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Managing Expectations: The Ups And Downs Of Real Estate And Note Investing With Kyle Zimpleman

August 25, 2021

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GDNI 166 | Ups And Downs Of Investing

 

Real estate and note investing is not the get-rich-fast business that many people call it out to be. Not everyone can be a millionaire in this business, which is why it would be smart if you make it a side hustle instead. Join your host Chris Seveney as he talks to Kyle Zimpleman on the ups and downs of note and real estate investing. Kyle is a real estate investor with Expand Capital Group, and he takes us on his journey into real estate and notes investing. Learn the pros and cons of investing and why Kyle is planning on exiting the industry. Learn how inflation and interest rates affect the business and why the best place to earn money right now is assisted living. Tune in today for some tips and guidance on the note and real estate industry.

Listen to the podcast here:

Managing Expectations: The Ups And Downs Of Real Estate And Note Investing With Kyle Zimpleman

We have a special guest, Kyle Zimpleman with Expand Capital Group. We’ll get into Kyle’s background. Kyle, how are you doing?

I’m doing great.

I’m familiar with you. We’ve met before and done a panel in 2020 together, so we’ve had some interaction. For those in the audience who are not familiar with you, could you dive into your background?

I started in real estate in 1999, 2000 as a realtor. My father started a brokerage a long time ago. He was a realtor. I got out of school and it’s like, “Work for yourself. Don’t work for somebody else.” The stress that goes along with that is the give and take. Everyone’s like, “I want to quit my job and be a full-time ambassador or something, and I’d be my own boss.” I’m like, “The grass isn’t always greener.” It’s a lot of stress. You go a lot of months without any income. That’s great when you’re twenty years old or whatever it is, but when you get older and you’re in your 40s or around that now, in the businesses that we work in, you collect a lot of money and we syndicate deals. We put deals together. They have long timeframes. In some cases, there’s no income coming in from these types of deals right off the bat. You kept staying power and mental power to some extent that you don’t have yourself going nuts over it.

I started as a realtor, then I started buying houses. I grew up in Grand Rapids, which is a good market. I knew it was a good market. I didn’t know how good it was until I got out of it. My timing at the real estate has been terrible. I got in 2001 and bought a house. I realized I can make money and bought another house. I realized that FHA will give you all this money. You can do 10 or 15 loans. You can get portfolio loans and everybody will give you money. It’s great. You can do 80/20 loans and not having to use your own capital. Your cash on cash is 1,000% because you use $1 to get your house.

That becomes a mistake when rents don’t cover it, the market goes down and people stop paying rents unless you’ve got Section 8 or maybe a college housing, which is what I did. I spend a lot of time in college housing. A lot of people are thinking, “I’ll raise the rent on people, buy this house, speculate that it’s going to go up in value because everything goes up in value in the last many years now.” It’s the same type of thing mentality-wise that, “I’ll buy this and it’ll go up. It’s a great investment. I can depreciate it and write it off.”

I went through the crash. It wasn’t fun and messed up my credit. A few houses had to go the wrong direction, restructured and made my investor. I had no investors before that. I was always my own self and then in 2010, I started bringing my buddy who was a doctor and his dad. That’s been my thing since 2010, I make rich people richer. We’ve started buying properties in Grand Rapids. I did the college model.

In 2018, I’m like, “This market’s crazy. We’ve already doubled. The market and rents have gone up so much. There’s no way things can go up any higher. You can’t shear the sheep anymore. You can’t make a lady who’s making $40,000 a year pay $1,500 a month.” Guess what? You can. I sold everything out in Grand Rapids and then I had a problem. I go, “I have money for the first time in a long time. What the hell do you do with it? I don’t want to put it back in the same house I bought.”

I started learning about notes and I said, “This is an asymmetrical risk in a sense, that I can buy this below market. If they default, depending on the state or whatever else and whether it’s a CFD, a land contract or wherever you want to call them or if it’s a straight-up mortgage, you have certain parameters within that. It’s supposed to be more of a hands-off investment.

