Bridge and Hard Money Notes for Maximum Profits | Real Estate Notes Show

Episode: Unlocking Wealth: Mastering Bridge and Hard Money Notes for Massive Profits Full@OCGMathewOwens Dave's Goals and Plans: - Pausing capital raising for his fund to focus on DME conference planning - All sponsorships for DME are sold out - Using DME to connect with people outside the note space to better understand their business perspective - Traveling to Idaho to visit college that his daughter was accepted to Nathan's Goals and Plans: - Had audio/camera technical difficulties during recording Key Recommendations: - Attend DME (Diversified Mortgage Expo) in Nashville end of May to network face-to-face with note buyers, originators, and service providers - Build relationships in the note space through in-person connections rather than online only - relationships are critical to getting deals done - Curate attendees carefully - only invite people in the actual business and known quality service providers, not just anyone - Study different perspectives from non-note industry professionals to improve your buying strategy and create win-win scenarios - As an entrepreneur, expect 14+ hour days and emotional investment - not just freedom and lifestyle initially Topics Discussed: - Bridge loans and hard money notes as investment opportunities - Diversified Mortgage Expo (DME) conference details and networking benefits - Seller finance market and lack of dedicated conference space - Importance of relationships and face-to-face networking in the note business Guest Insights: - Matthew Owens is a CPA with unfair advantage in note investing due to understanding arbitrage and math - Has flipped over 1,000 houses and has $35 million lent out to flippers nationally - Raised over $150 million for real estate and invests in multiple debt structures beyond hard money - Uses CPA knowledge to minimize taxes and build long-term wealth through strategic debt structures - Prefers note business over active flipping because it's more passive and allows time with family - Lost everything during 2008 financial crisis after taking $200K credit card debt to pay back investors - describes it as humbling and necessary for growth - Started flipping in 2006 with only year of real estate education, quit CPA job with $30K savings hey everyone Dave puts here from jkp Holdings alongside me as always Mr Dion Turner H hello all right how are you guys doing good we're on the road we're apparently Utah we're on our way home we're right now in cerville Utah and then uh heading my daughter got accepted to a college up in Idaho so we're going to go see that place she's never actually been there she's been accepted but she's never actually been there so we got to go check that out on the way home nice awesome so um I know Nathan's on a camera thing so our videos G be a little wacky I I'll fix it as we talk here uh but today we'll be talking about Bridge loans and hard money notes and it's something Nathan have you ever got into that kind of space I'm really curious about it I I've looked at it from a few different people that are doing this it looks like it's a really interesting investment opportunity it's it's something I want to learn more about so I'm glad that we've got our guest on here today and I know that it's big space right now right I know that we're curious about because it's it's a much different angle in all this play so for those who are curious about we will have this replay this will be on our YouTube channel as well as our podcast so you won't miss a thing um it is being recorded so uh what's new with you besides taking your kid all his college stuff what else you been up to my man I took the last couple of weeks I'm I'm supposed to be raising money from my fund and I was like you know what I've got too much going on Capital raisins going to the side for a minute we're figuring out DME so while I've been away while we've been kind of away on this semi vacation um just about all the sponsorships are sold out so if there's anybody who wants the sponsorship speak up now uh and speakers are all set just got a couple of speakers that I got to lock in but uh DME is coming along together really well we've got just over just under two months till Showtime so we're getting very excited for that looking forward to seeing everybody there and and for those who don't know what DME is Diversified mortgage Expo it'd be happening in Nashville the end of May it will be combination of note buyers note Originators and experts around the way service providers everything else so it's definitely a different kind of Market um than you've been to most we found seller finance people don't have a um a a conference to go to so it's definitely a whole lot different than than what you think it is right um getting together with people that you experts in the room um you know really knowledgeable people all in the same room with stage and all that stuff looks all pretty and fancy and all that stuff and you get together to network that's our biggest key here is networking and getting deals done buying and selling trading and learning about it you have to get to know people in the space like it's so we say this all the time but it can't be more true in this space especially it's all about relationships so it's all about getting face Toof face with those people that you're going to be doing business with because that's how you grow those relationships and then that's how you get deals done that's how you get business done so yeah I highly encourage everybody to come out uh get to know people in the space meet you know like you say service providers vendors like and I it's not just anybody that can come I'll give you an example so last week I had someone reach out that wanted to be a sponsor at at the conference and I said okay sure can you tell me a little about your company I guys before medical devices and I'm like yeah what has nothing to do with anything so so the answer is no you know no we're not it's not just freefor all anybody who can come the people that are coming there are people that are in the business that I've worked with personally that you've worked with Dave and people that we know are real assets to your your business so it's it makes a big big difference just to be there in person and getting to know people awesome yeah I did see we had a little audio trouble I did fix that uh I don't know why it did what it did but is what it is so I think for me d me was allowed me to connect with people that are not in the note space right or not in the note buying space and picking brains of people like we're having guests on today saying I don't understand why you do this or that and kind of get a better understanding from their point of view so that I can be a better buyer of these notes and say how can I put myself in a win-win scenario that allows you to grow your business me grow my business and we all win right yeah um we have certain things we got to hit individually but that's where it comes back to so um it's cool yeah well let's let's jump right into it and uh bring in our guest uh I'm gonna call him Matthew we haven't cricked any else is Matthew good or Matt better or you tell us either one my uh my friends call me bad words so it's not really you know Matthew totally fine awesome so Matthew tell us a little bit about your background how did you