Everybody is already deep in the notes space. However, most people are not just aware of taking advantage of it from an investment standpoint and shifting the payment stream to your benefit. Jim Pfeifer is joined by Scott Carson, Owner and Managing Member of WeCloseNotes.com and Host of The Note Closers Show. Scott shares valuable and actionable tips in winning big in the notes industry, from servicing and buying notes to finding the right sponsors to take care of your finances. He also explains how he handled cash flow issues due to the COVID-19 pandemic and maximize the steadily growing market in the future.
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Winning In The Notes Space With Scott Carson
I’m happy to have Scott Carson with me. He is the Owner and Managing Member of WeCloseNotes.com, a defaulted note buying company. He specializes in finding nonperforming notes on residential and commercial properties and purchasing these notes for his portfolio. He is also a nationally syndicated radio host of the popular podcast, The Note Closers Show, which has millions of listeners across the US and more than 130 countries. Scott, welcome to the show.
I’m honored to be here. I’m here to give to your amazing audience.
The way we like to start is to find out a little bit about you, how you’ve got here, meaning what’s your financial journey? How did you get into notes and real estate-related things?
It’s a dream of falling flat on one’s face. I started like many people. I graduated college degree in Business and Finance. I started working in the workplace and married. We bought our first house. Many people back in 2001 to 2002, were like, “We are excited to buy our first house.” Our realtor was like, “It’s a great time to buy. You’ve got great credit scores. Have you thought about being an investor?” I was like, “Yes, my dad owned a local hardware store.” I’m like Tim The Tool Man Taylor. I can repair anything. We bought a couple of investment properties around our house. I live in the North of Austin.
At that time, I lived in Round Rock, Texas. Down the street from a computer company that rhymes with hell. My tenants moved in. They were all working, and then the crap hit the fan. A few months later, I’ve got laid off from my job, walked in and they are like, “Thanks for coming. Thanks for working for us. You are now unemployed.” At the same time, Dell laid off a lot of their employees, including my tenants. I went from excited landlord to a deadbeat bar. We were trying to make six mortgage payments, 3 first, 3 seconds on a private school teacher’s salary.
You don’t have to be a genius or good at math to know that doesn’t work very well. We’ve got rid of the two investment properties. We did a loan modification. Our primary kept it from going to foreclosure. I did any odd job I could do to make money at the time. We’ve got our assets out of a sling. We licked our wounds for a little while. About a year later after getting back into the finance side, I was a banker for JPMorgan Chase, their top banker here in Austin and Texas. I did well with that.
A buddy of mine that I knew previously, who had also been laid off and started a mortgage company, this was 2004, and I went to lunch with him and a couple of investors he was doing the mortgage company with. I realized that’s what I wanted. I want to get back into real estate investing. I tried to go off of my knowledge versus being educated or learning.
I didn’t know as much as I knew. I was a lot more coachable the second time around. We were doing mortgages in 30 different states. I was sitting in the back of all these big expos and seminars. I had a four-year apprenticeship, not just in real estate but also the note space from a guy named Bob Lee and a lady named Jamie Kayla.
When everything hit the fan in 2008, I sold my part of the mortgage company for a buck because that was all about what it was worth. I went full-time into starting the Dial for Dollars and call the banks that we had originated for to buy that this debt that they now had in their portfolio at a big discount. Everything hit the fan again in 2008, 2009, and 2010 for a lot of people but I was on the right side this time. I’ve got divorced in 2009. In 2010, I started to teach other investors how to do this as we were buying a lot from my portfolio.
I sold everything I owned in Austin, Texas and thought I would take a 30-week trip around the country to go to a lot of baseball parks. That led to 3.5 to 4 years of nonstop travel pretty much. I was the only homeless guy who owned 300 homes. I had a great time. That’s how I became the note guy. I would go from real estate club, REIA meeting, and networking group and be like, “Aren’t you that note guy on YouTube? Aren’t you the YouTube guy that talks about notes?” I’m like, “Yes I am.” Fast forward, thirteen years from 2011 to 2012 and it has been an amazing ride.
