Joe Varnadore:
So we have our friend and esteemed NoteSchool Investor, and a friend of ours, Mr. Richard Thornton all the way from the Bay area in San Francisco, California. Good morning, Richard.
Richard Thornton:
Hi, How are you guys?
Eddie Speed:
We're great. Richard, glad you're here.
Richard Thornton:
Good. Glad to be here.
Joe Varnadore:
Right. And absolutely excited to have you here this morning and you've got a great story, Richard. I mean you have yeah, we appreciate your story and I'm going to kind of run some few slides in the background and I'll be in the background and we'll let Eddie talk, we'll talk a few minutes. Okay.
Richard Thornton:
That's great. Whatever you'd like, Joe.
Joe Varnadore:
Okay. Very good.
Eddie Speed:
So, Richard, I think that one thing it's interesting about your story is you were in another segment of real estate, which was commercial real estate lending,
Richard Thornton:
Right.
Eddie Speed:
And you kind of made a definitive choice to kind of move away from that, for your own kind of private wealth building. You were able, you guys were able to sell your company and do well. Congratulations.
Richard Thornton:
Thanks.
Eddie Speed:
And now, you're on the next horizon, which is the wealth building strategy for yourself. And I know that you, Martha it was on last week, right? And you know, Martha very well, you and her have collaborated a lot about your strategies. And so, I know that you are fully aware of how she does and things and her likewise, and we just thought it would be really cool to kind of do a one-two punch and have you on today and Martha essentially tell a good story last week about how she got started with her dad teaching to this stuff. How did you, what made you focus on well, Richard?
Richard Thornton:
Retirement.
Eddie Speed:
Well, most real estate people today are focused on transactional income and not growing their wealth at the same pace.
Richard Thornton:
Yeah, so one of the things I really like about the note business in general is I came from a very regulated environment, very cookie cutter environment and as, you know, notes or anything but that private notes. And I liked that. I liked the fact that you're helping people, the fact that you can be creative in a lot of things you're doing and basically chart your own path. And so that's exciting for me.
Eddie Speed:
That's great. Well, you have done really good with it, and you particularly have become very successful at raising private capital and you and I use the expression, the burnout landlord, right? Because we found that a lot of people found that their rental business was a lot more of a job than it was just an investment. And they tend to do really well with you. Tell me about your typical investor. What is he, what's his story?
Richard Thornton:
My typical investor or my avatars were taught to say, is somebody who's 50 and over somebody who has a combined family income of 200 plus and probably has about that much money to invest in addition to whatever else they have in their self-directed IRA or their 401k or whatever.
Eddie Speed:
So he's got 200,000 in dry personal cash, plus some, probably some more money in a retirement account.
Richard Thornton:
Correct.
Eddie Speed:
And he isn't buying the next rental?
Richard Thornton:
No he's not. I can, some of them have rentals. I will say that with my current marketing campaigns, I've been surprised to find how many people want to convert from rentals to notes.
Eddie Speed:
Well, they want to move from a part-time job to be in the bank.
Richard Thornton:
Right.
Eddie Speed:
Let's look at it. Let's look, Joe, pull up some slides for us, if you will. Let's just go through a quick case study and I want to ask you Richard, like your kind of your thought process, like how, when you're looking at these deals, what are you looking for? And so tell us about this deal.
Richard Thornton:
Okay. This is a little deal that I found in Hamilton, Ohio. Nice clean little neighborhood, little houses you can see. The value on it's about 76,000. And I knew I could get the note on it for about half of that. When I looked at it, I had a nice long pay history on it. So as you can see there, the loan balance was 37,000. I also liked the terms is what my practice is to selling principles. I like to sell the front end of the mortgage usually around 10 years and keep as much of the back end as I possibly can. And that's really where I make my profit on a lot of my deals.
Eddie Speed:
Richard, you live in the Bay area in California and you, but you're buying an asset that's located in Ohio. Why are you okay with that?
Richard Thornton:
I'm okay with that because the margins are better. And the deals are more bite-sized. So I looked at a note about a month ago. It was out here in California. It was $800,000 note and the person had a private mortgage on it. You say, well, why does somebody who has an $800,000 mortgage need a private note? And he was a tech guy and he's from India. And he could not qualify, even though he had plenty of income, could not qualify for a mortgage. The mortgage rate was 6% and I'm buying it for five and that's not something that's A of that size and B of that rate that's really marketable. So I get better margins in the Midwest.
Eddie Speed:
Yeah. I mean, this is nice looking house.
Richard Thornton:
Yeah. It's a nice clean little house, you know, mom and dad lived there and very nice jobs. I could get a decent tail out of it and I could still get my investor a nice secure return. Now, most of my investors want to be completely passive. They want to be set it and forget it. So that's what I focus on. I sell whole notes and other things too, but this is the basis of my practice.
Eddie Speed:
All right. So the payment is 348 a month and we can see there that there has been literally, is that correct? 94 payments made
Richard Thornton:
That's right. So I had a nice long pay history on this. They'd been playing like clockwork for all that time. And that to me is always the biggest factor is what my payment history is.
