EP NC 30 – What the Note World Has Taught Me with Matt Allan

NCS 031 | Note Business Lessons

NCS 031 | Note Business Lessons

Matt Allan from MJS Think Tank was working for a different hedge fund where it was grow or be fired. He decided to leave and took what he learned and applied it to his own business. Matt is now in the distressed mortgage space and working on it every day to get it better and better. He shares some note business lessons, the 10 tidbits that he learned about the note business that he believes every note investor should know, the most important of which is your purpose. Matt thinks just making money is not going to push you the way a deeper meaning would.

Listen to the podcast here:

What the Note World Has Taught Me with Matt Allan

Great stuff on day four of Note Camp 5.0. I’m honored and always excited to have a brother from another mother, a good buddy joining us from up in the New Jersey area. The man, the myth, the legend from MJS Think Tank, our good buddy Matt Allan. Good morning buddy. How are you doing?

I’m doing great. Thanks for having me on.

Glad to have you on. You always provide some great stuff. Has this been the third Note Camp you’ve spoken on?

Third in a row.

I’m going to turn it over to you to take it away. You’ve got a lot of great stuff for those who are joining us.

I appreciate everyone jumping on here. I’ve been doing due diligence on a tape of about 2,700 loans, but I’ve been listening in the entire weekend and I think that Scott is doing an awesome job. I’m here to tell you about what I’ve learned in the note business. I’ve been doing it for a few years and the topics that I wanted to cover are these ten tidbits, things that I learned about the note business. MJS officially got started in July 2014. I had my background working for a different hedge fund where we were buying distressed debt and I worked there as an intern. I worked part time then full time position and it was grow or be fired. I figured things out. I took what I learned and applied it to my own business here. We started working out loans for clients. In the beginning the capital was tight. We didn’t have the different ideas of what to do. I wanted to become adaptable to try to satisfy people in the industry and what my skill set was. My skill set was working out loans. In the beginning, that was definitely how we got started. Along the way, we continued to grow and then eventually started the Distressed Mortgage Expo. That has been awesome and I got three of those and got more coming, and this is what I do full time. This is not a part time job, this is 100% my business and everyday working on it to get it better and better.

The other thing that we put together was MJS Think Tank. Two times a month we put together a webinar, record them, post them on the website, then post them on the YouTube channel for everyone could go back as a free resource and get inside on the business. The Distressed Mortgage Expo is coming up later this year in September, and we’re going to do something special for you now. We’ll extend it out obviously, but this is special Note Camp 5.0 offer. We have a couple of offers there. We have a special session which is like back to the basics of the note industry because when we get through the weekend for Distressed Mortgage Expo, we cover a lot of topics but we don’t get into the 101, the Note Business 101. Let’s break it down. What are the ten things that I learned? I hit on a couple of them to start. Adaptability. Adaptability is huge. You got to be flexible, due diligence, building out your team, the workouts after you purchased the note. Marketing yourself, marketing your business, raising money, it goes together with marketing. Your goals. Why are you doing what you’re doing? Just making money is not going to push you, a deeper meaning would. Who are you learning from? Your mentors. Scott is obviously a great example. He’s always ahead of the trend. I’ll talk more about the mentors towards the end of the session, but he’s always ahead of the trend.

Who are you looking at to push you? Investing in yourself. What are you doing to continue to grow? Are you the person who’s going to take action and learn more information or are you going to sit on what you learned and see where that brings you? Then taking action. Taking action is probably the number one thing that I’ve done. Whenever I felt passionate about something, I went in and I tried it. If I failed, I failed. Other times, like this business has been going on for me, it’s been going great. Taking action definitely helped me tremendously. Adaptability, you need to learn to pivot when running into difficulties. I’m bringing this up because in the note business, it’s never cookie cutter. You buy a note; you never know what can happen. It could go to bankruptcy, the house could go on fire, the borrower could duck you. There are many things that you have to be flexible to. If you’re not going to be able to manage that situation and come up with the creative solution on the other end, then you’re going to run into a wall. You got to be adaptable. At the same time, you can’t force a situation to go the way that you want. You have to let it go the way that it’s going to go, especially in a note workout.

NCS 031 | Note Business Lessons

Note Business Lessons: Adaptability, you need to learn to pivot when running into difficulties.

How do you react to a problem? It tells a lot about if you’re adaptable or not. Are you the person who says, “Let me call somebody else and have them tell me the answer,” or are you the person who’s going to brainstorm and figure it out? Are you willing to be flexible? Especially in note workouts, it’s talking to people, even intermediate, newer level note investors and they believe that I’m getting a modification. That’s the way it is. I’m getting a modification because that’s what I want. That’s not always the situation. The borrower is going to dictate a lot about how that workout is going to go. They’re living in the property. They know their financial situation. You have to be able to work with what the borrower’s going to do because that’s the solution that’s going to work. If you force your solution down their throat, in the end they’re not 100% behind it and there’s a good chance of a default or a problem down the line. Are you a problem solver? Me as an example, I’m a problem solver. Solving a puzzle or a Rubik’s cube is fun; I like trying to figure out the different strategies to put everything together. There are other people who are not problem solvers and they can outsource those problems. Identify who you are and go from there. Adaptability is super important and it’s one of the biggest things that I learned in the note business.

Due diligence. I come from the world of seconds, but I know due diligence in the world of firsts. These are the questions that you can ask yourself. This is what I do when I run into a problem and when I’m running into a tape. What are we looking for? Let’s identify these key categories that are going to tell us the story about the note. Is your lien secure? Are you even able to collect? What has happened in bankruptcy? What’s the status on the property? Is the person living there? Is the person not living there? Is his family member living there? What’s going on with the senior loan, the property taxes, that kind of stuff? What’s the value of that property? This is what I do to simplify everything. When I run into a situation, the way that I problem solve it is I break it down into simple steps. I run through this checklist and if it runs through, everything gets through this checklist, I put a price on the note and I go and try and acquire it. Lien security is probably not your biggest issue. It’s senior liens, it is with junior liens. It can be, because you got to know what’s going on with the HOA and you got to know what’s going on with the property taxes because those are essentially more senior than you as a senior lien holder.