We bought over $1 billion in distressed debt on residential and commercial properties. Our big goal has always been to get the bars back on track. We have modified a ton of borrowers out there as we make the running joke. We are making America great again, one default a bar at a time. I will tell you the salivating at what’s going on in the market as we see a ton of opportunity over the next 24 to 36 months. It may not be exactly like it was 2008, 2009, and 2010 but there are still a lot of opportunities for what we are doing. That’s a little about me and my financial journey.
I have a couple of questions. The first one always amazes me. You are not the first person on here who has failed or not had a very good experience their first time around in real estate, and then goes on to have amazing success. Why did you go back into it? You were in it and it didn’t go well. You had to do all that stuff to get out of it. Why go back in? What was your thinking there?
You learn more as you get older. We have become a lot more accountable to oneself and realize that I wasn’t as smart as I thought I was. Different between being in your late-20s to early-30s is that there is a big difference there in maturity. The biggest thing is that I started surrounding myself with people in that space and learning the right ways to do things. Plus, I knew that given where I was at in the rat race, wasn’t going to get me to where I ultimately wanted to be. Rich Dad Poor Dad entered my life, thinking I could grow rich. A lot of that mental aspect of things started coming into my life.
It’s like you. You shared your story on my show and how you did not like being a landlord. You weren’t good at it. I wasn’t good at it. I thought I would be. I thought HGTV was the Bible and we all know that’s a big facade of what real estate investing is. I wanted to do better and realized, “The second time around, I’m much more coachable. I’m not afraid to ask questions and I will see opportunities there when a lot of people would give up.” I’m not a quitter. I’ve got my work ethic from my parents. I saw my parents, especially my dad failed at a few things but kept going and striving forward until he found success. An entrepreneur is not born. We are made.
It’s always interesting to me that people struggle and then they keep at it. You learn from your failures and become a success. You started buying notes from 2008 to 2009 and that was after the big crash. I remember that time. People were afraid to do anything in real estate. What gave you the courage to say, “I’m going to go in and start buying up notes?” That’s what Warren Buffett says, “When everybody is fearful, that’s when you buy.” How did you get the courage to do that?
In the note space, back at that time, it was ridiculous. I had two mentors that taught me the note space and I have one guy who was a money partner of mine who came to me and said, “Scott, now is the time to act.” I made a ton of money back in the ‘80s in the resolution press corporation or the savings and loan scandal, buying debt. I had a mentor, Bob and Jamie were like, “Now is the time to buy distressed debt.” When everybody else was like, “The sky is falling.” My mortgage business stopped overnight. I was like, “What am I going to do? Sit here and cry my milk or am I going to pivot to take advantage of the opportunities in the market?”
A lot of investors screw up that way. They get so ingrained into doing one type of activity. When the market dries up or changes, you’ve got to be flexible and pivot. It was an interesting time but I started getting lists from these different lending institutions and banks. I would ask them, “What are you looking for?” They would want pennies on the dollar. I was like, “I can buy a Miami beach condo on the water for $5,000 to $10,000.” It might take me 1 year to 18 months to foreclose back then but I know the value was there. I didn’t mind. I’m putting a little money into it to ride it out and work to get it back on track.
That was the thing that attracted me. I was like, “I’m finding deals. I was finding an apartment complex at $0.40 to $0.50 of what was owed that I could take over and either face the foreclosure off or cash for keys, and then take over the ownership or the management of the property. I get it retrenched and then sell it off of the auction when we finish the foreclosure. It was not stupid. I bought my first note, a piece of crap Michigan property, for $500 using my debit card. I sold it for scrap metal the next day for $1,500. I was seeing stupid stuff and the price point.
I was like, “Let’s dive into it.” In foresight, I’ve got into it and started sharing my deals and marketing it on the early days of Facebook and YouTube back in the day. There were some videos of me walking around in an apartment complex here in Austin. There was sweat pouring down my face in 110-degree weather. I’m like, “Here is the deal. It’s worth this even now. Here’s what I can pick it up for.” It would be stupid not to pick this up and ride this out. That’s what I did. Warren Buffett talking about you’ve got to redo the opposite of what most people say. When people are running one way, run the opposite way.
