KSS 53 | Second Position Notes

 

What are second position notes, and how can we juice income out of them? Today, Kevin Shortle interviews Sherman Arnowitz, the Founder and Preside of Keyhole Financial Services, about investing in second position notes. Sherman shares what opportunities you can get from working on first and second notes, and talks about the positive components of working on the latter. Influenced by a college roommate about investing in seconds, Sherman passes on his knowledge through Keyhole Academy and Keyhole Financial Services. Listen to Sherman as he dishes out his insights on second notes and understanding possible risks that may arise.

Listen to the podcast here:

Investing In Second Position Notes With Sherman Arnowitz

Thank you so much for reading, especially sharing it with a friend and whether that’s any investor interested in real estate or real estate notes for your meetup groups, real estate investment clubs. I do appreciate that. If you do enjoy the show and you like it, go ahead and give me that five-star rating. Believe it or not, that does help with everything, I do appreciate that as well. I’ve got another great one for you. I’m excited to have this guest on because we met up at a panel. We’re about a week out from the NoteWorthy Convention that’s going to be an Anaheim, California. I’ll be out there from the 27th through the 29th. I’m speaking about every day, but I’ll be there the entire day as well.

Good news also, for those of you reading that are in the Central Florida area or want to come to the South Florida area, we’re going to be having another NoteWorthy Convention sometime in June or July in the Orlando area. I’m looking forward to having one of those in my backyard. I’ve got a couple of IRA meetings coming up. If you’re in the local area in Orlando, I will be speaking at NuView Trust. Their event is coming up for the first quarter and that’s going to be on the 25th of March. If you’re in and around for that, if you have money sitting around in your IRA, we going to talk about how you can invest that money safely and get good returns, whether that’s individual notes or through the fund options that you have as well.

Enough about that, I want to get to our guest I have on here with me, Sherman Arnowitz. I met Sherman years ago. He was at a NoteExpo event and I’ve never been educated well enough on seconds. My focus has always been on first and not second. I know a little bit about them. To truly master something like this, you need somebody who’s got a great depth of experience. I’ll tell you, Sherman impressed me years ago talking about seconds because he knew how the business worked. He knew how to approach it the right way and that’s critical in that industry. As things happen, you get back into what you’re doing. It turns out that Sherman was the host of a panel that we finished in Fort Lauderdale. It was on the nonperforming loans notes and default servicing forum in Fort Lauderdale and he was the host of the panel. We got to reconnect and I invited him to share with you working on second notes. The panel that we did was on first and seconds. My conclusion walking away from that is, why not both? There are opportunities in each one, but they’re certain is an educational curve in a lot. I have a ton of questions for Sherman.

Sherman, thank you so much and welcome for being on. 

Thank you for having me, Kevin. It’s a pleasure being here. It’s a pleasure rekindling.

Your specialty is in second position notes. Most everybody reading this has a real estate background and probably more education in the first. Start with this basic, if you will, on seconds. What’s the attraction of seconds for you? I’m going to ask you how to bullet point some of the main positive components. For those who may not be as familiar, give us the basics on seconds.

First off, I’ve been doing seconds for over twenty years. I’ll give you a quick background and then we’ll get to the bullet points. When I graduated college, my college roommate asked to borrow $5,000 from me and he said he was doing some real estate deal. I reluctantly lend them the $5,000 with his promise that the money was going to be returned within 30 days. Thirty days went by, 60 days, 90 days, one year and we lost touch. I lost $5,000. Fast forward fifteen years and I get a certified check in the mail for $5,000 with the phone number of my college roommate. I called him up and the first thing that I said was, “Scott, where’s the interest?” We started rekindling and he started telling this story of this bank that he was going to. At the time it was Ditech and he was saying, “Ditech created, originated, all of these second mortgages and some of them fall through and the homeowners are no longer paying second.”

