Want to get into the note investing business but don’t know the first thing about it? Chris Seveney has got your back on this as he goes back into the basics of and frequently asked questions in note investing in this episode. What are notes? What is the difference between a note and a mortgage? How to they work together? What are deeds? Everything you need to know to get started is here. Join in!
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Note Investing Basics And FAQs
We’ve got back our special co-host, Jamie Bateman, with us. Jamie, how are you?
I’m doing great, Chris.
We’ve got another jam-packed show for you. This one’s going to be the Nightmare on Elm Street that we’re going to talk about. A little background story on it. There was a JV deal that Jamie and I had. The property was on Elm Street and it was a nightmare. Before we get started rolling on this episode, we’d like to start off by talking about some trials and tribulations. Jamie, what have you got going on?
I was going to mention an issue we had. It has a CFD in Kansas City, Missouri. In the middle of July of 2020, we got a notification from the city that it was two different letters. One was a nuisance letter and the other was a letter saying that all work needed to be fixed at this property. Meanwhile, this was when the US mail was more snail-like than usual. The point I’m making there is I got these two letters and the next day when these $100 per day fines were potentially going to start. Needless to say, I wasn’t pumped about this. I contacted our servicer.
They were a little bit slow to respond in my opinion. I contacted the borrower directly. Unfortunately, there’s a language barrier there. I think she mostly understood what I was saying that we needed to get this junk out of the front yard. We needed to fix up the property, but I guess she interpreted what I was saying as I was going to be fining her $100,000 a day. That’s not at all what I was saying. Thankfully with the servicer’s help, we were able to communicate a little better and the borrower was proactive and get everything squared away even though the city was unresponsive to me.
We’re good to go on that front and then the other attachment they had with it was I guess if you have an LLC that owns a property in Kansas City, Missouri, you have to file some LLC affidavit. A few weeks later I get a notification from the city that they’re going to continue with legal action against us if we don’t file this form. Long story short, this was the first official conversion we did from a CFD to a note. I’m looking forward to not getting any more of these notices.
CFDs which are talked about a lot in this episode can be challenging. I remember getting the first one and I was flipping out. Now you got them and I get them like junk mail. It’s interesting because it’s all about perspective and having been through things. When you’ve been through things often, you’re experienced with it and it’s like, “Here’s another one.” I have two trials and tribulations. One is some of the crazy stuff that goes on which I forwarded you that email about a property that I have a note on where the nephew got arrested on a drug bust on the property with two kilos of heroin. I told my wife about it and I’m like, “Should I even bother telling you this one?” It’s funny because her first thing is, “Was the lady paid?” I’m like, “She’s not her.” That’s some of the crazy stuff that goes on. That’s the stuff that’s out of your control and you got to roll with the punches. The other is I want to touch base on and this is why I love this business and why the show is called Good Deeds and about making a difference.
I have a contract for deed where the borrower would default several years ago. I bought the loan and the borrow was spotty. The borrower reached out to call me because there was an issue where the property had two parcel IDs. The driveway has another one that got lost at a tax sale and wanting to get it redeemed and are dealing with the large fund prior to who wouldn’t do anything about it. I said, “Let me look into it and I’ll get it taken care of.” It was $150. When she was afraid like, “I’m going to lose a driveway.” I took care of it and got it done. While I had her, I said, “I wanted to touch the base of what’s going on and stuff and see if there’s any way we can help.” She’s like, “It’s been rough. I’m in my mid-70s. My son turned 50 and is battling cancer.”
She mentioned she has a grandchild as well and asked if I could defer the five months or so that were behind payments. I said, “Yes.” She’s like, “We’ll keep paying when we have the income and stuff, but we just went through some hard times.” I haven’t heard from her in a while and then she left me a message and I called her back. She was crying and that’s when I knew and my stomach dropped. She’s like, “Kenny is gone.” It was heart-wrenching to hear that it happened. I’ve joked in the past how I’ve had some borrowers that are deceased or I’ve bought loans that are deceased. It’s not something that I joke about in the sense of I do buy loans where people are deceased.
