Why Being the Bank Beats Owning Rentals Right Now

And so when you say passive, there's a lot of people that use that term rather liberally.

Here's the reality.

I've been around real estate investors.

I'm in a number of real estate masterminds with the top house buyers in the business and guys that do apartments and storage and this and that.

And I've been around all of that a lot.

Right.

If you invest in a syndication, it is passive, but the problem is it's passive.

You're given control of somebody else.

If you invest in a rental, it's not passive.

But the problem is it's not passive.

It's really not passive.

I think a big in the middle opportunity for some people and not necessarily all their money.

But this is a great asset class.

You invest in a note and it is predominantly passive.

Like the loan servicer probably does 95% of whatever has to happen, but you control it.

And so that's a pretty good middle ground to think of another third asset class within the real estate group.

Welcome to Truly Passive Income.

I'm Neal Henderson.

And I'm Clint Harris.

And today's guest is Eddie Speed.

He's a longtime real estate investor who has bought more than 50,000 notes nationwide and spent decades helping investors think like the bank instead of the landlord.

What makes Eddie especially interesting is his focus on timing.

And he believes this market has created one of the clearest openings in years for note investing.

Eddie, super excited to have you here today.

Thank you for joining us.

How are you, sir?

Thank you.

I'm so glad to be here.

Excellent.

So this is a topic that we were just discussing before we started recording that we have a lot of interest in.

We've scratched the surface on this in the past, but we've never specifically dove really kind of deep into the weeds on this, specifically focusing on what you mentioned of the timing of the current market and what opportunity that may have created.

So I'd love to hear a little bit about your background, how you got into this niche area in real estate investing.

And let's take it from there.

Right.

But no, I, I, I was introduced into the business to a man that later became my father in law and he was a seasoned real estate investor.

Landlord built property stuff, bought foreclosures, did all the above.

Right.

And then he, by that cycle he had shifted over with a partner and they were buying seller finance notes.

So I'm a kid, 20 years old.

He's sitting with me on a Sunday afternoon at.

At his house and starts telling me about buying notes.

Buying notes.

I buy notes.

You'd love to buy notes.

Finally, I'm like, Mr. Shoemake, I don't have any money.

And he goes, you don't need any money.

He said, I've got the money and I've got the experience, as long as you're willing to hustle.

So my start in the business was is that I went out and found realtors, home builders, landlords, and showed them that we could then create liquidity for seller finance notes.

They were forced to sell or finance properties because of the market, right.

High interest rates.

And so that has been a lifelong journey.

It's been, as they said on the old movie Lonesome Dove has been quite a party.

It's been quite a party.

The I met a guy in the mid-80s named Ken D', Angelo, a guy that later founded a company you all know and heard of, heard of called HomeVestors.

And so I bought some notes from him.

And that was I developed the note system for Homevestors and their franchisees to create notes and then sell the notes.

And then it was one operator and another operator all the way up to where we are today, which is that today we found out the big gap for real estate investors today.

And that all these people that have had income properties, their income has gotten sucked out of the deal.

And it's not their fault, it's inflation.

Expenses on rentals went up two and a half times more than rents went up.

And so me being a note guy and helping people manufacture notes even before I buy them, right at a lot of scale, then I quickly, you know, pull out an old spreadsheet and say, look, here's your rent, here's your.

Here's what would happen if you own or finance the same property.

And they're like, wow, that's two and a half times more net income than I'm getting right now.

And the answer is that's true.

And so.

So on one side of the fence, I help people create seller financing on their rentals and then create a liquidity event in various ways to help them get some cash up front, pay off the underlying mortgage, get to some cash, but keep long term cash flow too.

Or I show somebody that doesn't want to jump in the rental game how to go be the bank.

Cause if you can earn two and a half times the income you can on a rental, apparently being the bank's a good thing and it's a lot less trouble.

And so when you say passive, there's a lot of people that use that term rather liberally.

And here's the reality.

I've been in this.

I've been around real estate investors.

I'm in a number of real estate masterminds with the top house buyers in the business and guys that do apartments and storage and this and that.

And I've been around all of that a lot.

Right.

If you invest in a syndication, it is passive, but the problem is it's passive.

If you invest in a syndication, you're given control to somebody else, Right.

If you invest in a rental, it's not passive.

