This episode of the Paper Trail is a treasure trove for anyone looking to navigate the wild world of private lending and mortgage notes. He kicks things off with a bang, sharing his own journey as a CEO of a mortgage note fund, and trust me, it's packed with all the juicy details about what went right, what went sideways, and the lessons learned along the way. Chris dives into the nitty-gritty of the industry, from non-performing loans to seller financing, stressing the importance of having a solid exit strategy—because, let’s be real, nobody wants to be stuck in a deal that’s gone south! He also chats with David Cook from Contessa Capital, who brings his 30 years of experience to the table, sprinkling in some sage advice about being a savvy investor and the pitfalls to avoid. So, whether you're a newbie or a seasoned pro, this episode is brimming with insights and laughs that'll keep you entertained and informed.

Join Chris and his buddy David as they dive deep into the wild world of mortgage notes, lending, and all things finance! Chris kicks things off with a friendly intro, setting the stage for some serious talk about the journey of a CEO running a mortgage note fund. David, who’s been in the game for over 30 years, spills the beans on how he got into investing and the rollercoaster ride that followed. From the challenges of navigating through market shifts to the ins and outs of private lending, they keep it real and relatable. David shares some juicy tales about what went right—and what went hilariously wrong—offering listeners a front-row seat to the drama and excitement of investing.

Throughout their chat, they touch on the importance of having a solid exit strategy before diving into any deal. You know, like that one time David learned the hard way that having a plan is crucial—especially when things get bumpy. He stresses that anyone looking to invest needs to keep their eyes peeled for potential pitfalls and be ready to pivot when the market throws a curveball. Plus, they share advice on starting small, like a side hustle, before taking the plunge full-time.

With a sprinkle of humor and a whole lot of wisdom, this episode is a treasure trove for aspiring investors. Chris and David drop knowledge bombs about the key principles of successful investing and how to be a good partner without being a pushover. They wrap up with a friendly nudge to follow the paper trail and trust the process—because in this game, patience is a virtue!

Links referenced in this episode:

• papertrailconference.com

Companies mentioned in this episode:

• Contessa Capital

Welcome to the Paper trail where we follow the journey.

My journey through the world of a CEO of a mortgage note fund.

I'm Chris 70 and after years of buying, managing and selling notes with 70 investments, I'm here to share the real stories behind the deals.

What went right, what went wrong, and what I wish I knew earlier.

From non performing loans to seller financing to private lending, this show is about more than strategies, about growing your business, learning to follow the paper trail and doing the due diligence that separates the pros from the rest.

Now let's hit the trail running.

Hey David, how are you doing today?

Great, thanks.

So great to have you on today.

We'll dive into that as we talk more about David and Contessa Capital.

First question I like to ask is how'd you get involved in investing in the first place?

So I've been in the commercial finance business for about 30 years.

I started out in the banking business and then I left after a couple years, went to a small company, we grew it, sold it and the way the structure was from the sale is that we've got what's called trailer income on an ongoing basis just based on the clients that stay.

Fortunately, we had some clients that stuck around a long time.

At that point I got a W2 job in the factoring business, commercial finance.

But I always knew I wanted to be an entrepreneur and I wanted to be in the real estate finance business.

And so I took all that money over the years that I got from the sale of that business, invested that and that became our seed capital for me and some of the other guys to do some of the other things that we wanted to do.

And so that really kind of started me on the journey, put that money aside and then about seven years ago I went full time into the private lending space.

Okay, cool.

Been around the block for a few years seeing different market cycles of different things through the journey.

What's something that most people don't know that maybe they should?

Or some advice?

I think a lot of the gurus out there tell you to just go ahead and do it, whatever you think you want to do, follow your passion.

There's some truth that but for me, at the time that we sold that business, I had a family, had three kids, had a lot of expenses and so I wasn't really sure what I wanted to do.

I know I wanted to be in the finance space, but I Wasn't really sure.

