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Investing In Seconds With Dominic Silvestri

March 11, 2021

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GDNI 143 Dominic Silvestri | Second Lien Notes

 

Note investing may already be a niche space when it comes to real estate, but second-lien notes are an even narrower niche within that niche. For a first-time investor to find themselves in that space is quite rare, but that is what Detroit real estate lawyer, Dominic Silvestri did in his baptism into the note business. Seconds have a way of finding Dominic, who finds that sometimes, you just have to go where the numbers make sense. Listen in as he shares the specifics of this deal with Chris Seveney and Jamie Bateman. If you’re unfamiliar with seconds, you’re going to find this episode particularly informative in terms of the things that you have to do and consider during each deal. 

Listen to the podcast here:

 

Investing In Seconds With Dominic Silvestri 

We’ve got a special guest. We’re bringing on Dominic Silvestri who’s an attorney and note investor out of Michigan. Dominic, how are you? 

I’m doing well. Thank you.  

Dominic sent us an email thanking us about the show and saying that he completed his first note deal. We’re like, “Let’s have you on the show.” If you think it’s hard to get on our show, it’s not.   

I was a little shocked. I’m not going to lie. I hadn’t been listening to you for a while. Chris, on this particular deal, I had reached out to you, and within five minutes, he responded. I was surprised. I’m like, “He responded quick and gave some good advice.” Some of which I took, some of which I didn’t. Thank you. You put out some great content. I love the format. That was the only point of my email. It’s to say thank you.   

The reason why we have these open discussions and bring people on is so they can share some of their new stories. Our whole focus on this show is to try and keep it real and show people that this isn’t a passive investment where I can throw some money at the wall and watch it grow. It’s not like those little mushroom kits that you can buy that I saw on FacebookYou put it on your table and in three days, it grows into this nice big mushroom. Unfortunately, note investing is not like that. We had Dominic on to share his story. Jamie and I are locked and loaded to fire some questions to Dominic as well. Dominic, we briefly touched base a little bit about you, but if you want to share a little bit more about yourself, go ahead.   

I originally started out as a civil engineer. I enjoyed construction in real estate. I did that for a number of years and found my project management skills were mainly focused on negotiating contracts with contractors. That led me to law school. It happened right around the time when the market was crashing when I graduated law school. I had a lot of acquaintances and contacts in the construction business that I was able to start helping out at the time the market was going downhill and contractors weren’t getting paid. That was my foray into the legal aspect of a little bit deeper real estate stuff. I started my own practice in 2008 and have been going on since then. I have represented other investors who have been purchasing notes. I don’t know why it took me this long, but in 2020, I had a case up in the Upper Peninsula of Michigan, which I don’t know if you know anything about it.  

It’s always a good feeling when you have win-win deals between banks and borrowers. Click To Tweet

It’s about a 6 or 7-hour drive from the Metro Detroit area where I’m from. One of my foreclosure note investor clients called me with a question while I was in the car. It hit me. I thought, “Why am I not investing in notes?” I had done some fix and flips, some rentals and I thought, “Why not?” As I’m on a six-hour drive, I zipped through some podcasts and stumbled across your show with Chris and Gail at the time. You kept me company for about a six-hour drive there and a six-hour drive back. I was blown away at the amount of information. I realized even though I’d been involved with real estate, mortgages, foreclosures, working on short sales and loan modifications for borrowers, I didn’t know a lot about the note investing world.  

In full disclosure, when you first reach out to me and mentioned, “I’m a lawyer. I’m in the Detroit area and I want to get involved in note investing,” I looked you up. I was intimidated a little bit because I was like, “This guy looks like he’s assisted borrowers in the past. This guy looks like one of my borrower’s attorneys.” First, I was thinking, “What’s this guy’s motive?” You then joined the Facebook group and started typing and I go, “He’s cool.” At first, it was interesting because I like the due diligence on people. I’m like, “An attorney reaching out to do note investing. Most attorneys don’t want to deal with note investing. I’m reading a little bit of your profile. You caught me off guard a bit for being civil.   

