Seth: Hey, everybody, how's it going? This is Seth Williams, and you're listening to the REtipster Podcast.

This is episode 178. And today I'm talking with my friend, Matt Theriault. So Matt is somebody I've followed for a long time since before I got into the blogging and YouTubing world myself.

And I remember back when YouTube was still a relatively new thing and I would look for real estate investing videos on YouTube and I would always see Matt's videos. And I appreciated them because they were really well thought through. They made me you think critically about real estate investing as a profession and how to deal with problems and think outside the box. And these things weren't surface level. They were pretty deep. And as a fairly deep guy myself, I appreciated his approach and his teaching style.

So today, I get to talk with Matt about his story and where his real estate investing and content creation journey has taken him and where he's trying to steer his ship in this ever-changing business environment we're all finding ourselves in.

So Matt, welcome to the show. How are you doing?

Matt: Thanks, Seth. I appreciate it. I had no idea that the history went back that far, but it's good to know.

Seth: Yeah, man. I'm sure you've had an impact on a lot of people through Epic Real Estate and just, I mean, I don't know how many millions of views you probably have on your videos, but you've been doing this for longer than most, right?

Matt: Yeah. As far as I know, I think I'm the longest-running real estate investing podcast that's still going. So we started in 2009. I think the only person that was there before me, and he had like 10 different podcasts, was Jason Hartman, but a little bit more like higher level type.

But as far as the how-to and the nitty-gritty and strategy and technique and tactics and stuff like that, I think, yeah, the longest one.

Seth: Yeah. So I don't think I've ever even heard the actual origin story of how you got into real estate and what your journey looked like. like and even like the how and the why behind why you started Epic Real Estate Investing. Can you just like give me the backstory on how that all started?

Mat: Yeah. And thanks for asking. It's been a long time since I've been asked. When I got out of the Marine Corps, I spent the next 14 or 15 years of my life in the music business.

Seth: Oh, really?

Matt: And I did really well for myself.

Seth: What did you do in the music business?

Matt: I had a small hip-hop label, but we had major label distribution. It just happened. I was really blessed and fortunate that people liked what I did and they're willing to pay money for it. It’s very different than how real estate started because there were no goals. There was no discipline. There was just waking up and doing what I loved and I was just really fortunate.

And then, when the digital download came along, it just kind of killed the music. When you make all your money selling CDs and records, you know, it made it kind of tough. And I would say in about six quick months, I had no idea what was happening. I mean, in hindsight, it's crystal clear. But at the time, had no idea and went out of business in like six very fast months, like on the emergence of Napster.

You know, the whole underground music scene, whether it was underground hip-hop or underground rock or underground dance, they embraced that digital download, the technology, far before the mainstream population even knew what it was. So if you fell into one of those genres, then you got wiped out before anyone else even knew what a download was.

Seth: Are there any well-known artists that you signed that I could search for and find?

Matt: Right. Signed? Not really. I mean, Michael Myers was my only artist, but kind of what we did that was a claim to fame was two things.

We made records specifically for disc jockeys, like the battle hip-hop DJs. So we made those instrumental records with all the little scratchy sounds and stuff like that on them.

So we did that and then… As far as I know I'm the first one that did this, but at the time, dance music compilations were really big but then they would like center on a DJ who was like the actual artist or the star of the thing, and then they would mix their music and so they're mixed like legal mixtapes. If you remember what a mixtape was, I don't know how old you are, Seth. But I used to sell those in high school.

Seth: Okay, nice.

Matt: Did you ever have a cassette player? Are you that old?

Seth: Oh, yeah. Yeah, for sure.

Matt: Okay. I kind of lost track of where that technology started and stopped.

Seth: All my childhood, it was tapes.

Matt: Very good. And so I just took that same idea from the dance music industry and went over to hip-hop. And so I had the Beat Junkies, their compilation on my label. And they're still going as far as I know today. And they all went off to do other things. And then they all came back together. And they all kind of operate individually and as a group.

And then on our compilations you know I was able to work with you know Jurassic 5 and Eminem and Mos Def, and so all the kind of, not necessarily your mainstrea, I guess. Eminem is mainstream now but he wasn't at the time, no one knew who he was. But I got to work with a lot of artists but never really had anybody signed to me except the one, Michael Myers and another guy named Akbar. But anyway.

Seth: Wow, nice.

Matt: Once we decided that, I don't know how I'm gonna make my way in entertainment because I didn't necessarily have the talent myself. I was a little bit more of the executive type and you know, I produced a lot. But it turned into a, all of a sudden, only the people with the deepest of pockets were going to stick around.

And so I just had to find and do something else. And I went and bagged groceries. I was 34 years old and I was bagging groceries because I didn't know how to do anything else. I didn't have any certifications or degrees or anything. I didn't know what to do, but I had to eat.

Seth: Was that like a low point for you? Like, did you get depressed or anything? I mean, that's a huge fall, right?

Matt: For sure. I mean, when you're in your hometown and you're bagging groceries at the local grocery store and your high school girlfriend comes through the line, you're like a paper plastic man. You know what I mean?

Seth: Ouch.

Matt: That one hurt that day for sure. But yeah, you know, 34 years old and taking my lunch breaks with 16 year olds was kind of very humbling, for sure. And so did a lot of complaining, you know, blaming everybody and everything for my situation. Life was unfair and poor me for about six months and I finally realized, wow, if I don't do something, this might be my future and I don't want that.

And I became kind of close with the grocery store manager who was also 34 years old. Coincidentally, you know, he was managing the place and I was pushing the shopping carts. He was only two years away. This was the big eye opener. And this is like kind of really like the launching ground and the foundation of everything I'm about today.

And he'd been there for 18 years. He started there bagging groceries just like me, but he started when he was 16. He was two years away from being there 20 years. And he was going to be able to withdraw, I think, 70% of his pension. For indefinitely. I mean, he stayed there for 30, he could get a hundred percent, but he was going to go ahead and take that then.

But he pulled me aside and he showed me, and he used to have a photo album. Do you know what photo albums are?

Seth: Oh yeah.

Matt: Okay. All right. It's funny. I have assistants and interns. They have no idea what I'm talking about sometimes. And that makes me feel really old. I must be kind of out of touch with the young ones too.

I told one that I was the other day, I was like, yeah, I used to sell compact discs. And she was like, what's that? I said, you know, CDs. She goes, oh, I didn't know that's what that stood for.

Seth: You know, I actually had a moment like this last year. I was talking to somebody, I think he was like 23 or something. And I don't know how this came up, but we mentioned Ricky Martin. Like, I remember back in high school when Ricky Martin was a big deal?

This kid's like, who's Ricky Martin? What are you talking about? I was like, are you serious? No way. But I guess it kind of made sense. I mean, he hasn't been a big deal for a long time.

Matt: For a very long time. That's right. So he had showed me a photo album and he had like, I don't know, it was three or four multiple angles of it, but lots of pictures. But of three or four different apartment buildings he had been able to amass along the way while he worked at the grocery store.

And he shared with me how the passive income from his apartment buildings will surpass the pension that he's going to receive. And so he was retired at the age of 38.

And he told me these words. And these words, I've said them a million times. If you've listened to the show, you've heard them at least 10 times. But he shared these words with me. And it's just been the foundation of my whole existence ever since when he said, “You know, Matt. If you really want your money back, if you really miss your money,” and I really did because, you know, I made my million before I was 30 years old. And he said, “real estate is the final frontier where the average person has a legitimate shot at creating real wealth.”

And I was like, the final frontier? This is the last one? He says, “Yeah, unless you can know you've got an amazing three pointer and can jump three feet or, you know, swing a baseball bat better than anybody or whatever.”

But he basically just kind of broke it down. You've got to be super talented. Or you have to have an amazing business idea. You have to be an inventor. You got to be a writer. You got to be a composer. You got to have a gift for sports. But for the average person, real estate is where their best shot is at getting wealthy.

And I was like, wow, at this point in my life, I feel far below average. So who am I to aspire above average? So I took it on and I did what I thought the logical thing to do was I went out and got my my real estate license.

And I did okay. You know, I got rookie of the year in my office the first year and then it just kind of settled down. And I lived in an area where I was very blessed. It was the million-dollar homes. So I only had to sell one of those things every other month to make a really, really good living.

And, but there was one Saturday where I was meeting with a client and I had two good clients, really good clients. They just did repeat business. They gave me business over and over and over again. I didn't have to work for it. Once that relationship was established. They just gave it to me.

And there was a Saturday. I was all dressed up in a suit and tie. I remember it specifically as in Palos Verdes, California, at the top of the hill of Palos Verdes. And I was in a suit and tie at 10:30 in the morning. They were supposed to be there. They didn't show up until about 11. And they came in, they signed all the paperwork. I had all their papers out and everything, coffee and snacks and everything for them to sign the paper. They were closing a bunch of deals.

And they came in 20 minutes late in jeans and a T-shirt, signed all the documents and took off for the day. And then I was left there to finish up the paperwork. And then I had to go hold their properties open. And I was like, you know what? Real estate's been good to me. But if this is where the money's at, I'm sitting on the wrong side of the desk.

And so that was like my breaking point where I was like, okay, no longer am I going to represent other people in their sales and their transactions. I'm going to act on my own behalf. I'm going to buy and sell myself. But I had no idea how to do it.

So I went and made a huge investment, like so many people do in their investing education. I think I paid $22,000. And back then, my family thought I was absolutely insane. That was unheard of. I remember my grandma, she's like, well, you're going to get like a degree or something, right? A certificate? And I was like, no.

She goes, well, do they have a good job placement program? I remember her asking me all these questions. And I was like, no, I'm going to go be my own boss. I'm going to do this all by myself.

So that's how that transition started. That's how I got into real estate. It really was for the money, but then it really became that whole moment of this guy, the grocery store manager. He was able to recreate in parallel to his day job's pension an income that far exceeded it and did it inside of 18 years.

And most people strive for 40 years and can't do that through the traditional means. I was like, you know what? No one ever taught this to me. This is a brand new thing, idea to me. And gosh, if I didn't just luckily end up bagging groceries, I still might not ever know. So I was like, okay, this is what I'm going to do. And that kind of became my, I mean, sure, I got into real estate for the money, but then it became a little bit of a passion of mine to actually share what I had learned.

Seth: Yeah, it's interesting. You talk about what if you had never started bagging groceries and had that revelation and heard all that? It makes me wonder, I have a feeling a lot of people are in that situation and hear about it, but they just kind of blow it off or dismiss it. Or it's like, no, it's not real.

And man, I even think about myself, like how many business ideas have I heard about that maybe were real, but I just blew it off and dismissed it. And it's a good reminder. Like it comes down to action, but I guess also being able to tell, okay, this is a real legitimate thing versus now this is not worth my time.

Matt: Yeah. But this guy, I had evidence staring me right in the face.

Seth: Yeah. I'm sure that helped.

Matt: And he was my age and he was done and I was just starting over. And that was, it really hit me emotionally.

Seth: For sure. So did you start trying to get apartment buildings like he did? Or did you go after houses? You're like, what was your first step after you paid 22 grand?

Matt: As much money as I made in real estate, I spent it as fast as I made it. So I didn't have any capital and having, you know, left the music business, I had to file bankruptcy there. And, you know, my wife left me with all of her debt and, you know, she didn't like it that I didn't have a job anymore, basically. And I was no longer a celebrity, a music celebrity.

So I was really drawn. I got really lucky. The program I chose... It's not around anymore, but it was kind of like a buffet. You got to learn whatever you wanted to learn. It was a two-year program. You go out to Glendale, Arizona and, you just kind of walked up and down the halls and okay, they got wholesaling over here and they got short sales over there. And then there's legal strategies here. And I just kind of walked up and down.

And so I was really drawn to the creative acquisitions class. And because I had to go there because that's what my resources allowed me to do. And I just really embraced that and got really good at it. And went into single-family houses and buying stuff subject to and seller financing and built a portfolio, got it to over 350 units at one time.

I was completely unlendable from a bank standards the whole time. And that's what I was able to build just with that. And then when I started getting money, I was like, well, why would I go to a bank? I don't need their money. I know how to do this myself. So it was really a blessing to be able to start with really no money at all.

Seth: Wow. So you bought a lot of these properties or maybe all of them with owner financing where the person sold them to you on installments?

Matt: It was either owner financing, subject to, private money, a combination of the three. So those are my three main tools.

Seth: Okay. Gotcha. Like a hard money lender or you had a rich uncle who would partner with you or something?

Matt: Friends and family. Friends and family. Yep.

Seth: Cool.

And just people that I I would meet. I met a lot of people at my RIA clubs. What's funny about RIA clubs is that, when you're going in there as a newbie, you're like kind of in awe. I haven't been to one in a while, but there were like 100 people every time I went.

And I just look at all these people like, oh, my God, these people are all real estate experts. Look at all this stuff that they're doing and blah, blah, blah. And then once you do one deal and you tell somebody about it, all of a sudden the crowd starts to gather. And all of a sudden, you find yourself holding court explaining how you did this one deal. And then you realize nobody in there knows what they're doing.

Becoming an expert attracts money, buyers, sellers, partners, investors.And so once you do a few deals, you become the de facto expert because no one else has done just a couple of deals. And what that does is it attracts a lot of money. It attracts buyers, attracts sellers, it attracts partners, it attracts investors.

And, you know, a lot of those people have money and they want to put it to work, but they don't know how. So they cling onto the people that are actually doing it. So that's, that was a big launching ground too, as far as the private money goes.

Seth: Wow. So just out of curiosity, the owner owner financing piece, what percentage of your deals would you say you got that way versus subject to or private money?

Matt: They almost all started with seller financing. So I would say probably 70%, 75% of them were all seller financing.

Seth: Okay. What was a typical structure? How would you explain it to them or get people to go along with that versus just wanting cash? Like what was their motivation for saying, yeah, I'll do that?

Matt: Good question. Beause when I first started doing it and I see a lot of people do still do this today is when I first heard about how, in seller financing, the seller could step in and be the bank, I was like, that got me all revved up and raring to go. So I would just go to my sales appointments and present that right away. And lots of rejection when you do it that way.

And then over time, I started to learn that, okay, so there's this other guy down there a couple couple of years later, he said, you know, Matt, we buy, we're real estate investors. We buy properties in one of two ways. It's either our price in the seller's terms or the seller's price in our terms. You only need to get control of one of them. And, what you need to understand is, it's easier to go for the terms because the seller doesn't really understand anything but price.

So that was the big pivotal moment for me when he said, when you go in, you have to talk price because that's all they understand. They didn't go to some educational program and learn how to sell creatively.

So when you walk in and they're in some sort of distress and you start presenting all these creative things, you sound like a scammer. You sound like someone's trying to steal their property. You sound like they're trying to pull the wool over someone's eyes and doing something that's illegal.

So you just always have to go through the price. And then, if you reach an impasse when discussing price, then you go, well, I might be able to give you a little bit more. If I could give you some money now and the rest later, how much do you actually need right now?

And that was always the transition. And I still use that exact line today. And once they give you an answer, now you've dialed in, you've closed for the down payment, so to speak. Now you just have to decide how you're going to pay the balance. And that's typically in payments.

Seth: Yeah. So is there some kind of, you know, once you get to that point where you wrote the subject of payments, that kind of thing. Is there a standard set of terms that you default to? Like five years, this percent interest, this down payment, or is it like there is no standard? You just figure out what they want and tailor it to that?

Matt: So my default, my go-to, like I always want them to tell me what they want, right? But if you ask them what they want, they don't have an answer. So you have to kind of feed it to them and let them and help them figure it out.

But it'll always be, once they give me the down payment, I'll say, okay, well, you know, most people that everyone else I work with, but they allow me to pay the balance in 300 equal monthly payments. Are you okay with that? And they almost never are. Oh, no, that's too long. It's 27 years. I'll be dead by then. I've heard that a million times.

And I was like, okay, well, how many payments would be acceptable? And now I can go from there. But I planted the anchor with 300, which I wouldn't get, I think it's 27-something years. And I also didn't, if I say 300 equal monthly payments, I'm also starting at zero interest too.

Seth: Do you say that or is that just kind of the underlying assumption?

Matt: No, just 300 equal monthly payments until the balance is paid off. So I didn't introduce interest at all.

Seth: As far as the down payment, is that just whatever they say they need now or do you have a standard down payment that you try to shoot for?

Matt: As little as possible always, right? You always want as long a time as possible and as little down money as possible. And if they say they need a half, then it's like, okay, well, what are the payments going to be? And what is that ROI going to calculate to? And now that gives me a number of what, how much I can go pay a private money person for. You know what I mean?

So that's how I do it. If they wanted a big, giant chunk of money down, then my payments are going to be really small and drawn out.

Seth: Sure.

Matt: And it's like, well, if that's too small, well, I'd be happy to raise them up for you, but what can you do for me on the down payment? And so it would just be like this little seesaw balancing act until we met someplace where it was a good deal for both of us.

Seth: Of all of these people that you've talked to with seller financing, I mean, obviously it sounds like it's worked out plenty of times, but what percentage of the time is it just like, no, we're not doing seller financing versus, yeah, we'll consider that.

Matt: I wish I was tracking that. I've gotten to the point where I just don't pay attention to the no's. I'm just looking for the yes-es. Most people don't like the payments idea. I just don't have a number. I mean, it's obviously just buying properties at a discount, period. Or it’s going to be a low number, right? I mean, one out of 10, you are knocking it out of the park.

Seth: The reason I asked that percentage of people to say yes to that is because I've heard people say that when they're trying to go down this self-financing path, it's usually like 20% to 25% of people will say yes, and the rest are just no. But that probably has a lot to do with other factors too. Like how well they're explaining it and how flexible they're willing to be on the terms and all this stuff. So I was just curious if you had any wild guess.

Matt: I would imagine my conversion rate is better than most just because I break it down. Like I don't say, well, how about you carry back the financing for me? Or I want you to do a seller carryback, or why don't I take over your payment subject too?

But I'll just say, hey, how much money do you need right now? Great, then I'll give you the rest later. Is that okay? So I remove all the jargon from it. So it is easy to understand.

So I think my conversion rate is probably better than most.

Seth: Yeah, that's actually huge. Being able to speak it in ways that are easy for an eighth grader to understand. There's a lot of people that can't do that. I feel like the smarter you get, the harder it is for people to be relatable like that.

I was just talking to somebody yesterday who was going on and on about all this stuff. I just didn't understand what he was talking about and it really hurt our communication. I feel very disconnected from what he was trying to explain to me. So yeah, it's a good, good point.

Matt: It's so true. I mean, and I've gone through where I didn't know anything and I was successful. And then I started to know a little bit of something and started to feel like I might have been a little too big for my britches and would get in my own way. And then I had to just dumb myself down again.

And, you know, when I have clients come through now with our program, they're all nervous and scared. And I said, good, don't let that go. Hold on to that for as long as you possibly can, because it's when you're the least threatening when you're the most dangerous. And so I've learned to actually play that role now.

Seth: Interesting. So of those three, seller financing, subject to, and private money, is your preference to go with seller financing?

Matt: Seller financing is always the preferred option for deals.

Seth: Like if you could always have your pick, is that what you would go with?

Matt: Always, always. As long as it cash flows and it produces an ROI, I'd rather do that every single time. I mean, I wish I would have gotten a few more loans when the rates were down at 2.5%, 3%. I wouldn't mind some more of those. But yeah, the seller financing is always the way to go for me

Seth: Yeah. So did you always stick to residential units or did you ever do anything else or how'd that go?

Matt: I dabbled in three different apartment buildings in Memphis and I screwed all three of those up.

Seth: What went wrong?

