E329 |  Melissa Palmer on Catching Red Flags Before You Invest – PTNC Know Your Speakers Series

On this episode of the Paper Trail podcast, we speak to Melissa Palmer of Capital Verified.

This is an interesting and great episode because she provides due diligence services for private lenders and other note investors, which I didn't even know this existed.

And when we heard about this service, we wanted to make sure she would be speaking at the paper trail conference September 18th to 20th in Chandler, Arizona.

So hope you enjoy this episode with Melissa, who is a former investigator as well.

So thank you and enjoy.

Hey Melissa, how are you today?

Hey, doing well.

How are you, Chris?

Good.

We were just talking off recording about a little busy for a Friday today before holiday weekend.

But all is good.

So why don't we just kind of roll right to it and have you start with telling people a little bit about your story, what you do and how you got into your business because it's really creative.

Thanks.

Yeah, so I'm originally from Wisconsin.

And I like to say that I've gone from like the HGTV mindset, maybe grown to a little bit of bigger pockets mindset even though I never knew it was a blog and you know, got into the kind of creative finance realm and then realized, you know, there's, there's so many ways to make money and there's a lot of ways to lose money.

So I kind of leveraged my background while I was in the Air Force.

I was a federal agent conducting criminal investigations.

And so with all the ways to lose money, I saw an avenue to help people avoid fraud.

You can't prevent it, but help avoid.

So kind of repurpose those investigator skills as a due diligence consultant of sorts.

So yeah, I saw you know your website and stuff provides due diligence services for the private lending, but I'm guessing like I invest in non performing loans and other things.

Pretty much you could provide a service to anybody would be my guess.

It's more you're really just doing that due diligence, which is I think the most important thing in any type of investing space.

For sure.

Yeah.

It's kind of like applying the appropriate tool for the job.

You're not necessarily going to use a hammer drill on a two by four, but um, the at the end of the day due diligence can be done so many different ways and that's kind of why I niched down into the private lender space.

Okay, now you mentioned also that you've owned some rentals and so forth as you started getting investing, just curious where your portfolio and have you continued to grow that as well or, you know, how's that looking today?

Yeah, so it's primarily in Big Bear, California.

I've got a triplex, a short term rental, um, and a dirt lot that I'm developing, a commercial dirt lot.

So I've got a couple other rentals in west Memphis, Arkansas and those were non performing partners which I took over the properties.

So I don't want those.

But they were a consolidation prize for the capital that I wanted back.

Right, okay.

So you're developing.

That is awesome to go from where you are to, you know, development.

I come from a background of development and construction and everything.

So every time I hear that.

And actually today I sent our team pictures because we have two properties that we took back on non performing loans that we're renovating them.

And I sent some pictures of the renovations and in the blurb I'm like, I know I'm the only one who enjoys seeing like framing going inside a house or like siding being completed, but this is my joy and excitement.

So great.

What's, you know, something about your journey that most people don't know but probably should.

Yeah.

So people think I got into the due diligence because of my special agent background, but really it's because I got ripped off.

So I got invested into a total Ponzi scheme, Robin Peter to pay Paul based off of recommendations and a very expensive paid community.

And at the end of the day I realized if I could fall for this stuff as a, as a former federal agent, others could tune, especially new investors.

And so yeah, that's, that's the, you know, full.

I won't say it's the real story because they're both part of the story, but it's the full part of the why I got into this.

I'm guessing you probably did you beat yourself up a lot saying, I can't believe I fell for this because this is my background.

I should have and like recircle yourself a thousand times through the steps of like, you know, everything.

Unfortunately.

Oh yeah.

Reliving every moment where I was like, I asked for that information, so good job me, I asked for it.

But they didn't, but they didn't provide it.

Right.

So it's the person, the property, the proof.

Right.

They can give you furnish all of this information, but if you're not verifying it, there's really not a whole lot of security there.

Right.

And so I like to say don't trust, verify.

A lot of people will like to lean in with trust, but I think when financials, you know, when there's financial outcomes, you really want to verify those figures.

And if at the end of the day it's a lot of dreams and not reality, I'm not saying you can't invest in those.

I mean, in development especially, I mean, I'm developing in a very rural area of Big Bear, California.

So it's like, you know, there's, there's a little bit of dream and, and chance that can go into some investments, but just knowing, you know, actually having the information to make an informed decision is really the most important part.

Yeah.

Because there's a very big difference between a deal going bad and having risk and a deal where it's just fraud.

