Detailed Note Investing Strategies with Dave Franecki

Detailed Note Investing Strategies with Dave Franecki

Dave Franecki from Capstone Capital is an experienced note investor in the Phoenix, Arizona market and today he joins us to teach us the details of a successful note investing strategy.

If you're looking for a passive real estate investing strategy, notes is one of the top options. It allows you to invest directly in a real estate asset while never having to deal with tenants, toilets, and termites. You don't even have tenants! Your "tenants" are actually owners, and you become the bank. Tenants might stop paying their rent when times get tough, but homeowners with equity are far, far less likely to

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Other Similar Episodes:

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Dave Franecki's Bio:

Dave Franecki has 30+ years experience in various aspects of the Real Estate industry in three distinct geographic locations– Cincinnati, OH, Portland, ME, and Phoenix, AZ. His range of experiences include almost every facet of the real estate industry including real estate brokerage, landlord, rehabber, fix and flips, loan officer, credit repair, investor mentor, building & land development, and note investing.

From 2008 -2014, as an REO broker, Dave and his REO team contributed to the Phoenix real estate recovery. They helped Fannie Mae and other banks dispose of over 900+ REO (bank owned) properties in the Greater Phoenix metroplex with gross sales exceeding $115,000,000

Full Transcript

Taylor   0:02

What's going on guys, this is the passive wealth strategies podcast. Thank you for joining us. I'm your host Taylor Lowe. Today, our guest is Dave Franecki. Today we're talking about a bunch of interesting and important aspects around the note business, we get into some weeds, on contracts and contract issues that can be important for note investors. So if you're someone if you live in if you listen to our kind of more general note, investing interviews, this is going to be a great one to kind of step that education up and get more into the weeds with some details on note investing notes are a great opportunity for both active and passive investors, whether you want to invest using your your self directed IRA or something like that, or you really want to build your own business notes. I really have it all. So a great opportunity. I recently got to spend some time with Dave Van Horn. one of the bigger notes, thought leaders out there and learned some fantastic things from him. He's built an enormous note buying business. So spending time around these guys is a great way to learn that no business. For those of you out there who do not know if you're new to the show, I'm your host, David load. I'm a real estate investor. I'm a real estate syndicator. I buy multifamily real estate with passive investors. I love talking about passive wealth building for busy professionals helping you learn resources, strategies, and everything you need to know to go further in your passive wealth generation process. Once again, our guest is Dave Frankie, here we go. Dave, thank you for joining us today.


Dave Franecki  1:46  

Hey, appreciate it. This is an honor and a pleasure to be with you.


Taylor   1:49  

Happy to be talking with you as well. Can you tell us to tell our listeners about your history a bit before we kind of get into the topic?


Dave Franecki  1:57  

Yeah, so I've been around the real estate game for Quite a while going back to 1978 we're just laughing about that. Whether it be fixing flips, rehab developing, whatever, whatever. So at this point in time after three different markets being Cincinnati, Portland, Maine and in Phoenix I'm focused in Phoenix but I'm doing business nationally in the note business. It's a niche market, I'm buying the broker I sell, I keep notes, help people build their IRAs, to get their 910 percent return work with a lot of investors putting deals together. But basically, I'm in the paper business and I really don't want to go back into the hard acid business but you sometimes have to add notes when they go bad. But the paper for me is the ultimate because you can utilize all your past knowledge and apply it to, you know, the lending money side but not necessarily hard money, but just small finance sellers carry loans. again, seller finance is going to be where that is where the markets moving anyway, generically


Taylor   3:01  

Interesting why would you say the markets are moving to seller Finance?


Dave Franecki  3:05  

Well, if because the spreads in the wholesaling are getting so skinny, for instance, in Phoenix, February of 20, compared to February of 19. listings are down 41%. Really, really? So how do you compete with that? Or in Phoenix, the eye buyers are paying and there're 20 of them are paying 89 cents as an investor, how can you compete with that? So what if you go in with seller finance, and do that offer full price and make more money than on a wholesale flip?


Taylor   3:35  

Then you'd be a lot more competitive, right?


Dave Franecki  3:38  

Absolutely. So instead of closing Phoenix, it's one in 20. Maybe you can close one in 10. Wow. in Phoenix as of a few months ago, the average cost to get a wholesale deal was $9,000 in advertising per deal. Wow.


