Decoding the Mortgage Note Industry: Insider Secrets with Eddie Speed

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So with me today is Eddie Speed , and I'm really excited about this conversation because I am absolutely fascinated by the mortgage note industry . I'm not going to get too far into it , I'm going to let Mr Speed talk about it . Eddie , welcome to the show and thank you for your time . Thank you , I'm really glad to be here . Yeah , glad you're here as well .

So , as I mentioned in the run-up , I'm absolutely fascinated by the asset class mortgage notes . As I said before we started recording , I have some friends who dabble in it , but no one who's made a business out of it . I was really looking forward to this conversation . So welcome to the show . I appreciate it

. Yeah , so for those folks who haven't read your book or haven't discovered you online yet , why don't you tell us a little bit about yourself and who are you and what you do haven't discovered you online yet . Why don't you tell us a ?

Although I bought bank institutional paper , re-performing loans , non-performing notes , it's not that I haven't done that and I've done it pretty extensively . But nobody's bought 50,000 seller finance notes in the market but me . So that would be what I would be best known for notes in the market , but me . So that would be what I would be best known for .

About 25 years ago I realized I could do a lot more business with people if I had a school , because a lot of people are interested in it , a lot of people like the results of it . People just didn't know how to do it and they didn't know how to get started .

So it's a unique industry and probably like every other industry , there's stuff on the Internet that I wouldn't necessarily say is true or correct , and so I said why don't I just go ? Why don't I just go , influence the audience and tell them you know what people want . They want a compression of time .

Sure , and so let me go give you a compression of time , something that took me many decades to figure out . What can I take the most relevant things about it and pull it down into a sequence of things that like here's what you really want to know , right ? So that's how I got started where I'm at today .

So when you talk about paper , institutional paper as well as private notes- let's list out exactly what we're talking about here . Let's start from the top when you're talking about institutional paper , what are you talking about we're talking about here ? Let's start from the top when you're talking about institutional paper .

And now the bank bundles up these types of loans and says , okay , these are called re-performing notes , right , and they're being sold into the marketplace at a discount , and right now that kind of loan is really bringing a lot of money . Like banks are paying a really high price for that type of loan .

So I'm back over in the seller finance space , predominantly on the performing of loan . So I'm back over in the seller finance space predominantly on the performing note side , because I'm well known in that space .

I bought 50,000 of them , so I know how to build a machine out of that and I can get the same quality of an investment , same quality of a note , at a better yield . And so that's where I'm

at today . So I work with a lot of real estate investors , right , I show them everything they need to do to build their notes . I define property , I define marketing , I define terms of the note , down payment , interest rate , all of that thing . I connect them with an underwriter that will keep them compliant and underwrite the loan .

I connect them with a closer that's going to make their documents look like a mortgage banker instead of homemade . And then I connect them with a servicer . So I just build out a blueprint of how to build seller financing with mortgage banking over the top of it , and that's how I've done so much business is .

I said I first set up the system for home investors in 1990 . Wow , I've been doing it a day or two , right A little bit or so .

And that's why flipping worked is because the secondary market for your house is some institutional investor that was paying up in a market price that we haven't seen a lot of times . The market's gone back to what it normally is over a 30-year period , which is you can sell a house for more money to the consumer , not the investor .

Now that doesn't mean you oversell it , but you can sell it at retail

. The consumer buying a house today has been left behind by mortgage underwriting . Mortgage underwriting is super tight . Before the virus , the index that they have mortgage bankers index was at about 185 . Today it's at 100 . So about half the people that could get a mortgage before the virus can't get one today .

And that's what I teach them how to go find is somebody that's really good like , not a person with a whole bunch of problems and bad credit , not that but somebody who's just been left behind , and so we're pretty good at helping them identify that and how to market for them and how to identify them , and then what kind of terms to offer , and so we're just

lending experience , okay .

Like a piece of the note , there's some strategies that are very unique to this business where you could take a thousand dollars and literally use a leveraging strategy and not and give up the cash flow for a period of time , but you could take a thousand dollars and turn it into literally a hundred thousand okay there's some pretty cool stuff you can do and it

works really well with taxed advantaged accounts and it works obviously for people . People that have rent houses today are frustrated . That's what I generally find Frustrated . In what respect ? Expenses went up by 60% , rents went up by 20% . That's not very good math . People are frustrated with their cash flows and it's the burnout landlord factor right .

People buy rent houses and find out that it was a lot more work than there's two things there's a spreadsheet that says what you're supposed to make and there's a checking account that says what you actually make . What happens when they're not talking ?

What were you to ? What were ?

