#101: Note Investing Option

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Bob Fraser is on a mission to help investors take advantage of one of the most effective and overlooked avenues of real estate investing: residential mortgage notes. As Founder and Principal of Aspen Funds, Bob has purchased more than 1,000 mortgage notes earning double-digit annual returns without the risk and volatility of traditional investing options.

With Aspen Funds, Bob uses his 20-plus years of experience in finance to oversee the company’s mortgage note portfolios. A Magna Cum Laude graduate in computer science from U.C. Berkeley and former Ernst & Young Entrepreneur of the Year Award-winner, Bob often makes bold, contrarian predictions about the economy and technology, most of which have already come true.

In this episode, we’re discussing…

[1:41] His background, how and why he started with note investing option
[5:04] Why is better to be the bank
[9:29] What is exactly a note investing and details about becoming a lender
[14:03] How do they deal with the Financial Institutions
[17:03] The yield investors get back and how they get investors
[19:06] About second liens and their advantages
[22:43] What about zero equity notes
[24:59] His opinion about today’s unpredictability of COVID, how is it going to affect, and how he sees the value of notes
[28:01] The massive shortage of housing and how affordable housing is
[31:51] Other sources Bob utilizes to make investing decisions

Bob Top Tip’s

“I like to control my income, right, and not have it be driven by forces outside of my control. So that led me, to real estate and specifically real estate debt. So, my partner, founded Aspen funds with me while he was a real estate guy”
“Let's be the lender. There's a reason why banks, have the tallest buildings in town, and it's good to be a bank, why not be the bank. And so, we kind of got into that and then found some very unique niches. So, there's a lot of ways to do the landing, as you're well aware, and some are very boring and don't make money. Money others are a little more exciting”

“And there's a difference between lending to an investor and lending to a homeowner. Our sweet spot is buying mortgages for homes, where people owner-occupied real estate. So, it's a lot different. We love owner-occupied real estate, and it's super sticky, and it doesn't have the same cyclicality”

“In the niche, we're in residential, then we go one more niche into distressed residential. We buy notes, where the borrower has had a hiccup. So maybe bar had a divorce, medical problem, job loss, but those things are not permitted for most people. So, they get back on track, they modify their loan, they start paying in accordance with their turn. These are good loans. It could have a great property with the borrower had a past hiccup”

“We buy primarily from hedge funds or other financial institutions, where the borrower said: I want to stay in my home. So, we do that, we're doing people a favor, we're not kicking you out of your home, we're buying this paper that someone else may not want to buy”

“We have an income fund based on current yields paying 9% on a monthly basis right now. And here's the other cool thing about that. So, this is where we're very unique in the real estate world. Our fund has 500 loans in it, roughly about 8% of our portfolio self-liquidates every year, as people sell their home or refinance, they move them refi. Right, about 8%. I have an internal liquidity mechanism. This thing itself liquidates 8% per year”

“We allow investors to get their money back at any quarter if the quarter and a quarter just with notice. So, we have basically pretty much liquidity now if everybody wanted their money back all at once, you know, while we're not going to be able to do that, but I’ve never missed a liquidity request”

“A second lien is a sliding scale, it could be just the same as a first if it's a lot of equity above you, right. But or it could be super risky. If it's, you know, you're not covered by equity. So, there's a sliding scale. So that's the thing about seconds is they're not as simple as first, you choose your risk. Yeah. And that changes the price dramatically”

“What we real estate prices begin to go up and we saw the stock market begin to go up and here's the trick is printing money creates inflation, the problem but the issue is it doesn't create consumer price inflation, it creates asset price inflation. So, when the government's printing money, I flipping assets, okay? Buy it, buy anything, buy stocks, real estate, and anything that is an asset is going to go up in value because money is going to get cheaper relative to the price of the asset, so it's time to back up the truck and buy assets and single-family homes are literally so many tailwinds behind them”

Mike’s Top Tip’s

“I always tell people that if you're interested in something like notes, get a mentor. Don't go out and just do it on your own. Learn from someone like Bob learn someone that has done it”

“I keep telling everyone that you want to diversify your portfolio. And the more passive it is, the better off you are. And you should have at least six or seven different tree limbs coming off of that big trunk in your diversification. And I think notes might be a big part of that”

