Scott talks with note investor, Howard Marcalle, about some of his challenges and victories in his first year as a note investor.
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Note Investor Howard Marcalle
I’m excited to be here today sharing with you another great episode. I think you guys are going to get a lot out of it today. I’m always excited when we have special guests on. Today is just another one of those great guests who I absolutely love their energy, their drive and literally not taking no for an answers and making things happen. It’s our buddy, Howard Marcalle. Howard, how are you doing today?
Scott, how are you doing? I’m doing great.
You’re in Tampa right now, but where are you originally from for everybody that’s listening?
I am from Dominican Republic, Santo Domingo.
You’ve just recently moved to the States here in the last couple of years, correct?
I moved on June last year, 2016.
A question for you, what brought you to the States? Why did you want to move to the United States?
I was doing a lot of business in the DR. I was developing. I had a manufacturing company. I was doing a whole bunch of stuff. Money-wise we’re doing great but crime is going up, the quality of life was low. I was concerned about how we were raising our kids. They had to be behind bars all day or in a private club. We just wanted to have a better quality of life more and less crime. We decided in 2014 to move to the States and we started the process and we were able to move in in June 2016.
You were in engineering in DR?
I was a quality engineer. I was developing real estate. I developed single-family homes and then condo buildings. Then I had developed a couple of ports. We were rocking and rolling. We had a mall that was 700,000 square feet. We were doing a lot of stuff. Sometimes money’s not everything, quality of life.
Having your own guards is not the funniest thing to have every day with your kids, right?
Yeah. The red tape down there to build something, you have to wait twelve months just to get the permits and all that. It’s very hard to do business.
You moved to the States in June. What made you excited about notes?
When we moved in June, we were waiting to move here but it was quite sudden the decision to move. We got approved and I said, “Let’s move this month so we can start school for the kids.” At this moment, I didn’t know what we were going to do here for earning. I was considering developing or fixing and flipping or doing something. Then my friend Alvin who you know from Miami, he called and he talked to me about notes. He said he’s been following you for a year and that you are the great guy, you’re the big guy. You’re making a gazillion dollars.
Alvin introduced you to the note stuff then, is that correct?
Yeah, then he talked to me about you. In August I took the Virtual Note CAMP for Dummies, which was three days. Then on Monday, I told Alvin, “Let’s go out and buy some notes.” He said, “Are you crazy? I’ve been following Scott for a year. You need to take more training.” I said, “Yeah, we’ll take more training. We will, but we’re buying notes today. We’ll take training as we own them.” We went out and looked for notes. We found all sorts online. We made a bid on a pool of five. We discarded one and then did due diligence process. Then we signed up and transferred funds.
You made offer on five, narrowed it down to four, and you sent realtors out to drive by the assets and all the other stuff?
Yes, we had a realtor drive by. There were three in Detroit and one in Saint Louis. The realtor in Detroit did a good job. She took pictures and gave us BPOs. The one in Saint Louis did the same. We were very excited about that house in Saint Louis. It was a beautiful house, move-in ready, manicured lawn, everything. Awesome. We picked that up for $12,000. When we got the paperwork, we see that we are buying three land contracts and one REO. I was a bit confused, it was our first deal. I wasn’t sure so we just signed everything and try to work out through the REO. Then we confirmed it was an REO so we had our realtor in Saint Louis go look at it and say, “We’re going to sell this one. It’s listed.” When he went down he said, “Come on, this is not the address you gave me last time.” He went to the actual house. He made a mistake when he went the first time. You know that house that you would never buy, old, not taken care of or ugly? That’s the house we bought.
The realtor drove by the wrong house?
Yup, took a picture of the wrong house and everything. I spoke with Alvin and said, “Let’s just rip this Band-Aid off real quick because we have four. We’re not going to stop and cry for this one.” We sold that in December. We lost $2,000 but we didn’t get killed or anything. I liked that deal a lot because we are very afraid of how much money we’re going to lose if this goes wrong. We did everything wrong on that one and we lost $2,000. I said, “If we do something right, we’re not going to lose any money.” It was a very good learning experience.
