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Show Summary
In this conversation, Tom Rogers shares his extensive experience in real estate investing, particularly in the Denver market. He discusses the current opportunities for investors, emphasizing the importance of finding reasonable acquisition prices and the potential for flipping properties. Tom also delves into the note space, explaining how rising interest rates have shifted his focus towards investing in notes, which can offer attractive returns. He concludes by sharing insights into his current projects and future plans in the real estate market.
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Investor Fuel Show Transcript:
TOM ROGERS (00:00)
when interest rates go up, seems to me, logically, it makes more sense to invest in notes. And we have, we have guys that we buy notes from that we’re getting guaranteed returns of 12 % on performing notes that, that it’s hard to make that kind of, we were getting 20 % returns on our rentals back in 2015, easy, that was like shooting, fishing a barrel. But,Now it’s just almost just the opposite.
Dylan Silver (02:01)
Hey folks, welcome back to the show. Today’s guest, Tom Rogers, has been investing in real estate since 1999. He’s active across several markets and is based out of Denver, Colorado. Tom, thanks for taking the time today.TOM ROGERS (02:13)
Hi, thank you for inviting me to be on the podcast. really appreciate it.Dylan Silver (02:17)
It’s great to have you on here. Now, I’d like to talk specifically about what good deals look like in Denver, Colorado. And I’d like to start by first saying, you know, when we think about Denver, Colorado, is this a city where there’s a lot of urban sprawl? Is Denver getting bigger?TOM ROGERS (02:34)
Yeah, Denver is continuing to grow. Maybe not as fast as it was like say 10 years ago, but it’s still growing. So yeah, there’s definitely opportunities in Denver and Colorado Springs too for flipping andDylan Silver (02:49)
Now,when when folks are looking specifically for ⁓ opportunities to get started investing in real estate, if you were to give your feedback and guidance to folks who may be looking at getting into investing in Denver, so they’d be looking at, you know, infill lots in the middle of Denver, other specific markets that you’re particularly bullish on, maybe outside that are emerging outside of Denver, what’s your feedback on folks getting in?
TOM ROGERS (03:16)
I would say like, you know, like some like right on the outskirts of Denver proper Denver. ⁓ If you’re like in downtown Denver, those I mean, it’s expensive, you know, like those those land, you know, that that land and then I would say like Lakewood, you know, it’s just it’s like it’s just a little bit West, but there’s a lot I think you get more bang for your buck there. And if you’re going to go if you’re going to be ⁓say, you know, trying to try to flip houses, I guess. I think that you’ve got a better you’ve got a better chance there than you do in like, say, somewhere close to downtown Denver, not to say that you can’t make money, you know, in those places. But it’s a lot of competition. And, you know, and then you get to the point where, you know, you’re trying to flip a million dollar house.
you know, costs can get pretty expensive if you’re doing hard money loans. So my thought is try to find something that’s reasonable, like maybe $500,000. And then, you know, and then that way gives you a little bit more breathing room, you know, because you’re not, unless you have your own money, but most people don’t have $500,000 that are starting, you know, to do it. And so my thought is to try to find something that’s not
Dylan Silver (04:13)
Yeah.TOM ROGERS (04:42)
too expensive and that way if you have to keep it and rent it, if you can’t sell it for what you want to sell it for, then you can still do that. But if you’re buying a million dollar place, unless it’s an apartment complex, it’s going to be difficult if you can’t sell it for what you think you can.Dylan Silver (04:54)
Yeah.Yeah, yeah.
The acquisitions price, is that a $500,000 acquisition or would that be the exit?
TOM ROGERS (05:56)
Well, it could be either, I guess. mean, depending on where you, you know, how I think you can find stuff. There’s, you know, I there’s a lot of wholesalers out there and you just have to be careful with, you know, about, you know, with with wholesalers. But, you know, that’s it. That’s probably the best way to to find these deals right now. And, you know, I think that there’s still money to be made if you do it right. AndYou understand your costs and you know, it’s just you. think Denver proper right on the outskirts Denver proper. think it’s the best areas. It’s the best area to do it in. Um, it’s just like, like cherry Creek, everything in cherry Creek is like over a million dollars. And so, know, so you wouldn’t want to do, I wouldn’t want to do it there. There are people who do that are really good at it, but it’s a risk for somebody that’s just starting. I would.
