Loan Investing....do you even workout, bro?
A humorous tag line but a series topic. (grab a soda, this will take moment)
One of the things that I like most about BP is the ability to come here and talk at varying depths about something that I am extremely passionate about. Those that have seen some posts of mine on the topic of Notes or Whole Loans or related matters can attest those tend to error on the side of content, well at the least lots of words, hopefully the content is some what relative. Anyway, I enjoy the mature and technical conversation that has emerged here on BP around Mortgage/Deed of Trust/Note investing. There is a sense of community here that has taken hold with this topic that is often times not well understood but more and more desirable to know about. Gratitude to the BP powers to provide such a platform.
The nice thing about the boards is the varying experience levels. There tends to be a general tolerance for the genre of the Note Guru. Some of our members have been to class, taken courses, bought books and all the other sorts of stuff that goes with the Guru back alley. Other members have worked with the asset class in a variety of different perspectives. Within the ranks of the boards we literally, beyond a shadow of a doubt, cover the entire array pretty darn well from zero experience to the highly experienced.
There is an ever present persistence of new or interested folks coming to the boards looking for information on the asset class. That also includes folks coming to the boards in search of background on teaching or training programs that are out in the public. We can also note, the astonishment that seemingly prevails when the general discovery occurs that there is no great training or single course or book to read to understand it all or take it all in. In most cases, I am not even sure there is a course that even gives you a good glimpse.
As such, there is often a reverence for these guru programs. Let me pause there for a moment, from now on the training, the books, the seminars, the mentoring from all, literally ALL OF IT, it's embodied in my use of the word "guru". For the sake of this conversation/discussion I will exclude none. Continuing, there is also a collective of experience, first hand and knowledgeable in depth of this asset class. It is quite often, that when the topic of these guru things come up in any fashion there seems to be those who openly support them, then those who don't mind them and then those of us who really don't care for them. I often feel that the group of us who don't care for them is the smaller group when speaking on the boards. I don't want to include folks who don't want to be included but I am pretty sure those that know us can figure out where @Bill Gulley and I stand on these matters.
I have brought up the idea before that often times I can imagine that some posts tend to come across as negatively toned. I am aware of it, whether it is a real issue or not, it is considered in the delivery of posts as best it can. Often times though, as I have said and think Bill has agreed, it is difficult to be the bearer of what is usually bad news and have it sound like rainbows, clowns and flowers. (I have no idea what those really sound like anyway) Not that the outcome is bad, but rather the information or train of thought is incorrect. The quickest path to correct thinking is usually a bit of a jolt. Let us also be honest, the boards are to some extent, limited in expression through the text content.
So, now that I have set the stage with the closest thing that I will give to an apology in advance, it's time to start taking the kid gloves off when it comes to these guru programs. I tend to pull punches for the sake of not pissing folks off. I am no longer interested in that. My formal opinion is clearly formed and frankly the rainbows are gone, the flowers are dead and the clowns are not funny. I have no intention of being a guru expert. I will not obligate myself to know all of their details or what they talk about anymore than what I have heard and seen. I don't need to. There is nothing there for me. There is probably less there for the newbie than we have been giving credit. For that, I am sorry. Many people have been feed a pile of crap.
As some could imagine I have interactions with folks off the boards. This includes some working relations and some informational relationships. Along with things in between. I have spent time with folks who have inserted themselves into these guru programs in one way or another. I have seen horrible trading practices. I have seen ridiculous pricing and value ideas that serve only the guru. I have heard of the silly sums of money that folks are paying for this HORRIBLE information. People, all of you seeking these things - STOP. Your interests are not at the forefront.
A couple of recent interactions on top of the stack that have taken place over the last several months has finally aggravated me to the point where I am willing to draw a line in sand and point to these gross abuses. There are two ways this can likely be received. One, a bashing, likely a much needed one, of the guru. The other, the real point because frankly the guru doesn't matter, is YOU. The ONLY ONE who makes it all happen. The guru's snake oil is only a commodity so far as you let it be.
