Talking Second Liens with Note Investor Gerald Lemoine | Real Estate Notes Show

Episode: Talking Second (2nds) liens with Note Investor Gerald Lemoine Dave's Goals and Plans: - Attended Paper Source conference a few weeks ago and interviewed multiple people - Will be bringing out new content in the fall from Paper Source learnings - Not good at second liens and calls friends for questions when receiving seconds - Presented at Paper Source with Nathan on portfolio approach to note investing Nathan's Goals and Plans: - Gained energy from networking with people at same level and talking shop - Learned that note investing preferences vary - different angles mean not bidding on same assets - Emphasizes that you win some deals and lose some, but singles and doubles balance out positively - Prefers B/C neighborhood investments over really bad neighborhoods for rentals Key Recommendations: - Network with many people, not just one or two, to get different perspectives and avoid knowledge gaps - Treat note portfolio like a mutual fund basket - aim for 18% overall portfolio return across multiple deals - Focus on singles and doubles rather than always swinging for home runs to avoid striking out - With second liens, do extensive due diligence on the person rather than just the property Topics Discussed: - Differences between first and second lien note investing - Importance of networking in the note investing community - Portfolio diversification approach to note investing - Paper Source conference experience and learnings - Deal evaluation strategies and exit strategies - Risk management across multiple investments Guest Insights: - Gerald's 30-year construction background led him to note investing through Ward Hannigan's training ($4k investment yielded ~$2M returns) - Early education from Dean Engel's Note Buying Profits and mastermind group with Mike Rasicka, Kevin Cardell, and others was crucial to success - Discovered seconds through Mike Rasicka conversation and found better results with seconds than first liens - Second liens typically involve nicer homes in nicer areas with longer-term strategy requiring person-focused due diligence - Started by flipping notes to others for commissions ($3-5k per deal) with no capital invested, building education and market knowledge [Music] hey everyone dave putz here from jkp holdings alongside me as always mr nathan turner good day hello there you have a great guest with us today but before we get jumping on the guests nathan it's been a few weeks since we've been the paper source we had a great time there we're actually able to interview a bunch of people it was awesome um what'd you take back from that whole experience paper source is one that that i it just kind of energizes me where it's good to get with them just everybody it was great meeting with everyone and seeing everybody had some really good conversations um actually i got to talk to you a little bit later uh some ideas and some things we may want to look into but um just great it was great to get together and just to be with everybody i spent an extra couple of days there because i had a different kind of a meeting basically an investor pitch meeting so we've got a couple of new investors there and and yeah it's great good times so you know i came back with the energy energy as well right talking to either new people or people that were in the same level as we are but just the energy to be around people that we can really kind of talk shop with right and feel good about um i'm not big on travel but it worked out really well well it was great we had a great you know hopefully everyone got to watch the replay and again this will be on youtube and facebook all stuff um and whatnot but we have some really cool stuff that came out of it come the fall we'll be bringing out some new stuff but i agree with you the energy was really good and we got some really good compliments on our i wish we had a recording of our presentation but it was good um but it was great so one thing we've learned is talking with other people either educates us on something we didn't know or experiences we didn't have that's why it's huge to network priced ass a lower price home it's on a nicer home in a nicer area and that's great i i find that seconds tend to be a longer term strategy typically and you're doing a lot more due diligence on the person instead of the house and and with the first it's reversed i don't care so much about the person i care about about the house true for me it's you're right it's all about the person trying getting that person to re-perform um you know they really don't want to foreclose unless you really have to yeah um and i'm sure they deal with the big bangs like we do when we're in first base what not um so it's quite interesting um so you know it was where we were down there in paper source and you forgot the people you talked to regularly to bring them on and talk about their stuff um you know gerald you've been someone in the space for a long time right you've seen the eggs and flows and stuff and your experience is awesome um we're envious of some of your experiences so i wanted you to come on and talk a little about seconds tell us a bit about how you got into notes what introduced your notes what'd you do beforehand and now where are you at sure um you know i worked in construction for about 30 years heavy industrial like oil refineries power plants municipal type projects and it required a lot of traveling around so i was looking for something to do that was closer to home and i could kind of switch careers and i ran into a guy named ward hannigan heard him speak are you down in san diego and he was talking about buying at the trustee sale so i went and took his training and i spent an astronomical sum with him i think i spent four thousand dollars which is i'm joking about that it uh it was money well spent i pre probably made a couple of million dollars off of the training i got from him and um it kind of gave me an introduction into real estate and note investing i mean to me note investing it's not just notes you have to know real estate as well you have to know title you got to know you know property valuations uh bankruptcy a lot of things involved in it but that's where i got my first exposure and then i went to one awards um he does a reunion every year he'll bring together all of the students and there was probably 200 people in the room and uh dean engel spoke and this was probably around 2003 or four dean thinks it was 2005 or six but i thought it was a little bit earlier than that but um you know it's so funny that he's he got up dean got up and spoke for a couple hours and he had this uh book and tape set you know like a cd or dvds at that time and i it was like a thousand dollars it was called note buying profits and um my wife punched me in the ribs you're not going to buy that are you and i said well i don't know you know it might be worth it and um so i did buy it and you know i bought so many book and tape sets over the years a lot of them sit on the shelf this one i bought i used it i dug into it and i was kind of fortunate it was one of those serendipitous times because a friend of mine worked over it at condor capital and condor was a big hedge fund that was buying up a lot of distressed paper uh they call it you know scratch and dent stuff and so he was trying to explain what he did and i had gotten this introduction to node investing is education and um so i was able to kind of put the two together and for the first couple of years i only bought notes from condor they were like my main source i i don't think i bought any notes from anybody else for the first two or three years and part of what i did too i was kind of like a um when they call it a um i was finding notes that i thought other have that's why it's huge to network with not just one or two people but a lot of people and here to different perspectives um for me learning from people who've done it before is key yeah it's it's so fun when i talk to other people and i've thought this for a long time but with node investing so much of it comes down to preference and and do you like this part of the business do you not like that part of the business do you like this kind of exit strategy or that kind of strategy and there's just so many options that you can kind of tailor it to whatever your preferences are and that's what makes it interesting to a lot of us because we can all be in the same space talk about the same deals but because of our angles being different yeah we're not bidding on the same assets right right that's not a huge competition it which makes it a lot of fun to get together we can just hang out and be together instead of being enemies so with that said one of the things that mean you are not great at right are second liens we had some people on before talking about seconds and they're a different animal they're not the same um kind of asset that we typically buy and it's not right or wrong it's just different angle and a lot of times if we get a second i'm gonna be calling my friends up and saying hey listen i got some questions here because it's a different mindset a different thought process um in your experience seconds what's the big difference between first and bind seconds for you so i ended up buying i think i've had two seconds in my lifetime um one of them was by accident and then because i thought it was a first and it turned out to be a second and then the other one uh was on purpose but i actually had purchased the first and the second together so the first really um a lot of it you know there's a few differences many times i like lower balance stuff uh typically on a second lien it's not on a lower people would like and then i'd flip it to them and make a commission off of it i might make 3 000 bucks or 5 000 bucks or you know some dollar amount and it was good because you know i had no money invested it was quick money and it gave me a lot of education into the you know what people are willing to buy what they're willing to pay for it and uh so that's that's how i got started interesting so back in the early 2000s was dean's training i'm just curious was dean's training more about seller finance deals or was that not at all no it was the institutional paper really it was um yeah and and i joined a mastermind with dean and them after i did his his book and tape set um he had started a mastermind and i think we were paying like 300 bucks a month or something you know it was pretty cheap really yeah and you know kevin cardell was in it and i don't know if you know mike rasika yeah um troopy was involved in it jack krupi was involved at it and some other guys um but it was such a head start i mean it just gave me such a like a rocket ship into the note investing world because we get on a call every week and talk about deals and i remember microseca talking about buying some note with negative equity and i'm thinking why in the world would you buy a second with you know the house is worth 200 and first mortgage is 250 and you're buying a fifty thousand dollar note for five thousand dollars and you know i couldn't comprehend that i couldn't put my my head around that but then it started to make sense to me because we we kind of followed that deal through and he said you know this is what i bought and a month or two later he's saying this is what happened and i made fifteen thousand dollars on it wow you know and a thousand dollar purchase yeah impressive yeah so it made me it helped me to understand not going to see anything for a while it's probably maybe a third of the notes i buy or long-term investments and i know that when i buy it but if i buy a a hundred thousand dollar note for five thousand dollars or ten thousand dollars i can afford to stick it in the file cabinet let it sit there and i pull it out and look at it once every three or four months or six months i got a friend out here in california to thank rick's elites and and he bought a lot of seconds over the years and he'll stick him in his trash pile you know he'd call it his trash pile and they'll sit in the file cabinet and you pay cheap enough prices for them and you you look at it and um but you know but i've had a lot of seconds where i reconciled it within six months you know i bought a second on a house in burbank it's one of the slides in your in that thing i sent over um and i paid 70 000 for it which is you know a big chunk of money but the house was worth 800 and the first mortgage was 400.

and so i bought a a second mortgage that where the payoff was like 170 or something like that for 70 000 and i ended up approaching the homeowner saying you know do you really want this house and he said he was 75 years old he's like no not really i want my grandkids are up in sacramento i want to go i'm going to move to sacramento so i said well how about if i just give you cash for keys you move out and i'll give you i think i gave him 20 to move out which is a pretty good chunk of money yeah but there was so much equity in the house that i could afford to do that so i gave him ten thousand dollars down and i had him sign a deed over to me that day so i gave him half the money up front he signed the deed i went down the next week and recorded it so i own the house subject to the first mortgage and his first mortgage is fixed at two percent he got a modification on it very confused but what strip means yeah well if there's if the if we if the homeowner files bk and there's no equity over the first mortgage suppose the first mortgage is 200 000 and the house is worth 185.

then they can strip the lien but you have to be aware of that when you buy the note you know if and a lot of times i buy notes with no equity i'll buy notes at 140 percent loan to value but i pay a lower amount for it and i and those are the ones i stick in the file cabinet and i don't look at them i look at them once a year once every six months and i don't take any action until the first amortizes down you know the balance from the first goes down significantly or the home value rises right and that has really paid off for us in the last two or three years you know with low interest rates so many people are refinancing their houses and equities going up that we've gotten payoffs on on loans that we bought for small amounts of money get you know getting really large payoffs but the lean strip it just means that if the homeowner wants to go out and file chapter 13 they can't do it in the chapter seven they can only do it to 13.