But the problem is it's not passive.

It's really not passive.

So the, I think a big in the middle opportunity for some people and not necessarily all their money, but this is a great asset class.

You invest in a note and it is predominantly passive.

Like the loan servicer probably does 95% of whatever has to happen, but you control it.

And so that's a pretty good middle ground to think of a third asset class within the real estate group.

I think it's a great explanation.

I love the way you couch it as sort of a middle ground between truly passive, which Clint and I kind of always say is a bit of a joke.

And then, you know, all the way over to, to active.

But I want to make sure people understand.

You know, we sit, we're using terms, notes, and just like 20 year old Eddie Speed, a lot of times people's eyes roll over and they have no idea what you're talking about.

For listeners who are new, totally new to this world, what does it mean to be the bank in real estate?

And how is note investing different from owning rentals or investing in a syndication?

All right, well, let's just assume that most people in the audience have owned their own personal home, okay.

Or they've owned a car or they've owned something, Right.

And they didn't pay all cash, Right.

And so they went down in the bank and they got a loan.

They went to the mortgage company and got a loan.

Somebody gave them a loan.

And at the title company, when they closed this transaction, they signed a couple of documents.

One of them is called a note, a promise to pay.

The other one, if it's a real estate deal, is they signed a document called a mortgage or a deed of trust, which makes the property now secured, securing payment of the note.

In other words, it's collateral.

If they don't pay, the bank gets the property.

Right.

So that is a note which is the promise to pay back the money you owe plus interest over time.

It's an installment note.

It's a first mortgage on somebody's house.

And that's exactly what I buy.

I buy a first mortgage on somebody's house, I buy the right to receive those payments plus interest over time, secured by a piece of real estate, primarily houses.

That's the simple version.

That's about as easy as it gets.

So let me ask a couple explanatory questions here for myself.

So basically like right now, we just had a situation where the interest rates shot up higher and faster than they ever have in history.

In fact, it's technically speaking it was over 2,100% over 18 month time period.

It shot up very, very quickly.

And when you go from a period of low interest rates to high interest rates, or sometimes vice versa, you see some of these more niche products start coming out like subject to financing, owner financing, assumable mortgages.

Because everybody wants the rate that somebody got from a couple years ago.

Sometimes people are trying to trade something now and the, the cash flow on the property is significantly impacted by the current interest rates in the market.

And for you to be able to trade the property where you'd like to, sometimes it makes more sense to offer seller financing or either for LTV purposes or whatever it may be.

So a lot of times when you see, when I see someone offering seller financing, it typically means that maybe you're getting a better interest rate, but they're expecting something for that value on their end.

But what you're talking about is somebody's going to put seller financing on a property that someone is buying and then they're flipping the paper, they're selling that paper to you and you're buying it at that fixed interest rate with whatever payment structure they have in place, their amortization, whatever it may be.

And you're looking at that from a return profile.

The resident in the property, owns the property, handles the maintenance, the taxes, the insurance, everything else, just like a homeowner.

But you're the bank and you're basically looking for seller finance notes that meet your spread.

I'm assuming you're buying those at a discount and then over time you're making the interest as well.

Is, is that a fair assessment of how that works?

So let let draw a mental picture for a moment.

There's an audience out there that are real estate investors that are doing seller financing.

But they don't have a system, they don't have a discipline.

They're not, they're, they're many times they may not be compliant.

They don't have an underwriting box, they don't have a risk management box.

They're just sort of cowboy in it, so to speak.

Right.

And some of the transactions that you've previously just described, a lot of people you can check.

Yes.

In that blank.

Why do you think I bought 50,000 notes?

Because I must be a guy that really operates like a mortgage bank within the world of seller financing.

Right.

So to stay in business and to do something at scale, you have to be able to predict the results.

So we help people with really what landlords, which really is essentially a done for you.

We do it for them because they can't do it as well as we can do it is we help them with the entire process of creating that note.

We help them find qualified buyers with good credit and good down payment and an ability to pay that are been left behind by conventional lending, which is not hard to do today.

Right.

And so we, we then help them identify that, we help them create the note.

The notes can be traded in various ways, not necessarily even at a discount.

And, and we do it because we've, we've helped them now act like a mortgage bank.

So we buy existing loans.

