Unlocking Real Estate Secrets with Ash Allen CFA: Expert Advice from Scott Carson

Welcome to Ashland Talks, the podcast where we explore the world of distressed mortgage notes and real estate investing. Hosted by Ash from Dubai.

Scott Carson, also known as the Note Guy, has been an active real estate investor and entrepreneur since 2002, focusing on the niche of distressed mortgage notes. Since 2008, he has purchased over $1 billion in distress notes on residential and commercial properties across the country. He has helped thousands of real estate investors and entrepreneurs creating wealth through his classes, assisting his students in closing thousands of deals. Scott also hosts the podcast the Nod Closer show podcast and avid sports fan. Good evening folks. You guys joining with me in Ashland Talks. We having a very important guest today all the way from United States of America. Scott, welcome to the podcast.

I am honored to be here today and I'm joining you from the Lone Star State or as we call it, Austin, Texas today. So glad to be here and just excited to be a guest today.

Wow.

And welcome again. And Scott, I would like to ask at the beginning of the podcast, so because my viewers are mostly into entrepreneurship and startup, so this investment and personal finance and the people are more linked to mortgages. So if a person starting a business or investment, so what is the fixed amount and where he, he or she should start from?

So if you're looking to get started as a real estate investor, is that more the question you're asking? For the most part, it all varies. You know, it's the answer to that is it depends, you know, depending on the niche that they're focused on, niched on where they're buying the value of the property, what kind of strategy, whether it's to be a landlord or a short term rental, or in my space where I buy notes or distressed note distressed mortgages. It varies a little bit, of course, residential, commercial, that will all vary to the legal laws that are taking place. If you're buying a distressed asset, which is common, you've got to figure in what, what are the attorney fees to foreclose or the ongoing operations. So the biggest mistake I see a lot of investors make or entrepreneurs that want to get into real estate investing is they try to do everything, they try to do more than one thing. And that's the surefire 100% way to fail is you try to do too many things at once. The best thing I can tell you is find a strategy, find it a niche that you like and focus on that niche and give that niche six months to a year of you working in it, learning it, marketing into it before you try to do something else. If you go out and try to do four or five things, you'll be a jack of all trades and a master of nuns. That's the best advice I can give, if that makes sense.

Wow.

And Scott, I have seen even, even some financial advisors have given some advices based on the investment on real estate. So at the time of inflation, is it a good strategy to invest in real estate? Or how you seeing this point?

So I get that question all the time. I'm so glad you asked that. And here's a big thing. Financial advisors, if you're going to ask a financial advisor real estate, make dang sure that they're investing in real estate. Too many times people ask counsel about somebody, they have no opinion. They might have an opinion, but opinions are like, everybody's got one. All right. Yeah. If you're asking counsel. So it's like me going to my grandmother. If I went to my grandmother and asked about real estate, she's never flipped the property or bought a business. She would just give me her opinion. Which is mostly going to come from a place of fearful. Fearfulness. I know a lot of financial advisors, they don't invest in real estate, so they kind of shed a negative light on real estate. Say it's all real risky because they don't understand the true value. Their value is in buying bonds, stocks, mutual funds, annuities, and that's that. Any anyway, anytime that you're taking money out of their pocket, they often will tell you. Now, as an ex financial advisor, I speak from experience there. Now, here's the thing you look at, if you look at, and I can only talk about real estate here in the United States on average, you've probably heard that if you buy a home or a piece of property, it's going to double in value in about 10 years. And we've been very blessed the last few years here in the United States with appreciation going up on. On real estate. Actually, there was an article that came out that we actually did an episode on that in the. If you look at the top 100 markets, 100 markets out there here in the United States, 68 of them, 68% of them doubled in six years or less.

Wow.

