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Joe Varnadore (00:01):
Can you buy a note as easily as you can buy a case for your new iPhone 12 from Amazon stay tuned.
Joe Varnadore (00:20):
Everyone. Joe Varnadore here from NoteSchool. And I want to welcome you to this week's episode of NoteSchool TV. We have a special guest today and we'll bring him on in just a minute, but we go live every Wednesday at 11:05 central time. And make sure that if you love the show right, that you like share and subscribe and make sure you hit that bell notification so that you will have a reminder as to when we are going live. Make sure also, and send any share your questions and comments as we're going through this also. And you can always contact us at www.NoteSchool.com/TV. So, as I said, there is a lot of things happening in the world today. We all know that the old Chinese philosopher said, may we, may you live in interesting times? Well, it is certainly interesting times, right? So big news story for this week.
Joe Varnadore (01:43):
So the big news story for this week, the government sponsored entities, which are GSEs, we call them, which are, which is Fannie, Freddie, Ginnie, Fannie Mae, Freddie Mac and Ginnie Mae have decided to extend the foreclosure moratorium from December 31st of 2020. They've extended it out to January 31st of 2020. And the story goes on to say that will affect about 28 million homeowners in the United States. Not that there's 28 million people in a forbearance situation, but they're that many Fannie Mae, Freddie Mac and Ginnie Mae government insured or guaranteed loans. So Ginnie Mae includes VA and FHA. So that is a breath of fresh air for some of those guys as well. We know there's a lot of things going on, right? So with that now understand that only applies to the Fannie Freddie and Ginnie loans.
Joe Varnadore (02:59):
It does not apply to the other loans that are through regular conventional lenders and so on. So just a big piece of news there. And again, that is good news for a lot of folks there, alright. And stay tuned for more of that. We'll have our news flash every week as we go through this. So as I said, we do have a special guest today, and this gentleman, his name is Mr. Dave Storton and Dave comes to us. He is from the San Francisco Bay area. Why don't you bring on Dave? And let's talk just a few minutes.
Dave Storton (03:43):
Hey , Joe how are you doing?
Joe Varnadore (03:43):
So. Dave is a retired police detective from the Bay area, right?
Dave Storton (03:50):
Correct. Yep.
Joe Varnadore (03:51):
And if my memory serves me, correct you when you, I guess when you retired, you did you were doing, you were doing financial fraud and things like that, right?
Dave Storton (04:03):
Yeah. That was in financial crimes unit. I was actually the commander of Financial Crimes Unit.
Joe Varnadore (04:08):
Wow. That's a big job, dude. I didn't know you were the big wheel.
Dave Storton (04:12):
It was a handful. Yeah. It was a handful.
Joe Varnadore (04:15):
Yeah. I'm sure a lot of things, I'm you've got a lot of great stories to tell. Right?
Dave Storton (04:20):
Oh yeah.
Joe Varnadore (04:20):
One of these days we'll get to sit back down live in person again and share more of those stories. Right.
Dave Storton (04:29):
Looking forward to next year in Dallas, to sit down and have breakfast with you or something.
Joe Varnadore (04:33):
Absolutely. So they've you when you, when you came into note school, you were, you, you, you do a lot of other things, right? You have, you know, I think you and I have talked about this and you do defensive driving courses all over the United States, right?
Dave Storton (04:50):
Yeah. I do specialized driving courses. Actually. I teach off-road driving to search and rescue personnel, fire departments, and some civilian classes as well. That's my fun business.
Dave Storton (05:00):
That's you fun?
Dave Storton (05:00):
Not that Notes aren't fun. but that's my fun business.
Dave Storton (05:06):
Well, one of these days I live in a little town in South Florida, as you, some of you guys have heard me say a little town called Okeechobee. And the Sebring Raceway is about less than, about 45 minutes from where I live. So one day Dave's going to do something over there and I'm going to go over and and help him out.
Dave Storton (05:23):
Yeah. We'll have some video of that cause there I teach protection driving. So how to protect dignitaries and also some motion pictures done driving school there as well.
