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Unlocking the Secrets of Non-Performing Notes: Insights from Scott Carson

Welcome to today’s blog post, where we’re diving deep into the intriguing world of non-performing notes with expert Scott Carson. Scott is the CEO and founder of WeCloseNotes.com, with extensive experience in the mortgage business since the early 2000s. He specializes in non-performing notes and has built a reputation for his innovative strategies. Let’s explore what non-performing notes are, their advantages, and how you can get started in this lucrative investment niche.

Scott Carson’s Background and Expertise

Scott Carson isn’t a newcomer to the mortgage game. He’s been in the industry since the early 2000s, starting as the Vice President at JP Mortgage. He later founded WeCloseNotes.com, a platform dedicated to helping investors buy non-performing notes. Scott’s journey from managing mortgages to specializing in notes has given him unique insights that he generously shares through podcasts, webinars, and live events.

Introduction to Non-Performing Notes

So, what exactly are non-performing notes? These are mortgages where the borrower has stopped making payments on time, typically for 90 days or more. The average timeframe for these notes is around two years of missed payments. While it may sound risky, Scott explains that there are significant advantages to investing in these types of loans.

Advantages of Buying Non-Performing Notes

One of the biggest perks of buying non-performing notes is the substantial discount you can get. These notes are often purchased at less than 50% of their as-is value directly from banks and hedge funds. This deep discount provides a buffer and allows for creative strategies to turn these bad debts into performing assets or other profitable outcomes.

Buying at Substantial Discounts

When you buy non-performing notes, you’re usually dealing with properties where the banks are eager to offload the debt. Scott mentions buying these debts for less than 50% of the property’s as-is value, making it a financially attractive option for savvy investors.

Flexibility in Strategies

One major advantage is the flexibility to employ various strategies. Scott likes to buy occupied assets because the borrower still has emotional equity in the property. This emotional stake can make it easier to negotiate win-win solutions.

Strategies for Non-Performing Notes

Turning a non-performing note into a profitable venture involves several strategies. Scott emphasizes rehabbing the borrower, offering cash for keys, negotiating short sales, or in some cases, moving forward with foreclosure.

Rehabbing the Borrower

Rehabbing the borrower means helping them get back on their feet and start making payments again. Scott offers various solutions like debt forgiveness or adjusting interest rates to make it easier for the borrower to stay in their home. This approach not only benefits the borrower but also boosts the note’s value.

Cash for Keys

Another effective strategy is offering cash for keys. By paying the borrower to vacate the property, you can avoid lengthy foreclosure processes. This saves time and money, making it a preferred option for both parties.

Short Sale

A short sale is another powerful tool. Because investors buy the debt at a significant discount, they have the flexibility to negotiate favorable terms that work for everyone involved.

Foreclosure

If all else fails, foreclosure might be the only option. While not ideal, it allows investors to take control of the property and decide the next steps, whether it’s selling or reinvesting.

Evaluating Potential Deals

Before diving into a deal, it’s crucial to evaluate it carefully. Scott advises looking for notes where the purchase price is under 50% of the unpaid principal balance. Also, consider the loan-to-value ratio, aiming for a note purchase price that’s less than half the property’s current value.

Discount from Unpaid Balance

Scott stresses that the larger the discount from the unpaid balance, the better the deal. This gives you more room to maneuver and increases your chances of turning a profit.

Loan-to-Value Ratio

A favorable loan-to-value ratio means you’re buying the debt at a price that’s significantly lower than the property’s market value. This lowers your risk and increases potential returns.

Commercial Non-Performing Notes

Scott doesn’t limit his expertise to residential properties; he also has strategies for commercial non-performing notes. One powerful tool in commercial deals is the right to take over rents immediately, which can make a significant impact on the investment’s profitability.

Right to Take Over Rents

In commercial deals, the bank (or note holder) can immediately start collecting rents once the borrower defaults. This shift in income can motivate borrowers to work out a deal, as it impacts their cash flow directly.

