- May 12, 2020
- Posted by: august19
- Category: Podcast
How do you deal with clients and even contractors affiliated with your note investment business? In this episode, Chris Seveney talks to Deepta Hiremath, a fellow real estate investor and note buyer. Chris and Deepta talk about notes and other real estate in general, tackling factors that one should look for when buying notes, including working with the right contractor and attorney. They share experiences working with borrowers and how they screen them, as well as how to price a certain asset. Learn more about note investing in this engaging episode.
Listen to the podcast here:
Notes And Real Estate Stories With Deepta Hiremath
We’ve got a special guest up in the Philadelphia area. Deepta Hiremath is here with us to talk notes and other real estates in general. I had reached out to people in the Facebook group Notes and Bolts and had requested people who wanted to come to share their stories. Thankfully, you responded to us. I am anxious to get you on because Gail has said a lot of great things about you. How are you?
I’m good. At these trying times, I’m doing well. I see a lot of buying opportunity, which is heartening in the note space. People are coming out of the woodwork trying to send me stuff, which is nice. It keeps me busy, occupied and out of trouble. Let me give you my background. I am an engineer by profession. I still do some engineering stuff, mostly computer science. I started some time back in 2005 in my investing career. I realized that I love real estate. I started buying property in Philadelphia, Pennsylvania. We then had the 2008 crash and we had a ton of short sales. I’m a licensed realtor in Pennsylvania and I started working the short sale market where I would close 5 to 10 deals a month.
I was called by Dave Van Horn and he’s like, “Why are you doing this again? Why can’t you be the bank? Why are you running to Home Depot doing all this stuff? You shouldn’t be doing this.” His words were, “You are a knucklehead. Why you’re doing this?” He explained it to me and then taught the second market space. I thought it was a hoax because I’m like, “Who pays on the second mortgages? This looks too good to be true.” He’s like, “Try it for yourself. You don’t have to do anything.” In short sales, I was noticing that there were second liens on properties that were being paid on the hand for about $5,000 to $8,000. I’m like, “Dave, you can only get $5,000 to $8,000.” He’s like, “That’s not true.”
That’s how I started learning. I learned all about this space. It has been wonderful for me. By buying second liens, I also learned about first liens. They are not as I thought as long as you do your due diligence. As an engineer, I started to simplify all the due diligence stuff. I wrote lots of scripts. I’m still on them. People come to me when they have to look at 400 or 500 loans. I go through and scrape all these different things from different websites. We then can analyze them real quick. That’s how it all started. I’m looking at all stuff that has been coming across my desk. It’s been a nice journey and I’ve made quite a bit of money. It’s funny, sometimes when I look at notes in the first pass, I’m like, “This guy’s going to pay for sure.” They surprise me and they don’t. The ones that you’re like, “They’re never going to refinance,” they do and you’re like, “What happened here?” It’s been like a box of chocolates for me.
I’ve had some borrowers that I’m like, “There is no way this is ever going to pay.” I had one that’s been a thorn in my side. I joke to the attorney and I’m like, “Let’s offer a deed in lieu again just to see what happens.” The person hasn’t paid in eighteen months, but we know. He laughed at me when I asked the question and then he calls me up. He goes, “She’s going to sign it.” I’m like, “She said that last time.” He was like, “This time, she looks serious.” She then signed it. You got people who pay all the time and all of a sudden, they go dark on you. I can relate. You’ve been around for several years in the space.
Yes, but I still haven’t gotten used to the pre-call with the pricing. I’m like, “There’s no way I’m going to pay this money for this loan. It makes no sense.” I’m glad to see that they’re back in the same ballpark that I started years ago and I’m loving it. I’ve realized that people are overpaying. If they ever made notes on ballpark pricing, they should never steal from, they will make a lot of money.
I was speaking with another investor who talked about a study he did, where he bought something that was low-balance and low-price. He bought it for $0.37 on the dollar but still didn’t make anything at that because it was such a low-priced asset. It’s good to see and share that because a lot of people who are paying $0.50 to $0.60 on the dollars for some of this stuff you look at and say, “There’s no way they’re going to make money.”
They might surprise me and make money, but it’s not a calculated risk. That’s what I’m always wondering, “Should I take this risk or should I not?” There are many caveats when you started the discussion saying, “What are the gotchas in buying notes?” The first gotcha is low-priced assets and low-priced houses. Also, the fact that they’re overpriced. Even the low-priced ones are overpriced. In any part of real estate, the price and the assets are the biggest risks. Once you know how to manage that, it’s a no-brainer.
I’ve been doing this for years. A lot of people in this business that I see completely ignore risk. All they do is, “I plugged it into my calculator and this is what it says.” I laugh at that because I’m like, “Your calculator is as good as toilet paper in the sense of you’re guessing.” It’s garbage in, garbage out, whatever you put in there, but you’re never going to be right. You’re trying to predict where about you need to be. At the end of the day, you can have the greatest calculator on the planet, but if you don’t know what you’re doing or understanding risk, it is worthless.