I have a team that goes out every day looking for people that create portfolios of seller finance notes.

I would say safely, we look at 8 to 10 times more portfolios of seller finance notes than anybody in the industry.

Like we are the guys that do that.

We work hard at it.

So it's not an accident.

But we see, and so we see some of these cowboy deals that you're describing, including an email I just read where somebody's got some sub two deal and now they're calling the note and the loan balance on the underlying debt is more than the note he has on his deal on his wrap.

And he's saying I'm not willing to lose money.

And we're sort of laughing like that's the biggest joke I've ever heard in my life.

You know, like so, so I, that's wild west seller financing.

And, and, and, and I'm not going to control all of that.

But in the world that I deal in and there's about 90,000 seller finance transactions created per year in the world, ideally I deal with seller financing that's created with a.

Makes sense logical process that follows something that at the end of the day, I can, with confidence, give that loan a predictability score.

How likely is it to pay?

And after 46 years and 50,000 notes, we can do that with a lot, with a high degree of accuracy.

And so there are seller financing and then there's kind of what Eddie does.

Does that make sense?

Because otherwise, if you're buying loans that are problematic, you can cross through passive.

It can't be passive if that.

If it doesn't have a predictability factor of what's the likelihood it's going to pay without a trouble.

Otherwise, it's not a passive investment.

So when I met you guys and I said, when we finish this interview, you're going to be convinced that when we say passive for notes, this literally is passive.

But you have to go back a little bit, as your great question was Clint, and say, but wait a minute.

But wait.

This doesn't work unless you have a discipline to how that loan was created and how that loan was underwritten when it was bought.

Does that make sense?

Yeah.

And what you're really talking about is trying to build a system similar to what how the banks underwrite traditional mortgages.

You're just doing it at the seller finance level and the note level.

You know what people ask me all the time is, and people say like, 50,000 notes, is that legit?

And I'm like, yeah, it's legit.

And people say, how in the world have you done so many notes?

Is that I helped my clients be in the note business.

In other words, the client that's a real estate investor, I helped them do the business so they could do it at their best way.

And then I figured out ways that I could support them and help them to go do it.

We're on the phone.

My team's on the phone literally every day with somebody that has a hundred rentals and they're not making cash flow.

They're not, they're not making.

They're not making remotely close to the money they were making.

And we're laying out a program where we can take those hundred rentals and have us have a done for you process where we can help them create seller finance notes out of those rentals, take the same house and convert it from a rent house to now selling it to a new consumer buyer.

And now you're the bank on the house versus a landlord.

And we've built a very unique process.

I say unique because nobody else has it.

We've built a very unique process to do it.

But it is because think about this, we think like a mortgage bank.

We don't think like a pawn shop.

So a lot of people that are lending money, lease options, seller finance wrap notes subtitles they're kind of thinking like a pawn shop.

The guy didn't pay off foreclose.

That's pawn shop thinking.

I think like a banker and like, I don't want to go let that guy buy a house unless I'm confident he can and will pay the loan back, that makes sense.

It does.

If you have someone with a portfolio of properties and they're not making cash flow because the expenses, taxes, insurance, whatever it may be, has gone up and they're not making money there.

And then they're going to come with you and structure a seller finance note and they're going to sell this to either the people that are in place, but more than likely a new consumer that's buying the property that can't get traditional lending if their cash flow is going up.

Is that implying that the new monthly payments are greater than what the rents are, or is it implying that the expenses for the original owner are going down?

Like if you got a property that's renting for a thousand dollars a month and then you're selling it on seller financing, I guess you're insinuating the monthly payment is now $1,300 a month and they're probably getting some of the fixed overhead cost off of their plate that they would have had as a landlord.

And it's now shifting to the new property owner that's under the seller financing.

So it's a little bit of trying to increase the net operating income and decreasing the expenses at the same time.

Is that where the value add is?

Yeah, so.

So the, the norm is that people's mortgage payment without taxes and insurance, people's mortgage payment is more than they pay for rent on the same house.

The average mortgage payment that somebody would, if we sell or finance that house, the average mortgage payment is about, call it around 2,000 bucks.

So it's a little bit more.

It's 10% more than they would have paid in rent.

Now, on top of that, they're going to pay taxes and insurance.

The national average is people's mortgage payment is 138% of rent on the same house.

