Rising Into Financial Freedom Through the Power of Notes with Sierra Davis

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Mentioned References

• Thinking Fast and Slow by Daniel Kahneman

Transcript

[Mattias]
Welcome back to the REI agent. I’m here with Sierra Davis. Sierra, thanks so much for joining us today.

[Sierra]
Thank you Mattias. I’m really excited to be here.

[Mattias]
Yeah, no, I’m excited to have you talk. We’ve, we’ve had, well, I’ll let you describe what you do, but give us a bird’s eye view of your world and how you’re involved in real estate.

[Sierra]
Absolutely. So like Mattias said, I’m Sierra Davis. I run essential investment group LLC and essentially help people build wealth by performing real estate notes so they can earn passive income from real estate without tenants, repairs, or landlord headaches.

Basically that, you know, it kind of means as I invest in mortgage notes because I’m one at the predictable income without the unpredictable lifestyle of being a landlord. So love to kind of get in that, in the weeds of that, but I love it.

[Mattias]
No, I was going to say, you know, we’ve had like, I think one other person on the show that that’s kind of more focused on that style of investing. And it is interesting because like you said, like, you know, it’s definitely a different animal. And often when people are looking to promote seller financing to a potential seller, they’re, they’re like, say, Hey, you know, you could be the bank.

And that’s what everybody wants. Everybody wants to be the bank. And it’s a, it’s a good topic we can talk about.

But before we get into those weeds what kind of got you into that space?

[Sierra]
Yeah, absolutely. So for me, I was looking through like, what could I do to get some passive income? And so I graduated with my MBA in 2017 and student loan debts is obviously a thing.

So I was in data science and, you know, doing pretty well. So thinking through what could I do to supplement my income. And so I started going on bigger pockets.

I looked at a lot of things whether it was like rentals, fix and flips, creative financing, just a whole gamut of things. And so what got me really focused on real estate notes is kind of the ability to like get this, you know, mailbox money become the bank. And so thinking through, okay, I can do this.

I like numbers and spreadsheets and things like that. How can I use that my skills that I have now currently to kind of get through to that place and get some passive income? And so that was the, I thought it was the quickest way to get there.

And so I’ve been in ever since and it’s been really well. I don’t know if I have the guts to be a landlord especially on single family, but definitely like the ability to buy real estate notes at discounts and performing notes in first position.

[Mattias]
Yeah. Well, I think the first question people might think and ask is, well, it’s must be nice to have all that money to lend out. So can you explain a little bit about how that, that all works?

[Sierra]
Yeah. So I simply, basically what I kind of walk through is working with other, you know, investors thinking through first of all private, private financing. And so one of the aspects is like we talked about seller financing.

So basically carrying that note. And so what the ability you can do is buy these notes at a discount. And so I personally didn’t have a lot of money on my in my, in my possession.

And so I worked with a private investor to secure my first note and then we basically like split if you will, like the, the monthly income. So I pay them, I got paid and then I kind of snowballed that into more notes to buy. So no, it’s, it’s a very capital intensive investment I would say.

But I think the goal for us and I’m thinking through that was basically using other people’s money to invest in making win-win situations in that part.

[Mattias]
Okay. So, so using other people’s money to buy notes, you said at a discount. Now tell me about how you’re making money in this and also tell me about how you’re acquired or what, who’s motivated to give you a note at a discount?

[Sierra]
Yeah. So that’s a really good question. So in terms of the who, so those who have seller carry, so there’s a, you know, in note investing in the, I’m sorry, in the investing world, there’s a lot of folks who are looking to acquire properties and creative financing through seller financing.

So they’re looking for sellers to carry the note, becoming the bank. And so after a while, those sellers who do carry those notes they have something, motivation to sell those notes. And so they might have retirement planning, they might be able to pay taxes, medical expenses, getting new investment opportunities, covering tuition, just major life events like life happens.

Right. And so when you’re creating these seller finance notes, they’re probably 30 years. And so allowing that person to get out of that note so they can make a liquid event for them.

So that’s kind of where we kind of look through, okay, what is it that you’re looking for and how can we help? And so they’ve probably gotten a down payment. They probably gotten some monthly income and so they’re able to kind of like get the note as a discount.

