How The Note Business Thrives On Disruption With Rick Allen

With the hammer of the COVID-19 pandemic having already fallen, things have already begun to adjust, and opportunities are opening up again, especially within the note industry. The note business thrives on disruption, so now’s the perfect time to poise yourself to strike again. Rick Allen is the Co-Founder and CEO of Paperstac. He talks to Kevin Shortle about the opportunities opening up for the note business in the midst of the COVID-19 pandemic. Despite everything that’s going on in the world, you’ve got to keep your eyes on the prize because your opening has arrived.

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How The Note Business Thrives On Disruption With Rick Allen

Thank you for reading. Please go ahead and subscribe to the show and feel free. I encourage you to share it with a friend. I do appreciate that. If you do enjoy the show, please give us a nice rating on there. Believe it or not, it does all help with the show. It’s been a while since I’ve done an episode. I admit that I’ve been busy. I’ve got a lot of different videos coming out. We’re doing some production for the MWM fund and a new marketing campaign. I’m doing a lot of consulting. I opened my consulting up from one per month per person to an unlimited amount and that has engaged me in a lot more of those. The results have been very good. We have people making offers every single week on notes, which is outstanding for the group that is part of my consulting. I’ve been busy with that, but I have also been thinking about how to do this show.

I was going back and looking at all of the shows and the various number of downloads and such that we have had, which has been good and steady. I noticed a trend that I wanted to address in the format of the show. Sometimes, there might be a guest on there that has a specific topic, and perhaps not as many people read because they think, “I already know enough about that topic. I don’t need to get on and read another blog on there.” That’s my thought. I haven’t done a true survey on that, but I started thinking about that and said, “Maybe that’s the case. Even if it’s not, what can we do to make the show appealing to more people and want to read on a regular basis?” That will enable me to attract sponsors.

The way I do this show and the way I have the full production done, these are not inexpensive to do. You could do a show for $25 an episode. Mine, with storage and with everything else that I do is almost $200. It’s a little bit on the pricier side of things there, so I’m looking to do more of these and looking for sponsors. As I was thinking through that, I decided, “Let me try something here. Let me go ahead and change the format a bit.” I want to tell you what I’m going to be doing in the show with the new format. First of all, I’m going to continue doing the long interview format, which I invite a guest on the show and we talk about their specific business and how it affects all of my readers in the note business, etc.

I’ll probably shorten those interviews up a bit. I’ve been doing those upwards of 40 minutes. I’ll probably cut back on that to about twenty minutes to give us more time to do some additional segments. The additional segments that I’m going to do on a regular basis are going to be a segment for myself. I have a lot of people who ask me, especially with everything that’s going on, we’re still not out of the pandemic, “What are your thoughts in the future? What are your thoughts about investing? Should I hold back?” I get a lot of questions about that. Although I do address things like that on my YouTube channel and all my video blogs, I think this is a proper format for it as well.

I’m going to do my own section of every show. It will be a bit of a solocast. How long it goes will depend upon the topic and what I’m going into. My segment is going to be called Duly Noted. When I have something where I hear 2 to 3 people ask me an identical question, I know that there’s a heck of a lot more out there that haven’t asked that question but thinking about it. I’m going to do a segment on Duly Noted. It means, “Take note of this,” because this is something that is important to you. That will be my new section that will appear in every episode that we do.

The last disruption we had led to the biggest opportunity the note business has ever seen. Click To Tweet

I’m going to also have some regularly appearing guests. They won’t be on every single time that we do on. I’m hoping that I can do two of these episodes a week. If I can get some sponsors to help me cover the ongoing cost of the show, that would be great. We can continue to increase the number of episodes that we do and therefore, increase the information and you get it. I’ll have regular appearing guests like Rick Allen, Jason DeBono, Aaron Halderman and Ben Fredericks. These are all professionals that I’ve known in the industry that have products and services and things in the industry that we need. Rick Allen is from Paperstac. He can give us a good insight into what’s going on with pricing on Paperstac because that’s a real market. We can talk about national projections, but we see a real trading platform and the biggest trading platform in the industry. He starts to see changes in prices or the type of notes or maybe new sources of notes coming in. That’s important to us. That gives us some great insights. He’ll be a part of that.

