Eric Scharaga : Damen Capital Fund

Brandon Parker00:00This is Brandon Parker. Welcome to the Legends of the Land Show where it's my job to deconstruct the tactics of elite land and real estate investors, how they think about their business and strategies that drive their success. My guest today is Eric Schraga, founder of Damon Capital Fund and cofounder of Legacy Land Fund. Eric taught high school over twenty three years. In 2002, began investing in rental properties and later transitioned to full time note investing. In 2020, Eric authored the book Lien Lord, an introduction to the power of note investing.

Brandon Parker00:30Eric specializes in vacant land finance with comprehensive experience in performing notes, nonperforming notes, and active bankruptcy notes. Eric, welcome to the show today. Excited to have you on. How are you doing? Great, Brandon.

Brandon Parker01:01Great to be here. Thanks for having me. Yeah. Absolutely. I'm excited to chat with you today. So just kick it off here. Knowing what you know about note investing today, what's one piece of opposite advice you'd give your younger self starting in real estate?

Eric Scharaga01:18So looking back, I wish I would have gotten started a lot earlier in note investing. I probably wouldn't... I definitely would not have taken some of the risks that I took. And I may not have jumped into it as quickly as I did. But the way that my personality is, I'm really big about speed. And I tend to learn by doing. And so I thought that this was just like a great opportunity and I jumped into it. And I made a couple huge mistakes.

Eric Scharaga01:49Luckily, they weren't like deal breakers for me. They didn't turn into huge losses. I was able to get out of them. But notes are very different from real estate in that you have to be very careful, and you have to know exactly what you're doing before you actually make a purchase.

Brandon Parker02:07What was the key mistake you made or one of those two key mistakes you made in the beginning?

Eric Scharaga02:13Well, when you start as a note investor, you're not a 100% sure about all the due diligence. And there's probably 20 or 30 different checks that you need to make. And I purchased one note from a hedge fund early in my career and it was a large note. It was a first lien in Texas. And it was semi performing and it turned out that the note had matured like over ten years earlier. And I did not check that maturity date. And it ended up all working out, but I was really scared that it was unenforceable because it had matured so much earlier.

Brandon Parker02:53What do you think the number one thing that a new note investor overlooks in their due diligence is?

Eric Scharaga03:00Well, as it relates to land, I would say the property. I see a lot of beginning land investors purchasing notes on vacant land parcels and they know nothing about the parcel and they don't know what questions to ask. And that can really lead to a disaster if they ever get a default because there are a lot of due diligence checks that you need to go through to approve the land parcel before you buy the note on it. And I think that sometimes people get blinded by the fact like this is a 15% yield or this is an 18% yield, and they don't realize that the land could have some serious underlying issues.

Brandon Parker03:44Yeah. And when you say you would have started earlier, a note investing constraint seems to be that it's slower cash flow. And so people getting started, they want the faster cash, and then they wanna, like, I wanna retire into notes. But you say you would've started in notes earlier. How would you manage that ramp up when you like speed?

Eric Scharaga04:07Notes are tough because it takes a long time to get the cash flow moving because you just have to build that cash flow slowly over time and keep rolling your profits into new notes. It takes a long time. And that's why land investors working with a note buyer, those two businesses are complementary. The land investors want quick cash flips so that they can build their acquisition arm so that they can constantly reinvest into more parcels.

Eric Scharaga04:37The note investors, they are just interested in the long term monthly cash flow. And that's been very successful for me partnering with other land investors. And it's really turned into a win win for both parties.

Brandon Parker04:49And you started as a landlord. So when you say you would have got started earlier, if you were gonna start again, where would you start? Would you start with a landlord, start with real estate, start in land? Like, how would you get that initial bump and then slide into note investing? What would that look like?

Eric Scharaga05:06Honestly, I probably would have started in notes. I started doing fix and flips and buy and hold. I did that for thirteen years. I completely burned out on that business. I just did not like that at all. I would never do it again even if you gave me the property. And it was very high stress for me. There was always like 10,000 problems. I would have gone directly into note investing. A lot of people put their money into 401s, mutual funds, IRA accounts. I would have done the same thing, but I would have focused more on notes.