Bankruptcy is very important in the world of seconds. Is your lien secure, is it not secure? Does the borrower have any money? What are they trying to do exactly by filing the bankruptcy? What’s going on with them financially? A senior status as a junior lien holder, that’s important. Occupancy status, that’s important as a senior lien holder, property value and then you price the note. I’m going to get into a little bit of each one. Lien security, I use a resource called NETR Online. I go to those county websites, go to the county recorder and they look up images electronically and I do the best that I can to see what’s been going on with this property. Has the property been foreclosed on in the past? Where the assignments have gone from? What other liens are recorded on the property? Is it a mechanics lien? Is it a judgment? Is it a third lien, a second lien? I need to know all that stuff because this is going to tell me the whole story about that property and about that person. Can you collect? The statute of limitations is important. If a loan hasn’t been paid in the last fifteen years and then you’re getting that tape, you may not even be able to legally collect from the borrower. It’s important to know that stuff. Credit.com is an okay resource, but you’re going to learn more by state by state by speaking to attorneys, what those certain rules are, because every place is different than the next. Pacer.gov, I’m sure you have all heard of it. For bankruptcy, I know that your senior lien generally is not going to be potentially stripped or anything like that. To me this tells the story of the borrower.

Bankruptcy can give you some insights as to what the borrower can do. Maybe they have a retirement account and maybe that retirement account can be used to get them back on track. Here’s a little bit about what bankruptcy looks like. Chapter 7, dismiss discharged, removing the obligational from personally. Chapter 13, reorganizing everything and making it to payments. In the seconds worlds, these are important factors because it could determine if you’re lien is secure or unsecured, depending on the district that you’re in, like New York, New Jersey, Pennsylvania. Not the best district, but other places where you have that dollar in equity are still secure. It’s important stuff not just in bankruptcy, in general not just for junior liens, but getting to know who your borrower is, I think that’s important. Going to those sites, pulling up for property taxes, finding out what’s going on with the escrow payment, senior lien, and pulling skip traces to find out what’s going on with the location of the borrower. Are they at the property? Are they not at the property? You’ll see that due diligence is one of my focuses, but it’s important because I take these skills and I bring them into other places and I do the same process. I figure out what it is that I’m trying to identify, I simplify it, and then I go and execute. We’ve helped people in the past because they didn’t have some of these services. If you need help with it, you can reach out to me.

You’ve gone through all that. You’ve done your due diligence, get a value on the property, do a BPO, reaching out to a local realtor, get some eyes on the property so that the house isn’t burnt down, a hole in the roof or something like that. It’s important to get your eyes on the property. Then from there, price it and close the deal. All that due diligence, if you’re not going to do anything about it, you got to put a bid in, because if you don’t put a bid in, you 100      % will not get that note. It’s a guarantee. That’s what I’ve done for my side on due diligence. This is another thing for me that has been super helpful and I’ve taken this and applied it in other places. You go into your in-house team to break out some of this stuff. Who’s going to be working out your loans? Who’s going to be handling your foreclosure? Who’s going to handle the overall information intake about the loan throughout? Who is handling your collateral? Things like that. It’s super important and I’m going to get into your in-house team when I talk about building your team. Building your team. Without a team you don’t have a business, you have a job. Someone told me this about a year ago or a year and a half ago.

That was so critical. That should be an infographic for somebody.

Without a team you don’t have a business, you have a job. I heard this about a year and a half ago and it changed my outlook on the way that I was doing business. I was always worried about, “I do everything better myself. If I give it to somebody else, they’re not going to do it as good,” but then guess what? If you’re doing all those important tasks and you’re also doing the small tasks, what happens when you go on vacation? Do you still make money, or does your business completely shut down? It’s the same thing when you work at a regular nine to five job. If you don’t show up to work that day, you don’t get paid that day. That hit me when I heard that and I was realizing I was holding onto way too much and without a team, your business will reach a bottleneck, and I was reaching that bottleneck. I could only manage many loans. I could only do so much marketing. I could only do so much raising money and all these other things that are that are essential to making your business as strong as you want it to be. I was reaching that bottleneck. With a team, you can work on your business instead of in your business. That’s the role that I’ve taken over the last eighteen months is I started stepping away. I started giving out roles to other people and hiring other people to do certain things because I was slowing my own business down. I was the biggest reason why my business wasn’t growing. With a team, you can help others grow and achieve success. That’s what’s happening here.

NCS 031 | Note Business Lessons

Note Business Lessons: Without a team you don’t have a business, you have a job.

I’m giving out these roles to people who are in need of that. They’re looking for the internship experience, they’re looking to gain another client, and they’re learning our business on the inside. It’s a huge benefit. I’m able to talk to those people and help them get through difficult situations or hurdles that they’re going through, like changing jobs or committing to a different occupation or something is always a big hurdle for people. At the end of the day, I’m 30. You shouldn’t have a life defining moment this second on what your job is going to be. You should be doing what you like to do, what you love to do. That’s what I’m doing now and I feel good about that. Identify what team members you need. That’s where I’m at as for business development, which is what do I need? Who do I need to handle my marketing? Who do I need to handle my due diligence? Who do I need to help with taking into collateral? Hiring my workout specialists? Different things like that. Here’s the part of the teams that you could be using in your note business for assignment recording. Are you going through each assignment and worrying about if it goes back and forth? You could be, maybe if you have the time or you want to learn that skill or I use Simplifile? Simplifile, you pay $4.50, you electronically record. Almost 85% of the counties are set up like this and it gets recorded within a couple of days or you give it to a company like Orion or Richmond Monroe. They hold your collateral. They piece together your assignments. They get them recorded, but that’s a small task.

