In 1980, Eddie Speed began his career in a very high interest rate environment, buying discounted real estate notes. In almost 40 years, he has closed 50,000 transactions, 50,000 note deals. Eddie’s groundbreaking methods have earned him multiple industry awards, including an inaugural induction into the Small Balance Real Estate Hall of Fame.
Twenty-something years ago, Eddie decided he could do a lot more business with a lot more people, if he had a school. So, in 2003, he founded NoteSchool, a real estate coaching program that teaches how to buy and sell performing and non-performing notes. He can teach you creative financing, and note investing, without any preparation. Eddie says the school has changed a lot of people’s lives, including his own life.
When real estate investors today look at what has tripped the market over, it’s high interest rates. Affordability of the payment is bottom line, so when interest rates double, it walls off a whole lot of people from being able to buy real estate, whether it’s buying it for investment purposes, or they’re buying it to live in.
In September, October of 2021, Eddie and his executive team met, and they bought about 6,000 real estate notes in the last three or four years. He and his team knew that, when inflation started to go crazy, interest rates were going to be raised, and it was going to be a punch in the gut to the real estate business. Eddie says that he looks at his business as an entrepreneurial business, where you’re able to seek the opportunities that others are missing, and you can solve problems that most people can’t solve.
A note is simply a promise to pay. If someone writes you a check for a $1,000, you now have a note, and you can go deposit that note into your checking account. Or, you could go to a check cashing service, and they would only give you $850 for your $1,000 note. If they did that, they bought your note at a discount.
Eddie buys real estate secured notes at a hundred thousand dollars, three hundred thousand dollars. He and his team typically buy notes at less than what is owed. So, when buying a three hundred thousand dollar note, he will only pay two hundred forty thousand dollars. Although he has the legal right to collect all of the interest, and all of the principle that is owed, Eddie found someone willing to sell him the loan at less than what is owed.
One of the techniques in buying notes Eddie teaches at his NoteSchool is, you’re buying a loan secured by a piece of real estate. You’re buying a note that’s making a payment every month. People will buy a note and put it in their Roth IRA account. In other words, they want their retirement account to be the bank, and have a note, and collect payments every month.
At NoteSchool, people also learn how to use leveraging strategies by selling some stream of payment on the note, without selling the whole term of the note. And they can even recoup some of their capital from their retirement account, making their return on their investment good. According to Eddie, there is a significant supply right now of these notes, because the banks have priced themselves out of the business. And so, that’s why there is a gap, that is why there is an opportunity.
Eddie and his team buy seller-financed notes. There is a substantial supply of them, because when the pandemic hit, there were 8 million loans that stopped paying. So, a lot of these loans went into this kind of agreement with the lender, called forbearance. Which means that they both legally agreed that the person with the loan was not at fault, and the lender would give them time to pay. They went back and modified a lot of these loans, so that people could start paying in the future.
Now all of these loans have hit the secondary market, and they’re being sold. There is an industry term for this kind of loan, it’s called RPL (reperforming loan). Eddie and his team buy these loans, typically at a decent discount. He has been buying these types of notes for a very long time. He has clients that have hundreds of these loans.
The real estate market now, as of March 2023, the loan business went for over two years, where it wasn’t legal to foreclose on people, which equals a pinned-up inventory of defaulted loans. So, now there are two million loans that are not paying. This means that these defaulted loans, which the banks hold, their pattern is to sell those loans to note investors, so that they don’t go all the way to foreclosure. Eddie explains that this is another market opportunity. He and his team have a little more time to break all this down and show people exactly what a transaction looks like. What is normal. What the trend in the market is.
One of the techniques taught at Eddie’s NoteSchool is, how to use other people’s money to fund their note business. A question he poses to his students is, asking if they would rather be the bank or the landlord? The correct answer is the bank. Does the bank do the maintenance on your house? Does the bank pay your taxes and insurance? Are they responsible, at their expense, to pay your taxes, insurance, and maintenance? Do they pay all that? No. You pay it. Look how much money you can keep if you’re the bank, that you can’t keep if you’re the landlord.
The other factor is managing the rental. These loans that you buy are going to be serviced by a loan servicing company. You’re not going to have to do a lot of work. You’re going to hire a vendor for not a lot of money, and they’re going to do the work for you.
Generally speaking, during inflationary times and high interest times, the smartest money chases notes. Because it’s better to own a note in that market, than property in that market. Because rent is going down, while expenses are going up. To go buy a brand new rental in today’s market, you may run the math, and learn you would make a lot more money doing a note.
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