Starting is always the hardest part. For many investors in this industry, it can be quite challenging to move from zero to two to five years. Achieving success in a relatively short period of time, Jamie Bateman of Labrador Lending sits down with Chris Seveney to share his story—from the highlights to the lowlights—and the lessons he learned through it all. He talks about self-managing properties, notes investing versus real estate, doing JV deals, and leaving your full-time job. He then shares with us the assets he has under his portfolio—whether they are performing or not, JVs or partials—and his insights into each of them. Join Jamie and Chris in this conversation as they discuss more wisdom about starting and growing in real estate.
Listen to the podcast here:
Growing In Real Estate In A Short Period Of Time With Jamie Bateman
We have a special guest host with us, Jamie Bateman with Labrador Lending. Jamie, how are you?
I’m doing great, Chris. Thanks for having me. I appreciate it.
Thanks for coming on the show again. I know you’ve been on several times and we’ve got a jam-packed episode. We’re going to start with our trials and tribulations. Jamie is going to talk about his success and his growth in this business. He’s been able to grow his business over a short period of time. A nice pace for most investors. We’re going to talk about some of the highlights and we’ll go through some of the lowlights as well. Let’s roll first into our trials and tribulations. What’s something that’s been either an a-ha moment or something crazy that’s happened with you?
It’s been normal. The biggest challenge is the pandemic and the two kids doing school from home. My wife helps our business. She had a little less time for Labrador Lending since she is spending a lot of time particularly with my son. We’ve had to overcome that challenge because neither of us has quite as much time as we’d like to devote to a Labrador Lending, but we’re figuring out a way around that. There is no crazy stories as far as dealing with borrowers. It’s just been selling partials and looking for quality notes. It’s been a little bit more challenging to find decent notes with a decent yield. That’s what we have going on.
One of the things that I’ve experienced on the positive was I had a borrower reach out and asked for me to fill out a bunch of forms. They were looking to get some assistance through COVID. Local jurisdictions had gotten money from the federal government and we’ll reimburse up to four months of their payments. It was typical for renters but what happened was I asked the question, “This is a land contract, does it still qualify?” They’re like, “Yes.” I filled out the paperwork and I had to give them a copy of the land contract and fill out three different forms.
It took me twenty minutes. It wasn’t something just signing on the dotted line. It paid off because I got an email that they are going to be paying the borrowers four months, which the borrower had also been paying but the borrower was behind. This is helping the borrower catch up on payments. That’s one of the positives I’ve had. On the flip side, one of the major challenges I’ve had was on a land contract where we had the judge issue the sign-off on the default judgment. The borrower has come back after the fact and is trying to claim the property back. It is in Indiana, which is one of those states that have forfeiture. If there’s equity in the property, you have to treat it like foreclosure and there’s no cut and dry what considers equity like a percentage. It’s all over the place.
What we are doing there is we are trying to renegotiate with the borrower to allow them potentially to keep the property and convert it to a traditional mortgage and note. I don’t have my name on it and I also have them come with a down payment and rework the deal. That is literally in the works. One thing I wanted to go back with you on was you mentioned trouble finding decent notes providing a decent return. One of the things I’ve started to notice and I’m curious if you’ve noticed this as well. I’m starting to see people call performing notes like, “It’s performing but they haven’t paid because of COVID.” It is the excuse but it was performing before COVID, so we still call it performing. What are your thoughts on that?
Since coming into the notes space years ago, I’ve never found a consistent definition of what performing is. We have a general consensus, 9 to 12 on time or close to on-time payments in 2019. If a lot of people we’re only given the two choices, sellers are going to call their asset performing. I’ve seen that and it makes sense that a lot of buyers are seeking safe returns. They would look on paper toward performing assets as safer. I’ve seen that as well, what I would call sub-performing notes that are labeled as performers.
You’ve grown your business from starting at zero. You and I did a JV deal together that we should be closing up. I’m not sure if that was your first JV deal or not. You’re at a point where you’ve bought X amount of notes. How it’s been? What was the driver? What have you found to be easy or difficult? A lot of people struggle going from 0 to 2 to 5, and then after 5, it’s a little more difficult. I would like to know some of your stories.
