As note investors, we take pride in being able to control our time. However, a lot of that time gets lost while we are immersed in performing due diligence for our next bid. In this era of digital technology, automation pervades every aspect of every industry. It shouldn’t be any different for note investing. In this podcast, Dan Deppen sits down JD Bates, the CEO of FiveSigma and creator of NoteProz, to discuss some of the automation tools he has built for performing due diligence. JD claims that with these tools, you can radically shorten the amount of time you spend on due diligence and increase your productivity as a result. Stick to the end to avail of his special offer!
—
Watch the episode here:
Listen to the podcast here:
JD Bates From NoteProz
I’m joined by JD Bates from NoteProz.
Thank you for having me.
Thanks for joining us. As people know, due diligence is a topic that’s near and dear to my heart. You’ve got a bunch of tools that you’ve built to help with that but we could start by telling people a little bit about you, your background and how you got involved in that space.
I started this company called FiveSigma Technologies years ago. We started doing websites and stuff like that. We started providing services to note investors. We started freelancing. I got this one client that was a note investor and he’s like, “I need you to help me with my website.” “What do you do?” “I’m in real estate but I don’t buy properties. I buy notes.” I’m like, “What?” He started sending me all this stuff about note investing. It was new to me. This is such a different niche. It’s very different from what people think when they say, “I’m in real estate. I’m a real estate investor.” We started getting to know the industry. We’re starting to get 1, 2 or 3 clients.
We started to get to know the process of what they do because you talk to your clients, you get to know them and what do you do? Some people came up and say, “Wouldn’t it be nice to have a tool that will help me get all these data? When I get a tape, I get 80 to 100 addresses that I have to check one-by-one. It takes me 1.5 to 2 days. Wouldn’t it be cool to have a tool that I can put all these properties, get a bunch of data, and it will help me to sort through those?” That’s how we started NoteProz. We started a basic scraping tool. It has grown a lot. It has a bunch of reports on the scraping tool and portfolio management. We have a bunch of users but we want to be able to show it to more people because it brings a lot of value to note investors.
What kind of data have people asked you to scrape or pull? What are some of the top things that people ask for?
Basically, property data. I can share with you how. Our site is NoteProz. You have to log in and you get a tape with a bunch of addresses. I log in and then we have options or various modules. We have the Property Data Scraper, Proper Reports, as well as the Asset Manager. It’s easy. With the Property Data Scraper, I have a list of addresses here and then all you have to do is copy and paste them into the box to analyze without the zip code because that’s how it works or a scraping tool. We’ll keep analyzing. The more addresses you put in there, the more time it takes to scrape all the data. It won’t take more than two minutes, only a couple of seconds to pull these addresses.
Where are you scraping the data from? Where are you pulling it from?
We’re getting it from Zillow and other various websites. The usual sites that you get this information, we’re getting it from the same place. We built this to expedite so you don’t have to do it one-by-one. We went into the back end, got into Zillow API, worked a deal with them for them to give us API access, and be able to integrate it with our platform. I show you what you do one-by-one and then look into how many bedrooms or bathrooms this property has. A lot of people won’t invest in anything that has less than three bedrooms so you can see that there. The finished square footage, the low value, the high value, when it was last sold, last old price, task assessment, tax assessment year, which type of house it is and when it was built. Some people won’t touch anything before 1950. You’re able to filter those out while you’re in the scraper. You can see all of this stuff.
Zillow is cool because there is a lot of data you can pull from Zillow if you use the APIs that you can’t get on the website. The website normally shows you the middle value. One of the things that I do sometimes is I like to look at the high and low Zillow value because it gives you an indication of how confident Zillow is. Zillow values are notoriously wrong although they do give you a general idea of the value. If I see a big spread between the high and the low value, that’s telling me they don’t have a lot of good comps to look at and that value is uncertain. Sometimes you see a much tighter spread and that tells me to locate that Zillow value is more accurate. That stuff you can’t necessarily get by going through the website. You got to use some other means to get to the data.
