GDNIP Ep 11: Wrong Ideas Of The Note Business From Facebook Fantasies

Everything is not all that they seem, most especially on Facebook. What we see are a bunch of fantasies made from the hand-picked pieces of real life. Facebook fantasies too often get many people totally on a hook, line, and sinker. In the note business, there are so many ways people use Facebook marketing and project the wrong ideas to people who are new. They see stories that just about everyone is seemingly doing well. It ends up making them feel discouraged and left out. Gail and Chris get right down to these Facebook fantasies and give encouraging insights that will help newbie investors out there. They also recommend some great Facebook groups where you can find mentors that can help in your journey.

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Gail Anthony Greenberg & Chris Seveney Wrong Ideas Of The Note Business From Facebook Fantasies

Wrong Ideas Of The Note Business From Facebook Fantasies

Welcome, Chris.

Gail, how are you doing?

I’m loving our new format here where we start with, “What just happened?” I understand something big happened to you. I’m going to let you take it away.

A few interesting things happened. One is in regards to Facebook where we saw a post by Andrew McDannels in the Nationwide Note Buyers and Sellers group. He was looking for somebody to take that over. I volunteered and now taking that over and you’re also assisting on moderating that. He’s looking at other avenues besides notes and he didn’t have time. I thought it would be a great opportunity to get to a larger audience. The other thing I’ve had happened is I had a hearing in Toledo, Ohio. I had my rep go to the hearing, which is a guy I found on Craigslist. It’s interesting though because he said it got extended for another period of time so the borrower could get an attorney or whatnot.

Is this a land contract?

Yes, it is.

Why don’t you give us the background about what led up to this moment?

A land contract that I’ve held and the borrower has not made payments in about six months. I first tried to do a workout. The borrower was nonresponsive. I send the demand letter, the borrower was nonresponsive. I went and filed for the forfeiture in Ohio. It’s my understanding the borrower appeared in court requesting time to get an attorney on board. It’s like anything, communication is always key. If the borrower reached out to the servicer, the opportunity is possible to get something worked out. When that happened, in Ohio, you have to have somebody represent your firm to confirm the borrower’s delinquent. I was reaching out on Facebook groups and it was Facebook, not Craigslist. I was part of an Ohio Facebook group that somebody responded. The guy is a contractor who saw that as a note investor and got intrigued by what we do because he was interested possibly in making a deal. I said, “Go to court for me first before we do anything.”

He represented me along with the attorney and the individual who provided the servicing of the letter or the person who dropped off, hand-delivered the letter of the court date to the individual. What was interesting is the attorney who was there for my firm, which we use an attorney in Ohio, but they don’t travel all along. They hire attorneys to subordinate it, basically mentioned that we don’t have to go anymore and I’m interested to learn more about that, whether or not I do or don’t. It was my first time having to go through this process. Trying to find someone to represent you can be challenging, but now I have a contact in the area to go to court and be there to say, “Yes, the guy hasn’t paid.”

Facebook Fantasies: We project our fantasies online that we get very good at discounting the personal stories.

I think there are a lot of people who would consider that a pretty interesting day to go into a court and see what happens. I certainly would. I have a post office box in Philadelphia, even though I don’t live in Philadelphia and I got a jury summons. Some bad stuff goes down in Philadelphia. I was quite intrigued and I thought, “I should go do this.” Then of course you’re not allowed to if you don’t live in Philadelphia. I had to give it up, but it was a nice little fantasy there for a while. I pictured myself listening to gripping tales of mayhem in Philadelphia. That’s exciting. We don’t know yet what’s going to happen in Toledo but you made a start and had your day in court.

The other thing is I did get some counters back from a tape I bid on. I’m looking at seven or eight assets that got some counters on and I’m taking a harder look at them to see if we can make one last deal before the year ends.

Do you have much luck getting sellers to drop their prices when you counter their counters?

I have. It’s sometimes just being reasonable. I’ve had one where I was going after four assets and they countered on all four. I said, “I can meet you on these two and then on these two here’s where I’m at. I’d like to finalize this deal with you at this price on these four since I bought 30-plus notes from you this year and so forth.” The seller came back and said, “Yes, I can make that work.” That’s what’s happening now. What’s going on with you, Gail?

