EP111: My First Note Purchase With Marco Bario

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Join us for an exciting video from the ‘My First Note’ series, where we'll explore the world of seller finance and note investments with Marco Bario. In this episode, we will discuss the intricacies of buying and selling seller finance notes, the strategies you can use to excel, and the challenges you may face. Tune in to discover Marco's first mortgage note purchase. 

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Chapters:

00:00 - Introduction
0:13 - Welcoming Marco Bario, note investor industry expert
1:00 - Marco shares his recent achievement
1:35 - Marco’s background in film and television
3:25 - Transitioning into the real estate industry
5:10 - Learning from Gerald Des Moines and educational programs
7:40 - Marco’s first note purchase 
11:07 - Details of Marco’s first note investment
12:40 - Marco’s decision to sell the note
13:10 - Starting with a $41,105 Balance
13:18 - Collecting Payments
13:27-  Business with First National Acceptance
13:38 - Seller Finance Note Market
14:04 - Selling the $41,000 Balance
15:03 - The Importance of Reps
15:49 - Navigating the Seller Finance Space
16:08 - Reasons People Sell Notes
17:00 - Marketing to Mom and Pop Note Holders
17:34 - Challenges in Marketing
18:55 - The Future of Equity Participation

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Transcript

Rick Allen: 0:05

Welcome back to the Paperstack podcast. Rick Allen, Brett Berkey here with another edition of my first note purchase. So excited today. We got somebody who's been on the platform forever. I've met Marco several times. He's been I think he's been in the industry basically since I started. I knew of Marco. Yeah. For a long time. Marco Barrio. Thanks for joining us, man. How you doing?

Marco Bario: 0:28

I'm terrific. How are you guys

Rick Allen: 0:30

doing? Good. Doing good. You're it's bright and early where you are, right? 8 a. m., California? It's,

Marco Bario: 0:35

it's not. I'm sitting in Maryland right now. These days I go back and forth between L. A. and and Frederick, Maryland. Okay. I've got some personal and soon to be business interest here, so I split my time.

Rick Allen: 0:47

That's fantastic. How do you deal with the the changing, the time changes back and forth?

Marco Bario: 0:54

Usually I spend a couple of days where I stay on California time and then I rip the band aid off and get up early one morning. So I, the big achievement this week was I joined the Y in Urbana, which is part of Frederick. And I got up at five the last two mornings to go work out. So that was me ripping the band aid off pretty hard. Yeah,

Rick Allen: 1:14

that's pretty hard. That is pretty hard. How long have you been? Were you in California at all for the hurricane that blew through, Hillary?

Marco Bario: 1:22

No, I missed the hurricane and the earthquake that happened on the same day. Yeah, it was... Yeah, my brother and both of my kids, I was in touch with them. But it was very exciting,

Rick Allen: 1:32

so tell us a little bit of how, how did you get in the industry? What's your background? Where'd you come from? When did you start? And then we can lead into your first note purchase.

Marco Bario: 1:42

Yeah, my background before real estate and anything to do with it. I don't have a background in real estate at all is I worked in film and television in Los Angeles. I moved out there in the early 90s and I started working on television shows in the production office, worked my way up a lot of scripted TV and then I did that for a number of years and then I moved into working for a big company called Technicolor and eventually became an executive with them and I oversaw their theatrical post production pipeline. On the digital side. Technicolor was a hundred or more years ago inventing color film, but as I was starting up with them, we were starting to do digital finishing on feature films which is the norm now, but it was pretty, pretty bleeding edge at the time. So it was a really exciting time and I got to work with a lot of really exciting filmmakers and studio executives and on a lot of different projects. But I changed gears in the around 2015 that industry was changing really victim of interesting of Moore's law because the technology that we pay, 1, 000, 000 per environment to build out was now. More or less available on a desktop workstation, in some cases a laptop workstation. And also it was happening all over the world. It wasn't, those huge checks to build out those environments and bring in those talent. So it got really competitive and at that time it was... Time for me to reinvent. Again, I wanted to do something more entrepreneurial. I'd had some entrepreneurial exposure in that world. Actually, those were the first times I had to worry about P& L statements and actually generating revenue, not just spending a production budget. And I got an itch for it. Among other things, I had a little e commerce business, which just taught me a bit about running my own little thing. And then and I started going to some real estate meetups and one of those was a panel of note investors. And I thought it sounded really interesting and that's, and I decided to go down that path.

