If you are in the Central Florida area, you may be interested to know that I do have a one-day training coming up over in Tampa. It’s going to be on June 29 in Tampa. It’s going to go all day from 9:00 in the morning until 6:00 in the evening. It’s going to be at the Courtyard towards the airport. You can find out more about it by going to my website, www.KevinShortle.com. It’s a good bargain. I’m doing it in conjunction with the local note Meetup group over there. It’s only $79 which is really a steal. I’m doing a special price for that group but anybody who reads this podcast or goes to my website is more than welcome. You can sign up for that right on my website. It’s a good full-day. We cover a lot of ground on that. It’s all content. There’s nothing else promoted at that training.
I think you’ll find it of great interest if you’re interested in learning more about the note business and dig into some deeper issues. When I start doing this on a regular basis, I’m also going to do a deal review class. It’s a separate class where we go in, look at assets and break into groups or work with all the different groups based upon the type of assets that you’re looking for. You’ll find that very helpful as well. I have our guest, Ray Trounday. I’ve known Ray for a few years now. I was looking up an email and I saw some old emails that you had sent way back in 2016 looking at a note in the super lien and then something about that. I was helping you there. We had met at a training that I was doing for note school, three-day training, a number of years ago. You got involved in the note business. First of all, welcome, Ray. Thanks for being on.
I don’t think that you came with any background in real estate or notes per se when you got started in it. Is that accurate?
That is an accurate statement. My background is in technology.
What attracted you to the note business? My audiences are anywhere from beginners to people who are advanced. I always find it interesting and intriguing what brought somebody out to note event, especially someone with a tech background and that didn’t have any background in real estate.
With anybody that has money in the bank and is not accruing the interest that one would want and the stock is a bit volatile to have any for a long period of time, what appealed to me on the note business was the fact that you have these notes that are paying you interest. You have it secured by the property. The property, for all intents of purposes, is probably not going to go too far away. I saw it as more of a difference diversification play. I think of it in that way. Not to have all my eggs in the stock market.
I’ve been saying for a couple of years now that because of the real estate crash in 2008 and such, notes became a much more visible class of assets. It used to be so much of a niche that many people are even exposed to it. After the crash, it became so large that we’re seeing more and more people diversify across the board. Not just real estate investors or long-term real estate investors and such. It’s people like yourself who are in the stock market. We could make the argument all day long that the stock market has been doing great, but to have everything in there, you’re right. You need to start to diversify. Notes fit your schedule too in the tech field where you’re behind the computer all the time.
It allows me to do the research from my desk. With Google Maps and things of that nature, I could see the property from my desktop, which makes it nice. I don’t have to travel to the property if I don’t want to. All these conveniences you have with investing in the stock market, you also have similar things with notes.
Doing the research and such. You probably remember from classes, I used to kid people about, “How many of you invest in the stock market?” A lot of people raised their hands. I said, “I’m sure before you bought that stock, you fully investigated it. You know they’re operating and you look at their books.” They’re all like, “No.” There’s a lot you can do, especially for someone like yourself who probably knows more websites than even I do about doing background research on this stuff. It does make it nice and easy that you can do the business this way. Did you focus on any particular types of notes or did you just jump in and try everything?
I jumped in on a nonperforming note because I felt that was probably the biggest opportunity to learn. Performing note, collecting the payment every month is nice, but if you want to get into the business, a nonperforming note will expose you to a variety of different things that you need to be aware of and need to keep in mind when making an investment in notes. That makes me a better-performing notes investor as well.
That fits in perfectly with every deal in this business pays you in knowledge and money. That sliding scale that I talk about here, you’re correct. Nonperforming note, which you didn’t make money, you sure made up the knowledge on this. When you first started, what was your basic routine of research on nonperforming notes? What was your approach? What worked for you? Coming from a tech background, when you first were exposed to this, you learn the methodology that I use, but I’m sure you personalized that and made your own. Tell us a little bit about that.It’s an opportune time to come in the industry because banks are advertising these stated incomes. Click To Tweet
One of the biggest things that I wanted to make sure of is that the value of the underlying asset that’s being secured by the note. I spend a lot of time initially and going to various portals in Redfin, Realtor.com, Zillow.com and getting a feel for, “If I have to foreclose on this property can I recoup this money as a wholesale? Can I quickly turn around and sell this property?” That was the initial barometer test that I make, to make sure that the property value that’s secured by the note is indeed there.
