JF2224: Note Investing Strategies With Jamie Bateman
Jamie is a part-time real estate investor and works part-time in the U.S Defense Department. He currently has a portfolio of 8 rentals and over 20 mortgage notes. Jamie started off as a coach and after some time he decided to work for a mortgage broker where he saw some shady things happening so he decided to quit his job and join the military. Now he is focusing on his own real estate business while working for the U.S Defense Department.
Jamie Bateman Real Estate Background:
- Part-time real estate investor and part-time in the U.S Defense Department
- Has over a decade of experience in single-family rentals and 2 years in mortgage notes
- Portfolio consist of 8 rentals and over 20 mortgage notes
- Based in Baltimore County, MD
- Say hi to him at: www.labradorlending.com
- Best Ever Book: Wealthy Gardener
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Best Ever Tweet:
“One of the benefits from note investing is you have collateral” – Jamie Bateman
Theo Hicks: Hello best ever listeners. Welcome to the best real estate investing advice ever show. I’m Theo Hicks and today, we’re speaking with Jamie Bateman.
Jamie, how are you doing today?
Jamie Bateman: I’m doing great, Theo. I really appreciate you having me on.
Theo Hicks: No Absolutely. Thanks for joining us, I’m looking forward to our conversation. Before we get to that though, let’s go over Jamie’s background. He is a part-time real estate investor and part-time in the US Defense Department. He has over a decade of experience in single-family rentals and two years of experience in mortgage notes. His portfolio consists of eight rentals and over 20 mortgage notes. He’s based in Baltimore County, Maryland, and you can say hi to him at https://labradorlending.com/.
Jamie, do you mind sharing with us a little bit more about your background and what you’re focused on today?
Jamie Bateman: I’d be happy to. As far as background goes, as you mentioned, I’m from Baltimore County, Maryland. I am the oldest of seven kids. I have three brothers and three sisters. Went to Hereford High School in Baltimore County. I went to Gettysburg College in Pennsylvania, played lacrosse there, and met my wife there, graduated in 1999.
After college, frankly, I really wasn’t positive what I wanted to do. Lacrosse was such a big part of my life at that point. I didn’t have too much direction at that point, so I decided to coach a little bit, so I coached in high school and at the college level. Unfortunately, it doesn’t pay real well and certainly not back then. One year I made $8,500 (not $85,000) as essentially a full-time coach… So I decided it was about time to get a real job.
Through some networking, I linked up with a title company, and I later worked for a mortgage broker. At that point, there were some real shady things – this was probably 2004/2005-ish, kind of right before the peak of the real estate market… And some shady things were going on at the mortgage company I was working for and I said, “You know what, I don’t want to have anything to do with this.”
I quit my job, I joined the Army Reserves, went through Officer Candidate School, chemical school, deployed to Iraq for a year, I ended up getting a Master’s… But again, as you can see, kind of bouncing around, not totally sure what I wanted to do. I was able to use that army career to pivot to a civilian job with, as you mentioned, the Defense Department, and that was in 2008. I got out of the Army Reserves as a captain. I’m still currently with the Defense Department today.
My wife and I actually bought our first rental property – pivoting over to real estate now – in December 2009. It was a condo, we still own it. In fact, we still have the same tenant there. I’ve kind of always had an inkling that I want to get into real estate investing, but frankly, at that point we weren’t really taking it too seriously, didn’t really know what we were doing. It was later on, 2014-ish, when I was driving a lot for work, for my commute, and listening to a ton of podcasts, and then I kind of decided to take real estate to the next level.
So 2015 is when we actually started buying rentals and I actually went part-time in 2015 at my “real job”, and my wife and I started ramping up our real estate investing.
Theo Hicks: 2015 – is that when you started to accumulate the now eight rentals that you own?
Jamie Bateman: You got it. Yep.
Theo Hicks: Are those all single families?
Jamie Bateman: They are all single families. One is a condo and six townhouses in Baltimore County, and then we actually just picked up a rental in Jacksonville, Florida. It’s our first out of state rental. That’s a true single-family detached home, which is a pretty cool story, I think.
Theo Hicks: Yeah, I definitely want to ask about that rental out of state. One question I want to ask you – a lot of people, when they think about single-family rental investing, you’re only allowed to have a certain number of the types of loans in your own personal name. I think it’s like four or eight or something.