get into real estate to begin with and how did you get into the niche you're actually in today yeah no problem at all I appreciate the the invite and uh looking forward to sharing some of the knowledge and the new new income strategies that come with uh investing in different types of notes and things like that and um uh so I'm I'm a CPA so the math stuff to me is really an unfair Advantage especially in the note space when you understand arbitrages and things like that it's really interesting I didn't know any of that in the beginning right I worked at a CPA firm doing tax and audit got to work on some larger real estate clients and things like that and um and didn't know what I wanted to do was just bored out of my mind wanted to bang my head against the computer going I can't do taxes anymore I can't help the government steal people's money anymore you know so and uh and I just had to like do something else but I I didn't know what to do I'm like should I start a bar should I like what what the heck should I do here and um and actually my stepbrother came to me with some uh education on real estate and I ended up being extremely passionate about that and I got my first deal under contract that I was going to flip and this was in 2006 and so uh I went and got the deal under contract quit my CPA from job I had about 30 Grand in savings and just said forget it I'm going to be a full-time flipper now with like a year of real estate education and no real experience at all uh doing it so yeah I was like I'm just thinking in my head I can I didn't have kids at the time I could go back to the CPA firm or another firm or whatever you know but something different that didn't want to make me cry every day have boredom you know what I mean so and uh and so I ended up quitting uh we started getting a lot of properties under contract actually my Two Step Brothers both computer programmers and electrical engineers both quit too we got an office at the World Trade Center on Long Beach in like the 23rd floor in 2006 with thinking we knew what the hell we were doing and thinking we were dope because we're were flipping a bunch of houses all of a sudden and getting a bunch of properties under contract and then of course 2007 happened and8 happened and we realized we were not dope and we had no idea what the hell we were doing uh and you know I thought I we were still we were good business owners because my books were done and I'm a CPA right that's I'm still a technician in my mind at that point right so um and I ended up taking 200 grand out of my credit cards I paid my investors back with that because my investors were gonna I had a 790 credit score and you know back then you could get lines of credit like crazy and I'm like raise it again raise it again I'm going to use this to buy real estate and so I went and uh we had bunch of private investor Capital involved and we took like 50% hits on our Acquisitions during that time because we bought like 36 houses with all our investor capital and some of our capital and we're going to lose like a couple hundred thousand of investor money so we just basically we took it out on our credit cards and paid it to them and um went down with the ship and pretty much lost everything was probably the most humbling experience of my life you know so of course and my ego was destroyed at that point which was probably the best thing that ever happened me honestly because now I'm like where's that left hook going to come from you know even if I have a lot of experience now doing this um you know back then uh that punch in the face was like you realize how strong you can be by standing back up after something like that you know and you need that because you're gonna get punched again you know so yeah and so since then we flipped a little bit over a thousand houses now um we have about 35 million lent out to Flippers in different markets around the country uh I've raised a little bit over $150 million for Real Estate the CPA license helps with that of course you know with the raising the capital thing um and you know we invest in all different types of syndications from mobile home parks to multif family to debt structures other private businesses and a lot of different debt structures not just hard money and things like that but um I really love the debt aspect of things quite a bit and there's benefits to that and benefits to real estate directly um of course within the tax code and long-term wealth B building and things like that so so that's kind of my story I uh live in Southern California I call it communism for the people out of state in different areas and uh and but I don't pay taxes really because I'm a CPA and understand the strategies um and so uh but at at the end of the day you know I have a couple of kids and I really just love the note business because it can be a lot more passive than you know actively flipping and actively being involved in real estate and I want to spend time with my kids you know my eight-year-old and my four-year-old so it's uh it's pretty awesome so that's awesome so when you first got started how scared were you I think I was naive at the time I thought hey I'm gonna be have I'm gonna have time to go to the gym now every day and I'm gonna have all this EXT I don't have to drive to work that saves 30 minutes you're like what is 30 minutes if you're an entrepreneur and a business owner like you're like okay yeah I work 14-hour days now instead of 10 you know at a CBA firm right or eight you know and actually now instead of before like you're now you're emotionally connected M much more right and so um yeah and realizing the es in the flows of the emotional aspect of things was key but um I think I was scared and nervous but I felt like I had something to fall back on if if I I don't know that I would have done it all over again if I knew how hard it is you know as far as just jumping ship without having like a set income Stream So it everybody has their own differences I didn't have that much to risk at that time CU I didn't have you know kids or anything to take care of if I had kids now it's a different story you have to have you have to eat you know so but yeah yeah absolutely that's amazing because I think people you know they think entrepreneurs they think ah freedom and you know opportunity and lifestyle and you're like you're like no no I don't think so not yet so you're building towards that yeah there's work involved and yeah that's a that's a good point because people coming into the business they're like oh so notes is like it sounds really easy sounds that way doesn't it yeah it's funny being a hard money lender I feel like I'm a property management company and a flip company because I have to manage the re the renovations still and then I have to deal with collections when people just ghost you for no reason like we've had people close on a property literally put money down on the property and then never speak to us again and we're like what is going on like and we just okay thanks for the 65% loan to value house you know so like I you know and so it's just interesting it's crazy uh this business there's still very much activity or activity that needs to be handled by your team if you want to be passive it's like any business if you don't build your team from the start you're going to be you know self-employed and I had