Is Joint Venturing (JVing) Illegal or Dangerous? | Real Estate Notes Show

Episode: Is Joint Venturing ( JVing ) illegal or Dangerous? With Cody Cox Dave's Goals and Plans: - Hosting webinar to discuss joint venturing legality and dangers - Managing JKP Holdings East Coast group with Facebook community since 2014 - Maintains resource lists including service fee comparison charts and past webinars for members Key Recommendations: - Get involved in local real estate investing meetup groups and clubs - Join multiple note investing Facebook pages and communities for learning - Consider formal training or mastermind groups but informal learning through BiggerPockets and podcasts is viable alternative - New investors should start with performing notes or seller financed notes rather than non-performing - Always be curious and continue learning - read books, listen to podcasts, network with others in the space Topics Discussed: - Joint venturing legality and dangers in note investing - Scaling note investing using other people's capital - Proper structuring of joint venture partnerships - Entry strategies for new note investors - Building wealth through real estate note investing - Importance of education and continuous learning in the industry Guest Insights: - Cody has 40+ years mortgage industry experience including roles at major institutions like Washington Mutual - Manages $375M portfolio as Senior Executive for Oregon state veteran home loan program - Started note investing around 2013-2014 after mortgage background and became involved with mastermind groups and formal educator training - Early success with note flip generated 103% return on Klamath Falls property purchased for $12,500 and sold for $25,500 - Scaled to 45-50 notes with dozen investors before experiencing issues that prompted this educational discussion hello everybody this is Dave puts from jkp Holdings with me today I have Cody Cox chief how you doing mr.

Cody we're gonna get into Cody's story in a few minutes but when do some quick housekeeping for everyone as I share a quick screen so that you guys all know what's going on as you know we have a Facebook group that's been around since I think children 14 think it is yes it started as a small group in Jersey and blew up over six plus years now a lot of information here a lot of good information there's other dope groups out there which is awesome and more information is always good always remember to do a search he can find out almost any topic we have we also have a Facebook group of district distrust note investors so you can literally go through here and find somebody local to you or local to a property that you can reach out to block an email address is out there but if you have somebody and you live in a certain state or a property's in an area you can reach out to one of us and get more information as you know we have a Facebook page we share information there as well we post events we post information do we have we have some upcoming things are gonna be really big hopefully in the next week or so we have an nd8 forum we have I believe we have just over a hundred someone assets is a scrub list of it and you can pretty much see what's going on and lastly we have a resource list that you can connect in see different tourney's contractors all that kind of stuff we also have the last thing we also have is the doing one second we have a resource list that allows you to see not only past webinars we've held we also have webinars how-to webinars in also have webinars how-to webinars in addition to which is right here webinars YouTube webinars and whatnot you can find this post is in the pin post of our jkp holdings guys are the East Coast group and then from there we also have a sheet here that has different links to different things to see what our available assets are in da one of the most popular right now is the service or fee comparison chart you can see different services what state they're licensed in what their fees are and those kind of things right whole list all free just get onto this link here which is in the pin post if you have a problem or question feel free job now as I spoke very fastly and I wasn't saying what did you just say let's go back to the man of the hour mr.

Cody Cox I've known Cody yeah I don't know when I'd know Cody for many years now Cody's been a space for I'm not sure when will so he started but I met him he was a small guy but connected very quickly when you found out what he does for a living for his day job I was shocked because his knowledge in a different area in his space is so valuable and whatnot but the reason for this webinar is a talk about joint venturing I've talked about this previously I've talked about the danger of it how did you correctly and what could happen if you do things incorrectly and Cody and I were discussing one day and after some questions and concerns he agreed to allow us to do a webinar on him talking about what his experience was so Cody please and adjust yourself tell us when you been doing this what your business one of these one of these needs I'm gonna figure out my Jersey style is hopefully you can help this guy figure that out anyway thanks a lot and you know just just to maybe make a point this is a little uncomfortable for me obviously you know and it's not like I was doing things wrong per se but I think it's more of an education and knowledge part of things but let me give you a little history of Who I am and where I came from you know as mentioned in the invitation of this I'm just kind of a humble mortgage guy from Eastern Oregon I got started in the mortgage industry in 1982 in a little servicing company in Walla Walla Washington and since that time I've moved from a number of different positions you know moved to Portland in 1984 worked for the largest savings alone and then in the northwest at that particular point in time what's the the that that be taken down you know but basically during the legislation in 1989 I also worked for one of the largest savings loans in the whole country when Washington Mutual was up and going I was a vice president with them managed two different home loan offices that were doing 180 million dollars worth of mortgage going on an annual basis my current position is I Oregon is one of those unique states that offers a home loan program for the state's veterans that is total and separate away from the federal VA program it's our own little animal those you guys familiar with California know the Cal vet program also in Texas there's a Texas veterans program I'm a senior executive that runs that for the state of Oregon so I manage a portfolio of 375 million dollars of mortgage loans and we have an origination between seventy and a hundred million dollars on an annual basis so so I you know I've been around a lot of ups and downs in the mortgage industry obviously what happened in 2008 was a little different but I guess the reason I go through all that is because I've got a pretty good background in the mortgage industry you've seen a lot of things and been across yeah it's one time I kind of sat down and counted up I've probably been involved directly or indirectly with over 20,000 transactions so I've seen a few things here in about 2013-2014 somewhere in there I decided that you know I was looking at various options to build wealth you know coming off a 2008-2009 right about that time I was also the president of the Portland chapter of the real estate investing Association part of the national we call it North Wish real estate investors here in Portland so I managed those guys I was a was the president for I don't know four or five years somewhere in there flip the house a couple houses did some wholesale dealings and then listen to a guy from notes cool talk about investing in notes and I go you know really with my mortgage background that's really what I should be doing you know it's kind of a natural segue and if I structure things right I can still maintain a day job as well as do these things you know by day I'm a mortgage guy by night I'm doing it for my own portfolio uh and so I started by a note to my own in my own portfolio basically out of myself to record I write and had some good successes on that one of my earlier ones is a about a little note in Klamath Falls Oregon and it was originated as a second home to a gal out of Southern California day I don't think ever saw the house it mean it went in foreclosure I bought the note for twelve thousand five hundred bucks we chased this owner through Southern California for a few months and finally found it she signed a deed lieu of foreclosure we gave up the right to pursue a deficiency and once I got title to the property we listed it sold it two days later for twenty-five thousand five hundred dollars and had made one hundred three percent return and so I'm kind of going you know this this this has legs we need to look at a little bit different so did a few more things in the self-directed IRA and then got a little education and decided that maybe it was time to scale up obviously one of the things in this in this move of scaling up involved joint venturing because typically you know most of us that get started off don't our have our own pot of cash that we can do this so let's put other people's cash to work pay them a nice return and in obviously profit from on your buyer as well as yourself so so that's kind of what we're doing we were doing real well I think we got up to about forty five fifty notes at one point time I had about it dozen or so investors that were basically funding my transactions and then in in what was it for their per second we have said yeah yeah we have a lot of new investors here yeah yeah the common things are you know how do you get started right you know you went to a class you listen to a guy speak did you go through a formal training yeah I actually signed up with with with a well-known educator and became part of that mastermind group went to four different mastermind events that was sponsored and of course you know very often there was a two or three-day weekend seminar that went on and so you know I decided to dig in as deep as I could to learn as much as I can so even though I had a mortgage background there's still a lot of things that occur in the mortgage industry and investing in notes you know and I say you learn something new every day and so you never can start stop looking for stet stuff in fact you know one of my little mottos is always be curious if you stop being curious and you're gonna stagnate and everything changes so you know you've got to keep learning and so you know I pulled in stuff from bigger pockets you know I'm a member of I don't know maybe a dozen or so of these various note investing face book pages I've got one or two of my own and so anything you can do and then just there's books out there you can read and there's there's a you know all sorts of various resources and you know the podcasts like you host from time to time I mean every time you have a guest on you can learn one or two things from that and there's people that are listening to us on this particular podcast today that you can learn stuff from so there's all sorts of resources out there and it would just need to be as curious I can because you know I I'm really got this entrepreneurial mindset and I struggle working for somebody else and and and and I work for government I work for state government and it's you know as about as far away from you know entrepreneurial type mindset is as you could possibly be so now fortunately I've got a great employer they support me we kind of leave me alone which is the way I like stuff we've done real real well there for a second so you have a w-2 job right one two weekend courses yeah we're learning from others we're networking or masterminding you have some people on the call that are white still where you're at yeah poor nervous scared either a they don't have the knowledge or as you explained I've been approached by attorneys who say hey I'm in sitting in this space but I don't know much about it and I kind of laugh and say well