KSS 107 | Note Investing


Nonperforming note investing is the gateway to a world of untapped real estate opportunities where you can own the cash flow without the headaches of being a landlord. In this eye-opening special episode, Jen Josie of the Real Estate Investor Growth Network interviews our very own Kevin Shortle. Kevin starts by explaining the concept of nonperforming notes, which are loans where the borrower has fallen behind on payments. He walks us through the reasons why banks prefer selling these notes in bulk, creating a golden opportunity for small investors to enter the game. From analyzing deals with laser precision to navigating loan modifications and foreclosure, Kevin shares his systematic approach to maximizing profits while minimizing headaches. Moreover, as the discussion progresses, Kevin Shortle reveals how you can use your self-directed IRA or 401(k) to finance note investments, empowering you to dip your toes into this lucrative market even if you don’t have an overflowing bank account. Tune in now and level up your investment portfolio for long-term wealth!

Listen to the podcast here


Mastering The Note Game: Nonperforming Note Investing With Kevin Shortle

This episode is going to be a little bit different. As you know, I’ve been doing more episodes and interviewing some of the speakers that are going to be speaking at an event that I’m going to be at as well. As a result of that, I’ve also been on other people’s shows. This one was a show that I was being interviewed on, The Badass Podcast from Jen Josey.

Jen has been in the real estate industry for a number of years now. She’s a successful investor but she was brand new to the note business. She’s heard about the concept but never got into the depth of it. I thought my audience might be interested in me being interviewed by somebody who isn’t as familiar with the note business but has some good questions as a result. If you’re new to the note business, you’re especially going to enjoy this episode that I was on, The Badass Podcast with Jen Josey. Enjoy.

Welcome back. I’m Jen Josey, creator of REIGN, the Real Estate Investor Growth Network. On this episode, we have a guest that will be sharing their badassery but before we begin, here’s Badassery Bestowment, my little badass gift to you. Our topic is the importance of lien waivers. A few years ago, our regular window guy was not available for a project, so we went with a random contractor. The contractor demanded a deposit upfront for materials. I asked if we could pay the window supply company directly, and he swore he would get a much better discount if the payment went through him.

Against my better judgment, I paid the deposit. The windows arrived a few weeks later and were installed. Before I gave him his final payment, I had him sign a lien waiver. Several months later, we were served papers from an attorney representing that window company. I had never been sued before. Once I caught my breath, I asked the attorney if they would like a copy of the lien waiver the contractor signed. It stated all labor and materials were paid in full.

The attorney said that’s all they needed, and to have a great day. That little piece of paper protected our profits from that dishonest contractor. The moral of the story is whenever you pay someone involved in your project, make sure you have them sign the waiver before you hand over the payment. Embrace the power of lien waivers. May the profits be forever in your favor.

Onto the episode, we have with us my new friend Kevin Shortle. Kevin began his real estate career in 1985. He’s a commercial real estate appraiser. Through the use of partners and mentors, he is involved in both the real property side and the paper side of real estate investing. Kevin has purchased, renovated, and resold over 150 properties and transacted over $30 million in private note sales. It is my pleasure to have him on the show. Welcome, Kevin.

Thank you very much. I appreciate it. That’s a great tip that you were sharing with everybody. Many people don’t know that. Sometimes it’s the seemingly little things that come back to bite you later on. That is a great tip. I learned that the hard way. That’s the way you don’t want to learn it but once you do, you never forget it.

It scared me to death because I had never been sued before. I was like, “What is this? I have this lien waiver. Does this work?” They’re like, “Thank you. Have a great day.” I am thrilled to have you on the show. We are going to be talking about notes for the most part. I don’t know anything about buying notes. I love a lot of the stuff I’ve been reading about you. You have a book called Real Estate Without Renters. I can’t wait to dive into this.

KSS 107 | Note Investing

Real Estate Without Renters: An Easier Way To Invest by Kevin Shortle

I’m at a point in my real estate career where I am tired of babysitting contractors. I’m sure you’ve never been through this. I’m a former middle school teacher. I was like, “My babysitting days are over.” In comes contractors. I was super excited about it. Tell me. Break it. If I start investing in notes, do I have to deal with contractors anymore?

Not at all.

You need to dumb this down for me and tell us what exactly is a note.

That’s a good place to start because everybody refers to this as the note business. I’ve been in this for many years. Going back years ago, there was always real estate in this note thing. It was this foreign thing. All of it is the financing side of real estate. To break it down simply, what is a note? We deal with notes every single day, and you may not know it. For example, writing a check to somebody. That’s a promissory note. They’re taking that promise from you that’s in writing and they’re going to go cash it. That note could become nonperforming when somebody breaks their promise because they don’t have the money in the bank.