It seems fun in the beginning, but when you start closing on ten loans, twenty loans, thirty loans, you don’t want to be dealing with that. You’ve got other things more important that you should be focusing on. For a title, you could go to ProTitleUSA, get your titles ordered there, or teach somebody a skill. Have them going to NETR Online. Let them go through the electronic files. You could download them; you can pay for the documents online. That’s another place where you could teach someone. Maybe you teach a virtual assistant, maybe you teach an intern to do that task for you, your servicer, self-servicing, I used to do it. I don’t do it anymore and a lawsuit will teach you that. Use the servicers, they have licenses, they have the debt collections, they have all that stuff that you need in order to protect yourself. Madison is a great company and you get a personal touch there where you get to speak to a real person like Shante. John Butler is new onboard there. You get to talk to a real person there and figure out what’s going on with your loans and protecting yourself, or you can use FCI and use them for money performers and send servicing. There are plenty of people out there that you can use that you don’t need to keep holding out onto everything. These are small things that you could pass over so that your business will grow and you won’t bottleneck yourself.

Finding sources. You can have someone making calls for you, sending out marketing emails to banks, to fund managers, to those people. Scott covers that great. I’m pretty sure his Fast Track covers that stuff. It’s something that you can automate. I’ve seen it on the WCN Crew Facebook group where they say, “I automated seven emails to go out at these different times.” It’s something that you got to do because the day to day, you don’t want to be focusing on sending emails out. You want those to go out and you’ll run the overall business. Background checks, pacer checks. This is another thing, it easily can be outsourced or talk to somebody else and save you a bunch of time. You’re doing due diligence on a thousand loans, 2,500 loans. You don’t need to pull all the pacer docs. You can teach someone to pull those pacer docs. You can teach someone to pull a background check. Those are teachable skills where if you put it onto paper and someone can follow it as a manual, it can be taught. You’re holding yourself back by wanting to do that oversee everything yourself. Your note workout software, keeping track of all those people. People use Excel. I use Sage ACT! because it’s completely customizable. The mortgage office, you can process and intake your own payments. There are a lot of things here where you can give it to somebody else and let them run it for you. What you get back is the data at the end. Your workout specialists, you had Joel on earlier this weekend. You’ve got Bill McCafferty in the world of seconds. He’s also doing first someone to help you do your note workouts.

It’s an easy task. They just give someone a call. Yes, they’re going to get paid. They are going to make some money. It’s okay, because overall you’re able to do more and overcome that small loss from paying somebody else to do the work. Your foreclosure attorneys, hiring those is obviously crucial in the note business and there’s more stuff here. I didn’t then cover everything. Obviously you could break down every part, every task but these are just identifying who might be a part of your team that you need to work on or maybe you need to assist you. Believe it or not, attorneys are your friend. They’ve help me. I’m not scared of speaking to attorneys. I like speaking to them because they’re either helping me protect my business or helping me grow my business or helping my loans get worked out. It’s important to make good friends with the attorneys. The people that I’ve made friends with is Baum Legal. Dan Baum has been awesome and has been crucial and important for me in developing different programs for the note business. I had other guys like Matt Kelley from Trustee Corps where they don’t charge you an hourly rate. You get on the phone, they ask you questions, and they give you their insight. There’s going to be attorneys like that in different areas. You may have that attorney in North Carolina, Georgia, Ohio or Texas. Those guys are going to be important for you because if you treat them as a friend, they’re going to give you more than a bill, they’ll give you some advice as well.

Another thing that I learned is the workouts. I’m going to show you these to tell you, is this a strategy for you? Is this a skill set that you have, that you want to have or that you even want to do? In the beginning, I told you we self-service. These are the things that 100% I did. As I’ve gone on, this is the stuff that I don’t do anymore and I stay away from these because we have people to handle that stuff. The skill sets you’re going to need is some patience, flexibility, creativity, and knowing all the details. A borrower can call you 10:00 at night because they work whatever their shifts are. If you answer that phone, there’s no hesitation. You got to know what’s going on with that note. You got to know every detail because that person’s got to have confidence in you. You’re not Chase bank, where they know that obviously this is a legitimate loan. You’re MJS, you’re We Close Notes. They don’t know who we are. You got to be professional and you got to know all the details so that they understand this is legitimate and it may save you down the line with legal costs. When you’re working out loans, what information are you looking for? What’s the approach that you’re going to take with the borrower? What part of the process are you in? The borrower’s reaction to everything, let’s get into a little bit of it.

First time you speak with the borrower, you got to get a couple of questions answered. Why did they default? How are they doing now? What do they want to do to get this situation resolved? These are not rapid fire questions. You want to verify the borrower. If they’re calling you or you’re calling them, you want to verify that you’re speaking with the right person because you can’t be giving out other people’s information to the wrong people. That’s the first thing you got to do and you’re going to qualify them and verify them first. Through that conversation you need these three questions answered. You can do this as a friendly approach where you’re like, “I’m the guy who works here, but I got to know this, this and this,” or you can take it as the approach of strictly business. Get your questions answered. Don’t get into any details. Don’t give him any empathy or anything like that. It depends on who you’re talking to and you’re not going to know who you’re talking to until you talk to them and figure out what works. Certain people, that friendly approach, “I understand you lost your job, you’re divorced, or you broke your leg. I feel for you, I’ve been through that. My brother has been through that. My cousin, my friend,” other people, they don’t want the back and forth. They want what it is, “What are you guys doing? You’re foreclosing on me or not? What’s the situation?”

I’m thinking back to a couple of borrower calls and it’s not the easiest skill set. If you’re not that patient, creative, and flexible, it’s not the easiest thing. Every phone call is important and you can’t be off on a phone call. Every call’s got to be 100% on the money because what you’re telling that borrower’s serious. It could be foreclosing on their property. It could be doing something that could be affecting their family. It could be affecting their whole life situation. You got to be very on when you’re on the phone. Other thing is operational. Keep all the calls short. Go through your process. If they respond, good. If they don’t, they don’t. This is all going to also change where you are in the process. Have you started foreclosure or are you in the foreclosure process? Are you going through the eviction process? All is going to change how you interact with the borrower, because where everything’s at in the legal side. Is the borrower cooperating? Are they understanding of the debt? Are they denying it? Are they threatening you with, “I’m going to call an attorney. I’m going to file bankruptcy.” Do they duck your phone calls after the first one? It’s a strategy game. You got to know what the strategy is that’s going to get the result that you’re needing, that you’re looking for.

