Many banks would be willing to sell the debt at a bigger discount because they could recoup that 50% or whatever. I mean, I used to buy notes at like five cents on the dollar back in the day, 2008, nine, and 10. A movie about a note purchase if you think about it. Ray was losing the family house. The mortgage got sold to a group of investors and they were going to start the foreclosure process. It’s not about baseball and cornfields. It’s about Ray trying to save the family farm from a foreclosure. People end up overpaying. They think, “Oh, it’s worth 150 after repair value. I’ll offer a hundred.” Well, the note’s only 65. Why would I offer 100 when the note’s 65 when I could probably pick it up for 40? If you’re being spoonfed, what’s your motivation to go out and catch a fish? You’re going to have a very big motivation. But what happens when these funds dry up or they stop buying or they move on to something else? Well, your lead gen goes away and so you’re forced to market.

Welcome to the Real Estate Masters podcast where we bring you the top real estate investors in the country. If you also want to be in the top 1%, you are in the right place. Listening to podcasts like this is exactly what helped me to scale my real estate investing business to seven figures, flip over a thousand houses and more importantly, step out of daily operations of my business over a decade ago so I could start and grow other businesses. So get ready to learn from the best and start building a business that works for you and not the other way

Around. Enjoy. What’s going on guys? Scott, thank you so much for taking the time. I know you’ve been a real estate investor for gosh, 24 years now. If there’s one thing that you could attribute all those years in real estate and sticking in it, if there was one thing you could attribute all your time to, what would that be?

Well, if you’re talking about success, I think it’s just being consistent and marketing. I would say that so many investors get into real estate and don’t realize they’ve got a market. It’s not going to be one later campaign or one postcard campaign or one phone call or one offering and they’re just going to fall over the next real estate billionaire. It’s all about the followup on the marketing side. And no matter what niche you’re in, I think that’s been probably paid the biggest role going from wholesaling to fix and flipping to being landlord to be able to right now as a note buyer for the last almost 20 years. It’s all been in the follow-up and the marketing and staying consistent with that.

Yeah. What was your life like before investing and what got you into real estate?

So like a lot of people, I read Rich Dad, Poor Dad. I was working a nine to five. Do me wrong, I enjoyed my job. I was damn good as a banker, but my first foray into real estate, I fell flat in my face. I was working for Citibank, Citi Financial and doing some stuff with them back in the day and making good money. And we bought our first house. Me and my ex- wife now, we bought our first house out of college doing well and realtor comes and it’s like, “Hey, you know you should buy a couple. It’s a great time to be a real estate investor and you guys got great credit. You could get into something with nothing else.” So we did. We bought two investment rental properties here in North Austin in the Round Rock area with the idea we were going to be landlords. Well, about a month and a half later, I get laid off from my job and another kick in the pants. My two tenants both got laid off from their job at Dell Computers. So I always joke I was a distressed borrower early on in my real estate investing career trying to make six mortgage payments with just a private school teacher’s salary. So I got out of those two investment properties, kept our primary and a loan mod and a forbearance like two days before the foreclosure auction and kind of licked my wounds for a while. Stayed in banking, enjoyed it. Went back into working for Chase Bank. I was a top banker in Texas for JP Mortgage Chase here in Austin, Texas. Enjoyed that. But a buddy of mine started a mortgage company and was working with a couple real estate investors who were doing fix and flips and speaking about creative financing and owner financing and notes and traveling that were on the grand circuit back in the day. And I went and had lunch with, I said, “Man, this is still what I want to do. ” I had a couple years to lick my wounds and kind of get my assets out of a sling. And I said, “Okay, let’s go do this again. I can always go back to banking.” So I left Chase Bank July 4th of 2004 and that was my last W2. So it’s hard to believe it’s been 22 years, I guess you say self-employed or actually taking care of myself and ups and downs, wins and losses, home runs and strikeouts. We’re using a lot of baseball analogy as we were talking about baseball beforehand, but there’s no better place than where I’m at. My better half was asking, would I go back and do it all again? I’m like, “Yep, because I wouldn’t end up where I’m at today if I went back and changed anything.” I’d be a litle bit smarter and give a little bit more sound advice back to my younger self, but I wouldn’t trade my world for anybody else’s right now.