A regular note is simply an IOU. It’s a promise to pay somebody back typically with an interest rate and a timeframe. That’s all a note is. It’s very simple. We deal with them all of the time. A real estate note, which some people call a mortgage note, is a note that is secured by the property itself. For example, if you go to a bank, and you want to get a loan to buy a piece of real estate, number one, you have to promise to pay it back and do that in writing.

That’s a promissory note. It says, “Here’s how much you’re borrowing. Here’s your payments, the interest rate, and the timeframe.” We all got that but banks are smart enough to go, “We’re not going to take your promise alone. Even if it’s a guarantee in writing you’re going to pay us back in this IOU, it’s not good enough. You have to pledge something of collateral value.”

In a mortgage, that collateral is the property, whether that’s a home or land. It doesn’t matter. That documents the mortgage. The mortgage says, “If I don’t pay the lender back, according to the note, they have the right to take the property.” That’s it. When we say I’m in the note business or you’re a note investor, you’re not ever buying a note. You’re buying a secured note. It’s a note and a mortgage, two different documents that work together. That’s what makes it secure.

That’s where I was confused. I thought the mortgage was the note.

A lot of people do. That’s their two distinct things. The mortgage will refer typically to the note but it’s not required to even tell the terms of the note. Sometimes they say, “The payment is according to the note.” Where’s the note? The note is a separate document. Another reason, which is an oddity for most real estate investors, is with access to the internet, you can get online, go to county courthouses, and find the deed. You can find the mortgage. Guess what you can never find? The note. Why can’t you find the note? The note portion is considered personal property, not real property. The mortgage is the one that attaches the note to the property itself. They are two different items.

A normal homeowner has a mortgage. It’s owned by Bank of America. What’s the note involved with a regular homeowner?

When you sit at the table, everybody has a real estate transaction. You sit there and sign document after document.

Your hand is cramped up for three days.

You have no idea what you’re signing. You didn’t read every document. One of those was a note. I guarantee you. The note is your promise to pay back in writing. That breaks down the terms of the loan, and then it’s secured by the mortgage. Even though they’re two distinct things, they work together. When we buy these, we’re buying one unit but there are two parts to it that we need to see.

KSS 107 | Note Investing

Note Investing: The note is your promise to pay back in writing. That breaks down the terms of the loan, and then it’s secured by the mortgage.


The reason why I’m asking this is because before I even got into real estate investing, I had a townhome, and it had a mortgage. All of a sudden, I realized the payments are going someplace different. Is that because someone bought that note?


Kevin, we’re done. Have a great day. That’s all I need to know.

You got what we call in the industry a hello-goodbye letter. You don’t make your payments to Bank of America anymore. You pay them to Wells Fargo.

It could be a much smaller perk or random.

Let’s say I sell a house to you but I finance it for you. You’re making monthly mortgage payments to me. I’m the note owner. As the note owner, it’s in my right and it’s in the documentation that I can sell that note to somebody else. What does that note represent? It represents the remaining payments that you owe me over time and the interest rate. I’m selling that to somebody else. You don’t have any say in whether they can do that or not because you’re unaffected. All you’re affected is where to send your check. We don’t send checks anymore.

I have no say in it.

It doesn’t affect the terms of that loan. The new buyer can’t come in. I have the note, and I sell it over here to John Smith. John Smith can’t go, “I own this note now. I’m going to bump your payments up because I need a higher return.” They can’t do that. They’re buying the terms of that note as is.

Thank you for clarifying that because that was my biggest concern. What I know about real estate investing is I find a distressed property under-market value, get a hard money loan or a private money loan in second position, and buy the property. Can you do stuff like that with notes? Do you have to pay outright for it? Can you finance them?

To back it up a little bit to keep it simple, you’ve got the real property side of the business that people understand buying the brick and mortar and that sort of thing.

It is real property in your intro. I was like, “This is written incorrectly.” I thought you left out the word real estate.

Here’s the definition too. I’m a purist sometimes when it comes down to definitions. Everybody calls themself a real estate investor. You’re not a real estate investor. You’re a real property investor. Here’s why. Real property by definition includes the land, the dirt, the earth, and any manmade improvement. That’s the real estate portion of real property but real property includes the so-called bundle of rights. That’s your entitlement. That’s what’s important.