and if there's no equity they can um have the lien stripped it's called motion to avoid lean it's the legal term you'll see on the docket report so i had to become real familiar with pacer you know i'm on pacer almost every day looking at stuff checking notes you know we still have close to 300 notes right now and we're still dealing with some bankruptcies but i've had some of my best loans for bankruptcy loans you know it's just and once you know it you're familiar with it it's not a scary thing and there's a lot of opportunity there you know but let me just jump in real quickly you know a lot of people get confused when you strip a lean does that mean you and that's why i get into the concept of diversification you know i like to look at notes as a a basket of notes um like like a mutual fund you know if you got a thousand notes and a thousand stocks and a mutual fund you're really looking at the portfolio return you know if i can get 18 of my portfolio overall you know i'm going to win some i'm going to lose some but i'm happy with the overall outcome and that's really my target that's what i shoot for definitely and that was part of me and dave's presentation and paper source was they're not all winter winners and you're going to get some that are stinkers and you're going to get other ones that are home runs and awesome you know and it all balances out hopefully on the positive side uh but you're looking singles and doubles are mostly what you're going to be getting and that's okay you know in the beginning you're looking for that really high deal and you may get them while you're shooting for a double that may become a home run um but you know if you're shooting for the homeowner all the time you're also gonna strike out a lot right you're better off hitting those singles and doubles and just kind of go through the promotion right you don't buy in really bad neighborhoods on rentals and wonder what's going on you want to buy in this bc neighborhood right you want to hit those good situations when you first got involved seconds were probably a huge thing because i know mike was into him and um you know a bunch of people were into it was first really not evolved was it not as common to buy first i know you know the big funds back then were condor and you had um uh what's called up in new york as well um so my head um another one you're talking about yeah yeah yeah you know i thought first for a long time the first two or three years that i was in this business and then i discovered seconds and i remember my chrysica and i i had a buddy of mine guy named ellis san jose down here in l.a county and ellis and i were doing some deals together and i said you know let's have a phone call with mike and he can explain seconds to us yeah and so we got on a little 20-minute 30-minute phone call with mike and he explained what he does with seconds and i i heard him in that call and said you know is that it is that is that all it is and um it there's a lot of nuances you know there's a lot of things you have to learn to make seconds work for you uh things to watch out for if you don't have the education yep be careful putting too much money into it but um you know first have been around they're still around i just have had much better results on seconds um you know i've got seconds that i bought and have received 20 times what i paid for it you know i bought a a second in my ira recently i paid like four thousand dollars for it and i just collected ninety six thousand dollars on it it was a a hidden gem it was a you know diamond in a rough you know people didn't know what they were selling and i i took a chance on it i didn't know for sure what i was getting but i figured hey i'll throw 4000 bucks at it and we'll see what happens and uh it happened to just pay off so i'm i'm looking at some of these uh you'd send over some slides and you can get on to it if you guys want but one of the things i saw in here like here's one of the things that i can't wrap my head around with seconds is you say like uh it could be three or four years before you start to see return on that and to me i'm like three or four years i need money now and so it's hard for me to to justify buying something that you know there's a good chance that i won't see anything from it for a couple years and granted that happens with first from time to time but that's more of the exception than the rule is is it how like how common is that on a second that you're live there for a certain for per the conditions of the deal and you know you don't know i figured she might live six years or eight years you know that was kind of when i did my calculations using my financial calculator i figured a reduced value i had plugged in the value at like 150 000 and i thought i might have to hang on to it for eight years something like that so that's how i reached my my top bid number she didn't pay you at all you just got discount because she's not gonna make payments she's a living the house you have title to but she occupies she doesn't make any payments she has to pay the taxes and upkeep any maintenance you know um property taxes utilities are all her responsibility and i have the right to go uh inspect the property whenever i want to so once or twice a year if i'm in vegas like for paper source i would schedule an appointment with her and i'd go by and take a look at the house and make sure that you know the roof wasn't falling in or the plumbing wasn't backed up and there's you know sewage all over the kitchen floor but she kept it immaculate you know it was the house was really well maintained how did this house did they go to foreclosure auction or no it was a it was wasn't it for closure it was in the sale was held on the courthouse steps in utah and there was only me and two other bidders but what was the legal action that caused the auction it was a court appointed like a receivership okay she lost a lawsuit her family her husband or her son or whoever it was got sued and they lost the lawsuit they had to liquidate the assets but the judge was nice enough to say okay i'm not going to put you out on the street you can live in this house for this length of time but you're not going to own it anymore i've never heard of that that's nice yeah that's a new one for me yeah yeah so it's it's a life it's called the life estate and pete fortunato talks about that he's had a couple deals where there's a life estate involved and um so anyhow so they they notified me in november of 2020 that they that she's moving out and so i went over there and helped him move out and um got her relocated to denver i didn't i mean i just packed up the u-haul and they took off down the street um and then we fixed it up and sold it for 310 000 so if you look at the next slide it'll show the numbers i think so that's the numbers on it i can i can live with that yeah no kidding but i only had you know for the first four years i only had 40 000 invested in it and then later i had to do rehab and and closing costs and commissions so at the end of the four years i ended up having to spend another you know 50 000 uh to get the house ready to sell and sold suny coleman mentioned it she actually written across one how did this come across your desk i mean i i don't think i've ever seen email huh they thought they come across your desk like how does this come through an email like life estate sale like this company no no no i like i said i mailed a letter to the court-appointed uh custodian a court-appointed receiver okay yeah that this guy was a he was given the job he does this he's a professional like liquidator basically he gets assets and sells them so he had a note and i mailed to him and he calls me up and says hey this note is gone but i have a property would you be interested in bidding on it and i say yeah i'll bid on anything real estate related you know whether it's a property or another you know mobile home whatever you know so this is a house that we're going to hold as a rental and um so i gave him he had like two or three months to move out i'm not in any big hurry i said you know take your time get everything packed up move it to sacramento let me know when you're ready and i'll give you the other ten thousand dollars cash you know you hand me the keys that day i'll hand you a check for ten thousand dollars yeah so that's what happened and the guys very cooperative we're still friends today i helped him he helped me and i got a great rental house i'm getting five thousand dollars a month rent on that house and the first mortgage payment is 1600 a month jesus interest so there's so many exits on second let me try to see if i can get that bit up it is in a pdf format let me see if i can get it up um without any craziness but let me see if i can do it so everyone is watching live yeah scroll down and it'll a little further down and this is a good one you know donald palmer it's a funny thing the more practice more i practice the luckier i get you know that's the thing within seconds is that the more deals i do the more home runs i'm going to hit you know if i'm not if i'm real reluctant i'm not doing that many deals i'm not getting the hands-on experience i'm not getting the you know i'm not down in the trenches doing the doing the the deal um so keep going oh stuff to watch out for and this is another thing that i get um where is it getting stripped out stuff like that that that kind of thing just makes me panic when i think about i don't i don't want i don't get stripped like for heaven's sakes i just you know why don't you describe a little bit what that means because a lot of people are can't foreclose on them does that mean that the lien is gone what does that mean for the investor it means your lien is unsecured and you can't foreclose on it uh but you probably will get paid something you know i had a lean strip happen down in in south orange county because i want capistrano and we bought the loan for about fifteen thousand dollars and we ended up collecting about twenty thousand dollars over the four years so they they pay you like credit card debt you know there's different levels of debt in a bankruptcy there's secured debt and there's unsecured debt so we still got some money you know we got our costs back plus a little bit um it was still a break-even deal for us but at least we didn't get completely wiped out so yeah when you when they're lean strip you can't foreclose on it it's basically unsecured at that point interesting obviously one of the other ones let me go back up one of the other ones is statute limitations so and this is again where i i'm trying to reconcile the two things because on the one hand you're saying you just stick it in a drawer for a couple years on the other hand you're saying beware of statue of limitations so but if you stick in the drawer aren't you just attempting fate there no we have a we have a spreadsheet or like a google doc sheet with all the statute limitations for each note okay and we we kind of target that but in california it's 10 years after the maturity date wow so if you got a 30-year loan that matures in 2056 and you got 10 more years after that yeah that's your limitations way way out in the future but we have gotten burned by this in florida i think it's ten years after the maturity date or five years five years after the maturity day so we just got burned on one recently and what we ended up doing is we routinely send out discount letters on loans that we can't necessarily start foreclosure on so we'll send out a letter with four options you know a full payoff you know the loan might the balance might be a hundred thousand dollars we might have bought it for five or eight and so we'll give them a full payoff at say twenty five thousand dollars and then we'll say or we can finance it interest only for a year at seven percent to where the payments you know three or four hundred bucks whatever or we give them an option to pay it uh fully amortizing over 20 years or 30 years or down payment so we'll list out multiple options and let them know that even though you owe me a hundred and fifty thousand dollars you know we're willing to take twenty five thousand dollars because we bought it so cheap and so a lot of times we get phone calls or emails or letters from the homeowner say yeah i want to talk more about this um and it all has to do with us you know buying these seconds for 10 15 20 cents on a dollar yeah i mean we have a full chart of you know customizations because every state i have one two three four five six seven eight nine pillars for specifications right from maturity date to last payment received the due date and all that stuff so you're right there's different pillars all you do is flag it right when it comes up when it's getting close it's not that it's in the world usually there's a way to kind of negotiate maybe do a mod agreement maybe you do something to avoid that problem or you make an action right some states let you forgive stuff you know like florida so let me um you know lack of patient relation that's a huge one too i think people miss out on um and the reason is that if you're in a bankruptcy you need to prove every payment from the origination to now a lot of times you get a loan with you know the last two or three years of payments and that's it yeah you mean foreclosure right yeah yeah foreclosure not bankruptcy but foreclosure sunlight bankruptcy sometimes bankruptcy will ask for that they've been tested um with the legal balances but yes you're right but you know my strategy on this is like we have one right now same situation um my asset manager said gerald do you want to start foreclosure on this we don't have any pay history and i'm like well yeah let's go ahead and start foreclosure because a lot of times once we file the the first document on the foreclosure this is a florida loan the homeowner starts to freak out and say oh shoot i'm going to lose my house and you know we might have mailed them 10 letters already