Real Estate Note Investing Pitfalls and Partials | Real Estate Notes Show

Episode: Real Estate Note Investing Pitfalls and Partials Dave's Goals and Plans: - Put in a few more asset offers this week - Operates business on semi-autopilot allowing ability to take time away - Can walk away for a couple days and pick up where left off without major issues Nathan's Goals and Plans: - Recently took a trip to Fernie BC with high school friends for a few days - Has assets stuck in moratoriums that are frustrating but manageable - Purchased a loan in Edmond, Oklahoma that foreclosed and sold at auction within less than two months Key Recommendations: - Learn from multiple people in the industry - everyone's experience and strategy is different - Follow a consistent system, process, or checklist to avoid due diligence mistakes - Have an accountability partner, mentor, or associate review your deals before purchasing - Conduct thorough due diligence on non-performing loans including code violations and building permits - Don't learn from one person only - take bits and parts from everybody to find what works best for you Topics Discussed: - Real estate note investing pitfalls and common mistakes - Partial notes and hyper-hypothecations (underexplored topics in the industry) - Due diligence errors and their consequences - Transition from fix-and-flip to note investing - Moratoriums and foreclosure timelines - Performing vs non-performing loan strategies - Community learning and sharing experiences Guest Insights: - Justin transitioned from fix-and-flip business to note investing after realizing cash flow management and contractor issues made traditional real estate unprofitable - Made a critical due diligence error purchasing a property slated for demolition - failed to check code violations and building permits - Now focuses primarily on performing loans rather than non-performing loans due to capital efficiency and preference for steady cash flow - Runs a free monthly YouTube broadcast at BrightPath Notes (6 PM Eastern) to educate and share experiences in the note space - Learned to raise capital and partner with investors after demonstrating success with initial note deals Episode: Real Estate Note Investing Pitfalls and Partials Guest: Justin Summary: Dave Putz and Nathan Turner discuss real estate note investing pitfalls and strategies with guest Justin, who shares his transition from fix-and-flip to note investing and the importance of learning from collective experiences in the industry.

Main Topics: Real estate note investing pitfalls and lessons learned, Partial notes and hyperpartialized notes strategies, Transition from fix-and-flip to note investing business model, Foreclosure and eviction processes in note investing, Capital raising and investor partnerships in the note space, Forced place insurance and property management issues Key Takeaways: Learning from collective experiences and pitfalls helps prevent repeating mistakes in note investing | Note investing offers simpler cash flow management compared to fix-and-flip or wholesale businesses | Each real estate scenario presents unique challenges and requires adapted strategies | Building relationships with investors and networking is crucial for sourcing inventory and scaling | Understanding various loan exit strategies beyond selling whole loans is essential for managing problem assets Keywords: note investing, non-performing loans, partial notes, foreclosure, investor partnerships, cash flow, exit strategies, capital raising, fix-and-flip vs note investing, forced place insurance [Music] good afternoon everybody dave putz here from jkp holdings alongside me nathan turner on a friday afternoon indeed hello hello man hopefully your week's been well we all missed you last week you um you're doing some very crafting projects i heard um so with some friends how'd it go how did your little trip away go it was really good really good we get to meet it's my high school buddies and so we get together once a year go off for a few days and just no wives no kids oh nothing and just we go and have fun and mock each other and eat food and yeah it's good times you guys yeah that's cool so it's it's interesting because you were you said you were in the rockies yeah uh most i grew up in alberta uh so most everybody's still there uh so i went out there and then we took off to fernie bc it's a ski town where we used to go all the time and rented a cabin out there and had a great time it was a lot of fun so when you're away like that the house stays in solid order right you know that's one of the beauties of the business is um you know you can make it almost autopilot uh there's i don't think there's any point where you can just completely walk away and just let it go but but you know it's fairly easy to rearrange what you're doing in your schedule and things like that and it's not too big of a deal to walk away for a couple of days and and then come back and pick up where you left off so it's it was great fun it was uh just a nice break yep and get back to it and everyone talks about the fact you can do this business from almost anywhere and i know i've been on vacation and as much you want to put down the phone the computer you just grab it if you're up early or up late and just oh check my email so it's pretty cool yeah on this one i didn't even take a computer i just uh bringing it wow i'm off i'm out it's nice so i know you were we put a few more assets offers in this week a couple of days we had last week didn't go through which is fine um have you what's been up with you have you had any issues or problems lately or what's going on uh we're finally starting to see some of the stuff that was stuck in moratoriums are starting to move a few of them are still stuck in that moratorium stage which is frustrating but you know it's not the end of the world we had one actually i just heard yesterday um one that i purchased just less than two months ago probably a month month and a half ago and it was already in foreclosure this is in uh oklahoma edmond oklahoma just north of of uh tulsa i think it is oklahoma city or tulsa i'm not sure which one but anyway i picked it up it was already in foreclosure um foreclosure just happened yesterday and sure enough it sold at auction so i held that one for less than two months um we got away for the confirmation of sale in a few weeks but uh but otherwise it's uh we have a few that are still pending eviction stuff just but nothing you can do about it right and that's part of the game right now it's part of the game it can be frustrating and you can rant and rave but you know what deal with it and you can be stuck in a situation where you go to foreclose and a big bk happens non-covenants can cause all these problems it's so interesting here you know and then we want to get out of situations right you know you sell your whole loan we've sold loans um but there are avenues that people that can get into stuff like this that if you have a loan and you need to get rid of it there are other options besides sell the whole loan right yeah there's other pitfalls that as a group we all kind of get together we share our stories not to brag or do it but to learn from each other we always get together to kind of see what someone else experiences because we can't experience every scenario in every situation um they can be similar but a lot of times it's a venting stick so yes it's just it's a lot of sharing ideas sometimes a little bit of bragging but you know mostly it's just sharing what it is and and you know what's worked and and uh how do you do this or what do you do when you encounter that yeah it's it what a great community and how we often often often will get together and share ideas and things so you know we want to bring our special guest justin on uh justin has been in the note space as well for a long time he uh runs his own webinars and stuff like that we wanted to talk to him about some of the pitfalls he's experienced some of the and also talk about partial hyper hypos i think that those are not spoken about a lot in the pitfalls i don't think you can speak enough about them because it was what you're saying every situation has a different pitfall and learning from every different situation you possibly can can help you prevent from making that same mistake but if you don't know the mistake you don't know not to make it so that's it you get experience and the more deals you do the more you go oh okay so i do want to do that i don't want to do that and yeah and you could be years later and you learn something like i learned about the forced place insurance you're in space for a long time and all of a sudden you realize there's two different policies like whoa yeah though well justin welcome on um can you share a little about how you got into notes what will you do before notes and where you are now sure well first of all thanks for having me on your show i appreciate it and uh hopefully someday we'll get to have a you know the physical presence of each other and maybe maybe do some sort of collaboration like this yeah but uh yeah i've been in the note space for about probably about five five or six years now before that i thought i was uh some young guy that could go out there and watch hdtv and learn how to flip a house and make money right it looked really easy on tv right so i quickly learned that it wasn't that easy and and someone had come along um to teach about note investing and i'm like okay well that sounds interesting i'll try this out and they were talking about it and they really intrigued me and i learned all the trials and tribulations i had with trying to run a fix and flip or wholesale business was it just wasn't suited for me i wasn't built for it i was running out of contractors left and right i wasn't really managing the cash flow very well and so at the at the end of a project i realized i wasn't really making that much money you know over the span of a couple of months on for example a fix and flip with gains and and paying contractors and you know paying debt service and taxes and utilities and all the things that you have to pay for it's became a headache so the note business was much simpler i mean much simpler as you guys know and so i was turned on from there and i switched my whole portfolio over to traditional real estate as i call it to to this financial real estate and so i bought a couple of non-performing loans bought some performing loans with my own money and retirement and i was like hey this is pretty cool i like this and so i talked to my investors that i was using in my traditional real estate world and you know showed them what i was doing and they liked the idea then i started advertising about this and just talking to local people and networking and showing people like hey this is what i do i bought this note i'm the bank i'm sitting back here i have nothing to do with it and my bank accounts is growing every month like oh wow that's great and so then i just slowly started uh you know courting investors to selling them loans or partnering with me on deals so you know in the note space you can run out of money real quick you start raising capital and working with people and finding out how to partner with people and then networking with guys like you and learning out where the inventory is and how to get the inventory and what to buy and then i loved how you guys brought this in about the pitfalls in the business about how you really learn about your hardships that you go through in real estate and even the note space i mean i've i've lost a good chunk of money before and one of my first deals because i just i made you know a real an error that i shouldn't have made and due diligence and uh it cost me a lot of money and i'll tell you what i won't let that happen again right exactly yeah so um but yeah that's so fast forward today you know we uh we kind of educate in the space similar to what you guys do we're not you know quote unquote teachers or gurus by any means we just uh we kind of just share our experiences so i have a live monthly broadcast that i do uh on youtube actually we aired it uh this past wednesday and we do it at six pm eastern and if you look up on our youtube channel at brightpath notes more than welcome to do it's free it's just informational uh we you know in the future we'll probably have guys like you on as well we just try to try to mix it up a little bit with different people in the business to again share their experiences yeah think about that what's good about the business and what's what you know i've watched a few of his videos and they're really good so please check it out and tune into it again i always brag the fact that don't learn from one person you have to learn from multiple people because everyone's experience is completely different yeah yeah and in doing that you're going to find out you know what i like i like doing it that way i like that kind of note i like this kind of strategy better than the other and there's no right answer there's no well there may be a few wrong answers but really yeah there's such a broad um a broad category when we talk about notes there there are dozens of ways you can do it so learn from everyone and choose what you like best and everyone's strategy is different everyone does it a different method different due diligence method so you know i think for a lot of people they kind of won't hone into one thing and they keep going and i think no other way is right where i can go back and forth nathan we've done it privately like i don't urge anything like well i don't care the way you do it and that's okay yeah right whatever makes you feel comfortable what works um versus you know if his way doesn't work then obviously it's not working but if his way works for him it doesn't have to work for me but taking bits and parts from everybody is key so let's share a little bit about what your due diligence mistakes have been what was some of the first deals you ran into some of its mistakes you had so for me i'll just jump in here and just say you know on a non-performing loan you really have to be extra extra careful as to what you're buying and make sure your due diligence up front is sound and it's good idea to have it double checked with like an accountability partner or someone that's your mentor or or a friend or associate like like you guys nathan nate and dave and so what i did was i found i didn't know that um one of the houses that i was buying was getting ready to be demoed so after i bought it it was demoed okay so i i should have dug deeper into some code violations and some building permits to find out that this thing was slated to be demoed and so then i i had nothing you know i had a piece of land that ended up being on there so there there's mistakes that can happen very easily but if you don't follow your your system or your process or a checklist you know those things can happen they don't happen very often but obviously that stings when it does yeah so i learned my lesson real quick with that non-performer performing loans is mainly what i do right now just because i believe the price point for not performing isn't suited for the capital that i'm using to go after it i don't want to wait long term for the big payoff i just love the cash flow and all i'll make performing loans very profitable for me and and our and with our debt service so we we like doing that so performing loan underwriting and due diligence is going to be i wouldn't say loser but it's not going to be the same as diving into a non-performer so then again like you guys brought up a great point i guarantee you nathan and dave you do things way differently than i do or you go after different types of notes than i do as well and so it's always interesting to learn and hear from each other about what you do and then i can take a little bit of what you've done and be like that's really creative i like that and add it to to how i do my due diligence or how i want to get out of a problem or create a solution what you say right there is key because i actually was talking to a newer investor and they said listen this ass has been for sale for a while i just why is it not being bought and i explained to him it could be the fact it doesn't fit my box it doesn't make it a bad loan right we in this situation it was under a fifty thousand dollar value well i don't buy any under 50 000.

that's why i completely skipped over it doesn't make it a bad loan just doesn't it fit my box right i used to go 150 to about 2015 2016 and i just stopped doing it nathan has no problem going for those lower level things where i just don't feel comfortable as much as i used to because i'm a better i'm not not same thing i used to go for stuff you know between 30 and 50 all the time all the time uh and then yeah it was a few years ago i just said you know what it's for me with everything that i've got going on and all the systems and everything else and and volume and all those kinds of considerations together it it didn't make sense anymore to go after the the little stuff uh so same thing my my cutoff is 50 000 value yeah per property and not to say that that's right or wrong that's that's just a decision that was reached you know looking at multiple factors um so there's certainly a market and i mean we talked to mark uh pentagon a while back ray and he's all over that stuff and he and he's doing great yeah there's it's not junk and you know going back to what you said too i get that from uh people i talk to all the time they say so you mean you're buying the junk i'm like not at all not even close i it you know one man's trash is an unless treasure and that's that's really the case here it may be trash to somebody who doesn't want to look at anything valued less than 150 000.

