Buying Notes from Mom and Pop Note Sellers | Real Estate Notes Show

Episode: Buying Notes from Mom and Pop Note Sellers w/ Marco Bario | Note Investing Dave's Goals and Plans: - Sending out sponsorship package for DME (Dave's Money Event) next year - Seeing more non-performing assets and commercial opportunities recently - Buying first liens on properly created creative finance notes to help borrowers exit deals - Building calculator for creating first/second lien strategy with infinity return concept - Willing to buy first lien if note is created correctly as win-win arrangement Nathan's Goals and Plans: - On the road in Utah for fourth time this year for business and daughter's college - Getting a tape of non-performing notes later today - Seeing increased flow of non-performers compared to six months ago - Seeing more non-QM opportunities in the market - Believes rates need to drop more before significant activity increase in real estate Key Recommendations: - Watch previous episode on Corporate Transparency Act before end of year (500 hour fines daily for non-compliance) - Ensure notes are created properly and remain sellable for enforceability in foreclosure situations - Have proper channels and steps in place when creating notes - consult with professionals - Submit loan details and copies to Dave or Nathan for review before finalizing creative finance structures - Make sure note paper is enforceable if non-payment occurs and case goes before a judge Topics Discussed: - Rising trend of non-performing notes becoming more available - Creative finance note investing and proper structuring - Market rates and their impact on real estate activity and refinancing - Note sellers (mom and pop sellers) entering the market - Commercial notes and multi-asset/multi-lien creative structures - Enforceability and legal soundness of note documents Guest Insights: - Marco transitioned from TV/entertainment production background (line producer at Technicolor) into note investing through real estate meetup - Chose note investing specifically to understand inner workings of real estate financing deeply, comparing it to Houdini escaping from constraints - Met Nathan at first Paper Source Expo in Las Vegas five to six years ago - Gained P&L management experience in previous entertainment industry roles which transferred to note business Nathan Turner hello hello good good on the road again here we go I know what's a new background what's all this about back in Utah again this is the fourth time this year but uh this time is is well it's a little bit of business and pleasure Going H doing a reunion with a bunch of people I haven't seen for 25 years and then my daughter is going to school here so I get to hang out with her for a bit too hopefully you see some real sway out there but uh enjoy your travels and hopefully your daughter's doing well in college that's awesome so far so good so far so good cross your fingers it's a nervous thing I can't I can't imagine my kids are a few years before doing that so I'm uh I'm feeling for you a little nervous for you right she better be doing well because we're paying absolutely so how's business been for you what's been new with you what have you been doing how's your notes doing and what have you been seeing recently it's good it's good I'm actually I'm just getting a tape later today on some non-performers and so that's interesting and I think just over the last little bit I've been approached with a little bit more non-performers which is yep different from six months ago yes and it's just it's starting to change already and so I I think we're gonna see more and more of that coming that seems to be kind of the the trend absolutely and then on top of that we just yes yesterday I was just saying before we got on just yesterday I sent out our sponsorship package for people looking to be a sponsor at DME next year so that's already in the works and we're we're gearing up for that five make sure if you haven't checked that out that's for no buyers and no creators uh to to join together and network Nationwide conference so uh for those who don't know who we are Nathan Turner runs Earnest investing I've been doing it for 15 plus years I'm Dave put from jkp Holdings and I've been buying notes for 15 plus years we are different companies just sharing information that we learn connecting you with people that we know um I've also seen a lot of non-performers recently I've seen you know some more non-qm stuff um but I'm seeing that trickle turn and for those most people that's awesomely exciting um for us I'm not sure yet right because I still need to buy that at a discount price yeah I just want make sure the sellers are ready to make a discount right yeah I was just reading an article this morning about uh um how rates are starting to drop but there's has not been an increase in activity across the board and locally it's different but uh but across the board there hasn't been a lot of increased activity because there are so many people that are still locked in at that low rate that they got back in 2020 yeah and so so many people are are locked into at that rate and not really willing to change which I can totally understand so rates I think are going to have to drop a little bit more before we see a significant increase in activity in uh in real EST we'll see absolutely and I think that um the market St to change I'm starting to hear about you know the concerns of the upcoming election and what's going to play there we don't know what's happening um but I would tell you uh if you did not catch our last show about the corporate transparency act please go watch that um that's a big thing to do before the end of the year um 500 hour fines a day all that good stuff so make sure you do that in the worlds of what we're doing now is I'm seeing a lot more non-performing assets um I'm also seeing people um looking to just Branch out and do different things we're seeing commercial stuff I'm seeing some multi- commercial Bridge loans I'm seeing multi- um asset loans multi- different I saw one note that's four leans on it that was created with multiple balloons just really creative stuff and one of the most comments that I saw on that was make sure that this is people are doing it that are doing it right and creating the note in a right way that you can be as creative as you want but if you're creating a note that's not sellable most likely means that you can't do anything if something goes bad with it right that's a key thing yeah right yeah and that's a big push and I'm sure we'll talk about it again next year at D me make sure you're doing this properly there are channels that you need to go through there are certain steps that you need to take y please do it right we can pay you more yeah yes yes absolutely and you guys can get a situation where you're if you need a foreclose you're in a spot to foreclose and anything that's the key in this whole thing so um so one thing we' focused on the last I guess almost two years now we've done almost a 100 episodes here is a focus on buying creative Finance notes and we've learned a lot about them right um what they're doing how they're doing it what they can help with what we can help with we talk I talked about um creating a first second selling that first and getting Infinity return on that second I then built the calculator to do that but me and Nathan will go ahead and buy that first lean if you create it correctly and it's a win-win