EP 593 -The Note Force: How Investing In Notes Beats Other Real Estate Investment Strategies

NCS 593 | Note Force

NCS 593 | Note Force

 

There is no denying how Star Wars changed the world. Be it in film, business, or other parts of our lives, its lessons continue to penetrate and become that guiding star. In celebration of May fourth, Scott Carson takes Star Wars to note investing, talking about the note force and everything great that comes from this space. He discusses the different ways that investing in notes beats REO and fix and flipping investing while addressing how real estate has been affected in these tough times. He further breaks down how, in notes, pricing is better, there are more deals, less marketing costs, more strategies, and higher returns on investment and time. If you are looking to get into this space, then this episode is a treat for you. So go and use the note force that is ready for the taking, and May fourth be with you!

Listen to the podcast here:

The Note Force: How Investing In Notes Beats Other Real Estate Investment Strategies

May the Fourth be with you for all of our Star Wars fans out there, our Note Wars family, and our readers out in the nation. It’s always fun having an extra day to promote, goof around and be something that you enjoy. For many of us, the Star Wars movies have been that one and all the things that were spun off of that. It helped a lot of people out there, not only in the movie industry but also in everything that goes along with that too. There are many great things taking place out there. Honestly, if you’re a big Star Wars fan, maybe you’ve gotten a passion for Disneyland with everything that’s going on with all the different rides they have coming out or have with them taking over the Star Wars.

The Dark Side Of End Products

I want to talk about the note force and everything great that comes from note investing and the different spin-offs that a lot of us real estate investors, specifically on the note space, end up seeing and ended up happening. We could start at the beginning with a lot of things and as a new note investor, what to expect or what to look for. If you’re looking to get into note investing, there’s been an increase in interest or piquing of interest. I would say, with real estate investors who’ve come from the fix and flip side, the REO side, the lazy landlords, the out of state owners and wholesalers. Everybody else out there who’s trying to buy the end product of notes. What do I mean by the end product? Properties that the banks and financial institutions take to legal. They take it to the foreclosure route. They take it to the auction site.

Here in Texas, it’s the first Tuesday of the month. We probably won’t have anything because everything’s been delayed a while. Normally on the first Tuesday of the month, we have the foreclosures and that’s an exit that happens for many of us as note investors. That’s the beginning phase for many people. That’s the thing many people and many investors get into the tangible side of real estate. They like to flip this house, flip, or flop. They like the idea of the tangible side of real estate. Going out and picking up a property, touching it, feeling it, seeing it, and then being able to use their magic wand, use their force to clean the property up, to rehab it, to regentrify it, and to get it listed on the market to sell it.

Most people that are doing that, there’s a lot that goes into that 6 to 12 months or longer before there’s a property that ever hits the open market like that. I say it’s an open market because that’s where the majority of investors are used to. That’s where the majority of the books have been written. That’s where the majority of the real estate classes have come from. It’s all on the buying of the property. If you take a look back at the trend and what’s led to that property getting to the foreclosure auction and being listed as an REO on the MLS with an agent. There’s a whole lot of things that happen beforehand that can affect that property or maybe even remove that property where it never shows up to the MLS or traditional fix and flippers.

That’s what I tell people all the time. I’m like, “When we’re dealing with banks when we’re dealing with asset managers, there’s a couple of things immediately that are working on our favor. One is we’re going to see stuff 6 to 12 months before your traditional fix and flippers. We’re going to get lists sent to us from the banks and the institutions, and it’s not so much a property focus.” That’s where you see a lot of investors come in. “I’m going to focus on one property. I’m going to fall in love with it. I’m going to let my imagination run wild on paint, carpet, white picket fence, landscaping, and curb appeal for this one property.”

They bang their head against the wall a lot of times, fighting many other investors that get that. Especially the weekend warriors, the wannabes that outbid your traditional investors that have a formula for making the numbers work for them. Whereas a lot of the weekend warriors will overbid and then they find themselves in trouble later on as they over rehab the property. I have many friends that have done that. I did that initially many years ago. Seeing assets 6 to 12 months before and it’s almost like an alternative reality in a galaxy far away that we see these assets. We have the opportunity to come in that will never hit the open market for most investors. That’s a powerful thing.

Besides a whole new wave of deal flow, we also see a lot better pricing. That’s a huge thing, especially with the markets being where they’re at with the distressed debt. We are going to see a lot of these defaults, a lot of forbearances, loan modifications that aren’t going to work through. There’s a lot of things that end buyers will never see. With the fact that we can pick up this many amount of deals, so much matter of pricing. We’re talking stuff instantly at a 30% to 40% discount. That’s why I wrote the book How to Buy Real Estate for 40% Off or more on the magic world of note investing. The note force, as we like to say, the dark side of note investing. “Use the force, Luke.” That gets into another thing. One, many investors have to hustle. Many wholesalers, fix and flippers, landlords, once they’ve bought a property, they’ve got to go out and market and market.