Resources from Robert

LinkedIn | Aspen Funds

+ Read the transcript

Mike Stohler
What if you could be doing something smarter with your money that creates income. Now, if you're wanting to get ahead financially, and enjoy greater freedom of choice, if you want a comfortable retirement, and you know, you'll have more choices, if you can do more with your money. Now, if you've wondered who else is creating ways to make their money work for them, and you want actionable ideas, with honest pros and cons, and no fluff. Welcome to the richer geek podcast. We're here helping people find creative ways to build wealth and financial freedom. I'm Mike Stohler, and in this podcast, you'll hear from others who are already doing these things, and learn how you can too. Alright, everybody, welcome back to the richer geek podcast. I have Bob Fraser here. How you doing, Bob? I'm doing great, or is it Robert? Do you mind Robert or Bob?

Robert Fraser
Bob is great.

Mike Stohler
Bob is in note investing. And that's one of those topics where I think I've, I've heard so much of like, the third party, is it good? Is it bad? Is it you're competing with everybody in the kitchen sink? You know, so let's, let's get into the pros, the cons, the fact the fiction. Tell me a little bit about yourself, Bob? And what got you into note investing?

Robert Fraser
All right, well, you know, I am a geek. So I'm actually computer scientists from UC Berkeley, believe it or not, so I get the idea of what you're trying to do. And I just appreciate folks, you know, trying to basically rather than trading time for money, trading money for money, right, and getting your money putting your money to work, but so I actually worked as a computer programmer in Silicon Valley for many, many years. And in the late 90s, started a tech startup and it blew up it wastes $44 million in venture capital and then hired 300 employees. And then I lost everything in the.com crash. And after that really got interested in real estate, realizing the public markets, which was my exit was just were fickle. And you look now it's like, what's the public market? What's the stock market going to do today? Tomorrow, you just you to not know. And, and worse than that, it's bad ish. It's very fad driven. You know, if you look at, you know, there's, you can buy a bank right now, for you know, 50 percents 50 cents of its book value that are in there, they're yielding, you know, 9% yield. And they're underpriced. Like, why? Well, somebody decided it's our favor, and it's just ridiculous. So, so all those things led me into real estate where somebody gets a little more predictable, right? You know, I'm kind of a control freak, in a good sense that I like to control my income, right, I want I want to be able to turn the dog and the knobs and the dials and, and dial in my, you know, my, my income, and not have it be driven by forces outside of my control. So that led me to, to real estate and specifically real estate debt. So my partner, you know, founded Aspen funds with me while he was a real estate guy. And so he was actually a developer in California, and lost everything in the great crash in 2008. And so, so he brought his real estate bruises. I brought my my public market bruises, and, and we decided to do something completely different. And he realized, you know, as a developer, the guys that made the money are the debt guys, right? The equity guys are, you know, the debt guys, the ones that don't really lose, right? And so when he lost absolutely everything, millions of millions of dollars, he lost, he gave, he gave the, the, the keys, so to speak to the land, the land dropped 75% of its value, undeveloped land, you know, in the crash, and he where he gave the title back to the lenders, and guess what the lenders did just fine. You know, so we figured out that, you know, wait a minute, let's be the lender, right? There's a reason why banks, you know, have the tallest buildings in town, and it's good to be a bank. And that's, that's what you are, what your lender, why not be the bank. And so we kind of we kind of got into that and then found some very unique niches. So there's a lot of ways to do landing, as you're well aware, and some are very, very boring and don't make money Money others are, you know, a little more exciting?

Mike Stohler
And they forget, they have all the power, don't they? You know, even now with with COVID? You know, everybody well, I shouldn't say everybody, most people that are in the real estate profession, as far as investors carry debt, because they want to leverage, right. So you know, you always tell people what you need to leverage anyone to because you can buy more with your money, right. But there comes a price to that, and you're looking with me, even in the hotel sector, there's a lot of hotels that are going to go under because they will never recover. And like you said, I think it was you hit the nail on the head that the banks will be okay, those securities, those people that owned those notes will be okay. It'll be the small business owner that'll, hotel is

