Real Estate Podcast

Episode 124: Scott Carson with The Note Closers Podcast

brrrr method david dodge discount property investor michael slane podcast real estate 101 real estate coaching real estate investing real estate investor real estate tips wholesaling wholesaling real estate Sep 22, 2022

Show Notes

In this episode, David and Mike together with Scott Carson talks about The Note Closers. Don't forget to listen to this episode.

Things that cover in this episode:

  • Who is Scott Carson?
  • The Note closer Show
  • What is Note all about
  • Performing Notes and Non Performing Notes
  • Why somebody interested to buy a Note
  • Focus is power
  • Where to buy a Notes

You can connect with Scott Carson on:

Episode Transcripts

David Dodge: Alright guys we are back! This is the discount property investor podcast and I am your host David Dodge coming to you from St. Louis, Missouri today. Today I have Scott Carson on the show, and Scott is going to educate us on a type of real estate that we don't talk about all that much on this show. Scott is with The Note Closers Show. He has a podcast as well, so let's welcome Scott to the show. Scott, how you doing, buddy? 

Scott Carson: Hey David, honored to be your guy and honored to be on here and you guys who are listening, David's doing a great job. Make sure you hit the subscribe button and leave a 5-star review while you're thinking about it. 

David Dodge: Hahaha that's right. Take that advice guys. Scott, you're the man. Well Scott, let's jump right in. What is The Note Closer Show about? And even before we get to that- Actually, let's talk about that first. Let's talk about that.

Scott Carson: So, for the last 3 and a half years, I've had the podcast called the Note Closers Show, it's focused on the niche of the stress to note investing. Your non-performing notes, I've been an expert on that niche of real estate investing for the last decade. I've actually been doing it since 2007, so for the last 13 years. I've been doing videos and webinars and stuff on this niche of real estate investing, educating the public of a largely unknown or overlooked aspect inside of real estate. Started a podcast 3 and a half years ago and we're syndicated across United States, 17 radio stations and millions of downloads and listens per month. That's kinda what it's about, we talk about little niches, a nugget each day on either what's going on in the note industry, a bit of education. I'll bring on investors in the note industry as well, talk about their journey. We bring on vendors and then we also mix in an occasional bit of a business mindset and marking along the way to help our listeners really take their businesses to the next level.

David Dodge: Nice, you guys have a a pretty good global feel for all things considered real estate but I would imagine that you're focused on the notes, so that's awesome. Let's start simple, what is a note?

Scott Carson: Everybody's in the note space so let's start with there. If you got a mortgage, a car payment, credit cards, student loan debt, medical bills, an IOU is a note, basically.

David Dodge: Ok so it's a loan, essentially. It's the paperwork that states that you owe somebody money.

Scott Carson: Exactly it's the paperwork and we focus on the niche of note investing in first liens and on residential and commercial properties. So, if you got a mortgage, that's a note and we primarily focus on is non- performing notes, whereas the borrower - the property owner, has stopped paying the bank or the lender for a variety of reasons, whether its job loss, debt, divorce, property values have dropped or something like that. We've made our bread and butter on buying distressed notes from banks in different hedge funds across the country and we make our profit by buying at a huge discount and then working out with a homeowner and some sort of exit strategy to either try to keep the property and some sort of modification or payment plan or something like that or looking to liquidate that property, a foreclosure if we have to but we sell the property short sale, a loan assumption or even- I know it's a favorite of your listeners to wholesale that note to other note investors out there too.

David Dodge: Yup, we do a lot of wholesale coaching and teaching on this podcast so that would fit in rather nicely. Very cool, very cool. So, when it comes to notes are you mostly focused on the performing side of these notes or the non-performing side? and if your new and you don't know what the difference is: a performing note is a note that the borrower is making payments on, its current. And the non-performing note would be one that they are past due or they maybe haven't made payments in a few months. So, are you focused on both, what do you guys typically like?

Scott Carson: So we like both, I spend most of my time in a non-performing space, because that's the bigger discounts, the better yields and buys so it's non-performing at 30/40 cents of the value of the property and we make our money by: A) either getting the borrower to start paying on time in some sort of fashion since we bought the note at a discount, we're the bank now so we have a lot of flexibility working with the homeowners or the borrowers to either keep them in the property or move on. As we like to say: "You no pay, you no stay". Okay? or we like to convert into performing note that we got a great yield that we can sell off either to other investors to keep for cash flow or sell back to the winning institutions on the secondary market. I tell people that you can't be in the performing and non-performing note space without being in the other field as well.