I’ve been a part of different masterminds for many years as a real estate investor and I’ve paid a lot of money. One thing that I always found and enjoyed a lot of these traditional real estate masterminds I go and attend is most people don’t understand the note business, which is unfortunate. Everybody’s in it. We’ve all said that before. If you’ve got a mortgage, you’ve got a car payment, credit card, any type of IOU, student loans, stuff like that, you’re in the note business. You’re just on the wrong side of the payment stream. I have gone to these masterminds. I’ve talked with people that they’re flipping 60, 70 properties a year and I bring up the fact, “I bought 60, 70, and 175 notes at once for less than what you’re doing with ten assets.” It blows their mind.

They can’t seem to understand that. The force is strong in this one. What I’m trying to get at is, we get sucked into our normal, what we get used to. It’s hard to see outside the box a lot of times, instead of having to chase and find many borrowers in trouble. I’ll give you an example. Our friend Jason Bible was talking about how he drops $35,000 a month in marketing, going out on postcards, going out to distressed buyers, out of state buyers, and people in one area in Houston, in Harris County. That’s a lot of money. You’re dropping $400,000 a year right there on the postcard. That doesn’t count the billboards, classes, and other things that he’s doing for marketing as well and a lot of those things.

NCS 593 | Note Force

Note Force: When we get sucked into our normal, it becomes hard to see outside the box.

 

He’s built a great business that way. We have had many conversations that if he had to start all over again, he would start with the note side because it’s less demanding, there’s less overhead because you’re in the debt game. You’re miles up the river, miles up closer to the sources of where everything begins. It starts and ends with the bank. The bank’s going to get paid in some way. Either the banks are going to originate the loan and you start getting making payments or if you don’t pay, “You’re going to forbearance.” If you don’t pay, banks will start the legal side, short sale, whatever it might be, and there’s a big note there. We’re going to see a huge influx of short sales here in the next 12 to 24 months.

Reaching Out To Your Yoda

In November 2019, I was talking about we’re going to see a lot of stuff here in 2020. What I’m trying to get at for everybody out there, if you’re reading this and you’re looking for a place to start learning about distressed debts is, to learn about the note business and the best ways to be making money in real estate. What you need to do is start looking at people that have been around for at least ten years. You have to look around for people who have been around for a decade. Why a decade? A decade means that somebody was going through all the crap that’s out there in the previous recession and made it through that. There’s a lot of people you’re going to see getting out of the real estate over the next 6 to 12 months, a lot of investors, realtors, and mortgage brokers as things hit the fan and that leads to a lot of opportunities.

Why is there an opportunity when people are getting out of business? There’s a lot of deals that will be happening in an up or down market. You need to know how to pivot your real estate business. You need to learn how to pivot. You need to learn when you blow up that first Death Star, what are you going to do with that rock? You’ll learn as you experience and grow. You’ve got to reach out to your Yodas, who have been around for a while. Wholesaling is always going to be around but the more educated the wholesaler is about the property, whether it’s a traditional piece of real estate or it’s a note deal. The more you know about that property, that note, the more valuable that information is, the more valuable your emails become. What do I mean by emails? The emails that you’re sending out to your database that are more valuable to your buyer’s lists and knowing what you can and cannot do with that type of deal. Here’s the big thing that I want everybody to learn about this aspect of things. I might not be your guy.

If you are un-coachable, you do not understand that the market is changing and you’re going to stick to what you’re doing, by all means, stick to what you’re doing. Honestly, if you’re not coachable, you’re not willing to change and adjust your things, you’re going to have issues. That’s not saying we haven’t had our issues with deals going up and deals going down and things like that. It happens all the time. It’s knowing how to pivot and how to respond to those deals. I have to say, I’m licking my chops and salivating a little bit with some of the things we see across the board. First and foremost, if we’re getting a listing of notes on residential or commercial properties, our always number one goal right off the bat is if, can we help the borrower? Can we help the person in the property? That’s the first thing. That is ultimately the first thing that we do on a regular basis. “Do you want to stay? What’s the situation?” Most traditional real estate investors, they don’t have that in mind.