they throw those letters in the trash but when they get that letter from our lawyer this like demand letter saying that you know if you don't pay us we're going to start foreclosure on your property and you have 30 days to think about it and then if they don't pay us then we file the first documents related to the foreclosure um and we're just trying to get their attention you know we only complete probably ten percent of the prop of the foreclosures that we start you know we might start a hundred foreclosures and we only take ten of those to completion where we actually have to own the property or take it to a sale where somebody pays us off you know so yeah and then on like just to contrast that on the first side um if a person is living there same kind of thing maybe ten percent of those maybe uh that we actually bring to to completion if the property is vacant that's a different story and on a second that's it that's going to be a different thing as well but uh if it's vacant then i'm going to foreclose because it's vacant and right you do there's no emotional equity there the term emotional equity starting back in 2008 you know and i think some couple people you were maybe it was gordon mentioned at the paper source this year you know and and i forgot to continue thinking about that it's a powerful thing yeah obviously you're talking about mortgages deed of trust if i got a state um seller carry back we did a webinar with tracy a few weeks ago and the number of seller finance last year which we can't figure out why was dramatically high with all the house selling and all the money out there it was crazy scratching dent for those who don't know scratching that is it could be numerous things it could be the fact that the person didn't give her all the information on their forms uh when they submitted it for the application for the mortgage um they could have bought a car any kind of numerous things they didn't have all their tax returns all the stuff could be all over the place um here's a this is a nice place i'll live there right so here's some examples that let's stop on this slide for a second yes this is a we foreclosed on this from second position and we took over payments on the first mortgage and we held it as a rental for seven years so that didn't quite fit your model right do you think we made money or lost money on this deal so yeah situation where you your income is 120 your expense is 144 and you gain loss of 24 000 just based on the numbers he lost 286 a month right we lost twenty four thousand over seven years on this house you have to lost money well go to the next slide not a bad return you're kidding yeah we i mean the the price when we bought the the note the house is probably worth maybe maybe 300 000 okay here's your key right here yeah we we paid 17 000 for the note and we held it and we ended up with a 23 annualized roi do you remember what that ppb was on that not really i think it was in 100 something thousand dollar range you know we bought this note like two for us 2011 12 13 especially 2013 you know in 2013 we spent three million dollars on second mortgages wow good time to buy and hold you know to hang on to and the at the average pool price at that time was like 12 cents on the dollar yeah you know so we we lucked out we just happened to hit it right where we had the capital available um i did some joint ventures with people and we still had those investors today most of them were still you know finishing we're still doing going through our loans but um 330 000 profit on this deal nice really nice that's amazing oh so cool so this is a very confusing one for a lot of people right when a first may not be a first or when a second is actually a first just for before you dive into this one i want to explain people why is the first or first and second and second it's literally the order of the county records if it's recorded first it's the first if it's quarter second and second you could be in a spot where the second was recorded first and the first record second in your eyes right most time when they build a house they have to record that trust and they move it over or you'll piggyback so yes it could be fluff up can you share a little bit about when a first may not be a first well in this case it's a very unusual i mean i've done like i've been through hundreds and hundreds of these deals and the county recording shows this loan to be my loan in first position because the document ends in 627 then there's another second mortgage right behind us ending in 628 so if you go down the county repair records office you know ricardo's office you'll see these two loans in in the sequence you know mine was six two seven theirs was six two eight so i just assumed hey i'm in first position no doubt about it you know and it turns out that they the original intention was for mine loan to be in the second position but they recorded the documents incorrectly oh [Music] so it's a big mess i've been in i've been in litigation on this for three years yeah there's ways you can reverse it you know to but i'm assuming you don't want to reverse it if your second's actually your first i mean i would stay there right if you can yeah uh you know this it's an ongoing legal so i don't want to get too deep into it yeah they finally came to me last week with an offer to buy us out that is about a third of what i was looking for you know so we have to counter offer but we are making a little bit of progress because you know fidelity first first american title is the company that's suing us actually uh they're they're because the other party had title insurance so they filed a claim a title insurance claim and it's a it's a long convoluted story i've had already had four different lawyers consult with me on this i've got one primary lawyer then i've had some other guys that were what they call them expert witnesses you know to help resolve this case and and we've already gone through one um mediation and we're probably going to go through another mediation so anyhow it's a messy deal most people are not going to run into this especially we paid quite a bit for this loan and so it's kind of you know an expensive side we have a property it looks like it's in no man's land yeah right and that's part of my due diligence when i look at notes you know i like to buy notes in cookie cutter neighborhoods yeah you know but if the price is right i'll buy some the boondocks this is like you know you know i've had stuff in minnesota you know a thousand lakes ten thousand lakes minnesota you know but yeah i i typically look at um the city or the town even but population over twenty thousand because i figure if i take it back selling a house in a five thousand person neighborhood is tough right but you know everything is worth something at the right price absolutely you know if someone gives you a note for a dollar would you take it oh yeah of course you know i would i would i would do a little bit of due diligence on that but in general yeah for sure yeah so if the taxes are let's look at the next slide yeah maybe not so there's a junior payoff yeah um again this is one that we had to start foreclosure to get their attention i bought the note for under three thousand dollars in july of 2018.

we didn't start for a club we did we sent numerous collection letters we made phone calls we had the property door knocked and um they never responded so we start foreclosure a month after we start foreclosure we get a phone call from them what do we got to do to clear this up so we sent them a payoff statement and they didn't even negotiate with us they paid the full amount normally they would come back and say well i can't pay 96 000 but i can give you 50 000 would you take it and in this case they didn't really negotiate they just paid us off you know we get a check in the mail that's a little bit of a return there i mean anyone who's watching who wouldn't exchange not 2900 for just over 96 000 right a that's a decent return and and you said this happened in about two years right three years you bought it and turned it around not a bad roi on that one right yeah yeah what's the next slide look like did i do any numbers on it yeah so here's the numbers 108 roi yeah 13 months yeah okay and if you if you're gonna be a known investor you really have to learn how to use a financial calculator and you have to learn how to do irr internal rate or return you know uneven uneven cash flows yeah real quick just for people who don't know irrs even cash flows x ir is uneven cash flows right that's the way you figure out so sorry again yeah yeah my my mentor taught me so much about calculators is guy named gary johnson and clyde and they have a classical financial freedom and if ever you get a chance go take it it's a three-day class on using a financial calculator to figure out you know what you're doing with your money you know and it's well worth it i've taken it three times already over the last year yeah we we use i use net present value and xir all the time that's how i make offers that's awesome yeah i'm i'm pretty good with the calculator i'm i'm certainly not a beginner but uh but i could use some brushing up that's for sure yeah get into that advanced category we're flying over to vegas now looks like yeah oh and this is not really a note deal but it was such a good deal i had to throw it in there yeah and you know it's it's notes in real estate like garden mall talks about you know it's notes in real estate uh and this was a letter that i mailed you know in 2015 i i created a private note holder list for notes in california and i mailed out 7 000 letters to people offering to buy the note and i got four or 500 responses and i think i bought close to two hundred notes out of that mailing and this is one return yeah it was a it was an awesome return what year was this this was 2015 but um but the burbank property that you saw the one we did earlier yeah um i mailed that guy a letter in 2015 five years later he called me up and asked me if my offer was still good whoa you only one letter you sent to him i only sent one letter to him wow but he must have he called me up and i made him an offer seventy thousand dollars for that that note and he said now you know i think i'll hang on to a little bit longer and he must have had a change of heart or you know his financial conditions changed but he called me up five years later and i ended up buying that note from him for the same offer i made five years earlier and it was actually worth more because um the equity had gone way up yeah so anyhow this vegas deal was a result of a direct mailing um and he the seller was a a court appointed um like a conservator or a custodian okay it was it was his job to um liquidate the property so he said i don't have a note i got your letter and i don't have a note that note's already gone but i have a property that i need to to break the auction and it's but it's subject to a life estate so you guys under you know what a life estate is no i don't basically the lady has the right she's 94 years old she has the right to live in that property until she passes away or moves out okay so it's like it's like a subject to deal one of the conditions of the deed that i get you know so the property actually transferred to me in september 2016 for forty thousand seven hundred dollars the the property was worth about 175 at that time wow but i don't have possession i only have title so i don't i can't walk in the house and do whatever i want with it yeah i had to live there i had to let her we we throw we plug in a number to each loan we might we might have taken a look at bankruptcy at the credit report um different things that we look at and then we we wing it you know we have to provide a number within seven days or whatever it is and can't take two months to go through the tape so you know we could have done better due diligence i think um if you go back to things to watch out for um in my slides let me just scroll up i got that up right now um unscrupulous note sellers be real careful you know i've got i i've got one guy that i bought notes from five years ago that still owes me like thirty thousand dollars and it's just not worth getting an attorney and trying to go after him you know i think we spent a million bucks on a deal and so he owes me like three percent you know he's still you know it's it's a small amount of money um but ask around make sure you you know reputations from people um because i i got a friend that wired off a million dollars to buy some loans and he's still fighting them in court he's never gotten his loans so you know when you're buying those there's no escrow you know it's not like buying a house where the open escrow or you know over at this local title office you're trusting people to deliver what you're buying and you know it doesn't always happen um i think i had something uh on my list about low yield monthly payments so we bought a note in close to here bellflower california and the the note the monthly payment was fixed at like 325 a month and we paid 90 000 for a note where the balance was like 150 000 and my partner said he you know he thought we were going to get the house stuff for our caller yeah yeah you bet so cindy coleman she's asking about uh a course or a person that you can learn the seconds business from or you don't teach do you i don't teach um and dean's not teaching anymore either um and that that course that he did is not available as far as i know you know so you know rob haitha does a really good job he has some good information on his websites you know if you don't mind me mentioning that he's a good guy fixed notes f-i-x-n-o-t-e-s dick's notes he has a great program i'm part of his mentoring group you know i pay x dollars a month to sit on a phone call once a month and we had our call yesterday and rob's a young guy probably less than 30 years old and i've known him for 10 years does a really good job has a lot of experience um so i