Similar Strategies to Residential

Many strategies used in residential notes apply to commercial ones too. Rehabbing tenants, negotiating master lease agreements, or moving forward with foreclosure and selling the REO (real estate owned) can all be effective.

Getting Started in Note Investing

For those new to note investing, education is key. Scott emphasizes understanding the unique terminology and processes. Building relationships with asset managers and consistent marketing efforts are also crucial.

Importance of Education

Note investing is different from traditional real estate. Understanding the terminology, procedures, and strategies is essential for success. Scott recommends getting educated through webinars, courses, and hands-on experience.

Building Relationships with Asset Managers

Connecting with asset managers can open doors to lucrative deals. Scott suggests using platforms like LinkedIn, LaneGuide, and ScottsmansGuide to find and engage with these professionals.

Consistent Marketing Efforts

Scott also highlights the importance of consistent marketing efforts. Whether it’s email blasts, video marketing, or leveraging social media, persistence is key. Most sales happen after multiple touches, so don’t give up after the first try.

Raising Capital for Note Deals

Financing your note investments can be a challenge but Scott has some tips. Leveraging self-directed IRAs, finding private money partners, and doing thorough due diligence can help you secure the necessary funds.

Self-Directed IRAs

Using self-directed IRAs can be a smart way to invest in notes. These accounts offer flexibility and potential tax benefits, making them an attractive option for many investors.

Private Money Partners

Partnering with private money investors who are looking for passive income opportunities can also provide the capital you need. Clear communication about the risks and rewards is essential to attract and retain these partners.

Due Diligence and Underwriting

Thorough due diligence and effective underwriting are crucial. Understand the property’s value, the borrower’s financial situation, and other key factors before making an investment.

Leveraging Technology and Social Media

Scott is a big advocate of using technology and social media to expand your reach and attract opportunities. Video marketing and platforms like LinkedIn can be especially effective.

Video Marketing

Platforms like YouTube, Facebook Live, and even LinkedIn are invaluable for reaching a broader audience. Videos can help explain complex concepts and build trust with potential partners and clients.

LinkedIn for Business Networking

LinkedIn isn’t just for job hunting. It’s a powerful tool for networking, especially for connecting with asset managers and other professionals in the industry.

Repurposing Content Across Platforms

One smart strategy is to repurpose your content across multiple platforms. A single piece of content can be adapted for Facebook, Instagram, YouTube, and LinkedIn, maximizing its reach and impact.

Lessons Learned and Advice

Scott’s experience has taught him several valuable lessons. Making more offers early on, diversifying across multiple assets, and continuously educating yourself and adapting your strategies are key takeaways.

Make More Offers Early On

Don’t be afraid to make offers. The more offers you make, the higher your chances of landing good deals. Scott advises against getting stuck in analysis paralysis.

Diversify Across Multiple Assets

Diversifying your investments can mitigate risks. Spread your investments across different types of notes and properties to create a more stable portfolio.

Continuously Educate and Adapt Strategies

The real estate market is always changing. Keep educating yourself and be willing to adapt your strategies based on new information and market conditions.

Resources and Connections

For those interested in diving deeper, Scott offers several resources. Visit WeCloseNotes.com for educational materials, check out the podcast “The Note Closers Show,” and keep an eye out for Scott’s upcoming book “Long Tails,” which features case studies from various note investors. Feel free to reach out to Scott directly for guidance.

Wrap-Up

Diving into the world of non-performing notes can be a game-changer for investors looking to explore new opportunities in real estate. With insights from Scott Carson, we’ve uncovered the potential benefits and strategies for turning these challenging assets into profitable ventures. From substantial discounts and flexible strategies to leveraging technology and continuous education, the key to success lies in understanding the nuances of the market and being adaptable. 

Whether you’re a seasoned investor or just starting, Scott’s expertise offers a roadmap to navigate the complexities of non-performing notes. Stay informed, make connections, and keep learning to unlock the full potential of this lucrative investment niche.

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