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Open Notes: Open Mic About All Things Notes

GDNI 18 | Note Investing


True to their promise to keep it open, here’s another Open Mic night with Gail and Chris where they openly share their insights and answer questions from different investors. Tune in and learn as they share their expertise and address questions about finding notes to bid on, tax on assets, selling notes, transferring ownership, partial loans, non-performing notes, and a lot more.

Listen to the podcast here:

Open Notes: Open Mic About All Things Notes

We want to be interactive and have your involvement as much as possible and trying to have it be an open forum. You can ask questions or if there’s something you want to hop on and put on video or on the audio to ask questions, be happy to do that as well. We try to set these up to have them be for you, to answer questions that you have because during the podcast we’ll talk about our story and so forth. We want to hear from you as other investors on things you might be struggling on.

We have a question about the Mastermind, “When do folks go to Austin in April for Mastermind? Do you go Thursday evening and do you leave Sunday evening? It will start at 3:00 on Sunday or early enough for people to catch planes.”

On Thursday evening usually, people get in town because of travel schedules and Scott starts early on Friday morning. Most people get there Thursday evening and hang out at the hotel. For people who are maybe not familiar, we’re talking about Scott Carson’s Mastermind that he has several times a year. You get there on a Thursday evening. When you leave, it’s whatever your schedule is. Some people leave Sunday afternoon, some people might stay an extra day in Austin on Monday. Depending on where Scott has it, he’ll let you know on the hotel. Typically, Stephanie will book a block of hotel rooms in the hotel where they’re having it. You get in touch with Stephanie and say, “Here’s my credit card,” or send in a form. She takes care of all that for you.

If you’re going to the Mastermind, start doing a lot of social media or you’re going to be embarrassed when Scott asks you to score yourself on how well you’re promoting your business.

One thing I’ll ask, whether it’s Scott’s Mastermind or any Mastermind, what’s something you should prepare for when you’re going into a Mastermind? How do you prepare?

I have a strict training regimen that involves running increasing lengths of miles. That’s not that far from the truth. I find it exhausting to be sitting, be alert, present and listening for that amount of time and then be networking with people into the night. They’ve all been slightly different for me. Scott does a good job. He definitely teaches and he wants people to participate. If someone’s working on an interesting deal, he’ll have them present about it. You do exercises, one of the most popular ones is what would you pay for this note? He’ll give you all the numbers and everything. After the whole table discusses what they would pay for the note and comes to a group decision, then he asks people to go up and explain how they arrived at it. I find that interesting how people work things out because we all have these elaborate ROI calculators. When it really comes down to, it seems like it’s always intuition plus some other Voodoo math that everybody thinks up on their own.

It’s back of envelope or back of a napkin is how in that time you have look at it. As you start bidding on a lot more assets, bidding on more notes, you’ll know where you should be if it’s a $40,000 note in a certain state. You’re going to know, “I’m probably going to be around $18,000 to $22,000.” I’m throwing numbers out there depending on the state. You’re going to have a very good idea after you start bidding and seeing where things are at. When you start getting results from people, you’re going to start seeing some pricing come back a lot higher and that’s where sometimes it’s better to wait.

With some sellers, they don’t counter. It’s a situation where they collect all the bids and they award them. If you don’t win those bids, it’s a good idea to always ask what price they sold at so that you start to build up your own little mental database about where the prices usually fall for different sellers. There are people like Dave Pollio where you can’t generalize about where the pricing is because he’s always representing different sellers. A guy who takes $0.49 on the dollar for one tape, that may not be a valid bid on the next tape. It’s good to know generally what things go for because you get a sense of the trend on things.

One of Casey’s things is finding notes to bid on. He hasn’t been hooked up with guys with larger tapes yet. It’s interesting because, for both of us, a lot of people we buy from still is that low-hanging fruit. Some of that low-hanging fruit of the contract for deed and notes and stuff, which I have a video on 70 investments on the YouTube channel that has fifteen courses online as well as some sellers out there that you can purchase notes. Feel free to go ahead and watch that.

Is there a name for that video?

If you've done your due diligence and you've said you'll close on a loan, you need to close even if you get cold feet. Click To Tweet

It was November 14th DMV Note Closer Meetup. For the most part, you’re pretty much buying only a few sources.

