Note Investing Automation, Due Diligence and Note Investor Strategies | Real Estate Notes Show

Episode: Note Investing Automation, Due Diligence and Note Investor Strategies with @Martin Saenz Dave's Goals and Plans: - JKP Holdings purchases first position performing notes, second position mostly performing notes, and junior lien notes across 14-15 states since 2012 - About 70% of their bidding process is automated, starting with data scraping and value determination - They base indicative offers on worst-case scenarios rather than hoped-for outcomes - They use automated systems to pull property taxes, comparable sales, and reach out to local agents and investors simultaneously - They adjust return requirements based on whether they're buying individual notes or pools Nathan's Goals and Plans: - For junior liens, he puts in firm bids upfront despite more labor intensity to limit bandwidth issues - He focuses heavily on the borrower information for junior liens to assess ability to pay - He emphasizes the importance of backing into bids from target returns rather than playing with numbers to achieve desired returns Key Recommendations: - Always base your indicative bid on worst-case scenario outcomes to minimize risk - Use a pricing strategy built on expected returns and exit strategies before bidding, not after - Do not use percentage-based valuations alone; coupon rate is critically important and cannot be overlooked in modeling - When modifying notes, keep the new interest rate close to the original coupon rate to maintain future sellability - Develop a full mathematical model for all scenarios rather than relying on percentage approximations to avoid losses Topics Discussed: - Property valuation methods and fair market value determination - Indicative vs.

final bidding strategies and timing - Automated due diligence processes and data scraping - Junior lien vs. first position investing approaches - Interest rate impact on note modifications and resale value - Risk mitigation through worst-case scenario planning - Note modification strategies and yield to maturity calculations Guest Insights: - Automation can handle 70% of the valuation and bidding process, freeing bandwidth to review more deals in competitive markets - Property characteristics (square footage, bedrooms, desirability, age) are essential data points that comprise about 35% of BPO accuracy - Borrower information becomes less critical for first position notes since the investor controls the property in worst-case scenarios - Blended pools often contain mixed quality assets, requiring comprehensive pricing matrices rather than cherry-picking - Modifying notes at unsustainably high rates (e.g., taking a 2% note to 12%) guarantees future sellability problems investing made easier podcast I'm your host Martin sines and I want to welcome you to the program I'm going to introduce our very special guests in just a few minutes I just wanted to make one announcement the announcement is my next note investing fundamentals class is going to be in our workshop rather is gonna be already at 21st 22nd in DC so you can go to my website note investing made easier calm to get more information and without further ado I have on Dave putts of jkp holdings Dave welcome to the program thank you a man thank you good to have you I mean you and I always chatted up at the conferences and and you know various subjects it's really awesome just to have you on I appreciate it man it's good to connect and always good to talk about different strategies we all use absolutely I know I know today the focus is going to be our due diligence and you know before we kind of jump into that tell me about what jkp Holdings purchases now what what types of notes we buy first position performing not performing we have Boston seconds mostly performing but we primarily look at first performing and number for me notes in about 14 15 states and we've been buying since 2012 really jumped up into the 15 but we don't really buy too much see of these but we have bought a handful here they're terrific and it's going to be kind of a code discussion here versus you know more you know Q&A if you will so I'll just let you know just for this opportunity however my focus is mainly on on junior lien MPNs and and then converting those to performing notes so with with that said let's talk about the idea of of you know whether your mind Junior means our first you know there's heavy emphasis on what is the properties value so so what do you take is a Holy Grail for giving you what the FMV is for that property we do a series of things first we scrape a bunch of you know different values online code EVMS from different websites we have and narrow it down based on if the cell provides at BPO where we're at so what we do is we determine scraping data and then we run our own analysis on the properties that we like in markets that we like based on the data we scrape and that's where we start at and then we go ahead and dial down manually and figure out the values of each individual asset that we like using different sources and different avenues exploring that so and I know that's gonna be something you're gonna you're gonna want to determine at this stage where you're putting in an indicative bid so so oftentimes you know oftentimes where Dave's purchasing he's putting an indicative bid if he gets awarded that indicative bid then he deep dives into due diligence probably with BPOs and oh and he's and things like that but for the purposes you know he wants to know you know high you know high level what the property's worth and if it's a junior lien you know would where's the first that correct yes absolutely we take that data and that's when we started plugging in into our model and figure things out which we're sure we'll talk about but we start with that value because that's prime information for us to determine things based on the other additional data what's interesting is is when you're when you're buying a first you're looking at square footage of property right wins the property bill what's the you know three bedrooms two baths you're looking for make up information is that why is that important to you so you know for for comps and whatnot so we've figured out about 35% a BPO the correct well that makes a lot incorrect so what we want to do is determine based on the property type area square footage what does that value that property it's a tube first a three-bedroom desirability and things like that so that or more data points determine the value of the property at El bas determined to make up of the property itself additional data points for down the road look your your your mic went off hold on how is that there we go thank you so so you know from that perspective you're you're really gearing up to take back the property is that correct well that's our worst-case scenario right so we we have multiple areas where we can't predict what's going to happen and when so we don't we don't go into the deal saying well this is scenario that we want we really go into the deal looking at the fact that what could happen so we're not stuck with a bag full of stuff we hoped for got it so so you have your what if that's the least desirable outcome what is the most desirable outcome modification right we can get that thing performing again and reselling it which is part of a model if that opportunity comes about it's awesome so so what's interesting in a you and I have had prior discussions on this I know for the purposes of you know a lot for the first mortgage purchases you're looking at that you know property value back taxes you want to know maybe I don't know if you do any platter digital collateral review at that point or whatever before you put your indicative bit in but it's there's heavy emphasis on that property value for myself and the junior liens face I'm looking I'm looking heavily at the bar at that point too so you know I want to know bits of information you know such as you know where's the bar or at in their life age-wise what's their you know if I can get information on their their ability to pay it depends on what kind of bid you're making right if you're making a final bid vs.

make a straight-up indicative offer it depends on what kind of big you're doing if you're doing the final bid yes you're running all the data you're doing your scrapes we really don't care as much about the person that's the property because the other day we're control of that property if we need today what's interesting about that is that is that you know a lot of times you're doing exactly what you need to do to put in a solid indicative bid number and then from there you can kind of you know back down as you need to when I'm putting in for junior lien I'm actually trying to put in as firm of a bid as I can up front so I know that's more you know that that's more labor-intensive upfront but so it limits me band width wise whereas you you have more because you're doing quick analysis you're able to probably you know get on more deals I'm doing a lot of time our first space it's you know you have to grab it quickly you know you have to days sometimes to get an offer in so sometimes when going through to learn assets and you want to buy 50 of them you need to quickly get the data into it and get that offer in making indicative of value making it get a cloud or review so we're not always reviewing collateral if it's if it's indicative possibility where you do a final bit usually of 30 days to your full due diligence and that's when you're doing all your dives prior to making that offer and and you take it from a what what percentage of your process is automated I would say about 70% of it okay in 70 so so when you're putting in the indicative bid a majority of that effort is is is done via an automated process so it starts with getting a tape in we make our values which is manual intensive our next step is literally take that asset all the assets were bidding on throw it to our calculator our calculator figures out every scenario what I determine returning requirement is our target is for every exit strategy and says I need it sir percentage it starts there doesn't base on you PP or BPO it's what's our target return and back into it and then it takes the minimum of whatever all the different exercise you are and say what's the worst case possible and then the addictive offer goes off of that number and says if reinstatement possibility is the worst case that indicative offers based on that if foreclosure rehab it goes off that number and then once we get that in there we then made that offer where he pulled the annual property taxes where he pulled if the property's been listed recently we've also pulled for hozier in numbers and B D K numbers so that when we get a response from the seller we can then go to the next process and start automating reaching out to agents that we already work with reaching out to investors we already work with through automation again it's all that processes it goes grabs anyone who's in the local area of that property and shoots out the emails that person with that property data so we can data dump into our system and we can get more data once we get the indicative offer accepted in what some you know interesting about that whole that you know your whole process is that you're taking the least desirable scenario and basing your indicative bid off of that correct so so that that minimizes your risk and so you know you know that that kind of begs the question of the importance of interest rate so what the interest rate is for what the bar should be paying is very significant huge a lot of people take percentage of BPO and UPB it's like well you forgot that if it's a 2% coupon or if it's a 10% coupon that the percentage does not do it that that coupon rates huge because like we discussed I can't make it a 25% coupon rate just can't do it so yes that coupon rate is massively huge in the modification or reinstatement on yield to maturity and so and so you're you're in oftentimes when you're bidding you're you're doing your cherry picking is that yes most of Tommy our tour times will rebuttal hopeful if that opportunity is available and we've like all the assets that we feel we can mitigate or stration well good the whole thing and have no problem putting a dollar bid on something just to put an offer in at times in in in much of the cases on on the junior lien side it's an all-or-nothing right so so they're usually blended and you know sellers they know what they're doing so they're gonna throw in the junk along with the good ones and so you know a lot of its based on equity coverage of that note and you're putting together you're putting the other pricing matrix's to to go and you know set up pricing for each type of you know this circumstance for that particular note and and you and i've had conversations regarding pricing in that in that you really need to have a pricing strategy that's based on what your expected returns are what you you know you know that could that can include when if you're planning on modifying the note and reselling that note yes and you know what will be the price tag on that and then you back into what your offer should be what you need to like they'll do not not a lot of people do that they they do the reverse and play with numbers until they get the return they want where we discuss the other day is it start with at the end in mine because you don't want a three percent return yeah especially if the notes at you know the coupons at two percent so and then you want to sell it with a yield you know you want to modify for one you should be modifying it around what the interest rate is on the note i mean you you can't take someone who should be paying two percent and stick them with a twelve percent no no you shouldn't do that and and you know that'll catch up to you if you do so if you go and modify them at three percent you know maybe take it up and then you try to sell that with a twelve percent yield down the road you're gonna get crushed absolutely and that's why industry it just makes a lot of sense to have the full model in there and this idea percentage just doesn't mathematically work out you get burnt eventually which we all have that's how we learned yeah you have to factor it in there if they reinstate your you can be a the creek without a paddle at four percent and now you can't sell it at all so do you use some you know do you use the same system whether you're buying a few notes or you're buying a hundred notes yes yes so what we do is we we take our questionable things and if it's situation we're buying a pool we can adjust our returns requirements so if it's a multi deal situation we can tweak it a little bit turn it down a little bit so we don't have to have a cherry-pick you know point and anything that's low we can put a dollar bid on and we make it offer and then come up with a football thing but most of the time they want to if they do it all or nothing we also want loan level bidding which whatever reason they wanted it's fine we'll put a loan level bid on every one of them anyway yeah it gives the seller an advantage right if they're gonna go and match match up various bids against each other and see who's overpaying for what note so so um what's interesting is you have an automated system it allows you to work you know to go through these bids yourself and to come up with a number that you're comfortable with and you know to put investor dollars against for for myself on my model is very manual at this point in that's not to say I mean I can take down two notes a to No Deal I can take down a $10,000,000 No Deal but my process very manual in that in that I mentor group of people that double as a buyer's group and we go through the manual process of each of the sections that are significant to us so fair market value you'll really be tracked lien validity lien validity research on county records data tree pools you know credit reporting and skip-tracing so you know these are things that are significant to us and we want to go through line by line because I think as a new node investor it's better to learn the process from a manual perspective or at least know how it's done manually yeah unfortunately a lot of people either don't know or don't want to learn they just want to buy or been told just to buy and it gets confusing we thought about spreadsheets can get overwhelming for a lot of people and unfortunately it's a spreadsheet driven business our system you know the why works for me is that I don't need to know how it's built I built it and the system can process 50 loans I'm not entering anything just process and through and shoots that individual you know big calculators for each one of them but it runs through 50 a hundred of them where you're dealing in more as a teaching tool and learning the process I just find a lot of people aren't taking time to learn that or it's not available one of the two it's it's complicated there's so many different scenarios that we can go on about different opportunities that gone bad or went weird that you couldn't plan never to plan stuff yeah absolutely and that's that's um you know obviously I'm not you know I'm giving you my