How do you maximize your profits in the note investing space without holding on to every single note you buy? In this episode, note investor Paul Riley of Black Arrow Assets shares his strategy for buying performing notes for his own portfolio along with his strategy for wholesaling notes that don’t exactly fit his portfolio focus. Paul started investing in real estate in the beginning of 2021 after living overseas in Australia for many years. In his first year of investing, Paul already made $100k, all because he took action! In this Note Camp 2022 session, he shares his thoughts and experience with three transaction types: wholesaling notes, holding performing notes, and wholesaling real estate. Tune in and learn how to maximize your profits with the right combination of these three strategies!

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How To Maximize Profits By Wholesaling Notes With Paul Riley From Black Arrow Assets

We got our first speaker here for Note Camp 2022. This guy is Mr. Paul Riley, out of the City of Brotherly Love. Paul, how is it going for you?

Scott, it is going well.

How is the weather there in Philadelphia these days? Are you a big football fan? Are you ready for the Eagles to come out in 2022?

I’m ready for the Eagles to come out. I’m not super hardcore. I’m not going to know all the players and stuff, but I watch every game on Sundays and enjoy it, get emotionally invested, and all that. I’m looking forward to beating the Cowboys.

You are good-looking and a young guy too. How old are you?

I’m 28 years old. I started real estate investing at the beginning of 2021. I have been living overseas in Australia for about 6 to 7 years. I knew I was going to be moving back to the US. I decided, at that big transition, I was going to jump into it full-time. It has been working so far.

What were you doing in Australia? Family or are you working over there? What were you doing?

It’s a combo of study, work, and a little bit of both at times, but originally, study, further education, and all that.

I did not know that you lived in Australia. We never talked about that on the many times we have talked on the phone. That is awesome. It is a little different mindset. I have had friends tell me that what happens here in the United States usually happens five years later there in Australia in a lot of cases, some of the trends and stuff like that.

There is a give-and-take there. If we are talking about fashion trends and stuff, Australia is a bit ahead of the curve, in my opinion. I love America and I prefer America. There are great things about both. I love my time there. It’s a different perspective living over there for a while, and I met a lot of people from other countries too, so it is eye-opening to meet people from all over the world.

A lot of folks there are looking to invest here in the United States in a variety of ways. I will shut up about that. I know you got some slides you want to go through and stuff like that. Do you want to take questions during or at the end of your presentation?

I think during would be awesome.

We will moderate those and go from there. Take it away. Mr. Riley.

I started in real estate in early 2021. In our first year, I did a little bit over $100,000 in revenue, which was awesome. I didn’t know if I could do it at all, jumping into it. It has been great to have some success with it. I started with wholesaling physical real estate, but now I’m primarily focused on buying notes for our own portfolio. I got some case studies with both of those realms. It’s going to be helpful for you.

The three trains of action types that we are going to be talking about are wholesaling notes. This is Note Camp, so we got to be talking about notes. Also, holding performing notes and wholesaling real estate. That is a bit of an overview. Before we dive into the nitty-gritty, what is wholesaling? What it boils down to is getting an asset under contract and then selling the contract before closing to an end buyer for a spread.

 

There are a lot of awesome things about this technique. Here are some of the main features or thoughts on it. You don’t need much capital to do this because you are not closing on the asset yourself. Let’s say it is a $100,000 asset. You don’t have to have $100,000 capital. You just need to be able to get it under contract and sell the contract.

With this technique, there is a lot of upside potential, like a set commission. Let’s say you are getting a 3% commission or whatever, it is locked in. You’re getting 3% on this deal. With wholesaling, there is no limit there. Whatever you can get the margin to be, that is what you can walk away with. If you get a property under contract for $100,000 and you sell it for $1 million, I have never done that, you could do that. It is up to you how much you make and what the deal is. That is one thing I like about it.

With that being said, you are trading this low capital barrier to entry, which is awesome. You are trading that with lots of time and effort. With everything in business and investing, there are always pros and cons to everything, and that is the trade-off here. There are going to be lots of upside potential and little barrier to entry, but it’s going to mean a lot of phone calls, marketing, and effort to find the deals and everything like that, which is a good thing.

It is not about sugarcoating. The value is in marketing and the deal finding. That value is worth a lot to a lot of people. This can be used on any asset. I will be talking about doing it on single-family homes with real estate and notes. Theoretically, this is a great tool to have in the tool belt and to be able to use in different situations.

Let’s go over our first case study. This is an overview of a real estate deal. The property is located in Charlotte, North Carolina. I got it under contract for $270,000. We are going to get into the granular guys, don’t worry. I’m going to go through a snapshot of how the deal works. I sold the contract for $295,000 to an end buyer. It is a $25,000 spread. I split it 70/30 with a JV partner. I will talk about the reasons for that.

My business walked away with about $17,000, which was awesome. This is a good example because $17,000 was my average deal size across all the real estate wholesale deals that I did. I hope you will find this case study helpful. For kicks and giggles, when I was looking this up, ten buyers sold the property. I ended up selling it for $385,000. What is great about this transaction is everybody is winning here. The seller, the wholesaler, and the flipper are winning. Everybody is making money. Any questions Scott, so far?