My wife and I worked for title companies. Not a planned thing per se but it is something that I take for granted as far as bringing some knowledge to the table. After college, we worked for different title companies and learned as far as Maryland goes how some of the documents interact with each other. I was a settlement officer in a notary. I’m driving around all over the State of Maryland doing refinances. That’s how my signature got so sloppy. Late in 2009, my wife and I decided, “Let’s try this rental property thing.”
My father has been a realtor for many years. My brother is a loan officer. Residential real estate wasn’t a foreign concept. We bought a condo. We had no idea what we were doing. I put an ad up on Craigslist. We took the first interested tenant. We got lucky with this one. He’s still there. The guy drops off six months of checks twice a year to us. He’s been there for years and pays on time. He’s the ideal tenant, but that was pure luck. In 2015, I was getting tired of my real job and my commute. I was listening to a ton of podcasts, reading up on real estate, rental property, long-term buy and hold investment.
That’s when I decided to pivot and take real estate investing seriously and treat it like a business. I went part-time at my job. My wife and I rolled up the sleeves and started buying single-family homes. They’re townhomes, mostly without HOA. We did the rental property for a few years. We did several large rehabs. We’ve grown that to where we have seven rentals in Maryland. It’s about two per year. By 2017, we had the rental portfolio going.
Did you find having that background, owning property, and rehab property add a lot of value to you as a note investor?
I do. There are different niches you can argue all day about whether note investing is more of finance versus real estate, what is it exactly, which asset class would you put it into? They’re related, especially when you’re investing in the first lien notes and even CFDs. It helps with evaluating the property value upfront and estimating rehab costs. You’re that much closer to the property. Having a background in real estate and how the documents all work helps.
You can’t just ask a wholesaler and tell you it’s going to be $15,000 no matter what it looks like even if it’s burnt down. Jamie and I are in the mid-Atlantic region. Every wholesale deal gets published has about $15,000 worth of work. In DC, it’s about $90,000 no matter what. Most of the deals I see need a roof or windows, and the place is completely gutted and it’s like $15,000. We look at it and laugh. You had those going. Do you manage them all?
We hired a property manager, but we did self-manage for several years. We would do a bit of the physical work on the rehabs. I’d say the unskilled labor. We were hands-on with everything. Our rentals are class B, B-plus, so they’re a little bit on the higher side. Our tenants are of high quality. In that sense, the returns are slightly lower but the management of the tenants and the properties were a little less intensive. We self-managed up until March of 2019. For anybody that does long-term buy and hold, I do recommend that. Everyone’s situation is different but it’s good to self-manage at least for a period of time so you know if your property manager is doing a good job or not, and you can still weigh in on different things. We self-managed for several years and had everything set up through cozy for collecting rent. It wasn’t all that difficult once you get your systems in place. You started to learn more about notes and look toward pivoting toward note investing.
It’s interesting you mentioned the systems because we’ve got a few rentals as well. The ones that are local are within an hour and a half for us to manage. It’s all about systems. Both of mine are condos. One’s a condo townhouse because it’s got an exterior entrance and its part of an association called condo. What we did is we went to each one and we completely renovated everything. We changed the outlets so nothing should break. We had one of them hitting years and the refrigerator broke. In our management agreement forms, we give people like, “If something electrical goes wrong, here’s who you call. There’s a plumber here. If it’s an appliance, here’s the number for GE. If it’s out of warranty, call me. I’ll get a new one order.” It’s all about systems, which I harp on a lot in note investing. Being able to scale any type of business is about having proper systems in place. You’ve got the seven rentals, you’re managing, you’ve brought over a property manager on board. What was the cause or the turning point to shift over to notes?
