2nd Lien Note Investing Strategy with Daphne Wilson | Real Estate Notes Show

Episode: Note Investing 2nd Lien Investing with Daphne Wilson Dave's Goals and Plans: - Dealing with a lot of bankruptcy problems and cases where trustees have limited availability - Seeing a lot of non-QM inventory and portfolio coming through recently - Planning a call with friends this afternoon about inventory release timing and capital management - Attending Node Expo conference in a few days - Prefers not to deal with bankruptcies as they are time-consuming and a pain Nathan's Goals and Plans: - Currently dealing with evictions and has a mediation meeting scheduled in Connecticut during the conference - Has owned two second liens in his career - one accidental and one intentional (also owned the first on that one) - Bought CFDs in first and has bought some performing and non-performing seconds, but hasn't focused heavily on seconds - Traveling to conferences has increased recently after a long hiatus - Met many good second lien investors and is interested in understanding their different processes Key Recommendations: - Talk to as many people as possible - don't stick with just one trainer or mentor - Get different angles and perspectives on note investing strategies from various investors - Recognize that there are many right ways to do note investing, not just one correct approach - For second lien investing: focus on delinquent seconds where homeowner is current on first mortgage to minimize property takeover risk Topics Discussed: - Second lien vs first lien note investing strategies and processes - Bankruptcy complications in note management - Recent market inventory (non-QM, portfolio loans) - Eviction and mediation processes in different states - Conference networking and community importance - Individual investor decision-making processes and risk tolerance Guest Insights: - Daphne has a corporate technology background (25+ years) before transitioning to real estate investing - She started with second liens because they matched her risk-averse profile and required less capital than first mortgages - Her strategy targets delinquent seconds where homeowners are current on first mortgages to minimize foreclosure risk - Key mentors in her education: Sherman Arnowitz (Keyhole Financial) and Mike Kelly - each providing different perspectives on the business - She emphasizes getting hybrid approaches by consulting multiple mentors who often give different but equally valid answers to the same questions property but if the um if the homeowner maybe gets an appraisal done or whatever and they they determine that there's not enough equity to even partially cover the second mortgage then they'll petition the court to strip the lien off of the uh off of the property so then the second mortgage uh becomes unsecured and is considered unsecured debt similar to credit card debt so if the homeowner actually completes the bankruptcy plan which is typically a five-year plan then the lien will be taken off the property so that's what it means for the second mortgage to be stripped how often have you seen that i didn't know that um [Music] well it happens quite a bit now since you know um home values have increased you know it's likely to uh to occur in this market but um but it you know it happens quite a bit but the great thing um you know about that is when you're doing due diligence uh on seconds that's one of the things that you want to be mindful of is you know what is the uh the equity position of the property you know um it's and you determine what your equity buffer is so you know what's old on the first you know the value of the home you know the unpaid principal balance on the second you know how much above that do you want to be you know five thousand ten thousand twenty thousand you know how much equity um you know would you like to see above the first interesting yeah i didn't know that the that second lien still existed i thought it was just completely wiped out i didn't know it became unsecured learned something new it was like a personal debt then right everybody dave putz here from jkp holdings alongside me of course mr nathan turner as always hope all is well with you um we're just mentioning the rain we're getting some crazy rain recently we're having some rain this afternoon too so um not sure how i like this thing hopefully halloween for us kind of gets better uh but we'll see from there um i wanted to kind of see what your plans are man i know we'll be seeing each other in a few days yeah i know that uh net expo is coming up if you don't have tickets and you want to get them reach out to us uh we'll set you up um but from now i think you know what's been new in your world what's been going on i knew uh i i've talked to you a little bit but i know you've been kind of dealing with all these conferences i have yeah it's been a busier time than it has been for a long time actually the traveling is is coming back online which which you know is good and bad i i actually i'm surprised at how much i've missed it uh because it was getting to the point there where i was i just was getting tired and i it wasn't uh i don't know i was just tiring more than anything else it was always useful and productive but just tiring but i'm surprised how much i missed it i'm actually and you know i've talked to a few people now they're going to node expo and i'm i'm it's interesting how excited everybody is and i just kind of get that feeling that everybody's just really looking forward to it and getting back together and and you know getting back with a group of people that can talk notes that's it's we do miss that conversation like okay i don't get to teach the basics a point or even you know your your family is like i don't want to hear anymore like if you talk about something else like they bring up politics or cope you're like listen i'm going back into real estate you know yeah so for me i've been dealing with a lot of bankruptcy problems a lot of stuff stuff there we have a couple cases where the trustee i'm sure i heard to reach out to you is stuck in like they're open on tuesdays and fridays from one and two o'clock it's like what is like you can't answer an email or take a phone call like i don't get it i don't like bankruptcies we've we've been over this i don't like craftsies in general they're just they're a pain in the butt i i don't like dealing with them they're time consuming i i just i'm not a fan yeah but that's me you know like i know you get bankruptcies all the time and so you must like them you know i enjoy the payment stream that comes with it right i enjoy that the the the extra money right as i call it um and then when you sell it to keep itself with the pni in mind but for those couple years you're getting that extra payment um are you doing any convictions right now any kind of with that in mind uh i am um i've got a couple of evictions uh that have started i've got this is a i'll tell you more about it next week i've got a mediation meeting actually next friday uh during the conference i'm gonna have to miss the first couple of hours to do this mediation meeting i've got one in it's in connecticut oh my goodness connecticut's tough enough to begin with but then this guy is just like he's a crazy and just and it's it's an interesting situation anyway i'll fill you next week but yeah the guys saying everybody just out there so we'll see so and for me you know we're seeing a lot of inventory i've seen a lot of um non-qm stuff recently um and we're seeing some portfolio come through um and i'm curious what's gonna happen i'm gonna have a call with uh some friends uh this afternoon about some stuff to see where they're going with some inventory that they're gonna be releasing they're just trying to release it at the right time make sure their portfolio and time with the capital they need they don't want money sitting there they want to keep recouping it um so it's interesting now your experience you're buying you bought cfds in first and whatnot how you bought a lot of seconds i bought i think i've owned two seconds in my career and one was by accident one was on purpose one i think we didn't know it was the second uh and then the other one we did know it is second but we also own the first so that was okay oh that's a nice situation so that was an interesting one that was in hawaii um that's the only hawaii note i've ever bought and that that's also a tricky state to deal in yeah and in fact we ended up doing it uh like a deed in lieu just because the court system is so slow it's ridiculous but anyway the other one was an accident and it worked out but i didn't intend to buy a second yeah so it's weird because i bought a few seconds not performing i bought some performing i bought some cfds but didn't dive into it like you have um but i've met a lot of really good second investors um and they're really awesome to talk with yeah at times i can't relate to them because their process is a whole lot different from ours even though they're still in the same space yeah i find the second space really interesting and i can see how somebody could be attracted to it but it's not my preference it's not something i want to do so i'm always interested to talk to seconds people and get their perspective and why why would you go seconds instead of a first i i much prefer it but i'm always curious and they've always got good reasons so i'm excited for a guest today yeah i think for me is understanding their process right and understanding what what they do i i just don't understand sometimes what they do to get into an asset what matters what doesn't matter to them right and what they avoid what they don't avoid so it's really cool because you talk to any first investors and each one of them has a little different spin on what they do and what fits their box yeah and for whatever reason yeah so it's it's cool to have that conversation i encourage everyone talk to as many people as you possibly can don't stick with one person i'm not saying that one trainer is bad i'm just saying is you get different angles of things yeah me and nathan have been on a call before and you're like well i like it for this reason like i don't like it and we in our opinion we're neither right or wrong so awesome yeah so curious to hear we've got daphne wilson here too and a second person so we're uh we'll just help you kind of kick your brain figure out what's up with what's up with seconds welcome daphne enjoy thank you thank you thank you for having me pleasure uh absolutely so daphne can you give us a background how you got started what channels you went down what tree you came from you know for new investing everyone comes from a tree share your background a little bit sure sure um my background is actually corporate technology so a computer scientist for over 25 years work for a lot of fortune 500 fortune 100 companies uh in the regulatory and compliance space predictive analytics big data whatever you want to call it that's my background and it had just gotten burnt out you know had a great great career excellent salary uh but was just burnt out i remember sitting in my office um at the time i was working in the the sears tower and out of willis tower and looking out the window onto lakeshore drive people were out in their boats and you know jogging and rollerblading and having lunch with friends and i'm sitting here slaving over a hot computer and just thinking to myself you know there's just got to be a better way it's just i'm just ready for something different and so i figured real estate would be a way to uh to retire myself um didn't have a real estate background other than you know owning my own home and so i went to a a real estate seminar that they have all over the country and uh the gentleman opened up the seminar by talking about the top 10 or 12 ways people make money in real estate and he mentioned uh note investing and you know he said hey you know you can buy the mortgage instead of the property and people will make their monthly mortgage payment to you for the next 15 20 30 years and i thought that's how i'm going to retire that's it right there so um so i you know i went home i researched and i just really liked what i learned and um decided that that's the route that i was going to take so um and this company they were they're real estate focused right so they didn't even go into it besides just that brief introduction that was it um they focused more on rentals and fixing and flipping that's what the the seminar was going to be about uh but i wasn't interested in that i wanted to know more about this no investing thing and uh you know once he told me it was going to be about you know fixing and flipping and you know rentals then i said no that's that's not i'm i'm interested in in this note investing so um so yeah it took me a year um for to find someone that you know teach me business so i hung in there i started investing in seconds because at the time well and i guess in a sense still now i'm highly risk averse so i did not like to lose money and i