For example, if I go, “I own this building over here free and clear. I like you so much. I’m going to grant you that building. It’s yours. However, you can never see it. You can never rent it. You can never borrow against it. You can’t pledge it as collateral. Congratulations. You own real estate but you don’t have the bundle of rights.” Real property by definition is the real estate, the land, the improvement, and the bundle of rights. The bundle of rights can be taken away.

If you buy a piece of property, and they discover oil under it or diamonds, do you own that? Maybe. It depends. Do you have the subsurface rights? If you’re in Oklahoma or something like that, Texaco could have bought all of the oil rights at some point in time from a previous owner, and they own anything that’s found there. Air rights are a big business in New York. You may not own the air above your building. There are all kinds of things like that. By definition, we’re real property investors, not just real estate. It’s probably too technical but there you go.

I love geeking out over this. I was like, “You don’t own those diamonds,” and, “I do own the diamonds.”

In the note business, what do people say when they want to borrow money to add from a bank to buy? “I have to get a mortgage.” You don’t get a mortgage from a bank. What you’re getting is money. To get money, you have to give a mortgage to the bank. You have to give a note to the bank. That’s why people hear it so often, “You’re getting a loan. You’re not getting a mortgage. You’re pledging your property as collateral.”

You don't get a mortgage from a bank. What you're getting is money. To get money, you have to give a mortgage to the bank. Click To Tweet

You are so smart, Kevin. Let’s go back to my original question. Do you buy a note? Is that what you do?

Everybody understands giving a loan to somebody. Technically, that’s a note as well. You’re creating a note. Creating a note is a part of the note business. What we focus on predominantly in this industry is buying notes that were already created by somebody else. When somebody else creates a note, as an investor, you start to look, “Did they create it the right way? What is the down payment? What’s it backed by? Is it papered up the right way? Did they record the document the right way? Did they ever modify this loan? If they sold the loan before, did they do an assignment? Did they do an allonge?”

I’m throwing a lot in there but what I’m saying is you find the note, start to go through it, and in a way, re-engineer what they created so you can put a value on it. Think of it this way. When you go and look to buy a piece of property, let’s say a single-family home, as an investor, you’re looking for a discount. You don’t want to pay fair market value. Where’s your profit? You’re typically looking for a home that’s undervalued either because it’s not in the greatest condition, you have a motivated seller, or some combination thereof. You buy typically a broken home. It needs to be fixed up. That’s your discount.

In the note business, we can buy nonperforming notes, for example. They’re pretty obvious. The borrower is not making the payments. You know that going in but you’re getting a deep discount on that. What do you do? I’ll still use that terminology for everybody’s sake. If you’re a real estate investor, aren’t you looking at that property and saying, “What’s it going to cost me in time and money to fix this up? After I fix it up, how much have I increased the value?” That’s logically what you do.

In the note business if I’m buying a nonperforming note, what’s it going to cost me in time and money to fix that? Am I going to be able to get that loan working again? The discount comes into play. Imagine this, everybody. I’ll use nice round numbers. Everybody can add a zero, subtract to zero, or whatever works in your area. Somebody owes $90,000 on a $100,000 home. They ran into financial trouble, and now that loan is for sale. I might buy that note for $40,000. It’s nonperforming. $40,000 is backed by a $100,000 home. If I can’t get that loan working again, ultimately, I’ll end up with a $100,000 home that I paid $40,000 for.

KSS 107 | Note Investing

Note Investing: In the note business, if I’m buying a nonperforming note, what’s it going to cost me in time and money to fix that? Am I going to be able to get that loan working again? The discount comes into play.


Is that my worst scenario? The worst-case scenario is I end up with the property. If there’s a borrower in there, I want to work with that borrower to get that loan performing again because the balance on the loan is $90,000. I’m only in it for $50,000. I’ve got room in there where I can stretch out a loan, adjust payments, do a temporary modification, and do what they call a forbearance, which is, “Forget about this debt. I’ll move it to the back of the loan for now.” I can do those things because their payments are based upon a $90,000 loan that I’ve only paid $50,000.

You can’t adjust their payments. You can’t make them pay more though.

Once it goes nonperforming, and I’m reaching out to them to modify the loan, we can then modify the loan as long as both parties agree. They would have to agree to any modification but in a case like that, what I’m probably going to do is forgive some debt potentially if I had to make this work, “Could I make the loan $80,000 instead of $90,000? I’m only in it for $50,000. Could I charge them a $5,000 reinstatement fee, and I’ll discount it by $10,000?” I’ve got room in there to do so much to help them because a part of this business is helping people stay in their homes. There’s problem-solving on that end. We also buy performing loans though.

