Unconventional Investments: A Guide to Mortgage Note Investing With Fred Moskowitz (#95) — Transcript
Updated: Oct 26
THE PICTURE OF WEALTH · EPISODE 95
Dustin Serviss speaks with Fred Moskowitz about mortgage note investing, cash flow and an alternative to owning rental property directly. They discuss how notes are bought, sold and evaluated.
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This transcript was generated from the episode audio and lightly edited for readability. It may contain transcription or speaker-attribution errors. Refer to the recording for exact wording.
Chapters
[00:00:00] The liquidity of a mortgage note
[00:04:37] The secondary-market question
[00:10:16] Choosing how to participate
[00:14:32] Buying a partial note
[00:20:17] Different business models in the market
[00:24:22] Origination, pricing and risk
[00:29:30] Learning risk management from insurers
[00:33:55] Notes beyond residential property
[00:40:30] Smaller loans and getting started
[00:45:20] Using industry knowledge as an edge
Guest & resources
Related episodes
Transcript
[00:00:00] Fred Moskowitz: Notes can be sold very quickly in a matter of days. If I were to reach out to my network, send out a couple of emails, make some phone calls, I could quickly sell a note and have that capital, in cash within a matter of days. Now think about if you owned a property, rental property out of your portfolio, you decide you wanna sell it. How long would it take you to, actually have that transaction closed?
[00:00:29] Dustin Serviss: Welcome to the Picture of Wealth or TPOW as we call it. I am your host, Dustin Service. I've been in the business for over seventeen years, and I think I've known almost every type of investing, but I've never heard of this type of investing put this way. Again, in Canada, we call them bonds or loans. In the States, they call them notes. And what that means is you are the owner of basically lending someone money. So if you are the person that lends someone money and they go buy a property, you're the owner of a note or the owner of a loan. This interview with Fred Moskowitz was great. We dove... We drove deep. He talked about stories.
[00:01:05] Dustin Serviss: He talked about successful stories about something, The Beatles, for sale and someone bought and made money on. And, again, it was a mind expander podcast where, you know, you might not do the exact strategy that's laid out in this podcast, but it definitely will get your creative juices going on what is possible for investing and what might be a very simple idea. And you could utilize your wealth edge and make a difference in your wealth picture? So without further ado, Fred Moskowitz. I'm excited for this podcast. And, today, we're sitting down with Fred Moskowitz, a experienced
[00:01:41] Dustin Serviss: speaker, author, educator, and talking everything assets, investing in mortgage notes. You know, this is something that in Canada, very unheard of and kind of secret. So I'm excited to kinda uncover what might be available to investors that they don't know about and unconventional investing strategies, alternative asset investing, real estate, cash flow. I'm personally excited, to learn something. And, Fred, thanks a lot for being on the show today.
[00:02:07] Fred Moskowitz: Thank you so much, Dustin. It's great to be here.
[00:02:11] Dustin Serviss: We are, so we are minus, twenty eight or about zero, US Fahrenheit. And, you're coming to me from Philadelphia, so we got contrasting kind of weather, but, similar interests in wealth. So give us a... Warm us up with, you know, you wrote a book called The Little Green Book of Note Investing. And I've heard of this. I've got clients that, you know, the retired old accountant that's got three million dollars in mortgages or notes as you guys call them. But, you know, no one really knows how he he got those. And so Yeah. I know that you're an expert in this space. So bring us up to speed. What is note investing and how you got there?
[00:02:50] Fred Moskowitz: Yeah. Absolutely. Note investing is the idea about investing in debt, investing in the paper, which are the notes and mortgages that are part of real estate transactions. And what I found is that a lot of people know about investing in real estate. Right? Investing in houses, in commercial properties, or vacation rentals, all all of these different types of real estate, but not a lot of people talk about investing in the paper. This is the finance side investing in the notes and mortgages, which are associated with most of those properties. And, here in the US, there is this entire secondary market where mortgages and notes
[00:03:45] Fred Moskowitz: are bought and sold every single day, and it's really very interesting part of the real estate business. For some reason, a lot of real estate investors, they don't pay much attention to it. And when they think of a note in a mortgage, they think about being the borrower, but not as being the lender. So with note investing, it allows you to step across the aisle and become the bank to transition from being the one making the monthly payments to being the one receiving those monthly payments. And what this does is it really increases the predictability of your cash flow as an investor. And I can...
[00:04:27] Fred Moskowitz: We can get into a little more detail about this, about about the secondary market and how that works. That's a that's a high level overview of note investing.
