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Coping With Discouragement And Failure In The Shifting World Of Note Investing

GDNI 92 | Coping With Discouragement


Surviving against the tides of constantly changing and shifting industry will have you coping with discouragement on a regular basis. The way you cope with discouragement will, of course, ultimately determine your success at the end of the day so it’s important that you stay resilient. Gail Anthony Greenberg goes solo to discuss big changes that are rippling throughout the note investing industry. In the midst of all these changes – both on the business and client ends – how will you push back against the waves crashing against you? Let Gail help you navigate these rapid shifts with grace.

Listen to the podcast here:

Coping With Discouragement And Failure In The Shifting World Of Note Investing

I am here alone. Chris Seveney could not join us. I would love to have any questions from our audience. I have chosen a topic that is not the usual topic for note investing but it seems appropriate given the circumstances. I am working with a new note investor and he told me that he read the episode that Chris recorded on his five major predictions for 2020. Apparently, for this new investor who’s looking forward to getting his feet wet and get going in note investing, he found it very discouraging, a real buzz kill. We ended up having an interesting conversation about what happens if the note business is changing? What is our way forward? How are we going to still have a business and how might that business change?

Failure And Discouragement

This episode is about failure and discouragement. This is something I was talking about even before my conversation with that note investor because I’m at the point in my note career where I’m not discouraged, but there is a general sense of failure that I have with my borrowers. It’s because when I first got into this business, I thought these banks are unsympathetic and lacking in compassion and they don’t give borrowers a real chance. When kind and considerate people like us who are in it to make money but have the flexibility to work with borrowers more, that we would always be able to find a way to get borrowers back on track and successful.

Over the years, I have had many experiences of going in there like Mother Teresa, thinking I was going to make things all better. In a fair number of instances, I have not been able to make them better or I was able to get people temporarily back on track and then they quickly fell off again. It’s been frustrating and I realized for the first time that I was pretty sure I was going to have to foreclose on some people. Up until now, I’ve done very few foreclosures. Most of the time when there’s an unworkable situation, I’ve been able to offer people incentives and have a peaceful transition of them out of their house and into something else. I’m now facing some hardcore, hostile and angry foreclosures. I didn’t start them before the holiday and maybe this is just me, but you don’t throw even the most undeserving borrower out at Christmas. You wait until right after Christmas and now we’re there. I’m still hoping that something would happen and they get money. They’ll reinstate and everything would start up again. That hasn’t happened and now it’s time to move forward.

I look at these situations and I think, “What would have made a difference?” What I’ve discovered about borrowers, I don’t know about everybody else, but I went into this thinking that all of us human beings look at life the same way. We’re all trying our best, working hard, trying to meet our obligations and taking it all very seriously. What I’ve seen over and over again is there are quite a few low-income people that we deal with contracts for deed that are maybe disproportionately like this and there are a lot of people who are not killing themselves to meet their obligations. They’re not lying awake at night thinking, “I have not paid my mortgage for 3, 6, 9 months. I have to figure it out.”

They’re not doing that at all. They’re waiting for the inevitable boom to drop and for them to be forced to do something. I find it incredible because I grew up in a family of hardworking people who would feel ashamed if they couldn’t pay their bills. They would go and discuss it with the person they owed. They would try to work things out and they would be very accessible and accountable. It’s taking me a long time to figure out that this is not how a lot of people or maybe even most people are. I was at a gathering of real estate investors and I looked around the room. I had the sense that not everybody was born into a great situation.

I don’t think they were born to an upper-class home or maybe even a middle-class home. There were people in that room that came from very humble beginnings. What made them all similar is that they have gotten somewhere in their lives. They worked hard, reached high and achieved something. I ask myself, “What is the difference? Why was one person born into relatively modest circumstances, not do anything with their life and end up being one of our borrowers who sit at home and wait for the sheriff to come and pick them up and take them outside? While other people from the same backgrounds come up with an amazing life plan and work to make it happen?”