It’s funny because, Chris, you always talk about communication from the lender side. In 2008, as a result of the economy, the firm that I was working for had to shut the doors. I had two weeks to pack up some files and find a new job. I had a brand-new son at the time. He wasn’t even a year old. I thought, “I’m going to try hanging out my shingle.” One of my first clients is big burly truck driver guy. He explained he had lost his job. He’s trying to make ends meet. He’s on 1/3 of the income that he was before. His mortgage company is threatening foreclosure. He’s like, “Can you help me?” I didn’t know anything about working out foreclosure alternatives at the time. I thought, “Let’s try it.” I want to help this guy. This guy must have been 300 pounds, all muscle and he’s sobbing like a baby. We were able to work out a good deal. In that case, the lender was communicative with us and I thought, “If I can do this for borrowers, why can’t I do this for lenders? That’s something that in my day-to-day job, if I’m representing one side or the other, keep the dialogue going and keep the communication open. It’s frustrating when you have a lender that won’t return phone calls for months at a time, or emails or anything. That’s what I like hearing from your perspective.   

That’s an interesting Note and Bolt because I know people, and I sometimes fall into this category as well, where borrowers will call you and it’s like, “I can’t deal with it today.” Meanwhile, it might be in legal or something along those lines. Give them the courtesy, especially if you start legal, because you’re in the process of potentially taking their property. I’m sure they’re not sleeping at night. I’m sure it’s a stressful situation. Give them the courtesy to call them back. Whether you can work something out or not, don’t leave people in the unknown. I don’t know if anyone has ever gone to the doctor and waited for some type of test result. It could be something that’s not positive. The waiting is the hardest part in any situation. That’s a little Note and Bolt there starting out.  

That’s a good analogy about the doctor because at the end, this guy was grateful to not only me, but also the bank for being understanding of his situation and working something out with him. When you can have a win-win like that, it’s a good feeling.   

One of the hardest parts of the note investing business is trying to figure out which borrowers are being honest and you should try to work with, and which ones you shouldn’t. We should do an episode on that, Chris. That’s hard to navigate. I would assume that your experience is helpful in that regard. Over the years, what percentage of your work has been on the borrower’s side versus the lender’s side?   

When the economy was struggling from 2008, 2009, all the way through to 2013, 2014, probably 50% to 70% was probably borrower-focused. As that changed and the economy picked up, and home values increased, especially our Detroit market that seems to be a hotbed right now for investors all over the world. I have clients from China, Australia, New Zealand that wanted to get in on the Detroit market, and it’s still a hot market right now, but now it’s probably 90% investor-lender side of the transactions.  

I hadn’t even thought about that as far as seeking out a particular attorney to help me, whether they’ve got experience on both sides of the fence per se. That’s interesting.   

I also do some collection loans. The stories that you hear from some people, you can start weeding out who’s legitimate, who’s being honest and upfront with you, and who’s trying to pull the police over you.   

The word Detroit is like my rant button because I have two cases right now in Detroit. One of themcontinue to get fined by the City of Detroit for having a rental property where it’s a recorded land contract. The interesting thing though is every time you call the city, they’re like, “You need to talk to a supervisor, and they’re like, “They’re not here.” They finally give me the inspector’s name and the inspector finally was like, “You need to talk to a supervisor.” Now I’ve got my attorney handling that one. The other one that’s interesting is I did a forfeiture in February 2020 on a deal. The 90-day redemption rights came back and then we filed for eviction in September 2020. The borrower’s attorney showed up at court, filed a verbal motion to dismiss and overturn the forfeiture, and provide a reason and documentation, and the judge approved it.   

Detroit is its own unique animal.  

They’re asking, “We want to see the pay history for 2020.” We took the property back and there’s no pay history that came along because after you get a judgment, it’s rare that a judgment gets overturned for somebody saying, “Can I have this overturned?” Talk about your note deal and give us a little bit of insight on this deal.   

GDNI 143 Dominic Silvestri | Second Lien Notes

Second Lien Notes: You don’t know when the pendulum is going to swing back the other way. You do a good deal, and then all of a sudden, you’re worried that maybe this might be the one that sinks you.

 

It took me almost an entire year to get to that point. I love your phrase that you use, paralysis by analysis. That was me. Also, with the fact that I’m like, “You should know this stuff, how come you don’t know it?” It made me a little bit more cautious. I spent most of 2020 dry running it, looking for deals. Finally, I found one. It was second, non-performing, and I decided to place a bid. It was not a huge one. It was relatively small.   