When there is blood in the water, go towards it and figure out a way to do it. That was the thing. I saw a ton of opportunity, started Dialing for Dollars, and putting the work ethic into it. I flipped my little first property in Michigan for $1,000 profit. The next one, I flipped an eight-unit apartment complex in San Diego. I made $35,000 wholesale in the note to somebody else. I flipped a sixteen-unit apartment complex. I made $100,000 on it. I bought some nonperforming notes that the bars were a little Scratch and Dent bars where they would make a payment and miss a payment, make a double payment, get caught back up.
Many investors get so ingrained into doing one type of activity that when the market dries up or changes, they get stuck and unable to pivot.
It was a 20% yield. I was like, “This is stupid for me not to buy this. I don’t mind them missing a payment here and there, as long as they are making it up. They have done this for 24 months. Let’s do it.” That’s the mindset. The numbers made sense. This is not a get-rich-quick scheme. This is something I’m going to build wealth with and see the opportunities over a longer period. I know most people think in the note space, it’s 30 years to finance and stuff like that. That’s not the case. Most of our deals are 24 to 36 months for the most part. I surrounded myself with people that were new and knowledgeable. I rolled up my sleeves and got to work.
I want to back up now to the basics. I assume there are different types of notes just like there are different types of real estate. Can you start with, what are notes? What are the different kinds? Why would I invest in this?
Everybody is in the note space already. You are in the note space. You are just on the wrong side of the payment stream, whether you’ve got a car, mortgage, medical debt, credit card, student loan debt, everybody is in the debt space or note space. You are making payments versus receiving payments. That’s what we are. A note is an IOU. It’s a debt. If you’ve got a mortgage on your house, that’s a note. We buy those notes. I only buy notes that are backed or secured by real estate, either residential or commercial. There are first liens, which are your senior liens. There are second liens, which are junior liens.
If you have a first on your house for 80%, and then you’ve got a second loan for 20% to finance the whole thing. I only focus on the first. There is institutional debt. That’s originated from a bank or a fund of some sort. You also have owner finance notes, which a lot of people think that’s what the notes are. It’s just owner financing where you or the bank offering terms to sell your property or asset. You have other products, you have debt on commercial loans, single-family homes and hotels. We bought debt even on trucks and repoed the truck for a bit.
I drove it around the country for three and a half years, and I traded it in after I repoed. For the most part, you are buying a mortgage. It’s a payment stream of either 240 months, 360 months, 30 years or 20 years. You can buy performing notes, which a lot of people like and your audience is it’s probably more inclined to buying something, either that has been performing from the nonstop or we make a lot of our money and get the biggest bang for a buck. We will buy a non-performing note on a property at a big discount of $0.50 to $0.60 on the dollar of what the value is.
We make our grace returns by then working with a borrower to modify that loan, get them back on track and work with them to start making payments on time. If they do that, that’s great cashflow. We can either turn around and sell that note back to banks. A lot of times we have sold notes back to the banks that sold us the stuff. We were able to work with a borrower or hold it for cashflow for an extended period if the return makes sense.
That’s the big thing in the note business these days, it’s that the performing paper or the nonperforming paper. The person at the bar doesn’t play ball with us. We, as the bank, have the same rights to foreclose or start the legal process to foreclose in the bar, and then the property is secure. If we foreclose, we take the property back and they can either keep, rent or sell it off on the open market.
Performing means that someone has been paying consistently and nonperforming means they haven’t been paying consistently. I understand why there is a discount for the nonperforming. That makes sense. They are not paying or they are paying intermittently so the bank wants it off their books. They sell it to you for some discount. Why would you buy or why would a bank sell a performing note?
A bank will sell a performing note where they may not have all the correct paperwork involved. Maybe they are missing some documents. There wasn’t a truth in the lending statement signed or signature not filled out. We call those Scratch and Dent Loans. The bar is better. They don’t have all the paperwork specifically to go through. It also depends on what’s going on. We had a bank in San Antonio that offered a specific lending program to their neighbors and the people around them. They didn’t want to be the bad guy in case they had to foreclose.
They sold every loan that was in that type of lending platform. We bought a portfolio. It was a mixture of performing and nonperforming notes. The yield on the performing notes was a 17% yield straight off the books, which is crazy for a performing loan that has been performing the entire time. Usually, a performing note can sell somewhere around 85% to mid-90%, one of the balances. It’s not a big discount there.