The problem is there can be many sources, but you’ll see things like some sellers only have expensive properties over $150,000. I’ve been seeing situations where you have to buy the whole pool and they’re not super cheap assets. There are a lot of situations where you’d love to be buying for more people but when you get right down to it you can’t. There’s always going to be a reason that you’re not in the running on that one.

A lot of tapes that I have been getting, it takes time to get to know who the players are and the people and networking. A lot of pricing has been absurdly insane. What I’m starting to see is people try and sell for the payoff, which is unpaid balance and work the percentage that way. It ends up being about $0.85 on the UPB but I caution people, total payoff is roughly what I believe it is. UPB is something that is clearly defined and delineated. The total payoff can fluctuate greatly and that can also be reduced out by bankruptcy even a foreclosure audit. Something may come back and something may have been either past statute of limitations and not recoverable in that State. I always crush people on that.

Here’s a question for you, Chris. The money that the seller paid for taxes or insurance or whatever, is that part of your legal balance once the asset transfers to you?

When you get a loan transferred, two things you should always do is get from the seller. They haven’t given you a total payoff, right before the loan gets transferred, ask your servicer for a copy of the loan transfer file. The reason I say that is I have had at least a half a dozen times where there have been payments of taxes of $3,000, $4,000 or $5,000. I had a note that had $29,000 in taxes and insurance paid that the servicer did not include when they initially transferred. Most people think that the servicer handled it and stuff but what happens is it’s the lingo that if it’s in negative escrow, one servicer may not carry it over but if it’s in corporate advances, they only carry that over and not the negative escrow. When you look at what the negative escrow is it’s like, “They were paying the taxes and insurance and they put it there versus a corporate advance.” To dumb this down, the principal balance could be $50,000 but taxes are $5,000 a year and haven’t paid it in three years, there’s $15,000 that you can collect. I always look at that as slush in the sense of, if you get a modification, you can roll that in. That’s money that’s due if it’s in part of the foreclosure. I don’t use it to bid off of that. When you transfer that loan, I can tell you I will bet that probably 80% of people out there don’t check the math to make sure the numbers are what they should be.

Even the UPB can change if they make a payment and that’s another thing. Talking to Jay Tenenbaum, our friend in California, he was talking about this one notorious servicer that basically it can be different in your purchase agreement on a note. Many of them say that as of the day you fund, any payments that come in from the borrower are now yours, the new buyer. That’s the cutoff date. This servicer seems to feel like it’s theirs unless you figure out that they’ve got it and asked for it. They never volunteer that they have it, it’s all just a game.

I know who you’re talking about because I was at the point where I almost had to sue them. Another question came through and it says, “Chris, working a full-time job, when do you schedule your phone calls to reach out to banks?” I’ll be honest, reaching out the banks is not something I do super often. The reason why is banks aren’t struggling. There are banks that have assets out there. I found one in Oklahoma that had four or five assets that they sent me the tape. At the end of the day, it’s stuff that was too hairy of assets but they were looking to move them. From what I’ve found, the time spent to try and find the banks hasn’t been worthwhile. I have to be focused on how I spend my time. If I’m getting tapes where I’m buying stuff from a seller who I buy periodically from and getting something once a month and I can pick three to five assets a month off that tape, I will. I need to look for other sources. At this point in time, if I do call banks it is typically during my lunchtime. Pick up the phone and call five or ten. What I’ll try and do is also reach out to them via email but that’s tough. I work full-time and if somebody sends me an email, cold out of the blue typically I hit delete. I don’t even read it. I’m sure banks do the same thing.

One thing I’ll mention about finding notes to bid on, in the note space, there’s a contract for deeds and notes. I would say there’s a lot more abundance of contract for deeds out there than notes. For people who don’t know the difference, a contract for deed is you still own the property and hold title to it. They have a contract that they get the deed after making so many payments over a period of time. If there’s a spot, in most states you have to take that property back and evict them versus a note. You have to go through the whole foreclosure process and typically you only get the house if it’s upside down. Where in a contract for deed, I’ve had one that the borrower owed $15,000 left on it and they walked from the property and I turned around, took it back and sold it for $30,000. Also have some that when you get inside, you wish you never had.

We have a question. “Do banks originate a contract for deed or is that only owner-financed?”

GDNI 18 | Note Investing
Note Investing: When you get a loan transferred, right before the loan gets transferred, ask your servicer for a copy of the loan transfer file.


