Hidden Family Culture Prejudices That Keeps You From Being A Note Investor

GDNI 39 | Family Culture Prejudices


Sometimes, it is difficult to become what we most want to be because of our family culture. Real estate investors unconsciously bring this certain culture into the business, affecting the ways to invest as well as the tolerance for risk. Join Gail and Chris as they talk about the family culture that prohibits you from doing what you want to do in note investing while sharing the ways they dealt with their own. They also share about how note investing is learning not by theories but by application, and how it is about diversifying investment strategies.

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Hidden Family Culture Prejudices That Keeps You From Being A Note Investor

Chris, how’s it going?

I’m good. How are you, Gail?

I’m very well. Do you have a “what just happened for us,” Chris?

Yes, I do. This is an interesting one. I had a note in Alabama, where it was non-performing when I bought it and the borrower hadn’t paid in two and a half years. The house had a ton of equity in it. I was like, “The worst case is the borrower files bankruptcy, starts paying and I get the back payments to file bankruptcy. It would be nice a decent return on this asset.” I reached out to the borrower. We never had any conversations. She never responds. We had a door knock, she didn’t respond so we filed for foreclosure. About halfway through probably of foreclosure, her attorney called my attorney and was like, “How much is the reinstatement?” I was like, “$16,000.” She cuts a check for $16,000 and reinstates.

I was like, “This is awesome.” I got full reinstatement. The borrower reinstates and then stops paying again. I was in shock a little bit. They paid all this. Three months go by and no reach out. Basically, she mentions that a family member was going to help out. A family member worked for the government and the government was shut down. The first thing that pops in mind is, “The government will shut down for a few weeks to a month. It wasn’t shut down for four months.” Essentially, I waited and gave her an opportunity. I waited for four months, which is typically longer than I would wait. The person cut a fat check. We sent a demand letter. Guess what she does again? She had her attorney call in and say, “How much is the payoff?”

GDNI 39 | Family Culture Prejudices
Family Culture Prejudices: The illusion that the stock market is a safe place to put your money in may not be true.


The payoff was $20,000. The borrower went in, got a reverse mortgage. This was a nice property. It’s probably worth about $100,000. It was a remote area of Alabama. I invest in remote areas. Sometimes it works if you do it right. The borrower refinanced on the reverse mortgage and paid off the loan. Essentially, I got two payments from this borrower, the reinstatement and the payoff. Let’s say from a return perspective, my IRA is very happy at this point in time with that. It will be once Madison actually cuts me the check.

Do you know what’s crazy about that?

I had to pay $1,000 to Madison.

No, I wouldn’t mind at that point either. When she gave you that $16,000 reinstatement, she was so close to paying it off, she could have paid it off then.

She had $20,000 left. I’m not complaining. I’m not going to try and put myself in this person’s head, what they were thinking.

Becoming conscious is the only way forward. Click To Tweet

I want people to know too that I hope we don’t come across as people who crow about our successes and don’t balance it out with the other side too. We have plenty where we make $6.

The last time, I talked about how I got a letter about a criminal.

What just happened is not a happy one. I am locked in bitter debate with a new IRA custodian. It’s not that they’ve done anything wrong. I feel like I’m dragging them through a large tank of molasses trying to get this checkbook IRA set up. We entered into a purchase agreement on a couple of duplexes and the prices are amazing. If you looked at him from afar, you would think, “This guy does not believe in real estate.” He has never budged, has never moved any money out of his stock account into real estate, despite all the stories I tell them about how good it would be to do that. I finally found a juicy enough deal that I knew if I dangled it in front of him, he’d leap. We had to start from scratch to set up a Checkbook IRA for him.

Meaning at the custodian, we had to set up a regular IRA and a Roth IRA because he’s going to convert it. We had to start an LLC, get the operating agreement, everything set up and sign up with the custodian with all the paperwork. You would not believe all the paperwork, but we’re right at the end, all we need is for them to transfer the money from the brokerage, put it in the SIMPLE IRA account, convert it to a Roth and transfer it to our bank account. It’s not happening. I was very careful when we signed the purchase agreement on the duplexes to give us two months to close. We can do this in two months. It’s getting a little close. I’m frustrated.