That will be the whole idea to give you more pointers and more tools for you to create your own assessments. We’re not trying to tell you to invest in this and don’t invest at this one property. We’re trying to give you what technology is supposed to do. It’s supposed to reduce the friction on your processes and give you better data for better decision-making.
I’ve been one of those people who have sat down in the past and pull things manually, it can take forever. Sometimes you find out the assets aren’t even available from the seller anymore and you waste a lot of time. It’s powerful to be able to quickly pull the basic data so you can do some filtering and figure out which ones you’re going to be interested in and want to go deeper on.
Lastly, to finish up with the data that you can get on the scraper, you can go get the rental value and then you can check out where is it located on Google Maps. For example, you’re interested in this property. You can click on it. Location is very important as well. You want to know where is this property located if it is in a rural area. Is it closer to downtown? Does it have hospitals or schools nearby? We have this property and there’s one Methodist Church and one Baptist Church. There are churches around.
There are a bunch of more churches here. I see at least three more.
If you’re a church person, at least you have more stuff to know about that property that might help you in the future. There’s a fire department here, which is good. If you want to take a look at the property, you can do that with the Google Street View. All you have to do is pull that little guy from the corner, put it on the blue lines in front of the property and then you can take a look at it. It might not be the latest image because Google updates these images every couple of years but at least you’re able to take a look right away. You’ve got a tape and you saw something that you might be interested in looking deeper into. If you’re curious about where is it on the map, you can do it. If you’re curious about taking a look at the property to see how it looks, you can do that too. All of the things in a few clicks where you should need to do to get this manually is it takes a long time to do so expediting things and help you in your due diligence.
It’s nice that Google will tell you when the image was captured. Sometimes you see them, like that one you had up was 2014. That doesn’t necessarily tell you too much but you see when they were taken. That’s nice to know because then you have a good idea of the condition if it’s still going to be the same.
If you want to have someone drive by and you’re not close enough, we created this integration with Realtor.com. We’ll give you lists of realtors that work in this area. You have a bunch of realtors that you can contact. You can send them an email or you can call them. It’s like, “Could you do a drive-by on this property?” It would be another connect.
It’s nice that Realtor.com gives you their pricing activity range for the realtors. You can see if they work in the part of the market that the property’s in and then how many they have listed so you can see if they’re active. There are a lot of realtors out there that are licensed but not active. The other thing that I do when I start calling these people if I don’t already have someone in the area is I ask if they specialize in foreclosures and REOs because some realtors don’t understand notes or foreclosures. Usually, there’s somebody in every area that that’s their specialty. It makes a faster way to zero-in on who the right person might be.
That’s the scraper. You will be able to see a bunch of property data, there’s more data coming in like population. We’re trying to connect with the census bureau to get more data about each area.
I’ve got a spreadsheet with 60-some-odd thousand cities and then their populations pulled from census data in the last couple of years. I have my own little method of doing that using a spreadsheet. That’s something that’s valuable as well to filter out. I see you have a column for a crime that says coming soon. I’m curious about what you’re looking at as far as crime. That’s one area that I have utterly failed and trying to automate. I ended up having to manually look at crime as a challenge because there seems to be no central database. The other problem is if I’ll look at Trulia and look at the map, different police departments report things. I have not been able to figure out how to get apples-to-apples comparisons of a crime level. Sometimes they’re wrong, one way or another, whatever they were.
We did have an API that gave out crime data but while we were doing updates, we noticed that we’re not getting any data for a crime. We checked on the API that we’re getting the data from one death. We’re looking for a new provider. There are providers that provide crime data so we’re looking into those. What we had before was how many crimes so it would say misdemeanor, carjacking or assault and it will give you numbers. Those numbers were in 2019. In 2019, there have been these many crimes in this area.
On Trulia, you look at some areas and it looks like there’s this epic crime wave going on. You drill in on what they were. It’s jaywalking and ridiculous stuff. Then I’ve looked at other areas where it shows almost no crime. There are a couple of dots. Then you look at the crimes that were reported and it’s murder on all of them. To me, that’s always been a manual process because you don’t have to manually pull up the data, but then you’ve got to sit there, look at it and digest it.
