SWP: 099 You’ll Want to Take Notes on How to Become a Note Investor

On today’s show we have Rick Allen and TJ Osterman. They are both real estate investors but have formed their own business together where they specialize in mortgage note investing. Their company is called Paperstac and they are going to help all of us real estate wholesalers and investors learn about a number of different areas that might interest us by learning about mortgage notes.

Insight of the Week:

As a wholesaler, should you be willing to put up earnest money?

Spiritual Foundations:

2 Thessalonians 1:3
We ought always to thank God for you, brothers, and rightly so, because your faith is growing more and more, and the love every one of you has for each other is increasing.

In this show, you’ll learn:

  • Rick Allen’s journey
  • Tj Osterman’s journey
  • How they got started in real estate investing
  • What Paperstac is
  • The origin of Paperstac
  • The benefits of buying a note trading versus wholesaling
  • Education platforms they’ve offered
  • Challenges that a new note investor may experience
  • How they find good deals on notes
  • What lead generations can be used


“The more we start raising capitals, the more funds we have to pull out, the more inventory we need.”
“You can connect money with meaning.”


Wholesaling Mortage Notes By Note Force Academy

Profile: Rick Allen and TJ Osterman

Paperstac on Linkedin
Paperstac’s Email Address: info@paperstac.com
Cloud Capital Management on LinkedIn
Cloud Capital’s Email Address: info@cloudcapitol.com
TJ’s Email Address: tj050277@gmail.com
Rick’s Email Address: rick@cloudcapitalmanagement.com

Thanks for Listening!



Brett: Hey, I want to buy one of that damn notes. I want to buy a note.

Brian: You want a note, I can sell you a note. I will sell you a note. Here, I will get ready for you here.

Brett: Alright, good. Because I have been hearing a lot about these notes and I am super excited to finally get into… What is this?

Brian: That is note, $5 for that note.

Brett: This is not a note. You say you want to hang out with me at the club. That is not a note, this is a letter. I want to buy a note.

Brian: You can buy that note.

Brett: I am not buying nothing for this. I want to buy a mortgage note. This is the Simple Wholesaling podcast episode 99.

Welcome to Simple Wholesaling. A Christian podcast that supplies simple, yet effective content for real estate investors and business entrepreneurs. Get advice, tips, and tricks so that you can stay true to your values and achieve your dreams with real estate investing you can trust. Now, introducing your host, Brett Snodgrass.

Brett: What is up all you Simple Wholesaling fans out there? Thank you for joining us again on another episode of the Simple Wholesaling podcast. I am your host Brett Snodgrass and I am with my lovely co-host Brian Snider. What is up man?

Brian: How is it going? Going well.

Brett: It is good, it is good. Hey, great role playing by the way. Yes, I think that if you were not the Simple Wholesaling dispositions manager I think that you should go to Hollywood, be an actor.

Brian: I think so. I think it might be my future. If I call you for my two weeks’ notice, you will know where I went.

Brett: Yes, you could be like Will Ferrell or Bob Sagat.

Brian: Yes. It is very tough to keep a straight face when you are over there doing your just silly voices and stuff there. I am going to have to focus on containing that.

Brett: Do you know who Bob Sagat was?

Brian: Yes, Full House.

Brett: Yes. He was Mr. Clean. He would be vacuuming and that was our generation. If you are in the millennial generation out there, you probably never heard of Full House. Maybe Fuller House.

Brian: Yes.

Brett: That is true. The Olsens and it was crazy. But hey, welcome to the show guys. If you have not listened to the Simple Wholesaling podcast before, thank you so much for joining us today. We are a real estate investment company, we talk about real estate investing, we interview some of the top real estate investors all over the nation and today is no different. We have an interview with two guys that are absolutely crushing it out of Florida and that is Rick Allen and TJ Osterman. They have formed the company Paperstac which is a note investing company. These guys used to be wholesalers and they had this huge operation. Now they have converted their business to buying and selling notes which is cool.

Brian: Yes, actually I was really excited about this episode just because as I was setting up a podcast and planning for and scheduling it, in my head I had no idea what note investing was. I really just wanted to interview them to figure out what all it entailed and what all they do. Actually, as we get into this and for our listeners out there that do not know what note investing is, can you give us just a little a background of what actually they are talking about here?

Brett: Yes, definitely. You are literally in the intro then. You are the guy that thought that buying a note was a letter.

Brian: I was not that far out of it but yes.

Brian: I want to be with you. I love you, circle yes or no. Will you be my friend? Anyways, yes note investing, let me just kind of relate it to wholesaling. In wholesaling, we buy and sell houses and that is basically what wholesaling is in the wholesale sense. Note investing is whenever you go to a bank and you are buying a primary residence for let us just says $200,000 and you get a mortgage on that particular property but you also get a note. That is what they call it, they call it a premissary note. I probably butchered that word, I do not even know how to say that.

Premisssary note and a mortgage on that property for let us say you buy it $200,000, you get a note for $160,000 let us say. Well, those notes can be for sale. Have you ever went to your mortgage lender when you are closing on that property and they say we can sell this property to Fannie Mae or Freddie Mac. I mean that is what they do, they buy notes, and that is basically what these guys are doing. There is good notes out there, there is notes with a lot of hair on them. Maybe someone has stopped paying for six months, they are going into foreclosure. There is private notes so instead of a bank lending money, there is a private individual lending money and you can actually buy those notes.

Let us say you get a note that somebody owes a $100,000, maybe you can actually buy that note for $80,000. If that person is paying interest to you, let us just say it is 5% or 10%, plus you make the difference. You bought it for 80 and at the end, they might pay you off a hundred. It is pretty much it. It is just like houses but instead of looking for deals on houses and trying to negotiate the best deal on a house, you are really negotiating and trying to find the best deal on a mortgage note and you are just trying to get a discounted like Rick and TJ actually talked about a story where they had this note, the very first note I believe, they owed $90,000, I probably butchered that but they bought of like eight grand, right? Well, that is a great discounted note right there. We are really going to dive into that and these guys have built processes and systems on how to buy notes. This is for you, please please stay tuned for the show. With that, we are going to go into our iTunes review of the week. Brian, why don’t you take that?

