I don't spend a lot of time on the owner financing side. I'm actually dealing directly with banks and lending institutions across the country who will sell their debt off. You bought a property and had a traditional mortgage. Probably 30 days after you close, you probably got a letter from the bank that your mortgage had been sold off to another bank. Well, I'm kind of that aspect. If you guys like movies, a great movie that kind of talks about this a little bit is like the Big Short. All right. I'm kind of like the Christian Bale guy in the Big Short, listening to rock and roll, wearing shorts and a T shirt, looking at spreadsheets all day and identifying opportunities where I think I could either rehab the bar to keep in for a great cash flow or if they won't play ball, is it going to be worth my time to buy that note at a discount and then foreclose and take the property back? So that's kind of that in a nutshell, if that makes sense.

Brian Totally makes sense. You know, I've owned several houses and I do see the transfer of the hey, now we're servicing your loan. Now your loan's been transferred. But you know, bank sell notes. Those are more performing notes. You're talking about non performing notes, but it's kind of the same situation. You're buying these notes that are for sale or the bank is bringing them to you. How do you find those? I mean, I know they're bringing them to you, but if you're just an average person, right, like me, like how would I find a non performing note?

It's such a great question. It is so different. This is one main feature why I like note investing. Versus traditional investing like most people are used to, like targeting foreclosure lists or out of state owners or vacant profits where you guys spend a lot of money on like direct mail, you know, dropping postcards, yellow letters, bandit signs and that's great. I've done all that in the past, but with notes, with how to find non performing notes. We contact these internal departments at banks and if you walk with it away from anything on this podcast or video, you're not going to walk into your local Wells Fargo Chase bank, say hey, I want to get your list of non performing notes. They're going to laugh at you and probably call security, okay? Because that's what they told us to do. When I was a banker at Chase, I didn't even know about this when I was a banker. Okay. Every bank does sell notes. It just depends on what they sell them, whether it's an individual note or they want to sell them like 50 to 100 million dollar portfolios. And that's bank of America, Chase City. They sell the big, big, big portfolios. But there's plenty of other lenders out there, so going to be reaching out to banks. What you'd want to do is find somebody in the special assets department or the secondary marketing department or a special asset manager or whole loan trader desk. Now you could literally go to LinkedIn, type in those three titles and you'll find hundreds if not thousands of people that have that job title at banks and lending institutions across the country. And so that's what we do. We'll reach out on LinkedIn or we'll contact the main switchboard phone line of a bank, say hey, I need to speak to somebody in charge of special assets on the residential side or in charge of secondary marketing on the commercial side. And once we get a hold that right person, I'm like, okay, what do you have that you're looking to move this month or this quarter? And usually we'll have to fill out a non disclosure agreement and then they'll send us a list. It's usually a spreadsheet. It could be one note, it could be a thousand notes that we can cherry pick from and then it's just a matter of it's, you know, the spreadsheet is going to be 40 to 60 columns wide with all sorts of information from the loan number to the borrower's name, the address, the mail address, the payment history, the details of the Note, the last 12 or 24 months of payments, the legal status if it's in bankruptcy, the FICO score Social Security number. So literally it's like as I like to say, we get to see beneath the kimono. The bank sends us this list and we can look at all this information and then it gives us, you know, if we want to make an offer on say 10 of them, we'll make an offer on 10. And then, then they'll send us even more information if they like our offer. Where we'll get like the servicing notes and copies of the like. I got a collateral file right here. You know, this is kind of what we're actually buying is this collateral file, not the property, but it's secured by the property. So you know, we get these lenders that send us stuff, these hedge funds that are mortgage buying, you know, funds, they don't want to hold on to non performing notes, they want to get rid of it because they like that cash flow stuff. And so that's what we've just perfected over the last few years. You know, 15 years ago I was making 100 phone calls a day, dialing for dollars all the time. But now these days it's with the help of LinkedIn and some other sources, it's not as hard to find. You just got to be willing to market and market a little bit differently than sending out postcards or yellow letters and hoping that you get a borrower to reach out to you with one property. Well, my goal is to have a bank reach out to me that has hundreds of properties or hundreds of notes every month, every quarter that I can share, pick from.

