September 20, 2023 • 27 mins
Are you ready to upgrade your understanding of real estate note investing? We'll unravel the complexities of active and passive note investing, empowering you to build wealth and take control as the 'bank'.
Hashing out the realities of running a note business. We'll even discuss the balance between maintaining a full-time job while being a note investor, providing a nuanced perspective to guide your decisions. Get ready to deep dive into self-directed IRAs, facing the current yield environment, and the importance of volume. We'll also touch upon flipping notes and the potential of land contracts as investments. Remember, note investing is a balancing act between risk and returns, and having a strategic plan is crucial. So gear up and get ready to ‘Be the Bank’.
About the Host:
Justin Bogard – Note Investor specializing in performing Residential Real Estate Debt. He finds deals and acquires them for his own portfolio as well as educates investors while walking them through the process of owning a Real Estate Note!
Connect with the Host:
Facebook - bethebank
Twitter - bethebank1
Instagram - bethebankpodcast
American Note Buyers - https://anbfunds.com/
Monthly Broadcast - https://youtube.com/playlist?list=PLzc944w1xydt5aLDrrEPHJhdJeDkBjjD4
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Narrator (00:01):
Interested in real estate.
How about wealth?
Well, they go hand in hand, andhere you'll learn all about it.
Welcome to Be the Bank, apodcast where we discuss and
debate the topics centeredaround real estate investing.
Your host, justin Bogart,shares insights into investing
in real estate to create realwealth and passive income for
(00:22):
you and your family.
He'll share stories of realestate investments done right,
walk you through the process ofowning a real estate note and,
most importantly, educate you soyou can be the bank.
This is Be the Bank brought toyou by American Notebuyers.
Now here's your host, justinBogart.
Justin Bogard (00:45):
Hey, hey, internet.
This is episode number 19 onseason five of the Be the Bank
podcast brought to you byAmerican Notebuyers.
I am Justin Bogart.
We're going to be discussingkind of activity versus
passivity in the real estatenote sector and we'll have Mr
Richard Thurton on to help usthrough that conversation today.
So stay tuned.
That logo never gets old, doesit, Richard?
Richard Thornton (01:18):
No, I like it.
You know, when our graphicartist came up with that was out
of the five he or she gave us,that was the definite winner.
Justin Bogard (01:28):
That's pretty cool If you guys would like to
see what we're talking about.
Every time we record ourpodcast, we also record the
video stream of it as well onour YouTube channel.
So if you go to the AmericanNotebuyers YouTube channel, you
can check that out on episodenumber 19 of season five, and so
it's just a little animation,like Richard said, and it kind
of makes some transition and itturns into our logo at the last
(01:49):
minute.
So it looks pretty cool.
Richard Thornton (01:50):
They call it the architectural view.
So they draw it out like it'sarchitectural drawing and then
poof, all of a sudden you've gotreality.
Justin Bogard (01:58):
Did you take some architectural classes?
Richard Thornton (02:00):
I did.
I was actually trained as alandscape architect for a little
bit before I switched to urbanplanning and other in finance
and other things.
But yeah, I did.
Justin Bogard (02:11):
It's pretty cool.
So is it finally warming up orcooling down in the Bay Area?
Richard Thornton (02:18):
Well, it is, but it isn't.
Yes, and the reason I saythat's because the mornings have
been quite chilly and it does.
It's getting up in the mid 80sin the afternoon now.
So it's really quite nice, butwe had probably one of the
coldest summers we've had in along time.
But that has not been your case, right?
You had a nice, warm summer.
Justin Bogard (02:37):
No, it seems like the Midwest out here and the
southern states like Texas.
They definitely got a lot ofextreme heat.
We pegged 100 a couple of timesthis summer, which isn't
unusual, but it's not typicallynormal to go over 100 a couple
of times.
But yeah, we had a consistentweek or two.
I want to say that was 90 to 95, which is pretty fabulously
(03:02):
warm.
We usually hit that a few timesand it jumps back down to high
80s, but this week isn't bad.
Yesterday I got up to 80 and Ithink it's going to be 70 and
overcast most of the week now.
So it'll be getting closer towhat we feel like fall.
So everyone's kind of gettingexcited now.
Hopefully the leaves willchange in a month or so.
Richard Thornton (03:19):
Yeah, I mean, I don't know.
I mean, weather in general thisyear has been kind of crazy
worldwide.
I don't know if we canattribute it to global warming
or whatever, but between thefires in Canada and Greece and
the floods in Libya that they'rehaving right now and all that
it's, there's a lot of peoplewho are really not doing very
well because of all that.
Justin Bogard (03:40):
That's too bad.
I don't like to see thathappening.
There was, that wasn't a bigfire in Hawaii.
Richard Thornton (03:46):
Yes, maui, that's right.
That's another thing I'dforgotten.
All about that.
Justin Bogard (03:51):
That's closer to home.
Richard Thornton (03:53):
A closer to home and a good friend of mine
who runs a property managementcompany was just about ready to
buy a company that manages over150 homes in Maui and he was
supposed to sign all thedocuments the day after the fire
and every house that he wasgoing to manage burnt down.
Justin Bogard (04:16):
Oh my gosh.
Yeah, that is crazy timingright there.
Richard Thornton (04:22):
It is.
Justin Bogard (04:23):
Hang on.
Well, today we are going to bediscussing a topic that you and
I have always had offlineconversations about, but we
thought it would be interestingto bring kind of on air today.
And that is kind of whatreality is when you are a fully
active note investor.
And so, richard, I just want toprobably start us down a
(04:45):
conversation here and start bysaying all of that doesn't
necessarily mean it doesn't haveto be like that's absolutely.
Colleagues, right that when Igot into this real estate no
investing business I obviouslydidn't have a large bankroll, I
didn't have much money.
I had some retirement savingsand a little bit of cash.
So I couldn't go out and buy alot of loans, I could just buy a
(05:05):
couple of small ones.
And so then I kind of run outof money quickly and my option
really is, the only way I canmake more money is to somehow be
some sort of facilitator towhere I can find deals and I can
find people who need deals andkind of merge the two together
and add some sort of value inbetween to make it easier for
(05:26):
that buyer and that seller tomake kind of a fee income.
