Unlocking the Power of Note Investing with Scott Carson - The Money Exchange Podcast with Patrice Dixon

Welcome to the award nominated podcast, the Money Exchange with your host, Petrina Dixon, certified financial education instructor, registered financial consultant and two time best selling author.

Hi, it's Petrina and you are listening to the Money Exchange podcast. The goal of every episode is to bring you relevant money and entrepreneurship topics and strategies to help empower you to become financially secure. What's up? What's up y'?

All?

Thank you for making it to another episode of the Money Exchange podcast. And it's your girl, Petrina Dixon, your awesome financial coach. Know that's what a lot of you call me, but I am a personal finance coach. I am a two time best selling author of the book entitled None Other than It's My Money and I am the founder and CEO of It's My Money, which is a financial education company. I always need to say that because I know there's a lot of people that tune in all the time but sometimes there are people that check it out that hadn't seen before. Wanted to make sure that you know who I am and I often on this show, although I have some solo episodes, I have wonderful guests that come on to share with you many different opportunities to either help you in your personal finances or start a new business or within your business journey. And this one today y', all, you are really going to enjoy. If you are driving, make sure that you go back and listen to it after you listen to it while you drive because you want to have paper and pen because he is going to. Mr. Scott Carson, who is the note closer himself, is going to give us information about another way that we could potentially earn money passively and get into the real estate game in a whole different way. So I am so excited. He and I had a discussion and he is going to be perfect for you all in the efforts that I know you are trying on your, on your financial journeys. And without further ado, Mr. Scott Carlson. Mr. Scott Carson. I want to make sure I say that correctly. The note closer himself. Hello and welcome to the Money Exchange.

What is up money diva? How you doing?

You know, talking about.

There we go, there we go. Thank you for having me. Honored to be here and just honored to serve your audience today. You know it's I love it hashtag, it's my money and we want more of it, right? We always want to do it. We want to get our money working for us. And I love what you're doing out here. Showing people different ways to get involved, put their money to work and work smarter, not harder in a lot of cases.

Exactly right. Exactly right. So I don't want to, you know, I don't want to have them, like, on the edge. We're going to jump right in. So I introduce you as the Mr. Note closer himself. So tell us what to know and tell us how you close those babies.

Yeah, exactly. So I'm in a different niche of real estate investing that most people don't know about. But unfortunately, most people are in the note investing space. What is a note? It's an iou. If you've got a mortgage, student loan, credit card, you know, Iris Lien, car note, whatever it might be, you're in the note space. You're just on the wrong side of the payment stream. You got money going out when we want money coming in. And, you know, that's, that's what people understand a little bit about notes. But what I do is I focus on buying direct from banks, direct from lenders, direct from Wall street hedge funds. I actually buy mortgage debt on residential and commercial properties direct from them on a one, you know, individual basis. Sometimes I buy in book, but I buy this debt usually at a big discount because the homeowners or the borrowers haven't paid their mortgage payment in a while. It may be six weeks or it could be six years. And we buy that stuff at a big discount. And we make our money. We make our money, honey, by doing some magic by, by, by working with the homeowners or the borrowers to actually stay in their house. Stay. Keep them in their properties. We can about 70% of the time. And if they can't stay in their house, can't come to a payment arrangement, then we'll work with them to liquidate the property. But I've been doing this for almost 20 years. I am known as the note guy across the country. And we've closed out over a couple billion dollars in distressed debt. So it's a niche within the big real estate investment space. No, we're not buying the property. We are literally buying the mortgage debt and becoming the bank and the lender and making money to keep people in their houses. I don't like rehabs. You know, rehabs is okay. The only thing we're rehabbing is not the property. We're rehabbing the bar. And I don't mean send them to the Betty Ford clinic. Okay.