Dylan Silver (06:44)
Yeah.TOM ROGERS (06:54)
I would definitely say, know, don’t spend more than, you know, four or $500,000 on the place to begin with.Dylan Silver (07:06)
That does seem to be the sweet spot right now for investing in real estate that that four or five hundred thousand dollar market that she mentioned. I think there’s a lot of lenders that are comfortable with that. And then you also have flippers that seems to be where they operate. Once you get into that upper stratosphere, you’re talking million dollar homes more than that. Then you really have to have unless the land itself is very expensive. You really have to have luxury finishing. So that’s a different ballgame entirely. Now you’re looking at, OK, well,you know, how long is this property going to sit now that the skill of the realtor could even come more into play in a deal like that. I do want to pivot a bit here though, Tom, and ask you about the note space. I know that you’re heavily involved in notes these days and really made a pivot in your business when the market was shifting, you know, however many years ago, know, 2021 timeframe.
TOM ROGERS (07:49)
Yeah.Right. And you know, it’s all about interest rates when it comes to notes. And you know, we realized that in the real estate, the single family market and multi-family market, that it was just harder and harder to make things work. you know, with interest rates going up, just, couldn’t get the same bang for your buck, you know? And it’s it’s hard. And there’s still some deals out there that could be made, but…
You know, when interest rates go up, seems to me, logically, it makes more sense to invest in notes. And we have, you know, we have guys that we buy notes from that we’re getting guaranteed returns of 12 % on performing notes that, you know, that it’s hard to make that kind of, we were getting 20 % returns on our rentals back in 2015, you know, easy, you know, that was like shooting, you know, fishing a barrel. But,
Now it’s just almost just the opposite.
When you go from 4 % to 7%, you know, and interest rates, that’s why notes, the note space is so attractive to me is that you can, you can buy these notes with equity in them. And then if, if the, you know, the person pays off the note, then you make it, you make even more money because of the equity that you, that, that the note has. And so
Dylan Silver (09:22)
Hmm.TOM ROGERS (09:27)
And so to me, the note space is just, there’s a lot of things you can do. You can sell part of a note, like the last 20 payments. then if somebody ends up paying it off, then you get all that back and you end up making more money. And so more than just like the 12 % return or whatever you’re getting on it, 10 to 12 % is pretty normal, especially right now in the note space.Dylan Silver (09:54)
Walk me through that because I wasn’t aware of that and I may be misunderstanding. So I want to walk through that. When someone pays off a note, let’s say they had 12 % interest on the note, the investor who holds the note is getting more than just the interest.TOM ROGERS (10:42)
Well, yes, because when you buy a note, you buy it at a discount. And so you get all of that discount back when they pay it off. Because let’s say they owe, let’s say, oh, this is for simplicity, they owe $100,000 on the note, you buy it for $80,000. somewhere like $80,000, $85,000, they pay it off.And like I said, they pay it off the next day. Well, you get that $15,000 back that you, that, that, you know, you get the full hundred, you bought it for 85. So you make 15,000.
Dylan Silver (11:23)
So this is, are we talking about a secondary note market where these are delinquent notes in this case or would this be?TOM ROGERS (11:28)
No, no,no, no, these are performing notes, any notes that are to get sold because people, it wouldn’t make sense to pay full price for a note. mean, in, in the, know, there’s a, there are sites where you can buy these notes too. ⁓ Note sites that they sell these, that these are different, you know, it’s, it’s not like your average
generally your average ⁓ person like most of the big banks keep their notes, they don’t sell them. So there’s usually something a little bit ⁓ weird about the note, know, that somebody either created it themselves or, you know, or it’s there’s something about it that’s just a little different, right? It’s hard to say what it’s going to be because everyone’s different.
Dylan Silver (12:27)
But they’re not losingwhen they sell it, when they sell the note.
TOM ROGERS (12:30)
Right. So when you they sell it to you at a discount, they say they they created a note and then they for whatever reason they needed to sell it and they they wouldn’t buy something else. And so when they sell it, no one pays full price in the note space for the note. They don’t because otherwise you’re not depending on what the interest rate. I suppose if you had if you had an interest rate on the note that was at 12 percent to start with.Sure, then you pay for the whole note. But most interest rates on notes are low, like 5%, 3%, 5%, 7%, maybe at the most. so people are, investors don’t want to, they want to make at least 8 to 10 % on it. so when people sell them, they have to sell them at a discount or they just won’t be able to sell them. And that’s just a given.
