NIME 7 | Investing In Reperforming Notes

 

Trying to sell re-performing notes that were once delinquent second mortgages in bankruptcy used to have a little audience. However, for Dave Van Horn, these re-performing mortgages were what built his company, PPR Note Co, and he has since taken on the monumental work of teaching other investors about it. Dave shares the full story of how his company came about and where they are moving towards. Giving us a peek into his book, Real Estate Note Investing, Dave walks us through the early stage of getting your feet wet and increasing momentum in the real estate or note space. He also touches on the importance of financing, coaching, and education that he parlays into the Mid-Atlantic Summit for real estate investors in Philadelphia.

Listen to the podcast here:

Dave Van Horn on Re-Performing Notes, A Book, And A Summit

I have the honor to bring on our very special guest, Mr. Dave Van Horn of PPR Note Company. Mr. Van Horn, welcome to the program.

I’m always interested in learning how to do it easier because I think I’ve done everything the hard way. I’m glad I’m on this episode. I’m hoping to learn something here.

I’m in the same bucket because I’m bringing you on and people that are much smarter than me so I can make it easier for myself. I’ve only known the hard way.

You’re not much help to me then.

Normally I like to start the webinar discussing the young investor, the person that started way back when because I’m always fascinated with what that person did in terms of their goal-setting, in terms of their rituals to bring them where they are now. In your case, I’m going to actually start with where you’re at presently. You’re someone that released the book, Real Estate Note Investing, which is a phenomenal read. I learned so much from many different angles and we’re going to touch on that as well as coming out with the MidAtlantic Summit for Real Estate Investors in Philadelphia. You’re fun. Let’s start with PPR and what your company is about. It is a company, as I understood from the book, $100 million in funds of institutional notes. I know you also own a large portfolio of real estate property for yourself. How did the PPR form?

We were investors first, but in reality, it was a timing thing. I used to run a real estate investor networking group that started out with twelve people and it actually grew to be in five states, six cities from Baltimore to New York. We ended up with about 8,000 people in our database and we were all real estate investors. When I first started the group, it was me and an insurance agent and a mortgage guy. I was a realtor and we combined a couple of people together, an accountant, an attorney, a couple of those people and we started with our own network. We built this group and I used to interview speakers that would come to the group.

Someone came from New York and was raising capital for pools of delinquent second mortgages. I didn’t do anything probably for three years, but my partner John did. Right before the downturn, I was a RE/MAX agent. I probably went from selling about 75 houses a year to about seven. My partner, John, was one of my loan officers and real estate is a finance-driven business and at the downturn, there was nothing to do. I was okay financially with my rental portfolio but from a business perspective in real estate, it was pretty dark times for real estate investors. There was no financing and I remember we met for lunch. We were near the Plymouth Meeting Mall and literally mapped it out on a cocktail napkin and it’s funny how the roles we had shifted.

My partner was going to work assets and me and my other buddies were going to raise money. We started out with our own money and we bought a couple of assets. The deal we struck up with the person in New York was, “Show us how to collect on distressed debt and we’ll buy assets from you.” Up until that point, second mortgages were not a big product line or product mix in the marketplace. Second mortgages hadn’t been out all that long and there hadn’t been a downturn where there was a lot of distress period, let alone first or second mortgages and especially seconds. Up until that time, I don’t think there was any previous downturn of junior liens in the marketplace. There was no market for it. It was a weird odd duck at the time.

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When PPR came out, you raised capital and bought these junior liens. You began becoming an expert in the workout phase and getting loan modifications, etc. Did you go from that to starting to sell and operating as a trade desk with PPR?

In the very beginning, we were like anybody else. We started with four loans and we had a grand slam, a home run and two that went awry. If I had only bought the wrong two, we probably wouldn’t be talking right now. Once we got the model working, we were like, “This is great.” We started using more capital and then we started raising some private money but then what was happening was we would buy these delinquent mortgages, get them re-performing and then it was like watching paint dry. It was just, “Payments are coming in, now what?” We didn’t have a way to recapitalize and there wasn’t much of a marketplace for re-performing second mortgages. Even in the very beginning, they were equity second mortgages. We didn’t buy anything without equity initially.

Was that a saving grace? There was no market for buying the re-performers at the time?

No, the saving grace was my partner, Bob, had Donna Bauer’s course on his desk and I picked it up one day and I was flipping through it and I saw this thing on collateral assignments. I took that to my attorney Craig Zappetti and I was like, “Can you clean these up and can we actually do this?” We literally did hundreds of collateral assignments of notes and mortgage because we had no note buyers. Now, we have probably 7,000 note buyers, but back then we had zero. There was no marketplace for this product and we didn’t have a quantity of product. It wasn’t like I could go to a trade desk and say, “Can I sell these for reperforming second liens?” We did have investors because I was good at raising capital from commercial real estate times when I was raising money for other real estate projects.

