EP 299 – Trash From The Past

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NCS 299 | Craziest Note Deals

NCS 299 | Craziest Note Deals

 

You can’t have the good without the bad. In the note game, every deal has a different story and there are all sorts of different things you’re going to experience. Scott discusses some of the ugliest and craziest note deals that he has been a part of as a real estate investor. The thing to remember is to take the lessons from those deals so you can avoid the next bad one. The important thing is to get up, go on, get on the phones, and start raising capital. People can tell if you’ve done your homework when you’re excited about a deal and you know what you’re talking about.

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Trash From The Past

In this episode, I thought I would share some of the craziest real estate stories that have happened to me on some of my real estate deals in the last fifteen plus years. We had our Fast Track training in Austin, Texas with great people. We had Eric Hyde, Gail Villanueva, Wiley Gregs, we had Dominic, we had Joe Kennedy, we had Joe Tomko and we had Scott Brown joined us as well. We had a really good group come and spend a couple of days with us. We had to talk about some of the craziest stories that had happened to us over the last few years. This would be a great podcast episode of talking about some of that stuff that has happened to us that has kept us going or things that did not deter us from finding success.

50 Yellow Letters

The first draw I wanted to start off with is the first house I walked into as a real estate investor or as a true investor. I, like many people, have gone to many expos, many conferences. One of the things that I went to a lot was Ron LeGrand events. He is great at talking about wholesaling and options and yellow letters and pre-foreclosures and door knocking rank. I went to one of his first events out in LA. I come home and say, “I’m going to send some letters out.” I write up 50 yellow letters, if I remember it correctly. I was also working as a mortgage broker at the time. I was also sending out letters to people, trying to get them refinanced, those that had financed or get a new mortgage five years earlier.

I sent letters out to this group for the mortgage business and then I also pull up 50 yellow letters, the whole like, “My name is Scott Carson, my wife and I would like to talk about buying your house at such and such address, please give me a phone call.” I drove it around the area, pulling those addresses and things like that, that look distressed. I send out 50 letters and about three days later, I can remember, it’s actually a Sunday afternoon. I’m sitting at my house doing something, I was watching football or something like that, but it was cold and chilly outside. Lily’s cell phone rings and we had a landline, when it showed, “Walmart pay phone.” I’m like, “This is interesting.”

I answered the phone, this lady is at the other end. She’s like, “Is this Scott Carson?” I’m like, “Yes, it is. How can I help you?” She’s like, “I got your letter. Can you get a pen and paper, write this down real fast? My address is this, can you come by 8:00 tonight?” I’m like, “Let me answer some questions.” “I don’t have time because my pay phone’s about to run out here. When you come, knock on the door, ring the doorbell, then go stand by the garage and I’ll come out and get you from the garage.” I’m like, “This can be interesting.” I do that. I’m all excited, I have a couple of hours. I jumped online.

I went to people, jumping county records, see who owns it, how big the houses are. It was a big four-bedroom, three-bath, two-storey house. One of the big square, like KB home is known for building on almost a half-acre. I was like it’s in a cul-de-sac end and cul-de-sac there. I was like, “This could be pretty good.” Figuring out what she owed, I see the first and second county records, how much in taxes are owed. I get all excited to go see her at 8:00. I get my paperwork, the things that we like to do with my paper packet, with the rehab costs and make sure my camera is charged to take photos. I’m all excited to walk over and be a real estate investor.

It had been a little icy outside, it was November. I pulled up to the big house and parked by a truck. I go ring the doorbell and suddenly hear all these dogs barking. She told me she had dogs but it sounds like there are quite a few dogs in the house. I go stand by the garage and suddenly about a minute later I hear somebody come out, the door opens and somebody presses the button and the garage doors start to open up. It is like something that of a sci-fi movie. It comes up and I see a car parked in there and I see all these trash bags. As it rolls up, it reveals that this garage is just full of black hefty trash bags, a car and against the back wall, I can see just shelves and shelves of paper back room ensembles.

Out comes this lady. She was about four and a half foot tall, five-foot-tall, about four-foot wide. She says, “Are you Scott?” I’m like, “Yes, I am.” She reaches out, “My name is such and such, follow me.” Let me just paint the picture a little bit more. It’s cold outside and this wave hits me. The wave of trash that has been sitting around too long, you can see dog feces in the garage and faint urine smell hits me. It’s making my stomach churn a little bit, the hairs are standing back in my arms. That’s what hits me at first. The lady comes out, she doesn’t look too dirty. She turned around and walk and she’s wearing these elastic khaki pants and they are split right down the middle. It was a little windy and they’re just flopping in the wind. Luckily, she was wearing underwear. I was like, “This is going to be interesting.”