That’s not a bad place to be if your money is making nothing and you like that type of passive return. Banks are the biggest companies out there. They are borrowing money from us at less than 1%, and then lending it out to 3%, 4%, 12% or 19% of credit cards. They are arbitraging. Banks will sometimes sell stuff off their books that’s performing in a variety of reasons.
How do you service the notes? If you buy a note, do you pay someone to service it for you and you are the owner?
You go out and collect. You knock on the door, every person. I’m joking. That’s one of the beautiful things about the note business is I’m in Austin, Texas, and I buy debt in about 30 different states. In most states, you need to have a licensed debt collector or a licensed servicer to collect on your behalf to collect funds because you are dealing with Fair Debt Collection Practices and the Consumer Finance Protection Bureau. Some of these big things have popped up over several years.
We have a servicing company that if it’s a performing note, charge us $20 to $25 a month for a performing note to collect. If it’s a nonperforming note, they charge $90 to $95 per note because they are doing more aggressive outreach, trying to get the bars back on track, calling, sending certified letters to get the bar in place. That’s the great thing. I do not have to do it. I direct my servicing company to do what I want to have happened. They’ve got to follow specific guidelines but like, “I’m willing to offer the bar or a modification or these separate terms.”
When you talk to them, “Here is A, B or C plan that we are willing to offer.” You get them on the phone and see if they will go that route. I don’t have to negotiate or listen to the Country Western songs the bars are telling. It’s a very black-and-white business-oriented aspect of things. I get an email or a phone call and want to negotiate back and forth the service or what we want to do and then we go from there. They start paying on time on a monthly basis. If they won’t play ball, you don’t pay, you no stay.
We leave and work with them in some liquidation like, “You can’t pay, you don’t have somebody who can come and take overpayments. You don’t want to modify. You owe more than the property is worth so let’s do a short sale. We will give you cash for keys. We will give you some money and you will sign the property over to us and walk away. We will offer a reduced settlement for you to pay off the loan $0.80 on the dollar, so it gives you some leeway and go from there.” I don’t want to say, choose your adventure. Remember those books back when we were growing up, it’s like that.
You never know which way it’s going to go for the most part. The great thing is on the front-end side, we are able to do so much due diligence to get an idea of how friendly the bar is going to be. We get servicing notes from the previous servicer to see, “The borrower is friendly or has not been responsive, or they have been ugly to the person calling before telling them to pound sand or cuss at them.” We know that’s going to be a rough bar. For the most part, about 80% to 85% of the deals that we deal with the bars want to stay in their houses and are willing to work with it if you have a few bad apples. We find a lot of stuff by doing some social sleuthing or Facebook stalking. I’ve got a bar one time on there.
She talked to the bank. She wanted to do a loan modification but when we looked at Facebook, she posted, “Do I pay my mortgage this month or are we going to go to Disney World? We are going to Disney World.” I’m like, “You are not going to qualify for a mod because you pit my mortgage on a freaking Mickey Mouse cupcakes and Mickey treats.” We evaluate the assets.
The one thing that some investors have a hard time doing is we don’t get to go inside the properties because there are people living in it most of the time, unless it’s listed on the MLS. You can tell a lot about the property by the servicing notes, the way the property looks on the outside. Are they taking care of it? Verification of employments calling to see if the borrower is working somewhere and then sending door knockers buying to see what’s going on as well.
How do you value the debt and underwrite a note?
When people are running one way, run the opposite way.
First and foremost, we’ve got to get the value of the property. We note the property’s worth. We look at as far as their unpaid principal balance, it’s called UPB in the market. We look at their legal balance, which is their pay-off amount. Usually, we are buying debt where the borrower owes more than the property’s worth. We look at the value of the property. What’s the property worth? It’s worth $100,000. They owe $125,000. We look at roughly what we would offer for the note, considering what their monthly PNI payment would be, and then compare that to market rents.
A basic look is we take their PNI payment times twelve and divide that by our offering price. That number, we usually have to see somewhere in the mid-teen to 20% range on that flat number alone. That’s our initial offering, and then maybe $0.50 or $0.60 of the value of the property. That number may be at $0.30 or $0.40 of what’s owed.