On the other hand, if somebodyhas a lot of money they want to
invest in and they wanna learnthis craft.
It becomes a little bit of aneasier segue to get into it and
become a fully active noteinvestor, but there are some
other challenges to it.
(05:46):
So what's your initial thought?
Richard Thornton (05:49):
Well, I think when we initially talked about
this, I think you and I bothlooked at notes coming from
different backgrounds anddifferent levels of expertise
and said the best way to makethis work is to jump into it
whole hog.
So let's quit our day job andjump in with both feet.
(06:14):
I mean, there'll be a couple ofmonths or six months or
something like that, butbasically the intent was to get
in whole hog, which meant thatyou're gonna be buying,
investing, and you had to get toknow people and you had to if
you wanted to.
The traditional line peopletalk about is when you get in
your broker notes and you makemoney brokering notes and then
(06:36):
you move forward from there.
You got more money in yourpocket, you can move forward and
that's a good thing and that'sa regular way to do it.
But the reality, I think, isthat you have to look at the
yields that you're getting andonce you get into a business
(06:57):
full time, you've got a lot ofexpenses that you ordinarily
wouldn't have.
What are you're going throughthat right now and sort of
looking at some of what we have.
What are some of the thingsthat you see are nickel and
diming us in our business?
Justin Bogard (07:12):
Well, there's just a lot of things that I
think all of us just asconsumers and as business
leaders for our companies wetend to end up getting too many
subscription models that wedon't really need, and maybe at
the time it made sense and itsounded like, oh, that cost can
be absorbed because we makeenough money.
(07:34):
Or maybe we don't make enoughmoney and then when you start
getting granular with themonthly cash flows that are
coming in and the expenses thatare going out and the
liabilities you have to pay, youstart to see some things get
out of line, and so it's prettyeasy to get out of bounds, I'll
say, with subscriptions.
I'm talking about subscriptionsto things that you need, like
(07:57):
maybe some sort of reporting orsome sort of CRM you have, or a
subscription for access tocertain things that we may need
to use, and sometimes they'rejust kind of nice to have, but
you can live without them.
And so that's when we have todecide can we really sustain
that?
And so when you run a businessas a note business, you really
(08:18):
have to make sure that youunderstand your expenses,
because this is a cash flowbusiness, right, we are not
traditionally flipping loans asa full business model.
We're kind of holding the notesfor the cash flow.
So then our yield, as youmentioned before, needs to be a
little bit higher than if I wasjust investing in my retirement
(08:39):
account and it was just my moneyand there was really no
essentially no expenses or nooverhead with it, because it's
just my retirement account.
When you're running a business,obviously you have many other
expenses, just like running anybusiness in general, like a
restaurant or a brick and mortarstore.
You know just stuff like that.
So I think it becomes reallychallenging, richard, to be
(09:03):
honest with you, it's not.
I think very few people makethe opportunity to have their
note business be a reallythriving business.
A lot of times, like any otherentrepreneur endeavor that
someone would go down, itbecomes a numbers game, like it
is a low chance of successbecause of all the hurdles you
(09:26):
have to go around and go throughand it's really a three-headed
monster, richard, like with youmanaging marketing.
That's all the beast in itself,you know, and including in that
is also social media, which isa whole other avenue of
challenges to try to get yourcontent across versus other
competitors, so to speak, thatare in the same market, because
(09:47):
our market is the United States,which is every note investor's
market is the United States.
Right, nobody is advertisingspecifically for like a city
because it's just so hard to getinventory for a specific region
.
So that's why we're more broad,broad, focused of marketing.
Richard Thornton (10:04):
Right.
So let's give everybody alittle bit of context here,
because without gettingspecifics, you could walk away
with this with a very differentattitude.
So what we're talking about is,you're right, crm.
Maybe you have Zoho, maybe youhave the watered down Salesforce
(10:25):
or whatever CRM and you cost$200 a month for that.
And you've got DocuSign andthat costs $50 a month and
you've got whatever else thoselittle things that you have to
have and all of a sudden youturn around and you're spending
$2,000 a month on this kind ofstuff.
And if you are like me, so I hadgoing into the pandemic.
(10:49):
I had a bunch of notes and Isold a whole lot of my inventory
off because people wanted to.
I thought I was going to gethammered in the pandemic.
You and I have talked aboutthis and it turns out it was one
of the best sales transactiontimes that I could ever had.
In the first year I sold twothirds of my portfolio.
(11:12):
So right now I've only got about35 notes left and I am very
much concerned with even thoughwe're running A and B.
I'm not doing advertising formy old company or anything like
that.
I've just got an accountantthat's keeping me my average 15%
(11:34):
yield that I was getting iscoming in around 10% and I'm
going.
Well, gosh, that's not reallywhat I got into this for,
whereas if I and so that's myday-to-day income If I had
another job, a day job,something like that, didn't have
(11:54):
all the advertising, didn'thave a CRM, didn't have a water,
and I was just doing this on anExcel spreadsheet, my results
would be a lot better.
Justin Bogard (12:04):
Yeah, yeah, so it's.
It's like once you get intothis business, you really you
really have to, you really haveto make a dent Pretty quickly, I
think, to sustain it, becausesome people I would say most
people now Don't get into thisfull-time right away.
I think they have to buildtowards it.
So they maybe have, they mayhave a really good full-time job
(12:26):
, maybe they're an attorney or adentist or maybe they're some
sort of have a legal professionto where they have, you know,
some disposable income and theycan invest in, and then they're
just trying to build that up andunderstand how it works.
And I think that's a reallygood model to get into, to build
your way towards it.
But just to jump in whole hog,as you said earlier that that is
(12:47):
more difficult and and there'sa low probability, you know, get
getting out and making themoney because there's so many
Unique hurdles to go throughthat even though you and I have
both been through that part ofthe business and started our own
Businesses before we can findthis one.
