Agents Building Cashflow

EP 177: Secrets to Wealth Through Note Investing with Nathan Turner

• Nathan Turner

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In this episode of Agents Building Cashflow, Randal has a chat with Nathan Turner, widely recognized as "The Canadian Note Guy," to explore the lucrative world of real estate investing through mortgage notes. Nathan delves into his journey from managing distressed properties to mastering the art of buying and selling performing and non-performing notes. He shares his expertise on structuring funds, building relationships in the note industry, and the practicalities of managing a portfolio.

Packed with practical advice and personal anecdotes, this conversation unveils the potential of note investing as a passive income strategy for real estate professionals. Don’t miss this episode to discover how you can turn commissions into cash flow through notes!

Key takeaways to listen to:

  • How building relationships is crucial for success in the note investing industry.
  • Nathan’s transition from real estate to notes and why managing properties is less favorable than managing notes.
  • The importance of compliance with regulations like Dodd-Frank when structuring deals.
  • Benefits of investing in performing and non-performing notes as a pathway to passive income.
  • Valuable insights into structuring a fund and scaling note investing portfolios.

Resources Mentioned:

About Nathan Turner

Nathan Turner is known across the US as the “the Canadian Note Guy”. Having run several businesses, including fix and flip real estate, he discovered mortgage notes and the opportunity that they provide in the US in 2009 and has since become a leader in the industry in the private investment sector. 

He is the President of Earnest Inc, and manager of the US based Earnest Investing LP note fund where he actively manages assets for accredited passive investors with a focus on purchasing performing and non performing 1st lien mortgages in the US.

He is also the owner and host of the Diversified Mortgage Expo, a leading annual note conference. This conference has a history of being an educational, no “pitching” event where those who want to learn, network and grow come together.

Connect with Nathan Turner:

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To connect with Randal and learn more about passive investing, visit www.ridgelineig.com and follow our social media pages below!

[00:00:00] Nathan Turner: Notes more than anything else that I have done, it is very much just a relationship game. So I am still dealing with people that I met back in 2010. We're still doing deals together because now we know, and we like, and we trust each other, and so we're able to do deals and that can be a little bit daunting for somebody just getting started.

[00:00:18] Nathan Turner: And we're like, well, I don't know anybody. No, you don't. So there are a number of conferences. I took over a conference a couple of years ago. I highly recommend going to whatever note conference you can go to, just to start meeting people and chatting it up and networking. That's really the name of the game.

[00:00:36] Intro: If you're a real estate agent earning 200, 000 a year, and you want to grow your passive income, this show is for you learn secrets, other agents use, and hear from experts in our field who will guide you on your journey to investing in assets like apartment communities, so you can take your commissions and turn them into cashflow.

[00:00:56] Intro: Here's your host, Randall. Let's dive in. All 

[00:00:59] Randal McLeaird: right. All right. Welcome [00:01:00] back. This week's guest is Nathan Turner. He is the Canadian cowboy slinging paper. He is a note guy. So the Canadian note guy is what he goes by. I think we have a great conversation. We talk about notes, all things notes. So if you're interested in learning about investing in notes, buying notes or creating notes, and then being able to sell those notes to somebody like Nathan, this is a great show for you.

[00:01:22] Randal McLeaird: He goes through the process of how he started just by chance back in 2007, getting into the note game and the United States from Canada and how he has morphed over time to where now he has a fund. So we talk about the fund, how he structured his fund, what they're raising, what they're targeting for return profile for their investors.

[00:01:37] Randal McLeaird: All that is in this episode. So it's a fantastic conversation with him. You're going to get a lot out of it. Please go on rate and review and leave us a little bit of comments. You know, it helps us out a ton, bring on great guests, just like Nathan. If you are looking for notes, he has a fund and also we'll give our fund a plug.

[00:01:53] Randal McLeaird: It is the Ram Capital Fund. It's right here. You just go on there. You can invest direct and learn more about it. Please feel [00:02:00] free to reach out to me directly and I'm happy to chat with you about it. So let's jump into the show with Nathan. Here we go. Well, Hey, Nathan, welcome to the show. It's awesome to have you on.

[00:02:07] Randal McLeaird: I appreciate you spending some time with us today to share your knowledge about notes and investing. And I'm really looking forward to this conversation because we have something very similar going on. So I want to see how your operations are running and get some feedback and advice from you just in general.

[00:02:20] Randal McLeaird: So again, welcome to the show, the Canadian note guy right on. Yeah, no, 

[00:02:24] Nathan Turner: absolute pleasure to be here. This is good. 

[00:02:26] Randal McLeaird: Fantastic, so for those of us that don't know you, the listeners that don't know you, give us a quick rundown, you know, how you got into real estate and the notes space specifically and why it's been appealing to you.

[00:02:36] Nathan Turner: Yeah, sure. So Nathan Turner, the Canadian note guy, meaning I live in Canada. So everything I do is in the US, but I live in Canada. I like paying taxes. I don't know, but I'm, I'm here in Canada. I started doing real estate back in like 05, 06, back when everything was looking really rosy. I was doing fix and flip and I really enjoyed doing that up in Canada and I really enjoyed it.

[00:02:56] Nathan Turner: It was a lot of fun. Uh, made some good money doing that. I [00:03:00] got stuck with one property as the market started to change in 2007 and I just wasn't selling. So I did what you're supposed to do with real estate. Either you sell it or you rent it. So I rented it and it didn't take long. I was like, why do people do this?

[00:03:15] Nathan Turner: I don't get it. I liked the cashflow, but, uh, I didn't like anything else that went along with it. It was just, it was a headache. You know, cashflow is nice, but it wasn't a huge payment. It just seemed like more trouble than it was worth. So that was kind of my beginnings into real estate and I was, I was excited about it.

[00:03:33] Nathan Turner: I saw the opportunities, but I couldn't figure out that landlord thing. I just didn't make a lot of sense to me. 

[00:03:39] Randal McLeaird: Was that the only one that you bought as a rental or kept as a rental? Yeah. Yeah. One and done. One and done. 

