NIME 32 | Note Investing

 

Note investing, same as other industries, is not for everyone. However, Michael Soliz of 1 Oak Advisory firmly believes that there are no gatekeepers that can prevent you from succeeding but your own willingness to hustle and grind. For him, a lot of the people that enter note investing exit after a year because they failed to anticipate the work that comes with it like knocking on doors and cold-calling. As someone who had no capital coming in and purely motivated by his three kids, Michael wasn’t afraid to “clean the toilets” to make opportunities happen. He accepted the harsh reality of being self-employed and played it to his advantage to become one of the huge players in the note industry.

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Note Investing And The Grunt Work That Comes With It with Michael Soliz

We have a very special guest. If you haven’t picked up a copy of my book, Real Estate Note Investing Mentorship, it’s on Amazon. If you punch up note investing on Amazon, I’m number six, soon to be number one. I’m working on it. My other book is number two, so I’m okay if I bumped that one. We’re going to be a seeing what Michael Soliz has to say. Does he know what he’s talking about? Can he even spell note investing? What’s going on with this guy? Michael Soliz from 1 Oak Advisory, welcome to the program. 

Thanks for having me on. I appreciate it. 

Let’s use for simple math, 90% of the note investors that come into the space exit after the first year and roughly 10% make it to the second year and do business out of it for themselves. Why would you say that is? 

You have to wear at least five to seven major hats in the beginning. You have to be the guy who’s sourcing the product. You have to be the guy who’s underwriting the products. You have to be the guy who’s probably raising the capital for the products. You have to deal with the servicing in the last minute. There are many different facets to the business. Not many people explain that in the beginning. They thought it was justI buy a loan from him, I sit there and I make money. You can make some good money in the business. You have to dedicate a lot of time and you are kissing a lot of frogs. It’s called planting seeds. It’s trying to build relationships and plant seeds. That’s what it is. You can’t go to one or two conferences and think it’s all good. There are some big risks.  

There are a lot of different angles to this note business. How does someone new find their way through the maze? There are a number of different ways they can break into the business. How do they break through the cloud?  

If you have money, that’s a different story versus if you have no money. I did it where I got under the wings of somebody who had the capital and I knew exactly what they wanted and I would go knock on the doors for that specific item or asset. From there, you get to watch it from a distance without having to get hurt. After a while, once you learn the game and the rules to the game, then you can jump in there. For people who had no capital, I can relate to that because I had no capital coming in. That’s how I would do it versus trying to pretend like you’re an investor and you have no capital to close if you strike a number with that seller. That’s the scary part, not delivering when you say you’re going to deliver. That’s the hard part. 

NIME 32 | Note Investing

Note Investing: You need to learn how to connect with the borrowers to make a deal.

 

There’s something to be said with coming in with no capital. I know Bill McCafferty is on here and he’s talked a number of times. The last I heard, he’s had in his portfolio over 600 notes over the course of time. He has done it with very little capital out of his pocket, just doing the sweat side of things, the workout on the back end. There’s something to be said when you put in the sweat versus the capital.  

You start at the bottom and clean toilets. After a while, you get to go through every step of the process where now you can start training people. If questions ever came up, you can answer the question because you’ve done it before. It’s the same formula every single time. It’s a matter of checking off the boxes and doing it. 

Who would you rather be? Would you rather be the guy with $1 million liquid in the bank and more on the passive level? Would you rather be the guy who’s broke but has a lot of hustle?  

I’ll take this whole broke with a lot of hustle because you’re not capped. It’s not limited. It’s how much you want to put into it.  

I would take the hustle too, any day of the week. I see very few people with the true genuine hustle and I see more people with a capital in the bank waiting for deals to come to them. 

The hustle is either in you or it’s not in you. The reason why I had to hustle was I had three kids, three little ones and I’m a single dad, you have to grind. I was in the financing part of the world. We know how the origination started from 1999 to 2008. That’s where I got to learn how to speak with the borrower and try to connect and make a deal. That helps so much now in the note business because you have to talk to borrowers. It’s all about collection. If they don’t pay you, they have to pay some way or another.  

No doubt and there’s one in every crowd. Let’s start with Michael when he first started with the hustle. Do you want to take it prior to FCI or where do you want to start? 

From 2008, that went from living in Anaheim Hills, which is a nice suburb over here in Orange County to have you living at your aunt’s house in a bunk bed with your three small kids. The market crushed me. It was all about having to survive. I heard about the paper becoming more available to investors out there. If you’re in Orange County, that was the mecca of mortgage originations. You either had to learn how to do loan mods or have to learn how to buy paper or broker paper. For a couple of years, I’m going through a lot of time and efforts. I’m trying to put deals together and not seeing one penny, not one deal closed. It sucks and that was me cleaning toilets. 

