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Today’s episode features an exceptional guest, Scott Carson
—better known as “The Note Guy”—who has been at the forefront of note investing for nearly two decades. With a background in finance as a top mortgage banker and a successful transition into note investing, Scott Carson has built a reputation for turning distressed mortgage debt into powerful wealth-building opportunities. Having purchased and managed over a billion dollars in debt across residential and commercial properties, Scott’s expertise provides unique insider access to a strategy favored by high-net-worth investors but still under the radar for many.
In this episode, Dave Wolcott dives deep with Scott Carson to break down the world of note investing in a simple, actionable way. Whether you’re seeking passive income, exploring new investment strategies, or just curious about how banks, hedge funds, and investors handle mortgage debt, this episode offers a clear roadmap. Scott shares not only the mechanics of the note business but also candid lessons learned, the importance of taking action, and how to sidestep common pitfalls.
Listeners will discover that you don’t need millions to get started, that education and careful due diligence are key, and that note investing can be tailored for either passive cash flow or more active wealth creation. Scott’s passion for helping others learn and succeed shines through, making this episode a must for anyone interested in alternative investments and financial freedom.
In This Episode
- The basics of note investing and how the business works
- Differences between residential and commercial notes
- Active vs. passive note investment strategies
- Key risks, due diligence, and tips for getting started
You talk to experts out there. Don’t try to be a lone wolf. I think more people make more mistakes is not being coachable and not reaching out to people and talk with it. And that would be the biggest mistake I’ve made when I’ve had bad deals is usually because I didn’t reach up and make a phone call or I thought I knew it all.
Welcome to the Wealth Strategy Secrets of the Ultra Wealthy podcast, where we help entrepreneurs like you exponentially build wealth through passive income to live a life of freedom and prosperity. Are you tired of paying too much in taxes, gambling your future on the stock market, and want to learn about hidden strategies for making your money work for you? And now your host, Dave Wolcott, serial entrepreneur and author of the best-selling book The Holistic Wealth Strategy.
How’s it going, everyone? And welcome back to Wealth Strategy Secrets of the Ultra Wealthy. If you’re like most investors, you’ve probably heard about note investing but never really understood how it works or why so many high net worth and ultra high net worth investors quietly allocate meaningful capital to it. Today we’re going to change that. My guest is Scott Carson, known by many as the Note Guy, and he’s been in the trenches of buying and working distressed mortgage debt for nearly two decades. In this episode, Scott breaks down note investing from the ground up, how banks and institutions sell mortgage debt, how investors can buy non-performing notes at steep discounts, and how you can turn problem paper into predictable cash flow, often without the headaches of toilets, tenants, and trash-outs. We also dig into the differences between residential and commercial notes, how active versus passive this strategy can be, where the real risks are, and what it looks like to build a lifestyle-driven wealth strategy around cash-flowing paper.
And as always, Scott’s message is clear. Education matters, but action changes your life. Let’s dive in. Scott, welcome to the show.
Dave, I am honored to be here. We were just talking briefly a little bit ago about it’s sunny in the middle of January and almost 70 degrees where I’m at, 70 degrees where you’re at. It’s a good day to be alive, right?
Yeah, 100%. And it’s interesting because I know that we actually have a lot of things that resonate for both of us in terms of not only creating cash flow and freedom in our lives, but it’s all about living the best life that we can. And that’s part of lifestyle design and really creating this freedom in your life. That’s amazing. And part of that is lifestyle and weather, and really focusing on things that count, like health and relationships and stuff. So I’m looking forward to today’s discussion, and I think this is going to be really educational for our audience, Scott. As we’ve kind of talked about, investing is really an interesting asset class. Definitely, a lot of high net worth and ultra high net worth investors have a good percentage of their portfolio actually in note investing. However, it’s really new to many people who haven’t really explored it.
So I’d love to do a deep dive into that. How do people invest into notes and everything? But before we get into those details, tell us a bit about yourself and how you got to where you are today.
It’s all about creating cash flow and freedom in our lives.. to live the best life that we can.
Yeah, no problem. I started, like many folks, graduated college, got a job, enjoyed that, was successful in the finance industry being a mortgage banker, and opened up about 15 different Chase banks here in Central Texas, stuff like that. Number one banker in the state. But like many folks, I wanted to do something more entrepreneurial instead of hitting that glass ceiling. Of course, that’s going back 25 years ago. So a buddy of mine approached me. He was starting a mortgage company here in Austin, Texas with a couple other real estate investors that were teaching creative financing, owner financing, note investing aspects, and traveling the country. I said, well, that’s really what I want to do. So I left the banking side, and a couple weeks later I was out pitching mortgages to real estate investors in LA at a Ron LeGrand seminar years ago.