I do one-on-one training mentoring with clients. We looked at a beautiful note. The house is worth $200,000. We went on a couple of other websites that you all are familiar with like Zillow, Realtor.com, Redfin, and things. We were ball-parking it but it had a tight grouping. All of them were $190,000, $210,000, and $200,000. You don’t see that often. We knew the property value was probably there. These people have been in the house since 2005 if memory serves correctly. The loan got readjusted over time but all they owed was about $30,000 on the loan. They’re paying, and they’re motivated to pay. They’ve got a ton of equity in that house.

They only owe the remaining $25,000 or somewhere in there. We will say $30,000. They owe that. The person who owns the note has owned that note for a long time. They have made a lot of money on it. They’re simply cashing out on the end of the note and going to recapitalize and invest in something else. It’s a perfect note for my beginner client here. It’s their first note. We will still buy that at a discount. If they owe $30,000 on a pro forma, maybe we get that for $25,00. His return in that case was 10.5%. Think about that. Where else could you invest $25,000 and 10.5% secured by something worth $200,000?

Where does the 10.5% come from?

The borrower in that case is paying 8% interest. That’s their coupon rate or the interest rate that they’re paying on their note. In the promissory note that they signed, they agreed to pay 8%, and that’s what they’re paying. They owe $30,000. If I paid $30,000 for that note, I would be making 8%. I’m buying it at par but if I buy it at $25,000, I’m buying it at a discount as we discounted our real estate. My return is higher than 8%. I’m getting the same cashflow of $30,000.

They stopped to pay the $30,000.

I only paid $25,000.

How does one make money though? You explained it a little bit right there. Let’s go back to the first one. That was $100,000. They got it for $90,000 in a nonperforming note. They sell it to you for $50,000. They’re making money. I taught Music. I didn’t teach Math. Notes meant something different when I was a Music teacher. How does that person selling the nonperforming note make money?

They’re not.

Thank you. They want to dump it.

Think about it if that was a bank. A bank gets a nonperforming loan. When somebody’s note is nonperforming, banks would go toward foreclosure. That all changed in the last crash. That was completely changed by an act called the Dodd-Frank Act. That was passed after the last crash. They wanted to hold lenders more responsible. In the last crash, what was the problem?

The lenders.

You have the crazy loans, “You need more money.” Crazy loans were setting people up for failure. Real estate prices were going through the roof. Eventually, the people who got these subperforming loans and no-doc stated income. It all came tumbling down. Property values dropped in half. It was crazy. Back then, we were buying nonperforming notes where people owed more than the house was worth.

If somebody owed $200,000 on a $100,000 house, we would still end up buying that thing for about $50,000, and then we could work it through but moving forward after that big crash, Congress came in and passed the Dodd-Frank Act. That completely changed how banks look at enforcing the mortgage. That’s what a foreclosure is. It’s an enforcement of the mortgage because you said, “I promise to pay you back in the note, and I’m going to sign this mortgage that pledges that house is collateral. If I don’t pay you, you can take the property back.” All they’re doing is enforcing those agreements that the borrower signed.

What the Dodd-Frank Act said was if a bank reaches 7% in nonperforming assets in their mortgage portfolio, it triggers an immediate investigation. I’ll use small numbers. You have $1 million on your books of loans. You got ten $100,000 loans. They’re all nonperforming. You’re at that 7% range. If you get under penalty, which is highly likely at 7%, you as a banker are going to have to hold the times the $1 million in cash reserves that you cannot lend. That’s the pressure.

Add zeros to that for a bank but imagine that you would have to put $10 million in cash reserves you’re not making money on because of $1 million on that book. Your reaction would be, “Get that off my books.” Are you going to still go through foreclosure, which might take a year, pay attorneys, and do all this and delays? How about you bundle those notes up and sell them next month at an auction? What would you do? You would sell it at an auction. That’s what happens. They have auctions about six times a year. $10 billion worth of nonperforming notes were sold all in these big pools.

The banks take their loss more of a loss because of the cash reserve, plus then try to foreclose. If you look at foreclosures, I did the research on this. The numbers for March came out in May 2023. Foreclosures are 0.3% of all mortgages. I could show you a chart that goes like this. Foreclosures are not the way banks go. There are always going to be some foreclosures. I’m not saying that but 0.3% versus the peak of the last crash at 10% is a huge difference.

What banks do is bundle up those nonperforming loans. They sell them in bulk. They’re done. Who buys those up? Big companies or firms because you have to buy a $500 million pool of notes. Let’s say you’re the big hedge fund. You come in and buy 2,000 notes. Do you think you were able to look at all the individual notes, and everyone fit your criteria? It doesn’t make sense.