We’re talking two-year point and what’s interesting is you see some people come in. They can’t wait a couple of weeks before they want to start pulling the trigger on some note buyers and everything else. We’re talking a two-year period. How much self-doubt did you have throughout that two-year period? “Am I doing the wrong things? Is this not a business?”  

It was a daily thing. I had to answer to my aunt. I’m like, “$200 a month, at least.” That was tough. At that time it wasn’t residential stuff out there, it was commercial. You had to learn how to go into the commercial world. It was crazy. That was the only opportunity I saw getting out of it and that was it, I had to do it.  

Your kids must have a tremendous amount of respect for you because they pay attention to everything. They have seen you grow up in the space. They’ve seen you build a business from this.  

They have and they get to drive in it every day. It’s awesome because I did show them the downtimes. I explained to them the downtimes and how it was going to walk through. They were able to see you as a witness. When they hear of deals coming now, they blow me off like, “Yeah, dad, whatever.” I’m like, “No, did you hear what I said? We value this much.” It’s been a fun ride for them. I think they know how to put the deal together by now.  

That’s great when the kids see a business unfold when they see their parents doing business. Hopefully, they walk in those steps at some point. You sell notes, 1 Oak Advisory sells notes and when you post something on Facebook you’re like, “I have notes.” You have an air about you. You’re very confident. You’re assertive, “Do you want the notes or not? Stop complaining about no notes being out there. I have notes. Call me.” Your phone must be flooded with thousands of phone calls after you put a post like that out.  

You’d be surprised, not many people follow up. That’s the one thing I don’t understand is the follow-up. I’m talking even after they’ve requested loan information to review. It’s in their hands. I understand it. I make mistakes too. People show me things and I don’t get back to them in time. It happens. You’re trying to shorten that time period down. That’s part of the business as a tool for anybody out there, even the long maybe is the worst. To me, it’s more of the pet peeve when they fill out a form to request the doc, I sent it to them and then there’s no feedback. 

I’d rather have a guy come back and say pass for X, Y and Z than to not even respond. If you’re hungry out there, you’ll figure out how to make a deal. You’ll put a deal together. It depends on where I’m in the deal for or you’re on the deal for. If you’re trying to move product and I like to move product, whether it’s paying or not. There are certain techniques to be able to see more volume and any guy can pick that up if you’re a buyer and youre seller, at all times. It’s more about learning how to chop it up with the guy. There are a couple of key elements that you want to discuss first like the specifics. You should be able to do this on the back of a napkin if you have a phone and PropertyRadar. You can make a lot of money. Source stuff off of from websites like PropertyRadar. It’s unbelievable. It’s crazy.  

NIME 32 | Note Investing

Note Investing: Visualize your goals and have the confidence to achieve them.

 

What’s funny is I started doing this in 2013. I’m still doing it with a laptop and cell phone. Whether I was working out notes for a living or I’m training and have this group and everything. I’m still doing the same thing. Part of me wants to put up one of my signs, “Take action,” when they’re engaging with 1 Oak. The other side realizes that now that I’m working with a lot of people, I see that confidence is a big issue why some people are not following through with you. They feel that they don’t know something and that’s something they don’t know is what’s going to come back to bite them. It’s almost like that’s the hindrance versus them not having the capital so to speak or other types of situations.  

Most of the people in this business, even the guys at the top, there are some spots. We’re headhunters. We’re trying to make a living. If you could talk to a headhunter and be honest with them and say, “I’m a little headhunter. I want to be a big headhunter. What do you have? Let’s talk about it.” It’s simple. It’s either a loan that you’re paying, you’re going to live off the residualloan that you’re going to have to make payments or get a lump sum with it. I’ve had many conversations with guys who said all the right things but didn’t come through. I’ve had more opportunities with guys who asked probably the wrong questions but they came through.  

I did a deal with this guy named Derek. He has a 9 to 5. He’s been running his business for a couple of years. I was shocked that by the time from the first conversation when he funds it, call it like ten business days. That was from him having to still take care of the wife, the kids, the job, but he was able to look at it over the weekend. Believe it or not, you can look at deals on the weekends. He got back to me on Monday morning like, “I’m in.” It was so quick and I thought this guy had been around forever based off how fast he researched things and get back to it. That was cool to see. 