So here's the thing. Inflation, yes. Is going up and inflation affects us all a little bit differently. What I tell people right now, it's you need to buy real estate because it's not going to get any cheaper land, real estate, whatever you focus on, if you can afford to buy a piece of property in cash flow, whether it's you moving into it Yourself or you turn into rental or you may be doing co housing where you two families are buying. We see that happening quite a bit too. It's a good thing about. Because real estate is not going to get any cheaper. Yes, it may level off in some places. There are places that are more attractive than others. Not only just the, the hot market, but then also looking at conditions of like what's going on in the environment, stuff like that. Like Houston, Texas which is just down the road here, is a desirable place. But it's also been hit very heavy by hurricanes and tropical storms. It also floods there. So insurance costs are abnormally high in the Houston, Texas market. And you look at Florida, Florida has been very difficult too. Very desirable place to live, great weather, but also a lot of hurricanes and that causes insurance costs to go up and that gets more expensive. So I say if you like the property or you can afford to get in the property, get in the property. It may not be your ideal home if you're buying a home, but it can be a starter home. As they say, date the rate, marry the property. Yes, interest rates have gone up, inflation is going up stuff right now they're hovering. I think the normal 30 year mortgage right now is about seven and a seven and a half percent. As an ex mortgage banker, I kind of chuckle because those were normal rates back, you know, 15, 16 years ago. We've been very blessed with low interest rates here in the United States prior to the last couple years. So I can tell you if you buy something now and make it work, get into it and refinance later on is the most important because it's only get more expensive out there. Now the opposite side of that would be the commercial real estate side. If you've got some folks on there looking to invest in commercial real estate, commercial is getting hit very hard here in the United States with a lot of defaults and that's because of, yes, interest rates have gone up there. Most of the commercial mortgages were underwritten for three to five year mortgages, not a 30 year mortgage. And the goal, a lot of these investors that bought this commercial space was a, they would go in, buy it at a discount, rehab it, reach gentrify, fix it up and then they would refinance or sell the property in three to five years. Well, they can't refinance. So now that they can't refinance because rates are a lot higher, banks are going back to these investors on the commercial property. Hey, you need to bring, you need to refinance out or you need to bring 15, 20, 30% cash to write down the loan to a 6570 valuation. And most aren't going to do that. So it pays if you got cash. You can often find some great deals right now. Just expect to have to, to ride the wave for a couple years for the most part. Yeah, hopefully that, that's a long winded answer to your short question.

Yeah, yeah, it's great. And Scott, I have to ask one more question regarding the real estate that I have seen some, some famous authors, rich dad or poor dead. And we can say Robert Kiyosaki, right in, in some, some of his speech he mentioned that he borrowed money from wealthy people and invest in real estate. So, so in argument wise and based on the equation wise it's fine. But when it's come to practical scenario, is it actually work or how you seeing the debt and the interest rate and the mortgages return for that.

So that's a great question. And actually I with us buying distressed real estate, distressed mortgage notes, we actually do borrow about 90% of the money that we use is actually coming from investors. And the fact that we're buying it at a discount gives us the flexibility to go borrow money from a wealthy individual or somebody who's got money. We're paying them a 7, 8, 9, 10% return on their investment for a short period of time, usually 12, 24, 36 months. Now it makes sense because the returns that we're making on these properties are at 15, 20, 25% so we can afford, pay the higher interest rate for a short period of time. So yeah, sense to do that because we're buying it at this. I wouldn't go and borrow money at 12% on my primary residence unless it was, unless it was much, unless it was much cheaper to do that versus renting or something like that. So yeah, buying money, borrow money from wealthy individuals is very easy to do if you have a good deal, as they say. Maybe you've heard the same he who holds, he who has the gold, makes the rules, right?

Yeah.

Well, wealthy individuals that oftentimes you think that money that they have, the cash is the goal. Actually it's not that money is usually sitting there not making a decent return in retirement accounts or stuff like that. So they're excited that they can make a 7, 8, 9 or even 10 return on money by investing in a property or a house that an investor like me is picking up at 60, 70 cents on the dollar.

Wow.

And Scott, when it comes to property investment, Airbnb is A very important role and marketing the property is a very crucial role. So a lot of youngsters are fall into the scam or some kind of software or they don't do not have like a kind of a background or basic idea about the Airbnb. So how an investor or a startup person can jump into this Airbnb.