Brandon Parker05:42I saw a recent blog article you had basically notes versus investing in the S and P 500. It sounds like you're kind of... Or the stock or stocks. It sounds like you're alluding to that concept a little bit. Talk a little bit more about the returns and the risk reward and how you look at that and why you like notes.

Eric Scharaga06:01Yeah. So I don't wanna bash the stock market. I think it's... I think both are great. I think notes are just complementary to to stock market investments. The biggest issue that I have with the stock market is the volatility aspect because every time that there's a drop, you're basically losing that time that your money is invested to get back to the point where the market dropped. So that volatility really robs you of returns over the long term. And note investing if you do it right is just a very predictable, boring return that comes in monthly.

Eric Scharaga06:42It's really like a bond in which you're getting a higher yield than what bonds typically offer.

Brandon Parker06:52What's your benchmark that you shoot for if you talk about that type of stability? What return do you expect on your investment over time?

Eric Scharaga07:01Yeah. I'm always looking for double digits. I would say that if somebody is going to invest in a note, it should be 10% or above depending on how active they want to be. The more active that they're willing to be, the higher the return that they can get. But the higher returns typically come with more risk.

Brandon Parker07:24And when you say active, what do you mean by that as far as being ready to go in and take possession of... Or to take the land back? Or what do you mean by be active? So

Eric Scharaga07:36by active, I just mean creating a seller's list and finding your own deals, vetting your own deals, overseeing your own portfolio. And that's all a lot of work. And you can get a higher return doing those things, but sometimes people learn about the business and then they decide, I want to be more passive. I don't want to work on this on a day to day basis. So they go more towards a fund or they will purchase partials for someone else or they'll work with an active note investor for their investments.

Brandon Parker08:12I see. Okay. Would you consider yourself active, I'm guessing?

Eric Scharaga08:17Yeah, I'm super active. Do this time. I do it every single day. And I really focus on two things right now. I help land investors sell their land with seller financing. I walk them through all the steps and I end up buying the loan at closing. And then I also run a private lending company that lends on vacant land. So these are short term loans designed for land investors who want to do flips, and it is really an alternative to funding.

Eric Scharaga08:54Okay.

Brandon Parker08:56Let's talk a little bit more about each of those. What's the seller financing look like? You said that you helped with the seller financing, the structuring, I'm imagining, of what that looks like, the contracts.

Eric Scharaga09:05Walk through kind of what that might look like for an investor. Yeah. So I give them some suggestions for how to sell the land, how to vet the incoming buyers. And then once they negotiate the terms, I help them with the terms that they should aim for. Once they negotiate the terms, they're going to send it to title. And that's when I kind of step in and guide the whole thing. And the program that I have is really designed so that the investor knows exactly what they're going to get at closing on every single deal as long as they follow specific parameters.

Eric Scharaga09:40So it's very popular. In this market, people love the idea of seller finance just because especially in the more expensive parcels, people don't want to put down $150,000 cash, they would rather put down $30,000 cash and have the rest financed. So it provides a lot of flexibility for buyers and it really sells the properties a lot faster and at a premium.

Brandon Parker10:08Let's use that example, dollars 150,000 purchase price. Let's say the market value, they think it's $18,200. They're gonna put down 30. What type of loan terms might you put on that? And are those loan terms determined by the margin?

Eric Scharaga10:29So no, the terms are the same for everyone and every single loan. I'm hesitant to share those just because the terms change. And I don't want to go on the record and then somebody contacts me and they're like, you said here that these were the terms. So the terms do change over time and in different markets and in different situations. But typically, there is a down payment required. The terms are the same for everyone. It's just a matter of how much of a down payment is required as it relates to the LTV or loan to value.

Eric Scharaga11:03Okay. And is that 20%, you feel like that's a standard benchmark? Yes. Yeah. Okay. Typically, I require is 20% down, minimum of 20% down.

Brandon Parker11:14Okay. And because you're gonna be purchasing that note at the closing table.