In the couple of examples I am going to share, I suspect some of the folks I have interacted with will relate to the examples. The irony for those of you with whom we have interacted, you are not alone. That is the disheartening part.
1) The Training Seminar
So you went to the training. Some person gets up, tells you how experienced they are. Starts talking how buying makes you the bank. How easy the money is. Even how quickly you can make it. Conveniently, they have some loans for you. They need you to believe this is easy. They need you to believe you can make lots of easy money. They want you to believe in the outcome that these investments they peddle will workout for you.
The second lien craze specifically targets investors with little capital. The allure is you can get into whole loan investing for less than $20k. Many times, even less than that. It seems the general stupid idea spread at these second lien investment seminars is buy more than one and increase your odds of success. Stop doing this. Its dumb. It doesn't work. It is not investing. It is gambling. Whoever told you this is an idiot.
Yes, large capital firms can play the odds game. Why?, they are large capital firms. They have lots of money. You, likely are not a large capital firm. Why on this earth would you be willing to part with money knowing it may not come back under the 'hope' that the odds work in your favor?
They told you to buy more than one, "just in case". I really can't bash that idea enough. What you need to learn is how to Buy One Right. That is the point of investing. Let's start there. It smells of common sense.
That doesn't fit the narrative or ultimate desired outcome. They can't and don't teach you how to critically think about the loan. How it will workout and what capital demands will be present. Even further, and perhaps a little grosser, is the lack of sharing the requirement that you will need to advance additional capital when playing with distressed loans. That doesn't fit their narrative. If you show up with $15k, they will sell you $15k worth of loans. Will you have reserves to advance to protect your interests? If not, then what are you going to do when they are needed?
2) Loan Workouts
There is an underlying notion that majority of loans that YOU purchase will be able to be worked out. That, you possess the skills and determination needed to find the borrower and solve the issues of delinquency or default. Reinstating the loan and spreading joy and happiness to the land.
Stop the nonsense.
Fact of the matter is, most defaulted loans end up in foreclosure. Not reinstatement. Most reinstated loans end up in foreclosure not perpetual happiness of cash flow bliss. Less than 7% of all defaulted loans end up with a deed in lieu. Yes, we all strive for the early exits. The reality is, it does not come around all that often.
One of the other more interesting ideas, is just what do you think you can do for someone who can not afford to make payment? Are you going to make it for them? Are you going permanently forgive it? So, you don't want your money back? You are not in this for return? It is cool if that is ultimate plan, just satisfy the loan when you buy and go have libation. If not, let's not confuse what this is. Investing to make a return.
They need you to believe you can do better than the industry. They need you to believe that you can save loans that have been devalued in the secondary so they can capitalize on selling that loan. They need you to do it because more experienced folks, the ones who make up the rest of the industry, do not do it. Please pause and ask yourself why we don't. I do not do it because I don't hate capital. I like it around. I burn logs at campfires not cash.
Stop buying into this idea that you are going figure out the best practice to resolve the loan at its highest value. Just a little reality check, they didn't even teach you how to value it. So how on earth are you going to resolve for the highest? Did they teach how to approach a workout, I mean really? What are the pitfalls? Can you make a bad situation worse? Can you devalue the asset by your actions?
Reality, yes. You can make them worse. Often times, that seems to be happening. That crazy thing some of us remind you of, you don't know what you don't yet, actually takes large chucks of flesh from your backside.
3) Due Diligence
Look, to presume due diligence is something so simple as just getting some reports is way off base. The problem anyone has with teaching due diligence is it is relative to a file. There is a notion that it is more of a universal set of reports and actions and at the end it all works out. That is not how it goes. Every file is snowflake. Properties are not the same. Borrowers are not the same. Paperwork is not the same. As such, the file issues are not the same. The universal application of due diligence is merely the words due diligence. That's it.