They bought that pool because there were some things in there that they wanted, which is typically the high-end stuff. They had to buy all of it to get the part they wanted. They trim off the rest of that and sell it down the road to us. That is the bread and butter of this industry. The best place to focus on this business is affordable housing or whatever that means in your area.

That’s what we focus on because that’s where a small investor can come in and buy notes for $10 to $50,000. If you want to go higher, you can go higher. If you get too high, you’re competing with the big firms. Why do that? Go where you can diversify, have good working-class neighborhoods, and buy them at a discount. The person selling that nonperforming loan has lost money but that loss of money is less painful than what I described to you.

Go where you can diversify, have good working-class neighborhoods, and buy them at a discount. Click To Tweet

That trickles down to us. Like a smart real estate investor, when you this piece of property, you already have figured out a couple of exit strategies. You never go in blind and go, “Now that we own this, what should we do?” You should have multiple plans in action. We do the same thing with the nonperforming notes. This will blow you away. I hope it’s not too much for everybody but because of the financial crisis that we had with COVID, they reinstated a program, which I knew was going to happen.

I studied, and there was a program that came out in 2008. It eventually went away five years later. I was telling my clients a year before it happened, “This program is going to come back.” Sure enough, it did. It’s now called the Homeowner Financial Assistance Program. This is a government program. $10 billion was funded. Every state in the United States got some of that money in unequal distributions.

That money is earmarked for federal money to the state to help people stay in their homes. They’re people who are delinquent and behind on payments. Some people in those forbearance plans hadn’t made a payment for four years. That part was forgiven but there are people who are a year behind. They’re two years behind on their payments. It builds up what we call an arrearage account. All these missed payments start to grow.

If somebody is facing foreclosure, how do you stop foreclosure? It’s pretty simple. Pay what you owe. They don’t have the money to pay what you owe. The money from the federal government to the state pays it. Let me go back to that example. In a $100,000 home, they owe $90,000. I bought the loan for $50,000. What if these people have an arrearage account of $25,000?

In other words, they have missed payments for the last two years, and they owe $50,000. They’re not making their payment partly because they can’t afford it but maybe they’re working again and can’t afford it. By making their payment, would that stop a lender from foreclosing? Not necessarily because you can accelerate the loan and foreclose. They’re lost going, “If I pay, they could still foreclose. Why throw good money after bad?”

I come along, buy that note, and educate them that this program is available. That’s the problem with the government program. The people who need it don’t know anything about it. I say, “Here’s this program. Here’s how you apply. Here’s the phone number. Here’s the website. Here’s the documentation. Apply to this. They will help you.” That state says, “Our state maximum is $25,000. We will pay you, note holder, $25,000 to catch them up on their loan.” It takes 90 days. I get $25,000.

They’re motivated to stay and pay. I may or may not modify that loan. If they can afford to pay, I won’t modify it but if I need to modify it, I can still do that and make it work because I invested $50,000, and 90 days later, I got back $25,000. I’m in this boat for $25,000, and they’re making payments on a $90,000 loan. It’s a $100,000 house. That’s incredible. That’s one of the things that we’re doing. We closed on about 5 or 6 of those.

I have a question. I teach nationally a lot of real estate investors across the country. Kevin, you solved a huge mystery for me because I like to pull preforeclosure lists. In Raleigh, North Carolina where I’m located, people who have received a preforeclosure notice in the last few months are my true distressed sellers. That’s what I’m going after.

I pulled that list. Two people received a preforeclosure notice in the last few months. I was like, “This is wrong.” I started pulling different areas, and I did get a good list. I pulled Denver, Colorado for some reason. They still had a pretty decent list but this is huge. Teaching real estate investors how to find deals, should they not be going after preforeclosures anymore because those are dwindling?

What they should be doing is buying nonperforming notes. There’s less competition. For example, there are short foreclosure states and long foreclosure states. Georgia has a short foreclosure. Missouri takes 60 days to 90 days to foreclose. You could focus on nonperforming notes on vacant properties or extremely lengthy nonperforming notes in short foreclosure states.

In Georgia, in 90 days and less than $1,000, you can foreclose. If you’re buying things at $0.20 to $0.30 on the dollar versus trying to beat people up and down at the auction where you’re overpaying or trying to find these lead lists and running into it, there is going to be a dwindling supply because a lot of these nonperforming loans with banks will go into preforeclosure. Everybody sees foreclosures. It doesn’t mean it has been foreclosed upon. That’s foreclosed.

