NIME 52 | Note Investing


The note industry has changed so much over the last ten years. Martin Saenz interviews The Canadian Note Guy Nathan Turner on what it takes to be a successful note investor over a long period of time. Nathan is the owner and President of Earnest Inc. He entered the real estate investing space in 2008 and evolved to buying nonperforming notes to get property at well below market value. Having been involved in all facets of the note business, he is now teaching others how to profit from this great opportunity. In today’s show, he dives into note investing and shares his strategies for becoming a successful note investor and how to maintain that success.

Listen to the podcast here:

Note Investing Is About Building Wealth Slowly with Nathan Turner

We are a group on Facebook of about 2,400 note investors, so come and join us on Facebook by searching Note Investing Made Easier. We have a Note Investing Fundamentals Workshop in DC and there are three spots remaining for August 2nd and August 3rd. You can go to to get more information. We look forward to seeing everyone there. We have a guest on. His name is Nathan Turner, i.e. The Canadian Note Guy, with Earnest Inc. Welcome, Nathan.

Thank you very much.

How is everything in your world? What I hear so much is that there’s no inventory out there. You should just sit on your money. You shouldn’t do anything and put your head in the sand. Is that your strategy?

I think that’s great advice for everybody else.

Why do you have all the silos where people are operating with different thought processes, strategies and everything else and you’re out there doing it? What makes you the person that’s doing it and drumming up the deal flow?

Drumming up the deal flow is a huge part of this game. You can have all the cash you want and that’s great because you need the cash too, but if you don’t have the deal flow, then you’re dead in the water. What I do is I go to conferences and I talk to people. That’s very uncomfortable for me. I would much rather stay at home quite frankly and not go to any conferences, but I understand it’s part of the business. I go out and I talk to everybody and see who’s selling and there’s always somebody selling. I funded in two stages. I bought nine more loans. Before that, I bought another nine or ten and I bought another fifteen. I’m looking at a tape now. I’m going to put in a few offers, probably only three or four. In my world, there’s no shortage. It’s always funny to me when I hear people say, “I can’t find any inventory.”

Conferences, that’s a big part of your business model, your marketing outreach. Tell us about what you do that’s unique at conferences that work for you.

There’s no secret sauce. I tell them what I’m doing. If I have any kind of advantage is that I’m the Canadian Note Guy. That’s easy to remember. I talk to people and let them know, “I’ve got some money and I’m ready to go make some purchases if you’ve got anything. I’m turning over a bunch of stuff. I’ve got more money to spend. What do you have?” Talking to people, “Do you know who is selling?” One of the closest guarded secrets and you know this too is, “Where do you buy your product?” Ask them anything you want to know and they probably won’t tell you that. It’s a lot of hard work, travel and things away from my family and all the rest. I don’t like it. I would much rather be at home, but it’s part of the business.

I will say this in terms of sellers, names and contacts, there are the obvious institutional sellers. They’re not hard to find. You could probably find them on a Google search and they might have an exchange online or they might have a system where you can get an NDA signed online and they’ll auto email you a tape. However, there are so many sellers that aren’t in the limelight and they transact within their circle. It’s a matter of ingratiating yourself in that circle.

The reason why is because it’s a lot of work. For a while when I was getting started, I was brokering a bunch of stuff as well. It was purely for cashflow because it was a bonus to what I was not bringing home. It was at least a part-time job on top of everything else that I was doing. It’s a lot of work. For those guys to have to field calls and things, especially they’ll get calls from a bunch of people who don’t know what they’re talking about or are not serious. They treat this like it’s real estate where you can go and just shotgun approach and put out a bunch of dummy bids. That does not work. If you bid, it’s with the intention to buy. Don’t bid unless you are serious and you’re actually going to follow through and buy that stuff.

Don't bid unless you are serious and you're actually going to follow through and buy that stuff. Click To Tweet

You’ve run the other side of the desk and you’ve run a trade desk for a large hedge fund. You’ve seen people come to you good, bad and ugly. What do the good ones do?

