Finding new ways to achieve your financial independence? Note investing could be the thing for you! Joining Zeona McIntyre is Martin Saenz, Managing Partner of BeQuest Funds and renowned thought leader in the mortgage note investment industry. After trying his hand at real estate and other investments, he claims that note investing was the one that hit the mark for his financial goals. Martin shares his journey from leaving corporate America to his family not having to worry about money in the last ten years. Financial freedom is a destination with a lot of paths. Listen in on their chat and find out if note investing is the right investment for you!

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Note Investing Your Way To Financial Freedom With Martin Saenz

Unfortunately, Mr. Craig Curelop is still out. Hopefully, you are happy to be with me. What is new in my life? Thank you for asking imaginary, Craig. I am here in sunny Boulder, Colorado and enjoying this wintertime. It is a New Year and I’m looking at new investments. I have been playing around with Keeping Up with the Joneses and trying to see if I can buy a bigger, better luxury house hack. Instead, we decided to avoid that and stick with our smaller place that we are Airbnb-ing out conveniently and easily. We found out that in 2021, we made $40,000 on our Airbnb rental that we live in six months out of the year.

If that is a hard thing to give up, we have decided that we are going to stick it out, do lots of pet setting, continue to do lots of travel, and after all of our mortgage payments and everything, we still cashflowed $15,000. If you are thinking that Airbnb house hacking is not something that could work out for you, you might be wrong. I would be happy to talk to you about it. Reach out to me. Instagram is the best way @ZeonaMcIntyre. I also have a website ZeonaMcIntyre.com if you want to reach out to me there.

Let’s get into this episode. We have Martin Saenz. He is an investor out of Florida that has tried a lot of different types of investing. He started in the commercial space, which is not where most people start. We haven’t talked about many commercial investors on the show so you will get a little taste of that, then how he dabbled in residential and found that ideally for him, note investing was the best way. Note investing has a lot of interesting merits. Read to the end and you might know a bit about some offerings that he has and some books that he has written that might help you get into the notes. Let’s bring him onto the show.

Martin Saenz, welcome to the show. How are you doing?

Thanks for having me on. I’m doing great.

We always start the show with the question, how did you first hear about financial independence? Can you tell us your story?

It was after going to get my MBA and that was in 2001. I had thought that was the holy grail to get into Corporate America and launch a career that way. What I found, though, after a few years in Corporate America, was it didn’t meet my aspirations financially as well as spiritually. From that point, I started self-educating myself on financial independence and what it takes to obtain financial freedom for myself and my wife.

What was not fulfilling for you spiritually?

This is only my personal experience. I found Corporate America to be very draining emotionally where you are doing a lot of activity to benefit others that are around you, not necessarily yourself or delivering value to an end customer. I didn’t feel like I was being of service the way I needed to be of service in life. I would say that coupled with lots of conference calls, emails, and everything else and being in that whole high-pressure environment.

I also appreciate that you mentioned how many people feel like an MBA is needed. What’s different about real estate investors is that very often, we conclude, “Everything we are doing, we didn’t need to go to college for.” Some people are skipping that step. Do you think that you would have done it that way again?

Note Investing: We can help homeowners stay in their homes by giving them a loan modification that they can afford while making a long-term cash flow stream.

 

I have an MBA, a Master’s in Project Management. I would have skipped both those steps for sure. I would still stick with my Philosophy degree, which was my undergrad. I liked that because that helped me to think critically. It gave me life skills that I was able to take along with me. In terms of an MBA where you have to be a consultant or a corporate individual, I could have done without that one.

You’ve got this realization and you were in the corporate world. What did you do next? How did you segue out of that?

I quit that job. From there, my wife and I went on a one-year journey of self-educating ourselves, going to seminars, reading books, and setting ourselves up to be real estate investors. We had viewed real estate investing as the pathway to financial freedom. What we found for the year was that we needed to have a business of some sort that would provide ongoing cashflow and allow us to move that into investing in real estate through buy and hold real estate investing. That was our game plan. We launched a Federal contracting company in 2005, selling museum exhibits to the Federal government primarily.

How did you get this idea that real estate was going to be the way? Sometimes, people have to see somebody else doing it that is in their family or their network. Sometimes, maybe they stumble, you went to a seminar or read a book. Where did that light bulb moment happen for you?

My wife had read Rich Dad Poor Dad. We started with that as our foundation but it seemed like everyone I had read about or biographies on successful business owners and leaders all seemed to have real estate holdings. They made a lot of their money through real estate. It seemed logical that we would have to go down the real estate road.

