Strength in Numbers with Marcus Crigler

Episode 62: Why Landlords Stay Broke (Even With 20+ Properties) with Eddie Speed

• Marcus Crigler • Episode 62

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In this episode of the Strength in Numbers podcast, Eddie Speed breaks down a hard truth most real estate investors don’t want to hear. Many landlords with 20, 50, or even 100 properties are still stuck, underpaid, and overwhelmed.

Listen as he shares how he built his career by focusing on note investing instead of traditional landlording. He also explains the real math behind rentals, the hidden problem of trapped equity, and why many investors are working harder for smaller returns.

Enjoy the show!


You’ll Learn How To:

  • Get started with note investing
  • Avoid the common traps that keep landlords stuck
  • Transition from active income to scalable and passive income
  • Think like a bank instead of a traditional investor


What You’ll Learn in This Episode:

(03:01) Introduction to Eddie Speed and his background in note investing

(04:49) The reality of “rocks in the road” and why most people quit

(06:32) What an owner-financed note actually is

(07:08) Working with real estate investors

(07:30) The difference between compliant vs risky seller financing

(08:50) Some notes are assets and others are liabilities

(10:28) Liquidity matters when creating notes

(13:50) The tax trap: depreciation and recapture explained

(15:15) Seller financing can improve tax strategy

(17:21) Rental math vs note math

(20:01) Why being the bank can double your income

(23:08) The power of reinvesting and compounding income

(24:12) Hustler vs investor

(26:49) Different ways to structure and sell notes

(28:38) The “underserved” buyer market

(31:20) The Mortgage Credit Availability Index

(34:04) How to seller finance with an existing mortgage

(39:06) The future of notes and blockchain technology

(45:21) People who don't know their numbers don't know their business


Who This Episode Is For:

  • Real estate investors with growing rental portfolios but low returns
  • Landlords who are feeling burned out from managing properties
  • Investors looking to increase cash flow
  • Anyone curious about note investing and seller financing


Why You Should Listen:

This episode challenges one of the biggest assumptions in real estate. Eddie offers a clear alternative path through note investing and seller financing. If you want to stop chasing small returns and start building a scalable, predictable income, this conversation will open your eyes to a different way of investing.


Connect with Eddie Speed:


Connect with Marcus Crigler:

SPEAKER_03

If somebody is like listening here that's not at that level, you're never going to get anything if you don't start. And secondly, you're going to find rocks in the road. And if that's your reason to give up, you're not going to make it down the road.

SPEAKER_01

Welcome to Strength in Numbers, the podcast for real estate entrepreneurs who are tired of being broke and not having control of their finances. If you're ready to finally take control of your money, slash your taxes, and start building real wealth, you're in the right place. And now here's your host, Marcus Krigler.

SPEAKER_02

Hey there, and welcome to the Strength in Numbers Podcast, the podcast dedicated to helping real estate entrepreneurs just like you finally take control of your numbers so that you can stop living day by day, month by month, and finally start living the life of real estate you truly desired. My name is Marcus Krigler. I am the founder and CEO of Beck CFO and CPA, where we help real estate entrepreneurs across the country save money, make money, and build real wealth in real estate. As a matter of fact, this episode is brought to you by Beck CFO and CPA. Again, an accounting firm that truly helps real estate entrepreneurs across the country save money on taxes, build accounting processes and procedures, and ultimately get great financial statements along with those. And then look forward into the CFO services and trying to figure out how to make more money and do things the right way so that you are investing well and making more profits to your bottom line. Today's episode is gonna be a really, really fun one. My friend Eddie Speed, one of the OGs in the industry and ultimately one of the people that pioneered note investing the way we see it today. I've had students of his on the podcast before, but this episode is gonna be straight from the horse's mouth, and he's gonna have a lot of really cool things to talk about with what he's doing in the note investing space. You're gonna enjoy this one with Eddie Speed. Hey there, and welcome back to another episode of the Strength in Numbers podcast. I've got my good friend. Many of them would call him an OG. I was just talking before the podcast. I always like to find the OGs in the area, but one of the OGs in the industry that I get the luxury of calling a really, really good friend of mine. We text on a regular basis, we get to hang out on a regular basis on our quarterly meetings, and even sometimes outside of those, Mr. Eddie Speed. Welcome to the Strength in Number Podcast. How are you, sir? I'm awesome. How are you? I am so good. I'm so good. So we get this opportunity. You and I, we've connected because we're numbers guys. We can talk numbers, and a lot of people, it's funny when we're sitting there talking, a lot we'll see, like a lot of people kind of huddle around us, and then you'll we'll look around, and then there's like a lot of blank stairs. Like, what in the hell are these guys talking about? And so, you know, it's always fun to sit there and have those conversations, but that's how we've connected is really just understanding numbers because you do real estate different. You do real estate not from owning the asset, but only owning the paper of the asset, right? Trading the notes of the these the underlying notes of these, you know, nice assets, right? So you do it a little differently. Talk to me about how you got into this industry and and really how what you're doing from the start to now, how it's shifted over your career.

