Posted on: May 27, 2022
WI 960 | Note Investing

 

In this episode, Brent Bowers and special guest Jamie Bateman discuss some of the different loans and purposes in the real estate industry. You’ll even get some great examples for finding loans and using them to your advantage.

Key Takeaways

  • What life is like as a note investor
  • Designing an exit strategy
  • How to claim your equity

Visit https://www.wholesalinginc.com/ to get started wholesaling.

Note Investing And Loan Strategies Ft. Jamie Bateman

Episode Transcription

Do you have pride in your work as a professional or an American, but do you feel like you lack control or you’re limited in your time? You’re waking up every single day and doing something you don’t feel like doing, or do you feel like you’re running on someone else’s treadmill with someone else’s agenda and not your own? I have the solution. The solution is you invest in land.

If you own American land, you can experience the freedom, financial freedom, time freedom and geographical freedom to do things on your terms. Join me on my show where each episode, we learn how to invest and make money on American land as a real estate investor so you can enjoy the freedom that you want and deserve.

I have an amazing guest. His name is Jamie Bateman. I was on his Labrador Lending Podcast and Good Deeds Podcast. He approached me to buy some of my land notes and started educating me on how I needed to start adjusting my notes. Note investors want to buy these things. It’s quite lucrative to sell your notes to investors that buy notes. Mine are all performing, so I’m going to get paid a little bit more but I enjoyed this episode with Jamie.

He’s a real estate investor. He’s got 9 rentals in Maryland and 2 rentals in Florida. He buys notes. He’s been educating me on how to create a note when I sell a piece of land to someone that a note investor would want to buy. Not that I plan to sell these notes but there could be a change one day where I might want to sell all 100-plus of my notes and invest in an even larger parcel of land or a big development. I hope you enjoy this episode and it educates you on the note process. Enjoy.

Mr. Jamie Bateman, how are you?

I’m doing great, Brent. How are you doing?

I’m doing well. I wanted to have you on here. We have so many things in common. You own rentals in Florida in the state that I’m standing in. You were an Army officer and have a very unique side of the note industry. I create notes as a land investor, buy properties at a massive discount and turn around and sell these parcels of land to people on payments, whether it’d be through a deed of trust and a promissory note or a contract for deed, which some note buyers will not even buy a contract for deeds.

I’m super happy to have met you because you’re educating me on professional note buyers like yourself. You got so many things you’ve got going on that I want to talk about but you’re educating me on the buy box of note investors to where I could sell all my notes. With some of my notes, I look back and I’m like, “I should have set that up differently to sell one day. Maybe a second exit strategy,” but I wasn’t thinking about that until I met you and your partner a while back ago. I want to know why did Jamie Bateman get involved in notes, rentals and all the stuff you talked about and how this all began.

There are many layers to that onion. Like a lot of people, I had a full-time job, a family, commuting and all that stuff so the 9:00 to 5:00 got old. My wife and I have had one rental for several years. Prior to that, both of us spent some time working professionally in title companies. I worked as a settlement officer, closing agent and funding manager at a title company and then I worked as a mortgage broker. I only say that to say there’s some background there.

At that point, I realized how little I knew about real estate and title insurance. I had no idea what title insurance was at that time. We don’t learn about any of this stuff in school, unfortunately. I learned a good bit there but I was exposed to investors and different things. Fast forward, I did the 9:00 to 5:00 and worked for the Department of Defense, which was a natural progression from the Army. It’s Groundhog Day. I drive in, go sit at a desk, do my job and get back in my car. As much as I enjoyed my co-workers, it was depressing like there were no future, hope or growth.

I started using that commute time to listen to podcasts like BiggerPockets and read a lot of books. It was a mental shift in about 2014 or 2015 when I said, “I don’t need this to be my future. I don’t have to admit defeat here. There is another way.” I started looking around to who was on my team and what are my strengths. My brother was a loan officer. My father has been a real estate agent forever. I worked at a title company and a mortgage company. The mindset changed as opposed to the woe is me thing.

I started to make a mindset shift at that point. In 2015, I went part-time at my job. That’s when we started taking action as far as the local rental properties and started getting into the BRRRR Method and all that stuff. I built out the rental portfolio. In 2018, I started getting heavily into mortgage note investing while continuing to grow the rental portfolio. Most of my time is spent in note investing but our rental portfolio is a critical piece of the big picture.

You can be a note investor from anywhere as long as you have a laptop and a phone.

Why notes? For rentals, a lot of us can wrap our heads around. I understand the depressing Groundhog Day of being in the military. I’m very similar to that but what was it about the notes?

Several things drew me to notes. One is you can do it from anywhere. For a while there, I felt tied to our rentals geographically but you can be a note investor from anywhere as long as you have a laptop and a phone. That was one thing. Also, the ability to scale. When I say do it from anywhere and be able to scale, those are related. From my home in Maryland, I can invest in New York, Texas or anywhere across the country.

