We’re all real estate investors of some sort, whether you’ve done a thousand deals or are looking to get started. Note investors are a big percentage of who we deal with, and building your note business plan is one of the most important things you can do. We all start somewhere and a lot of people don’t have any type of business background, and that’s why it’s even more important to have a business plan. So many real estate investors and entrepreneurs struggle for failing to plan and putting some guide in place. If you could just spend time on a good business plan, it’ll give you more guns than anybody else. Discover everything you need to know about business plans as Scott dives into the different types and breaks down what needs to go into your note business plan.
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Building Your Note Business Plan
I know we have a ton of people joining us from all across the country and also have a pretty good following across the world. I want to welcome you all to Note Night in America. It is the LA version. I was on a short layover literally for about twelve hours here at LA before we jump on an early flight out for vacation, but I wanted to make sure that you didn’t miss on too many Note Night in Americas. We are headed for some long to R &R from a Hawaiian island. We will be drinking Pog juice, sitting with a pineapple somewhere. I’m excited to be here. We actually scheduled our flights in so I would arrive in time to be able to make sure I won’t miss a Note Night in America with you.
We’re excited to be here even though it’s a short term, it is probably right about an hour-long conference call, a coaching call or webinar or whatever you want to put it. I want to thank you for joining us here. I got some great stuff. If you do not have a pen and paper, grab one. If you want to take some notes of this. I’m going to put the slides up on SlideShare so you can go back and review that. I think this is a really valuable thing. Before we dive into the topic tonight, we are Note Night in America. I love doing this, this is one of our highlights of the week of being able to get out and communicate with so many note investors, so many students across the world.
We have a five-year goal to help educate and create 10,000 note investors. I know I can’t do that by taking too many Note Nights off, we have to do this on a regular basis and we’re committed to do that. We’re going to hit our first year targets out of that goal this year, and hopefully get closer to year number two’s goals as we dive into it. We have a variety of people that join us for Note Night in America. Obviously real estate investor. That’s what unites us all. We’re all real estate investors of some sort, whether you’ve done thousands of deals or you’re looking to get started. Obviously note investors are a big percentage of who we deal with. We’re on these. If people are looking to get into notes, obviously like, “What is this paper game? What is first lien? Second lien? What is all that stuff?” We do throw these up online so you can always catch a lot of the replays at WeCloseNotes.tv.
If you’re listening to this on iTunes or Stitcher, awesome. Give me a shout and let me know and drop an email on Scott@WeCloseNotes.com because every Note Night in America is now available on iTunes podcast. I think it’s going to be the twelfth episode of the year. Speaking of podcast, the Note Closers Show went over 94,000 downloads recently. That’s so awesome. We’re on task to hit our 100,000 download mark. Thank you for listening. Thank you for those that join it, watch it, leave reviews. I’m glad to have you there. Some upcoming events you want to be is in Vegas at the Tuscany Casino, Bill Mencarow is going to have this Paper Source Symposium taking place. Unfortunately, I’m not going to be there. I will be somewhere floating in the middle of the Pacific Ocean probably at that time. You’ll have a good time. They always put on a pretty good event as well. We have our Fast Track Training in Austin, Texas.
We’re excited about that. We have the Laughlin Magnify Your Wealth Summit. I’ll be speaking at the Raleigh Durham at the Triangle Real Estate Investment group, the TREIA group in Raleigh Durham. I need to put that on there, but excited for those around North Carolina in the Raleigh, Durham and the Triangle area, come out and see. Our Virtual Note Buying workshop is June 20th through the 22nd. That date may change, but that’s the tentative date right now for the next Virtual Note Buying workshop, but if not, it’ll get bumped to July. Then we have our next Note Mastermind, August 23rd and 24th. It’s two days because it butts up next to the Quest Expo. Our next Mastermind group is in Thursday and Friday, and then we have Saturday and Sunday at the same hotel with the Quest Expo 500,000 Note Investors. If you want to come out and hang out, lots of good opportunity there for you.
Our topic is all about building your business plan. I owe those of you that have been around longer than a week or two weeks or longer than six months an apology. We used to focus heavily on building a business plan. The fact that when we hit our eight-week program with our note coaching system, we used to do eight weeks of webinars. The first two weeks were always built around diving into people’s business plans and talking about writing. Then when we stopped and went to what we are doing, our fast track training approach. We did away with this so we can maximize those three days. I would still do some aspects of business plans in our mastermind groups like the SWOT analysis and go through that, but as I was looking back and working on putting this PowerPoint together, I started thinking that I probably should have covered this a little bit more often. Because a business plan is one of the most important things you can do at all for your entrepreneurial self. I know a lot of people don’t come from a business background. I was very lucky my dad and mom have an entrepreneurial mindset at a young age, grew up working at a hardware store and doing a lot of stuff my own, running different businesses.
