Unlock the door to financial independence with the extraordinary insights from Tracy Z, a titan of the real estate and note investing world with three decades of experience. We navigate the untapped potential of seller finance markets and how they could revolutionize your investment portfolio. Our enlightening discussion delves into the latest data, revealing a staggering $28 billion in UPB last year alone and how you can leverage this to build a robust stream of passive income.
Immerse yourself in the subtleties of seller financing, where Tracy and I dissect the burgeoning trends in the industry. We expose common myths about down payments, emphasize the necessity of equity to reduce default risks, and scrutinize the evolving role of technology in accessing courthouse data—a game-changer for market analysis. This episode is a treasure trove for anyone looking to understand the complexities of mortgage loan originations, typical loan-to-value ratios, and the enigmatic lifecycle of a note that could significantly influence your investment yields.
To wrap up, we reflect on the power of mentorship, the pursuit of workplace gender equality, and the art of mastering empathy and persistence in the realm of business. Hear from Tracy about the trials and triumphs of being a woman in a predominantly male space, and why placing people above profits is not just a noble pursuit but a strategic business move. This isn't just a conversation; it's a masterclass in navigating the ever-changing landscape of real estate wealth creation, ready to fuel your journey towards financial mastery.
Unlock the door to financial independence with the extraordinary insights from Tracy Z, a titan of the real estate and note investing world with three decades of experience. We navigate the untapped potential of seller finance markets and how they could revolutionize your investment portfolio. Our enlightening discussion delves into the latest data, revealing a staggering $28 billion in UPB last year alone and how you can leverage this to build a robust stream of passive income.
Immerse yourself in the subtleties of seller financing, where Tracy and I dissect the burgeoning trends in the industry. We expose common myths about down payments, emphasize the necessity of equity to reduce default risks, and scrutinize the evolving role of technology in accessing courthouse data—a game-changer for market analysis. This episode is a treasure trove for anyone looking to understand the complexities of mortgage loan originations, typical loan-to-value ratios, and the enigmatic lifecycle of a note that could significantly influence your investment yields.
To wrap up, we reflect on the power of mentorship, the pursuit of workplace gender equality, and the art of mastering empathy and persistence in the realm of business. Hear from Tracy about the trials and triumphs of being a woman in a predominantly male space, and why placing people above profits is not just a noble pursuit but a strategic business move. This isn't just a conversation; it's a masterclass in navigating the ever-changing landscape of real estate wealth creation, ready to fuel your journey towards financial mastery.
Thank you 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 this is Be the Bank brought to you by American Notebuyers. Now here's your host, justin Bogard.
Justin Bogard:Hey, hey, listener, welcome back. Thank you for joining us again on the Be the Bank podcast. This is season six, episode number eight. Today I have my friend, tracy Z, that's going to be on the show and we're going to be talking about all the seller finance data that has been created over the last year so you can have the numbers in mind of what down payments are and kind of how this is breaking down, so you can see how big the market is. It may surprise you on some of the numbers. Stay tuned, tracy Z.
Tracy Z:Hello Justin, hey, congratulations. Season six, that's. Impressive.
Justin Bogard:I know, thank you. I was thinking about the other day and I know that you and I were on a live broadcast last night on our broadcast that we do once a month and I think I mentioned it on there. But I've been doing like this live stream and about a podcast format for I think about six, six and a half years now and I think I've only missed like two live episodes before during that run. So it's just like that's pretty, that's a lot of content.
Tracy Z:It is and it's commitment. You know you just do it over and over and it builds up over time. And that's like seller financing. I've been doing that for 30 years. It builds up over time. So I know we both have a passion for node investing with a niche down into seller financing. So excited to be here today to talk about it.
Justin Bogard:Yeah, thanks, and you've been on one of my iterations of this podcast before I've been through. I think this is the third iteration that I've had it started off with. It's called the Super E&J podcast. So my good friend Elizabeth Sickles she likes to be called Super E, so we know her as Super E and so she is just very passionate, she's super smart and she got into the short-term Airbnb space and so we would always stay connected since we both got in this stuff around 2015 to 16. And we'd be having conversations and we're like, wouldn't that be fun if somebody was a fly on the wall just listening to our conversations, of our challenges and what we're going through and stuff.
Justin Bogard:So then we started that and then we blended it into a different format called the two wealth show, and then she basically got too busy for me, so so she had, she went off and, yeah, well, no, she didn't mean it in a bad way. Kudos to her. She's just, she's one of those super entrepreneurs that uh, uh, I can't say enough good things about her. She's just a good person to be around. She's. She's always got the best, best thing in mind for her customers and clients.
Tracy Z:Yeah, those people that leave you feeling good after you talk to them. That's my goal. I know it's your goal too.
Justin Bogard:Yeah, yeah, but I like doing this sort of thing. I guess when I first started I don't know if you felt the same way, but I was a little bit more shy and didn't really know how to present myself and what I do. And then I start getting comfortable with it and I kind of like the style of not really teaching, I guess, just kind of presenting my experience to the audience. And so, luckily, a few people follow me and, you know, hopefully I've changed, you know, some people's perspectives or at least made them some money.