I can share ten other stories with some good and some bad.

GDNI 39 | Family Culture Prejudices
Family Culture Prejudices: The real estate is a business where you learn by doing. It’s not something you can learn by reading a book.


Having a conversation about this gave me an idea for our main topic that I hope people will enjoy and get something out of. I was talking about my family. The title of this episode is How Your Hidden Family Culture Prejudices Might Be Keeping You From Really Being A Note Investor. What happened was I had coffee with a very lovely young man who happens to be a JV of yours and who lives near me. We were talking about the fact that I was complaining and sharing about my family and how my husband, after watching me for years and listening to my stories has never been like, “I’ve got money in my IRA. Let me do some notes too.”

On the contrary there, he’s been a brokerage guy. He’s got a Morgan Stanley account and he is sticking with it. My kids are the same way. They’ve each got a little bit of money and nobody ever says, “Mom, how do I do this? Here’s my money, make me rich.” That never happens. We were talking about family culture and how it affects what you think is a good way to invest your money. How much risk tolerance you have for real estate versus other things that are more typical in your family. I’ll kick it off to say that my husband’s family were broker people.

The idea was you found a broker at a brokerage that you had faith in that had a track record. You would give them all your money and then you would let them do their thing. In 2008, when the market crashed big time, we all found out it basically went to half. The Dow Jones went from 14,000 to like 7,000 in a matter of weeks. We found out that this illusion that the stock market is safe and tried and true place to put your money may not be true. My parents never even had brokerage accounts and they would put their money in mutual funds. They did very well.

You’ve probably heard of Vanguard and Fidelity in the ‘80s and stuff did really well and that lifted my parent’s boats. They never dabbled. This is also a funny thing. We have this family idea that stock market’s safe, real estate’s not safe. The reason we got that schism is that my parents and my husband’s parents both at one time bought one rental. In both cases, it was a disaster. My husband’s father was a big-time accountant who had a big reputation for knowing what he was doing. In a partnership, he bought a building downtown in Philadelphia. They lost money. It was very humiliating for him.

My dad was a doctor and he never did anything other than Fidelity and Vanguard. He once bought a rental car because his accountant told him to and it wasn’t a disaster. He didn’t lose any money, but he didn’t make any money. It was a pain in the neck. My husband’s sister also bought a rental because she liked the house and she loves a cool house. That has been a big struggle to make that work. In the whole family, it’s this reinforced idea that real estate’s not a good thing, so we shouldn’t do that. I’m wondering what thing do you have going on in your family about what you should put your money into?

Make sure you stay on top of everything and manage things. Click To Tweet

First, we don’t have enough time. What’s interesting is my wife, who I could speak hours and days on, all the great things about my wife. She is in finance and she manages large portfolios of investments for a global entity. My full-time job also involves working in real estate but dealing with large amounts of money and management as well. Let’s jump back on stocks, I invested in WorldCom back in probably 1998, 1999. From 1999 or 2000, WorldCom went under. I graduate college a few years prior and I had $5,000 that I saved up. I was like, “I’m putting it in WorldCom,” basically figuring they were going to be like a Verizon and conquer the whole tech market. It didn’t work out for me. I lost it all. I’ve never been a big fan of the stock market. I’ve always been against it. My wife’s not a big fan of it as well. She’s actually ultra-conservative.

She has her retirement accounts and some of the other accounts that we have and stuff and making 3% to 4%. We have accounts that make those types of returns. I would say it’s good to have money in accounts like that because you do want to diversify in regards to having some not so high risk. Our thought processes for my retirement account and stuff, from the IRA, we can do some notes and get some little more risks for higher returns. Overall, there are so many different investment strategies. It’s not about which one’s good versus bad, it’s more about diversifying. We’ve got two rental properties. I’ve got the notes and some other stuff. We’ve got some heavy amounts in real estate, but I think overall when you look at 401(k)’s and stuff from our full-time jobs, it makes up. I’d say, a small component of having some of the rest of it diversified in mutual funds and other areas as well.