And so like, say for example, like a, you know, a $35,000 left on a note, we can then purchase that at 30,000 and give them that 30,000 they can go do whatever they need to do. And that basically boost art returns instantly. So now we get paid every single month and then the bar just sends us those payments.

[Mattias]
Okay. Okay. So, all right, so I’m a, I’m a landlord.

I bought a single family house. I’ve owned this house now for 35 years and it’s free and clear. I’m thinking, okay, I’m gonna save some money on capital gains.

I’m not going to sell this right away. I’m going to owner finance it to Billy Bob down the street. He is a great guy and I really, you know, I think that’s going to work out great.

And so we, we enter an agreement and everything’s fine. But yeah, something happens, like you said, life event. And now I really just want the cash.

And so at that point, you know, I might’ve seller financed it, sold it for 300,000, but what I bought it for was maybe like 60, 50, right. 35 years ago. And so, you know, at this point I’m like, okay, well, I’m not going to get all that $300,000.

I’m going to like, you know, sell it to you, the note to you and you know, get less of that $300,000 back. But it’s really not that bad. Like maybe I’m getting 270, 250 or something.

And it’s, you know, a lot. Yeah. I just need that money and it’s kind of a nice option at that stage.

Okay. That makes sense. And so then, so the, the note, then the details of the note that I just sold or that I have with Billy, Billy Bob down the street, they’re the same.

They’re like the interest rate, all that payment is the same. It’s just now coming to you.

[Sierra]
Yeah. And I think that’s where like a lot of kind of like the misconception of some of the, these deals is basically whatever was agreed upon at the closing table that still stands. And especially, especially at a performing note that’s been paying well you might get some modifications.

If it’s a not performing note that may have gotten some modifications to get re-performing. So they might’ve changed the terms. They might’ve changed the payment structure.

But typically if you’re buying a performing note that’s been paying, let’s say 10 years, that whatever that interest rate was at the time, whatever that monthly P and I payment was at the time still remains, you know, escrow will change based off of the, you know, taxes and insurance. But that’s kind of where I love the real estate note, especially when you’re thinking about like other investments like dividend stocks, like those could fluctuate and they could just stop. But this is like contracted agreed upon based off of a secure asset that typically doesn’t change unless something happens again, like with the re-performing note.

[Mattias]
So then you could, if Billy Bob stops paying, you could then, you know, take over, you could repossess that property. And yeah, so that, that would also obviously be a nice backing. And then you mentioned also non-performing.

So I would imagine that’s another motivation for sellers as well, or sorry, note holders as well. If, if they’re having a problem with whatever and they want to get it off their books, is that something that you’ve done? Or is that something that just some people would also potentially buy?

[Sierra]
Yeah. Yeah. That’s a really good question.

I typically focus on performing notes and the reason why is because I wanted to replace my income. The non-performing are really good to get that really strong ROI. So you’re buying a non-performing note, maybe from the bank or from another investor who has a borrower that probably, you know, hasn’t paid in 90 days, two years, and you’re ready to either work it out with the borrower, get them back on track.

If the borrower kind of doesn’t want to cooperate, then you can foreclose on that. And so that takes time. So you might not get a payment at all from the borrower, especially if they haven’t been paying in years.

So then you start the foreclosure process. You have, you know, pay attorney fees and all of those force place insurance and places, REL fees and things like that. And so thinking through like the States, right?

There’s different foreclosure processes in longer States like New York. I probably wouldn’t even touch New York. But there’s States that the foreclosure processes are better than others.

So thinking through that, that’s a good strategy, especially if you are one, wanted to get a higher ROI at the end of that. And then two, some people like to back into that. Like they know that they might get the property back just by a non-performing note in the foreclosure process.

Get that note, they get that property back and then resell.

[Mattias]
Yeah. Yeah. And obviously at a discount you’d be able to, you’d be getting it for.

So yeah, that makes sense. So like, I mean, so it’s, it’s also like, you talked about being kind of like a bean counter, right? So this is nice for you to kind of be able to really clearly see what’s going on with what the, you know, this is a payment, like this is exactly the return.