Jamie Bateman: Yeah, I think it’s gone up to 10.
Theo Hicks: Okay, so you’re still just putting those in your personal name, then?
Jamie Bateman: No, actually they are in an LLC, and one of them is in our personal name. But that’s the first one that we bought over 10 years ago. We still have the same tenant there, and he brings us six checks twice a year, which is nice. But anyway, the rest are not in our personal name.
One of the downsides is we do have commercial notes attached to those properties and they are recourse loans that are amortized over 20 years, and they have balloons after five years. It’s your typical commercial loan, which that’s also typically a little bit higher interest rate. I’m actually looking to address that situation, because the payments are a little bit higher than I’d like them to be.
Theo Hicks: Do you have one commercial loan over all those properties or each property is in a commercial loan?
Jamie Bateman: It’s actually the six townhouses in Baltimore County have three loans on them. So each loan is backed up by two properties.
Theo Hicks: Got it. Okay. Does that mean you bought those two properties at the same time?
Jamie Bateman: It doesn’t mean that. We actually were buying these with cash, and generally speaking, following the BRRRR method, which I’m sure a lot of your listeners are familiar with, and fixing these properties up and renting them out, and then refinancing. But in this case, when I say refinance, it’s really just a cash-out refinance to get some or all of our money back that we put into the deal. We weren’t using hard money or anything like that. We actually were using cash to buy them, fix them up, rent them out, and then went and got more of a standard loan.
Theo Hicks: Okay. When you refinance, you buy them all cash, and then you finance two at a time and bundle them into one loan?
Jamie Bateman: Exactly.
Theo Hicks: Got it. Okay. Let’s talk about the Jacksonville deal then. I’m assuming that the other ones – were all those in Baltimore County, Maryland, or were they also out of state or out of the area?
Jamie Bateman: The Jacksonville one is the first out of Baltimore County, actually. It’s the first one that’s even more than a 15-minute drive from where we live.
Theo Hicks: Walk us through that decision. Why did you decide to invest out of state? Why did you choose Jacksonville? And then kind of just walk us up until you actually found the deal. What team members were put in place from Jacksonville? How did you find them? How did you screen them? Things like that.
Jamie Bateman: Sure. I actually have – just for your listeners, if anybody wants to learn more about this particular deal, I do have a couple blog posts about this. But this actually is a good transition over to our note investing, because this actually was a note deal that we ended up taking back the property on; and I had no intention of keeping it initially frankly. I do like the Jacksonville market, which is one reason that I purchased the note, but I did not intend to pick up a rental there. However, we fixed up that property and I was going to sell it. The more I researched the market, I just thought that it’s a really strong rental market and why sell it now. I can rent it out for a year or two and if it’s just an awful experience, I can sell the property then.
As far as team members and that kind of thing, really, I relied heavily on networking through bigger pockets and other groups that I’m in and decided on a good, established property management company that’s down there, and I’ve relied on them heavily frankly. I’ve never been to Jacksonville, Florida, and so far, it’s going pretty well.
Theo Hicks: Let’s transition into the notes then. Overall, your note strategy, I think I know the answer based off of—or maybe I don’t; so is your goal — because I was talking to someone about notes, I think it was last week, and he buys notes because he wants to take the property. He kind of mentioned there are two strategies; there’s ones where you want the property and there’s the other one where you want to work it out with the person who’s currently living there, so you just make the money on the interest rate. Which one are you and why?
Jamie Bateman: I’m not intending to take the property back. I’m trying to keep people in their homes. I’d love to work with borrowers as much as possible. Sometimes it’s the last resort. That’s one of the nice benefits about note investing, is you have collateral, which is the property, as compared to the stock market and a lot of other investment strategies. That is one benefit there. So no, we buy both performing and non-performing first-lien mortgages.
Another benefit to note investing is that there are so many exit strategies. You mentioned a couple of them, Theo, but there are others. Another really good one is to buy a non-performing note, get it re-performing, and then resell that note. That’s what a lot of non-performing note investors aim for.
