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Show Summary
In this episode of the Real Estate Pros podcast, host Michelle Kesil interviews Randy Rodenhouse from the Note Authority. Randy shares insights into the world of note investing, including buying, selling, and creating mortgage notes. He discusses the importance of understanding regulations, common misconceptions about notes, and the benefits of note investing over traditional rental properties. Randy also shares a compelling success story that highlights the potential for positive outcomes in challenging situations. Listeners will gain valuable knowledge about the note industry and how to navigate it effectively.
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Randy Rodenhouse (00:00)
In terms of selling notes, we really have a tendency to keep most of our notes long-term. I probably only sold maybe a handful of notes out of the hundreds that I’ve purchased. So that’s kind of the background of what I’m focusing on now.Michelle Kesil (01:46)
Hey everybody, welcome to the Real Estate Pros podcast. I’m your host, Michelle Kesil, and today I’m joined by someone I’m looking forward to chat with, Randy Rodenhouse of the Note Authority. So excited to have you here today, Randy.Randy Rodenhouse (02:00)
Thank you, thank you for having me.Michelle Kesil (02:02)
Of course, I think our listeners are really going to take something away from how you’re working with buying, selling, and creating notes. So let’s dive in.Randy Rodenhouse (02:11)
Okay, sounds good. Yeah, so basically I am buying, selling and creating notes. What that means is I’m buying mortgage notes, deeds of trust, seller carry back notes, and we buy them in pretty much probably 40 of the 50 states. So we’re working kind of all over and we’re buying institutional notes that are non-performing a lot of times and we get them re-performing.with the, you know, work with a homeowner to get them re-performing and keep the cash flow. In terms of the shorter term bridge type loans, fix and flip type loans, sometimes you know it as private loans or hard money loans. Those loans we originate, we also buy those loans, kind of what we call the secondary market. And we just, you know, collect the interest on those. But the institutional notes are usually the non-performing ones that we buy. We don’t usually buy performing.
institutional notes because the yields are too low for our goals. And then the seller carry back notes are, it could be long term or short term, typically they’re longer term notes where a homeowner had a house and they couldn’t sell it or something of that nature and they sold it with owner financing and they’re tired of kind of waiting for their payments and they would sell the house, I’m sorry, sell the note to us and we would collect the payments.
and they would get all their money. And sometimes we would basically buy a partial note. We can do that as well, meaning we buy part of the note, not the whole note. And they can collect the back end of the the loan and collect that for themselves. So there’s a lot of little nuances there, but that’s kind of the big picture. And then we also, in terms of creating notes, there’s kind of three main categories there. I kind of mentioned some of already. We do the short term bridge lending.
⁓ Fix and flip type loans, hard money, private loans. also, like I said, we do the owner financing and then the seller carry back.
In terms of selling notes, we really have a tendency to keep most of our notes long-term. I probably only sold maybe a handful of notes out of the hundreds that I’ve purchased. So that’s kind of the background of what I’m focusing on now.
Michelle Kesil (05:09)
Yeah, awesome. And so you mentioned that you’re doing this nationwide, correct?Randy Rodenhouse (05:15)
Yes, we are. There’s some states we do not work in that are just, for example, New York. We don’t do hardly anything in New York because if we buy a note there and it goes non-performing, the foreclosure timeline is very long, so we kind of stay out of that area. So there’s probably, like I said, I’d say the 35 states we’ve worked in pretty, bought a lot of notes in those 35 states, and there’s some states we just…don’t touch. you know, sometimes when we buy a note and in some cases, of course, not everything always works out. Sometimes we have to foreclose, take the house back. Usually that’s in a case where the owners don’t want it or they’re deceased. We, I’d say 90 % of the time we work with the homeowners, get them repaying. We don’t want the house, we want the payments. But there are cases where, you know, we get the house back and
At that point, it’s called an REO, real estate owned. You might have heard of that before, REO. That’s basically a bank owned property. And then we sell that house or a lot of times we’ll create a note for that. We’ll sell the house with owner financing and collect the payments instead of just selling the note out and instead of selling the house outright and getting a big lump sum.
