Note investment becomes more complex if you have no team to help you with your growing business. Deepta Hiremath, a realtor and notary signing agent, teaches us about how to make more money from note investing. She shares how she got involved in the note business, how she made her way through its ins and outs, and how she understands the values of properties that she is investing in. She identifies the three buckets a problem falls through – health, job, and love – and how we can harmonize the three and find business success.
Listen to the podcast here:
How To Make More Money From Note Investing with Deepta Hiremath
I am honored to have with me Deepta Hiremath. Welcome.
Thank you. Hopefully, this will take your business to the next level.
I have to say that you are one of the first people that I ran into in the note space at a conference in 2013 by the Philadelphia Airport. It was a Nick Tan event. You were very gracious and you spent well over an hour just talking to someone who was new and you never knew if it would materialize to anything. I think that what I got from that between your expert knowledge and your passion for the business is you also had a good heart. You look to help people understand this industry you’re passionate about.
I always look to help people because it grows your business in so many ways. Sometimes I work for free and it pays me 100 times more because I would have done something for free and then it becomes a partnership and then we do deals together. Never underestimate the value of helping someone and always be humble. That is my philosophy that Martin knows and just whatever it is, be humble. Be on Facebook but be a private person. We are in the note collection business. Don’t go and show that you are collecting all this money and you’re rich and things like that. These are lawsuits we need to have. Be private but be known in your field. We are a very close-knit field. Everybody knows each other. It’s not like a million people out there. Everybody knows each other. Everybody knows everybody’s business. Be careful.
That’s very good words of wisdom. There are a lot of folks that are in the note space that whether they’re pressured to bring money in the door, passive money in the door to do deals or what have you, but they feel compelled to go and just put out there on the street all the lucrative deals that they’re doing. I know that you’ve always maintained a low-key persona. However, this is for everyone there in the Facebook group. If you ever meet Deepta on a one-on-one and chat it up at a conference or what have you or over the phone, I can tell you that she’s doing real deals that are very lucrative. She’s not going to be out there on Facebook promoting that.
The reason I don’t promote is that I have borrowers who are also friends of mine on Facebook. The reason I do that is that I sneak up on them. I want to know what they’re doing, finding out if I’m getting my payments. Nothing like I’m stalking them or something. A lot of them want to be my friend.
Let’s touch on that and I do want to get the history of your company and when you first started. You bring an interesting point up that a lot of folks in this space feel like there’s this great divide between the note investor and the borrower. However, what you’re talking about is when you bridge that gap and you come to an understanding with the borrower with the solution that’s going to help them, it actually materializes into friendship on Facebook.
Not only it materializes into friendship on Facebook, but it also materializes as a friendship on LinkedIn. I get messages all the time saying, “I’m so thankful that you did this for us and we saved our house and you’re allowing us to live in there.” It’s a nice relationship if the borrower appreciates what you’re doing for them.
The bottom line is if they appreciate what you’re doing for them, what’s the ultimate show of that?
The ultimate show is either a payoff or an unlimited stream of income. That’s all. That’s what you want. You want multiple streams of income. That’s right. That’s my mantra. From real estate, from notes, from unsecured debt, there are a million ways of making money. You just have to figure it out.
What’s fascinating with you is that every time I talk to you, you have this new deal that you’re making lemonade from. It blows me away with our talks in Florida. Tell us your first note. What got you in the business?
It started years ago and I have to shout out to PPR. They taught me this business. I used to go to a small subgroup in Marion, Pennsylvania. I met Dave Van Horn and I would tell him about all of these real estate deals and how I spend so much time in Home Depot. He would knock me and say, “You knucklehead, why are you going to Home Depot? That’s not your job.” As Mr. Martin showed me with the super key, that’s the person I was with my keys and my ring going to Home Depot. He said, “Why are you doing this? You’re not supposed to do this.” That’s when he started talking about notes and I thought it was too good to be true. I said, “Seconds? Are you sure you can make money? Really?” He’s like, “Yes.” I’m like, “This looks like a scam.” After a while I’m like, “Okay.” I am trained as an engineer. I have a Master’s in Computer Science and it got me intriguing. I started thinking, “This looks like a problem-solving deal.” I signed up for the course, I went through the course.
I also had quite a bit of experience as a short sale person. I will be on top of myself. I knew how it was on the short sale side, but I had done a lot of short sales myself. I come from a real estate background. Houses interest me, apartments interest me. All those things interest me because I know there’s a piece of land somewhere with my name on it. That’s what I like about it. When I started learning about this business, I said, “The land is not that important. It’s the paper that’s important.” That’s how I started. I’m like, “How do I use my engineering background to figure this out?” I’ve been on the other side of the table where I’ve been working with borrowers. I’ve been writing hardship letters, I’ve been writing affidavits, sending bank statements when we made a short sale. I’m like, “Now I can be the bank myself. Why do I need to do all this stuff and all this work for $5,000, $10,000? It makes no sense.” The banks at the end of the day also squeeze you because if they say, “No, this is what our bank allows, only 4% for the short sale.”