There are a couple of factors. One, the real estate prices across the country, the property values have gone up for the most part. Deals were getting harder to find. We had one condo and six identical townhomes. I reached a point where we had done the BRRRR method on each one. Three of them were major rehabs. Once you get a good handful of properties that are the same, I don’t want to say it was boring, but it was like, “I got that.” It provides a good stable cashflow. It’s not a get rich quick thing but the combination of deals being harder to find in our local area and the “passive” nature of note investing. I’m going to have somebody else helping me with this particular blog post. I have a blog coming out about, is note investing passive?
The thing that appealed to me about notes was the ability to sit from anywhere. If you have a computer and a cell phone, you can buy notes across the country. Buy and hold rentals were getting harder to find in Maryland. Whether fear or not, I had the inclination to wanted to go out and see my properties. It was focused on local acquisitions. I’ve gotten over that fear since. It’s rarely if ever that I drive-by my properties because there’s not a lot of information to be gleaned. The fact that you can do note investing from anywhere and scale easily, depending on where you’re buying and what your approach is. That’s what led me toward note investing.
The other thing that I find interesting about note investing, unlike real estate, when you go to try and buy deals, it’s a more personal experience. Wholesalers, retailers, people want to see you at events and understand who you are. When you’re buying $5 million or $10 million at a time from a major or large fund or you meet them at some type of event and so forth. For the most part, I will challenge anybody because everyone’s probably bought from like John Keith in the past, from a direct source. I would bet anybody, if they were sitting next to him at the airport, they wouldn’t know it was him.
I buy from primarily two sellers, I could bump up to them in the grocery store and they wouldn’t know who I am or I wouldn’t know who they were unless I heard their voice. What’s interesting about notes is it’s about relationships but it’s not that personal that I have to meet this person and so forth. I’ve been to 2 or 3 conferences in many years. It’s interesting from that perspective. You can do it from anywhere and you don’t have to have a big presence in a certain location.
Chris, we’ve never met in person but we’ve worked closely together over the years. I do think the note space is small. You can gather a good bit of information and build a reputation one way or the other easily. You can do that virtually. Meeting in person has its benefits, that’s one of the advantages of notes over hard real estate.
What was your first note deal? Is it a JV deal I’m assuming?
It was my JV deal with you.
That was in April of 2018 and you stayed in. That’s amazing.
Right around the same time, I started that JV deal with you. I also went through a broker to originate a hard money loan. I had those two deals going simultaneously. I was more of an active note investment than the JV deal was for me in particular. Those were the two that I had gone initially in April 2018. Neither one of those were actual notes where I’m going through a tape and pricing things. I wouldn’t consider either of those, my first note.
When you did the first JV deal, how much experience and training did you know about note investing at that point in time?
Looking back, I feel like I knew more than I thought. There’s always a ton to learn. I’m always learning, don’t get me wrong. Having worked for a title company, I also had worked for a mortgage broker back in the day. Having the rental property experience is more than your average person off the street. I had done some training. I went out to the Paper Source Symposium. It was maybe two weeks after we started our JV deal. I was slowly acquiring more notes-specific education and information. A lot of it was BiggerPockets forums, podcasts, and books. I’ve done some formal training, but I didn’t have a ton at that point. I was still acquiring knowledge. I also did jump into a couple of note funds at that point. My thought was to open up this LLC, get some money working for us, put our money to work, and learn about notes.
Which fund did you invest in?
I have not invested in PPR. I was getting ready to pull the trigger, I haven’t. From everything I heard and this is coming from somebody who has several funds operating. What I hear is he’s very good at what he does.
Dave Van Horn, he’s a legend in the note and real estate space. He’s very creative and experienced. I had a positive experience with that fund that cashed out. I also did some other passive investments which we don’t need to get into here.
We should talk about that at another time. It’s one where a broker put you as a lender in touch with a company that does rehabs and rentals down in the Southeast, and that has turned into a disaster. It’s very similar to what happened in Indianapolis with the guy on TV. The allegations against him and so forth. There’s a lot of that going on. I want to mention that because the JV deal we had was a mess. It was scary. It was challenging. There are other investments that you’ve had that were scary and challenging. Through it all, you’ve always stayed calm, cool and collective, which is very important in this business. I get hot a lot of times and excited, but you have to stay cool.