perspective in terms of why I'm so manual with my process you know things human error does happen and things do fall fall through the crack I'm sure on the automated side you're always adjusting for that too you know things that weren't caught from the automated perspective you know it pulls from zillow that is a 3-bedroom 2bath in two thousand square foot but yet the picture shows it you know is pulled those vacant property so you know things whatever they whatever the case would be yeah so you know we're both adjusting our systems on both sides of the fence yeah I mean where are we the adjusting arms we had our attorneys or local investors to our systems that have to the property that we do really like are really questionable we can call up their investors or a local type property to give them a physical manual phone call like for me determine value and run things manually if I'm bidding 50 of them that would take a long period of time which sometimes we mainly have a day or two to pizza these want dick ative valuations and income delinquent taxes is something we can make indicative all those kind of things we can automatically capture but we don't need to for offers in the beginning our final offer adjustment offers yes we'll go ahead and go dive in play getting data is very manual intensive and I find a lot of people run to the problem where human error happens they forget a zero they forget this if you run that error over and over again it can't be a prom at extrusion so time energy and all that kind of stuff I find automation just fixes a lot of those errors it's tough you know yeah it's you know to that and I could see how the probably the the quantity of bids is more I'm on your side for for the purchases that that I'm going after you know it's all or nothing and in one of my competitive advantages is I try to put as firm of a possible so les contingencies upfront and I find that gives me an advantage at times versus someone just throwing in a bid and saying hey these are the thirty contingencies I need to still look at well you know the sellers probably thinking well what the heck did you do and you know other than throw in a number and you know versus Martin and his group you know they said hey they've done their homework already and they're in there you know practically one foot in the door yeah sometimes we'll get two days so sometimes an Oni doesn't take warrant unity to get that Oni back sometimes when we run a BPO if we run one which is rare it takes couple days to get back and we may only have two or three needs to get her offering we can pull delinquent taxes quicker but at the same time it's something we don't need to always do but things like property preservation pictures in electronic collateral some sellers provided some dome so we can review that to make a hard choice on it without that data we find proper preservation notes and servicing notes it was a huge information of what's going on the deal and that's part of and it'll offer to review those kind of data points because without it you don't know much about what's going on so so when you first get an opportunity in the door yeah obviously the sellers sometimes says well I'll provide this in a vault and you can you know log in to pull down some due diligence data do you make a special request from the seller to say hey look do you have credit reports do you have oneís you have PP o--'s things that I can use and evaluate in the notes yeah absolutely um worse they say is no right I want to see I want to see property presentation pictures if they doesn't work in the house or if they skipped over work oh yeah we saw ten grand a roof problem up we're gonna pass on that look that tells me somebody about the property we also do if we missing notes to see what the borrower is doing but yeah we always for what they say we also asked for collateral review they've done cloud review when they bought it bigger funds will actually send their their actual cloud review custodian report to us and say stuff was clean it kind of gives us a guideline we're at that but Haley is missing yeah absolutely we also asked for force-placed policy and most people don't know there's two different policies out there and one you buy anything happen before you bought it goes away you can't file a claim on something so we found the hard way make sure you follow up which force-placed insurance policies they have and we've always asked and that's an addendum to our contract to make sure that if it's something we can't follow clean because x y and z we're seeing think either buy it back or whatever because we don't want to get stuck in frustration that the force-placed insurance is held up because of them or something else and then ends up in our lap yeah yeah now that that's a good point so you know when you put in your offer you want to put in the contingencies you want to ask for as much as you can and the worst they can tell you is no whether you're doing that on the on the up front when you first get an invite to bid or you do it once you place your indicative bid in it's always good to ask I had a young 200 note opportunity come my way over the summer and and know how to report for Friday but I am and then they sent me a Dropbox link for them so I'm like you know how much that would you know $200 times you know yeah whatever you're paying 10 bucks a month to pull credit I mean that's a few thousand bucks yeah so so it can you know all that stuff they just either did not connect in the sales person usually isn't connect with the collateral for you person the servicing in the servicing notes they just don't if they don't have to why would a well yeah yeah it's always somewhere you just have to be shared with us you know Oh any reports with pull room eventually if we're gonna make that offer final bid but yeah they have it I'm gonna look at what they have BPOs look what they have and a lot of times you get all the agent right you need to stop the agent Hey the property um we just I think the biggest problem most people is that they dive into saying we're talking a lot of data a lot of different things and some of you don't know what Oh a need report is some you look no one accepts report is and that's the problem we run into is that the struggles are there's so much information that we're talking at maybe a higher level that a lot of people understand that they get lost and they just say screw it I'm gonna put an offer in see what happens and then we get back to where at we're not doing anything yeah yeah and I think that's where you hear sometimes frustration in the space where where you hear about people oh there oh you know those people they don't know what they're doing and they're over bidding well it's not it can be a matter of exactly what you said it's it's that they don't know the whole process or they don't have a process and they're just putting out a number just to see if it'll fly yeah yeah absolutely and so you get to the point where you do collateral review you know I use over I&I use richmond monroe for larger opportunities I review my own collateral file for smaller opportunities you know how do you differ with your collateral review process I wish I could automate it but I can't most of the time what we do is we'll reach out to we have a collateral company that we have worked with in the past but they've missed things cancelled Alon just on an original note they just didn't work out so what we've done in the last two years is coolest directly to our attorneys and an offer we're gonna make that we're not checking ourselves we're asking our attorneys hey listen can you please review this collateral there's ton of attorneys out there that know prom doing this and for the charge $150 to me it's well worth it I didn't want to think I know everything let them see it and if we go to foreclosure and there's something missing we know that they're the ones who looked at the file but yeah we sent it right to the to the attorney electronic version they don't need the hard copy and just let them look at it and they'll say he's missing this and missing that and usually they have the contacts at the bigger funds if we need to to get the additional documents that we need to or we can make some phone calls or our connections and and so you know from there you're you're generating the exception report you're letting them know hey this is this is missing this need to be cured or refunded or what have you and that's a good that's a good policy to have in place prior to the purchase because right reps and warrants and all of that will be in place but how how much can you put your your trust into that correct you know issues where that wrestlin warrants is in place and they fought us it's like doesn't make him difference we've been in situations where the the server server who was triumph and alone over modified alone in the process of buying it and the terms changed the borrower signed off on it so yeah reps and warrants can go just as far as they need to go but yeah you should be doing everything you can and that's hard because you don't know everything at the beginning and those advance people we run the situations that just don't make sense and no one else has run into them sometimes so yes it's just working with the professionals in the space to help you along the process to make sure if you're missing something they're there to catch you so yeah you know I think it needs to be stated that there's different you know there's there's more than one right way to do something with a lot of what we're talking about and you know whether you go to full automated or you have you know a lot of labor behind the due diligence I think though that either way you should try you know I'm always trying to automate my system you know api's with pacer searches api's with with Zillow and in those folks in in trying to collect data especially on a larger one and then you you have also the human element where you have to you know you're sending collateral to an attorney to review you can't automate that process or you're using Orion or Richmond Munroe like myself on on the larger opportunities I think the point is to have professionals in place like you mentioned I cannot you cannot get around that you know what I hear people say I service my own I took my own collateral a lot of times newbies say well why can't I do that all I needs to see is a chain well you don't know it if we sign correctly it work there's something on it it just doesn't make sense you don't know and that's the hard part is that until you know it why play the game so yes we rely on our professionals to do those kind of tasks for us sort of big problems yeah I mean in whoever's used you know attorneys or they've use Richmond Monroe I mean you see the corrective assignments that they're doing I mean they're correcting past errors and and these are things most likely that you know a lot of folks may not picked up on yeah and you don't know what a correct assignment may or may not be look like you know do you know which states can take a affidavit you know lost movement affidavit which states don't so I think that's also runs into problems at different states sometimes states can take electronic things sometimes they can't again it's state by state Pacific's that you may or may not be paying attention to or remember let the professionals do it but yeah that's part of our process it's manual but I would say majority of our process is automatic you know from values to emailing bulk emailing it to emailing our attorney if we did get the asset it automatically emails the attorney notifying them throws over you file sent to them reaching out to our code you know investors where the property the backyard you get data all that process is completely automated in our end of it especially the calculator so we you can automate a lot of it however I think that there are manual steps that has to be taken to make things work in on that note what would you say if if your ideal scenario is to get the bar performing and get them reinstated or loan mod it what part of the automated process gives you an indication that the bar has an ability to pay so to us no it's kind of weird with being the first base it's it pre-purchase there isn't any kind term any factors we don't get into the borrower data right we're seconds you get dived into the borrower we're in still control power that he listens either do they do or dolt we don't really care once we buy them all or we're going to the for the due diligence that's when we're skip-tracing the borrower we're we're checking their Facebook feeds we're checking the you know their LinkedIn feeds we're google searching the property has you know has been you know fire in the Anthony area see if the borrower died seemingly to find out about the borrower to help us determine that scenario when we're going through a full of due diligence if we find that they have a job or something happen and their possibilities there then we can tweak our dollars now at that point in our initial it's straight-up quick offer does that make sense yeah I remember due diligence on a note years back and I skip trace and they were they were just got out of prison for bank fraud that was funny oh my god I don't know I don't know that one you know that meant it's gonna slice it you know and we can't determine you know so instan you know we've got tons where the borrower performed because one died and they moved or they didn't pay because the bill that sent to the wrong house for two months and they got behind because x y&z their kid went to college they started paying the college don't have the mortgage and sometimes you don't understand why the borrower get it so we can't always presume it but it's hard to tell right and some people care about occupancy or not for me it doesn't matter there's a pro and con of both because they're not living there they can be limit if they are living there I made it straight they don't give a crap you know there's so many scenarios that could happen that predicting a modification is difficult yeah it just says we can't oh yeah I mean people you know like people tend to you know the general rule of thumb in real estate right how the outside of the property is reflective of how the inside looks you know how if the bar keeps Annie home they want to they care about where they they want to pay their bills but no you learned that people live in like mold infested homes and the only thing they care about is paying their mortgage not you know their health so just people you know take a live different lives yeah we've gotten tongue where you see them Facebook their kids walk around have cell phone videotaping the house cuz they're rapping on video and you get sitting inside of it right and you're like what it kind of alice is this the outside looks great but yeah there's nothing to predict what's inside the hole and that's our biggest fact that we don't know so that's why we don't go that exit strategy we say what's our worst case because if we better best case and we're wrong that's when you lose your shirt you know you have to wear the worst piece if you're buying small we Bible you can adjust it down but you need to run all your numbers somehow someway in the calculator that you know you can use you know we're building one for public use to help that kind of scenario and just shutting out things out so but I think that just have something and don't go based on flatlined stuff mentor work with you Martin work with other people to learn what don't want to ask questions at least the last questions I still do so so if thank you Dave and you know what I kind of picked up something I picked up on what she said is that you will go to various attorneys to review collateral clause so I assume you have several attorneys in each state or if you have ten states where you're buying notes in all ten states and one in one pool you're gonna send it to those various attorneys in those states to review it you know it seems like a lot of extra step or a lot of extra work versus using like a national company like Orion as much as those guys also have their shortcomings to but you're you're good you feel like it's justified right that actually we've gone to situations where we gotten about a bath duration where that collateral management company missed a cancel on John note now we're chasing back the city to find you know because additional laundered on there the first initial the note was the laundress canceled on it and they missed it so now we're diving back into it in those kind of scenarios where it's like listen we have our attorney and you know Georgia we're in a center all time if we have her you know Indiana we have 14 safe and we emails that attorney because we don't want to be down the pike going to be K and having to prove this stuff when he missing data it's just it's two meats it's not worth the risk yeah teachers send a one person which I don't his Automation it's quick and easy but to me it just doesn't work because the danger of what could happen what do all the steps you take from a lien validity standpoint so what we do is first we take is we we pour ona right we're seeing what's on there what's going on we then contacted County