I got to take some credit. He did take some of my training programs. I’ll give you another example. Shawn Muneio with New Day Funding, he took my Mentor Protégé Program and he has a full-time job in one of the large corporations, L3 it is. He has a wife, they have a tax business and he has three beautiful children. He acquired 50 good notes in one year that he’s done well with. Some people know how to manage that risk. They know how to take action but with confidence. 

They see it and they believe that they can take one step at a time and get there. That’s the cool part is believing and they’ve got to see it first. If you can’t see it, it’s like no vision. This business is crazy, the fact that you can buy money at a discount. 

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That’s something the rehabbers of real estate have trouble with sometimes. They come in and the discounts that we play with are very different than the ones they play with. Throughout the auction block, they pay $0.95 on the dollar if they’re lucky, hoping that there’s no mold in the property or what have you. We’re over here with the discounts, so we’re playing with it. It seems very obscure, our industry, to some people where they can’t try to peg it when they’re always real estateminded. Do you see that people in the space, especially from your time at FCI? People that come from a straight real estate background are having trouble adjusting in the note space. 

It’s hard for them to get their hands around value because the value to them is so much different compared to what our value is. They’re thinking of what is it worth as-is. It’s the same with us but they’re thinking, I’ve got to spend $100,000 on the remodel,” and we’re like, “It’s worth this tomorrow if I sold it.” 

How about cut the lawn and do cleanout and then put it on the market as-is? 

I have a friend named Lauren. She’s awesome. I met her a few weeks before at an REIA. I had taken back property, I sold it to her because she was a rehabber. She went through that whole process and that was learning more about the paper side. Talking about being able to jump, I see people that are very new in the business jump and you know what happens? Their parachute opens one day. It keeps on getting bigger and bigger like Shawn Muneio. 

Before you know it and you know Shawn too50 notes in one year. Given everything else, there are people that do this fulltime and don’t come up with 50 notes in one year. He is doing very well. Tell us about FCI. You get a job at FCI. 

Back in 2010, FCI had this new rollout with the website and it gave me a training platform. I remember that the website was in yellow, it was ugly. I was like, “This place is going to come up,” because I saw DebtX blow up. I saw Mission Capital blow up and a couple other of those broker-dealers. I thought, “This could be something that blows up in my backyard, so why not try to get in? After pushing, a beautiful lady by the name of May Baki she’s the right-hand of Mr. Griffith there, brought me in. We had an interview and it worked out.  

I remember my first day, I was so scared. When they talk about a loan, I don’t want them to hear me because I didn’t even know what I was talking about. You have to learn and it was cool to be able to look at the portfolio of the guys who are calling in to see who’s who. That helped me out because then I was able to ask those guys questions specifically. They wanted something for me. They wanted to sell the loan. If I saw your loan, you’re going to give me some knowledge. It was a good two-way street for a lot of investors out there. 

I know Yang Carlo, him and I formed a friendship back some years. I know he went off on his own too. Do you keep in touch with him by chance? 

I have not. I reached out a few years ago and I hadn’t heard from him since. He’s doing big things. I hope so. 

NIME 32 | Note Investing

Note Investing: The awesome thing about being a self-employed note investor is that you can travel anywhere and outsource anything.

 

He’s a great guy. I’ve transacted with him. He’s honorable and very good on relationship building. This was interesting because we have Dave Houser on with us. He put a post out about understanding the hustle is real, but not understanding how to have that equate to dollars in his pocket. This is a good webinar for you, Dave, talking about Mike. You started at FCI and you worked the job. Most people go in and they work a job. You went in and you took this as an educational experience. This was going to school for you in a way.  

This was like my Master’s degree right here. I learned the financing side and the origination side, but the acquisition, servicing and sales side, that was all new. It was cool because I had some great mentors. It wasn’t just me. I had the hustle, but then there were some awesome mentors that I had around me. Being able to walk into JP Morgan Chase my first year into the business, that was awesome. That was mind-boggling in how it goes down. It’s crazy but then to go back to the guy who only has $5,000 to buy this one note. I saw both spectrums and I was always wondering why that bridge from Wall Street to Main Street could never get bridged. I know now why, but it took time. The guys that are on the street, the one-off guys, we’re so valuable to the funds because we pay that top dollar.  

We bring closure too. We’re at the tail end of the process and we bring closure for the homeowner, the per diem stops. We bring health to the communities and everything else. When all the flipping of the paper stops, we’re here. Dave says two things, “Thank you for the notes. Are you hiring?” Dave, I think you have to start with cleaning the toilets. 

Dave’s on the right path. It’s awesome to see this guy with the chickens and goats in the back. This is not a bust. I’m talking real and sincere hustle and freaking raw that it’s addicting to watch. I don’t know if he knows this, but I get almost teary-eyed because I see the hustle in you. That’s sweet because you never want to lose the hustle.  