[00:03:45] Nathan Turner: And then I was like, I don't know, not for me. I get it in principle, but in practice, oh man, no, it was not working for me.

[00:03:53] Nathan Turner: So fast forward a little bit. I got, um, contacted by a friend of mine late 2008, right when everything was going all [00:04:00] kinds of crazy. And, uh, he had run into these group of investors who had bought a portfolio of properties in like April, 2007, right when the market was like at its peak deal was supposed to go.

[00:04:11] Nathan Turner: They were supposed to buy this portfolio, sell it out to another investor. Another outfit and that deal fell through. So fall of 2008, there's a bunch of guys in California. They had no real estate experience. Didn't know what they were doing. They were just, it was supposed to be a quick deal. And then they got stuck with all these properties in the Midwest that they hadn't nothing like no information.

[00:04:30] Nathan Turner: They didn't know anything about it. So they brought me and my friend on board, like a POA power of attorney. And no operating budget and do what you can. Yeah. Kind of what we had. So we came up with this genius idea of starting to sell houses on terms in Canada, that's very rare that it's almost unheard of.

[00:04:49] Nathan Turner: So we honestly thought we'd invented it. We thought we'd invented seller financing. And then of course we didn't. As we went along and we, we started talking to other people, found out it's [00:05:00] actually fairly common. And, uh, that was kind of my introduction into that. So we had been creating these notes, not knowing that's what they were called, not knowing what we're doing, but again, just as an opportunity, that's the way that we saw a way out of all these distressed properties that we now had charge over.

[00:05:17] Nathan Turner: So that was the beginnings of that. So it kind of organic just kind of sort of fell into it, you know, really the opportunity was right. 

[00:05:24] Randal McLeaird: Yeah. That's fantastic. So did the guys buy a package of notes or did they, Oh no, they bought the houses and you guys created the notes. Okay. Yeah. So how did you guys meet these people?

[00:05:33] Randal McLeaird: Just real fast. We don't have to dwell on the 2008, but. How did you guys even know them? How did they even find you? 

[00:05:40] Nathan Turner: Honestly, it was, it was not even me. It was my friend. He was from Canada. He had moved down to California. Okay. I don't know, you know, just networking and Got it. Okay. 

[00:05:49] Randal McLeaird: No, I mean, I was like, that's early days social media.

[00:05:51] Randal McLeaird: That's early day, like podcasting is not, you know, so it's just interesting how you guys, you know, met up in that timeframe. Yeah. So do you still have any of those notes or [00:06:00] did you guys exit that entire portfolio? What happened there? Yeah. Yeah. Finish that off. 

[00:06:03] Nathan Turner: So we were able to sell a couple of them just like wholesale just to get a little bit of operating capital.

[00:06:08] Nathan Turner: But mostly we were just selling them like as is, and these were already distressed properties. So the idea was own this home for less than rent. That was kind of our tagline. So if you could pay rent for 500 in the neighborhood, we'll sell you this house for 400 bucks a month. All of the upkeep, all of the repairs that are needed, that that's up to you.

[00:06:29] Nathan Turner: That's why we're giving you a discount so that you can. Afford to do these repairs. 

[00:06:33] Randal McLeaird: Were you taking down payments at the time? 

[00:06:36] Nathan Turner: I think we took like two months worth of regular down 500 a month. Seriously. Like it was weird and all wrong. As you know, I'm the first 

[00:06:45] Randal McLeaird: at the time. I don't know. That was what the going rate, because I started buying around that time in 2009 and I was picking up houses for 20, 000 bucks, you know, selling those things on terms at 60.

[00:06:56] Randal McLeaird: You know, but I'd have a crew go in and just paint everything, you know, it's like, yeah, [00:07:00] I have this story, it's just comical at the time. I picked some guys up from Home Depot, went over there, gave them a five gallon bucket of paint and said, paint this house, ran down the street to the next house, had another group of guys, go paint this house, go back to the first house.

[00:07:11] Randal McLeaird: The first house, they had painted like everything, the outlets, the windows, like everything, just painted everything. But yeah, that was the type of property at that time, so I get it. Yeah. Well, that's interesting. So you have morphed. I mean, there's, that's a ton of backstory on going from that to what you are doing now.

[00:07:29] Randal McLeaird: So I have, you know, I could ask you like, well, how has the market changed? What have you seen? Like, are you dealing with Dodd Frank? Like all the, not Dodd, is Dodd Frank still going? Is that still the It is. Yeah. Yeah. 

[00:07:39] Nathan Turner: Definitely still alive and kicking. Okay. 

[00:07:41] Randal McLeaird: I didn't know if they had changed the terminology.

[00:07:43] Randal McLeaird: But if you're dealing with consumer, yeah, consumer laws compared to at the time, if you were selling those houses, you may have been selling them to investors who were looking to fix them up and you were basically doing hard money, but you know, at very, very favorable terms. If that was the type of people or clientele you were selling to, I just didn't know [00:08:00] how you guys had structured that.

[00:08:01] Randal McLeaird: So tell me, I guess now, what does your operation look like now? And then we can kind of fill in the gaps and see how you got to where you are now. 

[00:08:10] Nathan Turner: Yeah. So the progression to now we skip over. Last 15 years or so now it's, I have a fund like a five or 60 fund. Investors go into that. And then I go out and I buy a performing notes.

[00:08:23] Nathan Turner: So typically these performing notes are seller finance. So it's, it's kind of come full circle. Well, now I'm going back to the seller finance, the same thing that I was doing back when I first started. So now I'm buying those and just holding on to those performing notes. Yeah. Pay investors their return and then I get to keep whatever's left over on top of that.

[00:08:39] Randal McLeaird: Yeah. All right. Good change. Yeah, for sure. So we'll dig into that. All right. So you progressed then into you, you have your fund. I really want to talk about the return profile that you offer investors on the fund because part of the show I'm talking to. A bunch of agents who are making commissions and they need to invest the commissions to turn it into cashflow.

[00:08:58] Randal McLeaird: This is a very passive type of investment [00:09:00] in the sense that, you know, you're not going out fixing toilets and that sort of thing. You are, if you have to foreclose, that's where your active comes in, right? But for the investor side, the limited partners in your deal, I'm curious on the, again, the return profile, how you guys have structured that thing.

