April 23, 2025 • 23 mins
Today’s chat spills the beans on the wild world of mortgage note investing and why it’s a game-changer, especially with the stock market’s rollercoaster vibes. He digs into the nitty-gritty of how investing in mortgage notes lets you act like the bank, collecting those sweet monthly payments without the hassle of dealing with tenants or leaky roofs – talk about a win-win! She emphasizes that this type of investing isn’t tied to the stock market chaos, which means while 401ks might be taking a nosedive, your note portfolio can stay chill and steady. They also bust some myths about mortgage notes, letting everyone know that you don’t need to be a real estate whiz or have a fat wallet to get in the game. With stories, laughs, and plenty of insights, this episode is a must-listen for anyone looking to diversify their investments and escape the Wall Street madness.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:44):
Welcome back to the PaperTrail podcast.
I am your host, Curse Sevany.
And today we're diving into atopic that's on a lot of investors
minds.
What is going on with thestock market?
But more importantly, how doesit impact mortgage note investing
and our mortgage note fund?
Whether you're a seasonedinvestor or just now exploring alternative
(01:07):
investments, understandingthis distinction can be the key to
building a more stable anddiversified portfolio.
Let's rewind a little bit andstart at the foundation and core.
And let me explain whatmortgage note investing is.
Mortgage note investinginvolves purchasing debt secured
(01:29):
by real estate.
You're essentially purchasinga mortgage and note and you're stepping
into the shoes of the bank.
You're not buying the property.
I want to be clear.
You're not buying theproperty, you're buying the paper
and the right to collectmonthly payments from the borrower.
So instead of dealing withtenants, toilets, termites, you're
(01:51):
collecting income whilesomeone else lives and maintains
a property.
Again, you are the lender.
The analogy I always like touse is if the roof leaks, that borrower
is not calling us.
Because you own a house, youdon't call your lender with a roof
leak.
So here's the kicker.
We talk about mortgage note investing.
(02:15):
Unlike the stock market,mortgage note investing is not correlated
to public equities.
Let me say that again, notcorrelated, meaning we've had a 10%
swing over the past month.
Your note portfolio reallyhasn't flinched.
Ours has not.
(02:35):
I know a lot of folks sawtheir 401ks take a serious hit last
month.
I have several co workersasking what do I do with my 401k.
I've never been throughanything like this and I'm the old
cat in the mix here at my company.
And I can recall back in 2008,9 and 10, you wait it out, you just,
(02:58):
you can move to bonds, you canshift things, but if you got a while,
maybe you wait it out.
First off, I'm not givingfinancial advice.
I'm just telling you what Idid way back in the day.
But this does bring us a hardtruth about people who are concerned
with their 401ks and thetraditional 6040 split of bonds versus
(03:20):
stocks.
And that's it.
No alternatives leads to whatI've called in the past the 404040
plan, which is a pretty shaky plan.
It's where you work 40 hours aweek for 40 years and only retire
on the hopes that your 401kgives you 40% of your income.
Not exactly comforting whenyou have markets like what's going
(03:43):
on today?
I'll share a story of how manyof you out there have parents, have
grandparents, know somebodywho's in their 60s looking to retire
and they can't.
You know, their taxes, theirinsurance are still extremely high.
They may still have a mortgageon their property that 401k isn't
(04:05):
cutting it.
Now, thankfully.
My dad worked for a schoolsystem, so he had a pension before
he passed away.
And he was smart to take less.
So when he did, if he passedaway, my mother would still collect
something.
It's an avenue ofunderstanding that is not going to
cut it.
And you need to look at alternatives.
(04:27):
Now you might be wondering,Chris, you talk about the markets.
How do interest rates factorin all of this?
It's a great question.
The short answer is interestrates don't impact us the way they
invest, they impact other markets.
Why?
(04:48):
Because we're not buying basedon market rate.
We based on it.
We buy based on a targeted yield.
And if you think of thisexample and it's, I'm not a big fan
of giving examples.
Close your eyes so.
Well, don't if you're driving.
But if a mortgage which isfixed at 6%, what's going on in the
(05:09):
markets and what's going on ininterest rates doesn't impact that
loan, think of yourself.
If you own a mortgage, what'sgoing on out there?
I have a mortgage rate, Ithink I'm at 3% or wherever my rate
is.
What's going on out there haszero impact.
My payment stays the same.
Nothing changes.
