GI317: Mastering Mortgage Note Investing with Jamie Bateman

GI317: Mastering Mortgage Note Investing with Jamie Bateman

Jamie Bateman is a Maryland-based entrepreneur, U.S. Army combat veteran, former Department of Defense civilian, and the host of the From Adversity to Abundance podcast. Since 2010, Jamie has built a diverse, multi-state portfolio of rental properties and mortgage notes and has managed multi-million-dollar mortgage note portfolios while offering opportunities for both active and passive mortgage note investors. 

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Transcript:

Charles:
Welcome to another episode of the Global Investors Podcast; I’m your host, Charles Carillo. Today, we have Jamie Bateman. He is a Maryland-based entrepreneur, U.S. Army combat veteran, former Department of Defense civilian, and the host of the From Adversity to Abundance podcast. Since 2010, Jamie has built a diverse, multi-state portfolio of rental properties and mortgage notes and has managed multi-million-dollar mortgage note portfolios while offering opportunities for both active and passive mortgage note investors. Thank you so much for being on the show!

Jamie:
Absolutely, Charles, this is gonna be fun. I, I think you covered it all. I think we can just log

Charles:
Up. That’s it. We’re done. I’m just so it’s so thank you so much for coming on. So we have so much information here to go over, and it’s interesting because you’re a mortgage known investor now, however, you were also a real estate investor prior to everything else. So if you can tell us a little bit about yourself, both personally and professionally, prior to getting into investing in real estate self and then also notes.

Jamie:
Yeah, absolutely. And, and you know, I definitely spend the majority of my professional time now on mortgage notes, and we’ll get into that. I still hold the rental property portfolio, and so, you know, I, my, my focus has shifted, but I wouldn’t say, you know, it’s not like I got a got rid of rental properties and because I stu still feel that they have a, a strong position in real estate investing. And I do think mortgage node investing technically is, is real estate investing. You can argue it whether it’s more like finance versus real estate. But yeah, personally I, we chatted briefly beforehand. I played lacrosse in college and that was a huge part of my life. And then there was a huge void after, after college, you know, as far as not being plugged into a team or serving a greater purpose, if you will, not having that mission.

Jamie:
And so I think, like a lot of listeners can relate to, I, I didn’t honestly really know what I wanted to do. I mean, I had obviously given it some thought. I did some coaching in, in lacrosse, did a few different things in the fitness world and different things trying to just figure out my way. And eventually landed my first quote unquote, real job. And that was at a title company. And I realized quickly how little I knew about real estate and you know, closings. And I ended up doing a lot of refinances as a notary driving around the state of Maryland specifically doing a lot of the closings and having to explain all the documents to borrowers when the, the refi boom was happening in, oh you know, oh three to oh five. And that, that timeframe is when I was doing that.

Jamie:
And then I worked for a mortgage broker. And then eventually I joined the military really again for that kind of greater purpose and trying to be part of something bigger than, than myself is really what it was served in Iraq. Did about four years of active duty time within the eight years that I was in the Army reserves. Fast forward, that led me to a civilian role at the Department of Defense at Fort Mead. And I worked for 14 years as a civilian with DOD. The first seven years was full-time, and the second seven years I was actually able to work part-time for the government and was able to maintain benefits, full-time benefits for my family and me while working part-time, sometimes 16 hours per week. And we can get into that, that, that enabled me to have a kind of a slow ripoff of the bandaid, if you will.

Jamie:
And then there some things fell into place where well really some adversity occurred not only COVID, but also got injured and was away from work for a period of time. And, and that’s when I realized I, I can’t do this job anymore. I can’t do this W2 anymore. My heart wasn’t in it anymore. So about three, three or four, four years ago now, I quit my W2 and was able to rely on real estate full time. So there’s a lot there that we could dive into, and I know we only have so much time. But a lot of this, there, there were several inflection points I’ll say over those years that I’ve covered with regard to, you know, mental and mindset shifts as well. And realizing like, you know, that I wanted to take ownership of my own financial future and instead of focusing on just the obstacles and why, you know, I can’t make it or I can’t do it, or, you know, what’s, the cards are stacked against me in this way. I shifted toward, no, this is what I have going for me. These are the people who are in my camp or on my team, so to speak. And that was able, that, that was very helpful to enable me to move to quit my W2 and, and do real estate and mortgage notes full time.