and make sure nothing on there that we're missing we find out if there's anything that's on there or question on there and we're also using our internal process to read through it evaluate it and determine we lost look at the county website ourselves and see if anything on there we didn't have our collateral file the OE goes with our Clara file to our attorney so it's all together reviewed to ensure what's there what's in first once in a second where am I at what's still protected we've talked before we had a situation where our first was actually second behind an HOA a foreclosure in Ohio because the person for us never fought claim on it so that lien situation when I didn't realize it back in chugging 13 was actually a second position and out of foreclosure process so those are the kind of things that an attorney will pick up and say hey listen this is on here we asked her attorneys to look at the Oney the foreclosure data the BK data everything to put together and say okay give us a phone court not just to collateral but give us a foreclosure give us a BK report and give it and reviewing the ona and then you're gonna pay what what rep price range 1 1 2 1 150 okay so so you're just factoring that in right that's the cost of doing business yep you know copula by BPOs and I don't I I don't like buying it so while you're spinning you know other bucks whatever you're buying a BPO for I'm over here spending $100 for attorney to review my collateral right yeah yeah so so yeah BPO is a good to order when you're selling those yes yes and or two of them get the higher one yeah I mean I to me they're kind of a joke and we laugh at them cuz you look at them and see why you a mile away from a property in Chicago like well this makes no sense yeah BPO has agreed for that reason we make jokes we have a BPO guy local and he tells me does 60 a month and I don't know how he does it he goes no oh I got a BPO on a property in Ohio like a week or two ago and it came back at 250 K and this property I know for a fact like 60 K I was just seeing if I could get it up to like 70 and they came back to 250 thank you most people it's a it's a manufacturing line they get sent a bunch of them they drive around take color pictures and all the time running a VM model and it shoot out there and the guy told me I says what happens when they're wrong he says most people don't call back up to argue it so and those who do he goes back out and really does want so it's it's it's a just manufacturing part that I just don't do it as good as we think they're doing it and what we're paying for you can argue home who does not many people arguing yeah what's the turnaround time for forgetting back feedback from an attorney who's reviewing collateral on average we've got them back within day we've gotten them back within three days usually they'll respond to us letting us know what the timeline is if they're going on trial for something but most of time within three to four days I would say on average and obviously these are attorneys you're gonna use for the process correct for foreclosure or BK so protecting us either way they Reno the file if they you know they reviewed it you know what's going on they know what was missing or nothing was missing yes we're going back to him anyway so so for myself you know 70% of the time 7 out of the 10 notes I'm gonna loan mod that's just that's just been my track record it's crackered of many people that just focus specifically in the junior lien niche you know 10% of the time it's gonna be a BK filing where they're gonna try to you know work you out wipe you out and then another two times something wacky is gonna occur so take back the property you know something wacky will occur hopefully you'll get paid off that will be the lackey but um so so there's heavier emphasis on you know delving into the bars scenario and you'll kind of kind of understanding where it's at with them as best you can I mean you never know till you're you're running down that road so to speak but um so for you though you know for you your your your model you're looking at various exit strategies and what's going to be the least profitable least desirable what are those areas you're looking at for the exits so great question because this is something I think is very important if there's no equity we're worried about foreclosure rehab sell or sell as is because that's our most extensive longest timeline factoring so our artists could be the greatest reducing one on that factor if there's equity we're worried about some of the auction right because he can't sell for more than the legal balance so if the property were you know hunted ran legal bounds of 50 the most should get bit the auctions 50 we got more money come at your pocket so that's another scenario so those are the equity situations the other ones are reinstatement so Restatement being the fact that if the borrower pays up with a oh they're back to square one you're not modifying anything the term state what they were answering behind two years and the payments to earn out of the month and they reinstate and you're a two percent coupon and you didn't buy it well you're in the situation where now you're stuck in a four percent coupon rate 5% coupon rate so those are the big scenarios you need to watch out for ever else if you modify it if those snares are good more likely modifications that need no problem if you do anything else if you short salad your control that short sale opportunity so I don't care my best case scenario is because I'm more worried about the worst case what they're happening rehab all those kind of things are there bigger factors that matter so you're gonna calculate through automation what the what the past - interest arrears is yeah we don't know the fees but we can just take our next paid date to me to today's date and in fact RP and I times that about a month's the dated if formula and sell for those who are looking for a formula date if disturbance how many months how many months time to pee and I now I know what the P nine would be and of course if it's greater then I'm gonna get more money back so it's a better scenario but that's a least amount of money that they can put down to reinstate but we control that that right so they reinstate for four grand because grandma gave money we're back to the original coupon we make sure we buy it with that reinstate and concerned there you factored in yeah yeah so so now that the purchase is made and the collateral files are received do you receive them in physically um most of the time we do we may send to our servicer it's something that we feel it's not a big deal and it's been performing for a while I'll ship it over to either Madison or s and using its on but sometimes we'll bring it in-house because it could be a situation where we're not sure if he's gonna go for cooler immediately we want to ship it to attorney only have the control factor um but you know we have stored it into the bigger national collateral management companies but often times we do one of the other ones or whichever two attorneys listen you need the file we're going propose your house is vacant or report say it's vacant let's start that process or Dean Lu's gonna happen ship it off to them and let them deal with it here I keep physical collateral in house I used that one of them died user Ryan as well for storage and however obviously you're dealing with states like Florida or whatever you're gonna have to send the collateral file you know eventually to the illegal yeah yeah if it's doing that direction ship it all to immediately I mean why why bother shipping it to a Ryan when you're shipping into you know Aaron or some like that and saying here's a file start it up and there's no point yeah sure and and she'll do any of the corrective work we're talking about Aaron Quinn she'll do any of the corrective work that needs to get done and and do everything that a national custodian would do yes and you know the fact that they know what they're doing that's their expertise well yeah once we have that collateral phone please if not we're know some time taking it and then we're running our legal if we need to we're just trying it all the borrower we don't do door knocks anymore like we used to when I used to love them um we just had couple scenarios we're just a little little wacky you know that we just kind of we're away from it we just do you know bill McCaffrey style shut out the sin illegal and go with it because it didn't day think you can do enough all they want they could tell you what they want to hear you might have start that clock if you need to yeah you know I'm you know I'm a big an CCI fan and you know Monica carpenter she's been a good friend of mine and yeah I've seen a few good Lama I know it's very rare you're not going to hit on a lot most of the time they're just gonna flip the fluorescent pink notice on the door and how it'll make you feel good leaving the company as a note investor hood but you know there are some times when they do hit and maybe twist the arm sirs yes and that's what you're afraid of you know your freedom what they'll say they don't know what you're talking about talk to a tenant and they don't realize who are talking to so again I prevent that you know I used to do door knocks I don't I just start the legal process let them call service or let the core attorneys and then work with them will get the phone call with some of them sometimes we'll do that sometimes we do with our service or handle that but it depends on the situation if I need to play good-cop bad-cop I'm letting my service or handle it so though he can play that game if I feel something that we just need to work out I'll jump on the phone call to move with the person at the borrower and just work out the deal and to see where they're at and just feel mal well yeah that's our process and that there's so many different layers here they were talking about that you can do different things sending it's RI and let them do everything for you is easy simple what we just burnt when we get burnt we change our model just like our calculator it gets change over time mm-hmm in keeping up with different fees and somebody that is something also our right BK is just now increased their pricing to a thousand dollars with that so there's different things you need to get catch up on but due diligence can be done manually and slow and learn how to do it once you do get it down I always say get back to some kind of automation process you don't quickly skip over something or misplace a number or data point if you can and let's let's back up a moment because we talked about putting in the initial offer the indicative bid and you know where's my my philosophy or my approach is to put in as firm of a number as I can because it gives me a competitive advantage you're gonna put in you're gonna bid on an indicative bid with a list of contingencies right what are those contingencies all the secret sauce so we have we have a good list of things that again if it depends on what the seller gives to us right if they're giving us a client file a lot of these things aren't gonna be needed but we want the servicing notes we want proper preservation reports as well as the preservation pictures and information about it I want to see the custodial report I want to see the reinstatement amount when is currently reinstating out in the legal balance kind of numbers so that we can figure that into it because we may be able to adjust our price down if the legal balance is higher than we thought it was where the data is two months old for whatever we want to find out if they're the in color BKE numbers they're aware of social security numbers that we may not be able to find the bar because they the bar on here is different from the BK filing because they got divorced or something crazy happens we want to find out by the force-placed insurance which policy is it claims made or occurrence based one of the two policies I want to make sure they have a trial policy I wanna make sure they have a payment history where it is make sure it's not cutting off its cutoff like I dive in don't find out where it's at because that's always a problem for BK of course I want to see the seller BPO and I also we add it to it I want to see any kind of pending or a previous modification for bands agreements for what agreements forbearance agreements oh for ban okay or modification agreements anything that's pending we water loan back in June where there was actually I asked for days prior to buying it hey is anything I when I was long and the seller said no well forties later the servicer sent out the modification to the borrowers and they got it done they got the modification paperback fourteen either after we bought it and the so didn't realize what was going on but there was a pending one possibly out there that now we asked for that you need a sentence anything as possible even if it's questionable because we want to make sure we're following that up there yeah and a lot of times there's that disconnect between the seller and the servicer servicers doing full loss MIT and they you know they're running their own show and the sellers just trying to move paper yeah and we often as investors look at our one deal that we're looking at and looking at that one civic deal and then we wonder why they missed it well service or the may work with twenty thousand long means that that one deal is not that important to them and they don't realize it and they're fully going through things which is what happened here the servicer should have stopped it when they sent the transfer paper to our servicer but they received a modification fourteen days later and then we're back in situation where reps and warrants really doesn't cover that however the the seller was good good person we know well they were able to reimburse with some of the fees in the money that we would have gotten because of the scenario what happened who worked it out so it was good we we ran into one this year where the loan was modded I didn't get that information from the prior service or until the servicing transfer occurred and it was modded it was about 100k UPB modded at a hundred and fifty dollars a month at 0% interest it was like insane but the bar defaulted on the Mon they they they they defaulted it was crazy so I got I got back with a bar and yeah I was able to work out a new month it was mutually beneficial but yeah crazy stuff like that happens all the time yeah so I think yeah we wanted to know if the living pending because those scenarios are killer deal people don't know and we I thought the warning about this what $150 payment minus servicing cost or kill sometimes a deal 200 a month will kill a deal because all the costs are going to that deal boarding it service transferring it that the paper at the postage the 6-hour procede you say yeah all those kind of glued nickel and diming things you're getting a home 50 bucks a month your percentage of deals we reduced quickly so we typically don't buy anything under fifty thousand to prevent some of that well yeah when the coupon rates out low it just it gets dangerous you know new and I've talked on the phone recently about momentum in just the power of that with being with having some success in this industry you really need positive momentum and things like you're saying 150 bucks - $30 servicing fee here at 120 bucks a month and you're you know and you haven't been diligent in outreach and sourcing so you're really stagnant and then that it starts to just go in your ear like hey there's nothing really here who needs 120 dollars that's not gonna get me to that $10,000 a month and then you start to lose momentum yeah the energy disappears because the the feeling of this excitement is over you know you're chasing the next deal we get desperate which is dangerous but yeah this smokey service at nickel-and-dime problematic situation you know we like the three 400-plus deals pulled by the small ones you should have to bite it right you know if you're buying a heart turn our payment we bought it for 5 grand it works out right so those that kind of stereo is that we look at you know we want a bid everything goes back to what our returning desire is so I don't mind $100 or 2000 our FEMA on something that I bought for grant it that makes sense to me the old ears like that what do I want back my pocket yeah yeah I know that that's that's good it's a you know begin with the end in mind as it's often said and that's really important from a pricing perspective where do you see how do you see a lot of people in the industry price at the end of the day how do they determine their pricing you know I think I know what you're gonna say beside the BPO I just wanna bring an email before we get started some guys you know he's trying to do 12% or ally and I asked him how he did things and he said well depends which one is lower BP video UPB and and I said what happens when the coupon the to or coupon to 12 that yes most people do stair step which is trained um because it's easy right there's no other calculations in there it goes back to making easy because the calculator looks confusing they don't understand it all but the easiest