It could have been a lot more expensive, you’re right. You just basically said, “Let’s just get this thing sold.” You sold it for $10,000 or $10,500? Was it just a local fix and flipper there in Saint Louis?
Yeah, to a local fix and flipper.
Then you focused on the fact that you had other three deals. What happened to those other three?
One of the deals was the best house on Detroit. It had a manicured lawn. It was a beautiful house. It was taken care of. It had flowers. It showed pride of ownership. We thought there was 100% chance that house was going to be reinstated and they were going to keep the house. We were wrong. She never picked up the phone. We did loss mitigation, sent letters, did everything we could and never got in touch with her. Sometimes she picked up the phone herself and said it was the wrong number. Who asks, “Who’s calling?” before saying, “Wrong number.” We couldn’t work anything out with her. We forfeited the land contract. We got possession of the property on July, August. We had the realtor go by. She thought it was still occupied because the lawn had just been mowed. I said, “Just knock on the door. Just verify it.” She knocked on the door, it was open. She went inside. The house was move-in ready. Not a single piece of paper, no trash, no junk. It was move-in ready. The only thing we did on that one, we painted the floor of the basement, which was $800 and we listed our property. We sold it for $34,000. At the end of the day, after commissions and everything, we made $15,000. We ended up with about 96% return on that deal in twelve months. There was another one that was horrible because the borrower didn’t have any water or power since November 2016.
You said they’ve been living in the house without any water or power for how many months?
For eight months, and they had a dog that didn’t walk out or anything. It was interesting.
That was a nice shade of yellow and brown.
I never went inside that house. Once I knew that they didn’t have water or power for that long, I said I was never going to walk into that asset ever, which I didn’t. Anyway, we got the property on June. We only changed the tub on that one because the tub had a hole on it and had people go in and clean it. Somebody else had to deal with that mess. We’re closing on that one and we’re going to end up making about 80% on that one. It was not a bad deal.
Then the other one, we had discharged the debt through Bankruptcy Chapter 7. We couldn’t call and do any outreach to her, so we started a forfeiture process. She called us and she said that she wanted to keep her house that she didn’t include that house for bankruptcy, but she did. I guess somebody did a bad job or something. We asked her to give a good faith payment of $2,000 and pay for the legal fees of drafting a new land contract before we sign anything. She agreed to that. She sent the funds. We drafted a new land contract and she’s performing. We’re keeping that one for cash. We’re making $300 a month. We only paid $9,000 for that one. We’re making roughly 40% and still have 29.5 years on that note, so that’s not a bad deal.
How long did it take you before you finally got her paying them?
We bought on October, we got her to pay on February, so about four months.
You’ll have eight months of payments coming in at $2,400. You’ll end up yielding probably around 30% the first year then on that one, is that right?
Then after twelve months you could sell that note off. How much did you sell her the house back? What she owed originally or what was the new loan amount?
We just made the loan. We made it for the unpaid principal balance. We just changed the maturity date just to roll down the days that she hadn’t paid. What happened was that she had a death in the family and she wasn’t able to pay for eight months. Now she was back on track, she had her job and everything, showed us pay stubs and everything. We made a new loan that was not affected by bankruptcy.
That’s the first four. You’ve done how many total notes this year?
You’re ready to close on some more in a little while? I think you said five or six more? How many?
We have fourteen. We have finished five with the one we’re closing now. After we bought the first four, I took it a little bit slow because I wanted to know the workout of the notes. Then I went on January, to Fast Track, I got really boosted so in February I bought two. Then I bought two more in April. From the ones we bought in April, one was in Saint Louis also. I gave Saint Louis a second try.
