GI222: Investing in Mortgage Notes with Jay Tenenbaum

GI222: Investing in Mortgage Notes with Jay Tenenbaum

Jay Tenenbaum has acquired over 1000 distressed mortgage notes and properties in over 40 states. Previously, Jay worked 20 years as a former debt collection professional. He currently is a partner and president at Scottsdale Mortgage Investments where his firm has closed over 300 deals on mortgage loans, valued over $75 million dollars with an average discount of 40%.

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Announcer:
Welcome to the Global Investor Podcast, a show that focuses on helping foreign investors enter the lucrative US real estate market. Host Charles Carillo combines decades of real estate investing experience with a professional background in international banking to interview experts in all areas of US real estate investing. Now, here’s your host, Charles Carillo.

Charles:
Do you have money sitting in the stock market? And you’re worried about it or worse. You have money sitting at the bank, not keeping up with inflation. My name is Charles Carillo, founder and managing partner of Harborside Partners. And since 2006, I’ve been investing my money and my family’s money into income producing properties. These are real assets, real properties with real addresses that produce real cash flow. At Harborside Partners, we provide passive investors who love real estate with a turnkey investing solution. If you want to put your money to work in real estate, but can’t find deals, don’t have the time to get funding in. The last thing that productive people want to do is manage real estate. We find the deals. We fund the deals and we manage the tenants, the termites and the properties. Partner with us at investwithharborside.com. That’s investwithharborside.com. Go to investwithharborside.com. If you love real estate, you like the idea of passive income and believe that income producing properties will appreciate over time. Go to investwithharborside.com. That’s investwithharborside.com.

Charles:
Welcome to another episode of the Global Investors Podcast; I’m your host Charles Carillo. Today we have Jay Tenenbaum. He has acquired over 1000 distressed mortgage notes and properties in over 40 states. Previously, Jay worked 20 years as a former debt collection professional. He currently is a partner and president at Scottsdale Mortgage Investments where his firm has closed over 300 deals on mortgage loans, valued over $75 million dollars with an average discount of 40%. . So thank you so much for being on the show today, Jay.

Jay:
My pleasure, Charles. Thanks for having me.

Charles:
So give us a little bit of a background, uh, both personally and professionally prior to getting involved with real estate investing and mortgage note investing.

Jay:
Sure. So I’ve got a, a very, kind of a interesting journey, if you wanna say so. Um, I grew up in Denver, Colorado. Uh, my mom owned a catering service for, since I was a little kid. My dad owned restaurants. So, you know, I was, uh, always exposed to, to that life and didn’t think, you know, really didn’t know anything other than that. Um, the one regret I have in that is as I was, uh, grew up, I was a, you know, busboy, waiter, bartender. I never had the whole run of the kitchen, of the hou of the restaurant, and I never spent any time in the kitchen. So I can’t cook, and I really regret that actually, <laugh>. Um, but one night my father and I, which we had dinner just all by ourselves, which wasn’t at home, wasn’t at his restaurant, you know, it was kind of a, of a pink unicorn kind of thing.

Jay:
And he’s like, Hey, get outta this business. Go get a profession. I’m like, Hmm, all right. I’m like 22 years old, I think at the time. And I’ve been, you know, bartending and making a lot of, had a lot cash pocket young guy. And I kind of knew because working with guys who were like in their twenties, early thirties, going, I’m having a great time bartending, but I knew I like a, like a professional, professional sports career. I didn’t wanna be their age doing that still, right? So, um, I checked in, checked out, um, how to, you know, go to law school and go back to school, finish my undergrad in a year, which I, I was on a mission. I wanted to finish my undergrad in one year, not more, because I wouldn’t go to law school after that and then go to law school the following fall, which I accomplished, um, through a little, a lot of hard work.

Jay:
Um, I had took 26 units the first semester of that, of that journey, um, and really worked really hard at that only, it was kind of easy. I had two classes that were only paper, only had to write papers, and I had five hours of as an internship. So it wasn’t really like I was in, you know, a brainiac because I’m not that, I’m not wired for that at all. Um, anyway, got accepted to law school in California, not in Colorado, was kind of disappointed, but moved to Ca California and stayed. Um, and then, uh, owned a debt collection of law practice with my wife for 20 plus years. Um, got out of that in 2008. Started investing in judgment liens in California from 2009 to 2012. Um, so now I’m starting to learn more about, you know, title and priorities and things like that.