The good ones will come and they’ll say something along the lines of, “I’ve got $200,000. I’m ready to spend.” It’s a big plus is if you can say, “I bought X amount and I’m ready to buy some more.” Some indication that you’ve got some history, you know what you’re doing and you know what you’re talking about. Just letting them know that, “I’m for real. I’ve got this money ready to go. As long as the numbers work, then let’s make a deal.”

Someone easy to work with, someone who already has their capital lined up and someone that knows what they’re doing.

Some prior history helps, but I don’t think it’s necessarily a deal-breaker. If you’re brand new and you haven’t done this before, you’re not out of the game, but you may have to work a little bit harder to show that you’re for real.

It’s probably a turnoff for you if you’re running a trade desk as someone that is trying to get a whole educational process while they’re buying a note from you. They’re trying to squeeze the Nathan lemon.

If they’re asking way too many questions. I’m an open book, but I can’t spend all twenty minutes talking about one loan with one person. That doesn’t work. Know what you’re talking about and know what you’re doing.

What kind of notes are you buying?

For about the several years, it’s been a combination, about 50/50 mortgages and contracts for deed. The last couple of purchases I made there were a bunch of lease options stuck in there, which I hesitated at first and I thought about it, “How different is it than the CFD?” It’s not really. It’s very similar.

Give us a definition of each one if you don’t mind because there are a lot of newer folks and they would benefit from that.

The mortgage is your traditional mortgage. Pretty much everyone’s familiar with that. If you don’t have one, you can get one. It’s a lot of fun where you’re paying principal and interest to the bank. The key difference between all of these is who has the title? When a mortgage, me as the borrower, I hold the title, so that means I am on the title. I own the property, the deed is in my name and I’m paying back the bank alone that I took out to buy the property. In a contract for deed, it also goes by other names. It’s a land contract in certain states. Bond for deed is another name or agreement for deed. It’s all the same thing. I think to make it easy, we all adopted contracts for deeds.

NIME 52 | Note Investing

Note Investing: Don’t bid unless you are serious and you’re actually going to follow through and buy that stuff.


Essentially the biggest difference is the title. In that case, the lender is the one who holds the title. You are paying installments. You’re still paying principal and interest the same as a mortgage, but you’re paying installments. Once you have paid off the agreed-upon purchase price with the principal and interest included in that, then at that point is when title transfers over to the borrower. That’s a major difference. What it means from a lender’s perspective is if and when I need to foreclose usually depending on the state, a contract for deed is faster and easier, therefore cheaper. Oftentimes the contracts for deed are lower value properties, but that’s fine. That fits into my model. I like under $100,000 typically up to about $150,000 for a property value. That’s the main difference there.

With a lease option, it’s more similar to a contract for deed. They’re still paying principal and interest, but it’s a very short-term and it’s more comparable to a Canadian mortgage, but that’s a different story. You’ve got a shorter-term. It’s usually somewhere between two and five years. At the end of that term, then the borrower has the opportunity to buy out the seller. More than an opportunity, more like an obligation and depending on the contract, there are different ways to go around that. If they’re not able to qualify, they can extend for another year or there are all kinds of different stipulations in there. You’ve got to read that contract and make sure you understand it.

They would buy it at a set price that was placed on the contract originally.

The terms are in the contract, so you do have to read through that and make sure you understand all the terms and how it’s going to play out.

Based on my own ignorance, because I don’t get involved with CFDs or lease options and whatnot. When I hear this, I think, low fair market value is risky. A note that was not originated at a lending institution with Fannie and Freddie guidelines is risky. A property value under $150,000 is risky. The borrower type is a different type of borrower and you go on. I know you have success with your model, so what do you say to that kind of thought?

Part of it comes back to my model. I’m not a buy and hold, which makes a whole lot more sense for a second. My background in real estate was flipping properties, so it’s a similar take on that. I’m looking to get in and out quick as I can. I will buy the nonperforming note and work it through to whatever end. That may be a reperformer or that may be a property that I’m taking back. Maybe I can even turn that into a rental. There are lots of different ways I can do that, but my end game is always to resell it. If that’s selling as reperformer, selling as property, selling as a rental or selling as a brand new land contract that I set up, there are all kinds of different ways of doing that. Essentially, that’s it. When I’m looking at it, the contracts for deed in my experience have a much higher performance rate than mortgages, which in some ways is totally counterintuitive. I don’t understand why that is, but they tend to reperform a lot better than the mortgages that I’ve gotten.

