Real Estate Investing School Podcast - Episode 243: How to Profit from Mortgage Notes with Nathan Turner

Release Date: March 10, 2025

In Episode 243 of the Real Estate Investing School Podcast, host Joe Jensen welcomes Nathan Turner, renowned as the "Canadian Note Guy." With a rich background in real estate and a specialized focus on mortgage notes, Nathan shares his journey, strategies, and insights into the lucrative world of note investing. This detailed summary captures the essence of their engaging conversation, complete with key points, notable quotes, and actionable takeaways for both novice and seasoned investors.

1. Introduction to Nathan Turner

Joe Jensen introduces Nathan Turner, highlighting his reputation across the U.S. and his leadership roles:

• Nathan Turner: President of Earnest Inc. and manager of Earnest Investing LP Note Fund.
• Host's Description: "Nathan is passionate about his unique approach to real estate with its multiple exit strategies and win-win situations."

Notable Quote:

"[00:16] Nathan Turner: Here's your amortization chart at 9% where you are right now. Here's what the Bank's offering at 4 or 5%. Look how much money you could save just by doing that. And the reason I do that is because if I get paid off early, my return skyrockets."

2. Nathan's Journey from Fix and Flip to Mortgage Notes

Nathan begins by recounting his early days in real estate, focusing on fix and flip strategies in Canada:

• Initial Success: Thrived in the market boom of 2005-2006.
• Market Shift: Faced challenges when the real estate market turned, leading to rental management frustrations.

Transition to Notes:

• In 2009, a pivotal moment occurred when Nathan and his partner were tasked with managing a portfolio of 60 properties acquired at the market's peak.
• Innovation: Faced with holding onto undervalued properties, they pioneered seller financing—essentially creating their own mortgage notes to sell properties on terms.

Notable Quote:

"[02:34] Nathan Turner: So it ended up we figured out that selling them on terms and Creating notes was really the best approach to what we had."

3. Understanding Mortgage Notes and Seller Financing

Nathan delves into the fundamentals of mortgage notes and the mechanics of seller financing:

• Mortgage Notes vs. Traditional Financing: Explains the difference between being a lender (holding the note) versus being a landlord.
• Types of Contracts: Differentiates between mortgages/deeds of trust and contracts for deed (including land contracts and agreements for deed).

Key Points:

• Ownership and Title: In a mortgage situation, the borrower holds the title, whereas in a contract for deed, the note holder remains on title.
• Benefits: Being a note holder eliminates responsibilities like property maintenance and taxes, providing passive income without the typical landlord headaches.

Notable Quotes:

"[12:40] Nathan Turner: So with a mortgage or a deed of trust, I'm going to lump those two together... the borrower, the person living in the house, they're the one on title."

"[14:51] Nathan Turner: Oh, definitely. Yeah, we've definitely had that..."

4. Pros and Cons of Owning Mortgage Notes

Pros:

• Passive Income: Continuous monthly payments without property management responsibilities.
• Simplified Management: Easier to handle defaults without the lengthy foreclosure process inherent in traditional mortgages.
• Flexibility: Ability to adjust terms, such as extending loan durations or modifying interest rates to accommodate borrowers.

Cons:

• Title Risks: Owning the note means potential liabilities related to title issues since the property remains in the note holder's name.
• Property Taxes: The note holder is responsible for property taxes, which can become problematic if a borrower defaults.
• State Laws Variability: Legal processes for handling defaults vary by state, affecting the ease of repossessing properties.

Notable Quote:

"[16:03] Nathan Turner: The biggest one really is just getting that back. Some of the cons is it kind of depends on the state."

5. Buying and Selling Mortgage Notes

Nathan explains his strategy for buying and selling notes:

• Acquisition at Discounted Rates: Purchases non-performing notes at significant discounts (e.g., 20-50% below face value) to maximize returns.
• Yield Enhancement: By buying notes below face value, Nathan increases his effective yield beyond the note's stated interest rate.
• Liquidity and Flexibility: Offers investors the option to cash out their notes early, enhancing liquidity.