Jay:
Our model was very strict. We weren’t hitting banks or garnishing wages, stuff that I’ve done for 20 years, period. I was done with that, right? Um, and, uh, so, you know, I learned how to, how to do that because in my law practice, I was too far inside it. The only real estate experience I had was owning the houses I lived in. And so, um, you know, things changed there. I got out, I left that company in 2012, got the opportunity, uh, to do a, you know, a guy’s workshop in San Diego, uh, note Buying for Dummies workshop in August, 2013. And, you know, five minutes into the workshop, I’m like, you know what? This is just another dead instrument that I’ve been dealing with, you know, all my life pretty much. So, as I like to say, I’ve been in debt all my life, just not personally.

Charles:
I <laugh>. Uh, so tell us a little bit about exactly kind of what your firm actually does now and what your investment strategy is.

Jay:
Certainly. So, um, we buy distressed mortgage notes nationwide. Um, we, we have invested in over 40 plus, uh, states in the course of my career. Um, we are buying primarily now portfolios from large, large hedge funds. Um, uh, basically, you know what a buying distressed mortgage is, you, you know, bought a mortgage, you stop paying on it, it gets sold from bank of originating lender, bank of America, whoever down to hedge fund A and you know, Goldman and Goldman resells it or Hut or Fred or family sells it to a larger hedge fund. And then it gets, you know, kind of, kind of coming down the food chain at a little different pricing. The discounts are still phenomenal. Um, they’ve gone up, you know, with the economy, they’ve gone up and down a little bit, um, as they, as they will. Um, but you’re still getting at a, at a decent discount.

Jay:
Um, are strategies have, have sort of evolved and changed with the times, um, in the beginning, you know, several before the interest rate hikes, whatever. I mean, you pivot, you have to pivot, you have to be resourceful, right? Um, before the re interest rate hikes, we were, you know, we’re in the position, we are the bank. So we take our, we’re pretty aggressive in, you know, taking our assets to foreclosure because if, you know, sit a mortgage note sitting on a shelf is not getting get itself out the most part, right? Um, so we’re pretty aggressive starting fore closure. And either we were getting paid off at auction, meaning we’re owed, let’s say we bought a loan for $50,000 and we’re owed a hundred grand. And with the economy being what it was, property values being what they were, you know, it would some third party, you know, uh, investor at, you know, attending the live auction somewhere would pay, you know, 150, $200,000.

Jay:
Now, we didn’t get that extra money. We just got paid off a hundred grand, right? Um, and some of the, some of the, the, the, the results we got over the last couple years have just been extraordinary about what these guys are paying for this stuff. Right? Um, tell you a quick story. There was a note. We, we went to auction in Hawaii and we owned like three 40 some thousand dollars and, um, we bought it for like two 70, right? Um, we owned it for like two months and it went to sale. And the winning bidder in 15 minutes, boom, done. And the court required though, in that state that the, that the bidder that the court confirms the auction sale. And because of the spike in Covid at the time, this was late 21, um, the court kept postponing the hearing. So while the auction was June of 21, it was postponed from September to November.

Jay:
It finally went off in January of 22. Now, the good news is that the third party bidder at the sale of JA in June still got the property. The bad news is because it was allowed to be bid again at this co at the confirmation hearing, instead of paying 3 43 for it, he paid five 40 for it. Wow. I mean, it’s ccra and I actually saw, I was in vacation in, in, in, uh, Honolulu, a few, a few years ago, blue collar neighborhood. Uh, just nothing to write home about. But you know, that’s kind of the, you know, this, the, the, the things that go on now when as the economy has changed a little bit. And, and let’s say for example, I was owed, I bought it for 50. I was owed a hundred, but only profit’s only worth 120. Right? And let’s say I wanted to take it back ’cause I, I could, you know, fix it, flip and make it worth two 50.

Jay:
I’m just, you know, give you a hypothetical. So because I can play with legal balance, maybe I’ll set legal balance at full legal balance high. So I’m almost guarantee I’ll get it back. Mm. And prior, prior to interest rates, we were okay with, with doing a lot of that, right? ’cause our flips were, were outstanding. Now that the market’s changed, we’re more this, if that scenario happens, we’re probably set it for less than what we owe, but more than what we paid for, just because we’d prefer to be taken out at auction still. Okay. We really don’t want it. We really don’t wanna flip. Um, the other thing we do is we, um, we’ve gone back to kind of our roots. Um, we’re really doing a lot more aggressive on doing low modification with borrowers and keeping ’em in their homes.