It’s a part of my business strategy. I don’t also want to say don’t underestimate life itself. It’s something we all don’t want to take for granted. Her biggest concern was with it contracting for deed was probate and some of these other avenues of what’s going to happen. My immediate thing was, “Let me take care of that and I’ll get back to you. You got to go take care of your family and what’s best for your family. Don’t worry about the house right now. We will get it squared away.” She’s like, “I’ll keep paying.” I’m like, “If you make your payments, we will get it squared away.” We’re working out some logistics, some details and stuff, but it made me think. If this was a large bank, they would be, “Sorry, pay it off or sell the property.” You’ve got a 70-year-old woman living here with her six-year-old grandson who lost her son, which putting having a child passed is probably the worst thing that could ever happen to somebody.” My sense would be these big institutions would treat it as whatever.
It’s just another loan.
For us, we get that flexibility where we get a little more attached to some of these and we can make that difference.
I’m going to add on but not nearly as dramatic. It’s funny how our two stories go together here. I’d deferred three months for these two borrowers in Kansas City because they are an elderly couple and they run a cleaning business and they were shut down because of the pandemic. My point in interjecting is that I do think there was a lot of goodwill between the two parties. I do think that’s one reason they were responsive in fixing up the property and it goes a long way. Not that I was doing it for selfish reasons, but you’re touching on that human element that bad things do happen to good people.
This isn’t an opportunity where you want to go and take advantage of a situation which I don’t even know what any situation could be. At the end of the conversation, she wanted to make me cookies. I probably stayed on the phone with her for twenty minutes because she needed somebody to talk to. It was interesting because she’s got some friends and some other family, but I think it was somebody who didn’t know much about it, somebody she could talk to and at the end of the day has that conversation.
She called me back with a quick question on something but it goes back to like you said being able to do a good deed. Everyone’s in the business to make money, but there’s also the social impact that you can make and that’s why I love and enjoy this business. Let’s roll into our main segment here which is the Nightmare on Elm Street. It was April of 2018 where I had a contract for deed in Maryland that I had posted to some people seeking a JV deal on some of the numbers.
The UPB was roughly $60,000. The investment was $28,00 what we acquired it for. It was interesting because one of the things with CFDs in Maryland that our favorite lawyer, Brian Gallagher had mentioned was, “In Maryland with a CFD, the borrower can cancel any time before it’s recorded and get all their money back.” When we were looking at it, that scares everyone then when we want to evaluate the deed. I’m like, “She paid $20,000.” If I’m getting $20,000 with the BPO and everything because I think it was $100,000. The comps in the areas were solid $150,000, $200,000 homes in this neighborhood. We’re thinking, “This thing could be a dump.” Which was the crystal palace. We’re thinking, “It’s got to be worth something.”
Right off the bat on this one, what’s interesting was I got in contact with the borrower and we wanted to get the CFD recorded, but she was also way behind. We asked her if she wanted a mod and also drop her payment down by $100 a month. Then we’d roll in the past due balance which we did and she signed. One mistake that I did is when we did it, we did it as another contract for deed instead of a traditional mortgage note. For people who invest in Maryland, CFDs provide zero added value after foreclosing like Florida. A CFD in Florida does nothing for you and the same thing if they are in Georgia.
It gives you more liability and no more upside than a traditional note mortgage.
We say that because you still have to foreclose. The borrower still gets to keep that equity, unlike Indiana where if you get a forfeiture, you can keep any equity in a property if it ever exists. In these states, you lose it anyways. You’re having your name on a deed that you’d have no control over the property. The borrower signs up who’s paying for a little while. We had $3,000 in costs to record the CFD, record the mod and then there was some past due taxes that we advance and everything kept. The money I was coming in, unfortunately, Jamie is my partner wasn’t getting any of it because it was going to the expenses. I saw it early on this one that we could have some expenses. I did not go to the well. Meaning, I didn’t ask Jamie to continue to contribute any funds at the time. Were you shocked by that?
I think I asked once or twice and you kept paying for everything. I was surprised. I was fully expecting to have some more funds.
In a typical JV deal, I do the work and being an investor or sponsoring an investor provides the funds. In this case, some of this I was paying out of pocket because the cost was getting up there quickly on things. Then we had the infamous defaults on this borrower. This was painful. The borrower would go back and forth on things. They said they sign a deed in lieu, then wouldn’t sign a deed in lieu. During that time, Jamie, was there anything that you trying to negotiate her that stuck in your head?
The other highlight-lowlight was the water bill.