[00:04:37] Dustin Serviss: You had me, in... You got me intrigued. You know, you kinda tipped me off with the word secondary market, which maybe that screams risk, but I know you're gonna unpack that. And in our region, you know, where where I, you know, live in in the Okanagan Valley, there... You know, the town is about two hundred and twenty thousand people. Not a big center, but I would call it maybe the California of Canada, where you've got this sort of tourist, people buy second homes here, and real estate has been a major, boon for people. That has been a major great investment. And so, you know, when when clients are asking about commercial real estate,
[00:05:14] Dustin Serviss: rental real estate, they're a lot of frigging work. And it's fine when the market is going up, but now as we're seeing, you know, we're... You know, date of this is December, you know, twenty twenty two, we're seeing a transition in the market to a different market. So I'm intrigued. Like, if I could kinda be part of real estate but not have to worry about the tenants and the toilets and and all that stuff, that's appealing to me. Is is is that kinda what you're saying and getting on the other side of the fence?
[00:05:40] Fred Moskowitz: Yeah. You are exactly right. You're exactly right, Dustin. And here's why. When... Think about this. When you are the owner of a note, you've stepped into the shoes of the bank. You bought a note. You you you have this note. What we we often do, we place the notes with a licensed loan servicer who handles a lot of the day to day, work on that note. And they they do the management, the front end management. And so for the lender, your job really is to do... Perform due diligence to buy notes and then, maintain them on an ongoing basis. But with a loan servicer, they do a lot of the heavy lifting for you.
[00:06:29] Fred Moskowitz: And I'd like you to think of a loan servicer as the same way that a property manager manages your rental property. The loan servicer manages the note on behalf of the lender. They collect the payments each month. They keep track of the accounting, the amortization schedule. They take care of all the tax forms that have to be sent out and all the compliance paperwork that has to be sent out on an ongoing basis. They take phone calls that come in from the borrower. They manage, the payoff if if a loan is getting refinanced or, property being sold. They take care of all of that, and they do it for a very, reasonable fee. Right?
[00:07:16] Fred Moskowitz: On average, it might cost between fifteen to thirty dollars a month per note. That's what what they charge, and, they do a really good job at it. So at... As you can imagine, it's very reasonable and realistic for an investor to own many, many notes, hundreds of notes, and then you can scale. And it's very easy because once you have the note and you have it boarded with a loan servicer, there's some ongoing monitoring to do, but that's really it. And so that can allow investors to scale into very large portfolios. And, and that's what we we often see. Now think about the the brain damage that, and and I... I've seen this firsthand.
[00:08:04] Fred Moskowitz: I I know a lot of investors in in my local market here in Philadelphia. I own real estate as well, so I know what it's like. Right? You you might be able to go and own five properties, maybe scale that up to ten. But what happens when you take that to fifty or a hundred? Right? What does that look like? What is your personal life? How does that get impacted? It it gets crazy. And I know investors that have eighty... They own eighty hundred houses, and it's a lot of work. And they do really well. Don't get me wrong. Real estate is an amazing asset class to invest in, and I think everyone should be involved in it in some way.
[00:08:49] Fred Moskowitz: But to manage a large portfolio, it's a lot of work, a lot. And so there... There's that scaling limitation. So for me, I I love I love note investing. I invest in real estate as well. However, these days, I focus more on investing in deals where someone else is operating them. There's a limited partnership for a big commercial property, and there's professional management in place and and all of that. So for me as the investor, it's not a hands on investment. It's more passive. So, back to the original points, the scaling. Yeah. Notes, you can make it a fairly passive investment.
[00:09:33] Fred Moskowitz: And if you wanted to take it one step further, you can invest in a note fund, which is a professionally managed, type of syndication where the fund managers raise capital from passive investors, and then they go out to the secondary market and buy notes and and hold them in the portfolio. And they take care of all the management, and also they have the relationships, relationships with the vendors, relationships with the sellers of notes to be able to, buy them and acquire them. So it's a different strategy, and there's no right or wrong answer, Dustin. There's no right or wrong answer. It all depends on what your priorities are for
[00:10:16] Fred Moskowitz: for yourself as an investor and how much time you have to devote to this, to this. But I I love it. It's a great industry, and, there's a place for for anyone in it to participate.
