Unlock Wealth: Distressed Debt Investing Strategies Revealed from the Real Estate Hustlers Podcast

Welcome Real Estate Hustlers podcast. I'm your host Josh Appleman and today we are joined with Scott Carson. He's a real estate investor, podcast host and speaker helping others build wealth through debt investing. Scott, we appreciate you coming on the show today. If you could let the listeners know a little bit more about yourself.

Yeah, I'm out of Austin, Texas but I invest in about 20 different states. Been an active real estate investor since about my first home back in 2001 and fell in love with the note investing side of real estate. But I started to, I bought my first note on a non performing mortgage back in 2007 and then been, that's what I've been focused on ever since is buying distressed debt. So we buy residential, we buy commercial loans and we always like to, instead of rehabbing the property, we like to rehab the borrower in a lot of cases. So excited to be here today and share the, what I call the sexy side of real estate. No investing.

Got it. So nobody wakes up and says I'm going to be a note investor when I grow up. What, what, what pivotal moment did you get that happened to you to where you, you're, you were I guess brought on to note vesting and then you started learning the trade.

Yeah. So I started a mortgage company with a buddy of mine here in Austin back in 2004 and the sponsoring broker is a guy by the name of Bob Leonetti. He was actually traveling the country teaching people about creative financing, owner financing, creating paper. But he also taught about the side of distress debt because previously back in the 80s, they had a portfolio of mortgage that were non performing that they'd sell off. So he taught that kind of niche of a non performing side. Well obviously we know what happened in 2008-2010. So I left my part of the mortgage company basically after having like a four year apprenticeship learning how to do creative financing and how to evaluate and create paper. Well, as a mortgage broker we're basically doing it, you know, a loan qualification package, a lot of tank at times. But when you're buying debt, it's a loan de qualification aspect of things. You're evaluating, you know, the credit worthiness of the borrower and stuff like that. So when everything hit the fan in 2008, instead of me originating loans, I just started calling the same banks and lenders, taking what I'd learned from Bob and Jamie and applying it and started getting lists, you know, we call them tapes in the industry, lists of notes, you know, 100 notes, 200, 500 a thousand notes on residential properties or commercial properties where the borrowers hadn't paid in, you know, six months to six years and just started buying this stuff. Cherry pick it off.

The owners haven't paid in a range of six months to six years. And they still have the property.

Yeah. They still really living in the property. Exactly. Yeah.

Six years later.

Six. Well, that's not even the job. We've seen stuff 10 years, 15 years in some cases. I mean, you look at New York, New Jersey, takes three years to foreclose there, and then people can drag it out from there too. So, yeah, we. I mean, I don't like to buy stuff that, you know, that old. We usually like to stay in that aspect where it's, you know, three years or less where they haven't paid. It's much more likely to get back track. But yeah, we see stuff like that all the time. You have to realize a lot of these big institutional funds will buy big portfolios and they'll on the top 25 for the most part, and they leave a lot of smaller balance stuff or smaller value stuff in other parts of the country just to sit there. We've also seen a lot of funds that were buying like REO portfolios, you know, buying actual property. Didn't understand how the note game is different. And they're just letting stuff sit there and rot, not approaching in a lot of ways. So, yeah, it's always shocking. We see that. You know, I was looking at a deal yesterday and we saw one that had been paid on in seven years. Well, it's because an attorney's living in the property and they know how to delay the foreclosure in a couple ways. So that's one of the reasons we see, you know, a lot of times too, you'll have like, what happened during COVID where states will stop foreclosures overnight and something like that where you can't foreclose for 12 to 24 months, that adds to it. Or maybe the lender or the bank loses the actual collateral, file loan documents, and they can't foreclose because they're missing the files in a lot of cases. So we'll see that, you know, a variety of different things happen out there that may delay things like that.

That's. That's wild. So you, you. Okay, let's tell us about your first note that you tell us the first one.

Very first one. Okay. Very first one was in Detroit, Michigan. And it was actually I'd gotten a list of 500 notes from Banco Popular. Okay. Big bank out of Puerto Rico and South Miami. And they had this huge portfolio of Michigan notes that were just. They were selling for literally like pennies on the dollar. Right. And they had this property I came across as well, let me figure this out. And I was like, what do you want for this one in Detroit? It wasn't a bad looking house. It was vacant and it wasn't trashed out. And I was like, well, would you take 500 for it? And they're like, yeah, we'll take 500 for it. So I was like, I paid 500 bucks for this property in Michigan. I was like, I didn't want to own the property, so I turned around and sold it for scrap metal the next day for 1500 bucks. Which is kind of funny, you know what I mean, too, if somebody was going in and, and demolishing houses in his block and stuff like that. So the first one, but the really.