For the next four or five years, I had this amazing apprenticeship and learned all the ins and outs of paper, not just the financing side of the mortgage side and private capital stuff like that, but also the debt side of the ballgame. And I kind of call it now the sexy side of real estate, no offense to anybody out there. I learned so much during that apprenticeship that when everything hit the fan in 2008, I left the origination side and started reaching out to banks, hedge funds, lenders, and stuff like that that I used to do mortgages for, to start buying their distressed debt. Now fast forward, it’s hard to believe this is my 18th year of being a note investor. It’s really all that I focus on, buying distressed mortgage debt on residential and commercial properties from a variety of different banks, lenders, and hedge funds across the country, on a variety of different asset classes. And that’s why they call me the Note Guy, and I love what I do. We can do it from anywhere.
Like you talk about, lifestyle is very important. I live in Austin, Texas, but we buy debt in about 20 to 30 different states and even have bought it while traveling all across the world and having a blast. I always make the joke that everybody’s already in the note game; they’re just on the wrong side of the payment stream, you know what I mean? It always seems like the evolution of investors goes from wholesaling, and you can wholesale notes too like real estate property, then move into light rehabs, rentals, commercial real estate, and eventually end up getting into the lending side of things. As we always joke, the pen is mightier than the hammer in a lot of cases. And what I love about note investing is the passivity of it. Yes, you still have to have your thumb on it like anything else.
But like I said, we buy stuff all across the country, and 95% of it I’ve never walked or driven by. We’ve used vendors to do this and absolutely love what we do. And with the market being like it is, it’s a great time to be a note investor.
Yeah. So let’s break this down for people, and I’d like to really start at that 30,000-foot level, right, and just talk to us a little bit about the market, really the dynamics of the asset class, before we get into the specifics of how it works.
Yeah, I mean, if you look at it, there’s about 80—let’s just talk on the residential side right now because it’d probably be a little bit easier for people to understand, then we can go to the commercial side of things. But there’s about 80,000 homes in America with a mortgage on it, and those mortgages are traded on a secondary market a lot of times where people and institutions will originate them, hold them for a period of time, or sell them off to funds or investors to buy for the cash flow. And that’s how you make money. Being a note investor is based on the cash flow. With me and my focus of buying distressed debt, we buy that cash flow at a huge discount off of what’s owed. Now, the borrowers still really owe that amount, but we make our money by buying a non-performing note at 50 cents on the dollar.
And then going back and working it out with a homeowner. We like to say sort of rehabbing properties, we like to rehab borrowers, saying, okay, what happened? What country western song did you go through? Lose your wife, your job, your dog, grandma got run over by a reindeer? You know what it might be. Can you start paying? Do you want to stay or do you want to go? Let’s work out a win-win solution for you. And we’re willing to work with folks most of the time to keep them in their houses. And since we bought that debt at a discount, if we can get them back on track, it turns into great cash flow without us having to worry about toilets, tenants, and trash-outs. With what we do, we’re not the ones going out there knocking on doors and trying to rehab it. We leverage third-party vendors and servicing companies as part of our team to do the heavy lifting, the borrower outreach, the structuring of stuff if borrowers won’t play ball. And then we kick it to our real estate attorneys to handle the foreclosure process. But roughly about 70% of the time, Dave, if a property is owner-occupied, we can actually work it out to where it’s a win-win and keep them in the property and still make a phenomenal return on our investment.
And then the goal is usually after the borrower pays on time for 12 months, that note is now considered a re-performing note or performing note. If we bought it at 50 cents, we could then turn around and sell it back to Wall Street or other investors at 85–90% of value. And so it turns into a pretty good, I say it’s a three ka-ching kind of thing. We buy the note. If we get the borrower back on track, that’s the first ka-ching with cash flow. We always want the borrower to bring some skin in the game to restructure the note or do a payment plan or modification. That’s the second ka-ching. And if we hold it for a while, we can turn around and sell it, and that’s usually a nice big ka-ching at the very back end.
