Opportunistic Out of State Investing with Jay Tenenbaum

My pleasure. Thanks for being willing to please be here. 

I’m looking forward to talking with you about out-of-state investing for our listeners out there who don’t know about you and your business and what you do. Can you tell us about yourself and your investing strikes?

Certainly. My name is Jay Tenenbaum and I am a full-time real estate investor since 2013. I started investing in distressed mortgage notes. And I’ve done over 450 deals in about 40 different states, including Hawaii recently. I was a debt collection attorney before that. So really, I like to say that I’ve been in debt all my life, just not personally.

So there was a, it was an easy transition just, to start investing in a different debt instrument. That would have been what I experienced. 

Nice. And you said 40 different states. And how much do you focus on like making sure they’re out of state. You were telling me before we hit record that you formerly lived in California when you first got started, you now live in Arizona and at the time you’re investing out of state for basically return-related reasons.

So you tell us about that. 

Certainly. So yeah, when I started investing. The price of mortgage notes in California was like 80, 90 cents of the dollar. You’ll find that because the foreclosure, fast foreclosures in those areas, command higher pricing. So if you’re willing to wait then you’re getting a bigger discount in the Midwest and the south where the foreclosure process takes them longer.

And in the beginning, I was investing a lot in really low. Balanced assets. Basically, back then, with the economy back then a lot of, our properties were still very much into water. So I’m buying a mortgage note on a property in the Midwest, which has middle-class neighborhoods for about.

The house is worth about 50 grand, which is middle-class American and in the Midwest versus, a million dollars in California still and buying it for maybe 10 grand and then working out, keeping the borrowers in their homes and working out little modifications. So I’m generating the cash flow by working out tons of loan modifications which is something that, as I started this, it wasn’t really sure what my investor ID was going to look like.

I wanted to get into real estate. I didn’t know how, or when I’ve been to other places where, come Monday morning, I didn’t know how to find my first deal. And so I thought, okay, mortgage notes gave me an opportunity to do so as an acquisition strategy. And then quickly I learned that after 20 years of debt collection law practice, we generated a pretty stable and consistent.

Monthly cash flow, wage, garnishments, and stipulation payments, et cetera, to where, why don’t I just rebuild that and buy a ton of these low-value assets? I bought a hundred and it was alone in 2015 and 77. In 2016, I was generating pretty decent cash flow on that kind of stuff. We’ve since modified our investor ID a little bit adapting and becoming opportunistic in the market.

But that’s really the passive side. And we’ve, we went into 2017 price, mortgage notes went a little higher. So we started buying rentals and developed a passive cash flow rental property, which we still own. And then, the pandemic hit and we got the opportunity not knowing what more turns are gonna look like.

We’ve got the opportunity to go back into mortgage notes, buying higher value, reverse mortgages that we’re going to foreclosure. Pretty quick. And we’ve been really fortunate in this marketplace that a lot of our mortgages are getting paid off at auction. So we’re still a little bit more of a segue into more of a transactional engineer, a little bit here and there.

Lo MAs just don’t make sense when you’re buying assets for, 300, 200,000, a hundred thousand here, their numbers just don’t work. But the interns for our investors, I’ve been extremely. And so that still works. And that’s really the nuts and bolts.

When I moved to Arizona, just continue on, wash, rinse, a repeat of what I knew about. Yeah. 

Yeah, that makes sense. That’s something that’s really interesting about this, that you’ve alluded to a few times, are the realities behind foreclosing on properties earlier on, you mentioned that the timeframes in, I think California compared to the Midwest, if I’m interpreting correctly, it sounded like at least at the time.

Foreclosures were a lot faster in the Midwest than in California. Is that right? That is 

It’s backward in California and the west coast. You’re foreclosing on the deed of trust, which has a self-executing instrument. You’re going to foreclosure at about 120. We’re getting the sale about 120 days in the Midwest.

They’re called judicial states and you’re actually filing a lawsuit and serving the borrowers and getting to judgment, going to sale. It’s about six to nine months.

Opportunistic Out of State Investing with Jay Tenenbaum

Interesting. And that obviously that time factor impacts your return. But I guess as an attorney yourself, maybe you’re saving, some of the costs there and the legal side of things.