One that you sold the deed to the property for 1500 bucks, you bought it for 500. It sold Bas basically the land and everything inside the land for 1500, 8000 bucks.

Yep, yep. In seven days. Exactly. And so, you know, I've had people that have come in, we've, you know, bought hundreds of properties or 100of notes in Michigan, not with the idea to own the property, but they're actually turning around and modifying the property for cash flow, modifying the terms alone, keeping people in their houses, and it turns into great cash flow. We've done quite a bit of that. But this is the first note I was buying, like, well, 500 bucks. I'll throw 500 bucks way. If I don't, I'm not able to move it and go from there.

Well, because it's a, it's still a house. So if you spend 500 bucks, you bought the deed to the house, so you still have a house out there. If you choose to fix it up and rehab it, then. Yep. I mean, but that couldn't have been worth even doing anything too, if you sold for 1500 bucks, right?

Yeah, I mean, I was, I never went inside of it. I was just looking to see what I could do with that first note.

You know, but that was proof that, that you, that this is real. This is real. This, this happened. So.

Well, here's the thing. You got to realize, we have Mort created every day that are sold every day, you know, proof of concept. This happens all the time. If you've ever gotten a mortgage on a property and they got a notice in the mail, you know, a month or Two months after you finance a property, hey, your mortgage has been sold from ABC bank to, to XYZ lender. That happens all the time. And most of the time when we're buying debt, we're not actually buying the actual, the deed. We're actually what transfers ownership a lot of times is as an assignment of mortgage. That's what gets recorded to county. And to own the property most of the time you've actually got to go through the foreclosure process to wipe out that deed and so that you can actually take the property back. This actually was a contract for deed in Michigan I bought. So basically the bar had already gone away and we were able to do a cancellation of contract. That's why I owned that actual property without having to go through a foreclosure process in Michigan.

Okay, so the, so you got confidence, the it's real. So then it gets you to the next one. Tell us about your second one.

Second one was actually a, a 75 unit apartment complex in Laredo. Bara hadn't paid in roughly about, was it three and a half years, if I remember correctly. We ended up buying the note for 30 cents of value. It was from Wells Fargo Financial, was the actual lender on the deal. And then we sold that for a, I think it was a $75,000 wholesale fee to somebody to come in, take over the, the note, finish the foreclosure up and then they took the property back.

How long did that take?

That entire process took me, took me 45 days. Basically we got the note approved for sale. We went out and found an in buyer who was interested in taking over ownership. Yep, the operator. And so he was fine with us making that wholesale fee because he was still buying a substantial discount than buying like the MLS or buying it traditionally.

Okay, so where it's probably. I see this being a lot harder today and I say that because there's so much, there's so much wrapped around and finding the real estate, finding the deals, but it's not. You're telling me it's not?

No. So here's the thing we all know, I mean a lot of people get in the note space and they're targeting like owner finance notes. So then they're sending out like letter campaigns, direct mail campaigns to people who have owner finance a property property. That's what most people think when it comes to note investing. And that's really difficult. Low success rate. You get a lot of tire kickers that don't want to sell their performing on a discount or they had to owner finance it because they couldn't sell it traditionally. Okay, when you're buying direct, there are literally right now, oh, if you give or take a little bit, about 20, 000 lending institutions that are non bank lending institutions that have paper, they're originating stuff, they're holding stuff. There's also about 5, 000 other banks out there that are licensed banks across the country. Now you're not going to go buy a portfolio from like Wells Fargo, bank of America, Chase City. They're just way too big. They're not usually going to sell a one off note. In a lot of cases, all right, sometimes they will commercial, but on the residential side they're not. But that still leaves a tremendous amount of opportunity. Now you don't have to go dial for dollars. I mean it still helps. I used to have to make 50 to 100 phone calls to get in the right departments and chase people down. You still have to follow up. But if you go over to LinkedIn right now and type in special asset manager or secondary marketing manager or whole loan trader, those people that have those profile names on LinkedIn are the people at these lending institutions that are responsible for moving debt and it's just a matter of contacting them. And hey, what do you have on your books this quarter, this month that you're looking to get rid of?

You said special asset manager?

Special asset manager or secondary marketing manager or whole loan trading, like a whole loan trader is going to work for like a real estate investment trust or mortgage fund is responsible selling their portfolio off.