Joe Varnadore (05:34):
Well, even after being married 28 years and my wife riding around with me for a long time, to put back in with all the help I can get. So, but you were looking for something that was going to be passive for you, little bit active, but you were really, this was kind of a means to an end, right? You wanted to continue to build wealth. You live in an area that has a lot of great investors out there that, that what private investors, I should say, right?
Dave Storton (06:04):
Right.
Joe Varnadore (06:04):
They would want to invest. And they totally want to do nothing. Right. They totally want to be passive.
Dave Storton (06:10):
Yeah. It's really interesting in that because my peer group is now retiring from law enforcement and they are bailing out of California for reasons we won't get into here, but because they're selling real estate, they're buying in other places out of state and they have cash on hand that they want to invest, but they don't like the roller coaster of the stock market. And because of just the, this time in their life, they want cashflow. They don't want to, they're not trying to grow an IRA to retire later. They're retired now. They want cashflow now. And so I'm able to offer that to them
Joe Varnadore (06:45):
Well, and you know, it we were looking at some stats the other day, Dave, and the last time, you know, back during the great recession, which sounds like know a hundred years ago, but it was 10 years ago, right. Or 12 years ago that there was a record set back then of about $3.8 trillion that at one time was sitting just in money market accounts. Right. Which means it was doing nothing, you know, well, you know what i mean, but less than a percent in return. And so that was like at 3.8 trillion today, there is almost 5 trillion, like three or five, 4.8 or $9 trillion sitting dry inside of money market accounts. And then all of the pile of cash that is sitting over in self-directed IRAs that is sitting in dry cash. Right? They say that number is somewhere between 55 and $75 billion sitting in dry cash in IRAs. So we talk about, you know, working with burnout landlords, we call them BOLS. Right?
Dave Storton (07:55):
Yeah.
Joe Varnadore (07:55):
And, and so on, and that private capital that's out there it's a thing. Right. We had a you had a deal last year where your first deal, right. That I think you used a hundred percent private investment money. Didn't you? The non-performing note you did in New Jersey?
Dave Storton (08:13):
Yeah, my first I kind of challenged myself on it, Joe, and that, you know, you keep hearing people say, well, you can use other people's money. You don't need to use any of my, any of your own. So I had some of my own to invest, but I thought, okay, let's see if I can actually do that. So I jumped into the deep end with a non-performing note with not a dime of my own money in it. And I had set a goal for myself after going to NoteExpo to get into the deal contest, and at least be a finalist. And and I was a finalist that year. I didn't win the whole thing, but, you know, just to be a finalist was pretty cool.
Joe Varnadore (08:43):
Yeah. Three out of out of many is pretty darn impressive. So yes, Dave his story goes that he attended well, he became a NoteSchool student late in the summer of 2018.
Dave Storton (08:58):
Right.
Joe Varnadore (08:58):
He was getting his feet wet with the business and doing, you know, kind of studying up. And then he jumps in and goes to NoteExpo in the fall of, in November 2018. And he saw all these folks getting up on stage, getting their awards and so on. And Dave, what did you decide you were going to do at that point?
Speaker 3 (09:17):
Well, I set that as a goal for myself. So what I tell my kids who are now in college or graduated college now is, if you do not write down your goals, it's a wish. So I created a mouse pad and on the mouse pad, in fact, I have my mouse pad right here. So on my mouse pad, I wrote on the top of it, NoteExpo. And I put on deal finalist. And I remember I showed that to you that day.
Joe Varnadore (09:48):
You did, you absolutely did.
Dave Storton (09:49):
And I gave you goosebumps, I think, but that, you know, I didn't know I'd make it, but I was going to give it my best shot.
Joe Varnadore (09:54):
Yeah. So that would end up, what? 2018, November, 2018, Dave says, I'm going to be up on stage with a deal, not done his first deal at that point.
Dave Storton (10:03):
Right.
Joe Varnadore (10:03):
November of 2019, boom, you were there. And we had to go virtual with with NoteExpo this year, the appreciation event NoteExpo but.
Dave Storton (10:13):
I still enjoyed it. It was good. I like in person better, but yeah.
