NIME 51 | Investing In Notes

 

How can you make the most profit from notes? Joshua Andrews, CFO of Notable Capital Fund, talks about his book, Paper Profits, about buying and profiting from notes. Taking us into his journey, Joshua talks about how he got into investing in notes and what influenced him to grow his business and advocacy towards sharing his knowledge to the world. He walks us through a step by step process on how to scale up your note business and gain more investors and enumerates the three things note investors need. Don’t miss out on this helpful guide to start your own note investing journey.

Listen to the podcast here:

How To Start Investing In Notes with Joshua Andrews

We are working towards our mission of bringing note investors that like to hide in the caves out into the open. We have Joshua Andrews of Paper Profits and he’s going to talk about his book. He’s going to talk about what he is doing in the notes space with his fund and how he’s working with investors. I look forward to this session here. Joshua, welcome to the program. 

Thanks, Martin. I appreciate you having me on. 

Are you from the great state of Texas? 

Yes, that’s where I live. I’m in AustinOne of the things I did want to mention is that I’ve got a copy of your book. I hope you don’t mind me plugging you at all. It’s an excellent book. It would definitely recommend your audience to grab a copy if they can. 

I appreciate that. I know that you helped with the review and you provided a quote for the back of the book, that was meaningful to me and you’re in good company. Steve Lloyd, also on there. 

I didn’t write it though. I know how hard it is or time-consuming it is to write one. I think you did a great job.  

Thank you. If you ever truly want to know who has built time in their life, find someone who’s written a book. There’s no way I could be working a corporate job and doing the side hassle in notes and writing books and stuff. It’s a full-time commitment. You have a book coming up. Do you want to put that out there at this point or do you just like to keep it in the dark for now? 

I appreciate you askingThe second book I’m working on, I’m roughly halfway through and it’s going to deal with note partials. This is going to be something where folks are going to need a foundational knowledge in notes in general before they understand how to utilize partials either as a buyer or seller. It’s going to be similar to my Paper Profits books where it’s a step-by-step, what are partials, how to create them if you want to be the seller, how to maximize your portfolio if you’re a seller by selling partials and squeezing every last drop of profit you can while still giving your buyer a great deal. Showing it from the buyers’ perspective too where, if I was the buyer, “Why would I even be interested in this? Why is this person showing? Am I at a disadvantage when I’m buying this?” Answering those questions from both sides and showing you how to create them, I think it will be a very educational piece. 

It’s almost like you’re writing on a topic that’s a niche within a niche. You’ve already created loan modifications, you already have cashflow that’s occurring, this is the extra play, right? This is when you go from having some level of wealth to becoming even wealthier? 

It’s a little bit more advance. It’s certainly not rocket science but it’s the next step with a lot of folks, once they do have a portfolio, are looking to maximize that. There are some disadvantages to it as well, just like anything but I find there’s a lot more positive to it. 

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It’s an outdated thing and I know we’re talking about books right now. It’s an outdated model just to write a book that tells you how awesome notes are and how you’re going to $1 million in six months and here are twenty case studies about how awesome I am. That’s so yesterday.  

You want to get into more of the meat and potatoes, giving useful instructions in terms of what people can do as they’re building their notes businesses, that’s great you’re doing it. 

Is there some place that you’d like to start specifically for your audience? 

Let’s talk about how you got into notes. 

I got into notes a little over six years ago and prior to thatas a single-family home investor, buy and hold type of guy. I did not start out with a bunch of money. Like most folks, I have a normal day job. I happen to be a mortgage banker at that time. My job was to interspace with the general public at the bank or at the lending institution and help them refinance their house or purchase a home and walk them to that whole process. Finance and cashflow always appealed to me. I’ve always had that goal to set something up for myself. It didn’t matter what it was, I wanted something that was repeatable. To me, that was a big deal. Not just a flash in the pan that may be in one year was a great opportunity but something I could repeatedly do over time and develop real wealth for myself, my family and be able to give back. Initially I looked at single-family homes and I had some rental properties. I had a conversation with a gentleman who was an investor at that time and I told him, “I’ve saved up some money for another down payment for a property and I can’t find anything that makes any financial sense from the cashflow perspective.”  

