Note Investing: How To Go From Landlord To Lien-Lord With Tracy Z And Fred Rewey

February 1, 2023




CWS 235 | Note Investing   Perhaps you want to put your money into the stock market, but you’re not sure where to start. Then you can never go wrong in getting into the profitable and opportunity-rich world of note investing! Chris Seveney sits down with Tracy Z and Fred Rewey to talk about what it means to buy stocks, why people do it, and how you can get started in investing with notes. Tracy Z has over 30 years of investing experience, and Fred Rewey shines as an expert in negotiation, marketing, and deal structuring. Together, they share how to transition from landlord to lien-lord, dropping valuable insights, personal experiences, and exclusive tips to help you make it big through notes. Listen, learn, and get that money working for you!

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Note Investing: How To Go From Landlord To Lien-Lord With Tracy Z And Fred Rewey

We have special guests, Tracy Z and Fred Rewey. Tracy and Fred, how are you doing? Good. We’re doing great. Thanks for having us. It’s been long overdue to have you on the show. Tracy and I have been to multiple speaking events and so forth. I’ve also been a part of their Cash Flow Expo, which we’ll talk a little bit about. The reason I wanted to have Tracy and Fred on is they are two of the most highly respected note investors in the space. For people who are reading, we have plenty of content as well as Fred and Tracy on what note investing is, but it’s a way to create some passive income for people to continue to build wealth. Interestingly enough, Fred and Tracy actually are the opposite of my investment strategy of nonperforming notes. I’ll let you talk a little bit about what you’re working on. Our specialty is performing seller-financed first-position real estate notes. That’s our sweet spot. That’s what got us in the business back in the late ‘80s. We had done other types of notes, but I always joke and say, “I got enough performing that go nonperforming. I don’t need to go out and look for them.” How did you get into rolling back in time? You’ve been in this space for a really long time. Did you always start in that space of the performing seller-finance type notes, or did you start somewhere else in your real estate avenues? We were both different. I was living in California at that time and was taking some night classes to try to learn to invest in real estate. I was looking at different things as far as I was concerned. During one week of that course, a gentleman by the name of John Richards was teaching the course. He goes way back into the note industry, but he taught us the financial calculator and the idea of buying notes. I was absolutely hooked. I thought this was the coolest thing ever. You got the benefit of owning real estate or at least having real estate as your security and didn’t have to worry about tenants and all the other stuff that went along with it. That’s how I jumped into it. At that time, it was always on the performing side. I was only interested in looking for notes or performing. There are a lot of great strategies in nonperforming. It’s just that you can do both but we tend to stick to performing. We like the seller-finance, too, because we find that if you go direct to the sellers that sold property and took back financing from the buyer, they are willing to sell at a discount. A little bit similar sometimes to discounts you might get on nonperforming. For me, getting started, I had a title and closing background. I went to work for a large institutional note investor that was buying these seller-finance notes. For my first ten years, I got a great education working to invest their money, running the closing department, underwriting, and helping with marketing. During that time, I couldn’t buy a note. I so wanted to buy a note. The reason was they felt it was a conflict of interest. I did the traditional invest in real estate. I bought real estate. I had tenants. I have all kinds of tenant horror stories. I bought with seller financing. I sold with seller financing, but I couldn’t buy an existing note at a discount. It was in ‘97 that Fred and I started our own company and left the corporate note investing world that we started buying for ourselves. Mostly, we’re using our self-directory retirement account and then moving into lines of credit and some other avenues. Fast forward, we still buy and sell seller-finance notes. We do it on a smaller scale than we did. We’re more of a private investor scale now and we still love it. There’s a lot of opportunity out there right now, especially in the current environment. I want to rewind a little bit because Tracy, you mentioned your background and title. Fred, you didn’t come from a real estate background, correct? No, not at all. There was zero real estate background on there. I was interested in a lot of stock market stuff, which I still am. We’ve been in this industry for so long. I’m not even ashamed. I was pretty young. I was probably 27 years old when I came into it. Who at 27 knows what the hell they want to be for the rest of their life? That was my introduction to it. I think everybody conceptually knows they want to have some aspect of real estate, whether it’s simply owning their own property or everybody has the idea of investment. Back then, in the ‘80s, it was all the infomercials of some dude late at night in a courtyard going, “I own that house and that house. It’s got tenants in all of them,” but then you learn as you deep dive in it. You’re like, “What are you doing if 2 are vacant or 3 of them need a new roof?” Something like that. You start to scratch behind the surface a little bit on some of that stuff. That was my introduction to real estate. I did have rental property scenarios and did have horror stories, but that was very brief since I was introduced to notes so quickly.
CWS 235 | Note Investing

Note Investing: Everybody conceptually knows they want to have some aspect of real estate, whether simply owning their own property or everybody has the idea of investment.