You fit in well with the culture of this show that Chris and Gail started, and then Chris and I have continued where we try to tell it like it is. There are pros and cons to everything and that includes note investing. Have you tried sarcasm, Kyle?

That’s all I do. My wife tells me she’s had enough of that over the years. In 2018, I started doing the same thing we all did because of Scott Carson and Eddie Speed. I started going to NoteExpo. I was fascinated by it mostly because it was a world I didn’t know. I’ve always thought it was at the very end of the foreclosure at the REO stage, where there was always competition. I had to be the first guy knocking on the door with cash and I was buying houses during that last crash where we would put the earnest money equal to our purchase price and have no exit.

Where the real money is, but the real risk is, is in assisted living. Click To Tweet

I knew it was going to be a good deal and I didn’t know how good Grand Rapids was. It kept on going up and up. Now I can’t get close to any of this stuff I used to own. The value has gone ridiculous. I can’t make sense of it. The new threat in my opinion is, and I haven’t been right, time and markets at all. 2018 wasn’t the time to get out. If I sat there, I would have doubled my money may be better and not had to deal with all this stress that goes along with CFDs, Harbour loans and home opportunities and all these other different outfits that bought this stuff. Maybe the paper was clean. Maybe it wasn’t.

The biggest issue in note investing is the difference between a renter and a borrower. You assume if they’re a renter and they don’t take care of the property, you move them out. You clean the place up. You take their deposit, pay the water bill with it and you go, “That was a mistake.” You buy a property or a note with a person you don’t even know with a little bit of pay history that shows that they tried to make their payments. You don’t know what the inside looks of the house and you go off comps and everything else. You hope it’s going to be great, but when it’s not great, you can’t move them out. The worst thing that happens is not that they become non-performing completely. They become sub-performing. What will happen is you go 3 months or 4 months, you’ll take them to court, spend the money, and come up with the 3 months or 4 months, and then you start the process over and over again, with very little money on a property that has a ton of equity that’s not your equity.

Your servicer is charging you with non-performing every month because even if they were in a state, most servicers will not switch that automatically to a performing loan. You’re getting hit from all angles and you’re stuck.

You’re stuck. They’re not paying the water bills. They’re not taking care of the property. You’re getting nice love letters from the city. If it’s a CFD, which there are differences in mortgages. They’re better, but they’re also not better if you’re in certain states. I’m in Michigan and I would rather have a CFD or what they call land contracts here than have a mortgage. The reason is because it’s forfeiture for contracts. It’s a much faster process than going through a full mortgage.

Can you let us know what your current state is as far as your current portfolio, whether that’s notes or real estate? You’re dialing down the note side of things a little bit potentially, but speak to your current portfolio, where you are headed personally with your business, and then we can dive into states and Michigan in particular.

It was mostly note-heavy, Michigan, Ohio, Northern Indiana areas, Indianapolis, and states that I didn’t know to avoid when I first got started. Kentucky was a mistake.

Why is that?

Florida was a mistake for non-performing because I didn’t realize it until you go down to Orlando and then you were going down the expressway that every person is, “Bankruptcy $499. Do you want to stay in your house for fifteen years without paying? We can do that.” I’ve got a great lawyer down there and she’d helped out, Erin Quinn.

She’s been on the show before.

She’s great but the issue there is they know how to play the game. I bought from PennyMac a non-performing a month before its share sells. I’m like, “This is going to be easy peasy.” They had the thing. They filed the BK or bankruptcy. We put a stay on it and go, “What do we do now?” We have to wait, file and do all this other stuff. We get it back six months later. We get the day off and I’m like, “Please, God. Don’t do it again.” They do it again. This time it’s the wife. They go back and forth, and then I realized, this is why it’s been non-performing for years.

GDNI 166 | Ups And Downs Of Investing

Ups And Downs Of Investing: The biggest issue in note investing is the difference between a renter and a borrower.