Looking at the properties, I’m not saying they’re bad, I have rentals, I’m sure you do too. They’re a great investment. I look at it and say, “This is going to take me forever to acquire enough properties to live on the cashflow,” to be able to go out, pay my mortgage, get groceries, do all the things that we need to do that everybody does. While I’m talking to this guy, he mentioned, “You need to look at notes, buying mortgage notes.” Because I was doing refinancing and things with banks at that time, I said, “I have no idea how you make money on these things. They’re giving them away at 3%, 4%, 5% interest rates. I don’t have $400,000 to loan on two houses. How am I going to make money from that?” He said, “Do some research, do some reading,” and I just dismissed him. I shouldn’t have but I dismissed it and then a few months later, start reading about it. Finally, I got into the discounting aspect of notes and things like that.  

I got very fortunate when I started, I bought my first performing note. It was a reperforming second for $18,000 or $19,000 with my IRA money. I said, “I need to see how the thing works and most of all, I want to see the transaction and I want to see those payments come in.” It was nice to talk about them but nothing is like the proof in the pudding if you see it come in. I did that and was intrigued by it. I had a good mentor. I should know this by I can’t remember how we met or were introduced, but it’s Bill McCafferty who I credit a lot of my initial skillset to. He was very accommodating, very good guy, a very good friend of mine. He helped me buy my first couple of non-performing notes with my own IRA money, just bootstrapping it. In those days, it was very easy to go and pick one or two gems and see how it worked. That’s what I did. I didn’t know any better, and Bill guided me and off we went. This whole process of starting in that fashion with non-performers, it takes a lot of time. Even if you buy them now, it’s going to be next year at best before you start seeing some money from that. A couple of years later I said, “This actually works.” Bill said, “I told you.” We started doing more and more of that.  

I had a business partner at that time who brought his money in. It was his IRA money too and I showed him when I’m doing it, let’s try it out. We had a couple of big home runs relative to the dollars that we had invested. He said, “This a big deal.” We continued doing that and branched off into joint ventures which amounted to investors putting money. We would go out and source the notes, do all that work and then we’d split profit after they were paid back. That’s worked out well but there are some limitations to that. The next step for us to scale it up into a business was to create a note fund which is a pooled investment fund that’s regulated by the securities industry. That’s where we’re at and that was my progression. During that time, one of the things I’ve learned is that it’s a small community compared to real estate. There are only a few thousand people that actually do this that are players that make a business out of this. Networking with folks, developing those relationships, constantly moving forward and giving value to these people is paramount. You’re not going to cheat anyone and get away with and be able to stay in the business. 

NIME 51 | Investing In Notes

Paper Profits: How to Buy and Profit from Notes: A Beginner’s Guide: Learn the nuts and bolts essentials of owning mortgage notes

We all love Bill McCafferty. He’s been a staple within the industry and has a great reputation. Let’s talk about Joshua moves from self-funding because I like the progression you’re talking about. You go from self-funding your first deal out of your IRA to now saying, “I need to go the joint venture route,” than going from the joint venture route to the fun route. Explain why you made those moves. 

My thinking was, I can’t accept other investors’ money until I put my own money out there and proven the model, proven to myself that I have the skillset and learned that. I’ve heard folks where they’ll get the cart before the horse. They’ll go out and try to raise the money whether you haven’t learned how to do this yet, which is dangerous. For me, it was natural progression where I felt more confident as I had used my own money at risk and initially went through that process. The next step from my own money to a joint venture was to expand it, to make more money for everybody, as far as the person like myself who was doing the joint venture. The motive is profit that’s why you’re in business to make money. The other side, the investor needs to make money as well. Our thinking with that was to scale up. We’ll go buy more notes to benefit these folks who may not have the skillset, time or inclination to do this on their own, and also to help leverage our current connections, buyers and sellers.  

