Trust Your Gut In The World Of Seller Financed Notes With Kristin Gerst

April 27, 2022




GDNI 201 | Seller Financed Notes


In the world of seller finance notes, make no judgments and always trust your gut. Don’t get involved if you know a deal isn’t right or something is off. There are many con people in the industry, especially if no due diligence was done. Join Chris Seveney and Jamie Bateman as they talk to Kristin Gerst about her business in buying and selling performing notes. Kristin is the President of Capricorn Mortgage Investments. She keeps as many performing notes as she can, then sells off the rest. Discover her loan-to-value threshold and why she only goes for performing notes. Listen to her stories, like being conned by a fake blind man to make false judgments. Learn more about the industry today!

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Trust Your Gut In The World Of Seller Financed Notes With Kristin Gerst

Chris, how are you doing?

I’m good. It has been a while since we have been together.

I’m sure we will mention this, but oddly enough, we met in person for the first time. We will save that for a later time.

We got a whole episode on that episode on got a lot to uncover on that.

More importantly, we are joined by our special guest, Kristin Gerst. How are you doing?

I am fabulous here in Dallas, Texas.

Her company is Capricorn Mortgage, and we are going to get into that. What is the weather there?

Sixty-eight degrees, clear blue skies, 70 on a sweat, probably 75 now.

It’s warmed up a little bit now. It was 45 here this morning in the DC area. It has got up to 60. I did a conference call, went for a walk on my call, and it was very raw. You probably don’t have that type of weather down in Dallas, where it’s cold, wet, damp, and every joint in your body hurts.

I have the converter down. I locked it down on my driveway.

Kristin, why don’t you tell us a little bit about yourself? Tell us who you are and what you have going on now. We will jump back and fill in your backstory after that. No back backstory yet. Just so we know, get some context to your business now and what you have going on now.

I created Capricorn Mortgage a few years back. We are doing $1 to $2 million a month in performing notes. I buy and sell performing notes. I purchase performing notes, keep as many as I’m able to keep and sell off the rest. I try to do that arbitrage style as much as I can because my margins are small on those.

In order to do $1 to $2 million a month, I have end-buyers that are funded, and most of them won’t talk to me. I couldn’t even get into the lobby without $5 million on a spreadsheet. When I got started several years back, I was trying to figure out a way that I could buy secondary mortgage market notes and have a place to sell enough of them, or I hold this one off of it and not be like, buy one, sell one.

I don’t know if we have had anyone on the show that has that business model. If we have, we have not dived into it.

95% of brokers are full of it or wrong. Click To Tweet

It took several years for me to figure out what to do. I also was in the position. My brother is a managing director on Wall Street for one of the big investment banks. He had been there for a few decades up in Manhattan, and I called him up. I said, “I don’t know what I’m doing. Do you know anybody in MBS?” He goes, “I got a ton of guys.” I said, “I’m going to come to New York. I want to have a party in your apartment because it’s fabulous and I can’t afford that. I will buy the scotch. I will pay for the caterer and your cleaning lady the next day. Can you get me as many MBS guys as possible?” Those are not my buyers, but I met everybody. It was my own private networking event to the cost of $5,000 for food and nice scotch.

To be clear, MBS is mortgage securities for the readers.

Who are the big banks? Who are the guys buying humongous packages of this stuff? These guys were not going to be my buyers. I’m too small. There is no way I’m coming up with $500 million. I said, “I would like to introduce whoever you are buying from.” They are buying from somebody pitching this stuff and turning it into mortgage-backed securities, but they still need the paper. Through that, I went down a couple of rings to get to some of the smaller guys that packages stuff up, but they are hedge funds, some insurance companies, stuff like that.

The first question I wanted to ask is, what is your team? Who is your team? Is it you, yourself, and you, or do you have a guy?

I have three people who directly work for me. They are in the US. I have another two that are virtual that are in the Philippines. It’s not a huge team. It doesn’t need to be. Those include the other people that I employ, like my bookkeeper, my accountant, and my attorneys. I got tons of attorneys. I’m trying to find different ways to streamline things and get into more states that I have not been in.