Eddie Speed:
Yeah. So you're looking at their propensity to pay, their likelihood of paying. And you're going, I can measure a lot of that looking forward based on 94 years of looking back, right? Yeah,
Richard Thornton:
Exactly.
Eddie Speed:
Eight years.
Richard Thornton:
I'm sorry.
Eddie Speed:
That's eight years.
Richard Thornton:
Yeah. So they'd been very reputable up to this point and I mean, you know, they'd had a few hiccups here and there, like we all do, but nothing more than like 60 days late, and then they made it up. So, that sounds good to me.
Eddie Speed:
350 a month, 348 a month is their payment. That's their house payment.
Richard Thornton:
Right.
Eddie Speed:
That's not their cable bill.
Richard Thornton:
No, that's just their principal insurance. I'm sorry. Their P & I payments. And that's what comes to me or the investor.
Eddie Speed:
I think Martha's cable bill is 348 a month.
Richard Thornton:
Yeah. As busy as Martha is, I can't say that she's watching much TV though. So I, we consider that.
Eddie Speed:
All right. Let's talk about risk here. Let's talk about risk in the deal, how much money you have in it, compared to what the collateral is worth. Tell us about that, Richard.
Richard Thornton:
Okay. Well, when I buy any note, I don't care if I'm going to broker it or whatever. I always assume that I'm going to own it, because it's safer, investors like to hear that. And that's one of my selling points. But B sometimes I do, sometimes that, everybody's got different criteria. What I liked about this is, I had a great pay history. I had a nice little community. That's very stable and growing. Obviously the collateral has been taken care of and I'm at 42% of property value. Those are, that's a good cushion and a good assurance that they're going to continue to pay.
Eddie Speed:
All right. So let's compare that to another investment. How do you see this and this buying this note and having 31,800 into it, but the collateral, the underlying collateral, the house, you know, you don't own the house, you just own the mortgage on the house. Right? How would you compare that to some other investment?
Richard Thornton:
Well, I don't know of any other investment that I can invest in stock market, annuities or anything like that and have three or four ways to get my money back if for some reason the payment stream fails. And that's what I always look for. I want to make sure I have at least three exits on any property. So in this instance, I could foreclose and sell the property. I could rent it out. The rent is more than double in this neighborhood of what the mortgage payments are. A matter of fact, I think it's almost triple and I could also sell it to a another note holder who likes to buy non-performing notes because they think that they'd like to take care of that upside. So that's, those are three very strong factors to me.
Eddie Speed:
Yeah. And you just don't have the dollars on this deal. If you own it as a rental, you've got all the dollars invested in it. Right?
Richard Thornton:
Right. You got all the dollars invested in it. And then by the time you get your rent even though it's three times what your payments are here, you've got to take out all your expenses, your insurance and everything else. And you've got to deal with all that. That's the three T's toilets, tenants, and trash. You have to deal with all that. And buying a note. We don't have to do with that. You know, that's not your problem.
Eddie Speed:
One thing I like about a note is that you are the bank you're secured by the property, in this analogy, you were very secured by the property, more than twice the property value of compared to what you invested in the note. And then, a note means that you basically are receiving a cash flow of payments. And so this little time bar here shows that, 348 a month over the life of the note, right? 266 months, you bought it for 31 innovative strategy here, Richard, you bought the whole cashflow.
Richard Thornton:
Right. I bought the whole cashflow and what my goal is, in every partial I sell is, I try to cash out and put just a little bit of money in my current pocket. I, my whole strategy is to roll my portfolio three times a year, if I can. So let's say I have $150,000. Okay. I want to buy a note on January 1st, be out of it in 90 days and have a partial done roll that over, buy another one and buy another one. I'm not only successful with that. Quite often. I only get to do two a year, but you can see if you have you know, six or $700,000, whatever it is that you might have in your self-directed IRA. And you keep rolling this over, you're building a very nice annuity for yourself.
Eddie Speed:
So figuratively speaking, Richard, you bought the whole pizza.
Richard Thornton:
I bought the whole pizza. I sold part of the pizza and I made a profit albeit small. I sold this, I bought it for 31,815. I sold it for 34. So I put $3,000 in my pocket, nothing to brag about, and certainly nothing to live off of. We should all be cognizant of the fact that we can't live off of selling partials. You have to have a day job. You have to have some other form of income. If you want to have a solely, a partial sailing practice,
Eddie Speed:
But you made 3000, but you own the back 10 years of this note.
Richard Thornton:
I do.
Eddie Speed:
In addition to the 3000 you already made.
Richard Thornton:
That's correct.
Eddie Speed:
Joe calculated your yield on there. It's in the little green box there.
Richard Thornton:
Joe's very good at very high, you know, your exact numbers. And he gets a little bit fuzzy, but very high is a good way for him to look at it.
Eddie Speed:
Yeah, it is a very high yield. You know what I say? It's enough.
Richard Thornton:
Yeah, it's enough. That's right. It's enough. Now, even, so the question I quite often get from investors as well, or fellow students is they say, well, what if he pays off early? Okay. I still have a margin in there where I would get some more money off the unpaid balance that wasn't paid. But if even if he pays off, I don't know, after four payments, that's four payments that I wouldn't have gotten otherwise.