[00:09:13] Randal McLeaird: So why don't we chunk it up? We'll talk about how you developed this note buying process and why you started buying notes rather than creating notes. So what was the progression there and what clued you into just buying the notes rather than creating them? 

[00:09:27] Nathan Turner: Alright, so we were selling these properties on terms and we had this, this system of, you know, getting the property and then selling that on term.

[00:09:34] Nathan Turner: Well, we already had the properties. Went from that, we started buying non performing. There were a ton of non performing notes back in the day. And the pricing was ridiculous. Like we were getting 30 cents on the dollar easy. So again, coming from the real estate background in my head, it was like, Oh, that's an easy, fast way to get property.

[00:09:53] Nathan Turner: And what we would do kind of the best case, easiest way that we would do that is we would target non performing [00:10:00] notes in Columbus, Ohio on vacant properties. But that was the kind of the ideal thing that we were looking for. Reason being is if it was vacant, then we didn't have to go through a foreclosure typically, and we would just have to find the owner and I would offer them cash for keys.

[00:10:16] Nathan Turner: So a deed in lieu of foreclosure, you give me the deed, we'll wipe out the loan and everybody's happy. Now I've got this property. Then I would go back to that original idea of selling them on terms. That's kind of how we started going. And we had a project going in Columbus for a few years and it was actually, I think it was about 2013.

[00:10:37] Nathan Turner: And I had learned about Dodd Frank. And about these new laws that were coming in, that was going to make it more challenging. And at the very least there were regulations around what we were doing. So we're like, okay, that's fine. So we knew what we needed was a mortgage loan originator and try as we could, could not find somebody we'd go and talk to like mortgage brokers.

[00:10:57] Nathan Turner: We'd talk to banks and be, so we [00:11:00] need this mortgage loan origination. Can you do that for us? You know, can we send you our files and you guys can review them and make sure they're compliant, blah, blah, blah. Okay. They're like, Dodd who? I don't want to know 

[00:11:10] Randal McLeaird: early days. 

[00:11:11] Nathan Turner: With what we had going on, it was good, but it wasn't great, and it was working, but it wasn't fantastic.

[00:11:19] Nathan Turner: So, that combined with these new laws with Dodd Frank that were coming in, and knowing that there was a compliance that we just couldn't do, a compliance that we couldn't meet, we decided to shut that down. That part of it in, in the origination, and I went from that and just transitioned into buying these non performers.

[00:11:36] Nathan Turner: Ideally with the idea of getting occupied properties and then rehabbing the loan and just getting these notes performing again. Part of it was that the realization that working with properties is much more difficult than just working with notes. I, as much as I can handle it these days, as much as we can ever kind of formulate it to work out the way we want it to, I would way [00:12:00] rather own a note than a property.

[00:12:01] Nathan Turner: Just because it's far less work and that there's the whole question about appreciation versus depreciation on and on and on and I have gone around that around in my head so many times and ultimately, I would rather not have the headaches. I would much rather just have a performing note that's paying me every month that I don't really have to do very much with.

[00:12:22] Nathan Turner: Versus a rental that, you know, they call up and, Oh, this needs to get fixed. That needs to get fixed. I have to set aside part of my monthly income to go towards those eventual repairs, then I have to actually do them. And then I got just problems, problems, problems. So for me, nah, I'm 

[00:12:40] Randal McLeaird: just. So you're straight in the money allocation business now where you are managing the money.

[00:12:45] Randal McLeaird: All right. So then, then let's talk a little bit about one thing you mentioned, Deed and Lou. You were getting Deed and Lou's back in the day and just out of curiosity, were you having issues with title when you're doing Deed and Lou and you went to resell those properties because that's become a thing or [00:13:00] it was a thing, you know, but I didn't know if you were having issues at the time.

[00:13:03] Nathan Turner: At the time, no, but one of the things that we figured out pretty quick was do a title search before you offer the Deed and Lou. Yeah. Cause then you find out if there is anything outstanding. You know, it took once. Yeah. Oh, shoot. Yeah. 

[00:13:16] Randal McLeaird: There's still this thing. Like, oh, there's still that 

[00:13:19] Nathan Turner: thing that's out there.

[00:13:19] Nathan Turner: Yeah. Yeah. 

[00:13:20] Randal McLeaird: Does not wipe it out. Okay. Just wanted to highlight that. Anybody going, if you've created a note yourself and you just offer a deed in lieu, make sure you clear that. Yeah. I mean, look at the taxes. Have they paid the taxes? All those things. The taxes aren't going to get wiped out regardless. If you take it back, you're going to have to pay those things.

[00:13:35] Randal McLeaird: So there are other things that can stick to the property as well, unless you do an actual foreclosure. IRS 

[00:13:38] Nathan Turner: liens and we had one that was a Department of Justice lien, like weird stuff that I just don't want to get involved with. So do that search 

[00:13:47] Randal McLeaird: for sure. Kind of curious, uh, some of the war stories.

[00:13:50] Randal McLeaird: Maybe we'll get into that in a minute. It's one of those funniest and worst things. You also mentioned rehab the loan. So walk through an example of that and what that looks like. So you, you [00:14:00] take a property, take it from buying the note to rehabbing it and then getting it to performing again. What does that process look like?

[00:14:06] Nathan Turner: Yeah, to me, that's one of the most fun things about a non performer is when we can go and approach the homeowner and say, okay, look, you're not making payments. You haven't made payments for the last whatever, 6, 9, 12 months, 18 months, whatever it's been and say, okay, so I refer back to, did you ever hear of Bill Bartman?

[00:14:24] Nathan Turner: No, he's passed away now, but he was a guy who had bought credit card debt back in the day. 

[00:14:32] Randal McLeaird: Oh, maybe. Yeah. Yeah. Yeah. Okay. 

[00:14:34] Nathan Turner: Early 2000, something like that. Anyway, I read his book. Cause I was like, if he's collecting on unsecured debt and I'm collecting unsecured, I got stuff to learn from him. So. Yeah. My favorite line in his book is he says he'll approach borrowers and say, the only thing we can't do is nothing.

