Creative Real Estate Finance in a Recession with Eddie Speed

Full Transcript

Taylor 0:02
What's going on guys? This is a passive wealth strategy for busy professionals. Thank you for tuning in. Today, our guest is Eddie speed from the notes school. They were talking about creative financing, and just strategies that Eddie has used to make money during tough economic times. Yeah. he's been buying notes and buying real estate since 1980. He's seen up markets and down markets, and he is as prepared as anybody for our current situation, you guys. He and I have a mutual connection. It was really great to talk with him about that as well and connect with him on that. He's got some free, awesome resources for you guys.

The URLs in the show notes and we talked about it in the show and what he's putting out there for you but you somebody who wants to learn about creative financing for real estate, either as an active investor or a passive investor. These lessons are useful For you and can be useful, useful for you. For those of you who are new to the show, I'm your host Taylor Vogt. I'm a real estate investor, real estate syndicator. I buy real estate with passive investors and share the return.

I love talking about real estate investing and today's episode is one of those that just gets me so fired up as so many of them do. thanks for tuning in without any further delay, here we go. with Eddie speed. Eddie speed. Thank you for joining us today. How thrilled to talk with you today is how I am doing for the folks out there who don't know about Eddie speed, they don't know about note school. Can you tell us about your background a little bit and what you do?

Eddie Speed 1:41
Well, I started buying discounted notes actually in 1980. I was a kid 20 years old, and just got into the business. My father in law was kind of a pioneer buying seller finance notes, and I started with them and you know, it's funny. I started in 1980.

In 1980, things were terrible, right? interest rates were 20%. every builder, realtor banker thought they were going broke. It's funny, I started into a business at 20 years old, taught a new way of thinking, because that's all that I knew. Right? Yeah. I was around all these people that were like, had been in the industry forever. Yet I was doing better than them. It was because I was just taught a new way of thinking and they were stuck in an old way of thinking.

Taylor 2:38
Interesting. I'm trying to put myself in that mind frame. I mean, I don't have a reference to market interest rates of 20% and and such, but what was that mindset that really, that you learned or the way of thinking that you learned that really set you or your strategy and yourself apart

Eddie Speed 2:58
so I was 20 years old. obviously I didn't have a lot of business experience. I didn't have a lot of I didn't know the mortgage industry or real estate necessarily, right. But my father in law was a pioneer, a buying seller finance note. there was this crazy abundance of money amount seller finance notes created, right, because they sell property, because you can make an affordable rate. then we were buying seller finance notes.

I would go into an environment where people have been in the business 1020 3040 years, considered experts in their field, and they were like, Oh, woe is me. Right? And I'm walking into a business going, Oh, my God, best thing I've ever seen. The reason I even bring that up today is because look at where we are, right? I'm trying to reposition a world and think that while this pandemic is terrible, it's also going to yield an incredible opportunity for people that understand creative finance, notes, strategies, all that kind of stuff. It just always has. I've lived through every cycle since 1980.

Taylor 4:13
Yeah, that people who are taking action and thinking differently can really get off to the races and they're making things happen. what does that see in your mind? What does that mean? You know, right now or say, a couple of months from now, as things continue to evolve. You know, I doubt this is going to be a you know, a V shaped recovery. what does that mean to you in terms of what is creative financing these days?

Eddie Speed 4:45
So, here's an example, right?

Eddie Speed 4:49
Somebody owns a property and instead of trying to buy the property at a discounted price, you get them to carry the financing for you. Okay, but the term terms that you dictate are not what a bank or a mortgage company or hard money lender would agree to. Right? So you can pay more for the property because you're paying for it with tomorrow's dollars, not today's dollars, then you could structure it and resell it on a rap note or rent it are just as weird things. That's it. That's so that's one audience you and I are have a mutual friend, that's probably the biggest operator in your town is a very good friend of mine and, and and a student of mine, right? So I teach those level guys how to do creative financing. I've done a lot of work with self directed retirement account companies, right.

take a self directed retirement account company, and you find somebody with $100,000 note, a seller finance note, right? And you buy the note not as gigantic discount, maybe you pay 80 or 85,000. you only buy the 10 or 2015 or 20% discount. It's not huge, right? That's A 20 year cash flow, right? It's paying every month like 1000 bucks a month just for easy math, it pays 1000 bucks a month, right? for 20 years. you buy that note and then you turn around and find some burnout landlord, which The world is full off. Right? Yeah 18 million rental properties, residential doors more than there were 10 years ago.