aren't you returning understanding and you find that they understand their side of it and you want to send your side of it yeah so would you recommend those people who are just getting in to get new or some kind of smo training or master mic on a group III think that you can look at local meetup groups i think you can get involved in the real estate investing you know type of clubs that are in your respective town and there's just a whole lot of things read bigger pockets you can sign up for those alerts and find out some things and there's just some great opportunities and resources out there and just learn as much as you can you may not need to spend $25,000 on the course it just depends on how curious you are so if you're curious you're gonna seek if you keep knocking you're gonna seek and find what you're looking for and if there is a chat box oh who just joined in late there's a chat box hit the chat button you can probably set a message to me or Cody or group so if you have a question as we go along feel free to jump in there I'm monitoring that as we speak yeah okay good Cody when you moved into this space you were you're when you eager when you nervous how you're feeling back in jun 13 2014 oh you know i I just kind of jumped in with both feet I found an opportunity I did the analysis and I just pulled the trigger you know always that first one but and when your first one you know it turns out real well it kind of wet the kite for the second one now you know if somebody was new getting in in the business right now there's a I would probably look at a performing note of some sort maybe even a seller financed one a lot of it depends on the entry point that you would get into because the non-performing realm requires a lot of attention it requires attorneys could be expensive and then if you end up taking the property back in you know the state of Missouri you know what are you gonna do with it so there's a lot of there's a deeper learning curve on the non-performing side of things then there might be on the performing side of things and so that would be you know if I was to talk to somebody and say you know how to ask them they asked me how to get started I'd say you know start off with a little performing Note one that's got a history one that's pain and just get your feet wet make sure you have all your vendors ready make sure you have a loan servicing company set up in advance so you know it's one of those things you have to have the horse ready to roll before you can put anything in your cart and so that's that's that's what I would suggest is look at that Avenue first so I'm gonna say probably majority people on the call or probably it again to space that I was in when I first got started back in jozin what if shutting 12 when I first started buying I think it was we left the fund you were in is I have some money if anything and I'm ready to go in I'm excited I'm motivated I'm gonna go my local read and find people who are landlords who want to flip over I'm gonna post things on Facebook and LinkedIn I'm gonna get some money in my pocket to buy something and I've been told by these you know these training programs that go get money and go get these people and connect with them so that's what yeah that's what we all do that yeah oh yeah that's one of the things you learn early on and any sort of real estate investing is using other people's money in a lot of ways that's okay but I have found and as we'll get into a little deeper here when you're looking at it from a no perspective there are some things you got to make sure you avoid let's talk about the numbers of the deal first let's get everyone feeling what the numbers were of that deal that was the low key up and made you realize this is real stuff I I think that was again it was you know I bought the note for about twelve five the person never made a payment on it that I can find out it was an out of state they bought it as a second home and so you know if it was a primary residence there may have been some deficiency protection for them but because it was a second home I really had the right to sue for a deficiency but what we did is you know gave that homeowner or that borrower I guess or whatever you might want to call them I've weighed the right to go after him for the decision deficiency if there's paid you know sign the property over to me I don't even think I had to come up with any cash for keys because they weren't ever in the property so make sure that people follow along can you see what deficiencies mean in a quick con sentence well the deficiency would be is that you know let's say you buy the note for twelve five but they really know you eighty five and so you actually have a right to sue for the difference between that 85 and that twelve fire that is the amount that they owe you and so that's a deficiency if you get a judgment technically they are supposed to pay it back it goes under credit report it is a lien against them or a judgment against them actually and so it really was a good deal for this person that I went ahead and waived that so that you know they didn't have this what would that be $65,000 judgment against them that every time they went to get credit it would pull up on their credit report so you know it was a win-win for everybody and you know you're talking small dollars I only had 12 five into it and you know maybe a little bit of some attorney fees but you know I sold it for twenty five five and boom deal you had with your joint venture partner was that different deal that was when it was all my own IRA money so so let me look at the deal with the joint venture partner how do you meet them because obviously well if you mean it'll goes away well numbers that deal if you remember and how do you know that person well let me just clarify something is is the situation that I'm going to talk about here had nothing to do with the joint venture partner nothing at all in fact I can kind of see on script here a little bit and maybe that'll clarify what you're talking about here but one of the things that I will stress is that in a pre joint venture Park sure that I work partner that I work with never had an issue with what we were doing and so it was in this situation a local competitor a local person who wanted to try and be a known investor who kind of did the same things listen to a couple webinars maybe attended some online classes and kind of made an idea that they want it to be a known investor I had no background in it whatsoever but they wanted to be a known investor because the way it was presented you know look like easy money it looked like there was not a lot of work and so and so what happened here is this preacher person well let me back up just a little bit and kind of tell you what happened here if I can be sure is that in in what was a late August no it's late September of 2018 I get a call for on my cell phone on my personal cell phone that came from the oregon department of consumer abysmal services and i was in my office in my day job my state day job again i'm senior executive and my cell phone rings and i see the caller ID stand department of consumer and business services which we call d CBS this is the federal this is state only if the state stuff this is all on a state basis you know in this pack but this person sits is three buildings away from me okay so so it's not that far away i can walk over there in about three minutes and knock on their door I need an answer that phone call I thought I'd let it go to voicemail I was in my work and then my desk phone at my job rings with this alrighty so that's a little awkward but this time I picked up the phone and I was ended up talking to an investigator from the Department of Financial is it financial you see DFR rules regulation Department of financial regulations and a quick conversation and said they got an anonymous call from somebody and asked them the caller asked if they if I was in good standing with the state and if they were aware of my business practices and so we had a pretty good discussion you know about a 20 minute discussion and they said well okay I see you reader coming from but you know we're kind of obligated to go through a bit of an investigation to make sure you're not violating any new rules Rex and so I said okay well I understand that let's be sensitive about this because my position with the state and he says yeah we will be will be very sensitive to that and then I asked her the question just out of curiosity can you tell me who this caller was they said well they said he said well yeah they were Nicoli and anonymously but we were able to trace and find out it was this certain person well my surprise the certain person was another guy that I had tried to mentor it was this guy who was wanting to be a note investor he ended up going through some problems with the state himself so he started off with a five or six read read see fun to raise a million dollars to try and buy some notes and he was having some problem raising money obviously a regs a 506 C requires an accredited investor and my guess is that every time you talk to another accredited investor to get involved in his fun they easily determined that I wasn't ready to do this and they were unsure about their money ah and so once I got off the phone and found out who this was got off the phone with the state I called this guy and said hey I just got a call from the state and this is that are telling me what are you doing and he says well why did you kite one of my investors and I said I don't know you're talking about oh he said coach why do I did you poach one of my investors like I've no idea what you're talking about he says well I had somebody a local never a person had pledged $100,000 to him but she decided this person decided to give him half and me have to do another joint venture and I said why didn't you just pick up the phone and call me in his response to that was well I was just doing some due diligence I said well come on you know me you know we've talked a hundred times I've been trying to help you and and he basically said well you just never know who you're talking to who are you're dealing with I go come on You Know Who I am no that's just business you know so and then he hung up and obviously now we're blocked from everything and I don't want anything to do with him but Danny describe a little bit about your joint venture how was it structured and people that are on the call you know it's similar to how we all structure join that's how we see it yeah well I'll get to that just a second him basically the way my joint venture was probably very similar to what most people on here would would structure theirs is that I'm the expert I have access to notes I know how to manage the notes I just need funding so if you fund the transaction I'll do all the work and then when it's time to liquidate that you'll get your money back first and we'll split the profits hmm it's a very sir anyone in this in this webinar probably raise their hands is that's how I've done it that makes sense that's joint venture right you gave me not you you did your half and I need my ass yeah yeah so I know I'll do all the work all you've got to be as a passive investor that's it nice news if you get it easy you get money back what up that's you see yeah yeah and and it sounds good and you want to make sure you structure your document that has a certain kind of protections for both parties but as I proceeded through this investigation there was kind of two phases the initial phase was the state initially thought I was either a debt collector or a debt management company now a debt collector or he needs to be licensed even if you buy a note or buy a loan that you're gonna have serviced by somebody else and so when we talk about various states requiring licensing Oregon is one of those licenses states that require a license a debt management company is one of those companies that say hey for twenty five hundred bucks I can get you a loan modification yeah you know we've seen a thousand of those especially during the mortgage crisis and so after about six