Brian: Alright. We got over here, this is from Zack Cuba. They just listened to episode one. ‘I really enjoyed their approach as a face based company. I am going to model my own wholesale business after theirs. It was great to get to know you boys and what men you are working towards. Many thanks.’ I like that he put in there like we are boys and we want to grow into men. It was actually very true within our own lives but then within business as well just because we still are learning more and more every single day.

Brett: Definitely. I mean so where we are right now, next year we are going to learn so much. I really appreciate that. Like neither approach right there and that that they brought to this review. I also like the fact that they went back and listened to episode one in the show right there. I think that is the second week in a row like recommended like hey good episode one, I listened from here on out.

Brett: Yes, I love that. I actually like to go to listen to episode one too. If you listened to that one, I prayed in the very first podcast. I am really asking for the Lord to breathe on this podcast and here we are approaching 100 episodes later, this is 99, next one will be 100 anniversary right there but thank you so much Zack Scuba for leaving us an iTunes review. If you guys are enjoying listening to this show and you are listening to the realness, the rawness, you are loving it, please go to iTunes right now, leave us a review. If you do not know how to do, please just go to your iPhone and go to the podcast app and search for the Simple Wholesaling podcast and there is a little review button and leave us one right there. Thank you.

Brett’s Insight of the Week

Now, simple tips and tricks that make real estate investing easier, faster and better. Brett’s Insight of the Week.

Brett: For Brett’s Insight of the Week, we are going to go into the question that I get asked all of the time and people teach this differently all over the nation. The question is as a wholesaler, should you be willing to put up earnest money? If you are a brand new investor and you do not know what earnest money is, earnest money is a deposit that you put down on the property when you sign the purchase agreement. Not when you close on a property, that is when you pay all the money and the property is closed. You take full ownership of the property. An earnest money is a deposit that you give to the title company or to the seller when you are buying their property as a deposit.

Earnest money can range from $100 or actually $10 up to whatever you want it to be. Up to five grand or 10 grand, whatever. But typical earnest money are typically $500, a $1000, something like that. Well, this is a question that gets thrown around a lot and I actually kind of cringe when somebody says I do not have to put earnest money as a wholesaler because if I backed out of the contract, I am not anything. My understanding of that is it is all about you, right? When we are talking to a motivated seller, these people are in very distressed situations. They are going through divorce, they are going through death, they are going through a tenant that has ransacked their house, they have to move, they are going through just a lot of situations that they are in a distressed state.

When I hear wholesalers talk about me, like I am not out anything, what about the motivated seller that you are talking to because they are out a broken promise? I mean that is what I think. They are out a lot. They are putting trust into you as a wholesaler saying, ‘Yes, awesome. I am going to sign this purchase agreement, they are going to buy the house. I am getting out of my situation.’ Then your thoughts are, ‘I am not going to put down any earnest money because if I have to back out, I am not out anything.’ In my knowledge and understanding of that is I think that you should put down earnest money I guess is the question. The amount that you want to put down, it ranges. I do not ever put down $10.

We do put down a $100 on properties. Typically our earnest money is $500 and I think that if I backed out of this contract, the least I can do, the absolute least I can do is if I just change my mind. I am not talking about hey if there is hair on the property, it is a dog with fleas, there is judgments on it that we did not know about, there is liens on it that we did not know about. I am not talking about any of that where we cannot get clear title, I am only talking about if I just simply cannot sell the property or I changed my mind. Then the least I can do is give them my money, give them my earnest money and because they are out a lot.

I think that you are a wholesaler out there, I would put earnest money on your purchase agreements. Number one, it is a valid purchase agreement when you give it to the seller and there is a valuable consideration with it. Go read the real estate laws, go to real estate school or whatever, it makes it a valid purchase agreement when you put valuable consideration with it which means money, right? Means a deposit. I would really look close at that and start thinking about the other person. Think about the sellers, if you were in their shoes would you want someone to put down others money? Probably the answer would be yes. Why don’t you do that?

Brian: I look at it this way too. If you and me are talking about people that do not want to put down earnest money that they are worried about themselves. This business is all about reputation a lot of times and I know when I am selling properties and people are unwilling to put down earnest money or do not want to, in my head that already puts a bad kind spot on the reputation. Like already in my head like okay this person is probably going to back out. They are worried that they are not to be able to do this deal.

Brett: Yes.

Brian: I mean it just kind of a boost of confidence or just kind of it helps your reputation out by like oh yes, $500 earnest money, a $1000 earnest money. Yes, let us do it. I want to get this deal done, I want to work with you and it is a show of good faith.

Brett: Yes. Yes, if you are doing a lot of properties and you are scaling this business then maybe you do something a little bit different. We have scaled to the point where we are doing 20 properties a month, 30 properties a month, and to do 30 earnest moneys each month to the title companies, kind of is it is a logistical thing that it just gets kind of messy and you are like, ‘Did we give the earnest money? Did we make sure we did that?’ What we have done is we have built a relationship with the title companies and I have literally just sent them a $1000 for them to hold in escrow to use as our earnest money. That really they are holding money and they use that as earnest money. They always keep that money. Does not really go towards the properties but it is something we change our mind, we back out, then that earnest money that they are holding comes into jeopardy and we will sign a mutual ease and we will release their earnest money.

Now, again I am not talking about liens properties, properties with hair on them, properties with judgments that cannot get clear title, I am literally talking about you should probably give up your earnest money if you just change your mind, you do not want the property and or you just market it and you cannot sell it. I think it is just like Brian says, it is on the reputation.