That's right. Okay, awesome. That was a great tip and I hope that you guys take action on that. We're going to get a little bit more how you help people do this too, Scott. All right, so you said in the beginning that you're buying some of these non performing notes, 40 to 50% discount. You do your thing, you know, get them to performing. I have two questions. Follow up. How long does that typically take? And I assume you sell them and then what is the opportunity when you sell, like how much are you selling them for?

Great question. So once you buy a note, we'll give that borrower like 90 days to get back on track because there's a period of time that servicing has got to transfer from the old servicing company to our servicing company. That can take two weeks to a month. And then it's all about reaching out to that bar. Hey, what happened? Where are you at? What's going on? Where you out of work? The big thing. That was kind of a big difficult hurdle to overcome was Covid. We couldn't foreclose on anybody for two years, couldn't evict anybody. So we still worked with the borrowers to put them on payment plans. But, and we were lucky, we had about 85% of our portfolio paid on time. But now, these days, if a borrower is not going to come to the table and give some sort of payment plan or get back, they don't want to get back on track, that's fine. But now we have the right to foreclose. So we give 90 days to 120 days for that bar to come back up with a payment plan, kind of get back on track. And then for a note to be reclassified from non performing to performing, they need to at least make six months of on time payments. I prefer 12. All right, 12 months of on time payments is better. We usually want them to bring some payment on the front end, some skin in the game, four months of payments and stuff like that. But they make payments for 12 months. And if I bought that note at say 50 cents of the value of the property, you know, maybe they were owed more than the property's worth. But if I bought it at 50, I could probably turn around and now sell that note at 85, 90 cents on the dollar, the value of the property. So now I bought that note, I got a little bit of skin in the game from the borrower, usually at least four months of payments. I got a year full of payments now, and then I got another 35% profit, you know, 85 -50 on the back end of selling it after 12 months. Now I don't always sell them after 12 months. Sometimes I hold them for, you know, 24, 36 months. It just depends how well the bar is performing, what kind of yield we're getting off that deal. But that's what a lot of these note funds will do is they'll buy a portfolio of non performing, work like hell to get the bar back on track. If they can't get the bar back on track in 90 days, they start the foreclosure process or we'll sell it off to somebody else. And they're holding for cash flow for a period of time.

Hey there.

Back to the episode in just a moment. Are you a homeowner in the Chicagoland.

Area who's struggling to sell your home.

Or even own nothing and looking to maximize your price before the market slides? Are you tired of the traditional home selling process that takes months and costs you thousands in fees and repairs? Whether you're facing foreclosure, going through a divorce, or simply need to sell your home fast or webuyhouseschicago.org can help. We've been buying homes in Chicago since 2019 and we specialize in helping sellers who are stuck. Unlike traditional real estate buyers, we buy homes as is and can close in as little as seven days. No repairs, no inspections and no fees. Just a fast hassle.

Free sale.

Let webuyhouseschicago.org help you sell your home and move on to the next phase of your life. Call or text us today at 312-500-6121. If you know someone who is struggling to sell their home or simply just wants top price, please share this message with them. As a listener of the W2 Prison Break show, webuyhouseofchicago.org will pay you for your referral. If you send us a referral and we buy their house, we will pay you a $1,000 referral fee. Simply have your referral mentioned. The W2 Prison Break Show let's get back to the show.

That's awesome. Okay, so I'm going to give this back to you because I just did some quick math in my head. I just want people to understand the opportunity.