Taylor   3:53  

Because of the competition. The average cost nationally is 6000 cheese. So what kind of assignment fees are people having to take just to remain, you know, profitable because there's other probably other costs that aren't even factored into that $9,000.


Dave Franecki  4:09  

Small to 3000. If they're going out of business, they're getting hurt. They're not making money. So if you've heard of CG collective genius, not the large mastermind around the country. So it's got 500 of the largest flippers in the country, there, this is numbers from that group. The flippers are hurting, maybe not in a small microcosm market, but in the larger marketplaces, it's worth so competitive. It's killing them.


Taylor   4:36  

Interesting. So the market has really shifted over time. are you seeing that shift in on the notes side, as well.


Dave Franecki  4:46  

Yeah, the product that I was really and still trying to plan was, as the markets crashing Oh, eight, Fannie, Freddie, whatever we buy, were selling large pools of non performing right, or performing they foreclosed upon So companies like harbor or vision, or Window Rock, they would buy pools of 102 hundred and they do seller carry land contracts.


Taylor   5:11  

continuity. Can you explain that for us like what that land


Dave Franecki  5:14  

a contract means that you own an asset you own a home and Bobby and Mary need a home to live in there in their prison box, you know they can't get by home traditionally so you offer them seller financing you take back the mortgage, you offer financing to them, okay? So they might put down in I mean, the way it should be done is they put down 10% Well, back in the day, they might have only put down 1000 bucks. you figure out what they can afford to pay the typical payment might have been three $400 a month before taxes and insurance, right? So they get home. So now time runs along. the investors in this pool hedge fund, say Okay, it's time for us to go out so the heads fetch on cells. So I go in, I buy that paper. Now. What the asset at that time might have been worth 30 grand with appreciation over eight or 10 years, it might be worth 5060 7080, whatever, right? So I buy that note that mortgage based upon the unpaid balance the amount owed, okay, I take it over, it's assigned to me so that I have a service or independent service economy to collect the payments and I take that I take the net result of that.


Taylor   6:25  

Okay, and can you explain that land contract is that that's a particular term that you know, I've heard bounced around. I'm not really sure understand what that is specifically land contract me Is that


Dave Franecki  6:37  

okay? No land contract, synonymous might be contract for deed. You may have heard that. Okay. So basically, I'm offering financing to you. In with a land contract. I still keep the title to the property. But I in effect, give you an option to buy that property at x price. The lease option is a hybrid of that. I'm sure you've heard the lease option before. Yep. Okay. So this is just a little bit different. Land contracts aren't looked upon very highly anymore by the HGS Attorney General's. So now it's going more to mortgages or deeds of trust. So I'm letting you in, you're in the penalty box, because you can't you cannot afford either your credit spat or your jobs not to qualify for the traditional mortgages. But I say You look like a great credit risk. Let's put you in this asset. You can be the owner, you can live there. You might, you know, Mama can set up shop, put the kids in school, you've got a home. Okay, as long as you make the payments, you're good to go. If you don't make the payments with a land contract, I can basically just do an eviction and you're gone and I go do it again.


Dave Franecki  7:46  

If it's a mortgage or deed of trust, they have to foreclose on you.


Taylor   7:51  

Okay, and that's why the attorneys general don't care for the land contracts because it's a bad position for the buyers. To be in,


Dave Franecki  8:01  

well, there was a lot of abuse, okay, they put the penalty box buyers in homes that weren't even inhabitable. They were so bad Oh man, and like in Cincinnati harbor had $400,000 in code violations. So they, they, there was a lot of abuse. Now the notes that I'm buying 10 years later from when they were conceived, you know, when they were created, there's this really good paper that put people in pain for 10 years. So the term that I like to use is called emotional equity. You know, they're locked in in their brain. They love the house, they're not moving, they're not. I also look at, if I were to go rent, I'm gonna have to pay more than what I'm paying here. So why would I leave?


Unknown Speaker  8:43  

That's true. I mean, hey, yeah,


Dave Franecki  8:45  

$500 a month in rent in a similar home is gonna be nine. I'm incentivized to stay there.


Unknown Speaker  8:50  

Yes. Okay. Yeah, that makes sense.