As part of this contract for deed, they are in my name, get a call from the county. They’re like, “There’s a leak at this property. It’s like 200,000 gallons of water.” All of a sudden, my heart drops and at first, they told me it would be about $20,000 something. Then he calls me back and it was somewhere around $10,000. I got the call right before I was going on a show episode. I forgot to let my partner know that we had this and Jamie was listening in.
I think you were putting the show up quickly after you were recording them. It was a couple of days after you recorded and I’m driving to work listening to the show. You’re giving clues here and there about the property but trying not to give too much information away. You mentioned that it’s a land contract in Maryland. It’s a JV deal and a $20,000 water bill. I don’t think I finished the show by the time I got to work, but I immediately sent you an email and I was like, “Is this our deal?” You’re like, “It sure was,” but I think you were able to negotiate that down a little bit, and then you also were able to get us on a payment plan with the city.
I was on a payment plan for $500 a month. I do apologize because one of the things that I try and focus on is communication. After I heard that as I was swearing at myself like, “I can’t believe I didn’t let him know.”
You’re good at communicating.
I know people out there who don’t hear from people for months. I like to report to people at least on a monthly basis. I have the portal but when we got that, I knew we have to pay it eventually. What sucked about this was when I spoke to the city, they had already been in there. they had notified her because they went to check and to make sure it was still a good meter. They told her she had a leak then she provides a letter from somebody who claims to be a plumber and says they fixed it.
I called the county and they’re like, “We have we can tell by the meter.” They can tell a continuous flow versus periods of flow and they’re like, “It seems like it’s better, but it’s still a continuous flow.” We found that she was traveling, the borrower. We turned the water off. The attorney said, “She’s traveling. Turn it off.” We weren’t even sure if she would know. It was one of those things where you can’t turn the water off on people, but with it being a week, I had the attorney talk with the city and stuff and they said, “You can turn it off to repair it.”
We turned it off to repair it, but we couldn’t get access until we got her permission which we never did. One of the things in CFD that sucks is you own the property, but you have no rights to the property. It’s painful. Eventually, we do get her to sign a deed in lieu of the property which was part of that was during this whole COVID crisis. We struck a deal from when the state lifted their state of emergency, I think she had 30 days or something along those lines to move out.
Brian had put in a lot of time and you had as well on this. We were close to getting the foreclosure done because she was not communicative. We were at the five-yard line, close to getting this thing done and that’s when all the courts shut down to back up slightly. There were lots of highs and lows with this thing. It looked like we were close to foreclosure. There was all this equity in there and then everything’s shut down but then you suggested that let’s try her one more time and then she did sign the deed in lieu.
She signs a deed in lieu and we get the property back. Jamie goes and visits the property. It costs $1,000 to clean it out.
I was impressed with the area because Cecil County has some not great areas, to be honest, but I wasn’t all that familiar with this area itself. The neighborhood is nice. The house is big and has nothing to do with that. I can see why on paper, the property value looks like $120,000 or even higher. There was so much trash and it’s disgusting. I don’t know how people live like that. There was a huge dog crate in there and look like animals had been living in the attic. I went through there before any of the trash had been gone and then after some of it was removed.
Snappy Clean-outs is who did it and they are on my Facebook. There was stuff stacked along the side of the house. There was a car on the property that was still there, which was abandoned. Did you ever make it inside the house?
Yes. I went through it twice.
Your father was the agent on it. What was his reaction?
He’s slowed down a bit in his career but he’s used to doing a lot of business. He’ll work with investors, but it’s not his normal deal. His reaction when I sent him the pictures initially was that he wasn’t going to list it in that state but I think once we got it cleared out, he likes a challenge so he was willing to take it on.
I remember going back and forth about listing it and at first, we were going to list it for a little over $100,000 which we knew was a little aggressive. It wasn’t an area that was nice. It was close to the water. There’s a lot of development in the area. There’s a big water park going on.
Great Wolf Resorts is supposed to be there and I believe that’s a $20 million project or something and supposedly a brewery a block away. It’s more on the upswing than the opposite. I don’t think we were that crazy for trying to list it at that price point.
We list it and people start going through. I’m curious about your reaction to this. Before we got cleaned out, somebody says like, “They knew somebody and walked through the house.” They’re like, “I know that there’s still $2,000 left on taxes and they offered us $500 for the house.” I called Jamie to let them know that. I’m thinking, “He’s probably thinking he’s going to lose $30,000 right now of this investment.” What went through your mind when that happened?