Matt: I got them really, really cheap. They needed a lot of rehab and managing a big rehab from Los Angeles and going halfway across the country to Memphis. I just couldn't keep my eye on the prize, you know what I mean? So I delegated too much. Didn't even delegate. I abdicated.

I said, here's the money, go fix it. And then I just trusted that it would get done. And it didn't. And so I would never do that again. But I did it three times, like all within the same year. And I said, okay, let's stop doing that.

Seth: Of those houses that you bought with seller financing, you're subject to private money. Were these ever requiring like full rehabs where you had to get a general contractor and fix the whole thing up because it was a piece of junk? Or were they just kind of ready to go where they didn't take a lot of work?

Matt: Both, but mostly needed rehab.

Seth: Okay.

Matt: Most of the time, if it needed too much rehab, it turned into a wholesale flip for me. So my intent was always to hold the property until I decided that I didn't want to. And usually one of the deciding factors is if it needed too much rehab.

Seth: And one more question about that seller financing. So under what conditions, if you got down that track of the seller seriously considering this, under what conditions would you say, no, like this isn't going to work? Is it just if it didn't cashflow, or was there like a minimum amount of cashflow you needed? Or like, if they wanted a balloon in three years, was that a deal killer? What did the box have to look like for it to work?

Matt: First and foremost, it had to cash flow. That was a must. If I'm not making a giant equity position or if I'm not making a stream of income, it's not a deal for me. So that's the first thing.

Second thing, if I'm going to hold on to it, then I have to have property management in the area that can get the property to perform. That's going to be more vital to your success than anything else, in my opinion, is having good property management that can screen tenants and can collect money and keep the maintenance down low and all that.

So that was always those two things—you know, those were the deal breakers.

Now, when it goes from there, it's a give and take on what the equity position is and what the cash flow position is.

Here's a good example. I mean, I'm always looking for the cash flow, right? But when I moved here to Vegas, I got a couple properties here that don't really cash flow at all. But they are the nicest properties in my portfolio.

And from what I've learned over the years in managing property managers that are managing my properties is that sometimes the nicer houses with the lower ROI are a better experience than when you go into a lower income area that has an amazing ROI. At the end of the day, what actually performs in real life is typically the nicer properties.

So I made that shift about four or five years ago and started really just focusing on much nicer properties and okay, like I don't need the cashflow to live. So cashflow hasn't been that much of a focus, although it's important. I don't want to carry a bunch of negative stuff, but that's just kind of an example of that.

There's so many variables and there's kind of a wide spectrum and it kind of depends on what does the deal present. And then second thing is what do you actually need at that time? Do I need cash to replenish my marketing budget or make payroll or am I cool there? And I can just keep adding to my portfolio and adding cash flow.

Seth: Another question I had was on the cash flow piece. Was there any kind of ratio either back then or now with the nicer properties you have where it's like, if I've got this much equity tied up in it, it needs to make this much per month in cash flow?

Like if you've got a million dollar property making you 25 bucks a month, I'm assuming that's probably the juice isn't worth the squeeze. So like, is there a minimum threshold?

Matt: I didn't have a strict box, no. But kind of what I would go for if I could get somewhere between a 10% and 15% cash-on-cash return, then I knew I could borrow the down payment and pay somewhere between six and eight and create an infinite return. So that was kind of like my minimum income.

Even though it wasn't written down anywhere that in my mindset, I was like, gosh, if I can get between 10% and 15% cash-on-cash, then I know I can pay somewhere between 6% and 8% for the private money and my private money pool would be more than happy with that. Because I only need 10 grand here and 50 grand there for those down payments.

Seth: Yeah. It sounds like you're clearly not afraid of hard work. Trying to think of, why do you think you were able to do so well and continue to do so well and all the different things?

I mean, you've succeeded in multiple domains, you know, the music business, real estate, education. Like, why is that? Why doesn't everybody succeed like this, like you do? Is it because you're not afraid to get on the phone and just talk to people and wheel and deal and negotiate, whereas other people might be scared or timid or shy? What do you think your unfair advantage is?

Matt: I think I'm very clear. I don't want to struggle, right? I don't want to just get by. I don't want to be mediocre. So that's inside of me. So I want more than average, first.

And I think second is if I don't go get it, who else will? I think those are probably the two things. Like no one's going to do it for me. And apparently today that does make me a little bit of an anomaly.

It seems like you pay attention to social media and you start reading the comments underneath. It's just like, wow. You know, one of the big comments that I heard, things I see all the time and hear all the time is when I talk about rental property and people say, yeah, but then you got to deal with tenants.

I was like, okay, so here's the trade off. I can spend four hours a month managing my property managers and deal with a bad tenant every once in a while. Or I can report to a boss for the next 40 years. You're telling me that sounds better? Because I feel that mindset a lot out there. Like that's the trade-off. Like you're going to say, no, real estate sucks. You're a loser and you're a con man and blah, blah, blah. And you're an idiot and you're irresponsible. And how dare you teach this to people? Because everyone's going to lose.

I'm just like, wow, is that really, that's really what people's mindset is when it comes to income property. They think they're going to mess up with every single tenant's going to be terrible for them.

And then they think, oh, there's the other one. If the water heater goes out, there goes your whole years of cash flow. Like I hear that all the time. And that's a reason not to do it. I was like, yeah, but I got the appreciation. I got the depreciation. And the tenant is still buying the property for me. And then whatever improvements go on, I just adjust my cost basis.

And it's beautiful. There's no other investment class that allows you to do all this stuff. And people hear just one thing and they're like, oh, no. And they walk away with the wrong lesson. And that's a shame.

Seth: Yeah, that is a shame. Well, I'm actually curious. So when you rewind the clock from when you're 34 and you're bagging groceries, to then you make this decision, you get your education, you start going down the real estate track as an investor, not just an agent. So how long did it take you from the day you started doing that to the point where you had more than enough properties to give you the cash flow to give you a much better life? I get that's kind of an open-ended question.

Matt: No, it's fine. Just under four years, about three and a half years.

Seth: Okay. So I guess you were working as an agent as you were buying these properties and building up that cash flow?

Matt: No, those two things did not run parallel for more than six months. So I was exclusively an agent, did not own anything. And then I made the transition. I started owning and I stopped being an agent altogether.

Seth: Okay. So during that runway up to that four-year period, were you still bagging groceries to live off of that? Or how were you supporting yourself?

Matt: Kind of what I said. I did the marketing. I did almost all networking, though. I mean, it was almost all face-to-face. And I mean, I didn't know people would respond to postcards back then. I thought that was ridiculous. Who would send that trash?

God, if I only knew then what I know now, I would have sent twice. I would have gone overboard on postcards back then. I had no idea they were working so well. But my intent was always to hold the property. But I ended up flipping a lot.

Seth: Oh, I see.

Matt: Did you know Matt Owens over at Owens Capital Group?

Seth: I don't think I do.

Matt: He's in Redondo Beach. And he had a big turnkey operation before I even knew what turnkey was. And I would go out to all the REIA groups. I would go to the Chamber of Commerce and all the little networking parties and I would sell his properties for him.

I got by doing that and he paid me 3,500 bucks for every turnkey property. And so I just went out and looked for busy professionals and brought them to his doorstep and I got commissions for that. So that paid a lot of bills for a long time.

Seth: So you got up to 300 units at some point, and then did you you decide to like start selling those off? And at what point did you decide, Hey, I should get into the education part of this business and do that. What made you realize early on that you'd be good at that?

Matt: All right. So that's a good question. I had no intention of ever becoming an educator in the beginning. I went to a rah-rah seminar. I was in one of those little pyramid multi-level marketing things for men.

And they were just like, well, loaded you up with all the personal development stuff. And they'd always have speakers. And there was one guy there. And this is right when I was just getting started in real estate.

And he said, you know, the wealthiest people in the world, they have one thing in common. How they make all their money is they get really good at something and then create multiple streams of income from that one thing that they're really good at.

And he says, most of the time, it ends up as being a consultant, a teacher, a tutor, or something like that. And so I heard that. Oh, okay. Well, maybe I'll teach one day. Let me get some more transactions under my belt. Maybe that's a possibility.

And I've always been the perennial opportunity seeker. And I got invited to this one thing. And this was when I was brand new. The internet was brand new. And someone went to this little workshop on membership websites. I was so blown away because I was receiving passive income from real estate. And now I want to diversify and get passive income from another source.

And so now I kind of put those two things together and went, well, maybe I could put some little videos together, put them inside this membership website, have another stream of passive income. So that's how it really started; it was the desire for another stream of passive income.

So we did that. And, you know, I sold it for, I think a hundred bucks a month or something like that. And we had probably a hundred people in there. And so that was kind of like, okay, well, hey, that's money. I don't really have to work on it. It's all automated, they can watch the videos.

And one day I walked into the house and Mercedes said, hey, I got you a coaching client. I was like, what's a coaching client? What do I have to do? And I said, I don't want to do that. I just want this passive income thing. I don't want to talk to people. I just want this to be this passive thing.

She said, well, he's already wired the money, so you've got to do it.

And so that was kind of where it started and he turned out to be wildly successful, that very first client. And I think I got kind of hooked on living vicariously through him and recognizing something I knew had value to other people besides myself.

And then we put out and sent out a little email, hey, who else wants to do this? And gosh, that was when you could send out an email and he had 30 new clients by noon. And that's kind of how it started.

Seth: I'm actually curious, how do you split your time between this education side and then the actual transacting of real estate deals yourself? I know this is something everybody who's a real estate investor and teaches about that has to figure out how to balance.

Is there some kind of organized structure where it's like, okay, I'm going to spend this day doing this and these other days doing this, or does it just kind of change from week to week? How do you make that happen?

Matt: Yeah, that was a big, big problem in the beginning because I would sell this thing that was like for 12 weeks, an hour of a phone call a week for 12 weeks. And then guess what happens when you get to 40 clients. Like that's all you do all day long and there is no time for anything else. I was like, okay, this is insanity.

I remember the year, it was 2014 or 2015. I would give all that money back to have that year back because all I did was stay on the phone for these little consultations. But what I did is I moved everything to a group structure. And so on Thursdays, there's a group call.

So it originally started off, I just work an hour a week now and service the same people and get the same results. And then I gave them access to me via the free app on your phone, Voxer. If they had deals to look at and they needed explaining of complex things, then they would come to the group call and I would do it then.

But if they had a quick question or two that I could just answer really quickly and get them going again, then that's what they would use Voxer for.

And that changed everything. All of a sudden, it became almost a lifestyle business. And now I had six and a half days a week now open to continue my real estate investing.

Seth: That's a great idea. Yeah, it makes sense to batch things like that. Is that still how it works today, that kind of group format?

Matt: Yeah. I mean, Thursdays are dedicated to my coaching. So there's like a few calls now that I do on Thursdays, depending on what experience level that the student is in. And then, yeah, the other six days are freed open for me to take the real estate calls.

Seth: Do people ever give you crap about being an educator at all? Like if you can really do this…

Matt: I’m just gonna say yes, I don't know what people give me crap all the time.

Seth: I mean, is that like a thing that you ever encounter?

Matt: The new word I keep hearing is grifter. Go ahead.

Seth: I mean, is that a thing you ever encounter where people like almost looked at you with a skeptical eye? Like, OK, how are you trying to scam me or something? You're not real because you're teaching stuff instead of doing it. Or is that a you ever deal with that or not really?

Matt: Yeah, it comes up particularly in the comments. Right. I do remember the day where someone said just another stinking guru. And I was like, guru? Is that what I am? Like, all of a sudden, it was like the first time anyone ever called me a guru.

And I was like, oh, wow, that's weird. I didn't know I was a guru. I thought I was just kind of, you know, helping people and being a facilitator of this online education. I didn't realize I was a guru.

But you get that. But weirdly, I've had people come through here. And after we've had some time together, I said, you know, Matt, I'm glad I came here and I'm glad I chose you. But, you know, I was actually more skeptical that I couldn't find anything negative about you on the iternet. I would rather have found something, maybe one or two people that kind of had an issue.

And so I've had it both ways, you know, to where people, they have negative things to say and there's nothing negative about me that has been said. Who knows?

Seth: Yeah.

Matt: If that's who they are, then they're just not the right fit to work together.

Seth: Sure. Yeah, I was listening to this interview between Jordan Peterson and Oliver Anthony. You know who he is, Oliver Anthony?

Matt: Oh, he's the singer guy, the country guy, right?

Seth: Yeah, he kind of just came out of nowhere. Yeah, so he put a video on YouTube and it blew up. Now he's got all these opportunities coming his way.

And as Jordan Peterson was interviewing Oliver Anthony, Oliver was saying like, yeah, I don't really want to sell out or I don't want to just sign this huge record deal. Almost like it was a questionably immoral judgment to do that, to just take a bunch of money and do that.

But Jordan Peterson had some kind of interesting thoughts on that. He was saying, you know, a lot of people who criticize others for selling out are people who have never really had the opportunity to sell out because they don't really have the opportunity. So they kind of look down on other people who do.

And also like, if you do take those opportunities to get more exposure, spread your message, and seen by more people, inevitably, you're going to get a lot more feedback, which is going to give you more information on how you can be doing things different and better as opposed to just working in a silo and just putting your head down and doing your own thing.

So there's actually a lot of upside to getting bigger, so to speak. And I know it's not necessarily this evil move or selfish move to do that, even though there might be obviously self-interest in that. There's a lot of good things that can come from leveraging the internet and getting your message out there.

So i thought that was interesting.

Matt: That's a pretty common viewpoint, I'm not surprised Oliver Anthony had that position. That's a pretty common viewpoint inside the music industry, because it's such an artsy thing that people feel once you do it for money you lose your your edge, you lose the artistic aspect of it. So I had that, I experienced that all the time in the music business. It was tough to work with people that weren't motivated by money. It's like you're a brilliant artist, I want you to be on my label. What do I got to do to to lure you over here so I can work with you?

And I think there's a lot of me that way as well early on. But I think the older you get, you realize how society works, you know, and the way that money serves our society. There's nothing that replaces it the way that it serves us. It puts food in our stomach. It puts the roof over our head, the clothes on our back. It pays the hospital bills. And it allows us to do all of those things for the people that we love. And if you don't have money, you can't do that.

So I think the older I get, the more I think you have an obligation to make as much money as you possibly can. If you want to really live a fulfilling life in a society that we live on this planet, because that's just how society works and you don't need money to be happy for sure. Like I've never wanted to debate people on that because that's kind of silly debate in my opinion, but boy, life is a whole lot better when you got it. I'd rather be sad with money than sad without it.

Seth: Yeah. No, I hear you. I'm with you. So you were talking earlier about, you wish you knew that like postcards worked as well as they did and that kind of thing. Maybe, I wonder, when you think of all the stuff you've learned in all the businesses you've taken part in, is there a most important lesson you've learned that you wish you knew when you started that you know now?

Matt: Gosh, there's a few of them, but the one thing that comes to mind right away, and I was just at a Christmas party. And they asked like if you could go back and tell your younger self—one of the questions, the table topics, that they surrounded on the table was—if you go back and give one piece of advice to your younger self what would it be?

And immediately it came to me was don't be afraid of the zeros. Meaning, it takes no more work to flip a hundred-thousand dollar house than it does a million-dollar house.

And in the beginning, being from Los Angeles and, you know, I think the median price in Los Angeles at that time was $350,000, $400,000, something like that. But when I made my first trip to Memphis and saw that houses were 50 grand, I got so excited and my confidence just went through the roof. And that's when I really started to succeed.

But looking back, I could have done the exact same thing in Los Angeles with the exact same work, the exact same processes, the exact same steps, the exact same conversations, everything, and made 10 times the money.

So I would go back in and that would be one thing. One lesson was like, just don't be afraid of the zeros. That's because as a big thing, a big number attached to it doesn't make it more difficult or scarier.

Seth: Why do you think we are more afraid of the zeros? Like, I think I am to some extent. And you're right. I mean, I don't know why. It doesn't make a logical sense. I don't know if I'm thinking somehow there's a bigger consequence if I screw this up versus a small deal when, either way, I'd be kind of screwed. So I don't know. But what do you think is going on with people's heads?

Matt: There's one paradigm shift that I had that really kind of changed everything for me. And it just removed that fear altogether. In fact, it almost reversed it. It’s when you don't have any money, you think that's the hard part, right? You think, like, I got to want to put an offer on a million-dollar house, where would I possibly get that money?

Even if they said, here's a 5% down payment and I still need 50 grand to make that happen, right? So that will hold a lot of people back from even writing an offer, let alone getting into the deal.

But the operative word being “deal,” if that 50 grand down is going to produce 100 grand profit, then you must put it under contract or else that 100 grand profit won't be yours.

And it's not difficult. Like an example I always use when I'm speaking to a group live is that “I have a dollar in my hand. Give me 50 cents and I'll give you the dollar.” That would be no problem for everyone to do. People do that trade all day long. Right? And so that kind of connects. So that's how you kind of look at a deal is that I have 50 cents that's worth a dollar to somebody.

And if you have that, then you want to get as much control as many of those as possible. And the same thing will go is like I have a hundred dollar bill, do you have 50 bucks, so that you'll trade me for it. Now we just added some more zeros to that and the answer is still a resounding hell yeah. And if it was a million bucks and do you have 500,000 for it, it'll be like, no, but I’m gonna go find it because that's a quick half a million dollars I could make right now. So that was a huge paradigm shift that has me no longer afraid of the zeros.

Then also, when you start playing that way, you start to recognize, wow, it's actually a lot easier to raise a couple million bucks than it is 50,000. If the exchange is there, right, if the dynamic of the deal is still there, it's much easier to find that money because for $50,000, someone's going to get 10% on that in return. And they're like, eh, that's like no money. It's probably even worth writing up the paperwork and signing the docs.

But hey, if I could put a million bucks out there and I can get 10% on it, then now you capture actually not necessarily more people's attention, but you get more serious attention and consideration from the people you do share it with.

Seth: Oh, that's a great illustration. I love that.

It sounds like things have gone resoundingly well for you as a real estate investor. Have things ever not gone well? Like have you had any horror stories or deals that fell apart or things gone really, really bad or anything like that?

Matt: Well, all of my multifamily ventures have really gone bad and I tried to do them from afar and they were major. I just bit off more than I could chew. They were big projects.

Seth: Does that mean like you lost money on them or something, or it was just a waste of time or how'd they go bad?

Matt: The one I got out by the skin of my teeth and broke even and was able to get all of my investors their money back. And I actually had to sell that with seller financing just to, so I could at least get my price. So that was okay.

Another one, yeah, I probably lost about 50 grand of my own money. But then there's another at the same time, and these three all happened relatively in the same time in relatively the same area.

Then there was another thing. I just bought this building. It's 50 doors and it's just a brick building and they were all gutted. Like every single unit had to be redone. And I got that for $1,000 a door. And I was like, well, hell yeah, just take it. We'll figure out what to do with it later. And I held onto that for a year and just paid the property tax.

And I'm finally just like, you know what? I'm never going to get to this. And now I've got these open wounds from these last two multifamilies. And I sold that one for $2,000 a door.

So that was actually a great day. But I haven't ventured back into multifamily since. But those were my disasters. And I'll do it again. But now that I'm local here in Vegas, I just told Mercedes last night, I was like, I want to get a multiunit here. We've got to start looking for multiunits here.

Seth: Cool.I mean, you got into buying houses. It was pre-2008, right?

Matt: It was right at 2008, 2007. I got the bug in 2006 when prices and the market were really flourishing. And then that's kind of when I was getting trained and educated.

Matt: Okay. And fortunately, I didn't lose a whole bunch of money like everybody else did around me. And so when the prices came down, now I was armed and ready to go.