Charles:
Okay. So all these assets are all residential homes?

Jay:
Correct. They’re all secured by single family, one to four units. That’s our bread and butter.

Charles:
Can you explain, you went back to it about what’s owed on the property, and then you also, you had two different balances, let’s say, for that, uh, you know, a regular one and a legal one. Can you explain that?

Jay:
Sure. So let’s say you take out a mortgage for a hundred grand and you pay on it for five years. And the principal and all the payments you made, um, a certain amount of is applied to the principal reduction. And let’s say the balance is $95,000. The day you stop, stop making payments. That’s called the unpaid principle balance. That number doesn’t change. The legal balance, however, is the unpaid principle balance. And then, um, adding all the accrued interest and arrearages and penalties and late fees that accrue. So the time you stop paying till the time we go to sale. And then there’s also a third component called corporate advances. Things that you pay as the investor out of pocket property taxes, attorney’s fees, servicing, insurance, add it all up together, that becomes your legal balance. And that’s, you know, anything between what you pay for it and your legal balance, I call monopoly money.

Charles:
Oh, okay. That’s it. Yeah. Gotcha. Yeah, because you can change that, that’s all up to your discretion at that point. Correct? Correct, correct. Very in. Very interesting. Um, so when we’re, when you’re working with it, what could explain like a current, um, loan modification that you’re doing? ’cause I saw loan modifications. I had like contractors back in like oh 8, 0 9, and they got loan modifications ’cause they were losing their houses and they show me the paperwork. And really what the banks were doing was taking their outstanding and turning into 40 year mortgages. You know what I mean? Right. Um, how, how are you working with, with, uh, people, uh, with homeowners, uh, that have, uh, you know, gotten behind and how are you working with ’em now in this new interest rate environment we’re in?

Jay:
Sure. So, um, good question. So first of all, we have our, we do our loss mitigation ’cause of our experience. And my and my team, we do our loss mitigation in-house. So we’re much more effective than mm-hmm. <affirmative>, a big bag bank or even the servicers in, in, in general. Um, and in the past when interest rates were were, were low, you would set your loan modification fee. So when you’re doing a loan modification, you basically can adjust any or all of the following your principal balance, your, well, the legal, the balance, the interest rate, the term and uh, the monthly payment. Okay. Um, and typically in the past, we would set the interest rate. We, we, we typically, as a baseline, we’re going to reset the, the mortgage at a 30, you know, let’s say 30 years. We’re not gonna try to re amortize it over 20 to two and a half years.

Jay:
It’s just too complicated. So we pretty much the baseline just do a new 30 year term. Great. Um, the payment is usually structured with, you know, treating a borrower with dignity and respect and saying, Hey, how can I help you? What can you afford? We’re not demanding. You can have to pay this. You have to pay that like a bank, like a bank would. Because, because, you know, what if they can’t pay that their current mortgage, our demands will only go on deaf ears, will a Glip service, or they’ll default anyway when they’re offering to us what they can do. It, our default rate is, is minimized substantially. Um, interest rate in the past, we would set it arbitrarily high at like seven and half, eight <laugh> seven and half, eight, 9%. Right? The idea was to incentivize a borrower, the concept, incentivize a borrower to ultimately refinance and take us out, fix your credit, whatever.

Jay:
That’s a great, you know, conceptual analysis. Reality of life is a borrower in the Midwest is too concerned about buying their, their beer and cigarettes and paying off their truck. And they really will never, never do what’s necessary to fix their credit or whatever they need to refinance. So it just becomes, as long as they can make the monthly payment, they don’t care. They really don’t, aren’t, aren’t, aren’t sophisticated enough to understand the more interest, the lower that they lower their payment or the interest that they’re saving. They’re just saying, Hey, I can make it monthly payment. I’m gonna keep my home. We’re treating with dignity and respect. It’s all a good day. Now, in this environment, since interest rates are are 7, 8, 7, 8% <laugh>, um, we don’t really vary the interest rate much because it’s still about the same, the same incentive. What can you afford, right?