Dave took a two-day workshop with me and the first day he’s like, “I wasn’t sure if I should have shaved my beard to come to the workshop.” He thought he had to come in certain of business attire and to look that banker part and everything else. I’m like, “Dave, you don’t know the players in the note space. Some of us look straight up homeless.” 

Flip flops and shorts. 

There’s no business casual, it’s all casual. 

I got an investor who’s right around the corner, I’ve never seen them in shoes. We’d get dressed up to see him and he would be like, “Why are you coming in a suit and tie?” It’s funny as you have to learn how to play the game, depending on what part of the country you’re in. You couldn’t wear flip flops and shorts to New York, that wouldn’t happen. 

I look at it like I’ll cater to my customers. My customers are the borrower because the borrower is making monthly payments to me. If the borrower needed me to dress in a suit and they needed a picture, I’d put the suit on. Since I’m doing it out of a Starbucks or out of my home, I’m not putting the suit on.  

That’s what’s awesome about this business is you can have everything outsourced and travel everywhere. You didn’t have to wear your hat. You sub everything out. Let’s talk about FCI one more time. FCI was the platform that came after one major big link. It was the LowMarket.net that was a very large site at one time. There were some large sellers on there. FCI put a world together, which was bridging that gap between Wall Street and Main Street. It’s hard to do that on a trading platform to vet every deal because not even seller sometimes knows what he has. They had continued to stay there while other platforms have traded or have been bought, sold and gone. If a seller goes on there, especially seller performing notes, you could do a great job at selling loans at FCI on a performance side. They’ve got great buyers, it’s awesome. 

I know everything on the performing side is cents on the dollar at FCI, but from the investor’s perspective, it’s about the yield. If you go and look at it from an annual yield perspective, you can definitely. I’ve sold nonperforming and performing on FCI. It’s a great platform. What is 1 Oak Advisor? Where did you get the 1 Oak? 

In 2012, I left FCI. It was me and a buddy named Aaron who I knew in high school showed me this oak tree as a logo. He’s like, “1 Oak.” I ran with it. Aaron and I both brainstormed on it. It was just me in the office for a long time. It’s tough to be self-motivated when you’re by yourself because you can easily slack. Who’s going to catch you? You also can be anybody you want on the phone when there’s no one around. For all the people who get nervous on the phone, I still get nervous calling certain people. Being by yourself might not be a bad thing in your room, close the door. Here’s the thing I used to do.  

They don’t know this, but I used to record conversations in my first year, phone conversations between the buyer and seller. I would play it back to hear the jargon, to hear how they were going back and forth. I was embarrassed to hear me talk, but it was great to hear those other guys speak so you could always play it back. I would study it. I would say be a master of your trade. If this is what you’re going to do, do it well. The servicing side is challenging. You have to manage people who are getting paid an hourly wage and we have to get them to communicate with your guy. It’s a challenging aspect of the business, the discounts and the reinstatements, it’s awesome.  

NIME 32 | Note Investing

Note Investing: Do your due diligence to give investors some insight into the projected exit strategy of the investment.

 

You’re a nice guy and you would be surprised how far that gets you with people, people that are seasoned when you’re new. They’ll overlook some of the newbie things because they’d see that you’re there, your heart’s in it. You’re trying.  

I would do the same thing. You would do the same thing. If some guy was like, “I want to learn the note business.” He showed up every morning to wake you up and you’re like, “I like this guy.” Of course, you’ll let that guy come in. He wants to work, he wants to learn. 

I want people to make it. Whether they work with me or don’t, I don’t care, that’s your call, just make it. I look at this country and there are many people in financial pain. It’s unreal and nobody wants to work a second job. Nobody wants to work for over 40 hours. They’d rather be looking at Facebook posts on all these people that are so successful versus going out and figuring out how to create success for themselves. I’m not trying to be condescending or anything, but there are a lot of people that need something like note investing to go and transform their situation. 

It’s the hustle. They don’t have the hustle. You can clean the toilets and crush it if you became the owner of the company. It’s the same thing with the note side. The best thing for a guy who has no money getting into it is partner up with someone who has the cash and is comfortable in buying in certain areas. If he wants vanilla, you bring him vanilla. Not only do you get to watch him invest his money, but you also get to see how those deals go out and panned out without having to put any money in, plus you got paid to bring the deal to the table. You could make a living watching other people get successful and you’re helping them get successful. After a while, you have your little nest egg and you can go out there and buy that loan the next time because you’re the guy who’s been pushing it the whole time. You’re going to find it. 

