Real Estate Underground

Decoding the Mortgage Note Industry: Insider Secrets with Eddie Speed

• Ed Mathews • Season 4 • Episode 137

Share episode

Send us a text

In this insightful episode of The Real Estate Underground, host Ed Mathews sits down with industry expert Eddie Speed to delve into the fascinating world of mortgage notes. 

Eddie, with over four decades of experience and 50,000 notes bought, shares his journey from starting in the note buying business in 1980 to becoming a specialist in seller financing. 

He discusses the nuances between institutional loans and private notes, explains the importance of structured, compliant seller financing, and highlights notes as a valuable alternative for real estate investors, especially in today's tight lending environment. 

Eddie also provides details about his educational platform, NoteSchool, designed to help investors understand and capitalize on mortgage note investments. 

Don't miss this episode if you want to learn how to create wealth through mortgage notes and navigate the current economic climate.

Clark St Digital helps you grow your real estate company with:

  • Amazing Overseas Talent who cost 80% less than their US equivalents
  • Done-For-You subscription services
  • Done-For-You project services

Go to ClarkStDigital.com to schedule your free strategy meeting.

Additional Resources:

Find Us On Social Media:

Ed Mathews:

Greetings and salutations. Real Estate Undergrounders. It is Ed Mathews with the Real Estate Underground. Thank you so much for joining us today.

Ed Mathews:

As always, I'm grateful for all those folks out there who are listening and, if you like the value you're getting from this show, do me two favors One, tell a friend and two, make sure you subscribe so you get our most updated episodes. So with me today is Eddie Speed, and I'm really excited about this conversation because I am absolutely fascinated by the mortgage note industry. I'm not going to get too far into it, I'm going to let Mr Speed talk about it. Eddie, welcome to the show and thank you for your time. Thank you, I'm really glad to be here. Yeah, glad you're here as well.

Ed Mathews:

So, as I mentioned in the run-up, I'm absolutely fascinated by the asset class mortgage notes. As I said before we started recording, I have some friends who dabble in it, but no one who's made a business out of it. I was really looking forward to this conversation. So welcome to the show. I appreciate it. Yeah, so for those folks who haven't read your book or haven't discovered you online yet, why don't you tell us a little bit about yourself and who are you and what you do haven't discovered you online yet. Why don't you tell us a?

Eddie Speed:

little bit about yourself and who are you and what you do. I started in the note buying business in 1980 and I bought over 50,000 notes. So I've done it a lot and do it a lot, and I am a specialist in discounted notes, meaning my specialty would be considered to be in the seller finance business. Although I bought bank institutional paper, re-performing loans, non-performing notes, it's not that I haven't done that and I've done it pretty extensively. But nobody's bought 50,000 seller finance notes in the market but me. So that would be what I would be best known for notes in the market, but me. So that would be what I would be best known for.

Eddie Speed:

About 25 years ago I realized I could do a lot more business with people if I had a school, because a lot of people are interested in it, a lot of people like the results of it. People just didn't know how to do it and they didn't know how to get started. So it's a unique industry and probably like every other industry, there's stuff on the Internet that I wouldn't necessarily say is true or correct, and so I said why don't I just go? Why don't I just go, influence the audience and tell them you know what people want. They want a compression of time. Sure, and so let me go give you a compression of time, something that took me many decades to figure out. What can I take the most relevant things about it and pull it down into a sequence of things that like here's what you really want to know, right?

Eddie Speed:

So that's how I got started where I'm at today.

Ed Mathews:

Okay, and all right, so let's dive in. So when you talk about paper, institutional paper as well as private notes- let's list out exactly what we're talking about here. Let's start from the top when you're talking about institutional paper, what are you talking about we're talking about here? Let's start from the top when you're talking about institutional paper.

Eddie Speed:

What are you talking about? Institutional loans would be where a bank originated the loan and probably somewhere along the way something happened to that loan like they had a virus and people worked for Marriott, you know and so they went ahead. In an interruption they stopped making their payments and now loans modified and now it's paying again. And now the bank bundles up these types of loans and says, okay, these are called re-performing notes, right, and they're being sold into the marketplace at a discount, and right now that kind of loan is really bringing a lot of money. Like banks are paying a really high price for that type of loan.