It's it's not for everybody, Iguess I would say, and it's it's
(13:09):
just very, it's very difficultbecause I couldn't write a book
and Tell you exactly theblueprint that I did.
It may not work for you and youcould write a book and have
your blueprint on how you did itand it may not work for
somebody else either.
There's no, there's no likemagic, magic way that this works
.
If you have a franchise right,if you're part of a franchise,
franchisee Then you have ablueprint that is proven and it
(13:31):
does work, because and it worksin any market, because they had
it figured out and they've doneit in so many different places.
So yeah.
Richard Thornton (13:38):
So I mean, I can think of several people that
I've bought and sold notes withand they're doing notes on the
side and it's actually what'swhat's a good term.
It actually Helps out theirpractice.
So they're a real estate brokeror they're a property manager.
They're dealing in somethingthat's real estate oriented
(14:01):
already.
Justin Bogard (14:03):
So I'm a nice compliments.
Richard Thornton (14:05):
That's your, that's.
That's a good way to thank you,so it's complimentary.
As they're there, they don'thave to advertise or maybe doing
it through their self-directedIRA things like that that sort
of takes care of the accountingportion of it right there, so
they're not having to have anextra accountant and do all sort
(14:27):
of tax reporting.
That's a great way to do it andthat's a good way to build up,
I think, a sizable portfolio andnot have the headaches that you
do running a regular day-to-daybusiness.
Justin Bogard (14:40):
Yeah, yeah, the day-to-day is is it's not
passive what we do.
We're full, fully active noteinvestors making passive income
but we are not passive in thebusiness, if I can say that.
So we're kind of activelypassive yeah and until you get
up to.
Richard Thornton (14:58):
Until you get up to, like you know, probably
100 notes or something I get inyour portfolio, if you're in
your terms of just buying themand holding them and Taking the
yield off of that at today'syields.
You know when 10 years ago,when you could buy a performing
note at 18 to 25 percent yield,it was a whole lot easier to
(15:24):
make the numbers work.
But at today's days yieldswhere we're buying things With a
lot less return, you have tohave a lot more notes in your
portfolio and therefore a lotmore of your own capital in it
before you get to make thingswork.
Yeah, the volume helps.
Justin Bogard (15:38):
Definitely helps with the cash flow and I can
absorb, absorb a little bit of aloss To yeah so and my instance
.
Richard Thornton (15:47):
I sold a whole lot of partials up front and
that's great because I got to.
You know I had a quick turnmodel.
I'd my goal although I seldommade it made it was to sell, to
turn my money over three timesin a year with, with one note,
so I'd buy enough for 40,000,sell a partial on it, basically
sell out of that.
Take that same 40 by and selland by, and sell and by and sell
(16:08):
.
I made two times quite often,but it was three.
Was was tough.
Yeah, that's great.
But I had to do To cover my nuton that.
I had to do 10 year partialsfor the most part, so it's not
going to be Probably another twoor three years before I start
to see any of that incomereverting back to me.
(16:29):
On those partials that I soldUm, well, if you look at on a
yield basis, it's a great yield.
I don't have anything in it but, um, I kind of don't have any
income for a while.
Lots of chance you take rightand, depending on where you're
at in your life cycle.
Justin Bogard (16:48):
That may be a good decision for you, or may
you may need to accelerate thatand get the money sooner.
Or you can wait 20 or 25 years,just depending on how old you
are and where you're at and whatyou need to do.
So I guess, richard, what, whatwe're trying to get to the to
the point is that, um, you know,if you're getting into this
business and you have a largeamount of disposable income
(17:10):
we're talking, you know, uh,several hundred thousand dollars
to you know, in the millionsThen getting into it full time
right away is is not as big of achallenge as it is If you
really don't have the capital orthe resources for it.
Um, because the challenges ofFlipping a loan, or what we call
brokering a loan, uh, like youmentioned before, the margins
(17:36):
are a little bit thinner thanthey used to be, so it's harder
to sustain a velocity amount.
You have to do a lot of thosetransactions to really make a
good living, as opposed to, youknow, eight years ago, when you
could do that and you didn'thave to flip that many loans and
you can make a really goodliving because the margins were
much greater, much sweeter.
So, getting into this business,if you have money, that's a
(17:58):
great way to be active quickly,but if you don't, it's probably
is best for you to, you know,keep your part time or full time
job and then kind of doing thison the side to build towards it
.
Because I agree with what yousaid, richard, it does take away
more time that you have outsideof, like your W2 job, but if
you're able to do this this workpart time you can you can make
some good money.
You just don't get a lot ofreturn your time because you
(18:20):
have to work a little bit harder, you know, on a part time basis
with this.
Richard Thornton (18:24):
Right, and so I think something else we want
to talk about a little bit todaywas maybe land contracts and
the use of land contracts, thatyou want to bring that up or not
.
Justin Bogard (18:35):
Since you brought it up, I guess we have to.
Richard Thornton (18:37):
Uh-oh, I guess we have to Okay.
Justin Bogard (18:42):
Land contracts.
We in our fund, I think we mayhave one land contract.
I think everything else ispretty much a need to trust or a
need to mortgage, depending onwhat state it's in.
In my personal portfolio I onlyhave a handful of land
contracts left.
I've either converted them tonote mortgages or I have just
(19:02):
sold them off because people hadneeded good cash flowing assets
and they just have to be landcontracts.
I continue to get notices fromthe counties, even though I have
sold those assets months oryears ago, because the counties
are so slow to updateinformation and you can have the
new buyer call into the countyand kind of update the records
(19:23):
of where to send the statementsto.
But at the end of the day it'sif you can avoid doing a
contract for a deed or landcontract.
It's going to be a lot betterfor everybody involved.
If you don't do that.
There are certain instanceswhere you would want to do a
contract for deed slash landcontract and that would be more
(19:43):
or less when you're wrapping amortgage, meaning Richard has a
mortgage on this investmentproperty and he wants to resell
that property on a land contractso that Richard would stay on
the deed and then he wouldn'ttrigger a do on sale clause.
Those would be appropriatereasons why you would want to do
a land contract.
