132: How to Invest in Real Estate with Non Performing Notes with Paperstac

On this episode of the InvestFourMore Real Estate Podcast, I interview Rick Allen and TJ Osterman, who created Paperstac. Paperstac is a company that helps investors find, buy, and sell performing and non-performing notes on real estate. Rick and TJ both have extensive experience investing in real estate themselves. They bought and sold over 400 houses before they got into the note business. I talk to both Rick and TJ to learn how they got into real estate, what they love about the real estate note business, and how others can get into it as well.

How did TJ and Rick get started investing in real estate?

TJ Osterman moved to Florida to become a golf teacher but along the way invested in a house flip and made $30,000 on the deal. He was immediately hooked on real estate and gave up his teaching aspirations. TJ began flipping more and more houses, wholesaling deals, and working closely with a hard-money lender. Rick ended up in Florida for college. He got his real estate license after he graduated and got into time share sales. Eventually, Rick and TJ were working together with 20 to 25 employees, scoring deals and financing for real estate investors. They eventually decided there were too many moving parts and too much stress in their business, so they looked for something new.

How did TJ and Rick get into the note business, and how do non-performing notes work?

Rick and TJ stumbled upon a note that was for sale and ended up making over $30,000 on one deal without doing much work. They decided they wanted to be in the note business and began a new venture. They learned where to buy notes, how to complete due diligence, how to work with homeowners, and how to sell notes. On the show, TJ and Rick explain the notes they like to buy and how the business works.

When a house buyer gets a mortgage, a note is created with it. That note is the borrower’s promise to pay back the money they borrowed with all the terms and conditions they agreed to. Many banks will sell these notes to other banks or investors. A non-performing note is a note where the borrower has fallen behind on payments or stopped making payments. You can buy non-performing notes at a steep discount because there is no guarantee the borrowers will ever pay, and the owner of the note may have to foreclose on the house to get some of their money back.

How cheaply can TJ and Rick buy non-performing notes?

Rick and TJ typically buy their notes for 30 cents or less of the original loan amount. If someone got a loan for $100,000, they may pay $30,000 or less for that debt. However, just because the loan was originally $100,000 does not mean the house is still worth that much money. Rick and TJ will buy these notes and try to help the homeowner rework the financing so they can make payments again. Because they get the note for so cheap, they are able to greatly reduce the principal amount and payments for the borrowers while still making money themselves. There is even a program called the HHF Fund where the government will give people money to catch up on their mortgages. That money goes straight to the lender, who would be Rick and TJ if they own a particular loan that qualifies for that program. Make sure to listen to the podcast for the details on that program, which I had never heard of.

How can you learn more about note investing?

TJ and Rick created Paperstac to help investors find and buy notes. However, they warn there is a lot to learn about the business before you invest in a non-performing loan. I would agree with that, especially since you may have to foreclose on a house, and state laws vary on how foreclosures work. In some states, you can foreclose on a house in a couple of months, and in other states, it can take years. To learn all the ins and outs of note investing, Rick and TJ created Note Force Academy. The academy helps people learn where to buy notes, how to buy them, and the best exit strategies.

[0:00:13.9] MF: Welcome to the InvestFourMore Real Estate Podcast. My name is Mark Ferguson and I am your host. I am a house flipper. I flip 10 to 15 houses a year, I own 13 rental properties, with a goal to buy 100 by 2023. I’m also a real estate agent. I’ve been licensed since ’01, I run a team of nine and we sell close to 200 houses a year.


So on this show, we like to interview house flippers, landlords and the best real estate agents in the business. So stay tuned for some great shows, if you want more information on my rentals, on the numbers, how I buy properties, check out investfourmore.com.




[0:00:13.6] MF: Hey everyone, it’s Mark Ferguson with InvestFourMore and welcome to another episode of the InvestFourMore Real Estate Podcast. Today, I’ve got two exciting guest on, Rick Allen and TJ Osterman, who were with Paperstac, a note investing company. So, I know my blog is a lot about flipping, real estate agents, rental properties and we don’t talk much about notes. I’ve never invested in notes myself so I think it will be interesting to hear what they have to say about notes, how they built a business around it and maybe we can all learn something. So, Rick, TJ, thank you so much for being on the show. How are you guys?


[0:01:29.12] RA: Doing well, thank you for having us Mark, really appreciate it.


[0:01:32.5] TO: Yeah, doing great Mark, thanks, thanks for hosting us.


[0:01:35.5] MF: Yeah, no, thanks for being on the show. I love to start every episode just, kind of, getting some background on how you both got involved in real estate. So, maybe will do one at a time, Tj, how did you first get involved in real estate and how did that, kind of evolve to where you are right now?


[0:01:49.7] TO: Great, yeah, so I’m originally, Chicago native and I’m living in Florida now. I’ve been here about 20 years so when I reach and came from Chicago down here I was actually going to be a teaching pro in golf and so, I came down here I was studying to become a teaching professional in golf. I was working at some country clubs. Got an opportunity to invest in a very hot Florida market with my first real estate transaction and ended up flipping a house, making $30,000 instead. You know what? I’d  rather play golf and probably get in, in the real estate business. So, I got in the real estate business that way. Bought and sold a few things, swung the hammers did everything which I still enjoy actually doing and the note business we haven’t been – we haven’t had to pivot to far from our original discipline of buying and selling homes.


So, I got into that, and then started working for a bigger institution that’s had about 15, 20 offices nationwide where we were dealing with sourcing hard money for investors and we had the inventorial so, so, we’re kind of a wholesale shop that had the hard money tied to it. So, we kind of got to learn about the debt piece there where - which is very important when it comes to buying and selling houses, real estate, or investing in anything is that where you’re getting that investment money from, so we learned a little bit about the hard money space there.