We changed the realtor definitely. We got a new realtor that did a good job. The borrower hadn’t been paying for ten months. We did the outreach. She didn’t respond. That sometimes happens. When we started the forfeiture process, she went to the attorney’s office and delivered the keys, “Just let me go in next week to move my stuff out.” We agreed to that and when she went the following week to take her stuff out, she went with her cousin, which was a co-borrower. I told them to sign the release just to get a clean title. They were very happy that we were letting them off that deal. She really thank me and so did the cousin that we were just letting her off the hook with that property. We assessed the property condition and we decided to sell it to the same guy that bought the first house, but in this case we made a profit. We made 22% and it was in four months.
You got 66% annual ROI on that then?
Yes. It was very quick and we didn’t have to go there. I never saw that property in person. That was good. Then in February we also bought one. We just wanted the real estate in that one. We bought it in February 14th and it had the sheriff sell date for February 27th. The property was worth, according to our realtor, $125,000. We paid $56,000 for it. Now we have the property. We put about $15,000 of rehab into it and we’re going to list it this week. We’re in it for $80,000 and we plan to sell it for $125,000.
That would be a nice 50% ROI on that one. That’s awesome. I’m so proud of you. What do you say to people who say this business is too tough?
I would say that any business you do, you have to work. If you’re looking to make a profit without doing any work, then be with somebody and let somebody else do the work. It’s not free, but it’s not hard. Right now, compared to what I was doing, this is nothing. I probably have fourteen notes and maybe occupied 50% of my capacity. I have a lot of time to go out with the kids and play and go out running. Once you get your stuff in order and you know what to do and you organize yourself, it’s not hard.
Is this all you’re doing?
It’s all I’m doing right now.
How many kids do you have?
I have three.
Is your wife working or is she staying at home?
She stays at home. It was part of the plan of moving here, taking it a little bit slow. The kids are thirteen, eleven and eight. In a few years, they won’t be here. We would be missing them a lot so we’re trying to make the most out of this time. This job, this business is great for that goal because I can work from home. All I need is my laptop. If we go traveling, I can just take my laptop and I can keep on working. It doesn’t require you to work eight hours a day.
Let me ask you some questions. What are your ultimate goals? What’s your goal for 2018?
For 2018, I would like to raise the number. I would like to make a profit of $200,000 for 2018. In 2019, I plan to create a fund. I don’t want to be doing JVs, one-offs because it’s harder to keep track and some more work than just having the funds there and getting things rolling.
You’ve been doing mostly individual JVs or self-funding deals?
I’ve done about 60% self-funding, about 40% JVs but that is because I didn’t take your advice at the beginning. You said to use other people’s money. At the beginning, most of us investors, we’re afraid. We want to test the concept and all that. After Fast Track, you convinced me it does work and I’ve seen it work. This business works. If you do things right, you’re going to make a profit and you’re going to be helping borrowers and you’re going to be helping your investors. There are a lot of people that have funds and they don’t know what to do with it. They have funds in their self-directed IRA, they have funds in their savings account, and they’re not doing anything. Once I gave them the opportunity to make a return, to making them 12% or whatever percentage, I’m helping them, I’m helping myself and I’m helping borrowers. This is a great business model.
Are you doing a lot of networking there in Tampa?
Yes. I’ve been going to the REIA meetings. You told me that too. When I started going to the REIA meetings, I got an investor from that. I got one investor from the mastermind group. I have another one in queue. My first investor was a friend. It’s a supplier that I had in DR. I bought a sofa from him and he’s always been calling me for advice on real estate investments. Once he saw me, what I was doing now, he said that he wanted in. I hadn’t emailed everybody. When I said I was struggling getting investors, you told me to email everybody, all my contacts. I did that. Immediately within 30 days, I had one investor on board. Then after that, after I’ve been showing results, I have four investors in line-up to invest.
We have a question, which I think we just answered, “Did you fund these deals with a JV partner?” You already talked about 60% self-funded and 40% JVs. How much in JV money do you have lined up between those four that are sitting there in silence that’s ready to roll?
That should be enough to buy a few notes for you, right?
Yeah. Now I’m chasing the notes. At one time, I had no investors and I had too many notes. Now I have a lot of investors and now I have to work on my note sources. I know the next step is going to be I’m going to have too many notes and again I’m going to have to source for investors. That’s the way you grow. That’s normal course of a business.