Seth: I mean, if you were trying to do that exact same thing, buying those first 300 units or however many you got in those four years, do you think that'd be a lot harder to do right now in this environment in terms of getting people to do seller financing or getting lower prices and that kind of thing? How much of that success do you think was tied to just the time of which you were doing it?

Matt: Well, there was a lot more desperation. So if there's a lot more distress in the market, that makes it a little easier. And the other big difference from then between now is there are just a lot more houses than there were people. So that made it easier.

But, you know, life comes along and kicks everybody in the teeth every once in a while. And it doesn't matter where they're from or what demographic or how much they make a year. So us as real estate investors that exchange equity for peace of mind, there's people every single day that need peace of mind. And they're going to turn to their property for that financial relief and they need it fast and a real estate agent can't handle it. And so I don't think it's remarkably different or more difficult.

Seth: We talked a little bit about some of the harder deals you've done where you didn't come out ahead necessarily. Are there any astoundingly amazing deals that were just grand slams? What do those look like?

Matt: I think my grand slams came at the beginning of COVID, when everyone was kind of like, I mean, the very, very beginning when everyone was kind of panicking, they thought the economy was going to collapse and everyone was predicting the real estate market was going to crash.

And I was able to scoop up quite a bit of properties from people who had just bought turnkeys. I've got all of those with just seller financing. People just want to be out of it. And then we know what happened over the next two or three years as they all doubled and tripled in price in some places.

So that was a whole slew of grand slams just at the time where I was, I just want more cash flow. And if I'm going to get it with seller financing, I don't have to put a bunch of money down and I don't have to get a bank finance. I was like, I'll take them all. Yeah, let's go. This ain't going to last forever.

And so those were my, those were my really, really big wins. Otherwise everything has just been, you know, nice little single-family purchases.

Seth: Yeah. It's interesting. I kind of see with high interest rates, certain sectors of the real estate market slowing down a lot. And I just get excited when I see that stuff.

Are you kind of like that too? Like if people are freaked out, like it was three months after the pandemic hit, when it was like a huge depression for a really short period of time. I mean, that was a cause to get excited. There were tons of of opportunity there.

But it just makes me wonder, is there ever a time when it's appropriate to be scared? Like, oh, things are getting a little too crazy. Watch out.

Matt: Well, I think to justify it, to be really scared, we need a crystal ball because we don't really know what's going to happen next. If you look at right now and I get a lot of disagreement with this, but here's my theory about right now.

There's several dynamics at play that were different from 2008. And everyone says, oh, it's going to be 2008. It's a cycle. It's going to happen all over again.

I was like, well, if it does happen, it's not going to be for the same reason. And it's not going to be for a reason that we've ever experienced before, because the supply and demand has gone to such an imbalance that there's more people at home buying age. Like the millennials are now intersecting with the first time home buyer age. We have more demand for housing than any time in the history of this country. And we're also coming off of a 10-year deficit in building, so right there prices can only go one direction.

The second thing would be the interest rates obviously affect affordability and how available money is, but the prices keep going up. So although a lot of people are hurting, there's a lot of people that are still doing just fine and buying what's left because the inventory is so low.

I think now after the Fed's last little signal and they did not raise rates and then they suggested that they're going to lower them two times in 2024. And just based off of that news, we've seen the biggest decline in mortgage rates in a four-week period than we've seen since 2000, whatever. It's like the fastest drop in 20 years.

And so rates have already come down almost a full point than they were just five weeks ago. And if that's just before they even brought the rates back, so the Fed brings those rates down again, we hit 6.5%, 6%, I think a new bottom has been established and you'll see a bunch more people just because there are that many people to to dive right back in.

And I think that's going to happen in the spring. It's an election year. And the current administration doesn't want to sit there and debate and have to defend their position on the economy if the economy is going good. So I think they're going to do whatever they can to boost the economy.

And I think at that time, because of the supply and demand imbalance, right now, houses are probably as cheap as they're going to be for a very, very long time.

Seth: Well, given that and the whole crystal ball thing, are there any particular pockets of opportunity you think exists right now, just given where things are at?

Matt: I think the pocket of opportunity exists with single-family homes. If you look at Blackrock, it’s on track to own 60% of all single-family homes by 2030. Blackstone just raised, I think it's $40 billion, might be $30 billion, whichever. It doesn't really matter. I guess every billion is just another billion. But they just raised that to compete with Blackrock.

Weirdly that there are ones named Blackrock and ones named Blackstone, but they just did that. And then just two weeks ago, there's a giant press release from Jeff Bezos. Just came out of retirement and started a single-family fund.

Seth: Oh, really? I didn't hear about that.

Matt: So the race is on for single families right now. And I think, you know, as the expression goes, a rising tide lifts all boats.

The opportunity is to own or control as many single families as you possibly can right now. Because over the next few years, if all of those are institutionally owned, those that are privately owned are going to be at a premium.

That's kind of where I think the opportunity is right now.

Seth: Interesting. No, I hadn't even heard about that. I don't really follow the single-family home space that much, which is weird for a real estate investing person, but that's just not my area of focus.

So it's a good lesson in how to stay ahead of things, depending on whatever your strategy or your niche is. Information is powerful. Just being aware of that stuff and what's going on, that can educate your moves in a lot of ways.

Matt: Yep. I mean, do you remember the name Lee? Lee Iacocca?

Seth: Oh, yeah. Was he with Chrysler or something?

Matt: Yeah, he's the one who went in and saved Chrysler. And all he did was look at this type of information and look at demographics and look at where the population is aging. And he just based it off the Baby Boomers.

And when he did that, the Baby Boomers were starting their families. And he's like, okay, so what does this massive portion of our population, what do they need? Well, they need something to transport their families. And he essentially invented the minivan. And so he made that whole decision and it turned out to be a genius move and it brought Chrysler back to life just based off of looking at demographics.

And if you go back and the baby boomers had the same impact on when they were teenagers on Levi Strauss and on the Mustang, and then they had the same impact on Gerber baby food when they were born.

And so we've already seen that happen. And now we have this other bigger bubble, bigger population in a shorter timeframe that were born, being the millennials. They're going to go through and have all the same impact on all the same industries that the Baby Boomers did.

And one of those industries is housing. And right now they've just reached home buying age.

And there was just an article, I think it was in Business Insider last week, because the conception was millennials don't really want to be owners. They just want to rent. They want to be mobile. They want to be loose. And so they've kind of hit the home buying age a little later later because they have totally flipped.

Bank of America just did a whole new poll, new survey on it. And I was like, 70% of all millennials think that's their only chance to ever be wealthy is by buying real estate, but they're scared to death that they're not going to be able to. So I think when these rates come down, there's going to be a frenzy for them to try and get theirs.

Seth: Now that whole thing about Lee Iacocca and just like understanding the general populace and what they may or may not need. Like, how do you do that with confidence? Like what if you made the minivan and it just didn't work? What if that was just a miss, a misunderstanding?

I mean, I feel like we all look at him like a genius because it worked out, but I don't know. What if you made some other kind of weird car that people didn't buy? It's obvious in hindsight, you know?

Matt: Yep. But I mean, it's kind of like when you look at a human's basic needs, if you invest in a human's basic needs, a human's desire for water and food is not going to go away. So that could be a good investment. And the same thing with shelter, unless, you know, just kind of sleeping under the stars actually comes into fashion. And that's never been a thing. We've always had a roof over our heads.

If you're going to make a prediction, I think that's probably the safest prediction you could make. And if you look at Baby Boomers now, they're having a big impact on health care and retirement homes and vacations. And because now they're at an age where that's what they need. And they're having that big an impact on that whole industry. And this is going to happen all over again.

Seth: Have you seen the stuff about how birth rates are plummeting in most first world countries?

Matt: Yep.

Seth: So do you think that plays any role in this? Like, I've even thought about this with self-storage. Like, so it's going great today. But what if the population drops and a bunch of people just don't need storage anymore or whatever it is? I think the U S is in a better position because a lot of people want to emigrate here, which can make up for that loss.

But do you think that has anything, or worth looking at that in any way for the future?

Matt: I mean, I'm going to say absolutely yes. But there is a caveat that I have for it is there is enough people that have already been born to support the housing industry for at least the next 10 years, right? For at least that, probably well into the 20 years. And that's if we didn't add any more people.

But the Census Bureau came out with their report showing that we're having a million new immigrants a year, as you just mentioned. So there's a million new people. And that brings our birth rate slightly above the replenishment value. Forget what the number, I think it's like 1.8 babies average per family to maintain. But with the immigration, integration, it puts us at 1.9 and a half or something, just slightly over.

So as long as that policy remains in place, then I think real estate in any capacity is probably job security for quite a while.

Seth: how do you know all this stuff? Is it like a website you're going to, where it's like, hey tell me stuff I didn't know as a real estate investor? Is it like a ChatGPT thing or how do you stay on top of all these stats?

Matt: It's probably mostly because of the YouTube channel. I got to keep making stuff that's relevant. So I got a bunch of Google news alerts on and I'm always reading and like, what's the interesting thing to talk about today? And so I learned a lot, just kind of de facto being a content creator.

Seth: Well, when you and I were talking earlier this week, we were talking a little bit about AI. What role do you think AI is going to play in the lives of real estate investors in the years to come? Like, do you think it's going to cause a cataclysmic shift in anything or is it just kind of a fun little thing that's going to be around?

Matt: Well, fortunately… Each little AI bot out there doesn't need a house to own, right? So it's this intelligence that doesn't need shelter.

Gosh, you know what? I don't even know if I can make a prediction because it looks like all the experts that were creating AI predicted incorrectly. Have you heard that?

Seth: What were they predicting that wasn't right?

Matt: Well, they were predicting that AI was going to gobble up all the low-paying, menial jobs first. And they thought when it gets to more creative stuff and the stuff where you really need critical thinking and like that, that's probably going to be last in the food chain for AI to go ahead and take over.

But it actually started the exact opposite. It started taking over art. It started taking over music. It started taking over all the critical thing in writing and stuff like that. And, you know, the assembly job, assembly line jobs that we thought was going to take over, those seem to be all be pretty safe right now.

I use AI, like I use the ChatGPT thing almost every single day, probably for 40% of my day. I'm on it because it's so helpful and I'm so much more productive. But where their ideas of that advancement is going, I don't know.

I just saw this reel on the hologram. So they've had these holograms that they could actually literally, you would mistake them for people and they could cast them out anywhere. They've had that for years. The CIA has had this for years. And I don't know if this is true because it was on a reel, but they're pretty good at faking that stuff. But I was just blown away on that technology. And like TVs are just going to go away. Everything's just going to be a hologram show that sits on your desk. And if you don't like it there, you can pick it up and put it over here. And so wait until we have this little hologram sitting on our desk and there's AI attached to it.

Like, I guess, that could be the future, but I don't know what their capabilities are.

Seth: Have you used the ChatGPT Plus app, like the voice thing where you can have a verbal conversation with it?

Matt: I have not. No.

Seth: Dude, you have got to try it. It's nuts.

Matt: Is that on the App Store?

Seth: Yeah. So if you got ChatGPT Plus, do you have that?

Matt: I do, yeah.

Seth: So if you get the app from the App Store and just download the thing and sign in. So right down where you would normally type out your prompt, there's a little set of headphones. And you tap that and you can just start talking to it.

And, um, the voice that comes back to you is stunningly real. It's crazy. It's like, it has like breaths and it says like, um, and like, and he says things that a person would say. And it's like the most realistic thing I've ever heard. And I've heard from people who are using this to practice their calls with motivated sellers. Like they tell ChatGPT to pretend to be a motivated seller and ask challenging questions back.

And I tried this the other day and it was weird. I almost was like getting nervous talking to this chat bot. It's like, you know, starting to sweat a little bit. I was like, wait a minute. This is just a machine. It's okay. Relax, Seth.

But if you're somebody who is a verbal auditory processor and you like to just talk your thoughts instead of writing them out, it's gold. It's an amazing resource.

Matt: I have the app down on my phone. I don't even play though with the voice commands on my phone either though.

Seth: So I don't usually do it either. Like I actually prefer to type stuff out cause I can say what I actually mean. I just think better that way. But yeah, there's a lot of times, especially if you're like driving or something and you just, you just want to be able to talk it out with somebody and it's really good at that.

Matt: No. Interesting. I'm going to check that out.

Seth: Yeah. Well, it's made me think, I mean, if it can talk that real to me and make me feel like I'm talking to a real person, imagine what that means for phone calls and call centers. And I mean, any kind of customer service where people need human contact. I mean, it's not that big of a stretch for this to replace that now, or even like texting and chat bots and all this stuff. Like, I know that stuff exists already, but I feel like that's going to take huge leaps forward.

Matt: Well, I mean, just at the Google conference four years ago, there's a YouTube video. I remember AI calling up and making an appointment for a hairdresser, right? And it had the little breaths. It had a little chuckle. Ha ha, that was a good one or something like that. And so that was four years ago.

So yeah, I mean, I'm sure it's already here. We just don't know which app it exists in at the moment.

Seth: So is there anything you still want to do in your real estate investing career that you haven't done yet? Like do you have any big audacious goals where it's like, yeah, I got to do that, but you haven't been there yet?

Matt: I want more houses. The pandemic wasn't great for my education business. And when you're a live event business and they shut down live events, it kind of kills the business model. And so I sold a lot of my real estate, a lot of units to keep that whole education platform running.

I guess the biggest thing is for me to replenish everything that I sold. And it's focus number one at the moment over the next three or four months, because I think as soon as the rates go down, the prices are going to go up and it's going to be even more difficult to find.

Seth: When you're out finding new houses to buy these days, I don't know how much you're actually buying houses right now, but are you using direct mail? What's your way to find those deals?

Matt: I just released a video on exactly how I'm doing this.

Seth: Oh, cool.

Matt: So it’s on YouTube on the channel.

Seth: I'll find that and I'll link to it and I'll put it in the show notes.

Matt: Okay, cool. First, you have to know, yeah it is direct mail, but it's a very different type of direct mail. And a lot of people don't think direct mail is working and the reason it's not working is because you have thousands, hundreds of thousands of people sending the same direct mail pieces to the same people. And I've been in the appointments and I've seen stacks of postcards on people's desks, like all the letters and correspondence they've received from investors that are trying to get a deal.

And so what's required is first, you got to know who you're looking at or looking to. The second thing is how you got to personalize that communication. You have to get noticed and recognized in that person's mailbox above and beyond what everyone else is selling.

So rather than sending the same thing everybody's sending, you have to send something that nobody is sending.

And so I've gone to a few different direct mail houses that aren't real estate mail houses. And, you know, they send things in bulk that look like birthday cards and special packages and stuff like this and other direct mail stuff, but not necessarily real estate-related. Sure, it costs more, but I don't have to send out as much because it gets recognized, it gets noticed.

And then the message within, this is where I've been using ChatGPT to death because I've got this long, lengthy prompt of what's the ideal thing to say. And this is, in a nutshell, the ideal thing to say to an out-of-state owner of a vacant house that has a tax lien on it, to create a letter or a sequence of correspondence through different mediums. Creating a campaign, so to speak, that's speaking directly to that person's issue. Like that was the only letter I sent out this month was to this person. And that's the experience that they get.

And so that's working really, really well. And I put the step-by-step process on how how to do that.

Doing that and then also the other part where the stats are, and you've probably seen these stats before, the sales stats. But most sales or deals don't happen until after your fifth contact, right? And then most people will quit after their fourth, which is really remarkable because they're three feet from gold and most people quit.

And so I think with the direct mail, how I generate the interest, that works. But how I actually close the deals is with my follow-up sequence that you have to follow up and you have to leverage as many different types of communication and correspondence as you can for that follow-up. And that's what that whole video entails.

But between those two things is, uh, it's working really well. That's still working for me.

Seth: This is the best real estate lead generation strategy for 2024? Is that the one?

Matt: Yeah, that one. Yes.

Seth: Anybody listening to this, go to retipster.com/178. It's in the show notes and I'll have a link to that video here. Or you can just go to Matt's channel, Epic Real Estate on YouTube, and you'll find it there too. But that sounds awesome.

So it makes me wonder if you're able to send out a lot less mail, let's say I've got a list of, I don't know, 5,000 people and I've established, okay, I only have to send out a thousand now because this is going to work a lot better.

Do you have some logic you go through to figure out, okay, these are the 20% that are the lowest hanging fruit, and these are going to be the easiest ones to get. So I should go to these ones, not those other 4,000. Or is it just pick a random thousand from that 5,000 list and go with that?

Matt: Good question. So there's kind of two ways I go about it.

The first way is I try to stack as many of these distressed factors on top of each other as possible. So as I was just saying, if I'm going to send a letter to an absentee owner of a vacant house that has a tax lien on it, that's like three factors of distress.

They're an absentee owner, which means they might be a frustrated landlord. They have a vacant house that's not producing income. And they have a tax lien on it, which is a symptom of potential financial distress.

So I can do that. And so that would produce a certain size list. And then if I added one more thing, I was like, and also it was showing foreclosure activity. If I add that one more factor, then the list gets dramatically smaller, right? And so by adding those factors, that kind of reduces the size of your mailing list just by doing that.

But once you add too many, I mean, you're starting to get these small little micro lists of 20 houses here and 15 houses there and 30 houses with that one. So that's one way. If you can find the right combination that gives you what your number is according to whatever your monthly budget is going to be.

The second one is I use DealEngineer. It's kind of like PropStream, I guess. It has all the data and everything, but it has the predictive analytics. So it has all the same property data that every other software basically has. They pull in their data feeds and there are these aggregators, right?

So it has all the property data, but with the AI, they've been able to add people's data to it as well. And it does these predictive analytics by researching, you know, 40 years of properties sold off the market. What did the people have in common? Not just what did the properties have in common?

So it'll go deep. It's very intrusive. What magazine were they reading? What were their neighbors doing? And who was their neighbor? What was the school system experiencing at the time? What was the crime rate at the time? So it takes all of these different things. And I think it has their credit reports and everything.

And so it takes all of these information points and it creates a predictive score or a sellability score. And then I use that to sort as well. So I kind of go back and forth and create these different lists.

Seth: You go back and forth between PropStream and DealEngineer. Are those the two websites you're using to do this?

Matt: I use primarily DealEngineer and I use this other thing called Seller Sniper. DealEngineer gives me all the data that PropStream has. So I can reduce my list in one of two ways: by either just the factors and see how many that gives me or I can just use the AI and reduce it that way.

Seth: Does DealEngineer actually generate the lists for you as well or does it just tell you this is what these people look like, these things in common?

Matt: Yeah it'll it can generate the list for you because it has a score between between zero and 1000. So anything above 500 is, is at least two times more likely to sell than the stuff below 500. So there, that'll fix and clear up a whole bunch and clear out all the people that aren't going to sell to you at discount right away, just by doing that single one.

Seth: And how long have you been using DealEngineer? Have you used it long enough to know like, yeah, this works, this gets consistent results?

Matt: I'm going on almost two years now.

Seth: Oh, that sounds pretty sweet. I got to check that out.

Matt: I think they have a land thing thing too. I didn't pay for the land plugin, but they have a land upgrade.

Seth: I'm sure I and many others will check that out.

Matt: I think what really makes the marketing work is not necessarily the list and not necessarily what you're sending, but it's like a combination of all of them. So if you can find somebody that has a problem that would be open to sell in their house to solve that problem. That's first of all.

Second of all is standing out in a sea of marketing messages out there. So you got to stand out. If you make it personal and then if you're consistent and then you follow up, I think they all work if you have those elements in your marketing.

Seth: Yeah, I think I have some trust issues with some of these data services because I know kind of, not entirely, but kind of what goes on under the hood. Like there are some counties out there that are just super rural and remote where like the data just doesn't get updated for years on end or at least every quarter. Like, it's just not current.