I’m glad you didn’t consult with me. I figured that was some guy taking a shot, but It’s not encouraging to hear offers like that.
We list it and after the first round, we had a good number of showings.
I think throughout the whole time we had a good amount of foot traffic.
Everyone kept coming back with the same thing and it’s overpriced. We drop and drop and then finally we do get an offer on the property. At one point in time, I was even talking to my wife. My wife’s like, “Maybe we’ll take a ride up there and see what it consists of and maybe we’ll buy it even.”
I’ve done well for decent rehabs and that was not a project I was willing to take on. I do think there was a little bit of money to be made hopefully still for rehab but that was a massive project and the fact that the house was big that can help with property values. It also is a lot more expensive to fix it up. I think we got a couple of different offers along the way there but nothing that we were too serious about entertaining.
We finally get an offer, but I want to jump back. You mentioned taking on too much rehab. That’s smart that people do that because sometimes people will take on too much. I’ve got property here locally that is scheduled to go to foreclosure. They put on the market to try and sell before because they do have equity in it, but they can’t go the bankruptcy route because they’ve been through it three times already and got dismissed each time. They put on the market and I had somebody do a video tour of it.
The basement is filled with mold. The roof and ceilings are collapsing in. You shake your head to how people live like this. I look at it, it’s a small house. It’s under 1,000 square feet, but still, it’s too much work and effort for it and it’s way too much risk. I’d rather start new construction and take on something like that. A lot of people are thinking about this property in that same fashion. It was tough because if it’s fixed, it’s going to be worth over $200,000 and it’s a question of how much you want to put into it.
One thing I will say on the listing itself for people that ever run into this situation, we put up some accurate pictures I think and then part of the description focused on the area and things like that and you want to sell the property. My dad said on the listing, “Don’t go into the basement.” I think we also put up some pictures that were not too positive. I think it’s better to be realistic with those kinds of things.
You don’t show one room that looks great and then nothing else. In the house, that’s the one room that doesn’t have a foot of water standing in it or something along those lines. We get accepted and we’ve closed on this thing now. It’s running through the final numbers and I popped open. For people reading, we bought this thing for $28,000, two and a half years. Do you want to guess what our out of pocket expenses were? Do you have any idea?
I’ll say $35,000.
If you include the full water bill, yes. I was out of pocket $30,000 and then it was still $5,000 left on the water bill. We talked during the process. I reached out to you at one point in time and said, “Do you want to buy me out?” For me I was out the same as you and it sucks because we knew there wasn’t going to be a lot of skin in this one. We joke that the only one making money is your father and the attorney and you’re going to get between a Dunkin’ Donuts coffee and a Starbucks, which I still owe you. I share that because in this story a few things, one is the communication. During the whole time, do you think there’s a lot of back and forth and dialogue on things?
If you would ask my opinion on whether the first time she accepted the deed in lieu allegedly, you wanted my opinion if we should take it. What should we do? I remember you called me and I was at a Maryland football game. You told me about the deed in lieu offer that she agreed to sign. You wanted my input on how much we should give her if anything Cash for Keys and there was a lot of back and forth through this entire two-and-a-half-year process and a lot of communication. It was an effort joint venture and there was a lot of communication which I think is critical.
You hit the nail on the head. The communication and also discussing these ideas with your partner and making it be a full decision from people because you want that decision to be made by both people, not just not one. That’s one of the things I hope you as you now have JV partners and stuff you take that with you, with your investors and stuff because I think it’s one of the most critical things that you can have because deals go bad. If you communicate with people and let them know they’re not going to be yelling and screaming at you.
I have several JV deals still ongoing. A lot of it does depend on the JV partner as far as how much communication they want. I joke with one of my friends who lives in New York who’s an attorney. I joke that he made a contribution to my business because I could barely get him to sign the JV agreement because he’s busy. It’s not something he’s into on a day-to-day basis, but I still send out at least a quarterly formal report and oftentimes much more frequent emails to keep him in the loop. Then I have other JV partners that want to know what’s going on every week or two. Communication is critical.
There may come a point in time too where someone’s reaching out every week and it’s like, “We sent a demand letter. I’m not going to hear anything until September, October 25th. Why don’t you touch base in two weeks?” I’ll tell people, “You don’t need to email me next week because I may not respond to you.” It’s one of those things where you got to have demand because there are people who can be a royal pain in the ass who you may not want to do business with. I’ve got people like that, that I worked within the past.