thought investing in seconds did a few things for me one it was a uh a price point that i could afford when i was getting started um it was uh i didn't have a huge chunk of money uh in the bank to buy a first mortgage you know the 200 300 500 000 first i didn't have that kind of money um so seconds were more in my price range and then also um it minimized the likelihood of me having to take over the property which was something i had no interest in so my focus became buying a delinquent second mortgage where the homeowner was current on the first mortgage and it never been late because you know alone meeting that criteria it's not very likely that a homeowner is going to lose their home over a 30 40 000 second mortgage if they can work out a payment that they can afford so i really i was really attracted to to that so the price point and also um the less likelihood that i would have to take over that property cool we got the traction right that's that's the hook yeah yes this is 2015 or so so now we're six years removed from there you i'm sure you've interact with other second investors in the space right we're a very small space share who you dealt with who are the people you look up to who gave you your education who gave your knowledge who mentored you um oh gosh and i still have these mentors today um i credit him with teaching me this business basically holding my hand and you know being there when i called and text you know [Music] and sherman arnowitz yeah keyhole keyhole financial very instrumental and you know um made himself available to me you know as i was going through different scenarios um also mike mike kelly oh man he's such a straight shooter i just love mike if ever i just want just the straight no chaser version i mean if i if i say something that's you know he thinks is insane he'll say daphne that's insane [Laughter] he doesn't she hold it i just love it and mike's awesome yeah yeah and the thing with these guys i could have one question i'll ask each of them separately the same question and i'll get three radically different answers and so you know my response is always a hybrid because they they they always have a great reason for you know for what they what they're sharing yeah yeah and we've talked about this before in first too you know like you say we can talk to different people and get different answers and and it's the same in seconds and there there's there's uh there are wrong ways to do this but there are many right ways to do it as well and so you can you've got all kinds of choices on what you can do based on your preferences and you know your philosophy whatever you want yes that's really cool oh yeah and so there's also um uh sabrina allen oh yeah yep and um let's see man you picked some of the best oh yes yes they're the goods they're the goods all those guys yeah they're good it's weird the second space right what people don't realize about this whole industry is very small they get into it and we've seen people like oh my going broker and you're like listen you this isn't typical real estate we can come in there and broken no one knows who you are people talk is so small so seconds is a very different animal than first um and most people i don't know where to start at what is it about seconds besides the cost that's attractive to an investor that may be getting in cost is probably the top one it's the cheaper way to get into node investing and you can buy more than just the one right what are some other advantages buying in a second position um the other advantages i see is for me i didn't want to i didn't want to have to take over the property so if i you know i didn't want to have to manage a property i didn't want to have to evict anyone i wanted to make sure that my whole model was cash flow so i didn't want anything to do with the property so you know my criteria is always to buy a delinquent second kind of performing first because that you know that minimizes the likelihood of me having to take over the property and that was really key for me another reason is the homes tended to be nicer and more attractive because a lot of times people will take out a second to make improvements on the property you know kitchens yeah it's put a pool in the back whatever so the properties tended to be a little nicer um you know for that reason as well so so yeah those are those were really the three reasons the price point um you know the condition of the properties and also the less likelihood of having to take over a property yeah a lot of people don't want everyone wants to get real estate so they don't have the property right yeah that you know when you're in the first first place you're worried about that yeah that's a great point that's awesome and there's a high likelihood in fact uh i think and i i me i may be higher than average because i i buy loans on vacant properties all the time that's that's common for me so i think my foreclosure are not necessarily the foreclosure rate but the rate of me taking back a property is like 50 so it's it's very likely that i'm gonna take back the property so that if you're not interested in that then yeah and one way you can minimize that is by first on on occupied properties um but for me as long as the numbers work that's all i'm really looking at i don't i don't really have a huge preference one way or the other yeah for me um being you know highly risk diverse you know my my first thought was you know if i bought a delinquent first even if it was occupied i don't know if the homeowner wants to stay in the home or not they could just be living in it for free waiting for the foreclosure to happen you know um and so i just i just didn't want to go down that road i my goal was to i just wanted to have money flowing into my account uh without having to do anything with any property mailbox money that's it that that's what attracted me to the no state that's what i came here for you know um but you know for investors that are more hands-on you know and you know and the numbers you know really work for you then you know then that's a that's a you know that's a great business model but for me i was just really looking to cash flow i didn't want to spend a lot of i didn't want to spend a lot of time on my note business quite honestly you know i spend maybe about i want to say a total of five or six hours up front on a particular asset i get it uh you know i get it back to uh to cash flowing i turn it over to a servicer and then i'm done with it you know it's on to the next one so you can be out at the lake jogging or rollerblading or whatever exactly that's awesome so let's dive into it right for first and seconds the clado files all the same right the assignments are all the same the sellers are somewhat different sometimes right some people you can get second from certain people and sometimes not one of the big differences we see is that in the first place of course there is no performing senior lean or non-performing senior lean share how you do that differently what is the difference between buying a loan that has a performing sec first or not performing first how do you adjust that and what do you look at for that and you buy both well i will only buy a delinquent second if the first is current and for the most part has never been late so that's the number one prior criteria for me so if the first mortgage is is 60 days late i won't touch it and that's because i you know i am very risk sensitive so i am you know really trying to be careful about you know the loans that i pick and choose so for me that's the the major criteria so how have you found um supply from five years ago to now is like have you found a dramatic drop-off there or are you still finding enough deals to buy yeah i am i am still finding enough deals to buy yeah that's really interesting yeah one thing we realized recently that loans aren't as second loans aren't being as created as often as they were in the prime days right we're waiting to see some kind of record of you know the past year how many second liens were created with people taking out the equity of our house with the values going up i haven't seen anything either i haven't really dived into look um but from what i've heard initially there wasn't as many people taking the equity out into a second there may have been have you seen any kind of update on that at all have you heard anything about people taking out seconds because they have equity because diets are up yeah i have um gotten a couple of articles that come across my desk that and um people taking out the equity and their property once the property values started going up you know um the way they have been people are starting to you know take out home equity lines of credit and you know second mortgages um which is you know which is a good thing for you know for us well you know eventually oh i think we're losing her feed uh there we go but yeah jeff we're losing your feet just a little bit just fyi everyone everyone know if it cut out there for a second but i'm glad to see that you're seeing inventory on that scene because we've heard a lot of issues with seconds having an inventory struggle right first in comparison to what we've dealt with years ago has definitely decreased right um not saying they're gone we're seeing the inventory we've seen more in the last quarter and a lot of people i've dealt with in the past said just wait to the first quarter we'll be releasing more um so i'm glad to see the seconds have availability out there and you don't touch anything with it i'm not performing first nothing yeah if the first is not performing i won't touch it do you buy several finance seconds um i'll pretty much buy any second um i mean really i bought some very dirty paper i'll buy up um strip seconds that were stripped in a chapter 13 bankruptcy buy those all day yeah well it's really interesting you mentioned that it's like for example and this is one of the reasons that i steer clear of seconds but maybe i'm just looking at it wrong so for example i've got a i've got a first lien on a property down in florida and we're completing a foreclosure on that only because the second the second lien holder won't respond i'm more than happy to pay them off and just be done i've already got a dean lou from the from the borrowers so i i i can get the property but it's still encumbered by the second so i have to go through the whole process of the foreclosure just to clear off the second and if they would just call back i'd happily pay them but instead they're going to be ending up with zero so i i look at that and i go why would you put yourself in second position where that's possible but if there's equity and it's paying then i suppose yeah um is the second lien holder still around uh yeah and i think it's a bigger bank and maybe it's just it's a small balance fifteen thousand dollars and maybe it's not worth their time i don't know i'm not okay so it's a bank okay i can't figure out why they're not just returning an email you know i don't know what's cheaper too you could look to do a quiet title too and just remove them that way and get them to respond yeah yeah we're moving through i've got aaron on it and we're moving through it we're gonna get it done yeah for me it's really frustrating because they won't just come to the table and and accept a payment and in my mind they would rather get stripped and just be you know washed out rather than talk to me and take a discounted payoff but anyway yeah that doesn't make sense to me either yeah strange so it's for me my my biggest thing is it's just that takes more time i don't want to take more time i want to do it now anyway so we had a question regarding strips in seconds position right yeah can you share what that means and how often do you face it so when a homeowner files chapter 13 bankruptcy um the bankruptcy court wants to know whether or not the first and second mortgage is um you know whether it's covered in equity so the equity position of the property is what kind of comes into question a lot of times what a homeowner or their attorney will attempt to do is they may say well you know the home is under water so it's um the homeowner owes more on the home than what the home is worth and so um if they have a second mortgage then there's not enough equity in the property to even partially cover the second now there's only one dollar in equity that's needed in order to keep the second mortgage lien intact on the you still you can't foreclose on it but you still can collect on it um interesting so when when those kind of things happen do you have remedies to fight them um you know if it's close then you know you can get the the property appraised and you know you can um you know you can dispute it um but you know in some cases you know back a couple years ago you know you you pretty much know that the home is underwater or it's so close once the you know the first mortgage um you know once you add in legal fees and things like that you're just too too close um uh for to to argue it basically we've been a situation where