Michelle Kesil (06:23)
Yeah, absolutely. And so are you working more with like first time just regular home buyers or investors? What is the clients that you work with look like?Randy Rodenhouse (06:33)
Yeah,it’s kind of a mix. So back in 2011, when I started buying what I call institutional notes where they originated by, you know, bank, Bank of America, Wells Fargo. You know, there’s a lot of notes in the market. Most, you know, lot of the houses are upside down and we were buying the notes at a discount. And then we’re working with the homeowner, getting repaying. That business has, you know, it was really good for probably 10, you know, 10.
12, 13 years and the last couple years it’s kind of dried up because again, there’s a lot of equity in the houses now and there’s not many people behind, not as many people behind. But in terms of working a lot of times with homeowners that sold their house with owner financing and they’re just really tired of waiting for all their payments, maybe they collected payments for a couple years and they want to buy something or they just want all their money suddenly, we can buy that note.
And then in terms of the short-term notes where we lend on, you know, purchase, let’s say someone’s purchasing a house to do a rehab or just purchasing a house for a rental, we, you know, help them purchase that with funding and also repair, pair funding, things of that nature. So it’s kind of all over the place. And, know, some, some people we work with are, you know,
more institutional in nature and some are just you know the homeowner maybe has a one-off note and we’re buying it so
Michelle Kesil (07:58)
Yeah, absolutely that makes sense. So what do you feel are some of the main keys that have allowed your business to be able to grow and to run smoothly?Randy Rodenhouse (08:12)
So, I mean, I think the biggest thing in this business is really being kind of organized and very persistent because you’re working a lot of times in different states and you have to learn the nuances of the laws in each state, the different foreclosure laws in each state. You have to learn about a lot of federal laws and things of that nature. You have to know how to work with, you know, attorneys and things of that nature too.you know, sometimes get these things across the finish line. So, you know, those are kind of some of difficult things, but all in all, you know, we’re constantly keeping up on those changes in the laws and the regulations and things of that nature. But on the short term side, there’s not as many rules and regulations. So, for example, in the bridge loans, those are
what we call business purpose loans and business purpose loans don’t have the same regulations as a consumer loan. So when we lend money, so for a fix and flip or what they call sometimes hard money or private money, then the regulations are still there, but they’re a little different and not as onerous. So hopefully that answered your question.
Michelle Kesil (09:24)
Yeah, sure. Can you expand a bit on like the regulations? Are there anything that you have to support like your clients with understanding better?Randy Rodenhouse (10:08)
Yeah, so, you know, there’s, I’m sure people have heard of, you know, RESPA, maybe they haven’t, but RESPA, TILA, these are regulations that came up from the CFPB, that’s Consumer Financial Protection Act. And then there’s the new TRID. Again, they’re all little acronyms, way to keep, you know, lenders from, you know, not doing bad things to people, right? Now, we don’t originate loans.Only originate loans we originate in the world of consumer. We don’t originate any consumer ones, but we originate business purpose loans. So we’re kind of out of that box. But when I buy a non-performing loan, for example, where a homeowner lives in there, then I got to follow those rules, but I’m not originating because I don’t have a license to originate. So, but then I got to follow those rules. So you have to follow the rules.
You gotta, you know, when you buy the note, gotta send them out certain letters and you gotta certain disclosures and you gotta make sure you dot your I’s and cross your T’s, mainly have attorneys to do most of this for us. So we have a good network of attorneys to work with to help us out in that arena. And then also, you know, all these loans are serviced. This is super important. They’re serviced with a servicer that has all these licenses. So they have, you know, debt collectors license. They have a
lenders license, have a servicing license, they have all the licensing they need to get things done properly and we pay them to get that done.
Michelle Kesil (11:32)
Yeah, absolutely that makes sense. Are there any misconceptions that a lot of people have about notes that you often find and have to like bust?Randy Rodenhouse (11:44)
That’s a question. Yeah, I think they think that it’s kind of cut and dry. There’s a lot of different twists and turns that you can take and there’s a lot of different ways to, know, if you have a note and you don’t want it anymore, you want to get some money, there’s many ways to get your money back. So if you have a house, typically you sell the house and then get your money back, right? And a note, could, you know, sell a note, sell the whole note, you can sell a partial note.You go what we call hypothecate the note. You’re getting a loan against a loan. You can get a partial note. So there’s all all these different things that people don’t really realize that you can do with notes that is not always possible just with owning the house outright. And then you you have a lot of control. You know when you’re the bank so to speak you don’t have to worry about you know as they always say the toilet, senates and termites right? You are the
collecting payments and really servicing the note, collecting the payments and making sure that the homeowners happy and you’re getting the payments. And you have to talk a lot with the homeowners in certain circumstances, but a lot of times there’s certain notes I haven’t talked to the people in years, right? So if they’re paying, they’re paying on time, they’re paying their taxes and insurance, then everything’s good to go.