to learn that the hard way myself you know just like most entrepreneurs yeah absolutely so it's amazing that you know we talk about this stuff I for me you know we chase a lot of different things but what is your typical term of your notes that you're creating now are they six month a year where are you at in your creation of the notes you're creating so I do a number of different notes so a lot of the different it depends on the strategy that I'm deploying um many times I buy renovate and turn Key Properties um and then uh you know renovate and tenant them and then resell them to another investor that wants the cash flow and I'll sell them to people's IRAs in 401ks you know usually maybe seven 8% it depends on what the cap rate is of the property of course but I'll fully advertise it over 15 years and sell it to their Ira or their 401k or I'll structure 1031 exchanges for People based on that rental property and structure the debt piece the equity down payment and hit the hit the right metrics for people's 1031 that's one of the big strategies I started with it got me into the hard money lending space on construction debt um and what taught me the ropes on being able to say okay how do I mitigate the risk on this construction debt and you know knowing the renovations and the flip side of things and then coming right back into you know the the construction side and the lending piece of it was you know uh kind of a perfect play because I knew where the risks were not that I didn't make mistakes and get punched in the face and had make you know you know realize that wow not everybody is a CPA that understands money management you know and you know cash bucket systems for your properties and things like that right so um but at the end of the day my typical structure now if I'm lending to uh the general public usually um or you know PE flippers in different markets around the country I usually stick first with certain markets that I like to invest in that are non-judicial foreclosure States so that I don't have to go through that process that's bit me in the past of course where takes seven months and eight months to foreclose on a property because you you know some issue there you also want to make sure you know the neighborhoods really well and the borrowers because you know if you you Market the wrong terms to your borrowers you're going to have the wrong borrower so we went through in the beginning um right now we're doing 65 70% loan to value loans maybe at around 12% interest rates two flippers with them putting you know 90% of cost usually um of purchase and renov ation and they got to pay for the entire interest upfront on the loan and we hold that in reserves and we hold back the entire renovation in reserves um so usually it's like six months of Interest hold and then the full renovation hold um so that that way we can apply those payments um so they're not having to make payments during that process and they know where their cash is so their money's in upfront on that that piece of it um and it's usually um uh yeah usually 70% Max loan to value on the after repaired market value and then Construction draws as they finish the renovation with inspections each time they do a draw so that that way we're you know really safe we're usually doing oneyear loans but sometimes we'll get extensions especially when the interest rates changed and things like that people are waiting to see rat's going to drop so I can refinance on a debt service coverage ratio loan for my rental uh in that scenario and one cool thing that actually happens out of this is one I get a ton of deal flow just by lending to the direct public like this and I I'm like oh you don't have the money to do this I could take it down you know and uh and you know and actually partner with some of them it's bit me in the past on on certain Partnerships and doing the homework on those Partnerships are key of course um but being able to come in and say hey you're having a hard time selling this property off maybe you can do seller financing to a homeowner and then um we'll leave my loan in place or I'll help you out on a long-term rate instead of a 12% short-term rate or something along those lines and make my interest rate spreads between myself and my investors uh and they can go through and make their spread on their Equity piece of the deal too so it kind of plays to each other but that's my typical terms 12 months 12% interest maybe a couple of points each time or something like that unless I have a very big borrower in which case we usually drop points or make it a very you know easy type of fee um to for really big borrowers that are working with us for a long time you know so that's a lot interesting so one of my one of my concerns with with the short term how do you how do you ensure I don't know to me there it just seems like there's a bit of a risk in there in that um maybe they got in over their heads or maybe they've got in where they you know I just don't know how you do the due diligence on that to make sure that it's a good loan 12 months from now yeah absolutely and and that's that's the hardest part right is the due diligence and knowing what to look for when you're analyzing these types of deals to see if it's a good good fit the first thing just like anybody you're doing business with is who the heck am I dealing with in the first place and what is their experience in doing these deals can they show me their last five HUD closing statements on their purchase and their sale uh and show me that they actually did that can I see before and after pictures do they seem buttoned up are they communicating correctly on their correspondence with me like quickly and being able to you know provide proper documentation what does their rehab bid look like in the first place is it just you know BS numbers where it's not detailed out or is that on like a chart that they use every time cookie cutter with every line item outlined in depth you know um where they're even on a initial estimate right so you're gauging who that person is from that regard and then the other big risks that you know the biggest risks here are you know their experience I just talked about but also so do they have cash they in their cash reserves and are the is those cash reserves going to other projects that they have in process or are they staying on are they available for your project only you know do they say hey they got a couple of more flips going right now okay great then like do you have the money for those what's left on the rehabs of those are they done can I see pictures of those where they're at right now and the full budget and what you spent on that to make sure that um yeah you're not going to co-mingle because that's how flippers get in trouble a lot is you know running out of money you know uh and then uh and then on the other side the other biggest giant risk obviously they appraisal um and you know the appraisers are not always right and if you're investing in a market that you don't fully know um yet then you need to make sure you get another check and balance so we do our initial internal underwriting of that value we go get an appraisal done also and then we also get the opinion of another outside agent to be able to tell us what does that street look like because the appraiser may be looking at something a block away when that