Eddie Speed:
Yeah. And just, I don't want to get too wrapped around the axle and a lot of numbers today, but, there is a process that NoteSchool goes through and shows people how to calculate that. And it's a solid number. It's a good number. You, if it paid off, let's just say in a couple of years you probably would make about 10 grand. So you would've made 3000 upfront. You wouldn't have gotten all the money because it did pay off early, but you would have still gotten them probably another 10 grand. And that's a solid deal. And the residual factor in this and the wealth building factor in this is huge. If I looked at your math there and you said, I want to do this three times a year, you've made $9,000 on your money upfront. And if that math held true, the 48,000 at the end, you made almost $150,000 in future wealth.
Richard Thornton:
Yes.
Eddie Speed:
On a $35,000 investment.
Richard Thornton:
Yes. I don't want to hold myself up as typical Eddie, but I would say that I, more than covered the cost of my tuition for NoteSchool in the first year.
Eddie Speed:
Well, I would say that math and a little bit more, right? Yeah. So, this is a strategy that we teach this isn't all that we teach. There's other things that we can do, and there's ways to make a little more money up front, but this was a heck of a good strategy. And you could have gone into the, just the regular rental property business. Right?
Richard Thornton:
I couldn't have, yeah. I mean, after we sold my company, I had a whole lot of ways to go. But you know, when we sold the company, we had 70 people to manage and I was sort of done with that. And so this was a very good path for me to go.
Eddie Speed:
So I learned this as you know, from my father-in-law and I didn't sell a company with 70 people. I was living in a 10 x 40 mobile home, true story. Right. So you can kind of do this from any perspective, right. And you can do it when you're at a stage where you want to work part time, and you're trying to grow wealth and you can still make transactional money as you showed. So that's really, so anything else about investors? What do they commonly tell you? Why do they like this?
Richard Thornton:
They like this because of the security of the transaction. They also like it because I'm somewhat of an asset manager for free, meaning that they know that I'm not getting really paid until the end of the transaction and when they're paid off. And so that's very valuable to them. That's a huge selling point. They typically don't know that I make a little bit of money up front, but even if they did, it's insignificant in, when you look at the entire deal my biggest concern is after they've been paid off, and that means a lot to them.
Eddie Speed:
Look, it's a lot less work than a rental and they can sleep at night seemingly better. Right?
Richard Thornton:
Right.
Eddie Speed:
Joe.
Joe Varnadore:
So, you know, Richard. Here's my take on this being in the back and getting to hear this and knowing you and knowing your business, you're not just using $35,000, right? I mean, you're doing as many of these deals as you can possibly deal, but just understand for people that do just have $35,000, they can take that strategy and turn that. And what, you know, Eddie termed here a few months ago, and we laugh about it, the capital recoupment plan, right? That's what your terms are all about, you know, you, that money over and over and over.
Joe Varnadore:
And then, we have a friend of ours that says, I'll take 10. Right? So again, you know, those are the deals that you've just hit on a daily basis. You know, you knock them out of the, you know, I call it, knocking them out of the park. They're not home runs to most people, but, you know, it's just the consistent level of doing this. Talk about that, you know, just a minute and kind of, what that means to you. And then, so best advice you can give some new investors out there that are coming into the fold.
Richard Thornton:
Okay. Well, I'd say that you don't have to have a lot of money to do this, as you just indicated. If you can pull together enough money to buy a note from friends and family. You can buy your first note, roll it over and then take a few profits. Maybe give them the upfront money, but keep the back for yourself. Or there's a lot of different ways to slice it. What I would tell people is to get a website, get yourself known, if you want to sell whole notes, which is a good way to start to generate upfront income, it's just broker notes. Go to Notes Direct or wherever and buy some notes and sell them to different individuals. That way you can get some good current income. You get to know the business and what's important. And therefore, you can move forward and then you can move into partials. So that would be the number one thing. The number two thing is, start building content on the web. So get a YouTube channel brand it. If you go to my YouTube channel for American North Capital, you can see I've got about 21 videos up there. And I'm adding to them every month and people like that. They want to know that, you know what you're talking about and that's a huge marketing tool.
Eddie Speed:
That's great.
Joe Varnadore:
Yeah.
Eddie Speed:
I wanna go to NoteSchool too, I'm just saying.
Joe Varnadore:
That's exactly right. Yeah. And Richard, what I, you know, what I hear you saying is, there is certainly more than, than one way to make money. And we do, we talk about making money today, for those that want to just they need eaten money is what we call it at NoteSchool, but then there's, you know, some people want to make money today. Like you're doing, and then they've got money down the road, right? So, you know, one of our favorite sayings that NoteSchool is, it's your chalk and your chalkboard. And as you come in, and this is one of the strategies that I know you love and I love, and you know, Eddie and I've talked about, Eddie you started the 1980. I started in 1990 and I did buy and sell all the note for 20 years before Eddie said, why the heck are you doing that? Why don't you keep some of those back ends? Right. So sell some partials. So, you know, it's all about the knowledge for sure.
Richard Thornton:
Right.
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