Eric Scharaga11:19Oh, this is for the lending. Oh, this is for... Okay. I'm sorry. If you wanted to talk about the notes, the note program is designed so that the investor always gets 80% of the sales price. So if they're selling the property for $100,000 with financing, they will receive $80,000 at closing. Now there is a way to get around that. And if you want to, if investors want to have a separate price for financing versus cash, they could charge $110,000 10% above their cash price and then they would get 80% of that.

Eric Scharaga11:56And in my experience, if you're charging, if you're asking $100,000 cash, in this market, most of your buyers are gonna come in at, 90,000. And that's a really solid offer and you take it. So the difference is really negligible between the seller financed at a 110 and the cash at 90.

Brandon Parker12:16Okay. Okay. Yeah. So you're doing two things. You're helping with seller financing. You're helping a land investor purchase a property with seller financing, helping them negotiate that seller financing, then buying the note at the closing table. Is that one thing you're doing? Oh, you're not doing that. Okay. So what I'm doing is I'm providing acquisition

Eric Scharaga12:36financing. Got it. Just like a bank would do, only it's a million times easier. I'm not asking for reams of paperwork. I'm basically looking at the property, and I'm deciding based on my review of the property how much I'm gonna lend on it. So it's a nice alternative to funding because the property is in their name. They keep a 100% of the profits, and they just pay a monthly interest expense. The other thing that I do, and I do combine the two programs, the other thing that I do is when they're selling the property, I will help them and guide them on offering seller finance for the property.

Eric Scharaga13:12And if they don't wanna keep the note, I will buy it at closing so that they can cash out.

Brandon Parker13:18Oh, okay. That's the part that's the part I was missing there. Okay. Clean. Got it. On your lending side, lending to the investors purchasing land, what size land do you do? What size deals do you do? What's like your... What would be your sweet zone that you're looking for that you are comfortable funding?

Eric Scharaga13:37The vast majority of the loans that I originate are between $25,000 and $250,000 I try not to go below that. I do go above that depending on how much cash I have on hand at the time. Okay.

Brandon Parker13:54Do you... Have And you spent time land investing yourself? Have you really been driving down into the note game after you got out of real estate?

Eric Scharaga14:04So I came into land during COVID. And I started out, I signed up for a program, like a mentoring program. I did one deal. It was a slam dunk. It was exactly the way that they explain it. But then after that, I kind of decided that it wasn't for me. It was just like the whole thing was too overwhelming. And so I just decided that I wanted to focus on note buying. So I started out with the note buying and that was popular. Then I kind of saw the need for more of a commercial loan product versus the funding.

Eric Scharaga14:38So I launched that and that's been really popular as well. So I just learned, kind of learned what land investors do through that one deal that I still remember. It was great.

Brandon Parker14:50And with your background flipping houses, I mean, you've seen so many different types of real estate deals, and that that gives you all the battle tests that you need to be... To understand the game. I know that... I talk about when I flipped houses at one point. I had a house completely off the ground, jacked up in the air, and we were fixing the foundation. And I made $30 after all was said and done. And just was thinking, like, that's an amazing amount of work to do for a little bit of money. Putting a house in the air, that was like, I'm never...

Brandon Parker15:20I'm not flipping houses anymore, and this is too much. So I show you on that. And simplicity is nice. It sounds like you're similar in that way.

Eric Scharaga15:29Yeah. I really love this business. I think that there's just so much opportunity in the space. I would not go back to doing houses again. That was very high stress for me because you leak a lot of oil just like things happen that you don't expect, problems arise, and things always cost a lot more than you expect them to. And I am not a natural... I don't have that construction knowledge. And so for me, it was a lot harder. So I wouldn't do it again.

Brandon Parker16:02What do you see the future of notes and how that will evolve over the next five or ten years and what the industry looks like?

Eric Scharaga16:11I think seller financing will continue to evolve. I would like to see more land investors integrate that strategy into their businesses. I feel like everyone just wants to focus on cash and they're waiting way too long for a cash buyer. These are really strategies that they could use on all of their deals to sell land for quicker, much faster, and at a premium.