So if we get it for this price saying this is the exact return and you know, you can then clearly define that with your partners, et cetera. There’s not really much variables as far as, you know, you’re not having to then, you know, fix it up, get a rehab, get a refinance, get it, you know out there to be rented or out there to be sold at the variables there.

[Sierra]
Exactly. And I think the, especially the performing, uh, once you buy a note, they have to pay the next month. So it’s not that waiting time is a little less.

And so again, you don’t have to kind of wait through renovations, you don’t have to wait through anything like that. Um, as soon as that, you know, although I think the closing part is like 30 days, like 30 days is probably the ideal. And after that it just starts rolling in.

[Mattias]
Yeah. What’s all involved with the closing there. So does the person in the house also have to sign a new like deed of trust then with you?

[Sierra]
No. So that the, basically that what we do is, um, it’s assignable. So in that deed of trust is that, you know, it’s, it’s assigned that promissory note, the trust can be assigned to another investor.

And so, um, the, whoever holds that particular note at the time will then assign it to us. And so the borrower, um, we’ll get a hello and goodbye letter, but that’s pretty much all of it. They did.

And then say, Hey, instead of, um, you know, giving your, your payment to Mattias, you give it to Sierra. And so, um, then they started making the payments to the servicer, um, that they transitioned to.

[Mattias]
Yeah, there’s a, I mean, it’s the same, like, you know, when you get a regular mortgage, like they get some often, and so same kind of deal makes sense. And, and I know there’s a lot of times where people are like, who the heck is Mr. Cooper? Um, and, uh, if you don’t know this, and if you’re listening to it, it is a big, uh, mortgage provider or whatever.

So like there’s a, there’s a, yeah, Mr. Cooper, but it sounds like you’re like, just selling it to like, yeah, Mrs. Sierra. It’s funny, but, um, yeah, that, that makes a lot of sense. And that’s cool that you, um, you’ve tapped into it.

So, I mean, you’re, you’re essentially connecting, uh, the, the dots between money and the need, right? So like you’re finding these people that are, uh, in the position to needing to, to get cash fast and get out of this kind of agreement.

[Sierra]
Yep. So basically that’s kind of where, and they’re everywhere. So as thinking through like local meetups, there’s a lot of people who are doing seller finance deals.

Um, noteinvestor.com did a study that 90,000 transactions were done in 2024. So it’s going to keep going. So there’s a lot of, you know, investors, not just everyday people who are carrying these notes.

Um, and so looking to give them one and, you know, a pain point, they said maybe they’re wanting to get out of that and to just kind of helping them do more deals and being able to, you know, uh, buy them, um, at a, you know, at a discount, but also getting them the opportunity to do other, other things. Um, and also thinking through like the, the aspect of what really got me excited about this is that, um, instead of like thinking through like a being a landlord or, you know, selling, you know, having rental property, um, giving the opportunity for those who might not have a good, strong credit or anything like that, that kind of prevents them to get traditional financing. Um, we could go then and do seller financing.

They have a home, they have equity in that, in that deal. Um, so that really kind of also motivated me to this, this way of thinking is like, you know, with a rental property, they’re not getting the equity. They’re not being able to borrow against that.

Um, whereas now we’re having this seller finance transaction for people who, um, may not have been able to get a loan from the bank that they now can get a home. So that’s, that’s really exciting as well.

[Mattias]
Yeah. I mean, it’s, it’s essentially like this underground network of, uh, the private finance, right? Yeah.

[Sierra]
Yeah. And it’s, it’s really, you know, I think it’s growing. Like I said, it’s growing, especially with those who are thinking through creative financing.

Um, I think the, the opportunity for people now is to kind of like do it correctly. And so like there’s a lot of education out there from servicers and people who are saying, if you’re, you know, carrying the note, here’s the paperwork that you need. Cause basically as a note investor, I want your paperwork to be really, really good.

Um, and so if you’re, you know, just penciling down payments, if you’re not using a service, or those are kind of factors where the price might get lower because of the, the paperwork isn’t, you know, strong. Um, the collateral isn’t, you know, strong, uh, but the property itself, um, and the borrower, you know, you didn’t qualify the borrower as well as we would like. Um, so you only got $500 down, you know, um, things like that.

So really those are coming into play now. So because of there’s so many transactions, um, making sure that people have strong paperwork is really key now.