I’m like, “Why can’t I be the bank?” It was a revelation. I’m like, “What do I do next?” That’s when I bought a whole pool of notes. Please do not buy a note and do not evaluate this as a one-note deal. It’s always a bunch of notes and then evaluate how the pool is doing. Even if it’s a first market where it’s $100,000 house and you have $30,000 to invest, then you should not be investing in the first mortgage note because you will lose. If you lose money, then you will never invest again. Always invest in the pool. The first note that happened, it’s a funny story. This was a New Mexico note. I know better now that the person who lived there was about 70 years old. I don’t buy notes where people are too old because they are in fixed income and things like that. It’s hard to save a house. He called me on the phone and he said, “I think you’re working at a call center in some place in India and you probably make $5 an hour. You need to prove to me that you were born here before I can pay you money.” I’ve been ashamed of my accent, Martin, for a long time. I thought that I should change and become American and things like that.There are a million ways to make money from real estate, notes, and unsecured debt. You just have to figure it out. Click To Tweet
Now I realize that my accent is my asset. That should be an asset. All you immigrants out there, all you women out there, believe me, your accent is your asset. I want them to think that I’m paid $5 an hour and my boss is out there. He’s like, “You send me your birth certificate so you can prove to me.” I’m like, “I’m not born here. I’m telling you, but you owe the money. That’s what I’m saying. If you don’t want to do that, that’s okay. We’ll just proceed.” We proceeded through the case. The sheriff showed up. That’s when we went to the whole hall in New Mexico. Finally, the sheriff showed up and that’s when all hell broke loose. He had his daughter-in-law negotiate with me because he told people he couldn’t negotiate with someone who was born in another country. We got work outdone. It was a small note. It was about $16,000. I still get paid about $250 a month. That was the first win that took place. We had to go through the whole foreclosure process.
There are some notes where I did send a demand letter and magically they start paying. There’s somewhere you have to go through the whole process and it’s like an ostrich, it has its head stuck in the sand or its head is up there. I don’t know how deep you are in that hole that you are in and until you come out, I have to keep proceeding with the legal process. The legal process is key. Please buy notes and budget for legal because when you don’t, that’s when a lot of people come to me and say, “I bought this pool of notes, we don’t have money for legal.” I’m like, “I’ll take care of it. Let’s JV,” or something of that sort and never get burnt out. I have a lot of notes I bought from people who bid too high on notes and didn’t know what they were doing. It’s very important that you understand what you’re doing. Real estate notes are exactly like real estate. The value of the property is of supreme importance. Please don’t let anybody tell you it’s any different.
The value of the property and what the owner thinks the value of the property has to match. Sometimes it happens that where the property is valued at $200,000, but the owner thinks it’s $300,000. That’s okay. When a property that’s worth $200,000 and they owe $300,000 and they know that it’s only worth $200,000 is what would align you in trouble. Value is of supreme importance. The more equity you have in the second position, nobody can strip you in bankruptcy. Believe me, I’ve gone through a lot of bankruptcies. I know how that works. Nobody can get inside the mind of a borrower, but best to reevaluate the risks. You will make mistakes. You have to make mistakes in this business and you’ve got to figure out, “How can I make lemonade?” I have many stories to tell you where I made mistakes and I thought I would never get myself out but I did. It’s funny but those things happen, but then you have to get a little more creative and figure out exactly what to do at that point. How can I salvage the situation?
I would add on when I do due diligence, I’m looking at the property for the first round, but then I delve into the borrower’s profile as well. I know to me that’s more important than the property. Either way, I think both need equal focus, equal emphasis.
The first thing I look at, let’s say I get a tape from somebody. I do this all the time. I get a small table, let’s start with the small table. I find loans. I first look at the property. I figure out, “What’s the minimum price on this property?” I figure out what’s the first one. If I’m buying a second lien, I figure out what the first is worth. That’s highly important. I need to figure out the balance in the first. I need to start looking in the borrower a little bit more, figure out if they’ve ever had bankruptcies in their record. My philosophy is a tooth is always a tooth. If you run that bankruptcy route, I know that’s what’s coming up and it’s going to be an expensive foreclosure. The next thing I look at is your age. If you are on a fixed income or things like that, it’s hard to squeeze blood out of stone. It is really hard. They could be an investor and sometimes it’s good, sometimes it’s bad because investors are highly leveraged. When they leverage, there’s nothing you can get out of it and you declare bankruptcy or something, Chapter 7 or you might tell to get lost and say, “I have nothing to do with the property.”
It’s a different mindset. I love people who have steady jobs, who work for the government or an engineer or doctor, attorney. Attorneys, I take that back. I had one with an attorney, a foreclosure, an attorney nevertheless. You have to be careful with attorneys. Generally engineers, doctors, teachers, government officials are all good people. I don’t have an issue with them. Ideally, in their 40s and 50s are a safe bet, you might say on them.
I had a foreclosure attorney note in Florida and the person used their friend to pro-bono to stall me out with a bunch of tactics. I ended up flipping the note as a non-performer and I probably lost $3,000, $4,000, but the best $3,000, $4,000 I could have ever lost. You do lose on some notes. That’s what you have to factor in. To your point, you have to be able to have some foresight in this business. You have to say, “I have X amount of capital. I have to have Y in reserves for the workout. I need to have patience so I can buy with a nice flow,” because everything I think is about flow.
Please, it’s a get-rich-slow scheme. If somebody wants to get rich quick, this is not the business for you, absolutely not. Walk on the pool of notes, work diligently at it, you will get streams of income. The bottom line is I want to wake up in the morning and know there’s money in the bank. I work like crazy. I work 80 hours a week. If money’s in the bank, then I have complete freedom to do what I want and enjoy what I’m doing. If I’m looking to see where my next paycheck is coming, like my tenants, that’s not a good situation to be in.