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At the time, there was a tremendous amount of equity. Scott would buy these second mortgages anywhere from $0.25 to $0.35 on the dollar with plenty of equity. He invited me to join him and it was more karma out of karma that he invited. He said, “I’ll show you the ropes and then you can, determination with money.” He was buying about 200 to 300-second mortgages at the time from Ditech. He showed me the ropes and it was pretty simple. This guy owes $100,000 to this first mortgage. He owes a $25,000-second mortgage and the property is worth $250,000. This is going back twenty-something years ago. It was a no brainer, let’s buy it and let’s get on the phone. Ditech was selling these because the homeowner wasn’t paying them the second mortgage and they would call and send out letters. At the time, some banks were foreclosing. Ditech’s philosophy was that they weren’t going to foreclose.

At some point, Ditech wanted to sell off these loans right off the loss. We would buy these anywhere from $0.20 to $0.35 on the $1. We would pick up the phone and call the homeowners. Our philosophy was these people have been crapped on and off. Let’s see if we could help keep them in the house and work out some money. Because we were buying them at the right price, we had the flexibility that we could make them offers. Quite frankly, a lot of them when we called them were saying, “I had lost my job at the time and I’m working.” I called up Ditech to say, “I could start making those payments,” but they said, “No, we already charged off your account. There’s nothing we can do about it.” I say, “I’ve got the money.” They fell into a couple of different categories. Some of them were, “I owe you $500 a month, I can pay $500 a month.” Some of them would say, “I could pay the $500.” When I would mention the past due balances that they did owe, we work out a deal to say, “Pay me the $500 mortgage and then let’s pay $200 additional and I would go towards the past due balances.”

Certainly, some of them couldn’t afford the money. It would be, “You can’t afford that $600. What could you afford?” They say, “I could afford $250.” “For six months, let’s put you on a temporary payment plan and we’ll see how it goes. If everything works out at the end of six months and you haven’t missed the payment, that’s great. We’ll put together some loan modification.” It started working and my college roommate was teaching me this. At a certain point, like Yoda in Star Wars, he turned to me and he said, “I’ve taught you enough. You have to go on your way.” I had a decision to make and the decision was I could continue doing this on my own with my money privately or I could go out and make this and turn this into a business. I could go and I could start trying to raise money from friends, family, business associates and that’s what I offered to do.

I remember my first fund. I had raised about $350,000. I remember making a pitch to my insurance broker. As I’m making the pitch and the words are coming out of my mouth, in my head, I’m thinking to myself, “Rob, you don’t want to do this. I don’t know what I’m doing. I don’t know the first thing about second mortgages.” There’s that conflict going on, helped out what’s going on in my head and what’s coming out of my mouth. Unfortunately, Rob didn’t hear me nor the other investors and I got enough money on my first fund. It was about 75 loans and I needed to raise $330,000. I did quite well and I busted my hump. It was about a 35% return on investment. I was off to the races with that.

Getting back to where you asked me, part one of the reason why I got into the seconds was by happenstance with a college roommate. Had he been investing in first mortgages, maybe I’d be investing now in first mortgages, but because he was truly an expert in seconds, he passed that knowledge on to me. The other thing that I liked about seconds is that it’s a less expensive adventure to get into than compared to first. If you have $100,000, you might be able to buy one, maybe two first mortgages. Whereas with the second mortgages, you might be able to buy maybe 4 or 5-second mortgages.

The other thing that I liked about seconds is that it was more challenging and creative. No offense, the first mortgage investors in that the first, it’s more a nature of, “Homeowner, are you going to pay me or am I going to foreclose by nature of the price that you’re paying for the loan?” I’m oversimplifying it but with seconds, because you’re paying such a discount for those loans, if you do it properly, there is much more that you can do that you can offer. There is much more creativity that you can do. At times I’ll say to a homeowner, “You owe me $12,000 in past due balance. I’m going to match you one for one. If you come up with $1,000, I’m going to match you $1,000 and we’ll take off $2,000 from that.”

KSS 53 | Second Position Notes

Second Position Notes: Investing in seconds is a less expensive adventure to get into compared to firsts.

 

As creative as you want to be. It’s interesting because when I first started doing this and didn’t have that much knowledge, I thought the mortgage police were going to come in and say, “You can’t do that,” but you’re only limited by your creativity. Those really were the three things that lured me into the second mortgage space. The cost to enter into the space was reasonable. It’s what I was taught at the beginning and also the creativity and for me also, working with these borrowers and trying to help them stay in their place.