don't you know mike rosica does a mentoring program noteconference.com so i like mike he's an awesome guy um those are the first two that come to mind as far as you know the one thing i would say is stay away from the guys that want to get you into a mentoring program and it starts at twenty five thousand dollars and the platinum level goes up to fifty thousand dollars yeah don't do it you know it's just not worth it i don't think you know hey go go and buy a note get some experience get some hands better yeah yeah it's really going through the motion right tell everyone you know when you go to college right you go here you spend all the money for college and you get out with no money you just came out with skills right and now you can make the money with the skill you learn same thing with buying the note you buy that first know you learn everything you need to do so they maybe lost your mind made some maybe broke even but then you now have the skills to go by notes we run our own mastermind two on a weekly basis we have some and some really cool people just talking about high level stuff of different angles so you and two other guys at the auction was were the other two guys interested at all or did they not know what it was well they yeah we bid it up and we started off i did the opening bid of a thousand dollars wow and then somebody else says okay 1500 bucks and the other guy says 1800 bucks and then it kept going up and up and up until we got to 40 700 was my last bid and everybody else dropped out they didn't go any higher how many other properties were there for sale or the auction just this one okay really wow that's interesting yeah hey guys drop your comments below if you've ever dealt with it i've never seen it it's pretty interesting i'm sure it's rare but that's cool interesting i know we have a bunch of more slides uh do you want me to skip it through anything well you can brief this is the one that where i mailed the guy the letter and he five years later we bought the deal this is the one where i um you can scroll down a little bit this is in the middle of rehab uh go back to that picture see that that back unit was an addition to the property the front part is the three bedroom two bath and the back part is a two bedroom one bath wow and so we ended up splitting it we we put it we closed off the doorway in between and put a new door in the back and we now rent this out as like a duplex so we get 3 000 on the front unit and 2 000 on the back unit nice so you go down the next slide um just touch the numbers real quick i've already pretty much discussed this part go next slide yeah so this is the numbers on that um you know we spent a lot on rehab the house is old and dilapidated built in the 50s but it's something that we're going to hang on to for the for the rest of our life i think you know it's it's a great rental property makes great cash flow and um today it's worth probably nine hundred thousand yeah so one for seventy oh that's awesome you put nine into this and then rehab for this much money and then you i guess you paid off the first no no i i'm making payments on the first oh okay it's subject to we just take over the payments on and this this is the one that's fixed at two percent that loan is will never go up it's always going to be 1600 a month for the next 30 years fantastic boy oh boy that's a nice purchase right there yeah well this just shows the amortization i always create an amortization schedule so as of 5 1 of 20 the the balance was 396 if you today if i looked at it would probably be 375 or something like that right but the nice this is a good opportunity to show people what this looks like you know what does this look like for those who may be newer you know what do these columns mean and why they change right so do you want to quickly share a little bit about that what are the commons mean what are they why do these two change when everything else stays the same yeah this is an amortization schedule and this is an excel spreadsheet that we built and it you can crunch the numbers it'll the spreadsheet will do it for you it'll break down the payments if you amortize whatever the starting balance was 493 over um i think the term was 40 years on this one it was 35 important here a 35 yeah yeah 35 years so 420 months and it it'll break down the payments by principal and interest and it'll show the new balance yep so that's the the date of the of the payment due so this state payment was due 51 of 20 it's the 109th payment in that amortization schedule and the payment the payment amount is not going to change that's always going to be 1634.44 because it's a fixed rate loan and the interest is the interest and and principle are going to continue to change every month will be slightly different um and to where the balance goes down but you know one thing you have to really look at is look at the amount of principal we're paying down every month yeah almost a thousand dollars i think right now it's out of it's over a thousand dollars of principal reduction so the interest the portion going to interest is getting smaller and smaller as the loan matures and that's why a lot of times the beginning alone is very valuable because of all the interest and the in the uh sorry the early answer is the beginning the end point is the principle's gone so um i know we have a bunch more slides you only skip to a particular property or a particular slide before it doesn't matter we can wherever the conversation goes you know i know you guys are running out of time um so let's let's let's back up for a second right you bought a lot of seconds what are some of the things you screwed up on what are some mistakes you've made that you say crap well um first thing that comes to mind is it's like on that oceanside property that we held it for seven years um the lady was trying to get a loan modification on the first which would have dropped her rate from like six percent to four percent probably and i think i pulled the trigger a little bit too quick on the foreclosure if i had to let her um go ahead and get her loan modification done um and then foreclose on it i would have had a lower monthly payment but then she might have paid me off too anyhow so um you know i think as far as uh how to do diligence have you ever made you know a mistake that you've learned from that you say listen i can't do that again absolutely you know sometimes we get a pool of 100 loans that they want us to give them a price on and we'll you can't when you when you're looking at 100 loans you can't dig deep into every single loan nope so every loan we buy has its own uh as class accounting so every loan has its own profit center basically so all the charges all the the income and expenses go against that in individual loan and we can run a report on that one particular loan um and then we use a mortgage office we use a lite version called loan office to do all the amortization schedules and statements and coupons and that's one of the best things we did we were trying to use something like notesmith prior to that okay and it just wasn't up for the task you know if you got a handful of notes if you got 10 notes it might work fine but if you got 300 notes it's too cumbersome um so you know if you're wanting to start out in this business in the beginning you can get by with spreadsheets and stuff but if you if you ramp up and end up with a decent volume um you know get the right software to be able to track your notes and we self-service a lot of our notes probably 75 percent of them wow um is that just money or control i think it's a combination of both you know it's a little bit cheaper and then i think we have more control over it okay yeah um you know we have a lot of notes in our account i've got about a hundred those between my account and my wife's account in our iras so all of those nerds we put with the servicer because we don't want to take the chance of getting like a prohibited transaction that's a key yeah i do the same thing so all those notes almost all of them i mean there's some notes that we bought real cheap and they're pretty much inactive so we self-service those notes they just kind of sit there in the file they're not doing anything but if we decide to start collection on it then we'll move it to a servicer before we start collection interesting yeah that works so we have some questions if nathan is fixing some and i said hey we might not get the house that's okay i'll take the chance and technically those guys could have paid us 300 bucks a month which is 3 600 a year on a 90 000 investment so if you just do a cash on cash 3 600 divided by 90 000 is 4 interest you know the yield would be 4 yeah fortunately they ended up defaulting i mean they paid us for a while at 300 bucks a month yeah but then they ended up defaulting and we took it to foreclosure and somebody else and went to third party if somebody bought a trustee sale and we ended up just getting cashed out but you know be careful don't don't always assume that you're going to get the house back you know that's my whole point of saying that is don't always assume you're going to get the house back a lot of times they'll just make payments even though you think it's unlikely they'll get the payments made you know or they'll reinstate when you thought there's no way they're going to reinstate that yeah and they do and you're going oh shoot exactly it's the assumption that you know what's going to happen before it happens i think a lot of people make the mistake and assume things are going to happen based on the fact that um what they know of yeah and you know one of the things that we've done is we have good systems um we use a crm called act and all of our notes are an act all of our histories every phone call we make every letter we send out it's all plugged into act and we we have a small office we have five people in the office myself my wife and three others so we have an asset manager an admin assistant and a bookkeeper a full-time bookkeeper that does a few other things i mean she only works about 25 hours a week but she's still considered you know pretty much full-time um and you know it just helps so much to have good records we plug everything into quickbooks uh different you know positions because everyone's different everyone's different mentality is awesome um i know that it it for seconds you know you know for quants out there but just i don't know of any training programs out there per se uh that's particular on seconds yeah specifically i think i this program is yep covers seconds really well and mike is primarily a second sky yes mike yeah mike yep absolutely um some of the first notes i bought were from rob really oh really yeah way back when was it through usmr i think so back then yeah yeah yeah he worked at usmr for a long time he still does but more as a consultant okay good yeah i bought my first few goals so that was my first person was through mark gold she was not in the business anymore so yeah i know mark yeah so my first seconds were through coast capital yep the man yeah d.a yep the amendment trinity yeah yeah which i don't think they're around anymore i haven't seen them yeah no comment so we do another question for you um you know what resources services do you use to operate the business and one of the most important servers you use that's a general question yeah and i think i cover that i'm not sure if i cover that in these slides or other slides i do um but we use like i said we use a crm that's something that everybody we have five people in the office and everybody can input data you know if a check comes in we log it into the history you know we got a check for 318 and 42 cents and um it shows that crm shows the the first mortgage what the balance is the date of last payment when we last checked it things like that and then we have another box that shows our loan our second mortgage and uh what the monthly is what the date last paid is so we keep track of everything and we can we can run reports on that as the you know if we want to see the delinquent borrowers we can run a report that'll show everyone who's more than say 30 days delinquent so act is a really strong tool loan office is another one uh crm is that do you care share which one you're using act act sage acts and you can some people use um i forget the name of the the sales force salesforce but that's huge i mean that's a big one acts the same way you know i i just spent 1500 to upgrade act from you know version 21 to version 23.

you know it's but it's worth it i mean you know um i couldn't live without it and and you know in hindsight um mortgage office might have done a lot of what we do in an act but i don't think it doesn't keep track of the opportunities and phone calls and people that want to sell notes things like that all that gets plugged in to act so that's one software the second software is loan office you know act the crm you can use salesforce whatever act is a crm that is very valuable i mean uh and then loan office does all of our amortization schedules statements coupons everything we want to do with with mailing out statements to people that that all goes through loan office and then quickbooks would probably be the next one you gotta have good accounting um you know we have to file our taxes every year we have um we have about we used to have 12 joint venture partners now we're down to about four yep and so i i send out quarterly reports to them yeah we we split money you know once a quarter we take whatever's net after expenses and i'll distribute it between us and them um so excel we use a lot of excel we use we do a lot in quickbooks but that's the primary yeah you know and becoming familiar with pacer you know the bks uh you know there's a lot to learn on on bk so we had another question from cindy what's where's pricing at seconds at she's heard that they're pretty high i've heard they're up at 55 but i've even heard higher yeah i've heard 55 60.