[Mattias]
Yeah. So what, if somebody is thinking about getting into, uh, just, just doing a seller financing deal, they own a property outright, they want to sell or finance it. What would be some of your advice to a person to, to kind of protect them or do it the right way?

[Sierra]
Yeah, that’s a good question. So the first is like the bar, um, if you can use a, uh, RMLO, um, that can help qualify the borrower, um, as you know, as a, you know, qualifying them with their work history, you know, their credit score, and just to make sure that they can afford the payments that you’re providing. Um, and then to, um, thinking through like structuring paperwork, um, have an attorney structure, your paperwork, don’t have jet, check UPT.

Um, I know that’s a popular, but you know, just make sure you have your strong paperwork and it’s reviewed by an attorney, whether it’s a deed of trust or a mortgage, um, and making sure that, um, you know, it holds well, um, do a court and things like that. And then the property, making sure that, um, they get a down, a good down payment. Like I mentioned, like just because you’re doing a seller finance doesn’t mean that you can just be a little bit, you know, $500, you know, get a reasonable down payment, you know, 10 to 12% or even, you know, 15%, especially, um, just pretend as if it’s a true and a real transaction that you would do at a normal bank, because that’s kind of where, um, some people get lax on that.

And so thinking through that and using the vendors and people in your network that can help you actually do this correctly. So then if those events happen, you can easily sell that, that note.

[Mattias]
Yeah. And I guess one other thing that could be considered is, uh, factoring in some balloons maybe to, so that you’re not locked in forever. Um, or, or just really thinking through kind of what, what your needs could potentially be and ways to pivot, which is, it’s nice that you can have that option as well.

It’s a, it’s a bill to sell the note altogether. But, um, let’s say you have a balloon in five years and you tell the person that, Hey, I intend to, you know, renew this, but you know, I just want to be able to have some checkpoints along the way to make sure that I’m still, still makes sense for me to do this as seller financing because they’re going to still be faced with a big capital gains hit if they sell in five years or if they realize the rest of the money.

So. Yeah.

[Sierra]
And I would, you know, tell people that you don’t actually have to sell the whole note so you can sell partials of notes. So say you only say you have a hundred thousand, you know, unpaid balance. Maybe you sell 50 payments of those or 10 payments or whatever you kind of need.

You go back into that. And then once those payments are done, you get the, the note back. And so that can also help to, um, thinking through those capital gains tax.

And, um, yeah, that’s, that’s a strategy that a lot of note investors are using is, you know, buying partials, um, for these investors that, again, probably don’t want to have that five, maybe that in that five year mark, um, they can then go back in and less like most of that would probably be like principal after that. Cause you get most of the interest and interest upfront. But yeah, those are strategies.

That’s why I love it. It’s like you can get into it a little bit differently, niche within a niche and then a niche. So people just let you buy partials of notes.

[Mattias]
Yeah. The same thing through that a little bit. I can say like, uh, let’s say a payment is a thousand dollars a month.

Uh, 20 payments would be $20,000 obviously. Um, so you would basically be saying like, you know, I’ll give you $15,000 for the next 20 payments. That kind of, that kind of, yep.

[Sierra]
Yep. Something like that. Yep.

Something like that. Yeah. Um, even, you can probably even get to it, not even a slimmer discount to like, you could even get 18 and you still get, you know, more of your, you get a good yield, um, as an investor.

And then they walk away and, you know, be able to, to do whatever they need to do with that 18. Yeah.

[Mattias]
Yeah. Yeah. It makes sense.

It’s cool. And yeah, like it, that is the fun thing about getting into, uh, one of the most fun things about real estate I think to me is, is when you get creative and like when you just really every treat, every solution or every, every situation with a, like, you know, it’s what tools can we bring together to, to make this all work out. And yeah, I love hearing stuff like that.

Cause it could be perfect for somebody. And if you don’t know about it and like nobody’s going to help them, but like, yeah. So like maybe we just really in a pinch only need 18 grand.

Uh, can you help me out?

[Sierra]
Yep, exactly. Yep. That’s it.

[Mattias]
That’s cool. Um, so you were able to, you, I think I read that you were able to pay off your student loans with, uh, with, by doing this, walk me through that a little bit.