Let's do some simple numbers. So let's a borrower has a property that's worth 200. They haven't paid in a year because they've been out of work or Covid or something like that. So they may owe 210. 212. Say 210. Well if that the house is worth 200 and they owe 210, I'm gonna make my bid off the value of the property because that's the lesser number. So let's say I offer just say 60 cents on the $200 000. So that's 120. I pay for that. Okay. A normal mortgage payment on a $200,000 house is probably around targeted with these interest rates but let's just say $1,600 a month. So I'm gonna ask the bar to bring probably four months of payments. They owe more than a year and they're not gonna have a year payments but I need them to bring some skin the name. So if I have them bring four months to the table, that 6400 bucks. $6400. Now I get a year of payments, $1600. So if I just take 1600, do some quick math. 1600 times 16 months. Four months on the front end plus a year of payments. That means I've got 25,600 in cash flow for that 12 months. Now it's reperforming. Now I sell it at 80, let's just say 80 cents on the dollar. 80 times 200,000 is 160. I paid 120 for it. I now get another $40,000 in profit for selling the note. That's $40,000 on top of that. So my total cash flow is 65,600 that came in during that 12 months. I paid. How much for the note, Brian?

120,000.

$120,000. That's a pretty good yield on that, right? I'm not going to say 50%. Yeah, it's about 50%. Now there's some servicing costs that go along with it. You know, that's pretty inexpensive. If there's back taxes, I got to pay taxes on that. And I wish they all worked out that way. Yeah, about 65, 70%. If it's an occupied asset in the bar stolen, I can usually get them back on track for something. But the other 25, 30%, I'm going to have to foreclose. So I'm going to be paying attorney fees and servicing costs. And then I got to look at rehab in the property and clean it out once I evict them and go from there. If I don't sell that note at the foreclosure auction.

Okay, that's another. Okay, so let's perfect example and let's segue into that, okay, they don't perform and you got to take the property over. What are some of the things that you're doing? What are some of the options?

Yeah, the options is I prefer not to foreclose. So we will reach out to the homeowner, say, listen, you owe more than the properties where if you can't come to the table, do you want to walk away and we'll give you some cash for keys. I'll give them five, ten grand a walk because that's more than they would get if they tried to sell the property because they owe more than the property's technically worth now. Yeah, if it's in a decent area, I would offer them, hey, you can short sale it. You want to short sale. I'm the bank. I'm the fastest short sale approval company in America. Right. So if they can sell it for 90 cents to the dollar, I'll take that at 180 and forgive them that twenty thousand dollar in overage. You know, I won't even send them a 1099 for that. It's a forgiveness. If they won't play ball that way, and they won't do cash or keys or deed the property back to us or don't have somebody else that can take over the payments, then it's the foreclosure process. And that will vary state by state. Okay, so like Texas, where I'm at, it's the fastest foreclosure market. You know, 21 days, I can foreclose really quickly. Your state in Illinois, I am not a fan of. It takes about 12 to 18 months to foreclose. I don't like Cook county, or I call it Crook County. It's tough. If you're foreclosing, you're out of state investor. If you're local, it's okay. But out of state, they just don't work with you. Yeah, like New York, New Jersey takes two to three years. I don't buy in New York, New Jersey. So you just got to know the foreclosure process that's going on with that. When we do take it to auction, I tell the attorney, hey, what do I want my bid to be? I said, listen, if we can get it, they'll start at 100 bucks and work their way up. But I tell them, if you can get a bidder to bid somewhere at 80, 90 cents the dollar, let's just let it go and make our money then at the foreclosure auction versus having to go in, clean it out, fix it up, relist it for sale, and deal with that. I'd rather get my 90 cents on the dollar now and save three to six months, you know.

Okay, so you're still coming out ahead. It's just not as much as if you turn into a performing note. Okay, good.

It could. It just depends on the velocity of capital, you know what I mean? If I can foreclose in 90 days, and it takes 90 days to fix it and sell it up in six months, that's still a pretty good annualized return. That's the things you have to look at. Each market's a little bit different. Like, I buy a lot in Florida, as I call God's waiting room. Florida can take a year to foreclose. And depending on how I'm buying that and where I see the market going, if it's an appreciating market, okay, I don't mind if it takes a year because that value is going to increase a little bit. If it's a stagnant market, I got to be very careful and try to move it faster because My ROI goes down every month. That property sitting around.

