It’s okay if you don’t have the knowledge yet, but if you are determined to succeed in the world of real estate, you have to start now and build your portfolio. That’s how it happened for Paige Panzarello. Known as the “Cashflow Chick,” Paige has experienced many facets of real estate investing through her 25-year experience as a real estate investor and entrepreneur. She is now focused on note investing, and she sits down for a conversation with Sam Wilson about note investing, why it’s good to be the bank, calculating risks, making decisions, and how to have great returns on your money.
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Note Investing, Building Your Portfolio, And Making Decisions In The Real Estate Industry With Paige Panzarello
Paige Panzarello is the Cashflow Chick. Having been a real estate investor and entrepreneur for many years, Paige has experienced many facets of real estate investing. Her experience includes founding and running her own residential and commercial construction and acquisition companies, buy and hold residential and commercial real estate investing, tax deeds, lean investing, fix and flip and other forms, to name a few. She has been focusing on purchasing nonperforming notes since 2014 and has been successful, including over $150 million in real estate transactions to date. Welcome to the show.
Sam, it’s so great to be here. Thanks for having me.
Nonperforming notes, people hear about that stuff. It means a lot of different things to a lot of different people and I look forward to talking about that. I’ve got the same three questions I ask everybody who comes on the show. Where did you start? Where are you now? How did you get there?
Mine is an interesting story about real estate. I did not choose real estate. Real estate chose me. At a very young age, I was thrown into the deep end of the swimming pool. I had a grandmother that passed away and she had a very large estate that was severely in debt. We had holdings in Arizona and California so off to Arizona I went to try and figure out if I could salvage these holdings that she had that were so in debt. At the time, there was no podcasting. There was barely the internet so I had to surround myself with people that had answers to the questions that I was asking.
We had 38 townhome units, a sewer treatment plant and some land. All of it was severely in debt. Fast forward, I was able to work with a lot of people, bring the 38 townhome units that were broken and vacant. I was able to fix them. I was fixing and flipping before I even knew what I was doing. I brought them to 100% capacity but because we were in a small market, I realized that we were not going to be able to sustain profitability.
I went to my family and said, “We’re not going to be able to sustain this, even though we’re profitable now in these townhome units. I want to sell them and build on the land.” In the middle of all that, we sold the sewer treatment plant as well. My family decided, “I don’t want anything to do with that.” I was young, fearless and bold. I could risk everything so I said, “I want to buy the company,” which I did. I bought the company, I sold off all the 38 townhome units, I leveraged that money and I started building on the land.
I realized very quickly that the contractor was going to bankrupt me before I was even coming out of the ground. I fired him and I started my own construction company, knowing nothing about construction. I surrounded myself with the people that I needed to. I brought in a qualifying party, a partner, into my corporation. The corporation held all of our licenses and within three years we were up and running.
We were building our own projects and everybody else’s projects. I was making money hand over fist. I started with zero knowledge but I asked lots of questions and I immersed myself in it. I was putting myself in an early grave because I was working 18 hours a day, 7 days a week. I had a crew of 36. We were rocking and rolling. I was making money but my health was suffering. My relationships were suffering.
Even with zero knowledge, you can ask a lot of questions and immerse yourself in real estate.
The crash of 2007 to 2008 came. I thought, “It’s not going to happen to me because I’m only 10% leveraged. I have all these assets and I have these relationships with lenders so it’s not going to happen to me.” I was wrong. That crash happened right on top of my head. It was horrible going through it at the time. I chose not to file bankruptcy and a lot of other people did. People owed me money, lots of it but they all filed for bankruptcy. I was very fortunate because I had taken the money that I was making and rolled it into a cashflowing asset.
I had a lot of assets. I had a lot of liquidity. Long story short, I fire-saled everything. I paid off everybody I owed money to. Three years later, I walked out of Arizona having lost everything to the tune of $20 million. I say all of that because I don’t want to be cavalier about that. That was a very difficult learning experience for me but it shaped who I am as an investor. It shaped where I put my money. It shaped how I treat money and how I treat other people.