Robert Fraser
ours get creamed, get trained the equity guys. And so we figured out, we want to be on the debt side. And what's more, so we figured out to go into so the debt side, there's, of course, the big world of commercial now, that's, that's where the Giants play, right, and the yields are super low. And nothing I'm interested in doing there is, you know, then there's the residential side. And in residential side, you have a lot of a lot of what's called a first for your trust deeds, funds. So these are, like hard money lender. So there's a lot of those, those kind of guys out there, and the yields are good, you know, you can get double digit returns. And as a passive investor and those things, or you can write your own notes, and they're, they're good, but there's, there's this fatal flaw in those things. And the fatal flaw is they're highly cyclical. Okay, so, so although still, as a lender, you're not getting you're not going to do is bad as as the equity guys, but they're still risky. If you, if you bought a bunch of land, you know, you lent on a bunch of land in, in California in 2006, you know, you're you're, you're going to have trouble with it, you're going to be holding that for a while it's going to be a pain. And so any and or a partially developed property that gets handed back to you, you know, because you lent a little too much little aggressively on it. So, so we don't we don't do a lot of that. And there's a difference between lending to an investor and lending to a homeowner. Say so our our, our sweet spot is, is is buying mortgages for homes, where people owner occupied real estate. So it's a lot different. So right if your house if you looked up Zillow, and your house, you've suddenly realized your equity is low, or you have very little equity, you can even like talk to your wife and say, Okay, we're leaving honey, here. Let's hand the keys to bank let's go drop the keys. You're not going to do that. Why? Well, you have a job. You have a schools, you have kids, you got friends, you're not doing that. Now, if you're so there's the sticky factor in owner occupied real estate where where the foreclosure rates are actually not correlated to the price of homes, believe it or not, closure rates are correlated the job market and which makes sense, right? The only way you handle your home is if the job you lose your job. So so we love owner occupied real estate, and it's super sticky, and it doesn't have the same cyclicality. So, so one of the, you know, one of the fun things about having big craters in your life, you know, in my pass and Jim's passes, you really learned, you know what, let's dodge a couple of these craters for the future. Let's get a course. Yeah. Not landed, you know, not ended up nuclear, you know. And so we've really designed models that, you know, you know, are much more robust.

Mike Stohler
Okay, so let's talk about specifically when, because, you know, let's give them some details exactly what it is you do, you're talking about you're you're becoming the lender, you become the mortgage? Or is it the fact that you're, you're buying the underperforming notes from institutional lenders or you're going through, you know, what, exactly

Robert Fraser
right. So, so, in the niche, we're in residential, then we go one more niche into distressed residential. So we buy we buy notes, the where the borrower has had a hiccup. So maybe bar had a divorce, medical problem, job loss, but those things are not permit for most people. So they get back on track, they modify their loan, they start paying in accordance with their turn. So these are good loans. It could have A great property with the borrower had a past hiccup. Okay, um, and that does make it riskier. Okay, but doesn't mean it's bad loan. I mean, what if it's $100,000 loan on a million dollar house? Well, what do you what the score is, you know, and you're Are you going to lose anything? So that's our, that's our rationale. We're going after distressed debt, and we buy him at deep discount, so maybe a guy owes $100,000, we'll pay 50 for it. But he still owes us 100. Follow me, sorry,

Mike Stohler
are you buying these on individual basis, are you buying tranches? Both both. But each

Robert Fraser
note is individually underwritten. And so we do very careful underwriting of each each note, but you know, we do buy bulk, you know, and early days, we bought mostly ones, but today we're buying, we're buying mostly bulk. And we've typically buy from hedge funds, and other other folks so so here's kind of a cycle so along gets originated by a big bank gets sold to Fannie, Freddie etc. borrower head gets in trouble, these loans are bundled up or de bundled from their, from their, from their, their securitization structures. And they're sold off to a hedge fund or some other, some other big player like like that, and then they bifurcate these and how they want to do that. But ultimately, some of these loans end up the bar says, Hey, I don't keep my house, I want to live here, I can pay. And somehow those get worked out. And then what happens is, those are almost always sold. Those are sold, and that's, that's what we buy. So we buy primarily from hedge funds or other financial institutions, where the borrower said, you know, I want to stay in my home. So, you know, and for us, we do that we're doing people a favor, you know, we're we're, we're not kicking you out of your home, we're buying this paper that someone else may not want to buy. And we're basically going to help you, you know, stay in your home. And, and so we buy these at deep discounts here. Here's just an example. This is a real loan we own it's a little upstate New York House. House is worth you know, about a about $100,000. He owes about $100,000 on this little house, okay, pays $569 a month, plus as a principal and interest payment. Well, we actually paid 50,000 for this. Okay, so so and so. So he's paying, I think it's like a 7% interest rate, the notice, but because we paid 50 50 cents on the dollar, we're actually earning double that earning 14 yield. You follow me? Yeah, yeah, absolutely earning a 14 yield on this. Now, he doesn't know that we paid 50,000. For this, he gets the statements, it shows his, you know, from our servicer shows, he owes 100,000. And if he were to stop paying, so we ended up having to take possession of the house, you know, worst case scenario, which we don't do very often. But sometimes we have to do that. We would put it back in the market, maybe you only get 75,000 for that house, we actually still make money. So So what percent until until, you know, in a default scenario, and here's here's the other thing is ultimately what's going to happen is that guy is going to he's got a 7% rate. Why would anybody keep a 7% rate right now, we go refi? Well, if he gets reified, I get a check from the new lender, as a bank, and I don't get a $50,000 payoff, I get $100,000 payoff. So I double my money. You follow me now that's, you know, this is assuming everything works out great. So I'm earning 14% current yield, until I earn 100% return. At some point and worst case scenario, something goes bad, I still make money. So that's what it means to be a bank. Right. Banks don't lose very often.