Raising money for notes was a little bit more challenging because it’s an intangible. Initially, it was a little tougher but the real estate investors did get their mind around it because it’s a mortgage, there’s a property behind it. What we started doing were these collateral assignments where we were borrowing against the note. If you were an investor, you would lend us a certain percentage of money. Usually, I think we capped it at 80%, 85% of the note value. We would get our capital back because remember we bought it nonperforming, we made it performing so we were getting the rehab price. We were getting our capital back and then some and it was tax-free because it was a loan. We were securing you by recording the collateral assignment and note mortgage so there’s a promissory note and there are two documents really. It’s simple.

We were doing so many of them that we actually had to start using a private placement because we were pooling money to pull money to go buy pools. They’re like, “You’re security because you’re doing so many.” We built the whole company that way, off this debt investment backed by our re-performing mortgages initially. What we started doing was teaching. We started teaching a little bit about buying reperforming notes and I’ll never forget it was a monumental amount of work in the beginning. We would take all weekend or a whole Saturday and it would be all three of us and there would be 20 to 30 people in our office. We would hope to get one or two note buyers out of that because picture trying to sell reperforming, one’s delinquent, upside down and second mortgages that are in bankruptcy. There’s not a big audience for that.

One of the first classes we’ve taught, I’ll never forget it, some guy raised his hand and he’s like, “What do you do if they read the thoughts?” We’re like, “What do we do?” That muffled the room and then we were like, “We better come up with something.” That’s when we created our warranty that you see we have now and the warranty enabled us to sell a lot more product. We got a little bit of a premium for the warranty. I think investors felt more comfortable and the next thing you know, we started to build this marketplace. Now, there’s a good number of note buyers out there. I don’t know that we started all of it, but we definitely made a dent in some of that.

NIME 7 | Investing In Reperforming Notes

Real Estate Note Investing: Using Mortgage Notes to Passively and Massively Increase Your Income

Just giving that assurance even at a premium is a good benefit for those that are not active full-time note investors. Like for me, I buy reperformers and I would prefer not having the warranty in place. I’d prefer getting a better yield.

If you’re more familiar with the NPLs, then that’s the way to go. One is, you’re right, we sell notes very quickly, pretty much in minutes. You can’t sell real estate that quickly. We are fortunate that way. It worked out well for us and there are many ways to approach the business but, it worked well for us and that’s what got us off the ground. Once we had students, at one point we were coaching even on the NPL side and we would actually give you a practice note when you took a course with us. It gave you a chance to feel the note, touch the note, call in and ask questions about it. It was a different way to learn. It was a learn-by-doing thing. We did that for a good long time. It had hundreds of students over the years. Over time, it became a lot more compliance. It became more time-consuming and then we grew as a fund. Our vision is to become a billion-dollar fund. Not that we don’t like to teach, we do. We do it in different ways.

Let me ask you, with the hundreds into the thousands of students that you’ve taught over the course of time, how does it feel when you have all the folks that you taught that are still on the scene? I had Deepta here and she gave props to you. I know Bill McCafferty and Fred Moskowitz. I could run down the list and you’ll know many of the names. How does it feel to know that you’ve helped build a career for themselves?

It is rewarding. There’s no doubt about it. Anybody we can help. Even this book that I wrote, it’s not designed for necessarily the NPL note buyer per se. It was geared more towards real estate investors by intention. It’s because they don’t always recognize the note business or they don’t see the value in learning some of those note techniques, which I think are valuable in many aspects of our life. Some of it is autobiographical a little bit about my story, but I used the story to tell the illustrations along the way of lessons learned in the note space overall, generally. To me, the note world is very big, whereas some people look at it as you’re in this nichey delinquent second mortgage space or something. Later or not, we’re primarily in senior liens, but people still think of us as the second lien shop sometimes and that’s okay. We’re still buying a lot of product. The problem with it is if you become a billion-dollar fund, you’re not going to be just in the second lien space for sure.

Let’s take a step back because at least half of the people that are reading this are going to be newbies and some with money and some without money. Let’s take a step back to what your book espouses here and that is you started out, you swung the hammer for many years with the rehabbing in construction and then you started hitting the RIAs. Just walk us through how someone at an earlier stage can get their feet wet and get momentum in the real estate/note space.

Everybody’s different. I was in construction for 22 years. I was thirteen years working for someone else and then actually had my own company for ten years. My eldest son does that now. I think the big thing for me which there are a lot of things I didn’t seem to figure out until I was in my 40s unfortunately. I don’t know what the magic years or decade there was, but it was almost like my philosophy started to change and my outlook started to change. I had gotten hurt, I got out of the one business and started another. There was so much change in my early 40s. Looking back, I could see all the things that I wasn’t aware of or didn’t pay attention to. I could tell you exactly where these regrets were. There were few of them and one of them was I didn’t network very well previous to that.

I had a decent Rolodex of contractors and things and I networked as a realtor but I didn’t network as a real estate investor or as a note investor very well prior to that time period. I was a loner, more of a know-it-all. I know what I’m doing, leave-me-alone type of thing. The only reason I went looking for help was I needed financing. That’s what it came down to. I was saying this to somebody and I’ve often said it to my kids. Financing is this weird thing that you go through life, you either master it and use it as a tool or you sit there and it happens to you. It’s like you don’t realize what’s going on around you.

