Bob Fraser has 20+ years’ experience as a finance and technology executive and is a Magna Cum Laude U.C. Berkeley computer scientist and a former Entrepreneur of the Year Award winner. In 2012 Bob co-founded Aspen Funds, a fund management company focused on mortgage investments in order to take advantage of a unique opportunity in residential real estate notes. Experiencing the volatility of the stock market, and seeing investors take large losses in their portfolios, Bob and his co-founder Jim Maffuccio were determined to design an investment fund that would provide alternatives to the stock market with excellent investor returns, but without the volatility of traditional investment options.
In this episode, Jack Bosch and Bob Fraser discusses notes – and specifically relate this to the seller financing model that many land flippers use to generate monthly cash flow. There are a few potential pitfalls that you can run into if you’re not prepared and Bob runs down all of them, in order for you to be able to make wise investments. You’ll discover how Bob Fraser thinks about investing and where he believes you need to spend money and effort in order to get amazing returns without any hassles.
Listen and enjoy:
Discover what notes are and why you should invest in them
- Get tips and tricks for optimizing your seller financing deals
- Learn how Bob Fraser invests his money
- Understand why you should always pay full price for a good lawyer
Mentioned in this episode
Subscribe and rate our podcast at: http://www.Jackbosch.com/
Follow Jack Bosch on Facebook to get the latest updates: http://www.facebook.com/jack.
Learn to flip land for pennies on the dollar: http://landprofitfun.com/
Join the Land Profit Generator Facebook Group: https://www.facebook.com/
- Learn More about Bob Fraser and Aspen Funds: https://aspenfunds.us
Jack: All right. Hello everyone, this is Jack Bosch speaking and welcome to another episode of the “Forever Cash Life Real Estate” podcast where we talk about cash flow amongst many other things. And today, we definitely going to talk about cash flow because we’re talking with Bob Fraser about note buying, note structuring, note selling and how you can structure your notes such that you do perhaps with the land flipping that you can sell them easily. We’ll get started in just one second.
Welcome to the “Forever Cash Life Real Estate Investing Podcast” with your hosts, Jack and Michelle Bosch. Together let’s uncover the secrets to building true wealth through real estate and living a purpose-driven life.
All right, so we’re back and I’m excited to have the subject that I wanted to have on this podcast for a long time of actually note structuring, note buying, note selling, and our guest today is Bob Fraser. Bob, welcome. How are you?
Bob: Great to be here, Jack. Look forward to this.
Jack: Wonderful. So Bob, how many notes have you bought or structured or sold or touched?
Bob: Today, at about 1,500.
Jack: 1,500 notes? So we have an expert here with us. I’m super excited for that. So you have a little bit of that experience. You have a whole bunch of experience, you have experience with software before you created a software company, you raised some money for that, and then you’ve gotten into different spaces. Tell us just a little bit about that, but I can’t wait to jump right into the notes.
Bob: Sure. Well, my background is computer programmer, so I was a nerd from Berkeley, did that for many years. And then in 1995 I started a tech business, became a big deal, ended up winning the “Ernst and Young Entrepreneur” of the year award for the Midwest region United States. Became the fastest growing business in the Midwest region in the late ’90s, about 300 people we hired, I raised $44 million in venture capital. Then it spectacularly blew up in the [inaudible 00:01:53] crash.
So, I boast my crater is bigger than most. So if you’ve had a crater, you know, hey, there’s life after craters. And then decided to rescue myself by starting a hedge fund and did that and got that launched just in time for the 2008 crash and lost money there. And at that point, I was looking for something that I had a little more control, a little more stability and got into real estate with my partner. I was not a guy that really liked real estate necessarily, I thought it’s kinda boring, but my partner is a real estate genius. And so I was the money guy, the finance guy and so we joined up and started right away with these two very unique strategies in the world of notes. And we love it and are doing super well with this and help a lot of people as well.
Jack: That’s wonderful. That’s good to hear that after a couple of learning experiences, to put it in that way…
Bob: It’s a great way to put it.
Jack: You had the opportunity to then get actually into something that now is working very well. And that will continue to work in pretty much every market.
Bob: That’s right.