If you stop and think about it and if you are a frequent reader of the boards, the irony of this is Due Diligence specific threads are actually the minority here. Frankly they should be the majority. That is not because everyone is getting it right. Due diligence is this thing that seems to be glossed over, yet the reality is that it is a cavern that has not bottom. It seems that a large contributor to this is the notion of what is being sold from the guru to the buyer. "It's already all good". Sure Bud. Not so much. They are selling you defects for premiums.
This is aside from the gross practice of putting the buyer on a fire drill. Limited access to proper documents. Forcing quick reviews. The ultimate creation of a false scarcity. Drives demand. Drives price. It is all part of the same scheme. It often baffles me that gurus get away with this. You are the one who lets them.
People - take your damn time. Do it. Do it thoroughly. Make sure its all there. Then give them your money and close.
If something is missing ask for it. Do not close until you get it. If they can't produce it, walk away.
DO NOT BUY THEIR PROBLEM. Certainly not for premium.
Know they are trying to sell you their problem and likely for more than it is actually worth.
If that was not the game, they would not be selling their loan, they would working it out themselves. That's not an under the belt strike, its just the reality.
If you need it, find someone who definitely has more experience and knowledge than you. Let me point, that likely is not the guy sitting next to you in the seminar.
Your technical question is more than welcome here. Do not be embarrassed. We have all bought bad loans. We have all made mistakes. Those are what has taught us. Yet, these mistakes are not talked enough. You, do not think they are romantic. So the guru has put a spell on you with his oil.
4) Sacred Education & Training
I really have no love loss for the idea of training. Its grown to be a bit of an annoying idea. Let's be honest, you don't want training. Training takes time. Training takes practice. Training is not all about high profile cool sounding ideas. This is not the guru, this is really you. It has taken me 15 years plus and working in and around every aspect of this industry to know what I know. You want that to be condensed into hours if not less. Paragraphs instead pages and books. Stop the madness. There is no shortcut. Experience and time and tenure are going to be your best training. The notion that you can pick up book and know it all or attend a 5 hour seminar and become some experienced expert is just plain silly.
I understand you want and need to start somewhere. There is no great place to define as an entry. You need to learn topics. Entire topics. What is title. How does title work. What is a mortgage. What is a note. What are my states foreclosure laws. What is bankruptcy. Common man, some of this stuff you can actually Google.
If you are not a go getter enough to create a bit of a syllabus for yourself, those of us with the experience and an interest in seeing you understand topics correctly don't know where to start with you either. The universe of loans is huge. Coming here and asking the general question what do I need to know about what investing in notes is really just an exercise in futility. If you made it all the way here and you don't have a more specific question then you are doing yourself a decent sized disservice.
That is the door the guru walks through. You invited them in. What is this loan investing all about?
It is about prime loans, sub prime loans, residential loans, commercial loans, loans with recourse, loans with no recourse, loans in bankruptcy, loans in foreclosure, loans in forbearance, performing loans, sub performing loans, re performing loans, non performing loans, defective loans, conventional loans, first liens, second liens, closed end, open end....you get the idea. How are we supposed figure out which of those spark your interest? You have to tell us that or ask about them.
I honestly don't know where you should start. I know I started by reading a note and mortgage. Literally. It was relative to my experience at the time. I had none. I did not know what those things were. So I read them. The voyage began then.
When you don't take a personal interest for a tad more self induced workload, you invite others to tell you your passion. That will control your curiosity and then they will control you content. Once the content gets limited, it only serves their narrative. Not yours.
I am honestly open to help make that better however I can. I am not sure how. I have no plans to write book, I already write these thesis on here for public consumption. So those with the interest to learn, feel free to help us help you. Ask all you want. Gives us ideas of topics to explore. Let your curiously drive the conversation. However, get us past these broad non-specific inquires. I think that is a fair trade to request.
5) Common Sense & Open Your Eyes
A large portion of this guru game is solely dependent upon you being a bit lazy and ignoring the world at large. The vastness of this market is huge in concept, units, dollars and agents. Capital in the world is not cavalier. It is sacred. It is to be protected. The general idea is to grow it and yet realize it doesn't grow on trees. Any plan, idea or path that does not take a preservation approach to investing in this asset class is wrong.