The only thing that can changeis if I lose my job.
(05:30):
But when my bank looks atmortgage that's fixed, what's going
on really is irrelevantbecause everything is staying the
same and we're buying basedoff of a yield.
So if it's non performing,we're buying it based off of a targeted
yield that is going to besignificantly higher than the federal
rate and interest rates on loans.
(05:52):
So if that deal doesn't meetour expected return threshold, we
just pass on it.
We like to stay disciplinedand stick to the notes that hit our
specific criteria.
And that's how we try andprotect returns and attempt to minimize
interest rate risk.
Now, within a mortgage notefund, there are two primary categories.
(06:13):
We invest performing noteswhere the borrower is paying on time.
These are more predictable andtypically offer steady monthly cash
flow.
And then the non performingloans where the borrower is in default,
they have a greater amount ofrisk, but they also, because of the
risk come at a discount thatalso Has a higher upside potential.
(06:33):
As an example, let's sayyou're buying a non performing note
on $100,000 loan for $70,000.
Borrower hasn't paid in two years.
We reach out, have an attorneysend a letter, work out a new deal
with them, they start payingagain and then we modify that loan.
(06:54):
Now that loan could be worth 85,000.
We created value and it's justnot a win for the investor.
But it's also a win for theborrower too because they're staying
in and keeping that home.
That's how we make money basedoff of these types of loans.
And when you hear all of this,do tariffs come into play?
(07:18):
No.
Does Nvidia stock going up anddown or Facebook or Amazon stock,
do those come into play?
They don't.
You know, the jobs markettypically is the biggest influencer
on what we do now.
People reach out and there's alot of myths and facts and misconceptions
(07:38):
about note investing becausemost people haven't heard about it,
even though it's a 16 trilliondollar industry.
So let's talk about some ofthese myths and facts.
Myth number one is mortgagenotes are only for banks and institutions.
Fact is we have a regulation a+ offering where you can invest in
(08:01):
our fund which invests inmortgage notes for as little as $5,000.
So unlike real estatesyndications, you don't need 100,000,
200,000.
Start with $5,000.
Diversification.
Myth number two is you needreal estate experience to get into
(08:23):
notes.
The fact is you're investingin a fund like ours.
Our team handles assetmanagement, the due diligence.
We have servicers who handlethe outreach.
You don't need to be alandlord, you don't need to be an
underwriter, you're an investor.
(08:44):
Myth number three, if theborrower stops paying, you lose everything.
Fact is, these notes aresecured by real estate.
If borrower doesn't pay, wehave recourse through foreclosure,
taking the property back viadeed in lieu where they don't go
through a foreclosure, justhand it back.
(09:05):
Short sale.
We like first position liensso we're secured by that real estate
compared to unsecuredinvesting, which is nothing to back
up that investment.
So I want to pause and recapwhat we've covered so far.
(09:25):
Just make sure everyoneunderstands mortgage notes.
And investing in mortgagenotes allow you to act as the bank
and you collect the paymentswithout owning the property.
It's mortgage, not investing.
Again, it's non correlated tothe Market look at it as an alternative
(09:50):
hedge against volatility,which we're seeing a lot of volatility
right now.
You can invest in performing,you can invest in non performing
notes, different risk profilesor you can invest in a fundamental
that typically offers both for diversification.
(10:10):
And I wanted to crush a few ofthese common myths around accessibility,
risk and knowledge to get involved.
Now I want to shift gears alittle talk about how we look to
mitigate risk and protectinvestor capital.
(10:32):
One, we do a deep dive intoevery loan.
We consider we analyze aproperty's equity position as we
want strong collateral behinda note.
We want to be in first position.
That means we're in control.
We review the borrower'spayment history and credit profile.
(10:54):
And if you've watched some ofour other webinars, we talk about
the 3P's property, the person,the predicament.
Here the borrower is a person.
Why are they with the predicament?
What got them behind what isthis type of borrower?
Did they file bankruptcy seventimes or is it something that temporary
job loss as well as gettingthat property looking equity position,
(11:19):
getting eyes on the property,what does that property look like?
And another key factor is wepartner with licensed servicers,
attorneys, title companies,insurance companies, tax review companies.
We want to verify documents,perform the checks and ensure compliance
(11:39):
and make sure that the assetwhich is the real estate is protected.
We're not just sprayingcapital across random deals.
We are extremely selective.