If I get a portfolio of maybe 10 or 15 notes in a new state, it’s worth it for me to jump in there, learn it, and find a fund that would want that state. If it’s in Texas, it’s easy for me. I get a sheet that is performing, like 5 or 10. I can give you a spot price by looking at the city that they are in. Other places are pretty easy for me. Surprisingly high but now I’m not touching Cook County, Illinois.

I’m not touching New York or New Jersey. I’ve gotten burned on some Carolina ones. It’s more experience. Every single note deal tends to be different unless it’s from the state of Texas, but I try to branch out and get better at knowing where the hot markets are for performing mortgages and what are the coupon rates have to be in order to get top dollar price.

I’m curious if we could jump back a little bit further and give us a little bit of your backstory. We don’t have to start with your birth or anything, but jump back to your background and why you even wanted to get into notes.

I got to it by owner financing. I went full-time as a real estate investor in January 2005. I went gangbusters. I was buying every cheap property that you could believe that I could find anywhere, and I was renting it out Section 8. Fast forward to 2008, I had 61 doors, all rented Section 8 three and a half years later when the market collapsed.

I was holding debt like a lot of people were. On paper, I had looked great before the crash. After the crash, seemingly overnight, I lost millions in equity. I was toxic to all lenders. That is how I got into owner financing out of necessity. I hated my existence. I was self-managing. It was a bad thing for me. I started every time Section 8. I had them moving out all the time, I owner financed them. I started owner financing for other investors all over North when they had properties because I had all these buyers that I would collect off one listing, “I need 30 homes. Who has got something?” I was doing that.

It got to the point where I like to pull some of my equity out of these owner finance notes. I was trying to sell them a surge to sell some of them, like back in 2012, 2013. It was all a daisy chain. It was like, “I have got a buyer for you on that. I can pay you $0.80 on the dollar.” I’m like, “That blows. $0.80 sucks.”

Fast forward, you don’t hear them for 4 or 6 weeks. They’re like, “I’m having trouble with that. It’s going to be $0.65.” I’m like, “This is a performing mortgage. Why would I ever sell that?” After I put around with that for a couple of years, I got in my head that they were unsellable. I was talking to somebody. I went on to do hard money with a hard money company here in Dallas. The owner was a friend of mine and wanted help. He said, “If you can show that there is a market to sell these owner finance notes, prove it out. I’ll let you start your own fund for loaning money to our owner finance.” I’m like, “Cool.”

I started researching it there, and then I realized, “I can find a couple of buyers for this. There is an actual market.” I end up leaving that company and starting Capricorn. I’m like, “I know this can be done. I need to not go through brokers.” I find that 95% of the people’s space is full of it. I don’t know if you all find that. I talk to them, and I’m like, “I want to get started in notes.”

If you go to the mall and there is a Maserati-like little store, people walk by and be like, “Ooh.” They will walk in and so forth. Ninety-five percent is low. It’s probably 99.5% of people. They walk by, and they are like, “I like to do this.” It’s like, “You would, but it’s not passive. It’s active. It’s not what people tell you. It takes work to do it.”

GDNI 201 | Seller Financed Notes

Seller Financed Notes: The good thing about performing mortgages is that they are passive. There’s a lot of due diligence, even more than buying a non-performing note because you’re paying top dollar for a performer.


People, after about a week, are like, “I’m done. I’m off to the next thing.” Now I see less people involved because a lot of people play a little bit with crypto because they are like, “I can watch my money go up and down every day.” That is easy, whereas real estate is hard and is less money in it now than there was several years ago in the note space.

Do you think there are less people?

Let me rephrase that. I think there are less one-off people in the sense of mom and pops. There are larger players who have entered the space. From the main street investor, I had seen a lot of people go away over the last few years, like when I started back in 2016 or 2017. If I knew 250 people, I would say that list is probably down to under probably twenty people still hanging around in space.

I didn’t even know there was a note space, that there were networking and stuff that people are in notes. I probably did not, like the year of COVID, I started going and talking to people. I’m like, “There are people who do this all the time, and they have been doing it for years. I am different.” What I like about performing mortgages is it’s passive primarily.

If you buy a good note, it’s passive. There is a lot of due diligence, even more than buying a non-performing note because you are paying top dollar for a performer. You are looking at every inch of that and making sure that the document is right. I have an attorney that reviews every single word in every document.