[00:14:49] Nathan Turner: And I'm like, Oh, I love that. That is perfect. So there's all kinds of things that we could do. The only thing that's not going to happen is nothing at all. So with that in mind, what can we do? [00:15:00] So you've got this, whatever, 2000, 5, 000 of arrears. How do we want to treat that first of all? Well, first of all, Where are you at today?

[00:15:09] Nathan Turner: Is this something that you can afford now? Are you back working again? Whatever it was that took you away from making payments in the first place. Has that been resolved? If so, what's the new affordable payment for you? And very often we're working off of what can you afford to pay in a month? So rather than getting into a conversation about interest rates that they often don't understand in the first place, it's about what can you afford in a month?

[00:15:34] Nathan Turner: So if your old payment was 800 a month. Is that something that you can come back and do again, or is it 600 a month? If it's 600 a month, here's what that means. We're going to stretch out your amortization period. You had 20 years. Now we're going to stretch that back out to 30 years again, that interest rate.

[00:15:52] Nathan Turner: We can adjust it one way or another, and that affects the payment and we back into it that way. Yeah. So it's [00:16:00] really, and then that arrears, we can go back to that and say, okay, you owe 5, 000. You can pay 2, 000 today. Fantastic. Let's do that. We'll add the other 3, 000 back onto the loan. You can forgive part of it if you want to, I mean, tons and tons of flexibility and whatever you and the borrower can agree on.

[00:16:17] Randal McLeaird: Okay. So I'm listening and I am hearing you say you're buying these notes. It's non performing or performing. And how are you able to just forgive money, Nathan? Like, how does that happen? If the note face value is 80, 000 and you're just going to forgive some money. How is that possible? 

[00:16:35] Nathan Turner: I'm the bank. I can do whatever I want.

[00:16:39] Nathan Turner: But I also 

[00:16:39] Randal McLeaird: imagine there's a discount component to it that I'm driving out here. Yeah. Yeah. I'm 

[00:16:45] Nathan Turner: buying at a discount. So one of the cool things about that is my purchase price of the note is not public record. Yeah. You know, you, you buy a property and whatever you buy that house for, that becomes public information.

[00:16:59] Nathan Turner: The note [00:17:00] is not pricing on it is not recorded anywhere. So I can buy it for whatever it is. Discount I can get it for. Nobody knows what my discount is. So if the face value is 80, 000, maybe I bought it for 40. Yeah. So I've got tons of room in there to do all kinds of whatever I want. So if I want to forgive some, that's up to me.

[00:17:18] Nathan Turner: If I want to tack it back on the loan, that's fine too. And just lots and lots of flexibility. 

[00:17:23] Randal McLeaird: Yeah. All right. So let's walk through an example of buying a note, kind of the process, what it looks like. And even start with like, where are you finding these notes, you know, how do you find notes to buy? And then how do you evaluate and then go through the process of actually closing it?

[00:17:37] Randal McLeaird: Where do you close? Like, let's walk through a process so that again, if no one's ever bought a note, they can get that in depth knowledge from you. 

[00:17:43] Nathan Turner: Sure. So if you've never bought a note, the first thing I would say is get some education and that's not even a pitch. I don't teach, but if you want to learn, I've got some colleagues that can certainly educate you on that.

[00:17:56] Nathan Turner: But the thing that I had to get my head around getting into the note [00:18:00] game is this is not real estate. This is real estate related. The real estate is the collateral, but this is a finance game. So understand how finance works. With the property just happens to be the collateral in this case. So that's the very, very first thing is make sure you understand the difference and some of the rules that go along with that.

[00:18:18] Nathan Turner: Like we mentioned, Dodd Frank understand what Dodd Frank is and how it works and what you need to comply with and how to do that. Like all those things are really, really important just to make sure that you understand that before you even get into it. That being said, once you've got some of that education.

[00:18:33] Nathan Turner: I would say no, it's more than anything else that I have done. It is very much just a relationship. So I am still dealing with people that I met. Back in 2010, we're still doing deals together because now we know, and we like, and we trust each other. And so we're, we're able to do deals. So it's, that can be a little bit daunting for somebody just getting started and we're like, well, I don't know anybody.

[00:18:55] Nathan Turner: No, you don't. So there are a number of conferences. [00:19:00] I took over a conference a couple of years ago. I highly recommend going to whatever note conference you can go to just to start meeting people and Yeah. Chatting it up and networking. That's really the name of the game. Okay. I'll give you one freebie, I guess a shout out good friends of mine.

[00:19:18] Nathan Turner: Yeah. Good friends of mine. They're, they've got an online note platform and it's called paper stack and that's paper stack with no K. So S T A C dot com. And they're great. They're out of Florida. Really good guys. I, I've actually helped them develop some of their systems as they were getting to like contracts for deed.

[00:19:40] Nathan Turner: At first they were just doing mortgages. And they're like, well, this contractor deep thing, that sounds cool. How do we do that? And so I was able to work with them and help get some processes done. Great, great guys. And they've got it really dialed in. So that's a lot of preamble that goes into that. Let's say now that you've identified a note for sale, [00:20:00] either that's from somebody you met at a conference that has a list or somebody in your local market.

[00:20:07] Nathan Turner: We call it like a mom and pop investor who had one extra property. They sold it on terms. Now they're looking to cash out of it for whatever reason. Oh man, there's a number of things. So the real estate is your backup plan. So yes, we are concerned with what that real estate is, where it is and how much it's worth other than that, I don't really care if it's got granite countertops or not, I don't care if it's got a new roof or not, that doesn't really make too much difference to me as long as the value is what the value is.

[00:20:38] Nathan Turner: As is. I typically am not looking at an after repair value with some exception, but generally we're looking at like today's value. What's it worth? If I had to, and the question is, if I had to foreclose and take this property back, what could I resell it for in current condition? So that's kind of your first thing where it is matters.

[00:20:57] Nathan Turner: More so in what state, so [00:21:00] for example, New York has a terribly long foreclosure process. And again, I'm always kind of planning on the worst case scenario, which to me is taking back the property. If I need to foreclose on a property in New York because the person stopped paying, that can take me more than two years.