Scar, you are who I love it. Okay, let me, let me back you up a little bit so we all know what the note is. I think people get that. That's the note. The debt that and you talked about I love how you said this. You're on the wrong side of it and you want, you're going to share with us how people could potentially get on the other side. So let's just go. Because I think what people may think about this is you are now purchasing someone's debt. They're no longer going to be in the home. So you just entered, you enter, you put that in there when you were going through your explanation. So let's just double back to that. So you find out about these opportunities to, you get this, you know, enormous debt at a little price, I'll call it a fraction of the price that they owe. And then what you do, take us through that process. So this I. A person is in a home, they got to a situation where they couldn't pay for whatever the duration of time that has been. You have now become aware of that. You then make that purchase and then talk from that point on.

Yeah. So when the bank send us these lists, we can cherry pick them. So I'll give you. Let's go through an actual example I'm working on today. How's that sound? Okay. This bank sent me this list of about 200 mortgages where the borrowers haven't paid anywhere from like six months to a year and a half. And this one property I'm looking at is worth about $200,000. The borrower owes 230, 240. They're upside down, under a while. Okay. Based on what I could find is that they were out of work for about six months and just haven't been able to get caught back up. Okay. So we were, we made an offer to buy that note at $100,000. Now the property is worth about 200. So we're buying about 50 cents of the dollar of value they owe. Member 225. 230. So we're buying a little bit less. My goal with this is if I can get to reach out to that bar and say, hey, hey, Johnny, what happened? You know, I'm now your lender. Do you want to stay or do you want to go? If you want to stay, you got to pay. All right, no pay, no stay. All right.

And so you're, you're a mess. Okay, good.

So, but he's got a, so Johnny's got a 6% mortgage on his house. Not too high, not too low. It's just right. Okay. If I can get Johnny to start paying on time again, it basically becomes a 12% cash in cash return to me. Buying it at 50 cents, you know, 50 cents on the dollar of 6%. That basically comes at 12% cash, cash return. Now the existing, the original lender wanted to bring the full amount that he was due, like 25 grand into the table. Well, Johnny doesn't have 25 grand, okay? But he does have three or four grand to bring to the table. He did his taxes, you know, I could be flexible and allowing him to bring a little bit extra each month to get caught back up on his payments. And so that's what we're going to do. We're going to actually allow Johnny to stay in his house, okay? Him, his wife and three kids got a new baby, okay? And we're going to allow them to stay in their house because he's going to start making his mortgage payment on time. He's going to bring a little bit. I said, well he's only got about five grand cash, so bring 2,500 to the table and then pay $200 extra per month for the next 12 months. If Johnny does that, that note will now be considered a reperforming note. Okay? Not only will I make 15 to 20% return in the first year on just a cash flow alone, at the end of 12 months I could turn around and sell that note back to the bank, back to Wall street at 85, 90 cents of the dollar. So if I bought it at 100 I could turn around and sell it at 161, 7180 without ever having to fix the property up, deal with toilets or trash outs if, and keep Johnny in the house and we turn something that's in a rough situation into a good situation. Now let's say Johnny is just blowing smoke up my ass, okay? Yeah, yeah, I'll start paying. Well, if he doesn't pay, I can foreclose or finish the foreclosure legally because I'm the bank. I have all the same rights that the bank does that made that loan. Just because I'm buying the debt at 100 doesn't mean Johnny gets out of the 225 to 30 that he owes, okay? He still owes that amount. Now if he makes on time payments for 12 months, I'll forgive some of that back debt as a, as a kind of a dangling carrot to stay on time. But if he's going to play hardball with me and he'd rather pay his only fans subscriptions and stuff like that versus paying the bank, then we're going to foreclose. And now I control an asset that's worth 200 that I picked up for 100 plus about five grand and, and work out costs along the way. I've got, I'm in a good position to turn around and sell that asset and make 50, 60, $70,000 on the sale. I don't like to do that. About 70% of the time. In the similar situation with Johnny and others like himself, we're actually able to keep them in the house.

All right, so let's, again, let's pull that back a little bit. So this is wonderful. So now Johnny can stay in his house. Is Johnny paying you every month or is Johnny is paying you every month?

