ep56-rick-allen-s-worst-note-purchase-ever 
 

Announcer: [00:00:00] Coming to you from Sunny Orlando, Florida. Welcome to the Paperstac Podcast, where we cover current topics in the note industry, give you tactics for your note business, and talk with industry leaders to make you a better note investor. And now your hosts, Brett Burky and Rick Allen. 

RIck Allen: Hello, and welcome  

Brett Burky: to another episode of the Paperstac podcast. 

Brett Burky: I am Brett Berkey, and this is my colleague here, Rick Allen. We are going to have something fun today. It's different than what we normally do. Which normally we'll talk about a topic that is something you should know. Something that might help you in your note business. But today we're going to be talking about something that has happened. 

Brett Burky: Or is happening maybe? Is happening. War stories that Rick has experienced through his Career as either a real estate investor or as a note investor, we're trying to find, for you, it's like one of those things where what they say about advice, it's always good to have the advice, take it for what it's worth, take away the nuggets and throw away the rest. 

Brett Burky: That's what we're going to do here. Take what Rick has experienced and find [00:01:00] where. You, looking back, you can go, oh, that, okay, I'm not going to do that, or I should look out for that next time I'm in that situation. But, it's helpful, and people like to hear these stories, so we're going to start with some stuff, and Rick, start it out, what Let's let's start it out, what's, what is the worst... 

Brett Burky: Note buying experience that you've ever  

RIck Allen: had. Oh, hands down, the best, the worst note buying experience we ever had was really the catalyst for developing PaperStack. Ah. It was so how it goes, it was our first sort of note purchase, our first, for us, big trade, right? Somebody found us and they gave us a pool of assets and they were literally asking Twenty to twenty five cents on the dollar. 

RIck Allen: Wow. It was just like, super cheap stuff. That's cheaper  

Brett Burky: than what it normally was at that time.  

RIck Allen: Even at that time it, that was cheap for the time. It was, so it was, I guess that should have been the first red flag. Were they all non performing? We were all non [00:02:00] performing. Most of them were were, there was a couple that were vacant, but owner occupied. 

RIck Allen: What happened was We got this pool of assets and we said, look, we're interested in, we pulled out for us, what was a lot about 250, 000 worth of product. That's a lot of, it's a lot of juice, a lot of notes. And we ended up I want to say it was to take way bigger. Oh, it's huge. It was huge. 

RIck Allen: There was probably 500 assets on there.  

Brett Burky: Okay, and so you cherry picked, or...  

RIck Allen: We cherry picked the ones that we thought that, in areas that we were interested in, which were non judicial states, is what we were focusing on.  

Brett Burky: Gotcha, so at this time you were already out of... Playing in your backyard. 

RIck Allen: We, we, yeah, we had moved, this was that first big step to, to not buying in Florida. We had purchased a few outside the state, but now it was like, okay, we're moving on.  

Brett Burky: Did you have your boots in the ground type teams? No. Mistake number  

RIck Allen: one. Okay. [00:03:00] That was a mistake. We didn't have boots on the ground. 

RIck Allen: All right. And so what we did is we found the assets and we sent the whoever we were buying him from sent us a. They said, look, you need to put money in escrow. Okay. So we put money in escrow and I was like we need an inspection period, quote unquote, we need to run our due diligence inspection period, we need a due diligence period. 

RIck Allen: And so they're like we need the money. We need to know that you're a real buyer. So we're like, fine. So we wired 250, 000 to this attorney that we didn't know. And so we were real nervous about it. And. We signed paperwork that said we had 14 days to get the due diligence. 

RIck Allen: Okay, right? So they were like, okay, give us the due diligence. They're like, all right, we'll set up a data room for you. And they're on, they're like sending us emails and they're going, hey you should have the data files. And they tell us that on like on a Thursday afternoon and I wasn't in on [00:04:00] Friday. 

RIck Allen: So I'm like, whatever. I'll deal with it on Monday. Monday comes in. I'm like, yeah, no, there's no data files. I don't know what you're talking about. We shared 'em to you with through Dropbox. And I'm like, okay. I'm like, I don't have any, I'm searching my email, I'm searching Dropbox, I've got nothing. 

RIck Allen: And Monday turns into Wednesday's now Friday. And I'm like, guys, where are these files? . And I don't hear anything back from 'em. Monday comes back around. And they're like, listen, the, you have the files. I can see you've got the files. We send 'em to you in Dropbox. 