  What gets me even more frustrated is, I think you might be a few years slightly older to my age, and you got in ‘97. I started real estate in ‘97 and I didn’t learn about notes until 2013 or 2015. My whole career was spent in real estate and I didn’t even know about notes. People who are not in real estate have found out about it at a young age. It burns me a little bit because when you’re in the business, you’re only taught certain things. No different than job to job and the 401(k), which, “I can’t self-direct that. You got to do this.” I wanted to share with people about this that it doesn’t matter what profession you’re in, you want to get into notes. I’d recommend that you have some financial acumen as it relates to numbers and being able to use Excel or a calculator and understand some aspects of finance. You don’t have to be in real estate via note investor. You mentioned seller-financed a few times. Can you explain to people who aren’t familiar with the term seller financing? Explain the type of loans and the process that you go through. It’s funny it’s a bigger industry than people realize as far as its existence. It varies depending on the year. Roughly between 4% and 6% of all real estate transactions involve some seller carryback financing. Whenever everybody asks you, “What’s that?” It’s like, we’ve all seen the for sale by owner signs, and that means they’re willing to sell it. They’re basically trying to bypass a real estate agent. The other sign is the owner will finance. That means that you’re going to give your down payment to the owner of the house and you’re going to make the payments to the owner. You might agree on, “I’m going to give you $10,000 down and I’m going to give you $800 a month for 30 years.” That’s a note. That’s been created. There are a lot of people that sell properties for that reason either by need because that’s the only way they can move their property. It gets them a little bit more people looking at it or it’s an obscure property. Maybe it’s a little bit more rural or harder to move. A lot of times, what happens is somebody sells that and carries back a note and they’re getting good money. If they wrote the note at 7%, 8%, or 9%, they’re earning that interest and that may be better than what they could have done with the money anyway. Typically, what happens is something changes in their life at some point. They want to buy another house, they have medical bills, they want to send a kid to college, whatever it may be. That’s the point where we come in because they want to liquidate that note. They can go back to the person paying them but that person only has to pay what’s in the contract. That’s the existence of a note and that’s how we step in to buy it. We typically buy them at a slight discount. What do you think? I think it’s a good business. I wouldn’t still be doing it for 30 years. You’ve been doing it for 30 years, so something has got to be working. As they mentioned, it’s very different from the nonperforming side where that’s typically for people. That’s institutional paper. Most of the time, that gets originated, securitized and sold its way down a chain. Eventually, whoever owns it doesn’t feel it’s fit for their portfolio and then will liquidate it. It’s a different avenue. I’m sure a lot of people probably ask the first question of how do you find these people that are seller financing? 2021 and 2022, we are waiting to compile those stats. We do these studies every year. In 2022, we have them for $27 billion of seller-finance paper that was created. That is paper that was a deed of trust or mortgage. A deed gets recorded from the seller to the buyer and a note gets signed back from the buyer to the seller. They also sign a deed of trust or a mortgage depending on the state. That gives them a lien against the real estate. If the buyer doesn’t pay, the seller can take back the real estate, just like a bank would. When those documents get recorded in the county courthouse or the county records for that county and state where the property is located, that becomes public record. You can search out lists of people who owned the property, sold it, and took back a deed of trust. It’s in their name as an individual or their LLC, and not Wells Fargo, Bank of America, Mr. Cooper, or any of those types of institutional type names. One method to find these people is to market to them through direct mail or direct response to people who’ve sold or have taken back payments over time. There are other ways, too. Online marketing, pay-per-click, real estate investor clubs, or self-directed IRA events. There are funds that invest in these. Some people prefer to invest in a fund that own the individual asset themselves. There are other ways, but that’s been one of the main components of how we’ve found sellers that sold and took back financing. $27 billion. I just want to reiterate that for the readers. That’s a big number. Say you have $100,000 laying around, which is a lot of money. You’re basically at 0.003% of the entire market. You’re like a blip on the