All these things are happening to most people every day and they don’t realize the impact financing is having on their life, whether it’s through their insurance or their mortgage or their auto loan. All these financing things are happening to us, yet most people don’t understand it very well. They don’t understand how to pay down debt a third of the time. They don’t know how to leverage. They don’t know arbitrage very well. There are all these financing concepts that the average person doesn’t pay attention to. I call it as finance happens to them and they tend to sit there and blame everything. I was similar too that way and then I realized, “No, I can take control of this financing.” Once you master the financing component of things, your world will dramatically change and you can use finance as a tool to accelerate your wealth building and things like that.

I would say reading your book, there’s a whole underlying theme of financing and note investing all throughout. Just touching on Jimmy Napier and how you ran into him and he would have been someone that I would have loved to have met. Robert Allen’s Multiple Streams of Income. What you’re saying now with controlling your finances is all his message. These people that you learned from, the real estate agent that bought investment properties that he started mentoring you, all built you up along the way. What would you say is the most critical thing? I understand you talk a lot about you would have worked with speed more, you would have accelerated yourself more.

With financing, you either master it and use it as a tool or sit there and don't realize what's going on around you. Click To Tweet

I never circled back to that. It’s, “What are you good at? What do you like to do?” It’s almost like the triad of awesome, “What am I good at? What do I make money at? What do I like to do?” Figuring that out and then hiring everybody else to do all the other stuff. It’s also like, “How do you accelerate things and how do you exponentially leverage things?” Even now, I’m in a group out Manhattan called Birthing of Giants. My coach is pounding me, “What can you leverage this year that’s going to take you to another level? Is it people, money, time, technology? What is it? What is this leverage that’s going to catapult you or catapult you in your business or your personal life? What’s going to set you off, really take you off?”

I think a lot of us don’t look to leverage our resources enough. I don’t know if I told this story or not, it was when I was a RE/MAX agent I was selling 75 houses a year to real estate investors and I had all the dots connected. I had the contractors, I had the title, I had this and I’m sitting here and making commissions, looking back going, “I could have bought them all. I could have been buying 75 houses a year.” I have a good buddy in Memphis who is actually coming to the MidAtlantic Summit. He owns 1,500 houses. I’m like, “How did he get there?” Looking at him, I’m like, “I could have done that. I could have been buying 75 houses a year. What was wrong with me?” I’ve been a realtor for several years now. I could own 1,500 houses too but I was thinking small. I wasn’t thinking big. I’m skipping over dollars to pick up pennies. I’m looking at commissions instead of looking at the whole deal at the time and looking back if I had done that, I might not be in the note business. I think there are ways we can exponentially build our wealth and catapult things. Do you know what was holding me back sometimes? It was finance. I was like, “I don’t like hard money rates.”

I didn’t use hard money. I found out later from my good friend who had done his first 39 deals, he owns a couple of hundred houses. He’s like, “My first 39 deals were with a hard money lender.” I’m like, “Why would you do that?” He told me he was making money on the draw. I never heard of that. “What do you mean you’re making money on the draw?” “The next phase was $10,000. I got it done for $6,000. I put $4,000 in my pocket and to take out financing took the whole ten out.” I’m like, “That’s brilliant.” I would have done a million of those deals but I was so focused on the high-interest rate. I wasn’t looking at the whole picture. I didn’t understand the financing at the time.

I didn’t understand making money on the draw. I just discounted it and said, “Hard money has a high rate point. I won’t use it,” yet I could’ve been making $30,000, $50,000 a deal. No, I’m making a $2,000 commission. How dumb was I? You look back and you could have maximized some of these avenues along the way that you didn’t. Not that it’s horrible, I ended up okay. I’m not saying that, but you know what I mean. I wish I had understood things better. One of the things I was trying to accomplish in the book is this overall view of notes in general. He goes, “I don’t know that anybody gives us that 30,000-foot view of what’s going on with financing in the world.” I started out in college taking that course in money and banking.

I was following this cool hippie teacher who gave me a B in everything I took. I was like, “I’m going to take this guy’s course.” I’m trying to be the bank now. I’m trying to basically be disruptive to banks. If you think about what PPR is now, we’re trying to become where you can invest 24 hours a day in a Wall Street asset on your cell phone with no middlemen and no fees. That’s about as disruptive to banking and financial services as you could get, no advisor fees. Is crowdfunding the next step? Is this or that the next step? You can take the note business to a whole other level and we have some great strategies coming ahead and we’re looking forward to.

You key in on the book with the emphasis on education, emphasis on coaching, emphasis on raising capital, all these things that are important for someone new and experienced in the game. How are you parlaying that into the MidAtlantic Summit that you’re going to be hosting?