So for me to jump out with a lot of overhead, there was a lot of risk in doing that.

And so I did some things on the side.

They didn't really call them side hustles back then, but that's basically what it was.

And so trying to figure out what my niche was, where my passion would be, but not taking that giant leap in the meantime, accumulating some capital.

But I think if you find something that you think you want to do and you're committed to something else, that's okay, but maybe start as a side hustle.

We bought a franchise that we sold.

I invested in some other businesses behind the scenes.

I was always working at three kids, did the W2 thing.

That was obviously a full time, you know, commitment.

But then on the side was doing some things to try to build my experience, my knowledge and my capital.

Yeah, that's one thing that I see a lot of people, you know, we're talking offline a little bit about egos and real estate.

And I think that falls into the category sometimes of people.

They have the passion to do something, but they really don't have that plan.

And they leave their W2 thinking, best case scenario, and then realize nine to 12 months later, they're back into a W2 because they realize it's not as easy as it is.

Whatever you think you're going to make, cut it in half.

However long you think it's going to take, double it is what I joke to people about when I left the W2 world.

It depends on what is your primary job.

I had a nice cushy corner office that I was making really good money on to replace that salary.

I had to have a really nice nest egg put aside.

I have a wife and several children to make sure everybody bought in.

And it wasn't six months into this, oh, I'm out of money now.

You do face a lot of hurdles and challenges.

And that road is not straight, narrow or flat.

It is all over the place and bumpy.

Or at least it was for me.

No, absolutely.

And you don't know what kind of curveballs you're going to hit.

You don't know what kind of challenges, capital, health, whatever.

Not everybody is designed to be an entrepreneur.

And so that's a good way to stick your toe in the water, figure out if that's really something you want to do before you commit full time.

Yep.

Everybody has a core investment philosophy.

Now if you could describe yours briefly.

What is your philosophy and where did it originate from?

So I I think it's pretty short.

It's roi and it's not the ROI that you think it is.

It's not return on investment, it's return of investment, all the yield and all that's important, and that's why we're doing this.

But getting your money back is probably paramount.

Yeah, I think a lot of people look at a deal and get shiny object syndrome or the look of the house and base.

But, ooh, I see this and I'm going to make this much money on this deal.

You have to look at is, well, what's the exit strategy?

Are you actually going to get paid back?

We just had a deal come across our desk that looked really good.

But then ask, okay, what's your exit?

How are you getting out of this deal?

How are you going to get us paid back?

They're like, I haven't figured that out yet.

It wasn't a property that we deal with defaulted loans, one of our verticals, but it wasn't a property that I would want to have to deal with in that sense.

So I think that's important for people to understand.

Yeah, I think during COVID which is when I started, that was an exceptional market because there was so much activity in the real estate space and the note space.

I financed some transactions where I didn't give a thought to how I was going to get out.

It just kind of happened.

Deals were getting paid off.

Appreciation was crazy.

And so now, especially now, and I think is the norm.

Right.

Is you've got to have an exit strategy before you go in to the deal.

Because especially in this market, I've got numerous borrowers that haven't really thought about it.

They're stuck.

They can't get refinanced, they got bad credit.

The loan to value is not there.

And so now we're married for a while.

And sometimes that's okay, sometimes it's not.

But you want to have the flexibility to be able to transition out, recycle your money if they're not going to.

Think about it, your borrowers are just trying to get into something, make a bunch of money, and then it'll work itself out as the financing source in the transaction.

It's your money or you're representing investors.

It's really now your job more than ever to figure out how you're going to exit the transaction, what that looks like.

Yeah, One of the things we're talking about too, as you mentioned, like exit, is now communication with the borrower.

And, you know, we had one recently that needed an extra 25 grand to finish a project.

They put it on a credit card and their credit score went from 680, went down to like a lower score.

Now when they finish a rehab, they're trying to refinance it.

And now all of a sudden, instead of trying to get 75 out of deal, now they're only be able to get 60% and it's like really haircut for them.