You had this business in 2005. Where did you start with the real estate? When did you do your first deal?

It started in ‘05. We spent three years sucking wind, getting the company off the ground, digging ourselves into large amounts of debt to the tune of $225,000 of credit card debt, and digging ourselves out of that hole. After year four came, we started obtaining Federal contracts with the Pentagon, in other military, and Federal installations. Come 2009, we were ready to move out of our home into entering our building.

I searched Craigslist for properties to buy. I stumbled across a building that was for sale in the area that we lived in at that time. The owner wanted to sell it with owner financing in 10% down. We met with him at a Starbucks. He was asking for $310,000, which was very cheap at that time. I had offered $300,000. He’s about to jump out of his seat of excitement. My wife still razzes me about that negotiation experience.

What was the setup of this place?

It was an industrial space, 2,400 square feet.

Industrial spaces are so low maintenance, it’s unreal. Click To Tweet

Did he have the terms laid out upfront or was that something that you had to negotiate all the pieces?

The terms were already laid out. He laid them out on Craigslist. What’s interesting is I’m selling that space and I’m closing in 60 days on it for $780,000. What’s fascinating is that he couldn’t sell the space in 2009. This is the only industrial space in the whole city that is available. It was the turn of events but what he wanted and required was a fifteen-year term with no prepayment. This is his IRA annuity game plan for himself into retirement. He didn’t want anyone to pay it off and interest with 6%. That was fine for us.

It hasn’t been quite fifteen years. What are you doing with that? Are you going to continue to make the payments, even though you would have sold it?

No, I’m going to pay him in full because a majority of the payment is going towards principal anyway. The amount that I’m going to pay over interest to close him out for the fifteen-year point is not significant.

How did you utilize that space where it felt like a true investment? You did hold it but you were using it yourself or were you renting out certain parts of it?

We used it all for our exhibit company then we bought a neighboring space from him a month later under the same terms. We rented out that neighboring space. We wanted that in case we were going to grow into it. We did that same model in a few other cases buying commercial property with owners that wanted to sell a seller financing.

Note Investing Made Easier: How To Buy And Profit From Distressed Mortgages

I want to point out two valuable parts of this story. Number one, you found this on Craigslist. Sometimes people think, “Finding deals is impossible. I’m going to have to put signs in yards, mail everybody in the city and all this stuff.” Sometimes, you can go to Craigslist and find deals. Maybe that is not somebody’s direct way to go that they are going to make 100 calls a day or they are good at direct mail, or try the things that are easy like the low-hanging fruit and see if something comes. Craigslist can still be a great resource.

Some people maybe are 70 years old and Craigslist is doable for them. Facebook would be too high-tech to list on. That is their thing. They go to Craigslist for things and that’s what they are used to and where they will post their property.

The second thing that you mentioned is that you had a good relationship with this person. Even though your wife likes to razz you that you weren’t doing a great negotiation deal, maybe if you hadn’t negotiated too hard, you would have felt a little bit of bad blood with this person. He might not have wanted to sell you the next place. Sometimes, keeping that relationship is valuable. You can go back and tell her that. Investors tend to own more than one property. It is great to keep these relationships, check back in with them, and say, “If you are older and divesting, what else do you have?” It’s cool that you were able to keep that relationship. Tell us a bit about deal number two. How did that one go?

Deal number two was the same type of property and same terms. Everything was already negotiated out. He wanted to sell that as well. Once we got the first one, we got the taste of it and we’re like, “We need to be doing this on a larger level.”

It was about $300,000, 10% down, owner finance, 15 years. Did you need the extra space or did you rent the space out?

We rented it out because our objective was to obtain our first rental property, even though the building we occupied for our business was considered a rental as well. The business paid rent to another LLC for it. The proof of concept solidifies the mindset of a real estate investor.

At this time, he was having a hard time selling these places. I’m assuming maybe the rental market wasn’t that high. Did you have trouble getting somebody who wanted to lease the space?

We bought it with a tenant in place. It was tenant-occupied.

Let’s go into those numbers a little bit. Do you remember roughly what your payment was to him and what that tenant was paying?

Payment to the bank, so to speak, was about $2,404. The rental income was right about $2,000. We have been under on both properties the whole duration. That was intentional because we wanted a fifteen-year term and we wanted to pay it off. The idea was to pay it off and sell it with seller financing after we owned it free and clear. We are selling it out instead.