When you were growing up, did your parents invest their money? How did they handle the investment?

Did they invest? No. They invest in Disneyworld by taking us there three times a year. Their philosophy was, “You can’t take it with you.” Essentially, they were fans of leverage is the best way to look at it. Honestly, early on in my younger days, I followed a similar path, but I was always a little more of a saver, and so forth. Once I understood budgeting, forecasting, I’m a number geek anyways, then took that with my wife and put us together. As you know, Gail, at 11:45 at night, I’m like some brainiac. I’m like “What if we could do this?” with a note or with this for investment and some whacked out idea and so forth. From that perspective, growing up, it wasn’t a lot of savings involved. There was enough but not something compared to what I thought was what I would say is sufficient for me. It’s a learning curve. As you get older, you definitely start to change, evolve, the risk you want to take and some of the habits I have to.

Some people change as well. Some people stick with what they know. That’s probably more common. This is why I think it’s interesting. If you take my husband Neil, who is a very dear person and very smart. He’s very conservative about money. He likes to play it safe. Here’s a guy who in 2008 lost half his net worth in the stock market. The idea of the stock market as the way to go persists in my household. These are very powerful things, the ideas you absorb from your parents when you’re young and the things that are the norms in your family. If you don’t step back and look at it critically and think like, “Does this really make sense? What am I doing here? Do I feel comfortable doing something else like real estate or even precious metals or something? Do I know enough about that to even make a judgment?”

GDNI 39 | Family Culture Prejudices
Family Culture Prejudices: At a certain point, you have to realize that you have to do it afraid. When you do it afraid, you have the experiences that will liberate you from those fears.


When I feel nervous thinking about it, is it because someone long ago gave me the idea like, “You don’t want to do that. That’s not going to be good.” The reason that this is a relevant conversation for our readers who are potential note investors is that I think that you can have these very unconscious concerns and fears about doing real estate. You can feel on the surface, “Yes, I want to do this, I’m going to do this. I’m learning how to do this. I’m listening to Chris and Gail, I’m following other people and I’m getting ready to do this.” It’s a sad truth of everyone who teaches real estate and gives training in real estate that of all the people gathered there to learn it. Only a very small percentage of people are actually going to do it. This whole idea of these unexamined beliefs that you have, it’s often what is stopping people. They don’t know why they feel scared to move forward. Do you think that’s true?

I think it’s 100% true. Part of it is they don’t know what to expect. What’s interesting is you invest in a stock. You have your brokerage firm go buy the stock or whatnot and you know nothing about that company in reality. How it’s handling its money, how much cash it has. People typically invest based off of the name of the company or what some other “expert” says online, which they’ve run a report that you have a better chance flipping a coin and being right than you do listening to somebody online.

I have such a comment about that. That guy on CNBC, Cramer got a show where he yells about different stocks and hits a big button to say like, “Buy.” Ken Cramer is his name. I forgot the name of the show. It’s a clever name. He has an online stock portfolio where you can track how well he does. He does no better. This is the guy who has the show telling people what to buy. His stock portfolio is no better than anyone else’s. There’s a joke in their industry that you could let a chimpanzee pick out of a bowl with names of stocks on scraps of paper and they would do as well as the typical broker that you’re paying a big commission to.

What they say is true. The thing with stocks too is there’s no inside information on things, where in real estate there is inside information. You may know something about the borrower, the property and that is actually very valuable. You can use that to your advantage. You can’t do that in other aspects. What interesting thing notes too is and one of the things I say that sometimes frustrates me a little bit is I’ll put out some assets. Granted, these aren’t $100,000 homes. They’re homes in areas that may not be the greatest and it might be a $20,000 or $30,000 home. It’s got an $8,000 UPB and you want to cut your teeth, you can buy it for $4,000.