[Sierra]
Yeah. So I purchased a note. Um, I think it was my first note I bought.

Um, and the note was performing for three years and then it just completely stopped. Um, so, um, I got a good, good learning lesson in the first, um, in the first half of, um, my career. So, um, because of that note not performing, um, and I took the property back essentially, um, through the process.

Uh, well, the property, um, got increased in value. So that was really good. So I sold it, um, seller financing, um, for the amount that it was, um, old.

And so I think that was really good for, for me as an educational process. Like, okay, I don’t have to keep this. Cause I was like freaking out.

Like, Oh, what am I going to do with this property? Because again, I didn’t want to fix it up. I didn’t want to be a landlord.

So I’m like, okay, what am I going to do next? Um, so kind of walk through that. I found a buyer, um, when she was able to kind of go through, I think three, three years.

And then, um, she wanted to pay it off quick, quickly. Um, and then from there, I just, you know, paid off my student loans. And so that was a benefit of one having a good structure, having the good property back there, back and having a really strong buyer that was able to just pay me off.

And, um, that’s kind of where I, you know, it’s paid off my student loans immediately.

[Mattias]
That’s awesome. Um, so it was performing when you bought it. And then as soon as you bought it or soon after you bought it, it stopped performing.

[Sierra]
Yeah.

[Mattias]
And that’s your first one. You’re like, are you kidding me?

[Sierra]
Yep. I’m like, yes.

[Mattias]
How long did it take to, from like the time that they stopped performing to the time you, you got it like sold seller financing?

[Sierra]
Yeah. So I think they, I got three payments. I think it took about two months and it probably, it took about two months.

I would say, I wouldn’t say it would take longer, shorter because I was trying to figure out what the heck to do. But I would say three months and then two months. Yeah.

It was probably, and the beauty of it is like, um, she was like, yeah, I, I can fix this up. You don’t have to do that. It’s like, Oh my God.

[Mattias]
There’s two months of not getting paid in that situation. You had an investor that was expecting returns. Were you having to make payments to him to maintain it?

[Sierra]
Yeah. Yeah. So, um, how I, you know, I’ve been taught is basically the investor who investors, you know, I think that they’re, they need to be made whole and communicated well.

Um, and so that’s where, you know, if, if the borrower doesn’t pay, that doesn’t make, I still have, you know, pay you. So, um, that’s kind of how I’ve been working for seven years and I continue to do that.

[Mattias]
So you want them to come back that you want them to be able to do again?

[Sierra]
Yeah. And they’ve been doing it for four, you know, four times and continue to do it. So, um, I just think that’s a really good key.

So, um, I think one of the aspects we make sure you have reserves and make sure you can, you know, pay them. Um, cause they, cause it, cause that is a relationship that you want to have continually. Yeah.

[Mattias]
Yeah. Okay. So I’m still trying to, so they had to, when you sell or find set finance to the new people, they had to bring the, how much cash to the table to make that work?

[Sierra]
They had to bring the balance or no, so the balance basically just click cleared from the previous. So, um, that was just a, you know, I had to pay whatever needed to pay to counsel that. And so it’s basically a starting over.

So that long is just cleared out and an existence. So now the new bar had a new loan. Yeah.

So they didn’t have to take over anything.

[Mattias]
Oh yeah. Yeah. Yeah.

Okay. That’s, that’s really fascinating. And was that in your, in your own like local market?

Yeah.

[Sierra]
Yeah. So it was in Kansas city. So, um, which was good cause it was my first time I now invest across the country, but like, I, I was literally driving down the street and seeing like, okay, so they’re not here.

Um, so, um, I’m like, I don’t see anybody. I was calm. I was like, I don’t know what’s going on.

Um, and the person who sold me the note too, it was like, um, he was just kind of like, I wouldn’t have sold you this if I would’ve knew, you know, like, so, but you know, that was, like I said, it was a good learning experience for me. Um, and so it didn’t stop me from doing more deals. It’s just kind of thinking through like, how do I do this, um, from now?

So that’s actually happened to me again and go through the foreclosure. So it’s like, okay, now it’s just like, okay, I know what to do. So I have a checklist and do those things.