SPEAKER_03

I got into the business accidentally. So you know my wife of now 43 years, Martha, very well. You know my family, and I they all love you. Uh and uh so I met Martha's dad, and he was a real estate investor, he was a rehabber, he bought foreclosures, he built houses, he was a fireman. Story, right? The the millionaire next door of the of the 70s, right? Love it. And that's who he was. And then he met me, and this was around 1980. Interest rates were really high, and seller financing really became a thing. So he'd shifted from focusing on real estate and started buying notes because it works really well in inflationary times. Yeah. Right. And so he did that, and I caught him right at the point where they had a company and they were they were immature yet as a company, but they were the real pioneers. Like he and a partner, they were guys and had a shop and were buying loans. And they used me, I mean, I started with them. I didn't know anything, I didn't have any money. So I was their hustler. They'd send me out to go call on realtors and home builders and real estate investors, hunting notes. And I did that. The one thing I would say is, well, I did two things, Marcus. First of all, I took action and I didn't give up. If somebody is like listening here that's not at that level, I'm just telling you, you're never gonna get anything if you don't start. And secondly, you're gonna find rocks in the road, and if that's your reason to give up, you're not gonna make it down the road. Then Martha and I married in 1982. We moved to a market, Dallas Fort Worth, that would seem to be very rich for the opportunity to buy seller finance notes. And I did that, and all and I did it for many years, and I perfected several techniques just by accident, like going to the courthouse and getting people's address and information, mailing them a letter and saying you could sell your note. First guy to ever do that. And uh then I met a guy around probably 1987 named Ken D'Angelo, and he had notes, and I bought it, and we became friends. And two or three years later, he decided to form a franchise of people buying houses called Homevestors. And so that really put me on the trajectory of like helping people manufacture notes. Like before you make the note, like what formula do you make it at so you can sell it for the most money? Right. And the idea of developing an underwriting box and a process and even uh helping them create the notes before they create it. I started that, you know, in 1990. So, what what you see us doing today is old school, but it's kind of a clearly a new way of doing it.

SPEAKER_02

Walk us through what you're doing today. So, for those, and we've had a couple people on the show before talk about buying and selling notes, but not the way you buy and sell notes, right? You buy and sell notes to the tune of thousands and tens of thousands of notes over the course of your life. What does that even mean?

SPEAKER_03

Well, just think in terms of to clarify a note. An owner finance note means that you're the bank on a property. You don't own the property anymore. You're getting paid, you're earning the interest and getting back the principal that you're owed on your note. So you no longer own the real estate, you've switched gears and you decided to sell the property but also be the bank, seller financing. Most people on this at this group will get that, right? Sure. I bought over 50,000 owner finance notes. And I would say that the reason that I bought so many notes, that would probably be an industry record, right? Sure. The reason that that I bought so many notes is I became very focused on working with real estate investors. Now I don't I don't really buy mom and pop notes to speak of. I have done it a lot, but today we're pretty zeroed in on dealing with people like they're your clients, right? They do it over and over and over. They run a business and they act like they run a business. So these cowboys on some of these Facebook pages doing this Wild West creative finance stuff, that's not my thing. Probably not compliant. You might be you might be breaking some laws you don't even know. And it's not, that's not me, right? I'm helping people structure and create well underwritten, compliant mortgage notes. And you do that, and you're the bank, right? And you're not the landlord. And we'll talk about landlord math versus the bank math today, but that's what I do, and that becomes something that I can really scale. And you and I know that it is frequently we're my team is on the call with somebody with 50 to 500 rentals. Yep. And we're saying, what if you looked at these rentals and what if you converted them? What would the math look like?

SPEAKER_02

It's interesting. So you're buying these owner finance loans, but you're talking about two things that I think like a lot of people probably sweep under the rug when they think about owner financing and maybe don't care as much about, which is qualification and compliance, right? And so one of the big things that I would assume that you've learned over 50,000 uh notes is that there's a way to do it the right way. And there's a way to make sure that the note is actually an asset. This is a funny thing. Everybody thinks a note's an asset unless you aren't compliant and unless you don't have the right borrower. And now it's actually a liability. What I'm hearing you say is that most of your job is just trying to figure out which of these notes are actually liabilities, which of them are actually assets they're gonna pay. And then how do you create these notes to be actually assets for the long term, right? That's that's what it sounds like that you're actually doing on a daily basis.