It has been years. Have you been raising the rent over this time or do you let it go?

One of the spaces has been vacant because we wanted to sell it. One space collects $2,000 a month and the other space was collecting $2,400 a month. It is covering the nut.

I don’t know much about commercials. I’m curious if you could go in a little bit on the due diligence that you did. I imagine that the leases have a little more responsibility than someone who’s living in the house. We are responsible for keeping it all up but when somebody is renting it for a business, sometimes they build out and do some modifications. How much maintenance and things like that did you have to keep up with?

Maintenance has almost been nil for the whole duration of time. Industrial spaces are so low maintenance. It is unreal because it has a block wall. If there is a kitchen in that area, it is cheap laminate. These are industrial-type properties leased to electrical companies, construction companies, and so forth. We own some single-family rentals as well but with single-family rentals, you have a family

living there beating the heck out of the property 24/7. In industrial spaces, someone only occupies 40 hours out of the week. With those two spaces we own, churches are occupying those spaces. Those churches only meet up Sundays, one day out of the week. There is very low wear and tear, plus you got the block walls and everything else. It is very low maintenance.

You make money, and instead of just wasting it on a boat, you go out, buy property, and just accumulate them in a portfolio.  Click To Tweet

You have these two properties. You are selling one for $780,000. Are you planning to sell that other one too or are you going to keep holding it?

We are going to hold it. We moved to Sarasota, Florida from the DC area and those properties are in the DC area. We have been slowly liquidating that portfolio because we are starting to buy properties here in Florida.

Florida has a lot of appreciation potential and you started with a commercial. At what point did you change your strategy and go a little more residential?

In 2011, we bought our first residential property. The idea was that we started doing very well with the government contracting company. We were adhering to the rule of thumb where you make money. Instead of wasting it on a boat or something like that, you go out and buy property. You accumulate a portfolio of property. That’s what we did. Every time we had some money in the bank, we went out and bought a property, whether it was residential or commercial. Fast forward a few years to 2013, we sold the Federal contracting company and the person we sold it to become a tenant in our building. That was a transition point where I moved into mortgage note investing.

Keeping the high-level view, we are still working towards this idea of financial independence, and so far, with the stuff that you had bought, you did have a business that you were working on. I imagine you were living off that business. These other two properties were breaking even or a little bit underwater. You are selling this business so you are going to maybe have a nest egg but you need something that is bringing in regular income. What was that strategy that you changed into?

With small business owners and perhaps it was the way that we ran the business, we were putting in 100-hour workweeks. We found that with small business ownership. We weren’t obtaining the freedom of time. We did well financially but we were very much trapped in the business. What we found with the slow-building of the real estate portfolio is a great annuity play that has been very lucrative for us throughout the years, but it didn’t meet our financial aspirations in terms of monthly cashflow that we wanted to see coming into use on a passive level.

We didn’t find it with small businesses or with buy-and-hold real estate investing. When we sold the company in 2013, I was on a mission to do something grand where I could be of service to a great number of people. Also, build financial independence through building multiple streams of income on a passive level for my family and me. That is when we stumbled upon note investing.

I only know a little bit about note investing. I have a friend who does a little bit of it. Could you tell us a little what is note investing for the people that are reading that may not have heard of it before?

What mortgage note investing is if you take a homeowner or a bar at that time, they go into a bank, want to buy a home, and do the mortgage loan application. If everything is approved, then a mortgage loan is originated. What has been created is a promissory note, which means the bar is going to take this money, and they are going to pay it back given this certain set of terms. There is a mortgage or Deed of Trust that ties that promise to the property in the form of collateral. What happens is about 4% of the time, mortgages go into default. The homeowner stops making their payment normally due to divorce, loss of a job, or a health issue. The bank will try to do what they can do to get the loan reinstated or back on track.

Over time, that bank will probably bundle those defaulted mortgages into trenches and sell them for a discount to a hedge fund in the secondary mortgage market. We operate a hedge fund and have been since for the past years, buying those mortgages at a discount. Initially, I thought, “It is a great addition because I know what I’m doing on the real estate front. I can make a lot of money obtaining properties at a discount.” What I found over the first year of mortgage note investing was that I could build the mission for the organization as such that we can help homeowners stay in their homes by giving them a loan modification that they can afford while making a long-term cashflow stream for myself and my company. That is what we made as our business model.

Note Investing: The income fund is set up to be a very conservative vehicle where someone can earn a predictable, consistent return of 9%, or they can let it compound at 9.38% and receive a monthly income.