Now, of course, if a borrower doesn’t play ball, doesn’t want to work with us, then we, as a lender—because that’s what we’re becoming—is actually the lender, not the property owner. When we buy the note, we then have the right to foreclose on that borrower and either sell it at the auction or take the property back. And we can do whatever we want with it at that point. And we only buy first liens, so the only thing that can kind of wipe us out would be an act of God or taxes. And we make sure we’ve got property insurance on the property and also make sure the taxes are paid. But you can buy notes from banks. There are people out there who will tell you you can’t, but there are plenty of opportunities to buy debt.
Most folks, when they hear about note investing, think about somebody owner-financed a property and sold it on terms, and that’s definitely one aspect of things. But we always found it more valuable and much more efficient to actually target banks and lenders out there that have distressed stuff on their books. And it always made more sense for us to have a bank actually send us a list of notes that we could cherry-pick on a monthly basis versus having to drop thousands of dollars in direct mail to deal with a lot of tire kickers. So that’s kind of what we’ve hung our hat on, actually buying institutional debt, whether it’s one-off or in bulk, and, as I say, turning problem properties into profitable solutions.
Yeah, how about on the commercial side? Are you involved in that at all?
Oh yeah, definitely. Actually, my first few notes that I bought were commercial notes, and we still buy commercial debt on a regular basis. The commercial market’s a little bit of an interesting aspect right now. Whereas when we first started, we were buying a lot of distressed multifamily and self-storage stuff at pretty good-sized discounts. The market’s a little bit different now. What happened back in 2008, 9, and 10 was that a lot of it was financed by Wall Street. A lot of your smaller commercial loans, basically 10 million and under, about 70% of that was financed by banks.
And while we’re still buying distressed commercial real estate, a lot of banks, especially when the asset is upside down or we’ve seen a lot of distress in the multifamily market, banks aren’t wanting to sell that at a big discount. They’re usually like, well, we’re going to foreclose. If it’s in decent condition, we’re going to take the property back and actually manage it for a period of time and then re-gentrify the asset, get it back up and running, and then sell it after two or three years. But yeah, we still see a lot of that small-balance commercial stuff that’s opportunistic out there. Every asset is unique to location, location, location, what’s going on with that. But we definitely see that we’re still buying that stuff and evaluating it, and there’s a lot of opportunity if you’re looking for that.
Do you have a preference in terms of residential versus commercial?
I like what’s going to give me the biggest yield, you know what I mean? I like commercial stuff in Texas. I like stuff in, as I say, God’s waiting room, your home state, Florida. Love that neck of the woods. But it all comes down to making money. Now, I do avoid long foreclosure states, judicial foreclosures like New York, New Jersey, stuff like that. We buy a lot of residential stuff that’s pretty easy to systematize with servicing companies and attorneys and stuff like that. The commercial stuff, we like to roll up our sleeves and get a little bit dirty with it. But it all depends on what’s the play going to be.
And we do a lot of due diligence on commercial assets. Is it going to make sense for us to buy that note and either work it out with a borrower, or are we going to have to take it back, and what kind of work do we have to do to get that property marketable to sell or hold onto it for a period of time? So it all comes down to yield, really.
Yeah. Okay, so tell us, how active is this type of investing?
Well, it’s been around ever since the first mortgage was written. People have bought and sold debt forever. It really became much more noticeable back during the Great Recession on the residential side. But commercial notes have always been bought and sold on a regular basis. Most people don’t know that you can tap into debt by buying these mortgages by reaching out to the right department at banks or contacting special asset managers or reaching out to regional banks, stuff like that. You’re not necessarily going to go buy a note from Bank of America, Chase, or Citi. They’re just too big, and they don’t want to sell a one-off. But there are still—I’ll give you an example.
One of my Wall Street traders gets notes from 600 different banks and literally about 5,000 different hedge funds and investment companies that are buying debt or originating mortgages on residential and commercial property and selling it off. So it’s a different niche. It’s a smaller niche than your fix-and-flippers and wholesalers and stuff like that, and it’s a little different mindset, approaching it to become the bank versus buying the asset to operate it or rent it yourself.
Yeah. And so from an involvement standpoint, right, versus active versus passive, right, is this something that you can kind of get into and manage somewhat passively, or how much time is it really going to take?
