NIME 45 | Hustling For Notes

 

Note investing requires a lot of information digestion and regular hustle. Michael Soliz, Jr. of One Oak Advisory shares some note investment know-how on how to succeed in the business with less hassle. The industry involves a lot of complexities, especially when dealing with people who are non-compliant with payments. Without a great team and proper knowledge in this space, it will be impossible for you to succeed. Michael outlines the three reasons why some people do not succeed and suggests studying all the different asset types to determine which area you’re great at. With success all boiling down to creating value for your clients, he stresses how being with the right people who will support you in your ventures helps.

Listen to the podcast here:

Hustling For Notes: Succeeding In The Business With Less Hassle with Michael Soliz, Jr.

I’m with Michael Soliz with 1 Oak Advisory. We had such a good time together last time that I knew that we had to come back on. I feel like we have a connection here, you and I, East Coast, West Coast. Welcome to the program.

I appreciate you having me on. Thank you.

We first met at the IMN conference in Fort Lauderdale and you were like a firecracker. You were telling me about everything you’ve been doing in the note space. My first thought is like, “Is this guy just blowing smoke? What’s his deal?” As we connected, I’m like, “This guy is on fire. He’s taken over. He’s doing big things in the industry.” From that point, I know that we’ve made that connection. How have you been?

I’ve been busy. We took down probably about 100 units and there’s a lot of work after you buy. Just getting to the check right is awesome, but when you realize that you have these loans in there, you’ve got to manage them starting now. There are a lot of balls that you’re juggling, but there are certain systems that I’m following based off the smaller trades that I’ve done. It’s more babysitting, I would say, and enlightened fires. It’s been good. I’m excited.

How does this all work? For a lot of people that don’t know you or your background, I assume this just doesn’t magically come together where you get an opportunity and you have investors lined up. First of all, you have the opportunity to the deal flow, then you have investors line up. You know what you’re doing from a vetting perspective, you put it all together and win the take it down.

I think I could probably relate to most of the guys who have no cash who are just in it and trying to go, “The sky’s the limit.” This one was a decent check. There were so many things going on, but starting off by the deal flow, being able to see it, I wasn’t even invited to participate in and looking at this portfolio. It was a much larger portfolio and you were allowed to carve, but even that carve was going to be a decent check where I felt it’s a little overwhelming, but I know that if you find the deal, you can find the money. That was how I went about that. I had to pretty much force myself into the room so I can get a look at that tape. It worked out that I was able to get a decent size of that trade. It wasn’t like they were inviting me. I had to force my way into that all day.

You’ve put it out there. You were involved in a major trade. There was a carve-out that was placed on your lap and you’ll probably get maybe two people out of the 200 that watched this off the bat, punch you up to find out if they can break into the deal flow somehow. That’s how it goes. Let’s take a step back and let’s start with the rookie Michael when you were getting into the space. How did that person look at the time when you were just getting started?

It was super overwhelming, but it was exciting because in 2008, when the market crashed, there was a good year of people trying to find their way around life. If they were in the mortgage business, they either went to doing modifications for mod companies or they were looking to try to buy these loans because the rumor was there are loans on the street and you can buy them. That was a whole new world for me. Plus, I thought that was the exit for me where I could get back on my feet again because 2008 rocked me. The first few years were stumbling and not a penny to my name. I think it connected when I was able to team up and be a part of a bigger company and that’s where the journey began. Wet behind the ears, I probably knew maybe 10 out of the 100 terms that you use on a regular basis. It was a little scary.

NIME 45 | Hustling For Notes

Hustling For Notes: Borrowers have to like you to even want to keep continuing to talk to you.

 

I have a photo of that day when I was about to sit down at my desk. I took a picture of the desk. I look back at that photo and I’m like, “If I would’ve known then how much you would need to know, I don’t know if I would have gone forward.” It was pretty intimidating, but it was a beautiful thing because a lot of people were learning at the same time. There were other guys that might be three steps ahead of you, but close enough that they still could be somewhat human and care to share. That was cool. I think now, there are guys that are ten years in the trade from the crash alone and rarely do I see guys who bought paper from the previous crashes. This was the biggest thing that we were all on the same playing field. Some guys had a head start, some guys had cash. Some guys knew the contacts but didn’t have the cash. That was the position I came from. I started to meet the people who had the assets to sell, but the capital was the challenge for me. I relate to a lot of guys coming from that position.