Jason is an expert on IRAs and 401(k)s self-directed accounts with NuView, who I love. That’s where I have my accounts, the right up the road for me. Jason does a good job running that entire organization. We’re getting information directly from the top over there, one of the best companies in the self-directed IRA and 401(k) space. Aaron Halderman, from not only NoteWorthy, but also he’s working in the self-directed IRA space as well and the NoteWorthy Newsletter that’s going out. He has his fingers on the pulse of the industry across the board. He can share some nice industry overall trends, what’s happening in the industry, who’s doing what. That will be a nice segment. Ben Fredericks also with the NoteWorthy but also with Odell Barnes REO. He’s producing a lot of notes from the REO space, buying property, fixing them up, selling them and selling them with seller financing. That’s a great avenue, a great funnel for us to approach as far as to note investors.

It will be people like that who come on a regularly occurring segment. Their segment might be 5 to 10 minutes, but it’s something that’s going to want to compel you to read. The format with the show, one of the beautiful things about this is you can fast forward through it. If there are things that you want to skip, I get that. You want to jump to a certain segment. I will do my best in editing. I will do it this way. I will have these segments occurring in regular spots and that will help you out. It will start with me introducing and saying, “Hello,” then it will be my Duly Noted section. Then we’ll go to an interview, then we’ll have a regularly appearing segment.

In the end, I’ll have an Ask an Expert question. It gives you an opportunity to submit questions to me at Kevin@KevinShortle.com. You can send in questions. I’ll answer questions right there on the show. That will probably be one question and it could take another five minutes or more to answer that particular question. That can give us a little interaction with the readers. I should have mentioned also as regular reappearing guests, I’m also going to have in addition to the people that I mentioned to you, but also industry investors that have learned the business over the years. Most and in all cases, they’ve learned the business directly from me at live events and ongoing business relationships. I’ve been working with quite a number of them.

It’s great to have them on for that other perspective of what they’re doing out in the field and what assets they’re looking at. That will bring a lot of value to the new format here on the newly named instead of the Kevin Shortle Show, it is Real Estate Without Renters, which is my brand from the number one bestselling Amazon book of the same name, Real Estate Without Renters. If you don’t have that book, by the way, you can get it on Amazon. If you want to learn more about the book, if you go to RealEstateWithoutRentersBook.com, you can find out more information about it there. It links to Amazon as well. I’m going to go ahead and jump in now that I’ve told you all about that information and do my Duly Noted section.

 

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In my first Duly Noted segment, I want to talk about a common question that I’m getting and I should be getting this quite a bit, “What are the top opportunities right now in the note space?” Our business is facing a very big disruption. There is no question about it. The last disruption we’ve had led to the biggest opportunity the note business has ever seen. It also led to the largest amount of inventory our industry has ever seen, therefore the highest returns and the lowest prices. Market disruptions can be profitable for those who understand it and who get on the right side of that disruption. If you’re on the wrong side, it can be a pretty painful lesson to learn. Anybody, for example, who is a full-time real estate investor as I was when the market crashed, you got hurt if you were on the wrong side and everybody, including myself, was on the wrong side. That’s why I became a student in the marketplace. That’s why I study this stuff and do my best to always make sure that I’m educated enough in the industry and to make sure that when there are disruptions that I’m on the right side of things.

These are the top opportunities. First of all, should you try to time the market? I have people saying, “I’m going to hold back on everything. I’m going to wait 2, 3 or 4 months and see what happens.” The problem with that is we don’t know how long we’re going to be essentially shut down economically. That’s the one factor. Not a single expert can tell you when that is going to change because we have the federal government saying one thing, we’ve got Republicans and Democrats saying another. It goes down to the state level and then you’ve got the same thing. Some people were saying, “What now?” Even some counties are doing certain things. It’s a mess as to when are we going to get back to a fully operating economy.

