Become the Bank and Work from Anywhere: Invest in Mortgage Notes Today

Hey, it's Mark Podolski, the land geek with the favorite niche real estate website thelandgeek.com and on this week's Art of Passive Income podcast I have my good friend Jamie Baben from Labrador Lending. Now if you're not familiar with Jamie, he is the founder and of Labrador Lending and has been active in real estate since 2010. And he started buying and selling mortgage notes since early 2018. And he's acquired over 75 mortgage notes with principal balances in excess of her $4 million with collateral across 20 states. And growing he owns several small businesses in a multi state rental portfolio with over worth over 30 and a half million. So he's also was a company commander and a captain of the U.S. army. Jamie, thank you for your service. And he was deployed in Iraq. So Jamie Bateman, welcome.

Thanks Mark. I really appreciate you having me and I'm hoping to add some value to your listeners today.

Yeah, so let's just rewind the tape a bit. And how did you go from Department of Defense into business and real estate?

Well, I had it all mapped out when I was 5 years old and okay, no, that's not true. I was able to work part time for the Department of Defense while I was building kind of my, my side hustles. And so I worked full time at DOD for about 7 years and then worked another 7 years part time and was able to have health insurance and benefits for my family while I was able to kind of slowly grow my, my outside businesses and so didn't do the rip off the band aid approach until this past year about a year ago now and quit my W2 in March of 2022 which we can talk about. But yeah, how I got into real estate was I worked for a title company back in the day. My father was a real estate agent, my brother was a loan officer. So kind of knew had some fundamental knowledge regarding residential real estate. My wife and I have had a rental for quite some time and then in 2015 really started to get serious about the investing side of things.

Yeah, let's, let's just because you brought it up, let's talk about the plan of quitting your W2 and what that was like for you.

Sure. So in case your listeners were confused, I haven't had it all planned out since five years old, but I did have the luxury of a little bit more time than maybe some people do with regard to the transition away from a W2. And so everyone's circumstances are different and there's no one size fits all approach. I knew that I didn't want to stay in my. My W2 forever. You know, that was certainly something I just. Every year that went by, you know, I became less and less passionate about my day job, which I'm sure your listeners can relate to. Just the commute and all that stuff and just the kind of Groundhog Day thing and so much red tape, especially working for. For the government. And so what I did was instead of. So. So for several years, I. You know, when you have small kids and you're building your family, I'm sure some of your listeners can relate to that where you don't even have time to think about what's next. And so there was a period of time, probably in my 30s, where that's, that's. I just put my head down and kind of, you know, worked my W2, but then decided to take. I think it was around 2014, 2015. I really made a mindset shift. And I know had you on my podcast and we talked a lot about mindset, but the importance of that. And I started to. Instead of feeling sorry for myself and saying, oh, my life sucks. I've got this long commute, every day's the same. I had no free time. I started using my commute time to listen to podcasts, bigger pockets and many others, and started to gain knowledge. And so what happens is your mindset shifts and you start to realize you have a lot more control than you think. And so I started to put into place a plan to eventually leave my W2. And I can certainly talk about how I actually ended up doing that, which I. I still find somewhat amusing, but I did not. Oh, yeah. I mean, since you.

Since you bring it up, let's hear the story.

Let's do it. So if you. So here's what happened. About six, seven years into working part time at. And I worked, you know, I had a top secret clearance, all that stuff. And, you know, it sounds cool, but ultimately I was working at a. I had a desk job and I was editing reports. It wasn't anything super thrilling. So I knew I was going to leave. It was just a matter of timing for the family and everything. But what happened was I ended up injuring myself about. That's. Let's say, 16 months ago. Ruptured my Achilles, was out of work for. I couldn't drive for a couple months, two, three months. And so I. I had the taste of not going to my W2, right. And so I knew I was going to leave. It was just a matter of when and I talked, talked this all over with my wife. It wasn't just me being a cowboy necessarily, but come back into work after this extended period of time and I, I don't know if you've seen office space where the guy gets moved to the bas and he's got his red stapler and all that stuff, which made. Red stapler, exactly. So, man, I walk up to what I thought was my desk and I don't think I've told this story on a podcast, so this will be fun. But I walk up to what had been my desk and I find some. It was a young military guy. And I said, you don't know who I am, I don't think, but this was my desk. I'm curious if you have any idea where I sit now. And, and he just kind of shrugged me off and kept typing. So then I finally walk around, walk around the office. I finally found, find a box with my name on it with a couple of monitors that were kind of, you know, sagging. And my first thought was I should grab that box, head out to my car and never come back. Now I would have to make sure there was nothing classified in there. But the reality is I quit that day. And I said I'm done. I, you know, and they're a huge organization. I was just a number. They don't, you know, they don't care. But I knew then and there I was done and I never looked back. Now I did come back into work. I, you know, didn't just leave that day and never come back. But it was so, it was so clear to me that was the right decision at the time.