Spiritual Foundations

Do you dream of a life that is purpose-driven and makes a difference? Spiritual Foundations.

Brett: Today’s Spiritual Foundation, this is something that we always do. If you guys just listened in for the very first time with the Simple Wholesaling podcast, we put on a segment of each show called the Spiritual Foundations because we are a Christian company and we want to first and foremost glorify God with whatever we do, including this podcast, that is why we put on the segment of the show. If you are not a Christian, I encourage you to listen to this or you can just fast forward to the interview with Rick Allen and TJ Osterman.

But with this, our Spiritual Foundation comes from 2 Thessalonians 1:3, ‘We ought always to thank God for you, brothers, and rightly so, because your faith is growing more and more, and the love every one of you has for each other is increasing.’ I really just want to put this out there. I have been a Christian now for eight years. I gave my life to Christ at the age of 30 which was pretty awesome. If you listened to my story in the past, I was 23 years old, I made my dreams. I had this dream chart and all these different things that I wanted to accomplish and the big big thing that I wanted to accomplish was I wanted to make and be a millionaire by the time I was 30 years old.

That was just a huge goal in my life but I was living very, if you listened to the story of the prodigal son, I was out there, I was wasting money, I was wasting my life, I was doing very very sinful things, just a lot of loose living. Then I came to the end of myself at the age of 30 and I did not make a million dollars by the time I was 30 but that is okay because I became richer than any type of money could have ever have given me and I had given my life to Christ and it was absolutely changed my life no matter what type of money I have ever made or business I have grown. That was the best decision that I have ever made.

When I did that, now here we are eight years later, every day is a brand new day and I am able to get out of bed and I can make that choice. Am I going to become more like Christ today? Is my faith going to increase today? Am I going to love other people more today? That is just the choice that I have to make each and every day but the more I have been a Christian, the more I have studied it, the more I have fallen in love with Jesus, I know without a shadow of a doubt, the more I am in the word, the more I am in prayer, the more I am building my relationship with God, everything else around me he gets better. It gets so much better the love I have for my wife, the love I have for my friends, my family, the love that I have for my enemies. I mean who is your enemy in you guy’s life?

Maybe you do not have an enemy that you just absolutely hate but maybe it is just the guy that cut you off. Maybe it is the guy, the contractor that just rips you off for $15,000 that you are like oh well I am not going to love him. Maybe it is them but the more I get in the word and build that relationship with Jesus, the more I love, the more my faith increases, the better my life is no matter what my circumstances are. I could be sick, I could be dying, my business could be crap, my friendships, everything. But when you have that Christ in your heart and everything else is all abundance. It is all joy, it is all peace. That is why I really just try to get into it each and every day. If you guys enjoy the Spiritual Foundations, and now we are going to get into the meat and potatoes part of this show with Paperstac and Rick Allen and TJ Osterman.


Brett: Alright guys. We are so excited for today’s guest. We have the opportunity of interviewing Rick Allen and TJ Osterman from Orlando Florida. These guys are absolutely killing it. They have been in real estate investing for a while now. They did a wholesaling business for a few years and now they are specializing in mortgage note investing and they call their company Paperstac. They are going to help us real estate wholesalers and investors all over. Really learn the key secrets to how do you get into note investing. Thank you guys so much for joining us today. How are you doing?

Rick: Doing great. Doing great, Brett. Thank you so much for having us on and to being here.

Brett: Definitely. I am super stoked for the show. We just got to know each other a little bit but kind of tell the audience. I know you said you got in the wholesaling back in 2008 to 2011 but kind of give us a little bit of your back story. It could be your individual back story but then now obviously you guys are a business partnership and tell us how you got in all that.

Rick: Okay. Well, I am Rick Allen. I am originally from Columbus, Ohio. I moved down to Orlando Florida when I was eight so I pretty much consider myself Floridian. I guess shortly after college I got my degree and moved in and did not really know what I wanted to do which is probably not shocking for most people in college and got a real estate license. Started with a wholesale, kind of the nationwide wholesale property and just get hard money at house. We were sourcing property and sourcing funds for investors and this was in 2005 when the market was going bananas. We did that until 2008. That time we started our own wholesale company when the market is actually the opposite of bananas, it was starting to just go, they are starting to lose value pretty quickly especially here in Orlando.

We ran our wholesale shop and had 30 employees. We had two offices up through the end of 2011 and we sold off to one of our under business partners and decided we were just going to do the buy section sale and the buy and fix, that whole model on our own. Take a break from the corporate and sort of the employment where I have employees work with. Got to a big steaming pile of mortgage notes in this early 2012. Once we got our first note, we kind of never looked back. There is a lot that has happened then and now but before we go too far down that road I am sure.

TJ: TJ Osterman from Chicago, Illinois, 40 years old. Been down here for about 15 years. Came down to Florida to be a teaching professional and golf and I realized that I thought I wanted to play golf more than teach it and working in the industry. I got my real estate license. Followed that thing kind of path down here at Florida. Made a bunch of money and said, ‘Hey, man. I can golf anytime I want. I will just go ahead and do this real estate stuff. That is when I got into wholesaling real estate with Rick. Like he said, help source hard money for investors and kind of understood that side of the business a little bit, the financing side of real estate, and also sourcing the investment properties.

We did really really good and we love the wholesaling model. Like Rick said, it started to get tough down here in Orlando so we kind of pivoted a little bit and had an opportunity to buy a mortgage note not knowing what the heck we were doing. From there it grew organically. It has actually changed my entire life for my investment pieces to like my true mission now. Really the mission base type of a business model that we are in now with the mortgage note. But any way you look at it, it is a really good investment for investors that are looking to diversify from the real estate game a little bit. It is not that big of a pivot. A lot of the disciplines you learn in real estate, you can apply right into mortgage note. For all those investors out there that are listening to Rick and I and yourselves, we encourage you and hopefully after this, to look a little bit further into it. It is a good place to get into it.