I get that question from people, “What is the difference between due diligence on an NPL and a performing note?” I usually say nothing. If you are buying a performing note, you should probably assume it’s going to go nonperforming. Do the due diligence with that in mind. I’m not saying you will. I don’t approach them much differently. I value them differently, but as far as the due diligence, it’s pretty much the same.

I pay it low to mid-9%. My margins are small. There is a couple of idiots running around. They are idiots, and I’m like, “I personally know that if you have got a scratch and debt loan, which any owner finance has a scratch and debt loan.” If you have got something that is sitting at a 9% rate, it’s a scratch and debt loan.

We have got a couple of idiots running around Dallas going, “You can sell those at a 102%, a one-off, scratch that loan.” I have people coming up. They are like, “I heard I could get 102%.” I’m like, “My funds won’t.” Even my greatest fund may be at 98% on a good note that has a decent credit score. I have borrowers with credit scores at 700 and even plus 750 because they are performing mortgages, and they are being reported on their credit.

On the back end, do you liquidate a lot of your assets to insurance companies and stuff like that? I have spoken to some, and they can buy stuff at a 7% or 7.5% coupon rate.

I‘ve got a couple that I reserve, the last person I will call because the insurance companies I find are a lot harder to work with. They usually have a team of lawyers. It’s going to take 4 to 6 weeks. Also, one-offs, you are not going to get the best deal for it. It’s got to be at least a couple of million dollars that you send in their way.

I’ve got some great small hedge fund buyers that I’ve cultivated over the years. In some cases, can I get face? Yes, but they’ve got to be some pretty stellar notes, and their interest rates have to be higher. We have to be looking at 10%, which I don’t always get. If I have that 7.55% or 8% coupon or, God forbid, less, I might only get 92% or 95%, a big principal balance.

Have you ever run into issues with not being able to set up to buy a pool of loans, and you’re not able to find a buyer or anything like that?

No. I don’t renege. That is the thing that I find in this space for whatever reason. It seems okay to make a contract. Let’s say you are going to buy something, get to the closing table or the day before the closing table, and say that you can’t pay that amount. You can pay a lot less. I will never do that. I had to go to a seller once. He was part of this larger pool of loans, and his BPO was not there. I’ve got it in my contract that if your BPO doesn’t prove out, I can’t get around this. Typically we know what it’s going to be going into it, and I did not buy that one, but no, I have always closed on everything.

On the flip side, I love the sellers who you will get under agreement with them. You will go start your due diligence and be like, “I’m ready to close.” A few weeks later, they are like, “I sold that to somebody else.” You will be like, “You accepted it. You sent me the collateral. I went and did my due diligence. Now you are telling me to send me the LSA so we can close this thing.” You are like, “I sold it to somebody else.”

In the note business, make no judgments. Click To Tweet

That has happened to me once. I have a special spreadsheet of assholes. That guy went on there and little notes. Why are you on the bad boy list? It’s because he did that. There is an asshole test.

That is as important as doing due diligence on an asset, doing it on the seller and buyer.

I have sellers and buyers who both go on there. I’m like, “I’m not dealing with you anymore.”

Tell us a crazy story or an interesting story with a note. I’m putting you on the spot here. Does anything come to mind as far as a crazy borrower, or we could do your good deed now if that is what you want to do?

Make no judgments. It is the worst business decision I’ve ever made. I was rehabbing some properties. This was several years ago. The couple that was doing some of this rehab work was homeless, and I found out with their 1 and 3-year-old were living in a friend’s garage. It’s not a converted garage. It’s like staying in there on a mattress with lawnmowers and stuff.

It’s Christmas time and cold. I’m upset about it. They could not afford much. They got kicked out of their $800 a month rent place. I had to find something $500 or $550. In Dallas, that is unheard of. I found a lot that had a mobile home on it, a bedroom, bath, mobile home. It was going to need a little bit of rehab work.

I owner financed it to them, and no money down, $500 a month. They did not make one payment. I have been paying all this money. I knew they had money. They did not make a freaking payment. I was like, “This is not going to work. You have not made any payments. I haven’t recorded this yet. We are going to scratch this. This has never happened.” I’m like, “I’m sorry, but all you had to do was pay $500 a month, and I knew you had it. You decided not to pay it.”