what are you seeing prices seconds right now you know i'm um i'm starting to slow down i'm wanting i'm i'm making our company smaller they're than larger so i've been buying nothing but rpls for the last year and a half two years popular yep and um we're shooting for a yield in the in the mid teens okay 13 14 15 something like that and a couple of the big pools i bought recently were in the 50 range of upb so 53 maybe or 55 51 something like that we have bought a couple of pools of higher quality loans where we paid like 75 of upb but really the determining factor for me is the yield i'm not gonna i'm not going to buy thank you and the yield is really what drives it i'm not going to buy a loan where i'm less than say 85 percent of upb i don't want to i don't i mean above you 85 i don't want to be at 105 percent of upv yeah you know yeah because if i had to foreclose on that i can't get my money back yeah so it's weird you say that a lot of people are still bidding on the percentage of upbeat we've heard it at the paper source that and they're being taught to bid on percent of upbeat and ignore the interest rate a day yield is your driving force that if the the percentage of upb is a byproduct of your bid well i'm going to bid at 12 14 15 yield okay i'm gonna this is my bid oh what percentage of upb is that number versus the other way around um that's a key thing for a lot of people is that you should be driving back in the return you want versus bid percentage and then say oh this is the return i get yeah yeah my my spreadsheet when i'm bidding stuff shows you what my yield is going to be and my target is somewhere around say 15 yeah sure you know if it's a great loan and a great area if it's down the street from my house and orange county california that i might drop it down to 12 or something you know but if it's in you know cleveland ohio you know memphis tennessee or whatever i'm going to shoot for something in the mid teens or maybe even 17 percent yeah yeah so where do you see the market going gerald what's your crystal ball prediction i have no idea it doesn't affect me that much you know i'm not aggressively buying right now i you know i i um i just don't want to work that hard i've worked hard for you know i started working in in construction in 1973 i guess yeah so i'm 68 years old now and i'm i'm really wanting to go i took up golf recently six months ago i started playing golf and i enjoyed it i just went out boston new clubs yesterday we're trying to get focused we're trying to get one of the you know the note conferences to do a golf day beforehand or something something like that it'd be a commodity so i'm glad to see you're relaxing a little bit it is how difficult is it to relax when you've done this for so many years i don't have a problem okay you know i i mean some people i know they only they work because that's their only interest that's the only thing they have going on in their life i have a lot of other interests you know like fishing i like shooting i just went did some sporting plays with my brother down in houston um fishing bicycling there's a lot of things that that i got plenty of things to occupy my time uh friends and family i'm the oldest of seven kids i just went down to louisiana and saw my almost 90 year old mom spend a week down there and then spent a few days in houston with my brother and my focus is more like friends and family yeah and recreation i think um we've we've done well with the note business and i don't have to be that aggressive right now i'm um you know if i if i can get eight or nine or ten percent of my money as opposed to 18 i'm okay with that you know i'll live with that you guys are younger than me and you know you're still on the upward trend you know you're still trying to grow your business yeah it's interesting you say that because we feel like we're getting older as we go on you know but then you say you started construction before i was born which is kind of uh you know earth shattering but it's great you know um i think where you came from is a great action to realize what goes on i do construction for 13 years um i wouldn't do it again it wears on you but i think that the transition in notes is so attractive so many people like it because it is real estate without the headache of real estate right and you and you know a lot of our notes have turned into real estate like the burbank house yeah you know it's just so we have you know a dozen assault rentals right now all in southern california um and that's a nice complement to the note business you know the rentals are fairly easy to manage for the most part we have higher quality rentals we don't have a lot of turnover so we have to do some maintenance on them you know change a roof or whatever but the it's not a huge amount yeah absolutely well gerald i'm gonna ask you to hang on for a few minutes we're at discord for the public i appreciate you reaching out to us and joining us today um do you want to give out your email address i'm sure your website available um i'm gonna ask you guys don't ask him for assets he's not selling right he is where he's at this is retirement um but if you want to pick his brain uh feel free to reach out to him just to just chat for a few minutes um i could definitely share your email address but do you want to give your website so everyone can see what it is yeah this is the lemoine group.com so it's che then my last name lemoine and then group g-r-o-u-p dot com uh my my email is gerald at the lemoine group.com and uh phone number is 714-462-8050 um just don't put me on a robocall list but feel free to share you know if you guys want to email the slides out to people i'm fine with that if you guys want to feel free to email me or shoot a message or whatever you guys do yeah um reach out to us let us know my um contact information is the last slide in that there's no presentation you're doing it okay well joe i'm gonna disconnect from the live feed um yeah guys have a great weekend if we don't talk to you um hopefully we have some good stuff coming up our next uh event is actually on facebook um we'll have a a really good conversation you'll see all the details coming up soon but uh stay tuned all right guys have a good time enjoy your weekend you bet thank you thanks for the invite you with not just one or two people but a lot of people and here to different perspectives um for me learning from people who've done it before is key yeah it's it's so fun when i talk to other people and i've thought this for a long time but with node investing so much of it comes down to preference and and do you like this part of the business do you not like that part of the business do you like this kind of exit strategy or that kind of strategy and there's just so many options that you can kind of tailor it to whatever your preferences are and that's what makes it interesting to a lot of us because we can all be in the same space talk about the same deals but because of our angles being different yeah we're not bidding on the same assets right right that's not a huge competition it which makes it a lot of fun to get together we can just hang out and be together instead of being enemies so with that said one of the things that mean you are not great at right are second liens we had some people on before talking about seconds and they're a different animal they're not the same um kind of asset that we typically buy and it's not right or wrong it's just different angle and a lot of times if we get a second i'm gonna be calling my friends up and saying hey listen i got some questions here because it's a different mindset a different thought process um in your experience seconds what's the big difference between first and bind seconds for you so i ended up buying i think i've had two seconds in my lifetime um one of them was by accident and then because i thought it was a first and it turned out to be a second and then the other one uh was on purpose but i actually had purchased the first and the second together so the first really um a lot of it you know there's a few differences many times i like lower balance stuff uh typically on a second lien it's not on a lower priced ass a lower price home it's on a nicer home in a nicer area and that's great i i find that seconds tend to be a longer term strategy typically and you're doing a lot more due diligence on the person instead of the house and and with the first it's reversed i don't care so much about the person i care about about the house true for me it's you're right it's all about the person trying getting that person to re-perform um you know they really don't want to foreclose unless you really have to yeah um and i'm sure they deal with the big bangs like we do when we're in first base what not um so it's quite interesting um so you know it was where we were down there in paper source and you forgot the people you talked to regularly to bring them on and talk about their stuff um you know gerald you've been someone in the space for a long time right you've seen the eggs and flows and stuff and your experience is awesome um we're envious of some of your experiences so i wanted you to come on and talk a little about seconds tell us a bit about how you got into notes what introduced your notes what'd you do beforehand and now where are you at sure um you know i worked in construction for about 30 years heavy industrial like oil refineries power plants municipal type projects and it required a lot of traveling around so i was looking for something to do that was closer to home and i could kind of switch careers and i ran into a guy named ward hannigan heard him speak are you down in san diego and he was talking about buying at the trustee sale so i went and took his training and i spent an astronomical sum with him i think i spent four thousand dollars which is i'm joking about that it uh it was money well spent i pre probably made a couple of million dollars off of the training i got from him and um it kind of gave me an introduction into real estate and note investing i mean to me note investing it's not just notes you have to know real estate as well you have to know title you got to know you know property valuations uh bankruptcy a lot of things involved in it but that's where i got my first exposure and then i went to one awards um he does a reunion every year he'll bring together all of the students and there was probably 200 people in the room and uh dean engel spoke and this was probably around 2003 or four dean thinks it was 2005 or six but i thought it was a little bit earlier than that but um you know it's so funny that he's he got up dean got up and spoke for a couple hours and he had this uh book and tape set you know like a cd or dvds at that time and i it was like a thousand dollars it was called note buying profits and um my wife punched me in the ribs you're not going to buy that are you and i said well i don't know you know it might be worth it and um so i did buy it and you know i bought so many book and tape sets over the years a lot of them sit on the shelf this one i bought i used it i dug into it and i was kind of fortunate it was one of those serendipitous times because a friend of mine worked over it at condor capital and condor was a big hedge fund that was buying up a lot of distressed paper uh they call it you know scratch and dent stuff and so he was trying to explain what he did and i had gotten this introduction to node investing is education and um so i was able to kind of put the two together and for the first couple of years i only bought notes from condor they were like my main source i i don't think i bought any notes from anybody else for the first two or three years and part of what i did too i was kind of like a um when they call it a um i was finding notes that i thought other people would like and then i'd flip it to them and make a commission off of it i might make 3 000 bucks or 5 000 bucks or you know some dollar amount and it was good because you know i had no money invested it was quick money and it gave me a lot of education into the you know what people are willing to buy what they're willing to pay for it and uh so that's that's how i got started interesting so back in the early 2000s was dean's training i'm just curious was dean's training more about seller finance deals or was that not at all no it was the institutional paper really it was um yeah and and i joined a mastermind with dean and them after i did his his book and tape set um he had started a mastermind and i think we were paying like 300 bucks a month or something you know it was pretty cheap really yeah and you know kevin cardell was in it and i don't know if you know mike rasika yeah um troopy was involved in it jack krupi was involved at it and some other guys um but it was such a head start i mean it just gave me such a like a rocket ship into the note investing world because we get on a call every week and talk about deals and i remember microseca talking about buying some note with negative equity and i'm thinking why in the world would you buy a second with you know the house is worth 200 and first mortgage is 250 and you're buying a fifty thousand dollar note for five thousand dollars and you know i couldn't comprehend that i couldn't put my my head around that but then it started to make sense to me because we we kind of followed that deal through and he said you know this is what i bought and a month or two later he's saying this is what happened and i made fifteen thousand dollars on it wow you know and a thousand dollar purchase yeah impressive yeah so it made me it helped me to understand and that's why i get into the concept of diversification you know i like to look at notes as a a basket of notes um like like a mutual fund you know if you got a thousand notes and a thousand stocks and a mutual fund you're really looking at the portfolio return you know if i can get 18 of my portfolio overall you know i'm going to win some i'm going to lose some but i'm happy with the overall outcome and that's really my target that's what i shoot for definitely and that was part of me and dave's presentation and paper source was they're not all winter winners and you're going to get some that are stinkers and you're going to get other ones that are home runs and awesome you know and it all balances out hopefully on the positive side uh but you're looking singles and doubles are mostly what you're going to be getting and that's okay you know in the beginning you're looking for that really high deal and you may get them while you're shooting for a double that may become a home run um but you know if you're shooting for the homeowner all the time you're also gonna strike out a lot right you're better off hitting those singles and doubles and just kind of go through the promotion right you don't buy in really bad neighborhoods on rentals and wonder what's going on you want to buy in this bc neighborhood right you want to hit those good situations when you first got involved seconds were probably a huge thing because i know mike was into him and um you know a bunch of people were into it was first really not evolved was it not as common to buy first i know you know the big funds back then were condor and you had um uh what's called up in new york as well um so my head um another one you're talking about yeah yeah yeah you know i thought first for a long time the first two or three years that i was in this business and then i discovered seconds and i remember my chrysica and i i had a buddy of mine guy named ellis san jose down here in l.a county and ellis and i were doing some deals together and i said you know let's have a phone call with mike and he can explain seconds to us yeah and so we got on a little 20-minute 30-minute phone call with mike and he explained what he does with seconds and i i heard him in that call and said you know is that it is that is that all it is and um it there's a lot of nuances you know there's a lot of things you have to learn to make seconds work for you uh things to watch out for if you don't have the education yep be careful putting too much money into it but um you know first have been around they're still around i just have had much better results on seconds um you know i've got seconds that i bought and have received 20 times what i paid for it you know i bought a a second in my ira recently i paid like four thousand dollars for it and i just collected ninety six thousand dollars on it it was a a hidden gem it was a you know diamond in a rough you know people didn't know what they were selling and i i took a chance on it i didn't know for sure what i was getting but i figured hey i'll throw 4000 bucks at it and we'll see what happens and uh it happened to just pay off so i'm i'm looking at some of these uh you'd send over some slides and you can get on to it if you guys want but one of the things i saw in here like here's one of the things that i can't wrap my head around with seconds is you say like uh it could be three or four years before you start to see return on that and to me i'm like three or four years i need money now and so it's hard for me to to justify buying something that you know there's a good chance that i won't see anything from it for a couple years and granted that happens with first from time to time but that's more of the exception than the rule is is it how like how common is that on a second that you're not going to see anything for a while it's probably maybe a third of the notes i buy or long-term investments and i know that when i buy it but if i buy a a hundred thousand dollar note for five thousand dollars or ten thousand dollars i can afford to stick it in the file cabinet let it sit there and i pull it out and look at it once every three or four months or six months i got a friend out here in california to thank rick's elites and and he bought a lot of seconds over the years and he'll stick him in his trash pile you know he'd call it his trash pile and they'll sit in the file cabinet and you pay cheap enough prices for them and you you look at it and um but you know but i've had a lot of seconds where i reconciled it within six months you know i bought a second on a house in burbank it's one of the slides in your in that thing i sent over um and i paid 70 000 for it which is you know a big chunk of money but the house was worth 800 and the first mortgage was 400.