Charles:
No, thank you so much for sharing. And yeah, I mean, I was gonna talk about it a little later on, but I’d love to bring it up now since you’ve been talking about it, is the, you know, the, you have a lot of, I guess, entrepreneurs in general and then real estate investors. You know, they start off with the W2 and I mean, it’s a bouncing act doing a, whatever it is, it’s another business, or it is a job or whatever it is. And then also being able to successfully begin a real estate investing business. So kind of how did that work for you and what would be, I guess the other thing is like advice to people that are a few years behind you, right?

Jamie:
Number one, this is the caveat. You know, there are several caveats, but there’s no one size fits all answer or situation. Everyone’s goals and experience levels are different. Every, every situation’s different. That said I per, we, we purchased our first rental property in 2010, as, as the, the bio mentioned. And that frankly, we did have some, some capital kind of fall a little bit of a windfall there, there that helped us get started. So that, that was, I mean, I was not, I had no goals of, of quitting my W2 at any point during, you know in 2010 that was strictly, Hey, I really want to have some other source of income here. I want to not have all my investment into in the stock market. I like alternative investing. So I, I wasn’t intending to, you know, start toward quitting my W2 anytime soon, but we purchased a condo as a, as a rental property, and honestly, we have the same tenant in there now.

Jamie:
And that’s been amazing. It was a, I put up a Craigslist ad. I really had not, I I had no clue what I was doing. I mean, my father was a real estate agent. My brother is a loan officer, and I’d worked at a title company, as I said. So I, I felt comfortable in the residential real estate space, but didn’t really know what I was doing as a landlord. So we started with a condo because there’s, you know, the condo association, there’s less exterior maintenance or really none. And theoretically it’s easier to be a landlord with a condo versus, you know, a single family or even a multi, certainly a multifamily complex. Dabbled, you know, got, got our feet wet in that way. And then it wasn’t until 2015 that I really said, I wanna do this more. I really wanna scale this.

Jamie:
You know, advice is tough. A lot of, a lot of people say you wanna get your, I wanna get my rental property or my real estate income once that matches my W2, then I can quit my W2. That does sound good. But the thing is, when you quit your W2, you’re losing your W2 income. So like, you know, you’re always gonna have a, a loss in income when you quit a a a when you take away a source of income, right? So, you know, there’s never, I guess the advice would be there’s never a moment where all the stars align, and now is the perfect time to take action. So in general, the advice would be, okay, get educated. Don’t just jump in with, you know, hastily. But on the flip side, don’t use that education as a, as an excuse that need for education as an excuse not to take action. So get educated, but don’t be afraid to learn as you go and, you know, you need to take action and continue to learn through the entire process.

Charles:
So once you started in 2010, kind of how did your real estate what was the progression from buying some rentals? I mean, did they get bigger? Did you change strategies anywhere through that before transitioning into you know, ultimately notes?

Jamie:
Yeah, so 2010 to 2015 we just had the one rental property. I, I had the one condo 2015. I really, what it was was I, I hated the Groundhogs Day. I mean, I had a, you know, family with kids and it kind of like the same old, you get up commute, work your day job, commute home. I had a fairly long commute and I’m just, you know, it just got old, you know, so it’s like, what can I do to get away to get rid of this pain, basically? So I started listening. I said, what, well, I have this long commute, well, why don’t I listen to podcasts? Right? So I listened to BiggerPockets and many other podcasts to fill that time. And honestly, there were many days where I kind of wished my commute was longer ’cause I was so into the show.

Jamie:
So, and learning, just soaking up so much knowledge was reading so many books and things. And so during at 20, at some point in 2015, you know, the first half of 2015 or so, I really started to take a lot more action. And what we started doing was in essence the Burr method, which may not be the best move right now, best strategy right now given market conditions. But at that time it was working where we would buy a rental property, fix it up, put money into it, you know, raise the value of the property through forced depreciation, rent it out, refinance, get our money back, and rinse and repeat. So we were doing that with what are considered row homes or town homes in the Baltimore area, Baltimore County specifically without HOAs actually. So, town homes that essentially were the same, almost the exact same house over and over and over.