street sucks you know so it's like make we've been bit by that these are all things we've lost money on in the past and learn um and then the final thing is the renovation bid in the first place right because some people sit there and they'll tell you oh I can get it done for 30 grand I'm like no well I can't I can get it done for 60 and so I don't care if you're doing the labor yourself or their contractors underbid the jobs so you can get what's called a feasibility report and get because because you're not dealing with homeowners in a lot of time where it's more difficult to get into the property doing inspection you're able to get full access to this thing get into the basement like have them take the bid and have the feasibility company come out and literally look at it line item by line item and say is everything here and does that seem right for how much cost this is going to be in the first place we don't do it on minor rehabs but major Renovations usually over compan would that be like a general contract that comes in and kind of overviews and says this is a real project and they have real numbers on it yeah yeah so and and it's crazy and it's what's interesting now is there's even softwares out there so during the process that's another issue right what if something comes up during the process that's not on the actual bid right you got to send an inspector out there to say yes you did 45% of the HVAC work here's 45% of that budget line item oh you saying you spent $20,000 on the foundation well that wasn't on your rehab budget and so therefore because it's not in your rehab budget you're not getting reimbursed for that that's an overage on you in this case now if you are under on something else and you finished the roof and it was 10 grand instead of 15 we'll disperse the full 15 you can cover your other rehab overages with you know partially with that but it's very meticulous because you know that's the issue right what's the quality of work is it really done in the first place because contractors you know quite frankly I hate them you know because it's after flipping a thousand houses and owning my own property management company and stuff you're just like yeah dude like that's like the hardest team member to deal with but um but so those are some of the big pieces from a due diligence and process standpoint and now what cool there's even Tech out there that you know you don't necessarily have to send a full inspection if it's like a minor draw but they can your borrower can be at the property taking pictures and they can do geo targeting to know that they're at your location taking pictures and and things like that there's new tech coming out with all that that's really interesting from a you know due diligence and processes standpoint so oh my Lord I'm excited crazy so let's flip the script on this right uh you have a bunch of people out here who are creating notes doing seller fans or rap notes and it seemed like this is more lucrative but it's a little bit more risky in the fact that um you need to know your stuff before you get into this game right where rap notes is just you're wrap a note and you put a borrower in place and you do Rolo and underrating and Billy repe you're really managing ing a construction job per se as well as being the lender on the project that's a lot of work yeah and so what really happens is you know you have a service you have a Servicing Company along with maybe an internal staff to be able to do that that piece of it right a lot of lenders will do it in their own Market only so that they can actually go out to the property themselves and see it too you know um as well but in in in reality um we have servicing companies and we also have our internal servicing staff that does the internal reviews of the construction jobs and then you're just sending out vendors for each draw and usually there might be three draws in 12 months and you charge a fee for that right it covers their that fee covers your team covers and the servicing all that kind of stuff is basically handled through that fee structure maybe it's 275 bucks a draw or something and you got to pay the inspector to go out there and then your team to do a review right so you're just talking about labor hours that you can do that and there's different risks with this type of business in my eyes you know you could do it on your own and use your own money and make 12% on your money or 10% on your money to Quality operators if you're going to scale it then of course you need to be able to have private investor Capital to be able to make interest rate spreads and you got to make enough to counterbalance the downside risk if something is to happen you know we have funds that we utilize and we use a lot of private investors capital on our side and we sell them notes and then we and have them invest in our funds and so by pooling it together it's a lot easier yeah we have a lot of people on here are also note buyers MH yeah Nathan and I are both note buyers yeah if we were going to buy a note from you what is a typical I mean for us we don't want to do work we're lazy right we don't want construction project I hear you yeah what would a process be and what kind of rate are you cre these notes at you know that would allow maybe a note buyer to come in and buy a partial or whole thing how do you structure that if you do sell so what on the sale of these things many times I'm just selling them directly to my fund my brokerage closes on them and sells them to the fund and um and I basically go through and uh do a 100% path path through pass through of the entire note over to them and I use an assignment Adida trust and a Lou and you know the the note purchase and sale and servicing agreement basically and um and my Servicing Company basically retains the spread interest and so if I'm coming in and doing it at a fund I give it all the fund because I get the excess profits anyways um if I'm doing it with private paper with private investors I'm assigning usually the full note to them uh on that on those notes um sometimes it'll be a partial but uh and I allow it to be an AA structure so that that way everybody's on equal playing field if I'm selling one partial to one person and another partial to another one of my private investors or just keeping it for myself for my internal because the interest rate are Arbitrage is pretty nice on my own Capital as well right so um so you know if you do the math on this it's insane how much of an interest rate spread uh some of those arbitrages make on your capital and so um if you're if you're coming in we we assign that off uh to them then it's usually a partial and we'll do an assignment Adida trust and all that stuff and and have that handled there but we we do all the work and so usually it depends on how much Capital investor has if one investor is buying like one note for 100 grand or a couple hundred grand usually at like a 8% interest rate and I retain the remainder um I usually pay up to nine if they're investing over $500,000 with us on our stuff but it's hands off they not only don't have to do any work we do all servicing everything um but we lose our spread first before they lose any money we go through the handle the foreclosure process and take any of the you know we're in basically first loss position on that piece of it um and then we also go