That's the national average.

So it's normal that people's mortgage payment is more than they pay for Rent today, forget yesterday.

Yesterday's gone.

That's what the mark.

That is a market condition of today.

Plus, if you have a mortgage on your personal home and your hot water heater goes out, which department of the bank do you call to go get a check to go pay for that hot water heater?

Right.

There's no department.

Right.

So a landlord.

In today's economy, the normal is averaged over about three years.

You can't average any rent model over three years, months or six months.

But over three years the average is about 50% of the gross rent goes out in expenses.

This is before you pay the bank.

You're only netting 900.

Well, it's pretty easy math.

I'm going to net 900 or I'm the bank and I net 2,000.

Bam.

And you're now dealing with insurance rates rising, taxes rising, because that's the responsibility of the new owner.

How do you.

This is such a market phenomena that that's why we're on the phone every day with.

You know, I'm in several real estate masterminds.

I'm in collective genius.

I'm in boardroom.

I'm in investor fuel.

Like you guys would know who some of those.

I mean.

So you call it the top thousand house buyers.

Probably 80, 85% of those guys are in those masterminds.

Right?

That's the guys that I'm talking to now.

I'm not even talking to the little bitty landlords.

I'm just talking to the guy that has 50 to 500 rentals.

That's sick of the math model he's dealing with at the moment.

How do you deal with people that may already have a significant balance?

Like people that are building up a brrrr portfolio that may have 20, 30, 50 houses or whatever and they have underlying debt on these properties if they're turned around and seller financing and they still owe so they pulled most or all of their money back out and they've got a balance on this.

How does that work?

Are they taking second position or how do you know?

I'm not teaching people to wrap loans with a do on.

I think that is a nasty business.

I know people on Facebook and TikTok saying it, but.

But you.

But they haven't been doing this business as long as I Have and they haven't.

They haven't, they don't.

They're not as connected in the, in the industry and loss mitigation servicers and all that stuff.

And that, that model is proving not to be a truth, believe me.

Servicers are telling us they're seeing default rates over 20%.

So that does, that doesn't sound like that's a good plan.

So what we're doing is, is that we are coming in and helping them create this note and immediately come in and we have different models where we can buy part of their payment and give them instant liquidity which pays off their underlying mortgage and they still keep part of the cash flow.

So we're doing a, we're structuring the deal.

This is how mortgage banking works, right?

Where you can keep part of the income and you can sell part of the income.

So we just take mortgage banking techniques and apply it to seller financing.

Can I ask with a live example here just for the sake of clarity?

And maybe that, that probably may not be a good fit here because what we're talking about is primarily single family residential properties.

But I've got that one listed right now for around 1.3 million and I owe a couple hundred grand on it.

Still like in that if, let's say I owe $400,000 on that type of property, if I were to try to sell that property and offer seller financing, you guys would, it's not the best candidate, okay?

It's just a bad example because you're selling it to somebody that's gotta be an investor.

The reason my model works so well is I'm selling to a consumer and a normal payment on that house is $2,000.

That's normal.

That's a market condition.

And then I don't, and I get $2,000 and I don't pay any of the expenses every month.

The normal rent on that Same house is 1,850 and I gotta pay 50% before I make up my payment to the bank.

I gotta pay all the taxes and the insurance and the plumber and the roof and all that.

And so I don't want to finance the investor, I want to finance the consumer because I get to keep all the money.

And if I finance an investor, then I've got a budget for him to go pay those bills.

And now all of a sudden you can see my mortgage payment mathematically has to be a lot less money.

Does that make sense?

Yeah.

And you know, let's say the property's worth 200.

200.

You know, you're going in there, you know, you're obviously not going to probably not going to find an end buyer who's going to put up a 60,000 dol.

Thousand dollars down payment to pay off the original note, but you're doing something to basically create that liquidity event that pays off that original note.

So you're not.

How many do on sale.

How many people in your audience have ever gotten a letter that says your mortgage company sold your loan?

Every one of them.

Every single one.

So this is normal.

This is a normal business practice.

And I've traded 50,000 of these in my career.

This is as normal in my shop as anything you can do.

So I'm just showing people what is a normal industry standard scenario that banks and mortgage companies do all the time.

And I just then kind of hold their hand to help them accomplish it.