So that's, that's amazing. And didn't seem, I mean, I, I, you already laid the groundwork. Financial.

Yes. Correct.

Be able to, to quit your W2. And I'm assuming then you had already replaced your income with passive income from real estate.

Yeah, I mean, it was close to it.

Close.

It was close. And you can get into the whole what is passive? And you know, I definitely had a lot more income than I, than I otherwise would have. Right. And, and I do. The thing is, if someone has a full time job and they're building their, their side hustle, their passive income, then they quit their W2. There's always a loss in income. I mean, so there is a loss in income because I no longer have my W2. Right. But I did have more time and more focus. And what I had found was over those seven years where I was building my, my real estate investing and mortgage Note investing portfolio and businesses. I found that that's where my heart was. And so, you know, I wasn't as effective and committed, effective at and committed to my day job as I had been previously. And so I reached a crossroads mentally where I said, look, I can reinvent myself here for DOD and really go all in and kind of give them what honestly they deserve, you know, or I can just, just call it quits. And, and that's what I did. So yes, I, I had been actively, and my wife and I, my wife was a big part of it as well, building up our, our businesses on the side, our, our rental portfolio. And then now we have, I have a couple of mortgage note funds that I run and then we also started a loan servicing company that we can get into. But I have a lot more going on on the active and passive side outside of the W2, which allowed me to make that decision to leave.

Yeah, you would be the first person on this podcast with a mortgage note fund. So let's talk about what is a mortgage note and what is a mortgage note fund and why should people invest in them?

Absolutely. So I know you're, you're a lot of your listeners are very familiar with land investing and the sexiest of all niches. Exactly. If you're entitled to your opinion, Mark. Now I'm kidding. So I know you, I know you all. I haven't actually really gotten into to land investing, but I know you do create either land contracts or notes on the land sometimes when you sell on terms. So mortgage notes really are not any different. It's just the mortgage notes that we buy are typically on single family, residential, owner occupied properties. So the high level overview is that we buy both performing and non performing mortgage notes. And I'm not going to try not to get too far into the weeds here, but we buy notes that are already originated. So a lender would have originated a mortgage note to a borrower. Okay, so we buy that debt and we become the lender, we become the bank. We buy notes where the borrower is paying and for buy those for cash flow. And I think most people can kind of understand that you buy those for a yield and a monthly payment. We also buy non performing mortgage notes which, which are more like a fix and flip property or distressed property where you're buying something that has distress to it and you're adding value to that. And so lots of little rabbit trails we could go down. But essentially we're becoming the bank, becoming the lender, buying that debt and the borrower now owes us payments. And so there are many ways to make money through this. And we have both a non performing note fund and a performing note fund that, that I oversee. So.

So why do you think you're the first person to be on this podcast? I've been doing this a long time to have a node fund. And why. So why do you think it's an overlooked niche and what do you love about it? What makes it hard?

Sure. Great questions. It is definitely a niche within a niche. Right. So I think that's the first answer is it's just, it's a very small space. There really aren't too many people doing it and you start to get to know most of the people in the. In, in this space. And so I wasn't aware of it either. What happened was I was, I kind of had checked the box with regard to single family rentals and kind of got a little bit bored with it, to be honest with you. And I said, okay, I understand this now. It's. It's cool. I like them. They're, you know. But I wanted something different. So I started researching mortgage note investing and tax lien investing. I don't know if you've had a. I could get you a tax lien expert.

I, I've talked a lot.

Okay. Okay. So. But I think, you know, it is definitely a niche within the, the real estate single family niche. And, and there aren't, you know, there aren't that many deal flow has been a challenge recently. So, so you could argue the opportunity hasn't been what it maybe was a few years ago, although I think that's starting to change. But no, it's, it's. I think the most people just don't know about it, honestly. And you know, you can get into all kinds of niches within this niche of seller finance notes, second versus first position notes, performing versus non performing. You can buy notes that are not mortgage notes, like car notes and things. Anything that's, that's debt. So, yeah, I'm happy to be the first one on the show. I mean, that's, that's exciting.

That's awesome. So what do you love about it?

Yeah, you can do this from anywhere. You can absolutely be a note investor from anywhere. And now we do have a couple teenage kids and reasons were kind of somewhat tied down, you know, on my personal side of things. But you, if you have a, an Internet connection and a telephone, cell phone, you can, you can do mortgage notes. Another thing I love about is, is the collateral.