But outside of that, I knowyou're on the same side of the
(20:05):
story as me and I'll let youchime in, but I'm definitely not
choosing to do a land contract.
Richard Thornton (20:11):
Yeah.
So I think a lot of people outthere would say, gee, I don't
see any reason to change fromone.
But I've run across two reasonslately to get out of them.
One is that I'm getting, as yousaid, constant notices from the
(20:31):
county and things like thatabout hey, you know, you've got
a trailer parked in your frontyard, I'm in California and that
front yard happens to be inOhio.
So minor things like that.
That's more of a nuisance.
But it comes down to title.
I just lost a sale on oneproperty.
(20:51):
My borrower said, hey, look,I'd like to sell and we got to
title company and title companysaid I'm not touching this,
we're not going to do this atall.
We really don't consider thisto be a clean deal.
It's a cloud on title.
So basically go out and convertit to note and mortgage before
(21:12):
we even look at it.
And if you are on any sort oftime constraint to sell, that's
just something you don't want todeal with.
How much does it cost and howlong is it taking you to convert
most of those that you have,justin?
Justin Bogard (21:27):
I mean it depends on the state that you're in,
but I'd say anywhere fromprobably $600 to $1,600.
Richard Thornton (21:36):
Well, yeah, I mean I've got I don't know how
many land contracts.
I've got more than I should,but I'm going to go about
converting all of those, I think, just because I don't want to
run into any more problems likethis.
Justin Bogard (21:50):
And I know that sounds like a lot of money, but
in all actuality, you know, thisis a conversation that we would
have with the borrower and wewould lay out all the pluses for
them.
Right, look your situation now.
You are not on the deed.
You aware of that and maybelike no, I'm not.
Well, if you want to be on thedeed, this is a way to get you
(22:11):
on the deed.
We can ensure the title rightnow to make sure that it's clean
of any you know encumbrances,and then we can also get a
policy that guarantees that thelien is there and that your lien
is valid and active, and itgives you more protection and it
gives us more protection.
And so when you go and sell theproperty, you're not going to
(22:33):
have these title companies thatare going to push back and say
wait a minute, this is a foreignobject to us, we don't
understand it, so we're just notgoing to move forward with it.
So oftentimes I've gotten theborrowers to come forward and
actually help pay for some ofthe costs as well.
You know I'll pay for like thetitle policy, because that's a
general thing a seller would dofor a buyer, but everything else
(22:54):
you know is something theywould pay for.
You know, recording the deed,the split, split the cost of
generating the note and mortgage.
So yeah, that's kind of myanswer to your question on the
cost and stuff.
Richard Thornton (23:07):
Yeah, so I mean, that's what I came from.
The school of no, it doesn'tmake any difference, and I've
slowly come around to saying yes, it does, so we just bring that
up to listeners to.
Justin Bogard (23:25):
It does.
When you have many of them.
Yeah, if you just have one ortwo, you know.
If the opportunity presentsitself, of course, go ahead and
change it and convert it.
You know it's when you havemany of these, like Richard and
I do, it becomes a real nuisance, right, getting all the notices
.
And because at first when youget a notice from a county,
(23:47):
you're thinking, oh God, whathappened?
What do I owe on this one?
You think of it like a billthat you're getting that you're
just not happy about.
And it turns out that's usuallyjust just some sort of notice
that says, hey, the taxes aredue and this is what the
assessment is on it.
Or sometimes it is a bad thingwhere it's hey, there's a camper
(24:08):
in the yard that's not supposedto be there and we're going to
charge you $350 to you andyou're the deeded owner.
Right, good luck trying toexplain to the county that it's
a land contract and you don'treally own it, but you do.
Richard Thornton (24:21):
Yeah.
So one issue one property I hadin Missouri the owner triggered
.
Actually, here's what happenedthe county got wind of the land
contract and they said that hewas a tenant living in the
(24:42):
property and I said no, he's nota tenant, he's the owner.
I said no, no, as far asworkers are concerned, he's a
tenant.
Well, as soon as he was atenant, that triggered the
landlord lease laws there andthey had to do a property
inspection.
Well, they had to do a propertyinspection and guess what?
They found $4,000 or $5,000worth of items that need to be
taken care of in the house tomake it fit for what they
(25:04):
considered to be occupancy by atenant.
And they were just fine things.
They were small things but theywere gotchas.
So all of a sudden he settledwith $5,000 or $6,000.
Just, you can imagine theamount of time that I had to
spend on that and going back andforth and explaining it and
blah, blah, blah, blah.
Oh, yeah, yeah.
Justin Bogard (25:26):
It's endless, endless.
A lot of fun yeah.
Richard Thornton (25:30):
So do a mortgage, do a deep trust.
It's simple.
Justin Bogard (25:35):
It doesn't cost anything different.
Richard Thornton (25:37):
Yeah.
Justin Bogard (25:38):
You get no advantages Anybody listening to
this or watching this.
You get no advantages Having acontract for your land contract.
You can't tell me that you canevict them if they don't make
their first payment.
It doesn't work like you think.
A lot of judges do not likelaying contracts, and so they
will make you foreclose on themas if it was a note in mortgage
(25:59):
anyways.
Richard Thornton (26:00):
Yeah, even though your paperwork says
otherwise, you still, in a lotof cases, have to handle it as
if it were a mortgage.
Justin Bogard (26:08):
Yeah, that's all the time we got for today.
Thanks, richard, for joining usagain.
This is episode number 19,season five of the Be the Bank
podcast.
You can check out our future.
We've run out of time againWe've run out of time.
Oh my God.
Yeah, it's been so fun man.
Richard Thornton (26:23):
Check out our.
Justin Bogard (26:23):
YouTube channel American Note Buyers YouTube
channel.
You can check out the videofeed in our monthly broadcast
that we do live, which by timethis airs we would already have
it, so I guess you'll miss it,but you can watch the replay if
you go to YouTube channel.
But that we have a cool casestudy with Mr Drew Shepherd.
He's one of our learningmentees here and in his
(26:45):
apprenticeship and so he's got acool little case study and I
think you guys will enjoy it.