Whereas in California, it's about as good as it ever gets. I mean it's like almost perfect data they just do such a good job there. I think that's where it all started. ut you know if you go to some place in Timbuktu or North Minnesota, it's like the the data either isn't there or it's going to be really old and these data services aren't going to tell you that.

So, I don't know, it just bugs me because I see them advertised like, yeah we'll show you delinquent tax data and this and that. But I know they don't actually have that data in a lot of counties. And they're not going to tell me when they don't.

But you work in like Las Vegas and more populated markets, right? So you probably don't run into that too much.

Matt: Yeah. So yeah, you're 100% right. I mean, totally.

And then even the data, even if it is updated, and I learned this as a real estate agent, is that that data is entered by someone that's working at minimum wage and who’s just sitting there watching the clock and can't wait to go home. So mistakes get made and they get made frequently, right? So there's that aspect as well.

But, you know, is it is it better than no data at all? That's kind of the question you can ask yourself.

Seth: Well, especially if you've used it and seen it work repeatedly in a certain market. I think that's all I need to know. I mean, you're golden right there.

Matt: Yeah, it's I mean, it's a better starting point than just, you know, sending a letter to every single house in your city.

Seth: Yeah, absolutely.

Matt: And if you did that, you'd need a pretty large budget. If you had the budget, it probably wouldn't be a bad strategy anyway. But if you don't have an unlimited budget, you've got to reduce it and get your list smaller in some way.

And so we just use the tools that give that to us. I subscribe to probably five different of those services. So they have their little strengths and weaknesses on each one of them.

Seth: Yeah, it's nice to have access to a few of them, especially when you know where certain ones shine because you can kind of pick and choose.

Awesome. Well, Matt, I totally appreciate you taking the time to talk to me today. It's been great having you on to close this out.

I've got a few final questions that don't have so much to do with real estate. It's more just to understand you as a person.

So first question, curious to hear your answer to this, because I don't get the sense that you have a lot of fears, but what is your biggest fear?

Matt: It's so interesting that you just asked me that question because I was asked that question when I was teaching a class, I was representing somebody else at the time.

I wasn't selling anything of my own in 2009 and they had asked me what do I fear, just what you asked me. And it was that it came out so spontaneously, that I won't be able to buy enough.

Seth: Like buy enough houses?

Matt: Yeah I wouldn't be able to buy enough. And I fear that right now.

Seth: What's enough? I mean, it's interesting to hear you say that. I mean, you strike me as somebody who you're not going to go starving anytime soon. I mean, are you afraid you're going to lose the roof over your head? Why is that fear even there?

Matt: Well, I know that the more that I control, the more that'll be there. I mean, the more that I'll gain from it. And I'm concerned a little bit about the value of the dollar and inflation. And if something were to happen to that, you want income-producing assets that represent a human being's essential need, like housing.

So if the dollar collapses, my house is not worth nothing. It might be worth zero dollars, but it'll be worth chickens and eggs and pelts. You know what I mean? Like whatever we're going to use it for currency next.

And if it goes to a digital currency, or if it goes just to a different currency altogether, or if the yuan comes in and all of a sudden that's our currency, whatever it could happen, the real estate is going to maintain value. You are just going to be paid in a different currency.

And so I guess that's maybe a little bit of a doomsday prepping type thing as well.

Seth: Yeah, that's what a lot of fears are, is doomsday stuff. It's not really rational, but we have those fears anyway. I got plenty of myself.

But that makes me wonder, what if you weren't allowed to buy real estate anymore? Like you can invest in anything else, but you can't do real estate. What do you think you would default to?

Matt: I've become pretty good at marketing. So rather than build something new or invest in something new, I think I would become, I don't know, I guess the simplest term is an affiliate marketer.

So that way, I could be very flexible and mobile and could point my marketing machine at whatever the trend was.

Seth: Yeah, you'd be great at that. Totally.

Matt: Yeah, I think I would do that.

Seth: So what are you most proud of?

Matt: I'm most proud of that I've built this platform that my 12-year-old won't have to take the long route to learn everything that I've learned. And I like that. And I've been able to help a lot of people who have been able to piggyback with their kids off of what I've built as well. And, uh, that's pretty awesome.

Seth: Cool, man. Last question here. So suppose you just had a hundred million dollars wired to your bank account. You don't have to worry about money anymore. You're also not allowed to continue on your current career path. So no more real estate, no more education, none of that.

What would you do for the rest of your life?

Matt: You know, I just have to say the first thing that came to mind, because that's what I've always wanted to be since I was a kid, is I always wanted to be a dolphin trainer at SeaWorld. So I think, I know that's a little bit like, a lot more information has come out about the humanity of, or the inhumanity, according to the animals we hold captive at our amusement parks.

But I think it would be some sort of like a marine biologist or researcher or something like that. One of my favorite shows is with Jeremy Wade on the Animal Channel. And just for him to be able to travel the world to these amazing places and go fishing. Something equivalent to that. I don't like to fish too much, but something equivalent to that is probably what I would do.

Seth: It's great, man. So if people want to find out more about you, what's the best place to go? What website or YouTube channel or what should they do?

Matt: Yeah. Epicrealestate.com will lead to everything that we do. So if you can find your way there, then pick your pleasure from there.

Seth: Cool. And I'll include links to that and Matt's YouTube channel and podcast in the show notes. Again, retipster.com/178.

Thanks everybody for listening. And if you're still here, go ahead and text the word FREE, F-R-E-E, to the number 33777. You can stay up to date on all the stuff going on in the REtipster world.

Thanks again for listening. Thanks, Matt. I'll talk to you next time.

Matt: Thanks, Seth.

Seth: Hey everybody, how's it going? Seth Williams here from The REtipster Podcast.

Today, I'm talking with JT Olmstead about something that I've been looking forward to talking with him about this for a long time now. He's been working on this website called YourLandloans.com, which is a pretty exciting new thing for all land investors, and I think really anybody out there who is collecting payments on seller finance real estate deals. But it's specifically aimed at land people. This gives us a really nice option to help automate and kind of delegate the payment collection process to software.

And if you're somebody who is considering selling properties with seller financing, or if you already have, maybe you've already tried to service loans yourself. And if you've done that, you probably know how terrible that is and how much it can drive you nuts to try to do that for dozens, if not hundreds of people. I mean, it's crazy. Please do not do that. If that's you, there are much better options out there and this is one of them.

So JT is going to walk us through the website and just explain a lot of the things about how it works and who it's for, who it's not for, and just kind of setting expectations so that if you're somebody who is in need of software like this. You can understand what this is all about and sort of decide for yourself if this is something that could benefit you.

So JT, welcome. How's it going?

JT: Thanks. Things are great. I look forward to sharing this with you.

Seth: So why don't you take this how and why did you start YourLandloans.com? How long has this been around? Who is this for? Just tell us what you want us to know about it.

JT: Yeah, absolutely. I'll share quick a little bit about the software and then we can jump right into it.

So a couple of years ago, a little over two years ago now, I went looking for kind of the best software that I could find to manage my own loans because I have my own portfolio I work with and I wasn't really happy with the solutions on the market. And I went kind of looking around and found they kind of ended up in two big camps: either smaller, generic software that didn't really fit this space very well; the vernacular was a little confusing for the borrowers and the communication wasn't really quite where I wanted it to be, or it was a massive piece of software, incredibly expensive, incredibly complex, difficult to deal with, and I didn't really find an option in between that was high enough quality, right? If I need something at a certain level of quality, I just wasn't finding it. So I decided just to kind of venture into building my own option.

So this is after a couple of years, this is what I launched YourLandloans.com. And for me it's that sweet spot where it's focused just on land, but the price is still incredibly affordable while maintaining that high level of quality. It's easier to maintain a higher level of quality when you have a really focused cohort, right? We're only working with land investors, so we could specialize in that and put all of our efforts into that.

Seth: Cool, man. Do you want to open it up and start showing us how this thing works?

JT: Yeah, absolutely. Let's jump into it. So let me just pull up the site here. So this is the website so you can check out all the details about it at YourLandloans.com. Obviously just the homepage. You can learn a little bit about kind of the software in here, jump some FAQs and block-ins, things like that.

We'll just jump right over to the pricing because that covers a lot of the features. And as of this moment, this is how our pricing stacks up. I just want to quickly kind of go over some of these features and then we'll talk about them more in the software itself.

So, as you can see, we kind of have four different options right now. At the first loan, totally free, you can jump in there and get pretty much the full functionality out of the site and see exactly how it goes, collect payments, and keep track of everything. It's a popular option; people like enjoy starting with this and seeing how it goes. You also have the option to create some kind of draft loans if you want to see what your other loans would look like as you add more to the site. And then it kind of scales up from there.

The main delineator being just the number of loans. Ultimately, in our top-end plan here, there is no limit. So we have people using quite a few loans in some of their accounts. We accept payments, big credit cards, ACH.

And one of the things that we are really focused on quality-wise is we want to make sure that with the ACH deposits, you didn't get like some huge lump sum, right? Because my bookkeeper hated that. Absolutely despised it. So when we collect payments from each individual borrower, we deposit that full amount. We don't take anything out of it or hold anything back or have these reserves. We just give you, like if they pay you $250, you get $250 in your account. And then we make sure we add the details to that deposit so you can tell, “Oh, this came from John Seth for the property in Colorado.” All the details would be written in there.

So it's easy to spot, easy to manage, and you can QuickBooks wherever you can create rules for it. So it's definitely streamlined.

My bookkeeping, and I know a lot of people really enjoy that. I got a lot of good feedback from bookkeepers who are quite happy with the results. We also make the actual expense for that incredibly low. Basically giving it away at cost for the actual ACH transaction fees, especially the top-end plans, we're basically giving you what it cost us.

Seth: Just to make sure I understand. So with the free plan just to have one loan, there's really no reason not to try it out because it doesn't cost you anything just to see how this thing works. But the one cost associated with that free plan is $2 per payment that comes in.

JT: Absolutely. Yeah. So if you want to go in and create the loan and add your borrower and then just manually record the payment, that's totally free. There's no cost to that. If you decide to collect the payments via ACH, then the system will do the automatic recording for you and then transfer the money to your account. And we have to pay the ACH processor for that. So we have to collect a fee to cover our expenses.

Seth: Is this automatic, these payments? Like, are they set up to just take it on the first of the month or does the person have to come in and manually do it, or is it either way? Or how does that work?

JT: Yeah, so we have a couple of different options. So the borrowers can go in for ACH payments and for credit cards and decide, like, yes, I will set up automatically every month my payments due on the first, and I want to pay on the 30th, the day before, or the 28th or whatever, or I want to pay on the fifth a few days after. But in the grace period, whatever day they want to specify, they can set that up. That's our default.

We have a journey we take the borrowers through when they sign up and it steps them through piece by piece by piece and leads them along until they get to the point where they're setting up this payment as a reoccurring monthly payment. So that's our default. In addition to that, though, they can go in and decide to make manual one-time payments. If they don't want to do recurring payments, they're just not cool with that, or if they decide that they just want to make additional payments or whatever it is, they can do those instantaneously, same day, for example, they'll make that payment and we'll process it immediately.

Or they can go in and set that payment up to say, “Hey, I want to set my payment up for four days from now and then I'll have it taken out after my check hits,” or whatever. So we can do that as well. So a couple of different ways for them to go in and make those payments.

Seth: Okay, I see credit card payments, too. So if you can pay by credit card, correct?

JT: Yeah. So we have a partnership with a credit card processing company. So if you can set up an account with them, then we'll kind of connect your account with the account on your landlords and that'll allow you to go in and do credit card payment processing in addition to the ACH. The ACH is baked right into the system. Credit cards are sort of an add-on.

Seth: Okay. And I know credit cards have long been problematic just because a lot of credit card processors don't want to be used for real estate deals. Is that any kind of a problem, or how is that mitigated?

JT: Yeah, that's definitely a hurdle we find for ACH and for credit cards. And so it took us quite a while to find the right companies who had the high quality of standard, like the high standards we need, right?

And good quality systems that we could integrate with and allow us to fully understand the business model. Not one of these “don't ask, don't tell” kind of scenarios, but they fully understand it's not like processing… Let's say Stripe. Stripe doesn't know what you're processing if you're collecting loan payments because that'd be a violation of their terms of service.

So we don't do things, we don't connect with companies like that because we want to build on a really solid platform where it says, like, hey, this credit card company, they know full well that you're collecting loan payments on land and they're totally okay with that. There's no problem.

Expense is a little bit higher than you're going to find on the super low-end options because of the increased risk. But we did our best to find a good company to put together on that.

Seth: I know, with GeekPay anyway, I had to set up my own account through Actum and set up my own whatever else, almost like this third-party thing, and then sort of hook that into GeekPay. Is that how this works too? Or do you handle all that for people? Or what other steps are needed to get these other sources of payment handled?

JT: Yeah, so the credit cards are more like that. We will connect you with them. You just fill out an application on the website and the third party will reach directly out to you and say, “Hey, we see you're interested. Let's get this figured out. Let's take you through the process step by step.” And at the end of it, we use Authorize.net as kind of the medium with them and us. So you'll give us your Authorize.net codes, basically, and then we'll be able to connect everything together.

But on the ACH side, it's fully baked in. Like, you don't have to leave the site to do anything. It's all directly part of the site. So you'll fill out your application for ACH, really just filling out the information and submit any necessary documentation all directly through the website. And we're the ones who kind of have the relationship with the ACH companies, so we handle all that stuff on the back end for you and we'll let you know or they'll let you them know like, hey, we need an extra piece of documentation or whatever, but it's all handled directly to the website. Extra steps or verifications or underwriting or whatever.

Seth: What are the additional monthly costs of working with Authorize.net or any of these other third-party companies that are required to make this all work?

JT: The ACH cost is baked into your monthly cost with us. We handle all that for you. So there's no additional cost to collect through ACH besides what you see here on the per transaction fees, the credit card payments that will vary wildly depending on the volume, and a bunch of other things. Because instead of, for example, with ACH as a platform, your landlord has a relationship with the ACH processor. We've been able to negotiate that down so we can pass that on to you guys.

But the credit card companies, they want individual relationships with each lender. So that's where you have to go to them as a third party and kind of negotiate your own terms. Typically they're going to fall between 3% and 6% and 20 or 30 cents per transaction. And then there's a small monthly fee that goes from maybe $20 in the low end to, I think, the highest is $100 a month. But I think that's pretty high. It's uncommon.

Seth: So there's basically a per transaction cost, like any credit card transaction company, and then a small monthly fee that's a combination of Authorize.net and this processing company.

I'm curious, what do you see other people doing and what do you do? Or do you have any recommendations on is it even worth it to offer credit cards as a way for people to pay? Or should you just force them to use ACH? Because I've heard this argument that it's really easy for a person to cancel their credit card, but it's harder to cancel their actual personal checking account where their money is coming from. Do you have any thoughts on that? Is it better to just pay less and just make them do the ACH? Or what do you see people typically doing?

JT: Yeah, I think it really depends on the type of borrower you have. For example, for us, for my own portfolio, we don't allow credit card payments at all. We only allow through ACH. We haven't had zero kickback on that.

However, I understand that some lenders have a different group of borrowers and so credit card payments fit better for some of those borrower types. So, I think at a certain scale, it makes sense potentially to offer credit cards because, at least for now, the transaction speed is a bit faster when getting your money. So that's a concern, getting the money in your bank account.

Then there's also the list credit card companies that handle it. If they don't make the payment, if they can't come up with the money, the credit card company has to figure that out. That doesn't come from you, right? Whereas with ACH, if the money is not in the bank account, you're going to get a kickback and it's going to say, “Hey, we don’t have enough money, we couldn't take it, sorry.” So it's kind of a different kind of problem.

So I think it really depends on the type of borrower. But where I see people actually succeeding in using credit cards on the platform, I think more people have discovered that they think their borrowers really need credit cards. But the reality is that a lot of times, they actually don't. They don't need credit card payments. If you just kind of push them to the ACH, it actually works out pretty well. And for those few lenders who have got a larger borrower base and they're of a certain type, then it makes more sense to offer that. But they kind of have to get to a certain scale for that to really make sense.

Seth: A couple of other possibly dumb questions, but in case anybody else out there is wondering in addition to me, maybe you can help them out. So I'm assuming the person who is paying, if they're paying through ACH, it has to be a U.S. bank. Correct? Not some foreign bank in another country. Is that accurate?

JT: Correct. Yeah. This ACH processor, and this has been across the board when I've talked to ACH processors, but they want two big things. One, they need it to be like a U.S. entity with a U.S. bank account. So those are the two big steps. And the third one that trips up a lot of people is it needs to be a U.S. company that is operating out of the U.S.

So if you have a U.S. address that you can say your business is operating out of and then they can verify that, then that is going to be good to go. Whether that's like me working out of my house or someone with an office or whatever. But they won't accept things like, for ACH, they won't accept things like registered agents or those kinds of virtual mailboxes. Those are all going to get rejected because they're pretty thorough. Effectively, it boils down to this ACH company has contracts with these banks and these banks have regulations. They have to adhere to U.S. regulations. So there's a series of things, boxes that have to be checked, kind of, across the board.

Seth: Yeah. With all that stuff you just said, are you talking about the borrower-slash-buyer, the person who is making the payments, or the seller, the person who has your landlord's account as receiving the payments? Or both?

JT: Exactly. Yeah, it would be the lender primarily, but it really applies to both. The biggest underwriting the borrowers when they sign up to make their ACH payments are it's super simple. It's like first name, last name, email, boom. That's it, now you have an account. And then they just add their bank account.

They can do it instantaneously or they can do micro-deposits if they want to do that too. So the borrower side is actually very simple. So as long as they have a U.S. bank account, the borrower can make payments.

The lender side was more of what I was describing, the more involved vetting process. That all kind of goes on the lender side. So they thoroughly vet the lender so that they can make the borrower sign up super easy.

Seth: And I know a very common thing when somebody's selling a property with owner financing is collecting some kind of down payment upfront, like at closing. Is that down payment made through your land loans as well? Or is that like a separate check that they send or a separate wire and then these payments start after that?

JT: Yeah, so as of now, the down payments, those kinds of initial deposits, are being collected before you get to your land loans. Although that is a feature that a lot of people are requesting, so it may be something we work on in the near future, but as of this moment, that's not something that's functional.

Seth: Okay, so when you start a new loan, you just kind of explain to the software, hey, here's the sale price, here's the loan amount, this is how much is already made as a down payment, interest rate. I guess maybe you can show us that in a second. But you just kind of inform it what's going on and it makes sense out of it.

JT: Exactly. Yeah. So we give it all the details and you can recreate existing loans without problem. I've had people add loans that are years old and they can recreate the whole thing.

Seth: Oh nice. Cool on that. If somebody is using something else, whether it's a different software or a loan servicing company or they're servicing it themselves, how hard is it to take it from wherever it is and migrate it here?

JT: Yeah, we'll definitely go over that when we jump into the software. But we try to make it fairly simple. There's no magical way to do it. So there's definitely some work involved there because every platform is different and some platforms won't let you export your data at all. So there's no way for me to easily import it. So we're working on ways to make that simpler and smoother and they'll come out in the next month or two.

But yeah, right now it's still pretty straightforward. You can recreate the loan and backdate payments, all that stuff, no problem.

Seth: And on that thing, if somebody ever starts a loan with you and then wants to go somewhere else, do you export the data?

JT: Yeah, you can export our data anytime. You can fully download all of your data for any of your loans or all of your loans.

Seth: Okay, so a person is not stuck if they decide to go down this road with you?