A lot of parallels to the first in there. If they have the ability to pay, great, let’s get them working again. If they don’t have the ability to pay, what can you afford? There’s always going to be a percentage that there’s no way that they can afford even to make some payments and then you have to go to more drastic solutions on that. I see the parallel there. The reaction is normally in the people who are in the first and myself on that camp. When we start to think in terms of liens and paybacks, and for everybody reading, a second position lien is junior to the first. There can be cases where people are paying the first. There can be cases where people are not paying the first. That’s all going to be a part of your due diligence, but you’re in a higher risk proposition on a second versus a first, all things being equal. Everybody starting from that platform, what are some of the ways that you address that risk and how do you discover? How do you run your numbers on something like that?

It was in the Spider-Man movies where they said, “With greater risk comes greater rewards.” That’s been my motto when I’m talking to people. When I’m talking to investors or I’m talking to students of mine, the first thing I say is, “Here’s the downside. The downside is you’re going to lose everything.” Has that happened to me? No, never. The worst-case scenario that I’ve encountered is I had a fund that I started in 2006. It was about 100 loans and it was tremendous equity in 2006, all the numbers jive and we were off to the races doing well. Two years later, the crap hit the fan. There it was. I was fortunate enough that I was able to get back about 85% to my investors, but I want them to know we are a junior and we are behind the first.

When I do my due diligence and I’m looking at what they owed the first and they’re current with the first, and maybe there’s equity, but more often than not there’s no equity. There are other telltale signs that we look for. If all systems say go, we buy the note. Who’s to say six months, the guy loses his job, the borrower and he can’t afford to pay the first, then the first forecloses on the property and there’s no money left over for the second mortgage. We know that going in. Take that into consideration. What I say is if I buy five-second mortgages, chances are I’m going to get to those mortgage notes to go from non-performing to performing. I’m going to get one of those notes to do some short sale, some settlement to get rid of their second mortgage.

While I’m on the fourth one, I’m going to lose my initial investment because the first is going to foreclose and there’s no money left over for me. I take that into the formula. The fifth note, it’s a potluck, if you will. Who knows what it’s going to be? Whether it’s 5, 50 or 500 notes, that same percentage I carry forth. We know to go in that it’s a risky business for us junior lien holders because we’re behind the first. We take that into consideration. At the end of the day, when we’re throwing all of these numbers into the swimming pool, “This guy’s paying $300. This guy’s paying $450. This guy did a settlement of $40,000 and I paid $4,000 for it. I lost $9,000 because we foreclosed.” At the end of the day when we’re looking at those numbers, if we still can, and we do have a return on our investment of between 20% and 30%, we know we’re doing something right. There is more risk but with that, I look at it as there’s more.

As part of that risk then, when you’re getting involved in seconds, you should think in terms of buying at least five versus buying one at a time to see how it’s going to work out. Is that a part of covering the risk?

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Absolutely. We created Keyhole Academy. It’s an online academy, only seven chapters, and it teaches investors that want to do this for themselves how to get involved in investing in seconds. It takes you from A to Z. What I tell them is if you don’t have between $35,000 and $50,000, you should not be getting it. This is different. You could speak more about it than the first mortgage. It’s not worth it because if you buy that one mortgage note and it craps out, there’s your experience of dealing with seconds and you’re not going to have a good taste in your mouth. You have to be prepared mentally, emotionally and monetarily with at least $30,000, $35,000 to $50,000. It’s a numbers game. It’s a pure number.

That was always under the thought process and knowing the little that I do know about seconds. My mentality was always thinking in terms of ten. If you buy 10, 7 or so, we’ll work out the three, the other ones won’t matter. You can refine it a little bit better if you’re better educated and do better due diligence. Is that what you teach at Keyhole Academy?

Absolutely. What I explained to them is we’re playing a game called the Virtual Vegas. Our job is to minimize the risk and maximize the opportunity for profits. When we go in there, there’s probably about 10 to 15 categories that we look at. In looking at each of those categories, each of those categories have a different weighted factor. For instance, we’re going in looking between our due diligence. A borrower who is with their first mortgage, that’s a plus to me. That’s the most important thing. I train them. It’s a numbers system. If they’re current, you’re going to add 25 points.