David Dodge: Okay. So, you're kind of- if you're in the space, you're typically in both.

Scott Carson: For the most part, people that like more passive returns don't want to be hands-on would be better offset in the performance-based but at some point, you're gonna have a borrower miss a payment, default if you do this long enough so you're going to need to be knowledgeable in both areas there David.

David Dodge: Got it, ok. Why would somebody be interested in buying a note? So like, for me, I've never bought a note but I have bought, you know, I bought a hundred houses last year and I've done over 400 wholesales so I buy a lot of property but I've never bought a note. So why would somebody have interest in buying a note?

Scott Carson: Well, isn’t it all about the Benjamin’s? It's all about the ROI, right?

David Dodge: That's right.

Scott Carson: Now the biggest thing I like to tell people about too, there's another term that we use instead of ROI, ROT - a return on time. I've been a wholesaler, I've been a rehabber, I was a liaison builder in Texas for a while years ago. I don't like fix'n flipping, I like cash flow that gets delivered into my bank via zeros and ones and so what I like about the note space and is attractive, is we do a lot of this without dealing with the homeowners on the front end. We're not dealing with mailing out postcards or yellow letters or door knocking or dropping marketing in dollars into that. We deal directly with the banks and that's where we get our lists from. Most people, if they're not marketing, they're hoping to get a borrower that just-borrower of some sort to reach out to him: hey I got one property I need help with. I want a bigger bang for my buck, I want a bank to reach out to me and say: hey I got some assets that you can sell, like I got a list of 77 assets yesterday, I got another list in today a 45, Two days of a hundred acids that I can cherry-pick from. And they're all non-performing and that's the nice thing in non-performing, depending on how far behind they are, we're usually gonna be looking at picking up that note somewhere between 30 and 60% of as is value. Usually at 50% or less of what's owed on the mortgage so it gives us a lot of flexibility. So I like that great returns, access to a lot more deals with a lot less marketing cost, and then it's just we got a lot of flexibility and extra ways we can go.

David Dodge: So why would a lending institution or a bank or whoever, that has the note that's selling it. Why would they be willing to discount it, you know 30 or discount it down to 30 to 60% call it half?

Scott Carson: For a couple reasons, if you depend on the state the note or the property's in, which depends on the foreclosure timeframes. A hearing in Texas- Texas is a fast foreclosure market, 21 days, I don't buy that much stuff in Texas cause by the time the bank files the notice on the fault, they can foreclose on the next 30 days, so they're going to sell a much higher premium for than, I would say, in Illinois which can take you a year to foreclose. So, a bank- also here's a big thing, the department that handles the note sales is called the secondary marketing, the special assets department not loss mitigation. Most people are used to dealing loss mitigation for short sales or trying to negotiate that's aspect of things, when we get a hot lead from a distressed borrower from postcards marketing, they're all about there to keep, to keep and keep and they'll tell you: "oh we don't sell the notes". Every bank sells their notes at some sort of fashion. Don't call me asking to buy a note from bank of America tracer, Citibank will sell notes but the 50-million-dollar pool

David Dodge: Right right.

Scott Carson: Here's the thing, a bank makes their money not on owning the property, they make their money on the money coming in, and leveraging that out and arbitraging that and rinse and repeating and leveraging that out 10,15, 50 times than what they have on deposit. So, a bank would rather when I'm contacting them in a state that has a longer foreclosure process. Realize that A) I can get 50 cents on a dollar now versus trying to work this out and then it taking another 2-3 months to foreclose and then if I foreclose and I don't sell the auction, now I got to fix it up and their costs are two to three times that it would be for you and me David. So, it's all about the velocity of capital, if they get that 50% in now, they can turn around lend that money out 5,10,15 times and recoup the cost faster and they're happier now cause they got a bad note off their books and let somebody like me come and take it over and I can deal with those headaches and make it a win-win across-the-board. Does that make sense?

David Dodge: No, that makes absolute perfect sense. Absolutely, time is very important. I love it, go ahead.