Brandon Parker16:41What's it look like for a land investor to quickly get up to speed, understand owner financing, just start offering it with every time they're dis bowing a property? Because that does become a bottleneck for a lot of land investors is that their cash flow, their cash return cycle is slow, and getting that... Speeding that up would help their businesses. What's it look like to get up to speed? How quick can people do that and how should they do it?

Eric Scharaga17:06There's really not a lot that you need to know. I mean, there's probably eight things that you need to keep in mind and that's it. The nice thing about originating the notes, the seller finance notes is that there's flexibility there. Having some note income is nice because it smooths out the volatility of business, but then it allows you to sell those loans down the road if you need additional cash. So I think it's a great option for investors because I do hear the complaints that the business can be very volatile.

Brandon Parker17:41Yeah. I haven't thought that much about that, but I mean, you have these cash cycles that are just up and down and you could even those out a little bit with the notes. This is obvious to you. Even those ups and downs out a little bit with the notes, but you still have that chunk of change if you wanna sell your notes off and put it into a... Swing it into a bigger deal. So it does make a ton of sense also on the front end just being able to sell the deals easier. Do you see... What's the tactical strategy on that? Do you see people just offering that on their listings, 20,000 down and this much a month?

Brandon Parker18:15Or how I've seen, like, maybe AJ Sharma do it is their acquisitions team will start at cash... Well, when they're negotiate or not their acquisitions team, sorry, their dispo team, when they're talking about it, they will kind of downsell the owner financing. Do you have any opinion on that?

Eric Scharaga18:33Yeah. So I have a strong opinion on how the loan should be originated, And I can share that if you're interested in that. Yeah, for sure. I strongly believe that you should always get some form of credit score. That's the only thing that I look at. I don't ask for financials. You can use an RMLO. That's a good idea. But if you don't want to use an RMLO, you can just simply look at the credit score and base the down payment on the credit score.

Eric Scharaga19:05And you really always want to get as large of a down payment as possible. I wouldn't limit yourself to 20% down. I would try to get maybe 30% or 40% because when people are super motivated, they're willing to give that extra amount and down payment is the number one indicator of default. People do not walk away from very large down payments. And then you really want a relatively short term ideal would be like eight to ten years. You want a relatively high interest rate, 10 to 11%.

Eric Scharaga19:40Really those are the most important things. Credit score, high down payment, short term, relatively high interest rate. As long as you follow those, you will originate a note that probably will not default and it will get you the most resale when you take it out to market if you do want to sell it.

Brandon Parker19:59And you said RMLO.

Eric Scharaga20:02What's that? That's a licensed loan originator. What they're going to do is they're going to actually vet the buyer for you and they're going to make sure that the buyer can afford the property. So they're going to gather their financials, they're going to run their credit, and they're going to basically put together a package for you that shows essentially whether or not they can afford the property.

Brandon Parker20:28Okay. And is that nationwide? Is that county by county? Or state by state, what's that look like finding one of those people?

Eric Scharaga20:37So there are some loan servicers that actually provide that service as part of their investor option. There are other companies, private companies that provide that service as well. Okay.

Brandon Parker20:52And do you fit anywhere in that loan origination process? Or are you kind of after that possible person to sell the notes to if that works out? Like, where do you kind of fit in there and do you have coaching around that? And, yeah, what's that look like?

Eric Scharaga21:08So I do not handle any loan origination for other investors. I just simply buy the loans. I will give them some guidance on what I believe are best practices, but I don't handle the originations. In terms of coaching, I don't really have any coaching or provide any coaching. I provide some general tips, but I don't really have the time honestly to do coaching.

Brandon Parker21:33So if land investors are out there and they want to start offering owner financing, nail their credit score, make sure that's good, use an RMLO, biggest down payment possible, like 30 to 40% down to 20, short term, eight or ten years, over 10% interest rate, and then they're holding that note. That's likely a note that if they need to sell some notes off, those are the types of notes that you'd be buying.