That’s a great question. I’m so glad you asked that. Now, if you’re wanting to be much more passive, you can actually go out and buy performing debt or re-performing notes right now. I mean, there’s a variety of different asset classes you could buy. You could buy a portfolio of short-term hard money loans from lenders out there. You could buy re-performing notes from investors like me who have bought something non-performing and got them back on track. It all depends on how active you want to be. Now, if you’re looking for performing paper that’s going to be boarded with a servicing company who’s doing the collections and the borrower outreach, a few hours a week, a few hours a month, depending on what you’re buying and how active you want to be with that portfolio.
Now, if you want to buy non-performing stuff, it’s going to be a little bit more work on the front end to evaluate that asset. Look at the risk of the borrower, look at the condition of the property, the collateral files—so a few more hours a week for that. But we always tell folks, listen, if you’re doing this on a part-time basis and it’s not your full-time thing, five to ten hours a week, depending on what your goals are, is very, very feasible for folks out there.
Education matters, but ACTION changes your life.
So I know, Scott, you run a mastermind community for folks as well. So assuming we’ve got a lot of education involved and things like that, how are you recommending this in terms of an overall strategy, right, for investors to really grow their wealth? Is it as a side hustle, is it increasing passive income, or trying to grow from a growth perspective, or how do you actually align that strategy?
All of the above, you know what I mean? So like I said, some folks are just looking for passive returns in the double digits, and they’ve got money sitting in an IRA or a certificate of disappointment that they want to roll over into something. Notes can be a great thing. I’m a big believer that you never invest in something that you don’t understand. So you’ve got to get educated. We get a lot of fix-and-flippers coming to us saying, oh, I can’t find REO deals or properties, I want to buy the note. And I’m like, okay, do you understand that by buying the note, you’re the lender, you’re not actually going to own the property?
And people coming in from the fix-and-flip side will say, I want to own the property. Well, no—sometimes it pays better to be the bank. If you’re going to take that property back, you’re going to go through the foreclosure process, and you’ve got to do all that work with legal fees and depending on the foreclosure time frame, then fixing the property up. Whereas if you’re buying the note and you’re working with that borrower to get back on track and keep the property, the cash flow is often going to be greater and far more immediate in a lot of cases than it would be to go through the foreclosure process and then trying to sell that asset in a market like right now, which is a little chaotic. Things are a little slower across the world.
We also see the same thing with folks coming from the multifamily space. They’re like, you know, we invested in a syndication, it didn’t go so well, and we’d rather buy a few doors that we can be very passive in, either performing or doing the workout ourselves. You don’t need to have millions of dollars to invest in notes. We get a lot of folks coming in and buying their first note at 50 to 100 grand or 200 grand, depending on where it’s at, and knocking it out of the park with great yields. That’s what I’ve always liked about it. Being a real estate investor for 25 years, I hated rentals. I’ll do a few rehabs here and there, but I hated the property management side of the ball game. It always made more sense to systematize it and put a dream team in place to help handle it.
And that’s what our servicing companies are. They’re the ones reaching out and talking to people. And we worry about getting paid on a wire on the 15th or the 5th of the month when the borrower pays on time. And the beautiful thing is, especially with us buying non-performing notes, a lot of times it takes some work—about 90 days on the front end—to know which way the borrower is going to go. But once they do, we usually see about a 90% success rate of them staying on point and staying on track. Bad things happen to good people all the time. So it’s always a pleasure to help a borrower get out of a bad situation and help them refine that dream of home ownership, or help a commercial property owner who’s gone through a bit of a hiccup, like a lot of folks out there, to stay in the ball game, if that makes sense.
Do you need to be an accredited investor?
No, you don’t need to be an accredited investor to buy notes. Like I said, we have plenty of folks using their IRA to buy their first note, whether it’s performing or non-performing, and work it out. There are some licenses you need to have if you’re going to buy in specific states. Like if you’re in Georgia, they want you to be a mortgage broker or a licensed loan officer if you’re going to buy in Georgia. Maryland just passed a similar law if you’re going to buy notes in Maryland. But if you live in those states and you don’t want to buy in those states, that’s great. You just need to have a licensed servicer who’s a licensed debt collector in those states.
I avoid states like Oregon and Washington State, which also require the same thing. They’re a pain in the ass to foreclose in. So I really try to avoid long foreclosure states beyond 12 months for the most part. But roughly about 75% of the states out there—if you’ve got a licensed servicing company—that takes care of any licensing needs for you.
Got it. And what would you say are some of the biggest risks?
