Do you want to hit it big on note investing but having trouble getting into the space? This episode is for you. Taking you deep into the world of notes and real estate investing, Mark Yuzuik sits down with his business partner Nathan Turner, who does note buying, discounting, and teaching people how to make some money, especially in today’s world. Here, Nathan gives us a great view on the things we need to understand about the note investing space. What is a first mortgage and second mortgage? Why are exit strategies important? How do we figure out what to do when buying notes? What is the process of analyzing notes? Nathan answers all these questions and more, guiding us to understand different avenues to build your financial portfolio.
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Making Money Buying Real Estate Note At A Discount With Nathan Turner
In this episode, I’m talking to a friend of mine who was a friend first and then became a business partner, Mr. Nathan Turner, who does note buying, discounting and teaching how to make some money, especially in nowadays world. Nathan, thanks for being here.
It is my pleasure. Thank you very much.
Years ago, I remember going to an event. It was the note buying event and I believe it was Jack’s event. I do hypnosis shows and then I speak the next day. I believe you went to one of my shows.
I did. I was playing air guitar like it’s nobody’s business laughing at nothing on the wall. It was all crazy stuff.
From there, this was quite a few years ago, you told me that you had 5 or 8 deals going at the time. I remember you came back the next day and you raised your hand. I said, “What do you want?” You went, “I was in your show. You made me do the air guitar.” A year after that, you said, “I’ve increased my portfolio by 500%. I have over 40 deals. I don’t know what you had me to do.” I said, “It is because, at the end of each event, show or demonstration I do, I always give people, ‘You have to have a millionaire mindset, move forward, get rid of fear, and stop procrastinating.’” You have that in your brain and all of a sudden, you start getting results. It’s not done differently but you did have a different result.
I was starting out this hypnosis thing and the next day, we were talking about it. I thought, “If I can hypnotize myself the same way I was playing the air guitar to have that millionaire mindset, that’ll work,” and it did. I’ve continued to progress since then. It’s been a great road and I’ve enjoyed it.
I still remember talking to you and it was at Fort Queens. I was like, “Can I talk to you? Nathan, what would it take to be a partner of yours? I do a lot of real estate and I’m looking for the note business. I know you’re living in Canada, but you do things in the US. Everything is done here. You are rocking and rolling, so how do we join forces?” You were like, “Let’s get together and talk about it.” I remember doing a deal but before we do anything, we always say, “Let me try it first before I buy it.” You try it before you bring your other investors in. We tried it and I was like, “This is a great deal.”
I love the fact that we’re business partners because you played the air guitar when you volunteered for a show. I wonder where we’d be if that one change didn’t happen. Here we are, business partners, working and growing together. You do much all the work and me doing a show. I don’t even think about it. In nowadays market, there are a lot of deals out there in every market, regardless of what the situation is. There are ups or downs, real estate goes up, stocks go down and then up and real estate goes down. Credit gets ruined.
All these scenarios are taking place and this is the golden opportunity. Timing is everything. Success is all about timing. You’ve got to be in the right place at the right time and you’ve always seemed to be there. You always know when to hold the horse back and when to push the horse forward. If you’re in a race, you know exactly how to steer to get to the finish line and be a winner for everybody. You do note bond where you go in and you buy discounted notes and first mortgages. Sometimes you do the second mortgage, but you primarily like to do the first mortgage. Is that right?
That’s right. I like it because it’s a little bit closer to the property. Second, you’re dealing a lot more with the borrower and doing a lot more research on the person. People are strange and they’ll do all kinds of weird stuff so rather than deal in that, I like the first. The other thing with the second is taking a lot of time. It’s much more long-term and the first is a lot shorter-term and I much prefer that.
Our readers may not know real estate. Explain what a first mortgage is and how you do it in layman’s terms. It is hard for you because you love this so much. I remember we’ll do events together and Nathan will get up on stage and I go, “Let me explain what he said. Let’s say a car. Has anybody ever bought a car out there?” When you buy a car, you go to the bank and get a loan. The collateral is the car. If you don’t pay the payments, they take the car as collateral. A first mortgage is you go to the bank, you buy a house, you get a mortgage. The mortgage has different names depending on what state, but the first mortgage, the deed of trust, the loan is what you borrowed. The collateral is the house. People stopped paying on the house so they take the house as collateral. You go into a bank and go, “I’ll buy that mortgage from you. I’ll keep the house as collateral.” Is that accurate in layman’s terms?Success is all about timing. You've got to be in the right place at the right time. Click To Tweet
That’s it, and the bank is not set up to deal with loans that are not paying. That’s how they make their money. It is on their interest and so if the person stops paying, they’re no longer making any money. For them, it’s a zero on their balance sheet. Even though they may be owed $100,000, it shows up as zero because that person is not making any payment. They’re more than willing to sell it off for anything.