It’s a long-term approach. It has ups and downs for sure. I enjoyed your show about your story and your growth which came out months ago. You may not have made a whole lot of money in the first years. You still stayed the course. I’m looking at this as a long-term play. I love to make profits in the short-term and I enjoy that when it happens, but keeping your eye on the big picture is critical.
When I did my episode, I started buying notes in 2017 and 2018. Those years and a half, I didn’t make any money. I know people out there are like, “In your first year, you can make tens or hundreds of thousands.” It’s one of those things where it is a long-term game. I did make money, but I was reinvesting at all to grow my business. I see you falling in the same footsteps as me. You’re a year behind. From your perspective, would you recommend that to people like you shouldn’t expect the big payday or to leave your full-time job in the first year doing notes thinking it employs your salary?
You would have more time on your hands and you can scale a little bit faster if you quit your full-time job. I wouldn’t recommend that out of the gate. I’d say that whether it’s real estate or notes. Get your systems in place and where your head first. You don’t need to reach a point where the note business necessarily replaces your full-time W-2 income because that can be hard to do. It’s a constant tension. It never goes away. On one hand, I can speak for myself. I learned by doing. I certainly watch others who are successful in this space and try to emulate what they’re doing and take something from different people who are doing it well. I learn by doing, but that doesn’t mean be reckless and throw cushion to the wind and jump all in. Especially that quality performers are harder to find. You need to get some notes under your belt and get some cashflow going, and understand systems in place, and hire an assistant, whether that’s a VA so that you can project 6 to 12 months before you go all in.
I pulled the trigger on a VA. I work full-time and also manage my business. I’m all about systems, but I got to the point where I have a VA assisting me with some things. I have potentially somebody else coming to assist me as well on things like recording my assignments in deeds and also assisting me on many other things. The VA has been awesome. She is unbelievable. There’s another individual who’s going to start. The two of them are helping with the scaling and doing more management. That’s going to allow me to continue to grow and give me more free time, which I have plenty of already. How many assets do you have under your portfolio? Do you know how many are performing, nonperforming, JVs or partials? Where are you at?
I’ve got about 25 assets. We’ve sold the lower dollar ones. After those two deals that we already talked about, I bought a couple of inexpensive CFDs to try to get the ball rolling on buying my first asset. We’ve been selling some of those. They weren’t making us a lot of money. We’re trying to not only grow the number of assets we have but also add some zeros to each one. I look a couple of months ago. Our average UPB was maybe $30,000. We’ve purchased a few notes that were more in the $65,000 to $110,000 UPB. It’s one of those things where you can certainly do well with the lower dollar assets and they have their pros. It takes as much work for a $20,000 deal versus $110,000 deal. Now that we’ve got our systems in place, I’m trying to pivot more toward bigger deals. That’s where we are. I’ve got 6 or 7 JV deals going. I’ve sold about 11 or 12 partials. I’ve been involved with selling partials and buying more notes.
Partials are awesome. I love them. We’re going to do a tale of the tape whether you should be buying bigger assets or smaller dollar assets because there are ways both sides. I had a conversation with somebody and they’re like, “I wanted to go buy $5 million in notes. How would you manage that?” I said, “Most of my assets are now lower balance.” I’m going to need $75,000 UPB. The acquisition price is $10,000 to $25,000. I said, “For $5 million, I’m going to go buy 50 $100,000 assets.” I could turn around and sell 50 assets that are $10,000 apiece and upgrade tenfold. My portfolio and the management are still the same, but your returns from a percentage perspective are not going to be as good because as you get higher up. The percent is not going to be as high, but in the same token, you tell your wife, “I made 30% on $10,000,” or you made 10% on a $100,000. $10,000 or $3,000, I’ll take the $10,000 every day.
That depends if you’re talking about performing or nonperforming. If you have a CFD that you bought for $6,000 and it’s performing. Your servicing costs are $35 a month. I can put that $6,000. I can resell that and put that to work in a better asset. They both have pros and cons.