Biggest risk always comes down to due diligence. You know what I mean? Just because a property looks good, we’re a big proponent of not even looking at the property until the numbers make sense. All right, so when we get a list of like 4,000 non-performing notes, which we did this last week from a major firm, it’s all about running numbers. What’s the pricing? How far in default is this borrower? I mean, how far behind are they? What’s the foreclosure time frame in this state? And then what’s really going on with that borrower? So we’re making bids on probably about 250 off that list later today. Out of that 250, if we get half of those accepted by the lender—
Great. We’ll dive into those and then order BPOs, realtor CMAs to get a better idea of where they’re at value-wise. The lender is going to send us over a collateral file, which is all the loan documents, to take a look at. We’re going to look at the servicing notes, see if they’ve started the foreclosure process. We’ll look at the attorney notes, talk with the attorney, see what’s going on with it. And depending on what we’re going to pay for it, that kind of dictates, okay, what do they say about the borrower? Where is it in the foreclosure process? That’s going to maybe dictate our exit strategy—either working with a homeowner or working with a commercial borrower, or hey, the borrower has already tried to modify this five times or they’ve tried to drag this out.
We know we’re going to go straight to foreclosure on this. So it all comes down to what we’re buying in. Once one or two or three different exit strategies that we’re going to look at, and then going from there. Now, if the value comes back less than we expected or it comes back in worse condition, we can cancel or reduce our bid, or just kill the deal and walk away from it and focus on the ones that we get accepted that we like better. So that’s the big thing—always making sure to go through the due diligence of the property values, the borrower, and the paper, and make sure that the profit margin you’re looking for is going to make sense.
Yeah.
And of course, the four pieces of paper. My apology.
Okay. Yeah. And of course it’s collateralized as well, right? Because you have the asset. So walk us through an example step by step, end to end, so we can see exactly how this works.
And let’s take a distressed note as part of the example on the residential side.
Yeah. So we bought this note in Georgetown, Texas. I’m in Austin. It’s a non-performing note. The property is worth about 350 as it sits. The borrower owes just under 200,000 on it. We were able to buy that note at 170,000. Now, that’s only a $30,000 difference between the payoff and what we paid for it.
That’s not a very big margin. But since it’s Texas, it’s a fast foreclosure state where we can foreclose in 30 days. That’s a pretty good yield. If we foreclose, make 30 grand at the foreclosure auction in 60 days, that’s a great ROI on our investment of 170. If the borrower wants to modify, we’re willing to work with them on that. They haven’t paid in about three and a half years.
The borrower—the main borrower’s husband is in it. The wife passed away. We’re willing to work with him on that as well to stay in the house at a payment. Because if he just starts paying on time and brings some skin in the game, it’s going to be about a 12% cash-on-cash return to us based on the line right now. If he doesn’t play ball with us and we foreclose and it doesn’t sell at auction, well, guess what? We now hold an asset that’s worth over $300,000 that we’re into for about 170,000. And days on market in Georgetown, even with it slowing down, is under 90 days.
And the property’s in good enough condition, we could probably turn around and list it almost immediately. And the nice thing is we don’t have to evict the borrower because they’re no longer living in the property. They’re living with other family.
So we looked at this deal. This is one of 112 notes. We originally made offers on about 15. We got eight accepted, and then we ended up settling on two after due diligence—double-checking values, double-checking conditions, and looking at collateral files and that stuff there. So we settled on these two. We closed on this at the end of January. The foreclosure will take place probably in the next 30 days. And then if it sells at the auction, great—quick profit.
If it doesn’t sell at the auction, we take it back. We’ll turn around and list it and probably sell it in 90 to 120 days on the open MLS and make a nice big chunk. So it’s always kind of evaluating—what’s it going to be like if the borrower wants to start paying? Does that make sense to us? Sometimes it doesn’t make sense. Like, oh, I can’t pay anything or I’m behind. Well, then let’s work to do a deed in lieu or cash for keys in that case.
And we’ve actually reached out to the borrower like, listen, if you can’t pay anything, there’s some equity here. We’re even willing to give you some cash to walk off the equity on that property if you’re willing to work with us. Because if it does go to foreclosure, there’s no guarantee that it’s going to sell above what they owe and they make any money at the foreclosure auction. So we try to work with the borrower as best we can, but there’s usually multiple strategies along the way.
Not really truly a choose-your-own-adventure aspect of things, but if you know the market and what’s going on, you can definitely kind of play it and get a higher return in some cases.
