The Note Closers Show: Creating Wealth Through Real Estate Notes With Scott Carson From Wake Up With Patti Katter

Wake up with Patty Catter.

I love this show. I never miss an episode. It's the best. I turn it on and turn it up. Hello, everybody. You're listening to and watching Wake up with Patty Katter. I hope you're all doing really great today. I you hope. I'd like to encourage you to head over to thepatrioticmermaid.com and check out my apparel line because we have some really cool things going on there at the beginning of the year. We're gonna have some new graphics on some shirts and stuff, so keep in touch with that. Scott Carson is on my show today, which I'm very happy about. He has a great energy about him. He has his own podcast, which we'll talk about very soon. But Scott, thank you for being on the show.

Hey, honored to be here, Patty. Way to wake up with Patty Cat, everybody. Yeah, I'm honored. I mean, we met, I think through a Facebook group on podcasting and jumped on the phone and bounced some ideas off each other and got rocking and rolling. So, yeah, honored to be here.

I have to say, I'm so appreciative for Scott. I always have my guard up. Everybody knows I have trust issues. I don't keep it a secret. And Scott asks me things like, what does your consulting package look like? And I'm all like, I don't know if I should tell him because he might try to my ideas. But he was so open and so great and it made me like him even more because he's like, eh, I don't care about yours. This is what mine is. And I was like, what? He just shared with me, what he does. So he won my my trust then.

Well, you gotta realize what I love about the podcasting community, Patty, is it's really. And I come from a cutthroat side and the real estate sides, it's a little bit different, you know, but in. For a long time, we believed in a term called co opetition, you know, and anybody can use that. Just gotta give me credit for cooperating. But also very competitive. We all competitive over our downloads and our clients and stuff like that. We're very protective. But we're also what's great about podcasting. I found in the four years since I started mine was that everybody's very cooperative. Hey, here's the best tools to use, or here's how I like this service or this service or sponsorships. And so I really love that. I'm a big believer that there's plenty enough to go around. I mean, everybody's looking for eyeballs and earballs, as I say. But for years I've been in the niche and believed in the concept of, hey, plenty of deals, plenty of money to go around. I'm glad to share any way I can. And I've kept that policy not only in my note business, but also with our podcasting and excited that we've helped a lot of people take their businesses and podcasts to a whole new level.

I love it. You helped me so much. Like, I can't even tell you. Thank you enough for all the help you've given me. So your show, your podcast is called the Note Closer show, correct?

That's correct. It is a niche real estate podcast focused on the niche world of distressed note investing. And if you don't know what a note is, that's basically we buy mortgages from banks and lending institutions where people have not paid in a period of time, usually six months or greater. And the podcast is about kind of two phases to that. It's half me teaching this little niche of distressed real estate investing, and the other half I bring on students, investors, other people in the known industry, vendors, and then I mix in mindset and entrepreneurship and business skills along the way. So we keep it kind of original and fresh.

Some really interested in this in myself. So if you go to a mortgage company and you're looking for people who are late on their mortgages, will the bank negotiate then with you on the interest rate? Is that how you're going to swoop in and make some money or how do you make money?

Great question.

Yeah, question.

So let's use some examples. So let's say somebody hasn't paid their mortgage in six months. They owe 150,000. And let's just say the house is 150 grand or they owe maybe 150. If the house is worth 140, okay, they're upside down. Usually what we do is we'll deal directly with the banks and they'll send us lists on a regular basis of their most troubled borrowers and we'll offer a percentage of what's owed or a percentage of the property, whatever makes sense. Usually we don't buy above 50, 60 cents on the dollar. So in this situation, the house is worth 140. We might pay 70 grand for that mortgage. And we didn't buy the house, we just bought the debt and became the bank at that point. And how we make our money, Patty's by then reaching out to the borrower and say, hey, Mr. And Mrs. Barr, what happened? You know, did you get laid off? Did the Corona show up? Did you get, you know, a variety of different factors go through the big D and don't mean Dallas. And our goal is to get them back on track. And we actually like to keep people in their houses and get them back on track. But the fact that we bought it at 50 cents on the dollar of what's owed, the bar still owes 150. So we can work creative ways to get them back on track. And our biggest bang for the buck, I guess you could say for us when we make the most amount of money, is actually getting them to modify to start paying again. Because now let's say they had a 6% interest rate on their mortgage and we bought it at 50 cents on the dollar. Well, if we can get them back on track, say, listen, I know you're behind by a year, let's not worry about that year. Could you start paying on time again? I don't want the three grand or the four grand, you know, for the full amount past due. Just give me a little something. Let's get you back on track. And if we can do that, then it's worth a 12% cash and cash return to us because it's 6%. Bought it at 50 cents. Get them reperformance now, 12 ROI to us, and then after say 12 months of on time paying, we could sell that note back to the market as a performing note, somewhere around 80 to 90 cents on the dollar.

