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The Benefits Of Being A “Lienlord” With Bob Fraser

REW 26 | Residential Mortgage Notes


Mortgage notes, also known as real estate lien notes, are loans that borrowers take to purchase a property that actually have many benefits and offer unique opportunities. On today’s podcast, Bob Fraser of Aspen Funds sits down with Moneeka Sawyer to talk about how he got into real estate investing, particularly residential mortgage notes, and shares the benefits of being a “lienlord.” Bob is on a mission to help investors take advantage of this effective and often overlooked avenue of real estate investing. Tune in to see if this is the right avenue for you, too!

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The Benefits Of Being A “Lienlord” With Bob Fraser

Real Estate Investing For Women

I am excited to welcome to our show our guest Bob Fraser. Bob is on a mission to help investors take advantage of one of the most effective and overlooked avenues of real estate investing, residential mortgage notes. As Founder and Principal of Aspen Funds, Bob has purchased more than 1,000 mortgage notes, earning double-digit annual returns without the risk and volatility of traditional investing options. Bob, welcome to the show.

It is great to be here.

This topic is so hot. We did have someone else on the show talking about notes. I got many emails from my ladies who were like, “Give me more.” I’m excited to have you here. Bob, let’s start by telling us a little bit about your story and your history.

I was a computer scientist. I was a computer programmer for many moons and then I started a big tech company. I ended up raising $44 million in venture capital and built a high-flying tech company in the late ‘90s and then it got wiped out when the stock market crashed. I lost everything. From that point, I started looking at different asset classes and got into real estate. The idea was let’s try to avoid the stock market volatility where one day, all of a sudden, your nest egg is gone. The traditional thinking is, “Let’s stay out of the real estate. It is risky. Let’s do the stock market where it’s liquid.” That’s the problem when you have these kinds of drawdowns. It’s no fun to be in the stock market seeing these 900-point crashes we’ve had and these kinds of things. I was looking for something a little bit different out of what I had been doing and that’s what led me into real estate.

How did you get into notes specifically?

I met my partner years ago. He’s a real estate guy and he lost everything in the 2008 crash. We were comparing our scars. We both had the same scar in different places and different time frames. He said, “The guys that are doing well in this space are the guys that are on the other side of debt equation. Rather than being a borrower, they’re the lender.” He started doing all the research into that space and we got started. I was a finance guy and an operations guy at that point. He showed me the models he had come up with and I was completely blown away. I said, “This is too good to be true. Let’s try it.” I let him invest my IRA for a little while. I said, “We got to jump into this. We started a little beta test fund with friends and family, and it’s been off to the races. We’ve had five funds since then and we’ve scaled and have grown the business and taking care of our investors. We got into it by realizing that the better place to be is on the other side of debt.” It has a lot of different characteristics than traditional real estate investing.

REW 26 | Residential Mortgage Notes

Residential Mortgage Notes: The guys that are doing well in the real estate investing space are the guys that are on the other side of the debt equation; rather than being a borrower, be a lender.


Tell us a little bit about that. What are the characteristics?

First off, I bought a little condo or a little duplex to rent out. It was such a horrible experience. I’m a good computer guy but I am not a good hammer and nails guy. I’ll admit that upfront, but it was a nightmare. I am trying to keep around there. I had evictions, stuff broke, and toilets didn’t work. I even hired a manager and it still isn’t working so I finally sold it. I felt good to be done with that. Meanwhile, my notes portfolio is killing it. When’s the last time you called your bank when your plumbing didn’t work? That’s us. We don’t get phone calls.

The first thing is it’s completely more passive and more hands-off, the note space. Think about a bank that can own hundreds of thousands of notes and we own thousands and thousands of notes. It’s much more scalable business and you have less volatility. If you think about the housing price going up and down over the years, but the debt piece is significantly cushioned from that. Maybe your house is worth $300,000, but you’ve only borrowed $200,000 on that. The house has to drop below $200,000 before me. As a lender, I’m concerned. It’s much safer and it’s mailbox money. I get paid as the bank. People send me the money. It’s nice like that, but I have a little maintenance and overhead costs. It’s far superior if you’re looking for more passivity and more safety.

Do you have a team that does collections of people who don’t pay? Do you have a problem with that at all?

Yes. You have a lot of notes so you have people that don’t pay, but we’re the bank. We have a lien on that house. Worst case scenario, we began talking to that borrower. In most cases, what we do is we hire a loan servicer that manages all the statements, sending the statements, the 1098, all the taxes, and all that stuff. We do have an in-house collections team to reach out to these borrowers.