If they come to somebody like us , then they've created a very valuable note that they can sell to us , versus homemaking it and doing things that are not of a standard . And so now , all of a sudden , then they show up . No , it's no different than if you're going to buy a package of rent houses .

One guy doesn't have any applications , he doesn't have any qualifications , he doesn't have any records of how the house has been kept . Another guy's buttoned up . Here's my underwriting platform . Here's this Whose rent houses are going to sell for the most money ? Second , it's the same thing , it's just . It's really nothing more than common sense all right .

Then all of a sudden I have a school and guess what students want ? Oh , they want a note and they're not in the business every day and they don't know like they want us to help them . So then all of a sudden we create a marketplace to buy notes and then we have a marketplace where our students can .

Then we can have done-for-you services and they can essentially rent out our back office and for things that we do and work at every day . But we have a controlled environment , right , and with that becomes I can get a student into the business five times faster with way better chance of success than them out there .

Just initially me just having a school and them run off and go doing it themselves . But we've had a school for 25 years , so we figured out what works and what doesn't and what people need and that kind of

thing .

Okay , we serve people with some level of investable capital , like you could show up at note school with absolutely no money , but I'm saying to you that you're going to have to , you're going to be nothing more . You're going to be a note flipper versus a house flipper , and that's not really who we're targeting .

So we show up with people with investable capital . We show up with people that are frustrated . The world is full of burnout landlords , so it's not hard to find them , and I would say there's a very common thread that runs through our students .

Most of them have had rental property , some of them have been invested in syndications and they're looking for a new home right , so that we know that's our tribes . They want to do it . They want their time back right . There are not . A lot of people are not looking to go build a business , they want to just have an investing strategy .

So they want us to show them a strategy that's duplicatable without having to go stand up a brand new business and that's kind of people that we serve . We tend to serve people that are a little older , but we have crazy success story of people in their thirties but tends to be people over 50 years old .

So if you're younger than that it doesn't mean you can't do it and can't do it well . But we're great with people that are frustrated with the direction their retirement's going right . Great with people that want cash flow . So let me give .

Before I tell you about the school , let me do a comparison , because I think this makes sense as you start learning about the school . So I live in Dallas-Fort Worth okay , and Dallas-Fort Worth is a middle market for rental houses . The price versus the rent is in the middle of the market . It's not too extreme either way .

But it's not San Diego and it's not Toledo , ohio , okay . So $250,000 buys you a house in a decent neighborhood that rents for $1,800 a month . You're going to net half of that number . Half of it's going to go to expenses . The other half of it's going to go in your checking account . You can say oh , I'm netting .

Listen , I train guys that have had 50 to 1,000 rentals . 50% of it goes out in expenses . That's what the real pros tell me , and somebody may feel like that's not the case , but they hadn't let the air conditioner break yet , so to speak . So that's their net

. They come to me with $250,000 to note school , and today that buys an average cashflow of $2,700 a month . For the work factor , you can own 55 rentals or 1,000 notes for the same work . Which asset class do you pick ?

What's the most likely chance a loan pays ? What's the most likely chance a loan doesn't pay ? How do you do financial modeling ? How do you go turn your money into a lot of money ? And are there different techniques ?

Can you have a model that focuses on accelerating your cash flow , or can you have a different model that focuses on wealth not cash flow , but growing future wealth ? And so those are the things that we teach people how to do , and it goes back to this , ed . It's like we don't know what we don't know until we learn something .

I've been in this space for four and a half decades .

There are things that we have learned about financial modeling that is as common to me as a pack of chewing gum , but it's not common to everybody because they haven't seen it yet , and our job is to use very simple illustrations to show people concepts so that they can quickly see oh my gosh , this is what's possible and this is how it fits us .

And there are some people that just show up and say , look , I just love rentals and it's all I ever want to do is rentals . Or I love syndications , that's all I ever want to do .

But most people , when they learn about notes , in today's economy , with inflation , with all the things that are applied to the market , they're like notes are a very good alternative . That's what we generally find .

So what does that do to this business ?

But for the economy , I think people voted that Trump was going to be better at fixing the economy . Right , and I believe that to be the case . But Trump cannot fix everything . The second he walks in and we are in a recession , whether you can call it that .

By definition or not definition , people don't have as much expendable income as they had , and so the problem is is , until you can have more normalized things , this inflation is what has infected investment property . It's expenses that have made rent properties , not cash flow . Everybody said , oh , a rent house is a great thing to own in inflationary times .

That's actually not proved to be true . Yeah , talk to me , because the expenses have so outpaced the rental income , and so we are in a note cycle .