If it looks like a gamble, it probably is a gamble. Let's not call it investing. The Seller wants a higher price because of the possibility the Borrower should give you a DIL or reinstate or whatever. Great, pay a high price if that's done. If it's not done. It's not done. Which means there is chance it doesn't happen. Which means it's not worth the high price which is based on that characteristic being present. To say that a different way, you pay for the deed not the chance to get it. You pay for the current cash flow, not the future potential of it maybe coming.
You, you need to be more honest with yourself. You actually do know what makes sense. If something does not make sense. Then do not do it. Trust common sense. Always. That is the real reason I always like to say, there is no magic in mortgages. You see, the things that happen, how and why, they are all make-sense-things. Its only when we let the magic in that our judgement gets clouded. When common sense does not prevail, capital loss tends to follow.
If a loan has not been collected on since 1995, why on earth would you think "now is the time"? Common, you are better than that.
Let's be honest, you want the illusion of quick and large sums of money. Well, let me tell you. You can have the illusion. The problem is, that is all it is. An illusion.
You are smart enough to realize that the one example or two examples the guru gives you of huge easy gains are just that two. Where are the others? There are not any. Stop thinking you are going jump in this game and make these large windfalls. It just not going to go that way for you. Google statistics. Look at the rest of market.
Can you make money in this asset class? Yes, of course. Good money; because money you make is always good money. Is it quick? No. Is it easy? No. Frankly, nor should you want it to be.
Owning a loan, is owning a loan. You buy, you collect the payments. It is a contract. Its not magic.
It is one way to make a return which is always relative to other market returns of other asset classes. If they have sold you on the quick and easy dream, you will not take the conservative and practical approach to value. So whose interest do you operate in then?
We have a nation that was brought to its knees, a world that was severely harmed when a bunch of loans went bad. It is literally one of the largest negative capital events the world and our nation has ever seen. Stop ignoring that. Don't gloss over the fact that it can go wrong, way wrong. When it does, it rains big red numbers. Not profits.
When your expectations are managed, you are your best guardian. Nobody is going to care more about your money than you. Nobody.
I share all of this with the masses in a little frustration. Let me be clear, I am no fan of a guru. Including all of the ones talked about here on the boards. I am no fan of an investor program which doesn't play fair. Which doesn't afford the same standard practices that an experienced loan investor would demand. If the plan is to buy crappy loans and turn around and sell them to less than suitable investors, then great go for it. That is not the guru's fault. It is the audience. You are sort letting it all happen. I am to some extent shocked outrage does not seep from the walls.
There is no secret stash of good loans that anyone has access to. There is no secret to mortgage investing known to one and not others. There is nothing one investor can do that the next can not. The point of making or investing in a loan is to be paid back. Invest for the return. Make sure you understand where and how it comes. That will help you enjoy the asset class. If it sounds too good to be true, it is. If it looks like it is risk-less, it is packed with risk. If any of the plan involves just throwing money away, it is not investing.
It annoys me to see these practices to no end. It saddens me more common sense is not prevailing. We can do a better job. It doesn't start with the experienced folks. It starts with the lesser and no experienced folks. Banish the magic. Do not settle for things that do not make sense. Force yourself to think critically. Invest because you have a plan. Do not invest if it is based on hope. Numbers are not guesses, they should come from calculations. When in doubt, open your eyes and look around, mortgages are literally everywhere. They are not new, they date back to biblical times.
Those of us with experience want to help as best we can. This is not a job taken on but a passion we care about. I don't like the things I have seen from the guru. I don't like the things I have heard from the guru. I can not give any recommendation for any guru program or training or book or whatever that has been talked about on these boards. I am of the final opinion, none of them have your interests at heart. That is also OK. We need to stop pretending that for some reason, they should. You are the only who will ever care the most about your capital. You are the only solider in your own fight.
Believe it or not after this tirade, we are rooting for you. A community of note investors is good thing. A community of magic and snake oil is best left for the movies. Banish the magic.