Scott Carson: You have to realize it also depends on how long. I mean, we talked about how long the foreclosure process of a bank is nine-tenths of the way to the foreclosure auction or trial whatever. They may not discount it that much cause they've done all the heavy-lifting. It just depends on what the banks has on the portfolio, what's going on with that borrower. I mean, I've bought notes for borrowers that haven't paid in 6 years and I don't know why the bank hadn't started the foreclosure process.

David Dodge: Wow, right right.

Scott Carson: It just depends on the lenders' portfolio and where they're sitting at.

David Dodge: So, it depends on where they're sitting at, they're portfolio, the state in which the property is in and then I guess, how far along in a process. You know, if they're just a couple of months late versus if you know it's already been foreclosed on or it's in the process of being foreclosed on all of these things are a factor. Very very cool, so typically when you are buying notes, what do you do with them? After you go out and you find yourself a note and I'd imagine that it's gonna depend on where in the process for what you do next, but typically, you know, what are you doing whenever you're buying a note? Fill us in.

Scott Carson: Good question David. So, I like occupied assets which is kind of different than most investors. Most of us just wanna take the property and love on it.

David Dodge: They wanna kick the guy out if not already out, they want to fix it up and they wanna flip it. That's what I do.

Scott Carson: Eughh. I'm throwing up in my mouth hahaha

David Dodge: Okay hahaha.

Scott Carson: If I'm looking at a portfolio I get in, the first thing I'm gonna do is look at the occupancy. Is it occupied or not? If it's not occupied, I'll look to see when was the last payment and figure out how long the borrowers been in the house cause it's been an occupied asset, that means it's gonna need probably a new air conditioner, some sort of internal thing, the copper goblins have showed up, the roof needs work or it's been trashed out and I don't want to do that. I want to be in the velocity here, velocity capital

David Dodge: Okay

Scott Carson: Occupied assets give me the most amount of exit strategies. It also gives me the easiest way to make money and note investing, besides wholesale on the paper, is if I can get the borrower in to start making payments again to me, I have a- in 12-months I have a reperforming asset but I got cash flow coming in. So, think about it, if I buy a note today and it's occupied and I don't like the ratios, I'm going to send a letter out immediately to the borrower in like a week after I close, trying to get the borrower to start making payments on time cause if I can start in having them make payments, Listen, I don't care what life threw at you, what drama you went through- divorce, job loss, whatever. Can you start making that existing payment? If you can't make that existing payment, can you make a modified payment of some sort?

David Dodge: So, you guys aren't calling these people and trying to negotiate? You're sending them a letter?

Scott Carson: Yeah, I mean, we have servicing companies that'll do that but a lot of times there's about a 30-day period before servicing companies will start reaching out to the borrower cause there's a whole transfer of assets from one lender to another lender.

David Dodge: So, during that period though, you guys are just sending the letters essentially?

Scott Carson: Basically, we send them a letter to see, cause we're buying a portfolio, I'll give you an example I bought 60 notes from a fund last year in a portfolio. We send a letter out in the first seven days, by day 14 I had 36 of those 60 borrowers that reached out to us: No, we wanna stay, we wanna stay in the house and they were willing to start making payments by the end of the first month. 6 months later. they would basically consider reperforming assets I bought as assets at 35% of value. I could sell those notes now somewhere else to 85%, at 85% of value without having to do any rehab cost, no legal, no taxes, stuff like that and I've got cash flow and I've got increased value side on the equity side too from the reperforming.

David Dodge: Wow

Scott Carson: If you think about it, if you bought a mortgage on a property and it was a 6% or straight, and you bought it at 50 cents and the guy started paying on time. If they just started paying on time, that's a 12% cash on cash return to you right there. Now we always like to ask the borrower to bring a little bit extra skin a game, bring in 3-4 months of back payments, I don't care where they get it from but if they now bring 4 more months to the table, that's going to boost your ROI from 12 to a 25+ return, you're gonna want it located. Now you got a great ROI the first 12 months and now you get a kicker at 12 months where you were at 50, now you're selling it at 80, it's another thirty percent profit in year one if you want to or you hold it for cash flow and just keep it coming in to retire. That's all it's all about, it's cash flow

David Dodge: Yeah, cash flow is the name of the game. I have learned that many years ago and man, cash flow is the name of the game. I love that, very cool

Scott Carson: Don't get me wrong, we have plenty of note investors that use notes as a way to find assets and markets that they're buying in and they'll take it back. They don't mind the fix up or you putting it a renter and hold it for long term for that way. That's totally great, I am a big believer that investors, when they can focus on one or maybe two lanes and niches are gonna be a lot happier cause they can streamline things, they're gonna have reduced cost cause they're doing the same thing over and over and really turn into a system versus trying to pick 30 different tools and run after and try to do 30 different things. I think the name of the game, the ones that are most successful are the ones that focus on one or two niches and stick to it and then they have their marketing down, their system down, they’re a lot happier cause they're not chasing their tail on crazy turkey shoots, you know what i mean?