I’m like, “What am I going to do with this mobile home? It’s in Sherman, Texas, on a lot. This is terrible.” I put on Facebook Marketplace $500 down, $600 a month. I priced it out. I did not gouge the price or anything like that. I waited for who came in. It had probably 200 people who wanted it. It’s $500 down on your own house. I started sifting through applicants, and there was this woman. The baby daddy was in jail, but she had completed her GED and she had a stable job at Chick-fil-A.

She had two small kids, and she was like, “I need to get out of the homeless shelter. I need this. I can do this, and I can pay for it.” This was before COVID. Every payment went on time. When she bought it, her church came over, and it was the Amish people on the weekend, raising a barn. They completely rehabbed this thing.

She got everything donated, painted it inside and out, little flowers everywhere. The great thing is she was proud of it. She sent me pictures. She talked about how grateful she was on Facebook, and then I got a payoff. She is getting a brand new, huge double-wide put on the land, and they are paying me off. It’s a great story, and it’s a success story. Those are the stories you love to hear.

It shows you did it in a very nice gesture and more than a gesture, a kind deed. Maybe it was not going so well.

I’ve kept in touch with her, and it’s pretty exciting. I’m proud of her.

We’ve talked about this a good bit on here, but every note has the numbers and the story. Some of them are more interesting. The others are more colorful than others, but that is a good one.

In 2016, I owner-financed two condos in a sketchy part of Dallas. It’s a rental to another who did turn out to be a conman and a bad person. He bought them with an LLC he created. He presented corporate docs and everything, but it was never created. It was a fiction of his imagination. Fast forward to 2021, he files for bankruptcy. The bankruptcy judge completely negated the sale. In 2016, they were worth $50,000 each. Now they are worth $100,000 each. I got cleared to close, and I sold them in about 30 minutes.

GDNI 201 | Seller Financed Notes

Seller Financed Notes: Some people in the industry think it’s okay to make a contract, and then a day before the closing table, they say they can’t pay that amount. Don’t renege on your contracts.


Two questions I have regarding your notes. One, are they all notes, or do you do some CFDs? The second question is, what is a typical loan balance? Are you buying stuff that is$250,000 loans, $500,000 loans, everything in between, $50,000 loans? What is your sweet spot?

I don’t do CFDs. I always had those guys, and I’m meeting meet conferences or whatever. It’s exciting that I got this portfolio. Every time I start thinking about what it would take to make sure that all 500 of these people decided to sign documents into a real mortgage instead of a contract for deed, it makes my head hurt. That is why I have never gone after that market. They are not worth anything. For the buyers that I have, they won’t even look at them. They don’t touch them. I had people try to argue with me and tell me that institutional buyers will do that. I’m like, “Why are you talking to me?”

Not only will they won’t touch them, but they will also pay $0.98 on the dollar for CFD. That is what I have been told.

This is a great deal that I’m giving you. I will be like $0.50 on the dollar. I don’t even want to touch it. I don’t even want that. With the work involved, I can do some other things. In your second question, I do want things less than $100,000. Under $50,000, I have to discount because I lose money under $50,000. Everybody is shocked by that. I did not understand why because I buy in pools. I will buy twenty at a time, and I will give a spot price for that pool. I’m going to make a little bit more money on some and maybe less on a few others, but not a big deal.

On this one, I’m like, “Why am I losing money on these smaller notes?” I put it into a spreadsheet. I put a lot of those closing costs onto the seller, but there is still a cost in doing it. When you are talking about those small balanced loans, the institutional buyers don’t even want them. They will take them if they discount them a ton, but it’s too expensive.

I have a couple of banks that I deal with. They won’t even look at anything under $100,000. I typically like to be above that. The most expensive thing I have ever done was $900,000, somewhere around there. Is there anything that I could not do? I don’t think so. I have got some pretty big guys who would prefer that I would bring them million-plus dollar paper because the cost for them to service a $1 million loan is the same for them to service a $100,000 loan. They end up being more profitable for these big guys that have larger loans as opposed to smaller stuff but is it always possible? No.

How do you determine what you are going to peel off for your own portfolio?