SPEAKER_03

You know, people that own real estate either that buy and resell it, or there's so much trapped equity in rentals. So that's a big market, right? Because huge markets are people got trapped money in equity and in rentals and they're not getting paid for it. And that's one of their frustrated markets. And you and I can look at it and say, oh yeah, that guy's got all this trapped equity and he's not getting a check for it. That's money that you're you're not earning interest on, and you're you're kind of burning money there, right? And so, and that's the thesis that you and I've had and spent, let's just say, a lot of time discussing, right? And trying to really get the industry to look at things differently. So, what I did I figured out was I've traded 50,000 notes to insurance companies, banks, hedge funds, private investors, like I know that space pretty well. I know how mortgage bankers think. I know what insurance companies and institutional investors will buy. And most people that create a note don't think about the fact that they're creating a note that they're limiting their liquidity because they're creating a note that can't be traded, right? Yeah, my whole thing is helping you create notes that are the best available for liquidity and looking forward. They're like the best that when the market comes to other things, that those nodes are instantly tradable. As you know, I'm working on a project right now. It's not here at the moment, but I'm working on a project right now with a team of like super technology guys bringing selling loans on blockchain, right? Well, guess what? If it's not compliant, blockchain's gonna kick it out. And we talked a little bit about that. It matters that you and by the way, people think, well, man, I if I do all that, like Eddie's just cutting my arm off. He's limiting my possibilities. And the answer is you're the bank, you just want to get paid. You just want to make people, you want to make sure you're selling to people that they can afford to pay you and are willing to pay you. And now all of a sudden you just got mailbox money. Yeah, and that mailbox money is golden, as you know, Marcus.

SPEAKER_02

Well, I think it's what most of us got into real estate for. We got into it, we saw this dream, and most of us read rich dad, poor dad, and we saw this dream of owning this real estate and cash flowing that real estate, and and that cash flow from the real estate, paying all of our personal bills, and then our personal bills are taken care of, and we can go live on an island somewhere or whatever we want to do. But the fact of the matter is, I don't have a ton of people that have actually achieved that goal. And the reason being is that cash flow in real estate, at least over the last uh decade, if not two, has been minuscule if not absent. You know, I remember even when people were have saying rentals were, which by the way, nobody says rentals are bought for cash flow anymore. Notice that that has that repertoire has left. But back when people were talking about buying rentals for cash flow, they were still talking about buying it for 200, 300, maybe 400 bucks a month in cash flow, right? And so the amount of rentals that it took to get there, and then you find out that, well, when I have a hundred rentals, I'm actually not making as much money as I thought. I'm not making the $300 per door because I've got operating costs now, because I've got 100 rentals. So I've got overhead that's got to take care of that whole business in and of itself. And so you find out that, and you and I have had this discussion. This is the secret that most people don't realize, and they don't realize it because their head is stuck in the sand. Your rental portfolio, if it has any maturity on it whatsoever, is at max getting a 4% return on equity.

SPEAKER_03

Max right now. Marcus, I've I've been around all this herd for decades, and you know that, right? And let me tell you something, you're a rock star in what I would say modern day real estate investing. In the past, you know, 10 or 12 years, you are you are an authority, you're well respected amongst some of the smartest real estate investors I know. I mean, like, you're there, right? But I've been hearing this whole thing for decades. And people, and social media kind of programmed people into what they believed. People will lose their minds not to pay the IRS. They will do the dumbest deals you've ever seen if they think they're gonna sidestep paying the IRS some money. That's right. And I've watched it for years, and you and I know that when you get all that depreciation, the IRS wants their money back if it didn't depreciate. That's right. Right? It's not a forgiveness of tax, right? That's a myth. And you know when people usually get in trouble with the real estate deal is when things aren't good, and then all of a sudden, then they need to sell, and then all of a sudden they got to pay the IRS money they really don't have. And that is, I've watched that over and over and over.

SPEAKER_02

Well, let me tell you, let me add that to it. And and if you're listening and you're in this spot, I want you to be key in on this right now. I have people constantly losing money on their real estate deals, right? They bought it for 200, now they're selling it for 180. They have a $20,000 loss, yet they owe taxes on the property. Why? People don't understand this because you've depreciated that property. You saved all the taxes previously. They gave you a benefit, but now you've got to sell the property. And now, even though you've set had it at a loss, you may have depreciated $30 more thousand dollars. It could be a basis, this is what we call it in tax world basis of $150,000. You sell it for $180,000, it's a $30,000 income. And you may actually lost money on the property. That's it, that's crazy to think about. And that's the other reason why a lot of times when that happens, we start talking seller finance, right? Because seller finance has an opportunity of turning that rental that maybe you lost some money on, or maybe you're in a good spot on it. But either way, you can now change the tax dynamic of that by doing a seller finance and taking the tax hit over a period of time, not to mention the other benefits that we're going to talk about a little bit as far as seller financing is concerned. But that's another big play that I'm seeing a lot of people struggle with right now is they need to sell their properties, but it's actually costing them money to sell their properties because they can't pay the tax bill.

SPEAKER_03

Well, and once again, the problem is they bought a deal that didn't pencil. They were buying it based on depreciation and buying it based on assuming appreciation, right? And when those assumptions didn't come together, then all of a sudden they've got the the other plan, which is what you described and I described, which is that they're selling it and they have a liability they didn't even think about, which is paying the IRS back their depreciation that they took.