Where did you find it? Was it through the course of your day job? 

No, Paperstac. At first, I didn’t quite believe that Paperstac was even legitimate. As I started diving a little bit more into it, they have a nice platform. It’s impressive what they’ve done there. The due diligence part was the part that made me nervous, but also felt comfortable doing it because I started doing it for some of my clients. Only my clients would bring me in after they had experienced a problem and I’m looking at it. I’m like, “Why didn’t you pick up this? Why didn’t somebody pick up this?” I was trying to go over it with a fine-toothed comb. The due diligence period that I spent two weeks doing, Chris pretty much analyzed it in five minutes. It’s obvious that when you’ve been doing this a while, you reach a certain comfort level, like Chris has.   

It was a second. For my due diligence, I realized that there was enough equity in the property that I could get paid on the second and pay off the first. I also realized that whoever was holding the note didn’t realize that the borrower had passed away a few months earlier. When I contacted a realtor in the area to do a drive-by for me, she knew the borrower and was surprised to hear that the borrower had passed away. She’s like, “I know the family. It was weird how things played out. She’s like, “I’m glad you’re doing this to clean up the neighborhood.” It seemed like a cool city in Idaho of all places. I never would have guessed that’s where I would have bought my first note but it happened.   

The second space is a little bit more niche within this whole niche space. You haven’t bought a first before, but how did you approach that? Can you draw out anything that might be beneficial for the readers as far as how do you approach that from a due diligence standpointHow do you view the first? Typically, people say with seconds, you’re looking at the borrower more than the property. It sounds like you did a thorough job on both sides of that. Anything you can draw out that might be helpful for our readers who aren’t familiar with seconds at all?  

The two areas that I focused on as part of my purchase offer that I had made was I wanted to see a credit report for the borrower if they had run one. Luckily, they had done one. That gave me at least somewhat ideas to what the current balance was on the first, at least within a few months and a few thousand dollars. The valuation, that was the part that I focused on a little bit too much. When I shot it over to Chris, Chris said, “I wouldn’t touch this. I don’t think there’s enough meat on the bones. You’re going to be tight.” I respond and say, “Do you think I can go back and ask for a reduction in price?” He’s like, “Yes. Why wouldn’t you?” I don’t know why I didn’t think of that on my own, but that’s the newbie thing is you’re not quite sure what you can do or what you can get away with. I went back and renegotiated the price and had a few factors lined up to back up my reasoning, not just I want to make more moneyI don’t think the seller would have appreciated it like that. Luckily, the seller had already started the foreclosure process. I just ran with it from there.   

A lot of people sometimes are hesitant to go back to people regarding a price, but if you have a legitimate reason or something that pops up or you find something along those lines, and if you can explain it, a seller can at least review it, whether they accept it or deny it. It‘s not like you’re walking away from a deal, or if they don’t do anything, walking away because you just wanted to walk away. I found this, here’s a concern, here’s a risk factor that I wasn’t aware of. Risk means money. You need to mitigate your risk and adjust the price.  

That is a key point too. I know you and Gail talked about this a long time ago, Chris. People are backing out of deals just because they couldn’t find the money. That’s not an okay reason to be bidding on assets and not closingIf you’re finding issues with it, it doesn’t mean you only have the close or not close. You can also re-trade and negotiate.  

A perfect example is Steven Burke, who we had on the show. He bought a note from me. He found something about it and came back. He said, “Here’s the thing that is a higher risk. Based on this, I need to fade my bid.” I looked at it and I said, “He’s right.” We renegotiated the deal. If I didn’t, I wouldn’t have had hard feelings against him from that perspective because when I sell assets, I typically not try to sell them to pull the wool over someone’s eyes. I hope people make money on the assets that they bought from me because they are going to come back and keep buying assets from me.   

Dominic, I had a deal I talked about on the show that I’d bid on that the borrower had passed away. He had a good credit score, strong equity position, and this was a first. I don’t think that it was part of a big tape. I’m guessing that the seller had no idea that he’d passed away. It’s pretty much a simple Google search. A little bit of open-source research allowed me to figure it out. I didn’t get that bid, somebody bought the whole tapeI’m curious, how did you find that out? Did you mention that?   

