The real estate industry is a great industry to be in, especially if you want to have more time in your hands with more income. Trust the process. Tune in as Chris Seveney sits down for a conversation with Sandra Andrews to talk about note investing. Sandra spent most of her career working on Wall Street as an investment banker. A lot of that work involves building financial models, valuation work, creating marketing materials for potential investors. In this episode, she shares her professional journey and emphasizes the importance of having a mentor so you could equip yourself with the knowledge you need to succeed.

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Understanding The World Of Note Investing To Scale Your Business Up With Sandra Andrews

I have a special guest, Sandra Andrews from King Street Partners. Sandra, how are you?

I’m fine, Chris. Thanks for having me. I appreciate it.

No problem. Thanks for coming on as we gear towards the holiday season for many of us. We’re going to talk to Sandra about note investing. How long have you been involved in note investing?

It’s about a year or so.

Why don’t you tell us a little bit more about why and how you got into notes before we jump into your trials and tribulations?

I have a finance background. I spent most of my career working on Wall Street as an investment banker. For those people who don’t know what investment banking is, we advise companies on mergers and acquisitions and help them raise capital in the private and the public markets. A lot of that work involves building financial models, doing a lot of valuation work and creating marketing materials that we send out to potential investors or acquirers. A lot of those skills are transferable to the note industry, as I’m sure you’re aware.

When I was pregnant with my third child, I decided to take a step back from that profession and focus some more time with my family. I decided to start doing some consulting work. I did that for a few years and that was great, except I wanted to build a business. Consulting is not an easily scalable business, so I kept looking for other things. I was looking at a lot of online businesses and they all have their issues. My husband sent me a Wall Street Journal article. I don’t know if you know Sandor Lau. He invests in seconds.

That article interviewed Gail, your former cohost. I read that and thought, “This is interesting.” That’s when I started doing the research and reading. In 2020, I was planning to go to Paper Source, which was going to be in Las Vegas. It was in April or May 2020 but due to COVID, they turned that online and it was in September 2020. That’s when I started to get into it.

I went to Paper Source and there was another conference that I attended as well online. It was about this time in 2020 that I reached out to you, Chris. That’s when we first met. I wanted you to help me with some mentorship and we started in January 2021 working together. I bought my first note in August 2020 and then I started working with Jamie. I’m on Jamie’s email distribution list. He said that he was looking for someone to help him manage his assets. I applied and here I am.

We all know you run his business and you’re the brains behind the business. He follows the episodes because he will talk about me and I don’t follow all the episodes. Joking aside, before this episode started, I’m texting Jamie. After, I’m like, “What time is our XYZ call?” Sandra’s like, “You realize he’s not coming on.” I’m like, “No, because he sent me an email telling me that but I didn’t read through the entire email.” You’ve got your hands in your note as well as you help Jamie and so forth. We like to start our episodes with some of the trials and tribulations. Is there something that is either not a textbook or something out there?

It’s not so much note-related. Jamie was trying to get ahold of me, which I thought was strange because we had a meeting set up. He’s like, “I need to update you on something.” I thought, “He has bid on four assets that need due diligence done by the end of the day or something.” It turns out that he found out that his VA had resigned. Here’s the issue for all those people who want to get into note investing because it’s a way to financial freedom. If you are going to be running this as a business and take people on, don’t forget the issues with pulling people.

Take full responsibility for your actions. Click To Tweet

She was great. He hired her and there’s a fee to hire someone. I helped train her but he put a lot of work and time into training her. She resigned and it was for personal reasons. He doesn’t begrudge her for that but he’s in the place where he used to find someone else and then train that person again. It’s something people don’t think about.

It goes to show note investing isn’t passive if you’re trying to scale it as a business. It’s like real estate. If you have a rental or note, that can be somewhat passive. If you have 40 of them, you need support. You’re either doing it, which is a lot more work or you bring on people to assist, which Jamie has you and this former VA trying to work on these loans and stuff because there’s a lot of handholding and chasing down.

That brings me to a question. It’s the scalability of this business. I walked into 70 notes. If you have a note, you do something and wait a month for something else to happen. There’s always something going on. As you’re scaling, are you finding that you’re buying larger-valued notes so that you don’t have as many? To me, it seems like it’s going to become unwieldy at some point.