Mike Stohler
And how do you get around? Or do you have to deal with, like the Dodd Frank Act, you know, or is there some securities involved? Or do you have someone you know, the Dodd Frank Act is was put in place? I think 2012 About how individuals can act as banks is because you own the note and you're not actually

Robert Fraser
like, we're not we're not actually a bank. So we're a lender. We don't really have anything to do with Dodd Frank. There are there are regulations. So, you know, we don't service the loans. ourselves. We hire a licensed mortgage servicer, there you go, okay. They're licensed in all 50 states. So they literally send you know, we pay him $30 A month for a loan and they send the statements they calculate the 1098. If it's an adjustable rate mortgage, they calculate all that they make sure the late fees are accurate. You know, they collect the payments and they do all this just that stuff that, you know, super they and they send their reports to the states and all that. And then I'm just the lender I get I get a check from them. So it's very, very simple. But But yeah, there are there are laws you want to be aware of, you know, you know, you have to be to be a mortgage lender, which we are in some settings required to be licensed, he definitely should check with attorneys, you know, and if you're going to be talking to a borrower, they're CFPB rules, these are these are consumers are highly protected by our by our government regulators, as they should be. And, and so you definitely want to watch what you say you just really need to be trained or not talk to them to the borrowers basically,

Mike Stohler
or deal with someone like you who was taking care of all that. Yeah, exactly. Except going at it, you know, alone. And, you know, which brings us to the point where you do own a fund, you do have a right to where we can

Robert Fraser we have an income fund based current current yields paying 9% on a monthly basis right now. And here's the other cool thing about that. So this is this is where we're very unique in the real estate world. So our fund has, you know, 500 loans in it, right, roughly, well, about 8% of our portfolio self liquidates every year, as people sell their home or refinance, right, they move they refi. Right, about 8%. So I have an internal liquidity mechanism. So this thing itself liquidates 8% per year. Basically, we build in a liquidity problem for investors, we basically have a have a net asset value we calculate, for each share, you know, each unit which has only gone up in our eight years of history. I like I hate the stock market, it's you never know which direction is going. I try. We allow investors to get their money back at any quarter, if the quarter and a quarter just with notice. So so we have basically pretty much liquidity now if everybody wanted their money back all at once, you know, while we're not gonna be able to do that, but but I've never missed a liquidity request.

Mike Stohler
Investors. What's that? accredited?

Robert Fraser
accredited? was only Yeah, yes. So. And so I'm glad our regulators are softening up those requirements, it is kind of kind of silly that that money is the only the only thing that could qualify you qualify, you know, experiences make decision, right? I mean, come on, really. So you got to get free in finance, you can't call a fly, you know, you know, exactly,

Mike Stohler
yeah, I did see that regulation come out was a couple of weeks ago, those new rules, and, you know, just kind of dancing, it's so much because it's still not

Robert Fraser
big enough. I mean, there's only if your license if your license like really or an older employee, okay. Again, so you got a finance degree, you're a CPA, you're a lawyer, you can't You're not like, you know,

Mike Stohler
my real estate attorney, and you

Robert Fraser
know, you're not smart enough must be protected by the state, you know, much more of a you know, look let people make their own decision. And you know, we let's protect the little ladies. But why we don't have to protect the lay Real Estate Attorneys, right.