Rick: Yes, good place to start

Brian: Very cool. Yes, thanks. Let us talk a little bit about you guy’s company in general, about Paperstac. Maybe how was it formed and then what are you guys involved in with it?

Rick: Okay. Paperstac, we first started our company that we use, it is our fund that we buy all of our assets. It is about capital management and it is basically the company that just manages all the fund. Paperstac is actually a marketplace or people to buy and sell mortgage notes online. Paperstac and that capacity of literally get the place where somebody is interested in. ‘Hey, I would like to see what mortgage notes are for sale. You can go on there and check out mortgage notes like a non-pressured environment. Kind of like an MLS for a real estate agent where you can go and look at stuff but you can actually do the process of buying and that is really what it is. It is a process. Once you get on there, it is a completely digital experience. It takes your front and the back on buying a mortgage note. We also have called a capital management.

Like I said, Papertstac and then Note Force Academy which is an education piece. The course we have now is actually oddly enough directly targeting its core real estate wholesalers who are looking to make that transition into mortgage notes.

TJ: Yes. Paperstac obviously you are talking directly about Paperstac and where that kind of originated was six years ago. We were navigating the world with mortgage notes. If anybody knows anything about the financial, syntax they call it, making technology, big time lacking. There is nothing really there from a technology standpoint to help somebody that is new in the mortgage note space. Six years ago, we did a couple buys and sells, we call them trade, and realize that wow this is really hard process. With the technology that we have today, there has to be an easier way.

We modeled ourselves after a couple other trading platforms, what they call them, and we decided to make like an easy, something that where you can actually look at the know, and eBay like looking environment where it is not you are getting over a huge spreadsheet of mortgage note and without getting a PhD and running Excel, you do not know what you are looking at. It kind of came out of something where we are scratching our own and itch. Like Rick said, it is really a system or process, right? There was no one, two, three, four linear progression in the mortgage note. It was kind of like the Wild West and we realized we have to put something to gather that fully digital process. A linear progression from start to finish in order to increase awareness in this asset class which are mortgage note.

We deal in small balance Mortgage note which are almost no greater in value than a $150,000 and below so that is right where our niche is. When you are dealing with stuff like that, scratch dent notes, deal that have hair on them, is a lot of real estate investors out there will probably know. You got to have your system and you have got to have a process in place. That is really what Paperstac does on top of the marketplace to buy and sell. We kind of came out of a way to scratch our own itch and we first took it overseas.

Rick: Oh my God, yes.

TJ: We tried to really bootstrap this thing and say alright we just learned how to use Upwork or Fiverr which I do not know if you guys are familiar with that website. It is a way to leverage people from overseas outsourcing.

Rick: Outsource.

TJ: We founded a developer out there and we ended up spending $20,000 and about a year later we got back…

Rick: Garbage.

TJ: We got nothing.

Rick: The code we got back was terrible so we brought in our own developer and we went out launched in September last year and already on our second iteration of Paperstac. It has been a wild ride so far.

Brett: That is cool, yes. I am definitely with Upwork and Fiverr. Actually, we got our logo, Simple Wholesaling logo, on Fiverr for five bucks.

TJ: We love those places but when it comes to like developing something we thought was easy, you guys know I am sure. You have got to really get somebody where you can touch them and work with them on a project. I think not only that, it is when we thought we brought in a developer who we knew and he is kind of he is a unicorn and that he not only has like a business acumen of like he owns several businesses before but he is a top notch, some of the best I have ever met, computer or website design but also then the back end stuff. He does it all, he is a one shop. We got real lucky yes there. You are not going to find that when you outsource it.

Rick: You can, it is just very tough.

Brett: Definitely, yes. I totally agree. That $5 logo which we still have today, there is 20 stories that we did not go with, it was crap. Sounds good. I just want to kind of get this straight so our audience really knows what paper stack is. You are talking about the MLS, this is like the MLS has houses, you can search for houses. Agent’s lease houses and you can kind of go through when you are buying a home. Then when you go in the notes, you are exactly correct. The reason why I do not get into note investing is because I do not really know that much about it and I do not know how to find them. Sounds like you guys have created and helped create this platform that people can really go through just like the MLS. On Saperstac, are these like your notes that you guys control or are these basically just like if I have a couple of mortgage notes? I can put them on there for sale? Like anybody can put them on Paperstac?

TJ: It is really is all of the above. It is TJ. We did it to scratch our own itch. A majority of these loans are ours. We own maybe a 150 assets right now. We are in the process of doing a regulation a-plus fund which will allow us to, it is a fancy way to say we are able to raise $50M every 12 months. We are going to need a retail outlet for these items. Once are these assets, once we turn them performing, but yes to answer your question it is mostly our asset and there are other people who have assets listed on there for sale.

Rick: The only reason why they are our assets now is we are grouping accounts that we are in the business doing it. We are trying to obviously get rid of our assets but we have other sellers on there. We are trying to build more of that online community.

TJ: When you say get rid, these are not bad assets when you said get rid of it. That made me almost cringe a little bit. Our product is we bring in loans that are non-performing whether the borrower is about hardships or whatever, they are just not currently making their payment. We work with them to turn them into performing loans. We get them back on their feet, we get these loans performing and we sell them out there to the market as a performing asset once they seasoned up, maybe they have got six to 12 months of payment and it appears okay we have corrected the issue. The borrowers is comfortable with their payment or making payments. We may sell a $100,000 loan on there for $70,000 and they turn high double digit returns most of the time.

Rick: Yes. I guess a really good thing to compare it to for real estate investors is this, you buy a broken house, you fixed it and then you sell it. We are buying broken notes, we are fixing them, and it is just a different fixing method here. It is more paperwork instead of swinging hammers and then you sell it because you are value adding something to them. IT depends on how much you want to do to that note but that is essentially all that it is. Like you said, there is not a real transparent environment or secondary market for these notes so that is kind of what we are trying to create.