I'm the lender, so he's not paying me directly. In the state that he lives in, it requires a licensed third party servicing company. So I pay that company $35 a month. They handle the collections, the payment of taxes, insurance. So he pays them in to the servicer and on the 5th or the 15th, I get a deposit into my account passively on what's left over.

Okay, Love it. So now if somebody's interested in this, so what? So it sounds like there may be an administrative side too as well, but you're saying you, you carve that out to, to the outfit that you just.

You don't have to be an expert. I'll tell you this because when you're buying debt, one of the big questions I get from people is do you have to have a license to do this? You know, like a realtor's license? And the answer to that is it depends on the state. Now, I buy in about 30 states, Patricia. Okay? I buy all across the country. No, I don't jump on a plane to go look at every asset that we look at. We use third party vendors to do this. Google, you know, that little tool, you know, to look at stuff. But like there are in some states, they want you to have what's called a debt collector's license. And that can require you paying a thousand bucks, taking a class, stuff like that. Don't need to do that. In, in most estates that we buy, if you hire a third party servicing company, okay, they handle the collections, they handle the borrower outreach. I don't have to go knock on Johnny's door. Pay me now. You know what I mean? Don't do any of that. Or if they don't, if they don't pay my servicer, then the servicer hires an attorney to handle the foreclosure. I'm sitting here in Austin, Texas, popping Modelos and barbecue in my backyard while Johnny's Four states away. And I can turn it. It's a, it's a great way to make passive returns with all the active headaches that come with owning a piece of property or rental. You know what I mean?

Yes. And you never really meet Johnny.

I prefer not to. I prefer not to.

Okay.

I mean, don't be wrong. I have in the past and when I first got started, I would make a lot of phone calls and talk to borrowers. I mean, I let him tell his sob story to my servicer. Then my servicer sends me an email, here's what's going on. I mean, the great thing is like when I'm buying these notes, but when I'm ultimately really buying is like a file like this, the collateral file. But there's like a hardship letter in here that I see talking about how Johnny fell behind, he was out of work, broke his leg, you know what I mean? His dog got run over by a reindeer, you know, something like that.

You know, so when you get in this business, you then are on a list or distribution to be able to get all the available properties that you've named. And then you choose from those. The one that you want to take on yourself.

Exactly. These, you know, you're not going to walk into a bank and say, hey, send me your list of notes. There's a different department, it's an internal department, it's a little bit different niche. But these banks do send me, these lenders do send me their stuff on a pretty regular basis. And like, it might be, it might be one note, it could be a thousand notes all across the country and I get to cherry pick, pick out the ones that I like. If, if I make an offer on a bunch, I know I'll probably only have half accepted. And then there's a, about a week to two week due diligence process of going through these assets. You know, sending a realtor out to drive by the property to pull comps, make sure it's the right, right property in good condition. Checking title to make sure everything's clear on the property, that if I need to foreclose, I can have an attorney evaluate the actual file folder, making sure all the necessary documents are in there that allow me to foreclose. And then we do, you know, then we do some due diligence on the borrower. Look at their social media, you know, check out their work history, look at the loan application in there. You know, what are they doing? Is it match up? Do they really lose their job or are they like, oh, I'M just living high on the hog and not paying my mortgage bills.

Okay, now if somebody's interested in this, because that you talked about all the cool part. And you know, this is, it's my money with Petrina Dixon. So let's talk about the money part of it, right? So are you. You said, and I like how you say this, you become the bank for Johnny. So how does Scott get his bank, his money to be able to do this? Do you then go to a bank? Do you already have money to be able to do this? How does that part work?

Yeah, I've got it all buried in the back backyard, you know. You know, leprechaun rainbow in my backyard, you know, I heard my pots of gold, Nathan. No, you know, we, you got to use cash, you know, lines of credit. I've used some of my own money to buy this stuff. But 90, about 95% of what we have bought, we have used other people's money to do this. And they're private investors out there. You can in some cases finance and stuff with a bank, but you still usually need to bring 15 to 20% down. And that's mostly going to be on commercial deals. But the residential stuff, you've got to have cash. But here's a great thing we, one of the great things is there's so many private investors out there that have money sitting on the sidelines. And one of the great things that we do is like, hey, we show people like, listen, if you're buying a note in Jacksonville, guess what? That's Duval County. That's a rich county. You can go to the Duval appraisal district, type in like Equity Trust or Quest Trust, and it'll pull up everybody that's used their self directed IRA to buy a property. And those are great people to reach out to to fund your deal because we know that IRA investors are investors. B, they've pulled the trigger and C, they got money, honey, so their money can help you get your money.