That's how we look to reduce risk.
Let me share an example with you.
I'm recording this podcast andtoday we are bidding over five million
(12:04):
dollars on a pool of overseventy million dollar pool.
And a pool is a list of assets.
So 150 assets, call it $75 million.
We are cherry picking thatpool or that list of assets for five
plus million dollars of theones that fit our buy box and the
(12:25):
ones we feel meet our profileof underwriting and that risk profile
that we look for when we're successful.
We have in house assetmanagement and also our investor
relations team who is also inhouse that take over every process
in the company.
(12:46):
We actively manage our assetswith real time updates, monthly reports
and investor relations on thattransparent communication.
If you pick up the phone andcall our office and want to speak
to somebody about yourinvestment, We we have 800 plus investors
in our fund.
I believe you want to talk tosomebody, you'll get somebody on
(13:07):
the phone.
So that's another hugedifferentiator that also for me when
I was looking at creating thiscompany, what are the things when
I invest that keep me up atnight, people not responding, people
not emailing me back when Iwant to know what's going on, people
keeping me in the dark.
(13:30):
So we want to take our fundand make sure the things that we've
seen that we did not like, wetried to incorporate.
I briefly talked about how wemake money on notes.
I want to dive a little bittoo into exit strategies a little
bit more.
And we have significant amountof webinar videos on all of this.
(13:53):
But a big advantage ofmortgage notes is the multiple exit
routes and going back to themarkets, the stock market, you can
invest in different assetclasses of tech versus real estate
versus other asset classes,bitcoin, crypto, whatever it is that
could be considered as goodstrategies in notes.
(14:14):
With real estate we havemultiple exit strategies within this
platform.
Borrower could be reperforming, we get them back on track.
There is foreclosure, we takecontrol of the property which is
the last resort and happensagain, number about 10% of the time
(14:35):
feed and lieu where they justgive us a property back, we can sell
the note, they can short salethe property.
So there's many options toexit which is a little bit different
when you think of traditionalreal estate.
If you own a rental property,say you bought 200 and you owe 150,000
(14:56):
on it and tenant damages it,you need to put more money into it.
Property value may have gonedown, taxes, insurance gone up, so
it's cash flow negative.
What are your options there?
Pretty much your only optionis to sell that property and take
a loss possibly or take a cut.
(15:18):
In note investing, it's muchmore diverse because you're the lender,
you're really at the top ofthe food chain looking ahead the
economy, let's dive back into that.
And I want to wrap up on howdoes the current economic outlook
affect mortgage notes.
(15:38):
We've all seen what's happenedto office, multi family, other asset
classes over the last several years.
I think a lot of people arenervous right now.
Rising rates which they havebeen coming down, but they're above
what they were the last three,four years have made traditional
real estate investing harder.
(15:59):
Mortgage is more expensive,inventory is tighter.
But for note investors, thisenvironment actually increases opportunity.
Think about it, the moreconcerns with the economy, whether
it's job loss, increasedcosts, those will cause payments
(16:24):
go up or income to come down.
That typically leads more nonperforming loans that will hit the
secondary market.
That creates more opportunityto acquire assets at discounts.
As long as your position toact, that is A key factor I want
(16:49):
to highlight again, as long asyou're in position to act.
I say that because I got acall yesterday from a company who
is a year old.
They've been doing originatingloans, short term, six 12 month loans
and they reach out and said wewant to start buying your non performing
(17:11):
loans.
And I asked question who'syour asset manager versus I am.
I'm like what's yourexperience in non performing loans?
I have an originationbackground and had zero experience
in non performing loans.
And for me I will say anycompany that wants to shift into
(17:38):
something new and this is aquestion, if you're an investor,
make sure you ask this question.
How long have you been doing this?
Because do you want to investin a company that wants to get into
something that they've never done?
We've seen what that did tomultifamily sponsors three, four
years ago.
We've seen what happened totech people getting the tech back
(17:58):
in 2000, 2002 or even today.
Chances of success when youcreate a new business unit with zero
experience is going to be challenging.
If we want to expand into abusiness unit, we always look who,
not how, who is the personwe're bringing in that has the expertise
(18:20):
and experience that can slidethis in and get it operational understanding,
that's going to take time.
Sorry I went on a little rantthere but it's just when I see people
trying to shift into things,it makes me nervous.
Back to the outlook.