We weren’t in a position at that point to take it much farther, as far as fund or pooled asset or pooled fund. A couple of reasons, one, you don’t have the full skillset yet of running something like that and you need more people. You need partners. It’s not something one person is going to do in their basement. It’s a natural progression for us. You could jump if you felt you had the right connections and the skillset, etc. You certainly could jump just from doing it with your own money to know where to fund or doing something else but the in-between process for us was the joint ventures. The reason to move from a joint venture to a fund is being able to scale. With joint ventures, there are lot of ways people have these setups, but we had individual LLCs to keep it nice and clean. We’d have our investor in that. You can imagine if you’re doing that with only $50,000 or $100,000 here and there, which is still a lot of money. You’ve got all these entities spread out, you’ve got tax filing, the PPAs and all these things to keep track off. It starts to become a mess so the next step from that is to clean it up and to do a centralized type of fund where more investors can get involved and you have economy scale too. 

When you did repeat transactions with your JV partners, did you open up a new LLC for each transaction or did you just run it through the same LLC? 

We’d run through the same LLC. In other words, we have X, Y, Z LLC. They contribute to funds then we go out and purchase. Once the deals are worked out, they get to choose how they want to get their money turned back to them. If they want to sell the note, they can. If it’s a reperformer, if it’s payoff, they just get paid. They want to hold it, we make sure they get paid and then we split monthly payments with them. It’s up to them as long as it makes sense for everybody because it is their money. We would keep in the same LLC as long as it’s with the people involved. We wouldn’t bring a whole bunch of different entities because then you’re mixing funds, not a lot of people are comfortable with that. 

It’s almost like the JV is the dating scene it seems and then you start the fund, that’s like that marriageright? That’s complete commitment, you have a whole structure in place, you’re obligated with all SCC and everything aboard, not to say the JVs worked but you had multiple JV partners I’m sure. They can all come into the fund and invest through your structure. 

It is middle stuff. It’s an in-between and it’s not bad for a lot of investors, there’s nothing wrong with it. It’s profitable if managed right. For us, it was a middle step but you could stay at that step as a sponsor or someone who’s going out and find deals for your investors, there’s nothing wrong with that. 

We have a lot of newer note investors that are going to be paying attention and they make a decision at some point. They say learn about note investing, they read your book, they watch some webinars and then they make a decision. They say, “This is too complicated for me but I get that there’s profit, there’s money to be made here.” They invest with someone like you and your fund or they say, “I can do this myself. Let me get my hands dirty and figure this out.” What do you think for those that want to figure this out for themselves? What are the pitfalls that they face? Where do you see most people stumble? 

A lot of folks that come into it initially, myself included, not talking bad about anyone, is getting overly excited about it, the opportunity and then thinking, “I’m just going to do this and quit my job in a couple of years.” The reason that doesn’t work is that those folks are starting with a limited amount of money and also the time it takes to learn the skillsets and to learn the business enough to become profitable and develop the relationships and all those things that go into it. If someone is coming in, maybe a wealthy individual coming in with a couple of million dollars or more, you can certainly go out and buy a bunch of reperforming notes and live off the cashflow. There’s nothing stopping you from doing that. From what I feel, a lot of folks are thinking they’re going to come in, throw a bunch of money at it or they’re going to work two hours a day and become successful. If you could take a lot more persistence and determination and above all, having the right daily habits, than most of us want to acknowledge anything, and this is no different. 

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I think about that question and it’s hard work. It takes discipline, it takes forming a routine. We often look at things through the prism of how we progress or how it affects us. What is often overlooked is how you escalated the value that you delivered to the sellers that you enhance your relationship with over the course of time. You self-funded, you bought from one other note investor up here that just sold you one note and then you moved to the JV model. You start going upstream with some of the sellers and start getting the lay of the land, and now you have a fund. It’s your duty, it’s your mission now to know all the players, have relationships with all of them, be in the mix, be at the right conferences. Tell me about some of the things you’ve done that have brought value to the industry and that has brought value to the sellers you interact with. 