we've knocked down a second not stripped it but knocked out a second foreclosure doing it for 10 years now and i've probably done it a bunch where the property value dropped and we go to sell at auction and the second gets nothing right um and then you look back and say boy i wonder who bought that second but you would i i would have from our experience doing this for as long as i've been doing it those assets are underwater price usually much more aggressive or it's just cheaper to buy because the factory the equity is missing so i would presume right now those assets are probably at a prime cost would that be fair to say yeah yeah that would be fair to say i mean the foreclosure and the bankruptcy are really two different scenarios um so for me it would be extremely rare if um if i bought a second mortgage on a home that was in for the first was foreclosing uh because my criteria right out the gate is that the first has to be performing and not just newly performing but it has to be performing for years i mean they basically have not missed a payment in years and so that would be extremely rare for me now a person could um file bankruptcy at any time even though they're current with the first mortgage so that could happen at any time so before i purchase i am looking at the equity position of the property and if the home is under water they're current on the first but the but the property is you know um is underwater then you know i got to think about the likelihood that i may reach out to this homeowner about paying the second and then that's the straw that breaks the camel's back they get afraid they foul you know chapter 13 and you know now they're petitioning to strip the second which i know the second will probably be stripped because i already knew the equity position before i purchased the loan um so then i have to be okay with it uh being stripped doesn't mean that i'm not going to get paid in the bankruptcy there's probably a 90 chance that i'm still going to get paid through the bankruptcy court i'll be paid as an unsecured creditor but because most of the time i am the largest unsecured creditor i'm gonna get a larger share of that payment from the bankruptcy trustee so it's interesting yeah so i'll still be getting paid on that on that note through the bankruptcy court cool which is why i'll buy those loans sure yeah yeah once you get that bankruptcy court you can still collect on that loan you can still collect in a debt because it's still a personal debt that that person owes you it just not secures the property any longer and that lien is released and whatnot cool yes so how do you how do you source deals stephanie because i know i've had people ask me before do you have any seconds and i say i don't even ever look for them so no one ever sends them to me before you answer that though i want to let them know that giving away sources is one of our biggest things we we try to share right yeah there's a couple reasons why we don't um we talked about last week you know but we'll give some generality is i can give you the fact daphne's name but you're not going to reach out daphne cold call or call email her and say give me assets she's not going to have the same relationship she does with me right and when you reach out they're not going to trust who you are so it's a networking relationship so i you know we get this question all the time right where we can get assets from even if they give you the name which i don't often do because that's our bread and butter their relationship's different but with that said where do you turn in general to look for assets oh gosh i um i have bought directly from banks and credit unions um i do have relationships um in certain states uh but i also will buy loans from anywhere so i you know different brokers um also i mean i've bought loans off of craigslist believe it or not yes um the due diligence is the same you know i still have to check everything that i would normally check um and you know but anywhere actually really interesting yeah attorneys real estate attorneys asset managers um yeah so the due diligence that's yes that's i think the the other thing that separates the first from the second investor is what kind of due diligence and the extent i know from the first perspective we're we're very interested in the property and the value because there's a very good chance we're going to take it back i almost never like i i will glance over the borrower but i really don't pay much attention to the borrower at all um i don't care right but i think in seconds i've heard and so i want to confirm that that's much different you're much more concerned with the borrower absolutely absolutely um i other than the equity position of the property and whether or not it's occupied now for me i like for the property to be occupied by the borrower um some other investors in seconds don't really care about that but um you know for a person investing in seconds we are concerned with the borrower paying us so we are we're one we want to look at uh we want to get as much information about the borrower as we can you know um just you know what their credit history is what they're doing with their credit so we're trying to assess the likelihood that they are able and willing to pay and how much do you look at the credit score versus the credit history um i don't really care too much about the credit score yeah i'm mostly concerned with the credit history because if they are if they're delinquent on their second mortgage something has usually happened to cause that and so i'm not expecting them to have a 700 credit score yeah you know these are scratch and dent loans and so i you know that's what i'm expecting but if i look at the credit history and i see a lot of medical debt you know that tells me okay something has happened and you know this is about how long ago it was and you know what is this borrower's you know occupation what are what are they doing are they trying to re-establish their credit what are they doing late um these are things that i'm very much concerned about you know do they uh have children that you know also live in the in the home uh had they filed bankruptcy before um you know what's the likelihood that they may file bankruptcy again are they repeat bankruptcy filers i mean anything and everything to do with that borrower is important to me not so much as the property um i bought seconds on properties that were in very economically depressed areas that they're vacant lots all over the place uh but if there's a you know a lady and you know she's 62 years old and you know she's lived in that house for most of her life she's not giving up that property yeah you know and so i'll buy that loan it doesn't matter if she's living in a war zone um because i know that she's going to pay she's not going to give up that house so yeah yeah i i did in past years i did a lot more origination so i would look at um credit credit reports a lot more often and and that's one of the things that i found is if there's a bunch of medical debt on there oh my goodness i don't care that's that's uh that has so little to do with their uh capacity and ability to pay that uh that you know wipe it off i don't even look at that i say oh medical okay great and then keep going and see what else there is that's really interesting i chose to say that right because for us i've been told the poll credit report went by first but it's like more of a curiosity than a need right i don't care if they can pay or not if they don't pay i have i i'm in the driver's seat right um where's up with this in our mastermind yeah night is that second position liens are also a little bit riskier you may have to put it on the shelf for a couple years to things that's going to come around where first you're taking action pretty much right away and typically you don't put on the shelf i think for me seconds um is a great situation to get involved with because you can buy a bunch and if something goes wrong with one or two of them you have the other ones kind of balanced out the deals um but i think for me seconds like what nathan saying is we're all about the property and it's not that i want the property back it's that i can understand come from real estate background that real estate's all i'm really going for and to evaluate a person it was difficult for me because we've seen news articles of evictions not be able to happen and people buying brand new cars not paying the rent payment so their ability to pay is there but their desire is just gone so when you're going to that due diligence process you're pulling the o and e of course you're pulling that you know the title the the um the the credit report is there anything you focus a lot in on those credit reports or or even the o e that you drill down and make sure that this loan is what you're looking for well i'm looking at what the borrower is doing with their credit and i'm trying to determine the likelihood that they may file bankruptcy so if i see that they have over a you know i don't know 80 000 debt then it's you know and maybe they've never filed bankruptcy before then it's a good possibility that they may file bankruptcy well if i have to take that into consideration you know when i'm determining whether or not i should buy this loan so if i look at the credit report and i said wow this person has an awful lot of debt um they're current on the first mortgage they're keeping up with that first mortgage payment never been laid a day on it but they've got almost 100 grand in debt they may file bankruptcy if they get a letter from me demanding that they start paying the second if they do how much equity is in this property what's the likelihood that i'm going to get stripped okay so that's kind of how these pieces are fitting together um i want to know who the you know who the borrower's employer is are they still employed you know are they working um you know so these are the types of things that i'm i'm looking for when i'm looking at the credit report not so much as the score but i'm trying to determine what is their debt load because i don't know what their salary is but from the credit report i know what their debt load is and i can ascertain the likelihood that they may try and offload that debt in a bankruptcy now if they recently filed or if they are in an occupation that prohibits them from filing bankruptcy then it's you know okay this is great yeah i've had that happen before i've had a borrower that you know had city contracts and she could not file bankruptcy without you know her whole business going down the drain so you know it was it was very easy to you know to work out something with her because bankruptcy was not an option most people also don't know and you hit some good nailing heads here is that you know government um military employees if they start their debt their fico score goes down they can lose security clearances yeah so yeah so it's a big deal that these people cannot start missing if they miss one or two payments they got to catch up because they can lose their job in the military it's crazy yeah in a due diligence process do you pull bpos or how do you come up with a value or do you just kind of go off of what you see because it's a weighted measure you really really care about the person not as much about the property but you have to care a little bit how what do you typically pull to kind of review value um actually i don't necessarily need a bpo because i just need to have an idea of the equity position of the property so i'll maybe compare what i get on zillow and you know some of the other sites i'll look at you know uh home values in that area and then you know look at how much the the person owes on their first mortgage and so that gives me an idea of the the equity position so i don't need it to be exact but i have a threshold so i want to at least be able to say okay they bought this home way back here you know this is what they owe on it they've been living in it for 15 years or whatever the case is and um you know this is what the home values are and based off of you know three bedrooms two baths and you know in this neighborhood or whatever that's good enough for me if i say well you know they've at least got twenty thousand dollars in equity or thirty thousand dollars in equity that's good enough for me uh because i only need a dollar in equity but if i've got that much i know that i'm i'm good to go yeah so that's really all i need i don't need a bpo or an appraisal so a few people on our feet are asking daphne about your beginner's course i know we have some of you have someone and the reason we connected was i had another investor who shared um getting a phone call with her and she's like oh i've worked with daphne but we've heard i've heard a lot i'm sure nathan ebbs too with a lot of education programs out there either being expensive or not but they miss a lot of the key things that i i shake my head at and one of the things that i heard was about you know tape headers or whatnot you talk about that stuff um so you know we're