PODCAST
Eat, Sleep, Invest
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Show Notes
What if you could invest in real estate without dealing with tenants, toilets, or costly rehab projects—yet still generate strong, consistent cash flow?
That’s exactly the world Scott Carson operates in. In this episode of Eat, Sleep, Invest, Brian Driscoll sits down with Scott, a seasoned note investor known across the industry as “The Note Guy,” to break down how he has built a career buying billions in distressed mortgage debt.
This isn’t traditional real estate investing. It’s something most people overlook entirely: note investing.
What Is Note Investing?
Note investing is the process of buying mortgage debt instead of physical properties.
When a homeowner takes out a mortgage, that loan becomes an asset for the bank. But when borrowers fall behind on payments—especially after 6 months or more—that loan becomes a distressed asset.
Instead of holding onto non-performing loans, banks often sell them at a discount to investors like Scott.
That means investors can:
- Buy debt at 40–70% of its value
- Step into the position of the lender
- Collect payments or restructure the loan
- Or, in some cases, foreclose and take ownership of the property
Scott explains it simply: you’re not buying the house—you’re buying the right to collect the debt tied to the house.
How Scott Carson Got Started in Note Investing
Scott didn’t start in notes. He began as a mortgage broker and traditional real estate investor.
But everything changed after the 2008 financial crisis.
When the housing market collapsed, distressed loans flooded the market. Scott saw an opportunity that most investors ignored: buying debt directly from banks instead of competing for properties.
He started contacting banks, asset managers, and lenders to source distressed mortgage notes. Over time, this evolved into a full-scale business focused on buying and managing performing and non-performing notes across the United States.
Today, Scott has participated in billions of dollars in distressed debt transactions, earning his reputation as one of the most recognized names in the note investing space.
How Investors Actually Make Money With Mortgage Notes
The profit in note investing comes from several strategies:
1. Buying Debt at a Discount
Investors purchase distressed loans for far less than what is owed.
2. Loan Modifications
Many borrowers want to stay in their homes. Investors can restructure payments to make them affordable again.
3. Cash Flow From Payments
Once restructured, the loan becomes a performing asset that generates monthly income.
4. Selling the Reperforming Note
After consistent payment history (often 12+ months), investors can sell the note at a higher price.
5. Foreclosure (If Necessary)
If borrowers refuse to cooperate, investors may foreclose and recover the property.
Scott notes that in many cases, around 70% of borrowers stay in the home through modified payment plans—making it a win-win situation for both sides.
Why Banks Sell Distressed Mortgage Debt
Banks don’t like holding non-performing loans.
Here’s why:
- They must set aside capital reserves for bad debt
- They lose lending capacity for new loans
- They’d rather recover partial value quickly than wait years
- Foreclosure processes can be slow and expensive depending on the state
So instead, banks package and sell these loans to investors at a discount—often at 50–60 cents on the dollar or less.
This creates opportunity for investors who understand how to evaluate and manage these assets.
Risk, Due Diligence, and What Can Go Wrong
Like any investment strategy, note investing comes with risk.
Scott emphasizes several key areas investors must understand:
- Taxes on the property (can wipe out equity if unpaid)
- State foreclosure timelines (ranging from 30 days to years)
- Collateral accuracy issues (incorrect borrower or lien details)
- Second-position risk (being behind another lender)
One of the biggest mistakes new investors make is failing to properly underwrite the deal before buying.
First Position vs Second Position Notes
Scott strongly prefers first-position notes, where he has priority claim on the property.
Why?
- Greater control over foreclosure outcomes
- Lower risk of being wiped out by senior debt
- More predictable recovery strategies
Second-position notes, while sometimes cheaper, are far riskier because they sit behind the primary mortgage lender.
Who Note Investing Is Best For
Scott highlights that note investing tends to attract:
- Former mortgage professionals
- Real estate investors tired of tenant management
- Capital investors looking for passive income
- Syndicators seeking alternative deal flow
However, he notes that analytical thinkers from finance or lending backgrounds tend to adapt faster due to the documentation-heavy nature of the business.
Real Estate Without the Headaches
One of the biggest advantages of note investing is that it removes many of the headaches of traditional real estate:
- No tenants calling about repairs
- No maintenance or rehab costs
- No property management issues
- No physical ownership required in many cases
Instead, investors work with servicing companies and legal teams to manage the asset.
Final Thoughts
Scott Carson’s journey shows that real estate investing doesn’t always mean buying physical property.
By stepping into the role of the bank, note investors can generate cash flow, help homeowners stay in their homes, and unlock opportunities most investors never even see.
Whether you’re a landlord looking for less stress or an investor searching for scalable income streams, note investing offers a unique path worth understanding.
Connect with Scott Carson
Website: weclosenotes.com
Free Training: noteweek.com
If you're looking for Motivated Seller leads: visit motivatedleads.com