They started in one place and they’re ending up in a very different place, whereas these other people are exactly where they started. They started poor and they’re still poor. Their kids will be poor probably. I started to reflect on what it is that makes some people rise above their circumstances and other people will be completely limited by theirs. I don’t know if you have ever thought about that or when you confront borrowers whose behavior and reaction to being deeply in debt to you as a lender? It doesn’t seem to bother them that much or as long as no one’s knocking on the door to threaten them in some way, they’re not necessarily even thinking about it.

I have a borrower who’s in trouble. I asked for a financial application and received it. Several days ago, I sent follow-up questions and I asked her to respond within 48 hours. That was a few days ago and she’s not emailing me. I know her a little bit. We’ve talked on the phone. There is not an intimidation factor. She’s just not getting back to me. I have no idea why. The conclusion that I’ve come to about why some people rise from a situation like that and other people don’t have to do with the role models that you have in your life. Whether you at a young age or at any point along with your life, see someone start where you are and get to the next level. Whether you have people in your life who give you a bigger vision for what you could be and how your life could be. That seems the greatest gift to have.

Someone give that vision to you for how life could be different. Without that, they don’t believe things could be different, so they don’t try. I used to write training manuals for a living. One of the things that we understood in creating training is when you want people to grow, you have to give them goals that are challenging, but they have to seem achievable. You can’t set high goals and knock yourself out. Try to scale this 50-foot wall. There is a sense that people don’t think that things are achievable, so they never try.

What happens if the note business is changing? What is the way forward? Click To Tweet

Here’s another funny part. They hand in their financial application. I have a woman whose income is less than $200 a month, but she put down that she spends $150 a month on cable. She has a $90 cell phone bill. She has a $400 car payment. She did not explain how she was covering these things, which she probably is covering because she does have a phone. She still has a car. Those things have not been taken away from her. I feel like I want to pick up the phone and call her to let her know that it’s cheaper to not have cable but just streaming services. She should get rid of the cable, but none of that matters because these borrowers are not trying to solve these problems. They’re not maybe even thinking of them as problems. They’re living their lives until we come along and make things harder by foreclosing and canceling their land contracts or whatever it is.

At that point, they resignedly leave their houses. I don’t even know what my point is. It’s incredibly sad but I’m over it. I’m not trying to think that I can fix the world. I’m recognizing that the world is bigger than what I can do. What I think about is when I retire, which I hope to do in a few years, I want to come up with an entrepreneurship program or something for high schoolers or maybe even younger kids. I want to try to light people up at a younger age and make them feel like there’s a life out there for them.

General Trends

Getting back to some of the things that Chris was talking about and that my new borrower is concerned about. Chris was talking about the general trends that we’ve all been seeing and we’re all aware that product feels scarcer in our business. The things that you see are not as high quality, yet they’re trading at higher prices than we’ve been used to. He went into the reasons that at this particular moment, banks don’t have to sell off a lot of their loans. They don’t have as many distressed loans. The economy is better, but the banks are in better shape. They don’t need to eject debt to the degree they did during the crash in 2007, 2008. We’ve been riding that wave and now we’re washing up on the shore. I know that this is something that everybody thinks and worries about.

Chris did note that the large hedge funds have a lot of loans and they are still in the business of selling them. We’re not looking at a bleak horizon, but probably we are all going to be called upon to be more creative about the way we go about our business, to be able to have a business that’s growing and thriving. I was thinking that when you’re feeling discouraged, it’s saying that you’re not yet in problem-solving mode. When you’re discouraged, it’s because you’re letting one certain reality sink in where there are many other ways to go. I’ll give you an example. There have been slow times even before this general slowdown. There have been slow periods.

Normally, summer is always a slow period. The note year’s most active period used to be the fall or the fourth quarter of the year. There would be this tremendous rush by the sellers to sell a lot of stuff and have their books looking good at the close of the year. There would be a lot of people who weren’t able to sell everything by the end of the year, but they still wanted to keep selling. It’s like how you get caught up in things on eBay. Even when the price goes higher than you wanted or it’s not an optimal situation, you still want to be in the deal. That’s how the sellers there are like. We were selling in the fall. We didn’t meet our goals. We want to keep trying to get there. January, February and March used to still be active selling periods and then once we got to April and May, things would start to slow down.