I am renovating a house in Flint, Michigan for not the first time. For some reason, I always seem to end up with a house in Flint, Michigan that needs renovation. It’s a cheap version of the money pit. It’s not going to cost millions, but every day that the contractor goes in there, he finds something else. We were discussing, we’re trying to figure out whether we have the funds to put a new flooring throughout. I’m obsessed with this vinyl plank, I don’t know if you’ve ever used that, but it looks like wood and it’s pretty indestructible. You don’t have to do anything to care for it and it can get wet. You can use it in bathrooms and laundry rooms. That’s awesome. I was trying to pick a color and my contractor didn’t strike me as a guy who cared much about these things, but he got into picking it with me. There was a day where we were both in Home Depot, standing in front of displays, discussing the colors. He kept mentioning colors and he goes, “I like this hickory beige.” I was like, “I don’t want anything that lights up.”

Mainly every color he told me, I couldn’t find it. I thought I was looking at something and then it wasn’t. I was like, “We don’t have the same colors here at our Home Depot. This is so weird.” He finally took a picture of the display and he was standing in front of the laminates, not the vinyl plank. That’s a stupid story that I find amusing. That is the reason I don’t get invited to parties anymore because I’d be like, “Imagine he was at the laminates. That’s hysterical.” Then he was like, “I don’t know if I like the color that you picked with this floor.” I was like, “We’re done here. Please go back to the house and start fixing things.” We’re not design partners. I’m sorry if I gave you that impression.

When you don't know people that well, you become susceptible to believing anything they say. Click To Tweet

The other thing that happened was I had an attorney confess to me that even though he is supposed to be doing a forfeiture for me in Georgia and it’s been taking forever like we started in July and it’s now December. Whereas if this was a normal foreclosure, it would have been over three months ago. He confessed to me that when he told me in October, he was getting the sheriff to serve the papers to the borrower, that he totally dropped the ball and that was two months ago. It never happened. He was like, “I hope you’ll accept my apology.” I said, “What I would accept is a whopping discount on your bill because at this point it’s costing me a lot of money.”

It adds up every month carrying costs and servicing. That’s one thing that people don’t understand and will lead us into our topic for this day.

Our topic of the day is Facebook fantasies. It’s inspired by all the tales that we see on Facebook. I have to say this topic came up for me because even though all of us are very good at discounting the personal stories of our friends who are all showing their amazing vacations on Facebook. They never mentioned that they got food poisoning in the Dominican Republic. They just show you their amazing beach shots and they tell you about all their amazing successes. Like in our personal lives, we know that it’s an exaggerated and skewed version of what is going on. They’re going to tell you all the good stuff.

It’s the behind the scenes. I joke because when I talk with people and they asked for some deals I’ve done and so forth, I said, “That’s great. You can ask people for deals they’ve done, but if somebody has done a good amount of deals, they can send you ten home runs. They can send you ten flops and then they can send you 100 that are here’s what typically happens things. Most people will send you, here are the ten grand slam deals we’ve done.” That’s what we see a lot on Facebook and truly not a reality.

I’m amazed that people who know to discount the grand tales of their friends get totally, hook, line, and sinker fall for note stories and don’t apply the same reasoning that there could be a little bit of puffery in these stories as well. It’s funny when you know people. When you’re first in this business and you don’t know people that well, you’re susceptible to believing anything anybody says. After a while, you get to know people and their personalities and you know, “This guy likes to talk about that, but I know he’s having issues over here with something else.” It’s complicated by the fact that a lot of us use Facebook for marketing. Obviously, we’re trying to put the best face on everything and our best foot forward. We should talk about this because it can be discouraging for new people to feel like everyone else is doing so well and maybe they’re struggling a little to get started.