I did the same thing. A simple open-source search, Google. It’s amazing if you dig deep enough some of the information that you can find. I was even nervous. When I finally realized that there was meat on the bone there that could be had, I emailed the seller. Maybe this is a little bit naive of me but I said, “Why are you selling this?” He was honest. He was like, “It’s a little small for me. I’ve got a huge pool. I’ve got JV partners. I don’t want to mess around with a one-off. Quite frankly, I’m a little nervous about the condition of the property that it might affect my return.” He was straight and honest with me. He was at least right about the condition. That’s why he had scheduled the foreclosure sale but then had been adjourning it once or twice. When I picked it up, the only thing I had to do was tell the trustee, “Go.” When we got possession of the property, it needed about $2,500 in cleanout. There was a lot of garbage. It’s just cleaning so the smell wasn’t so bad, according to my agent.   

If anybody takes the property back, assume that you’re going to have to spend probably $2,500-plus in cleanout. You’re not going to have a broomswept beautiful house. Whether somebody moved out, somebody passed away or whatever the situation is, it’s not going to be pretty. 

In real estate, there is benefit in getting your hands dirty and learning the process by doing it. Click To Tweet

My agent said the smell of animal was probably the biggest thing that she was worried about. She was good. I had to pay a little bit more in commission. That was our arrangement. Rather than me paying the money upfront, she said, “How about we increase the commission and I’ll coordinate the cleanout with a cleaning lady and a trash out company.” It worked out well.   

If you could shine some light on more of the specifics, as far as you’re comfortable with the numbers. How much did you pay for it? How much was owed on the second? How much was owed on the first? What was the property value so that our readers can put some numbers to this deal?   

For my first one. If I broke even, and I didn’t lose money, I would have been happy to at least go through the experience. This particular note, he started out around $20,000. He wanted for the second. I negotiated that down to $12,500. The property I had figured the value is somewhere between $85,000 and $115,000. I know that’s a big range, but I didn’t know what condition was like. The second from the credit report was owed about $65,000. There was not a whole lot, but there was some meat there. 

Do you mean the first was at $65,000? 

Yes, the first.  

What was the balance on the second? 

The balance on the second was $40,000. 

You paid $0.25 on the dollar roughly. That’s not bad at all.  

That’s why I was a little surprised to hear that the family was letting it go. If they would’ve paid off both, it would have been tight for them. Eventually, we ended up listing the property for under $100,000 based on the condition. The margins were tight. It turns out the first was owed a little bit less. There had been some principal paid down. That was a nice bonus to find out. 

I don’t do second, so I don’t know the answer to his question. You foreclosed, but you still owe the first. Do you start paying them or you tell them, “We’re selling the property. You’ll get money when you get your money because you can’t foreclose in that amount of time anyway.” 

A lot of states are first in line type states. I knew from Michigan that if I foreclosed and took ownership of the property, then I would take it subject to the first mortgage. Either yes, I would have to start paying on it or I’d have to work out something with them. I knew there was a ticking clock because from my estimation, the borrower had passed away at the end of October 2020. I knew I had a couple of months. Judging by my attempts to correspond with the servicer, it was a large servicing company that I had worked with in the past. They’re a nightmare. Nobody knows what’s going on. Nobody understands. Nobody wants to talk to you. I’d made quite a few phone calls and saying, “I want to get you paid off. Can I get a payoff statement?” Trying to get that from them was close to impossible. I knew I had a few months before they would have initiated the foreclosure process, otherwise, I would have had to start making that monthly payment instead.   

You kept sending them QWRs every two weeks to force them to give that. 

He might end up having to pay for that though. 

What did it end up selling for?   

It ended up selling for $95,000. After paying off the first, there was about $35,000 leftover. I had to pay close to 8% in commissions which covered a property management fee as well. I had to pay off $2,500 for cleaning and trash haul. All in, when I was done, my $12,000 or $13,000 investment return $22,000. 

This is in two months or less. That’s incredible.   