As far as adding value to everyday investors, the people we talk to, I’ve always made it a point, me and my partners have, to provide value in the way of education. You’re never twisting someone’s arm. It’s always about educating on what you’re doing and giving as much information as you can without giving away any secret sauce or whatever that may be but just being free with the information from day one. I think the tendency that we may have initially starting out is to hold things back and be secretive with stuff. If you want to interface with colleagues and investors, that’s the opposite of what you need to be doing. That’s one way to add value in every interaction that you have, it’s being free with helpful information.  

The second, with regard to the dynamics of buyers and sellers, is as you start purchasing one note or two notes, and then you start doing more and more, you have a lot of experience with, you’re looking at sellers that have more options. This means that you need to be easy to work with from the start. You don’t want to roll over on things and be a laydown but you want to put yourself in their shoes. If they’re selling a bunch of loans, you need to put yourself in their shoes and say, “What kind of person would I want to be selling to? Would I want to be selling to someone who’s a pain in the butt, who keeps nickel and dining me and coming back and grinding me over pennies? Would I want to sell to someone maybe at slightly little price or market price but then I enjoy working with, who I know has the money, who I know is not going to hassle me?”  

Being easy to work with is number one and also being upfront. If you’re not interested in something if somebody sends you something, a pay or you’ve agreed to look at something, respond to them. Even if it’s total garbage, respond to him and let him know, “This is out of my wheelhouse. I’m not interested in this.” That will go a long way over time, not instant. It’s going to take a while to develop those relationships. As you move up, like in nowadays market, you’re going to need the money. Having a seat at the table, you’re going to need $500,000 or $1 million or more to get where a lot of people want to be, to be able to go and buy the assets. Not to say that you can’t get single to ones or twos but it helps to combine forces and a lot of pieces in nowadays market, to be of value to the seller. 

Like you touched on, the easy days were years past. You’ll get a tape of 100 notes, it didn’t matter if you bought two because everything was loan level. It didn’t matter if you bought two off of them or you bought ten. If you’re like me, you’re probably still kicking yourself for leaving so many good notes on the table because you thought that’s how it always was going to be. In nowadays market, you have to be delicate with the relationships with the sellers because you’re going to get large opportunities and a lot of cases, it’s all or nothing. There’s going to be a lot that is on the junior lien side, there’s going to be a lot that is unsecured that you won’t know about until you do your appropriate due diligence. You’re coming back and in some cases, you’re telling a seller who may not know about all the unsecured on their pool and you say, “25% of this is junk. It’s unsecured, it’s been swiped, it’s been stripped, it’s foreclosed on.”  

What’s their first thought? Their first thought, “Let me go around and see who I can pawn this off to.” 

Their first thought, “Screw this guy,” just like somebody else which you can’t blame them for. They’re trying to make money as well. 

They bought those notes, not doing all their due diligence because maybe they were flipping the paper. That was their intention so they paid for secured note and now they’re having to grapple with selling it at an unsecured price. They’re figuring that whole thing out and seeing what they can get away with in some cases but in some cases they just know. You have to come across in a very professional delicate manner. 

They may have been in the same situation or put on the same position where it was an all or nothing trade for them. They may have been forced to take everything and so they didn’t have a choice to pick through the gems or whatever and they’re passing that along to the buyers. 

NIME 51 | Investing In Notes

Investing In Notes: Investors should always do their due diligence and understand what they’re putting their money in.

 

I don’t have a fund so I don’t operate that way. What do you prefer? Do you prefer investors within the industry or investors that are outside of the industry and don’t know about the industry? 

We like educated investors. Someone who has no understanding of notes who may not have read my book or has no exposure to the note industry, I’m very hesitant. The reason for that, I think investors should always do their due diligence and they should always at least moderately understand what they’re putting their money in. In a lot of cases, IRA money or saving that is going to go for helping their family in the future, it’s a big deal for them to understand at least at a basic level some of the fundamentals. I don’t mind folks that are in the industry, it doesn’t matter to us, one way or the other. What matters is having that level of education to understand what they’re getting into and that it will make sense to them. 