You didn’t come in this with $5 million in the bank?

No, barely $5, I would say.

That’s encouraging for those coming in and they have the hustle, but they don’t have the wallet. What the pessimist might say is, “That can’t be done now. That was a different time period.” What do you say to that?

I think that’s just horse poop. You can get in where you fit in. There are going to be some major challenges trying to vet yourself when people are looking to vet you. There isn’t a name you could throw out there that you have bought from or to show a bank statement. It comes down to the personality you are. If people like you, if you’re friendly, if you make them laugh and if they care that you care, that’s what I was rich in, but I had no money to follow through if a deal was even shown to me at that time. It’s only cut out for two types of people and the others have to realize that’s probably not for them.

You’re dealing with a lot of different people. You’re dealing with people who are charging you $300 an hour. You’re dealing with people that are bent over backward for you as far as services that they offer. You’re talking to a borrower and right there, they have to like you to even want to keep continuing talking to you. Most of the loads that we purchase are loans that have not been paid for five to ten years. When you call, they’ve had that call ten times before and they know the exact script. You have to just cut that veil and connect with them quickly and then hopefully you get their ear. It’s the same thing for sellers. It’s the same thing for even servicers. Some servicers, you think that they want a new customer, but if you don’t have enough volume, they’re not letting you in the door. You’re always having to create relationships and bring down walls from different areas all day.

What’s interesting with regards to relationships is that what I have found over the years and with being in this space is that the relationships that you have, that you build, that strategy for relationship building was on the sourcing end. You almost need that when you’re working with the borrowers. You almost need that when you’re working with the vendors and putting together partners and investors, that same type of personality.

There’s the analytical money too. I think those guys do well in the space. The guys who are good with numbers and knowing how to strategize, those guys are the smart guys. I try to be a blend of that. I don’t feel too sharp when it comes to numbers. That’s why I have a partner. He’s amazing with numbers. When it comes to the relationship building, that has been my strength from day one. The connecting part is interesting because you see guys spend money. They go to the conference. They’ll talk the talk but at the end of the day, they don’t follow up. A lot of these guys are just throwing those cards in the corner, the guys who are legit that could change your life if they open up the doors.

To out-do a competitor in terms of due diligence is key. Click To Tweet

Those guys are throwing them in the corner with the other stacks of cards. It’s hard to fall through at all when you just didn’t connect. You have to connect instantly and then you can start building off that relationship. It doesn’t take too much. It’s being real. I think being real and authentic and you do have to have the hustle because this money isn’t going to be brought to you on the buy-side. The assets on the sales side are not going to be brought to you, so you have to get it.

There’s a whole great divide between the rich and the poor and the note space now. Where the deal flow is, there’s not a lot of players at that level. There are a lot of players still at the lower level and they’re fighting over the deals, high price deals on lower levels. Talk to me about the younger Michael who was coming up in the space. What are some of the things you did from a sourcing perspective that didn’t work for you? I know that you’re focused always. That didn’t work, you probably forget about it and then just stick and move. Do you remember a few things that you did that you wish you wouldn’t have done or you would’ve done differently?

There’s a million of them for sure. I think going to conferences is huge and I approached it in different ways. There were some ways where I tried to plan and the things just didn’t work out well. The conferences that were on a last-minute jump on the plane and buy your ticket while you’re at the airport, those conferences sometimes worked out the best because I didn’t have an agenda. It was more about trying to connect and people that you get introduced to, trying to feed off of that. As far as sourcing, I learned fast that if that seller only sells chocolate, then don’t come ask for vanilla. If he only sells vanilla, don’t ask for chocolate.

You should find out quickly what they do, what their model is, what their focus is and how long have you been doing it for, then semi-latch onto them. A lot of this stuff that they buy comes in large bags and there are a lot of assets that don’t fit their model. Just like me, I have learned sitting in my portfolio that I look at every four months and it sounds crazy, but I’m focusing on what is going to pay now. There’s going to be so far as I can make money on, but I had to spend the time and the money to go do that. If you were a smart, newer guy, you would latch onto twenty guys like me and stay in their ear and find out what they have in their bag that they don’t spend time on, that they might want to sell.