[00:21:16] Nathan Turner: And that's just a really long time. On the opposite end of that spectrum, Texas is a very fast foreclosure state. If you hit all your dates exactly right, you can get a foreclosure done in two months. I've never been that fortunate. The fastest I've done a foreclosure in Texas is four, but it can be done and it's far faster than most other states.

[00:21:35] Nathan Turner: Let's see what else. I am looking at the note numbers. So what is the interest rate? What's the term, how long are they making payments for? What kind of down payment have they made? How much equity is, is there and what's their payment stream look like? How long have they been making payments? Are they always on time?

[00:21:53] Nathan Turner: Are they sometimes late and make it up or what does that look like? So it's really, again, going back to that finance [00:22:00] idea. And that's probably a whole class of how to kind of. Look at that and determine what's good. What's not good. Let's say that you've determined that it's good and you want to make an offer.

[00:22:13] Nathan Turner: Remember, we're not changing title in most cases, unless this is like a contract for deed. If this is just a regular mortgage or a deed of trust, there's no exchange of title when I buy a note because I'm not buying the property, I'm just buying the paper attached to the property. So that nothing changes for the borrower, except where they're making their payments.

[00:22:33] Nathan Turner: I am making an offer to the seller. We agree on a price. Typically, what happens is once that's all done, I will send them a wire for whatever the price is, and then they will send me the collateral file, which is that file folder full of copy of the, well, not a copy, but the original mortgage, any assignments that might be in there, anything and everything that has to do with the loan.

[00:22:56] Nathan Turner: That's what we're looking for in that file. 

[00:22:58] Randal McLeaird: So you're not closing at a title [00:23:00] company. Are you pulling title on these things? 

[00:23:02] Nathan Turner: I am pulling title as part of my research to make sure that there's nothing outstanding that may supersede my first lien. 

[00:23:10] Randal McLeaird: So you're out of state, out of country in Canada, right?

[00:23:13] Randal McLeaird: And you're buying a note in Texas. And Jim Bob is selling his note and he says, yeah, send me a hundred thousand dollars. You wire the money and then you wait to get a file back. 

[00:23:24] Nathan Turner: Right. Now, hopefully in this case, I have some kind of relationship with Jim Bob before I send him 100, 000. All right. If it's just somebody you met on Facebook, I would be very cautious.

[00:23:36] Randal McLeaird: I get that. It's a whole reason title company exists so that you have an exchange. At a third party. Okay. So that's interesting. And you can 

[00:23:43] Nathan Turner: go through title. 

[00:23:44] Randal McLeaird: Yeah. So you're typically just buying from vetted, you know, people who have either. They just created a note or they have a tranche of notes or they have something they're selling as a package that you then buy.

[00:23:57] Randal McLeaird: That's interesting. So you're in this process, you're going through, [00:24:00] and so you've done your research, you're looking at the note. How are you determining, and I know this is a whole finance class, I know, but how are you determining your discount rate on future cash flow? And what are you looking at typically for a return profile for yourself?

[00:24:15] Randal McLeaird: Thank you. Yeah. Not worrying about the fund or anything like that. Like, 

[00:24:18] Nathan Turner: right. 

[00:24:19] Randal McLeaird: What's a deal? No deal. Go. No go. Sort of thing for you. 

[00:24:23] Nathan Turner: Yeah. So one of the very first things I'll look at if somebody sends me a note is what's the current interest rate on the note. And if this was something that was originated in 2020 at 3%, I can pretty much tell you right off the bat, we're not going to get to a price that makes sense for, for the seller makes sense for me, but it won't make sense for the seller.

[00:24:41] Nathan Turner: So the reason being is I am looking for my target yield. So my target yield when I'm buying is at least 12%. So 12 or higher, and if it's written at a 3 percent interest rate, I'm going to have to discount my purchase price really low in order [00:25:00] for me to get that kind of return. If that note was written at a 10 percent or 11%, my discount is going to be much, much smaller.

[00:25:07] Nathan Turner: That's going to be much easier for us to get a deal. So that's like the very first thing I look at. What's the interest rate? So that would be like, yeah, my tip for anybody who's, who's creating these or, or agents that are helping people sell on terms. Don't try to compete with the bank. If the bank is offering seven, you're offering nine, like this is a specialty product and it demands a higher price.

[00:25:29] Randal McLeaird: Yeah. Okay. So I'm kind of curious on the seasoning. Like, what are you typically looking for? Are you buying newly minted loans? Are you waiting a year? You know, the sweet spot used to be 12 months from memory, but you know, what is it now? 

[00:25:42] Nathan Turner: Yeah. So seasoning is the number of payments that have been made on that note.

[00:25:45] Nathan Turner: And it's really a personal preference thing. A guy that I do a podcast with, he wants at least three months. For myself, if it has gone through qualifications with an RMLO, with a registered residential, whatever that [00:26:00] R1 is, the Mortgage Loan Originator, if it's gone through that whole process and it's been approved, I will buy that brand new.

[00:26:06] Randal McLeaird: Okay. At a higher discount or what is? 

[00:26:10] Nathan Turner: Maybe a slightly higher discount. 

[00:26:12] Randal McLeaird: There are some guys that I know in San Antonio that had been creating and packaging. I don't know if they were packaging, but they were getting maybe California investors who were just looking for a set return. And instead of them rehabbing the houses, they were going out, they'd buy these houses and they'd turn around, sell them on terms.

[00:26:28] Randal McLeaird: Put the investor in the position of ownership of that note from day one and they would simply cash out. So like, hey, the face value of the note is 150, 000. Um, you know, send that to me today and this note's yours, basically. So again, 100 percent day one origination. And so I'm kind of curious, again, what are you typically paying?

[00:26:47] Randal McLeaird: Is it just yield based? I originated a note yesterday. And I can get a 12 percent return on your money by offering a, I don't know, a 3 percent discount on the face value of my note. You're going to buy it? [00:27:00] 

[00:27:00] Nathan Turner: Yeah. Yeah. Essentially. If it's a brand new one, I might want like more like a 12 and a half or 13 yield just because there's slightly more risk there, 

[00:27:08] Randal McLeaird: but, uh, but yeah, it's still a yield based.