David Dodge: Yup, I know exactly what you mean. Focus is power. Focus is powerful being able to focus your time and energy on one or two things like you said Scott I could not agree more. I think that's awesome. So, what am I missing? I've asked why, how, I guess maybe where? If I asked where, where are you going to buy these? Every bank is selling these, now the bigger banks are obviously gonna be selling packages or portfolios of these, but if you were me, let's try an exercise here Scott, if you were me and all of a sudden, I woke up and I said I'm going to do what Scott does out of St. Louis, Missouri. Where would you start? Would you start looking at the local banks in my area or no?

Scott Carson: I mean, you're not gonna walk into a local bank and say: hey, I wanna buy your notes cause the person or the department inside that bank may not even be in the same state. So, these internal departments, and I used to be a banker for Chase and didn't know anything about this back in 2004, okay? The departments inside the bank that control this is called, they go by a couple names: the secondary marketing department, the special assets department or the whole loan sales department. And the best thing I would do is just stay in your pajamas, pull up your computer, go over to LinkedIn and type in those names: special assets department, secondary marketing department cause LinkedIn will help you find thousands of thousands of these professionals at banks and institutions all across the country. Then I would just reach out to them individually and say: hey, what do you have on your books that you're looking to get rid of? What non-performing stuff- and you don't need to have a paid version of LinkedIn, you can do this with the free version. And that's what we've done, I mean, there's also some different websites you can go to to download lists of mortgage bankers that are originating, different funds out there they're buying and selling. There's no note MLS that lists everything, you've got to go out to these banks and lending institutions to find this stuff, but every bank got some defaulted stuff. Now if they only have a one to two default rate, they might not sell, they may just work it out in-house but there's, you mean, we're having a record number of origination that's taking place and refinances in the commune right now, but we still see about a two to three percent default rate across the country. That still leaves hundreds of thousands on newly originated refinanced loans that are in default or we still have roughly 3 million homes that are still under water from a decade ago and every part of the country, so get the list and then go from there. If you're at wholesaling, you understand the aspect of marketing, if you see a list and it's not something in your backyard, we wholesale but we'll jump on meetup groups, we'll jump on Facebook groups, real estate clubs across the country in different cities, say hey I got a non-performing note here in your back of [inaudible] and work it that way. That's what I started doing a decade ago when I was getting out the fix and flip business cause everything was hitting the skids then and kinda just get listing identifying asset, work through it, do some due diligence on it and then marketed it to people that could take it down when they I have the cash to do it and then just started evolving and the big thing when it comes to notes, is you're gonna have to use cash to fund these transactions, you're not going to go out get a loan or a hard money loan from a banker or hard money lender. You're gonna use OOPM, your own fun to take this down and notes are a great investment for IRA accounts and things like that. Does that make sense?

David Dodge: Awesome, yeah makes perfect sense. I love it, I love it. So, what is your typical time frame whenever you're buying a note to the time that you sell it off? Obviously, I know that it's gonna vary depending on the note and maybe even the location, maybe even the owner of that particular property, but is that typically the strategy that you're going for is buying them at 35 to 50 cents on the dollar trying to get them to reperform again, it sounds like you have great success doing that, and then selling those back off? Or are you buying for cash flow? Or all the above?

Scott Carson: So kinda all of the above, here's the thing, if I buy and get them reperforming, I'm gonna wanna hold on to that reperforming note for at least 366 days. I don't want to do it- I don't want to sell the note off before one-year cause then it's a short-term capital gains. All right, I wanna hold that note for least one year and a day so it's a long-term capital gains for the most part, if I end up selling it.

David Dodge: Sure.