the the nice enough to post your beginner series into the feed but i think a lot of people miss out on some of the key things to understand what they're looking at right we can understand the investment side but we get to take that in and they see all these different fields and never ever are they the same column headers it seems like right it's amazing that people don't either a understand or b get educated because some of those fields are a huge deal right we talk about the difference between the last payment received and the paid to date are completely different dates and people getting confused you know so i want to give you kudos because i was amazed when talking to this person about how i've heard so many other programs out there miss those things and not share it and it's crucial with seconds when you get a tape of seconds is there something on there that besides you know a lot of times you don't get the balance the first you have to pull a credit report to see that is there something on this on the tape of the seconds that you see that you focus on that is a big thing to you that you need to know more about and if it's missing what do you you know what's missing that you need to know um the first thing i need to know even if i don't have the balance of the uh the first i need to at least know if it's current if it's 30 days late or 60 days late or whatever that's what i need to know i need to know the status of the first sure and is that on the tape is that usually part of that yeah it's usually on the tape uh even if the balance the upb of the first is not on there the status of the first um pretty much always is on a table okay yeah so most of we see is mixed bag right we'll see first and seconds and to tell you truth the ones when we do see that mixed bag doesn't include anything and typically they even have a balance of the first it's like there's a first lien this is the second so figure out yourself and it's like okay wait a minute i don't even know what's going on here so i can't make a big offer on a second without doing more due diligence and for me it's not worth to dive into that because you just it's not worth a home for us when you're pricing out a second do you guys use a bidding model calculator do you guys go off of you know scenarios uh yes there is a uh somewhat loosely defined uh pricing model um that you know takes into consideration kind of the the bigger things you know like um the status of the first the um what i want to say the equity position of the property whether it's a judicial and non-judicial state let's see what else um those are really kind of the the big three there yeah yeah yeah interesting um and before we get to the question i just posted on here um are you going to be attending kind of no conferences coming up at all some people asked about that are you going to be what conferences will you be at so they can connect with you and network with you um i always go to um to the note expo and also the paper source uh note symposium i haven't heard anything about paper source yet though yeah we had them on we didn't we have uh well i know tom's on some stuff recently but i know that um they did some kind of like 20 person i think it was mastermind kind of thing so they're not doing a full conference this year um like they have in the past for my knowledge but yeah so guys me nathan will be there definitely there as well um this is one of the big questions like nathan asked this is one of the questions i think most people ask us other than the general right yeah so go ahead nathan you ask it while why yeah and this is a good question i think if this is everybody when they're getting started this is the question is it appropriate if they're asking how much should i a brand person excuse me how much should a brand new person to node investing expect costs to be uh like how about basically how much money do you need to get started okay well that's a good question um you know when i got started and even now my costs are actually very minimal um you know i don't view my note business as like a business like a traditional home-based business notes to me are an investment you know it's like uh it's like me investing in anything else stocks or crypto or whatever i just happen to you know have assets that are notes i have other types of assets as well that i don't can make like a whole business out of it per se um they're just assets that i own that are part of my portfolio um as such i have um i think my business expenses amount to less than five hundred dollars a year wow awesome yeah so you know um i don't have a website um you know i i do have um you know a domain for my my email i have a um you know a mailbox for my business i have a you know an 800 number um you know fax things like that but i think in all total it's less than 500 a year um you know for my business and then you know then the assets that i purchased so since seconds are so inexpensive for the most part um on average um i spend about 2 000 to 8 000 per asset when i buy a note i bought notes for less than that i've bought notes for 200 i've bought notes for more than that you know seventeen thousand but for the most part they're two thousand to eight thousand dollars per asset so and what what size are those well like what's a nine paid balance on that second um it's about anywhere from thirty to sixty thousand okay cool so everyone out there you can get involved in the space um one of the costs that goes involved in a note purchase is servicing do you typically service yourself or you hand it out to a third-party servicer i always hand it off to a third-party servicer always that's what keeps me in compliance you know with um you know federal and local you know regulations and it's what puts this whole thing on automatic pilot for me quite honestly you know once i turn it over i don't have to you know i don't have to think about it anymore i do work out my loans with my homeowners directly so you know i'm i'm working it out with them i help come up with um with the payment arrangement you know whatever amount that they're going to pay to reinstate the loan with me which is usually what i pay for it so that's that's the first order of business if i pay five thousand dollars for an asset when i reinstate it i'm gonna have the homeowner reinstated for what i paid for it and then cash flow to monthly payments for you know for the next 15 years or however long and um so that's you know once i come up with that i have the homeowner sign it it's notarized i get a voided check i send that off to the servicer they handle it after that and i'm i'm done and on to the next asset that's awesome socho is a different space but it's all the same space right um you know we've been involved with the first base in cfds and whatnot and buying second to us is performing we buy it and let it kill on autopilot for us right we don't mix with that one of the questions we get often time is when there's non-performing second what is your typical process to get it rehabbed okay that's a great question so one of the first things um i'm gonna do is uh i reach out to the homeowner usually a couple of times um they're gonna get a you know a hello letter obviously and um you know and then they're going to get a you know a notice of of default or delinquency and you know i'm going to encourage them to reach out to me i may reach out to them but when i talk to them there's a couple of things that will happen i've reached out to some homeowners and they you know and they may say well gosh you know nobody's contacting me about this loan in forever i've been waiting for somebody to call me i'm ready to pay you know and so then so then they'll just pay or you know uh quite a few times um you know i'll reach out to a homeowner and then they'll say um you know we we don't want to be bothered with this second we're just going to pay the whole thing off and be done with it you know and so that happens um but then you know more often than not the homeowner because they're current on the first you know they're not trying to lose their home so they're like okay you know what can we do here and so you know i will um i have in my mind what i would like so i'll you know i'll offer that if that's not something they're able to do then i'll just request their financials so you know here here's a worksheet you know provide your you know your your income and expenses i may require other information like tax returns and you know paycheck stubs uh things like that and then i'm going to take that information and i'm going to come up with usually three options and i'm gonna talk to the homeowner about each of those three options and i'm gonna say you know which which one is gonna work best for you and you know let them choose that and once we come to an agreement i'll draft it up send it off they sign it have it notarized um and then send it back and that's usually how that process works that's cool so in those three options do you usually have a favorite um yeah the first option is always to uh is a discounted payoff okay you know pay the loan off for less than what they owe and i make a really sweet deal right and they maybe they owe fifty thousand dollars and maybe i paid six thousand for the loan yeah oh so it's easy and like this is great so the discounted payoff is always number one how often do you in the first place videos a lot we just file legal we don't even bother with all those headaches and conversations how often do you guys just file legal to get the ball rolling on that side do you do that often um i usually will do that after about eight weeks so i do have a very a fairly aggressive timeline to get the loan back to performing and one of the ways to do that is to is to start the legal process early on because of course legal will create a sense of urgency yeah to get it resolved but i will try and reach out a couple of times because i have had experiences like i said before where the homeowner is like hey and i've been waiting to pay nobody's called me about this loan and you know however long um so i do give them a chance to come to the table on their own but uh after you know after about five weeks six weeks then i will engage legal yeah that's awesome so we were asking everybody uh with with everything that's been going on the last year and a half and everything um you know pre-covered post covet i don't know if we can say that quite yet but maybe right um what's your what's your crystal ball what do you see uh in the you know near mid-term and long-term future for this business are you expecting to see a lot more defaults resulting in more inventory or what do you think um i think that what i'm what i'm thinking is that as people um you know focus on getting back on track with their first mortgages um you know after all of this is over the forbearances and all this kind of stuff and you know they focus on you know getting back on track with the with the first mortgage that may be other um other that will kind of take a back seat because even if a person is even if a person is struggling financially maybe you know all the resources they have are going towards keeping that first mortgage current right you know so there may be uh more second mortgage delinquencies as a result of that and other delinquency student loan debt and you know credit card and other things may take a back seat to keeping up with that first mortgage which is fine because you know that creates more opportunity in the second space because basically you know they're trying to do what we want them to do anyway we're trying to keep them in their home also we're not interested in taking over the property either so the fact that they are working towards keeping that first mortgage current um you know we're just saying okay this is great let's get you back on track with your second what in just finding out what they can do because there's so many creative things that you can do in the second space you know even if a person is only able to make a 100 payment for the next four months you know maybe month five that can be hundred and fifty dollars or maybe we can gradually increase that you know to a point where it's you know a payment that you know is the payment they actually should be making so you know we're able to really work with the homeowner on that that's great very interesting it's always good to get the second perspective in my mind what i kind of finally came to is the first mortgage um perspective is a shorter term with the the second being the longer term strategy and that's not exact and it's not you know exactly how that goes but that kind of idea where it's kind of a shorter term longer term kind of approach to to notes that's how flipping seconds is not very common yeah so you know usually buy a shelf in or you buy you perform it or whatever unless you rehab it right so yeah cool well daphne i'm looking forward to seeing you you know just about a week from now right i'll be flying in on thursday um and whatnot i love to see all you guys out there um just talking please do yourself a