The clever strategy was always to buy as much as you could during that selling period and spend those quieter months getting everything boarded and doing the workouts with borrowers. You gathered in everything, now it’s time to work the notes. A lot of people also would do business building things that they didn’t feel they had the time for when there was a lot of tapes coming out and a lot to look at. It’s relaxing in the summer, do a little building, get ready for the fall again and start up again. I remember the first year that I had JVs and people who wanted to partner in deals. That would come to me during those slow periods and I’d be tearing out my hair about what to do.

At that time, there’s more than one way to a performing note. If our goal is to buy a nonperforming note and get to performing status and reap all the gains along the way that comes with that. There are other ways to get to a performing note. You can start with a nonperforming note, but you can also start with property. You can find a distressed property that needs a bit of work and you can fix it up a little. You don’t need to fix it up to the level that you would if you were going to flip it. Make the house livable and decent, then find a borrower and create a note that way. I’ve done that a few times.

I’ve done it randomly where properties were available. Sometimes we see these REO tapes. Those properties are available for an exit strategy. The other thing is now that I’ve done it and I recognized the challenge of renovating from afar, you need in a situation like that to identify a market that you’re interested in. Set up a ground team and have a lather, rinse and repeat the process in those places for getting that done. There are a number of places that I’ve seen people do it. Flint, Michigan is one of them. That happens to be the city where I bought my very first CFD, the house that famously burned down nine weeks after I bought the CFD. You need to be more creative and recognize opportunities.

For people who got here and have been dying to buy distressed notes that they can turn into real profitable deals. I can understand why the band I was talking to is discouraged. Don’t be discouraged, be creative. That’s the key. Are you feeling discouraged? I had someone email me to say he’s also very discouraged because he’s trying to get a caring lender. He’s got a very impossible situation that he’s been trying to work out for a year. It is resisting every effort he’s making to bring about a good resolution both for the borrowers and for himself. There’s a hard time of the year where once the holidays are over as you entered January, it’s this big lovely blank slate. It’s like a beautiful lawn of snow that no one’s touched yet. It seems pristine and anything is possible, anything can happen and it’s up to us to make our mark.

GDNI 92 | Coping With Discouragement
Coping With Discouragement: What you see over and over again is that there are people out there who aren’t killing themselves to meet their obligations.


You have all these amazing people around who have written and rewritten these gorgeous business plans. They know exactly what they’re going to do. They look like they have it together. I think this is a hard time of year for a lot of reasons, particularly the one that I’m talking about of having delayed these difficult legal situations and delayed doing things for me that I know I have to do with these borrowers. It’s always hard to feel like you’re doing enough, you’re prepared enough and you know exactly what you’re doing. If anyone is feeling a little stuck, I would recommend looking up some different kinds of planning on Google and not maybe trying to undertake a giant and technical business plan. Follow a simple planning process of having some goals.

Massive Plans And Challenging Goals

I was very pleased to see in Notes and Bolts when people were talking about their goals. There are people with massive business plans with incredibly challenging goals and then there were people who were like, “I would like to buy a note this month or in the next six weeks.” Don’t let the feeling that you have to be thinking big all the time steal the pleasure from having a simple goal and attaining it in the short-term. Having small successes like that and building on them is the path to being able to make the big plans eventually. You have to build your confidence.

Jamie is asking me if I have considered pivoting to the commercial note world or hard money lending. Jamie is saying what a lot of people feel like here I’m saying to consider other strategies and yes, you can. There are also a lot of shiny objects syndrome in real estate where people have focused and they want to keep it and I understand that. Commercial notes seem intriguing to me and I know people who own physical properties, office buildings, strip malls and things like that. For me, I’m a small-town girl from Pennsylvania. I figure everybody has to live somewhere. Commercial offices and stores are affected by what’s happening in the economy. There are certainly many places that will always be in demand for office space and retail space and other kinds of space.