One thing that’s always intrigued me about you is that you have this foundation with buying seconds and creating loan modifications from them. You’re an all-around cashflow buyer. You’re not going to limit yourself to what you’re an expert in. What would your recommendation be? I know you have something to say on that, but what would your recommendation be to someone starting out? Should they learn to be a first player or a second player and hone those skills before venturing out to another cashflow opportunity?
What I say is I started in the second space and I’m thankful I started in the second space. The reason I’m thankful is this. You can lose your shirt on the first because if it’s $100,000 property and you bought it wrong and you’ve paid $100,000 for it when it’s only one $60,000, you lost $70,000 or whatever it’s worth. Let’s say it’s worth $30,000. It’s a piece of crap place in Michigan or someplace, or Detroit, whatever. You had no idea about value when you bought this. This whole place is abandoned. There are druggies living there and all the copper stolen, that’s not the right situation to be in. In the second space, that same $100,000 you invested, it would be $500,000 house typically where you had a $400,000 first and $100,000 second or something of that sort. A better standard of the client is if somebody does afford a $500,000 house. They are professional typically. All the things in life, I categorize them as three buckets of basically when I talk. It’s health, either you had an illness or some disease or you died and then there is wealth, which is job loss or reduction in income. The last thing is love, divorce or something. It’s health, wealth and love. Those are the three buckets all problems fall into. You keep figuring out what is the problem, which bucket does this fall into? You have the solution.
Typically, my workouts take about half-an-hour to do because both our minds are at the same level because they want to receive, I want to give. It’s a simple workout. What do you make? What are your expenses? Lots of times I’m like, “You have only this much disposable income to pay your mortgage. This is not going to work.” Let’s say it’s $100,000 home and the second mortgage is about $300. After paying the first, they have only $200 or $100. Typically, I won’t take all the $200. I want them to have some reserves. I’ll say, “You can only afford $100 a month. You cannot afford the $200 even though on paper it’s $200.” What about emergencies? What about the fact that your car might break down? Things like that. Sometimes they say, “We didn’t tell you that our son works part-time,” things like that. You have a dialogue and then figure out if you want this person to stay and then it’s a very simple thing to do and send the documents, get it signed and then sign up with the servicer and then you’re done. That’s pretty much how this whole business works.
What’s interesting is I would say a bulk of our conversation here focuses on due diligence and workouts. When we started talking about the cashflow, you go right into the workout and to how you’re going to help that borrower get back on their feet to create cashflow and opportunity for yourself. I think that part gets overlooked sometimes. Everyone’s in the heat of the moment they want to lock in the deal. They want to lock in the partnerships and bring the money in and all that. To you, that’s secondary.
Please remember, everybody, it’s not about you. Lots of people come to me and say, “I want this. I paid.” Several times, I’m going to repeat it’s not about you. It’s about the borrower. He’s the one who’s going to pay. It’s so important.
When you start building momentum with Dave Van Horn and PPR, you start taking down notes. How does that evolve into where you are now?The more equity you have in second position, nobody can strip you in bankruptcy. Click To Tweet
As we started taking down notes, then I got into situations, I figured it out myself. I started learning. As PPR spread, as prices started increasing, I’m like, “I don’t think I want to pay this much money.” A lot of newbies came in and they kept paying all sorts of crazy prices that I’ve never heard of. A lot of those newbies ultimately sold me their notes. That’s a different matter. I said, “What is that I could do as cashflow? What is that we can do?” I started looking, I listened to Scott Carson and I started calling banks. I bought some notes directly from banks. The fun part of it is that these small banks had no clue how to make a note sale agreement. I spent quite a bit of time writing a note sale agreement for a bank that had no clue. Of course, it was very buyer-friendly and they notice that right away and this struck out a few sentences. They do have a good buyer-friendly note sale agreement. If anybody wants it, they can have it. It has all sorts of liabilities for the seller. We started working banks.
I’m a salesperson actually. Most of the notes are about sales, getting the deal. It’s not about the work. It’s like in real estate where a lot of work has been finding the right house. After that, it’s contractors, rehabbers and all that stuff. That’s all the mechanics of this stuff. Once you have a really good deal, you know that those guys, if you manage them right, they’ll work on time and they’ll give you a product that you can confidently sell in the market for the week or a month and you move on and roll your money in. The deal is the biggest thing as any better real estate to make money when you buy. You have to call people. This is one thing that I’ve noticed people don’t do consistently is to call people, network with people, to use LinkedIn. I pay $1,000 or something. I pay and I’m like, “I can send an InMail to anybody. The CEO from Bank of America if I wanted to because I have LinkedIn Premium.” All these people, please never get intimidated with who you’re talking to. They’re also people and he can be a CEO of a big bank. Who cares? He has a problem. You have a solution. He has some bad loans he wants to get rid of, you are the person to buy it. There is no question. I always think I’m the CEO of my company, so what does it matter? It’s between CEOs.
What’s interesting is that your story starts with an institutional seller PPR. Yet as the market shifted, you go and branch out to making lemonade. You go and branch out to your peers or your ex-peers, in this regard, burned-out note investors, or you go to local banks and you figure out where the deals are.