We bought and sold 400+ houses I think and then we - from that point ended up opening up Rick, myself, and a couple of other partners branched off, opened up a few other of our own offices, you know, took what we learned from that other company and run with that and had about 20, 25, employees working for us all sourcing inventories, sourcing houses, hard money, fix and flips generally, with some rental stuff going on there also and, you know, opened a few offices and then realized man, you know, we don’t really enjoy managing a big group of people and we were, kind of, thinking let’s go do our own thing and so we had the opportunity to buy a mortgage note and kind of it, it took off from there and I, kind of, I’ll digress from there and, kind of, let Rick jump in and, kind of, give you his background a little bit.


[0:03:59.3] MF: Oh, yeah, thanks yeah Rick. Love to hear how you got in to it too.


[0:04:02.9] RA: Pretty similar to jump from the Midwest from Columbus, Ohio moved down here at a really young age, I went to University of Florida and University of Central Florida and when I got out I didn’t really know what I wanted to do. So, I decided to get my real estate license and, kind of, went through the time share thing we learned to sell something that nobody wants and, kind of, cut my teeth in sales there and then joined that same institution that TJ was speaking of and started – start sourcing inventory and got, you know, TJ and I both got pretty good at identifying deals and kind of learning what I would say is probably the core of what you need to know when you’re investing in real estate and how to – this identified fixing, flips, or rentals and investment strategies and, you know, after we had started our company and then sold it off and, you know, TJ and I kind of running solo for a while just doing our own thing, fixing and flipping. We noticed that the inventory was starting to get, you know, I guess this was late 2011 early ’12 it was starting to dry up or it was getting more difficult, I should say, more difficult to buy because a lot of, you know, the hedge funds blacked. The black note, what have - you’re coming in there buying stuff at the auctions and somebody ask you, “You guys want to buy a mortgage note?” So, we jumped in and it was a frame duplex I’ll never forget those. Frame duplex the debt on it was 90,000 and we bought it for 84 hundred bucks and, you know, after we got the borrower to sign the house over to us and a deed a [inaudible + 0:05:32.5] and we had it listed and sold and it was sold at for – we listed it 19,000 and it wound up selling for 38,000 and so, we were in and out of it in just under three weeks and so we kind of looked at each other and said, “Wow, this is crazy,” and, you know, we did down a handful more deals over the next year and wound up going and showing what we’re doing to somebody after we got some education in the space and somebody said they were going to, they said, here you want a million bucks?


I’ll give it to you if you want to invest and do what you’re doing and so we, kind of, took their money not all at once. We never really looked back and so now were permanently run a small portfolio just under $6,000,000 and we’re in the process of doing a regulation A+ offering where we can start raising a substantial amount of capital and really, you know, kind of foster our mission of trying to save people’s houses and bring some light to the space.


[0:06:28.5] MF: I know when I was first starting out in real estate, I got my degree at the University of Colorado and my dad had been a realtor forever. I don’t want to do anything with it and I reluctantly joined him, got my license and got sucked into the business so, it sounds, kind of like Ricky kind of joined the same way but I’m sure you it will happen that way.


[0:06:47.2] RA: Yeah, you know, it’s funny too Mark because for most like you’re saying most of your listeners are people that are in the real estate industry, right? That are buying and selling houses or rental portfolio, correct?


[0:06:58.8] MF: Yes, for the most part.


[0:07:00.6] TJ: Yes, so, you know, when we’re talking about notes for us, we are in the same exact if anybody out there is listening we’re in the same exact spaces as you guys are and, you know, we just thought of the mortgage note business is really being a really good way to diversify our portfolio and to learn some new disciplines, kind of, become the bank in a way. Because we’re seeing how much power those banks had and we’re trying to, you know, trying to bid on the REO as well. Now we control the REOs. So really the nice thing about it for anybody listening that’s really, kind of, possibly interested in the mortgage and the whole industry is that, it’s  not a whole big huge pivot away from the disciplines that you know as a real estate investor, you know, with, with real estate investing you’re buying what you say, if you’re going to fix and flip, you’re buying something under market value you’re, you know, you’re going in, you’re adding some value to it.


However, that maybe, maybe you’re putting together real nice investment presentation and just wholesaling it to somebody that you’re adding some value that way but if you’re fixing the house also fixing it and then reselling it. Now, to, kind of, align that with what we do we just buy broken mortgage notes, you know, and basically fix them, add some value to them and then we sell them to investors that are actually looking for re-performing loans, kind of, like people might like cash flow rentals. They have portfolio of let’s say 10 to 15 rentals and they love that cash flow but a lot of the people we talked too really don’t like the having the, you know, the toilets, the fixing the air conditioning units going out.


So, there’s another type of play where they say, you know what? I like that cash flow coming in but as a holder of the mortgage they continuously pay me even if, even if, that, that toilet breaks or the, or the other roof, you know, caves in. But, there’s room for both and it’s just diversification play that anybody out there listening, you know, is, is really nice Segway in to different investment strategies for sure.


[0:09:03.0] RA: Yeah.


[0:09:03.3] TO: It’s not that different.


[0:09:05.1] RA: I agree TJ, it just it dovetails so well with somebody who’s already in the real estate investment space. A lot of the same core disciplines of evaluating a house, being evaluated, you know, putting a value on the house that we can all agree so important on just about any investment. If you’re going to do you want to know the value of the investment and that’s a lot of those same disciplines transfer right over in to mortgage notes. There are some additional stuff you need to know but it is a nice place that diversify and for the guy that’s looking for the, you know, the passive income and not deal with toilet seats, it’s a great, you know, opportunity or addition to hone our rental portfolios for sure.