When people see foreclosure, it means it’s in the process but while it’s in that process, the bank knows it’s time to give up. They bundle them up and sell them. They’re gone. They may vanish from your list as a result of that as well. The banks like it. I don’t see this law changing at all because the banks’ overhead in their loss mitigation department, which pre-last crash was huge, is down to nothing. Banks don’t want to work with people anymore. Why? It costs them time and money, and they would end up having a foreclosed property anyway and taking a loss. Why stretch it out? It’s done in 30 days. Get it off the books.

It’s another way that you could use the note business to simply acquire real estate. Having said that, I assure you nobody at least that I know goes into this business going, “I can’t wait to kick people out of their houses and foreclose.” If it’s a vacant home, go for it. Target that but if people are living there, remember that there’s more money to be made by helping these people stay.

If it’s not the government funds, I can do a loan modification with them. I’m in the thing for $50,000. They owe $90,000. Let me move the money to the back and lower their payments temporarily. There are a lot of things that I can do to get them paying because like a rehab property, if I can take a nonperforming note that I bought cheap and get it reperforming again like buying real estate and fixing it up, I’ve enhanced value. Once I get that note performing, I can sell my note to somebody else. I’m selling it as a performing note, which I’m going to make a profit on versus buying a nonperforming note.

I’m geeking out about this. I can keep going on. This is so amazing. A lot of people get into the real estate investment business because they watch all the flipping shows, and they’re like, “I want to flip houses.” Is there an opportunity for someone who purchases nonperforming notes to end up with the property because they can’t pay the note? As the investor, I’m going to get access to that property. I can flip it, turn it around, and sell it. Is that correct?

Run me through that one more time. You went off track a little.

I’m buying a nonperforming note, and they can’t catch up. They’re still not paying it. I’m foreclosing on them because I don’t have to worry about the 7% with the bank and all that stuff.

You and your company are foreclosing. A lot of times, what we will do is offer them to surrender the property. It’s typically done through a quitclaim deed. You don’t need a foreclosure on your record. You can’t pay anyway. Sign the property over to me. I’ll forgive that you owe me any debt. You get the property back. To keep our example the same, you’re in $50,000, and you got a $100,000 house. If there’s a lot of equity like that, the best thing is to sell the $100,000 house. Maybe I have to grant them a short payoff. Maybe they can only fire-sale that house for $80,000. They owe me $90,000. They say, “We have a cash buyer for $80,000.” I would have to accept a short payoff.

You’re still making $30,000.

That was my point. I’m like, “I’ll do that. That’s okay.” If they sell it for $90,000, that’s great. If they sell it for $100,000, that’s great. I get my $90,000, and they walk away with equity, or we have to go down the road to foreclosure. As long as I’ve been doing this, I’ve never had to foreclose on somebody. I’ve threatened it because sometimes you have to wake people up. Believe me, people get into habits. When somebody has a habit of not banking mortgage payments for 2 to 3 years, they would like to keep it that way.

People get into habits. When somebody has a habit of not banking mortgage payments for 2 to 3 years, they would like to keep it that way. Click To Tweet

You have to wake them up and send a little letter from an attorney saying, “If we don’t hear from you, we have no choice but to go down this road.” We have possibly had to file the preforeclosure documents, a lis pendens, or the notice of default and start that road but a lot of times, they will finally wake up, and we can come to some resolution. That’s what I mean. We have 3 to 4 outs in every property. When you structure these the right way and buy the right way, whichever four ways it works out, I’m making money either way. It’s just how much and the timeframe.

Fewer headaches.

You’re not making the phone calls either. As a note investor, you outsource that. We have companies that do all that. Nobody gets into this to call, “You’re late on your payment.” We don’t do that. We have companies that do that for a whopping $30 a month. A servicing company collects the payments. If it’s nonperforming, they’re doing workouts, sending the letters, making the phone calls, and doing all that. All I have to do is tell them, “Where are we?” “They’re not returning calls. They’re not doing this and that.” “Go ahead and get your attorney.” The servicing companies and workout companies have attorneys. They have them file the paperwork for foreclosure, send a demand letter first, see if that rattles them, and if not, file the foreclosure. You’re not doing any of that other than giving directions.

How do I finance buying that note for $50,000?

That’s trickier.

This is my last question because I will keep going. I’m prepping him.

This is allowable for IRAs, 401(k)s, or self-directed. A lot of people will do that. That one got you good. You have your money and lines of credit. It’s like buying real estate. How do you come up with the money for that? Most of the investors that I have pay cash for that but here’s the thing. Some of you are going, “That’s great but I don’t have $50,000.”