Don’t be scared of buying from brokers. They might have a good deal that they’ve been trying to sell and I do that all the time. I’m like, “This is not the price I want to pay for the pool, but I’ll call you back in a few months and if you haven’t sold it, we’ll talk.” I like to buy pools. I don’t like to buy one or two because I’d get an excellent deal on the pool and all the stuff that I don’t want, I can always get rid of that stuff. There are people out there who will buy all sorts of crazy stuff. Even I am one of those people who buy crazy stuff. I bought a bunch of car loans where I have certain criteria. It’s cashflow issues. I have certain criteria is where I buy car loans that are luxury cars and the borrower has to be between 30 and 50. He has to have a certain profile like he’s a doctor or something. Those are the loans I would buy. You have to find that sweet spot that makes sense. I’ll always dip my foot in the water, see what works, what doesn’t and go from there. I buy five loans and see how that goes. I buy unsecured all the time. I’m a member of a lending club. I have 30,000 loans there. Each loan is $25 so I lose some, I win some. I think it’s 11% return or something on my money. I’ve started at $25,000 that I thought was fun. It’s like gambling money, figuring out what makes sense and what doesn’t. There are different ways of making money.
As a point of clarity, because there are a lot of folks that are reading this and they’re going to be on the newer side. I assume you’re in agreement that they should figure out their focus and their parameters and learn to be an expert in that area first and then they can branch off into unsecured car loans.
You need to find what you’re comfortable with and what you understand because I can have an amazing deal, but if you don’t understand what I’m doing, it doesn’t make any sense to you. You’ve got to understand, maybe you want to work with someone who understands what you’re doing, and this happens all the time. Maybe you bring in money to purchase the note and you have someone else who has money to do legal. You get together. You work through it and then you learn a few lessons then you figure out, “This is what went wrong.” It’s working with people business, whether you’re doing it with borrowers or you’re doing it with partners or something, it’s all about the people. As long as you’re honest and you communicate well with whoever you’re communicating, whether it’s your attorney, your borrower or your partner, you will be in good shape.
You and I have transacted a half dozen times. I can have you on and vouch for you and I hope that you feel the same with me. I want to go back to your evolution, your progression in the note space. You go and you create this fund that you now operate from.
A fund, taking other people’s money is a dicey business. Please be careful with that. I am more careful with other people’s money than I am with my own money. I lose a few dollars, it’s okay. I can’t lose the funds money. Please don’t do it. The SEC will come to hunt down hard on you and you don’t want to be an orange. Orange is my most hated color. Don’t do this. I’ve watched American Greed. If you ever watched it, I binge watch that thing. I’m amazed at how people can raise that money and not do anything with it. Be careful and please follow all the laws that come with it. You have to hire an attorney. You have to file SEC regulations. Every state you’re invested in, you have to make sure you do blue sky filings in every state. They want a piece of the pie. Have a plan because these people need to get paid. They’re giving you the money, not for free. They want to get paid. Make good with them, whatever it is. You’re giving them 2% or 5% or whatever, give it to them every month or whatever it is, every quarter or whatever. You can’t be lax with your borrowers and get them all angry with your plan B investors. Do the right thing. Find the notes. You can run a fund as a nonperforming note fund where you say, “Every time I work out, we split the profit or you can do it as a performing fund.”
I only have performing funds because my plan B investors want a cashflow like me. Most of them are engineers and doctors where they have a lot of money and instead of putting in the stock market, they want to put it in a place where they get a 10% return. A lot of them tell me, “Keep the money.” I’m like, “No, I’m not interested in keeping the money. This is going to be a headache for me.” Let’s say you missed $100,000 and I gave you a 10% return. That’s $843.32 a month. If I have to take that money and reinvest it, it’s a nightmare for my accountant. It’s a nightmare for me because I’m not getting a note for $833. It doesn’t make sense. I’m like, “Keep the money.” My fund is the minimum investment, which is $25,000. “Keep that $833, you get it to $25,000. Send me a check. That’s easy for me to account for. This is a nightmare.”
What’s interesting in what you’re saying is folks create funds and it’s almost like a two-part sales effort. You have to go and sell passive money to come to you and then you also have to sell for new deals, pound the pavement, call banks. Would you say that your strategy has been more of pounding the payment to find new deals and let the money come to you as a result?
You don’t chase money. I’m of the philosophy I don’t chase money. There are people who come and give me money. That’s the funny part of it. They’re like, “We totally trust in you.” I am not opposed to hiring someone to chase the money. I’d rather have somebody come with the money and he could vouch for me or she can vouch for me and say, “This is a person that’s well-known. She’s done all these deals. I think this is a good use of your money.” Raising money is a full-time job in itself. It’s not fun. You have to make all these trips and people don’t part with the money easily. Believe me. It takes a while. They have to know you too. They just can’t give you money. Hire somebody if you have to, pay them a few bucks if you have to, but have that taken care of so that you concentrate on your deals, your business, your core assets and your strengths. It’s really important to concentrate on those core competencies that you have. The competencies that I have, I have to call the banks and the other competency I have is to do the workout. Why would I waste my time doing all the other things that I shouldn’t be doing?
You’re taking your time structuring the fund correctly with, through legal SEC people and spending the money to have it set up correctly.