[0:09:45.1] TO: You know, one, one thing I just want to inject quick, in as anybody in this space rather in real estate or whatever man you going to have inventory, you know, you got to have deal flow coming in and what we saw, you know, as I think it’s as of January 2017, industry leaders say that, you know, there’s around three hundred billion dollars and deeply defaulting mortgages are yet to be touched in our industry so that’s – that’s a lot of mortgage notes and without going too down the rabbit hole in to, you know, the mortgage notes specifics, there’s a lot of inventory there to deal with and we’re dealing in – just as we did with the real estate space. We’re dealing in small [inaudible + 0:10:23.5] mortgage notes, meaning low to middle income families, you know, hundred – I say 50 to 170 thousand max house value. We call we say asset value and below.


So, theirs is just a whole bunch of inventory in the note space as long as you’re willing to, you know, take one that’s got a little bit of hair on it, you know, there’s, there’s going to be hair on this deals that, we enjoyed doing that because we’ve, you know, the houses that we bought when we’re buying and selling houses all the time, you know, 10, 15, every month. We were falling through the floors and nothing really scared us because we realized that, you know, everything can be fixed and that’s the same type of thing in the mortgage note industry. There’s a lot of paperwork, a lot of different hats that you may wear but you can leverage it big time by utilizing third party – parties, you know, third party servicer, third party’s people that are doing your last mitigation and due diligence which will be happy to share, you know, in show notes or something afterwards, Mark, with anyone that would be interested in knowing a little bit more about where, kind of, go with it but -

[0:11:26.0] RA: You know for sure you can always – some of the course academy and they can learn as much as they want there.


[0:11:33.8] MF: We’ll have a link to that show notes for sure and but you guys you made some great points about inventories, I flip houses myself and I think we’re going to finish up with about 26 sold this year and but 28 more around that number. Yeah, and I hear all the time how there’s no houses to flip anymore and but I’m buying some houses that have issues just like you say. It’s not – there’s a lot of people buying stuff after the housing crash, that need a paint and carpet  and you can make 30 grand on and that doesn’t happen anymore for the most part. So, you have to work hard to find deals to really make the business work. It’s not something that will fall in your lap. Anything whether flipping, notes, anything like that.


[0:12:14.0] TO: Those, those days kind of gone and past I mean it was like 08’, what was it Rick we’re really count it? ‘05, ’06?


[0:12:20.0] RA: Yeah, I think, I think definitely like that ’05, ’06, and then the 2000 like 10, 11, where it just seems like at those both, you know, right before and right after anybody and everybody was jumping in and if you’re doing it before the crash you were just, you were just, getting sucked up on values got sucked up, it was just rising so there is no issues. You can get in to a house and you can make a really bad buy and still — and still make 30 grand just because things were going up so bad and then after the crash the banks were just literally, they didn’t know what to do. So, they’re just getting real houses at such an astronomically low rate that you could get in, put like you said, paint and carpet and get out of the house and you look like, you look like you’re an absolute genius real estate investor. Those days, those days, kind of, been weeded people out now and, you know, you have professionals like yourself, Mark, who were still in there.


It does take some expertise to get in there and navigate this landscape and come out on top and, you know, that’s hypothesis for still doing that.


[0:13:23.9] TO: Yeah, you know Mark it’s interesting because you made a very good point of that, you know, you’re having to pivot maybe change a little bit different on how you’re buying, you know, your buying strategies, you’re not harnessed from used to be. You know, I hear a lot of real estate investing clubs that will attend and everything of like, oh back in the day, da, da, da, da, well I mean, you know, it’s not like that anymore. Everybody wants that home-run and it’s unfortunate that sometimes people get in to an industry or space and they kill it like, you know, what they did with the real estate industry and then they realized maybe that the margins are a little bit thinner now. And, everybody kind of gets disheartened and like you said, there’s no – it’s so easy to get negative, like, there’s no inventory and everything in and you’re just a perfect fact, look man I’m still doing it, you know, there’s, there’s different ways and that’s kind of, you know, that segues really back in to why we kind of wanted to diversify in to the mortgage note spaces because it kind of gave us another couple options to, another couple lakes to fish in for inventory so, yeah, it’s like you said you can’t expect to – you know the things that are constantly going on are change, right? It’s always the markets always going to change. They can I have to be able to adapt to those changing conditions.


[0:14:36.5] MF: Right, exactly, and there’s a lot of people as well who were kind of weighing for another giant crash and opportunity to come along like there was before but I don’t think will ever see it as bad as it was. I mean maybe I’m wrong but with all the giant hedge funds and the financing is so different now. I don’t think we’re going to see a crash like we did before.


[0:14:52.7] RA: I don’t - I agree with you, I don’t  think so, I don’t think that, you know, there’s, kind of, a mathematical equation that happened when the rates went up, there was just going to be x amount of defaults that are going to happen. I don’t think that’s going to happen. I do think that there maybe has been a little bit of the sensitization to foreclosure in the country I think people may be looked at that and said, “Well, it didn’t actually workout so bad,” for those people who went to foreclosure and they didn’t, you know, their heads didn’t rolled, they didn’t go to jail, things kind of work didn’t let’s say workout.


It wasn’t the end of the world so I wouldn’t be surprised if there was a little dip that you’ll see maybe a spike in foreclosures again or spike in default, hopefully not a spike in foreclosures. I think now with the way the landscape has changed as far as what TJ and I do. There’s some – there’s a lot of people tackling the loss mitigation side with real world, real world sort of tactics to keep people in our house. But, I won’t be surprised if there was a little spike in defaults.


[0:15:53.5] MF: Yeah, and I would agree with that too and – no it’s interesting you say that because our county would have 30 to 40 properties going to the foreclosure sale, you know, right after the crash, even during the crash and now we have maybe one to two going to the sale per week. So, you see that a lot I think a lot of loans are being taken care of before they go to foreclosure so market is so doing so well there’s a lot less going to foreclosure and then investors are buying a lot of the sale too.


So, the actual amount of foreclosures here in Colorado is almost minuscule compared to what it was before it’s just crazy.