Brett: Yes, definitely. Now I love that, I love your model and really you are working with people instead of obviously when you are fixing up a house you are helping out a homeowner but you are fixing up people that are in a distress situation and you are really truly helping them because their other alternative is what? Losing their money, losing their loan, foreclosure and all that stuff so that is pretty cool what you guys are doing, awesome. I want to kind of dive into… We have a lot of wholesalers listening to this podcast, we have a wholesaling company, that is 95% of what we do.

I like diversification, I like doing different things. I buy houses, I have sold houses with financing in place to other investors like either with a mortgage or note, or a lien contract, I have done a lot of that so I know a little bit about that. But you guys have chosen to kind of scrap the wholesale business. You did that for a few years, sounds like it was really big business. Thirty employees, geez that is not crazy, which is pretty cool. But you guys decided to go this route. I want you to really dive into what are the benefits of buying a note trading versus wholesaling? Kind of talk to us about that a little bit or how can a wholesaler kind of get into diversify their business?

Rick: I think you used there was diversified. We made the sale of our company, the wholesale company. We got to a point where we were doing a lot of deals and having in place and kind of just went away from it. I am having my second child, I got three children now. It was looking for a way to try to step back and recollect our self, that was in 2012. Down here in Orlando, we had a lot of competition going on at the auction. Like there was the big Headstones, Blackstones, and guys like that. They are coming in and buying stuff, pay in par. A little bit more difficult with this, with asset. The writing was on the wall for at least for us and also we were looking for just a little bit change of phase. We still wholesale properties through probably 2012. As to this day, I have people call me just because the network was so large with deals but we are just…

Now, I would not say that it is better one way or the other. It is a bit different and for us there is definitely a little bit different of a mission involved a few days that is on, that we just have a laser focus on trying to save and a thousand of people’s homes. That is where we are kind of concentrating all of our energy on. One interesting thing is we do not act like we actually made that pivot a little bit more and drill down is one major thing that I am thinking of is the amount of different types of exit that you can have when it comes to a mortgage note. Like you just about stated a few. You know this which we in the note industry, we call you have noted yourself out of a property where you offered owner finance to where if you are offering a financial product like a seller finance type of situation, I am all about that. We are involved in a coalition to where we are trying to keep that half the cost available. We are trying to make that.

There is a lot of people in government that just be the bad actors and are taking advantage of these people and charging them 20% to 30% interest rates. But then there is the good actors in there too that are they are actually providing something of value for that, for that borrower, that just because they do not have a bunch of money or bad credit, that can make them the bad person. You have got to give them an opportunity to buy something, that American dream back, but the big thing is that the diversification of the different exit strategies that you have.

With a note, you can sell the note, you can buy wholesales note. Just by adding no value to it you can buy it at a little value to that note and tell that or you can take it all the way from front to back, that gives me… We saw, wow, it was really controlling. Us back into wholesaling, the guys that we wanted to be where our real guys, the bank guys. We are like man, if we could just be those dudes, that would be awesome. They have like 40 to 50 houses of inventory here, if we could just control it. We just follow that back and realized wow, become the bank. Essentially, that is what you are doing when you are buying a mortgage note.

We are neutralizing third party services because of the regulatory environment. We do not collect on the debt service. Basically, that is just been collecting on the mortgage. We are just the investors on the back end. We are essentially becoming the bank and saying that we control the mortgage, therefore we control the property. A lot of the stuff that we buy because it is a small balance stuff, we originally got into it. I think what a great source of inventory.

Rick: Yes. I mean our first asset that we thought it was a framed duplex in Winter Garden. The debt on it was $94,000 I believe and I had a bank agent cost that said, ‘Hey, are you interested in buying a mortgage note?’ Yes, we will take a look at it. We offered him $8,000 then he said there is no way they are going to take it and they wound up countering us with $8,400.

Brett: Wow. You bought a $94,000 mortgage for $8,000, that is crazy.

Rick: We wound up getting a deed in lieu of foreclosure on that thing in a matter of days and had it listed on the MLS. We listed it at 18 and it sold for 38. We are way to the closing table 14 days after we bought it and we kind of looked at each other and said wow that was a really nice and easy way to buy a house. We kind of stumbled our way through the next year and a half of doing those and so we wound up getting some education and kind of setting a real path on raising some capital and going into where… I have a friends and family fund that we are working with around $6M now and I consider we are doing the regulation plus.

That is kind of just naturally organically grew into that. Talking directly up here to the investors out there, if you do not want, if you do not have any sort of mission based investing or anything like that that, that will pay. We are not saying this is the reason we do it but right here on one little exit strategy of like even more foreclosures. that is basically just saying to the guy or the girl that owns the mortgage of this family saying what, you do not want to have to go through foreclosure. We will do a deed in lieu of foreclosing on you do not…

Rick: Then they sign the house.

TJ: We sign the house so that we get that money and then move on give them some time and work with them like human being instead of cold-hearted institution. We will take the deed. From a standpoint of an investor looking at notes, why would you get into it? One is you could access the inventory. There is about, right now, the US Land Bureau has about five million vacant home that are accounted by the government. They are sitting out there. Everybody is wondering where they are at and right in time, we discovered a lot of them. They are in small balance mortgage notes, being held up right now. We call it the mortgage note purgatory because none of the institution have appetite for these smaller balance dump because the amount of money that it takes or close on something is the same if it is a million dollar home versus the standards of an $80,000 home. Which one do you think they are just going to…

Rick: Yes. They are going to go after the big fish. I think one of the things that you kind of hit on is the inventory. It just kind of brings you back, just other day, we had an REO agent who is down the hall from us who had an office and he came in and he was getting out of his office and that is what is going on. I am just not seeing the inventory. None of the bank owned stuff. They are just not getting to me anymore. It is like where is it? It is because of people jumping in and who are actually buying up these loans. There is now that we are kind of stopping that whole foreclosure process and able to… They are stopping at the private note, not with the smaller note. Because we are either modifying their loan or offer them $3,000 or $4,000 for the deed and people are signing the houses over. For somebody who is looking for another way to get inventory, they are not going to work with people. There is a lot of vacant houses out there that the bars are just turning like that that you can certainly jump in and get houses out that way.

