The School Of Cash Flow

Imagine going into a joint venture with someone who has little to no experience in the note space. That will not end well especially in a tight-knit industry such as the note industry. You need to learn about notes, and the best way to do that is to buy notes. That is what Chad Urbshott did to get his career rolling. Chad is the Founder and Managing Director of EquiGrowth Capital. He is a master at managing mortgage notes and had a joint venture with your host, Dale Corpus. Join Dale and Chad today and learn how Chad got into the note industry. You don’t need to buy those expensive learning programs. Jump in and start buying. If you lose money, you either back out or learn from it.

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Learning Through Experience: The Process Of Buying Notes With Chad Urbshott

When I was growing up, I didn’t excel too well at team sports. That wasn’t my thing. I did a solo sport. I was a swimmer. While I didn’t necessarily have to work with a team of a similar race, I was going to practice getting myself individually stronger. At swim meets, I was competing against myself to set new personal records for myself. I was good at certain swimming events like breaststroke and individual medley. Those are the events that I stuck to, whereas my other swimming friends were good at other ones that they stuck to because they did them well. I had to achieve my own individual goals. If I worked hard, I was able to achieve even more. It felt good when I was able to reach a goal and hit a new PR. 

When I first got into real estate sales, I had that same “It’s all about me that I got to do everything” mentality. I thought that I had to be good at everything in the sales process to be successful from lead generation, marketing, sales and all the paperwork behind the scenes but it’s tiring. I realized it wasn’t the case. I was stunting my own growth if I continue to operate that way. I realized that I could expand and grow more once I outsource and formed a team of people that were good at what they could do. They could take on some of the tasks and do them even better than what I was able to do. I could happily pay them for it as well because it would take me to another level. I started teaming up with an assistant, a transaction coordinator, a photographer, a video editor, people that were good at what they did and it did work for me. It helped me to scale up more.

As it relates to real estate investing, it’s the same thing. I had a similar thing going on. I felt like I had to know everything about everything before investing. I then realized that committing to investing was more important than knowing everything from A to Z on how to invest. Once you come into anything, everything will fall into place. Focusing on the who and not the how is more important. You’ll seek people that are already doing what you want to do. You can learn and partner with them.

This is a perfect segue for me to talk about my guest. His name is Chad Urbshott from EquiGrowth Capital. He’s part of my own investing team when it comes to someone’s mortgage notes. I’m excited to have him on. I’ve done a joint venture with him, which we could talk about a little bit more. He’s very knowledgeable in the mortgage note space. He’s an excellent operator and a great teammate for that matter.

A little bit more about Chad. He’s the President of EquiGrowth Capital, an alternative real estate investment firm that he initially formed in 2013. It provides advisory services to its subsidiary holdings and partnerships which acquires residential mortgage loans from financial institutions, hedge funds and mortgage originators throughout the US. He holds a BS degree in Engineering Science from Western University, graduating with honors and distinction. Without further ado, thanks for being a guest on my show, Chad. How are you?

I’m great. Thanks for having me on. I was quite honored when you reached out to see if I’d joined your show. It’s pretty exciting to be one of your first handful of guests to be on. Hopefully, it will be bigger and better as time goes on for you.

It’s like one of those things. I don’t even know what I was getting into but pretty soon, I’ll be a seasoned podcaster. Learn as you go. You don’t need to know everything, just commit to it. For my folks that don’t know about you yet, I gave my own intro to you. Is there anything else that I missed or that you wanted to add about yourself or your background?

I started in real estate investing back in 2007-ish. How I started back then was I was walking through an airport back in my corporate days, running to or waiting for an airplane. I saw this book. Everybody mentions it, especially on BiggerPockets called Rich Dad Poor Dad. It was all about real estate investing. I picked up a copy and I started reading it on the plane. One thing led to another. I took a deep dive into it. The one thing it said in the book was there are opportunities everywhere. You just got to know where to look for them. Now that you’ve been introduced to the topic, things are going to start popping out at you.

Within a couple of days after that, I’ve seen this little tiny ad in the paper that said, “How to invest in real estate without swinging a hammer?” It’s a little bit catchy like that. I called the number. I thought it was a bit of a scam. You leave your message, your address and your phone number. The internet was around but it was for social media. I’m like, “This is a little strange leaving my address.” I received this package in the mail a few days later and said, “Come to one of our classes. We’ll teach you how to invest in real estate and how to do rent-to-owns.”

I go to the class and one of the guys holds up the Rich Dad Poor Dad book. I’m like, “You got to be kidding. This is a sign from above.” They were touting out how to do rental homes versus straight rentals. That was how I started. I bought my first rent home. I then bought another one right next door. People on the street realized what I was doing so I ended up buying. It was a block of townhouses that I bought. That was my foray into real estate investing.