JT: No. If we're not the best, then feel free to leave, but we're going to keep being the best. So I'm confident in my ability to keep on top of that. So I'm not trying to trap anyone. You want to come in and decide it's not for you? Then leave, by all means, no problem. It's just a monthly fee and you can turn it off and you're good to go and you can download all your data and go somewhere else. But I'm confident we'll keep staying on top.

Seth: And since we're on the pricing page, one thing I'll note and you kind of alluded to it earlier, but prices tend to change over time. So if you are watching this or listening to this, three or five years into the future, it's very probable that prices will be different.

But I can just say, looking at the starter plan or whatever the first one is called, for $25 a month that gives you up to five loans. $25 a month is what I expect to pay for one loan with a loan servicing company and I would just pass that along to the borrower.

But just by contrast, that's the cost for five loans with YourLandLoans.com. So it's a pretty good deal in terms of the price of that. If that price even does go up, it's still probably a good deal.

JT: Yeah. Our goal from all the way out is to make sure that whatever the price is, we're delivering so much value. It's a no-brainer. Like, if you're signed up for the platform and you're like, I just don't know, then maybe it isn't for you. But most of the users who really succeed on the platform, they look at it and they say, oh, yeah, this is no question, I will gladly pay double for this for what I'm getting.

And so that's what we want. That's the vibe we want. We want you to look at the platform and say, dang, this is awesome. It feels like we're underpriced.

Seth: Yeah. Cool, man. I'm thinking about this from the standpoint of the seller or the user of YourLandLoans.com, when they create their own account and how they get started. How many minutes does this take? Is this like five minutes and you're done? Or is there like a bunch of stuff you got to apply for? How many hoops do you have to jump through?

And then also on the buyer's side, so the borrowers that end up getting plugged into the system, is it like a self-serve model where they get their own account and they can log in and check their loan balance and all this stuff, or how does that work?

JT: 100%. So a lender account we make as smooth as possible. There's certainly going to be more requirements on a lender than a borrower. The lender should be able to go in and create a new loan.

In fact we'll just pull up real quick this website. So this is going to be the dashboard and we're in our sandbox here, so keep that in mind. But this is kind of what it looks like when you first log in as a lender.

And this test account, our test lender, they have 17 loans right now. So we can click through and see. We'll take a look at the loans here and kind of list them all out. But to answer these codes specifically, we kind of guide our lenders and our borrowers through the initial process and tell them, okay, great, welcome to the platform. Here's what I would do first to make sure we know step by step.

And usually one of the first things you're going to want to do is either create a loan or sign up for payment account. In this case, we're going to go over to this loan and say, okay, we want to add a new loan. We'll just kind of make this right now.

And they have the option to duplicate existing loans. If you have several loans on the platform and you want to make one that's really similar, we also have a lot of saved preferences in your account. So, in this case, my default rate right now is 9.9% on this account, so it automatically fills that out. And I know that I typically have a 60-day default and I like 365 interest, these kinds of things. Here's my regular late fee, I even have standard monthly fees I add to all my notes. These are all saved on my account as preferences.

So anytime I make a loan, it automatically fills it out for me. But in this case, we're going to say we sold this property in Maine, and it was in Kennebec County and we're going to say this is the parcel number right here and so it automatically fills out the name here. But let's just say I actually don't want this format. I want to add Smith as the last name of the borrower, or I want to just delete all of it and say like, “Best Test Loan.” So cool, you can just specify whatever name you'd like and then you go through and just specify what's the sales price.

Let's just say we sold it for $50,000 and they financed $40,000, $10,000 down payment. Awesome. Already have the interest rate and this one's going to be 100 payments. The interest start date.

Let's just say actually it was a little bit back. So we closed on this property in April 5 and then their first payment was actually May 1. So it's going to see and then the loan origination date is the same, the fifth. And then you see this, our standard late fee. Great. I'm actually going to charge them a dollar for every ACH and then credit cards are going to be one dollar per payment and 5%.

Seth: This thing you're doing where you're charging the borrower a dollar, is this just to cover your costs, right?

JT: Exactly. So the lender can specify what additional fees to add per transaction type, right? So if a borrower pays through the platform via ACH, they're going to charge it up and add a dollar fee for paying via ACH for each payment or for credit cards, it's a dollar plus 5%.

So you can specify what kind you can pass all the cost on, some of the cost, or none of the cost on. Whatever you like, you can specify.

Seth: Yeah, so if I were using a loan servicing company and paying them $20 a month or something, I mean, in that case, I would add $20 a month to this.

JT: Right.

Seth: So I just want to make sure that's what you're doing here.

JT: Yeah, 100%. And this monthly fee, if you want to add another monthly fee, like strip taxes, $7.50 or whatever ends up being, great. So you can add a monthly charge for that and then you just have an extra fee. You're adding however you want to specify. It's up to you.

And you can save this as a draft and take a look at it. Even free accounts can have up to like ten draft loads. If they just want to add a draft and check it out and kind of play with it a little bit, that's great. Otherwise, you can just go ahead and create the loan as a new active loan. So we're going to do that.

And then, after this loan is created, it's going to bring us a little bit further along in the process to add the borrower. So, yeah, it says it's successfully created. Cool. So now it's saying here, look, this is the new loan you just made, the Best Test Loan, and you said that it was made a month and a half ago or two months ago. So it's actually a little bit late. So we're going to go in and fix that in a moment. But now we're just going to say this is the test borrower and we can specify the address if we want, but we don't have to. So, in this case, we're just going to hit submit and then it's going to go ahead and send an email.

So email is sent up to that borrower. So now that borrower has an email invitation from us from the platform saying like, hey, you've just been added to this loan, go ahead and get your account all ready to go. And all they have to do is take their temporary password and sign in and they're good, pretty much set, so we can open up this Best Test Loan that we just created. We can see that today. It's late because it says it was due way back when, got two payments built up here. So far, we can see the original balance is still there because no payments have been made.

And then it kind of goes through all the loan details as well as the borrower’s information. And you could have multiple borrowers per account and you can also have partners on your account. Let's say you have a lender who's going to get paid as part of this deal. You can kind of add them as an option so they can go in and check out the payments and information if they need to, as well as attached documents, things like that.

Now if we jump over to the payment history, we can see no payments have been made, but let's go ahead and jump over to the borrower side and see what they're doing. So we're going to go ahead and refresh this real quick and we should have this new loan on here.

Seth: You said that when you entered that stuff in originally it sent them an email. So if they don't have an account or anything, it would prompt them to open up their own account on your website.

JT: Exactly. So if they have an existing loan, let's say you're adding a second loan to them, or on a rare occasion, let's say they have a loan with another lender, then what it will do is it'll send an email saying like, hey, you've got a new loan. You either need to set up your account because this is your first loan or we just added it to your account, just want to let you know.

And so now they know, I've got this new loan, I need to work on it. They'll log in and then get set up and they’ll see these kinds of notices at the top tol prompt them through. And this notice is saying like, hey, you've got a late payment, you better hurry up and make that payment.

This is our test environment. We test all kinds of different states for things. But if we pull up the best test loan here, this one is, it is showing us late. So we'll go in and we can see that, yeah, we owe this much. Right now, this borrower already has their account set up or ACH, but I just recently removed the bank account. So we're going to go ahead and show what that looks like to add a new bank account. And actually, I apologize, actually this one is already re-added. So this actually here, you can see this bank account is already added. So we have the bank account for this one. It's verified, good to go.

And then it's got the credit card as well. So we're going to actually jump back to that loan.

Seth: Just to verify, what you're doing right now is you're acting as the borrower and you're adding multiple sources of payment as a borrower?

JT: Correct.

Seth: And you could do either a checking account, and/or a credit card, and however many you want, or is there a limit to how many they can have?

JT: So right now, there's a limit of one bank account per borrower. So if they need to add more than that, that's not currently an option. Although we haven't found that to be the case in almost every instance, it's just one bank account is usually sufficient. It's typically one borrower to one loan. That's the most common scenario.

But we want to make it flexible so that if a borrower needed multiple loans or whatever the case is that they have that option available to them.

Credit cards: there isn't really a limit to it at the moment. Authorize.net has a limit, so that's the theoretical limit. But right now, we can display kind of as many credit cards as they have available to them on their platform.

Seth: Can you require a borrower? You have to add at least two sources, or is it just kind of up to them to do whatever they want?

JT: It's kind of up to them at this point, yeah. So the borrower has the option to add the bank account, add the credit card, whatever one if the lender is ready to accept credit cards, then the borrower will see the option to add a credit card. If the lender is not ready, there will be no option for the borrower for ACH by default. It's kind of always set up. So the lender has to set up the ACH account as part of the signup process and then the borrower will have that option to pay via ACH.

So it kind of lets them go right into it. So as soon as the borrowers signed up, it usually only takes less than a few minutes to get everything set up and have the bank account added from the borrower's side.

Seth: Do you have any stats, just out of curiosity, like when payments are missed, is it missed from a credit card or from an ACH, or is it exactly the same?

JT: Yeah, the bulk of the payments are made via ACH. The vast majority, more than 90%. So I don't really have any good stats to share on that at this point because, yeah, the vast majority are made via ACH.

So if we go in and make that payment, we can see like they can generate a payoff, or they can go in and check various things here to kind of see a similar version to what the lender sees, just a little bit less information on, obviously.

But let's say we're going to go ahead and make that payment. So it jumps over here and says like, hey, you are late on this payment. So the only option you have is to make a one-time payment right now to get caught up and then you can go in and set up your regular recurring payments.

And we do this so that if they can't decide to set up a recurring payment three weeks from now whenever they feel like it's like, hey, you owe the money today, you got to pay today. It'll show them like, hey, here's the outstanding amount that's due. Or they can customize a specific amount if they would like. And then in this case, they can choose to either pay with the checking account or they can pay with a credit card. So let's try paying with the credit card today.

And we're going to say that there's a total of 32 and it's due right now and they can add some notes if they want to keep track of those. They go into this next step and we can see it shows them on the previous page what the actual fees are going to be added, the transaction fees, and their payments. And the same thing on this page, it shows them like, hey, here's the actual payment, here are the fees that the borrower or the lender has applied to this type of payment because we're doing credit card. And then here's the total amount where it's being taken from and the fact we're paying it right now.

So they can go ahead and just confirm this payment. It's going to process, send it over to Authorize.net and the payment gateways, make sure everything's good to go, and come back and let us know that it's been approved and then we're good to go. So, yes, payment processed, perfect.

And now we can jump in. You can see now in the payment history that we made this payment and the payment is a combination of a few different things. So the fees are a combination of monthly note servicing fees and transactional fees because they were behind.

This shows a slightly different version. Here you can see the monthly notes don't quite explain the details, but basically, what we're trying to display is like, hey, this fee is made up of multiple things. It's a combination of escrow fees, monthly fees, transaction fees, et cetera. And then we show the amount that was charged to interest, the amount of the principal, and then the total amount.

Seth: Can you add late fees to them?

JT: Yeah, absolutely. In this case, there are late fees. For some reason it's not displayed yet. Let's go ahead and take a look here. These late fees, in this case, weren't added automatically and this is actually something we're rectifying right now, but they will be added when we do the recalculation of the loan. But yeah, the late fees will be added for the payments that were missed.

Seth: On this whole subject of late payments. So a few questions come up. First of all, does YourLandLoans.com software send out automatic late notifications? At what intervals would it send those out?

And then also if a person's payment is late, is that because it was supposed to come out automatically and the money wasn't there? And so it's going to keep hitting their card or their ACH until it comes out, or how does the software respond? Does it just say, hey, you didn't manually make your payment or we tried to automatically take it out and it didn't come out, so make your payment now? How does it handle that situation?

JT: In that case, what will happen is they will go to make the payment. They're going to go ahead and calculate what the late fees were for each month and add them accordingly. And you'll typically go back in and add the late fees as necessary.

Let's just say it was due on the first and there was a ten-day grace period. They're going to get an email three days before that says, hey, you have a payment in three days. Then they're going to get an email on the first that says you have a payment due today. And then they're going to get an email on day three, somewhere between day three and five that says like, hey, your payment was due days ago. We're kind of always touching base with them to make sure they're not going to fall off the wagon. So it's pretty hard for them to miss it.

And then, ultimately, let's say it gets past this ten-day window, then it will come and say, hey, we told you multiple times you haven't made your payments, we've added a late fee to your account. And in this case, the calculation hasn't been calculated yet, but let's just say like, oh man, there's supposed to be a late fee here or something happened or whatever. We can't do it from this side. But if we jump back over to the lender, we can manage the details of this loan. So I can just refresh the information here and it will show that this payment was made on the loan account.

So now it's showing as current and I have the same details and I can actually go in and say, you know what, I see there was a late fee. I either want to waive a late fee or I want to add a late fee or change it. You could add one-time fees to the payment, or in this case, we're going to go ahead and add a late fee. We're going to add it to this most recent; let's say we let them skip this one because it was a brand new loan, they would figure it out. But this one, they shouldn't have been laid on because it was whatever period. And we're going to say it was our usual $50 late fee. Go ahead and apply that. So now it's going to go ahead and recalculate the loan.

And you can see that this fee went up, right? So now we have a $50 late fee included in that total. And because of that, they're actually behind again because they didn't make the full payment because the payment requirement just went up a little bit by $50.

So backdating that will make that change. And we say, well, you know what, we don't want to scrap the payment. We don't have to make another $50 payment. We're just going to go ahead and actually delete that. It's actually not we really want to do so, so let's go ahead and remove that late fee. And it says, hey, this is the only late fee you have applied on this loan. Just go ahead and remove it. Cool.

And then it's going to recalculate again. We're back to current, no payments due, and everything is back to normal. So it is kind of in real time.

And if you make adjustments to the payments or the loans or those details, it will just recalculate automatically and show you instantaneously, hey, here's what the calculations look like. Here are the loan details. I'm going to kind of let you go through and add those details.

Seth: Am I understanding this right, that in order to add a late fee, you have to do that manually? Or does it just happen automatically?

JT: Yeah, my apologies, I wasn't clear on that. So that will happen automatically every month, kind of on a daily process, we'll go through and recalculate and add late fees for the payments that were missed.

So we'll basically calculate and say, oh, this one should have had a late fee. We're going to add that late fee. Now, if you backdate your loan kind of like we did here a month or two, it's not going to do it automatically. We don't want to say, oh, I have a three-year-old loan, and then you create the loan with no payments, and it's got three years of late fees, right? So that would be a problem. So we don't go back way back and say, oh, every single one of these was late because you said there was no payment, because we need to give you a chance to go in and do that.

So in this case, if the lender wanted to record a payment, we can go to record payment and say, oh, I got a payment for them. They also have an option to do multiple payments. That's where we actually say, like, did you add a late fee? Yes. Okay, just click here, add the late fee, tell us what it was, and we'll automatically add the late fee for you.

So it gives them a chance to… let's just say they want to record a payment that was received on the 16th. They can say, yes, this one did actually have a late fee, and it's our standard $50 late fee. Okay, no problem. We've added it for you here.

So, yeah, we have ways to do it if you're adding multiple payments at once, and this goes back to your question about how do you recreate existing loans. If you have a really old loan, you just hit this populate payment history button and it will fill it automatically. Add lines for every single payment that would have been expected for every due date in the past. And then you can go through and just say, yes, these are the dates, and here are the default payment amounts. And then you can adjust that or decide… actually this on the 16th wasn't for May 1, it was for June 1. And here is the late fee amount, or no late fee amount, any notes you want, all that stuff. So you can kind of en masse add all those payments and bring it up to date, and then the amortization of the calculation should be kind of fully set.

Seth: You might have already answered this, maybe I just missed it, but is the assumption when you set up a new loan that the payments are going to be automatically withdrawn from their account or no? Do they have to come in and manually make that payment, or is it whichever one you choose?

JT: Anytime money is going to be taken out of a borrower's account, it needs their involvement. They're going to have to be involved at some level.

So they are going to log in and we're going to guide them through automatically setting up a recurring payment. But we don't have an option to force the money out of their account. The lender doesn't have the ability to make them give them money. They can guide them through and help them get to that point and get everything set up and it'll be good to go.

But we're not ever going to get to the point where a lender can just say like, take this money out of the borrower's account. That's not something we're ever going to do. But we are making it as easy as possible for borrowers to say, yes, I would love to have that money automatically taken out of my account each month.

We actually have some good ideas of work we're doing right now. Hopefully this summer we’ll be finished and it will make it very simple for a borrower just to click a button and say, yes, I would love a recurring payment added to my loan.

Seth: I feel like I'm hearing two things. One is that you can't take automatic payments out, but then they can set up a recurring payment. Is that handled by their bank or something?

JT: Let me differentiate that a little bit. So the system will automatically take payments for recurring payments, that's what we do. But it has to be set up and or approved by the borrower. It's not something the lender can do without the borrower's involvement. Every individual payment or just that first time you can say, yes, I want to tell my bank to send this money over once a month and then they're done.

So that's the difference. So you're not actually telling your bank to do anything. What we are doing is you connect the bank account, whether you're lender or borrower, you connect your bank account to the system and the system says, “Okay, so we have your bank account and we verified that you own this bank account. So here's what we're going to do. On the first of every month, you asked us to take $250 out. So we're going to go in on the first, go to the bank account that you gave us, and take $250 and give it to your lender. And we'll do that as long as you want us to.”

Seth: That's what Authorize.net is for?

JT: Authorize.net authorizes the credit card part of it, yes The ACH processor we use is who we work through to get that banking part of it done.

Seth: So that's the middleman. That's not you taking it out, but it's… Okay, I got you. I understand.

JT: Yeah, that's an old industry. So all we do is we have a relationship with the Frost ACH Processing Company, and they're the ones who handle the bank account details and they handle taking the money in and out and transferring them between people. We just send them instructions. We have a list of what needs to happen and we tell them, all right, take it from Borrower A and send it to Lender A and they say, no problem.

Seth: And it's a question that automatic payments are a thing, but do they have to do it? Like another option is, “No, I'm going to go in and manually make that payment every time.” Is that another way that it could work?

JT: They could, yeah. That's not mandatory by default. That's what we guide them to because most people want that and most lenders want that. So that is like the de facto answer.

But there is an option for them to make one-time payments. If they absolutely don't want to do recurring payments or if they want to make extra payments, they're like, yeah, I do want to set up an automatic payment and I want to do an extra payment sometimes. Okay, cool, you can do that too.

Seth: Okay, gotcha. And then in this scenario, when there is a late payment, either because the money wasn't there (in the case of auto-pay) or they just didn't manually make the payment… I guess maybe we'll go with that first one, the auto-pay thing is in place. So that's happening and the money is not there. Is YourLandLoans, after the 10th of the month or whenever it's late, does it try to hit that account again—or the intermediary ACH—does it try to hit that account again or it's just going to stop trying until that person comes in and manually makes that payment?

JT: Yeah. So right now, we have it set it up so that if we go to draft money for any reason, whether it's recurring payments or a one-time payment (there's a standard set of ACH banking codes called R codes or form of error codes), if we get an error code back from your bank that says, hey, there were insufficient funds on this bank account, or on rare occasions, we get a response that says, like, hey, this bank account doesn't actually exist, we immediately cancel all recurring scheduled payments. So if it's a recurring payment or you schedule something in the future, that all gets canceled immediately.

And we send a notice to the borrower and to the lender and say, hey, this is what just happened. We tried to take the money, it wasn't there. This is why you guys need to figure out what's going on. We've canceled all those scheduled payments until you figure it out. Once you figure it out, go back in and set them up again.

Seth: And one other random thing. Does this have the ability to send text notifications about late payments in addition to email or is it just email?