I have a business degree. I have a business management degree with a minor in marketing. I’m sure the marketing side does not surprise you, but the marketing that they teach in college is different than they want you to do in real life, especially with it being sixteen, seventeen, actually, going on seventeen years since I graduated, the first month I got my graduate degree. I got three fourths of the way through my MBA, Masters of Business Administration as well. A cool title, MBA. Three fourths the way through, I left Texas State to start Ariel Capital Mortgage in 2005. Literally in that time frame going through my undergrad, even in high school and my undergrad, and then all the products we did and also when I was in an operational basis, I have written and reviewed hundreds of different business plans. I’m in the high three figures, I won’t say a thousand yet, but I have reviewed hundreds of business plans.
Some of the big companies I have reviewed for or even created for specific allonges, some of the names are Target, Mandalay Bay Casino, this goes back ways, Verizon. I’m also responsible for writing some stuff up for their marketing stuff here in Texas, Sales Brewery. Everybody’s reviewed Disney stuff when they were in college and different things they did as well. This goes back to 2005, I believe in this photo here, when I was out doing mortgages. Literally what’s relevant about this, that picture was taken two weeks after July, July 18th, back in 2005. I was across the street here at the Marriott. I was there for a big Ron LeGrand seminar doing mortgages and we had a business plan. Actually Boyd had an MBA from University of Texas and we worked out a business plan, what we need to focus on, how do we need to do some things. We leveraged from the great things we had with Ann and some of our other relationships we’ve made to be running very successful mortgage company until everything hit the fan a few years later.
The thing I have dealt with for a long time within the last fourteen years is I still look very young guy. That picture I look extremely young compared to what I look like now. If you can imagine that young kid being a couple of years in the business actually going and talking with bank asset managers and building a plan and have only way goes to start celebrating and out of Austin and travel across the country for three years nonstop. I understand why I have a little bit less hair. I’m a little bit more barbacoa on my face. We all start somewhere. I know a lot of people don’t have any type of business background. That’s why when I was going through this, I was like, “I should probably talk about this a little more. I should talk more about this.”
We focus a little bit more on the Note Closers Podcast as well. If you don’t even have a business plan, I see why many real estate investors, real estate wantopreneurs, struggle is they don’t have a plan. They don’t have a plan of action. If you’re failing to plan, that’s planning to fail. You want to put some guide in place, what you want to focus on, assets, class. You’re going to find yourself struggling. You’re going to find yourself trying to put square pegs in round holes. You’re going to find trying to grasp onto any type of deal from anybody and it’s going to be a failure for you when you should learn to stick to what your plan of action is and be a lot better off.
I take this for granted, but I plan a lot of stuff out. I am constantly working with numbers. I know my numbers and I know people in my webinars or marketing and I know my KPI is down to a tee. How many people do I need to get a workshop? How many deals do I need to close to hit 100k in profit, and vice versa? If you’re brand new to this, take some time, go back and watch this webinar again because I’ll probably go through it fast because I’m a little tired, a little jet lagged, but I knew this coaching call or webinar is going to be very important for you. Business plans, planning your action. They’re planning their action, they help guide you, they help you stay focused, they help you avoid drifting.
If you’re struggling with drifting or struggling the success, it was probably because you don’t have a plan of action. That’s not necessarily a fault of your own, you’re not taught this or you’re just bombarded with so many things, shiny objects, the meet-ups, the webinars, you’re confused as shit. You’re like, “Where do I turn? What am I focused on?” That’s normal guy. I was once there too to, like let me go ahead and plan this out and go from there. Definitely your business plan will give you a guide when you don’t have a clue. What do I need to focus on? What am I doing? What do I need to be doing? I can’t sit here twiddling my thumbs, what do I need to be focused on?
This is what they teach you in business school. It always starts with the SWOT. What’s a SWOT? It’s not Samuel L. Jackson, busted in the front door with a SWAT team with Colin Farrell and LL Cool J and Michelle Rodriguez. It’s not a swat. That’s not what SWOT stands for. It’s not strategic weapons and tactical. What SWOT in our business stands for strength, weaknesses, opportunities and threats. That’s what a SWOT analysis starts with. It helps you create a plan. For those who don’t know business, it’s like Oprah or Dr. Phil. What does Oprah and Dr. Phil talk about? Pros and cons. Strengths, weaknesses. What are some opportunities that you have that you have individually, or what are the threats that you have? Putting those on paper help you outline the way that you want to roll.