[00:27:11] Randal McLeaird: Not. Okay. All right. That's good to know. Okay. So you go through the process and then just the paperwork that we're talking about, does the deed of trust get updated? 

[00:27:19] Nathan Turner: The deed of trust does not. Anything that's being transferred is just with an assignment. So it's an assignment mortgage or assignment note or assignment of the deed of trust.

[00:27:28] Nathan Turner: In that case. 

[00:27:30] Randal McLeaird: So can you explain what is a launch to the note and is that so? Yeah. Yeah. 

[00:27:35] Nathan Turner: The launch, essentially it's like signing the back of a check. It's just, it's your endorsement. Yeah. Saying, yes, I agree that I'm selling this. So to me it's actually redundant, but Sure. You still get them. Yeah. 

[00:27:47] Randal McLeaird: Yeah. 

[00:27:48] Nathan Turner: And it's, I find it really interesting.

[00:27:49] Nathan Turner: The assignment tends to be a little bit of a longer document, typically one or two pages. And it's a notarized document and it gets recorded at the county. And a lunge is [00:28:00] like, can be one paragraph, no notary, and it's not recorded, but it needs to be part of the file. Yeah. And if you go and do a foreclosure.

[00:28:09] Nathan Turner: And depending on the judge and depending on the state that a launch is absolutely essential. So make sure it's in the file. 

[00:28:17] Randal McLeaird: Yeah. Yeah. Okay. So I just want to make sure, like the document package that you need to close one of these things out is, you know, a launch it's a, it's an assignment. And is there anything else that you have to have in there?

[00:28:27] Randal McLeaird: The original note you want. 

[00:28:29] Nathan Turner: Yeah. I need the original. 

[00:28:31] Randal McLeaird: Yeah. 

[00:28:31] Nathan Turner: What I like to have in there is, uh, if there's any application form from the borrower, I would love to have that just for the information that I can get off of that, including like where they work and things like that. Just, it just, it's nice information to have.

[00:28:46] Randal McLeaird: Yeah. Okay. All right. So that's how you buy a note folks. Just do that. 

[00:28:50] Nathan Turner: Yeah. It's 

[00:28:52] Randal McLeaird: easy. I love looking at the calculations and originating the notes myself. I look at that same thing. I mean, you can get 28, 30 something percent [00:29:00] returns on some of these deals. Some of the notes that I originally created, I was buying properties for 20, putting five or 6, 000 into it, you know, having everything painted in the whole house, that sort of thing.

[00:29:09] Randal McLeaird: And then I'd sell 

[00:29:09] Nathan Turner: those 

[00:29:09] Randal McLeaird: for 60. So when you double. What you have in the, in the deal, I mean, your returns look really good on selling on notes. So 

[00:29:18] Nathan Turner: if you have a channel where you're able to acquire property at a low enough discount, that works all day long. And that is, I think the current challenge. 

[00:29:26] Randal McLeaird: Yeah, for sure.

[00:29:28] Randal McLeaird: No, no, it is. And that's, and so buying the notes that have already been originated and getting them at a discount, you can still hit those returns. So is your 12%, let's talk about returns in general, right? So for what you're looking for and what your fund is structured to do. So you have a 506 C, so that means accredited only, and you can advertise, you can talk about it, do all the things.

[00:29:49] Randal McLeaird: Right. And we've talked about funds at length on the show, so if you haven't heard those, go back and search some of the shows and I talk about them, and we have fund managers on, all kinds of stuff, so. We [00:30:00] won't dive into that right now, but how have you structured your fund and, and what does that look like?

[00:30:04] Randal McLeaird: How much have you raised? What are you looking to raise? Do you raise on an as needed basis for deals? Is it open ended closed? Is it, give me all the details so that I get an idea. 

[00:30:14] Nathan Turner: Yeah, sure. So ours currently it's set up as a five year term. So closed ended fund, we are raising 5 million. We're still at the beginning stages of that.

[00:30:22] Nathan Turner: We're still less than a million. So we're, we're open and actively looking for new investors. We pay 8 percent with quarterly distributions. And minimum 50, 000 maximum 1 million. That's kind of the basics of that. 

[00:30:37] Randal McLeaird: Okay. So it's an eight, just straight eight prep is how you structured it. Straight 

[00:30:41] Nathan Turner: eight 

[00:30:41] Randal McLeaird: prep.

[00:30:42] Nathan Turner: Yeah. 

[00:30:42] Randal McLeaird: Okay. I 

[00:30:43] Nathan Turner: figured this is your sleep at night money. If you want to go and gamble and potentially higher returns sometime in the future, fantastic. And you should do that, but this is the safe portion that you set aside.

[00:30:57] Randal McLeaird: Yeah, right on. I mean, it's, so we've got a [00:31:00] crowdfund, it's a very similar, it's 5 million is a max that you raise. We're sub 1 million raised right now and we are buying the properties in order to put them in. But I love the idea of actually buying the notes and that's definitely something that we have in our terms that we can actually go out and just acquire the notes.

[00:31:15] Randal McLeaird: Seems cleaner, seems faster. If you can find it, right. Yeah. You have deal flow. And so again, that's why I'm, I'm wondering how you are coming upon these, these notes, if you're getting like, again, back in the day, I would get these tapes of deals, or is that still a thing? Is that still happening? And you're seeing that, or it's just.

[00:31:34] Randal McLeaird: To some extent. Yeah. 

[00:31:35] Nathan Turner: Yeah. There's still tapes being sent around, but not like it was back in the day, way back when, I mean, I had a Google spreadsheet for every month, and I And I would have somewhere between like 12 and 15 different tapes every month, you know, through and on those tapes would be anywhere from, you know, Like 50 to 300 per tape.

[00:31:55] Nathan Turner: So I mean, there's immense availability and those were all non performing these [00:32:00] days, non performing much less. So they're still out there, but much less so, which I guess is good news for the economy, but not so great news for non performing note investors. Yeah. 