SPEAKER_02

Yeah, that's exactly right. The big R, right? Yes, that is exactly right. Recapture. And there's ways that, of course, you want to uh uh mitigate that as much as possible. And we do that at Beck as much as we can, but there's no way to get rid of it. Not if you, especially if you're selling a property shortly after you bought it, it is very, very difficult to work your way around it. So let's get into the alternate. You and I, Eddie, we've been doing this and talking about this for years and years and years, back to even when I went to note school five or six years ago, I think it was in 19, maybe. We've been talking about this for years and years and years. Why does the math make sense on a lot of these deals to seller finance it versus hold it as a rental and keep it doing what it's doing? Why does that make sense? And and let's I'm gonna add one more question to that so you can answer them both at the same time. Why take the effort? It's easy to sell a property and just throw it on the MLS. Why take the effort to go through and seller finance this deal and you know, answer those in whatever, whatever way you want to do it?

SPEAKER_03

All right, well, let's just get into basic math. Okay. And if your clients are sitting there at this point or our audience, I'm I may I'm giving you a couple of things you might want to write down, but this is not gonna be some complicated math formula, right? Yep. The average rental in the United States on a single family house is 1800 bucks. Okay, right? That's a statistical number. It's actually $1,828 is the average rent on a single family house nationwide. So I know that if you're living the markets, I'm less than that, I'm more than that, I got it. But we're just saying this is the average. The average note payment if you sell or finance the same house is about $2,000. Okay. So $1,800 rent, $2,000 if you sell or finance, and they're paying you back with a note over time. Now, by the way, this is assuming that they've paid at least 10% down. So you got some money, you took some money off the table when you sold it, paid closing costs, you could pay a realtor, pay all that, you know, pay all that, and still walk away with a little bit of money. Okay. But the rent house of $1,800, 50% of that money goes out the door in expenses, right? So you're gonna net 900 bucks. Now, sometimes when I say that and I'm on an interview, whatever, people go like, well, I don't really know if that's the case. You're looking at the other guy on this screen here that is the expert of experts. And that 50% rule, if you calculate over about three years, it's a pure number, right?

SPEAKER_02

48 or 52, I don't know. We're in the ballpark for sure, but I think that the the reality here is that if you look at an individual house in an individual year, yeah, your 50% rule won't work. But if you look at a group of houses, right, quantity over a quantity of years and average it, you're gonna start finding out that that 50% is about right.

SPEAKER_03

And that's a gold standard. That's a gold standard in high-level underwriting of loans. Like I know some of these DSCR lenders today are doing goofy stuff and not saying all of them, but there are some that are doing stuff that you and I just look at that the next new prime. That loan's probably gonna be problematic in the future because they've not made they already are problematic. I'm seeing it, by the way. So here's the here's the thing the rental is netting you 900 bucks. The no payment is netting you 2,000 bucks. Now, this is either way before you make a payment to the bank. This is assuming you own it free and clear, because that's how income properties are calculated. This is a we're sticking with industry accepted rules. Yep. I'm netting 900 or 2,000. Because by the way, Marcus, I don't call the bank if my hot water heater blows up. The bank, right, the bank may hold my money for taxes and insurance, but they don't pay my taxes and insurance, right? Right. So I'm netting a little legitimately $2,000 versus $900. Wow. Apparently, it's more profitable to be the bank today than a landlord.

SPEAKER_02

We all know that intrinsically, because if you look at what banks have for real estate, they've got some pretty nice real estate, got some of the nicest real estate in the country out there, banks do. So, okay, so $2,000 versus $900, that makes sense, but equity, but I'm missing on my equity appreciation. What about my equity appreciation, Eddie?

SPEAKER_03

Well, you my argument is you're not missing it, you're just getting paid for it now. You're saying, but it's gonna go up in value. And I'm saying, okay, well, let's just take $100,000. What's a hundred thousand dollars worth? Well, if you get it today, it's worth a hundred grand. But if you get it in five years, it's not a hundred grand, it's worth sixty thousand today. If you get it in ten years, it's worth about thirty-five thousand today, right? So, so if you're having to wait on the money, you're not dealing with present money, you're dealing with future money, right? And that is real money. And by the way, when you get this $1,100 more every month, Marcus, you don't go stick it in a coffee can, you reinvest it, and you reinvest it, and all of a sudden, you're reinvesting money instead of having to go say, I'm just gonna wait on getting it. And that will crush the math of play into Mars money on appreciation. I, you and I are math nerds, we know this to be true.