As a result of that, it’s difficult for someone to try to time this market. That’s number one. Number two is I do think prices are going to go down. They have to go down, but how far down? If you’re trying to time the market, if you’re trying to see, “I’m going to buy at the bottom,” you’re going to miss it. It’s trying to time the stock market. Look at the stock market, it is going up and down. It’s been crazy. It’s going up when the economy is tanking and then all of a sudden, it takes a drop. Try to time that. How can you possibly do it? You can’t.

Keep investing. Don’t try to time the market and take your money out of play for 3 to 4 months. The next thing you know, that turns into 5 or 6. You’ve wasted a whole half of a year trying to time a market and then you find out that the prices only went down on nonperforming notes from $0.40 to $0.50 on the dollar, they went down to $0.35 to $0.45. I’m not saying that’s where they’re going to land. I’m trying to make a point. They may not drop as far as you think. Performing notes are going to drop. I wouldn’t buy a performing note right now at more than a 70% investment to value ratio because I would be taking on too much risk.

I know some of those performing notes are going to go nonperforming. Statistically, it makes sense. We’ve got what over 30 million people have filed for unemployment. Not all of them are going to return to work. Some businesses won’t make it through this pandemic. Other businesses are going to find out, “We don’t need all the employees that we have. We have people working at home.” They’re doing twice the amount of work in the same timeframe. There are going to be a lot of adjustments that come out of this and not everybody is going to be working again. Therefore, looking purely at the numbers and logic, it makes sense if I’m going to buy performing notes that not all of these are going to work out. It’s as simple as that. I’m going to lower my risk by lowering my investment-to-value ratio. It’s a smart thing to do. Therefore, I’m paying less for that property.

Since the pandemic hit, there has been a large increase in new sellers entering the field. Click To Tweet

In fact, I may be willing to come down on my potential return on investment, our yield, as long as I have my safety mechanism in there. That’s a temporary situation. We’re doing that to react overall to the marketplace. Those prices will come down. Nonperforming notes are going to start to hit the market again. Is it going to be a trickle-down? Is it going to be a flood? We won’t know until we see how long our economy is still being offset. It’s still not being fully operational. It’ll be one or the other, but at the same time, you’re not going to see prices go from 40% or 50% ITVs down to 10% or 15%. You’re not going to see that. The market has changed.

We’ve got more investors and funds in this industry now, so we’re better equipped as an industry than we were last time to absorb the inventory. In other words, when this inventory hits, it’s not going to sit around and continue to grow like it did the last time until big funds started pooling money together. It’s already been done. There are already funds that are preparing by adding billions of dollars investment capital to pounce on these opportunities. If you’re trying to time this market, you’re making a mistake. Keep investing. Don’t try to time the market. You are going to be able to get good prices. Remember, when things recover and they will, like they did last time, you’re going to be in a great position. Don’t try to make an extra little bit of money by waiting things out. That’s my point on that one.

I’m here talking probably to a newer investor, if you’re a little nervous of thinking, “Should I buy something? I’m not quite prepared if it goes in the wrong direction or something.” First of all, if you learn to me in the way I teach things, you’re identifying risk and everything first. That deal is going to be fine even if property values dropped 10%. Don’t get scared off. If you want to keep some money aside for future investments while you’re learning more about the market, then I would recommend you to invest in the MWM Fund or Money With Meaning Fund.

I am a part of that. There is no question about that. I want you to know that upfront and forward. I’ve been working with that after the fund was created. It’s a new Reg A plus fund, which means it’s a public offering. It’s full disclosure and full documentation available. You can even look at it online at MWMFund.com, and see the whole disclosure in the circular. It also has a minimum investment of only $200. I’m not saying invest just $200, but that happens to be the minimum. You can use your funds or your IRA or 401(k) funds. It pays quarterly dividends up to a 10% annualized return. What that does is offer you diversification. I’m involved with the MWM Fund, but I’m involved for a good reason. It is an industry changer.