I come in and the smell hits me. I walk in and there are just trash everywhere. That’s not like a typical hoarder where there’s roof to ceiling but there are just dirty clothes everywhere. She’s got a couple of couches. I go to sit down and there’s just dog shit everywhere. She’s got four big dogs, two German Shepherds, a Lab and some mixed. They were all excited, they come over my arm. I like dogs, you guys know I like dogs. There’s a spot in the couch, she clears some stuff off. There are clean clothes or dirty clothes just laying everywhere. I plopped down and I’m peeking around. If you can get beyond all the crap that was everywhere, it wasn’t a bad looking house. There’s a nice upgraded cabinet in the kitchen I can see.

As we get to talk in, she’s like, “I’m really down with the tax on four houses. I had all this money and then I brought in this guy who moved in with me, roommate. He was into drugs, we got into drugs, lost it all. The cops are trying to arrest me because I drive without a license. Every time they see me. They pulled me over five times.” I’m just listening. That gives me time to look around and these dogs are coming up to her and they’re just licking her in the face. They’re licking her in the mouth and they’re rolling in their own shit and I’m looking around. There’s carpet. It’s just yellow, squishy a little bit. The paint that you look at the walls are yellow about a foot up from where the sheet rock has been absorbing the dog urine or the dogs had been lifting their legs in this house.

I find that talking to her, she’s like, “The water hasn’t been on for months. We have power right now but I haven’t had the water on and all for months.” I’m like, “It’s going to be interesting,” and the dogs are trying to lick me. You can imagine the feeling. That’s why I need to get up and go around and take some photos of the property. She’s got this big backyard. I’m like, “Do you want to take the dogs out?” “No, I don’t want the dogs outside. My neighbors are out to get them. They’re trying to poison my dogs. That’s why I keep them inside. It’s too cold outside for my dogs.” I’m like, “Your dogs have fur. It’s not that cold outside.” I’m walking around, taking pictures. She doesn’t want me to go to the bathrooms. This is the most disgusting thing. I’m like, “I’ve got to take a picture.”

NCS 299 | Craziest Note Deals

Craziest Note Deals: The smell of shit and piss are the smell of money.

She opens up one bathroom. She’s got four bathrooms. She was using the toilet and so it’s gotten full. She was putting all her other things, excrement in these homer buckets. There’s four full to the brim homer buckets of just trash and toilet paper and it was like that in three of the four bedrooms. We go upstairs in her bedroom. She had a big bed and there was starter from dishes. It was just a nasty house. It wasn’t the worst house I’ve ever seen but it was just nasty. We get downstairs, I’m like, “Let me see what I can do. World Savings at the time was the mortgage company on this. Let me see if I can reach out to them and try to do something but I need to try to get it on a short sale.” I was explaining to her what short sale was and see what we could do. She’s like, “I walk away if I got $10,000.” I’m like, “We’ll see what we can do.”

For the next six months, I’m trying to work a short sale. I’m sending in photos or should I say we’re scratching sniff photos, getting the asset manager on the phone. They’re finally like, “No, we’re not going to do anything. We’re not going to add anything.” The lady’s calling me on her pay phone once a week, “Getting anywhere?” I’m like, “No, I haven’t got anywhere. I’ve got some buyers that look at them. They’re not going to budge on this. They’re where it’s at. The other three houses you had that were, they’re just not getting to budge. I wish you well.” I gave up. Six months later, I get a phone call from World Savings and it was the asset manager on the other side and he’s asking for a Mr. Diaz. I was like, “I’m not Mr. Diaz, I’m Scott Carson. What happened?” We’re trying to contact the buyer of this house because the borrower has died in the house. I was like, “Crap.” That’s what finally came up. That was one deal I was not successful at. That was my first bite.

I remember driving home that night. I pulled in the garage, closed the garage, stripped down and I basically throw most of those clothes away. I immediately took a hot shower twice to get myself feeling better. Everything I wore I just threw away to the trash immediately. That was the first ever thing. Then it kept running through my brain when you hear Ron LeGrand talk. He likes to talk about how the smell of shit and piss are the smell of money. I’m going to do this like, “There’s money everywhere here.” That was one of the craziest stories.