get you out of the deal especially if you create a rap loans it's all available right um so if you're curious about that or you want to submit a loan to me or Nathan please reach out and let us not the details of that note are and send us a copy of the note just so we can read over it yeah I want to see what that looks like and just make sure yes yes just make sure like you say it's all about like we want to make sure it's enforceable uh if we get to a situation where there's an on payment and we're having to go before a judge uh we want to make sure that the paper is worth it that we're able to actually enforce whatever it says on that piece of paper yeah awesome so um without further Ado we're joined today by a person that I respect tremendously in the space he's a great Soul quiet guy but he knows his stuff he understands this game and he's very very passionate what he does and understanding and respectful which is awesome to hear in this space um Mario is someone that when you go to conferences you sit down talk to him he will hold your hand and walk through any scenario you got which is amazing when's the first time you remember the first time you met Mario Marco Marco so I can Mario oh my God Marco sorry mix between his first and last name yeah first time in him gosh that's a good question I have to think about that it's been a while but same thing ton of respect for this guy he's just he knows his stuff and I was like chatting with him so yeah well let's bring him in Marco I probably for butching your first name I don't know what I was thinking I'm blending stuff so how are you on this Friday afternoon Marco I'm great I'm great David how are you I get Mario a lot because of like Nathan said the first and last name Nathan I met you at the first paper sorce Expo that I went to in Las Vegas you probably don't remember you were at the buffet getting food I said I need to meet this guy and I introduced myself and I don't know you didn't want to talk to me I was I was nobody then you're not like you're not like that you were gracious but I just didn't you know I didn't know much about much at that point so that would have been five years ago or six years ago somewhere in that range I think we met a lot of people on that on that Buffet line yeah yeah so Marco tell us about how you got into the notes space how did you get into real estate what was that transition H um I I um I started in a space that was nothing had nothing to do with real estate at all um and when I when I talk to people who who are still in that world they can't believe I'm doing what I'm doing um but it's it's a story that that shows I think that you know besides perform surgery or practice law without a license there are a lot of things in the world that we live in today that you skills that you can just pick up um so I went to college I don't know a long time ago and I studied television production I did that in Boston and then I moved to Los Angeles in the early 90s and I worked on TV shows uh for a long time like in the production office I dealt with the you know at first it was first it was delivering scripts to be honest and getting lunches for the writers but I worked my way up and eventually was a what they call line producer so I was responsible for schedules and budgets and making sure that everything stayed on time and crew got fed and all that kind of stuff and then um and then an opportunity presented itself to go work at a in in a different role in the entertainment industry and I ended up working at a at a company called Technicolor that provided post- Production Services and believe it or not so in production for television all we do is spend money here's a budget don't spend more than we gave you in business we actually have to make money and they hired me in a sales role so I ended up in meetings where we were talking about revenues because I had the relationships okay right so you take someone who has relationships you put them in a sales Ro and often don't think about the fact that they have no sales experience um which is still relevant for my grp today I'm I'm getting better all the time um so um yeah it was really interesting and then I as I moved up there I ultimately had some p&l profit and loss responsibility so not only did I have to make sure Revenue was coming in but making sure there was a profit um and those were the first that was my first experience to anything to do with Finance at all but still nothing to do with real estate we were working on eventually when I when I left left there we were I was working on big Studio pature film releases so you know Pirates of the Caribbean day and dat release across the world and things like that it was really interesting stuff and I learned a lot project management and still managing budgets and people and Crews and uh a lot of Technical workflows and so forth um but has that world changed they're you know technology marched on and environments we'd build out for a million dollars were now uh could be deployed on you know not a laptop yet although some of it but still you know $20,000 of PC equipment and and some expensive software so that changed and then work started moving it left Los Angeles and started people started doing more services in Canada and over seas and Y yada yada so what ended up happening there is there wasn't a chair for a well-paid executive uh in that world anymore so I was I was forced to go find something else um but it was one of those fortuitous things where um I decided ultimately I wanted to do something I could do from anywhere and I kind of like this entrepreneur thing um so It ultimately led me to a real estate Meetup in Manhattan Beach California and where every month it's a different topic and so that one month I was going to flip houses and the next month I was going to apartment buildings the next month there BNB rentals and then the next month about when I'm saying to myself it's time to pick something there was a panel of note investors and um and uh and and it was interesting to me partly because I had no real estate background I'll be honest and I figured I me you guys know and others who do notes know we we have to we have to understand a lot of the inner workings kind of the engine of the car if you will not just how to drive the car and I thought if I do that especially if I do non-performing notes I'm I'm gonna I'm gonna like Houdini gets kind of locked in the box and he has to figure out his way out he's got a plan but it may not always go to plan I don't know yeah and um and I thought it was a good place to learn he get my hands dirty so that's how I ended up in note investing who was speaking you remember interesting yeah um I mean one of the names you'll know Gerald Le Mo was on the panel and and yeah he influenced me quite a bit and so I started buying non-performing seconds only I've only done a handful of them I wasn't a big player in that space But that influenced me a lot and he really understood the inner workings and he'd learned from some great Educators um um yeah uh word Hanigan and people like that in Southern California and others but um yeah yeah oh that's cool yeah jald that's actually I got a notification today today is Gerald's birthday yes is Happy Birthday Gerald happy birthday Gerald I hope he's doing something more fun not that watching this isn't fun hope he's enjoying his day right so you got to know and where did you find yourself as we all know there's different niches in notes