This enables both accredited and not accredited investors, not to sit on dry capital. Why take that money that you’re going, “I don’t know if I should invest in something in the note business, I’m waiting to see where things happen?” At a minimum, put that dead money to work in the fund. It does have a degree of liquidity. You want to own a small percentage of an entire portfolio of funds. That makes complete sense to me. What you’ll find in the future is that the smartest investors in the note business are going to be doing two things, buying individual notes and they’re going to be investing in funds. In fact, some of them are going to take the profits that they’re making from their individual notes, roll those over on a monthly basis into the fund, so they can also make interest upon their interest. That’s what I mean by a game-changer. The bottom line is don’t try to time the market. Keep investing. You’re getting great prices already and take the dry capital that you have. Put it into a fund so you’re fully invested during this period of time. This is Kevin Shortle and I want that Duly Noted.

 

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Normally, during this period of the show, we’re going to interview a guest. If you have a guest that you would like me to interview on the show, I would love to hear about it. They can be involved in real estate notes or real estate because it’s all in one. It’s all under the same umbrella. The real estate note is the financial branch of the real estate business. They should go hand-in-hand. The best investors are always going to have a skillset in both of those. There is no question about it. I’ve got deals that I’m closing with clients that involve both worlds. An investor buys a property, sets up a wraparound mortgage, creates it the right way. My client buys the wrap-around mortgage. It all works together well when done correctly. If you have guests that you’d like for me to interview on the show, please shoot me an email at Kevin@KevinShortle.com. I would love to get that person or persons on the show. In the meantime, I’ll keep reaching out to people of interest that I think will bring a lot of value to you and the show.

In this particular episode, I had to talk about what we’re going to be doing on the rest of the shows. We don’t have the time to put in a guest segment here. We’re going to skip that on this particular episode, but I do have one other segment and that’s going to be with Rick Allen from Paperstac. It is the best trading platform out there. There’s no question about it. They can take a deal from the start all the way through the closing. It’s completely digitized, handled through audits and escrowed funds. It’s done the right way. They’re the only ones who have that platform setup. They have plenty of inventory, whether you’re a buyer or a seller. That’s what attracted me to Paperstac. I know Rick and his partner, TJ, and his two other partners. I met Rick and TJ years ago. They attended training that I was doing down in Fort Lauderdale and left there raring to go. In fact, they told me they made $10,000 to $15,000 on the ride home on a technique that I taught them. They’ve been hooked on the note business ever since. It’s a pleasure to work with them. I see them on a regular basis and they’ve done it the right way with this platform with their other partners.

I like to have a regular segment with them because Paperstac can be a microcosm of the macro in the industry. It’s easy for me to look up the national statistics and see bigger trends, which is great and we should know that. It’s also nice to have a smaller look at a sample and say, “Based upon the input we’ve received, the new buyers, the new notes that we’re seeing, the new price adjustments that we have in the industry is another indicator that we can look at.” He’s going to be a regular guest on the show, giving us feedback on what he’s seeing at that particular level. Hopefully, he’ll share some stories as well. We’ve got some great stories of people placing notes for sale and selling them right away because they’re pricing them the right way. We’ve got great stories on the other side of people buying notes and having success with those notes. We’ll be sharing some of those as well. In this next segment, we’re going to hear from Mr. Rick Allen over at Paperstac. Take it away, Rick.

Thanks a bunch, Kevin. This is Rick Allen from Paperstac. I wanted to chime in and give you guys a little bit of an update on what we’re seeing at the market with Paperstac and what we’re seeing with some of our higher-end guys who are trading larger pools. To give you an update, Paperstac did have a little bit of a slowdown when the pandemic hit. It started on the last weeks of March 2020 and it rolled through the first week or two of April 2020. Some of the things we did see are a large increase in new sellers coming on the platform with a high concentration in hard money lenders finding us. Most likely this is because PeerStreet halted their loan purchases. They were getting hammered by their warehouse lines that were getting closed up. They do have a new CreditBox, but from what I hear it is extremely tight.