And you know, it's very close with us on certain things get paid off.

And I was like, why don't you tell me this?

Because if we would have modified the loan, could have given you the 25, it would have had zero impact on your credit.

You would have got your 75 and refinance that out.

And he's like, oh yeah, I didn't think about that, you know, And I'm like.

And it goes back to again, borrowers thinking and just communication which kind of ties into, you know.

Next question is, you know, what's a principle you live by in business that how you treat your borrowers, partners, investors?

I know you mentioned, you know, we talked offline a little bit about communication stuff, but that a major principle or are there others as well?

There's certainly a handful.

One thing that I've learned over the years is a lot of people try to be a nice guy or nice person, and that's okay.

I think we're hardwired to do that.

But that has been a recipe for disaster for me.

You want to be, and it's a slight difference, good person or good guy.

Do what you say you're going to do, be fair, show up on time, those kind of principles.

But there's a difference between being a good person or good guy, which is what you want to try to do, versus being a nice guy.

My experience with being a nice guy is I always get taken advantage of and it never goes well for me.

That's something I think people don't think about.

But I tell my borrowers that all the time.

I'll help you any way I can.

Communicate with me.

We can figure out problems together, an excuse or, hey, David's a nice guy.

So I'm just going to tell him, I can't make the payment this month because somebody's got a health issue in my family and I'm not going to be around.

I'm going to be out of town.

Those are all things that happen.

Life happens.

Your borrowers go through a lot of different things, but at the end of the day, it's a business transaction.

I'M going to be fair with you, but I'm not going to allow you to take advantage of me.

That's when people ask me, what are one of the mistakes?

When I started running my business, one of the things I say is I was too nice.

One of the quotes that sticks with me all the time now, and I tell people this too is don't take my kindness as a sign of weakness.

I will be fair to you, but if you cross me, I've got a lot of people, attorneys and everyone behind me that if I need to unleash the dogs, then I'm going to.

It's a business transaction that I want it to be a fair transaction.

But if you're going to take advantage of a situation as nice as somebody can be, there's still, you know, it's that joke of a lot of people are extremely, very nice when you get on their bad side or do something that completely.

You know that from the normalcy that flips to the other side of.

They can also get in a professional way, very difficult for people.

Yeah, you hate to be cynical, right?

Because you want to be nice.

But I had a new borrower give me a really nice Christmas present this last year.

I just.

The cynical person in me said, I know he's going to be a problem.

And sure enough, it turned out to be so not always the case, but those are just kind of the little things you've got to watch out for.

You get tested.

I think in any relationship that I've had, a new relationship, you're going to get tested in how you react to that.

First time you get tested kind of determines how that relationship's gonna move forward.

And invariably you kind of have to have a strong hand, which is okay, but you've gotta be prepared for that moment.

I think a good example is people who have rentals.

You have a tenant, they're 15 days late, you send them a notice and then they pay you.

And then, you know, we have property manager and first question is like, okay, what's your policy on this?

I'm like, it's one strike rule.

The first time, basically they're late and they make the payment, I'll give them a pass.

I said, but it happens again.

I don't care if they pay it.

It's basically, it's late and you know, they got to pay all the fees.

But let's get somebody else.

Because the moment somebody realizes that you let them get away with something, it's human nature that that's what they adapt to.

There's a ton of excuses out there and I haven't heard them all, but I've heard some good ones.

Oh, yes.

We could have a whole panel of excuses we hear at the Paper trail conference, which you are speaking at.

Why was it important for you to be a part of this event that we created?

You know what, I'll kind of turn that around.

And it's really more the logic for me.

I was looking forward to learning from people.

I know there's a lot of smart people there, people in the industry, and so that's the main reason.

I just want to be kind of part of the activity and, and if I can learn some things from the people there, that's really going to be a win for me.

Yeah, I watch videos online, follow people, listen to podcasts, and you pick up little things here and there.