And you know, and sometimes those deals end up going bad that turn into fraud where people didn't have that upfront.

But then there's deals that.

Interestingly enough, I did not know this.

I'm curious if you did.

So we are, you know, have, There's a software that was sharing with us that they have a system that does like OCR and scanning and they mentioned that they can easily tell if a bank statement has been modified because banks actually have their own font and font size that is only their own specific.

So like if you took like a PDF editor and like tried to change a number and so forth, the font and font size by each bank is specific only to that bank.

So these OCR systems can easily pick that up and note it, flag it.

And we were getting a demonstration on this because again, some of the fraud is when you go to lend to people, they say they have this much in the bank account and there's plaid and stuff that can adjust, but a six month old bank statement, you might not be able to, you know, see or know.

And they were, you know, and they were telling me about this, I'm like, wow, it makes so much sense.

But I'm like, I never knew that.

Yeah.

And like plaid is a wonderful, a wonderful way to actually integrate, not even have to look at documents.

Right.

But at some point when you're just doing the preliminary scan, you're not trying to make it a complete chore for a borrower too.

And so it's easy to kind of get by with the lowest threshold documentation available and then kind of just proceed down that route.

Yeah.

And like you mentioned, a lot of times most people like to think people are trying to do good.

So you put A trust in them where, like you said, don't trust, but verify.

I've never heard that.

And I actually like that.

You know, it's usually the trust would verify.

Right.

So, you know, everybody typically has a core investment philosophy.

If you could describe yours in like, one or two sentences.

What's your philosophy and where did it come from?

Huh?

Well, I would say it's the don't trust verify that's kind of like.

That is.

I mean, that's a great philosophy, honestly.

I mean, I.

I would roll with that.

That's actually a great one.

So.

And I think, you know, just to.

So I'm not copping out with my previous, you know, offering is, you know, I think.

I think investing with values is really, really critical.

Been very slow and I had.

I'd, you know, don't have some massive portfolio.

But I will say I did find myself chasing investments such as the Ponzi scheme that I found myself in that really didn't align with my values or interests beyond returns.

And so, you know, part of that don't trust verify is like, not investing in the returns, investing in the information, and actually making that sure that information aligns with your goals and values.

I think so.

So many people will just look and chase a number and not understand what's behind that number.

And we run a fund and, you know, we target 8 to 10% of people, and some people just laugh at us and like, oh, I see deals at 25, and I'm like, that's great.

But how did you really.

Are people really getting 25%?

So.

Right.

Yeah.

What's the percentage of default rate on those 25% opportunities you have?

Yeah, well.

And kind of you might be answering the questions ahead each one.

But, you know, what's one principle you live by in, you know, your business that guides how you treat just the people around you?

Yeah.

So for principles, I like to borrow the stoic philosophy, like the stoic virtues of courage, wisdom, justice and temperance.

I feel like those are just like a very solid foundation for me then building upon with those values and then the ending goals.

So, yeah, no, great.

You know, we have you as a speaker at the paper trail conference, I guess.

You know, why is it important for you to, you know, be a part of a conference and speak and provide, you know, a session for people?

Yeah.

I think especially with shifts.

Right.

If people are shifting from paper notes to maybe more private lending, I think in those shifts is where we can find ourselves in just suspended in this very brief period of vulnerability where we're trying to apply skills in one area to another area and they don't always translate.

And so I think it's very valuable to have these upfront conversations, talk about the risks that and rewards, talk about the disclosures and you know, industry practices.

And so yeah, that's, that's kind of where, where I feel excited about that.

No, and I like to kind of use the analogy.

Sometimes it's like being a.

Again, if I'm not saying it's the same in any way, but it's kind of like being like a doctor or an attorney.

Like there's different types and just because you're an attorney doesn't mean, you know, you can do real estate if you're doing corporate law.

And it's same thing in notes where yes, I could do seller financing or I could do non performing.

But then when you shift over to private lending or try and mix those, like you said, there's that moment of vulnerability where you don't know what you don't know and you think you know sometimes because you've already been in the space, but you know, it's really that area where you know, and a lot of times it's a, you know, sometimes can be a very brief moment in time, but it's still a moment where you don't want, you know, all the cards come falling down on you.

So yeah, I even think about like the contractor that moves to an investing fix and flipper.

So now instead of being the contractor being paid, now you're the one putting the risk up.

And they make different mistakes than they'd make as an employee.

So even with that very close relation, sometimes there's just lessons to be learned in that little gap.