I don’t buy everything that is put in front of me. I don’t make an offer on everything. If I get a crappy portfolio, half of it’s bad. I will say, “I will take these, not those.” When I buy it, I assume that it’s going to be in my portfolio. I also have guarantees that I will buy stuff back from a few of my buyers, guys that I have good relationships with that I want to keep good relationships with. If something goes bad, I’m going to take that back. Do I want to do that? No. I’m cautious about what I agree to buy, and there is so much of it out there. I’m still able to do a couple of million a month. Would I like to be doing more? Yes, but I find that every time I go a little riskier, it tends to bite me.

What is the typical seasoning on the stuff you are buying? One of the things that I see a lot is when I see people now originating a lot of notes, certain funds that I have found are they are buying REOs, putting lipstick on the pig, and could not sell it for $30,000 or $50,000. The next thing you know, they write a note at $80,000, $5,000 down, and it’s a $75,000 note. They are like, “Here you go. You can get it for $65,000.” I’m like, “The house would now have sold for $30,000. You are already upside down. Why would I even touch this?”

My threshold for a loan to value is 80%. If it’s 86%, I will subtract six points from my offer. If it was going to be a 90% unpaid principal balance, I now offer 84% of the grade principal balance because to compensate for that. Above 90%, I don’t offer. Above 100%, I look at that investor. When it starts to be stuff like 130%, they go on my asshole list. I have it written down because anybody who would take 10% to 20% down from somebody who has saved for ten years to buy their dream home and then go in and effectively sell it for double, there is a special place in hell reserved for those people.

Chris mentioned seasoning it. Would you buy something that is owned?

I don’t buy at the table. I think it’s irresponsible. That is why 2008 happened. I have been trying for a couple of years to figure out how to do it and how to do it responsibly. Could you do it if you had special parameters in place and with vetted investors doing it? Possibly. Somebody is coming to me now. I require a minimum of three on-time payments to even look at it.

My big buyers typically want twelve months. If it’s at least six, they have got a little discount for that to go for that risk, but a lot of that too depends on the payment. If it’s a six-month-old loan, how much down was put on that? How much skin in the game does that homeowner have? If they have got 10% to 20% down or more, it doesn’t become as big of an issue. I still will not touch anything less than three on-time payments.

You look at that, and then 80% LTV puts it in something that has been seasoned for a long time or a big down payment. It’s all about the risk tolerance that you are looking to take them.

Don't buy everything that's put in front of you. Be cautious of what you agree to buy. Click To Tweet

I will go to a 90% loan to value, but it’s not going to be without a steep discount. Unless they broke it off and did like an 80/10/10, when they created that note, that investor is going to take it back on it because they are at 90% LTV, they are going to get 10% to counter me. My offer is good, but they get less fun when you start talking an 8% of the unpaid principal balance.

What would you say is a mistake you have made in your investing career? It can be the one that was the good deed because that turned out good. It doesn’t have to be your biggest mistake, but looking back, we all have things from a business standpoint or investment standpoint that we are like, “I should have done this differently.” Does anything come to mind?

How long is your program?

For the readers, how could someone learn from something that you have done?

I have had amazing things happen. The one that sticks out is when I rented this house to a fake blind man. Your eyes go wide. You are like, “How do you rent to a fake blind man? What is that?” I’m standing outside of this house, and all of a sudden, this guy drives up in his car, gets out, and he goes, “Let’s go see them.” We go into the house, and he goes, “We don’t have Section 8, but I’m on disability with the government. I get a government check.”

I’m looking at him. He looks normal. I go, “What are you disabled with?” He goes, “I’m blind.” I go, “What?” He is a total conman. He faked with the government that he was blind. Here’s me going, “Great idea.” This man is conning the government. He is going to con you. He seems like a nice guy. He is not a nice guy.

That would be something that I would tell people. If somebody shows up and has a government check or they got a wad full of cash, anybody who flashes a bank statement in front of you that has hundreds of thousands of dollars in there, beware. That is probably not real. I have fallen for that conman who I sold condos to end up being that guy. It did not go well. It lasted nine months.

He was months behind on rent and ended up going to court. He was living with his girlfriend. That is the fiancé. It’s always the fiancé. They show up at an eviction court together. He has got the dark glasses on and the cane. She is leading them down towards the judge, the whole bit. I had all these email communications with the girlfriend.