You can make more money , and I'll promise you I can model it all the way out , and I'm a veteran at this right , I know some pretty savvy guys that have a different opinion and when I get done with it they're like I'll argue with that math . I may still love my rentals . People say yeah , but I don't get this or I don't get that .

I'm like you get three times the income . When you get three times the income , you can take your . I'm going to get appreciation all day .

That house would have to appreciate at a rate that is astonishing , for a long period of time to outpace what you can do , getting a check in the bank that you already gotten your money back and it's a good , it's a decent argument . Listen , I'm not anti-rent houses or anti-anything .

I'm just saying you have to measure what opportunity you chase , based on what the market is giving us . So notes are not going to become out of style all of a sudden because Trump's in . That's not going to be the case and we've got a cycle to work through . Yet there's aspects of commercial real estate . The train's out of station .

You're not going to fix it , you're not going to fix multifamily and that's going to hurt somebody's feelings on here and I'm sorry , but I will tell you this . If you go read the TREP report , if you go read the Fannie Mae mid-year reports , it's pretty hard to deny what I'm saying .

Right , that market's going to have to settle out , it's going to have to figure out where it's going to land , and nobody quite knows yet .

They own the note . I don't own the note . You don't own the note . They own the note . They own the note . They control the asset , but yet they have a work factor that's way more on the syndication side than it is on the landlord side , and that's just what I believe is a market condition . We all know that there's fortunes to be made in any cycle .

You just got to get , you just got to go pick the right thing to do in that cycle .

We're going to give you a book , we're going to give you some flow charts . We're going to give you like a white paper , a hundred page white paper on describing different mortgage things and terms and that kind of thing . So when we're saying something , your people aren't like I have no idea what they're talking about , right ?

So we're going to do some things that are important to it and then we're going to have a master class , and I believe that the most skilled people in any industry are the people that can make it simple , and I have focused for decades on making it simple , using proper analysis , proper examples , so that I'm making something that otherwise would be .

In fairness , it could be a complex idea if explained improperly , but it can be crazy , innovative and simple to do . I can show you in a fairly short period of time not today , because I don't have a whiteboard and it's just .

Things aren't practical to go , use the best tools , but literally in 15 or 20 minutes in a masterclass , I can show you how to take a thousand bucks and turn it into a hundred thousand . I'm listening With a note .

Right Now , you're going to use somebody else's money to fund part of this deal and they're going to get the first payments before you get any payments . So that's more of a wealth strategy , but it's a technique that we've done a lot .

Our students have done a lot , so it's very duplicatable , and this is an example of financial modeling , and so this is what we teach . It's like where's the product ? What's the likelihood you're going to be successful if you buy the note ? Is the guy going to make his payments ?

And then , all of a sudden , once you do it , what does it look like financially for you ? And then it becomes a question of what is it you're trying to accomplish ? Are you trying to replace your job , or are you just trying to go build out a retirement that right now isn't where you want it to be ?

That's a fork in the road , and we help people with successful ways to accomplish answering those various questions . That's what we do All right , good , I'm excited .

So I'm curious about a mistake that you've made that you'd love to have back and have to recover from it um , I would say the mistake I made is accounting and I had bad information about accounting and so I tell people , be good with your numbers right and make sure that whoever's pushing numbers to you that you can trust what they're saying .

So bad accounting was the worst advice , worst mistake I ever made .

authors or creators you're paying attention to these days .

I like books that are about helping us think different . My favorite book is Never Split the Difference , chris Voss , because it's really even more than negotiating . It's understanding human nature . So I'm a Chris .

How can people learn more about you or get in touch ? What's the best ?

I'm going to give them a lot of support materials , so I'm going to give them some homework once they leave , but what I want to do is take about two hours and take the most compressed version of what people we've learned , what people want to see , and give it to them in about two hours and we're going to use .

We're going to use slides that have have that build a story of , like financial modeling and those things , those things that don't work as well conversationally , right , when you really need the whiteboard , so to speak , and I want to give that to them , and I don't always give this to people , but I give it to people that have what we believe is an audience or

people that we serve , and we believe that we serve an audience like you have . So here's how you do it You're going to go to noteschoolcom forward slash underground right , and so we'll know they're from you , right ? We'll know that this is this tribe that you have that we feel like certainly fits people that we grid up with .

Well , and we want to hear back from you . Let us know . We don't want you just to come through it and it's just like you're just noise . No , we want you to like dig in . It is virtual , it is free . So let me say this If you don't put it on your calendar and if you don't take it seriously , you'll never get anything serious out of it .

And , as you said , I think you and this is pretty common I'll do an interview and somebody the host will say I'm going to do it myself and they do , and so you be the litmus test . You let us know if we did good .