A lot of note investors come into the space without going through the brick-and-mortar. They don’t understand. My experience has been I started from brick-and-mortar. I know what it takes to rehab and take back a house. I know the city runs behind you for violations and then you have to hire contractors. Especially in the note business, you’re rehabbing remotely. You’re from some state and the property is in some state. You need to understand if you are doing the rehab or if you’re the GC on that, are you trying to get rid of the property? Who do you call? What do you do? How do you research? How do you get rid of the asset? These are all things that you have to be aware of. That is something a real estate investor does know how to do versus a note investor.
I would add too that a lot of people are getting into the notes because they don’t want to do the real estate side. I viewed notes more as the advanced degree to real estate, in that sense. To be good at it, not only do you need to know the rehab costs, fix and flips and everything else. You then got the financial aspect of it, which is even greater because you have to understand the borrower component and then understanding, what if they do pay or don’t? You then have to look at the second part of that, which is, if they don’t, what am I going to cost to rehab this and everything else without even knowing what the inside of the property looks like? Your risk is much higher so you need to be much more sophisticated.You always have to plan for the worst and hope for the best. Click To Tweet
You have to plan for the worst and hope for the best. That’s how you price an asset. There are many different points of research. There are data points that I look at before I even buy a note. You’ve got to be smart and know all the things. You need to know what you’re getting into.
I was seeing somebody on a website talking about all these advanced strategies in note investing and so forth. The person hasn’t bought a note. They don’t know the difference between assignment of loan and they’re trying to get super creative on the backend of something. I made a comment to him and I said, “You need to understand and learn this process.” That’s one thing too because for me, I find training in this space difficult. It’s like teaching somebody to do a fix and flip. Unless somebody is going to be with you for the next 12 to 18 months, it’s difficult to learn a lot over the course of a weekend. I want to know your opinion on that.
I have done it through the school of hard knocks where you’ve had contractors, you gave them statements of work, you talk and pin them down. They’re in control. Whatever you might say with your pin down statement of work, at the end of the day, the guy needs to show up and do the work. You can keep doing what you’re doing. He’s in control and he can tell me, “Leave the job.” I can do all my due diligence on this contractor, but that doesn’t mean he’s going to show up to work. I’ve fired people, I’ve sued people and I had done everything. There are some good guys and some bad guys that you can’t differentiate.
When you’re walking into a new relationship with a contractor, it’s almost like a marriage at that point for a couple of months. You’re married to this guy and he’s going to try to squeeze every dollar out of you and that’s pretty much it. You have to watch out and make sure you have all your checks and balances are in place and verify that the work is being done because there’s no amount of them telling it’s done. Until you see it, you shouldn’t be paying them. You need to have some boots on the ground going and checking because you can do all these Zoom calls or WhatsApp calls with him. You look at a ceiling and he’s like, “I painted it,” but you can’t really see. You don’t know for sure.
You don’t know what quality is it. Gail had shared horror story of trying to renovate from afar. I’ve tried it and I flat out, don’t do it. The reason being is I work full-time in the construction industry. I’ve dealt with union contractors who threatened to throw me off roofs in the past. I built the single-family residence I live in. My wife and I were pretty much here almost every day and it is still a challenge to go. In the day that we weren’t here, everyone would try and cut corners. Doing it from afar, I can only imagine how challenging it is. I respect the people who do it greatly because of the patience and diligence you need in getting it done. For me, I don’t know where I would find the time. I’m an impatient person. I would lose my patience quickly with somebody and be on my fourth contractor after about two weeks.
I’ve done two remote rehabs. The one in Atlanta was good. I was blessed, but the one in Mississippi was not the greatest. I have good experiences, decent experiences, and I’ve had bad experiences too. It all depends. At the end of the day, it’s luck who you find and how you get it done. There are a lot of things but the main questions were, “What would you buy? What are you looking for? What are the ‘gotchas’ you’re looking for when you’re buying notes?” I have a litany of them. One is any house under $60,000 is not worth buying. Please don’t buy it. You’ll be a slumlord. It’s not worth it. I don’t know if you agree, do you agree?
I have bought stuff under $60,000. I’ve had some stuff in Gary, Indiana that I’ve been able to make money on. For me, it goes a little deeper. One thing you talk about in that is if I take a property back, I will not renovate it in those areas because you’re not going to find good contractors and stuff. I bought that stuff but I would agree, my preference are properties that are between $70,000 and $150,000. That is a little more challenging because price points get higher.
My sweet spot is between $150,000 and $250,000. The reason for that sweet spot is I can rehab it. I can put a tenant, buy it, and hopefully, they’ll buy it at some point. Number two is I don’t like older borrowers in the 60 or 70-plus range. When I look at a note, I’m looking at their age. The reason is you’re looking for a hump. If something happened in your life, you went to a spot and you’re recovering. If you’re in your 40s and 50s, you’ll have time to recover. At 70-plus, you don’t have time to recover. You’re on a fixed income. There’s nothing much you can do. The only thing that can happen is you die and some relative wants to stay and keep the house. You work out with the relative and eventually, it will get sold. You don’t know that while working into a note. I have had a lot of experience with that. What do you have to say?