that's perfect that's exactly what i'm looking for so that you know it's a it becomes a win-win situation for for both parties in that case outside of it too we don't buy anything that's worth over 300 for internal reasons as well we have a cap and for us we don't want to deal with the the borrowers who have a lot of money or have house worth on a lot because they can fight foreclosures they can get bk in those kind of scenarios and 300 000 seem to be that breaking point and again that means based on state too um one of the questions we had was how do you check to see if it's demolished or going to be demolished what do you use what tools do you use to find out that property is going to be demolished hey fellow no investor are you looking to learn the basics of note investing so you can get started however you don't want to spend a few hundreds or thousands of dollars and hours online on some training program have you thought about attending a notes conference however you don't want to spend the money or the time away from your family well we have a tremendous beginners video series of 20 different topics with each video being less than 15 minutes this means each video is less fluff and direct to the content visit www.jkpholdings.com beginner dash series to learn more again www slash beginner dash series well that's that's when your your title search when you do any due diligence comes into play you can order a title from a vetted title company or you can do one of our national companies that we use um that are out there those vendors that we that we all use and but then picking up the phone and calling the county and asking the questions like how do i find out if this notice that's on the door is slated for for the demolition it could be one inspector that controls that area and you talk directly to the guy that's going to control the bulldozer so that's what i could have done i could have called the building and dived a little deeper into it to find out do i have a risk of this thing being demolished and i skipped over it i saw the violations i went ahead i believe what i did was i paid off the delinquent taxes and i paid off the violation amount owed it was too late right paid off was too late and i went to actually drive by the property and it wasn't there anymore so i was looking around going is this the right house what what oh no and then i talked to a neighbor and they said yeah they just demoed it like last week or something i'm just like but one of the things too and i mentioned this in an earlier video of ours i this is 2014 or so i'm going to say 2015 probably run i was on google doing some google walking and i'm like oh it probably looks good the people are sitting on the stoop and for whatever reason i went to check the backyard because i think the roof was slated and i turned the corner and the whole house was gone the pictures in the front were three years old and the pictures was on the side or a year old and the house is gone so you can use google maps and bing just to kind of check it but i agree with justin call that county up and say hey listen that's a public record of information it's not like it's private right you can find out that a house is on the on the list you not always can tell how long or when but it's definitely pretty interesting to find out and you can find the county records by looking online sometimes demolished lists are actually published um but yeah definitely going through that list of a huge thing um cool what other areas have you run into in pitfalls that you've had where you've had a loan where things just didn't work out as you thought maybe maybe not been a terrible situation where you know my fpi where i was going to place my insurance claim and then after i bought it i couldn't because it was the wrong type of first place insurance on the previous with the previous seller have you run the situation where it was just a small mistake that you should have not made yeah there's definitely annoying mistakes i can usually get myself out of it now that i've got a lot more experience and i know a lot more people that have way more experience than i do to lean on them on how to solve the problem especially with documentation and paperwork and title it can be pretty easy to solve that it may take some time but the physical stuff you can't change if the house has you know complete missing like you said the side of the house or the back of the house like you can't change that that's you just have to make sure that you get photographs that make sense uh when you have somebody drive by and walk walk the exterior of the property and just find out is there a problem with it you know did they notice that the meter running you know there's just a lot of little things that we can get into about the physical collateral of it and then the title work of it if you notice something looks weird it's probably weird for a reason and you need to look into it a little bit deeper so picking up that phone calling the county officials you're not going to get the right person the first time maybe the third or fourth time it's a process to it but if you don't want to make a mistake that's what you got to do now if you're buying a tape of 100 non-performing loans you're not going to have time to go through that due diligence then again you're swinging you're swinging for the fences there you're hoping to buy a hundred of them and you know a few of them gonna turn out to be home runs that are gonna pay off the bad debt that you that you have you know on a tape so that's much different strategy than buying a one-off note or two off note um you mentioned bpos and i've expressed my not caring for bpos too much right and they have the usefulness right but first months investors what is your strategy when you get a valuable property because that's you know we can't get inside these properties we can't look inside unless you're really really good agent that does things they shouldn't um but yeah you know are you using bpos are you using agents what are you doing to find value because that's our key item that we don't know it's our x variable what's the inside look like what's the value of that property are you pull bpos or are you doing other strategies yes that's a great question and i get a lot of pushback from first-time investors on the reasons why i do stuff so i'll explain to you guys what i do so i'm buying proper i'm sorry buying real estate notes that are more than likely they have less than a 50 000 unpaid balance so similar to what nathan used to do so the values that a bpo would bring a broker price opinion it's not going to have much weight for me because there aren't going to be conventional financing comps in that area on that street right so that value is just going to be probably a cash value of an investor paying cash for a house that's not it's not going to be the same apples to apples for me so what i look for is conventional financing data well if i can't find it because the values are too low then i have to go off of rent data so i focus on what's the net operating income for for this subject property or what's like this and then kind of work backwards with the capitalization rate to find out what could i fill that property with seller financing and that is what value i would give that property so it's totally subject to my opinion and my belief of that area of what i can do as an investor there's no resource for it it's just something that you have to learn or lean on someone's expertise on to find out what the value of the property is so i don't even do bpos i won't do ppo unless i think the house is worth 80 to 100 000 in an area where i know conventional financing comps are so i'm doing just inspections like what i'll call property inspections or you know um some sort of property report or just have somebody take pictures we go look i have enough experience now to know like okay this is this is a well-maintained house at this price point i feel good about it more nope the roof has a lot of damage they got a tarp on it it has a tarp on it for the last three years when i seen the google pictures they're lazy they're not going to be fixing this property so i don't trust that collateral um so that's how i'm weighing my decision on that nathan what's your experience with bpos so i i do get bpos um mostly because i'm at a distance and it's a it's a relatively easy thing for me to do uh but two things number one whatever the bpo value comes in at i discount it by ten percent always just across the board uh the other thing i do is i will actually pick up the phone and i'll call that realtor and say hey so i see you came in with this value can you just tell me about the neighborhood are things selling and and some of that information is on on the report and then other parts are just not uh where it's difficult for a realtor to report that kind of information i say so you know were you able to peek into the windows because they're not going to typically write that kind of thing in there you know could you tell if it was occupied and again sometimes it's on that report sometimes it's not but i find a direct conversation um is just as valuable if not more than that piece of paper that they gave you and you can find out additional information that maybe wasn't there and you know whether that's good news or bad news and and again and i say that right to him when i say you know i'm not trying to sway your decision i'm not questioning anything i i'm just looking for information so if you tell me it's garbage and the neighborhood is terrible and you know it's a war zone kind of a place and nobody's ever gonna live there great thank you for that information if you tell me you know what it says i you know i put 75 on the on the report but you know what to tell you the truth i think things are selling for more than that and the the trend in the neighborhood is this and that you know i think by the time you're finished your foreclosure it's probably going to be worth more like 80 85.

great and absolutely yeah just information i'm not trying to sway it either way i i i'm not trying to prove my point i don't improve my right uh position for me you know we agree with you guys right i don't pull bpos i don't like pulling bpos i have bad experience with them and i know bpo agents who just kind of laugh me when i say like people still buy them um because they they do it and they just laugh at it where we use we you know we have a list in our portal page where you can get up to 9 400 agents right reo experience agents and we can contact them directly and say listen we're looking remember these bpo agents are getting maybe 25 30 bucks you may be 100 bucks for the bpo but between the company getting the money the broker getting some money and then the agent who does the work they get 25 bucks if i can ship them over 50 bucks to give me local information true and not pull an abm get some pictures gets them on the phone yeah i much rather that right and i also reach out to other investors right if i have a property in justin's backyard who's better to reach out to justin or some agent who doesn't know who i am right obviously justin says yeah dave i could get another property hey listen my buddy lives right around the corner i to drive by the way over here and take a couple pictures for you i know exactly what he's looking for in that five minutes i'm gonna send just a nice amazon card and say thank you but so that connection there is awesome because it works with us right and they know we're looking for and i agree with you guys bpos just they have a great place when you're buying bulk huge bulk when you don't have the time that's it so here's here's another maybe pro tip so a couple other things i do so i'll i'll call the agent um here's one thing that i found is when if i call the agent and either they don't answer the phone right away or i leave a message and they don't call me back within a day um then they're probably not worth talking to to be honest uh so what i'll do then is i'll type in the address and google maps and i'll just look at nearby realtors and it'll pull up somebody that's five minutes away and i'll call that just cold call and i'll say hey i'm looking at buying this property over here and i i find it's easier to just say i'm looking at buying this property to try to explain that i'm buying the note and it's just too much information it's over their heads most of the time so i'm looking at buying this property with the intent of reselling it so i'm looking at hiring you potentially here would you have just five minutes to go by and check it out sometimes they'll do it for free sometimes they'll charge me 50 bucks fine that's totally fine but i i find that the nearby realtor oftentimes will give me uh better and more accurate information than the guy that was from downtown and it depends what part of the country you get into missouri kansas they're like more willing to do anything for you oh yeah you get to florida it's like you know ain't doing it right or chicago they do anything and any resource you can think of especially buying one-off notes you can call a local fire department how's this street sure you run down there often for issues the police department do you patrol this street we try to buy assets that are near like churches and places and schools where i know patrolling is going to be more often uh there so that's how i feel better about even if the crime looks a little heavy in that area but maybe it's just theft because there's a commercial you know strip mall there that there's gonna be a lot of theft there so you just gotta be you think about what's legitimate you know crime or whatever in that area so but those are great tips that you guys you guys did and then again we're proving the fact that we all do something just a little bit different but it works for us another avenue real quick and we'll get to the question it came up was we did this for a long time i don't do as much you used to write call let your company up and say listen what's the average bill for this property and they say well it's you know x-men dollars okay great um and it's still on right now no it's been off oh well i'm about to buy his property i want to know the average thing and you tell me all right thanks that's kind of thank you very much and so much companies will give that information some won't that tells you if it's occupied you really don't care what the bill is you just want to know if it's if it's on and it's oh electric's off okay i know to go check it out so the question we had here is in your opinion we'll go with justin what is the most important thing in note value that makes you uh wait what's your opinion on the most important thing on a note value when you make a bit despite the exit strategy well obviously depending on performing or non-performing all this go on performing is the pay history so me personally some people look at the collateral first and then if they don't like the collateral they move past it i like to look at the numbers first which is my opinion and i focus on that pay history because that pay history and i got a good track ready to prove it it tells me exactly what you know about that borrower and what's going to happen in the future yeah cool nathan what's your thought about that um i think that you you can't separate just the note versus the exit strategy you have to be thinking of a potential exit strategy or in in most cases i'm looking at at least two or three potential exit strategies and then i'm i'm going off of uh i look at you know i actually look at five but i'll like let most times it'll come down to you know one or two that are the most probable um and then i'll look at the lower return based on each on each uh exit strategy and then i'll i'll do my bid based on whatever my lowest return could potentially be yeah and that's a realistic you know like if it's for example uh let's say you know you got a property value of a hundred thousand dollars uh unpaid balance is a hundred thousand dollars and they haven't paid in three years the chances that that's going to pay off are extremely minimal so if that payoff and for whatever reason uh and this isn't exactly accurate but just go with it if if the payoff then is your lowest return um it's a very unrealistic uh potential exit strategy so i'm not necessarily going to go off of that one because the chances of that happening are so minuscule that um it's you know then you get into such a situation where if you're trying to explain that to the seller and say well this is why i'm going in so low because if they've re if they pay off then then this is my return and then the sellers can be like you're an idiot because the chances of that happening are so small that uh you know we had a conversation with a young a newer investor they bought their first loan and they projected out that they can go get this loan performing again and they work out and then like i have to foreclose and i'm like okay what states it in illinois okay you know and my other ones in jersey i'm like oh lord right they point out the fact that i'm gonna bid this on a yield only they have no plan at all going not performing and it's like so for me i look at somewhere in these lessons i look at all my strategies i do go with the minimal but i i have so much buffer in here that i say listen if it goes performing right if it reinstates which means i can't modify the loan what's my scenario and i bid everything based on my return i don't base anything on percentages it's my return base and back doors into it this is what i have to i'm going to get this return i have to bid this much money to get that return and i look at every scenario and say okay here's my bid for every scenario for my returns and which one's the lowest and i bid the lowest because if you reinstate a loan at a four percent loan and they reinstate it again if it's like nathan said a big number i'm not worrying about i'm gonna skip over it but if it's a small number you may be in a spot where you reinstate and you're at a six percent return and you're stuck or you're projecting to get a 12 return on a performer and it goes non-performing and you're under water what are you going to do are you able to sell an auction so there's so many little things that you know i don't separate those i don't go into an idea that that loan is gonna do that extra strategy based on what i want or what it's done before i can perform for two years and go not performing right you don't ever count on that i say the only thing you can count on is if someone prayed during covid they're probably continue to pay just what it is right they have a state job but yeah i don't i don't separate the two justin what's your thoughts of that well you all bring up great points and i think if you have a good inclination that the note has been performing for a long time and you feel like the pay history looks like it's going to stay performing then that's how you bid your pricing um the non-performing space is different it's just we don't do a lot of it right now but when we did do it nathan you know you brought up some great points it's like you have to understand what's the worst case scenario going through foreclosure there's a lot of time there's some money involved a lot of patience and a lot of work in between as far as talking with attorneys servicers property preservation people you know maybe even utility companies or the county depending on if you have the land contract or not so that you have to manage that expectation and build that time cost into your bid and so you're exactly right i think it's more challenging to bid and not performing than it is at performing absolutely that's probably why i do it right yeah which is a great strategy you're bidding on yield right we've been on irr a little bit different math formulas we've been on the fact that we're going to sell in a period of time but you can bid based on yield just understand that if you're going to bid a performing note and you see a four percent interest rate skip over it because you're not gonna get a four percent to an eight or ten whatever you need to get to so we'll narrow down a list if it's performing if i see a whole tape of assets at a three percent they're all performing i'm gonna skip over it because i'm about to discount so much to get it to an eight or ten whatever number we have to hit for that state then it's not worth it for us so let's turn a little bit here and you know talk about your other side of things partials it's such a we me nathan did a call a couple scope and what she said was eight different ways to do partials which i don't know if i can name all it at all but partials for those who don't know what it is can you justin can you explain what that is in the hypos you know what's your understanding of what best time to use them why would someone buy them or sell them well um what's great about partials is that there's there's a lot of reasons why you did partial and i'm glad you teed it up that the way you did so i'll just explain it first to like the first time investor a partial is a great loan for you to get when you first start out it gives you a very low entry cost into an asset where the value of that asset might be three four five x what you have into it you're very well protected you're very well secured right there you do make a lower return because of it but you get that your foot in the door and you learn about the process of note investing so a lot of our first time note investors