What Are the Different Types of Fees Associated with Note Investing

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This is the no Closer show where you get the latest developments in distressed note investing and learn the secrets of how you can control millions of dollars worth of property. For panties on the dollar. Get educated and entertained by someone who has closed thousands of deals and lives to support you in achieving the same. Now here's your host CEO of We Close Nodes, Scott Carson.

Hey Real Estate investors.

If you have ever wanted to dive into the sexy side of real estate and become a note investor and not just somebody that owner finances properties or buys and sells on terms, but somebody who's actually buying debt from lenders, mortgage bankers, hedge funds on distressed real estate on both residential and commercial properties. Now is the perfect time. And guess what? We have our upcoming three day workshop here in just a few days on July 25th, 26th and 27th. That's right, that's a Friday, Saturday, Sunday. You can join me live on Zoom and our Note Buying for Dummies workshop. We'll go through the Fs of how to find fund and flip non performing notes at huge discounts without having to use your own money. And we'll show you all the different ways you can make money being a note investor. Day one's all about how we find these deals from banks, hedge funds and how you can automate the process of connecting with these people and get tapes and listen to you over and over again. Day two is all about raising capital and marketing. We'll show you how to tap into thousands of IRA investors who are looking for deals to fund and how to communicate and how to contact them and get them to fund your deals. And day three is all about the flip the exit strategies putting deals together. We'll mix in due diligence. We'll mix in the marketing side along with the structure side. So much stuff in three days live on Zoom with yours truly, the Note Guy, Scott Carson. Make sure you get signed up by going to Note buying for dummies.com or click on the three day workshop tab on our workshop. Get signed up today as we're still running discounts and you too can soon become a no buyer.

Good morning, good afternoon and good evening everybody. Welcome to this special episode double episode of Not Night in America, the Note Close Show Podcast. Scott Carson here, the Note Guy. Excited to be here with you tonight or today. Whenever you're listening or watching this episode, I guarantee you want to take some notes because what we're going to discuss in this episode is something that doesn't really get covered by a lot of folks and their trainings. And different things and something you really need to know now. We dive into this in our three day workshop on a pretty regular basis. Talking about it, I'll talk about lumping a lot of things into specific buckets because I don't get so detailed. Some people will take their ROI calculus, try to figure in every expense and some expenses you'll pay these some of the things you want, some of these get lumped with other things. It depends on your structured so tonight's talk is all about the different types of fees associated with note investing. And like I said, I encourage you to ask questions, I encourage you to leave comments. I will gladly answer anything I can for you and help you along the way. So without further ado, let's dive into the content tonight. Whoops. As always, the different types of note fees associated with note investing no matter how you listen to if you're watching either on Note Night in America or the Note Close show, thank you for helping to make us continue to have the top Note podcast out there along with the number one YouTube channel as well. We do have our upcoming three day workshop in just a few days, March 22nd through 24th. You go to note buying for dummies.com that should take you straight to the the landing page for this. And if you use the code Weekend all caps weekend when you check out that price and a half, we're really excited about the class we'll do definitely do a a deep dive into this episode on that workshop on probably Sunday. But anyway, most people think of three four different types. There's actually six different types of fees when it comes to being a note investor. Now some of these are gonna seem like pretty obvious, others you won't. Maybe think about it. Some will be lumped into different things. One, I had to give a shot at the guy on LinkedIn who posted an article about the five types. What about the six? And I realized I have not done an episode in forever with types of fees. So he's the motivation for this episode. But literally when it comes to fees, you've got to consider these as part of your due diligence or upfront cost when you figure it on the budget side of things. I don't figure these in my ROI calculator, although they do kind of. Like I said, I go into figuring that I'm bidding enough to make sure and cover these. But this is one of the things. That's why you don't pay par for note or why you don't pay full value for a non performing note because there are costs associated with everything you're doing. Okay, there's due diligence fees, there's closing costs, there are servicing costs, there are brokerage fees, there are legal fees, and then lo and behold, there are marketing costs along the way in the front end, back end and continuing operation of your business. Now some of these, like I said, will go in a little bit together, can be kind of blurred and maybe a little bit of gray. But we went ahead and broke these out individually. And depending how you're structured or how you do things, then you may separate these out or do other things with them. So just give. Keep in mind these six things are pretty unique to what we're talking about now. First and foremost, always the due diligence is the first thing you look at. And due diligence is not meant to be difficult. It's pretty easy to do due diligence. You don't have to jump on a plane and fly out as part of your due diligence. I just had a call with a guy out of California. He's like, well, if I'm