I’m good at negotiating, so I negotiate my attorneys like you wouldn’t believe. I spend a lot of time saying, “I’m not paying you $50,000 to write a private placement. I already have the document, you just have to review it. Give me an hourly rate and that’s what I’m going to pay you.” I don’t like the fact that the attorneys charge for absolutely no reason. I spend a lot of time looking at invoices every month to figure out what is valid. The number of mistakes I found is crazy. People who work on cases that they were not supposed to work on, close the file but still bill people who sold from some other person and there’s the wrong bill. Spend a lot of time figuring out all of these invoices, making sure your money’s well-spent. Lots of times, attorneys will give you advice that is not correct. I always tell them, “Do not give me business advice. I’m only into some legal advice. Let me know you can do this. Don’t tell me what I should do because that’s not that expertise.” They shouldn’t be advising you on these things.
Especially if they’ve never invested in a note themselves. Where do you find the banks that you call on?Raising money is a full time job in itself. It's not fun. Click To Tweet
There are several places. You can go to Lane Guide where you can go and it’s a very simple piece of software. Martin, if you want, we can have a session where I can show you how Lane Guide works. It’s a paid subscription. It’s very cheap. It’s about $200 or something a year. You just go there and you have a few criteria and you say, “Who are the lenders in what state?” You pick a state, you pick what lender you want. There are all the lenders in the world like car dealerships, car lenders and things. You pick that up basically first mortgage lenders, you pick second mortgage lenders and you say, “I want only institutions.” There are private lenders. For instance, Martin could be a private lender. He could have a home in Virginia and he could be a private lender, but that’s not the person I’m interested in. I’m only interested in institutions. There were 9,000 banks in the US. I think I’ve called about 5,000 of them already. There are banks on these credit unions. I called all the banks in the US. I know that for sure.
I’ve started calling credit unions too. Some people say don’t call them, but they’re equal into a bank. They also might have bad loans. It doesn’t hurt and it’s a three-step process. You have to call them, email them if you can, and also LinkedIn with them. Periodically send them mail follow up, see if there’s anything, make notes. Lots of times they’ll say, “We are facing a module in a few months.” It would be a different bank that would make that note. Call them in a few months and find out how they’re doing. If there’s a module, anything works, some notes that were left over from the previous bank, why not? Why not buy those things? Always keep looking.
This was a story you told me. This was the mobile home in Mississippi. Give us the rundown on that.
This is Vicksburg, Mississippi. I don’t know where it is on the map. I had to look it up. Ocwen is my neighbor in Pennsylvania. They’re very close by. They’re about ten, fifteen minutes away. I made a connection with the guy, the loss mitigation. He handles the loss mitigation department in Ocwen. He sent me a whole bunch of tapes and bought about four loans. They were cheap loans. They were about $1,000 or something silly. He said, “Can you deposit the money in Wells Fargo?” I went there and deposited the money, showed him the stuff and the collateral came. The collateral was in Florida or something. There were some Indian guys who were handling the collateral and they sent me all this stuff and I’m like, “I’m not interested, just send me the note and mark it. It’s all I care about.” This Vicksburg, Mississippi note, it was a mobile home and I paid $1,000 for it.
We started foreclosing and we had an attorney do all the foreclosure. I said, “If we foreclose now, I’ll put up the ad on Craigslist and say cheap mobile home for rent. Fixer-upper. $250 a month for it.” Believe it or not, my phone rang off the hook. I had 60 calls in the first three hours. I said, “You guys go and see it. I have no idea where it is.” People asked me for directions and I’m like, “I have no idea. Figure it out.” They go there and they’re like, “There’s no house there. There’s just a piece of land.” I’m like, “What happened to this house?”
One of them had an iPhone and they showed me there’s a piece of land there and they’re like, “There’s no mailbox here. There’s nothing. I see this number. This middle piece of land is yours.” I called the attorney up and I said, “Can you verify if there’s a mobile home on this lot that we foreclosed on?” He’s like, “Let me check.” He calls the city up and the city tore it down because it was in such bad shape. It had so many violations on it. I’m then thinking, “What do I do with this? What do I do with a piece of land in Vicksburg? It doesn’t make any sense. Let me call a few bunches of these manufacturers, mobile home manufacturers. Let’s see what the deal is here.” I was thinking out of the box and called a few bunches.
I wanted a four-bedroom, two-bath mobile home. That was important to me because then I get a better-quality tenant. I looked at a whole bunch of this brand-new mobile home in Vicksburg for some reason at possible $60,000 to $70,000. I said, “Do you have any refurbished homes?” “We have refurbished homes.” “What are they?” “They’re about $30,000.” “Put one up.” They were ready to offer me financing. I’m like, “$30,000 doesn’t make any sense. At 6.5%, it’s crazy. Put up the house. Once you put it up there, I’ll send you half. Once you connect all the utilities, I’ll send you the rest.”
I also managed to get a 90-day warranty so that once a tenant moves in, all the utilities and things like that, they work correctly. The air conditioner works, the fridge works and things like that. They put it up. I advertise on Craigslist. I had a whole bunch of people, it was like $700 a month and I collected last in security and the guy works for a poultry chicken in Mississippi and supposedly they don’t have any big bags in Vicksburg for some reason. He sends me at Western Union every month and I have to walk, pick it up at my local grocery store, which is a pain. You’ve got to do what you got to do to collect that money. That’s how we made lemonade at that point.
What’s the end game on that?
I’m going to wait until I make my $30,000 back and then I want to do a rent-to-own of some kind and maybe sell it at the rent-to-own price of $40,000 or something and see if somebody can qualify for it. Most of these low-end homes, it’s hard for people to qualify and it doesn’t feel right to take their money and not give them the house at the end. It’s not right because they don’t qualify and you know they’ll never own this property. Let the people who do this as a living, they rent to own and they have four buyers. Each one gives them $2,000, $3,000. They get to keep it and they keep moving on. It all depends. It’s not a bad deal. It’s okay.