Dylan Silver (13:18)
Right.TOM ROGERS (13:29)
And so that’s, that’s, you know, all notes, almost all notes that I’ve ever purchased, I’ve purchased at a discount.Dylan Silver (13:37)
Now when people are buying notes, generally how much do they know about the the person paying the note? Right. I forget if it’s called the mortgagee or the mortgage or I think it’s the mortgagee.TOM ROGERS (13:48)
Well,yes. So what you do is you have different types of notes. You have performing notes, then you have non-performing notes. And then you have some, sometimes they’re somewhere in between. And so what you get is you look, you get a schedule of every payment that’s ever been made on that note. And it’s verified.
And so you know if they’ve missed like six months in a row, then it becomes a non-performing note. And then you get a bigger discount on the note because it’s not performing. If they’ve only missed one or two payments or just been late a couple of times, it’s still considered performing. so that’s what, know, and lot of people like non-performing notes because
They get such a deep discount that they’re fine going to foreclosure with it because then they get the property back. Right.
Dylan Silver (14:55)
They get the property. So these are allpretty much the first position, right? It wouldn’t make as much sense to buy a second position, no, would it?
TOM ROGERS (15:44)
do. Yeah, people do buy second notes. There’s some guys that I’ve talked to, that’s all they do. Because if it’s a performing second position note, if you get it at a good enough discount, you can get 12 to 15 % interest on it. You can make a 12 to 15 % return on it.you get a higher return when you do seconds. And so it’s just about the borrower and how, you know, what you think, whether you think that they’re, you know, how, what their credit score is and you get all this information. And so I haven’t bought any seconds, but I’ve been thinking about it. I think I probably will after talking to this guy at this conference.
That’s all he does. buys like three of them a month and they’re not that expensive. can, you know, they’re like lines of credit or, you know, HELOCs or whatever that people have. And a lot of times if you look at the first and there’s a bunch of equity on the first, then your risk on the second is a lot less. Now, of course, the first always gets paid off first, but if you have a house that’s worth a hundred thousand and there’s 50,000.
in the notes, the first note is 50,000 and you get another note that’s like 15,000, even if the person defaulted, you’d still get completely paid out.
Dylan Silver (17:20)
Yeah, I mean, those are those are great points why people would buy into notes versus some other asset class, which may, you know, potentially look at more interest, but then also it’s not backed by any type of underlying asset. So you have the ability to walk into this and feel like it’s almost risk free on some level. Obviously, there’s risk, but you’re prepared for both outcomes. Hey, the worst case scenario is we’ve got to foreclose on this, but we’re going to be in first position.TOM ROGERS (17:35)
Right.Dylan Silver (17:48)
or in the case of those folks that are second position, they understand, look, if we have enough of these, there’s a chance that some of these don’t perform, but we’re getting at such a high rate that we’re factoring that into the arithmetic, the pro forma that we have. We are actually coming up on time here though, Tom. Any new projects that you’re working on, and then as well, what’s the best way for folks to reach out to you or your team?TOM ROGERS (18:13)
Yeah, I mean you can you can email me at Tom at TKG LLC co.com ⁓ You know new projects I’ve were we’re getting ready to purchase them another note here soon with my partner and I ⁓ With our other stuff. We’re we’re selling some of the stuff we have in Akron, ⁓We have, I have 14 houses that I own there. So we’re selling some of those that, and then we’re going to be, and then using that, doing a 1031 exchange into something. So we’re kind of kind of figuring that out right now. Unfortunately, you can’t do 1031 exchanges into notes. I wish you could, but I’d be all over that, but you can’t. So, so yeah, that’s what we’re doing now.
Dylan Silver (18:58)
Alright.Yeah.
TOM ROGERS (19:13)
remodeling a couple of our places, you know, to make, you know, to get more rent down in Colorado Springs. We’re dealing with that right now too. So, yeah, that’s, you know, keeping busy.Dylan Silver (19:24)
Alright.Tom, thank you so much for coming on the show today. Thanks for your time.
TOM ROGERS (19:31)
I really appreciate it Dylan. Have a great day.