Dave Franecki  8:52  

Okay. All right. So then taking it forward now, you've probably heard of subject twos Hmm. Okay. So, you have an existing mortgage, you're the seller, and you're at par, meaning that you owe basically what the house is worth. So if you try to go sell it, what are you gonna do, you can't do it as a wholesaler, you can't come in and buy it because there's, there's no spread there, right? So then I'm going to say, I'm going to sell our carry for you, you're the owner, you Dave can assume my mortgage. In other words, I will assume your mortgage, I will take over the responsibility for that, you can go away, I might give you a few thousand dollars walking money, right? You've got a 4% interest rate, I can find a penalty box buyer and give me 10 or $15,000 and sell it to them at 7% on a 4% loan. So I can take that spread between the three and the seven or four and a seven, and I get that money up front. So from a wholesaler standpoint, I could take that over and sell that for a couple three grand and somebody else can do it or I can just keep that and build a portfolio of these Be the lender. Sounds like a good way to get some cash flow. Right? So if you're a wholesaler, and let's say, like we were talking about before Taylor, you might get your closing right might be one and 20. Because the wholesale is, you know, you're scalping them from their perspective, or the deal can't be done, your closing ratio is going to go high. Your marketing cost per deal is going to go lower, because you've got more deals coming through the pipeline.


Taylor   10:28  

And you can do more of these deals, if you do more deals if you're using this particular strategy, but how does this funnel into, you know, your note business? Or are these wholesalers then selling these notes or these contracts to you? How does this factor in?


Dave Franecki  10:47  

Well, a lot of times they don't understand the process. So from the note, note guys perspective, I can counsel or consult with them, you know, just help them to set it up and work with them. They could give me a drawer full of leads that are dead. say if you can work these days you're working through, we'll split the deal. I'm good with that. Okay, so when they got dead and they got, so I'm taking trash leads, and working them nice. Or as the economy changes as we are talking about if people are laid off, all of a sudden they're not so aggressive and they're and what they're wanting. I call them up and say, well, there's a way you can go if you want to do it this way, and we can do it.


Unknown Speaker  11:29  

So, you know, I think


Taylor   11:30  

that's it, you bring up a very important point, you know, we are recording mid March here and the episode is going to be posted in May. I'm expecting the economy to continue to slide. I don't think we're going to turn around. Now. We're going to be headed downward. if you agree with that, or do you I do that


Dave Franecki  11:52  

totally. Yep.


Taylor   11:54  

And how do you see that impacting the notes business and how are you preparing Your business to cope with that


Dave Franecki  12:03  

the existing product that I'm buying the existing notes that I'm buying, I'm being a lot more conservative in my equity spread, meaning loan to value and investment to value. So therefore, if I can't buy a product with a note, with at least a 60% loan to value or less, I have to play games on what I pay for it, they get the investment, the value lower to reduce my risks. So if those people go south, I've got enough cushion there to get them out. If I have to fix the house, or wholesale it, I still stay home. Does that make sense?


Taylor   12:40  

Yeah. So what you mentioned, if you haven't met that 60% so much so what numbers are you targeting that you think are still going to be sufficiently conservative but not too conservative, so you won't be able to do any deals.


Dave Franecki  12:55  

Up until this last pool that I'm looking at. I've been buying product Assets notes at 60% loan to value or less. Hmm, there's some I'm looking at now we're at 80. I don't like that. Yeah. So, but what I can do is just pay a lot less for the note and get my, you know, my skin have less skin in the game knowing that they might go south the payer, but I still got enough there to protect me because if you buy at low price note, let's say the note only has a balance due of 30 grand and houses only worth 45. Or I mean, there's only 15,000 there to protect you. if that goes south, well, you could be underwater, but if a house was worth 80, and I buy a $30,000 note, I got a ton of a ton of spread in there to protect me.


Taylor   13:46  

So I'd like to address the concern of loan to value the loan to value ratio and why that's important to you, in addition to investment to value because ultimately, the investments value is your, if you got $100,000 house, whatever, and you're putting down 20 grand then your investment value is 20,000 over 100,000. But say the loan balance is 80 grand. So your loan to value is 80 versus 100,000. Right. So why is that loan devalues still important if you have a built in cushion with your, you know, steal at $20,000 invest. Good


Dave Franecki  14:26  

point. So, let's go back to so I was a reo guy. You know, I sold bank owned assets back in the day. how many people walk from their homes a lot, right? Okay, why did they walk because they're underwater, meaning that they ended up because the value of the home dropped so much they owed more than home was worth. They said, well, what's the use? So if they have a big enough spread there, even if the economy drops with value, there's still going to be either at par with what they owe. so the propensity or the desire to stay is still there. But if they feel like we're never going to get out of this hole, we must just leave. So yeah, it's a head game.