I think that was the best approach, but I didn’t try to force a lot of relationships if it didn’t just come naturally. I’ve stood away from that because why try to keep kissing that guy’s ass, so to speak, if he’s never going to give you the time? Most of the bigger guys will entertain you. They’ll sit down with you and they’ll talk to you, but if there’s no follow through on their end quickly, then they’re onto other things. I learned how to kiss a frog and see what the result was. If I saw a chance of maybe doing something down the road, I stayed with them. That means only at the conferences and maybe a follow-up email every now and then, but I stayed on the radar.

I don’t know if there’s stuff that I did do that I wouldn’t do again. I was passive in the sense of I wanted to get to know everybody but at the same time, I wasn’t going to yap my mouth and say I had $5 million when I didn’t and didn’t even know how to play the game yet. There are those that I look at now that I need $5 million for, but I know I have the relationships to bring that money and to fund that money because I’ve nurtured those over time. I tried to kiss the frogs and force them and shake them to see what they have because I feel like there’s something there and I know there’s something there.

I’d say for me it was thinking too small for a number of years. I was self-funding a lot of the notes. I would cherry-pick off tapes and I would leave notes, set junior liens with partial equity in good states. I would leave a bunch on the tape because I didn’t have an appetite that time or I was thinking small. I didn’t want to pick up too much. I wasn’t thinking, “Maybe I could bring in investors and I could grow this thing.” I thought like a small business operator. That’s one thing looking back that I don’t want to be conscious of not doing again.

I did that a lot too. That’s smart because in this business, you go to the bat one time and if you strike out, it’s pretty much one strikeout and you’re done with that guy. You didn’t want to get too aggressive because if let’s say you did get aggressive and he didn’t fund it, then that looks bad. That was the right way to approach it. Because you have the experience and the relationships, you’re willing to take that risk now. You can figure it out pretty quickly now.

NIME 45 | Hustling For Notes

Hustling For Notes: Going to conferences and note investing events allows you to meet people who can nurture your mind.

 

I’m full blown with the relationship building and transacting and doing what you say you’re going to do. In this day and age too, you need to be able to take mixed bag tapes and pools and vet them carefully so you know what you have and you’re pricing accordingly. To outdo a competitor in terms of your due diligence is key right now. Outside relationship building, did you do anything? Did you try to make any moves as you were growing the note business that you see didn’t pan out or it did pan out?

The asset class. I defined my asset class pretty quickly, so I didn’t want to go outside of that. That’s probably the number two or three reasons why people don’t succeed is because they might be asking for everything and they don’t master that one asset type or asset class. It’s hard to master something when maybe you don’t see that often. I remember though, getting tapes in commercial like commercial loans and I’ve never done a commercial loan. Maybe swimming that pond was a little scary but at least I tried it though. You’ve got to get the experience because there are going to be guys that talk the contract for deed. I can’t follow along with them. I know a little bit about it, but I can’t hang with them on the contract for deed. I don’t look for it. Performing first mortgages, I know that they live at yields from quality paper. The yields are just so low that my cost to capital is higher than that. I don’t trust fish in that pond.

Someone sent me an email and they said, “Are you interested in any first mortgage performing in Texas?” When they say that, I already know that first mortgage plus Texas, they’re going to look for an arm and a leg. They’re not going to give me any yield on that. It’s interesting. I almost say, “Send it over,” but I don’t have any interests. You have to know your sandbox.

For the rookie guy who’s trying to make money off of anything that he sees, let’s say he doesn’t seek product too much and then you send them a tape of ten loans and there’s a mixed bag. The guy who receives that on the other end, you’ve got to be a hustler at the end of the day because maybe you don’t have the money. You need to find someone who has the money. For me, it was brokering first and then it became more of the actual capital behind the guy who’s managing it. In the beginning, find out what the guy is selling and maybe there’s a fit where you can find somebody who would buy that and you can make a fee. For the first couple of years in my business, that’s how I did it, connect you with that guy and make a fee.

That’s where you start to get an idea of what pricing is on asset types and why guys don’t buy certain assets because of whatever risks. You’ve got to dip your toe and get an idea of the full spectrum and then you can start defining it as you get more mature in the business. You should be studying all the different asset types in the beginning because you never know where you’re going to fall in love with or where your capital’s going to be wanting to find and follow up with.

How much due diligence did you do initially when you were doing brokering?