right seconds first performing number where did you find yourself gravitating towards well I had a little money in um in my retirement account and also at the same time one of the gentlemen who ran that group I went to we went out and had drinks and he explained to me self-directing an IRA and ultimately I looked into that and decided to do a solo 401 Cas so I rolled over this ER trade account that I had that had done pretty well just because you know I just left it there mostly not that I was a genius in stock so I had some money to play with and I decided I would go find some non-performing seconds because I wanted to learn I wanted to put myself in different situations I had to think my way out of that really was the motivation um and I bought a handful of those so I made sure I bought one that was you know in a in one state or another state or in bankruptcy or you know just different situations where the first was performing for the first wasn't performing um I learned a lot through the experience ultimately I realized you know entrepreneurship is personal growth I've always felt and you know I worked on these big projects and I've been yelled at by you know I can make you a list and I've I've been in uncomfortable situations and I thought you know if I as I reinvent I really want to do something that's just I like to do more and what I didn't like is is just talking to with all due respect attorneys and Loan servicers and not like the people as you know in the non-performing space it's probably a better idea not to talk to the people in the house and if you do they're not really happy with you um because you're telling them to pay their bills that they've been ignoring for a long time so so I I switched gears and I figured out I would learn one way or another to find seller financed seller carries and I'm talking the mom and pop stuff I know it's the topic of today and that's uh and that's where I am today so you that's an interesting shift so you shifted out of the easiness of buying notes right that we would say laziness of buying notes of getting a tape and just going with it and went the hardest stuff to do you're getting to know me David I could I'll open the door to my world and you'll see I tend to take the hard way interesting interesting and then so how do you start finding those were you just doing like postcards direct marketing yep yep I did direct marketing um I really wasn't very good at it but I'll tell you no one's really good at it when they start I told you I I started in a production role in in film and television and and then eventually had to sit in front of clients and pitch a company and it's you know if I'm not learning I'm not growing so yeah I knew that if I wanted to do the thing that I wanted to do I'd have to be uncomfortable for a while and after I'll be frank the discouragement of sending out around a postcards or letters and well only got one phone call but i s out a thousand of them and and putting it on the shelf for a little bit and then coming back to it and then putting on the Shelf a little bit I thought I don't know I think I read that uh uh uh habits book by James CLE Atomic habits and he's got this concept you get 1% better every time you know with every rep just kind try and get just try and get better in 1% increments like I can do that so somehow I put that together with really what my job is when I'm starting out is just make the phone ring and talk to sellers because that's what I need to grow at if I can make the phone ring and if I can talk to Sellers and get 1% better every time I I go through that process eventually some of these are probably going to close and they did and they did so that was that was that was the the initial growth for me awesome so tell us about the first deal you were able to close with a mom and pop and I'm sure that was easy as pie and paperwork was so simple right they're not simple um yeah we'll talk about that today um I don't remember my first deal what the heck was my first deal it you know do I remember it I don't remember okay um but every deal is different however what they do have in common is they're I I don't I I know you talk a lot i' listen in on your content and I've been to DME about buying seller carries from people who originate them those people can be coached they're professionals they should be doing it right yes they have every they have access to the resources to do it right the people I deal with are absolute mom and pop they've probably most of the time only ever created one note in their entire life and therefore by the time they get to me they've never sold one so out of the gate I can't be I'm not in a hurry it's a process with them if I come in selling selling selling and on them about well I don't know this document and this thing and the if you go to my website Port swing funding.com you'll see a picture of an older woman there and you'll see some other older people it's not that I'm selling like you know annuities to old people you might get that impression from seeing the site it's it's that if you think about it the people who have a note to sell had to have owned a house first most of the time it's a house they lived in and then they moved or something happened in their life and they sold it and They Carried back a note for different reasons and um and now they're at the time to sell it so they're 60 plus in most cases I feel and a lot of the people I deal with are women because us got go us us guys go first it's just the nature of it so if you sort of go down the path and the logic I have conversations with Sellers and it's like their son who forgets doesn't call them enough and they're just so happy to have someone to talk to this is my life it's much different than going through tapes Al loans and dealing with financial people and friends and stuff that I think probably is more your world um I really do with deal with people all over the country and they just call and they know nothing about the process yes so anyway back to the paperwork the last thing I wanted to do was say ah you really screwed this up or why is the interest rate I bought notes for the interest rate of zero per.

I see I see everything but because they not gonna do it again right you're not teaching them because they just did it one time in their life and this is where they're at you just have to discount it accordly yeah I they have something I want I have something they want they want to move on most of the time people by the way aren't selling because they need cash it happens but most time they have some there's something they want more than what they have and what they want more is maybe I want to get rid of this because I want to move closer to my grandkids or here's a common one you know my husband and I own that property and we sold it we carried back this note been collecting well you know for the last three years he's been sick he was sick and I was taking care of him and now he's passed on and I just kind of want to move on with that chapter from that chapter and by the way I'm going to travel too because now I'm not taking care of my husband anymore yeah so I also I get people's life stories it's part of part of being successful in this role but it's also part the part one of the things I enjoy the most so we had a question from Robin do you get Source lists from particular people are you building yourself are you buying lists you don't have to share your Source but yeah asking I mean um what's