I may be unpopular with this thought but I want to run it by you. I think everyone in the industry should be running skip trace on everyone else that they’re doing business with, whether they’re getting training, whether they’re trade-by partners, whatever the case. I’m not saying a full-blown comprehensive but criminal check. That kind of thing, make sure they’re not serial BK filers. Not to say that someone does file BK because they had a legitimate issue or circumstance in life, like a serial filer. That’s something that would be important. What’s your thought on that? 

I can’t argue with that and the reasoning is sound. If someone is investing money, especially a substantial amount of money with someone that they may be familiar with but maybe they haven’t met in person, I think there’s something wrong with that. I would ask for permission first. I don’t know if you necessarily need to but there would be red flags if somebody starts going up and saying, “I don’t want to do this or that.” I don’t have any problem with that and I wouldn’t think that anybody legitimate would. 

In terms of the fund, you have multiple funds. There are some people on the newer side that still go the fund route because maybe they think that if they open up a fund, it will expose them to more inventory. It will expose them to more investors, whatever the case. They feel like that’s the magnet, that’s the draw. To your point, you should grow into that fund through maturity and through experience and that way, that will ensure success within the fund. Tell me about some of the things that you do within your fund. What are some of the philosophies or the customer service practices you do within your fund that makes it unique and special? 

Our fund does have a lot of common characteristics of other funds. I’ll be very upfront with you on that. I wouldn’t say it’s overly special or overly unique. What we do focus on with regards to our fund is keeping the borrower in the home. There are a couple of reasons for that and a lot of folks say that. That’s the mission. A lot of that is business-oriented but also from a human perspective. A lot of these folks who have this debt have been in their homes for a decade or more. We’re not looking to displace folks. We’re looking to work something out with them that makes sense. I think a lot of funds are doing the same thing. In that perspective, we’re not unique by any stretch. That works out very nicely because that’s the most profitable solution in those cases as well. When and if you can get that, which is most of the time, that’s the focus. I would say that’s one of the things that from, I need to know if I could call it a moral perspective but whatever you want to call it, is our win-win while we’re looking to modify or help the borrower out settle the debt in some cases. 

You don’t want to be a long-distance landlord. 

Having rental properties is good but long-distance landlord sucks. Not to say that there’s not value on it at some point, but it’s going to depend a lot on what your goals are. Some people want to acquire bunch of properties and then other people want to quit their job or have $10,000 a month in cashflow. For some reason $10,000 seems a magic number. You have to extend $10,000 but to get that cashflow, a lot of times it’s not rental properties. If it is through rental property, it has to be a ton of them. You have to be a miracle worker. Notes happen to be a better vehicle for that but they’re not great for other things like appreciation and building equity because they go down in value if they’re paid off. 

A lot of note investors have real estate holdings and I think that’s the way to go as you need that balanced approach. You need the tax savings that real estate gives you as well as the profitability that the notes give you. 

Additional due diligence can help alleviate some pricing concerns. Click To Tweet

It pairs nicely because there are a lot of things that real estate notes don’t have. The deductions just for even owning it, whether you took a loss or not, in a lot of cases, appreciation, if that happens. Even if there’s no appreciation, if you’re looking at the longterm horizon, if you have a nice house and renters’ paying your mortgage, even if it’s breakeven, someday you’re going to own the house outright. If you rent it, all that’s going to be profit and the house will have doubled in value. There are a lot of good things about real estate. In a lot of cases the cashflow perspective, it’s difficult to feed yourself while you’re waiting twenty years. 

Not to mention, dealing with commercial. I know there’s a bunch of these zero money down guys and gals that are out there. You can get into a property with zero money down but in most cases, you’re putting down a 20% chunk. That can dry the well up pretty quickly. 

Absolutely. 

With your fund, you took on a partner. Why take on a partner? 