map. It’s very similar with the other types of note investing of people realizing secondary markets, the seller financing, and non-traditional bank lending. It’s actually a significant number. Last I heard the mortgage industry itself for real estate is a $16 trillion industry. It’s one of the largest drivers of GDP in the nation. It’s interesting the ways because people don’t realize how much public information is available on somebody. That was one of the scariest things. When I got into note investing, there was a lot of stuff out there that I didn’t realize. Was that surprising to you back when you started? One of the most surprising things was that information largely has always been public as far as courthouses and stuff. What the game-changer was when they came online. You used to basically hire somebody to go into a courthouse in a rural area or a semi-rural area. Some of them would get on literally the microfiche things on their little slide decks. Information about note investing has always been public. But the game changer was when they came online. Click To Tweet They go in there and they would get the names. The names were there, they just weren’t accessible from afar. The big game-changer was really as more and more of these counties come online, you can literally go out there, search it and find it. That was the biggest advancement in our industry. As a matter of fact, there’s only 4% of counties that aren’t online. It’s a very small number. Our number every year gets more exact because there are only so many counties that are offline. That was a big game changer as far as accessibility to that information. There are two other areas since we’re talking about, “Where do you find these?” We’ve talked about what you talked about, Chris, which is the institutional paper that trickles down and then the seller-financed paper. You also have people out there that are private lenders that are making loans to other investors for an investment-type property. They’re creating their own papers specifically. That is another large market that I think is equal to those other two in the private investor arena. We have a whole another category, and that’s all the financing that takes place that’s not a public record. There is a lot of unrecorded contract for deeds, lease options, and options to buy things that are floating around out there that haven’t quite turned into a public record transaction. A lot of that happens as well. You’ve got business financing, so business notes. People sell businesses and take back paper. That is not when real estate is involved. There’s a big number of those. People sell mobile homes. They sell automobiles that aren’t attached to real estate. They finance those. There’s a lot of private financing out there when you add it all together. I believe we’re a much bigger industry than people realize. I agree 100%. I wanted to turn a little bit. Could you share with the readers what a hypothetical sample deal looks like in property value, loan amount, principal and interest payment? Is it typically 30 years and rough ballpark discounts in an average deal? Again, I want the readers to realize it fluctuates significantly based on many factors. It’s like saying, “How much is it going to cost to renovate a house or put a new kitchen in?” It’s very similar with a note, but there are some basics that can probably be provided. Correct? We start with our ideal. If we had an ideal, we’d love to see 20% down, 30-year term, and 10% phase interest rate. We’d like to see that the buyer can afford to make the payments and has income. We would like to see good credit on behalf of the buyer, but we do lots of deals with no credit and poor credit if they have some redeeming factors. We’d like to see some seasoning on it, meaning they’ve made a few payments. We’d like to see that the paper was properly prepared and all the disclosures were there. That’s the ideal world. In those ideal worlds, you might get to pay $0.90 to $0.95 on the dollar. There’s all this reality where people had poor credit, they didn’t put much down, and there hasn’t been much seasoning. In those cases then, we would pay less. We might pay $0.70 or $0.80 on the dollar, or we might say we only want to be in it 50% of the property value, but we’d offer a partial. Maybe you want to talk a little bit about how you might come in and do a partial in that situation. Let me do $100,000 covers on the normal one. I don’t have a calculator or the board here, but just so everybody understands a transaction. If we had a property that’s sold for $120,000, and I’m actually keeping the numbers pretty low. They’re obviously where you are or they may be higher. Maybe we had a property sell for $120,000 and they put down $20,000. That leaves a $100,000 note. Let’s say they agreed to do that note for 30 years and have it at 10% interest. That creates a monthly payment of $877.57. That’s a 10% note. If I wanted to earn 10% of my money, then I would pay $100,000 for that note. Since we buy things at a slight discount, if I can pay less money for