JT: Yeah, right now, it's just email.

Seth: From the borrower’s, and I guess from the lender’s end, too, can you see the full amortization schedule and the whole payment history in one place? Is that easy to do?

JT: Are you talking about for every loan or individual loans?

Seth: Individual loans. If we're looking at this Beta Test Loan borrower or something like that, and we want to find out, I want to see the whole history, like what payments did they make, when did they make it, how much of each payment went to principal interest?

JT: Let me show you a loan with lawnmower payments. So one of our test loans here, so you can see here, we're listing all of the different test loans. It got all the different loans over time and where they are applied to. So they made one on the third and on the second and on the first of fifth, and what due date they were applied to, what their status is. Like these are approved, but not quite finished processing. And the amount, and the principal. And this was like a little bit of fees, a little bit of transactional fees, and the rest went directly to principal. And this was more a larger payment and big term principal. But there were some fees involved and et cetera. And you can see if they were credit cards and kind of what account they used or if they were ACH, any notes that you added. So this kind of shows you all the history of this loan.

In addition to that, you can go down to kind of historical payments and see the same thing, but even more detail where it shows like the due dates, how many payments, this isn't individual payments, this is like a per due date calculation. So multiple payments were made in the same due date it's all going to be kind of included here and then it will have total payments made. What was required, what was the actual payment made and then how much principal interest fees, et cetera.

And then a breakdown. Was there late fee? Did they have a one-time fee that was included on this payment? Gere you can see we had a one-time fee of $15, this test fee too, and it was only applied to this payment on 12/1. And then you can see the starting and ending balance as it kind of goes down. In this case, it's going back in time so it's going from the top all the way down here at 18,000, and then you can see the same thing for the future, right? And this is kind of projected payments as you see.

So where it's going? All the way down to where it's going to end up. In this case, they paid a lot of extra so they're ending early. So they've come kind of this a lot of zero payments toward the end.

Seth: That place where you can upload loan documents. So is that just like where you would literally just upload your deed of trust, your mortgage or your land contract, any related notes and all that stuff, like application documents? Is that what a person would use that for?

JT: Yeah, absolutely. So that lets them upload whatever documents they think are appropriate to share with their borrower. And anybody who has access to the loan will be able to see these documents. Borrowers, lenders, whoever.

Seth: That makes me think of, if I ever wanted to sell this note to somebody else, or even if I bought an existing note and wanted to bring it into YourLandLoans, is that something people do? Like, is that easy to do or how would that work?

JT: Yeah, I have had lenders go through and transfer loans to other lenders. We don't have that as an automatic feature right now, but that will be added soon. So right now we're doing it kind of manually on the back end.

But if a lender says, hey, I just sold this note on Paperstac or wherever and I would like to transfer it to this new lender, they would like to use the platform to continue to manage the note, I say no problem, we can get that set up, all the accounts get set up, and then boom. You can just transfer the loan from one lender over to the other lender.

All the stuff you're seeing here stays in place, including the payments by the borrower. We just say, okay, well, well this is FYI, this is your new lender and he'll be collecting your payments from here on out. They're going to be your new point of contact.

So I just wanted to show you whatt we talked about this earlier when downloading loans. So you can go here and download the data, and you can choose to download all the data for just this loan or all the loans, and it just spits it out in Excel with all the information you're looking at here, including payment history, all that jazz.

Seth: I think about the different people out there who are actively doing seller financing or maybe they've done in the past. You've got people who maybe tried to service the loans themselves, like what I tried to do way back in the day when I got started.

It's a horrible idea. It was a huge pain in the neck. I can think of a lot of very obvious reasons why those types would move over to something like this. You've also got people who are using other software out there. You've also got people who are using loan servicers or like actual people just trying to think of any valid reasons if they were to move, why would they do that? What is better about YourLandLoans than other stuff out there?

JT: For us I think it really just comes down to attention to detail as a platform. Not only am I super committed to making sure that things are as tight as they can be, we're always taking feedback from our users on like hey, how do we make this better? Continually on that quest. We've got the software and I think anyone who's used it from when we launched in January to now would tell you there have been several improvements over that time period and that improvement pace continues on.

We're always looking for ways to make the platform better and get all the details right. Because if we can add an extra button or make a post a little more clear, or add an extra title, we want to do all those things because we want to be super simple for your borrowers and super simple as a lender. And we kind of want to add as many features as we can, so we're kind of iterative improvement effects.

One of the things that's important to me is I really want that feedback. So we have a whole section here under Account Preferences, under Feature Feedback, and it will let you vote on what features we have coming up. So you go in and say like oh yeah, I've got a whole list of other features I'd like to work on. And there's way more than this but these are just the ones I have listed. Some of these have already been completed. Again, this is our sandbox, but you can go in and vote and say hey, I really want to track escrow dollars or I really like co-branding or whatever, and let people vote. The things that are at the top of the list, we always have development resources focused on them. So we're always looking for ways to make that better.

So we want the feedback, we want you to send us your ideas. We want to let the community tell us what things matter to them so we can keep moving. That up our list of things to get done sooner rather than later.

Seth: When I think about a loan servicing company, I think historically that's kind of been what I've always leaned towards. And the reason was because there's a person I can call and talk to and say, “Hey, what's going on? Help me out with this.” And they actually handle tax forms like 1098 and that kind of thing.

Those are the two things that I would just automatically assume software can't and won't do. Is that accurate? Like, how would a person handle 1098? Do they call you if they have a problem or do they just kind of figure it out on their own or how does that work?

JT: Yeah. We are not a licensed loan servicer. We make that very clear. So you're very much on a self-service portal. We're just providing you the tools so you are going to be the point of contact for your borrowers. We're not going to interact with your borrowers, but we are happy to interact with you if you guys have issues or questions or concerns. We interact with the lenders all the time to help them kind of get off on the right foot or answer corner cases or maybe if they find a bug or something. Yeah, let us know so we can get it fixed and everything set straight.

So yeah, we want that feedback from them, but that is something they're going to have to do. When it comes to 1098, things like that, on the roadmap, we have a set of features that will allow that to be easier and easier, but at the end of the day, it will still come down to the lender to say, yes, this information looks correct and I approve it and now we're ready to go.

But kind of with all these steps, although we can't do it for you because we don't have the license, we want to make it super easy for you to do so. If you're interested in a platform that you can handle yourself and offer your own customer service, but you want it to be a very streamlined process, this is the platform, if you want to be completely hands off. But if you don't ever want to be involved, then yeah, go to a loan servicer, the cost is much more substantial, but if that's what you're looking for, then that's a good option.

Seth: And I know you're one of several different people that is trying to serve the land investing audience, which is inherently just a smaller group of people, and your company is smaller. It still hasn't been around that long. It just makes you wonder, if you were to get hit by a truck tomorrow and JT is gone and I have 50 loans in this software, does the software cease to exist and cease to work if you're gone? Or are there other people who can keep this working?

JT: So we have the entire thing built on the serverless AWS infrastructure, so it scales infinitely and lasts for a super long time.

So let's just start there. But actually, we have a team of five developers that I work with to get a lot of this done. So even if I got hit by a truck, they're the ones doing most of the work. I'm the one kind of pointing and saying, let's make that better, how are you doing on this?

I'm kind of a project manager at this point in the process. So they're the ones who do that. And yeah, we have a way to carry that on. We have other people who can step in and say, okay, yeah, I've got partners and other things I've discussed. If they need to step in, they can help me pick up that work with those developers and keep going.

So the majority of it's being done by someone else. I'm really just here as a project management figurehead to keep the development moving.

Seth: What else should I be asking? I feel like we've covered a ton of stuff here, but I don't know, is there anything else that people ought to see or understand if they're going to use this or… Anything come to mind? I think we've hit a lot of the highlights about the platform.

JT: Yeah, for me, it just comes back around to we're a new platform, but we're growing and we're always adding features and we really want feedback. We want people to use the platform. And I think, as it exists today, it's still the best thing on the market for land investors.

But there are strategic features that people really need, and I want to hear about that. I want your feedback on that and say, hey, I really want to use the platform, but this feature is something really important to me. How can we add that so that I can really fully utilize it? So, yeah, I'm looking for that feedback so we can find ways to make it as good as it possibly can be.

Seth: I don't even know if this is possible, but could a person somehow plug this into their CRM so that their CRM could communicate with this? Or is that not really how it works? Like, you get in here for your seller financing stuff and you do everything else on your own CRM?

JT: Yeah, so right now those are separate, but as I mentioned a little bit earlier, like, that API access on the back end between CRMs or websites, that kind of stuff, it is definitely something I intend to do. It's just not completed yet.

Seth: For anybody out there who maybe just been listening to this and not watching the actual video, just my own thoughts on that, is that the design looks really clean and simple. I like how there's not a whole lot of noise. It'll take a minute or two to figure out where stuff is, but it's not hard. This is not something where you need weeks of training to understand how to use software. It's like pretty intuitive.

And some websites out there are great at this. Some of them are terrible at it. But this is one that I would say is pretty darn good from what I'm seeing here. It's not a whole lot of places you can get lost or confused about what's going on.

JT: Yeah, I appreciate it. Definitely one of our goals.

Seth: Cool. Well, JT, thanks again for explaining this to us. Thanks for the value you're trying to bring to the land community. Are you going to plan to let other types of lenders use this? Do other types of lenders use this even though it's meant for land people?

JT: I would say short-term, the answer is probably no. I really want to stay focused on serving the land community as best as we can. And if, for some reason, way down the road, we decide that we've done everything we can on that front, then potentially somewhere else. So I wouldn't say not never, but certainly not right now.

Seth: And if people want to find out more about this, it's just YourLandLoans.com, right?

JT: That's it.

Seth: Sounds good. Well, thanks again, JT. Appreciate it. Hopefully, we can continue keeping our eye on this and we'll see it continue to evolve and get even better. But it's already pretty good as far as what I'm seeing.

JT: Fantastic. Appreciate it.

Seth: You bet. Thanks. See ya.

Seth: Hey, everybody, how's it going? This is Seth Williams and you're listening to the REtipster podcast.

Today, I'm talking with my new friend Eric Scharaga. Eric is the founder of Damen Capital Fund, a purchaser of residential and vacant land notes. And a little bit about Eric's background. Before he started focusing full-time on notes and land, Eric worked for 23 years as a high school teacher and in 2001 he started investing in rental properties, purchasing and rehabbing single-family homes with the dream of becoming a full-time investor.

And after 13 years of dealing with the constant stresses of landlording, he came to the realization, as many of us do, that he just wasn't going to achieve his goal of financial freedom through rental properties.

In 2016, while still working full-time, Eric transitioned to the more stable and passive cash flow of notes. And since 2016, he's purchased over 500 notes, including residential performing, non-performing active bankruptcy, and vacant land.

Eric is also the author of the book Lienlord, an introduction to the power of note investing. I will include a link to that in the show notes for this episode, by the way, if you want to check it out. Eric is passionate about personal finance and financial freedom and he enjoys introducing land investors to the importance of seller financing.

And before we get into this conversation, I'll just do a quick disclaimer. Neither Eric nor I are attorneys, CPAs, or financial advisors. We don't provide legal tax or financial advice. And in this conversation, we're just sharing Eric's experiences as an investor. And we encourage you to seek out professional advice before you make any of your own investment decisions.

So, Eric, welcome to the show. How are you doing?

Eric: Thanks, Seth. I'm doing really well. Thanks for having me. I'm excited to join you today.

Seth: Other than what I just said there, maybe you can tell us a little bit more about your story to kind of flesh out the details. So you mentioned that you were a teacher. Anything else notable about your career background and when and how did you get into land and how did you get into this sub-niche of land? I know there are a lot of people out there listening that may be land flippers, but they're not all that comfortable or even familiar with this idea of investing in notes. So, how did that come to fruition?

Eric: Well, I love the note space. And I found the note space after 13 years as a frustrated landlord, which I know is very common for landlords. And it just got to the point that it was just so stressful for me and so many holidays that were interrupted with issues with rental properties. And I love notes because it really truly is a passive real estate investment.

I came across the land space and I thought, “What an awesome opportunity to create seller finance notes.” And it really is. I love the land space but I really love the opportunity in the land space to seller finance. And I realized that not all land investors are interested in holding seller finance notes.

I originally got involved because I wanted to purchase the notes, but a lot of what I was looking at really wasn't scalable. They just had too many issues. And so, I decided to create a program in which I purchased loans, seller finance land notes at closing for 80% of the purchase price. And in addition to that, I provide a lot of guidance to investors who want to offer seller financing but might not want to hold a $400/month note when they can cash out and have an extra $20,000 that they can put into their business.

Seth: Yeah. So, it sounds like there are a lot of land investors who have gotten involved with seller financing and this kind of thing could appeal to them because they basically just want their money faster, right? They don't want to wait for years to collect all the payments and move on. They want to keep their cash working. And those are kind of the people that would be an ideal fit for what you're talking about, right?

Eric: Yeah, absolutely. Land investors do really well but the land business is very cash-intensive. And these two types of investments are very complementary. It's a great idea to offer seller financing even if you don't want to keep the notes and then to work with a note buyer who would like that cash payment who isn't involved in the day-to-day marketing and negotiations of a land business. There are some really important features, though, if you are going to originate your own note of closing that you should keep in mind before you go through the process.

Seth: Yeah. I was going to ask you about that because earlier, just a minute ago, you mentioned that you started looking at notes that weren't saleable, that there were issues with them. So, what kinds of issues were there? What makes a note problematic and what is it that you are looking for to say, “Yes, this is a slam dunk, let's do it?”

Eric: Yeah. A lot of them were self-serviced, which is an issue because if I purchased the loan and the buyer down the road disputes the balance, I'm going to have a major issue there and it wasn't worth the headaches.

Seth: When you say self-service, you mean the person who originated that note, they're actually collecting the payments themselves? The person sends checks or something directly to them?

Eric: Exactly, exactly. The other issue is that a lot of them were land contracts and I just was not comfortable with the language in the land contracts. So, really what I have is kind of an overview of what I think that anyone who's interested in selling land with financing should keep in mind. And really what it comes down to is there are issues regarding the specific property, issues with the borrower, specific loan terms that you should adhere to, and then the process that I recommend that you follow.

Seth: Yeah. And we're totally going to get into that because that sounds super interesting.

I'm curious, though, on that issue of somebody who is servicing loans themselves. It sounds like the problem inherent in that is that when a person services their own loans, could that be okay if they were able to provide very thorough documentation of every payment received and when it was received and a paper trail of everything? Would that resolve the issue, or is there some other problem about servicing your own loans that makes that an issue?

Eric: Well, one of the issues, and I suspect that people don't frequently charge interest because, at the end of the year, they have to provide a 1099 to the borrower, a statement of the interest paid for the year. But I always recommend the use of a servicer because you have really a third party that's professional, that's going to have advanced software that they're using, that's also licensed in the different states to service loans. And it's just a much cleaner way to handle the payments.

I do suppose, though, if you had very thorough records, that it would be just fine. But there are steps that you can take in selling your loan to confirm the balance of the loan prior to the sale.

Seth: Okay. When you say loan servicing company, you do not mean software, correct? Say if somebody was using ZimpleMoney or GeekPay or something like that. Is that not good enough, or could that work?

Eric: It'll work. It's okay. But I'm a big fan of using loan servicers just because they're going to interface with the borrower. They're going to collect the payments, they're going to main retain the records, they're going to send out the interest statements to both you and the borrower at the end of the year. They're also licensed in the states that they operate. In my opinion, it's the best $20 a month that you're going to spend. It's a very low-margin business for them and it's a lot of responsibility for them.

And ultimately, if you structure it the right way, the buyer is going to end up paying that monthly loan servicing fee. So it's well worth, in my opinion, using a servicer.

Seth: Yeah. And I would agree. In my experience with loan servicing companies it is kind of a surprising value when you consider just the job that human involvement is there and they just type up every loose end, it feels like. And maybe there are certain loan servicing companies that are good and certain ones that are bad or something like that.

But I'm curious, in your experience, it sounds like you've worked with one or two of them. Is there any particular one or two or three that you're like, “Yeah, this is a good one, go here?”

Eric: Yeah. The ones that I use the most are BIFI Loan Servicing and Madison Management. I've used most of them. They all have their pros and cons. And FCI is great. The only thing that I like more about Madison or BIFI is that you can get someone on the phone, and that's a little harder at FCI. That's more of an email-based structure. So, for the beginning investor, it's really nice to just be able to call in and speak to someone.

Seth: Yeah. And I believe Madison is licensed everywhere, right? In most of the 50 states, is that true?

Eric: Yeah, they're licensed in most states. For servicers, it's expensive to get the license so they just have to kind of look at it from a cost-benefit perspective. If they don't have very many loans in that state, it's probably not worth them getting licensed because the licensure process is just extremely arduous and painful. But in most states, they're licensed.

Seth: I agree with you. I think it's the way to go as well, but it feels like a lot of land investors don't do this. They're either self-servicing or they're using some kind of software. And even the software, I guess it's been a while since I've looked at the pricing on all the options out there, but I don't think it's that far off from what a loan servicing company would be. Why don't people just default to always using a loan servicer, especially if you can put a servicing fee on your borrower to pay for that cost anyway?

Eric: Yeah, I'm not sure. It's probably just the knowledge issue. They don't know that it's an option. And I think that if they knew about it, if they knew how great it was, they would probably move more in that direction. And it really improves the saleability of the loan when you have it professionally serviced because the servicer is going to keep track of all payments, including the date and the amount from the very first payment, and you're going to have that to be able to show a prospective buyer.

Seth: Yeah. If anybody out there is curious about some potential options for loan servicing companies, aside from the ones that Eric just mentioned, I've got a blog post listing out a number of them around the country. I'll be sure to include a link to that in the show notes for this episode. Again, retipster.com/151.

Some of them are licensed in a single state and they may be the best one for that one state, but others are licensed in most places around the country. So, it's a good thing to be aware of for sure.

Eric: Oh, I was just going to say once you get to about 10 or 15 notes, it becomes overwhelming to do it yourself or to just use software. And considering the notes that I have in my portfolio, I really do very little when it comes to… I mean, I have to do my own bookkeeping. I don't do it, I outsource that.

But in terms of the day-to-day payments and collections and oversight for the individual loan, I just check a portal. That’s the other great thing about a servicer is that they're going to have a portal that you're going to be able to look at on a daily basis, see the payments come in, you can download reports. It's just really awesome.

Seth: Can those loan servicers accept credit cards as payments, or is it like ACH or mailing in a check?

Eric: I don't believe that they do. There may be some type of, I'm thinking that like what if the payment was recalled or there may be some law that regulates credit card payments for that. The ones that I work with, I don't think that they do. It's just ACH or you can mail in a check or they can take a payment through their website. The really nice thing is if a borrower sets up ACH and it's just done every month automatically.

Seth: Yeah. That makes sense. I was curious, I don't know if any of those loan services do that.

Eric: One other really cool thing about servicing is that some servicers actually report to the credit bureaus. They're online with them and if a borrower misses payments, that's going to be sent to the credit bureaus as well; on the flip side, if they're making regular payments, that's going to be reported as well.

Seth: Cool. Do you know which ones do that off the top of your head?

Eric: I know Madison does that. I'm not sure about the other ones.

Seth: Okay. So, what is a typical deal size that you work with in terms of the value of the property, the amount of the balance owing, the amount that you ultimately pay? What's an average or a normal size deal for you?

Eric: I look for sales prices between $25,000 and $150,000 if I'm purchasing it at closing. If it's already been originated, I'm buying it like a year or two years down the line. I'm pretty open in terms of balance. In terms of value, I typically don't go below like $20,000 or $25,000.