favor introduce yourself um just say hello we talk a lot of people shake hands and say who you are and say how we made maybe even talked on the phone before so i look forward to connect with daphne in person uh down there um and just getting together just sharing information or maybe it's our time to kind of get together and talk um i haven't been on conference this year yet so i'm really looking forward to getting down there um thursday evening or so and then spending some time with you guys um hopefully everyone gets down there safe if you are looking to go down there and you don't have a ticket yet let us know we'll get a discount code um and just sharing ideas so awesome daphne i thank you very much for joining us on a friday afternoon hopefully you don't get too much rain out there or if you've already bypassed you that's awesome um i hope that everyone out there has got a lot of nuggets out of here i know nathan and i have um it's something we're always learning about so i appreciate you guys coming on you know if you're coming out and joining us and uh if anyone has any questions we'll make sure to get in touch with you um she i think they're they're tagging your your series on the on the feed so that's awesome too so great well thanks so much thank you everybody dave putz here from jkp holdings alongside me of course mr nathan turner as always hope all is well with you um we're just mentioning the rain we're getting some crazy rain recently we're having some rain this afternoon too so um not sure how i like this thing hopefully halloween for us kind of gets better uh but we'll see from there um i wanted to kind of see what your plans are man i know we'll be seeing each other in a few days yeah i know that uh net expo is coming up if you don't have tickets and you want to get them reach out to us uh we'll set you up um but from now i think you know what's been new in your world what's been going on i knew uh i i've talked to you a little bit but i know you've been kind of dealing with all these conferences i have yeah it's been a busier time than it has been for a long time actually the traveling is is coming back online which which you know is good and bad i i actually i'm surprised at how much i've missed it uh because it was getting to the point there where i was i just was getting tired and i it wasn't uh i don't know i was just tiring more than anything else it was always useful and productive but just tiring but i'm surprised how much i missed it i'm actually and you know i've talked to a few people now they're going to node expo and i'm i'm it's interesting how excited everybody is and i just kind of get that feeling that everybody's just really looking forward to it and getting back together and and you know getting back with a group of people that can talk notes that's it's we do miss that conversation like okay i don't get to teach the basics a point or even you know your your family is like i don't want to hear anymore like if you talk about something else like they bring up politics or cope you're like listen i'm going back into real estate you know yeah so for me i've been dealing with a lot of bankruptcy problems a lot of stuff stuff there we have a couple cases where the trustee i'm sure i heard to reach out to you is stuck in like they're open on tuesdays and fridays from one and two o'clock it's like what is like you can't answer an email or take a phone call like i don't get it i don't like bankruptcies we've we've been over this i don't like craftsies in general they're just they're a pain in the butt i i don't like dealing with them they're time consuming i i just i'm not a fan yeah but that's me you know like i know you get bankruptcies all the time and so you must like them you know i enjoy the payment stream that comes with it right i enjoy that the the the extra money right as i call it um and then when you sell it to keep itself with the pni in mind but for those couple years you're getting that extra payment um are you doing any convictions right now any kind of with that in mind uh i am um i've got a couple of evictions uh that have started i've got this is a i'll tell you more about it next week i've got a mediation meeting actually next friday uh during the conference i'm gonna have to miss the first couple of hours to do this mediation meeting i've got one in it's in connecticut oh my goodness connecticut's tough enough to begin with but then this guy is just like he's a crazy and just and it's it's an interesting situation anyway i'll fill you next week but yeah the guys saying everybody just out there so we'll see so and for me you know we're seeing a lot of inventory i've seen a lot of um non-qm stuff recently um and we're seeing some portfolio come through um and i'm curious what's gonna happen i'm gonna have a call with uh some friends uh this afternoon about some stuff to see where they're going with some inventory that they're gonna be releasing they're just trying to release it at the right time make sure their portfolio and time with the capital they need they don't want money sitting there they want to keep recouping it um so it's interesting now your experience you're buying you bought cfds in first and whatnot how you bought a lot of seconds i bought i think i've owned two seconds in my career and one was by accident one was on purpose one i think we didn't know it was the second uh and then the other one we did know it is second but we also own the first so that was okay oh that's a nice situation so that was an interesting one that was in hawaii um that's the only hawaii note i've ever bought and that that's also a tricky state to deal in yeah and in fact we ended up doing it uh like a deed in lieu just because the court system is so slow it's ridiculous but anyway the other one was an accident and it worked out but i didn't intend to buy a second yeah so it's weird because i bought a few seconds not performing i bought some performing i bought some cfds but didn't dive into it like you have um but i've met a lot of really good second investors um and they're really awesome to talk with yeah at times i can't relate to them because their process is a whole lot different from ours even though they're still in the same space yeah i find the second space really interesting and i can see how somebody could be attracted to it but it's not my preference it's not something i want to do so i'm always interested to talk to seconds people and get their perspective and why why would you go seconds instead of a first i i much prefer it but i'm always curious and they've always got good reasons so i'm excited for a guest today yeah i think for me is understanding their process right and understanding what what they do i i just don't understand sometimes what they do to get into an asset what matters what doesn't matter to them right and what they avoid what they don't avoid so it's really cool because you talk to any first investors and each one of them has a little different spin on what they do and what fits their box yeah and for whatever reason yeah so it's it's cool to have that conversation i encourage everyone talk to as many people as you possibly can don't stick with one person i'm not saying that one trainer is bad i'm just saying is you get different angles of things yeah me and nathan have been on a call before and you're like well i like it for this reason like i don't like it and we in our opinion we're neither right or wrong so awesome yeah so curious to hear we've got daphne wilson here too and a second person so we're uh we'll just help you kind of kick your brain figure out what's up with what's up with seconds welcome daphne enjoy thank you thank you thank you for having me pleasure uh absolutely so daphne can you give us a background how you got started what channels you went down what tree you came from you know for new investing everyone comes from a tree share your background a little bit sure sure um my background is actually corporate technology so a computer scientist for over 25 years work for a lot of fortune 500 fortune 100 companies uh in the regulatory and compliance space predictive analytics big data whatever you want to call it that's my background and it had just gotten burnt out you know had a great great career excellent salary uh but was just burnt out i remember sitting in my office um at the time i was working in the the sears tower and out of willis tower and looking out the window onto lakeshore drive people were out in their boats and you know jogging and rollerblading and having lunch with friends and i'm sitting here slaving over a hot computer and just thinking to myself you know there's just got to be a better way it's just i'm just ready for something different and so i figured real estate would be a way to uh to retire myself um didn't have a real estate background other than you know owning my own home and so i went to a a real estate seminar that they have all over the country and uh the gentleman opened up the seminar by talking about the top 10 or 12 ways people make money in real estate and he mentioned uh note investing and you know he said hey you know you can buy the mortgage instead of the property and people will make their monthly mortgage payment to you for the next 15 20 30 years and i thought that's how i'm going to retire that's it right there so um so i you know i went home i researched and i just really liked what i learned and um decided that that's the route that i was going to take so um and this company they were they're real estate focused right so they didn't even go into it besides just that brief introduction that was it um they focused more on rentals and fixing and flipping that's what the the seminar was going to be about uh but i wasn't interested in that i wanted to know more about this no investing thing and uh you know once he told me it was going to be about you know fixing and flipping and you know rentals then i said no that's that's not i'm i'm interested in in this note investing so um so yeah it took me a year um for to find someone that you know teach me business so i hung in there i started investing in seconds because at the time well and i guess in a sense still now i'm highly risk averse so i did not like to lose money and i thought investing in seconds did a few things for me one it was a uh a price point that i could afford when i was getting started um it was uh i didn't have a huge chunk of money uh in the bank to buy a first mortgage you know the 200 300 500 000 first i didn't have that kind of money um so seconds were more in my price range and then also um it minimized the likelihood of me having to take over the property which was something i had no interest in so my focus became buying a delinquent second mortgage where the homeowner was current on the first mortgage and it never been late because you know alone meeting that criteria it's not very likely that a homeowner is going to lose their home over a 30 40 000 second mortgage if they can work out a payment that they can afford so i really i was really attracted to to that so the price point and also um the less likelihood that i would have to take over that property cool we got the traction right that's that's the hook yeah yes this is 2015 or so so now we're six years removed from there you i'm sure you've interact with other second investors in the space right we're a very small space share who you dealt with who are the people you look up to who gave you your education who gave your knowledge who mentored you um oh gosh and i still have these mentors today um i credit him with teaching me this business basically holding my hand and you know being there when i called and text you know and sherman arnowitz yeah keyhole keyhole financial very instrumental and you know um made himself available to me you know as i was going through different scenarios um also mike mike kelly oh man he's such a straight shooter i just love mike if ever i just want just the straight no chaser version i mean if i if i say something that's you know he thinks is insane he'll say daphne that's insane he doesn't she hold it i just love it and mike's awesome yeah yeah and the thing with these guys i could have one question i'll ask each of them separately the same question and i'll get three radically different answers and so you know my response is always a hybrid because they they they always have a great reason for you know for what they what they're sharing yeah yeah and we've talked about this before in first too you know like you say we can talk to different people and get different answers and and it's the same in seconds and there there's there's uh there are wrong ways to do this but there are many right ways to do it as well and so you can you've got all kinds of choices on what you can do based on your preferences and you know your philosophy whatever you want yes that's really cool oh yeah and so there's also um uh sabrina allen oh yeah yep and um let's see man you picked some of the best oh yes yes they're the goods they're the goods all those guys yeah