Mike Stohler
Well, and there's so many people, it's, it's what everyone says is, is just because you have done something for a long period of time, doesn't mean you're good at doing it. And, but so let's jump into do touch second liens.

Robert Fraser
Absolutely. I'd rather buy a second than first.

Mike Stohler
Ah, so let's, let's enter. Okay, that's probably pick some of our viewers interested. I know. Let's talk about second liens. Good and tell me what it is, in case they don't know. And why in the world would I do a second lien?

Robert Fraser
Exactly. And I am so glad everybody hates second liens, because I buy them for nothing. And boy, are they God. So you know, there's no such thing as a bad loan. Only a bad price. Okay, so, hmm. So, So secondly, what is a Secondly, of course, when you go buy a home, you talk to a bank, you take out a mortgage, that's generally a first lien and it means they're first in priority. So that home ends up having to be foreclosed the first link gets paid 100% before any other lien gets paid a single dime. So they're senior in all in all, you know, factors a second lien so let's say you go out and get a home equity line of credit on your on your house and to do a remodel or some If you would get a second lien, now that second lien only gets paid on anything that's left over in a foreclosure scenario, but auction after the first lien is fully satisfied. So it's it's the risk profile is much greater. But, but that does not necessarily. So let's say you have let's take a $300,000 house. Okay. And $100,000 first and $100,000 Second. Okay, so the $100,000 First, let's say, I could sell you that Mike $100,000. First, I would sell it to you for $99,000. And it's got a three and a half percent yield on it. So you're gonna earn 3% of your money. Pretty boring, right? Yeah. You know, maybe you're gonna think about something better. Yeah. But you could buy a second mortgage $100,000 second mortgage, and I'll say you that 460 $1,000 and ended up with the interest rate is a 7%. Interest rate. So so you're but you're earning 7%? Let's let's just make the numbers easy. You're You're it's $100,000. Mortgage that I sold you for $50,000 at a 7% rate. So you're earning 14% yield on your money. If only now, is it riskier? Well, foreclosure scenario, the first is going to get paid, and the second is going to get paid. You follow me? It's no no risk here. But the discounts are insane. And so, so the risk See, so here's the thing about a first lien, is you look at the value of the property and the size of the lien, super simple. A second, a second lien is a sliding scale, it could be just the same as a first if it's a lot of equity above you, right. But or it could be super risky. If it's, you know, you're not covered by equity. So So there's, there's, there's a sliding scale. So that's the thing about seconds is they're they're no they're not, they're not as simple as First, there's a sliding scale, you choose your risk. Yeah. And that changes the price dramatically. I don't buy loans that have no equity that are not a fully covered or 80%. We call it we have an ITV skill, investment to value ratio that are above 80%. We do please don't buy them. But let's say you did, you could earn a 20% yield on those things. So you the price would go way down. So all they got to do is if they pay for three years, you've got your money back, you follow me? So the price of these things is just all over the map, based on the quality of the borrower and the quality of the home and the equity position.

Mike Stohler
So do you stay away from zero equity notes? Are they

Robert Fraser
Absolutely we don't we don't buy those. Okay. Yeah, we're not interested in you know, we don't go that far out. We don't want to, you know, you know,

Mike Stohler
or you're assuming that there's, there has to be an upward trend if you get zero equity right there. Yeah.

Robert Fraser
And that's just that's super risky. Yeah, at least don't have to buy those. So we don't. And you're asking for if you do that, we basically really tried to build a very bulletproof portfolio. That's both high yield, and fairly bulletproof course, there's no guarantees, and no one knows what the future holds. I can't tell anybody have a perfect crystal ball. But having two craters in our background, we're, we're pretty crater shy. And and we really want to, you know, we've done all the stress testing you possibly do and all the models we could possibly do for these, you know, yeah, you know, I don't know if any of your listeners have a finance background, but we actually do a, we actually went our underwriting, we actually do a discounted cash flow, we actually map out every possible outcome for this loan, including default foreclosure, senior default, pay off in year, you know, two year three year for every outcome, and we come up with a discounted cash flow on a value for that note, if that's the outcome, then we weigh those based on our experience, and we come up with a weighted discounted cash flow value this, that's we call it the intrinsic value, which is what the mathematics would say this loan is worth, okay, mathematically speaking, guess what, we have never paid that number. The discount is always greater than that, that tells you how efficient the market is. So we're always buying these below intrinsic value, and we even model a 30 to 40% default rate, which we have never experienced. It's only our default rate is only hit and defaults are temporary. You know, it's a delinquency rates really only have only hit a 9%. You know, and then right now, they're back down about seven. And there's people that just fall behind and then they reinstate it's not a permanent default. But we're not even close that we we've booked a row or modeled a 40% default rate. And you know, and that's the way we underwrite, and we've still never paid that for a loan. So it just tells you the market is super inefficient. And