or seven weeks I was over at a resort over in Central Oregon a place called Sun River I had my family over there and I get a call from this investigator again this all started in November and I got a call was about the 10th or 11th or so of December just before Christmas and he says well we've come to the decision that you're not a debt collector or you're not a debt management company you know go that's great because everything I showed them I mean I sent him a ten pound box of information that was interesting so they actually had delivered it hand-delivered it to him so and then the he says however we have a concern that you have violated some security regulations security yeah I said say what he says yeah basically we think that the structure of your joint venture agreements and those those transactions constitutes a securities violation so they sent me a letter basically requesting a bunch of information and the main part of that letter there's a couple things is that they've required of me to prove to them what exemptions I am following since none of my joint venture agreements were registered as security with the state so I have to prove to them that I'm following certain exemptions oh welcome to this time we were trying to battle the debts the debt management company debt collector kind of stuff in there and then the attorney I was used to say hey we're not security as attorney you gotta find somebody else so I found a $400 an hour SEC attorney who used to work for the state and knew those guys so that was helpful so we're still work with a state and a federal role my state regulator company from the SEC on a federal basis it's all the local guys that their office is three blocks away from where I work okay and the interesting thing is is another interesting there's a lot of interesting things here and I know I'm not going to get them all out is the guy who is the director of that agency was my director left my agency to go over there so I knew the guy who ran the whole shebang you know and so that was always kind of an interesting thing so in any rate so I had to prove to them they had a list of things I had to prove to them so what I had to do and they were looking for two main things and this is what's real important for the folks who are listening to this this is the two main things that are looking for and one is solicitation was I openly soliciting for investors and so hosting on Facebook walking around asking for information we need money just give us your money we'll put deals together yeah or I have this deal in you know in Indiana and I need $25,000 to take it down anybody out there want to invest in me well they went through every one of my Facebook posts I also had to supply to them because we're all taught to send out this email marketing letter okay and so I was sending stuff out every Sunday night and if he didn't open it by Wednesday you're getting it again we had to put together every single one of those for the last two years for them to look through to see if I was soliciting for investor partners and they were particularly looking at those that would not be considered an accredited investor or a non-accredited sophisticated investor because Allah doesn't allow you to open solicit those type of investors and so they looked at everything that they had there the other thing that they were looking at is whether or not those joint venture agreements were offering a security and there's something called a Howey test okay you guys can google it or whatever you do how we test h o w ey and there's four components in the Howey test and basically you know what they are is one is their investment of money well obviously in a joint venture transaction there is an investment of money number two in a common enterprise so you got two people going together in a common enterprise you know and this in my situation to buy an out second thing with an expectation of profits I mean why would anybody put any money in without having some sort of the profits and then here's the thing solely the effort solely on the efforts of others so if I go to them and say I'll do all the work you just have to fund this thing his return is solely on my efforts and if you meet those four criteria it's the security ouch yeah all that meaning you've been taught what's that all the training you've had now all the communication you forehead yeah has it ever been mentioned or talked about well there's a couple of everyone some languages some attorneys on they talk about this and say you can't be doing this and you know a lot of us you know think it happen why would every bit of me at all yeah it's not gonna happen to me I mean I'm just a little guy here you know in Dallas Texas I'm not I'm not really bothering anybody and my investors are happy and I'm paying stuff off you get the one in it in most situations they say you're gonna get a call or they're gonna get alerted that state regulators are going to get alerted by an unsatisfied investor any doubt in my case I mean all my investors were contacted they had to write letters and give to the to the state that basically says tried to try to substantiate what they call this is another part of the solicitation thing a substantive pre-existing relationship and so fortunately being the president of the real estate investor Association a few years back I had good relationships with a lot of these folks and you know if I didn't I'd go through this slow dance and have coffee this is when you can go out and have coffee with people and you know I talked to them telephone calls that go through a whole kind of slow dance as I call it to get to know these people to see if they you know have the capacity to invest in tight this type of investments and and so you know part of what I do when I have an investor was say you know this is all confidential nobody's gonna know about you and I and working together well the state reached that I had to reveal them their names email addresses and phone numbers as well as the mailing address to every one of my investors involved in this and that was pretty darn uncomfortable for me too but what was really good as every one of my investors stood up and stood up for me and there was not any one of those that gave any sort of negative response back to the state so you know that made me feel like I'm doing something right from that aspect of it but there was something I missed and so the thing I think we all get comfortable in is that you know when we go through some training you know we always talk about the the laws that we have to follow you know whether there's a new law in Ohio about owning notes or something going on in Illinois or something like that we know the laws and so the one thing that we forget about in knowing these laws is every one of these laws have become statutes get assigned to an individual state agency to implement that state agency then has to draw up a set of rules that you have to follow and so we may know the laws but we may not know the rules we don't take that next step and so when we gone into what we're gone there were some violation of ORS 59-point over 55 but there were certain other rules involved in that that insolently talks about disclosures and a number of different things so you know basically they started the state started their investigation just before Christmas in 2018 and I was essentially shut everything down right around November when this started I stopped my weekly email I basically kind of went silent on anything on Facebook I went basically underground because the other part of it is you know my employer the state of Oregon Department of Veterans Affairs you know I need to make sure that I didn't kind of create some embarrassment for the agency of course knowing at some point time I'm gonna have to talk to them about it and and so during the course I mean I worked with this attorney he's very expensive because we had to respond to the letter show me what exemptions you were following because you're not registered so we started this November and finally after sometime in March late March early April we put together a 38 page response to their one-page letter showing all the things we did what we did and admitted some things that we did wrong but we fully cooperated with the investigation totally transparent and that helped I've got wind in late May of last year 2019 early June that the state had an offer to settle my attorney bless his heart was in the middle of Pacific Ocean on a yacht race so he was little loud was a little hard to get ahold of but finally I got a copy of what their proposal was and I was actually able to negotiate some language in that say this isn't quite right let's change this and so we came to an agreement this is the agreement it is posted on the state of Oregon Department of Financial Regulation website ah they find me just a little bit of money they find me two thousand forty dollars lucky which was nothing for a you know nine-month investigation didn't cover really any of their costs but the thing that the state did that I thought really was good and I had a lot to do with our cooperation the way that we prepared and responded to you them how quickly we responded to them and the fact that my investors gave good support for what we did with them was that they said that any sort of what do they call this this this order that they posted was all in the name of my company I was not named in this individually uh find me individually in there and so it's all in the name of the company and I highlighted a couple things that are important I think for this group to understand so so basically they talk about respondent which was my company not me maintained a website and a Facebook page on which it generically presented opportunities to invest right it also I also appeared on various radio or publicly available audio recorded podcasts but to discuss investing strategy so they mentioned how public I was and they also mentioned about the ask you know because in the letters that we send out the emails you send out there's always a little asking there if you're interested about learning and investing or investing was give me a call that is a solicitation problem with that so and then it says that no relevant time did the respondent register any any sales with the division so they determined that a joint manager structured like this is a violation of securities okay and so in that I violated RS 59 o 55 I talked about that they gave me a little fine but this is the other thing that I thought was real good and I say this because you know this is hard to talk about because most of us on Facebook or whatever present ourselves in the best possible light rarely that we talk about our misgivings our bad decisions or losing a bunch of money on an OD so so you know coming out like this and saying hey you know there was this problem I went through last year this is why I went off the radar this is why I fell off the planet and my goal here gave is basically to prevent somebody else from going through this I mean there's there's there's a it's a give back the note investing feel this it's a small little group of people you know and you know some guys that we know else coined the term the term you know co-op petition so even though I'm bidding against the same asset you might be what we're doing today we're talking to each other and helping each other out so we've got that going on so hopefully this helps somebody else and we see this kind of weird stuff yep good I just wanted to read this final thing here that is made me feel really good about this and this is you know because coming out like this you get this senses Jesus I don't want to work with that guy I mean he got dinged by a state agency but but listen to what they said in their official thing here it says nothing contained herein and this thing is intended to stablish a finding that respondent or any director officer or control person engaged in any contact that conduct that constitutes bad actor conduct you do not want to get turned a bad actor because if you get termed as a bad actor you're done with this business