TJ: Yes. It is funny because right now, at any moment, we are getting assets sent to us. Probably 2000 mortgages notes where 90% of them are vacant homes. Those are not touching, they are sitting there, they have not gone through any process. They are just sitting there.

Rick: They actually have REOs that are not on the market REOs. They are off market just from other private note investors and I think we had a fire truck about to blow by it so that make it a little wild here.

TJ: But that is like the interesting play for or any investor that is looking at… To go back to your original question of why we are still intact a little bit, why we actually get it, it was obviously the diversity and being able to exit different ways and just wanting to be able to control that inventory a little bit more and then obviously being that mission related type of investment strategy that kind of grew organically.

Brian: Yes, that is great guys. Now, as you guys were talking. I knew you guys touched on a little bit education stuff. If I am getting into this business, I want to start doing note investing, what are some education like platforms that I want to look at or what do you guys offer for that?

TJ: There is a bunch of people out there training. We offer at Note Force Academy, I would not say it is an introductory course, but it will give you enough knowledge that you do not want to go spend big bucks. You can get in there and you can learn how to do something and then it gives you direct access to us a buyer because we are buying. It is like more active buyers or act sellers. You have a buyer and seller. It gives you access to inventory and it gives you somebody if you find a note, we are always in the market. The more we start raising capital, the more funds we are going to have to put out, the more inventory we need but there is other companies out there. There is a company who were graduates from called NoteSchool and Eddie Speed is, I would say he is kind of the grandfather of the grandfather. He has been in the business for 30 years.

Brett: I like Eddie actually, yes. I met Eddie a few times. He always says, because I am in a Mastermind group of Eddie, and he talks about hey I am interested in buying notes. He always talks like he is southern guy. He always uses this phrase, it is like, ‘But you got to bake the pie right. You got to bake the pie right.’ I am like what are you looking for, Eddie? When he comes like, ‘I got to show you how to bake the pie.’

TJ: That is it.

Brett: He is funny.

TJ: We are going to start [inaudible][38:48] of all that Speed and I will tell you what man, it is like a PhD in note investing and we just kind of run with the information there. We just had a meeting with somebody.

Rick: Yes, about notes inventory.

TJ: They were talking about opportunities for education. Yes, he is fantastic speaking.

Rick: Yes.

TJ: If you can afford to go to Eddie, I would definitely do it. Then there is a couple other ones. I mean Scott Carson got something but I think the biggest player in the game is probably Eddie Speed. Definitely one thing to do is get an education no matter what if you are going to do it. Whether you are going to go to the Google university and start Googling stuff and reading up or getting on the blogs. Bigger Pockets is a great resource for anybody. I am sure most of your audience has been on Bigger Pockets or at least heard of it. I am on Bigger Pocket. Yes, I answer questions all the time on there for people but there is some really smart people in there. You can get a lot of free education.

Brian: Yes, nice. Thank you for that. As you are starting note investing, what are some challenges the you might come across that you kind of have to be cognizant of?

TJ: I would say capital. If you are going to do the wholesaling route, you can get by without having a lot of capital but I think once you get into it, you start learning about notes you, you are really going to want to start putting together your capital because it is such a great investment class. We had somebody just sell one of the loans we have on our platform and I think they are going to bring down like a $5,000 or $6,000 check all for just flipping the loan. Never putting on any of their money. They are going to hopefully use that to build up their own capital but I think having a steady base of capital and then education. You just got to learn the lingo, learn the process that goes with evaluating a note. Most of the real estate investors are going to have the discipline needed to identify the value on a house or to analyze what they are going to do if they take the house back.

The process of buying a note, you are going to need some education in that. The biggest thing that a note investor is going for somebody that is new is they are going to be overwhelmed with the amount of due diligence. Stuff that you need to do and how many house that you wear because you are researching a legal document so you are doing the work of an attorney a lot of the times from my county website, you have to be pretty fluent in how to utilize all these different tax site. The taxes will kill you on a mortgage note, you know? In each county, as we all know, is different.

Not everyone is fully up to date with technology so sometimes you have to struggle, sometimes you have to pick up the phone but the due diligence process is something that you really really struggle with in the beginning and you just have to take your time and that is where Paperstac process without going from chapter one to chapter four which can happen very very easily. A funny story about us is we bought I think it was a pool of five mortgage notes. About three months later, because we are still inundated with so many things going on is we realized holy cow, we did not have the right type of insurance policy on all these things. We looked at each other and said we missed chapter three about insurance.

We just completely missed it because there was no process in place telling us, ‘Hey, guys . You have to have forced insurance.’ Some special type of insurance that you have on there. The borrower of the mortgage, of the home, is not paying insurance so you have to secure your asset, right? We have to insure it. That is the biggest thing that a lot of people will see at that. There is a lot of steps but if you eat that elephant one bite at a time, you use a good progress, you have to develop that and be patient and do not expect us to be a get rich quick scheme because it is not. There is a lot many other things that you need to learn to do but it is the due diligence I think that is most frustrating for people.