That’s important because they all tie in together to help you identify your opportunities and where you want to go down the long throw. A good thing too that you might want to do besides doing a SWOT, you might do a Myers-Briggs exam or DISC test. That might be a good thing to do with you and your team or your spouse or people that you are partners with. Some people like the traction aspect of things. I think traction is great, but if you’re a one-man show or you’re literally three people, traction will confuse you more than it will help you, I believe. If you could spend time on a good business plan, it’ll give you more guns than anybody else.
There are basically two types of business plan. You have a traditional business plan, and then you also have a lean start-up plan. They’re two very different, two types of business plans. Most of you are very familiar with the traditional business plan. You’ve got nine parts. You’ve got an executive summary, company description, market analysis, organizational management roles, service or product line that you’re in, marketing and sales, funding requests, any financial projections, and then it always has an appendix. Then you have the lean startup plan, which is easy to throw in place.
It’s not good that you are going to be writing the business plan for your business model. I think the lean startup plans is the right thing to do. In the lean startup plan, it’s short, easy to put together, because you are focusing on key partnerships, your key activities, your key resources. You have a value proposition that you’re trying to offer up. You focus on customer relationships, customer segments, your business channels, and your crossing structures and then obviously dive into your revenue streams. I like to say the lean startup plan is your business plan 2.0. I don’t think you can write a lean startup plan to begin with until you know what’s going in Plan A.
In a traditional marketing plan, it’s longer to write, but sometimes the more time you spend on it, great, but also you don’t want to be suffering from over-analysis paralysis. You don’t want to take forever on it and never get out of the planning stage into the action stage. The nine sections, a lot of people are like, “Do I have to go in order? I don’t know what this means.” That’s okay. Start filling on sections. If you know what one section is, you fill out that one section, dive into that section. Come back to the hardest later on, but start with the easiest and then fill in the rest.
You want this to be detailed and comprehensive and there’s going to be some blending and run over in the different types of segments that you have. The different sections will sound a little repetitiveness. They would be a little repetitive as you flow through your plan or as you edit through things. It is a favorite of lenders and investors if you’re getting the true business world. A traditional marketing plan basically is the whole thing A to Z. It gives lenders and investors an opportunity to look at the whole picture, the whole enchilada. It gives you the clearest picture and the clearest focus of where you want to go.
The lean startup plan, it’s higher level focus. This is why I call it the business plan 2.0. It’s faster to write, it contains the key elements only. It’s often only one page. It might be two pages, but often it’s like a summary, “Here’s an idea and we’re going to run with it.” It’s an idea to get people interested in the course. A lot of times lenders and investors will come back and ask for more information about your deal that you take back into your full cast and you get your sales productions and stuff like that. The lean startup plan is great.
If I was in business for five years and adding on something new, adding product or adding on a different market. I will do a startup plan for that market. It’s like business plan number two. You should always do the first one. In traditional business plan, you’ll learn more about yourself and know where you’re focusing on and what you’re not focused on by diving deep and being specific. Let’s get into that. Let’s dive on the first part first. An executive summary is the first thing that you have to create. This is going to be your compass that guides you on things.
We have a question. “Is there a difference between business plan and a marketing plan?”
Big difference. You can’t have a marketing plan without a business plan, but you would have a business plan without a marketing plan. A marketing plan is often inside of a business plan. Yes, you’ve got to have a business plan to identify what that is that you are marketing. Your executive summary is basically short, it’s a one-page thing and sometimes it’s written last. You start off writing an executive summary and as you dive into your business plan and your marketing plan inside your business plan, it’s common to come back and rewrite your executive summary. The last thing you do is write an executive summary, say things and then your business plan shows something else and it’s more confusing. I always say don’t be too hard on yourself. Start with the executive summary, where you want to focus on, dive into the business plan elements and don’t be afraid if you end up going back and change it.
A lot of people in the note industry are having to change their business models right now because they’re second lien investors. They can’t find any seconds that make sense, they’re going to change and go back to the first lien. Change your marketing, change your fundraising. Your traditional executive summary is one page, one page long, two to three paragraphs, you want to make it a fifth grade reading level. You don’t want to be using words and terms that go over anybody’s head. That makes you look actually stupid on your part to do that. You want the executive summary where everybody can see it, read it and understand what you’re doing. If you’re using terminology and a lot of jargon in your executive summary, you better hope only the people that are in your field read it. I use my executive summary when we travel a lot. It’s basically the, “What about you?” Talk about your company, your focus and then you, your short bio. There are people on here who have a website. I’ve seen a lot of your websites.