Rick Allen: 3:44

That's pretty cool. Wow, did you, that's real cool actually. That is a pretty interesting background.

Brett Burky: 3:49

And when you said Technicolor, I was like, Technicolor? Yeah, everyone knows what that is. It's pretty

Marco Bario: 3:53

interesting. Wow. Sadly, it doesn't, sadly it doesn't exist anymore. The final piece of Technicolor was bought about two years ago by another company, and I questioned the logic, but they retired the brand. Wow. They're near the end.

Rick Allen: 4:11

I must be the one that doesn't know because I've never heard of

Brett Burky: 4:13

Technicolor. You'd know it if you saw it. It's... They had the logo that was like the... It's like a... Almost like a circle rainbow type

Rick Allen: 4:19

looking thing. I... Yes, and it came spotted with the star that would... I don't know about that.

Brett Burky: 4:25

You might know better than I do. But yeah, I remember... I do remember the logo.

Rick Allen: 4:28

You went to... You went to a meetup. You started just tinkering, thinking about real estate. You saw a notes panel. Do you remember who was on it? Anybody that's still in the industry or was it just a random

Marco Bario: 4:39

Yeah. You guys, yeah. You guys know Gerald Des Moines, right? Oh, yeah. Have, of course. Yeah.. Yeah. Yeah. So I'm in Southern California, I was a hundred percent in Southern California at the time, and Gerald's a Southern California guy. Yep. There was a meetup I used to go to down in they called the South Bay. But Redonda or Manhattan Beach, El Segundo area down by LAX Airport. And that night Gerald was on the panel. And a few other investors who aren't as active in our area of the note space. But definitely knowledgeable about notes. But Gerald was talking about buying non performing seconds. And that's, it was really interesting to me. It was really interesting to me. I'm definitely will talk about this a little bit with my first note purchase as we transition into that, but I'm a, get knowledge, but then really solidify it by getting my hands dirty as a person. And those not performing seconds, the way Gerald described it, it was like, gee, this is how Houdini would have somebody walk him into a box and handcuffs and chains and drop him into a tank of water. Yeah. And I'm sure he had some idea how he was going to get out. But you never, certainly as the audience you never really knew how he was going to get out. And I thought, That type of learning was appealing to me because I had to get into title and I had to get into property and I had to get in all these different outcomes and the borrower and and I figured each one would be a little bit different and I would learn from each one of those touches, right? Sure. And that's really what it was most appealing. It wasn't the big dollar signs. I think there are a lot of different areas of real estate to make big dollar signs. But it was It was, I felt that I could get more reps and be stretched in a lot of different directions and learn faster having no real estate background. That makes sense.

Rick Allen: 6:27

Did you did you seek out any sort of like professional education, go to anybody, or did you... Oh, so you did,

Marco Bario: 6:33

okay. Where did you go with Gerald, or was there somebody else you... Gerald used to host meetups in Orange County, which is one of the counties south of Los Angeles County. And I did attend those while he was still hosting them. And it was, that was a commitment because in rush hour traffic, from where I live to Gerald's place, his office, he would host them at. It was a good two hours. Holy cow. That alone was a commitment. But he, in particular, was generous with sharing how we ran this business and the intricacies of how we sourced the notes and how we dealt with certain situations. I learned a lot by attending those, so it was well worth it. For, I don't know, you charge ten bucks and they give you a piece of pizza and a soda. It was the cheapest dinner and the most educational dinner I could ever go to. That's awesome. Kimberly Banks Fawcett and and And Liz Brumer and at the time, a guy named Chase Thompson had an educational program that was the first one I ever signed up for. Huh. Chase and Robert