Okay, and these people are the gatekeepers in a sense.

No, they're the people holding the paper. They're the people at the bank who are responsible for a lender's portfolio of either keeping it clean or moving it off. Because for every lender or especially a bank, if they've got a non performing note on their portfolio, they've got to increase the reserves that they have to hold back and can't lend out on a regular basis. So one non performing note stops them from basically flipping that paper every 12 months or every month, you know, so 12 times and it's, that's why a lot of times they're looking to move it off their books.

So I think the, the distressed debt investing is the biggest, I guess fear factor because you're taking something in distress, you're buying that and you're not supposed to go out of business.

So here's the thing, what you have to realize when you're buying non performing paper, you're buying it, usually a substantial discount.

Okay.

And, and yeah, it's risk adjusted for sure. And if it's owner, if it's an occupied asset and I'm buying it at 50 cents in the dollar, I've got more flexibility in reaching back out to that homeowner and saying, hey, what happened? You know, I know you're two years behind and the bank, you know, lender probably want you to bring two years of payments to the table. You probably can't afford it. Can you bring three months, can you bring four months? Can you start paying on time again? And we'll defer a balance or adjust it. All right. If you can't play ball, I hold the keys. Being the lender anyway, we could do a short sale, we could do cash for keys, or if they won't play ball, then we do the right to go to foreclosure and now we take the property back or sell the property off at auction. So it's not the same thing as like, oh, I'm going to buy a note and be in and out of it in 90 days. It's a little longer process because each state has a different foreclosure time frame. Here in Texas, you can foreclose in 30 days. Florida would take a year. You know, Missouri's like 90 days. Ohio's nine months. So. But the great thing is a lot of times when we buy a note, we're literally seen beneath the kimono, Josh. You know, we're seeing the servicing notes if the bar has been responsive back and forth, we're seeing hardship letters. We do a little social sleuthing to see what they're doing online. If the borrowers file bankruptcy, like a BK chapter 13, we'll see what kind of payment plan they've put forth in the bankruptcy hearing. And we can buy that at discount for cash flow. So it's not as like, you know, throwing darts blindfolded, you know what I mean? You, you do pick some, you know, things and you just structure the things. Like I, we know this deal is going to take 12 months from start to finish. You know, we're gonna be into it. If they decide to foreclose, okay, we'll go foreclose, we'll be out in a year. But 70 of the time, if we're buying an occupied asset, we're actually able to keep the bars in the property and the cash flow coming into it. The little extra skin the game asks is going to result in a double digit return for us usually. And that's what we Shoot for. If they can't bring money to the table, then we know we're going to go to the foreclosure route and we're buying at a big enough price, below value and below what they're owed so that if we sell it at auction, we're going to make a great return as well.

Tell us about a horror story that was just terrible. You wish you knew then what you know now.

So I always say, don't buy in Chicago. Don't buy debt in Chicago. Okay. Chirac, I like to call it, it's Crook County. So we bought a portfolio of 10 hard money loans in there. We bought them in like 50 cents of the balance. So most of these harmonies were originally written in like 70 of the after repair value. So we thought we were picking up a pretty good deal. Well, being an out of state investor trying to evict people in Chicago is not a fun spot. The judges, when you go in front of eviction court or foreclosure would completely keep delaying, delaying, delaying. We had a couple properties that were able to, to get foreclosed on and then we would go to evict the tenants. Well, the people would, you know, we'd kick them out because they weren't paying and they'd break back in. We had like one property where people broke in four times and stole all the copper out of it. All right. And that doesn't help, obviously your rehab costs when you take a property back like that. We had another one where the guy pulled a gun on the process servers and was like, oh no, this is my sovereign country. A little bit of crazy. And we would, I mean, I show up, I'd actually show up to court sometimes and be like, listen, we've been giving this guy an opportunity to get know to make payments again. Or do. These are, well, let's give him another 90 days to see if he can afford it. So I'm just like, I hate Chicago. I love Chicago sports team, love the food, but don't recommend buying debt in Chicago unless you live there. We had another one down in Florida where the guy hadn't paid in four years. Near Miami, great house, bought it a substantial discount. And we bought the note two months before COVID kicked in. So that delayed it another two years before we could foreclose. And this guy, you know, played up, oh, I'm dying of cancer or I don't speak English.

And you're having to pay for. You've got cash out of pocket during this time, Right, Exactly.