and so i bought a a second mortgage that where the payoff was like 170 or something like that for 70 000 and i ended up approaching the homeowner saying you know do you really want this house and he said he was 75 years old he's like no not really i want my grandkids are up in sacramento i want to go i'm going to move to sacramento so i said well how about if i just give you cash for keys you move out and i'll give you i think i gave him 20 to move out which is a pretty good chunk of money yeah but there was so much equity in the house that i could afford to do that so i gave him ten thousand dollars down and i had him sign a deed over to me that day so i gave him half the money up front he signed the deed i went down the next week and recorded it so i own the house subject to the first mortgage and his first mortgage is fixed at two percent he got a modification on it so this is a house that we're going to hold as a rental and um so i gave him he had like two or three months to move out i'm not in any big hurry i said you know take your time get everything packed up move it to sacramento let me know when you're ready and i'll give you the other ten thousand dollars cash you know you hand me the keys that day i'll hand you a check for ten thousand dollars yeah so that's what happened and the guys very cooperative we're still friends today i helped him he helped me and i got a great rental house i'm getting five thousand dollars a month rent on that house and the first mortgage payment is 1600 a month jesus interest so there's so many exits on second let me try to see if i can get that bit up it is in a pdf format let me see if i can get it up um without any craziness but let me see if i can do it so everyone is watching live yeah scroll down and it'll a little further down and this is a good one you know donald palmer it's a funny thing the more practice more i practice the luckier i get you know that's the thing within seconds is that the more deals i do the more home runs i'm going to hit you know if i'm not if i'm real reluctant i'm not doing that many deals i'm not getting the hands-on experience i'm not getting the you know i'm not down in the trenches doing the doing the the deal um so keep going oh stuff to watch out for and this is another thing that i get um where is it getting stripped out stuff like that that that kind of thing just makes me panic when i think about i don't i don't want i don't get stripped like for heaven's sakes i just you know why don't you describe a little bit what that means because a lot of people are very confused but what strip means yeah well if there's if the if we if the homeowner files bk and there's no equity over the first mortgage suppose the first mortgage is 200 000 and the house is worth 185.

then they can strip the lien but you have to be aware of that when you buy the note you know if and a lot of times i buy notes with no equity i'll buy notes at 140 percent loan to value but i pay a lower amount for it and i and those are the ones i stick in the file cabinet and i don't look at them i look at them once a year once every six months and i don't take any action until the first amortizes down you know the balance from the first goes down significantly or the home value rises right and that has really paid off for us in the last two or three years you know with low interest rates so many people are refinancing their houses and equities going up that we've gotten payoffs on on loans that we bought for small amounts of money get you know getting really large payoffs but the lean strip it just means that if the homeowner wants to go out and file chapter 13 they can't do it in the chapter seven they can only do it to 13.

and if there's no equity they can um have the lien stripped it's called motion to avoid lean it's the legal term you'll see on the docket report so i had to become real familiar with pacer you know i'm on pacer almost every day looking at stuff checking notes you know we still have close to 300 notes right now and we're still dealing with some bankruptcies but i've had some of my best loans for bankruptcy loans you know it's just and once you know it you're familiar with it it's not a scary thing and there's a lot of opportunity there you know but let me just jump in real quickly you know a lot of people get confused when you strip a lean does that mean you can't foreclose on them does that mean that the lien is gone what does that mean for the investor it means your lien is unsecured and you can't foreclose on it uh but you probably will get paid something you know i had a lean strip happen down in in south orange county because i want capistrano and we bought the loan for about fifteen thousand dollars and we ended up collecting about twenty thousand dollars over the four years so they they pay you like credit card debt you know there's different levels of debt in a bankruptcy there's secured debt and there's unsecured debt so we still got some money you know we got our costs back plus a little bit um it was still a break-even deal for us but at least we didn't get completely wiped out so yeah when you when they're lean strip you can't foreclose on it it's basically unsecured at that point interesting obviously one of the other ones let me go back up one of the other ones is statute limitations so and this is again where i i'm trying to reconcile the two things because on the one hand you're saying you just stick it in a drawer for a couple years on the other hand you're saying beware of statue of limitations so but if you stick in the drawer aren't you just attempting fate there no we have a we have a spreadsheet or like a google doc sheet with all the statute limitations for each note okay and we we kind of target that but in california it's 10 years after the maturity date wow so if you got a 30-year loan that matures in 2056 and you got 10 more years after that yeah that's your limitations way way out in the future but we have gotten burned by this in florida i think it's ten years after the maturity date or five years five years after the maturity day so we just got burned on one recently and what we ended up doing is we routinely send out discount letters on loans that we can't necessarily start foreclosure on so we'll send out a letter with four options you know a full payoff you know the loan might the balance might be a hundred thousand dollars we might have bought it for five or eight and so we'll give them a full payoff at say twenty five thousand dollars and then we'll say or we can finance it interest only for a year at seven percent to where the payments you know three or four hundred bucks whatever or we give them an option to pay it uh fully amortizing over 20 years or 30 years or down payment so we'll list out multiple options and let them know that even though you owe me a hundred and fifty thousand dollars you know we're willing to take twenty five thousand dollars because we bought it so cheap and so a lot of times we get phone calls or emails or letters from the homeowner say yeah i want to talk more about this um and it all has to do with us you know buying these seconds for 10 15 20 cents on a dollar yeah i mean we have a full chart of you know customizations because every state i have one two three four five six seven eight nine pillars for specifications right from maturity date to last payment received the due date and all that stuff so you're right there's different pillars all you do is flag it right when it comes up when it's getting close it's not that it's in the world usually there's a way to kind of negotiate maybe do a mod agreement maybe you do something to avoid that problem or you make an action right some states let you forgive stuff you know like florida so let me um you know lack of patient relation that's a huge one too i think people miss out on um and the reason is that if you're in a bankruptcy you need to prove every payment from the origination to now a lot of times you get a loan with you know the last two or three years of payments and that's it yeah you mean foreclosure right yeah yeah foreclosure not bankruptcy but foreclosure sunlight bankruptcy sometimes bankruptcy will ask for that they've been tested um with the legal balances but yes you're right but you know my strategy on this is like we have one right now same situation um my asset manager said gerald do you want to start foreclosure on this we don't have any pay history and i'm like well yeah let's go ahead and start foreclosure because a lot of times once we file the the first document on the foreclosure this is a florida loan the homeowner starts to freak out and say oh shoot i'm going to lose my house and you know we might have mailed them 10 letters already they throw those letters in the trash but when they get that letter from our lawyer this like demand letter saying that you know if you don't pay us we're going to start foreclosure on your property and you have 30 days to think about it and then if they don't pay us then we file the first documents related to the foreclosure um and we're just trying to get their attention you know we only complete probably ten percent of the prop of the foreclosures that we start you know we might start a hundred foreclosures and we only take ten of those to completion where we actually have to own the property or take it to a sale where somebody pays us off you know so yeah and then on like just to contrast that on the first side um if a person is living there same kind of thing maybe ten percent of those maybe uh that we actually bring to to completion if the property is vacant that's a different story and on a second that's it that's going to be a different thing as well but uh if it's vacant then i'm going to foreclose because it's vacant and right you do there's no emotional equity there the term emotional equity starting back in 2008 you know and i think some couple people you were maybe it was gordon mentioned at the paper source this year you know and and i forgot to continue thinking about that it's a powerful thing yeah obviously you're talking about mortgages deed of trust if i got a state um seller carry back we did a webinar with tracy a few weeks ago and the number of seller finance last year which we can't figure out why was dramatically high with all the house selling and all the money out there it was crazy scratching dent for those who don't know scratching that is it could be numerous things it could be the fact that the person didn't give her all the information on their forms uh when they submitted it for the application for the mortgage um they could have bought a car any kind of numerous things they didn't have all their tax returns all the stuff could be all over the place um here's a this is a nice place i'll live there right so here's some examples that let's stop on this slide for a second yes this is a we foreclosed on this from second position and we took over payments on the first mortgage and we held it as a rental for seven years so that didn't quite fit your model right do you think we made money or lost money on this deal so yeah situation where you your income is 120 your expense is 144 and you gain loss of 24 000 just based on the numbers he lost 286 a month right we lost twenty four thousand over seven years on this house you have to lost money well go to the next slide not a bad return you're kidding yeah we i mean the the price when we bought the the note the house is probably worth maybe maybe 300 000 okay here's your key right here yeah we we paid 17 000 for the note and we held it and we ended up with a 23 annualized roi do you remember what that ppb was on that not really i think it was in 100 something thousand dollar range you know we bought this note like two for us 2011 12 13 especially 2013 you know in 2013 we spent three million dollars on second mortgages wow good time to buy and hold you know to hang on to and the at the average pool price at that time was like 12 cents on the dollar yeah you know so we we lucked out we just happened to hit it right where we had the capital available um i did some joint ventures with people and we still had those investors today most of them were still you know finishing we're still doing going through our loans but um 330 000 profit on this deal nice really nice that's amazing oh so cool so this is a very confusing one for a lot of people right when a first may not be a first or when a second is actually a first just for before you dive into this one i want to explain people why is the first or first and second and second it's literally the order of the county records if it's recorded first it's the first if it's quarter second and second you could be in a spot where the second was recorded first and the first record second in your eyes right most time when they build a house they have to record that trust and they move it over or you'll piggyback so yes it could be fluff up can you share a little bit about when a first may not be a first well in this case it's a very unusual i mean i've done like i've been through hundreds and hundreds of these deals and the county recording shows this loan to be my loan in first position because the document ends in 627 then there's another second mortgage right behind us ending in 628 so if you go down the county repair records office you know ricardo's office you'll see these two loans in in the sequence you know mine was six two seven theirs was six two eight so i just assumed hey i'm in first position no doubt about it you know and it turns out that they the original intention was for mine loan to be in the second position but they recorded the documents incorrectly oh [Music] so it's a big mess i've been in i've been in litigation on this for three years yeah there's ways you can reverse it you know to but i'm assuming you don't want to reverse it if your second's actually your first i mean i would stay there right if you can yeah uh you know this it's an ongoing legal so i don't want to get too deep into it yeah they finally came to me last week with an offer to buy us out that is about a third of what i was looking for you know so we have to counter offer but we are making a little bit of progress because you know fidelity first first american title is the company that's suing us actually uh they're they're because the other party had title insurance so they filed a claim a title insurance claim and it's a it's a long convoluted story i've had already had four different lawyers consult with me on this i've got one primary lawyer then i've had some other guys that were what they call them expert witnesses you know to help resolve this case and and we've already gone through one um mediation and we're probably going to go through another mediation so anyhow it's a messy deal most people are not going to run into this especially we paid quite a bit for this loan and so it's kind of you know an expensive side we have a property it looks like it's in no man's land yeah right and that's part of my due diligence when i look at notes you know i like to buy notes in cookie cutter neighborhoods yeah you know but if the price is right i'll buy some the boondocks this is like you know you know i've had stuff in minnesota you know a thousand lakes ten thousand lakes minnesota you know but yeah i i typically look at um the city or the town even but population over twenty thousand because i figure if i take it back selling a house in a five thousand person neighborhood is tough right but you know everything is worth something at the right price absolutely you know if someone gives you a note for a dollar would you take it oh yeah of course you know i would i would i would do a little bit of due diligence on that but in general yeah for sure yeah so if the taxes are let's look at the next slide yeah maybe not so there's a junior payoff yeah um again this is one that we had to start foreclosure to get their attention i bought the note for under three thousand dollars in july of 2018.