It was a massive learning experience for me and it brought me to where I am now so I wouldn’t change a thing. When I came back into real estate, I had to build up my portfolio again. I did the typical thing that everybody does and go into fixing and flipping and started gaining capital. All the while, I started learning about notes and I’ve discovered that it’s good to be the bank.
That’s what you are when you become a note holder or note investor. You become somebody’s bank. I’m in a position where I can mitigate my risk. I can have above-average returns on my money. I get to help people. All of that is because of where I was and how I got to where I am and investing in nonperforming notes.
The term you had used was shaped. You said it shaped who you were as an investor. Give us 2 or 3 things that you would say that these were the things that experience shaped.
When I started out telling my story, I said I was young, bold, fearless and I could risk a whole lot. As I’ve grown, as I’ve been successful and gained a lot of money and had to build it back up, I choose where to spend my time because my time is very valuable. That’s our most valuable asset. That’s the one thing we can never get back. I choose to spend my time wisely. I don’t want us to work 18 hours a day, 7 days a week. It affects your health and your relationship. It shaped how I choose to spend my time. It’s shaped how I am in terms of my risk.
I had to have a meeting with myself, sit down and say, “You’re not where you were many years ago.” What are your tolerances? I had to have that meeting with myself and I discovered that where I was bold and fearless when I first started, I’m pretty bold now but I’m not necessarily fearless. That might sound silly but I went through a pretty horrific experience so I choose to make educated decisions of what my risk tolerances are and where I’m going to place my time, my most valuable assets and my hard-earned dollars. Those are a couple. There are many more but I’m sure we don’t have time for that.
We probably don’t but I love hearing those things because that gives you some of those softer skills that you go, “How did this affect me? How does it change who I am as a person now? How can other people either learn from my mistakes or adjust their current course?” Based upon what they hear you say. Those are some of the things that I enjoy hearing about that helps us as investors. Let’s talk about nonperforming notes because that’s what you do. It’s not a topic we do a lot of discussion on this show about. Walk us through what your business looks like. What type of nonperforming notes do you guys invest in? Kick it off and start running with it and I’m sure I’ll come up with a couple of questions along the way.
Notes, in general, are basically a promise to pay. There are many different kinds of notes that you can invest in. I choose the first position, which means I’m the first to get paid. First position, nonperforming notes secured by real estate. It sounds crazy to invest in nonperforming notes but there’s a method to my madness.
The reason that I do nonperforming is that I am able to buy those notes that are secured by the real estate, meaning it’s collateralized so I’m mitigating risk. I choose to buy the nonperformers because I buy them at a very big discount and it builds in a margin of equity immediately from the get-go. It also gives me a little bit of leverage to be able to work with my borrower.
My ultimate ideal outcome exit strategy is that I get to work with my borrower to get them reperforming again, meaning they’ve stopped paying their mortgage but I get to work with them to get them performing again and give them a second chance. I get to make money while helping people. That checks all my boxes for me.
You can buy notes on real estate and on credit card debt. I choose to focus on securing my investment and my time with real estate-backed notes or promises to pay. The other cool thing is you literally become the bank and it is good because you are the one that is in control. You make almost all of the decisions.
In note investing, we have 23 different exit strategies so we can mitigate our risk. I spend $0 marketing for my deals. They come directly to my inbox for free. How I spend my time and my money is networking with people. That’s how I get my deals. I don’t send out yellow letters. I don’t knock on doors. I don’t call people. I network with the right people and the deals come to my inbox for free. I get to help other investors generate more money for themselves and their families while helping people. For me, angels sang when I got into this space.
Is there a particular asset class inside of real estate that you focus on?
Most investors like myself, when we started out in note investing, we started out focusing on residential. Most of us, not all of us. There are branches. You can branch out into multifamily, commercial, industrial or land. There are so many different opportunities that are available especially with note investor groups because we’re getting our deals directly from the bank. The bank that’s selling that promise to pay that’s backed by real estate so we have the first shot at it.