My thing with partners and we’re all learning. I’m learning as we go as well. Partners should complement missing skillsets that you don’t have. They should bring something to the table, not because they’re your friend, not because you like them, but because they have something that you need and vice versa, you have something they need. Whether that’s a skillset, money, resources, some other avenue that will complement what you’re doing or the actual venture. For me, I have two other partners. One is Bob Malecki, which a lot of folks know and then another gentleman’s name is Scott Ruzich. My partners complement skills or abilities that I lack, that I’m either not good at, I don’t have the resources for, I don’t have the network, or I just don’t have the connections that they have in some area that is valuable to our operation. Most partnerships are like that, maybe folks don’t realize that but that’s why you bring a partner in, so everyone gains something. 

It’s interesting because you and I talked at IMN about having performance metrics in place with partnerships. The old school is you’ve got three people in a room, 33-33-33, everyone wins. What happens, you might have someone that only does this on a part-time level and someone is doing it 90 hours a week. What are your thoughts on performance-based metrics in terms of partnerships? 

No matter how excited, dedicated or great things seem at the outset, there should be some level of compensation for each partner based on continued performance. That could be set, however, the partners agree on. It’s going to be set on the business model, but to make sure that you don’t have somebody come in with great intentions and then one or two partners doing all the work. There’s a lopsided effect where this other partner becomes a liability, becomes something that is a struggle like, “I wish we had somebody that was doing their job,” once you’re two or three years into this thing. Having performance metrics, they’re still a partner even if they suck, but maybe a large part of their compensation is based on doing XY and Z. That can be renegotiated over time. If that changes, that need changes what they’re doing but at least everybody needs to be on the same page with that. That would be the best way to set it up. It’s going to be a tough conversation early on but it’s one you need to have. 

What are the three things that a new note investor needs to do to get their business or their note investing profession off the ground? 

It’s going to depend where they’re starting from. If they have purchased notes before, they’re going to need to figure out where they’re going to get the money and develop a consistent source for that. If they’re raising it from investors, they need to be interfacing with investors, educating. You could be marketing to them, not selling to them but educating to them, developing those relationships. They need to be at the same time simultaneously, developing that same network with sellers and buyers. When they have products for sale, they could have to sell it to, that they trust and then also people to buy it from when it’s ready or available on the marketplace. 

NIME 51 | Investing In Notes

Investing In Notes: The first thing someone needs to do coming in to investing is to develop a time commitment.

 

If you would ask me that question a few years ago, I probably would’ve said they need to know their why, they need to have passion, they need to get a formal education. If you ask me now, I think the first thing someone needs to is to develop a time commitment. I’ve seen people that come in with the why, I’ve seen people come in with the passion, with the why or they too get the formal education or they self-educate, but they never put the time commitment in place. By time commitment, I’m going to give you an example. I am working on an opportunity with Shawn Munio, who’s my second protégé. We’re working on something. You know Shawn, you’ve dealt with him, too. My man sends me something at 1:30 in the morning. He’s running through things and that’s the Shawn that I knew from day one. When something pops up, he is there until late at night pounding it and making sure everything’s in line, making sure all the due diligence is covered, etc. That right there tells me everything about his ability to succeed. 

He’s willing to go the extra mile for it. 

Time commitment is a big thing. What have you done in this day and age where pricing has just gone out through the roof? It’s at the nosebleed levels. What are you doing to offset price hikes out there? 

There’s not a whole lot you can do with regards to beating someone down on price because price is obviously a function of supply and demand, the marketplace. One of the things that we’ve tried to do and are still working to do is to become valuable to sellers. When there is a large opportunity, instead of coming in and trying to say, “I’ll take a little bit of it,” can we help this seller make his life easier by coming in and take most or all of it off his hands? Whether some of those are assets that we don’t want or not, that’s one of things, becoming more valuable to them. As far as pricing, pricing value is negotiable. You should always have that conversation as far as expectations, but additional due diligence will help alleviate some pricing concerns. If you’re looking at the basics, “How much equity is this thing? How much is all these other stuffs?” you’ll miss a lot of gems that are there. You’re digging in if you have a genuine opportunity to purchase, digging in helps alleviate some pricing concerns, or at least sets our ceiling on the max you can pay for this.  