Corpus Christi Multifamily

Another crazy story was on a multifamily. You all go to your local REOs. I was going with the local right here in Austin and there’s a guy that gets up in the front room and says, “I’ve got a deal, I’ve got a multifamily.” I’m like, “Where’s that?” He goes, “It’s not here in Austin, it’s down in Corpus Christi,” and that peaks my interest. I’m like, “Corpus Christi, that’s where I grew up. Let me think about this.” It’s 29 doors over five, six properties. A nineplex, a fiveplex or fourplex and some duplexes and some triplex. He says it’s worth about $1.1 million. They’re offering prices $550,000 is what they want to sell it at. I’m like, “That’s not bad, $0.50 on a dollar.” I remember I got their info packet. I’m not going to say who it is because that guy is still here in the local market.

I get home, I’m looking at it, I take it to the office the next day. I don’t know about you but I often feel like, “That’s a great deal but I just don’t have the money so I can make an offer.” Anybody ever felt that way like, “I don’t have the money, I’m not going to make an offer.” I go in and I’m talking to people I was working for, my mentors at the time, Bob Leonetti and Jayme Kahla. They’re like, “Bring an offer, it’s a decent deal, make an offer.” I’m like, “Really? Okay.” A little bit more due diligence. I called a couple of my realtor buddies down in Corpus Christi and for those that know my dad on the local hardware store in Ingleside, which is right across the bay from Corpus Christi. I knew all these contractors, I knew all these painters, all these vendors.

One of my realtor came back with comps. She’s like, “Altogether it is probably worth about $1.1 million, $1.2 million,” and in the packet they said it only needs about $10,000 worth of work to get everything completely ready. I’m like, “$10,000, that’s not bad. That’s pretty cheap.” Probably some paint and carpet, we’re good to go. I’m thinking that I really liked this but I don’t have the money. The great thing about this deal is it really helped me overcome my fear of raising private capital. Here I am looking at an asset, 29 doors that’s worth $1.2 million, $1.3 million based on comps. They want $550,000 for it. I know the vendors, I know the area, I’m not worried about some fix and flip stuff because I know that stuff. I make a low-ball offer sitting in at $500,000, sent it in email. Then the guy calls me back, “We’ve got your bid. We’re waiting for bids throughout the weekend. We’ll call those whoever’s winning on Monday.” That was on a Thursday or Friday.

Friday afternoon I spent just calling. I’d make a few phone calls. I’m calling people that I’ve met, business cards at expos. I kept them all in a database, Excel spreadsheet, people that I knew that were investors. In three and a half, four hours making phone calls, I had five, maybe six people that were willing to fund the whole thing. They’re like, “Scott, we like this, the numbers look good, everything turns out good, we’ll fund it.” They’re like, “We like the numbers, it makes sense.” Fast forward Monday morning, I’m getting ready and thinking about it. I get ready to go to the office and the phone rings at 9:00 and it’s the guy plus his two partners.

They’re like, “We like your offer but can you come up to $515,000?” I’m like, “Sure, I’ll come up with $515,000.” They’re like, “You’re the winner then.” I said I’d like to drive by the properties, I was planning on driving down this Friday, it’s like a holiday or something and take a look. They’re like, “We’re going down there this Thursday, Friday too. We’ll meet at the properties, we’ll walk around, take a look at everything.” “I’ll just write the contract then.” They wanted $1,000 earnest money and $500 option fee. I was like, “We’ll sign it once I take a look at it.” We get down there, I’m all excited to go and I get my buddy involved. I said, “Do you want to come down with me on this deal?” He’s like, “Yes.”

Thursday night, we drive down there. Friday morning, we drive over to one of the places where it’s supposed to be where these guys are at. We get there. In the packet, they had pictures of each property that looked decent. We have this duplex and from the outside, it’s white, wood, blue trim, looks pretty nice. When you walk into one side of it, it was like a fun house. The roof is draping, the floor’s buckling. If you drop the marble it will split into twelve pieces because we’re still confused on which way to go first. Cobwebs everywhere. I’m like, “This might be the one that needs the most amount of work.” We go to the next door, it’s about the same, unoccupied. Then we take a ride to go look at the nineplex and this thing had a lien on it. I’m not talking about a mortgage on it, it actually had a lien on it.