Joe Varnadore (10:19):
Darn good. Yeah, and your on the list again, Right.
Dave Storton (10:23):
I was. To be honest, my expectations were low for the virtual event, but man, I really had a good time and enjoyed it.
Joe Varnadore (10:28):
Well, you know what it's what is, what is the old thing? Always a bridesmaid never a bride. Right? Anyway. So let's talk a little bit and we go back to the teaser that I gave at the beginning of this. So can you really buy a great performing note from NotesDirect, which is our note platform, right. As easily as you can buy a case for your cellphone from Amazon, and really the answer to that, Dave is, you know, yes. Right?
Dave Storton (11:02):
Correct. Yep. It's just like, if you're going to buy a product on Amazon, you go look at all the reviews and then you talk to your friends and you know, you Google it. And it's kind of the same thing with a note, you're just doing underwriting and you're doing all the background work for it. And you actually, even this year I learned, and I don't have his name in front of me, but there are people out there that'll help you with the underwriting if you need that.
Joe Varnadore (11:27):
Right.
Dave Storton (11:27):
And you just do your research on it. And, you know, I guess that's a little different, especially on my first one. Cause I'm hovering over a button that, you know, is $47,000, you know, with sweaty fingers. Do I click it? That's kind of what I like about NotesDirect is, okay, I click it. If there's something just agregiously wrong in the, in underwriting. Well, the NotesDirect people are there and you know, they'll help you work through it.
Joe Varnadore (12:00):
That's right. Well, and we'll talk a little bit more at the end of this, about how to, you know, how to get to NotesDirect and so on. So let's we've got a picture of the house here and some details. So let's just talk about what that looks like, right? So here's the house now, by the way folks, we said Dave lives in the San Francisco Bay area, right. Is that anywhere close to Ridgely, Tennessee?
Dave Storton (12:27):
It is not for if anyone's geographically challenged, it is not close. And just to be clear this is not, this is not the non performer.
Joe Varnadore (12:35):
Did you ever go to Ridgley, and look at this house, Dave.
Dave Storton (12:37):
Yeah. Well, this is not the non-performer I bought the first one. This was,
Joe Varnadore (12:40):
Right Exactly.
Dave Storton (12:40):
Actually the performing, a performing note that I bought that had started having issues. So.
Joe Varnadore (12:46):
Right. You know, the great thing about the NoteSpace is that you're the bank, right? So you bought a note that on a house in Ridgely, Tennessee, you know, three bedroom, one bath house, It's got a current value of $55,000. Now it's a nice looking little house guys. And I know, you know, if for those of you that live in California or live in some of those higher price areas, you go, Oh my God, I can't get a parking space for that much. Right. But that's kind of the way it is.
Dave Storton (13:22):
That's true.
Joe Varnadore (13:22):
So let's talk a little bit about Dave, a little bit about the details of this note. Right? What did it look like then? When you bought this? Okay. So the note the house is worth 55,000, right?
Dave Storton (13:38):
Right.
Joe Varnadore (13:39):
And the balance on the loan was $43,250. The interest rate on this is 10%. Now, some folks will go, Oh 10%, that's a little bit high, God, this is a lower price band asset. And that is appropriate for a note of this size. Right. And so it says, the term is 250 months. So Dave, this was what was the original term on this one?
Dave Storton (14:10):
This actually was the original term before I modified it.
Joe Varnadore (14:14):
Right. But what I'm saying is this lady had owned this house a long time, right. This was a 360 month loan.
Dave Storton (14:21):
Right. And there's yeah, 250 months left on it when I bought it.
Joe Varnadore (14:25):
So let me make sure everybody gets that. So guys, this loan, the the borrower owes 250 payments after having made 110 payments. So she's owned this house for what nine years. Right. So nine years. So, and she's got a bit of equity in it. She's got about 10, little over $10,000 in equity in cash equity, but here's the thing, she's got nine years of emotional equity in this house. Right?
Dave Storton (14:56):
Yeah. if you look at the picture, Joe, the picture on the first slide that you brought up.