they're good it's weird the second space right what people don't realize about this whole industry is very small they get into it and we've seen people like oh my going broker and you're like listen you this isn't typical real estate we can come in there and broken no one knows who you are people talk is so small so seconds is a very different animal than first um and most people i don't know where to start at what is it about seconds besides the cost that's attractive to an investor that may be getting in cost is probably the top one it's the cheaper way to get into node investing and you can buy more than just the one right what are some other advantages buying in a second position um the other advantages i see is for me i didn't want to i didn't want to have to take over the property so if i you know i didn't want to have to manage a property i didn't want to have to evict anyone i wanted to make sure that my whole model was cash flow so i didn't want anything to do with the property so you know my criteria is always to buy a delinquent second kind of performing first because that you know that minimizes the likelihood of me having to take over the property and that was really key for me another reason is the homes tended to be nicer and more attractive because a lot of times people will take out a second to make improvements on the property you know kitchens yeah it's put a pool in the back whatever so the properties tended to be a little nicer um you know for that reason as well so so yeah those are those were really the three reasons the price point um you know the condition of the properties and also the less likelihood of having to take over a property yeah a lot of people don't want everyone wants to get real estate so they don't have the property right yeah that you know when you're in the first first place you're worried about that yeah that's a great point that's awesome and there's a high likelihood in fact uh i think and i i me i may be higher than average because i i buy loans on vacant properties all the time that's that's common for me so i think my foreclosure are not necessarily the foreclosure rate but the rate of me taking back a property is like 50 so it's it's very likely that i'm gonna take back the property so that if you're not interested in that then yeah and one way you can minimize that is by first on on occupied properties um but for me as long as the numbers work that's all i'm really looking at i don't i don't really have a huge preference one way or the other yeah for me um being you know highly risk diverse you know my my first thought was you know if i bought a delinquent first even if it was occupied i don't know if the homeowner wants to stay in the home or not they could just be living in it for free waiting for the foreclosure to happen you know um and so i just i just didn't want to go down that road i my goal was to i just wanted to have money flowing into my account uh without having to do anything with any property mailbox money that's it that that's what attracted me to the no state that's what i came here for you know um but you know for investors that are more hands-on you know and you know and the numbers you know really work for you then you know then that's a that's a you know that's a great business model but for me i was just really looking to cash flow i didn't want to spend a lot of i didn't want to spend a lot of time on my note business quite honestly you know i spend maybe about i want to say a total of five or six hours up front on a particular asset i get it uh you know i get it back to uh to cash flowing i turn it over to a servicer and then i'm done with it you know it's on to the next one so you can be out at the lake jogging or rollerblading or whatever exactly that's awesome so let's dive into it right for first and seconds the clado files all the same right the assignments are all the same the sellers are somewhat different sometimes right some people you can get second from certain people and sometimes not one of the big differences we see is that in the first place of course there is no performing senior lean or non-performing senior lean share how you do that differently what is the difference between buying a loan that has a performing sec first or not performing first how do you adjust that and what do you look at for that and you buy both well i will only buy a delinquent second if the first is current and for the most part has never been late so that's the number one prior criteria for me so if the first mortgage is is 60 days late i won't touch it and that's because i you know i am very risk sensitive so i am you know really trying to be careful about you know the loans that i pick and choose so for me that's the the major criteria so how have you found um supply from five years ago to now is like have you found a dramatic drop-off there or are you still finding enough deals to buy yeah i am i am still finding enough deals to buy yeah that's really interesting yeah one thing we realized recently that loans aren't as second loans aren't being as created as often as they were in the prime days right we're waiting to see some kind of record of you know the past year how many second liens were created with people taking out the equity of our house with the values going up i haven't seen anything either i haven't really dived into look um but from what i've heard initially there wasn't as many people taking the equity out into a second there may have been have you seen any kind of update on that at all have you heard anything about people taking out seconds because they have equity because diets are up yeah i have um gotten a couple of articles that come across my desk that and um people taking out the equity and their property once the property values started going up you know um the way they have been people are starting to you know take out home equity lines of credit and you know second mortgages um which is you know which is a good thing for you know for us well you know eventually oh i think we're losing her feed uh there we go but yeah jeff we're losing your feet just a little bit just fyi everyone everyone know if it cut out there for a second but i'm glad to see that you're seeing inventory on that scene because we've heard a lot of issues with seconds having an inventory struggle right first in comparison to what we've dealt with years ago has definitely decreased right um not saying they're gone we're seeing the inventory we've seen more in the last quarter and a lot of people i've dealt with in the past said just wait to the first quarter we'll be releasing more um so i'm glad to see the seconds have availability out there and you don't touch anything with it i'm not performing first nothing yeah if the first is not performing i won't touch it do you buy several finance seconds um i'll pretty much buy any second um i mean really i bought some very dirty paper i'll buy up um strip seconds that were stripped in a chapter 13 bankruptcy buy those all day yeah well it's really interesting you mentioned that it's like for example and this is one of the reasons that i steer clear of seconds but maybe i'm just looking at it wrong so for example i've got a i've got a first lien on a property down in florida and we're completing a foreclosure on that only because the second the second lien holder won't respond i'm more than happy to pay them off and just be done i've already got a dean lou from the from the borrowers so i i i can get the property but it's still encumbered by the second so i have to go through the whole process of the foreclosure just to clear off the second and if they would just call back i'd happily pay them but instead they're going to be ending up with zero so i i look at that and i go why would you put yourself in second position where that's possible but if there's equity and it's paying then i suppose yeah um is the second lien holder still around uh yeah and i think it's a bigger bank and maybe it's just it's a small balance fifteen thousand dollars and maybe it's not worth their time i don't know i'm not okay so it's a bank okay i can't figure out why they're not just returning an email you know i don't know what's cheaper too you could look to do a quiet title too and just remove them that way and get them to respond yeah yeah we're moving through i've got aaron on it and we're moving through it we're gonna get it done yeah for me it's really frustrating because they won't just come to the table and and accept a payment and in my mind they would rather get stripped and just be you know washed out rather than talk to me and take a discounted payoff but anyway yeah that doesn't make sense to me either yeah strange so it's for me my my biggest thing is it's just that takes more time i don't want to take more time i want to do it now anyway so we had a question regarding strips in seconds position right yeah can you share what that means and how often do you face it so when a homeowner files chapter 13 bankruptcy um the bankruptcy court wants to know whether or not the first and second mortgage is um you know whether it's covered in equity so the equity position of the property is what kind of comes into question a lot of times what a homeowner or their attorney will attempt to do is they may say well you know the home is under water so it's um the homeowner owes more on the home than what the home is worth and so um if they have a second mortgage then there's not enough equity in the property to even partially cover the second now there's only one dollar in equity that's needed in order to keep the second mortgage lien intact on the property but if the um if the homeowner maybe gets an appraisal done or whatever and they they determine that there's not enough equity to even partially cover the second mortgage then they'll petition the court to strip the lien off of the uh off of the property so then the second mortgage uh becomes unsecured and is considered unsecured debt similar to credit card debt so if the homeowner actually completes the bankruptcy plan which is typically a five-year plan then the lien will be taken off the property so that's what it means for the second mortgage to be stripped how often have you seen that i didn't know that um well it happens quite a bit now since you know um home values have increased you know it's likely to uh to occur in this market but um but it you know it happens quite a bit but the great thing um you know about that is when you're doing due diligence uh on seconds that's one of the things that you want to be mindful of is you know what is the uh the equity position of the property you know um it's and you determine what your equity buffer is so you know what's old on the first you know the value of the home you know the unpaid principal balance on the second you know how much above that do you want to be you know five thousand ten thousand twenty thousand you know how much equity um you know would you like to see above the first interesting yeah i didn't know that the that second lien still existed i thought it was just completely wiped out i didn't know it became unsecured learned something new it was like a personal debt then right you still you can't foreclose on it but you still can collect on it um interesting so when when those kind of things happen do you have remedies to fight them um you know if it's close then you know you can get the the property appraised and you know you can um you know you can dispute it um but you know in some cases you know back a couple years ago you know you you pretty much know that the home is underwater or it's so close once the you know the first mortgage um you know once you add in legal fees and things like that you're just too too close um uh for to to argue it basically we've been a situation where we've knocked down a second not stripped it but knocked out a second foreclosure doing it for 10 years now and i've probably done it a bunch where the property value dropped and we go to sell at auction and the second gets nothing right um and then you look back and say boy i wonder who bought that second but you would i i would have from our experience doing this for as long as i've been doing it those assets are underwater price usually much more aggressive or it's just cheaper to buy because the factory the equity is missing so i would presume right now those assets are probably at a prime cost would that be fair to say yeah yeah that would be fair to say i mean the foreclosure and the bankruptcy are really two different scenarios um so for me it would be extremely rare if um if i bought a second mortgage on a home that was in for the first was foreclosing uh because my criteria right out the gate is that the first has to be performing and not just newly performing but it has to be performing for years i mean they basically have not missed a payment in years and so that would be extremely rare for me now a person could um file bankruptcy at any time even though they're current with the first mortgage so that could happen at any time so before i purchase i