Okay, this is so good. I love this. Now again, the things that are popping to my mind that the audience might be asking right now is all right, okay, great, where do I get $120,000 from?

Yeah, right.

I mean, I guess that's, I mean you're doing high volume, but if you're in the beginning, how are you getting the money?

Most of it's going to be private money. We use opm, other people's money. And people like, how do you find that? Well, I'll tell you, it's the easiest thing to find private investors out there. And the way I do it is a little bit different. I'm a big believer. You need to go to your local real estate club and your networking and go and network with people. That's a great thing. But what we have found is the biggest river of private capital comes from networking with self directed IRA investors. And one of the things that we do, I just did a call last night for one of my coaching students and we found him 500 investors who have self directed IRAs in his county who have pulled the trigger on either buying a property or lending on a property, technically a note. And we found their mailing address. We found their first name, last name on about half them, but we have their mailing address for all of them. We skip tracing those half and I think he told me this morning they'd already found 200 emails and phone numbers out of that list. I'm like, that's more than enough. All right, so that's what we do is we literally will go to in an area that we're buying or where you're located, we'll go to the county appraisal district and in states and counties allow for you to search by name. Not every state does. Like New York, New Jersey, won't you search by name. California, Arizona won't let you search. Minnesota, I think Chicago will though. You go to Cook county or go to appraisal, just type in Equity Trust, which is one of the biggest self directed IRA companies out there. Equity Trust is the property owner name because if somebody buys a property within their self directed ira, it's going to be labeled Equity Trust or Quest Trust or Pensco Trust for the benefit of their name and IRA numbers. So we look for Equity Trust, it'll pull up all these people that own a property in their IRA and then we'll. The only direct mail that we do is send out an email to them or find them on LinkedIn. Or Facebook and say, hey, I see that you use your ira. You're obviously a real estate investor looking for deals. We've got a ton of deals. You know, you can make an above average return passively without having to do any work and deal with toilets, tents and trash outs. Well, that might be something interesting to do with it. And that's what we do. We get a lot of investors that reach out and say, okay, yeah, I like this, you don't need to have 120 grand. We see a lot of deals like 25, 50, 75, stuff like that. One of the things that we found is that roughly 2/3 of people that have an IRA have 150 grand or more in their accounts. 2/3 of the population that have IRAs based on the stuff we do. So if you need to raise a million dollars, you're literally about six or seven people away from having that. And if you figure in your reverse engineer your direct mail numbers, you're roughly 200 IRA contacts away from raising a million dollars.

There you go. There you go. So most people listening are of the mindset that you can't find money and it's literally everywhere. You said, hey, it's really easy and you just gave a great avenue. There's so many people out there have self directed IRAs. I got one of them. And a lot of times you don't know what to invest in. This sounds really. Do you educate them as to how this process works as well? Because I'm sure it kind of maybe goes over their head a little bit.

You have to. But the great thing about self directed IRA investors versus just your friend at the water cooler, the people that have actually gone and gotten like a quest IRA account or an Equitrust, they're pretty educated. You know, self directed IRA accounts aren't just out there like your Schwab's or AG Edwards. I mean yes, they have a self directed IRA account, but they only allow you to invest in stocks. But somebody who's actually bought a piece of property, a land on piece of property, you're not nearly going to have to explain them the 411 on real estate investing, you know, they're going to understand, okay, I can give you 50 grand and you're going to give me an 8% return for 12 or 24 or 36 months and not to do anything. And you're buying this note at $0.50 of the value of the property. And if the bar doesn't play ball with you, you can foreclose. It's pretty Easy example, you know, if you're going to keep insurance on the property in case the act of God. So we get taken care of in case of a hurricane or storm or fire, whatever.

Yeah. So they're earning a good return and getting it back, getting their capital back in a short amount of time. And I would assume that a lot of those investors will just come right back to you and say, hey, let's do this again.