Jamie:
And so I did, I, I understood, you know, it wouldn’t be hard if I needed a, a water heater on this property. I’d already done it on this property. I self-managed for several years 2015 to 2018 ish, and that’s about when I, I brought on a property manager. And in 2018 is when I pivoted to mortgage notes. And again, when I say pivot, I didn’t turn my back on rentals. I just added mortgage notes to my you know, investing strategy and focused, shifted my focus to mortgage notes. So I’ve always been in the residential real estate space. I have invested as a passive investor in some multi-family syndications, as I know you’re very familiar with Charles and you know, some other opportunities as well as a, as an LP or passive investor. But as an active investor, it’s always been the residential rental property space or residential mortgage note space. So

Charles:
You self-managed for three years. I sail managed my properties for six years, and maybe that was a little too long, but there’s a lot of information and there’s a lot of education and experience that I received through that, which I wouldn’t be able to get from any other means other than doing it. And what do you, what do you think about that? I know that’s not your business per se now, but you still have investments in it. Like, what do you think, if you were talking to someone that wanted to be a rental investor, what would you say if they asked, should I self-manage or not?

Jamie:
I think if you have the time, you should do it. I think if I think it’s, there’s, like you said, there’s a ton of education that you just won’t get through a book or a podcast, so you may try to get it elsewhere, but it just doesn’t have the same meaning when you’re the person you’re doing it. So you’re screening tenants and residential and, and commercial rental property management really comes down to kind of two things. It’s property maintenance and then leasing. And it’s kind of two different hats you’re wearing, if you will. And there’s so much to learn on either side. And so I find that residential rental property, property managers fall into kind of one of those two camps. Typically, they were either a contractor or they were, you know, doing rehabs and construction, and then they were like, I can manage properties as well.

Jamie:
Or they were more of a real estate agent where they’re very good at, you know, listings and finding people to buy homes, buy and sell homes. And, and so, well, I can, I can do this on the leasing side and rental side as well. So it’s more of like the property and the people combined. So many lessons learned. I’d highly recommend that the listener, if they’re getting into rental property investing, do it yourself for at first. Maybe don’t do it forever, because, you know, that’s kind of the point is, is for a lot of us, as we wanna make this more passive, as we, as we get older and we want to, it’s not necessarily what we wanna be doing, you know changing, working on it, a clogged toilet or whatever at midnight. But I would highly recommend it if you’re, if you have the time to do it. Yeah. I

Charles:
Like how you said more passive, because I always, it’s one thing I think it’s like, I call semi passive. You bring on a property manager, it’s semi passive.

Speaker 3:
There’s

Jamie:
Nothing passive about this. I mean, this, and there’s so many people that it, look, it’s clickbait and it’s, I, I do have passive, I offer passive investing with our fund, the Integrity income Fund for accredited investors. I mean, that’s pretty passive, like you said, but it’s like, it’s still, you still gotta do something. And so I I, I have a, people could check it out. I, I did a, it’s for the cash flow. I’ve done a couple presentations on the same topic where it’s called the spectrum of passiveness, or is node investing actually passive? And the reality is, it, it’s not either or. It’s, it’s, there’s a scale, there’s a spectrum of passive passiveness or passivity and <laugh>. You can make it really passive or you can make it really active. And there are many ways to do real estate and notes within that, on that spectrum.

Charles:
Alright, so let’s get into kind of what you’re doing with your note business now. Can you give us kind of a little bit of an overview of what your note business is and kind of like what your buy box is with, with these notes? Yeah,

Jamie:
So the note business, we offer solutions for both the passive and active investor. For the passive investor, they need to be accredited. And your listeners can Google that if they’re not sure what that means. We have a, a fund called the Integrity Income Fund that offers passive investing, passive preferred returns. We, we do monthly distributions for those passive inve investors. They, once they’re comfortable with placing capital into our fund, honestly, they really don’t do a whole lot. They get a monthly distribution. I sent the funds out this morning for July 1st. We’re always ahead of time. And so those are for our passive investors. I also offer mentorship for the active investor who wants to learn notes or who wants to take their active mortgage note investing business to the next level and scale that. Just to kind of zoom out a little bit, mortgage note investing, just like, you know, multifamily investing and many other real estate niches, it really breaks down into three different legs of the stool.