 

It’s not that the other note holder before you was an idiot.

As time goes, I sold that and their last ability to do it ended. The next guy who bought it made a ton of money. That’s how it happens eventually as I learned my way around those things. I haven’t done much in Florida. CFDs aren’t treated well in Florida. They’re treated like a mortgage. It doesn’t make a lot of sense because it’s low value or low balance. Somebody else is going to buy it.

Do you still own rentals at all? What’s your current portfolio?

I got away from rentals because I was like, “The market seems way hot.” I want to be the next guy in line buying too much, but then I’ve gotten back into some of the single-family stuff. Apartments, I still think are so speculative. You can win big but you can lose big real quick. I was selling a part of the billions in 2008 and 2009. It’s the reason why I came over to the Metro Detroit side of the business from Grand Rapids. It was a bloodbath. All the numbers that make sense when you buy it don’t make sense when it goes in the wrong direction.

Do you think that could be on the horizon potentially?

I don’t know. I know it’s too hot for me. I cannot stay on $100,000 a unit that I’ve seen. We’ll keep on raising rents and then rates won’t go up. In three years, we’ll get out of our high-interest loan and we’ll refi to an agency’s 35-year loan, and everybody gets rich and happy. A lot of things have to happen for that to occur, and when it doesn’t happen, it’s the same thing as a financial planner. When they’re making money, “It’s because of me. I made all this money in the market.” When it doesn’t happen, “It’s the market’s fault.”

I told you there were risks.

It’s the same thing with the syndicators. We’re not going with businesses, probably not multifamily, unless there is something that makes sense. Construction doesn’t make any sense because of construction costs. You’ll never make it in that most likely by the time that happens. Where the real money is but the real risk is in assisted living. That’s where I’m going with things because there’s still a COVID hangover there. People are still nervous about that business. There’s a huge demand coming our way with that. I got into a small 40-bed deal, in which I’m just a very small partner but I was going to take down the whole thing until I realized how management-heavy it was. You think there’s a lot of risk in litigation in notes. It’s ten times worse in that business.

If you don’t mind diving into that, how does that work or how did you find that deal? What role are you playing? Is it a big single-family home?

It’s two wings and has 40 beds. It’s set up like a nursing home but assisted living so you have limited care. The weirdest thing is I’ve been trying to get into that, even franchising with Visiting Angels or something like that, but you find employees that aren’t going to show up. There’s a shortage of everything and especially a shortage in nursing. You can’t find nurses that will show up. They want as much money as you’re going to make on the deal. That doesn’t make sense because they’re not taking any risk. I was looking into doing deals like that and I came across it on an auction site. I was like, “What is this doing in an auction block?” It’s performing in all good sense. When you say performing, it’s more of a note thing, but there are people, employees and everything else going on in there.

It was a functioning business.

When your money's tied up in notes, you can't leverage it. Click To Tweet

It was an operating business. I knew a guy who was doing that. He had turned around at 86-bed in a different market. I said, “I don’t know. Is this a deal?” He’s like, “This is a deal.” Long story short, we lost at the auction but I kept in touch with the brokers. I said, “If it goes sideways, let me know.” Some hotel operator was playing around, bidding up stuff and spending tons of money. Supposedly, he was buying a hotel a month or something. He said he does not want to do it, so we got next on it. The issue came about with how to raise capital and who would do what. That’s where we parted on in a sense because I said, “I can’t raise the money on making 10% from my investors with all this risk.” They’re like, “We can raise the money.” I’m like, “Let me try to do it a different way.”

I try to use the same management, which is not usually a good plan. What happened was we bought ten different buildings in Michigan. This was like the redheaded stepchild. They want to get rid of it and I’m like, “This is the type of thing I’m looking for.” I haven’t found this in a long time. The values made sense, but the issue is management. Long story short is I couldn’t stick around with the same management company because they were saying it was all COVID-related for 2020. That’s why the numbers were they were. They wouldn’t show me 2019 numbers because it was in an auction format and it was a different owner at the time.