Right, exactly. And you mentioned something short amount of time. I love that because most people think about if you're an active real estate investor, short period of time might be like 90 days in a fix and flip. Well, we say short period of time is 24 to 36 months because a lot of people are used to, if they're investing, they may have something tied up in an annuity or a cd, a certificate of disappointment. We like to say, okay, I'm like, listen, hey, you're making 2% or 3% and you're tied up for five years. If I can show you 8% for three years without you having to do any work, would this be something interesting? It's like, yeah, show me how to do this. Yeah, let me get a little more information. But yeah, the numbers make sense. Let's rock and roll.

Awesome. And for the most part it's a lot of times just sitting there anyways. Right. It's self directed for a reason. But this is truly passive. It's like, hey, I learned about it. And then here you go and you just wait for the money to come back and plus you know the return. So I love that. Great that you address that.

Let me add something there. You said yes, a lot of money is sitting there. And when I've talked to the folks at Quest or Equity Trust or Pens or Mid Atlantic, I always ask them how much of their balance of their IRAs are sitting in 0% interest bearing accounts just sitting there. On average, it's somewhere between 25 and 35% of what they have under management. So like a company like Quest that has a billion dollars under management, 250 to $300 million is sitting there making zero percent. It's been sitting there for a year or longer. So there's so many investors out there just waiting for you to market to them with a phone call, an email or a postcard to get their investments making negative with inflation. But they actually get get rocking and rolling.

Yeah, that's a great tip. Because they're just busy living their life probably and they just don't have time to find these Investments that can pay them a good return. Okay, awesome that we're talking about this. How does someone who wants to get started in node investing, what's the best first step for them with you?

First step is we actually, you know, I've been teaching this. I start teaching this when I got into it because I had a teach investors how this was different from real estate buying and fix and flip and stuff like that. So we started teaching workshops a few years back. I actually have a one day class and a three day class and I'd love to give your audience the access to the one day class for free. It's called Note weekend. It's about 12 hours of videos of me going through how to find, how to find and how to flip these and turn them into flow. Normally 99 bucks. You can get it for free by just going to noteweekend.com Enter your First Name and Email and hit submit and you'll be sent to the. You know, was it 14 videos and there's another eight videos of links that you can watch to get your ball rolling and get your feet wet. If you like it then we do offer more advanced classes. But the one day class is a lot of content in it on how to get the ball rolling and see if there's something that you might want to do.

Awesome. We appreciate that gift. And then let's talk a little. Not everybody is watching on YouTube or driving their car. I mean guys, Scott has like the most awesome background here. So talk about your podcast. And then the Note Night in America thing is hilarious. I love it.

So I've been doing this for a while and first start about no Night in America. I've been doing a Monday night webinar of some sort for over 13 years now. Every Monday night at 7pm Central we'll do some sort of webinar. We usually do it about 35 to 40 times a year between holidays and my in vacation, stuff like that. But yeah, if you go to notenight in America.com you can register for my free webinar. We do all sorts of different topics. Like last week we'd actually talked about harvesting IRA investors and I showed people how to do that. The week before we talked about how to contact asset managers. Week before that we broke down 150 notes for people to take a look at. So that's free. There's also a podcast by that same Nate that we have out there. I think 150 episodes of that on there. But our big megawatt blowtorch of a podcast is The Note Closer Show. The Note Closer Show. We're coming up on 800 episodes. We're just a few away from that. Over 1.4 million downloads, something like that. But that is a lot of content. About half it's me interviewing people, vendors, note investors, and the other half is me delivering on some sort of topic that's relevant to your investing. Like this week I've talked about your options if you are a distressed borrower, to the importance of adding video to your marketing, to raising capital. It's a lot of great stuff out there for you.

Awesome, guys. Check that out. Seriously. And this episode unfortunately will not air by then, but Scott and I are going to be meeting here next month in September. He's spoken in front of our group Smart Real Estate Coach multiple times. And I can tell you that everybody is glued to the screen on Zoom when he's talking because the mind is blown. Most people just don't realize that this is a thing like this is all institutional stuff that is buying these notes.