Banks won’t do a contract for deed because banks are in the business of owning real estate. Banks want to lend money. They’re so restrictive from the government on what they can and can’t do for lending purposes. How contract for deed started, from my understanding, was they’re in the downturn and Fannie Mae had tens and thousands of loans. What they did is they turned around and sold them to these hedge funds like Harbour Portfolio, and Harbour took those and didn’t do anything for the house in many instances and owner-financed it to somebody. They’re paying $300 for these turning around, selling owner-financed for $20,000 making it $3,000 or $4,000 down. In some instances, the houses were very dilapidated. In other instances, the houses weren’t too bad. Then there’s another company out in California. Window Rock is another one. It’s several of these huge funds that would buy these tens of thousands of REO homes from Fannie Mae where they bid on them as pools. Notes get bid on and they turn on to some owner-financing.

Window Rock is the parent company for the brands we know as Home Opportunity, Camelback, Flatiron Holdings, Transportation Alliance Bank, all the RWLX, Siphon Draw. They have these twelve little funds underneath their company name.

We have a good question, “Can you do a contract for a deed on vacant land?” Yes, you can. Typically, that’s what a lot of people do on a vacant land honestly. They’ll put it on a contract for deed to make sure when you owner-finance that that person does pay them because, in that instance, you can take the property back. To foreclose somebody on vacant land, it’s very difficult and a painful process and expensive. If you own property and you are going to owner-finance it, my recommendation is to do it on a contract for deed or land contract is another name depending on the state verbiage is.

It’s interesting because we evaluate our chances of getting a property back easily depending on whether it’s occupied or non-occupied. Of course, a piece of land is not occupied, I assume. I can’t wrap my mind around the psychology of a contract for deed buyer on vacant land. Who are they? What are they planning to do?

It’s people who want to say they bought land somewhere sometimes. A lot of times when you see it, it’s $2,500 down and $250 a month or something like that. I’ve seen out in Casey Country, Colorado, Wyoming and Nevada and some of these areas where they’ll sell 40, 100, 200-acre parcels on eBay for $20,000 that they’ll put all those on land contracts a lot of times and stuff. I’d be careful buying those because typically they have title issues or the lots aren’t big enough to actually do anything with, which is why they’re on eBay. You see a lot with the land. People buy hunting land and stuff like that.

I shouldn’t say that because I participated in a commissioner sale in Indiana my first time. I have not done tax sales as a rule but I don’t know how it works in any other state. In Indiana, apparently, the tax sale for the delinquent taxes that are at least eighteen months delinquent happened in the fall. These are the properties that did not sell at that tax sale because the minimum bid is the amount of taxes due. Some of these places have $30,000. One had $48,000 in taxes and some of these properties aren’t even worth that much. They have something called the commissioner’s sale, which is, “We’re no longer going to charge you the taxes but we want to sell these things.” For every one of these houses in Central Indiana, the opening bid was $50.

As I was going through the list, it was surprising how many of them were vacant lots. I wasn’t at the sale myself but my property manager was there. He said there was very active bidding on all these vacant lots. Unless it’s a lot adjoining your property and you want a bigger yard or something like that, what possible reason? It’s so expensive to build a house. The only thing I could think is John Keith, who many of us know as a broker of notes for Harbour. He has a container homes business that he’s building up where they actually finish houses inside the factory. They build out containers and finish them as finished rooms.

Shipping containers.

They put them on the back of trucks because they are at the back of trucks and they drive them to you. That would be a reasonable way of having a home on a piece of vacant land that you buy on a commissioner sale for $50. Those of you who need an escape plan from your expensive homes in Virginia or someplace like that.

The biggest no is not doing something you said you'll do. Click To Tweet

You’re starting to see those and the tiny houses and stuff like that pop-up and so forth a lot. Those tiny homes and some of these other things still cost $30,000, $40,000 in some of these locations. In Indiana, you can still get a three-bedroom, one-bath house for $15,000, $20,000, it’s on a foundation. Sometimes it’s better off going that route.

We have a question, “How did you and Gail develop the note sources you have? Any pointers or directions?” This is a little bit of Scott Carson’s secret sauce. I would say both Chris and I took the Fast Track Training from Scott Carson. That is where we basically didn’t find out who we can buy for but we got introduced in terms of Scott giving us every person’s email address. It’s an instruction to tell that person that we were being trained by him so that they would feel confident that they could accept our bids. We were potentially closers and not people who are kicking the tires. I’ve put out a tape myself of mostly performers. I have to say there are a lot of tire kickers out there because probably twenty people asked for this tape. Only a couple got back to me about whether they were bidding or not bidding. A whole lot of people totally ghosted, it’s not a good feeling. You’re in or you’re not in.