My background was in structural engineering. I used to work for a bunch of developers. I’ve got a background working with industrial and commercial construction. I ended up doing a couple of my own with some other partners at the time. I jumped into student apartment investing. I bought two ten-unit buildings right next door to each other. It was at the university I went to at the time. I went to that school. My parents actually still lived pretty close there. I had the whole family around. I’m like, “This shouldn’t be too hard to manage.” After about three months, I’m realizing that these people are probably not even as bad as I was when I was at school taking care of the property. I learned pretty quickly that you need to get a property manager. That was my introduction to property management at the time. I got a property manager. It took a lot of my headaches away.

That was back in 2012-ish that I went down to this real estate conference that had been going through for a couple of years. There were people there that were touting about buying US rental properties. I want to shoot it back up to mention that I’m a Canadian. This is a conference in Toronto. I’m right down with one of my colleagues and he was talking about investing in Atlanta. I’m like, “I can hardly manage my properties from two hours away. How do you think you’re going to manage your properties from a two-hour flight away?”

That was when I went to these couple of seminars that were put on by these US rental turnkey operators. I don’t know what a turnkey was at that time. I watched these seminars. I was blown away by the rent purchase ratio. At the time, I’m buying these properties for about $300,000 or they’re renting for about $1,500, the 0.5% rule. They’re like, “You could buy these properties for $50,000, all fixed up, with tenants in place for $900.” I’m like, “That’s almost four times the rent to price ratio.” At that time, I was hooked on investing. I was starting to research in the US and I thought, “I’m going to start investing where I knew. I’d been going down to Florida for a bunch of years with my in-laws because they had a place down there.

I started researching the Florida market. That was back in 2012-ish, ’13. I started to buy foreclosures. My third purchase was a foreclosure. I had no idea what I was doing. I didn’t know what I was even going to do with this property. I just knew that you could get a foreclosure at a screaming good deal. As long as you buy it cheap enough, then you can do anything that you wanted with it, whether you want to fix it up, rent it out, sell it as it is or do rehab on it and sell it. That’s how I started. A couple of years after that is when I discovered the note business. I’ve been doing that ever since 2015.

I loved how you just jumped right in and everything evolved.

I jumped in with both feet. I was a little bit tepid at first way back in 2007. It took me about six months probably to buy my first property. Once you bought your first one, after that, it is easier but the fear goes away. It starts diminishing after some time. It’s funny how you’re talking about committing to something and doing it. I’ve been trying to establish some future goals. My goal-setting in the last few years was I want to reach X amount. I did well on a deal. It was like ten times. I immediately thought of Grant Cardone’s book 10X. I’m like, “I got to read that book again.” I’m not the biggest fan of Grant Cardone but it puts me in that mindset. Actually, I had listened to it. I don’t read books anymore because everything’s on an audiobook. I listened to it again and that was exactly what he said. “Commit to something. Don’t get into paralysis analysis mode. Set your mind to something and do it. Figure it as you go.” That’s a perfect segue to just jump in.

Learning Notes: Once you buy your first property, it gets easier because the fear goes away.

Just like this show that I’m doing. You learn as you go. I’m learning something about you. When you first started with your very first investment, were you also working a W-2 job? How did that progression go from being a W-2 employee to being a full-time investor?

It was pretty tough at the time. I was traveling. I was gone usually one week out of the month at least at the time when I was a T4 in Canada. I was traveling mostly around the US. I was in business development for a construction company. It was a lot of work when I first started. I had no idea what I was doing. Whenever I was home, I’d be working on the properties, trying to fix them up and get renters into them. I did that for a number of years. I tried to add to the portfolio.

It was around 2013 when I got to the point where I’d sold off a few of my properties. I made as much on these as I do in my W-2 job. The plan was to move to Florida at that time. I thought there’s no better way to jump in with both feet and learning the market in Florida. I can move down there. I’ll be honest, It was still a tough road. You don’t have that steady paycheck coming in to rely on. Trying to get a mortgage at a bank is practically non-existent for the first few years especially. I had no income to show. I jumped in with both feet. I did it and learned as I went. There’s no looking back. I don’t think I could ever go back to a regular corporate job anymore.

If you were to start off getting to real estate investing again, do you think you would do it the same way doing what you did? Knowing what you know, would you have started a different way maybe?

No. At the time, I was buying rental properties for cashflow and appreciation. The cashflow wasn’t that great after holding these for a few years. The guys at the front of the room that were touting the rent-to-own program left out things like maintenance costs, vacancies and turnovers. You got to replace all the windows because the seals gone are gone after five years, which happened to me with a five-year-old property. The windows all went out. We had to replace them all and things like that. They never discussed those kinds of things. They weren’t all that profitable.