What’s the thought process on the contrary? “It’s a person I owe this money to. They originated this on a napkin. I don’t need to pay for them. What are they going to do to me versus Bank of America who has a lot of money, power and influence?” You fear them. You think that way, but you’re saying it’s the opposite.

I don’t totally understand that. All I can think is maybe it’s because instead of fear of punishment of losing their home, they have more of an incentive to perform to get the home. It’s more a carrot instead of a stick. That’s my best guess on that. In fact, even more so with the lease options, I’ve had good luck with those guys performing even better than the contracts for deed. That’s my guess is that maybe it’s a bigger carrot for them. They’re that much closer to it, so it’s that much more real. I’m not exactly sure, but for some reason, I get better performance out of those.

Since you’re getting performance in the way of a loan reinstatement or a loan modification as well as taking back the property and going that route, do you perform due diligence on the borrowers as well as the property when you’re buying?

I don’t. The only real due diligence I’m doing on the borrower is the payment history. Typically, if they have made payments for an extended period of time and then they quit for some reason, that’s true anywhere. There’s some reason why they quit paying, but if they’ve made payments for an extended time before, they probably will again. If they’ve always been spotty, it’s less likely that they’re going to be good performers. I have frank conversations with all of them. I’ll tell them, “I’m here to help. Here are all of your options, including maybe leaving the property. Maybe that’s something you want to entertain. If it is, great. If it’s not, great, but we have to make sure that it’s going to work and I don’t want to set you up for failure.” I have that whole conversation as well.

It's not realistic to think that you're going to collect more than the property value. Click To Tweet

I understand how you do things. You’ve been doing this a number of years. How did you start off? What year was it? You and I have talked over the years. We’ve had that relationship and I remember when you left the hedge fund and went off on your own, but tell me about what moved you to make that move.

I got started in 2008 is my first introduction to this whole world. Back then I had taken a course and there was a mention about nonperforming loans and they call it a bad paper. Right away I was like, “Don’t touch that stuff.” Those first few years up until about 2010, the first couple of years, it was creating notes. This was before Dodd-Frank. We’re doing all kinds of cool stuff where we were taking back property, either buying distressed property from all different sources and things you could do back then. We did it. It seemed to be a fairly common model where we sold the property as-is. If it’s in need of some repair, sometimes a lot, sometimes a little, but we will do it for less than whatever the market rate was for rent. With rentals, we’re going for $500. We would sell it to you on terms for $350 and we’d create this contract. My contract at the beginning was awful. The more I went along, I started improving on that. In 2010, there was more talk about nonperforming so I thought, “I’ll give this a shot.” I ended up buying three notes as a package for $10,000 total, which was about $0.12 on the dollar.

What would that same package go for now?

They were pretty low value, but at least if you’re getting a good deal, it’s at $0.35 probably.

It was like triple.

It was great because you could buy so cheap, you can make all kinds of mistakes and still do okay which is what I did. It was a great learning time.

Tell us about some of the mistakes.

That very first package, the way it played out, I got a deed in lieu of two of the borrowers. On the third one, they moved to Arizona and that house was in Columbus, Ohio. We weren’t quite sure what to do with it. It was close to the university and it had a fire. It was a demolition project. We would have to rebuild from the ground up. We were considering that and looking at possibilities and things. The taxman came and said, “No, we’re going to foreclose for the tax is worth about $12,000.” If you balanced it out, we’d paid $10,000. That was an a-ha moment. We ended up letting them go to taxes. For me, the thing that clicked was I’m not directly responsible for those taxes. I don’t own the property. I only owned the loan. I got the wheels turning and it woke me up to the power of what we’re doing here. I’d heard it before. People are talking about controlling the property without owning it. I never got a sense of that until that happened. I was like, “That’s cool.”

How about maximizing profit while minimizing risk? It’s the same thing, the same way of saying it.