Dealing with the rebuttals. This is not a sales call or anything like that. I’m not going to get into all the rebuttals and stuff. Understand that these are some of the situations that they might bring up. “I filed bankruptcy, I’m going to file bankruptcy. I paid off this loan, it doesn’t even exist. I’m going to hire an attorney.” That could be some of the stuff they bring up. Whatever we do or whatever we were doing right, at the end of the call, we would always wrap up with an appointment and we would always stick to whatever it is where we’re going to stick to. Let’s say we spoke to a borrower and we say, “If we don’t hear from you by Friday, we’re going to start the legal process on Monday. Legal Department’s going to go if they don’t hear an update from you. What time can we speak on Friday? Is 3:00 good for you? 4:00?” You find out the time. If they missed that appointment, start foreclosure, because the borrower’s going to know that when I miss a deadline, when I miss an appointment, they are not going to wait for me.

In notes in general, not just seconds, this loan has been sold maybe three or four times and they know that the borrower is trained. The company that owns the debt that I’m not going to respond and when I don’t respond, you’re going to sell it to somebody else and I’m going to have more time. You need to break that trend and that habit. When you set an appointment and when you set a deadline, that’s what it is. It’s actually a deadline and you’re going to do something. I’m a big proponent to foreclosure. I think that it’s a useful tool. It costs you money, but you know when the finish line is. Here are the strategies. I’m sure you guys all know the strategies and I’m not going to get into all of them. You know all the stuff that kind of walked you through right now. If you’ve never worked out a loan before, now you’ve got to figure out if that’s for you. That may be a part of the strategy in building out your team. It may not be. You may say, “I like doing this stuff. I want to talk to the borrower.” It’s definitely up to you. Madison has a pretty flexible program where they could service it and you can handle the calls. It’s up to you.

Marketing. Scott is the main reason I started marketing. I see him everywhere. Seeing his emails drew me in and I talked to him a bunch of times. I wasn’t doing nearly enough to market myself. When I first started in 2014, I was of the mindset of, “I’ll just let people talk for me.” That didn’t get far because everyone felt they had something good and they didn’t want me to be too far extended. People would say, “Mahir’s a good guy. Mahir does good work.” I wasn’t getting this huge flood of people to come work with me. That’s what I was doing in 2014. Somewhere in 2015, 2016, I met up with Scott. He was here in Jersey. I talked to him a little bit. I attended Noteworthy East. I know Scott has bad memories, but I had a great time there. I started thinking I need to get myself more out there. I started doing these meet up groups. I started sending out emails. I didn’t really start even doing emails until 2016. I started doing these marketing emails saying what the hell I’m doing, some updates, post a blog here and there, post my videos. These are topics that you guys can use if you’re running out of ideas. Scott has an idea every day, which I find that amazing. He covers a topic Monday through Friday and I’m struggling to find a topic for two times a month for my webinars.

These are some of the things that you can use to market yourself. Through marketing, going to different events, going to different networking places, you can grow your database, you can grow your investor base, grow your contacts, possible colleagues and mastermind type people, your mentors and things like that. My biggest successes were going to conferences. That was my best thing, that was my favorite thing. Especially the early ones, I went to Paper Source, I went to IMN, that was kind of recent. I went to Distressed Mortgage Expo before we took it over. I went to Noteworthy East. I made sure to attend any note event live. That was because I wasn’t using email marketing. I had no idea how to use it. That was my best chance at meeting people. I’d meet twenty, 30 people out of the 300 or 200 that were there. Twenty, 30 people that I felt like I could do business with. Craziest thing, I would take a business card, I would email them the next week. I gave out my business card to so many people and nobody emails me. I don’t know what you want my card for if you’re not going to email me. You can just say, “It’s been real,” and then the conversation, but I take the business cards. I was using Cam Scanner, it’s a card scanning. I have my notes on there and stuff. That’s what I would do and I would pick up the phone or email them individually. I wasn’t using MailChimp or any marketing email system, CRM.

NCS 031 | Note Business Lessons

Note Business Lessons: You can’t judge your success only on the failures. You’ve got to apply yourself over and over again.

I would go to local meet ups also. Even if it was a real estate meet up, even if it was an entrepreneur meet-up, some kind of investor meet up; I would go. Maybe I can meet two people, one person; five people that want to invest in me, want to come and learn about the business, and want to come to the event. I would go and there were a lot of times where it was a dud but you can’t judge your success only on the failures. You’ve got to apply yourself over and over again. The results will come. Nothing comes overnight. Conference seminars. I told you about email marketing’s important. My meetups on Meetup.com, the two biggest note meetups in the country. The Facebook group for Distressed Mortgage Expos got 500 members. When you go to marketing events and you put yourself out there, you get invited to speak at places like here at Note Camp. I got three times under my belt, hopefully I’m around for a fourth. I spoke at Paper Source that was probably the biggest live crowd I’ve ever spoken in front; it’s got to be 300 to 400 people. I got to speak at IMN in front of some highly, highly incredible people. Increasing who you market with is going to also increase your knowledge on the business, different strategies, and things like that.

We got the Distressed Mortgage Expo. I wanted to cover the offer again; I wasn’t trying to push anyone too much. This is what marketing led me to, so I guess it makes sense. I graduated; I was working out loans for people that I can for these different types of programs which I’m going to talk about. I started doing meet up groups, my networking base kept growing and growing, and then added a networking event. I met up with Marc Gold and we put together the expo. Now it’s a culmination of my database and all the people that I’ve ran into to now attend, meet up and talk about what’s going on in the business. Raising money. I was in denial about raising money for a while. It’s like, “Why do I need the money, pay these investors, answer to people and things like that. I don’t want to deal with that,” but I got to a point where I can only get so far with my money. In the note business specifically, you can only get so far with your own money because everything’s cash. You got to be able to buy 100% of that note, you can’t work on a payment plan with the seller. You can only get so far with your own capital. That was something I was in denial about, but I’m not in denial about anymore. What will you do when your money runs out? That’s the question I ran into.