Wow. Okay, so what happens if you get a really crappy homeowner who's just like, no, I'm not gonna pay, I'm gonna foreclose.

Yeah, exactly. Those aren't things we don't like. We do, occasionally we get somebody who doesn't want to answer their phone or emails or won't talk to us some sort of fashion. In that case, we're the bank, we have the right to foreclose. And so we'll basically hire an attorney and start the foreclosure process. We don't like to do that, but we still end up doing that about 30 to 40% of the time. We always try to modify at first, but if somebody's not willing to play ball, then it's time for them to have a come to Jesus meeting with us and say, okay, you need to either move out or we'll even offer them cash for keys, you know, to let them move on their way. But if they won't deal with us and talk with us, you no pay, you no stay and so we go the legal route.

Yeah. Your accent's as good as mine.

What part of Florida? Where in Florida you call home again? You're out of.

So I'm around Sarasota area.

That's right.

But I'm from Michigan, so I have this little twang to my voice.

Hey, I know you got the little ice in your blood. You're gonna go down the store and get a pop and get some loos kafisque.

Yeah. Do you want some pop?

Yeah, let's get some pop. Yeah. All my family, most of my family is up in Minnesota. That's where I was born. But I grew up in South Texas. But, yeah, you know, I love Michigan. I love buying real estate in Michigan.

Oh, yeah, I noticed that.

Yeah.

Yeah. So could you tell me one specific horror story? I didn't think I was going to ask you that.

That's good. That's okay. Horror story would be. I'll just give you an example. Chicago. Or as I call it, Chirac or Crook County.

Yeah.

I bought 10 notes in Chicago. Bought them at, like, 49 cents of value, and it took forever, like, over two years to foreclose. I lost a lot of money because the properties were vandalized. We have a borrower leave. We go in to fix it up, come back the next day, all the copper stripped out. And city didn't want to do anything. When we go to evict somebody, they would give the tenants or the borrowers more opportunities. 90 days. Oh, we'll give them another 90 days. Another 90 days for free. And I'm like, what the heck? And so that's a. I had one tenant in there who was in there, and we offered him to stay in the house he was renting from the previous borrower. We even offered, hey, what are you paying for rent? Tell us what you're paying for rent. And he's like, no, no, I. You know, you're not. He refused to answer the process server. When the process server showed up the door, he pulled a gun on him.

You're not supposed to have guns in Chicago.

Yeah, exactly. Well, he did. And then he sued up. He sued me in federal court for violating his rights. He said, what, when the cops showed back up to evict the case? Ah, no. This is Salah, country of Allah. I do not recognize the United States. My.

Oh, no.

So we had to go that route. Sued me in federal court. We won. Finally got him evicted. He moved back in twice after we booted him, and I broke back in. So that would be a Very trouble bar. Most of the time they're not like that. You know, Most of the time, you know, we'll give them some money to walk away. We even offered this to this guy, didn't want to take it. Most of the time people want to stay in their house. And so, you know, they're nervous about the bank and foreclosures. And we're like listening, don't move out if you want to stay in the house. Let's figure out a way that makes a win win.

So, oh my goodness. Is there a way for people who want to invest in notes but they don't want to do the dirty work? How do they do that?

So I would, for a lot of people that have capital, don't want to do a lot of the dirty work, then I would focus on buying, investing in performing notes. It's one of the things where it's kind of on autopilot. You have a third party that's kind of handling the collections. What you need, you have to. They've gotta be licensed to states to collect down payments. You know, that's an easy way for a lot of people. Put some capital to work that's passive. And you can make, you know, a 6 to 12% return on performing notes pretty easily.

Do you do that? Do you offer that service?