They’re going to work with people but their biggest goal isn’t, “I’m going to take over the property, subject to and keep the borrower in the property,” or, “I see this foreclosed list. I’m going to try to get the borrower to work will be. I take the property.” Their goal isn’t to keep the people in the property because they’re not in the note space. They’re on the, “I want to take the asset back. I want the asset so that I can sell it and make money.” Note investing is the only type of real estate note investing out there where you can turn lemons into lemonade. We’re a bank’s lemons. A deal that goes south, the market drops. People go out of work. That becomes lemon. That becomes toxic to a bank.

We’re going to see an increasing amount of banks and lending institutions, especially the lending institutions all day to subprime side of things take a hit if not there already. We already see that with lending platforms and lending programs dry up, whereas they used to be aggressive. We’re taking those lemons from the bank and turning them lemonade. Not just lemonade but Limoncello. We’re adding some kick to it because as a note investor, as a bank, when we buy debt and become the bank, we are making America great again one defaulted borrower at a time. You may laugh about that. I’m going to give you an example.

I got a list of some notes in and I make an offer on 50 of them and end up say with 30 of them after due diligence and pricing and back and forth and markets and doing all our shenanigans. Those 30 mortgages, here’s the thing that changes. One, if we can negotiate loan modifications, forbearance agreements, trial payment plans with those borrowers, that not only saves that borrower, it saves a whole neighborhood. Let’s face it. What happened with a lot of people years ago is when they bought or had a property or trying to fix it up and the market went south. For every foreclosure on a block, it affects the neighborhood $10,000 to $15,000 per house. When you have a wave of foreclosures, you will waive a default in a specific area, it reduces the value for everybody.

I had that happen to me. I bought a house not too far from here. It was a beautiful house. I was excited. The value is $300,000. It needs some work. There was a divorce issue. Borrowers were wanting to get rid of it. What they owed for it was $180,000. They needed about $30,000, upkeep work to it to get it up to where it’s perfect. I was like, “$300,000? I can pick it up for $180,000, be into it at $210,000 at $0.70 on the dollar and then get the thing sold. That’d be awesome.” I bought it as the cusp of things went south. I can remember I was still working in the mortgage business. It’s one of my last days and I went and closed on this property. I was excited. I flipped another property and made a $40,000 in profits for myself. I struck a change for my investors that funded that deal for me. We were excited about this deal. In the next 90 days as we’re working through rehabs and working for getting contractors here, a wave of foreclosures happened in that neighborhood. I watched the values drop from $300,000 to $270,000 to $250,000 to $210,000 to $180,000 to $150,000.

I’m feeling it. I get a little nauseous thinking about it and watching that. What did I have to do? I sold other things and I said, “I’m going to try to make the best of that I can.” I lived in this house while I was rehabbing it. I got rid of other things, sold off, rented other things I could to bring in income. I moved into this house. There were three bedrooms that I never went into. Five bedrooms, four baths, 4,400 square foot, half-acre, fenced-in backyard. It’s a huge house. Two full living areas. Big dining room. Two and a half car garage. Once we cleaned it and painted it and put carpet in bedrooms, I didn’t need to go in them anymore. For over a year, I didn’t go into three of the five bedrooms because I was sitting there trying to wait for the market rebound. I was like, “I got to do what I got to do.” That’s going to happen to a lot of people out there. There’s a lot of people that have bought a rental property, a lot of people that they bought property to turn into short-term rentals because that wasn’t a desirable thing.

NCS 593 | Note Force

Note Force: If you’re not coachable and willing to change, then you’re going to have issues.

 

Ways To Cash In And Monetize In Six Months

With tourism being down and conventions being down, the whole tourism industry in the toilet flushing, those types of investments are not valuable. They’re not worth anything. We don’t know what’s going to happen. That doesn’t say, “We rebound and everything goes back to normal by Christmas.” That would be great. I don’t see that happening. That’s the thing you have to look at. We always have to be looking forward to what’s going to happen in 6 to 12 months from now. Did I predict this would happen? No, I didn’t predict it would happen. I thought we’d have some things happening and I didn’t know what was going to come from, but that’s what I’m trying to get at with everybody. If you’re reading this, what are you doing now that will help you cash in and monetize your actions in six months?

For many traditional real estate investors, it’s the whole point of many people is, “I’m going to drop postcards, I’m going to send yellow letters, I’m going to go door-knocking.” You can make money doing that, but you have to look at it. If it’s going to cost you $0.50 a letter or postcard, at least without even the paper on it, the time to send it out and you’re going to get a 1% to 4% response rate on a direct mail piece, that’s not effective. It’s not as effective as all. Hopefully, that 1% to 4% response rate to call you a week out or greater from the foreclosure auction or the trial, that doesn’t work. I’ve been there. That’s saying yes, the more you hit him over and over again, we all know that the best way to hit distressed borrowers or distressed property owners is hit them 2 or 3 times the postcard. In some states, you don’t have that.