(18:43):
We're already seeing thisuptick in inventory coming to the
market from banks, hedgefunds, servicers.
We're seeing it on more oninvestor loans than on owner occupied.
We're seeing 200 million amonth right now in the amount of
non performing loans that areprobably investor loans.
And you look back at Florida,Texas, a lot of place, people were
(19:06):
ramping up for rental loans inthose areas.
Taxes, insurance andeverything else.
And inexperience are startingto sink in and hit and people are
now not being able to pay.
So we're seeing upticks in those.
While there's volatility inthe markets, yes, there's.
We're seeing volatility in thenotes base.
Volatility in the notes baseincreases more non performing loans,
(19:29):
increases the supply whichtypically increases that discount.
When we say non correlated tothe market, some may say it's negative
correlation.
I don't like to say that, butit's not correlated.
So if you're looking at anopportunity of where you could invest.
(19:50):
Mortgage note investing hassome unique and interesting components
to it.
Control Rockefeller strategy,Control everything.
Own nothing.
You're the lender, you're in control.
Don't own it.
And you're primarily insulatedfrom that chaos that's going on in
(20:12):
Wall street because you'rebuying at a discount, attempting
to work with the borrowers andmanaging the assets proactively where
you can create real value, notjust paper gains.
I want to wrap up and say onelast thing.
This is not a get rich quick strategy.
(20:35):
Investing is a long termwealth building play.
I'm going to repeat that.
It's a long term wealthbuilding play.
It's rooted in discipline,process, smart investor and deal
selection.
Whatever it is you want to dowith your investment strategies,
(21:00):
I strongly recommend thatsinking and I'll share another story
where I saw a Facebook adYesterday company offering 3 to 5%
return per month, 36 to 60%return per year.
I am 100% calling BS on thatinvestment strategy 100% because
(21:28):
I can tell you if I could make36 to 60% I would not be out there
getting money from otherpeople and paying them that much.
I'd be keeping it all for myself.
Because if they're making 36to 60% per year, they still need
to keep some from themselves.
Think about that.
(21:48):
So if it looks too good to betrue, it is.
This wraps up today's episodeof the Paper Trail podcast.
If you are looking todiversify your portfolio with a non
correlated asset class to themarkets, head over to 7e Investments.com
(22:10):
to learn more.
We also have tons of webinars,guides, investor FAQs, stories from
people just like you who arelooking to invest in notes to build
wealth.
And hey, if you found thishelpful you could hit the subscribe,
drop us a five star review andshare this with a friend who hopefully
(22:33):
is also ready to stop ridingthis Wall street roller coaster.
Until next time, happy investing.
Welcome back to the PaperTrail podcast.
I am your host, Curse Sevany.
And today we're diving into atopic that's on a lot of investors
minds.
What is going on with thestock market?
But more importantly, how doesit impact mortgage note investing
and our mortgage note fund?
Whether you're a seasonedinvestor or just now exploring alternative
(01:07):
investments, understandingthis distinction can be the key to
building a more stable anddiversified portfolio.
Let's rewind a little bit andstart at the foundation and core.
And let me explain whatmortgage note investing is.
Mortgage note investinginvolves purchasing debt secured
(01:29):
by real estate.
You're essentially purchasinga mortgage and note and you're stepping
into the shoes of the bank.
You're not buying the property.
I want to be clear.
You're not buying theproperty, you're buying the paper
and the right to collectmonthly payments from the borrower.
So instead of dealing withtenants, toilets, termites, you're
(01:51):
collecting income whilesomeone else lives and maintains
a property.
Again, you are the lender.
The analogy I always like touse is if the roof leaks, that borrower
is not calling us.
Because you own a house, youdon't call your lender with a roof
leak.
So here's the kicker.
We talk about mortgage note investing.
(02:15):
Unlike the stock market,mortgage note investing is not correlated
to public equities.
Let me say that again, notcorrelated, meaning we've had a 10%
swing over the past month.
Your note portfolio reallyhasn't flinched.
Ours has not.
(02:35):
I know a lot of folks sawtheir 401ks take a serious hit last
month.
I have several co workersasking what do I do with my 401k.
I've never been throughanything like this and I'm the old
cat in the mix here at my company.
And I can recall back in 2008,9 and 10, you wait it out, you just,
(02:58):
you can move to bonds, you canshift things, but if you got a while,
maybe you wait it out.
First off, I'm not givingfinancial advice.