You're telling me that 25 to 30 or 40% of those people aren't frustrated landlords, you know they are, then you carve up and sell them 10 years of that cash flow. You buy the whole account in your retirement account, buy the whole note, right? You're entitled to 20 years worth of payments, then all of a sudden you sell 10 years worth of payments to them at a reasonable return of five and a half or 6%. But they're the bank. It's not they don't have they don't have they don't have taxes and insurance.

They're just the bank. They're collecting payments. All of a sudden for that they fund $80,000 just mathematically, that's how much they would fund. you got almost nothing invested up to 5000 invested, depending on what you paid for the note and you own the back 10 years of the note. That's creative financing.

Taylor 7:22
Okay, so what happens if the person that took out the note with you refinances and pays you out and thereby pays out, the investor that you approached? How do you handle that with paying off,

Eddie Speed 7:39
there's two different amortizations running at the same time, right, there's the payoff for the whole loan. then there's the payoff to the partial investor. if it paid off, if let's just say easy math if you paid 85,000 for the note, so you have 5000 invested They have 80,000 invested. if you sold them the note and the loan paid off the day you bought it, the payoff for the loan would be 100, the investor would be owed 80 and you for your $5,000 investment, you get 20,000 bucks back. every day since then it gets better.

Taylor 8:24
Wow. Okay, so do most investors or do any investors say they take that $80,000 position? Are they going to say, hey, I want you know, a little bit of a kicker if this is paid off early.

Eddie Speed 8:38
Look, you're dealing with burnout landlords, they've already been promoted to a piece of real estate or two, three or two or three pieces of real estate that were rentals. Right? They just don't want the cheese anymore. They want to have a trap. Well, they just want to earn a five and a half 6% return and not have brain damage. It's them investing all their life and there's enough of these people out there and I don't mean this in a wrong way.

I just wouldn't let them dictate the terms there's too many people that won't mind worm on the hook to go agree to something that I don't have to agree to. I've been doing this for two years. I've trust me I've been in times when I've agreed to all kinds of stuff I didn't want to agree to. But I'm just saying right now we have perfected this strategy so well, that it's a great deal for them.

Taylor 9:29
Interesting that I love I love all these analogies. It just helps it helps it all stick. You know they want the cheese but they don't want to get in the trap and you know, that's great. I know, from what you're saying it sounds like the concept of creative financing as it really evolved over time and continues to evolve. If you know, I just kind of want to get a picture for you to know how that has changed and kind of innocence. In both senses, I mean that interest rates used to be 20%. When you got started, now we're at zero. Yeah. you know what it really look like then compared to now, I mean with this selling off the partial strategy work then would it not, you know,

Eddie Speed 10:16
that that's how we perfected these strategies. We perfected them in markets that were bad. We didn't perfect these strategies in great markets, we perfected them in the markets, it blew up. the only way we could make a deal was the property value was dropping, and so we could only buy the first third of the note. we would buy a partial third of the note and fun last money so we could reduce our investment in the note compared to what the property was worth. Right.

we figured out these kinds of workout strategies in the tough markets. But then we've like I did 20,000 partials from probably 1980 to 2000 In my company, right, I run a high volume note buying business, right? But I didn't know how to do it in a Roth IRA account until 2000. Now, we have definitely in the last 20 years made a significant impact, not just for us personally, and it has been gigantic for us personally. But we've made that something that note school is really taught and whatever. people that a lot of people we get in our mind in retirement accounts, we have to just have millions of dollars to go make millions.

Yeah, I can show how to some I go take a fairly insignificant amount of money, right? insignificant, it could be 10,000 bucks, or 50,000 bucks or 100,000 bucks, and go turn it into millions with some leveraging strategies like that. I mean, I've done it. But once again that's just somebody that's willing to go learn something, right. I mean, it's not a It's not a card trick, it's a process.