Taylor   15:11  

Yeah. I guess the question comes down to: in your mind, your judgment is how much do you expect the real estate market to downturn in the next recession? Do you expect it to be as bad as the Great Recession? Or worse? Yes.


Dave Franecki  15:27  

Oh, okay. Yeah. If you follow Harry dent, you know the name Oh, yes. Yes. If you follow Him, and several others like them, and you might say all they're just naysayers. Well, I don't think so. But I, you know, having been through two or three of these and they've been devastating, you kind of look a little bit more and a little bit more cautious. You know, you know, young guys like yourself, you've never lived it. You don't know, it's like, oh, now we can just keep going. You know, there it's just it's just gonna continue. That's just the way it's supposed to be. Well, I don't know. I'm not being, I guess I'm being sarcastic, but I'm not. It's just life. You know, you hope for the best and or you would have you say you plan for the you plan for the best hope for the best and plan for the worst. Mm hmm. No different than buying, if you would, would you rather buy a house at 90 cents or 80 cents? 80 cents?


Unknown Speaker  16:22  

Why is it a better deal?


Dave Franecki  16:24  

But Why else? you're covered? Right?


Taylor   16:27  

Yeah, that's true. I got more margin in that deal. Right.


Dave Franecki  16:29  

So when you were in kindergarten, did you ever play musical chairs?


Taylor   16:34  

kindergarten all the way through college, baby.


Dave Franecki  16:37  

Okay, so you've got 12 chairs and 13 people when the music stops. Do you want to be that 13th person without a chair? No, no,


Taylor   16:46  

that's my point. Hmm. So you're saying in your mind, and for those listening out there, you'd never be able to tell by listening today. But Dave's 70. He's been through a bunch of recessions and yeah, we have a lot to learn here. so we're, like you said hoping for the best but preparing for the worst. So you saying in large part you expected to be worse than the Great Recession because, well if it's not then All right, no big deal,


Unknown Speaker  17:15  

right? If it is okay, you're prepared.


Dave Franecki  17:18  

Right? But if you if you interact we were before on the show we were talking about some other folks you know, whether it be the dike Spotify, birds of the Fortune, autos, whatever, these are all gray hairs like me, we've been there we've seen it and we also see what's going on with all the fiat currency. Can't live like that forever. It just isn't. There's a day of reckoning. So without getting conspiratorial or any of that crap, you know, excuse me, but it's just, it's better to be safe than sorry. You never miss a deal that you didn't get. You will be sorry if you get a deal that you wish you didn't do.


Taylor   17:58  

That is definitely That is a good point and I think this is we run the risk thought of if we're always looking for you know, protecting for the downside we run the risk of and I mean I like the guy but we run the risk of turning into a bit of a Peter Schiff right where he's seeing a recession around the corner every two months Well, you do that forever you're eventually going to be right but you know declare yourself a genius when it happens. But if you miss all the upside when things are going up, then you missed out so that balance of


Dave Franecki  18:31  

your current parent is important. Right? But I mean, I know Wait, there were so many cats out there. They're just fat and happy. Oh my god. They just thought it could go forever and in two months they were broke. So therefore going back to the seller , `` Do you think I'm setting you up with this question? Is it better to go to the bank and borrow money or to have the seller finance you non recourse?


Unknown Speaker  18:57  

I'd rather the seller finance me


Dave Franecki  18:59  

exactly. If you're buying a multifamily, do you want it to be a recourse loan or non recourse loan


Taylor   19:05  

non recourse every day?


Dave Franecki  19:06  

So if you're so therefore would you right? If you go to the bank, it's a recourse loan except in Arizona on a single family. There's no deficiency, but normally in the country, there's a deficiency judgment, right? So you set yourself up. So there's never a deficiency, you can just walk if you have to. It's called See ya.