The worst case is you could lose $4,000, which I’m not sure how you could, but that’s basically your investment. You can still learn the process. I know people who pay heavy money, to try and learn this business, but this is a business where you learn by doing. It’s not something you can learn by reading a book. It’s like doing a fix and flip. You can read all the books in the world about fixing flips, but until they actually do one, “God help you,” type thing. All of the real estates are like this. You can’t just open a book and figure out, “This is what I should do in this situation.” There is no playbook. It’s not like being an accountant, which is okay, this is how you do this form or that. It’s very methodical.

Your failures do not always cost you money, but some embarrassment or something else. Click To Tweet

This, it’s such a crap shoot. I see a lot of people so afraid sometimes to break that mold and they get caught up. I see people leave money sitting on the sidelines like, “I want to make 14%, not 12%.” I’m like, “You just waited six months and let your money sit in the account for zero?” It reminds me of professional athletes. Pittsburgh Steelers, Le’Veon Bell was a running back. He sat out the full season wanting more money or when these teams where people go on strike, it’s like, “You go on strike and you don’t get paid for three, six months or a full season.” “I’ll make an extra $5 million,” “You would have made $10,000, so you probably cost yourself $5 million.” It reminds me of that in some situations.

I’m going to stick up for brokers in this one narrow respect. The brokerages do have huge research departments that are finding out everything about companies. In theory, they’re putting together strategies that will make you money. This didn’t even break the log jam with Neil. I actually sat down to review what our brokerage accounts had achieved in a few years. This is a period of time where the stock market increased in value. I’m going to say 60% or something like that. It was a lot. I did slightly better than him. His account value from a few years ago is 12% higher. He made 12%, and that was a few years ago. He made 5% per year. Compared to a bank account, that’s good. The stock market could tumble and all that would be wiped out. There’s nothing permanent. I wanted to say also when you were talking about people feeling risk. I think that the biggest issue with people doing anything is that they don’t understand. They have this intolerance to risk that is part of this huge background that includes everything your parents did. Everything the adults told you when you were a child.

Every person you ever met who lost money doing a deal of the type that you’re contemplating, just every bad thing. The big thing is that you have to become conscious. That is the only way forward. You have to become conscious of your inner programming about why you think certain things. The processes become conscious of what you believe, actively challenge what you believe and start to have new beliefs. Even then you may hesitate to make a new move. I think at a certain stage your fear takes this form of I don’t feel ready yet. You can’t feel ready because you’re always going to have these lingering doubts and concerns about what might happen if you step off the diving board. At a certain point, the only choice that you can make is to step off the diving board or recognize that it’s not in you to step off the diving board and you need to go do something else.

The third option is to partner with somebody on a deal. I do see a lot of people in that. A lot of people are also predisposed from a decade ago, where a lot of people got crushed in real estate. There are a lot of people online who bragged about all these seminars and stuff where you’ll make 50%. You have famous actors and stuff that have all these fixes and flip shows. There’s some predisposition there. I think two things, one is, I don’t think people are sometimes fully realistic on the returns that they should be expecting. People keep holding out for the perfect deal. The reality of it comes down to, especially if you want to invest a little bit amount of money in the beginning, say $5,000, $10,000, $15,000, you’re not going to have a low-risk, high-return, super sweet deal in that price point.

It’s going to be either very low-risk but a return that corresponds with it or it’s going to be very high-risk that could also have a corresponding return. A lot of people think, “I’m going to spend $5,000 or $10,000 and try and get a 50% return.” Can that happen? Yes, but you’ve also got to remember that when you’re spending $5,000, the difference between a 10% return and a 30% return is only $1,000, which one attorney bill can wipe that out pretty quickly. The amount of time it takes to get your money back, that’s where I think some people too sit there. You’ve got to go out and do it because that golden goose isn’t going to come floating to you. That is the perfect deal that is almost no risk with these obscene returns. A lot of people showcase those. People are like, “If they can do it, why can’t I get one like that?”

GDNI 39 | Family Culture Prejudices
Family Culture Prejudices: Obstacles are not in the road. They are the road. Failure is an inevitable and necessary part of the learning process.