That gives us flexibility. If it says we are buying it at a discount to work with a bar, to forgive a debt, they are a year behind. One of the things that we might negotiate with them say, “For every $100,000, you pay above what you owe. We will forgive you $200,000 or if you make a payment, we will forgive two payments so you could get back on track.”
There are some of those scenarios the value of the property. We’ve got to look at the decks, their payment streams and what happened. We also look at the collateral file to make sure we have all the paperwork so that if we need to foreclose, we can foreclose. It’s a three-pronged approach. That’s the first thing, taking a PNI if it’s less than rent, which most of the time it is of what market rent of a property would be. Can they make their existing payment to get back on track? Can they pay some extra?
One thing that most people think is that, “They haven’t paid in a year and a half. They’ve got to come to the table with full eighteen months.” We always try to bring about four months to the table, half of that down at the modification or prompt payment time, and the other half spread over 12 or 24 months. It’s running spreadsheets to figure it out. I will give you a great example. We’ve got on a table of 900 assets. I made an offer of $130,00. I have eleven that were accepted at my bid offering. Another 50% of that we are countering back and forth. The other, they wanted something that I’m not willing to pay.
You are negotiating with the banks on all of these. These are the major banks doing mortgages or different banks?
Different variety of banks. I don’t waste my time with the evil five, Bank of America, Chase, Citi, Wells Fargo, and Citibank or you can even throw OneWest in there, too. They are too big. They will sell a portfolio of notes of $50 million but they are not going to sell it at a price that makes sense to me. We buy from a lot of regional banks, investment funds, some insurance companies, some REITs out there, they bought a big portfolio and they want the top 50% was the ones but at the bottom 50%, they are willing to sell that at a loss sometimes so that they can recoup it and get moving on. It leads to a lot of opportunities.
For me, having relationships in local markets that I can come and say, “We buy this at a big discount. What’s our strategy? Is it to give them a rebate re-performing or should we try to pay them off give them $5,000 to walk away because that’s what it would cost us to foreclose or do we foreclose and take the asset back and sell that at a profit?”
First, tax advantages. In real estate, we are used to depreciation, passive income and all that. This is a different type of income you are receiving. This is a portfolio income. How are you taxed on it?
If you foreclose in a year or do a loan modification, you are going to be short-term capital gains on that. If your modification sits for after a year, it takes a year more to foreclose and it is long-term capital gains tax. That’s a big difference there. We don’t usually like our deals will be less than a year, unless it’s a slam dunk deal. A lot of people screw up and say, “I’m going to do a loan mod immediately.” I’m like, “You don’t want to do a loan mod immediately because that’s a taxable event, the tax on what we modify the loan for.” We do a trial payment plan for twelve months, and then at the end of twelve months, we will modify it to make sure it’s a long-term capital gain.
It’s just income coming along the way, a payment stream. We are forgiving debts. We are 1099 debt off all the time if we forgive a mortgage or we adjust the balance 1099, the borrowers for that forgiven debt that writes off our profits. You don’t get the depreciation on an asset unless you take it back and then go from there. Our portfolios are always a mixture of that three long-term, short-term with the note stuff. If you are taking the property back then, you have the right to come in and start to appreciate that stuff off.
How do investors get in on this? Do I need to do what you do and go start talking to banks and offering everybody to buy up their loans or is there a way for me to be passive on this?
There is a way to be passive. We’ve got investors that invest with us on a regular basis passively. We are paying them a quarterly payment on stuff as we are doing all the heavy lifting. Our deals are 24 to 36 months and we are giving them an above-average return. We handle all the headaches. There are also plenty of other investors out there you can lend on.
What’s great about the note business is it’s not just buying that many people they can lend their money out like hard money loans, making loans, and stuff like that too and make a good return on investment. On the distress note space or the performing note space, there are tons of investors out there, different REITs that will take your money and give you a good return while they are going out, doing all the heavy lifting and making an above-average return.
First of all, if I invest passively in this, am I buying into a note, a pool of notes, performing or nonperforming notes?