Eddie Speed:

So I'm back over in the seller finance space, predominantly on the performing of loan. So I'm back over in the seller finance space predominantly on the performing note side, because I'm well known in that space. I bought 50,000 of them, so I know how to build a machine out of that and I can get the same quality of an investment, same quality of a note, at a better yield. And so that's where I'm at today. So I work with a lot of real estate investors, right, I show them everything they need to do to build their notes.

Eddie Speed:

I define property, I define marketing, I define terms of the note, down payment, interest rate, all of that thing. I connect them with an underwriter that will keep them compliant and underwrite the loan. I connect them with a closer that's going to make their documents look like a mortgage banker instead of homemade. And then I connect them with a servicer. So I just build out a blueprint of how to build seller financing with mortgage banking over the top of it, and that's how I've done so much business is. I said I first set up the system for home investors in 1990. Wow, I've been doing it a day or two, right A little bit or so.

Ed Mathews:

Okay, so let's walk through this. So when you say seller financing, that tells me I've got a property, I'm looking to sell it to another investor and I'm getting a great price and but I'm financing probably 80 plus percent of it. So you and I meet somehow. And how do you help me with that 80% loan of that loan?

Eddie Speed:

Most of the time today you're going to be selling it to a consumer. The reason the house flipping business worked is that investors that were buying properties for investment purposes hedge funds and people buying rentals let's be honest about they were overpaying. And that's why flipping worked is because the secondary market for your house is some institutional investor that was paying up in a market price that we haven't seen a lot of times. The market's gone back to what it normally is over a 30-year period, which is you can sell a house for more money to the consumer, not the investor. Now that doesn't mean you oversell it, but you can sell it at retail.

Eddie Speed:

The consumer buying a house today has been left behind by mortgage underwriting. Mortgage underwriting is super tight. Before the virus, the index that they have mortgage bankers index was at about 185. Today it's at 100. So about half the people that could get a mortgage before the virus can't get one today. And that's what I teach them how to go find is somebody that's really good like, not a person with a whole bunch of problems and bad credit, not that but somebody who's just been left behind, and so we're pretty good at helping them identify that and how to market for them and how to identify them, and then what kind of terms to offer, and so we're just lending experience, okay.

Ed Mathews:

So let's say I want to get into this business from a capital perspective. Am I borrowing money to acquire the note? Am I writing a check from my savings account to acquire the note? All?

Eddie Speed:

the above. Okay, yeah, we show people different ways that you can source credit and then we show people how you can do it and we also show ways that people, how you can go, sell. Like a piece of the note, there's some strategies that are very unique to this business where you could take a thousand dollars and literally use a leveraging strategy and not and give up the cash flow for a period of time, but you could take a thousand dollars and turn it into literally a hundred thousand okay there's some pretty cool stuff you can do and it works really well with taxed advantaged accounts and it works obviously for people.

Eddie Speed:

People that have rent houses today are frustrated. That's what I generally find Frustrated. In what respect? Expenses went up by 60%, rents went up by 20%. That's not very good math. People are frustrated with their cash flows and it's the burnout landlord factor right. People buy rent houses and find out that it was a lot more work than there's two things there's a spreadsheet that says what you're supposed to make and there's a checking account that says what you actually make. What happens when they're not talking?

Ed Mathews:

to each other. That becomes a problem and your collar gets a little tight. Yeah, yeah, and I think we've all experienced that at one time or another. But in terms of the, I want to talk about the target. You know person right or family. You had mentioned an index that was at 185 and now is at 100. Can you tell me a little more about that? What were you to? What were?

Eddie Speed:

you that was. That's an index set up by the Mortgage Bankers Association. The name of the index is the Mortgage Credit Availability index, and so, if you're nerds in that space, like us, we're watching this because we're trying to see the degree of underwriting, but it's a measurable thing that says how tight underwriting is, and underwriting is really tight.