Scott Carson: The biggest thing I tell people out there that we focus on is if a borrower, once you bought a note, if a borrower has not responded to you or the servicing company sending out a notice running in the first 60 days, start the foreclosure process if it has not been started. Get that legal aspects started and yeah you can foreclose in different states, relatively quickly. Georgia's pretty fast -30 days, Missouri is a pretty fast foreclosure state - about 90 days and so then it all depends on kind of the situation of where it's at with the house. And a lot of times, we'll sell the note by selling it at the foreclosure auction on the county, in the courthouse, or we'll end up taking it back and doing some upgrades to it, light upgrades, I don't like to do heavy rehabs anymore but we'll sometimes go that route to sell those in aria later on if we can do some value add to it, but for the most part, I prefer to hold it reperforming, if it looks like it's going to be a pain in the a** with a borrower, move it to somebody else, let somebody else deal with that headache. The building that we get, David, before we end up closing is we're looking at the loan file so we get all the origination docs, we're looking at the call history, the call logs from the servicing company, so we can tell if the borrowers tried to do a loan mod or stay in the house or tell the servicer to get the f off. You know, we get all that stuff, we always put eyes on the assets as well, with realtors and other local investors a drive-by, give us an idea of what the house looks like. If the house is listed for sale, that's a good thing we get some time to see the interior. For the most part, where to make our decision based off what we see on paper and the exterior of the property, and you can often tell a lot about the interior by looking at what's going with the loan file and by what's going on with the exterior house too. And of course, we'll do some social sleuthing on the borrowers too- Facebook, LinkedIn and see what's going on there. I was looking into buying a note, I thought to be a reperforming note but when I got on Facebook and tracked down the borrower, I saw that she posted: well, do I make my mortgage payment this month or should I go to Disney? We're going to Disney.

David Dodge: Oh wow.

Scott Carson: Yeah, then I saw another one where the borrower went through a bit of a transition. He was paying to have implants, [inaudible] choose or used his money for that versus his mortgage payments. You know, there's a lot of things that we can track down and find out on social media and the loan file to help us to make educated decisions before pulling the trigger.

David Dodge: Wow Scott, you just educated the hell out of me man. That's really cool, very very cool. So, what am I missing man? I feel like I have a pretty good grasp on this. Let's talk about some of the risks.

Scott Carson: So, here's a biggest thing we see happening with real estate investors that come over the note space, is they approach it like a traditional real estate investor versus the banking method. One thing that we don't chase, it makes it difficult for us, we don't chase notes where there's equity. So, let's say the house is worth 160 million hundred. Now that will be a very desirable thing if you're a traditional realtor or real estate investor trying to get that property with all the equity, right? With us, it works counterintuitive, the banks don't want to take that big a discount when there's a lot of equity. If you're gonna have to foreclose, the borrowers are gonna fight you for that equity. Your maximum bid for foreclosure would be what they owe, so when it's sold, you're only gonna get what you're owed, that equity sells above what's owed, that money is going to go to the borrower, not to you. So, you've got to change a little bit of a mindset when you look at things, you always always want to check title, making sure what's on title, you know, if there's liens and judgments, got to take a look into that. You wanna make sure to check taxes, make sure that the note hasn't been wiped out via tax foreclosure. You always want to try to get accurate values as best as you can and then just hire professionals, a lot of people- I wanna make these phone calls to the borrowers. I'm like - No, you don't. There's a little thing called CFPB and there's more rules regarding debt and in the lending industry and so you need to let your third-party vendors handle those conversations for the most part, they're licensed in that, they've gone through classes. Everything's a little bit different when it comes to the licensing part. Some states you need a license to be a broker, banker. Most states, as long as you got a servicing company that's licensed in that state, it will solve that issue. But you gotta be a little bit more diligent when you're looking at the paper. Engineers sometimes will have a hard time with the note space cause it could go a variety of different ways, kind of a choose your own adventure kind of exit strategies of the borrower you work with or they don't work with you versus a specific: I'm buying the property, I can fix it and go this route. So that's the thing, it's a little bit different with each deal. Some deals, you think are gonna be straight up modifications or reinstatements and it turns into being a drawn-out foreclosure. Other times you think they’re going to be a foreclosure but suddenly the borrower shows up and brings 10 grand to the table to reinstate the loan. It's a different type of strategy, the good ol' thing is that it's worth 6 to 12 months ahead of where most people see deals at cause we're way up the food chain, close and direct to the source and that's a thing that we like. It's creative and I like doing this from where I'm at. You don't have to be in your backyard or anything, as long as you got internet and a good connection, you can be a note investor.