We get there, the doors are cut off at the bottom to go in so they can close the doors. We go upstairs, downstairs. There are dead rats in the stairwell. We go into each room, it’s vacant. They don’t have copper fittings or even any type of fittings. It’s basically a PVC, straight up, turn on and off valve for their hot water, cold water. I’m like, “This is looking like crap.” It just gets worse, there’s a lot more than $10,000 to get this thing occupied. Then we go to a triplex, which is occupied. Tenants were in it but it was like a slum world. They get the little small gas stove and it’s all rusted out. We walked behind that, the copper pipes are all rusted. It’s like a match away from exploding. We get to about three quarters of the way with the last one, the last three properties like duplexes and another triplex. They were in good condition, pristine and rent ready. They were good to go. They were in good condition.

One of the guys said, “What do you think of the properties?” He’s all excited. I’m like, “I’m not feeling this one,” and I was getting more red. My buddy was looking at me. He could tell I was getting a little stretched out. We go to the last one. We decide to go to the building that looked like barbecue and then these guys pull out the contract, “We’re ready to sign this thing.” I’m like, “We won’t be signing anything today.” They get all mad. I’m like, “No offense but the packet you sent when you sent it, it said we only need $10,000 to work on it. That’s not true. Some of these things can be torn down. Do you have an insurance?” “We don’t know. We’re just trying to wholesale it on behalf of this person that owns it.” I’m like, “Do they provide insurance?” “No, there’s no insurance on these properties because they can’t get insurance.”

NCS 299 | Craziest Note Deals

Craziest Note Deals: A good deal will raise money.

I’m not going to invest my investors’ money into something uninsurable and about to be condemned. They go all gruff with us and I’m like, “No offense guys, we’re not doing this. I’m sorry but anybody that came down and looked at this asset would do the same thing.” I run back to my mom’s house and we then head north to drive back home to Austin. I’m feeling just absolutely like a dog with his tail between his legs because on the way down we started figuring out ways to get constructive and creative. We can own and finance some of these to the tenants and figuring the numbers in our head and how we could sell that note off. This was back years ago and I remember driving back, I’m just distressed, disappointed, to get back up there.

Then Monday morning I’m calling my investors, the five people who said they wanted to fund it and they’re like, “That’s okay. Call us on the next one. Thank you for being honest.” I’m like, “You’re not mad?” “Why would we be mad? Call us on the next one. Thank you for having our best interest in mind and we’ll go from there.” That was a very powerful experience for me. It was the highs and the lows and then also I had to realize the deal makes sense and I do my work. I’ve got people up there willing to fund. That was the most powerful lessons I can tell you is I did not let the fact that I didn’t have $500,000. One of the funniest thing is when they called me that Monday morning, when they said they approved it. I went to the office, all excited to talk to my mentors like, “Are you going to write checks?” They said, “We’re not going to write a check. You need to get on the phones and start raising capital.”

Rehab Roach Problem

That was the thing that I’d like to tell students, those that are investing. If you’ve got to deal, get on the phone, start calling people. They’ll make sense and people can tell if you’ve done your homework and you’re excited about the deal. You know what you’re talking about. A good deal will raise money. That was the thing based on everything I did. It looked like a good deal. When we got down our eyes and ears on it and it was not a good deal, we didn’t do it and went on.

That was one of the second-best deals, second craziest deals for the most part. I’ve had deals. I was doing a rehab in Salt Lake City one time that we had a roach problem. We’re sending a bug bomb, going there all covered in a plastic suit and I go and swing a sledge hammer and knocked down a pony wall and it just rained down roaches on me. It had the worst roach infestation in the county. It was so bad when we called the Got Junk guys that come out all the junk off, they wouldn’t touch it. There are too many roaches, we’re not going to take anything.

Dead Body On Property

We bought a note on a property one time where there was a dead body in it where the borrower had hung himself. I think it was in Dayton or Toledo. The borrower actually hung himself in the closet and they found the skeleton on the floor there. The house had been vacant for at least two years, nobody paid attention to the smell or whatever it was but that’s an unfortunate thing. I’ve done so many different types of deals that have been interesting along the way; deals that we’ve looked at and we didn’t do.