Example Scenario:

• A $100,000 note at 9% interest bought for $75,000 yields an effective return significantly higher than the original rate due to the purchase discount.

Notable Quote:

"[34:28] Joe Jensen: It on sale Gotcha. So even though the interest rate didn't change the, on the paperwork, your yield is, is a 12% because you didn't pay 100 grand for it."

6. Nathan's Investment Fund and Business Model

Nathan discusses the structure of his investment fund:

• Fund Type: 506C fund tailored for accredited investors, including IRA funds.
• Returns: Targets a 12% yield, offering an 8% return to investors with a 4% spread as profit.
• Operational Efficiency: Minimal transaction costs due to streamlined processes, avoiding fees from title companies and escrow services.

Notable Quote:

"[41:32] Nathan Turner: So I get the spread? So we pay our investors 8%, and then we're... buying at a 12% yield."

7. Challenges and Mistakes in Note Investing

Nathan shares valuable lessons from his experiences:

• Due Diligence Importance: Emphasizes the necessity of thoroughly inspecting properties linked to notes to avoid costly mistakes.
• Trust and Relationships: Highlights the importance of trustworthy relationships in the note-buying community to facilitate smooth transactions.
• State Law Complexities: Points out the variability in foreclosure laws across states, impacting the ease of recovering assets.

Notable Quote:

"[55:04] Nathan Turner: ...it's a trust business. And that's, I kind of like that. This, It's a small enough group of people. We know each other..."

8. Overcoming Industry Challenges

Nathan addresses common hurdles in note investing:

• Regulatory Landscape: Discusses the impact of the Dodd-Frank Act and the Consumer Financial Protection Bureau (CFPB) on lending practices.
• Market Conditions: Notes the shift from non-performing to predominantly performing notes as the economy stabilizes, affecting availability and pricing.
• Scaling Limitations: Identifies available capital as a bottleneck, which his fund aims to alleviate by pooling investor resources.

Notable Quote:

"[38:27] Nathan Turner: ...there's a effort to stop that. So the law that was passed is called Dodd Frank... the Consumer Finance Protection Bureau."

9. Q&A Highlights and Practical Advice

The latter part of the podcast features a dynamic Q&A session where Joe poses critical questions to Nathan:

• Metric for Selling vs. Holding Notes: While Nathan prefers holding notes for long-term gains, he admits there’s no strict rule and decisions are often case-dependent.
• Transaction Process: Explains the simplicity of transferring notes through assignments of mortgage filed at the county, emphasizing minimal costs and the importance of trust.
• Investor Relationships: Details how he interacts primarily with institutions and established holders rather than individual sellers, ensuring reliability and efficiency.

Notable Quotes:

"[25:18] Joe Jensen: That's really interesting. Okay, so this is cool because I don't know a lot of people that do what you do...

"[42:43] Nathan Turner: That's where it gets interesting..."

10. Final Thoughts and Resources

As the episode concludes, Nathan shares personal insights and resources for listeners interested in exploring mortgage note investing:

• Key Takeaway: Emphasizes the value of passive income through note investing as a way to "upgrade" from being a traditional landlord.
• Resources:
  • Website: EarnestInvesting.com
  • Conference: Diversified Mortgage Expo in Nashville (May 2nd and 3rd)

Closing Quote:

"[59:10] Nathan Turner: That's what it's all about."

Conclusion

Episode 243 offers a comprehensive exploration of mortgage note investing through Nathan Turner's expertise. From navigating the complexities of seller financing to managing a successful investment fund, Nathan provides listeners with actionable strategies and a clear understanding of the benefits and challenges inherent in note investing. Whether you're seeking passive income or looking to diversify your real estate portfolio, this episode serves as a valuable guide to unlocking the potential of mortgage notes.

Resources Mentioned:

• Nathan Turner's Website: EarnestInvesting.com
• Diversified Mortgage Expo: Annual conference for note investors, held in Nashville.

For more episodes and insights into real estate investing, subscribe to the Real Estate Investing School Podcast and stay ahead in the ever-evolving market.