Taylor 12:04
I love that it's not a card trick. It's a process. I like that one. But I'm a big fan, big fan of the analogies and things here. in you know, getting started as a note investor, I mean, presumably you're talking to a lot of people who want to get into the note business, whether they have real estate investment experience or not. And what's your biggest recommendation for folks who want to get into the note investing side, particularly now, as you know, there's a bit of market turmoil. And like you said before, I mean, now's the time when the best and most motivated, educated creative people are gonna really outperform.

Eddie Speed 12:50
Well I mean, we all don't know what we know, and we don't know what we don't know. Right. part of my process is to kind of show people Some ideas and start down the road so that they can understand what this process looks like, right? You know, there's the very simple like we're a little online workshop just kind of show somebody the math and you know, lay out a cash flow of that note and circle the cash flow that you sold and circle the cash flow that you keep and all I got. we, that's to me where somebody should start at, they think they're interested, and they start there.

then all of a sudden, they can figure out where they want to be, as I told you, I just finished a three day virtual class. we've never done 3d virtual classes we've done now too, but we've never done them before. Because it's three days and you know, we're killing a lot of creative ideas. you just wonder if you can really connect with somebody over the airwaves like this. Yeah, this is the biggest class in 20 years of teaching everyone Talk.

Taylor 14:03
I think that that's just incredible. I mean, people are motivated, they want to learn and the technology and doing these things virtually really allows you to scale. But things that I've seen on kind of these online learning things is that people aren't really, they're not as dedicated or as engaged, as they might be at a live in person class. What was your experience, there are people engaged.

Eddie Speed 14:32
I set some conditions with my staff. I'm 60 years old. I've been doing this for 30 years. I don't mean to be disrespectful. But this ain't my first rodeo. Yeah. Right. If I'm going to do training, I'm going to train people that want to learn. if I'm a TV running in the background, I'm out. Right? So I told my staff, I mean, like, we're gonna have engagement with these students.

We're gonna have pre interviews with Before the class I want to know who's in the class. I want to know what their story is. I know before I walk in there how many hot shot real estate investors I've got, which I had some guys with 300 house a year types. then I want to know the guys in there that just have self directed retirement account money and really are burnout landlords and don't want another pain like that, right? And so then I taught all of these different things in the business and we kept going back and forth. I felt like we made it interesting. We maintain our retention rate from the very beginning to the last second of the last third day. We only lost about 7%. guess what? Those 7% are, aren't a fit.

Unknown Speaker 15:44
Yeah, that's true.

Eddie Speed 15:45
Aren't they self they self identified themselves. It's no problem. I'll hug them from a distance. But I'm just saying that I did this. I don't do this. for them. I do it for the people that really say it. Want to go do something? And as you can see, I like it.

Taylor 16:04
Yeah, I mean, it seems like you're having fun with it. Hawaii.

Unknown Speaker 16:09
I am. Good. I'm glad.

Taylor 16:13
You know, we're we're at a tough time, you know right now. As you said, since 1980, there have been a number of market disruptions, notably the 110 years ago that, well, 12 years ago that really hit the real estate market harder than any others in the past. And we haven't in my real estate investments, we haven't really seen an impact yet as we record but we're not out of the woods yet. what you said before the most creative people are going to do the best, but as far as impact on the market at large, what are you expecting just so we can kind of get ready for what things are going to look like.

Eddie Speed 16:57
I think the hotter the market, the more it's going to get hit. I think that there were some markets that were overheating: Florida, South Florida, Denver, Phoenix, the red places if you look at you know, some of the things that real estate economists Portland, Seattle, the Bay Area, those markets were already kind of tipping in the wrong direction. there, there's, it's, it's going to be a factor. A really smart real estate investor guy that I've done a lot with him to talk on a network all times I told ya our friend, Frank guy, talk to him and communicate with him several times this week.

He's bought four houses with seller financing in the last three weeks. Wow. he's bought for his whole career before then. With that, that's fine. That's why he was engaging with me. Right? So, it's definitely a factor. You know, the notes that we have, we're lucky, we think we've got about 1500 assets under management and globally different accounts, from retirement accounts to capital fund, post you know, company portfolio core portfolio period. far, and I'm knocking on a lot of wood here.

Eddie Speed 18:24
So far,

Eddie Speed 18:27
we haven't had a lot of slippage. We're not foolish, we expect some slippage, and we expect to have to modify some lungs for some people. But I gotta tell you something, our portfolio, the average seasoning on the notes we own right now is over six years.