The activity, the motion is so significant whether you’re brokering the loan and you’re making $500 on it, which it’s not going to retire on it. However, it’s more significant that you closed on a transaction. Now you can go out and close on five transactions and then you can go on working on 50 transactions. Motion is the most critical thing. I think we agree there. You go from FCI, then you start 1 Oak and what is 1 Oak’s business model? 

It’s to acquire mainly residential second liens on a national scale. We were just focused in California. Now it’s more on a national scale because of the product being more available in other states. I was spending most of my time more in the default market in California because I saw 4,000 to 5,000 notice of defaults filed on seconds in California. I figured there was enough here and most of the note guys that are at the conferences say California is super expensive. They would stay out of my backyard. If you’re a New York guy, if you have your law firm, your attorneys, you could probably crush it. I always hear that New York takes a few years and you never know. You could kill it in New York if you wanted to do it. You can do it in Ohio, anywhere. 

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I know you know Allie Morstodd. They’ve picked up a bunch of New York notes and they have good legal out there. You find the niches and you have to be where everyone’s not. That’s the only way to be unique.  

Plus it is having the sources too, having the relationship. Notes right there will keep you fed during maybe even the lean times. It’s a consistent source. I have guys that I trade with that were like one-time buyer every 90 days and then they became more of a buyer every 45 days. After a while, you start wanting to show them stuff because they’re the guy who’s going to buy it and they can close quickly and it’s easier. 

I got to tell and I look like I’m drifting off here, but there’s only one thing that I’m thinking about. You said Mission Capital, DebtX. I’m like, “Michael is looking to be the next or better than DebtX.” You’re looking to go and see where they have inefficiencies. You’re going to go and crush it to that level. Am I off? 

I think you’re on. That’s what I would love to do. I would love to be able to have a five-click sell process. It’s the vetting part, that’s the hard part. If you can show the investor how the deal looks like and where it’s going to go. If you can paint pictures, you’ll crush it in this business. You can see the borrowers have been five times delinquent on his mortgage over the last few years. I’m talking foreclosures. You could put this out to the investor and be like, “Look at it based on this.” My goal eventually would be to have it broken down on every loan in my portfolio and an investor can go see it and crunch the numbers on his own and then buy it.  

Would you give a projected exit strategy for each note? DebtX will sell you a portfolio. They’re not going to make any claims on it. You go, “I’ve done a preliminary round of due diligence. I feel like this could be your exit strategy.” You’re not going to go and give them any promises with returns or anything like that. Would you give them some insight that way? 

Yeah. Most of the files if not all the files I sell now are loans that I bought with my own capital. It sounds like I’m brokering it saying, “You could hit a three from that corner if you shoot over there, I promise you.” It’s like I spent the money, it’s gone through my hands. Here are my two exits that I think is probably going to go based off their past dues, their pay history, their FICO, their LTV and CLTV. I think it’s going to end up like this. After a while, you don’t have to be a seasoned vet to know where these files are going to end up going. I’m putting it with documentation I would say. 

You get quicker, I’ve noticed that a while back. Reading credit reports and getting a picture of the borrowers’ profile. You get quicker over time and you can zip through things in that. It’s pretty neat that way. I know that some of the people I work with struggle on their first tape, note tape or what have you. They may spend a few hours looking at the credit report analyzing every character. Where you and I just zip through it and be like, “This person is a hyper consumer,” or “This person doesn’t have any money,” or whatever the case.  

NIME 32 | Note Investing

Note Investing: You have to be open-minded and flexible enough to make non-performing assets your bread and butter, while keeping an eye out for performing ones.

 

Pricing is something that needs to be defined more on the nonperforming side. The numbers don’t lie. That’s why this was beautiful. I was a D-student in math. If you walked down every exit, like if the guy was down $10,000, if you reinstate it, what’s the monthly income and can I live off of that return? If he mod it at this payment with this down, what does that look like on an annual basis? If you went to BK and came up with a pre or post-petition plan, what do those numbers look like? If I sold the note tomorrow for X that I bought it for Y, what does that number look like? That should be run through every model on every loan. If it’s 130% LTV and you’re buying the second for $1, come on. Every time you should run through that model and I think pricing, you can see where you could be aggressive and where you’re too thin on a return.  

Couple those return numbers with what due diligence you’ve done and what assessment you’ve made on the property and borrower. You can say, “This is most likely to happen,” or “This is my worst case.”  