[00:32:11] Randal McLeaird: I mean, it was a lot of, uh, cheap money, 3 percent right.

[00:32:15] Randal McLeaird: People refinancing and getting that sort of thing. So yeah. I guess, tell me more on the idea of the fund. Like, why did you start going towards a fund model? Have you done one in the past or was this your first one? 

[00:32:26] Nathan Turner: It's my first fund, um, doing notes for a long time, but yeah, the first fund, a few different reasons on the investor side, it's far more predictable and far more, I guess you would call it safe where, you know, With great accuracy when you're getting paid and how much you're getting paid versus on the non pro and, you know, specifically with the non performers back in the day, when we were just doing, you know, buying them up and then splitting profits, which is great.

[00:32:53] Nathan Turner: However, when are they going to, when's that note going to turn around? And for how much the [00:33:00] variability was huge. Uh, so all in all, yes, we did well with that, but just a different kind of investor at that point, somebody who's much more risk averse, you know, So that's been a big shift is going after different kinds of investors.

[00:33:13] Nathan Turner: People that are just looking for that passive income who, you know, busy professionals, people that have income, but no time. Uh, and that's, that's what we're looking for on my side. It's organizational wise. I mean, it's far better. We had over 20 investors and because we're not a fund, everything had to be kept separate.

[00:33:34] Nathan Turner: So I had, you know, 23, I think different sets of reports that I had to do every quarter and keeping that all separate and with the accounting and everything, like it was a massive task for sure. So that, you know, has become much more simple and much more streamlined and that's, yeah, I think I'm just at a point now where that's kind of what I'm after is just easier, more streamlined.

[00:33:57] Randal McLeaird: Yeah, for sure. Are you [00:34:00] seeding the fund with some of the notes you currently have, or is it all new deals that you're looking to do? 

[00:34:05] Nathan Turner: We've got a few that are coming from that old portfolio. Uh, some of the performing notes that we're just kind of shuffling over into the fund model because it's, you know, They're already there.

[00:34:15] Nathan Turner: It's easy. Yeah. And then we know borrowers, we know how they pay all that kind of thing. And so that makes it pretty easy. So that's been nice. But then yeah, a lot of new notes. So you're talking about like, how do you find them? And that really going to conferences that has been the secret sauce is just going out and talking to people and networking and just seeing who's doing what and who's got stuff for sale.

[00:34:38] Randal McLeaird: Yeah. Got it. So when you're going through, again, with a fund model, are you targeting? Again, just the yield spread or are you saying, look, we're going to be in these deals. It's hard to say LTV because again, you know, like it is the main thing, the yield, that's really the main thing. And if you have to take it back, you have to take it back.

[00:34:57] Randal McLeaird: Yeah. Okay. 

[00:34:58] Nathan Turner: So the main thing is [00:35:00] the yield. Kind of the, a close second is, uh, instead of a loan to value, it's an investment to value. Yeah. I want to make sure there's at least a 25%. Spread there. So if you do need to take it back, we've got a 25%, you know, gap with it that we have to work with. So that works really well.

[00:35:18] Randal McLeaird: So the total portfolio value is going to be what's, what is that? Six and a half, 7 million, 7. 2 or something like that. About that. Yeah. Yeah. Okay. So once it's all fully deployed that you'll be sitting on. So then how does Nathan exit in five years? Cause you have the same thing I'm looking at, right?

[00:35:37] Randal McLeaird: You've got. principal and interest pay down and you have fixed. 8 percent that you're paying back. And so at some point, those things are going to 

[00:35:45] Nathan Turner: cross. 

[00:35:46] Randal McLeaird: It's not for a long time, but you know, at the same time, you want to exit that because your equity upside is kind of tied up in that deal. So how do you exit a 7.

[00:35:55] Randal McLeaird: 2 portfolio all at one time? Or do you slowly start selling off [00:36:00] individual notes? And are you getting hit with a discount when you sell to someone else who's looking for those notes? Yeah. 

[00:36:05] Nathan Turner: So the, um, Kind of the wind down is that last year and that we're actually looking at changing this over to an evergreen, which we'll see, and that changes the things up a little bit, but the current plan is yeah, that last year we start selling off.

[00:36:20] Nathan Turner: And the idea is I want to be buying at a 12, 13, 14. So that when I'm reselling and also want longer term notes. So 25, 30 year notes so that that principal balance hasn't moved much when I'm reselling, you know, year four to five, then I'm reselling at like a 10 or 11 percent yield off to somebody else so that I can get all that capital back.

[00:36:45] Nathan Turner: I'm not really looking for an upside. I'm just looking for getting that capital back out. Ideally I'm buying. As many as I can into my own portfolio so that I can just, that's my retirement. 

[00:36:56] Randal McLeaird: I got it. Okay. So you're going to exit by taking out your [00:37:00] investors, essentially. Yeah. Yeah. It's kind of similar thing we'd looked at as far as pay off half the portfolio on an exit and then own, you know, 5 million worth of notes free and clear sort of deal is the idea.

[00:37:12] Randal McLeaird: So how are you like with the prior portfolio, the other deals with these 23 investors, like how many notes do you have that you're managing at any given time? And then what are you looking to get to with, with another 5 million to deploy? 

[00:37:26] Nathan Turner: Yeah, we had a little over 3 million with the previous investors and we had a hundred, I think at our peak, a hundred and five, maybe, but a hundred notes.

[00:37:38] Nathan Turner: Um, we're down, we're almost done with those. We've got about 30 left and then ramping up the fund. Once that's fully deployed and fully funded right around a hundred notes. 

[00:37:48] Randal McLeaird: Yeah. Yeah. Okay. And so are you, how do you service those? Like, what are you doing? Is that in house or do you have a third party? What are you doing?

[00:37:57] Nathan Turner: Oh, third party. 

[00:37:58] Randal McLeaird: Yeah. 

[00:37:59] Nathan Turner: Yeah. [00:38:00] Third party servicer. Again, for anybody who's looking to sell a note, if you can get that with third party servicer first, it's just, it's, I guess like a level of credibility. I can look at your spreadsheet and I'm not saying you're a liar, but how do I know if they're sure that that's exactly accurate?