the same cashflow due, my return is going to be higher than the face rate of that note. As I said, it’s a lot easier on the board, but just so everybody has an idea of it. That person has a $100,000 cashflow. If I pay $85,316 for it, I’m going to get the next 360 payments of $877.57. I’m going to get a 12% return on my money on the investment. That’s how we do it. When you take $85,000 and you divide that by the value of the property, you can see why we start to like this industry because I’m only in $85,000 to a property that’s sold for $120,000. Now, you can see that I feel pretty comfortable with my loan-to-ratio or my investment-to-ratios because I know that I’ve got this buffer if something goes wrong. I’m like the bank. I have the ability to take it back, I can then resell it and create another note or I can sell the property outright, whatever it might be. That’s one thing for us with our latest fund trying to educate people because everyone right now is concerned about home prices. We then educate them by, “We’re not originating the loan in paying par in getting it at a 5% or 10% of the down payment. Say you paid $80,000 for that and it’s a $120,000 house, you get 33% equity. Even during the downturn, the largest housing decline in an annual period was 12% or 13%. Overall, it was greater. The other component that I think people need to understand about this is home prices may go down and most people probably think they are. If your house goes down and my house goes down, it goes down as long as I have job and can pay mortgage. The key attributor to note investing is it’s the borrower and having that job or that income versus housing going up or down. They may influence their decisions on what they do with the property if they go delinquent, but if most people have the job, they’re going to keep paying the mortgage. Would you agree? What’s great about our industry is we can minimize our exposure. Tracy alluded partials. That was an example of buying the whole thing, but I don’t have to buy the whole note. I can buy part of the note. Do you want to talk about the partial? What's great about the note investment industry is that you can minimize your exposure. Click To Tweet I agree with you wholeheartedly, Chris. That’s been our experience as well. People want to stay in their home and make their payments. As Fred mentioned, we sometimes do partials. If there’s a 30-year payment stream on a note, we might buy the next 15 years. That minimizes the discount to the seller and our exposure. We collect those payments, and then we assign and turn the note back over to the seller and they collect the last fifteen. There are lots of ways to do this industry as you pointed out from the very beginning, Chris, if people understand the calculator and the finances. This is not to scare people. You don’t have to be a math whiz, but you do want to understand how to make your money work for you. Consider your dollars out there as soldiers and you want to put them to work and did action. That’s one of the reasons that we’re passionate about sharing information. One of the reasons we’ve created the How To Calculate Cash Flows is because people are afraid of the calculator and they didn’t want them to be. I know it looks scary when you look at a financial calculator. You’re right, you can do it in Excel. I don’t care what you use. I’m not saying you got to use a certain thing, but there are five little keys up here. If you learn those five keys, I promise it’ll change your life as Fred mentioned earlier. It’s interesting you mentioned partials. We’re not going to dive too deep because we could spend hours on here. A quick story I’ll mention about partials is, I went to an engineering school and we joke, “I was a civil engineer so all you need to do to graduate is learn you can push out on a rope and you know what flows downhill.” A lot of my friends are chemical engineers, working on Hubble telescopes, and inventing all this crazy stuff. I remember talking about them during COVID because we all got back together more often. I was explaining to them partials and how some of these notes. I was buying nonperforming at a discount, getting them reperforming season for a year, selling a partial off on them and basically selling the partial for more than what I bought the note for. I’m explaining this and their heads exploded. They’re like, “How can this even be fathomable?” I’m like, “It’s math.” It’s breaking it down. Rolling into that, you mentioned a few things and you’ve been in the business a while. You also do a lot of education for people, correct? Yes. It’s a passion of ours. We feel like after doing it this long, both of us had a mentor that taught us this industry. We hope if we can pass on some of that knowledge to people that we have this whole new group of people that are out there that’ll continue it on. Every year, we get bigger and bigger. There are more private investors out there that are influencing this economy. Anytime we can take that into our own hands, we all rise above.
CWS 235 | Note Investing