I’m evaluating two pools. One of them is three assets with a $2 million acquisition price. We have it under the agreement and we’re getting ready to close. The average asset of $666,000 or whatever number is huge. I’ve got a second pool that I’m trying to close on that is fifteen assets. That is $75,000. That’s 3 $2 million and 15 $75,000. It depends. Honestly, the seller at end of the year is like, “I have to get these off my books.” Of the 15, 5 of them are actual recoverable loans. The other ten are like, “Take these so you can write them off.” From that perspective, yes and no. It depends. Most people will want to buy bigger assets to manage less. For me, I like the mix because when you have more assets, technically you’re at less risk but it is much more work.

There’s a point where you want to diversify. When you’re investing in stocks, they say that you should have at least 30 in a portfolio to minimize the risk. I don’t know what that number is in note investing but it’s at least that number.

I’ll buy something if I view it at the right price based on the risk. I’ll weigh the risk-reward with the price. I bought stuff that I know people won’t touch and everyone would buy. Speaking of my trials and tribulations, I’ve got two assets in bankruptcy. One of them is the borrower’s primary residence and they’re trying to do a cramdown. Do you know what a cramdown is?

No. Please explain it.

They owe $100,000 on the property. Those are rough numbers. They’re saying the property is only worth $50,000. What they’re trying to do is to cramdown. In bankruptcy, there’s Chapter Thirteen. There’s a secured loan and unsecured. Typically, the unsecured may not get paid or only get very small. What they’re trying to do is to cramdown by saying they only want $100,000 owed, only 50 of it to be secured and the other 50 to be unsecured, which I can’t afford to try and wipe away. They’re trying to cut my loan value in half.

What they’re trying to say is because it’s a manufactured home on this property, it’s considered personal property like a vehicle, which then could get cramdown. We have our attorney reviewing it because I’ve never heard of this before in cramdown. I’ve always been told, “First position loan for primary residence can’t happen.” I’m going through the collateral file looking at the original appraisal where it says, “This is a manufactured home but it’s also on a foundation. It has a basement.” We think we have a case to not have it cramdown but we have to object and spend money through the bankruptcy on that.

Did you have an attorney review the collateral file before you bought the loan or did you do your review?

For this one, I did. Here’s what I’ll mention about collateral files and attorney review. This one had 200 files in there. They’re going to be like, “There’s a note, mortgage and chain of assignments. You’re good.” They don’t look at, “This borrower tried to litigate this seven times,” unless you ask the question. There were a bunch of loans that were sold in the second position with very low value. A lot of them are home equity line of credit, moved into the first position and are up in the Northeast and stuff.

Every single one of them had a title issue. In the state that they were in, the mortgage didn’t have the right information in it so they all would have to get title claims. People think, “I’m getting these great deals. I can foreclose on this.” There are major title issues that they will have to resolve. I bought several of these and some of them I didn’t. When I work with them, they have seen I bought loans from them in the past. That’s something they check. When people think that, “I’m going to hire an attorney to do collateral reviews,” you have to ask them and give them information.

Let’s say you’re buying a loan from me. All of a sudden, you look at it and it says, “The current assignment is liberal lending.” Your attorney doesn’t know who you’re buying it from unless you say, “I’m buying this from Seveney.” If it’s from somebody else, there could be missing assignments in that chain because they don’t know. They’re just looking up to that current space. That’s something regarding collateral views. You can’t send an email and say, “Can I get a collateral review on this?”

That is my new trial and tribulation. I have another bankruptcy case. It would completely blow everyone’s mind. I want to learn about this first note that you bought. I’m going to rattle off several questions and then you can pick and choose how you want to answer them. How many notes did you bid on before you bought a note? Where did you buy this note? From there, I’m curious how the negotiations and the process went as part of that. When I bought my first note, I know that whole get under the agreement and due diligence. You rush and everything stops. I’m curious to hear your story on that.

I bid on 3 or 4 notes before I bought this one. Before that, I had a bunch of notes that I would run by you and say, “I plan to bid this much. What do you think?” I got to the point where I was comfortable with where I was coming out valuation-wise. I found this one on Paperstac. The seller wanted $20,000 and I bid $13,500. We went back and forth. I remember running this by you and you said, “I would bid $13,500 but I wouldn’t go past $16,500.” There were real estate taxes that were owed as well. At that point, he wanted $17,500 and I said it was fine even though it was more than I wanted to pay. It’s my first note. I didn’t want to do something crazy in terms of overpaying but I wanted to get it over and done with.