Joe Varnadore (15:01):
Yep.
Dave Storton (15:02):
That's one of the things that told me she's got emotional equity in it, because if you look at that yard, it's nice. There's flowers on the mailbox. That's somebody that cares about their house.
Joe Varnadore (15:12):
And that's, you know, I bought a note once in Memphis and I didn't even go in, it was a, it was a performing note and they, it was, the yard was, and it was an older house. Right. But the yard was immaculate. The hedge was totally trimmed. The sidewalks were totally edge, man. I'm a little anal about, you know, my yard and stuff like that. And I go look at that, that's I don't need to see anything else. Right.
Dave Storton (15:38):
Yeah.
Joe Varnadore (15:38):
Emotional equity there. So you go through this and we'll go back to the next screen there. And so, the monthly payment is $412. So basically, Dave, what you're buying is you were buying the rights to receive the note, right. You're buying the rights to receive for 250 payments at $412.
Dave Storton (16:01):
Right.
Joe Varnadore (16:02):
And so that means, and you bought this note right?from NotesDirect note was traded at a discount folks. So Dave buys this note for 34,250 bucks. Right. So he buys it at an $8,000 discount. So that makes your, I didn't figure what your yield on that is, but it's somewhere in the 12, 13% range I would assume.
Dave Storton (16:24):
Yeah, I don't have that in front of me, but yeah.
Joe Varnadore (16:27):
So it's up there. So then you let's kind of look at some redeeming factors on this. So you buy this for 30 for $34,000. The balance is 43,250. So again, the borrower had paid 110 payments of 412, right. So there's 250 payments remaining. So you buy this and did you buy this in your IRA or did you just buy it outside of your IRA?
Dave Storton (16:57):
Bought it outside of the, my IRA with none of my own money.
Joe Varnadore (17:01):
That was my next question. So you actually used all investor money on this, so you bought some inexpensive and I'm going to guess that you paid somewhere your private lender was paying you. So you were paying somewhere between 6 and 7%.
Dave Storton (17:19):
Yeah. Around a little over seven actually, because these are the guys I use are friends of mine. I've known them for a long time. So I was, I was a little bit generous.
Joe Varnadore (17:27):
So you're giving them a little extra juice out of the lemon, Right?
Dave Storton (17:29):
Right.
Joe Varnadore (17:32):
Okay. So, you're buying this cashflow, right. And so you buy it and let's look at the deal points on this. So you bought it back in December of two night of 2019, and everything is all good.
Dave Storton (17:50):
Yeah. There wasn't had a good payment history. And so everything was fine for three months.
Joe Varnadore (17:56):
And so then well, we had a challenge didn't we? I, some of you have heard of it was a pandemic. I think it's, you know, it's called COVID and this lady's life kind of, after living in that house and owning that house for nine years, she had a lot of things happen to her. Right. I think said we had the COVID thing. That was a divorce. There was a challenge with her daughter. So there was some really, she, it was kind of just dumped on her all at once, right there.
Dave Storton (18:24):
Right. You actually spoke to her directly and heard her story, and she just had some horrific stuff going on in her life.
Dave Storton (18:31):
Right.
Joe Varnadore (18:32):
And guys, here's the thing. And Dave, you, you chose to speak to her, which is a good thing. Cause you wanted to find out what was going on. But just to understand that, guys you don't have to do that. There are default servicers out there that can work with you, or it can work with your client, your borrower for you. And, and I'm sure you went through the process with that as well. Yeah.
Dave Storton (18:53):
I had a servicing company and they said they would, they could work through it. But you know, without giving them too much information on my bar, we had something in common in our backgrounds.
Dave Storton (19:04):
Right.
Dave Storton (19:04):
So I told the servicer, like, I'd like to talk to this lady directly.
Joe Varnadore (19:07):
Very good.
Dave Storton (19:08):
Because you know, we have something in common. So I spoke to her directly and that actually worked out very well.
