Even in a strong market, there are always non-performing loans to buy. Scott Carson started out during the financial crisis in 2008 buying non-performing loans, restructuring them, and turning them into profitable investments. A decade and hundreds of transactions later, Scott now runs We Close Notes. His company actively invests in non-performing loans around the country and teaches new investors how to do the same. On this episode, Scott shares with Drew that after declining for many years, the number of foreclosures is actually on the rise. Distressed property may be poised to be a great investment, especially if the economy weakens. If you’re interested in hearing about this lucrative niche in real estate, you don’t want to miss this episode.
Why buy non-performing loans during a financial crisis?
Scott started buying non-performing loans during the financial crisis of 2008. He had several mentors who had each made money in the financial downturn of the 1980s by purchasing non-performing notes. They focused on creative financing and helping people restructure their loans. As his mentors walked him through the process, he realized it was hard to lose money if he bought non-performing loans at the right price. Because of the financial state of 2008, banks simply wanted bad loans off of their books. This gave Scott the opportunity to purchase these non-performing loans cheaply.
The process of buying a non-performing loan
On this episode, Scott shares the process he goes through to buy a non-performing note:
- He first looks through lists of properties
- He finds an asset he likes and makes an offer
- If his offer is accepted, his team proceeds with due diligence. He has a realtor do a driveby and looks at the property’s taxes, outstanding utilities, and collateral files
- He then goes under contract, and his servicing company beings to work with the seller servicing company
- His team does borrower outreach for 60 days. If the borrower replies, then his team does its best to get the borrower back on track with his loan. If they do not hear back from the borrower, then Scott’s legal team begins the foreclosure process. Scott says that 65% of the time, his team is able to get the borrow back on track with their loan.
How Scott scaled up his business
Scott began by buying non-performing loans in a small quantity. He started out with 1 to 2 assets. However, he built a system over time. He now has upwards of 400 assets. In scaling his business, he frequently hands the ball off to others. He uses vendors to help him: servicing companies, realtors, attorneys. He says that one person can potentially handle 20-30 assets, but with growth, vendors are a key to success. Vendors are also paid for their performance, so they are looking for a good return as well!
Scott also chooses to delegate tasks. He says that even though he is great at being on the phone, he shouldn’t always be. He asks himself if he could pay someone else a cheaper price to do things than what his time is valued at. He chooses to personally focus on marketing deals and raising capital because that is where he adds the most value to his company. He reminds other entrepreneurs who are scared to delegate that something delivered is better than something that is perfect. By allowing others the chance to do tasks, they grow over time and do better with each experience.
What Scott sees in the current market
Scott is seeing more foreclosures on the market currently. He has seen an increase in defaults, especially in Florida and Texas. He notes that these markets’ defaults are likely due to the hurricanes in the past years. There is currently a 4.6% default rate in the nation, but Scott likes to use the statistic that 1 in 10 Americans is behind on their mortgage. He says that this is due to people obtaining loans that they simply cannot afford.
Scott also tracks other types of defaults to know where the market is heading: credit cards, student loans, and cars. All of these other categories are at all-time highs of defaults. People are paying mortgages so they don’t lose their homes, but with slight changes in jobs, they are very close to defaulting on homes as well. Defaulting on one type of debt affects other types of debt.
In This Episode Scott Carson says…
- [2:24] Who he is and what he does
- [5:01] Why he chose to buy non-performing notes in a financial crisis
- [6:53] How long it took to build up his business
- [10:20] What markets Scott focuses on
- [12:29] The process of buying non-performing loans
- [15:03] How to make a note perform again
- [19:09] What Scott can tell from looking at a list of properties
- [22:11] The difference between single family and commercial
- [23:42] How to scale up a business
- [26:20] Scott’s average day
- [34:33] Why there are more foreclosures on the market
- [39:19] What Scott sees in the current market
- [46:21] Scott’s closing thoughts
Resources Mentioned In The Episode
- Multifamily Launchpad Membership Community– Join the waitlist for 1 of 100 discounted charter memberships available January of 2019
- Bellwether Enterprise(sponsor) – contact Will Oldham email@example.com