am looking at the equity position of the property and if the home is under water they're current on the first but the but the property is you know um is underwater then you know i got to think about the likelihood that i may reach out to this homeowner about paying the second and then that's the straw that breaks the camel's back they get afraid they foul you know chapter 13 and you know now they're petitioning to strip the second which i know the second will probably be stripped because i already knew the equity position before i purchased the loan um so then i have to be okay with it uh being stripped doesn't mean that i'm not going to get paid in the bankruptcy there's probably a 90 chance that i'm still going to get paid through the bankruptcy court i'll be paid as an unsecured creditor but because most of the time i am the largest unsecured creditor i'm gonna get a larger share of that payment from the bankruptcy trustee so it's interesting yeah so i'll still be getting paid on that on that note through the bankruptcy court cool which is why i'll buy those loans sure yeah yeah once you get that bankruptcy court you can still collect on that loan you can still collect in a debt because it's still a personal debt that that person owes you it just not secures the property any longer and that lien is released and whatnot cool yes so how do you how do you source deals stephanie because i know i've had people ask me before do you have any seconds and i say i don't even ever look for them so no one ever sends them to me before you answer that though i want to let them know that giving away sources is one of our biggest things we we try to share right yeah there's a couple reasons why we don't um we talked about last week you know but we'll give some generality is i can give you the fact daphne's name but you're not going to reach out daphne cold call or call email her and say give me assets she's not going to have the same relationship she does with me right and when you reach out they're not going to trust who you are so it's a networking relationship so i you know we get this question all the time right where we can get assets from even if they give you the name which i don't often do because that's our bread and butter their relationship's different but with that said where do you turn in general to look for assets oh gosh i um i have bought directly from banks and credit unions um i do have relationships um in certain states uh but i also will buy loans from anywhere so i you know different brokers um also i mean i've bought loans off of craigslist believe it or not yes um the due diligence is the same you know i still have to check everything that i would normally check um and you know but anywhere actually really interesting yeah attorneys real estate attorneys asset managers um yeah so the due diligence that's yes that's i think the the other thing that separates the first from the second investor is what kind of due diligence and the extent i know from the first perspective we're we're very interested in the property and the value because there's a very good chance we're going to take it back i almost never like i i will glance over the borrower but i really don't pay much attention to the borrower at all um i don't care right but i think in seconds i've heard and so i want to confirm that that's much different you're much more concerned with the borrower absolutely absolutely um i other than the equity position of the property and whether or not it's occupied now for me i like for the property to be occupied by the borrower um some other investors in seconds don't really care about that but um you know for a person investing in seconds we are concerned with the borrower paying us so we are we're one we want to look at uh we want to get as much information about the borrower as we can you know um just you know what their credit history is what they're doing with their credit so we're trying to assess the likelihood that they are able and willing to pay and how much do you look at the credit score versus the credit history um i don't really care too much about the credit score yeah i'm mostly concerned with the credit history because if they are if they're delinquent on their second mortgage something has usually happened to cause that and so i'm not expecting them to have a 700 credit score yeah you know these are scratch and dent loans and so i you know that's what i'm expecting but if i look at the credit history and i see a lot of medical debt you know that tells me okay something has happened and you know this is about how long ago it was and you know what is this borrower's you know occupation what are what are they doing are they trying to re-establish their credit what are they doing late um these are things that i'm very much concerned about you know do they uh have children that you know also live in the in the home uh had they filed bankruptcy before um you know what's the likelihood that they may file bankruptcy again are they repeat bankruptcy filers i mean anything and everything to do with that borrower is important to me not so much as the property um i bought seconds on properties that were in very economically depressed areas that they're vacant lots all over the place uh but if there's a you know a lady and you know she's 62 years old and you know she's lived in that house for most of her life she's not giving up that property yeah you know and so i'll buy that loan it doesn't matter if she's living in a war zone um because i know that she's going to pay she's not going to give up that house so yeah yeah i i did in past years i did a lot more origination so i would look at um credit credit reports a lot more often and and that's one of the things that i found is if there's a bunch of medical debt on there oh my goodness i don't care that's that's uh that has so little to do with their uh capacity and ability to pay that uh that you know wipe it off i don't even look at that i say oh medical okay great and then keep going and see what else there is that's really interesting i chose to say that right because for us i've been told the poll credit report went by first but it's like more of a curiosity than a need right i don't care if they can pay or not if they don't pay i have i i'm in the driver's seat right um where's up with this in our mastermind yeah night is that second position liens are also a little bit riskier you may have to put it on the shelf for a couple years to things that's going to come around where first you're taking action pretty much right away and typically you don't put on the shelf i think for me seconds um is a great situation to get involved with because you can buy a bunch and if something goes wrong with one or two of them you have the other ones kind of balanced out the deals um but i think for me seconds like what nathan saying is we're all about the property and it's not that i want the property back it's that i can understand come from real estate background that real estate's all i'm really going for and to evaluate a person it was difficult for me because we've seen news articles of evictions not be able to happen and people buying brand new cars not paying the rent payment so their ability to pay is there but their desire is just gone so when you're going to that due diligence process you're pulling the o and e of course you're pulling that you know the title the the um the the credit report is there anything you focus a lot in on those credit reports or or even the o e that you drill down and make sure that this loan is what you're looking for well i'm looking at what the borrower is doing with their credit and i'm trying to determine the likelihood that they may file bankruptcy so if i see that they have over a you know i don't know 80 000 debt then it's you know and maybe they've never filed bankruptcy before then it's a good possibility that they may file bankruptcy well if i have to take that into consideration you know when i'm determining whether or not i should buy this loan so if i look at the credit report and i said wow this person has an awful lot of debt um they're current on the first mortgage they're keeping up with that first mortgage payment never been laid a day on it but they've got almost 100 grand in debt they may file bankruptcy if they get a letter from me demanding that they start paying the second if they do how much equity is in this property what's the likelihood that i'm going to get stripped okay so that's kind of how these pieces are fitting together um i want to know who the you know who the borrower's employer is are they still employed you know are they working um you know so these are the types of things that i'm i'm looking for when i'm looking at the credit report not so much as the score but i'm trying to determine what is their debt load because i don't know what their salary is but from the credit report i know what their debt load is and i can ascertain the likelihood that they may try and offload that debt in a bankruptcy now if they recently filed or if they are in an occupation that prohibits them from filing bankruptcy then it's you know okay this is great yeah i've had that happen before i've had a borrower that you know had city contracts and she could not file bankruptcy without you know her whole business going down the drain so you know it was it was very easy to you know to work out something with her because bankruptcy was not an option most people also don't know and you hit some good nailing heads here is that you know government um military employees if they start their debt their fico score goes down they can lose security clearances yeah so yeah so it's a big deal that these people cannot start missing if they miss one or two payments they got to catch up because they can lose their job in the military it's crazy yeah in a due diligence process do you pull bpos or how do you come up with a value or do you just kind of go off of what you see because it's a weighted measure you really really care about the person not as much about the property but you have to care a little bit how what do you typically pull to kind of review value um actually i don't necessarily need a bpo because i just need to have an idea of the equity position of the property so i'll maybe compare what i get on zillow and you know some of the other sites i'll look at you know uh home values in that area and then you know look at how much the the person owes on their first mortgage and so that gives me an idea of the the equity position so i don't need it to be exact but i have a threshold so i want to at least be able to say okay they bought this home way back here you know this is what they owe on it they've been living in it for 15 years or whatever the case is and um you know this is what the home values are and based off of you know three bedrooms two baths and you know in this neighborhood or whatever that's good enough for me if i say well you know they've at least got twenty thousand dollars in equity or thirty thousand dollars in equity that's good enough for me uh because i only need a dollar in equity but if i've got that much i know that i'm i'm good to go yeah so that's really all i need i don't need a bpo or an appraisal so a few people on our feet are asking daphne about your beginner's course i know we have some of you have someone and the reason we connected was i had another investor who shared um getting a phone call with her and she's like oh i've worked with daphne but we've heard i've heard a lot i'm sure nathan ebbs too with a lot of education programs out there either being expensive or not but they miss a lot of the key things that i i shake my head at and one of the things that i heard was about you know tape headers or whatnot you talk about that stuff um so you know we're the the nice enough to post your beginner series into the feed but i think a lot of people miss out on some of the key things to understand what they're looking at right we can understand the investment side but we get to take that in and they see all these different fields and never ever are they the same column headers it seems like right it's amazing that people don't either a understand or b get educated because some of those fields are a huge deal right we talk about the difference between the last payment received and the paid to date are completely different dates and people getting confused you know so i want to give you kudos because i was amazed when talking to this person about how i've heard so many other programs out there miss those things and not share it and it's crucial with seconds when you get a tape of seconds is there something on there that besides you know a lot of times you don't get the balance the first you have to pull a credit report to see that is there something on this on the tape of the seconds that you see that you focus on that is a big thing to you that you need to know more about and if it's missing what do you you know what's missing that you need to know um the first thing i need to know even if i don't have the balance