Unknown Speaker  19:25  



Taylor   19:26  

it's a good point. I mean, all the multifamily properties I buy, we do non recourse debt and I think it's a good way to think about it for the lease of single family buyer out there is finding a way to get those non recourse loans right, so we're not running as big a risk,


Unknown Speaker  19:46  

right? Or if you could,


Dave Franecki  19:49  

if you're gonna buy a house and you can use outside debt as an investor, you're gonna pay what 6% single family, five and a half,


Taylor   19:56  

probably, maybe several more. Yeah, probably seven.


Unknown Speaker  20:00  

20% down. Yeah.


Dave Franecki  20:02  

So or you go to the homeowner, and you negotiate zero percent for four or five months or more. So you could pay a lot more, because that the whole amortization initially paid down on the P and the principal, right? So you could pay more because everything's going to principal on a zero percent coupon, your zero percent rate. then you could step it up, then your one the payment or your to the payment stays the same, but it might be 2% interest. So you can afford to pay more on seller finance, by the way you structure it. Or you could buy a house. Let's say there was a friend of mine, Kevin and Seattle, that did this. He bought a duplex. The owner wanted 320 so the deal finally worked out for Kevin. They did structured seller financing. He paid 260 he I'm sorry he paid the 320 the first was to 60 at 5%, the second zero percent for 10 years and nothing paid. So that didn't hurt him, did it? That's my point. That's ideal architecture. but the seller is happy because they're older. They don't want to avoid capital gains, they want to push it back. They've got a cash flow. So all the landlords that are out there now, a lot of times their returns are pretty skinny. Would you agree? By the time you have financing, or they've got my head of all cash, and they're really tired of the toilets, tennis trash termites, so what if they could net more without the headaches and you take it over on seller financing?


Taylor   21:45  

Interesting. So and and folks are still doing those deals, even though, you know, up until recently the economy's been been very good, and there have been a lot of qualified buyers


Dave Franecki  21:56  

right now but in Phoenix, to be honest, it's really really hard to do it because it's just so strong here as we were talking about. Yeah, but in other parts of the country it's very doable. So you got it. It's just the function of your marketing how you present it. So all you cast it. So you set yourself up to be a great negotiator. Right? So it's negotiation and marketing. I am not in real estate. You're not in the real estate business. You're in a marketing business. Absolutely. Yeah. So it's marketing first in negotiation second


Dave Franecki  22:29  

appealing to them, into their, their selfish instincts.


Taylor  22:33  

Dale Carnegie


Dave Franecki  22:36  

seriously, yeah. five steps of selling attention, interest, conviction, desire clothes. It's no different. Or Ross that you know, the negotiator. His book. Never never, you know, never split the difference. It's all about that. then if you're older, like me, it's like we talked about, you know, for me, I haven't hit my peak yet. Like art. Harvey Mackay said, This is fun. It's a blast.


Taylor   23:00  

I find that very interesting. We talked about this before we started recording that you're 70. you've got no interest in retiring. I find that very interesting because a lot of people do a job they hate for a long time with just the intent to retire when they hit 60 something. here you are saying you're never going to retire, you haven't hit your peak. I just find that fascinating. Anytime I talk to someone like yourself who has the means but no interest in retiring and sitting it


Dave Franecki  23:36  

and I mean, I could travel, I really don't care to do it. I mean, I've been around, I don't, I don't care about seeing the world, it just doesn't interest me. I love Phoenix. I love hiking, like spending time like my grandson and my daughter. that's all that matters. I can tell you how not to stay married. So that doesn't fit my box anymore. But it's just, I like what I do. I'm psychologically unemployable. So I've never had to get that anger towards an employer because I, my employer, looked at me in the mirror every day. It's like if it doesn't work, and Dave then gets your whatever in gear.


Taylor   24:13  

Nice. Another thing I wanted to bring up and this is a bit of a hard shift, but I want to make sure we get to it, you know, before we run out of time here is the concept of a partial arm note. So can you explain that to us? He explained it to me before and I think it's really okay. So


Dave Franecki  24:31  

for the listeners also. So write down partial and then write down the word hypothecation.


Unknown Speaker  24:39  

All right, written down.