It’s commonplace for people to struggle on getting out of the gates. If it’s not difficult when you start something then probably, you’re not trying hard enough in some sense. This business is not an easy business. It takes a lot of time and learning to get involved in. The other thing that I’ll mention too is you’ve got to use people as a resource. Scott and Joel Markovitz would say a lot, it’s “coopetition” and people are there to help a lot in this industry. When people are there to help, you do want to try and take some of their advice and take criticism well and look at it. I’ve had in the past, people where I’d give them some constructive feedback on things and I had gotten personal attacks. Some of them were telling me I don’t know what I’m doing. You’re right, maybe on certain things I don’t know what I’m doing, but there are certain things especially when it comes to numbers, I think I’m good at numbers and in determining things.

Wouldn’t you agree that it’s gotten a little bit harder to get started now even from when we did it? The prices are higher, making deals work is more challenging and it’s gotten definitely harder for someone who is just starting out to feel like they’re getting into the groove of the whole thing.

It’s gotten a lot more difficult to get in this and I’m glad I got in when I did because if I looked at trying to start now, it’s a daunting task with where pricing is at and trying to get to returns. Let’s be honest, when you start out on your first few deals and stuff, you’re typically not going to do everything 100% correct and you’re probably going to make some mistakes that are going to cost some money. I’m not talking catastrophic where you’re going to go down the value of nothing. A story that pops into my head is one of my first foreclosure deals. It was when I did a forbearance and loan mod at the same time. I had the attorney draft both documents up. The forbearance plan lasted two months and they stopped paying. I paid money to have a loan modification drafted that I didn’t need to. Those are the types of mistakes that I talk about or would mention is you’re going to spend money on things that maybe it didn’t need to or take a little more time on things and make a decision. With pricing as tight as it is now, you don’t have as much opportunity or there isn’t much in the numbers anymore to be able to make those mistakes.

Facebook Fantasies: People who are new don’t necessarily have the experience to understand what they’re doing.

This brings us to a topic that we were discussing. One of the things that Facebook is good for is finding mentors and that is not to mean finding just one individual to guide you all the way. That is a possibility too, but there are so much mentoring available in the online note groups on Facebook. The quality of the responses is high. You talk about getting people not being particularly grateful for your feedback, but they should be paying a lot of attention every time you speak and they do pretty much. There are a lot of people who present deals online and they’ll show all their numbers. Sometimes the numbers don’t make sense and people who are new don’t necessarily have the experience to understand what they’re doing that looks weird to the rest of the note world.

People will also do things that are very simple like if they’re selling a performing note or they’re anticipating, they’re describing an exit strategy where they’re buying a nonperforming note, but they’re saying what they’re going to be able to sell it for later. They’re not calculating the price they’ll be able to get correctly because they are going with some clichéd number like 80% of UPB. Where the whole world that is buying these is looking for a yield. They’re not looking for a percent of UPB. They’re looking for a 12% yield usually. These are little things that take a while to learn. In the meantime, you very helpfully tried to say to people who think that they can sell a house for a certain amount. They’re not even considering the fact that they’re going to have to pay some commission to a realtor or they’re going to have to pay other stuff. They think that if they offer a house at $60,000, that they’re going to walk away with $60,000.

How many houses have you had to take back?

For a long time, I didn’t have any and I thought this business is great. I have five under construction and I’m losing my mind with these contractors.

The question I’d ask is of those five, how many were left in a pristine condition that you didn’t have to do a cleanout or nothing. You could just stick a for sale sign on the front yard and sell it and have somebody move in the next day.

You just gave me my own Facebook memory. Somebody who I went to my first Scott Carson mastermind with who I knew was new at this as I was, had a contract for deed house in Michigan that he took back. When he got the house back, it was gorgeous and he sold it at a $35,000 profit. I’m still not over it. It’s been a couple of years, but that never happens. I have to tell you that that never happened.

It’s the same thing with me. I’ve had numerous assets and if you asked somebody like Scott or Eddie Speed or anybody who’s bought hundreds of thousands of these or an asset manager, they’re going to tell you very rarely. To try and market a deal to another investor where you are highlighting the rosy side of things. I always try and highlight the negative side of things in the sense of all the costs worst case situation. If it turns out better then it’s great, but when you’re marketing it as, “I’m going to take it back and then BPO is $60,000. I’m going to turn around and sell it for $60,000 and I’m in it for $45,000 and I’m going to make $15,000 profit in 60 days.” Not taking into account the servicing transfer, the reality of how long it takes to get a borrower in touch and stuff. When you are trying to mentor people on that, Facebook or BiggerPockets is another great site as well for people.