$100,000 in your first year, first of all, applause on that. What do you think was the major reason that you found success? How much time did you take to learn wholesaling or investing before you physically took action?

I don’t know how long it was, but when I was in Australia, I went through that education phase that we all go through. I was listening to tons of podcasts and doing a lot of research. I can’t remember exactly how long that was, but I was familiar with the concept and everything. I tried doing this in Australia because I was too excited and couldn’t help myself. I had no success with doing it in Australia. It is a completely different ball game and different taxes. Nobody knew what the heck I was talking about, but it was good practice. It was good talking to investors and potential sellers. That helped warm me up a little bit. Over here in the US, there were a lot of resources for this thing. There was nothing over there.

Was it six months, 90 days, or a year? You may not know exactly but think back to it. How long did it take to learn before you got over here in the United States?

It was at least six months. It doesn’t have to be that long. That is what it was for me. It might have been a year before I moved over, and that’s when I first heard about it. I waited six months and I tried six months in Australia. It could have been something like that. I was taking action for sure. You don’t have to go through that long of a phase. You don’t have to go through a year of education before taking action. I don’t want you to think that’s what you have to do, but that’s what my story was.

 

Thanks for sharing, Paul.

Let’s get into some of the nitty-gritty about how I did this. Marketing is important in wholesaling. There are tons of marketing techniques that you can do with wholesaling or any type of business. I did a texting campaign for absentee owners. What are absentee owners? That is when the tax address is different from the property address. What that means is that the owner doesn’t live there. What that means is, it’s most likely a landlord. Those are great prospects because there are a lot of tired landlords out there that could be a good wholesale deal.

It could potentially be a second home. With the value of the properties, I was targeting everything. Pretty much everybody was a landlord. I did about 500 texts per day, not from my iPhone. There are services and programs you can use to be able to do these big texts types of things. I used one of those. I put my list in there. I did 500 a day, and I was getting about one good lead per day. It is not a super hot lead, but somebody that I was going to be calling again later.

Here are some more notes on texting. I was not negotiating over text. I’m not trying to go back and forth over text. I’m not trying to build a rapport over text. The texting technique is about getting the person on the phone as soon as possible, and getting rid of all those noes or the people that are going to tell you to go do things to yourself. Texting is a great way to filter through all that and get on a warm phone call with people.

That is one of the most important things about text marketing. You want to get on the phone with them ASAP. It is all about being human, showing them that you are human, and seeing if you can help with their situation. That will distinguish you a lot from some of the dumb competition out there. By dumb, I mean people that are slimy, annoying, doing it the wrong way, and do not treat people with respect. You want to be seeing how you can help. That’s how you’re going to be the most successful with these kinds of deals.

It’s a great way to filter through all the noes right away and get on some warm phone calls. That’s how I would market to these sellers. Talking with the seller, we want to learn about their situation. It is important not to jump in and start talking about the deal, what you can get for it, how quickly you can close, and all that. If the person is open to talking, you want to learn about their life a little bit. Learn about why they have their own property or why they want to sell. You want to be human, and you are not going to be able to help in every situation.

Figure out the why. Figure out the motivation for selling. You can do that by having genuine conversations with people. There is always a reason why they are talking to you and why they haven’t listed it yet. That is a big clue into where you can add value. A lot of these phone calls say, “Have you thought about listing with a realtor?”

Obviously, they have, but that is a good way to dig deeper and learn more about if they want to sell it quickly or if the property is trashed, are they trying to sell it with the tenant in place, and all that thing. There is always some motivation. That is why they are talking to you. If there were no motivation, they wouldn’t have gotten on the phone with you in the first place.

This seller had a family member living in there. She hadn’t taken care of the property very well. There was stress on him, and I knew he was looking into his option. He was looking into whether to fix it up and list it. Luckily, I was able to help him out there, but that was his motivation. That wasn’t your typical situation.

For 99% of homeowners that are selling, the best thing for them is going to be to list it. What we are trying to find is that 1% or that small percentage of people. That’s why it takes 500 texts a day to get one good lead because we are looking for that small percentage. If you can add value to that small percentage of people, then you can do well. Try to figure out the why and learn about their situation. You do want to get those practical details like the condition of the property. If they are renting it, how long have they been renting, when is the lease-up, how much is the rent, or are the tenants behind on rent? We want to learn all those kinds of things.

This is important too. You want to tell them at the beginning what you are doing. I frown upon lying and saying, “I’m the end buyer. I’m going to do this,” if you are not planning on doing that. If you are planning on buying it yourself, awesome. The best way to approach sellers is to be like, “I work with other investors, landlords and flippers to close these deals.”

Let them know the situation. That is going to be a lot better than sneaking your way through and acting like you are the dude with the end cash or whatever. If, near the end of the transaction, they find out you are not, that is going to cause you a lot of problems. If you are upfront about what you are doing, even on the first phone call, it is going to go a lot better for you.

There are a lot of people that are not doing that. That is another way to distinguish yourself. It takes plenty of follow-ups. Never in a million years is somebody going to sign a contract with you on the first phone call. I’m sorry, it is not going to happen. It is going to take follow-up and take multiple conversations of rapport building, and that is okay. Any questions about that? How are we doing with that so far?

