KSS 15 | Note Rules

Note Rules is a system designed to manage your note business in an organized, efficient, and easy way. Acknowledging the need for a complete note management system while becoming a successful note investor is Richard McGrew, the genius behind Note Rules. Having worked in a corporate job for twenty years, Richard shares how he started to join local real estate meetups and got attracted with note investing. Richard discusses the benefits of having Notes Rules in your system guiding you in setting up your note business from the beginning.

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Interview with Richard McGrew of Note Rules

Sometimes I do the podcast as a solo show. A lot of times that has to do with data, industry, statistics and things like that but I absolutely love bringing in professionals. I like to bring in experts, especially people that I’ve known over the years that can come in and talk about interesting topics that can have interesting experiences but also products and services that can help people within our business. This industry has grown so dramatically over the last years. There was absolutely no way for our industry, the infrastructure was not there for every single component of what investors need. I do have a special guest and we’ll be talking about his experience in the industry and how he grew into this or what he recognized that was really a necessary service in the industry and utilizing his background. He was able to create that.

I plan on making more and more of those types of blogs. I already started scheduling. I have several people lined up to these episodes with me and I will always be updating the industry for you once you get ton my blog and also on this podcast. I am to structure specific days that this comes out because I also have an agreement with Mitch Stephen. We have an agreement on launching a case study-type of format every Tuesday based upon what he is doing. He is a specialist in buying property, fixing it up and selling it with seller financing. It ties in beautifully with what we are doing. That would be the second show that we will have here. I’ve got some other people within the industry. I might even have a third show. I’ll introduce you to our guest, Richard McGrew. I met him at a training I was conducting and he jumped right into the business and he did very well. Richard, thanks again for being on the podcast.

Thanks for having me. I’m excited to be here with you.

Give people a little bit about your background or at least to the point of how you thought about getting involved in notes and what attracted you to notes. Let’s start there first.

I was sitting on the couch one Saturday afternoon trying to figure out when I can retire. I’ve been working at Intel for twenty years and I did all the things right. I went and got my degrees and did everything my parents told me to. I went and got this great job and worked forever. Here I am years down the road and going, “When do I get to retire?” I start running the numbers and there’s something wrong because it’s going to be a while from now. That wasn’t exactly what I was hoping for. I started going to local REIAs and local real estate meetups in Sacramento, California area and a guy named Joe Varnadore popped in the door one night. For $97, he offered me to come and listen to him talk on a Saturday.

I went from there. I got to meet Kevin Shortle in San Francisco. I signed on with Eddie Speed and his training group about that point. There are a couple of things that I love about notes. The things you talk about, the passive income and not having to deal with taxes and tenants, obviously, that’s a huge benefit. There are a lot of investment opportunities using other people’s money. If you were going to go and buy and do fix and flips with somebody else’s money, you can do notes the same way. The dollar figures are a little bit larger and the organization is a little bit larger but you can really build a good sized business with relatively low efforts and total invested time.

You can build a good-sized business with relatively low efforts and total invested time. Click To Tweet

You got introduced to it and was attracted for some of the similar reasons that we hear all the time, the tenants, the toilets, the management and everything else and it can be hands off. Were you attracted to one side of the note business or the other? Did you focus or did you dabble in everything and then figure out your way from there?

We started in performing loan business. It’s obviously a lot simpler and a lot fewer moving parts. About six months in, we decided we wanted to start scaling and we started buying nonperforming notes. We’ve got a pool of 34 assets. We’ve got about a third third third on REOs, nonperforming loans and performing loans. The REO also came from nonperforming loans. We purchased them as REOs that had lately been foreclosed through or we foreclosed ourselves through the nonperforming space.

You’ve got a pretty good mix there and you mentioned retirement. I’m assuming you utilized your retirement account for a lot of this or were you not able to at the time?

We have a relatively smaller retirement account. We got a few notes in that account, then we got a few was hard cash of our own and we got several investors with LLC that we pulled their money in to buy notes.

How long did it take before you started working with other investors? What was your thought process with that?