So it works well for them.

And then after you've done like, you know, once again, you can imagine these guys that have multiple rental properties.

They're like, God, being the bank is way easier than being the landlord.

And it really is passive and legitimately good paper.

It's pretty much there's not much to do.

I mean, it's not like hiring, you know, it's not like hiring a, a management company to manage rentals.

You gotta have oversight of that rental company.

First of all, every time they call the plumber, they make a spiff, right?

They, they're not that, that invoice you're paying for the plumber.

That, that, that management company's getting a juice on that.

So you got to monitor, you know, what they do and some of the decisions they make.

I'm sorry, that's just reality.

You have to manage the manager and.

In this case, the loan servicer is not that situation.

And they're getting your payment in.

They're going to manage the taxes and insurance and everything else.

They're just wire transferring the money to you and it's, you're getting all the money.

They're not sucking out your cash flow because they're not, they're, they're just, they're servicing a loan just like the bank is servicing your mortgage that you're making their payment to them.

So it's a lot easier.

And you know, easy is a relative term, but this is pretty much an easy with a capital E. And it's way easier than any other process in landlording to think in terms of landlording.

You know, it's just a lot more incomes.

There's all people.

People.

The one thing we do really well is that we lay out, you know, we'll progress somebody to a point where we're having a training and we lay out the whiteboard and we lay out the math and do a comparison.

And it's just no argument.

You're like, the bank makes more money than landlording today.

And in a lot of economies, the banks making more money, they just don't.

People don't think about it.

Well, let me ask you, what's the tallest building in most every city?

Must be a reason for that.

So for you to turn around and buy notes like this, obviously you're doing it at scale, but what does the return profile look like this are you're basically making the interest over time, right?

Compounded interest over time.

So we're able to, we're able to deliver to the market what I call a grade A note like that Loans predictability score is in the high 90s, meaning that there's a 97, 98, 99% chance that over the life of the loan, not in the next two years, but over the life of the loan, that it's, that it's pretty much not going to have a default.

Right.

That loan's going to, that loan is going to sell anywhere from 9 to 11% interest.

So there's risk variables.

I'm really quick to tell people your collateral doesn't fit this model.

Well, like I just was telling you while ago, right.

Your, your quadplex, that's not a good fit or that's not the best thing to do with that asset.

That's not highest and best use.

Like we know.

I mean, like the return profile of that sucks.

And you're earning a 3% net income per year on that investment.

That's not gonna be good math at all.

So instantly when you describe that model to me, that's a note model all day long.

And there are, there is a crazy underserved market out there, like so the mortgage bankers does a chart that says how tough or how loose or tough is underwriting and they scale it over the past 20 years so you can see it compared to other markets.

And then, so it was at 185 instantly when the virus happened, that system, that scale dropped to about 100.

Now it's wavered between as low as 90 and it's gotten as high as 110 over the past five years.

But the truth of the matter is it's not gotten above 110 and today it's about 110, 105 I think.

That's according to Mortgage Banking's index.

So do you think there's some underserved people who've been left behind?

Yeah.

Average first time home buyer as of the information from this month is 41 years old.

Highest ever.

Yeah.

So here's what we don't do.

We don't sell, we don't help our client create a process and sell a house to somebody that buying a house for them is going to turn out to be their nightmare.

Meaning that they have bad credit and they're not able to get their bills paid every month or they don't have the, they're not, they don't have the discipline to pay their bills every month, whatever that is.

Right.

So credit, income, down payment, all of those things have to align and we're able to easily get 10 or 15% cash down from a buyer.

That's not a big goal.

Like, so you're saying, who is your profile?

Well, in some cases, in some markets it's, you know, it's certain, it's certain groups of people, you know, it could be, you know, like it could be people that are on contract, it could be self employed, it could be other things and like, and so there's reasons that the market is kind of, the conventional lending market is not serving that audience very well.

And they look, it's their money, they can do whatever they want to.

Right.

I'm not, I'm not complaining about them, I just see the opportunity and so, but I'm looking for what we believe is an underserved market.

And by the way, behind this face is a huge team of people that come from the mortgage banking world.

So we we see, we've all seen this market that we could go fill and show a landlord or show somebody how they could buy a note versus even thinking about being a landlord and it's better income with lesser aggravation.