SPEAKER_02

Well, and I think that's the key, right? And and that's that's how you structure your finances as a prudent investor. And we took, we've talked about this. And so let's go backwards just a second so that so that we can talk about how to maximize. This because one of the things that I like about rental properties is it's a forced savings account. You don't have a choice, it's stuck there, it's illiquid. You don't have to go take that money and then put it into another investment, right? But the prudent investor, and no matter if you're doing dealing in notes, rentals, whatever, the prudent investor has their business. Their business feeds their lifestyle, right? First and foremost, gotta feed your lifestyle. You gotta live. We got to live as a life, right? But second, it feeds your investments, right? And one of my big proponents is that your investment bucket never feeds your lifestyle bucket until you lose the business, until you get rid of the business. That's called retirement. Hey, we're done, right? Now that's when your investment starts feeding your lifestyle. And that's a determination of how much did you invest? How good do your investments were? But if you do it that way, what happens is when you make that $1,100 in this investment bucket and it doesn't shift over to the personal bucket, it reinvests. It compounds. So you've got this compound working engine in here where now you take that $1,100 and you may go, you know, oh, after several months, go buy another note. And now you're compounding that over and over again. And so that's where it really the investment strategy is important. But what's more important is how you're managing the investments, right? So, yes, none of this matters. What we're talking about today, none of this matters if you just take that money and dump it in the some sort of depreciating asset, a Lamborghini or whatever. Like none of this matters. But if you want to get rich, right, if you want to grow your net worth, it is compounding that. That's what the sexy part is. That's why I set Eddie up for that question because I wanted to go down this rabbit hole of it, this is a reinvestment game, guys. So when your appreciation is simply you just deciding to keep that house, which is reinvesting it. So when you have the note, it's the same philosophy. You have to reinvest the proceeds of that note. So you're keeping up with that appreciation that you might be missing on the house. It's just another way of winning.

SPEAKER_03

Marcus, you and I have seen a lot of real estate investors that got good at the flipping house game and made a million dollars a year and don't have anything to show for it. Yeah. Right? That's not an investor. That's a hustler. An investor is the one that strategically looks at his resources. And if he has cash flow and income now, that he instead of having it now versus later, and he reinvests that and he's very strategic in how he does it, it grows to be a bigger mountain. And you and I are not gonna fix the guy that goes out and makes a whole bunch of money flipping houses and never thinks about a wealth strategy, but thinks about the next toy they can buy. We can't fix that. That that investor. Wish we could. It's not that we don't have a heart for it. I just have got decades of seeing that. And by the way, this cycle that we're in now, do you guys don't think that's the first cycle that that's ever happened in? Trust me, in 2005, people act like they lost their minds because they had all this newfound money and you couldn't make a mistake, and they're running with money in both hands. But that money will evaporate unless you have built a business out of it. And that's what you and I want them to do.

SPEAKER_02

That's right. We talked about free and clear. Most of our real estate investors don't have free and clear properties, at least in a significant form. And so, how do we work this seller financing? Because this is this is the problem that I run into. Yeah. Okay, I've got a note on it. Now what do I do? How do I turn that into a deal that can actually be seller financed?

SPEAKER_03

Well, first of all, some of the people listening are gonna go, I'm just gonna wrap it. That is not a scalable business. You are just sitting on a powder keg, right? And lenders today can find out if you've resold that deal on a wrap note in 10 seconds. All they got to do is scrape all their data and they can have AI do it. All you have to do is look at the insurance policy. And there's all kinds of people, there's gurus that have all kinds of BS responses to this. People that play at a high level know that's BS. And if you think a loan service is an idiot, you are out of your minds. Those are really smart people and they know what they're doing. In the Sub 2 world, they say that about 20% of these loans are getting called. So it's just that's not a good, that's not a that's not a business. And I I'm not involved in anything helping people do that. Here's what I'm gonna say though, Marcus. You have created now an asset, which is a note receivable. And you can go sell that note. You could create a first and create a second, sell the first, keep the second, which is very common in history of real estate. You could go sell part of that payment. You could sell 100% of the payment for a period of time, which could have some cool tax advantages. You could sell a part of that payment and sell 50 or 60% of it or 80% of the payment and keep 20% of the payment. So when so when you have good tradable paper that is institutional grade, then all of a sudden you can become your own bank and you can trade paper like banks trade paper. When you create a bunch of hokey pokey stuff on land contracts and not underwritten and not compliant, well, they won't play with you. And so what I do is create a marketplace and help people with the things that are toughest to do. So to answer your second question, how do I do this? And so we are involved in several real estate masterminds. I'm gonna safely say the masterminds I'm involved in, Marcus, probably of the top thousand house buyers, 85% of them are in one of those masterminds. That's that's probably a fair statement. I agree with that. Not 100%, but a very high percent. And so what I would say is it's you, it's people like you that have helped us with good advice about what do you need, if you have a legitimate done for you to help people do this, what is in the dumb for you bucket? And the first done for you that most people really can't do well is go sell, have a realtor that knows how to go find a legitimate, qualified, good credit with down payment and can afford it, buyer that is left behind by conventional lending. And so what we had to do is go bill that out. We had to go take specialists in the industry that had realtors that understood the underserved buyer. Now, I'm not picking on any group or any situation whatsoever, but I'll give you an example that pretty much most people can relate to. There's all kinds of national reports about the underserved Hispanic market. Like how many of them get conventional mortgages and how many of them don't, and their income level and their qualifications, and like that's an example. So we understand that. We have realtor oversight, not me. That's not me, but I have ninja real estate people that have the oversight and the connections to go find that realtor and make sure they're finding that buyer that we're looking for. So, Marcus, if I can eliminate your having to go find that specialist realtor and know how to give them the right instructions and then make sure they're following the right process to do it, I eliminate a big problem for you. And then all of a sudden, I have oversight of the underwriter. And then I all of a sudden I have oversight of creating the paper and make sure it is papered right. And it does look like a bank, it doesn't look homemade seller financing, right? People kind of brag about that like they think that makes them cool, right? And the answer is it's illiquid. It won't trade at the same marketplace because of the way it's papered. So we do all that, help them get it boarded with a servicer, and then we help them go make a trade on their note if they need to pay out the underlying debt or want to get to some cash. And there, there's modeling that we do before we ever start that says, here's where you would land. And then you just look at it and say, Do I like my rental or do I like being the bank?