My first six months was trying to figure out which way was up, how to do a performing loan, how to deal with servicers. “Can’t I get them to convert my money and get the paycheck coming in and learning the business and some of the lags that are in the system?” After that, I wanted to scale. I set myself a goal to have 80 assets and it really wasn’t about the number but it was more about I want to scale and I want to build this as a business that I can then live off of. I figured 80 was about the number where I could probably start to replace some of my income. I did not achieve 80 but I started building the systems to be able to do 80 and to be able to buy a pool of fifteen notes at one time or to be able to have 80 notes on the books and know that I’m not wasting time where I’m not going to lose one to taxes because I forgot to check on something.

KSS 15 | Note Rules

Note Rules: There are a lot of investment opportunities using other people’s money.


As far as other investors coming in, when did you decide to do that? Was it to almost one of those things you fell into because other people were interested in what else you were doing? How did that happen? There are a lot of people that go, “I want to build it too, but I only have a couple of deals. How do I talk to investors?” There’s a lot of intimidation about doing that. Sometimes you can pull the trigger too early with an investor and lose them because you don’t know enough. There are other times where you wait too long to get something like that. What was your experience?

For me, I had two pieces. The first one, I figured I had to have credibility in order to attract investors. That’s why I knew I needed to spend six months to a year learning the business before I can even talk to somebody credibly and attract their money. The second piece for me was my work for a very large company and they had gone through a major layoff. They don’t call it layoffs, they call it voluntary separation. They’d gone through redeployment and a lot of my buddies, older folks like myself, who are sitting on their 401(k)s and couldn’t touch them for twenty years, I knew those folks were all of a sudden coming into having access to that money. I needed a way to be able to help them manage that money. That’s when some work that you did back in the note school with the Private Capital Playbook that was some fantastic work. I leveraged that quite a bit to be able to build out how I manage my investors.

You’ve got a portfolio with mix and you’ve got investors in some of those assets as well. That’s a great way to build that. One of the things in doing that you mentioned was you had to learn the process and there were certainly some gaps where you were like, “It’d be nice if there was this or if there was that to streamline it.” For example, there are various service companies that we’ve talked about or what have you where it’s like, “This one’s small and this one’s a boutique but they’re really good on this. This is a bigger one and they have online accessibility and they do more accounting.” There’s absolutely a part of that not just learning the business but also building those relationships. Is that when you started to recognize that maybe there’s something here that needs to be created and created it?

I’m a software guy and I work for a technology company. I’ve been here for a lot of years and what keeps me successful with this large company is having good organization skills and systems that I put in place so that I can manage what I work on. As I entered the note business, I knew that I would apply that same logic to the business. When I started looking at the concept of having 80 notes at one time and multiple investors and all of that, including IRAs, I knew I needed some way to keep all those pieces together smoothly. If someone’s going to trust me with their money, they need to know that I’m not going to forget and make some major mistake and lose an asset to taxes or some other crazy event.

That led you to think, “Let me take my knowledge base here and start to build something.” Did that start with reminders? What was the genesis of what you ultimately have build up to? You have another company called Note Rules. That’s ultimately what it led up to. It manages portfolios of notes. What was the initial process that led you up to where Note Rules is at?

The first thing I did was go out and scour the industry for best in class CRM offer, basic being able to track the companies you work with, the contacts you work with and then your assets. I started looking for what software packages existed. I knew that I wanted to be able to do the work sitting at my desktop at home where I’ve got three screens or when I’m on my laptop where I’m on my phone out in Cabo on the beach. I wanted to be able to make quick decisions and I wanted to have that data with me at all times. I looked for web-enabled applications that would allow me to track data for things like real estate assets to attract the people I work with on the companies that they’re involved with.

Some basic system of to do’s and reminders are basically what most people are missing. Click To Tweet

You didn’t find any of that or you found some but it wasn’t really geared towards notes specifically.

What I found is that there are lots of software like that but it’s not targeted at something that we’re doing, which is investing. If you’re investing in stocks and bonds, there are a million software applications out there. You can go to Yahoo.com or all different places and find tons of software for managing stocks and bonds but there’s nothing out there targeted at managing your note portfolio.