it what do you call it um Scott arpan SKS list and there a couple other vendors out there um a list is a list um I'm really bad at direct M marketing and I have done it for a long time um and it also I'll tell you something it it it leads to a different type of uh inquiry you think about it if you have a note you've never sold a note before and you're at home watching whatever you watch and the mail comes and there's a letter from some guy who says I'll pay you money for your note you might just wonder I got nothing going on this afternoon I'm going to give him a call and see what he'd pay me for it well it creates a lot of work for me to figure out what do you got can you send me the thing okay if you can't send it can you send me a picture and it's not easy I'm not getting a whole collateral file with this it's it's a process just to get the information which is fine and then figuring it out what's it worth researching the property you know it's there's a process and for those people who are just Tire kickers and aren't probably going to sell it's really not worth my time I would I do plan to resume some Direct Mail Marketing in some target areas or around where I live now in Maryland but um I now Market online that was that was the next thing for me after I figured out making the phone ring and things I'm like I'm gonna get good at online marketing and I've spent a lot of money and time doing that so you do more online marketing versus the direct marketing yes I do so those leads are different those leads somebody sat down at their computer said I want to sell my mortgage note and Google shows them me and a few other of us who do that that and now at least somebody you figure they're a little further down the funnel because they're they're looking they're looking yeah that makes sense that's awesome I see Cindy made a comment that you know she loves your approach right Cindy Coleman um and Robin Jackson made a comment that especially older people have a hard time with technology um they struggle with that um understanding what you're looking for where that file is it may be in a shoe box in the basement that who knows what Happ yeah so tell us some of the things that you find you know are very interesting in the scenario story-wise what do you think is you know one of the best win-win scenario you've been able to come up with everybody has a story there's a story that if if if anybody some people in this call may have seen me Teach or give some presentations in the past and there's a there's a particular note that I've shared a few times I've had stories that border in this but this one in particular a woman called me and um she was um she was just kind of businesslike I think in her life I could tell you know the read I got from her probably had a you know was the boss somewhere definitely and and you know like I always do I got to the you know why would you why would you sell a nice note like that type questioning and she said we're selling it because we had helped our son and his fiance at the time by this house and we carried back the note oh and um he committed suicide several years ago oh my gosh I've been talking to this woman not even 10 minutes and so he committed suicide in the house and she's like and to be frank now his wife still lives in the house and we're not on speaking terms with her and we'd like to move on how much you know could you could you help us with that so I like to be the person who can help in those types of situations don't worry about it if you can't find this thing we'll figure it out I'll go figure out what I can get from the county records we'll talk to the title company who did the transaction and see if they have copies or maybe they have the note there do a lot of that stuff um but those are yeah the but I like to be able to help people we had a question Kendrick uh asking if he pulls doing court records are you court records and look for certain terms inside the documents to identify it s Finance yeah I wish that I wish the terms were in the recorded documents but what gets recorded is the data trust or mortgage if it's a contract you know some sort of installment sale contract which has you know 30 different names contract for de land contract sometimes it's just real estate contract whatever those hopefully are recorded and may have terms in them um but that is that is a thing I have to explain to sellers they they say you know well you can just pull the recorded document I say unfortunately the document you have hopefully somewhere in your home has that information on it because that part doesn't get recorded on a mortgage or D of trust um but as far as court records I do look on County websites I have propstream and I can pull some information from there um we do the research that we can and then um and and we pull together the story eventually it's a it's a bit of a project pull together the story some are great probably more than 50% there's some effort involved in pulling the story together and I know you've probably seen it Nathan has too is these some of these documents are handwritten right they're not the formalized you know format and wording we tried doing a project I don't know four or five years ago of like okay how is borrower defined and how many different ways borrower and I got to the point where I think I had 80 of them different versions of the word borrower and it just it got to the point where it's just too much so looking for specific words and documents is difficult to do just almost impossible I got my first handwritten note last week believe it or not was my first I have I have them where it's obviously a form downloaded from somewhere and they might hand write in the terms or the amount things like that um payment history gets interesting because I mean people literally will send you pictures of piles of cash they can't do anything with that um but um but yeah the paperwork is the is the paperwork I I I fall back on um first of all I buy some and I I don't like the word broker I wholesale some people know wholesaling in the real estate business because they got a house under contract or a piece of land or whatever it is and then they just assign that contract to somebody who closes on it funds it takes ownership of the asset and then whoever brought the deal gets some whatever the spread was that keep some cash for themselves I do that sometimes and there's some frankly I think I'm in over my head on this one and I bring it to an experienced buyer who has the army of knowledge and people to take that on and by the way that's the other the other way I grew in my business and I'll put this out there when I started bringing deals to experience buyers because I stay in the middle they go run title and they do bpos and they do all the research they do and they come back to me with some questions or a list of additional information they need I say huh what does that mean that question I ask them I mean we're we're aligned our interest are line they're they're interested in teaching and taking the time so by being in the middle of those deals and I've seen some really interesting things they can fix documents we can they can get a stopples from people they can do a lot of sort of um Jiu-Jitsu to make things right again yeah yeah na I think Nathan's frozen at least on I am can you still hear me I'm frozen I hear you so I was gonna ask man like Nathan is a very good listener he's not blinking or anything I'm sure ask Mar like