Note Investing: Every year, the investing industry gets bigger and bigger. There are more private investors out there that are influencing this economy. Anytime you can take that into your own hands, you can rise above.

  I can say this because I don’t have training programs and stuff. If you’re looking at getting some education, do your due diligence, especially in the note investing space. There are a lot of people out there that I would not recommend people use for education. Your group has been around a long time. They’re very well respected. I have not taken the group so I’ve never given them $1 or they’re not paying me for anything. A lot of people that I’ve spoken with or bought notes from or sold notes from. I always ask people, “Where did you learn, so I can push people?” Basically, your group has gotten some of the highest reviews. People did wish that you did some nonperforming stuff as well. We do get that. Thank you, Chris. We appreciate that. One of the things we have coming up in education, we like sharing a lot of free information and we have Cash Flow Expo coming up. Do you want to talk about that, Fred? Cash Flow Expo is now in its fifth year in 2023. It’s an annual event. Every year, I say I’m not going to do it the following year because it’s a lot of work behind the scenes and it is free for everybody. The idea came over at the idea of events being online where people couldn’t get on planes and go to conventions. What we did is we created a three-day event. We call it Cash Flow Expo. It’s predominantly real estate and note-focused, but I’d say that at least 1/3 if not a little bit more tends to be fringe items. There’s even stuff on stock markets and things like that. It’s a great place to go and get an overview of different things. We vet all the speakers. We know all the speakers. They’re not allowed to sell. We do pre-record most of them. We’ve done some stuff live before, but we typically pre-record them because if you’re trying to rope in 30 sessions, 25 speakers, plus a couple of panels and ask everybody to have Wi-Fi and everything ready to go or remember their time zone, forget it. The biggest thing we get is people go, “You should do it all live.” I’m like, “No. It’s already a lot of work on the pre-recorded.” Basically, you can watch for free all three days. These are top people in their field. They might be in delinquent, performing notes, lenders, a mom-and-pop that lends money once in a while or running a fund. You can watch whichever ones you want. It’s February 9th, 10th, and 11th 2023. We leave them all online for 72 hours. You can watch it for 72 hours because it’s a lot of content to take in. There’s no obligation. You can upgrade to a VIP pass, which will give you a copy of all the recordings on an online portal. That’s usually $79 or $97. There’s an early bird and another one. For $100, you can actually watch all these sessions whenever you want to watch them or re-watch them. It’s a great lineup of speakers. As I said, we vet them all and they’re not allowed to sell. This isn’t a pitch fest. We’ve all been to that convention where someone will get to the end of it, and it’s like, “For $17,000, you get to join this.” They’re not allowed to do that. They can give away something for free if they want, but nobody is allowed to sell or do anything like that. Chris, we know you’re going to be a returning speaker. We’re excited to have you speak again. What are you talking about this time? I’m going to rehash from a few years ago. I’m speaking on how you can lose money in 2023. Typically, a lot of people will show you how to do certain things. As you mentioned, they’re all great speakers. I like to zig one other zag and also share some of the horror stories of, “Here are some of the things you also needed to look out for as you’re learning through the process.” A few years ago, when I did the first one of how to lose money in notes, technically it turned myself into a multimillion-dollar business. Lauren Wells, who’s now my VP of Investor Relations saw that and started reaching out to me. She goes, “I like this guy because he’s brutally honest.” I joked she stalked me, but she really didn’t. She messaged me on LinkedIn and wanted to connect. I started educating her more on notes. The timing was right, so I brought her on board to assist with my note portfolio. When we launched my latest fund, she has a background in IT and a lot of sales experience. I brought her on board to be one of my partners in our latest fund. It’s all because of Cash Flow Expo. I don’t know if you knew that story or not. That’s a great story. She said it at a quest event or something. I like the slant of showing what goes wrong because everybody can make it all roses and there are things that can go wrong. I tend to learn more by my own mistakes or other people’s mistakes than I do the wins. The wins are easy. If you win, you win. Everybody goes to Vegas thinking, “I could win.” They didn’t pay for this town on winners. You can learn more by your own or other people's mistakes than you do with your wins. Click To Tweet How do you avoid losing? What can you do for money management? The essence of note buying, which we’re talking about is not that hard. Everybody is like, “What’s new?” It’s the same thing and it’s always been, but you do need to know those things. To your point, you need to know what to avoid. What to look out for is just as important. Jumping back a little bit, speaking about that and what can go wrong, what are some of the things for people who may actually are reading that do some seller financing? When you’re reviewing the paper, what are some of the things you see that are incorrect or give pause and say, “I can’t pay this much because this happened or this wasn’t being done with the note?” I’m sure that’s occurred many times. With seller financing, there are a lot of times title deficiencies. We are big on always getting a new commitment for title insurance. That will protect you, and then we pay for a titled policy so we are insured. If there’s an existing mortgage policy, like there is when you buy institutional paper, then we can get it to update and get that endorsed over. For title deficiencies and lost original notes, sometimes we’ll see they’re not keeping the property insured for fire and hazard. We have a couple of interesting stories through our note-buying experience problems with that. Maybe the buyer borrower isn’t making payments and the seller said they were, and they don’t have a third-party servicer. We are always trying to make sure we get verifiable payment histories. Do you want to talk about a couple of others? You took the big ones. Basically at the end of the day, I would say the 30,000-foot level is to check something out. If you’re going to have an opportunity to buy a note or whatever, don’t take everything at face value. We’ve had people we work with for years now but I’m still going to go make sure I find out the value of the property is really what they say the value of the property is. I’m going to look at the pay history and make sure the pay history is what they said it was. You can’t cut corners. There’s a checklist. As a matter of fact, we literally have a checklist for our members that says, “Here’s our checklist of closing a note. Go through all of these.” Something can always happen, but you can mitigate those problems. Whether you’re buying performing or nonperforming, there’s a checklist of what you’re going through. The nice thing is things offset. You can take chances or get a higher return for a higher risk. There’s a point where if you don’t get paid, then it wasn’t worth going for a higher return. Twenty percent of zero is still zero. I say a lot but the paperwork and stuff like that, double-checking values or whatever it may be. Delinquent taxes are another one that we sometimes have to get cured. I would say when we’re talking taxes, title, and insurance, those tend to be the big three. You’re looking at the payor, the property, and the paperwork. I like the power of three. Those three on the due diligence side and the three on the performance side are big in our book. Our checklist center around those because there’s a lot of balancing of the scales when we buy these notes. We don’t expect every one of them to be perfect. You don’t have to know all that stuff. You can hire somebody or a closer. There are some very great people in our industry who freelance that will close deals for you. They will put the package together for you and tell you what you’ve got. You don’t have to be an expert in all these areas.
CWS 235 | Note Investing