I agree in a sense because you don’t want to throw out the 80-year-old lady in the house. Back to your first comment, the houses that I buy that are lower valued, I buy them with older people in them. The reason I say that is because they are on a fixed income. If the payments are $400 or $500 a month, they’re the ones that have continued to keep paying. That’s my only caveat but I don’t like borrowers who are either very young or very old. One of the things I don’t like about very young is in a lot of instances they don’t take care of the property I found as much. On the flip side, a lot of them aren’t as sophisticated, so when you start legal, they get scared. When I say young, I mean under 30s from that perspective. The sweet spot I find is people who are in the age I’m at, which is in the mid-40s because a lot of people at that age have families and the last thing they want to do is move.
The big one is don’t ever get into a note of the borrower from an attorney. He or she will make life a living hell. Ask me how I know.
I had an asset that I was going after in Florida and I didn’t want it. Somebody I knew was interested in it. It’s $1 million property in Florida where the borrower was an attorney. It was an investor wanting to buy it. They were newer too, but they had a friend who had a lot of money. I told him, “You are nuts trying to buy this. It’s $1 million property in Florida. You’re never going to get this property from this guy.” I don’t think they ended up buying it, but you’re right. The other one that’s interesting who I’ve had trouble with is properties that the borrowers are realtors. I’ve had two of them where they’ve been challenging. The reason being is they think they know more about laws and stuff than they do. They think they know how the banks work and what they can and can’t get away with and they don’t. I don’t know if it’s just the borrowers I had, but I’ve had two realtors that I’ve had trouble with.
I haven’t had problems with the realtors. I had one in Massachusetts, where the realtor was the daughter of the borrower. She got me and she’s like, “What do I do?” She helped her mom refinance the property. It was a happy ending for me.
What are you doing buying in Massachusetts?
I have no issues buying in all 50 states. I do not care.
You hit on a great point because a lot of people are scared. I bought some stuff in New York, outside of the city. From that perspective, people are like, “You’re nuts.” I’m like, “It all depends on the price you get it at and knowing that you’re getting into.” I threw that out there, but it’s interesting because as people get more experienced, you don’t care. You need to understand the rules of the game and make sure that you price it accordingly.
Another important issue is I’m only playing with my money. My money can be patient. When you’re dealing with investor’s money, it’s different because you’re like, “I need to give them a return.” I don’t care about the return. I’m going to sit there and wait. I had one in New York that started in 2012 and ended in 2019. It’s a long time. I had to fire three attorneys who do all that stuff because they aren’t doing the stuff. In New York, you have to keep on top of the ball and you’re just a number in the attorney’s files. They want to accumulate all these cases and bill you for nothing. You have to deal with that. The important thing is attorneys are like contractors. You need to treat them like contractors. You need to keep on the ball. Every time an attorney says, “We have a motion that’s due at a certain time,” I put it on my phone and on that day, I will send him an email saying, “What happened to my motion? Did you file it?” “We have to make an appearance on this date for this hearing.”
The previous day, I would send them a note, “Are you ready for the appearance? Please let me know as soon as you make it back.” Sometimes they forget. How do you forget an appearance? It’s ridiculous. You need to go through that bill with a fine-tooth comb because half the time you’re billing for the same thing. A lot of times people who are new don’t get it. I’m prepping for an appearance. You then attended the appearance, then you’d write something else. What I do is I pretend that I don’t understand it. I’m not paying any attorney without going through the bill with them. I’m like, “You’re not charging me to discuss your bill, are you?” They’re like, “No.” “Let’s go through every file. What does it mean you’re prepping for it? How many hours did you take?” “Two hours.”
“Your hour is worth $200. It is $400. You then went to the hearing. How long did the hearing take? Why am I paying you to sit at the courthouse and you charged me $200? It has to be a reduced rate. You’re not using your brain and your expertise at the courthouse. You’re sitting there waiting.” You’ve got to go through that with a contractor too. If the contractor says, “It took me all day to go to Home Depot.” I’m like, “What were you doing all day in Home Depot? I’m not paying you for that day.” These are things you have to watch out. You have to make sure all your attorneys follow Fannie Mae rates. You have to make sure that they charge a flat fee. If they charge you hourly, then it’s time to let go of them because the hourly bills add up.