I’m trying to think. Trying to come up with different things was only one solution. I needed to raise capital. Simple. When I ran out of money, I couldn’t get into more deals, then I’m stuck. How do you ensure the people you raised money from are safe and secure? That is super important because that person is trusting you with their money. Sometimes people will go, “He’s rich. If he loses money, it’s all right.” No, it’s not all right. That guy shouldn’t lose money because he’s rich. That’s not an excuse. The way I secure people is I spell everything out for them, too much sometimes. Worst case scenario, best case scenario, this is what it’s going to cost. This is what it’s going to be. This is the timeline. Give a real timeline. Don’t give the miracle timeline like, “We’re going to get the in and out of this note in six months.” They don’t know that, so don’t tell the people that. You got to be honest. Qualify the person who wants to give you money to invest. Are they even made for you? Are they the right person? Once you do a deal with them, it could be Jekyll and Hyde. You could be talking to one person one day and the next day they have an attitude. They’re abrasive. They feel like they own you because they gave you money. You need to understand that person just as much as they need to understand what you do and what they’re investing in. I made a bad judgment call with one person in particular and it’s been difficult dealing with them, but we’re getting it resolved. Eventually it will be done.

NCS 031 | Note Business Lessons

Note Business Lessons: Give a real timeline. Don’t give the miracle timeline.

I’ve also done a lot of other JV’s and things like that. A lot of other private money deals that have worked out very, very well. Acquiring the customer is harder than keeping the customer. Once you have the customer and you prove yourself, it’s easier to go back then with the second deal, third deal, or fourth deal. How you continue to raise funds is you keep proving it. You can’t go off of, “I had four good deals and now this fifth one didn’t work out, then we lost money.” You’ve got to prove it. Your next deal is the deal every time to prove yourself. When you’re a successful or if you pull that person out of a situation and get them to make money or be satisfied with the crazy situation that may have happened, you’ve got to prove yourself every deal. You’re only as good as your last one, that’s what the line is. Joint ventures are something that is essential basically in the note business. It happens. Everyone’s doing it. Not everyone’s doing it right, which is why I use my attorneys to structure things and set things up because I’m not that smart to be able to put together these agreements.

My first JV agreement, my first JV that we did, I brought my friends out to dinner and I told them about this crazy note business idea. There was nine people there, I closed eight of them. I put $5,000 a piece including myself. It’s $45,000. That was in September 2013. I was still working at the hedge fund at the time and we bought these three deals, one in Torrance, California, one in Ridgefield, Washington, one in Lincoln, Illinois. They each got their own story. The California one I made the worst month. It was horrible. I wanted to get it to a deal, working so bad so I could prove it to my friends that what we invested was not something crazy. I got that note performing within two months and I put some crazy month together just to get the payments in. This other loan in Washington, the lady, she owned a wedding hall. She had a divorce. She couldn’t afford even $100 a month. She didn’t want to acknowledge the fact that the second wants the second, because this had three mortgages and the second was cheaper or less principal balance than the third. She was in straight denial. We almost got through the foreclosure, kept getting postponed through the bankruptcy, different things like that. It ended up being a short sale.

This Illinois note which we bought and sold to liquidate this joint venture. I mentioned bankruptcy earlier. We bought this loan and I went through this person’s bankruptcy. It was partial equity in Illinois and I saw they had $60,000 in their retirement account. I was like, “It’s a no brainer. I know the guy’s got money.” We worked out the loan, didn’t have to get far into the foreclosure, got to use that retirement account to do this payoff and pay us off the one shot. That partnership we closed out in six months. We were back to cash at $63,000 so we were up more than $18,000 in six months. We were very happy. The group was very happy and from there we took the serious guys, which was myself and my other partners, Jon and Sal. That’s how we got MJS. That was fun and that gave me what I was looking forward to get over the hump.

Next thing, to be flexible, to be adaptable, to be able to work with investors, to be able to raise money and came up with this partnering trade. Again, in the beginning it was difficult trying to get into these million dollar trades, trying to get into even half a million dollar trade. I didn’t have all the money and I didn’t have all the cash. I thought of, how could I add value to people at the same time helping myself? I came up with this partnering trade. I always get a lot of questions about this and I would like to teach this to someone so that someone else can run it because I don’t have the capability to do it anymore. I got a lot going on and it’s not a useful tool for me anymore. What I would do is I call up people. I have all these business cards after leaving an event and they all say I’m looking to be a part of a trade or be a part of a deal. What I would do is call them up, say, “It’s $100,000 minimum, there’s no markup. Whatever I get the notes for, you get the notes for, but the benefit is me and you together, we’d keep the prices down and keep the quality up.” It’s using the scale. The more people we get together, the cheaper the price of the notes will be and the better benefit that we’ll all get. Split up the assets and then everyone’s happy. You’re 100% owner of your notes; I’m 100% owner of my notes. We’re not partnering the whole thing.

This partnering trade is misleading people into thinking that we’re partners in the deal. It’s just partnering our funds together, which is held in an attorney’s escrow account until the deal is done. They send the money out and they’re in control of all the capital. I’m never touching any of the money at any time. The success that I’ve gotten from it is we raised a lot of money. For $15 million UPB, we’re in the world of seconds. It’s different than first but we raised a ton of money for those deals. Right now we’re doing a trade, we’re analyzing 2,700 loans, $54 million UPB raised right now $4.5 million for that trade. I’m only half way to what I need to be but shows that this partnering trade thing works because I was able to raise $4.5 million with two emails. That’s because of my track record. We’ve done deals, we’ve closed deals, I’m in the business, it says what I do full time and that helps with the credibility when you’re trying to raise money. Marketing yourself is important. You’re not credible if no one knows what your successes are.

NCS 031 | Note Business Lessons

Note Business Lessons: Marketing yourself is important. You’re not credible if no one knows what your successes are.