 

We got a couple of questions. David asked, “What was the reason you had a JV partner on that deal that you went 70/30 on?”

The JV partner is great for getting connected. I was doing this virtually. I’m living in Philadelphia. I was doing these deals in Charlotte. Getting a JV partner is great for getting that local market knowledge, especially when you are first starting out and you are not as connected using their buyer connections. The arrangement was, “I will bring a deal under contract. You bring an end buyer for it and we split it 70/30.” I highly recommend going that route, especially when you are starting with wholesaling a new market. If you are doing it in your local market, you may not need to do that. If you are doing a virtually, I highly recommend it. You will do way better on your first deal with a 70/30 split, even 60/40, or whatever you negotiate, than trying to do it yourself.

It is a true joint venture. You are paying them a distribution fee to use their list of buyers. This is normal. Sometimes 30% of something is better than 100% of nothing.

We didn’t have the same company or anything, but we were partnering up with a certain deal. For that deal, we were JV-ing.

It may work for his time to use his list. If I get a deal and I will give you 30% of the profits, it is better than a lot of people saying, “Bring me a buyer and I will give you $500.” That is not a lot of money in a lot of cases, so 30% is a whole lot better. Allison asked, “What texting service do you use?”

I use BatchLeads.io. You can get lists from them as well, but I use their texting platform.

I also use the texting service they have besides leads. I use their platform for pulling the list of vacant owners, distressed borrowers, and absentee owners.

I use ListSource as well. That is helpful for anybody.

Ravel asked, “Do you do direct mail, yellow letters, postcards, etc., out to those absentee owners or are you just texting and reaching out to them?”

I was just texting. There are tons of ways. People are successful the other ways. That has just been my experience.

Most people will open and see a text, 85% of texts are opened in 2 to 3 minutes. I don’t know if you are paying per text to send it out, but it is a whole lot cheaper than dropping out. You said you were texting a hundred people a day.

Five hundred.

That is a whole lot cheaper versus dropping a letter and waiting for the Pony Express to deliver it.

You can go through the data pretty quickly. That is where our cost is. You will pay for more data, or you will be buying more data, but it was working well. Getting it under contract, has anybody heard of the 70% rule? I’m not sure if you have. This is my humble opinion, but I think it is garbage. The 70% rule says, “Your offer is going to be 70% of ARV, After Repair Value minus the repairs.”

I’m sure it works for some people, especially in this market and the market that I was focused on in 2021. It was a hot market. The 70% rule is going to put you way too low. You are not going to be competitive at all. It doesn’t even matter that much as a wholesaler. I can explain why a little bit later. What you want to do when creating your offer all comes down to what your end-buyers are willing to pay for it. That is the bottom line. That is what you need to figure out. What is another investor, a hedge fund, or whoever the end buyer is, would they pay for this? From there, you make your offer. That’s the way you want to approach it.

This is also where the JV partner is helpful in the new markets. You can bounce off notes with them on what you think the ARV is or what they think the property is worth. That way, you are getting some local knowledge or someone that has been in the market for a while on valuing the properties. I got this deal under contract for $270,000. That took at least 1 to 2 months of conversations before signings.

It is multiple phone calls. A big part of this business is the follow-up. You want to keep the conversation going. You want to be in front of minds for them, and be there when they are ready to move forward. Disposition or selling the contract. I sold the contract to a local flipper, and this was a connection from my JV partner.

When we were looking at this deal, I knew he was willing to pay in the $300,000 range for it. I have marketed to other buyers and stuff as well. I can’t remember what their initial number was, but I knew they were willing to sell it for $260,000. My first offer was $250,000 to $260,000, then we bid it up to $270,000. That is what the seller wanted, and I knew I could sell it for more than that. It ended up being $295,000.

I had previously done a deal with this buyer before. That made it that much better when he said he could do it for this number. I knew he was going to perform. It’s also nice having that rapport as well, especially if you are caved in with somebody on a deal. You are also borrowing their rapport with their buyer’s list. Had I called the exact same people or something like that, I wouldn’t have had as much luck with the end buyer. Since you are working with somebody that already has a relationship, you are leveraging their relationship too, which is important.

If it wasn’t a fit for the other top buyers, ran it by them. I also worked with a number of hedge funds that were buying single-family homes in the Charlotte area. They have a tight box. If I found a deal that fit in the hedge fund box, then they were usually willing to pay something pretty ridiculous for it, which was awesome. If it didn’t, I needed to have other connections, which is where the flipper came in.

Every investor is different. Every buyer is different. You don’t want to assume what is a deal because what is one deal for one person is not a deal for another, and vice versa. If you remember our review here, we got it under contract with the seller for $270,000, then signed a contract with the end buyer for $295,000. People are going to ask, “What do you do in the mechanics or the transaction?” Give both to the title company and say, “We are assigning this contract.” You want to make sure that the contract is assignable, and that they do the hard work with the paperwork.

 

We will go over what closing day looks like. Here are some notes on disposition or selling the contract. Nobody cares what you think the property’s worth. Every investor is different, and they are going to have their own criteria unless you are going to be taking the deal down yourself and doing the flip yourself. It doesn’t matter what you think. It is what they think. You don’t want to be assuming too much about what the repairs are, especially me.

