Q&A With Colonial Funding Group LLC & NoteSchool
Eddie Speed’s creative real estate strategies stand the test of time.
Eddie Speed, founder of the educational company NoteSchool and owner and president of Colonial Funding Group LLC, has been a leader in the real estate-secured note business for nearly 40 years.
Throughout those decades, he has become known for his take-no-prisoners honesty and relentless strategic creativity. He leverages both on behalf of students and investors who are focused on creating wealth and securing their financial future by creating or funding private mortgage notes.
“The cornerstone of NoteSchool is using real estate to
generate secure investment income,
but with more cash flow and without having the headaches that come with some of
the more ‘traditional’ strategies, like landlording,” Speed said. “It’s more
than just creating private notes. Every transaction, I am crafting a deal, and
I teach my students to do the same thing.”
REI INK sat down with Speed to discuss how the note industry and note education has evolved since he got started in the early 1980s.
Q: Today’s real estate market is extremely competitive. Are notes a good real estate strategy in this environment?
A: We are dealing today with one of the most competitive real estate investing markets anyone has ever seen. As an investor, you are in the biggest knife fight in the world when you are trying to acquire properties at a discount. When you make a cash offer on a house, it’s you and a dozen other people at least. My colleagues who rely on the “buy low/sell high” model tell me that today they are only getting about one in every 25 offers they make accepted. Things are getting really tight.
That competition makes this market perfect for investors who are able to structure creative financing for their deals. Imagine being able to say to your seller, “I’ll happily pay retail for that property. You just need to work with me on how to finance it.”
Knowing that you can pay retail and make competitive offers in this market while still generating reliable, attractive returns on your investment is one of the best things about note investing and makes it one of the most effective real estate strategies in use today.
Q: What are some examples of how this might work in the “real world” for real estate investors?
A: There are probably more than 50 ways that you can buy a house and pay the seller back using creative note strategies. When I teach my three-day advanced classes on this topic, I break them all down on a huge whiteboard. Here are some examples:
- The seller carries the financing and you pay the loan back [in a lump sum] in the future.
- The seller carries the financing and you make recurring payments over time.
- You make a down payment to the seller; then the seller carries the remainder of the financing and you pay the seller back in the future.
- You take over the existing mortgage.
- And on, and on and on.
The details on the deal will change depending on what you, the investor, need from the seller and what the seller needs from you. You are the deal architect. I find that once real estate investors really grasp the concept that they are in charge of the deal when they use note investing strategies, their note businesses really take off.
Q: But what about building up equity?
A: You know, I hear this question a lot from new note investors. They tell me that they are afraid to stop landlording because then they won’t have any equity to work with. When I hear that question, I stop and do a little math for them.
Here is one of my favorite examples:
Say you pay $80,000 for a 20-year note on which the borrower owes $100,000. That means you just bought 20 years of payments totaling $100,000 for a discount of 20%. That’s great! Two decades of income purchased at a fantastic discount.
However, in this hypothetical situation, you need some investment capital today. To get that capital, you sell the first half of the note (the first 10 years of payments) to a passive investor for $79,500. They would receive the next 120 payments. Let’s say the payments are $825.00 per month, then that would be equal to $99,000. Now you have more investment capital to work with in the present, and in 10 years the payments on that note will start coming to you instead of the investor who just bought the first half of your note. You just generated $79,500 in investment capital and 10 years of passive income for an investment that cost you a net $500.
That type of scenario is not just relatively simple to achieve over and over again, it is also commonplace in the note investing industry. You are generating long-term wealth and immediate capital at the same time, which is a win-win.
Q: What are the most important lessons you have learned from your 30+ years in real estate?
A: There are three things every real estate investor should know before they get started investing:
- You don’t have to just look at price as value. You can look at creative financing terms as equal in value to price.
- Don’t think that wholesaling will last forever. A lot of wholesalers (who tend to be new investors) get into real estate in order to escape their previous job and ultimately create a new job for themselves with wholesaling. You have to remember that wholesaling produces transactional income that cannot last forever. Real estate investors should be focused on building wealth, not just making money.
- Learn strategy from people who learned it and lived it themselves. When you invest in real estate education, invest with someone who understands what they are teaching from a personal standpoint. They should have experience in what they are telling you to do.
I like to compare real estate education to professional football. There are a lot of people out there giving advice about how to win at football, but there are only 32 active head coaches in the National Football League. When it comes to your real estate investing education, are you getting NFL-level advice or junior-high B-team advice? Note investing, both from an active and a passive investing standpoint, is the best legacy business I have seen in my life. There is no better sector than notes for a minor investment coupled with major creativity to evolve into a legacy.