so it didn't what goes on to say the division is not borrowing barring respondent or any covered person which is me from engaging in lawful conduct Wow so they basically say it's okay to do what you're doing you just gotta register your securities or file the proper exemptions and so that's what we've done we've taken that next step our attorney advised that we basically totally rebrand so somebody if you see in the chat some of the people are grateful for you sharing this very private unfortunate situation it you felt like oh my god I got myself in a situation and most people won't you want to share about but as I share with you when I heard about it I've been wanting to use webinar for a while and again I polished every one last week was chaotic with my father everything else but I still wanted to do this because I know yeah I'm so passionate the fact that I moved out of that space of J being and this is one of the reasons because of this and your story brings so much life to what can happen worried about Assisi and we're a little man all these kind of myths and stories he's a real situation it's not 20 you know the two grand get a payout that experienced that motion that desired yeah now one of the question we got was did you jump back into no investing did you go back and then were to get into more stuff soon but what was your first reaction here well obviously we had to shut her down you know and and another real good thing is you know I spent about twenty to twenty four thousand dollars in attorney fees to defend myself yeah or to respond to them you know and it's all because some jealous guy made a phone call rather than calling me okay so that's that's the hard part about it all but I also knew and as I kind of years ago set out what kind of model I wanted to follow I knew that I do a little thing on my own you know I knew that I would take this situation of joint bitchery and then I would move to a fund model and so what this did is it kind of moved us moving to a fund model maybe a little faster than we would have otherwise but it also gave me this huge learning experience about what you need to do to be compliant not only on a national basis but also on a state regulator type basis and so and so that was what we what we've done is you know we rebranded my old company Trinity National holding still have some inventory we're trying to liquidate still trying to pay off my grade in bed who supported me through all this we set up a couple new companies here in in the fall one of them is the funding factors which is my visible company I was very sensitive to keep my marketing efforts separate from my investing efforts you know I still have a sense that every once in while I'm one of these investigators goes in and looks at what I'm doing I want to make sure when they go in and look what I'm doing they don't see anything in there that is is problematic so I came up here or a comment that made was somebody mentioned that all the investors have decision-making abilities in joint venture does that fix a joint venture agreement well no not always because if you're relying on the efforts of others in a common enterprise it's got to fit all four of those how we test things so even though they have all the decisions if or they share decisions that person having all the money into it one person having all the cash into it still can meet that threshold of being a superior so most joint venture agreements that work out you know in other situations is that I have certain expertise and some cash I bring to the transaction the other person has some expertise and some cash to brings to the transaction so we're going to come together with the joint investment and the joint expertise to put together a transaction and joint venture the the value of a joint venture of course it's only isolated on one particular project it's not a partnership with ongoing you know partnership returns and ongoing projects but it is just for one particular project so you know the thing of it is is you know that would be a good question because neither one of us are attorneys nope you know it'd be a good question for an SEC Tournament you know if I'm doing all the work but joint decisions because in my in my joint venture agreement that we used there was provision in it for joint decisions that they had to be involved with all the major things go on the day-to-day stuff I would handle but you know if we got an offer on a house that's a joint decision if we're gonna get a discounted payoff that's a joint decision that was in my agreement they saw that made no to that and we actually emphasize that in our 38 page response so you have that in your agreement you they agree to it they understood it they made decisions and we've still got fine for the fact that you did a joint venture even though this is in there and I'm really looking to the comments now Benjamin said he's new he's grateful so Cody another guy depreciated the area tensioned would you do a joint venture again or would you set up a fund to raise money well yes I mentioned you know here we stood up to companies I love my what I call my mortgage media company which is funding factors that's all my marketing information company you know I encourage you guys to go into Facebook and like my page or connect whatever that might be and then we did send up a set up a management company we call that Ridge City factors I'm in the state I'm in Portland Portland's of Bridge City that is are basically our management company for a fund and I can't really talk too much about that but we did set that up at the beginning of the year and that's moving forward very ring so I see that Victor had some questions if you can see him as well was about licensing exception for a note investor at what point does a note investor make the leap from a passive not requiring a license to an active trade or business requiring a license so so none of my investors needed a license in the state of Oregon but the state of Oregon now does require under their debt collector laws that if I if I purchase a mortgage loan where that homeowner or that asset is located in the state of Oregon even though I'm going to service it with somebody else I'm going to transfer servicing I still need a debt collectors license and a loan servicing license now what's that those that we make sure it's clear yeah for those who are maybe new to space if they're proper isn't from state that license is not required the proper is locating work on it's not where you're located where the property's located correctly yes it is yes so the question was does it note the license note servicing company allow a passive investor to avoid licensing good does not do does are you still need to have a license even though you're gonna have somebody else service it for you okay so so what I'm going through the question I know Lauren had a question regarding vetting your mentorship now and we'll get into that if you're still doing that selling parcels do you think it'd be safer than JV sona portals is a transaction so you're selling it to somebody else joint ventures can you bring in somebody and two people come together to go forward in a transaction usually different skills or money it could be anything um so if me and Cody want to give you a note investing thing and I bring someone in Hebrew somebody would buy a deal or joint venturing our skills if I give him a hundred grand he goes buy something and I said okay I make decisions he raised a hundred thousand dollars great we didn't joint bench or anything he raised money for me that's the problem here and of course if you sell a partial I mean that basically means that you already own that note and you're just selling the first bunch of payments to them to somebody else so that's not exactly considered as security right so is that a safer model than JP yeah likely I did a lot of what I called collateral assignments you know or hypothec Asians and that was a safe type of investing strategy because you're borrowing money from somebody versus them investing with you on a passive basis so let's get some more question about this this is something that I think everyone on this webinar has either done thought about doing or thought about you know who were closer doing it I know I've done the best like left likely when I did it I only did with Co people like did not completely know and those deals are now sunset in which is great and I'd given people I did know when we joined up or knowledge or experience or money to do deals now we have a funny important we have a different LLC and different set up but if you're doing deal when you're raising money that's the problem here if you're in the same company as someone just probably sent me if you're just same company that company is protected by the entity that that's not a joint venture that's correct right so so if we're not joint venturing Kody man your partners are doing it what options do you have to take their money in and allow them to make me decision making a little what are the couple options that you do have well I mean the main thing is is is that everybody is equally involved if you're gonna do that one of the things you know as we move into a fun model what part of my goals is is to buy and larger quantities you know it with with a with a joint venture all your risk is tied up in that one an asset with with fun as I'm doing it or the way you're doing it where you have you know you form a limited liability company with a lot of different investors doing these various duties within the LLC and you're buying a larger quantities and the risk is spread out over the entire portfolio yeah so so that was one of the things that I like so if you buy a you know a tranche of 50 notes and you and two of them go south well you know the risk of those two gets spread out over the other 48 so so look what I wanted to answer once Eurobike Kishori yes what's your thirty process yeah well this is this the way I would answer that and it doesn't matter who your mentor is obviously they can't cover everything but I would assume that everybody else every one of us on this phone call have our own business we're business people it's not the Guru's fault that I messed up it's my own fault I'm the one that needs to go in and make sure I fully understand everything and get the right counsel so so you know gurus can only take you so far but if you're gonna stand up a limited life company or do a fund or any of these kind of things or partnership with somebody else it's up to you to make sure you're doing it right don't rely on anybody else and so so yeah there is a vetting process going on and hopefully I move to a point that you know that may not be as necessary as it once was but my mentors are coming to your space where we want to learn from you I think that's where the question was going this person was mentoring from you are you entering people still and if you are have you change your processes of betting them well that's a good question you know never really thought about that because again I'm kind of in this mode if you will again not wanting to DTD into it and I you know I have two focuses going on one is well three really I mean one of those I still have the day job okay and the timing is involved to be the day job the second part of it is is that I want to exit the day job and do this full-time and so the avenue that I've chosen to do this is you know standing up a fund and so you know the time involved to mentor somebody else to do it right I don't know how I can add that to my schedule now one of the things that I do from time to time and there's a couple folks on this call that I have recognized know they can pick up the phone and call me and we'll spend 10 15 20 minutes on the call and I don't want to get into you know charging somebody or having some sort of defined an internship program but we're all in this thing together and I had an old manager long ago is is that told me all boats rise with the tide so I know if I'm doing well other people can do as well also and part of what we're doing today Dave and thank you for asking me this is