PODCAST

How to Create 5 Figure Pay Days with Simultaneous Closings

Mitch Stephen|By February 16, 2017

Episode 62:

Troy Fullwood is an award winning speaker, self-made millionaire, educator, and coach. He has presented keynote speeches, workshops, and seminars throughout the United States. His high quality, high content, high energy programs are well researched and delivered in a down to earth style that everyone will remember.

In 1997, Troy Fullwood founded Pinnacle Investments, since it’s inception, Pinnacle Investments has been involved in over 12,000 secondary mortgage transactions throughout the United States. With Troy Fullwood’s creative knowledge of investing, Pinnacle Investments holds the title for being the number one principal buyer of Simultaneous Closings as well as being one of leading real estate note buyers in the country.

In addition to investing, Pinnacle Investments has become a saving grace for individuals facing foreclosure. Over the last 10 years with the help of Mr. Fullwood and his team they have been able to help individuals that had defaulted on their mortgage by doing loan modifications. Pinnacle Investments has become highly regarded in the mortgage industry because in 10 years they only had 8 homes go into foreclosure.

Since 2005, Mr. Fullwood has spoken to over 300 audiences, many of them repeat engagements. This includes The American Cashflow, My Personal Real Estate Investor, Investor Wealth, and Peak Potentials. His clients include corporate leaders, real estate investors, homeowners and entrepreneurs.

Mr. Fullwood has written over 50 articles and has been involved in radio and television interviews. He resides in Chandler Arizona with his wife and 4 boys.

What you’ll learn about in this episode:

Troy’s strategy for buying notes on vacant homes and taking them immediately to foreclosure
How Troy got people at auctions to bid against themselves on notes he owned
How to find defaulted notes
How Troy deals with defaulted notes nationwide with attorneys
Why you might want to keep the properties and why you might not (and what the process looks like for both)
Simultaneous closings: what they are and how you can use them
How Troy works with people to create notes he wants to buy
Why saving your notes can lead to a lot of passive income
Why having a partner like Troy that can take your notes off your hands can give you an exit strategy when a partnership doesn’t work out
Why you need to put the right person in your homes
How to create notes that people want

Resources:

Transcript:

Welcome to the Real Estate Investor Summit Podcast. Coming to you straight from the smallest big town in Texas with your host, mentor, and owner financing master, Mitch AKA “Be The Bank” Stephen. The possibilities of life without a J-O-B start here, so grab your pen and paper and listen up.

You all just might figure out how to fail forward to financial freedom.

Mitch Stephen: This is Mitch and welcome to the Real Estate Investor Summit Podcast. We have a great guest for you today. We’re going to be talking about buying defaulted paper as a means to find great deals on properties. In the meantime, I got to get my sponsors out here and give them a little airtime and we’ll be right back.

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This is Mitch and today we’re going to get you some Troy Fullwood. This guy is a master at note buying and knows more about notes than most of us will ever know. He’s done over 1,100 real estate note deals since 1977 and he does with combination of strategies. He is a multi-million dollar private equity fund founder and he had the success and notoriety of getting his investors and himself a 92.6% returns. He sold the company back in 2008 and has continued to do investment strategies of different kinds. Today, we’re going to talk about how to pick up properties via defaulted notes and profit from them. With no further ado, how are you doing Troy Fullwood?

Troy Fullwood: Hey, Mitch. I’m doing great. Thanks for having me on today’s show. I’m really looking forward to sharing with all the listeners some strategies that we have been using for several years behind the scenes and helping other investors go out and capture some deals that basically are off-market deals that they’re creating some pretty serious returns for themselves and for their companies. Really excited to share all that with everybody today.

Mitch Stephen: Yeah. It’s interesting because it’s gotten so competitive out there that you really have to get off the bit and trail. You’ve got to get on a path less traveled. I think what you’re talking about here is something that a lot of people overlook that don’t even know about. I think you were talking about a strategy or software that you have called REO Sniper. Can you tell us a little bit about that?

Troy Fullwood: Yeah. REO Sniper was kind of just a hair-brained idea that I stumbled across, What I mean by that is when I was running the fund, one of the things that we were doing is we’re buying portfolios of notes. We were buying them from a bunch of places at that time, ENC Mortgage, JP Morgan Chase, GMAC, all these different firms. It was an all or nothing take. Unlike today’s market, you can kind of cherry-pick some portfolios and things of that nature, but back then, it was all or nothing. We’d end up with portfolios and our mission statement behind that particular fund was we wanted to keep people in their homes. That’s really what our team would focus in on, is getting people back on track. Now, there’s always a percentage of the portfolio that we ended up with that were vacant homes, people who had basically packed up, they’ve taken all their personal belongings, and had move on down the road, whether that was through a job transfer or an illness or whatever motivated them to go, they went. They would leave these houses just sitting there.

Now, mind you, back in ’07 timeframe, nobody really knew what to do with this stuff and now they’re being kind of cloned as being zombie foreclosures and things of that nature, but back then, we were ending up with these vacant homes. Well, obviously, you can’t get a homeowner back on track if they’re not living there. We created a strategy that I basically had cloned and mastered that we would buy these nonperforming notes in our portfolios and we would instantaneously go immediately to foreclosure. We’d start the foreclosure process, in the event that it wasn’t already started. If it was already started, we would inherit it based on where it was in the process and we would just completed at that point. We’d go down the courthouse steps, and one of the things I love doing that I don’t do a lot of it anymore because we do it nationwide, but when we were doing it here in Arizona where we’re from, is go down the courthouse steps and, of course, they’re doing the auction and we would just kind of …

I just kind of sit in the background and watch the process and being a new guy, of course, I was new to that group of investors. They didn’t know who I was because it wasn’t something I did on a regular basis, but here in Arizona, if you’re the new guy and you show up for an auction, you’re bait. You’re what we call fresh bait and they’re going to go after you and kind of like sharks. If you throw a meat in the water, the sharks are going to start chumming around and so what we … What I would do is I would go down there and ultimately, they would bid against me. They didn’t know I own the note. They didn’t know I purchased it and owned it and that I was the bank on that particular note. They didn’t want me to have that property at any cost. They didn’t want me to have it, so they would sit there and bid against me throughout the process and ultimately drive the price up on that note.

Mitch Stephen: This is great. I love this, a plan backfiring right in their face.

Troy Fullwood: Yeah, it was a plan backfiring and so I would just bid and go and kind of go back and forth, back and forth. It would get to a point where I would let them have the last say. They would get the bid and they would get the property. They’d have to write the check and I would pick up my check and they were like, “Wait a minute. We were bidding against you.” I’m like, “You weren’t bidding against me. You were bidding against yourself because I already own the note, and but now, thank you for your money.” I would take your money and go on down to the next place. We didn’t do it a lot here in Arizona. We didn’t see a lot of Arizona property back then because we’re a nationwide firm.

It was one of those things that we figured out how to master it throughout the country. As we have continued to do this, we were buying notes anywhere back then, anywhere between 10 to about 25 cents on the dollar. Now, we’re buying them anywhere from about 25 to about 45 cents on the dollar based on either UPB or values, the lower of the two, and ultimately, we still do the same process. Not so much in their face type stuff but ultimately because we’re buying at one level and the rule of thumb for most investors is they want to be into the property at about 70% of as-is value or some guys use after repaired value which gives you plenty of leeway to buy a note of that nature, take it through the process, foreclose on it or go through the foreclosure process, and ultimately profit from it.

Now, the good part about it is if you’re listening to this, that’s one strategy of that product type. Another strategy of that product type is to buy a nonperforming note on a vacant property, take it through the foreclosure process, and getting the property back because if you’re paying, say, 20% of value. Let’s say value is as-is where it goes $50,000 and 20% of that is 10,000? If you pay 10,000 and your foreclosure cost are, say 5,000, that would be on the high side. That would be like a judicial state cost. You’re into the deal for $15,000 and if your after repaired value is say 70 or 75,000 and it cost you 15 to get there. Now, you’re into it for 30,000 on a $75,000 home. Those are good margins. Those are great margins and how you win that bid at the courthouse steps, real simple. Be the highest bidder. Be the highest bidder.

Mitch Stephen: How do you find these defaulted notes or how do you … Well, that’s two questions. One is how you find them? One is how do you deal with them from across the nation?

Troy Fullwood: Well, the great part about it is finding the … You can buy them through banks. You can buy it through credit unions. You can buy them through re-traders which are guys that had bought portfolios and they don’t really understand what to do with these vacant homes. They were going after the model of ultimately getting people back on track. Some guys are just going straight to foreclosure and that’s their model as well, but ultimately, you’ve got these what they call throwaway loans or throwaway paper in the business and they don’t want to mess with it because they’ve got to answer to their investors and whatever their model is, that’s what the investors want to see happen. They don’t want to go off track, so you can buy them through re-traders. There’s a couple of sites out there that have things like this, like say, SCI Exchange, is one that has vacant nonperforming first lien notes on it. Same thing with Watermark, they’ve got notes of this nature on it as well. Those are couple of sites that people can go and grab notes of this nature.

Now, the other side of the coin, how do you deal with it nationwide? Well, we’ve developed a database of foreclosure attorneys nationwide that anytime we buy a note, no matter where it’s at in the country, we reach out to that investor or not that investor, that attorney and he or she does the entire process from beginning to end. Now, if it happens to be a deal that we purchased and let’s say the seller has an attorney that’s assigned to it, then we’ll inherit that attorney and we’ll let them finish the process for us because we don’t want to go all the way back to zero. Let’s say it’s a six months foreclosure state and they’re three months through the six months, that means if we take on that attorney and their expenses which basically is the last three months of the foreclosure process which are the cheapest three months, to be honest with you, we inherit them and the fact they’ve done their work and we cut down our timeline from six months to three months which is always a good thing in our eyes.

Now, the beautiful thing about it is when you’re doing a foreclosure nationwide, really what you’re doing is you’re communicating with that attorney and that trustee that have been assigned to you to handle the foreclosure process, the same way Bank of America, Wells Fargo, Chase, all those guys do it. They’ll come back to me about a week before the sale date and they’ll say, “Okay, what do you want your minimum bid to be?” This is the deciding factor in the whole process. If I want the house back, if I’m the investor and I bought, I want it back because it’s in my area, I want a foreclose on it, I got a crew that needs to work, so I’m going to give that house to them, let them fix it all up, and I’m going to flip it, then I’m going to set the starting bid on this house at or above the unpaid principal balance. Usually above the unpaid principal balance because that’s typically right at about what its overall value is and a lot of times, above the overall value of the property.

These investors that are getting this foreclosure list, they’re in their local area and they’re combing through them to find the nuggets in them. They’re looking at it going, “Well, I’m not bothering with that house. The guy wants $100,000 and I just comped it. It’s only worth 75,” and that may be the case but you bought it for 15 or you bought it for 10, now you got five into it for foreclosure cost. Now, all of a sudden, you’re sitting there going, they don’t know what you spent. That’s not part of public record. All they’re looking at is what they’re going to have to spend the next above their matrix, so they ignore it.

It goes through the foreclosure process, the sheriff or the trustee or the auctioneer, depends on what state it’s in, will do work their magic. They’ll put it up for sale. It gets no sales or it gets no bids. It goes back to the bank. Who’s the bank? Me. I own the note, so I end up getting it back. They’ve cleared titles. I got a clear deed on the property now. I put my guys to work. I’m now into it for 10. I purchase it. Purchased it for 10. Got five into it for foreclosure cost. As-is, it’s a $50,000 house but they owed maybe $100,000 on the note when they stopped paying and that’s what the public saw. What I knew was houses were 50, I paid 10. I invested five and now I’ve got to invest another 15 to now sell the house for 75 in a fixed up, livable, beautiful, show-perfect type property. That sends them away. That’s how you get to keep the property.

Now, the other side of the coin is let’s say I don’t want to keep the property. Yeah, I’m not a fix and flip guy. I know the industry. I know it very well. I’ve been around it for a while. My father does it as a hobby more than anything. We settle deals his way. When we get him here in Arizona, it gives him something to do. He’s retired. He’s 60 , 70, actually, just turned 70 in December. It gives him something to do and he loves doing those things. He’s, by no means, setting the world on fire doing them, but it keeps him out of the house and he enjoys it.

The beautiful thing about it is that if I want to sell the deal, scenario number two, pretty simple. Same process, foreclosure. Let the attorney handle it. They call me about a week before they email me, whichever. I’ll say, “What do you want the starting bid to set at?” while I look at it. I know the as-is condition is 50 grand. I know I paid 10. I got 15 into it with attorney fees and now I want to start my starting bid at 20,000.

Well, giving most investors, I say, temperature or I say their scale or their matrix, those guys want to be in a property at about 70% of either after repaired values. Some will use after repair, some will use as-is value. Whichever one you’re using, you’re still low enough below that, so let’s say 70% of $50,000 is 35,000. Well, okay. That’s great. I want to start … I know that it will sell for about 35,000, so I’m going to set my starting bid at 20,000.

When it goes out on the foreclosure sheets to all the local investors in that area, those local investors are saying, “Hey, wait a minute.” Starting bid on this house is 20 grand. I just comped it as is, it’s 50. It’s in an area that I could sell it for 75 all day long, so they’ll start looking at that house as a possibility to purchase at these courthouse steps. With that being said, they’re going to start … Somebody is going to start a bidding war on that property at $20,000. I could set it to 25 as well and ultimately, bid it up to that 30, 35 mark. Well, let’s say I sell it for 30,000. I got 15 into it. It took me three months to get here. I just created 100% return on my investment at the end of the day. Not too bad.

Mitch Stephen: Wow.

Troy Fullwood: 100% on 90 days based on annualized return net of 400% return per year.

Mitch Stephen: Well, have you ever thought about the owner finance model and not going through the repair on it or if you buy something for 15, why don’t you just owner finance it for 35 or 38 or 39 and let someone else go put all the money into your collateral?

Troy Fullwood: No, I love that model. That’s a great model. The owner financing side of it is an amazing model. As a matter of fact, we buy a lot of those notes we buy for our performing note side of our business. The beautiful thing about … That’s another option that we can certainly do-

Mitch Stephen: I love that strategy. I think the best strategy on the planet as far as I’m concerned, in my humble opinion, is the buy it, don’t fix it, owner finance it for double strategy and watch the guy that’s making payments here every month go over budget fixing up your collateral because all the risk is in the rehab and everyone goes over and you have these properties that are not in your area, so I’m thinking, “Wow.” I wouldn’t mind the owner financing houses on other parts of the country if, A, it was a estate that I could foreclose on rather easily instead of a long painful one.

Troy Fullwood: Sure. Nonjudicial?

Mitch Stephen: Yeah, nonjudicial. B, the house, I could find a buyer who was enthusiastic about fixing up the house, even maybe a landlord … Even if I owner finance the house to a reputable landlord, then I don’t even have to comply with some of those regulations which, by the way, I feel like it’s probably pretty much out the door right now for us as far as we’re concerned, but let’s just say we still have to comply because right this minute, we do, so you can sell it to a landlord. Landlords can generally put more down than the average person and they’re probably going to jump right on the repairs because the landlord is after that cash loan and they know that they can’t rent this house out, so it’s fixed up to a certain level, and put all of the risk on those people to fix up the house.

You could end up like with a 35, $38,000 note, $40,000 note, and then they fix up the house to be worth 70, 80, or 100, whatever it is that the upside is, that the ARV is. Man, you got me kind of interested in the idea too just from that point. I love owner financing houses and I never get tired of collecting payments. I don’t know why that is but I just don’t.

Troy Fullwood: No, I agree with you. I love the seller financed environment. As a matter of fact, when I got started in the business some 20 years ago, my niche, I still considered our niche because we do a lot of it, on the performing note side of our business, is working with investors all over the country. These guys who go out there and they work hard, they put their capital to time, their energy into these homes. They fix them up and then they go to sell them and they carry back the paper and one of the things we like to do is to guide them through that process.

If they’re looking basically what’s known as a simultaneous closing and guide them through the process of structuring something that we want to buy on this side of the fence with terms. I love, love, love working with guys. We had an investor in Waco, Texas, not too far from where you’re at. We helped him grow his business where he was doing 150 homes a year in little Waco, Texas. He just had a nice turnkey model. He’d go out and get three crews, fixing and flipping, and carrying back the paper. We’d step in and buy the paper from him. He loved it because he had an exit strategy. He loved it because he got to … He liked to fix them up.

Mitch Stephen: Troy, let me simplify or dumb this down a little bit because there’s probably some people listening. What you’re talking about is common knowledge for us. We’re just breezing right along to here, but maybe some people don’t understand. I’m going to try to make this simple for everyone out there. Troy offers to do for you what I was doing with associates a long time ago or some private note buyers, and what they would do was they would tell me what their criteria was to buy a note. Troy is saying he’ll teach you what his criteria is and he’ll train you how to create notes that he will then buy from you. He’s saying you go find your house and you purchase that house and then you fix it up and do whatever it is you’re going to do and then you sell it with owner financing.

Troy explained to you what kind of buyer he’s looking for and what kind of note and what kind of structure he’s looking for and if you’ll structure it where Troy likes it, then he tells you, “This is the matrix, so this is what I can pay for that note” and all of a sudden, you have an exit strategy and this is what I did 450 times in a row in my beginning of my career. I bought houses on credit cards. Didn’t care about the interest rate because I wasn’t going to have the house that long. I bought them. I fixed them or didn’t fixed them that much but I did whatever I needed to do and I got some of the owner finance the house for me and then I presented the owner finance note, the potential owner finance note over to my buyer. In this case, I present it to Troy and Troy says, “I really like this guy and I’ll pay X amount of note for this note if you consummate this note.” I would call my potential buyer at that point and say, “You’re approved.”

Troy Fullwood: Yeah.

Mitch Stephen: If Troy says, “Well, I like everything but this but this guy where he needs to put some more down payment money down or hit him an extra, a half a point on the interest rate because he doesn’t have that good of a credit” or whatever you said, I’d go back to my potential buyer and say, “You know, we can do this deal but I need X” and X is whatever really it took to make Troy happy and because I wanted to liquidate.

These days, I don’t liquidate my notes because I don’t have a reason to. There’s so much money coming in every month that I don’t know why I would liquidate a note, unless sometimes I want to amass a large down payment to buy a mini-storage complex or some kind of commercial property or something, but otherwise, I’m quite content. In the first years of my career, it was hugely, hugely important to me and to the confidence of those around me, that I was selling some notes and putting some big money in the bank as far as they were concerned. To get everyone off my back, to prove, even prove to myself that I could make good money.

That’s what Troy was talking about when he says simultaneous closing. It’s like if you make this note and you make it a certain way, I’m going to buy it from you. While you’re sitting there, you’re going to sell the house to this person on installments and then I’m going to buy the note from you before you leave the room, simultaneous closing. I hope I cleared that up a little. Did I do a good job, Troy? Did I miss anything?

Troy Fullwood: No, you hit the nail right on the head. You did a great job. That’s exactly it. It’s one of the … One of the things we love doing is what you touched on it there, about getting it on the front side with these investors and to help them structure deals that they can liquidate and go onto their next deal because like Mitch said, he was doing it in the beginning days of his career. This is a tool and a method that you can put into your arsenal of creating success or toolbox. You can use it whenever you need to use it.

Maybe you use it for a while and then you don’t use it for a while. Maybe you use it sparingly. Maybe you use it all the time. Maybe you never use it. The point being is as long you know how to do it, you can use it to scale your business and that’s what Mitch was doing. He was using it to scale his business and once he reached a goal and an objective that he wanted to, he says, “Okay, I’m not doing this anymore. I’m going to start holding onto this for myself to create that residual income.”

Mitch Stephen: Troy, interesting enough, I never made the decision. I was addicted like a crack addict, man. I wanted to sell on those notes like crazy and I want to sell them and then there was this forced intervention when associates closed and the whole world, the whole note buying world stopped on that instant because I think I forget they were like a $30 trillion business or billion dollar business. I don’t know. They were gigantic. They were part of Ford Motor Credit Division. Ultimately, every third party note that was ever sold somehow eventually found its way into associates portfolio. When associates closed, everybody in the note buying business died a horrible death and here I was … well, get this, Troy, I have 50 houses in my inventory to sell-

Troy Fullwood: Oh, wow.

Mitch Stephen: -when it happened and I’ve been doing this rinse and repeat business of buy the house, owner finance the house, sell the note. Sometimes, a triple closing. I’d buy it, make the note, and sell the note all at the same closing on a different time. I did a lot of those because I didn’t have any money.

Troy Fullwood: Sure.

Mitch Stephen: Then I discovered credit cards and that took some heat off me. Then I discovered some private money and then that really started taking heat off me. Here’s how I got to where I was forced to keep my notes because I was in a panic for about seven days when associates closed. I said, “I don’t have an exit strategy anymore,” but I had a couple of $100,000 in the bank and it wasn’t like I was dying. I had a low overhead. One of the things I did inadvertently that really helped me through that time was when I was making money, I didn’t get stupid rich. I was getting rich, but I was keeping my money, rolling it into other houses. I had some houses that were free and clear. I wasn’t buying boats. I was paying my house off. I wasn’t buying cars. I was paying my old car off.

When it finally happened, I was in a panic for about seven days. Then I realized, “Look, this is what I’m going to do. I’m going to … I own these 50 houses. Uh, I’m going to owner finance them and I’m going to collect the down payment.” Let’s just say I only collect $3,000 a house, times 50 is $150,000 in my bank account in addition to what I had. Instead of selling these notes, I am just going to keep the spread between what I owe and what I collect which was about $400 a note, so $400 a note times 50 houses was 20,000 a month.

Troy Fullwood: There you go.

Mitch Stephen: I finally figured out in seven days when I got out of my panic that I’m just going to make $150,000 to owner finance this and collect down payments. Then I’m just going to collect 20,000 a month spread between what I owe what I collect. If you can’t live off of $20,000 a month, just go shoot yourself. That’s what I told myself. If you can’t live off of 20 … I was used to living off for like five or six. I think my Freedom number was 3,500.

Troy Fullwood: I was just going to say we probably lived off less at times, haven’t we?

Mitch Stephen: Yeah. My Freedom number at the time I jumped in this business was 3,500 bucks, period. Everything.

Troy Fullwood: Okay.

Mitch Stephen: I had my overhead down low so I could sustain myself until I got on my feet. All of a sudden, I quit selling notes not because I was smart or brilliant. It’s because I had to, so I went to the detox of getting the big checks all the time. I just started collecting $20,000 a month. Then I slapped my head and said, “You know, if I had just kept all the notes that I’ve ever created, I might be way better off than I am today.” Anyways, that was the revelation. I don’t want to sound like I was really smart. I got forced into it.

Troy Fullwood: Well, forced or not, you made some great choices and it got the train on the track and the direction that creates more of a lifestyle versus another job. I mean-

Mitch Stephen: But let me point this out.

Troy Fullwood: In the beginning, it was a job.

Mitch Stephen: Yeah. Yeah. I got to where I didn’t have work anymore. I didn’t have to get up anymore because the money was going to come whether I did another deal or not. I still had 20 … Then I got to 30,000 a month and then $50,000 a month and then $70,000 a month. I mean, come on. At some point, you don’t have to do another deal. You don’t want to even. It’s like I need a rest.

Troy Fullwood: Yeah, yeah.

Mitch Stephen: Here’s another good reason to pay attention to Troy. By the way, if you want to know more about him or find out about how he can advise you so you have a different kind of exit strategy, go to 1000houses.com/troy, that’s T-R-O-Y, all lower case, T-R-O-Y. 1000houses.com/troy. Here’s one of the things that even a person like me who doesn’t particularly want to sell notes, why I would still go to Troy and learn about his program.

Here it is, because I get people that want to partner with me all the time. Here’s the thing, I don’t like to partner with just anybody or very few people that I’m going to make notes with and collect for 30 years. This is a very special partner that you get into that business with because you’re going to be with them for a long, long time. There’s all these fringe people that want to partner with me on houses. I specialize at owner financing. Here’s a way to take advantage of this fringe partners, these one-off partners, these one-house-at-a-time partners and they come up to you and you partner with a house, you sell it owner financing. Then we sell the notes to Troy and then I split with this guy and we’re done. So he brings another house and then we do it over again. I don’t have to be on a long-term relationship or corporate relationship with this guy where we both own part of a corporation and are going the long haul.

There’s a lot of people I’ll deal with on a one to two-house basis that I don’t want to deal with on 100 houses-a-year basis. It’s just because maybe ideological differences, maybe integral issues, whatever the reason is, and plus, you can’t just deal with every single person in town who want … If you’ve been in business for 20 years like I have, you got people that want to do stuff with you. I can’t form a corporation with every single one of them. There are some of them that brings some hellacious deals and I go, “Damn. I need to do this with this guy. I can owner finance this house for three times what we’re buying this for, but I don’t want to be partners with the guy.” Here’s a way to get out of it.

Troy Fullwood: No, that’s well said. That’s well said. There are a lot of great people out there that have great ideas that for whatever the reason, the personalities or the business philosophies and stuff aren’t necessarily on the same page and there’s nothing wrong with that. There’s nothing wrong with that, but it’s important and I think one of those things that I really want to emphasize here, it’s important to be in business with people you want to be in business with and people that you like. Otherwise, it becomes very taxing and it’s like pushing a rope up a hill. That takes the fun out the business as whole and-

Mitch Stephen: Yeah. Well, I had partners that I love to death. They just had some habits that I knew was going to catch up with them. Whatever those habits were, it doesn’t need to go into but I mean I’m looking at him, that’s not going to work forever. I don’t want to be partners with someone that I can see that the plane is going to wreck. I just don’t know on what day but I know it’s going to wreck and I don’t want to be on that train.

Troy Fullwood: It’s kind of like having family members. I don’t do business with any family members. It’s not because I don’t love my family and it’s not because we don’t enjoy Thanksgiving and Christmas and stuff like that together. It’s just simply the way that they want to throw money at me and say, “Here, go make me money.” I’m like, “No, I’m not doing that.” Because that in turn … Now, I got a fiduciary a responsibility to you. Now I’ve got to explain things on a daily basis, weekly basis, monthly basis as to how this money has been deployed, how it’s going through the process and what the timeline looks like at the end and it becomes this daily phone call. That’s not the kind of relationships I’m looking for out there as a whole.

I’d rather teach people how to do it on their own. Say, “Hey, this is how you do it. These are all the pieces to the puzzle. This is how this whole thing works.” One of the things I love about helping people on the front side of deals and we hadn’t really touched on this, Mitch, and I love the positivity of our entire call here, but I want to touch about maybe a little bit of the dark side of it-

Mitch Stephen: Absolutely.

Troy Fullwood: -where I’ve seen guys out there who they’re great people. As a matter of fact, I working with a deal with a guy out of South Carolina, great guy. He’s been an investor for at least 10 years. He knows his stuff. He knows his market, but when he went to … When it came to putting together a note deal to sell into the marketplace, he came up short. He brought a deal to me last August, as a matter of fact. I said, “Before you sign this thing up, let’s pull their credit. Let’s kind of see where they’re at and let’s see what the numbers look like before you sign the note on this.” Well, he didn’t listen to me. He went and signed the note and everything. He dragged his feet and get me a 1003 so I could pull credit and kind of see what we are working with as a buyer. The credit comes back, the buyer, terrible credit. Absolutely terrible credit.

He didn’t listen to me on the terms either. By that full time, I couldn’t save him anymore. I had to work with what he did and I priced the deal out according to what he had done, term-wise and the borrower’s credit. He was losing $14,000, cold hard cash, to his investor. He was having to come out of pocket 14 grand to make his investor whole. He was upset about it. I said, “Don’t be upset at me. Be upset at yourself for making the decision you did. I was trying to throw you lifelines to put the breaks on here and you kept just driving the car forward.”

I see that a lot of times. I don’t know if you’ve ever heard of these kind of conversations, Mitch. I’m sure you had been in the space as long as you have, but people think that note buyers, all they’re trying to do is just beat people up on the pricing of the note. That’s really not the case. What we’re trying to do is to preserve our capital and avoid the foreclosure risk of a deal. We want to buy notes that we can deploy the capital and get our monthly payments on time or in a timely fashion. A lot of times, these guys put people on homes that are just not credit worthy or they didn’t put any money down.

Mitch Stephen: A lot of people just take the first person that says they want the house and they just fit them in there however they can. I say, “Man, you’ve got to get someone that’s got something going for you.” Just don’t put the first person. I mean even sometimes turn down two or three people if they’re not the right people because you don’t do yourself any favors putting in a bad guy or bad person.

Troy Fullwood: You don’t

Mitch Stephen: You might have stopped the bleeding temporarily but it’s just going to reopen some place else and then it’s going to be even worse because they’ll tear up your remodel or drag you out or maybe lawyer up and file bankruptcy or who knows. I would just as soon leave the house vacant until I find the right person with the right down payment with the right background and credit score that somehow makes me happy and then put them in.

Troy Fullwood: Well, the amazing part about that comment itself is you’ve been in the space … You and I been in the space for equal number of years here. If you think back 20 years ago, when people would sell houses, they put ads in like the San Antonio Express-News. I’ll share a great story with you one day about that, how I got my start in the business in the San Antonio Express-News, but they put their ads … That’s how they used to sell homes where they put it in the Thrifty Nickel or throw a sign in the front yard or listing with the realtor. Technology 20 years ago was nothing compared to technology today. Now, to sell a house with, especially with seller financing, my goodness, you got so many free marketing avenues to bring in several buyers that you can pick from, that you can pick from. Find your best buyer and-

Mitch Stephen: Troy, you’re right on the nose. You’re right on the money, man. I use a software called Livecom.com where I captured everybody whoever called in my sign’s phone number so I can text them for free, all of them. The reason why I’m doing so well these days is I have two or three people that want to buy my house that I get to choose from. I get to see who has the highest down payment versus the bets credit or background or work history or criminal history. I get to look at these people and go, “Wow, you know, the second guy right here, number two is head and shoulders above these other three guys.”

I get to pick. My down payments, by the way, have really shot up. I’m averaging about a little over 12% in down payments, average. Sometimes, I get crazy down payments. It’s all because, number one, I’ve learned to rent myself on what I ask for as a down payment and two, I’m just showing a lot of people my houses. You know that right now if I had an owner financed house for sale, I could text 5,600 people that have called my previous signs that have not elected to unsubscribe, because Livecom also has this scheduling feature. It costs a tiny bit to reach out and touch them, but it’s so insignificant, it’s not even worth talking about. Every 1st and 15th I send out a text that says, “If you’ve already bought a house or you’re no longer in the market for a house, would you please hit unsubscribe now.” This is 5,600 people that haven’t unsubscribed. I’m hitting them every 15 days saying, “You want off of here. You want off of here. You want off of here.” They’re staying.

Troy Fullwood: Nice. I love it.

Mitch Stephen: Anyways. For anybody that’s interested, they’re one of my sponsors and if you’re interested just go and watch the four minute video on the front page and you’ll see exactly how to use it and why I don’t have any problems selling my houses. That’s not even the issue. Now I have more time to focus on buying good deals or getting with Troy and figuring out where there’s some defaulted papers somewhere. Spend time on it. Spend time on the crux of the problem which is everything starts with a deal. Nothing happens without a deal. All these conversations, everything you can do, and that trip to Tahiti, none of it’s going to happen if you don’t find a deal.

Troy Fullwood: Yeah, no. You’re absolutely right. You’re absolutely right. The thing about our space si that we don’t have any limits on what we can do with paper. Paper is one of those things that really can be structured and used and multiplied a number of different ways throughout the country and through various market places. Whether you’re buying properties using seller financing or you’re selling properties using seller financing, or you’re buying notes. I bought notes from banks and said, “Okay, well, I’ll buy it at this price or you guys have to finance the deal.” They’re like, “Okay, we’ll just do a portfolio note on the entire portfolio and you pay us and here’s what we do.”

Notes can be used in a multitude of ways, but it’s critical … One of the things that I stress it so many times and feel like a preacher in church on a Sunday, saying the same sermon over and over again, is you’ve got to put together a quality paper. You’ve got to put together paper that people want. I think I could probably feel pretty safe in saying this, Mitch, that when you do houses and you fix them up and you do that side of the business, you’re probably not painting your houses hot pink with neon green trim or anything like that because-

Mitch Stephen: No, because people don’t want that. People don’t want that.

Troy Fullwood: People don’t want that, exactly. Same thing with notes. If you’re going to create notes, create notes that people want so that you can use it as an exit strategy if that’s the phase or if that’s the season of the business you’re in. Use it to grow your business, don’t create deals or create paper that you can’t liquidate.

Mitch Stephen: We just had a golden nugget from Troy. Quite painting your notes fluorescent pink and green. Quite-

Troy Fullwood: You know why I bring that.

Mitch Stephen: Quite painting your notes fluorescent pink and green because they’re not going to buy them.

Troy Fullwood: You know why I bring those colors up, Mitch, don’t you?

Mitch Stephen: Yeah, because we live in San Antonio and there’s a lot of fluorescent pink and green houses that you can buy real cheap because no one else wants them. Then we’ve got to repaint them.

Troy Fullwood: There you go. There you go. See, you understand that. That’s the beauty of it. Having lived in San Antonio, as well, is that was one of those things. That house is not going to sell. That’s one of the things-

Mitch Stephen: So I started to argue with you though, because in San Antonio, you just might sell it for top dollar.

Troy Fullwood: Good point. good point.

Mitch Stephen: You will have to put a flamingo in the front yard. At least one, huh?

Troy Fullwood: At least one. Absolutely. Love it. Love it. We’ve been talking here for a bit. Obviously, we’ve talked about a number of different strategies with paper. You started off originally with the non-preforming paper and you introduced another strategy. If you get that house back and you go through the foreclosure process, you get it back and you want to seller finance it out to the next person and let him or her work their magic, by all means, add that to your strategy portfolio, especially if you’ve got a number of them. Anymore we’re seeing, specially in rust belt states like Ohio, we’re still seeing a ton of stuff in Ohio and Michigan, Illinois and Indiana, we’re even talking-

Mitch Stephen: Those are great places to owner finance houses. They have good laws where there’s ways … I think in Ohio, I have a couple students there, it’s bet that you do a contract for deeds there, because the first five years are like an eviction or until they produce the original principle balance down 25%. It’s just an eviction contract for the land-contract or whatever you want to call it. Do you buy those too? Do you recognize those instruments as well?

Troy Fullwood: We love land contracts, contracts for deeds, agreements for deeds, even lease purchases. We’ll do lease purchase if they’re structured correctly. We do that as well. Yeah, we love that type of product all the time.

Mitch Stephen: Listen up out here guys. If you like the owner finance strategy, but you haven’t solved some of the complications of it, here’s an exit strategy. I talked about my friends on Fund and Grow, where they help you get 0% interest rate credit cards. 90 of my students have gone through and had success with those guys. Getting up to $250,000 worth of non-recourse, I’m sorry, 0% credit cards or low interest rate, non-recourse business loans. You use those, but that could be short-term money so you have to have an exit strategy if you’re going to owner finance.

Troy’s here offering you one. Go there and learn from him what a note needs to look at for him to cash you out at the end of the circle. You go to 1000houses.com/troy, T-R-O-Y, all lower case, T-R-O-Y. See what he’s up to. It’s definitely another fantastic tool to put in your tool belt and to know about. There’s so many ways to make money in this business. We’re talking yet again on this episode of another way that most people will never think of in their lifetime until someone like Troy or I brings it to the forefront.

I got to tell you, it’s a fascinating business, the world of note creation and selling and manipulating. Until one day, I finally owned the concept of selling partial notes, Troy, then I made myself sick to my stomach. If I’d have sold all partials instead of 100% of my notes, then if I’d have only held a couple of years, I would be worth another multi-, multi-millions, you know what I mean?

Troy Fullwood: Yeah. Absolutely. Partials are beautiful.

Mitch Stephen: I didn’t know what I didn’t know. Some people out there … there’s a guy that talks like this, you know who he is, he tried to explain it to me for a long time from Dallas Texas. I just couldn’t get my head around it. Finally, I did it inadvertently, and I said, “Holy crap. That’s what that guy was talking about.”

Troy Fullwood: Yep.

Mitch Stephen: I finally found my heart. I’ve been doing it ever since. I sure wish I would have caught on a little earlier, because, boy, that was worth a fortune I missed.

Troy Fullwood: That’s the beauty of people like you and me and other folks in the industry, coming forward and sharing this information even in the form of a podcast or a webinar or an article or a blog or something along those lines. It’s given this next generation of investors so many tools. It’s arming them better and educating them better so they make better decisions which the beauty that I see behind it is that going forward, people are going to be much more financially stable and more more mature and wealthy.

We didn’t really have people, if you think back to when we started in the business, nobody was talking about any of this stuff. As a matter of fact, it was always very hush, hush. You had to be part of the good old boys’ circles. You had to be backroom conversation. Nobody was really talking about this stuff openly, at least in large crowds or on recordings. It was something that … It was going on and maybe knew about it and maybe even participated in a thing or two, but you really didn’t understand the full scale of it back then until now.

Mitch Stephen: I had to give all of my money to the street and my mistakes. I mean, I gave the street a lot of money.

Troy Fullwood: School of hard knocks?

Mitch Stephen: Well, no. Troy, I tell everyone I graduated from Le Calle U. How’s your Spanish now-a-days?

Troy Fullwood: Not very well.

Mitch Stephen: Le calle means “the street” in Spanish. C-A-L-L-E. Le Calle.

Troy Fullwood: Okay.

Mitch Stephen: I tell everyone I graduated from Le Calle U, because I gave all my money to the street. Every time I made a mistake, street got some more money. I was out there trying to get street smart. I finally did. If you think the street is a cheap way to learn, it’s not. It’s probably the most expensive way to learn if you even can survive it. I came very close to quitting, because I was getting the crap kicked out of me, financially on some issues.

Luckily, luckily, luckily, 20 years ago, I made the mistake of paying someone to help me fix something, really big problem. They turned the light bulb on in my head and I said, “Well, that’s a whole career.” It has been a career for 20 years, millions of dollars made, lots of people happy and take care of my private lenders, take care of family’s money. I take care of a lot of people. It’s a great business. There are so many wins. If you do this business right and you have the right integrity levels, everybody wins. The list of benefits to buying and rehabbing houses and changing neighborhoods is very long and very important. I wrote once in my blog how many winners there are in our business.

Listen up folks, it’s 1000houses.com/troy. We’re talking to Troy Fullwood, expert note servicer and simultaneous closings expert. If you have a note for sale, maybe you have a defaulted note, call him up, maybe he can solve your issue. If you want to learn about buying defaulted notes, call him up. Check out his REO Sniper software and learn where to find or how to pick up these defaulted notes. Then find these vacant houses that have defaulted notes on them, go through the foreclosure process, and get your nice, vacant house for really great price. I appreciate you being on, Troy. Anything you want to add before we go?

Troy Fullwood: Just one little tidbit. The non-preforming notes space currently in shadow inventory, although it’s come down a little bit, we’re sitting at about $470 billion worth of non-preforming, first name residential mortgages on a nationwide basis. If you’re out there and you’re saying, “Well, I’m not really seeing this or I’m not really seeing that. I haven’t experienced that.” It’s not that it isn’t there, it’s just you’re not looking down the right street for it.

Being that we’ve been on Wall Street and got those relationships, we keep a pretty close tab on what’s coming down the pipe and what’s coming out of the government and things of that nature. We actually developed a whole software that tracks all that for us. We know who’s got the stuff and we love sharing that with people. You have to understand, the opportunity is huge. When you compare that to what’s currently in REOs, obviously REO being real estate owned, someone’s gone through foreclosure, there’s only about $2 to $3 billion dollars worth of residential REOs in the marketplace. You put the two side by side, the opportunity’s huge in that space. I encourage people to take a look at it and to learn about it and roll up their sleeves and see the opportunities that are there.

If you’re really looking at buying stuff that’s not on the market, that hasn’t been circulated, it’s not in multiple, LinkedIn groups and Facebook groups and all that stuff. This is where you start. This is where all the investors start that are scaling their businesses and growing funds and things of that nature. Great area, great space.

Mitch Stephen: Definitely be off the beaten path and getting out of the rat race with some of these more popular avenues. If you’re going down to auctions right now to buy houses, let me just give you a clue. People are paying so much for houses at the auctions that when I have a problem house, I actually foreclose on myself and take them down there to get my money in 48 hours.

Troy Fullwood: There you go.

Mitch Stephen: I just go down there to sell my houses. I saw what they’re paying for houses down there and I thought, “Wow. I think I’m just going to take my houses down to the foreclosure auction.” So I foreclose on a couple of my problem houses and just got rid of them and I have my money in 48 hours. It’s great.

All right. Troy Fullwood, I’m very happy that you tuned in. I think we had a good conversation. This is Mitch, we’re about to wrap it up. If you guys want to do me a favor, go to the iTunes podcast review area and give me a five star rating, because, let me tell you, I’m not famous. The only reason in the world anyone listens to this Real Estate Investor Summit podcast is because of terrific reviews from people just like you. It makes a big difference. Thank you Troy Fullwood. This is Mitch. We’re out of here.

You’ve been listening to the owner financing master, Mitch “be the bank” Stephen on the Real Estate Investors Summit podcast. Let us now blatantly, without apology, bribe you towards financial freedom by offering you a whole bunch of free stuff. Go to 1000Houses.com and get you some. Y’all come back now, you hear?

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