So watch the replay of that ifyou didn't get a chance to watch
it live until then.
Justin Bogard, this is RichardThornton and we will see you
guys next time.
Richard Thornton (26:57):
Okay, Bye-bye everybody.
Narrator (27:03):
Thanks for listening to Be the Bank.
We hope you learned somethingfrom today's show.
If you enjoyed this episode,please rate and review us.
Plus, check out our channel onYouTube and follow us on
Facebook and Twitter at Be theBank, and on Instagram at Be the
Bank podcast.
Be the Bank is sponsored byAmerican Note Buyers.
Thanks again for listening.
Interested in real estate.
How about wealth?
Well, they go hand in hand, andhere you'll learn all about it.
Welcome to Be the Bank, apodcast where we discuss and
debate the topics centeredaround real estate investing.
Your host, justin Bogart,shares insights into investing
in real estate to create realwealth and passive income for
(00:22):
you and your family.
He'll share stories of realestate investments done right,
walk you through the process ofowning a real estate note and,
most importantly, educate you soyou can be the bank.
This is Be the Bank brought toyou by American Notebuyers.
Now here's your host, justinBogart.
Justin Bogard (00:45):
Hey, hey, internet.
This is episode number 19 onseason five of the Be the Bank
podcast brought to you byAmerican Notebuyers.
I am Justin Bogart.
We're going to be discussingkind of activity versus
passivity in the real estatenote sector and we'll have Mr
Richard Thurton on to help usthrough that conversation today.
So stay tuned.
That logo never gets old, doesit, Richard?
Richard Thornton (01:18):
No, I like it.
You know, when our graphicartist came up with that was out
of the five he or she gave us,that was the definite winner.
Justin Bogard (01:28):
That's pretty cool If you guys would like to
see what we're talking about.
Every time we record ourpodcast, we also record the
video stream of it as well onour YouTube channel.
So if you go to the AmericanNotebuyers YouTube channel, you
can check that out on episodenumber 19 of season five, and so
it's just a little animation,like Richard said, and it kind
of makes some transition and itturns into our logo at the last
(01:49):
minute.
So it looks pretty cool.
Richard Thornton (01:50):
They call it the architectural view.
So they draw it out like it'sarchitectural drawing and then
poof, all of a sudden you've gotreality.
Justin Bogard (01:58):
Did you take some architectural classes?
Richard Thornton (02:00):
I did.
I was actually trained as alandscape architect for a little
bit before I switched to urbanplanning and other in finance
and other things.
But yeah, I did.
Justin Bogard (02:11):
It's pretty cool.
So is it finally warming up orcooling down in the Bay Area?
Richard Thornton (02:18):
Well, it is, but it isn't.
Yes, and the reason I saythat's because the mornings have
been quite chilly and it does.
It's getting up in the mid 80sin the afternoon now.
So it's really quite nice, butwe had probably one of the
coldest summers we've had in along time.
But that has not been your case, right?
You had a nice, warm summer.
Justin Bogard (02:37):
No, it seems like the Midwest out here and the
southern states like Texas.
They definitely got a lot ofextreme heat.
We pegged 100 a couple of timesthis summer, which isn't
unusual, but it's not typicallynormal to go over 100 a couple
of times.
But yeah, we had a consistentweek or two.
I want to say that was 90 to 95, which is pretty fabulously
(03:02):
warm.
We usually hit that a few timesand it jumps back down to high
80s, but this week isn't bad.
Yesterday I got up to 80 and Ithink it's going to be 70 and
overcast most of the week now.
So it'll be getting closer towhat we feel like fall.
So everyone's kind of gettingexcited now.
Hopefully the leaves willchange in a month or so.
Richard Thornton (03:19):
Yeah, I mean, I don't know.
I mean, weather in general thisyear has been kind of crazy
worldwide.
I don't know if we canattribute it to global warming
or whatever, but between thefires in Canada and Greece and
the floods in Libya that they'rehaving right now and all that
it's, there's a lot of peoplewho are really not doing very
well because of all that.
Justin Bogard (03:40):
That's too bad.
I don't like to see thathappening.
There was, that wasn't a bigfire in Hawaii.
Richard Thornton (03:46):
Yes, maui, that's right.
That's another thing I'dforgotten.
All about that.
Justin Bogard (03:51):
That's closer to home.
Richard Thornton (03:53):
A closer to home and a good friend of mine
who runs a property managementcompany was just about ready to
buy a company that manages over150 homes in Maui and he was
supposed to sign all thedocuments the day after the fire
and every house that he wasgoing to manage burnt down.
Justin Bogard (04:16):
Oh my gosh.
Yeah, that is crazy timingright there.
Richard Thornton (04:22):
It is.
Justin Bogard (04:23):
Hang on.
Well, today we are going to bediscussing a topic that you and
I have always had offlineconversations about, but we
thought it would be interestingto bring kind of on air today.
And that is kind of whatreality is when you are a fully
active note investor.
And so, richard, I just want toprobably start us down a
(04:45):
conversation here and start bysaying all of that doesn't
necessarily mean it doesn't haveto be like that's absolutely.
Colleagues, right that when Igot into this real estate no
investing business I obviouslydidn't have a large bankroll, I
didn't have much money.
I had some retirement savingsand a little bit of cash.
So I couldn't go out and buy alot of loans, I could just buy a
(05:05):
couple of small ones.
And so then I kind of run outof money quickly and my option
really is, the only way I canmake more money is to somehow be
some sort of facilitator towhere I can find deals and I can
find people who need deals andkind of merge the two together
and add some sort of value inbetween to make it easier for
(05:26):
that buyer and that seller tomake kind of a fee income.
On the other hand, if somebodyhas a lot of money they want to
invest in and they wanna learnthis craft.
It becomes a little bit of aneasier segue to get into it and
become a fully active noteinvestor, but there are some
other challenges to it.
(05:46):
So what's your initial thought?
Richard Thornton (05:49):
Well, I think when we initially talked about
this, I think you and I bothlooked at notes coming from
different backgrounds anddifferent levels of expertise
and said the best way to makethis work is to jump into it
whole hog.