Nobody talks about their failures. I hope that you and I do. I hope people feel like we do and we will certainly do it some more in the future. I want to give you a little compliment. The guy I was talking to said, “I’ve been taught only to buy this deal. It has to be a payment within six months in a city with a sports team but I listened to you guys. It sounds like you do all kinds of things.” Indeed we do with varying results, but there’s never one category that’s always a bad idea, except maybe I’m going to say vacant sometimes feel risky.

I would put vacant as the highest risk, and then probably crime second. I’ve had a few properties that were part of a small pool that you had to take that was in higher crime areas. What it comes down to is even in those areas, people still live and pay their mortgage. The ones I got where borrowers were the ones I sent you those O&E reports on. Those are great areas, but buyers have been paying for over three consecutive years. The person wants to get rid of them because they weren’t in the greatest of areas.

Don’t avoid them but pay less for them is my advice.

Here’s why I would say is I wouldn’t focus on them. It’s like anything in your portfolio. You’re going to have a mix. It’s something that I don’t focus on them, but if I have to take one on as part of a pool, I adjust my number appropriately because of potentially added risk.

You say to yourself, “Here’s my opportunity to have this experience. Let’s have an adventure with one of these.” I was going to say too if people are fearful, I understand it. I was at one time very fearful. I grew up in the family that only invested in mutual funds. How did I get to be a high roller? I don’t know. It wasn’t all at once. It was a series of steps, of pushing myself when I felt afraid. I’m a bit of an analysis junkie too, so it was very easy for me to blame my timidity and hesitation on, “I haven’t done enough analysis yet.” We all know the analysis paralysis term. I had it. At a certain point, you have to realize that you have to do it afraid. When you do it afraid, and you have the experiences, particularly the experiences you had feared the most when they happened to you and nothing bad really bad happens, you are so emboldened.

That is the most liberating experience. I’ve talked about this before. I have been trying to avoid failure in my entire life. It comes from a very specific family dynamic. My family only wanted winners. I have one brother who didn’t care what the family dynamic was. I have another brother who, like me, was very dialed into it and very much influenced and impacted by it. I’ve been trying to win and achieve my whole life. In 2018, I lost money for the first time on a real estate deal. I lost $4,000. It’s not the amount of money. It could have been $50, I would have probably been just as upset. It was terrible. I had a very bad week about it. Like the phoenix from the fire, I emerged more glorious than before.

What you’ve got to do is learn from it. I remember one construction project I was managing and overseeing. I’ve always treated any type of money that I’ve managed like it was my own. I was on a project that was losing seven figures basically every month to go in and sit in that budget update meeting and knowing that number. It was all known and you’re trying to manage that number to mitigate more risks. I remember the first time a contractor went out and it was probably about a $500,000 hit just on that one line item. I remember walking into the VP’s office, having that meeting to sit down, let him know and break the news.

At the time I was probably 27 years old and I was scared to death. It was one of those things, where there’re certain things you can control, certain things you can’t. The biggest thing is it’s all about mitigating risk, making sure you stay on top of everything and manage things. That ties into this where some people were predisposed because of family or not taking that risk and afraid to jump in because they’re afraid of failure. The reality of it is, the more you do this, failure is going to happen. You just want to have a lot more wins than you have losses.

You said the important thing is to learn from it. That was part of what was hard about my loss. I had actually done everything I was supposed to, and I even overdid it a little bit. I bought a house, it was a CFD, but it was vacant. Before I bought the CFD, two people looked at the house for me to check it out. Everything looked fine. The neighborhood wasn’t spectacular, but basically, the house looked good. After I bought it, I had a preservation company go, they photographed every inch of this house and sent me the photos. Everything looks good. I went ahead and renovated the house.

I didn’t put a ton of money into it, but I was not ultimately able to sell it for the full amount that I had in it. What happened was that there was a major structural problem with the house. I can’t explain how the preservation company did not photograph the very clear evidence on the outside of the house that this problem existed. That was part of what was tough for me. It was like, “What else could I have done? What else would I do next time? How can I prevent this from happening again?” The answer to all of these things was there wasn’t anything that could be done. I’m only left with, “I know stuff can happen. With your best efforts, stuff can still happen.”