And where are you actually finding and sourcing these types of opportunities?
Great question. I’m glad you asked that too because one of the, you know, people are like, well, you know, are you going to walk into your local Chase or Wells Fargo and say, “I want to buy notes?” No, they’re not going to know what you’re talking about. They say, no, we don’t sell their notes. Every bank will tell you that. But every bank has non-performing notes. And so we leverage LinkedIn in a lot of cases. We also leverage mortgage banking associations and different servicing conventions to find the right people on there. You’re not going to go and talk to the local bank or the VP of the bank to find this.
What you are going to target, especially on LinkedIn, is you can go and look for people who have specific job titles at these lenders and institutions. So, like a regional-sized bank is going to have somebody that goes by the job title of secondary marketing manager. All right, so you can search for secondary marketing managers there on LinkedIn and reach out to people. “Hey, I think you’re the right person. This bank who handles your note sales, we’d love to talk, see what you have in your books that you’re looking to get rid of.” Secondary marketing manager, whole loan traders. If you go search on LinkedIn for whole loan traders, those are people at big REITs that sell portfolios off. Secondary marketing manager. You’d also look at chief credit risk officer. You will often see that at different banks on the residential or the commercial side of the banking. Maybe you’ll see commercial special assets manager, commercial secondary marketing manager.
Those are job titles to search for. And it’s just a matter of reaching out. “Hey, what do you have on your books you’re looking to get rid of?” The great thing, Dave, that banks have to do once a quarter is they have to file their quarterly filings with the FDIC and share how good their portfolio looks or how bad their portfolio looks. So literally, it is literally the banks opening the kimono to see exactly where they are in distress, how much distress they have on the residential and the commercial side, how does that match up with their portfolio. And if you see these reports, then it’s all about going out and finding that right person, the right bank with the job title, and just rinse and repeat following up with them. “You know, what do you have in your books this quarter? What do you have in your books that you’re looking to get rid of this month?” And it’s just a rinse-and-repeat aspect of things. I mean, that’s why we’ve been doing this for 15-plus years is we started doing an email drip campaign. We send it out once a month, and I’ve got people on that list who have gotten my email once a month for 15 years that send me stuff on a regular basis.
I mean, there’s also different platforms. If you don’t want to do the whole drip marketing campaign, you can go like—we got a buddy, a couple buddies that run a commercial note exchange called Exchange Loans. That’s exchange with an X, so no E, Exchange Loans. They’re out of the Miami area. There’s workforauction.com, and they started this platform, I think it’s about five, six years ago, Mike and Andre over there, and they move notes. Auction.com used to have notes available for sale there, especially the commercial side, the Ten-X side of things.
Those are great resources to start looking at stuff. You know, on the residential side, there’s not an overwhelming MLS for notes. There are different, some smaller platforms out there, but we’ve always found it best to either reach out directly to the lenders that have stuff or reach out to different servicing companies who have a business development manager who’s actually helping their clients like you and me with their notes and aspects of things. It leads to a lot of opportunity out there that we can cherry-pick from.
So it sounds like there’s plenty of opportunities, but how competitive is it, right? Because I would imagine there’s got to be a ton of people doing what you’re doing, not to mention you’re competing with some institutions on the secondary markets as well.
You would think that, but it’s not that. I mean, the note buyers are a much smaller niche out there because it’s not taught. It’s not, you know, you don’t have HGTV running around with the flip-this-house aspect of things, or wholesalers. There’s not as many people doing this aspect of things. I would say there’s maybe 40,000 to 50,000 people doing it across the country. And yes, there are larger institutions doing this stuff, but they’re usually buying in bulk portfolios. There’s a lot of stuff, as I like to say, that falls through the cracks or the crumbs of the industry that make for great opportunities for smaller mom-and-pop investors or small investors or small groups to come in and buy those chunks. You know, I’m just an Ingleside kid from Ingleside, Texas, where I grew up in South Texas.
And if this guy can go buy over $1 billion in debt over the last 15, 16 years, everybody’s able to go buy 1, 2, 3, or 20 or 100 to do it. Like most, and I’m sure you understand it, a lot of people like to get educated and talk about doing things, but really less than 5% of people take action on any given day. You know what I mean? Maybe 1%. And that’s the thing. You have people that take classes and workshops or listen to podcasts and YouTube, and that’s all great. But when it comes down to taking action, it’s really 1%. And so people have always asked why I started training or teaching this aspect of things. Weren’t we creating my own competition? In some cases, yes.