In some states, you don’t have the timing for that, but you’ve got to start planting that seed. What I love the best is, “I don’t need to drop postcards out. I don’t need to go door-knocking. I don’t need to send yellow letters.” Our marketing budget is what we pay for email and a cell phone. I call those awash because you’re going to have that across the board regardless of any type of investing, any type of side hustling, any type of thing you’re doing. These days you have to have an email and you have to have a cell phone. It’s all a matter of then taking the time to hit that 80% sales or maybe for the fifth contact, the fifth touch.

We’re not talking about, “I got to send out a different list every month to different borrowers with the trouble this month that transferred over from month to month.” We are hitting the same people. We are sending the same email blast out to the same list of asset managers. It’s easier for us to hit that fifth point of contact with an email blast. It’s one if they open it. Secondly, reaching out on LinkedIn, and third, a phone call. That’s where probably the rubber meets the road the most part. It’s how effective can you be in that follow up basis. That’s where the money is made for and rinse and repeat. That requires people to do a little bit of work and some people are like, “What? I have to have to do that four-letter word? Nastiness, I don’t want to work.”

What I mean by work here is yes, you’ve got to do the follow-up. You’ve got to market. You got to sit down and spend a little time marketing. You got to put some assets in place. By assets in place, I mean your LinkedIn profile, your logo, your website. These days, you need to have a website. Even if it’s a landing page, like a lead page. That’s better than nothing. You need that across the board or anything in the 21st century. What I mean is that you’ve got to put some assets in place. That’s the thing, everybody. You’re going to suck the first time. What’s more effective for most real estate investors that struggle with a budget? They don’t have the money to send out $5,000 or $30,000 in marketing and direct mail each month.

I know that. I’ve been there. What are they doing? They’re sending out 50. They’re sending out 100. They are sending out maybe 1,000 if they can, initially to try to get that ball rolling so that A, if you send out 100 postcards or 100 yellow letters, because I know some people are a big fan of the yellow letter program, they get 1 to 4 phone calls. You’re hoping that you have a higher than 25% close rate. Why do you need to have a higher than 25% close rate? If you have four people call you up and one of the four does, that’s 25%. If you have less than a 25% close rate, that means you’ve got to wait until next month to hopefully get one lead that you can close on. With the note business, “Do we get a lot of lists in?” Yes, we get a lot of lists in? “Do we get a lot of opportunities to bid on?” Yes. Our close rate is still about the same thing. I say 10% to 30%. It’s 30% to 40% on our end because we do a good job with follow-up, but for most investors, it’s a 10% close ratio or less.

The same thing happens if you’re in the REO space. A lot of people will tell you, “Go make 25% offers on REOs at one time, so that’s been around forever.” Are you going to see more of that? Yeah. You’ll see some more of that, but what does that mean? If I’m making twenty offers and I need a 10% close rate, I’d have to get two to respond. If you don’t piss off the realtors that are getting the bids. There are filters through. Here with us, when we’re marketing directly to the banks, we don’t have to go through filters. We’re either dealing with the decision-maker, the bank or the person in charge of the assets that can make the decision or work with the decision board to make things happen. Closer, better pricing, better flow of deals on a constant basis. Once we’ve made that contact with that bank, that asset manager, we’re reaching out to them on a regular basis saying, “What do you have this month? What do you have this quarter?” We’re building rapport with those people. When people come to our Fast Track coaching or mastermind training, our one-on-one training, one of the best things that they get when they walk out the doors are our list of contacts.

We’re sending it up an email and say, “Here, contact these 12 of these 15 asset managers that we buy from or trade from on a regular basis. I know them on a first-name basis and tell him I sent you. I’ll tell them I’m sending you and they’re going to send you a list of what they have available.” There’s nothing like that. I don’t know of a fix and flipper, I don’t know of a rehabber, “Call these borrowers. Call these people facing trouble. Tell them I sent you. They’re going to sign over the property to you. They’re going to send you a list of their properties.” That doesn’t happen. It’s a total mind blow up.

It blows their mind because they don’t get that and that’s what the beautiful thing about the note business is once you’ve made contact with a fund and asset manager, they’re going to have the stuff to send you. You don’t have to drop 10,000 postcards. You don’t have to drop 1,000 postcards. You don’t have to drop 100 yellow letters or 100 postcards. You don’t have to go out and knock on doors on your nights or your weekends and hoping you don’t get shot at from borrowers trying to get out of the way. “You ain’t got to steal my house. You need to go back to California. Damn investors.” That’s the emotional side. Do we deal with emotions being the note space? Yes, we deal with emotions in the note space.