So let's quit our day job andjump in with both feet.
(06:14):
I mean, there'll be a couple ofmonths or six months or
something like that, butbasically the intent was to get
in whole hog, which meant thatyou're gonna be buying,
investing, and you had to get toknow people and you had to if
you wanted to.
The traditional line peopletalk about is when you get in
your broker notes and you makemoney brokering notes and then
(06:36):
you move forward from there.
You got more money in yourpocket, you can move forward and
that's a good thing and that'sa regular way to do it.
But the reality, I think, isthat you have to look at the
yields that you're getting andonce you get into a business
(06:57):
full time, you've got a lot ofexpenses that you ordinarily
wouldn't have.
What are you're going throughthat right now and sort of
looking at some of what we have.
What are some of the thingsthat you see are nickel and
diming us in our business?
Justin Bogard (07:12):
Well, there's just a lot of things that I
think all of us just asconsumers and as business
leaders for our companies wetend to end up getting too many
subscription models that wedon't really need, and maybe at
the time it made sense and itsounded like, oh, that cost can
be absorbed because we makeenough money.
(07:34):
Or maybe we don't make enoughmoney and then when you start
getting granular with themonthly cash flows that are
coming in and the expenses thatare going out and the
liabilities you have to pay, youstart to see some things get
out of line, and so it's prettyeasy to get out of bounds, I'll
say, with subscriptions.
I'm talking about subscriptionsto things that you need, like
(07:57):
maybe some sort of reporting orsome sort of CRM you have, or a
subscription for access tocertain things that we may need
to use, and sometimes they'rejust kind of nice to have, but
you can live without them.
And so that's when we have todecide can we really sustain
that?
And so when you run a businessas a note business, you really
(08:18):
have to make sure that youunderstand your expenses,
because this is a cash flowbusiness, right, we are not
traditionally flipping loans asa full business model.
We're kind of holding the notesfor the cash flow.
So then our yield, as youmentioned before, needs to be a
little bit higher than if I wasjust investing in my retirement
(08:39):
account and it was just my moneyand there was really no
essentially no expenses or nooverhead with it, because it's
just my retirement account.
When you're running a business,obviously you have many other
expenses, just like running anybusiness in general, like a
restaurant or a brick and mortarstore.
You know just stuff like that.
So I think it becomes reallychallenging, richard, to be
(09:03):
honest with you, it's not.
I think very few people makethe opportunity to have their
note business be a reallythriving business.
A lot of times, like any otherentrepreneur endeavor that
someone would go down, itbecomes a numbers game, like it
is a low chance of successbecause of all the hurdles you
(09:26):
have to go around and go throughand it's really a three-headed
monster, richard, like with youmanaging marketing.
That's all the beast in itself,you know, and including in that
is also social media, which isa whole other avenue of
challenges to try to get yourcontent across versus other
competitors, so to speak, thatare in the same market, because
(09:47):
our market is the United States,which is every note investor's
market is the United States.
Right, nobody is advertisingspecifically for like a city
because it's just so hard to getinventory for a specific region
.
So that's why we're more broad,broad, focused of marketing.
Richard Thornton (10:04):
Right.
So let's give everybody alittle bit of context here,
because without gettingspecifics, you could walk away
with this with a very differentattitude.
So what we're talking about is,you're right, crm.
Maybe you have Zoho, maybe youhave the watered down Salesforce
(10:25):
or whatever CRM and you cost$200 a month for that.
And you've got DocuSign andthat costs $50 a month and
you've got whatever else thoselittle things that you have to
have and all of a sudden youturn around and you're spending
$2,000 a month on this kind ofstuff.
And if you are like me, so I hadgoing into the pandemic.
(10:49):
I had a bunch of notes and Isold a whole lot of my inventory
off because people wanted to.
I thought I was going to gethammered in the pandemic.
You and I have talked aboutthis and it turns out it was one
of the best sales transactiontimes that I could ever had.
In the first year I sold twothirds of my portfolio.
(11:12):
So right now I've only got about35 notes left and I am very
much concerned with even thoughwe're running A and B.
I'm not doing advertising formy old company or anything like
that.
I've just got an accountantthat's keeping me my average 15%
(11:34):
yield that I was getting iscoming in around 10% and I'm
going.
Well, gosh, that's not reallywhat I got into this for,
whereas if I and so that's myday-to-day income If I had
another job, a day job,something like that, didn't have
(11:54):
all the advertising, didn'thave a CRM, didn't have a water,
and I was just doing this on anExcel spreadsheet, my results
would be a lot better.
Justin Bogard (12:04):
Yeah, yeah, so it's.
It's like once you get intothis business, you really you
really have to, you really haveto make a dent Pretty quickly, I
think, to sustain it, becausesome people I would say most
people now Don't get into thisfull-time right away.
I think they have to buildtowards it.
So they maybe have, they mayhave a really good full-time job
(12:26):
, maybe they're an attorney or adentist or maybe they're some
sort of have a legal professionto where they have, you know,
some disposable income and theycan invest in, and then they're
just trying to build that up andunderstand how it works.
And I think that's a reallygood model to get into, to build
your way towards it.
But just to jump in whole hog,as you said earlier that that is
(12:47):
more difficult and and there'sa low probability, you know, get
getting out and making themoney because there's so many
Unique hurdles to go throughthat even though you and I have
both been through that part ofthe business and started our own
Businesses before we can findthis one.
It's it's not for everybody, Iguess I would say, and it's it's
(13:09):
just very, it's very difficultbecause I couldn't write a book
and Tell you exactly theblueprint that I did.
It may not work for you and youcould write a book and have
your blueprint on how you did itand it may not work for
somebody else either.
There's no, there's no likemagic, magic way that this works
.
If you have a franchise right,if you're part of a franchise,
franchisee Then you have ablueprint that is proven and it
(13:31):
does work, because and it worksin any market, because they had
it figured out and they've doneit in so many different places.
So yeah.
Richard Thornton (13:38):
So I mean, I can think of several people that
I've bought and sold notes withand they're doing notes on the
side and it's actually what'swhat's a good term.