Jack: So now notes, so you got into notes, you’re buying notes, you’re probably selling notes, you’re structuring notes. So, we, as you know, this is supremely important and interesting for us because as you know, we’re flipping land, right? We flipped over 4,000 pieces of land. And we’re teaching this all around the country, are still flipping land and a lot of the land that we flip, we flip with seller financing because particularly in the below $100,000 level, $100,000 value of the property level, banks are really not a factor. They don’t lend, they don’t give those… They’re just not available to give you a loan. Particularly, if the property is like on the outskirts of town and not right connected to all the utilities. So when we deal with that, what would you… So tell us what is even note buying? So for somebody, just as a very beginning, a person that says like, “Yeah, if I have these notes, what do you mean I can sell the notes?” So tell us, just start at ground zero.
Bob: Well, generally right, anytime a lender gets involved in real estate or seller financing, you create a note with a lien attached to it, that secures the note. And that stuff is very liquid, you end up selling it. So this is what banks do. Banks, of course, create lots of this kind of paper. Well, typically banks sell it to Fannie and Freddie, Fannie Mae, Freddie Mac who securitizes these notes. And the note industry just has a thousand tributaries and off-ramps. And it’s a very complex but very robust field.
And so we are in that space as well. And there’s just lots of niches. So we end up buying these notes from banks, from hedge funds, from private investors and work them or, so we have two strategies with these. But in essence, we become the bank. So the borrowers rather than pay a bank, they pay us as the lender, and we have all the security that the bank would have to basically secure that investment by taking control of that asset if we need to. So we, in essence, become the bank. All that fine print becomes our fine print. It’s a very good business as a note buyer.
Jack: Right. Okay. That makes sense. So, in essence, when you have a note, when you own a note, you’re the bank and the borrowers pay you.
Bob: That’s it.
Jack: So you buy this. And where do you go find notes, where are you buying from, typically?
Bob: We have a whole lot of sources. We bought a whole bunch of notes from the FDIC recently. This is, of course, the bank regulator. Now, when they shut down a bank, they usually have a bank sitting ready to take the assets. But that bank takes only the good assets. Bad assets, the FDIC holds, and they basically liquidate through a number of law firms. Well, we found a whole bunch of mortgages that we just love. I think it was like 500 mortgages we just bought.
So we bought from the FDIC, we typically buy from banks, so we will buy notes that are called troubled debt restructures. So this is…what happens is, let’s say you in your house, you would have a mortgage, you stop paying your mortgage, maybe had a medical crisis or divorce, you lost your job. You stop paying that for a while. You get a loan modification. So the bank will modify that note, and now you start paying again. Well, it’s now a bad note. Even if you’re paying, even if it’s a beautiful house, even if there’s lots of equity in this property, it doesn’t matter. It’s a bad note. It’s called a troubled debt restructure. And once a troubled debt restructure, always a troubled debt restructure.
So literally, a note can never become a good note again, it’s just forever an ugly, a black sheep note. Well the banks sell these notes. So we buy direct from banks, these troubled debt restructures. We’ll buy from hedge funds. So a lot of hedge funds buy nonperforming notes. Sometimes they re-perform them and then they’ll sell them to us. So a lot of hedge funds, a lot of people are buying, if you look at these auctions, the Fannie, Freddie, FHA auctions, they’re auctioning off bad notes.
So some of those end up turning into good notes, we’ll buy those. We also buy seller finance notes. So this is where some of your listeners might create paper, you teach people how to create paper. So, let’s say a person wants to buy this home, they don’t have enough money to do it, they convince the seller to do a seller carry back. So they’ll create a note and a lien by doing that, then we’ll buy those, we’ll buy those liens as well. So there’s really a lot of different sources. And for one of our strategies, really the performing strategy. There’s just lots of different sources.
Jack: And if I may ask…
Bob: [inaudible 00:08:31] buyers in the space right now, people are coming to us with their seller finance paper and their re-performing paper.
Jack: Okay. Now, that’s great. So where do you have the money from, to buy these notes?
Bob: Well, we’ve structured funds, we’ve got a seven-year track record, so once you get a track record, it’s fairly easy to raise money. So we’ve got a very tight operation, a very sophisticated operation, very compliance-oriented, it’s very investor-friendly, very bankable kind of operation. And with a long track record. So we raise money from private investors and we also have some institutional relationships as well.