This is the thing. Some of the guys that I rep for were sticklers. They cross their t’s and dotted their i’s. I had to learn very fast. He was smacking me in the head with stuff that I should have come with. I would try to bring this as a full package as possible and hopefully there were minimal questions at the end. In the beginning, it was just checking value, looking at the house, looking at the borrower’s name, trying to get an idea who he is, trying to get an idea of what the deal is. It wasn’t looking at credit reports or running PACER or sending people out there to take a look at the value. It was nothing like that. I’m glad you said that because here’s what I want to touch on if possible. If you’re a newbie and you’re trying to broker, you can make it. You could crush it if you do it right.

That’s delivering a good quality package to your bar or your potential buyer. If you could save him time and do a little bit of work on your end, you can speak to the deal and then you could give them an idea of what the play is. When guys bring me loans now, if they tell me, “Mike, here’s chocolate. Here’s how you could do it. This is the problem with the borrower. This is what you’re probably going to end up having to do with this guy,” that creates so much value.

You have to brace yourself for that emotional roller coaster ride before you get into note investing, otherwise it's going to turn you out. Click To Tweet

We have Matt, Kelly, Alex, Dan Zitofsky, Val, myself, yourself, anyone of us would welcome a broker/loan advisor that would give us a full-blown due diligence package of notes within our parameters. We would welcome that all day long. There is a real value. My question to you is if that’s in such high demand, why are so few people doing it and so few people doing it well?

I don’t want to say that it’s the guys who were on stage preaching. For anybody coming into it, you can go on Google and you can find the top three because we were talking about it all the time. We were always pushing content. It’s funny because I love when I see stuff that you post in, you’re almost being so real that it almost sounds like you’re trying to discourage people to do it because you’re telling them the real while other guys are like, “If you have a heartbeat in a smile, why not make $1 million tomorrow.” It’s coming from the top-down, but it’s basic. It’s the same stuff every loan. You’re checking off the same boxes every loan. If the broker knew that, I don’t think guys are teaching that. If the broker knew what he needed to bring, they would do it. They’ve been taught to throw stuff against the law and hopefully it sticks. That doesn’t work very well.

For me, it comes from business ownership. I’ve been a business owner since 2004 and I don’t have any W-2 job. I live off of what I do here. There are times that I have cried because I have been so broke and there are times that I’ve cried because I’ve made a good amount of money. It’s so emotional that there’s no way that you can sit there, disguise it and put it out there like some type of panacea. It’s not. This is a lot of hard work no matter which way you play and which way you carve yourself in. Let’s move into funding. You get to know what you’re doing. You become proficient and you start building the relationships. Does money just magically find you?

No.

How did you get connected with people that want to be a part of your success and want to be a part of what you’re involved in?

Money doesn’t just come to me. It was groomed over time. Most of the guys who fund me now were guys that I either sold loans to, to be a broker too for them or I help them buy. Those are the guys, if I look right now, my top eight guys are all guys that I used to work for and be that broker for that deal finder. That’s how it was groomed. I would show them a deal and then knowing that they weren’t going to fund it, I would give them an insight like, “I’m buying this deal right now for $30,000. This is what’s going to happen. Hopefully, I hit it.” I come back to them when it’s done and be like, “I did it. Remember that deal I told you about? That was the $30,000 and I did this. Isn’t that cool?” I did that constantly with the guys where the next year came up, I would be like, “Do you want to get involved in this deal now?” They would put up the cash. It was nurtured. It was groomed.

They already knew you. They already knew what your character and what you’re about and your thoroughness with bringing deals to the table.

That’s because I didn’t know anybody who had capital before, so I had to organically create that. We buy seconds and there are not guys offering money for seconds as far as funding capital. There are guys offering to fund you for first mortgages but not much in the second space.

NIME 45 | Hustling For Notes

Hustling For Notes: You got to be a hustler at the end of the day because when you don’t have the money, you need to go find someone who has the money.

 

That’s always bizarre to me that there’s so much emphasis on the first mortgage space. I get the security, I get your head in line and all that, but what I don’t get is when I hear CFD on $30,000 properties and I hear first mortgages on $70,000 properties that are worth $30,000 when you resell them, I don’t get it. The junior liens that we play in, low FMV is at $150,00 a lot of times. These are good quality properties with borrowers that have some means to pay for the most part. It seems less risky for me. Fuquan always had a good saying. He said, “Seconds are first.” I always had it stuck with me if you will. You have now a network, a community that you’ve built around yourself of players in the industry. I assume it’s no longer you just tapping everyone, “Have you got anything?” Your phone rings every now and then.