Some of your websites are great and some of your website stinks. For those of you that have where it shows up like it’s a one-person website, “Hi, I’m the person that you talk to everything, I’m a jack of all trades,” that’s not a good thing to show. Maybe it’s trying to be comical but it doesn’t come across professionally. It hurts you more than anything. Also if you don’t have a bio on your website, the about you, where there’s no pictures of your face, there are no people involved, it’s just a logo, people want to identify with the person. They want to know about your bio. What’s your background? What’s your past? What are the things you enjoy doing? That adds a personal touch to what you’re doing.
It doesn’t need to be a long bio but make it a short three to four paragraph executive summary, a little about your company, what you’re focused, and if it’s about you, great, “This is what I do. I’ve been doing this for years. I have a background in this. I like long walks on the beach and drinking pineapple juice in Malibu. I like a good crown royal and Sprite with a good Cuban cigar.” Make it a little bit by yourself. It’s okay to be personal. It doesn’t always have to be so serious but you also have to include that.
There are people that spoke at Note Camp that don’t have a bio on their website. It’s scary. What they have on their website shows for a different company or different entity that doesn’t reflect the entity that they’re trying to target to, especially those that are working full-time. If you’re still working a full-time job, you want your business to be about your company where you’re going, not the company you’re working out for the job. Here’s what a sample executive, it’s actually not an up to date one. What else do you use with my one-page flyer is I put pictures on the back of it. I want people when they see our executive summary to realize I’m not just a one-man show. I’m a part of a network of investors across the country. On this example, I put a picture of a Mastermind in Miami, a picture of Mastermind in San Diego. If you are a part on a real estate group or a meetup group or specific note closure group, post that in there, post it in the back of it, post the picture of your vendors. It adds strength to your executive summary. It’s okay to pay for two printed pages from FedEx. It adds an extra value. That’s roughly what my executive summary looks like.
Beyond your executive summary, I would go ahead and fill out the easy sections. Get those done, check them off so you feel a little better by your business plan. The last thing you want to do is try to go and order and bang your head against the section and they never get to the rest of the other sections when you could go and get it. Probably half your business plan built up by filling out the easiest section. By the easy sections I mean the company description and by company description, let’s keep it simple. Make it an LLC, an S-Corp, an LLP. I’m doing a DBA Only do a DBA if you are a parent LLC. Don’t put trusts in there. I know people want to use trusts for asset protection, but honestly just use an LLC. Pay the $30 if you’re in Mississippi or the $800 a year if you’re in California registry. It’s a cost of doing business and get over yourself and do it. If you’re going to bitch about $800 for registration fees every year, you probably should not be in business then, not in the note business anyway.
The next part is your organization and managements structure. Here’s who’s up here, who’s in charge of this? Who does what? May be you do everything, or your partners or your family members. The one thing about family members I’m not a fan of is if your family members aren’t pulling their weight, it takes away from your business plan. “I’m going to have my son or my daughter working in business.” That’s great as long as they’re working. If they’re not working, then moved back in with mom or dad or if they’re doing something else and their LinkedIn profile that doesn’t say anything about your business, don’t put them down. It just takes away. Your business partners, the people that you work with or bounce ideas off. I would highly make assumption about your vendors, especially in the note business where everybody, sometimes we do everything, your organization and management will say, “Here’s the vendor that we use.” Write a brief description about each one. That’s a little bit different about the note business than your traditional business. Let’s talk about your service and product line. This is the biggest nuts and bolts. Yes, I have a picture of tiddlywinks in there because that’s one of the biggest things that we always to talk about.
We have a question. “If I’m a one-woman show, how do I reflect that in my org and management section and still sound professional?”
What I would do is say you’re the management on the side and then you have your servicing, make the organizational chart where it’s basically looking like your service is handled by Madison Management. Your foreclosure is the Singer Law Group where your attorneys in specific states that you’re working in. That’s what I would do. It’s a very common question. I’ll give you a great example. In a traditional real estate transaction, what’s the main spoke? What’s in the middle of a traditional real estate transaction? It’s the title company, because that’ll collect information from their plant, they’re also dealing with the loan officers, mortgage brokers, and then the real estate agents. “I’m present, I’m here, and I handle all this stuff.” If you have social media, put them down. If you have people working with you or partnership or accountability partners, put them in there. Focus on your partners that way because that’s the biggest thing.
This is a little bit different than your tiddlywinks business plan. Going back to the point, you have to realize why are you in the business of buying. Are you first lien, second lien, REO’s, performing, non-performing, owner-financed notes? There’s a lot with what we do. Sometimes you’re doing two or more things. Yes, I want to buy first lien. If you’re buying first leads, do you know what that leads to? That leads to non-performing notes and eventually leads to either REO’s or performing notes. You’re in the business of three. That’s three categories. You’re going to be selling the non-performing notes for a while maybe or just do REO’s. You’ve got to keep that in mind when you are buying non-performing. I get that, but you also got to keep in mind that A-2 and A-3 are auxiliary businesses of what you do. It’s okay to share that.
What I’m trying to get at is Jeff is talking about how he meets people at the local REIA club in San Diego and he’s got eleven exit strategies. I’m like, “That’s too much.” He puts in three exit strategies. We all know it can happen right away as we have multiple exit strategies, but just keep it narrowed down to the main three, re-performing, foreclosure deed lieu, and then the REO sale. It’s good that you know a little exit strategy because that’s important when you get into your forecasting and financial model that will get to later on, but initially when you are out raising capital, you want to try to keep it simple.
Back to knowing what you’re at, knowing where you’re buying it, the states, the cities. You don’t want to say, “I’m buying off in states,” because you’re not. I know I felt the people who aren’t buying anything. That’s the first giveaway that you probably aren’t buying anything. You want to work with somebody who’s licensed in the state you’re doing business in. That’s all that matters. If you are buying in Texas or you’re buying California and Illinois, you have a much easier business plan to write, much easier forecasting model because you’re focused on one target identity. That also limits you if your focus is so small and you don’t have the deal flow. The asset class is important. If I’m staying in LA, I’m not going to go out and track down $100,000-houses, non-performing up to $100,000-houses.
That’s not going to make sense, but that would make sense in Cleveland. It makes sense in Columbus. That would make sense here. Where does it not makes sense? In Columbus. The price point. What are you buying at? If you keep that in mind. Does the price point make sense? Somebody called me today. He was trying to buy a non-performing bankruptcy chapter thirteen loan. It was in foreclosure at $0.20 on the dollar and I’m like, “What? In Alabama of all places?” I’m like, “No. Why don’t you just go and pound sand? They’re smoking way too much crap. It’s a non-performing loan in Alabama. You should not be paying $0.20 on the dollar.”
Knowing what you’re in the business in and what your business model is, that takes us next to your financial projections. This is often the hardest thing for some people. The beautiful thing is if you’ve been around for a while, I’ve broken this down for you a couple of different ways. First thing I do is look at how much are you looking for the next 12, 24, 36 months, same thing. How many deals have closed in the first 12, 24, 36 months? It should not be flat. It should not be the same number every month or every year. We know that’s not going to happen. If you’re in a flat, nobody’s going to believe that business model. You’re going to start off slow, and you’ll work up. If you’re a brand new note investor during the first twelve months, you could do 20, 30 notes. You can’t do more, it’s more likely to going to happen at year two.
I think a good twelve-month goal is 30 deals. That’s about two and a half deals a month. It’s very feasible. I’m looking to get to 50 in your second year, I’d say you’ve done until 80 deals and then maybe your third year you’d go to three figures, the hundred, but your model’s not going to be flat. If they’re flat, you’re rarely probably not focused on it full time. If you’re doing this part time, that’s okay to be flat but you’re, “I’m still working 40 hours a week. You only have 10 hours a week. I’m focusing on one or two deals a month.” If your goal is to do this full time, you need to have those numbers be a little bit more aggressive. Do things a little bigger.
You can always go back and adjust your numbers, but what I would do is I say your numbers are a little bit outside of what you’re focused on. I’ll give an example. If I somebody says, “I’m going to do one video a month.” You can do more than one video month. Do two, do three, stretch yourself. You’re already doing one video a month, you’re not stretching yourself by writing a business plan to get to where you want to be. This is a business plan for where you want to be in the next twelve, 24, 36 months, not a business plan of where I’m at today. There’s a big difference there. You’ve got to think that something that needs to be. If you’re building a business plan for where you’re at today, you’re wasting time. You’re not stretching yourself and helping yourself.
A business plan is to help you build a business model of moving into the future 36 to 60 months, not staying dormant. If it gives you a business plan that if you need to make $100,000 in the first year, here’s how it breaks down. With your business model, this brings this back to the previous slide of the three main strategies you’d probably going be into because you’re going to have a variety. It’s not all re-performing loans. While one of those plans is going to give you a good start, it’s just a start. If you are working, make a plan to replace your income in 12 to 24 months. Make this a little thing. In 24 months, you got to make $150,000 a year and be halfway in the first year, or follow that way so that your $50,000 in the end of the first year, making it part time and maybe you make $100,000 the second year.