I’ve got one who I’ve told, “I can’t afford you anymore. You’ve got to give me something.” I’ve had an attorney in Florida, who I would never recommend for anything. They’re horrible. That goes to show that attorneys range, some are bad and some of them are decent. I had one that was following and charge me Fannie Mae. He’s like, “On top of it, I had to review the complaint. I had to review this and I had to review that.” I’m like, “That’s all part of Fannie Mae’s rates.” He’s like, “No.” I said, “I’m not paying you to review. You’re paying somebody probably $50 an hour to write a complaint. Do you charge me that much? I’m not paying.” They then filed it incorrectly and had to refile it. They charged me a refiling fee and I’m like, “No.” They then gave me some sob story about how they’re losing money on this and how good of a deal I was getting. I’m like, “You charge me at the end of the day, $9,000 for foreclosure in Florida. You should be in prison for that based on some of the things you’re doing.”
Your attorneys are important to stay on top of because time is money. It’s the same thing, in my phone, I put in a specific Google Calendar that has legal. I put it once the demand letter expires because if you don’t put that on your phone or something, there will be 30 days and then 50 days later you’re like, “What’s going on? The demand letter expired. You didn’t tell me what to do, so nothing happened.” You’ve got to continue and keep that ball rolling.
You have to be on top of it. Don’t expect attorneys or contractors to be on top of it. It’s your money and every day that it’s not being put to work, you’re wasting it.
It’s the same thing with your servicer. If you go online, you see somebody hasn’t paid and missed a few months and stuff. You reach out to your servicer first. What is the responsibility you have for them? Did they reach out? I have some loans with a servicer that handles the workouts and stuff. I’ll go look and someone hasn’t paid in two months and I’ll look in the servicing notes and I’m like, “Have you reached out to that person?” He’s like, “No.” I’m like, “What am I paying you for?”When you're walking into a new relationship with a contractor, they will soon squeeze every dollar out of you. Click To Tweet
I don’t allow my servicer to do anything of that sort. I spent about half an hour every month to see who paid. As soon as they stop paying, I’m on the ball. I’m calling the attorney and saying, “Let’s send them a demand letter.”
I learned that from Matt Kelly. When I was getting started in notes and stuff, a lot of people spend so much time trying to work with the borrowers on these things. I fall into your court now which they miss a payment and I’ll talk to a servicer. Some of them will call in, but a lot of them now. I’ve moved over to Allied who I do the same thing. If they’re not paying, whatever timeframe hits, a turnover, and I send a demand letter. I don’t try to reach out and do all these workouts with them because they’re not going to respond to you. I just let the attorney handle it.
I have demand letters for every state. I can send them the demand letter by myself. That’s what I do. I send out the demand letters in 30 days. I have it on my calendar. I already have the attorney lined up and the attorney files the complaint. No excuses, no-nonsense, just do it. File a complaint and let’s move on.
One thing I haven’t moved over to yet is sending my own demands. Once you have sent one in the state, you’re changing.
I always negotiate with the attorney. Before I even hired him, I’m like, “How much for the demand letter?” He said, “It’s $250.” Fannie Mae’s rate in those states is $2,500 minus $250. It’s $2,250 that you are dealing with. I also get my own title search done because they charge $300 for a title search and then another $250 to review the title. I’m like, “How hard is it to review a title search?” Read through it. I can read through it and figure it out. I am like, “I review the title and it looks good. You can review it but you’re not getting paid for it.”
I always order my own title. There are a few states where I’ll have the attorneys still do it because some of the title companies I use are in a few quirky states. Alabama was one of them. That’s a little more challenging to find title companies. I’ve been using Meridian Title who’s been able to cover a lot of my states.
I use ProTitle.
Do you use ProTitle for everything?
I use them for everything. I use Alex because he is half an hour away from me.
You can go beat on his door.
If I’m researching loans, I get the $1 title search time. If I’m in doubt, I get that $1 thing. It’s pretty cool. It gives me mortgages in the properties that have any liens and that’s about it. Sometimes, I use it because if I like the note quite a bit, then I will pay the $1 and get that done.
I haven’t heard the $1.
You need to call Alex and ask him for the $1. It’s not like the former title. They’ll give you the last few liens and if there are any mortgages on the property. You can go to RealtyTrac and not be out and see it. If you go to RealtyTrac, you can’t see who was the first lender but you can see who’s the current lender. You can do that with a credit report and figure out who’s the latest one. With him, you pay $1 and you can get that information and match it up if you’d like.
I use something called DataTree, which gives similar information.
It’s the same thing. Within 24 hours, you’ll get the same thing. You can do this bulk thing with him too, where you send him how many of the properties you’re looking at. I think DataTree is expensive. I don’t know what it costs.
It fluctuates. I’ve been a member with them for a few years. I got it at a good price back in the day. It’s a buydown. If you’re paying $100 a month, you get to use $100 worth of reports. You can order any report from them and it would cover your cost for the month. I can order things there. I can find out, how many liens are on the properties? If there are HOA liens on the properties? Who’s the borrower on the title? Does the borrower have other properties that they own? I find it useful because a lot of times, you’ll get properties that a person bought as a rental, then they want to let it go. All of a sudden, they are living in a $750,000 house with no mortgage and they think, “Nothing’s going to happen if I let that walk.” They do not realize that a judgment could appear and get slapped on that property. You can get a lot of useful information from DataTree and order a lot of reports from them as well.