“The worst case is you can pay me this.” You can look at your investor in the eye and be like, “If he does pull that, which is the worst case, we’re going to make this. Are you happy? I’m happy. Do you want to do this?” It’s done because the numbers do not lie unless there’s some fraudulent stuff on the file, which I haven’t run across that much. It should be something that gets done. I’ll give you Shawn Muneio. He was awesome. Do you know Tom Boren with Aspen? Those are the guys that you can show something on an Excel sheet and you can call them and they can chop it up with you right then and there. They’ll tell you pros and cons right then in there and as a seller that’s what you want all day. If you can see eye-to-eye, everything else behind that should fall in order as long as the seller wasn’t saying something ridiculous. Everything has to be supported by documentation. You should be able to chop it up pretty quickly after getting comfortable with what the worst-case scenarios do look like. That’s why you have to clean toilets to get through that process to see what that looks like. 

To add on to what you’re saying, the cleaning of the toilets is spending the time reading through the collateral file and seeing what’s missing? What am I going to struggle with? There’s a missing assignment of mortgage, getting with your legal team and seeing if that’s going to be an issue before you buy the note, all those little things too in addition. I will put words in your mouth. I said DebtX and Mission Capital are out where you’re taking this. I wouldn’t suggest where you’d be taking it unless I thought that you were going to hit the highest point possible. You’re going to reach whatever that top point is for yourself. I’d put my money on you. Is it starting a fundraising debt and then going out and buying large? Is it taking your model and expanding it to DebtX size? 

I’ve had buddies who have spent $100 million and they’re owned by their investors. I’ve got guys who do like we do and crushing. I’m not saying $300,000 to $400,000 a year, that’s not bad. That’s not going crazy. That does not have to sell your soul either. I am leaning towards more of the volume if I can, if God willing, but that’s just to feed the other guys below me.  

A lot of funds that had seen a lot of hits is the ones that are paying back their investors. They’re borrowingtaking on debt and paying back their investors 12% a year. Meanwhile, it takes them a few months to buy a note pool and it takes them a year for it to start performing. They’re not seeing any money back for a good year to a yearandahalf. Meanwhile, they’ve been paying out and cannibalizing themselves with 12% payoffs to investors in that. The legal Ponzi scheme does exist. They take on new investors to pay the old investors. That’s an example of selling your soul. Even if it’s 10%, the point still remains. I like what you’re saying, that debt in-out, they get a note pool. They shape it up and get it offloaded and collect their fee and move on. 

That’s more as a broker though. You could start off a state broker and make crazy money as a broker. There are a couple of brokers that I know of that crush it and are known for a specific asset type in the Wall Street world. As a normal guy like you, I don’t know. It’s tough to live off cashflow unless you have reserves. If you’ve got reserves, no doubt. If you’re trying to get in there and make your money to build up now, it has to be the nonperforming route, find it there. 

I hear people all the time. They’re like, “I’m going to come in and I want to by performing notes cycle.” Good luck to you. You can pick up reperformers and performers over the course of time, but your bread and butter have to be with the nonperformers. Do you think you’ll touch into a commercial at some point? 

We purchased a commercial building.  

What type of space? 

It was an eight-unit. My business partner is more of the commercials guy. He’s owned units and managed them. I lean towards him on a lot of that stuff. We bought the property via warranty deed or grant deed. We’re crunching the numbers and we’re like, “Do we want to hold this?” If we hold this and get this up to full occupancy, the cap rates in this market, you can sell them at 10% to 12% and double or maybe triple the money. Making $100,000 in a couple of weeks doesn’t sound bad either. 

It doesn’t sound bad. If you roll it, you’ve got to roll it into something else though. Paying short-term capital gains sounds bad. Worse things can be out there. 

Martin, do you think that you’re seeing younger guys coming into this space or older guys coming into this space? 

I’d say the average is around 30 to 45 young family. They’re at a point where they’ve been out of college several years and they see the writing on the wall. They see that they’re nowhere near what is going to take to retire comfortably in this country and so they’re looking around. They’re looking for some relief. However, what’s the biggest challenge for most people is they come from a job where they’re working in an office for an employer. They’ve taken direction their whole life in the workplace. They’re going from that into complete self-employment where nobody’s watching you. Nobody is guiding you. Nobody is telling you to record your phone conversations and listen to them so you can critique yourself and be better for the next call. If nobody’s telling them X, Y, Z, a lot of them are not doing X, Y, Z because they’re in employee mode. I say that respectfully.  

NIME 32 | Note Investing

Note Investing: Start partnerships with other investors that complement your strengths.