With marketing sales, your marketing plan inside your business plan or your sales plan, you have to know your numbers. You’ve got to know your financial projections roughly where you want to be first to go back in and build your numbers and help reverse engineer your marketing sales plans. Your marketing sales plan is how you get to your financial goals. How much were you making per deal? What are you making per sale or per lead, per note? Numbers to keep in mind is that you’ve got a 10% closing ratio on offers made. If you make 60 offers, you probably are only going to get six approved and it’s six approved, out of those three you get three performing and three of those you take back as foreclosures. If you’ve got three of those re-performing at $500, you’ve got $1,500 a month residual all, then if you’re making $5,000 or $10,000 per the foreclosure or deed lieu, that’s $30,000 or $15,000grand if the numbers work out for you.
Figure out your number, 50/50 split performing, and then some REO, deed lieu on the backend. Take your notes depending on the markets you’re in, and you’re going to see a re-performing note somewhere between $300 and $600 per month. Then depending on the market and what you’re paying, hopefully you’re not making any offers where you’re not making it at least $5,000 or $10,000 per foreclosure deed lieu to your side. You have people’s money if you’re making twice that amount, at least $10,000 to $20,000, if not $30,000 to cover on your JV partner’s money. Once you get your sales number, then you figure your marketing points. Here’s how much I need to close.
How many offers I need to make. How many emails do I need to send out? How many banks I need to call? This is where you figure out, “My marketing plan, I’m going to be sending out one email every Sunday night, or doing one video every Friday.” Email Sunday night and then Friday stroll on Friday. How many posts a month or a week are you doing on social events? The whole 30/30 plan. What conferences, what events are you going to, what meetup groups are you going to? Because you need to literally write that in your plan and figure out what it costs to go to this thing. Start budgeting that stuff in so you can see what your budgeting numbers are for what it’s going to cost you on an annual basis.
Figure out how many banks or hedge funds or private sellers you’ll be dealing on a regular basis. That’s the hardest number to figure out, but you try to put that in your marketing plan that I’m going to email out to asset managers at least 50 a week, and you can make 50 phone calls in a day. I get frustrated with when somebody calls and tells me I’m allowed to make ten phone calls. You don’t haven’t called banks. Don’t tell me that. Let me send an email to your database, shut up then. If you have done it for four weeks or five weeks straight, then get back to me. Don’t send them once and then callback crying, “It didn’t work.” It’s like planting a seed and then turn around and say, “Where’s my pumpkin?” You’ve got to give it time to build with some marketing plan. It’s not an instantaneous get wealth plan. Then also your marketing plan will also help you identify and work the numbers right, based on how many deals you are closing on your price points. They will tell you how much in private capital you have raised, and then you want to take that number and build that into your funding request, which is one of the last slides.
An important part besides your marketing is your market analysis. This is a little bit different. What I mean by this is you need all your market entails. This is not marketing. I was to start selling tiddlywinks, I want to make sure there’s a market for tiddlywinks. This is the biggest problem I see with entrepreneurs, is they have this great idea, but if the great idea is such a niche market or such a small market, it doesn’t make any sense. I’ve seen this happen too where a lot of real estate investors are, “I’m going to be a fix and flipper in Austin, Texas.” I’m like, “That’s not a good market to be a fix and flipper. You need to focus on what’s the market going to bring to you.” With us note investors, we have a bigger piece of the pie when it comes to the market because we have multiple states. That’s what you got to figure out. Where are you buying your tiddlywinks at, or your tiddly notes? Focus on three to five states. Focus on the largest cities. There was an article that came out, I was reading it sometimes on a plane, talking about Indianapolis is actually decreasing in value. Meaning income is decreased in Indianapolis, which made it not a desirable city as it used to be. It’s something important to think about. Indiana is a great state, but depending on the economic conditions, it may be different. That’s why it’s important to be checking your marketing analysis.
Years ago, a lot of people are like, “Florida, it’s horrible. I’m not going to buy in Florida.” Me, I’m like, “No, the market analysis makes good sense. I am going to buy in Florida.” I was one of the few people buying in Florida making a lot of money in Florida, and I was getting a lot of stuff done. Look at your state, look at your cities, the percentage of foreclosures. Is there a lot? I’ll give you example. Bear County, which is in San Antonio, had less than 90 foreclosures last month. That’s not a good thing. It is a good thing because it has a fast foreclosure timeframe, but there’s no supply there, so it’s overpriced. What you need to do is try to find a couple markets, a couple of states, that has a decent foreclosure per se, still decent non-performing market, and not too long of foreclose timeframe. I wouldn’t go past twelve months. I still would avoid New Jersey, unless your goal in New Jersey is to foreclose and rehab the property itself. That makes sense. It does not make sense if you’re in New Jersey trying to buy that to re-perform. It doesn’t make sense because of the foreclosure timeframes will kill you in you in your ROIs.
