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Real Estate Agent Podcast Episode 81: Note Investing Made Simple: Creating Cash Flow With Martin Saenz

Episode 81: Note Investing Made Simple: Creating Cash Flow With Martin Saenz
December 9, 2021

Martin Saenz is an entrepreneur, investor, advisor, and industry speaker on cash flow investing. In this episode of Shop Talk, Saenz defines and outlines cash flow investment opportunities so you can take your portfolio to the next level.

 
We purchase mortgages that are in a performing state, hold them in our income fund, and receive homeowner payments on a monthly basis. In turn, [we] pay our investors on a monthly basis.

Martin Saenz

About This Episode

Martin Saenz is an entrepreneur, investor, advisor, and industry speaker on cash flow investing. He’s no stranger to multi-million-dollar deals, between founding and selling a government contracting company that produced $14 million in federal contracts to co-founding a $35 million hedge fund that has helped save over 1,000 homeowners from foreclosure. 

Martin Saenz is currently a Managing Partner at Bequest Funds, an investment fund that purchases and manages performing mortgages within the secondary mortgage market. On today’s episode of Shop Talk, Saenz defines and outlines cash flow investment opportunities so you can take your portfolio to the next level.

Learn more about Saenz on his website MartinSaenz.com, get started in note investing today with Bequest Funds at BQFunds.com, and connect on Linkedin or email him directly at Me@MartinandBGFunds.com.

Martin Saenz’s Books:

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Episode Transcript

Intro: Hey there and welcome to Shoptalk, the real estate show. I’m Brett Van Alstine and on today’s episode, we’re joined by Martin Saenz, an entrepreneur, investor, advisor, author, and industry speaker on cash flow investing. Today we discuss what note investing is, the lessons within his books, how Bequest Funds can help investors reach financial freedom, and how note investing can bring social good into smart investing.

Brett:

Hey Martin. Thanks for taking the time and joining us on the podcast today.

Martin:

Thanks for having me on Brett.

Brett:

Let's just jump right into the core topics. So, what is, for our audience...What is note investing?

Martin:

Sure. So note investing takes on a number of different forms, however, for the purposes of, of our business model and what we do, if you take an individual that's looking to purchase a home and they go into a bank or lending institution to fill out a mortgage application and it goes through underwriting and that bank gives a mortgage to that individual at the bank has an option. They can bundle those mortgages off and sell them off into the secondary mortgage market space, or they can, they can hold them in their own portfolio. Now, what happens is for lending institutions that hold these mortgages in their own portfolio over a certain period of time roughly 4% of their portfolio will go into default for mortgages. So what that means is the homeowners will stop making payments for a variety of reasons, mostly due to a divorce, or health, or loss of job.

Martin:

So what happens is when those mortgages go to a defaulted state whereby they become delinquent over the course of a year or two years, the lending institution will bundle those mortgages into tronches, which are large pools, and they will sell them into the secondary mortgage market space. Which is essentially like a flea market of different lenders and hedge funds that buy and sell mortgages in various states and various types of mortgages, commercial, residential, and so on. We have two sides to the business. We have one that operates a hedge fund that I launched in 2013. And so what the mission of that organization is, is to purchase these mortgages and defaulted states and to work with the homeowner, to keep them in their home with a payment plan they can afford.

Martin:

So since we purchased these mortgages at a discount, we're able to offer concessions to the homeowner to help them stay in their homes. And oftentimes they've gotten their job back or they've gotten, you know, remarried and their health is back and something has changed over the course of a few years. So we get them modified and they're making payments on time. And when we season those mortgages now on the Bequest Funds side, we purchase mortgages that are in a performing state and hold them in our income fund and receive homeowner payments on a monthly basis and in turn, pay our investors on a monthly basis. So it's kind of like the next step beyond the hedge fund, they've transformed the mortgage from a defaulted state into a profitable one.

Brett:

I see. So the two sides that you're operating are is really just a two-tier system, there's almost a lower tier. And then there's this second tier, they're the higher tier that you're working up towards or helping people get to that.