So that's a really great question. I would tell you this. You have to be very careful of Airbnb these days because of a couple of reasons, not because of a scam. It is because mostly I would say that you have an oversaturation of short term rentals in the market. So the best thing I can tell you is do a lot of research on something like anything else. Learn it, talk to other people that have Airbnbs. If you're buying in an area, it helps for you to go check out an area, see what's available in that market. My younger brother or my nephew actually I'll tell you this right now, he's actually buying renting apartment units in his own name with getting permission to turn around and sublet them on short term rentals. So he might rent it at say a thousand dollars a month for a 12 month period. Well, he's going out furnishing the apartment and then turn around and leasing it at 1500-2000amonth short term for like 1 and 2 month to 3 month rentals to workforce. And he worked, you know, he works down on the coast of Texas here. So it gets a lot of oil refinery and people come in, they can't don't want to sign a one year lease because they only have like a six month contract. So they're overpaying for the access to get in out. And he's making pretty good money. He's also doing the short term night rentals. The thing that you have to keep in mind is you have to have systems and really if you buy one and it's near where you live, okay great. But if you only buy one, it's not where you're and you have to outsource it. Most of your profits are going to get eaten up in cleaning fees and stuff like that. It's hard to find vendors. So really with Airbnb you really have to have a portfolio, four or five. I believe that's going to help you cash flow. Otherwise things can happen. And of course part of the reason you would use like a website like Airbnb or VRBO is that they're also going to kind of double check the person that's renting. You know, I have a, a friend who had a whole portfolio of Airbnbs in the Phoenix area. Well, you know, one person rented the house for two weeks. Well, they were selling drugs and had prostitution taking place in the house which. And trash the house so. And Airbnb wouldn't cover the cost of that I believe. I'm not 100 sure. But when you had that happen a few times, that's a lot. I mean it's a, it's a capital heavy investment having to put in beds and couches and furnishings to get the property up and running for a long period of time. That's not saying you can't make money on it, but you just got to be careful and expect that hey, I need to go from 1 to 2 to 3 relatively quickly to start seeing significant cash flow. It's not a get rich quick. It's. It's a build wealth aspect.

Well, with that not. Scott, I have one more question that when it's come to property and all right A lot of people are focusing on the law 401k or the income tax and the how much we need to pay for the government charges and a lot of people afried because of these law cases and all. So actually how it should be looks like to a person who coming into investment in real estate and what is the basic knowledge and what is the expenses? I mean the let's, let's say we're having a return of 20% or 15% on a property 30. Right. So how much percentage should be paid to a federal government and all?

I don't know. I am not an accountant or tax. So you need to talk to an accountant or an attorney about that. I won't even go in there. All right. Because everybody situation is different. It bases on your wealth, your tax bracket, your write offs. Part of people that I will tell you this. There are plenty of write offs in real estate whether you're writing off the interest you're paying the expenses, taxes that you're paying to the state. You know, there's a lot of depreciation when you buy a property. So that's a better question for an accountant or a bookkeeper. I won't go into that.

Yeah. And Scott, these days, right. Which area is booming up in property as per your knowledge and your research.

So what you have taking place like the hottest. I'll give you some examples. Like there was a. They. They list a few places that we're doing very, very well. So like it all depends on kind of your niche like college towns always, always will often do pretty good.

So like and, and Scott, I'm sorry for interrupting and this elections will impact on property prices?

No, probably not. It's, it's not who gets elected president isn't going to make a damn bit of difference to what you pay for a property. What goes on in, in Washington D.C. whether it's Biden or Trump or RFK or whoever ends up winning isn't going to make it cheaper for you to buy real estate. Okay it just that it doesn't people. Now it may affect a little bit on some of the interest rates and what gets rolled out, stuff like that but real estate's not going to get cheaper in five months because of Trump winning or Biden winning again at all. So if you sit around and wait you're never going to, you know, you gotta take action now. That's the biggest mistake I can tell you. Every real estate investor will tell you don't sit around, wait for the perfect deal. Get in there and get started now. You'll learn more from doing than sitting around trying to time the market perfectly.