through and continue to roll their money over and over over to new notes as PE p things pay off so that we say okay hey you they have this money that's about to get paid off we have these new new notes coming do you want us to roll it back in so that they have a consistent supply of notes coming in with un uninterrupted interest and we had a lot of investors of ours that are just like retiring and traveling off this making 30 40 Grand a month you know uh with us and it's just you know that's pretty awesome when they can do that and you know um in the beginning it took time to develop you know large Capital sources like that to do that but over time as they trust you and in the beginning we were putting our own money in where they'd fund 60% of it and we'd fund the rest you know as well until over time we slowly got up to the point where they're just funding the whole thing because we've been working with them for a long time now you know so we do have a shout out from Mark uh uh from Marco baros today he was actually bought his first note from you yeah Mar yeah he's he's killing it now too that's awesome good job Mark man that's that's a really really cool I uh I've been see seeing his Facebook posts about the different notes that he's buying and uh some of the positive things that are happening there so that's that's such a cool thing to see so outside the fund do you ever sell a node to an external individual note buyer uh yes yes I sell it do that all the time um so some investors don't want to invest in a fund right I I think the fund structure is actually safer because your collateralize against a pool of notes and not just one note at a time abut but at the same time especially because have to have a 25% default rate for me to even hit my investors stop hitting my investors's preferred return on an individual note obviously you got you know risk if that note go in default you stop getting paid right and um and so um but we do this in pools with some of my other private investors or on individual basis but I usually sell one note at a time and I'm not usually hypothecating that you know structure I don't mind if they go a hypothecate you know that's fine with me too if they want to sell typically sell them at what do you Ty originate what kind of what's your interest rate zone so that are you creating at eight um I'm usually I'm usually creating notes in in between uh I'd say 11 and a half and 12 and then selling them off anywhere between eight and nine to my private investors is usually what what's happening and so I'm making that Arbitrage and keep in mind um in my fund for example I have to keep those funds invested so if you're thinking about investing and starting a fund out there you know yes it's a great strategy so you don't have so much paperwork and back and forth with investors and stuff but at the same time if you don't keep that money invested you're losing interest and you're losing your spread and so it's really important to make sure you have enough bandwidth to keep it invested but not too much bandwidth to where you're struggling to raise C Capital so that juggling match is very difficult and I've actually just started to slow down massively on direct lending uh and just buying the paper at 12% rates and you know doing that because I'm able to raise so much Capital that I'm able to get that much uh you know additional rates if I come in with $5 million plus I'm getting 12% consistently on that on that paper um and being able to just make my spreads and then they do all the work and all the servicing and everything else for me um but I'm still doing that checks and balances and actually helping those companies because I want them to be successful and I see where I lost money and I want to make sure they have the same risk mitigation practic you're buying someone else's origin paper in that situation right but and usually it's strategic uh relationships with other big funds and stuff like that because um they want to just recapitalize their goal is recapitalize do more do more recapitalize and get to a bigger scale right but then as at that scale occurs then quality control can be lost and so that's when I make sure that I come in and uh and and really really focus on uh their processes and procedures and underwriting every file before I buy it myself as well you know so um and that's the key and even if you're lending to homeowner you know I find lending to homeowners is a little bit more risky from the standpoint that sometimes it's hard to get inside that house and know what the heck the privative maintenance are you know no may maybe you don't get complete files sometimes you know all these types of issues that what if they don't really own that note I mean anybody can fabricate a note you know what I mean and so like you know understanding who you're dealing with and getting true backup and documentation on the due diligence side on buying the paper but I love that side because if you can go through and buy a partial of a note of five years of a 30-year note and get the full payment and you can make 30 40% Returns on your money it's insane if you get the right structure there you know so so we had a couple questions um one person ask how do you access the notes you have for sale um I would recommend you there's a form uh in the post F free The Fill form out you're going to get math information his email address everything else do that and you'll get his information you reach out to directly um and then we also had a question so you're essentially making a three 4% spread on $4 to5 million any one time because you're borrowing at eight you know percent and you're making 12 you're making four or five percent Conant and I I have and I have 35 million lent out right now and my goal is to get to 100 million and it's hard to get to 100 million when you're direct originating to the public versus buying debt buying debt makes it all easier and I found even a couple yeah yeah and and even even buying um even even the origination fees that we get and the loan fees that we get for the origination you're talking about half of the loans that come in the pipeline don't close because of one reason or another they fall out of contract rehab's too much they don't have enough money there's a million reasons right um or they're lying and fabricating their documentation which happened before you know I'm like at least be good at PowerPoint and and have the right uh uh you know or or adobe uh you know acrobat and being able to actually make the font the same if you're going to fake your proof of funds you know so uh but you know all those things are so much work and then having to do the servicing on the back end too it's so much work it's not worth the points it's better just to buy the paper you know but but also understanding how do you make sure that that's good paper that that rehab bit is right that those procedures are right that all of those little factors that I mentioned as far as the risks that are obviously crazy concerning if you're not knowing what you're doing um on that site or don't know the detail due diligence on these things that's that has to be looked at you know so and I I don't like going to the public we did it wrong in the beginning where we were like great I'll give somebody 100% purchase and Rehab um up to 70% loan to value because I'm protected on My Equity