So you're paying Money, exactly. Paying money to investors, paying attorney fees, you know, and then finally evicted the guy. And we were able to make it, still made a good chunk of change. And we knew going into the deal that this guy was shady. We'd seen all the other stuff that he'd done and. But unfortunately we didn't see Covid coming in, delaying it, you know, 18 to 24 months to make things happen. So the great thing is, you know, those are rarity. I mean, if you buy in New York, you're probably going to take three to four years, if not longer, to foreclose. So I just don't buy in those cities. Yeah, we try, we try to buy in faster foreclosure dates or non judicial foreclosure states, lender friendly states. But we do buy in like Ohio, which is judicial, takes nine months. South Carolina can take 12 months. The thing you got to realize is what we're able 70% of the time, usually get the bar back on track if it's occupied, making payments again within like the first 90 days. And so, you know, we have some that, you know, take a little bit longer. But most of the borrowers literally want to stay in their house if they just have somebody to talk to. And you can work with them in a variety of fashions.

So I count units. You count paper, I guess.

Yeah, I mean, you, you can't. You count units? I count files, basically. So yeah, yeah, but like we're working, you know, you like multifamily. I'm working on a deal right now in Indianapolis. It's 78 doors on a multifamily that the borrower hadn't paid in the last 12 months. They bought it back three years ago, rehabbed it. And we know what happened with interest rates. So they haven't paid. Great thing about commercial paper. Yeah, they haven't. They haven't paid. So we're able to go in and buy that asset at roughly about 65, 70 cents on the dollar of debt with another 25 to 30% of equity. On the positive side, they fully rehab the property. And the thing is that the default rate on the Note is like 25%. So it means eating up any cash flow, negative cash flow form. So it gives us the opportunity to come and say, okay, do we want to operate this property? Take the property back, we'll do that. And then we own the rent.

Cincinnati, that's about an hour and a half for me. So Andy's a good market.

It is a good market. I. When my first big apartment deal, a Big one I say was 300 units. And we bought the note from Banco Popular as well and bought it.

How do you get the phone calls for these or how do you find these, these deals where. I mean, because is it, is it being out here getting your name out banks or.

So like I said, a lot of it's been, you know, reach out LinkedIn and just following up with people. Hey, what do you have on your books this quarter? You know, there are different servicing conventions that people go to and we track those to see who's showing up and who's showing up. And they'll often say that, you know, first name, last name company and then their job title. Well, if John Smith from Bank of Popular, who's in charge of the special assets is going to an event, that's who I'm going to target. You know what I mean? There's no MLS for notes. So you've got to basically just follow up with people and follow up with people.

Yeah, these are pocket deals. These are 100 pocket deals. Like that's that indie deal will never be out on Crexi or LoopNet.

Not necessarily. Sometimes you will see, yes, Loop Net or. Well, you know, LoopNet just merged with 10x a few months ago. Right. And 10x used to advertise commercial loans that were. That you could buy the paper on. Right. We looking at a couple yesterday on L now like with LoopNet or Crexi you see something that's going to foreclosure, that's a distressed debt. So we target then contacting by then contacting the lender on it and say, hey, we see your foreclosing on this one in 1, 2, 3, main state. What else do you have on your books that you're looking to get rid of? Okay, and then they send us lists on a pretty regular basis. Like Capital One used to do a lot of commercial lending back in the old before recession day. So I was looking at this multi, not this multi, this strip mall here in Austin, Texas, a small balance commercial loan and saw that the property gotten sold. When I talked to the agent, he said, well, I didn't really get sold is that note got sold and the new borrower, the new lender on it was willing to work with a borrower to modify. I was like, oh, who is the lender? And they're like Screenpoint Mortgage, which was Capital One's niche. I was like, oh. So I just started dialing for dollars. You know, it took me a couple of weeks to get into the right department. But once I Finally got into the right department. They sent me this PDF which is 33 pages long PDF with every small balance commercial loan across the country. And half of them are small multi family and they're like, I'm like I can't buy the whole thing. They're like no, no, we don't expect you to buy the whole thing but buy something, you know. So that led into a. An 8 unit in San Diego, a 21 unit in Houston, 27 unit in Dallas, a 75 converted hotel. It was a multifamily in Fort Worth. So and then other a lot of smaller one off notes too that were like small commercial building stuff like that that we could buy the debt at a discount. So you. It becomes a pocket relationship. But that's the thing that I've always liked about notes is once you get in the right spot most of these lenders are sending you deals every month or every quarter as often as you ask that you can take a look at and cherry pick, you know. So I've always liked that you know.