You’re in the San Fran area. Not all of Canada, but much of Canada like the Toronto area and much of the areas are very similar price-wise as San Fran. The appreciation here since the pandemic began has been crazy, but we’ve been on a bull market run in the real estate market since 1990. If you buy anything in the last years and held onto it for any time, it’s gone up like that. It’s very similar to where you are in the Bay Area. It’s the game plan when I bought it. It wasn’t more so to retire. It was more for longer-term retirement but if I was to not have a job, I would not hold on to buy a couple of hundred properties because you’re not going to be to live off of that. I’d be jumping into doing flips.

I’ve never done wholesaling. I’ve wholesale a few deals but if I would do wholesaling, it’s something that you can generate quick income. Before I even knew about notes, it was unknown to me until 2015 that you can even buy a note. Knowing what I know now, I would jump right into the note business. I don’t know how you define it but it’s probably the quickest way to generate income out of pretty much any real estate business I’ve seen besides flipping. If you’ve been to flipping and you know what you’re doing, you can make $20,000, $30,000, $50,000 off of one deal. If you do a few deals a year, you’re doing pretty well. From a cash-on-cash return perspective, it’s the most lucrative I’ve seen.

In the note space, it’s so technical. You’re a good operator in it. They don’t have any schools to teach you how to negotiate notes and find all that kind of stuff. How did that progress for you? How did you know how to do everything?

Back when I was buying the foreclosures, it was 2013. That’s when all the hedge funds started moving in and buying them or hold them as rental properties. Not long after I started buying them, I saw prices going up and up. All the auctions in Florida are online. You can see all the results. Ahead of time, I do my analysis on what I thought the properties are worth and what approximately I think this should sell for. I’m looking at the results afterwards and I’m like, “Someone’s paying stupid prices for this.” They’re paying retail prices for an as-is. When you take it back to foreclosure, most people are probably aware that they’re not in the best of shape. It needs a ton of work because the previous person that was living there wasn’t taking care of it.

I remember having lunch with this guy one day. I was doing some work with him in Cleveland, doing some turnkey rentals but he lived in Florida. I met him at the same conference a couple of years later in Toronto that I’d been to before. His office was 5, 10 minutes from my place in Florida that I built as I come home and I was like, “What a coincidence?” I went for lunch with him. I was complaining about how the foreclosure prices are going up. He says, “Why don’t you start buying the notes before they get to foreclosure?” I’m like, “What are you talking about? What do you mean to buy the notes?” He said, “You can buy them from the banks before they get to foreclosure.” I’m like, “What?” I’ve never heard of such a concept because it was completely foreign to me.

Fortunately enough at that time, he was working with another guy who everybody knows very well in the note business. He’s been around for years and years. His name is Bill Bymel. I got an introduction to Bill and his team. We were buying foreclosures with Bill’s team and they had a good contracting crew. I was doing the flips with them. All the while doing that, I was picking their brains on how exactly does a note business work, for a few months. I started doing some more research on it. Lo and behold, one day I was on a bunch of Meetup groups. You get notifications about different Meetups. I saw this Meetup that said, “Learn how to buy notes from the bank.” It’s the same thing I was learning how to do.

I ended up going to this meeting. I was at a coffee shop at Panera Bread or something like that. The guy was standing up. It’s the same thing years and years before. He’s standing up upfront, coding the ways on how to buy mortgage notes. I approached him afterwards. He was doing a class. It was a half-hour spiel and then you can sign up for $1,000. He wasn’t a guru. It was more like, “If you want to learn how to do this, I’ll charge you this much.” I approached him and said, “I’ve been buying foreclosures for a few years. I know how to run the title. I know all that stuff. I learned through you.” I didn’t even know what the term joint venture meant at the time. I knew what it meant but I didn’t know exactly how it works. He said, “We can do a joint venture.”

Long story short, we did about six deals on notes. The very first one we bought was in Texas. We foreclosed on it because Texas is a fast foreclosure state. We foreclosed on it within four months, sold it and made a 70% return within 6, 7, 8 months. I was like, “That is insane. This business is all cracked up to be.” I’m pretty sure we did about six. We bought five more out of the gate. I raised some money from some other investors I was working with at the time to put into it.

Part of my endeavor was to learn the business. What I learned was what not to do. He was new at it too. We were like the guinea pig investors. Not that he was dropping the ball and stuff but some things are slipping through the cracks. It ended up them making an extraordinary amount of money or a return on investment basis. I’m like, “If this guy can do this and make this much money, there’s no way I can’t lose.” That was 2017 at that point. I’m like, “I’m going to start doing this on my own.” I wanted to start buying my own notes with my own company’s capital. I bought the first 10, 12 to get familiar with the process. After that, I started bringing investors in. That’s how I got hooked into the business.