The time you get to spend with somebody, have a conversation with them and ask them questions, or have them ask questions.

And back and forth you learn in that brief, probably 20 or 30 minutes, probably six months of stuff it took me to pick up just listening to other things because it's in the moment you get to ask those questions and there's other people around.

I always tell people, if I'm talking to people, I'm hoping I'm the dumbest person in that conversation because that means I'm going to walk away with a lot more information.

Yep, for sure.

As a speaker at the event, what's one thing you hope that some of the attendees or people listening to you take away?

You know, I think when I listen to a podcast or a speaker, it's really, if I can provide, you know, everyone's got a different reason for being there and what they're trying to get out of the event.

But if I can provide one thing to each person that they're like, wow, that one thing.

I'm going to remember what he said.

I haven't seen it all, but I've seen a lot.

I'm just going to be an open book and provide wisdom that as I've seen it, real life experiences, my take on the business.

And so that's really, I think different people get different things out of whatever you're saying.

And so again, if I can provide one thing and that's value add to somebody and it helps them, then that'd be great.

That'd be a win for me.

What's a mistake you see newer investors make and what would you say is guidance for them to try and avoid it?

I think people get excited about getting something Done.

Get overly aggressive.

There's a podcast I listen to and they talk about if you're only seeing one or two opportunities a month or a week or whatever, then you're probably going to make it and you're trying to do something.

You're going to make a bad decision because you're not seeing a lot lot.

See as much as.

As you possibly can.

Look at so many different.

You know, develop kind of what your parameters are.

I want to make sure it's this, this and that.

You can be flexible, but try to see a lot of opportunities.

Don't stretch too far.

Know what your limits are and try to stay with those limits.

If you are going to go outside what you wanted to do.

Maybe you said, I never want to lend money in Florida, but you see an opportunity in Florida.

How am I going to manage my risk?

I don't think you can ever say never.

For example, the farther I get outside of my comfort zone, the less risk that I want to take.

Develop your philosophy, but don't try to do something just to do something, and that'll get you into trouble.

Part of that is me doing that myself from experience, and it didn't go well.

One of the things that caused me to, you know, really kind of like, oh, use defensive, but little pushback on things is like you mentioned, people are always excited and rush, rush.

When somebody comes to me excited, it's like, I need to close this deal or we need to get this done in a week.

To me, it's probably not going to happen.

When somebody tries to rush me or push me, to me, that's almost like a counter mechanism internally that is like, okay, I'm going to push back.

I need my time.

I'm not trying to rush this deal and so forth and want to make sure we do that right process.

And sometimes I had one person once call me on a Thursday and was like, oh, I need to close this on Monday.

I have title, I have this, I have that.

I'm like, okay, send me everything.

This was early on and I was excited.

I did, oh, you know, I can close one real quick.

And then the person waited till Sunday to send me the details and it's like, hey, Monday, can you wire it?

I'm like, no, But I didn't have time to look at everything.

Part of the reason why we're in business is because we're not a Wells Fargo.

We're not going to take six months to make a decision you got to kind of live up to.

That's why we do what we do.

But again, if your borrower is asking at least my opinion, if your borrower is asking for something like that, where they know you've got to spend, and I've worked on the weekend and Sunday, that's fine, I'm willing to do it.

But for that I'm going to make sure that the structure is more advantageous to me than it typically would.

Whether it's a lower load of value, a higher price, more equity, whatever the deal is.

But I'm going to make sure that that's the trade for me.

I'm willing to work hard and work to midnight, but my pricing is going to be a lot higher than it usually is and my collateral is going to be better, etc.

So that I'm willing to do that trade off.

But yeah, typically it doesn't go well when you're in a rush.

Exactly.

Okay, next I go through a lightning round.

This first question is interesting because you're in the Houston market and what's going on in today's world is kind of very, you know, market driven typically and stuff.

And there's been some comments about Houston and Texas in general and how it's going.

You've got the boots on the ground there.