I’m not a flipper construction guy. I don’t know the first thing about that. To assume a certain number of repairs is like shooting myself in the foot. What you want to do is you want to have repair notes. You want to take notes if the HVAC is needed to be replaced. The roof is ten years old. The kitchen was remodeled in ‘98 or 2005. Repair notes are what is important. You let the end buyer determine what their repairs are and let them come up with their number versus assuming that these are the numbers for each deal. I hope that makes sense. The biggest thing is don’t assume too much, and you will do better.

Is there a CRM that you use to help with your follow-up on a regular basis?

I was using Podio. It is a free CRM. That worked well for me.

You say, “It worked.” It sounds like past tense. Is there a new one you are using now?

I’m using Keep now, which is a lot better for my new business and things like that. Keep is a lot better. There is a lot more different stuff but I didn’t need that for what I was doing. I just needed a glorified spreadsheet. Podio’s free version worked well for that.

Somebody else asked a question here, “For your market partner, instead of JV partner, have they always been wholesalers or would you work with a realtor? Has it been a mixture of the folks that you have used?”

There could be some synergy with a realtor if they are also familiar with wholesaling. Since the market has changed, wholesalers weren’t doing some stuff on the MLS. That could be a strategy. For me, I’m strictly working with the wholesaler. That is what I needed, somebody that knew the wholesale market that had those investor connections.

Closing day, here are the mechanics of it. The end buyer, that flipper, what they are doing is they are taking over the original contract for a fee. That is what’s happening. I’m not closing on it myself. The end buyer is taking over my rights in that contract for a spread to me. What happens is on closing day, the end buyer will wire the $295,000 to the title company, all the docs get signed, they get recorded and all that. The seller receives their $270,000. They are happy. That’s the original agreement between the seller and me.

Another valuable thing here as the wholesaler is you want to make it as easy as possible for the seller. That is another big thing that wholesalers add. They are trading equity in their home or selling it at a discount for the speed and convenience of working with somebody like me, a wholesaler, that is going to take it as is, with no open houses, no appraisals, and things like that.

The speed and convenience thing is the value that you can add as a wholesaler. That is exactly what this guy needed. He didn’t want to fix it up and didn’t want to do anything. $270,000 was our original agreement. That is what he walked away with. He is happy. For me, I received the spread in between. It wasn’t a flat 3% or anything. Whatever the spread we can make happen is what happened. It was a $25,000 spread. I split that with the market partner. It was about $17,500 to me. The end buyer got the property. They ended up flipping it for $385,000. That’s the real estate wholesaling transaction overview. Any other questions about that or anything that needs to be clarified?

It’s all about making it easy for the buyer because they are distressed. They don’t want to deal with something more than you ask them to do besides basic overview stuff. It is going to be harder for them to do it. I love the fact that you said, “You got to follow up.” It took you a few months to finally get this person to say yes to you when most people will give up after their first no.

One thing that I noticed with starting out and with this business is it took about two and a half months for me to close my first deal. You need to build up the pipeline. What you are doing is you are not seeing any results yet. You are not making any money yet, but in the background, you are building up your pipeline of leads. What happened was I was scared. I didn’t know if I could do it at all, but I was working hard for those two months. I hope this works.

 

My first one closed around two and a half months in. Guess what happened the next month’s time period after it? I didn’t have to wait two and a half months for my next closing. I had another deal lined up that closed maybe two weeks after or a month later or something like that. An important principle that you want to do is to build up your pipeline. It takes time for one of these deals to pop, but once they do, that consistency is going to pay off. You will start getting a stream of deals in that way. Follow-up is important. Consistency is important.

Was it a weekly follow-up or every two weeks? How often did you get in touch with them?

It depends on how our first conversation went. If they said something like, “I’m not ready to sell for another six months,” or something like that, then I’m probably going to follow up a month from then or whatever. If it was more of a hot lead and I could tell they were wanting to sell pretty soon, then I follow up as soon as possible, at least a week later.

Let’s say they were like, “I need to check on this thing. I need to talk to my contractor about repairs if I want to do that,” then I would follow up with them a lot sooner. You probably want to err on the side of following up sooner rather than later. For the people that respond over text saying, “Not interested,” save them for following up next quarter because people’s situations change. Keep them in the database based on where they are.

If there aren’t any other questions, we can go on to wholesaling note. Now we are all familiar with how wholesaling works. As we said in the beginning, you can do this with any asset. When I switched over to notes, wholesaling was something I was familiar with. I have done a number of transactions with it, but it’s not necessarily my go-to strategy. However, it’s a good way to squeeze some money out of opportunities that you have.

Here is the note overview here. It is the same concept but a different asset. We will give you an overview of what the note was. The property was worth about $130,000. The property purchase price. This is the borrower, not me. They bought the property for $85,000. The loan amount was $75,000. They put 10,000 down.