That’s true for hard real estate as well but it’s a little bit easier with notes. Most of the time you don’t go visit the property when you’re buying a note. That geographic location independence was a big draw and then the ability to scale and do this from home. I got a little bored with the rentals to tell you the truth. I’m not a shiny object guy.

We did the rentals for a while and they’re all essentially the same type of building, basic tenant profile and rehab. I was like, “I got it.” This was a new challenge as well. We can go into depth on the pros and cons of notes versus real estate. Everything has pros and cons. Notes are not perfect but you can buy notes at a discount like you buy your land at a discount. You can buy non-performing notes at a steep discount and that allows for the opportunity for a good profit margin.

For the readers, I’m going to give my layman terms of a note but please fill in anything I left off. I once heard a great quote, “I create notes so that people have to go to work so that they pay me each month for these notes.” For those readers who are like, “What in the world is a note?” Let’s say, I sell a piece of land or a house and I’m willing to carry the financing. I’m going to let you make payments to me. It could be facilitated through a deed of trust and a promissory note but it’s a promise to pay for a certain amount of time at a certain interest rate at a certain payment.

A note that is a promise to pay is a loan. The note itself is a physical document. That spells out the terms of the payment plan of the loan. We buy performing and non-performing notes on property. We buy mortgage notes.

What is a non-performing note and a performing note?

A non-performing note is where the borrower is not making payments. I’m sure most of your readers can identify with being a borrower. Meaning, they’ve taken out a loan to buy a car or a house. As the note buyer, all I’m doing is I’m stepping into the bank’s shoes or that lender’s shoes in the seller finance world that you referred to. I’m becoming the bank in a sense. I’m owed those payments.

WI 960 | Note Investing

Note Investing: A note is a promise to pay. It’s literally a loan.

 

Let me get back up and give you a real quick analogy. Performing notes is much like a buy-and-hold rental property. You buy a performing note for cashflow purposes. You can still buy it at a discount. With a $100,000 principal balance on the note, I might be able to buy that for $90,000, $85,000 performing. I’m going to get payments over time and that’s like a buy and hold rental property. It’s a cashflow play to keep the lights on and make some money every month.

No one’s calling their bank when their septic system fails, the foundation cracks or the roof’s leaking like one of the houses.

Is note investing passive? It can be. One of the more passive ways to do it is to buy a performing note where you’re collecting payments. A lot of people will do this in their self-directed IRA or something like that where they collect the payments. There’s not a ton of work when it comes to that. You’re right. There are no tenants, toilets or trash. I’m dealing with the paper. That was appealing to me as well. A performing note is like a buy-and-hold rental property but maybe even a little more passive.

On the flip side, pun intended, a non-performing note is like a fix and flip. I’m sure most of your readers are familiar with the fix and flip. You buy a distressed property, fix it up and resell it. That may take 6 months or 1 year. Who knows? A non-performing loan is very much the same. It may take a little longer. It may take 18 months or 24 months but you’re buying that discounted note where the borrower is not making payments but they’re still required to make those payments legally. That’s the distress and that’s where there’s a value-add opportunity like a fix and flip property.

There are twenty podcast episodes on how you approach a non-performing loan and add value to it but at the end of the day, you’re exiting through the property or the borrower and I’m making a profit, hopefully, on a non-performing note. On a performing note, there’s not a lot of room for me to add value. It’s a cashflow play. I’m collecting monthly payments. On a non-performing note, I need to figure out how to add value and exit through that deal, sell that some way or the other and make a profit. That’s more like a fix and flip on a property.

Some cases could be a home run. What percent of the note do you purchase a non-performing note?

It depends a lot but I’ll say 50% to 60% of the principal balance is a general rule of thumb.

The real estate market has appreciated like crazy over the last couple of years. If someone has had this for a few years, you’re potentially getting a property at less than $0.50 on a dollar that you’ve got to go in and add value to fix and flip.

Most of the time, you don’t go visit the property when you’re buying a note. The geographic location independence is a big draw.

One misconception is that borrowers will walk away from equity. The reality is you’re only owed what you’re owed. Quick basic example with numbers, $100,000 principal balance on this loan that the borrower owes, I buy it for $50,000. The property is worth $150,000. I’m only owed $100,000 and then the payoff is maybe $105,000 or something but that’s the semantics. That equity that’s there between $100,000 and $150,000 is not mine.

Most borrowers will either file bankruptcy or sell the property and pay off the loan. They’re typically not going to hand you a $50,000 in equity but to your point, it makes this a safer investment as real estate values go up and up. That’s the collateral. That was another huge reason I wanted to get into notes as opposed to Wall Street and things like that because there’s collateral with notes. There’s a property this backing up. You have a backup plan which is to take that property if need be.

Here’s an example. I have a note on a property in Florida, a piece of land. I sold it for $159,000. The note owed is $129,000. He’s paid it for almost two years. Long story short, he passed away. His sister is going through probate to take ownership of this property. They’ve already got a realtor ready to go to list it for $354,000. I am not worried about getting paid off $129,000 because the property is worth well over that. Not at retail but the amount he paid me a couple of years ago, I offered to buy it back.