Note Investing: There are some great people in real estate that will close deals for you, put the package together for you, and tell you what you’ve got. You don’t have to be an expert in all these areas.

  I found you got to be a manager, for the most part. Again, you’ve got to be able to run numbers and so forth like us. As you said, there are people who will handle that closing aspect of it. You have attorneys as well who handle a lot of that collateral reviews and make sure, “I’m looking at a title report. I don’t know what this says.” Somebody will review that for you. A lot of those aspects. The quality of paper is very different from what you see compared to some of the stuff I’ve seen. On some of the seller-finance stuff that I’ve seen in the past, what I’ve seen is a newly originated loan. They didn’t even qualify or get any information from the borrower, then I’ll go online and look in a prop stream or Zillow. The house is listed for sale for $120,000. It was on the market for 7 months in 2021, where a porta-john could sell for $100,000 in most places. Next thing you know, it was $120,000, then it went to $175,000 seller-finance. I’m like, “If the house didn’t sell for $120,000, what’s the value of the house?” People inflate that number. When you look at it, you’ll be like, “The house is only worth about $100,000. You didn’t run credit or even check if the borrower has a job. I can’t even price this paper.” That’s one of the things we see a lot from some of the sellers that we work with. Again, that’s more of paper creators compared to some of the one-off people. Primarily, do you focus on a property with a home on it, or do you do land and manufactured homes as well for your portfolio? Do your risk model and pricing change based off of the type of what’s sitting on the property? Yes and yes. We’ll look at anything. Single-family residents, owner-occupied, or being used as a rental, and mobile homes attached to the land. Tracy tends to think that she likes mobile homes that aren’t attached to that land. It’s just the mobile homes. We have a good debate about that at the household. Land only is fine. SFR tends to be the safest but as the risks go up, you usually get a better return if that’s your hot button, but also becomes an investment to value. How much do I have in it? How much I’m willing to put into a house versus how much I’m willing to put into raw land are directly related. If things go south, to your point earlier where you talked about values going down, the fastest, hardest, bigger percentage hit is going to be raw land. That property that was worth $100,000, everybody is like, “That can’t be worth $50,000 the next day.” Yes, it can. That means I’m going to base my ratios on an investment closer to that. What do you think? I 100% agree. That’s when partials play a starring leading role in us buying mobile home and land, land, or even mobile home only. It’s because then we’re putting in lesser amount in making sure it performs well. The seller has something to protect also on the other side. That’s when partials play a big role. To Fred’s point, I’ve got six lots in my self-directed IRA that I bought a note in before 2008. I thought I was in it 50% investment to value, and then I had to take the note back with the deed in lieu because people couldn’t make their payments. That property did go down below what I had invested, even though I thought I was in it 50% of what the property value was. What do I do? I hang onto it until the values come back because it’s land. I don’t have to worry about maintenance and upkeep. I just got to pay the inexpensive real estate taxes. There are ways to work yourself out of those situations, but you’ve got to be prepared for them. If somebody came to me, like my sister, my mom, or my daughter, I wouldn’t say, “Run out and do land in mobile homes.” That’s what you do when you get a little more appetite and experience. If you’re looking for some fun, that’s your Vegas money. I’m saying you can tell people to start in delinquent. The traditional performing seller-financed notes that are on a home are definitely a safer place to start than some of these other things. Fred, I can share a little story with you because Tracy’s affinity with a mobile home is not attached to the property. Here’s one for you. Scratch your heads. We had a delinquent loan. We basically foreclosed on the property. The deed had listed the serial number for a manufactured home as well, but it wasn’t attached. We foreclosed on that and basically, we turned around and we sold it to somebody else who went there and started fixing it up. All of a sudden, the title agent calls us and says, “You sold them a manufactured home that you don’t own.” I’m like, “What are you talking about?” The title had never gotten retired at the county. Even though it was on the deed, because it didn’t get retired on the county, the county actually was sending out two tax bills. They were sending a tax bill out for personal property and one for real property. The personal property was going to the actual somebody from long ago. The real property was coming to me. He goes, “Hold the tax sale.” I’m like, “No, here’s the tax bills.” What happened is they sold the personal property and we foreclosed on it. The question was who owns this? We foreclosed but they sold their personal property. Essentially, we end up paying off the person who brought the tax sale because they foreclosed before we foreclosed. They came in first. I’ll tell you, you want to talk about a mess. That’s an interesting one. When we do mobile and land, we do look to see if the mobile home title has been retired and it really is fixed. If it’s not, then we get the mobile home tax