Better data, better decision making. Click To TweetIt’s not enough with a scale like Trulia as you’re saying. The API that we had was great in that aspect because it will tell you exactly which were the crimes. We did that but sadly, it’s not working anymore, so we’re working on it.
That will be a good one. Let me know when something new comes online that you can tap into for them.
That’s the scraper and there’s more coming soon, but the idea is for you to be able to filter out which ones you don’t like and which ones you do like. That’s where the second part of the due diligence process comes. The secondary due diligence reports that we added here, proper reports, total view, transaction history, and the others. The idea is I like this property. I want to be able to pull more data on it. All you have to do is click on this button of copy and it will copy the address. You come here into any report that you want, click paste, and then it will generate a report for each different report that we have on that specific property. We have property detail, total view, transaction history, open lien, total chain and lien, sales comparables, tax status, foreclosure, document images and we have more coming.
A lot of these are some of the data that you would normally pull from an O&E report, but it looks like you can get it quickly and you can buy these reports ala carte.
In those reports, they’re not instant. Those reports take 1 or 2 days the most. This one is our instant tanks.
Often, 2 to 3 business days and sometimes longer depending on the county that it’s in.
That’s not good enough for us. We want it to be able to provide instant data. We did get this provider that would show all these properties’ audit reports with updated data that are updated on cycles but the most recent. Whenever the county updates its data, we get them. As soon as you could generate the report, a new tab will open, if you go in, you can check the samples of each report. For example, for property details, you can get a bunch of things on their information, location information, when it was the last transfer and conveyance, last market sale, prior sales information, property characteristics, site information and tax information.
With a total view, you will get a ton more. You can get a property description, mailing address, owner’s name, the value range which is something that you can see on the scraper. You could match these or to get a little bit more accurate value range, you can get it from the total of your report, last market sales, association information, profit product details, open liens, involuntary liens, and property long history along with more transferring conveyances, ownership history, tax status authority, the year-to-date on taxes, and listing history, if there are any, and assessment details. You can have comparables as well.
It will compare your subject property to others in the area. You can get some market trends as well. This is on in the sample where we’re working in showing these graphics on the reports that we generate because it’s hard to generate graphics for each different report. We’re working on it. We’ll have it in the future but the data is the same. You can get market trends and everything else. A lot of people have come in and say, “This is similar to something that you might get from the First American or DataTree.” That’s true. You can get this same information from them but to work with them, you’re locked-in for $6,000 a year with them plus the reports generation.
I’ve talked to some of those guys before and they have great data but you’re locked into a subscription and it’s expensive. It only makes sense if you’re doing a whole lot of volume. I don’t do enough volume to justify having the subscription. I do more than most. Whereas this is nice because you don’t have to have a subscription, you can pay for individual reports that you need without getting all locked in. I’m not aware of anything else exactly like this in the market.
You do have to pay a subscription, which is $27 instead of $500 a month.
In your subscription, is there any limit on how much of the property scraping you can do and the upfront work?
You can use the scraper plus get access to these on-demand reports. You have transaction history reports, open liens, title chain and lien reports, sales comparables, tax status, foreclosure reports, and document images which you will see the images for the last transfers, deeds, and mortgages. It’s good data for you to be able to look deeper into each property that you might be interested in bidding and instantly. You can do all your due diligence in an hour instead of three days. You can get a tape one day and then on the same day, you can be putting in bids with a good idea of what you’re bidding on without speculating or anything else. You’ll be the first one to bid in, you’ll get that bid, tape or whatever assets that you’re bidding on for, and that helps you be more effective. Whoever is faster in this process will get the best deals. That’s how you win.
There are some sellers out there who tend to accept the first bid that crosses a certain threshold. Getting in first can be helpful. To me, I don’t quite get that because if I’m a seller, I’d rather leave the bidding open for a while, get the highest and best. We’ll do this to get things moving so being able to move fast could definitely be a huge advantage in that.
At the same time, you could be in the middle of the process. For example, they’re on the last day of offsetting the biddings. If you’re able to do this fairly quickly, put in your bid and your bid is good enough, then they’ll take you instead of taking three days to put in your bed like, “I’ve been waiting already this much time. I’m going to close it.” Once you’re done with your due diligence and your homework, it’s too late.
