Be The Bank

010 - Deals Don't Land in Your Lap

May 18, 2022 Justin Bogard Season 4 Episode 10
Be The Bank
010 - Deals Don't Land in Your Lap
Show Notes Transcript

Be The Bank S4 Ep10 - Deals Don't Land in Your Lap

On episode 10 of season 4,  Justin Bogard interviews Tracy Z Rewey.

 Key Takeaways:  

  1. 3 P's 
  2. Embrace Technology
  3. Running a Note Business

 Resources and links discussed  

 About the Host

 Justin Bogard – Note Investor specializing in performing Residential Real Estate Debt. He finds deals and acquires them for his own portfolio as well as educates investors while walking them through the process of owning a Real Estate Note!  

  Connect with the Host: 

Speaker 1:

Interested in real estate. How about wealth? Well, they go hand in hand and here you'll learn all about it, about it. Welcome to be the bank, a podcast where we discuss and debate the topics centered around real estate. Investing your host, Justin Bogar shares insights into investing in real estate to create real wealth and passive income for you and your family. He'll share stories of real estate investments done, right? Walk you through the process of owning a real estate note, and most importantly, educate you so you can be the bank , your bank. This is be the bank brought to you by bright path notes. Now here's your host, Justin . Bogar

Speaker 2:

Hello out there and welcome to episode. Number 10 of the, be the bank podcast. I'm your host, Justin Bogar. And today I have a guest, my friend, Tracy Rui gonna be on today. We're gonna be talking a lot about seller financing, how you buy it, how you sell it, how you get rid of it and all the things that go around seller financing. So stay tuned. You're not gonna wanna miss this, Tracy . How are you ?

Speaker 3:

Hey, Justin . I am well,

Speaker 2:

Thank you so much for being on my podcast. I'm really excited to have you on cuz I haven't had you on a podcast or anything I've done before on video before. So this is, this is big time for me.

Speaker 3:

Well, I'm excited to be here. Thanks for having me.

Speaker 2:

All right , Tracy , our , our listener and our viewer. They might not know a lot about you. I know a lot about you, but I'd like you to go ahead and kind of walk through your kind of journey of how you kind of got rolled into this business, this real estate note business, and kind of fast forward , where , where you and Fred are today.

Speaker 3:

Well, I'd love to say it was a big master plan, but really it was sort of by accident. I was a small town girl living in a lonely world, right in a very small town in upstate Washington by the Canadian Idaho border. And I worked for a real estate attorney that did closings and up in those rural communities, there's a lot of seller financing. That was my first exposure to seller financing. Somebody used to pay us to go down to the courthouse. I'm gonna date myself and look at the microfish records and pull off private transactions where the seller sold the property and let the buyer make payments to them. And then fast forward a few years, I , you moved to the big city of Spokane Washington. And I went to work for a company that bought and sold seller finance notes. And that was in 1988. And the gentleman I went to work for had already been doing it for 30 years.

Speaker 2:

Oh my gosh.

Speaker 3:

Yeah. So it's been around longer than people think that's what he did. Yeah . He bought solar finance notes at a discount and I worked for them for about 10 years on the institutional side using my closing and title background. And somebody there introduced me to this handy dandy financial calculator and my mind was blown. I was like, oh my goodness, you can do that. You can do that. And so after working for them for 10 years, I started , um , co-founded my own company with my husband, Fred Rui in 1997. And we've been doing seller finance notes, buying and selling them for ourselves since then. And uh , you know, if you do something 34 years, you gotta like it because to keep at it. And I , I love notes, you know, I do. So I'm , I'm happy to be here and share the love

Speaker 2:

<laugh> wow . Thanks for, thanks for sharing all that. And you did that very quickly. I , I don't know how you, you , you rushed through that. That was like, like, I don't wanna date , like you said, I don't wanna date you, but there was , there's quite a few years there to where you had a lot of, lot of progress in the note business

Speaker 3:

<laugh> yeah. I , I know who nobody's here to hear about me though. Right? They really just wanna hear about notes. How can I make work notes work for me? So I only mention that cuz yeah, I have been doing it 34 years and I understand the nuances of the documentation, the talking to the seller, how to use time value of money. And I like to break it down in ways that people feel it's approachable. It's something that they can do and use for their own , for their own wellbeing.

Speaker 2:

Absolutely. And thanks for mentioning that. I , I did want to , before we get into our discussion, I want to get a quick question out there because I noticed you put for those of you are listening on the podcast, we're also recording this and you can view it on our YouTube channel, the bright path notes , YouTube channel and Tracy , uh , Tracy Z, as she's known in the business , uh , she has this note investor.com after her little name on their tag. So I wanna ask you is note investor.com. Is that one of your businesses that you're promoting for people to kind of sign up for and , and , and do stuff with?