Jack: Okay. I got it. So basically, institutions and private investors, they get a yield and then you ideally you operate at, ideally the higher yield and you get the spread in the middle.
Bob: We make the spread, you got it.
Jack: Okay. Makes sense
Bob: Which is what even a bank does. Banks borrow money and they make the spread. It’s called net interest margin.
Jack: Right. Absolutely. Great. So now let’s jump into like see, if somebody creates a note like… Let me ask you this way for a note to be interesting for you to purchase, what kind of key parameters does it need to have for it to be sellable?
Bob: Sure. Well, our general philosophy is there is no such thing as a bad note. There’s only a bad price. So if you create a really lousy piece of paper, you may not get much money for it.
Jack: Okay. What is a lousy piece of paper?
Bob: Yeah, very good question. A lot of things can make a lousy piece of paper. If you want to maximize your value of this note number one, is it should be performing. Meaning there needs to be a regular income stream coming in. Number two, the borrower should be creditworthy. So there should be decent credit. We don’t look at that that much, to be honest because we’re typically looking… We don’t mind taking control of paper. You want it to be high yielding, higher interest rates are more attractive. And then the other is security. You want to make sure that that loan has no more than 70% exposure. It’s covered by equity of 30% or more. So a 70% loan to value ratio is generally a good note. Anything out of those parameters, the price we pay drops pretty dramatically.
Jack: Okay. So what if it’s in those parameters, what do you typically pay for a note if it’s [crosstalk 00:11:18]
Bob: Well, it’s all yield based. If you’re giving me a very pristine note, it’s got a good borrower, creditworthy score, it’s a 50% investment, loan to value ratio and it’s 10% paper or 11% paper, I’ll pay full price for that. I’ll pay par. So generally, we’re yield-based buyers. So we like to buy around the 13% to 14% yield on… And so you can calculate that yield multiplied by the discount and see, to get your 15% yield, but we also do a risk-adjusted yield. So we actually model this. What is the likelihood of default? What is our recovery in the event of default? And we price all that into the price. But generally, we’re yield buyers. If you price in a 13% to 15% yield generally we’re going to be interested.
Jack: Okay. Very interesting. That’s good to know. Just to give you a little feedback, or not feedback, information we have. What we do is, and what our students do, is we buy pieces of land at very big discounts and then we turn around and sell them. Usually, it’s somewhat of a discount of market value with a decent down payment. But we charge often 12% or 13% interest because again, the banks don’t really look… They’re not in that space. And even on land, bank tends to charge a little bit more interest anyway.
So these properties, these things already produce a 13% yield as a performing notes. The only thing we allow for our students and we ourselves don’t do is we don’t check the credit score of the buyer, we basically just go by the down payment. If they give us a $10,000 down payment on a $50,000 note, we’re happy as a clam because we know they will never default, right? If they give us a $500 down payment, then they won’t even get the deal. Let’s put it that way. But if you look at it from that point of view, are you looking for equity in terms of equity, low to value or of equity in terms of down payment to note balance at inception?
Bob: I don’t look at down payment, obviously that would go to your originator. The down payment would be. So that doesn’t matter to me as a note buyer. What matters to me is the loan to value ratio and the borrower’s ability to pay. So, generally, I’m paying preferred return to my investors, so I’m a cash flow buyer. So I want to know that cash flow. Secondly, I want to know that, if that cash flow ceases that I can recover my investment. So, in your case with land, how is it producing income? I would certainly before I would buy a note, I’d want to know that that income is likely to continue. So I’d want to know generally what’s behind that. Why is there income off this land, land generating [crosstalk 00:14:32].
Jack: No, there’s no income off the land. The buyer just pays the notes. The buyer pays the note because he uses it for his weekend. He uses it to [inaudible 00:14:43] build something. He uses it as an appreciating asset and a path of growth or different kinds of things and the land doesn’t [inaudible 00:14:50].
Bob: So, yeah. I definitely want to know what’s the likelihood of that payment stream continuing or in that case, I would want to… If we’re totally blind on that, I’m going to want a very aggressive loan to value ratio because you know…
Jack: [inaudible 00:15:07].