But I’m a big believer that if you look at that, we got 80 million mortgages, and if we’re at a 3% default rate or 4% default rate, that’s 2.4 to 3.2 million mortgages in default as of this point. That’s not counting other stuff that’s out there, other debt that we can cherry-pick from. So it’s just all a matter of fact, tweaking a little bit different and buying the debt versus buying the property. But it leads to a huge amount of opportunity. And banks have the opportunity there that, hey, they’re looking to sell stuff. It doesn’t have to be millions of dollars. “Hey, if we got something we’re looking to sell, get it off our books.” It’s a good, good time to be a note investor right now.
Let’s just say that.
What would you recommend as a first step for investors who want to get involved?
Well, the first thing is knowing what you want to accomplish. You know, like you talk about in your book, you got to have a strategy. You got to understand what you want to go and outline your goals. If you want to be passive, great. Let’s focus on performing notes to start off with. If you want to be more aggressive and like the workout aspect of things, then non-performing notes can be a great way for you. You know, we’ve got a ton of information on our YouTube channel, a ton of stuff in our podcast with over a thousand-plus episodes, The Note Closers Show. We have a free three-hour class that you can take to kind of get the basics, how to find, fund, and flip notes. If you go to noteweekend.com, it’s a free three-hour class.
Don’t even need a credit card. Go watch that three-hour video and you’ll see if you like that. And if you want to keep your toe in the water, great. If not, hey, you’re more educated when it comes to the debt side of real estate investing.
And how about from the passive side, Scott, right? Is there a way to participate? Like, are there funds set up?
Yeah.
These kind of structures?
Yeah, there’s all sorts of different funds set up. You know, you can do passive. We work with a lot of investors as well to take down different deals that can pay them an 8% to 10% on a passive side of things, on the performing paper. If they’re looking for something a little bit more aggressive, higher return, then we’ve had different funds that’ll buy the distressed stuff. But yeah, I mean, there’s ways to get involved, like with anything else out there.
The most important thing is understand what you’re doing, what goes into it. It’s not going to be as fast as a fix and flip. You know, most of our deals, when we’re buying, you have to expect to be in the deal 12 to 24 months, depending on what state it’s in and where it’s at in the foreclosure process or how distressed the borrower is. It doesn’t mean you’re not making money along the way, but that’s just the way that we get the bigger bang for our buck by buying a note, rehabbing the borrower, keeping them for cash flow for a period of time, and then either keeping it because the yield’s good or looking to sell it off to Wall Street or other investors and stuff like that. So we’re just here to help educate people on it because it’s a great niche out there that most people don’t know about, but it’s always been around.
For sure. And so if you were to describe your own wealth strategy, including how notes kind of really fit into that, what does that look like?
Man, I love the debt game because I like being in control of stuff. You know, we love the aspect of this business. I would say, you know, when I got started, like many folks years ago, I wanted nothing. But I was coming from the fix-and-flip game. So I like big checks, and if you like big lump checks, I was buying stuff and foreclosing on stuff almost 100% of the time when I first started up. That would be the biggest mistake I made my first two years as a note investor, was trying to foreclose when I could have modified a lot of the stuff. I should have kept a lot more of that stuff early on because when I look back and evaluate it, when I could have modified it, it would have been a lot greater cash flow and greater profit margins, greater ROI holding onto the paper than looking into fix-and-flipping stuff.
So when we look at stuff, we’re basically 100% into the note side of things. Buying the debt, getting the cash flow, buying some of this distressed stuff that turns into that we foreclose for bigger checks. But that’s the whole biggest goal, is let’s create cash flow. Let’s get paid on a regular basis. It’s not going to go up or down depending on what somebody says online or a stock going down. There’s nothing wrong with that. It all depends on your risk factors and stuff like that. And I would say I’m a little bit more of a riverboat gambler than most folks.
But I like the debt side of the game. I stopped doing rentals, I stopped doing fix-and-flips for the most part, and just focus on being the note king. I guess you are a lien lord versus the landlord in most cases. Does that make sense?
For sure. If you could give just one piece of advice to the audience about how they could accelerate their wealth trajectory, what would it be?