but then you start finding a bunch of people that don't have any money and don't have any backup money and then they start defaulting and you're going well yeah because I'm targeting the wrong people you know and you want to target the people that are looking at Value in a strategic long-term relationship that have experience not the new people that don't have that or don't have enough cash to be able to put that together right so makes sense exactly so me and Ethan are all for buying this debt paper right that's our Market we want to let we all want to stay in our lanes right and idea of you know letting people originate paper let them stay in their Lane let them originate and we can buy all the paper that you guys create I know we have a lot of engers sub to people rap people silver people listening and going I'm making a ton of money on my you know money up front my points all stuff which is wonderful and that's great we just don't want to do the hassle of having to go find that that asset right one two if you're creating 10 15 a month that's a lot of work oh yeah we capitalize in the situation so you're basically buying your own paper par right because you know the paper being good right correct and you're able to get 12% return right normally we don't buy a par we'll buy close to par um and you know 12% is a good number I know a lot of people are targeting a little bit higher 13 14 would you ever sell any of your notes to someone else for say a 13 yield or because you could buy a 12 there's no point to yeah well so it doesn't really on a short on on a longterm note that kind of strategy makes sense because you're just looking at the discount that you have to you know sell that note for you know and maybe you're profitable in that seller finance note and so you know when you're doing that type of strategy you know maybe you're discounting at a couple points and you're taking a 10% discount on your note value or something to be able to get to that higher rate in that case on a 12month interest only note if I was to sell at 13 I'm just paying you money for originating the note right so it doesn't make sense on a a short-term interest only loan type situation like that because it's and usually a lot of times they pay off in six to eight months because the rehab's done you know and so that we just do 12 months notes like that and then we continue to do more and more of them and and cycle them that way to make our spreads right and so so in that kind of situation it doesn't the only M thing and and I've had this same conversation with a lot of guys like you guys that existing paper because it's a totally different game than this short-term construction debt aspect you're just looking at how do I make my interest rate spreads protect my investors at all costs and make sure that make sure that I'm going to be profitable long term uh with the risk and how much risk I'm actually taking on that versus my profit right so um because I I always protect my investors and whether I have a default or not I'm paying my investors you know so um and I'll just take over the property go flip it go do what I need to do you know every once in a while I'll take a small haircut or something like that because I screwed up on a deal or something but most of the time if we do have to take it back it's like a deed and L they're communicating they're having hard time and I'm like cool we'll put up the rest we'll go finish it and uh and make our profits and you know if you help us with the rehab we'll even you know after we get our money back we'll even give you a piece on the back end you know and you you try to be friendly with as many people as you can on that side you know so interesting so s asked a question are you using DSR DSR dscr loans all business to business is DSR basically right so yeah they're all there no there's no owner occupants here he's doing either rehab loans or some kind of business business bu loan absolutely yeah we're we're doing the rehab the direct renovation loans on one side and then if people want to come to us and refinance on the other side we're doing the debt service coverage ratio loans for rental properties on that side so if they want to refinance off of our 12% money into now seven and a half percent money which you can probably get it down to like 6.75 but it's going to cost you like three points right now to do that it's it's insane and um compared to what it was at least you know not historically um but yeah so so that's that's usually what we're seeing right now but it's at least better than 12% money but it makes a rental property hard to cash flow and so a lot of people are going to short-term rentals now for that strategy as well they juice the cash flows a little bit so so with that being said um I know you said you know longterm do you do anything longer than 12 months or is not even worth it for you um yeah actually I do so a lot of my single families that I have equity in I sell their Finance consistently um I love doing the five 10% down strategy to a homeowner and carrying paper I usually do fiveyear balloons or seven-year balloons as much as possible sometime it depends on what the rate is if I'm at like a 7% or seven and a half or eight% rate to a homeowner I don't really want to hold that paper long term but I'm looking at okay if I same thing if I sold that as a discount to one of my private investors for nine or 10 or something like that and what am I netting out of that deal by doing seller financing on that strategy and usually many times what I'll do is I'll just collateralize my paper at 75% of market value and then keep my equity in the rest and if you look at the Arbitrage on how much Equity I have in the my Note versus the monthly payment that I'm receiving I'm getting a great return on my money on my cash flow usually it's 10 12 15 sometimes 30% on my money depending on how much I'm into it for of my own Capital right and my return on Equity so I do do that quite a bit I love that strategy too it's great so if Nathan and I want to buy your pay paper would you and it defaulted at any time when you bought 12mon paper how would you work it out that like that rehab has to be done me Ethan don't want to do it do you kind of back up and say listen I'll buy it back from you how do you structure that we do all the work so we come in and say okay hey we're going to keep paying you typically uh in that case if it's a giant note or something like that we'll sign over to us yeah so we we would we would assign the note and we still say that retain the servicing and then we would just make an agreement with you that says hey if you want us to foreclose on this property and um and pay the legal to foreclose keep paying you your interest and put up any excess rehab funds and go flip it we'll do that but we keep the profit on the back end you know so um and so that's and but we'll keep paying you and then one and we'll need an extension from you to be able to do that you know if if that's the case if it's not you know if it's been 12 months or something like that and they're not paying off um but that's the worst that usually will happen to one of my investors you know none of my investors have ever lost money on any of my notes with me so um and I have though you know I've lost a million dollars in the past you know so you you once you once you're in the Million