At the start of it, I was pissed. I’m standing there, and I’m trying to smile, but I’m angry, fuming, and I’m sure there is smoke coming out of my head or something like that. The judge goes, “Have you been communicating with them on what they owe?” I said, “Yes. I printed out all of our email communications.” I handed them to the judge. The blind man, dark glasses up, goes, “Judge, can I see that?” The judge looks at me, hands him these printed-out emails, and he starts reading them. The look on the judge’s face was priceless. She is pissed. She hits the gavel down.

The worst part about that is I’ve got to now go back and get rid of the possession. Get them tossed out. I wait a couple of days, and I drive by the house, and I immediately see that the front door is missing. I loved this front door. It was like a raft at Home Depot a long time ago. I was in love with this door. They took that. Apparently, he had locked six large dogs inside the house for two weeks before the eviction court. They had like six bags of Ol’ Roy, sliced open in the middle of the living room, filled bathtubs up with water. It was a freaking biohazard. Don’t rent to a con man.

I thought some of my borrowers who caught COVID seven times, and there are four mothers who passed away, and some of those stories that you hear and so forth are checks in the mail, but the fake blind man, that one is up on my list.

I had one borrower one time, and he owned the house. I got a call from some strange woman and mind you, the mortgage was due three weeks before. It’s twenty-some days late. She goes, “I’m in the hospital with him. He has severed his arm with a chainsaw.”

Is that a true story?

No, that was not. He had all of his limbs when I saw him a couple of weeks later. Why tell me that? I’m like, “Did he do that? He had all of his arms three weeks ago when the mortgage was due.”

GDNI 201 | Seller Financed Notes

Seller Financed Notes: Your threshold for a loan can be 80%. If it’s 86%, just subtract six points from your offer. If it’s a 90% unpaid principal balance, offer 84% of the unpaid balance to compensate.


I had a dead borrower show up in court.

You get into these things, especially when you are looking to, you have got this property. You have taken it back from another borrower. You might have investors on it or underlying debt, and you are like, “I have got how to get this performing.” It sits there. They are a week, and you are like, “This thing is never going to sell. I have got the dog a lifetime. What am I going to do here?”

You get a little desperate, you start lowering your standards, and you are willing to take less. If I could give advice to anybody out there to any note investors or any owner finance investors, because it’s a type of note investor, don’t get desperate. Listen to your gut and warning signs. If it doesn’t seem like an up and up situation, don’t be involved in that.

Patience and your gut are huge. I am famous for this. I sometimes act quickly on emotion. Sometimes I have got the blinders on. I’m going 1,000 miles an hour, but sometimes I need to step back, breathe, and take the weekend to review something.

It’s true. Time is money in this business. The time value of money and I get impatient as well. That is good advice to go with your gut and stick to your buy box, sell box or whatever you are talking about, stick to your principles.

I finally did that because I was selling so many of these. I was like, “They are a little bit below the threshold.” That is not going to be a big deal. Anytime I did that, maybe not right away, but it eventually came back to bite me.

As we start to wrap up here, what changes do you see in the industry, and are you changing anything in your business platform?

I wanted to ask you all about this. I ask any note investors, especially guys that are big, like you all, especially nonperforming. I was getting tons of tapes, big tapes, and tapes with great stuff on it. The last time I bought something was in February 2020. I bought some nonperforming notes, but it has been mixed into portfolios with performing notes, and I had to take the whole thing, especially at great prices. I got to be honest. I overpaid for them, most likely. What happened? I saw COVID coming, and I was like, “We are getting all that opportunity. It’s going to be a tidal wave.” We had nothing.

We talked about people getting into the space and not taking action, which is human nature. A lot of people is this is not for them or don’t take action, but I do think that is a huge reason why in the last few years. It has dried up a good bit. The deal flow has been a lot more challenging. Chris has the analogy of, “You have got to be more of a hunter versus a farmer.” The fact that you found a way to buy bigger deals, as opposed to one-offs. You are able to have more purchasing power because you have people you sell to. That is a good way to go.

For known investors who want to get started and not performers, I was in brisk business, bidding on portfolios and sending out the non-performers going, “I’ve got someone who loves Ohio. This guy wants anything in Philadelphia. This guy is in Florida. This guy is in Georgia.” I could send out the pieces of it to all of my buddies in my network who buy these nonperformers. I have them bid their stuff.