Tracy Z:So absolutely to both.
Justin Bogard:So Tracy? Where are you at today? Absolutely to both. So Tracy, where?
Tracy Z:are you at today? I currently primarily reside in Central Florida. I'm originally a Washington State gal and moved here in 2000. And we travel quite a lot. It's one of the great things about note investing you have some freedom of where you want to be. So we've spent some time in Guatemala, nicaragua, italy, and I always get back to the Pacific Northwest in the summertime to visit all my friends and family, usually like Florida as the home base in the winter.
Justin Bogard:I don't know if you knew this about me, but I actually lived in a camper for a year. I tried to be a nomad, so I did I did recently actually and so I was always filming and stuff inside the camper and so I would have this whole process of I'd have to take the dining room table and like, convert it into like some sort of space that worked for the camera and the lighting, and I'd always have to make sure I'd have a good either a cell reception or wifi that I could get a good signal and it was quite interesting. But back to what you're saying about the freedom of being virtual or not being tethered geographically with what we do, it's just a really cool feeling that you can just go anywhere and we're international. Really.
Tracy Z:Yeah, absolutely. You know, I read this recently and I'm like, ah, this resonates. Controlling your time is the highest return money pays and you know that's why I got out of institutional note investing in personal note investing is because I wanted more control over my time. That takes different iterations as you go through life, so at first I wanted to spend more time with my daughter, as she was growing up and then I wanted all this flexibility to travel and live anywhere.
Tracy Z:Now I really love it because I have this opportunity to share people knowledge and experiences, that maybe they'll gain something and they can get some of that freedom and control over their time, because that's even better than the yields we get. On note, investing is that freedom over our time.
Justin Bogard:And thanks for saying that and I've finally learned that over the past few years that the return on time is much more valuable than what you're trying to look for on your investment. Especially as an entrepreneur or someone that's doing this full time, you really want to make sure you have that flexibility when you want, which is why we can create our own schedule. So I know you and your husband, fred, are both in this business and you kind of grew up in this business since, I think, the late 80s and you talked a lot about that. Gave us a good history of that last night on our live show. So if you guys want to check out that, I highly encourage you to go to the American Notebuyers YouTube channel and check out the April 10th broadcast that we did last night and Tracy Z was on there along with Chris Sevigny and Jay Redding. But, tracy, what kind of started you in the note space to begin with? Did you just run across it by being in real estate or what?
Tracy Z:Yeah, I was fortunate to find it, to discover it, because I grew up in a rural area up on the Washington, idaho, canadian border kind of corner and I knew about seller financing, so that in rural areas you'll see some seller financing. That's where the seller owns the property, they sell it to buyer and they allow the buyer to make payments to them instead of going out and getting a bank loan. So the seller is truly allowing to make payments over time. Some people call it owner financing, some people call it installment sales. You might have here a contract for deed, but the seller is allowing the buyer to make payments to them instead of getting a traditional bank loan. So I was aware of that. I used to work for a title company, an attorney and even an escrow servicing company. They had all three of those things in an office and somebody would pay us to go in and look at the microfiche. I'm dating myself here.
Narrator:Yeah.
Tracy Z:To pull up the courthouse recordings where the seller sold and took back payments because they wanted to market to those sellers and buy their notes Different than bank loans. So these are individuals, right? Not banks, not Wells Fargo, Bank of America, any of that. So I was exposed to it, but I didn't really think much beyond that. And then I had a big change in my life and I moved to the big city I say that in air quotes as a joke of Spokane, Washington and there was a company there that was buying seller finance notes and they'd been doing it since the 1950s. So here I come in 1988 and I'm like, wow, that's cool. So I went to work for them doing closing and real documents and somebody introduced me to the financial calculator and I was hooked.
Tracy Z:I'm like whoa you're doing this, you're buying at a discount, you're getting these kind of yields. So I worked with them and moved my way up into underwriting and due diligence and marketing and was a vice president with them and helped them turn them into mortgage backed securities, which hadn't been done with seller financing notes before Wow. So all of that led to 1997. I also met my husband, fred, through the business. I also met my husband, fred through the business 1997, we started our own note investing company and we're at noteinvestorcom and we've been buying and selling real estate notes for ourselves since then. So got an education on someone else's dime. Thank you very much. I so appreciate that and now get to apply it for myself and share that knowledge with others.
Justin Bogard:How often were you seeing seller finance transactions when you're working for that title company Like? Out of however many come through in a day like or a month like, what percentage would you just throw?
Tracy Z:out. Where I was up, there was, you know, an average of three. We used to say average of three to 6%. I think that's a little bit high. Perhaps it really depends on your state. Some states have more of it and others have less, as we'll look when we talk about the data today.