bill because it is your right. It’s personal versus real, or they call it chattel or personal property. We have to get a mobile home title because if it hasn’t been retired, it’s actually titled very similar to a car. I didn’t know that. Now you do. That’s part of the whole learning process. You can work that in the Cash Flow Expo speech on how to lose money, although you didn’t lose money. That’s good. I had to give a little bit more up. It was a good deal, but that is a perfect way of not realizing that. You might think if it wasn’t deeded to the property, it’s just there. Back to another one. I have one in West Virginia that’s in bankruptcy and they’re trying to cram us down even though we’re in the first position because they’re saying it’s personal property. This one’s actually affixed. It’s got a foundation with a basement and they’re still trying to say it’s personal. Our debate is over these mobile homes that are on rented lots. That’s where we get our debate because they truly are personal property. I don’t like things that move. That’s how I define it. That’s where the mobile comes from. I don’t like boats, planes, or mobile homes. She’s like, “No one is going to get up in the middle night.” I say that there’s a ton of money to be made at it. Mobile homes, if you ever go back and read Lonnie Scruggs or John Fedro, your returns on them are huge because they’re super low dollar. You get people in there that have the ability for affordable housing. It’s the last line of affordable housing at this point. They’re not concerned with how much they’re going to buy them for, they’re concerned of what their payment’s going to be. It’s just like buying a car. People go to a dealership and it’s like, “What’s your payment this month.” People don’t care what the price of that car is. They’re like, “What’s that monthly payment?” It’s the same thing on mobile homes. It’s probably not the best financial advice that people get because their interest rate might not be the best. That’s what people are looking for. “How much can I afford?” That’s what happens with housing anyways. People now look at, “I can afford this much for a house.” I see more mobile homes that have a car worth more money than the mobile home than I do the reverse. It’s always that old mobile home that’s got this expensive car payment. It’s $50,000 payout. I’ve seen some homes where the cars have been worth more than homes. No doubt. That’s what I’m saying. You get certain parts of Ohio, Pennsylvania, West Virginia, and some of that Midwest. I’m on the East Coast and I’ve always been on the East Coast. When I started looking in note investing and realized some of these loans are buying worth $7,500 properties. I’m like, “You can’t get that anywhere in the country.” Actually, there’s a lot of the country where you still can. As we wrap up this episode, I want to thank you for coming on. What’s one thing you can lead or give the readers some advice that wants to get involved in some type of passive investing? What’s a recommendation, a tip or a book that you would give people? I recommend they go to CashFlowExpo.com because it’s all these different cashflows. They’re welcome to visit our website NoteInvestor.com. We give away lots of free information there, over 300 articles. I know that you have a great show. There’s so much great information out there. Chris, you mentioned it earlier. If you want notes and you come to us or you go to somebody else, go out there and learn. Go to some of the boards and groups. Learn around, do some digging, and do your due diligence on whom you want to learn from who doesn’t require all this money upfront or all the weird things that go along with that. There’s so much free stuff out there now. To think of right now, you can search on the internet. Sift through that. Cash Flow Expo or podcasts and things like that are a great place to start. Also, pursue what sounds interesting to you. None of it is necessarily super hard. It’s just a process. If it doesn’t sound interesting, there are a lot of ways to be involved whether you want to be passive, be in a fund, own your own notes or market for your own notes. There are a lot of different ways to be involved and get the benefits of that without getting hung up on something that you don’t like. Find out what sounds interesting. That’s great advice about doing what you love. Don’t do something you don’t like. Also, realize what works for somebody else doesn’t necessarily mean it’s going to work for you. A perfect example is I got into notes because we had two young children at that time. We live in a very expensive market and we were both working on W-2. To try and buy conventional real estate, which was my background. That’s what I had been doing for many years. Logistically, I couldn’t be done or we couldn’t find the time for it. That’s where I looked at tax lien and I was like, “No.” I pass those on quickly then tax liens led me to find notes. Notes was perfect for me because I love numbers. I love math. I feel I’m good at calculating and understanding risk. I basically fell naturally into that. For people, do something you’re passionate about. You mentioned Cash Flow Expo and NoteInvestor.com, is there anything else you’d like to share about how people can reach out to you? No, those are the two big ones. We’re on NoteInvestor.com. You can send us a message on there if you want. Cash Flow Expo, which is February 9th, 10th, and 11th 2023. If you go to Cash Flow Expo, you can register for a free ticket so you’ll get the links to where the live events are going to be. Thanks for having us, Chris. Thanks for being part of this industry. Thank you and thank you, everyone, for tuning in to this episode.  