David Dodge: That's really cool cause in my business now, there are lots of people out there, they are virtually wholesaling houses. I like to do it in my own market cause I can get my eyes on those houses. I personally like going to the properties and meeting the people and walking through them, you never know what you're going to find in those properties. I'm a people person so me sitting at home versus being out in the field, y'know I just- I choose the latter in that scenario. So, I do it all locally but I love how you guys aren't locked down or you know, limited to just your neighborhood or your county or your city, you can do this all over. Are you in all 50 states or are there certain states that you avoid?

Scott Carson: So, don't buy in New York and New Jersey cause it takes- In New York, it'll take you like 36 months before close and you hire an attorney to talk to an attorney to have an attorney, okay.

David Dodge: haha haha haha

Illinois is great except for Chicago and Crook County. Chi-raq is a place that's very difficult to foreclose on, it's very corrupt when it comes to legal, it'll take you 12-18 months till the fore closed and in Chicago; other parts of Illinois are great. Other than that, we don't see a lot of stuff on the west coast that makes sense cause it just overpriced, I mean, California, the land of fruit and nuts and with the droughts, you just got nuts out there now. So, they sell stuff at ridiculous pricing so it doesn't make sense. We're buying a lot in, if you're a football fan, the big ten south east conference parts of the country, the ACC, I like Ohio, I like Michigan. We're getting some really great bang for our buck up in those states. I love Missouri. I've bought stuff in St. Louis and Kansas City and Columbia and that neck of the woods.

David Dodge: Now Kansas City, Missouri side or Kansas City-

Scott Carson:  Missouri

David Dodge: That was a joke hahaha

Scott Carson: I know it's a joke, it's a different story though but like -

David Dodge: There is a Kansas City in the Kansas side. It's on the river, it's on the border guys if you're not aware. It's just like 90% of it is on the Missouri side.

Scott Carson:  Yeah, but Kansas has a longer foreclosure timeframe than Missouri

David Dodge: Oh wow, okay

Scott Carson:  Florida has been great. I was buying in Florida 10 years ago when I wasn't running away from it, I was buying condos for 5 grand, taking 12-18 months to foreclose cause the investors were international and were selling them for 60,70 grand foreclosure options. You know, the thing is, we've had such a great up appreciation, the market recover. It is time for the market to change at some point. Everybody says it's gonna be this year, some say it'll be after the elections. We're due for a market correction.

David Dodge: That's right, we absolutely are.

Scott Carson:  Yup

David Dodge: So that is my next question, Scott. Is there a way for you to kinda see it coming because I would think, I didn't mean to interrupt you, I apologize, but I would think that if you were in this business, maybe you were in 2005 6 and 7. You would see that there was a lot more and more people getting foreclosed on or a lot more of these notes for sale, are you starting to see that trend again or no?

Scott Carson:  So, in five, six, seven, and eight, I was a mortgage banker. I bought notes, owner financing, wrap around stuff like that, little bit in the non-performing commercial side. But I'm seeing, like my spider sense is going off right now cause back then we were seeing not y'know, subprime mortgages. We're seeing your 5'1 7'1 arms

David Dodge: Yeah, stated income loans

Scott Carson:  Anything come a hundred percent financing or zero down payments or just ridiculous stuff that just didn't make sense, people had to bid me to get a house.

David Dodge: Ridiculous right?

Scott Carson:  We're seeing that same stuff repeat again, arms have been back for a couple years, lenders are doing a hundred percent financing

David Dodge: I saw some of that in the news just the other day about how the hundred percent loans are back and it's like crazy. I just don't get it.