Property From Mail Out Foreclosure Letters

One that probably comes to mind is we found a property. They mailed out foreclosure letters. Got a phone call from a guy who owned the property in the Zilker Park area, which is a really nice area right off of downtown Austin, highly desirable. Then we go inside to this nice house, two-storey house. It needs a lot of work, that about $7,000, $5,000 worth of work but it would be worth somewhere around $700,000 grand. He owed about $350,000, he’s behind $20,000 in the bank. The guy was a local drummer, dreads all the way down to the floor and he was living in it and it’s like, “Let’s do that. We’ll buy the house from you, take it over, subject it to the financing, we’ll give you $20,000 to walk away because there’s a lot of equity and we’ll make up the rear edge until we took it over.” We did that. We did exactly that.

The beautiful thing is we had 30 days. I said, “We’ll let you stay in the house for another two weeks, three weeks and while we’re moving it and then let you have a place to go, we’ll give you the $20,000 when you leave, when we’re finished for you to move out.” He’s like, “That’s great, no problem.” Two weeks went by, we got rehabbers coming in, we wholesaled the asset actually. We found a local couple of guys that really wanted to take the asset down and they want to do the heavy rehab and like, “That’s fine.” We were able to negotiate a $50,000 wholesale fee on the deal and that was great. What was funny and all is the guy that was living there, he was selling off the cabinets and selling off other things, which is fine because we were planning on bringing those stuff out and we were fine with that. He was happy, he moved out. He got his $20,000. He didn’t have the money to do the rehab. He didn’t have the money to make the $20,000 in the back payments to SPS, the Select Portfolio Service who’s the lender at the time or the servicer.

We made $50,000 wholesale fee. The guys that bought the property from us, this is so sad because it had some really nice hardwood floors in this place and it had basically a brand-new roof from five years ago. He sent his rehab crew and they just trashed it. They ripped the roof off. They ripped all these hardwood floors out of it. They ripped it down to just standing walls. I remember the guy’s name is Nick and he left for the weekend, he came back and found this all stuff and he was so depressed. The house sat for about six months because that’s not as far as he wants it to go. It totally shot his budget down. He actually ended up selling the house, taking a loss on it. Somebody else came in and do the rehab and the last time I checked the house was worth about a $1 million plus now.

It’s the same thing we looked at. We were trying to identify, do we go and do the rehab ourselves? Do we use hard money to take it down? Then when somebody came to us and offer us a $50,000 wholesale fee, we did want to make it a little bit more, but $50,000 for two weeks of work, let’s do it. Let the heavy lifting go to somebody who wants to do because we haven’t done too many heavy jobs. My buddy helped me out with that. We split that profit. That was a good day. That was a good fun month doing a nice property that you can hang your hat on as well or stuff like that.

Eight-plex Working Brothel

There have been so many note deals that turned out well. I bought a note on an eightplex in North Carolina that turned out to be a working brothel. That was an interesting thing. I got it cheap, I bought the note from Wells Fargo Financial. I ended up selling it, negotiating a pay off with the borrower. Seriously, it was a working brothel hourly or daily basis basically when we bought that stuff. I was looking at buying a note on a double wide in Las Vegas. When I saw something in Las Vegas, I’m like, “I love Vegas.” Then when we sent the realtor by he’s like, “It’s in a mobile home park and I think it’s a brothel too because I drove by there and there were some shady women hanging outside and there’s a “New girl” sign in the window flashing.” I was like, “We won’t buy that one, we’ll let that one to go.”

NCS 299 | Craziest Note Deals

Craziest Note Deals: Every deal you do has a different story. You can’t have the good without the bad.

The funny thing is there are all sorts of different stories you’re going to experience. Every deal you do, it just got a different story, unless you’re just buying something, fix and flip it for the most part. In the note game, every deal has a different story. Every bar has got a different Country Western song and we have plenty of people that we’ve helped out in such great ways, letters from people, people just absolutely going bend over backwards trying to work with us to make sure they stay in their house. Those are some of the great stories that we love and helping people and really creating win-win scenarios for things.

You can’t have the good without the bad. The juice just doesn’t taste as good without the squeeze. There are tons of different deals, tons of different crazy stories out there. I could spend all day going through different ones but I don’t want to do you with that. I will tell you this, if you had some crazy stories, one of the things that we’re doing here, especially on the note deals. Shannon, our marketing intern here, is going to write up some stories and get them published. We’re going to get it published for you.

If you’ve got a crazy note story, a deal with owner, finance, wrap around, non-performing and performing. If you get a crazy story, drop me an email at Scott@WeCloseNotes.com with the details of it and we’ll see about getting you published with having you as part of a series that we’ll be doing here. Those are the crazy stories from the note land. Otherwise, that’s all I’ve got. Thank you so much. Have a great day.

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