I was going to tell this story at the beginning of the MidAtlantic is it came from a couple of ideas. One was this open-source concept of real estate investor information and I get that from BiggerPockets. I like that concept. Part of it is that and part of it is pressing the flesh, actually meeting people, connecting with people. I’ve attended a million events over the years and some of them, maybe it’s me, but some of it’s getting tired or it’s the same old thing and I’m like, “No, I want to make this different. I like this concept.” There are three main things. One is open-source real estate information. I like that idea, but I want good information. I want good people. I want the audience to be just as influential, powerful and knowledgeable as the speakers. That’s one piece.

I run a group called Strategic Investor Alliance, which is a high-net-worth-invite-only group. The premise of that group is to share, build and preserve wealth and what we do is we share resources and it’s become a mini-mutual fund of alternative investments and note is just one piece. I want to be diversified too. I can’t invest my retirement in PPR, so I’m always looking for other vehicles as well. I created this group, we share advisors, we share alternative investments and I like some of the advisors and some of the participants so I’m incorporating some of that into the MidAtlantic summit. I’m bringing in my high-net worth group, people and advisers. A lot of our speakers are coming from the high-net worth group down to the MidAtlantic summit. Not that it’s down but to a group of, “I was unaccredited. I want to show people the way to become wealthy, to utilize these three components, education, networking and a mentor or JV partner or somebody to shadow with or whatever that is that catapults you.” That’s two of them, open source and then the SIA, Strategic Investor Alliance concepts.

NIME 7 | Investing In Reperforming Notes

Investing In Reperforming Notes: The way to become wealthy is to utilize these three components – education, networking, and a mentor.

 

The third piece is impact. I’m trying to have an impact that weekend. I am not taking a dime. I’m literally donating the entire event. I’m donating every book sale. I’m donating anything I can. This charity is Project HOME, which is for the homeless in Philly and Detroit. I think what’s neat about this event that’s different is it’s funny how all the guard goes down. That’s a tough sell. Try to sell to a vendor that you have to tell them they can’t sell. There’s no pitching, there’s no selling. By the way, “Do you want a table?” At first I was like, “No one’s going to do this,” and yet we’ve sold out all the vendor spots.

Steve Lloyd is going to do it.

He gets what I’m doing. It’s three things. How do I have an impact? I think it’s just going to be a fun event because everybody’s guard’s down. We’re all there to have fun. We’re all there to have a great time in Philly. It’s going to be a great week.

I look forward to coming. Deepta has opened up her home to my children and me. I don’t know if I wished that on her, but she has done so. Thank you, Deepta. Anyway, when you’re going to and you even touched on this in your book, many of us have gone to the RIAs. Every Wednesday night you hear the speaker, they may be good, they may be bad. They’re offering a Saturday option for the potential upsell and so on. It’s a crapshoot. Do you feel in some respect that you have taken the best of the best in terms of talent, in terms of resources and combine that for the summit?

I don’t think we have much of a guru component to what we’re doing or anything like that. I’m trying to think of most of the people on the agenda are more doers. I was just mentioning my buddy that owns 1,500 houses or whatever. He doesn’t need to sell anything. Steve from Stone Bay doesn’t need to sell anything. I think these people are phenomenal. Even Joe Fairless, he’s probably approaching 300 million in multifamily. This guy is in his 30s. These are some fabulous people that are knocking it out of the park with whatever their expertise is. We’re literally trying to cover as many topics as we can.

I’m actually going through that right now. A lot of the breakout sessions that we’re trying to line up. I’m trying to line up so many, my head is spinning. I think it’s so much value in one place and it saves people time and people can trust the information because there’s no agenda. We all sell stuff. We all have businesses or day jobs or whatever you want to call it. I don’t mean it that way, but this is a different type of event where it’s a sharing-first mentality or value-first mentality. I’m mimicking that off the West Coast. I was introduced to that concept in the Bay Area with Jay Martin and I’m bringing the concept east really. I didn’t invent anything. I’m just this schmuck that thought all these ideas from other people.

You took good ideas and you’re acting on it. You mentioned the football game of life. Can you tell us what that means?

I did financial planning and sold insurance for a little bit. It was mainly to my same audience of clients in the real estate side and they would use that concept sometimes where you have this football game of life between the time you’re 25 to about 65. That’s your working years for most people. When you get out of college, you’re all gung-ho and you’re like, “I’ve got my whole life ahead of me.” By 45 you’re like, “What happened? I got divorced. My business failed.” By the time you’re 55, you’re like, “I don’t have any time left. I’ve got to save up money for retirement.” You see all these different phases.

Every dollar you save in tax is another dollar to invest. Click To Tweet

I think with the football game of life, from being a realtor, a financial planner and an insurance agent, you see all the life events, you see all the distress in the housing market and things like that. You see where people get married, they get divorced, you deal with the states, you deal with nursing homes and you’re dealing with every component of life. What I noticed was some of the biggest mistakes I see people, especially starting out, people who don’t have a lot of money, is a lot of the mistakes are made in housing and they’re made in that first ten years between 25 and 35. A lot of it is like the herd effect. They do what everybody else does. One of the things that helped me in my success because I was just a blue-collar guy and how did I become a multimillionaire?