I love it. I love it. And just for the people listening, what does your business look like today?

Yeah, so I am a debt buyer. I’m a little different breed of real estate investor where we actually buy mortgages from banks and hedge funds and lenders where people have not paid on it their mortgage and sometimes six months to all the way up to like six to 10 years. And we operate in a little bit at a different facet. Instead of direct mail marketing or TV ads or drip marketing, whatever it might be, the banks will actually send us our lists that we get to cheery pick from. So lenders will have their list of non-performing notes or as I call them problem children, naughty notes where the people haven’t paid in a while and they’ll send us the list and we can actually cherry pick those at a substantial discount. And then how we make money off of that is, okay, so we bought the debt at a discount. We don’t own the property, but the property is obviously valued way above what we paid for the debt. The borrower still owes what they owe. And since we bought that debt at a discount, we make our money coming out of instead of rehabbing property, we rehab borrowers. So I don’t deal with the toilets and tenants, drama. I don’t deal with a lot of contractors. I mean, don’t get me wrong, we’ll take some property back if we foreclose. But our biggest goal is actually about 70% of the time rank is actually able to keep the people in their houses, get them to start making payments for great cashflow and then we’ll hold that debt for three, five, seven years till the minimum hold it for 12 months where then we could either turn around and sell it to Wall Street or other mortgage funds. We bought it at 50, we could sell it at 80, 85, or we’ll just keep it for cashflow for a period of time. Or the borrower ends up refinancing or moving, they’ll sell the house and we’ll get paid off in full and go from there. So that’s kind of what I do. I don’t like own real estate. I don’t want to own doors. I like owning mortgages. So basically what I’m buying is collateral files like this big thick one here right now on a property in Kankakee, Illinois in a small little town, but we bought it. They owed 80, the house is worth about 120. We bought it for 24. I’m in a great position for something like that.

Want to get motivated sellers that nobody knows about? Introducing 10X TV. If you want to create credibility in your market, find deals that nobody else knows about and crush your competition, you need to check into TV commercials. It is the new buzz in the real estate investing industry since we introduced it several years ago. I’ve been using TV commercials myself for the last 12 years and it’s absolutely crushed it. So if you want to learn how to get on TV and to do something that little to know people are doing right now, go to claimmymarket.com. Again, that’s claimmymarket.com. We usually only work with two investors per market. So if you’re interested, reach out to us and book a call to see if you can claim your market before anybody else does. Now back to the show.

What was the main problem that you were trying to solve when switching from actually investing in the properties to investing in the bad notes?

Oh, that’s a great question. And the biggest problem, people don’t know what a note was. They’re like, “A note. You mean your owner financing the property, you’re buying that terms?” Well, that’s one niche, but no, I’m actually buying the mortgage from the bank. “Oh, you’re buying the foreclosure. “”No, I’m buying…” It’s the getting people to understand that we’re buying the actual physical debt. I’m not owning the real estate. I’m literally stepping in and becoming a banker’s shoes. I would have to just have to show people like, “Okay, I got my fix and flip hat here. I’m not doing that. I’m putting on my banker’s hat.” So I bought the note, I’m now the bank. I have all the rights the lender does. I can work it out with them and get cashflow and great profits without all the headaches of having a foreclose or having to evict the borrower or rehab it or work something out like that. So that was the biggest thing. When I would start talking about the deals I was doing, people were always thinking of real estate and I’d have to go and change it. I mean, that’s why we started teaching classes years ago was just because we had to go and hold people’s hands through the process and realize, “Hey, this is a great deal and why is this a great deal and how is it different from actually owning actual real estate?” So it’s just the education side of how this niche is different, why it’s valuable, why the banks are all the biggest buildings out there and that you too can go buy debt. You don’t have to have millions and millions of dollars. You can buy a one-off note here and there if you want to or buy a portfolio if you’ve got the funds for it. So just helping people think a little bit differently about the real estate side of things and how to evaluate

It. And the bank, of course, they make their money because obviously they’re not going to be paid at all. So they’d rather have some of that money back and just lose out the 2024, you got it for 24, it’s worth 80, their notes for 80, they’re not going to see that 80 so they’d rather get 24 from you and then you own that 80 note.