Well because I'm always, I'm about basis. The, the basis is everything and every property that I've, I've purchased. I'm not gonna, I'm not gonna say I've been lucky enough to purchase the right price because luck had nothing to do with it. I knew what I could purchase it for and I knew what I couldn't purchase it for in order to put money in for the renovations, in order to get money two years down the road when we've re stabilized it. So. And it's about time investment too. So. But this comes with that baked in. If you find the deal you are going to buy it at the right basis because it's already distressed, it's already failing. So. So you've got to have a risk adjusted return in order to even take the. Take it on at 75 unit. Nindy like what would that, what would that even look like on like what would you purchase it for? For it to make sense like per door.

Let me pull up, let me look at the spreadsheet because I just had it up and we submitted the bids on it. So basically our bid was 2.48 million on the thing. So just at 2.5.

That's incredible.

The loan amount that they owned on it was 3.7. Okay. And they were at a, their default rates at 18. It was seven and a quarter but their default rates at 18 now and they hadn't paid. I'm sorry, I'm sliding over. So they Figured that the as is value when the loan was taken out was just under right at 5 million. All right. And they hadn't paid. Yeah, the last time they painted and made a payment was August of last year. So they're a year behind.

I wonder what the demographic looks like in that area.

It's a, it's a C plus, B minus. You know what I mean? It looked like based on we could find that it didn't completely rehab stuff like that. Pretty not a bad area. I mean I think, you know it's not class A or anything like that.

But it's workforce housing and I mean it's section play and steady income. Okay.

Yeah, exactly, totally. You know, I think it rents for their primarily 1 ones and 2 twos if I remember correctly. I have to take a look at the mix up on it later. But yeah, if we get that accepted. Great. I'm sitting in a phenomenal position. You know there's a, another one we got was 36 units in Atlanta, 33 unit in Miami, Florida. It's 100 section 8, you know, 22 unit garden style in Fayetteville, North Carolina. You know how do you have to.

Close on these notes with the bank? Is it all cash transaction?

Usually it's cash transactions. So we're raising capital for private investors. The nice thing though, if you're dealing directly with a bank on commercial notes, a lot of times sometimes they'll actually carry the financing on a non performing note. So they'll if you bring 10, 20% down and you've got a team, okay, great, we'll carry the financing on the rest at a decent interest rate for.

You, you know, and they underwrite just like they normally would for a loan and just give them all the good stuff on the paper?

Yeah, yeah, exactly. Like, hey, what's your team look like? How many of these deals have you done? You know, I mean it's not too difficult. Okay, can you bring 20%? Because they don't want to necessarily lose a relationship or have that million dollar loan go off and that million dollar loan is not doing well for them so they rather turn it around and keep it as performing. They'll do that if they already know that the, the borrowers are ready to walk away. I mean 18% default rate, you know, that's usually a sign that somebody's going to walk for the most part.

So, so you're raising capital to purchase these things typically all cash. If not, then you're going to take advantage of the financing. But what is, are you creating a Fund is it? It's not a syndication, it's got to be a fund.

Yeah, yeah, yeah, we've got a fund and we also do a lot of one off individual deals as well too. It's private investors as well.

Just a quick raise and yeah, you tell them how much you need and yeah, I've got a couple of those. Good. The good old boys. Yeah, that's cool.

I mean the commercial deals take longer to work out so I always say hey, you retire in commercial, you make a bread, you know, bread and butter on the, on the residential stuff that you can buy and insurance through in a lot of cases.

Well and it's. And okay, so so like that 75 unit, it's failing right now because well they probably ever paid for it but you still need an operator or a damn good property manager to put in place to get that thing turned back around. Or is it just an A re basis?

So there's, they already have on site property management. So part of the due diligence aspect of this is we're going to have 90 days basically to dive into the numbers, the rent rates, you know, I'll actually. A lot of the residential stuff will never walk. We'll send a realtor out to take photos and cool comps. We're good that way. But on the commercial stuff you really need to get out and walk it. And so we'll look at the, the management and see what's going on with them, what their cost and we'll look at the numbers as best we can. Sometimes we're buying stuff we're not getting any financial so we almost have to recreate the financials, you know, cash flow. But this one, it looks like it's pretty, pretty good based on what we've seen so far. Like we said, we just made a bid on Friday, the tape came to us on Monday and so we had five days to dive in and pull some numbers on this. But based on that number and the existing PI payment we're going to see if we just allow them to stay in the property. We adjust the interest rate back down, we'll still be about 1112 cash and cash return based on just keeping the loan in place. I don't want to do that. The money makes more sense to either operate it or, or turn around and sell it as an REO if you can.