Oh, that’s easy. Take action. You know what I mean? There’s so many people out there, and look, it’s great to be educated, it’s great to be knowledgeable. Books are great, podcasts, YouTube videos, classes are great. But ultimately, if you want your year 2026 to be different than 2025, you have to take action. And I don’t care if it’s in notes or multifamily or oil and gas or self-storage. Whatever your niche is, it could be trading tiddlywinks or sports cards. Whatever it is, you gotta take action at some point because sitting on the sidelines isn’t gonna get you any better off. You have to do things and, most importantly, get outside your comfort level.
The beautiful thing that I love that you’re doing with your podcast here, Dave, is that you’re providing true knowledge. You’ve got great guests on, you yourself with your book, everything like that, giving people a path to where they need to be. All you got to do is start listening and following what people have done before and follow their same footpath, their same directions, and things they’ve done. The most successful people will help you avoid the potholes along the way. So don’t be a know-it-all. Reach out, ask questions, and you’ll find success if you just follow the path of others out there that are where you want to be. And Dave is one of those guys, for sure.
Sage advice for sure, Scott. And so just with that, right, you pointed out a statistic of only 5% of people actually take action, right? And that’s in that asset class of notes, and it’s probably maybe similar across other asset classes. So what would be your advice then for people who are reluctant because of either fear of losing money, fear of maybe not understanding the asset class? And so talk to us a little bit about failure, mistakes, or losing money.
And if you’ve had any of those experiences and how you’ve been able to learn and grow from that.
Yeah. I think, you know, when I would tell you this, that the most important thing is understand that perfection doesn’t exist out there. You know, no matter. I’ve been a real estate investor 20, 25 years really now. I’ve learned so much. I’ve learned more from my mistakes along the way than the successes and stuff like that. And the thing that you got to realize is what I like about the note aspect of things is if I’m buying a note at 50% of the value of the property and it’s 60% of the debt side of things, I’m in a great position that if something happens and before they file foreclosure or bankruptcy, I’m still sitting in a pretty secure position. My investment is secure, aspect of it.
You know, COVID kicked in, and overnight we had foreclosures stopped all across the country. You know, we didn’t expect that to happen, but that happened. That put a little bit of a humdinger in our collections and payment streams and foreclosure gate, stuff like that. That’ll drag some things out. The most important thing that I can tell you about that is don’t be sitting on the sidelines. If you’ve run into an issue, talk to somebody. Get you a coach, get you a mentor, and ask them, “Hey, what’s going on? What’s the worst thing that can happen with this?” Okay, well, you buy in Sarasota, a hurricane can come through and wipe you out. Okay. But if you have insurance on the property, that secures your investment.
Same thing. Make sure your taxes are paid. Make sure you’re buying at the right percentage. You know, never buy a note you don’t want to end up taking the property back on. You know, talk to experts out there. Don’t try to be a lone wolf. I think more people make mistakes by not being coachable and not reaching out to people to talk through it.
And that would be the biggest mistake I’ve made. When I’ve had bad deals, it’s usually because I didn’t reach up and make a phone call or I thought I knew it all. And well, I’ve closed on a lot of deals. I’m always making certain to track things and see what’s going on in that market. And when you’re starting off, start small. I mean, there’s a lot of folks out there that have bought their first note that was under 10, 15, 20 grand to get the ball rolling. They got the feel for it. They understood the due diligence side of things or the workout side of the ball game.
And that’s the most important thing. You start small, get rocking and rolling, and go from there.
Really great insights, Scott. Really appreciate your time today and wisdom for the audience. If people want to reach out to you and learn more, where can they find you?
Yeah, easiest way is just our website, weclosenotes.com. We close notes, not we talk notes. We actually close notes, where we’re buying them and bought over a billion dollars over the last 20 years. But yeah, weclosenotes.com, where you can also check out our podcast, The Note Closers Show, anywhere that you listen to podcasts.
Awesome. Thanks so much, Scott.
Thank you, Dave. And everybody out there listening, do Dave a favor. We as podcasters love to hear from audience members. So go out there, hit the subscribe button, and go leave him a five-star review. He’s doing a great job. Love his show. If you love it, show Dave a little love today.
Appreciate it. All right.
Thanks again, Scott.
Thank you, Dave.
Thanks for listening to this episode of Wealth Strategy Secrets. If you’d like to get a free copy of the book, go to holisticwealthstrategy.com. That’s holisticwealthstrategy.com. If you’d like to learn more about upcoming opportunities at Pantheon, please visit pantheoninvest.com. That’s pantheoninvest.com.