Eric Scharaga21:59Yeah. So I buy them at closing or I buy them anytime after closing. Okay.

Brandon Parker22:04What do you think of the... There's, like, note trading sites, and some of this has been kind of systematized almost like a market for notes. Do you hunt down deals on those open markets, or what are your thoughts on that?

Eric Scharaga22:18I think they're great. I have never, full disclosure, purchased a loan or sold a loan through any of those sites. All of the buying and selling that I've done is through contacts that I've established on my own.

Brandon Parker22:34All organic. Yep. And do you think that someone getting started in note purchasing, is that a spot where you would have them look? Or, you know, I mean, is that somewhere that's a reasonable spot to get started, or do think that stuff that's out there is maybe not as high quality?

Eric Scharaga22:52What... Just what's your take on that? When people ask me that, I tell them that I strongly discourage investors, no investors, from starting with land notes just because you really have to understand land really well in order not to make a mistake. The other thing is that if you're getting started as a note investor, you definitely need some coaching. You need some mentoring so you don't make like a fatal error on a transaction because real estate, if you don't buy right, time will cure everything.

Eric Scharaga23:26With notes, you're actually dealing with a depreciating asset because the value goes down every time a payment is made. So if you buy incorrectly, you're kind of doomed for the lifetime of the loan. I'm not sure that you need to pay a lot of money for coaching. That definitely isn't necessary. But you do need somebody looking over your shoulder at the beginning to make sure you don't make a huge mistake.

Brandon Parker23:49When you say note investing in land, do you see a big difference between note investing in land and note investing in residential?

Eric Scharaga24:01I would say residential is there's a lot more data out there and values are a lot more not consistent, but easier to obtain. And the house is the house, right? Whereas with land, there's just so many more issues that you need to be cognizant of that could seriously affect value, resale, usability, restrictions that people aren't necessarily looking at.

Eric Scharaga24:33They tend to just go walk in thinking sold for a 100,000. There should be no problem selling it for a 100,000 again, and that isn't always the case.

Brandon Parker24:44Yeah. You get the property lines were drawn wrong. There's not road access. You don't have the easement through the neighbor's property. Half of it's sloped. It's underwater. Yeah. All kinds of stuff that if you're not slick on land, they might pass right past you. And and there's probably a lot of people trying to offload their mistakes in the note market too to some extent. Absolutely.

Eric Scharaga25:03I see that all the time. Yeah.

Brandon Parker25:05Interesting. You had an article about deeds of trust over land contracts. So besides legal benefits, what do you think the main practical upsides of deeds of trust over land contracts for note holders and sellers?

Eric Scharaga25:20Bottom line, I don't wanna have to own the property because there's risks in homeownership. If somebody's riding a motorcycle on it, if the owner's out there on a motorcycle and falls off, gets a pothole and breaks his leg, I undoubtedly am going to get sued no matter what I have them sign or what's in the contract. Law 101 is that the owner is legally responsible. So I don't want that. I don't want to have to insure the property. The other issue is that states are really cracking down on these.

Eric Scharaga25:52They don't like them because they want owners or people who hold loans or people who sell on terms. They really want them to go through the foreclosure process. They don't want them just kicking the people off after they've been paying or they've put down a large down payment. There's a legal aspect to it. The other thing is like with a foreclosure action, you know what you have to do to get clear title, the process, you know the cost. With a contract for deed, if you get a default, it's a gray area.

Eric Scharaga26:24Unless the state has very clear established rules for these, which a lot don't, you're kind of at the mercy of a judge. So I would just rather not own the property, have a lien on the property, know what the foreclosure process is like, protect myself through a large down payment. That is a much more scalable business in my opinion. The other thing is that if something illegal is happening on the property, you're the owner and the county or the association, they're going to come after you and they're going be finding you and your company, not the person that you have the agreement.

Eric Scharaga27:01So I mean, the deed of trust, that is like a banking business. That is something in which you're not owning anything. You have a lien on it. If anything goes bad or if there's a default, you have the right to take the property back, but you don't have to. And you're just simply in the business of collecting payments.