[Mattias]
So, yeah, it’s a good, good education for sure. And, um, yeah, like it might’ve cost you a little bit, a couple of payments. Um, and it wouldn’t have been full payments, right.

It would just been whatever he was owed.

[Sierra]
Yeah. So it had been payments plus late fees. Yeah.

Okay.

[Mattias]
Yeah. But anyway, that’s, yeah. I mean, that’s really interesting.

I’m curious if, uh, you have a golden nugget that would be related to, uh, no investing or just in general. Um, someone’s looking to get into this space.

[Sierra]
Yeah. So I think for anybody, I think the really key nugget is you don’t have to stop what you’re doing. Like if you’re a landlord, if you like fixing flips, I think no investing is a compliment.

Um, and I think it’s really, really good way to build cashflow. Um, especially when, you know, you’re thinking about equity, you can have some appreciation in your properties or you’re, you know, investing in other things. I think this is a good layer, especially for predictable income.

Um, and so I, I think it’s not a, Hey, stop, whatever you’re doing is go all in on notes, but it really helps, especially when volatile, um, markets like, um, Florida, you’re in, your insurances are increasing. And so your cashflow was probably decreasing. And so if you had a note that could probably offset some of that.

So that’s what one of the things that I tell people is it’s a compliment to whatever you’re already doing.

[Mattias]
No, I do. I really liked that, uh, way of looking at it because, um, I do think that especially if you’re in, like, if you, if you talk to an investor that’s trying to get started in like California, it’s like, Oh my gosh, you know, it’s, it’s great. Like this property will be worth double, like, you know, in a couple of years probably.

But like, um, to, to make ends meet, in the meantime, it’s really tough. So if you’re looking at your, yeah, if you look at your portfolio as a whole, like trying to have a base of cashflow to start is great. Um, it helps.

Um, and then, you know, I think it’s also important to have some appreciation in your portfolio as well. So that’s a, that’s a really good point. It can be a really good way to balance things out.

And oftentimes people will, if they are in those markets, they might be looking to come to Kansas city or, you know, somewhere in the Midwest to try to get something that performs a little bit better. Um, but you know, that’s also a whole nother bag of worms. You got to like learn to invest outside of your market.

Um, so not saying that it’s bad, there’s still a good option, but this is another way where you can just be like, well, I don’t have to deal with the tenants either. So maybe that’s, yeah.

[Sierra]
So like, you know, is, you know, out of time, you have to think about property management, boots on the ground. And so the notes is a little bit different. I mean, we do PPOs.

And so, you know, there’s people who do those, but after, you know, that unless I’m buying a non-performing note, I don’t necessarily need all of, you know, all of, all of those things when I’m investing outside of my own market.

[Mattias]
Yeah. Yeah, it’s really true. Um, and then what about, do you have a favorite book or, um, you know, one that you think everybody should read fundamental or just one you’re kind of currently enjoying?

[Sierra]
Yeah. So, um, I’m a data scientist by trade, so I love data. So one of the books that I like is thinking fast and slow by Daniel Kahneman.

Um, I hope I’m pronouncing his name, uh, correctly, but it just kind of helps you understand how, um, to make decisions better by slowing down and how we think. And so, um, it’s, it’s basically challenges your, your thought process and really kind of helps you as you’re making decisions about investing and making decisions on next steps. So really enjoyed that book.

Yeah.

[Mattias]
Cool. Awesome. Uh, I have not read that one yet.

I’ve heard, I have heard of it. Um, and then if somebody wants to follow you on social media or anything, what are some places they could do so?

[Sierra]
Yeah. So, um, I’m @SierraDavisOfficial, on YouTube and Instagram. Um, I have a free educational email course.

If you want to learn more about note investing at WealthWithNotes.com, but those are places that you can find me. And I’m just really, you know, interested in learning and network with people. So feel free to DM me at any time.

[Mattias]
Awesome. Well, Sierra, thanks so much for being on the show. It’s been a really good conversation.

Thank you so much.

[Erica]
Thanks for listening to The REI Agent.

[Mattias]
If you enjoyed this episode, hit subscribe to catch new shows every week, visit our e-agent.com for more content until next time, keep building the life you want.

[Erica]
All content in the show is not investment advice or mental health therapy. It is intended for entertainment purposes only.