NCS 593 | Note Force

Note Force: In tough times, you can either be making lemonade or be sitting here struggling to figure out what’s going on because you’re trying to do business as normal.

 

We have borrowers. They’re upset. They haven’t paid their mortgage because they’ve been laid off at work. They got sick. They got divorced. “Grandma got run over by a reindeer.” There’s a whole variety of Country Western songs that goes to the note space. The beautiful thing is you have vendors in place, you have servicing companies that are making the phone calls. You have trained professionals that can do the workout for you a lot cheaper than whatever rehab will be. Do we end up having to rehab some properties? By all means. Do we end up having to clean up the properties? Yes, we have that happen. The fact is that when we’re buying cheaper on the frontend, we have that stuff already built-in. As long as you’re sticking to your numbers.

There are some people that don’t stick lean numbers and they get in trouble. There are some people that over rehab the property thinking, “I’m going to move into this.” I’m like, “No. Sell it as it is. Get it moved. Don’t be greedy. Don’t be a hog that gets slaughtered because you’re greedy.” You had the potential make $5,000, $10,000, $20,000 more. Twenty thousand dollars might be a little greedy. It’s awash. I see people like, “There are no properties at the foreclosure auction this month for me to take a look at.” I’m like, “There’s plenty of notes for us to take a look at. There’s plenty of ways to get cash.”

I spoke with a lady, a real estate investor. We’re going to have her on here and I’ll be on her podcast. She was talking about how she’s done ten years of turnkey investing. She says, “I’ve got the rentals that I’ve built up, but I only work when I have a vacancy.” I’m like, “That’s great.” She told me how many properties she had. I figured out that she sees roughly $100 to $200 in cashflow per rental property. I’m like, “That’s not bad at all.” A lot of people would die for that. If you had 25 rentals paying you $200 a month, that’s great. You get a lot of write-offs, but you’re also dealing with what happens. Not every property is going to stay occupied every month.

Of course, not every note’s going to pay, but when you start looking at what most all the work that people are putting in. This is another thing that I love so much about the note space. When you start looking at what a lot of investors doing what showing up to the fix and flip and having to manage contractors or contractors at flake because they get a higher paying job. They’re like, “I’ve got other things to do.” We all know that return on time is one of the most valuable numbers that when compared to the return on investment.

Many investors, when they started looking at the deals and the money you made and how many hours you put into it, you can get disgusted. I remember I was excited when the first properties that I flipped made $5,000 and I looked at it. I started figuring a number of hours that I’d spent on this property and the headaches and being up at night, and I was like, “I would have made more on a part-time basis flipping burgers instead of going through all the troubles.” Don’t get me wrong, if you streamline it, I know people like, “I got to make at least $10,000, I make $15,000.” Everybody has different numbers. I’m not badmouthing that. Please don’t think that for a second. I’m simply saying when you start looking at things, are we working smarter? Are we working harder? We all have ebbs and flows. There’s going to be a lot of people working hard in the coming days, including yours truly, figuring out where things are going to happen. Where are things going to impact us? Where are the opportunities lying in wait for us to reach out?

Asset Classes That Will Be Hit The Hardest

You got to know what you got available to you. You got to know what’s going to sitting out there for you. Where to look? How to act? When I look at everything, here are the asset classes that I believe are going to be hit the hardest. Hotels and motels. We haven’t seen hotels and motels over the last few years. There was a big bunch of them that were in default years and we’re going to see that again. What happens when people get laid off of work? They stop their extra travel. They stop their vacation. Conferences going online and teaching, there are many hotels and motels that are hurting right now because of their vacancy. It makes me think I need to reach out to my buddy, who owns three hotels. He’s in the process of finishing out and building another one that’s vacant and his parking lot is vacant.

There’s a hotel across the street over here. Another buddy of ours is a manager at a hotel. Yes, there’s a few cars in their parking lot, but nothing at full capacity. What I’m trying to get here is that you’re going to see a big wave of those defaults. What’s the advantage of those? If it’s got a national chain attached to it like Marriott or Hilton, great. That’s awesome because that can be something. If you come in and step in and pick it up and you can keep that national flag, great. You’ve got some marketing behind it. What you’re going to see a lot more than anything else is there’s a lot of this smaller mom-and-pop, hotels, these smaller locations that don’t have the big branding behind them.