Seth: What percentage of the deals that you do are ones that you helped originate and you bought it at closing versus maybe it's been out there for a couple of years and then you're taking over?

Eric: For land deals, I would say right now about 65% of the notes that I buy, I'm actually buying at closing. Whereas 35% I purchase them once they've been originated maybe a year, two years later.

But those actually typically are more involved deals just because I'm required to look at and process so many different parts. Just the underwriting is more involved and the process is more involved, especially if you're dealing with land contracts. Because in a land contract, you're not just transferring the loan, you're also required to transfer the property. So, you're assigning the land contract and you're also deeding the property. It just is a little more complicated.

Seth: For those ones that do exist, what do you have to look at? Is it actually more stuff you have to do in underwriting or if you actually help originate the thing, you can sort of form it from day one, whereas if it's already established, you may have to pay for the sins of that person who sold the property if they did something wrong. So, what exactly are you looking at in terms of “This is a good deal” or “It's not a good deal?”

Eric: Yeah. The first thing I'm looking at is the property. I want to make sure that it meets my parameters because I look at each deal through the lens of the worst-case scenario. So, if this borrower defaults, do I want to take this property back? Is this something that I'm confident that I can resell? Is it an estate that I operate in?

I look at the investment to value. That's very important to me. So, what am I purchasing the loan for versus what is the property worth? And I don't like to exceed 70% investment to value. I look at the borrower. What is a borrower using the property for? Is there a credit report? What's the borrower's credit score? What was the down payment involved? Was there any down payment?

I tend to shy away just categorically from the no money down, no credit check loans just because those have such a high default rate. I would rather be in the lending business. I don't really want to be in the default business and having to resell properties. So, I tend to shy away from those. I look at the pay history. I'm looking at the terms and how I'm doing a yield calculation to see where I want to be at in terms of my annual return.

I'm looking at the paperwork carefully. Is it a note mortgage versus a land contract? If it's a land contract, how are they dealing with default? Is it just very generally worded? Is it in a state that regulates land contracts and is that not addressed in the actual paperwork?

So, there are a lot of potential problems there that could make a deal a lot more complicated. Regarding land contracts, more and more states are kind of cracking down on them. Florida, for example, whether you have a land contract or a note mortgage, you have to foreclose either way. So, there's just that knowledge of how states individually deal with land contracts.

Seth: When you say cracking down on them, what does that mean? Are they changing the laws to make it harder?

Eric: There was a lot of predatory abuse of land contracts after 2008 in which investors were buying pools of REO properties and selling them with land contracts. But these land contracts were just very predatory in nature. There was a lot of complaining. State's attorney generals started cracking down. They went after some of the worst offenders but then they started changing the laws. I know that some states change the laws so that if the land contract runs for more than five years or if a buyer puts down more than 20%, you have to foreclose.

I think that in my opinion, I'm not the biggest fan of land contracts. I actually prefer notes and mortgages just because it's a much cleaner process. The property is not in your name so you don't have that liability. And in a lot of the states in which we work, the process for foreclosure is not that difficult. It's non-judicial, it doesn't even have to go through the court system and it might just be three to four months to take the property back.

And the other issue with a land contract is if you are recording a memorandum of agreement or if you have an angry buyer who decides to put a lien on the property after you take it back from them, that's going to be a major issue that's going to require litigation to clear that title.

Seth: Yeah. So, if you see that a deal has a land contract, is that an automatic no for you? What would need to be true for you to say yes to a land contract?

Eric: I still buy them, I just look at them more carefully and I'm going to discount them more heavily just because of the potential for problems. But honestly, a lot of the times after I purchase them I'll just go to the buyer and say, “Would you be interested in actually converting this right now to a note mortgage?” Because buyers really would prefer to have the property in their name versus having the property deeded to them after they make the last payment.

Seth: What about a note with a deed of trust? And I only ask just because I haven't heard you mention that yet, but is that a no-no, or is that okay? What are your thoughts on that?

Eric: I say mortgage but mortgage and deed of trust are used synonymously. They're just different instruments in different states. So, the deed of trust is typically not always used in states that don't require a judicial foreclosure process.

Seth: Yeah, and the deed of trust, if I understand it right, is that the foreclosure process is more of an auction process. The trustee needs to sell that thing to somebody else. You don't necessarily get the property back but it's auctioned off and then you collect the money from that. Is that accurate or am I misunderstanding that?

Eric: Yes, the foreclosure process that's true in all states. Going through a foreclosure does not entitle you to the property. It entitles you to have an auction to publicly sell the property for what you are owed plus your expenses. So, if no one bids on the property, your minimum bid what you're owed, then it becomes an REO and then it returns to you and you get the deed, you take it back. But in a lot of cases, if you have a low balance, someone will purchase the property at the foreclosure sale.

Seth: That issue with land contracts, because I think the reason a lot of people use them, whether this is valid reasoning or not, is this idea that “Oh, yeah, the deed is staying in my name as the seller.” But even if that's true, the minute you sign the land contract and the borrower pays you anything, they now have an equitable interest in that property. You have to go through the proper channels to get them out of there if they stop paying. It doesn't actually make it any easier. It may technically still be yours but the same wrinkles kind of need to be ironed out either way. Would you agree?

Eric: Yes, absolutely. The other thing that really scares me about land contracts is that since you own the property, if someone is injured on the property or if there are city fines, that is your responsibility. If somebody's out there riding a motorcycle and falls off and breaks their leg, you are going to get sued.

I think that people typically believe that since they've sold it on land contract, they're no longer responsible. But an attorney is going to look at who is on the deed, who's the owner and that's who's going to be sued in that lawsuit. So you absolutely have to have liability insurance that covers you as the owner that the buyer pays for. And I use a company called NREIG. They have a specific policy liability policy for land investors and it's about 20 to $25 a month.

Seth: Yeah, actually, I discovered them this past year and did a little video on how to do that. I'll include that in the show notes too but I haven't researched this to death but it seemed like kind of a no-brainer. Just the easiest process. And it is set up specifically, especially land flippers whose inventory is always changing. They make it super easy to take it off. You don't have to pay for a year at a time and that kind of thing.

Eric: Yeah, I highly recommend them. I use them in my business. But you are 100% correct. I think that people assume that with a land contract since they own it, that they're just going to send a letter to the buyer stating, “You've defaulted, I'm keeping your money, you are done.” I mean, you can do that but that could open up a huge can of worms for you title-wise down the line.

The thing that I prefer about the note mortgage or deed of trust is that it's a well-established process in every state with very clear state laws and everybody knows what to do. Everybody knows how to handle a foreclosure, which is with a land contract, unless you're in the state of Michigan, in most cases the process is less clear. Michigan is the state that I know of that has a pretty clear, well-established procedure for land contracts.

Seth: Yeah. The interesting thing about Michigan is that there is a pretty clear process to go through and it works if that defaulting borrower is responsive and actually responds to you and does stuff. But if they just ghost you and pretend that they didn't hear from you, you still got to go through all these motions to get them off anyway. And I've got firsthand experience with that. So, there are still holes in it. It's interesting.

And you're mentioning with the mortgage and the note, if you're in a non-judicial foreclosure state, are you saying there's a way to foreclose or clear it all up with a mortgage if it's a non-judicial foreclosure state? You wouldn't have to go to court for that?

Eric: Correct. Usually, what they do, the first step is that through an attorney you send the borrower a notice of default, a demand letter, and then they record a notice of default. And then, a certain amount of time goes by and then they record a notice of sale which sets the date when the property will be sold if the default is not cured. And then on that date, they're going to, depending on the state and the state's procedures and the county procedures, they're going to hold a public sale.

The nice thing about the foreclosure is that if there are other liens on the property and you're in first position, those will be cleared off at the sale with some exceptions. I know it doesn't clear off some liens, property taxes that are owed, IRS liens, although that's not really that scary of an issue in most cases, and we tend not to see that in the land industry.

Seth: Yeah. With IRS liens those fall off, is it 120 days after it changes title or something like that? Do you know anything about that?

Eric: Yeah, typically, I believe that you need to file something with the IRS and then they will look into it and I think that they have a certain amount of time to establish their interest in the property if they choose to do so.

Seth: Okay. So let's say you're trying to take over an existing note that maybe was originated a couple of years ago. Are there closing costs involved with this? Does it need to go with your title or anything like that? Or is this an under-the-table transaction? How does that work and what kind of costs are involved with taking over one of these existing notes?

Eric: It depends on whether it's a note and mortgage or a land contract. With a land contract, it's going to be more complicated because you really should pull title. And it raises the issue of the owner's policy when it was provided by the title insurance company. Most people are just transferring these via quick claim deed and when that happens, you're essentially waiving your right to that title insurance policy because you're transferring the property. So, you should always pull title on a property before you transfer it, before you transfer the note, see what's on the title.

If you're transferring a note and mortgage, it's very inexpensive. It's maybe $100 because all you really need is the assignment of mortgage or deed of trust and an allonge which transfers the note. And the assignment will be recorded. It's just a public statement that there's a new owner for this loan and establishes you as the new owner and the allonge transfers the note. And then you really only have the cost for transferring servicing and title report if you choose to do that.

So, it's a very easy, simple process. With the land contracts it's a little more difficult just because you have to generate a deed, transfer the property, you should put title. You need to decide whether you want an additional title insurance policy, which most people choose not to get.

What I usually do is, and be very careful with this, the norm in the industry is to wire the money directly to the seller. Some people feel uncomfortable with that and there are companies or attorneys that you can use to escrow the transaction who will basically take the documents from the seller, the money from the buyer, make sure everything's there, and then handle the transaction.

Seth: So, in going back to what you're saying, if you're using a mortgage, it's about $100 in terms of closing costs. And that's assuming you're just wiring the money directly to the seller and not using one of these intermediary companies. Is that right?

Eric: Correct. It's very fast and easy.

Seth: And the reason you wouldn't want to look at title because what if something came up in the past couple of years and that affects your collateral and you wouldn't know unless you did a title search?

Eric: I always pull title. You find all kinds of things on title. The scariest thing that you might find was that the mortgage was never recorded or it wasn't recorded correctly and there is no lien on the property. So, in that situation, you have an unsecured note and it's just really a safeguard to make sure that there's nothing there that could interfere with your rights to the property as collateral if a buyer does default.

Seth: I know if you're buying from one of these notes that was originated a couple of years ago, say it's a vacant lot. Are these really well-established land investors that you're buying them from? Because I know a lot of land flippers out there do not know how to do this right. They're not going through the right motions. So, who are these people? I assume they know what they're doing right because they must have done it good enough to justify you buying it. Are these big nationwide outfits or what kind of person would you buy it from?

Eric: No, I just buy from all individual investors. Some people know the procedures better than others. If it's a complete kind of a nightmare or if it's really messy, I'll just say I think you should just hang on to this one. No, I would say that people do their best on these, but there's definitely things that they miss just because it's not their first business. Their first business is land investment and seller financing is really a different type of business with different requirements.

Seth: Yeah, that's interesting. I'm glad you pointed that out because you're right, it kind of is a different business. You're in the business of lending essentially, which is not necessarily the same thing as finding land deals and selling land deals. It's a new type of specialty that you're entering into. I don't think a lot of people look at it that way, but that is the reality I think. And the result is a lot of people, since they don't treat it like a whole new business, they kind of screw it up and they don't really make sure that they're dotting all their Is and crossing their Ts and doing it accurately and completely.

So, it also makes me wonder what type of land investor or real estate investor, in general, should or shouldn't even be dabbling in seller financing? There are probably people out there who are doing this and they shouldn't be because they don’t know what they're doing and they're not willing to figure it out and do it right.

The thing is, you can go for a while screwing it up without realizing that you're doing it wrong, without getting stung. It's kind of a broad open-ended question, but is there anything a person could do to ask themselves to figure out, “Should I be doing this or not?” How would a person self-evaluate that? Any ideas?

Eric: I would encourage everyone to do it. I think, especially in this market, it's a great idea. The caveat is you need the right people advising you on how to do it. So if you are going to do it, don't try to do it on your own with a template that you found online. Engage an attorney who specifically specializes in lending.

I think people tend to go toward real estate attorneys, but they are not necessarily experts in lending. So, I would find a lending attorney and they're not really known as lending attorneys. I think that they're known more as creditors’ rights and foreclosure attorneys. Those are the people that you want because they're absolute experts in the lending laws in your state and they will guide you on whether you want to use a land contract, mortgage and deed or deed of trust, the terms, whether you're violating USRI laws, Dodd-Frank considerations. I mean, they're absolute experts.

So it's well worth it, in my opinion, to engage an expert attorney in your state and have them walk you through the process, guide you through the paperwork, provide you with the necessary paperwork. Those are really the people that you need. Don't do it on your own.

Seth: Yeah, that's kind of a golden nugget. I don't even think I knew that after all these years. Usually, in my brain, I'm thinking a real estate attorney, but you're right. I've talked to plenty of them and they'll disagree with each other and they give conflicting advice and probably because they don't really do that, it's sort of a different specialty that isn't really captured in that real estate attorney title.

So if you're going to try to Google the right attorney, you would Google something like creditors right and foreclosure attorney. Is that kind of the keyword you would use for that?

Eric: Yeah, there's actually a website called Legal League 100 and it is a list of creditors rights and foreclosure attorneys in all 50 states. The problem is that these tend to be very large firms that work for banks, so it might be a little more difficult to speak to someone because these used to be foreclosure mills, they're a lot less busy now. It kind of depends on the individual state. Some of the states are much more complicated than others, but the reason that I like the foreclosure attorneys is that if anything goes wrong with the loan, these are the people who are experts at handling the default because that's their business.

Seth: I'm curious, how many different states do you do this in, and are there specific ones where it's like, “No, I will never do it in that state because it's a huge hassle?”

Eric: Yeah, that's a great question. I work in most states. There are some states that I'm not wild about. I've worked in almost all 50 states. The only ones that I do not work in are New York, New Jersey, Pennsylvania, and Georgia. I don't work in Pennsylvania and Georgia just because they have a lot of kind of very anti-lender tendencies. They don't like lenders who purchase loans operating in the state or owning loans without being licensed. And the licensure is just very difficult to get. It's more designed for banks.

And New York, it's just they have a lot of laws there regarding lending that I don't really want to have to adhere to. New Jersey is similar. It’s not as bad, but it's just a very small state. Typically if you look at the map of non-judicial foreclosure versus judicial foreclosure, in the west, you have mainly non-judicial states and in the Midwest and east you have mainly judicial states with some exceptions.

Seth: So, what percentage of your deals end up being land versus buildings? Are you intentionally trying to go after one or the other? What's the breakdown on that?

Eric: I do both. Traditionally, I've done owner-occupied single-family and condo traditional residential loans. And I was buying all kinds of stuff. Non-performing junior liens, performing loans, loans in active bankruptcy. I moved into land just because I saw it as a really great opportunity for another source of notes. I do both.

Right now, I would say I'm probably 80% land. Part of that is because during COVID, the interest rates got stole low that when those loans entered the secondary market, there really wasn't much yield to get out of them. That's going to change, though, because now rates are climbing again and when those loans enter the secondary market, there will be better yields.

Seth: So, you think you go back to houses more in the future?

Eric: I don't know. I love doing land deals so I will probably do both.

Seth: Now, these situations where you're buying an existing note, where are you finding these people? Is there some community or something or is this just a massive networking effort to always be on the lookout? If somebody wanted to start buying some of these seasoned notes, where should they go to start doing that?

Eric: It depends on whether you want to buy residential or land. Residential, I purchase mainly from contacts that I've developed with larger funds. I met people at conferences, I met people through word of mouth. I saw their name in paperwork that I received and reached out to them. It's a lot of networking.

With land, it's almost entirely based on my reaching out to people and asking them if they are interested in a seller finance note buyer or if they have loans that they'd like to sell. There is one exchange that I know that's popular with both land investors and residential note sellers. And that's Paperstack.

Seth: You've ever done anything there?

Eric: I've never purchased nor sold a loan on Papestack. I just use my existing relationships on both the buy side and the sell side, although I don't really sell that often.

Seth: Gotcha.

I know we talked a little bit earlier about how you break down a deal to look at it in terms of like the property, it's a loan to value, is the property itself good enough, and then the borrower looking at their credit score and their down payment and looking at the terms, what kind of loan document was used and the annual return.

So, dive in more specifically into that. Maybe we start at the property itself. The 70% loan to value thing, that's easy enough to understand, but in terms of what makes a property good enough, or what it's used for. What does make it good enough? Is there certain zoning? How would you evaluate, “Yes, I would be okay repossessing this property because it's useful for X and Y and Z?” How do you make that decision?

Eric: I'm looking at the same things that every other land investor is looking at. I'm looking for legal access, I'm looking at the topography. I'm looking at the water or wetlands. I'm looking at what is it zoned for versus what is the likely use for it through the lens of if I had to take this property back, could I resell it, could I resell it with terms?

I don't normally call the county or get involved in kind of the secondary level due diligence. I kind of rely on the owner or the seller for that to provide that information to me. I may reach out to some realtors for valuation if it's a market where there just isn't much on either on the market or that has sold recently.

So, ultimately it comes down to what's the likely price and if I had to take it back, could I resell it at a certain price?

Seth: Yeah. And looking at the borrower, say if you were working directly with a land investor to originate a deal, like you really don't have any history to look at with regard to that single note, what does make a good borrower? And this is kind of like Underwriting 101 kind of stuff, but just out of curiosity, what kind of credit score are you looking for? What's the minimum down payment you want to see? Any thoughts on that?

Eric: Yes. In my program, I do not require what's called a full doc loan origination. So, I am not looking at their income versus their liabilities. It is simply credit score and down payment. Actually, it's pretty similar to buying a car and actually the price ranges are in that similar realm.

I have a kind of matrix that I use. The minimum score for 20% down is 660, which is kind of like a C rating. And then from there, it goes to 25% down, 30% down and it keeps increasing as the credit score decreases. That is more risky, not including a full underwriting of the borrower and their assets and liabilities. It's also easier and faster though to get the deals done.

My biggest concerns with the borrower are credit score and down payment. I do require a larger down payment. And that's part of the reason why I don't recommend that anyone does a deal with a zero down payment. Down payment is extremely important to preventing default, in my opinion.

Seth: Interesting.

Eric: There are massive industries that are based entirely around that credit score. I know people will say that it is important, but in my opinion, that's what I'm basing the decision on. I think it's also important to look at what's on the credit report.

Unfortunately, people will have typically pretty good credit, but then it's sad, they'll get sick, they'll have all kinds of medical bills that they don't pay and that really destroys their credit score. I heard a statistic that the number one reason for bankruptcy in the United States is medical debt. So, I think it's important to look at the report itself more than just the credit score.

Seth: Yeah. On the thing you were mentioning about the lower the credit score goes, the higher the down payment you require. Is there any cut-off point at which you're just like, “No, sorry, it's too low, the answer is no.” Or could it be like, I don't even know what the lowest is, but could it be down to zero or whatever that bottom out is and say, “Yeah, that's fine, just make an 80% down payment?” I'm trying to ask a ridiculous question just to understand what is the actual limit for that.

Eric: Yeah, I never say no. I will take any credit score, but you'd be looking at a 50% down payment, which is really high and most people are unwilling to do.

Seth: And the reason you're okay with that is because, say if they just never even make the first payment, it's okay because you have full access to this piece of collateral that you've already collected or that you're only in for a lower amount of money so that the value is there for you to cash in on if you have to. Is that right?

Eric: Correct. In that situation, I doubt that that would happen just because somebody's put down such a massive down payment. I don't think that they would immediately default, but a year down the line, if they default, I feel like my investment in that property would be low enough that I would feel comfortable handling the default.