Ed Mathews:

Okay, and in normal times, let's say five years ago, someone would have qualified and today doesn't. Because because of cash available, because of credit score, because of Farky stuff. Okay, not bad credit.

Eddie Speed:

The mortgage credit availability index is where we were in 2010.

Ed Mathews:

Wow, it's that tight.

Eddie Speed:

Okay, and so seller financing's up. But it's not junkie seller financing, right? It's not selling some substandard property to somebody that's got nine charge-offs on their credit report, and so we're good at helping people learn how to be a mortgage lender via seller financing and do it very compliantly and do it in a way that it's very structured. If they come to somebody like us, then they've created a very valuable note that they can sell to us, versus homemaking it and doing things that are not of a standard. And so now, all of a sudden, then they show up. No, it's no different than if you're going to buy a package of rent houses. One guy doesn't have any applications, he doesn't have any qualifications, he doesn't have any records of how the house has been kept. Another guy's buttoned up. Here's my underwriting platform. Here's this Whose rent houses are going to sell for the most money? Second, it's the same thing, it's just. It's really nothing more than common sense all right.

Ed Mathews:

And in terms of finding these potential seller financing deals, what's one way that you you identify those?

Eddie Speed:

I'm using the fact that I've been doing it a long time and that I'm involved in three or four real estate masterminds that probably have 85% of the top 500 house buyers. So you can go in any one of those masterminds and say y'all know who Eddie Speed is? Oh yeah, he's the note guy. And so I create a marketplace. Then all of a sudden I have a school and guess what students want? Oh, they want a note and they're not in the business every day and they don't know like they want us to help them.

Eddie Speed:

So then all of a sudden we create a marketplace to buy notes and then we have a marketplace where our students can. Then we can have done-for-you services and they can essentially rent out our back office and for things that we do and work at every day. But we have a controlled environment, right, and with that becomes I can get a student into the business five times faster with way better chance of success than them out there. Just initially me just having a school and them run off and go doing it themselves. But we've had a school for 25 years, so we figured out what works and what doesn't and what people need and that kind of thing.

Ed Mathews:

Okay, so tell me more about the school. What is the process to join and what is the process?

Eddie Speed:

How long is the course? Okay, all right. So let me start out with first who we serve. Okay, right, because somebody can quickly go. I'm that or I'm not that. Okay can quickly go. I'm that or I'm not that.

Eddie Speed:

Okay, we serve people with some level of investable capital, like you could show up at note school with absolutely no money, but I'm saying to you that you're going to have to, you're going to be nothing more. You're going to be a note flipper versus a house flipper, and that's not really who we're targeting. So we show up with people with investable capital. We show up with people that are frustrated. The world is full of burnout landlords, so it's not hard to find them, and I would say there's a very common thread that runs through our students. Most of them have had rental property, some of them have been invested in syndications and they're looking for a new home right, so that we know that's our tribes. They want to do it. They want their time back right. There are not. A lot of people are not looking to go build a business, they want to just have an investing strategy. So they want us to show them a strategy that's duplicatable without having to go stand up a brand new business and that's kind of people that we serve. We tend to serve people that are a little older, but we have crazy success story of people in their thirties but tends to be people over 50 years old. So if you're younger than that it doesn't mean you can't do it and can't do it well. But we're great with people that are frustrated with the direction their retirement's going right. Great with people that want cash flow. So let me give.

Eddie Speed:

Before I tell you about the school, let me do a comparison, because I think this makes sense as you start learning about the school. So I live in Dallas-Fort Worth okay, and Dallas-Fort Worth is a middle market for rental houses. The price versus the rent is in the middle of the market. It's not too extreme either way. But it's not San Diego and it's not Toledo, ohio, okay.