[00:10:31] Dustin Serviss: Yeah. No. I think it's, one of the things that that we've, utilized in the past... And in Canada, it... It's more used in the term of bond, but it actually is a loan. And you're talking about, you know, Mace notes on real estate. One of the positions our managers put in was on Air Canada, the the airline. So in COVID, the airlines, you know, tipped off the the charts with no bookings and, you know, it was looked like it was going under and all that kind of stuff because travel was going down. So they were able to negotiate alone at, I can't remember the exact amount, eight or nine percent, but the collateral on it was
[00:11:09] Dustin Serviss: at at certain airports or airlines pay for gates. So airlines pay for certain gates and airlines pay for certain times that they can come into the airport because the better your times, the more you can charge for flights, and and it's just this big revolving door that I never actually knew about. So behind the scenes, they lent Air Canada money, and the collateral they got was those airport gates and times. And so the thesis the money manager had was that if Air Canada went broke, they would be left with these gates and times as collateral that's... That they believe that some airline would exist in the world Yeah.
[00:11:46] Dustin Serviss: That would want those things and they might be, you know, maybe taking a seventy or a a sixty percent, or getting thirty or forty percent off what their original position, but they wouldn't lose all their money because they had that collateral. So, again, I'm just trying to get the juices going with the with the creative lending opportunities there are out there.
[00:12:07] Fred Moskowitz: One thing is...... Example.
[00:12:09] Dustin Serviss: Yeah. So it's... I... I'm sure you've got a a whole bunch of them, and I wanna get more out of you. But on the commercial partnerships, this is something I get... You know, a lot of our clients are business owners, entrepreneurially minded. They maybe don't have enough money or or think they have enough money or think they have enough creativity or think they have enough of a network to get to these partnerships. But help us understand what... You know, maybe it was a recent one or a recent example that's easy for us to understand. Commercial deal or a a partnership where you bought, you know, something and you
[00:12:45] Dustin Serviss: went together, how does the the structure of it look? And maybe this gets some people some ideas of how they could create their own Or if they've got a great idea, like it always says, if you've got a great idea or a great property that you found, there will always be money around. So help us understand what partnerships actually look like.
[00:13:06] Fred Moskowitz: Yeah. That's that's a great, great topic. I love that. So let's talk about that in the context of of node investing. There is a strategy called partials. And what a partial is is where you take a note and you slice off a portion of it and sell it to someone else while still maintaining ownership of the note. And the way that works is let's say that you have a note of... With ten years of payments on it.
[00:13:42] Dustin Serviss: Yeah.
[00:13:43] Fred Moskowitz: Well, you can... And you own that. You can sell the whole note to another investor. Right? Or let's say, you needed to raise some capital but not the full amount of the note. So you could sell five years worth of payments to another investor and still retain the back end of that note. And so what happens is the the buyer of that partial, they're buying five years of payments and then starting in year six, the servicer will begin, instead of sending the borrower payments to the partial owner, now they're gonna start sending them to you that sold that that partial, and you'll may collect the the remaining years of payments on the note.
[00:14:32] Fred Moskowitz: That's called a partial. That allows you to subdivide, an investment in a note in a very seamless and straightforward way where everyone is still protected by the collateral of the property. Everything is... It's a very standard, and accepted practice in in our industry, and it's something I've done, many times because oftentimes there might be a big note and you don't have you don't have all the capital that you need to buy it. So you can you can instead buy partial on that. And, it's a great way, a great way to, to to have flexibility, and it it is essentially a partnership between the owner, the note, and the buyer, the partial.
[00:15:25] Fred Moskowitz: They're working together. They're... Everyone's interests are aligned because the success of one means the success of the other. So it's really a win win, scenario. So for instance, that, example you said about, the asset involving the collateral secured by, Air Canada's position. Right? If that was something that's generating monthly payments, and I'm sure that was a very large transaction probably in the millions of dollars. Right? Well, that could be sliced up into multiple sections so that multiple parties can come in and participate on that. And the only division is chronological where year one goes to investor a, and then year two goes
[00:16:15] Fred Moskowitz: to investor b, and then years three through five goes to investor c.
[00:16:22] Dustin Serviss: So I I got a couple... I think we should, set up a a a basic scenario. So a note, a loan, whatever you wanna call it is... Let's say we've got a a million dollars. So it starts with somebody needing money. So somebody needs money for something. And so... Or you need to buy a building. So let's let's use a building because it's... It just kinda gets easier. Big commercial building, whatever you wanna envision in your mind, it's a million dollars. And to buy that, you you need a million. So you're gonna go and you're gonna get some debt from somebody to buy the building. The building is gonna pay you rent.
