3 Reasons to Invest in Real Estate Mortgage Notes

Speaker 1:
Welcome to the exactly how podcasts and YouTube show brought to you by connected investors during this episode, welcome to the exactly how podcasts and YouTube show brought to you by connecting investors. During this episode, you’ll discover exactly how to make incredible returns investing in real estate. Using notes. Now, for those of you who are new, my name is Sean Young, today’s host and proud member of the connect and investors community. Before I introduce you to our next guest speaker today, I want to make a request that if at any point in the show you like what you’re hearing, please give us a thumbs up or subscribe to this show so that you don’t miss an episode and make sure that look into the description of this episode. As we’ve packed it with thousands of dollars in free resources. Now, today we have the privilege to learn from a man who has transformed his venture back startup that raised $44 million from a startup eCommerce engine into a full on growth machine with over 300 employees. Bob is a former Ernst and young entrepreneur of the year award winner.
Speaker 1:
Now, prior to his career in real estate, he worked in finance, but all that changed when he discovered a high yield high liquidity asset secured investment that produced consistently excellent returns without all the risks of normal investing. So we dove right in. I would describe our next guest as bold. I’d like to introduce you to the one, the only Bob Frazier, Bob, thanks for being a guest on today’s show today. Blessed to be here with you, Sean. Thank you. Thank you. So Bob, before we get started, can you tell us a little bit about where you’re from and a little bit about your background? Well, I started as a computer programmer and uh, ended up having a big run of lock and, uh, the, the.com boom. I started a tech business. And, you know, as you said in the intro, we raised $44 million in venture capital.
Speaker 1:
late nineties and blew up before we got caught on the tech rack. Um, that’s, that’s what got me interested in real estate, which is, you know, um, you know, a little less volatile the stock market. So, uh, yeah, that’s my background. Yeah. I hear that a lot. A lot of folks say that, you know what, uh, I had a choice. I was either going to invest in real estate or invest in stocks and I felt a little more secure in the real estate route. Exactly. So I’m sure on this episode that you’re going to dive into that and help our listeners out there, understand why that’s a great, a great route for them to go. But guys, before we dive into exactly how to use residential mortgage notes to make an incredible return on investing Bob, you contribute a lot of your success to your ability, to bold predictions about the economy and technology.
Speaker 1:
Why do you think this has played such a huge role in your success? Yeah, well, you know, after, uh, getting creamed in the, in the tech rack, you know, late nineties kind of got passionate about figuring out, you know, where, you know, knowing, knowing what the peaks and valleys of the, of the economy are, is pretty huge, right? As I call it, you know, no one can predict the waves, the economic waves are coming, but I want to know the tides. You can predict the tides. And, and so I, I spent a lot of time reading and studying and understanding what are the tides? What is moving, you know, is real estate going to go up on a tide level are going to go down those kind of things. And so that’s really helped me inform my, my personal investing as well as my business investment.
Speaker 1:
Right? I mean, look, if you’re starting a business in the.com business and the.com boom, you got, you got a better shot than if you’re starting a.com business and the.com crash. Right. And the same thing with real estate, it’s like, so timing really matters. You gotta know what time it is. And, uh, so, so yeah, so it’s become a passion as is do that. I today do an economic newsletter to my investors. It’s private, uh, you know, telling them what’s, what’s, you know, what’s coming and, and how to position yourself ahead of the ahead of these things. Awesome. Awesome. Definitely. Thanks for sharing that. What Bob will makes the exactly how financial freedom podcasts and YouTube show unique is that every show comes with a detailed action plan. We pull steps out of each show and create a blueprint on how to implement exactly what we’re uncovering.
Speaker 1:
Now, all you guys have to do out there is visit connected investors.com forward slash free to get the free takeaways and the resources and the key gifts that Bob has. Justly allowed us to give you today. Now, as nearly a million people know connecting investors is a social network of real estate investors. And it’s a marketplace of investment properties. Now in the description of this video, I’ve included on this episode’s form discussion, no, as nearly a million people know connecting investors as a social network of real estate investors and a marketplace of investment properties in the description of this video, I’ve included a link to this episode’s form discussion, tap that link to ask me and other pros questions and see what investors are saying about this episode.