I would take whatever was left and not caring too much about it. Anything like areas that I knew and I did not want to deal with, but I would probably schlep off somewhere in a Facebook group or something like that. I would give a $0 balance and zero off or two. It was in the hard places to do it. Lo and behold, I was getting good at that. I don’t have the paper. I’m not getting any tapes. I’m not kidding you. I’m probably got a couple of thousand in the first quarter before COVID. Where do you want to go?

I have only been in notes for several years now, and it has gotten harder to find deals for sure in the last couple of years.

I keep watching California. Their foreclosures have started to uptick and East Coast.

I don’t think it will be like it was, but there will be an increase.

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For me, I look at everything on average. Now we are below the average of historic norms for where we are at defaults. Historically we are at 5% to 6%. Now we are only at 3% to 4% or whatever it’s. It’s going to creep its way back up eventually. I think it’s going to take a little bit of a while because of the ramp-up because of COVID. I agree there have not been as many tapes from a buying perspective.

In 2021, what I have bought has been truly relationship-based on people I have bought from in the past. Part of it is they have got tired of your asshole list of they would go out to people who bid on stuff, and they would not close the deals. They are like, “Let’s focus on people who we know will close, and you close your deals.”

Similar to that way, where I have certain sellers I bought from, and I will take assets from them that are also assets they don’t want. I’ll take some of that hairy stuff because I buy a lot of unique opportunities. Excuse the phrase, but I have been called a note whore in the past because I would buy anything if the price is right.

My last one is I wanted one. They told me I had to buy all three. I was like, “I don’t want to own these things.” Those two could be the best thing I have ever bought. I’m like, “My eyes were open.” They are ugly, not sexy, little gross mobile homes on some acreage in the middle of nowhere. Thank God those things made money. I hated them when I had to buy them.

Whatever you pencil them in at, as we say, Jimmy, the minute you pencil it in, it’s going to be wrong because whatever you expect is probably not going to happen, but you still want to play the odds. You still need to play the odds on things because if you don’t, you are not following any type of business plan.

If you have a strategy to play the odds somewhat, it’s like a blackjack where the dealer is showing sixteen, you hold your hands, and most of the time, they are going to bust. Once in a while, you do get burnt, but you are going to win more times than you lose. At the end of the game, when you are buying a large number of assets, that’s what you look at. You don’t look at it by deal by deal. You do in the sense of you got to also review everything based on your portfolio.

You mentioned taking down three assets. I remember one year, a seller had five assets that they were selling for like $0.10 on a dollar non-performing. They were guaranteeing the title and covering the taxes. They are like, “You have to close now. We need somebody to close now because it’s December 29th need it by the end of the year.”

The person reached out to five people. I quickly looked, went on the data tree, looked at his properties, and two of them were grand slams. I’m like, “I’ll close.” He was like, “I want to hear from other people,” and people would not close because they are like, “One of the properties is trash.” I’m like, “Who cares? That one property that is in there will make up for all of them,” and people have this mindset.

I wanted that one property, and I’m like, “It’s awesome. It’s great.” I know that this is a complete winner. I’m not afraid of this one. I had people drive by it. They are not even there anymore. I’m like, “It’s easy, but I did not want the other two. It is what it is.” It’s like this huge package of performers that I bought, and I’m still dealing with a couple of the nonperformers on there. It’s fine. I don’t like it because it ties up capital. I want my want to have my money making money. I’m crazy like that.

You will buy stuff. If it’s thrown into a pool, I’m pretty sure you have bought stuff where it has become a training file. You put it in a drawer, and a year later, you are like, “I’m going to use this to train someone on due diligence because it may be worthless in and of itself, but that is okay.”

Here’s a true story. I bought a note that was supposed to be unsecured. I found out it was actually secured. It was one. I had one that got thrown in. The sellers were like, “Here, I’m closing out this fund. I need to throw these in.” It was one that was past the statute of limitations, but all of a sudden, the seller sent me an email a month later. He says, “This might be good news for you.”

I looked at it, and a new ruling came out that changed the determination of statute limitations. Now I have a $100,000 UPB note that now I can enforce up to October of 2023 that previously the seller threw in. When we throw it in, we throw a number of $250 on them to have a number. I got a $100,000 note for $250.