Yeah. Imagine getting a list of notes every month, every quarter from a bank of leads where it's the problem children and the bank is telling you, hey, we'll sell. This is at a discount, you know. And they're also, if I can't negotiate a good price to buy the note one, I often will turn to those leads and market to them for subject to deals. So it works well with that aspect and get creative with the financing side.

Of that market subject too. Okay, now I have a selfish question to answer you because please do, buddy.

Please do.

The record today is August 18th. So we're in August of 2023. There's so much talk about the housing market. Are we crashing? Like, where is it? What is it? And you know, I have some insights on it. I have some beliefs. I talk to a lot of sellers. You're a real estate investor. While I hear the stories of, hey, everything's wonderful, prices are going up 50 grand over asking, you know, all that stuff. I also hear the stories about people who can't afford to pay their mortgages. So what is your take on the market and what are you seeing with notes that may lend some insight to the listeners? Especially would be real estate investors like, hey, you know, this might be the time for you to jump in.

Well, I would tell you this, don't wait to jump in. You can make money in real estate in good and bad times. You just have to adjust your techniques for your market, for the, you know, your specific market. People in California are going to invest differently than they would in Austin, Texas. And people invest in. In Austin, Texas, invest differently than Dayton, Ohio. So you got to know what's going on in your market. And every market's different. Some people say Austin is a very hot market, and it has been. We've seen a little bit of dip. Whereas Ike said a price correction last year. We were so overpriced and values had come down a little bit. I'm like, oh, it's not a crash, it's a correction. But here's the thing that I look at. When you look at the national default rate of mortgages, that number is still very historically low, about 2% of all mortgages. There's about 80 million homes with mortgages on it. That means there's still about 1.6 million borrowers in trouble out there. And that number has been in. I also look at foreclosure filings, and foreclosure filings are up in different parts of the country. And you have to look at the foreclosure time frame, like what happens in Texas. We're going to see things happen a lot faster because the faster foreclosure process than, say, Florida, which can take 18 months, or Illinois, which can take a year. So you got to really know what's going on your market specifically. Here's the thing. Things are getting more expensive. Cost of goods are more expensive. I mean, I've had my neighbors put some new roofs on. They can't believe the cost for roofing or new AC at a friend that cost them 12 grand to put a new AC in their house. I rehabbed a couple of properties recently, and I was like, oh, it's gotten a little more expensive. People aren't making as much as they used to. So there is distress in the market, especially in the res on the commercial side of the ball game. We see that heavily in retail side, the office space side, even in some of the rural areas, more in, you know, like hotel motels. We've seen that stuff there for you. You know, people always ask me, what about apartments? Are you seeing some apartments? I'm like, apartments are still overpriced, but there is some distress in that asset because it's more of the fact that people bought these apartment complexes three, four years ago with the idea that they were going to refinance out, they're going to regentrify the asset, get cash flows up, and then refinance into a low rate three years later. Well, we know what's happened with rates now.

Yeah.

So we're starting to see a lot of opportunity in that of stuff that's not even hitting the traditional markets and stuff like that. So there is a lot of distress. It's different on a market by market basis. But I'm starting to see more tapes as I call more lists coming in from banks. I'm getting more emails from asset managers. I'm seeing on LinkedIn more job offerings from major banks looking for loss mitigation and special asset managers, which means they're seeing an increase in distress. So that's what I see. I'm usually seeing stuff six to 12 months ahead of what it hits the market because we're kind of seeing behind the screen. So there's distress out there. The great thing for a lot of folks is they do have some equity and if they've got equity, they can sell, but that doesn't mean they want to sell. I just got a list in of 640 first liens where the borrowers have somewhere between 15 to 25% in equity and they're all not paying. And equity is great. But if you are out of a job, you can't go get a loan, you can't go get a mortgage or an equity line to use your equity to bail your ass out. There's really only one thing, sell your house, file bankruptcy or get foreclosed on. And we've seen that going up. That's kind of my long answer to your short question. Right.