You use your own capital first. You proved yourself that you could make it all happen, negotiate the notes, turn a profit and all that stuff so you’re comfortable with other investors. Where are you finding your notes? What geographic areas are you buying them in? Are there certain ones?

Geographical, I’ll start with that. I’ve got the software that I started using months ago. I used to use another one called Podio. This one’s called ClickUp. It’s a silly name for this program but it’s more of a project management software, task management software. Within that, you can put the old addresses and it gives you a map. That’s cool because you can see where all your loans are. I was looking at it. I’ve got everything east of the Mississippi. There is nothing West. Maybe a couple in Kansas City. Pretty much everything is east of the Mississippi, predominantly in the Midwest states like Ohio, Pennsylvania, North Carolina and South Carolina. Those are probably the top ones, and then Florida, Louisiana and Mississippi. You come around those. Michigan is another one and Wisconsin. I’m guessing probably about 15 to 20 states if I was to add them all up. That’s geographic where I’m buying them from.

Learning Notes: The note business is the quickest way to generate income.

The very first note or two I bought, I got through a broker. I wouldn’t say he ripped me off but he had his best interest at heart. He sold me some notes. They were valid notes. He ended up brokering them through a hedge fund who I’ve learned later on a year or two down the road that they sell them directly to people. You don’t need to go through a bloody broker. Their name is Kondaur. I bought these notes through him. One turned out to be okay and the other one is a disaster. This guy was very knowledgeable in the note business or he pretended to be. Both notes that I bought through him, I was shaking my head with some of the things that happened afterwards.

I joint-ventured with him on the first one. I said, “I know what I’m doing but you are a little more seasoned than me. Let’s cut a portion of the profits to you. I’ll put in the money. You helped me through this and I’ll cut you a check.” We wrote up an agreement. Every single time I turn around, I’m like, “How did this get missed? This guy was supposed to be an expert.” You jump in and you learn as you go. One of the things I learned very early on is you need to check not only the title but you need to check unrecorded liens, municipal liens, code violations and all that, which I knew from buying foreclosures. He told me he checked all that stuff because I let him do all the legwork.

The day before closing, I find out there was a $3,000 lien with the township in this little Podunk town in Pennsylvania that we bought this thing in. It didn’t go well. We made some money on it but not nearly as much. With the other one, if I knew then what I know now, I wouldn’t have paid what I did for it but it ended up being okay. If you can buy them at a good enough discount, cross all your T’s and dot your I’s, you should usually come out okay.

From there, I started going to conferences like note investing conferences and certainly know some of the players. You learn from networking who sells notes and where you can get them. Join some Facebook groups. People will drop names all the time and you’re like, “I learned a new source of notes.” Email that person or you call them up and say, “I’m looking to buy some notes.” They’ll usually sell them to you. That’s how I got started buying.

Truth be told, I still buy from the same couple of sources. I may develop some new ones over the years. I’d probably have a handful or two where I get them from. One thing you need to know in this business is it’s a very small network. Everybody knows everybody. You can’t burn anybody in this business. If you go into a deal and you don’t close on it, you’re going to get blacklisted on not only that seller, but the word could get around that, “You didn’t commit on this purchase.” It’s a small knit community and the word might get out. That’s one thing. I definitely recommend to people on the buy-side to not burn anybody.

That could dry up your deal flow.

Not only that seller but potential deals down the road.

Between nonperforming notes and performing notes, I take it that your main focus is nonperforming.

The majority that I pick up are nonperforming. I’ll pick up some sub-performing, but if you talk to Chris Seveney, he’ll say, “They’re either nonperforming or they’re performing. There’s no in-between.” For the readers who might not be familiar, a sub-performing note is an inconsistent payment stream. They might pay eight months out of the year. Sometimes, they’ll pay six months all at once, then they’ll go eight months and they’ll make one payment. It’s very spotty.

If you get them at a good enough discount, those are generally pretty profitable. We’ll pick up some of those if a seller wants to get rid of them because they are getting sick of these spotty payment streams. Those are usually ones where people pick them up as performing and then they become sub-performing. Those are the good ones. The deals that you and I are in, that’s how those were. I don’t know what happened. We put the pressure on the servicer like, “Let’s get this caught up.” They’ve been pretty much performing ever since. They have a month or two that they’ll miss but they always get caught up. We walked out on the ones that you and I got together.