That was a big one. One way to look at it was a $10,000 loss. The other way of looking at it was we more than made our money back on the other two. Overall, we were positive but if you want to call it that, we lost $10,000 on that one.

NIME 52 | Note Investing

Note Investing: One important due diligence to do on the borrower is their payment history.


That’s a great point you bring up is that you have to be more cautious, given where the price increases are. One thing that people don’t talk about is that in some respects there are price increases because the value of the properties and the quality of the borrower and their financial situation has increased too. You’re getting more value from the notes than you did because when you’re talking about that $0.12 note, it was at a time when unemployment was out of the roof and there was a housing crisis still unfolding.

It’s definitely better quality than it was back then, but at the same time, the other thing that’s changed that’s been interesting is I started seeing notes where there was equity and that was never true. We never saw anything with equity. All I know is property value was lower than what was owed. All of a sudden, we started seeing some equity loans.

Can you explain to everyone what that means, the equity?

Let’s call it just for some numbers. We’ve got a property valued at $100,000 and the amount owed on that was only $75,000. That was never true before. It was always the other way around. What that meant is I had to add a column because that never happened before. I had to start planning on, “What if it pays off?” That was never a consideration.

It’s a discounted payoff.

I added that column and now, I’ve got a few of those where I’ve got some equity loans in there.

That changes how you price things because you’re pricing a percentage of the loan, in that case, when there’s equity. I’m not a buyer in your industry as much, but can you explain how that changes pricing?

Before then I was always basing my price off as-is property value. I don’t want to after repair it because I’m not going to repair it. I want to know the worth and all, what’s the house worth in present condition?

You didn’t care if the UPB was at $70,000 and the property was worth $50,000. You’re pricing it off to $50,000 because that $20,000, you’re not going to realize that if you have to take the property back.

It’s not realistic to think that you’re going to collect more than the property value. It probably could happen once in a blue moon, but never to me. In fact, what that meant was also if the property value is $50,000 and the unpaid balance is $70,000, if I can get into a conversation with that borrower, I’d say, “Why don’t we bring that more in line with what the property value is now?” I can come in there as a major help and relieve a lot of that debt that quite frankly should not be there, not in the present terms and conditions and market conditions. There’s no point for it to be there. It’s going to weigh everybody down. That helped a lot in negotiations. I can say, “Let’s do that first off. Now, let’s talk about repayment.”

Just knowing who it is you're buying from is a big deal. Click To Tweet

How do you protect yourself with the contract for deed agreement? When you have paper originated through a bank, you know that it’s gone through the correct underwriting protocol for the most part and you’re protected. How do you have that same level of assurance?

That comes down to knowing your seller.

That’s like a ten-day episode.

Essentially, what it boils down to is you’ve got to know your seller. If you know that your seller has gone through the appropriate channels, then you’re okay. That can apply in all kinds of different situations. If you’re going to buy it from a mom and pop originator, that’s not necessarily a bad thing. That could be great because of the rules, they may be exempt from having gone through all the protocols and all the Dodd-Frank qualification may not apply to them. If it’s from a larger institution, if you know that they’re big enough to have done that and if you asked that question, “Are all these loans Dodd-Frank compliant?” If they say, “What?” then you’ve got a big problem. Just knowing who it is you’re buying from, that’s a big deal. Go on to conferences.

Do you have that same concern when you’re buying lease options? It’s almost commercial paper when you’re getting your offer in that contract.

In those cases, it’s the same thing. It’s making sure that all the checks and balances have been met and they’ve gone through the proper protocols.

If it’s an investment property that you’re buying a note on, then Dodd-Frank isn’t applicable.

If it’s an investment property, there are all kinds of rules.

You know how to navigate and vet these notes so that you’re protected.

That comes down to educating yourself because if you don’t, you can get yourself into a lot of trouble. Here’s an interesting example. I got a call from the attorney general of Pennsylvania and that’s not a phone call I was expecting. She was asking me about a loan that I purchased from a larger institution years ago and they were doing an investigation that that company had not written that paper properly. Fortunately for me, I had gone through all the proper channels myself in foreclosing on that property. Everything that had applied back then didn’t carry over to me. The original company might have still been on the hook. I don’t know how that played out, but I was okay because I did everything correctly after that.