How long have you been buying notes and do you this full-time?
I’ve been buying notes for several years. I don’t do this full-time. Notes are one of my businesses. I am an engineer by profession. I consult with other people. I do a lot of architecture for big healthcare companies. I’m a realtor and I also manage a lot of property, my own properties, some for other people too.
Do you own a set of keys like I do?
I do. I also have these notes and I know I’m managing a property in Clinton, Mississippi. The guy, the contractor, is the one who’s handling the job, but I’m managing him here. He buys supplies and he calls me from Home Depot. I pay for them and things like that.When you look at success, you're looking at the tip of the iceberg. You don't know what's happening underneath. Click To Tweet
When you call on the banks, do you ask what notes they have available for sale?
This is how it typically works with the bank. Never ask for any of the PRs on the bank. Loss mitigation is not a place you want to go to. You talk to the CEO or the chief lending officer, nobody else. Absolutely no one else wants to help you. They don’t know how the bank is doing. The loss mitigation guy, he has no loans, but the bank or the CEO might be getting pressure from the board saying, “What are you guys doing? Your loss mitigation is not working. Can we get rid of this because the balance sheet looks bad?” Always go to the highest place that you can. I typically call the CEO or the chief lending officer and say, “What do you have?” If I can’t reach him, I say, “I’m so and so from this company.” Typically, I say I buy bad debt or charge offs. They understand charge offs. They do not understand bad loans because anything can be a bad loan. What does that mean? Bad debt or charge offs, I always tell them, “It’s come up, I buy charge offs, commercial or residential, first or second. If you have any in your portfolio, please give me a call back at my number.”
If I can get an email by sweet-talking the attendant, I will get that. Lots of times, once I get them on the phone, sometimes I’ll ask them. They say they don’t have anything, but I ask them very politely if I can take the email so that if they have something, I’ll be in touch. If they give me that email, I will take down the email. There are other ways of finding their email. It’s not that complicated now nowadays. Go LinkedIn with them. If I get an email from you before I LinkedIn, I’ll send a different message. Once I make that connection, I’ll send you a different message saying, “Thank you for connecting with me on LinkedIn,” and things like that. It’s three different touches at some point. This calling doesn’t stop. My first round took me a couple of years to get to 5,000 banks. I’ve already started my second round already and I’m going to keep calling until I can call all. Please don’t outsource this calling. It won’t work. The reason why it won’t work is that you are a CEO and there are things, if you call somebody, you need to talk to. If you’re talking to the CEO of a bank, I would want that personal touch. I don’t want somebody in the Philippines calling some CEO of some company here. That’s what I think. Maybe it can be done, but I don’t want to do it.
This sounds like a lot of work.
Everything’s a lot of work. Money never came easy unless you are born into money.
I think that’s good food for thought. We started the discussion talking about due diligence and then go into the workouts, which is where you squeeze the juice and get the payments flowing. Everything starts by picking up the phone and pounding the pavement.
It’s like real estate. How do you find deals with real estate? You can’t just sit at MLS or whatever and figure out what’s the best deal. Actually, that’s one of the worst deals you can get. You’ve got to do what you’ve got to do. It’s a lot of hard work and it’s not easy, but you have to be tenacious. You have to work on it every day. Maybe you work in it like an hour or two hours a day, but get that in. Put that in your schedule that you will be calling these banks at a certain time every day. Make sure that you hit that schedule. Whenever I run out of time, I can’t do it. I’d be upset, but I’ll make it up tomorrow.
When you and I talk and you always have this new opportunity you’ve created, the part that we don’t talk about is the 3,000, 5,000 calls. We don’t talk about that part.
Somebody said when you look at success, you’re looking at the tip of the iceberg. You don’t know what’s happening underneath. How many feet underneath that ice is sitting in there? There’s a lot of work to be done to succeed in any business, for instance.
Gene Chandler has a made big bucks on doing what you said with selling the land. I know he’s out there in Indiana. I’m sure that’s a big market for that type of housing.
I don’t like land as much unless you know exactly what you’re doing with it. The land is hard to buy because I can buy 100 acres in the middle of nowhere and the question is what do I do with it? You’ve got to figure that out. If you’re a developer or you have connections with developers, it might be an excellent deal. You buy the land, you partner with them where you say, “I’m bringing the land to the deal and you guys build on it and then send me the 50% of the profit or refi it and give me my money back.” Whatever you decide is what you decide. Don’t hesitate to JV with people. I’ve done so many JVs on real estate. I live in Pennsylvania. I’ve done deals in Ohio and I’m doing one in Texas right now where I’ve never seen the property. The only thing when I do JVs with fellow investors is that I’m savvier. I always have a quitclaim deed with the document. I know what the foreclosure process looks like. I don’t want to go through all that. If you decide not to pay me, I’m going to take back the property to the quitclaim deed and it’s already ready to go.
Can you explain the quitclaim deed?