Jay:
Um, we wanna keep you in your house. We don’t want your house. Um, and what can you afford? And just structure it around really around like an algebra equation. What can you afford? We’re give you a new 30 year term. Um, uh, the interest rate is gonna, you know, be whatever. What, what it kind of, what you solve for at the end of the day mm-hmm. <affirmative>, because, um, and then the flask component is, um, is you, you, again, you play with the monopoly money, either we’ve done a lot of variety of things of you pay a portion of what’s the rearages and we’ll waive the rest, or we’ll put the rest on the back end. Or if you can’t really have a substantial, I mean, if you’re making, we’re buying stuff at such a discount. And once you see the modification, as long as our returns on the monthly payment is good, the monopoly money really isn’t gonna break, break a deal. I’m not gonna sit there and, and kill a deal over. You can’t afford a 10,000 down payment to cure yours. I’ll put it on the back end. Yeah. And just restructure the,

Charles:
So for exit strategies that you have, really, you’re, um, the low modification sounds like really the best way. ’cause you don’t have to go through the whole foreclosure process. Um, what, do you go through the foreclosure process very regularly? Uh, I mean, is it a high percentage, let’s say, of mortgages that go, you know, that are not performing well? You know what I mean? Is that, do you go that route or are you really focused on the loan modification? Because I would think that’s kind of the best way of going.

Jay:
Well, okay, we’re, we’re an investor and you know, money never sleeps. So it’s really a matter of, uh, couple things. One is I would do a loan model with everybody, but the, but the common denominator is the borrower’s gotta cooperate. Yeah. Not a borrowers would cooperate. Um, so we’re really, really a fan of, of, you know, initiating foreclosure, you know, pretty aggressively because I always say action dictates reaction. You start for clo you, you call a borrower, you know, for three weeks straight, he doesn’t respond to you. You start foreclosure. Now he’s calling you. So again, if they, we do foreclose on those who can’t get out of the way. Now, having said that, we also buy a lot of, of, of, um, reverse mortgages. So the borrow is already dead. So you can’t do a loan model with a dead person.

Charles:
Yeah, yeah, yeah. So the, one of the things is that, um, with these different, uh, exit strategies you have and how you’re dealing with non-performing notes, other than getting a large discount, which I was reading it was 40%, which I said in the intro, uh, how else are you or able to mitigate risk or investors are able to mitigate risk when they’re doing this mortgage note investing like you do?

Jay:
Well, you’re, when you’re buying in at a discount and help, certainly, um, yeah, because you, you and that, and the mitigation of risk is twofold. One, three, you’re buying it a discount. So you’re, so you’re, you know, giving yourself a nice buffer in case of the, oops, right? It’s, it’s a lot different than you’re doing a fix and flip and you, you know, tear up the carpet and there’s a crack in the foundation. You’re kind of stuck. Right? Um, number two is, we’ve just briefly touched on only a couple of exit strategies. We’ve figured out over the course variations of of, of one or the other. We’ve probably got over 20 different exit strategies available to us. Right? So there’s always a, a a, a a a pivot or, or just a, a a, you know, just, just, you know, resourcefulness of saying, Hey, if this doesn’t, if you know, you, we analyze our, our analytical team will analyze our preferred strategy.

Jay:
But that doesn’t mean that it’ll be the strategy, right? Because you can’t predict a, a borrower cooperating into a loan mod. You can’t, you can predict with a little better certainty than that of whether or not you’re gonna get paid off at auction. Especially how you set your, set your minimum bid at times. Right? Now you take the property, but then let say the property doesn’t sell, and now you take the property back. Now what are you gonna do with it? I can sell it as is. I could sell it, sell our financing. I could flip it myself, right? I can do a lot of, keep it as a rental. I can do a lot of different, different, different things. So we have our preferred strategies, but we have a variety of strategies. So that’s number two, to mitigate your risk. Um, number three, most important, number three is due your diligence.

Charles:
What are some red flags that would come up on your due diligence after doing this? So many times, uh,

Jay:
The property’s already lost the tax sale. Um, that’s the line of the jungle. You, you, you very rarely can overcome. Most of what we find in diligence can be fixable. Mm-hmm. <affirmative>. Um, but property taxes, now, let me break it down. Your property taxes go from, I pay my taxes regularly, I’m delinquent. The lien is sold by that county. That doesn’t mean you lost your property yet. It’s when the lien is sold and the redemption period expires, you may have lost your property. That’s, that’s the, that’s, that’s when it’s critical mass. Like, hey, and you know, and sellers will sell us stuff that, not that they’re trying to pull one over on a buy on an unsuspected buyers, they’ve got a huge portfolio. They don’t know what they have. They can’t keep track of it all. So we found a lot of, you know, a lot of times where the property is already lost, the tax sale, the redemption period’s expired, there’s nothing you can do about it.