Bob: Again, I’m not gonna, I’m not in the business of losing money. So you know…
Jack: Sure. That is exactly, I love this conversation because when we do our seminars and I stand in front and I talk about note selling, I always tell people, if you want to sell a note you got to exactly know these items. So what would you require to know that a buyer has the ability to pay that note to a large degree?
Bob: Yeah. Generally, you should try and get a financial package from the buyer. You should have an income statement, financial statements from the buyer. You can pull credit, get a credit score, there should be a personal guarantee maybe that’s tough, but it’s a big deal to get a personal guarantee where, especially if there’s not income on the property, then what’s my source of income? It’s the buyer alone. So I’ve got to make sure that that’s going to be coming. Or if I end up having to foreclose and take possession, then do I end up with a piece of property that’s now burning a hole in my pocket while I sell it? Because again has no income, you follow me, I can’t rent it.
So, I want to know about that buyer. Secondly, I want to know about income opportunities for that property to basically say, “Okay, worst case scenario I ended up with this, is it going to be burning a hole in my pocket?” Where literally it’s negative cash flow all the time. You follow me, I don’t want that. I’ve got to pay my investors on a monthly basis, right?
Jack: Yeah. And in full disclosure, we have actually never sold a note because we don’t want to sell the notes. We built this business such that we have hundreds of notes paying us hundreds of dollars each, every single month. And that just brings cash flow like crazy and in the door, why in a world you want to…?
Bob: Well, that’s great Jack, but here’s the issue. How much money do you make when you flip? More, right? Your returns are higher.
Jack: No, well, the annual returns are higher, but because of the velocity of money and I can reuse that money, but…
Bob: That’s my point. So we…
Jack: The overall spread is much, much higher. The overall return is much, much higher with the selling it with a note because usually when we flip, we discount the properties dramatically.
Bob: Well, that’s what I mean. Okay, so if you create the note, okay, we’re talking about two different things here. So let’s say you create the note. Once you’ve created the note, now you could collect let’s say a 10% or 11% return, which is super good. But if you were to sell that note and go do it again, you actually velocity money, you’re going to make a much higher return. Our number one customers who are sellers of notes to us are hedge funds, they basically take the money, they deployed in these assets. Once they create the paper, and they have low-velocity returns, they sell them off because they’re making them more money at high velocity returns, right? Where they’re operating their acquisition value creation business and they’re making way more money doing that.
So I would argue that a good business is going to be as long as there’s opportunity to buy, as long as you can continue to acquire the land and continue to create the paper, you should do as much of that as you can, and sell off your low-velocity, low return assets in order to buy new. Now, if the market changes and those opportunities disappear or they start to slow, then you stop the acquisition business and you begin the milking business, right? Where now you’re just sit on the low-velocity returns and you’re great, but you’ve pyramided at that point, you’ve pyramided, and you’ve built your base. That’s why a lot of people use us.
Jack: And in essence, without selling the notes, we have done that because in our land flipping operations when you buy at 20 cents on a dollar and you sell at 80 cents on a dollar with a 20% down payment, you’ve basically already got your invested capital right back. And now the note is like our cash coming in. But even there, we, instead of selling the notes, what we sometimes do is we go to our own borrow basis to the people who make the payments, it’s like, “Hey, I’ll give you a 10% discount if you pay off early.”
And that worked easier. But I follow your logic 100%. As a matter of fact, in one of our events, we always do exactly that. We look at that. We look at the time factor. We look at the return factor. We look at like wholesaling might give you triple your money, seller financing with over 10 years, you make your money tenfold. But if you build a note and sell the note within like six months, nine months, you’re right there in the middle with a tremendous return and you can redeploy it and you still put some cash flows [inaudible 00:20:28].
Bob: Well, your margins are so high, your returns are so high. If you’re buying it at a 20% discount and selling it at 80%, well, I would advise anyone who is able to do that, to do that as often as they can. And that means sell up. If you’re only earning a 10% on the backend, I would sell as much as you can of that to buy as much as you can of the opportunity. Again, it’s opportunity constrained business you’re in, right? So if the opportunity is there, you should sell the notes. If the opportunity is not there, you should hold the notes. [crosstalk 00:21:02]
Jack: And that’s why I’m so excited about our call right now because there’s a whole bunch of students right now, of us, of people that we taught this, that are running into the following situation and the following situation is that they buy something, let’s say they pay $5,000 for it, but it’s worth $40,000. They go sell it for $35,000 and they only get like a $3,000 down payment. Now, in that scenario, they could technically sell that note to you at a steep discount, right? And you probably, in such a scenario, would ask for a steep discount because the loan to value is too high, the down payment is lower, and they don’t…might not have that much information about the borrower. So, you might have to ask for what? A 50% or 40% discount on a note like that?