They bought it. They should still have had access to those numbers.

In an auction, you’re technically like, “You’re buying it an auction price.” It’s like, “I’m not because I didn’t buy at the auction. I lost. I’m trying to buy it now and here’s what I’m doing now.” That changed everything up, and then once I saw 2019 numbers. I went, “These 2019 numbers are just as crappy as 2020 numbers. You’re lying to me,” or maybe the other management company. I brought the other guys back in and I got a small piece of the deal. They’re going to make a ton of money on it and I’ll make a little bit.

Do you have an equity slice in that?

Yes, I got a little equity piece on it for bringing the deal in.

There’s a huge opportunity in that niche for sure. There are a lot of Baby Boomers and numbers-wise, it makes a lot of sense.

Numbers-wise, it was $1.2 million coming in and $1.25 million going out. That’s the issue with that business is. You could pay for employees and everybody and you get nothing. You’ll pay to have people in. That’s why it’s management heavy and it’s a very dangerous business to get into if you don’t know where you’re going.

You have that deal and then you’ve got some single-family rentals as well.

Yes and then the notes. I got the notes with an investment group and now’s a good time to go full cycle and get out of it for a number of reasons. One is it’s usually about three-year deals I put together. Coming out on that 3 or 4-year mark actually scared the crap out of me. I’m like, “I don’t want to be on the wrong end of this business again.” At that time, I bought a bunch of stuff in Ohio in Cleveland Heights that were non-performing notes that we were going to flip. I got done getting through that whole process, dealing with contractors, and getting this beautiful house all done. It’s April 2001. It’s like, “Spring market, here we come,” and it’s like, “Uh-oh.” I didn’t want to do any more of that. We’re going full cycle. I’ll get everybody’s money back and get my money out of it too, which is probably the biggest part of it. When your money’s tied up in your notes, you can’t leverage it.

It’s much harder to leverage.

GDNI 166 | Ups And Downs Of Investing

Ups And Downs Of Investing: Inflation is a huge problem for money because it’s going to cost more for that same dollar to buy your purchasing power.

 

You can if you have tools and all this other stuff, but not in the same sense where you share mortgage on it.

You can’t walk into a bank.

That’s not happening. It’s not as liquid as people think. Another reason why I’m probably completely wrong but who knows is I read a lot of Ray Dalio and the guys that are all cycle theorists. They’ve been through cycles. They know there’s a cycle. One quotes Warren Buffett and he is right. The most popular thing to be in is apartments and houses. It goes up and there’s huge demand.

Another thing you mentioned to me was inflation. How does that play into as far as being a note investor from your perspective?

I read a lot, which everyone says that’s good, but these 22-year-old kids are coming out. They are like, “I bought an apartment building and I syndicated. I made $2.7 million and here’s the book on how to do it.” You buy it and just sit on it. Inflation is a huge problem for money, in particular. It’s because it’s going to cost more for that same dollar to buy your purchasing power. We’ve seen that in housing, food costs and a number of whatever else.

It’s definitely here on some level.

Governments want that to occur because it is a tax on its people. How do you get a ton of money raised up and given to whatever you want to fund, infrastructure or give it to the banks, bondholders or whatever you want to do there to keep the markets propped? You can’t go in and say, “We’re going to raise taxes a ton, everybody. It’s going to be great for everybody but you.” What you do is you print the damn money and now everything cost more.

The problem is that person is making $40,000 working at Walmart or whatever else. He’s still going to make $40,000 next year and the following year. However, their food costs and everything else goes up. They are paying by inflation. The government is paying down that inflation in theory, but they don’t pay down anything. If they were to like they did in World War II, it was the biggest inflation that occurred because they had printed a bunch of money, and then they let it run at 5% for ten years to pay off and pay down debts.