Yeah, that’s half of the deal because you had to realize how banks works. Banks leverage, right? So if they get money coming in at 1% in a savings account or a certificate of disappointment, they could turn around and lend that money out at 7% on mortgages or at 19% on credit cards or whatever, a whole variety of things. So they’re making an info return. So for every bad note they have, especially a residential mortgage note, they’ve got to hold that money back in reserves. They can’t lend that money out. So it’s costing them on two sides of the equation, not only in their ability to leverage more, but also they’ve got to hold this money back that they’re not getting collections on. So that’s why many banks would be willing to sell the debt at a bigger discount because they could recoup that 50% or whatever. I mean, I used to buy notes at like five cents on the dollar back in the day in 2008, nine and 10 and we still buy them in a big deep discount about 50, 60 cents on the dollar now, but that’s what you have to realize. It’s worth them, especially if it’s in a longer foreclosure state, like a judicial state, like say South Carolina that takes a year to foreclose. Well, they’d rather sell it to me at 30, 40, 50 cents, get that money, they can go out and rinse and repeat and make all their money back. Whereas I take on that problem child and I make my money in negotiating with a bar, hopefully it doesn’t take a year to foreclose, or hopefully I can come get the bar to the table in 30 to 90 days to get them back on track and paying because let’s just use some simple math. Say it’s $100,000 note on $100,000 house. It’s at 6% mortgage rate. Well, if I buy that debt at 50 cents on the dollar, I paid 50 grand for it. And if I can get that borrower back on track paying, it’s not a 6% return to me. It’s a 12% cash and cash return just if they reinstate the loan, if they bring some extra to the table, some back payments that drives my ROI up. I hold it for 12 months. It’s reconsidered now as a reperforming note and I can sell that to Wall Street, say at 80 cents of the dollar. So I like to say I get the three chings along the way, the Chaching on the front end of reinstating some skin the gain and then the back end of either A, selling the note off of a profit, they’re paying me off or if they stop planning ball, we have the right to foreclose and make a bigger check there as well.

I love it. I love it. Why do you think so many investors overlook the bad note space? I mean, is it just not knowing about it? Is it not kind of thinking about it? What stops an investor from eventually finding their way to that?

Well, usually what it is when we’re young and dumb, I like to say sometimes, is that we get enticed by the flip this house, the HGTV, the drama. Because I say that because that’s where I was. Oh, I watched this TV show. I can go buy a property and flip it up and show up to a foreclosure auction. There’s five people standing around in some random parking. Those fictional TV shows do a better job of promoting the niche. People are more familiar with owning rental property or doing a fix and flip or buying a foreclosure. They get that. They like the idea of going out and rubbing on a house and picking up paint and carpet. That never excited me and doing the postcard marketing or the direct mail marketing. I’m going to send out some postcards to a foreclosure list that some poor soul’s going to get 500 postcards from 500 different investors that never excited me about. And so when coming from the mortgage broker space, I kind of knew a little bit about, but when my mentors taught me about this business, like, “Oh, you mean if there’s actual departments in the banks that actually handle these distressed note sales that they will send me a list every month that I don’t have to spend thousands on postcard marketing or other type of marketing and I don’t have to deal with any drama from the homeowners. I can deal with a basically black and white transaction from a bank and I’m bidding and okay, I’m a bid on 30 assets. You accept four. Okay, I’ll dive into those four. If something doesn’t work out with numbers or comps or value or condition, I can cancel the bid and walk away. What’s wrong with this picture? It’s just that people don’t know this niche. I mean, note investing, note buying has been around since the Templar, Knights Templar. We’re around with the first banks and lending stuff. But I think it’s just lack of advertising, although there’s some major movies, The Big Shorts, a great movie out there. I’m kind of like Christian Bale’s character, listening to rock and roll, looking at spreadsheets all day long. Field of Dreams is actually a movie about a note purchase if you think about it. Ray was losing the family house. The mortgage got sold to a group of investors and they were going to start the foreclosure process. It’s not about baseball and cornfields. It’s about Ray trying to save the family farm from a foreclosure. So that’s the thing is just people don’t know about it. They sometimes have a hard time with the intangibles. I’m not flying out and looking at every property we buy. I buy in about 20 states so I have to rely on vendors and BPOs. Most investors, they first want to go out something in their backyard. They can drive by, they can see it. They’re not imaginative in a lot of cases when they first start off, so it’s got to be something very tangible for the most part.

