My Interview with Ellis San Jose

Ellis San Jose is the co-founder of For Investor By Investor (FIBI) network. I speak of FIBI often because I head the Pasadena chapter of that organization, so Ellis is a boss of mine in a way. Ellis is the leader of Real Estate Group 360, a company of experts for buyers, sellers & investors of real estate. Ellis has years of experience in the acquisition of non-performing and performing properties and loans. He is a consultant to property owners, brokers, and agents and helps them close difficult real estate transactions. He can solve title and financing issues and provides probate loans to executors and trustees.

Ellis got started in real estate when his father was close to retirement and realized he wasn't going to have enough retirement money from his time in service, to live off of. His father began fixing up and selling houses and Ellis helped. Years later, Ellis' father introduced him to some real estate investors who bought foreclosure properties and Ellis began managing projects and properties those investors purchased. He started at age eighteen and he says he learned early how to buy distressed real estate.

The 1989 downturn in real estate is when Ellis bought his first property and he didn't have the education to handle it. He soon after became a stockbroker and managed portfolios for wealthy individuals. While brokering he attended a seminar by Bruce Norris, who was talking about the comeback of California real estate and Ellis started learning how to acquire properties. He quit his broker position in 2001 and tried to buy real estate full-time. He ran into challenge after challenge and he wasn't finding the deals he needed in order to be able to support his family financially. He discovered notes and learned to buy the notes (debt) instead of properties. 

Now, Ellis has become a professional in purchasing notes. He buys, sells, and creates notes thanks to his years of studying risk parameters and valuating properties. He passes his knowledge on to other investors and did very well when there was a downturn in the market. Ellis sells notes that don't fit his parameters and he creates notes where he loans money in order to facilitate a transaction. As an investor, I primarily focus on hard money lending, but Ellis focuses on seller financing. He shared that while everyone knows the three L's in real estate as location, location, location, he deals with the dirty L's, which are litigation, long distance ownership and (a really) long story about why they can't sell their property. The ugly L's are difficult to manage he says because many agents or brokers aren't familiar with the many ways you can structure a transaction so that became his specialty. He helps borrowers get out of tough situations and teaches others how to do the same. 

Ellis says that what he thinks is a good note for him in his situation may not be ideal for someone else. Given that, he considers a great note to be one where he can quantify what the upside and downside of the note are. "We have a saying in the note business that you're happy if they pay and you're happy if they don't." He says if he buys a note and it performs, and he's happy with that yield, it's a good note. But if they don't pay and he has to enforce his position in that note, he needs to be happy with the collateral and all the expenses of enforcing that note. That's called a happy-happy note and for Ellis' happy-happy he has to make sure he's getting above average yield and really mitigating his risk and that he really has no preference whether the borrower pays or not.

I asked him how often he has to enforce his position and he says it depends on what his starting strategy is. If he's buying a pool of non-performing notes he can guarantee he'll have to wield the foreclosure process to let the borrower know someone's in charge (though they may not always go through all the way to auction). If he's buying a note where he's looking for a good yield and he's sure the borrower has a good track record of paying he doesn't expect to have to use the foreclosure muscle at all. But if he's buying a pool of non-performing notes, the foreclosure process happens quite often though it doesn't often get to the end before there's a solution.

Ellis starts the foreclosure process as part of the negotiation, he wants to let the borrower know that he is interested in a serious conversation with them. He says the intent is to set the tone and tell the borrower, this is a debt you agreed to pay, and usually, when the two parties speak they can avoid the whole process because they can figure out a win-win situation. He says it's when the borrower is afraid or when they're purposely avoiding contact that the foreclosure process has to begin to get their attention. 

Ellis will soon be launching a new website called www.cashflownerds.com where he'll be giving away information. He enjoys passing along his knowledge and the site will have videos and blog content where people can get an overview of strategies. He noticed this movement of people trying to get out of their 9-5 jobs and get some freedom with passive income and the site will allow them to have some honest discussions about their options. Because he has a real estate background, there will be a lot of information from that perspective. Ellis will also be bringing in other experts that have knowledge in their field. The goal is to provide a universal template that can be used as analysis to let people see what strategy will work best for them. 

Ellis started For Investors By Investors in 2007 and it's now grown to 13 chapters. He said he went to real estate meetings and loved networking with other investors but he hated that there was always an element of course sales and pressure. He said he isn't against education but he knew there were courses that didn't deliver on value. He started on meetup.com and gathered people to talk about real estate with no pitching. He hit it off with Jeremey Roll during one of his first meetings, they both shared the belief that people should be able to gather and network without the pressure of buying or being sold to. They joined forces and they've had amazing success thanks to great FIBI leaders and I am a facilitator of the Pasadena meeting because I believe education and network are essential.  

Ellis will be at my Pasadena meeting on the third Thursday of November and he'll be teaching on 'Everything You Wanted to Know About Notes'. He'll be explaining what notes are, where and how to find them and I am looking forward to it. You can get ahold of Ellis via email [email protected] or find him on Twitter @FIBIUSA.