When I started to scale, I started from residential real estate note back to notes and moved on to multifamily commercial, industrial, etc. I prefer to stick with the residential and the commercial. There is some multifamily that comes in, which is exciting when they do but it is like anything else. You have to pay your dues as you scale and grow.
Why does a bank deal with you versus selling to the big players in the space?
There’s some of both. For instance, I’m not in a position to deal directly with the big boys, Wells Fargo, Chase Bank, Bank of America. You need to be able to take down hundreds of millions if not billions of dollars worth of pool of notes. I do buy from the hedge funds that are in that position. What will happen is they will buy hundreds of millions of dollars worth of notes.
They will take what is in their buy box. That’s a note term. It’s the criteria of what you’re looking for in your real estate deals. They will keep whatever they like and then they’ll sell off the rest to another hedge fund or to somebody, like myself. The reason that they do that is 1) Banks are publicly traded. They have shareholders and when they’re carrying bad debt, it does not look good on their books.
Further, they are regulated by the federal government in terms of how they conduct a foreclosure and it’s very costly for them. The costs are not the same for us as individual note investors or hedge fund investors. 2) Banks have to hold federal depositories, which big banks that originate notes are. They have to hold in reserve anywhere between $3 to $10 per dollar that they lend out to an end-user.
If they make a $100,000 loan then they’re going to have anywhere between $300,000 and $1 million cash reserves set aside. They can’t use that money. When a note becomes nonperforming, not only are they not making money for the loan but they also tied up a bunch of money in cash reserves. It behooves them to move that to release those cash reserves so they can lend to somebody else.
How do you get in front of the hedge funds and people like that? It’s not every day you’re like, “Hedge fund phone number. Hi, my name is Paige.”
It sounds pretty daunting, doesn’t it?
When you become a note investor, you become somebody’s bank.
I can imagine them going, “Yeah,” and then the phone hanging up. What does that mean?
The banks, I call them all. I lump them into the same kind of nickname. They’re all asset managers to me. I deal with banks, hedge funds, brokers and other note investors. I call them asset managers. Asset managers do not care if you are new. They do care that you have an idea of what you’re doing because it means that you educate yourself.
They don’t want to waste their most valuable asset, which is their time. They don’t care if you’re new. They want to know that you’re going to close. This space is very reputation-based so if you say you’re going to do something then do it. If you’re a tire kicker, nobody wants to deal with a tire kicker. It’s not exclusive to the note space. We want to deal with people that are going to perform and asset managers in the note space are no different than that.
How do you get in front of them? You network with them. You go to conferences. There are note conferences all over the country. There are notes subgroups that are popping up. There’s one that I often speak at it that’s called the Paper Source Symposium. It’s held once a year in Las Vegas. That’s a great place to start for new note investors because there’s a lot of education. There’s no selling at all, which is nice. There are asset managers there. It’s fun because other asset managers will introduce you to other asset managers. There are online platforms. Everywhere you can find a deal for any type of real estate is the same in the note space to get in front of asset managers, believe it or not.
Bridging that gap will be a lot harder than it is but it sounds like it’s one of those things where you go do it and that’s the way it works out. What sort of liquidity requirements? Buying a note means you’ve got to have cash on hand. How do you find these transactions especially your larger ones and what sort of timeline do you have to take those down?
It depends. There are ways that you can utilize other people’s money, like in buying real estate or buying multifamily. You can use other people’s money to take down assets or you can use your own or you can joint venture. I’ve done all of that. I’m in the process of starting my own fund. If I had to say there was a con about notes or note investing, that is the biggest obstacle. I don’t think it’s exclusive to notes. People look for deals and money and money and deals. It’s the same thing with notes but you cannot finance a note. You need to have cash.