Taylor 18:46
Wow. those notes have been in existence for over six years on average, and the borrowers have been paying reliably.

Eddie Speed 18:54
That's great. Interestingly, I mean skin in the game. They got it, they got emotional equity roses in the flower bed, they say, right, I want to live there. Once again, we're not going to be unreasonable with them if somebody you know has lost their job and they need a 60 day bridge or something.

I'm not gonna I'm not like sending out a letter to all my borrowers saying that but obviously our servicers are working with them. we're, we're sensitive to not be irresponsible to them at this point. We feel like we have a working relationship with them. But the truth of the matter is I'm, I'm much happier with my loan portfolio than if I had a rental portfolio. I think that

Taylor 19:39
Yeah, you make a good point. I mean, like you said, roses in the flower bed. I like that. People who own the home, making mortgage payments, they really don't want to lose that place. But tenants renter it's not there's not as much attachment they don't have as much invested in the place so they don't want to get evicted. But it's not as big a deal. I think so. Yeah. Yeah. What percentage of your portfolio? Have you done that strategy with the partial on like, Is that is that scale across a larger portfolio? Or is that kind of a specialty type of thing? What What is

Eddie Speed 20:21
that strategy at the moment? We pretty much focus that on our retirement strategy. we have become experts at it. I really like to run a note school and a family of companies. she just sits over the side just investing for our retirement account. we do have a company 401k it's self directed. we've got Roth 401 K. Roth IRAs, We've got Coverdale educational accounts, a grandkid, right and, and then also, we've got and we have we she's done.

All this for our kids. then we've got health savings accounts. with that family of accounts, I think we have nine different accounts that she runs. so she does this probably 50 6070 times a year. But you kind of do the math. it's, it's it's really something I mean, it doesn't sound like a lot of accounts. But just that analogy that I gave you, which that analogy is our average. Just the analogy that I gave you probably says that in a retirement account, just one transaction on you know, just a financial prediction model, it probably grows your net worth by 60 grand

Taylor 21:50
but it sounds like you know, I from just managing my own retirement accounts all the accounts that you rattled off and your the investments in there, I mean, Sounds like that's a full time job just to manage my wife

Eddie Speed 22:03
to do that many deals is a definitely a full time job and we have become very skilled at outsourcing.

Taylor 22:11
So I want to get a picture from the other side of the equation. If there are outs, excuse me if there are burned out landlords listening right now and they want to find a guy like you so they can get into note investing kind of in a more passive way than becoming you. Yeah, what's the best way to find me, find Eddie speed or get started in that way and learn how to evaluate these deals and sponsors and everything.

Eddie Speed 22:44
Well that's the advantage of having the microphone I'm saying, Yeah, I'm gonna, I'm gonna give, I'm gonna give your listeners a website that we can connect, and then we can show them whether they want to train Or they just want to be a passive investor. It's pretty simple. I'll give it to you towards the end too, but it's just going to be notes google.com and then forward slash passive wealth. Alright,

Taylor 23:11
so

Eddie Speed 23:14
it connects right note school.com passive well, and what we do and there is just say, look, what can we help you with? Right? Note school has thousands of students at trains that implement the strategy that we teach. if you don't like working with my wife, Martha, and you just want to be a passive investor, I'm connected with somebody, wherever you are close to where you live or whatever. I'm happy to do that. it won't be just about me.

But if you like Martha, my wife and you think she's competent at it, then you can figure that out. then if you're one on the other side, if you want to go, come hang out with a little bit of training and learn a bit more and see if you really want to go forward. You know, I look like this. I'm perfectly okay with some. I want just a little bit of information to figure out if they're comfortable with it. then they say I just want to be totally passive. If that's where they are. I'm totally good with that.

Unknown Speaker 24:09
Yeah, they need to.

Taylor 24:10
Yeah, they need a little bit more information to really inform that decision which way they want to go. I like that. Right now. We're gonna take a quick break for our sponsor. All right at eight. I've got three questions. I asked every guest on the show. Are you ready? I'm ready. All right, great. First one, what is the best investment you've ever made? Other than in your education?

Eddie Speed 24:36
Lights out about 40,000 notes. The best investment I've ever made is in what I've been doing for the past 40 years. tried other things. Definitely the best.