Yes, some people do try to take the property back and that’s certainly a strategy. I know, as the real estate market in general, across the country, tightened up over the last five years, there were a lot more flippers and rehabbers, and people who wanted the property, getting into the note investing space just for that reason. For me, it’s not my first goal, but it’s one of several options.
Theo Hicks: Sure. So you buy performing and non-performing. Do you do the strategy where you take the non-performing to performing and sell it, or the buy and hold as a flip strategy?
Jamie Bateman: Yeah. I would say that we’re closer to the buy and hold side of things. I don’t want to pretend like I’ve been doing the note thing for 10 years. It’s actively been more of a year and a half to two years type thing. We’ve had Labrador Lending for about two and a half years, but I’m actually in the process of adding value to some of our lesser performing notes. We’ll be hoping to resell them later this year. That’s definitely on our list of — probably our first option that we’d like to do. But I’m absolutely not opposed to just buying a nice performing note, and holding it for cash flow, especially during these times.
A lot of times what we’ll end up doing is if we’re using our own money, we’ll buy a performing note to pay the bills and keep the business going. I actually hired my wife in January. She helps me out with a lot of the due diligence and a lot of paperwork.. But we will use other people’s money. A lot of times a joint venture is best geared toward a non-performing note. The reason that is — well, several reasons. But with non-performing notes, you have more of a well-defined exit point. If you’re getting the note re-performing and selling it, that’s the transaction that ends your ownership of that note, right? But joint ventures don’t typically work so well on performing notes, so we’ll often buy a performing note with our own funds. Another strategy that I have employed recently is to sell partial notes, which is a part of that sell payment stream. That strategy works better for performing notes.
I hope I’m not confusing things too much, but there are different strategies to use with both performing and non-performing notes. We stick strictly with the first lien space and specific states as well. That’s another way of focusing the business.
But as far as performing, non-performing, frankly, you can’t control the borrower, you don’t know exactly how it’s going to go, so to pretend that you know, “Oh, this is my plan for this note” upfront – it just doesn’t work like that. You might have one or two strategies that you think are going to work, but the fact is, you have many options at your disposal. If you’re doing your due diligence well, you should have equity in the property. In my mind, whether it’s performing or non-performing, it’s actually a safer investment a lot of times than, like, the stock market or things that don’t have any collateral.
Theo Hicks: Can you give us some tips, some things that you do in order to take a non-performing note to performing?
Jamie Bateman: Well, I think it really boils down to carrots and sticks. Especially during this time with COVID and everything we’ve worked with our borrowers to defer a couple of months of payments if they were affected, or even if they said they were affected by COVID and the lack of employment. In other cases, we are modifying loans to lower the interest rates.
As an example, say a borrower — they might have an unpaid principal balance of $50,000, but they have unpaid interest in fees and all kinds of arrears upwards of $25,000, so they actually owe $75,000, and they’re unable to make their payments. What we have been doing is modifying those loans, lowering the interest rate, potentially extending the term of the loan so that their payment doesn’t go up, and getting them back on track.
Another option there is to take those arrears – and this is a key part of it, and obviously check with attorneys in your state that the note is in… But if you can raise that principal balance, a lot of note investors actually bid on the principal balance, and that’s a key part of this is; you’re adding value to that note by, one, lowering their payment, getting them reinstated, caught up, and they start paying again, and then you’ve also raised the principal balance, so you’ve added value to that note then for the resale.
Theo Hicks: You’re saying that, in that example, a $50,000 principal and 25 payments and stuff, the new loan is actually $75,000 principle?
Jamie Bateman: You got it.
Theo Hicks: Perfect. Okay. All right, Jamie. What is your best real estate investing advice ever?
Jamie Bateman: I would say focus on your strengths and think about how you can add value contributing to something bigger than yourself. One more quick thing is, just do what you say you’re going to do. There are a lot of people that just don’t follow through and I think your word is really important.
Theo Hicks: Perfect. Okay, are you ready for the best ever lightning round?
Jamie Bateman: Let’s do it.
Theo Hicks: Okay.
Theo Hicks: Okay, Jamie, what is the best ever book you’ve recently read?
Jamie Bateman: The Wealthy Gardener by John Soforic. It’s really good blend between fiction and non-fiction, and it’s got so many life lessons in it. I think I’m going to have to re-read it.