Jamie, don't, don't we need money to.

To buy mortgage notes. You do need money. And so I do actually recommend most people if you want to get into this and you can, ultimately you're going to decide if your listener out there is, is saying, I want to check this out. You know, it's no different than, you know, I know you have the done for you land investing model that's probably pretty similar to our fund model where it's mostly passive and so but you can absolutely go the more active route as a node investor and kind of, you know, you're not physically, it's not a physically demanding thing, but it's not quite as passive as investing in a note fund or the done for you land flipping model. So I do recommend most you start off with your own money, to answer your question. But at some point you're going to run out of your own money or the capital that you have allocated to this venture. And so you do need to figure out how to use other people's money, how to access other people's money to scale your note business for sure. So the three parts of the note business, other people's money or access to capital, that's one, Number two is access to deals notes and then number three is the asset management. And which is. I know you're familiar with all three on the land side for sure.

Yeah. I mean, it's not too different from the land business in the sense that we were creating notes and we actually buy land notes. We love land notes. And when you sell land note, the math makes a lot of sense because then you get your cash out and you redeploy it because of our huge margins. It makes a lot of sense. Now emotionally, a lot of people don't want to sell their nodes because they don't want to take that passive income hit, which I totally get. But when you do the math, it's the best way for them to raise capital, but that being one part of it. But for you, as far as you've got to raise capital, you've got to source the deal and you've got to manage it. So of those three, which is the most challenging and which is the one you're like, yeah, let's go.

I actually enjoy the asset management. I'm familiar with, you know, residential real estate. And so I do think if you're familiar with real estate itself, that gives you a big leg up in mortgage note investing because the real estate is the collateral. And that's another thing that's great about mortgage note investing. You do have collateral just like the land is on a land note. So that's a huge plus for mortgage note investing. And so the asset management, I actually enjoy capital raising. There's been a lot of, there's a lot of capital out there still looking for home, you know, looking for yield, looking for a home. And that part is somewhat new, I would say. Of the three, those are the, that's the, the one piece that I'm learning still. I mean, we've, we've, you know, I've had, I have two note funds and we started the, the first one about a year and a half, almost two years ago now. Prior to that, I was using, I was working with other people's capital through joint ventures and selling of partials, which is a whole probably three episodes in and of itself. But so I would say the hardest the, the one that I like the most is asset management. The one that's been the biggest challenge and I think this is mostly for, because of just market conditions recently is deal flow. And so access to the notes themselves, that has started to open up some here in the last six months, I would say. And you know, that's a million dollar question is, is where do you find these notes? Right. And it's very much a relationship business. It's very much an inefficient marketplace. There's no, oh, here are all the notes you, you want to buy. You know, so we have a list of note brokers and, and note sources and smaller hedge funds and note larger note funds, larger than ours, who sell notes at any given time. So there are, there are ways to get, you know, and then what you do is if you close, people come back to you, Note sellers will come back to you because you actually did what you said you were going to do. So I know I rambled a little bit there, but I think that my favorite is the asset management piece and my least favorite favorite is probably sourcing deals.

And if I wanted to invest in your fund or the listeners wanted to invest in their fund, why should they and what should they be expecting?

Sure. Great question. We. So the only fund we have open right now is our income fund, which is a monthly cash flow play and it is for accredited investors only.

And so you define real quickly when an accredited investor.

Yeah, I, I guess it's 2, I'm trying to think it's $250,000 income if you're single. And is it 350 if you're, if you're.

Yeah, I think it's 2, 250 of income if you're single, at 350 if you're married and then. Yeah, million dollars in my worst residential home.

Excluding your primary residence. Exactly. So. And there are some other, there's some more fine print to read. Yeah, but those are the big, they.

Want you to be a somewhat, yeah.

Educated, educated actor.

You can lose money and you're fine.

And the, the thing is I, I like working with non accredited investors, but the way, but I don't, I don't write the laws and so it just made business sense for us to go the accredited route only. But the fund that's open right now, which is actually closing at the end of March, is for accredited investors and it's a monthly cash flow play. So there's, you know, just like anything, there are pros and cons, right? There are pros and cons to this note fund. Some of the cons are that there's no upside. I mean, there's no upside potential. This is a boring cash flow play. If you're looking for an 8% yield and you want something that's backed by hard physical real estate, this is a great option. And the other couple of other quick, you know, benefits quickly are that the, your money is, is collateralized across assets in many different states. So we buy, we've actually bought in 25 to 30 states. And, and then your, your capital is also spread across multiple notes, multiple borrowers. So not all of your, you know, money is put into one mortgage note. And so you're kind of spreading your risk. And in this, you know, these times of uncertainty may not be the worst, the worst option for someone who doesn't want to roll up their sleeves and learn note investing. But they want, they have capital and they want to put it to work. They want to, you know, do better than a savings account or a CD. And the other thing is it's only a 12 month commitment so you can get your capital back rather quickly. So our other no fund is not open right now and we'll probably do another non performing note fund at some point. And so those are some of the downsides and benefits of our funds.