[0:16:29.8] TO: Yeah, I can tell you that the cash burn from holding non-performing mortgage notes on these – on books is, is insane, you know, we’re managing a 125 let’s say notes right now. That’s, that’s small potatoes in the business that we’re in, I mean, people are trading hundreds of millions of dollars, worth of mortgage notes every single month and, you know, but just a cash burn that goes on from managing a 125 of these things is insane.


So, a lot of these institutions realized that, just to be able to then sell, they want to just sell that non performing mortgage debt to independent investors and really there’s kind of a waterfall effect on how this whole niche, kind of, industry was – was created, you know, the big huge funds are trading back and forth. They’re selling thousands and thousands of notes back and forth. They’ll work the mortgages for a while if they’re not performing and then what will happen as if they kind of hit a road block then they’ll just trade it off under books doing other –


[0:17:30.9] RA: Hey Tj, I just want - real quick this one when he says trade it’s just, kind of, just industry jargon in term for like sell off the loans. Because, I’m sure some of our listeners what they mean –


[0:17:39.9] TO: I’m sorry, yeah, trading, I mean just, yeah we’re not trading like for - It’s buying I know when I say trade and I’m like when I first read them wait, you guys are just trading that’s it that stuff, thanks Rick, yeah, that’s exactly they’re just buying and selling loans. So, these huge institutions are buying and selling thousands of loans when they kind of hit a hiccup of one of this you know. Like, a group like a tranche they call it of like, these non-performers that are low balanced.


The amount of money it cost to actually maintain it and the disciplines like the specific disciplines that take to reach out to these borrowers. They’re just like this is not, we don’t have an appetite for this stuff. So, what will happen is these huge institutions will just, kind of, sell leaves and as you can imagine like a waterfall, a funnel effect they, kind of, just keep picking the cream of the crop, picking the cream of the crop, and then eventually down at the bottom, there will be what they called tail of a tape. They’ll have these tails on these mortgage note pools. Where they will be like, it’s just like a pool of REO investments, you know. Let’s just say there’s a huge pool of REO investments like let’s say a thousand. Everybody gets their hands and takes the best off and at the end of the day there’s might be like 10 or 15 that are just like the turds in there, you know, and nobody really wants some but there’s still an opportunity there.


The same thing with the mortgage note industry and we, kind of, carved out our niche to buy those tales realizing the fact that every time that these mortgages are being traded back and forth there was like real world people on that other end in your families that are, kind of, in a, kind of, a purgatory going – “Am I going to have a house?” Because, they call it the foreclosure Mary go around in our business, right? It’s like, you’ve heard, I’m sure you heard many people that have talked about, you know, trying to modify their loan and they sent the paperwork in and the paperwork got lost or their loan got sold again so they have to restart.


So, this is, kind of, going on and it’s becoming major, major, issue that kind of Rick and I realized originally getting in to the mortgage note industry to just a source of inventory for our real estate business to realize that there’s a major issue going on here and, you know, we’re just a couple of guys that you, you know, looking to take on that, you know, that affordable housing issue and provide sustainable living situations to the underserved people in our country and we’re doing it through mortgage notes.


So, there’s like, kind of, this whole other thing that is, that is, going on out there that you can, kind of, tap in to, you know, aligning kind of money and meaning at the same exact time but there’s so much different things happening. I mean it’s an exciting time to be I think in the real estate space and the mortgage industry.


[0:20:09.6] MF: I’m curious I don’t know if you guys know this answer or not. I used to be a HUD listing broker, REO agent, I’d sell those foreclosures all the time. When I was doing HUD, they had started to sell of pools of HUD loans as well or I don’t even know if it’s a loans or the actual properties. Do you know, if HUD is still selling those offer they’re keeping them now, I know it’s kind of an off topic question but –


[0:20:32.4] TO: That’s right, that’s right, of the topic. Yeah, they are selling right if you know.


[0:20:36.6] RA: Yup and they’re still selling them off, Fannie and Freddie, I think they sold off. I don’t even know the numbers, millions, of these non-performing loans that they had on their books.


[0:20:47.9] TO: And so there was this –


[0:20:49.6] RA: The last trade they did was something like 2.1 billion, they sold off.


[0:20:54.4] TO: Yeah, there’s just - there’s so much untapped inventory out there that’s interesting that a lot of the stuff too, for real estate investors, a lot of this is you want to be in the business of getting, reaching out to the borrowers and getting them re-performing again if you just want the inventory there is thousands of mortgage notes that are sitting vacant that are obviously causing to the decay of many underserved communities in our country because they are just sitting there for six, seven, years and they’re stuck in the mortgage note purgatory, nobody wants the mortgage note, nope, so nobody can actually legally get it the title indeed in to anybody’s name to sell it, right?


So, it’s just like sitting there on a bank‘s books to the detriment of like, I’m sure Mark if you have an opportunity you’ll be like, “You’ll I’ll buy this, you know, these houses that are sitting there vacant.” Unfortunately, it has to go through that whole process and they’re just kind of sitting there in a purgatory so we’re trying to, you know, get as many of these things out from under there as possible and reaching out to funds and banks and whatever to get these – to buy these from them. So, - so yeah, the HUD is still selling them and that’s - I believe, you know, you’re going to see that more, and more, and more unless hardships go away there’s always going to be nonperforming mortgage debt. And for, everybody out there basically a mortgage note what we’re buying is a mortgage note and, and, the note is basically just like a – it’s like a check you can kind of imagine, right?


It’s the debt it’s basically going to give the terms of what somebody borrows so that’s what the  - that’s legally what you can buy as an investor is the note and that mortgage is just the legally binding instrument that ties it to the collateral which is the house. So, kind of, like all wraps in to one there and so the note just basically says, “Okay, mister borrower you borrowed a hundred thousand dollars for this house at 8%, here’s the terms that you’re going to agree upon and if you default on those terms we can actually then as the note holder, you know, go back in and sue you for foreclosure,” is basically what they’re going to do based off the non-performance of your intentions.