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About Tracy Z

CWS 235 | Note InvestingTracy Z began investing in notes over thirty years ago when she quickly realized that she’d rather be a lien lord than a landlord. She has handled millions of dollars in real estate notes since 1988. She first started on the institutional side, heading up the due diligence department as VP for one of the nation’s largest seller-financed note buyers. Loving the business but wanting to work for herself, Tracy started her own note-buying company in 1997 along with NoteInvestor.com, an online newsletter for private investors. Discovering like-minded lady investors, she created Wize Women Investors and the Wize Women Expo. Now in its 3rd year, this annual virtual summit brings together female investors with a desire to empower others to invest with confidence. Tracy specializes in the use of tax-advantaged retirement funds to purchase notes and helps landlords wanting to ditch tenants to be the bank by safely creating and holding paper. A well-known educator, she has a passion for sharing her knowledge and guiding others on their note-investing journey.  

About Fred Rewey

CWS 235 | Note InvestingFred Rewey is widely recognized for his negotiation, marketing, and deal structuring skills. His extensive background gives him a unique perspective on all aspects of the note industry. Author of three books and inducted into the National Speakers Association, Fred spends a lot of time on marketing – understanding human nature and creating automated funnels that turn prospects into raving fans. Entering into his fourth decade in the note industry Fred started his note business from his kitchen table in a 500 square foot apartment. Later joining one of the largest institutional note buyers, Fred helped create buying programs and industry standards for the other side of the table. In 1998 Fred left the corporate life to build Diversified Investment Services along with his business partner, and spouse, Tracy Z. Both parlayed that independent mentality to build multiple companies – most note industry related. Fred will always find time to travel, smoke cigars, enjoy bacon, and work on his golf game.

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