can you go into a little bit about some of those Curative things like obviously we get these documents that are not totally in order so yeah you mentioned estles for example I'm not sure everyone's familiar with in estole sure here let me let me start with the note and then I'll talk about the estole the yeah the the the note can um can have issues from time to time and there's nothing that precludes remember these aren't non-paying these are performing loans and most of the time the payors the people making the payments are amable to sign additional documents if necessary I mean think about it somebody sold them a house and gave them a chance to buy a place to live I mostly deal with Residential Properties you can do this on all kinds of stuff I do some land and some other stuff but mostly those so someone did did them a solid a place to live so if they come back and say hey you know what we've decided to sell the note I always tell them I always tell them when you talk to them explain to them nothing will change for them except where they're going to send the payment because people get a little freaked out what do you mean you're selling the Noe is like am I have to pay it off I is my term going to change no you're just going to send the payments somewhere else in fact you can probably do a and all that other good stuff so um but go to them and say I just we need you to sign this document that document often well it can be a new note or if the note was lost they can sign a copy of the note we can do lost note affidavits but we can also just bring them a copy of the note to sign so we have a wedding signature um but it is common that the payment history isn't well documented and um we I always when I buy and I know some of the bigger buyers when they buy will um require an affidavit signed by the seller at closing and by the way we always close through title I know it may be different than than some of your day-to-day operation but we always close through title so when they sit down at the title company or with a mobile notary there's a the seller signing an affidavit as to the current balance yes I've received these payments noted here and yes this is the current balance and these are the current terms and if there's further um uncertainty or um or or or the buyer feels the need is there they can ask the seller I'm I'm sorry the payer to sign out a stole um which is them agreeing that yep those are the terms we haven't made any verbal agreements or other that changed the terms of the note those are them this is the balance this is the last payment I made and I agree not to take any further action um uh that would that would con you know because now I'm agreeing to all those details I agree not to some point dispute these details in the future yeah interesting yeah stop something we actually never cover on the show I'm glad you kind of shared what that what that looks like cuz that's a a common word in our world but lot of people are saying what are you talking about what's in a stole it sound like a weird word yeah I mean you know some of the you know the the bigger institutional buyers that talk about thin files and fat files and a fat file is good because it's got all this dat all this information in there title policies and assignments and all this stuff if we can take a thin file I guess you know one way to describe and fatten it up a little bit it just it's great yeah the intent is that these hopefully are going to perform forever yeah um I've had it I've had that not happen and I've gone down a road of foreclosure it's it's rare but it happens and um I've never had a I not that I've got millions of you know hundreds of thousands of these in my um on on my completed list but I've never been in a situation where we couldn't foreclose thing you know luckily so we had a question from Rob a few questions here how do you how much negative feedback you get when you offer that price $100,000 note and you offer them 50 60 how much negative feedback or are you already in a spot where you're solving their problem where they're just happy to get something from some good guy you know there's there's probably five or six categories of seller and the top one for me is some version of top one because I see it the most is some version of what they just want to move on with their life but and it's usually investors who want top dollar for the thing because they want every dollar for their next deal yes that's another kind and those sell ERS will not like the discount obviously and we'll we'll we'll try very hard to convince you that the note is worth more often by trying to convince you you know you hope you get this property back this thing is worth blah blah blah blah blah and I make the decision frankly whether I'm going to take the time to explain to them there's no guarantee I'll get the property back yeah because foreclosure always leads to an auction doesn't always lead to getting the property and that Equity does belong to the payer by the way I mean if you go there and usually there's no winning in that description argument but but the other thing is I just don't want to I just want payments you know that part I do say to people I just want payments yeah are some people upset yep yep yep I I I ruin some people's days from time to time I do how do you handle that what do you do with the information if who that's a huge that thing is a $100,000 note you're buying for 50 what do you mean do you go back to keep do you go back to saying Hey listen I'm trying to with them in three months six months Goa yeah yeah yeah gotcha yeah you know it's what one of those things no just means no not right now um the the more you do this and talk to sellers the more you'll feel out the ones who might someday come around um but um it's a it's funny um I was just working on a article and I describe this a lot I say that buying a pricing a note it's like someone bringing you a used car if somebody were to call you and say I have a Toyota to sell you you would have some questions well what kind of Toyota is it and what year is it and how many miles and the condition and all that stuff that's usually how I explain to note sellers how we price a note they get that they're like I get the 77 Toyota with 150,000 miles isn't worth the brand new you know Rav 4 or whatever yeah um they get that so I tried the best I can in the beginning to start leading them down the road to not expect par and by using terms like I'll let you know what we can pay for it we'll figure out what we can pay for it I try and drop those in there gotcha again without ever doing this there are some Educators out there and I disagree with this who teach kind of breaking people down almost making them feel stupid because well gee why don't why did you do such a low interest rate you know but I don't want to embarrass them do you explain to them I guess explaining to them the interest rate affects the price is pointless because they're not going to create another note again so explaining how to make a note better doesn't really affect them because they're not doing it again is that accurate yeah I don't I would never explain how to make it better um but um there is some I have to justify why the price was given so that's a good one so if it's a I saw a lot of notes at 3% when interest rates at the banks were 3% and I say oh wow and usually what I'll say I'll take it as far as this I'll say wow you're really generous 3% well that's what the banks were