If it's not difficult when you start something, then probably you're not trying hard enough. Click To Tweet

The thing you’ve got to realize is when you’re looking for a mentor, just don’t say, “I want to learn notes,” because the first thing people will say is, “Go online and start reading about it.” I’m not going to spend four hours teaching you about it. Go by Scott’s course. He’s got between the Virtual Note Buying Workshop or his Blueprint or whatever it is. Go buy a course then when you’re close to buying a note, you can start researching mentors. Make sure you have some common knowledge first before saying, “I want a mentor,” because you need to do some work.

It’s like having skin in the game where you have money in a deal too. You have to have skin in the game in terms of the time that you’ve put in and the seriousness of purpose that you’ve shown. I don’t think many people who are higher level and other kinds of people you’d want as mentors would not want their time wasted with someone who’s got no skills or information yet. There are quite a lot of people who are early into it but have maybe bought up to ten notes who seemed very willing to cover the basics and answer basic questions for new people. If we’re recommending Facebook groups to go to and be mentored by people in this world, the very top one that everyone should definitely try to get into and I don’t know if it’s open to everyone is Scott Carson’s WCN Crew. WCN stands for We Close Notes, which is Scott’s URL, WeCloseNotes.com. That is by far the most active, multiple posts every day, lots of activity, tons of people, knowledgeable and great people.

I think it’s only open for people who have taken one of his courses. That’s one. There’s also a group called Notes and Bolts, which you’re familiar with, Gail.

Yes, that’s our group. The origins of that group are pretty interesting. We started that in self-defense because there are certain tapes that circulate over and over again and one is from a company that it’s a little bit of Russian Roulette buying their assets because some of them have major problems with big liens or title issues and all kinds of things. After I personally had bought many title reports at about $150 each to research assets that I was never going to end up buying because they had so many problems that couldn’t be solved. I said one day, “We should put up a spreadsheet where people list these toxic assets that have all these problems.” We put them under contract and then we find out how bad they are, and we don’t buy them. Then we see them reappear on the tape again. I know other people are buying the same title report and spending money all over again.

Let’s end that. We do have up on the Notes and Bolts. We have a couple of crowdsource documents. One is these toxic assets and several of those have the actual title report linked on there so you can review it. If you’re a new person, just looking at this title reports can be very educational in itself. Understanding what the issues are and how they show up on title reports. We also have a crowdsource document for information about the forfeiture rules in various states. How long it takes, how expensive it is. Do we have attorneys on there too?

No, we don’t have that. What we have is a list of joker brokers. A joker broker for the audience is, for example, I’m selling ten assets. I’ll send it out into my group and stuff and then they may share it, which they shouldn’t be doing, but they’ll share it with somebody who then blanket markets it out to everybody. Like these tapes we talk about, these toxic assets or you’ll hear the term assets with is another term you’ll use. That person will send it out to people and then people will try and wholesale it and then send it out to a group and charge an extra thousand bucks on it and stuff. They’re joker brokers because they don’t know who services it and they don’t know anything about it. They’re just taking and emailing and forwarding it up on and being a middleman without knowing anything about the asset or the tape.

I know some who are poorly skilled that they don’t even create a new email. They forward the email that they got the tape on, which lets you see that it’s not them. It’s not really their tape. We always try to have as few people between us and the actual note owner as possible. It’s perfectly reasonable for the servicer to offer these for sale and they take a small fee, but that’s not considered a middleman. These are people who have no relationship to the seller. They’re just grabbing the assets and throwing them out at us. You don’t want to deal with people like that.