I’ve only had to go through one eviction ever in my many years of being in the business. That’s why I’m teaching about making it blissful when I’ve had many properties. I will say that my tenants all pay early. My tenants give me a raise every year without me asking. I’ve got things set up, but every once in a while, I do need to collect rents. It’s not fun and you don’t have a lot of leverage. Fortunately, I’ve set up my system so I’m not doing that often. If somebody is late, I charge them a fee and they usually pay almost immediately. Anybody who doesn’t pay immediately, it feels yucky. That’s one of the yucky pieces of the business. It’s interesting to address that even in the notes business, you have to have a collections team and stuff like that. This is one of those things in every real estate business that we have to deal with no matter what. You’re not going to get away from it by going into a different strategy. Ladies, if you’re trying to run from that piece, understand that it is not awesome. There are blissful ways to handle it. One of Bob’s choices is to hire a team. He’s not doing that piece that’s not fun for him.

There's not one real estate market. There are many real estate markets. Share on X

The average default rate in the notes space is about 1%. I don’t know what it is in rentals, but my guess is it’s higher.

For me, it’s probably about that in my business and not everybody runs their business the way I do. That’s the value of pursuing a blissful way. I might have one late rent check every three years or something like that, but it’s nothing. I just send it and say, “Did you mail it? I didn’t get it. Could you resend it?” and it’s done. That’s a good valuable information. You’ve already talked about some of the benefits of doing notes. Let’s specifically talk about being a lien holder and some of the specifics that people can look forward to by doing that.

We talked about less maintenance, that kind of thing. We talked about the safety factor so that you’re not as worried about the downturns and those kinds of things as much. The other thing is that depending on the kind of notes you buy, you can buy them at a discount. This is a real note that we own. It’s a $100,000 house in Upstate New York. The guy owes us $100,000 on his loan. We only paid $50,000 for that note. He doesn’t know that. He pays us $600 and something a month. It’s a 7% interest rate that he’s paying, which is a pretty good return. Because I only paid a $50,000 for that note, my return is 14%.

Even more exciting is after I get paid my 14% return for a while, if he chooses to refinance or sell that house, I get paid off. I don’t get paid off $50,000. I get paid off $100,000 so I double my money. We don’t always get a 50% discount on these loans, but we’re buying loans at 20% discounts quite often to 50% discounts. Every time there’s a refinance or a sale, we make money. It’s a profit of 13%, 14% monthly until we earn a 50% gain or a double cap gain on that all passively. We have about 8% of our portfolio that’s self-liquidating every year. People sell or refinance their homes and we get paid off. It’s a massive hunk of cashflow. Some people think that’s a pain, even though it’s a profit because you have to reinvest. You have to find something else to buy, but because we’re so active, we’re always shopping and we’re always finding these notes. It’s awesome to think you can get a cap gain and a note.

Tell us why Aspen Funds invest in real people, not just in real estate.

REW 26 | Residential Mortgage Notes

Residential Mortgage Notes: The note space is a much more hands-off and more scalable business.


We do buy these loans and defaulted loans as well, where people aren’t paying and have been having trouble for a while. We are able to modify those loans and wipe out a lot of debt for people. We do everything we can to keep the borrowers in the homes and only ended up foreclosing about 2% of the time that a loan goes into default. We feel happy about that. We are able to help people stay in their homes. If they want to and they’re trying, we can work with them to do that.

In the Extra portion of the show, we are going to be talking about your economic analysis on what’s going on in the market. Could you give us a high-level idea of where you’re at around that and what we’re going to be talking about later?

We’re going to go into asset prices and specific asset classes because there’s not one real estate market. There are many real estate markets. I am seeing some real estate markets that are attractively priced and I see real estate markets that are unattractively priced. We will talk about that more in the extended portion of the show. I want to talk about in this portion the state of the housing market. There is a lot of fear out there about the housing boom being over. We bought them in 2013 so it’s been a long run. Most real estate investors are getting nervous. My personal view is that in the single-family real estate market, we have quite a bit more running room. It depends on where you are. If you’re on the coast, it’s a little more challenging, but in the bread and butter Midwest areas, Florida and other places, the prices have a long way to run. What happened in the Great Recession, you saw housing starts to roll-off almost to a very few? Multifamily also starts to roll up. They both went to zip.

For those of you that don’t know what housing starts are, it’s building. It refers to the new homes that were coming on the market.