Speaker 3:

Yeah, that is sort of our passion project note investor.com is an educational site and we have over 300 free articles and videos. And we just share information about seller financing. When we started that blog in was a little before 2008, blogs are kind of new and there wasn't a lot of information out there that people were sharing. Now, fortunately, we've got lots of great information like your podcast, but that is just , uh , was our way to start giving back and get a little bit exposure on the internet as well. So anybody's welcome to go to note investor.com. One of the things we do every year, I'm so excited about, we just recently released are the annual seller financing stats, which I know we'll talk a little bit about today. So when we get into those stats, if anybody's like, Hmm , I'd sure like to see a copy of those, they can go download it for free off our website@nodeinvestor.com .

Speaker 2:

I know one of the blogs that I see out there, and I know you , you kind of repeat some of them, but my , one of my favorite one is the, is the black Jack hand, the image of the black check hand and the , the 21 , um , investment. I don't wanna say rules, but 21 investment. What , what is it? Yeah .

Speaker 3:

21 tips. Remote investors just starting out. Yeah,

Speaker 2:

Yeah . No , those are great

Speaker 3:

Too . <laugh>

Speaker 2:

Yeah, I like that. Every time I see that imagery on social media, I'm like, oh yeah, that's, that's that , that's that blog over . I love that blog. So , uh , yeah. Keep bringing that stuff out there. And that's what I love about what you guys do. Tracy , Tracy and Fred, I suppose you , I think you mentioned this already, Fred, as , as your husband and your business partner as well, and you guys do a great job of marketing this stuff and getting education out there and dumbing it down to a level, that's be like, oh , okay, I get it. Now I don't have to have this, you know, economic background from Harvard or something, you know? So , um , cuz I I've taken, I've watched you and , and taken some of your, your courses as far as how to use the financial calculator and, and calculate time value money. So I would highly recommend folks going to the note investor.com uh , website and signing up and looking at some of those free tools that you have. And I think you have some paid courses as well, right?

Speaker 3:

Yeah, we do. Thanks for mentioning that. Yeah. We, we do like to educate, share knowledge. I guess I approach it from that direction because when I learned the financial calculator, I didn't have an economic background. I didn't have a college degree. I did like math. My husband does not like math, but he always says, I don't like math, but I like money. So that was his motivation for learning the calculator. And it's very freeing and empowering and, and that's one of the reasons, especially, you know, you get in your fifties, you're like I wanna share knowledge for more than just making money. I wanna help improve people's lives. So it's , it's fun to get to do that.

Speaker 2:

That's awesome. So I wanna talk about seller financing Nick , cause I know that's one of your favorite topics along with partials and hypothe applications and stuff as well as mine. So we , we align very well with the way that we think and what we like in the note business. And so , uh , I'm primarily investing in first lean performing , uh , mortgages. And I prefer to kind of sell our finance what I call the mom and pop paper, as opposed to institutional paper. It it's a lot more challenging, but uh , I just like it in general. So you mentioned that you came out with , uh , some numbers or some stats for 2021, as far as people that originate seller finance paper across the country. Right. And, and give us a little bit of flavor of what those numbers look like.

Speaker 3:

Absolutely. So seller financing was our bread and butter back when we started in the eighties and the bank institutional paper came along more after the oh eight to 2010 subprime mortgage meltdown. But for years that's we just survived on the mom and pop seller finance papers . So , uh , people are surprised for some reason to think that there's still seller financing out there because let's face it. We are in a red, hot real estate market all across the United States. So people are paying cash, they're offering over asking they are waving inspections. So it wouldn't surprise me or anyone if seller financing actually declined last year because of all of that. But when we run the stats and we track these every year with the help of advanced seller data services, they're pulled from the county courthouse records where these recordings happen when real estate sold and a mortgage or data trust get taken back. And we found out that there was actually a 15.9% increase in the dollar volume in 2021, over 2020. So there was 27.3 billion with a B in dollars . So that was a big increase and we might go, well, we expect the dollars to go up because real estate prices went up. That'd be a reasonable assumption. But when we ran the counts, the counts, the number of seller finance traction transactions actually went up as well by 7%.

Speaker 2:

That's incredible. So let's talk about that for a second. So, and I agree with you when COVID happened, you would think that, you know, the kind of every economical aspect of our country kind of shuts down or diminishes or shrinks in some way, shape or form. And, and obviously that wasn't the case for seller financing. So real estate got red hot, right? Cuz supply was so short, it just shot up appreciation so much. And it's , I think it's continued even since, since then, yes . And still appreciated today. And of course in certain markets, it may not appreciate as fast as other markets, but you know, you can speak for Florida, but I know in Indiana, it's , it's pretty steady Eddy we're , we're appreciating 3, 4, 5, 6, 7, 8% in some areas. So it's pretty nice, which makes this more , um, challenging for the affordability factor for that, that everyday , uh , we'll call 'em the blue collar borrower.