The other scenario I can see coming into play is at the end of the year. A couple of years ago, a seller offered me a note for an insanely good price but it was December 28th. He’s like, “I’ll give this away to you cheap as long as you fund it by the 31st.” I got it done but it was hard to do. Being able to do some of this and get it faster would have made life a lot easier.
That’s the whole idea, it makes life easier for note investors. Creating these tools, get fast data and then help their businesses grow. There’s a lot of manual work that goes into due diligence or the goal is to be able to automate it for you.
It’s especially tough because most known investors are doing it part-time. I don’t necessarily have hours and hours to blast off going through the tape. The reality too is a huge majority of the bids don’t get accepted. I haven’t been keeping track of data lately like I had been for a while there. I was getting 10% of bids accepted and some of those you don’t even get to close. You don’t want to get bananas in the pre-bid due diligence when a lot of your bids aren’t going to lead anywhere. Post-bid due diligence before you close, that’s a different animal that I take my time on. That’s the side of it.
What I showed you is the due diligence module. The Scraper Module and then the Secondary Due Diligence Reports, let me go through it to make it clear. The property reports have a price for each one. Property details are $5. A total view, which you get a ton of information is $12. The transaction history is $12. An open lien is $15. The title chain of lien is $40. Sales comparables are $10. The tax status is $10. Foreclosure is $10. Document images are $10 as well.
That tax status report is something that I’ve pulled before, not just in due diligence but I’ll do it periodically on the portfolio because borrowers don’t always pay their property taxes. I’ve even had cases where the borrower was paying on time and taxes rest code in the servicer for whatever reason failed to pay the bill. Some of these things like the tax status, in particular, have value after you’ve already closed and you’re working in your portfolio.
It does have a lot of value for note investors. That’s where we started on creating the software, which is the due diligence part but then we started to get more stuff like, “Would it be cool to have something that I can manage my portfolio that I can give access to my investors or to my portfolio manager and be able to generate financial reports and stuff like that?” That’s the second part, the second module of the NoteProz which is the Asset Manager.
The Asset Manager is an online portfolio management system. A lot of people manage their portfolio on Excel and that’s fine but we want it to create a tool that would allow you to manage all of this stuff and then generate some good financial reports, not only for your company. For example, whoever has it a fund, this is super important because it will make you look super professional. Even if you don’t have a fund, if you’re working with investors, this will make you look professional because you have your own software that does all this stuff where you’re not doing this manually in Excel or something. We created this tool where you put enough data for your assets or investors and then we’ll generate financial reports.
With the right tools, you can basically do all your due diligence in an hour instead of three days. Click To TweetOn the dashboard, you were able to see how much is your investor investment and how much is the total invested investor with gross profits. What is the profit? What is the ROI, the total ROI, which is lender plus growth profits that analyze ROI, active notes and then closed notes? You can have a nice chart here with the value of the account, the net investment, and the interest income or profit. You’re going to be able to see all this stuff from the dashboard. The cool thing is you can give access to your team. If you have a portfolio manager, you can go ahead and key in to manage admin and then create a user for a portfolio manager which will have the same access to you but they won’t be able to create users or anything else. They have a little bit more restrictions on it.
How are people getting the data entered? Do you have to manually put that in?
If you go on a financial, you go to investor cash accounts and then you are going to be able to create an investor deposit or withdrawal. You can select the date. You can set the key investor. Because once you create investors here in admin, they’ll go into the investor database, you can select an amount. What is the transaction type, deposit, principal withdrawal or interest loan payment? You can put in a memo here, click on here and enter transactions. That data will affect all the data for that investor and on the investor reports here. It’s the same with the assets. You can enter asset income and expense.
You can select the asset and then it will load the JV ID because an asset has to be tied up with a JV that you have with an investor. You can have transaction type, some income, expense, and asset or reserve, you put in the date, name, and amounts. You can select the general ledger which we uploaded some hereby as default in every account, interest errand, profit share rehab, loss mitigation, property taxes, etc. You can put a little memo if you want and then click enter. It will affect the asset financial reports here. You have a general ledger that we have a bunch as default but you can create your own.