And Scott, a lot of people are arguing that this, the companies or, or financial institution like a BlackRock and Vanguard, right they are investing a lot on real estate and people are trying to argue that this, the companies like owning real estate are like keeping this asset as a kind of a deployment and the middle class people are suffering a lot like paying rent and all because they cannot own the house. Actually they are rented in middle class stuff. So actually in a society wise how you seeing this the big giant companies and the real estate.

Well you do you have all day. We can sit here and talk all day. So here's the thing. Let's talk about BlackRock right now. Let's, let's give one case study about BlackRock. So BlackRock has bought hundreds and hundreds and hundreds of single family homes in New York State. Okay. Bought them very cheap. What they're doing is they're getting tax credits, something we call like section 8 and bonus from the government because now they're putting oh now we'll say illegal aliens but refugees into these houses on a bedroom by bedroom basis. So whereas normal rent might be 1200, they're collecting 500 to 600 per person per bedroom. So now they're making 1800 to 2000. You can, individuals can go do that themselves too by qualifying for Section 8 and offering that up. They're just doing in mass. If you're in an area and can't afford an area because Values have gone up. I don't think that BlackRock and Vanguard of them. What they're doing might be increasing rent a little bit, but they're also overpaying for assets because they do get these different benefits and they have low cheap money. There are plenty of opportunities out there for folks to buy real estate and invest in real estate in a variety of things like the niche that I'm in and buying non performing notes and non performing mortgages. We see deals six to 12 months ahead of like traditional real estate investors looking for rentals or foreclosures. Okay. So you have to learn what's what works in an area, what's available and if you're living in there, that doesn't work. Here's the thing, it may make sense for you to move somewhere cheaper and take a job somewhere else. I mean there's places that have out priced people like San Francisco and San Diego. Miami's kind of getting there. There's a lot of expensive places. Nobody's holding a gun to your hand. So you have to live there. Yes, I know it can be difficult if you live there for a while but at some point you gotta move where it's cheaper and get a bigger bang for your buck. It's just change. That's my opinion about that. That makes sense.

Wow.

And with that not. Scott, in a share market and all right we have trusted source of news like Yahoo Finance and Bloomberg Business and people are searching and researching a lot about shares and the stock and they are investing the money on the stock. So when it's come to real estate, right. What are the trusted sources and where we can find the right prices and where it's actually happening and what are the examples you can give.

So, so here's, here's the thing. If you're looking at trusted source like I like housingwire.com DS News defaultservicingnews.com I mean there's always Yahoo Finance or Yahoo Real estate or Google, stuff like that. US today will have some things. Here's the biggest thing. If you're looking in a specific area, go and find local real estate investment clubs in those markets. If you live in the area, it's easier to do that versus abroad obviously. Because here's the thing, news is nothing new. It's always past tense. If you're just relying on newspapers, it's not the same thing as being active. Those are going to be six. You're always behind the curve when it comes to just reading online. You've got to get out and Talk to people. That's, that's why I like going to local real estate investment clubs in different cities across the country. Many of them will do online meetings via Zoom. Like you and I are recording this today and nine hours away from each other, you know. Yeah, so that's a good point. Go find local real estate clubs in cities that you, you're wanting to invest in and then also get a coach. If you're focused on buying rental properties, go hire a real estate coach that can help you do that. If you're dealing in notes, hire a note investing coach. You're doing Airbnbs. Find somebody who's an authority figure, two or three people in the industry, and then start, you know, watching their YouTube videos, listening to their podcasts and, and diving in and maybe taking a class or two to learn more about that niche. That's, that's the best way to learn. Trying to be too broad on everything is only going to make you confused. And a confused mind is a mind that doesn't take, take action.

And Scott, with that note, there are some people, real estate investors, right. But they do not own their own home. And still they are in a rented apartment, but they have millions and billions of investment. So do you think it is a classical strategy or it's a right strategy or how you seeing this point?