NIME 52 | Note Investing

Note Investing: You’ve got to know your seller. If you know that your seller has gone through the appropriate channels, then you’re okay.


It’s still nerve-wracking and concerning. I got nervous the first time I got served by a sheriff. My wife was home and the sheriff went to our house. My wife called me. She’s like, “There’s a sheriff here. He needs to serve you.” I’m thinking back and I’m like, “What deal am I in and what could this be?” I let the sheriff know where to find me. I was at a restaurant and he came and he was nice and I opened it. It was a junior lien and it’s a first mortgage company foreclosing and putting everyone on blast, but still, that’s not a good feeling. How do you work with strategic partners in the space?

I’ve pulled back where I was outsourcing more and I’m not as much anymore. I brought a lot of it in-house. I don’t recommend that for everybody, but that’s how I needed to do it the way that I ran my business. For me, speed is paramount. I need things to get done as quickly as possible. When it’s outsourced, not that it’s not a priority for them, but it’s not the same priority. Even that, I think servicers have a tough job as a blanket statement. They’ve got a very difficult job to do all of that they do. One of the things that I ended up taking them back in. I still have my servicer do all that stuff, all the paperwork. They collect all the payments, they do all the tax stuff, but I do the borrower outreach. Interestingly enough, that is a risk for the servicer and myself. If I go off on somebody, it could get both us in trouble. I know myself well enough that I’m not going to do that. That’s not in my nature. There’s still somebody that could say that I said, “Blah, blah, blah.” It’s still a risk, but it’s a risk I’m willing to take.

I do the same thing. I do my own borrower outreach, as long as you can do it within the states. I don’t have a debt collector’s license, so I’m not doing it in North Carolina. I know where I’m restricted. There are always very light taps to let the borrower know I’m here to help, contact me. The last time I had loss mitigation done through a servicing company, they were literally calling the same nod and service number one time per week, every week. That was the extent of loss mitigation. It costs me $80, $90 a month or something and I’m like, “I’m not the smartest guy in the world, but I can’t see myself screwing up that bad.”

Even if they are talking to the borrower, the conversation goes, “We want to make some deal.” “What is it?” “I’ll talk to the owner and get back to you.” They’re calling me and they said, “They want to make a deal. What do you want to do?” I say, “What about these terms?” They go back to the borrower and they say, “What about these terms?” They go, “What if we changed it this way and that?” They come back to me, “What if we changed to this?” It’s ridiculous. I’m like, “No, one conversation. I can get the job done and move on.”

If you have something hot, you’ll get that loan mod out that afternoon and the servicer can’t do that. They just have thousands of cases. I agree with you, they have a tough job. It’s a very demanding customer base and they have so many legal hurdles that they have to pass in regulations and everything. It’s a very tough business.

I took it in-house. That’s the biggest one. I couldn’t do this without my accountant and bookkeeper for sure. I can’t stand accounting. They do all that. That’s a huge part of it. Realtors and attorneys are the same things. I talk to them directly for efficiency sake. That’s a big part of it. I use them every day. Every day I’m talking to an attorney or a realtor in some way or another and the borrower all the time.

They keep the legal bills down, servicing, everything. The quicker you can close the gap between nonperforming and performing, the more profitable you’re going to be and the happier you’re going to be.

In your neighborhood, I’ve got one in DC, where we confirmed that the borrower did move out of the house, which is great. It’s a condo and they actually did move out, which is a huge step forward. We’ve been working on this for a year already and there’s probably another year left if we went for the full foreclosure. We’ve got a deed in lieu that being drafted and I can finally take ownership of this property. For me, that’s a long time. I’m glad to be moving forward with it.

That’s lightning speed in DC.

It’s not a full foreclosure. If I was going forward, we’ve got another year to go.

In order to vet notes, you have to educate yourself, because if you don't, you can get yourself into a lot of trouble. Click To Tweet

You’d have to pass that to your grandkids. You go and work with investors that want to work with you.