That means the bank is not in real estate. People think the bank is in real estate. That real estate is only the collateral in case you default. There are unsecured loans like credit cards and sometimes lines of credit and things of that nature, but a second mortgage is a loan. You’ll get a pool or additions put on, but people go apply to get a second mortgage. That’s a lien against your house. If you don’t pay for that, they will take your house.
The bank doesn’t want to own property. That’s not their deal. They don’t know what to do with it. They’ve got to go on and sell somebody. They’ve got to hire people. They’ve got to go through the process of foreclosure and everything. That’s not their business so they’re willing to sell it off at a discount.
You had this long list because I’ve seen the list. It’s a lot of work. When people go to a seminar, they’ll go, “I’m going to be a note buyer.” You’re going to be a note loser first most likely and then you’ll figure it out. Hard knocks were always at school and you lose a lot of money before you figure it out and they go, “There’s my niche.”
It worked out well for me. I started buying notes in 2010 after the big crash and discounts were huge, so I could buy a big discount. I could make all those mistakes and still be okay. Nowadays, it’s not quite the case where the prices are going from here on out. I have no idea, but it’s a steep learning curve no matter what so I probably lose everything.
You make your money when you buy it. I wish to do a five-day seminar and teach real estate. The one thing we drill into people is you make your money when you buy and you always have at least three exit strategies. An exit strategy is, what if the market changes? What happens if you can’t sell it? What are you going to do? In some states, if you buy in some areas like California and your only exit strategy is to sell the property or you’re stuck with it, are you going to be able to rent for the payment? Are you going to lease an option? What I love about what we do is we have three exit strategies. One strategy is you’re taking a chance. Two, you’ve got a couple of options, but with three exit strategies, you’ve got a solution. You don’t want a dilemma. You want a solution.
There’s even more. It’s not only that there are different exit strategies, but then within those exit strategies, there are different exit strategies. It’s wide open and there’s a lot of protection layer in.
Let’s say, somebody does this. The house is worth in the market for $100,000. Nathan comes in and he says, “Mr. Banker, I like this area and the house. I will buy your $100,000 note because I have some collateral note.” For how much do you go in and negotiate?
There are all factors in there. Is there equity or not? What area? All of those things go into it as well.
Let’s say it’s worth $100,000 and there’s $100,000 note on there.
In that case, it is simple. You’re probably paying somewhere between $0.55 to $0.65 on the dollar.
You buy it for $55,000 or $60,000 right around there. It’s not a fixed up. You’re not buying where you’re going into a remodeling and fixing houses.
I’m not interested in doing that. I’ve done that and it’s great, but I’m in Canada. The properties are all in the States. I’ve got a bigger backyard than most people. I still invest in my backyard, but it’s far enough away. I don’t want to have to deal with renovations. It’s too difficult to manage from a distance.
For Nathan, you buy the note at $55,000. What’s your goal at that point? Is it to sell the note? Give us a couple of different ideas of what could happen because being your partner, it’s like you’ve got two checks. You go, “One for this and one for that.”
There are all kinds of different options and it’s case by case, but for example, the person is still living in the house. In that case, I’m going to approach them and say, “Mr. Borrower, you owe all this money. If something happened in your life where you couldn’t make the payment, how are you doing? What payment could you make? Maybe you can’t make your original payment, but could you make a different payment? We’ll work out some arrangement for payment.” I’ll collect payments for a few months and then resell them.
What if their payment was $1,000 a month? You have the right to go in there and tell them that they don’t have to pay $1,000. You can put up whatever you want. Why is that?
I have the right to receive payments. That’s what I bought. I didn’t buy the house. I bought a contract that says that I have the right to receive payments. How, at what interest rate, and for how long, all those things are negotiable for me. For a traditional bank, not so much.
You become the new bank. You’re now their banker.
I’m sure everyone has a personal experience with this, where you go into the bank and you’re asking for a change of something. You want to adjust things this way or that way. Banks are inflexible and they have to work within certain parameters. That makes sense because that’s their business model. For me, I’ve got a ton of flexibility because I bought it at a discount to begin with, where I can say, “Let’s adjust your payment either up or down.” I’ve done both. “Your interest rate is up or down. Your term is longer or shorter,” any combination of those things to come up with some payment plan.
Sometimes the previous owner is still living there. If it’s vacant, what do you do then? Do you rent it? Do you sell the note? How do you make money from there?
I could sell the note. I’ve done it. Usually, I ended up taking back the property in some fashion and that’s done with the foreclosure.