We do that. I mean, we buy performing and non performing. We buy non performing because we usually get a lot better returns. But it does take us getting our hands dirty by working with the borrowers and trying to keep them in track and then, you know, taking it to legal. If we have to go that route, there are other ways to do it. We have some people that will invest with us passively. You know, they'll get a payment quarterly or once every six months. It just depends on where they're at, how they're using that money. If it's in a self directed ira, then we just deposit that money back in an IRA because they can't touch it. So it just varies a little bit on the deal flow. I mean, I wish, I'd say every deal was a home run, but we've had some nightmares. I'm being one of those. We've had some deals that have been really great home runs and then others have been just get out of this deal and move on to the next one.

Right.

Real estate. That's what happens, you know.

Do you have any suggestions on what about warning signs of businesses who proclaim to be able to purchase notes for you, but they actually might not be legit? How do you check to even know if somebody's legit?

Very good question. A very good question. So first thing I always ask, because people call me all the time, hey, I want to buy a note, and I don't sell to somebody who doesn't know the business. It just doesn't make sense because you can get a lot of trouble. There's a lot of moving parts with this. It's not like buying a property, putting a renter in place. It's different. Legal stain. So I always ask, first of all, who's your servicing company? And if they say, I don't have one, that's a sign that they've never bought a note before. That's usually my first. Hang on. That's my first red flag. The second one I'll ask is, okay, if they've had it, where are you buying? What are you looking for? And they rattle off specific cities that don't make sense. Like New York. Doesn't make sense to buy New York or New Jersey because it takes forever to foreclose there. Like three years in New York.

Wow.

Yeah. Long, long foreclosure process, you know, that's a red flag. Like, okay, you're not gonna tie your money up for three years without getting anything. You know, you're kind of a brand new. Or they say, oh, I want to buy in Miami, or I just want to buy in Texas. Well, Texas is great. Florida is great. But Texas is the fastest foreclosure state in the union, so it's more expensive. Florida is great. I love God's waiting room. Bought a lot down in Florida. Sarasota, Tampa, Orlando, Miami, all over the state. But it's also a little bit longer process. Like nine months to foreclose. So if you've got a gotta know what's going on the market, those are the first rates. And then always, we always pull. If somebody reaches out to me with a list that we're reviewing, we check title. We see who's the owner on the paperwork, what was filed at the county. There are documents that are transferred. So if I bought a note or sold a note to you, Patty, there'd be what's called an assignment of mortgage that gets filed. The deed stays the same, who are the borrowers, but the assignment of mortgage is what transfers ownership. So we check to make sure that we've got a clean chain of title. So that now, if they don't see that in the files or online, then we ask, do you have a copy of this? Can we see it? Scanned it so there's a lot of due diligence that goes into it. Make sure we're not buying it. We're actually buying a deal and not a dude.

What about renting one of the houses where you buy the note if the people move out? Do you ever do that?

Or occasionally we'll do that. I don't want to get into having a bunch of rental properties all across the country. So like I love Florida, you know, Florida, Texas are the two states that I would not mind taking a property back and keeping it for rental. We do that sometimes. We have some investors that are active in states like Ohio or you know, Michigan where there's a lot of inventory and that's where they're located at. So they look for notes to foreclose or evict the borrower to keep it and add it to the rental portfolio and they'll do that. It just. I wouldn't. There's people like I want to do in 30 states. I'm like, you don't want to do it in 30 states because that's 30 property managers, 30 different kind of small businesses. And most people get into the note business because they don't want to create another job.

Yeah, for sure. Yeah. Because renting properties can be really tough, especially if you have a really bad tenant. My grandma used to have a lot of rental properties and there were always problems with the property owner or the people at the properties. So what would you say is the. Is there a fast turnaround then on making money with notes or. Some of them can take a really long time if they go into the foreclosure.