giving back and that's what we can all do at some point times give back to everybody else and we don't always have to charge for it yeah and we're not you're said before where cooperation we work together we're all in the same space we hate to see people fail that's why we do this Jeff and ask a question regarding have you bested that say a thousand your own money and they ujv with that change in how we test if you put a thousand in jeopardy presume say 25,000 JV partner they put you put a thousand they put 25,000 in does that change to how we test you know that's not an attorney question an investigation question I don't know how that does I mean the other part of it is knowing Jeff he has so many unique talents that we can pull in as well and and that's kind of they're gonna look at not only the cash contributions but what else are you involved on a day to day activity now you know I also know that there's certain measures that the IRS looks at based on their activity whether they're spending so many hours per year involved in the transaction or in the business so so there's a number of moving parts there and and you know I don't have all those answers and frankly you know I'm involved in what I'm gonna do you know I'm try and put as many quality notes within my within my portfolio as I can so you Nick ask the question is it can someone bring a note for you to manage rather mean cash that's a little different that's more of amending the deal yeah in consulting I'm not sure if that's exactly valia so you send me a private question about how much it costs up a fund I'm not gonna go into that whole thing and that there's so many different structures in decision-making it's hard to say um I've heard from 8 to 20 grand cutting it is all depends on your structure how much you're going it's based on that kind of stuff so I won't get too much into that Victor asked the state investigators also follow the fellow who father go playing against you do you have a relationship with the same investors you freeze without guilt Casper stone I guess the question is did that person know you investigator like you did ah the deaf person no the investigator like I did well I think that this particular person had some previous experience with this investigator this particular person again tried to stand up their own website to get involved he made a mistake and that he called the Portland Better Business Bureau to try and get the Better Business Bureau seal of endorsement on his website the people at the Better Business Bureau says I don't think he can do this legally and they called the state and the state started an investigation on this person and that's why he was forced to start a fund himself because you know I think he got a cease-and-desist as well I knew you co system that you know two individuals essentially a partnership anyhow I guess is not really relevant here that's not from my knowledge exactly true so a joint venture is not a partnership it's it's two to different people or companies to amazing coming together on a deal you can do a legal joint venture completely joint venture but the behind the scenes of the joint venture can be seen as X security if it's done incorrectly both sorry is a security if you're doing what we're doing now but the way it's structured and the people involved from my knowledge and Cody has experience on us is hostile past has to say that are you selling a security and are both parties involved or three or whatever joint ventures or they passing the test to prove the fact that you're not selling something and getting a return on their behalf could you would you share what your thoughts on it is I would say that there are proper ways to structure a joint venture you know two individuals come together they have a meeting in minds you know if Bob and I wanted to do a deal together and both of us decided let's just venture this one let's just do this one and you know we both bring things to the table and share that out on a pre-designated basis and our agreement spells out specifically what our responsibilities are yeah then that's going to be fine that's going to fine you know but the ones where you know somebody's funding the whole meal and I'm gonna do all the work those are the ones that are problematic or do I see a question regarding yappy license it's a state-by-state thing on his up states if you hire service you're covered some states if if you do hire service or you're not covered Oregon's a state that if you're like your license if you if you buy an asset in Oregon and multiple other states as well you have to be licensed in that state to actually buy the note no matter if your services involved or not other states it's a service involve it actually covers you but yes in Oregon that you have to be licensed to by Oregon note so Cody with all this experience no on stuff and you know it's awesome that you guys you willing to come on and talk about this experience that when we first talked you like gave I don't know if I public and say this kind of stuff it's embarrassing um maybe Brown I realize that even though it's embarrassing you want to prevent others from making the same mistake that you didn't see a problem with and you don't like everyone else thought that it's not a big deal we just raised the money get the deal done give great returns be happy um and do our best job and then right to problems I would consider you lucky for the result you got because of how well you knew your investors and I'm going to presume that if you raise money from somebody that you didn't know that well let's go try not completely different and especially if they learn at a point in the transaction that you know and you know we were focusing on non-performing notes they have a whole lot of different pathways they can go down and if you were going down the wrong path way and it started getting expensive you know wasn't happening within you know the designated time and you kept holding on you know then that could be problematic you know I know there's situations where certain investors who did the joint venture gave money to individuals and you know they sued and got a judgment okay are they gonna get the judgment money back well maybe maybe not but another avenue that I see happening is if a state legislature or excuse me state regulator gets wind of this and you and especially if you look at what's going on right now in most state governments most state done right so kind of looking for a bailout you know the whole country is shut down revenues are not coming in as the way that they should be you know my state has their annual economic revenue release at the end of May and so you know and agencies are gonna be look to cut their budget by a certain percentage well one of the ways that they can offset their budget is by finding folks like you and I who are doing things just a little bit outside the rules or the regulations and in creating revenue for them by their fines and so you know this is this is a time we have to be especially diligent to make sure that we're doing things right and you know I wasn't that far off I was just a little bit off okay and this came out of left field it wasn't anybody that was one of my investors that was four had a problem and so you never really know it's gonna come from and so I would just I would just say you know take a little bit more time to figure out if what you're doing is right before you go into something that could kick back a little bit later so I'm gonna wrap up a few minutes as why sure also if the horse hit funds come back out we're gonna be bringing Cody back on he is a lot of knowledge in hardest hit funds for those who don't know he managed partially managed funds for his state so he has a lot of experience knowledge so those who do know Cody and did know that it's a tremendous goal and you know talked to him he explained things because that's what he does work job it's amazing the connection here but it's a the story he's told us insurance with that oh you bet I have had some people ask me some questions about or some of the stuff we have going on but before we do that I want to thank you I'm sure Brunel Sears thank you it's amazing the information you share with us and the fact you're willing to put out there publicly as I said everyone else we did not we record this for a Friday use only Cody decides he wants of ELISA because the fact that this is very sensitive information it's questionable where we're at also Cody you know he's running a fun he has to keep everything safe with him so he's doing his private stuff to prevent that so again I'd like to thank Cody for joining us but I do want up there that this is a question I've just popped in okay so many other yeah some of the states are involved with talk to your local states about licensing what not so I say answer some of the questions I got privately we are still working on our portal or our bid calculator is as most of you guys have got the file female our big category is done in Google sheets were actually paused on that process we're going to push into a portal although sharing code before we got started or our portal will composite flow of running your tape running your scrap your scraping data rice and other data then running through a calculator then running through an agent and into the whole process we're growing phase one which should be released soon the calculator will be phase two and what not worse moving some pieces around and whatnot um yes I got some private message thank you very much for last week it was very difficult and I apologize again for anyone who the state got screwed up and whatnot I reach out the code Eve literally night before and say I don't know if I could do this and he he honestly said Dave don't don't push herself I'm some grateful for Cody for giving me the time to kind of just heal and whatnot I didn't publicly to you too much until this week I kept it privately those who are no it was none don't covet it was a sudden shock so it was a difficult time I followed past as like it's in the video but I thought this Webber was so important I told code I needed to assume so if you have any additional questions Cody I'd like you to put your chat on your email if people have any questions follow-ups additional questions and whatnot I know there's some people out there adjust depth great great comment man if you you know I know some question about collateral assignments which I think Cody will be awesome for a cult you asked about that I'll make sure I tagged him on some of the East Coast group post that we had about that but everyone this information will save you because I'm sure you're not gonna do as good of a job as Cody did to prevent this from happening as he did and he's still got ting so you guys were welcome this is a guy stuff I try putting out there I'm not about guru my about education I'm just looking to help and everyone back so if you have additional questions feel free to reach out to him I'll put my email address in here if you need an NDA obviously you can put our website and I think they said we're gonna continue to hold stuff like this and push things out there but again injury a knife guys be safe be smart hopefully we'll get out of this craziness and enjoy your families give everyone a hug so Cody once again thank you my man lucky to be very impressed appreciate it brief you know everyone be well alright alright addition to which is right here webinars YouTube webinars and whatnot you can find this post is in the pin post of our jkp holdings guys are the East Coast group and then from there we also have a sheet here that has different links to different things to see what our available assets are in da one of the most popular right now is the service or fee comparison chart you can see different services what state they're licensed in what their fees are and those kind of things right whole list all free just get onto this link here which is in the pin post if you have a problem or question feel free job now as I spoke very fastly and I wasn't saying what did you just say let's go back to the man of the hour mr.