One thing that I did initially before I took any of Scott’s stuff is I still listen to a lot of podcasts between NoteMBA, Scott’s podcast, and some of his YouTube videos and stuff. Anytime there was a name thrown out there, I write it down. At the holiday time, I remember Scott thanked fifteen people and nine of them were note sellers. I googled and found out who they were and was like, “You work with Scott Carson. I’ve taken his workshop and stuff. I wanted to reach out.” That’s how you start building some of those relationships. If you’re not on the websites, I’d say Dave Pollio from Security National or SNSC, they’re a servicer out of Louisiana. They have a trade desk. Dave is up in New Hampshire and they put out stuff probably once a month or periodically. He’s somebody definitely to build a relationship with. John Keith, who does a lot of contract for deeds, is somebody as well. Starting out, those are probably the two primary sources that people look at. You can go on Watermark Exchange, Paperstac, which is new, FCI Exchange.

FCI Exchange is gone now.

It’s called Exchange Loans but you’ll go on there and a lot of stuff that’s on there from what I’ve found is people putting on there, seeing if somebody will bite because it’s a lot of times overpriced in my mind. $50,000 unpaid balance, nonperforming loan for $45,000 isn’t in my mind a great deal.

Some of the sites like Paperstac, Loan MLS and Exchange Loans.

Exchange Loan is the new FCI.

GDNI 18 | Note Investing
Note Investing: We evaluate our chances of getting a property back easily depending on whether it’s occupied or non-occupied.


Those are all places where individual sellers put up notes that they’re selling. When you get a non-performer to re-perform and you’re ready to sell it, those are places you can go to do it. Nate Turner raves about Loan MLS as a place where he sells his re-performing CFDs. I’ve posted one on there so far, the yield was rather low and the price was rather high. We were not mobbed from people who are interested but I’m ready to give it another try. It’s one thing to meet these people and reach out to them but you’d have to be careful to guard and nurture your relationships with these folks. Obviously, the biggest no is not do something you said you’ll do. If you’ve done your due diligence, you’ve said you’ll close on a loan, you need to close even if you get cold feet. You have to do it anyway because nothing will destroy a relationship faster than that.

If you buy notes from people, you need to build that relationship. I’ve had times where I’ve told somebody, “I’ll fund it on Friday.” On Thursday I’ll be like, “I need until Monday or Tuesday to fund this.” That’s fine, just let them know for the most part but if you’ve basically done your due diligence, sign the loan, get it to close and then walk, that’s a problem. We have a question, “Do either of you do anything with partials either buying or selling?”

I can’t say. Are we doing anything with partials? Was that the question?

Yes. Do you buy or sell partials?

I’ve been trying to sell partials and it’s challenging. If you’ve seen Eddie Speed do a presentation about selling partials, he has a giant audience that he has trained to be excited about buying partials at a 6% yield from him. It all sounds super easy and super exciting. I have found in my own attempts to sell partials that people seem confused. You’ve had more luck than I have selling partials.

The biggest challenge with people in partials is the way they’re calculating a return. When you’re buying a partial, you’re buying a string of payments which includes principal and interest. The simplest thing is to take your car. If you buy a car for $20,000, which is almost impossible nowadays but say it was at 5% interest. The first year it might be a $1,000 in interest but the second year is only $700 because you paid that principle down. Where I find people partials is to look at it and say, “I’m only getting over, look at it from thinking. You’re paying 10% on this partial but I’m only getting a 4.8% return.” I’m like, “You’re getting 10% on your money but the money you have invested is shrinking.

It’s not like an interest-only loan where say you put $20,000 in interest only at 12%, the $2,000 a year and it’s whatever that number is constantly same number every month. You’re getting the same payment every month but it’s principal and interest that’s combined. You can get your money out of the deal faster so you can turn around and re-invest it in other things.” That’s where I think people have the biggest struggle because they’ll look at it and say, “I had somebody that was looking at $30,000 buy on the partial.” After seven years or whatever their interest was only $20,000. They’re like, “That’s 60% divided by 7 and that’s only 8 something on a return or whatever the number is. Whatever your principal balance is, you’re getting that percentage on that principle. That’s where I think people get confused.