I shouldn’t say they were a pain in the ass. My style and style don’t mix. I considered them one, but their way of management is different from my way of management. From that perspective, it’s better probably to cross paths. I’ve had people reach out to me wanting to partner with me and basically after having some conversations with them, I’m like, “This isn’t the right fit.” I’ve done a deal with somebody and they’d like, “Did you have other deals?” I’m like, “Why don’t you go work with Jamie?”
I’ve noticed an uptick in people contacting me.
I tell people that I don’t do the individual JVs anymore. People ask, “Who can I do them with?” I’ll throw your name out there. Good, bad, or different. I think I sold two of your partials which one of them was a note that I sold to you.
I’m all out of partials but I do appreciate that.
I believe you have four partials to sell which this person was contemplating buying two.
Two were taken so there are only two left.
Does he have the same initials as me just inversed?
That’s why I spoke with him. I’ve been helping him do some bidding on assets and he asked who to partials. The funny thing about this is he asked me who to did partials in. I don’t think he ever asked me if I had any partials to sell, he just connects to you.
“I don’t like working with you, but who could you recommend?”
“I’ll learn from you. Can you teach me everything?” I’ll spend an hour on the phone teaching someone else. Before we head into the nuts and bolts segment, what are some of your final thoughts on this deal and things may be that you saw that were educational for you that you may have been like, “I’m glad I knew about that,” or things like, “I can’t believe this happened,” or things to look out for? What do you walk away with something like this?
When we started this deal, I didn’t know a whole lot about CFDs versus notes and certainly didn’t know that there is no real advantage in Maryland to owning a CFD. That’s something I’ve learned along the way. I’ve purchased a bunch of CFDs myself in other states. Don’t spike the football too soon because there were points where we thought we were going to make maybe not a killing, but this was going to be a good deal. It turned out that it could have been a lot worse, it could have been a lot better and there were a lot of ups and downs. Communication is the key. There’s a human element to all of it. I’m not targeting Maryland. I’m glad you were the one running the day-to-day and Brian was doing a lot. It’s probably turned me off to certainly CFDs in Maryland. How about you?
There was also occurring at time with the whole debt collection license in Maryland as well. That was one item that we didn’t touch upon, but now there’s the whole component whether or not you needed that. This is what’s crazy. This woman at one point in time made payments in September and October of 2018. October is when we did the MOD because she put some money down then paid in January, February, April, and May of 2019.
It was like, “You’ve got 4 out of 5 months.” We’re sitting there looking at this thing at a point in time like, “Four out of five.” UPB was over $60,000. We’re going to hit $900 a month. Over a year, we might have taken after escrow and stuff by $7,000 and then turn around and sell this thing for $40,000 or something like that at $0.80 on the dollar. You’re looking at a 50% return when you look at certain things at one point in time only for everything to come crashing down on you.
When she went delinquent in May of that time, we had spent $17,000 extra. We’d already been in it for a little over $10,000. It’s $22,000 when you include water. All of that happened after the fact. These things can get expensive and this is why you got to be careful when you’re buying stuff when people were paying $0.55, $0.60 on the dollar. You’ve got to be careful because you never know what’s going to happen. In this instance, if we would have paid $50,000 on this thing, we’d be in a lot of hurt now.
Do you think there’s any chance we could have in hindsight gotten an interior inspection or at least some interior photos from the borrower as a stipulation for doing a modification? I know a lot of times that you’ve suggested this too.
I do now. I look back at some of the things I did wrong was one doing another CFD. I should have a note. That’s on me. I learned from that. Going forward now, when I do modifications, I get interior inspections. If people are against it, what you can say is we need as part of this modification confirm that if you’re adding or wrapping money past due into the loan, you should prequalify them like the ability to repay.
As part of that, you do need to do some type of evaluation on the property for value. What I tell people now is I need this information from you to qualify you as well as we do need to get an inspection done as part of this. One thing that popped into my head while talking this, and this is what’s great. You brought this up and here’s something that I’m going to throw right back at you. When you convert a CFD to note, are you getting interior inspections?
Me neither, but why not? Why aren’t we?
I don’t know.