[00:38:18] Nathan Turner: Yeah. Okay. You know, I would rather go with a third party servicer that really has no, no dog in the fight and they can tell me exactly what has happened or what hasn't happened from a third party standpoint. 

[00:38:28] Randal McLeaird: Yeah. So do you have any recommendations on, cause we use like FCI out of, out of California.

[00:38:35] Randal McLeaird: We've used some other ones locally. But do you have a recommendation? 

[00:38:39] Nathan Turner: There's lots of them out there. I'm using Madison management out in Jersey, Texas guy that I met just about a little over a year ago, who I really like the company is called Provident living. Shoot. I'm going to get that wrong, but if you just search Provident.

[00:38:56] Nathan Turner: Living service or something like that. Okay. But so he'll [00:39:00] bedroom and the guy's just awesome. So I really like him. He's only in a couple of States, so I can't use them for much right now. But he is expanding and growing. And as he continues to get into other States, I'm happy to move all my stuff with him.

[00:39:14] Randal McLeaird: Nice. Okay. Well, that's a good plug. We'll put contact info in the show notes, uh, or a link to his stuff as well. 

[00:39:19] Nathan Turner: Yeah. 

[00:39:20] Randal McLeaird: Well, like. Well, the knowledge, man, I appreciate you jumping on just, you know, talking about your business and what you're working on, I guess the last thing. Yeah. Maybe this would be a good way to leave it.

[00:39:30] Randal McLeaird: Mike, what are some of the tools that you are using just on a day to day basis in order to manage this process? Right. You know, CRMs and whatnot, but other tools just to even value notes, you know, is it, cause I can do it on financial calculator pretty quickly, but I imagine you have a little bit more sophisticated tools that you might be using.

[00:39:50] Randal McLeaird: So, 

[00:39:51] Nathan Turner: yeah. Okay. So CRM, I use pipe drive 

[00:39:54] Randal McLeaird: and 

[00:39:56] Nathan Turner: that's really, really useful. It's very customizable. So it's, [00:40:00] it's not built for notes, but nothing is really there's there, well, there's a couple of them out there, but I haven't really given them a shot yet. But PipeDriver works really well. One of the things I like about it is that it syncs in real time with my Gmail.

[00:40:13] Nathan Turner: So anything that goes in and out of my Gmail goes right in and out of PipeDrive in real time. It's not like I have to go and update it to get the new batch of emails or whatever. So I really like that. And it's a good place to keep notes and comments of, you know, whatever communication I've had with Realtors, with lawyers, with borrowers, whatever.

[00:40:33] Nathan Turner: So that's a good one. Valuating the notes. I mostly just use my financial calculator. 

[00:40:38] Randal McLeaird: Yeah. I mean, I legit use my cell phone. There's an app on my phone. So I mean, it's pretty quick and easy. 

[00:40:44] Nathan Turner: Yeah. It's on my phone. It's on my computer. It's on my laptop. So that's most of what I'm using. I've got a friend who's a spreadsheet nerd.

[00:40:52] Nathan Turner: And so he's created this like massive spreadsheet and he's trying to convert me to that. And there are certain things that he can do on there that [00:41:00] it's pretty cool. I'll admit, but I don't know. It's a level of complication that I'm not sure. 

[00:41:06] Randal McLeaird: Nathan, I love it, man. You're like, uh, I need simplicity. I want it to be simple and, you know, quick and not, yeah, don't overcomplicate it.

[00:41:14] Randal McLeaird: Yeah. That's funny. That's kind of a relief. Yeah. Have you looked at like mortgage office? I mean, I know that's like a very detailed, you can service, you can do all kinds of stuff. And I think that's like what FCI and a lot of servicers use. Yeah. 

[00:41:26] Nathan Turner: I looked at it a few years ago, but like this was five or seven years ago and back then to buy it was like 10, 000 or something like that.

[00:41:35] Randal McLeaird: I mean, I looked at it too back then and I was like, wait a second. But you know, if you're standing up a servicing company, I think that makes more sense. Yeah. Yeah. But yeah, okay. So you don't use anything that detailed or complicated to just take what you're guys working on? 

[00:41:49] Nathan Turner: No, I'll keep all my notes in pipe drive and between that and the servicing notes that I get from the servicer.

[00:41:55] Nathan Turner: That's good. Yeah. That's all the information I need. 

[00:41:59] Randal McLeaird: Solid. Well, [00:42:00] again, man, I love talking notes. Again, we're working on something very similar. So I'm going to definitely stay in touch with you, see how you guys are coming along with things. If you're looking to invest, you know, Nathan's got a fund, it's out there.

[00:42:10] Randal McLeaird: I'm sure you can go to the link in the show notes, direct to Nathan and find out more information about the fund. Is it stylized as Ernest Living LP? Is that the fund? Ernest 

[00:42:21] Nathan Turner: Investing. ErnestInvesting. com. Yeah. One shameless plug. Talked about the conference, but I didn't actually name it. So it's the Diversified Mortgage Expo.

[00:42:31] Nathan Turner: The next one's coming up in May and we're in Nashville. That's what we do. May 

[00:42:35] Randal McLeaird: 25th. 

[00:42:37] Nathan Turner: May 2025, May 2nd and 3rd. Awesome. 

[00:42:40] Randal McLeaird: All right. Well, yeah, there you go. You heard it. Uh, probably not here first, but it's coming up in May again, Nathan, man, it's awesome talking with you. I appreciate you sharing your knowledge about the, the node industry and what you're working on right now.

[00:42:53] Randal McLeaird: Again, if you're looking to find out more information, reach out to him directly and we'll catch you guys on the next episode. Thank you. Did you know that 80 percent of the [00:43:00] agents we speak with got into real estate in order to gain passive income so they could obtain financial freedom and become work optional?

[00:43:06] Randal McLeaird: If you want to stay up to date, the best way is to make sure you're subscribed. So if you haven't done that, go ahead and do it now. We'll catch you on the next episode. 

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Randal McLeaird

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Nathan Turner

Guest