Some people are contrarians, and they do very well by doing what other people won't do. Click To Tweet

It definitely pays to work with people who understand financial calculator and know how to use one and are prepared to understand how that works. In my case, I had a very interested buyer where it all unraveled. I wasn’t planning to transfer ownership of the note to him during the partial period. It was a three-year partial. First of all, it was a note not a contract for deed. He wanted me to deed the property to him and I explained that I don’t own the deed to the property. I have an assignment of the mortgage because it’s not a CFD. That was the first hurdle. The way you and I decided to offer partials is that we are contractually keeping ownership of the asset in order to take care of the fees. Pay for the insurance if necessary, handle anything that happens or that the investor would get their full payment every month. We would absorb any losses that would happen along the way. In our partial sales agreement, we basically pretty much promised that if the borrower stops paying that we will continue making the payments. We feel like this is a very solid investment for somebody but people feel it was like a big decision for them.

I’ve had a few people and I think once I explained it to them, they’re more comfortable with it. People that I remember too, in most instances the level of risk on partial is extremely low because if you’re buying a $10,000 partial on a $50,000 note and the property is worth $80,000 and you got 88% protection in there. If they stopped paying and you foreclosed that first $10,000, they’ll sue you. If we only collected $20,000, come out the other first position. Another way some people look at it is it’s almost like hypothecating the note whereas it’s almost like lending as a loan against that collateral and you’re paying that person back the principal and interest.

Maybe that’s an easier way of explaining it since we’re not transferring ownership. After my first round of answering questions from potential partials investors, I realized that I’d rather sell my notes because I’m looking to take my profits out of them so that I can go buy some rentals. I bought a church.

There was a person that did a partial with an individual who had $5,000 or $6,000 in their IRA that was sitting around and I’m like, “I got this partial.” I can start getting your payments for a period of time. You can build it up and stuff because otherwise, do you want to invest it in the markets? My wife was all excited because she’s going to think the American Express saying their checking account, if you put money in there, we’ll get some interest. She was like, “Let’s put some money in the 2% checking account.”

As note investors, if you’re starting out with nonperforming notes and you get a bunch of performing and eventually you have a sizeable portfolio of performing or re-performing notes. Anyone who comes to you with any amount of money, if you’re willing, if someone comes to you and says, “I have $5,000, do you have anything?” You can literally take out your calculator and figure out what the yield that you’re willing to sell at and how many payments can you give them for their money.

I had somebody ask. They were like, “If the notes aren’t selling, how do I know you get your payments this and that?” I made the comment too back to them I said, “It’s on this note that I have that the most of the ones I do are notes for the most part that I owned individually with no JVs that I sell partials on.” My comment back then is, “What do you think I’m doing with that money you’re giving me? I’m also reinvesting it as well.” I said, “For example, if just one were to stop paying, that money is implemented somewhere else, which is most likely probably I put it in a performing note or something that’s cashflowing. It’s giving me an alternative source also that I could show on the profits from that that I need to pay for a loan.” For the most part, I’m not going to over-leverage anything. I’ll make sure it’s a safe performing note to do with partial on. Gail, you can provide more comment. When you’re looking for people on partials or things like that, note investors is not the place to look. Note investors typically want very high returns. You made that comment about the 2% getting that risk. I know a lot of people out there that will be doing back flips for, 6% to 8%.

Normal people outside of our little worlds.

GDNI 18 | Note Investing
Note Investing: It pays to work with people who understand financial calculator and know how to use one and are prepared to understand how that works.


I had somebody asked me, they’re looking for a partial loan. I was trying to get 14%, paying their IRA fees and I basically said, “If I could find that, I’d keep it myself.” I’m like, “If you can get double digits on partials, you’re doing very well because of the equity protection position you’re in.” You mentioned, Eddie Speed who offers 6%, which the ones I’ve offered are a little higher than that. You’re not going to see on partial 15% or crazy returns like that.

We have a question, “Would you like to talk about the difference between yield and rate of return?”

The rate of return is he invested $10,000. At the end of the day, you made a 100% rate of return. Yield is a much more complex formula and that’s why it’s a formula that has an Excel. It’s not something you can calculate out because the true way to calculate yield is you started with $10,000, you ended with $20,000. What was the interest rate that you obtained during that period of time to get to that number? The three things you need to calculate yield are your start, your finish and the dates of cashflows. That’s the proper way to calculate yield. Yield is the interest you’re paying yourself and rate of return is more calculation. I’ll be happy to talk more about them. Yield also assumes the money you’re collecting. You’re also reinvesting at that rate.