You’re just generating much bigger discounts with the app and the acquisition. So the return returns or the turns of fine, yeah. Your cash on cash returns is great. Yes, when you factor in the time, it’s a little longer, but as the sponsor, as the operator, we’re just building a pipeline as the investor, the investor would understand that the investment commitment.

We usually run with our, some of our capital commitments, like two years. Only with regards to, if we’re buying one or four or seven or whatever we’ll live, we’ll be able to liquidate the entire pool to two years. Usually about six, nine months to foreclosure. If we’re going to generate a loan modification, that’s great.

Either. Keep it for the residual cash flow or you sell it as a value, add performing. And, and cash out that way. And that’s really what the investors 

Gotcha. Okay. Now you also mentioned foreclosures here during the pandemic and they, there’s always this conversation about, okay.

At least the government-sponsored entities are not really allowed to foreclose. At least at this point, I don’t keep that much up with that side of things, but, there’s, once these are over, we’re going to get quote-unquote, a foreclosure wave, and an eviction wave, and it’s all going to fall apart.

Now you’re different. The rules are probably almost certainly different for you and your ability to foreclose on borrowers, right now. But can you tell us about that? How the regulations if they’ve impacted your ability to foreclose at all, if it’s slowed it down, especially with the court last year, they were probably closed for months and months in different areas.

There’s a big backlog you’re dealing with the course. So how does that all impact your business? 

Sure. Great question. Okay. So at the time of the pandemic, we were, our portfolio was primarily rental properties. And just like anybody else’s landlord, we were starting to get concerned going, what were, March reds were fine because of pandemic really didn’t come into play until mid-March, et cetera, April, we figured.

You know what people sell some hold over money. Three reports of just, how long is it going to last, it’s, don’t if you remember, Hey, it’s gonna be two weeks or it’s gonna be two years, nobody really knew exactly. And so then, come May and June got, where we expected to get a little scary because we knew people would start running out of money.

Then we, the stimulus prop that up. Actually, some of our rental portfolios performed better. In the pandemic in the midst of the pandemic last spring of 2020 and early summer that they did. Prior to that because the thing was the demand for housing as we saw in, what was the result of a direct result of the pandemic was a demand for housing remains really strong, even on the rental side.

And when a property would go bake it, we still have multiple applications to re-read it, right? Not a big deal there. With regard to foreclosures, there’s a different analysis, and that is you’ve got the federal moratorium. This really doesn’t apply to what we buy, because we’re really not buying a lot of federally backed mortgages.

So the federal moratoriums really don’t didn’t have an effect on us cause we weren’t buying the mortgages anyway. So we were relative analyzing, what the situation was in a particular state, right? The state has a moratorium and certain states lifted more times faster than others. For example, we were looking at a loan.

Massachusetts right out in the suburb, right outside Boston. And my partner spent some time there. His daughter goes to school there and he’s salivating over this law. We’ve got to have this, we’ve got to have this with it. I’m like, look, you don’t want this, spend that kind of money. He’s $350,000 purchase because the moratoriums are in place.

You won’t go anywhere. We looked at this probably. Early summer of 2020, maybe. With all this going on and we just kept watching it going. Okay. We check in every once in a while to see, what Massachusetts was looking like. And lo and behold, around November the courts, the moratoriums, and messages were lifting and already had a judgment.

We were ready, ready to go to the sale. And so we pull the trigger bought at the end of December. And it went, it was supposed to go to sale in May. And the borrower filed for bankruptcy. Got that dismissed. In two weeks, we ended up going to a sale on July 29th. We bought it for three 50 and we actually got paid off at auction.

We were owed more than what the house was worth. So we strategically set the bid amount at 500,000 going, maybe we get it, maybe we don’t. Because the house is worth about 5 85, 600,000. We’re fine with taking it back and rehabbing it and selling ourselves. But because the market, even on the foreclosure side is so high, somebody bid 500, $1,000, so we should be getting paid off next.

Okay. So you mentioned they, they filed bankruptcy in there, in that process. How does that affect you? You said he got them in two weeks. I imagine this varies by state, but that’s. And the aspect of note investing that I haven’t discussed with anybody before. How does the borrower file bankruptcy?