I use a scale analogy. There are pluses and minuses to each one. You’ve got to weigh them out and you’re the pendulum in the middle that invests within your risk tolerance. 

Based on that risk tolerance, if they’ve been in the house for more than five years, that’s great. There’s your emotional equity. We keep that eye on the ball where we want to minimize the risk and if you do it right, and if we pay attention to those categories. I found through the years when I see a bankruptcy, a lot of people shy away from those bankruptcies. I get skittish with Chapter 13s because possibilities that the second, the junior lien is going to be stripped if there’s not enough equity. With sevens, I love sevens because usually a trustee, there’s a sign. Usually, a trustee in most cases is going to be the one that’s paying the monthly mortgage. With all of those 10 to 15 different factors with different numbering and weighted average systems that you’re doing, I try to train my students. Let’s do the seven. It’s 70% scientific and then it’s 20% experience and then it’s 10% pure law. That’s the gist of it. If we could get through that 70% and then as we keep going on and on dealing with the experience and learning from your mistakes, etc., that’s how we’re going to minimize the risk and maximize profits.

Once again, I’m hearing a lot of parallels into what we look at in the first because there’s no perfect first note either. You’re still weighing out the positives and minuses of everything. I teach in terms of numbers and stories. Along the same line, you were saying the numbers have to make sense, but you try to figure out the story because this isn’t a business that’s pure science. It’s an art and a science and part of it do come from experience. Some of the obvious things are what make better notes. This should make sense to everybody reading is on a second position. If they’re paying the first, that’s a plus in your category simply because they’re showing the ability to make payments. There has some income. They’re making payments.

KSS 53 | Second Position Notes

Second Position Notes: Don’t deal with foreclosure. Rather, sell it off to somebody and let them deal with it.

 

That’s in the plus column. If they have equity in the property, that’s going to be another in the plus column because they don’t want to lose that equity. I have to imagine with property values appreciating FCA that’s been good for people along with portfolios of seconds. The other thing that confuses people, you have to address this issue, is foreclosing from that second position. Some people don’t even know that you can foreclose from the second position. Some people fail to understand what happens when you foreclose from the second position because it’s not something always an investor who’s buying seconds would want to do, although they might pursue it to a point. How do you address that issue? 

First off, we are a secure debt and we can foreclose like a first mortgage foreclose. When I try to explain that to the borrower, I suddenly get their attention. You have to remember that a lot of these, if not most of these second mortgages the homeowner hasn’t been paying for over 5 up to 10-plus years. That initial phone call, when we’re speaking with the borrower is a sense of resistance that we’re getting. In a lot of cases, it’s a legitimate resistance because they’re saying, “I don’t owe you any money. What are you talking about? The first mortgage charged it off. I don’t owe you anything.” You have to go and explain that. “You still owe it when they charge it off to an accounting term. It doesn’t mean that they’ve excused you from your mortgage.”

It’s a game of the challenges you put your psychologist hat on because these people are bummed out. All of a sudden, they get a phone call from a guy that’s saying, “By the way, you owe me on that second mortgage debt.” They truly believe that was long gone and we have to do that. Even though we can foreclose on them, for me, it comes down to a matter of cost versus benefit. Am I going to go in and spend $5,000 to $8,000 on a foreclosure? Does it make sense? In most cases, when you’re buying the second mortgages, my risk tolerance, I’m going for that piece of fruit on the tree that’s a little higher up. I don’t want that low hanging tree. That low hanging tree is with their first and there’s full equity that’s great for some people based on their risk tolerance.

You’re going to pay $0.40 to $0.60 on the dollar for that second mortgage. Keep in mind that it’s still a second mortgage. I don’t mind climbing a little higher and my height, my comfort zone is where they’re 30 days out with their first mortgage and there’s no equity. I’m going to pay anywhere from $0.15 to $0.30 on the dollar for those notes. It’s worth it to me because I’m paying less in the opportunity for greater profits if you know what you’re doing. It depends on risk tolerance. Part of the foreclosure formula besides the initial cost is the philosophy.