This was a duplex in Harrisburg, Pennsylvania. The UPB or Unpaid Balance was $73,500. I knew this was a good deal. I found it with my own marketing. I got it under contract for $55,000 to $100,000. I had 278 months left on it, and the P&I payment was $681,000. I held the maturity. This asset brought a 14% return. That’s the initial deal there. What ended up happening? Marketing. How did I find this deal? This was through a note seller through a Facebook group, and we had a network that way. We had some assets for sale. That is how I found the note.

Originally, I was looking for my own portfolio. I was wanting to take this deal down myself and hold it for cashflow, but I didn’t get the funding at a low enough rate that I needed in time. Instead of canceling the deal, I wanted to wholesale it, add some value to some people, and still make some money on it. I had done half the work already. I had done all the due diligence, the title work, the BPO, and all that stuff.

I had done all the work. I knew it was a good deal. I knew somebody out there would benefit from it. I found a first-time note buyer. This is through a different Facebook group. Facebook can be good, apparently. I found a first-time note buyer. He was familiar with notes already. He knew about notes. He had been educated about notes. He was ready to purchase notes. He had funds ready to go and a self-directed IRA.

I sold it to him at a 12% ROI, which is much better than what is on paper a lot of times. That is great because somebody that is just getting into notes or whatever may not have that marketing infrastructure as somebody that has been working at it for a little bit longer like I had. I knew the value that I brought with funding a deal at this return. It was great and 12% is awesome for certain buyers, especially a deal like this where there was plenty of equity.

I don’t know if we want to do this, Scott. I have a little exercise. We could see if anybody wants to figure out what the sale price would be at a 12% ROI. Can anybody here get out your financial calculator and see if you can figure out what the sale price would be if I was selling it to the end buyer for 12% instead of 14%?

We got a couple of questions here. Patricia asked, “What are some of the due diligent activities that you do as a note wholesaler versus a note buyer?”

Wholesaling is about figuring out what the property is worth currently and what the ARV would be potentially. You want to find a comp where it’s a similar house but it looks like it’s all fixed up and nice. What is its upside potential? You want to figure out what the end buyer will pay for it. As a wholesaler, I’m not doing too much due diligence because I’m not the end buyer there. It was a different approach with notes.

The great thing is if it is performing, you don’t have to do a lot of due diligence because somebody is paying on time. The value is pretty much there. Levi asked the question, “Can you still wholesale if there are liens or back taxes due on the home?” Yes, but you are wholesaling a note. The title doesn’t transfer as it does on a property. You can still wholesale the contract. You are wholesaling the contract on both of these things, not the actual property. You do some bids, everybody. Allison comes in at $61,712. Larry says $63,861. Who else?

That is another motivation for real estate. Wholesaling is liens on the property. You need to make sure that it is being sold from more than those liens. I don’t know if that helps, Levi.

People don’t always know what they can do or can’t. Some lien can follow the property. Others follow the borrower in a lot of cases. That is something to keep in mind. Nobody else is brave enough to submit around this.

Let’s go back forward here and let’s see who won the prize. It was $63,000. You were right on the money. I’m sure you rounded it down or whatever. Yes, $63,861 is correct. Great job, Larry.

You sold it to your wholesale buyer. He is paying you $63,000. What did you have it under contract for?

It was $55,100. I helped him out a little bit with some of the closing costs and some of the transfer taxes. I walked away with $7,200 on that deal, which was much better than saying to the seller, “Sorry, I got to cancel this deal.” I was still able to transact on it. Help a first-time note buyer get a great asset for their portfolio, and get some profit for me. It was a win-win.

You were first looking at this one for your own portfolio. You didn’t have somebody that would pony up the money to fund the deal for you, so $200 in profits is better than 100% of nothing.

I guess we can keep rolling here. I’ve got a performing note case study. Should we move on to that one, Scott?

Let’s do that. This is good stuff, Paul.

Here is a performing note, unpaid balance. I will give a quick overview. This is a note I have in my portfolio that I’m holding. It is a different thing than wholesaling. This is a performing note. We are switching gears a little bit. I used private capital for funding this deal. The note price was $66,000. The fair market value of the house is about $100,000, and the borrower has been making regular payments since April 2020. This was bought in March. They had two years of consistent payment history. The months remaining is 336. The P&I was $789. The interest rate was 10%. I don’t know if you want to do that exercise again.

No, they are good. Your purchase price is $66,000. Therefore, it is seasoned. It was with a third-party servicer. Was it being self-serviced?

It was being self-serviced. If I bought it, the months remaining is 336 months, a $789 P&I payment, and you’re in the deal for %66,000. What is your return there?

This is the time to figure out what kind of yield you are looking at there for you. What kind of ROI deal return there? Larry comes and says 14.06.

Larry got a good track record.

He is pretty good. That might be close. It might not be. This is the fully interactive part. This is the way that you will learn, ladies and gentlemen.

Let’s do it. Larry, you get the gold again.

You take the P&I payment, times twelve, and roughly divide it by the purchase price for you. That is what I do a lot of times, especially when it is a new note like this. It is still got 28 years. You get the exact thing by putting it into an HPB10B2 and stuff like that to figure out.