We have a question, “What do you look for specifically on a bankruptcy case? When a borrower has filed BK, what do you look for beyond just what chapter the borrower has filed?”

I love bankruptcy.

A lot of times, obviously in a bankruptcy situation, a borrower is compelled by the federal court to pay you. It can be a great comfort to buy a note that’s in a paying bankruptcy because you can often get them at a discount anyway even though they’re technically performing just because the person’s in bankruptcy. Other sellers will actually charge you a premium because something is in bankruptcy because the person is being compelled to pay, and that feels like security. We both have weird bankruptcies right now. I have a bankruptcy in Pennsylvania where I live, half an hour away from me and a big rental area where the gentleman has literally bought a whole bunch of properties right before the market crashed in 2007, 2008. It’s a Chapter 13 Bankruptcy. He bought a whole bunch of properties. He’s already lost some of them. He has probably five or six still including mine and his principal home.

Bankruptcy is public record. Click To Tweet

Basically, this guy has filed bankruptcy seven times in the last six years. It always follows a very particular pattern. He owes tons of back taxes on all of his properties over $80,000 altogether at this point. He always files bankruptcy right before the big tax sale in September. That’s what just happened in September. Because he wasn’t serious about it, he isn’t really trying to reorganize his finances and have a real plan. The bankruptcy was dismissed because he did not file a plan and he didn’t show up for the meeting with the creditors and everything. I would love to say there are a lot of key indicators when you’re looking at a bankruptcy that will tell you whether it’s a good idea to buy it or not. I don’t feel like that’s true. I don’t want to give you the wrong idea.

There are a few things I look at. I look at the actual plan, is the website where you need an account to log in. You can read all this information because bankruptcy is public record. I will look at the plan. There’s a history there. We can see everything that’s been going on. The other thing I’ll look at is sometimes they have to verify employment. You’ll be able to see information regarding how much money they make, which is typically also on the plan.

You can also see their total debt included in the bankruptcy.

The last thing I look at is the proof of claim from the company who I’m buying the note from. To make sure they file one and also to see what their arrearages are and what the payment is. A lot of times they may have a principal and interest payment and it may or may not include their arrearages on the tape that you have. That’s a little nugget.

That’s all really reasonable. Tell them about the one you have going on with the payment plan that has been approved by the judge, wishful thinking.

The payment plan where the arrearages are $80,000. The payment is $500 a month for 24 months and then $3,000 a month for 36 months after that.

What is the gentleman’s income?

$1,500 a month.

GDNI 18 | Note Investing
Note Investing: It can be a great comfort to buy a note that’s in a paying bankruptcy because you can often get them at a discount.


Somehow this plan was approached by an actual judge.

Honestly, my attorney at the time said, “Stop fighting. Don’t deny the plan or fight the plan. Just let it go and if the person makes the payments, that’s great for you,” which I’m happy for if the guy can make these payments. If he stops making them, then I can finally get the motion for relief. I was spending $1,500 a month filing paperwork and fighting the plans and some things. I like BKs and to answer that question, what I look at is you go in there and I definitely like to look at any amendments to the plan and the proof of claim, which was filed.

With mine, I’m about to celebrate my second anniversary of owning this note. I’ve been trying to foreclose on this guy most of that time. On the other hand, I have with a JV a bankruptcy in Mississippi where the gentleman has been paying like clockwork. It’s been awesome when he stopped. I just called up the trustee, which you can do in smaller venues. I’ve never gotten the Philadelphia trustee on the phone because it’s a massive office, but in the smaller area in Mississippi, the guy answered me right away. When he missed a payment or two, the guy knew exactly and I was like, “This happened and now he’s going to get back on track.” They can be quite awesome.

I’ve got four I can think of right now and the other three are doing great.

We have a question, “You stated you have notes in your IRA, Chris does too. Did you put them there once you get them re-performing?” No, I did not. This is a common question about whether you can buy nonperforming notes in your IRA. First of all, I have two IRA. I have a Roth IRA that I have converted over from the IRA money I started saving when I was first working. I also have an inherited IRA from my dad, which is a traditional IRA and not a Roth. Both of them are set up as LLCs, they are checkbook IRAs, which I know everyone is told to be very fearful of. On Good Deeds Note Investing podcast, we’re going to have the attorney who set them up. He’s also a CPA. He’s a big New York attorney/CPA and lives in Florida and has a company that does nothing but set these up basically. They also have a trust company to be the custodian of the money. Once you have a checkbook IRA set up, it’s basically you have an LLC that is your IRA, you have a bank account and you can wire money in and out of it to buy deals. I would say the only thing that I do maybe a little differently with my IRA versus my JV deals is that obviously to avoid any issues of me getting too involved. I just delegate a lot more of the tasks on those. I can’t be accused if you work on your own IRA.