I know some investors that when they buy a mortgage note, they immediately go into foreclosure mode. They don’t pick up the phone. Have the lawyer send the demand letter and the clock starts. They want to wake this guy up with a bang. My philosophy is, we potentially will get there. Why not give this guy the benefit of doubt? My clock is a three months clock. Within three months, if I can’t convince the borrower to start making payments, then I have a decision to make and that decision is to foreclosure on that note.

I found that interesting that you are looking at seconds that are a little bit different than the ones that I had pigeonholed in my mind. Which are you want the ones where the first is performing and there’s equity in the property, but you’re paying the premium you pay for that may not make it as lucrative? Where you’re looking at things a little bit differently where you said that you’re okay with no equity in the property performing first that could be 30 days out or a little bit late, something like that. You see a cheaper buy-in and more flexibility as to the outcome. You were talking about how you gave a three-month plan versus shooting one over the bow right away in the form of a demand letter and foreclosure threat. You like to give them a little more benefit of the doubt of three months. You can always decide to take that action. That’s where you left it there.

It’s true and it all depends. Each person’s individual has that risk factor. To me, I feel climbing a little higher in that tree is where you’re going to maximize your profits. When I was saying about the foreclosure, it’s the cost of the foreclosure. It’s the reality of nowadays. You have to make sure every T is crossed and every I is dotted and the statute of limitations when you’re going after somebody. I lastly said the karma factor. I’ve been doing this almost 25 years and I’ve maybe foreclosed on five. Those five people I give every opportunity to and they didn’t do it. It all has to make sense on paper. Also, in my head, I’d rather not deal with the aspect of foreclosure. I’d rather sell it off to somebody and let them deal with it, or I’ll keep it away and store it and see what happens.

That’s amazing to me that you only had to foreclose on four. That is amazing, and maybe that’s a testament to how you would approach this business with people. I would have to imagine that you might have to make the threat of foreclosure about 50% of the time or maybe even more, but the actual going through with it, much smaller. There’s going to be a percentage of people you do have to wake up at some point in time. They have this thing, “I don’t owe that.” You’ve got to get it down to that point where you’re threatening foreclosure.

You don’t want to, but it’s the behavior of this isn’t my doing. I’m giving you the opportunity. The first thing I say to people, “I’m on your side and I want to go to bat for you and do whatever I can. I’m not a bank. I’m a small company. I have investors that I report to. There are certain guidelines, but how can we work together?” The saying that I was taught was the money was green when you got it. A lot of people forget about that and it has to come down to, “Here’s the agreement that you signed and here’s the assignment of the mortgage so that you know I’m legit and this isn’t phone scam.” At the end of the day, you want to do what’s best for them, but also what makes sense for you. That’s my philosophy, how I like to go about it.

The other part of this is people read this and think, “That sounds like you have to be active. Am I the one calling these people up? Is that something I can outsource?” In the world of the first, you can outsource pretty much everything and there’s a lot of investors who liked that aspect of it. Is that the situation in seconds? Do you find that it’s better to reach out in some cases yourself, outsource when you can? What’s the activity? Give us an idea of participation levels investors would need to be actively involved in the seconds. 

When I create a fund under Keyhole Financial Services, it’s for the passive investor that they don’t want to do anything. They want to collect their money on a quarterly basis. For those that are more interested in wanting to become active and they go through my academy, one of the things that we do at the end of the academy offers mentorship. The mentorship program is, “Students, you took the course. You can either buy 3 or 5 mortgage notes and we split the profits 50/50 but every step of the way, we’re going to hold your hand. We’re going to hold your hand every phone call, every meeting, every memo that goes out. We’re doing it together.” They get more intensified hands-on experience with that.

We do have some students that there might be a language barrier. They’re not going to be the ones that are going to call and do the workouts with the borrower. One of the biggest misgivings that people have is that they think, “I’m going to have to put much time into this.” The reality is that you don’t. I have two camps here. One is the person who wants to do it to supplement their income and they’re working a 9 to 5 job. The other is the person who says, “I want to do this full-time.” If we buy a note, you’re spending most of the time looking at 25 to 30 notes on a spreadsheet. You’re doing the due diligence, maybe that’s going to take you 2 to 3 hours. You’re going to put your bid in and let’s say that you win two mortgage notes.