buying something in Florida, I gotta jump on a plane. No, no, there's a tool called Google to help you out with that. But the first and most important thing when it comes to due diligence costs is helping you understand, helping you with understanding the valuation. What is that property worth? What is that note worth? You know, and many times you're going to pay for a broker price opinion, a bpo. That's where a realtor goes out and drives by the property, pulls comps for you. Or you have a local agent that you already know work with family member that pulls a comparative market analysis for you. That's to give you a bit of an idea what the value of the property is worth. Obviously you always want to have somebody be your eyes and ears on the property, somebody to drive by, making sure it is actually what the numbers say. I don't always trust an automated valuation model and avm. I will do that more so on the property after I buy the asset six months down the road. But on the front end side, I want to make sure my property is there and it is what it is. There are some software services some people will use for comps like narpr or they'll use other things like Propstream to get a rough idea on the online value. Zillow, Trulia, you've heard of those? I don't pay for those, but I will always pay for a bpo. Of course there's another thing you need to look at is the collateral, the loan file. And you need. When you're starting off, you probably want to pay a service to evaluate the collateral view. Making sure that the loan file is 100% complete or if there are some holes in the collateral file, can those holes be filled? Can there be missing documents recreated or re signed? Making sure that the title is all there. Title review. As far as the assignments, making sure and checking taxes. I throw these on the front end side. Title is not going to be closing costs because you're going to do it on the front end side before you get to closing. Okay. And that's a due diligence cost. Checking what, how much in tax, the road. There are third party sources that will help you do that. If you want to do that versus doing yourself. I throw in checking rent rates if you end up having to take the property back. And that's one of your strategies as a note investor. What's the value of the rental market in that area? Is it a lot? Is it rough? You know, you need to know something as part of your due diligence. But that's the first thing on the front end side. Costs associated with that, a BPO, you know, 100 bucks, a full appraisal, 400 bucks, you're not gonna pay for a full appraisal. Collateral view. Maybe 100, 150. Title review may be 100 bucks. Your taxes and checking your rent rates, that'll vary if you're going to be using a third party. They may just charge you per file for that. Like if you use Rentometer, it may be 50 to 100 bucks a month or something like that. Okay. Number two is your closing costs. Okay. Now closing costs a little bit different. If you've got back taxes that need to be paid, I throw that in there as part of your closing costs. Okay. Insurance costs. If you're going to pay for your insurance upfront through force place insurance or making sure that it's covered so you're protected, I would throw an insurance cost in there as well. Obviously attorney fees to prepare the documents, the loan docs, that kind of stuff. If you are, you gotta remember in a note deal you're not closing traditionally at a title company, but you still have closing costs. Okay. You're not paying for title insurance by attorney fees. Maybe you're having to pay an attorney to prepare your documents and assignments. That may happen. There are recording costs, the cost to get the assignment or assignments recorded. You know, those are things that you've got to send out or Hire a third party to do that. There are wire transfer fees. You got to pay money coming in and then money going out. You know, you might even throw an escrow account. You got to pay for an attorney. Put an escrow account together. That might be a couple hundred bucks as well for you. All right. You might have your, you might be charging a fee on the front end side to manage this stuff. There's different things that go in there. You might even throw commissions in there as a closing cost. If somebody's paying for that, that leads us down the road to more of the brokerage fees. But we'll get to that later on. Servicing costs are an important thing to keep in mind. This is what everybody's familiar with. They don't realize it's a little bit different. For performing note servicing costs be a whole lot less. Maybe 25amonth. Somebody's paying on time. Boom, boom, boom. You have your third party servicing company and no, you should not be self servicing notes. Get a third party to do it. It's 15 to 25 bucks a month for them to basically collect the payments and go from there and send out statements. Non performing notes. You're going to be paying a little bit more, 90, $95 for them to do more of the aggressive borrower outreach. And that's going to lead to different fees associated with that. Now I throw in force place insurance if you don't have to get insurance on the property yourself in this because oftentimes you can have the servicing company put this at the note or the property under their blanket policy and then you're basically paying the fourth place cost through your servicing monthly or the borrowers paying it through the third party or they're paying it separately and stuff like that. Okay. I throw in miscellaneous servicing costs a la carte fees because if your servicers negotiate a deed lo there's going to be a cost for that. If they're doing a loan mod, there's going to be a cost for that. They're going to get paid on these a la carte fees to have some sort of resolution most of the time. Okay. And it's all based on success or kind of what kind of they work out. If they work out a payment plan or deal or modification. There are different things they work out they get paid to do. That's part of what motivates them. Keep going. Now you can hire a special servicing company come and be much more aggressive in the