Scott Carson:  Yeah, there's lenders doing a hundred percent financing or giving loans to people with 520 in every state in the country right now. I had a phone call with a mortgage banker, one of the big shots of the Bank of America a couple days ago and asked him about his program. He's like: Oh, we're just killing it right now. We're donating the down payment and we're contributing 7500 dollars towards closing costs. I'm like: oh, what is this? are you requiring 20% down? He was like: no, we're hundred percent financing, first-time home buyers. I'm like: You're telling me people are getting their house without any savings, hundred percent financing- on new builds too? He's like: Oh yeah newbuilds. So, what happens when the tax gets adjusted and the person looks at their budget and they can't afford it anymore because they can't pay the taxes now? now that is gonna go to foreclosure, they have no skin in the game. No incentive to stay in the houses, we're going to see maybe not quite as catastrophic as it was a decade ago, where we had 15 million homeowners underwater in 2010 but we're definitely gonna see something happen again, sooner than later, again. I see the signs, I talk, I track foreclosure rates in cities and states and see things, I see not taking some things. I mean, here's a disturbing thing for you David, 1 in 10 Americans is already a month behind on a mortgage

David Dodge: Already?

Scott Carson: Already.

David Dodge: One in ten?

Scott Carson: One in ten, yes.

David Dodge: What? and that's a nationwide statistic?

Scott Carson: The nationwide statistic, yup.

David Dodge: Holy cow! That's scary, Scott.

Scott Carson: Yup it's going to scare a lot of people here

David Dodge: Hahahaha. Holy cow!

Scott Carson: I would be saying, holy shit, I'm sorry, holy shit

David Dodge: Yeah no. Holy shit, I'm all for it. So, Scott, is that a new trend or is has it been that way for the last 30 years? Like, where do we stand on that stat in terms of the history. Is that alarming right now or is that normal?

Scott Carson: No no no, it's an alarming stat. We hadn't start seeing that number until right before everything happened 10 years ago. Here's another disturbing thing for you, in 2008 and 9, the banks were leveraging every dollar they had in 15 to 1. So, for every dollar they had in, they were lending it out 15 times. That numbers now more likely 50-55 to 1 is how much they've leveraged money out. So if you've ever watched the big short or read the book.

David Dodge: I loved that movie, I've seen it 10 times.

Scott Carson: You're going to see things. You're gonna see banks going out of business again. It's like the RTC days that happened in the eighties, the same as the scandals. You have 10-15 years of growth. Their selling out these credit swaps again like that led to a big downfall in 2008 and 9 like they did in the big short. We're already starting to see those being repackaged on Wall Street again. Wall Street's getting greedy, we're seeing increased defaults. Yeah, supposedly the commies doing great but there's a lot of people struggling to get by right now.

David Dodge: Yeah, one in ten it seems like. Now you said one in ten are-

Scott Carson: Already at least 30 days behind.

David Dodge: Oh man, that's crazy. Holy cow. So, is there a lot of people that get behind and then get caught back up and that's like a- that's kinda like a back and forth, like a swing or is it typically when someone gets behind, it ends up- Well, I guess it kinda varies obviously but what the- go ahead

Scott Carson: You gotta realize that- Here's the thing, here's another statistic that'll scare you: 85% of people are one missed paycheck away from being, you know, in trouble and that happens when you have people that are used to trying- they look at overtime as being their base salary and then you look at all the retail companies going out of business. You see all these other companies that are laying off. You see all these lower- People that can't afford to live in parts of the country anymore because it's getting too expensive there and they can't afford to pay for it to keep up with the joneses. They gotta look at either paying for power or paying to live.

David Dodge: Right

Scott Carson: Okay so all these factors of growth, I mean, we see that here in Austin, home affordability is a big issue and lot of places across United States and the more you see that, the bigger divide happens. Yeah, you see people behind by 30 days, they'll make up a double payment. Or they bought toys with their income, now their selling the toys off to pay for the mortgage. I used to joke that we were in a garage sale economy over a decade ago and we're starting to see more and more of that. Track your garage sale notices and you'll see an increase in that and that's usually a sign that people are trying to sell off where they can to make the payment to survive.

David Dodge: Interesting, wow that is crazy. One in ten people are late on their mortgage currently and eighty five percent of people are one paycheck away from disaster. I believe the second quote- I mean, I believe both of them obviously but I know a lot of people live check to check. The majority of people, 85% is the stat I guess. But I had no idea that 1 in 10 people in America are actually already 30 days late on their mortgage. Wow that's crazy, unbelievable.