What has been the thing that you would say has been the easiest? What is the thing that you overestimated the ability of? What’s something that you underestimated the ability or requirement?
I underestimated how easy it is to get into this business, but at the same time, that’s a double-edged sword because you have a bunch of people jumping in that aren’t educated enough and shouldn’t be. Finding assets has been a little more challenging than I expected. Given the economic conditions, I’ve found that finding money has been less of a challenge than I would have expected. I’ve heard this before, people in the real estate space say, “Find a good deal, the money will show up.” I didn’t doubt it, but I’m finding money even if I don’t have.
You have the same problem I have. I’ve got a lot of people chomping at the bit for certain things. Everybody wants something and I can’t provide it. It’s challenging but in the same token, you have to be disciplined not to put yourself in a bad deal. I’ve seen people do that and they get themselves in a lot of trouble. If that snowball starts going downhill, it picks up steam and they get hooked.
In the course of the growth of our business, when I started to take other people’s money and a lot of it was friends, family and people that I know well, and certainly for the JV deals. That’s when I was like, “This is a business so I’m taking it seriously.” Now that I’m selling more partials, I have started to accrue some cash that I need to put to work, but I refuse to buy a bad deal in-house. It takes discipline for sure.
You’re right with raising money, if you’re good at what you do, you can explain it and you sound like you know what you’re doing. One of the things that surprised me from the corporate world, a lot of the people that I’ve always dealt with would be hit and miss and so forth. I’ve always dealt with good attorneys and people like that in the past, paying $450 to $600 an hour. You probably get up inline stuff. What I found in this business is you get to vet everybody including the people you give money to, every single person you’re either cutting a check to or is writing you a check.
It touches on my note and bolt for the end of it.
You’ve been in this for a few years, I understanding and bringing everything back. You’ve gone from 0 to 25. Is that your total deal flow?
We’ve bought more than 25 because we’ve sold and exited. We have the Jacksonville deal that we did a show on. If anyone checks out my blog on LabradorLending.com, I’ve got a couple of blog posts on the Jacksonville deal. We’ve exited some deals and I’m selling another one. We perched 30 to 32 notes.
I’m predicting that within the next months, you will have that doubled because you’re going to find somebody who’s got a portfolio of 20 or 40 assets. You’re going to be like, “I’m going to do this,” You’re going to do the due diligence and get 40 of them under the agreement. You’ll close on about 35 of them. I’m going to guarantee you that now you’re buying 1, 2, 3 at a time, you’re going to go out and all sounds are going to be like, “Wham.”
I’m hoping my wife does not read this because that would be stressing her out like, “How do we do the due diligence on that?” I remember when you told me a few years ago when you were taking down your first big purchase pool and that blew my mind. At that point, I don’t bid on more than 5 to 10 assets at one time even still. I’m careful about it. I’m not saying you’re not careful, but it is a mindset shift. It’s like, “How can I do that?” That’s way less intimidating to me than it was. Starting a fund would be the next logical step. I agree that that’s where we’re headed.
With your wife, it’s like saying, “How do we eat an elephant one bite at a time?” With your due diligence, it’s the same thing in the sense of you let to seller know like, “There are 30 of these things. It’s going to take me more in two weeks. As information comes available, I’ll give you updates.” I just go in and in that instance, I’ll order all the title reports, get inspections on the property, and start going. What you’ve got to do which is so critical is you need to have a kick-butt due diligence template, one that you import pictures that the property are on and you have all your notes on it. What’s going to happen is you’re going to confuse the properties.
As you’re sitting down with you and your wife going through each one, it’s like, “What do we find about the borrower? What do we know? What are the servicing notes show?” You’ll realize that it’s going to take you an hour to review each asset, which is 30 hours. That’s a week, but you do it for over two weeks. You spend 2 or 3 a day, or one in the morning, one in the afternoon, one in the evening and stuff. You start hashing them out and knock it out. You’ll put them in three buckets. They will be the ones that are absolute yes, ones that are hell noes, and there are going to be some like, “Ahh.” That’s where you spend most of your time on the ones that are like, “Aah.” I’m predicting it. You read it here for the first time, Jamie Bateman’s career path. What’s your note and bolt for the day?
