How to Earn 10% Passive Income by Becoming the Bank with Real Estate Notes

Rick & Crystal Rumer (00:00)

Ultimately, we’re putting together paper that we do sell to smaller banks. Banks do buy from us some of our notes. We do sell to some family offices, some other institutional investors. So I just kind of wanted to say this is institutional grade paper that we are originating. And I think we’ve…

put in a couple of steps to make sure that it is attractive to the average investor and that they’re covered.

Michelle Kesil (02:00)

Hey everybody, welcome to the Real Estate Pros Podcast. I’m your host, Michelle Kesil, and today I’m joined by someone that I’m looking forward to chatting with, Rick and Crystal Rumer, who originate mortgage notes with land as well as our single family investors. So excited to have you both here today.

Rick & Crystal Rumer (02:21)

Thank you so much. We’re excited to be here. Thanks for having us and excited to share and glean from you and your audience as well. yeah

Michelle Kesil (02:31)

Absolutely. So let’s dive in. First off, for those who are not familiar with you and your work, can you share what your main focus is?

Rick & Crystal Rumer (02:41)

Yeah, of course. We do a couple of things. We do two things really well. We create land notes via owner finance, we do also, originate notes in the single family realm. If I can touch on both of those really quickly, we buy larger tracts of land around Texas, think 100 or 400 acres. We subdivide that into five and 10 acre smaller ranchettes.

We put a fence around it and a gate and we turn around and sell those individual lots, not to a developer, but to end users that want to build their home or their homestead on that property. And we will owner finance that to them, generally at 10 % for 15 years. This originates a note. And then we, just like Bank of America, ⁓ creates a mortgage and six months later sells it to another bank.

We’re doing the same thing. We’re originating that mortgage and we’re turning around and selling that to another investor. So the investor can make 10 % plus on their, on their, uh, return by just sitting there and holding that paper. They get a stream of income that will last for 15 years. And then you want to talk about the single family, what we do there? Yeah. Single family, real short. We buy a home for cash.

And then what we do is we turn around, same thing. We owner finance it and offer it to someone that can’t get bought at a bank. And we offer them instead of rental home ownership where they are now a homeowner and paying a mortgage for their family. So both of those are owner finance. ⁓ Both of them offer 10 % plus returns to an investor that invests with us and both of them are first lien positions. So very safe.

position just like a bank would be.

Michelle Kesil (04:35)

Awesome. And are you guys, I you’re in the Texas area, is that your only market or are you operating in other areas as well?

Rick & Crystal Rumer (04:42)

We, for land, we do all of Texas and in Arkansas. And then for our single family, we’re up in the Midwest as well. But for all of our nodes, whether it’s land, whether it’s single family, we’re really big on making sure that our investors are protected with first lien position. ⁓ It’s monthly passive cashflow. It’s also gonna be vetted with a third party servicer. And we have a servicer that handles that.

as well because they’re amateurized. And a third party RMLO. I think that’s what you meant to say.

Michelle Kesil (06:06)

Awesome. How did you guys get started with this?

Rick & Crystal Rumer (06:11)

It’s a good question. It’s probably longer than we have time for right now. I used to work for JP Morgan Chase, the big bank, went through the housing crunch 2007 through 2009, was also dabbling in real estate. We had a few rentals and I came home one day and I said, babe, I can’t work for this company anymore. Let’s go do real estate full time. so 2010, we started fixing and flipping single family homes down in Houston, Texas.

We got into owner financing, got away from the rentals, got away from the flipping. We’ve tried just about everything. I say that there’s a lot of ways to do real estate, but we’ve tried a lot. where we really settled in what really spoke to us and what we got really good at our niche is owner financing. So just like we’ve talked about, we do it in land, we do it on the single family, and we’ve really found a good way to do it and a good, a good system for it.