Martin:

Yeah. Yeah. You know, and in the mortgage note industry especially in particular, on the defaulted side, there are two ways to exit that asset. And one is through the property and one's through the homeowners. So exit through the property, you can take a defaulted mortgage and you can start foreclosure and you can foreclose on the property and resell the property. Unless you sell it to a third party at the auction, you know, sell the third party at the auction or where you sell it as an REO, either way, you're exiting through the property to get your money back to do, you know, which is a capital gains play in that case, or the other option is to exit through the homeowner. And that's the best one we choose. So we choose not to displace families. We choose to work as much as possible to keep them in their home and create a long-term cash flow stream for our company.

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After the break, we dive deeper into Martin’s career, how he got started in note investing, and how Bequest Funds can help people create cash flow for financial freedom and freedom of time.

 

Bequest Funds can provide a path toward financial freedom for investors. Similarly, being a real estate agent means the sky is the limit when it comes to your earning potential, not to mention the incredible flexibility this career offers. That’s why agents who value their time choose to learn online with The CE Shop. Our 100% online curriculum lets you learn what you need to succeed when it fits in your schedule. Enroll in our mobile-friendly courses today and save 25% with promo code SHOPTALK.

Brett:

So how did you get started with note investing? What was your sort of launching point? And I'm sure that there's a point in your career where you thought this should be my next step, but how did you really get to that point?

Martin:

So my wife and I founded a government contracting company that we sold in 2013. And I've been a landlord since 2000 and on both the commercial and residential sides of the fence. So, I already had kind of that entrepreneurial edge as well as an understanding of the real estate market through just numerous purchases. And so it was just kind of a progression where I met up with some individuals in the note industry and kind of learned about the paper side. It just made sense to me because when you look at kind of real estate investing as a whole on a diagram, you know, the bank is always kind of in the middle of whether your private money lending or your fix and flip or your rehab, you know, buy and hold, whatever the case, the bank is always kind of front and center. So it makes sense to kind of go that route.

Brett:

Sure. So what does, or I guess I should say, how does the Bequest Funds specifically help people? And if people are looking to get involved with Bequest, what does that process look like?

Martin:

Yeah, so we're, what's called an SEC 506 C Reg D income fund. So what that means is that we work with accredited investors, whereby accredited investors invest in our fund and they, you know, want with one investment and they start receiving monthly payments for the rest of their life. It's set up as an evergreen fund. So that's kind of like what we call our tagline is consistent income with real estate notes. So we have an 8% annual pref option and a 9% annual pref option. The 8% comes with a one-year commitment. The 9% comes with a four-year commitment, and you can invest with either qualified or non-qualified funds either way. And so, but with one investment, you'll start earning monthly income on that investment for as long as you want to earn the monthly income.

Brett:

Okay. Is there a minimum investment that you guys ask for?

Martin:

Yeah, there's a $50,000 minimum investment. 

Brett:

Okay. That seems pretty standard. At least in your experience, have you noticed that across the board for most requirements, the investment is around $50,000?

Martin:

Yeah. I mean, you'll see a, you know, $25,000 you'll see, $50,000 some larger seasoned funds. You know, they could be north of $100,000, but generally, I think $50,000 is a good rule. 

Brett:

Okay. And do you guys operate primarily just in Florida or do you branch outside of the state?

Martin:

We're in 34 states. So, you know, we have mortgages spread out throughout the country. A bulk of the portfolio is owner-occupied properties. So individuals have emotional equity and you know, an incentive to stay in their homes and to keep paying. And so we try to buy in suburban to tertiary markets. We try to stay out of highly densely populated urban areas as well as rural areas.

Brett:

Interesting. And is there a reasoning behind that specifically, or is that just kind of something that you guys learned along the way through just different trials?

Martin:

Well, I think it's something we learned along the way, our average fair market value of, of the assets in our portfolio is about 317,000. So you know, these are, these are suburbs, you know, solid kind of mid-America, suburban homes in HOA communities. That's kind of just what we have found our niche. I mean, I think I would just say that we don't have expertise in every city, right. So we don't know the nuances whereby if you go one block this way, this happens to the neighborhood and everything else. But if we're in general suburban areas where there are jobs around the areas in decent schools, we know that, and the homeowner has been painted, it's a seasoned mortgage that we bring in the fund. We know that we're protected that way. 