I tell you what I love about certain notes. Anybody who’s the lender works for the bank, I love those notes. The reason why is because they can’t declare bankruptcy. It doesn’t matter what it is, they can’t.
They can but they’ll lose their job.
Nobody wants to lose their job over this bankruptcy thing. I love bankers. I love anybody who has a white-collar job because you can call them at their place of work and they don’t like that. I love police officers. People in the services because you can call the commanding officers and say, “I’m trying to reach so and so. Can you please tell him to call me about some unpaid bills?” That’s all you have to say. I love those kinds of people. Somebody who has a steady job, whether they work at a Home Depot or Costco or is a white-collar person, a doctor, engineer. Another thing is I don’t like people who are self-employed because they come up with everything in the book to not pay you. Any kind of scam, they can declare bankruptcy, they can do all these things and delay the inevitable.
They fall into contractors because if you’ve never seen a contractor’s house, it will never be 100% finished. It’ll never be more than 90% finished because a contract will get to a certain point where they can live in the house and then they never finish it because they’re too busy working on other people’s houses. That’s one that I’ve known for a long time when I was going to build a house back in the early 2000s. That’s what somebody told me, “Go to a contractor’s house and look at their house. If they finish their house, that’s a good contractor.” The first place I went to, I walk in and their house wasn’t done. They can’t do their own house.
I love any white-collar workers. A lot of them, as soon as you send them the demand letter, they’re like, “Don’t tell my wife. Let’s figure out how to take care of this.”
Do you run credit reports?
Yes, I do. I am the ‘gotcha’ in the credit report. When I look at a credit report, it’s like reading a story about this person’s life. I’m looking for that typical something happened, and he’s back on track or whatever. I always emphasize, the report needs to be 3 to 4 pages or max of 5 to 6 pages long. If it’s like a book, like 30 pages, then it’s not a report. It’s somebody who is a deep hole and there’s nothing you can do to get them out of it. I’m looking at the credit report to see, what happened? Did they jump off a cliff? Are they back yet? It gives you a concise picture of their life. We’ll see some medical bills. They had some medical issues. If you look at a borrower, they have three big problems in life.Do not get creative with other people's money. Get creative with your own money. Click To Tweet
All life can be thrown into three buckets. What are those three buckets? Job loss or reduction in income. The next one is they had a medical issue and the last one, they got divorced or the love issue. That’s it. You can simplify life into three buckets. That’s all of life’s problems are. When I’m looking at the credit report, I’m looking, “He had a medical issue. He had a divorce. I can see that.” I know then what’s going to happen to this person. That’s all you have to look at. I look at the age. Sometimes I do look at employment. I do a Google search on the borrower to see if they’re employed or not. That’s good enough. There are many ways. On Facebook, I have a lot of borrowers, who are my friends and I track them. I see, “The guy’s gone on a vacation. Is he going to pay me next month?” That’s the reason why I don’t share any information about my family. I’m always in close groups. You’ll never see me telling you about my vacation or my family, any of that stuff because a lot of my borrowers are friends with me on Facebook. I’m watching them real close.
I haven’t gotten that far. I did have a borrower take his wife on a vacation for their tenth anniversary, who hasn’t paid their mortgage in about eighteen months. With a few witnesses somewhere in the past, but it’s amazing how borrowers can juggle a bank account to keep it closest to zero. It’s like The Price Is Right. Let’s keep it as close to zero without going under zero. I’ve seen bank statements every month come back at $0.67, $1.27, $2.36. That’s not just one month. That’s every single month. I’m like, “That’s hard work.” If you told me I had to balance my account in a specific number every month. They’re doing it literally. These are on some loans where people aren’t even paying. That’s one of the challenges sometimes you have with them. I had a conversation and it’s like, “You’ve can’t afford this house. You got so much equity and invested personal loans.”
When I do a workout, I send them a demand letter. I don’t talk to the borrower. I liken the foreclosure process to a bullet train. Nothing’s going to stop it. The only way you’re going to stop it is when you put money down at the speeding train. If there’s no money, it runs off the track. They’ll call me a day before the sale or something. It’s ridiculous. I had this experience with this guy in Florida. He calls me up and he’s like, “I saw this notice from the sheriff.” I’m like, “Okay.” “It says I have to move out in 24 hours. What’s your advice?” I’m like, “Start packing then.” That’s my advice. He’s like, “I want to stay.” He was working for a car dealership or something. I’m like, “Explain to me how much does it cost to rent the same place somewhere else.” He’s like, “It’s $2,000.” I’m like, “That includes first and last month, and one-month security.” He said, “Yes. What does it cost to reinstate?” I said, “It’s $2,000.” He’s like, “I have $500. What’s your advice?” I’m like, “Start packing.”