Well, a lot of these properties that are kind of distress, these need to be rebased because they were purchased at too high and, and I mean restabilizing a property takes long A long time to, to rehab and I mean you're not going to get your, your, your, your rent, your market on the first lease.

No, not at all.

The second year. And that's when you start seeing the property really, really take off. So it's just, and that's, that's part.

Of the due diligence. Look at, hey, how many, you know, how many prop, how many units are vacant? How many are, you know, rented out when the leases expire? What's up with the market rent and stuff. Like that unit in Wisconsin, Milwaukee that we're looking at, that was a remodeled school and the, you know, building was turned into 10, well, nine, three bedroom, one bath apartments and then one, two, one and newly rehabbed online photos and stuff like that. And if rents are at 1200, I think market rent's actually 1500. So that's the thing we're looking at too. Okay, does this make sense? And if we find something wrong with the note value wise or rent rates, I have the ability to what we call fade my bid. Like no, we're going to reduce our bid because it's got, you know, it's on a boiler, so it needs a new boiler, something like that. We're going to reduce openings, a new roof and stuff like that. Well, the value is not the 5 million as you said, it's less than that. So we're going to drop our fader bid down and reduce it. And if they don't agree to that, then we just walk away and go on to the next one.

Yeah, so, so you would buy the distressed note and then you still have the actual owner of the note that you have to deal with, right?

Okay, that's correct. Yeah. So and we see that we, and the great thing is we're seeing the servicing notes, we see the conversations if they were friendly, if they were, you know, not friendly, you know, if they answer the phone or you know, hid. So we're able to see all that note from the servicing company and that's a great thing. It gives you kind of like behind the scenes view of what's going on, man.

Okay, that's. But if, but it still takes that person willing to, to pay. Even though you own the note, they still need to cash needs to transfer from their bank account to your bank account, right?

Yep. Still need them to pay. And if they don't pay, then we'll just put it, dump it with our real estate attorney and start the foreclosure process. Now a lot of these, the, the lenders already started the foreclosure process. So we'll just step into the bank shoes and step into the council's position and just finish up the foreclosure process, which without having to restart it all over, which is really nice. Especially if it's the state that takes 18 months and they're already 3/4 of the way through foreclosure. You know what I mean? We would like, don't have to wait three, you know, a year. We're like, okay, it's 90 days. Has the judgments already been filed against the borrowers? If so, great. We'll just step in and you know, it's just an assignment of plaintiff and then we're rocking and rolling to foreclose.

You would definitely need a mentor to get into the industry for sure. You can't just learn your way through it. Like trailblazing is great, but you need somebody for sure to get the. It's got the sharp eye.

Yeah, I mean, that's the thing. I mean, I was very fortunate to have a mentor. I mean the, the non performing node space has always been around. Don't get me wrong. You know, you had the 80s with these savings and loans crisis and RTC days, and then you had this kind of secondary market of investors. I call myself a smaller, you know, investor versus a big, huge, like Wall street fund or something like that that's popped up over the last 15 years with everything that happened in 2008-2010. And it's also why we started doing our podcast, the Note Closure show. And we're coming up on our thousandth episode. And it's a lot of me teaching mostly, you know, 75 of the episodes are about something to do with the note business. We've got a bunch on YouTube. It's also why I had to start teaching classes back in 2010 to tell investors, hey, this is why this is different than the property and this is why this is a deal, or this is why this is a dud and go from there.

Well, before we on the show, I was telling you we got to talk about real estate, because this is about real estate. But this. And I was note investing in real estate. You're buying paper, not buying the property. But I could see how this is the. This is could be top of the funnel to get into the real estate at a great basis. Use it as a top of the funnel.

It totally is. Because here's the thing, when we get these lists in, you know, I got this residential note list and people hadn't paid in about two years you know, six months to two years and it's stuff in 20, 30 different states. Right. And not only are they opportunities for us to buy the note to refinance, it's also on some of these are pretty low interest rates. So when I can't, when can't get to a price that makes sense to the bank, we'll actually reach out and do direct mail campaigns to the bars below interest rates for potential subject to deals, you know, to take over. Knowing that we know that the lender is willing to try to modify in some sort of fashion without foreclosing. So it kind of, we work kind of both ends of the deal. I don't really like owning real estate because I like owning the debt. I want to be the big banks, you know what I mean? But we still take stuff back, we'll still hold it, we'll still do some rehabs and stuff and either look to keep it for a while or look to sell it, you know, sell it off a lot of cases. So like one market that a lot of people are running for the hills from is like southwest Florida. You know, Cape Coral is the worst real estate market in the country. Well, I bought a lot down in Cape Coral, Fort Myers, and that neck of the year was over the last 15 years. If I can go and buy something at 20, 30 cents on the dollar, which I think is what's going to fall at that gives me plenty of flexibility to throw in a renter in there for a period of time to ride that market back up and then cash out again.