That’s one good question you have to ask, “How that investor or fund is performing?” Some funds are chasing nonperforming and looking to get stuff free performing or liquidating the portfolio after 90 days. The notes they don’t get re-performing in 90 days. We buy it at $0.50 on the dollar, sell it for 10% markup. They won’t respond in 90 days and we are making a 40% annual return on the portfolio. We are able to give the investors a 6% to 8% pref rate plus a share of the back end. Some funds are just chasing performing notes and you are going to get a little lower return on that because they are usually buying performing notes from the bank.
It’s at a lower interest rate and lower ROI because that borrower is paying at the mortgage rate. I always ask, “What are they investing in?” If it’s a nonperforming, they are going to be a little more aggressive on some such so you can get a high return on that. If it’s a flat performing portfolio, whether it’s an individual investor buying an individual note or a fund, you are going to have a flatter rate return on that. It’s a little bit lower because it all depends on the yield but that’s the right question to ask the investor or fund handling the deal.
You said maybe a 6% to 8% plus something on the backend. Can you explain how long am I going to cashflow at the 6% to 8%? What is the backend? What’s the upside then?
We have given a 6% to 8% pref on the front end, depending on what’s being invested in, we are giving 25% of the net profits on the backend. We are paying a quarterly payout of 6% to 8% on their money. Every year, we are looking at things on the profit side, and then pay off a 25% split of the backend profits for that year back to our investors. They may see somewhere around 8%. We always try to shoot for it somewhere between the 12% and 50% combined ROI to the investor.
Pref is the preferred return. That might not always be paid out but if you miss the pref, you would pay that back later.
Everybody is in the note space already. You’re just on the wrong side of the payment stream.
In nonperforming, not every borrower is going to get back on track. That’s why we have a mixture of buying either re-performing loans that we are getting a good 10% to 15% return on where somebody has redone the work but they are willing to sell it out and liquidate it and then buying nonperforming stuff. Usually, states with less than a twelve-month foreclosure process can either foreclose or get a deed in lieu of the bar. We avoid long foreclosure states like New York and New Jersey, which can take 2 to 3 years. It doesn’t work well to have money tied up as an asset.
You are not seeing anything in at least 24 months. We like twelve months or less to foreclose. I wish I was buying in Texas but Texas would be in the fastest foreclosure state of 30 days, it’s often priced higher because it’s a faster foreclosure state. We find a lot of value in buying assets in Florida, Ohio, Michigan, Indiana, Illinois, Crook County, Chicago, Missouri and Kansas. That’s the great thing. We like to target assets that are between $50,000 and $250,000 in value. We don’t usually go above that unless it’s a specific asset we have an understanding of.
We hold all the keys to the deal for first-time homebuyers, especially when they are underwater notes, where the bar rose more than the property’s worth. Being the bank, we can do some good in working with the borrowers or offer them some money to walk away. It’s a true win-win for the most part. We have always done the biggest bang for the buck is in that price point. If you are buying performing notes in a higher-valued asset, the returns usually don’t make sense long-term-wise for you.
How does a passive investor figure out who to invest in? One of the things in our community, Left Field Investors, we are always trying to find the right sponsors because when you are investing in real estate, that’s the most important part. Who is going to take care of your money? Who is going to manage the asset? How do we find sponsors in this area? Should we find someone who has a fund so we can invest in a pool of notes? Are we looking for someone who will let you invest in individual notes? I know that there are a lot of questions at once but how long should we expect our money to be gone before we start getting it back?
If you are investing in performing, you start getting payments quarterly. The performing portfolio should be generating cashflow that you are getting seen on a quarterly basis. You may see some people pay monthly and that’s fine but usually quarterly would be the bare minimum aspect of that. If you are looking for who to deal with, when you are talking with people, I always ask, “What’s your experience?” In the note space, it’s different than the fix and flip or the apartment space. It’s vendor-driven. One of the big questions I ask them when they call me and want to buy notes is, “Who is your vendor, servicing company and attorneys?” Their names pop up on a regular basis.
“That’s a good person.” If they say, “I don’t know.” That’s not a good sign. That’s usually something that’s brand new. You may want to avoid it because you don’t want your money going through the learning curve. You want to deal with somebody who has been through an up and down cycle is what has been around for a little while. That’s important. How long have you been doing this? What’s your background? What’s your, “Oh, crap,” clause? What happens if the bar doesn’t pay? What are your strategies, A, B or C? In the note space, you can’t just have one exit strategy.