RIck Allen: I'm like, look, I don't have any files. I got no email. They're like, look, it's right here. And they send me, they re-forward me the link and the link is for Box, it's not for Dropbox, it's for Box, which is a competitor of Dropbox and a, apparently I had a box account, I didn't even know it. And Box has a feature that auto accepts. 

Announcer: Are you new to the mortgage note industry? Have you been wanting to learn the step by step process to purchase your first mortgage note? Well, you're in [00:05:00] luck! We've convinced our CEO Rick Allen to break down everything he knows about mortgage note investing. Through a series of 50 videos, you'll get everything from start to finish of where to purchase notes, how to purchase notes, and all of Rick's investing techniques he has developed over the many years. 

Announcer: From performing note tactics to non performing notes. Rick gives you everything he knows about investing. Bonuses include our glossary of industry terms, Rick's own proprietary calculators he created to evaluate notes, discounts from our partners, our Rolodexa vendors, a private Facebook group, along with a lot more. 

Announcer: We've packed so much content into the Academy to take you from beginner to expert in no time. To learn more about the Academy, Go to academy. paperstack. com slash welcome. Again, that is academy. paperstack. com slash welcome.  

RIck Allen: All invitations, which I don't know, but it auto accepts [00:06:00] invitations. And so I was just like, oh my gosh. So I'm like, the clock has been ticking in my head. So your due diligence period is running down. Is running down and running down. They should reset that at that point. It's running down quickly. 

RIck Allen: And I'm like, listen, here's the issue. And they're like, oh just do your due diligence. And so we run our due diligence. And we had this collection of loans we're going to buy and we start getting in there and start running our DD and we come to find out that half the homes had been lost to tax deed already, like which means it like it was unsecured debt. 

RIck Allen: Oh my gosh. Of whatever was left over, half of those had been demolished because the city had seen them unfit to live in. And so we're like, I'm in a panic at this point because I'm like, oh shit, we've got money out. Our due diligence period is questionable at best on when it's expiring. And like, how am I like, you guys sent us these assets that are garbage. 

RIck Allen: So [00:07:00] it was just such a oh my gosh. So they end up replacing, they're like pretty cool about it. They end up like. Look, we'll replace the assets. Let's find new ones for you. And they're like, okay. And look, like I'm real worried about, I'm like, look, I got this quarter million dollars and it's not my money. 

RIck Allen: I got a fiduciary responsibility. So I'm like, I'm freaking out. And we end up getting it to where they end up giving us. An extension on our due diligence period. We replace the assets. We fill it up with actual assets that have not been lost, that are decent looking assets. And they end up sending us the collateral files on everything. 

RIck Allen: So we close the transaction. They have to send us back money. And we start getting collateral files in. And one of the collateral files, which is one of the ones we bought that was local, is here in our backyard. There was nothing original in the collateral file, except for the lost note affidavit. And they said, they put they gave us insurance policies on all of them, title policies. 

RIck Allen: I felt pretty comfortable, but it was like, look, I had, I was still fairly [00:08:00] green, but I knew, look, having nothing original, just a lost note affidavit wasn't good. It wasn't good. No. Wow. And so that was scary. And so that's when we were like, okay, we need to sort out paper stack. 

RIck Allen: But then the, I don't know if it was like,  

Brett Burky: how'd you miss, how'd you miss those ones the first time around?  

RIck Allen: Because we put an indicative bit in. I  

Brett Burky: mean, but the ones that they replaced them with, was that on the tape already? Yeah, they were on the tape. And so they just found them and said, hey, these  

RIck Allen: are... 
 

RIck Allen: No, we did. They said go find more of them. And we're like, okay we need to find more of them. So we went through and looked and started searching and doing all that stuff. And at that point, we're like, okay, these are, these will work. But so to close it, the trades closed out, we've got the collateral files. 

RIck Allen: And it was the the final, like... Kick in the gut and it shouldn't matter but it was like they ended up I think we ended up buying I want to say it was like six or seven assets on that trade and I think they wound up Scalping it for 50 grand [00:09:00] in fees on us Like whoever was selling it to us was getting it from somebody else because they accidentally sought us sold or sent us their internal spreadsheet that had their spread on there And TJ and I, we got this spread and we're like, Oh man, that sucked. 