 

How do you make it more affordable for people? Are you pulling the loans out to be 50 years or something like that?

When you purchase the mortgage loans, you assume all the rights and responsibilities of the original lender. If we buy a $100,000 mortgage loan for $40,000, then we have some flexibility to work with the principal balance, the interest rate, the duration to go, and help them back on their feet with the payment plan that they can afford. If you are not giving the homeowner a payment plan they can afford, then it is not going to be sustainable. They are going to go back into default. It is your advantage as a business to try to create that win-win.

People that don’t operate a hedge fund may not have those kinds of resources. How can somebody get into note investing on their own?

I have written three books on mortgage note investing. Go to Amazon. Punch in Note Investing. You will see myself come up there. I wrote a bestselling book Note Investing Made Easier. I give a lot of my day-to-day. I give my business model away for anyone that is looking to launch a note investing business for themselves.

What are some of those advantages of note investing? I have heard that people can buy those notes from certain brokers. Maybe if you find a place that feels safe, you can continue to work through that same channel. I have also heard that some of the interest rates can be good. Maybe depending on how secure, what their history has been or maybe their credit rating. I have heard that note investing can be close to 16% on some deals. What are those perks that make it so that people want to do this?

It is not as much about the coupon rate that the homeowner is paying because you are buying it at a discount. Even if there is a coupon rate after the loan modification at 6%, if you are buying a $100,000 mortgage at $40,000, you are going to do well from an IRR perspective. In terms of ways of operating, there are several different philosophies but I advocate always building relationships with other hedge funds in sellers where you can buy from them on an ongoing basis.

That is how we trade. The majority of our trades are negotiated trades that never see the market. We have built that reputation amongst sellers as being reliable, good to our word, always closing, and never reneging. You build that reputation plus we know what we are doing. We are going to close fast with sellers. It’s building your reputation while you are developing those relationships with the selling partners.

Since you have transitioned to note investing, have you left all the other real estate investing in the dust or are you like, “This is so much easier for me. I’m going to not do commercial and not do residential as much?”

Interestingly enough, because of the books that are out there and in some of the podcasts I do, I have a lot of people that reach out to me weekly. What my partner and I decided to do a few years ago was we were hearing from so many people that wanted to participate in note investing, be a part of the profits, and in the social good behind it but didn’t want to launch a full-scale business for themselves. We decided to open up an income fund called BeQuest Funds where we offer a 9% annual pref paid to the investor monthly. It is a 506 Reg D income fund for accredited investors. We are starting to take on investor payments versus our hedge fund, which is buying the non-performing loans at discounts.

That is owned by my partner and myself with no investors. It is the income fund purchases performing mortgages that are seasoned and performing from the same secondary mortgage marketplace. To answer your question, we are launching another fund in 2022 that is going to focus on commercial real estate property versus being the mom-and-pop real estate investor, which I have been up to this point is going to be more structured and the acquisitions are going to be much larger.

If you’re not giving the homeowner a payment plan that they can afford, then it’s not going to be sustainable. Click To Tweet

I want to smooth over some of the jargon because there are lots of terms in there that people might not know if they are new to these ideas. It is almost like syndication. It sounds like your second deal is going to be a bit of syndication where you might be buying a couple of commercial real estate properties, putting it all together, and pulling people’s funds. It sounds like with the fund that you have got that is note investing, you are pulling a bunch of investors together to buy more funds so that you can make a lot of different mortgages in there.

With 9% preferred, that means that any profit that you make, you are paying the investors first. Sometimes, with these syndications, there is the preferred payment. If there is more money made by selling or improving the property, then they get another payment out later, but with a mortgage, it is a pretty predictable history. I don’t know if that would be changing.

What you are referring to on the backend is a waterfall. There is no waterfall feature to the income fund. What the income fund is set up to do is be a very conservative vehicle where someone can earn a predictable, consistent return of 9% or they can let it compound at 9.38% and receive a monthly income. It is very much about the monthly income to hedge against inflation and provide people with additional money monthly. That is what I’m very passionate about. We launched the BeQuest Funds as a friends and family fund initially. We didn’t even promote it for the first year. I put in $800,000 and my partner put in a bunch of money.

We were making it an annuity play because it was set up as an evergreen fund with no expiration. We set it up as something to pass down to our children, but then we decided to open it up to more of the investor community outside our network in 2021. We raised $10 million from outside investors in 2021 to grow the fund and it caps out at $50 million. In the next two years, it should wrap up.