Dollar Club then great but I had a contractor steal about a little over $500,000 on projects and um and uh gross negligence and fraud like purposeful fraud where they doctored permits they doctored um doctored receipts fake pictures does anyone see why we don't want to do this all so yeah this is but this is the risk of any any of the flip business you know what I mean like any contractor could have stolen but it cost me a million dollars because um we had to redo everything with the whole properties you know on this and because it was all fake you know he drywalled walls up with no Plumbing electrical done just to show us gave us fake permits of the plumbing electrical and fake pictures of another property that had Plumbing electrical done he put He put uh the you know the 12-in wall tiles that go in the shower right you put wallpaper wall tiles up that were the squares like that that looked like they were regular tile like you literally went to that degree to Def frud it's insane you know so but th this is what makes running a management company running a lending company dealing with contractors I'm like yeah I'm a very optimistic guy but everybody's a crook until I prove otherwise due diligence you know so but yeah we did have some more questions Nathan do you have a question before I go to more questions here I'm just wondering if you're if you're be lending on um just a regular mortgage uh not a flip any states that you would not lend in um well now Louisiana because I think it's it's like a eight-month process um to to do this in um there's certain Illinois is another state California is another state I really don't like um tenant friendly States I want landlord friendly states that I'm going to lend in that have you know the smart business acument you know even though I live in communism in California I I don't invest here you know so um and uh and I'm I'm with Jersey here I'm like where right on the Nevada border can I move that doesn't isn't just desert you know so I'm like yeah I gotta go to Tahoe somewhere and up in that area but um so um but you know yeah they're they're definitely we're really very aware of judicial foreclosure States that're going through that process in the beginning sometimes they're judicial and non-judicial foreclosure States you know and so sometimes certain states are just backed up and you know should have seen the headaches that we had during covid and stuff just with recording documents let alone for closing on stuff and you know like that process right and so um and of course during our lending business during that covid market we were like teaching everybody how to go get their you know disaster relief loans and showing all of them here's how you get your cash and go buy all your materials now so you don't have to supply chain disruptions because it was taking you know weeks and weeks if not months to get appliances in you know so um and it's just lost interest and lost money massively you know there was a question regarding your balloon uh that he heard five to se uh five to seven years of no no um and just for clarity and stay tuned to the end I do have a thing I told Matt before that all note buyers should beware I haven't told Nathan about this yet so stay tuned to the end and make sure I remind me to tell me tell you guys this but from what I was talking to Max earlier five years the minimum that any balloon has to be pass five years so just be so just be notic of the fact that five years for any owner occupant the minimum is five years for a balloon so yeah that that that the dodf Frank stuff and all that kind of stuff is obviously the most important thing in the world so you don't there hasn't been any real case law that I'm aware of uh on this that is really hard-hitting on people you know on this at least according to Max and you know some of our conversations with him uh but uh at the end of the day it's still you know get your paperwork done make sure it's done right you know I'm we're we're actually in the process right now of starting a mobile home debt fund to to collateralize the seller finance debt on new mobile homes going into Parks backed by the park um uh as well that's a big one yeah that's the big key guys whoever buying mobile homes that the fact that the park will actually guarantee the the payments and if it defaults the park will actually pay you the payments yeah you do not want to take back mobile homes so you know you want that Park and and Financial strength of that Park and the financial strength of the and experience of the operator becomes extremely important there as well um you know who are you dealing with now as as the guarantor for that uh and but what's interesting is we're able to struct structure really cool stuff I mean we're usually paying 12% to our investors uh in in that type of structure um but that's you know one other piece of debt that we're doing we're also invalidating consumer credit card debt uh and getting legal fee receivables and collateral ing that at 25 cents on the receivable balance that has a historical collection ratio of 80% and making 30% you know uh over 18 months on our money with and getting it paid back there so there's some this is why I love debt there's like a million different ways it's like what's the collateral you know who am I dealing with and what kind of rate can I make you know what kind of and what's default what I do in the default station right what what do I have to do to take over if that's the case you know so but how much default are you seeing in the business you're in with all the fix and flips and whatnot how much default what ratio so it it was in the beginning when I first got started it had to be 10% which sucked because we were doing it wrong to the wrong people and stuff like that what year was that again um this was like 2007 or 17 when I first started lending money when I stopped needing capital I I'm going to networking events all the time like um I run a nonprofit that teaches Financial education and real estate education called for investors by investors in Southern California uh and uh through that I started gaining all the capital I needed for this and I stopped needing it for my own deals and so I started lending it to some of my really good real estate buddies and stuff like that for their needs um and that's when it was born on that side of things and then I started doing affiliate programs and marketing out there and that's when I was like oh crap let me learn my lessons the hard way you know so on those things realiz what you said you're 10% back then what do you think you at in the last 12 months um so like 1% like or less yeah so it's and and usually if that's the case um if we have a default or something they're usually friendly um and you know we're communicating with them saying how can we help you guys out is there room for potential second you you will you do a deed and L can we do a title search to make sure that you don't have any extra leans on this property because we want to know if we can do a deed in L otherwise if there's a second already then we got to foreclose and what does that process look like so you know it's getting our stuff ready but since saying hey let's be as friendly as we can we want this to work if this borrower just into a bad situation with cash maybe we can find a way to solve it you know and we even hooked