The way I do it with the people I work with is I handle things within QuickBooks. I do an export and then I have some Excel-based reports. It’s a little manual check.
If we go to reports and the cashflow report, you can create reports per investor, per asset, per income expense assets or reserve. You have in between dates functionality, you can export to CSV and as QuickBooks exports. This export is compatible with what QuickBooks asks when you’re uploading data because people ask, “Wouldn’t it be nice to connect with this with QuickBooks?” We did try but QuickBooks doesn’t have a backdoor API to upload data. I was looking to do something where you put in your QuickBooks username and password and then we could feed that out automatically. Unfortunately, they don’t have that feature.
It looks like if you do this export, say the investor on one of these deals could potentially import that report into their own QuickBooks so they might be able to get a better view of what’s going on with their investment.
This one wasn’t more intentionally done for the people who are handling the investors to put in their accounts. I’m not sure if the investors are able to get into the capital. The investors don’t have access to this cashflow report. I’ll show you what the investors can look at. You can select an investor, create a report for them, send them to QuickBooks export and then they can upload it to their QuickBooks tasks. Here in the investor report, you get a list of investors, how many JV Groups they’re in, how many assets they have, the amount that they have invested or loans, and what the profit and the ROI for that is. If you click on statements, this is what the investor will look once they log in.
They will see their own little dashboard. They can see the portfolio statement, the close statement and then you can investor documents if they have any documents. They will be able to see this data as well. Instead of having the investor get in touch with you, “Where am I standing?” they can log in and see it by themselves. The cool thing is this is like a white label thing because you can go here when you’re creating your account and you can upload your company logo. I uploaded the FiveSigma logo. You can upload your own logo. Whenever an investor is logging in, they will see NoteProz.com but they will see your logo. That’s credibility way.
That’s nice that you can save banking information as well. Sometimes especially on nonperforming notes, if you need to send money to someone, it’s a big deal but you’ve got to go dig through the joint venture agreement or whatever paper, ping them and verify if that’s the right account. Whereas if they can maintain all that here, it makes it a little bit easier.
The bank account and the routing number and everything else. On the second step of when you’re creating an investor, you can click qualified. If they’re from a tax-deferred retirement account, IRA, or 401(k), you can put in that information here as well. The good news is that you can create a free account for the asset manager. You can start using it for free. You can put in up to five assets here. If you’re starting out and then you want to start to organize then looking professional, you can start using this for free. Whenever you have more than five accounts, you can start paying the same as the due diligence module which is a basic asset manager membership, which is also $27 so it’s not that much. You can use the platform for $27 and upload a logo and everything else.
Once someone has that subscription, they can do all of the data scraping and use the asset manager with more than five assets.
The first module that we saw was the NoteProz basic module, the due diligence module which is the scraper and the reports. You can have that for $27 and then you can have a free account on the asset manager. For $27, you can have access to the scraper, reports and then you see the asset manager for free for up to five assets. Once you have more than five assets, to unlock the asset manager for $27 monthly, if you’re using both, I’ll recommend for you to go with the premium which you will have access to both for $49.
Do you have any discounts or anything for the audience of the show?
We created this promo. It’s a promo code called 10%Fusion. If you sign up to NoteProz, on the register page, there’s a field for a promo code. If you input “10%Fusion,” you will get 10% off forever in any plan that you want. It will be awesome if anybody who’s reading to give it a try to know NoteProz. It’s a baby that we have been putting in work for a couple of years. The more people use it, the more feedback we get. We’re always listening. We’ll love to if you give it a try and let me know what you guys think.
JD, thanks for coming on. I appreciate it.
Thank you, Dan. I hope we can do another show soon.
Important Links:
About JD Bates
JD has climbed the corporate ladder as COO, PM, CMO and as well as a member of the Board of Directors with companies in the United States, Costa Rica, and Panama. Moved by his a passion for innovation led him to create FiveSigma Technologies and Noteproz.com. Noteproz focuses in creating cloud software to help note investors lead in their industry using digital tools.
Love the show? Subscribe, rate, review, and share!