He calls me back in two hours and he’s like, “I have the $2,000.” I’m like, “Here’s the bank account. Go deposit it. Once you deposit it, I’ll talk to my attorney and stop the foreclosure.” They don’t seem to get it that you’re serious until you tell them you’re serious. I don’t know why a lot of investors believe in good things. Everybody wants to do good, but you are in the business of making money. The way you’re going to make money is you all have a responsibility to your family. Until you collect that mortgage payment or you’ve collected sale proceeds, you’re not doing good to your family. You don’t have to do good to others. Your responsibility is towards your family.
My first foreclosure was in early February and the borrower called the attorney the day before. She’s in tears and crying and stuff. I said to the attorney, “This is my first one.” I know he can’t recommend anything, but I said, “What have you seen in the past?” She said, “90% of people who cancel a foreclosure end up going back into foreclosure in the next 3 to 4 months.” This woman was on Facebook. I could find her Facebook profile. She was going out to all the holiday parties and everything else. We had asked for $2,000. She said, “I only have $300.” We ended up foreclosing on her. You brought up a good point where people sometimes are trying to do the right thing by keeping the borrower in the property, but there comes a point in time where you need to look at it from a business perspective. When you see somebody hasn’t made a payment in a year and they balance your checkbook with a dollar in it every month, know you’re not doing that person any favors by keeping them in that property. You are hurting your investment.
When a borrower calls me and says, “Let’s do a workout,” I’m like, “Everything has to be validated, but let’s go through.” We go to expenses. “What’s your gas, cable, and electric bill? What’s your insurance?” We go through everything. Sometimes I’m like, “You have no money left at the end of the day, how are you going to afford this house? Maybe it’s time to think about selling it.” That’s the time when they were like, “My son pays me. This car is owned by my son, I’m driving it.” They’re trying to convince me how they can afford to live there. I’m like, “Clearly we need to sell this. We need to do this.” They’re like, “No.” That’s when the truth comes out. “My son helps me. It’s my daughter who pays the electric bill, whatever it is.” Finally, at some point, I’m like, “Based on this, this is what you can do. Is that a true statement?” I then get all the bank statements and all that other stuff that I’m looking for. I’m making notes and verifying everything. I look at these bank statements and I’m like, “Why aren’t you paying $30 for an overdraft? You can’t afford this. How do you pay these prices? Why did you check your balance at the ATM that’s costing $3? I don’t get it.” You’ll see that they eat at McDonald’s.
Whenever somebody puts on the paper, they’ll say, “My expenses are $800 a month.” Whatever that is, you multiply it by 50%. When you get the bank statements, you’ll verify it because people like, “I’ve got my cell phone bill of $150. My cable bill is $150. I’ve got Netflix.” How much did they spend at Amazon? It’s the whole disposable income thing that they spend. That’s why I like to reference a lot of times the VA has some guidance based on what disposable income should be for the number of households, people in your household by region and stuff. I’ll pull that out, especially when I’m reviewing low-mods with people because if I reject it and go to foreclosure, I’ve had in mediation. In some foreclosures, they will be like, “Why didn’t you approve of them?” I said, “I use the government standards. I’m following what everyone else does versus trying to create my own.
I’ve been in mediation. I’ve always known that it never goes well for anybody, not for the borrower or for the lender. Mediation doesn’t seem to be in anybody’s favor, including the borrower. It only delays the inevitable. In many cases, the mediator thinks that the property is not valued. I’m dealing with the appraiser. I had one in Brooklyn, where the mediator thought that the property was not worth what it was worth. We found out that that’s not the full statement. The mediator said, “Done.” It delays the process. It delays what needs to happen.
All it does is it puts them also further behind the eight ball in many instances if we’re trying to come up with something as well.
With the COVID thing, a lot of people were coming to me and saying, “I don’t want to pay my mortgage.” I’m like, “You have two choices. You don’t pay your mortgage and you wait for three months. You want a reprieve for three months, that’s great. After that, you know that all three payments are due.” They’re like, “No.” I’m like, “Read that.” I am helping you and there is lots of assistance. The lady in New York, I’m like, “Here’s the link to the assistance. Go and look at that website. Get the money that they’re giving you to pay your loan. I don’t get it why you don’t want to go there?” I’m asking for proof. I’m like, “I need to see that you got laid off.” I need to see that this lady was babysitting or something so her employer sends her the note. That doesn’t mean anything. You are not taking government assistance because you can’t prove it. Coming up with excuses for the Coronavirus is not going to work.
I had a question that popped in my head. It reminded me about a borrower I had with Coronavirus. Do you buy loans and bankruptcy?
Yes. You have to be careful with them because you have to check if that’s 7 or 13. My belief is if you’re a thief, you’re always a thief. When I do due diligence on a pool of notes, I’m checking for bankruptcy and what Chapter. I’m checking when they declared bankruptcy. If you declared bankruptcy ten years ago, that’s fine. If you had of Chapter 13, I’m checking if the liens are stripped off. If it was stripped, I’m not buying that loan. If it wasn’t stripped, I’ll buy that because I know that I will get paid. We only have to file a transfer claim and get paid. If the lien has not been stripped, we can address it once they complete the bankruptcy and start foreclosure proceedings when the borrower somehow conveniently thinks that his lien vanished after the bankruptcy. This has happened in Chapter 7 cases where people think, “I declare Chapter 7. Everything is fine. It’s a fresh start.” No, the property still owns the loan. You don’t, but the property does. If you want to stay in the property, then you have to pay.