Jay:
Things like the assignment trail from Bank of America to hedge fund A to hedge fund B, there’s missing something you can fix that. Right. Your custodian does a good job of, of, of fixing that. Um, that’s pretty much the, the, the biggest piece. I mean, you know, you, you might find, you know, in your title reports, there may be a title defect, like, which again, some of it’s fixable, a scribner’s error, you know, there little description’s wrong that’s fixable. Um, other things may, may not be, but you, you’re do, you’re reviewing the title Paul, the title owners and commerce reports very carefully when you, when you’re doing that. But taxes are the, are the, are the big ticket item.

Charles:
So when you were a debt collection professional and attorney for 20 years, and how did that assist you with what you’re doing now? Because I imagine in both scenarios you are working with borrowers that are getting behind and, uh, you know, you’re working with them or you’re correcting the situation. Is that pretty similar?

Jay:
Yes, for the, for the most part, um, in our law practice, we’re actually doing a lot of business to business stuff. So I’m still dealing with a, with a, with a debtor, but not necessarily a homeowner. Right. Um, but, but it does, it does give me the experience to talk to. And when I first started out, I was doing all little modification myself. It does give me the experience and expertise to speak to a borrower without, you know, getting tripped up by, you know, F D C P A. There’s things, you know, I, I do, we used to get more involved in running, um, out-of-state investing masterminds. And in that mastermind there was two things that I always told, you know, in our lectures. And that was one, there’s one piece, basically we’re an open book, right? There’s no secret sauce to this stuff, right?

Jay:
One thing I can’t teach, second part piece I could, I won’t teach the can’t teach is I’m not gonna teach anybody servicing. You’re gonna use a third party servicer because the application of paying payments with federal regulations are just too complex to do it yourself. So we never advise that debt collection. I’m not gonna teach someone in class because, um, again, 20 plus years, um, your head would explode if I gave you all that, dumped all that knowledge on you. And two, I don’t wanna be taken outta context. Somebody says something stupid to a borrower and they sue you and they’re like, Hey, you know, they took, they took it wrong. So I won’t teach debt collection. Um, I, I strongly recommend using, you know, building your team with, with professionals who are experts at it. Could you get certified in debt collection and, and, and credit counseling? Um, our, my, my junior partner team lean in the, in the, uh, las ation department is, is has 10 years plus experience doing that. So I can, I don’t have to do the long, low months to myself. He’s very expert in what he’s in, what he does. Um, so you, uh, you don’t do this at all. You just don’t.

Charles:
The, um, one of the things that you’re saying about when non-performing mortgages, you can’t get in touch with people, and this is something, you know, I, I see for many years of, uh, self-managing and owning rental properties that, uh, you know, there’s, when people are getting behind, it’s difficult to get in touch with them. Can you kind of go through, you know, high, high end, uh, what exactly would be your process with a non-performing mortgage? Like, you know, how does that work where you’re trying to, you know, contact borrower, you’re trying to work with them? And where is it, because I know you said like your last thing is really the foreclosure, which really gets ’em on the phone. But give us, can you give us like a little overview of how you do that when you’re, when you’re just getting into a non-performing note and working with that?

Jay:
Sure. So basically, you know, it’s kind of similar to like a, you know, the sales approach, you know, touch, touch, touch kind of thing. So what happens is you buy a loan and you’re getting, you know, the borrowers getting a notice from the prior servicer saying, Hey, it’s been, you know, fun, you, you know, being, managing your default loan, but now the loan’s getting transferred to somebody else. So I get a letter from you, and I’ve had borrowers call me upon the letter going, Hey, Pam, you, you’re the new kid in, in town. Great. Let’s work something out, right? Um, because there’s always this, this, this timeframe where people react and you can’t ever predict when or when or how will it’ll be. Um, and so they’re getting the letter, you know, first and they’re getting a letter from my new services saying, Hey, I’m the new kid on the block, right?