Note Investing Made Easier: How To Buy And Profit From Distressed Mortgages

Those are two, one that I’ll add as well to the list of Facebook groups is Martin Saenz has a group, Note Investing Made Easier, named after his book. Martin is a seconds guy who is in the DC area with me. I’ve had the opportunity to be interviewed by Martin. He’s very sharp and also does some training in the area as well. He’s got a good group too that does have a good amount of posts on a daily basis and it’s mixed because you do have first and second on there as well. It’s interesting because I’ll look at things and sometimes I don’t invest in seconds or not yet until this tape that I looked at and I had two seconds that I get counters on. It’s another group that has a large audience to it as well.

What about the one that we’ve taken over, Andrew McDannels?

The Nationwide Note Buyers and Sellers group. That is a group of over 2,000 note investors on there as well. That group, we took over and we’re going to start on getting more interaction on that. There haven’t been a lot of posts or interaction on that because Andrew’s been tied up with a lot of things going on. That’s something that between Gail and myself and some of the other investors going to try and get some interaction and get a lot of great conversations going in that group as well.

I want to take a moment to thank Andrew. I know Andrew from a mastermind group that I was in Philadelphia. Although he moved to Texas, he was living in Delaware and he has been a very eclectic and very productive real estate investor. He has tons of experience in a lot of different types of real estate investing. He’s been enormously helpful to a lot of people and I’m thrilled and proud to have a role now in extending the group and guiding it from here with you. That will be a fun project starting now.

One group that’s not a Facebook group, but if people are in the DMV area, which is DC, Maryland, Virginia area. I started a meetup group where once a month, either online or in person, be meeting with note investors and sharing deal flow, case studies. We share stories with other investors face-to-face so people can also get to know each other and try and market more to other individuals. Get to know other investors in the area because I find that when you get to people and meet them at events, you can see people online and so forth and so on but always putting a name with a face is always good to understand people and get their backstory.

That’s true even though we’re all little squirrels and we like to hide in our trees, it’s very nice to get out there and meet some people. It’s such a nice community and you’ll experience that when you are hanging out together at an event. Are there any other ones that you feel deserves special mention?

The other one I would mention as well is the East Coast Distressed Note Investing group that Dave Putz has. He’s been in notes for about eight years. He’s up in New Jersey and he has webinars on a monthly basis and that it’s an active group as well. Dave is working hard on releasing a note investing calculator for people. Hopefully, he gets that rolled out with much success because a lot of people can definitely use that after seeing some of the bids.

It’s funny because I posted on Facebook where I had a little simple to use spreadsheet that was based on the Stair-Step Method that had a kill switch in it that said, “Do not bid more than this,” on it and so forth. It was very generic to give you a ballpark range of things based on the state with foreclosure costs and timelines and whereabouts. It doesn’t give you an estimate but it would say if there’s an asset that’s got a UPB of $50,000 but the interest rate is at 2% and it’s performing, don’t bid $40,000. You are probably not even bidding $30,000. You’re probably bidding about $10,000 to $15,000 because you’re only going to be getting $150 a month after servicing. Great, I’m getting $1,500 a year and I paid $25,000 for something that’s going to take me twenty years to get back.

Sometimes, you’re probably going to have to pay for the forced place insurance on it too. It pretty much doubles your servicing cost. Don’t do that. That is Scott Carson’s Stair-Step Method, which if you don’t understand what that is, you need to pay a lot more attention to Scott’s Vimeo channel and probably take some training with him, which you should do anyway because that will get you into the WCN Crew where all the real action is. Might as well we get our things going.

We’ll keep moving our groups along as well. Our focus is not trying to compete or double up on things. It’s like for me, I enjoy teaching and stuff, but do I want to go have a training program? No. Maybe in fifteen, twenty years when I try and slow down and stuff but the reality is no. Gail, is there any last second thoughts before we give our tidbits at the end?

Don't get discouraged. It's very easy to think you're the only one who's struggling when it is far from it. Click To Tweet

Don’t get discouraged. It’s very easy to think you’re the only one who’s struggling but far from it. Maybe that’s the Facebook group. We should start a support group for note investors.