[00:17:01] Dustin Serviss: You're gonna use some of that rent to pay for the loan. K? So that's really simple mechanics. You mentioned secondary market. Who... Why would somebody that's collecting... Or somebody that is, got the debt on that building and collecting interest every month and it's going well. Why would they sell that to somebody else? And and who would... Why would someone buy that again when the other guy already owns it or or or company already owns it?
[00:17:31] Fred Moskowitz: Yeah. So this is... The the main reason why is the need for capital. So the sell... Why the... And this is a common question. Why would a seller of a note be sell... Why do they need to sell the note?
[00:17:48] Dustin Serviss: Because maybe the the guy's not gonna pay in the building and they're panicking or that... That's what a buyer of the note would probably be thinking.
[00:17:55] Fred Moskowitz: Yeah. Yeah. Absolutely. But there's a lot of other reasons, like, the seller may need to recapitalize because they're... I have their... They have their eye on another deal they need capital for. Right? So usually, it's liquidity, and this this happens at all levels. It doesn't matter whether you're a huge hedge fund on Wall Street or you're an individual investor with a portfolio of five notes. If you need capital, you might be wanting to liquidate some of the notes you have to quickly raise capital, and notes are are actually very liquid. What I found in, is that notes can be sold very quickly in a matter of days.
[00:18:42] Fred Moskowitz: If I were to reach out to my network, send out a couple of emails, make some phone calls, I could quickly sell a note and have that capital, in cash within a matter of days. Now think about if you owned a property, rental property out of your portfolio, you decide you wanna sell it. How long would it take you to, actually have that transaction closed? Usually, two to three months at best. Right? And so, it it does take a while. So buying and selling a note can happen quickly if if needed. But the real reason that that this happens is because of liquidity. Now here in the US, something that's very common is
[00:19:28] Fred Moskowitz: that loan originators, the lenders that, actually create mortgages, they work on this basis of constantly creating loans. They get them set up. They qualify the borrower. They they fund the transaction, get everything in place. But then within one month or three or six months, they will take that loan and go and sell it at a discount. And why did it... Why did they do that? And here's why. Because lenders that do originations, their business model is a velocity of money, and they wanna recapitalize so that they can turn around and write a new loan to someone else. And they make their money on the origination fees and and all of
[00:20:17] Fred Moskowitz: those things, but they work at a very high, volume very high volume and, low margin because of that, but that's their business model. And so you have these different different market forces at work at at all levels.
[00:20:35] Dustin Serviss: So so... Okay. So let's keep going with that. And I... And for, you know, listener, just bear with me for a sec. If you got a pen, write it down. If you're driving, I'll just try and do it really high level. Because I think we need to understand how a note is. And let's use a hundred thousand just for easy math. A hundred thousand is the original note. And in that real estate example we were talking about, Fred, you know, you mentioned, owner. There's owner of the building who is not what we're talking about. We're talking about the owner of the loan is Yes. Is who's who's selling the loan. So I just wanted to clarify that.
[00:21:10] Fred Moskowitz: But Yes. And that that can happen... Yeah. That can happen without without any involvement by the borrower, the owner of the property, the the borrower, the payer on the note. They have no say in the matter whether a loan gets sold or not. Usually, in the loan documents, it will be disclosed that the loan can be sold at any time. And, and there's a process that has to disclose and and notify everyone. But the bottom line is the borrower has no say in the matter, but they are guaranteed that the rate interest rate in terms of the loan can never be changed by someone that's buying a loan. Right?
[00:21:54] Fred Moskowitz: And so that has to always be honored because it's a contract. It's a contract that someone else is stepping in and and buying that. So I just wanted to highlight that because that's
[00:22:04] Dustin Serviss: a perfect set
[00:22:05] Fred Moskowitz: up common question....
[00:22:06] Dustin Serviss: Where I'm going. So a hundred thousand, and the interest is five percent. So you've got a... The owner of the property needs a loan, so they go get a hundred grand loan from another... From Fred. And so they get the loan from you for a hundred thousand, and it's at five percent. So a year, you're collecting five grand of interest on that loan. Yes. Let's just say. Okay? Now, Dustin comes along and he's looking to buy a loan. So I'm gonna come to you and I'm gonna say, hey. Do you have any loans for sale? And you're like, yeah. I got this big project I wanna go to, and I need some cash because I'm... I need some cash.
[00:22:49] Dustin Serviss: So I'll sell you my hundred grand loan at five percent. How much do you sell me that loan at five percent for?