thing is saying I'm gonna buy it 60% of whichever number is lower um there's timeframe that goes into that not just coupon how long the deals gonna take how long the foreclosure if you're in Texas first if you're in Ohio New Jersey New York those constants besides the percentage come into play copy I look at the time value of money when you're looking out you know how long is it gonna take for you to acquire and begin to you know get to work on the files three months and then you know how long that state is for turnaround you have to look at all that and I think it's hard for lot people they don't know what goes into that they don't know the turnaround times I don't know timeframes they don't know cause we always talk about the fact that cost of doing foreclosure and you can find out what the illegals far apart is but no one remembers to do the court fees in foreclosure the Fannie Mae chart is just a legal side of it with this the publication the court fees the sheriff takes a fee on it so those are kind of things that it's a lot to learn which makes it difficult which if I'm beginning I'm gonna go based on you could be anyway because that sounds all too too much they're learning that process and working it billing your own thing but I I always tell people if you want to do some kind of JV bring your value to the table and offer what you're good at and work together with someone who does know the strategy and say hey I have a lot of time if you don't have time I'll work the time part for you and do that because there's so much learn here you learn by doing this say this is that this is easily one of my doing space it's where we go it's so is yeah and Sri Sri mentions the bases is bid on the yield he's gonna get on on the potential exit and that's pretty much what I do I look at you know what's the ongoing yield yeah so yeah absolutely so I think people if they do do that you know with you know always if you're if you want to say a 20% return on a foreclosure rehab sell stration start with that don't go based on percentages on stuff and start playing with numbers just there's a form of back into it and figure that out um too many people I feel struggle with that and I get why I get it's hard but figure that portal or work with people to figure that out together the space is huge with connecting each other work with people were really good spreadsheets or good math or whatever and work together to fill that blank in whatever that blank is yeah I think I think you know years past it was more of a one-person operation that's how everyone would be running and you can't do that today I don't think you can exist well unless you're unless you're like The Terminator where you're mostly robot and everything's automated you need to have partners in place and you have to have strengths yeah I think that's what a lot of people struggle with when they first get in right this is partnering with people with the biggest space in this face the biggest thing I feel you know you have your group we have our group and I think that networking with you know others maybe in your local area and just working together and figure things out and go oh man you think about that and masterminding even without people who are professionals yet and just brainstorm and just talking and talking things out you'll find you don't know what you don't know he won't talk to me I think that's a big thing about our area versus a lot of real estate it's a sauce we're community based there's a lot of real estate yeah yeah I would agree and I think you'd also agree that having you know surrounding your stuff with the right people that you're growing up with if you're growing with and building your systems is more important than how many notes you're taking on because yeah if you just take notes on that systems you're gonna get crushed it's you're playing the lottery I think people get jealous of other people saying oh I've walked 15 loans my concern is do they buy them right they could have bought terrible pool 15 and they didn't know they're doing and they they don't be out of space in a year from now so be careful with being jealous that kind of things you know there's a lot of things to be missed when making offers that we all do I think that movies just get into it excited by it and miss a lot of things so I think due diligence is a big key and learning to do tillage this is crucial I think that you know what I love the story we actually reach out to a person in our resource directory you know one of our note investors you know automation I get an email back of a YouTube video of him driving by the property and seeing a guy mow his lawn I mean reaching out to people that may live near that property that are our own space that kind of stuff is so valuable because you got to explain to them what a note space is and they may be an agent themselves or they know an agent just they know the local market better than a BPO better than any agent they know that a local market and they can help you come up with a bid number and work with you so I think that's strong awesome stuff well Dave do me a favor just go ahead and put a to your automation saw a software your automation based system on the comments section in the video well in the group and I'm not affiliated I'm not getting paid away but I will tell you if you like it a lot you think it's awesome I'll take some credit to that yeah what you're about to come out with it we're in the process waiting for Google to fig to submit it and so it's about to come out soon it's not yet but we have some other automation tools they're going to help investors were creating a website to kind of automate getting our no agents automate this I don't like that you're just kind of the data crunching the data details that are manual intensive time intensive I think that will help a lot of investors we're building that out just to kind of correct some stuff and I think I'm gonna work with Martin on some ideas that I I came up with just after our conversation the other day that will help him out with someone meeting his tools I just I'm an automation brain that I would love to do so I just and then yeah no problem thanks for having the thanks for being on and and thanks for offering to help I'll always take you up on this or the pleasure yeah I'll take care everyone things are doing it Thanks looking I'm looking heavily at the bar at that point too so you know I want to know bits of information you know such as you know where's the bar or at in their life age-wise what's their you know if I can get information on their their ability to pay it depends on what kind of bid you're making right if you're making a final bid vs.

make a straight-up indicative offer it depends on what kind of big you're doing if you're doing the final bid yes you're running all the data you're doing your scrapes we really don't care as much about the person that's the property because the other day we're control of that property if we need today what's interesting about that is that is that you know a lot of times you're doing exactly what you need to do to put in a solid indicative bid number and then from there you can kind of you know back down as you need to when I'm putting in for junior lien I'm actually trying to put in as firm of a bid as I can up front so I know that's more you know that that's more labor-intensive upfront but so it limits me band width wise whereas you you have more because you're doing quick analysis you're able to probably you know get on more deals I'm doing a lot of time our first space it's you know you have to grab it quickly you know you have to days sometimes to get an offer in so sometimes when going through to learn assets and you want to buy 50 of them you need to quickly get the data into it and get that offer in making indicative of value making it get a cloud or review so we're not always reviewing collateral if it's if it's indicative possibility where you do a final bit usually of 30 days to your full due diligence and that's when you're doing all your dives prior to making that offer and and you take it from a what what percentage of your process is automated I would say about 70% of it okay in 70 so so when you're putting in the indicative bid a majority of that effort is is is done via an automated process so it starts with getting a tape in we make our values which is manual intensive our next step is literally take that asset all the assets were bidding on throw it to our calculator our calculator figures out every scenario what I determine returning requirement is our target is for every exit strategy and says I need it sir percentage it starts there doesn't base on you PP or BPO it's what's our target return and back into it and then it takes the minimum of whatever all the different exercise you are and say what's the worst case possible and then the addictive offer goes off of that number and says if reinstatement possibility is the worst case that indicative offers based on that if foreclosure rehab it goes off that number and then once we get that in there we then made that offer where he pulled the annual property taxes where he pulled if the property's been listed recently we've also pulled for hozier in numbers and B D K numbers so that when we get a response from the seller we can then go to the next process and start automating reaching out to agents that we already work with reaching out to investors we already work with through automation again it's all that processes it goes grabs anyone who's in the local area of that property and shoots out the emails that person with that property data so we can data dump into our system and we can get more data once we get the indicative offer accepted in what some you know interesting about that whole that you know your whole process is that you're taking the least desirable scenario and basing your indicative bid off of that correct so so that that minimizes your risk and so you know you know that that kind of begs the question of the importance of interest rate so what the interest rate is for what the bar should be paying is very significant huge a lot of people take percentage of BPO and UPB it's like well you forgot that if it's a 2% coupon or if it's a 10% coupon that the percentage does not do it that that coupon rates huge because like we discussed I can't make it a 25% coupon rate just can't do it so yes that coupon rate is massively huge in the modification or reinstatement on yield to maturity and so and so you're you're in oftentimes when you're bidding you're you're doing your cherry picking is that yes most of Tommy our tour times will rebuttal hopeful if that opportunity is available and we've like all the assets that we feel we can mitigate or stration well good the whole thing and have no problem putting a dollar bid on something just to put an offer in at times in in in much of the cases on on the junior lien side it's an all-or-nothing right so so they're usually blended and you know sellers they know what they're doing so they're gonna throw in the junk along with the good ones and so you know a lot of its based on equity coverage of that note and you're putting together you're putting the other pricing matrix's to to go and you know set up pricing for each type of you know this circumstance for that particular note and and you and i've had conversations regarding pricing in that in that you really need to have a pricing strategy that's based on what your expected returns are what you you know you know that could that can include when if you're planning on modifying the note and reselling that note yes and you know what will be the price tag on that and then you back into what your offer should be what you need to like they'll do not not a lot of people do that they they do the reverse and play with numbers until they get the return they want where we discuss the other day is it start with at the end in mine because you don't want a three percent return yeah especially if the notes at you know the coupons at two percent so and then you want to sell it with a yield you know you want to modify for one you should be modifying it around what the interest rate is on the note i mean you you can't take someone who should be paying two percent and stick them with a twelve percent no no you shouldn't do that and and you know that'll catch up to you if you do so if you go and modify them at three percent you know maybe take it up and then you try to sell that with a twelve percent yield down the road you're gonna get crushed absolutely and that's why industry it just makes a lot of sense to have the full model in there and this idea percentage just doesn't mathematically work out you get burnt eventually which we all have that's how we learned yeah you have to factor it in there if they reinstate your you can be a the creek without a paddle at four percent and now you can't sell it at all so do you use some you know do you use the same system whether you're buying a few notes or you're buying a hundred notes yes yes so what we do is we we take our questionable things and if it's situation we're buying a pool we can adjust our returns requirements so if it's a multi deal situation we can tweak it a little bit turn it down a little bit so we don't have to have a cherry-pick you know point and anything that's low we can put a dollar bid on and we make it offer and then come up with a football thing but most of the time they want to if they do it all or nothing we also want loan level bidding which whatever reason they wanted it's fine we'll put a loan level bid on every one of them anyway yeah it gives the seller an advantage right if they're gonna go and match match up various bids against each other and see who's overpaying for what note so so um what's interesting is you have an automated system it allows you to work you know to go through these bids yourself and to come up with a number that you're comfortable with and you know to put investor dollars against for for myself on my model is very manual at this point in that's not to say I mean I can take down two notes a to No Deal I can take down a $10,000,000 No Deal but my process very manual in that in that I mentor group of people that double as a buyer's group and we go through the manual process of each of the sections that are significant to us so fair market value you'll really be tracked lien validity lien validity research on county records data tree pools you know credit reporting and skip-tracing so you know these are things that are significant to us and we want to go through line by line because I think as a new node investor it's better to learn the process from a manual perspective or at least know how it's done manually yeah unfortunately a lot of people either don't know or don't want to learn they just want to buy or been told just to buy and it gets confusing we thought about spreadsheets can get overwhelming for a lot of people and unfortunately it's a spreadsheet driven business our system you know the why works for me is that I don't need to know how it's built I built it and the system can process 50 loans I'm not entering anything just process and through and shoots that individual you know big calculators for each one of them but it runs through 50 a hundred of them where you're dealing in more as a teaching tool and learning the process I just find a lot of people aren't taking time to learn that or it's not available one of the two it's it's complicated there's so many different scenarios that we can go on about different opportunities that gone bad or went weird that you couldn't plan never to plan stuff yeah absolutely and that's that's um you know obviously I'm not you know I'm giving you my perspective in terms of why I'm so manual with my process you know things human error does happen and things do fall fall through the crack I'm sure on the automated side you're always adjusting for that too you know things that weren't caught from the automated perspective you know it pulls from zillow that is a 3-bedroom 2bath in two thousand square foot but yet the picture shows it you know is pulled those vacant property so you know things whatever they whatever the case would be yeah so you know we're both adjusting our systems on both sides of the fence yeah I mean where are we the adjusting arms we had our attorneys or local investors to our systems that have to the property that we do really like are really questionable we can call up their investors or a local type property to give them a physical manual phone call like for me determine value and run things manually if I'm bidding 50 of them that would take a long period of time which sometimes we mainly have a day or two to pizza these want dick ative valuations and income delinquent taxes is something we can make indicative all those kind of things we can automatically capture but we don't need to for offers in the beginning our final offer adjustment offers yes we'll go ahead and go dive in play getting data is very manual intensive and I find a lot of people run to the problem where human error happens they forget a zero they forget this if you run that error over and over again it can't be a prom at extrusion so time energy and all