I look at my siblings, I look at my in-laws and they’re not. It’s like, “What was different? What did they do differently?” A lot of it had to do with things like housing and some of them made more money than me and yet I catapulted past a lot of those folks financially anyway. Not that they’re not happy or anything. I don’t mean it that way, but I think a lot of it is errors in judgment. I am living beyond our means sometimes. We rent more house than we needed or the first house, we didn’t invest intentionally like in our primary residence. Just that one bucket alone could dramatically change your world because most people buy a house, sell it and buy a house, sell it.

By the time they’re 45 to 55 if they’re doing well, the accountant is telling you, “Go get a beach house or go get a duplex.” You do that and your financing terms are different. You already own three of those houses, then you already pay those closing costs, then you already have owner-occupied financing with better terms and rates then the answer’s yes. Plus, you already lived there five years maybe in each house. That’s five years towards a 30-year mortgage and now the tenants buy the rest of that house and you’re writing off all of that. I use this example for people. If me and you were the same guys and we made the same money. You went to work and you lived in your house that you lived in and I’m Dave the real estate investor and we had the same job and I invest my money in real estate property.

What happens over about a 30-year period there is I build this portfolio of the property but the fundamental difference is all your tax dollars went to Uncle Sam, all my tax dollars went to the portfolio. At the end of our working years, I have a portfolio of property that’s probably paid off or close to paid off that Uncle Sam bought me through deductions. You’re like, “I have my house paid off,” and now you’re equity rich and cash poor and I’m doing okay because I’m cashflowing from my properties that are paid off or whatever. I’m using that as a simple example but that’s what happens. You’re able to build that portfolio a lot of it is through the tax savings. For me, that’s what happened to me. I’m not saying you should do that or I’m not a preacher, I’m just saying what happened that was different for me.

One area was saving money in taxes because every dollar you save in tax is another dollar to invest. If you invest intentionally, I call it, with a little bit of purposeful planning. Most people go into their primary residence. They’re not planning it as an investment. They’re not planning their exit. When you buy an investment, you should know your exit. Most people go into a primary residence, they’re like, “I need a place to live and I want to impress my friends,” or whatever that is. They’re not looking at, “Maybe that first townhouse or condo, maybe the payment should be less than rent so I can keep it.” Nobody’s thinking like that normally. I think that it needs to shift. Some people will go, “It’s too late for me.”

It’s not too late for your kids or your grandkids. You could think differently about how you invest in your primary and that’s just one bucket of many that could be a wealth-building technique for you along with saving taxes. The other one was utilizing your equity. I ended up getting a couple of million dollars in equity or using the bank’s money. I started buying houses with credit cards. I was using OPM. That’s really the theory. It’s not so much that I was using credit cards, I was using other people’s money to build my wealth, to buy my properties, to renovate them and that thing. Eventually, I got equity in my portfolio. I started tapping the equity and lending that out or tapping the equity to do another deal. I think that exponential leverage like that when you’re in accumulation mode makes a lot of sense.

The other concept is how do you pay your debt? You can pay down any debt almost in a third of the time through sweep accounts. People miss the boat on that. A sweep account is a concept you learn by the eighth grade. Fourth to eighth grade you could teach a sweep account to someone, but that’s not taught. What is wrong with that? Most Americans especially are straddled with all kinds of debt. In fact probably most people are 60 days away from bankruptcy in a lot of cases if they were to lose their jobs. A lot of this is back to, “Nobody understands.” They don’t realize the repercussions of debt. How to get rid of it, how to accelerate it, good debt versus bad debt, all these concepts are just not taught. It’s funny, I was a business major yet learned them well after college was over which is ironic. How can that be? How can you be an accounting major and not learn any of that?

I was a Philosophy major. I certainly didn’t learn any of it. Here’s the thing, now that people have access to social media and they’re yearning. They know they need to know something about finances. They know they need to make an adjustment. My Facebook group gets dozens of people every day requesting to join because they want to know something, they feel they’re missing something. You talked about the football game of life. Maybe the person who is 25 or 35 can start accumulation mode, but let’s talk about the person that comes to your door or our door at age 60. They need some type of expedited solution for themselves. What do you tell that person?

NIME 7 | Investing In Reperforming Notes

Investing In Reperforming Notes: Once you get passive income, you can control your life, your destiny, and more.

 

To make higher yields, you have to take on a little more work or more risks usually. If you’re doing flips, you can make bigger chunks of money. If you’re buying NPLs and you’re rehabbing notes, you’re going to make bigger hits. You’re taking on a little more risk or a little more work. It’s one or the other. If you’re lazy like me, you don’t want the work. I’m more of a passive guy at my age, but I did a lot of work earlier. I did a lot of the hard work and fix and flips and rehabs at an earlier age and now I look at multiple buckets. It’s what my one buddy always says. He goes, “There really should only be one goal in life. It should be to get as much passive income as quickly as you can by retirement at the latest and as much tax-free as possible.”