we didn't start for a club we did we sent numerous collection letters we made phone calls we had the property door knocked and um they never responded so we start foreclosure a month after we start foreclosure we get a phone call from them what do we got to do to clear this up so we sent them a payoff statement and they didn't even negotiate with us they paid the full amount normally they would come back and say well i can't pay 96 000 but i can give you 50 000 would you take it and in this case they didn't really negotiate they just paid us off you know we get a check in the mail that's a little bit of a return there i mean anyone who's watching who wouldn't exchange not 2900 for just over 96 000 right a that's a decent return and and you said this happened in about two years right three years you bought it and turned it around not a bad roi on that one right yeah yeah what's the next slide look like did i do any numbers on it yeah so here's the numbers 108 roi yeah 13 months yeah okay and if you if you're gonna be a known investor you really have to learn how to use a financial calculator and you have to learn how to do irr internal rate or return you know uneven uneven cash flows yeah real quick just for people who don't know irrs even cash flows x ir is uneven cash flows right that's the way you figure out so sorry again yeah yeah my my mentor taught me so much about calculators is guy named gary johnson and clyde and they have a classical financial freedom and if ever you get a chance go take it it's a three-day class on using a financial calculator to figure out you know what you're doing with your money you know and it's well worth it i've taken it three times already over the last year yeah we we use i use net present value and xir all the time that's how i make offers that's awesome yeah i'm i'm pretty good with the calculator i'm i'm certainly not a beginner but uh but i could use some brushing up that's for sure yeah get into that advanced category we're flying over to vegas now looks like yeah oh and this is not really a note deal but it was such a good deal i had to throw it in there yeah and you know it's it's notes in real estate like garden mall talks about you know it's notes in real estate uh and this was a letter that i mailed you know in 2015 i i created a private note holder list for notes in california and i mailed out 7 000 letters to people offering to buy the note and i got four or 500 responses and i think i bought close to two hundred notes out of that mailing and this is one return yeah it was a it was an awesome return what year was this this was 2015 but um but the burbank property that you saw the one we did earlier yeah um i mailed that guy a letter in 2015 five years later he called me up and asked me if my offer was still good whoa you only one letter you sent to him i only sent one letter to him wow but he must have he called me up and i made him an offer seventy thousand dollars for that that note and he said now you know i think i'll hang on to a little bit longer and he must have had a change of heart or you know his financial conditions changed but he called me up five years later and i ended up buying that note from him for the same offer i made five years earlier and it was actually worth more because um the equity had gone way up yeah so anyhow this vegas deal was a result of a direct mailing um and he the seller was a a court appointed um like a conservator or a custodian okay it was it was his job to um liquidate the property so he said i don't have a note i got your letter and i don't have a note that note's already gone but i have a property that i need to to break the auction and it's but it's subject to a life estate so you guys under you know what a life estate is no i don't basically the lady has the right she's 94 years old she has the right to live in that property until she passes away or moves out okay so it's like it's like a subject to deal one of the conditions of the deed that i get you know so the property actually transferred to me in september 2016 for forty thousand seven hundred dollars the the property was worth about 175 at that time wow but i don't have possession i only have title so i don't i can't walk in the house and do whatever i want with it yeah i had to live there i had to let her live there for a certain for per the conditions of the deal and you know you don't know i figured she might live six years or eight years you know that was kind of when i did my calculations using my financial calculator i figured a reduced value i had plugged in the value at like 150 000 and i thought i might have to hang on to it for eight years something like that so that's how i reached my my top bid number she didn't pay you at all you just got discount because she's not gonna make payments she's a living the house you have title to but she occupies she doesn't make any payments she has to pay the taxes and upkeep any maintenance you know um property taxes utilities are all her responsibility and i have the right to go uh inspect the property whenever i want to so once or twice a year if i'm in vegas like for paper source i would schedule an appointment with her and i'd go by and take a look at the house and make sure that you know the roof wasn't falling in or the plumbing wasn't backed up and there's you know sewage all over the kitchen floor but she kept it immaculate you know it was the house was really well maintained how did this house did they go to foreclosure auction or no it was a it was wasn't it for closure it was in the sale was held on the courthouse steps in utah and there was only me and two other bidders but what was the legal action that caused the auction it was a court appointed like a receivership okay she lost a lawsuit her family her husband or her son or whoever it was got sued and they lost the lawsuit they had to liquidate the assets but the judge was nice enough to say okay i'm not going to put you out on the street you can live in this house for this length of time but you're not going to own it anymore i've never heard of that that's nice yeah that's a new one for me yeah yeah so it's it's a life it's called the life estate and pete fortunato talks about that he's had a couple deals where there's a life estate involved and um so anyhow so they they notified me in november of 2020 that they that she's moving out and so i went over there and helped him move out and um got her relocated to denver i didn't i mean i just packed up the u-haul and they took off down the street um and then we fixed it up and sold it for 310 000 so if you look at the next slide it'll show the numbers i think so that's the numbers on it i can i can live with that yeah no kidding but i only had you know for the first four years i only had 40 000 invested in it and then later i had to do rehab and and closing costs and commissions so at the end of the four years i ended up having to spend another you know 50 000 uh to get the house ready to sell and sold suny coleman mentioned it she actually written across one how did this come across your desk i mean i i don't think i've ever seen email huh they thought they come across your desk like how does this come through an email like life estate sale like this company no no no i like i said i mailed a letter to the court-appointed uh custodian a court-appointed receiver okay yeah that this guy was a he was given the job he does this he's a professional like liquidator basically he gets assets and sells them so he had a note and i mailed to him and he calls me up and says hey this note is gone but i have a property would you be interested in bidding on it and i say yeah i'll bid on anything real estate related you know whether it's a property or another you know mobile home whatever you know so you and two other guys at the auction was were the other two guys interested at all or did they not know what it was well they yeah we bid it up and we started off i did the opening bid of a thousand dollars wow and then somebody else says okay 1500 bucks and the other guy says 1800 bucks and then it kept going up and up and up until we got to 40 700 was my last bid and everybody else dropped out they didn't go any higher how many other properties were there for sale or the auction just this one okay really wow that's interesting yeah hey guys drop your comments below if you've ever dealt with it i've never seen it it's pretty interesting i'm sure it's rare but that's cool interesting i know we have a bunch of more slides uh do you want me to skip it through anything well you can brief this is the one that where i mailed the guy the letter and he five years later we bought the deal this is the one where i um you can scroll down a little bit this is in the middle of rehab uh go back to that picture see that that back unit was an addition to the property the front part is the three bedroom two bath and the back part is a two bedroom one bath wow and so we ended up splitting it we we put it we closed off the doorway in between and put a new door in the back and we now rent this out as like a duplex so we get 3 000 on the front unit and 2 000 on the back unit nice so you go down the next slide um just touch the numbers real quick i've already pretty much discussed this part go next slide yeah so this is the numbers on that um you know we spent a lot on rehab the house is old and dilapidated built in the 50s but it's something that we're going to hang on to for the for the rest of our life i think you know it's it's a great rental property makes great cash flow and um today it's worth probably nine hundred thousand yeah so one for seventy oh that's awesome you put nine into this and then rehab for this much money and then you i guess you paid off the first no no i i'm making payments on the first oh okay it's subject to we just take over the payments on and this this is the one that's fixed at two percent that loan is will never go up it's always going to be 1600 a month for the next 30 years fantastic boy oh boy that's a nice purchase right there yeah well this just shows the amortization i always create an amortization schedule so as of 5 1 of 20 the the balance was 396 if you today if i looked at it would probably be 375 or something like that right but the nice this is a good opportunity to show people what this looks like you know what does this look like for those who may be newer you know what do these columns mean and why they change right so do you want to quickly share a little bit about that what are the commons mean what are they why do these two change when everything else stays the same yeah this is an amortization schedule and this is an excel spreadsheet that we built and it you can crunch the numbers it'll the spreadsheet will do it for you it'll break down the payments if you amortize whatever the starting balance was 493 over um i think the term was 40 years on this one it was 35 important here a 35 yeah yeah 35 years so 420 months and it it'll break down the payments by principal and interest and it'll show the new balance yep so that's the the date of the of the payment due so this state payment was due 51 of 20 it's the 109th payment in that amortization schedule and the payment the payment amount is not going to change that's always going to be 1634.44 because it's a fixed rate loan and the interest is the interest and and principle are going to continue to change every month will be slightly different um and to where the balance goes down but you know one thing you have to really look at is look at the amount of principal we're paying down every month yeah almost a thousand dollars i think right now it's out of it's over a thousand dollars of principal reduction so the interest the portion going to interest is getting smaller and smaller as the loan matures and that's why a lot of times the beginning alone is very valuable because of all the interest and the in the uh sorry the early answer is the beginning the end point is the principle's gone so um i know we have a bunch more slides you only skip to a particular property or a particular slide before it doesn't matter we can wherever the conversation goes you know i know you guys are running out of time um so let's let's let's back up for a second right you bought a lot of seconds what are some of the things you screwed up on what are some mistakes you've made that you say crap well um first thing that comes to mind is it's like on that oceanside property that we held it for seven years um the lady was trying to get a loan modification on the first which would have dropped her rate from like six percent to four percent probably and i think i pulled the trigger a little bit too quick on the foreclosure if i had to let her um go ahead and get her loan modification done um and then foreclose on it i would have had a lower monthly payment but then she might have paid me off too anyhow so um you know i think as far as uh how to do diligence have you ever made you know a mistake that you've learned from that you say listen i can't do that again absolutely you know sometimes we get a pool of 100 loans that they want us to give them a price on and we'll you can't when you when you're looking at 100 loans you can't dig deep into every single loan nope so we we throw we plug in a number to each loan we might we might have taken a look at bankruptcy at the credit report um different things that we look at and then we we wing it you know we have to provide a number within seven days or whatever it is and can't take two months to go through the tape so you know we could have done better due diligence i think um if you go back to things to watch out for um in my slides let me just scroll up i got that up right now um unscrupulous note sellers be real careful you know i've got i i've got one guy that i bought notes from five years ago that still owes me like thirty thousand dollars and it's just not worth getting an attorney and trying to go after him you know i think we spent a million bucks on a deal and so he owes me like three percent you know he's still you know it's it's a small amount of money um but ask around make sure you you know reputations from people um because i i got a friend that wired off a million dollars to buy some loans and he's still fighting them in court he's never gotten his loans so you know when you're buying those there's no escrow you know it's not like buying a house where the open escrow or you know over at this local title office you're trusting people to deliver what you're buying and you know it doesn't always happen um i think i had something uh on my list about low yield monthly payments so we bought a note in close to here bellflower california and the the note the monthly payment was fixed at like 325 a month and we paid 90 000 for a note where the balance was like 150 000 and my partner said he you know he thought we were going to get the house and i said hey we might not get the house that's okay i'll take the chance and technically those guys could have paid us 300 bucks a month which is 3 600 a year on a 90 000 investment so if you just do a cash on cash 3 600 divided by 90 000 is 4 interest you know the yield would be 4 yeah fortunately they ended up defaulting i mean they paid us for a