Yeah, I mean, I could imagine. We're in the passive income mastermind group together with Russ and Joey and Sharon and they're all accredited investors. But I can imagine if I have this infinite banking policy and I can borrow at 5%, pay back interest only over a year and if I'm doing it through a business, I can even deduct it. So maybe it's 3%. I'm making 8%. I get my money back in a year, I then pay back my policy, I then pay my premiums. I mean, it's not the worst strategy and it's the risk reward ratio makes a lot of sense versus, you know, some other play where you might get higher yield, but you may not get your money back that quickly. Yeah. And you may not love the asset that's underlying it either.

Exactly. Yeah. And like, like a typical multifamily syndication, which is a fine option. And I've invested in those, those projects as well. But it's, it's normally one, one asset, one actual property usually. And it, you may get your money back in five to seven years. And so it's a very different play there. So there's more potential for upside there. But you're not getting a monthly check.

Exactly, exactly. Well, Jamie, your mentorship about note investing has been invaluable, but we are now at that point in the podcast. I'm going to ask you for your tip of the week. A website, a resource, a book, something else actionable for the art of passive income listeners to go improve their businesses, improve their lives. But before you do that, I have to give a shout out to our sponsor, which is flight school. Learn how the next 16 weeks can transform your life. Go up that mountain of land, investing quickly, safely, efficiently with Scott Todd as your Sherpa. Start making that passive income without renters, rehabs, renovations, or rodents. Go to thelandgeek.com training. I know what you're thinking. Well, how much is this investment going to be? It ain't going to cost you nothing. Guaranteed you're going to make it back 180 days or less. Just show us your work. So go to the landgeek.com training. Jamie Bateman, what is your tip of the week?

So I'm pretty sure not only will I have been the first mortgage note investor on your show, but I highly doubt anyone gave this tip. Okay, so far. So it's a book. I had a guest on my podcast. His name is James Harold Webb and his book is Redneck Resilience. That's the. It's a Country Boy's Journey to Prosperity. I'm almost done the book and it's fascinating. It's about his own, his own life and his own story. And there are many ups and downs in his entrepreneurial journey and he's done very, very well. But he's also faced a ton of personal adversity that he talks about in that book. So redneck, A country boy's Journey to Prosperity. This is the book I recommend.

James Harold Webb.

Wow.

Well, make an introduction for me, brother. I want to get him on the podcast.

That's fantastic. He's great. He's fantastic. I will.

That'd be great. Well, that's a good tip of the week.

A little different, right?

Yeah. My tip of the week is actually going to make you money.

Okay.

My tip of the week is. Learn more about Jamie and his funds and his podcast. Go to labrador lending.com labrador lending.com and for those of you that might look at loan servicing, he's got a little loan servicing button here as well.

Bifi Loan Servicing.

Buy Investors Fully for investors. A fully compliant licensed mortgage or servicing company for private note investors. I love it.

So you can take land notes, Mark.

Fantastic. Well, I've got GeekPay IO if you want help with the software as far as managing the actual math and the.

I wouldn't mind talking about that later.

Yeah. So, labrador lending.com Jamie Babin. Are we good?

We are good. I do. I do. I say we're good and then I keep talking. I do mentorship for the more active note investor who wants to learn learn how to be a note investor as well. So thank you so much, Mark. This has been fantastic. I'm hopeful and confident that your audience will benefit from this episode.

I'm more than hopeful. I am confident. And I. Speaking of the audience, I just want to remind you that the only way, the only way I'm going to get the quality of guests like a Jamie Bateman from LabradorLending.com is if you do three little favors. Follow rate Review the podcast. Send us a screenshot of that review to supportlandgeek.com I'm going to send you a signed copy of Dirt Rich, which might be worth something one day. Who knows? But even if you don't want the book, it just helps us and guests like Jamie look at our ratings and say, oh, they got a lot of ratings. I'll definitely go on that podcast. So it helps you, it helps us. So just please do that. All right. Well, as I always end, let freedom ring. Thanks, everybody.

Thanks for listening to the Art of Passive Income podcast. Are you ready to learn how you can start building a passive income without renters, rehabs, renovations, or rodents? Schedule a free consultation@thelandgeek.com forward slash training. Let freedom ring.