That all depends on where they're at. In some places it makes more sense to rent a house in a market or an apartment versus buying. I've had very good. It all depends on what's going on in the market. I had a friend who lived in a mansion, you know, $4 million house. He rented for like $4,000 a month. Yeah, I mean, yeah, that was high compared to a single family home. But he lived in this huge house that he got for cheap and he treated as a business expense. I've got friends that live here in Austin, Texas. Austin is one of the most overpriced cities in America because it's about 7 to 8% higher in price versus affordability. So a lot of people are renting here because it makes more sense to rent versus does buying. But they're going and buying in, in New York State or Nashville or Indiana or Ohio because they're getting cheaper properties there. I have a good friend, Paula Pan, who as the podcast afford anything. And Paula lives in New York City. She doesn't want to own there. In New York City, she rents a, a condo, one bedroom condo downtown where she'd see the Rockefeller Center. I think she pays four grand, but she owns Real estate across the country that's more affordable. She likes living in New York. She enjoys the lifestyle and stuff like that, but she owns real estate in other areas. So it all depends on a personal preference and kind of where you're located and where the, what opportunities are available. I mean, I live in Austin, Texas. We own the home here. But most of my investments are outside of Texas, in Florida, Indiana, Ohio, Michigan, Missouri. I mean, we buy in about 30 different states across the country because we find better deals and then paying through the extreme prices that we're paying here in Austin.

Okay.

And Scott, return on investment in real estate, actually. Right. What is the benchmark for that? Like four years, five years? Is there any kind of a benchmark? Depends on the area or.

Yeah. I mean, here's the thing I look at. If you're using your own money, you know, what, what, what ROI do you want to have? I mean, if you have a, you're giving a 12% return, your money doubles every six years. You know what I mean? You know, a lot of people will compare things to the S P 500 stock market.

Yeah.

And you can do that if you want, but that, that number is always changing. What you have to look at is what are you looking at? What comfortable, what comfortable with? And what's the niche going to have? Is it going to make more sense for you to do the work or for you to delegate it? You know, your time return on investment is great, but there's another thing that to keep in mind called return on time. A lot of real estate investors only start doing. They do everything themselves. And after they calculate what they made versus what they spent time on, they'd make more money flipping burgers at the local fast food joint. Okay.

Yeah.

Return on time is important. What are you doing with the time that you're delegating to yourself? If. And that's a very, very important thing that a lot of entrepreneurs and real estate investors struggle with at first because we're control freaks. We got to do it, you know, do ourselves everything. Well, if you do that, your return on time is going to be very, very low. I want a high return on investment and a high return on time. And there's a, you know, I think that just comes with experience and learning to delegate and putting a good team and vendors in place. And that just takes time to do that.

Wow.

And Scott, this is a funny question. Maybe, and I don't know it's appropriate or not. I, I have heard or I have received some messages from some of my, my Followers they have sold their real estate and invest on bitcoin and some people earn on on millions and some people went put broke. So what is your advice for this kind of a younger generation?

Oh man. Here's the thing. If you're buying real estate and selling real estate, if it's investment property, you're going to pay taxes on that growth whether it's a short term or long term capital gains you can avoid by paying taxes. By then rolling that money and doing a 1031 exchange into another rental property and delaying your tax going from an asset of real estate that's going to be pretty flex to something that's up and down like bitcoin. I don't agree with unless whatever money you put into it is you're comfortable losing. We know that bitcoin can go up and we know it also can drop down to much more of a rapid risky. So. So don't invest anything. It's called investing. Doesn't mean it's called guaranteed return.

Yeah.

So know, make sure you understand what's going on. Make sure if you're invested in bitcoin that you understand what percentage. Because the last thing you want to do is invest in something where the market is cornered by just a few individuals. And some of these bitcoins, most of it is cornered by 2, 3, 4 individuals who can affect the price dramatically in their favor. So I like investing in real estate because I can control that myself. I can control the growth. I can see what's going on. It's not going to have such a high increase and a low dollar, you know, big decline and steady growth. I mean that's the thing. If you're trying to get rich quick, you know, you might as well flip a coin, play a little Russian roulette sometimes versus real estate building wealth over time. And that's the way I look at things.

Yeah.

Slow and steady. Right.

You know what that there's, there's a story of the hair and the tortoise.