It actually Helps out theirpractice.
So they're a real estate brokeror they're a property manager.
They're dealing in somethingthat's real estate oriented
(14:01):
already.
Justin Bogard (14:03):
So I'm a nice compliments.
Richard Thornton (14:05):
That's your, that's.
That's a good way to thank you,so it's complimentary.
As they're there, they don'thave to advertise or maybe doing
it through their self-directedIRA things like that that sort
of takes care of the accountingportion of it right there, so
they're not having to have anextra accountant and do all sort
(14:27):
of tax reporting.
That's a great way to do it andthat's a good way to build up,
I think, a sizable portfolio andnot have the headaches that you
do running a regular day-to-daybusiness.
Justin Bogard (14:40):
Yeah, yeah, the day-to-day is is it's not
passive what we do.
We're full, fully active noteinvestors making passive income
but we are not passive in thebusiness, if I can say that.
So we're kind of activelypassive yeah and until you get
up to.
Richard Thornton (14:58):
Until you get up to, like you know, probably
100 notes or something I get inyour portfolio, if you're in
your terms of just buying themand holding them and Taking the
yield off of that at today'syields.
You know when 10 years ago,when you could buy a performing
note at 18 to 25 percent yield,it was a whole lot easier to
(15:24):
make the numbers work.
But at today's days yieldswhere we're buying things With a
lot less return, you have tohave a lot more notes in your
portfolio and therefore a lotmore of your own capital in it
before you get to make thingswork.
Yeah, the volume helps.
Justin Bogard (15:38):
Definitely helps with the cash flow and I can
absorb, absorb a little bit of aloss To yeah so and my instance
.
Richard Thornton (15:47):
I sold a whole lot of partials up front and
that's great because I got to.
You know I had a quick turnmodel.
I'd my goal although I seldommade it made it was to sell, to
turn my money over three timesin a year with, with one note,
so I'd buy enough for 40,000,sell a partial on it, basically
sell out of that.
Take that same 40 by and selland by, and sell and by and sell
(16:08):
.
I made two times quite often,but it was three.
Was was tough.
Yeah, that's great.
But I had to do To cover my nuton that.
I had to do 10 year partialsfor the most part, so it's not
going to be Probably another twoor three years before I start
to see any of that incomereverting back to me.
(16:29):
On those partials that I soldUm, well, if you look at on a
yield basis, it's a great yield.
I don't have anything in it but, um, I kind of don't have any
income for a while.
Lots of chance you take rightand, depending on where you're
at in your life cycle.
Justin Bogard (16:48):
That may be a good decision for you, or may
you may need to accelerate thatand get the money sooner.
Or you can wait 20 or 25 years,just depending on how old you
are and where you're at and whatyou need to do.
So I guess, richard, what, whatwe're trying to get to the to
the point is that, um, you know,if you're getting into this
business and you have a largeamount of disposable income
(17:10):
we're talking, you know, uh,several hundred thousand dollars
to you know, in the millionsThen getting into it full time
right away is is not as big of achallenge as it is If you
really don't have the capital orthe resources for it.
Um, because the challenges ofFlipping a loan, or what we call
brokering a loan, uh, like youmentioned before, the margins
(17:36):
are a little bit thinner thanthey used to be, so it's harder
to sustain a velocity amount.
You have to do a lot of thosetransactions to really make a
good living, as opposed to, youknow, eight years ago, when you
could do that and you didn'thave to flip that many loans and
you can make a really goodliving because the margins were
much greater, much sweeter.
So, getting into this business,if you have money, that's a
(17:58):
great way to be active quickly,but if you don't, it's probably
is best for you to, you know,keep your part time or full time
job and then kind of doing thison the side to build towards it
.
Because I agree with what yousaid, richard, it does take away
more time that you have outsideof, like your W2 job, but if
you're able to do this this workpart time you can you can make
some good money.
You just don't get a lot ofreturn your time because you
(18:20):
have to work a little bit harder, you know, on a part time basis
with this.
Richard Thornton (18:24):
Right, and so I think something else we want
to talk about a little bit todaywas maybe land contracts and
the use of land contracts, thatyou want to bring that up or not
.
Justin Bogard (18:35):
Since you brought it up, I guess we have to.
Richard Thornton (18:37):
Uh-oh, I guess we have to Okay.
Justin Bogard (18:42):
Land contracts.
We in our fund, I think we mayhave one land contract.
I think everything else ispretty much a need to trust or a
need to mortgage, depending onwhat state it's in.
In my personal portfolio I onlyhave a handful of land
contracts left.
I've either converted them tonote mortgages or I have just
(19:02):
sold them off because people hadneeded good cash flowing assets
and they just have to be landcontracts.
I continue to get notices fromthe counties, even though I have
sold those assets months oryears ago, because the counties
are so slow to updateinformation and you can have the
new buyer call into the countyand kind of update the records
(19:23):
of where to send the statementsto.
But at the end of the day it'sif you can avoid doing a
contract for a deed or landcontract.
It's going to be a lot betterfor everybody involved.
If you don't do that.
There are certain instanceswhere you would want to do a
contract for deed slash landcontract and that would be more
(19:43):
or less when you're wrapping amortgage, meaning Richard has a
mortgage on this investmentproperty and he wants to resell
that property on a land contractso that Richard would stay on
the deed and then he wouldn'ttrigger a do on sale clause.
Those would be appropriatereasons why you would want to do
a land contract.
But outside of that, I knowyou're on the same side of the
(20:05):
story as me and I'll let youchime in, but I'm definitely not
choosing to do a land contract.
Richard Thornton (20:11):
Yeah.
So I think a lot of people outthere would say, gee, I don't
see any reason to change fromone.
But I've run across two reasonslately to get out of them.
One is that I'm getting, as yousaid, constant notices from the
(20:31):
county and things like thatabout hey, you know, you've got
a trailer parked in your frontyard, I'm in California and that
front yard happens to be inOhio.
So minor things like that.
That's more of a nuisance.
But it comes down to title.
I just lost a sale on oneproperty.