Joe Varnadore (19:15):
So she missed three three payments and you. You know, one of the things I love about this business is that folks like, you know, you, myself and all these other pile of NotesSchool students that are out there, we can affect people's lives in a positive way in that you were able to not have to go through a bunch of red tape, right. Because you're the, you're the bank, right? You're the DS national bank, the Dave Storton National Bank, you were able to make a decision and very quickly decide that I really want to help this lady. And that's what it's all about. You didn't want that lady's house, you wanted to help her, and she was willing to go along with that as well.
Dave Storton (19:59):
Yeah. She developed some trust with me, just, you know, cause we spoke and, you know, I told her a little bit about me and you know, what our commonality was and why I wanted to talk to her directly. And so she trusted me and we actually went over in detail, her budget and what she could afford. And that was my starting point on how I could modify this thing.
Joe Varnadore (20:22):
Right.
Joe Varnadore (20:23):
So here's what the modification look like. Right? You her balance before was, I'm looking at my notes here, 43,250.
Dave Storton (20:32):
Right.
Joe Varnadore (20:32):
So you dropped the balance down to $40,000.
Dave Storton (20:35):
Right.
Joe Varnadore (20:37):
You dropped the interest rate from 10% down to 9%. You extended the term a little bit, right? She owed 2, she had 250 payments remaining. You just extended the term by 50 months, so it was $300 or 300 months. And then that dropped the payment, the monthly payment. What about 56 about $68 a month, which may not sound like a lot to a lot of folks, but you know, it is. Right?
Dave Storton (21:05):
Yeah. It was significant to her. The way I came up with those numbers is we backed into it as Eddie says, as I went from, okay, what's your budget? You know, she needed something under 350, for sure.
Joe Varnadore (21:18):
Right.
Dave Storton (21:18):
And so I just backed into those numbers, trying to get it under 350 and it worked out.
Joe Varnadore (21:25):
And again, it just, you know, that's the thing I love about this. So Dave, once you did that, right? You used some of that NoteSchool magic that you learned. Right. That and so let's look at what you decided to do after you modified this loan. So you went in, and you decided that, and there's some things that you can buy alone guys. And in this case, there's 300 payments left. So, Dave decided that he was going to sell the front end piece of those payments. And you decided to sell 180 of that 300 payment payment stream. Right.
Dave Storton (22:10):
Right. I had a, I already had a partial buyer that he was already looking to buy a partial from me. So I was, already on the hunt for a note I could partial when this occurred. And I thought, Hey, I could partial this one.
Joe Varnadore (22:23):
Right. So it was perfect. Right? So you present this to your partial buyer, your partial bought, you said, look, you invest $39,000, you get 180 payments of $344 a month. Your your investor's rate of return is 6.7%, which I'm sure that he or she was just totally ecstatic with. Right.
Dave Storton (22:48):
Yeah. He was completely happy with that because even said, I'm getting 2%, the money's getting there 2%, if that sitting in a bank account.
Joe Varnadore (22:57):
Exactly. So, and he's, you know, the house is worth 55, so there's plenty of equity in the thing, you know, between what it is. So Dave, you sell a partial, right? Those 180 payments. And guys, we say at NotesSchool all the time that your workshop your chalkboard. Right. And so Dave just decided how much he wanted to sell. Right. So we figured up a rate of return for his investor, and then he just carved off a piece of those payments to sell. And so what that did is that allowed you to bring $39,000 back into your business,
Dave Storton (23:31):
Right.
Joe Varnadore (23:34):
Excuse me, guys, allergies this morning so that you, so we call that also the Capital Recruitment Plan, right. So all you're doing is recouping some investment into your bank, and then you owe, or you own 120 payments on the back end of that? A 300, $344 a month. So your, we always joke around, right. So what's his rate of return guys. It's very high. Right? So, let's look at the numbers here, Dave, as we wrap this up. So you had all in, right? You had the note cost of 34,230 I believe is what it was 34,250, right? And then when you modified it, you had some cost in that. So you're all in cost on, this was 34,895.
Dave Storton (24:27):
Right.
Joe Varnadore (24:27):
So you received three payments from your borrower December, January, February, and those payments total $1,236. And then it must've been, what about April or may that you modified this.