Yeah, I love it. Using other people's money to get OPM in the house.

You down with opm? Yeah, you know me. You down with opm? You know me.

I love it. I love it so much.

So.

Okay, wait, I got, okay, I got to get back with Tricare.

There we go. Thank you.

Because a lot of people. So you know when there's this term, and I did an episode on this a little while ago on wholesaling, so a lot of people know wholesaling, that not too many people may know about note purchasing, you can hold, you can.

Wholesale notes just like you wholesale property too.

So. So talk a little bit about that. For those that have teetered in the wholesaling that I keep. Am I saying it right? Wholesaling, what's the other word? Is that right? The flipping, you know, is what I'm talking about. So wholesaling versus buying the notes. Talk about a little bit about that.

Well, so wholesaling, all wholesaling is, is you put a piece of property under a contract, you know, it's a deal, you put it under contract and then you sell that contract to an end buyer for commission for a fee, a broker fee. It might be 1 point or 3 points or 5 grand or 50 grand or 100 grand. I mean, you're just flipping paper. You're selling the contract. You can do that in the note business of buy 8. When they get these lists and you find something that's a deal, you make an offer, you get it under contract and you flip that contract to a note buyer like me, who likes buying in God's waiting room like Florida or other places across the country different.

So if both of them, you're finding you're getting a list of a prop or property, you determine the one you're interested in can finance what however you get it with other people's money or your own. What is the difference between no closing and wholesaling a property?

Okay, you're. You're computing to activities. So wholesaling, wholesaling is the activity of flipping you can wholesale property or wholesaling notes. Okay, that's flip. Okay, notes is we're buying the debt. We don't actually own the property. We own the debt behind it. Flipping property. Flipping property. You have the deed or the deed is what transfers? Well, when I buy the note, the deed doesn't transfer because I don't necessarily own the property. There's an owner in it, but I'm the bank. But wholesaling is the act of just flipping the contract.

You have purchased the debt that in the other one. Well, I guess. Okay, got it. So what is the. If there's any myths out there regarding closing of notes, what would that be and how you, how would you debunk that?

You know, great question. I literally was answering this question 30 minutes ago with an investor, and then he was like, I tried to get into Note Investing like 10 years ago, and you needed to have like 5 million or 10 million dollars because you wanted to buy, you had to buy all these big, big portfolios. And I know that's incorrect. You don't need to have a huge amount of money. I've got a guy. Here's a great. A guy who's from Canada. He was actually down this weekend and spent a couple days with me. He bought his first note for 6500 bucks. Okay? It secured a $80,000 property where the debt was 40,000. So he basically bought $40,000 of debt for 6500 bucks. Okay? It's going to be about a 17% cash and cash return to him with a guy paying on time. And if the guy pays off, he's happy. He's making, you know, you know, he's making 33 and a half thousand dollars on a $65 purchase. If the guy stops paying, guess what? He can foreclose and either get paid off at the full price of the auction or take the property back. And now he owns an $80,000 property that he could do whatever the heck he wants with it.

Okay? And I love this fact, and I think, you know, just. Just to be sure it wasn't missed earlier, if you. Somebody stays in the home. So check me on this. Somebody stays in the home, right? And they start paying you as the bank now, and they then stop paying again for whatever reason. They lose their job again or whatever. Just don't pay. When you foreclose your foreclosing to get at the original price that you bought that the original price of the property or value of the property, not at what you got it for or.

That's correct. I forgot. No, no, no. They owe. To go back to Johnny's example, he owes to 25. The house is worth 200. I'm making my offer on either the value of the property if it's lesser or the balance of what's owed. Now, if Johnny only owed 140 and the house is worth 200, I wouldn't pay 100 for it. I'd probably have to pay 110, 115, because I know if I foreclose, I'm going to get paid full. Because he's at a low ltv. He's also going to fight me to avoid losing the home because he's got 60, $70,000 in equity.

Okay, got it.

So you've got to look at each asset a little bit different. What do they owe compared to the value of the property? I mean, you never buy a note on a property you don't want to end up owning. Okay? So if it's a. Just because the numbers look good. If it's. If it's a. A Piece of fertilizer, property trashed out. You know, I don't buy those. I, you know, we want to buy good looking property. And don't get me wrong, we bought assets. You know, for some people a $40,000 asset doesn't excite them. But that could be a nice property, say Akron, Ohio. Just because it's in OHIO doesn't mean LeBron's living in it. But you know, that same property might be a half million dollars in L. A where he's living now. You know what I mean?

Love it. I love it. So, and then if people, if someone is interested, listen to this, listening to this episode. Never heard of this before. How would someone get started? What would you recommend what they do to get started?

It's simple, obviously. We've got a podcast. The note closer show is the number one podcast out there to get to learn some stuff. We got a great YouTube channel too. Weclose Notes TV is our YouTube channel. We both have the number one YouTube and number one podcast in the note industry. 900 plus episodes in the podcast, 2, 300 plus videos, webinars, lessons on our YouTube channel. But the easiest thing is we've got a very easy one day class that we give away for free. If you go to noteweekend.com and get signed up for that noteweekend.com, put the code petrina in there, I'll know, tells her. But you can get that class for free. It's usually 99 bucks. We give it to you for free. It's about four hours of training on the cliff nuts version of how to find, fund and flip. And if you like that, then we can talk to you about more stuff. But that's the easiest way. Just go to noteweekend.com get signed up for that free class. It's not a pitch fest. I'm not here to blow smoke up your ass. I hate that. I want to give you significant nuggets that you walk away smarter and more intelligent and make your money grow faster.

Hey, and what was the three you said?

But wait, find something, find fun and flip notes, basically. So you have to find out, find and flip. Yeah, I show you how to find them, we show you how to find them and we show you how to flip them and make money in 1, 10, 11 different extra strategies.

I love it. Scott, you have to give me the link so I can drop it below and make sure they put the code patrina in there so you know how you found them or how they found you.

I should say that's Right, that's fine.

You know, as we talk through this and you and I talked, you know, as we got ready for the show and what I love about this is, which I didn't understand initially is that the folks that may be going through some hard times, which is a lot of people, you still, even though you're buying a note and you're making your money, you still try if they, if they desire so to stay in their home. Because, because sometimes people do fall in bad times. I love that aspect of this whole thing. And I think as, as people think about it, sometimes they think about it as I'm taking this, I'm refurbishing this, I'm doing this, getting people in and out or doing in and out. But there's still some, some, you know, heart in the whole process of if somebody really can and they show signs of the ability to pay and the desire to do so, that you, you know, a no. A no closer still, go ahead and try to make that happen for the family. I love that.

Yeah. So I. And then that comes from over 20 years ago when I first got into real estate investing. I fell flat on my face. I was a non performing borrower at one point I almost faced foreclosure. My first ever house we bought. And when I got through that, I said, God, if you get me through this, I promise I'll do whatever I can to help folks out. And I was able to save my primary home. I got rid of two investment properties without having it besides just some bumps and bruises. And I was very blessed to basically learn the note business from a couple mentors for about four and a half years. I had to basically an apprenticeship running a mortgage company. And I always said, let me. If I've got somebody who's in trouble and they can pay, let's work out a way they want to stay and they can pay. Let's work out a way to make it a win win. And that's. We actually are incentivized. The, the more that they can stay in the house, actually we make a higher return on our money. You know, if I have to foreclose and take the property back. Yeah. Is it a good day? Yeah, we can make a good day. But I never liked foreclosing. You know, unless somebody has just been a complete pain in the rear and is trying, is taking an inch and trying to take a mile. We've had those, those are people I've been glad to foreclose and pick to the curb because they were just asses but those that need help, we're willing to help. Now here's the thing. If you're behind, if you're listening to this and you're behind your mortgage, do not call me. Say, hey Scott, I want you to buy my note. Doesn't work that way. Okay, I want you by my note. I want you by my lender. I paid in a year, I can now not pay you. Doesn't work that way. Don't call me. All right? That way.

I love that. That takes that clarification because you people may reach out to you thinking if they're in their situation, thinking instead of you waiting instead of you waiting for them to go on a list that they can go to you directly. So if folks are considering this because again, you're helping to educate them and then we'll drop the link so they can get more Find, fund and flip. What advice would you. I don't like using the word advice. What tip would you give them to ensure they don't do like what was one of those bumps or bruises to make sure a new person starting out don't do?

So first of all, I got to commend you because I hate the word advice. Advice is like assholes. Everybody has one. You want to seek counsel when it comes to seeking mentorship and guides and that's the biggest thing I would tell you. The fact that you're here listening to It's My Money with Patrina on there, you're listening to somebody who's giving you great counsel. Not just advice, but counsel or bringing people on to help you avoid the hiccups and the pitfalls that will happen. If you're just trying to wing it, get educated no matter what it is. If it's not not investing, learn. Take time to learn about the niche of investing or a strategy that you're trying to dive into and be patient. You got to give stuff time. You've got to put the a four letter word here. Work. You got to put some work in, into your, your business. You know, that means making offers, learning due diligence and going that route and aligning yourself with like minded individuals. You know, you've always heard the saying that we're an average of the five people that we surround ourselves with the most. Well, if you don't like the pay grade that you're in, you need to get some new friends. So go to the local real estate investment club. Go networking, go to a conference. I think you and I are going to be at a conference together in a couple of weeks. Here in the big ATL and have some fun, you know.

Yes, exactly right. Exactly right. So you dropped some gems here. You may have introduced, you know, something to people that they've never heard before. Mr. Note Chaser, note Closer himself. So if they want to find you, not to go and buy their mortgage, but where would they find you?

Where?

How can they find you? Where can they find out more? I know you dropped it earlier, but say it here again. Where can they find Mr. Note closer himself? Scott?

Yeah, if you go to weclosenotes.com that's our main website, you can book a phone call with me, go to Talk with Scott Carson.com I keep it simple. If you want to pick my brain, I'm always glad to talk with you, point you in the right direction, find out what your goals and dreams are and what you want to accomplish. It may not be no investing, but I'll be glad to point you in the right direction and give you some counsel instead of just plain old bad advice.

I love it. I love it. Well, Mr. Carson, I truly appreciate you coming on, sharing with the listeners of the Money Exchange and it's My Money with Petriona Dixon another way, yet another way that they could earn money by dabbling in real estate. And this is in a different way through no closing. And why not learn from the best, Mr. Scott Carlson, the no Closer himself. So with that being said, I appreciate you all. You always keep it locked here and keeping the show going. I appreciate you hopefully that you continue to learn in other ways that you can add to your money journeys that you can live your, your very best life. Thank you for tuning in. And oh, if you haven't subscribed, drop down below and hit that red subscribe button. And then if you enjoy the show, leave us a comment and share with others. And if you're listening, make sure that you are following, following us on the platform for which you're listening. Thanks again. It's Petrina Dixon. And down below will be resources that can help you along your money journey. Make it a great day. Thank you for listening to the Money Exchange podcast. I'm so happy that you found us. If you have not subscribed, please do so. That really helps me and it'll also help you because you'll be notified each time I drop a new episode. New episodes air every first and third Tuesday of every month. We are available on all audio platforms. Again, we are called the Money Exchange Podcast. If you have not subscribed, hit that subscribe button. And if you enjoy, make sure you share this with family and friends and leave us a comment. Thank you so much for listening.