Cody Cox I've known Cody yeah I don't know when I'd know Cody for many years now Cody's been a space for I'm not sure when will so he started but I met him he was a small guy but connected very quickly when you found out what he does for a living for his day job I was shocked because his knowledge in a different area in his space is so valuable and whatnot but the reason for this webinar is a talk about joint venturing I've talked about this previously I've talked about the danger of it how did you correctly and what could happen if you do things incorrectly and Cody and I were discussing one day and after some questions and concerns he agreed to allow us to do a webinar on him talking about what his experience was so Cody please and adjust yourself tell us when you been doing this what your business one of these one of these needs I'm gonna figure out my Jersey style is hopefully you can help this guy figure that out anyway thanks a lot and you know just just to maybe make a point this is a little uncomfortable for me obviously you know and it's not like I was doing things wrong per se but I think it's more of an education and knowledge part of things but let me give you a little history of Who I am and where I came from you know as mentioned in the invitation of this I'm just kind of a humble mortgage guy from Eastern Oregon I got started in the mortgage industry in 1982 in a little servicing company in Walla Walla Washington and since that time I've moved from a number of different positions you know moved to Portland in 1984 worked for the largest savings alone and then in the northwest at that particular point in time what's the the that that be taken down you know but basically during the legislation in 1989 I also worked for one of the largest savings loans in the whole country when Washington Mutual was up and going I was a vice president with them managed two different home loan offices that were doing 180 million dollars worth of mortgage going on an annual basis my current position is I Oregon is one of those unique states that offers a home loan program for the state's veterans that is total and separate away from the federal VA program it's our own little animal those you guys familiar with California know the Cal vet program also in Texas there's a Texas veterans program I'm a senior executive that runs that for the state of Oregon so I manage a portfolio of 375 million dollars of mortgage loans and we have an origination between seventy and a hundred million dollars on an annual basis so so I you know I've been around a lot of ups and downs in the mortgage industry obviously what happened in 2008 was a little different but I guess the reason I go through all that is because I've got a pretty good background in the mortgage industry you've seen a lot of things and been across yeah it's one time I kind of sat down and counted up I've probably been involved directly or indirectly with over 20,000 transactions so I've seen a few things here in about 2013-2014 somewhere in there I decided that you know I was looking at various options to build wealth you know coming off a 2008-2009 right about that time I was also the president of the Portland chapter of the real estate investing Association part of the national we call it North Wish real estate investors here in Portland so I managed those guys I was a was the president for I don't know four or five years somewhere in there flip the house a couple houses did some wholesale dealings and then listen to a guy from notes cool talk about investing in notes and I go you know really with my mortgage background that's really what I should be doing you know it's kind of a natural segue and if I structure things right I can still maintain a day job as well as do these things you know by day I'm a mortgage guy by night I'm doing it for my own portfolio uh and so I started by a note to my own in my own portfolio basically out of myself to record I write and had some good successes on that one of my earlier ones is a about a little note in Klamath Falls Oregon and it was originated as a second home to a gal out of Southern California day I don't think ever saw the house it mean it went in foreclosure I bought the note for twelve thousand five hundred bucks we chased this owner through Southern California for a few months and finally found it she signed a deed lieu of foreclosure we gave up the right to pursue a deficiency and once I got title to the property we listed it sold it two days later for twenty-five thousand five hundred dollars and had made one hundred three percent return and so I'm kind of going you know this this this has legs we need to look at a little bit different so did a few more things in the self-directed IRA and then got a little education and decided that maybe it was time to scale up obviously one of the things in this in this move of scaling up involved joint venturing because typically you know most of us that get started off don't our have our own pot of cash that we can do this so let's put other people's cash to work pay them a nice return and in obviously profit from on your buyer as well as yourself so so that's kind of what we're doing we were doing real well I think we got up to about forty five fifty notes at one point time I had about it dozen or so investors that were basically funding my transactions and then in in what was it for their per second we have said yeah yeah we have a lot of new investors here yeah yeah the common things are you know how do you get started right you know you went to a class you listen to a guy speak did you go through a formal training yeah I actually signed up with with with a well-known educator and became part of that mastermind group went to four different mastermind events that was sponsored and of course you know very often there was a two or three-day weekend seminar that went on and so you know I decided to dig in as deep as I could to learn as much as I can so even though I had a mortgage background there's still a lot of things that occur in the mortgage industry and investing in notes you know and I say you learn something new every day and so you never can start stop looking for stet stuff in fact you know one of my little mottos is always be curious if you stop being curious and you're gonna stagnate and everything changes so you know you've got to keep learning and so you know I pulled in stuff from bigger pockets you know I'm a member of I don't know maybe a dozen or so of these various note investing face book pages I've got one or two of my own and so anything you can do and then just there's books out there you can read and there's there's a you know all sorts of various resources and you know the podcasts like you host from time to time I mean every time you have a guest on you can learn one or two things from that and there's people that are listening to us on this particular podcast today that you can learn stuff from so there's all sorts of resources out there and it would just need to be as curious I can because you know I I'm really got this entrepreneurial mindset and I struggle working for somebody else and and and and I work for government I work for state government and it's you know as about as far away from you know entrepreneurial type mindset is as you could possibly be so now fortunately I've got a great employer they support me we kind of leave me alone which is the way I like stuff we've done real real well there for a second so you have a w-2 job right one two weekend courses yeah we're learning from others we're networking or masterminding you have some people on the call that are white still where you're at yeah poor nervous scared either a they don't have the knowledge or as you explained I've been approached by attorneys who say hey I'm in sitting in this space but I don't know much about it and I kind of laugh and say well aren't you returning understanding and you find that they understand their side of it and you want to send your side of it yeah so would you recommend those people who are just getting in to get new or some kind of smo training or master mic on a group III think that you can look at local meetup groups i think you can get involved in the real estate investing you know type of clubs that are in your respective town and there's just a whole lot of things read bigger pockets you can sign up for those alerts and find out some things and there's just some great opportunities and resources out there and just learn as much as you can you may not need to spend $25,000 on the course it just depends on how curious you are so if you're curious you're gonna seek if you keep knocking you're gonna seek and find what you're looking for and if there is a chat box oh who just joined in late there's a chat box hit the chat button you can probably set a message to me or Cody or group so if you have a question as we go along feel free to jump in there I'm monitoring that as we speak yeah okay good Cody when you moved into this space you were you're when you eager when you nervous how you're feeling back in jun 13 2014 oh you know i I just kind of jumped in with both feet I found an opportunity I did the analysis and I just pulled the trigger you know always that first one but and when your first one you know it turns out real well it kind of wet the kite for the second one now you know if somebody was new getting in in the business right now there's a I would probably look at a performing note of some sort maybe even a seller financed one a lot of it depends on the entry point that you would get into because the non-performing realm requires a lot of attention it requires attorneys could be expensive and then if you end up taking the property back in you know the state of Missouri you know what are you gonna do with it so there's a lot of there's a deeper learning curve on the non-performing side of things then there might be on the performing side of things and so that would be you know if I was to talk to somebody and say you know how to ask them they asked me how to get started I'd say you know start off with a little performing Note one that's got a history one that's pain and just get your feet wet make sure you have all your vendors ready make sure you have a loan servicing company set up in advance so you know it's one of those things you have to have the horse ready to roll before you can put anything in your cart and so that's that's that's what I would suggest is look at that Avenue first so I'm gonna say probably majority people on the call or probably it again to space that I was in when I first got started back in jozin what if shutting 12 when I first started buying I think it was we left the fund you were in is I have some money if anything and I'm ready to go in I'm excited I'm motivated I'm gonna go my local read and find people who are landlords who want to flip over I'm gonna post things on Facebook and LinkedIn I'm gonna get some money in my pocket to buy something and I've been told by these you know these training programs that go get money and go get these people and connect with them so that's what yeah that's what we all do that yeah oh yeah that's one of the things you learn early on and any sort of real estate investing is using other people's money in a lot of ways that's okay but I have found and as we'll get into a little deeper here when you're looking at it from a no perspective there are some things you got to make sure you avoid let's talk about the numbers of the deal first let's get everyone feeling what the numbers were of that deal that was the low key up and made you realize this is real stuff I I think that was again it was you know I bought the note for about twelve five the person never made a payment on it that I can find out it was an out of state they bought it as a second home and so you know if it was a primary residence there may have been some deficiency protection for them but because it was a second home I really had the right to sue for a deficiency but what we did is you know gave that homeowner or that borrower I guess or whatever you might want to call them I've weighed the right to go after him for the decision deficiency if there's paid you know sign the property over to me I don't even think I had to come up with any cash for keys because they weren't ever in the property so make sure that people follow along can you see what deficiencies mean in a quick con sentence well the deficiency would be is that you know let's say you buy the note for twelve five but they really know you eighty five and so you actually have a right to sue for the difference between that 85 and that twelve fire that is the amount that they owe you and so that's a deficiency if you get a judgment technically they are supposed to pay it back it goes under credit report it is a lien against them or a judgment against them actually and so it really was a good deal for this person that I went ahead and waived that so that you know they didn't have this what would that be $65,000 judgment against them that every time they went to get credit it would pull up on their credit report so you know it was a win-win for everybody and you know you're talking small dollars I only had 12 five into it and you know maybe a little bit of some attorney fees but you know I sold it for twenty five five and boom deal you had with your joint venture partner was that different deal that was when it was all my own IRA money so so let me look at the deal with the joint venture partner how do you meet them because obviously well if you mean it'll goes away well numbers that deal if you remember and how do you know that person well let me just clarify something is is the situation that I'm going to talk about here had nothing to do with the joint venture partner nothing at all in fact I can kind of see on script here a little bit and maybe that'll clarify what you're talking about here but one of the things that I will stress is that in a pre joint venture Park sure that I work partner that I work with never had an issue with what we were doing and so it was in this situation a