The bar, this bar filed a chapter 13 and we knew from the beginning it was a stall tactic because when you file a chapter 13, you’ve got to file a bunch of paperwork behind it. And all they filed was like one page, like on the Eve, the day before the foreclosure. And we knew it was a stall tactic.

So the bankruptcy court asked him, okay, you need to supplement your file. And when you don’t. They have a score that says you were stalled and dismissed it. When it first, when he first filed, my attorneys wanted to postpone the sale for 60 days because we didn’t know how long it would take for the bankruptcy court to dismiss it.

We need to expect him to comply. Anyway, this court was actually really quick because two weeks is pretty much an anomaly to get it dismissed. So we would have been ready to go in 30 days, which I really wanted in the beginning, but it ended up being 60 days. And we are ready to go with you like 29th, which went off.

Interesting. Okay. So do you see yourself shifting back to more of a rental investing model at this point in the eviction moratoriums are still in place despite what the Supreme court had to say about that? What are your thoughts moving forward is note investing, it really, I think the question really comes down to is note investing still working.

Cause otherwise, I don’t know why you shift back to rentals, so to speak. 

So we. We, as I said before, we strive to be opportunistic. So we have, I wouldn’t say any pivot or any specific shift, but we’ve mixed in the last year and a half. A variety of flips as well as buying the mortgages. When you’re investing out of state, I can build a team in any state, any city pretty.

A kiss, a few frogs getting there, perhaps, but you’re getting the right realtor. Who’s an investor-friendly realtor who has relationships with contractors and property managers, et cetera, all once when one-stop-shop. So we were fortunate enough that when we were buying a note last spring, it’s been about a year or so.

Or we’re here. I reached out to build a team in Pittsburgh. We’re buying a note. And I found it found an absolute queen. She is a wholesaler, she’s a realtor, she’s our property manager. She’s our project manager on our flips. We’ve successfully done three flips. We’re under renovation of a 14 unit and under renovation on two, on another flip, and just went on a contract on another flip.

And those are all deals that she brought to us. And then we’ve got mortgage notes that we’re looking at. She puts eyeballs on that pre efficiently. And so we build a very strong market there, but when you buy mortgage notes, you can’t predict where you’re going to get, what inventory you’re going to get.

So it’s not like we can just focus on Pittsburgh and be done with it. And we’ve got other, other teams built in other markets as well. So when she brings us a flip deal or something in Pittsburgh, we, we’d take a look at it strongly as we’ve diversified a little bit, but the mortgage market is.

It’s still very strong. You mentioned before my personal opinion is I don’t believe that when the moratoriums finally end, et cetera, that you can see this wave of foreclosures. I don’t, I just don’t see it. Why a variety of factors? Number one, unlike the crash, homeowners have equity in our house.

So for starters, we take a step back for starters, when the forbearances, when the pandemic hit, and the forbearances were being rolled out, I read an article about 80% or so. I don’t remember what exact percentage was of borrowers actually at the time that they apply for the forbearance actually could still afford it.

Now they were doing it as a precaution. They were doing it because they didn’t know what their job situation was going to be in the coming months. But they still could economically afford their home in financially. And a lot of those people, now that we got two years later or whatever is back repaying, their loans, the ones who are who’ve been affected, unmercifully through this all are going to have to come to grips with, they just have to sell.

And they can’t afford it anymore. And they have the ability to sell the emotional component of they it’s their house, maybe a stumbling block to some, and some will get foreclosed on because they can’t get out of their way to come to that reality. So I don’t see between some of the forbearances are starting to, will taper off people will sell their homes and the foreclosures, although, statistically, I think the, you always track.

What if we forget that, in 2005, 2006, a lot of markets still had it, buying property at auction was still a very strong investor acquisition strategy for many investors, even the economy was fantastic. So it doesn’t always be foreclosures or wraps it in a bad economy where the economy to itself, there’s always foreclosures just because, everybody’s got their own situation.

And I think right now, Pre pandemic. We were getting right around the 2006 levels. Again, I have this tape, it was a, we were dead were none, but they were still running around that. And I think it’s gone up ticked up a little bit, but, and I don’t think that people are going to sell their house in such in any particular market.