Especially now when you see bids and you’re wondering, “Am I underbidding?” or things like that. Run your numbers by somebody and say, “Where are you at?” I’ll give credit to a gentleman who has taken the bull by the horns. The guy’s name is Robert Baynes who posted on a group saying, “What training should I take?” The reality of it is the three main courses out there, Scott’s, Eddie’s and Martin’s each have unique features or segments. He was interested in nonperforming first, which a lot of people would agree. Scott is probably one of the people to go to. He took Scott’s training and he sent me a few emails and asking questions but they very detailed and specific questions on deals.

I took that by him for not saying, “What should I do?” It’s like, “If I did this, what’s this?” He’s somebody I wanted to shout out to because he’s in the span of a month already doing a lot. To top on that, also about getting discouraged and I diverge a little bit wanting to give them a shout. Where I was getting with that is when you’re bidding, if you’re bidding in the numbers, just look off. It could be the seller’s expectations are way off. The other thing too is now you’ll hear people closing lots of deals or you’ll see people posting deals like they’re closing four or five deals a month or so forth and so on. There are not a lot of people doing that. Most people, if they’re closing ten deals a year, twenty deals a year is probably considered great. Don’t get discouraged when you hear people about how many deals they’ve done or post it and so forth because everyone’s experience is different. When it comes down to it, you’d be surprised probably how many people are closing twenty-plus deals a year. It’s not as many people as you think and once you get to 50-plus deals a year, that’s probably in a rare environment.

Very few people are going to ever get to that level. This will be probably the right time to talk about something else that we’re starting to help people though. Chris and I are planning to do a once a week open mic session where we will be available to answer everybody’s questions about their note deals and about note investing in general. We’re looking to launch that very soon. Let’s try to give these people something they can take to the bank. My tidbit is coming from my crazy mixed up five house renovation, December. I used to be a house flipper and I got out of it because I can’t stand dealing with contractors. Plus, there aren’t any good deals left now that everyone has watched all the flipping shows. Now that I’m forced to do it, I am reminded of what a good habit is, which is to always have a scope of work fully completed before you do anything. That is like the key to not overspending and to keeping your contractors very focused and keeping on the budget and on the timeline.

If you want a template scope of work, I can send one to people.

Facebook Fantasies: A good habit is to always have a scope of work fully completed before you do anything.

How do I know that you have one of those? It’s probably twenty pages.

I dummied it down because when I built my single-family house, my personal residence, and then when I started showing people the contract for it because I acted as a general contractor, I had a lot of people look at me like I had six heads. This was 2012 and 2013 where people needed work so they’d be like, “I’ll sign anything.” I definitely dummied it down to two, three pages. I’ve got examples for kitchens and bathrooms, what definitely should be included in there. You’re absolutely correct, the scope of work so everybody’s on the same understanding and what the payment terms are upfront should absolutely be something that people have.

For me, I have two land contracts in Northwest Indiana. This location, even though that deeds have been transferred over to my name, utilities typically will go in the name of the entity as a secondary. The primary is the person on land contract and if they don’t pay, it will go typically to whoever’s name is on file. I’ve been getting notices from the prior owner who I bought them from, sending these like, “Can you take care of these, please?” They’re like $50 water bills that hadn’t been paid that I have to make sure Lake County up in Indiana has my contact information so if these bills go unpaid, I get the notice so people continue to have water. Not only do you have to record the documents in the deed, but also check with utilities to make sure they’re updated as well. Even though taxes bills may start coming to you, utility bills don’t.

I found that when I got the $2,500 Flint water bill from my cancellation of the land contract. The same house that will have beautiful new floors. Thank you very much, Chris. I look forward to talking to you and we will be back with all of you very soon. Everyone, be careful. Don’t overspend. Remember, every dollar you spend on your loved ones is one you don’t have to buy a note.

I was going to say, only spend if you’re investing in deals, then you can overspend but don’t overbid and overpay.

Buy your children real estate. They’ll thank you.

Thank you, Gail. Thank you, everybody, for tuning in. As always, hopefully you will go out and do some good deeds and make sure to subscribe to us on iTunes, Stitcher or Google Play. We look forward to more and if you need input or questions, feel free to shoot us an email or contact us. Thank you.