Brett Burky: They put 50, 000 worth of videos on the  

RIck Allen: like Mhm. We got, fast forward we God,  

Brett Burky: yeah, 50, 000 worth of fees yeah, what was the final price on it, the 250,  

RIck Allen: 000? I don't even no, we ended up we ended up buying it, I think, they sent back one, 40. So we probably pay, we were like the 120 range. 

RIck Allen: God, almost half of it was fees. Almost half of it was fees. Oh my gosh. But dude, so listen to this. Fast forward. We end up we end up making probably 120 grand on one asset. Because we ended up foreclosing. The girl ended up, there was just one girl in there, it was in Georgia. And I can't remember if it [00:10:00] was South Park or High Park. 

RIck Allen: Georgia, it was right outside Atlanta. She ends up like trying to buy the house, is paying us money, and ends up like, it's look, can you, cause it was her mother's house, she was trying to get it, never could do anything, so we just, we had to take the house back, so we took the house back, and it was at a, it was at a point when the market was, it was just before, it was maybe a year and a half ago when the market was, maybe two years ago. 

RIck Allen: When the market was just like really starting to rocket ship up. And so we ended up doing well on that one. But we made money on every single deal. And how long do you have  

Brett Burky: to hold that? If  

RIck Allen: we were collecting rent on it, too. Oh. She was paying us rent. Oh, okay, so you kept that asset for a while. 

RIck Allen: Oh yeah, we kept that one for, five years. Yeah, okay. But, collected rent on it, and then after that we sold it for a huge nut. Just made huge money on it. But, we made money on everything. Even the one that had no The last note? Yeah, we ended up turning around and reselling that one for a five grand profit, like immediately. 

RIck Allen: The note itself? [00:11:00] The loss note. The mortgage. We ended up selling that one immediately. Wow. I was like, we got to get this one out of here. Because they wouldn't sign the house over to us. It was just, what do you think happened with that one? I don't know. I don't know. No, there were some good deals. 

RIck Allen: And that will go to show you that no matter what, however if you buy something cheap enough, we, we were at like, like 20, 25 cents on the dollar. So you made it work. We made it work. We made money, but man, that was a tough one. Yeah,  

Brett Burky: I remember TJ saying something about that where he's like eating dinner with you guys don't have any clue where this money's at. 

Brett Burky: And you're just like, I have no idea where this  

RIck Allen: money's at. I know where the money is. It's just it was my first time doing business where I wasn't buying from a hedge fund. We're buying from somebody that we knew. And I don't forget how we even met these people, this guy, but [00:12:00] we met this guy and he was hooked us up with, I think it was Peak Servicing, which was a, just an, I think they're out of business now, a nightmare of a servicing company or horrible. 

RIck Allen: And then this guy brought us, who was actually in on that trade? Dickey Baldwin. Yep. Dickey Baldwin. And of course, Dickey wasn't the front man on it and didn't know much about it. He was just as Dickey is, a connector. He was connecting the pieces, but it was  

Brett Burky: actually pretty... 

Brett Burky: It's at six degrees of separation when... When Dickey Baldwin went. Dickey Baldwin's  

RIck Allen: in there somewhere. Yeah, Dickey Baldwin's like Kevin Bacon. No, that was a, that was definitely one of those war stories where you're like... It started PaperStack and it was our first. Then it turned out good. Yeah, it's a larger trade. 

RIck Allen: We did really well in it, but it was really just all the pieces of that puzzle that went wrong  

Brett Burky: were the actual foundation for  

RIck Allen: PaperStack. If you look at what PaperStack is today, the foundational pieces, it went really off. We tried to... We tried to fix the [00:13:00] system with PaperStack by doing that. 

Brett Burky: I like it, because your worst trade actually... We probably wouldn't be sitting here if it  

RIck Allen: wasn't for that trade. Maybe not. Maybe not.  

Brett Burky: If things had gone easy, you'd probably have been like, Eh, we can get by. But it was like, you're just like this is no,  

RIck Allen: we loved the space. At this time we'd been in the space for... 

RIck Allen: I came from the wholesale side of the business and the fix and flip and the rental portfolio. And, we, TJ, and I had we had a wholesale company with a partner, Calvin Brown investment homes direct that we started after we left real net and. It was really good. But the thing about wholesale is it was really easy to get into it. 

RIck Allen: And so when the bank agent, the first time the bank agent introduced me or was introduced to me by our REO agent, Bagel. It was like, I was asking around to other people like, Hey, did you ever bought notes? And you start asking around [00:14:00] to the circle of people that you do business with. 