I love to still pick up foreclosure lists and scan them for deals, but I wish I had the time because it is coming in the other way now. It was five to seven years’ worth of plowing the fields for it to grow like that. It is fun when they do call with the deal, but you’ve got to find those guys for them to know you and then bring them to you.

You can’t wait for your phone to ring. If your phone’s not ringing, you need to be making outbound calls. There are a lot of people that don’t make it in the industry for the simple fact that they don’t like to talk on the phone. They think somehow you can build a community on Facebook and on emails. That’s LinkedIn, and Facebook is just a research tool. Who do you need to talk to?

I’ve taken angles like this where I’m a member of the Mortgage Bankers Association. They have continuing education courses. If you sign up for those continuing education courses, those people that are in the class, they’re not guys like you or I. They’re guys that have been sent there by their company to get the education. These guys have positions that are worth mentioning. I’ve met guys through continuing education courses run a different way because you’re sitting with the guy for three days and then he’s like, “I’m so-and-so servicer.”

Give me some insight on how this foreclosure list works. You get the foreclosure list and what? Do you go to the county and do digging around?

If you’re struggling to find deals, I’ll tell you now and after this, you can never complain again. Public record is free. There are companies that you can pay to get all the data on public record. When I go do it, I want to look for seconds, so I can flag it for second mortgages and I can flag it for anything that was filed on public records for the last 90 days. This is the system that does four states on the West Coast, and you can do this all over. It’s not me trying to create more competition. I’m just showing you guys, “There’s a pond over there. They have a bunch of fish. This is how you do it.” I go California. I go notice of the fall following the last 90 days. I go for second mortgages and the origination date of that second. I don’t want to look for anything that’s over 2013. I go 2012 or lower. Vintage.

If the guys that you’re calling, they’re not going to be the Wells Fargo or the Chases of the world. They’re going to be Mike Soliz LLC or their names. A lot of times these guys who fund mortgages or private money loans for under self-directed IRA has their name on it. You see the guy. You see who it is. I pull that and I started getting rid of all the banks, all the credit unions, and I get down to the private guys. I do skip trace on those guys. I find the guy. How you find them is you pull the mortgage. When that borrower signed the loan, that mortgage gets sent down to the county, it gets stamped on time date and then the original gets mailed back to the owner. That mailing address on the documents can tell you where that document’s going to go. There you go, John Smith lives on Cleveland Lane. That’s the guy.

You do some skip trace and you can get his phone number and I call him up, say, “This is Michael. I noticed that you have a second mortgage that you’re foreclosing on so-and-so street. I am a buyer of this type of paper. Would you be willing to hopefully sell that loan?” I know it’s a pain in the ass to foreclose. It is. If it’s a loan, that was funny a couple of years ago, the guy’s going to walk it out all the way through. You ask him. It’s been hanging since 2006 or 2007. Money is not an issue for the guy because he’s been letting it drag for this long. Make them an offer and make them a good offer that he can justify giving up and taking this loss. It’s a loss for him because that was real money. That was a loss for him, but it’s more of a pain in the ass for his time and money. He’s not seeing it as, “I’m losing $60,000.” It’s, “I can get rid of this headache now.”

You need partnerships and strategic alliances with other people that are going to complement you. Click To Tweet

He doesn’t see the whole loan modification and let me work with the borrower. If he’s a small investor, he just may be thinking of the property. The asset is the property, not the promissory note.

He looked for cashflow, that’s why he liked the money. The guy was going to pay him 12% interest on this loan for the next three years. The guys who put money out in 2007, they found out at the end of the year that no one has a job no more and the whole banking industry fell and the real estate values are going down. He couldn’t foreclose because that property had lost, diminished by 20% or 30%. If you’re a rookie, if you have no money, at least afford the subscription to these websites and pull data and then make it happen.