I’m not necessarily so concerned with how many cents per dollar or UPB we’re paying. It’s a function that we’re looking at but I’m not hung up on those, “$0.45 on the dollar, $0.50 on the dollar.” What I’m looking at is their actual profit here. How safe is this route? Is there still a legitimate deal but we’re not cutting to thin that there’s not enough meat on the bone? If there is, we’ll still buy it. Having that flexibility to take some stuff that you normally wouldn’t take to help the seller out if there’s enough there for you, I think it’s a good strategy to deal with today’s pricing. If you’re hung up on the pricing and hung up cents on the dollar, you are trying to price yourself out of a good deal. We’re still buying stuff that is $0.50 on the dollar plus and it’s still just fine. 

In terms of profitability, you’re looking at cash on cash? 

What we’re looking at, if it’s a performer like re-performer, we buy a lot of those. If it’s a re-performer, we’re looking at yield, we’re doing yield calculation with time value type of software. If it is a non-performer, we’re just looking at, “Is there equity?” If there’s not, a lot of times we’ll buy it. It depends on the situation. Is there a legitimate play here to at least double your money or better on something of that, with this purchase price, counting the legal, counting the time we have to wait, to have this whole thing hashed out? 

When you’re buying re-performers, you’re looking at the yield, you’re also I assume keeping in mind what you’re paying investors back. You’re looking at a spread between that for your profitability and to cover your expenses for the fund. 

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It depends on where the money is coming from. If it’s your money, your personal portfolio where you don’t have a cost to the fund, then it’s just a straight yield, “Do I like this note? Is this something I want to buy and hold?” If you have investors and you’re paying them a rate of return of some kind, you’ve got to factor that in as well. I think for sure because that money is costing you money just to hold it and invest it. Whatever you’re investing in, it’s producing more than you’re paying your investors. On re-performers, we have a minimum benchmark where you’d only have a certain yield that we need to hit in order to accept those into the fund. Otherwise, it’s not profitable for the investors and the fund itself. 

I like how you have several facets of the fund. You’ll get involved with re-performers, you buy first, you buy second. I assume no CFDs in the fund. 

We have not, I’m not a huge fan. I know there are folks that have a lot of money and continue to with CFDs, I’ll be the first to admit I don’t know about them. I have a general understanding of them but there’s a lot of new ones that I don’t fully understand. At a state level for certain restrictions and things, we have not. We’re not going to at least for some time purchase CFD. 

You have a good amount of diversity just between re-performers first and seconds. That speaks to being easy to work with. That last thing a seller wants to say is, “I’m giving you a blended pool,” and you’re like, “Can you pull out the re-performers? Could you pull up the first? I only buy in these states for seconds, etc.” You become a pain in the neck.  

That’s probably the last time they’re going to offer something to you or close to the last time. I’m looking for that extra profit, looking for other ways. We have to grow as investors if it’s a legitimate business, we have to grow as the market changes and as supply and demand changes. Otherwise, it’s just not going to work longterm. Having different tools in your tool belt like buying re-performers, buying first and seconds, buying non-performers, even partials, looking at notes with partials. I’ve had partials all the time where I buy the soldout, turn around and sell the partial and keep half of it. I can get the money back that I’m having. There’s no money in the deal. I do that all the time. That’s why a lot of times I can pay almost full price for re-performers in a lot of cases. Nobody else wants them but they’re still great deals. 

I can’t wait until your book comes out because that’s an area I need to grow in. I’m looking forward to it. 

I’ve got to tell you, I’d be happy to share whatever you want. 

I don’t know how much I can contribute to the subject but I’d love to be a part of it. If you need any help in any way, let me know. We have a question here, Michael Soliz asks, “Does he charge a management fee during the workouts or does he wait until the investor gets paid first before he starts dipping?” 