Yeah, I was going to say we actually had a fix and flip that we put too much money into it and we weren’t able to sell it with what we needed to. So what we did is we used someone’s self-directed IRA to then go ahead and ⁓ create a note basically for that self-directed IRA. And instead of doing a fix and flip, we were able to turn it into an owner finance project. And then we saw no one’s calling for tenants and toilets and we’re like,

We like this and same thing with some rentals had some rentals that went south, turned them into owner finance. then again, we weren’t getting the phone calls in the middle of the summer that, you know, my AC went out. They still had to pay the mortgage, which we love.

Michelle Kesil (07:53)

Awesome. You mentioned you have like a solid system for that. Can you expand on what that looks like?

Rick & Crystal Rumer (08:01)

Yeah, I would say that’s been huge for us is making sure that we do have systems set in place with our notes. So on all of our notes, we’re going to get a lender’s title policy to protect ourselves and that lender to show that you’re in first link position. We do close at a title company, so everything is recorded as well. But what we do that’s really special is that we do an RMLO, a residential mortgage loan originator, which is a third

party that basically vets that borrower making sure that they have the ability to pay. And then we also use a third party servicer because these notes are amateurized. So we make sure that then that borrower sends the payment to the third party servicer. That servicer handles taxes, insurance, all the things, and then they end up sending us the remainder amount.

And then we get that cashflow coming in each month. Yeah. In general, here’s what we’re doing. We’re doing this just like, and I’ve said this already, we’re doing this just like a bank would do where we’re using a third party to vet people, which, know, I would like to owner finance everybody. would sell some, it sells to him, sell to him, sell to her, but we’re having a third party really look over our shoulder, just like a bank would have a whole department that does due diligence on somebody and get somebody approved.

We’re using a third party to do that. The same thing with the servicer.

Ultimately, we’re putting together paper that we do sell to smaller banks. Banks do buy from us some of our notes. We do sell to some family offices, some other institutional investors. So I just kind of wanted to say this is institutional grade paper that we are originating. And I think we’ve…

put in a couple of steps to make sure that it is attractive to the average investor and that they’re covered.

Michelle Kesil (10:01)

Are your investors that you work with, like do they need to meet a certain criteria who’s kind of like your ideal investor client?

Rick & Crystal Rumer (10:44)

That’s a great question. Yeah. So yes, just like Rick said, we work with institutional investors. We work with all different accredited investors as well. But what we love about what we do with notes is that you do not have to be accredited. Our minimum is 20,000. So that’s the beauty of what we do for people that are first time.

investing in notes, don’t know anything about notes or in real estate. It really is a beautiful way to dip your toes in and it’s not a large amount. And so that’s what we love is that there’s really no criteria. Our minimum is 20,000, but it could be used with someone’s self-directed IRA, cash, trust, I mean, you name it. It doesn’t matter, but we like to sell to teachers, nurses.

Just the everyday professionals as well and then the institutional buyers, they’re going to buy larger packages of our notes. was going say, ultimately we’re relationship driven people. ⁓ If we need to do some hand holding and it’s your first time to invest in a note, totally get it. We deal with a lot of them and we can hold your hand and explain really what you’re purchasing and how you’re protected. But at the same time, there’s a great percentage of our investors.

that have done fix and flips and have done rentals or have multifamily and they just really don’t want to be on the active side anymore. This is a great way to have the most control that ultimate Trump card first lien position if somebody doesn’t pay, but at the same time remain passive and just create that stream of monthly income. So we do find that a lot of attorneys and,

Doctors, nurses like to buy this because they have a little bit of extra capital, but they really don’t have the time to deal with real estate and don’t want to. So they can be the bank on a transaction.

Michelle Kesil (12:40)

Awesome. What do you feel are some of the main keys that have allowed your business to be able to grow and to run smoothly?

Rick & Crystal Rumer (12:52)

a couple of things, our longevity in the business. we didn’t just start doing this 18 months ago. we’ve, we’ve originated notes for quite a while. And quite honestly, I’m going to say the economic environment here in Texas has certainly helped us over the last 15 years. it’s been a strong place to do real estate, a strong place to do business.

and there’s plenty of availability. We have no problem finding land to purchase. We have no problem finding a buyer that wants to buy that land. ⁓ So I think that’s helped us quite a bit. What else do you think has been a good buoy to our business? Yeah, I think also the diversification play is huge for us. It’s such a niche space that we’re in.