Jay:
Um, we’re making the outbound calls, right? They can choose to ignore ’em or they won’t. Then they get the demand letter from the attorney, right? Because I always say, I always say, we set a backstop so we’re not sitting around making calls and calls and calls for six months hope, hoping they’ll get in touch with us. Mm-hmm. We’ll give it a reasonable amount of time. And once the loan’s boarded, we’ll start foreclosure. Because again, we’re actually trying to create the action to create the reaction. So they get a demand letter. Maybe they call the demand letter, maybe they call when they get, they get served, maybe they never call the property goes foreclosure. I, we can’t predict that. We do know that when they do call us, we will treat them with dignity and respect and we’ll work something out. All you gotta do is get outta your own way and, and make it happen.

Jay:
But again, you know, the timing that people call, I had a guy call me one time years ago on the eve of foreclosure sale, right? Why he didn’t call. The reason he didn’t call before then was good, was there was a reason he didn’t call before that he called because he was living in Minnesota, he worked for the railroad, he just got a 65% wage increase. His child support obligations just finished and he paid off his truck. And that gave him the ability to call me up and make a deal. Told you paid off trucks is important, more important than living, and not because it’s your shelter. If you lose your house, it’s paying off your truck is just a priority to people.

Charles:
That’s very interesting. What, what’s, do you have states that you kind of avoid working in or not as, um, interested in working in because of the foreclosure process or laws make it more difficult? And which ones would you kind of lean more towards into, uh, interested in

Jay:
Working? Sure. So that very good question. So going back to something you asked me before with regarding to my legal background, um, we focused, we touched on or responded with how, you know, I can effectively talk to a borrower, but my legal background also gives me the, you know, the insight and kind of the, the, uh, the objectivity and the resourcefulness to say, you know, to solve a problem. Like if, if something, if we have to make a decision of how to, you know, fix something or do something else, and I’m not the bad client to our attorneys. ’cause we have attorney network all over the country and I’m not licensed at all anymore. And, and I’m not licensed in their particular state anyway. So it’s a matter of, I defer to their wisdom and I don’t wanna be a bad client, be an overbearing client. So I don’t know, I don’t memorize all the laws and make policies and, and procedures in that state, but I can certainly give them them, you know, guidance and say, Hey, I would do it this way. Or how, you know, if we explored doing it this way, does your, does your state allow that procedure to happen? Right? Um, but having think said that, um, uh, so what was the, I’m sorry, I’ve lost my train, my train of thought. <laugh>

Charles:
About states, uh, states that,

Jay:
You know for, oh, so I have, I have a love-hate relationship with, with the state of Illinois. I’ve done very well financially, but the timeframes and the bureaucracy and the procedures just are pathetic. Um, because of my legal expertise, I’ve, no, we, we set up a good attorney network for years. We always were told and advised by just the industry itself to stay outta New York and New Jersey, especially New York. ’cause the timeframe was too long. Well, once upon a time, we go to a conference, we find an attorney who says, wait a second, I can, you know, if you haven’t started for, if buy a loan that hasn’t started foreclosure yet, then we can do it federally instead of state. And we do it faster. So while people are running out of New York, we’re running in because we’re getting good discounts to just justify it. So the the, and the last piece of it is when you build a pipeline, like I said, we’ve got about 300 plus loans in, in our, in our portfolio right now.

Jay:
You build a pipeline and you say, Hey, some cells could take longer some stuff. Not like the story in Hawaii, we own that loan. It went to sale two, two months after we bought the loan, right? Some stuff we still to a year or two later, we’re still had not foreclosure yet. You just, you know, when you, when you first start out, it’s like you only have one or two loans and like everything is breathing down its neck, it’s gotta happen yesterday. But when you build a pipeline, it’s just the machine and you just take it for, you know, and it all, it all works out at the end.

Charles:
Interesting. So we, you know, we speak to a lot of, uh, syndicators on the show and interview them about, you know, equity investing and stuff like this. And can you break us down of why, you know, debt investing is a great addition to a portfolio and some of the things that you like about debt investing versus, uh, investing, uh, holding the equity position?

Jay:
Sure. So I mean, obviously, um, we’ve been fortunate, um, it’s a relationship driven business to where I’ve got relationships with, with, uh, with other hedge funds that, uh, you know, we, it’s kind of getting incestuous as I was, as I started in this business, I would have the fortune of, of doing business with a hedge fund or, or so that said, okay. And it was kind of like, I used to call it a forward flow, meaning I could call you up every oth every month, every other month, whatever, and say, what do you have now? Right? And had inventory that could keep feeding me, right? Mm-hmm. <affirmative>. Um, so I haven’t really worked with, you know, tons and tons of hedge funds because I’ve always had this, this forward flow type relationship. So with, so for us, we’d be blessed that we’ve got sufficient deal flows.