Dave Franecki  24:40  

Okay. So first off a partial, it means that I am selling or buying a part of the payment. So imagine a ruler. It's got a notch reach eighth inch, right and each notch represents a payment. Yes. Okay. So let's say I've got 20 thousand dollars into a note and I want to recover that I will sell enough payments to recover that. So you the buyer, have me behind you, I'm protecting you because I'm gonna own the backside of the note. Okay? You pay the buyer of the partial, you know that you can almost set it and forget it because I'm going to protect you because I'm protecting myself selfishly. So if that note goes south, I'm going to step in, we have an agreement on the front end. Let's say the guy stops, the payer stops paying at month 40. Whatever you're owed. If he stops paying, I'll either buy you out for that number, or I'll continue to make the payments until I make the note good. Let me give you an example. I had a note in Mishawaka, Indiana. This little 130 to 55 grand and I sold a partial at $35,000. I recouped all my money. I had no money. Note, I just had that tail. Two years later, the player who had health issues decided to do a bankruptcy. they called the servicer to say it, so they were behind so that the partial buyer was a friend of mine. I could not leave them out the dry. So I said, Pat, every couple months, I'll give you the payments to bring you current. In the meantime, I got the borrower who's doing a bankruptcy to do a deed in lieu of foreclosure. Okay, I'm continuing making the payments to pat. In her IRA. It's passive. I fixed the house up and resold it. So I sold the home for 70 packs and paid all of her money. She said her yield at the end of the day, her ROI was 11%. Nice. Yeah. But for her she could sleep at night knowing that Dave frantically was there to protect her.


Taylor   26:57  

I think that's interesting. So like, what Typical terms people look for because the ruler analogy is interesting. So you're selling off the first eight inches of the ruler worth of payments, and


Dave Franecki  27:09  

to recover your


Taylor   27:10  

investment to recover your investment, and then one more, more or more, and then you've got the remaining four years worth of payments, right? So, you know where we're in there. What's a typical arrangement for that investor to get their money back is that they give you $20,000 and then you agree to pay them based on a certain rate, like what does that really look like to the investor?


Dave Franecki  27:37  

Okay, I'll, I'll share with you a couple ways. Number one, I have a lot of YouTube's out there. I have a YouTube channel on our capstone. So a lot of what we're talking about is on there for your viewers to go to. So let's give an example. I had a note in belding, Michigan. The house is tough, but the payments were phenomenal. they're good. You count them. Okay. So I've been advertising starter partials. Okay. So the unpaid balance on the note is small and 18,000, no big deal. I sold off $12,000. I had 9000 in a note. So I got my 9000 back plus 3000. The partial buyer bought 49 payments of $300 and 24 cents. I kept the back payments. So at month 50 the partial buyer is paid off, and I start collecting that again. So for me, I was working into my age, you know, in 48 months, then I'll start collecting the payments again. They were happy. Another note I had was in Iowa. Same type of scenario. I bought the note because I got a really good deal on it. I think I paid $6,000 on a $15,000 bill. Balance. It's all little. So I'm you know, I'm a quick 10,000 I sold the partial for 12. So I got my five back plus $5,000 in my pocket. at month 42 it'll come back to me.


Taylor   29:13  

It's definitely a long term strategy. it seems to all come down to it, it's gonna all hinge on you getting a good price or a good deal on the front end. Yeah.


Dave Franecki  29:25  

So, the, so the the interest rate or the the term another term is coupon rate, interest rate and coupon rate are parallel. The interest rate on the loan, the coupon rate alone was 10%. The partial buyer was getting 10% on their money. Hmm. So all these two of the three I bought I did for him so far this year, they put it in their IRA, and they just let it sit. Now the reason they also did it was they want to get my paperwork.


Taylor   29:56  

What do you mean like they wanted to see what your contracts look like and everything? Yeah.


Dave Franecki  29:59  

Because you have The structure the US doesn't structure these just like these, this is not normal. So we had the relationship it's all known like and trust just like in your syndications, right with your investors, so they knew what I do and how I do it. They and I advertise it as a startup partly because a lot of people are just like with housing. They're afraid to put their toe in the water by buying right? Yeah. Noon so they could put their toe in the water and buy a starter partial, they have me behind them now. They're collecting the payments in the IRA. I gave them all the docs and words.


Taylor   30:42  

Okay, there you go. So they don't even have to retype them or copy and paste from it.


Dave Franecki  30:46  

No, they got SOPA, they were one tooth. There were three of them. They were all new, one was a seasoned, more seasoned investor, two or newer, but they just wanted to see how I put it together and how I handled it. Interesting. So you could put a digital two, it could be 12,000. It could be 120,000. destined that could be 1.2 million, it doesn't matter. You could buy, there's gonna be a lot of commercial property coming up, especially hotels, right? Or the notes are going south. So what if you get a $1.2 million note?