first 90 days most of the time. And that may be a short contract. Maybe 90 days, maybe 500 bucks a month for the first 90 days. And they also, you'll get probably paid a la carte fees most of the time. One thing people don't realize is once you get the loan file to you, you probably need to go recopy it. This is one of the most expensive aspects that people forget about is copying the loan file so it's up to date with the new assignments, any other documents that are missing, and then saving that somewhere for you and I, you know, storage costs. I would throw this sorting the collateral files as a servicing cost because many people will pay their servicer to all the collateral files or you'll have it through a third party vendor. We also have to keep in mind servicing costs is many servicers will have either a minimum amount of loans you have under management with them and like it might be 100 loans or greater, or it may be a minimum servicing cost. Like we bought a couple, two notes from one company a couple years ago and their servicer had a $5,000 minimum servicing cost. So even though we only had two loans that they were barely servicing, they were going to charge $5,000 per month. Like yeah, no, we'll transfer to a much cheaper servicer for these two notes. And that's what we did. So you got to keep that in mind. Some servicers are be more expensive in this small note investor space. Essence Servicing will take on newer investors, but they're also one of the most expensive when it comes to a la cartes and workout costs. So keep that in mind. All right? Not all servicers are created equal. All of them are decent in some sort of fashion, but they all suck. And the idea is to find something that you can live with, right? Remember, servicers work for you, you don't work for your servicers. Okay? Now brokerage fees are a cost of doing business and it's. Well, you have to keep in mind the brokerage fees. It's not like you're paying a realtor, you know, 3% of the buying side, 3% of the sell side. Brokerage fees, when it comes to note investing is dealing mostly with note brokers or wholesalers. Okay, Note brokers. Like I deal with a couple guys on Wall street that they send me tapes, list of notes all the time and I'm going to either a usually going to give them a percentage of the funding amount. It might be a 1% or 11 1/2% of the funding amount. In some cases there are people that will charge a flat fee. Like it's either going to be 1% or $500 at a minimum per asset. There are some platforms out there that you can move and sell notes through that they have a flat platform fee, they charge both sides of the buyer and that's fine as long as you're happy with it. Okay. There are wholesale fees, same thing. If you have an individual wholesaler that brings you a note or take, there's the same thing. You're in charge of a flat fee, 500,000 bucks per note, a percentage of the funding amount. Or me, if I'm wholesaling, I'll take a look at what that deal will hold and making sure that I'll charge more. I won't usually charge a 1% on a non performing note. It may be five grand, maybe 100 grand. I mean we've had wholesale fees go up to that 100 grand part before because it was such a deep discount on such a good deal. So I don't look at wholesale fees as a negative. If it's a good deal that I wouldn't have gotten any other way, hey, it's a bonus. But what I will not do is if a wholesaler brings me a tape that I already am direct to the seller on, then I've already gotten the tape. I'm not going to pay them an additional fee as well. Now most of the time brokers, wholesalers are going to want you to sign some sort of fee agreement for a period of time. And I'll glad to sign that fee agreement and pay them for up to two to three years off that. As long as I'm not already connected to that asset manager something. Keep in mind it's a cost of doing business. But hey, if, and here's the thing, pay your brokers. The last thing you want to do is not know, pay for brokers and get blacklisted. Okay? Legal fees is very common. People think about legal fees as basically just foreclosure. There are other fee legal fees. Obviously if you need to hire an attorney to foreclose, you've got to hire an attorney in every state. And that can vary from like a thousand bucks here in Texas up to like 10,000 just to do the foreclose. There may be a cost of doing business. Cash for keys. I thought this is a legal fee to do a deed in lieu of foreclosure. I'm gonna give somebody 5,000 bucks or 10,000 bucks or 500 bucks to walk away. We'll usually have that funded with our attorney and have them take care of that. A cash for Consent. If there's a second lien on the property, we can't do a deed and lose, so we do a cash for consent. Same thing. Is basically the borrower saying, yes, I'm signing over the property and it helps us expedite foreclosing at the second ongoing legal costs. If you're buying notes in a longer foreclosure state and that borrower is dragging that out, that foreclosure out, guess what it's going to be, it's going to be costly. We've had legal fees up to 50 grand on assets that took two years, three years to foreclose because the borrower kept doing different things to drag it out. That got expensive. But we knew that on the front end that the profit margin was there. If you need to hire a bankruptcy attorney to represent you if the borrowers filed bankruptcy, that's going to be separate fees as well. And I also will kind of throw this in here too. There can also be some servicing costs along the way with your legal fees. If your attorney's handling the servicing side, they may charge some of that stuff in there as well. Or you may be running your servicing fees through the servicer or your legal fees through your servicer because they're the ones that hold on the attorney. So you may see your legal fees be included in your servicing statement. Okay. There's also one thing to keep in mind. Depending on what state you're buying in, some states will require you to be separately licensed. So I throw that as a legal fee to get a license or to pay. Like in Illinois, if you want to