that kind of stuff I find automation just fixes a lot of those errors it's tough you know yeah it's you know to that and I could see how the probably the the quantity of bids is more I'm on your side for for the purchases that that I'm going after you know it's all or nothing and in one of my competitive advantages is I try to put as firm of a possible so les contingencies upfront and I find that gives me an advantage at times versus someone just throwing in a bid and saying hey these are the thirty contingencies I need to still look at well you know the sellers probably thinking well what the heck did you do and you know other than throw in a number and you know versus Martin and his group you know they said hey they've done their homework already and they're in there you know practically one foot in the door yeah sometimes we'll get two days so sometimes an Oni doesn't take warrant unity to get that Oni back sometimes when we run a BPO if we run one which is rare it takes couple days to get back and we may only have two or three needs to get her offering we can pull delinquent taxes quicker but at the same time it's something we don't need to always do but things like property preservation pictures in electronic collateral some sellers provided some dome so we can review that to make a hard choice on it without that data we find proper preservation notes and servicing notes it was a huge information of what's going on the deal and that's part of and it'll offer to review those kind of data points because without it you don't know much about what's going on so so when you first get an opportunity in the door yeah obviously the sellers sometimes says well I'll provide this in a vault and you can you know log in to pull down some due diligence data do you make a special request from the seller to say hey look do you have credit reports do you have oneís you have PP o--'s things that I can use and evaluate in the notes yeah absolutely um worse they say is no right I want to see I want to see property presentation pictures if they doesn't work in the house or if they skipped over work oh yeah we saw ten grand a roof problem up we're gonna pass on that look that tells me somebody about the property we also do if we missing notes to see what the borrower is doing but yeah we always for what they say we also asked for collateral review they've done cloud review when they bought it bigger funds will actually send their their actual cloud review custodian report to us and say stuff was clean it kind of gives us a guideline we're at that but Haley is missing yeah absolutely we also asked for force-placed policy and most people don't know there's two different policies out there and one you buy anything happen before you bought it goes away you can't file a claim on something so we found the hard way make sure you follow up which force-placed insurance policies they have and we've always asked and that's an addendum to our contract to make sure that if it's something we can't follow clean because x y and z we're seeing think either buy it back or whatever because we don't want to get stuck in frustration that the force-placed insurance is held up because of them or something else and then ends up in our lap yeah yeah now that that's a good point so you know when you put in your offer you want to put in the contingencies you want to ask for as much as you can and the worst they can tell you is no whether you're doing that on the on the up front when you first get an invite to bid or you do it once you place your indicative bid in it's always good to ask I had a young 200 note opportunity come my way over the summer and and know how to report for Friday but I am and then they sent me a Dropbox link for them so I'm like you know how much that would you know $200 times you know yeah whatever you're paying 10 bucks a month to pull credit I mean that's a few thousand bucks yeah so so it can you know all that stuff they just either did not connect in the sales person usually isn't connect with the collateral for you person the servicing in the servicing notes they just don't if they don't have to why would a well yeah yeah it's always somewhere you just have to be shared with us you know Oh any reports with pull room eventually if we're gonna make that offer final bid but yeah they have it I'm gonna look at what they have BPOs look what they have and a lot of times you get all the agent right you need to stop the agent Hey the property um we just I think the biggest problem most people is that they dive into saying we're talking a lot of data a lot of different things and some of you don't know what Oh a need report is some you look no one accepts report is and that's the problem we run into is that the struggles are there's so much information that we're talking at maybe a higher level that a lot of people understand that they get lost and they just say screw it I'm gonna put an offer in see what happens and then we get back to where at we're not doing anything yeah yeah and I think that's where you hear sometimes frustration in the space where where you hear about people oh there oh you know those people they don't know what they're doing and they're over bidding well it's not it can be a matter of exactly what you said it's it's that they don't know the whole process or they don't have a process and they're just putting out a number just to see if it'll fly yeah yeah absolutely and so you get to the point where you do collateral review you know I use over I&I use richmond monroe for larger opportunities I review my own collateral file for smaller opportunities you know how do you differ with your collateral review process I wish I could automate it but I can't most of the time what we do is we'll reach out to we have a collateral company that we have worked with in the past but they've missed things cancelled Alon just on an original note they just didn't work out so what we've done in the last two years is coolest directly to our attorneys and an offer we're gonna make that we're not checking ourselves we're asking our attorneys hey listen can you please review this collateral there's ton of attorneys out there that know prom doing this and for the charge $150 to me it's well worth it I didn't want to think I know everything let them see it and if we go to foreclosure and there's something missing we know that they're the ones who looked at the file but yeah we sent it right to the to the attorney electronic version they don't need the hard copy and just let them look at it and they'll say he's missing this and missing that and usually they have the contacts at the bigger funds if we need to to get the additional documents that we need to or we can make some phone calls or our connections and and so you know from there you're you're generating the exception report you're letting them know hey this is this is missing this need to be cured or refunded or what have you and that's a good that's a good policy to have in place prior to the purchase because right reps and warrants and all of that will be in place but how how much can you put your your trust into that correct you know issues where that wrestlin warrants is in place and they fought us it's like doesn't make him difference we've been in situations where the the server server who was triumph and alone over modified alone in the process of buying it and the terms changed the borrower signed off on it so yeah reps and warrants can go just as far as they need to go but yeah you should be doing everything you can and that's hard because you don't know everything at the beginning and those advance people we run the situations that just don't make sense and no one else has run into them sometimes so yes it's just working with the professionals in the space to help you along the process to make sure if you're missing something they're there to catch you so yeah you know I think it needs to be stated that there's different you know there's there's more than one right way to do something with a lot of what we're talking about and you know whether you go to full automated or you have you know a lot of labor behind the due diligence I think though that either way you should try you know I'm always trying to automate my system you know api's with pacer searches api's with with Zillow and in those folks in in trying to collect data especially on a larger one and then you you have also the human element where you have to you know you're sending collateral to an attorney to review you can't automate that process or you're using Orion or Richmond Munroe like myself on on the larger opportunities I think the point is to have professionals in place like you mentioned I cannot you cannot get around that you know what I hear people say I service my own I took my own collateral a lot of times newbies say well why can't I do that all I needs to see is a chain well you don't know it if we sign correctly it work there's something on it it just doesn't make sense you don't know and that's the hard part is that until you know it why play the game so yes we rely on our professionals to do those kind of tasks for us sort of big problems yeah I mean in whoever's used you know attorneys or they've use Richmond Monroe I mean you see the corrective assignments that they're doing I mean they're correcting past errors and and these are things most likely that you know a lot of folks may not picked up on yeah and you don't know what a correct assignment may or may not be look like you know do you know which states can take a affidavit you know lost movement affidavit which states don't so I think that's also runs into problems at different states sometimes states can take electronic things sometimes they can't again it's state by state Pacific's that you may or may not be paying attention to or remember let the professionals do it but yeah that's part of our process it's manual but I would say majority of our process is automatic you know from values to emailing bulk emailing it to emailing our attorney if we did get the asset it automatically emails the attorney notifying them throws over you file sent to them reaching out to our code you know investors where the property the backyard you get data all that process is completely automated in our end of it especially the calculator so we you can automate a lot of it however I think that there are manual steps that has to be taken to make things work in on that note what would you say if if your ideal scenario is to get the bar performing and get them reinstated or loan mod it what part of the automated process gives you an indication that the bar has an ability to pay so to us no it's kind of weird with being the first base it's it pre-purchase there isn't any kind term any factors we don't get into the borrower data right we're seconds you get dived into the borrower we're in still control power that he listens either do they do or dolt we don't really care once we buy them all or we're going to the for the due diligence that's when we're skip-tracing the borrower we're we're checking their Facebook feeds we're checking the you know their LinkedIn feeds we're google searching the property has you know has been you know fire in the Anthony area see if the borrower died seemingly to find out about the borrower to help us determine that scenario when we're going through a full of due diligence if we find that they have a job or something happen and their possibilities there then we can tweak our dollars now at that point in our initial it's straight-up quick offer does that make sense yeah I remember due diligence on a note years back and I skip trace and they were they were just got out of prison for bank fraud that was funny oh my god I don't know I don't know that one you know that meant it's gonna slice it you know and we can't determine you know so instan you know we've got tons where the borrower performed because one died and they moved or they didn't pay because the bill that sent to the wrong house for two months and they got behind because x y&z their kid went to college they started paying the college don't have the mortgage and sometimes you don't understand why the borrower get it so we can't always presume it but it's hard to tell right and some people care about occupancy or not for me it doesn't matter there's a pro and con of both because they're not living there they can be limit if they are living there I made it straight they don't give a crap you know there's so many scenarios that could happen that predicting a modification is difficult yeah it just says we can't oh yeah I mean people you know like people tend to you know the general rule of thumb in real estate right how the outside of the property is reflective of how the inside looks you know how if the bar keeps Annie home they want to they care about where they they want to pay their bills but no you learned that people live in like mold infested homes and the only thing they care about is paying their mortgage not you know their health so just people you know take a live different lives yeah we've gotten tongue where you see them Facebook their kids walk around have cell phone videotaping the house cuz they're rapping on video and you get sitting inside of it right and you're like what it kind of alice is this the outside looks great but yeah there's nothing to predict what's inside the hole and that's our biggest fact that we don't know so that's why we don't go that exit strategy we say what's our worst case because if we better best case and we're wrong that's when you lose your shirt you know you have to wear the worst piece if you're buying small we Bible you can adjust it down but you need to run all your numbers somehow someway in the calculator that you know you can use you know we're building one for public use to help that kind of scenario and just shutting out things out so but I think that just have something and don't go based on flatlined stuff mentor work with you Martin work with other people to learn what don't want to ask questions at least the last questions I still do so so if thank you Dave and you know what I kind of picked up something I picked up on what she said is that you will go to various attorneys to review collateral clause so I assume you have several attorneys in each state or if you have ten states where you're buying notes in all ten states and one in one pool you're gonna send it to those various attorneys in those states to review it you know it seems like a lot of extra step or a lot of extra work versus using like a national company like Orion as much as those guys also have their shortcomings to but you're you're good you feel like it's justified right that actually we've gone to situations where we gotten about a bath duration where that collateral management company missed a cancel on John note now we're chasing back the city to find you know because additional laundered on there the first initial the note was the laundress canceled on it and they missed it so now we're diving back into it in those kind of scenarios where it's like listen we have our attorney and you know Georgia we're in a center all time if we have her you know Indiana we have 14 safe and we emails that attorney because we don't want to be down the pike going to be K and having to prove this stuff when he missing data it's just it's two meats it's not worth the risk yeah teachers send a one person which I don't his Automation it's quick and easy but to me it just doesn't work because the danger of what could happen what do all the steps you take from a lien validity standpoint so what we do is first we take is we we pour ona right we're seeing what's on there what's going on we then contacted County and make sure nothing on there that we're missing we find out if there's anything that's on there or question on there and we're also using our internal process to read through it evaluate it and determine we lost look at the county website ourselves and see if anything on there we didn't have our collateral file the OE goes with our Clara file to our attorney so it's all together reviewed to ensure what's there what's in first once in a second where am I at what's still protected we've talked before we had a situation where our first was actually second behind an HOA a foreclosure in Ohio because the person for us never fought claim on it so that lien situation when I didn't realize it back in chugging 13 was actually a second position and out of foreclosure process so those are the kind of things that an attorney will pick up and say hey listen this is on here we asked her attorneys to look at the Oney the foreclosure data the BK data everything to put together and say okay give us a phone court not just to collateral but give us a foreclosure give us a BK report and give it and reviewing the ona and then you're gonna pay what what rep price range 1 1 2 1 150 okay so so you're just factoring that in right that's the cost of doing business yep you know copula by BPOs and I don't I I don't like buying it so while you're spinning you know other bucks whatever you're buying a BPO for I'm over here spending $100 for attorney to review my collateral right yeah yeah so so yeah BPO is a good to