Dave Franecki  31:21  

For $600,000


Unknown Speaker  31:24  

That's a sweet deal.


Dave Franecki  31:25  

And then you fork that you can make it current, but you bought it with that discount, then you can sell a partial off that recoup all your money. So it doesn't matter the size, the principles are the


Unknown Speaker  31:34  

same. You just need to have the capital ready to go, right.


Dave Franecki  31:39  

Yeah, now what one thing on a partial, you cannot use borrowed funds to want to buy those because then you're creating a security.


Taylor   31:49  

Ah, okay. Okay. Can I use borrowed, so you can't use borrowed funds to buy a partial as in


Dave Franecki  31:58  

no to sweat. If you own The note, okay, and you have borrowed funds out to buy that you cannot create a partial.


Taylor   32:06  

Oh, okay. Okay, so now you're selling a security to someone else to your partial buyer, whoever that was right?


Dave Franecki  32:12  

And stripes aren't fun.


Taylor   32:15  

Well, and even to avoid the stripes, the legal costs can be very high. I don't know what you'd need to do to set it up. But right, the legal costs in a syndication can be $25,000. Which,


Dave Franecki  32:28  

just to get out the gate. Yeah. So then again, on my YouTube channel and the capstone channel, I have a 40 minute interview or I'm interviewed by my former mentor. Going over is how we structured these nice,


Taylor   32:42  

folks. We're gonna have to check that out. We're not going to rehash that all here today. Right now, we're going to take a quick break for our sponsor. All right, Dave, I've got three questions. I asked every guest on the show at the end of the show. Okay, are you ready? Go. All right. First one. What is the best investment you ever made other than your education?


Dave Franecki  33:07  

When I was 36 I bought in Portland, Maine, I bought 23 acres, five acres on an FHA and 18 acres on seller finance. I did a subdivision and created 18 lots. This was 1986 . I didn't know anything. Okay. Yep got 100% loan from Maine Savings Bank and when it's all said and done, this is a 19 $86. I made $350,000.


Unknown Speaker  33:36  



Dave Franecki  33:38  

With no money out of pocket and I got my principal residence out of it too.


Taylor   33:43  

That is a good deal. On the other side of that, what is the worst investment that one


Dave Franecki  33:55  

getting caught with my in a dance market you know, seven being highly leveraged and not recognizing it was coming. Because I thought real estate is 35% of the Phoenix market. How could that ever die


Dave Franecki  34:17  

and losing everything?


Unknown Speaker  34:19  



Dave Franecki  34:20  

everything. Wow nine foreclosures.


Taylor   34:26  

So, in hindsight what, what qualifies as what qualified as highly leveraged or was there some change that you could have made? I can't run the experiment again but something else you could have done to avoid that situation?


Dave Franecki  34:45  

greed and fear risk reward. I was greedy, and I kept on going. I should have backed off and done it more conservatively. I should have gotten cheaper money. I was building houses on hard money. Big mistake. Okay, big mistake, I would have better off to go with it with a partnership or something like that. But also just thinking it would never end. Life is good. How could it change? It did just like and I was what so that would have been 12 years ago so I would have been what 58 life can't happen it nothing. Nothing's gonna change. This cool fix is crawling too much. Nothing's gonna change. huge mistake, arrogance. A legend in your own mind.


Taylor   35:33  

Wow. Wow. Well, that's a great one. My favorite question at the end of the show is what is the most important lesson that you've learned in investing?


Dave Franecki  35:44  

balance your life.


Dave Franecki  35:48  

It's not all about the money. You gotta have a kid. be there for them.


Dave Franecki  35:54  

You got a spouse who's hopefully got a


Dave Franecki  35:58  

you have a spouse that maybe Not in the game. So play with it, make sure it's good, but just don't be so work oriented. So work oriented and focus. Don't be so Drive Drive, drive, kill, kill kill type A. When you have a life event, which I had five years ago as an ca that makes you look at things cancer, and I mean, homeopathic Lee


Unknown Speaker  36:27  

while you're doing well today


Dave Franecki  36:30  

it was gone for six months. Wow, homeopathic Lee like we were talking about before the show.


Taylor   36:37  

Wow. your that'll really that'll really make you think I mean a lot of people a lot of people don't get out.