Brandon Parker27:22Just a much stronger legal structure, like in all angles. Does that require... I mean, not require, but do you feel that bumps the price up to a certain area where it's worth a certain value of land it's worth operating in? If you're gonna be doing deeds of trust, maybe it's not worth to touch anything under this dollar value. What's your thought on that? Doctor. Yeah. So I recommend not selling on terms anything under $25,000

Eric Scharaga27:51I know that goes, that opposes a lot of what people teach, but in my view, under $25,000 those should be cash deals. If somebody needs terms on a sub $25,000 deal, they probably can't afford it anyway and you're going end up taking it back. $25,000 and over.

Brandon Parker28:11Yeah. I mean, that's the... You see, there's the strategy where you have a lot of 2 to $5,000 lots with $99 down, and then you're kinda churning through these land contracts. And I think that the thing that you're pointing out here that probably isn't right on the front of people's mind is the tail risk that's involved with opening up a 100 land contracts with $99 payments because of your legal risk of all that land and what's happening on it. Like you said, someone could crash their dirt bike out there or be doing something

Eric Scharaga28:45crazy. Well, other thing I've seen, which is also scary, is that if you're selling a land contract and you get a buyer and you terminate their agreement and they're not happy about it, they could file a lien against the property and then you've got a real problem because you're going have to litigate with them to get that lien removed and you're not going be able to sell it with clear title to the next person until you get that lien removed. So that could be a very tricky situation. That will cost you a lot of money.

Brandon Parker29:17And so a lot of it comes down to mindset and it's something that land investing or real estate investing or anything. It's... There's different levels. You can dip your toe in the water, and you can do the $99 contracts and land contracts, but that's not necessarily gonna scale to where if you wanna make it a real business, need to start getting larger properties, bigger down payments, deeds of trust, and just go official because that's the way that you could go big enough where it makes it all... Where you can build a real business around it.

Brandon Parker29:49What's your just general mindset around business entrepreneurship? How do you balance your life with your note investing? I know that you said that you give yourself a decent buffer for podcasts, so it sounds like you've got free time built into your lifestyle.

Eric Scharaga30:04That's a really great question. I don't even think I've been asked that before. I do work a lot, but I mean, that's what I enjoy. I really like the challenge of building something and getting better all the time. I like to move fast. That's one of my strengths. It's also weakness. I'm not the world's greatest boss. I need to delegate more. I'm always working on that. I love being an entrepreneur. I really push myself and you really have to have that in order to succeed.

Eric Scharaga30:37I push myself a lot and I'm always just challenged by trying to reach the next level and continue to improve.

Brandon Parker30:46Does that carry over into other parts of your life, hobbies and other things outside work?

Eric Scharaga30:53I don't really... Honestly, I don't really have a lot of hobbies. I spend a lot of time, honestly, daydreaming about business related issues and ways to improve and things that I should be doing and ways that I can get better.

Brandon Parker31:08It's interesting. I talked to my girlfriend about this. This concept of how much I work and if I work on weekends and time off, the difference is to me, it doesn't feel like work. This is my hobby. I love daydreaming. I love thinking of ideas. It's like... How I describe it to her, it's like painting. Like, I get in a flow. It might be Saturday or Sunday, but I'm, like, have this cool business problem I'm thinking about or solving, and I'm just in a flow state, and I'm really enjoying the creative process of being an entrepreneur.

Brandon Parker31:46So it's like, from the outside, might look like I'm working, but I'm not necessarily working. I just... I actually... This is my hobby. I love this. Sounds like that might be similar for you. Yeah.

Eric Scharaga31:57I completely agree with that. I spend a lot of time focusing on those topics. And I mean, it's definitely like a mindset, right? It's just something that's really exciting to me. I really enjoy the process of kind of jumping into a new investment and figuring it out. I've done that with several investments in the past. You figure it out and learn it as you go. Some of it is so interesting and exciting.

Brandon Parker32:31Obviously, note investing is your full time focus. Are there other investments or things that you've recently got interested in or think you'll be interested in this year type stuff?