order when you're selling those yes yes and or two of them get the higher one yeah I mean I to me they're kind of a joke and we laugh at them cuz you look at them and see why you a mile away from a property in Chicago like well this makes no sense yeah BPO has agreed for that reason we make jokes we have a BPO guy local and he tells me does 60 a month and I don't know how he does it he goes no oh I got a BPO on a property in Ohio like a week or two ago and it came back at 250 K and this property I know for a fact like 60 K I was just seeing if I could get it up to like 70 and they came back to 250 thank you most people it's a it's a manufacturing line they get sent a bunch of them they drive around take color pictures and all the time running a VM model and it shoot out there and the guy told me I says what happens when they're wrong he says most people don't call back up to argue it so and those who do he goes back out and really does want so it's it's it's a just manufacturing part that I just don't do it as good as we think they're doing it and what we're paying for you can argue home who does not many people arguing yeah what's the turnaround time for forgetting back feedback from an attorney who's reviewing collateral on average we've got them back within day we've gotten them back within three days usually they'll respond to us letting us know what the timeline is if they're going on trial for something but most of time within three to four days I would say on average and obviously these are attorneys you're gonna use for the process correct for foreclosure or BK so protecting us either way they Reno the file if they you know they reviewed it you know what's going on they know what was missing or nothing was missing yes we're going back to him anyway so so for myself you know 70% of the time 7 out of the 10 notes I'm gonna loan mod that's just that's just been my track record it's crackered of many people that just focus specifically in the junior lien niche you know 10% of the time it's gonna be a BK filing where they're gonna try to you know work you out wipe you out and then another two times something wacky is gonna occur so take back the property you know something wacky will occur hopefully you'll get paid off that will be the lackey but um so so there's heavier emphasis on you know delving into the bars scenario and you'll kind of kind of understanding where it's at with them as best you can I mean you never know till you're you're running down that road so to speak but um so for you though you know for you your your your model you're looking at various exit strategies and what's going to be the least profitable least desirable what are those areas you're looking at for the exits so great question because this is something I think is very important if there's no equity we're worried about foreclosure rehab sell or sell as is because that's our most extensive longest timeline factoring so our artists could be the greatest reducing one on that factor if there's equity we're worried about some of the auction right because he can't sell for more than the legal balance so if the property were you know hunted ran legal bounds of 50 the most should get bit the auctions 50 we got more money come at your pocket so that's another scenario so those are the equity situations the other ones are reinstatement so Restatement being the fact that if the borrower pays up with a oh they're back to square one you're not modifying anything the term state what they were answering behind two years and the payments to earn out of the month and they reinstate and you're a two percent coupon and you didn't buy it well you're in the situation where now you're stuck in a four percent coupon rate 5% coupon rate so those are the big scenarios you need to watch out for ever else if you modify it if those snares are good more likely modifications that need no problem if you do anything else if you short salad your control that short sale opportunity so I don't care my best case scenario is because I'm more worried about the worst case what they're happening rehab all those kind of things are there bigger factors that matter so you're gonna calculate through automation what the what the past - interest arrears is yeah we don't know the fees but we can just take our next paid date to me to today's date and in fact RP and I times that about a month's the dated if formula and sell for those who are looking for a formula date if disturbance how many months how many months time to pee and I now I know what the P nine would be and of course if it's greater then I'm gonna get more money back so it's a better scenario but that's a least amount of money that they can put down to reinstate but we control that that right so they reinstate for four grand because grandma gave money we're back to the original coupon we make sure we buy it with that reinstate and concerned there you factored in yeah yeah so so now that the purchase is made and the collateral files are received do you receive them in physically um most of the time we do we may send to our servicer it's something that we feel it's not a big deal and it's been performing for a while I'll ship it over to either Madison or s and using its on but sometimes we'll bring it in-house because it could be a situation where we're not sure if he's gonna go for cooler immediately we want to ship it to attorney only have the control factor um but you know we have stored it into the bigger national collateral management companies but often times we do one of the other ones or whichever two attorneys listen you need the file we're going propose your house is vacant or report say it's vacant let's start that process or Dean Lu's gonna happen ship it off to them and let them deal with it here I keep physical collateral in house I used that one of them died user Ryan as well for storage and however obviously you're dealing with states like Florida or whatever you're gonna have to send the collateral file you know eventually to the illegal yeah yeah if it's doing that direction ship it all to immediately I mean why why bother shipping it to a Ryan when you're shipping into you know Aaron or some like that and saying here's a file start it up and there's no point yeah sure and and she'll do any of the corrective work we're talking about Aaron Quinn she'll do any of the corrective work that needs to get done and and do everything that a national custodian would do yes and you know the fact that they know what they're doing that's their expertise well yeah once we have that collateral phone please if not we're know some time taking it and then we're running our legal if we need to we're just trying it all the borrower we don't do door knocks anymore like we used to when I used to love them um we just had couple scenarios we're just a little little wacky you know that we just kind of we're away from it we just do you know bill McCaffrey style shut out the sin illegal and go with it because it didn't day think you can do enough all they want they could tell you what they want to hear you might have start that clock if you need to yeah you know I'm you know I'm a big an CCI fan and you know Monica carpenter she's been a good friend of mine and yeah I've seen a few good Lama I know it's very rare you're not going to hit on a lot most of the time they're just gonna flip the fluorescent pink notice on the door and how it'll make you feel good leaving the company as a note investor hood but you know there are some times when they do hit and maybe twist the arm sirs yes and that's what you're afraid of you know your freedom what they'll say they don't know what you're talking about talk to a tenant and they don't realize who are talking to so again I prevent that you know I used to do door knocks I don't I just start the legal process let them call service or let the core attorneys and then work with them will get the phone call with some of them sometimes we'll do that sometimes we do with our service or handle that but it depends on the situation if I need to play good-cop bad-cop I'm letting my service or handle it so though he can play that game if I feel something that we just need to work out I'll jump on the phone call to move with the person at the borrower and just work out the deal and to see where they're at and just feel mal well yeah that's our process and that there's so many different layers here they were talking about that you can do different things sending it's RI and let them do everything for you is easy simple what we just burnt when we get burnt we change our model just like our calculator it gets change over time mm-hmm in keeping up with different fees and somebody that is something also our right BK is just now increased their pricing to a thousand dollars with that so there's different things you need to get catch up on but due diligence can be done manually and slow and learn how to do it once you do get it down I always say get back to some kind of automation process you don't quickly skip over something or misplace a number or data point if you can and let's let's back up a moment because we talked about putting in the initial offer the indicative bid and you know where's my my philosophy or my approach is to put in as firm of a number as I can because it gives me a competitive advantage you're gonna put in you're gonna bid on an indicative bid with a list of contingencies right what are those contingencies all the secret sauce so we have we have a good list of things that again if it depends on what the seller gives to us right if they're giving us a client file a lot of these things aren't gonna be needed but we want the servicing notes we want proper preservation reports as well as the preservation pictures and information about it I want to see the custodial report I want to see the reinstatement amount when is currently reinstating out in the legal balance kind of numbers so that we can figure that into it because we may be able to adjust our price down if the legal balance is higher than we thought it was where the data is two months old for whatever we want to find out if they're the in color BKE numbers they're aware of social security numbers that we may not be able to find the bar because they the bar on here is different from the BK filing because they got divorced or something crazy happens we want to find out by the force-placed insurance which policy is it claims made or occurrence based one of the two policies I want to make sure they have a trial policy I wanna make sure they have a payment history where it is make sure it's not cutting off its cutoff like I dive in don't find out where it's at because that's always a problem for BK of course I want to see the seller BPO and I also we add it to it I want to see any kind of pending or a previous modification for bands agreements for what agreements forbearance agreements oh for ban okay or modification agreements anything that's pending we water loan back in June where there was actually I asked for days prior to buying it hey is anything I when I was long and the seller said no well forties later the servicer sent out the modification to the borrowers and they got it done they got the modification paperback fourteen either after we bought it and the so didn't realize what was going on but there was a pending one possibly out there that now we asked for that you need a sentence anything as possible even if it's questionable because we want to make sure we're following that up there yeah and a lot of times there's that disconnect between the seller and the servicer servicers doing full loss MIT and they you know they're running their own show and the sellers just trying to move paper yeah and we often as investors look at our one deal that we're looking at and looking at that one civic deal and then we wonder why they missed it well service or the may work with twenty thousand long means that that one deal is not that important to them and they don't realize it and they're fully going through things which is what happened here the servicer should have stopped it when they sent the transfer paper to our servicer but they received a modification fourteen days later and then we're back in situation where reps and warrants really doesn't cover that however the the seller was good good person we know well they were able to reimburse with some of the fees in the money that we would have gotten because of the scenario what happened who worked it out so it was good we we ran into one this year where the loan was modded I didn't get that information from the prior service or until the servicing transfer occurred and it was modded it was about 100k UPB modded at a hundred and fifty dollars a month at 0% interest it was like insane but the bar defaulted on the Mon they they they they defaulted it was crazy so I got I got back with a bar and yeah I was able to work out a new month it was mutually beneficial but yeah crazy stuff like that happens all the time yeah so I think yeah we wanted to know if the living pending because those scenarios are killer deal people don't know and we I thought the warning about this what $150 payment minus servicing cost or kill sometimes a deal 200 a month will kill a deal because all the costs are going to that deal boarding it service transferring it that the paper at the postage the 6-hour procede you say yeah all those kind of glued nickel and diming things you're getting a home 50 bucks a month your percentage of deals we reduced quickly so we typically don't buy anything under fifty thousand to prevent some of that well yeah when the coupon rates out low it just it gets dangerous you know new and I've talked on the phone recently about momentum in just the power of that with being with having some success in this industry you really need positive momentum and things like you're saying 150 bucks - $30 servicing fee here at 120 bucks a month and you're you know and you haven't been diligent in outreach and sourcing so you're really stagnant and then that it starts to just go in your ear like hey there's nothing really here who needs 120 dollars that's not gonna get me to that $10,000 a month and then you start to lose momentum yeah the energy disappears because the the feeling of this excitement is over you know you're chasing the next deal we get desperate which is dangerous but yeah this smokey service at nickel-and-dime problematic situation you know we like the three 400-plus deals pulled by the small ones you should have to bite it right you know if you're buying a heart turn our payment we bought it for 5 grand it works out right so those that kind of stereo is that we look at you know we want a bid everything goes back to what our returning desire is so I don't mind $100 or 2000 our FEMA on something that I bought for grant it that makes sense to me the old ears like that what do I want back my pocket yeah yeah I know that that's that's good it's a you know begin with the end in mind as it's often said and that's really important from a pricing perspective where do you see how do you see a lot of people in the industry price at the end of the day how do they determine their pricing you know I think I know what you're gonna say beside the BPO I just wanna bring an email before we get started some guys you know he's trying to do 12% or ally and I asked him how he did things and he said well depends which one is lower BP video UPB and and I said what happens when the coupon the to or coupon to 12 that yes most people do stair step which is trained um because it's easy right there's no other calculations in there it goes back to making easy because the calculator looks confusing they don't understand it all but the easiest thing is saying I'm gonna buy it 60% of whichever number is lower um there's timeframe that goes into that not just coupon how long the deals gonna take how long the foreclosure if you're in Texas first if you're in Ohio New Jersey New York those constants besides the percentage come into play copy I look at the time value of money when you're looking out you know how long is it gonna take for you to acquire and begin to you know get to work on the files three months and then you know how long that state is for turnaround you have to look at all that and I think it's hard for lot people they don't know what goes into that they don't know the turnaround times I don't know timeframes they don't know cause we always talk about the fact that cost of doing foreclosure and you can find out what the illegals far apart is but no one remembers to do the court fees in foreclosure the Fannie Mae chart is just a legal side of it with this the publication the court fees the sheriff takes a fee on it so those are kind of things that it's a lot to learn which makes it difficult which if I'm beginning I'm gonna go based on you could be anyway because that sounds all too too much they're learning that process and working it billing your own thing but I I always tell people if you want to do some kind of JV bring your value to the table and offer what you're good at and work together with someone who does know the strategy and say hey I have a lot of time if you don't have time I'll work the time part for you