It’s such a great glut that you can see, inventory is going up a little bit in certain markets, as long as interest rates stay down and the inventory doesn’t go appreciably, spike up, I think you’ll see a lot of the same stuff. 

In the midst of the pandemic, we saw that the demand for housing remain really strong, even on the rental side.

Okay. That’s that long as interest rates stay down is a big gift.

But I don’t see that. I don’t see them flying upward the money printer’s going to keep rolling. So know rates will probably stay that way. Now you talk about being opportunistic and that’s great. It’s great that you’re able to be successful with that. But my interpretation of that is if I’m trying to be opportunistic for me, I might end up getting tiny object syndrome and losing my focus and just getting too spread too thin.

So how do you avoid that temptation of just getting distracted by something that looks like a great opportunity and don’t end up doing it because it’s actually tough to do that, to do multiple strategies, Val, just, being bad at a bunch. 

Actually, no. And I’ll tell you why, when you invest in mortgage notes, you’ve got the availability of the last count, 12, 15, 14 different exit strategies, depending on how you’re working through that note.

We’ve always had the flexibility of varying exit strategies. So really it’s a matter of if we’re analyzing a note or analyzing. We, our analytics don’t change much. We run it through our proprietary ROI, return on investment calculator to know projected what the various exit strategy is going to look like.

We may have our preferred X strategy on certain assets that we buy. But not really, but that’s not predisposed, one size fits all kind of thing. So we’re really not. When we say opportunistic, we’re still looking at the same deals with some more, whether it’s a note or a property, and still looking at it in terms of which exit may fit, that if it is best to fit that structure, we’re not like buying property or buying real or buying notes.

And there’s a totally indigent. Process or analysis. 

Okay. So it’s all acquisitions through notes initially, and then just a different way to, or a variety of different ways to dispose of those acquisitions. 

Right? Correct. Correct. And, as we’ve grown as a company, we’ve had access to we’ve got a credit facility that allows us to, we’re getting a pretty evolving of what we believe is a pretty unique Model.

And that is we’ll buy, let’s say we’re buying a mortgage note. Banks don’t know how to securitize mortgage notes, because all we’re doing is buying the assignment of the Virginia. Murray’s from somebody else who had it before us. So we’re raising private capital to do that. But once the, unless we get paid off at auction, if we take the property back, then we now own it, own the note as a property goes from note to property.

Now we own it. So we bring in our credit facility. Of which allows us to return, 70, 90% of the investor’s capital and get angry. The credibility gets us a hundred percent of the rehab. And so now we’re doing a fix and flip as an exit strategy. Okay. So we’re basically raising private capital, returning it 70, 90% in around average, about six months.

And then make, they got less cash in their deal. So the bringing the leverage enhanced. 

Okay. So it’s all tools in the toolbox. It’s not exactly. Yeah. Yeah. Okay. Gotcha. Great. Right now we’re going to take a quick break for our sponsor. All right, Jay, I’ve got three questions. I ask every guest on the show.

Are you ready? Great. First one. What is the best investment you ever made other than in your education? 

You do Ford and some deals, you don’t really, you get amnesia is like, what was my best deal is probably the one I did yesterday. Because I think we pride ourselves, the wash rinse, repeat.

So efficient that, what’s it, let’s, get some ethic, what’s a good deal. Were the investors happy? That was a good deal. Is it the amount of revenue profit we generated? I think that’s short-sighted I think, good. I would answer the question. Good deals were best investments were did I help the bar, keeping the borrower in their home?

Did I, provide affordable housing to certain borrowers? I’ve done. We’ve done some investments that, didn’t initially pan out, like we thought and in, by the passage of time and in a better for example we bought, I bought a note in Ohio a long time ago, 2015.

And when it went to auction, I told my attorney, just figure out, fill out whoever else is bidding. I don’t really care where it goes for, but he was too rigid about it. And it’s I felt, he said I need a bottom-line number. And he said 60,000, 60,000, whatever. So some in third party best should be at 59.

He bid 60, the guy dropped out that would have gladly taken, let it go. 5,000 thousand dollars. I was into it for $35,000. So to the property back. There was a tenant in there. I rented it to the tent, kept the tenant in there for three and a half years, getting $600 a month. Tried really hard with her to sell or finance it, or she didn’t get a conventional mortgage to buy the house for me bodily one way or the other that she could never pull it off.