Bob: Yeah, maybe.
Jack: But it still might make sense because now they can take that piece and turn that into a $20,000 payday and then now take the $20,000 and do four more deals like that without actually having to sell the note or sell them again. And then they have $80,000 and now they use the $80,000 to do 20 of these kind of deals. Don’t need to finance, don’t need to sell the notes anymore because now that brings them 20 times $400, it’s $8,000 it’s almost $100,000 and they can sit back and enjoy life for a few years.
Bob: As long as the opportunity is there, I would argue you shouldn’t be holding this. But as soon as the opportunity softens or you get busy, you can’t do that, but you’re always gonna make more money. With those kind of margins, you are going to make more money in a velocity model. I know because we buy nonperforming loans as well. That’s another one of our strategies. And in that strategy, we sell as much of that paper. Once the note’s performing, we get rid of it as fast as we can, even though the yields are great on it, we’re not a yield buyer, we make far more money taking that money and buying more of those assets because our margins are so high.
Jack: Right. Because you’re buying the nonperforming note here…
Bob: We’re buying at 20 cents on the dollar.
Jack: And once it’s performing again it’s worth that, and in that case you’d go sell it because, yeah.
Bob: Yeah, that’s right. So, your listeners should do the same, as long as the opportunity is there, the way to make a lot of money, in a very short amount of time is to do as many deals as you can, as long as the deals are available just do them as often as you can, as quick as you can.
Jack: So what is the minimum note value that you would buy? What are you not dealing with below, at? [crosstalk 00:23:43]
Bob: We won’t generally buy anything below $25,000. It’s just not worth our time. We’ll look at anything. If you’re buying bulk package and there are some $15,000 notes or $10,000 notes, it’s okay as long as we can…but all the servicing costs end up becoming a significant factor when notes are so small, you know. But we buy onesies, twosies, we’ll buy notes that are just… We’ll buy single notes, especially if there’s a relationship. We have a full-time underwriting desk. All they do is price notes for people. So send us your note, we’ll price it.
Jack: Okay. Wonderful.
Bob: The land would be a different deal for us because we’d have to really look at that and look at how secure is the income side of that. But…
Jack: So, what I hear from you is that if somebody and that is why we’re going to make a big deal out of this podcast interview and put it into our group and everywhere so people really can listen to that and understand what you guys are looking for. So what I hear you say is that you’re here, that you… And particularly with land… Basically, before I say that, my understanding, therefore, is from what I hear is that you are actually preferring rental properties being sold to notes on rental properties being sold to you over owner-occupied properties, right? If it’s an asset.
Bob: No, we definitely prefer owner-occupied.
Jack: Okay. But as the owner-occupied also by definition a non-income-generating asset but what you mean is like it can generate income if you have to move them out.
Bob: That’s right. If I take possession of the property, I can rent it out. If I had to, let’s say the world crashes, I want to know that, what are my choices here? Well, there’s a robust rental market. Certainly the pricing is discoverable quite easily in a residential property. But I definitely prefer owner-occupied because it’s sticky, being home sweet home, people don’t want to move.
Jack: All right. Okay, I got it. So, based on that, the issue with single-family, that’s…first of all, with land is that, first of all, it’s not owner-occupied. Secondly, it’s by definition not income generating. So, therefore, that means that if you buy a note from that, the information about the borrower needs to be extra good?
Bob: It does, it does. It would have to be good. I’d want to see a guarantee, I’d want to see the financial wherewithal that they’re either likely to continue to pay this and certainly have the ability to continue to pay this.
Jack: Wonderful. So the message we are [crosstalk 00:26:27].
Bob: That’s first of all, I don’t want to foreclose, right? I know that, but I don’t want to do that. So, I want to know that there’s a reasonable chance that I’m going to get paid on a monthly basis. And barring that, I want to know that if I have to take possession of this, I’m not going to lose a dime.