Speaker 2:
Yeah.
Speaker 1:
Plus you get to see our free training right now. You can text the word exactly to (910) 600-0630. Again, guys, that’s exactly to (910) 600-0630. This is exactly how I make my money. Guys, you can find property in any town for pennies on the dollar with this software I use each and
Speaker 3:
Every day. So Bob let’s dive into the steps to use residential mortgage notes, to make an incredible return by investing before the show, we broke it down into three steps and those three steps were fine. The notes underwrite the notes and restart them and buy them. Can you break down step one, finding the notes for us? Sure, but Sean, maybe we should talk about what our notes to begin with. So that will help. That would help though. So, um, you obviously, you know, teach people how to, how to find and buy real estate. So that’s people generally understand that, right? You find the house you’ve been on it, you buy it, you fix it up, sell it. That’s well understood. What people don’t understand as much is that there’s a notes that are also available. You can buy literally a home owner occupied home, but you, you don’t have to buy the home. You actually buy the note. So you become the bank and, and it’s actually, you know, very advantageous. So it’s, you know, imagine, imagine if you owned, you know, 1500 homes, right? How much work you, that would be, you know, collecting those rent payments and doing the maintenance and whatever, you know, you know, storm hitting, you know, well versus
Speaker 4:
Thanks
Speaker 3:
Your toilet stopped, you know, or your lawn needed mowing. So, so you, so you basically, it’s a much more passive business. Um, but it also has incredible upside. So thankfully people think it’s real boring. Uh, and that that’s great. I like that. Uh, but we actually buy discounted notes. So you buy notes instead of a note that you know, where they, maybe they owe a hundred thousand dollars in this loan. Maybe we buy that for $60,000. So, so, so our cost basis is quite a bit lower and that gives us the upside. So we have, we have access to the real estate, you know, if they don’t pay, we collect the real estate. Um, but we also get those regular monthly payments, uh, like a rental, um, except without the headaches. And then we also have the upside if they re when they refinance or sell, because we recover that discount.
Speaker 3:
So it’s, it’s a, it’s a great business. It’s very unique. Very few people are doing it. And very people, very few people understand about this. I mean, definitely sounds very intriguing. I’m definitely interested in learning more myself. I just so that I can be 100% clear on what this is. So let me just ask you this, Bob. So it, is it, is it correct to say that a note is basically you purchasing like the, the, the mortgage, the mortgage, you’re basically purchasing the vehicle coming back. So all that fine print that you sign, you know, if you own a home, you sign this, this fine print with a bank where they basically have the right to do everything, uh, that becomes mine. So now I have all those rights. I am the bank, I bought it with a servicer. So they send, they send this mortgage servicer for, you know, 15, $30 a month. We’ll send the statements out, does a 10 98, blah, blah, blah. And so, and they forward the payments to me, it’s as simple as that. So I become the bank and let someone else process all that, all that stuff. The only time I get involved is that they stopped paying
Speaker 1:
Love it. Okay. Got it. Got it. I’m crystal clear on that. Now. That is awesome. Well, that leads us right into step one. Like you say, now that we know what notes are, how do we find those notes? And
Speaker 3:
So there is, there are actually note exchanges out there. And I’m one that we use quite a bit is called paper stack. That’s a PA P E R S T a C. And we’re not affiliated with them. I don’t get any, anything from them, but we use them to sell notes that we no longer watt. Um, and there’s a lot of people that sell notes on, on, on that website. So basically you can go and there’s, there’s a few others, uh, national loan exchange. Um,
Speaker 1:
Um, there’s a few others. I can’t remember the names, but
Speaker 3:
No it’s for sale. So a lot of times what happens is hedge funds buy a lot of these notes. So they, they go to the, for example, the big auctions of Fannie and Freddie, et cetera. Well, a certain percentage of these, these are defaulted loans. They begin as defaulted loans, but then the borrower gets back on their feet. So let’s say they had a, you know, a divorce or a medical crisis or COVID or something. And they stopped paying for awhile. And well, then the banks sell out, sell these office bad loans, but then they get their job back or something else and they start paying again. Well, now it’s considered a bad law. And so then, then you can buy these that were once bad loans, but are now paying loans. You follow me and, and you Biomet discounts. And so that’s, that’s what we do. They’re called re-performing notes. So, or troubled debt restructures. So the banks hate this stuff, but that’s what creates the outsides games is having hated assets. So I love hated assets.