It’s very simple. Let’s say you lend money for a deal in Texas. The property’s worth $100,000 and it needs $30,000 worth of repairs. Somebody calls you and says, “I want $100,000.” My part of the deal is I’m coming over with $100,000. Your part of the deal is you’re going to come up with $30,000, and then we are going to JV. We had estimated that the property would sell for maybe $210,000 to $250,000. The way that JV works at that point is that $100,000 has a fixed cost. I’m borrowing money from a commercial line of credit or something. It has a fixed cost of some 7% or 7.25%. I’m saying that money has to be paid back at 7.25%. That’s the cost of borrowing that money. Your cost for your $30,000, whatever it is, it’s 7.25%. Whatever is remaining after this, you fix it up, then you flip it and then you pay the orders, commission and all that stuff and everybody gets paid their money back.
What is remaining is your profit and that you split 50/50. When you do all this, what are they going to give you for that $100,000? They’re going to give you a mortgage and a note and they’re going to record that mortgage against that property so they can sell it from under your nose. It’s very important. They can sell it because there’s a lien against it. What I do is because I don’t want to go through the foreclosure process, this is a promise, I’m giving them $100,000 and they promise they want to bring $30,000 to the table to fix it up. Let’s say they’re a partner, they’re doing some other work somewhere else and they don’t have the money, the $30,000 to fix it up. Basically, they declared bankruptcy or some crazy stuff. What I do to protect my interest is to have them sign a quitclaim deed. The note will talk about saying if they don’t pay, that the lender can go ahead and record the quitclaim deed and they’re giving me full authority to take over the property without going through the foreclosure process.
This is very important because it’s like New York or even in Ohio, it takes a couple of years to foreclose. If I gave you the $100,000, I don’t want to wait for a couple of years to get my property back. It might be in bad shape. I’m more than willing to pay the $20,000 and get it fixed up if I can get it done right now. Why not get a quitclaim deed and then say, “You didn’t fulfill your end of the bargain, but that shouldn’t stop me from fulfilling and getting my money back?” That’s a nice safeguard. Think about it. Sometimes it helps to talk to people about these. I do that all the time. I’ll talk to someone and say, “Can you figure out a better way to make lemonade?” It’s funny but things happen. I talk to my handyman and he’d say, “You could do this.” I get an idea and it’s a brilliant idea that I’ve never thought of. Always talk to people. You don’t have to give the details on the deal and things like that, just say, “This is the problem. What do you think? How do you think I should solve it?”
A lot of times you have to come to business decisions by yourself and lots of times people will tell you it’s a business decision. That means they don’t want to answer the question. I say, “Don’t say that to me.” A lot of them are friends I say, “Don’t tell me this business decision business. Tell me if you were in my shoes, what would you do?” That’s the most important thing. You should always concentrate on and be focused and think about the problem thoroughly and figure out what makes sense. Focus. At the end of the day, you might lose money. There’s no harm in that. If you lost money, then lesson learned. What did I learn from this?
We’ve all lost money on deals. The key is I always talk to the folks I’m helping get off the ground. You’ve got to learn the mechanics. That’s the most important thing. Learn all the steps. From that, you’ll grow from those experiences.
You need to know, you need to look at a note, you need to look at a mortgage, you need to figure out all the terms that are in there so you understand what’s happening. A lot of this legal stuff, I don’t know for whose benefit it is that they write these complicated documents. Figure them out, and then at the end of the day, it’s just person to person. “How can I make your life better? You owe me money. I know that. How can I allow you to stay in your house?” That’s the question. “If you don’t want to stay, that’s fine too. Leave and give me the keys and let me figure out what I need to.” Lots of times, don’t hesitate to reinstate the first. If there’s enough equity, you can reinstate the first and still make a pretty good living. I have one in Loxahatchee, Florida that I never heard where this was. I make $1,800 a month on rent and I pay the first $800. I made $1,000 on a deal that I thought was dead. It was totally dead. I thought I was going to wipe this deal because it looked like toilet paper to me.
That’s not the Chicago one is it? You told me that years ago. Did they ever foreclose on that?
They foreclosed the first, came and wiped us out. We rented it for a few years. Now I’m suing for deficiency.
A few years of payments where the first did not foreclose.
It’s because of Chicago. It was bought for purchase for $16,000. I made $60,000. I’m probably going to end up making another $100,000 on that. A lot of friends spoke to me from Washington and I said, “I own a couple of notes there. Maybe I should come.” Actually, I did go. I had a speaking arrangement in Idaho. I went there and I said, “Do you think I should look at my notes?” My sponsor said, “They’re paying. Why do you need to look at them?” I totally get it. Let’s have some fun. Let’s talk and have a drink and chill out. They’re paying. There’s no need to look at it. That’s the beauty of this. That’s the beauty of this part, that you don’t have to look at it, but there are disadvantages to notes. One of the biggest disadvantages I can find is that I can depreciate the thing. You can depreciate a note. You can depreciate real estate. That’s really cool. Can you appreciate a note? You can depreciate or appreciate a note. Real estate you can depreciate and appreciate. Depreciation means the values. Your accountant can say the value goes down every year when the actual value is going up and appreciating is happening. Things that you bought in Philadelphia for $10,000 are now $300,000, $400,000. A note that was bought for $10,000 is only worth $10,000.
We have Matt Kelly write in, “Mistakes can be avoided and are not necessary to be successful. Losses can be written off but often still hurt, especially to those new and early in the industry.” I think that’s why I like doing these webinars and connecting with experts like you. I talked to Bill McCafferty. We all talk to each other throughout the day and the newer folks coming in and just getting their feet wet, they need to absorb so much of this and so much more beyond this.