while at 300 bucks a month yeah but then they ended up defaulting and we took it to foreclosure and somebody else and went to third party if somebody bought a trustee sale and we ended up just getting cashed out but you know be careful don't don't always assume that you're going to get the house back you know that's my whole point of saying that is don't always assume you're going to get the house back a lot of times they'll just make payments even though you think it's unlikely they'll get the payments made you know or they'll reinstate when you thought there's no way they're going to reinstate that yeah and they do and you're going oh shoot exactly it's the assumption that you know what's going to happen before it happens i think a lot of people make the mistake and assume things are going to happen based on the fact that um what they know of yeah and you know one of the things that we've done is we have good systems um we use a crm called act and all of our notes are an act all of our histories every phone call we make every letter we send out it's all plugged into act and we we have a small office we have five people in the office myself my wife and three others so we have an asset manager an admin assistant and a bookkeeper a full-time bookkeeper that does a few other things i mean she only works about 25 hours a week but she's still considered you know pretty much full-time um and you know it just helps so much to have good records we plug everything into quickbooks uh every loan we buy has its own uh as class accounting so every loan has its own profit center basically so all the charges all the the income and expenses go against that in individual loan and we can run a report on that one particular loan um and then we use a mortgage office we use a lite version called loan office to do all the amortization schedules and statements and coupons and that's one of the best things we did we were trying to use something like notesmith prior to that okay and it just wasn't up for the task you know if you got a handful of notes if you got 10 notes it might work fine but if you got 300 notes it's too cumbersome um so you know if you're wanting to start out in this business in the beginning you can get by with spreadsheets and stuff but if you if you ramp up and end up with a decent volume um you know get the right software to be able to track your notes and we self-service a lot of our notes probably 75 percent of them wow um is that just money or control i think it's a combination of both you know it's a little bit cheaper and then i think we have more control over it okay yeah um you know we have a lot of notes in our account i've got about a hundred those between my account and my wife's account in our iras so all of those nerds we put with the servicer because we don't want to take the chance of getting like a prohibited transaction that's a key yeah i do the same thing so all those notes almost all of them i mean there's some notes that we bought real cheap and they're pretty much inactive so we self-service those notes they just kind of sit there in the file they're not doing anything but if we decide to start collection on it then we'll move it to a servicer before we start collection interesting yeah that works so we have some questions if nathan is fixing some stuff for our caller yeah yeah you bet so cindy coleman she's asking about uh a course or a person that you can learn the seconds business from or you don't teach do you i don't teach um and dean's not teaching anymore either um and that that course that he did is not available as far as i know you know so you know rob haitha does a really good job he has some good information on his websites you know if you don't mind me mentioning that he's a good guy fixed notes f-i-x-n-o-t-e-s dick's notes he has a great program i'm part of his mentoring group you know i pay x dollars a month to sit on a phone call once a month and we had our call yesterday and rob's a young guy probably less than 30 years old and i've known him for 10 years does a really good job has a lot of experience um so i don't you know mike rosica does a mentoring program noteconference.com so i like mike he's an awesome guy um those are the first two that come to mind as far as you know the one thing i would say is stay away from the guys that want to get you into a mentoring program and it starts at twenty five thousand dollars and the platinum level goes up to fifty thousand dollars yeah don't do it you know it's just not worth it i don't think you know hey go go and buy a note get some experience get some hands better yeah yeah it's really going through the motion right tell everyone you know when you go to college right you go here you spend all the money for college and you get out with no money you just came out with skills right and now you can make the money with the skill you learn same thing with buying the note you buy that first know you learn everything you need to do so they maybe lost your mind made some maybe broke even but then you now have the skills to go by notes we run our own mastermind two on a weekly basis we have some and some really cool people just talking about high level stuff of different angles different you know positions because everyone's different everyone's different mentality is awesome um i know that it it for seconds you know you know for quants out there but just i don't know of any training programs out there per se uh that's particular on seconds yeah specifically i think i this program is yep covers seconds really well and mike is primarily a second sky yes mike yeah mike yep absolutely um some of the first notes i bought were from rob really oh really yeah way back when was it through usmr i think so back then yeah yeah yeah he worked at usmr for a long time he still does but more as a consultant okay good yeah i bought my first few goals so that was my first person was through mark gold she was not in the business anymore so yeah i know mark yeah so my first seconds were through coast capital yep the man yeah d.a yep the amendment trinity yeah yeah which i don't think they're around anymore i haven't seen them yeah no comment so we do another question for you um you know what resources services do you use to operate the business and one of the most important servers you use that's a general question yeah and i think i cover that i'm not sure if i cover that in these slides or other slides i do um but we use like i said we use a crm that's something that everybody we have five people in the office and everybody can input data you know if a check comes in we log it into the history you know we got a check for 318 and 42 cents and um it shows that crm shows the the first mortgage what the balance is the date of last payment when we last checked it things like that and then we have another box that shows our loan our second mortgage and uh what the monthly is what the date last paid is so we keep track of everything and we can we can run reports on that as the you know if we want to see the delinquent borrowers we can run a report that'll show everyone who's more than say 30 days delinquent so act is a really strong tool loan office is another one uh crm is that do you care share which one you're using act act sage acts and you can some people use um i forget the name of the the sales force salesforce but that's huge i mean that's a big one acts the same way you know i i just spent 1500 to upgrade act from you know version 21 to version 23.

you know it's but it's worth it i mean you know um i couldn't live without it and and you know in hindsight um mortgage office might have done a lot of what we do in an act but i don't think it doesn't keep track of the opportunities and phone calls and people that want to sell notes things like that all that gets plugged in to act so that's one software the second software is loan office you know act the crm you can use salesforce whatever act is a crm that is very valuable i mean uh and then loan office does all of our amortization schedules statements coupons everything we want to do with with mailing out statements to people that that all goes through loan office and then quickbooks would probably be the next one you gotta have good accounting um you know we have to file our taxes every year we have um we have about we used to have 12 joint venture partners now we're down to about four yep and so i i send out quarterly reports to them yeah we we split money you know once a quarter we take whatever's net after expenses and i'll distribute it between us and them um so excel we use a lot of excel we use we do a lot in quickbooks but that's the primary yeah you know and becoming familiar with pacer you know the bks uh you know there's a lot to learn on on bk so we had another question from cindy what's where's pricing at seconds at she's heard that they're pretty high i've heard they're up at 55 but i've even heard higher yeah i've heard 55 60.

what are you seeing prices seconds right now you know i'm um i'm starting to slow down i'm wanting i'm i'm making our company smaller they're than larger so i've been buying nothing but rpls for the last year and a half two years popular yep and um we're shooting for a yield in the in the mid teens okay 13 14 15 something like that and a couple of the big pools i bought recently were in the 50 range of upb so 53 maybe or 55 51 something like that we have bought a couple of pools of higher quality loans where we paid like 75 of upb but really the determining factor for me is the yield i'm not gonna i'm not going to buy thank you and the yield is really what drives it i'm not going to buy a loan where i'm less than say 85 percent of upb i don't want to i don't i mean above you 85 i don't want to be at 105 percent of upv yeah you know yeah because if i had to foreclose on that i can't get my money back yeah so it's weird you say that a lot of people are still bidding on the percentage of upbeat we've heard it at the paper source that and they're being taught to bid on percent of upbeat and ignore the interest rate a day yield is your driving force that if the the percentage of upb is a byproduct of your bid well i'm going to bid at 12 14 15 yield okay i'm gonna this is my bid oh what percentage of upb is that number versus the other way around um that's a key thing for a lot of people is that you should be driving back in the return you want versus bid percentage and then say oh this is the return i get yeah yeah my my spreadsheet when i'm bidding stuff shows you what my yield is going to be and my target is somewhere around say 15 yeah sure you know if it's a great loan and a great area if it's down the street from my house and orange county california that i might drop it down to 12 or something you know but if it's in you know cleveland ohio you know memphis tennessee or whatever i'm going to shoot for something in the mid teens or maybe even 17 percent yeah yeah so where do you see the market going gerald what's your crystal ball prediction i have no idea it doesn't affect me that much you know i'm not aggressively buying right now i you know i i um i just don't want to work that hard i've worked hard for you know i started working in in construction in 1973 i guess yeah so i'm 68 years old now and i'm i'm really wanting to go i took up golf recently six months ago i started playing golf and i enjoyed it i just went out boston new clubs yesterday we're trying to get focused we're trying to get one of the you know the note conferences to do a golf day beforehand or something something like that it'd be a commodity so i'm glad to see you're relaxing a little bit it is how difficult is it to relax when you've done this for so many years i don't have a problem okay you know i i mean some people i know they only they work because that's their only interest that's the only thing they have going on in their life i have a lot of other interests you know like fishing i like shooting i just went did some sporting plays with my brother down in houston um fishing bicycling there's a lot of things that that i got plenty of things to occupy my time uh friends and family i'm the oldest of seven kids i just went down to louisiana and saw my almost 90 year old mom spend a week down there and then spent a few days in houston with my brother and my focus is more like friends and family yeah and recreation i think um we've we've done well with the note business and i don't have to be that aggressive right now i'm um you know if i if i can get eight or nine or ten percent of my money as opposed to 18 i'm okay with that you know i'll live with that you guys are younger than me and you know you're still on the upward trend you know you're still trying to grow your business yeah it's interesting you say that because we feel like we're getting older as we go on you know but then you say you started construction before i was born which is kind of uh you know earth shattering but it's great you know um i think where you came from is a great action to realize what goes on i do construction for 13 years um i wouldn't do it again it wears on you but i think that the transition in notes is so attractive so many people like it because it is real estate without the headache of real estate right and you and you know a lot of our notes have turned into real estate like the burbank house yeah you know it's just so we have you know a dozen assault rentals right now all in southern california um and that's a nice complement to the note business you know the rentals are fairly easy to manage for the most part we have higher quality rentals we don't have a lot of turnover so we have to do some maintenance on them you know change a roof or whatever but the it's not a huge amount yeah absolutely well gerald i'm gonna ask you to hang on for a few minutes we're at discord for the public i appreciate you reaching out to us and joining us today um do you want to give out your email address i'm sure your website available um i'm gonna ask you guys don't ask him for assets he's not selling right he is where he's at this is retirement um but if you want to pick his brain uh feel free to reach out to him just to just chat for a few minutes um i could definitely share your email address but do you want to give your website so everyone can see what it is yeah this is the lemoine group.com so it's che then my last name lemoine and then group g-r-o-u-p dot com uh my my email is gerald at the lemoine group.com and uh phone number is 714-462-8050 um just don't put me on a robocall list but feel free to share you know if you guys want to email the slides out to people i'm fine with that if you guys want to feel free to email me or shoot a message or whatever you guys do yeah um reach out to us let us know my um contact information is the last slide in that there's no presentation you're doing it okay well joe i'm gonna disconnect from the live feed um yeah guys have a great weekend if we don't talk to you um hopefully we have some good stuff coming up our next uh event is actually on facebook um we'll have a a really good conversation you'll see all the details coming up soon but uh stay tuned all right guys have a good time enjoy your weekend you bet thank you thanks for the invite you.