We threw out the word joint venture. I wanted to talk about that a little bit more since you were the only person that I’ve done joint venture mortgage notes with. I own some mortgage notes individually. I invested some mortgage note funds through syndications. With you, I have a joint venture. Can you help elaborate a little bit on what that means and what the difference is?

There are lots of ways. Typically, how it is laid out is one partner puts in the funds and then the other one does all the work. There’s everything in between, depending on how you want to split it up on the backend profits or what have you. That’s usually up to the two partners or the 3 or 4 on how they want to structure it. Generally, one partner puts in all the money and the other one does all the legwork, finding the deals, negotiating them, purchasing them, doing all the due diligence at the time, and then doing the asset management throughout the life of it until you sell them again. That’s generally how it works.

I’ve had some different arrangements like joint ventures where one of the partners is putting in some of the money, not all but maybe the majority of it, and then I’m putting some as well. They’ll do a little bit of the work. I’ll do a little bit of the work. There are lots of ways to skin the cat. It’s typically how they’re doing. If I’m going to do a joint venture with someone, I usually want to invest with someone who’s knowledgeable in real estate, someone who’s got a real estate background and knows the note business a little bit. Maybe he’s taken a weekend course or attended a few conferences or even watched a bunch of YouTube videos. I won’t take people on who don’t have knowledge of it because I’m not going to hold someone’s hand.

You’re not here to teach them.

I’ve had a few that wanted to learn the business and get into it. I was like, “I’m not into teaching people.” That’s the way I am. People ask me all the time, “Why don’t you do courses on how to invest in notes or anything?” I’m like, “That’s not me.” Ever since I was a little kid, I was trying to help my sister with math. I’m not a good teacher. It’s not in me but I thought, “I’ll show you the ropes.” I wasn’t a very good teacher.

It happened a couple of times where they threw their hands up after 3 or 6 months like, “This is way too complicated. I don’t think I want to get into this. Let me know when the deal’s done and I’ll do another one with you. I don’t think I want to get into this.” I had a couple of people that did that. They said, “This is way too complicated.” It might have been partial on my behalf on I’m not a good teacher. I understand it my way. I try to teach it my way. I just have a hard time relaying how to get that message across to people. The very number one thing is they need to have a real estate background or at least even invested in some kind of real estate syndication maybe before.

Learning Notes: When buying foreclosures, you need to check not only the title but also the unrecorded liens. These are code violations.

Since you’re investing primarily in a lot of nonperforming notes and I know the goal of nonperforming notes is to get them reperforming again, how often though would you say that you need to foreclose on a nonperforming note? Does that happen very seldom? Elaborate on that.

The tides have turned a little bit over the years since I started back. When I started, I was picking up a lot of mortgages that were underwater, meaning the mortgage balance was worth more than the property. In those cases, a lot of the time, the borrower would throw their hands up to say, “I’m so far under. I just want to be out of this thing. Let’s get this over with.” I’d either get a deed in lieu of foreclosure.

A lot of these mortgages were originally back in 2005 when the market was at its peak. Now, that the market is ramping right back up again, a lot of these have equities. These borrowers were a lot more inclined to stay in their homes. I would say that the ratio is a little bit less. It was probably 50% of the time that a borrower would either threw a deed in lieu of foreclosure. You take the property back. The other 50% of the time, you’d work out some reinstatement, loan mod or the spotty payers, the catch-up kind of thing. It’s a little bit less. I’m finding that more and more people were trying to get back in their homes.

With all of the stimulus that came out in 2020 when the pandemic first hit, I’m like, “Here we go. Everybody’s going to stop paying. The world is ending.” Come June or July 2020, the stimulus checks started coming out. The next thing you know I’m like, “Everybody is catching up.” Some of the people who must be high in there, all of a sudden they’re totally caught up now. We’re in a much better place than we were, even prior to the pandemic where it seems like people have more means. I don’t know if it was all from the stimulus checks but everybody seems to be making payments on time. Even the spotty pairs are right back up to where they were.

I’ve done some loan mods in the last months where these people have been sub-performing. Some were performing over the last few years. I’ve had these loans and they’re all caught up. It’s like, “Let’s do a loan mod.” I’ve restructured and I’ve been selling some off for less. Everybody is starving for yield at this point in time because interest rates dropped so much. The yield meaning the accumulated interest on that or what that interest payment on that loan is. If you take all the interest over twelve months divided by twelve or divided by whatever you paid for it, that’s your yield.

The prices have gone up for performers and reperformers because people are looking for yield. They’re willing to pay more for these notes resulting in a lower yield. It used to be 12% to 15% was the sweet spot for buying either a low valued performing note or a reperforming note. I’m now finding that people are willing to pay 9%, 10%, 11% range. It was a good time to unload. However, the unfortunate part is if you’re looking for yield and you want to be a note investor more passively, it’s hard to find good-paying notes now. It’s a catch-22.