Yeah.

For a reason.

Yeah.

And Scott, this interest rate. Right. How it impact on the real estate prices? Actually because I have seen when interest rates are going high. Right. So it's actually to cool down the economy in some point. Right. So how it impacting indirectly in real estate value in overall picture?

So mostly. Well like I said earlier before, it's affecting commercial real estate more so because people can't refinance out of the short term loans and their cost of you know with commercial real estate when interest rates go up and they got to be that cash flow goes down which reduces the value and then operating income and the cap rates and commercial, it's really affecting commercial in the residential side people that it's, it's really constricted the buyer market. So somebody that could buy a $500,000 house at a 3% interest rate, if they're now trying to buy that same house, their mortgage payments more than double what it would be. So now if what they could afford was one number, now they have to look at half the value of the house. So if it's basically they're looking now at $250,000 houses to be able to afford something. Okay. So that's where the biggest impact is taking is you have to reevaluate what you're buying and what you can afford and go from there. And that's, you know, you also look at, if you look at the price points in the market. I had a real estate buddy of mine, Mike Mills on my podcast just the other day and he talked about that there's price points. So anything really. And this is just Texas, I can't speak for rest of the country, but in Texas anything below really 400 to 500, 000 is still moving. You're still having buyers for that. That's kind of your first time home buyer basis in Dallas and Austin, San Antonio, Houston, that neck of the woods, the, the market above that, the 500 to 1 million value mark is really slow. It's really dried up. There's not a lot of buyers for that because people that have property that's that are basically like, well, I've got a low interest rate at 2, 3%. I don't want to sell and now I have to pay 7% interest. I can't afford to move somewhere locally. So I'm just going to hold on to my house till rates get better.

Wow.

And Scott, I have seen one of your shout out on, on the class of Saturday, so we can invite even my, my audience here.

Yep. So yeah, we teach. I'm. For over 20 years I've been teaching and buying distressed mortgage notes. You know, we've got a podcast, the Note Closure show, the number one podcast for note investing. And by note investment, we buy distressed real estate by buying the mortgage and then trying buying the mortgage at a discount and trying to work it out with the homeowners or the borrowers to keep them in their houses for cash flow. If they won't work it out with us, then we have the right to foreclose. And now we control an asset that we bought, you know, 40, 50 cents out. What Ashkar is talking about is we offer a one day class called Note Weekend. It's a free class. It's about a four hour class where I go through the basics of note investing, how to get started, note investor. So yeah, if you go to noteweekend.com you can sign up there, register, there's no credit card required. Sign up for it and you get access month, basically.

Wow.

And Scott, for new entrepreneurs and who are trying to come into the real estate and what is your advice for the who and and at the general who are listening to my podcast here?

Like I said before, get educated. You know, learn. Listen to podcasts. You're doing a great job here. Make sure you do this. Make sure you go over and hit the subscribe button and make sure you leave a five star review here too. All right? That's one of the most important things you can do because we as podcasters like the to hear about this stuff and see that. But get educated. Focus on something that's working in today's market, not something that was, you know, four or five years old. Follow folks online. I would just simply say those that have the biggest chance, like I wouldn't be wasting my time going in and following Grant Cardone. Okay. I also, who doesn't love rich dad, poor dad, but Robert Kiyosaki is kind of doing something different now. So focus on finding folks that are in the niche that you want to be focused on. Talk to them. Most of the most successful people are most giving of their time and willing to answer questions as long as you don't just pick their brain over and over again. You know, email them, you know, pick up the phone, give them a phone call, ask them a few questions specifically, but be prepared, be respectful of their time and listen to what they say. Be coachable. If they tell you something's going on for a reason, it's there to tell you for a reason. Don't go do the opposite.

Yeah, true.

And because it's actually an investment and playing with money and you own money, you, you might earn from hard work and the savings and the trade and all. So think twice and focus on your studies. And you need to learn a lot from the basic and the advancement and go for the investment. And we recommend everyone to be rich, not look rich. And that's Scott. Thank you very much.

Thank you for having me on here. It's been an honor.