Was it performing or non-performing?

It was non-performing and this is CFD in Ohio. Chris always says, “Don’t buy a CFD in Ohio.” I went and bought a CFD in Ohio. Part of the reason too is as a newbie, you’re doing all this research and people are telling you, “You should buy here. Do this and that.” I was keeping a list. It was like, “It’s a nonjudicial state in a city that has more than 50,000 people. The growth rate has to be 10% a year and there’s no crime.” You’ve got all these criteria. At the end of the day, where are you finding those notes? For me, the one criteria that were set in stone was how much money I had to spend and put towards it. That became my main driver. I came across this CFD and thought, “Let’s try it. We will see how it goes.”

As you know, I joke about Ohio. There are only headaches in Ohio. If they ask me what states, I’ll tell them some non-judicial states like Tennessee and Mississippi. Once you start breaking down, “It’s a city with a college, this many people and everything,” that’s completely overblown because of several things. One is everybody and their brother wants them. You’re going to pay top-dollar for them. Where do you find them? For people getting started, if you’re on Paperstac and some of these other marketplaces where you can buy notes, most of them are in Ohio, Indiana, Florida and the Southeast. Typically, they are in judicial states from that perspective. I want to jump back into this note.

I tore my ACL, so my world stopped for another month or so. It wasn’t playing badminton. I was doing Taekwondo with my kids. It’s not a good situation. A little time passed but then I’ve had some issues with the recording situation. Talking about things that are more difficult than you expect them to be has been a challenge.

Work with a mentor to walk you through the process. Click To Tweet

Cuyahoga County or Lucas County?

It’s Ashtabula. I expected that recording was easy. Thinking back, it’s like, “Why did that I think that? I was listening to a podcast and there’s someone named Gail Greenberg.” You were talking about eRecording and how easy it was. Gail says something like, “I’ve recorded something while we were talking.” I was thinking, “She can talk and file at the same time. It must be easy.” It’s not so much.

A recording is one of those things. If I could move my camera, I have stacks of stuff I’m sending out to get stored and eRecorded because I go back and forth. If it’s something that can be done on SimplyFile that’s eRecorded, typically, I will do it. If it’s wrong, it’s the thing that you need to fix. If it’s something that physically has to go to the county, I use MetaSource and some people use other people like Casey Wilson or whoever it is. I’ve gone around on this many times and it could change months from that. I would tell people to use a third party to deal with that.

There are two things that I’ll say. One is I don’t know if these third parties would do a one-off and maybe they will. I wanted to learn because my service would have done it. I thought, “I’m not going to learn anything if I let someone else do it.” Going back to your point about eFiling, there’s a stack of loans that Jamie bought from another entity that he had asked me to record. If you don’t like rejection, don’t use SimplyFile because you will get these emails that say with big red writing, “Rejected.” You’re like, “What happened?” Usually, it is some other document like an affidavit of property value that’s missing that you have to add.

My Note and Bolt would be to call the county first, especially if you’re mailing because as Chris said with eFiling, they will tell you why it’s rejected and then you can figure it out. When you’re mailing into the county, go to the website. Some websites are better than others. Go to the county and say, “What do I need to send you?” With this particular note, it was a three-step process. The first was to send the legal description to the engineer’s office so that they could stamp it and send it back. Send the documentation or proclaimed daily assignment to the auditor with this property value affidavit.

You have probably come across this too, where they ask you how much you’ve paid for the note of the CFD but compare it to the assessed value. You’re talking about apples and oranges. They’re two different things. In my case, what I paid was 60% below the assessed value. I had to write a letter as to why. “Was it because there was mold? Was there a broken window?” Maybe it’s all of the above but how am I supposed to know that wasn’t the reason? I was chatting with the gal at the county office and said, “I see what you’re trying to do but what if I write the check? At the end of the day, it’s all about the money and I’ll write it for the assessed value.”

She said, “That’s fine.” I sent it back and got it returned because the person reviewing it was like, “Why didn’t you pay?” I found another gal and I explained the situation. I said, “I have to pay the real estate taxes.” She’s like, “If you add the real estate taxes, then you’re over the 60% issue and you don’t have the issue.” This is my fault. I resent it with the legal description that didn’t have the stamp. It comes back to me and I take full responsibility. I don’t know how I put the wrong thing in there. The engineer’s office is right next to the person who’s auditing. Could they not have turned around and asked them or me for the email? It got sent back anyway. It has been a saga. If anyone out there thinks it’s easy, for me, it hasn’t been.