 

I’m incorporating this more in my workshops. What I almost feel like people need the harsh reality of what it is to own a small business and making sure they understand that this is a business for themselves that they’re creating in. Once they can grasp that concept and know they’re going to put in the work. Shawn Muneio bought 50 notes in one year, but he also had a portfolio of rental properties he managed for years. He also has a tax advisory business in place. He comes from a small business background. The ones that do have that background have more likelihood of success. With that said, if you’re an employee transitioning into the note space, you’re going to do this fulltime at some point. You need to be reading a lot of books on small business ownership and what that entails and know you have to roll up your sleeves. Here’s the thing, you have to give up something to replace it with something of value.  

You can’t go about watching Magnum PI or whatever shows you’re on now, having the TV and all this other play activity, drinking beer on Friday, Saturday nights, all this stuff, and then pick up note investing on top of that, plus your full-time job and your family. You have to say, “I’m going to do this for twenty hours a week. This is what I’m going to remove out of my life for those twenty hours,” or plan on staying up until 2:00 AM every night, whatever. A lot of people aren’t willing to make that sacrifice. I can go on and on, but that’s just my thought on it. I feel so passionate about people because I have a young family that is trying to provide for their family, but yet they need the harsh reality to know that there’s a lot of work. Some people when I do the workshop, it’s like gym ownership. I can give you all the equipment in the gym. I can give you a workout routine, but sometimes you need a personal trainer to go and take you to the next level. People need to go and take this as a very serious measure and not something to dabble with. There are a lot of people that are still in the dabble mode. Those people always get weeded out.  

After spending like $30,000 with a guru.  

It’s buyer beware, whether it’s on the note side, training side, whatever side there is. You should be vetting everyone. You vet the sellers. You’re not going to go transact with the seller and there’s one in your neck of the woods that’s questionable. You’re not going to go transact with a seller if you know they’ve been selling the same note to multiple people. You’re going to stay clear because you’ve done your due diligence, you’ve vetted them, you’ve talked to people in the industry. It’s the same way you’re not going to sell to a buyer that doesn’t know what they’re doing, who’s going to be doing collection calls at 12:00 midnight with the borrower. Also, the vendors who use the legal team because there are lawyers out there that will go and encourage borrowers to contest your foreclosures and they’re your lawyers. I know that, I’ve had it. A $40,000 mistake, I’d be happy to talk to you offline. Every one of my notes was being contested and the writing was on the wall. You have to vet the vendors, the buyers, the sellers, the trainers. 

Everybody’s getting vetted on, even your business partner. I’ll tell you why because you might be the guy who has the capital and he’s supposed to be the muscle, but you ended up being the capital and the muscle. That’s frustrating or vice versa. You have to vet all the way around, no doubt.  

Possibilities are endless if you’re willing to hustle and do the grunt work, as opposed to waiting for deals to come to you. Click To Tweet

Vet everyone and you can go to PACER to go look them up. If you have a partner, you can mutually agree that you’re going to pull each other’s credit or do a TLO on each other, whatever the case. If they don’t have anything to hide, that shouldn’t be a problem. I’m not a big fan of the traditional JV model where you have a note expert match up to passive dollars and they go out into the sunset. I’m more an advocate of strategic alliances where you may have someone that doesn’t mind pounding the phones with 200 calls per day, matches up with someone who’s an expert in due diligence or very proficient in due diligence.  

They go out and create a great dazzling team and then they become an expert consultant in the space and help the movement of deal flow, and then eventually bring on the money when they know what they’re doing. I’m more advocate of that model were soon to be experts should be matching up with other soon to be experts. They should be action partners for themselves, help each other get through hurdles and everything else. I spoke to 300 people when I was there at the REIA. Every single person in the Bay Area that was at the REIA had a higher IQ than myself. They were the smartest group of people I’ve ever met in my life. I thought I was on Mars. Tell me about what you see in the successful note investors? What are they doing?  

Most of them are lone wolfs. The people I have run into, it’s either a one-guy show or two guys show up type of thing. I don’t see guys from different areas come in and start a business together and like, “This is what we’re going to do.” That’s rare. It’s usually one guy or two guys together.  

We talked about 90% of the people. They come into this space and they exit the next year, whether it’s a hobby or they don’t have the capital, whatever. You have the 10% that sustain and they’re there year-in, year-out. What do you think are some of the attributes of some of the people you’re transacting with that are successful in the note space?  

They’re taking the phone calls at 10:00 at night. They’re replying back to emails at 1:00 in the morning. They’re discussing deals over the weekend, even for Monday so they can sprint into Monday. I know some guys who came in and started from a cold-call perspective and they are crazy phone calls. They would get a live one and it was exciting to see because you could tell them that this was going to happen. They believed it and did it. I have a buddy, Joe Lee. He’s the best example of that for me. He worked with me and he worked with Gerald Lamoi. The guy was so raw and so green and was awesome was that he would mimic me.  