People reading are probably laughing at us, but you brought that up and it popped in my head, “Why aren’t I doing this? The borrower snaps some photos from me.”
I have done that for a recent purchase. For example, I got the borrower to send through the note seller pictures of the interior to see what it looked like. I also did it in on the Jacksonville deal when we did a Cash for Keys but no, I didn’t even think about it as far as these conversions which we are in the process of doing several of them.
I know the one in Flint that I sold you. That one I believe had an interior inspection after I did a MOD or got lined up.
She’s paying and good to go.
I would have never expected that.
I’m relatively optimistic about that one. I was going to say most of the time, once these CFD borrowers understand the difference between a land contract and a note mortgage, which some of them do immediately, some of them don’t. The major difference is, they’re usually on board so why wouldn’t they mess the whole point? They want homeownership. I think, for the most part, they would be compliant with doing an interior inspection.
I’m still shocked because I never in a million years, and that’s what’s crazy about this business is borrowers. You’re like, “This is money in the bank. This person’s going to pay.” Then there are others and you’re like, “This one’s probably never going to make it and stuff.” That one, I figured at some point in time, you’d be selling that property to Adam Adams, down the line because he buys a lot of that stuff.
I got a performer for you then. Do you want to buyback?
That’s interesting because that one is an example. I posted on BiggerPockets. I had a loan where the borrowers hadn’t paid in five years. We called them up and they made a payment. I believe that the loan had a good 4 or 5 years of no payments. People already got a free note and bolt, which they’re all free anyways. What were your note and bolt?
We bought a note in Tampa, Florida. I have been trying out a new product. People complain about BPO and the lack of accuracy across the industry. It doesn’t mean all BPOs are bad. It’s essentially a desktop appraisal. We got a couple of them back and I was happy with them but this particular note that I was buying in Tampa, we couldn’t get the appraisal done. I had two weeks to close which is standard, we might’ve had a little less than that.
I found out that the appraiser said that they’re not going to do it. Another appraiser turned it down. Eight days in, I’ve got only a few more days to close on this and I can’t get an appraisal done. I guess they have different standards than the realtor does with the BPO. My note and bolt is trying out Raven Spatial. It’s Bobby Quinn’s company. It’s still somewhat of a work in progress. They do drone imagery and a panoramic from the front of the property.
I did that. He had it done within 24 hours. It was helpful because this property has a two-acre lot. I was able to see a lot more or the roof than I otherwise would have been able to see, which is why the appraiser wouldn’t do the appraisal was because of some siding damage and a little bit of roof damage, but ultimately, I was able to confirm that there weren’t any major issues. From the exterior, it looks like a well-maintained property. I did also get a BPO to put myself at ease.
I know Bobby is working on bringing together the imagery along with some type of appraisal product. I do think there’s a need in the note business for this type of product. I’ve seen some handwritten BPOs that much worthless. I think there’s some room for improvement across the industry. I am happy certainly with the turnaround time and the imagery that he was able to provide and hopefully, he can improve upon the actual data that’s incorporated into a full scope appraisal report. I’m optimistic about it.
I’m going to mention this because this happened to me where I was looking to buy a note that somebody called performing. You hit upon this in a message about performing and something that was originated that’s not performing alone in our world. This is a first in my book. The guy sends over the collateral. Here’s my note and bolt. Do not spend any money until somebody emails you the soft collateral. Do not send anybody money until you get a copy of the note mortgage, whatever it is in the file. Here’s the reason why. I’ve got under agreement with this person and two days later I’m like, “I need this information.”
The person isn’t you ordering title and stuff, and I’m like, “I don’t order it until you give me this stuff.” I learned the hard way that I’ve gotten stuff where they tell me, “I have the lost note. I don’t have any allonges. There’s nothing to it.” The first send over the mortgage which I’m looking at it and wondering if it was typed by a seventh-grader and then sends over the note. I’m reading the note and the note is executed and signed. It’s signed by him, the lender. There’s no note to the borrower. He’s got a mortgage to the borrower, but the note is signed by him. I’m like, “Where’s the note that the borrower signed?”