They’re getting out beat on Hotels.com. They’ve got to drop the price down ridiculously cheaper to try to put people’s butts in beds. That’s going to be hurting. That’s the first big asset class. I don’t think people have talked about it. Apartments are going to be hit hard as well. I’m starting to see some mezzanine loans on apartments pop up for some borrowers out there. I’m like, “Can I get the financials on these? Do you have anything on these?” I know when you made the loan, you had to have all financials. Where are you at on this? Where is this stuff here? It’s still too early to make an offer because I think the market’s going to continue to drop.

The idea is here is not to jump in now. Will it come back at some point? Yes. It will come back. I was looking at some assets that I bought. A property I bought in Round Rock, Texas. The borrower owed $150,000. We picked it up for $120,000 or $110,000 maybe, if I remember correctly. We sold it for $125,000. It didn’t make that much, but it was a 30-day in and out a deal. Making $8,000 on 30 days is not a bad deal. That property is worth on loan and this is $200,000, so it’s appreciated $75,000. We’d love to hold onto it, but the way the market was and where I was at that point didn’t make sense to hang on to it. That’s what I’m trying to get at. There’s going to be a lot of people changing and discussing how the market is affecting them.

NCS 593 | Note Force

Note Force: There are many opportunities out there for people to be successful. You just have to do the things that most people aren’t willing to do.

 

We’re going to see a lot of apartments that are going to be hitting. It’s going to be a lot of 100-unit or less. We’re going to see distress across the board on all the apartments, especially the borrowers aren’t paying and continue to go 60 or 90 days or continue to go further in default. Maybe tenants aren’t paying because of them being out of work themselves. If I was invested in apartment syndication in the last few years, I would also be very nervous as well. Why? What’s the exit strategy for that syndicator? Most of the time, syndicator raises capital, unless they’ve taken over a loan, Fannie Mae or subject to.

They come in, they raise capital, they purchase the asset for cash, they work to regentrify, fix it up, put some amenities in, increase the cashflow, increase the market rent rates, whatever it might be. They get traditional financing on the backend. They go out and get refinanced out from a bank. Let’s say they’ve got 12 or 24 months or the numbers have solidified. That’s probably is gone. That type of financing has evaporated. That type of financing isn’t available. You either have to look into being, “We’re going to ride this out for another 24 months until we see the market rebound or another additional twelve months.” They should be looking at like, “What do we have to do?” We’ve got to buckle down and hang out for a little while. That works as long as what you do have coming in and pays the bills and pays all the expenses.

You’re going to see apartments take a big dip. It was part of the reason why our buddy Grant Cardone over there laid off most of his Cardone Capital people. He saw the market. There’s no reason to keep them around I have to go buy new apartments when the market’s dropped up. He probably overpaid a lot of assets, he’ll be fine. He separated out. He will walk away unscathed based on how everything is set out for him. It happens. We saw that happen with several apartment investors years ago, some big names in the industry that we saw a lot of distressed debt. We saw their portfolios hitting the market and like, “This is distressed I spent with such and such bank. The borrower was such and such company-owned by blank.” No problem. If you know what to do, how to capitalize, how to reach out, and how the asset managers at these banks, these lending institutions that hold this paper, that is something to look at.

We bought quite a few smaller apartment loans, regentrified them, or sold them at the foreclosure auction. We took them over, regentrified them, and got them working and got them going. Since we bought it at $0.50 on the dollar, it gave us a lot of flexibility to work it and hold onto that or get rid of it after a while. That’s another asset class. The third class, you’re going to see an increase in self-storage because as people move out, as people get foreclosed on or evicting, they’re looking for a place to put their property, their essentials. You’re going to see another influx into self-storage. I also believe there’s a lot of people out there who storage-wise who can’t pay their rental rate.

They’re not paying their taxes. They’re not paying their mortgage. They’re probably not going to pay their storage space for their clothes, their knickknacks, or extra furniture. You’re going to see an increase in some of that defaults as well too. It’s an opportunity there because if you come in and you pick up the debt or get preferential financing and subject to take over at these assets, it might be beneficial for you to get some five-year owner finance financing from some of these mom-and-pop owners. Come in and regentrify these assets and get them back on the board and go through this wave and then either sell off or refinance out once the market corrects itself in a couple of years.

Those three big things. You’re going to look at motels, hotels, your apartments, or self-storage. We could sit here and talk about office space, but the thing about office space is they’ve often gone and bought and built the property. Usually, it’s such a cheap cost per square foot that allows for them for a while to run on 50% or 70% occupancy. They’re allowed to run on that because they’ve got the numbers because they built it from the ground up. They’re not involved initially needing to cover their costs to stay in business is often lower. You’re going to have a lot of the big box stores, the malls. When you saw J.Crew Chapter 11 bankruptcy. Your gyms are going to be hit hard like Gold’s Gym, 24-hour Fitness, and others falling or that have already filed BK or in the process of it.