Here’s how I started the business. I didn’t have the money many years ago either but I had the knowledge. I put forth the effort and did something that most of your audiences in real estate investing have heard of called wholesaling. You go out and find a property. You can’t buy it. You’re not ready to take it on but you know somebody who can. You make a fee. Can you do the same thing with notes? You sure can.

That was a mind-blowing experience right there. You go to the auction. Is it an online auction? We want to buy nonperforming notes.

Not necessarily. It depends on how active you want to be, how passive you want to be, and how much capital you’re looking for. When I take on a new client, that’s where we start. There’s all of this array of opportunities because there’s a way to make passive cashflow right away. There are ways to make a lump sum. There’s this government fund. There are all kinds of things. I try to work with people and say, “What’s best for you, at least to start with? Let’s get you in something.” You don’t want to try everything all at once. You will be spinning your wheels. You narrow it down.

There's all of this array of opportunities because there's a way to make passive cash flow right away. Click To Tweet

Some people are attracted to nonperforming or performing. It depends on the individual but as far as wholesaling, it all works the same way. Note to note, you’re going to pay more toward the balance of the loan on a performing note than a nonperforming note because you’re buying a working product but when you can buy a performing note that somebody has been in the house for 2, 5, or 10 years, making payments and establishing equity, you buy that note. The money is coming in, and now you buy it. The servicing company starts sending it to you now. As long as they keep paying, you don’t do anything. There’s nothing for you to do. The servicing company takes their fee out, holds escrow if there’s escrow in it, and then sends the rest of the money into your account.

This is great for someone who’s starting in real estate and not ready to quit their W-2 yet. They have a lot going on in their self-directed IRA. They can take the money from their self-directed IRA, buy a couple of notes, and have money start coming in and building capital to then go buy more properties to flip down the road.

You can find these notes online. There are various sources that sell these notes. If somebody is looking to wholesale, one of the companies that I was working with years ago is still around. They’re backed by a bank. They buy $3 million to $9 million in notes every single month. They’ve got the money. That’s always a big part of the question. You can find a deal. Where do I find the money? You can go to FNAC or First National Acceptance Company. They have the money. They’re backed by a bank and everything else. They buy $3 million to $9 million. You got their money there.

Find out what kind of notes they’re looking for. How do you make money? You find a deal. You fill out a one-page form, “What’s the house worth? What was in the mortgage? How many payments have they made? How many payments are remaining? What’s the interest rate?” It’s the basic stuff. You send that one-page form over to FNAC. FNAC says, “We will pay $80,000 for it.” You go back to your person and say, “We will give you $70,000 for it.” They say yes and pay $80,000. You get $10,000. They get $70,000. That’s how I started.

I get to meet you in person. You’re going to be speaking at the REUP conference with my good friends Christy and Noah Harris in Columbia, South Carolina. I’ve attended all of their REUPs so far. I spoke at the first three. This one, I’m going to attend because there are badasses like you speaking at this event. I can’t wait to hear even more about this.

You all can hear him at that event. It is July 29th and 30th, 2023. Check it out. Go to REUPMeetup.com. You want to sign up. I’ll be there. We can hang out at the bar after all the speakers. Kevin, this has been fantastic. You have a show that is amazing. I’ve seen some of the people you’ve been interviewing. You also have a book, Real Estate Without Renters. How do people find you to learn more from you?

You can google me. I’m all over there. I’ve got a YouTube channel. You can go to RealEstateWithoutRenters.com. If you’re interested in my book, go to Amazon. It’s the same title, Real Estate Without Renters. It’s that because we own the cashflow. If I own a note on somebody’s property, don’t call me about the toilet, the roof, this, and that. I’m the bank. That’s what you are in this business. Make your payments to me. I don’t own the property. You do. That’s where the without tenants come in. I do some things on other social media and such but there’s YouTube, the book, and my website. That’s it. I’m not hard to find.

I’m glad someone is going to be speaking at this event who’s older than me. You started at 85. I know you’re a little bit older than me.

I turned 60.

I turned 50. When was your birthday?

May 30th.

I’m June 1st. That is so funny. Small world. Kevin, this has been fantastic. The second part of the show is What Makes You a BADASS, which you are. I use the acronym BADASS. The first letter is B for Book. What’s a book that has made a huge difference in your life?

Think and Grow Rich was one of the first ones. It’s probably a common one that you hear but it’s a great book. There’s How to Win Friends & Influence People and other good ones. It’s those probably at the same time but if I had to pick one of the two, I would say that one.