Eddie Speed:

So $250,000 buys you a house in a decent neighborhood that rents for $1,800 a month. You're going to net half of that number. Half of it's going to go to expenses. The other half of it's going to go in your checking account. You can say oh, I'm netting. Listen, I train guys that have had 50 to 1,000 rentals. 50% of it goes out in expenses. That's what the real pros tell me, and somebody may feel like that's not the case, but they hadn't let the air conditioner break yet, so to speak. So that's their net. They come to me with $250,000 to note school, and today that buys an average cashflow of $2,700 a month. For the work factor, you can own 55 rentals or 1,000 notes for the same work. Which asset class do you pick?

Ed Mathews:

Depends on how hard you want to work. You got it.

Eddie Speed:

And most people don't want to work very hard, right? Not that they're lazy, it's just they want their life. And so now we've defined why people came to note school. What does note school then do? Okay, what are the best loans In buying 50,000 loans and seeing hundreds of thousands? What do you want to know about a risk management blueprint? What's the most likely chance a loan pays? What's the most likely chance a loan doesn't pay?

Eddie Speed:

How do you do financial modeling? How do you go turn your money into a lot of money? And are there different techniques? Can you have a model that focuses on accelerating your cash flow, or can you have a different model that focuses on wealth not cash flow, but growing future wealth? And so those are the things that we teach people how to do, and it goes back to this, ed. It's like we don't know what we don't know until we learn something.

Eddie Speed:

I've been in this space for four and a half decades. There are things that we have learned about financial modeling that is as common to me as a pack of chewing gum, but it's not common to everybody because they haven't seen it yet, and our job is to use very simple illustrations to show people concepts so that they can quickly see oh my gosh, this is what's possible and this is how it fits us. And there are some people that just show up and say, look, I just love rentals and it's all I ever want to do is rentals. Or I love syndications, that's all I ever want to do. But most people, when they learn about notes, in today's economy, with inflation, with all the things that are applied to the market, they're like notes are a very good alternative. That's what we generally find.

Ed Mathews:

And so, as obviously we're recording this right after the presidential election, and one of the questions I'm getting all over the place is what does 2025 look like? And so I'm curious, I think we can assume that interest rates are going to start to creep back down into at least half a point below where they are today over the next 12 months. So what does that do to this business?

Eddie Speed:

So what does that do to this business? Everything that we've seen that has affected the real estate market is, except for office, everything else is somewhat relevant to inflation, and I'm a Trump guy, and if you're not a Trump guy, then we're going to still love each other and be friends. Okay, so it's okay, whatever somebody wants to believe. But for the economy, I think people voted that Trump was going to be better at fixing the economy. Right, and I believe that to be the case. But Trump cannot fix everything. The second he walks in and we are in a recession, whether you can call it that.

Eddie Speed:

By definition or not definition, people don't have as much expendable income as they had, and so the problem is is, until you can have more normalized things, this inflation is what has infected investment property. It's expenses that have made rent properties, not cash flow. Everybody said, oh, a rent house is a great thing to own in inflationary times. That's actually not proved to be true. Yeah, talk to me, because the expenses have so outpaced the rental income, and so we are in a note cycle. You can make more money, and I'll promise you I can model it all the way out, and I'm a veteran at this right, I know some pretty savvy guys that have a different opinion and when I get done with it they're like I'll argue with that math. I may still love my rentals. People say yeah, but I don't get this or I don't get that. I'm like you get three times the income. When you get three times the income, you can take your. I'm going to get appreciation all day. That house would have to appreciate at a rate that is astonishing, for a long period of time to outpace what you can do, getting a check in the bank that you already gotten your money back and it's a good, it's a decent argument.

Eddie Speed:

Listen, I'm not anti-rent houses or anti-anything. I'm just saying you have to measure what opportunity you chase, based on what the market is giving us. So notes are not going to become out of style all of a sudden because Trump's in. That's not going to be the case and we've got a cycle to work through. Yet there's aspects of commercial real estate. The train's out of station. You're not going to fix it, you're not going to fix multifamily and that's going to hurt somebody's feelings on here and I'm sorry, but I will tell you this. If you go read the TREP report, if you go read the Fannie Mae mid-year reports, it's pretty hard to deny what I'm saying. Right, that market's going to have to settle out, it's going to have to figure out where it's going to land, and nobody quite knows yet.