I love Chapter 13 in the sense of if I’m doing due diligence on a note and the person’s been in Chapter 13, if they file many times, I usually won’t get involved in that note because they know how to scam the system. Notes that are in Chapter 13, if they’ve been in there for 12 to 24 months or longer, I pick those up all day long. You look at the plan, if the plan is a 60-month plan and a person’s right around 20 to 30 months in, they’re halfway to daylight. You can see, when you run the report at PACER, they had some medical bills and a lot of credit card debt. That credit card debt all goes away if they can make it through this. I’ve had good luck with some of those. I have a borrower who filed Chapter 7. It was an investment property and never signed a reaffirmation agreement and had mentors in there and the servicer is like, “We can’t do anything. The person had been making some payments, but you can’t go collect that money.” I hired and told the attorney, “Let’s go foreclose on the property.”
I don’t care about any of that reaffirmation. You can’t afford it, it doesn’t matter, we foreclose. I don’t like this Chapter 20 business that I’ve been reading about. It’s a total scam.
I’ve got a Chapter 20. They did a 7 and flipped it to a 13, and it’s Chapter 20.
I hate it. It’s double-dipping. Some big banks need to step up and say, “No, this is not allowed. You’re gaming the system.”
That’s the first thing I asked attorney. I’m like, “This person file Chapter 7. They said they wanted to keep the property. They didn’t make any payments and so forth. They get it approved and then turn around.” We sent them the demand letter. We filed a complaint. They get the complaint and all of a sudden, it now it’s like, “Chapter 13.” The interesting thing though is we’ve got the plan submitted. Their arrears or pre-petition is $29,000. Their payments are going to be about $500 a month on top of their payment, which was about $700 a month. They want to pay me $1,200 a month. I’ll take it for this loan, but we all know where it’s headed. I got a notice and I’m like, “The person hasn’t filed tax returns in two years.” The trustees are saying, “We’re not approving this plan because first of all, he’s never filed tax returns.”
It was dismissed for lack of documentation or something. It shows up. Bankruptcy laws are changing. A lot of things are changing. You need to be careful. I can’t stress it enough, due diligence is the key to success in this business. You have to read a lot, know what the new tools and laws are, what is the statute of limitation, what are lending licensing requirements, all of these things you need to understand. These are all tools. It is like a contractor that can’t fix a house without a screwdriver, a hammer, a chainsaw, a chisel, and all these other power tools that you need to have so you know exactly how to use them.
It is funny you mentioned that. I got a tape from somebody and 90% of the assets on there had all passed statute of limitations. Some of them hadn’t made payments in fifteen years. I know a certain state, I’m like, “It’s a seven-year statute of limitation. You can’t get anything from this. You can’t collect it.”
You have to watch those tools. A lot of times, please do not ask an attorney for business advice. He’s the wrong person to ask. You have to be cognizant of the rules and you need to sometimes teach your attorney, “Can I sue if a note was a foreclosure? Do you think that’s more beneficial?” Ask him legal advice.
Don’t ask them for tax advice. I know people ask their attorney for tax advice. That’s the worst person. Everyone always thinks and confuses too like, “I got an LLC for taxes.” I’m like, “LLC does nothing to do with taxes. It’s asset protection.” One thing I’m curious about your opinion on this because you’ve been in this business for a while. Sometimes, people try and get too cute and creative on certain things, whether it’s setting up their business or trying to do creativity of notes or even like JV. They can’t get to use their own money, but with other people’s money and stuff. I see a lot of that and it makes me want to rip my hair out and scream. I don’t know if you’ve witnessed that as well.
Do not get creative with other people’s money. Get creative with your own money. If you’re going to lose it, that’s fine, but not with other people’s money. You will end up with the SEC. Don’t do that. Orange suits are not good in this business. Remember, do it legally. Don’t go and change locks and get on TV. Please don’t do that. Be with the sheriff to evict the person after the foreclosure. Let the legal process take its due course. Don’t show up and start rehabbing it after the foreclosure sale because you feel it’s abandoned. Don’t do dumb things like that. Wait for a month. It’s not going to kill you if you wait for a month and have the sheriff how up. The sheriff documents that he showed up and he gave you permission to change the locks. It’s no big deal. Do it the right way and you should be fine.
I saw the report about landlords and people taking their Social Security numbers to check if people got their stimulus money and stuff. I see that and I’m like, “They’re going to be in prison.” I saw a comment that somebody out there is pulling people’s credit reports on things. Even if it’s one loss that you might be able to do it, I’m like, “Whatever you do, if something is questionable, run it by your attorney.” I have my attorney on speed dial. I run a thousand things by him and sometimes he goes, “No, you can’t do that.” It’s like, “I’m glad I know that.” You’ve got to be smart.