Justin Bogard:So, speaking of the data, every year everybody gets excited to see these numbers because well, at least I think so I get excited for it. I'll just say that much. I won't. But you get to post like just just snippets of information and you have a special presentation that I know that you do, and you have a great slide deck that you show. These numbers are much more detailed. If you guys want to see those numbers in greater detail on a PowerPoint, check out our YouTube stream we did last night on the April broadcast on the American Opirus YouTube channel. Basically just talk about how you come up with these numbers and when you started doing that.
Tracy Z:When I worked for that institutional investor we paid some people to do some market research, but it was really hard to get ahold of courthouse data without sending somebody to courthouses all over the United States. So, fast forward to today. We don't have to use microfiche anymore.
Justin Bogard:Thank God right.
Tracy Z:Thank goodness yeah, I love technology and that we've embraced it and so many counties across the United States have all of their recordings as public data and you can go look that information up.
Tracy Z:So we work with a data provider that scrapes that data so we don't personally have to go look it all up and he pulls down all of the seller finance deals across the United States.
Tracy Z:I think he's got about 2200 plus states or, excuse me, counties, not states and I think there's over 3000 counties, but he's got most of the big, large county. There's still some counties that are not online or there's not enough sales to make it worth it to go pull the data line or there's not enough sales to make it worth it to go pull the data. So we use that data and then we run it through a whole series of different calculations to kind of come up with some interesting stats and the one I want to start us off with in 2023, so I know we're in April 2024, but it takes some time for all this data to get compiled and get recorded and get downloaded. So last year we had 28 billion with a B of seller finance transactions across the United States and that adds up to over 125 billion in the last five years. So sometimes people are surprised to hear it's that large of a number.
Justin Bogard:Yeah, the loan amounts are pretty high, and when I talk about seller financing to people in general that are either in real estate or not in real estate, they just assume that you know maybe one person in their lifetime that they know actually does it and they don't realize how collectively across the country, how big it actually is and how few of us are in the space that actually buy it on the on. You know our secondary market that we're kind of creating, and so the opportunities are just tremendous. To where and we talked about this last night to where we don't really run into each other too often as far as, like you know, fighting over assets or whatnot, because there's just so much of it out there. So you just have to know how to market to it.
Tracy Z:That's very true. And what's interesting is that seller financing you know it's always been around. It kind of goes up and down depending on what's happening in the market, and right now what's happening in the market is leading to an increase in seller financing. So we track the dollars and we also track the count, like how many transactions, and the dollars went up about 24% over 2022. And the transaction count, which was about close to 90,000, went up 7.3%. So we're seeing right now, in this current market, an increase in seller financing.
Justin Bogard:That's incredible. That's incredible. And then you also last night broke it. We're able to break it down by state, which was even neater to see, because you may make assumptions that your state may do a lot of transactions but then it may not do a lot of seller finance transactions. So what are the off the top of your head? I know that you may not know this off the top of your head, but what are the top five?
Tracy Z:So the top five, texas has always been number one. So Texas is number one with almost 25% of the transaction volume when we look at it by count, and that's just been true as long as we've been tracking it. They have a lot of seller financing in Texas and number two and three kind of trade spots. Number two this year was Florida and number three was California but sometimes they swap around. And then number four last year was North Carolina and Georgia was number five. So those are the top five states. The top 10 states actually make up about 67% of the volume. So there is, and then all the other states kind of trickling behind that.
Justin Bogard:Yeah, they're significantly smaller. Texas is such a profoundly strong seller finance state that they actually double their more than double their transaction and loan volume amount compared to the second place state, which was Florida, correct.
Tracy Z:Yep, that is exactly correct.
Justin Bogard:Yeah, so what? What's the average down payment on these seller finance transactions? That you're, that, you're, that you're that you're.
Tracy Z:Yeah, now, that one always surprises people, and it surprises me sometimes too, because you have this preconception that, oh, seller financing, is all these zero down, or?
Justin Bogard:500 down.
Tracy Z:Now we certainly see some deals like that but, overall seller financing.
Tracy Z:Actually, the average loan to value on residential was 74% last year and so that means the buyers put down 26% and so the average no size is about 248,000. That's gone up over the last five years. It used to be significantly lower, more in the 150, 170 range, but as the real estate prices have gone up in general and as seller financing gets more prevalent, we're seeing that that average goes up. But yeah, there's a big amount of down payment that we see on these seller finance deals, which is good. It's good for the seller, it's good for the buyer, it's good for the investor.
Justin Bogard:Absolutely. The buyer excuse me, the borrower needs to have skin in the game. They have some sort of equity. So the FHA program I don't know what it currently is, the number 3% sticking in my head, but I think 3% down is what that home buyer is, the minimum they need to put down, I believe, to get a loan, possibly today. And it just fascinates me how those loans get created and I get it. You know, everyone deserves a chance to buy a home and I'm all for it.