Ed Mathews:

Yeah, trillions of dollars on the sidelines waiting for these deals to pencil.

Eddie Speed:

They're still penciling people like syndications because it's passive. They don't like syndications because they have no control. People like rent houses because they own the asset and they have control. They just may have more control than they wanted. People like notes because they own the note. I don't own the note. You don't own the note. They own the note. They own the note. I don't own the note. You don't own the note. They own the note. They own the note. They control the asset, but yet they have a work factor that's way more on the syndication side than it is on the landlord side, and that's just what I believe is a market condition. We all know that there's fortunes to be made in any cycle. You just got to get, you just got to go pick the right thing to do in that cycle.

Ed Mathews:

Exactly, and it sounds like part of this process that you take your students through is recognizing those patterns, right?

Eddie Speed:

I spent a lot of time talking about the market. If you come to a class, the first thing we're going to do is spend an hour and a half talking about the market, because if you don't understand the weather report, then you don't prepare for a storm.

Ed Mathews:

I hear you, or worse. So in terms of the school and everything, let's say I'm interested to tell you that I wanted to learn more about the school. What would that process look like?

Eddie Speed:

The best thing that I would do is I'm going to give you a master class with a whole bunch of deliverables and I don't say a whole bunch like that's a negative, it's just a I don't want to go we're going to give you this we're going to give you this.

Eddie Speed:

But we are going to give you materials that support what we're going to cover in the live event. We're going to give you a book, we're going to give you some flow charts. We're going to give you like a white paper, a hundred page white paper on describing different mortgage things and terms and that kind of thing. So when we're saying something, your people aren't like I have no idea what they're talking about, right? So we're going to do some things that are important to it and then we're going to have a master class, and I believe that the most skilled people in any industry are the people that can make it simple, and I have focused for decades on making it simple, using proper analysis, proper examples, so that I'm making something that otherwise would be. In fairness, it could be a complex idea if explained improperly, but it can be crazy, innovative and simple to do. I can show you in a fairly short period of time not today, because I don't have a whiteboard and it's just. Things aren't practical to go, use the best tools, but literally in 15 or 20 minutes in a masterclass, I can show you how to take a thousand bucks and turn it into a hundred thousand. I'm listening With a note.

Eddie Speed:

Right Now, you're going to use somebody else's money to fund part of this deal and they're going to get the first payments before you get any payments. So that's more of a wealth strategy, but it's a technique that we've done a lot. Our students have done a lot, so it's very duplicatable, and this is an example of financial modeling, and so this is what we teach. It's like where's the product? What's the likelihood you're going to be successful if you buy the note? Is the guy going to make his payments? And then, all of a sudden, once you do it, what does it look like financially for you? And then it becomes a question of what is it you're trying to accomplish? Are you trying to replace your job, or are you just trying to go build out a retirement that right now isn't where you want it to be? That's a fork in the road, and we help people with successful ways to accomplish answering those various questions. That's what we do All right, good, I'm excited.

Ed Mathews:

Let's get into the final five and then we'll wrap this up and start to land this plane.

Eddie Speed:

Okay.

Ed Mathews:

So, Eddie, I want you to finish this sentence for me. My purpose is.

Eddie Speed:

Showing people a path they've never considered.

Ed Mathews:

I like it. One of the things that I'm a huge proponent of is mentorship, and I've been blessed with a handful of really smart, accomplished mentors who gave me advice and never asked for anything other than for me to pay it forward. So I'm curious what's the best advice you ever got from somebody?

Eddie Speed:

One of my original mentors was my father-in-law, and he told me that if your net worth isn't growing faster than your income, you're going in the wrong direction.

Ed Mathews:

That's good advice, outstanding advice, all right. How about mistakes? I think you learn more from when you stub stub your toe.

Eddie Speed:

That hit the home front. So I'm curious about a mistake that you've made that you'd love to have back and have to recover from it um, I would say the mistake I made is accounting and I had bad information about accounting and so I tell people, be good with your numbers right and make sure that whoever's pushing numbers to you that you can trust what they're saying. So bad accounting was the worst advice, worst mistake I ever made.