Eric Scharaga32:42So I'm completely focused only on purchasing land notes and originating business purpose land loans. Those are the only two things I'm doing right now. I've done many things in the past. I've done nonperforming loans. I've done some contract for deeds for a short amount of time. I did medical funding. That was an interesting experiment. But right now, I'm completely focused on this.

Brandon Parker33:09Well, good for you. That's another hard thing that's hard to do for people moving fast and being entrepreneurs is stay, like, eye on the ball. That's something that I'm constantly coaching myself on is just stay in the zone on this one thing. So with the notes that... In this narrow focus, have you thought about different ways AI might be affecting the note business? Are you using it at all? Are you in the technology that way, or what...

Brandon Parker33:40What's your thought there?

Eric Scharaga33:41So I use AI pretty much all day every day, but there's definitely ways that I could improve my use of it. For me, the biggest struggle in AI is just thinking about the ideas that AI could be utilized to improve my business procedures. The people I work with, we use it together, but we use it kind of as an SOP to check documents, to create documents, etc. But I mean, I hear great ideas all the time.

Eric Scharaga34:13Oh, I wish I would have thought about them.

Brandon Parker34:16Yeah. I mean, if you're using it all day, then you're going for it. That's what people... I talk to my friends about it and they're like, oh, how much are you using this? I don't even really use Google anymore. I balance between whatever AI I think is gonna work for that topic. So for example, I might use ChatGTP for... Kinda as my general go perplexity if I'm trying to look something up online and get almost, like, in in place of a Google search, Claude if I'm writing or doing something creative, Grok if I'm trying to get current information or the vibe of what's going on in the Internet.

Brandon Parker34:50Yeah. I mean, it's just all day for sure. A couple interesting ways that I've seen people using AI. One of our land clients is using ChatGTP deep research for due diligence on subdivides and just deals they're doing. And what was interesting is they said it, like, uncovered a couple things that they didn't even notice. I don't know specifically what those were I should ask, so I can use a better example here. But I thought that was cool. And then I just started playing with Google Notebook LM, but it's, like, where you can build your own large language model.

Brandon Parker35:24So let's say I'm doing a land transaction. Every conversation I have with... Or I'm negotiating. Every conversation I have with that landowner, I can grab audio files, drop them in there. I can draw transcripts from notes. I can take contracts. I can take deeds. I can take all the county records and laws and put them all in this Google LM, this notebook, and then it will reference all of that and basically use that as my own little large language model for that specific thing.

Brandon Parker35:55So that's a pretty cool thing that I'm playing with right now.

Eric Scharaga35:58Yeah. The opportunities are endless. I mean, I definitely need to be using it more. So here's a cool example because I used it for your podcast prep.

Brandon Parker36:07So I made a NotebookLM for Eric, and then I grabbed transcripts from all your past podcasts just real quick through Descript, through the transcripts in there. I went to your blogs, grabbed your blogs through, like, some of the blogs in there, and then said, like, give me, like, a background and rundown on the types of questions I could ask and things like that from... And just unique angles to approach. And... Yeah. Anyway, I AI'd you a little bit. That's awesome.

Brandon Parker36:38Yeah. Yeah. So what mental models do you use as an entrepreneur? What are some of your rules of thumb specific to note investing or just for going about your day making money?

Eric Scharaga36:52That's a really great question. So in terms of note investing, I never purchased a loan secured by a property that I would not want to take back and own. That's one general rule of thumb. I also believe that skin in the game, down payment, financial contribution is the greatest predictor of success in an investment.

Eric Scharaga37:24I would say that those two are probably the greatest or the most important guides for my investing.

Brandon Parker37:34I mean, you could probably build a note empire just with those two rules of thumb and then credit score and then just run with head on.

Eric Scharaga37:42When I developed the model, I kind of looked, I did research on Fannie Mae and Fannie Mae has originated hundreds of billions of dollars in loans. And I looked at their credit score modeling because they have access to so much data on default. And I decided just to kind of create this as more of an auto finance model, where you go in, they pull your credit, and they tell you this is what you're approved for.