Seth: If you were dealing with an Amish person who doesn't have a credit score, you just lost a huge portion of what you would look at to make that decision. Would that be a deal killer or no?

Eric: No. There's a thing called ITIN. Are you familiar with ITIN loans?

Seth: Oh, is that I-T-I-N? Without a social security number?

Eric: Yes.

Seth: Yeah. Okay, I got you.

Eric: Yes. There are people in the United States who do not have social security numbers, who use ITINs to purchase property and the big banks allow this. I have never seen it, but I would not say no to it. I would allow an ITIN purchase, it would just require a higher down payment.

Seth: Okay. I'm liking how it seems like there's always a way as long as something comes into.

Eric: There's always a way.

Seth: Yeah. Yeah. That's cool.

Eric: There's always a way. It's a matter of will the buyer or the borrower be willing to agree to it.

Seth: Based on what we've talked about so far, it sounds like the person's sources of income, you don't even look at that, that doesn't matter to you.

Eric: I don't. Now, let me say that regarding Dodd-Frank. Even though land is exempted from Dodd-Frank, if someone is going to be living on the property day one, first I would say consult an attorney about whether or not this is required. But I think it's probably a good idea for you to run that scenario through a full underwriting. If somebody is buying the property as recreational land or hunting land or is just going to go there on the weekends, that's an investment and I'm comfortable in that situation not doing the full documentation of full underwriting.

But again, if somebody is saying, “I'm going to live there, that's going to be my primary residence”, you're probably smart to A) consult an attorney and B) call the underwriter.

Seth: Eric, you talked about this annual return a little bit earlier about what you're hoping to get out of a note investment. Is there a range of what you're looking to get out of this? How do you know when it's worth your time and money to invest it in a note like this?

Eric: I use a financial calculator to calculate yield. And the technical term is yield to maturity. It's a measure of what your investment is returning to you each year that you hold it. I base my yield based on the risk of that loan. So, I would say that the vast majority of my purchases yield anywhere from 14% up to 20%.

Seth: Okay, that's helpful. What kind of payment terms do you want to see? How long should the amortization schedule be? Are we talking like 1, 3, 5, 10, 30 years? How long is normal I guess? And then, for the instances where you kind of jump into an existing one, how much more is there left to go before the thing matures and is paid off?

Eric: Yeah, that's a great question. My advice for that is to always go with as short a term as possible because that will really improve or reduce the discount required when you sell your loan. The other thing that I recommend is to go with about a 9.9% to 10% interest rate because interest rate and term are the two most important parts of the discount when you go to sell the loan.

If you have a 3% interest rate, it's called a coupon rate and you want to sell it at a 12% yield, you can see that you're going to take a huge reduction in the loan balance to get that up to 12%.

The other thing that I like to see is the 2% rule. I don't always see this, but it's nice. My purchase price, whatever my purchase price is, I like to see the payment as 2% per month of that purchase price. But ultimately, what I'm doing is, I'm just crunching the numbers in a financial calculator based on my risk assessment and what I would like to achieve. And it's going to spit out a purchase price that is my offer.

Seth: Yeah, it's interesting just thinking as I hear you talking. A while back I created this spreadsheet where you could basically plug in the value of a property and it would spit out five different scenarios for how you could make an offer to a seller. One of them would be just a super discounted cash offer and then the other four would be different combinations of seller financing where that seller is financing it to you as the buyer. And the beauty of it is that you can ultimately pay anything for a property if the person's just willing to finance it for terms that are favorable enough to you. And it kind of sounds like a similar concept to this where we mentioned earlier, the credit score can be terrible as long as you're willing to have a big enough down payment.

It'd be interesting to create some kind of a similar spreadsheet. Maybe you even have one where you can plug in any scenario and it would just tell you this is what has to give. If this problem exists, this is how you fill it in by asking for this concession. Do you think it was possible to create that kind of thing? It seems like it could.

Eric: I have a credit matrix that is a combination of credit score and down payment required. But absolutely, that's how I bid the loans, is just based on what do I think the risk is and what do I think is an appropriate yield and then what purchase price will translate into that yield.

Seth: Yeah, this question is kind of going back in time on what we were talking about earlier regarding the loan servicing and collection of payments. So, if you take over an existing note and say they're using software or something, can you switch over to your loan servicer of choice at that point? Or is it kind of like, “Nope, sorry, this is the track it's on, this is how you got to finish it?"

Eric: That's what I always do. I have it transferred. You need to send out a servicing transfer letter to the borrower, informing them that moving forward their payments will be collected by the servicer. And it's just a matter of transferring. They need a copy of all the loan documents, they need to know the balance, the monthly payment, late fee, all that information. And it's a little more complicated than just the servicer-to-servicer transfer, but I highly recommend that.

Seth: Got you. Okay. And I guess going back to what we were talking about in terms of finding ways to remedy what would otherwise be bad lending decisions just by asking for a higher down payment or whatnot. In those scenarios where this borrower clearly has some problems, there's reason to be concerned and that's why you fill in the gaps by asking for these additional things.

I have to assume if you're doing that, you come across borrowers who default on their payments after you take over the loan, right? How common would that be after you're doing all this proper groundwork to make sure it's a good credit and something that's going to actually pay over time?

Eric: In my experience, it's relatively low. I don't think I have had a borrower yet ever who just… Well, okay, I take that back. Maybe a couple. Who just stopped paying and just walked away. That's extremely rare.

Seth: Like immediately after you take over?

Eric: No, I've never had that. I had that actually in one situation, but it was complicated because it involved a bankruptcy and the individual decided that they didn't want to continue in their bankruptcy plan. But it's exceedingly rare and I do believe that that is really tied to down payment. When somebody hands over $15,000, the likelihood that they're just going to walk away with a decent credit score of 660 or above is low to the point that I am comfortable purchasing those loans. Because if it does happen, I'm comfortable with the default process. But it's rare.

Seth: Sure. I have to assume you're ready for it. If somebody defaults, you know exactly what to do. You're not scared of that. You just follow the appropriate process to get that done. I guess you said it's relatively uncommon. I don’t know how many deals a year like this you're doing, but if you're doing just for round numbers a hundred of these per year, is it like maybe five of those you have to worry about that or 10 or one or none? I don't know. What would you say?

Eric: Under 10%. Probably more along the lines of 5%.

Seth: Okay. And does that ever become a problem where you hit a snag and you can't resolve it or it takes way longer than you expect or it's more expensive than you thought it would be? Or do you pretty much have your process ironed out so that there are no surprises in that process?

Eric: Yes, you never know what a borrower is going to do during the foreclosure process. Most of the time with land, they're just probably going to walk away. A lot of times you can convince them to do what's called a deed in lieu of foreclosure and just say, “Hey I'll give you some money if you just deed the property back to me.” If it has a clear title, that's an option.

But if a borrower really wants to keep the property they might hire an attorney, they might fight the foreclosure, they might file bankruptcy. There's a lot of things that could happen. In land, it's relatively rare because most of the time they're not living on the land so they're probably more likely to either just give it back or do a deed in lieu of foreclosure.

Seth: Yeah. Isn't that kind of the same thing? Giving it back in deed and lieu of foreclosure?

Eric: Yes. Same thing.

Seth: Just want to make sure I wasn't missing anything. Because I agree, that sounds like by far the easiest wrinkle-free way to do it just to clearly mop it up and you're done.

So, when you try to pursue that, I'm assuming that's probably your first default way that you try to resolve this. The first step is to say, “Hey, can you just deed it back to me?” And assuming that's true, what percentage of the time do they actually do that? They don't ghost you, they're willing to do it. And what do you have to pay them to get them to do that for you?

Eric: I would say about $500. But the other issue here is that a borrower is personally guaranteeing this loan and if they default, you can obtain what's called a deficiency judgment against the borrower, which is a judgment that they did not fulfill their terms of the loan and that deficiency judgment could attach to their primary residents now or it could attach to real estate that they own in the future.

Seth: Interesting.

Eric: That tends to be a very powerful motivator in these situations in order to get the borrower to cooperate.

Seth: It sounds like $500. Does that usually work?

Eric: On the face level, I would say no. People tend not to respond but I think that the encouragement of the issue of a deficiency judgment, nobody wants that. That makes the borrower much more likely to cooperate.

Seth: That's interesting because I know probably the biggest frustrations I've ever had with seller financing are when I'm trying to communicate with this borrower about anything, whether it's about this or something else and they're just not responsive. It's like they've vanished from the face of the earth and I can't get anything out of them because it just makes it harder for everybody.

So, when you say that “No, they don't do that,” does that mean they're not responsive or does that mean they hear you, they're just saying, “No, I'm not going to comply, I'm not going to do what you want?” And how do you convince a person to do this? Is there a certain letter template that you use where you talk about this deficiency judgment or a certain verbal conversation you have on the phone? What is most effective in getting people to just work with you?

Eric: I don't recommend that you ever call borrowers on the phone. That's the job for the servicer. I'll also say that a deficiency judgment is not an option with a land contract. That is only an option with a loan only.

The way that I would handle it is, in my experience, there's a very clear process. Once the borrower reaches 90 days delinquent, you're going to send a demand letter saying that you're now in default. You need to cure the default within 30 days and this is the amount. If you don't cure the default, the foreclosure is going to be filed.

I would also include with a note mortgage, that deficiency language in the demand letter and I would have the servicer try to communicate with them. But that does happen. Frequently, borrowers just completely go dark and they refuse to communicate and that's part of the business. That happens.

Seth: Okay. If somebody is of the frame of mind where it's like, “I don't ever want to have to deal with foreclosure stuff with chasing borrowers around to pay what they're supposed to pay me. I just want total surety that I'm going to get my money. This is going to be a passive hands-off investment.” What do they need to prioritize when they're underwriting these deals? Are they just looking for the best possible credit score and high down payment, that kind of thing? Just make sure that's as good as it can possibly be. Acknowledging that they're probably going to walk away from a lot of opportunities that aren't perfect. Is that what you'd recommend?

Eric: The big four for me are pay history, credit score, down payment, and investment to value. If all of those line up, you're probably fine, but there are no guarantees in life. I think that in my experience, you're going to have a lot more issues with the no credit check, no money down land contracts than you are going to have with a higher down payment and a higher credit score.

Seth: Are there any states that come to mind that have a particularly easy foreclosure process or repossession or auction process or whatever?

Eric: Texas is probably the easiest.

Seth: That's if you're not using a land contract, right?

Eric: Yeah. They're not friendly to land contracts and that makes sense because their foreclosure process is like three months or less. It's just so fast. There's no reason to use land contracts in Texas. And if you speak to an attorney, they'll tell you don't use a land contract. The Western states, Arizona, Colorado. Washington is fine, California is fine. All of those states have a pretty fast foreclosure process. Non-judicial.

Seth: And when you buy these notes or help originate them, do you ever resell them again or is it your goal to just ride them out until they're paid off?

Eric: I don't usually resell them. Sometimes lately, I've been selling some of my older residential loans to free up some capital for more land purchases. But I'm not in the business of brokering these, which would be just basically not fund it, just kind of broker it to another party. And actually, a lot of the note buyers that you will likely meet in the industry are not actually funding it with their own capital, they're just trying to broker it to another party.

So, keep that in mind if you're trying to sell your loans. One of the first questions that you should ask is, “Are you going to be purchasing this or are you going to be brokering this?”

Seth: Yeah. How much does a note broker make from each broker deal?

Eric: I would say a couple thousand. Unless you're a very high-level institutional broker. And there are some institutional brokers that specialize in being the goal between huge funds and banks. Individual loans, I would say not very much. I'm not even sure that it's a feasible business.

Seth: And I know we've talked a little bit about your note-buying program. Is there anything else worth talking about with that? It sounds like a really good way for somebody who's never really understood how to do seller financing correctly. It sounds like a good way to get educated on that just because it sounds like you help them make sure everything is lining up correctly.

But if somebody does want to get involved with what you're doing in terms of “I want to offer seller financing to make this thing sell faster, but I don't want to actually play that game long term.” Anything else worth mentioning about how that works or who that's ideal for?

Eric: Yeah. I created the program because I really do believe that land investors can sell their land much faster and for more money if they offer seller financing. But most people, they would rather have the cash, they don't want to hold a note. They don't really want to have to worry about originating the note and then selling it down the road. So I created this program in which I purchased seller finance land notes for 80% of the sales price at closing. And I basically handle everything. I oversee all the paperwork, I oversee the process.

The only thing that you have to do is just market the property with just a couple of parameters. It's designed to be super simple, super easy, super transparent, no negotiation. You know exactly what you're going to get upfront. And I've had really great success with it so far. People have been really happy with the program just because there are a bunch of things that you need to keep in mind when you're doing an origination and I kind of oversee that in the background for you.

Seth: Got you.

Eric: I vet the buyers. I do review the properties to make sure that there are properties that I'm comfortable with, but I handle the credit check and the whole process.

Seth: It sounds like you probably have a lot of repeat business. It's probably certain land investors or real estate investors that just you do stuff with them again and again and again. Is that accurate?

Eric: Yes.

Seth: If we had done that kind of thing together, I'm sure that's how it would work. When you find a good source of business that can help you with something, it's like why not do that again and again if it's working?

Now I get a note here to talk about The Power of Zero by David McKnight. This is a book that I have not read but sounds like there's something about this that's significantly worth talking about. Did you want to get into that at all?

Eric: Yeah. I really believe that the biggest enemy for land investors is not really any type of specific market. I think that the thing that we should be most concerned about is taxes. And I read The Power of Zero by David McKnight and the premise of the book is that taxes in the future are going to be much, much higher than they are now and you should be taking some specific steps to mitigate your tax liability now before the taxes get out of control.

And typically, what happens with land investors is that they're paying taxes every year over and over and over on the same money. And one of the suggestions that he makes in the book is the idea of the solo 401(k). I have employed the strategy and it's really been a game-changer for me.

So, what I have is a self-directed checkbook solo 401(k) that is a Roth account, which means that I pay taxes on the money before it goes into the account and then I never pay taxes on it again. What I do is, in 2023, I'm going to contribute $66,000 after tax for myself, $66,000 for my wife. And what I do is my company pays me and that money goes through a payroll processor, I pay taxes on it so that I have records that the taxes were paid in case I'm ever audited. And then that money goes into my solo 401(k). I self-direct it so I can spend it on whatever I want to within reason.

Now, you can't run a business in your IRA, like you can't flip land in your IRA and never pay taxes. That would subject you to what's called UBIT tax. You have to be purchasing investments that are more passive, that you are not actively involved in on a day-to-day basis.

Now, with that said, if you're interested in this, I highly recommend that you consult with a tax advisor or an attorney to come up with a plan for what you can invest in. But it is such a huge amount of money that you can contribute into these accounts that it really is an amazing strategy. I think it's probably the best game in town. You do need to be self-employed either full-time or part-time. The other caveat is that you cannot have any full-time employees. You can have part-time employees and you can't have independent contractors. But for me, it's just been a huge opportunity.

Seth: Yeah, and there's probably a lot of people in the REtipster audience that kind of fit that profile and it sounds like if you just scan the average person in the general population, a lot of people wouldn't. But we're looking at land investors or real estate investors who are at least somehow self-employed without any full-time employees. The closest comparable thing I can think of to this is the self-directed Roth IRA, which I've done a bit of.

But the big drawback with that, it works similarly in that you put after-tax dollars into it, but you're limited. I don't even know what the current amount is, but it's definitely not $66,000. It's way, way less than that and you can't get to it until you're 59 and a half because it's a retirement account. That age restriction, does that apply to the solo 401(k) as well or when can you actually take the money out?

Eric: I would rather not say because I'm not an expert on that. I don't believe that is the case. I believe that the age is lower.

Seth: Yeah. Something I heard you mentioned earlier when you were talking about the solo 401(k) is that you were talking about the self-directed IRA, you said that that can't be used as a business, it has to be more passive in nature. Is that a rule or is that just a practical guidance thing? It doesn't make as much sense to do it that way?

Eric: If you want to run a business in your IRA, you will be subject to UBIT tax. And I'm not a tax professional but my understanding is that UBIT tax is around 37% that you would have to pay. So, it's probably not the best entity or situation for land flipping, but for more passive investments it really provides you an amazing opportunity to go tax-free moving forward. You might want to have your normal land business and then there's just so many other opportunities that you could get involved in for other great investments that are more passive, that you can use your solo 401(k) for.

Seth: Yeah. Again, not tax advice at all, but I just did a Google search and I asked “When can you take money out of a solo 401(k)?” and it says, “Participants can withdraw funds at any time after the age of 59 and a half.” Again, I don’t know if that's right or not, that's just Google. But I know that is something that I find very annoying about a self-directed Roth IRA, like a big drawback to doing that because you can't get the money. I mean, yeah, you're saving a lot on taxes, but if you can't use the money anytime soon, it's like, “Okay, well, yippee, it's great for me, assuming I live that long.”

But it sounds like with the solo 401(k), especially one that is a checkbook self-directed 401(k), it's a lot easier to actually move the money instead of getting a custodian involved and all the hoops you have to jump through for that. And also just being able to put so much more into a fund that thing from the get-go. I know that was a huge thing that slowed up the process with the self-directed Roth IRA. But either way, a great tool to know about if you want to not pay a whole lot of taxes long term.

Eric: And the other nice thing is that the setup costs are very low. I think I may have paid $500 to start it. So, for me, it's really been a game changer. I highly recommend it, especially to those younger listeners out there who haven't really started thinking about that yet. It's a great opportunity.

Seth: Yeah. And I assume that's something that you employ with this note-buying business, right?

Eric: Correct.

Seth: I'm trying to think, is there any, I don't know, software, or anything that you use that's vital to you in this kind of note-buying business, whether it's to keep track of stuff? It sounds like you do your own accounting, that kind of thing. But it's a fairly different business than one who flips land. A lot of land flippers who might be listening to this, they kind of know the land world. But if somebody ever does want to get into this note space, are there any crucial resources that are just amazingly useful to you?

Eric: Yeah, absolutely. I use a financial calculator called T-Value. I use it every day. It's probably the best $60 a year that I spend. It's a financial calculator and amortization schedule creator.

I use Pipedrive. Pipedrive is a CRM that I kind of organize my notes in. It's not really designed for that so it probably isn't the best fit.

I use QuickBooks for my accounting.

And I just have a lot of forms in Excel. I keep track of my notes in Excel. I keep track of my documents in Word and that's pretty much it. I'll be honest with you, I'm kind of a lousy marketer. Lousy with data. I'm not that great of a land investor, honestly, but this I can do.

Seth: Yeah. Okay, cool. Well, if people want to find out more about you or work with you or have questions or want to reach out to you, anything like that, you're not obligated to share this stuff, but if you want to, what would be the best way to follow you or get a hold of you?

Eric: So you can email me. My email is eric@damencapital.com.

Seth: Cool. Well, Eric, thank you very much for talking with me. It's been very informative. It's been awesome to get to know you a little bit better. I hope your business continues to grow and do well. And you sound like an awesome resource for people to learn more about how to do this properly. Because I know there's a lot of, I don’t know if it's misinformation or just not a full awareness of how to do it quite right, but it's guys like you that can help people bridge the gap and figure this out. So, I appreciate your time.

Eric: Yeah, thanks so much for having me. It was awesome. If you come across anyone who has any questions, just send them my direction. I'm happy to help people in any way I can. And I will be at Dave's conference next May. So, we'll get to meet then.

Seth: Yeah, I can't wait for it. It'll be a lot of fun. Thanks again, Eric, and hopefully, we'll talk again soon.

Eric: Thank you so much, Seth. Have a great day.

Seth: Thanks. You too.