charging and again I feel it out my response could be if I want to take that another step it could be well gee you know the the thing about the banks is they lend other people's money and they tend to get bailed out when things go bad well I guess you're right I guess you're right you know I makes sense so the other question she had was um they don't include servicing fees in their notes that's not something they think about do you try to do they you ever try to modify that note to add that fee no never no I never modify it um there's a you you know probably some people here know who Jimmy Napier was and there's his book invest in Deb and and I I I travel with a group of Educators who all kind of grew up under the Jimmy naer and and Jack Millers and so forth and you know Pete fortunado fortunately still with us and you know few few of that generation still out there but no way who I also follow but um Jimmy Jimmy used to talk about the deal after the deal because he was a note buyer and he would buy notes and then he wasn't done he would go back and he would offer tell you what if uh if I lower your interest rate and uh I'll lower your interest rate if you double your payment you know those kind of things and if you do the financial calculator uh acrobatics on that it's pretty good for the investor but so or trying incentivize them to get an early payoff or do I do some of that not enough but um but those kind of things I'll try for but not not trying nickel and dime over the servicing fee if they hadn't agreed to it at origination I'm not going to go after it yeah Nathan was saying Tom talks about that too right doing that strategy so we another question from Brian is it hard to overlook issues with the note to be able to help the seller out um I guess to answer that question to ask that question a different way if if this is the intent are there notes we can't buy I mean the answer to that is yes unfortunately um but um but if we can figure out a way to work it out and if the seller is willing to Aid in that process because there's work involved and it's it's a lot of uncomfortable terms and paperwork theyd rather not deal with but you know we needed to talk to the seller and we need you to ask them if they'll do this or we need you to go find the you know this and see if the title company has it or give me a letter and authorize me to talk to your title company or your attorney or I'm happy to do that for you um but so it's it's it's some of all the above I guess yeah good good idea so Nathan you got got into more of this than I did you know Crea a note and your first note you created was by just chance right yeah the idea was um creating the note because a note rather than a rental because I didn't want to deal with fixing up the property I didn't want to deal with um and at the very beginning in fact we didn't even have a budget for any kind of repairs to the property so for us it was look you get this house as is but we're going to give you a deal on uh your monthly payment so that you can have extra money to put towards repairs I would say from my experience most of the time those extra repairs don't happen but uh but you know that was the intent and so I don't know how much of that happens with these um Mom and Pop seller finance do you see that Marco or it kind of sounds like not so much it's more it was a property that uh maybe the people lived in at one point yeah it's it's mostly it was a property that people lived in at one point occasionally the next kind of the next level up is um they didn't live in it but uh their now deceased mom or dad did and um and when the the person I'm talking to inherited it they sold it to somebody with a note so they a connection relationship if you will with property so we had a question from Sandra d over on Facebook are your yields generally above 10% um why not just invest in a note fund where the funer does all the work for you um I have a boy I could I could spend some time on that um you know I'll I'll say this um I don't invest in note funds because I've invested in Sy in the in the past and ultimately um you know we were talking before the before we went live on the call Nathan and David and I investing and and Entrepreneurship is personal growth and what I've learned about myself is I want to ultimately be the one who's in control of the deal I want to whole title to whatever the asset is and in a syndication in a fund you don't you give money to somebody and they go make good Investments if you pick the right person and you're investing in the person yep you're not investing in the in the assets specifically you might like you should like the asset class and be comfortable with the investment thesis I do this full-time every day and I feel for that I want control over the asset if you have a W2 job or you know you don't want to get your hand sturdy in this and talk to sellers or look through tapes by all means the fun so those are different those are different they're not apples and apples they're apples and oranges and just also note the fact you have have to be credited investor to be part of these funds if you're not accredited you have no ability to even invest in a lot of f most most most most yeah most um I am in a ATM fund right now that is experiencing difficulties probably prob I'll bet someone else on this calls in that fund and knows what I'm talking about there are a lot of investors in it I'm I think we'll get our money back but we're not going to get what we thought anyway um oh then as far as yield um remember what I said about the deal after the deal MH um I don't just buy the note I buy a note let's say I can buy a note at a 12 or a 14 some I bought as low as nine to answer that question about 10 but that was once but usually I'm a little higher I I put a lot of work into these I market for I have overhead I don't have invest other people's money I invest my own money so but if I can buy it at a 12 or a 14 and then I can sell a partial to somebody who is happy with a passive return at a lower rate I can recoup or do a hypothecation you know there similar Concepts I can recoup my most are all of my investment and have no money in the deal and then my return goes way up so I'm not done yet when I buy it and you so for those who don't know what he's talk about if he sells a partial at nine he's getting at 14 it turns at 14 into I can't even do the math it's probably upper 20 20s lower 30s return because the way it's structured depending on how much term sold all stuff so yes selling a partial a lower rate thing you bought it at is huge win for both sides you have the you know the person just a 9% return boom it's cash flow for them and you're you're in a great spot um Robin asked it good you know you know can I say one other thing yeah please do most notes Don't Go full term I can share a statistic yeah this is First National acceptance company statistics they buy a lot of notes they've been buying them for 50 years when they under write a deal they they anticipate it'll pay off in five to six years wow really wow interesting So when you buy at a discount and get an early payoff your return jumps considerably yeah so explain that for those who don't understand why do it go up I mean you're a a return to say at 12 How does it go to anything higher if it pays off early when you punch the numbers in the financial calcul and there's 240 payments left the financial calculator only assumes it'll be 240 payments and we know that