of the uh the first i need to at least know if it's current if it's 30 days late or 60 days late or whatever that's what i need to know i need to know the status of the first sure and is that on the tape is that usually part of that yeah it's usually on the tape uh even if the balance the upb of the first is not on there the status of the first um pretty much always is on a table okay yeah so most of we see is mixed bag right we'll see first and seconds and to tell you truth the ones when we do see that mixed bag doesn't include anything and typically they even have a balance of the first it's like there's a first lien this is the second so figure out yourself and it's like okay wait a minute i don't even know what's going on here so i can't make a big offer on a second without doing more due diligence and for me it's not worth to dive into that because you just it's not worth a home for us when you're pricing out a second do you guys use a bidding model calculator do you guys go off of you know scenarios uh yes there is a uh somewhat loosely defined uh pricing model um that you know takes into consideration kind of the the bigger things you know like um the status of the first the um what i want to say the equity position of the property whether it's a judicial and non-judicial state let's see what else um those are really kind of the the big three there yeah yeah yeah interesting um and before we get to the question i just posted on here um are you going to be attending kind of no conferences coming up at all some people asked about that are you going to be what conferences will you be at so they can connect with you and network with you um i always go to um to the note expo and also the paper source uh note symposium i haven't heard anything about paper source yet though yeah we had them on we didn't we have uh well i know tom's on some stuff recently but i know that um they did some kind of like 20 person i think it was mastermind kind of thing so they're not doing a full conference this year um like they have in the past for my knowledge but yeah so guys me nathan will be there definitely there as well um this is one of the big questions like nathan asked this is one of the questions i think most people ask us other than the general right yeah so go ahead nathan you ask it while why yeah and this is a good question i think if this is everybody when they're getting started this is the question is it appropriate if they're asking how much should i a brand person excuse me how much should a brand new person to node investing expect costs to be uh like how about basically how much money do you need to get started okay well that's a good question um you know when i got started and even now my costs are actually very minimal um you know i don't view my note business as like a business like a traditional home-based business notes to me are an investment you know it's like uh it's like me investing in anything else stocks or crypto or whatever i just happen to you know have assets that are notes i have other types of assets as well that i don't can make like a whole business out of it per se um they're just assets that i own that are part of my portfolio um as such i have um i think my business expenses amount to less than five hundred dollars a year wow awesome yeah so you know um i don't have a website um you know i i do have um you know a domain for my my email i have a um you know a mailbox for my business i have a you know an 800 number um you know fax things like that but i think in all total it's less than 500 a year um you know for my business and then you know then the assets that i purchased so since seconds are so inexpensive for the most part um on average um i spend about 2 000 to 8 000 per asset when i buy a note i bought notes for less than that i've bought notes for 200 i've bought notes for more than that you know seventeen thousand but for the most part they're two thousand to eight thousand dollars per asset so and what what size are those well like what's a nine paid balance on that second um it's about anywhere from thirty to sixty thousand okay cool so everyone out there you can get involved in the space um one of the costs that goes involved in a note purchase is servicing do you typically service yourself or you hand it out to a third-party servicer i always hand it off to a third-party servicer always that's what keeps me in compliance you know with um you know federal and local you know regulations and it's what puts this whole thing on automatic pilot for me quite honestly you know once i turn it over i don't have to you know i don't have to think about it anymore i do work out my loans with my homeowners directly so you know i'm i'm working it out with them i help come up with um with the payment arrangement you know whatever amount that they're going to pay to reinstate the loan with me which is usually what i pay for it so that's that's the first order of business if i pay five thousand dollars for an asset when i reinstate it i'm gonna have the homeowner reinstated for what i paid for it and then cash flow to monthly payments for you know for the next 15 years or however long and um so that's you know once i come up with that i have the homeowner sign it it's notarized i get a voided check i send that off to the servicer they handle it after that and i'm i'm done and on to the next asset that's awesome socho is a different space but it's all the same space right um you know we've been involved with the first base in cfds and whatnot and buying second to us is performing we buy it and let it kill on autopilot for us right we don't mix with that one of the questions we get often time is when there's non-performing second what is your typical process to get it rehabbed okay that's a great question so one of the first things um i'm gonna do is uh i reach out to the homeowner usually a couple of times um they're gonna get a you know a hello letter obviously and um you know and then they're going to get a you know a notice of of default or delinquency and you know i'm going to encourage them to reach out to me i may reach out to them but when i talk to them there's a couple of things that will happen i've reached out to some homeowners and they you know and they may say well gosh you know nobody's contacting me about this loan in forever i've been waiting for somebody to call me i'm ready to pay you know and so then so then they'll just pay or you know uh quite a few times um you know i'll reach out to a homeowner and then they'll say um you know we we don't want to be bothered with this second we're just going to pay the whole thing off and be done with it you know and so that happens um but then you know more often than not the homeowner because they're current on the first you know they're not trying to lose their home so they're like okay you know what can we do here and so you know i will um i have in my mind what i would like so i'll you know i'll offer that if that's not something they're able to do then i'll just request their financials so you know here here's a worksheet you know provide your you know your your income and expenses i may require other information like tax returns and you know paycheck stubs uh things like that and then i'm going to take that information and i'm going to come up with usually three options and i'm gonna talk to the homeowner about each of those three options and i'm gonna say you know which which one is gonna work best for you and you know let them choose that and once we come to an agreement i'll draft it up send it off they sign it have it notarized um and then send it back and that's usually how that process works that's cool so in those three options do you usually have a favorite um yeah the first option is always to uh is a discounted payoff okay you know pay the loan off for less than what they owe and i make a really sweet deal right and they maybe they owe fifty thousand dollars and maybe i paid six thousand for the loan yeah oh so it's easy and like this is great so the discounted payoff is always number one how often do you in the first place videos a lot we just file legal we don't even bother with all those headaches and conversations how often do you guys just file legal to get the ball rolling on that side do you do that often um i usually will do that after about eight weeks so i do have a very a fairly aggressive timeline to get the loan back to performing and one of the ways to do that is to is to start the legal process early on because of course legal will create a sense of urgency yeah to get it resolved but i will try and reach out a couple of times because i have had experiences like i said before where the homeowner is like hey and i've been waiting to pay nobody's called me about this loan and you know however long um so i do give them a chance to come to the table on their own but uh after you know after about five weeks six weeks then i will engage legal yeah that's awesome so we were asking everybody uh with with everything that's been going on the last year and a half and everything um you know pre-covered post covet i don't know if we can say that quite yet but maybe right um what's your what's your crystal ball what do you see uh in the you know near mid-term and long-term future for this business are you expecting to see a lot more defaults resulting in more inventory or what do you think um i think that what i'm what i'm thinking is that as people um you know focus on getting back on track with their first mortgages um you know after all of this is over the forbearances and all this kind of stuff and you know they focus on you know getting back on track with the with the first mortgage that may be other um other that will kind of take a back seat because even if a person is even if a person is struggling financially maybe you know all the resources they have are going towards keeping that first mortgage current right you know so there may be uh more second mortgage delinquencies as a result of that and other delinquency student loan debt and you know credit card and other things may take a back seat to keeping up with that first mortgage which is fine because you know that creates more opportunity in the second space because basically you know they're trying to do what we want them to do anyway we're trying to keep them in their home also we're not interested in taking over the property either so the fact that they are working towards keeping that first mortgage current um you know we're just saying okay this is great let's get you back on track with your second what in just finding out what they can do because there's so many creative things that you can do in the second space you know even if a person is only able to make a 100 payment for the next four months you know maybe month five that can be hundred and fifty dollars or maybe we can gradually increase that you know to a point where it's you know a payment that you know is the payment they actually should be making so you know we're able to really work with the homeowner on that that's great very interesting it's always good to get the second perspective in my mind what i kind of finally came to is the first mortgage um perspective is a shorter term with the the second being the longer term strategy and that's not exact and it's not you know exactly how that goes but that kind of idea where it's kind of a shorter term longer term kind of approach to to notes that's how flipping seconds is not very common yeah so you know usually buy a shelf in or you buy you perform it or whatever unless you rehab it right so yeah cool well daphne i'm looking forward to seeing you you know just about a week from now right i'll be flying in on thursday um and whatnot i love to see all you guys out there um just talking please do yourself a favor introduce yourself um just say hello we talk a lot of people shake hands and say who you are and say how we made maybe even talked on the phone before so i look forward to connect with daphne in person uh down there um and just getting together just sharing information or maybe it's our time to kind of get together and talk um i haven't been on conference this year yet so i'm really looking forward to getting down there um thursday evening or so and then spending some time with you guys um hopefully everyone gets down there safe if you are looking to go down there and you don't have a ticket yet let us know we'll get a discount code um and just sharing ideas so awesome daphne i thank you very much for joining us on a friday afternoon hopefully you don't get too much rain out there or if you've already bypassed you that's awesome um i hope that everyone out there has got a lot of nuggets out of here i know nathan and i have um it's something we're always learning about so i appreciate you guys coming on you know if you're coming out and joining us and uh if anyone has any questions we'll make sure to get in touch with you um she i think they're they're tagging your your series on the on the feed so that's awesome too so great well thanks so much thank you.