Speaker 3:

I agree. And that's the, the segment of the market seller financing has always served so well. So why do people seller finance it's because either the property or the buyer, the person didn't qualify for conventional financing. Now there are times when a seller will intentionally create seller financing, cuz they want the interest income, they want the tax benefits of an installment sell . But as you mentioned, that's usually a smaller percentage than the mom and pop . We kind of track that in people who are professionally creating notes, more than two in a 12 month period , um, are only about 14% of the market. Whereas mom and pops, like you mentioned that just create one note in 12 month period, they make up about 86% of the market. So we think about why does seller financing happen? And those are the main reasons the people or the property don't qualify. Well, one area that has troubles giving bank financing, are those more affordable homes under 150,000 ? Of course we might have to raise that number, say affordable homes under 200,000 ,

Speaker 2:

Right? Yeah , exactly. Yeah. But the appreciation, right,

Speaker 3:

Because something called DOD , Frank that was supposed to protect all the consumers out there from predatory lending, which something needed to happen and change, but in doing so they made it almost impossible for banks to make those , uh , lower bandwidth properties to be financed. And so seller financing really is one of the only options for some of those more affordable homes, which is sad. And I'd like to see that change. And I know there's a lot of people making efforts to that, but the good news is when you work in seller financing, you're often giving people an opportunity to own their home. That would otherwise be renters.

Speaker 2:

Yeah. That's, that's what I, that's what I love about it. Um, I'm talking to his sellers and to sell me their notes, the moment pops and, and I'm hearing stories about their borrowers and that that's exactly why this , like we couldn't sell this property because of, because of the real estate, if you will. And we found somebody that wanted to buy it, they're motivated and they had quite a bit of money to put on a down payment. And so they were able to put on that down payment, we carried back the terms and we were happy with it.

Speaker 3:

Yeah. And then they're happy for a while . And then they would rather rather be cashed out and that's where you and I can come in and buy that note at a discount and give the seller some money and let the buyers keep making their payments just like usual on their way to owning that home free and clear. And we get to make a nice profit in return.

Speaker 2:

Yeah. So let's talk about that for a second. So fast forward to us buying the note. So I , my experience lately has been actually talking with the borrower and getting their story and their feedback. And then I'm actually able to listen to what they say. And I'm actually kind of modifying that note before I'm buying it as well, because there may be certain things about it that they didn't like, maybe they want, I don't know, the , the payment date to change. Maybe they want the term to stretch out a little bit longer. Maybe they want , um, the interest rate to be lower. What , whatever, whatever the case may be, I'll make those changes for them. And they were just like, oh my God, this , you know , they're so grateful. They're so thankful. They're so appreciative. And then boom, I got me a very good performing loan that I can have a borrower where that I can depend on here in and out because they , they remember what I did for them.

Speaker 3:

Yeah. That's very true. We are in it to help everybody. It really can be win-win I know people say that and roll their eyes, but you really can make that happen in this business.

Speaker 2:

Exactly. Sometimes it's a win-win win . Right. We win the borrow wins and the seller wins because they get cashed out and they can move on to their investment. Um , do you, you know ,

Speaker 3:

Talk about , oh , go ahead, Justin. I'm sorry. No,

Speaker 2:

No, no. I interrupt you. Go ahead.

Speaker 3:

Well, I was gonna say, you know, we were talking about the stats and you say they put a really good chunk down and that's something that always surprises people too. Cuz they always think seller financing. That's all these zero down, you know, back from the eighties, zero down, you know, that sort of a situation, but, but really on the residential side of owner financing, the average down payment last year was 23% and it was almost 30% on commercial and land. So that's a sizeable chunk of, of down payment that these buyer borrowers have now. Yes, we do see deals with less than 10% down payment. We'll look at those. We like to see other factors in there, like some seasoning or some credit or some appreciation cuz uh , we've been doing this 30 plus years and deals with less than 10% down are the ones that traditionally have a much higher chance of default. So we're not looking to take the property back. We'd like to have a performing asset. Of course, if they don't pay, we'll work with them to try to get back on track. But if ultimately, if you buy a note and they don't pay and you can't get 'em on track, you can offer to do cash for keys for even lie . Or you can go through the foreclosure process. But if you are in a note too high investment to value when they have low equity, that's when you potentially could lose some money. So we look at those lower down payment deals more carefully. And that's when one of my other favorite tools come into play when there's a lesser down payment and that's a partial purchase.