On the flip side, nonperforming pricing has gone up as well because the foreclosures moratorium is out since the pandemic began. People are not able to foreclose as they once were. There’s not the inventory out there. Things are going to change probably when the foreclosures moratorium ends, hopefully. There might be a bit more inventory coming back on the street.

The downside of that though is if there’s a flood of foreclosures coming on, then that could potentially put a dent in the appreciation that we’ve enjoyed. Interest rates are only going to go up from here because inflation is going up. As you’d know, the interest rate is going up. The fewer people who apply for mortgages, the fewer people who buy homes. It’s going to be an interesting time for 2022 to see where this all plays out.

What’s your opinion then? All of this is going down because of COVID. Did COVID help the note investing space or did it hurt it? Is it still too early to say since we’re still in the middle of it?

For people that owned performing notes and the semi-performing ones, it helped in that respect. It might have been just me but a lot of people I talk to are like, “A lot of my notes have caught up.” It’s pretty synonymous across the board. It’s helped in that respect but with all these moratoriums put in place, the government has been kicking the can down the road for a lot of these borrowers that went on a forbearance plan, but they’re still $2 million in the forbearance plans, which is the same level as it was back in 2008. The foreclosure rate is 1/10 of what it was back then. When all these forbearance plans end, when they lift foreclosure moratoriums, it should be interesting to see what happens. I’m expecting a bit more inventories to come out, although we’ve been seeing that for years. There’s going to be a lot more inventory because there are all these delinquent loans out there.

Since you first started in notes, has the industry changed drastically or is it pretty much similar to when you first started?

Price has gone up significantly. Gone are the days where you can pick up something at $0.40 on the dollar. The reason for that too is that the collateral value or the properties have gone up in value. Even that nonperforming is more valuable because now it got equity. Usually, they’re trading at $0.60, $0.70 on the dollar. Some people want over 100% on the dollar because there are all these accrued interest charges, escrow for taxes, and corporate charges for legal fees. Some sellers want astronomical prices like 110% of the unpaid balance, which not in a million years I’d want to do that.

There was one seller that is starting to guarantee the full payoff, which had been put into their purchase and sale agreement. I’ve only had a couple from them since but I haven’t had to challenge that yet. I’m hoping that they’re going to honor their word. You go to foreclose and you can’t use that entire payoff amount. You can go back to the seller and say, “You guaranteed us. We need a reduction in price.”

Gone are the days of buying that $0.40, and gone are the days where you can cherry-pick. I’m finding that you need to start buying them in bulk in order to get better deals. It is getting tougher and tougher to buy. If you’re starting out nowadays, it’d be a tough time starting out as a new investor because of that. You can still pick them up here and there, but they’re going to be somebody else’s garbage rates. One man’s treasure is another man’s trash or whatever the saying goes.

To that point though, for somebody new and who want to get in the note investing space, what kind of advice would you recommend?

Talking about the 10X book where he says, “Set your mind to it and go for it,” I don’t 100% agree with that. You need to get a little bit of education ahead of time. For note investors, you need to educate yourself. I would not spend thousands of thousands of dollars on a guru or a mentorship program. I know some of them up there are astronomically priced like $25,000 to $75,000. You don’t need that. Take that money and buy a note. The best way to learn this business is to buy a note. If you lose all your money on that, you’re not going to make that mistake again. You don’t learn those things in those guru programs. They just touch on the high-level stuff. They don’t get in the nitty-gritty. You don’t understand things until you jump in and do it.

Learning Notes: The note industry is a very tight network of people. You can’t burn anybody in this business because if you do, you can get blacklisted.

I’d recommend you get 3 to 6 months. Maybe sign up for a couple of the virtual programs like the online ones that are $1,000 or a couple of grand. That’s a good investment to get familiar yourself so that you know what you’re doing when you jump into it and buy a note. When you buy a note, the first thing you need to do is board it with a servicer and make sure you got insurance on it. Find out where the collateral is going, and those kinds of things.

It’s a little bit overwhelming at first. Most of those programs will teach you that stuff or the basics. You needed to know that ahead of time but after that, no one else teaches you about asset management. There’s hardly anybody out there who’s like, “What do you do now that you’ve got the note? What do you do with the servicer? How do you instruct the servicer? When do you start the foreclosure process? When should you send out a demand letter?” No one gets into that but that’s stuff that you learn as you go.

As it relates to this note business, what’s your long-term goal with all the notes that you’re doing? Is it all mainly for cashflow? Is it for something else? Where are you going with this?