I'm just telling you what Idid way back in the day.
But this does bring us a hardtruth about people who are concerned
with their 401ks and thetraditional 6040 split of bonds versus
(03:20):
stocks.
And that's it.
No alternatives leads to whatI've called in the past the 404040
plan, which is a pretty shaky plan.
It's where you work 40 hours aweek for 40 years and only retire
on the hopes that your 401kgives you 40% of your income.
Not exactly comforting whenyou have markets like what's going
(03:43):
on today?
I'll share a story of how manyof you out there have parents, have
grandparents, know somebodywho's in their 60s looking to retire
and they can't.
You know, their taxes, theirinsurance are still extremely high.
They may still have a mortgageon their property that 401k isn't
(04:05):
cutting it.
Now, thankfully.
My dad worked for a schoolsystem, so he had a pension before
he passed away.
And he was smart to take less.
So when he did, if he passedaway, my mother would still collect
something.
It's an avenue ofunderstanding that is not going to
cut it.
And you need to look at alternatives.
(04:27):
Now you might be wondering,Chris, you talk about the markets.
How do interest rates factorin all of this?
It's a great question.
The short answer is interestrates don't impact us the way they
invest, they impact other markets.
Why?
(04:48):
Because we're not buying basedon market rate.
We based on it.
We buy based on a targeted yield.
And if you think of thisexample and it's, I'm not a big fan
of giving examples.
Close your eyes so.
Well, don't if you're driving.
But if a mortgage which isfixed at 6%, what's going on in the
(05:09):
markets and what's going on ininterest rates doesn't impact that
loan, think of yourself.
If you own a mortgage, what'sgoing on out there?
I have a mortgage rate, Ithink I'm at 3% or wherever my rate
is.
What's going on out there haszero impact.
My payment stays the same.
Nothing changes.
The only thing that can changeis if I lose my job.
(05:30):
But when my bank looks atmortgage that's fixed, what's going
on really is irrelevantbecause everything is staying the
same and we're buying basedoff of a yield.
So if it's non performing,we're buying it based off of a targeted
yield that is going to besignificantly higher than the federal
rate and interest rates on loans.
(05:52):
So if that deal doesn't meetour expected return threshold, we
just pass on it.
We like to stay disciplinedand stick to the notes that hit our
specific criteria.
And that's how we try andprotect returns and attempt to minimize
interest rate risk.
Now, within a mortgage notefund, there are two primary categories.
(06:13):
We invest performing noteswhere the borrower is paying on time.
These are more predictable andtypically offer steady monthly cash
flow.
And then the non performingloans where the borrower is in default,
they have a greater amount ofrisk, but they also, because of the
risk come at a discount thatalso Has a higher upside potential.
(06:33):
As an example, let's sayyou're buying a non performing note
on $100,000 loan for $70,000.
Borrower hasn't paid in two years.
We reach out, have an attorneysend a letter, work out a new deal
with them, they start payingagain and then we modify that loan.
(06:54):
Now that loan could be worth 85,000.
We created value and it's justnot a win for the investor.
But it's also a win for theborrower too because they're staying
in and keeping that home.
That's how we make money basedoff of these types of loans.
And when you hear all of this,do tariffs come into play?
(07:18):
No.
Does Nvidia stock going up anddown or Facebook or Amazon stock,
do those come into play?
They don't.
You know, the jobs markettypically is the biggest influencer
on what we do now.
People reach out and there's alot of myths and facts and misconceptions
(07:38):
about note investing becausemost people haven't heard about it,
even though it's a 16 trilliondollar industry.
So let's talk about some ofthese myths and facts.
Myth number one is mortgagenotes are only for banks and institutions.
Fact is we have a regulation a+ offering where you can invest in
(08:01):
our fund which invests inmortgage notes for as little as $5,000.
So unlike real estatesyndications, you don't need 100,000,
200,000.
Start with $5,000.
Diversification.
Myth number two is you needreal estate experience to get into
(08:23):
notes.
The fact is you're investingin a fund like ours.
Our team handles assetmanagement, the due diligence.
We have servicers who handlethe outreach.
You don't need to be alandlord, you don't need to be an
underwriter, you're an investor.
(08:44):
Myth number three, if theborrower stops paying, you lose everything.
Fact is, these notes aresecured by real estate.
If borrower doesn't pay, wehave recourse through foreclosure,
taking the property back viadeed in lieu where they don't go
through a foreclosure, justhand it back.