I have yet to read that. It has been sitting on my bookshelf forever.

It’s an old classic.

I need to get on it. The first A in BADASS is for Advice. What’s the best piece of advice you’ve ever received?

Mentorship has changed some things. Mentorship is a different thing. I read what you have on your website too with the true definition of a mastermind. I’m a purist on that. When I’m working with clients, what’s helped them is I’m right there with them every step of the way. We’re on Zoom together. We’re reviewing deals and looking at documents. That’s irreplaceable because you know the old saying. If you just tell somebody, they forget. You teach somebody, and they learn. You involve somebody, and they get it. They’re a part of it. That’s where the mentorship comes in. That either through partnerships or through mentorship is smart. Don’t make mistakes. Learn from others. It’s quicker.

By you being my mentor about notes, I can now pass on why there are only two preforeclosures showing up because now I know. Thank you for sharing that with me. The D in BADASS is for Drive. What drives Kevin to be successful?

Enjoying what you do is a big part of it. I’ve been doing this for years, and I hope it comes through. I’m passionate about it. It’s a great thing for investors to consider. It’s a part of real estate. I look at it as the other side of the same coin. If you’re in real estate, you should know the best in real estate and real estate finance. If you do that, you’re a complete investor. The drive for that is a personal passion for something. When you become an expert in something and have a niche, it’s fun. You get the following on that. You have a family that you do all this stuff for too.

The second A in badass is for Aspiration. I’m a big goal-setter. What is a goal you are working on?

What I started implementing, and I’ve been asked for a long time, is I’ve got people who want to partner with me on things. I’ve resisted that for a number of reasons in the past but I’m going to start to partner with people on deals. That brings mentorship to a different level because now, not only was I involved in getting you into a deal. I’m in the deal with you. You can rest assured if something goes wrong or something comes up in the deal. I’m highly motivated. I’m in it with you to work on that. That’s the next big move for what I do.

I hate partnering. I hate sharing my profits. I am impressed that you’re doing that. I bet that makes people want to work with you even more because you have skin in the game as well. I love that.

I make them work. I won’t spoon-feed them deals. Let’s teach you how to do it. You find the deal. If I like it, I’ll structure a partnership with you, and we will do it that way. Otherwise, you don’t learn.

Having turned 50, I’m getting tired. I’m super excited about this whole note thing. As soon as we sign off, I’m going on Amazon and getting this book so that you can sign it when I see you in July 2023. The first S in BADASS is for Systems. What systems do you have in place to help you achieve success?

What I’ve done, which I don’t think anybody else in our industry has done, is I don’t like to waste time. When I look at notes, I have a first level of due diligence that takes me minutes. If it doesn’t pass that test, move it on. I’ve seen too many investors. Move on. We’ve got too much inventory. If it doesn’t fit the first test, it’s done. I go to the next layer of due diligence.

My goal at that next level is I tell my clients all the time, “I want to know more about this note than the note seller knows.” A lot of times, that becomes the truth. I research it. I want that because when I ask that seller questions, I already know a lot. It’s like an attorney. I already know the answer and what they should be giving me back on stuff. The final is getting the documentation from them and verifying everything that I believe is in case there. You have to have a systematic approach to that. I apply that same system, whether it’s performing, nonperforming, subperforming, or whatever it is. It makes you much more efficient and targeted. That’s the system that I built over time.

You pass it off to that $30-a-month company that’s going to be collecting payments for you and doing all the communications. This is heavenly. To wrap this up, as much as I hate to leave you because I’m enjoying this, the final S in BADASS is Success. What does success mean to Kevin Shortle?

The ability to do what you want to do when you want to do it with the attitude to enjoy it.

Normally, people say, “With who I want to do it with.” I love the attitude.

I heard that a long time ago. It’s always stuck with me. I said that on the show that I did with Michael. I said the same thing. He goes, “I’m writing that one down.”

I love some mailbox money. I’m going to have to dig deeper into this. Kevin, it has been such a pleasure having you on the show. One more time, how can people find you online?

KevinShortle.com or RealEstateWithoutRenters.com. You could always check out my book. It’s $20 or something like that on Amazon. It’s a number-one bestseller. That’s a great introduction. It’s a good book. Check out my show, Real Estate Without Renters.

I was going to say, “Give us a shout-out for that.”

Google me or go to YouTube and type in my name. You will find my channel there as well.

It’s a great show. I checked it out myself. Kevin, thank you again for being on the show.

You are most welcome. Thank you.

Thank you for reading. We will catch you on the next episode. Go out there and share your badassery. Don’t forget, make it a great day. Take care.


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