Mike Stohler
so what are you seeing Today, yeah. And should people you're looking at okay, it's so unpredictable you, you're talking about the nature of the public markets. We're talking now that the US has trillions in debt. We may go another to try me, who knows, you know, with another stimulus all late. So, so tell me that why do you say hopefully? And how does how is it going to affect? Or does it affect? What are you seeing with today's unpredictability of COVID? You know, we just had the presidential election, we may might have another two, two plus trillion dollars pumped back into, you know, in, in relief, where are you seeing the value of notes and,

Robert Fraser
in my opinion bank on it, okay. And, you know, fear fear doesn't pay, you know, fear if you're, if you're afraid you're going to be broke. Okay, so you need wisdom, right? But you know, JP Morgan, make all this money buying defaulted government, Russian, Russian government bonds, and his he's famous by coining the phrase when there's blood in the streets you want to buy. So, so feared fear doesn't pay. But here's, here's, here's the fact and this is actually a great question. And what probably one of the most important questions you can be asking this time, what's going to happen? Well, the one thing I can be sure is going to happen is more stimulus. Okay? And 99%, right, the checks are going to are going to be written and they should be written, okay. Because if we hadn't had the stimulus that we had, we'd be we'd be working on our second Great Depression right now. Okay, I mean, you the economy, taking a 35% shock, you just can't do that. And it becomes a spiral. And so thankfully, our economists are very sharp and they did a, a stimulus package. And I can talk for more about economics and why it's not going to be a problem with debt. But forget that for now. Here's what happened in the 2008 crisis. And I was primarily a hard money economist back then. And I believe we're gonna see hyperinflation, etc, right? When they started printing money and buying debt, okay, they monetize $3.7 trillion in debt, the Fed literally printed money and bought the debt. Okay, I was expecting hyperinflation expecting gold to go up and not none of it happened. And so what I actually did as a couple, I have a couple of charts I could send you you could put in your show notes for your your listeners, if you like absolutely actually showed okay since 2008. What happened when they when they bought all that all that all those bonds what actually happened to the stock market to the real estate market to consumer price inflation. And guess what consumer price inflation didn't happen? We didn't see consumer pricing but you know, what we saw we saw real estate prices begin to go up and and and we saw stock market begin to go up and here's here's the trick is printing money creates inflation, the problem but the issue is it doesn't create consumer price inflation, it creates asset price inflation. So when the government's printing money, I flipping assets, okay? Buy it, buy anything, buy, buy stocks, real estate, any anything that is an asset is going to go up in value, because money is going is getting cheaper relative to the price the asset, so it's time to back up the truck and buy assets and single family homes are are have have literally so many tailwinds behind them. And again, I probably not on the same page as a bunch of folks, but I've been doing this a long time. And, and, you know, so there's a huge shortage of single family homes, huge, massive across the United States. Now, maybe it's you haven't surpluses in San Francisco and a couple spots. But I also elsewhere, single family homes have been under built for the last 15 years, almost no single family starts. And, and me one population keeps going up. And so what's happened so 15 years ago, you could have bought a piece of land, built a house, sold it and made money pretty much anywhere in America. Today. If you were to buy a piece of land, build it and sell it, you would lose money almost in especially in the lower end of the markets. Why? Why is that? Well, inflation inflation has been going for 15 years. But the housing prices took this giant dip down and they've still not caught up to inflation. Still not you actually look at the Case Shiller or the Yeah. The Shiller the Shiller Case Shiller home price index. Adjusted for inflation. We're not close to the previous peak. Wow. And so housing prices are going up there is a there's a massive shortage of housing relative to population massively under built price to you know, for rent to rent to Sorry, the rent ratios to the to the mortgage rates rent for some more. It's our double in many places so cost twice as much to rent a home that's to pay a p&i paying on what does that tell you? It's under priced prices are going up in single family homes. So single family to me is the place to be. It's it's the one that hasn't had huge run up in prices, even though the prices have been going up, it's still not even close to real value in my opinion. So back up the truck is a big it's a best bet on on, on fed on fed printing. And it's a bet on it's a bet on fundamentals basically.

