321: The Benefits of Being a “Lienlord”

SHOW NOTES FOR EPISODE 321: THE BENEFITS OF BEING A “LIENLORD”

If you want to invest in real estate but don’t want the hassle of tenants, toilets and trash, there are more passive real estate investments that still have a great return-on-investment.  In today’s podcast, lien and deed investor Bob Fraser shares how he loves investing in real estate as a “Lienlord” not a Landlord – getting good returns without the typical headaches associated with rental properties.

What you will Learn

• Why being a Lienlord is more passive than being a Landlord
• What is the difference between a lien and a deed?
• How you can get 50-200% yield on second trust notes
• Why you would want to buy a non-performing lien
• What makes second trust deeds so desirable
• Where can you buy liens and how much do they cost
• Why there’s no such thing as a bad lien
• What it mean to “work a lien”
• How to get a great lien resource guide for free

About Our Guest

Bob Fraser

Bob Fraser is on a mission to help investors take advantage of one of the most effective and overlooked avenues of real estate investing: residential mortgage notes. As Founder and Principal of Aspen Funds, Bob has purchased more than 1,000 mortgage notes earning double-digit annual returns without the risk and volatility of traditional investing options.

More About Bob

• Started as a tech entrepreneur
• Built a big tech business with venture capital funds in the late 1990’s
• Raised millions of dollars
• Got super rich on paper but when the tech bubble burst, lost everything
• He got what he calls a “Street MBA.”  It’s a great education but lot more expensive
• Then, became a professional stock market investor
• Did well for a few years
• Got creamed again in the next crash in 2008
• Both experiences made him very risk adverse
• That brought him in 2012 to real estate where he saw superior characteristics and a lot less risk as compared to the stock market and the tech world

Move Into Real Estate

• Met his current partner Jim Maffuccio who had extensive real estate experience
• Jim shared with him the financial models and benefits of investing in liens
• Bob used his IRA to get started investing in liens as a sort of “beta test”
• Jim directed the investments
• Bob made a ton of money
• Jim used his experience in real estate and lien investing and Bob used his experience in finance, scaling and systems

Difference between a Note and a Lien

• A Note is a debt owed and a lien is a security instrument that enforces the note.  A lien means you can’t buy or sell that property without dealing with the holder of the lien. A note just describes what you owe.
• When you buy a note, youbecome the Lien Holder of the note – You become “The Bank” so to speak

Becoming a “Lienlord” vs. a Landlord

• There are a number of advantages to having a lien on the deed vs. owning the property
  • Tenants won’t call you to fix the plumbing
  • You don’t have to be handy
  • You just receive the money
  • You can can scale a lot faster
  • Don’t have to worry about the expenses of the property

Where Deeds Come From and Which are the Best to Buy

• Most are originated from banks
• Most banks package them up and sell them to Fannie Mae. Freddie Mac of FHA
• Some banks hold on to the notes
• People who do seller financing and create the note themselves will sell them with seller carry back
• Hedge funds will buy bulk real estate and will sell them and do seller financing
  • He recently bought a bunch of 1st lien loans from a hedge fund and he’s getting a 12% yield
• Buyers can buy
  • First liens
  • Second liens
  • Non-performing debt
    • Many of these came from 2008-2010
    • Many people lost there jobs
    • They called the bank and said they couldn’t pay and they got a loan modification
      • Once the loan is modified it becomes toxic to the bank
      • Banks are actually penalized for holding on to these types of notes, so they sell them off
        • He can buy these loans at a 20-50% discount
          • They bought a loan for a $110,000 house in upstate New York
            • The borrower owes Bob’s company $110,000
            • Bob paid only $50,000 for the loan
            • Bob is receiving about a 14% yield – he pays $566 per month and has paid faithfully for 5 years thus far
            • If the borrow stops paying, Bob can sell the house and make a big profit
            • If the borrower decides to re-finance the loan at a cheaper rate, Bob will still receive $110,000 – making a $60,000 profit!
    • But people get back on their feet and they start paying again
  • Sub-performing debt
  • And all of these come with discounts
• You have to be ready to take the home if the borrowers don’t pay but that is rare
• Bob’s company specializes in “owner occupied” notes, where the homeowner is living in the home.
  • They are not investment properties
  • If properties go to negative equity, many investors, during the recession, handed the properties back to the lenders and it became the bank’s problem
  • When a home owner is living in their home and they have negative equity, they will stay in the house and keep making payments
• If you buy liens right, you can make very high yields, are very protected and have upside

Buying Liens

• You can buy them online, from banks
• Second mortgages
  • Lots of people are afraid of second mortgages but Bob knows how to buy them and make a good profit
    • He does extensive underwriting
    • Looks into the first mortgage info carefully
    • Carefully looks at every scenario: pre-payment, re-payment, non-payment, “pricing crashes”
    • They come up with a price they are willing to pay and don’t exceed it
  • He can get 20-25% yields.  In 4 years they can make all their money back
• “No such thing as a bad note – just a bad price.”  At the right price, he will buy any note
• Can buy within your IRA
• Can buy second loans as low as $1,000
• First mortgages will be lower yielding, easier to understand, less complicated and less analysis required
• For all lien purchases, you need to do the real estate analysis, look at the property, decide, if you have to take the property back, will you be OK
• You can pick your risk and pick your own yields
• You can bid or negotiate
• He buys pick pools of liens
• Bob recommends you buy into a fund to start out and as you are learning

Aspen Funds

• Been around for 7 years
• They have 200 notes
• Add new notes with new investors
• Accredited Investors only
• Half-dozen deeds mature/pay-off every quarter.  Very liquid if you want to take your money out.
• Pays a 9% yield, paid monthly, plus additional profits above.  Can bring in a 10.5% yield
• Factors in 40% default rate and still gets great yields
• Completely passive

Biggest Mistakes

• When he first got started, he didn’t know the laws
• Some states (i.e. Georgia) you need a license to buy a lien.  It’s a felony if you buy without a license
• In Mississippi, they don’t have to send you a notice to foreclose
• He learned that it’s important that you know the laws of the states where you invest

Biggest Success

• Bob’s company bought a $125,000 second mortgage, loan modified.  Paid $60,000.  14% yield.  Bought 6 months ago.  The borrower hasn’t missed a payment.
• The borrower got the loan re-financed and Bob’s company got a check for $125,000.  Made $65,000

Advice for Old Dawgs Interested in Becoming a Lienlord

• Look at the advantages of liens
• Do your research on the benefits
• Very passive or not,
• If you want to “work the loans” you can get bigger returns.  From non-performing to performing
• Liens can be very liquid

Current Business

• They currently have four active funds and they want to add more
• They will continuing doing what they have been doing
• They want to create safe places for people to put their money, along with higher yields

Rap-It-Up

• Favorite real estate book: Rich Dad Poor Dad by Robert Kiyosaki
• Favorite business book: Good to Great by  Jim Collins
• Most valuable web site for success (other than your own): BiggerPockets.com
• Favorite app: Microsoft OneNote
• Favorite quote: “A good plan, violently executed today, is far better than a perfect plan executed next week” – General George Patton
• If you had to start all over, knowing what you know, and you only had $1,000, what would you do to launch your real estate investing business? Buy a non-performing second mortgage and work it, repeat and repeat again.

Get a Free Copy of Bob’s Note Investing Resource Guide

• Click here to get a copy: https://aspenfunds.us/old-dawgs-rei-network/

How to Reach Bob

• Website: AspenFunds.US

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