So here's what we like to do. When we buy non performing notes, we buy them that they have actually borrowers in place because there's more exit strategies to making money. If it's occupied versus vacant occupied, we can try to get them back on track to reinstate the loan. We could either modify it, do a trial payment plan for them, or let somebody come in and take over the payments for them on their behalf. Or we'll give them cash for keys or deed, let them walk away so then we can turn around and sell the property. The biggest bang for buck is to get them back on track and paying in some sort of fashion. So when we do due diligence, we always look at what are rent rates in the area, compare that to what they're paying or should be paying on the mortgage. Are they taking care of the properties in good condition or is it running down? It's in good condition. Somebody's Got some pride of ownership. You know, they got small kids, you know, they usually don't want to move their kids, take them out of a school district, you know. So that's the thing, we look at that and that's evaluate things. I always tell people this is not a get rich quick scheme at all. It's a much, it's a business and it's a long term process. So if you're looking, it all depends on the state too that you're buying. If you're going to buy in the state that's got inventory, great. If you're in California looking for stuff in California, we don't see a lot of stuff that makes sense. It's way too pricey. And for what I could pay for like one note and let's just say Orange County. I could buy two blocks in Detroit, Michigan or Flint or Pontiac, Michigan or anything. I do like Flint. I just don't drink the water up there. All right.

Did I tell you I was born in Flint?

No, you did not. Actually, yeah, seriously, I drink the water now.

Look at me. Where's your scream? Oh boy. Yeah. So my grandma actually owned a lot of properties in Flint, Michigan. And back in the day the area was great and she owned about five acres. It was on 12th street and Grand Traverse Avenue though. And that area has declined drastically. Um, she is no longer living, but she had a really great, great bunch of properties in that whole area.

You know, Flint got hard, really bad back 12 years ago with the Great Recession. We, I mean, I was buying stuff there for 500 to 1,000 bucks. It's a cheap and it's come back strong. And that's one of the biggest and most important things when you're doing is looking at the property. Is it in a good area? Is it something that you don't mind taking back if you do, Is it, you know, is it in a one gun or two gun neighborhood? You know, you got to be careful that the crime and the violence and stuff like that too. So that's. Every city has issues. Everybody's got good neighborhoods and bad neighborhoods. It just comes down to what your comfort level is. And then really the most important thing with anything is having a team. A team of realtors, a team of attorneys, a servicing company. That's one of the things I love about the note business. It's not me going out knocking on doors. It's not me going out making phone calls. There's people, people out there that I can delegate to go do that. And I always tell people if you're in the note business. You're more like a general manager of like a franchise. You're not the one going out and slinging hot dogs and beers. You're the one telling people to go do that. And here's what you need to do. And it works out really well.

So for somebody who is just brand new starting out, what would your suggestion be to them on what do you even do first? Like, I would be so apprehensive. I would probably just say, hey, Scott, I have some money to invest. Can you just do it for me?

Here's the thing. I tell people, look, look at. You have to get educated. The biggest mistakes that anybody will ever make out there is they invest in something they don't understand. And so that's why we started teaching classes 10 years ago, is helping people how to understand what we're doing and how we're doing it and the vendors and the lingo and how we make. How we turn lemons into lemonade. You know what I mean? So that'd be the first thing. It's like, listen, go ahead and understand. Go and get some knowledge. You know, whether take a class or read one of my books or jump on YouTube and watch 2000 videos. Maybe not 2000, but listen to podcasts, but learn about it. Yeah, exactly, right, Learn. Learn the knowledge, because that's the most important thing. Then make a decision. I would never write something, a blank check and say, hey, go do this. Now. There are different funds. We have a fund that we're putting together now, allow people to invest with us in a different fashion kind of thing, and offered a pretty decent return on that. But that's the biggest thing. I tell you. Don't invest in something you don't understand. I don't care if it's tiddlywinks or hotels or notes or rentals or bitcoin. Learn it before you to write a check because that's one of the most important things. You need to know what the signs are. Something's going well if it's going bad, and know when to pull or when to double down.

Where can people find all of your classes, your books, your website, your social media?

Yeah, easy. If you go to weclose notes.com. that's our main channel. We close notes.com, you'll find our podcast, our several podcasts, the biggest one being the note closer show that you can watch online or listen to anywhere that you download your podcast. But we just record episode six, 46, 50 today.

Awesome.

Yeah. So we crank out three to five episodes a week. And yeah, I like it. I like helping share what's going on because there's so many people hurting out there right now. You haven't made a payment in roughly a year. And it's gonna be interesting to see what happens in 2021. Is the government gonna extend the foreclosure delays or the eviction delays? And that's a win and a loss, depending on what side of the ball you're on. If you're a tenant or a borrower in trouble, that's a good thing for you. But if you're the investor or the bank holding the note of the property and you're having to let somebody live basically for free for a year, that's hard. Even if it's your money or somebody else's money you're using. So just gotta. It's different. It's an interesting time to be alive, Patty. Right?