And as long as the, the, the remnants of inflation happen, meaning when do you think the net income on rentals is going to go up?

As long as the remnants of inflation are happening, this model will screen to be the best one right now.

So how are you competing?

I mean not to say that mortgages right now are great because we've had another increase in, in the mortgage rates.

How are, is your products competing with those traditional lending notes?

Our interest rates are going to be higher than Fannie Freddie Loans.

That is the best loan in the market.

That's the A product and they're at the best rate.

Go go look at the, any other industry, you know, car financing, you know, some people can go get a loan at the credit union and go pay 3 or 4% interest, but that's not the average interest rate of car loans.

So the average, you know, 40% of conventional mortgages are non qualified mortgage loans.

Non qualified mortgages is a funny term they used.

Fannie Mae must have thought of that term because they are qualified.

They just don't meet the agency standard of Fannie and Freddie.

God love them.

Right.

But, but 40% of that market is this other asset class and they're carried at different rates.

So the rates are higher there.

We, we price this to fit what our mortgage rates otherwise.

So we're not like cheating people in the rate we're charging.

We're just saying that's the market rate.

But what we find is, is the people that.

And what's funny is these people don't lack income.

They have to have the income or we're not going to put them through the system.

They have to have the income.

They have the income, but they are, but they're stuck in being a tenant unless they can go find a mortgage that's more flexible than Fannie and Freddie are going to be.

Yeah.

And so that's the market we serve.

Yeah, it's a different consumer.

It's a, it's, you know, 40% of people that would love to own a home can't do it using traditional pathways.

So it's an additional pathway for them and it's a path of least resistance to ownership for a lot of those people.

Now you bought 50,000 of these notes.

And so if you're looking at a 9 to 11% return, that's a lot of money going out for you to buy a note and get a return.

That's going to come slowly over time, and it is passive.

I love everything about that.

But you're going to be buying notes, buying notes, buying notes.

And at some point I'm going to have a question about liquidity, like how are you continuing to buy these notes or are you packaging them up and selling them to a REIT at some point and you're flipping the paper for a recapitalization that's allowing you to go back and continue to buy more, or are you raising capital from investors and paying a lower amount in say, a debt fund and making a spread?

What's the point, the tipping point that allows you to continue to scale to 50,000 of these, when the average person is going to top out at 50 at best and has allow you to add three more zeros on top of that?

You obviously have a plan for liquidity recapitalization or trading the paper.

So what does that look all the way through your business model?

So I, I really am not any different than any other typical mortgage bank, which means that you create loans that, you know there's an immediate secondary market to go sell those loans.

Right.

And that's exactly what I do.

And I, I have a school and I teach people how to buy notes.

And you can imagine most of them say, eddie, we are not, we don't have a seat at the table.

We don't have time to go chase notes.

We don't have the confidence to go chase notes or the competence.

And can you help us go find notes and can you help us put it through your underwriting system?

And then we could just buy notes off of your marketplace?

So I do as simple as I have somebody that has some investable money and show them how they can buy notes, and I even show them how they can get part of their money back using some leveraging techniques.

Then I go all the way to that to I deal with insurance companies and banks and everything you're saying, like hedge funds.

And so I'm pretty Well known in that space.

And so I think most mortgage, you know, mortgage trade operations say yes, Eddie's in the seller finance business but the grade of loans that he deals in are a different grade than what we might see otherwise in the market.

Words reputation has helps me because I've, I, I've.

You can't keep trading that many loans if you're not being fair to the market that's buying the loan from.

You got to go sell them loans that are performing well or you're going to run out of people that want to go get in the sandbox with you.

So that, so we have to do good on both sides.

So we, we've done well at that.

And yes, I've just essentially built a marketplace.

And you're saying where do I exit loans and everything you just named.

I've done all the above but I've been doing it for 45 years.

Today I am, you know, I have a, I have a very list of clients whether they're banks or hedge funds, all the way to a group of investors.

They have a heavy appetite that want to buy loans.

The loan origination business really right now it's really, really, really rough.

My, what a difference.

So it's 90% off.

So the marketplace is anxious for production but they just need product that is will go through a risk profile model a risk blueprint and say at the end this is good paper.

Nobody's looking to put another loan on their books.

That's gonna, gonna be problematic.