Multifamily and apartment complexes went on a tear and has recovered massively to where it was before the recession and even more. Single-family homes have never recovered. Years ago, you could buy a piece of land, build a house, sell that house and make money. Now, you cannot do that because the costs are too high relative to the price. Inflation has continued to run for years and housing prices have not kept up with inflation. I have an economic deck that we can send to your audience if they’re interested that shows inflation-adjusted housing prices are far below the peak in 2005 and 2006. Housing prices, especially in the single-family markets, still have a lot of running room after the fact that housing is far more correlated to the jobs market than anything else.

With the jobs market hitting new records every day and low unemployment, it’s a different animal. There is more running because there’s more demand. There’s a huge shortage of single-family homes and that shortage is systemic. It is baked into the system. Until we see more housing being built, you’re not going to see that. One other little piece here, if you look at the unemployment rate hitting record lows, people may not be aware that Hispanic unemployment and black unemployment is hitting record lows for 60-year records. Even the minorities are participating in the game. We’re seeing the housing especially in the lower end of the housing spectrum doing super well. There’s a lot of demand being created. People that have jobs end up wanting to buy a house. There are lots of reasons for the housing market to run for a little while longer. I have about seven factors that play into that. It’s all in there.

Talk to the most successful real estate investor, buy him a cup of coffee, and pick his brain. Share on X

We will talk about that in the Extra portion of the show so people can get a deep understanding of what you’re talking about. That was a great high level. Thank you for that. I’ve got all my opinions about that. I’m interested in that conversation. Could you tell everybody how they can reach you, Bob?

You can go to our website, www.AspenFunds.us.

For clarification, Bob, do you run a fund or do you teach people how to do notes or both?

We run a fund. We do not teach people.

That’s good clarity. Ladies, if you’re interested in the bliss approach to investing in funds, Bob might be that person that can help you to do that. He handles all the yucky stuff and you just get the money. He started using his 401(k). You ladies know that you can get a self-directed IRA and we know through Bob, you can start investing that IRA into notes and making huge returns. Bob, are you ready for our three rapid-fire questions? Tell us one strategy or super tip on getting started in real estate investing.

Talk to the most successful real estate investor, buy him a cup of coffee and pick their brain.

REW 26 | Residential Mortgage Notes

Residential Mortgage Notes: There’s a huge shortage of single-family homes, and that shortage is systemic.


What is one strategy on being successful in real estate investing?

Value-based purchasing. Look at the price of the house relative to the equivalent rent so that we price everything based on value. It’s the Warren Buffett investing model.

What is one daily practice you do that you would say contributes to your personal success?

It’s a weekly practice, but I dedicate two days a week at least to be alone in my office by myself. I don’t answer the phone. I don’t do anything else. I focus on getting the things done that I need to get done. That allows me to be productive. Segregating your time like that.

Nobody has said that on this show before. Bob, this has been informative. Thank you for what you’ve offered my audience so far. I’m looking forward to what we’re going to do next.

It’s good to be here. It is fun to talk with all these awesome ladies who are out there making a difference and taking the bull by the horns. Well done.

Thank you. I am very proud of my audience. They are action takers. They’re smart. They’re ready to go. I love them. We’ve got more an Extra. We’re going to be talking about specific economic details, what to do when the market has become volatile. There are good markets and bad markets. Bob’s going to be sharing a lot about markets. He’s going to be sharing about asset classes and talking to us about where we could invest and/or where we should stay away from. I’m looking forward to that in Extra. If you’re not subscribed to Extra but would like to be, go to RealEstateInvestingForWomenExtra.com. Thank you for joining Bob and I for this portion of the show. I look forward to seeing you next time. Until then, remember goals without action are just dreams. Get out there, take action, and create the life your heart deeply desires. I’ll see you next time.


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About Bob Fraser

Mr. Fraser has 20+ years’ experience as a finance and technology executive and is a Magna Cum Laude U.C. Berkeley computer scientist and a former Entrepreneur of the Year Award winner. Fraser is responsible for financial management, portfolio modeling, as well as systems and processes, designing and deploying Aspen’s scalable state-of-the-art back-end platform.

In 1995, Mr. Fraser founded NetSales, Inc., a back-office e-commerce provider. As a CEO, Mr. Fraser raised $44 million in investment capital, and guided the company to an average of 20% month-to-month revenue growth, becoming the metro area’s fastest-growing company between 1997 and 1999.

Since 2002 Fraser has founded and served several non-profit organizations as a board member and CFO. Fraser has also been involved in a number of entrepreneurial initiatives, including book publishing, financial consulting, and an investment fund managing member.

In 2012 Fraser co-founded Aspen Funds, a fund management company focused on mortgage investments.


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