547: Investing in Deeds and Building Multiple Streams of Income

SHOW NOTES FOR EPISODE 547: INVESTING IN DEEDS AND BUILDING MULTIPLE STREAMS OF INCOME

Investing in deeds can be a great passive form of real estate investing.  In today’s podcast, real estate investor, author and CEO of Bequest Funds Martin Saenz shares how deed investing can not only be a great inflation-proof form of passive investing but can also be one of many multiple streams of income real estate investors should employ.

What You Will Learn

• Why deed investing stands out as a great real estate investing strategy for today’s economy
• How your day job can help leverage you into a successful real estate investing career
• Why cash flow investors need multiple streams of income
• The value of a “mixed investment” strategy that includes both commercial and residential real estate
• Mistakes you can easily avoid as a first-time note investor
• How note investing can be a a win-win investment scenario for both borrower and note owner
• How to buy deeds at $.05 on the dollar
• The benefit of investing in income funds
• How to become a hedge fund operator

About Our Guest

Martin Saenz

Martin is a Managing Partner of Bequest Funds.  Renowned as a thought leader in the mortgage note investment industry, Martin is generous with his first hand expertise, to the benefit of his many clients and followers.  Genuine, loyal, and passionate about creating a better world through profitable business, he works hard to share and spread success.

Together with business partner Shawn Muneio, Martin co-founded Bequest Funds with the dual purpose of helping investors grow their wealth and helping mortgage borrowers stay in their homes. Martin owned and operated multiple successful companies prior to launching Bequest.  A successful entrepreneur and real estate investor for over 15 years, he brings a high level of strategy and experience to the Bequest model.  He has directly helped over a thousand families stay in their homes, and countless more through the influence of his mentorship.

Martin holds a BA degree in Philosophy from U.T. — San Antonio, an MBA from Drexel University, and a M.S. in Project Management from George Washington University. Martin, his wife Ruth, and their four children live in the Sarasota, Florida area.

More About Martin

• After he received his graduate degree from Drexel, he got a job managing a call center for a large retail organization
• Over the next two years, he realized he was really bad at playing the corporate game, politics, etc. under a corporate structure
• He ended up getting fired – But it ended up being a blessing in disguise
• Martin and his wife decided they were going to do something by themselves and that real estate was going to be there vehicle
• He went to all the seminars, read all the books, played Rich Dad’s Robert Kiyosaki’s Cash Flow 101 Game
• He caught the real estate “fever”
• He realized, however, that he needed income to launch his real estate career
• Martin and his wife did some soul searching at the that time
  • They asked each other, “What are you good at?”
  • His wife is very creative
  • His strengths are marketing sales
  • They made a list of products and services and zeroed in on museum exhibits because…
    • It involves both a physical product and a service
    • However, you are working with the federal government
    • It is very lucrative BUT you have to be able to deal with bureaucracy and elitism
• So Martin and his wife, in 2005, founded a federal government contracting company in Washington, DC, where they were living at the time
  • Their business focused on museum exhibit displays
  • They would design, fabricate and install museum exhibit displays for the Pentagon, NIH, various DOD facilities around the country (a lot of which have art programs and exhibits that run through the corridors)
  • They made good income but it came at a cost – plenty of 100 hour work weeks and tons of stress
• In 2008, they began purchasing commercial properties (industrial spaces – half industrial, half office space) in the DC area, as well as some residential properties.  And they were landlording, as well
  • The commercial properties were low maintenance
  • They still have those properties today
  • They are good annuity plays
  • Most of the mortgages are almost paid off
  • They sell some with seller financing
  • The properties, however, didn’t meet his cash flow aspirations
  • That’s when he went into the note business
• In 2013, they ended up selling their exhibit company – at the height of its performance

Getting into the Note Business

• After Martin sold his business, he had the commercial and residential properties he bought but they weren’t cash flowing as he had hoped
• Martin read some books and attended a few seminars on note investing
• He saw how he could buy a defaulted residential mortgage note at heavy discounts and exit into the property
• That was initial play
• But as he got into it more and more, what he quickly learned was that it’s more lucrative and more compassionate to try to work with the home owners to help them keep their homes and create revenue streams for your self
• He now seeks a win-win scenario for both parties
• Once he saw this as a means to help people, make a good profit and do it all out of his house, he was hooked