Justin Bogard:But you have such a high propensity to fail in that, in that mortgage situation, when you don't put enough skin in the game, because it's kind of like when you rent it's like, okay, yeah, I put down my deposit, I, you know, if I threw away a thousand or $2,000 and just walk away from this, like you know I'm, I'm not really out that much and that's kind of what I feel like borrowers are doing in seller financing. If you were to create seller financing with extremely low down payments, like you know, $500 or maybe a couple percent down. But when I hear those numbers that you say, it makes me happy too. That 26% down payment on $100,000 sales price, I mean, that's $26,000. That's some serious money that somebody put into it that they probably wouldn't want to lose very easily.
Tracy Z:Very true and I agree with you, I think, about 10% down payment. I like to see that, or more, or I like to see some seasoning, meaning they made some payments over time. If you don't have that down payment, they built up some equity. We do see some of these deals, too, that have like 10% down and a 10% second, and so the first would be 80%. So these stats are based on that first position lien, that's $30,000 or higher.
Tracy Z:It could be wraps if the seller still owed some debt and wrap that with an all-inclusive. And it doesn't include any contract for deeds that aren't recorded. If they've been recorded, it includes them. It doesn't include things like private hard money loans, because those aren't seller finance, those are just private people lending. So you know it's a niche within a niche, uh, but it's it's a great niche and it's really a great time for people to understand seller financing If they're buying property or selling property, not just to be a note investor. I mean, we hear a lot right now about subject to and wraps and creative financing, and so this is part of the reason I also believe that the numbers are going up is just more people are being active in this market in these higher interest rates, seller financing can make sense.
Justin Bogard:Yeah, and they're learning how to be more compliant and to do things the right way because of people like myself, tracy Zee and all the other folks that we know in the industry that have an outgoing voice on some sort of platform like this that can help educate them on what to do. Because, honestly, and I'm sure you run into the same thing some of these newer seller financiers or originators, they just don't know what they don't know. Originators, they just don't know what they don't know, they just they. They remember like, oh my, my buddy, you know, did this back in the eighties with this land contract thing, you know, doing air quotes here, cause in the Midwest where I'm at, that is the the good old boys is what we call them. That's how they did stuff.
Justin Bogard:They said do a land contract, don't record it, have them sign the, the D, back to you at closing, but just don't record it. And they had all these techniques that they did because it worked back then, because that's how they got away with it. Today it doesn't work like that, because if you take a unrecorded land contract contract for deed to a judge and you're trying to forfeit the person out of there and they see that they've made a few payments or they put some sort of equity into it sorry, we will need you to record that and go through a foreclosure payments, or they put some sort of equity into it sorry, we will need you to record that and go through a foreclosure. So it's, it's becoming a good thing that judges are putting the hammer down on this, because I'm feeling that a lot of people are understanding, like the note, mortgage note need to trust is the proper way to go, as opposed to the the old school way of doing things with. You know, the contract for D, land contract type of type of instrument that you hear.
Tracy Z:I would agree with that.
Justin Bogard:Yeah. So thank you for delineating exactly how this data is derived, because you were leading me down to my next question, which I'm glad that you did, because your numbers are actually very conservative. So when you were saying that this is specific to $30,000 or more in unpaid balance, this is specific to first lien and it's specific to the fact that somebody has to own the property and that owner has to resell it to somebody and carry back the financing. So that is even more of a specific part of the pie there. So there's a whole shadow of inventory that's not including this data. So who knows what it could be? It could be double the numbers that you say right now. We don't know, but at least we know it's a minimum and that minimum is pretty impressive to begin with.
Tracy Z:Well, it's been enough. For at least 30 plus years I've been in business.
Justin Bogard:So I think it'll continue to be enough. Yeah, the interest rate environment question is something that always investors poke me on and they try to figure out and they make assumptions just on negative connotations about okay, if the interest rate raises and you've bought a note that maybe was written at 6% before, they just assume in their head that you know that doesn't make sense, why would I buy that deal if the interest rate's changing? But they don't understand the concept of time, value of money because they don't realize how much of a discount that we got on that 6% note that we bought, you know, a few years back and that there's, I mean, interest rates, would have to be astronomical for us to, you know, feel like it's going to be an issue for us on that investment we made maybe four or five years ago.
Tracy Z:Yeah, very true. So if we want, if we wanted a 10% return IRR over time, time value of money on a 6% note, we just have to figure out what we can pay in today's dollars for that. And you know, if people pay off early and we bought at a discount, our yield actually goes up. And you know most notes do pay off seven to 10 years. It was happening much quicker when people were refinancing at very low rates.
Tracy Z:I think we'll go back to that seven to 10 year average now. But it's not just residential that this is on, it's also on commercial property land. There's tons of business note financing that does involve real estate that aren't in these numbers. I mean, we interviewed a business note buyer and they buy a ton of these seller finance notes that don't involve real estate, all the stuff that doesn't qualify for SBA. We see all these mobile homes and mobile home parks that are seller financed. None of that data is in here because that's not considered real estate, right, it's considered property. So just to validate your point yeah, this is just a small specific piece of that pie.