Speaker 2:

Sorry. I had some noise in the background. I had had to mute myself there. So , uh, which is probably good. Cause I wouldn't interrupt you during, during your, your conversation <laugh> but usually I do .

Speaker 3:

You gotta interrupt me . I talk a lot. So you gotta interrupt me when you wanna say

Speaker 2:

Something . I just wanna your hand . I just wanna listen. I be the person in the audience , listen to you up on stage. Like, like I do at all the events that you go to. So , um, you , you brought up a , a good point about the down payment and I like how you presented that. And I'm glad that they had stats to show that because that is a big eye opener for people I talk to , like, why would you buy a seller finance note? Like isn't that like a borrower that you can't depend on? Like , uh , you'd be surprised they're kind of more dependable most times than some of the institutional FHA paper, maybe the VA paper. Um, it's , it's just funny how it works out, but yeah, I , I like what you said also about the , the down payment as far as if it's a low down payment with, you know , hardly any seasoning. Well, that note is, is pretty risky and you probably should price that correctly to reflect that versus having a large down payment with low seasoning. You know, I don't mind taking a flyer on that. If you will. I , I give a scenario. There was a , a note I bought here in Indiana. It was a hundred thousand dollars property and the guy put 50,000 down and the owner carried back a $50,000 note and I had one payment on, I was like, okay, I'm in, you know, I'm very well protected here as far as if something goes sideways. Yeah. I may not make a lot of money on it, but I'm well protected. And that's the security and the risk is kind of is what is what my big sticky points are.

Speaker 3:

Yes. And that buyer borrower is probably not going to default because even if they got into a tough situation, they've got so much equity, they'll do something to protect it or they can sell the property and get out whole, I'm just curious, was that a single family home or was that a odd use or land or what was that deal?

Speaker 2:

It was a , what I call a foreign national and it was a single family home. The bar was foreign

Speaker 3:

National. Excellent. Yeah. Nice 50% down. So we do see a lot of seller financing in states that have the, it , I N the it 10 buyers , uh , the foreign nationals that have a little bit more trouble getting , uh , traditional financing. And, and so that's another SIM segment of the market that seller financing serves.

Speaker 2:

Yeah . So , uh , you mentioned before about microfish and kind of your opening , uh , bio package there. And I started laughing to myself. I was like, you know what? I haven't been in the real estate business that long truth be told. I've only been in it since really 2015, as far as a full-time real estate investor. And I haven't had the pleasure to go to the county office to research documents. So when I hear you talk about it and others that have, you know, the seasoning that you do in the business, it's just, it's fascinating to me what we have today with technology versus what it was like before this technology to go research this stuff. And the pace is so much slower, I bet, than it is today. Uh , I don't know about you, but you can probably look at a deal right now and have a couple websites. You can go to check evaluations . You could probably underwrite that file as far as a soft quote, probably within a few minutes. Would

Speaker 3:

You agree? Absolutely. Yeah. So anybody who's not watching, I , there were definitely air quotes over that. The pleasure of going to the guardhouse. So yeah, if I never step foot into one, again, that that's fine by me. And I agree with you. That's one of the things that is very beneficial about the internet is we can do this business from anywhere. We have the tools, as long as we've got an internet connection, we've been, we spent about seven months in Guatemala, Nicaragua, Italy. And so you can do this business from anywhere, especially when you buy the note and you use a third party loan servicer to collect the payments, to keep track of everything. And so it's a very flexible business and I do love that it's all online. Uh , that, that makes me very happy to see that progression of the business.

Speaker 2:

Absolutely. Um, so when you're buying this mom and pop paper, I, I always find this challenging. I find it fascinating and interesting how you're able to collect the documentation. You need to really go through the due diligence of discovery. What I'll call it before you actually close in the file . So I I'll give a soft quote based on very based on very little information, right? I'll throw out a number, see if it sticks and it sticks. And then I'm assuming there's gonna be some problems with it. Cuz I , I have a little bit of experience now with, with what to expect after you get the deal kind of the , the handshake going, right. Um, so collecting that documentation to me is, is, is challenging. So it's getting the insurance information if it's even insured or even if somebody has the insured or if they're even the mortgage E on the policy, I'm talking about the seller here, it's getting, getting the pay history is always comical because I, I will see either Venmo I'll see a cash app. I'll see, you know, bank statements are obviously my favorite because those are , those are easy to look through or you know, them, I've had people who have handwritten receipts before and it's just, it's just so funny how people will, will rent a house and they'll screen their tenant, but they won't screen their borrower and they'll go through a seller finance transaction. And then they'll just get like handwritten little receipts with their mortgage payment. It's just , it's just so funny. Do you find that common when you do sell our finance or when you buy mom and pop paper that you have the similar history with pay history?