He didn’t say what your job should be. He didn’t say what your passion should be. He said that should be your goal. He’s older than me and wiser, but he’s right. That’s not driven home in third grade. That’s your number one focus is because once you get this passive income, you can control your life, your destiny, your traveling or whatever. You can live the life you want because that’s what we all want to be happy. We want to be able to live the life we want. The only way you’re going to get there is passive income. It’s not earned income. We’re sold the earned income path. I don’t know if it’s an industrial revolution idea, but it’s just that’s what we were taught. Go to school, work hard and everything will be okay. It is for some people, especially software engineers but not everybody is a software engineer.

To your point, how do you make up for a lost time? It’s a little more challenging. You’re not going to get there on traditional investments. I look at that model, the traditional 401(k). It’s more of a hope-and-pray strategy, “I don’t like those. I don’t want a net worth in a bank account. You’re worth X. No, I want cashflow that I know I can live off that replaced my income from my day job or whatever that was.” It’s about how do you replace your income is the most important thing. Instead of how do we build your net worth? Both are important, but I’d rather have cashflow than net worth in a lot of cases. I’m not saying always, but you get the idea. People tend to focus on the wrong thing. I think you want all of those.

I’m going to reference Robert Allen because you hit on that well in the book. What does he say in Multiple Streams of Income? He’s like, “Don’t just fill the bucket or the bathtub with water and create additional bathtubs with water but plug the holes.” You have to look at where the outflow is going.

I see people do both. Sometimes they over-focus on plugging holes too. I was always from the school of thought. I’d rather generate more revenue than save. If I had a choice to make more money or save money, I’m more of a make-more-money guy. You can do a little bit of both along the way. I don’t think you want to be over-obsessed with saving money and being paranoid and risk-averse with everything. You’ve got to take some chances to knock it out of the park a little bit. I think you do need to be diversified. Personally, I have multiple buckets and a lot of people make that mistake. I hear them talking to me, “You’re the note guy. You must hate real estate.” I’m like, “You guys are nuts. I have plenty of real estates. I own plenty of stocks and bonds. I own plenty of all kinds of things.” I don’t focus on just one thing. I am well-diverse. I have multiple businesses. I do many things. I think people think that, “You’re the real estate guy and you don’t like notes.” That is nothing further from the truth. There’s more than one way to do it. There’s no right or wrong answer. I’ve never said Martin’s business doesn’t make sense. No. It makes great sense to Martin because that’s what he’s good at and that’s what he knows. Do what you know. Do what you’re good at.

I don’t care if you were a brain surgeon, you want to convert that money into passive streams of income. You’re not going to be able to perform surgery all the time because that business is going to revolve around you. You can’t replace yourself very easily. Some of us can replace ourselves easier than others, but at the same time, we’re still trying to replace earned income with passive income. The sooner that we figure that out and do it, the better off we are. I even have an insurance bucket. I have a qualified plan bucket. I have multiple buckets of assets. I look at everything as assets, different types of assets. I was reading a comment from somebody who was like, “Real estate has more tax advantages than notes.” “No kidding. I’m not telling you to do one or the other, I’m telling you to do both.” I’m managing the whole enchilada. I think people lose sight of that.

Just to clarify or ask you a question based on what you’re saying. The successful Dave right now that I’m talking to, you’re working with a group out of Manhattan that’s going to help you elevate your fund from $100 million to a billion-dollar fund. You’re going to do that by understanding your resources, leveraging all your resources to the maximum and then working from that. Would you give that same advice to someone starting out whether they’re 25 or 65?

Absolutely. My son is in film and he’s in New York. When he first moved to LA, I’m like, “You need to network with people. You need to get educated in the space. You need to find a mentor or somebody like that or a coach,” and it never changes. The only thing that changes is your level of coaching. I’m on probably my third major business coach, but they were on different levels. One, you had to do a certain level of income to have that coach and then when I got to a different level of revenue, I could have another higher-level coach. I’m going to a different level of where I’m at and I can tell by the peers in the group, I feel this big. I’m a little guy in that group because these people are knocking it out of the park. I want to be the dumbest guy in the room. That’s when you know you’re in the right room. When you’re the smartest guy in the room, you’re in the wrong room. You need to change rooms, you need to up your game.

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Let’s bring it to the note space. A lot of people that I engage with that come into the note space, they’ve been rehabbing homes and they’re worn down from the day-to-day grind. They’re on a roller coaster ride. They’re acquiring, flipping and then they’re onto their next deal and then repeating that process. You mentioned in the book, contemplating life as you’re standing in line at the Home Depot. You are already in accumulation mode, you sounded like you were in flow. You had a nice value chain, you had the title company, you were the agent, you were getting commissions on the deals and you also had the rehabbing. You had the value chain down and meanwhile, you’re there on the line at Home Depot. Will the successful Dave Van Horn be the same guy? Do you still go to the Home Depot line and have those thoughts?