No, I have a very hard lesson learned.

So I made the move from, I was doing construction management for commercial large general contractor and then you know, we used to call it go to dark side because I went to go work for real estate developer and I remember was managing a project and one of the vice presidents came to me and this was, you know, 15 years ago and you know, you know, I'll say construction and development being treated back then is very different than today in regards to some of the things and I got completely reamed and the whole sit down when I was with this person is you're thinking like a contract.

They're not like a developer.

And it is two completely different mindsets and shifts.

But I'll tell you just like, you know, you mentioned you've been, you know, burned on a deal that just kind of been like engraved in me ever since on the differences.

Because as a contractor, you're just like, I'm getting paid, I just want to get the job done.

Here's my scope of work.

And just I want to get done.

And the developer, your, hey, look what we got to mitigate risk.

You know, we want, you know, there's so many different avenues and paths and things you have to manage versus a contractor.

And that was really eye opening for me.

So that is.

Sorry, I digress a little bit, but that's a great analogy without spoiling the whole session.

You know, what's one thing you hope people can learn or think differently after hearing from you?

Ooh.

Well, I think you're, you actually brought up some beautiful points here where I think it's just understanding the different lenses to apply.

Right?

So underwriting as a buy and hold investors different than underwriting as a note investor or as a private lender on a fix and flip versus a private lender on a short term rental or getting some of those more creative exit strategies.

So I think it's just allowing people to understand there's no rules.

There's art and it's not, it's not rules in science, it's art and craft and lenses to apply based on those risk tolerances and outcomes desired.

And so just having a, maybe a little more in depth conversation because I know a lot of people want a checklist and they want the rules and, and maybe just kind of opening them up to the opportunity to create their own left and right boundaries based on the lens that they want to view an investment from.

I'm laughing because I had two people reach out to me and be like, can you send me this checklist?

Can you send me this checklist?

And you know, I try and preach together.

It's a guide, you know, and just because you check a box on something is getting something is very different than being able to analyze, review it and know what next questions to ask.

And that's where, you know, it's hard because you need experience.

But it's also good to be at conferences and meet people like you who can share their stories and you know, can do this kind of in your sleep and explain some of these things.

So people, even if people just pick up one lesson from it, it's again, it's movement towards growth.

So.

And you've probably worked with, you know, all kinds of investors in your mind when you look at somebody and it's like, wow, that person really knows what they're doing.

I, you know, look up to them, you know, what in your, you know, what is there, you know, makes you feel like they are like exceeding or being, you know, in the investment world or space.

I think when, you know, and I'm, I'm going to preface this with I'm an auntie, I'm, I'm not a mom, but I, I do think I've got yard kids.

So we've got a front lot, house, back house and in a shared yard with my brother in law and sister in law.

But when I look at investors that I really truly admire, they still have a really close and loving relationship with their family.

Their kids still want to spend time with them and vice versa and not, not because of a neglect involved with that time that they don't get, but just a true, meaningful connection with their family.

Because it's, it's, I think a little easier to be obsessed and just build, build, build, grow, grow, grow.

It's probably a little harder to actually maintain a semblance of reality along with that growth.

So it's, it's kind of a down to earth rich neighbor that you didn't expect to have all that bank and property.

Yeah.

And it's all about balance, you know, and providing that, you know, work life balance, which I know a lot of people, you know, always say there's no such thing but you can have it.

And it's interesting you mentioned that because I know an individual who, you know, has grown a company to, you know, start, you know, in the billions.

And that person though gets up at 3:30 in the morning, goes to work and is at work at like 5am and is always the last person to leave the office.

And they've been doing that for 30 years.

And you know, question is, did they ever see their daughters grow up, go to their sports, go to their games or did they just spend it trying to build something where it's great that you can say I built this humongous business and people might respect and admire you.

But for me personally, I am a parent of two kids and at the end of the day I really don't care what other people think about me.

It's what my family does.

And somebody made a quote recently and I forget who it was, but they were in the news getting blasted for something and their comment was like, I'll never, I don't take feedback or criticism from somebody like, I don't know, I forget what the Quote was.

But, you know, it was just perfect because it's like, you know, online, somebody, you know, you can roast me, but, like, I don't care.

Like, I don't know you.

Like.

So, yeah, I like the.

When you start saying the quote, it made me think of a slight variation, which is like, I'm not going to take, you know, feedback or advice from someone whose life I don't want to live.