How many hours did you spend doing that?

It’s painful hours. Even thinking about it pains me.

I always explain to people, “Either be in this business or be on the sidelines.” You spent $20,000 on this asset. If you made 20%, that’s $4,000. You may have spent 5 to 6 hours alone on recording and not even managing. When you add up how much time you spend on these things, you go through a year and realize, “I spent 100 hours to make $4,000 or whatever the number is. I made something but it’s not the big windfall that all the gurus make it seem like.”

I wanted to learn and that’s why I did this. Going forward, at least my services were $25 plus the recording fees. My time is worth more than that.

I’ve had situations where I bought a pool of assets under an entity and I had to split it up into another entity. What happened was I bought it under XYZ and then I was transferring it to ABC. I sent him a deed for XYZ and ABC. They approved the deed for XYZ. They rejected the one for ABC because they’re like, “This one’s missing the stamp.” I’m like, “The other one approved didn’t have it. They’re the same thing.” They’re like, “It doesn’t matter.” I’ve had ones where I tried to record a contract for deed because we were going to take legal action and they’re like, “We don’t know how to record these.”

I get the sense that most of them don’t know what a contract for deed is or how to deal with it.

Where are you with this note? Is it in legal action?

There’s no judgment to anyone who does this but I didn’t want to send out a demand letter before the holidays. I was like, “Let’s wait until January 2022. We will do it then.”

That’s something internally one of the things that I do. Pretty much from Thanksgiving to Christmas, I don’t start anything new and if there’s stuff, I’ll be like, “Let’s wait a little bit or push it.” The only time that I haven’t is if something has been teed up for over a year, we have been in some type of process. For anything fresh, I’ll wait until after New Year. Do you know if it’s owner-occupied?

It’s not. They’re renting it out. It is non-performing. Over the years, I’ve been paying 10 out of the 12. It will be interesting to see how this all ends up. They haven’t been paying their real estate taxes, so they’re always late. Late fees are being charged every month.

I’ve got one where I own two notes with this borrower. I bought them from a seller at different times and realized, “Why does this name look so familiar?” It’s the same borrower. Both of them are rentals. It’s like, “In COVID, my tenants weren’t paying. Why do I have to pay my mortgage?” It’s like, “It’s not your primary residence. One of them has been on the market for sale since August 2021, so it’s overpriced.” We did do forbearance plans on each one. He made the first forbearance payment and then stopped making payments from there. Come the New Year, we will be re-evaluating that as well.

You have helped Jamie. You’ve got your note but you have also seen a variety of notes as well from the 70 assets he has. You talked about the recording being something a little challenging and so forth. Is there a part of note investing that you thought would be a lot more difficult that’s like, “This isn’t too bad and as difficult as I thought it would be?”

If you can work with someone great in the real estate industry, that would be very beneficial. Click To Tweet

The difficult thing is not knowing. You don’t know until you start doing and nothing is difficult in this business. It’s painful either because you’re dealing with people or you’re trying to keep everything straight in your head like all the different assets. You’ve got similar things going on with different ones and sometimes you’re trying to keep them straight. As long as you know the process, you’ve got someone to ask and you’ve got good service, vendors and service providers, then it’s not as difficult as I expected it.

Someone who comes from the investment banking world dealing with M&As and so forth, there’s that world between the stress, the timing and all the deadlines. I’m curious to get your opinion. In note investing, the only true deadline is to make sure taxes are paid before something sells. Other than that, there’s no deadline. It’s like, “If I don’t send the demand this week, it’s no big deal.” Time is money but there are no ramifications besides that.

That’s what makes it a nice business for someone. To give people a little bit of background, I have a husband who has a very demanding job. Pre-COVID, he was always traveling. I’ve got school-aged kids in three different schools because one of them has special needs. I don’t have that much time to put towards note investing. It’s nice. I tore my ACL and had to take a break. To your point, there’s nothing that has to be done by a certain day except for paying your taxes.

That’s what I like about it because it goes back to you can do it anywhere on the planet that has internet at any time during the day. If you build a good team around you, you’re managing them, which sometimes is like herding cats. Even the best of them, you still have to manage them pretty well and stay on their radar. Other than that, it’s not like investing in property where it’s, “This property came on the market. I have to run and go take a look at it because offers are coming on it.”