I'd like to ask a follow up question here that's gonna expose my ignorance.

I'm thinking about this from.

I know a lot of people that have 20 to 50 single family rentals that have gotten disenfranchised with that and they're looking at how do I exit here?

You can sell them off individually and you can pay the taxes on them.

You could try to sell them as a portfolio.

A lot of times you're hoping to get a portfolio bump, but a lot of times you end up taking a haircut for somebody to purchase all of those and you're gonna end up paying taxes on that.

But that's the only way to sell them in chunks.

But this to me, if I'm thinking and hearing you correctly, this is a third avenue that that person should be considering that they can offload the portfolio to people that are living in the property that are then responsible for the repairs, the principal, interest, taxes, insurance, and they're going to end up making a spread on that, acting as the bank.

Am I correct on that?

They're still holding the deed on the property, so they still technically are owning it.

They're just making a spread.

How, how does that work on the back end in terms of, of their tax liability?

Well, you ask about 10 questions.

Sorry, I'm very excited about it.

Does that.

Well, so my number one.

Go ahead.

My number one referral source are actually specialized fractional CFOs that work with real estate investors.

So there are several fractional CFO firms, chief financial officer firms where you can't, you don't need one full time, you just need one for 10 hours a week.

Those firms are my number one referral source.

They are the ones that run the math on rentals for their clients.

They know, they know their math better than anybody.

So what we then do is that we have built a system where we do it for them so that they don't have to go build a back office to do that.

Whether it's finding the realtor, oversight of the realtor, creating oversight of the underwriting, oversight of the closing oversight, how it's papered, we do that for them because we found out as much as they like the idea, it's too overwhelming for them to add that to their business.

And we do it in a very economical way, including strategies where we can come in and create instant liquidity.

And they can sell part of the payment on their note in various ways.

They can sell part of their payment on the note to get instant liquidity to pay off the underlying debt.

Secondly, we're not doing cowboy seller financing, so we're not doing land contracts.

That's, that's, when you do land contracts, you're depreciating the value of your asset.

Because when I call a mortgage banker, if it's a land contract, it's worth 10 to 15% less immediately.

So you don't paper it.

I know what real estate investors get together and decide for themselves, but they don't have, they've not traded 50,000 loans.

That's just not their expertise.

I help them with making decisions because I help them Create the most valuable note they can create.

So then we, once we've done that, then I start, we start showing them what their options are.

And so my number one target customer, we call this our rental conversion program.

Our number one target customer is the guy you just named.

That's that we can, we are pretty confident that we can go really help them look at their rental portfolio and figure out how to go get this done.

Past to saying like, oh, I love the spreadsheet and it says I'm gonna make more money.

And then they're like, my God, I'll never do this.

It's too difficult.

And so we had to go figure out how to go do that part to do it.

So we're good at that and we're good at helping people not create homemade paper.

It doesn't feel or smell or taste like homemade paper.

It feels like a mortgage bank.

And you can imagine that's worth more money in the secondary market than homemade.

That makes sense.

Yeah.

Well, I feel like we've only just scratched the surface here and we could probably go on for another couple hours.

And in the interest of, of your time and our listeners time, I want to start wrapping this up.

So my understanding is that you've created a marketplace for around underwriting, servicing and liquidity.

What parts of the note business do you think sophisticated investors underestimate even after they understand the basic concept?

Real estate investors don't understand what I do until we spend time with them.

And I'm not trying to be a smart aleck, but listen, I've been around thousands of the top real estate investors in the United States, and it's no more than I understand every intricate thing they do in rehab, in a house.

I, I've been around thousands of them and I understand some concepts, but there's, there's details that matter.

And I feel like God put me on earth literally at 66 years old today and a lot of experience and a team with a crazy amount of experience and competency.

I think we are on earth today to help them with an alternative strategy that in many cases is a big relief for them, making more money and less aggravation.

And, and, and I think that they're.

Every real estate investor that's done a hundred deals has some basic understanding of seller financing.

But let's used a football analogy.

There's junior high B team football and there's the NFL.

It's the same game, it's just not the same level of play.

And it happens a lot faster with a name like Eddie Speed.

I just feel like that matters right now.

Let me ask you this.

What's the smallest client that you guys are willing to connect with and chat with?