Jamie:
One leg is raising capital because even if you’re, you know, have $5 billion, maybe you don’t want to put $5 billion into mortgage notes, you probably are gonna run out of your own capital that you have allocated for mortgage notes. So finding access to other people’s money is, is, is part of this. And these are in no particular order. The second leg of the stool is finding deals, finding notes, sourcing notes to buy. And it’s, again, same thing with a multifamily project. There’s a property you’re buying, right? And the third element, the third leg of the stool, which is the most time intensive for us, is managing those two, managing the capital and managing the notes. And so we offer solutions for both the active and passive investor. Well, our buy box, what we really focus on, and this is really my wheelhouse is first lien mortgage notes.

Jamie:
They tend to be in the 50 to $150,000 principal balance you know range, if you will. We buy often in the Midwest and Southeast. And they’re pros and cons to, to different, you know, states and different purchase prices, different you know, real estate principle balance ranges. Mortgage node investing is extremely state specific, and a lot of that has to do with judicial versus non-judicial foreclosure processes. We’ve purchased in probably 25 states. We, so our buy box has expanded over the years. We have the, the Integrity Income Fund is a re-performing note fund primarily. So what that means for the listener on a, on a high level is that there probably was some issue at some point in time with the, the pay history on this loan. It wasn’t, doesn’t have a perfectly clean, you know, we we’re not talking about borrowers homeowners with 800 FICO scores that have never missed a payment on anything.

Jamie:
We’re talking about maybe six 50 or 600 even. And, and maybe they’ve missed, maybe they lost their job three years ago and now they’re back on track. Or maybe we helped them get back on track. And so the loan is now performing again, whether that was after we purchased it or not. And so most, the, the majority of the loans that we own in our fund are re-performing note funds. I have, I have also run a non-performing note fund where the, the whole goal is to buy non-performing notes and add value to those notes exiting through the property or the borrower and selling those notes or exiting the note in some way for a profit. We do own non-performing notes in our current fund but the majority are re-performing or even just straight performing notes back to the buy box. More specifically, we do buy land notes. We do occasionally originate loans on sometimes land or commercial property. We have also purchased fix and flip or rehab loans. But the per, like, the majority, I’d say 90% of the loans we own or purchase are first lien owner occupied mortgage notes, primarily in the Midwest and Southeast. And our goal really is to keep borrowers in their homes, and that’s typically the most profitable exit strategy. So happy to dive into any of that in more detail. Yeah. First off,

Charles:
Can you explain the two different states types of states that we have and how that affects your business? So people, ’cause that kind of might have

Jamie:
Went over. Absolutely. And then all of this gets very nuanced, and this is where it’s like a, a mentor mentor can really help you, you know, learn shorten that learning curve. And, and yes, it’s self-serving. I have a mentorship program, you should reach out to me to, you know, schedule a call about that. That said, you should get a mentor, whether it’s me or not. Because you can jump into mortgage notes without any kind of education or help, but maybe you shouldn’t, because this is very nuanced. And so, to answer your question, most states fall into either judicial or non-judicial categories. And, and the, from a high level standpoint, the judicial states use what’s called a mortgage. This is not always true, okay? But the judicial states have what’s called a mortgage. And in, in non-judicial states, the document that attaches the note to the actual collateral or the house is typically called a deed of trust.

Jamie:
So in a judicial state with a mortgage, the foreclosure process goes through the courts and through, with a non-judicial, in a non-judicial state, typically with a deed of trust the foreclosure process is done through outside of the courts and is less expensive and less time consuming. That results in higher prices when purchasing notes. And that’s not the only factor that leads to those, those higher prices. But typically a state like Texas, to give you an example, is a super fast non-judicial foreclosure state. You can get a foreclosure in a couple a month or two if everything lines up correctly in New York and probably Connecticut, where you’re from, and also Florida, where you are now they’re judicial states and they’re much more time consuming. And you can get better pricing on purchasing those notes, but you’re gonna spend time and money going through that foreclosure process. And so because the, the everything goes through the courts and, and borrowers tend to have more, more rights.

Charles:
Well, thank you so much for explaining that. But when you were talking about sourcing notes, that was one thing. Can you tell us how you would source notes in these kind of your target markets throughout the Midwest and the Southeast?