When you say evergreen, I was thinking that maybe it was on forever and ever so how would people get out but you do have a term length of time.

We have a few different classes. Class B provides an 8% annual preferred return. That is a one-year commitment. Class C is a 9-year annual preferred return with a 4-year commitment. We have a 6% pref option that comes with a 6-month commitment. It is more liquidity on that front. We give different options based on where people are at but when they invest in BeQuest, they are equity stakeholders in the company. Even though they are getting paid out like a debt structure where they are getting monthly income, we wanted to give people the ownership feature for the investment. They are owners of the whole portfolio, not just what they invested in or the trade that we used their funds to buy.

Are there any final words of wisdom you want to share with the audience or anything that you want to make sure that they understand before we transition?

Wherever you are at in life, you are working a good job, looking to be an entrepreneur or a professional investor, the focus should be on multiple streams of income that are coming to you monthly, whether it is active streams or passive streams. You got to start with active before you get to passive. At some point, you should be transitioning more of the active income into passive income or growing both. Why not? Invest in assets that you have some control over or know the operators. Invest in assets that provide monthly cashflow. Don’t be disillusioned with all the things that are out there. They are just appreciation plays because they are going to bite you in the end.

Let’s transition into the final part of the show. I’m going to ask you four questions. Question number one, what are you reading?

Capital Attraction by Matt Burk. It is on strategies for raising capital for a real estate type fund.

Note Investing: Don’t be disillusioned with all the things that are there that are just appreciation plays because they’re going to bite you in the end.

 

Number two, what is the best piece of advice you have ever received?

Invest in assets that you can control in the cashflow.

Interestingly, you say that because if somebody invests in a fund or syndication, they don’t have control. They are relinquishing that to you. What would you say to that?

The relationship needs to be in place so you need to have access to the operator. You need to do your due diligence on them, background checks, verifying with other investors that have invested with that person. Even though you don’t have control per se, you can have controls in place to ensure that you are monitoring that operator on an ongoing basis in a positive way.

Number three, what is your why?

The most impactful thing for me in my life that brings me joy is that my wife and our four children have never had to think about money for the past years, not one second of one day.

Question number four, if you could go back and change any of the decisions that you have made on your path, what would you do differently?

Not slow roll it. Initially, I grew slow because I self-funded my whole operation for the first four years. I would have hired employees right out of the gate. I would have taken investor dollars right out of the gate after I knew what I was doing. I would have grown it in a grander way out of the gate.

If anybody wants to get ahold of you after this, what is the best way for them to reach out to you?

They can email me at Martin@BQFunds.com or visit the website at BQFunds.com. You can email me with any questions you have. It doesn’t have to be an investment into BeQuests or any of that. I am an educator at heart. I love helping people. It is an epidemic in this country where people don’t have enough streams of income coming into their lives to support their families. I’m very passionate about helping people that way.

Invest in assets that you have control over and that provide monthly cash flow. Click To Tweet

I hope people do reach out to you. This is a great avenue for some people that are wanting to be a little more passive, take their income, and make a great return. Thank you so much for sharing all your knowledge on the show.

Thanks for having me on.

No problem. We will see you again. Thanks so much.

That was Martin Saenz. Thank you, everybody, for reading to the end. There were some great nuggets in there about note investing. You can reach out to Martin if you are interested in getting into one of his funds. A 9% return is better than most people are doing in the stock market. The stock market has gone up a lot in these last few years but that is probably not going to continue. It is nice to find places where we can take our newfound money and keep it secure. Maybe looking into a fund will be good for you.

As always, we love it if you can leave us a review or a comment and share this show with your friends. We are always trying to build and help more people. You can always reach out to Craig or I. Craig is @TheFiGuy and I am @ZeonaMcIntyre on all the social channels. We would love to hear from you. We will see you in the next episode. Thanks so much.

 

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About Martin Saenz

Martin is a Managing Partner of Bequest Funds. Renowned as a thought leader in the mortgage note investment industry, Martin is generous with his firsthand expertise, to the benefit of his many clients and followers. Genuine, loyal, and passionate about creating a better world through profitable business, he works hard to share and spread success.

Martin holds a BA degree in Philosophy from U.T. — San Antonio, an MBA from Drexel University, and a M.S. in Project Management from George Washington University. Martin, his wife Ruth, and their four children live in the D.C. area. Together, they enjoy exploring the history and natural beauty of state and federal parks and being a part of their church community.