Is this like a joint venture scenario? 

NIME 51 | Investing In Notes

Investing In Notes: Success comes down to what we do every day. It’s what we’re doing daily that produces who we are down the road.

 

Let me read the question again here so I make sure I understand it. “Do you charge a management fee during the workouts or do you wait until the investor gets paid first before you start dipping?” Mike, are you talking about when he was JVI don’t that he’s doing that as much now. Let me know on that. Do you mind talking about JV? What’s the normal, you do a gross split and then a net split after liquidation? What’s the setup? 

I didn’t invent this. I just saw this created from other folks and copied the model. Somebody will put the funds up, the investor, we have a structure entity, in our case an LLC. We’ll put up $100,000, we’ll go out and find the source assets for them, bring it to them, price and do all the negotiation. They’ll have to prove everything because it’s their money. I can’t go out and spend their money without their approval. We’ll use our resources, our network to work the assets to resolution. At that time, they get paid their original principal investment back per asset. We’ll break it down per asset so that as each asset gets resolved, we kindle that individually as a done deal. They get compensated back their original investment and then acing above that, you split 50/50, anything net profit. That’s how we’ve been doing it in the past. It’s worked out well. 

Are you JV-ing much now? 

I would be open to JVs now. Some of the issues that we run into, just scalability. $50,000, $60,000 or $70,000 doesn’t go as far as it used to. It makes more sense from our perspective and from a time perspective to have more money. If somebody came to us and said, “We have $300,000, $400,000, $500,000 and we want to do a JV.” We would probably entertain that if it was the right fit but right now, most of our focus is on the fund and other things. 

It’s a whole new day out there. Mike is asking about the JV.  

No, we don’t charge anything. There’s nothing that’s being charged during that period of time. The loans get worked out and then only at resolution is when everybody gets paid but investor gets paid back first. There are legal fees that are being paid during that time, servicing fees, but the sponsor or the person going out and doing this is not charging a fee, initially. 

You mentioned daily rituals are important to have in place. What are some daily rituals that you have that help you keep going throughout the day? 

I’m a big believer in habits and rituals. For some people, they might think it keeps your days monotonous and you’re like a robot. In some cases, I like that having predictability. A lot of life, not just this business but life in general, success comes down to what we do every day, what we do when we get up, what we do habitually. Whether our intentions are good doesn’t matter. It’s what we’re doing daily produces who we are down the road. Somebody that’s reading every morning is going to be very different in ten years from somebody who turns on CNN every morning and smokes a cigarette. Their life is going to work out differently. It’s not they’re getting smarter, they’re doing something differently daily. 

Some of the stuff that I’ve developed over time, it’s probably not a good fit for everybody. In the morning, I usually get up and I don’t jump right in the work. I have a cup of coffee. I usually meditate for about twenty minutes. I’ve been doing that for about ten years. Just a headset with a binaural beats kind of thing makes you zone out and you do that for a little bit. I finish my coffee, read for about half an hour, write down what I’m thankful for, maybe some goals or something like that and then start my day. I’m setting myself up to how to be on an even keel and feel alright about things before diving into emails, diving into phone calls or anything else, which makes you feel a little scattered. I’ve done that and that’s helped me more than almost anything. It’s that simple, doing that every day. Exercising has been a big deal for me. I exercise since I was in high school. For me, it’s made all the difference. It helps break up my day. You feel better and you’ve got more energy to do your job, more energy to spend with your family, to contribute to things, be with your friends, all those things that we all value at some level. I know it’s simple but that’s my routine, at least in the morning. 

Paper Profits is a ranking popular book on Amazon, it’s one of the first books I’ve read. 

It is the highest-ranking book. If you guys would like, I’d be happy to give everybody a free copy. Also, if you don’t have it already, you should be getting Martin’s book which is a fantastic read as well. 

I put a lot of time as you know, as you did for yours. Everyone, be safe and be good. Be prosperous and God bless.

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