Speaker 1:
Wow. This is some powerful stuff, guys. I hope you guys are taking some notes out there. This is taking notes on finding notes because this is different patient bias, right? Sean. So that takes us into step two, which is underwriting those notes, you know, in research in those
Speaker 3:
Well and, and like anything, you know, Sean, you know, in real estate, you make your money when you buy. Right? And, and so this is exactly the same. In fact, if you’re an experienced real estate investor, you’re probably halfway there to figure out if a note is a good investment, because you’ve got to look at the underlying real estate, let’s say they do not pay. Okay. Well then what do you, what do you end up with at the end of the day? How much, how much debt do you own? What’s that property worth? What’s the condition. If you have to get in, what does it cost you to take that property back? So foreclosure will cost anywhere from 1500 to $3,500. It can take anywhere from six months to four years. So you got to research that, and it’s not rocket science and your which state, depending on which state you’re in.
Speaker 3:
And, um, um, and so you underwrite the real estate. Um, I actually prefer buying second mortgages, believe it or not. And so if you buy a second mortgage, the yields are way higher and the risks are not necessarily that much more, but you can measure all that. You, then you also need to research the senior lien and figure out how much is owed, blah, blah, blah. So it’s a real estate play. It’s a, it’s a, it’s a debt play where you gotta understand the debt that’s ahead of you. And then it’s a borrower play. What kind of, what kind of, you know, credit just the borrower half. So it’s basically a big research project to figure out is this, is this note good? What is my risk? What am I willing to pay for this?
Speaker 1:
Which brings us into the next step. Since you’re you’re know what you’re willing to pay us, which is buying them step, number three,
Speaker 3:
You buy the note and you’re bored it. So finding a, find a servicer or a mortgage servicer, there’s a number of good ones out out there that, you know, will board single notes for it, for our investors. And, um, um, buy the note, get it transferred over the servicer, takes care of all that. And you collect the payments.
Speaker 1:
It is buying the note. Is that an easy process or is it
Speaker 3:
Complex process? Um, generally it generally it’s fairly easily. Usually you make a bid on it. At that point, you went to a due diligence phase. It’s very much like buying a house. So you do a due diligence phase. If you uncover anything, you don’t like you kick it back or whatever, but then, and then it begins, it goes into a transfer process where typically, you know, this, this is a regulated by RESPA regulations, but the servicers know all that. So you transfer it into, you know, the service or basically, uh, the, the, the selling servicer writes a good buyer ladder. The beginning, servicer writes a hell old, or you’ve probably gotten this where you get a letter in the mail, your, your mortgage is now being serviced by so-and-so right. And that’s exactly what happened. So typically your servicer will walk through that. Uh, you wire the money. Um, a lot of times it’s escrowed paper stack does a real good job at making it very buyer friendly and they have a number of resources to kind of familiarize you with the process. And, um, yeah, I wild money. The servicer begins transferring it, you know, well, you actually execute, you know, the change in title and, uh, and those, those loans are recorded, uh, very much like property. Um, and, uh, you know, it’s fairly simple process.
Speaker 1:
So let me ask you this, Bob, if someone were interested in getting started with, with the note purchasing business, do, do they need to use their own money to purchase these notes, or is it similar to maybe how real estate can be where you can use other people’s money or you can borrow money?