Jack: Right. And so with that said, so for you listening if you’re doing the land flips, like we teach them and you want to sell the notes and you understand what we talked about earlier, that because of your margins are so high that you’re potentially better off buying a property to flip, like selling it to settle financing and then selling the note very quickly because you realize like two-thirds of the overall profits that you would otherwise, but in a short period of time. And then you can roll that first and do that for as long as you want to, and then build out your seller financing portfolio later on.
Once the market perhaps changes, then make sure if that’s something you want to do, then from starting now, you’ll make sure that you, when you sell a property, that you really ask your buyer for some detailed financials, for permission to run his credit score, which our paperwork allows you to do. But just make sure you use this paperwork, that you have the permission that when you sell the note that the buyer can also run a credit score and those things. Because it’s the ability to sell that note at a good price will hinge ultimately, on the ability of the buyer to make the payment because the property itself will not be able to generate income.
Bob: Yeah, absolutely. And if any of your listeners don’t do this, they should, the note should be professionally documented, professionally papered, you should get a lawyer to write the note, so that it has the standard provisions and protections that a lender expects, according…and those vary by state. So if it’s a hand-done bill and it’s done clearly not lawyer, I wouldn’t touch it with a 10-foot pole. So…
Jack: That’s gets me to the next point. Great, great segue here. And that is because we don’t sell our notes, we use wherever we can in the states where we can we used land contracts. So basically, so number one, do you buy them? Generally speaking, do you touch them? Number two, if you don’t, then what you just said, Bob, comes in that if… But let’s first ask the question, do you buy land contracts?
Bob: I don’t understand land contracts, we’ve never bought these. So, what is a land contract?
Jack: A land contract is basically a hybrid document that is a combination of a sale agreement where it says, “I Mr. Buyer, buy from you, Mr. Seller, this property” and the terms. And basically it’s a note and the seller agreement combined into one piece. Without the financials, it’s the only piece of document that needs to be signed. It’s been professionally done by an attorney obviously. And basically they sign that, you pass it onto a loan servicing company, they’re all accepted, and they start making payments. And in the documents, it’s a three-page legal size document. And in the document, it also specifies the foreclosure rules and how those ultimately happen.
So, as a result, it specifies the… It’s all up to the truth in lending and all this kind of pieces, so it has all the different line items in it. But at the same time, it’s an agreement between the buyer and the seller to sell and to buy and it has the financial terms built in. So basically, it’s the sale agreement and the note put together into one document.
Bob: If it was done by a lawyer, I would probably be open to that. To me, I would want to see that it is secured by… I want to make sure the lien is properly securing the asset, I want to make sure that I have a right to run a credit on a regular basis, that they’re personally guaranteeing this note, this kind of thing. So I would want to see those things are in there and I would have my lawyer review it just to make sure… But yeah, definitely, it should be professionally done. The last thing I want to do is get a CFPB violation for a note I just bought, and I’ve got some ridiculous note generated, a piece of paper that’s not worth anything.
Jack: Had your learning experience. So I understand you’re playing everything by the rules.
Bob: Yes. So get it professionally done. The worst thing you can do is try to save money on lawyers, in my opinion. I hire a lot of lawyers and I pay them whatever they ask. And I’ve made a lot of mistakes by saving money on lawyers and I just don’t do it anymore.
Jack: I agree with that. My attorney likes me a lot because he always says, “You are one of the few people that actually understands that we actually don’t cost you money. We actually save you money.”
Bob: That’s exactly right. So, if you’re listening, here’s two guys warning you, telling you, begging you, please use good attorneys and pay them what they ask. And don’t do it yourself because as good as Nolo is and all these, Google, they’re just not good, so.
Jack: Absolutely. I agree with you. So great. So in summary then…so but you still prefer a well-done deed of trust notes usually, probably that.
Bob: Absolutely. Absolutely. Well, to me that’s automatic for us, we run that. That doesn’t mean we don’t pay any attention to it. It just goes through the system.