Either you have to have your own cash or you have to joint venture with somebody else. You can participate in somebody’s fund. There are some that are out there, myself included and it scales. If you’re the big hedge fund that is going to buy from Wells Fargo, you’re going to need hundreds of millions, if not $1 billion. A tape is basically an Excel spreadsheet with all the assets that are for sale. If you’re going to be buying one-offs or cherry-picking a tape, if you’re going to buy 1 or 2 then you can have your own cash, a joint venture with somebody or use somebody else’s money. It’s the same thing.
In most things in real estate, you got two things you need. Money and deals. For you, you got the deal side covered. At this point, you’ve networked enough so the deals come to you. Liquidity is the issue. One of the attractive things about real estate is the leverage, which in your case because you’re becoming the bank, you can lever.
Not at this level. There are other hedge funds that do leverage but we’re talking much higher levels.
When you review 2007 to 2010 for you and where you are now, is it any better necessarily to be the one holding the note? If everything hits the proverbial fan and you’re basically on the other end of the equation but still without cash coming in, how do you protect your downside risk if that event were to happen again?
It’s great to be the bank. You’re holding all the cards. You are in the power seat. You are in the power position as long as you are secure because if you buy credit card debt, that’s unsecured. I buy debt that is secured by real estate. If my borrower stops performing then I have 23 different exit strategies available to me to work out with the borrower. My least favorite exit strategy is to have to foreclose on the home and take the home from them.
There are other investors that that’s all they do. That’s how they invest in notes. I would prefer and hope that they buy notes on vacant properties so they’re not kicking people out of their homes. How I hedge against that is remember when I said I buy nonperforming and I buy it at a very big discount? As you remember in 2007, 2008, prices bottomed out. The home value went into the toilet. We’ve been on such a big climb. All of us real estate investors are looking for that correction to happen because it’s going to and it’s already starting.
COVID has stepped in and the government puts some moratoriums. They’re preventing foreclosures. We’re seeing a huge uptick in foreclosures and the process getting started. Let’s say the values drop by 40%. It might be a progression but it historically has never happened in six months, not even in 2008. Let’s say it does. Let’s say the earth opens up and something happens. Home values across the board drop by 40%. I generally buy anywhere between $0.55 and it’s starting to go down. Between $0.55 and $0.62 has been where I’ve been buying these notes based on value. Not on the principal balance of the note but on the value of the securing collateral.
I buy them anywhere between $0.55 and $0.62 on the dollar. If we dropped 40%, I’m still okay. I’m at breakeven. Since I have 23 different exit strategies, I can hedge and mitigate against that risk. I might have to choose a different exit strategy than I was planning to prevent any loss but I’m in the catbird seat to be able to move in and pivot if things like that happen to prevent and hedge against that loss.
The biggest value there is buying at a discount. That’s your biggest downside protector. Tell us the most bizarre note you ended up buying and maybe the most fun one that you’ve done.
I always have fun when I’m able to be successful in keeping a family in their home. Out of every 10 notes, about 1/3 of them will end up in a foreclosure situation, which is my least fun. One-third will end up in either a short sale or a deed in lieu situation where the borrower’s vacating their home and 1/3 will end up in a reperforming situation. My most fun is being able to work with families. I try very hard especially when it’s a single parent situation and they’ve got kids in the home. I’ve been successful doing that where I’m able to reposition their loan. We reap internally but on the books, we re-fi their loan.
They get to start over. We can forgive some debt. I then get a little chunk of cash as a good faith deposit so I created a chunk of cash and then they cashflow. They pay their monthly mortgage every month. We set them up to succeed, not to fail. We’ve got happy borrowers with happy kids in their homes. I’m the happy investor as the bank because I generated a chunk of cash and a stream of monthly cashflow and they don’t call me when the air conditioning breaks because I’m their bank, not their landlord.
I’ve used that line several times, “I’m your bank, not your landlord.” The most bizarre thing that you ended up buying, what does that sound like to you?