My strategies changed. I’m almost back to where I was when I first started in the note business. I wouldn’t say back into it but I’m adding to it. When I first started, my mentality from buying foreclosures was like, “I’m going to foreclose on it.” I wanted to buy a foreclosure so I could take the property back and fix it up or sell it as it is and make my 20% or 30%. I learned very quickly that doesn’t always happen. There’s this thing called bankruptcy. I should have known this because I used to go to bid on stuff where I’d spend a week investing on a few properties. Half of them would declare bankruptcy and you wouldn’t be able to bid on the foreclosure.

That happens to you when you own the note. When you file bankruptcy, you can’t do anything with it, depending on whether it’s Chapter 7 or Chapter 13. I won’t get into the details on it. Let’s put it on hold for a minimum of 4 to 6 months. My second note purchase was like that where they file a foreclosure. I bought 10 or 12. The 4th or 5th one I bought, the same thing happened within a month or two. I thought I was going to get these two foreclosures. They’re screaming a good deal and turn or flip them, or fix them up and sell them. My money is tied up and I can’t do anything with this for 4 to 6 months down the road at least. If they’re going to Chapter 13, then it’s tied up for five years.

My mentality back then was I wanted to start flipping and turn it a capital, but then I discovered that when you buy these and you get them paying again, they reinstate and they’re consistently paying after that, it’s like, “I’ve got cashflow coming in the door.” If I keep buying those and getting them back on track, you keep buying them. I remember seeing a seminar years ago. Randy Rodenhouse is his name. His company or his tagline is Income Stacker. I remember watching this. I’m like, “That makes sense. If you keep buying them, your cash will continue.” It’s like buying a rental property. The more rental properties you have, the more cashflow. It’s the same concept. I then got on to, “Let’s start doing that.”

In the mix there as well, I took back a couple of foreclosures that were total disasters. Not that I lost money on them but I didn’t make nearly as much as I thought. The Income Stacker approach is much more lucrative especially if it’s one of your main sources of income. Since the pandemic started, it’s hard to find those. The pricing has gone up on these spotty pairs. I’m getting back into buying these foreclosures again. I’ll do my research ahead of time that it’s almost guaranteed that they’re probably not going to file bankruptcy or they can’t file bankruptcy.

The property is vacant so there’s usually a good chance if the property is vacant that they’re going to walk away from it. I’ve been adding that strategy again. I’m having the mix of having foreclosures on the goal that I know I’m taking back and the ones that I can get them to start paying again. It’s a mixture of both. The strategy at this point in time going forward is to have a mixture of both. That’s what I’m going to keep doing for the near future at least. Adding that income stack is where I’m at.

In actuality, some of my partners that have had some notes that we’ve gotten reperforming were like, “Let’s redeploy this capital again. Can we spell it?” I’ve been buying with my company’s money. They’ll give me no money back. I said, “I’ve bought them because these are great reperforming notes again. I don’t want to sell them. We can get a screaming good deal for them.” If I’m going to lose that cashflow even though I’m only taking a portion of it, why not just buy it? That’s what I’ve been doing a lot for a while.

You’ve done so many notes and even negotiated so many of them. What’s the biggest lesson that you’ve learned in the years of doing them?

There are so many. I tell everybody, especially if they’re first starting out, the two biggest dangers in this business are the property itself like the condition of the property, and the title on the note or the mortgage itself. I could go in and tell you so many disaster stories, but I could also tell you a lot of home run stories like grand slams. There’s everything in between.

I use the analogy of note investing as like the game of baseball and golf. In baseball, if you get a base hit, that’s great. If you get a second base hit, that’s better. If you get a third base hit, that’s fantastic. If you get a home run, that’s the best scenario. If you get a grand slam, that’s off the charts. No business is like that. Each deal is like that. The analogy with golf is in golf, you go out. You have a spin or a fantastic drive. It’s right down in the middle, 280 yards out. Your second shot goes into the woods and you’re like, “I want to quit this game.” You then fluff it onto the green like, “I’m back in the game.” You miss a 10-foot putt and then a 3-foot putt and you’re like, “This game irks me.” It’s like a roller coaster. You’re up and down. I use those analogies for note investing.

Getting back to the lessons learned, you have to set as many eyes as you can on that property. There are lots of tools out there nowadays with everything virtual. Send out at least one inspection. You need to have an inspector out there. Try to talk them into walking the property. Corner and the back, that’s trespassing. You’re not supposed to do that. If they find that it’s occupied, you can do that. If it looks like it’s vacant, get them to walk around the property. You’re not supposed to do that but you never know what’s in the back. I took a property back a few months ago and there was a hole in the back wall and the roof was caving in. You couldn’t see it from the street. The house was in total disaster. It needs to be torn down.