That works with this deal because it was new. I calculated it and held maturity because I knew I would be holding it. The cash on cash works as well. I want to make sure that you are going to be able to buy it at a good enough discount that you can sell it two years later at a good price. You don’t want to calculate it and then ten years later, expect to sell it at the price that you bought it for. That is the only thing I would say to look out for if you’re doing cash on cash return. That works cool. Let’s talk about this deal a little bit more.

For this deal, I bought it with private money. Let’s talk about the details there. The funding amount is $66,000. I found a private investor or private funder that would fund the full amount. It got an interest rate of 7%. This is now my debt on the acquisition of this note. We are going to do quarterly payments. That comes down to a quarterly cost of $1,155 and with the cashflow of the asset after the quarterly costs, that net $1,167 to my business after the private money costs. My ROI, you don’t have to take too long on this, is sideways eight or infinity because I don’t have any money in the deals. They are on the full thing. Any questions on the performing notes so far?

We got a couple of questions from two folks here. Ravel wants to know, “Where did you find this from?” How did you locate this stuff?

This is through a Facebook group. He is a flipper note investor guy. This was a seller-finance that he originated in 2020 and that note is for sale. I reached out to him and made the deal happen.

What do you say, “I buy notes. I’m looking at my notes.” What are some of the things that you discussed? How often did you post? Is it once and never post it again or did you post on a regular basis?

I responded to his comment or something like that. I saw somewhere in the group that he had some for sale and I reached out to him that way. I haven’t posted too much in the note Facebook groups. However, for marketing for the private money, that came from a post in a self-directed IRA group where I said, “I’m a note investor and I’m looking to build long-term relationships.” I connected with this guy. We talked on the phone for a while. During the first phone call, he didn’t fund the deal with me, but with a little bit of follow-up, I built enough trust to do a deal together. This guy came from a post I made in a Facebook group for IRA people.

That 70% is awesome. That is cheap money versus having to get 50% or 12% or stuff like that. Was the guy that funded it had the experience? Was his money sitting there on the sideline, not doing anything or new to investing? Let’s talk a little bit about that guy for folks.

He knew about notes. I don’t think he had done any note deals, but he was familiar with the concept. He had money sitting in a self-directed IRA that he wanted to put to work. He was busy with his full-time job and wanted to get into notes himself. That was a win for him because he could get into the notes space and get his money working for him, but he wasn’t responsible for all the ins and outs that go with a note deal. It was good for him.

His money was losing buying power sitting there, not doing anything. It’s a win-win. He got more money to fund deals with you.

We’re still in touch because we are doing this deal together. Hopefully, we will do some deals in the future. He wanted to do some more of his own active stuff. We’ll see if we will want to do but who knows? We will see. The plot thickens. We had some unexpected things pop up with this note and it would be good for us to go through and see what happens. I don’t know about you, Scott, but every note that you buy doesn’t always go exactly how you see it.

You hope for the best. You plan for the worst. It’s always somewhere in between most of the time.

I’m so glad that I did it this way. You want to do your due diligence in such a way that if bad things happen, you’re not going to be freaking out like it’s the end of the world and you’re going to lose money. You don’t want to do it like that. Luckily, I didn’t underwrite this deal that way. Some things changed, and it wasn’t a huge deal.

 

I remember us having a few phone calls about this one going through this. What is the worst thing that can happen? What do I do if this happens?

When I bought this note, it had outstanding taxes at acquisition. What I did was I reduced the sale price and paid it in closing. I was talking with the seller. I was like, “I see there are back taxes here. We got to get those paid or whatever.” Initially, it was like, “She is going to pay them.” I’m like, “Okay.” She hadn’t paid them yet. I was like, “Let’s take it off the sale price.” The seller pretty much paid for it. It came out of the seller’s pocket. What’s nice is those taxes are still owed to me as the new lender. That’s how I mitigated that issue. The taxes were taken care of. I knew it wasn’t going to go to a tax sale or anything.

I was still owed for the taxes there after we closed on the deal, transferred servicing or whatever between the first payment. I’m like, “This is working. This is going how I thought it would go.” In June and July 2022, she got behind. She didn’t make a payment in June or July. This was surprising because she had done two years of on-time payments. Maybe the payment was a couple of days late, a week or two late or something like that.

She had always made the payment, and that’s where the diligence comes in. I knew I had looked at all the canceled checks. I knew that the payment history was legit, but it is what happened. I don’t know if it was inflation or if she was testing the waters with the new lender or what the deal was there, but she got behind. Our servicer reached out multiple times with Colby Finn, who will be talking later in Note Camp.

They were doing their job of reaching out multiple times, including phone calls, emails, and regular letters, but no luck getting her to pay or making any contact. What I did next was sent her a letter by certified mail. I printed out a letter with the Black Arrow Assets letterhead. I said, “I’m a lender on the property. Here’s how much you owe. Here is what you’re behind on, taxes, fees and payments.” The contract stated that if the taxes weren’t paid, she was supposed to pay them herself because it was self-serviced at the time. She was paying the city directly. The contract stated that if the taxes weren’t paid, as the lender, one of my options was I could declare a default and start the forfeiture process.

I knew that I was able to do that. I didn’t want to. It’s a performing note. The whole goal of buying it was to have consistent payments. I sent her this letter, “If you don’t pay the statement amount by this date, we are going to start to forfeit process.” She didn’t bring the full amount. She made a single payment amount but not the full back taxes, not all the fees and the late fees.