I’m speaking at the Cash Flow Expo, and my whole topic is the true cost of a nonperforming loan. A lot of this stuff that you mentioned in there like realtor coordination, cleanout, and all these little ancillary expensespeople think, “I’ve got $95 a month in servicing. I have my taxes and I have a foreclosure cost.” Everyone forgets about all these other little ancillary costs. It sounds like based off of where you had in realtor commissions and everything else, you probably had $10,000, $12,000 in costs. 

At the end of the day, I’m like, “This worked out, this is cool. I might be able to do this.” Another month or two, if that property wouldn’t have sold, that return would have gotten eaten up fast. I had that in the back of my mind. I had my little checklists, my system in place to stay on top of everything. My realtor and the title company were getting a little sick of me calling. I was getting a little nervous because I knew time was money and it easily could have exploded in and gone the other way for me.   

When you’re listing the property, because you knew you had a little bit of meat on the bone, that impact what you were going to list it for when you’re having those conversations with the realtor, because you listed it for $90,000. Sometimes the realtor is like, “Let’s list it for $100,000 or $110,000.” Knowing you had some meat on the bone, did you price it to try and move it quickly?   

Initially, her BPO to me had said the property was worth $115,000 all day. She said, “All homes in this area are going fast. We’re right next to Washington and Oregon. There are a lot of people not happy with what’s going on in those states politically. They’re flocking over the border into Idaho because we’re a lot more conservative.” I thought, “That’s a good thing.” When it came down to it, her BPO was a bit high because when she initially had listed it for about $100,000, the offers that were coming in weren’t close to $100,000. That told me the condition was probably a little worse than maybe she had led me to believe. It’s not like she said or did anything that was untrue. It’s just that’s the nature of the market. I had to adjust with it there.   

Was that the first agent that you used, or did you have to use multiple agents on the property? I’ve had issues where I’ve had these multiple agents because sometimes it’s not somebody who specializes in REO’s. 

I had a lot of trouble finding agents. I know the market is great right now and agents are busy, but I must have called probably six different agents and only two called me back. She was probably the promptest and she was the most communicative with me. The other ones either didn’t want to deal with the property that’s smaller sized or they were too busy. I don’t know the reason. 

For the readers, three little tips on that. There’s a website called NRBA. It’s the National REO Brokers Association that gives a list of all REO brokers across the country. That’s one little tidbit there. I’ve been using two different companies. They’re nationwide companies. One was called American Destiny and the other one is called LRES. There are a few other companies out there as well. I can’t think of their names right now. Louis Amaya has one. I can think of his name. He’s got a podcast and he’s heavy into notes. He’s moved over to that side of the business as well. I do find that is challenging to find agents who are at least REO-style properties. Even Jamie and I had in Maryland. It was a little interesting using add to list. It was probably a unique experience for him as well.   

GDNI 143 Dominic Silvestri | Second Lien Notes

Second Lien Notes: A good way to measure whether a deal is going to be successful or not is to keep track of the time you’re spending on it just like you would in your regular job.

 

At first, I said, “Do you want to list this?” He said, “Not in that condition.” As we’ve joked before, the attorney and my dad were the only ones who made money on that.  

I had one agent return my call. He was the second agent. Initially, I had been approaching agents, “I need somebody to do a drive-by BPO. Let me know what you charge.” He flat out said, “No, I don’t do that anymore.” I said, “I’ll pay you upfront.” He’s like, “No, I’ve been screwed and burned too many times by investors claiming they’re going to pay me, and they never do, but when you get the property, let me know and I’ll list it for you.” I’m thinking, “You don’t want to help me when I need you, but you want the easy part.” The other agent was more than willing. She’s like, “I’ll help you out.” That’s why I went with her. She was communicating.   

I’m curious when you were looking on Paperstac and probably other sources, geographically, how did you narrow down your focus?   

I primarily wanted to stay in the Midwest. This one popped up, and I don’t know how I selected it because it’s probably not on my radar to go anywhere near the West Coast, but the numbers seemed to look good. I started pursuing it. The funny thing is I ended up buying another second about a week later. I don’t know why I’m getting these seconds, but for some reason the numbers seem to work. The second I realized is now first. They had also started foreclosure, and I called the attorney and there were with a large law firm. They said to me, “No, there are three mortgages on this property. You’re number two. We had to add number three onto the lawsuit.” When I was doing my due diligence, I got my own title report, even though the seller provided it. I realized somebody didn’t have a good report, and mine was in the first position.  