If they don’t pay, you have the right to foreclose and take the property as collateral so then you become the owner of their property because they didn’t pay the note. That means the note goes away. There’s no more note because you own the property.Self-directed IRAs are a fantastic vehicle for no-time invested types of investment. Click To Tweet
That mortgage has gone. I’m the property owner so it has changed the title instead of me owning paper, I own the property.
You can do whatever you want with it. You can rent, sell, lease option, discount, and fix it up. You do own the property. Once you go through the foreclosure proceedings, whether it be a trust, aid, or mortgage, whatever that state law and how long they require.
You can get all kinds of fancy. I’ve got one in Ohio where the borrowers passed away and they don’t have any arrears, but they did have a renter living there. The renter is still living in the property. She wants to stay for as long as she can. She agreed that she needs to move out however, in the meantime, she’s making rent payments to me because that’s what she can do.
It is because you bought the note. You own the paper when you go through foreclosure proceeding to get the actual ownership title in your name.
I’m pursuing that and there are paper works. We’re going through that.
We’re making it sound easy. I’ve done a couple of thousand deals but I have not done note buying. I’ve done note discounting. I’ve created and sold notes. We’ve done that. I know what the amount of work is to do it. It’s almost as if you enjoy being a CPA. There’s a lot to it, and it’s not, “I’ve got a list. Let me go and buy.” You have to know where, when, and how much to buy and what’s there on the market. You have to know, what’s the average sale? What are the rentals in the area? Is there a fix up there? There is so much that goes into analyzing a note.
Most people that come into the note business come from a real estate background, which myself included, but they come into thinking it’s real estate. It is not real estate. It’s much more related to finance than it is real estate. You’ve got to get your head around that. It’s a different animal.
A good metaphor would be most people know how to drive a car. You get your ID to drive a car and then you get an airplane and fly an airplane. It’s transportation. “I could fly an airplane if I could drive a car. It’s got the pedals. I got it.” However, it’s a little different, puffier, and a little more.
It’s totally doable, but it’s the same thing. You’ve got to know how to do it because it’s something different.
Turbulence or note buying is different than an air-conditioned car. I love our partnership. If somebody wants to get into the note business, what do you recommend? Are there books, courses, or seminars? Is there something they can go down to the courthouse? What’s involved in it?
I’m part of a Facebook group where it’s a bunch of us that are doing the same thing. We’ve nicknamed it The Note Underworld. It’s an unknown business and you’re not going to find a lot as far as books and things. There are a few, but my first advice to anybody is to get some training because it’s not realistic.
From somebody who’s already done it. The key is training. When I became a hypnotist, I found the guy that was one of the best in the world and I got him to train me. There are people that have been in business for 20 to 30 years that can’t even do a show remotely close to his. Learn it from the highest person you can find. Someone who’s doing it, not their opinion, but the results that they’ve had. Lots of people have great opinions and a broker than you. I like to get their opinions so I know what not to do. I go, “What is it that you do? Do this. How much do you have? I think I’ll investigate something else.” Those are great ways of learning what not to do. I would never want to even attempt to know. I’ve been in real estate for a long time. I’ve done a lot of deals and I figured out that it’s a different ball game. If you’re a real estate investor, it’s a different situation. That’s the one thing that people don’t know.
You have to get an education and it’s not going to be from me. I’ll talk your ear off about notes all day long, but I’m not going to teach you how to do it.
That would be a course and it would be worth it. Hanging out with you for one year, training where we shadow you for $100,000 and it will make them save more money than they could ever make or save on their selves by mistakes and knowing what to do. People think that not getting enough deals is a lot and the one thing is, how many deals have you done?
Do you remember the one who gave you that right mindset, Nathan?
It’s been so much fun and interesting. I’ve been doing this for years and I still am learning something all the time. There’s always something more to learn.
There’s a new market coming. We’re in 2020 and there’s a new market. I had one of my investors asked me, “What do we do? Do we buy notes? Do we wait?” I go, “Here’s what you do. You find out from Nathan what it is and we ask him if what’s his opinion.” You make your money when you buy right. It’s cheap enough at that point that you can make a decision. What happens if the market is going to go down? I know there are five things that are going to be affected by this situation. One is real estate will come down. It’s knowing when to buy, where to buy, how much to offer, and how long do you hang on when you turn the paper over? How long is your average deal?
It’s about thirteen months from the time that I purchased it to the time I turned it around.
You’re in and out approximate average because it’s always different. Here’s the other thing, the market will determine that sometimes you can be in and out in months and sometimes 24 months.
It depends on all kinds of things and many weird things had come up and courts had shut down. I had one where the court clerk quit. All of a sudden, the court is three months behind because they don’t want to have somebody that can schedule the meetings. They had to borrow somebody from another county to come and do both counties at the same time while they were looking for somebody new. It’s weird stuff when things come up and delays happen and it’s part of the game.