Now, they’re doing the same thing where either they’re going to let this thing run, and then we’re going to have possibly the same type of issues we had in the ‘70s and early ‘80s. My dad was selling real estate in the early ’80s on 18%, 19% or whatever percent interest rate. Everyone’s upset about Harbour’s 10% rate. You are gouging people. They’re paying $300 a month.

You’re either a lender or a performing note buyer, in particular.

You’re possibly on the wrong side of the business. You take out debt. You buy property. It either goes up in value or you raise your rents, and you pay down that cheaper debt with or you pay down and keep your dollars in the future.

Don't draw all your income from investing. Make it your second stream of income. Click To Tweet

It gets confusing but if you’re a borrower, your $300 in five years is worthless than it is now. Your payment is less than it was five years ago.

You’re stuck with $300 payments left on it.

Do you think we’re going to see distressed? Nobody has a crystal ball that’s backing you in the corner as far as predictions. Do you think we’re going to see more NPLs hit the market?

Yes, but it’s going to happen behind the scenes. The big stuff happened behind the scenes last time and I thought, “I’ll be part of it this time around.” I don’t think it’s going to trickle down to us as it did before where all this stuff went from the hedge funds or from whoever, down to us. I don’t think it’s going to occur that way. It’s going to occur how HUD sells stuff now, where it’s going to be a lot of stipulations. You got to keep the borrowers in there. You’ve got to work out payment plans with them.

There are more strings attached. I also think other hedge funds and bigger note funds have their systems in place now, which they didn’t have before.

Another thing I didn’t realize about FHA loans and whatnot is the servicing rights. You can make $30 a month or whatever it is. You make $30 a month per loan or something. When you buy 1,000 of those, there’s the money. That’s why you’re buying at 102% because you don’t care about that anyway. You’re never going to sell it or you’re going to sell it off to Wall Street. Grandma’s going to buy it and get 1.2% on her bond.

If I’m a brand new note investor or real estate investor, is there anything to get excited about? What do I do? Let’s say I am 22 and I’m trying to figure out which direction to go with my investment strategy.

In 2010, when I started getting other investors involved, I said, “I expect 3% to 5% appreciation.” That’s the mark there. If you buy it for $100, next year it’s worth $103. It multiplies. Maybe it goes down again and maybe it doesn’t, but we also have a fifteen-year mortgage that we’re going to pay off. In fifteen years, we’re going to make money. In the meantime, we would have good write-offs. Maybe we’ll make some money one year. That’s what happened and this is when we were buying college stuff that was $1,500 a month college housing. In theory, we should have been making a lot more money, but the roof went bad or it had to get painted or there’s water backup and we have to redo the sewer line. There goes $6,000. There goes all the profit that year. People don’t realize that it was not just PITI.

You’ve mentioned assisted living, but is there any other?

Back to that note, if I’m 22 and I read the book The Secret and other things. When I’m 40, if I buy twenty houses and I’m only making $100 a month per house so I make $1,000. I make $20,000 a year. I have another business or I’m working for somebody. In eighteen years, I’ll be 40. I’ll have all those houses paid off. That’s how you make money in real estate when the government doesn’t print it for you and create artificial appreciation.

It’s a long-term play.

GDNI 166 | Ups And Downs Of Investing

Ups And Downs Of Investing: You have to educate the borrower. You need to put yourself in the borrower’s shoes and see what is best for both of you.

 

It’s going to go up and down, and all-around probably in that eighteen-year period. Let’s say it’s worth exactly $100,000, exactly what you bought it for. You don’t owe anything on it at that point. It should be a get rich slow business, but everybody thinks it’s a get-rich-quick because you can get low-interest rates and you have to be the guy outbidding the next guy.

It sounds like you’re saying to take a more long-term approach and have properly set expectations.

Don’t try to make a business out of it. Try and make it a side hustle.

That’s good because you definitely have varying opinions on that. Some people do quite well making it a business, but for your average person, you’d say don’t make real estate or notes you’re central focus as far as your income. Don’t put that much pressure on yourself to give, but to give focus to draw all of your income from that strategy, but make it a second stream of income.