What mistakes do you often see investors in the note space make that you think could be really easily avoided?

The first thing is overpaying. Most investors, they’ve gone to their local Ria Club and they learned about two amazing terms called MAO and ARV, right? After repair value. And in the notes space, ARV doesn’t exist. I’m sorry, it’s as is value. We’re not looking to take the property back and fix it up and flip it. That’s way down in that’s exit strategy 12, not exit strategy number one. And so that’s the thing is people end up overpaying. They think, “Oh, it’s worth 150 after repair value. I’ll offer a hundred.” Well, the notes only set 65. Why would I offer 100 when the note’s 65 when I could probably pick it up for 40? So it’s just that understanding that they’re buying the debt is different from buying the real estate. That’s the first mistake. Second mistake is not marketing for capital in a lot of cases. You’re going to need capital. You can’t go to a hard money lender to buy a note. So you’ve got to reach out to private investors and your warm market and raise capital to fund these deals with being cash. So that’s another thing. A lot of people like, “Oh, I’m just going to call my hard buying lender.” Well, that doesn’t work. Hard bond lenders are not going to do that. So those are the two biggest things that we see people making is they just don’t understand the bidding process. They don’t dive into the due diligence. They overpay for an asset even and then they realize that the borrower just reinstated the loan and they don’t end up winning the property. Now they’ve got a performing loan on their hands that they got a low yield to them because they overpaid. So I would say those three things.

What separates the top operators in the note space from everyone else in your experience?

Oh, simple hands down marketing. Note investors, I really have to say this really kind of blossomed. It’s kind of a shadow niche. You had note investors around that were very much more so on buying a few notes here and there or buying with owner finance, buying owner financings. But when everything hit the fan and you had 15 million homes upside down, it led to a lot of opportunity buying debt and a lot of investors got in the space because they could buy from a fund and there was these funds that would buy in big bulk portfolios and turn around and sell them off to individual investors. Well, if you’re being spoonfed, what’s your motivation to go out and catch a fish that you’re not going to have a very big motivation, right? But what happens when these funds dry up or they stop buying or they move on to something else? Well, your lead gen goes away and so you’re forced to market. Well now marketing for notes actually I think is actually easier because we leverage LinkedIn. You can actually go onto LinkedIn and type in the different job titles that these asset managers have or the special marketing managers have at these different banks and actually get ahold of the right person in charge of note sales. Or you just start sending an email blast out to your email database in the bank side once a month. I’ve been sending an email out once a month to asset managers for over 13 years and it leads to something every month of somebody sending me something that I didn’t see or didn’t know. And so that’s the thing people get lazy. There’s been some websites out there that offered some notes for sales so they relied heavily on that versus going out and actually contacting new banks because the note business kind of moves a lot quicker as far as trades and closes take place. Things are constantly moving. There’s no MOS, there’s no nationwide foreclosure list of notes or listing websites. So you’ve got to really go out and talk to banks, talk to asset managers and note traders and go to conferences and market like you would a little bit, but it’s a little different size style of marketing for the most part.

The word success to me has always been very intriguing. Everyone kind of defines it differently, measures it differently, strives for it differently. How do you measure the word success? How do you define the word success and how do you strive for it?