up with like a this credit card type company that would give homeowners loans on uh uh on uh properties that they own for renovation jobs for contractors and we had the contractors helping with that aspect of things to get them some extra cash to finish projects it's like how do I not take the risk myself but then help them in that process you know so yeah absolutely well uh I know Nathan is uh joining her his visit with his daughter and school stuff like that Nathan before you ask your final last question I want to let everyone know um yeah I don't know the details yet it's happened I on call with Max earlier um there is a situation that if someone is active military even if deployed or not deployed they can go to their lender and the lender would have to reduce their loan to below 6% while they're deployed or active so just be aware even if your Borrowers a home going to the hospital being a nurse but they're quote unquote active duty somehow or you know activated they can show papers and you have to reduce their loan down 6% I don't know the details yet but just be aware that that is something that just came across my desk within an hour ago so oh that's awesome that's really cool go ahead all right so what do you see so 1% here in the last 12 months have you seen an increase and and where do you see the mark Market going um like I say my concern with the the short term is we saw things change very quickly and I've experienced that myself doing fix and flips in the past how do you how are you hedging against that and what do you see coming so so the first thing is I want to look at each individual market and we look at the data of the market that we're in to understand what's happening in that market and like looking at 2008 for example massive crash that could occur again because they just kicked the can down the road of course right um from the last time and it's just the the amount of debt they they pumped in the economy in my eyes everything is really unstable and I'm looking for Farms where I can go make my own food and stuff like that because I don't know what the heck is gonna happen right I'm I'm a prepper I'll call it right so um at the end of the day um you know I'm I'm definitely concerned about what's going to happen and so I'm if you look at the crash last time it took literally like six years to get from top to bottom you know 10% a year five in year one maybe even 5% in certain markets and during the liquidity crunch which is what my bigger concern is of a crash in the overall Market um and a maybe crash in real estate prices with the lack of inventory right now on the market with a lack of demand because of a lack of affordability we're I don't say think we're necessarily under Supply or under supplied comparatively to demand I think what it seems like is it's pretty even if maybe a little bit more demand than Supply because you're seeing prices still start to rise over a period of time but not crazy right um I think uh a a national average for like 2023 was like 6% or something which is like what you know that's crazy you know but inflation was probably 10 you know at the end of the day too so um uh so looking out for that piece right now if you're holding debt that that debt gets destroyed with inflation of course too which is great um from a property holding standpoint you know um but I'm looking at hey are we being conservative on our Market values when you're analyzing Market values um if it's shortterm like that they're in and out usually quick quickly but if it goes down by 10% in a 12-month period of time which is a crash a major crash if that occurs then um then what is going to where is that property going to be what's the loan to value at that point um and so I've dialed back my loan to values from like 70 to 65 many times unless I know it's a really really experienced operator with a lot of excess cash that could put in a project like that to to protect myself you know um and I'm I'm also you know really looking at the liquidity of that borrower in depth and saying you know where are they at with their cash situation are they sitting on a bunch of cash and they just don't want to use it all they want to have their own reserves um that that piece of it is really important and I'm also looking at markets that didn't have a major volatility in 2008 when everything crashed right um and you know what what what kind of markets go down by a couple percent a year and go up by a couple percent a year a little bit more stable like you know a St Louis or Memphis Tennessee or an Atlanta Georgia that has gone up like crazy lately but you know um to some of the submarkets not necessarily but I'm trying to be very conservative on where um on the volatility of the markets that I'm investing in you know so um and look at where that that is in comparison um I'm also diversifying it at different asset classes and different types of debt too outside of real estate because I'm like that's why I'm investing in debt invalidation because and that that side of things that industry is prone to Boom you know over the next 10 years right so um and so that that side and mobile homes are very recession resistant so I'm investing in those as well not just on the debt side but the equity side too the last deal we picked up we we're adding 52 new units to the park and rehabbing 26 and based on our cost to Value uh and our our income we should be at a 13.8 cap rate at our cost like we put the refinance interest rate at nine to be conservative and then put the exit cap at 8.25 instead of 6.75 which is war Market is as if everything crashed and we're still hitting a 20% irr so I'm looking at the details of each investment I make each loan that I make on this side um I actually like the fact that it's shorter term versus longer term because if I'm locked into a five-year loan and it takes and you're on a downward cycle of 5% a year every year for five years versus 5% in 12 months and then I'm out of that trans action now I can recalibrate my market value on you know uh for that new next loan I want to do and even build in a 5% discount because I want to know where that value is going to be in six months from now or eight months from now not now so I'm looking at three month the last three Monon con you don't want to be the most positive you want if crap happens you're so protected we do with our bid calculators right all the time is that we bid on something we don't predict the best case scenario a lot of people are bidding on stuff they they they expect perform forever and things may sell they may default made all stuff you got to predict the fact that things could be bad and if it goes up that's even just just you know icing on the cake yeah I know I know Nathan has to go I'm gonna do after hours with you guys if you need the replay if any questions the link for Matt is in the uh chat just fill the form out and he'll get the information from you and you'll get an email from us saying uh Matt's information uh Matt it was awesome conversation I'm getting a lot of feedback thanking you for your time and your information thank you guys awesome to learn and um I'm sure you'll be hearing more from you Matt also has his own YouTube channel reach out to him and he'll share all the details you need from that but for now we're GNA disconnect from the public have a great weekend everyone take care.