It started as a CRM and now you’ve got a number of components that are added to it. Why don’t you give us a brief overview of all the things you’ve combined into it?

If you have basically a list of data about the asset itself, the note and the house it resides on, you will have a long list of all the things that you’re tracking regarding that particular asset. You have a similar list of all the companies that you’re working with and the details about those companies and the list of the contacts within those companies and people that you’re working with to either buy or sell from or work along with or do BPO, whatever that is important. Those are three major components, the assets, the companies and the contacts. We’ve added to that but that’s the base model that we have in place.

For example, if somebody has some investors and they’re potentially interested, a simple application could be, “Let’s load them into the system here.” I would assume that that person would know, “This investor’s a little more low-risk. They’re looking for small returns but more safety,” or this person’s like, “I have a higher risk tolerance but I’m looking for higher yields.” Everybody has their own investment portfolio where you can have it in the system and somebody says, “I found something that’s good. Let me look at my system and see who this might meet for,” whether I’m selling the whole note or a partial or anything like that.

You can use it as a basic CRM like you’re talking about where you’ve got information about each of your contacts and what their preferences are and you match that up with a deal if you’ve got a deal. The majority of the work that we put in, it’s different because there are a lot of CRMs out there. What we really did was focus on the assets, the note and the home behind it. We track all the information related to the house, the note, insurance and taxes to make sure that we don’t miss steps. We added onto that, for example, the purchase activity. Purchasing a note has got 30 steps from initial due diligence and making your offer going through the contract, making the payment, doing your recording and securing it with a servicer. There are a bunch of steps that you have to follow. If you miss any one of those steps, it might not be the end of the world or it could cost you the deal. Making sure that you follow through all your steps is the majority of where we spend our time in this software package.

KSS 15 | Note Rules

Note Rules: You can find tons of software for managing stocks and bonds, but there’s nothing targeted at managing your note portfolio.


Do you think that this is something that you have to have a certain level of experience or a certain amount of notes before it would be something to consider? Is this something somebody getting in the business should say, “I want to start this the right way,” and build it on a platform that you do have a system there that checks and balances where you don’t forget?

It’s more the latter. If you’ve only got one note and you don’t plan on buying any more, then you can do that on a Post-it note. If you’re planning on scaling at all or having multiple notes that are going to go through the different phases of the life cycle of a note, they don’t all stay performing forever. When those things change, you need to be on top of it and making sure you don’t miss anything. I’d say, my own preference, I started right away as soon as I got into the note business, I knew I was going to put some significant capital in this direction. I did not want to make any major mistakes. This software platform does not replace training. The work that you’re doing with your team to offer training is fantastic and people need training. I don’t believe you can go read a book on how to invest in notes and then all of a sudden be a great note investor. Even with that training, they’re still the basic rigor of keeping track of what you’re doing. First off, defining what your plan is for each note, defining your follow-up tasks and following up. Not forgetting to follow-up on something can cost you a lot of money. For me, some basic system of to-do’s and reminders is basically what I think most people are missing.

Having said that, time is an asset that everybody hopefully recognizes. The other thing you have to think about in this business because most people who do start in the business, they don’t start full-time. They don’t jump into notes. They’re working and they’re busy. Depending upon the type of notes, now you’ve got a mixed portfolio performing, nonperforming REOs and etc. that all require a certain amount of effort. The more passive would be performing notes versus most active is probably the REOs and nonperforming notes. With the portfolios that you have in place, did you ever think about or maybe you even tracked how much time you think you save versus trying to do that on using Microsoft Word and spreadsheets and that sort of thing? Have you ever thought about that or calculated that out?

I have not calculated it out. The biggest savings though that I and my customers get from using a software package like this is let’s say you have fifteen minutes before you’ve got to take your kids to the soccer game. You’ve got fifteen minutes and you’re going to spend it on your note business. What tasks did you need to work on? How do you know? Do you have a place where you know to go and you can look and find out exactly what you’re going to spend the next fifteen minutes on? You can probably knock out three or four tasks. The note business is full of lots of tiny tasks. You can probably knock out quite a few of them in fifteen minutes if you know exactly what to go work on, who to contact and you can knock it out quickly. What I’ve done is put together that system so that you can quickly find what’s next, what do I need to go do, get it done, mark it off, set the next due date and move on. Don’t think about that note until the next time. Quick responses in and out through your business in five to ten minutes and you can go off and do what you want to do with the rest of your life and don’t spend all your time reading documents and managing your note business.