Maybe if you have the entrepreneurial spirit, you have other businesses that you run and this is a side thing, then at some point, you’re able to. When there’s a crash, everybody was caught off guard. I was reading the wrong books in 2008 and 2009. I was reading a Harry Dent book. If you don’t know who Harry Dent is, it’s the gold bug and he said, “This is how the world ends basically.” Gold and guns are the only way you’re going to survive. If you got the guns, you’re going to have the gold. He was completely wrong and he’s going to be completely wrong again.

How do you feel about crypto? It’s an out-of-the-blue question.

We used to have an insurance company. Some buddies were in that and they bought when it was up to 18, they went down to 3,000 and I have a buddy who lives in Hong Kong that works at the exchange there and they try to make it regulated in some way, shape or form. He’s like, “It’s not going away. It’s going to stick around.” It’s the same type of thing. You have a little bit of crypto and a little bit of whatever. I bought it at five because I’m so smart. I bought I don’t know how much of it.

Is this Bitcoin you’re talking about?

Bitcoin was in 2017, 2018 or whatever it was. As a genius, when it doubled, I was like, “I’ll take all the cash off the table and I’ll be playing with house money.” When it doubled again, I went, “This is another one of these stupid things. I’ll get some of my money back out. When it went back to 25,000, I sold it out all, and then it went to 60 and now it’s at 39. I’m like, “Where do I buy into this?” As a storehouse of value, what’s backing it? I read an article for guys that create Dogecoin. These guys don’t have any of their own coins now, which they were a little bitter about it. They were like, “It’s just rich people like Elon Musk who will say, ‘I bought this. You should too.’ It then doubles and they either sell it or they leverage against it.”

To manipulate the price.

Is it going to be the next thing? I think like what China is doing, they’re going to have their own currency. The US is going to have its own digital currency. They can manipulate things more than we have. We already have a digital core currency. No one uses cash now. It is digital, so what’s the difference?

Don't buy notes just because there's a lot of equity. That's not your equity. Click To Tweet

One of the things that we’re trying to start weaving in more intentionally in this show is to talk about the good deed that you’ve done through investing, whether that’s real estate or notes. Can you speak to any way that other people have benefited from your investment experience?

I’d say most borrowers have. When I first got started, I bought a note in Ohio and I bought it as a dumb person would with going through Google search. It looks great, but then it became a non-performer and everything else. I go, “What am I going do? Am I going kick this lady out of her house?” I don’t want to do that. I probably should see what this thing looks like.” I went down there because I had some other stuff down there and I knocked on her door at 10:00 on a Saturday morning. I said, “I want you to know I own your house.” I stepped back into a huge pile of dog poop that she had sitting there. I’m trying to wipe that off. She’d opened the door and I’m like, “What are you going to do? I don’t want to have to do anything here. I want you to stay. What can you afford to pay?”

We worked out something that made sense. She had lost a son to heroin or something because that was bad there. She had another son that died from a car accident, at least that’s her story. I was like, “I definitely can’t kick her out,” which you’re not going to make money being a bleeding heart either. In that case, we worked something out. I felt good about it. She got her house. We kept her payments way below where rent would be. That’s a lot of things when people started saying, “I can’t make this $300 payment.” That’s what could happen. The guy next door is paying $1,100 on that same house. Do you want to live on that side of it or this side of it?

You’re buying down. You have equity in this home.

You could sell and make money if you want it. Another one was they weren’t making payments. They called me and they said, “We want to give you back the house.” I said, “Why don’t you try to sell it?” “We can sell it?” “You should try to sell it.” They made $30,000. Had I been a sneakier bastard. I go, “Here’s what we’ll do. You give me $1,000 and get you out of your deal and I make a ton of money.”

I do find in my experience in the notes space, a lot of it is educating borrowers too. You can’t just sit back and think, “My attorney or my servicers are handling this.” You got to put yourself in the borrower’s shoes and see what is best for them and hopefully, that is also what’s best for you as well. A lot of times, they don’t know what their options are. They don’t even know what CFD is sometimes.