So, it’s that’s, you know, from I don’t want to dive too deep in to that because it’s not that interesting basically but it’s, that’s really, that’s all that we’re buying for people that are wondering what the hell we’re buying is that’s – it’s the mortgage note so that’s the difference so you just – I Wikipediaed it and you do all that stuff and that will kind of get you get an idea. I never knew about all these stuff, you know, back six years ago before we bought our first mortgage note. Now I’m like, I dream like about this stuff, I don’t know if we still involved with it, it’s wild, what’s happening out there.


[0:23:32.6] MF: Are you guys buying notes all over the country or is it kind of market specific, what’s your strategy as far as that goes?


[0:23:38.3] RA: We buy all over the country, we started buying in our backyard, you know, started buying in Central Florida and then, sort of spiraled out then once we took in some education and, kind of, got our feet wet and really learned the space, we started buying nationwide and now since we are, kind of, focusing on keeping people in their house, we lay a filter over, that we kind of try to buy in an areas that have a government program called the Hardest Hit Fund which is a really a fantastic program that the Fed funded 9.8, I think it was 9.8 billion to like the 22 states that got hit the hardest in the crash and they basically divided up money and gave it to them to distribute to the people in their state who fell behind and had a hardship.


And, essentially that money gets paid directly to whoever owns the mortgage to catch them up and keep them in their house. So, we’ve sort of used that filter, obviously it’s nice to have funding there since we’re trying to keep people in their house to help catch them up and then, you know, we also look at non-traditional states, places where you don’t have to go to the court through a foreclosure if we have to go to that route but, yeah, we’re buying, you know, we still do buy and start places that don’t have Hardest Hit Fund and don’t have anything or don’t have the judicial system in place too.


[0:24:56.3] TO: Well, you know, what’s, what’s good great point about the Hardest Hit Fund, Rick, and a great point about this whole thing is as real estate investor we felt like we had to lay our hands on everything like physically and we didn’t feel comfortable buying anything - I would never think of buying a piece of real estate without like laying my hands on it and going there and like looking at it, managing the project and the mortgage note industry really opened their eyes to the available technology out there in today’s world and, to be able to compete in a very competitive market which is real estate investing, you know, you have to be able to spread your wings and have some confidence and, kind of, use the technology as a leverage, as a lever, you know, in, in, your business and, and, you know, take that risk in do buy in other areas.


We started in Florida and then now we are nationwide and to tell you the truth we didn’t missed a beat. I honestly, you sleep better at night when you don’t – I was going to – to every house I was buying and selling I was going there every single day. I was worrying about like the littlest things and it was, kind of, hindering the growth so being able to utilize technology nowadays, it’s like Google Earth you can drive the neighborhood.


Pick up the phone and call the local realtor in the area, you know, say, “Hey, can you lay some eyes on this property.” Different stuff like that, different strategies I think for any investor out there to do it. I think it’s a really, really, should be a move that they should look in to 2018. Maybe, buy something out of their comfort zone. Because, you know, there’s just – there’s a lot of inventory all over the country that, that there’s opportunity and if you can put a system behind it with some technology and to safe guard yourself. I think you’re going to see that you’re going to open yourself up to a little bit more opportunity and before, you know, one other thing I want to touch on before I forget is that just a scenario on a Hardest Hit Fund Program which is very interesting, Rick, it’s a federally funded program that catch up borrowers that fell behind.


One problem with it is that it was very difficult to navigate just like any conditional welfare program that we have in our country, it’s like the paperwork is confusing, people are like, “What the hell,” it’s like filling on tax forms, right? It’s just, it’s just confusing and then you’re dealing with somebody that is feeling like, you know, living paycheck-to-paycheck possibly earning 20, 25 thousand dollars a year.


They’re just not able to function and complete this stuff so it’s a very hard program in, from that aspect so we kind of help grease the wheels a little bit for those, for those, underserved borrowers and make it a little bit easier for them to fill out the paperwork by putting some technology behind it and let them just answer few questions and we do that auto fill. But, just to kind of do a quick thing on that Hardest Hit Fund Program is, you know, if you’re buying and let’s just say we bought something at like let’s say $30,000 and the house is worth $50,000 and there’s a $30,000 mortgage on it, you know, the Hardest Hit Program can I think it’s up to like what? Rick, 25, 30 thousand?


[0:27:44.7] RA: Yeah, it just depends like, you know, for instance when we did one in Jackson, Mississippi, you know, the debt on it was 70. We paid 12,500 for it, the house is probably worth, you know, like you said, it was probably worth right around 40, 45,000 and they paid 18,000 to catch her up on a mortgage and then they agreed to pay another 24 months of payments and they guaranteed their payments for the next 24 months and so then every month they would just send in the payments so that they came out to right around 36,000 total.


[0:28:16.0] TO: Look, so there you go I mean that’s what I was trying to get as like an investor you’re looking at one thing and that’s numbers. How can I recap my investment faster and get that money back in faster and we saw a program like HHF by just applying a little bit of technology and innovation to it we can really, really, dive in to it and help more of these borrowers out, number one and number two we’re the ones holding the mortgage note so if some case we’re doing it for 30 grand and we just get recapped at 30 to catch the borrower up we’re in to this note now for zero, zero dollars and then –


[0:28:46.1] RA: Approved class on that one.


[0:28:45.6] TO: Awesome, now I’m guaranteeing 24 months of payments paid by the government, okay, so it’s like if we wanted to sell that income stream now we could sell 24 months of guaranteed payments almost at, you know, at that level which they would call par, because that’s a no brainer. If I’m going to buy a rental property and they say, “Oh, you buy this rental property and we’re going to guarantee your rent for two years”. I’m like, “Yeah, sign me up, I think I, I, like that one”.