Jay:
We’re not out there marketing like maniacs with, you know, letters and all that kind of stuff. So you got, you know, we’re, I’m lazy. We don’t like, I don’t like to hunt. So, uh, you know, we’ve got with, you know, people bringing us the hedge fund, they’re bringing us their tapes right and left, right? That’s one piece. Two is you’re not getting the discounts in any market. You’re not getting the discounts, even even in a crash when you can pick up a, a, you know, off market wholesale property for dirt, um, you know, not going to be able to get the discounts that we can. Um, third, um, you just got, you know, the resourcefulness of, of the exit strategies.

Jay:
So, um, there’s really, I mean, there’s really no other, and the, the mul the different options, you know, the, the, the variety of options, you know, is, is what’s, why it’s a, it, it should be diverse in anybody’s portfolio, but it’s not, it’s, it’s, it’s not a common, like, not everybody, everybody’s enamored with mul, multifamily fix and flips. That’s what’s on. That’s, you know, the wholesale, like, that’s what’s on everybody’s radar, right? This is a unique strategy. It’s not for the faoh heart. And you gotta be patient because again, not every loan you buy is gonna go to auction in two months.

Speaker 5:
Yeah. Interesting.

Charles:
Uh, so dealing with real estate investors and real estate owners for many years, I mean, what are common mistakes that you would see real estate investors or note investors make early on

Jay:
From a note investing standpoint? They’re just not sufficiently tr They’re, they’re, they don’t have the sufficient expertise. So they, the biggest thing is two, they, they make two big, two big mistakes. Which one is they overpay for the loans, they, what they’re doing. So one, they’re not gonna do very well and they’re not gonna stay in the business very long. Two, for us, it hurts because now our sellers are, Hey, if I can get it from this schmo over here, why am I selling it to de for less? That’s tough,

Jay:
Right? Um, so you gotta be, you gotta be sufficiently educated, sufficiently trained, or just tag along with someone you know, partner up with someone else who can show you the ropes. Um, that, that I think is key. I learned that way. My first deals were with others that knew, that knew the, even though I had had experienced legal spirit, legal experience with debt instruments, et cetera, I still parted up with others who, who knew the, the ins and outs of the no investing world specifically to help me along. And that, and even because I don’t know everything, didn’t know everything back then. I still know everything. Um, so that, that’s truly major important.

Charles:
Uh, Jay, so going from, uh, a bartender attorney to now into your current profession, how’s your relationship towards money changed over the years?

Jay:
Um, it’s not so much the relationship with money. It’s a risk of time.

Charles:
Mm-hmm. Yeah.

Jay:
You know, de you know, bartending, you’re, you know, you’ve got, you know, one or two days off and your and your evenings are, you know, placating others and enjoying yourself. But your life is, you get home at three o’clock in the morning and you sleep till whatever, and you get back and do it and do it again. Um, our law practice, we grew to 45 employees, and it was too, we’re too far inside it. I had no time, um, here in the beginning, I had no time ’cause we’re managing a business, but, you know, we’re blessed that we’ve got a terrific team, um, uh, terrific staff. And so we’re, you know, I’m able to, to manage my team rather than, than doing, doing it myself. So I’m always seeking the abilities to carve out more time in my life, spending more time with my family, taking more vacations, things, things like, like that, um, you know, uh, money helps facilitate that, but it’s really, you know, you can, you can make, you don’t need a million dollars to say, now I can take a vacation.

Jay:
You just gotta be able to say, build your business. So you’re working the proverbial you’re working on your business, not in your business. And my my advice is, you know, life’s too short and you just need to, you know, strike the balance. And I’m a workaholic by trade. I enjoy what I do. You know, I, I I, I do adopt the motto of, you know, for those who love what you do, you never work a day in your life. And I certainly subscribe to that. Um, but carving out the ability to say, take a step back and manage and delegate, um, is what I’ve learned over the course, rather than just the, the relationship of money.

Charles:
That’s a, that’s a very good answer. Uh, so as we wrap up here, just one last question. What do you think are the main factors that have, uh, contributed to your success over the years?