You’re leveraging with you investing in Detroit and Saint Louis. What other cities have you invested in? Michigan and Missouri, where else?
I have Cleveland, Akron. I have three notes in Akron. I have the REO in Cleveland. Then the rest is at Michigan right now. What I had in Saint Louis, we sold already.
You’re still hanging at Tampa though, right?
That was one thing I was going to crack. You’re leveraging your realtors. You’re leveraging your relationships to be able to get things done and then live how you want to live with your kids and your wife. You’re doing some pretty fun stuff, right?
What would you say has been the biggest a-ha moment that you’ve learned over the last year besides the realtor driving by? Has there been another a-ha moment for you besides the raising, “I’ve got to get private capital.” What’s been the big other a-ha?
Building teams. The other day I had an REO in Georgia that I was going to buy from a hedge fund just by networking, leveraging my contacts in LinkedIn and everywhere else. I went to Georgia and I had an investor that had contacted me from Atlanta already. I said, “Let’s meet at the property. See if you want to JV on this one.” When we met there, I met two contractors, I met two buyers and I met a realtor, together with the potential JV partners. He said, “Have you ever been here?” I said, “I’ve never been to Atlanta before. This is my first time and I have everything lined up.”
That’s a good thing. I’d definitely leverage your teams on that stuff there for you. Are you actively reaching out to banks though, too?
I just saw an email you sent out I got copied on. Why don’t we talk about that? Have you been doing that regularly? Talk about the success. Or not doing regularly and then what you’re learning from that.
At the beginning, I did it to get sources and I did get a couple of sources. I didn’t have any investors. I was getting more notes than I needed, so I stopped that. Now I have all the investors lined up so I started doing it again. I’ve gotten two tapes this week so far. It pays out. Bank sale from the list you gave me, I got a few contacts that were good. I have bought from them. The one I bought in Cleveland was one contact from that list you gave me. You got a lot of notes but I’m just trying to get ten yeses. That’s all I need.
Ten yeses, is that correct?
That’s all I need, ten yeses. Ten sellers, ten consistent sellers and that’s all I need.
Being a Spanish speaker, are you leveraging using Spanish as a way to get out and network with other investors? Or is it all English? How is it? I always like to ask.
I have two websites and two fan pages on Facebook: one in English and one in Spanish. Honestly, it’s more successful in English than in Spanish.
That would also just takes time on a regular basis. You’ve done a couple of videos that were both English and Spanish too, correct?
Yeah, all of them.
Just keep doing this stuff, you’re doing great stuff. What has been your best marketing tools? Have you still been meeting with people in person and talking, or is there another thing you’ve been doing?
Emails are very effective. I was doing it consistently. Now I’m not doing it because at this moment, I have investors lined up, but I’ll start doing it as soon as I fill this up. I fill the ones that I have up. Emails work. They are very good. They also work for asset managers. I’ve sent them emails. They may not respond on the first one, but they will respond the fourth, fifth or sixth one. That works a lot. That’s been my most effective way of getting contacts. In Instagram I got a lot of likes, a lot of people follow on Instagram, but I’ve been getting more results from emails.
It is doing that on a consistent basis there for you. How big is your database of contacts besides asset managers?
I have 1,800 that I’ll be mailing out. I have 8,000 in change in LinkedIn that I haven’t downloaded yet to Mailchimp.
Because I’m looking for assets right now. I don’t want to blast everybody and then get ten more investors and have them to put them away.
We have a question here, “At what point do you think you’ll need to bring on a partner there in Tampa?”
I don’t think I’ll need to have a partner because all I want to do is hire virtual assistants. Right now, I’m doing 100% of the work because I have the capacity. Once I feel my capacity reach at least 60% of it, I’ll start outsourcing stuff. You can do a lot of the work. You can have people run through your tapes. You can have people manage your online campaigns. You can outsource everything. This is the beauty of this day and age. You can outsource everything almost.