I started the forfeiture process. I called up the attorney that I had used to do the due diligence on it for looking over the documents. I called them up. I was like, “I want to start the forfeiture process.” They started. They got the ball rolling there. They sent out the notice and after a week or two, she got the notice. She made contact and paid. That fixed it right there where she was like, “They are serious.” I reinstated the loan and got all caught up.

It only cost me $100 for that first part of the forfeiture process. It was a demand letter from the attorneys and that generated $3,000. I was like, “It was the best $100 I have ever spent.” I’m getting that loan going again. That was the hiccup there, but we’re on track now. Any questions on how all that worked or any questions on the performing note deal?

It was $100. You need to come to do it. We are going to start to process if you don’t. They also paid the taxes that they were behind on as well too.

They reimbursed to me. I technically paid it already. She paid the taxes and payments that she had been missing. There were some late fees in there, and interest had built up a little bit in those two months.

Was this a contract for deed?

That is correct.

David asked a question, “What is the difference between forfeiture and foreclosure?” This is a contract for a deed in Michigan. In Michigan, in the contract for deeds, you can evict. You have to go through a long foreclosure process. It’s a forfeiture of the contract, which is a much faster process. It’s mostly like a tenant relationship. Paul was evicting her and would boot her out. He takes the property back, which is now worth $88,000.

A little more than that. It is maybe around $100,000 or $90,000.

That is what the value was. I’m sorry. The unpaid balance was $88,000. That is a beautiful thing to acquire some equity there in that aspect. She didn’t want to lose that equity of what she had. Did Colby or anybody find out what caused her to miss some payments?

I did make some contact with her personally. She didn’t give me a real reason, but she wanted to stay.

That all happen when you have servicing transfer. Sometimes, people don’t know who to mail the check to. They fall behind and get lazy with it. It happens. We are not playing this. I told you, don’t wait around. Let’s get serious about that and you are glad you did.

Now that I’m with a servicer, we had her attention and she was talking to us. We started escrowing the taxes and insurance. The taxes that are going to be owed are with that payment. That is going to make it a lot better. I’m not waiting on her every quarter or every six months to come up with $1,300 to pay the city little by little. That is helpful for people. Not everybody necessarily has that financial discipline and gets caught in a scenario. I cleaned up the loan a little bit. Getting it to escrow with a servicer now. Everything is reimbursed, and we are good to go. That is pretty much all I had, case studies-wise. Is there anything we can talk about, either about wholesaling, mail or anything?

David asked a question, “Was it hard to change the contract rules so it allows escrow?”

No, it wasn’t because we didn’t change any contract rules. It was in the contract that we could force escrow. It was a matter of notifying her that we were doing that. I talked to her that we were doing it and I explained we are not just raising the price here. I want to make sure she knows, “We are not just raising your payment, we’re taking aside the taxes.” That was easy. It was a matter of conversation with the servicer and showing that it’s in the paperwork already.

Sometimes, you get to inform. They sign the contract for deed but they don’t always know. Steven says, “Where do you get these contracts for deeds from? Where did you find your source on this one?”

This was from the note investor that I connected with on a Facebook group. Do you mean a contract as far as the actual template? This was originated by somebody else. I didn’t come up with the CFD. I bought it and looked it over how professionals look it over, and took over the contract that was already there.

Ravel asked a question, “How do you find deals? Did you say how you would market or sell the notes?”

I ended up working and connecting with the guy from the self-directed IRA group who was wanting to get into notes. That is one of the things I did. I posted, “I got some performing notes for sale, reach out to me.” I had some people reach out, and this guy came through. That was one thing that I did. Another thing that I did was my connections on LinkedIn. Also, in my normal marketing, I connect with the new note investor. I’m looking for my own deals. I would also mention, “Do you buy CFDs in Michigan,” or something like that and add that into the conversation. That was another way to the market where I got some interest versus just blasting it out everywhere. I hope that helps.

For the folks out there, the biggest question we get is how you find these deals. You shared different groups. What would you say are your number 1 or 2 market for deals? How often are you marketing for deals? It’s probably a better question. Are you doing it on a daily basis or once a week? What’s your process for marketing?

The thing where I have seen the most deals come from would be my marketing on LinkedIn. What I will do is do a campaign from a program called Octopus, where you can automatically send out invites to people. What I will do is find a bunch of users that are note investors, asset managers, or things like that. I send them a connection request and be like, “It is great to connect with you. Is there anything that you’re wanting to get off the books?”

I do that every week. I also do email campaigns once a month to asset managers, but also people that I have connected with on LinkedIn. If they say, “I don’t have anything right now.” I will be like, “It is all good.” People say something like, “I will let you know when I do or something.” They won’t unless you have a real relationship with them.

What I will do is ask them for their email like, “What’s your email?” They will usually send me their email. I will add their email address to my CRM, tag them as note sellers, and I will send a monthly email campaign to all my note sellers saying, “Do you have anything this month?” What I will do with the email campaign is I will send three emails out over the course of a week and a half or so. I will send one out on Tuesday, follow up on Thursday, and a third one the next Tuesday or something like that. People will see stuff, they will forget about it, and when they see a second email, they might respond like, “I got something.” Those are my two main marketing strategies for finding deals.