Mike Stohler Yeah, it's it's very interesting. It's especially here in in Arizona, where everyone's moving to, you know, it's just and it is crazy. You're seeing all these apartments being built. We're seeing other things being built, but it's especially affordable housing is just it's non existent.

Robert Fraser And bidding bidding wars, massive shortages. And it's not going to change until until you see prices go up until it actually becomes affordable for builders to build again to buy a lot, build a house and sell it. It still doesn't work because inflation has been going for 14 years, 15 years. And so prices are going to go up and the clearest thing I can say is better bet on the housing market, but on single family houses, you know, you look at rants again. I mean, we actually went over the the underwriting metrics we use for mortgages, by the way, we look at what is the p&i payment, the total p&i payment the buyer is making relative to the rent of this home. And a lot of cases, it's half, they're not going anywhere, right? They're going to they're not going to stop paying this mortgage no matter what, because if they did, they gotta go read someplace and pay double.

Mike Stohler That's right. It's just, it's an amazing thing. Two more questions before I let you go. So what are some of the other sources that you're utilizing to make your valid, you know, those those investment decisions that you guys are making? Can you share some of those sources? You know, and

Robert Fraser what's your I mean, you know, it's, it's everything you would do in the real estate world. So it's looking at the the value of property, the property price trends, but then also you add a borrower dimension. So you're pulling credit on the borrower, you're looking at their their likelihood of pay their debt load, etc, looking at all those things and you know, credit score's cetera. And then if it's a second, you actually have to look at the first you have to have clear visibility on the senior mortgage, how big it is, what what the structure of it is, etc. So, all of these things you have to put into the cooker. So it's it's a, you know, if buying rental real estate is, is is chess, the notes are checkers, sorry, the notes is chess, and seconds are three dimensional chess, you know, but it's all you know, it's all doable.

Mike Stohler
Yeah. Well, it sounds like it's especially for the viewers that this has piqued their interest. And I say this just about every podcast, it's we want people to jump in. But kind of like you Bob, you know, I jumped in real estate my earlier my career and flamed. I had the money to buy, but I didn't know what I was doing after I bought it. Right. So I always tell people that if you're interested in something like notes, get a mentor. Don't go out and just do it on your own. Learn from someone like Bob learn someone that has done it. And if our viewers want to learn more about you, Bob, where can they find you?

Robert Fraser
Aspen, like the tree funds f u n d s dot U S, Aspen funds dot U. S? And yeah, so we don't have any training for that. But you know, for purely passive if you want to have a passive income stream based on notes, you know, then we're good alternative for that. But yeah

Mike Stohler
Yeah, sounds good. And you know, that's really what it's all about. I keep telling everyone that you want to diversify your portfolio. And the more passive it is, the better off you are. And you should have at least six or seven different tree limbs coming off of that big trunk in your diversification. And I think notes might be a big part of that. Bob, I appreciate you being on. And there's another episode of the richer geek take care.

Thanks for tuning in to the richer geek podcast We're helping others find creative ways to build wealth and financial freedom. For today's show notes, including all the links and resources from our show, and more information about our guests, visit us at www. V richer kake.com/podcast. And don't forget to jump over to Apple podcasts, Google Play Stitcher, or wherever you get your podcasts and hit the subscribe button. Share with others who could benefit from listening and leave a rating and review to get the podcast in front of your eyes. I appreciate you and thanks for listening

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ABOUT ROBERT FRASER

Bob has personal experience with the unpredictable nature of public markets. In the 90's, he launched a tech company, raised $44 million in venture capital, and grew it to over 300 employees. Then the tech bubble burst and he transitioned to finance and investing, becoming CFO for several organizations and running a hedge fund. In 2012, he met business partner Jim Maffuccio, and the two found an alternative way to invest in real estate without the volatility of traditional options. By purchasing discounted residential real estate notes in the American heartland they discovered a high yield, liquid, asset-secured investment that produced consistently superior returns without all the risk. Better yet? They could work with homeowners to help them stay in their homes. Everyone wins.

Passive InvestmentsNichole StohlerDecember 15, 2021podcast, season 1