Justin Bogard:Okay, so of the pie that, we're showing, the data on the 90,000 transactions that were created in 2023, the $28 billion of loan. Balance Of that, what is residential commercial land? And we'll call it miscellaneous.
Tracy Z:Yeah, that's a great, great question. So we like to look at that. So we look at it both on the count and the dollar amount. So residential was about 50% of the dollar and about 63% of the count, so it was the lion's share. And then commercial was about 33% of the dollars and 17% of the count, so they're bigger transactions. And land was about 13% of the dollars and 16% of the count. Keeping in mind you had this great point last night keeping in mind that people think, oh, there's a lot of seller, financing and land, but when we say 30,000 or more, we probably got rid of a lot of land.
Justin Bogard:Yeah, we did.
Tracy Z:We got rid of a lot and I thought it was very insightful when you said that. And then we have this little bucket of of uh, uncategorized because the counties don't tell us, but we figured it it. It averages out about the same as those other three categories, so it does include all of those, if they were seller financed, because all of that's considered real estate.
Justin Bogard:What was the average balance on commercial seller carryback data that you had?
Tracy Z:Yeah, that was 613,000 as the average seller finance note and that was up 41% from the prior year.
Tracy Z:So we're seeing a lot more larger dollar commercials. Turning to seller financing, and I just think that's an indication of what's happening in that commercial market. It's a lot harder to get financing on commercial deals. It's harder to get financing on a residential home as well. When we talk about the mortgage credit availability index excuse me, mortgage credit availability index that we're seeing it's a lot tighter to get a home loan for a property you want to live in and we also know on the commercial side it's a lot harder to get a loan on commercial property. So we see more seller financing happens.
Justin Bogard:That's impressive. So in 2022, they had numbers and then in 2023, the commercial market. I don't really recall off the top of my head if it was good, bad or ugly. As far as raising in property value, I think it was starting to be stagnant to starting to fall.
Justin Bogard:But thanks for bringing that point up about the banking system on commercial, which is probably why we're seeing such an influx of seller financing commercial, because people, they don't have any other choice and they don't have another choice. Seller financing becomes the most prevalent way to get the deal done because typically they don't have the a hundred percent cash to pay for that commercial property, nor the bank's lending on it. So I, I am seeing it, I'm fortunate enough I I am helping with a big trade desk right now and for my own stuff that when I see this stuff it's very balloon heavy within five years and and so that tells me that you know, people are banking on the fact that the rates are going to be coming down or just be more palatable for commercial lending and then the banks will be able to start really be more what do I say friendly to commercial borrowers to be able to refi that loan.
Tracy Z:Yeah, you know, justin, people hear this data and you probably get this question a lot too. They're like oh, this is really cool, you can create your own notes. And they're like we're just going to go out and create. We got this commercial loan coming due with the balloon and we can't get it refinanced at decent rates. Or people are revaluing what they think the property is worth. There's all kinds of problems going on in the commercial lending. We'll just write our own note and go sell it.
Tracy Z:Well, that's not a seller finance note. There's got to be some consideration. So the consideration is either you've sold property and allowed the buyer to make payments to you, or, if you're truly making a loan, that's not a seller finance deal. That's truly originating a loan and you have to loan somebody the money in order for them to have to pay you back the money. So you know, people say I'm just going to create my paper and go out and sell it. Just remember it has to be consideration. Either you're selling the property and taking back a note, or you're originating a note because you're lending somebody the money.
Justin Bogard:That's a great distinction. I never thought about that analogy before. But if you're physically giving somebody money to go buy something, that is not a seller carryback situation. Seller carryback situation is where you're gifting them, I guess, a loan, if you will, and no true money physically is changing hands.
Tracy Z:Yes, and it's different because different laws apply, especially when you talk about residential, if it's seller financed or if it's a loan, and what kind of licensing you have to have and what kind of disclosures have to be done. So it's important to know the distinction and whether that matters on your transaction, and that's definitely more true of residential owner occupied than is commercial or investor deals.
Justin Bogard:And, by the way, as a little side note for those of you listening to this awesome episode today, don't try to do this yourself. If you don't really know what you're doing or haven't asked the right questions, you need to talk to a professional like myself or Tracy or whoever is in this business that's promoting what they do, because there are so many things that you will do wrong that you don't realize you're doing wrong or not compliant that you just wanna pay to have somebody do it. You wouldn't go to WebMD online to diagnose you know you're. If you think you had cancer, right, you would actually go to an oncologist and, you know, have them properly diagnose you. So that I would just say strongly, use a no professional to help you and they'll guide you to the proper you know attorney or person that can draft the documents for you, so that question doesn't get asked enough by uh I want to say uh amateur seller financiers.