I think those are kind of the main things that people don’t think about. Also, when the foreclosure process, if you have to foreclose, it takes some time and in certain states it takes a very, very long time. But you have to kind of know the rules of the road and it takes a lot of time and energy to get your, the learning curve’s pretty steep. But once you get to that point, then it’s very powerful because once you
have four, five, six, 10, 100, of loans and they’re all paying, it’s, you know, it’s a good life because you have income coming in even when you’re not working, right? So if I stop working for a year or years, the income’s still coming in. So that’s kind of the power of notes. I don’t really, you know, I have a rental portfolio as well, but a lot of those rentals I’m converting to notes, meaning I’m selling the house to the renter.
with owner financing, creating a note, and now they’re paying me. Now, they were paying me before, but now I don’t have to worry about the taxes. I don’t have to worry about the insurance. I don’t have to worry about the liability. I don’t have to worry about anything about the house, the maintenance, all that stuff. So it’s a little bit more passive if you do it right. You you gotta do things right, of course.
Michelle Kesil (14:58)
Yeah, absolutely, that is awesome. Sounds like a great opportunity. That’s a lot simpler.Randy Rodenhouse (15:05)
Yeah, I mean, there’s there’s goods and bads just about anything in life, right? Like I said, I still have a pretty sizable rental portfolio that some of them are people that have been there forever. So I’m just not going to kick them off because they’re good renters, right? They’ve been in there a long time and, you know, they keep renting and I get, you know, fantastic returns on those. But it took a while to get to that point, right? It’s hard to buy a rental today and make it and make the numbers work out of the box becauseprices are high and their interest rates are high. know, buying notes sometimes you can, you know, kind of create a situation which you couldn’t do with a strict rental property or something of that nature. And it’s not, you know, as time intensive, I guess, as a house where you buy and then you fix it and then you flip it. There’s a lot of work there, right? And I’ve done that.
many times myself, you know, after a while it’s better to kind of use the power of the pen instead of the power of the hammer, I guess.
Michelle Kesil (16:09)
Yeah, absolutely. And do you partner with investors or work with them? Or is this like, yeah, how does that look?Randy Rodenhouse (16:17)
Yeah, so I have to date, I have pretty much used my own capital and everything that I make, I reinvest into the business. I’ve been doing that for such a long time that I’ve built up a very large portfolio of notes and income from that and those new notes that come in, the income that comes in from those notes, I typically deploy back out into buying more notes. So it kind of snowballs, right?Every month I’m looking at, how much income am I making this month or how much of it’s passive and what net profit is going into the bank? To me, that’s the most important, right? And every month I look at that and see if it’s growing. Every year, I’ve been tracking it for a long time. Every year it grows and grows and grows because it’s almost like compounded interest, right? As you put your money back in and then get a good return on those, then it keeps increasing.
over and over and over again. So, you know, you don’t have to have, in terms of the returns, they kind of vary. You notes, you could buy a note making 3%, which I would never do, but typically, I would say the average returns really depend on the type of note. You know, for non-performing notes, sometimes you can get them and they’re not performing, but you get them performing, you can really make a lot of money.
because you bought the note at such a discount. yeah, some kind of, lot of crazy stories on that where the returns were fantastic because you really worked with the homeowner to get them repaying and then at some point they pay off the note and since you bought it at a discount, you get paid a hefty return.