There’s always risk in anything that you do. Some of these borrowers know how to milk the system. I review this in my workshop. There’s one note that I was very excited about. I ultimately didn’t end up buying it largely because our due diligence steps that we take prior to the purchase of the note are so extensive that they prevented this. It would have been a loss for me.
This woman declared herself free from the Constitution. She is her own island. It’s in Chicago and her house was a beautiful duplex in a beautiful area that was being gentrified. It was phenomenal. The profit potential was off the charts but she had been in foreclosure for seven years and declared herself her own island. She wasn’t beholden to the law. I still check on that note and she’s still in the house. I look at the recorded documents. It’s funny and bizarre. I’m very happy I did not buy that note but that’s because of good due diligence.
That takes professional tenants to an unthinkable level. It sounds like she’s got it figured out.
She absolutely does.
Whatever her systems are, whatever’s going on, wherever she’s living in Chicago I hope she keeps those tricks under wraps. You don’t need that out of the bag here in the real estate industry. Paige, I’ve enjoyed this. Here are the final four questions. If I gave you $20,000 to invest in real estate and you had no previous real estate investing experience, what would you do with it and why?
Network with the right people, and the deals will be coming to you.
This question can be a hard one because honestly, what’s good for me is not necessarily good for somebody else. I love notes but you have to educate yourself there. There are some pitfalls like anything else. For me, it’s notes. I do like multifamily syndications. I would probably go in that direction but again, sit down and discover what your what is. As an investor, what do you need? What does that look like? What are your risk tolerances? Then go in that direction so you can get there.
Let’s keep the answer as if it pertains to notes. If you could help our readers avoid one mistake in note investing, what would it be? How would you avoid it?
Lack of education, hands down. Don’t get into FOMO. There are a lot of shiny objects that are out there, notes included. Don’t have that fear of missing out. Educate yourself. There are always going to be opportunities in real estate and real estate investing. People are accustomed to living in a home so there’s always going to be an opportunity. Some are better than others but don’t get ahead of the game. Make sure you’re educated. Make sure you know how to mitigate your risk and spend your money wisely. The FOMO is where you end and if you’re not educated, that’s how you make mistakes.
When it comes to investing in the world, what’s one thing you’re doing to make the world a better place?
I’m so blessed and fortunate. I get to go across the country and help distressed homeowners that haven’t been able to pay their mortgage and nobody has cared. I get to help homeowners stay in their homes, give them a second chance, get back on track, make money for my investors with above-average returns, make money for myself with above-average returns, have time for my family and friends. All of that is wrapped into notes and note investing.
If our readers want to get in touch with you, what is the best way to do that?
A couple of different things. CashflowChick.com. As you can see, I’m the Cashflow Chick. If you want to talk with me, you can book right on my calendar right from that website. If you’re interested in learning about notes and how you did note in note investing, go to BuildingWealthWithNotes.com. I also have my workshop. I only hold two years because I’m an active note investor.
I do like to pass it forward and teach everybody how to do this because I love for people to become financially free. We’ve got a lot going on with COVID and unemployment. I love to teach people financial freedom, how they can get themselves out of the rat race and be able to live their life the way on their terms.
Thank you so much for your time. I’ve certainly enjoyed it.
Thank you. I’ve enjoyed it as well. Thanks for having me on.
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About Paige Panzarello:
Paige Panzarello is the “Cashflow Chick”. Having been a Real Estate investor and entrepreneur for almost 25 years, Paige has experienced many facets of real estate investing. Her experience includes founding and running her own Residential and Commercial Construction and Acquisition companies, Buy and Hold residential and commercial real estate investing, Tax Deeds/Liens Investing, Fix and Flip (Residential Remodeling), and other forms to name a few. Paige has been focusing on and purchasing Non-Performing Notes (NPNs) since 2014, and she formed The Tryllion Group, which invests in Notes across the United States. Whether in notes, residential or commercial real estate, in California, Arizona, or nationwide, Paige has been successful in completing over $150 million in real estate transactions to date.