Jay:
Um, good partnership with, with with the current partner. Um, building, building a, a strong team behind us. Um, you know, we’re very, my guys are my, my our staff and junior partners are very, very collaborative among each other. Um, we’re very blessed. I mean, we’re small company. We’ve got 10, 12 employees and junior partners. So we all are, are collaborative amongst each other, even in this environment when it’s all remote, um, you know, the days of, and there’s some, there’s, there’s still, you know, we’ve all, we, we, we, we, we, we’ve been exposed to Zoom by necessity back in, in 2020. Now we’re, now we’re, it’s, I think I, I subscribe to that thought. It’s, are we doing Zoom by necessity or by desire at this point? Because we had a firm retreat, uh, back in April. And as we’re going around the conference room, I sat there and I’m realizing that while we’re able to build a strong team, because we can recruit nationwide, right?

Jay:
Uh, which is helpful, I realized that the Ululation was such that the team consisted of, you know, I’m in, in, in area in the Phoenix suburb, um, majority of our, our staff actually lives in Phoenix or lives in, in, in, you know, this Phoenix area. Um, and so I kind of, you know, got this brainstorm while we’re sitting in this conference room going, you know, maybe, you know, can we kind of forecast what the horizon looks like in the next couple years, right? I said, you know, I wouldn’t be, you know, too heartbroken. Let’s all get a, you know, build, you know, get off the space, buy a building or, or, or rent a space and, you know, increase the collaboration internally. And everybody was like, wow, that’s fantastic. You know? ’cause we collaborate well by Zoom and by phone, but in, in office space, you know, it works out.

Jay:
Yeah. And one, and our investor relations, uh, person who lives like in rural Texas with there are goats and chickens and all that freaks out and going, wait a second, I can’t find a, they’ll never be able find a place in the Phoenix area like that. I’m like, but you know what? But the, but the, the, um, the our, at our atmosphere and our culture is like, Hey, see you fly in, you know, once a month or whatever, right? So it’s not prohibitive to say, you have to move here. I would never, I would never do that to a staff to say, you have to move here. I’ve seen, I’ve seen other companies implode when they require their staff to do that. So, um, so I think that, you know, the collaboration, um, the important key team members that we have is just what makes our company thrive and grow.

Charles:
Oh, that’s fantastic. So how can the listeners learn more about you, your business, and also you have your podcast learning more about that?

Jay:
Certainly. So we are found at, uh, Scott, uh, Scottsdale Mortgage Investments, uh, Scottsdale mortgage investments.com. Uh, if you want to, uh, get on our trade desk and see what, what things we have for sale, um, let’s go onto the website. Um, and there’s a button to click for get on our N D A and, uh, you know, you get on our website that way. Our podcast is the, uh, real estate Mastermind. It airs, uh, every twice a month, or the first and third Tuesdays. We were, we had a, a terrific guest yesterday, Mr. Charles Carillo. Um, and it was a great show yesterday. Um, and, uh, so yeah, we, that could be found at www re Mastermind Live.

Charles:
Okay. Well, thank you so much for coming on today, Jay. I will put links to all that into the show notes and, uh, looking forward to connecting with you here in the near future.

Jay:
My pleasure, Charles. Thank you so much for having me.

Charles:
Have a great rest of your day.

Charles:
Hi guys! It’s Charles from the Global Investors Podcast. I hope you enjoyed the show. If you’re interested in get involved with real estate, but you don’t know where to begin, set up a free 30 minute strategy call with me at schedulecharles.com. That’s schedulecharles.com. Thank you.

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About Jay Tenenbaum

Jay Tenenbaum, Partner and President of Loss Mitigation and Asset Disposition at Scottsdale Mortgage Investments, formerly Scottsdale REI, a real estate hedge fund, specializing in acquiring assets nationwide. He is a certified keynote speaker and speaks nationally on note investing and related real estate topics.

In his career, Jay has acquired over 1000 distressed mortgage notes and properties in over 40 states. Jay attributes his success and expertise to his ability to effectively integrate his 20 years of experience as a former debt collection professional. Jay’s legal know-how and achievement in resolution in turning non-performing assets into positive cash flow gives him an unmatched perspective in the field, as he is often sought-after for his proficiency.

In addition to his loss mitigation experience, Jay speaks to investors at real estate investment seminars nationally and locally. Through syndications, he has raised and deployed over several million dollars enabling investors to attractive returns and passive cash flow.

Jay and his business partner, Seth Gershberg have launched a live Radio show on KSFO that is also podcasted globally. The Real Estate Mastermind Live, is targeted at real estate investors who want to network and learn from expert investors in order to enhance their business opportunity and profitability.

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