What do you mean by it’s enforceable? I did not follow that.

It was past the statute of limitations. They have not collected payments, but a new ruling came out in this state that all of a sudden said, “The way you calculate the date of statute limitations is now changed.” Now I’m back within the statute. I can go back and foreclose on the borrower or renegotiate with them.

GDNI 201 | Seller Financed Notes

Seller Financed Notes: If you’re a note investor, don’t get desperate. Listen to your gut and warning signs. If something doesn’t seem like an up-and-up situation, don’t be involved in that.


This is a great learning tip. What is the statute of limitations if they have not made payments at all and nobody is collected it? Do they own the place free and clear?

Yes. The time depends on the state, but to answer your question, it’s free and clear.

I see those come off. The oldest one I saw and made a payment in 2012.

Some states are based on the maturity date. Some states are based on the last payment date. It does vary a lot. Kristin, this has been good. I know we got to wrap up here. Where can our readers reach out to you or find out more about you? It looks like you have a lot of good content on your website.

I’m part of my own podcast, called Real Estate Divas. We are in the process of revamping and moving to new studios. We are getting started to back up. Look for us on YouTube. We are also going to be on all podcast platforms, Real Estate Divas, and you can reach out to me at [email protected]. That is the easiest email that I can possibly give people. Follow me on LinkedIn, Facebook, Instagram. I’m all over the place.

Chris, do you have anything to add?

I love hearing other people’s stories and some of the crazy stories that also come along with them. It’s also interesting that you hear others about how you have grown your business and built your business because that is one of the things I like about note investing or real estate investing in general. There is no one way to do things. It’s what fits your cup of tea and is based on your life.

When people say, “This person does that,” I’m usually like, “That is great, but what fits yours.” Jamie and I even invest together in Jamie’s needs compared to my needs which are different because of different areas of where we are at and life and so forth. From that perspective, I have got kids going to college. Things might be a little different where his daughter has got a few years. There are a lot of little variations. It’s always good to hear people’s different stories.

It’s funny how we all evolve. If you look at how I was an investor several years ago, it’s night and day to how I invest now. I can go do about anything if I come across a deal, but it’s now more gotten to be a choice of preference on what I want to handle and what I want to take on. It eventually comes to us all. We hope.

Kristin, thanks a lot for joining us. We appreciate it, and to our readers out there, please remember to go out and do some good deeds. Take care, everyone.

Thank you.


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About Kristin Gerst

GDNI 201 | Seller Financed NotesKristin Gerst is the Managing Director at Capricorn Mortgage Investments. Capricorn Mortgage Investments buys high-interest rate mortgages from small business owners and companies and sells them to large institutional buyers.

Kristin Gerst was born in Paris, France and raised in Chicago, IL. Kristin is a graduate with a BA and MA degree from the University of North Texas. Kristin has been a Texan since 1996 and became a full-time real estate investor in January 2005. Kristin got started with an 8-unit apartment building and by mid-2008, she had acquired over 60 doors that were all rented Section-8 and that she managed herself. Since January 2005, Kristin has successfully renovated 100’s of properties. After the market crashed in 2008, Kristin learned how to owner finance properties and started converting her properties to mortgage notes as her tenants vacated. She also became skilled in acquiring properties by the “Subject-to” method and creating “wrap around mortgages” with each property she acquired. In 2014, Kristin accepted the Director of Marketing position for Bay Mountain Capital, a hard money lender in Dallas, TX, and got proficient at not only borrowing hard money, but also lending it.

Kristin has originated 100s of owner finance notes for her own portfolio as well as other investors. After discovering a need in the market to buy owner finance mortgages from investors, Kristin created Capricorn Mortgage Investments in early 2015. Since 2017, Capricorn Mortgage Investments has bought and sold over $26 million dollars in private owner finance mortgages.

In 2017, Kristin entered the short-term vacation rental space in Dallas, TX. She has twelve active and very successful AirBnBs in Uptown Dallas and has started managing short-term rentals for other investors. Kristin Gerst is one of the Divas on the show “Real Estate Divas” on PropelioTV and continues to public speak and teach on various real estate topics monthly.


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