[00:22:57] Fred Moskowitz: Well, that... That's a great question. There is so much that goes into how a loan gets priced. But I will tell you at a general level, loans are sold at a discount. So if... Let's say that was a hundred thousand dollar loan, maybe it will get sold at ninety five thousand or some... There'll be some discount, which now bumps up the yield is now higher than five percent for the holder, the buyer, and the note. The borrower's still paying at five percent, but the the note owner, because they bought at a discount, now they're they're earning a higher yield, and that's very customary. Now think about this. Note in the...
[00:23:41] Fred Moskowitz: During that time after it was sold in the beginning of the amortization schedule, very little of the payments were principal. And so, the the first owner just collected all that interest for the whole... For the whole year or whatever that initial time frame was. Let's... So
[00:24:02] Dustin Serviss: just... And sorry to interrupt, Fred. If Mhmm. Let's say that you originated that loan and you sold it the next day for ninety five thousand. So does that kind of mean you took a five percent loss to free up your capital to go somewhere else, or is it not that bad?
[00:24:22] Fred Moskowitz: Well, it it could be, but think about this. Money was made on the transaction fees, the origination fees, points charged, all all of that all of that, which comes into into play. I don't do loan originations myself at all. I Okay. I buy loans. We buy loans that were originated by banks and institutions, and so there are several layers removed if you think about that. But other factors that influence pricing are things like risk. For instance, how much equity is in the property? What's the track record of payments on the note? Is is it a little bit bumpy where now that's gonna impact the pricing a little more, or is it a riskier type of note?
[00:25:13] Fred Moskowitz: Is it a second position or first position loan? There's all of these variables that that come into play. And the bottom line is if you're willing to take on more risk, you're gonna earn a higher rate of return. You're gonna buy a note at a greater discount. And then the trade off is you have to know how to manage that risk, manage that that type of asset.
[00:25:39] Dustin Serviss: Is there maintenance that's required in these notes, like, annually, or do you just set it and forget it?
[00:25:45] Fred Moskowitz: There there there is absolutely maintenance, and that's handled by the loan servicer. The main things that that are needed are compliance related. So there's, notices and disclosures that have to be sent to the borrower as well as, generating the tax forms, tax statements that have to be sent by specific deadline. And so the loan... As long as you're using a loan servicer, they take care of all of that for you.
[00:26:16] Dustin Serviss: So I'm gonna... I'm... You've kinda set it up in your last comments, but I'm gonna shift gears from this this last sentence. But what I think is important to know in in Canada, mortgage investment corps or mix are kind of a term that is thrown around. Sometimes, people invest in them. The theory is you have a fund that has, you know, say it's got a hundred million, and they've got two hundred and fifty mortgages on houses. And they say, well, we don't lend more than, like, a fifty percent loan to value ratio. Okay? And they traditionally, you know... And I'm I'm using an example from town, but I'm not...
[00:26:54] Dustin Serviss: I won't mention their name, but it it sets it up. Okay? So the average loan on the mortgage is about two hundred and fifty thousand on on houses that are, like, six hundred thousand and and higher. So they show and disclose how much the the pot of money is loan to value. Might be forty eight percent, might be fifty two, but they try and keep it around fifty. They pay their investors, you know, say, six percent, maybe a little juice at the end of the year if there's a bonus. But help me understand the downside risk of this investment. So if this portfolio is a fifty percent loan to equity, in theory, for me to lose my money, the...
[00:27:38] Dustin Serviss: All the people would have to stop making their payments for one. Right. Oh. And all the houses would have to sell for, well, basic... Like, zero almost. Right?
[00:27:50] Fred Moskowitz: Yeah. Exactly. And and that's a highly unlikely scenario. And, what happens is that most likely not all of the loans are gonna have an issue at the same time. There might be some. And what I found is that usually with enough time, these these can get resolved. But it's like... Think about the way a life insurance or any insurance company works. Right? They manage their risk by diversifying across a large pool of insurance, whether it's properties, people, cars, anything. So they'll play... Pay some claims out, but it's not likely that all of the insurers are gonna have a claim at the same time. That...
[00:28:47] Fred Moskowitz: That's that's not not a realistic scenario. And so that... That's, that's part of what what we do with... It's diversification. I always like to tell people and teach about this that if you're investing, I really like the idea of if you had a hundred thousand dollars to invest in notes, instead of buying one note for that hundred thousand dollars, you'd be better off buying four smaller notes, twenty five thousand each. And now your risk is spread out across four deals. And that... That's a much stronger position to be in. And so that... That's just just a little bit about managing risks. And let's face it.
[00:29:30] Fred Moskowitz: Insurance companies, they've been around for hundreds of years. They know how to manage risk. And so we can take a page from their playbook and utilize that strategy as well.