Jamie:
Absolutely. sourcing notes is, is really the ch the big, the big million dollar. It’s the million dollar question. It changes, it’s a relationship business. It, it changes over time. We have a list of sources. We also did, for your listener, we just put out a free PDF that talks about how to use AI to source more notes. Obviously I’m not gonna go into all that. Now, we also put actual sources of notes in that PDF, you find that on our website, labrador lending.com. But it’s a, it’s never ending that PDF is gonna be obsolete in six months, <laugh>. And so the, the, there are sites like paper stack.com, there are other online exchanges where you can find notes to purchase. The best way to find notes, however, is, is just networking and talking to other note investors. A lot of times, I per, I’m, we’re buying some notes now and all we’re buying notes from three different sources right now.

Jamie:
And all three sources are existing note investors that I just happen to know, and that’s just, and I’ve purchased from before, at least two out of the three I’ve purchased from before. So it’s a relationship space. Doing due diligence on your, on your note seller is probably more important than doing due diligence on the, the note that you’re buying. So there’s a, you know, we have a list of sources that the, the best, the number one piece of advice I could give to the new note investor is to reach out to other note investors, have your buy box ready to go. And that’s one thing we work on with our mentorship program is defining your buy box, developing that buy box. ’cause If you don’t know what you’re looking for, you’re not likely gonna get it. So you need to have your buy box well established so that you can present that over and over and over to people and say, Hey, hey, Chris, 70, I know you sell notes.

Jamie:
Sometimes he’s another note investor. I know you’ve had him on the show, Chris, this is my buy box. This is what I’m looking for. He’s not thinking about me in my buy box when he goes to sleep every night. So you need to ping him as I’m using him in his, as an example, every month, Hey, this is our buy box, this is what we’re looking for. Do you have anything that you might be selling? Oh, yeah, actually we do. So it’s very inefficient. It’s not the New York Stock Exchange. It, it is, you know, it’s a relationship business and it, developing those sources over time takes work and, and it changes sources dry up and new sources pop up. So, yeah, that’s, that’s the in the time we have, that’s the best answer. I can come up with <laugh>.

Charles:
No, that’s perfect. When you’re, you talked about obviously just doing due diligence on who you’re buying it from. Can you go over a little bit about the due diligence on the actual note, or maybe if you’re buying this from someone, what I see is I’ll speak to people and they’re doing like seller financing deals, and it’s just, you know, how they’re, they have an attorney that’s never done it before and all this kinda stuff. And I’m like, and they’re like, oh, you can always sell that debt on this, you know, on the second market or whatever. And you’re like, well, I don’t know. I mean, like, I just find that if it’s not put together correctly, can you tell us a little bit about, like, that due diligence on notes and then also buying notes that might be from seller financing deals?

Jamie:
I mean, there’s, this is such a critical point. You made multiple great points there and that you see this so much now, given our market conditions and, and frankly, with the gurus that are out here promoting certain, specifically subject to and different things we don’t have time to get on into the nuances there, but it is a critical piece to think about. If you, if you are originating a note, well, yeah, you might think I’m just you, you’re, it’s a very short term thinking. You’re, you’re just, oh, I just wanna originate this note and hold it, or I want to like, sell it immediately. But you, you don’t, not everyone thinks about what makes a note marketable. So put yourselves in the shoes, put yourself in the shoes of the buyer of that note. What are they looking for? Oh, well, they, they have a due diligence process.

Jamie:
Like you talked about Charles, and, you know, what are their, what’s their buy box and what makes a note marketable? So as far as making a note you know, valuable when you create it, and if you’re doing seller financing, one is go through, you know, an underwriter, the call the underwriter.com. Dan Depen, who’s a friend of mine, he runs that now, that’s a great resource to go through to make sure that you have the, the main goal there is to prove that your borrower has the ability to repay. So you’re meeting the Dodd-Frank requirements there. On the underwriting side of things, each state may have specific guidelines and things as well. And the Fannie Mae website has free documents for people to pull, you know, templates of documents to use. So that’s another good resource for your listener. But they need to be in compliance from the you know, providing that evidence that the borrower has the ability to repay based on their income and expenses.