(09:05):
Short sale.
We like first position liensso we're secured by that real estate
compared to unsecuredinvesting, which is nothing to back
up that investment.
So I want to pause and recapwhat we've covered so far.
(09:25):
Just make sure everyoneunderstands mortgage notes.
And investing in mortgagenotes allow you to act as the bank
and you collect the paymentswithout owning the property.
It's mortgage, not investing.
Again, it's non correlated tothe Market look at it as an alternative
(09:50):
hedge against volatility,which we're seeing a lot of volatility
right now.
You can invest in performing,you can invest in non performing
notes, different risk profilesor you can invest in a fundamental
that typically offers both for diversification.
(10:10):
And I wanted to crush a few ofthese common myths around accessibility,
risk and knowledge to get involved.
Now I want to shift gears alittle talk about how we look to
mitigate risk and protectinvestor capital.
(10:32):
One, we do a deep dive intoevery loan.
We consider we analyze aproperty's equity position as we
want strong collateral behinda note.
We want to be in first position.
That means we're in control.
We review the borrower'spayment history and credit profile.
(10:54):
And if you've watched some ofour other webinars, we talk about
the 3P's property, the person,the predicament.
Here the borrower is a person.
Why are they with the predicament?
What got them behind what isthis type of borrower?
Did they file bankruptcy seventimes or is it something that temporary
job loss as well as gettingthat property looking equity position,
(11:19):
getting eyes on the property,what does that property look like?
And another key factor is wepartner with licensed servicers,
attorneys, title companies,insurance companies, tax review companies.
We want to verify documents,perform the checks and ensure compliance
(11:39):
and make sure that the assetwhich is the real estate is protected.
We're not just sprayingcapital across random deals.
We are extremely selective.
That's how we look to reduce risk.
Let me share an example with you.
I'm recording this podcast andtoday we are bidding over five million
(12:04):
dollars on a pool of overseventy million dollar pool.
And a pool is a list of assets.
So 150 assets, call it $75 million.
We are cherry picking thatpool or that list of assets for five
plus million dollars of theones that fit our buy box and the
(12:25):
ones we feel meet our profileof underwriting and that risk profile
that we look for when we're successful.
We have in house assetmanagement and also our investor
relations team who is also inhouse that take over every process
in the company.
(12:46):
We actively manage our assetswith real time updates, monthly reports
and investor relations on thattransparent communication.
If you pick up the phone andcall our office and want to speak
to somebody about yourinvestment, We we have 800 plus investors
in our fund.
I believe you want to talk tosomebody, you'll get somebody on
(13:07):
the phone.
So that's another hugedifferentiator that also for me when
I was looking at creating thiscompany, what are the things when
I invest that keep me up atnight, people not responding, people
not emailing me back when Iwant to know what's going on, people
keeping me in the dark.
(13:30):
So we want to take our fundand make sure the things that we've
seen that we did not like, wetried to incorporate.
I briefly talked about how wemake money on notes.
I want to dive a little bittoo into exit strategies a little
bit more.
And we have significant amountof webinar videos on all of this.
(13:53):
But a big advantage ofmortgage notes is the multiple exit
routes and going back to themarkets, the stock market, you can
invest in different assetclasses of tech versus real estate
versus other asset classes,bitcoin, crypto, whatever it is that
could be considered as goodstrategies in notes.
(14:14):
With real estate we havemultiple exit strategies within this
platform.
Borrower could be reperforming, we get them back on track.
There is foreclosure, we takecontrol of the property which is
the last resort and happensagain, number about 10% of the time
(14:35):
feed and lieu where they justgive us a property back, we can sell
the note, they can short salethe property.
So there's many options toexit which is a little bit different
when you think of traditionalreal estate.
If you own a rental property,say you bought 200 and you owe 150,000
(14:56):
on it and tenant damages it,you need to put more money into it.
Property value may have gonedown, taxes, insurance gone up, so
it's cash flow negative.
What are your options there?
Pretty much your only optionis to sell that property and take
a loss possibly or take a cut.
(15:18):
In note investing, it's muchmore diverse because you're the lender,
you're really at the top ofthe food chain looking ahead the
economy, let's dive back into that.
And I want to wrap up on howdoes the current economic outlook
affect mortgage notes.
(15:38):
We've all seen what's happenedto office, multi family, other asset
classes over the last several years.