(20:51):
My borrower said, hey, look,I'd like to sell and we got to
title company and title companysaid I'm not touching this,
we're not going to do this atall.
We really don't consider thisto be a clean deal.
It's a cloud on title.
So basically go out and convertit to note and mortgage before
(21:12):
we even look at it.
And if you are on any sort oftime constraint to sell, that's
just something you don't want todeal with.
How much does it cost and howlong is it taking you to convert
most of those that you have,justin?
Justin Bogard (21:27):
I mean it depends on the state that you're in,
but I'd say anywhere fromprobably $600 to $1,600.
Richard Thornton (21:36):
Well, yeah, I mean I've got I don't know how
many land contracts.
I've got more than I should,but I'm going to go about
converting all of those, I think, just because I don't want to
run into any more problems likethis.
Justin Bogard (21:50):
And I know that sounds like a lot of money, but
in all actuality, you know, thisis a conversation that we would
have with the borrower and wewould lay out all the pluses for
them.
Right, look your situation now.
You are not on the deed.
You aware of that and maybelike no, I'm not.
Well, if you want to be on thedeed, this is a way to get you
(22:11):
on the deed.
We can ensure the title rightnow to make sure that it's clean
of any you know encumbrances,and then we can also get a
policy that guarantees that thelien is there and that your lien
is valid and active, and itgives you more protection and it
gives us more protection.
And so when you go and sell theproperty, you're not going to
(22:33):
have these title companies thatare going to push back and say
wait a minute, this is a foreignobject to us, we don't
understand it, so we're just notgoing to move forward with it.
So oftentimes I've gotten theborrowers to come forward and
actually help pay for some ofthe costs as well.
You know I'll pay for like thetitle policy, because that's a
general thing a seller would dofor a buyer, but everything else
(22:54):
you know is something theywould pay for.
You know, recording the deed,the split, split the cost of
generating the note and mortgage.
So yeah, that's kind of myanswer to your question on the
cost and stuff.
Richard Thornton (23:07):
Yeah, so I mean, that's what I came from.
The school of no, it doesn'tmake any difference, and I've
slowly come around to saying yes, it does, so we just bring that
up to listeners to.
Justin Bogard (23:25):
It does.
When you have many of them.
Yeah, if you just have one ortwo, you know.
If the opportunity presentsitself, of course, go ahead and
change it and convert it.
You know it's when you havemany of these, like Richard and
I do, it becomes a real nuisance, right, getting all the notices
.
And because at first when youget a notice from a county,
(23:47):
you're thinking, oh God, whathappened?
What do I owe on this one?
You think of it like a billthat you're getting that you're
just not happy about.
And it turns out that's usuallyjust just some sort of notice
that says, hey, the taxes aredue and this is what the
assessment is on it.
Or sometimes it is a bad thingwhere it's hey, there's a camper
(24:08):
in the yard that's not supposedto be there and we're going to
charge you $350 to you andyou're the deeded owner.
Right, good luck trying toexplain to the county that it's
a land contract and you don'treally own it, but you do.
Richard Thornton (24:21):
Yeah.
So one issue one property I hadin Missouri the owner triggered
.
Actually, here's what happenedthe county got wind of the land
contract and they said that hewas a tenant living in the
(24:42):
property and I said no, he's nota tenant, he's the owner.
I said no, no, as far asworkers are concerned, he's a
tenant.
Well, as soon as he was atenant, that triggered the
landlord lease laws there andthey had to do a property
inspection.
Well, they had to do a propertyinspection and guess what?
They found $4,000 or $5,000worth of items that need to be
taken care of in the house tomake it fit for what they
(25:04):
considered to be occupancy by atenant.
And they were just fine things.
They were small things but theywere gotchas.
So all of a sudden he settledwith $5,000 or $6,000.
Just, you can imagine theamount of time that I had to
spend on that and going back andforth and explaining it and
blah, blah, blah, blah.
Oh, yeah, yeah.
Justin Bogard (25:26):
It's endless, endless.
A lot of fun yeah.
Richard Thornton (25:30):
So do a mortgage, do a deep trust.
It's simple.
Justin Bogard (25:35):
It doesn't cost anything different.
Richard Thornton (25:37):
Yeah.
Justin Bogard (25:38):
You get no advantages Anybody listening to
this or watching this.
You get no advantages Having acontract for your land contract.
You can't tell me that you canevict them if they don't make
their first payment.
It doesn't work like you think.
A lot of judges do not likelaying contracts, and so they
will make you foreclose on themas if it was a note in mortgage
(25:59):
anyways.
Richard Thornton (26:00):
Yeah, even though your paperwork says
otherwise, you still, in a lotof cases, have to handle it as
if it were a mortgage.
Justin Bogard (26:08):
Yeah, that's all the time we got for today.
Thanks, richard, for joining usagain.
This is episode number 19,season five of the Be the Bank
podcast.
You can check out our future.
We've run out of time againWe've run out of time.
Oh my God.
Yeah, it's been so fun man.
Richard Thornton (26:23):
Check out our.
Justin Bogard (26:23):
YouTube channel American Note Buyers YouTube
channel.
You can check out the videofeed in our monthly broadcast
that we do live, which by timethis airs we would already have
it, so I guess you'll miss it,but you can watch the replay if
you go to YouTube channel.
But that we have a cool casestudy with Mr Drew Shepherd.
He's one of our learningmentees here and in his
(26:45):
apprenticeship and so he's got acool little case study and I
think you guys will enjoy it.
So watch the replay of that ifyou didn't get a chance to watch
it live until then.
Justin Bogard, this is RichardThornton and we will see you
guys next time.
Richard Thornton (26:57):
Okay, Bye-bye everybody.
Narrator (27:03):
Thanks for listening to Be the Bank.
We hope you learned somethingfrom today's show.
If you enjoyed this episode,please rate and review us.
Plus, check out our channel onYouTube and follow us on
Facebook and Twitter at Be theBank, and on Instagram at Be the
Bank podcast.
Be the Bank is sponsored byAmerican Note Buyers.
Thanks again for listening.
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