I’ve trained a lot of people, I have interacted with a lot of them and I get the fact that you need to be very detailed in some instances and you need to analyze certain things. You always have that one personality, a category that goes way overboard where they overanalyze and overthink things. Something like this would help that personality as well because it’s like, “Here’s all you need to do right now.” You don’t have to get overwhelmed with everything and have it take over so much time where that’s all you’re thinking about.

I’ll give you another example. My wife uses the system to check in and find out what’s going on with regards to taxes and insurance. She knows that she can go in once a month. She has a very specific set up where when something comes due, all she has to do is go, “That one’s due. I’ll go check on it,” and moving forward, figure out whether it needs to be refreshed or not in the next few days. She doesn’t have to go in every day to check what’s the status of the insurance on 34 assets. When they come to do, she gets notified, she knows when they’re due in and she’s not thinking about it. It’s the same thing on taxes, on payments coming in from servicers and on foreclosure follow-up. All these things are kicking around and you don’t have to think about them because you know they’re in the system and the system will let you know when it’s time to go think about them.

An organized and structured business is beneficial for business people. Click To Tweet

I saw it on your website, which is NoteRules.com. I’m going to give you a special address that you can go to if you are interested in this program. Richard is offering us a discount through this show. If you want to explore the website, go to Note Rules but don’t sign up until you hear about the discount code that we have. On the website, I did see some familiar faces on there of people that I’ve also known through the note business and trained. I think I trained most of them that I saw and they got started with you on there. How have you grown the system since then? They’re smart and sharp people and I’m sure they’ve given you some feedback on this. What are some of the folks saying and what are possible plans if you’re allowed to share and what are possible plans with it?

I’m surprised at the lack of negative feedback. Honestly, I thought rolling out something new people would have fifteen ways they wanted to change and each person would have fifteen different ways they want things changed. It didn’t happen. In general, everybody’s feedback is, “This is great. This is so simple to use. There are not a lot of bells and whistles but it keeps me moving and not to think about it.” I’ve been a little bit surprised that I didn’t have to go and make a lot of changes. It’s because I did keep it simple. On the new side, we are working with one servicing vendor, NAA, National Asset Advisors. We’re working to roll out what they call their Loan Summary Table, which if you’re monitoring notes and you’re getting data from the servicer portals on payments and remits and where the fees are going. It’s a painful process to have to log into all these portals and figure out what’s going on. We’re extracting that data from their site and pushing that into the customer’s portals so that you can actually see the payment information and servicing information directly in your own portal.

I figured you were working on something there. I’m glad you mentioned simply because I was going to lead up to that question as well. I know there are many times, different computer programs and things for some people go, “I love to do it but how long is it going to take me to learn that?” I’m sure you have videos and such but is it really fill in the blank or is it pretty automated? Give us a user experience.

We had the video up and running and I can walk you through it. If you go to NoteRules.com, there is a training link on the far right side, you can click on that and there are a bunch of videos up there. It is literally as simple as you could imagine. There’s a page that after you get your Podio account, you click on the assets that you’re going to add a note and call that an asset. We’re going to add an asset, click on the big green, add asset button. You go in there and you plug in the address, you put a picture in there by clicking on add image. You put in the note information, the payment, the principal and interest, taxes and insurance and hit save at the bottom of that. Now, you’ve got an asset in there.

As you use the system more, you’ll decide, “I’d like to keep the beds and baths and square footage of the house in there.” You can go back and add all that in. If you’ve got an existing portfolio of let’s say five or more assets and you’ve got them in an Excel spreadsheet or Excel import into that, you can use it. We’ll pull everything into Excel and into the system without you having to type it all in manually. For the person who’s trying to get started with one or two notes or who wants to check it out, you don’t need to go through the complexity of doing an Excel import. You can literally plug it all in manually.