Keyhole Financial, the website is KeyholeFinancial.com. Also, directly underneath that on the website is a Keyhole Academy. That’s the educational source for the mortgage industry as it pertains to seconds. As I was saying, I have seen Sherman do presentations and he lays the material out logically, methodically, which I love. 

As I was saying, that’s the misgivings. The misgivings are if we buy a mortgage note and we’ve put the bid in, we won the bid, we’ve transferred the money over, signed the PSA. We’ve reviewed the collateral material. The seller sends a goodbye letter. We send a welcome letter. We filed the assignment of mortgage. All of that on one loan might take you two hours. We have to find the homeowner. Maybe there’s skip tracing involved. We find the homeowner and we speak to the homeowner and there are 1 of 5 things that the homeowner’s going to say to us. Let’s say the person says, “Great, I can’t afford $500. I’ll pay you $400.” That’s it. We’re done. Let’s say we set him up with an ACH program. I don’t have to speak to that homeowner anymore unless they stopped making payments. That’s a misgiving that people have is that they have to throw a lot of time into this. If you have five mortgage notes and you’re making phone calls to them, maybe it’s 1 to 3 hours a month of fine-tuning. That’s pretty much it. When I explain and show that to students, they’re very happy about it.

The way you’re doing it, what’s intriguing there is because I like the way you’re explaining is way different than I’ve heard from anybody else in the way you’re approaching these notes. If are able to buy them inexpensively, and I’ll use numbers that I have heard from you before. If somebody owes $40,000 in a second here, you’re buying it for $15,000 and their payment was $500 a month and they can only afford $400, of course, the conversation is pretty much over at that point. How many people reading would like to own a rental property for $15,000 that nets you $400 a month? Of course. You’ve got extra flexibility in the way that you’re approaching this. It gets a little thinner if you’re going for those safe seconds where you got the equity, you got the performing a first on there. They could drag those out on you. That makes a lot of sense to me.

I’ll add something to that, Kevin. The idea of the philosophy of the second mortgage goes two ways. On that example that you gave, I’m going to be bringing in $400 a month and that’s an annuity. If I’m happy with that, knowing that loans bringing me $400, number one, I have to calculate how many months is it going to take until I get my initial capital back. From that point on, that’s when the gravy starts. What we do is it’s a split track because once I have twelve months’ history of this guy paying me $400 a month. Out of $40,000, realistically, you’re going to pay about let’s say $10,000 for that note. If I paid $10,000 and the guys pay me $400 a month and I have twelve months’ pay history and I put that mortgage note out to the market, I’m probably going to get bids in the $15,000 to $18,000 range. Within twelve months I took my $10,000 investment.

Let’s be conservative. I sold it for $15,000. I made a $5,000 profit in twelve months. If I hold onto that and get another twelve months in there, I’m probably looking at about $20,000 to $22,000 from that note. There are two trains of thought there. One is let’s hold onto it myself and it’s going to be an annuity for me. The upside is, that’s great. It’s an annuity. The downside, keep remembering it’s a second mortgage. If the guy loses his job and you can’t make that payment, why don’t we go start doing this again? The other side of it is twelve months. Let’s sell it. We made $5,000. We doubled our money. That’s great. Let’s take it and let’s buy two new loans.

After 25 years of buying these, I love that you have the statistics or the averages at your fingertips, which there’s going to be a percentage of those. You bought it for $10,000 and the people pay you $25,000 to pay the whole thing off. Even $20,000 just say, “We’ll take $20,000. We’ll make the whole $40,000, $50,000 go away and you’re cashed out.” That makes a lot of a lot of sense in doing that way. You’ve it down there. I hope I said that correctly. Keyhole Financial is the parent company and that’s a type of fund level that investing at people can get involved with you. You also have the academy side, which is teaching investors how to go out and invest on their own in this space. Is Keyholefinancial.com is the main website?

That’s correct. If everyone goes to a KeyholeFinancial.com, there’s some sub-menus talk about Keyhole Academy or what Keyhole Financial does. I have two products out there Evaluenote, which is a program for due diligence. It makes life easy with due diligence. I have a program that’s coming out called Note Emporium, which is a program. The students or investors say, “Great, I bought these loans, what I do with those?” It’s a managed platform that you’re going to enter all that information into. When you speak to them, it takes the notes. When you receive money, you’re going to put that money in. It’s a reasonably priced management book.