They don’t know what they sign and don’t write paperwork anywhere. They’re hand-to-mouth. That’s probably why they were in the situation they’re in. In a lot of ways, a lot of people falls on these predatory lenders back in 2010. A lot of that did happen but almost the equal amount, if given the opportunities, they would have had double or triple their money, and have a better life for their family and build wealth. They probably have not been given that opportunity. At that time in 2010 and 2011, there wasn’t Dodd-Frank and all that stuff. I was doing a lot of that stuff that time too because if you buy this stuff, what do you do with it? You can’t sell it because you’re the one that bought it and you were the highest bidder unless you fix it up and flip it.

Those are two good deeds stories for sure. Focusing on your note career, not the real estate stuff as much, what would you say are a couple of mistakes or 1 or 2 mistakes you’ve made or lessons you’ve learned?

You got to get a financial calculator. You can do the Excel spreadsheets and you can figure out the IRR and all that stuff. I had been on my computer enough. This is when I found the T-value thing. It’s a super easy program and you can learn how like, “Here’s how many payments are left. If I want a 12% rate, what do I need to buy this at?” It’s super easy to do it that way. Before I was like, “You’re supposed to buy at $0.70 or $0.75,” or “It’s not performing so buy it $0.60.” It doesn’t always work.

You were fixing your bids on UPB entirely.

I can figure out the IRR and stuff, but it’s a lot easier with the T-value calculators. It doesn’t costs much to buy them and use them. For notes, I do that. Don’t buy just because there’s a lot of equity because it’s not your equity. If you know there’s equity, I’m pretty sure that the borrower knows there’s equity. Unless you’re going to do something shady, then have it.

GDNI 166 | Ups And Downs Of Investing

Ups And Downs Of Investing: In the note businesses, you collect a lot of money and syndicate deals. Income doesn’t come right off the bat, so you have to have the staying and mental power to be in this business.

 

Have you primarily bought what were deemed performing loans or were you into NPL space? You mentioned a couple that went non-performing, but were you ever targeting non-performers specifically?

At first, that was because I had my own money. The way to keep turning it was you just buy non-performing and run it through its course. That’s when I realized some of the pitfalls with that and if you know how to run a T-value calculator. I made $10,000. What took you three years to get there? What is your real return? It isn’t double your money or whatever that is.

You did mention that one fund or group was ending in April 2020. Those sounded like mostly non-performers as well when you bought them.

That was a hard-money lender. They didn’t want to deal with Northern Ohio and now I know why. I knew why but I didn’t know how much of a pain in the butt Cleveland Heights is. Anywhere that has heights in it. You got a point of sale. They don’t love the fact that you’re doing anything. They don’t care that you’re paying double the taxes and any of that. They’re just going to fine you.

That is a Note and Bolt we definitely have not heard before. Anything with heights in it, stay away from it.

You should research the city because the point of sale is illegal and a non-constitutional way where they say, “Before you buy this house or before you want to sell it, you need to do this X, Y and Z.” It’s my damn house. I bought it. I’m going to do what I’m going to want to it. Technically, if I want to take them all the way to Federal court, I could because they don’t have a constitutional right to do that.

I’m not all that familiar with that, to be honest. You mentioned the point of sale in our Facebook group. Is it a township or a city?

It’s an ordinance that says, “When you sell it, we’re going to go in your house and tell you all the things that are wrong with it that need to be fixed before you sell it.” There’s a long list. It’s going to be $40,000 at least including things that need to be done on some of these. Some of them were like $80,000. If you sell it, the guy who buys it has to put that $80,000 in an escrow. He can’t use that money to fix up the property. He can’t draw against it or something, and then you fine them every single time you walk in that house. You charge them $150 to walk into the house. You are just charging for everything else. There’s lawn care. If your house is vacant, that’s $300 to register as vacant. They know what you got. I get it. They’re trying to keep the city and the areas from deteriorating. There are different ways you could do that than the way they’re doing it.