Brett: That is cool guys. Thank you so much. Hey, just a couple more questions before we go in the next section of the show. I really want to dive into because our audience, I feel like, is asking these questions. You talked about a couple of them already. Number one is capital, number two is how do you find good deals? Because that first note that you guys talked about as far as $94,000 debt and you are paying $8400, that is the first time that I have ever heard those types of numbers when it comes to note. I am usually hearing you are paying 80 cents on the dollar, 85 cents. For me, for example, I had a guy Indianapolis and he is a wholesale and he just got into notes. He said, ‘I just bought a $165,000 loan for a $150,000.

He had to put out a $150,000 of his own money. To me I was like I do not know. That does not sound that great. Kind of talk to us about that. How do you find good deals on notes? What are some of the lead generation sources that you can use and then as far as capital, like I said this guy put out a $150,000 of his own money, and he can do that one time or maybe two, I do not know. But a normal person cannot do that. What are some ways you guys did to build up capital to buy these notes?

Rick: Paperstac I will say. I will say Paperstac if you are looking for some inventory or it is a place to start. It is Paperstac.com, there is not K, Paperstac.com. But for us, we kind of came into it. We had money, we had friends and family investing in our own capital, investing in the fix and flip industry. We are buying houses, fixing out and flipping them. The $8400 test run, it was not a big pill to swallow to get involved. Like it is not a huge entry point. I mean I would be lying if I told you that those $8400 notes, there is a plethora from laying out there, are there is still some out there? Yes, there are.

But the value on that time is to give you some context to reference point is being that was in 2012 and it was so close to when we were still wholesaling. We were wholesaling stuff for maybe like 17,000 to 18,000 at that time in that area, okay? Maybe that same house, same time frame, and we got to pay them bucks, but we were wholesaling that for $17,000, $18,000, maybe $20,000. It was not like yes the debt was $90,000 on it but in 2012 it was upside down astronomical. We were probably buying it at what? I would say 15 to 20 cents on the dollar at a time and now you are probably spending on a non-performing loan that is vacant. You are probably looking at somewhere between 45 to 65 cents in a dollar.

TJ: Yes, let me get this. Let me talk in directly about the inventory. Let me give you a context of why people actually sell this stuff then people’s minds can start going wild. Small, big, large, whatever. Community bank, large bank, Hedge Fund, whatever private equity fund, the reason why they are selling a lot of these mortgage is that it just does not fit their appetite. Here is basically how it work is they do something or they are making money by recycling their assets, right? They might have something that just like you said, that lower value, maybe troubled asset just like a broken down house that needs to be sold.

A big fund or community bank needs to get those off of their books so there is the opportunity right there. They want to re-capitalize to get that money back into what they do and that is lend out money, especially at community bank, right? They are generally not into holding paper unless it is performing. For an investor out there, where do you find inventory? Do you have a local community bank around that says, here is my pitch to them, ‘Hey, you know what? We will re-capitalize you on all your bad assets. That is what they want. Yet they know that they have to sell it at a discount. From a context of if you are an investor and you are thinking how am I going to get these things?

Think of any place that needs to get money back in so they can invest it again. The banks make their money off of fees. They do not make their money off of investing. That is really not what they are doing. They need to recycle and it is actually a strategy that is actually out there. Somebody can look it up on Wikipedia, it is called asset recycling and that explains exactly why these institutions, smaller institutions or larger institutions, will sell these. Yes. As a small investor, you are not going to walk up the Bank of America and say I am going to buy some of your distressed assets or assets that you need to get rid of.

Typically, what happens is like the Bank of American case or one of the big formal selloff, large pools of assets and quantities of $250M to $500M and you have a large hedge fund that will come in and buy it. They will take the cream of the crop off the top. Say anything worth $250,000 or more and then they will break that up into smaller pools and sold off to mid-size hedge funds or investment funds and that is kind of where we come in. Then those mid-size hedge funds will break it off into $5M pools and then sell them on a one off basis.

For inventory, you can go to somebody’s smaller fund, mid-size fund, then you can go buy directly from them. A lot of help for you. If you get on Google, you can find distressed assets or non-performing notes for sale right there. Yes, for people that are looking if they want to start calling community banks or go to their local community bank and say hey I am interested in helping you re-capitalize your portfolio, if you have any bad debt is what they say, bad mortgages or bad loans.

Rick: Scratch and dent.

TJ: Yes, scratch and dent. These guys need to get help. They want to get that money back to re-use it. There is a lot of different types of strategies out there and do so. The biggest thing for inventory too is go onto our LinkedIn, Bigger Pocket, and say, ‘ Look, I am looking to buy some mortgage notes.’ See what happens there. You are going to get a lot of brokers that will try to get you stuff but they kind of cut your fees. You can go to those community banks or credit unions. These are guys that are holding $500M in paper. You know what I mean? They have had community bank to hold maybe $10,000, $15,000, $20,000, $30,000, a hundred mortgage notes and they sometimes want to get rid stuff.

Brett: Definitely.

TJ: It is kind of where you get this stuff. Obviously, Paperstac, we are trying to create a place to where you can go right on there and take stuff off that meets your investment criteria. Then to answer your second question with funding, there is a lot of different ways of doing it. Just like when you are trying to raise money or for a real estate. We chose to do a friends and family type a situation at the beginning and pitched to somebody that was interested and then they kind of gave us money but we chose that our second scale, we are going to do a regulation, a process more on a structure type of fun to do so then dictate with local investors that are at your real estate investments club.

Our numbers man, each have $5000 you bring and you see a note you want to try at $2500. You just bring $5000, you work on it together and see what happens from there. You got to be a little creative when it comes to that but it is not like you can go and get a hard money loan for mortgage now. There is really not a debt product out there right now that exist to finance it.

Rick: Not yet. You got to have the money to do so.