[00:29:42] Dustin Serviss: Can you give me, I'm gonna go to phase two of the same scenario and question. So if if, this... So I want... Where I'm going, I'm kinda having trouble articulating, but first and second position. So Yes. If I... If I'm part of that fund and I invest in in my money, and so say the house value... The person stops paying, we've got to foreclose, or we've got to take over the house, which most of these companies don't want because it's pain in the ass, but they have to take over the house. And then in my head, I always thought, well, they would take over the house. If the person's going bankrupt, they take over the house, and they would sell
[00:30:21] Dustin Serviss: the house for, say, five hundred. And when the loan's only two fifty, they're actually gonna make money. But that's not the case. Because if they're going bankrupt, some of that money is gonna be going to satisfy their other debts. Is that not correct?
[00:30:39] Fred Moskowitz: Okay. I will talk about this from the context of of in the US because that... This is scanning into a little bit of of legal Okay. Legal, items. But let's say, yeah, that's... Let's say that if that scenario happened here in the US, the liens that are secured against the property, all will get... Have priority to get paid first even in the back... The case of a bankruptcy, by the borrower because the bankruptcy is personal for the for the borrower themselves. So if that property were to go to sale, go to foreclosure sale, then the first position lender has the right to recuperate everything up to their,
[00:31:32] Fred Moskowitz: payoff balance, not everything that that
[00:31:37] Dustin Serviss: Yeah.
[00:31:37] Fred Moskowitz: Is generated by the sale of property only up to their loan, balance, their their payoff amount. And then after that, whatever's left over goes to the second lienholder, the second position, and and the same thing. Now let's say there's still money left over after all of that. Well, then now the borrower is entitled to, receive that. They can file, file documents with the court to receive those proceeds. So they don't on... They don't go to the lender. They they go to pay the borrower or any other lienholders that are there. But the the mortgages are secured lenders, so they're they're in line first to get paid.
[00:32:24] Dustin Serviss: Well, that kind of... I guess no matter probably... And again, Canada, US, a person in their due diligence should be asking what position are we in? First or second?
[00:32:35] Fred Moskowitz: Yes.
[00:32:35] Dustin Serviss: Or third? You know, knowing where... Mhmm. Yep. What... Why do you think that this note investing is a little bit less talked about marketed? Why is it kind of like a... I wanna say it as a secret, but it's like... It doesn't seem like it's marketed as much as is it a niche? Is it... But it sounds pretty compelling.
[00:33:00] Fred Moskowitz: Yeah. It's it's very interesting. It's it's a niche, and a lot of people just don't know don't know about it or don't understand it. It's a little more complex to understand and learn about, but, there... There's... I've definitely seen a growing a growing interest in it, in the past few years. I've been involved in this industry since, the past twelve years. So it's been... It's long, long time, and I've seen it grow, quite a bit. But, it's it's work. And, for most people, they know about buying a house, buying a rental, and operating that, and that's great. That's great. But there... There's there's so many other, so many other strategies,
[00:33:55] Fred Moskowitz: Dustin. And there's other assets as well that can generate, generate cash flow and income, in addition to that. But, let... Let's let's get... Just expand a little bit. Notes don't have to be on houses. Right? They can be on they can be on a yacht. There's notes on a yacht. There's notes, aviation notes on airplanes. The example you you cited, which is a commercial loan secured by some type of collateral that, is a little more complex to wrap wrap your arms around and establish a value, but there's a commercial value to it. And so these are all types... Different types of debt that are secured by collateral.
[00:34:45] Fred Moskowitz: And the idea is that, there's some kind of recourse, something backing the investment for the for the investor... For that lender.
[00:34:56] Dustin Serviss: Fill us in, if you got a few minutes extra. We... We've now got our our base level education. We're all now experts. What are some of the the notes that you have done? Maybe some of the good, the bad, the ugly, but a couple stories or, like, actual... You know, even smalls. You got some people on the podcast that do have a million. I got some people on the podcast that might have a thousand dollars. Dude, can we can we help help each of those people understand what you've maybe done?