Dave Franecki  36:43  

So there was still a motivational speaker out there. Les Brown. I did Amway for six years and it is the best thing for sales training ever. But he used to have a thing when he spoke to Mama, it's a great day today because I woke up today and there wasn't a white line around my body.


Unknown Speaker  37:02  

That's probably a good way to think about it. You're on this side of the grass.


Dave Franecki  37:06  

Yep. then it's all about, like we were talking about before training, negotiation. to that point with the, you know, and now one last thing for your, for your listeners. I have a note investors forum. We've been doing it locally here in Phoenix. Come April 1, we're going to take it virtual, and do a live video stream, probably for 45 minutes, the first Wednesday of every month on notes,


Taylor  37:36  

where can they find that?


Dave Franecki  37:38  

We're going to be putting that out there. Ah, they should probably email me. I'll be putting it on meetup. then I'll be emailing the folks that are in my MailChimp, if you will, and just advertising it that way. Just start it that way and then grow from there. So they can go to Capstone capital opt-in to note holder handbooks. There'll be on the list anything on Capstone capital and just opt in, that'll work fine too. Okay. Also, and I'll leave it with this then they can go to I was going to just give you a number that they could text. They can text for 80442 4591 and leave your, your email and your name.


Taylor   38:32  

Great now get them on the list. They'll get on the list they can hear they can get on the YouTube YouTube stream.


Dave Franecki  38:38  

Yep. So for 804424591


Taylor   38:45  

nice and yeah, I think that's fantastic. You know, there just isn't as much out there for note investors as there should be. I don't know why.


Taylor   38:56  

But there just isn't as much marketing out there. About Notes compared to flipping houses or even syndications, like I do, so it's great. You're doing that. it's not


Dave Franecki  39:07  

a sexy. It's I mean, seriously, it's not it's what it is.


Unknown Speaker  39:11  

Yeah. Yeah, it's paper.


Dave Franecki  39:14  

Yeah, it's just paper. Yeah. But you use all your other information that you've learned. All the other folders all come to play into this little box. If you work the paper, you wait, what you do make more money, just like your syndication is paper.


Taylor   39:27  

Yeah, yeah, absolutely. I think that it's not as if they're not as sexy in a sense, but once you kind of learn about the potential upside, then they get a lot more appealing.


Dave Franecki  39:38  

And when they pay off early, your yield goes for the chart. Ah, man,


Taylor   39:42  

that's great. So well, thanks for everything today. Everything to get in touch with you is going to be in the show notes. , you know, hopefully, when this goes live, things are better off than they could be.


Dave Franecki  39:55  

I agree. I agree. Appreciate it. Taylor.


Taylor   39:58  

All right, Dave. Great talking. With you, to everybody out there. Thank you for tuning in. If you're enjoying the show, please leave us a rating and review on Apple podcasts is very big help. If you know anyone who could use a little bit more passive wealth in their lives, please share the show with them and bring them into the fold. Thanks for joining us once again. I hope you have a great day and a great rest of your week and we'll talk to you on the next episode. Bye


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About the Host

Taylor on stage

Hi, I’m Taylor. To date I’ve acquired or partnered on over $250 Million in Commercial Real Estate Investments. I help busy professionals invest in multifamily and self storage real estate through my company NT Capital

I started the Passive Wealth Strategy Show to teach busy professionals how they can build passive cash flow and protect their wealth by investing in Main Street real estate, instead of Wall Street.

Don’t forget to follow on Instagram @passive_wealth_strategies

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Real Listener Reviews

Extremely useful podcast
Extremely useful podcast
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Short, impactful with excellent guests. If you have a full time W-2 job or business and are looking for ways to get involved in real estate on the side, this is for you.
Simple & effective information!
Simple & effective information!
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This podcast is worth listening to for investors at all levels. The information is simplified for the high level investors but detailed enough to educate seasoned investors about nuances of the business. I recommend!
Awesome Podcast!!!
Awesome Podcast!!!
@Clarisse Gomez
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The host of Passive Wealth Strategies for Busy Professionals podcast highlights all aspects of real estate investing and more in this can’t miss podcast! The host and expert guests offer insightful advice and information that is helpful to anyone that listens!
Great podcast!
Great podcast!
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Love all the information and insights from Taylor and his guest. Fun and entertaining. Highly recommend.

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