Michelle Kesil (17:58)
Yeah, can you expand on what that would look like?Randy Rodenhouse (18:01)
Yeah, so I guess I’m trying to think of a particular example. I’ll give you a pretty good story. So there was a person in Ohio that I purchased the non-performing loan on and the person obviously wasn’t paying. That’s why I purchased the non-performing loan. I reached out and said, you know, what’s the story? You know, how can we get you going again? How can we keep you in your house and get you paying?So we worked out what’s called loan modification. So the person, we did all the paperwork and got the loan modification done. They started paying again. Unfortunately, they fell off the wagon, so to speak, and stopped paying again. We did one more, gave them one last chance, and unfortunately, it didn’t work out again. So now this is over almost a year and a half, two year period. I gave them a lot of rope. I always give people a lot of time and try to work with them. But at some point,
You have to do something. So we finally said, look, we’re going to foreclose. So we make a long story short, we foreclosed, we got the house back. Now we own the house. It’s an ario on our, on our books, meaning a real estate owned bank owned property. We’re not a bank, but that’s what they call it. ⁓ the homeowner called said, Hey, I really want to stay in this house. And I’m thinking, well, you couldn’t pay before. What do you think? Why do think you can pay now? And she said, well, I said, what’s situation? Something changed.
So yeah, I have a job, I can show you the pay, blah, blah, things have changed, I have a steady job. So again, make a long story short, she showed us that she had income. We decided to give her a 12 month lease. And if she paid for those 12 months on time in full, we would sell the house back to her. And she made those 12 months of payments on time in full, which is, I couldn’t believe it. I mean, she didn’t miss.
A trick she every month exactly on time, exact amount. And the payment was higher than it was when she was on her loan. Just because that’s the only way we could make it cashflow. So she was very dedicated. She had a better job now. Things were, she was in a better situation in life, right? and we ended up selling the house back to her with owner financing. So we didn’t just give her the house. Of course we sold the house with owner financing.
and she’s been making payments ever since. We’ve been in that whole situation for, gosh, it’s probably going on seven years now. And she’s still making the payments. I don’t remember at the top of my head when that loan matures, but I’m sure, I think it’s another four years and she’ll own the house. So it’s a full turn, right? She lost her house, she got her house back, she rented it, and she got her house back, or she will if she pays the next.
whatever number you’re three, four, five years, which I’m pretty sure she will. She’s been fantastic. it’s funny, we’re great friends. She calls me for advice on things. And it’s a great story because she’s written us letters how thankful she was because most banks are, banks will never do this, right? A bank will not do that. So the takeaway is bad things happen to good people, right? And it just…
She was dedicated, I could tell that she really wanted her house and we gave her opportunity. Probably gave her too many opportunities, but it worked out in the end.
Michelle Kesil (21:19)
Yeah, that’s amazing and incredible that you were able to have everything work out in the end.Randy Rodenhouse (21:25)
Yeah, yeah, does. Not everything works out that way, but I’d say most do. I’d say because you really, you got to have a little bit of patience, which, you know, sometimes I do, sometimes I don’t. But, you you can kind of tell it’s all about the person, their character. And, you know, if they really what was their situation, why weren’t they paying? And now they’re paying. Sometimes there’s a good reason, right? And sometimes it’sthere’s no good reasons. So they just didn’t feel like paying, but most people are, in my opinion, are good and they want to pay. So it works out.
Michelle Kesil (22:02)
Definitely. Well, before we wrap up here, if someone wants to reach out, connect, learn more about what you’re up to, where can people find you and connect with you?Randy Rodenhouse (22:12)
Yeah, the part of the best thing to do is the first, would say follow me on LinkedIn. It’s just RandyRodenhouse. That would be the first thing I would do. You could also go to our, ⁓ there’s a website called compelcapital.com. That’s compelcapital.com. That’s if you want, if you have a short-term funding request, you can go there for that. And then if you want to email me at randy at the.note authority.com again, that’s randy at the note authority.com for, know, ⁓ any questions. we also have some advisory services, you know, anything from, you know, how to buy and sell notes to buying houses subject to lease option owner finance. I’ve kind of done it all. I used to coach and mentor students for almost 15 years, over 600 students. And, so sometimes I can help out there.
And but if you have any just general questions, just shoot me an email and I’ll see if I can help you out. And those are the best places.
Michelle Kesil (23:14)
Perfect, appreciate your time and your perspective. Thank you for being here.Randy Rodenhouse (23:19)
You bet, thank you.Michelle Kesil (23:21)
Of course, and for the listeners that are tuning in, if you got value, make sure that you have subscribed. We’ve got more conversations with operators like Randy who are building real businesses and we’ll see you on our next episode.