Taylor 24:49
Can you give us an example of something you tried that didn't work out? rental property. Hmm. you are the they are we're at one point the rundown landlord who needed to get out.

Eddie Speed 25:02
It didn't take much for me to be

Eddie Speed 25:07
and by the way, I tried landlording in, in a bad market condition. In 1985 right at the end of 1985, I bought a package of about 20 rental houses. Now here we were in business every day we were young and full of fire and vinegar and going to go conquer the world. we bought these rent houses, and the market in Texas fell off drastically in the 1986 financial debacle where all the banks and savings loans were later formed by the RTC resolution trust Corporation.

I lived through about two or three years of trying to keep these things propped up and fixed and rented and whatever and stuff and then I started realizing how good my business was. Right? So it's not that I wasn't enticed by the concept of rentals. I think I can understand why anybody that saw rentals as a great strategy I can understand because I knew how I felt at that time. After I lived it and experienced it compared to the effort it took to own notes. It seemed

Eddie Speed 26:20
kind of silly to me.

Taylor 26:24
Nice, interesting.

Eddie Speed 26:25
friends that are landlords, by the way, so

Taylor 26:28
yeah, you have a in your business. You have to be friends with landlords, right? Oh, wait, they're gonna get burned out eventually. Yeah,

Eddie Speed 26:35
no, I mean, I'm cool with them. I don't know, I, I want to find somebody I like to find somebody that I can help that is looking for a change. If somebody owns a bunch of rentals and they just amazingly love them. fun. Go do that. That's great. Nice. I will say this. We manage 1500 notes with a friend skeleton business of employees. If we had 1500 rentals, we would have five times our staff.

Taylor 27:08
Hmm. Yeah. Yeah. a completely different management problem for you to handle. Yeah. Yeah. we have the best investment you ever made. I feel like we might have hit on it. But the second question is, what is the worst investment you've ever made?

Unknown Speaker 27:25
had to be rentals.

Taylor 27:27
There you go. We got it. We already covered that one. My favorite question at the end of the show is what is the most important lesson that you've learned in business and investing?

Unknown Speaker 27:40
It's a mindset.

Eddie Speed 27:43
It's not that I'm pretty good with a calculator. I'm called a deal architect. I'm good at structuring financing or configuring how financings are structured and cash flows and those things and it's kind of something I've got 40 year experience with. I like doing it. But the truth of matter is, that's not the most important thing I've ever learned. The most important thing I've ever learned is mindset.

Taylor 28:09
Do you have a particular practice or like way to get your, your mindset in the right place? I mean, I find a lot of people do. Some people don't know if you have something that keeps your mindset?

Eddie Speed 28:22
Right? Here's a good simple strategy. I learned it from a friend. I didn't think of it. He probably learned it from somebody, but you know, we're passing down. He writes down on a piece of paper, he says he does this every day. I don't have to do that every day is just not the way my DNA is. But I understand if somebody was I don't need to write my goals on the mirror either. But some people do and I get that. But he just says I write down on the left side of the page, the things that I can't change and the right side of the page, things I can change, and I just commit to focus on the right side of the page.

Taylor 28:56
Interesting. I like that one. I really like that one. I might have tried that one out. Well, Eddie, thanks for all the lessons today and joining us and teaching us about creative financing. For notes. That's great. If folks wanna learn more about you, where can they get in touch?

Eddie Speed 29:15
So just go to notes school.com. then I'm going to build a special page for your, for your audience. Okay, I'm gonna give them some gifts, some nice stuff. We're not going to be pushy or obnoxious with them. But we want to give them some stuff. if they want, learn more, it's fine. If that's just all they need, we'll be happy with that note school.com forward slash passive wealth.

Taylor 29:41
Nice. I love it. We love when folks come to the show and add value and you've definitely done that today. with your content on your website, I'm sure you're gonna do the same as well. thanks for coming and joining us and adding value to the tribe.

Eddie Speed 29:56
thrilled to be here.

Taylor 29:58
Thank you. It's great to talk With you, great to get to know somebody that mentors Frank Cava. He's an awesome successful real estate investor here in my hometown and just great to have that mutual connection 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. It's very much appreciated and helps other people learn about the show.

Do you know anyone you 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're doing well in this Coronavirus pandemic. We'll talk to you in the next episode. Bye