[00:35:24] Fred Moskowitz: Yeah. Sure. Sure. Stories. I focused exclusively on residential, residential notes, in the US all across all across the US. I bought small notes, large notes. But if we wanna talk about stories, here... Here's a great story I love that that I'm gonna share. And it's actually not a note. It's a different different type of, asset, but it's about royalties. Right? Royalties are another asset that generate income. There's collateral there backing them, and it's an asset with tangible value. Right? And so a lot of people maybe don't know this, but back in the eighties, the Beatles, right, the Beatles ended up,
[00:36:23] Fred Moskowitz: having their publishing rights to their entire music catalog went to auction. K. And this this is huge. Right? And there... There's a lot of commercial value to owning those royalties. And so what happened was Michael Jackson, another, person in the music industry, he knew that there's a lot of money to be made by owning the royalties and the publishing rights to the music. And you... You're actually in a lot better position than the original artist was because the original artist can go and go out on tour and earn money that way performing, but the real money to be made is in owning the royalties and the publishing rights.
[00:37:14] Fred Moskowitz: And a lot of times with these record deals, the record label ends up retaining those, and it... It's often doesn't end up as a good deal for the artist, unless they... They're more savvy on the business side. But, you know, a lot of artists, they're good at their craft, but they're not good in business. And maybe they don't... They didn't have good representation, good advisors. But in any event, Michael Jackson, he knew that this is where the money is to be made. So when he heard that the Beatles catalog was gonna be going to auction, he sent his attorney out to go out and chase that deal down, and he spent, like, a year or more
[00:38:00] Fred Moskowitz: negotiating this. And in the end, he bought... He was able to buy the rights to the entire Beatles catalog for somewhere between, let's call it, fifty million dollars. I don't remember the exact amount. And so The Beatles, when they had their... The music catalog, they never allowed it... The music to be used commercially. Never. They didn't want it, to be used that way. But now at this point, they no longer had a say in the matter. Michael Jackson now owned it, and he started to aggressively commercialize, license out the music. It was being used in commercials and advertisements and all of this stuff. And so what did that do?
[00:38:46] Fred Moskowitz: That started to increase the value of the asset because there's all this income and cash flow coming in from all these different commercial deals. And so ten years later, he ended up selling a fifty percent interest in that catalog to Sony Music for ninety million dollars. Yeah. So think about that. He sold half of the catalog for almost twice as much money ten years later. Yeah. And all that time all that time, cash flow was coming in.
[00:39:21] Dustin Serviss: Yeah. I love it.
[00:39:24] Fred Moskowitz: So... Yeah. Yeah. Is fascinating, and it's... I know you asked asked me for a a smaller deal, but here's a larger deal with something that everyone can relate to, the music of the Beatles. I mean, very popular, impacted the world. That music impact... Has impacted the world. There's even theories that the Iron Curtain falling was partly due to The Beatles influence, in the Soviet Union during that time. I mean, there's just so much so much impact and and lives touched through that music, over generations. But that is a story about the power of owning an asset. An asset can be small. It can be large.
[00:40:22] Fred Moskowitz: But no matter what happens, no matter what you're doing, you're owning that. You have cash flow coming in.
[00:40:30] Dustin Serviss: Yes. That's a key. I think... Well, I think what you've done... I don't know what you, listener, but you've stretched my mind. I've just sort of, like, stretched it a bit. Can you get your head around it? I got a few more questions that... You know, around it, but I think it's now diving deeper into, you know, where are these notes? Maybe it starts with a fund. But it... Is there, like, for... Is there ten thousand dollar loans out there that... You know, I'm thinking RVs, quads, snowmobiles, that
[00:40:59] Fred Moskowitz: kind of stuff. Absolutely. Think about this. Those types of those types of loans, RVs, quads, motorcycles, they're all bought with financing a lot of times. Right? Think about your local construction contractor that owns paving equipment and a backhoe and a bulldozer, and construction equipment. That is all bought with financing, with equipment leases, all of that. And those can get funded out of someone's retirement account. They can be funded out of someone's life insurance cash value, all of these different strategies. And a lot of those deals happen through a personal relationship between an investor and a business owner that is
[00:41:51] Fred Moskowitz: the local guy in your town.
[00:41:54] Dustin Serviss: Yep. Well, that's, that I think is a great bookend. In your book, I wanna get you a chance to... Have we encapsulated in today's conversation what your book, the little green book on note, investing is? Is is is there anything else in the book that that really helps Yeah. Helps a listener?
[00:42:14] Fred Moskowitz: Yeah. Absolutely. It it helps in the... In this way. The the book... My book gives a high level overview and introductory view of the note investing industries and a lot of the things we spoke about today. Why do notes get bought and sold? It covers how to analyze a note, how to perform due diligence, where to find notes, where to buy them. It talks about if you're looking at investing in a note fund, deciding whether what... Whether that's right for you and how to perform due diligence on that. We also talk about investing in partials, which is a little bit more of an advanced concept, but I I break it down into
[00:42:59] Fred Moskowitz: the basics for, for the reader to really be able to understand and get value of that. And so think about that as a introductory introductory journey into this industry. It's an industry I love. I've seen a lot of people, be very successful with it. And, no matter what kind of investing you're doing, I think that notes plays a part in your portfolio.