I really like southwest Florida, really like it down there. It's Naples, Marco island area. It's very cool.

I lived on Marco island for about a year back in 2010-2011 and I'd be walking the neighborhoods with all these empty homes from people up in New York and stuff like that during the summer. So yeah, love that area, definitely.

Yeah, that's fair. What'd you move away for?

Because I was buying stuff in North Carolina. So I, back in 2010, I sold everything that I owned here in Austin, Texas and planned this 30 week trip across the country to hit all the major league baseball parks. And I started having lenders and real estate clubs reach out to me from seeing my blogs and videos and stuff that I was posting about buying debt. And they say, hey, could you come speak to our real estate club? I'm like, yeah. And so that happened. I get down to speak at the real estate club there in Naples and I'm getting lists in from Oceans bank and U. S Century bank and a bunch of local banks there in April. So I just, like, would walk into some of these banks, smaller branches, and say, hey, I buy debt. What do you got in your books? Oh, we don't have anything. I said, well, based on your quarterly report, you follow the FDIC, you got $50 million in bad paper. I'm like, oh, hang on a second. And then somebody come out and they walk me into a room and just be stacked to the ceiling with all these vanilla folders of bad debt. And like, there you go. Take a look at it. You know, you got.

You have to be savvy. I know you got it. Well, you have to have a trained eye for sure. And you have to know what you don't know. You really do need to know what you don't know. If not your. Your suicide.

Well, it's just like in any other type of nature, real estate, you got to understand the numbers and understand how it's different and, and spend time diving into it and looking at deals. I mean, that's. That's the biggest thing. If you try to do this and just be a podcast or YouTube Warrior School of hard knocks, okay, you might get lucky. You can wholesale something if you buy it cheap enough, but you really know what the deal holds to make sure it's a. It's a really good deal or price. I mean, a lot of people want to get into the distressed multifamily space. And there's been this gap the last year between what banks want to sell their paper at and what buyers need to buy that to make sense. Well, yeah, that gap is getting closer and closer and closer, so it makes it for some more opportunities. But I'm still seeing banks. Like, there's a. A lender out of Dallas foreclosed two months ago on three big 250, 300 unit complexes. They wouldn't take a discount. Their goal is like, we're going to foreclose. We know we're going to take it back, but we're doing the foreclosure to wipe all the mechanics, liens, outs, and the other things that are behind us. And we're just gonna bring on an operator to joint venture with them to operate for three years. So the market refixes, you know, resettles. Okay, that's fine if you want to do that, and you gotta be willing, able to do that, you know, but we're starting to see more opportunities coming. Like, banks, like, okay, we got to move stuff off our books, otherwise we're gonna be a Whole lot of hurt, worse than we are in a lot of cases. I mean, there's, there's $800 million in multi family going to foreclosure in Texas alone between San Antonio and Houston this first Tuesday, which is a, is a couple days out, which is kind of crazy.

Interesting. Damn. Huh? That's a, that's a, that's news. Yeah. You got. What do you see the. Where do you see the market heading down?

We do a lot of economic, you know, we track foreclosures. We do a lot of stuff looking at markets. And if you look at the top, like 800 markets across the country, it's looking like we're going to see at least, you know, and it'll vary. I mean, this is kind of being a little General, but these 800 different real estate markets are going to see anywhere from like a 10 decline down to like 30 decline, decline in values over the next 12 to 24 months. It just is what it is. Already starting to see some of that stuff, you know, ahead of time on the commercial side. But that's just values dropping. So it, that means more foreclosures. It's kind of been a house of cards. We've been talking about this for about 24 months. When you start seeing record defaults and auto debt and credit cards and student loans and all that stuff, it's just a matter of time before you start seeing defaults on the mortgage side. And it was kind of funny when it came out, all the FHA mortgages that weren't being paid, that were being paid by the Biden administration to kind of hold it up and they're in default. I'm like, that's no surprise. That's usually the biggest default niche of real estate anyway when it comes to mortgages is that stuff. So I'm. People are kind of scared about values. I'm kind of sitting here smiling silently and trying not to giggle because of the opportunities. I know they're coming down.