[0:29:16.5] RA: We’re real, TJ wouldn’t you say it’s just identifying the inefficiencies there. There was a super inefficient process and we’re able to capitalize on it and I think that’s kind of where most of the investment – investment stuff is, right? You know, the inefficiencies after the crash of the bank liquidating assets I mean that’s really all we did.


[0:29:35.6] TO: Oh yeah, I mean, in any - in any investor that’s what they're going to be looking at is like, how can we take a system and make it better and kind of open it up a little bit more and that’s kind of - that's kind of what it is and it kind of just touches on look as a real estate investor and you’re looking for a lot of different exit strategies is another benefit of mortgage notes on top of that. You have so many different exit strategies that you can do if you’re looking at just diversifying in to it, too. So, you can kind of get pretty creative with that.


[0:30:01.4] RA: I had never even heard of that fund before, so that’s interesting. Do they have -


[0:30:07.7] TO: You know what I’m saying? It’s like – I’m sure you know people, too that - I don’t know if you know personally but, but, like, are behind on their mortgage and the funny thing is there’s this huge carrot that got – nobody advertises –


[0:30:20.1] RA: Nobody knows about it.


[0:30:21.2] TO: It’s 22 states and we can - we'll put it in the show notes afterwards of the link it, how much money is sitting there? And, you know what happens Mark, if they don’t use it? They take it, they get rid - it’s gone, they get rid of it. It’s like unused and so I – what I’m thinking without being – without going in to like, too much of a conspiracy theory, although it is fun being a conspiracy theorist. You know, what happens to that money? It’s like, where is it going? I mean obviously there’s some people that are going. "Ha, this is like an untapped amount of money I think we just not spend it and make it hard for these people,” and, kind of, go where you want to go with that. But, yeah, that’s - there’s just one situation, yeah, where you can look that up, HHF funds, Hardest Hit Fund -


[0:31:03.9] TO: The Hardest Hit Fund, and it's - It’s a great program that nobody knows about, you know, we have to – I think that was one of the biggest things that we started doing with the lost mitigation was actually informing each one of our borrowers about it. They don’t just - they have another program out there another Hardest Hit program that they’ll - if you’re - if you've been making your payments and say you’re upside down on your house, say, you will you know, you owe a hundred and each worth 75, if you’re current on your payments, they'll come in and pay your house down to the 75 and they'll pay that directly to whoever holds the mortgage. So, there’s a lot of, you know, there’s a couple really nice programs out there that as a note investor you can, sort of, take advantage of.


[0:31:45.7] RA: You know, what I’m saying, too, as real estate investor, let’s say from that point that everyone’s portfolios of rentals I almost want to say that there’s a program out there, too, that if you did a little search on rental assistance. I know obviously, there’s like the Section 8 and all that type of stuff. There are other things to where, you know, if you are like an under – underserved population if you own a bunch of rentals that are, you know, lower than middle income areas of the country and, you know, these people, they don’t want them up, they don’t want them all on the street, you know, so there’s, there’s programs out there just, it just shows that you just got to get on the internet and search for these different types of opportunities because they’re  all strategies that, one, you come out looking like the hero and you really didn’t do much which is look in to it a little bit more. And, you know, you went  in to with if you do go in to the right mindset of, "Look man, I just want to help these people out kind of maintain their home and at the same time, shit that’s my rental, I got to get my rent paid.” So, there’s different stuff out there it’s amazing what you can uncover.


[0:32:45.9] MF: Yeah, I know, I mean, that’s, that’s amazing information that I need to look in to myself. What is your strategy as far as exiting these notes? I know you've talked about selling them to people looking for more cash flow. Are you holding some? Are you trying to sell all of them? What’s your strategy there?


[0:33:00.6] RA: We definitely are - we definitely are holding them right now. We are putting together like, several putting regulation A plus fund that we would like to sell this portfolio in to and so, everything we purchase, we purchase as non-performing. I think we've got right around 65% to 70% of them we've turned in to performing and so we have large institutions that have bought from us. We’ll take them up, we’ll package them up and, you know, micro pools of say, five or ten mass sets at a time. Once they get seasoned up but that’s obviously once you see them, you know if you’re buying them at 30 cents of a dollar you could package them up, you know, collect payments on them for a year and turn around sell them at, you know, 75 to 80 cents on a dollar, you know, there’s, kind of, that’s your spread and that’s really what we're doing and we're utilizing, you know, what we’ve used over at Paperstac and it’s a trading platform where people can go buy and sell stuff.


So, we have a lot of people who were in the SDIRA space and the self-directed IRA space who were just looking for that, they’re just seeking yield. They’re able to go on to Paperstac and buy assets one off. So, they can go and - I think we just sold one the other day like an 18% yield for somebody which was – which is pretty insane but, you know, they were happy about it. I guess, sort of a way, we made our profit and went out. We’re able to save someone’s house and turn them over to another investors who able to handle with, you know, the [inaudible + 0:34:26.2] and some of these borrowers need.


[0:34:28.3] TO: I mean and that’s the big space if anybody’s not – if anybody is listening to this and they want to source capital for deals, just look in to that S-D-I-R-A-SPACE the self-directed IRA space, it’s a fourteen trillion dollar industry and that’s, kind of, fourteen trillion dollar question right now. Who’s going to be able to tap into that? In a time, right now when majority of America’s retail investors let’s say, are really sick of the roller coaster of the traditional stock market. A lot of the baby boomers and a lot of people just in general are looking for that are a very yield hungry. They do not want to start investing in other mutual funds.