It’s extremely rare. It’s funny you say that because a lot of guys can’t put the tools down and one of the things I did was I got rid of my tools. Think about that. That’s a hard thing to do. In my past, I was a painting contractor. There was nothing harder than to get rid of my tools. I even struggle now. I have a Lexus that resembles a pickup truck more than any other Lexus. I can’t get away from that. In fact, they made me get rid of my truck here at work. They’re like “You can’t pick up clients from the airport in that truck.” That was the kind of guy was. I always had trucks. I always had tools. Now, I don’t have any tools. I have to call my oldest son and say, “Can you come over here and help your father out? I don’t have any tools.”

It’s the thing that made me stop doing it. It was the same way with being a realtor. Now, I don’t practice real estate. I gave all my real estate business away. Even the girl that I gave the business to, she’s like, “Why don’t you want to do this?” I’m like, “I don’t have time. It’s not the best use of my time. Your mom helped train me. I want to help you.” That’s what I do. I give it to my old boss’ daughter who does most of my real estate stuff just to help her out. I kept my license. I like my MLS access, but I’m an agent more for tax write-offs than anything else.

It is hard to give up things that were your expertise. That’s the hardest person to hire. If you were a plumber, the hardest thing for you is to hire a plumber because nobody does it as good as you. What I found over the years is if someone can do it 80% as good as you, sometimes that’s good enough. What is the best use of your time and where do you bring the most value to the marketplace? Maybe it’s not standing in a line at Home Depot and maybe it’s not a painting contractor or a property manager. I used to be a property manager. It’s not a super high-paying job. I tweaked it and I actually made pretty good money at that but there’s a better use of my time, especially now.

You also mentioned in the book, “Philosophy for yourself is knowing yourself.” Could you elaborate on that?

A lot of times we don’t know ourselves or we don’t know what we’re good at, especially I was a blue-collar guy. There’s a book, Business Brilliant, by my one coach Lewis Schiff. In that book, they poll blue-collar folks and if you asked them what they were good at, they would list five or ten things. If you were to ask Richard Branson, “What are you good at?” He’s going to tell you one thing, maybe two. He polls people who make over $30 million a year. Those people are only good at one thing. Steve Lloyd’s good at one thing. It’s the same way as me, ask anybody. If you think I’m going to speak French and play golf well and do all this, I’m not your guy. If you need somebody to raise a crapload of capital, I’m your guy. What am I good at? It takes time for us to focus on that. Anytime I’m doing anything but what I’m good at, I’m wasting my time most of the time. Do what you’re best at and that’s knowing yourself. Some of us are afraid of failure. Sometimes we are afraid of success. I know I was afraid of success sometimes.

For the person that comes into the note space and they say it’s easy to come in with high expectations and then feel overwhelmed because of the complexity of the industry. That’s where your fund is probably very popular with people. They can come in and they can invest passively but still feel like they’re in the note game to some extent.

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Business Brilliant: Surprising Lessons from the Greatest Self-Made Business Icons

Whenever I’m meeting anyone, I never try to talk somebody into anything. I never try to talk you into, “You should do this or you should do that,” because everybody is so different. It’s when I meet you, if I met you for the first time, I’d be like, “What type of investor are you? Are you active or passive? What kind of time commitments do you have? What are your goals? What are you trying to do? What is your risk level or tolerance? What turns you on? What do you know about? What do you have knowledge about? What are you familiar with?” Start there and then it’s more of suggestions or what other people have done more so than, “You shouldn’t do this or you should do that or you should do what I did.”

I don’t believe in that because there are plenty of people that made a lot of money that did nothing familiar with what I do. That’s one way to look at it but you’re right. The thing with the note business, it’s like real estate. There are so many ways to make money. In real estate, you could be selling cemetery lots or you could be selling a REIT. That spectrum is just so big. Notes are like that too. I have friends that make plenty of money in commercial notes, unsecured notes, secured notes and auto debt. There are a million ways to make money in the note space. It’s picking one that you like or familiar with and utilize it. Look at my buddy the HVAC contractor. He finances heaters. Look at the dentist in Dallas who’s financing dental work. Think about it, they’re in the note space, but they’re in a space that’s a direct vertical like Robert Allen, Multiple Streams of Income where it’s a channel they understand. It’s something they do currently. They were giving that business away probably.

They bought the heating units at a discount. My best friend is in the HVAC business. He does that. He finances the units and he buys them at wholesale.

There’s nothing that says, “You’re RIA company. You can’t start a finance company to finance his heaters.” You can get creative here. The average person doesn’t think like that. They don’t think of what other verticals in my world can I bring in and get paid multiple times because thinking about it, a lot of times we’re doing the marketing to bring in a client. Why aren’t we getting paid five times? Why are we only getting paid once? It’s because we’re just not thinking about it. We’re not looking at that, but I think it’s a lot of those types of things. It’s how we pay for things too. I hate to say that I don’t pay for much.