and do that because there's so much learn here you learn by doing this say this is that this is easily one of my doing space it's where we go it's so is yeah and Sri Sri mentions the bases is bid on the yield he's gonna get on on the potential exit and that's pretty much what I do I look at you know what's the ongoing yield yeah so yeah absolutely so I think people if they do do that you know with you know always if you're if you want to say a 20% return on a foreclosure rehab sell stration start with that don't go based on percentages on stuff and start playing with numbers just there's a form of back into it and figure that out um too many people I feel struggle with that and I get why I get it's hard but figure that portal or work with people to figure that out together the space is huge with connecting each other work with people were really good spreadsheets or good math or whatever and work together to fill that blank in whatever that blank is yeah I think I think you know years past it was more of a one-person operation that's how everyone would be running and you can't do that today I don't think you can exist well unless you're unless you're like The Terminator where you're mostly robot and everything's automated you need to have partners in place and you have to have strengths yeah I think that's what a lot of people struggle with when they first get in right this is partnering with people with the biggest space in this face the biggest thing I feel you know you have your group we have our group and I think that networking with you know others maybe in your local area and just working together and figure things out and go oh man you think about that and masterminding even without people who are professionals yet and just brainstorm and just talking and talking things out you'll find you don't know what you don't know he won't talk to me I think that's a big thing about our area versus a lot of real estate it's a sauce we're community based there's a lot of real estate yeah yeah I would agree and I think you'd also agree that having you know surrounding your stuff with the right people that you're growing up with if you're growing with and building your systems is more important than how many notes you're taking on because yeah if you just take notes on that systems you're gonna get crushed it's you're playing the lottery I think people get jealous of other people saying oh I've walked 15 loans my concern is do they buy them right they could have bought terrible pool 15 and they didn't know they're doing and they they don't be out of space in a year from now so be careful with being jealous that kind of things you know there's a lot of things to be missed when making offers that we all do I think that movies just get into it excited by it and miss a lot of things so I think due diligence is a big key and learning to do tillage this is crucial I think that you know what I love the story we actually reach out to a person in our resource directory you know one of our note investors you know automation I get an email back of a YouTube video of him driving by the property and seeing a guy mow his lawn I mean reaching out to people that may live near that property that are our own space that kind of stuff is so valuable because you got to explain to them what a note space is and they may be an agent themselves or they know an agent just they know the local market better than a BPO better than any agent they know that a local market and they can help you come up with a bid number and work with you so I think that's strong awesome stuff well Dave do me a favor just go ahead and put a to your automation saw a software your automation based system on the comments section in the video well in the group and I'm not affiliated I'm not getting paid away but I will tell you if you like it a lot you think it's awesome I'll take some credit to that yeah what you're about to come out with it we're in the process waiting for Google to fig to submit it and so it's about to come out soon it's not yet but we have some other automation tools they're going to help investors were creating a website to kind of automate getting our no agents automate this I don't like that you're just kind of the data crunching the data details that are manual intensive time intensive I think that will help a lot of investors we're building that out just to kind of correct some stuff and I think I'm gonna work with Martin on some ideas that I I came up with just after our conversation the other day that will help him out with someone meeting his tools I just I'm an automation brain that I would love to do so I just and then yeah no problem thanks for having the thanks for being on and and thanks for offering to help I'll always take you up on this or the pleasure yeah I'll take care everyone things are doing it Thanks investing made easier podcast I'm your host Martin sines and I want to welcome you to the program I'm going to introduce our very special guests in just a few minutes I just wanted to make one announcement the announcement is my next note investing fundamentals class is going to be in our workshop rather is gonna be already at 21st 22nd in DC so you can go to my website note investing made easier calm to get more information and without further ado I have on Dave putts of jkp holdings Dave welcome to the program thank you a man thank you good to have you I mean you and I always chatted up at the conferences and and you know various subjects it's really awesome just to have you on I appreciate it man it's good to connect and always good to talk about different strategies we all use absolutely I know I know today the focus is going to be our due diligence and you know before we kind of jump into that tell me about what jkp Holdings purchases now what what types of notes we buy first position performing not performing we have Boston seconds mostly performing but we primarily look at first performing and number for me notes in about 14 15 states and we've been buying since 2012 really jumped up into the 15 but we don't really buy too much see of these but we have bought a handful here they're terrific and it's going to be kind of a code discussion here versus you know more you know Q&A if you will so I'll just let you know just for this opportunity however my focus is mainly on on junior lien MPNs and and then converting those to performing notes so with with that said let's talk about the idea of of you know whether your mind Junior means our first you know there's heavy emphasis on what is the properties value so so what do you take is a Holy Grail for giving you what the FMV is for that property we do a series of things first we scrape a bunch of you know different values online code EVMS from different websites we have and narrow it down based on if the cell provides at BPO where we're at so what we do is we determine scraping data and then we run our own analysis on the properties that we like in markets that we like based on the data we scrape and that's where we start at and then we go ahead and dial down manually and figure out the values of each individual asset that we like using different sources and different avenues exploring that so and I know that's gonna be something you're gonna you're gonna want to determine at this stage where you're putting in an indicative bid so so oftentimes you know oftentimes where Dave's purchasing he's putting an indicative bid if he gets awarded that indicative bid then he deep dives into due diligence probably with BPOs and oh and he's and things like that but for the purposes you know he wants to know you know high you know high level what the property's worth and if it's a junior lien you know would where's the first that correct yes absolutely we take that data and that's when we started plugging in into our model and figure things out which we're sure we'll talk about but we start with that value because that's prime information for us to determine things based on the other additional data what's interesting is is when you're when you're buying a first you're looking at square footage of property right wins the property bill what's the you know three bedrooms two baths you're looking for make up information is that why is that important to you so you know for for comps and whatnot so we've figured out about 35% a BPO the correct well that makes a lot incorrect so what we want to do is determine based on the property type area square footage what does that value that property it's a tube first a three-bedroom desirability and things like that so that or more data points determine the value of the property at El bas determined to make up of the property itself additional data points for down the road look your your your mic went off hold on how is that there we go thank you so so you know from that perspective you're you're really gearing up to take back the property is that correct well that's our worst-case scenario right so we we have multiple areas where we can't predict what's going to happen and when so we don't we don't go into the deal saying well this is scenario that we want we really go into the deal looking at the fact that what could happen so we're not stuck with a bag full of stuff we hoped for got it so so you have your what if that's the least desirable outcome what is the most desirable outcome modification right we can get that thing performing again and reselling it which is part of a model if that opportunity comes about it's awesome so so what's interesting in a you and I have had prior discussions on this I know for the purposes of you know a lot for the first mortgage purchases you're looking at that you know property value back taxes you want to know maybe I don't know if you do any platter digital collateral review at that point or whatever before you put your indicative bit in but it's there's heavy emphasis on that property value for myself and the junior liens face I'm looking I'm looking heavily at the bar at that point too so you know I want to know bits of information you know such as you know where's the bar or at in their life age-wise what's their you know if I can get information on their their ability to pay it depends on what kind of bid you're making right if you're making a final bid vs.

make a straight-up indicative offer it depends on what kind of big you're doing if you're doing the final bid yes you're running all the data you're doing your scrapes we really don't care as much about the person that's the property because the other day we're control of that property if we need today what's interesting about that is that is that you know a lot of times you're doing exactly what you need to do to put in a solid indicative bid number and then from there you can kind of you know back down as you need to when I'm putting in for junior lien I'm actually trying to put in as firm of a bid as I can up front so I know that's more you know that that's more labor-intensive upfront but so it limits me band width wise whereas you you have more because you're doing quick analysis you're able to probably you know get on more deals I'm doing a lot of time our first space it's you know you have to grab it quickly you know you have to days sometimes to get an offer in so sometimes when going through to learn assets and you want to buy 50 of them you need to quickly get the data into it and get that offer in making indicative of value making it get a cloud or review so we're not always reviewing collateral if it's if it's indicative possibility where you do a final bit usually of 30 days to your full due diligence and that's when you're doing all your dives prior to making that offer and and you take it from a what what percentage of your process is automated I would say about 70% of it okay in 70 so so when you're putting in the indicative bid a majority of that effort is is is done via an automated process so it starts with getting a tape in we make our values which is manual intensive our next step is literally take that asset all the assets were bidding on throw it to our calculator our calculator figures out every scenario what I determine returning requirement is our target is for every exit strategy and says I need it sir percentage it starts there doesn't base on you PP or BPO it's what's our target return and back into it and then it takes the minimum of whatever all the different exercise you are and say what's the worst case possible and then the addictive offer goes off of that number and says if reinstatement possibility is the worst case that indicative offers based on that if foreclosure rehab it goes off that number and then once we get that in there we then made that offer where he pulled the annual property taxes where he pulled if the property's been listed recently we've also pulled for hozier in numbers and B D K numbers so that when we get a response from the seller we can then go to the next process and start automating reaching out to agents that we already work with reaching out to investors we already work with through automation again it's all that processes it goes grabs anyone who's in the local area of that property and shoots out the emails that person with that property data so we can data dump into our system and we can get more data once we get the indicative offer accepted in what some you know interesting about that whole that you know your whole process is that you're taking the least desirable scenario and basing your indicative bid off of that correct so so that that minimizes your risk and so you know you know that that kind of begs the question of the importance of interest rate so what the interest rate is for what the bar should be paying is very significant huge a lot of people take percentage of BPO and UPB it's like well you forgot that if it's a 2% coupon or if it's a 10% coupon that the percentage does not do it that that coupon rates huge because like we discussed I can't make it a 25% coupon rate just can't do it so yes that coupon rate is massively huge in the modification or reinstatement on yield to maturity and so and so you're you're in oftentimes when you're bidding you're you're doing your cherry picking is that yes most of Tommy our tour times will rebuttal hopeful if that opportunity is available and we've like all the assets that we feel we can mitigate or stration well good the whole thing and have no problem putting a dollar bid on something just to put an offer in at times in in in much of the cases on on the junior lien side it's an all-or-nothing right so so they're usually blended and you know sellers they know what they're doing so they're gonna throw in the junk along with the good ones and so you know a lot of its based on equity coverage of that note and you're putting together you're putting the other pricing matrix's to to go and you know set up pricing for each type of you know this circumstance for that particular note and and you and i've had conversations regarding pricing in that in that you really need to have a pricing strategy that's based on what your expected returns are what you you know you know that could that can include when if you're planning on modifying the note and reselling that note yes and you know what will be the price tag on that and then you back into what your offer should be what you need to like they'll do not not a lot of people do that they they do the reverse and play with numbers until they get the return they want where we discuss the other day is it start with at the end in mine because you don't want a three percent return yeah especially if the notes at you know the coupons at two percent so and then you want to sell it with a yield you know you want to modify for one you should be modifying it around what the interest rate is on the note i mean you you can't take someone who should be paying two percent and stick them with a twelve percent no no you shouldn't do that and and you know that'll catch up to you if you do so if you go and modify them at three percent you know maybe take it up and then you try to sell that with a twelve percent yield down the road you're gonna get crushed absolutely and that's why industry it just makes a lot of sense to have the full model in there and this idea percentage just doesn't mathematically work out you get burnt eventually which we all have that's how we learned yeah you have to factor it in there if they reinstate your you can be a the creek without a paddle at four percent and now you can't sell it at all so do you use some you know do you use the same system whether you're buying a few notes or you're buying a hundred notes yes yes so what we do is we we take our questionable things and if it's situation we're buying a pool we can adjust our returns requirements so if it's a multi deal situation we can tweak it a little bit turn it down a little bit so we don't have to have a cherry-pick you know point and anything that's low we can put a dollar bid on and we make it offer and then come up with a football thing but most of the time they want to if they do it all or nothing we also want loan level bidding which whatever reason they wanted it's fine we'll put a loan level bid on every one of them anyway yeah it gives the seller an