How do you describe the current market?

It is definitely a buyer's market out there and it has been for a while.

It really shifted heavy, I think, to a buyer's market, probably May, June.

But it has been for a lot of reasons.

Interest rates staying high is probably the big one and I don't see that changing anytime soon.

So it's going to be interesting to see what happens the rest of the year.

But yes, it's definitely the market has shifted.

Yep.

With the market shifting, what's one thing you've changed your mind about or how you've done business in the last year?

I thought rates were going to go down.

Obviously.

Wrong.

If you're buying a residential property, date the rate, marry the house.

Yeah.

You're in for a long dating process.

I don't think rates are going down anytime soon.

You've got to adjust how you look at any deal now, knowing that all your costs are going up, labor's going up, materials are going up, rates are staying high, Insurance goes up 20% each renewal, property taxes are going up.

Whether you're doing a fix and flip, new construction or you're doing a cash out refi, whatever, you've just got to anticipate.

If you're running your cash flow analysis, if you're running your arv, all that got anticipate higher costs and last question.

Before I let you go today.

What's one person you'd like to thank for your success?

There was a person that got me in the business.

He was an older guy that had been a developer and then got into hard money on land.

He made a ton of money, but you'd never be able to tell if you saw him.

His philosophy was stay hungry, stay humble.

And I think those are pretty good words to live by.

Yeah, I've built a lot of high end residences, condos, townhomes and single family homes.

Probably 90% of my clientele who had what's 10 million eight figures or whatever it is.

Plus you would never know walking by them.

Right?

You know, you would never ever know.

I mean, it's interesting because I find that I don't go fascinating, but I enjoy that because they're actually real people.

You know, they're not trying to live up to some expectation or they're not flashy.

It's just like, hey, they've done well in life.

They don't brag about it.

He still drives his beat up pickup truck and you know, still lives in, you know, same house he's lived in for 20 plus years.

He could easily buy, you know, the entire neighborhood if he wanted to, but it's like, don't need to, just gonna enjoy life.

So yeah, as you get older it just brings a lot more peace of mind not to have to worry about that and being in Houston for us, it's a big city.

So if nothing else from a safety standpoint, you gotta watch yourself.

You don't want to be too flashy.

But yeah, at same I enjoy talking to those people and they are certainly real people.

Well, David, thanks for coming on today.

Look forward to seeing you at the Paper Trail conference in September.

And for people listening, make sure to go to papertrailconference.com to get your tickets to come see David myself and talk about the wonderful world of private lending, mortgage notes, seller financing, everything regarding paper.

Thank you.

In a couple weeks?

Yep, sounds good.

Thank you, David.

Welcome to this episode of the Paper Trail podcast.

Today I was able to interview David Cook from Contessa Capital.

David is a lender and also does construction and rehabs down in the Houston, Texas market.

So had a great conversation with David with his 30 plus years experience in regards to what he's seeing today.

Boots on the ground in Houston.

We talk about the type of market that they have, we talk about private lending, we share some deals and what to look for in part of the deals, and also some of the principles and core philosophies on how to manage your business.

One thing that I want to continue to reiterate to people is if I ask every single person the two questions I love to ask who are speaking at the conference, which are what's some principles you live by and what's some core investment philosophies?

Pretty much the answers are very similar.

This was intentional because we want people providing the content to be people of character to people of ethics and understand business, understand entrepreneurship.

And we're not trying to sell you some fancy program or just trying to take money from you and run and not teach you anything.

It's about building relationships, being a person of integrity in doing what you say you're going to do.

David shares his stories with that as well.

Hope you enjoy this episode with David Cook of Contessa Capital.

Thanks for joining me on this episode of the Paper Trail.

I hope today's insights help you sharpen your node investing strategies.

If you found value in this conversation, subscribe, leave a review and share it with fellow investors.

I'm Chris Sevany reminding you to keep doing the work, trust the process and always follow the paper trail.

Until next time.