As real estate investors have to be mindful of is, are their opportunities in something that we see that we can get cheap enough that we can turn around and turn to something else. Back to one of my investors early on in my career, Mr. Johnson, who shared the fact that in the RTC days, he bought a lot of vacant office buildings and converted them into other things. One of his best friends bought a huge building in Detroit for $0.10 of the dollar for $4 million and transitioned it into call centers, executive offices, and made a lot of money doing that. That’s the thing that I look at like, “Where are the opportunities? Where are some options we’ll be doing some of these amazing things that can set you up for a decade?” There is going to be a huge transformation of wealth here in the next 12 to 24 months like we saw a few years ago. You can either be in and making lemonade or limoncello or you can be sitting here struggling to figure out what’s going on because you’re trying to do business as normal.

Use The Note Force, Do The Work

We’ve got a few episodes that we haven’t launched, but I’ve been quiet as I’ve been sitting here studying things, trying to figure out where we go? Where do we pivot? What do we focus on? I’m starting to see that path as I saw years ago. I look at trends, look at what we were doing then. In 2008 and 2009what I was doing, I was dialing for dollars, making 50 to 100 phone calls a day. I was reaching out to asset managers on an individual basis. “What do you have? What have you seen? What are you doing?” We’re going to start doing that. I’m probably going to dedicate and dictate two days out of my week to making phone calls to asset managers. Tuesdays, I’ll be sending an email blast my asset managers, and Wednesdays I’ll be following up with phone calls for four hours. Four hours of dialing for dollars to those that have opened my email blasts, seeing what they have on their books, seeing if what they’re feeling the market is. If I get to 100 people in four hours, that’s 25 an hour phone call, let’s knock it down to twenty because daddy’s going to need to get up and get some water.

I figure if I can dial for dollars for 40 to 50 minutes, take a ten-minute break, go back 40 to 50, I figure I can hit at least 40 phone calls in a two-hour period. My goal is to make contact with 100 asset managers and see what’s going on. Do I know where they’re at? Have I? No, I don’t know where they’re at. I don’t know what their portfolios are made of. I’m doing the whole shotgun blast approach. If they’re opening my emails, I’m going to follow up. That’s an extra easy way to hit that second touchpoint. The first touchpoint, they get my email. The second touchpoint, they get a phone call from me. The third touchpoint, we follow up with an email if we can find their information and four, get on my LinkedIn. I’m not going to do those all at once. My goal is I’ll knock through the phone calls I came for four hours and then an evening follow up with an email blast to those and then also follow up with the LinkedIn contact if I can find them on LinkedIn if I’m not already connected. That’s a three touch approach. If you can do that one day out of the week for the next 30 days, that’ll start building some momentum for you.

If you then can up it up to two days out of the week in 30 to 60 days from now, you’ll start seeing a lot more momentum to the point where you’ll have enough deals hopefully coming in and making enough connections that other people are reaching out to. Most people aren’t going to do what I’m talking about doing. Less than 1% of people are going to be making phone calls and dialing for dollars. I know that because I’ve seen this for years. It used to be the major focus of our teaching. What we found is that once people made enough contacts, they stopped dialing for dollars. They didn’t need to do that. That’s fine once you’ve done the work.

The unfortunate thing is most people aren’t doing the work. Most people aren’t making contact. I’m about to get Stephanie to start making some dialing for dollars for me. She was one of the best ones at it years ago. She started doing that. She started doing short sales and dialing for dollars. Yes, she may not like it initially doing that. Nobody likes initially doing that, but when you get into it, it becomes effective. What do you have? What are you looking for? She probably heard me downstairs because she probably went, “What?”

NCS 593 | Note Force

Note Force: As entrepreneurs and investors, we will never grow when we’re inside our comfort zone.

 

She said, “No, because I’m confident in that, Scott.” That’s great. That’s a beautiful thing. What I’m trying to get at is there are many people reading that have the experience, that want to do things. If you know what to say, you can learn a little bit about what you’re doing, whether it’s through our Virtual Note Buying Workshop. Go to NoteBuyingForDummies.com and get signed up there or go into NoteCamp2020.com. Sign up for the Virtual NoteBuyingForDummies.com and get a ticket to Note Camp 2020. Start learning. Start going and read the episodes. Start learning on The Note Closers Show, on Note Night in America. Check out the Note Camp Podcast.