Where is that one? 

That one I’d rather not say yet if you don’t mind. I don’t want to jinx anything. You don’t know when the pendulum is going to swing back the other way, you do a good deal, and then all of a sudden, you’re worried that maybe this might be the one that sinks you. 

I’ve had where people were selling stuff and saying it was unsecuredI’ll look it up online and be like, “This is first position loan. Am I missing something?” I’ll look and I’ll do the double flinch. I had one where they thought it was stripped because it was a second. The borrower filed bankruptcy. They filed a motion to strip the lien. It got approved through the bankruptcy court. What happened was that was in the first year of the bankruptcy. In the fourth year, the case got dismissed. They took the file, threw it in and unsecured. They never waited to see what would happen and said, “We got this debt. It’s unsecured.” They threw it out there. I went and saw the bankruptcy. I called my attorney and I’m like, “You said if lien strip, but they don’t finish bankruptcy, it’s like it never happened.” He was like, “Exactly.” In the same token, they had paid off the first later on. This was several years ago. The first paid off, but now all of a sudden, somebody sold it as an unsecured loan, and thinking it’s a first position loan. 

I have a feeling I’m going to have a fight though from whoever owns the second now. It’s a significantly larger balance than what mine was. I’m guessing at some point, they thought it was the first. 

Were they recorded around the same time or was it well after?   

No, not even close. Mine was recorded, let’s say in January, and theirs was recorded in July. There’s a seven-month difference. I’m not sure, one may have been used to discharge an old mortgage. Mine was a home equity line, and it was used to discharge an old mortgage. They then did a refinance with the larger one later.   

What they probably did is a refinance and they’re supposed to pay you off, or the title company screwed up. You never know. All of a sudden, they might come back and cut you a check because the title company may have screwed up.   

I’m hoping, knock on wood. The minute I got that title report, I immediately told the seller, “I’ll take it.” I couldn’t get it locked in quick enough at that point.   

Where did you find that one? 

Paperstac as well. 

If you’re a new investor, don’t be afraid to ask questions. Embrace the discomfort because that’s where you will see the most growth. Click To Tweet

I don’t know if people are seeing a common theme with Dominic, but Dominic is guarded. I don’t get paid anything from Brett and Paperstac. We do some Clubhouse and other things together, but I’ve got no paid affiliation with him. I buy stuff on Paperstac, and people go, “Paperstac’s the LoopNet for notes, where things go to die.” No, you can find deals on there. You got a bid. If you think something’s overpriced but you liked the asset, still bid. That $20,000 asset you got for $12,500? It’s a big haircut. There are still assets on there that you can acquire. People who are just getting started out, instead of spending ten hours a day calling banks, wasting your time, you’re better off analyzing deals on Paperstac, figure out which ones may work and putting bids in. Get a lot more experienced that way too.   

Dominic, I’m curious, do you have a plan going forward? Are you going to stick with seconds? What’s your portfolio going to look like in two years? Are you going to stick with seconds that are firsts?   

I do have a plan. I’ve been listening to you about scaling the business. The first time I thought about that, I thought there’s no way. That’s a big endeavor, but who knows what’s going to happen? I love what I do. I love my day job and I don’t want to leave that. If I can even do a couple of deals a year, I’ll figure out a way to pay for college for my kid, I’ll do that.   

That’s hitting on a key point in the episode that came out with Eric Smith. He’s a commercial real estate broker in California and makes good money with his day job. He dabbled in a bunch of different parts of notes. He’s bought partials from Chris and me. He’s ultimately figured out that he likes being passive. The point being, not everybody needs to scale. There are some real challenges that come along with scaling, but one of them is the fact that you’re not able to easily pay as much attention to each deal like you were able to calling six realtors on the first one. I’m sure you’ve put in a good amount of time on each of your two deals. I don’t think there’s anything wrong with that not scaling. That’s a healthy way to approach it. 