That’s the way to do it. Here’s the thing. Once this guy sells you a loan, remember, he’s an investor. Not only did you do him a favor and get the headache off his lap, but now he’s like, “Now I’ve got $60,000 from his note. What am I going to do with it?” You can have that guy give the money back to you and then have him find you. I’ve had that happen. These are all investors. You’re building your list as you go. I always said this and I’m giving it away right here. If I called the guy on day one from his foreclosure and/or the filing, he just cut the check to the trustee company yesterday. It’s filed officially and he’s like, “Let’s get it going.” If you call that guy right there, he’s going to be like, “I’m excited because we just filed. We’re going to go to foreclosure now.” He might not be interested in talking.

I always plant the seed and say, “If this guy happens to not reinstate you or pay you off, he’s not giving the house up to you because there’s equity in the house. He’s not going to do it.” What you’re going to do is go to file thirteen. If he files a chapter thirteen, that means if he gets approved, if the court approves him, then he’s going to be here for another five years and you are too and holding it for another five years. Hopefully, you get the reinstatement. Hopefully, you get the payoff but if he doesn’t, I would be interested in buying it at that time.

To a person who doesn’t know what to invest for a profession, what they’re thinking of is, “I’m just going to have this drag out for another five years.” This guy will stop paying after six months. He’ll probably get kicked out of the program. I’m going to have to deal with them again, get back into legal, etc. They’re only thinking about all the complications. They’re thinking five years of headache with this person. They’re not thinking, “I’m getting on the payment plan and your lender and I’m going to be good.”

I always tell him, “I have a team that supports me, so you need a team to track these guys.” It’s funny because I only know this because this is experience. I’ve been at the door of the auction sale and the guy files bankruptcy and I’m stuck. I have to sit there and wait for him to get the paperwork submitted and see if he can get approved and if he gets approved, my whole exit changed. I’m here now for five years taking cashflow.

We have a question from Nick here. He said, “I’ve been working from foreclosure list in PA, but they don’t indicate first or second status.” Is he using maybe a bad list provider or what?

No. Even in Arizona when they go to defaults, from my experience, they don’t list the dollar amount on the default. It’s just public record that there’s a foreclosure proceeding started. In California, the number that you see on the NOD, that’s the arrears number, but when it comes to seconds or first, you can subscribe to DataTree, for example. It’s a little pricey, but it’s worth is weight in gold. From DataTree, you’ll see if it’s a first or second. In most counties, they are almost up to speed now where everything’s digital and you can see the copies of the recorded documents. That’s the way to solve that problem, I would say.

NIME 45 | Hustling For Notes

Hustling For Notes: You need a team to track the right guys in the note business.

 

What’s the end game on your note portfolio? I know before, you had that sole focus of doing the brokering or the consulting work and then you move into getting funded. Now you pick up pools of notes. What are you looking to do with those pools of notes?

The majority of the loans are nonperforming, so they’re not paying, I hadn’t paid for some time. My model is I believe that we’re at the top of the market now and it’s wise for me to build a cashflow portfolio. When I go for loans, I’m looking at loans that have a senior of 50% or 55% LTV and the second could be 85% or it could be 130% combined on the value. If that senior is at 45 or 50, I’m good. I’m interested in that deal. When I’m buying those loans, my job is to get these guys to pay again because my model is to season it and then to sell it to investors who want cashflow, who are passive. The discounts are 20%, 30%. The returns are mid-teens or higher. If it’s a solid deal with the seniors’ pain and he’s at 55% of value, find a second. It makes sense. The returns are aggressive, so there’s a lot of money out there looking for that and that’s my model is to sell it to those guys.

As far as value, to buy loans with the seniors at 90% right now and the guy has another 60% on top of that in the second position. Once the value starts to go down, that guy, forget about the second. The first now has a major problem because now the guy is underwater on first. To me, holding that type of paper, it’s only good for the next two or three years and it gets your money and then sell it and get out. My model is to perform them and trade them. This was 2009, 2010 we’re at the bottom. My model is to hold that paper. When the values go up, I’m getting payoffs. That’s the model there, but now it’s your turn.

We’re at the top of the market. If there’s no equity back in your second or because you’re having to buy these blended pools now, you work with a borrower for short sales solutions or at least you can recoup some money or be very flexible when you work a loan modification with the borrower to help them not file thirteen and strip you out.