Eric Scharaga38:13So I kind of combined the two. I looked at Fannie Mae's credit scoring models and kind of where their cutoffs were. And then I also just decided that when you're selling land, time kills all deals. So you have to be able to give a buyer an answer very quickly, usually same day. So this is what kind of evolved out of that, and it's worked well so far.

Brandon Parker38:41That's a great point. The idea time kills deals in land. Probably far more... I mean, that's always... It's like a... For all business. But in land specifically, because it's a... Land is almost naturally a sign of abundance. It's not like a house where I need a roof over my head or I'm gonna be in the rain or in the snow in Chicago, but it's like, I want somewhere to ride my dirt bikes or go hunting or maybe build my dream property someday. But it's... There's not a sense of have to have with land.

Brandon Parker39:12And so it's just like buying a car or something. It's like, you don't... You're not gonna die if you don't have it. And so you gotta strike while the iron's hot. It probably is very... It's probably more relevant to land than other real estate because whatever. I'll find another piece of land. I got whatever. There's other acreages, other places. So getting that done quick is... Okay. I'm just thinking angles because I talk to so many land investors. So these things I, like, make little mental files for. That's a great angle. Thank you. What's your, like, five, ten year goal?

Brandon Parker39:44What are you wanting to do in the note business, and what's that look like longer term?

Eric Scharaga39:49Right now, I'm just focused on purchasing quality assets and originating quality loans. I do it with my own capital and then I do it with the fund capital. And so right now, we're really focused on growing the fund. And I'm personally focused on expanding my relationships with land investors, growing those relationships and really just those three things are what I'm focused on.

Brandon Parker40:14What's the best way for land investors to get ahold of you and to find you online if someone wanted to contact you?

Eric Scharaga40:22Yeah, so I have a website. I have a personal website, ericscharaga.com. And then I also have a business website. It's damencapital.com. And then my email is just eric,eric,@damencapital.com.

Brandon Parker40:41Beautiful. Hopefully, this reaches some land investors out there, then I'm gonna take... I work with a lot of land investors, so I'll take some of these these thoughts to them as far as a lot of us should be selling more things on terms, doing more owner financing, make that more pivotal part of our businesses because there's all kinds of random benefits there, more solid business all around. One of the questions I ask to every guest just because I think it's fun. If you could put a message out on social media, say x, and everyone in the world would see it.

Brandon Parker41:16So it's gonna be short and poppy, one or two sentences. But everyone in the world would see it. Doesn't have to be necessarily business related. What would you... What message would you put out there? Billboard of the world.

Eric Scharaga41:28Honestly, this is the first thing that popped into my mind, and that is life is not a dress rehearsal. And I just have always thought about that. And that's kind of the way that I live.

Brandon Parker41:44Yeah, that's a great one. That's one to, like, read every morning when you wake up. Make sure you go for it. How does that apply to you? What do you... What... Was that a mindset thing for you? Is that a daily action thing for you? What's that what's that look like in practice?

Eric Scharaga42:00Yeah. I mean, I recognize that I have a limited amount of time left, and I need to make the most of it in a lot of different ways in my life. So that's just a challenge for me. Mhmm. Yep.

Brandon Parker42:12Well, Eric, it's been wonderful having you on the show and talking to you here. Is there anything that we bounced over too quick that you wanna go revisit? Any final thoughts for land investors out there who are looking at this?

Eric Scharaga42:28Yeah, absolutely. I really do believe that regardless of the size or the location of your business, that there are ways that I can help you improve your cash flows, your income. I have a lot of really cool niche programs that land investors find useful. I really do believe that I can lower your cost of capital. I can help you sell properties at premium much faster. And so I encourage you to reach out to me. We can have a discussion about that.

Brandon Parker42:56There we go. Big time. So great to meet you, Eric. You are a legend, and we'll have to do this again maybe six months or a year from now, we'll see how everything's going and catch up again. Sounds great, Brandon. Thank you so much. Yep. Have a good day. The Legends of Land Show.