I think the word that comes to mind or two words is financial independence, right? And the ability to do what you want when you want. It doesn’t matter if it’s five million in the bank or 10 million in the bank or you’ve got five notes paying you a grand a month that’s bringing in five grand and you’re able to do whatever the hell you want. So that’s what, knowing what your financial independence number, how many deals do you need to close to get to that point where you can say, “Screw it. I’m not working today. I’m going to go do something fun.” Some people have a bigger number like, “I originally, when I first got in this business, I wanted to close on a thousand notes, bringing in 400 to $500 a month. Still want to do that, but over time we’ve bought stuff, rehabbed you got to go in and sold it off to buy more stuff and other things like that. So that’s the thing is succes starts with freedom Not having to clock in, not having to work. Now don’t get me wrong, if you love your JOB and you enjoy that, you can do notes and other real estates on this side. That’s completely fine. There’s nothing wrong with it. Everybody’s in a different situation. The one mistake I see a lot of people make is like, oh, I’m going to a conference or a workshop or I’m taking a class and I’m going to quit my job overnight and try to do. That’s the biggest mistake that you could do. You will go the opposite way for freedom and success really fast. So build you a game plan, understand no matter what niche you’re in, how long is it going to take for this stuff to work, what’s my average income? And then start setting some goals for yourself to hit those numbers. Am I going to buy 20 notes in my first year? Then I got to start making offers. I’m going to have to hit those numbers. And so be realistic in your numbers. Understand where your buying stuff is. It’s going to be a different price point. Like Miami, Florida, the price point’s going to be higher. The cash flow’s going to be greater for say than Miami of Ohio where you could probably buy a block for what you buy something in Miami in a lot of cases. So just understand it’s different, but don’t be afraid to ask questions. I think the most successful people are the ones that ask the most amount of questions. They’re coachable and they’re constantly learning and keeping track of what’s going on in their market or markets they’re investing in and honing that financial independence number.

Yeah, for sure. If you were going to start from scratch today, the business completely goes away. You get to keep all the knowledge that you’ve learned over the years, but the business, the money, everything goes away. What would you focus on first? What would be the first thing that you do to rebuild what you have now?

In today’s chaotic world, it’s different than what it’d be 10 years ago, obviously. I would dive into the marketing side of things because it all starts … It’s great to have a deal and you got to have a deal for people to do, but you got to build a network. You’ve got to build a database, whether it’s email list or social media followers or something like that. So myself from like five years ago, say it would kick me in the teeth right now, but I would probably jump on TikTok and just start targeting and sharing assets or deals that I could get in from different sources and just start doing short videos, short on YouTube, all that stuff to start building interest and start people paying attention to what I’m doing. And then for everybody that I could get ahold of, create my email list. I’ve got a big email database, about 60,000 contacts that come over time. That’s such a valuable tool that I’ve built, but it all starts with it. Most people don’t ever send an email blast out to their database. They go to all these things, they collect all these business cards, but they never take the time to put them into a database that they can actually market to when they need them. So that’s what I would do. I always start on the marketing side, start the social media, sharing what I’m doing, sharing my journey of starting all over again. And people not only do they love to work with people that are doers, they also love comeback stories too. So if you’ve been kicked in the teeth, bankruptcy, divorce, whatever it might be, real estate investors I know all go through peaks and valleys. We’ve all had good days and we’ve all had bad days. The most important thing is not to give up and just keep rocking and rolling with it and consistency is key, like I said earlier on and just if you start over, you’re starting over. Guess what? Welcome to the jungle, baby. We got fun and games, all right?

Oh yeah, for sure. Well, where can people learn more about you? If someone’s interested in learning more about notes, buying notes, they want to reach out to you, maybe they got some capital to throw in. Where can people go and where can people reach out to you?

Really easy. You can go to our main website, weclosenotes.com. Not we talk notes, but we closenotes.com. On there, you’ll find links to our number one YouTube channel for note investing, we closenotes.tv and then our different podcasts. We have the number one podcast, the Note Closers Show out there anywhere you download or listen to podcasts. It’s over coming up on our 1100th episode with that show. Yeah, so millions of downloads, lots of great content there for you guys, but we close notes.com. And then if you want to book a phone call, you can always do so at my calendar at talkwithscottcarson.com.

I love it. Scott, thank you so much for taking the time and coming on with us today. I appreciate it. Everyone, thanks for watching and we’ll see you next time.

Thank you for having me. Everybody, hit that subscribe button and leave a five-star review. All right, go do that right now.

I love it.