SPEAKER_02

Right. Basically, you've developed a network of realtors across the country that specialize in finding that left-behind home buyer, right? The person that they can't qualify, maybe it's because they don't have you know the right W-2 earnings. You know, I know for multiple years I couldn't qualify because I started a business and my business income wouldn't allow me, you know, they wouldn't qualify me for a loan in that scenario, right? I was making a ton of money, I was, you know, more money than I was ever making before in a W-2 job, but they wouldn't qualify me, right? And so stuff like that that, you know, a lot of people think, well, hold on. Why would anybody ever, why would anybody ever buy a house from me, sell their finance, at 10% down and maybe at a 10, 11, 12% interest rate? Why would they ever do that when there's plenty of banks out there?

SPEAKER_03

Marcus, let me give you one quick stat because I think this will paint a picture for a lot of people. This is according to Mortgage Bankers Association. I didn't make this up. There, it's their chart, it's their process. They have a scale that they've built that determines how tight or loose underwriting is called the Mortgage Credit Availability Index. So it's an index generated by mortgage bankers. In 2019, that index was at about 185. Yep. Okay. Today that index is at 100. What does that mean? If 185 people could have gotten a loan in night in 2019, 100 can get a loan today. Wow. Wow. And it's and it's a conventional mortgage, right?

SPEAKER_02

Yeah.

SPEAKER_03

So so that gives you a sense of when we say we're looking for an underserved buyer, they still have good credit. They still have good down payment, they still have income. We're not the bank of last resort.

SPEAKER_02

You're not selling to the junkie on the side, or you're not letting a junkie on the side of the road borrow and sell their finance. We're going through a full process because you got to make it an asset, right? Otherwise, you sell their finance to the junkie on the side of the road, you've actually got a liability, right? And not only that, think about all the and and I just want to go on a tangent here because I know I don't think you'll go on this tangent, but I'm I'm willing to. If you just half-ass your screening and that buyer comes in, destroys your asset. By the way, the note's no longer an asset, but the underlying asset of the note is no longer an asset because they destroyed the property and you got to go foreclose, and now the property is not worth what you actually sold it for in the first place, right? So the screening part of this and making sure you get the right person into the property, what it's the hardest part of it, and it's the most important part of it. And I think this is why people stay away from seller financing because they're afraid of it. This is a solution where you don't have to be afraid of it anymore. Like, hey, here's a way to get the right people in your properties that will actually pay you historically proven, right? Based on underwriting criteria. That's all it is. It's no different than any other loan originator. It's just you got underwriting criteria. They check the boxes and you give them the loan. They just have to check the right boxes.

SPEAKER_03

40%, 40% of loan originations today are those type of loans. Yeah.

SPEAKER_02

So let's go back to now I've got this property. It's not free and clear. I've got a loan underneath this property. What is the most common way to be able to sell or finance that and not wrap it? And not do the wrap because, you know, whatever, we don't like the rap, you know, the rap doesn't make sense. It's got compliance issues, got risk issues, you know, we don't want to have that on our, you know, on our books anymore. Whatever the answer is. How do we do this without the wrap in place?

SPEAKER_03

So you create a note, and there is a closing process where we buy that note at the closing, and part of the proceeds from the closing agent pays off the underlying debt. Now you have a first mortgage. It's not a wrap anymore, it's a first mortgage. And you say, Well, how much of the note do I sell? Because I don't need all of the money. I want to keep cash flow. And then all of a sudden, we show people various ways to structure that. And Marcus, you've been through the whole thing. We're pretty good at this, right? Yeah. And we can almost say it's kind of like it's your chalk and your chalkboard. What are you trying to accomplish? And we can back into a way to do this that lets you keep income in the future in various ways. And we just simply show people seller financing how the mortgage banking world operates. Like if you've never seen it, you're like, it's almost astonishing a little bit. You start realizing how they built those big old buildings, right, Marcus?

SPEAKER_02

Yep. Basically, I guess one way of doing it, and I think you kind of touched on this uh previously, is all right, I go shits and giggles, let's put a number on. I sell the house for $200,000. Maybe I have an underlying mortgage of a buck $5,000 on it, right? So now you got a $200,000 mortgage set in there, but you don't want to wrap that $125. So now you go out and you sell that asset, partial of that asset, whether it's you know, a first lien, second lien, or payments, you there's a couple different ways you can structure it, but you could sell enough to recapture the $125, $125,000 and pay off the bank. And now you're left with a $75,000 give or take note that's cash flowing, right? And paying you every single month. And so that's really when you have an underlying note, a way to do the same thing, right? Seller finance it and still, by the way, we talk, we can talk about cash benefits or tax benefits there, like we talked about earlier, but seller finance and still have an underlying mortgage. You don't have to pay the property off. We can you can do it with the seller finance structure, and you're getting payments still uh month over month. And we did the math a couple of times, and that $75,000 ended up being more cash flow than what the rental was with a mortgage on it. And that's why we, you know, we were talking about it. That same $900 difference when you put a mortgage on it. Yeah, the numbers are different, but it's still cash flow is a little higher when when you sell their finance versus when you're having the rental.