Please spend a lot of time on education. It’s so important that you spend your time and money on education. Read as much as possible. It’s so important that you have to keep your mind healthy. The mind deteriorates after a while. If your mind is not being used, it slowly starts becoming useless. Try to think of things. Try to read as much as possible. Invest in your education and do invest in networking. Come to these seminars, talk to us. I am more than happy to drink a cup of coffee with you and I will pay for it. It’s no big deal. Come there, sit down, discuss. You don’t have to have money. Even in the note business, you can always broker a note, but you need to get your game plan on. You need to make those calls. You need to figure out who has something that’s of value and learn it.
This note space eats people alive that don’t educate themselves. Financially, it will devastate you.
The people who depend on one note paying them for the monthly paycheck, you cannot have that. It’s impossible. Even in real estate way, if your whole income is dependent on rent, that’s not going to happen. If one person doesn’t pay, then what are you going to do? It’s the same thing with notes. If one note doesn’t pay, what are you going to do? If you have multiple notes paying, let’s say you have 100 notes or something. Each is about $2,200, if one doesn’t pay, “I’m going to start legal.” These notes might perform now, they might stop performing later. Don’t even think that they will always perform.
I think to your point with legal, and I know Matt Kelly would appreciate this and any other attorney, they would prefer you understand the foreclosure process and they would prefer not educating and handholding you throughout the process. It makes them more efficient as they’re helping you out.
I do a couple of things. As soon as I get a loan that I’m ready to foreclose on or to start foreclosure like in Florida, I write demand letters. I’ll take his letterhead and write my own demand letter and send it off to them. I don’t have to pay for that already because it’s done. I always get a title search done. I paid for it before I start foreclosure. The reason is I want to know if the first is foreclosing. If the first is foreclosing, I want to sit and wait patiently and see what happens. There is no sense in spending money when the first is foreclosing. It’s worthless. It’s a slow state. If it’s in New York or it’s in Chicago, no problem, and Massachusetts and all those northeastern Democratic states. Go ahead. Go to town.
Any of these fast states like Texas and Arizona, even South Carolina, I want to sit tight and see what happens. Always do a title search, always send a demand letter. Send whatever outreach you have to do to your borrower. That’s when you start looking at legal and saying, “What are the things?” Typically a lot of times, I prepare a package for the attorney. I prepare the note, I make sure there’s a note, there’s a mortgage, all the assignments are in order, allonges are in order. Allonge is a piece of paper that says you have the right to collect. An assignment is saying how did XYZ get this note? Did it come from Bank of America? How did it go through the process? You need to have all these. I would make a Zip file and also put the accounting.
Accounting is a very simple spreadsheet. When was it last paid? What was the date? What’s the interest rate? What is the late payment? How many payments are owed? That’s it. You prepare this, send it as a zip file and the attorney reviews it. It’s very simple. It takes them all of half-an-hour to review it. I’m like, “Can you please file the complaint?” I review the complaint and I notarize, whatever typically. This had happened to me before I left for India. I had to get something notarized and I’m like, “I don’t have access to a notary, so you have to do it.” I made him walk on a Saturday to get that complaint because it was of utmost importance to me to have the complaint in before I went on vacation. Sometimes they forget something or do something and sometimes you have to repeat. The problem with the complaint is you have to make sure that’s correct. Otherwise, you have to redo this process. You also have to manage the attorney. They’re really your contractors. They are the ones who rehab your loans. You have to make sure they know what they’re doing.
Not just that, you’re giving them your clear guidance. You’re giving them all the loan account details in a summary format. You’re organizing the collateral files for them so they can sift through them and form the complaint and everything else they have to do. You’re making it easy for them to do their job. Matt Kelly’s chiming in, “Do you take an attorney letterhead and put on your demands?”
No. Basically, one of my attorneys had filed a demand letter so I take this wordage off the attorney’s letter and I put it on my letterhead, but it’s exactly the same wordage because he has it for Florida. The attorney asked me if he wants to file another demand letter and I said, “No, we’ve already done the demand letter.” Your letterhead or my letterhead doesn’t matter because at the end of the day, the complaint has to be filed. It’s like a child. I always think of a borrower as a child. I keep saying, “Don’t do it,” and then I lift my hand to smack his bottom, that’s your complaint. When I lift my hand and smack his bottom, that’s when he’s going to listen. That’s your complaint process.
It’s not a literal smacking.
It’s a mental smack. That’s how it works. You’ve got to be serious.
If you want to connect with Deepta, she’s going to give her contact information. I think that the gist of this is talk. Deepta talks about talking to people. If you want to connect with her on a deeper level and understand if you want to do business with her in some way, you’re going to want to pick up the phone and call her.
Calling is the best thing. If texts get on beyond two sentences, it needs a phone call. I do that with my tenants also. I’m like, “I can’t.” I have a very short attention span. Two sentences are what I need in a text.
I get texts from Deepta once a quarter, “I have money. Do you have any notes?”
Money burns a hole in the pocket, so you have to keep using it. In fact, I’m still saving up money to pay my taxes and I’m like, “It’s burning a hole in the back pocket. I need to know exactly how much I need to pay so that I can move on.”
Connect with Deepta. She knows what she’s doing. She has great people and knows what she’s doing. Thank you.
About Deepta Hiremath
Specialties: Real Estate, Investor, Rehab, Renovation, Construction, Short Sales, Foreclosure, Estates, Preforeclosure data, note investor, 2nd mortgages, distressed debt buyer, workout specialist.