My metrics for whether or not the deal was going to be successful or not is I kept track of my time just like I do in my regular job. I’m like, “If I had a client paying me, would I have made the same or am I spending more time and not being compensated?” At the end of the day, all we have is our time. Family is important to me and spending time. My son plays baseball and basketball. I like to be part of that. I like to coach and be flexible and have the time to be there. I also like to pay bills too. 

I don’t think you suffered too much paralysis by analysis from an outside perspective. That’s not that long to be not taking action in my opinion. Everybody’s going to figure that out for themselves. I’ve had some calls with investors that have no idea, “Do I want to do short-term rentals? Do I want to do buy and hold? Do I want to do notes?” They’re ready to bid on assets. I’m like, “Take a step back. Let’s figure out what you want to do first.” On the flip side, people have been paying for seminars and researching for 4 or 5 years and not bought a note. Somewhere in between is the happy medium, but also, I want to mention for the readers that you have experienced this relevant. You’re not coming into this entirely uninformed like some note investors are. It seems like you’re playing to your strengths. 

Even buying a rental property a few years ago, it helped me to understand that I’ve got to get insurance. I’ve got to make sure this is being done. If there’s a water leak, I have to get a plumber. One rental house that was notorious. Whenever I would leave on vacation, I’d get a call from the tenant saying there’s a water leak. It seemed like every year it was clockwork. That helped at least prepare me that I’m not the landlord anymore, but some of the obligations still carry over. I’m trying to remember, Chris, you had an older partner, Dita, I think her name was. She talked about this and she was a little spitfire. I liked that podcast a lot. She said, “Go out and own a rental property, manage it, do a fix and flip.” I know not everybody can do that, but I can see where she was saying there’s some benefit in getting your hands dirty and learning the process that way. 

I’m thinking about some people I mentor going forward watch the show, Hoarders, and be like, “This is your property. This is your house. It may look beautiful on the outside. Here is the inside of your house.” Be prepared for it because sometimes that first time, it’s difficult to prepare for what it’s going to look like. Nowadays, I saw Dan Deppen posted a picture of not safe for looking at a property. I looked at it and I’m like, “It’s like every other property I got.” Somebody for the first time seeing that would probably spill their beans.   

I had a rental where we went to look and my handyman had come with me. This is the first time I’d ever heard that people would do something like this. We couldn’t get a camera down a vent stack. He said, “Hopefully they didn’t.” I’d never heard of that. He said, “When people get pissed off, they pour concrete down the toilet and it screws up your sewer system.” That disturbed me a little bit.   

It’s one thing to be negligent, but it’s another to be vindictive. I’m curious, looking back, I know you have been buying notes for long, we’ve asked this question before, is there anything that comes to mind as far as having been easier than you expected or anything that was more challenging? Any big surprises, not particularly to your deals, but in general with buying notes?   

I don’t know about surprising. It has been difficult to find things outside of Paperstac. It seems like the more I try to reach out for other sources so I can keep the options open, there are a lot of brokers out there. Maybe I’m overly cautious. There are a lot of not very good deals from my perspective. For me, the biggest obstacle is trying to find a good source to keep looking for deals.  

There are a lot of shady brokers out there to say the least. A lot of the deals that we’ve been seeing come out through some of these larger brokers, I look at them and I laugh. I’m like, “Let’s bid off of payoff and we’re going to pay 90% of the total payoff on this loan in New York.” I’m like, “Crack head.” It’s a fund out of Pacific Northwest, who I had a call with a president or somebody high up there, and they were under a different name at this time. I bid on a pool of assets that has UPB of $1.2 million. I was right around $550,000 on the entire pool.   

He came back and said, “How about you pay $550,000 cash, and then we’ll loan you $400,000 because we want $950,000 for this pool. The property values are over $2 million.” I’m like, “Yes, so?” He goes, “If you have a note for $50,000, the house is worth $150,000, you’re going to make a quick $100,000 because you’re going to get the property.” I’m like, “No, I can get what the payoff is, which is $50,000.” He goes, “No, you’ll foreclose. No one’s going to bid at auction.” I said, “If it’s worth $150,000 in a hot real estate market, people will bid at auction, unless it’s not worth $50,000.” He’s trying to convince me and I’m like, “Are you trying to sell me a car with no tires and no steering wheel? You’re so shady.” It’s from the same company now that’s sending out all these larger tapes 100 or 150 assets. They’re asking for 85% of payoff or UPB. Whoever buys these was going to get crushed.   