[00:43:31] Dustin Serviss: Yeah. Well, I I love it from, you can get started sooner than later. It's, you know, a forced savings. You're getting your money working for you, which is, you know, simple money out, money in, so you can analyze different things. And one thing that we talk about in in our kind of coaching or our sphere is investing in your circle of competence. And that term actually came from a hedge fund manager, Phil Towne. I'll give him a tiny plug, in the show because I took his course. But that, you know, when you look at investing in something, do you understand it? Are you interested in it? And, you know, that helps you get through the bumpy roads.
[00:44:09] Dustin Serviss: If you meet your... You're at cocktail party and you hear someone say, oh, I I loved x y z stock. I'm buying it, and it's gonna go up. And you go buy it, and it goes down the next day because that's usually how it goes. Do you have the wherewithal to stick it out? And if you're not interested in it, if you don't understand, well, how does this company actually make money? That behavior leads to losses because you might not stick it out or have the interest. If you've got an interest in a company, you say, you know, I drink at that same coffee shop every day. It's lined up. The market's down.
[00:44:41] Dustin Serviss: Its stock is down, but I just don't see how they could be down. You will be more wherewithal. So with loans and note investing, I love that there's a there's a personal element there that you could find loans that you understand. If you're in the construction business and you see there's a a batch of construction loans and you go, I know those projects, I know that builder. Or if you're into, you know, quads or, you know, whatever and you say, well, that particular model, older guys that, you know, go hunting and putt around on them drive that model. Well, that would be a better model than the really aggressive one the young kids buy. So...
[00:45:20] Fred Moskowitz: Exactly. Or or it could be airplanes or or anything anything. You're you're absolutely right. And let... Let's take this a step further. Let's say you're a, an HVAC contractor. Right? Heating, ventilation, air conditioning. And so let's say you wanna... You know that business. You know that space. There's the equipment manufacturers, the vendors that make the equipment that you're going out and installing. You know who's who's got a good name and reputation and product. And so maybe that gives you an edge because you can go in and buy... Maybe you wanna buy stock. Well, you can invest in the companies that you know are solid. Right?
[00:46:07] Fred Moskowitz: And that... That's another another strategy. Like you said, invest in in what you know. If you work in the technology industry, you have a viewpoint of the companies, the players out there. If you're a physician, a surgeon, you know which medical equipment, medical device manufacturers are are are on the forefront. You can you can invest money in in the companies you like. Right? Whether it's, through through owning stock or or other means, but I I love that. Invest in what you know and what you like. That's that's powerful.
[00:46:47] Dustin Serviss: Thanks, Fred. And where where can, listener find you?
[00:46:52] Fred Moskowitz: Yeah. Absolutely. Thank you. Best way to reach me is to connect with me on my website, which is fred moskowitz dot com. Or if you prefer an easier spelling, you can tech, you can visit gift from fred dot com and sign up there. And, if you prefer to use your mobile device, you can text the the word money to two one five four six one four four three three from your mobile device and, follow the prompts there that way. And, my book, The Little Green Book of Note Investing, it's available on Amazon. And, for anyone looking to learn more about this industry and this asset class, it's a great place to start.
[00:47:39] Dustin Serviss: Well, thanks a lot, Fred. I learned a ton today, and I can't wait to maybe have a part two in the future. Maybe we We'd love that. We can get a little deeper now that we got this knowledge. Thanks.
[00:47:49] Fred Moskowitz: Thank you. Thank you.
[00:47:52] Dustin Serviss: Thank you for tuning in to this episode. If you enjoyed the show, please like and rate the show, share with a friend, or use your new knowledge in your next conversation. If during the show something gave you a pang of inspiration, motivation, or sense of uncertainty, act on it now. Get the clarity you're looking for. Find the permission you seek. Go to service wealth dot com to discover how others are learning how to take Fridays off or buying a recreation property or spending more money. If you're an organizer of an event where you believe my philosophy on finance
[00:48:20] Dustin Serviss: and lifestyle design would be applicable, go to service wealth dot com and book me as a speaker at your next event. If you want a copy of our new book coming out soon, send me a message on Instagram or Facebook, and we will be sure to get you a first copy.