be a debt collector, you've got to pay like 750 to the state of Illinois for a two year license. So I throw that as a legal fee in there as well. Okay. Now this is the last fee that most people forget about and it's the fact of doing ongoing business. If you're going to be a note investor on a regular basis, you're going to have some marketing costs. But here's the thing, nobody really teaches the marketing side of the business. And it's one of the most valuable things you need to do to get the word out to find deals, find funding and move your assets on a regular basis. I'm not just talking posting to LinkedIn or Facebook, I'm talking the marketing fees include more things like that. If you're going to treat this like a business. And here's the thing, note investors that are successful do treat this like a business. And there's cost of doing business. You're going to have website costs, you're going to have landing page costs, you're going to have email costs to have a good CRM. Not mailchimp or Google. I'm talking like maybe keep or constant contact or other things like that as well out there. There's a monthly cost for having a CRM based on your contacts and what you send out. You may hire a virtual assistant to help you with your marketing. You know, maybe they're the ones going out and contacting asset managers or brokers to find deals for you or they're doing the due diligence aspect of it or they're posting the deals for you. I throw in attending different conferences, events across the country, networking as a part of your marketing fees. You're marketing yourself, marketing your business. And so you got to keep that in mind with those costs are associated. Some events are cheap. 20 bucks once a month or it can be like 1500 to 2000 bucks plus airfare fees. Okay, marketing software. By marketing software, I mean a variety of different things you're gonna be paying for a monthly basis. Like what we do, we use Canva on a monthly basis. We're using a text messaging blast service, easy texting we that goes through our CRM, but we also have another service that we use and then out postcards. If you're doing any type of direct mail campaigns to IRA investors, letters, postcards, you know, do any type of video or audio hosting like a podcast or YouTube channel or anything like that. Buffer.com for your social media marketing or maybe a third party service like that to post stuff on a regular basis. There are marketing fees and it will vary across the board depending on where you're at. Here's the big thing. People often ask me. How much money on the front end do I need to have? You can do this really cheap. All right. And when you start off, you're going to do things on a very bootstrap budget. And that's a okay. When I started, I didn't have a website or a landing page. I used my LinkedIn profile initially as my landing page. Then I got a cheap one page and then we I paid for a professional aspect of things. I didn't go to a lot of conferences. I would go out and networking a lot though. But I'm sort of adding little things to your aspect of things. So you can start off very cheap. Maybe 100, 200amonth with a cell phone and Internet. That's great. But at some point, if you want to grow, you need to start Having a website, having a professional domain, you know, domain hosting, you know, website hosting fees, those kind of things. Dedicated phone line for you, those kind of things are important for you to get the word out we're doing. So it all depends what you're going through. If you're happy and you've got money on the side you don't want to market, that's fine. You're just gonna have a harder time finding deals and getting your assets moved by not building relationships. And that's one of the biggest costs out there. Questions? Comments, Concerns? Let's do a quick recap here on the different types of costs. Again, there's six different costs or fee types. Once again. Whoops, let me go back here. Therehere we go. Six different types of fees. Once again, those fees include due diligence costs on the upfront side, closing costs, closing on the deal, servicing costs for maintaining the loan, working through the performing, non performing brokerage fees and paying people or brokers to send you deals and stuff like that, legal fees to foreclose bankruptcy licenses costs, things of that association. I throw in legal fees in there like cash for keys, deed and loans and stuff like that. That could also be considered kind of servicing costs. But I wanted to separate the two because it's more on the legal side of aspect to pay that. And then of course your different marketing fees which can vary from very small to very not. Here's the thing with your marketing fees, don't get so bogged down. I gotta have every new cool tool. Some tools it's great to have and others it may be just ego and you may not need to do that. So one of the things that we do on a regular basis, our marketing is constantly evaluate what are we paying for each month? Are we using it or not using? If we're using it, it's producing great. If we're using over a paying for something that's not producing, cancel it and move on and get something else out there. So hopefully that was valuable for you guys. Once again, we do have our next upcoming workshop. March 22nd to the 24th. Note buying for dummies.com costs normally 9.97. If you use the discount code weekend, you'll get it at half price. Get a ticket for your spouse or business partner for basically just under 500 bucks. You get the replays to the three day workshop. When you get signed up, you'll get the replays. The previous Class A 200 page manual, four weeks of ongoing coaching calls that follow the class as well. With yours truly on Wednesday or Thursday night. So no, that's not buying for dummies.com get signed up guys. If you really want to dive in the note investing world, then hey, take it from the guy that stopped. More, more successful investors out there have closed on thousands of deals and closed on thousands of deals myself, continue to buy notes on a regular basis. So go out, take some action, buddy, and we'll see at the top by.