NIME 32 | Note Investing

Note Investing: Share your expertise with others, and be willing to learn from them.

 

The people who absorb it day-in and day-out, those were the people that I see make it happen. Some of the guys that I know that went from mortgage origination in their very first deal was a $200 million deal. It’s crazy, but that was the team. Those guys swing for the fences and they hit it right. It’s the same thing with us on the one-offs. I would love to do one deal and make $40,000 in a couple of months and be like, “I did it. That’s awesome.” They always pat themselves on the back for every little thing. You have to be your own coach, your own fan. From cold calls to, “I made this borrower get the original note and fax it over to me because I didn’t have a copy.” Those are all things that you have to give yourself some props for because it’s a skill set. From sourcing to closing with the seller, it’s all a skill set that you have to learn.  

What you’re saying, I’m going to tie it into Rudy’s statement many years as working for a paycheck is. One of the hardest things to get used to is there’s loneliness to being self-employed. It’s not like the times when you’re there. You’re always busy. There are always a million things to do, but there are times when you’re like, “I feel lonely. I need a hug.” When you have a W-2, you’re at FCI and Rudy’s at his job, you have tons of people. You can go shoot the breeze, go out to lunch with someone early, happy hour, whatever is going on. When it’s you in there and you’ve made your phone call, maybe you struck a loan mod. They’re like, “I’ll pay $5,000 towards arrears and I’ll start making payments every month.” You’re like, “That’s great, I’m going to email you the loan mod and get it in the mail.” You’re like, “Great job.” They hang up the phone and nobody’s there. 

No one ever tells you about that part, for sure.  

What are some daily rituals that you have in your life that have led you to the success you’ve had?  

Before I lay down, I tried to prep for the next day’s emails. By the time I get up, I can have a good two or three hours’ worth of clearance to put out fires that needed to be put out. There are a lot of people that would say, “Mike sent me a name at 4:00 in the morning. I think he was just going to bed.” I tried to knock it out as much as I can in the nighttime and by the morning you can hit and run. One of the other things too is that they’re very visual people. I have a whiteboard and I have my goals written down. I got things that I have to get done. It has to get done if it’s on the whiteboard. The whiteboard and then prepping for that morning because the worst thing is 12:00 in the day and it’s almost 5:00 on the East Coast and your day is almost done and you just started. You’ve got to be more productive with your time and the respect of time too, that’s another thing.  

That’s a great point. That’s one of the things I had to get adjusted with. My joke about this is I was never popular in school and I was never picked in sports or any of that, but then I write a book and now I’m popular. I got to watch out because there are a lot of tire kickers out there. People come to me, this and that. I love everybody and I want to help and my heart’s always in the help mode, but I’ve got to filter out who’s serious and who’s not. That’s a new element that I’ve had to deal with or learn over the course of the year.  

Martin, you’re a nice guy and I think it’s probably hard for you to say no. How have you forced yourself to say no? What do you see in somebody that there’s a red flag like, “No, I’m good?”  

Don’t be afraid to work other facets of note investing, especially if you don’t have the capital coming in. Click To Tweet

The one thing I did and it’s the reason why I created the note group. I created the Note Investing Made Easier Facebook group for two reasons. The first one was I didn’t like a lot of the white noise in the space. A lot of the people out there, marketing deals that they don’t even know how to vet and they’re looking for investor dollars and that nonsense that’s out there, that’s one thing. I wanted a place that didn’t have that as part of it. People email me daily with questions of this and that. I wanted a place where I could say, “Go to this group. I’ll answer your question. I don’t mind answering your question but let everyone else benefit from the answer.” There are 4,000 people in the group. Let other people that are smarter than me and may know things vet more so on that topic. Let them answer in place of me because I’m far from knowing it all. It’s the perfect thing. This group has helped me manage things in my life.  

You’re crushing it. I think you’re the only group out there that I’ll be gone for a day off of Facebook and there are ten posts and it’s all different topics. It’s a great community of people trying to participate in the success of others with pure love because there’s some good information out there, Matt Kelly alone.  

We all owe Matt a great deal, Bill McCafferty as well. He’s someone that truly cares about the community. He’s been a great asset. He’s a mentor of mine. I know he’s a mentor of many people. You can call him at any time. Michael, thank you for joining me and thank you for your time. Thank you, our audience, for joining us and God bless.  

 

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