I’m going to ask you a question. You don’t have to answer it. Are you living off of your income from the notes or are you still living off of the income that you made previously?
From income that I made previously.
Based on some of your success, do you think you’ll be able to be living completely off of the note income here in the next six to twelve months or close?
I think for this year, I’ll cover probably 65% of my expenses, which is not bad for our first year in business. Other businesses I had, like when I started my construction business, I started covering my expenses on year five. Any other business I’ve been in, you don’t cover all your expenses in year one.
There was an article out there I read that said if you were making $100,000 a year, you’re at the top eight, not 1% but 8/10ths of 1%, and you’re like the fifth million richest person in the world if you’re making $100,000. It usually takes two years, three years, for people to hit that six-figure mark of where they need to be. You’ll do it in the first 24 months, it sounds like?
You’ve got 8,000 people on LinkedIn. Is that a lot of connections or are you spending time on LinkedIn, just going in and connecting with other real estate investors on there?
I have a lot of connections on LinkedIn. When I went to Fast Track at the beginning of this year, I think I had 300. I started clicking and clicking and clicking and clicking. I spent a couple of months clicking a lot and then I got to 8,000. After a moment, after a while, that you just get the request, you don’t have to be clicking.
That’s a huge database there. It’s sitting untapped, and emails change. I would highly recommend, I know that you may not want to get that many investors, but you need to start to send out those mails. I’m going to challenge you to something before the end of the year. Download, export your connections. You’re going to have to do a file drop, download from LinkedIn. Then send an email out before the end of the year. You have people looking for other things. It would be great if you raise another quarter million dollars from that. You could buy a bigger pool, a bigger tape with some more assets. I don’t know if you’ve heard Adam Adams’ interview with Joe Bayarena and Jamie Kubiak talking about them buying that portfolio of assets. It’s the end of the year. If you’re reaching out to asset managers, you might be able to hit your numbers a little bit sooner if you just get a little bit more aggressive.
Okay, I’ll do that.
I’m challenging you. At least send one email add to that 8,000.
That’s good. Are you coming to Austin in December for the Mastermind?
Yes, I am.
You’ve bought vacant assets and occupied assets, right?
I’m looking for occupied. The one we bought that was an REO in Cleveland, that was occupied still. Even after we foreclose, I tried to reach out to them to give in Cash for Keys, but he never made contact, so we just had to evict him.
What are your five favorite states?
So far I’m investing in three: Missouri, Ohio and Michigan. We’re looking to expand to Tennessee, Florida, because it’s in our backyard and Indiana. We’re looking for those three. We actually bids on Indiana right now. We’re looking for assets in Tennessee aggressively lately.
What was the thing that surprised you most on the workouts? Did the borrowers don’t respond?
I understand some people just want to live there for free for as long as they can. I wouldn’t do that but I know people do. That was not a big surprise. My biggest surprise was the house in Detroit. She left the property in mint condition and she never tried to keep it. She could have made a little bit of effort or talked to us. We could have worked something out. We could move her to the other house, which is so crappy, let her fix that one and do us a favor. I’ll give her six months for free on the other house.
There are multiple ways to get a deal done.
One of the big takeaway from all this, the thing that has impressed me the most has been the investors on Basecamp. When I started, when I took the virtual, one of the things that got me moving was I saw a presentation from Jay Tenenbaum. I called him and he picked up the phone. I was amazed because where I come from, you usually don’t get to speak to the boss so easily. I reached out to him, then later on I’ve been reaching out to Wayne Snell, to Adam and everybody picks up their phone and everybody’s trying to help you. This is a very good environment to get stuff done. You’ve got a lot of support if you have questions. Sometimes I have a lot of rookie questions and people bear with me and give me answers. That’s great. You don’t get that easily in any other business. In every other business I have done, I had to learn the hard way, make my mistakes and lose money, lose time. Here, I call you, I text you, you give me an answer. You save me probably a ton of money and a ton of time. I talk to the other guys at Basecamp and they’re really helpful.