Dave Storton (24:42):
Right.
Joe Varnadore (24:42):
And you sold 180 payments for 39,000 bucks. And when you sold those payments for 39,000 bucks, now, if we go back and look at those numbers, you've gotten every dime of your money back, right. You've gotten 39,000 plus the 1200. So you've gotten back a little over $40,000 in monthly payments are in cash.
Dave Storton (25:09):
That's right.
Joe Varnadore (25:09):
But Dave, you still own what?
Dave Storton (25:13):
I still own have on the back end of the note, with zero money in it. And you know, what's funny, Joe is I just hired a new bookkeeper, cause my last bookkeeper couldn't figure out what the heck I was doing. And I just, I just talked to the new bookkeeper yesterday and she said, I've never seen anything like this. You're going to have to teach me how to do it.
Joe Varnadore (25:33):
Well, guess what? You've got another, you've got another passive investor right, Dave?
Dave Storton (25:37):
Yeah.
Joe Varnadore (25:38):
Oh my gosh. That is so that's just. Just so that everybody gets that right. So Dave has his original purchase, then he has to modify it. So he receives those three payments. He modifies the loan, he sells a partial. So Dave, you've got, you've collected about 40, over $40,000. So you've made $5,000 in today money, kind of over a few months, right?
Dave Storton (26:02):
Correct. Yeah.
Joe Varnadore (26:03):
And then, you have the back end, you've sold 15 years of payments. So once your partial investor has received their 180 payments, it automatically reverts back to you and you're going to receive the remaining 120 payments. Now it could pay off early. Right. And that's okay. It could or they could continue to pay it and she could continue to get it to be in at 300 more months. So anyway, so your total profit is $46,000 on a $35,000 investment, right?
Dave Storton (26:36):
Yeah. That's not bad.
Joe Varnadore (26:37):
But you have nothing invested in those 120 payments.
Dave Storton (26:41):
Yeah. That's what got the bookkeeper's attention. She, I'm trying to do the numbers on this. You don't have any money in this, and you're going to start collecting payments? I said, yeah. She said, well, I want to do that.
Joe Varnadore (26:54):
Actually, $5,000 ahead of the game. And then anyway, Hey guys, that's the NoteSpace. And that's why we that's why we absolutely love this business. It's just an amazing thing to go in and do that. So you, not only, it's something where you can profit and prosper and you can help folks. And I love to say we can help people. One house at a time in the US we can go out and do that without getting all corny and all that on that. Right. I just, I have a real strong opinion about us being able to do that. Today, we, I appreciate who you are. I appreciate, you know, your integrity in the business and helping folks in the business and just, you know, a lot of folks go, so what, let me just foreclose on this thing. Right. But that, wasn't the game on this, right? This, the game on this was the long play. Right. So, money today and money tomorrow, and we teach that over and over and over.
Dave Storton (27:52):
Yeah. And I told you about this one, just in passing, when you said you got to put this in the contest and I hadn't considered that because I hadn't written, I hadn't really thought about the contest for this year. Sure. Okay, so.
Joe Varnadore (28:09):
Alright. So, Dave, I appreciate you being on. And again, thanks so much happy holidays.
Dave Storton (28:14):
You too, Joe.
Joe Varnadore (28:14):
And stick around. We'll talk after the show. So guys, if you want to learn more about the, about buying a note, you can certainly go to www.NotesDirect.com, or you can check us out on the checkout Feeding Frenzy Friday every week. Brian Lauchner and Scott Tyler have a five minute quick show go to the NoteScoolTV channel at YouTube, and check out NoteSchoolTV on the Feeding Frenzy Friday. Great notes, notes just like this that you can find on there. And you can make those your own. So guys again, thanks so much. Do checkout Feeding Frenzy Friday, remember to subscribe to our YouTube channel. We go live every Wednesday at 11:00 AM central time. Remember to learn more about NoteSchool and the NoteSpace go to www.NoteSchool.com/TV, and guys have a great afternoon and we will see you next week. Live at 11:00 AM on NoteSchoolTV, have a great week.
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