Theo Hicks: If your business were to collapse today, what would you do next?
Jamie Bateman: That’s a really good question. I think I would, again, go back to what I said with the best ever advice, focus on my strengths. I’ve got some networks built-in now as far as note investors and property managers and that kind of thing. It would take a little while but I think I could start over.
Theo Hicks: Out of the eight rental deals you’ve done and the 20 plus note deals you’ve done, which of those was your best ever deal?
Jamie Bateman: I’d have to say it was the Jacksonville deal, because numbers-wise, it’s really good. And again, go to the blog posts about that. It also utilized several different strategies. It used both buying a non-performing note, trying to work with the borrower, unfortunately, for closing, taking the property back, rehabbing the property from a distance, and then renting it out two days after it was on the market for rent, in the middle of a global pandemic. We certainly made some mistakes with that, I don’t want to pretend like it was the perfect deal, but that’s the one I’m most proud of.
Theo Hicks: And that blog post, is that https://labradorlending.com/blog/ and then it says Jacksonville, FL, Case Study 2.0? Is it the one?
Jamie Bateman: You got it. Yes.
Theo Hicks: Okay. Now, what about a deal that you actually lost money on? How much did you lose? What lessons did you learn?
Jamie Bateman: We’re not really in the transactional space, per se. I’d say we’ve lost money with opportunity costs, the Jacksonville deal, for example, I overpaid for the note. I found out later that I paid $46,000 for the note. And it turns out, I actually could have paid $40,000 and found out through kind of a backchannel… But we didn’t lose money on the deal. We really haven’t lost money on a deal. I think it’s much easier to lose money if you’re actively flipping or that kind of thing.
Just to clarify, I have lost money on passive investments through crowdfunding deals that I totally blame myself for, for not doing enough due diligence there. I guess if you’re including that, then I certainly have lost money.
Theo Hicks: What is the best ever way you like to give back?
Jamie Bateman: We support our church financially and are active members there. My wife has volunteered there over the years and since we’re married, I’ll take credit for that—no, I’m kidding. I also coach youth lacrosse. I’ve coached my son’s lacrosse team for several years, so we’ll see where that goes. Other than that, just trying to support family members when we can and trying to be the best parents that we can.
Theo Hicks: Then lastly, what’s the best ever place to reach you?
Jamie Bateman: I’d say my website https://labradorlending.com/ and then you can also feel free to email me at firstname.lastname@example.org. A lot of people actually don’t know how to spell Labrador, surprisingly. email@example.com, I’d be happy to help anybody who has questions with single-family rentals or note investing, which is what we’re really focused on these days.
Theo Hicks: Perfect, Jamie. Thanks for joining us today and walking us through your journey. A few of the takeaways that I got… You talked about your strategy for acquiring those eight rentals and how you would buy them all cash, would do a BRRRR model, and then you actually refinance two properties into commercial loans. That was interesting.
You talked about your Jacksonville deal, and you mentioned that people can learn a lot more about that on your blog, and you mentioned how to find it there. But you mentioned the process of how are you able to do that deal by being out of state – it was originally a note that you had take the property back, which you didn’t intend on doing. And you mentioned that you fixed it up, and planned on selling it, but then did a lot of research and found that it was actually a really strong rental market. You relied heavily on networking on Bigger Pockets, and other groups to find a solid property management company that helps you with that process down there.
Then you kind of walked through your note investing, you kind of gave us a crash course on note investing; your strategy is closer to the buy and hold than is actually flipping the notes. You buy performing and non-performing, and you do joint ventures on some of the non-performing liens.
We talked about some of the pros and cons of performing versus non-performing. You talked about how to get a non-performing note to perform. You say it’s kind of like carrots and sticks, so you can defer payments; you can modify loans to have lower incidence rates, you can extend the term of the loan’ so the payment doesn’t go up, you can take the arrears and add it to the principal… So really just a lot about note investing. That was interesting.
And then also your best ever advice, which was focus on strengths, figure out how to add value, and then do what you say you’re going to do and follow through. So I really enjoyed the conversation and I learned a lot.
Better Ever listeners, I hope you enjoyed the conversation as well. Thank you for listening. As always, have a best ever day and we’ll talk to you tomorrow.
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