I do and the same thing there. Any advice I’d give to somebody is don’t pitch. You can get yourselves into a lot of trouble by pitching wrong if you’re saying the wrong things.

It should all be behind closed doors and very private. I referred you someone that you’ve done a great job for. There are very few people I trust in the industry and you’re one of them.

I’m saying that to my wife, I said, “Do you know so and so? That’s from Martin.” She’s like, “That’s nice of him.” I said, “Yes, I know. He is.” That was good and things have been great.

People don’t hit me up seeing this and be like, “Throw something my way.” I’ve got to really know you.

It’s from referral and the other things are from speaking. I have people approach me after I’m speaking and I’m not pitching. I’m just talking about what I do and people will come up and say, “I work a full-time job. I’ve got all this money sitting there. I love notes. This sounds cool. Are you willing to work with me?” I said, “Yeah, for sure. Depending on all kinds of things, but yeah.”

I’m sure you look for a personality fit.

I had a conversation with one of my investors and we determined she’s not a good fit. She’s looking for a whole lot more information, which I don’t necessarily have a problem sharing, but the time that it would take me to report all of that is not worth it to me. We had a nice conversation and from my end at least, and I think from hers, there are no hard feelings. We’re going to separate and go our different ways, but it’s got to be the right fit.

We could do a news flash alert for all investors, people who are sitting on capital looking to invest it passively. You are one of a million and there are so many people with so much money flooded around this industry and they’re looking to put it to work with the few players that know what they’re doing and have proven track records. I’m not saying that you should bow to anyone or whatever and I say this with humility. You should look to be very easy to work with. I think you’ll find that the good players out there that know what they’re doing are equally easy to work with too.

I agree and if they’re not, don’t bow to them. They’re not special. They’ve got specialized knowledge, but if you’re not comfortable for any reason, don’t do it. It’s not worth it. Don’t put yourself in that kind of situation.

NIME 52 | Note Investing

Note Investing: You can get yourselves into a lot of trouble by pitching wrong and saying the wrong things.


What daily rituals do you have in your life that help you maintain success?

For example, I got up. I went for a run. I’m working up to ten kilometers. Right now, I’m at 5K, getting up to ten. I did my run, cooking hot and came inside. In the summertime, it’s a little bit different because the kids are home, but normally during the school year, I actually get their stuff ready first. I’m the lunch man. I put together lunches for everybody. Our kids are in two different schools. The elementary school is a five-minute walk. We’ll walk over with the kids, drop them off. The others, I would drive them over. It’s a little bit further, but that’s fine too. When I get to the office, it’s a couple of things. I read scriptures every day, so I start my day with that and I usually say a prayer and get ready to go.

The other thing that I do every day is a guy named Darren Hardy. He has been for a while the editor of SUCCESS Magazine. A good friend of mine actually shared a book that he wrote called The Entrepreneur Roller Coaster. It’s fantastic. I’ve never worked for anybody else. I’ve always been an entrepreneur. I read his book, it resonated and there’s so much good stuff in there. As the editor of SUCCESS Magazine for years on top of his own success that he’s already achieved, his job was to interview people. He interviewed successful people over and over again for the magazine. He’s got all stuff. He does training and all kinds of things. The thing that I do every day with him is it’s between maybe three and five minutes, a little video clip every day. He calls it Better Every Day, DarrenDaily. It’s an email that I get and I’ll open that up. I watch that for a few minutes and then start my day.

Nathan, I appreciate the time. We appreciate you taking the time to join us and take care. Be good and God bless.

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About Nathan Turner

NIME 52 | Note InvestingNathan Turner is owner and president of Earnest Inc. He started investing in the US real estate market in 2008. He started by creating notes and eventually evolved to buying non performing notes to get property at well below market value. He has been involved in all facets of the note business and is now teaching others how to profit from this great opportunity. One of Nathan’s favorite things about the note business is helping struggling homeowners – either by modifying their loan, or making it disappear!
After having been involved in the business for several years Nathan now works with investors to buy notes and manage them on their behalf. He also teaches other Canadians all they need to know to get into the business themselves while he continues to manage his own portfolio.