They’re just sick and tired of it and a lot of people that I meet are diversifying into real estate or they are diversifying into mortgage notes and a lot of people are passive and this self-directed IRA space is gigantic which basically saying if you got a 401K or IRA you can roll it over in to self-directed, like, to custodian like a NuView IRA or something. They will allow you to self-direct that investment as long as it’s a qualified investment and there’s I’m not going to dive in to the legalities of it but you can just start typing in to SDIRA and start doing your own research on it but that is a giant source of untapped money to where people are looking in too. If you want to buy some houses and there are some people that you just need some money to partner up, say you’re going to bring this to equity and they’re going to do the deal, they’re going to bring the cash, there’s their money sitting right there and they can actually buy it in this self-directed IRA’s and you can negotiate, you can do deals like together that way, there’s a lot a lot of good opportunities to do that.


And, to tell you the truth it’s a huge shift in to the alternative type of market which is like real estate and everybody is looking to diversify. Up until, you know, like the jobs at coming along, you know, that unless you’re a Wall Street elite you’re not able to diversify across many asset classes like alternatives, like real estate, and all this type of stuff. You just legally couldn’t do it. You have to be an accredited investor meaning you have to be worth a million bucks, yada, yada, yada, all that stuff and now you’re able to as non-accredited investor invest in these all different types of alternatives like real estate and your IRA and mortgage notes and all this types of good stuffing and with now like let’s say for instance Paperstac whose - we’re developing, you know, is allowing investors to come in and really, really, access this space and not have to take a $40,000 mentorship course for it, because basically all you really need is a system and a process put together and that’s kind of what Paperstac is.


It’s a system, it’s a really nice process that’s going to get you in from source the inventory for you and take you all the way from A to Z and you’re not able to move that next step unless you cross all your ‘I’s and ’T’s. So, we tell everybody to go to Paperstac with a c .com not with the k and check it out because it’s going too really, really, technology fees for people that are looking in the mortgage industry if you’re looking in there.


[0:37:33.3] MF: No, I was going to ask you him what my next questions was, yeah, if you’re look in to buy some of these notes you want to diversify your investments, how do you find them? How hard is it to find these notes? And, what steps you take?


[0:37:44.9] RA: Definitely, Paperstac is a place to start, you know, if we didn’t start there we didn’t started buying from some of the hedge funds but, you know, and there’s other trading platforms out there. I would just, you know, Google mortgage trading platform. But, you need to know how to run your due diligence. That’s the one thing that I would encourage everybody to do is to get some education on this space whether you’re, you know, you’re going to the Google University and just Googling stuff for or you go, you know, pay for mentorship or you go, you know, online stuff, you know, like this so we have Noteforce Academy which is an online thing for people to learn. But, you want to get some education because you got to learn the process of doing running your due diligence. Like, I said before there’s a lot of stuff that mirrors real estate investing, you know, running values and properties, looking at title to an extent. I know if people are buying at the court house are probably somewhat familiar with going and looking at public records but you want to go there and then you want to just start looking at inventory and, you know, running mock tapes or mock data and stuff until you feel comfortable and then, you know, finally jumping off and, you know, pulling the trigger.


I know Mark you said, you had some experience in the mortgage note space. I haven’t bought one yet. I’m sure you can attest it there’s a lot of due diligence that goes in to mortgage notes and you want to make sure you cross all your ’T's and dot all your ‘I’s before you jump in.


[0:39:09.1] TO: You know, the best thing to do too is like this huge like Bigger Pockets and all you see, you know, I’m not advocating thing that’s Bigger Pockets is the best place on earth but what I’m saying is that all of these places like that if you just type in and say look man I’m looking to – I got some money and I want to look in the mortgage note industry and I’m looking to buy stuff you could, you know,  order this around your local real estate and area clubs and you can team up with somebody that’s the biggest, biggest, thing to do. I think the real world experiences.


Do your research and then learn do all your research on the computer but really the biggest thing I see and all these conventions we go too is they been like we talked to people have been in the mortgage note industry and – just like you know for two to three years and they love going to all the conventions and they get all hyped up and then you ask them how many mortgage I’ll stay, probably like none we haven’t pulled the trigger yet. Well, you’re missing a huge piece there that you’re just going to learn so much by just going in so it’s scary but you have to I think in my opinion is, kind of, team up with somebody that’s done it before and, kind of, dive in there and, you know, there’s inventory available from all over, you know, 8,000 bucks, our first note was and so yeah, you know like, like, Rick was saying there’s this mortgage note trading platforms which we love the best it’s like going to Ebay to shop for notes because in the past, why we actually developed Paperstac was it it’s like looking at hieroglyphics when you look at this spreadsheet of what they call tapes of assets.


There’s 50 rows and 50 columns and then you’re like that’s why I have a PhD in Excel I don’t know what the hell I’m looking at. I mean honestly it is –it’s your eyes are bugging out of your head. You’re like, “What? How am I supposed to sort through this?” It’s overwhelming and someone people like ourselves get overwhelmed we say, “Ha, this is maybe too much I’m not going to do it.” So, that’s why we kind of said, you know, this is ridiculous let’s make it easier, let’s make it more of an interface for people to kind of shop for these things and you know team up with the right people to make it happen and we  have a great demo too that anybody can, kind of, go through to get the idea of what that process looks like. We have new stuff coming where we want to do, you know, modeling and all this type of stuff works, you know, where people can run through like fake money and we’re so talking about that. So, like, like, Rick said, there’s so many different little places to go but I guarantee if you’re in the real estate investment space you might know somebody that’s that does it and say look man I team up with you on a deal but like Rick said, the biggest thing education. Just continuously educate yourself.


[0:41:39.7] MF: Yeah, and I say Rick too when I was looking at it, I think one thing you have to consider as an investors the worst case scenario and if you do have to foreclose on a note looking at your own state laws and what that process is or whatever state you’re investing in is one of the biggest things to consider because it’s so different in every state.