Don’t do and say dumb things to your borrowers. They’ll ask you, “Do you think I should do this?” I’m like, “I don’t know. Contact your local attorney and talk to them. I am only here to collect on the loan. I don’t know anything else.”Success comes with a good team, calculated decisions, and being responsible for your decisions. Click To Tweet
Don’t give them advice. Don’t threaten them.
That is true for all tenants and people who do not belong to your immediate family. Do not threaten.
The way I’ve operated my business, anytime it gets to a point of conflict in the sense of, if something isn’t working out, whether it’s a tenant or a borrower, I’ll say, “I’m turning this over to my attorney.” Let them deal with it because sometimes it can get contentious and I’m not going to be put in that position. I’ll make an offer to somebody.
I have a better position than you, Chris, because I’m a woman. My boss, he’s a big mean guy. You can talk to him and I call him my friend. I’m like, “Can you tell them that I work for you?” and I will listen to them. If that doesn’t work, then it goes to the attorney.
That’s one thing I do is I always tell whenever I speak to people. I always make it sound like there’s another decision-maker. It’s like, “I’ve got to bring this to the powers to be.” The powers to be are you, your dog, your fish, whoever can make the decision. I never make a decision on the spot with somebody. I’d be like, “Let me review it. I’ll get back to you within 24 to 48 hours,” from that sense.
It is important to have a good team to manage your business, make calculated decisions, and be responsible for your own decisions. That’s pretty much I can guarantee you success in any field if you follow that advice.
The one thing I’ll add to that is treat it like a business. There’s a big difference between a note investor and a having a note business. People do their own taxes or don’t know how to do taxes and they ask these questions. Certain people are qualified to do their taxes, but when people ask the question of, “How do I break out the principal and the interest in QuickBooks?” If you’re serious about the business, get somebody to do it or you can go take twenty hours to learn QuickBooks, which I don’t think it’s worth it. To you, maybe it is but get serious about your business in that sense. If you’re asking fundamental questions like that, that’s business 101. It’s not a knock if you don’t know the answer, but figure it out if you want to be serious. That’s something that you should know how to read your balanced statements.
I hate accounting. For me, I put all my entries in QuickBooks and I’m like, “Let me outsource whatever the things that I need to outsource.” I have this discussion with my tax guy every year. I’m like, “This is what I need to do. Is this what I need to do?” He’s like, “Let’s plan ahead so we know what we’re getting into.” I hate accounting. It takes away from the fun stuff. The fun stuff is buying the product and stuff and figuring it out. It’s all the mechanics. The attorney does everything. You sit back and you have nothing else to do.
The fun is buying. You can have attorneys for foreclosures, if you have collateral and stuff. If you have companies that can record and do all that for you. I said the fun part is getting a tape, breaking it down, wondering if you’re going to buy it. That’s what I enjoy. That’s what I love to do. That’s the only thing I do with my business and I outsource everything else.
Focus on your core competency. That’s it and you will succeed because the more you look at, the more stuff you can buy.
Do you have any final thoughts? If people wanted to reach out to you or ask you a question, is there a way to contact you?
My focus has always been on marketing. Try to market as much as possible, look at as many tapes as possible. That is my final thought. Reach out to investors and people. Find out if there are notes. There are plenty of stuff so there should be no problem securing some good ones. If you want to reach out to me, give me a call, (267) 218 1543 is my phone number. Text me before you call because I could be in a meeting or doing something important. You can text me and I can set an appointment. You can set a time and I’m always willing to listen to people who don’t have deals or have deals who want some help. I have many people who reach out to me. I’m also on Facebook. I’m on Chris’ group, so you can reach via Facebook. I am anyway that you like and I will be always willing to answer questions. I like to help people. Feel free to run anything by me that’s business-related.
Marketing is important for every business, but you’ve got to know where to market. If you’re looking for tapes and stuff like that, I see people posting a lot on Facebook groups and stuff like that. It’s great to get to know people in those groups, but most of the time you’re not going to find good tapes in Facebook groups and stuff. It’s more on networking.
I use Lane Guide all the time. I make phone calls to CU as a bank. I also have a good group. A lot of my businesses most of the time is done by a text. Somebody texts me about a loan and I’m like, “Let’s look at it.” I look at it and make an offer. I am of the philosophy that if I don’t make an offer, then I’m wasting my time. I’ll make an offer to them anything and they know I’m good for it. If I say I’m going to buy it, I’ll buy it and they know that. They would rather have me buy it, then put it out on Facebook and waste their time.
Deepta, thanks for joining us. It’s a pleasure as always. If people want to reach out to you, you’ve got your contact information. Thanks for coming on.
Thanks, Chris. It was fun.
- Deepta Hiremath LinkedIn
- Notes and Bolts Facebook group
- Meridian Title
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- Lane Guide
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