You touched on that in the book, student loan debt for your son. You have a note created. They will pay, the same thing you set up with your mother and for passive income.

There are a lot of different things we can do. Some people might go, “I make more money. It’s not worth my time.” That’s great but not everybody is in that position. If you make a zillion dollars a year, you don’t need to worry about, “How do I pay for college for a third of the money or something?” Maybe you don’t have the money and then it becomes more important.

I’ve got a question here. How did you get into mobile home parks?

It was from running my networking groups. That’s an interesting thing. Sometimes how you see people say that corny saying where your network is your net worth or whatever that is. When I ran that networking group, people would reach out to me with investment vehicles that want to come present at the group or that type of thing. One of them was mobile home parks. We had all kinds of stuff. We had everything from condos on a cruise ship to cabins on islands off the Coast of Alaska. We had everything but one of them was mobile home parks, storage centers and they would come to present at the group. I liked what they were investing in. I liked the model. I liked the numbers. I liked the tax advantages of mobile home parks. That’s where I probably first professionally started raising capital for someone. I went to work for that company and was raising capital for them. I was learning how to raise capital at my job.

You obviously did well. You accumulated some mobile home parks. I know you went into some of the challenges with the partnerships.

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There were times throughout all of my careers where things didn’t work out. I’d been in land development deals that didn’t work out and things that don’t work out. I was telling my partners this not too long ago. I go, “We’re going to approach someday if I live long enough where you’re managing billions of dollars in assets.” You couldn’t do that if you didn’t fail along the way at something. You wouldn’t have learned enough. You wouldn’t have been able to get to where you are. I don’t have too many regrets of some of the business ventures I went into because if you didn’t live it and learn it, you wouldn’t be prepared to handle the opportunity that’s in front of you now. Opportunities come our way, but you have to be ready to receive it. If you’re not ready to receive it, the opportunity just goes by. You have to be ready and you have to be experienced. You have to be knowledgeable and all those things or it wouldn’t work out for you. It’s more like fail fast and furious and course correct. It’s not about always making the right decision. It’s about making the decision right.

You mentioned that in your book. Also, what’s interesting is one of the regrets that you pointed out was that you didn’t go to enough networking meetings, real estate clubs and so you feel like maybe you missed out on some opportunity that way. Do you feel like if you could do it again and you would have gone to more meetings, meet more people, you would have received more opportunities?

At one point, I was going to eight meetings a month. It’s a crazy number but it’s like anything, you can get addicted to it or whatever you want to call it. I think some of the best meetings for me are not the meetings in the space that I’m in. It’s in the meetings that it’s not the space that I’m in. I’m actually going to a meeting with fifteen CEOs. Those CEOs are in all different lines of work. Sometimes I learn more there than I do going to maybe a note group or a real estate group. Nothing against the note or real estate group. You should do both a little bit. The other thing is you want to get out of your area and that’s one of the things I like about the MidAtlantic Summit is I’m bringing in a lot of people from other areas and you learn totally different strategies.

The way guys are doing things in the West Coast, Dallas or Chicago are different than the East Coast. A classic example of that is house hacking, Airbnb and things like that. They have totally different setups out there. We have people coming from all over. The farthest is 6,000 miles. Somebody is coming from the Philippines, Alaska and Spain and you get these people with different ideas and you get them in one place whether that’s New York or San Francisco area. You start to get all these new ideas going and you go home and you’re like, “I can’t wait to do something different.” It’s one thing to get the ideas and then you’ve got to implement them. That’s the hard part.

I’ve got one last question here. What are some of your daily rituals?

I get up early typically at 5:30 to 6:00. I usually get up, I work out, I read and some of it is meditative in a way. I do writing in the morning a lot of times. Reading, writing, all that type of stuff. I usually drink a shake, mostly veggies. It’s not very interesting. I like coffee and then I’m usually off to work. I just moved and I’m four minutes from the office, which is probably a good and bad thing. I love what I do and I love what I’m building here. I’m passionate about what we’re building and it’s exciting. We’re at exciting times here and we’re experiencing a lot of growth and it’s exciting.

Thank you very much for joining us here, Mr. Dave Van Horn.

It’s my pleasure. I look forward to meeting you.

Thank you, everyone. God bless.

Take care.

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About Dave Van Horn

NIME 7 | Investing In Reperforming NotesDavid Van Horn serves as President and CEO of the Company. His chief responsibilities include the oversight of the Company’s strategic planning, business development, and fundraising functions. Mr. Van Horn’s expertise is derived from over 30 years of residential and commercial real estate experience as a licensed Pennsylvania Realtor, investor, title company partner, and commercial fundraiser.

Mr. Van Horn is a graduate of West Chester University, holding a Bachelor’s of Science degree in Business Management. In addition to his role as President and CEO, Dave’s biggest passion is teaching others how to build and preserve wealth. Dave is a co-founder and board member of Strategic Investor Alliance, a purposeful planning and networking group for accredited investors in the Philadelphia area. Dave is also a national speaker, author, and investment blogger on BiggerPockets.com.