[0:41:58.8] RA: You’re so right Mark it is, I mean it is completely different from once they – we’re in Florida the next day was Georgia and Florida it can take us,  you know, two or maybe three years to foreclose and, you know, a $20,000 foreclosure bill. In Georgia you could possibly have the house back in 90 days and it cost you 25 hundred bucks. So, and that would kind of difference that I was talking about earlier between a judicial state being Florida, non-judicial be in Georgia, it’s just it is so different you do always, always, have to look at worst case scenario and whenever we make, you know, a buy on an asset we’re always, you know, plan for the worst and hope for the best. Or, we have our strategy but we always have that, hey, we may have to take this thing and go to distance to foreclosure so what is that look like coming out on the other side and you better have, you know, some upside to at least a break even point if you have to go to that route so that’s a great point.


[0:42:56.0] TO: Yeah, you got to build it in to that price, right? So, you know you’re kind of get in to it, you’re looking and saying, “Okay, it’s Florida a judicial state” which basically means you going to run for the court system to get this thing back if you can’t negotiate with that borrowing and you’re looking at five to ten thousand dollars. So, when I’m going in to bid on something in Florida I’m going to say I’m going to build in a holding cost of, you know, legal fees of $8,000. I just take the difference in between there and then work my numbers that way. And, if you can make the buy that way and you can forecast what you’re – a lot of the times you can forecast what you’re going to actually be costing yourself to run your note because, there’s so many standards that are there like, servicing is going to be, you know, every month you’re going to pay this.


The only thing you don’t know are like when you get the house back when it comes to the real estate side of, you know, when you tear the walls open if you’re doing some stuff. What am I going to look into? But, when it comes to like just managing the note you can – for all of those engineers out there you can really forecast out and do a nice budget on what you’re actually going to be looking at like we’re on a worst case, best, you know, middle case and then best case scenario on it and if you’re comfortable there that man pulled the trigger.


[0:44:04.8] MF: Yeah, no, I, I completely agree. Another problem I had too was I’m in Colorado which is a non-judicial state which is really nice, it’s not hard to foreclose here but from what I was looking at there are very, very, very few notes in Colorado.


[0:44:19.1] RA: Yeah, Colorado is scarce. Colorado is tough to find assets believe me we looked. When they come up they usually go pretty quickly you guys have a real strong foreclosure process to get the house back in your economy it’s just, it’s just really good so, you know, I briefly touch on earlier it’s –


[0:44:35.7] TO: If, anybody has got in Colorado notes we’ll buy them.


[0:44:38.8] RA: Yeah.


[0:44:40.3] TO: Mark will buy them.


[0:44:42.5] MF: That’s right.


[0:44:44.1] TO: Alright, Mark, yeah, no, that, that’s a really good area that’s, you know, so I don’t know if we even had one Rick? I think we had one.


[0:44:50.8] RA: No, we didn’t, we have not had any I have -


[0:44:53.0] TO: Then if you think of Vegas, Vegas was a good one. California.


[0:44:56.7] RA: But there’s a bulls eye right now drawn. I cannot wait to get out to Colorado to look at whatever assets. It’s one of the few that I go out and see.


[0:45:05.7] MF: Cool. Guys I think that’s all the questions that I had for you, we’re running short on time. I always ask everyone how to contact you. We’ve talked about it some here but if people want to learn more, they want to check out Paperstac of course what’s the best way to get in touch with you guys or get to the site.


[0:45:20.8] RA: I guess paperstac.com it’s, you know, p-a-p-e-r-s-t-a-c.com if you want to reach out you can, you know, you can reach out to me it’s rick@paperstac.com. You know, check that out and then definitely check our parent company which is cloudcapitalmanagement.com and that’s where we kind of talk about all the projects we have going on, you know, with Paperstac and with Note Force Academy and stuff like that.


[0:45:46.5] TO: I’m saying tj@paperstac.com, you can do that and I think Brett maybe we can have – Brett, our marketing guy do something for the demo, like I know there’s that link and we have that video about Paperstac where it’s a really, it’s a really nice demo of –


[0:46:02.9] RA: We can, you know, we can have them do that and put up something, a discount code or something like that if they want to do the Note Force Academy. We will put that up there also and give it to you Mark so you got your listeners give a little bit of discount there.


[0:46:15.6] MF: Oh, I’ll add that to the show notes and people can check those out and get there. Cool, anything else you guys want to add before we head out of here, anything we missed?


[0:46:27.9] RA: No, I don’t think so. I really appreciate you having us on, you know, love what you’re doing and, you know, applaud you for keeping on being able to get in there and flip some house, you know, it’s providing a lot of great content for your listeners. I think it’s awesome.


[0:46:37.4] TO: Yeah, I just wanted to wish everybody out there happy holiday and you know enjoy this time to reflect with your family. If you have little kids play with them because it’s the most fun ever you got to get in to playing again and just enjoy this time. It’s, you know, I just one on that Polar Express ride for the first time with my daughter, she’s four yesterday and it was like, wow I was little kid on there. So, just to, you know, it’s a great time of the year and I hope everybody has a wonderful 2018 and if there’s anything that we can do in our organization to help you Mark or any of your listeners out there, we are more than happy to do so, and, yeah, until next time.


[0:47:15.6] MF: Cool, well thank you guys, I really appreciate it. Like I said it, for those listening investfourmore.com, under the podcast section we’ll have the show notes and all the information to contact TJ and Rick or Paperstac. Thank you guys a lot, I really appreciate it. I learned a lot myself especially about the Hard Hit Fund, I had no idea that was there, so I have to look in to that more and, yeah we’ll have to keep in touch for sure.


[0:47:38.8] RA: Cool Mark, thanks man.


[0:47:42.1] MF: Alright, thank you guys I appreciate it.



Latest Episodes