His First Note Purchases

• Martin’s first note purchase was a bulk note purchase
• He bought 10 first mortgages in Ohio that were in default for $240,000
  • Fair market value of the mortgages was $600,000
    • They were all sub $75,000 valued properties
      • One of the lessons he learned her was that a $75,000 property can become a $30,000 property in the blink of an eye
        • Neighborhood problems
          • crime
          • When mortgages default, people abandon properties
        • If people don’t winterize, pipes go bad
        • Copper bandits also steal pipes
  • Average fair market value of the loans he buys today are $300,000 – much easier to work with
    • Some have HOAs
    • The borrowers in these areas also have a better chance of making mortgage payments compared to borrowers on cheaper homes
• He did a fraction of the due diligence he does today
• In the process, he learned a lot of hard lessons
  • He bought a bunch of blighted properties
  • Didn’t investigate the borrowers and their ability to pay
  • Didn’t investigate back taxes
  • And more
  • A lot centers around the collateral – the property
• He also got a taste, with the loan modifications, the his heart was to help the homeowners to stay in their homes
• He wanted to help clean-up the mess the banks created with ninja loans and all the bank loan programs they did in the 2000’s
• And he’s been on that track ever since

Martin’s Deed Purchasing Process

• When a person wants to buy a home and they take out a mortgage loan, they go into a bank and apply
• They fill out a loan application
• The application goes through underwriting to get loan approval
• At closing, they sign a Promissory Note and a Deed of Trust or Mortgage document, which collateralizes the promise to the property
• As a result, 4% of those mortgages that are originated go into default at any given time for reasons that include
  • Homeowner may lose their job
  • Health issue
  • Divorce
• When they go into default, the bank will bundle those mortgages into a tranche, sell them off into the secondary mortgage market at anywhere from $.05 to  $.50 on the dollar, depending on quality of the mortgage
• As a result, Martin’s company, a hedge fund, will pick them up.  His company then is going to work with the homeowner to create a payment plan to help the homeowner to keep their homes, with a payment they can afford, while making a profit for the hedge fund
• Everyone experiences difficult situations in their lives and most of the people are able to turn things around and, after working with Martin’s company, get their homes back and get back on track with regular mortgage payments
• Once the borrower is on their feet, Martin’s company does a loan modification, they get that paper seasoned and then they have a performing mortgage
• What the hedge funds will do is to bundle seasoned re-performing mortgages and sell them into an income fund
• His company has what they call the Income Fund Bequest
  • They buy them in at yields of 12-13%
  • They pay their investors at 8-9% pref option
  • They pay investors monthly
• That’s the cycle of a defaulted mortgage loan

If You Want to Learn How to Invest in Notes

• Martin shares his experience and teaches interested investors how to invest in notes in these two books he has written:

  • Note Investing Made Easier: How To Buy And Profit From Distressed Mortgages by Marti Saenz

  • Note Investing Fundamentals: Your Guide to Launching a Successful Note Business! by Martin Saenz

• He does state the the world of note investing has changed considerably since he started
• Compliance seems to be the main issue today
  • When he started you could self-service the loans yourself or you could hire licensed servicers, you could operate in all the states
  • Today, there are numerous licenses you need in various states
  • Federal, state debt collector licenses
  • You not only need the licenses but you need a person dedicated to compliance alone to make sure…
    • Renewal notices are being done
    • Monthly reports are being submitted for various states
    • There’s a whole compliance effort
• If you are going to launch a note business, you need to scale it to make sure you keep out of trouble

Covid’s Impact on His Note Business

• During Covid, they had to change the ways they did things
• They changed monitoring that they were doing on a weekly basis (in terms of performance metrics) to a daily basis
• They also re-wrote their Standard Operating Procedures
• And they refined their CRM (customer relations management) and other asset management tools that they use whereby they could be more proactive so if they sense that someone is going to stop borrowing
• Also, on the hedge fund side, where they purchased destressed debt, they refined their legal approval process
  • Before, if they had someone who was in default for a number of years, and they had to run it through legal, they would just start the legal process and let it go until the borrower came to the table where they would work out the loan modification
  • But, based on all the moratoriums, they put together a sophisticated approval process for each step of the legal process and, along with associated price approvals, would assess price per step
• As a result, they found that they were fluctuating between 96% and 93% collectability for 2020 and 96% now
• He attributes that success to the new systems they put in place