they like just to inch in slowly like that they can put a lower amount of money in versus a higher amount of money like let's say buying a hundred thousand dollar note maybe they can get at 25 000 maybe that's you know more palatable to them and so me as the as the investor that sold them a partial well guess what i've recouped some of my money i've recapitalized which is a popular term right now so i've gotten some of the money out of that note today versus waiting five six seven eight nine ten years to recoup that cash flow to come back so now i can reinvest and redeploy that capital so it's very valuable to me and i have the back end of that note that's going to kick in at some point it could pay off early or it could just be a free-flowing cash flow by the time that note turns back over to me let's say in 61 months or 121 months down the road um the the reverse of that is for me as an investor to go out and buy a partial and you don't hear a lot of people talk about that but it's a great tool for me actually we did we'd have done three of them coincidentally this week of people that are looking to redeploy their capital somewhere else they didn't want to wait 20 years for their return i said okay i'll buy your note and said okay what would you give me for i said well i won't want to buy the whole thing because the discount will be too big but what i can do is i can buy part of that note and i give you a chunk of money today and i can give you even more money in the future and that total sum of money that i give you is going to be more than what you have into it right now so you'll make a profit so your profit will be truncated down to you know six to 10 years instead of waiting 20 some years and they and they like that so i can have a lower cost of my money a lower amount of money going into a deal i can make a pretty good return and then i'm in it for a short amount of time as well so the partial works in both both ways selling a partial and buying a partial and depending on the level of investor that you are each strategy works really well so you mentioned hypothecations hypothecations are a great way to pledge your performing note or your asset to get a loan from it basically if you have a rental and you go to a bank and you're like i have this rental that brings in a thousand dollar a month's net rent and i'd like to pledge that to get a loan from you the bank says okay i see that hundred thousand dollar valued rental i'll give you a sixty thousand dollar loan against it the investor says great same thing in the note world whereas pledging a performing asset or a tape or a larger uh portfolio of assets to get money in return to go out and buy whatever you want more inventory more rentals more whatever whatever have you yeah that's great because you know another avenue for those who don't know i think traders made a comment on facebook live is you know buying iras right if you have ira money which we do right and i just you know you can only put six grand of roth in a year well if i take my six and to twelve i can go buy a partial or twelve grand right and get into the game or maybe i have a million dollars into deals but then i have my roth money which can't get a lot into it i can buy that right i can take that money and buy a partial with it so it's definitely another angle for those who are getting into it because those who have a little bit of money or those who have irate money self-directed and i'm going to tell you one little secret if you go to anyone who's selling a loan performing loan like justin ran into offer the partial because you know what more likely you may not want to buy the whole loan anyway and with a partial you kind of handcuff yourself with the seller they're going to walk you through some stuff because if it doesn't perform they're going to have to buy it back from you so you're still connected with the seller we had a question about you know do you have to worry about your diligence with buying a partial what's your experience what do you do when you're buying a parcel for due diligence well of course yeah depending on if you know the investor or if you were involved when they bought the asset you may know a good history about it i just happen to know a lot of history about the couple that i bought this week and so my due diligence was pretty quick and easy i just had to catch up from the time that they bought it to the time that i was getting involved with it and so it just took a short amount of time to do that history if i wasn't involved with it i would just be treating this just like a normal loan i would be buying i'd be looking at it you know running all the searches and ordering reports like i do and looking at it that way so just making sure that it's going to perform the way that i want it to give us an example of what a bid would be for it give us a kind of a just rough numbers i'm going to put x dollars on x loan for x payments yeah so you mentioned earlier about you know if you drive some of your bids perhaps off of yield or irr or whatever return or risk that you want and so with with a partial how i'm positioning it is i want to solve the seller's problem so my return it doesn't really matter too much because it's going to be pretty solid but what i'm going to do is i'm going to take the amount of money that's left on this loan let's just say it's um 30 thousand dollars and i'm like okay it's got 20 years left on it that's 240 months i'll give you whatever half now of the upb and then half later uh when it once a year when it's um my turn is up i can buy both both partials of it right i can buy 10 years and i can wait to the ninth nine and a half years and buy another ten years of it right and i can give them that chunk of money or they can just continue to be on the back end so that thirty thousand dollar note i may pay 15 grand for it and just get 10 years of cash flow with that monthly payment coming in if you add those numbers up it's it's usually a pretty good return but that investor is getting their half of the money up today which is very valuable to them because all you guys know about the time time value of money right your money today is worth way more than in the future getting the future money right and then they can benefit from that interest on the back end so that's kind of how you want to position it in my opinion is like you know what what do they want out of it you know obviously you and i and nathan both all buy at a discount so what if we can give you a full value for your note they're like absolutely right so you're just trying i'm just trying to solve their problem that's how i approach it and the yields just work itself out to be exactly what i want to be or or they end up being a little bit higher than what i think cool it's something it's an avenue that i would say it's not common uh i don't see a lot of partial exchanges right um but it's happening right uh you know for those people who are curious about it you know there are tons of information out there youtube videos and whatnot i would just reach out to people who don't just ask them you know what paperwork justin is involved in with the partials are you typically doing an assignment mortgage are you doing all that stuff are you just kind of holding off and working with the servicer yeah it depends on which side of the partial that i'm on so if i'm buying the partial there's still an exchange it's like a full loan you're getting assignment you're getting a launch you're getting a d transfer if it's you know a land contract or contract for deed and you know similar when i'm selling it i get those stuff uh signed and notarized and stuff and i have my servicing company hold it in escrow and they know because they're the ones that are the fiduciary basically the trustee in this transaction if you will and they're holding on the document so it's fair so it's like i'm not holding the documents hostage and i'm not giving them the documents the the the partial buyer and so i just control the the deal that way the purchase sale agreement is is similar to a traditional purchase loan agreement except there's some different language in that spells out what exactly is going on if i'm buying it i'm spelling out i'm buying the next 120 payments starting on august 1st 2021 make it very clear and simple exactly what you're buying and then i just want to have the first writer refusal to purchase the next uh your your entitlement on the back end when when the time comes that's awesome yep yeah i you know ray who i think is everywhere known to man possibly jumped in and asked a question on facebook about you know or made the comment that you know asking if you want full value for a loan and then working out the the details later which is pretty cool right because you get him excited listen what if i could buy you the whole i can buy the whole loan for you and then work out the details so given the full value yeah yeah it's pretty power once pretty powerful once you understand the financial calculator and you can you're not really manipulating it you're just you're just uh making it malleable so that it works for both sides so one of the folks that i bought a partial from i said look you're going to make let's just throw out a number like nine percent at the end of this loan right in 20 years that sounds great that's awesome what if i can get you 11 and i can do it in maybe five or six years like well yeah no brainer right okay cool then i'll buy this chunk now and i'll buy this chunk later and the math works out really well to where i'm making the type of return i want to make in a short amount of time they're getting some money today and the money they still have invest in that note is is a very minimal yeah so they can't make a big and in that kind of a situation how much uh how much education are you doing with them or this and well wait a second so how does that make any sense for you like does that kind of thing come up well they don't really focus on what i'm getting they focus on what they're getting because you know it the whole point of the conversation is like how can i solve their problem well they want full value for the no who the heck doesn't want full value for their note right sure of course i'll take that all day long and even then some so the question is how do you get to that point well you have to be very creative and do this this is not for the novice person to figure out and go document paperwork a lot of attorneys don't know how to do this even real estate note attorneys okay this is something that's an advanced technique that you really want to know what you're doing and lean on like you guys said your other partners and mentors in the business that have done this before and it's not something slick to do you're just trying to solve their problems so you get them focused on what is it that you want you know this thirty thousand dollar note what if they give you 40 grand for they're like okay you know they're they're sticker shock on the opposite side on the good side right of going you're gonna overpay for it okay that's what i'm gonna do but i'm gonna give you money today and the rest of it in the future so the next one we had with yours what does no go criteria when bought when you're buying partially what do you what do you avoid it's a deal that pay history has to be pretty strong i really don't want to have to go through foreclosure if i don't have to obviously i can't predict if that's going to go one way or the other but again the very first one of the first questions you asked me about what's important a factor to me in performing loans is going to be that pay history and so i've researched and seen enough of them to know what the outcome is really going to be now it doesn't happen every time but you know 19 out of 20 times let's just say it works out just exactly the way i think it's going to work out yeah makes sense i think you know it was a question that partially i had once um and you know for me partials are a great math game right it's a playing the math game but solving a problem at the same time which is really cool um is your scenario besides the pay history where oh this is so when you're going you're writing your contract for personal sale how do you typically either sell it or buy it unless it's the same scenario for the in case situation if the loan defaults if you're selling it are you willing to get back or if you're buying it do you force the seller to put in something in there to make sure that they take it back or pay you or explain a little bit about that yeah so it's tricky to answer that question so i'll have to preface exactly what's kind of happening in the scenarios that i do so i'm the we'll call me the notepro okay i'm i'm a professional in this business i've been doing it long enough i i know enough to be dangerous right so depending on if i'm selling the partial the front part of it or if i'm buying the partial i'm going to be in control of exactly what happens to that loan and in full management of what decisions need to be made on that loan because i'm typically probably dealing with somebody that doesn't have enough seasoning as i do and so i'm going to stay in control and that's what the documentation is going to say so i have a buy agreement and i have a cell agreement right that documentation is going to dictate exactly what their role is versus my role and the payouts based on if we go to foreclosure we're going to make sure that we are you know how how we do the math here the servicer is going to control what the payout is but we're going to try to show what's happening just through traditional you know documentation language does that answer the question yeah yeah and then in your experience has anything gone bad and what it has either when you bought or sold what's happened look so there's no there's no hard and fast rule inside this document exactly what's going to happen but what i'm going to do if i'm selling somebody a partial is more than likely i'm going to figure out how to buy them out of the situation so i can just take it over and just deal with it for them they want cash flow and that's why they bought the partial that's why they trusted me to put this deal in front of them so i'm going to try and purchase them out of the deal to make them happy and make them whole and i'll deal with the rest of it because obviously i've got more experience and i've got more boots on the ground to handle those adversities and the same thing on the back end if it goes wrong and i'm buying it and i'm on the front end and the back end investor is like going okay what do i do i'm scared i'm nervous well you know if you want to i'll just figure out a way to buy you out of this situation and then you know you you can just move on to something else or i'll put you in a different asset so that's kind of what would happen you know in my eyes now it hasn't happened to date but i realized that it can happen and that's that's what i would do you know it's a great situation because i think david did a lot of that when he had the guaranteed seconds when he sold them for years where you get 11 percent of the was and if it defaults they just trade you out for a new one which is really cool right it allowed you to get into a deal um with a good return with a safety thing and i think for a lot of new investors this is a great strategy if you're new to buying partial because then you're handcuffed with someone seasoned so that one does a fault they can buy back or work something out with you guys and they're involved right so they're happy to keep paying because they made you happy and they they don't have to buy you out of it but if i'm buying a partial i want to know the fact that i can finish the foreclosure because i most likely can figure things out better than they can um so i probably will handle this kind of stuff myself you just think of it as you're partnering in a new business together right you have a 60 stake and i have a 40 stake and that's you know obviously we're both affected monetarily whatever happens to this and so it really makes the partnership pretty like you said handcuffed because that's right you are until you divest yourself of that position whichever you're on the end of the partial or the beginning of the partial yeah so then let me ask you this have you ever had an investor come in that would like to buy a partial with you or from you where you look at the situation you go um i don't think so yeah not all loans are going to fit for a partial in my opinion if i want to sell them or if i want to buy them um the it's hard to draw up a hypothetical scenario without you know doing a case study and walking through numbers so everyone can see this in real time but there are situations where it wouldn't work out so you had mentioned earlier dave about looking at a tape of assets and that they have like a four or five percent or three percent coupon rate on them you'd probably pass them over um i may take a swing up doing a partial on them you know there's a bunch of discount like you said built in there but if i can buy a chunk smaller chunk at a time and then and then leave them the back end or buy another chunk in the future it's a way for me to leapfrog through that amateurization give them a better value for what they're selling and also protect me with the lower entry level versus the the value of the property on my cost and so it can work differently it's more challenging and more paperwork right and it's a little more creative but you can make certain situations work uh for the better when you think about it from a partial standpoint have have you ever had to actually refuse a particular investor yeah yeah we'll leave it there yeah i'm sure you have as well yeah yeah i have a few investors who like you know i keep armed length of way and say it was great you know um i'll i'll help you get into a loan i'll i'll be there but i can't do any more than that yeah you're talking about a long-term situation so it's got to be a good fit i mean i'm looking for the long-term business relationship invest a relationship with somebody and i can tell usually within the first couple interviews with folks if they're just not going to jive well with me and i don't want to have maybe somebody over my shoulders the entire time with their looking at what i do which i get it but it just doesn't work for me and so i'm looking for a different type of character and an investor and so that works well with me and there's other people that work well with those people that are very detailed and and want to see everything at a granular level as what's going on so is there a time period where you buy loans you set five years three years ten years or is it run by the numbers when i like buy them and resell them or buy them and hold them is that what you're asking really if you're going to buy a partial or sell a partial do you have a certain number you sit with where or do you run numbers and figure out you have a threshold no the beautiful thing about this note business as you guys both know is no two deals are the same everything is completely unique and so when you have the tools like nathan and you dave you have you just pick and choose which tool that's going to fit that that screw or that bolt so you can you know assemble that like i assembled a swing set a couple weeks ago some of that swing set together so every you have to be creative and you have to be a deal architect this isn't a one-trick pony this isn't a one-stop shop so to speak as far as like yep you do this this this and that's all i'm gonna do that may work for a small sliver of the real estate note space and that's what you want to do then make a business out of it but i love the the creativity of it i love figuring out a new way to work out a deal and then take a piece of what you did that was creative and turn into and work it in into another deal or expand upon it and figure out how can i make this more profitable how can i make sure the person buying it or selling it benefits even more to make me look like a really good buyer that they would come to next time there's a question in the chat that i'll let you look at to see if you want to answer but you know another thing was you know some people want to get into this space and they want to get into it really low right maybe they have 500 bucks a thousand what is the smallest dollar amount you would say typically you can buy or sell a partial at is it a thousand bucks is it 500 bucks what can you technically buy what makes sense well there there is a there i don't know if this rule has changed recently but there was a hard fast rule about the amount of money you have to invest with an ira transaction to to be involved in a in a deal that was about a hundred dollars so theoretically if i bought a note for x price i'm sorry if i sold a note for x price and i put 100 on top of it i could actually be the partial buyer on the back end i could have 100 into a deal but may have a 20 30 40 000 kicker you know at the end of it so that could be how small the transaction you can have um i don't encourage you to do that on every deal because you might be considered a dealer broker dealer there and you'd get in trouble and ubit would hit you right but um i mean i've sold notes for a couple of thousand dollars whole notes excuse me either land or very close to the end of the life of a loan i would say typically when people ask me how much do i need to invest in a note i say you're going to spend you need to have at least 