You’ve got to have 2 or 3 because if the bar doesn’t pay, then you have to prepare to go the legal route. What are your average costs to foreclose? What are your average holding costs to be rolling into the thing? There are servicing and workout costs involved with every deal. Those are some questions to ask. How many deals have you done? Who is your team? Do you have any references is always a great thing to ask? Who have you invested with? I always like to ask, “What happens when deals go south?” We all know deals go south at some point.
That’s an important thing to ask people, “What did you do? What happened?” People understand that things go south and they are okay with it. They want to know if somebody has a plan of action or plan D and, “How soon I can get my money back? What’s the worst thing I could ask?” That’s what I love so much about notes. If you are buying notes at the right price, if even the worst possible thing happens, you can always foreclose or sell the asset off to somebody else and get the investor’s money back.
It may take a little bit longer than expected because of the market and stuff. I have here an example. COVID, when we couldn’t evict or foreclose for a year, that’s a bit of a kick in the shins a little bit. The idea is that you still see property values appreciating like, “We are going to foreclose so the bars won’t play ball with us. We will foreclose when we can and we will come out smelling great at the end with a higher profit margin at the backend. It won’t be performing asset but we are going to liquidate this, and make more money on the backend.” You’ve always got to know what the plan B is in case something doesn’t go right.
During the pandemic, did you have cashflow issues on those loans then? You couldn’t evict but were people still paying or are they still trying to work it out?
That’s the beautiful thing. We still had plenty of people that paid on time. Those that didn’t or couldn’t cooperate with them as far as getting on the phone and talking. In some cases, you are like, “There is a program in your area. Go fill this information out. Go to this church or group to get back on track.” Those that didn’t pay, didn’t respond. We know those are going to go to foreclosure. That’s when we start like, “We know you are not paying, you are not responsive. We will give you $5,000 to walk. Let’s do a deal with cash for keys.”
That’s why I always tell investors, it’s good to buy a couple of assets and invest in it a portfolio or fund because then your risk is leveraged over multiple assets. This is one thing that we teach, too. It’s like, “I’m going to spend $500,000 on one asset. How’s that bar going to perform with that $500,000 or for $500,000 I could buy half of Columbus.” I have my risk spread over a bunch of assets. That’s important. “What’s your price point all the leverage on what that one bar makes or your risk spread out over a portfolio?”
What was the future? There is a good opportunity coming up in the next 24 to 36 months. Why is that and what are you seeing?
I see it being great for the next 24 to 36 months. It’s already happening. We are already getting a lot of phone calls, emails, portfolios from banks, lending institutions coming across our desk. We usually see notes 6 to 12 months ahead of your traditional real estate investors because we are on the debt side of things. We are already seeing an increased amount of distressed debt, hitting the books or banks willing to sell stuff they haven’t sold in 3 to 4 years. That’s what I’m excited about. I don’t want to be doom and gloom but there are a lot of opportunities because we are buying and seeing stuff at greater pricing discounts than most people have seen in a long time.
We first see this being a while. Every state has a different foreclosure timeframe and is reacted a little bit differently to COVID. It’s the domino effect. In the states, they have a little longer foreclosure timeframe. It will take a little bit longer for that stuff to hit the books. The market shorter foreclosure states will have a little bit faster impact. It’s that domino effect starting in the short state, it’s going longer states. It’s going to take a while.
When I think back to what happened in 2008, 2009, and 2010, us in the note space, we always had to be at 3 to 5-year process while it was almost 8 years processing that. If I had a crystal ball, I wouldn’t be here with you. I would be in Vegas. Looking at what’s going on and looking at history, the next 24 to 36 months can be the time to make hay.
WeCloseNotes.com, is that something that I can go and invest with you? How does it work with your company? You are buying notes all the time. Do you have a fund? How do investors work with you?
People can email me at Scott@WeCloseNotes.com. You can go to the website, check out our different training and classes or podcasts. We talk about that because we teach investors how to do that and what we have been continuing to buy for ourselves as well. I made an offer of 160 assets. Different close on another one. We have different opportunities. Our fund is in the final phases of being wrapped up.