That scares me in the way that being a flipper used to scare me. You have to know for sure there’s going to be a market for what you’re selling at the end, at the price you need to get for it. That’s why I have shied away from commercial notes so far. I’m buying multifamily properties myself. I have told you over a variety of episodes what my goal is. I don’t revise my goal annually because I pretty much work on it all the time. I got involved in notes when I had done a variety of other kinds of real estate. I had been a flipper. I had been a remote flipper in Pennsylvania where I was. I was flipping properties in Chattanooga, Tennessee, which I don’t recommend that.

I had been an investor in large multifamily properties and then I was buying small multifamilies at a local university in Philadelphia for out-of-town investors and I was managing them. I never loved any of those things. I never loved any real estate until I got into notes. I don’t think I even totally understand what it is, but when you find your thing, you know it. I have been doing notes for a while and probably at the end of 2019, for the first time I had a fairly sizeable note portfolio in two IRAs. Like most people before they discover real estate, they have careers, they have 401(k)s or in my case, a SEP IRA that I’ve been contributing to my whole life. I had chunks of money in brokerages.

It’s like everybody out there with an IRA who hasn’t met a real estate investor yet. My money would have good years or bad years. My balance would go up and it would go down. In 2007, in late 2008, it went down. I didn’t lose any money in the crash because I had the worst money manager in the world. When everything was crashing, he did absolutely nothing to secure any of my retirement money. I rode that baby all the way to the grounds and within a relatively short period of time, my IRA lost half of its value. We did nothing deer in the headlights but that turned out to be a good strategy because when the market came back, so did our balance. We didn’t lose anything long-term. It all came back and then some. If we had sold and things were crashing and not bought, it would have been a whole different equation.

Our ability to do nothing and keep doing nothing is what saved us in that situation. Once you get through that, you’ll never forget the insecurity of knowing that it can happen, when all your eggs are in one basket. Up until a few years ago, I had IRAs. They were invested in notes increasingly and I was very happy with the way that that was going. The questions still lingered. What is my end game? If I want to retire, and I do, how am I going to live on the income from these investments? I sat down and I mapped out my entire note portfolio in an Excel spreadsheet, as far as what the income was and then mapping it out. Every cell was a year until you got to the maturity date.

I looked at what was going to happen. For a reasonable number of years, like 7 to 10 years, my note income looks great and I would have been very happy to live on it. Things started maturing and it went down and down until you’re getting to where I’m 80 years old and I no longer have any income from my notes. I’m not a Walmart fan. I do not want to be a Walmart greeter. I used to meet my dad once a week at a Burger King. There was a lady behind the camera there who must have been in her 80s and I thought like, “My very first job was at Burger King. I cannot go back there.”

These are my IRAs. If they’re going to deplete themselves by all being invested in notes that are going to reach maturity and no longer pay any income, what am I leaving for my children? Although it’s not their money, I consider it their money. It’s something I want to leave for them. I feel the world has changed a lot economically and in some respects, they are not going to have the same opportunities to own houses as young as we were able to do it and things like that. They live in expensive places like Brooklyn and Seattle. They’re in a very difficult high stakes economic game where they live. I want to leave my kids an income.

The way people rise above tough situations (or don't) has to do with their role models. Click To Tweet

For me, it was an easy choice. I have to start transitioning my profits from notes into buying rental properties. I’ve been doing that aggressively. It’s exciting to do planning because I spent a fun afternoon looking at the net income from the rental properties I either had or was able to buy. I could see based on how much income there is in the spring. If I could get all of my income invested and my IRA balances invested in cashflowing rental properties, how much income would I have per month? How long would it take for the income alone from those properties to enable me to buy additional properties?