if I get $1,000 today I can buy a lot more with it at Home Depot than I'll be able to in 10 years or 15 years or whatever that is so what that says is money now is worth more than money later so if I can realize the full payoff the full remaining payoff sooner rather than later and put that back in the financial calculator it likes that number a lot more L more yeah awesome so with that going on you here we go I'm gonna mute him for a second um so with that said we have a few other questions here regarding are any leans attached to the property where uh federal or child support or something [Music] weird yeah that comes up we do a title when when we when we buy these types of notes we um usually purchase a a lender's title insurance policy that ensures us as the as the the lean holder against any issues with title and the insurance company won't issue that policy until they've done a full search and they've put out certain requirements um for them to issue the policy so sometimes those leans will come up they're looking for them they're protecting themselves sometimes those issues will come up uh property taxes are pretty common um because frankly the the mom and pop wants less than others they they're probably not monitoring the property taxes or the insurance that's a that's always a headache but um so those it depends it depends on the investor and it depends on the deal um there's some investors who if credit is good and there's a great payment history but the um taxes property taxes say aren't current they'll close on it and then they'll just deduct the tax due B balance at closing from the sell proceeds and they'll allow that deal to close there others where it's a little more iffy and they want either the payer or you know potentially the seller to I'd rather be the payer because I want to see that they came up with the cash made the payment um they want them to to bring it current before they'll close we had Jerry Wallace has a question do you ever wholesale primarily to Banks funds individuals or maybe all of them who do you who do you wholesale too I like to I like the wholesale to the big buyers because they end up becoming a whole back office for closing the deal it's really I I'll call out first national acceptance they've been doing it a long time and I do a lot of business with them and they're so button down they really are I bring a deal to them and I collect the basic information the note the DAT to trust the settlement statement usually and I get it under contract and I send it to them and within 24 I get back a list of the other information they need documents questions they have and then they order title and they order Bo and they do everything they schedule the closing am I involved in the middle of it yes are there some that we just can't seem to get to close yes I have one right now it's a tax issue we're waiting for it to get resolved but um but it's it's much easier with a larger institutions as I now that I'm more experienced I can I can facilitate closing with indiv idual investors just I know it's more work for me so um next question we had was um sand I'll get back to your question just a second is um Andrew asked uh do you think if someone has a 3.75 rate they will pay off in six and seven years you talked about does the rate change that payoff it's funny to mention that I always just I don't have that data because I'm not I don't have their database but I always kind of assume that the higher interest rate ones more incentivized to pay off yeah although there's there's something else at play there the higher interest rate ones may be the ones may be the ones who have a harder time qualifying for Bank financing down the road where the property itself has a harder time qualifying for Bank financing absolutely yeah because houses went up dramatically during covid and that thing appraised for X dollars and if it crashes at all that appraisal is not going to be there and they've only know for a few years the principal's not dramatically Dam D you're right David but but you're right and I'm glad you said that but what was in my head interestingly enough was something different some properties a lot of seller finance notes are mobile home in land and they're a little Funk pre1 1977 whatever Banks don't love those Banks don't love those so there's no guarantee they're going to be able to refinance those so sard had a question regarding your top at partials right as Nathan gets his microphone fixed um is what is your conversation to this investor who wants to be passive talking about the partial how do you how do you introduce this idea to someone yeah I'm looking for 9% what do you got how do you pitch it to them if you don't mind sharing yeah um I mean there's a lot of advantages to partials the first of all the partial let's assume I'm only offering partials on first that's mostly what I have couple seconds but um so if you think about it a partial on a first is like a first on a first if the full loan balance is $100,000 and the investor is going to put up $50,000 if things go sideways weird whatever that investor is due to get paid first so if the houses were 200,000 or 150,000 the no balance is 100 here I am holding the back end of it as the guy who sold the partial but things get a little weird and things end up just a few dollars short or whatever it is that investor is in line to get paid first yes and then in my mind because I've dealt with non-performing loans I'm in this space every day I do this every day there's an opportunity for investors to it's not a partnership it's not a JV but to be aligned our interests are aligned if I still own an interest in that asset I'm G to make sure things go well so if things do get off track I have knowledge and resources to step in and bring it back gotcha we're gonna I think we lost Nathan for a few minutes I'm gonna switch screens hopefully he'll get back I'm resuming in the travel he's uh doing what he's doing awesome so let's continue with it I think that people are hugely attracted to this idea of being in this space is difficult to begin with right and buying these notes even more difficult to begin with however um these are regular people quote unquote these aren't Mom and Pops or whatever you want to call them these are these are these aren't note buyers note investors right they're they're just general people who got into this stuff and created this note out of just a curiosity or creativity or desire based on situation these aren't Bank stuff this isn't mom and pop just got into it because maybe the realtor told them about it maybe situation presented itself and I think people get stuck on what we know of is hey this is a business not creating is a business and what you're saying is your people are not a business this is not a business to them it just they want to rent it out for whatever reason and this was the best idea I know you guys have seen the report that that Fred and Tracy not investor.com put out and that data is collected by Scott arpan who I mentioned earlier yeah um I can't remember his site note investor list.com or something like that he has all the all the courthouse data he gets all those records and compiles and pulls out the loans that look like seller or carries and how can he tell that it's not payable to Bank of America or quick and Loans or whoever the whoever the institutional payers are it's payable to Bob and sus and you know Jones of Omaha um that's probably a Solo Carry so he