Brett:

So what you're, when you're looking out you know, let's say just for either regionally or even by zip code, there are certain factors that you guys are looking for obviously to mitigate risk.

Martin:

Yeah. I mean, we have yet to foreclose on a property in our fund. But we understand that you know, that may occur at some point we have a 96% collectability percentage now on our portfolio. So 96% of our portfolio is paid. We buy them at a discount, you know, that, that's pretty, that's pretty good. Right. And so, so our, our objective is just to if we do have to go down the foreclosure route, our portfolio sits at a collective 62% investment to value. Okay. So, we do have equity coverage, for the most part, our fund calls out that we want to keep it under 65% investment to value. So it's a very conservative fund. You know, obviously, there are other investments where people can, you know, shoot for the moon and make 12%, 15%, whatever, but there are always risks that are associated with that. We kind of look at our fund as a very boring fund where people can kind of set it and not worry about it and just get ACH payments to their account every month.

Brett:

I think that that's probably what most people are looking for. And I'm sure over time you've found that people, if they're investing $50,000, they want to know that there's a low risk. There's a good chance that they're going to make a good return, whereas those high-risk ones unless you sort of have the capital to play around with that, it's not really as enticing and oftentimes can be kind of scary.

Martin:

Yeah. I mean like anything, like, you know, there's a whole spectrum where investors said, so just have a lot of money parked in an account somewhere, not really earning anything. And then inflation's kind of chipping away at their rock and, and others are, you know, have aggressive plays in the stock market. But what happens is obviously the inflation's here to stay, right? It's gonna increase over the course of time. We all can, whether you're Democrat or Republican, I think you can agree on that point. So you should hedge against that inflation with a product like Bequest that pays you consistently passive income, but on the other side, you know, there are people just tearing it up in the stock market and they should continue doing that if they know what they're doing. However, with that said there’s a lot of stress to that type of investing because we talked to investors every day.

Martin:

And what we hear is, you know, people are looking at their phones all day. They're thinking about it at night, thinking about it in the morning. And so with that, I mean at the end of the day, it's great to make a recheck, make those appreciation returns, and whatnot. But at the end of the day, I mean, at what cost you have to kind of sum it up. And that's what we feel like we fit in nicely in the middle, whereby someone can put in money 9%, you're going to beat inflation and you don't have to think about it other than just look at your bank account once a month and see that the ACH came in.

Brett:

To me, it seems certainly like the best of both worlds as far as being able to invest, not having to pay attention to it, and knowing that you're going to get a return on it.

Martin:

Yeah. So you can focus on whatever it is you do for active income. You can focus on creating more passive income and other vehicles. And it's just at the end of the day, it's about freedom of time. And that's what brings really quality in, in one's life, I believe.

Brett:

Sure. No, I think most would agree with that. So for the Bequest fund, it certainly seems like the overall intentions and the mission of the company obviously are to help people outside of helping them to kind of recover. Is there an educational side that you play into this where you're actively helping people and educating them on what's going on and maybe how to avoid this in the future, or even, you know, on the flip side educating investors that are getting involved what, what does that look like and how does that ultimately help your business?

Martin:

Yeah, I've written five books. One is on government contracting, one's on cash flow just in terms of building multiple streams of income in one's life, and three are on note investing. And, so you know, just through my love of education and I'm an avid reader, I read at least a book a week. And so through that, you know, I have mentored some individuals over the course of time and I do that on a very small level ‘cause my business is, has been growing and growing over the course of years. But you know, with that said, I think that it's always good to kind of build that community of individuals where, if I know something, someone else does it and I can be of service, as long as that individual is willing to learn and put in the work, you know, I'm open to connecting and figuring something out.

Martin:

On a very small level. I'm not a mass, I'm not a mass, you know, I don't have, like, a whole training operation. 

Brett:

No separate coaching platform for you.

Martin:

Yeah no.

Brett:

Well writing five books, that's certainly an undertaking. Which was the first book that you wrote and when did you know that you wanted to get started with that?

Martin:

Yeah. So note investing made easier is the first book and I was at church and just felt like a calling spiritual calling. Where it just you know, came to me that, that I know things that other people could benefit from and I need to get the word out. And so it was in January 2017 and then I just, I just kinda went over the course of five months and just kind of hibernated a lot for the most part and just kind of put pen to paper in terms of my systems and you know, what I've put together over the course of years.