I want to be clear with the comment that is here. You can’t take a note that you bought with your entity and then just drop it into your IRA.

Vice versa, you can’t buy a note from your IRA once it’s doing well or whatever. I’m actually about to take something out of my Roth IRA. I guess I could possibly owe some tax on it because I haven’t had the IRA long enough. You have to have a Roth for five years before you can take a distribution without any consequence. I wouldn’t be paying tax on it because it would be something you have to pay.

Always be conservative in your estimates. Never do your numbers as if everything is going to go perfectly because that doesn't ever happen. Click To Tweet

Another question came up, “How do you determine what state you invest in?”

It’s almost easier to start with the ones you definitely don’t want to invest in. Chris is a New England boy. He’s from Massachusetts originally. We bought a CFD together in New Hampshire and I have to say I am not loving every minute of it. It’s expensive out there. Everything we do up there is so expensive. We got a dumpster that I would pay $250 for in Indiana and it costs $500 in New Hampshire.

How much did you pay the guy to come to fix HVAC?

There’s a guy who came for $25, but I can pay up front for everything, they’ll bill you. When you call the oil company they’re like, “I know you’re a realtor. That’s done.” It’s very sweet. It’s a small town but they’re getting 30 inches of snow. We don’t know if the borrower will turn the water back on. That thing could be sprinklers in there when the big thaw comes.

When you start looking at states, make sure you have a good attorney in that state. The attorney is your number one saving grace because you want them to review the due diligence. You want them to review the collateral file. Depending on what you’re buying, make sure you know a realtor or contractor in the area. That can be important, as in absolutely must-know. It’s something that helps you out a lot. Then as Gail said, it’s the states that you don’t invest in where you start with, “I don’t invest in New York and New Jersey, Illinois.”

Longer foreclosure timelines, places where you need licenses. There’s a whole bunch that everybody crosses off almost immediately. Some people are contrarians and they do very well by doing what other people won’t do. They will buy in states with long foreclosure timelines because I guess they can get better deals because no one else fights for those deals.

You just got to bid accordingly and realize though that if you’re in New York and you’re using a JV partner, that twelve to eighteen-month timeline, throw it out the window because it’s probably a three to five-year timeline and that money is going to be tied up.

GDNI 18 | Note Investing
Note Investing: If you’re in for a long battle on something, you have to look at your holding costs.


In New Jersey, that’s a three-year timeline and the taxes are really high. If you’re in for a long battle on something, you have to look at your holding costs. Always be conservative in your estimates. Never do your numbers as if everything is going to go perfectly because we know that doesn’t ever happen.

There have been states that I ended up buying like Wyoming. It was part of a small pool that I bought. The biggest thing is the attorney. If you don’t have the attorney, don’t invest in that state.

We made a connection with someone who’s been an attorney and, in this world, probably longer than anyone I know. He’s been involved in notes since the ‘90s. That predates everyone that I have known before. He’s an attorney and he prides himself on connecting people with great attorneys. If you’re looking for an attorney in a particular state, send an email to Chris or me and we will share those names with you. Thank you for reading. It’s been great spending this time with you. We want to be your resource when you’re working on deals and you hit any speed bumps, just know we will be here. We can help you on an ongoing basis, so please don’t be afraid to buy notes. Please don’t be afraid to ask us if you have questions.

If there’s something you want to talk about on the show, let us know. We can bring you on or we can keep it private, not say your name, whatever you want. Keep it open. We’re trying to be an open mic here where we can just have conversations that are on people’s mind because I know it’s tough out there and sometimes we get your questions answered in a large form.

I mentioned Jay Tenenbaum at the beginning. He was incredibly helpful to me when I was new. I would ask him the dumbest things now looking back on it, but it’s not dumb. You have to start. Everyone starts knowing nothing and then they learn things. Make your learning curve a lot shorter by asking lots of questions and never feeling shy about it.

Thank you, all.

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