I mean, it's a very well thought out and good answer. And you do have to know your market. So I appreciate your insight there. This has been tremendous. Scott, as we start to wrap up here, I just want to make sure that I didn't miss anything as a host that maybe I should ask you that the listeners might need to know regarding this really awesome topic.

So I think one of the biggest questions is how do you lose money as a note investor, like with any type of thing. And I've seen big funds buy big portfolios of notes and they're used to buying like foreclosures and REOs. The biggest mistake that we see new note investors make that come from the fix and flip or the rental side is they evaluate the asset like it's a piece of property. Oh, I'm buying this note, I get the property immediately. That is not the case. You're going to have to foreclose. You have to approach it like a banker. There is no ARV after repair value in the note business. It's all as is value because you never know if you're Going to end up with a property. Just because it may be a cheap asset or a cheap price for an asset doesn't mean you want to buy it, depending on where it's at. I never buy a note you don't want to end up owning. Like, I'll give you a great example. I got this tape in from a major hedge fund. It had a note that was performing and I'm looking at performing. Like, where is this at? It's down in the valley, like Mission, Texas, which can be a hot market. Well, the online photo looks pretty damn good, but when I sent my due diligence guy by to take a picture of that, it was all weeds. The paint was peeling off, there was a ramp up on it. I'm like, oh, I don't necessarily want to own that asset because it doesn't look good. It doesn't look like what it did online. All right? And the fact is, if they stop paying or that bar gets behind, I'm going to have to deal with somebody who's handicapped. And I don't want to ever throw grandma out of throw grandma from the train, you know what I mean?

Right, right, right, right.

That's the thing. It's different. Due diligence, it is all about the property, the collateral and the borrower. So that's the thing you got to keep in mind. It's a little bit different process. You got to know what's the foreclosure. You're only entitled to. This is another big thing. You're only entitled to the legal balance. Some people are overpaying for notes because they're evaluating based on the property value. I'm like, no, no. You as the bank, you're only owed what is owed, not anything above that. The equity usually goes to the borrower if it sells above it. So keep that in mind. And if you don't do anything, there's a lot of people that buy a note and just won't do anything and that's not what you want to do.

Got it. Awesome. Well, they sure don't teach you this stuff in school, do they? We just got 35 minute masterclass on how to make money in a really, really effective way.

So note investing has been around a long time. It's not anything new. It's definitely a niche within a niche. There's probably less than 50,000 true like distressed investors out there across the country compared to hundreds of thousand of landlords or fixed and flippers out there. But it is definitely it pays to be the bank. I like to Say it's the sexy side of real estate. And I love it.

I love it, I love it. I like it a lot. Just to recap, guys, noteweekend.com make sure you go there and take advantage of that free offer. Follow the show. I can't wait to listen to check out the YouTube channel. Scott, this has been tremendous. Definitely got to have you back on. I appreciate your time and everyone just have an excellent, excellent day.

Thank you so much. And guys, listen out there. One last thing. Brian is kicking ass and taking names of this podcast. I'm sure you agree by listening to him. So do him a favor. We as podcasters love to hear from audience. So make sure you pound that subscribe button and you go over and leave that five star review right now. Okay? Do it. We'll love to hear it from you. And as I said, we as podcasters, we want to hear for. So leave that review and thanks for listening for the podcast.

Awesome. Appreciate you, man. All right, well, that was awesome. I'm glad I had him on and I'm glad that he was able to bring you guys some value, some stuff to think about. Right? There's more than just one way to make money. Right? There's so many different ways to make money. And I love this little niche within a niche as he kept referring to it and he gave it all like, hey, this is how we can make money. This is what happens if we have to pivot. And this is how you can lose money as well. Can I lose money? Answer all the questions. I love it. I want to make sure that you guys go to that free gift and take the note weekend course. All right, I'll see you next week. Thanks for tuning in. Have a great day.