It definitely is. I'm glad that we didn't have to wear a mask today on the show.

You know, that's always good. You know, we are six beyond six feet apart. Exactly. Yeah.

Yeah. Pretty soon we'll be able to teleport, though, I hope.

Well, it's gonna be the hologram thing. It's gonna be like Star Trek, the 21st century.

I like Star Trek.

Yep, yep. They already got the ability to do that, actually, where you could be in a hologram and talking to people and things like that these days.

Well, I just bought an Oculus virtual reality system. And you can create your own avatar and you can interact. You have. You're an avatar, but you can still interact with everybody else in the room. It's really crazy that I imagine.

So I've thought. I mean, we do. We've been doing virtual events for five years now where it's like zoom, like we're doing now. We'll have 100 people or up to 1500 people on a zoom call. And I thought about that. It would be interesting to have everybody get Oculus where it's. If they sign up, they get those. And then we're sitting in a virtual auditorium and seeing what people put. Is there. Is there something crazy about your avatar? Do you have, like, dyed hair, mohawk?

I do. Because they don't give you an option to look semi normal. I mean, so I'm kind of crazy looking. My hair is kind of spiky, ponytail looking, and I have a fuchsia and black dress.

You don't have the mermaid thing going, huh?

No, they didn't give me that option. Darn it.

That'd be easy branding for you there.

Yeah. You know, they do have a really cool meeting room, though, for people, for businesses. It's crazy to me. It's just amazing.

Everybody sitting around. Like a conference table. Or is it like a stadium?

You can sit around, they have bulletin boards. You can pin different notes on the bulletin board. You can write on the bulletin board and people can see what you're writing. It's incredible. Really incredible.

I may have to look into that. The 21st century in 2021, right?

You should if you get on there. I have been working out every day to this game. It's called Supernatural, and my handle is pattyrene. Everybody listening? So you can. We can, like, try to compete against each other, but I hate exercising normally. And it's really fun.

Kind of like the Wii was to begin with, wasn't we? Was a lot of fun to get out. Yeah. They still have that, I guess. Or now. What's the big thing in the mirror?

Yeah, I did see that on Facebook. I see those ads all the time for that mirror.

I just don't like having that many webcams where people can see into the house or see what's going on.

Yeah. At least with the Oculus, it's just your headset. But the mirror, that kind of creeps me out. It reminds me of that old Bloody Mary story. I don't know if you remember that.

Exactly. Yeah. Not a good thing. Not a good thing. Or the Candyman, whatever.

Oh, yeah. Oh, my goodness. I'm covering my mirrors tonight.

There you go.

Oh, boy. Scott, thank you so much for being on the show. It is really. It was really fun. I think that I need to have you on again just for some good times. And what you gave us too, is really important information because I know a lot of people out there. They're looking to invest or looking at different types of businesses. Especially now, like with COVID turning everybody upside down. Everyone's just kind of looking to start fresh. I think I'm looking at different investment opportunities. I know other people are too. So thank you.

Honored to be here, everybody. Make sure if you're listening here on itunes where you go over and hit that subscribe button and leave that five star review for Patty. She's doing a great job and you all are binge into this. I'm honored to be on here. But go ahead and hit that subscribe button and leave that five star review. It's one of the things podcasters that we love to see. It gives us a chance to See what our audience is listening to and changing and you're doing such a great job with your, with your audience and your guest Patti. So just big shout out to everybody. It's a little things that adds a lot to what we do, doesn't it?

And you guys make sure you do that for Scott too. So podcast page, go over there, give him the five star rating. Thank you Scott. Thank you so much for that shout out. And I'm going to definitely I think your show's coming out this Friday. Actually I didn't plan on having it out till the beginning of the year, but I moved some things around and I just want to do some upbeat shows the rest of the year and you're it.

Awesome. Looking forward to it. Glad to share.

Thank you everybody. Go ahead and tune in every Friday morning. Of course the podcast run 247 but definitely check that out. Amazon TV. Roku Scott is also a radio guru, which we can maybe talk about that another time. He hooked me up big time on some several different radio stations across the U.S. thank you Scott.

You're welcome.

Glad to help everybody. Take care and go check out Scott's show, the Note Closer show and his website. And thank you everybody for tuning in. Thank you Scott.

Thank you.

Thank you for listening to Wake up with Patty Catter.

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