The challenge is how to get enough of a lineup of things bought, to begin with that the properties themselves can generate the income to buy the additional properties that I need to get to the ultimate monthly income that I want? My husband and I have a plan. In the places that we’re buying, which are Indiana and Mississippi, we know what we have to spend to get a particular income. You make a few assumptions like that and you map it out. I know in which months I’m going to be buying new properties if all goes according to plan with the cashflow and properties that I have now. Hopefully, we’re on track. If you get a windfall from one of your notes, it pays off or you can sell it or something. That happened to me. I managed to sell an excellent note that I have.

It’s no longer interesting to me to collect the cashflow as a note for years and years. I’d rather sell it and get the proceeds in a lump so I can buy a rental property that I won’t ever sell. That’s my plan that I’m working on. I don’t sit down and do a new big plan. Lending to other real estate investors, private lending is excellent. There are tons and tons of people who are trying to do things. The biggest problem with private lending is being sure that the people that you’re lending to know what they’re doing. You’ve documented and protected yourself with a lien on the property if it’s a flip.

I’ve been to conferences and this completely amazes me. In the investing world, there are many conferences or training events. There are many people trying to figure out where they belong in this real estate world. They’re trying to find their place and what techniques feel good to them and produce a ton of results that they’re looking for. I met a woman who had given a flipper $100,000 as a private loan. She lives in San Francisco and she didn’t even know the address of the house that he was flipping. It was a complete trust situation. I understand that some people don’t realize maybe they should put liens on their notes or do something.

We are way more familiar with the paperwork that is useful in protecting ourselves. I would think even common sense would dictate that there would be a contract that would have very clear terms. It would have the address of the property. It’s encouraging to know if you are looking for private investors to know that there are people out there who will give you money easily and will not make any demands on you at all. It was amazing. When you meet someone like this in person, it’s hard to mask your reaction. That’s my message. My message is don’t be discouraged, first of all. Being discouraged means you haven’t worked out the right plan yet and there’s always a plan.

There has been a change in the IRA inheritance rules. It’s amazing that we’ve got a Congress that hasn’t been doing much, but even during the impeachment and even given that the house is passing things that the Senate is even looking at, somehow they managed to pass a new law that limits the amount of time that someone who inherits an IRA can stretch out the payments. I’m not sure if this is just Roth IRAs or if it’s non-Roth as well. It used to be that you could build up an amazing IRA. Your kids could inherit it and they could keep it for their entire lifetime. They would only have to take out the proceeds over a lifetime.

Now, the government has decided to limit the amount of time that someone inherits an IRA. They have to empty it from their lifetime to ten years. That got passed over the holidays amazingly, which is disappointing to me because I had planned that my children would have a lifetime of just living off the fat of my Roth IRA and now it looks like they’re going to have to work for a living. Sorry, kids. I did my best. Jamie, have you been doing private lending or would you consider doing it? Jamie said, “One loan to a landlord.” Is that a long-term loan and on what term? It’s five years at 9%. That’s excellent. What city is that in? It’s in Jackson, Mississippi. I like Jackson, Mississippi. How did you find this landlord to make this loan?

It was through a note broker on BiggerPockets. It was pretty early in 2018. Their business model is to work with different real estate investors and broker out a bunch of notes to lenders.

Did they create the note or did you work out the terms with them?

GDNI 92 | Coping With Discouragement
Coping With Discouragement: You’re not looking at a bleak horizon, but you’re called upon to be more creative about the way you go about business in order to grow and thrive.


It was predetermined. I didn’t have a ton of say in that, but it was originated through a title company or an attorney.

Those are certainly favorable terms for you.

They’ve been late on a few payments. I’m not quite as comfortable as I was but they haven’t missed a payment yet. We’ll see how it goes.

You said you’ve had it for two years.

It’s coming up on two years. I’m not confident that in three years I would be able to take it off.

You might be a landlord in Jackson, Mississippi.

It’s been relatively passive considering how not passive note investing can be.

Isn’t it funny that people become note investors because they don’t want to be landlords and have to do it a lot?