Inventory will trickle down and funnel into the note business. Click To Tweet

Businesses did pick up in mid-April. We noticed that some of the assets that were negotiations that were NPL had a small reprice. I’m not sure what that was. Maybe it was because of housing prices or who knows their performing loans kept right on pace. Anything that was in closing or negotiations during the pandemic closed successfully. We had several new stuff jump into a closing. We have seen businesses go back to pre-COVID levels. People seem to be certainly getting comfortable with the new environment and are certainly jumping in there and buying assets. One of the big questions we are hearing or seeing on the platform is, “Did they make the April payment? Did they make the May payment?” They are making sure that people are paying.

That’s what we’ve been seeing on Paperstac thus far. It’s an expected slowdown and it’s picked right back up. People are in there getting aggressive with their bidding. We’ve seen several assets on the platform have multiple bids going on there. We do have some aggressive buyers out there and it’s looking good for sellers. There are still some good deals to be had on there as well on the buyer side. The economy took unemployment hit at 14.7%, which is the largest since the Great Depression. That’s something to keep an eye on. It’s probably something we all want to look at is, “How is that going to affect loan performance?” The answer we’re seeing is there’s a lot of forbearance going on. Black Knight reported $4.1 million loans in forbearance. Fannie projected that there are $1 million loans in forbearance is going to double in the near future. The forbearance and people out of work are going to lead to more inventory probably on our platform. In the scratch and dent world, 26 new scratch and dent pools were marketed for over 200 million. There are thirteen additional pools that are being marketed and 28 pools were traded over the past weeks.

Trading is happening. There has been a large increase in people wanting to liquidate assets. That’s great for Paperstac and the retail market. Inventory will trickle down and funnel down to us, which is awesome. Buyer’s pricings of loans though at that higher level has been tied directly to the forbearance. Buyers are bidding based on if there was a forbearance request made by the borrowers. That’s something to keep an eye on. At that higher level, when they’re trading those larger pools, the outcomes have been a price reduction that has fallen in line with any agency price reductions we’re seeing. There’s not been much new activity in the NPL space. We’re pretty much anticipating that this is because people are not certain what’s going to happen with the home values.

Some are predicting a slowing in the housing market, maybe as much as 20% in places like New York that’s the epicenter. That’s something that we’re going to keep an eye on. Ultimately, what happens is if there is a slowdown and there’s more inventory, it is going to funnel down into our retail market. If you are looking for a loan, jump into the Paperstac platform. It’s a great place to find some inventory and make some bids. If you’re looking to sell some inventory, we’ve got a lot of active buyers. It’s a great place to stop in and give us a checkout. I am looking forward to joining you in the next episode. Kevin, thanks for having me. We’ll chat with you soon.

 

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There you have it. The new format of the show. We’re going to start with my segment. We’ll have a guest interview and then I’ll bring on a recurring person such as Rick. I’ve got several other people in mind that you’ll find interesting. If that means that the episode increases to an hour, so be it. If it gets larger than that, we have to do a part one and part two. I am open to that as well. I enjoy this format and being able to talk to you this way on a regular basis. We’ll get some sponsors in here soon and that will enable us to increase the number of episodes and keep in touch with you that way.

Speaking of keeping in touch, I’ve got a YouTube channel. If you’re looking for industry-specific information, it is all free on YouTube. Search my name over there. You can go to my regular website, which is www.KevinShortle.com. If you’re looking for a book on the topic, if you’re new to the industry, please go to Amazon and look me up or look up Real Estate Without Renters and you can get the book right there on Amazon. Thanks, everybody. I hope you enjoyed the new format. I look forward to putting together another one of these episodes for you shortly.

Important Links:

• YouTube – Kevin Shortle
• Paperstac
• NuView
• NoteWorthy
• Odell Barnes REO
• Kevin@KevinShortle.com
• RealEstateWithoutRentersBook.com
• MWMFund.com
• Amazon – Real Estate Without Renters

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