I’m a seconds guy and I had to adjust. Seconds were tight, although I’m involved in a pretty big trade right now. I had to adjust. I said, “My capital is sitting here. I got to put it to work.” This was a way of learning first, a worst-case scenario. You foreclose on a property and you got this place that needs a ton of work and how to deal with that. How to deal with the different vendors and people that you may need? In this situation, put 10% down and got funded. The difference with the first price is $70,000. We funded the repairs, the $75,000 in repairs to get this thing, this three family. Renovation was in late 2016, obviously $75,000 later a new plumbing, electric floors, walls, boilers and all that good stuff. Bathrooms and kitchens later, it’s a cashflow and three family. We refinanced the investor out and got money out of the deal because this appraised. I think it was in the $225,000 range. We took out, we did a cash out refi, paid the investor back and made money on the refinance and now it’s cash flowing. I was pretty happy with this one because I’ve never actually done real estate like this. This was a first deal.

Since then, we’ve gotten into all these other deals as well. Nine deals raising private money to get into deals and we secure them by our track record. We secure them by the properties, secure them different ways. It’s been awesome experience and this is all within from 2016 until now. This is twelve, fifteen units, sixteen units, all cash flowing, all doing well, investors had been paid back on half of these. The other half they’re in process. That’s what you could do with raising money. This is what you can do when secure the person the right way. That’s how raising capital can grow your business. I could’ve done these each by myself, but I probably would have been on deal number two by now. It makes a difference.

Now goals. People will just be like, “My goal is to make $100,000.” Me too. I want to make more than $100,000. I want to make $200,000, $300,000. Why are you doing what you’re doing? I feel like when you have a true why to what you’re doing, you put more into it and you get more out of it. My why is get my parents retired. That’s my first why. The second why is start my family, do all that stuff. That’s my why. When I go to work every day, when I come to the office every day, that is what pushes me. If I don’t put an effort today, my parents won’t get to retire. It’ll take them that much longer to get them retired. I come in every day, motivate myself. That’s why I’m doing what I’m doing. I have a bigger cause than myself. I know from even speaking with my partners, motivation is hard. Every day the effort is not always there because the motivation is not always there. They don’t know why they’re doing what they’re doing. Once it clicks, I could see it in them and then all of a sudden the participation, the effort, everything is there that much more. I motivate myself and I do things to keep myself interested, to keep myself motivated.

I keep plugging Scott, but Scott is a mentor of mine because he’s always pushing it. He’s always creative, he’s always changing the way that things are done. Even though I don’t talk to Scott on a daily basis, we’re friends and everything like that, but I watch his videos. I’ve closed on hundreds and hundreds and hundreds of note deals. I still pickup stuff listening to people, jumping on other people’s webinars, and going to different events. There are still always things to learn. You can’t stop yourself from learning. Matt Kelley was another one that was a big mentor for me because in the beginning I didn’t know anything about notes and I was just trying to keep my job. I get on the phone with him and I asked my note deal question and before I get off the phone, I ask him two, three questions. I ask him how his day was going and how was his weekend. Now I got a real friend. I go to his beach house every Fourth of July. When I’m in California, I go over there, we’d go to Disney world, it’s a great time. He’s someone who always pushed me, told me, gave me criticism at times when I was doing something that he didn’t agree with or didn’t think was smart or he didn’t think that was in the best interest of me.

Sometimes when you’re in this situation, you can’t see that. That’s the point of the mentor. They get you over the hump. They challenge you to be better than what you’re doing right now. They challenge you to be better the next day or they aspire you like what I was saying with Scott. I see what Scott’s doing, I see what Martin Saenz is doing, and I’m happy. I’m glad they’re doing well and it inspires me that I could do that much more. I could give out more education. I can help more people in this business so that they don’t lose money dealing with the wrong people. Not everyone has a mentor. Not everyone wants a mentor, but I think that they need to have someone that is pushing you. Maybe it’s not someone in the note business, but maybe it’s someone outside the note business that’s pushing you to be better. I motivate myself and I find other people to motivate, but not everyone is going to be like that. Sometimes you’re the personality. You need to be aware of it, that you need someone to push you. You need someone to yell in your face. That leads me into investing in yourself.

I was telling you, I always watching Scott’s webinars and Martin Saenz. These people, I jump on their calls. I know what they’re talking about but I’m there for support. I’m there to learn something new and I’m there to keep myself invested, keep myself educated on what’s going on. There might be something that they say that might hit and work for me. It’s worth it. What’s 30 minutes? What’s 45 minutes to listen to something? I’m reading. I read six books this year. I want to read twenty books this year. I’m on an okay piece. I slacked the last three weeks. I attend different webinars, different conferences to continue to educate myself. I go on blogs, I go on BiggerPockets, I go on these different things to read articles about things, what’s going on in my business. It’s not enough to know what you know. You got to continue to grow and if you’re not going to continue to grow, your business is going to flat line.

You’ve got to test things. That REO deal that I got was out of my comfort zone. I didn’t know how to handle a contract. I didn’t know how to handle a renovation. I didn’t know how to price this stuff out, but I tested it out. I went through my due diligence process. I figured things out and I multiplied it eight more times since then. It’s okay to get into something that you’re uncomfortable with, just make sure you put 100% of your effort to make that thing worth it. You can learn losing money. You can learn making money. I prefer to learn making money and that’s what happened there, so that worked out.

This is recapping what I was about. Working with a mentor pushes you, gives you a little extra to get over the hump. Learn from people in the business. I told you, I’m on everyone else’s webinars and it’s not because I’m scared of they’re going to take an audience from me or they’re going to take my business. I want to learn. I’m here to learn as well and if I can help people to not lose money, then I feel like I did my job. You’ll acquire experience by doing. This has come up in the past as well. I want to open a fund to buy notes. I ask them, “Have you purchased any notes before?” They said, “No.” “You worked out any notes before?” They said, “No.” I feel like you’re doing your investors a disservice, raising capital to invest in something that you wouldn’t have put the money in yourself, too.

NCS 031 | Note Business Lessons

Note Business Lessons: Figure it out or get fired. Figure it out or lose your investors. Figure it out or lose the money.