Jamie:
And so, if that is true, and if the loan was originated through an underwriter through a mortgage loan originator slash underwriter, like call the underwriter.com you can you know, that makes, that adds a lot of value to the note. So when, if I’m looking to purchase a, a seller finance note, that is one of the questions I’m asking right away. Was this properly underwritten to meet Dodd-Frank requirements? Now, I will tell you, if this loan was originated 15 years ago and there’s a strong pay history, I don’t really care so much about that anymore. We on the buy side with our own due diligence process, whether it’s purchasing a seller finance note or an institutional note that was bank originated or originated through a more traditional lender, we have a very thorough due diligence process. And again, the not only is building the buy box, one of the things we work with mentees on, but building your due diligence process is also something we work on.

Jamie:
People can copy and paste my due diligence process, but it may not be the right one for them. So on a high level, Charles, what we’re looking at in our due diligence process are three things. It’s the, people call it the three Ps, the property, the payer, and the paper, the property. That’s our collateral. So we need to really do our best to verify that property value. That’s, that’s the main thing we’re trying to do there. And one of the risks with node investing, and I don’t shy away from talking about the downsides of node investing, is that you don’t typically get inside the property on an owner occupied note that someone’s living in there. We’re not doing a full appraisal. We don’t really know the condition of the interior of that property. That is the fastest way to lose money in this space is undervaluing that property, which I’ve done before.

Jamie:
The, the second piece is the payer, and that’s where we’re looking at credit score and, and pay history on the loan. And also maybe the conversation log between the loan servicer and the borrower that tells a story of that person’s situation. What’s their income? Where do they work? What, what’s their social, what are their social media profiles like, what’s their situation? Did they just lose an income? You know, was it a married couple who just lost an income or maybe they had a death in the family or something, or so that payer is, you know, researching that payer is critical. And then the, the third piece is what we call the paper. And that really gets to largely, it’s the collateral file. So we’re talking about things I used to deal with as a, as a settlement officer with the title company where you’re talking about the actual note and mortgage, the assignment chain, a launch chain, things like that.

Jamie:
That’s the collateral file. There are other quote unquote papers involved in that paper category. We probably have a 25 step process that we use to go through our due diligence checklist, but every step would fall into one or more of those three P categories. What is your target, like hold period for one of the notes? I mean, what do you think you average? Yeah, so this is where I’m gonna have to give a cop out answer and say, it depends. It really depends because on a, we’re, we’re not primarily focused now on non-performing notes, although that’s likely to shift here in the future. So I’ll answer it from a non-performing performing note standpoint where the, the borrower is not making payments, or if they are, they’re the, they’re way behind. In those cases, our target hold period is probably 18 months. It can be four to five years.

Jamie:
And we’ve also exited notes in two months that we’re, that we’re non-performing. So 18 months is a good kind of median, if you will. I would say it’s longer than a, a fix and flip on a residential property. Typically. you need to be ready, if you’re buying non-performing notes, you need to be ready to have that capital tied up and possibly have to put in additional capital for property taxes, legal fees, et cetera for two to three years. So on the re-performing notes side, we’re holding for cash flow. And we do sometimes we do monthly actually go through and see like which loans have some profits sitting there that if, if we sold them today, what could we, what could, could we make? But I’m also okay holding those re-performing loans for perpetuity, if you will, because they’re providing cash flow.

Jamie:
So if your goal is to put money to work and, and work those loans and really put some quote unquote sweat equity into this then you should probably be buying non-performing notes and be ready to be, have your capital tied up for 18 months to 24 months, if or not longer. On the re-performing side or performing note side. That’s a long-term play. Just like a residential real estate rental property. I, I don’t have an exit strategy there. I’m, I’m buying to hold Yeah. Until they refinance or sell or something. Yeah. And to pay off, and that’s a great point. Quickly, we’re buying at a discount regardless of the loan type. So if I get a payoff I’ve only purchased one loan at par, and meaning the pr the principal balance is what I paid for it. And there was, the reason was it was a 15% coupon rate. So, but in general, we’re buying at a discount. So even these performing loans, we buy, you know, 90% of principal balance, maybe even 95%. But if I paid $95,000 today, and then next week the borrower refis, as you said, I’m getting that, you know, at least 5K in profit back. So if I get a payoff, that’s always good.