I think a lot of people arenervous right now.
Rising rates which they havebeen coming down, but they're above
what they were the last three,four years have made traditional
real estate investing harder.
(15:59):
Mortgage is more expensive,inventory is tighter.
But for note investors, thisenvironment actually increases opportunity.
Think about it, the moreconcerns with the economy, whether
it's job loss, increasedcosts, those will cause payments
(16:24):
go up or income to come down.
That typically leads more nonperforming loans that will hit the
secondary market.
That creates more opportunityto acquire assets at discounts.
As long as your position toact, that is A key factor I want
(16:49):
to highlight again, as long asyou're in position to act.
I say that because I got acall yesterday from a company who
is a year old.
They've been doing originatingloans, short term, six 12 month loans
and they reach out and said wewant to start buying your non performing
(17:11):
loans.
And I asked question who'syour asset manager versus I am.
I'm like what's yourexperience in non performing loans?
I have an originationbackground and had zero experience
in non performing loans.
And for me I will say anycompany that wants to shift into
(17:38):
something new and this is aquestion, if you're an investor,
make sure you ask this question.
How long have you been doing this?
Because do you want to investin a company that wants to get into
something that they've never done?
We've seen what that did tomultifamily sponsors three, four
years ago.
We've seen what happened totech people getting the tech back
(17:58):
in 2000, 2002 or even today.
Chances of success when youcreate a new business unit with zero
experience is going to be challenging.
If we want to expand into abusiness unit, we always look who,
not how, who is the personwe're bringing in that has the expertise
(18:20):
and experience that can slidethis in and get it operational understanding,
that's going to take time.
Sorry I went on a little rantthere but it's just when I see people
trying to shift into things,it makes me nervous.
Back to the outlook.
(18:43):
We're already seeing thisuptick in inventory coming to the
market from banks, hedgefunds, servicers.
We're seeing it on more oninvestor loans than on owner occupied.
We're seeing 200 million amonth right now in the amount of
non performing loans that areprobably investor loans.
And you look back at Florida,Texas, a lot of place, people were
(19:06):
ramping up for rental loans inthose areas.
Taxes, insurance andeverything else.
And inexperience are startingto sink in and hit and people are
now not being able to pay.
So we're seeing upticks in those.
While there's volatility inthe markets, yes, there's.
We're seeing volatility in thenotes base.
Volatility in the notes baseincreases more non performing loans,
(19:29):
increases the supply whichtypically increases that discount.
When we say non correlated tothe market, some may say it's negative
correlation.
I don't like to say that, butit's not correlated.
So if you're looking at anopportunity of where you could invest.
(19:50):
Mortgage note investing hassome unique and interesting components
to it.
Control Rockefeller strategy,Control everything.
Own nothing.
You're the lender, you're in control.
Don't own it.
And you're primarily insulatedfrom that chaos that's going on in
(20:12):
Wall street because you'rebuying at a discount, attempting
to work with the borrowers andmanaging the assets proactively where
you can create real value, notjust paper gains.
I want to wrap up and say onelast thing.
This is not a get rich quick strategy.
(20:35):
Investing is a long termwealth building play.
I'm going to repeat that.
It's a long term wealthbuilding play.
It's rooted in discipline,process, smart investor and deal
selection.
Whatever it is you want to dowith your investment strategies,
(21:00):
I strongly recommend thatsinking and I'll share another story
where I saw a Facebook adYesterday company offering 3 to 5%
return per month, 36 to 60%return per year.
I am 100% calling BS on thatinvestment strategy 100% because
(21:28):
I can tell you if I could make36 to 60% I would not be out there
getting money from otherpeople and paying them that much.
I'd be keeping it all for myself.
Because if they're making 36to 60% per year, they still need
to keep some from themselves.
Think about that.
(21:48):
So if it looks too good to betrue, it is.
This wraps up today's episodeof the Paper Trail podcast.
If you are looking todiversify your portfolio with a non
correlated asset class to themarkets, head over to 7e Investments.com
(22:10):
to learn more.
We also have tons of webinars,guides, investor FAQs, stories from
people just like you who arelooking to invest in notes to build
wealth.
And hey, if you found thishelpful you could hit the subscribe,
drop us a five star review andshare this with a friend who hopefully
(22:33):
is also ready to stop ridingthis Wall street roller coaster.
Until next time, happy investing.
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