I've got a couple single family rentals right now that you got my wheels spinning.

But again, if you're.

You guys are looking at portfolios, you don't trade 50,000 notes doing them one at a time.

You have a system, you have a team, you have processes, and you're built for velocity.

So I have two businesses, okay.

I have note school, where we take small investors and we give them enough training that they make good, informed decisions.

Right.

They're not ready just to go drop into my team yet.

Because there's some things that we know that we've learned over and over and over.

Because I want.

If this doesn't make sense for them, I don't want them to do it.

So note school does a really good job of that.

Right?

Then I have people that are more advanced.

They have 25 rentals.

They have 50 rentals.

They have.

I've been on, and I'm not on all these calls by far, but, you know, sometimes there are people that I happen to know and I'll jump on the call with our team for a minute or so.

And I mean, you know, the average house is 75 to 100 rentals, right?

And so we deal with people at that level, and then they deal with our rental conversion program team how we're actually going to help them implement it.

So we are trying to create the right home for our customers.

So it's not frustrating for them, and it's an appropriate level to help them get to where it is.

You know, what I've learned about people making any business decision in life, the only people that can pull the trigger and make a business decision that they can sleep at night after they make it, is they have to have confidence.

And so what we try to do is give them what they need so that they can feel confident.

Now, confidence behind that is competence.

And it's all.

In other words, there's things that when you truly have confidence, it's because you know it's true.

And so we have learned that if we can do that for our customers, they give us pretty glowing reviews.

Love that.

Well, Eddie, we really do have to land the plane here.

I'm going to ask you about the best way for people to connect with you in a call to action.

But before we do, there is one question that we ask everybody.

You.

You just ask, like, what's your favorite business book or real estate book.

But the reality is, I think there's a better way to ask that question, especially when you're in something as niche as you are.

And a lot of what you do, I have a feeling, is education and bringing people up to speed, which is, I think there's a lot involved there.

I think experience is underrated in real estate investing, and I think it probably can't be overstated, as niche as this is and as important it is to get it right.

So when you're talking about this and when you're educating and maybe the answer is the program that you've already put together, but is there one book or resource that you recommend to people more than any other, when people are trying to learn more about what you do?

Let me go up one.

Okay.

Everything in life is about understanding how to deal with people, right?

At the end of the day, the most successful people are ones that know how to deal with other people.

And into some degree, you're negotiating with them.

The best book for that is called Never Split the Difference.

Chris Voss.

Yes, sir.

And they've got other things.

But when you're dealing with people in real life and you're communicating with people like that process, like, you know, note school has built a really good path for real estate investors to learn how to do what we've been talking about.

We've been, we, we're pretty solid at that.

Like, I don't think there's a second to us in that regard.

But when it comes to real life and I deal with all of my team or I deal with people I coach or I deal with people that I'm trying to influence in the business or help in some way.

Communication skills are everything.

And why don't you go take the number one hostage negotiator in the world and let him talk about negotiation, like talking to people, that's a different level of communication.

That book is.

It's timeless, too.

That one's been good since the moment it came out.

And it'll be, It'll be good 20 years from now.

Well, Eddie Speed, listen, thank you so much for joining us today.

This is amazing.

I feel like we just scratched the surface.

But for those interested in what you're doing, what you're educating on, and the ability to connect with you in terms of a call to action or just following what you're up to, what would be the best way for our listeners to do that?

So instead of just sending them to the note school's website, I'm going to be more specific if I can.

I'm going to send them to noteschool.com/forward/truly passive.

Right?

And that's not, that's not where I send everybody.

But I'm you, I'm you have a very good audience that we want to serve really, really well and it's going to give them a more specific lane to teach them enough to say hey, I'm really interested in going to do.

And then we can figure out how note school can help you or we can get you routed to where you need to go.

I love that.

Love it.

Well, Eddie, thank you so much for joining us.

This has been educational for us a lot.

I have no doubt I'll be reading reaching out to you outside of this for more education and I'll probably continue to bug you, but thank you for spending time with us today.

It's, it's obvious that you're passionate about what you're doing and also educating people along the way to help make sure that they're making wise decisions and that's how you get longevity in, in your field.

And it's obvious why you've had so much success so far.

So thank you for your willingness to share today.

We greatly appreciate it.

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