Speaker 3:

Yes. We have the same challenges getting copies of documents, getting proof of payment history. There are a few states that have done a nice job of making it fairly common to use a servicer, especially out west. A lot of the title companies will have their own little servicing, but besides that, most of the time that buyer just sends the payment or delivers cash to that seller. And you have to recreate that payment history. However you can, if you can't, when you have to rely on the other aspects of the deal to get confident about it. And that's one of the things we bring to the table after we buy the note. Now this buyer borrower can have an established payment history. Uh , a lot of times it can improve their credit if they ever do wanna get refinancing and they get their mortgage interest statements and they just get that feeling of, I don't have to worry what happens to the seller. You know, if when I pay in full am I gonna get a release. So I think that's that level of professionalism we bring to seller financing. And if I could change one thing, having used to be a title closing background is that every seller finance deal that, that closer or that title company, that attorney would help them get it set up to somebody to service it, cuz it would make all our lives a lot easier. But until then we do our best to figure it out. And you know, my , the recent thing since smartphones came along, all the sellers wanna lay their documents on their bed and take a picture of their smartphone and in the

Speaker 2:

Of S it's , so a picture of those documents and it's so fuzzy that you can't even read it. And then you feel bad asking , look, I'm sorry, you're gonna have to take a better picture because I can't read anything on there. It's like, it's just a blur. It's like their phone or something just turns it into low res image. That's, you know, you just gave and read it . So , uh , fun, fun times, but this is why we get such a big discount, right? Tracy , on this stuff, because we know the challenges of going through to get to closing and then after actually having to fix anything on there, I'm always having to fix or adjust something on there. And you mentioned about the pay history that pay history is obviously the , one of the most important things that we need to make sure we go through discovery with, you know, laser focus on because you don't wanna screw that up because some servicers are a little loose about, you know, how they , how they wanna see that pacer . Some servicers are like, Nope, I wanna see it to the penny. I wanna know exactly what the principal and interest was on that date of that payment that came in. And so you kind of have to have your a game when it comes to that. So I agree with you. If , if , if perfect world, if seller finance years would just use a sort servicer , this, this transaction would be so much smoother

Speaker 3:

Would do it . So

Speaker 2:

That's the only ones . But , uh , so you , you mentioned about, let's talk about exiting out these deals. So a lot of times I find there's great opportunities with these seller finance notes, these my , and pop notes. And you could run into several of them at the same time that you're wanting to buy because they're great deals and you got good salesmanship and you're able to get a soft quote in there with some numbers that really work for you. But then, you know, some of us are only working with so much capital. So then you have to keep in mind, like, how am I gonna be able to , to take down this deal and still make money on it if I can't take it down with my own money. So , uh , what are the , some of the ways that you do that?

Speaker 3:

If it's a transaction that we personally don't wanna buy, but another investor will, we do work with some institutional bank funds that will buy seller finance papers . So I don't think there's any problem referring it to them and earning a referral fee. Uh , that would be one aspect, especially if you're getting started. It allows you to earn while you learn the place you wanna be. Eventually, if you can, is that you buy the note and then you can sell off a portion of that note through either a part partial or through a ation where you borrow against it, where you can get your capital back. Uh, an investor gets a nice , uh , yield on their portion that they're buying and then you get some money on the back end . So if you can do that now you're playing on house money. If you will, you get made whole. And if you put that into a financial calculator, you'll get an error five because you , you know, if you are able to get whole and still own a piece of that cash flow , uh , you just have an infinite return in my book. That's the best kind of infinite banking that there is out there, especially if you do it in a retirement account where it's taxed for your tax deferred. So that is the ultimate strategy , uh , that is to do it that way and to stay in it. Uh , and then as we mentioned, the hypothecation where you could borrow against it as well. There's a little bit more risk there because you are also obligated on it. Whereas it's not just the payer on the note and the property itself , uh , we've used that as well , uh , lines of credit where you collateralize as another type of hypothecation. So those are all ways to get capital. It might surprise people though that they can start out. If they can find the deals. There are lots of us who will buy those deals and pay them a referral fee closing. So I think the biggest takeaway is if you can control the deal source, like in any industry , um , the money will follow it,

Speaker 2:

Great point control. I I've always, one of my mentors has taught me that and , and , you know, he always tells me, you know , you want to control a portfolio. You don't necessarily have to own it. You just want to control it and be in control of it. And, and he's right. Like, I , I look at every deal going into it, assuming how do I get, how do I take control of this? And, and , you know, do I have a way to ex exit out of it? Do I, do I keep it in an account? Uh , you mentioned hypothe applications and partials. Uh , and we talked about that for a little bit and I, I wanna kind of segue in , into that part of the business and what, what I end up seeing. And , and I dunno if this makes sense to you or not, but in, let's say a cash account versus a retirement account. So in a cash account, I kind of prefer to do the hypothecation as opposed to the partial. Um , to me, it just kind of seems like I can get like maybe a cash on cash return. If you wanna use a metric like that. I know that's not the right metrics to use. And then a partial I like to do in the retirement account. Cause I feel like I'm just gonna get that money in the future and I can't touch it anyways. So what , you know , the partial ends up being a great play for me in the retirement account. Now I have done partials in the cash accounts as well, but I don't know what , what your take is on hypothe like that.