30 grand for performing or not performing that's just a great starting point yes you can buy things lower than that yes you can spend a lot more than that but i just say 30 grand a great starting point most people have a couple hundred thousand dollar in their retirement account and it's just you know a very low entry cost versus your entire portfolio on retirement to get into so that would answer my that would be my answer and then we get a chance to look at that one question i would tell people to if you're gonna get into a note and you're gonna spend money make sure you don't deplete all your money into purchasing a note you have servicing fees you have recording fees and you have everything else that goes involved with it you may have reporter fees of paying ram so please be sure that you have somebody in reserve or if you're doing jv's and you borrow all the money make sure you have money somewhere you can pull because you you could possibly have an area where you can't foreclose now you have to sell the asset so yeah on average i set aside about five thousand dollars per note that i purchased and and that varies of course because on performing i don't need close to that on one that i do a foreclosure sometimes it'll be more than that so but as a general rule i set aside about five five thousand per that's a good and that's kind of what i do as well if i'm buying something that's more risky i want to make sure i got at least a five grand buffer in there just to cover me for something if it goes beyond that hey that's the risk that i'm willing to take doesn't mean the risk that somebody else is willing to take but yeah nathan and i were kind of aligned there i saw the question you were talking about um about who who is or was my mentor and i have many mentors in the note space i am went through eddie speeds note school and i did that you know many years ago about five about six or seven years ago and he's uh he's shown me all these different tools and resources that i can apply throughout his 40-some years of investing experience and it blew my mind every time that i hear him come up with the technique that he does i know you dave you've been on a panel with him and bob repats before and uh it's just that's that's one of the one of my mentors and you know there's many other people in the note business that i look up to and uh you know i learned from them by all means do i i don't know everything right but i love learning and hearing different stories and like you guys at the beginning just sharing my experience may may benefit youtube or sharing your experience on this call today benefits me in some way because i didn't realize that you know i never heard of that before you'd be surprised when you get in the note space about how many things you just really don't know even being a professional real estate investor you'll be blown away at the things you never knew the possibility of especially when it comes to turning on the partial um in financial calculator in your mind and you're just like oh my goodness like there's so much money i've left on the table on deals i had no idea and i think a lot of people believe that note space and it does to a point comes from trees like you know i think of football where there's trees of the head coaches that could create other head coaches and there's trees in note space where people come from different branches right where there's any speeds and there's other people in this space that could have that tree formation um you sound like you came from the speed tree where you came from that formation and that you kind of experience everyone else but you start out with eddie being your first kind of person you learn from experience from and i've been to his trainings i'm gonna tell you guys if you haven't been to one of his education courses or even his uh conferences they don't do typical note stuff they actually do on a screen calculator and show you how to break a partial down and how to make money and how you can leverage it to an infinity return by just borrowing money here to do this and it's amazing i took snapshots even being in the space when i first saw i think it was five years in vegas and or wherever i was and i'm like whoa i didn't realize you could do that and the number's ridiculous because it came from a seller finance world not this bank originated stuff that we are all used to now which blew the industry up so the trees are you're probably talking about uh patrick is more of the fact of you know i'm presuming from i know you have a mentor you know i came from my person jack and nathan came from history but justin you came from you would say they had a speed tree if anything would that be accurate oh definitely yeah that's that's the company and organization that that was touring around where i live in near indianapolis indiana and uh that's like i said when i first heard the term real estate note investing i'm like investing in mortgages like you know first thing i'm thinking is that legal and the second thing is doing you know i don't understand how that how you can make money in that doesn't make sense to me and then just sitting back and listening and obviously folks that are listening to this right now and watching the replay you get it you know being the bank is totally different than being involved in traditional real estate yeah it's amazing because there are so many nuances but there are basics guys you know justin's going to come out of course we have a beginners course nathan's stuff as well and in in there's plenty of youtube videos out there right so this will be on youtube just youtube make sure you you know you subscribe and do the bell thingy whatever the reminder thing to just tune into the things you get into and just grasp the information right and just take note of what happens um to ask questions in groups ask questions that you think you that you're not sure about things because we like to share experiences but we also like to learn from other people justin may give an answer that i know the answer to but he had me have a twist on that i never thought about then i'll write my little notes on that yeah that's you know going to conferences and stuff we've all been going to conferences for years and and a huge huge huge part of that is the networking but at the same time we'll be in a car in a talk and it's somebody that i know and i've you know spoken with dozens of times and they'll say something where i go huh well that's interesting i never thought of it that way and and it changes everything or or maybe not maybe it doesn't change everything but it's just a little bit of a nugget where i go oh okay yeah i could try it or i would say my biggest time for a conference where i actually got questions to do webinars 2015 where i'm like i can't and i was right people like just do it and it was with kimberly just do it i'm like wow you know and it opened up the whole world to be able to do stuff like this and learn from people not like three four times a year basis but on a weekly or monthly basis connecting with people yeah um another question came in is about who are you using for your accountants um cpa encounters an attorney for selling and buying partials um that's a good question you have a list you work with that you work with an account you do your own accounting um share a little about that so as far as like my documentation stuff like my mentors are the ones that supplied me or showed me kind of what language you want to build into it and so you need to have an attorney that understands the space and maybe even an investor themselves so that they can especially in your state that your that you want um you know litigation to go through so cpa and accountants i use actually a local person here um they have a smaller firm and they really understand the real estate space in general and they're excellent with the financial calculator so they are not a note investor per se but they understand what i'm doing so i don't have like a cpa specialist or accountant team that is specialized in partials i don't know if there is one i don't know when i when i talk with my account and my cpa they understand the language that i'm talking about so it's not a difficult conversation to be like i'm buying this much of the note i have this much invested in it this is going to be my my return at the end of that time period and in between that they show me how they want me to do my income and split out my interest in principle and and discount based on however they want me to do my chart of accounts and that's kind of how we work together with this so i would just encourage you who asked a question to um go out and vet your cpa and make sure they really understand what you're doing because i'm sure any cpa i'll be like oh yeah i get i understand notes well you probably don't if you say that you probably don't right just like an attorney that they may say that upfront you know there's some great attorneys that people have been on your facebook page uh dave and uh that people know the note business and so i just want to rewind back to what you and nathan were talking about about you know listening to people and hearing their stories and stuff but you also want to vet the person that's giving you the story there's several people in our community that aren't really that knowledgeable in the note space and they're giving out free advice good point well said well said well i'll just i'll just leave it at that yeah no it's totally worth it to sit down with your with your bookkeeper and account and and and explain it so that they can explain it back to you yes yeah i want to be totally sure they know what i'm doing and we've gotten to that point so that that's very very valuable you want to make sure they completely understand it not just a general understanding no like a fine yeah you need a specialist and you may need to train them and coach them on what you're doing and it's okay i've burned through four or five of them before i found one that i like great point justin you know when people in space are like well you got one you have forever i've fired more cpas and i've hired i feel i just i just we've done a lot of that and there's gonna be times where i may have to fire the one i have now because things change you much you want to put down the phone the computer you just grab it if you're up early or up late and just oh check my email so it's pretty cool yeah on this one i didn't even take a computer i just uh bringing it wow i'm off i'm out it's nice so i know you were we put a few more assets offers in this week a couple of days we had last week didn't go through which is fine um have you what's been up with you have you had any issues or problems lately or what's going on uh we're finally starting to see some of the stuff that was stuck in moratoriums are starting to move a few of them are still stuck in that moratorium stage which is frustrating but you know it's not the end of the world we had one actually i just heard yesterday um one that i purchased just less than two months ago probably a month month and a half ago and it was already in foreclosure this is in uh oklahoma edmond oklahoma just north of of uh tulsa i think it is oklahoma city or tulsa i'm not sure which one but anyway i picked it up it was already in foreclosure um foreclosure just happened yesterday and sure enough it sold at auction so i held that one for less than two months um we got away for the confirmation of sale in a few weeks but uh but otherwise it's uh we have a few that are still pending eviction stuff just but nothing you can do about it right and that's part of the game right now it's part of the game it can be frustrating and you can rant and rave but you know what deal with it and you can be stuck in a situation where you go to foreclose and a big bk happens non-covenants can cause all these problems it's so interesting here you know and then we want to get out of situations right you know you sell your whole loan we've sold loans um but there are avenues that people that can get into stuff like this that if you have a loan and you need to get rid of it there are other options besides sell the whole loan right yeah there's other pitfalls that as a group we all kind of get together we share our stories not to brag or do it but to learn from each other we always get together to kind of see what someone else experiences because we can't experience every scenario in every situation um they can be similar but a lot of times it's a venting stick so yes it's just it's a lot of sharing ideas sometimes a little bit of bragging but you know mostly it's just sharing what it is and and you know what's worked and and uh how do you do this or what do you do when you encounter that yeah it's it what a great community and how we often often often will get together and share ideas and things so you know we want to bring our special guest justin on uh justin has been in the note space as well for a long time he uh runs his own webinars and stuff like that we wanted to talk to him about some of the pitfalls he's experienced some of the and also talk about partial hyper hypos i think that those are not spoken about a lot in the pitfalls i don't think you can speak enough about them because it was what you're saying every situation has a different pitfall and learning from every different situation you possibly can can help you prevent from making that same mistake but if you don't know the mistake you don't know not to make it so that's it you get experience and the more deals you do the more you go oh okay so i do want to do that i don't want to do that and yeah and you could be years later and you learn something like i learned about the forced place insurance you're in space for a long time and all of a sudden you realize there's two different policies like whoa yeah though well justin welcome on um can you share a little about how you got into notes what will you do before notes and where you are now sure well first of all thanks for having me on your show i appreciate it and uh hopefully someday we'll get to have a you know the physical presence of each other and maybe maybe do some sort of collaboration like this yeah but uh yeah i've been in the note space for about probably about five five or six years now before that i thought i was uh some young guy that could go out there and watch hdtv and learn how to flip a house and make money right it looked really easy on tv right so i quickly learned that it wasn't that easy and and someone had come along um to teach about note investing and i'm like okay well that sounds interesting i'll try this out and they were talking about it and they really intrigued me and i learned all the trials and tribulations i had with trying to run a fix and flip or wholesale business was it just wasn't suited for me i wasn't built for it i was running out of contractors left and right i wasn't really managing the cash flow very well and so at the at the end of a project i realized i wasn't really making that much money you know over the span of a couple of months on for example a fix and flip with gains and and paying contractors and you know paying debt service and taxes and utilities and all the things that you have to pay for it's became a headache so the note business was much simpler i mean much simpler as you guys know and so i was turned on from there and i switched my whole portfolio over to traditional real estate as i call it to to this financial real estate and so i bought a couple of non-performing loans bought some performing loans with my own money and retirement and i was like hey this is pretty cool i like this and so i talked to my investors that i was using in my traditional real estate world and you know showed them what i was doing and they liked the idea then i started advertising about this and just talking to local people and networking and showing people like hey this is what i do i bought this note i'm the bank i'm sitting back here i have nothing to do with it and my bank accounts is growing every month like oh wow that's great and so then i just slowly started uh you know courting investors to selling them loans or partnering with me on deals so you know in the note space you can run out of money real quick you start raising capital and working with people and finding out how to partner with people and then networking with guys like you and learning out where the inventory is and how to get the inventory and what to buy and then i loved how you guys brought this in about the pitfalls in the business about how you really learn about your hardships that you go through in real estate and even the note space i mean i've i've lost a good chunk of money before and one of my first deals because i just i made you know a real an error that i shouldn't have made and due diligence and uh it cost me a lot of money and i'll tell you what i won't let that happen again right exactly yeah so um but yeah that's so fast forward today you know we uh we kind of educate in the space similar to what you guys do we're not you know quote unquote teachers or gurus by any means we just uh we kind of just share our experiences so i have a live monthly broadcast that i do uh on youtube actually we aired it uh this past wednesday and we do it at six pm eastern and if you look up on our youtube channel at brightpath notes more than welcome to do it's free it's just informational uh we you know in the future we'll probably have guys like you on as well we just try to try to mix it up a little bit with different people in the business to again share their experiences yeah think about that what's good about the business and what's what you know i've watched a few of his videos and they're really good so please check it out and tune into it again i always brag the fact that don't learn from one person you have to learn from multiple people because everyone's experience is completely different yeah yeah and in doing that you're going to find out you know what i like i like doing it that way i like that kind of note i like this kind of strategy better than the other and there's no right answer there's no well there may be a few wrong answers but really yeah there's such a broad um a broad category when we talk about notes there there are dozens of ways you can do it so learn from everyone and choose what you like best and everyone's strategy is different everyone does it a different method different due diligence method so you know i think for a lot of people they kind of won't hone into one thing and they keep going and i think no other way is right where i can go back and forth nathan we've done it privately like i don't urge anything like well i don't care the way you do it and that's okay yeah right whatever makes you feel comfortable what works um versus you know if his way doesn't work then obviously it's not working but if his way works for him it doesn't have to work for me but taking bits and parts from everybody is key so let's share a little bit about what your due diligence mistakes have been what was some of the first deals you ran into some of its mistakes you had so for me i'll just jump in here and just say you know on a non-performing loan you really have to be extra extra careful as to what you're buying and make sure your due diligence up front is sound and it's good idea to have it double checked with like an accountability partner or someone that's your mentor or or a friend or associate like like you guys nathan nate and dave and so what i did was i found i didn't know that um one of the houses that i was buying was getting ready to be demoed so after i bought it it was demoed okay so i i should have dug deeper into some code violations and some building permits to find out that this thing was slated to be demoed and so then i i had nothing you know i had a piece of land that ended up being on there so there there's mistakes that can happen very easily but if you don't follow your your system or your process or a checklist you know those things can happen they don't happen very often but obviously that stings when it does yeah so i learned my lesson real quick with that non-performer performing loans is mainly what i do right now just because i believe the price point for not performing isn't suited for the capital that i'm using to go after it i don't want to wait long term for the big payoff i just love the cash flow and all i'll make performing loans very profitable for me and and our and with our debt service so we we like doing that so performing loan underwriting and due diligence is going to be i wouldn't say loser but it's not going to be the same as diving into a non-performer so then again like you guys brought up a great point i guarantee you nathan and dave you do things way differently than i do or you go after different types of notes than i do as well and so it's always interesting to learn and hear from each other about what you do and then i can take a little bit of what you've done and be like that's really creative i like that and add it to to how i do my due diligence or how i want to get out of a problem or create a solution what you say right there is key because i actually was talking to a newer investor and they said listen this ass has been for sale for a while i just why is it not being bought and i explained to him it could be the fact it doesn't fit my box it doesn't make it a bad loan right we in this situation it was under a fifty thousand dollar value well i don't buy any under 50 000.