That is how you’re finding fresh stuff. That is the thing nobody else is seeing. The platforms that are available out there often don’t have a lot of fresh stuff. It’s the same stuff on the same platform. It is stuff that’s old, overpriced or crap that shouldn’t be because a lot of these platforms aren’t doing any due diligence in the actual deals themselves in a lot of cases.

They are just throwing stuff up against the wall. Unfortunately, that is where a lot of folks go because that’s the lowest-hanging fruit. When you are posting, how long does it take you to create your post on LinkedIn? How long does it take you to send an email blast out? Is it twenty hours a week or an hour a week on that?

I spend ten hours a week formulating three emails. It doesn’t take long at all. Honestly, it took a couple of minutes. For the emails, it might take me like fifteen minutes to rearrange the temp a little bit, set them up to go out or something like that. It doesn’t take long to do that. It is the same with the LinkedIn thing. It will take a couple of minutes to pull a list from LinkedIn or find the users that I want to send to, maybe 5 to 10 minutes searching different things, putting them in the Octopus program, and it automatically does it over a period of time. It doesn’t take long at all, but it’s important to do.

You mentioned earlier you are using Keep as your email and follow up with your asset managers and your private investors. How much do you think in private capital you have gotten pledged or raised since you started?

It was mainly that one guy that I had gotten a pledge letter from. I had many conversations with people that want to look at the next deal. As far as pledged that’s ready to go, that is what I had. It is still about getting them on your marketing and list. When I post something, people reach out and want to know more about it. Maybe they are not ready to do a deal yet, but they might in a couple of months or whatever.

No doesn’t mean no. It usually means not now, for the most part. What is the best way for folks to connect with you? BlackArrowAssets.com. Are you posting daily to LinkedIn?

At least a couple of times on LinkedIn. If you message me on LinkedIn, I will get it. I’m starting to do more on Twitter now. I don’t know if anybody is on Twitter. Let me put my handle real quick because there are some good communities on Twitter from real estate investors and stuff like that. I began to get a little more active there.

Twitter is one of the things that are important because you can search hashtags if you wanted to see people that were talking about Note Camp, note investors or real estate. When you are talking to communities, those are some of the great things to take a look at, and they start connecting. It’s like the whole Gary Vee aspect.

He started reaching out to the wine library. Anybody that was using wine, he will connect with them, start talking with them, start sharing messages, and follow those folks back and forth one at a time. It takes some time. When you’re kicking up with your heels at the pool like you are, in a lot of cases, working from the poolside for the day, it’s a good thing.

If you care about the Twitter thing, put in the #Retweet. That is the real estate community that I like. It is the only reason I’m on Twitter, but I like it a lot. Connect with me there.

Is this the first presentation you did, talking about your business?

It is the first conference vibe. Thanks so much, Scott, for having me.

Guys, if you are sitting here, what are some nuggets you have taken away from Paul’s presentation? Great information and great for sharing, but what’s the a-ha moment? What’s the nugget that you guys took away? I wrote down a couple of nuggets. The first one is he made $100,000 in his first year because he took action. He took a little time to learn and he took action. How many folks take classes and never pull the trigger? One of the great things here is you realize you had to follow up. It took you 500 texts to find one lead. You would think the leads are pouring in.

Everybody wants to sell you their house at a big discount, don’t they? Everybody loves it. You got to find the gold in there.

Did you ever go back and look at how many texts you sent out to figure out the value of texts? You made over $100,000 in your first year. If you went back and looked at how many texts or leads you sent out?

That is tens of thousands for sure.

Each lead ends up being what you got that was worth a good chunk of money. What was your average wholesaling profit on the different wholesale deals?

It is $17,000 for real estate.

I got a question here, “He planned everything. He knew he would be coming back to the US and he prepared before that at such a young age, which is good.” That was his big nugget from you, that you started preparing. RJ, “Taking action and wholesaling note if you can’t find it quickly.” Something is better than nothing, is the big nugget. I like the strategy of texting and not estimating repairs for borrowers. That is good.

Paul, thank you so much for coming to the show. The best way for you guys to connect is by checking out BlackArrowAssets.com, and then his email is simple at Paul@BlackArrowAssets.com. Follow him on LinkedIn as well. See what he is posting. It works. It’s being consistent, following up, knowing the number, and not taking no for an answer. No is not now and a follow-up. Good stuff, Paul.

Thanks, Scott. I appreciate it.

Thank you.

 

Important Links

• Paul Riley – LinkedIn
• BatchLeads.io
• ListSource
• Podio
• Keep
• Black Arrow Assets
• Octopus
• Twitter – Paul Riley
• Realestate Retweet – Twitter
• Paul@BlackArrowAssets.com
• http://NoteCamp.live

 

About Paul Riley

Paul is a real estate entrepreneur that uses his network, experience and investment opportunities to put people’s money hard at work for them. By following a thorough due diligence process, Paul ensures that his investors’ capital is not only secure but performing at an above-average return.