Speaker 3:
You really can’t borrow money when you get bigger. There are banks that, that will loan money on senior mortgages. Um, those are, you know, typically you gotta borrow $10 million or more from institution. So there are companies, there are companies a little do that. They’re called warehouse lines or reverse warehouse lines. Um, but for the, for the little guy, not really. Um, but if you’re looking for outsized returns and you don’t have a lot of capital, I would buy second mortgages. And second mortgages are actually far more lucrative. They’re, they’re, they’re heavily discounted because people don’t understand them and people don’t know how to underwrite them, which I love any, anytime, anytime you have that, you have an inefficient market. So buying seconds is great. As long as you know what you’re doing, as long as you do the research on the senior mortgage. And you have to understand that if senior stops being paid, then you, then you need to know what to do to take, take advantage of this. And you need to have, you know, have a law firm ready to go, but, uh, you know, that you can make fantastic returns. I mean, we’re, we buy, we buy seconds. It, you know, as much as, you know, 50%, 60%, even 70% discount. So we’re buying a hundred thousand dollar mortgage for $30,000. And if they do refinance, you get a really nice windfall. So
Speaker 1:
That is great, great stuff,
Speaker 3:
Bobby, if someone wanted to reach you out there, you know, to get a hold of you, how, how, how could they get ahold of you guys
Speaker 1:
Out there? Aspen
Speaker 3:
Funds dot U S like Aspen, like the tree F U N D S dot U S. Awesome. But we don’t, we don’t have training materials, so we’re not, you know, we’re not trainers, we’re just investors. We do this ourselves very successfully. We run third party funds where we, you know, you can invest passively with us and we do this. So it doesn’t take any expertise that point, you know, it’s just a way to put your capital work. Um, but, uh, we, we do, so we have a webinar that you can watch that it actually shows, you know, kind of what we do and how, how, how these, how it works for us. Um, that is awesome because you do often hear a lot of folks saying, Hey, you know, I want to park my money in real estate and somehow, or, you know, get involved with that.
Speaker 3:
Somehow, this seems like, like you said, you don’t have to really be an expert in this area because they can come to someone such as yourself, who’s the expert and you can invest on their behalf. That’s right. That’s right. And you know, for a lot of people, you got a busy career. The last thing you want to do is be trying to, you know, swinging a hammer or something like that. Or even figure out all the legalities of this when, you know, yeah. You give up a little bit of, a little bit of the piece of the pie, but, but it’s, you sleep at night, you know, and notes are great, you know, because you know, a guy like me, Hey, I was a computer programmer. You know, these, those are those little fingers, very pink, you know, they don’t know, they don’t know what to do with a hammer.
Speaker 3:
There’s a lot of guys that are just not very handy, you know, and, uh, you know, but boy, you know, give me a spreadsheet and I’m good, you know? So, so there’s a certain class of investor. That notes are just really good. Good for. And certainly, certainly passive makes a lot of sense, especially, you’re just getting started. You want to learn a little bit, you know, um, and participate without taking a ton of risk. Got it. Got it. That sounds awesome, guys. Well guys, as a reminder, if at any point in the show, you like what you’re hearing like I am right now, please give us a thumbs up, hit the subscribe button so that you don’t miss an episode. Your engagement is what keeps us doing this show for absolutely nothing for free guys. Now, Bob. No. What do you think your life would be like if you never learned about these notes and you were still working in finance?
Speaker 3:
Yeah. Well, you know, let’s just say we’ve done well. And uh, you know, you know, I’ve got an incredible team. I like going to work every day. I like who I work with and, and we’re, we’re making our investors a lot of money. We’re having a lot of fun doing, and we’re, we’re changing lives for our, for our borrowers as well. So, you know, I didn’t want to think about what it would be like without that. Exactly why, but think of the past, right? I mean, you all, where you are, that is awesome. And you’re changing lives, making, making your reality what you want it to be. I love it. Love it. Well, Bob, that brings us to the part of the shim. That’s called a rapid fire session. What, I’m going to ask you some questions and you just give me the first answer that comes to mind after I asked you these questions.