SPEAKER_03

In most cases, it's at least gonna double your money. Yeah. In in most cases, it's gonna double what your net income is. And the second thing is, is you don't need a back office to do it. At that point, you have the loan, the servicer, you know, like there's no, you don't have to manage rentals, you don't get the two o'clock calls from the tenants and all that stuff. And and usually when you don't when those things start happening, then you start really realizing, okay, I can scale my business. So not only do you get more income, but you have more scale because you don't have to go manage all of the things that relate to being the landlord.

SPEAKER_02

So all this makes sense to me. If you're somebody that's setting on a bunch of rentals, or maybe not a bunch of rentals, but you know, 10, 15, 20 rentals and you're trying to figure out how to maximize your equity, go talk to Eddie. I would highly recommend it. I'm not getting paid anything to say this. I'm just telling you, if you want an opportunity out to do something a little different, if you're sick of the rentals, if you're sick of and you're not sure what to do, like Eddie's got a really, really good way of doing it. By the way, if you don't want to speak directly to Eddie and you just want to talk to me, I can help you understand the process as well. But I'm gonna tell you, I'm gonna send you to Eddie to actually execute it because he's got a system in place. I want to go back to old school, right? Let's go old school. You know, we've been talking about these active real estate investors that, you know, how they can change their rental portfolio and add cash flow to their personal lives, right? Now, or their investment portfolio. What about the old school way of just buying and selling notes? Are you still doing that? Is that still in the world today? And how are you seeing that market uh play out right now?

SPEAKER_03

Well, if if a real estate investor is netting 4% on their rentals, they're making nine to 11 on a note secured by the same type of property. You know, and a lot of people getting to some liquidity gives them the ability to start taking some of their money and then go buying the next note. And what I've done, Marcus, is I've worked very hard at building a marketplace, right? I that marketplace has institutional investors, it has uh what would have been landlords, now they're note investors, probably, right? And so I've built a marketplace to do it, and we are continuing to make it more and more efficient. Now, this isn't available today, but it is a work in progress that we are deeply involved in and we are accelerating that we're gonna be able to put a loan on blockchain. That will be the liquidity and the efficiency of it and the confidence people have in doing it. I'm gonna say that it's gonna be an absolute industry disruptor.

SPEAKER_02

So when you say that, when you say you're gonna put a node on blockchain, for for somebody like me or that average real estate investor, what does that mean? What do we what do we benefit of getting that on blockchain?

SPEAKER_03

People relate blockchain to Bitcoin. Yeah, right. And the reason that you Bitcoin is traded on a blockchain platform. That way you know the information is true. Uh, the immutable whole factor to it, and it's verified through dozens and dozens, if not hundreds of different sources that the same information is true. And you know it's true, and it's just it's a very efficient way. And for in this case, we were talking about somebody getting extra income. You could just go take that extra income and buy a fractional interest in a mortgage. You don't have to service it, you don't have to collect it. It's it's it's extremely well documented, underwritten. There's predictability score of how likely it is to perform well and all that. And so we just think that when people do that, we're gonna find out how many people, and I'm gonna think it's gonna be a lot. Say, like, I would much rather be the bank than the landlord, right? I get to earn more income with a lot less headaches, and I don't have to go manage a business. And and I know where my money went and I trust where it went. And so we're working very hard right now. Right now, I'm a step south of that, where I help people go do this in a way in investing in notes or creating notes that are, as we said, instantly tradable in the market. They're an asset, they're they're a high grade asset. And then all of a sudden, we're just basically helping people be the bank. And the last thing I want to say, Marcus, is this one of the smartest investors that we've ever known of is Warren Buffett. Warren Buffett said, I'm in the Nebraska furniture business because I want to be in the finance business.

SPEAKER_02

Makes sense to me. Makes complete sense to me. That's the same thing with uh auto dealerships, right? Auto dealerships are making a ton of money off their finance department, boat dealership, a lot of these companies, anybody that has a finance department, they're making just as much money in their finance division as they are the real business a lot of times.

SPEAKER_03

The average GM store makes double the profit on their finance department that they do on their sales department.

SPEAKER_02

So, you know, I think it's important, right? I mean, when we talk about strength in numbers and getting your numbers right and understanding how to build wealth and drive wealth, there's so many different ways of doing it. And I think that if note investing is not part of your repertoire, it it should be. I think it's something that, first off, it's a great way to diversify away from what you're doing, but not get too far away from what you're doing to not know what the underlying asset is, right? You've give you built a skill set to understand real estate. Now you just have to apply that skill set a little differently, and you might get a little different return on a little different result. And I will say this you're more hardcore than I am, which is great. There's a there's room for everything, right? That you don't have to go out and seller finance your entire portfolio. Matter of fact, you probably don't have a portfolio that has the all the right assets in it that you can sell or finance.