Brett: Yes. I definitely love the friends and family and I think that if anybody out there listening, I think if you just think about people in your circle and some people think I do not want to ask for money. It is like they think you are asking but a lot of people like myself or like my parents or some of their friends, they are actually looking for something to put their money into because they are not secure in the stock market anymore and if you can give them away to have a secured investment, that is pretty cool. I think people are pretty interested. But guys, we are running a little bit low on time. Guys, audience, if you want to find out any of the links they talked about, Paperstac, their website, and some of the other resources that they have mentioned are going to be in the show notes at simplewholesaling.com/episode99. We are into the section of the show that we like to call, Going Deep.

Brian: Going deep.

Going Deep

Brett: In this section the show guys, I know we talked a little bit about before the show, you are on a mission and I want to really dive into that. What is your mission? Why do you do it? What is your goal in all this? Talk about why do you teach people how to do this a little bit but what is your overall mission and what you are you doing?


TJ: Originally, like we said, it was I guess house is cheaper but once we got into it and started really work in the business and kinds of pivoted towards saving people’s homes. We realized that you can do a lot of good for your bank account but you are doing a ton of good for other people’s lives. You are changing people’s lives with this business and that for us it really made waking up and going to work a lot. We have a different feel. In the education part of it, we have to educate people about this investment class because it is such a good opportunity. We really feel like it is a great opportunity to diversify and once people learn about it, that is leverage the good that is being done to save people, save those houses. Well, I just read our mission. Right now, that is the perfect income.

We are a company that are always working to push forward a new style economy. One that always that always strives to align, social and environmental impact with money when making decisions on what projects we will participate in. We want to make sure that the decisions we make today will positively impact our current generation and generations to come. With that being said, our first project that we are doing is we realized that there was a huge gap in spending and support gap in low income areas of our country, under-served communities or lower income areas. They are just getting a raw deal. They are not able to really… They do not have advocates really standing up for them and homelessness is a major epidemic. It is only becoming worse as we are talking about it now that stretching between the middle class and the lower to the to the upper class is growing greater and greater. A big thing is the 10,000 family homes by 2022 for us. Lower income families home. That is a major major motivating factor.

When we first took a call from a borrower where they were crying to us and saying this is what happened to me and this is how the bank has treated me and then it started to become continuously started to happen where we saw there was a consistency in it. We said there is a real issue here. There is a lot of lack of government spending. They do not consider housing infrastructure so to try to be able to get government spending at a federal level or at a local government level is impossible so these homes are sitting there vacant, tied up in this purgatory of mortgage debts. These borrowers are on the other end, just kind of getting screwed and we realized it made us mad and we said we want to stop it. We have got to attack it and buy up the mortgage debt to be able to be able to attack the lack of affordable housing where that is a major issues.

My biggest, this is TJ, my biggest mission is to eradicate poverty and that is my moon shot in however I can do that. That is fighting the elephant one bite at a time right now and I think to help the lower and middle income America. Help liberate them to start businesses again and start creating as a country. We are all to consumers. I think it is starting to shift the mindset for a new generation. There the changing of the guards. People are just sick of all your greed and through wealth and realizing that you connect money with meaning and that kind of big motivating factor so it is really that investment pieces that push that agenda forward and then help the lower to middle income Americans out there and try to liberate them again.

Brian: Yes. That is awesome guys. I mean we are definitely praying for you guys in your mission and what you guys are doing and that is fantastic.

Touch of Randomness

It is time for a touch of randomness.

Brian: We do like to end our show on a little lighter note here so we are going to add a little touch of randomness. Got a couple questions for you guys. Just kind of off the wall little bit. Our first one here is we got the Winter Olympics going on right now, if you guys could compete in any sport in the Winter Olympics what would that sport be?

Rick: Luge is easy. After Luge, was it the shuffleboard on ice? The…

TJ: The curling.

Brian: That is very different than luge by the way.

Rick: Yes, yes.

TJ: I will do snowboarding as that was my thing growing up. I love snowboarding. Just watching the discipline that those guys have and the insanity at they are doing a controlled… They are controlled and sane people. Really if you ever snow boarded, to go that fast and to launch yourself off something, that is basically their landing ice, they are not landing on powder is insane. Shaun White, that kid, that one. The 17 year old. Wow, I mean that is… Snowboarding would be my…

Rick: I said luge just because I was watching that the other night but no definitely for me it would be curling. I am a leisure sport king so curling is definitely a leisure sport I think.

Brett: Sounds good. Hey guys, your next random question is what breakfast food best describes your personality?

TJ: For me, it is TJ, smoothie.

Rick: Smoothie? I am going to go with Egg Benedict.

Brett: Very sophisticated. Smoothie, light and fluffy, there you go. Hey…

TJ: Smoothie, I just like to throw a bunch of stuff in there, blend it up, and then try to work with it.

Brian: I like that.

Brett: Nice, love that guys. Hey, that wraps up the show for today. Thank you guys so much for just joining us, taking time out of your busy schedule. I know that you guys, with your education and your business, are so busy. If someone wants to find out more information about you, where is the best place for them to go?

Rick: You can get us on Cloud Capital Management or you can find us on LinkedIn.

TJ: Yes. I mean at info@cloudcapitolmanagement.com or info@papertsac.com. I do not know if you have our e-mails and stuff in the show notes but always reach out. My name is TJ Osterman. I am at tj050277@gmail.com, tj050277@gmail.com.

Rick: I will give you my work address, it is rick@cloudcapitolmanagement.com.

Brett: Awesome guys. Those are all going to be in the show notes so you can go right now at the simplewholesaling.com/episode99. This wraps up the show with our special guest for today, Rick Allen and TJ Osterman. I thank you guys so much. Wish you so much success in the future and your mission and God bless you guys.

Rick: You too man. Appreciate it.

TJ: Thank you.

Thank you for listening to Simple Wholesaling. If you enjoyed today’s show, please head over to iTunes, give us a rating and leave a review. Be sure to pick up a copy of our free e-book, This Simple Wholesaling System by joining our community over at www.SimpleWholesaling.com/OurDashSystem

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