I imagine it was a good deal for you. That’s awesome. Some people think, “That’s why they get into notes because they think they’re going to run away with this equity from this borrower.” That’s the safety net. We look for deals with equity. It does depend on the type of loan. I’m closing on one in a couple of days which is a reverse mortgage. There’s no equity and that’s a whole different beast.

When you’re pricing non-performing loans, you need to look at potential. You don’t know how it’s going to go, how the borrower is going to respond or how things are going to play out but you have multiple exit strategies and options. Another great thing about notes, in general, is you should be able to make money no matter what happens. Nothing is guaranteed but you do have options and you price that accordingly when you’re bidding.

Let’s shift it over a little bit. Let’s talk about Labrador Lending, as well as your 506(c) that you’ve got going on. Can you touch on those?

Labrador Lending is our brand name and I do own some notes within Labrador Lending but we have two funds. One is a non-performing note fund that’s closed to the capital raise. We’re actively managing those assets. The other fund is launching on June 1st of 2022. That is the integrity income fund and for accredited investors only. For the most part, people end up deciding whether they want to be active investors or passive investors and that’s true for notes, land and rentals.

Is it black and white? No, but in general, a lot of people think they want to be active investors and find out that there’s a lot more work involved than they realize. They say, “I’ve got some money. Why don’t you take it and manage the assets?” We go out and raise capital from accredited investors through Regulation D 506(c) and that’s the integrity income fund. The target is to pay an 8% or 8.5% monthly payment to the passive investor.

WI 960 | Note Investing

Note Investing: A performing note is like a buy-and-hold rental property. A non-performing note is like a fix-and-flip where you buy a distressed property, fix it up, and resell it.

 

This is a cashflow fund so more of a performing note fund. There’s a lot of craziness in the stock market and the economy. This is meant to bring some stability to people’s life. Is it guaranteed to produce results? Nothing is guaranteed but there’s collateral with this asset. The other nice thing about our fund is this is either a performing loan where it was non-performing and now it’s re-performing.

Something has been worked out with the borrower already like a modification or something or we can buy a non-farming loan and work that out with the borrower. With this fund, our target is not to foreclose or keep people out of their homes but our goal is to work with the borrowers and come to a mutual solution that’s beneficial for all parties, including the passive investors in the fund.

How can people find out more about you? I want you to mention your podcast that you got going on as well. How can people get more information?

I appreciate that. I was a part of the Good Deeds Note Investing Podcast. We’re doing some pivoting there. If you’re interested in note investing, I do think it’s the best one out there, frankly. Chris Seveney, my business partner, started the Good Deeds Note Investing Podcast and that’s been around for several years.

I launched a brand-new podcast that you were on that’s called From Adversity to Abundance. I’m excited about the approach that we’re taking in that. We’re getting to the human element and to the fact that everyone, every investor and every business owner deals with adversity. The podcast is focused on people’s adversity, overcoming that adversity and getting to a mindset of abundance and a lifestyle of abundance that takes on many different forms.

With your episode, we’ve touched on your divorce, some financial hardships you’ve been through and how you were able to overcome all of that. I’m excited about the podcast. I have several episodes out. If people can check that out, I’d love it. LabradorLending.com is our website and my email address is BatemanJames@LabradorLending.com.

If you’re reading this thinking, “I want to more about this. Uncle Bob needs to hear more about this,” please share this episode. Also, if you haven’t done so already, please give us a five-star review and rating that way we get the algorithms to love us and more people read this episode. We can help and reach more people. If you’re interested in getting started in real estate, check out LabradorLending.com.

If you’re interested in getting started in real estate, you want to see if the land is a good fit for you or you’re interested in this show, head on over to WholesalingInc.com/Land and schedule a call with my team. We’ll see what your real estate investing goals are. If you feel like we’re a great fit, I’d be honored to coach you. Jamie, thank you so much for jumping on, spending this time with me and educating me as well as our audience on notes and everything you’ve got going on.

Thanks a lot, Brent. I appreciate it. Hopefully, we added some value.

 

Important Links

 

About Brent Bowers

WI 895 | Land InvestingBrent Bowers, is an investor and coach with a focus on buying and selling vacant land. As an Army Officer with over 8 years of service, Brent was spending a great deal of time away from his family, and he knew he needed to make some changes in order to be more present with his wife and children. In a short period of time, Brent was able to expand his business, hire a team, and (most importantly) spend quality time with his family while still working hard and helping others.

While Brent invests in many different types of real estate, his favorite investment strategy deals with buying and selling vacant land, and he enjoys sharing his expertise in this area with his coaching clients. Brent chooses to live his life based on Bob Burg’s quote, “Your influence is determined by how abundantly you place other people’s interests first.” He is passionate about helping other people find success in real estate investing, particularly inland investments

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