RIck Allen: And that was at the time wholesaling and fixing flips and rentals here locally in Orlando, and nobody knew about it. Nobody was, they were like, no no, it's like hard money loans, or, I'm like, no, yeah, no. Do you ever buy any notes from a bank? They even sell those. They're like, no, I don't know. 

RIck Allen: No, I don't. I don't think so. So we were like, that's perfect. That's  

Brett Burky: the Blue Ocean strategy.  

RIck Allen: We were just like, Hey. And that's how, that's how I've always been. Like I would always look at something and if everybody, like when the Rios hit. , this is a really good example. I got really good at hitting. 

RIck Allen: for 50, 60, 000 fees on one house because everybody was offering on this, just this pile of REO inventory. And I would still offer on them, cause you want to get your five grand hits, but I would just go. And I started looking at like probate deals or land or not land trust, but estates because I was like those, People are probably dead, and there's people there who want to sell their, [00:15:00] they're like, people are like, the real estate market was super low, and those people want to sell their house because they just inherited it, and they're probably not getting many offers because everybody's offering on the REO stuff. 

RIck Allen: I remember  

Brett Burky: that story you told me how it was basically, and this is great for people that just are listening, I remember where we were, it was like 5 or 6 in the morning, we're at Retro, and Left the gym and so we were working out. He told me how to do it was you would look at find a state that has five or six errors. 

Brett Burky: That all knew that hey look You know, I'm gonna get whatever  

RIck Allen: 10% or whatever I say five or if there's so if there's five people and they're gonna get each gonna get say it's a hundred thousand dollar house We'll just use that as numbers and they're gonna get They're all thinking I'm going to get 20 grand. 

RIck Allen: Yeah. And so I would always find it's a double edged sword, but I would like to find them where there was like five people who are going to get 20 grand as opposed to two people who are going to get 50 grand because [00:16:00] on the, when it's two people, there's less decision makers. But if 70, that means they're each losing 15 grand, right? 

RIck Allen: Versus if I tell five people. I need to get it for 70, 000. They're each losing 6, 000, right? So five people are like, ah, it's only 6, 000 less. Yeah. It's okay. Versus, oh shit, I'm losing. 15, 000. 15, 000, that's it's a lot more to stomach. So I would always go for, you say like Blue Ocean Stripes, I would always do that. 

RIck Allen: And then when the, just be on the opposite side of the herd. And that's how it worked out. And so once we found out that nobody was doing notes, at least locally, we're like, let's  

Brett Burky: do it. That's super cool. That's super cool. That's a really cool story, man. That's that. I always like hearing that one. 

Brett Burky: That's that's when you can put your kids to sleep with. It's a bedtime story, but it's a really good one. So that I like that. That's the the worst note transaction Rick's ever had. [00:17:00] Thank God he had it, because yeah. That would've, he would've never ran into me at Publix, and... Heh. 

Brett Burky: That's, yeah. Even when he ran into me at Publix, I had my daughter's backpack on. I remember, I didn't think I was going to see you there. Or anybody there. But I had a... Why would you be  

RIck Allen: wearing her backpack in the grocery store?  

Brett Burky: I don't know. I forgot why. She was, I don't know where she was. 

Brett Burky: But I had her backpack on and she wasn't with me. That's probably not good, but or  

RIck Allen: the tears out of you on that one, huh?  

Brett Burky: Yeah, but that's that. All right. Cool, man. Yeah, that's it for this Podcast if you guys have something you want to hear Always welcome for new stories, of course, you know subscribe like all that other stuff, share and yeah What's your worst story? 

Brett Burky: Tell us if you're a note investor put in the comments below See if we can collect some stuff. Someone with the best story gets a t shirt.  

RIck Allen: Yeah, if you've got a really best story. Yeah, if you've got a really nightmarish story. Why don't we do this? Let's choose. We'll choose the worst one and give him a t shirt. 

RIck Allen: But also, bring [00:18:00] them on and... Oh, tell a story. Host them on the podcast. You can come on and tell your story. That'd be cool. All right, put it in the comments. Leave, give me your worst note story. And yeah, we'll bring you on the podcast and you get to get the interview and get the spotlight on you for a little bit. 

RIck Allen: Yeah. Sounds  

Brett Burky: good. Sounds good to me. Cool. See you guys.