local competitor a local person who wanted to try and be a known investor who kind of did the same things listen to a couple webinars maybe attended some online classes and kind of made an idea that they want it to be a known investor I had no background in it whatsoever but they wanted to be a known investor because the way it was presented you know look like easy money it looked like there was not a lot of work and so and so what happened here is this preacher person well let me back up just a little bit and kind of tell you what happened here if I can be sure is that in in what was a late August no it's late September of 2018 I get a call for on my cell phone on my personal cell phone that came from the oregon department of consumer abysmal services and i was in my office in my day job my state day job again i'm senior executive and my cell phone rings and i see the caller ID stand department of consumer and business services which we call d CBS this is the federal this is state only if the state stuff this is all on a state basis you know in this pack but this person sits is three buildings away from me okay so so it's not that far away i can walk over there in about three minutes and knock on their door I need an answer that phone call I thought I'd let it go to voicemail I was in my work and then my desk phone at my job rings with this alrighty so that's a little awkward but this time I picked up the phone and I was ended up talking to an investigator from the Department of Financial is it financial you see DFR rules regulation Department of financial regulations and a quick conversation and said they got an anonymous call from somebody and asked them the caller asked if they if I was in good standing with the state and if they were aware of my business practices and so we had a pretty good discussion you know about a 20 minute discussion and they said well okay I see you reader coming from but you know we're kind of obligated to go through a bit of an investigation to make sure you're not violating any new rules Rex and so I said okay well I understand that let's be sensitive about this because my position with the state and he says yeah we will be will be very sensitive to that and then I asked her the question just out of curiosity can you tell me who this caller was they said well they said he said well yeah they were Nicoli and anonymously but we were able to trace and find out it was this certain person well my surprise the certain person was another guy that I had tried to mentor it was this guy who was wanting to be a note investor he ended up going through some problems with the state himself so he started off with a five or six read read see fun to raise a million dollars to try and buy some notes and he was having some problem raising money obviously a regs a 506 C requires an accredited investor and my guess is that every time you talk to another accredited investor to get involved in his fun they easily determined that I wasn't ready to do this and they were unsure about their money ah and so once I got off the phone and found out who this was got off the phone with the state I called this guy and said hey I just got a call from the state and this is that are telling me what are you doing and he says well why did you kite one of my investors and I said I don't know you're talking about oh he said coach why do I did you poach one of my investors like I've no idea what you're talking about he says well I had somebody a local never a person had pledged $100,000 to him but she decided this person decided to give him half and me have to do another joint venture and I said why didn't you just pick up the phone and call me in his response to that was well I was just doing some due diligence I said well come on you know me you know we've talked a hundred times I've been trying to help you and and he basically said well you just never know who you're talking to who are you're dealing with I go come on You Know Who I am no that's just business you know so and then he hung up and obviously now we're blocked from everything and I don't want anything to do with him but Danny describe a little bit about your joint venture how was it structured and people that are on the call you know it's similar to how we all structure join that's how we see it yeah well I'll get to that just a second him basically the way my joint venture was probably very similar to what most people on here would would structure theirs is that I'm the expert I have access to notes I know how to manage the notes I just need funding so if you fund the transaction I'll do all the work and then when it's time to liquidate that you'll get your money back first and we'll split the profits hmm it's a very sir anyone in this in this webinar probably raise their hands is that's how I've done it that makes sense that's joint venture right you gave me not you you did your half and I need my ass yeah yeah so I know I'll do all the work all you've got to be as a passive investor that's it nice news if you get it easy you get money back what up that's you see yeah yeah and and it sounds good and you want to make sure you structure your document that has a certain kind of protections for both parties but as I proceeded through this investigation there was kind of two phases the initial phase was the state initially thought I was either a debt collector or a debt management company now a debt collector or he needs to be licensed even if you buy a note or buy a loan that you're gonna have serviced by somebody else and so when we talk about various states requiring licensing Oregon is one of those licenses states that require a license a debt management company is one of those companies that say hey for twenty five hundred bucks I can get you a loan modification yeah you know we've seen a thousand of those especially during the mortgage crisis and so after about six or seven weeks I was over at a resort over in Central Oregon a place called Sun River I had my family over there and I get a call from this investigator again this all started in November and I got a call was about the 10th or 11th or so of December just before Christmas and he says well we've come to the decision that you're not a debt collector or you're not a debt management company you know go that's great because everything I showed them I mean I sent him a ten pound box of information that was interesting so they actually had delivered it hand-delivered it to him so and then the he says however we have a concern that you have violated some security regulations security yeah I said say what he says yeah basically we think that the structure of your joint venture agreements and those those transactions constitutes a securities violation so they sent me a letter basically requesting a bunch of information and the main part of that letter there's a couple things is that they've required of me to prove to them what exemptions I am following since none of my joint venture agreements were registered as security with the state so I have to prove to them that I'm following certain exemptions oh welcome to this time we were trying to battle the debts the debt management company debt collector kind of stuff in there and then the attorney I was used to say hey we're not security as attorney you gotta find somebody else so I found a $400 an hour SEC attorney who used to work for the state and knew those guys so that was helpful so we're still work with a state and a federal role my state regulator company from the SEC on a federal basis it's all the local guys that their office is three blocks away from where I work okay and the interesting thing is is another interesting there's a lot of interesting things here and I know I'm not going to get them all out is the guy who is the director of that agency was my director left my agency to go over there so I knew the guy who ran the whole shebang you know and so that was always kind of an interesting thing so in any rate so I had to prove to them they had a list of things I had to prove to them so what I had to do and they were looking for two main things and this is what's real important for the folks who are listening to this this is the two main things that are looking for and one is solicitation was I openly soliciting for investors and so hosting on Facebook walking around asking for information we need money just give us your money we'll put deals together yeah or I have this deal in you know in Indiana and I need $25,000 to take it down anybody out there want to invest in me well they went through every one of my Facebook posts I also had to supply to them because we're all taught to send out this email marketing letter okay and so I was sending stuff out every Sunday night and if he didn't open it by Wednesday you're getting it again we had to put together every single one of those for the last two years for them to look through to see if I was soliciting for investor partners and they were particularly looking at those that would not be considered an accredited investor or a non-accredited sophisticated investor because Allah doesn't allow you to open solicit those type of investors and so they looked at everything that they had there the other thing that they were looking at is whether or not those joint venture agreements were offering a security and there's something called a Howey test okay you guys can google it or whatever you do how we test h o w ey and there's four components in the Howey test and basically you know what they are is one is their investment of money well obviously in a joint venture transaction there is an investment of money number two in a common enterprise so you got two people going together in a common enterprise you know and this in my situation to buy an out second thing with an expectation of profits I mean why would anybody put any money in without having some sort of the profits and then here's the thing solely the effort solely on the efforts of others so if I go to them and say I'll do all the work you just have to fund this thing his return is solely on my efforts and if you meet those four criteria it's the security ouch yeah all that meaning you've been taught what's that all the training you've had now all the communication you forehead yeah has it ever been mentioned or talked about well there's a couple of everyone some languages some attorneys on they talk about this and say you can't be doing this and you know a lot of us you know think it happen why would every bit of me at all yeah it's not gonna happen to me I mean I'm just a little guy here you know in Dallas Texas I'm not I'm not really bothering anybody and my investors are happy and I'm paying stuff off you get the one in it in most situations they say you're gonna get a call or they're gonna get alerted that state regulators are going to get alerted by an unsatisfied investor any doubt in my case I mean all my investors were contacted they had to write letters and give to the to the state that basically says tried to try to substantiate what they call this is another part of the solicitation thing a substantive pre-existing relationship and so fortunately being the president of the real estate investor Association a few years back I had good relationships with a lot of these folks and you know if I didn't I'd go through this slow dance and have coffee this is when you can go out and have coffee with people and you know I talked to them telephone calls that go through a whole kind of slow dance as I call it to get to know these people to see if they you know have the capacity to invest in tight this type of investments and and so you know part of what I do when I have an investor was say you know this is all confidential nobody's gonna know about you and I and working together well the state reached that I had to reveal them their names email addresses and phone numbers as well as the mailing address to every one of my investors involved in this and that was pretty darn uncomfortable for me too but what was really good as every one of my investors stood up and stood up for me and there was not any one of those that gave any sort of negative response back to the state so you know that made me feel like I'm doing something right from that aspect of it but there was something I missed and so the thing I think we all get comfortable in is that you know when we go through some training you know we always talk about the the laws that we have to follow you know whether there's a new law in Ohio about owning notes or something going on in Illinois or something like that we know the laws and so the one thing that we forget about in knowing these laws is every one of these laws have become statutes get assigned to an individual state agency to implement that state agency then has to draw up a set of rules that you have to follow and so we may know the laws but we may not know the rules we don't take that next step and so when we gone into what we're gone there were some violation of ORS 59-point over 55 but there were certain other rules involved in that that insolently talks about disclosures and a number of different things so you know basically they started the state started their investigation just before Christmas in 2018 and I was essentially shut everything down right around November when this started I stopped my weekly email I basically kind of went silent on anything on Facebook I went basically underground because the other part of it is you know my employer the state of Oregon Department of Veterans Affairs you know I need to make sure that I didn't kind of create some embarrassment for the agency of course knowing at some point time I'm gonna have to talk to them about it and and so during the course I mean I worked with this attorney he's very expensive because we had to respond to the letter show me what exemptions you were following because you're not registered so we started this November and finally after sometime in March late March early April we put together a 38 page response to their one-page letter showing all the things we did what we did and admitted