“They don’t sign the note. I sign the note.” I’m like, “You’re signing a note that you owe this much money?” That should be a red flag that this person has no clue what they’re doing. Based off of that, with the property being owner-occupied, you think they follow Dodd-Frank and CFPB regulations. This loan is in North Carolina, which many people don’t know it’s tricky. It isn’t a bad state, but from a servicing perspective, you got to have your stuff together and you’re not even supposed to reach out in North Carolina at most fast be done by your servicer. My note and bolt are don’t spend money. People will be like, “You got two weeks to close.” I’m like, “No, I got two weeks to close from when you send me the soft collateral.” People will go a week without sending it.
We’re given lots of freebies. I had one recently where I spent money on due diligence. This was through the PaperStac and as many people know they have the negotiation phase and they have the closing phase. I don’t spend any money until we have a purchase sale agreement. We’re in the closing phase. We ended up closing on this and it was all good, but I had spent several hundred dollars on all this due diligence. Then the guy says, “I’ve got several other people doing due diligence on this.” I’m like, “We better close. You accepted this price.”
A quick lesson to myself is don’t spend money on due diligence until at least you have a purchase sale agreement something under contract. I’m okay with spending money that’s a sunk cost if you find out that there’s something incurable with the title or the property is in rough, terrible shape. I’m okay with wasting money in that sense, but I’m not okay with spending money that if we don’t have a legally binding agreement. That was my mistake, but it worked out okay.
I’ve also done things in the past where I’ve held off on ordering title. If the property has been vacant or hasn’t paid a long time, I may wait a day or two to order a title and get eyes on the property for $20 or $40 before spending $150 on the title. If the properties can’t be seen from the street and it’s got vines growing all around it, you’re not going to buy it anyway so why waste $150 on a title? Initially, with Harbor, this is where I learned a bit on two tapes that I had like five assets under agreement each time, both times because there were like three days after each other.
I had ordered the BPO and this was one earlier in my days when I was paying $100 and something for BPO, plus another $150 for CFDs. I was out like $2,500. I didn’t buy any of them because they’re all trash. That’s what started the toxic asset list that we had back in the day with these CFDs, which people ask it’s not around anymore because somebody bought all those assets. The reason why is people forget that when you are in this business and have a business, there’s going to be deals that you spend money on that you don’t buy and that can get costly.
You advocate working with the same few sellers that you’ve worked with before. You develop that trust in the industry where you can probably avoid wasting that money upfront if you trust the person you’re buying from.
I’ve got some assets that I’m probably going to bid on that I bought from the seller in the past. This person is meticulous with their files. It’s awesome because when stuff comes through, I know the chain is there already. Then I’ve got another guy buy from and I know when they come through, I’m going to have to lock myself in a closet to try and figure out the collateral because it’s a mess. In the same token, that mess is heavily discounted significantly that they don’t have the time to deal with it so they know smaller investors do. They don’t mind selling it and get out from underneath them. Any final thoughts as we wrap up our Nightmare on Elm Street segment?
No. All in all, there were a lot of good stories from this one and I appreciate you being communicative. It could have been a lot worse. I will buy an asset.
I was going to say my cynicism starting to come out. That’s a good one. I forgot to ask, you mentioned to somebody here. I’m going to ramble on, but somebody mentioned something and it was on the Facebook group where somebody asked you, “I want to do some weekend presentations and stuff.” I said, “I’ve been too busy because I bought 50 assets. I want to help people, but I’m also not a guru because I’m buying assets.”
It gets in the way.
Good dig against all those gurus out there.
To be clear, not all educational programs are bad. There are some good ones.
People got to learn somewhere and it’s some of these programs. I always tout you can find stuff online. I’ve also changed my tune as I’ve started to talk to people who were getting started and giving them some guidance and some assistance in regards to some of these programs that if everything’s there and in order, it’s easier for them to follow.
That’s the key. You’re paying for that organization and the sequence of learning versus this patchwork. Everything is free by itself, but I think it’s the compilation and the organization that you’re paying for.
If I ever did a training course, I know Gail had always been twisting my arm as well as another investor. She wants me to name it after her because he heckled me many times about putting something together. Thank you, Jamie, for joining us on this episode. For everyone out there, thank you for reading. Make sure to leave us a review on iTunes, Stitcher, Google Play, Amazon and iHeartRadio. You can find us anywhere. If you’re looking for more information on Facebook, join the Notes And Bolts from the Good Deeds Investing Podcast. Thank you all for reading. Remember to go out and do some good deeds.
Take care, everyone.
- Jamie Bateman
- Raven Spatial
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