When you’re starting out, this is what worked for me; it doesn’t mean it’s the rule, I had to put something in to get something out. Even with that dinner I had with my friends, I shouldn’t have had to put any money in because I was doing 100% of the work, but I put my money in so that they felt this guy has his best interest at heart because he’s losing as much money as were losing if it doesn’t go well. Going forward, those splits and everything changed. I think that it’s important to get a little bit of money into the deal on your first couple of deals because you’re going to try a lot harder and come up with the creative solutions when it’s your money that you could potentially lose. I always looked at it as figure it out or get fired. Figure it out or lose your investors. Figure it out or lose the money. I always look at it as almost an extreme. Either am successful or I lost it, so I can’t lose. All of our videos that we do, all the webinars that we do, they’re on YouTube. Search my name Mahir Allan. Go to MJS Think Tank, all you got to do is log in, there’s no charge. Go watch all the videos there. I haven’t been doing blogs.

Take action. No one is going to do it for you. No one has ever come to my office and say, “Here’s 20% of the profits on this deal that I did.” It has not happened yet I would like it to happen, but it hasn’t happened. That’s why I’ve done all the businesses. I’ve owned a pizzeria, I tried this multilevel marketing thing, I tried so many things. I was working in a bank, I was a personal banker. I hated it. I’m sure there’s a bunch of other jobs I did in between it. I wasn’t afraid to fail because I don’t care what people think. “Big deal. You failed.” What is that going to do? It showed me that I don’t like running a pizzeria. It showed me that I don’t doing multilevel marketing. It showed me that I didn’t like working in the bank. That’s what it showed me. It didn’t say that I’m a failure. You can’t make it without doing something about it. Basically, that’s the whole thing about taking action. You’ve got to identify who you are. This is not for you; you are not an entrepreneur and got to be honest with yourself because entrepreneurs, they make it look easy. You’ve got these ten deals going, but it took a lot of work to get those ten deals going. On the surface, all you see is the pictures of the ten, twelve deals or whatever it is, and raise $4.5 million for trade.

What you don’t see is that doing the due diligence on that 2,700 loan tape, I’ve been here Thursday, Friday, Saturday, and I’ll be here all day today from 9:00 in the morning till 8:00 at night getting that work done. Your hours are not always going to be set. Sometimes you’re going to be flexible, sometimes you’re not. Sometimes you’ve got to do work with no reward just to get the bids out there. It happens. You got to put in the work to get any kind of result. Being self-aware of what your skill sets are, what you’re good at, what you’re not, it’s so important. This is my pet peeve talking to people. You have to read. No one reads anything. This drives me crazy. I’ll send out an email like, “Webinar’s at 7:00.” Someone emails me, “What time is the webinar?” I don’t know what to tell you. That stuff drives me crazy. Please read, especially my stuff. This is what we got going on. Distressed Mortgage Expo coming up in September. MJS Think Tank all of our videos. LenderIQ, if you ever need help with doing some due diligence, definitely glad to help you. This is all my info. Scott, how are we doing?

We have a question, “You’re not making all the phone calls yourself to your borrowers anymore? You’ve got servicers, somebody else doing that for you?”

Right. Definitely outsource some of that stuff.

“Do you recommend that we pay for all the different tasks from the beginning, or do you think it’s more valuable to do tasks or ourselves initially for a period of time?”

Me personally, I like doing things in the beginning so I can figure out what I don’t want to do anymore. It’s important. Let’s say you have a workout guy that you hired, you never been through a workout yourself and you’re riding this guy, “Why aren’t you getting results?” If you do a deal or two, you’ll understand why the results come when they come. It’s important in the beginning to definitely do some stuff yourself.

I’m going to respectfully disagree. I think on the second side, it makes a little bit more sense because it’s lower dollar, lower investment but if you’re on the first side and you’ve got $50,000 versus $5,000 invested deal, I think you need to pay a servicer, especially you don’t need to be talking to borrowers. If you’re brand new, you don’t have the experience or the professional. Matt and I come from a banking background. We’re used to talking to people. If you’re not used to it, by all means, you should not be on the phones. You should not be servicing, you should never accept payments. You should always have your payments go through a servicer. Especially if you’re brand new, yes. Have your servicer or special servicing do most of the work for you. Most of them are good and we’re going to help rock it all out for you. If you run into issues, reach out to somebody like myself or Matt. “This guy’s running. Is this normal?” They will tell you whether it’s normal or not. We have a question, “Can you share the Facebook group again?”

Distressed Mortgage Expo.

“You buy seconds. Do you buy seconds that have no equity? What kind of ROIs do you look for?”

It’s part of the pool. What we’re looking at right now 2,700 loans, 700 are unsecured, another 300 or 400 are performing and the rest are non-performing where it’s a mix of no equity. With seconds, it’s a numbers game. That’s why I like the number of loans, the deals that we’ve done. It’s been the high number of loans because not every deal is going to be an equity deal. In those no equity deals, it’s some risk there because there’s a lot of strategies that the borrower can use to get rid of your debt.

Seconds are a total different game. The second part of the question I didn’t ask you is, “Do you use a stair-step method for seconds?”

What is the stair-step method? It’s a little different.

We have a question, “Are you buying these, rehabbing, renting then selling the property with seller financing? You haven’t bought many firsts yet, is that correct?

I haven’t bought first. Those deals that I showed you were REOs and I got an investor to help me purchase and I then I would fund the rehab and then I’d refinance out with a lender. The criteria work for the lender. That’s how I get an amount. I keep it as a cash flow. Cash flow is super important. I want cash flow.

We have a question, “Do you still buy in California? As it is my understanding you need to be a real estate broker and if so, how do you protect yourself from that rule and law?” Let me clarify on that rule. If you’re going to buy notes in California and then sell to California, then you need to be a real estate broker, but if you’re buying outside of your own portfolio, no, you don’t need to be a real estate broker to buy. I can buy from California notes all day long. I don’t need to be a real estate license, but if you’re going to buy and then sell it to California investors, then that’s when you need to be a real estate. You’re not going to see that many California notes. You’re not seeing anything in the second side, are you Mahir? You don’t have to worry about it. We have a question, “Why do you like seconds better than first?”