Rick Allen: 7:28

Woods. I was, no, they had a

Brett Burky: 7:29

note investing university or something like that. Something

Marco Bario: 7:32

like that. Those three together had, yeah. Yeah. I think Kimberly may still run it. Okay. But that was among the first. And there's so many. great podcasts such as this and books and Dave Van Horn used to do a monthly call where you could ask him ask me anything type call. I, it's just such a generous community and there's so much information and I, at the end of the day, I'm not a proponent of spending 20, 30, 000 on a mentoring program. I'm a proponent of learning the basics. Doing what I did just getting yourself into some deals and learning the other pieces that way. Perfect

Rick Allen: 8:09

So 2015 you find out about it or 2016 somewhere in there. When did you buy your first note? Tell it to walk us

Marco Bario: 8:16

through that. There you go. So I bought my first note October 25th, 2017. That was the date on the assignment, so let's go with that. And it was also connected to the, that real estate meetup that I went to. I used to go to this group. They're still in existence called Foreign Investors, By Investors. They have a few locations in Southern California. And the guy who runs the the chapter that I went to and used to run one others, Matt Owens, and he had a big business that he built, Southern California guy, but a big business he built, as far as I know he still operates it. It was turnkeys in Memphis. So he would find properties, he would renovate them, and he would sell, and he would put tenants in them, and then he would sell those to investors. And then at the time he was, his company, another division of his company in Memphis was handling the property management. Okay. So when he would sell the, so when he would sell to the investors very often, he would carry back the paper. He'd sell or finance those. Nice. And then he'd collect an origination fee when he'd create those notes. And then he'd sell the notes off to investors. By this time I knew Matt well enough to know that He was the kind of guy who, and this is not an endorsement of any one investor or source of notes but I think this is important for somebody just getting into the business is to know who you're buying from. Matt had, Deep Pockets, it was the kind of character, has the kind of character I believed, and I still believe, who would step in if something went south and say, hey, how can we make this right for you? I know this didn't work out the way we said, and of course there's no guarantees, and nothing's in writing, but he's just the kind of guy who would help a guy out. I felt comfortable buying from him. And my goal on the first deal wasn't to make a lot of money. It was, gee, I bought a house before. I live in the house that, I bought. I lived at the time in that house that I bought. So I bought real estate, but I've never bought paper before. And I just wanted to go through the reps of doing that again. It's just touches and reps. And that's how it comes, mostly how I've learned. Besides, I still take education. And that's concepts, but really doing is the best learning. I have these notes available. He sells them at par. I don't tell anybody I bought a note at par, but I did. But it was worth it to me. So the terms of the note were this. He created a note. I don't know what he sold the property for, but he the starting balance of the note was 62, 500. It was a three bedroom house at Memphis. Matt's company had put a new roof on, they really fix them up for these turnkeys. So that at least for the first 10 years or so, you shouldn't have to worry about HVAC systems or roofs or anything major. So I knew the house was in good shape. It was generating rental income and I had all those numbers. But it was at 7%. The payments were 68 cents a month and I had a 120 month term. A real simple note. And when Matt sells these When Matt creates these notes, his company collects the payments, they perform the servicing. They used to, he sold all this off, but and and charges a 15 a month fee. So I had to wire Matt, so four payments have been made Matt's company. Four payments have been made, or 116 remaining. So I bought a balance of 61, 000 and, 61, 042. 93. And I paid 61, 042. 93. Those numbers are pretty simple. And then he gave me an assignment and a launch. And most importantly, walked me through here are the documents I'm going to send you. And again, this is somebody I trusted and learned from and felt comfortable buying from. I know there's always risk. And everything went as I expected. The most boring transaction maybe anybody's ever told you about for a first note, I don't know, but it was interesting to me because I learned about buying paper., what was the rate? 7%. 7%? 7%. 7%.

Rick Allen: 12:09

Okay. So it was, and this is in 2017, October, so 7% was your like, Hey, I'm seven percent's good. I've got, let's, and it's. Let's learn it and see what happens.