There are many references to where it’s free to learn this business. Maybe you don’t need to sign up for class. I talked to a new guy and he’s a flight attendant. His wife works in the rental car industry. A lot of people, they’re like, “We don’t have much money coming in. I got to scrape together this to sign up for a $500 or $600 workshop.” I get it. It’s fine. Start somewhere. Start using the assets that are available out there and start learning. I’m going to put to work the stuff that we teach, put to work, and learn from somebody who’s been around.

There’s a lot of people out there that are flash in the pans that haven’t been in this industry 8, 10 years. Honestly, if you’re going to learn from some people out there, here are the four people I would be learning from. Myself, Sue Nelson. If you like commercial deals and larger apartment deals. Sue is one of the best people when it comes to the apartments and the larger commercial deals. She’s phenomenal. If she’s not retired and spending time with her three kids in downhill skiing, for the most part, Sue Nelson is great.

I would also look at the other two people out there. Yes, I’m going to say the people. Donna Bauer,

Eddie Speed is out there and myself. We have been around for a while. I teach the best when it comes to nonperforming notes because it will be focused on it. Everybody can deal with performing notes. Owner financing is going to be big because people are going to not have the FICO scores. You’re going to have an increase in that. When you look at the numbers where there’s 180, only 81,000 owner financed notes originated. That’s down 5% or 6% from the year before. What does that tell you?

No offense, 81,000 is a great thing, but that’s a drop in the bucket compared to the commercial notes. It’s a drop in the bucket to the institutional stuff. We got to see more defaults like that. You can either fight over a small little puddle or you can jump in and carve out something in the sea of debt that we’re seeing, in the ocean of debt that is coming available. It’s getting bigger and bigger. The polar ice caps in real estate have melted, resulting in more distressed debt. The market has changed. We all know that. We’ve seen the writing on the wall, so do something,

Learn the nonperforming side of the business so that you know how to turn that into a performing note. Learn the nonperforming side of the business of the debt side. When you see something that makes sense, that you can convert it, that you can own it, you can take it down, you can make sense with it. I want everybody to be successful. There are many opportunities out there for people to be successful. You have to do the things that most people aren’t willing to do. Most people won’t send a postcard, make a phone call, call banks, send an email blast out, and won’t do anything. If you want to be most, that’s another four-letter word for you not to succeed. Rise above the crowd and do some things a little bit differently. Spend a little bit of time in your night and your day and your weekends doing something.

One of the things that I’m going to go back and be doing here is I’m going back and revisiting some of the assets here in the area that I was responsible for. Some of the first deals that I took down 10, 12, 15 years ago. I’m talking about seeing how the market has changed because that’s how you learn. You look at history, you look at what happened. When you start seeing the trends and things happen again, you move on from there. You learn. You lick your wounds on the mistakes you’ve made and you’d get up to fight another day.

You lick your wounds and you keep moving. You keep failing forward. If you’re struggling, if you’re reading this and you’ve hit the skids on something, you are laid off, you don’t have income coming in, do me a favor. Reach out to me. If you think you want to get into the real estate in the note space, but don’t know where to begin, feel free to give me a phone call. Go to TalkWithScottCarson.com. I’m not here to sell you on anything. I’m here to give you some counsel. I talked with a lady and I was like, “You’re not for the note business. Your comfort level and what you’re telling me and all that, what you’re telling me without telling me, stick to what you’re doing. You don’t need the notes space. Stick to what you’re doing until you get outside of your comfort zone.” We as entrepreneurs and investors will never grow when we’re inside of our comfort zone.

I don’t care what it is, you’ve got to get outside your comfort zone more so than anything else. That includes yours truly. The things I’m doing, like I said, start calling banks again, email blast as usual. We’ve done that every month in and month out. I didn’t do it in April because I was like, “There’s no reason to. It’s too soon. Let’s wait and see where things go on.” Now, yes. First email goes out, first round of phone calls. It takes place on Wednesday and we go from there. I encourage you all, if you’ve had issues in the past, you’ve had some deals go south, you know the best way to go out and solve that issue. Go out and make some big changes. Go out and take down some deals.

Don’t put money in your pocket. Take care of what needs to be taken care of and you’ll feel a whole lot better about yourself versus sitting here stressing about waiting for the sky to fall. Don’t be Chicken Little. Be Darth Vader. Be iconic. Be Yoda. Be Luke. Be Hans. Be Leia or whatever you need to be. The force is available to all of you. You’re going to have to have something flowing through you. You can reach out and take that knowledge and take it and apply it in your business and let the force be with you. Go out, take some action everybody, and we’ll see you all at the top.

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