that's why i completely skipped over it doesn't make it a bad loan just doesn't it fit my box right i used to go 150 to about 2015 2016 and i just stopped doing it nathan has no problem going for those lower level things where i just don't feel comfortable as much as i used to because i'm a better i'm not not same thing i used to go for stuff you know between 30 and 50 all the time all the time uh and then yeah it was a few years ago i just said you know what it's for me with everything that i've got going on and all the systems and everything else and and volume and all those kinds of considerations together it it didn't make sense anymore to go after the the little stuff uh so same thing my my cutoff is 50 000 value yeah per property and not to say that that's right or wrong that's that's just a decision that was reached you know looking at multiple factors um so there's certainly a market and i mean we talked to mark uh pentagon a while back ray and he's all over that stuff and he and he's doing great yeah there's it's not junk and you know going back to what you said too i get that from uh people i talk to all the time they say so you mean you're buying the junk i'm like not at all not even close i it you know one man's trash is an unless treasure and that's that's really the case here it may be trash to somebody who doesn't want to look at anything valued less than 150 000.

that's perfect that's exactly what i'm looking for so that you know it's a it becomes a win-win situation for for both parties in that case outside of it too we don't buy anything that's worth over 300 for internal reasons as well we have a cap and for us we don't want to deal with the the borrowers who have a lot of money or have house worth on a lot because they can fight foreclosures they can get bk in those kind of scenarios and 300 000 seem to be that breaking point and again that means based on state too um one of the questions we had was how do you check to see if it's demolished or going to be demolished what do you use what tools do you use to find out that property is going to be demolished hey fellow no investor are you looking to learn the basics of note investing so you can get started however you don't want to spend a few hundreds or thousands of dollars and hours online on some training program have you thought about attending a notes conference however you don't want to spend the money or the time away from your family well we have a tremendous beginners video series of 20 different topics with each video being less than 15 minutes this means each video is less fluff and direct to the content visit www.jkpholdings.com beginner dash series to learn more again www slash beginner dash series well that's that's when your your title search when you do any due diligence comes into play you can order a title from a vetted title company or you can do one of our national companies that we use um that are out there those vendors that we that we all use and but then picking up the phone and calling the county and asking the questions like how do i find out if this notice that's on the door is slated for for the demolition it could be one inspector that controls that area and you talk directly to the guy that's going to control the bulldozer so that's what i could have done i could have called the building and dived a little deeper into it to find out do i have a risk of this thing being demolished and i skipped over it i saw the violations i went ahead i believe what i did was i paid off the delinquent taxes and i paid off the violation amount owed it was too late right paid off was too late and i went to actually drive by the property and it wasn't there anymore so i was looking around going is this the right house what what oh no and then i talked to a neighbor and they said yeah they just demoed it like last week or something i'm just like but one of the things too and i mentioned this in an earlier video of ours i this is 2014 or so i'm going to say 2015 probably run i was on google doing some google walking and i'm like oh it probably looks good the people are sitting on the stoop and for whatever reason i went to check the backyard because i think the roof was slated and i turned the corner and the whole house was gone the pictures in the front were three years old and the pictures was on the side or a year old and the house is gone so you can use google maps and bing just to kind of check it but i agree with justin call that county up and say hey listen that's a public record of information it's not like it's private right you can find out that a house is on the on the list you not always can tell how long or when but it's definitely pretty interesting to find out and you can find the county records by looking online sometimes demolished lists are actually published um but yeah definitely going through that list of a huge thing um cool what other areas have you run into in pitfalls that you've had where you've had a loan where things just didn't work out as you thought maybe maybe not been a terrible situation where you know my fpi where i was going to place my insurance claim and then after i bought it i couldn't because it was the wrong type of first place insurance on the previous with the previous seller have you run the situation where it was just a small mistake that you should have not made yeah there's definitely annoying mistakes i can usually get myself out of it now that i've got a lot more experience and i know a lot more people that have way more experience than i do to lean on them on how to solve the problem especially with documentation and paperwork and title it can be pretty easy to solve that it may take some time but the physical stuff you can't change if the house has you know complete missing like you said the side of the house or the back of the house like you can't change that that's you just have to make sure that you get photographs that make sense uh when you have somebody drive by and walk walk the exterior of the property and just find out is there a problem with it you know did they notice that the meter running you know there's just a lot of little things that we can get into about the physical collateral of it and then the title work of it if you notice something looks weird it's probably weird for a reason and you need to look into it a little bit deeper so picking up that phone calling the county officials you're not going to get the right person the first time maybe the third or fourth time it's a process to it but if you don't want to make a mistake that's what you got to do now if you're buying a tape of 100 non-performing loans you're not going to have time to go through that due diligence then again you're swinging you're swinging for the fences there you're hoping to buy a hundred of them and you know a few of them gonna turn out to be home runs that are gonna pay off the bad debt that you that you have you know on a tape so that's much different strategy than buying a one-off note or two off note um you mentioned bpos and i've expressed my not caring for bpos too much right and they have the usefulness right but first months investors what is your strategy when you get a valuable property because that's you know we can't get inside these properties we can't look inside unless you're really really good agent that does things they shouldn't um but yeah you know are you using bpos are you using agents what are you doing to find value because that's our key item that we don't know it's our x variable what's the inside look like what's the value of that property are you pull bpos or are you doing other strategies yes that's a great question and i get a lot of pushback from first-time investors on the reasons why i do stuff so i'll explain to you guys what i do so i'm buying proper i'm sorry buying real estate notes that are more than likely they have less than a 50 000 unpaid balance so similar to what nathan used to do so the values that a bpo would bring a broker price opinion it's not going to have much weight for me because there aren't going to be conventional financing comps in that area on that street right so that value is just going to be probably a cash value of an investor paying cash for a house that's not it's not going to be the same apples to apples for me so what i look for is conventional financing data well if i can't find it because the values are too low then i have to go off of rent data so i focus on what's the net operating income for for this subject property or what's like this and then kind of work backwards with the capitalization rate to find out what could i fill that property with seller financing and that is what value i would give that property so it's totally subject to my opinion and my belief of that area of what i can do as an investor there's no resource for it it's just something that you have to learn or lean on someone's expertise on to find out what the value of the property is so i don't even do bpos i won't do ppo unless i think the house is worth 80 to 100 000 in an area where i know conventional financing comps are so i'm doing just inspections like what i'll call property inspections or you know um some sort of property report or just have somebody take pictures we go look i have enough experience now to know like okay this is this is a well-maintained house at this price point i feel good about it more nope the roof has a lot of damage they got a tarp on it it has a tarp on it for the last three years when i seen the google pictures they're lazy they're not going to be fixing this property so i don't trust that collateral um so that's how i'm weighing my decision on that nathan what's your experience with bpos so i i do get bpos um mostly because i'm at a distance and it's a it's a relatively easy thing for me to do uh but two things number one whatever the bpo value comes in at i discount it by ten percent always just across the board uh the other thing i do is i will actually pick up the phone and i'll call that realtor and say hey so i see you came in with this value can you just tell me about the neighborhood are things selling and and some of that information is on on the report and then other parts are just not uh where it's difficult for a realtor to report that kind of information i say so you know were you able to peek into the windows because they're not going to typically write that kind of thing in there you know could you tell if it was occupied and again sometimes it's on that report sometimes it's not but i find a direct conversation um is just as valuable if not more than that piece of paper that they gave you and you can find out additional information that maybe wasn't there and you know whether that's good news or bad news and and again and i say that right to him when i say you know i'm not trying to sway your decision i'm not questioning anything i i'm just looking for information so if you tell me it's garbage and the neighborhood is terrible and you know it's a war zone kind of a place and nobody's ever gonna live there great thank you for that information if you tell me you know what it says i you know i put 75 on the on the report but you know what to tell you the truth i think things are selling for more than that and the the trend in the neighborhood is this and that you know i think by the time you're finished your foreclosure it's probably going to be worth more like 80 85.

great and absolutely yeah just information i'm not trying to sway it either way i i i'm not trying to prove my point i don't improve my right uh position for me you know we agree with you guys right i don't pull bpos i don't like pulling bpos i have bad experience with them and i know bpo agents who just kind of laugh me when i say like people still buy them um because they they do it and they just laugh at it where we use we you know we have a list in our portal page where you can get up to 9 400 agents right reo experience agents and we can contact them directly and say listen we're looking remember these bpo agents are getting maybe 25 30 bucks you may be 100 bucks for the bpo but between the company getting the money the broker getting some money and then the agent who does the work they get 25 bucks if i can ship them over 50 bucks to give me local information true and not pull an abm get some pictures gets them on the phone yeah i much rather that right and i also reach out to other investors right if i have a property in justin's backyard who's better to reach out to justin or some agent who doesn't know who i am right obviously justin says yeah dave i could get another property hey listen my buddy lives right around the corner i to drive by the way over here and take a couple pictures for you i know exactly what he's looking for in that five minutes i'm gonna send just a nice amazon card and say thank you but so that connection there is awesome because it works with us right and they know we're looking for and i agree with you guys bpos just they have a great place when you're buying bulk huge bulk when you don't have the time that's it so here's here's another maybe pro tip so a couple other things i do so i'll i'll call the agent um here's one thing that i found is when if i call the agent and either they don't answer the phone right away or i leave a message and they don't call me back within a day um then they're probably not worth talking to to be honest uh so what i'll do then is i'll type in the address and google maps and i'll just look at nearby realtors and it'll pull up somebody that's five minutes away and i'll call that just cold call and i'll say hey i'm looking at buying this property over here and i i find it's easier to just say i'm looking at buying this property to try to explain that i'm buying the note and it's just too much information it's over their heads most of the time so i'm looking at buying this property with the intent of reselling it so i'm looking at hiring you potentially here would you have just five minutes to go by and check it out sometimes they'll do it for free sometimes they'll charge me 50 bucks fine that's totally fine but i i find that the nearby realtor oftentimes will give me uh better and more accurate information than the guy that was from downtown and it depends what part of the country you get into missouri kansas they're like more willing to do anything for you oh yeah you get to florida it's like you know ain't doing it right or chicago they do anything and any resource you can think of especially buying one-off notes you can call a local fire department how's this street sure you run down there often for issues the police department do you patrol this street we try to buy assets that are near like churches and places and schools where i know patrolling is going to be more often uh there so that's how i feel better about even if the crime looks a little heavy in that area but maybe it's just theft because there's a commercial you know strip mall there that there's gonna be a lot of theft there so you just gotta be you think about what's legitimate you know crime or whatever in that area so but those are great tips that you guys you guys did and then again we're proving the fact that we all do something just a little bit different but it works for us another avenue real quick and we'll get to the question it came up was we did this for a long time i don't do as much you used to write call let your company up and say listen what's the average bill for this property and they say well it's you know x-men dollars okay great um and it's still on right now no it's been off oh well i'm about to buy his property i want to know the average thing and you tell me all right thanks that's kind of thank you very much and so much companies will give that information some won't that tells you if it's occupied you really don't care what the bill is you just want to know if it's if it's on and it's oh electric's off okay i know to go check it out so the question we had here is in your opinion we'll go with justin what is the most important thing in note value that makes you uh wait what's your opinion on the most important thing on a note value when you make a bit despite the exit strategy well obviously depending on performing or non-performing all this go on performing is the pay history so me personally some people look at the collateral first and then if they don't like the collateral they move past it i like to look at the numbers first which is my opinion and i focus on that pay history because that pay history and i got a good track ready to prove it it tells me exactly what you know about that borrower and what's going to happen in the future yeah cool nathan what's your thought about that um i think that you you can't separate just the note versus the exit strategy you have to be thinking of a potential exit strategy or in in most cases i'm looking at at least two or three potential exit strategies and then i'm i'm going off of uh i look at you know i actually look at five but i'll like let most times it'll come down to you know one or two that are the most probable um and then i'll look at the lower return based on each on each uh exit strategy and then i'll i'll do my bid based on whatever my lowest return could potentially be yeah and that's a realistic you know like if it's for example uh let's say you know you got a property value of a hundred thousand dollars uh unpaid balance is a hundred thousand dollars and they haven't paid in three years the chances that that's going to pay off are extremely minimal so if that payoff and for whatever reason uh and this isn't exactly accurate but just go with it if if the payoff then is your lowest return um it's a very unrealistic uh potential exit strategy so i'm not necessarily going to go off of that one because the chances of that happening are so minuscule that um it's you know then you get into such a situation where if you're trying to explain that to the seller and say well this is why i'm going in so low because if they've re if they pay off then then this is my return and then the sellers can be like you're an idiot because the chances of that happening are so small that uh you know we had a conversation with a young a newer investor they bought their first loan and they projected out that they can go get this loan performing again and they work out and then like i have to foreclose and i'm like okay what states it in illinois okay you know and my other ones in jersey i'm like oh lord right they point out the fact that i'm gonna bid this on a yield only they have no plan at all going not performing and it's like so for me i look at somewhere in these lessons i look at all my strategies i do go with the minimal but i i have so much buffer in here that i say listen if it goes performing right if it reinstates which means i can't modify the loan what's my scenario and i bid everything based on my return i don't base anything on percentages it's my return base and back doors into it this is what i have to i'm going to get this return i have to bid this much money to get that return and i look at every scenario and say okay here's my bid for every scenario for my returns and which one's the lowest and i bid the lowest because if you reinstate a loan at a four percent loan and they reinstate it again if it's like nathan said a big number i'm not worrying about i'm gonna skip over it but if it's a small number you may be in a spot where you reinstate and you're at a six percent return and you're stuck or you're projecting to get a 12 return on a performer and it goes non-performing and you're under water what are you going to do are you able to sell an auction so there's so many little things that you know i don't separate those i don't go into an idea that that loan is gonna do that extra strategy based on what i want or what it's done before i can perform for two years and go not performing right you don't ever count on that i say the only thing you can count on is if someone prayed during covid they're probably continue to pay just what it is right they have a state job but yeah i don't i don't separate the two justin what's your thoughts of that well you all bring up great points and i think if you have a good inclination that the note has been performing for a long time and you feel like the pay history looks like it's going to stay performing then that's how you bid your pricing um the non-performing space is different it's just we don't do a lot of it right now but when we did do it nathan you know you brought up some great points it's like you have to understand what's the worst case scenario going through foreclosure there's a lot of time there's some money involved a lot of patience and a lot of work in between as far as talking with attorneys servicers property preservation people you know maybe even utility companies or the county depending on if you have the land contract or not so that you have to manage that expectation and build that time cost into your bid and so you're exactly right i think it's more challenging to bid and not performing than it is at performing absolutely that's probably why i do it right yeah which is a great strategy you're bidding on yield right we've been on irr a little bit different math formulas we've been on the fact that we're going to sell in a period of time but you can bid based on yield just understand that if you're going to bid a performing note and you see a four percent interest rate skip over it because you're not gonna get a four percent to an eight or ten whatever you need to get to so we'll narrow down a list if it's performing if i see a whole tape of assets at a three percent they're all performing i'm gonna skip over it because i'm about to discount so much to get it to an eight or ten whatever number we have to hit for that state then it's not worth it for us so let's turn a little bit here and you know talk about your other side of things partials it's such a we me nathan did a call a couple scope and what she said was eight different ways to do partials which i don't know if i can name all it at all but partials for those who don't know what it is can you justin can you explain what that is in the hypos you know what's your understanding of what best time to use them why would someone buy them or sell them well um what's great about partials is that there's there's a lot of reasons why you did partial and i'm glad you teed it up that the way you did so i'll just explain it first to like the first time investor a partial is a great loan for