Speaker 3:
All right. Let’s go on a scale from one to 10. How strict were your parents? Oh, that’s a good one. I’d say seven. They’re pretty strict. Okay. Get up early or stay up late. I’m definitely an early riser. Yeah. I’m asleep by 10 o’clock at night. 11 o’clock at night and up, up at Dawn or before usually. Okay. All right. How many hours sleep do you think you get? Six to seven. Okay. And what is the favorite or last book that you’ve read? Oh, I just read it. Read a good one by Stephen Pressman, Pressfield called a virtues of war. It’s a bio. It’s a historical biography of Alexander. The great, fantastic book. I love historical any, anything? Historical. Awesome. Awesome. Now, if you could be any superhero, Bob, who would you be? Sh um, you know, I, I just, you know, I’d be, it’d be, it’d be me.
Speaker 3:
I’d be a good dad. And, uh, I don’t really watch the superheroes much. So you said you’re, you’re a superhero on your own right there. That’s it I’d be myself. Something that love to do less of what’s that something that everyone should do, less of complain and blame. Forget that stuff was good. Ones. Something that everyone should do more of read another good one Bitcoin bank or bust Bitcoin. And now I’m actually a computer scientist. Okay. And I’ve written extensively on Bitcoin. So I would say, not going to do what anybody says it’s going to do, uh, because it has so many issues, but it’s also going to go up in value. So, so you, you, I missed at the beginning, you said, bang, it’s both. Oh, bang, bang, and bust. It is, it is going to bang as far as it’s going to go up because it has no, it has basically a cap supply. Um, but it’s not blockchain. And certainly Bitcoin has very marginal utility. And so there’s just very little you can do with it, unless you’re a drug dealer or a, you know, criminal, there’s just not that much to do with it. And that’s true of all blockchain. It’s got a lot.
Speaker 3:
And again, I love the technology. I’m a technologist. So I think it’s super fascinating, you know, but if there’s, if there’s one to invest in, it would be, you know, if you’re young because it’s, it’s more of a, it’s more of a blockchain Lego set than it is a cryptocurrency. And so if you want to bet on blockchain, that’s my bet. Got it. Goodwin, Goodwin. Well, Bob, if, um, during your lifetime, well, people live on Mars. Absolutely not. No chance. Again, I’m a scientist. I know the barriers. It’s like a one, a two, three year journey, you know, back in, you know, they don’t even know how to solve the radiation problem. How do you keep people from being irradiated to death then now it’s, it’s, there’s so many, it’s so many issues, you know, that there’s just not a chance, not a chance. I appreciate the, the earnestness, but as a scientist, there’s way too many obstacles to overcome for the next 30 years say I understood and understood.
Speaker 3:
What do you think? Oh, well, I asked that question on every show and I really never get my answer on that. Um, you know, like you say, when you, if you’re a scientist and you think from a scientific perspective, you got to just look at what the science is saying. And I’m like you say that radiation problem breaking through that radiation, um, you know, area and coming back, even, you know, that seems to be a pretty, a pretty serious, um, problem to overcome. And I’m not sure how that’s going to be done just yet. They, at least I’m not aware of it. No, they don’t have any answers. They don’t. Then that’s just one of about a hundred problems that go on tomorrow’s they, they, they have no clue. How are they gonna do it, but a lot of, lot of desire and earnestness, which is great.
Speaker 3:
I mean, we’re going to get a lot of breakthroughs and you know, so that’s science for you, you know, absolutely that SIS for you above, I have really enjoyed today’s episode. I’ve learned a lot. I know our audience out there has learned a lot as well. And guys, you have all made it to the end of the show and most people never finished what they start. So you’re special. Now, if you got any value out of this show, like I did share this with a friend on your Facebook page, like this video, subscribe to our channel and send us topics that you want to learn more about.
Speaker 1:
And like I said earlier, guys, nearly a million people use the connect and investors, social network and marketplace to connect in the description of this episode. We’ve included a link to today’s forum discussion. Tap that link. Ask me another other questions and see what investors are saying about this episode. So guys, until the next episode, you can catch me on the inside of connecting investors. See you then.