Brett:

How did you enjoy the process as far as, I guess there are two parts to that. There's the writing process and then there's the back-end process of, you know, finding an editor publishing all of that. How did you, like, I guess both of those and how did they differ?

Martin:

Yeah. So you know, the writing part is it's interesting because your creative juices flow and, and things come out of you that you didn't, they were in your subconscious and you just, you just didn't know you had in you. So it's kind of neat to kind of explore your mind in that regard, the editing the publishing I'm self-published on these. So, but I did have some support. I did have some support doing that, you know, individuals that did the layout, where the artwork the proofreading you know, things, I posted it on Amazon getting it all set up. I outsource a lot of that. And, and so that's just like, that's just like kind of, you know, process system where it's just kind of to do work. It's not, there's no spiritual aspect to that. It's just kinda like things you gotta do. But it's, it's very good in that. The finished product, I have had a lot of people reach out to me and I've made friends, I've made business partners I've helped people and they've let me know that. And like, all that is being of service is has been very important to me. So this has validated that I've been of service in some respect.

Brett:

Sure. I'm sure that feels very rewarding. One, obviously having written it, published it, gotten it out to the public, but then to obviously hearing, like you just said, getting that validation from others essentially saying one great job. Thank you for writing this. That must feel really great.

Martin:

Yeah, absolutely. I mean, it's always, it's always very good. You know, prior to me publishing any books, I was just in a cave and I was just kind of building my own business, the government contracting business or buying hold portfolio or the mortgage or the hedge fund just in my own world. And so this was good that you know there, what I realized is there's just so many people that are looking for so much more than what they have in their life. And they realize that single source income, dual-income, it's not cutting it for them. They're falling behind. They're not making those advancements, they want in life. They're not, they're stressed out of their mind. And so it's just good to know that I think more people that do know things that can help other people, you know, improve their financial situation. I think they should be of service and just kind of get the word out.

Brett:

Yeah. It's almost like a social responsibility in a way.

Martin:

Yeah. I believe it is. Cause you're not going to get that from the government. You're not gonna get it in schools. You're not gonna get it from corporations. I mean there, or you're not going to get it from wall street, you know, that all of those bodies are kind of working together to keep people as, you know, underpaid employees.

Brett:

Right, right. Yeah. Why would they, you know, give away those tidbits and secrets and show their hand. So let's circle back earlier talking about, you know where you guys primarily focus, you're focusing on suburban areas, not so much urban areas or rural areas over the course of the pandemic, how did your company fair and you know, in an economic downturn situation, how do you guys sort of handle that?

Martin:

Yeah, I mean we came out well through the pandemic initially. You know, we thought the sky was falling. We had talked to a number of people in the industry and just to kind of gauge where their sentiment was. And you know, we thought the worst, but what it did, it made us self-reflect. It made us redo our, all our entire operations you know, metrics that we were monitoring weekly. We started monitoring daily. We started you know, scrutinizing the legal process and all the invoices and kind of built systems around safeguarding against Ms. Billing and just kind of did an evaluation on all our strategic partners and vendors. So it actually made us stronger in many regards and gave us best practices that we've carried forward to this year.

Martin:

And we're having, you know, a very good year this year. So now in terms of the moratoriums, you know, there are a lot of the states we couldn't file foreclosure or, or there was different delays and courthouse shutdowns and whatnot. And so we just had to understand what we could and cannot do in the various states and kind of navigate accordingly, but it also allowed us to be more creative in how we worked with the homeowners to say, Hey, look, you know, we're, we're not looking to file legal. That's not our intention anyway, but let's see how we can work this out because we did find, and this was kind of a pleasant surprise, that a lot of people actually value their homes more so during COVID than prior to COVID. So you know, I know the news media kind of puts out one narrative, but we found just a lot of people that are saying like, they're going to do without going out to happy hour on Friday night or buying a new pair of shoes, but they're sure as heck not going to lose the one place that now they're working out of, they're working out at home or they're, you know staring at their four walls more than they've ever done. So, so there's more of an appreciation.