Like, if you have this horrible life and, yeah, maybe a lot of money, but you're ill, you're angry, you give everybody the leftover crumbs of your personality.

Like, no, thank you.

We could probably have, like, five episodes on this next question, but we'll try and just boil it down of, you know, what's a mistake you often see the new investors make that you try to help them avoid.

And you've already mentioned probably 10 on this episode.

But, you know, I can either reiterate one or another one that, you know, you've worked on or seen.

Yeah.

I think often it's taking what's provided and underwriting that.

So someone can provide you an Excel spreadsheet, but maybe verify the data behind it and get some.

Some proof.

So, for example, I've seen this investor, this fix and flipper, has completed 20 flips in the last 18 months and has these great ARVs.

Okay, beautiful.

It's all an Excel spreadsheet.

That's wonderful.

But did you look at the sale price of the properties?

Did you confirm?

Are they just putting another private lender in place and then, you know, calling a new ARV without an appraisal?

Or was it so just kind of understanding the numbers beyond what is provided or furnished through the borrower a little deeper?

I think that's one of the biggest things that I see when people come to me and they're like, I underwrote everything.

I just want you to get it, give me a sanity check.

I'm like, well, we don't have anything verifiable here.

Yeah, we recently saw one where somebody bought a property for 150,000, said they put 50 into it, now it's worth 500,000.

And we're like that.

It doesn't really seem like it's adding up.

So, yeah, the red flags are easy.

It's the yellow flags that are hard.

No, that is 100%.

Wow.

It's a red flag.

Oh, I love that quote, man.

I'm stealing that so you can have it.

Yeah, flags easy, yellow flags hard.

Oh, you want to cite people and send them to Capital Verified Dot com, that'd be great.

There we go.

So, so let's do a little bit of lightning round, get your opinions on things.

Taking the existing current market, real estate market, if you could take one word to describe it, what would it be?

Volatile.

I would agree with that.

I was actually getting people trolling me on in bigger pockets the other day because I mentioned it was volatile and there's a report like 49 out of 50 markets are now declining and somebody said, you know, made a comment, I'm like, yeah, if you wait a year I'll be able to buy it like at you know, 20% discount.

And you know, someone's like provide me links, provide me this.

So I actually threw them two links because you know, I again, I invest in a non performing note space so I can see people who are in default and they're just literally knife falling, dropping prices.

Where I've seen one Property start at 900 now it's in the sixes because they're just trying to liquidate and you know, their loans matured and they're at 18% interest right now.

So they're trying to sell.

Yeah.

What's one thing you've changed your mind about in the last year?

I lost it.

Let's see, what did I change my mind about in the last year?

Oh, shoot.

Sorry.

I know this is lightning.

Sorry.

Let's give it.

Okay, we'll skip it.

We can maybe come back.

It's like a family feud, you know, this clock still timing.

What's one person you would thank for your success?

Oh, I have this.

Yeah.

I was his executive assistant.

And this man just taught me so much about love, charisma, investing.

He was a big craps player and I lived in Vegas at the time, so we.

That's how I learned how to play craps.

So yeah, I think about him all the time.

When I think about like the best mentors and we don't even talk like maybe once a year birthdays.

But still, still lots of lessons carry forward.

Okay, so if I understand this correctly, you are a due diligence risk mitigation expert who plays craps.

And eight push and take.

Yeah, that's how much craps I know.

So my grandfather when I was little used to te me crops and baccarat and I can't remember now, but yeah.

So it also works out well when you're at the table.

And the $60 that I planned on, you know, do using all night goes and I want to leave but people don't like you to leave the table.

So then you get to play with other people's money.

Yeah, exactly.

So we can go back to see if you've thought of anything that you changed your mind on last year.

If not, that's okay as well.

We can wrap this up and you know, any thoughts or what?

How could people reach out to you and learn more about your services?

Yeah.

So capitalverified.com is my site and where you can initiate any services.

And then I've got an Instagram at Mel Palmer me where I try to make, I try to make due diligence fun and funny because it's really boring.

Yeah.

And just final thoughts.

I'm really looking forward to the conference and just, you know, a long enduring just body that has provided so much value over the years and yet continues to transform a bit.

So my first time attending.

Really looking forward to it.

Great, thanks.

And look forward to seeing all of you September 18th to 20th in Chandler, Arizona at the paper Trail Conference.

Melissa, thanks for joining us today.

And for those listening, make sure to leave a like review to this podcast.

Thank you all.

Thanks Chris.