I got a BPO that was worth $85,000, $90,000. I discounted at the time to $60,000. It’s for sale now for $29,000. We had some offers but less than that. That’s not the first time that’s happened. It’s probably not going to be the last. On that one, in particular, it looked like it was vacant so I probably should have sent them out again and say, “You can secure your property. You shouldn’t before you own a note, but you can send someone out to at least walk around and see if it’s secured or not.” That’s one of the big lessons. I’ll throw in two lessons.

The other one comes from experience. No guru who’s going to teach you this. Get to know how to read a title report and read the mortgage. This is something I still don’t do. I need to start doing more of it. I’ve got some real challenges that I can overcome. There are major title issues on some of these things I’m dealing with. I wouldn’t have likely picked it up anyway but now I know. This one mortgage encumbered four parcels of land and only one’s got the house on it. These other ones were taking parcels of land that were lost in a tax sale.

The attorney comes back and says, “We can’t foreclose because those were lost in the tax sale.” “What do you mean they can’t be? The house is still there. Why can’t we foreclose on that property or that parcel?” They said, “We can, but…” It’s a long colluded story but that’s another big lesson. It’s understanding the title. I thought I knew a lot of this coming into this business from buying foreclosures but I got curve balls thrown at me all the time. Always educating yourself or taking your lessons learned and looking out for the next time. Hopefully, that answers your question about the property itself and the title.

It sounds like there are still surprises to be had and lessons to be learned in this business regardless.

Learning Notes: A joint venture is when one partner puts in the funds and the other one does all the work.

Almost every day, I’m getting a curveball thrown at me. It’s like, “Where did that come from?” It’s the old saying, “You don’t know what you don’t know.” There are still things out there that I don’t know. One thing I love about this business is there are so many moving parts to it. It keeps you on your toes. It’s never a dull moment. There are sleepless nights too that come with it. You’re up half the night worrying about the five deals that are gone off the reels and how are you going to deal with those. There are 2 or 3 fires I got to put out that I’ve been dreading that I wasn’t made aware of.

What you said is how I feel about the real estate sales business being a realtor too. It’s the same thing. I can totally relate.

I’m in the middle of buying a property. I’m having some issues with that too. I’m selling one. On the flip side, I’ve got a couple of REOs that were rehabbed. Now, people can’t get financing again because they’ve tightened the rope. I’ve had this one. It was one of those ones I bought years ago and it was a foreclosure disaster. Finally, I get it back. I’m like, “I could probably make a little bit of money in this still but let’s just rehab it.” It sold and you know how the market is. Within the first day, we got five offers.

The first one falls through. The appraisal didn’t come in. There’s an appraisal gap. They didn’t want to fill the remainder for the down payment. I put it up for sale again. This time we’re raising the price. I’m still getting prices over asking. It’s crazy this market rates. I’m not taking the highest price. This time I’m taking what my list price was because that’s why the appraisal fell the first time. We’ll get the appraisal in. It matches. The guy couldn’t get the financing fell through. He sold a house that had a mortgage on it. I’m like, “What is going on with that?” There are so many moving parts in this business.

How can somebody learn about you and your company?

They can go to my website. It’s www.EquiGrowth.com. I’m on a bunch of Facebook groups. I’m usually pretty active in those. There’s Chris Seveney’s Good Deeds Note Investing Podcast, Notes and Bolts. There are few others up there like East Coast Distressed Note Investing. There’s Note Investing Mortgages Simplified. I’m usually on all those. Facebook Messenger is the easiest for you to get ahold of people. It’s scary how you can reach out to anybody on Earth now.

When somebody has questions from the audience, how can they reach you for questions?

Find me on Facebook Messenger. That’s usually the easiest. They’re shooting out my email. I can get my email too. It’s Chad@EquiGrowth.com.

These are all questions I had for this show. If any readers have any questions for Chad, feel free to reach out to him directly. Chad, thanks for coming on this episode. I appreciate your time, giving all the value to my readers. Readers, thanks for checking out this episode. We’ll see you next time. Until then, live your life abundantly.

Important Links

• EquiGrowth Capital
• Rich Dad Poor Dad
• 10X
• Kondaur
• Good Deeds Note Investing Podcast
• East Coast Distressed Note Investing
• Facebook – Chad Urbshott
• Chad@EquiGrowth.com

About Chad Urbshott

I am the Founder and Managing Director at Equigrowth Capital, an alternative real estate investment firm that provides advisory services to its subsidiary holdings and partnerships, which acquires residential mortgage loans from financial institutions, hedge funds, and mortgage originators throughout the US. These loans typically consist of 1st lien non-performing residential mortgages, but may also include re-performing loans and owner-financed contracts.