Speaker 3:

I think that I would agree a hundred percent with that. In addition to the tax implications, there's also a situation with your IRA where you don't wanna be perceived as doing business in your IRA because there is an unrelated business income tax there. So I try to keep those transactions out of there. I know there's ways to do it and to report it, but for me, I just like to keep it clean. So , um, you know, are you, are you playing with future money? Are you playing with today money? So if it's like you said, cash on cash, immediate cash flow . I usually like to keep that including the referral fees outside of the retirement account, anything that's a long term investment play. I like to put in the retirement account, there's pros and cons to both, but I agree with you. I think it's cleaner and , and it makes more sense and you have more control of the cash outside. So it's important to get that cash reinvested all the time. So you have a little bit more control on that too.

Speaker 2:

Yeah, I like with the, hypothecation my favorite part about it is that if you do have money left over in the deal in it, that money is earning you a pretty nice return versus what it was as you had all of your money in the deal. So I call it like the, the small balance, high , high velocity return model there, where you can just, you can just accelerate that cash. That's probably what my assignment's gonna be. Now. I'm gonna model that and , and show the hypothecation , uh , thresholds there of how much you can accelerate a small amount of money and make just a , an ungodly amount of return versus what you can using the full amount of money you have to invest with and make in , you know, a reasonable return. So,

Speaker 3:

Absolutely. I mean , that's what the banks do, you know, your podcasters be the bank, right? So that's a great segue into exactly what you're talking about. That's what the banks do. They, they don't have to keep all that money on deposit. They get to put it out there, they get to borrow against it. They get to play with the overnight funds and all these great things. And they're just making a controlling a lot with a little. And so if we can figure out how to get velocity and control a lot with a little and just keep repeating that, that then you're doing, you're being the bank, but you're doing it as, as a mom and pop and you're helping people at the same time.

Speaker 2:

So I , I jump back a lot. So I wanna jump back to the seller finance conversation when , when buying it, cuz something I kind of want to hear you talk about a little bit is , um, your expectation on closing on these deals. Obviously you have variances and variables in here that are gonna change that, but typically if you had all the information from the borrower, how quickly can you close a mom and pop deal?

Speaker 3:

I, you know, two weeks, but uh , most averages is three to four weeks just because I've never seen a deal with somebody just said, here's all my paperwork. Here's my game history. And here's my old title report and like , oh , okay , great . I'll get check in 48 hours from IRA. That would be great. Gotta , you know , pull teeth to get the payment history. We've gotta get copies of documents. We've gotta figure out where that original note is. Oftentimes that gets lost. We gotta find it. And then we wanna run an update to the title report and we wanna get eyes on the ground or boots on the ground, eyes on the property to see if it's in good condition of value. And if there's no , uh , third party payment history, we do usually like to have a nice hello conversation with the buyer borrower at the seller's permission. Of course , uh , just to let 'em know what's going on, make sure they're happy with the situation. Most sellers are honest, but sometimes they forget to tell us things. So the borrowers and buyers , usually lawyers usually will tell us things if the seller forgot and then we're ready to go to closing. And we like to use a third party to close it, cuz I want their documents before I give them my money and they want my money before they give me their documents. And so we used to use a third party that usually a title company that is , is the intermediary. So, you know, in a perfect world under two weeks, but on average it's three to four weeks.

Speaker 2:

Okay . I'm , I'm glad you walked through , you walked through that very quickly and very well articulated by the way, because that was a lot to unpack there. So I'll try to be quick about it, but the , the highlights of it is that there there's a lot of I to dot and a lot of Ts to cross in this process. Versus if I bought it from let's just call it a professional note, investing hedge fund to where pretty much everything is, is pretty much ready to go. And it's really up to you just to make sure that a couple of things are checking out properly with, you know, aligning with the title search and stuff. So the differences between buying in loan that way versus buying loan this way are , are night and day. I think we , we can say you can probably close a loan with a hedge fund probably within a week. If you were , if you had your money ready to deploy and you had your, your inspection and your title report is really the longest , uh , factor in that closing process. And then what you were talking about with seller financing. Yeah. There's, there's a lot of things. So I'll give them a homework assignment, right? I'll have little tabbed bullet points and say, I need this, this, this, this, and this. And oh, by the way, the alternative to that is this. And you don't get that the next day. It may take a couple days for them respond to you and they may throw you one or two items there and you have to follow up with them , be like, Hey, I'm missing items four through 14 here, you know, where are those at? And I'm like, oh yeah, I'm working on that. So it it'll take me like at least about one to two weeks to get all that information finally. And then you're , you're you're right. Another two weeks to, you know , go through the check of it, to build that pay history , to make sure it's gonna be board up through service . There's a lot going on there, but this is the reason why we get such a good discount on these deals is because we know the work we have to do to them. So like , like you said before, there's pros and cons to everything. And I think if you're looking for some good quality deals to be able to do a lot of neat things with seller financing is really a great way to , to find deals, to make good money, to either hold yourself or to even as we call or broker or even hypothecate. And , and , uh , I just find it fascinating and I'm , I'm really shocked that more people aren't in just specifically the seller finance business ,

Speaker 3:

Another piece , and you definitely , uh , mentioned it, alluded to it earlier, is that buyer borrower on seller finance. I see to be a more committed emotionally buyer. I have seen with the financial paper, cuz I've bought some of that as well. That's from the institutions that they are a buyer buyer or knows how to play the game. And when I say that, I mean, oh, I got behind a couple of months. Oops. I know you'll extend and modify, oh, you're not gonna extend and modify, oh, I'll file bankruptcy. Uh , oh, you're , you know, I'll , I'll say, do you have this , uh , document or that they all , all these things that might be a defense against foreclosure. So they play the game, the system , uh , you know, how long can I live in the house and not make a payment? I mean, we saw a lot of that after 2008, 2010. And I have seen for the most part, not always, but the buyer borrowers on the seller finance are so appreciative to be able to be a homeowner, not a renter, that they are pretty sincere and , and dedicated. And so that piece of it, I like, even though I don't like having to , um , build a nice collateral file as they would call it on the institutional side. Uh , and I just, it just seems to be my area where I shine. I like the people and I like problem solving and I , we get a nice return in the process and we get quality paper.

Speaker 2:

Yeah. You're you're uh , I don't know what the right word is a puzzle tier . Right. You're putting a puzzle together . That's why I feel like when I'm underwriting, these deals like, oh my God, I , I got this, that this, and I have to have my own checklist to keep myself and order and organized because I'm gonna have to keep them organized as far as getting the stuff, because that's the most important part about buying those deals is right when you're going through due diligence and going through closing. Because if, if you do everything right, the correct way, you don't really have to worry about it a lot after you buy it. It's kind of , it's kind of set it and forget it mode after that. So,

Speaker 3:

Yeah. And I think the , if anybody's listening, the , the big takeaways is, you know, taxes, title and insurance. If I think back about what's bit, me the most in my 34 years of doing this, it, it usually comes down to taxes, title, or insurance, and of course, documentation the paperwork. So we always look at the three PS when we're looking at the transaction, the people, so that that's the person making the payment that we're relying on every month to make the payment. It's also the seller that's selling us the deal. Are they honest and trustworthy? So we've got those people. Then we've got the paperwork. Like you talked about the note, the deed, trust the taxes, the title, the insurance, and then we've got the property. So if the people don't pay, then we rely on the paperwork to give us the ability to take back the property. If we have to always our last resort, but you'd line those three PS up and then you've got a good transaction. Okay . I got one more P I'm gonna add partials. I always PPP . And I'm gonna add one more partials. <laugh>

Speaker 2:

Right on .

Speaker 3:

That's a better PPP than the payroll protection plan trust <laugh>

Speaker 2:

That's the other one. I was thinking of the four PS of the seller finance note business.

Speaker 3:

That's right. There you go.

Speaker 2:

Tracy , we're gonna have some fun here. I'm gonna transition into a different segment. So this episode is brought to you by bright path notes. Tracy . So I , I mentioned earlier that , uh , you , you live in Florida, the sunny, sunny, Florida weather, you said you're from , um, uh , you , you grew up kind of, I guess, in the , in the west, the west coast, maybe not the west coast, but you said out west. So where exactly did you grow up at?

Speaker 3:

I grew up north of Spokane, Washington on the Canadian Washington, Idaho kind of corner up there. So very cold and wintery and very small town. And then, like I said, I moved to the big city of Spokane where I went to work for a institutional note buyer . And it's different out west than it is here. When I moved from Washington state to Florida, my mom was wondering, she's like , could you get any further away? And then I lived in Guatemala for a while and she said, I'm not gonna ask that question anymore . So , and she take

Speaker 2:

The , <laugh> take the I'm moving further away from you. Just kidding.