Charles:
Just ’cause you brought it up and I, I didn’t, this is gonna be difficult ’cause it’s on a per case basis, I would imagine. But like, okay, so you had one, you’re, you’re, if it’s performing, you’re getting a slight discount usually I would imagine from the, the principal and then the, you know, the the value and then per re-performing, I guess it’s a little bit more of a discount and then non-performing, I imagine there’s a dramatic discount. Is that kind of how it works?

Jamie:
Yep, absolutely. And the pricing has gone up. Just like you’re, you’re a multifamily investor. Real estate investing has been tighter and tighter. So since I’ve gotten into the space seven years ago, it’s the, the, the discounts have shrunk. Okay. That said, yes, we’re talking probably 90 to 95% for a strong performing loan. More closer to 80 to 85% for a re-performing loan of, and we’re talking of principal balance here just to keep things simple. And on a non-performing loan, again, depends on the state really does quite a bit, but you’re talking 65 to 75% of principal balance, maybe even of the full payoff there. For a non-performing loan, many factors besides just the state, but the property value, how much equity is in this, you know another huge factor is the cou what we call the coupon rate. The interest rate on the note itself.

Jamie:
That’s a massive factor. So when actually, even though we’re talking now about pr percentage of principal balance for the purchase price, when we, when the loan gets more toward the performing side, I don’t even care as much about that from the buying standpoint. I care about my yield. So looking forward, what is the yield that I’m gonna get from a cashflow standpoint? And we tend to target for my, for my fund, I need a 13% yield or greater to make the numbers work. But you may be perfectly happy as an active note buyer with a 10% yield with lots of equity in Texas, just as an example. That’s not a bad investment, you know, so I don’t, it depends. The, the yield is what I’m focused on with performing notes and, and we will check the percent of principle balance as well, but it’s secondary if the note is performing. Before

Charles:
We, we start wrapping up here, I just had one more question in regards to servicing. ’cause You mentioned it, and I imagine if I’m buying a performing note, doesn’t really matter, the person’s just sending their money from place A to place B, but when you start working more hands-on, especially with non-performing and possibly Reperforming notes, if you have to get ’em back on track again, track, how does that work with servicing? Are you doing that servicing in-house or, I mean,

Jamie:
So I highly recommend that the, that node inve that node investors in general use license, a licensed loan servicer, if specifically if we’re talking owner occupied debt, where this is a, a loan that was originated to a homeowner, not for an investment purpose. We use a, we use a licensed, we use multiple licensed loan servicers, but on each loan we have a licensed loan servicer who their primary role is to keep everyone compliant, specifically the lender or note investor, and then to collect funds and disperse those funds to the investor. And so yes, it’s a critical piece. Doesn’t mean you have no responsibility as an investor to look up. And I, I know I’ve done probably a good bit of plugging on this show, but we also have a free resources on state, the state licensing guide. Okay. And there are several states that do require licensing regardless of whether you use a licensed loan servicer or not.

Jamie:
You can get that PDF from my website. But yes, you should always, if you’re talking to owner occupied debt, mortgage debt, you should use a licensed loan servicer. The way to think about them, their function, they’re like a property manager on the rental side, except there’s a lot more licensing requirements. This is a financial, you know, service. And so there’s so much licensing specifically on the state level. It’s a lot, trust me to get involved with a you know, on the loan servicing side. So you, I highly recommend you use a licensed loan servicer. They interact with the borrower, they keep everyone compliant. There’s certain things that you can or cannot do with, with reaching out as a debt collector. And it’s worth paying the $25 or whatever it is per month, depending on the servicer to use their services and stay compliant as an investor. Yeah,

Charles:
Know a lot of great information there, especially if you’re working with people that are you know, it’s their residence. ’cause That’s a whole different ball game versus a hard money lender, you know what I mean? You’re like flying by the see your pants a little bit and it’s not really a problem. <Laugh>. okay, before we wrap up and we get information on what you’re doing what advice well, what would you say some common mistakes are? You see real estate investors make note investors specifically.