Martin, the new guys are coming in that are buying nonperforming. Do you think that they’re focusing on that stuff that has that equity position where the senior is at 55? Do you think they’re focusing on the higher spectrum where the senior is at 85 of value? Are they buying the seconds behind those? Do you see the newer guys?

Here’s what’s very interesting. I was talking to Joe Robert about this. It was Silver Bay. When I was first starting to buy in 2013, I would see so many loose notes on the ground and there were so many with partial equity or no equity. There was that thing. There’s a lot more cherry-picking going on. In today’s market, it either seems like there’s all equity notes, full equity junior notes where the first is performing and the seller wants an astronomical amount of money, and then there’s a whole bunch of unknowns, first delinquent, first foreclosure notes. Those days where there was some good balance where you could get that partial equity. You could still get it decently priced because it wasn’t full equity.

I think a majority of the people that come into this space still like that first mortgage model because there’s that Lone Ranger JV model that’s being taught still by the Walmart trainers that are out there. Go punch up your relative for $100,000 and then go buy a first mortgage note for $100,000 and then split it 50/50 and everybody wins at the end of the day. That’s still a popular model, but in our space, in the junior lien space, it almost attracts the people that want to help homeowners stay in their homes and do loan modifications. That whole win-win scenario. For those people, a lot come in, they don’t understand the landscape. They risk-averse at first, so they just want to go to that full equity scenario. They’re like, “I might wait a little bit longer. I want that full equity. I know I’m going to have to pay for it a little bit more, but I don’t want to get burnt on my first deal.”

I’m saying the exact same thing where in the pool, you either have where it’s defined where seniors’ paying or you have it defined where it’s unknown. You can find a lot of value in that unknown bucket, but the price has definitely gone up on seconds. I posted that and I’m like, “It’s gone.”

I know why you posted it. It’s crazy what’s going on, the last few crazy rates.

It’s crazy, but depending on certain pricing, it works. When you get aggressive like those numbers that we know about, right there ten of your assumptions have to be right for you to make money because you’re going to lose it right there.

My model is a little different right now since I’m an introvert by trade, so I like to be about myself. Now that the book came out and I’m out there a little more and I’m training some folks, I only train on a small level and then I started to mentor a few people, a handful of people. That’s the whole key, a handful of quality people that have capital and have good character. There’s a whole mutual benefit and then we form a buyer’s group and then we’re leveraging each other’s strengths and weaknesses, but also it increases our sales force. More people are turning over more stones, if you will. That’s my growth strategy. We have more resources from a vetting standpoint, from a capital standpoint, so we can look at a 400-note pool and be able to run due diligence on it professionally. Also, we have five people out there sourcing at any given time.

In this day and age, it’s an exciting time because so many people are scared. Even veterans that have been in this space for ten years, fifteen years, they’re now very nervous. They’re gun shy because they only knew the good old days. They never spent that time honing their skills and reinventing themselves so now they’re trying to make, do, or understand this new environment that we’re in. That leaves it open to people that have raw hustle who are nonstop fixated on cracking the nut. It’s going to go out there, myself, yourself, which is why we enjoy each other’s company.

You’re so honest and so real. That’s what attracted me in the beginning because I was like, “This guy doesn’t have a hard time telling somebody. I don’t think this is cut for you.” Don’t waste your time because you’ve seen what happens when you go around that corner. No one prepped you for around the corner. They just prepped you to go straight to make the time, but when you got around the corner, there was so much to do and you’re like, “What? How do I learn this in a boot camp weekend?”

Any first exposure, whether it’s podcasts or books or whatever, someone needs to think, “How much money do I have?” First of all, you have to be good with money. You can’t be a mis-manager of money and then go out, look and say, “Let me make more money so that’ll cure my mismanagement of money.” No, it just creates bigger problems. You have to say, “Am I good with money? Am I ready? Am I so fed up with my crappy situation that I’m ready to go kill it and go make a better living for my family?” If you answer those questions, then you should answer these questions out of the gate. You get into note investing because it requires so much information and ongoing hustle.

Do you see a lot of people come in from the 8 to 5 gig and now they want to go into the note business, or is it they were entrepreneurs over here but now they want to be an entrepreneur right here? What do you see?