you to get when you first start out it gives you a very low entry cost into an asset where the value of that asset might be three four five x what you have into it you're very well protected you're very well secured right there you do make a lower return because of it but you get that your foot in the door and you learn about the process of note investing so a lot of our first time note investors they like just to inch in slowly like that they can put a lower amount of money in versus a higher amount of money like let's say buying a hundred thousand dollar note maybe they can get at 25 000 maybe that's you know more palatable to them and so me as the as the investor that sold them a partial well guess what i've recouped some of my money i've recapitalized which is a popular term right now so i've gotten some of the money out of that note today versus waiting five six seven eight nine ten years to recoup that cash flow to come back so now i can reinvest and redeploy that capital so it's very valuable to me and i have the back end of that note that's going to kick in at some point it could pay off early or it could just be a free-flowing cash flow by the time that note turns back over to me let's say in 61 months or 121 months down the road um the the reverse of that is for me as an investor to go out and buy a partial and you don't hear a lot of people talk about that but it's a great tool for me actually we did we'd have done three of them coincidentally this week of people that are looking to redeploy their capital somewhere else they didn't want to wait 20 years for their return i said okay i'll buy your note and said okay what would you give me for i said well i won't want to buy the whole thing because the discount will be too big but what i can do is i can buy part of that note and i give you a chunk of money today and i can give you even more money in the future and that total sum of money that i give you is going to be more than what you have into it right now so you'll make a profit so your profit will be truncated down to you know six to 10 years instead of waiting 20 some years and they and they like that so i can have a lower cost of my money a lower amount of money going into a deal i can make a pretty good return and then i'm in it for a short amount of time as well so the partial works in both both ways selling a partial and buying a partial and depending on the level of investor that you are each strategy works really well so you mentioned hypothecations hypothecations are a great way to pledge your performing note or your asset to get a loan from it basically if you have a rental and you go to a bank and you're like i have this rental that brings in a thousand dollar a month's net rent and i'd like to pledge that to get a loan from you the bank says okay i see that hundred thousand dollar valued rental i'll give you a sixty thousand dollar loan against it the investor says great same thing in the note world whereas pledging a performing asset or a tape or a larger uh portfolio of assets to get money in return to go out and buy whatever you want more inventory more rentals more whatever whatever have you yeah that's great because you know another avenue for those who don't know i think traders made a comment on facebook live is you know buying iras right if you have ira money which we do right and i just you know you can only put six grand of roth in a year well if i take my six and to twelve i can go buy a partial or twelve grand right and get into the game or maybe i have a million dollars into deals but then i have my roth money which can't get a lot into it i can buy that right i can take that money and buy a partial with it so it's definitely another angle for those who are getting into it because those who have a little bit of money or those who have irate money self-directed and i'm going to tell you one little secret if you go to anyone who's selling a loan performing loan like justin ran into offer the partial because you know what more likely you may not want to buy the whole loan anyway and with a partial you kind of handcuff yourself with the seller they're going to walk you through some stuff because if it doesn't perform they're going to have to buy it back from you so you're still connected with the seller we had a question about you know do you have to worry about your diligence with buying a partial what's your experience what do you do when you're buying a parcel for due diligence well of course yeah depending on if you know the investor or if you were involved when they bought the asset you may know a good history about it i just happen to know a lot of history about the couple that i bought this week and so my due diligence was pretty quick and easy i just had to catch up from the time that they bought it to the time that i was getting involved with it and so it just took a short amount of time to do that history if i wasn't involved with it i would just be treating this just like a normal loan i would be buying i'd be looking at it you know running all the searches and ordering reports like i do and looking at it that way so just making sure that it's going to perform the way that i want it to give us an example of what a bid would be for it give us a kind of a just rough numbers i'm going to put x dollars on x loan for x payments yeah so you mentioned earlier about you know if you drive some of your bids perhaps off of yield or irr or whatever return or risk that you want and so with with a partial how i'm positioning it is i want to solve the seller's problem so my return it doesn't really matter too much because it's going to be pretty solid but what i'm going to do is i'm going to take the amount of money that's left on this loan let's just say it's um 30 thousand dollars and i'm like okay it's got 20 years left on it that's 240 months i'll give you whatever half now of the upb and then half later uh when it once a year when it's um my turn is up i can buy both both partials of it right i can buy 10 years and i can wait to the ninth nine and a half years and buy another ten years of it right and i can give them that chunk of money or they can just continue to be on the back end so that thirty thousand dollar note i may pay 15 grand for it and just get 10 years of cash flow with that monthly payment coming in if you add those numbers up it's it's usually a pretty good return but that investor is getting their half of the money up today which is very valuable to them because all you guys know about the time time value of money right your money today is worth way more than in the future getting the future money right and then they can benefit from that interest on the back end so that's kind of how you want to position it in my opinion is like you know what what do they want out of it you know obviously you and i and nathan both all buy at a discount so what if we can give you a full value for your note they're like absolutely right so you're just trying i'm just trying to solve their problem that's how i approach it and the yields just work itself out to be exactly what i want to be or or they end up being a little bit higher than what i think cool it's something it's an avenue that i would say it's not common uh i don't see a lot of partial exchanges right um but it's happening right uh you know for those people who are curious about it you know there are tons of information out there youtube videos and whatnot i would just reach out to people who don't just ask them you know what paperwork justin is involved in with the partials are you typically doing an assignment mortgage are you doing all that stuff are you just kind of holding off and working with the servicer yeah it depends on which side of the partial that i'm on so if i'm buying the partial there's still an exchange it's like a full loan you're getting assignment you're getting a launch you're getting a d transfer if it's you know a land contract or contract for deed and you know similar when i'm selling it i get those stuff uh signed and notarized and stuff and i have my servicing company hold it in escrow and they know because they're the ones that are the fiduciary basically the trustee in this transaction if you will and they're holding on the document so it's fair so it's like i'm not holding the documents hostage and i'm not giving them the documents the the the partial buyer and so i just control the the deal that way the purchase sale agreement is is similar to a traditional purchase loan agreement except there's some different language in that spells out what exactly is going on if i'm buying it i'm spelling out i'm buying the next 120 payments starting on august 1st 2021 make it very clear and simple exactly what you're buying and then i just want to have the first writer refusal to purchase the next uh your your entitlement on the back end when when the time comes that's awesome yep yeah i you know ray who i think is everywhere known to man possibly jumped in and asked a question on facebook about you know or made the comment that you know asking if you want full value for a loan and then working out the the details later which is pretty cool right because you get him excited listen what if i could buy you the whole i can buy the whole loan for you and then work out the details so given the full value yeah yeah it's pretty power once pretty powerful once you understand the financial calculator and you can you're not really manipulating it you're just you're just uh making it malleable so that it works for both sides so one of the folks that i bought a partial from i said look you're going to make let's just throw out a number like nine percent at the end of this loan right in 20 years that sounds great that's awesome what if i can get you 11 and i can do it in maybe five or six years like well yeah no brainer right okay cool then i'll buy this chunk now and i'll buy this chunk later and the math works out really well to where i'm making the type of return i want to make in a short amount of time they're getting some money today and the money they still have invest in that note is is a very minimal yeah so they can't make a big and in that kind of a situation how much uh how much education are you doing with them or this and well wait a second so how does that make any sense for you like does that kind of thing come up well they don't really focus on what i'm getting they focus on what they're getting because you know it the whole point of the conversation is like how can i solve their problem well they want full value for the no who the heck doesn't want full value for their note right sure of course i'll take that all day long and even then some so the question is how do you get to that point well you have to be very creative and do this this is not for the novice person to figure out and go document paperwork a lot of attorneys don't know how to do this even real estate note attorneys okay this is something that's an advanced technique that you really want to know what you're doing and lean on like you guys said your other partners and mentors in the business that have done this before and it's not something slick to do you're just trying to solve their problems so you get them focused on what is it that you want you know this thirty thousand dollar note what if they give you 40 grand for they're like okay you know they're they're sticker shock on the opposite side on the good side right of going you're gonna overpay for it okay that's what i'm gonna do but i'm gonna give you money today and the rest of it in the future so the next one we had with yours what does no go criteria when bought when you're buying partially what do you what do you avoid it's a deal that pay history has to be pretty strong i really don't want to have to go through foreclosure if i don't have to obviously i can't predict if that's going to go one way or the other but again the very first one of the first questions you asked me about what's important a factor to me in performing loans is going to be that pay history and so i've researched and seen enough of them to know what the outcome is really going to be now it doesn't happen every time but you know 19 out of 20 times let's just say it works out just exactly the way i think it's going to work out yeah makes sense i think you know it was a question that partially i had once um and you know for me partials are a great math game right it's a playing the math game but solving a problem at the same time which is really cool um is your scenario besides the pay history where oh this is so when you're going you're writing your contract for personal sale how do you typically either sell it or buy it unless it's the same scenario for the in case situation if the loan defaults if you're selling it are you willing to get back or if you're buying it do you force the seller to put in something in there to make sure that they take it back or pay you or explain a little bit about that yeah so it's tricky to answer that question so i'll have to preface exactly what's kind of happening in the scenarios that i do so i'm the we'll call me the notepro okay i'm i'm a professional in this business i've been doing it long enough i i know enough to be dangerous right so depending on if i'm selling the partial the front part of it or if i'm buying the partial i'm going to be in control of exactly what happens to that loan and in full management of what decisions need to be made on that loan because i'm typically probably dealing with somebody that doesn't have enough seasoning as i do and so i'm going to stay in control and that's what the documentation is going to say so i have a buy agreement and i have a cell agreement right that documentation is going to dictate exactly what their role is versus my role and the payouts based on if we go to foreclosure we're going to make sure that we are you know how how we do the math here the servicer is going to control what the payout is but we're going to try to show what's happening just through traditional you know documentation language does that answer the question yeah yeah and then in your experience has anything gone bad and what it has either when you bought or sold what's happened look so there's no there's no hard and fast rule inside this document exactly what's going to happen but what i'm going to do if i'm selling somebody a partial is more than likely i'm going to figure out how to buy them out of the situation so i can just take it over and just deal with it for them they want cash flow and that's why they bought the partial that's why they trusted me to put this deal in front of them so i'm going to try and purchase them out of the deal to make them happy and make them whole and i'll deal with the rest of it because obviously i've got more experience and i've got more boots on the ground to handle those adversities and the same thing on the back end if it goes wrong and i'm buying it and i'm on the front end and the back end investor is like going okay what do i do i'm scared i'm nervous well you know if you want to i'll just figure out a way to buy you out of this situation and then you know you you can just move on to something else or i'll put you in a different asset so that's kind of what would happen you know in my eyes now it hasn't happened to date but i realized that it can happen and that's that's what i would do you know it's a great situation because i think david did a lot of that when he had the guaranteed seconds when he sold them for years where you get 11 percent of the was and if it defaults they just trade you out for a new one which is really cool right it allowed you to get into a deal um with a good return with a safety thing and i think for a lot of new investors this is a great strategy if you're new to buying partial because then you're handcuffed with someone seasoned so that one does a fault they can buy back or work something out with you guys and they're involved right so they're happy to keep paying because they made you happy and they they don't have to buy you out of it but if i'm buying a partial i want to know the fact that i can finish the foreclosure because i most likely can figure things out better than they can um so i probably will handle this kind of stuff myself you just think of it as you're partnering in a new business together right you have a 60 stake and i have a 40 stake and that's you know obviously we're both affected monetarily whatever happens to this and so it really makes the partnership pretty like you said handcuffed because that's right you are until you divest yourself of that position whichever you're on the end of the partial or the beginning of the partial yeah so then let me ask you this have you ever had an investor come in that would like to buy a partial with you or from you where you look at the situation you go um i don't think so yeah not all loans are going to fit for a partial in my opinion if i want to sell them or if i want to buy them um the it's hard to draw up a hypothetical scenario without you know doing a case study and walking through numbers so everyone can see this in real time but there are situations where it wouldn't work out so you had mentioned earlier dave about looking at a tape of assets and that they have like a four or five percent or three percent coupon rate on them you'd probably pass them over um i may take a swing up doing a partial on them you know there's a bunch of discount like you said built in there but if i can buy a chunk smaller chunk at a time and then and then leave them the back end or buy another chunk in the future it's a way for me to leapfrog through that amateurization give them a better value for what they're selling and also protect me with the lower entry level versus the the value of the property on my cost and so it can work differently it's more challenging and more paperwork right and it's a little more creative but you can make certain situations work uh for the better when you think about it from a partial standpoint have have you ever had to actually refuse a particular investor yeah yeah we'll leave it there yeah i'm sure you have as well yeah yeah i have a few investors who like you know i keep armed length of way and say it was great you know um i'll i'll help you get into a loan i'll i'll be there but i can't do any more than that yeah you're talking about a long-term situation so it's got to be a good fit i mean i'm looking for the long-term business relationship invest a relationship with somebody and i can tell usually within the first couple interviews with folks if they're just not going to jive well with me and i don't want to have maybe somebody over my shoulders the entire time with their looking at what i do which i get it but it just doesn't work for me and so i'm looking for a different type of character and an investor and so that works well with me and there's other people that work well with those people that are very detailed and and want to see everything at a granular level as what's going on so is there a time period where you buy loans you set five years three years ten years or is it run by the numbers when i like buy them and resell them or buy them and hold them is that what you're asking really if you're going to buy a partial or sell a partial do you have a certain number you sit with where or do you run numbers and figure out you have a threshold no the beautiful thing about this note business as you guys both know is no two deals are the same everything is completely unique and so when you have the tools like nathan and you dave you have you just pick and choose which tool that's going to fit that that screw or that bolt so you can you know assemble that like i assembled a swing set a couple weeks ago some of that swing set together so every you have to be creative and you have to be a deal architect this isn't a one-trick pony this isn't a one-stop shop so to speak as far as like yep you do this this this and that's all i'm gonna do that may work for a small sliver of the real estate note space and that's what you want to do then make a business out of it but i love the the creativity of it i love figuring out a new way to work out a deal and then take a piece of what you did that was creative and turn into and work it in into another deal or expand upon it and figure out how can i make this more profitable how can i make sure the person buying it or selling it benefits even more to make me look like a really good buyer that they would come to next time there's a question in the chat that i'll let you look at to see if you want to answer but you know another thing was you know some people want to get into this space and they want to get into it really low right maybe they have 500 bucks a thousand what is the smallest dollar amount you would say typically you can buy or sell a partial at is it a thousand bucks is it 500 bucks what can you technically buy what makes sense well there there is a there i don't know if this rule has changed recently but there was a hard fast rule about the amount of money you have to invest with an ira transaction to to be involved in a in a deal that was about a hundred dollars so theoretically if i bought a note for x price i'm sorry if i sold a note for x price and i put 100 on top of it i could actually be the partial buyer on the back end i could have 100 into a deal but may have a 20 30 40 000 kicker you know at the end of it so that could be how small the transaction you can have um i don't encourage you to do that on every deal because you might be considered a dealer broker dealer there and you'd get in trouble and ubit would hit you right but um i mean i've sold notes for a couple of thousand dollars whole notes excuse me either land or very close to the end of the life of a loan i would say typically when people ask me how much do i need to invest in a note i say you're going to spend you need to have at least 30 grand for performing or not performing that's just a great starting point yes you can buy things lower than that yes you can spend a lot more than that but i just say 30 grand a great starting point most people have a couple hundred thousand dollar in their retirement account and it's just you know a very low entry cost versus your entire portfolio on retirement to get into so that would answer my that would be my answer and then we get a chance to look at that one question i would tell people to if you're gonna get into a note and you're gonna spend money make sure you don't deplete all your money into purchasing a note you have servicing fees you have recording fees and you have everything else that goes involved with it you may have reporter fees of paying ram so please be sure that you have somebody in reserve or if you're doing jv's and you borrow all the money make sure you have money somewhere you can pull because you you could possibly have an area where you can't foreclose now you have to sell the asset so yeah on average i set aside about five thousand dollars per note that i purchased and and that varies of course because on performing i don't need close to that on one that i do a foreclosure sometimes it'll be more than that so but as a general rule i set aside about five five thousand per that's a good and that's kind of what i do as well if i'm buying something that's more risky i want to make sure i got at least a five grand buffer in there just to cover me for something if it goes beyond that hey that's the risk that i'm willing to take doesn't mean the risk that somebody else is willing to take but yeah nathan and i were kind of aligned there i saw the question you were talking about um about who who is or was my mentor and i have many mentors in the note space i am went through eddie speeds note school and i did that you know many years ago about five about six or seven years ago and he's uh he's shown me all these different tools and resources that i can apply throughout his 40-some years of investing experience and it blew my mind every time that i hear him come up with the technique that he does i know you dave you've been on a panel with him and bob repats before and uh it's just that's that's one of the one of my mentors and you know there's many other people in the note business that i look up to and uh you know i learned from them by all means do i i don't know everything right but i love learning and hearing different stories and like you guys at the beginning just sharing my experience may may benefit youtube or sharing your experience on this call today benefits me in some way because i didn't realize that you know i never heard of that before you'd be surprised when you get in the note space about how many things you just really don't know even being a professional real estate investor you'll be blown away at the things you never knew the possibility of especially when it comes to turning on the partial um in financial calculator in your mind and you're just like oh my goodness like there's so much money i've left on the table on deals i had no idea and i think a lot of people believe that note space and it does to a point comes from trees like you know i think of football where there's trees of the head coaches that could create other head coaches and there's trees in note space where people come from different branches right where there's any speeds and there's other people in this space that could have that tree formation um you sound like you came from the speed tree where you came from that formation and that you kind of experience everyone else but you start out with eddie being your first kind of person you learn from experience from and i've been to his trainings i'm gonna tell you guys if you haven't been to one of his education courses or even his uh conferences they don't do typical note stuff they actually do on a screen calculator and show you how to break a partial down and how to make money and how you can leverage it to an infinity return by just borrowing money here to do this and it's amazing i took snapshots even being in the space when i first saw i think it was five years in vegas and or wherever i was and i'm like whoa i didn't realize you could do that and the number's ridiculous because it came from a seller finance world not this bank originated stuff that we are all used to now which blew the industry up so the trees are you're probably talking about uh patrick is more of the fact of you know i'm presuming from i know you have a mentor you know i came from my person jack and nathan came from history but justin you came from you would say they had a speed tree if anything would that be accurate oh definitely yeah that's that's the company and organization that that was touring around where i live in near indianapolis indiana and uh that's like i said when i first heard the term real estate note investing i'm like investing in mortgages like you know first thing i'm thinking is that legal and the second thing is doing you know i don't understand how that how you can make money in that doesn't make sense to me and then just sitting back and listening and obviously folks that are listening to this right now and watching the replay you get it you know being the bank is totally different than being involved in traditional real estate yeah it's amazing because there are so many nuances but there are basics guys you know justin's going to come out of course we have a beginners course nathan's stuff as well and in in there's plenty of youtube videos out there right so this will be on youtube just youtube make sure you you know you subscribe and do the bell thingy whatever the reminder thing to just tune into the things you get into and just grasp the information right and just take note of what happens um to ask questions in groups ask questions that you think you that you're not sure about things because we like to share experiences but we also like to learn from other people justin may give an answer that i know the answer to but he had me have a twist on that i never thought about then i'll write my little notes on that yeah that's you know going to conferences and stuff we've all been going to conferences for years and and a huge huge huge part of that is the networking but at the same time we'll be in a car in a talk and it's somebody that i know and i've you know spoken with dozens of times and they'll say something where i go huh well that's interesting i never thought of it that way and and it changes everything or or maybe not maybe it doesn't change everything but it's just a little bit of a nugget where i go oh okay yeah i could try it or i would say my biggest time for a conference where i actually got questions to do webinars 2015 where i'm like i can't and i was right people like just do it and it was with kimberly just do it i'm like wow you know and it opened up the whole world to be able to do stuff like this and learn from people not like three four times a year basis but on a weekly or monthly basis connecting with people yeah um another question came in is about who are you using for your accountants um cpa encounters an attorney for selling and buying partials um that's a good question you have a list you work with that you work with an account you do your own accounting um share a little about that so as far as like my documentation stuff like my mentors are the ones that supplied me or showed me kind of what language you want to build into it and so you need to have an attorney that understands the space and maybe even an investor themselves so that they can especially in your state that your that you want um you know litigation to go through so cpa and accountants i use actually a local person here um they have a smaller firm and they really understand the real estate space in general and they're excellent with the financial calculator so they are not a note investor per se but they understand what i'm doing so i don't have like a cpa specialist or accountant team that is specialized in partials i don't know if there is one i don't know when i when i talk with my account and my cpa they understand the language that i'm talking about so it's not a difficult conversation to be like i'm buying this much of the note i have this much invested in it this is going to be my my return at the end of that time period and in between that they show me how they want me to do my income and split out my interest in principle and and discount based on however they want me to do my chart of accounts and that's kind of how we work together with this so i would just encourage you who asked a question to um go out and vet your cpa and make sure they really understand what you're doing because i'm sure any cpa i'll be like oh yeah i get i understand notes well you probably don't if you say that you probably don't right just like an attorney that they may say that upfront you know there's some great attorneys that people have been on your facebook page uh dave and uh that people know the note business and so i just want to rewind back to what you and nathan were talking about about you know listening to people and hearing their stories and stuff but you also want to vet the person that's giving you the story there's several people in our community that aren't really that knowledgeable in the note space and they're giving out free advice good point well said well said well i'll just i'll just leave it at that yeah no it's totally worth it to sit down with your with your bookkeeper and account and and and explain it so that they can explain it back to you yes yeah i want to be totally sure they know what i'm doing and we've gotten to that point so that that's very very valuable you want to make sure they completely understand it not just a general understanding no like a fine yeah you need a specialist and you may need to train them and coach them on what you're doing and it's okay i've burned through four or five of them before i found one that i like great point justin you know when people in space are like well you got one you have forever i've fired more cpas and i've hired i feel i just i just we've done a lot of that and there's gonna be times where i may have to fire the one i have now because things change you [Music] good afternoon everybody dave putz here from jkp holdings alongside me nathan turner on a friday afternoon indeed hello hello man hopefully your week's been well we all missed you last week you um you're doing some very crafting projects i heard um so with some friends how'd it go how did your little trip away go it was really good really good we get to meet it's my high school buddies and so we get together once a year go off for a few days and just no wives no kids oh nothing and just we go and have fun and mock each other and eat food and yeah it's good times you guys yeah that's cool so it's it's interesting because you were you said you were in the rockies yeah uh most i grew up in alberta uh so most everybody's still there uh so i went out there and then we took off to fernie bc it's a ski town where we used to go all the time and rented a cabin out there and had a great time it was a lot of fun so when you're away like that the house stays in solid order right you know that's one of the beauties of the business is um you know you can make it almost autopilot uh there's i don't think there's any point where you can just completely walk away and just let it go but but you know it's fairly easy to rearrange what you're doing in your schedule and things like that and it's not too big of a deal to walk away for a couple of days and and then come back and pick up where you left off so it's it was great fun it was uh just a nice break yep and get back to it and everyone talks about the fact you can do this business from almost anywhere and i know i've been on vacation and as much you want to put down the phone the computer you just grab it if you're up early or up late and just oh check my email so it's pretty cool yeah on this one i didn't even take a computer i just uh bringing it wow i'm off i'm out it's nice so i know you were we put a few more assets offers in this week a couple of days we had last week didn't go through which is fine um have you what's been up with you have you had any issues or problems lately or what's going on uh we're finally starting to see some of the stuff that was stuck in moratoriums are starting to move a few of them are still stuck in that moratorium stage which is frustrating but you know it's not the end of the world we had one actually i just heard yesterday um one that i purchased just less than two months ago probably a month month and a half ago and it was already in foreclosure this is in uh oklahoma edmond oklahoma just north of of uh tulsa i think it is oklahoma city or tulsa i'm not sure which one but anyway i picked it up it was already in foreclosure um foreclosure just happened yesterday and sure enough it sold at auction so i held that one for less than two months um we got away for the confirmation of sale in a few weeks but uh but otherwise it's uh we have a few that are still pending eviction stuff just but nothing you can do about it right and that's part of the game right now it's part of the game it can be frustrating and you can rant and rave but you know what deal with it and you can be stuck in a situation where you go to foreclose and a big bk happens non-covenants can cause all these problems it's so interesting here you know and then we want to get out of situations right you know you sell your whole loan we've sold loans um but there are avenues that people that can get into stuff like this that if you have a loan and you need to get rid of it there are other options besides sell the whole loan right yeah there's other pitfalls that as a group we all kind of get together we share our stories not to brag or do it but to learn from each other we always get together to kind of see what someone else experiences because we can't experience every scenario in every situation um they can be similar but a lot of times it's a venting stick so yes it's just it's a lot of sharing ideas sometimes a little bit of bragging but you know mostly it's just sharing what it is and and you know what's worked and and uh how do you do this or what do you do when you encounter that yeah it's it what a great community and how we often often often will get together and share ideas and things so you know we want to bring our special guest justin on uh justin has been in the note space as well for a long time he uh runs his own webinars and stuff like that we wanted to talk to him about some of the pitfalls he's experienced some of the and also talk about partial hyper hypos i think that those are not spoken about a lot in the pitfalls i don't think you can speak enough about them because it was what you're saying every situation has a different pitfall and learning from every different situation you possibly can can help you prevent from making that same mistake but if you don't know the mistake you don't know not to make it so that's it you get experience and the more deals you do the more you go oh okay so i do want to do that i don't want to do that and yeah and you could be years later and you learn something like i learned about the forced place insurance you're in space for a long time and all of a sudden you realize there's two different policies like whoa yeah though well justin welcome on um can you share a little about how you got into notes what will you do before notes and where you are now sure well first of all thanks for having me on your show i appreciate it and uh hopefully someday we'll get to have a you know the physical presence of each other and maybe maybe do some sort of collaboration like this yeah but uh yeah i've been in the note space for about probably about five five or six years now before that i thought i was uh some young guy that could go out there and watch hdtv and learn how to flip a house and make money right it looked really easy on tv right so i quickly learned that it wasn't that easy and and someone had come along um to teach about note investing and i'm like okay well that sounds interesting i'll try this out and they were talking about it and they really intrigued me and i learned all the trials and tribulations i had with trying to run a fix and flip or wholesale business was it just wasn't suited for me i wasn't built for it i was running out of contractors left and right i wasn't really managing the cash flow very well and so at the at the end of a project i realized i wasn't really making that much money you know over the span of a couple of months on for example a fix and flip with gains and and paying contractors and you know paying debt service and taxes and utilities and all the things that you have to pay for it's became a headache so the note business was much simpler i mean much simpler as you guys know and so i was turned on from there and i switched my whole portfolio over to traditional real estate as i call it to to this financial real estate and so i bought a couple of non-performing loans bought some performing loans with my own money and retirement and i was like hey this is pretty cool i like this and so i talked to my investors that i was using in my traditional real estate world and you know showed them what i was doing and they liked the idea then i started advertising about this and just talking to local people and networking and showing people like hey this is what i do i bought this note i'm the bank i'm sitting back here i have nothing to do with it and my bank accounts is growing every month like oh wow that's great and so then i just slowly started uh you know courting investors to selling them loans or partnering with me on deals so you know in the note space you can run out of money real quick you start raising capital and working with people and finding out how to partner with people and then networking with guys like you and learning out where the inventory is and how to get the inventory and what to buy and then i loved how you guys brought this in about the pitfalls in the business about how you really learn about your hardships that you go through in real estate and even the note space i mean i've i've lost a good chunk of money before and one of my first deals because i just i made you know a real an error that i shouldn't have made and due diligence and uh it cost me a lot of money and i'll tell you what i won't let that happen again right exactly yeah so um but yeah that's so fast forward today you know we uh we kind of educate in the space similar to what you guys do we're not you know quote unquote teachers or gurus by any means we just uh we kind of just share our experiences so i have a live monthly broadcast that i do uh on youtube actually we aired it uh this past wednesday and we do it at six pm eastern and if you look up on our youtube channel at brightpath notes more than welcome to do it's free it's just informational uh we you know in the future we'll probably have guys like you on as well we just try to try to mix it up a little bit with different people in the business to again share their experiences yeah think about that what's good about the business and what's what you know i've watched a few of his videos and they're really good so please check it out and tune into it again i always brag the fact that don't learn from one person you have to learn from multiple people because everyone's experience is completely different yeah yeah and in doing that you're going to find out you know what i like i like doing it that way i like that kind of note i like this kind of strategy better than the other and there's no right answer there's no well there may be a few wrong answers but really yeah there's such a broad um a broad category when we talk about notes there there are dozens of ways you can do it so learn from everyone and choose what you like best and everyone's strategy is different everyone does it a different method different due diligence method so you know i think for a lot of people they kind of won't hone into one thing and they keep going and i think no other way is right where i can go back and forth nathan we've done it privately like i don't urge anything like well i don't care the way you do it and that's okay yeah right whatever makes you feel comfortable what works um versus you know if his way doesn't work then obviously it's not working but if his way works for him it doesn't have to work for me but taking bits and parts from everybody is key so let's share a little bit about what your due diligence mistakes have been what was some of the first deals you ran into some of its mistakes you had so for me i'll just jump in here and just say you know on a non-performing loan you really have to be extra extra careful as to what you're buying and make sure your due diligence up front is sound and it's good idea to have it double checked with like an accountability partner or someone that's your mentor or or a friend or associate like like you guys nathan nate and dave and so what i did was i found i didn't know that um one of the houses that i was buying was getting ready to be demoed so after i bought it it was demoed okay so i i should have dug deeper into some code violations and some building permits to find out that this thing was slated to be demoed and so then i i had nothing you know i had a piece of land that ended up being on there so there there's mistakes that can happen very easily but if you don't follow your your system or your process or a checklist you know those things can happen they don't happen very often but obviously that stings when it does yeah so i learned my lesson real quick with that non-performer performing loans is mainly what i do right now just because i believe the price point for not performing isn't suited for the capital that i'm using to go after it i don't want to wait long term for the big payoff i just love the cash flow and all i'll make performing loans very profitable for me and and our and with our debt service so we we like doing that so performing loan underwriting and due diligence is going to be i wouldn't say loser but it's not going to be the same as diving into a non-performer so then again like you guys brought up a great point i guarantee you nathan and dave you do things way differently than i do or you go after different types of notes than i do as well and so it's always interesting to learn and hear from each other about what you do and then i can take a little bit of what you've done and be like that's really creative i like that and add it to to how i do my due diligence or how i want to get out of a problem or create a solution what you say right there is key because i actually was talking to a newer investor and they said listen this ass has been for sale for a while i just why is it not being bought and i explained to him it could be the fact it doesn't fit my box it doesn't make it a bad loan right we in this situation it was under a fifty thousand dollar value well i don't buy any under 50 000.

that's why i completely skipped over it doesn't make it a bad loan just doesn't it fit my box right i used to go 150 to about 2015 2016 and i just stopped doing it nathan has no problem going for those lower level things where i just don't feel comfortable as much as i used to because i'm a better i'm not not same thing i used to go for stuff you know between 30 and 50 all the time all the time uh and then yeah it was a few years ago i just said you know what it's for me with everything that i've got going on and all the systems and everything else and and volume and all those kinds of considerations together it it didn't make sense anymore to go after the the little stuff uh so same thing my my cutoff is 50 000 value yeah per property and not to say that that's right or wrong that's that's just a decision that was reached you know looking at multiple factors um so there's certainly a market and i mean we talked to mark uh pentagon a while back ray and he's all over that stuff and he and he's doing great yeah there's it's not junk and you know going back to what you said too i get that from uh people i talk to all the time they say so you mean you're buying the junk i'm like not at all not even close i it you know one man's trash is an unless treasure and that's that's really the case here it may be trash to somebody who doesn't want to look at anything valued less than 150 000.

that's perfect that's exactly what i'm looking for so that you know it's a it becomes a win-win situation for for both parties in that case outside of it too we don't buy anything that's worth over 300 for internal reasons as well we have a cap and for us we don't want to deal with the the borrowers who have a lot of money or have house worth on a lot because they can fight foreclosures they can get bk in those kind of scenarios and 300 000 seem to be that breaking point and again that means based on state too um one of the questions we had was how do you check to see if it's demolished or going to be demolished what do you use what tools do you use to find out that property is going to be demolished hey fellow no investor are you looking to learn the basics of note investing so you can get started however you don't want to spend a few hundreds or thousands of dollars and hours online on some training program have you thought about attending a notes conference however you don't want to spend the money or the time away from your family well we have a tremendous beginners video series of 20 different topics with each video being less than 15 minutes this means each video is less fluff and direct to the content visit www.jkpholdings.com beginner dash series to learn more again www slash beginner dash series well that's that's when your your title search when you do any due diligence comes into play you can order a title from a vetted title company or you can do one of our national companies that we use um that are out there those vendors that we that we all use and but then picking up the phone and calling the county and asking the questions like how do i find out if this notice that's on the door is slated for for the demolition it could be one inspector that controls that area and you talk directly to the guy that's going to control the bulldozer so that's what i could have done i could have called the building and dived a little deeper into it to find out do i have a risk of this thing being demolished and i skipped over it i saw the violations i went ahead i believe what i did was i paid off the delinquent taxes and i paid off the violation amount owed it was too late right paid off was too late and i went to actually drive by the property and it wasn't there anymore so i was looking around going is this the right house what what oh no and then i talked to a neighbor and they said yeah they just demoed it like last week or something i'm just like but one of the things too and i mentioned this in an earlier video of ours i this is 2014 or so i'm going to say 2015 probably run i was on google doing some google walking and i'm like oh it probably looks good the people are sitting on the stoop and for whatever reason i went to check the backyard because i think the roof was slated and i turned the corner and the whole house was gone the pictures in the front were three years old and the pictures was on the side or a year old and the house is gone so you can use google maps and bing just to kind of check it but i agree with justin call that county up and say hey listen that's a public record of information it's not like it's private right you can find out that a house is on the on the list you not always can tell how long or when but it's definitely pretty interesting to find out and you can find the county records by looking online sometimes demolished lists are actually published um but yeah definitely going through that list of a huge thing um cool what other areas have you run into in pitfalls that you've had where you've had a loan where things just didn't work out as you thought maybe maybe not been a terrible situation where you know my fpi where i was going to place my insurance claim and then after i bought it i couldn't because it was the wrong type of first place insurance on the previous with the previous seller have you run the situation where it was just a small mistake that you should have not made yeah there's definitely annoying mistakes i can usually get myself out of it now that i've got a lot more experience and i know a lot more people that have way more experience than i do to lean on them on how to solve the problem especially with documentation and paperwork and title it can be pretty easy to solve that it may take some time but the physical stuff you can't change if the house has you know complete missing like you said the side of the house or the back of the house like you can't change that that's you just have to make sure that you get photographs that make sense uh when you have somebody drive by and walk walk the exterior of the property and just find out is there a problem with it you know did they notice that the meter running you know there's just a lot of little things that we can get into about the physical collateral of it and then the title work of it if you notice something looks weird it's probably weird for a reason and you need to look into it a little bit deeper so picking up that phone calling the county officials you're not going to get the right person the first time maybe the third or fourth time it's a process to it but if you don't want to make a mistake that's what you got to do now if you're buying a tape of 100 non-performing loans you're not going to have time to go through that due diligence then again you're swinging you're swinging for the fences there you're hoping to buy a hundred of them and you know a few of them gonna turn out to be home runs that are gonna pay off the bad debt that you that you have you know on a tape so that's much different strategy than buying a one-off note or two off note um you mentioned bpos and i've expressed my not caring for bpos too much right and they have the usefulness right but first months investors what is your strategy when you get a valuable property because that's you know we can't get inside these properties we can't look inside unless you're really really good agent that does things they shouldn't um but yeah you know are you using bpos are you using agents what are you doing to find value because that's our key item that we don't know it's our x variable what's the inside look like what's the value of that property are you pull bpos or are you doing other strategies yes that's a great question and i get a lot of pushback from first-time investors on the reasons why i do stuff so i'll explain to you guys what i do so i'm buying proper i'm sorry buying real estate notes that are more than likely they have less than a 50 000 unpaid balance so similar to what nathan used to do so the values that a bpo would bring a broker price opinion it's not going to have much weight for me because there aren't going to be conventional financing comps in that area on that street right so that value is just going to be probably a cash value of an investor paying cash for a house that's not it's not going to be the same apples to apples for me so what i look for is conventional financing data well if i can't find it because the values are too low then i have to go off of rent data so i focus on what's the net operating income for for this subject property or what's like this and then kind of work backwards with the capitalization rate to find out what could i fill that property with seller financing and that is what value i would give that property so it's totally subject to my opinion and my belief of that area of what i can do as an investor there's no resource for it it's just something that you have to learn or lean on someone's expertise on to find out what the value of the property is so i don't even do bpos i won't do ppo unless i think the house is worth 80 to 100 000 in an area where i know conventional financing comps are so i'm doing just inspections like what i'll call property inspections or you know um some sort of property report or just have somebody take pictures we go look i have enough experience now to know like okay this is this is a well-maintained house at this price point i feel good about it more nope the roof has a lot of damage they got a tarp on it it has a tarp on it for the last three years when i seen the google pictures they're lazy they're not going to be fixing this property so i don't trust that collateral um so that's how i'm weighing my decision on that nathan what's your experience with bpos so i i do get bpos um mostly because i'm at a distance and it's a it's a relatively easy thing for me to do uh but two things number one whatever the bpo value comes in at i discount it by ten percent always just across the board uh the other thing i do is i will actually pick up the phone and i'll call that realtor and say hey so i see you came in with this value can you just tell me about the neighborhood are things selling and and some of that information is on on the report and then other parts are just not uh where it's difficult for a realtor to report that kind of information i say so you know were you able to peek into the windows because they're not going to typically write that kind of thing in there you know could you tell if it was occupied and again sometimes it's on that report sometimes it's not but i find a direct conversation um is just as valuable if not more than that piece of paper that they gave you and you can find out additional information that maybe wasn't there and you know whether that's good news or bad news and and again and i say that right to him when i say you know i'm not trying to sway your decision i'm not questioning anything i i'm just looking for information so if you tell me it's garbage and the neighborhood is terrible and you know it's a war zone kind of a place and nobody's ever gonna live there great thank you for that information if you tell me you know what it says i you know i put 75 on the on the report but you know what to tell you the truth i think things are selling for more than that and the the trend in the neighborhood is this and that you know i think by the time you're finished your foreclosure it's probably going to be worth more like 80 85.

great and absolutely yeah just information i'm not trying to sway it either way i i i'm not trying to prove my point i don't improve my right uh position for me you know we agree with you guys right i don't pull bpos i don't like pulling bpos i have bad experience with them and i know bpo agents who just kind of laugh me when i say like people still buy them um because they they do it and they just laugh at it where we use we you know we have a list in our portal page where you can get up to 9 400 agents right reo experience agents and we can contact them directly and say listen we're looking remember these bpo agents are getting maybe 25 30 bucks you may be 100 bucks for the bpo but between the company getting the money the broker getting some money and then the agent who does the work they get 25 bucks if i can ship them over 50 bucks to give me local information true and not pull an abm get some pictures gets them on the phone yeah i much rather that right and i also reach out to other investors right if i have a property in justin's backyard who's better to reach out to justin or some agent who doesn't know who i am right obviously justin says yeah dave i could get another property hey listen my buddy lives right around the corner i to drive by the way over here and take a couple pictures for you i know exactly what he's looking for in that five minutes i'm gonna send just a nice amazon card and say thank you but so that connection there is awesome because it works with us right and they know we're looking for and i agree with you guys bpos just they have a great place when you're buying bulk huge bulk when you don't have the time that's it so here's here's another maybe pro tip so a couple other things i do so i'll i'll call the agent um here's one thing that i found is when if i call the agent and either they don't answer the phone right away or i leave a message and they don't call me back within a day um then they're probably not worth talking to to be honest uh so what i'll do then is i'll type in the address and google maps and i'll just look at nearby realtors and it'll pull up somebody that's five minutes away and i'll call that just cold call and i'll say hey i'm looking at buying this property over here and i i find it's easier to just say i'm looking at buying this property to try to explain that i'm buying the note and it's just too much information it's over their heads most of the time so i'm looking at buying this property with the intent of reselling it so i'm looking at hiring you potentially here would you have just five minutes to go by and check it out sometimes they'll do it for free sometimes they'll charge me 50 bucks fine that's totally fine but i i find that the nearby realtor oftentimes will give me uh better and more accurate information than the guy that was from downtown and it depends what part of the country you get into missouri kansas they're like more willing to do anything for you oh yeah you get to florida it's like you know ain't doing it right or chicago they do anything and any resource you can think of especially buying one-off notes you can call a local fire department how's this street sure you run down there often for issues the police department do you patrol this street we try to buy assets that are near like churches and places and schools where i know patrolling is going to be more often uh there so that's how i feel better about even if the crime looks a little heavy in that area but maybe it's just theft because there's a commercial you know strip mall there that there's gonna be a lot of theft there so you just gotta be you think about what's legitimate you know crime or whatever in that area so but those are great tips that you guys you guys did and then again we're proving the fact that we all do something just a little bit different but it works for us another avenue real quick and we'll get to the question it came up was we did this for a long time i don't do as much you used to write call let your company up and say listen what's the average bill for this property and they say well it's you know x-men dollars okay great um and it's still on right now no it's been off oh well i'm about to buy his property i want to know the average thing and you tell me all right thanks that's kind of thank you very much and so much companies will give that information some won't that tells you if it's occupied you really don't care what the bill is you just want to know if it's if it's on and it's oh electric's off okay i know to go check it out so the question we had here is in your opinion we'll go with justin what is the most important thing in note value that makes you uh wait what's your opinion on th....