How do I feel about that? Am I okay with that? Can I tolerate it? I have to say that I can because as difficult as it was to absorb the loss, to reorder my self-image around this new thing where, “It happened, I’ve been trying all my life to keep it from happening. It has happened.” Also, making good on it with my JV. I had other notes with him and I’m foregoing any split of the cashflow until he’s made whole on that one. This is how I’ve dealt with it. It’s not that I feel it can’t happen again, but what I feel is I can survive it. When you feel that, then you don’t have to be afraid anymore, then you can do it. I had a friend when our kids were little, we both had daughters. When they were in elementary school, every time something happened to her kids, she would be in school.

She would be banging on the principal’s desk, demanding action, demanding a cone of protection around her child. If another kid in typical elementary school shoved or something, she would want those parents in there for big talk and everything. In her case, she had one child. My child was the same age, it was my third child. I put my focus on helping my child understand that she could survive anything that happened to her. It might not be pleasant but helping her strategize how she would deal with it and know it would get taken care of that way. That’s what I feel. That’s the only real ultimate confidence you can have in life. It’s not that something won’t happen, but that you can survive it when it does.

I think two things also play into that is, one, how much money you have? When you have more money, it’s a little easier sometimes for certain expenses or things. It’s part of the business. You do have to acknowledge in this business, there are a lot of small expenses that can add up pretty quickly. Between whether it’s servicing fees, legal fees or some of these other fees that incur that you have to do and you’re like, “I can’t believe I have to spend money on this or that.” You should put plenty of money aside in a reserve fund for expenses that you’re going to have and work with those but acknowledge and realize you’re going to have them. They’re going to exist and there’s going to be ones that pop up that you didn’t know about. You’ve got to bite the bullet and many times do it. Don’t dwell on it because the more you dwell on it, you’re going to lose focus on the overall and the big picture of the note process. My favorite one in Ohio, it happened to me where I was so focused on a few things. I was missing the big picture. There are some lessons I definitely learned from that process.

Always remember, obstacles are not on the road, they are the road. Failure is an inevitable and necessary part of the learning process. Hopefully, your failures won’t always cost you money. Sometimes they just cause you some embarrassment or something else that’s less of an issue maybe. You can’t be afraid. There’s only one path and it takes you through the minefield. Let’s go to our Notes and Bolts.

I have nothing off the top of my head, so I’ll let you go first.

Mine’s not particularly juicy, but it circles back to what I was talking about. You have to be set up. You have to create the conditions for success. If you have an IRA that you want to use to invest, you have to be set up with a custodian or as a Checkbook IRA to be able to do this. I want to tell everybody however long you think it’s going to take to set up your Checkbook IRA, allow far more time than that. Give value to my pain by learning this from me.

My Note and Bolt, one of the things that I’ve started to do is, I do it several times a year, but especially right before winter is I have my preservation company go out and do an inspection on the property. It’s $25 plus or minus per property where they’ll go out, they’ll snap some pictures, notice if there’s anything wrong, but also notify you, “The grass is too high,” or “There’s trash in the yard,” and take pictures and stuff. This is the time when many of these jurisdictions start going out there and start charging $300 or $250 because the grass isn’t cut.

April showers bring code enforcement, as well as May flowers.

Especially if you have vacant properties, make sure you get on a program to get the grass cutters by a local property manager or somebody. Make sure it’s getting done. Check on the properties that you have because there could be ones that you may have borrowers defaulted or even somewhere. I’ve got borrowers who are paying that are renovating or not in a property. You want to make sure the properties are taken care of.

I do get all my pictures from Code Enforcement and these nice letters that they send me. They’re sending to an out of state owner and they give you ten days. It takes five days to get the letter. Thank you, Chris. I learned a lot. I hope everyone did. Think about who you are and whether if you’re hesitant to invest, maybe you’ve got some things to think about in your past and that could help you move forward. Please go to our website, www.GoodDeedsNoteInvesting.com, sign up on our mailing list for great tips and look on all the terrific tapes we put out regularly.

We have about 50% of the last tape under the agreement and either sold or due diligence on. That’s good. As we say as always, go out and do some good deeds.

Thanks, Chris.


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