pulls those out and he parses the data and then Tracy primarily spends time looking through it and they do this report every year that shows you the size of the seller financing market and in um in 2023 which was last year the most recent data we have it was $28 billion of paper now compared to the institutional world that is small but there aren a lot of people like me out there looking for these yeah and you might say well maybe there's a lot more investors creating these things well 70 More than 70% of those were people who originated one because their name only appeared once one in in the 12-month period maybe they had done one the year before maybe the year before that we don't know but they're not volume producers of these and by the way those people who do one in 12 months we're not going to go down the Dodd Frank rapid hole and all that stuff but they fall in the one note exemption category so a lot of these things that they should have done just being prudent are legally required such as the underwriting of the payer because they just did one so they get exemp do you do you requirements if they didn't do the underwriting part which is is separate from the RL part how do you handle it if it's a newer note or most of your notes have good Mount term on them that if you underwrite a note and don't do on if you create a note and don't underwrite the borrower ability to repay that's a big problem because that borrow defaults they can say listen this is a predatory lender how do you handle that or most of your notes are it's not required yeah it's not required if they only did one in 12 months so the Aro part origination parts key from our understanding right is the rmo is the threeyear kind of thing the underwriting is no matter if you do one or 100 if you do one your whole life underwriting is always required for the bity pay from our ex education okay yeah know yeah know it it's not an issue um we look at um we we do look we look do look at the payers credit okay um we um pay history forgives a lot of sins Equity forgives a certain amount of yeah um but pay history for instance is a is a good indicator because I can I can produce an argument that well they've been they've been making payments for 24 months all of a sudden they're not how come all of a sudden they're not qualified to to make this payment true true I think if it's less than six months then you have more of a problem right they haven't they only paid two months would I rather have seasoning yes um the big institutional buyers will buy those with just one payment being made um I don't don't have a I don't have a hard fast rule on that but I like to see some more payments being made yeah so do you ever convert if it's a land contract to a mortgage or do you leave it the way it is majority of time I never have I never have um it look seems like a lot of work and the ones that I have converted is a lease option and I just did a lease option over to a contract for deed uh and honestly part of that is the lease option it's a terrible deal for the for the homeowner for the person living in the house it's a terrible deal so I would rather have them paying an interest rate where they're actually paying more principal every month because they're going to be paying a lot of interest for a lot of years for a lot yeah I know I know I know so awesome marco well I don't see any other questions if you do have questions please put in the chat we're going to kind of wind down now um Nathan do you have any other questions before you uh get to your final no I think that's it sorry for the technical difficulties travel is always good but we're back in so yeah I'm curious what you see coming down you've been doing this for a little while now and so you've got a little bit of a handle on on uh what has happened what what do you see coming down the pipe I mean there's plenty of product in my little niche There's real estate investing which is sort of a niche of investing and then within real estate investing there's no investing within not investing there's guys like me who go after the mom and pop seller carries yeah there seems to always be enough to go around for a guy like me um if you talk to a big shop they will tell you it's slow or it's not slow um but I don't know I tend to get the phone ringing pretty consistently now which I'm thankful for um there were 28 billion doll in 2023 it was only 23 and a half billion the year before I'm I'm sure that was triggered by the rise in interest rates it was hard for people to qualify for institutional they're eing down a bit now yeah I I I don't follow it that close defaults would be a problem I don't I don't think we're going to see a big round of defaults that's significant enough to to make a difference do you think house values will change the next 12 months I don't know um there's the school of thought that his interest rates come down more sellers will enter the market um but I don't know there's such it depends where you live too where I am in Frederick County Maryland days on Market is still below 30 and it's and it's still a hot market and I don't I just don't pay attention to the National Trends much beyond that understood well Marco it was a pleasure having on you we had some great questions from people um if you have any additional private question for Marco if you want to reach out to him use the link we have in the chat to do that um and just reach out to Mark was a great guy um are you to be coming to any kind of conferences up soon that they can meet you talk to you handshake you beet you on the buffet line I hope Nathan will talk to me the buffet line I mean come on man um the next conference I'm going to is uh the masters of real estate I like I like to frankly I like I love the note conferences but I also like to get out just in the general real estate Community I'll let you in on a secret it's kind of funding one of the only note guys in a room yeah it is people are interested to talk to you and I like learning about real estate a lot of the I want own some but all a lot of the acquisition techniques people use for Real Estate applies to notes yeah but uh anyway that's said I'll be at masters of real estate um in November it's the same weekend as node Expo so I won't see a lot of people at node Expo but I'll be at masters of real estate in U at the good old tusy Suites where Paper Source was and uh and um yeah I hope to see some people at Masters absolutely so I know that me and Nathan will be at the note Expo um coming up in a few weeks our next show will actually be um with Eddie speed I'll put my referral in the uh chat as we have here um if you are interested in all the note Expo in Dallas please make sure you sign up quick I know they're um signing up people and you're going to lose spots at the hotel uh get your airfare and all that stuff um so make sure you get that done um but yeah we'll be Ed E going to join us in two weeks I think it is or next episode I'm sure we'll put the link out there if you haven't we have a calendar that you can add to your calendar and see any future shows um but I please reach out to Marco he's an awesome wealth of information obviously shares as much as you really want to know um he's a professional in this business and been doing it for a while so Marco hang on for after hours but thank you very much for joining us live this week it's pleasure thank you all right guys have a good Friday afternoon we to take care everyone we'll see you soon.