Tracy Z:Yeah, they don't know. The saying is you don't know what you don't know. So that's why we do these things to provide information to people, not to scare them, because there's plenty of opportunity to go around. Just make sure you understand what you're doing and use professionals. A lot of us use uh mlos mortgage loan originators when we're doing in use professionals. A lot of us use MLOs mortgage loan originators when we're doing in the residential space or even in the land and commercial, because they help you put together a nice package and be sure that borrower, buyer depending on how you're looking at it seller financing, your buyer of the property is your borrower, right? So we sort of use that interchangeably a lot. But you want to be sure that they have the income and the credit history to repay you, because you don't want to sell them a property and not get paid and then get it back and it's not in good condition. So you want to make sure to protect them and to protect you that they have that ability to make those payments.
Justin Bogard:All right Land. What's the percentage of land as far as down payment and loan to value? Ah yes, and the average balance.
Tracy Z:So you know you like I have seen land notes written so many different ways. But we talk about the average. The average is a 70% loan to value, which means 30% down last year and the average note size was $263,871, which is about six and a half percent up from the prior year.
Justin Bogard:On the note size A land note.
Tracy Z:Yeah, that's pretty big. I see so many small ones. How about?
Justin Bogard:you A lot of small ones, probably typically 45K and under, and the parcels are probably, you know, under eight acres. I would say.
Tracy Z:Yeah, yeah.
Justin Bogard:So a $267,000 loan on a piece of land that's probably got to be a decent track, or maybe an area that's more affluent that has a higher property value.
Tracy Z:Yeah, the problem with those land deals there's a lot of big ones and they skew those numbers. So we probably should do a mean on that than a true average right, just because you throw out the big and throw out the little. One thing I like about land is I like to see that down payment. I like to see that it has comps that are not just in that same development that the developer created. I like to see that borrower that they have good credit history on other trades. That's even more important on land and I like to do partials on them. So I like to buy hey, let's buy the next five years. If that pays well, well, maybe I'll buy the rest or I'll buy another five years. So it keeps you and that person who created that note kind of in the deal, especially if they're creating multiples of them. So I'm a big fan of the partial purchase, where you just buy the next certain number of payments and then, when it pays well, you buy some more. So that works really good on land deals.
Justin Bogard:I'm absolutely on the same page with you on that. I would much rather just buy all partials and it just mitigates your risk so much as the lender because you're going to be in the first position of the first position note, so to speak. You know you're getting that first entitlement coming to you, 30% down on an average of $267,000 loan. What's that? 80, 80,000. I'm just doing some rough math in my head Like that's, that's pretty sizable. So it it happens and I I like that. I like the fact that land has sizable down payments. It is a little bit more risky because it's not typically somebody's primary residence. So they probably have their own mortgage, they have their own, you know, liabilities and stuff that they do. That's higher on the priority list. So we do tend to take a little bit more discount on land deals. But I tell people you know, the best deal I can see out there is 50% down, 50% financing. That's where. What's that?
Tracy Z:Yeah, I would wish. I wish all our deals were that.
Justin Bogard:That'd be sweet Well especially with land, because I feel like you know, you got to have some skin in the game Like you can't.
Justin Bogard:You know dirt doesn't go anywhere but it doesn't. You know, lose value that much. It doesn't go anywhere but it doesn't, you know, lose value that much. But at the same time you know it's if it's not in a great area, you know it's. It's going to be hard pressed for you to be able to move that because not a lot of buyers are in that arena, so to speak. So I always tell people you know the single family home in the Midwest area is the absolute best loan to get If you want to make sure you have a ton of exits out of it if it goes bad. But land is a little bit different.
Tracy Z:So we do take a little bit more discount. Yeah, and you want to avoid the desert and the swamp?
Justin Bogard:Yeah, that's true. Yeah, yeah, I've been guilty of the swamp Some swamp land in Florida I bought. Luckily, I noted my way out of that and I actually came out ahead a little bit. But for the longest time I wasn't using my seller finance brain and I just I bought the parcel and like a small IRA I had, and just kind of forgot about it and I tried to sell it for cash and I realized like, oh my God, like I am not getting cash offered anywhere near what I have into this. And so when I started using seller financing promoting it, I was just like why did it take me so long to figure this out? I'm in this business and I have my own inventory that I'm not even taking advantage of like that.
Tracy Z:So yeah, Well, people ask about inventory and I always like well, the best place to start. Do you have any property you want to sell and create a note? That's the best way to create your own inventory. If not, then you can start go out marketing like we do direct to sellers. You know, networking people with IRA money, all of those great things.
Justin Bogard:Cool Tracy in your lifespan of being in the real estate and specifically the note space, being female in this business is probably more male dominated. I'm just making the assumption and if you think it's closer to equal then let me know. But I feel like it's more male-dominated. Is that the case?
Tracy Z:Yes, there are more females in it now than there used to be, but I mean there were many times those first 10 years. I was like the only female.
Justin Bogard:You felt like one of the two.