Marco Bario: 12:22

Yeah. Yeah, you know what? It could have been four or five. It didn't really matter to me. I got to make a little money. It was a seminar that paid me money, essentially. That's how it

Rick Allen: 12:32

works. That's exactly how it works. Do you still own the note or did you end up selling it?

Marco Bario: 12:37

I sold it. So it was in my retirement account. I have a solo 401k and that's how I got into investing. I'm not somebody who... It takes on investor money and I still, it wasn't then, and I still don't but I converted a stock account, a retirement stock account into a solo 4 0 1 K national business that I had at that time. And so I bought it in my 4 0 1 k and I collected total of 65 payments. And by that time, the balance was paid down to 46, 1 94. No, I'm sorry. I'm sorry. The balance was paid down to 41, 105, 41, 105. I'd collected 46, 194 for those 65 payments. I collected net after the servicing fee. And I thought, the balance is getting smaller. I know how to make a little bit more with my money by then. And and I was and still do a lot of business with First National Acceptance. My primary business now is buying. Wholesaling or holding some seller finance notes. I market to mom and pop, so a seller finance paper. I'm pretty busy in that space now, but I've never been. It was another opportunity. I thought we'll learn on the exit from this one as well. I'm in the middle of a lot of transactions with First National Acceptance. They're wonderful to work with. But I've never been on the selling end with them. So I thought, what the heck, I'll just sell it to them. I know their pricing is fair. Yeah. And I know they'll close and do what they say they're going to do. And of course they did. So I sold my 41, 000 balance for 37, 300. Okay. And they bought the rest of the note. That's

Rick Allen: 14:13

perfect. Yeah. Yeah, really boring, but you know what? When you want, when you're buying your first note, boring is always good. That's what I would say. If it's the first one, boring notes are great. Just because you're getting the reps. It's funny you say that. I'm a big believer and it's hey. I got into it by doing the same thing. I actually didn't even get the education. I understood. I just looked at it and said I know I can't really lose on the price that I'm paying for this. I'll figure it out. But then the reps, the more reps you can do, the more you learn, the more you learn. Ideally, the stronger your return should become. Makes sense. So you're now it sounds like heavy into the seller finance space. Are you originating seller finance or you're just marketing for the seller finance stuff, turn around, either buying them or turn

Marco Bario: 15:03

around and then just brokering them? I yeah, I market to mom and pops. Most of the people I buy from have created exactly one note in their whole life. They lived in a property more often than not and they sold it and they carry back the paper for whatever reason. And they reach out to me at a time that they want to move on from it. They're, someone's passed away. They want the money. They're tired of collecting payments. They need to clean up their affairs because they don't want to leave a note to their heirs. Look, you guys froze again. That's... Yeah you, I don't know, did you hear that part about heirs? You froze again on my side.

Rick Allen: 15:39

No, you froze on our side too. Say that again. You're marketing your mom and pops and they call you... When they're ready to move on

Marco Bario: 15:46

and they don't want to hold the paper anymore. That's right. That's right. Yeah. The various reasons. Somebody's passed away or someone's inherited a note. Siblings are splitting a 500 a month payment four ways. We don't want to do this anymore. A lot of different reasons. But it's just some version of people

Rick Allen: 16:08

are a secret sauce to the marketing. We did some marketing for some owner finance stuff and it seems like it was You know, we tried the texting stuff, the mailers, and it's, it really, it's just, that was it. The texting worked a little bit, but the return for the cost wasn't really there. So we ended up ending up doing it. I ran into the problems was, a lot of these people, surprisingly, they don't know what they're holding. When you say, I need copies of these documents or that document. To do it on a really large scale to where you're pumping out, say 20 or 30 of these a month is just tough. And maybe we just weren't doing it. Getting the payment history, the documentation, that stuff was like you really had to be, I'm focused on doing, maybe three or four of these a month as opposed to 30 of them. Because we were trying to do something. On a scale and that's it. I thought that was really hard. Maybe you're experiencing something different, but is that just for people out there who are thinking about doing the marketing? It's a lot of work. It's a lot of work. Yeah. We,

Brett Burky: 17:09

we did have a really interesting time where the, we called one guy and what did he say? He gave us his number right away. It was a funny story. It's 70.