I’ve been in the business 25 years or so also on the front end side. The changes in the industry continue to amaze me. I remember shuffling around paperwork manila folders. That’s how you did it back in the day. With things like software and spreadsheet solutions and all of that, it takes up all the financial projections and everything else of maintaining these assets. It allows you to focus on the investments, which is the key. 

When I started the Keyhole Academy and students came in, they took the course and they went on their merry way of investing. They’re the ones that brought up to say, “I’m still a little nervous. Is there any way that we could do something together?” I’m finding that mentorship is a buzzword that especially when there are many little turns, detours and you have to worry about are you doing it right and dangers of that. That to me is that buzzword of the mentorship. The other thing that I tell my students is, “If I do right by them and they learn by me, they become my soldiers.” They’re out there in the front line. I’ve had tons of students come back to me and say, “My fathers, uncles, best friends, a teacher in high school, his mother is now a bigwig up in Bank of America. She sent me a list of 100 seconds. I can’t do it. I can do whatever.” “Great. Let’s take a look at them. We’ll do it together. If I buy some, I’ll pay you a commission. We could do some joint venture together.” It is if I do right by them and it’s not a matter of taking the course and you’re done. It’s a matter of let’s develop this ongoing relationship.

I’m doing my one-on-one sessions with people and it’s a game-changer for them because it’s learning by doing. No matter what the investment is at some point, as good as an instructor could be, they can’t teach you everything. At some point, you have to do it. By being there and helping them, I’ve seen people who have struggled for years in my consulting as well, where all they needed was that second set of eyes to go through and did I miss anything? Is this right? Where’s my risk here? That can make a big difference in the momentum. You’re right, when you do that with people and they get results, they’re going to come back and they’re going to tell other people about it and that’s the name of the game. There is much inventory out there still. We saw that at the event we both attended.

When I first started in this industry and went to these seminars and heard many acronyms, I was confused by all these acronyms. I thought, “Are people using these acronyms because their lives are busy that they need shortcuts or are they trying to sound oppressive?” Once I gained enough experience, I came up with an article and part of Keyhole Financial word. It’s called It’s Not Rocket Science!. Many of these students are intimidated and I keep telling them, “I’m no smarter than you. It’s a matter of once you learn it. When you’re on the phone with a homeowner, there are only five things that they could say to you. As long as you’re prepared to respond to those five things, that’s it. When you do due diligence, there’s always much that we do.” It’s 70% follow the process and that’s it. It’s not rocket science.

I was laughing at that. I remember clearly, I was doing a three-day training and an older gentleman came up and he said, “All these initials, all these different acronyms you guys have. Do you have a list?” I’m like, “No, but we should.” I sat down in my hotel room and came up with 80 off the top of my head. Every business has its own language though. That is funny. We’ve gone a little over than I normally do, but I’m fascinated by the way that you’re doing this. I see first and seconds coming together and you and I are going to continue this conversation. We’ll be bringing out both education worlds that would fit a lot of people. I’m sure there are some things that we can do down the road together as well. Sherman Arnowitz, everybody. KeyholeFinancial.com is the website to learn more about it. Sherman, thank you so much for taking some time out to be with us. 

Kevin, always a pleasure. Thank you so much for your hospitality

Thank you very much everybody, for reading. I do appreciate it. Once again, if you’d like this, go ahead and hit that five-star rating. It is helpful and please share it at your monthly meetings or anything like that and it’ll enable me to keep doing these and do them on a more regular basis. Thanks, everybody and I look forward to another one with you soon.

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About Sherman Arnowitz

KSS 53 | Second Position NotesFor over 25 years, Sherman Arnowitz has been buying, selling, brokering and managing distressed second mortgages. He has created numerous private funds managing thousands of distressed second mortgage notes and has continually paid out returns in excess of 20% to private investors.

Keyhole Academy was created for those investors who want to become more active in the day-to-day aspect of note investing. It’s an online course with 27 chapters teaching investors everything they need to know to start investing by themselves.

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