Speaker 3:

Well , no, no. I love her very much. I just, you know, it's opportunity, adventure, spirit, and always got back to see . And I , I still travel back there. Uh , friend and I were married in COA , Idaho. It's a gorgeous place if anybody , uh , ever gets out there. And so we always travel back and see friends and family out there. Uh , we love it in the summer, but I have to admit that the winters are a little nicer here , here in Florida.

Speaker 2:

<laugh> that's right . If you had to , if you and Fred and your daughter had to live anywhere and do this note business still, and you didn't have to be anywhere else, you could just stay in one spot since you're been the world traveler here. Where would you be?

Speaker 3:

Wow. Ah , that's a good question. I don't think I'd wanna commit to one spot forever, but I, I might be Italy. We liked Italy pretty well, but you know, I like the United States. We have lots of awesome things that happen here. So, you know, you could just live in an RV and travel all over, right. And then you don't have to pick a spot. I think maybe you could relate to this. <laugh>

Speaker 2:

Up to the truck . I just take it wherever I want . Wherever I land , wherever I stop is my , is my place, man. Love .

Speaker 3:

I see why people are snowboards, snowboards, snowboards, you know, because I like one, I love up , uh , north in the summer and I like down south in the winter so I could see being both.

Speaker 2:

So you and Fred, I look at you guys, obviously you're both are , are note investors, you know , note investing business, but what , what I see you guys shine better than almost anybody else that I know that's in our space is really marketing. And so how did you guys get to be so good at marketing?

Speaker 3:

Well, thank you for that. I have to give Fred credit for that because I was definitely the numbers, documentation, and he is definitely the marketeer and I never liked the word marketing. I , I could cringe when people would say marketing and sales. That just wasn't my thing. And he helped me a lot by shifting my focus to being of service. So how are, can you be of service to people and in providing a service, people are attracted to that. So if that's your messaging and marketing, then people are attracted to that and that you don't have to sell because they will decide that's what they need or want. And that shift is , was fundamental. So now I do like marketing, cuz how can I get a message across that's gonna help people? That's something I can get behind. So that shift was big for me. He helped us get into the technology land. Uh , so I've learned to embrace technology because it does help us market well and easily at an affordable price.

Speaker 2:

Awesome. So running a note business is obviously just like running a business if you will. And so I want you to give kind of our viewer slash listener here. Um , any sort of book or any sort of , um, um, podcast, if you will, or any sort of educational format that you think was very beneficial to help you.

Speaker 3:

I love the old school. I mean, they're sitting back here, right? So I love the old school invest in debt by DMI Napier . I know that's an old school book, but it , it really helps understand the cash flow concept. And I love the book, atomic habits. I I think for running a business that is , and just organizing your life. Uh , and I love the one thing. So those are kind of like my three go-tos I re recently , uh , started reading some other books by , um , Dan Sullivan and, and Ben , uh , Ben Hardy, what has been , I think that's his last name? Yeah, Benjamin Hardy. I love the gap in the gain and um, who not , how so? I think any of those things are, are really fantastic to get a list and implement the most important things in your business and not get distracted by the things we like doing. We want to do the shiny object syndrome squirrel. Uh , so you treat it like a business. If , if I give anybody one piece of advice as you , you here, I'm giving it to myself, right? You've gotta market because the deals aren't just gonna land in your lab . And so you have to find a marketing style and message that resonates with you that gets across to people so they can find you.

Speaker 2:

Absolutely. Tracy , thank you so much for being on the podcast today. Episode number 10. I thank you. Thank you. Thank you very much. And I hope I get to see you in person sometimes soon. I know with the COVID and the travel schedules and stuff and conferences , there has been a lot of opportunity, but I hope, hope next time I see you is very soon.

Speaker 3:

Excellent. Maybe this fall, right?

Speaker 2:

Yeah, definitely. Definitely a note expo. Definitely a note expo . I'll be

Speaker 3:

There. There all . I dunno . Sounds good .

Speaker 2:

I dunno if I'll be any summer conferences this year , uh , cuz I'll just be traveling, you know, <laugh> the , the nomad here

Speaker 3:

Enjoy that. That's what life's about. Enjoy that you get to take your business with you and I really appreciate you having me on be the bank podcast. Thanks Justin.

Speaker 2:

Yeah . Thanks a lot, Tracy . And we will catch you everybody. This is episode number 10, brought to you by bright path notes and we will see you next time.

Speaker 1:

Thanks for listening to feed the bank. We hope you learned something from today's show. If you enjoyed this episode, please rate and review us. Plus check out our bright path notes channel on YouTube and follow us on Facebook and Twitter at be the bank and on Instagram at be the bank podcast. Be the bank is sponsored by bright path notes. Thanks again for listening.