advantage right if they're gonna go and match match up various bids against each other and see who's overpaying for what note so so um what's interesting is you have an automated system it allows you to work you know to go through these bids yourself and to come up with a number that you're comfortable with and you know to put investor dollars against for for myself on my model is very manual at this point in that's not to say I mean I can take down two notes a to No Deal I can take down a $10,000,000 No Deal but my process very manual in that in that I mentor group of people that double as a buyer's group and we go through the manual process of each of the sections that are significant to us so fair market value you'll really be tracked lien validity lien validity research on county records data tree pools you know credit reporting and skip-tracing so you know these are things that are significant to us and we want to go through line by line because I think as a new node investor it's better to learn the process from a manual perspective or at least know how it's done manually yeah unfortunately a lot of people either don't know or don't want to learn they just want to buy or been told just to buy and it gets confusing we thought about spreadsheets can get overwhelming for a lot of people and unfortunately it's a spreadsheet driven business our system you know the why works for me is that I don't need to know how it's built I built it and the system can process 50 loans I'm not entering anything just process and through and shoots that individual you know big calculators for each one of them but it runs through 50 a hundred of them where you're dealing in more as a teaching tool and learning the process I just find a lot of people aren't taking time to learn that or it's not available one of the two it's it's complicated there's so many different scenarios that we can go on about different opportunities that gone bad or went weird that you couldn't plan never to plan stuff yeah absolutely and that's that's um you know obviously I'm not you know I'm giving you my perspective in terms of why I'm so manual with my process you know things human error does happen and things do fall fall through the crack I'm sure on the automated side you're always adjusting for that too you know things that weren't caught from the automated perspective you know it pulls from zillow that is a 3-bedroom 2bath in two thousand square foot but yet the picture shows it you know is pulled those vacant property so you know things whatever they whatever the case would be yeah so you know we're both adjusting our systems on both sides of the fence yeah I mean where are we the adjusting arms we had our attorneys or local investors to our systems that have to the property that we do really like are really questionable we can call up their investors or a local type property to give them a physical manual phone call like for me determine value and run things manually if I'm bidding 50 of them that would take a long period of time which sometimes we mainly have a day or two to pizza these want dick ative valuations and income delinquent taxes is something we can make indicative all those kind of things we can automatically capture but we don't need to for offers in the beginning our final offer adjustment offers yes we'll go ahead and go dive in play getting data is very manual intensive and I find a lot of people run to the problem where human error happens they forget a zero they forget this if you run that error over and over again it can't be a prom at extrusion so time energy and all that kind of stuff I find automation just fixes a lot of those errors it's tough you know yeah it's you know to that and I could see how the probably the the quantity of bids is more I'm on your side for for the purchases that that I'm going after you know it's all or nothing and in one of my competitive advantages is I try to put as firm of a possible so les contingencies upfront and I find that gives me an advantage at times versus someone just throwing in a bid and saying hey these are the thirty contingencies I need to still look at well you know the sellers probably thinking well what the heck did you do and you know other than throw in a number and you know versus Martin and his group you know they said hey they've done their homework already and they're in there you know practically one foot in the door yeah sometimes we'll get two days so sometimes an Oni doesn't take warrant unity to get that Oni back sometimes when we run a BPO if we run one which is rare it takes couple days to get back and we may only have two or three needs to get her offering we can pull delinquent taxes quicker but at the same time it's something we don't need to always do but things like property preservation pictures in electronic collateral some sellers provided some dome so we can review that to make a hard choice on it without that data we find proper preservation notes and servicing notes it was a huge information of what's going on the deal and that's part of and it'll offer to review those kind of data points because without it you don't know much about what's going on so so when you first get an opportunity in the door yeah obviously the sellers sometimes says well I'll provide this in a vault and you can you know log in to pull down some due diligence data do you make a special request from the seller to say hey look do you have credit reports do you have oneís you have PP o--'s things that I can use and evaluate in the notes yeah absolutely um worse they say is no right I want to see I want to see property presentation pictures if they doesn't work in the house or if they skipped over work oh yeah we saw ten grand a roof problem up we're gonna pass on that look that tells me somebody about the property we also do if we missing notes to see what the borrower is doing but yeah we always for what they say we also asked for collateral review they've done cloud review when they bought it bigger funds will actually send their their actual cloud review custodian report to us and say stuff was clean it kind of gives us a guideline we're at that but Haley is missing yeah absolutely we also asked for force-placed policy and most people don't know there's two different policies out there and one you buy anything happen before you bought it goes away you can't file a claim on something so we found the hard way make sure you follow up which force-placed insurance policies they have and we've always asked and that's an addendum to our contract to make sure that if it's something we can't follow clean because x y and z we're seeing think either buy it back or whatever because we don't want to get stuck in frustration that the force-placed insurance is held up because of them or something else and then ends up in our lap yeah yeah now that that's a good point so you know when you put in your offer you want to put in the contingencies you want to ask for as much as you can and the worst they can tell you is no whether you're doing that on the on the up front when you first get an invite to bid or you do it once you place your indicative bid in it's always good to ask I had a young 200 note opportunity come my way over the summer and and know how to report for Friday but I am and then they sent me a Dropbox link for them so I'm like you know how much that would you know $200 times you know yeah whatever you're paying 10 bucks a month to pull credit I mean that's a few thousand bucks yeah so so it can you know all that stuff they just either did not connect in the sales person usually isn't connect with the collateral for you person the servicing in the servicing notes they just don't if they don't have to why would a well yeah yeah it's always somewhere you just have to be shared with us you know Oh any reports with pull room eventually if we're gonna make that offer final bid but yeah they have it I'm gonna look at what they have BPOs look what they have and a lot of times you get all the agent right you need to stop the agent Hey the property um we just I think the biggest problem most people is that they dive into saying we're talking a lot of data a lot of different things and some of you don't know what Oh a need report is some you look no one accepts report is and that's the problem we run into is that the struggles are there's so much information that we're talking at maybe a higher level that a lot of people understand that they get lost and they just say screw it I'm gonna put an offer in see what happens and then we get back to where at we're not doing anything yeah yeah and I think that's where you hear sometimes frustration in the space where where you hear about people oh there oh you know those people they don't know what they're doing and they're over bidding well it's not it can be a matter of exactly what you said it's it's that they don't know the whole process or they don't have a process and they're just putting out a number just to see if it'll fly yeah yeah absolutely and so you get to the point where you do collateral review you know I use over I&I use richmond monroe for larger opportunities I review my own collateral file for smaller opportunities you know how do you differ with your collateral review process I wish I could automate it but I can't most of the time what we do is we'll reach out to we have a collateral company that we have worked with in the past but they've missed things cancelled Alon just on an original note they just didn't work out so what we've done in the last two years is coolest directly to our attorneys and an offer we're gonna make that we're not checking ourselves we're asking our attorneys hey listen can you please review this collateral there's ton of attorneys out there that know prom doing this and for the charge $150 to me it's well worth it I didn't want to think I know everything let them see it and if we go to foreclosure and there's something missing we know that they're the ones who looked at the file but yeah we sent it right to the to the attorney electronic version they don't need the hard copy and just let them look at it and they'll say he's missing this and missing that and usually they have the contacts at the bigger funds if we need to to get the additional documents that we need to or we can make some phone calls or our connections and and so you know from there you're you're generating the exception report you're letting them know hey this is this is missing this need to be cured or refunded or what have you and that's a good that's a good policy to have in place prior to the purchase because right reps and warrants and all of that will be in place but how how much can you put your your trust into that correct you know issues where that wrestlin warrants is in place and they fought us it's like doesn't make him difference we've been in situations where the the server server who was triumph and alone over modified alone in the process of buying it and the terms changed the borrower signed off on it so yeah reps and warrants can go just as far as they need to go but yeah you should be doing everything you can and that's hard because you don't know everything at the beginning and those advance people we run the situations that just don't make sense and no one else has run into them sometimes so yes it's just working with the professionals in the space to help you along the process to make sure if you're missing something they're there to catch you so yeah you know I think it needs to be stated that there's different you know there's there's more than one right way to do something with a lot of what we're talking about and you know whether you go to full automated or you have you know a lot of labor behind the due diligence I think though that either way you should try you know I'm always trying to automate my system you know api's with pacer searches api's with with Zillow and in those folks in in trying to collect data especially on a larger one and then you you have also the human element where you have to you know you're sending collateral to an attorney to review you can't automate that process or you're using Orion or Richmond Munroe like myself on on the larger opportunities I think the point is to have professionals in place like you mentioned I cannot you cannot get around that you know what I hear people say I service my own I took my own collateral a lot of times newbies say well why can't I do that all I needs to see is a chain well you don't know it if we sign correctly it work there's something on it it just doesn't make sense you don't know and that's the hard part is that until you know it why play the game so yes we rely on our professionals to do those kind of tasks for us sort of big problems yeah I mean in whoever's used you know attorneys or they've use Richmond Monroe I mean you see the corrective assignments that they're doing I mean they're correcting past errors and and these are things most likely that you know a lot of folks may not picked up on yeah and you don't know what a correct assignment may or may not be look like you know do you know which states can take a affidavit you know lost movement affidavit which states don't so I think that's also runs into problems at different states sometimes states can take electronic things sometimes they can't again it's state by state Pacific's that you may or may not be paying attention to or remember let the professionals do it but yeah that's part of our process it's manual but I would say majority of our process is automatic you know from values to emailing bulk emailing it to emailing our attorney if we did get the asset it automatically emails the attorney notifying them throws over you file sent to them reaching out to our code you know investors where the property the backyard you get data all that process is completely automated in our end of it especially the calculator so we you can automate a lot of it however I think that there are manual steps that has to be taken to make things work in on that note what would you say if if your ideal scenario is to get the bar performing and get them reinstated or loan mod it what part of the automated process gives you an indication that the bar has an ability to pay so to us no it's kind of weird with being the first base it's it pre-purchase there isn't any kind term any factors we don't get into the borrower data right we're seconds you get dived into the borrower we're in still control power that he listens either do they do or dolt we don't really care once we buy them all or we're going to the for the due diligence that's when we're skip-tracing the borrower we're we're checking their Facebook feeds we're checking the you know their LinkedIn feeds we're google searching the property has you know has been you know fire in the Anthony area see if the borrower died seemingly to find out about the borrower to help us determine that scenario when we're going through a full of due diligence if we find that they have a job or something happen and their possibilities there then we can tweak our dollars now at that point in our initial it's straight-up quick offer does that make sense yeah I remember due diligence on a note years back and I skip trace and they were they were just got out of prison for bank fraud that was funny oh my god I don't know I don't know that one you know that meant it's gonna slice it you know and we can't determine you know so instan you know we've got tons where the borrower performed because one died and they moved or they didn't pay because the bill that sent to the wrong house for two months and they got behind because x y&z their kid went to college they started paying the college don't have the mortgage and sometimes you don't understand why the borrower get it so we can't always presume it but it's hard to tell right and some people care about occupancy or not for me it doesn't matter there's a pro and con of both because they're not living there they can be limit if they are living there I made it straight they don't give a crap you know there's so many scenarios that could happen that predicting a modification is difficult yeah it just says we can't oh yeah I mean people you know like people tend to you know the general rule of thumb in real estate right how the outside of the property is reflective of how the inside looks you know how if the bar keeps Annie home they want to they care about where they they want to pay their bills but no you learned that people live in like mold infested homes and the only thing they care about is paying their mortgage not you know their health so just people you know take a live different lives yeah we've gotten tongue where you see them Facebook their kids walk around have cell phone videotaping the house cuz they're rapping on video and you get sitting inside of it right and you're like what it kind of alice is this the outside looks great but yeah there's nothing to predict what's inside the hole and that's our biggest fact that we don't know so that's why we don't go that exit strategy we say what's our worst case because if we better best case and we're wrong that's when you lose your shirt you know you have to wear the worst piece if you're buyi....