She decided she was gonna move out and then we sold the house for a hundred, $10,000. Oh. As. It was a win-win in a lot of areas. She, she’s my tenant for three and a half years. She would’ve bought the house, but she did end up not doing it. Things like that.

So you know, the one in Quinsy, that’s a good deal. They’re all. We were very, we’re very conservative and so saw. You’re like, nothing’s ever a bad deal. We’re very conservative. And the deals that we do pull the trigger on, we pass on a lot of, probably six out of 50, what we’ll buy versus what we go through, just because we’re that conservative in what.

Okay. 

Okay. Appreciate that. We had the best investment. Now we go to the other side of that coin and the worst investment. What is the worst investment you ever made? 

What was the worst investment I ever made? Where’s an investment I ever made was early on in my career. We bought a pool of, I want to say 15 notes, whatever. And we did an interesting job on our diligence. And what I mean by that is back then, and we’re buying the low-value stuff. We really were focused on buying assets that were occupied.

So we could do the loan mods, and we switched our tried a new strategy during diligence of checking with water and electricity, to see if determined, occupancy electricity is more accurate, but you’ll never get ahold of electric company water. Isn’t very accurate, but you get ahold of somebody.

And so out of those 16 loans, I want to say five or six were occupied. So it was just a bad pool. Interesting. We made money on it, but it was just bad. 

It’s more headaches than normal. 

We to liquidate that pool, we ground it out. Pretty good. 

Fair enough. My favorite question here at the end of the show is what is the most important lesson you’ve learned in business and investing?

Most important lesson I’ve learned be resourceful, adapt. And never stop growing. I’ve done this for eight years now. I’ve done a lot of deals. My business partner, who is on the financial and the analytical side of life, I’m more the asset manager, the capital raising piece of work for a company.

So obviously I have more of the investing experience that he does. And yet they’re often he still pushes. Pushes me to be better, to push it has pushed me to delegate as we’ve grown and scaled up. The necessity to delegate has become very prevalent in our company. And he’s pushed me to do that.

Not because I’m a control freak, it’s just how to find the right person to delegate to how. Train that person, et cetera. And when you still got so many moving parts that happen on a daily basis. I’ve grown a lot as a business partner in the last year or so. We’ve been, we are pernicious about the, over about three years old now.

Awesome. That’s great. Jay, I want to thank you for joining us today and teaching us about opportunistic out-of-state real estate, investing, using notes as an entry point. If folks want to reach out, if they want to get in touch with you, if they want to learn more about your business or any investments that you provide or anything like that, where can they track you down?

Certainly. We write it. There’s a variety of ways. My company is scottsdalerei.com. She could connect with us on our website. My email is J A Y @ Scottsdale REI Dot com and my cell phone number, I’ll give out my phone number. Nobody will ever call it (714) 458-6317.

We also have our podcasts that we put together in the pandemic REI Mastermind. We do it on the first and third Tuesdays of every month where we bring in other experts that aren’t, that is going to be in fields that are related to us because we don’t know at all. 

So come check out our podcast as, as well. Get a little more, a little denote, a little bit more about us as well. So welcome to the. Taylor, thank you so much for having me on. 

It’s a great pleasure talking with you and I want to thank you for joining us, everybody out there. Thank you for tuning in.

If you’re enjoying the show, please leave us a rating and review on Apple podcast. Five stars. If you don’t mind, I appreciate that so much that helps other people learn about the show, because that helps us rank higher in the apple podcast ecosystem. And I’m always honest with you guys that give me the warm and fuzzy, because I get to see that you’re engaging with the content and you’re escaping the wall street.

Along with us. 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 tribe. Thanks for tuning in once again. I hope you have a great rest of your day and we’ll talk to you on the next one. Bye-bye.

Scottsdale Real Estate

About our Guest

Jay Tenenbaum

Jay Tenenbaum is the founder and President, Capital Development of Scottsdale Rei, LLC, a private equity real estate investment firm, specializing in acquiring assets nationwide. He is a certified keynote speaker and speaks nationally on note investing and related real estate topics.

Episode Show Notes

Podcast Show Notes

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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

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