Scott Carson: Yeah, nobody talks about that but you can track that stuff, we pull stats from originations and defaults and talking to the banks and stuff like that on a regular basis. It's gonna be more so that middle class, the lower class are gonna feel the biggest hit

David Dodge: Oh, of course yeah yeah. Absolutely. So, one last question before we wrap up Scott, you know, in terms of the fact that the markets are cyclical and you going to have ups, you're going to have downs. We haven't had a down, you know, like a correction or a significant dip in over 10 years now and I know that you don't have a genie in a bottle by any means but are you thinking that we're gonna have one of- something along these lines in the next six months or are you foreseeing this more like you know maybe one or two years out?

Scott Carson: I'm gonna say it's in this year, I'm reseeing things in some parts of the country, dragging on in places so it’s not gonna be quite as crazy as it was before but I see things this year taking place.

David Dodge: This year? I tend to agree with you and that's why I asked as I like to ask some of the tough questions you know and I feel like I'm in that same ballpark with you. I feel like it's sooner than later, I really do and right now working with my business partners to pay off a lot of our line of credit debt in debts that could essentially be called due whenever, you know, shit does hit the fan. And we're working diligently to put ourself in a situation or a position that whenever we do have, you know, that day that comes that banks stop lending and everything else that were positioned you know rather well.

Scott Carson:  Yeah, here's the big thing, if you got properties with a ton of equity, I would go and get them refinanced. I would pull some cash out cause that cash ain't gonna do you any good sitting there, when you can bring it in and lend it out. Make 8-12% keep it if you can, we're still very lucky that we got low interest rates out there. I'm not saying refinance at a hundred percent but if you can refinance out up to 65, 70, 75% I think you'll still be good if we see a downturn. You want to make sure that your property's cash flowing at several hundred bucks a month not a 100 or 200 cause if you gotta adjust to reduce your rent.

David Dodge: Yeah yeah, we shoot for 275 at a minimum. About 300 bucks

Scott Carson: Exactly, yup. 250, 300 and positive cash flow above PITI and everything else that goes along with that, that's the important thing. Reduce your expenses or wherever you can, yeah that's the biggest thing try to have as lean an organization, as lean a lifestyle possible. Not saying not go out and eat but I think we all can do good by looking back at our expenses every 6 to 12 months and getting rid of things that we signed up for, y'know, sock away. I mean put money in your IRA's, put money away and save it for a rainy day cause you want to have cash when things do go south. You can really capitalize and buy two, three, four properties versus what you pay for one.

David Dodge: Totally agree. Well Scott, how can I direct some traffic your way? We have quite a few listeners and if they are interested in learning more about you, obviously go check out The Note Closers Show. That's a podcast guys, it's also syndicated out to several radio stations across the country. So, if you are not aware or haven't checked it out yet, check out The Note Closers Show. But Scott, how could people connect with you directly? What's the best way?

Scott Carson: The easiest way is to just get on our website: that handles all our events or training, the podcast. You can always go there and then we've also- if you want to learn more about note investing, I wrote a book that I'm glad to give away to anybody that's interested, free. I mean, you pay 19.99 amazon if you want but just shoot me an email at [email protected], I'll be glad to email you a copy of my book, no questions asked but it's a really good kind of intro to note investing to kinda dive in and get your feet wet a little bit there in understanding a lot of the terms. There's people out there over compliment- complicated talk above your heads, I'm like a normal- hey give me the layman's terms and that's how I wrote my book to help people understand about note investing, what it is and what's it all about.

David Dodge: Give me that website one more time

Scott Carson:

David Dodge: Guys it doesn't get any simpler than that. Reach out to Scott if you want a free copy of his book and Scott thanks for offering that to our audience, much appreciated or go check him out on his website at, did I get that right?

Scott Carson: You got it perfect David.

David Dodge: and Scott has training and live events and all other types of goodies for you guys at that URL. Again, that is Scott thank you so much for coming on the discount property investor podcast today, it has been an absolute pleasure. I learned a lot, I'm confident that our audience did. We're gonna have to have you back in a couple of months and do this again. Any parting words for the audience Scott?

Scott Carson: Well, I don't care what avenue of real estate you're in. Take action, do something, the only thing that you guarantee by not taking action is failure.

David Dodge: Love it. Absolutely love it. Guys don't forget, you make your money when you buy, you get paid when you sell. So, if you are buying properties retail you are losing. We teach you how to buy these properties at a discount don't forget check out our free course at Scott, thanks again for coming on the show, we are signing off. Guys until next time, we will see you then. Thanks again.

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