I may be a little biased on this, but what I see is that people that are in, they come from business ownership, from a full-time real estate investment background. They come from a sales background, do better or have an easier time breaking into the industry. That’s my opinion because they are used to rejection. They’re used to bootstrapping, they’re used to all those kinds of ups and downs, which the note investing industry is very full of ups and downs. It’s crazy. You could be in a low for four months and nothing’s going on. You feel trapped and then two large trades come out and then you have to be full-time nonstop. You have to go through that. If you’re someone that’s used to comfort, and I’m not knocking anyone, but let’s say you have an 8 to 5 job. You work for some government agency and everything’s very safe and secure, you’re not used to that emotional roller coaster ride. You have to adjust for that emotional roller coaster ride before you even get into note investing. Otherwise, it’s going to turn you out. I don’t know. That’s my thought on it.

NIME 45 | Hustling For Notes

Hustling For Notes: Those who come from a sales background have an easier time breaking into the notes industry.

 

That’s the truth, 100%. The ups and downs, the downs would crush you. I’ve been in spots where from the outside it doesn’t look like it’s like that but on this side, everything’s on fire. You’re juggling in the houses and you’re having to catch all this stuff especially when you’re out there alone. When you’re doing it by yourself, there aren’t employees or assistants or partners. You’re just by yourself. You need to talk to somebody. You need a therapist that knows the note business so they can help you out.

The mail comes in every day and you see it in attorney’s letters. Attorney, you know what that is. You know those amounts come in whatever triple digits. The train still moves on. You have to take care of your attorneys because then they’re going to stop working on your files and then where does that leave you? This is a turning point because we are at the top of the market. For those that put in the work, that continues to learn, that are just willing to make this their profession and treat it like a business, are going to do so well when this whole thing turns around and there’s more deal flow. It’s going to be insane. I’d be like a note monster. I would not leave a note unpurchased when the whole thing starts flooding when the floodgates lift like I did last time.

I can wait for those days. I know a couple of guys that were here for the previous market and they said when that happened, they were like, “Let’s do it.” They were so excited. The business is awesome. It’s very challenging. If you don’t have the 100% hustle inside you like that fire, you’re going to struggle with it because things could sit on the burner for a long time and people will allow it to sit on the burner because they’re getting paid for it to sit on the burner.

I think also too, these are the days, you had very good competent partners who are good with numbers. When there are more loose notes on the ground, it’s easier to be a lone wolf and a lone ranger and go at it. Your strengths will always carry you, but then your weaknesses you can make up for it because there’s so much deal flow in the market. Your weaknesses will kill you because they’re called you back, so you need partnerships. You need strategic alliances with other people that are going to compliment you. Every weakness is someone else’s strength. Know what your weaknesses are through self-reflection and go out and find competent people that have strengths in those areas. Make some magic happen as a result. That’s so critical in today’s market.

I love to hear that you surrounded yourself with guys who have the integrity, the hustle and the money. That’s amazing.

They’re coming up with systems and programs and tricking out Excel and all this stuff. I’m not technical, whatsoever. It’s a joke. They don’t even allow me to run point on our calls anymore because it takes me too long on Excel. I have no technological skills. I’ve got just pure passion and hustle. That’s what I come with, so they’re elevating me. They’re elevating me as I’m hopefully lifting them and we will all benefit as a result. Michael, I have a question here for you, “What percentage are you offering for second notes?”

That’s like asking, “Does your car go fast?” It goes faster compared to walking. I get the question. I think he’s asking, “What are you seeing? In what type of scenario?” The scenario that I like to buy, is that what he’s asking?

He leaves it at that. I think maybe a good ending point is if you leave your information and then people can reach out to you and get signed up with you. If you do have any deals or anything that you need to bring in partners on or you’re selling off notes or what have you, they can be on your list for that. In this episode, put your contact information so they can reach out to you and connect.

Thank you. I appreciate that. If there are passive guys who buy cashflow, I’m your best friend.

What’s the yield range?

You know a lot of the guys that I sell to. I think it’s mid-teens. Mid-teens are good to return on stuff that has equity where the senior is at 55 or 65 per value. The discounts are 20% or 30% and you’re getting mid-teens. That’s quality.

Michael Soliz, 1 Oak Advisory, our time together is very special, very meaningful. This guy is a true player. I’m glad I can have him on because in five years, ten years, he may not even acknowledge knowing me. Michael, you take care and be good. Thank you, everyone, for joining us.

Thank you, Martin.

Important Links: