Obtaining Private Mortgage Notes With Tracy Z. Rewey

Episode 446: Obtaining Private Mortgage Notes With Tracy Z. Rewey

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REIS 446 | Private Mortgage Notes


There will always be a limit to what you can do and give when working for others. Sometimes, to grow, we have to go on our own journey and discover the things we can do more of. Tracy Z. Rewey is well-familiar with this story. Working for a big institutional investor, Tracy found that she can’t invest for herself. After working for ten years there, she decided to pursue her own real estate investing journey, buying and selling notes. Now, she is close to 20 years on her own and thriving more than ever with Diversified Investment Services. She joins Mitch Stephen in this episode to share her experiences with us, along with the lessons she learned along the way. Tracy shares the reasons why investing your own money rather than using that of big corporations are different and spills some of her top five tips for investing. She then discusses the seller-financed note business and how she goes about obtaining private mortgage notes, and more.


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We’re going to get you some Tracy Z Rewey. She’s in the note business. First, I’ve got to pay homage to my sponsors. Our sponsor is MoatNoteServicing.com. Are your collections falling further behind because you’re too nice? Do you dread those collection calls? Is your account analysis being done each year? Is record keeping not your forte? If so, let MoatNoteServicing.com stand between you, your payers, and all those issues and problems. MoatNoteServicing.com is owned by Founder Shannon. Shannon has spent years in the note collection business. She has collected tens of thousands of notes. She’s licensed, bonded, and has made this collection service affordable for you. She can even show you how to get your payer to pay for the note collection service fee. Contact MoatNoteServicing.com because you should be out making deals. We’re going to get on to this conversation with Tracy Z Rewey. Tell us a little bit about yourself. How are you?

Mitch, I’m doing well. Thanks. I survived Hurricane Matthew out here in Florida. I can’t complain. It’s beautiful and sunny like it’s supposed to be.

I’m glad that you’re safe, dry, and above water. Tell us a little bit about your history so we can catch up with exactly who Tracy Z is.

I got started in seller finance notes back in 1988. I had always been familiar with owner financing. I grew up in a rural area, there were a lot of properties that I couldn’t get any other type of financing. I was aware of it. It didn’t seem unusual to me for my real estate closing type of background. I didn’t get involved in buying and selling the investing side of it until 1988 when I went to work for an institutional investor. I moved to the big city out in Washington state, Spokane, Washington, and went to work for a big institutional investor. I started out doing closings for them and then I got into the underwriting and due diligence. Somebody showed me a financial calculator and the light bulbs went off. I headed up their closing department. I helped them go national. I am in charge of branches. I became the go-to person for all the securitizations, trying to explain common-sense approaches to underwriters and securities.

It was an interesting time and it was the best way to learn the seller-financed note business. I did that for many years. One of the things that they didn’t allow you to do was buy notes for yourself. That was understandable because they didn’t want you to take a deal from them. I was intricately involved in a lot of deals. They didn’t want you to have a conflict of interest. I would buy and sell real estate and I did buy and sell some real estate with owner financing as well. I did some rehabbing. In my mind, the best place to be was buying and selling the real estate notes themselves, the paper, the security, collecting those mailbox payments as we call them.

After years of working with them, I went out on my own and that was in 1997. I started in Diversified Investment Services and bought and sold notes for myself. That was a wonderful experience because I was working for myself and it had ups and downs and good and bad. Investing your own money versus a big company, corporations are different. We can’t afford to lose as much. I had to learn and tweak and I didn’t have the same marketing budget as they did. Over the years, I’ve done that. Fast forward to 2016, when I’m getting close to twenty years on my own and then ten years doing it for somebody else. I love the seller-financed note business. It’s been good to me and that’s my history.

I started to chuckle a little bit when you said that it was a whole different game when you invest in your money. You’re going to give away the 21 tips for investing in real estate notes. If you go to 1000Houses.com/notes, you’ll have a chance to get the 21 tips for investing in real estate notes. I don’t know if we have time to go through the whole 21 lists here but I would like to find out the top five best ways to invest in notes or find notes. Can you give us your top five, Tracy?

I know that you love owner finance notes too. One of the methods is to create your own. You talk a lot about that and that’s your specialty. I take a little bit of a different approach and I go after notes that already exist. I’m not having to find the properties, buy them, resell them, and create a note. I go for notes that somebody has already done all the hard work.

I agree with you. It’s the shortcut to what I do. I’ve had people ask me, “Mitch, isn’t it easier to buy notes that other people have created?” I said, “In a perfect world if you can find enough of them, it certainly would shortcut things.” I don’t know how I got into my niche or why but I feel like I’m more in control of my inventory. I feel like I can write my paper the way that I want my paper to read with what I need.

Your strategy is great too. You have more profit in yours. If we were going to sit here and discuss pros and cons, you get to build in more profit in yours. There are advantages to doing what you do. A lot of us in the note business do a combination of both. I am not knocking it. I’m poking fun at myself a little bit.

On this show, the strategy that I have the most affection for is buying with other people’s money, go out and owner finance it, and get a down payment and collect payments for a long time. That’s my favorite strategy. That doesn’t mean it’s the strategy for everybody on the planet and that’s why I like to have people like you, Tracy, who’ll come on and show us a different angle. This is a perfect angle because buying notes and selling notes is not that much different than the owner finance strategies that I use when I’m building the note from the ground up. What I want my audience to get out of this is their path to financial freedom, whatever turns them on, and what they want to do. We’re interested to know your five ways because maybe the way you do it appeals to someone else when my way doesn’t. Tell us more about how you’ve been successful in buying and selling notes.

I appreciate the opportunity. The place that I suggest people to start, unless they already have a background in buying and selling notes, is to earn while you learn. The simplest steps, the strategy, one, would be to find a note, refer it to another investor, and earn a referral fee. You’re not going to get rich off of that but you’re going to get a whole lot of education and you’re going to earn about 3% to 6% referral fee. That’s the average fee of what the investor invests. That’s going to be the simplest way. It’s going to help you start a marketing method and find notes and get a pipeline and then refer it for a fee. You get to learn the ins and outs of it. You get to earn while you learn. That would be the first strategy.

The best place to be is buying and selling the real estate notes themselves. Click To Tweet

The money, in my opinion, is over-investing for interest income. When you’re ready, you could find a note and you can buy a note. We always buy notes at a discount. The discount is determined by the risks, the pros, and the cons of the notes. You get to set your rate of return. It has to be competitive for you to be able to purchase the note because the seller has to have a reason to sell that note at a discount. Investing for interest income where you have a payment coming in and a certain amount goes to principal and interest. You get that interest plus you get to earn back your discount because you didn’t pay full face value.

Can you give us a story, a case study, or an example of a note that you’ve done?

I’ve got one here from our 5 Ways to Cash In on Notes and that’s a free download too that they can get when they go to that area that you talked about.

Tell us your story there.

We do quite a bit of business with mobile homes and land. Not as much mobile home only, although that’s great for certain types of investors as well. I usually do a smaller-sized example because smaller deals spread your risk around and most people say, “I could get comfortable with that.” Once you learn that process or that strategy, you can apply it to bigger deals if you want. This was a well-seasoned note. I work with existing seller finance notes. You can apply it as your strategy. They are creating them. These are existing ones so you’re marketing to people who already hold a note. This was a deal out in Texas and it was on a mobile home, inland, and older mobile. The property is sold with owner financing for $32,500. They had only put about 5% down. At the time they came to us, the seller had collected 95 monthly payments. They wanted to sell all the remaining payments for cash.

How many payments were left?

There were only 25 remaining payments left on that one. The balance is paid down to $8,924 and with some change. It was payable at 9% interest. The payment was $392.88 a month. Often the case in these deals, the payer didn’t have great credit. What it did have going for it was they’d been paying for a long time and it was an affordable home for them. It did have some delinquent real estate taxes and then we found out the insurance had lapsed. Things were piling up. That wasn’t our favorite deal. A lot of investors had said no altogether. We looked at the land-only value. We looked at paying the delinquent taxes and we decided to make an offer for that note out of our self-direct retirement account for $2,531. We’re getting an $8,900 balance for paying about $2,500.

The seller was tired of all the headaches. They needed the cash and they sold it to our retirement accounts. If you look at that as a peer return and you put it into an HP-12C Financial Calculator, we teach people how to calculate cashflow training, that was a return over 180%. It’s a small $2,500 investment that you would get paid off in $25 for three years in a month. The great news is we paid off early on that. We gave them a little discount to pay off early. Our yield went up on that deal. That’s an example of what you can do. Not all of them are going to have that great return but that’s something you could do with a smaller note. It’s harder to get those returns on larger notes if they’re more conforming types of properties. Those are the types of things you can do with these small notes that some of the bigger investors overlook.

You negotiated to buy an $8,924. It’s almost a $9,000 note for $2,500 and some change. It turns out to be a 180% rate of return but then you went and inspired your note payer of the notes that you bought to pay you off early if you’d give them a discount and they said yes. You were able to jump your yield up. How much did you jump your yield up? Do you know? Have you calculated it?

I don’t have it but I will have to do that for you. It was close to over 200% by the time it got done.

You don’t need a lot of money to start with if you’re making 200% yields. It will grow fast on its own.

Not every deal is like that. I’ve picked a good one but they’re out there.

Private Mortgage Notes:

Private Mortgage Notes: The place to start, unless you already have a background in buying and selling notes, is to earn while you learn.


You’ve got all the different ranges. You can’t expect to make a 200% rate of return every time you walk out the door but it’s nice to know that they’re out there. What’s the next word of advice when we’re trying to emulate the success of Tracy Z?

Once you get comfortable with notes like that, then you can move into building a portfolio with a self-directed IRA or placing notes with other people’s self-directed IRAs or other people’s money in general. We talked a lot about self-directed IRAs. These are great types of investments to put an IRA because they don’t require a lot of maintenance. The payers are paying the taxes. The payers are paying the insurance. You’re collecting or paying a servicing agent to collect the payments for you. They’re good for IRA, either a Roth or traditional IRA. Either way, they’re tax-free or tax-deferred, but they can certainly be bought and sold outside of there as well.

You move into that and then move into restructuring notes. We touched on that a little bit, but there are ways to entice payers to pay off early or change the terms that if you put it in a financial calculator, it’s going to give you a better return in the end. One of my favorite ways, the fifth way, would be partial participation. We do a lot of work with partial purchases, especially on notes where we might not want to buy the whole thing because the risk is a little bit high. We’ll go in and we’ll invest less. The payer is not going to want to sell everything for that smaller amount, but they can sell a portion of the payments, a portion of the time and that’s what we call partial participation. We do a lot of work. The fifth strategy that we use a lot is the partial participation strategy.

A lot of people don’t know that you can buy part of a note. Let’s say there are 180 payments left on a note and the person is not all that well seasoned or the property is not worth much more than the balances. You don’t want to take that entire risk yourself and buy the entire note. You buy the next 25 or 30 payments for a price. A lot of people don’t know you can do that. It’s a tremendously smart move. You can invest and hedge your bet at the same time because the note seller is not going to let you fail in that case if they’re owed a lot of money. They’re going to get out and protect you.

You’ve got the seller that’s still in the deal with you. You’ve lowered your investment to value. You’ve bought the portion of the note that’s most valuable, which is the more immediate payments rather than the ones way off in the future. You’re not having to discount if the seller is high. It’s more palatable to them as well. There are ways to split up partials. You don’t have to buy all of it. We might buy fifteen years of payments or we might buy 50% of the next 30 years of payments. There are different ways to split it up. We might buy 500, give 300 to an investor and take the other 200. There are all kinds of strategies you can use. You can do RAPs where you’re sending off the payment of the underlying. There are different strategies to use that all play into that whole partial participation.

One of the things that we teach people a lot on how to calculate cashflow is how to run those numbers. I personally love the HP-12C, that’s what I was taught. I also use key-value. I’m big on making those numbers match up. Key-value is nice because you can have a printout to show everybody what happens if the note pays off early if it goes into default. There are things that could happen. Often, it does not pay exactly the way the note says it should.

One of the reasons I love doing this show series is because I learn something all the time from the people I’m talking to. I never thought about buying a note where I get half of each payment or a percentage of each payment. I always thought it was all the notes or partial on the note. I didn’t know there were all those in-betweens, which is why we have smart people like you, Tracy.

They were great when you have somebody that’s in their 60s, 70s, 80s and you say, “We’re going to buy the next fifteen years. Don’t worry, you’ll get the final fifteen years.” They’re thinking to themselves and they say, “I don’t think I’m going to be around to collect them.” It can go to their heirs, but that doesn’t fulfill their immediate needs. If we split the payment up, then they get some every month like we get some every month. It fills their needs. They don’t have to wait way off in the future.

Tracy, I can tell that you are a creative person. You have a creative mind. That’s an excellent answer for people who don’t think they’re going to be around to collect the last payments of their note. It’s a perfect resolution. I get a lot of potential students that want and love the owner finance strategy that I teach and preach. The problem is they live in areas where houses are too expensive to use the owner finance strategy the way that I use it. I deal in affordable homes. I deal with Walmart homes for Walmart people and not the bottom of the bottom but I deal in the middle range.

For me, owner financing works best when the balance that’s owed by my payer is $120,000 or less. It starts to hum when the balance is under $100,000. The lower the balance is, the better my strategy hums along. Some of these people live in places like Los Angeles where a three-bedrooms and two-bath house is $550,000. They’re intrigued with this owner’s financial strategy. The reason why I’m bringing Tracy Z here is because this is a strategy that you can use from anywhere on the planet. Do you see all these houses that you buy notes on?

Rarely do I see them. If they’re local, I would. You can send out somebody to do a BPO or Broker’s Price Opinion or drive-by appraisal before you purchase it. If I’m buying a mobile home only without land, then I do like to stay closer to home and see them. If it’s got some dirt attached to it, a real estate or a stick-built home or anything like that, no. A lot of notes can be bought long distance.

This is a perfect strategy for people that understand and appreciate the investment that has a solid, physical collateral piece attached to it that you can substantiate a value on. It works perfectly. How do you deal with all the different states? Do they have different laws? Are there states that you like to do this in and states you don’t like to do it in?

Go for notes that somebody has already done all the hard work. Click To Tweet

I used to buy in all 50 states and then I got smart and I simplified my life. Now, I mostly buy closer to home. You certainly can, but you do need to check the laws of your state. There are a couple of states like California that says if you’re going to advertise them, you broker notes, or you buy and sell notes that you have to have a real estate broker’s license. I stay away from those, typically. Unless I’m in California, I wanted to get a real estate agent’s license. Most states, for the most part, don’t have laws that say you have to be licensed to be an investor to buy the note or even to refer the note for a fee. You want to check with the laws of the state you’re going to do business in. I’m not an attorney and I don’t know the laws of all 50 states, but most of our students haven’t had any issues there, especially if they’re looking to buy notes for themselves.

The rest of it is Real Estate Law and Mortgage Law. You’re taking an assignment of a mortgage or a deed of trust. Those two are the most traditional. You’re getting the original notes. You’re getting it endorsed. One of the things in my 21 tips is to know the process and hire experts to help you. It’s usually going to be a title company that will do the closing. You want to make sure that you get that original, you get it endorsed, and you check the different things on our due diligence checklist. You make sure taxes are current and the property is insured if it has a building on it. The basic things that you would think to do. We always talk to the payor to make sure they’re happy with the property. We try to get a verifiable payment history. It’s not that we won’t buy the notes if any of those things come up with a glitch. It’s that our offers are going to be different or perhaps it’s going to be lower or it might be structured as a partial. Make sure that you understand those tips or you’re hiring somebody that does a good job to do the due diligence for you. There are companies in our directory that you can hire out to perform that for you if you like.

I bet you have a ton of resources. You said a whole mouthful there and that means you’re enthusiastic and passionate. You know your stuff. We don’t have scripts around here because the people that we’re talking to, they live this life. They don’t need a script. Sometimes we bounce a little bit. Let’s break it down. One of the things you said was you got smart and you started picking certain areas. When you localize where you’re trying to buy notes, either by state or by county or whatever, you’re being able to brand yourself more effectively than trying to shotgun all over the United States because that’s a big job. Is that one of the reasons why you started to tighten up your area or your regions?

That is one of the reasons. You can become known as the local expert and you’ll also get more in tune with what’s going on. You also can get a lot of deals based on referrals that way so your marketing budgets go down. There are several good reasons for doing that. I feel that most people, given a choice, like to do business locally. If your price is comparable and your service is good, then they’d rather do business with somebody locally. That gives you a leg up because there is quite a bit of competition if you decide to go nationally and do direct mail and some online advertising. It’s a lot of competition. One of the ways you can set yourself apart is to be your local experts.

By being local, you also could have the same resources that you go back to time and time again and not have to find a different resource for every different market. Your resources would start to be able to be used over and over again instead of having to find a new resource every time you find a note in a different state or something. You talked about people in California. If they wanted to buy notes, they had to have a broker’s license or real estate agent license, but that’s if they buy notes in California. In Texas, you don’t have to have a broker’s license or real estate license to buy and trade notes. A Californian can go to a state where they don’t have to have a license and they can start investing there.

My understanding is yes, but I’m not an attorney and I don’t play one on TV. I’ve seen people do it. The issue is that if you’re advertising, you buy and sell notes in California, then they notice that and ask for that. If you’re an investor in California and buying in a state that doesn’t have any of those types of rules or regs, as far as I know, we’ve done it ourselves, that’s not a problem.

We are not attorneys and we’re not CPAs. These are our personal opinions. If you take them for better or for worse, make sure that you substantiate the business and the location of where you want to do business with your attorneys because it makes sense. If you’re going to get into the business, you’ve got to become somewhat of an expert. If you’re not the end-all expert, then you’ve got to hire an attorney or someone to explain to you exactly what the rules and regs are. Once you get it, you get it, and then you’re off and running. I want to ask you two big questions. What’s the worst thing that ever happened to you? The reason why I ask this is because, we both know and everyone should know that there is risk involved. Let’s talk about your biggest nightmare that ever happened and how to avoid that in the future?

When I went out on my own, I started buying notes. I bought a deal where, at closing, we found out that the hazard insurance had lapsed. That happened to us a lot in closing when I worked for a big company. They had the wherewithal and they had these force-placed insurance policies, blanket insurance policies. We would buy and then we’d force-placed or we’d make people bring their insurance. When I got the closing, it’s is a lot of pressure. The seller needed the money. It became a personal story. I knew I should have stopped the closing and made them get the proof of insurance. The plan was to get the force-placed insurance on Monday and we closed on a Friday. Guess what happened over the weekend?


The property burned down.

A lot of people would think, “I got zeroed out,” but you still had the land.

Absolutely. We go to plan B and we still had the land, but the land was not the same value as what was owed on the note. The payer tried to figure it all out and get it right, but they had a wife who was terminally ill. There are sad stories. Sadly, things happen in life with people. They were not able to find a way to make payments on a piece of land that no longer had a home to live in. Fortunately, everybody was safe and alive. Understandably, their motivation to make payments and their ability to make payments had gone away. They wanted to not pay anymore. We took the property with closure. We started marketing the property.

REIS 446 | Private Mortgage Notes

Private Mortgage Notes: There are ways to split up partials. You don’t have to buy all of it.


Tracy, to put all this into context, give us the numbers. How much did you pay for the note? What was the value of the property before it burned down? When it burnt down, what predicament were you in by the numbers?

This was in Oregon. It was a 1940s bungalow style home. These are the details of it or a part of our blog that we share with people. The seller has sold it for $45,000. The buyers put $5,000 down. They’d carry back a note of $40,000. When we bought it, there was about $37,000 and some change owed on balance and we were in at about $31,250. That’s what we’d paid for the note. It should have been worth about $45,000. It hadn’t appreciated or gone down much in the amount of time. A couple of years of payments had been made when we bought it. The fair market value at the time we bought the note was $60,000. That was due to appreciation at the time. Most of the time, we would go off the $45,000 sales price.

You got this house with a fair market value of somewhere around $60,000. You paid $35,000 for a note and then it burns down and you’re left with just the land. What was the land worth? What were you able to salvage out of this?

We got a land only value that was about $24,000 to $29,000. This was after the fact, not before the fact, which is part of the lesson I’m learning here.

You learned to size up what the land is worth, in case.

Especially if you’re going to allow it to close without an insurance policy. If it had insurance, it would have been no problem. We backed up a minute. The big problem was we’d closed without making them put that insurance current. If it had happened, then the insurance company would have paid us off as the loss payee, as the mortgagee. That would have been no problem. That’s why the insurance was there. It was because the insurance wasn’t there, now you’re stuck with this land only value.

The next problem we had with it was that it was going to cost quite a bit to get rid of the building because the building didn’t burn down all the way. We did two very creative things at the time and I had this wonderful woman working with us who is our processor. She said, “My husband does volunteer fire department staff. They’re always looking for buildings to practice on.” We don’t know anybody there. We were in Washington State at the time. She was like, “Let’s call the volunteer fire department and see if they will use it as a practice lot and burn the rest of it down and save us about $5,000 in costs to get all the debris gone.” It was becoming a hazard with the debris there and the county was not happy. That’s what we did.

We contacted the fire department and they did a burn on the property as a practice. That state is about $5,000 in the cleanup costs on the property. We started marketing the property. We had the property owner next door who had a nice $250,000 home. It was one of those areas where you could have a nice home here and then you could have a small house here and then over here, maybe a mobile home. They gave us a low-ball offer. They made a $10,000 as-is offer to purchase the lot next to their home.

Did you take that? I imagine you could’ve got more if the owner finances with someone else, but was that the case or not?

We talked to him about how that was too low and what we had into it. We’d like to lease it and get out whole. If that wasn’t acceptable to him, we’d have people who contacted us about maybe putting a mobile home on the lot. They brought their offer up a little bit and at the end of the day, we were out about somewhere between $5,000 and $10,000 on that deal. We had only lost $10,000, which could have been something much worse. That was the lesson that I learned. Don’t get pressured into closing when you know that you shouldn’t.

I tend to get involved a little bit with the personal side of people’s stories and you have to remove yourself from that situation and say, “These are my due diligence items. This is what I require,” and hold firm to that. Also, look at getting force-placed insurance or getting a blanket policy that will protect you. There are other things if you’re going to take those chances. Who would’ve thought that it would have burned down over the weekend? Have your due diligence checklist items. Don’t waiver from that unless you have an out that makes economical sense if the worst-case scenario does happen.

I want to reconfirm the mistake that you’ve made as a mistake that I’ve made several times. It takes a little while to bolster up and not let that happen again sometimes. When you start getting involved in the personal stories, the cancer stories, and the life and death situations, or the soft stories, this is when I’ve made my worst deals too. I’m a compassionate person. I feel for these people. You have to learn to remove yourself from the emotional side of these deals and do what’s right for your company. Your company doesn’t have any emotion. It has a bottom line and your job is to protect that bottom line and you have to take the emotion out of it.

One of the ways you can set yourself apart is to be a local expert. Click To Tweet

A great lesson here that Tracy is bringing up is to be careful when you start getting emotionally involved because this leads me to my next little tidbit. In this person that Tracy was dealing with, it doesn’t sound like they were cons. It sounds like it was a circumstance and bad timing. Even in a couple of days later, you would have had insurance, but it burned down the next day. I want to appraise you all of something that I’ve learned to recognize the four signs of a con. The four signs of a con are, first and foremost, they always give themselves a noble facade. They are a minister, a priest, a Marine, a policeman, they are someone of high regard and that’s the façade that they’ll give you that they are this person. The second sign is they need to close extremely fast for personal and emotional reasons. That brings you to the third sign which is they’re appealing to your compassion of why you should move fast to help them.

The last sign is there is extremely good potential profit for you or your business in this transaction if you would accommodate them. Those are the four signs you need to look for. When those four signs line up, start slowing down. Start pulling back and start focusing heavily on your due diligence because these are the four signs of a con, noble face, big profit, an emotional story, and the need to close fast. When you see all of those things line up buyer, beware. Start slowing down and backing up. What do you think of those four indicators, Tracy?

I highly endorse that. You could do a whole podcast on that. You’ve boiled it down to a nutshell.

In my book, My Life & 1,000 Houses: Failing Forward to Financial Freedom, I did get conned twice by two cons and I was able to con the con back. They’re interesting stories. They’re called Conning the Con number 1 and number 2. They’re in the stories towards the end of the book. If you’re interested in how I conned the con back and got me whole, then you’ll find that story interesting. When you’re trying to get your money back from a con that you’ve already lost control, you have to appeal to their greed. You can get back in and sometimes undo what’s been done if you’ll appeal to their greed from a third-party position unbeknownst to them. I’ll let you read the stories to figure out exactly what I said and what that means. We talked about a bad thing that happened. The sequel of that question was, what’s the best deal you’ve ever done, Tracy? Tell me the victory that you’re still trying to surpass.

I’m a careful investor. I talked about. Normally, they’re above 15% to 20% yield and not 180%. I like to wash and repeat those deals. One of my favorite stories and it’s on our blog as well, I call it the Church Note. It’s where we bought a full and we sold a partial to an investor and then we kept the back end. We made a $1,000 or $2,000 at closing. We owned the back end of the note. It was a sizable back end. The note paid off early and we got a nice big mailbox check. That’s one of my favorites because it was a deal we did without putting in any of our own money.

What was that check worth to you, that last sizable note? Can you give us a number, more or less?

We had a seller that had a note on a church and you can read all the details of the funny background story of buying notes on church properties. Needless to say, we decided it wasn’t a note we wanted to buy, but we would be happy to broker it to another investor who didn’t mind buying notes secured or paid by churches. We had sold that note to the investor at closing and we kept a back end. The seller sold all of it. The investor bought a partial and we kept the payments in the future. We made a small fee of closing and then we had this residual income. We were supposed to get the last approximately fifteen years of payments. The wonderful thing about that was we didn’t have any dollars invested in that deal. We made some money at closing and we had some time and energy invested and then we kept the back end.

Quite a few years went by and then the deal paid off. We got a payoff check for a residual interest of around $57,000 and that was mailbox money. That was one of our best deals that we did where we didn’t even have to invest any money. You could try to put that into a financial calculator. You have to at least put a $1 in there because it says, “Error 5.” It says, “You can’t make that much money without investing anything.”

You made a couple of thousand when you sold the note. I’m going to guess. You don’t want to do notes with churches because you don’t want to get yourself in a position to have to foreclose on a church. Is that why you don’t do it?

There are several reasons that I don’t, but other investors will. One, it’s a special used type of property. If you do get the note back, it’s a little bit harder to sell. Number two, verifying income is tough. If the pastor runs off with the organist, I don’t think the parishioners are going to be donating that much. How are they going to make their payments? The third reason is no matter what your beliefs are, I don’t want to be the person who had to foreclose on a church.

You made a couple of thousand when you pawned off those issues to someone who didn’t care about those issues. A few years went by and they paid off. You made $57,000. Is a $59,000 turnaround money from heaven if we can use it? They were lucky enough to be able to pay off their note and the pastor hadn’t run off with the organist yet so they had made enough money to pay off the note. Those are all great valid points. Tracy is a creative person who knows her business inside and out. If you’re going to go into this business or any business, you should have a mentor to help you avoid all these little nuances that you can’t possibly know until you’ve lived through some of them. Tracy has lived through to a ton of these instances. She’s been in the business for many years, many years with another company, and years on her own. You know that she’s seen a lot of things happen, a lot of things good and a lot of things bad.

To go into a note buying business and not have the benefit of a person like Tracy is, to me, the definition of insanity. Why would you go and want to learn all these lessons on your own? I know that mentorship sometimes costs. To some people, they seem very expensive, $10,000, $15,000, $20,000, $30,000. I know people who are charging $50,000 and $100,000. You compare this to a college degree and what you get when you walk out of those doors and you compare the money that you can make and the fact that you don’t have to look for a job. You’re creating your job and that there’s potential to make money if you don’t make mistakes. Here’s the thing about mentorships. You can measure a mentorship by its success by how much money you make. It’s easy to say, “This mentorship was worth it because I paid X and I got back X plus.”

REIS 446 | Private Mortgage Notes

Private Mortgage Notes: As the local expert, you get more in tune with what’s going on and also get a lot of deals based on referrals.


What you can’t calculate is how much money did that mentor keep you from losing? If they’ve kept you from losing, then you’ll never know how much money you would have lost if you did not have their tutorial skills. No matter what genre you want to go into, you should hire someone who’s been there before, who is in a position that you wish that you were in or want to be in the future. You’ve substantiated that they’re real and that they’ve done what they say they’ve done. On the other hand, a good mentor takes the time to make sure that they give you the resources and the FaceTime, phone time, or whatever you agree to. They make sure that the people are getting that time and they’re happy with it.

I want to thank you, Tracy, for coming on. I don’t think we could’ve had a better show about notes because you’re hitting everything right on the head of the nail there. I appreciate you being on. Go to 1000Houses.com/notes and you’ll get the 21 tips for investing in real estate notes right there. I suppose you’re going to find a whole lot more when you start looking into Tracy and all the free stuff she has to offer and all the advice. You can consider her course or her mentorship. You’d be a better person for it if this is the business that you’re going to go into. Anything else we missed or anything we need to cover that I haven’t covered, Tracy?

I appreciate that you had me on. Thank you. It’s great. We’ve had a lot of our students that bought notes that wanted to go into creating notes locally that has also worked with you and have been happy with your class as well. I see what we do is compatible and we’re in the same industry. We come at it from different angles. One of the big passions that I touched on is I want everybody to learn how to use a financial calculator. Everybody gets scared when they talk about calculations and numbers. I take it and break it down easily. I’m not a math major, but I do understand money, especially how to make it and put it in your pocket.

We have an affordable $97 training course that I did because I wanted people to not be afraid to learn how to use an HP-12C and understand the time value of money. If you’re going to buy and sell notes, you’re leaving money on the table if you don’t know how to use that calculator. That’s been my passion, to teach people to buy and sell notes themselves. Let’s demystify how you use a calculator and how to run calculations in our business. That’s one thing I wanted to mention to people even they’re not buying and selling notes. If they want to know how to finance a car and get a good deal, all those things, you need to know how to use a financial calculator because nobody minds your money like you.

In my strategy, I use a cash-on-cash rate of return, which is a simple formula. Your annual income divided by your investment hit, the percentile and get your percentage rate of return. I deal with a cash-on-cash. It’s a simple formula. I’m trying to keep it simple. If you’re going to be in the note buying a business, it’s extremely important that you learn how to use those financial calculators. If you can’t figure out how to get your $97 back after you learn how to use one, maybe you should go into a different business. With Tracy’s help and that calculator, you should be able to make your $97 back. Tracy, I want to thank you for coming. Please tell your friends that you can go to 1000Houses.com and you can see all the podcasts. Please share the link. I want to thank you, Tracy.

Thank you too, Mitch.


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