It’s definitely something needed in the industry. I love the fact that it was created by someone who had the technological background to do it but also who got involved in note business and did very well. You based it upon your experience and grew it. That’s got to be why you haven’t heard any feedback, “You’re missing this or missing that,” because you really built it based upon what you were doing and investing your own capital and assets and working with other investors. What’s the cost for someone who goes to the website and signs up and how does it work?

KSS 15 | Note Rules

Note Rules: Rolling out something new, people would have fifteen different ways they want things changed.


Normally, it’s $497 for setup and a $50 a month. I’m here with your affiliate code. We’re going to make that a lot cheaper for your users, about half price. What will happen is you go in, you sign up on the membership site and you get 30 days for free. At the end of the 30 days, if you’re not finding value, we’ll refund you and cancel your account. You’ll never see a payment come off your system. Once you sign up, you’ll click on a link to set up an appointment with me or my team and we’ll get the system installed for you. You’re up and running within a half an hour and sitting down with us, we’ll help you put your first asset in there and answer whatever questions you’ve got and show you what the next steps are.

You helped them right from the beginning. It’s not a video online and learning on your own. They get to work with you directly to get set up and get comfortable with it, which should be a good process. The $50 a month, you’re looking at $600 a year for a complete management system, in my mind, that’s a no brainer. With the organization in place for somebody who is building or has already built a portfolio and can add that in, be able to point, and click and see what they need to do, see what’s already happened and be able to go in and tweak where their business is without being overloaded. Are there data protection questions, anything like that has come up?

We actually built a system on top of a large third-party application called Podio. It’s built on Podio.com. They have a very large infrastructure with millions of users. Their data protection is very solid. We’re using their infrastructure ecosystem in order to build out our solution. We’ve had no attacks that we’re aware of and lost no data we’re aware of. We’re not storing the data. It’s stored on a very large third-party system.

There’s not a big concern obviously with something like that because I know that people would start to think about that. Once they start using this, I’m sure they’d be lost without it. It’s built on a bigger platform. It’s absolutely something that you need to take a look at because organizing your business and structuring it, keeping all your data in one place and be able to have a checklist is very beneficial for people in the business. Richard, what else?

You went through the majority of it. I am working on some other integrations that are coming up. We’ve got a couple of folks that’ll help you all. Daniel Singer has got a really nice a backend system for helping people through their nonperforming notes and helping keep track the servicers that are out there. He offers that next level of due diligence and making sure that assets move quickly through that foreclosure and loss mitigation process. I am working with him on further integration. I’m also working with a couple of other vendors on integrations that should help make the asset portal better for the customers.

It was great talking to you. In the meantime, you can go directly to the website and check it out at NoteRules.com and learn about it. Click through, look at some of the videos, see if this is something for you. When you’re ready to sign up, go to my website first, KevinShortle.com and make sure that you use that link and that will get you half off the initial setup. If you go to my webpage, on the upper right-hand corner, you’ll see the Home, Products, Blog and More. If you hover your mouse over More, it will open up and say, “Discount Code And Links For Note Vendors.” Click on that discount code and links and you’ll see Note Rules right there. Follow the instructions and it’s very easy to see the discounted link. Richard, thank you so much. I really appreciate you being on.

Thanks very much. I appreciate it.

 Important Links: 

About Richard McGrew

KSS 15 | Note RulesWhat is a note: Wiki says “In the United States, a mortgage note (also known as a real estate lien note, borrower’s note) is a promissory note secured by a specified mortgage loan; it is a written promise to repay a specified sum of money plus interest at a specified rate and length of time to fulfill the promise.”

Our company purchases notes on small balance real estate (SBRE) with typical property values of $30k-$120k. These small notes are “overlooked” by the large investors because they don’t have nearly the profit that a California $500k note would have.

We focus on “distressed” notes, buying them at a discount, so that in the event of a real estate downturn or other unforeseen event, our investment has a good chance to still be less than the value of the real estate that backs the note.

Here is a good, simple article on the note investment business. We can point you to books, podcasts, and even the formal training if you want more information.



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