We are excited about that. We expect a January 1st, 2022 kickoff for that. Take advantage of the opportunities. Reach out to me. I’m glad to jump on a phone call to talk about it and see if you are a fit. Not everybody is a fit and that’s okay. Some people want to be a little bit more passive. That’s fine. We love what we do. Everybody is in the note space. You would rather be on the right payment stream versus the wrong payments.
Are you mainly training people to go out and do this on their own or are you training them and then they can invest with you passively?
We do both. Those that want to go do it themselves, great. We will show you how to do it. We hold people’s hands through the process as well. If you want it, you are like, “I don’t want it. I would rather write a check than invest with you or mess with fun.” We are glad to help out. Coordinate that as well, whether it’s with us, students or one of the funds we work with.
The last question I always ask is, other than your show, what’s a great podcast you listen to? Real estate-related or business-related.
I love Business Lunch with Roland Frasier is good. Roland has been a mentor of mine for years, going back to 2004. He is a busy guy. He does a great job and has great interviews on there. He had Kate Spade on there. He’s one of the big guys at DigitalMarketer that runs a traffic and conversion summit. Also a very successful real estate agent and ex-attorney. That’s a phenomenal one. Something fun, Southern Fried True Crime. If I’m bored and sitting at the house, I will listen to that a little bit. Those are the two that I probably recommend the most.
You’ve got to listen to Jim’s show and everybody else. Jim didn’t ask me to say this but I’m going to tell you now while you are reading, hit that subscribe button and leave Jim a five-star review. We, all as podcasters love to hear from our audience. Jim is kicking ass and taking names week in and week out with a show, bringing on great people. Do that for Jim.
Thank you very much, Scott. Can you give our readers again, how do we get in touch with you if we want to talk notes?
The easy stop is to go by WeCloseNotes.com. That’s my main website. You can shoot me an email at Scott@WeCloseNotes.com. If you would like to book a call with me, you can go to TalkWithScottCarson.com. I will take it directly to my schedule, pick 30 minutes. I’m glad to jump on the phone and let you pick my brain or I will pick yours.
This has been fantastic talking to you, Scott. I always enjoy our conversations. We will certainly do this again.
Thank you so much. Everybody, go out there, kick some ass and take some names.
- The Note Closers Show
- Rich Dad Poor Dad
- Business Lunch with Roland Frasier
- Southern Fried True Crime
About Scott Carson
Scott is the owner and managing member of WeCloseNotes.com, an Austin based, defaulted note buying company. I specialize in finding nonperforming notes on residential and commercial properties and purchasing these notes for our own portfolio. He is also a nationally syndicated radio host of the popular podcast, The Note Closers Show which has millions of listeners across 17 AM and FM radio stations and downloads across 130 countries.
Scott has a variety of classes and educational products to help other real estate investors looking to learn more about notes and distressed debt investing. He teaches a 3-day workshop for investors on buying defaulted notes called the Virtual Note Buying Workshop that focuses on how to Find, Fund and Flip nonperforming notes directly from banks.
Also, once to twice a year, Scott hosts the popular online summit and conference, Note Camp, which features twenty to thirty speakers and experts in the note space. Note Camp is the longest-running online conference of its type and regular features 500 plus attendees. Topics include residential and commercial notes, servicing, workout, due diligence, marketing, raising private capital and other topics. Note Camp is a great starting point for new note investors to get a broad bit of knowledge on different topics in the note space.
Scott was the previous Sr. Real Estate Coach for RealEstateProfitCoach.com and a Mortgage Banker and Vice President with JPMorgan Chase. He was also responsible for the successful launch of Ariel Capital Mortgage Lending that helped provide investors with bank financing on their residential properties in over 30 states.
The Note Closers Show Podcast is focused on the niche of distressed note and debt investing with the content split between educational aspects of the industry along with interviewing industry experts, investors, and other entrepreneurial-based subjects that investors face on a daily basis.
Specialties: Non-Performing Notes, Raising Private Money, Short Sales, Defaulted Paper, Residential and Commercial Investing along with marketing and podcasting.
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