Rick Allen: 17:16

And

Brett Burky: 17:16

I was like, what are we talking about? 70? He didn't know what the property was worth. That was the inter family

Rick Allen: 17:20

transit deed. Yeah. Yeah. We've had some. But have you experienced anybody, we came across a couple people that they didn't have one, they had like literally 70 of these things which was my experience, happens in Texas a lot. Texas, yeah. People in Texas seem to have more than one.

Marco Bario: 17:37

I, I talked to a gentleman yesterday who has quite a few, yes, in Texas.

Rick Allen: 17:42

Yeah, so it's you end up bumping into him. I wonder if it's the same guy that we talked to he's older gentleman But yeah, he had quite a bit of these he was looking to retire so he can go travel the country in his motorhome with his wife

Marco Bario: 17:55

That's good you guys know anybody you guys know anybody I talked to somebody else from Texas yesterday he holds a portfolio of Equity like home equity investment paper in other words, you know the companies that kind of sprung up during the last real estate cycle and they wanted to invest in the equity in your home? Yes. They'll say we'll send you a check and you won't have to send us any payments. But if if you don't sell your place or refinance in 10 years, then you're going to have to cash this out. So if you participate in the equity appreciation of your home, this guy holds a

Rick Allen: 18:29

portfolio of those. Really? That's interesting. I just I've literally, I've seen a bunch of... And heard a bunch of advertisements for that exact type of thing going on right now still. I had a

Brett Burky: 18:41

conversation with somebody on Monday or Tuesday about that thing and I guess, Moody's is about to do something, give it a rating or do their first securitization of it and then I think that's going to like really make it

Rick Allen: 18:53

set a bar and...

Brett Burky: 18:55

Yeah, because I think, what did he call it? He didn't call it... It was the same thing, but it seems like this could be the next big

Rick Allen: 19:02

kind of thing. equity participation agreement.

Brett Burky: 19:05

Because, they're not selling because they can't go buy a new place

Marco Bario: 19:08

or whatever. It's, in the traditional sense that people know, it's stocks versus bonds. Bonds, you buy a return. Stocks, you buy equity in a company and hope that it goes up rather than down. That's a good way to look at it.

Rick Allen: 19:20

They're just having the benefit of... A lot of the, from what I, the marketing message I've been seeing is they are certainly targeting people who have a substantial amount of equity in their property that have fallen

Marco Bario: 19:34

on hard times for one reason or another.

Rick Allen: 19:37

And they are targeting just that. They're, you'd be crazy to do something that's even remotely close to having no equity right now, or even in my opinion, 15% who knows what's going

Marco Bario: 19:50

to happen on the market. My preference, I end up, through my marketing, I end up talking to a lot of different people and some are, have a situation, if you will. And I like to offer to buy an option on their property rather than, go on title as an equity holder. The option's a really strong position to be in. If they've got a tax, if they've got a, say, a 10, 000 tax problem. And I can take care of the property taxes in exchange for an option that I can exercise sometime in the next 10 years or 20 years or whatever we can agree on. That's a great situation. I hold that option. I can sell it like any other type of paper. That's interesting. And there's a gamble and I want the investment to be smaller, but it's a huge leverage position. It's almost like buying seconds. For a small investment, I control a really large asset.

Rick Allen: 20:39

That's really cool. So you just say, look I'll buy an option on the property. And then you record, I assume you record the option

Marco Bario: 20:47

and... Yeah, I record options with a deed of trust or a mortgage. Okay, so it's the title, yeah, the deed dogs, if you will, the people who search for the title company, sometimes they'll go past an option. This is what I've learned from a lot of different people, more experienced than me, so the recommendation is, People like Pete Fortunato or Bill Cook or some of the people who talk about this a lot. Recorded data trust or a mortgage, they won't go buy that. Huh.