Investor Requirements

• To invest in his funds:
  • You must be an Accredited Investor
    • Annual income of $200,000 (if individual) or $300,000 (as a couple)
    • Or, $1,000,000 net worth
  • Minimum investment: $50,000
• Yields:
  • 8% fixed – One year lock-in period
  • 9% fixed – Four year lock-in period
• Self-Directed IRA can be used
• It’s evergreen (no expiration)

Biggest Mistake of Newbie Note Buyers

• Need to have a game plan before you make any purchases that factors in about 70% of the effort being dedicated to sourcing new deal flow
• This was a mistake he made
• He came in like many operators – he came in as a technician
  • Good at due diligence
  • Good at asset management
  • Doing loan modifications daily
  • Rockin’ creating cash flow
  • But you’re on a roller coaster ride, just like a lot of flippers
    • They get a few houses close to finished and, before you know it, you have no new inventory
    • It’s the same thing in the note space
      • When someone comes in, the “retail setting” for mom and pop note investors coming in is pretty hard right now
        • There’s not a lot of inventory
        • Prices are very high
        • And there’s a lot of competition – same as with the market
    • If you’re going to operate in that environment, he need to have a heavy emphasis on the sourcing process of note investing

His Biggest Successes

• He learned how to source successfully
• And, as a result, he’s buying large pools from some of the same individuals he used to buy smaller pools from when he first started
• Maintaining and growing key relationships is a significant factor of his success today
  • As an example, his business partner Shawn Muneio, was actually someone he mentored in note investing in 2017
  • He’s helped a lot of people get started in the note space
  • And he has cultivated a lot of relationships with note sellers
  • This will definitely bear fruit at some point but you have to make it a heavy part of your business operation

Advice for Old Dawgs Looking at Real Estate Investing to Help Them in Their Retirement Years

• Everyone (not just Old Dawgs) need to be building multiple streams of income for themselves and their families
• At some point, you need to increase your passive income to offset your active income, which, at some point in your life, will decline
• The sooner you start with that mindset, the better
• There’s a lot of investment distractions out there today in the marketplace where people are investing based on emotion or just wild appreciation
• Stick to the solid fundamentals – invest in assets that cash flow monthly (or on a regular basis) and in those you have some level of control on their performance

Current Business

• He’s looking more at the short term – 10-20 months down the road
• He’s hiring more people
• They are growing with their asset management team, investor relations team
• At the current point:
  • They are building Standard Operating Procedures (SOPs) that are consistent
  • They are building additional roles, which require additional SOPs
  • They are really focused on the “systems” piece of things – building with the end in mind – with some eventual exit
  • He’s really motivated i this area because, as soon as the correct systems are in place, the sooner he can focus on the acquisitions side

Looking Toward the Economy

• Something drastic is coming soon
• Whether it’s increased inflation, hyper inflation or deflation
• People need to take heed NOW to prepare for their monthly existence
• Things are about to get a whole lot more expensive in the world

His Multiple Streams of Income

• Royalty income from four books he has written
• Hundreds of performing mortgages
• Income fund
• Rental property income
• Private money loan income

Rap-It-Up

• Favorite real estate book: Cashflow Quadrant by Robert Kiyosaki
• Favorite business book: Raising Capital by Hunter Thompson and The E-Myth by Michael E Gerber
• Most valuable web site for success (other than your own): More than a website, he focuses more on daily disciplines – Instead of going to a website for success, he reads The Bible first thing in the morning
• Favorite app: HubSpot, Podio, Zoom
• Favorite quote: “Great opportunities are not seen with your eyes. They are seen with your mind.” – Robert Kiyosaki
• If you received $1 million in cash tomorrow, what would you do with the money and/or how would you invest it? He’s a velocity of money investor.  He would look for a cash flowing investment: He has private money loans, other performing note purchases that pay him on a monthly basis.  He would look for something that would pay him on a monthly basis, take a healthy portion of that monthly revenue and then roll it into Bequest Funds on a regular basis to create a velocity of money.
• If you lost everything – all your assets – and had to start all over, knowing what you already know, and you only had $1,000, what would you do to re-launch your real estate investing business? I would take it (the $1,000) to the nearest note conference and begin sourcing a deal and match that deal with someone else’s capital.

How to Reach Martin

• Email:  Martin@bqfunds.com (he’ll send you a free ebook)
• Website: bqfunds.com

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