It’s pretty hands-on. They’re not necessarily out there swinging a hammer, but you do have to monitor a lot of things. With that loan, in particular, you’re not dealing with Dodd-Frank or any of that stuff. In that sense, it’s a lot easier.

You have to recognize that the world is bigger than what you can do. Click To Tweet

They screened the borrower for you anyway.

They had worked with them for quite some time was my understanding. I know a little more now than I did at that point. You get an appraisal and your normal paperwork and it’s done through an attorney. It appears to be all above board but at the end of the day, you’re not totally sure. You’re somewhat going off of the broker’s opinion of this borrower and their supposedly track record. I wouldn’t hesitate to do something similar to that in the future, so we’ll see.

That seems like a great solution to the “not enough notes around here” situation.

It’s not going to get you a 20%, 30% return like maybe a non-performer might, but it’s straightforward and nice for cashflow.

I own properties in Jackson, Mississippi.

Did you borrow any money?

I had them in my IRA, so I can’t borrow money.

I was curious about owning rent falls in your IRA. Do you not get some of the tax benefits as far as depreciation, for example? I always think of rentals as being better outside of an IRA and notes being better inside of an IRA because notes are not very tax-advantaged and rental properties do have more tax advantages than the notes do. I was curious to get your thoughts on that.

I own mostly in a Roth IRA, so I’m not concerned about anything of that sort. What are your goals for the year?

GDNI 92 | Coping With Discouragement
Coping With Discouragement: Don’t let the feeling that you have to be thinking big all the time steal the simple pleasure from having a simple goal and attaining it in the short term.


I did quickly shell out Chris’ one-page one-year plan and with the understanding in the back of my mind that this is a general blueprint that we’re probably not going to hit all these goals. I’m trying to keep it simple. We have some specific income goals and that thing. I did put down that I need to book three real estate or note events for the year that I want to go to, to force myself to get out from behind the computer.

Is that for networking purposes? Do you want to have more friends or are you looking for a particular class of individual?

I went to Paper Source a few years ago and that was pretty inspiring. I thought it was always good to get around like-minded people to gather information and network for trying to grow our business. Another goal, and this isn’t super specific, but I’d like to try to pivot more toward typical mortgages or deeds of trust, not so many CFDs. You have more upside with the CFD or upside potential with that equity that’s there. You’re one step closer to taking back the property. I’m not opposed to that necessarily and potentially acquiring rental properties like you’re doing, but that wasn’t what I set out to do. We don’t have a huge note portfolio, but it’s heavily favoring CFDs at this point. I don’t know if that’s because I got plugged in with you.

It’s funny because Chris never used to buy CFDs.

One of my goals is to pivot more toward actual notes as opposed to land contracts to try and balance that out a little bit more.

There are states where you have to foreclose, so it’s a similar lifestyle exit. When I was new and had less money to work with, I was very excited by CFDs because they seem to hold out the promise of bigger payoffs. There is no question there is a great deal more work involved and risk to even personal liability given the fact that you own the thing. I keep thinking about my giant water bill and I know you think about water bills too and things like that.

That’s still a thing for us.

She still pays things, isn’t she?

I don’t know. Chris is tracking that more closely, but we may have some news on that, so we’ll see where it goes.

That is a saga that we will all enjoy here. It’s exciting to talk to you. I’ve never spoken to you. This is my first time.

Distressed notes can turn into real profitable deals. Click To Tweet

I came on the podcast. That was a fun episode. I thought it was enjoyable. I appreciate you bringing me on too.

Thanks for being a good sport and not running away. This has been great talking to everyone. Thanks again, Jamie, for sharing your thoughts and ideas with us. It’s always fun to know what people are up to. I do love Jackson, Mississippi. If you get that house back, be sure to show it to me before you sell it to someone else. Thank you all for another great episode of the Good Deeds Note Investing Open Mic Night. Please be sure to join us. Hopefully, Chris will return from his bottomless well of things he has to do. The poor man is buried. I barely even get to talk to him myself. Please send us any ideas you have for upcoming shows. Thank you all for joining us. Go out and do some good deeds.

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