You want to look at your average days on market too inside of your cities and states. If you are buying in an area and it’s got a 300-day time on the market, that’s not a good market to begin with. We had somebody call me up. I was going to buy a note in La Grange, Texas, which is about an hour plus east of Austin. $90,000 property, picking up for $30,000, need about$30,000 work. I was like, “You’re into it at $0.66 on the dollar right now?” “Yeah.” “What are you using your own money?” “I’ve got hard money lenders who’s going to lend me money.” “It’s expensive money at fifteen plus three. What are the days on market?” He goes, “385 days.” “For you to get this property, take it back and fix it up and then sell it, it’s going to take over a year. Have you figured out what your money costs are going to cost you and how that’s going to eat into your profit?” He’s like, “No, I haven’t done that yet.” When we ran the numbers, he realized he end up owing the hard money lender money and I’ll be in a good spot.
We have a good question. “Where do you find this number?”
The average days on market, you pick up the phone and call your realtors. You go to Yahoo Real Estate or Google Real Estate or you do research on the markets you are in. I use a variety of things. I’m constantly reading articles on real estate in the cities that we invest in the state. This is one of the things I do on a regular basis, by being an avid reader of different markets and foreclosure timeframes, debt ratios and things like that. You have to know when your market is going to yield and whether the numbers are going to fix on that aspect.
We have a question, “How do you describe the JV options for the business plan?”
I’ll get to that. You need to look at too, part of your market analysis are there are a lot of banks lending there? It might be we’re using Distressed Pro from Brecht Palombo or NoteProz to target for those deals. Might be about the servicing counters, might go to Lane Guide, might going to go after lists to find that stuff. Those are the things in your market analysis you need to consider. The stronger your market analysis, the more company you’re going to feel. You’re not talking to investors about the deals you’re doing. Your marketing analysis and your marketing got to have some crossover about how you position yourself and what you do to target your focus. How do you market to those people to take advantage of that? This gets to the next point of we’re all about, the funding requests.
The best thing you can do in your business plan is have a bunch of case studies. Don’t be like some of these jackasses out there that say, “Here’s one free case study.” Is it the one note you’ve closed the last twelve months? If you got one case study to share, you’re stupid. You’re probably not doing the right thing. There are plenty of people closing a lot of deals out there. Literally we talked about twelve or twenty deals that we’ve closed on the last few months. The thing I want to get at is the case studies don’t always have to be something that you have closed. These are the simple things. These are the types of deals that we do.
If you leverage it with the fact that I’m a part of a group or part of the investment club or part of a mastermind group, these are the people I work with, hence the photo that I shared on the executive summary. That gives you more value. It makes you look smarter than you are because you’re in a group mentality. You’ve got plenty of people to look over things for you. I’m not saying you are stupid, you just lack experience. Case study, sample deals, how do you pull a deal off of Walmart exchange or SDI exchange or an MLS or Paperstac.com, and break down the numbers. You might come across more individual. The reason I’m getting into the point here, is the portfolio often care more.
We have a question, “How do you get into funding JV deals?”
Talk about bigger deals. I want to take down multiple deals. I don’t want to do one-offs. I get a better pricing if I do a bulk offering. Bulk offer can be four assets. It can be assets. We never done one. Start people off in getting the more you’re completing your business plan, here’s what we do. Here’s what we focused on. The data that you’re closing deals on a regular basis that are a hundred grand or more where you’re taking multiple investors and they want to fund case study funds from your sample deals. Whatever happens, here are the deals that we have available right now.
Here is deal one, deal two, deals three, deals four, deal five, deal six, that we’ve available right now. That’s how you talked it out. It’s long-term for most people who are thinking paycheck to paycheck. You want to talk long-term goals. We’re doing this now in three years. We expect to have our own fund. What I’m trying to get is you want to paint a bigger picture, because people love being a part of the story. They love being a part of a bigger picture. You want to plant your long-term goals. Talk about. “We’re buying three markets now. We expect to have five markets. We want to close on twenty deals this year, we’ve got to be 60 deals by year three.”