Jamie:
Yeah. Common mistakes are working with not, not doing due diligence on the person you’re working with or buying from or, you know, I’m not even talking about starting a business. I’m saying, you know, with, with with a partner, I’m saying purchasing a loan from someone. So just ask an another experienced note investor or mentor. What do you, what have you heard about this person? Are they trustworthy? You know, so dealing with people who are not trustworthy in the space. Unfortunately, there are always a few bad apples, and we have this in node investing in general. The, the space is very helpful, lots of really good people in it. And, but not doing the proper due diligence on the people you’re working with or doing a transaction with, that’s a big mistake. And just, you know I guess undervaluing that property value. So not doing enough due diligence on the property itself you know, it, it can, is really where you can run into a lot of, where that’s where I’ve lost the most money on you know, particular deals is, is not understanding that property value.

Jamie:
And so don’t be afraid to just hold off and say no to a particular deal and, you know, don’t get so hung up on yield. Okay. Don’t get so, so I, as much as I said, yield is very important. It is for sure, but I’m saying don’t get caught up in, oh, I need a 20% return on this deal. No, be okay getting a 10, 11% return and making a slightly safer investment where there’s equity coverage and you’re working with, you know, transacting with people who are trustworthy. Many other, there are many other mistakes people make. You know, I could throw in quickly the, the one I see a lot where we have a lot of engineers who come into this space and they run numbers and, and they, they do pro forma calculations on hundreds of deals. And this is a blanket generalization, sorry, engineers, but then they don’t take action. It’s like, you gotta take action. So that’s a big mistake. But another big mistake is jumping in, not defining what you want. What are you, you know, do you, are you looking for cash flow or are you looking for, to put your capital to work for a long period of time? And then jumping into quickly. So there are a bunch more, but I think that’s good for now.

Charles:
Yeah. No, that’s perfect. Thank you very much. I appreciate all that information. Yeah, the returns is something you’d hear you’d hear getting calls with investors or potential investors and they’re comparing you one investment to another investment just on rate and you’re like, or just on return and you’re like, this is a, this is a game we can’t win. Right,

Jamie:
Exactly. And, and I will say a note investing, if you’re getting into notes for the return, obviously we need a good return. But if you’re trying to get into this space for comparing to like the returns you could get with crypto or oil and gas or something, don’t be a node investor. You’re not gonna get those returns here. That’s not why you get into this space.

Charles:
Well, Jamie, thank you so much for coming on today. Let’s learn more for our investors people listening, how they can learn more about you. They can talk about your mentoring and also the funds you have going on. Yeah.

Jamie:
Thank you Charles. I really appreciate this has been, you’ve obviously prepared very well and it’s been a really good experience. I hope I added a little bit of value to the listener. Labrador lending.com is our, is our website. We do, as I said, mentorship for the active investor. If you, if you we have a 74 page ebook that’s free, you can read through that and decide if, if node investing you think might be a good fit for you. We have a lot of other resources, blog posts about the pros and cons of node investing, d you know, different types of node investing, et cetera. I mentioned the two free PDFs, how to find sources with ai, and then the state licensing guide. So labrador lending.com is our, is our site. You can find everything batemanJames@labradorlending.com. Not supposed to throw out too many contact points, but one other I’ll mention my podcast is adversity to abundance.com. It’s the number two adversity to abundance.com. So those are plenty of resource resources can be found on those sites. There’s

Charles:
A lot of information on his website, so look forward to checking that out as well if you’re interested. And looking forward to connecting with you here, Jamie, in the near future.

Jamie:
Sounds great. Thanks a lot Charles. Really appreciate the time.

Charles:
Thank you.

 

Links and Contact Information Mentioned In The Episode:

About Jamie Bateman

Jamie Bateman is a Maryland-based entrepreneur, U.S. Army veteran, and host of the From Adversity to Abundance podcast, known for his powerful story of resilience, leadership, and integrity. A former Army Captain and Iraq combat veteran, Jamie transitioned into real estate and investing in 2010, building a diverse portfolio of rental properties and mortgage notes across 25+ states. Through his company, Labrador Lending, he manages multi-million-dollar note portfolios while mentoring both active and passive investors in alternative strategies like mortgage-note investing. His disciplined military background, combined with deep industry experience, drives his transparent, values-based approach to business. Outside of work, he enjoys faith, fitness, bourbon, and the occasional fantasy football win, still living out the teamwork spirit that once made him a collegiate All-American. 

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