Tracy Z:Yeah, but I've seen a lot more women get involved with it as women get more involved in real estate investing and they like the note side of it because it's not as hands-on but it's good with the detail-oriented paperwork and running the numbers, and so men and women can both excel at it. But yeah, I would definitely say finance over the years has traditionally been a male dominated field. I was mentored by a gentleman back when I started at the institution and I appreciate that very much for him doing that and one time I actually thanked him and he goes well. I have a daughter about your age and I hope somebody would do the same for her someday. So there's a lot of great people out there, male and female. I know there's a lot of bad stories out there too, but I mean, unfortunately I have some good ones. So it's it's nice to acknowledge those people who've done a nice job mentoring along the way and now you get to pay it back or pay it forward.
Justin Bogard:Yeah, no, I'm glad to see, and I'm a firm believer of, you know, having equality across the board in any industry. I don't, I don't think there should be a designation because of one gender or another for, like you know, pay scale and opportunities and stuff. So I'm sure you've seen this. I'm just making the assumption. But, as there've been many challenges or many things that you think, like you know, I went to that person to try to get this opportunity, to get this deal done and I I feel like I got treated differently because, you know, I'm a female in this industry and maybe this was, you know, back a couple of decades ago or a decade ago, versus you know today, like did you run across that and someone else was able to get in and get the same thing done, but you try to do it and you just got. You were, you were unable to do that because of the obstacle.
Tracy Z:I think that you have to just keep knocking on those doors. I think that you have to just keep knocking on those doors and fortunately, I'm a stubborn person and I got the lines of credit. You know that always can be a little bit more challenging. I mean fortunately. I mean, let's just be honest, as my husband was also in the business there are some advantages to that and he always jokes.
Tracy Z:you know, when people ask something, he's you know and they'll look at him and he's like I don't know, ask her. She's the detail-oriented one. He's super smart, he knows the numbers, he's great at marketing, but you ask him to go through a due diligence file and he's just like ugh.
Justin Bogard:His eyes start crossing. Oh my God.
Tracy Z:So, yeah, I mean I am not diminishing what anybody's ever been through and I just also want to encourage people to just keep challenging that status quo, just keep making it happen. I think there's ways to find it out. And what's kind of refreshing for me now I go to these conventions, we have a membership group and I'm seeing probably not quite half yet, but we're closing in on it. I mean we're at least a third now of ladies doing this as well, as part of why I started Wise Women Investors, just so people could get that confidence to see that, hey, they can do it too. And I work with a lot of men and a lot of women and I agree with you. I mean, when we don't have to talk about it anymore, I guess flat wings were truly equal and until then, we have to talk about it, do something about it, right?
Justin Bogard:no, I'm glad. Thank you for all those thanks for bringing it up.
Tracy Z:Not not very many people to ask me that question over the years and you didn't forewarn me, so I'm like how do I want to answer that?
Justin Bogard:it's a good question oh, you know, I just kind of off the cap. I'm just kind of curious of what challenges people go through. I'm, I'm, I consider myself empathetic and I like to be inclusive and I, like people that you know maybe don't have the same um, I want to say advantages or opportunities as others. I just don't think that's right. I want to see everyone have a striking chance, because I want the best of the best to be doing what they do so we can all learn from it or, um, you know, excel from it, and I'm just a believer in that. So I just always, you know, admire somebody that didn't have the same opportunities maybe as me and, just you know, commend them for, for sticking to it and having the tenacity and the. You know, I think stubbornness is actually a good quality because it allows you to have thick skin and, just, you know, doing the, uh, the brushing the shoulder here, wiping the haters away, so, uh, yeah, I think it's awesome.
Tracy Z:Yeah, and I think empathy is good in this business. Uh, listening is good. So if I deal with a mom and pop seller who maybe they've only taken back one note their whole life, um, you know, I want to be approachable. I want to understand what challenge they're trying to overcome in selling their note or what opportunity they're seeking. So, by listening and not being overbearing and demeaning to them, I think that can be an advantage, and so I think you can be that way, whether you're a man or a woman, but it's something that you need to cultivate, especially when you have a whole lot of knowledge and they don't. Don't make them feel like that. You have to instill confidence, but you want to be approachable, that you're there to help.
Tracy Z:There's been times I've told people selling me your notes not the best thing to do. Here's some other things that would be better for you to do, and if that doesn't work out, then yeah, let's talk. Uh, but not always. You're there to solve and to serve and not just to make a buck, and I know that's hard to do when you're trying to make a living, but I think you've always got to put the people first, and it took me a while to honestly realize that because, just like everybody, when you're starting out your eyes are more focused on the dollars, but you find that they follow if you put the people in the best solution first.
Justin Bogard:Absolutely, that's very well said if you put the people in the best solution first. Absolutely, that's very well said. I think that industries in general not just what we're in, but a lot of industries I see there's very stereotypical silos of groups of people. You know you got the we'll say, the older generation of people. We'll say like older men, you know they may have this type of mentality or they're perceived as having this mentality, and then you have, you know, a group of women that are trying to get into that industry, and you have younger men, professionals, and you have, you know, different races.