Jack: Right. Exactly. So again, as I say in our events, in our webinars and our things that if you want to sell the note, recommend, get yourself a deed of trust, a note for the state that the property’s in. Obviously, we’re not an attorneys, so we have a lot of paper documents, attorney generated documents in our program, but we don’t pretend to be attorneys and great stuff like that. We use our land contract, which we have a couple of States specified and a generic in the program but just generated by our attorneys, not touched by us. But if you want to sell the notes, then I have talked to some note buyers just like I am right now and the consensus is that what you just said, that a deed of trust, a note goes straight through the system. They know it, they understand it, they’re used to it. And so if you plan to sell a bunch of your notes, then structure them right from the beginning the right way, get all this documentation and it’s a little bit more work, but therefore you sell very quickly and you don’t have to take huge discounts at that point.
Jack: All right, wonderful. Because let’s say if somebody comes to you, assuming somebody comes to you with a fully document, with a perfectly executed note and a deed of trust note with a financial statement from the seller with the declare ability to pay that for like forever, with the… So no concerns financially from the buyer’s point of view, with the right to run their credit scores, with the personal guarantee, with all those different things. And they’re coming to you with a $40,000 note and the loan to values, are all right and the interest rate is 12%. How much, how much discount with like roughly speaking, would they need to give on the note? [crosstalk 00:33:55].
Bob: Potentially not much. Potentially I can pay par for these notes. If the loan to value is… If everything you said is a perfect note, I’ll pay par. Again, I want to buy it a 13% to 14% yield, risk-adjusted, so…
Jack: Well, and if the opposite is happening, but you still… Let’s say it like, if it’s not well documented but still just enough for you to actually buy it, how much…what discount would you see at that point?
Bob: I’ve paid as little as 3 cents on the dollar, so…to buy notes.
Jack: In other words, you’re getting [crosstalk 00:34:39] You get the point listening to this podcast. So document your notes right. This was invaluable right note to hear, it’s like confirmation of what I’ve been saying from the stage for like years now. Make sure you get this all right because then you can do what Bob just mentioned earlier. And you can go sell those notes quickly. Build up your amount of like your war chest. And then if you want to create a bunch of notes, which we love our notes, you create a bunch of notes and we were able to create our notes and cash sales in parallel. So the note creating never affected our ability to create more cash sales. And the note sales were absolutely fantastic when 2007, 2008 happened with the market broken and the house values plummeting. We were sitting there literally with over $70,000 a month coming into cash flow into [inaudible 00:35:29] and we were starting going shopping. We started buying houses like crazy [SP].
Bob: That’s perfect. That’s where you want to be.
Jack: Exactly. Because we had that stability, we had that cash flow for years to come. And we kept buying and buying and buying, buying and bought a very nice portfolio of single-family house free and clear, which is not a financially speaking, not the smartest, I know. But they provide us now a continuous six-figure income that will be passed on to our daughter.
Bob: Yeah. That’s awesome.
Jack: Right. So with that said, thank you very much. Do you have any kind of like parting words for our…for let’s say, beginning investors that’s thinking about getting into real estate? What they should be looking at or what they should be worrying about or what they…just like words of advice.
Bob: I think you’ve done it. It’s interesting you’ve built a model that can be active or passive, which I love, right? So, depending on… You know, because a lot of people getting started wanting to do it part-time. So it’s a perfect scenario. I think the takeaway is, hey look, there’s a lot of opportunity out there, a lot of tools and a lot of vendors like us that can help. But at the end of the day, do your homework and don’t take shortcuts and work your system. So it sounds like an amazing plan you guys have and there’s many other strategies as well. Pick one and work it, but a pleasure to be here with you today.
Jack: Thank you very much. Thank you for having me, Bob. With that… Where can people find out about you? Of course I’m going to give you an opportunity to [crosstalk 00:37:06].
Bob: Yeah. Aspen Funds like aspen, like the tree, funds, F-U-N-D-S dot U-S and they can go find out more about what we do there.
Jack: You can probably buy notes, become an investor, sell notes, all of the above, right?
Jack: Aspenfunds.us. All right, wonderful. We’ll definitely put it in the show notes, put it in the comments below. With that, thank you very much. That concludes our latest episode of the “Forever Cash Life Real Estate Podcast” where we talk about cash flow, land flipping, real estate, any different ways to generate wealth and financial freedom and live that lifestyle of abundance, right? With that, thank you very much. Bye-bye.
Bob: Perfect. Great to be with you. Bye-bye.
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