We’re finishing up a small addition at our primary residence. We had the electrical inspector come through and all he was supposed to be focused on, in my opinion, was the sunroom and the lights and the addition. He starts walking through our whole house and pointing out. We had to replace some smoke alarms because they weren’t all interconnected. From a personal standpoint, it was triggering for me.

It’s a violation.

I’m like, “What are you doing?” He walked into our bedroom and I was like, “What are you doing? Get out, man.” That’s a small-scale minor example compared to what you’re talking about.

Try to find equity rather than try to create it. Click To Tweet

In the rentals, they do that a lot in the areas over here like Redford and other markets. The second they see it non-occupied, they find you saying, “You didn’t register as a rental.” It’s because it’s a land contract. If you looked a little further, you would have seen a recorded land contract.

I will say it depends. I’ve got one CFD in Michigan that the inspectors are sending me updates. This is in Rives township. He and I are working together to get this issue addressed. Once in a blue moon, there’s a refreshing story like that.

Most of the time, these aren’t high-paying jobs. It’s mostly a power play that people can go, “I can tell you what to do and I’ll find you if you don’t do it.” They come back in after you pay them $150 to come back in the house and they go, “X, Y, and Z weren’t done. What’s on your original list?” “I see it now.”

As we wrap up here, Kyle, you shared a bunch of different Notes and Bolts throughout this whole thing. Is there anything else that comes to mind as far as a little nugget of wisdom for the readers?

Try to find equity rather than try to create it. Meaning that if you try to buy a house, you outbid everybody else, and you are going to fix it all up, and then you’re going to create this equity because of what you’ve done or you’re going to raise the rents because of what you’re done, that’s speculation. Whereas if you can find a house undervalued in this market, good luck to you. If you can, great. That’s how you find it or you buy it with notes and you find equity because these are maybe ten-year-old deals, so the loan is from 2015 or 2010. The values are much lower, so you have protective equity.

Looking back on your career, is there anything else you want to hit on or promote?

I’m in-between stuff. We’re wrapping this second fund up with these notes and getting the full cycle. I’ve gone full cycle three times with three different investment groups. Every time they gave me money, I gave them a lot more than they gave me.

I do think you tend to downplay your successes a little bit. Your personality almost sounds like you’ve made all these mistakes and everything, which I’m sure you have made mistakes, but it also sounds like you’ve learned from your mistakes. You’re able to profit in different market cycles. I do think our readers can benefit from a lot of what you’ve shared and potentially even reaching out to you. You are somebody who’s seen several different market cycles and operated across different asset classes as well. It’s not like you’ve just been a note guy for the last few years and that’s all you’ve ever done. Even your realtor experiences are beneficial. Speaking of reaching out, where can our readers link up with you?

My website is ExpandCap.com. There’s a lot of information on those. Feel free to email me from there. I have some stuff on market cycles. That’s where I am. Everything else feels nuts right now. I can’t understand what will happen when the government puts $5 trillion into a market. I don’t know what’s going to happen. I do know that markets have cycles. They go up and if I look at any chart from 2010, it went straight up. At some point, it’s probably not going to go straight up. I don’t know when.

It makes a lot of sense. You might miss out on a couple of deals, but you’re also going to miss out on potential losses as well. It sounds like you’re regrouping and holding steady.

The thing that’s going to hit us is when interest rates rise. That’s what they’ve been trying not to do, but they’re going to be forced to do it when inflation becomes a problem. They had to raise interest rates in the ‘80s with Volcker’s Act and all this other stuff. They had to raise it because, otherwise, we’re going to be printing Zimbabwe dollars or we’ll be speaking Chinese.

This has been awesome, Kyle. I appreciate your time and thanks a lot. For the readers out there, please feel free to give us a rating and review. Hopefully, mostly positive. Please go out and do some good deeds. Take care, everyone. Thanks again.

Thank you.

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