Justin Bogard:Unfortunately, it's been that way to where people you know maybe aren't giving that person the respect they deserve. And I feel like in our business, especially since I've been in it since about 2016 full time, I don't see that. I don't see any any gender, I don't see any race issues. I see everyone, just as long as they have the knowledge that they're all equal, even a newer person, versus somebody that's been in the business for 30 or 40 years, and I just think that's really cool, and not a lot of industries today I don't think can say that.
Tracy Z:I agree, yeah, and we're kind of the main street approach and I think that makes us more real and down to earth, because we're having to find solutions to problems that the banks and the Wall Street people haven't. And maybe that just by nature, that by default or that way, maybe it's a good question.
Justin Bogard:We're all in this cave together. We got to figure out how to get out to the light on our way through it.
Tracy Z:I will also say I've met a few people over the years who did not have other people's interests at heart. So I would also say you know the whole trust, but verify if you're doing business with somebody. Go out and search them on the internet. It's real easy to find out if they've got lawsuits or judgments or cases against them. So I'm not here to say everybody has your best interests at heart, but I think you can find those that do pretty quickly.
Justin Bogard:Yeah, and we you and I could probably won't do this on the show right now, but we can probably count them on our hand, the people that you don't want to do business with, because it's such a small community that those of us talk and and and believe me, if you're out there listening, we do talk to each other and be like, hey, I had this deal and it went sideways, or this person did this to me. I'm just letting you know, and we all let each other know, like, hey, this is happening, this is a person that you want to just kind of make sure you definitely follow through with some due diligence and make sure that everything is up to code, if you will.
Tracy Z:Yeah, and you know it's a great business. We see some people are mom and pops doing that one note in 12 months. That's about 86%. We've got people that are doing two or more. That makes up the other about 14%. So there's plenty of room for everybody in there.
Tracy Z:I hope that if people start looking at seller financing, they do what you mentioned and they get the advice and they use good professionals to make sure they write that paper correctly, because there's no better position to be in than a first position loan. I mean, look at the banks, that's why they all do it and so there's no reason a person can't do it, or an entity, or your self-directed IRA or your LLC, and maybe it's just a piece of your business. But as rental rates, cap rates, all these things happening on rental properties, we're seeing more people moving over to notes because one you can get better velocity, it can happen quicker, faster, I can manage more notes and I can manage properties and I don't have all those headaches of the tenants toilets, trash. I can take the opportunity that is presented by these higher interest rates we've got going on right now with not as much work as a rental, so I think it's a good time for people to hear about it.
Tracy Z:I'm glad you have this podcast so people can learn more about it. If anybody wants to hear about me, we're at noteinvestorcom. Feel free to visit there, and you can even download a copy of the stats that you mentioned.
Justin Bogard:Tracy, thank you so much for your tutelage that you've given me over the years. Thank you so much for your time today on our show. Thank you for being on our broadcast last night. You and Fred are awesome. Happy belated birthday to Fred.
Tracy Z:He's on a birthday trip right now. He's out fishing in the Keys. I want to live his life.
Justin Bogard:He always has a cigar and he's fishing. He's doing his cool stuff. I want his life. I am living vicariously through Fred right now. That's right.
Tracy Z:Thank you, Justin, for what you do and thanks for having me on the show and thanks the other day for helping me out on a deal up in your neck of the woods. Just to say that we're a community. I appreciate that.
Justin Bogard:Yeah, you're welcome, and Fred Tracy also do the big online event every year called the Cash Flow Expo, so that'll come around next February. So look out for the marketing for that. You definitely want to join that. It's free and then you can buy the recordings and the videos if you can't stay and watch the shows. I think you guys are three days long now on.
Tracy Z:We went four days. I talked Fred into four days. I don't know if he's forgiving me yet. Normally it is three. You're right, but we had so many good speakers, yourself included, that we just had to go to four days. And if anybody missed it, they can actually still get the recordings. It's all very timely information.
Justin Bogard:Yeah, it's cool. You can jam pack it all into one day and you might get it so big. Now you might have to do it like one a month for a couple of months. You know, do a session, do a couple hour session on this day of the month and then you know, next week you're doing these. So people catch you live.
Tracy Z:We'll take that under advisement.
Justin Bogard:I'm no, I'm no way.
Tracy Z:I'm still forgiving me for the four days, so yeah.
Justin Bogard:I'm sure it's a lot of work. Thank you for doing that. Thank you for providing the data that you do, tracy, you're awesome. Thanks for being my friend as well. And, guys, this is episode number eight with Tracy Z, season six on the Be the Bank podcast, and we will catch you guys on the next episode. And thanks, tracy.
Tracy Z:Thank you, Justin.
Justin Bogard:Bye.
Tracy Z:Bye.
Narrator:Thanks for listening to Be 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 channel on YouTube and follow us on Facebook and Twitter at BeTheBank, and on Instagram at BeTheBankPodcast. Bethebank is sponsored by American Notebuyers. Thanks again for listening.