Let’s say you bought a note now. That is such a great deal because it’s the beginning of a seller’s market. You may choose to say, “Let me rent that out because I had to go through and rent it out for 1.5 years,” instead of making $15,000 to $20,000 on a note because you like to wholesale out. You can make $50,000 on a note, possibly double your money. Buying and timing is everything and then you get your monthly rents on it.Getting note deals is relationship-based. Click To Tweet
I’ve got a bunch like that. It will ride some through I’m sure and that’s fine. I’d rather ride it through and collect the payments and then we’ll sell it later. I’ve made that much more money because I waited and that’s okay.
It’s a great business to be in when you’re making money and learning.
It’s a lot of fun. It’s not for you and for a lot of people, but I enjoy it.
We have a buying club, you pay one fee, you get coaching, you’re buying into the coaching and because you are coached properly, that enables you to maybe if you have a deal, you wanted them to be one of the investors. That’s fine. We make sure that we get them properly coached. What I like about it is your deals don’t require $100,000, $200,000, $300,000 per transaction. They can be as low as $30,000, $35,000, $40,000 to get into a deal. If somebody is beginning as an investor, you can use your self-directed IRA and you’re not having to pay the tax and all that on it, depending on which IRA, your CPA helps you with that. They can grow their portfolio and let it roll over so fast. They don’t realize where else can you get this kind of growth? It’s a phone call. “Nathan, I want to do the deal.” Nathan calls back and goes, “We sold the deal. Here’s your profit?” What better deal is no time invested versus virtually no time invested? They do their homework and they’re getting great returns. I know our investors are happy. I talked to one and she’s like, “That is great.”
Self-directed IRAs are a fantastic vehicle for exactly this kind of investment. What makes it even greater is the regulations surrounding the self-directed IRA. It’s great because it requires time. If you want to leave it and turn it over and let’s say you’re 45 or 50 years old, you can’t access that for 10 to 15 years, let it ride. It keeps multiplying and turning over and turns into a nice retirement package for you.
The bank that you can withdraw, you can only keep adding to the deposit. You don’t have to take withdrawals. It’s a constant deposit. That’s a great bank account. You deal a lot with people that have self-directed IRAs. Those are my ideal clients.
It is nice and low risk for them and easy for me to deal with. It’s a good partnership.
I respect our partnership. I love everything about it. I’m looking to do a lot more deals with you and continue down this path of growth. I appreciate you being here. We’ve talked to people that note business is a great business provided you partnered with somebody who already has the business. There are several people out that they can look at that doing note investing from, and I recommend you check them all out and get comfortable. Some people like to buy seconds because you can buy at such a deep discount. There’s more risk involved in that so you have to know what it is. I like the first mortgages. You’re in the first position. You’re in a good place to be. In my opinion, that’s my comfort level that’s why I love teaming up with you. You’ve also read sixteen books.
I read a lot. I am reading a book called Never Split the Difference, which is a fantastic book about negotiation. I like keeping up to date and speed. I go to a lot of conferences to keep my finger on the pulse.
That’s what people don’t say. They think you sit at home and all these deals come your way and all. Nathan is getting richer because of all these deals. They have no idea about all the places that you tour. I’ve run never at your home, but I’ve run into you several times. When I’m not even in my home in California, wherever we’re at, we seem to run with each other. You are always at my events because I like to show people how to have an opportunity to build your financial portfolio. You’re one of the main guys there. In fact, you’re the only guy there that talks about how to create wealth with an opportunity other than myself. They would spank me ridiculously if you weren’t there so I have to continue to keep you there as well as I want you there as well.
One of the questions I get all the time is, “Where do you find the deals?” I could tell you, but then I have to kill you. The truth is it’s relationship-based. I am so much of this because it’s such a small community. It’s all about relationships. That face-to-face time makes a huge difference and where I get all my deals are going to conferences, talking to people, letting them know who I am if they don’t know already. I would say, “I’ve got money, let’s go. I’m ready to buy it. Let’s keep this moving.”
One day maybe they will be able to come to the event live, total transformation, to be able to see you there live. Nathan, thanks for being here again. GetYourMindSetWithMark.com, email me, let me know if you’re interested in learning more about notes. Let me know as well as anything I can help you with. Make sure you read other episodes and subscribe to be notified of other episodes. We’ve got all kinds of crazy different titles out there. We want to help you grow and get through to the next level. Please get my book, Creating the Life You Want. You read a chapter a day and the wealth will come your way. Thanks for being here. God bless you.
It is good to talk to you, Mark.