Address the risk first, that’s how you do it. Did you start to research online? Did you create a spreadsheet or something to work off it to compile the data?
When I first got going, I leveraged a lot of the spreadsheets you went over in some of the three-day training as well as some of the portals that note school and others provided. I worked through spreadsheets. A lot of the times, when you’re looking at the tapes of notes or tapes of nonperforming notes, you get access to an Excel spreadsheet or a CSV file of some sort. You upload that into a template of your choosing and you have a bunch of columns that you’re using like ITV or Investment-To-Value, loan-to-value, and these kinds of things. Excel was probably the first foray into the due diligence aspects.
I also know you attend a lot of industry events and what are you hearing? What do you foresee based upon what you’re hearing of where the industry is going or what changes might be afoot?
I’m seeing that it’s an opportune time to come in because everybody feels that, at least I see on the portals and whatnot, banks again are advertising these stated incomes. It seems like we’re revisiting the same kinds of mistakes that we made back when we had the bubble and back when we had the credit crunch. I’m starting to see those loans surface again. Once you start trying to attract people into a mortgage that they can’t afford, that’s a recipe for disaster.
Are you seeing that on higher end homes as well, across the board or just lower?
In the immediate area, the appreciation that we have here in California is off the chart. There are other areas like Colorado are also experiencing similar off the chart appreciation. It becomes difficult for the local person unless if you’re in the high-tech industry with a lot of IPOs, companies going public and things of that nature and they come into a lot of cash. It’s hard for the average Joe to afford a property and they feel like they’re missing out as a result. The banks are trying to attract these people to go ahead and take that step into a mortgage that they can’t afford.
In the Bay Area, you’ve never felt uncomfortable investing in notes in other places, probably mostly in the Midwest and such.
Absolutely not. You started off the conversation with stocks. I don’t go to any corporate meeting and sit down with the board and understand where they’re taking the business or do we need another CEO or things of that nature. I certainly have set of funds parked in these types of companies. Having a note that’s secured by a property and I’m able to evaluate that it is indeed the market value. That releases any concern of me seeing the property firsthand with my own eyes.
As a tech person, you’re detail oriented. I know over the years in training, we’ve had people with tech backgrounds and people with accounting backgrounds that seemed to be pretty similar as far as dotting I’s and crossing T’s and coming up with formulas and such. As you were doing the note business yourself, you recognize that there are some things that could be improved upon in our industry and started to address that. What did you recognize and how did you start to approach that?
In order to get a good understanding or a good feel for an investment you’re about to make, I found myself spending a lot of time on a lot of different portals trying to get a handle on value, trying to get a handle on, “Is this state with maybe that has the hardest hit funds? Is this a nonjudicial or judicial state as far as foreclosure?” I found myself spending a lot of time going to a variety of different portals. I felt there had to be a better way to get this information and aggregate into a single location. That motivated me to different paths as a result of that.
It started with spreadsheets and then you said we’ve got to have more than several spreadsheets to bounce things in. I know I did the same thing when I was looking through, which most people back then were using tapes. On the tapes, I would narrow down the assets. If I get it down to ten, then I would research all ten of those and put that on the same spreadsheet so I can see the full picture. It’s very difficult to compare if you’ve got a whole bunch of different windows open. You’re looking at this note and that note. It can get confusing on there. When you’re talking about aggregate, you’re talking about taking all of that data and being able to click a couple of buttons and have it do the research for you. A lot of it is remote, it’s the same websites and stuff that you go to. Is that what you’re talking about?
The idea is that I find myself going to different portals and cut and pasting this information into my spreadsheet or creating some macro in Excel to pull that information in for me. I found that to be very tedious and very time-consuming. To be quite honest with you, I found myself missing out on opportunities for not being able to make a call or make a decision to moving forward on a particular note. Where somebody saw value right away, I was still here spending my time clicking on buttons and clicking on portals, copying and pasting information into my Excel just to arrive at that decision.
There is that balance for sure of over-researching to the point where you’re trying to find out everything. It’s an imperfect business. You’re buying nonperforming notes, there’s going to be problems that you’re simply not going to be able to identify. That’s a part of the entrepreneur’s risks, but there’s also that mechanism. You have to be quick enough to be able to move on something. Otherwise, you’re leaving money on the table in the form of you’re not able to purchase deals because somebody else already recognized that before you did.
A part of that can come from experience and just doing enough of them, but how much is that costing you? If you get better and better at research but you’re not buying anything, it takes you a year. It sounds unrealistic, but it’s happening where people can’t get in that mode of buying because they need too much. You’ve got to do it expeditiously and carefully enough where you don’t lose. That’s where you started thinking in terms of what you can do better. Is that where NoteUnlimited was created or is there a step before that?
Out of the frustration on what I felt was missing out on deals because of my lack of ability to make a decision, that created the motivation for the portal. There’s a variety of technology out there that allows you to pull information from a variety of different sources. Within seconds, I can have the same information that would require me maybe half an hour or more copying and pasting information into Excel or even creating my own macro. These things require some work on my part to get that information available to me.
Everybody, the website is NoteUnlimited.com and you can learn more about this there. You started creating this portal that you could use in your own business. The thought process is if it works for me, it’s got to work for other people. Give us an idea of how it works. What input is there? What data does it pull? If you can give us an audible picture of what that is.
The idea with that portal was I saw that as more of an executive dashboard as well as a place where I can get into information at my fingertips. The idea is most of the times when you evaluate tapes, you’re evaluating tapes in the CSV format. That’s the first action, to import that into the portal through our upload process. Once you complete that upload process then you are at a click to be able to pull information like market value, rent, crime, eviction, whether it’s a judicial state or nonjudicial state at your fingertips. You can have this dashboard set a call and tell you whether this meets your parameters or not.
Think about a bullet point of what you hit there. You went through it a little bit quick and the way my mind works, I’m going, “He’s hitting demographics,” for example. Under the demographics, you’re looking at the crime rate and some other things. What are the highlights or bullet points of the data that is in there that people can easily now with a click of a button have that data pulled in?
You mentioned demographics. We do population trends. We do job rates or employment rates. We do median age of the homeowners as far as demographics go. As far as the state, we have judicial and nonjudicial.
For everybody, there’s more time and money involved in a judicial foreclosure versus a nonjudicial. That can make a big decision for some people especially based upon an exit strategy. If you want a quicker deal and you’re buying a nonperforming note in a state like New York, get ready to possibly be waiting up to two years to foreclose versus states like Georgia where you might be looking at three months. Right away, it pulls that in is what you’re saying. It will tell you whether it’s judicial or nonjudicial. Does it show the cost of the foreclosure or timeframe or anything like that, or just the main judicial and nonjudicial?
Judicial and nonjudicial at this point. In the works of providing you with an average length and average costs of foreclosure, for example, are certainly things that are in the pipeline. The other thing that it does is a lot of the same calculations that you go through like investment-to-value, loan-to-value, investment-to-balance, all the various calculations that you do on Excel. That automatically is done for you.
For example, I used to teach at the three-day classes how to take an Excel spreadsheet, open the little calculator and calculate the rate, ITV, yield or whatever it was that you needed. You don’t have to do that anymore. This calculates that. If it is calculating things like ITV, it has to have values. How does the value get input? Is that something people put in or is that something that’s drawn in?
That information is pulled in automatically. We are pulling mainly our information from Zillow but we’re in the works of getting a cross-section of what is the opinion of value from a variety of different portals. There’s Realtor.com, Redfin.com, and things of that nature. You can create a dashboard view of yourself with the address, what type of note is it, then columns of, “This is what Redfin is saying as far as the market value. This is what Zillow is saying for market value. This is what Realtor.com is saying for market value.” You can take an aggregate of those numbers or average of those numbers to get a feel of what that is.Once you start trying to attract people into a mortgage that they can't afford, it's a recipe for disaster. Click To Tweet
These are all things that if you don’t have a portal like this, you or somebody you pay has to go through and look these things up every time. It’s unavoidable. You have to know what that value is otherwise, you can’t even get going. Initially, you were saying one of the first things that you addressed as an individual investor yourself is the risk. What’s the property worth and what am I paying for this? That’s what everybody should do. You have to look at those numbers. We all know that you can refine that when you buy the note to purchasing a new BPO where somebody physically goes out to the property. You’ve got to have that information.
Along with value, that’s where the calculation comes from. You understand where that number is coming from as you’re inputting this data. I’m sure that can be modified or something like that if you have other information about what the value might be, like a new BPO. What about rent? I like to look at rent a lot as well even on performing notes. I like to see what that rent is because I compare it to what the payment is. When I see, especially in the Midwest where their payment is $600 a month, but the rent in that area is $1,500 a month. They have an incentive to stay and make payments on that note or even paid off early.
Zillow offers a couple of things. They not only provide you with market value information, but they also provide you with market rents. The other integration that we’ve done is with Rentometer. We have a widget that will pull from Rentometer what on average is for one-bedroom, two-bedroom, three-bedroom, what the market rate is for that particular ZIP code.
I like Rentometer and I know a lot of people find out after a certain number you have to pay for it and that sort of thing. I found their numbers to be accurate in most places I’ve looked at.
We have a little widget that they make available for the public where you type in the ZIP code and they send back what a one-bedroom, two-bedroom, three-bedroom rent would go for.
We’ve got demographics, population trends, job rate, age, foreclosures, valuation models, rent. You’ve got all the calculations in there from those models.
We also provide you with some exit strategies. For nonperforming notes, there are a variety of exit strategies that you can take on a particular note. One exit strategy might be better for a particular property than another. We’ve defined four different exit strategies for nonperforming notes. We’re putting together a couple of recapitalization for performing notes as far as partials for example.
On nonperforming notes, I’ve been preaching for many years that you never go into these deals with one exit strategy. You have to have multiple outs and you have to go through those numbers because ultimately, you don’t know quite how the deal is going to go. I always like to default to the worst-case scenario. I’m still making money and I’ll live with that. I’ve got plan A, B, C and D. What you’re saying is when they input a certain amount of data, it will auto-populate. It will pull up the demographics, values, foreclosure state and rents. Based upon the data that you entered, it’s also calculating all at one time four exit strategies.
There are some additional inputs that you need to provide like we don’t have a set up for what the average foreclosure length is or if there’s an eviction, what’s the average eviction. You could input those parameters and that builds into the various exit strategies that we have defined.
What are those exit strategies?
There’s the wholesale where you foreclose and wholesale. There’s the rent and then sell where you rented for a period of time, maybe even season it, then potentially sell the note in the secondary market. You could hold it as a rental. That’s another exit strategy. Foreclose and wholesale is a combination.
That’s on the nonperforming. You were saying on the performing side, it automatically looks at various partial.
You can think of it as an exit strategy where you can say, “I paid for this note for $50,000 at a particular yield. I can sell off a set of payments to another investor maybe at a slightly lesser yield. That allows me to recoup the amount of money that I invested in that particular note to allow me to invest in other notes.” That calculation is all done automatically. You can say, “I have $50,000 into this note. I want to provide a seller or a buyer of this note at 8%. How many payments do I need to then sell off that note in order to recoup that $50,000 that I originally paid?” That’s all part of the exit strategy for performing.
How much time do you think that shaves off just looking at one note?
For nonperforming, I missed out on opportunities. I would say that it takes hours and maybe days to collect all the information that you need. You always want to cross-reference this information with other information. You don’t want to rely 100% on Zillow, Redfin or Realtor.com when it comes to value. If you want to go down that path, then you want to go out and get a BPO, broker price opinion on the property to be extra sure that indeed you can sell that property for the amount that you think you could.
All these different strategies are popping in my brain like note arbitration and people broker notes. We caution you on that word note brokering. We say it within the industry, but arbitrage is really what you’re doing on something like that. Even somebody who doesn’t have the capital to buy a note, this is a great tool also because the whole thing is about deal-making. If it’s laid out for them, just use the performing note as an example, they can start to weigh that out and say, “I could make a fee here or instead of making a fee, I’ll hold the back end. I’ll have the investor pay this amount and they’ll get X number of payments.” I’ll own the back end and they can start to see those numbers without having the full knowledge of how to do that on a handheld calculator or creating your own spreadsheet to do all of that. It’s the same thing on nonperforming if you’re partnering with somebody who’s putting the money together and you’re putting deals together. I imagine all of these can be printed out if you want to share it with an investor or save it in a PDF or something.
There’s the option to printout and you have this ability to save as PDF. Anything that we generate here can be printed out as a PDF. We have a set of reports that we are creating to allow you to do that.
It maps it out for them too. There’s Google Earth or something like that you mentioned.
You get a picture of the property. As part of this click where you’re pulling that information in and you’re looking at that note, it provides you with a snapshot or an actual photo of the property. It gives you a market comparable on the sales in that area. It gives you a physical location on the map, how far is it from the capitol, that kind of thing. It’s a myriad of demographic information like population by gender, income, median income for the household, employment.
In addition then to getting Zillow value and you’re going to add other values, it does give you market sales.
We do have market comparables. We get sales of the neighborhood properties within a certain timeframe, last couple of months, that sort of thing.
That’s nice to have there because then at least right away in front of you, you’ve got Zillow and then you can look at the sales in the area. Every everybody knows Zillow is not going to be 100% accurate everywhere it is. Nobody can be 100% accurate because ultimately these properties are worth what a willing buyer and seller will buy and sell it for. There is no scientific formula to come up with, “This is the value.” It’s always in ranges. Between having market sales and looking at Zillow, that gives you enough very quickly to say, “This is within reason.” You can start to play with those numbers in it and adjust them to refresh your numbers on that. You mentioned it’s a big time saver as far as the results that it gets because it draws everything automatically. How much time though does it take somebody to enter the required data and maybe you have bullet points of the required data for us as well?
We work off a template. Notes Direct is one of the sources of notes that we’ve been working with. We have a template that you fill out with that information and then based on that template, we are able to fill in all the various cells in the right places. We also allow you to hand pack it in as well. With the address information, I can pull in a lot of information just with having the address.
If you have a spreadsheet of some format, can you download that into it?You never go into deals with one exit strategy. You have to have multiple outs because you quite don’t know how these deals are going to go. Click To Tweet
You can upload that spreadsheet into our note, assuming that it falls in that. We have a resource, a CSV file format that we use so that you can populate that CSV file and with that CSV file you can upload it into our portal.
A CSV is Comma Separated Values. Am I correct on that?
Yes, that’s awesome.
A CSV file is like an Excel spreadsheet almost the way people would fill it out. You’ve got one of those on your website, NoteUnlimited.com, as a resource. They can use that as a template when looking at whatever, gathering information on the phone from somebody or somebody sends you a flyer on a note. They can fill it out in that form and then upload it and it will populate everything on there.
If they do any business with Notes Direct, the CSV file that they provide you when you download, you can automatically upload that into the portal without any changes.
If you don’t have that, they can type it in. If somebody says one note, they can go in there and say, “I’m not going to put that on a spreadsheet. I’ll just type it in.”
They can type that in, correct.
What information do they have to type in? What’s the required info?
Note type, note date, what you paid for the note, what type of loan, parameters of the loan are all required information. The property address is important information to have there. With those pieces of information, we can craft a good picture and come up with some calculations and provide you with some of the demographic and other data that I mentioned.
Do they put it in the price of the note, that sort of thing as well?
Yes, whether it’s performing or nonperforming, the note date, basically the terms of the loan and then the property address.
Just the basic information. If you were selling a note, what would you need to tell somebody? Where’s property located? What’s the balance? What’s the price? How many payments are left? That sort of thing. Instead of going around to the internet and pulling up data on different sites and uploading nine or ten whatever it is websites, it’s doing the work behind the scenes, pulling that and pop it up on the screen. That gives you a guide as to, “This one looks good, maybe this one is not so good.” You mentioned something about parameters on there.
We have this executive dashboard. On any piece of information that we have on the note, we can create as a column on that executive dashboard. You can create your own custom view of the types of information or types of parameters that you’re interested in making a knowledgeable or informed note investment decision. That’s the executive dashboard. There are some labeling aspects of that as well. If you want to set a reminder for yourself, “I need to do a BPO on this particular note,” you can create a label and assign a label to that particular note. The idea here is to help you navigate your day as well as organize your next steps on various notes that you’re looking into.
It’s almost like I’m telling the portal, “Here’s the kind of notes that I’m looking for.” I set the parameters on my risk, ITV or yield, those common mechanisms. You say, “This is what I’m mostly looking for.” I upload this file, assuming I’ve got the CFV done, in quick time, it’s already downloading information. It’s telling me, “Based on the parameters that I told the portal to look for me, these are looking the best. These might fit and these probably are not a fit.”
We’ve created some gauges for each of the parameters, ITV, LTV, and things of that nature. We created gauges based on the parameters that will tell you, “This is green, this is yellow, this is red.” These gauges are like stop signals on whether you want to pursue something or not.
I’m assuming on your NoteUnlimited.com website that you’ve got samples that they could look at or instructional videos, anything like that.
We’re in the process of creating a channel on YouTube. I’m in the process of putting together some how-to videos for people to get started with the portal. We have a link on our portal called YouTube that directs right straight to our channel. There’s a few of them out there already, but I’ll be consistently adding more and more things as I get questions from the customers.
They can start to see how all of that works. Time is valuable. Most people like you don’t get into the notes full-time. They are working full-time or more than full-time. We have entrepreneurs and people who are at the job a lot longer than normal hours. It’s tough if you’re going to try to do this and spend hours and hours on top of family time and work time. This could be a great tool to cut down on that and get some of your life back a little bit. I know you’ve been working on it for a while. I remember we had lunch way back and looked at the very beginning of it and got some input on that. It’s been something in the works for quite some while, but you launched this when?
We officially launched this. This is something that we’ve been working on over a couple of years.
A long time coming. I’m glad to see it all came together. Ray’s company is NoteUnlimited. You can find their website NoteUnlimited.com and that’s Ray Trounday. Ray, it was great having you on. Do you have any final words of wisdom or tips or anything for us?
No. You’re in good hands here with Kevin. He’s awesome. He was a great trainer when I first got into the space. I leaned on him for a lot of what I know. Keep tuned-in to his show. That’s my words of wisdom.
I appreciate that and thank you so much for that. Thanks for being on and I wish you all the best in this. It sounds like it’s going to be a great tool for people and I think you’re going to see strong demand for it.
Thank you, Kevin.
Everybody, if you’re in Central Florida, check out the website for some local live events. If you do have a Meetup group or anything like that and you’re interested in having me on live or virtually at your Meetup group, let me know. You can do that by going to my website, KevinShortle.com, and also sign up for our little subscription there. I send out emails from time to time. I’m not sending out stuff every day or even every week, maybe every other week, maybe every three weeks, just giving you updates on where we are and what we’re doing. Thanks, everybody once again and I look forward to putting on another episode for you.
Ray began his real estate career in 2015 as a note investor. In that time, he has purchased a number of non-performing notes for his note portfolio throughout the mid-west and east coast.
Ray is technologist by trade. He has served as a technology leader at Intuit, Yahoo, Shutterfly and Netskope. He has leveraged his passion for technology to the note business.,
Today, he owns and operates NoteUnlimited Inc., a due-diligence and management portal exclusively for note investing.