Yeah, yeah. And say there's a rebasis. Well, unless they get the interest rates. I mean, the Treasury. Something's got to change.

Yeah. I mean, that'll help. I mean, that'll help those that are trying to buy stuff now. But you still, I mean, we're seeing people who have, you know, 2% interest rates defaulting, you know what I mean?

Well, but they also put a 7% line of credit on their property, so.

Yeah, exactly.

Totally took away the point of having low interest rate. Yeah, I mean, that's, there's a lot of that a lot of.

So what's funny is I, I joke that we kind of track garage sale listings. Okay. Back in 2010 when everybody was defaulting, you know, they had this rise up in value and bought a bunch of toys. Well, that led to a lot of short, you know, short sales and people trying to sell their toys back to pay the mortgage. Well, I always joke, I got a buddy that works for the paper here. I'm reaching out to him. Hey, when you start seeing an increase in garage sale postings, that's usually a sign more distressed debt as people are trying to sell off what they bought, you know, to try to try to keep their house. It's unfortunate.

Yeah, that's cool Scott. I definitely appreciate it. If somebody wants to get get a hold of you, learn more about note investing, learn about your more yourself, possibly invest with you. How can they reach out?

Really easy. Just go to weclosenotes.com that's our main website. We offer a free one day course to help you guys kind of get the ball rolling to see if it's something you like. You go to noteweekin.com to sign up for that class for free. It doesn't cost anything, no credit card required. Just a way to help you guys understand if this is something that you want to do or don't want to do. So we close notes.com the best way and you book a phone call with me there directly.

Cool Scott, Definitely appreciate it. Look forward to following you. Thank you.

Thanks Josh. Glad to be here and you guys listening. Make sure you go out and hit that subscribe button. Make sure you listen to the podcast and leave a five star review as well. We as podcasters love to hear that from our audience. So do so. Josh is kicking ass and taking names. Was this like one episode episode like 150 or something like that for you?

That's a lot man. I think it's been like three years but that's awesome way to stay relevant. So get out there.

Amen to that brother. Good stuff.

Keep up the Scott. Thank you.

Hey real estate investors, this is Scott Carson. I'm known across the country as the note guy and I've been an active note investor focused primarily on the niche of non performing US distressed mortgage notes on residential commercial properties for almost 20 years now. My company is we close notes.com and I know there's a lot of different things when it comes to the note world. Are you buying performing notes? Are you buying owner finance notes? Are you buying institutional debt? Like I would focus on you buying first seconds contract for each There's a lot of questions and it can be very confusing about what you can or cannot do. So one of the great things that we've hosted for the last couple of years that we do on just about a regular monthly basis is we host our one day class called Note Weekend. If you go to noteweekin.com you can register for our free three and a half hour class. We'll talk to you and share with you how you find fun and flip non performing notes. And yes, you can buy non performing notes from banks, hedge funds and a variety of different hard money lenders out there for your own portfolio. No, you don't have to have millions of dollars to dive into the non performing note game. We've got students that have bought plenty of deals with 2530 grand getting their ball rolling using their self directed IRA who are tired of dealing with toilets, tennis trash, tired of battling contractors and GCs to get properties rehabbed. We all know the market is changing and while it may not be like 2008, 9 and 10 again, it we do see a lot of distressed debt out there on both the residential and the commercial side. So if you're thinking about diving into the note game, becoming a note investor, a lean lord as you'd like to say, versus a landlord, or you just want to figure out what it is about the sexy side of real estate in the note space, well check it out. Noteweekend.com doesn't cost you anything. We host it live usually the first or second Saturday of each month. You can go today. Register at the website noteweeking.com Register for the next live class we host. You'll get sent a replay to the previous class so you can start learning about the note business today. No questions asked, no credit card needed. This is a great way for you to dip your toes in the water and see if it's warm because I guarantee going through Art three one day class. You want to dive into the deep end and become a note investor. So check it out. Noteweekend.com you can also go to our website. We close notes.com check out our podcast. Check out our YouTube number one YouTube channel. We are here to help support you. Whether you're experienced investor or you're brand new investing. Note weekend is a great place for you to get the ball rolling. People often say we cover more in our three hour class than most people cover in their three day class. So check it out. Love to have you be part of our note family, but get signed up today@noteweekend.com thanks and have a great day.