I stopped going to the foreclosure auctions only because the last couple that I went to, pre-COVID, you’re in the room. It’s a huge room and there are a ton of people. You’re packed in there like sardines, shoulder to shoulder. If you have a hot property in a hot market pretty close to what we’re in now, even if it’s not a hot property, you have a little balance. That thing is going to go. It’s frustrating sometimes because I would see properties that I knew needed work, but even other investors are bidding them up too fair market value as if they were fixed up right now. They’re that desperate for property.   

I got one. Someone sent me a property in Annapolis, Maryland. It was a condo that somebody sent me. It’s an off-market, $189,000. They sent me inside pictures of the place. It’s a 900 squarefoot condo. It needs everything. I go on. I pull up some comps. A unit that had been renovated in that same complex sold for $185,000. I reached back out and I said, “Why are you asking $189,000 when this one is sold for $185,000?” He’s like, “That’s not a good comp.” It’s the same condo comp. I’m like, “Show me a good comp that we can use.” It’s crazy market right now. As we wrap up this episode, what would be some advice you would give to somebody else who’s in your shoes or a little bit right behind where you are on your path to note investing? If there was something that’s a lesson learned, or as we say, a Note and Bolt, what would be some pearls of wisdom you would provide somebody?   

Don’t be afraid to ask the questions. Don’t be afraid to tell someone that you’re a new investor. I did with this first deal, I said, “I’m a new investor. I appreciate you working with me here. I’m going to ask you a lot of questions.” The seller was great. He said, “Go ahead.” He answered all my questions. He seemed fairly truthful. Even still, I reached out to attorneys in that state because I don’t want to pretend that I know everything. Clearly, I don’t but I was asking questions that would probably seem rather general. I had a couple of attorneys that were awesomeI even offered them like, “Let me pay you for your time. You spend half an hour on the phone with me.” These guys were great. They’re like, “No, give me a good review on Google. That’ll be my thank you. It worked out well. Being a new investor can be intimidating. It’s like being back in school where you’re the new kid and you don’t want everybody to know you’re the new kid. Embrace it. It’s going to be uncomfortable, but that’s where you’re going to see the most growth, is when you do embrace that, and you go through those uncomfortable situations.   

GDNI 143 Dominic Silvestri | Second Lien Notes

Second Lien Notes: The biggest obstacle is trying to find a good source to keep looking for deals.

 

There are plenty of areas that you know more about than those people you were asking questions to. There’s nobody that knows everything. Who cares if you’re new at something? That’s the only way to learn is to ask questions. I love that.   

That drives me nuts a little bit. I’ll go on a Meetup group and someone says, “Can you talk about note investing for 45 minutes?” It’s a note investing Meetup group. I’ll go on there and I’m trying to spur conversation with people, and everyone’s like church mice. Nobody’s saying anything. I’m like, “People, ask questions. You’ve got my time. Take advantage of it. Granted, I can sit here and talk a dog off a meat wagon because I love to talk, but if you have a question, there’s no such thing as a stupid question. Ask.” If you send me an email, what’s the worst I can say. I don’t respond? Maybe Dominic sent me an email and I responded within five minutes and gave him bad advice, which gave him 100% profit in two months. There you go. Whatever I say, do the opposite. 

I don’t know about that. In CrossFit we have a saying, “Embrace the suck. In the back of my mind, I’ve got to tell myself, “You’re going to be uncomfortable. Embrace it. Go through that process.”  

Jamie, any final words of wisdom on your side?   

This has been great. Nothing genius over here.   

Same with me from that perspective. Dominic, I want to thank you for coming on. If people want to reach out to you, what’s the best way for them to reach out to you?   

Thanks for having me. I’m searchable through Google. I’m in the Facebook group as well. It’s probably the best way if you want to message me directly, I’d be happy to. If anybody has questions, please don’t be afraid to ask.  

Thank you, everyone, for joining us on this episode. Make sure to leave us a review on iTunes, Stitcher, and all those listening sites. As always, we recommend you go out and do some good deeds.  

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