Ed Mathews:

Yeah, and how'd you recover?

Eddie Speed:

you know what I just had to. I had to buckle down, I had to get, I had to work myself through it and it wasn't easy, and I have a passion for showing people an easier path than the one I had to take.

Ed Mathews:

That's good. I appreciate that Leaders, almost invariably, are readers, and reading these days can mean a lot of different things in terms of how you intake information, so I'm curious about how you consume information, sharpening that saw, and who are some of the authors or creators you're paying attention to these days.

Eddie Speed:

I have fairly severe dyslexia, so you're never going to see me curled up with a book by the fire, but I'm an auditory learner and I'm a verbal communicator and so I absorb by conversation. I will remember most of what you've said today six months from now, and so I absorb things in that manner, and I like books that are about leadership. I like books that are about helping us think different. My favorite book is Never Split the Difference, chris Voss, because it's really even more than negotiating. It's understanding human nature. So I'm a Chris.

Ed Mathews:

Voss fan. Last one is about success. So finish the sentence. For me, success means what it's fascinating how many people I have on the show that answered it in a similar fashion.

Eddie Speed:

And, by the way, I've never heard anybody else say it. It just makes perfect sense to me.

Ed Mathews:

It's amazing, when you don't need that W-2 job and in my case, your daughter is playing in a softball tournament you don't have to call anybody to find out if you can get the day off, exactly All right. So, when not talking about real estate or mortgage notes or anything related, what do you like to do for fun?

Eddie Speed:

I'm an outdoors guy. I'm not really a fisherman, I like hunting. My boys are very outdoorsy. We've got some property up in the country and I can just go up there and ride around and ride on the gravel roads and just not think about anything other than that. Whatever's in front of me and it's my release for sure.

Ed Mathews:

Yeah, there's something about throwing a hook in the water. I'm not much of a fishman either, but there's something about throwing a hook in the water or at least getting out in the fresh air. That just clears the head, right, all right, eddie. Hey, I've really enjoyed this conversation. I'm grateful for the information to the audience and me. How can people learn more about you or get in touch? What's the best?

Eddie Speed:

way, I would like to give your audience a gift Awesome and what I would like to do is this is a pretty robust gift, so I don't want anybody to think it like misunderstand free, right. These are materials we sell. This is a class that we sell, but I have a master class. It's virtual and I'm going to give them when they come to the class. I'm going to give them a lot of support materials, so I'm going to give them some homework once they leave, but what I want to do is take about two hours and take the most compressed version of what people we've learned, what people want to see, and give it to them in about two hours and we're going to use. We're going to use slides that have have that build a story of, like financial modeling and those things, those things that don't work as well conversationally, right, when you really need the whiteboard, so to speak, and I want to give that to them, and I don't always give this to people, but I give it to people that have what we believe is an audience or people that we serve, and we believe that we serve an audience like you have. So here's how you do it You're going to go to noteschoolcom forward slash underground right, and so we'll know they're from you, right? We'll know that this is this tribe that you have that we feel like certainly fits people that we grid up with.

Eddie Speed:

Well, and we want to hear back from you. Let us know. We don't want you just to come through it and it's just like you're just noise. No, we want you to like dig in. It is virtual, it is free. So let me say this If you don't put it on your calendar and if you don't take it seriously, you'll never get anything serious out of it. And, as you said, I think you and this is pretty common I'll do an interview and somebody the host will say I'm going to do it myself and they do, and so you be the litmus test. You let us know if we did good.

Ed Mathews:

We're going to be on the site as soon as we're one on that list.

Eddie Speed:

Awesome.

Ed Mathews:

All right, eddie Speed from NoteSchool, thank you so much for taking time out of your very busy day to educate our audience and me, and it's a pleasure to meet you and thank you again.

Eddie Speed:

Thank you, I really enjoyed it. Bye-bye.

People on this episode

Head Shot

Ed Mathews - Clark St Capital

Host