Rick Allen: 21:16

Interesting. That's a whole other topic. Yeah, don't be surprised if you get called back on to go and dive down that rabbit hole. Give us some advice. Give some of the users some advice or the listeners. They're looking to get into the space. They're just new into the space. What's some advice from Marco Barrio on, hey, it's, you're starting out. What should you do? Action items, stuff along that line.

Marco Bario: 21:42

It's, the most important thing and I talked about it a lot, is to get to know People you'd be comfortable doing business with somebody really experienced and I was on to this person reached out to me also Yesterday, he was looking at a totally different type of investment not notes real estate related but that notes And this investor said does this look too good to be true to you a and B do you know anything about the people who are offering it and in fact When I started investing in real estate, my first investment weren't notes, they were real estate syndications. And the people I, also through this For Investors By Investors group, there's another gentleman there, one of the founders, Jeremy Roll, who specializes in investing in syndications and who teaches a lot about the due diligence. The most important thing is you're investing, especially syndications are when you send money off to somebody and they're going to buy a big apartment complex or a self storage facility and they're going to run it. And they're going to make all the decisions, and you're just along as a limited partner. Limited partner means you have no say in anything they do at all. And the most important thing to realize is within the investment you're investing in the people who are your counterparts. That's your first gamble that you're making. That's the first investment. So that's why I felt comfortable to invest with Matt. Again, he struck me as a guy, a little bit of get to know the guy and be around him and talk to other people who've done business with him. But a little bit of my gut instinct as well, he struck me as somebody who would make it right. We never had to do that, everything went as we hoped it would. But but that's the most important thing. At conferences, when you can, now you can get back to going in person and shaking people's hands, having a bite to eat with them or a cup of coffee. Get to know people, talk to other people who may have done business with them. See how much they give back to the community. This great notes investing and real estate community that we're in. The people who are out there usually not overcharging for seminars, not overcharging for their time. Just, hey, I want to give back to the community because I want them to be a strong and ethical community. And propagating all that. Those are the people to look for. The knowledge will come. People will answer your questions. There's no problem finding the answers and the information.

Rick Allen: 23:56

Yeah, it's good. It's almost knowing the questions to ask to get those answers, right? And I think you said it perfectly if you get a foundation and then you get in there and start mixing it up with the reps and you start getting, you know buy an asset and then you'll, those, the questions will open themselves up to you. But if you can know the basics on what you're looking for and how to run some basic due diligence and you know that you're not buying a complete bomb right off the rip you'll figure out the right questions to ask. Yeah, makes

Brett Burky: 24:29

sense. The unconscious incompetent, and conscious. That whole, yeah, that

Rick Allen: 24:32

whole Yeah, so Marco, thank you so much, man. I appreciate it Where can we see you? Where are we gonna bump into you? You have any events on the schedule? Anything planned?

Marco Bario: 24:46

I just signed up. I'm gonna go to the National RIA convention in when is that? The beginning of November? Unfortunately it's the same, it's the same weekend I know as Node Expo? Node Expo. Oh wow. Yeah. So those two conflict. Last year I went to Node Expo and I missed this. And I really do want to go to this. I know that Tracy Z is going to speak at the National Real Estate RIA convention this year. Oh, really? She's a mentor of mine. She and her husband Fred are mentors of mine. Oh, cool. And I'm looking forward to seeing her there. It's a wonderful group of people who are who put that on. Vena Jones Cox puts that event on. If anybody has a chance to check it out, she brings in some really great speakers.

Rick Allen: 25:23

Alright we lost Marco there. Sounds like he's going to be at the National RIA, and he does have a newsletter that he puts out. Yes, every

Brett Burky: 25:30

Sunday. I would recommend getting on that.

Rick Allen: 25:32

It'll be in the description below. Yep, really great talking with him. Marco we appreciate it. And we will have a new guest coming up shortly. I'm excited about the lineup. Yeah, a lot of people. And what we've got coming. Cool. Alright, we'll catch you on the next one. See ya.