That’s where I got started. If I ended up in a first hedge fund, I probably would’ve liked first more. I was working for National Note Group. I’m sure you guys know Fuquan Bilal. I started working there and that’s what we bought. I learned it. I learned that at a high level and then stuck with it.

“You are having the servicing company make phone calls to the borrowers now or are you still calling the borrowers and the seconds?”

I don’t anymore. It’s all servicer at this point because I can’t do it anymore. It’ll mitigate the risk.

We have a question, “Once the statute of limitations has passed, but the previous lender had initiated foreclosure in time, is that loan still collectible?” The answer to that is yes.

Because you had to have taken action in some point during the non-payment, during the statute of limitations.

Now there’s two things to keep in mind, too. There are two things to get around that four year, five year statute of limitations. A borrower has to make at least a $1 payment. A $1 payment is coming and that resets the statute limitations. Also, let’s say it’s been seven years. You don’t have to go after the full seven years in collectibles. You could forgive the last four years and just go after the most current three years and still collect on it. Some servers will hee and haw about that, but it’s totally legal to do that. That’s a statute of limitations.

NCS 031 | Note Business Lessons

Note Business Lessons: You don’t have to go after the full seven years in collectibles. You could forgive the last four years and just go after the most current three years.

I don’t want to say anything controversial, but that’s 100% what you got to do.

We have a question, “How do you have time to do renovations on the sixteen REO? You said you funded with private money. Are all of the sixteen you showed on the slide in the same market? Are you using a third party renovations company or did you hire someone to project manage this?”

Different markets, hired a project manager and then help them decision hiring the contractor. Project manager shows up, takes pictures. It’s looking good, sends another check. This guy’s ready to get to work.

What markets where they on again?

New Jersey and Philadelphia.

Relatively close then.

I’m trying to learn what I don’t know in first in local markets where I can go and save the day.

That’s a smart thing, but that’s the thing. Philadelphia is a prime market but neck of the woods for you guys.

It’s good.

It’s good. In New Jersey, I don’t think it makes sense to buy first the New Jersey. You should buy them when they are REOs up there because of the foreclosure timeframes?

Yes, definitely.

We have a question, “What do you still do yourself?”

What do I do myself? I’m always implementing strategies to get things done. Monitoring the overall business, doing the webinars, I still attend two or three networking events a month. Overall, I guess overall management of what’s going on. Talking to my partners, talking to the project managers, talking to the servicers, overall management to what’s going on.

Somebody’s asked, “I can’t find the Facebook group?” I typed in Distressed Mortgage Expo and it pops right up here.

Distressed Mortgage Expo, I’ve got to try and get that group alive. That group is dead. It’s just me on there.

The reason there aren’t many notes in California. First of all, California is accelerated. There’s lack of deals out there and people are buying distressed notes out there at 95. 96. Doesn’t mean there’s not some, just that they’re overpriced, it don’t make any sense. Once again, if you’re going to buy notes in California, if you live in California, buy in California and then you’re going to sell those to California investors, they want you to be a real estate broker. I can buy in California for my own portfolio, that’s fine. “He files bankruptcy. What does it do to the note?” He doesn’t do anything to the note. People are going to file one of two things, either Chapter 7 or Chapter 13. Chapter 13 is basically they’ll set up a sixteen-month or five-year payment plan. A lot of people love Chapter 13’s. One of our buddy has a $100 plus million fund focused on going after BK Chapter 13’s. It’s the payment plan. If they don’t pay, they get discharged in bankruptcy then you go after them and foreclose. Chapter 7 is mere liquidation where they basically probably give you the property back or you’ll finish the foreclosure.

A bankruptcy in the note business is your friend, in the distressed real estate side, it’s not your friend. We have a question, “How do you avoid SEC requirements as a financial advisor on first deal with eight investors?” The way you do that is that you don’t have eight investors fund every deal. You have them set up specifically that investor A is going to fund deal number one. Investor two is going to fund deal number two. You have eight individual joint venture agreements. It’s not cross collateralized, their individual one, two, three, so it’s all eight individual deals. “How do you find project managers? Are they sometime realtors?”

Sometimes it’s realtors, sometimes it’s property management companies that I’m saying, “I’m going to want to get this thing up and going. I need you guys to fill the unit for me and then collect the payments. I need you to keep an eye on it.” Sometimes we’ve gotten different people. We’ve gotten different people to manage these different projects. Sometimes I’ll get someone who’s interested in learning the business and say, “You want to learn how to buy an REO? Do me a favor, keep your eye on this job for me. Send me pictures and you’re going to learn from the inside.”

When you’re doing it with others, they’re funding specific assets of specific chunks. They’re not getting cross pollinated. “What do you do with unsecure seconds?”

Look for someone who like buying unsecured.

There’s not a lot of great stuff to unsecure seconds. It’s like an unsecured credit card debt.

Exactly. Essentially it’s credit card debt.

You can sue on the mortgage, but you’re not likely to get much.

I got a tape that we’re looking at, we’re going to flip those. We’re probably going to buy them at five dibs I wouldn’t expect more than that. We’re going to slip to somebody, hopefully a ten dibs and follow that.

Just $0.10 on the dollar, he’s buying it $5, selling it $0.10 on the dollar. “Where do you see yourself in two years?”

I see my parents retired. I see my girlfriend not having to work because she’ll be my wife.

Mahir, thank you so much buddy. Matt, you’re going to share your slides to Base Camp, correct? Some great links there for you. Once again, he’s giving 15% off his next Distressed Mortgage Expo. When is that date in New Jersey again?

We’re going to wrap it back in Jersey and then back to California next year. It’s at the end of September, 29th and 30th. That’s what we’re looking at.

Thanks for joining us here. As always, you did a great job. Thanks for the shout out, you are an action taker. You do so much and you do a great job. You’ve got a big heart and you’re helping a lot of people out there as well. Keep up the great work, Matt.

Appreciate it, Scott. Thanks everybody for jumping on.

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