In the note space, when you get a tape, typically they will say, “Offers are due on Tuesdays.” Get your offering by Tuesday and they will evaluate them all. That’s one of the things that I find to allow people that flexibility for the same reason. I have a full-time job, my wife has a demanding job and I’ve got two kids. It’s something that allows me to do it at 10:00 at night or 6:00 in the morning as well. As we wrap up this episode, you give us one Note and Bolt. Do you have another one?

For me, it was scary because it’s a big investment for people. Reach out to someone knowledgeable and can provide mentorship as I did with you. Unlike reading or listening to podcasts or presentations, you can ask questions and whatever is specific to you and the deal that you’re evaluating. I found that helpful and that’s a good idea for someone new. You also talked me off the ledge a couple of times on a couple of things. One of the things that I know I was spinning about a little was like, “Why is this person selling this note? What are they trying to pull off on me?” It was good to have someone to talk to.

The person you bought it from is somebody who is respected in the space. Some people get too caught up in the stuff that doesn’t matter.

We don’t realize it doesn’t matter until we have perspective.

A great comment for people is to reach out to people when you’re bidding and say, “I’m ready to bid $20,000 on something. I need somebody to jump with out of an airplane.” The first time you go, you don’t want to do it all by yourself. You would rather be a tandem jumping into it with somebody. That’s what you want to do. Reach out and discuss that with people. My Note and Bolt goes a little bit along with that in the sense of I see a lot of people who join our Facebook group, which won the Note Investor Group of the Year. I’ve got to give a little shout-out to the Facebook Group. People join them like, “I want to see tapes and I want assets.” I always tell people, “Put the brakes on a little bit.”

A lot of times, they have taken some guru weekend training that taught, “This is what you got to do. Start bidding on stuff and so forth.” The thing I caution people with is there are 10 to 20 resources online that you can buy notes from. If you have $20,000 as a start, you can start note investing. Are you going to be buying typically from a fund that somebody has bought 50 notes from?

You’re probably not. My experience is those larger funds would much rather sell me an asset for $20,000 than to you for $22,000 or $23,000 because they know I’m going to close a deal and they’re going to get their money unless there’s something that nobody else is bidding on. You may get it or it might be something bad. Understand that you’re not going to go from beginner to the Major Leagues in a day.

There’s one more thing that I would add to that. There were a couple of people who I had reached out to through Facebook who had said, “Have you ever bought a note before?” That’s a fair question because to your point, does someone want to deal with someone new? When I was able to say, “I’m working with a mentor who’s helping me walk through this process,” that was helpful. They would share whatever they were trying to sell because it gave them comfort that this person’s not someone who’s going to waste my time.

For example, on Paperstac, I’ve listed assets in the past. One of them was a condo. It’s a performing note and they’re asking me, “Can I see the condo docs?” They’re asking for information as if they’re buying the condo. I get back to them like, “You’re not buying the condo. You’re buying the paper on the condo.” They’re like, “I want the condo.” I’m like, “You can’t have the condo.” It’s like any business. Your first impression is important. At least take the time to understand or ask questions. Use a mentor because that’s important. If you start blasting people with emails and all these random questions, you’re going to blacklist yourself.

You worked in investment banking. I worked in real estate development and I get calls all the time from people trying to solicit their services. It’s like, “Who’s this? I don’t know. See you later,” or send me an email. It’s like, “Delete,” because I don’t know who that is. The same thing happens in every business, including note investing. I get emails sometimes from somebody who has some service or so forth. I’ll quickly look at it but if they haven’t reached out or I know nothing about them, 90% of the time, it’s like, “Delete or junk email.” That’s what 90% of email is. Sandra, thank you for coming on this episode of the show. Do you have any final thoughts?

It’s a great industry to be in, especially when you don’t have a lot of time on your hands. If you can work with someone, that’s great. Stick with it.

I’m going to have to figure out what to tell Jamie when this episode ranks higher or more views than the ones when it’s just him and I. I might have to have you come back more often to discuss note investing.

That would be great. Thank you, Chris.

No problem. Thank you all for reading. As always, go out and do some good deeds.

Important Links:

• King Street Partners
• Wall Street Journal – I Can Be the Bank: Individual Investors Buy Busted Mortgages
• Paperstac
• SimplyFile
• MetaSource
• Facebook – Notes And Bolts From The Good Deeds Note Investing Podcast