For those that don’t know, we hold our workshops and different things, we use a thing called Basecamp.com which is an online file sharing message board which you can get bombarded with a lot of emails when people are really communicating, especially during the workshops. It is such a valuable tool just to be able to pick brains or ask your questions and have twenty people respond. It’s not always twenty people, but having people respond in a timely fashion as it pops up, or then just pick up the phone and call them. What’s great about the note industry is not only it’s just us. I think a lot of places are like that where everybody believes and coopetition. Everybody’s working for their own business but they’re also, “Watch out for that. Take a look at this. Yes, I’d be glad to drop by that asset for you.” Those are some easy things to be doing, easy things to do for other people to help back us. At some point, they may need you to drop by a property in Tampa and vice versa. Any states you’re trying to stay away from?
I have mixed feelings about Illinois, Crook County.
I have my experience having a very hard red tape to get things done. I think a lot of people are going to be running from Crook County and counties that are very hard. I’m used to that so it wouldn’t be such a big challenge for me to deal with them. Maybe there’s an opportunity there that I might be able to explore. I have something that I have in the back of my mind. Maybe further on when the business is bigger, I would probably do a little test, a trial run there and see what happens.
Just stay outside of Crook County and you’ll be fine, trust me. Don’t do any trial runs in Crook County. Stay out of there. For Indiana, there’s enough in Indiana too as well for you. It’s a much friendlier state when it comes to things for the most part. Any final words you want to leave people with? Any words of wisdom?
I would say if you’re starting on this business, at the beginning you’re going to be afraid like everybody else. Just do your numbers, as Scott’s going to teach you. If the numbers add up, go for it. If you’ve missed, you’re probably going to lose $2,000. That’s not a big deal. We spend $2,000 sometimes on something stupid. If you spend $2,000 learning the note business, it’s very worth your while and you’re going to make a lot more than that in the future.
Don’t be afraid to dive in and figure it out.
You’re not going to lose 100%, that’s almost impossible.
That’s the biggest thing and a lot of people say is you learn more your first deal than you do from any book, any workshop, any video online. It’s getting your hands dirty, rolling your sleeves up, and not figuring out as you go, but figuring out and being able to reach out and have people that they’re there to help support or answer your questions because there’s plenty of them out there.
I agree 100%. I went to college for five years to become an engineer. I learned more in the first two months on the job than I did in college. You always have to jump in and then you learn.
Howard, thank you so much. I appreciate if you give me an update and shoot me a text message, let me know how well you’re doing. Glad to have you on here. Look forward to seeing you in December here. Thank you so much for joining us here and sharing your stories and some of your deals and REOs and things like that. We’re very proud of you. What’s your company name? Do you have a website you want to share for everybody?
LHEVentures.com is the website. The company’s LHE Ventures, LLC.
I look forward to seeing you in a few weeks. Have a great day. You take care and we’ll see you later, Howard.
Once again, thanks to Howard for joining us. If I can share anything with you, don’t sit on the side-lines. Get in the game. Start making some offers. Start doing some things. You’re going to learn so much more from actually having the huevos to make an offer and work your way through the due diligence versus just sitting on the side lines and watching. If you can do anything between now and the end of the year, make an offer, make two offers, up your game a little bit because that will propel you into 2018 in a much higher capacity than still sitting around and waiting to get in the game. Hopefully everybody get things rock and rolling, get some things done. We look forward to seeing you all at the top everybody. Until our next episode, we’ll see you all later.
About Howard Marcalle
I am a non performing note investor.
The problem is that with banks CD yields below 2%, Bonds around 3% and many are not comfortable with the roller coaster ride of the stock market, many private and Self-directed IRA investors can’t find attractive investment opportunities to secure their future.
We achieve double digit returns by investing in non-performing notes. By applying my experience through hundreds of successful real estate deals, I find investment opportunities in non-performing notes and partner with private and SDIRA investors.
To learn more about what we do, follow what we do online or contact me Howard Marcalle @ 813-324-0628
Youtube Channel https://goo.gl/dOB7OS
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