SPEAKER_03

Agreed.

SPEAKER_02

But it could be a seller finance portfolio, and there could be a rental portfolio, and there could be, you know, all of you know another portfolio of different holdings, and that's diversification. And talk about Warren Buffett, the man diversified. The man focused on good businesses, he invested in those businesses and he let them grow and he compounded that interest. He wasn't using his money to go over to his personal side to pay for his lifestyle. He just kept reinvesting, reinvesting, reinvesting, and ended up one of the richest men in the world, and that's what we're talking about. Eddie, you're the man, the myth, the legend. Um, but not really a myth yet, because I'm not, you got so much more to go, right? Like you're just getting started in this thing. We were talking about this before, and I'm going a little long because I think this is a BS way to think. Sometimes the younger generation doesn't respect the older generation. And when I say that, sometimes the younger generation just thinks that the older generation is doing it the old school way, the new school way doesn't work, right? What they did 20 years ago doesn't work today. And so they lose a little bit of that respect. But I'm gonna tell you if you don't start finding those OGs in your rooms, finding those mentors that have been there, done that, can give you the war stories of real estate, you're gonna, you're missing out. You're missing out. If you don't listen to anything. Eddie said today, and you don't like seller finance, you don't like anything about it, I don't care, you don't agree with it at all. Go find Eddie next time you see him and have a conversation about the last 30 years of real estate. You'll learn something. Promise you that. And I encourage every single one of you to go out and find those people that have been there, done that, and by the way, still have more to give, right? Like I know Ed Eddie's got a little gray hair there, but I know he's got a lot more. And you know, we're talking about, he's talking about blockchain. You know anybody else talking about blockchain with notes? I'm not talking a lot of people doing that. So just because you know they're OGs and some of these guys have been around a little while, that doesn't mean that they're not advancing their business in a rapid way. And I really, really recommend that you guys find those people, pursue those people, reach out to them and learn as much as you can, because uh, you know, the reality is it's gonna make you better. Last question for you, Eddie. Last question. My big uh saying is better decisions, better results. If you make better decisions consistently, you will get results, better results consistently. If you were to give somebody a piece of advice today to make a better decision so that they could get better results, what what might that be?

SPEAKER_03

Well, I'm not saying it because I'm on your show. I say I mean I'm asked this frequently. And I'm gonna say that people that don't know their numbers don't know their business. Sure. And and I can tell you that accounting issues have cost me more money than defaulted loans. I love that. I love that.

SPEAKER_02

And I'll shoot you that $20 bill for saying that.

SPEAKER_03

I know. I say so it's the truth, and that's why you and I have such had we've had such fun together, is because we just we we we it's funny, we see the when we look through the scope, we see the same thing at the end.

SPEAKER_02

Yeah, that's that's exactly right. That's exactly right. Well, Eddie, it's been great. By the way, if you are interested in meeting with Eddie, you can first off find him on Facebook, uh, all the social media platforms. You can find him on YouTube. He's also got a great, he comes live, I think almost every week on YouTube, but goes live a lot on YouTube and has a lot of great stuff uh on uh YouTube that you can follow and learn more about notes. But also you can go to noteschool.com slash Marcus. Ton of resources there that he's provided to anybody of the strength in numbers audience, which I think is really, really cool. We don't have a lot of member uh guests that do that. So noteschool.com slash Marcus, and you can get some free resources. Also, if you're interested in buying and selling notes and learning about this marketplace and all that other stuff, just visit note school, reach out to them, learn about this industry and learn how you can maximize this industry. And I think Eddie's one of the pioneers uh uh that that really got this thing going in a big way. So, Eddie, I appreciate it. I look forward to doing this soon again, and we'll see you here. I think probably in about a few weeks. I know. I look forward to it. See you, Eddie. Bye. Bye-bye. What if your real estate portfolio could double its cash flow? What if it could? Could that make a difference in your life? Of course, right? Well, at Beck CFO and CPA, that is what we're helping people do every single day is we're helping them look at their assets, understand what's working, and understand how to improve that space. Note investing is one of them, seller financing is one of them. This was a great episode with Eddie giving you an option out of your real estate portfolio if that's what you're looking for. And I know many of you, many of you out there are struggling with your portfolios, you're struggling managing them, you're struggling making sense of them, and you're getting tired of being a landlord. This is an option for you. Guys, if you want more information about how we could help you with that, first off, go to BeckCFO.com and we can get you a free consultation with our team and see if we can help. All right, we'll look forward to talking to you soon. Until next time, keep making better decisions so that you can get better results.

SPEAKER_01

Thanks for listening to Strength in Numbers. If you're ready to take control of your finances and start building real wealth in your business, be sure to schedule your free discovery call with markets at BECTFO.com to get started. Thanks for listening, and we'll see you on the next episode.