You want people to be, “That’s great. I want to be a part of something.” Because what happens is most people don’t have the labels to do it. Don’t be afraid to ask for more. If you’ve ever mentioned the virtual workshop and you’ve never downloaded the 200-page manual, you will see inside of the manual is a seventeen-page marketing plan for a portfolio of seventeen Florida notes. $185,000 funding. In literally in the marketing plan of that deal says, at the very end the last paragraph says “This is what we do with 250.” You would see us doing a bigger pool or doing two or three more pools. Exactly what like we talked about before. I don’t get into the splits on business plan and this is why it’s important for you to talk with your investor. What have they done before?
This is the interviewing phase. If you remember, we went through the virtual workshop and you’ve been to a virtual workshop or seen talk anything, it’s all about interviewing your investors. What are they looking for? You have to literally talk with investors, and one of the easiest ways to do it is the four method. Where are you from? What do you do? What do you do for fun, and then your message, a short little thing? We do message and then they ask you what you’re doing and you talk about real estate investing. “I raise capital for realistic projects, we buy your portfolios and distressed mortgages. We’re trying to sell America one mortgage at the time.” The big thing is don’t be afraid to ask for more. If you’re looking for $25,000, say, “We’re looking for $50,000.”
We have a question, “How do you suggest putting together funds from several investors to get a pool of loans $100,000and more?”
I know have been over this with you a multiple times. It’s the exact same answer I told you before you didn’t even have. Investor A is funding deal one and two. Investor B is funding deal three and four. Investors C is funding deal five and six. There are three JV agreements, but they’re not together. It’s three JV agreements to make the deal happen. I know I’ve said that multiple times. You won’t pull together if you get three friends and one of them invest it’s great, let them go get an LLC together then you borrow it from one entity. When you need to cut people together, it’s totally illegal to have one person on one, two, three, four, five individual assets, but they’re not cross collateralize.
The appendix part is your raw rockside. The appendix could be copies of checks. It could be copies of wires or closed deals. The best thing you do is testimonials of people that are in person, either a picture or it’s written. You can very easily get testimonials from people on LinkedIn. Copy paste or letters. Those are things that you would add in your appendix part. Social media profiles, hashtags, put the profiles with, put any rewards you received, news and media or entertainment quoted, a very easy and very cheap to put a press release out. Maybe you put a press release out. “We’re announcing our plans for expansions.” For $500, you get a press release in about a hundred different entities, newspapers to CBS Market Watch. It’s very easy, it’s like your extra-curricular activities.
We have a question, “What is the decent closure percentage?”
In the note business, you have to expect to probably be foreclosing on your assets at least 50% of the time. By foreclosure, I mean deed lieu, cash for keys, because it judges the foreclosure basis. One of the things that you probably will do, and it’s a great thing to do is when you write your business plan is go back and check on it every year. You don’t have to go on every 90 days. You want to go back and write down in 90 days, it doesn’t mean go back and rewrite your business plan every month, because you’d spend more time writing your business plan than actually getting things done. Write your business plan, get it out, check it once a year, go back and adjust your numbers. I guarantee most of the people that would go through and written a business plan, they realized they had to go back and adjust their numbers in a much bigger scale. Definitely a lot of people, because they have a given path and the path gets easier and you get better at what you do, the more you’re in it.
We have a question here, “My parent’s 80-year old neighbor took his life last weekend. A sixteen-year-old is the sole heir. I’ve never met her but I’m interested in the property because my parents need someone to take care of them. What is the best way to approach her?”
Honestly, I know it’s early, but she’s the sole heir. As long as it wasn’t a left out of probate, I would send an email. “I know you’re in a tough time. I’m sorry for that.” Your letter is going to be a little bit different than somebody who’s doing a yellow letter off of probate leads, which is one of the things that I used to do when I was doing real estate on the traditional real estate side. I would go through the obituaries every weekend and see if they own property than I’ll nail a yellow letter to that individual who passed away. I get their heirs to call me back. Like, “How did you know my father?” “I am so sorry for you. I know you’re going through rough times. I am interested in your rental property. Please let me know. I’d love to visit with you.”
I would contact her and say, “I’m interested in the property because I want to be close with my parents.” It’s differently than, “I’m trying to make a buck.” I would go and write a letter and leave the letter on the door. One of the things you probably would do especially in your legal side of your vendors, like if you have Laughlin Associates or your accountant, your attorneys, to handle your minutes or something like that, that would be a good thing to look at. That’d be a good time to go back and review documents and adjust your business. Got to make time to focus on it.
We will wrap it then. Hopefully it was helpful for you all. That is all I’ve got for you tonight. Hopefully it was valuable. Like I said, I’ll work on trying to get this up on WeCloseNotes.tv here before I head out so you can catch the replay. See you all at the top.
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