Brett:

Sure. Yeah. That appreciation certainly comes out of dependency when everything is kind of cut out of your normal routine. That's interesting. And I'm sure most wouldn't have expected that answer ensured that you know, kind of what you had just said there, that these perceptions that the sky was falling and everything was going to collapse. And most homeowners weren't going to be able to make this or make that, but I think it shows what you had just said shows that people really buckled down and ultimately chose to be responsible over everything else.

Martin:

Yeah. And I think delinquency rates now in the country are like 3% or something like that declining month after month. And so, you know, people are getting back on their feet and I don't think it's going to be this kind of world crashing down that scenario, that you've kind of heard out there in terms of the real estate market.

Brett:

Right. And that's, I mean, that's definitely a good sign and certainly uplifting to hear compared to what you usually hear.

Martin:

So now you should prepare, I mean, right. Certainly worse right now and don't get me wrong. Like we're, you know, we're code red on everything, but be realistic and understand that the key to it is having disciplines in place whereby you're monitoring your KPIs and all your metrics in place on a daily basis. And you're reacting to what, you know, you're proactive in your approach to everything then you’ll be fine as a hedge fund operator, real estate investor.

Brett:

Right. When I think if you take that, if you apply that to most everything in life, if you're proactive, instead of always being reactive, obviously you'll fare a lot better.

Martin:

Yeah. Yeah, absolutely. Agreed.

Brett:

So final question about Bequest Funds and you know, how you operate how is your fund structured? Apologies if we've already covered that.

Martin:

No, no, that's fine. It's set up as a, what's called a 5 0 6 C Reg D income fund with the SEC. And so it's a $50 million fund and this is our latest offering. We launched it in February of 2020. Currently has about 7 million assets under management. And so you know, we have investors from all over the country and it's a $50,000 minimum to come in half our investors use self-directed IRA money, and half use non-qualified funds. And so you can come in with cash or you can come in with IRA money. And we’ve helped a lot of people get set up with self-directed IRAs as a kind of service that helps them take control of their finances. A lot of our investors are if we profile them, which we have our successful business owners or real estate investors that have done well over the course of time. So these are individuals that have worked and probably any high-income earner can relate to these individuals that have worked so incredibly hard for active income, that they appreciate passive income. So they're not looking for, they're not looking to be glued to their phone all day, you know, seeing what the stock market's doing or what's going on in some other country that's affecting the stock market, or somebody said this and it's affecting the stock market. They just want something they don't have to think about.

Brett:

Right. Yeah. And then that makes sense. Especially if they're you know, in that position of working incredibly hard to have that income to be able to create opportunities of passive income.

Martin:

Yeah.

Brett:

So looking back on your career, if you could go back and change one thing or do one thing differently, what would it be and why?

Martin:

Yeah, so I'm building systems out on an ongoing basis from the very beginning. So you know, building the business with the exit in mind would be, would probably be the number one thing. So it kind of gives you control over your business when you have all the systems mapped out, you can plug new individuals in, you can measure existing employees to see who's fitting, who's not fitting. And so your systems really give you a security blanket for how your business is operating when you don't have those systems documented and mapped out in an organized fashion. What happens is you allow employees and people that, you know, 10 99, or what have you individuals control con have control over you. So as a business owner, it's just important to have control over your operation because, at the end of the day, the buck stops with you. All the risks stop with you. So you might as well have kind of control over your operation in that regard.

Brett:

Okay, awesome. So Martin, if people are looking to get in contact with you, maybe purchase a book, learn a little bit more about Bequest Funds where would you point people?

Martin:

Yeah, you can go to MartinSaenz.com, M A R T I N S A E N Z.com. You can email me@MartinandBGFunds.com. That'd be a great way to get in touch.

Brett:

Awesome. I'll be sure to have that on our publishing page, so that people can click on the link easily. I'll share all your social profiles. I'll make sure that there are links out to your books. So if people want to get into that, they can. But thank you so much for taking the time to hop on the podcast and educate myself and the listeners on note investing and Bequests Funds and who you are and how you can help people.

Martin:

Thanks, Brett. Appreciate it. 

Brett: That’s it for this episode, thanks for listening! If you enjoyed the podcast, you can subscribe to us and leave a review on your podcast player of choice. Shop Talk is a production of The CE Shop.