It touches on vetting vendors or people you work with. My note and bolt is, “A bookkeeper is not a bookkeeper is not a bookkeeper.” We had a bookkeeper who I hired years ago for our rentals. I had a bookkeeper in place who would go in and do our books here and there through Dropbox and then bill us hourly. It was fine and the rentals are straightforward. Although she did convey that she knew notes and she’d worked on them before, with hard money lending and that kind of thing, it’s been quite a task to undo some of the things that my former bookkeeper did the mess she made. On one hand, it’s 100% on me for not having a little bit more oversight over that. This was not a massive disaster, but a lot of time spent with Debbie and my CPA and going through the books from 2017, 2018 just making sure everything lines up. My note and bolt is make sure you’re working with someone who knows the note investing space and has experience in it. Don’t take on a bookkeeper because she’s done some rental properties before, or she or he is the vendor that you’re working with.
My note and bolt play off of that and I’m in the finals throws of finishing an eBook that’s going to be on my new website that I get to release. It’s about how to vet your sponsor. I’ve seen posts come up about people who go into deals with people and ask about, how often should I see reports? How often should I see this or that? The answer to that question is first, what’s in the agreement? People need to realize these agreements. You need to have an attorney look at them. If you’re going to give somebody $20,000, $50,000 or however many thousand dollars, spend the $200 to $300 to have somebody understand what it is you’re getting into. Everything looks good on paper until you know what hits the fan.
When that happens, everyone pulls out the agreement. It’s things like, “Can you be bought out of a deal? How quickly can you be bought off a deal? How often should they have a financial report? How often should they pay?” All of those like, if something happens to them, they hit the lottery and run away or all of a sudden they pass away. Those are important questions that you have to analyze every scenario.
I read the book Business Brilliant. I’ve posted in my office some of the key points. One of the points he makes is to plan a divorce in advance. It might sound harsh, but what happens when things go south?
Real estate is like the Wild West. This is unregulated, we don’t need licenses to raise money on certain deals. If you’re doing PPMs and stuff like that, there’s a higher level because of information gets submitted but it’s an exemption. There is a higher standard involved in that instance. Most deals that people do in real estate is like the Wild West, so you got to be very careful. I had someone tell me, “You’re reputable because you have a show.” I said, “Me having a show, who cares what I can get in front of a microphone and talk about note investing.” People think I know what I’m talking about. I like to think I know what I’m talking about, but just because people can get in front of a microphone and give an idea or get you to give them money, doesn’t mean they’re going to do good with that money or they’re responsible with it.
There’s always going to be a little bit of risk when you’re sending someone money. You can’t mitigate all of that risk, but we harp on doing due diligence on deals. We do deal due diligence on the people you’re working with.
You can run a quick skiptrace on them and find out if they’ve ever filed bankruptcy, if they have lawsuits against them. I get 70 polls for $50. With $1 you can search to find out if somebody’s got judgments, liens, bankruptcies, you name it. You can find out about that person for $1. Any final thoughts before we wrap up this episode?
I’m excited to keep growing our business and see where you take yours. I’m excited about the future. Even though I’ve said a couple of times that quality performers have been harder and harder to find, and that might sound negative, a good business owner is able to pivot and be flexible with market conditions. There’s always an opportunity. I’m looking forward to whether it’s more non-performers because of the COVID pandemic and everything, which I do think will happen on some level, or whether it’s some other type of pivot that Labrador Lending takes.
Thank you, Jamie for coming on as a special guest, as well as all of you out there reading. Make sure to leave us a review. We are on iTunes, Stitcher, Google Play, and we are also on Amazon Music as well. We’re also on iHeart Radio. You should be able to find us anywhere. If you’re interested, we have the Facebook group, the Notes And Bolts From The Good Deeds Note Investing Podcast, where we share more information as well and look out for more content as we come down the future. Take care, everyone. Go out and do some good deeds.
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