some things that we did wrong but we fully cooperated with the investigation totally transparent and that helped I've got wind in late May of last year 2019 early June that the state had an offer to settle my attorney bless his heart was in the middle of Pacific Ocean on a yacht race so he was little loud was a little hard to get ahold of but finally I got a copy of what their proposal was and I was actually able to negotiate some language in that say this isn't quite right let's change this and so we came to an agreement this is the agreement it is posted on the state of Oregon Department of Financial Regulation website ah they find me just a little bit of money they find me two thousand forty dollars lucky which was nothing for a you know nine-month investigation didn't cover really any of their costs but the thing that the state did that I thought really was good and I had a lot to do with our cooperation the way that we prepared and responded to you them how quickly we responded to them and the fact that my investors gave good support for what we did with them was that they said that any sort of what do they call this this this order that they posted was all in the name of my company I was not named in this individually uh find me individually in there and so it's all in the name of the company and I highlighted a couple things that are important I think for this group to understand so so basically they talk about respondent which was my company not me maintained a website and a Facebook page on which it generically presented opportunities to invest right it also I also appeared on various radio or publicly available audio recorded podcasts but to discuss investing strategy so they mentioned how public I was and they also mentioned about the ask you know because in the letters that we send out the emails you send out there's always a little asking there if you're interested about learning and investing or investing was give me a call that is a solicitation problem with that so and then it says that no relevant time did the respondent register any any sales with the division so they determined that a joint manager structured like this is a violation of securities okay and so in that I violated RS 59 o 55 I talked about that they gave me a little fine but this is the other thing that I thought was real good and I say this because you know this is hard to talk about because most of us on Facebook or whatever present ourselves in the best possible light rarely that we talk about our misgivings our bad decisions or losing a bunch of money on an OD so so you know coming out like this and saying hey you know there was this problem I went through last year this is why I went off the radar this is why I fell off the planet and my goal here gave is basically to prevent somebody else from going through this I mean there's there's there's a it's a give back the note investing feel this it's a small little group of people you know and you know some guys that we know else coined the term the term you know co-op petition so even though I'm bidding against the same asset you might be what we're doing today we're talking to each other and helping each other out so we've got that going on so hopefully this helps somebody else and we see this kind of weird stuff yep good I just wanted to read this final thing here that is made me feel really good about this and this is you know because coming out like this you get this senses Jesus I don't want to work with that guy I mean he got dinged by a state agency but but listen to what they said in their official thing here it says nothing contained herein and this thing is intended to stablish a finding that respondent or any director officer or control person engaged in any contact that conduct that constitutes bad actor conduct you do not want to get turned a bad actor because if you get termed as a bad actor you're done with this business so it didn't what goes on to say the division is not borrowing barring respondent or any covered person which is me from engaging in lawful conduct Wow so they basically say it's okay to do what you're doing you just gotta register your securities or file the proper exemptions and so that's what we've done we've taken that next step our attorney advised that we basically totally rebrand so somebody if you see in the chat some of the people are grateful for you sharing this very private unfortunate situation it you felt like oh my god I got myself in a situation and most people won't you want to share about but as I share with you when I heard about it I've been wanting to use webinar for a while and again I polished every one last week was chaotic with my father everything else but I still wanted to do this because I know yeah I'm so passionate the fact that I moved out of that space of J being and this is one of the reasons because of this and your story brings so much life to what can happen worried about Assisi and we're a little man all these kind of myths and stories he's a real situation it's not 20 you know the two grand get a payout that experienced that motion that desired yeah now one of the question we got was did you jump back into no investing did you go back and then were to get into more stuff soon but what was your first reaction here well obviously we had to shut her down you know and and another real good thing is you know I spent about twenty to twenty four thousand dollars in attorney fees to defend myself yeah or to respond to them you know and it's all because some jealous guy made a phone call rather than calling me okay so that's that's the hard part about it all but I also knew and as I kind of years ago set out what kind of model I wanted to follow I knew that I do a little thing on my own you know I knew that I would take this situation of joint bitchery and then I would move to a fund model and so what this did is it kind of moved us moving to a fund model maybe a little faster than we would have otherwise but it also gave me this huge learning experience about what you need to do to be compliant not only on a national basis but also on a state regulator type basis and so and so that was what we what we've done is you know we rebranded my old company Trinity National holding still have some inventory we're trying to liquidate still trying to pay off my grade in bed who supported me through all this we set up a couple new companies here in in the fall one of them is the funding factors which is my visible company I was very sensitive to keep my marketing efforts separate from my investing efforts you know I still have a sense that every once in while I'm one of these investigators goes in and looks at what I'm doing I want to make sure when they go in and look what I'm doing they don't see anything in there that is is problematic so I came up here or a comment that made was somebody mentioned that all the investors have decision-making abilities in joint venture does that fix a joint venture agreement well no not always because if you're relying on the efforts of others in a common enterprise it's got to fit all four of those how we test things so even though they have all the decisions if or they share decisions that person having all the money into it one person having all the cash into it still can meet that threshold of being a superior so most joint venture agreements that work out you know in other situations is that I have certain expertise and some cash I bring to the transaction the other person has some expertise and some cash to brings to the transaction so we're going to come together with the joint investment and the joint expertise to put together a transaction and joint venture the the value of a joint venture of course it's only isolated on one particular project it's not a partnership with ongoing you know partnership returns and ongoing projects but it is just for one particular project so you know the thing of it is is you know that would be a good question because neither one of us are attorneys nope you know it'd be a good question for an SEC Tournament you know if I'm doing all the work but joint decisions because in my in my joint venture agreement that we used there was provision in it for joint decisions that they had to be involved with all the major things go on the day-to-day stuff I would handle but you know if we got an offer on a house that's a joint decision if we're gonna get a discounted payoff that's a joint decision that was in my agreement they saw that made no to that and we actually emphasize that in our 38 page response so you have that in your agreement you they agree to it they understood it they made decisions and we've still got fine for the fact that you did a joint venture even though this is in there and I'm really looking to the comments now Benjamin said he's new he's grateful so Cody another guy depreciated the area tensioned would you do a joint venture again or would you set up a fund to raise money well yes I mentioned you know here we stood up to companies I love my what I call my mortgage media company which is funding factors that's all my marketing information company you know I encourage you guys to go into Facebook and like my page or connect whatever that might be and then we did send up a set up a management company we call that Ridge City factors I'm in the state I'm in Portland Portland's of Bridge City that is are basically our management company for a fund and I can't really talk too much about that but we did set that up at the beginning of the year and that's moving forward very ring so I see that Victor had some questions if you can see him as well was about licensing exception for a note investor at what point does a note investor make the leap from a passive not requiring a license to an active trade or business requiring a license so so none of my investors needed a license in the state of Oregon but the state of Oregon now does require under their debt collector laws that if I if I purchase a mortgage loan where that homeowner or that asset is located in the state of Oregon even though I'm going to service it with somebody else I'm going to transfer servicing I still need a debt collectors license and a loan servicing license now what's that those that we make sure it's clear yeah for those who are maybe new to space if they're proper isn't from state that license is not required the proper is locating work on it's not where you're located where the property's located correctly yes it is yes so the question was does it note the license note servicing company allow a passive investor to avoid licensing good does not do does are you still need to have a license even though you're gonna have somebody else service it for you okay so so what I'm going through the question I know Lauren had a question regarding vetting your mentorship now and we'll get into that if you're still doing that selling parcels do you think it'd be safer than JV sona portals is a transaction so you're selling it to somebody else joint ventures can you bring in somebody and two people come together to go forward in a transaction usually different skills or money it could be anything um so if me and Cody want to give you a note investing thing and I bring someone in Hebrew somebody would buy a deal or joint venturing our skills if I give him a hundred grand he goes buy something and I said okay I make decisions he raised a hundred thousand dollars great we didn't joint bench or anything he raised money for me that's the problem here and of course if you sell a partial I mean that basically means that you already own that note and you're just selling the first bunch of payments to them to somebody else so that's not exactly considered as security right so is that a safer model than JP yeah likely I did a lot of what I called collateral assignments you know or hypothec Asians and that was a safe type of investing strategy because you're borrowing money from somebody versus them investing with you on a passive basis so let's get some more question about this this is something that I think everyone on this webinar has either done thought about doing or thought about you know who were closer doing it I know I've done the best like left likely when I did it I only did with Co people like did not completely know and those deals are now sunset in which is great and I'd given people I did know when we joined up or knowledge or experience or money to do deals now we have a funny important we have a different LLC and different set up but if you're doing deal when you're raising money that's the problem here if you're in the same company as someone just probably sent me if you're just same company that company is protected by the entity that that's not a joint venture that's correct right so so if we're not joint venturing Kody man your partners are doing it what options do you have to take their money in and allow them to make me decision making a little what are the couple options that you do have well I mean the main thing is is is that everybody is equally involved if you're gonna do that one of the things you know as we move into a fun model what part of my goals is is to buy and larger quantities you know it with with a with a joint venture all your risk is tied up in that one an asset with with fun as I'm doing it or the way you're doing it where you have you know you form a limited liability company with a lot of different investors doing these various duties within the LLC and you're buying a larger quantities and the risk is spread out over the entire portfolio yeah so so that was one of the things that I like so if you buy a you know a tranche of 50 notes and you and two of them go south well you know the risk of those two gets spread out over the other 48 so so look what I wanted to answer once Eurobike Kishori yes what's your thirty process yeah well this is this the way I would answer that and it doesn't matter who your mentor is obviously they can't cover everything but I would assume that everybody else every one of us on this phone call have our own business we're business people it's not the Guru's.