And so it is a nice way to transfer, move some of those funds out of the stock market and get into real estate, but you’re not doing the dirty work. You’re not doing all the hands on. You’re just buying the paper and you’re the lender on that asset and you’re protected in that first lien position. I was going to say what’s great with, with what we do is it is very much a steady investment.

If you’re looking for, I would say that the shiny out object, the home run hit, we are not that person. So we are not a fit, but if you like steady monthly cashflow coming in, we’re those guys. So for us, that’s an advantage because a lot of people right now in the economic environment, they’re looking for something more steady and secure. And that’s what we do.

Michelle Kesil (15:23)

Amazing. Yeah, that is definitely something unique that you guys are up to.

Rick & Crystal Rumer (15:29)

Yeah, thank you.

Michelle Kesil (15:30)

And when it comes to like your own investment journey, what has been maybe some lessons that you’ve learned that you wish you had when you were starting out?

Rick & Crystal Rumer (15:40)

⁓ I like this question. I think we would have bought and held onto a lot more land, ⁓ a lot more real estate. We would have held it for the long term. ⁓ We have seen tremendous growth over the last 15 years and some properties that we have bought and we turned around quickly sold. ⁓

And now they’re selling for three times, four times what we originally bought and sold them for. So I think lessons learned is get as much cash flow as you need right now, but hold on to hard assets for the longterm. I hold on to that property and land for as long as you can. Yeah. And why we love land so much is because we always say God’s not making any more of it. So the value of it.

is it’s steady, steadily goes up. And that’s what we love about land. And if you’re familiar with Texas, Arkansas, we basically buy right outside of the major cities. So the development and growth happening is crazy right now. So all of that land is starting to get bought up. And so why we love it is that our investors

that buy the land from us or that land note, they’re in growth areas that just, we don’t see that slowing down anytime soon.

Michelle Kesil (17:12)

Yeah, absolutely, that’s important.

Rick & Crystal Rumer (17:15)

So buy and hold land.

Michelle Kesil (17:18)

Yeah, and when you buy and hold this land, do you then develop it or you just continue to hold it?

Rick & Crystal Rumer (17:25)

Most of the time we’re subdividing it and developing it into smaller tracks. So then we can turn around and sell it. We do keep some and hold onto it, but our business model is to buy large tracks, subdivide it into smaller tracks, put a little bit of infrastructure on there, and then sell it to an individual that wants to own or finance that land and turn that into their homestead, their dream. ⁓

little slice of heaven, I guess you can say.

Michelle Kesil (18:00)

Amazing. And what are you most focusing now when it comes to solving or scaling to the next thing in your business?

Rick & Crystal Rumer (18:10)

I mentioned this earlier, there’s no problem finding land. There’s no problem finding ⁓ buyers for that land. What we’re our bottleneck, what slows our business down is these notes that we create. We have to turn around and sell these notes to another investor so that we can recapitalize. We need to get some funds for that and then we can go buy more land and go do it over again. So ultimately it’s about moving money.

and how quickly can we move money? So we spend a fair amount of time educating folks on the note industry as it is relatively niche. And if we had a larger pool of note buyers, that would help us tremendously in order to scale. Yeah. And I would also say right now on the single family side, we’re really focusing on the affordable housing. Right now there’s just so many ⁓

⁓ families that need homes, but they can’t afford them right now. And so right now we are helping families. Our goal for 2026 is a hundred homes for 100 families. So we are really pushing and helping other families get into affordable housing right now. And that’s where we’re looking to really scale on the single family side. So we’re in no shortage of finding

homes for these borrowers, we’re in no shortage of finding borrowers, but I would say right now when we buy those properties for cash, we always look for private lenders as well to take down packages of those homes ⁓ where then we can turn around and owner finance them. But affordable housing is really a need right now.

Michelle Kesil (20:01)

Yeah, absolutely. And what type of like, I know you mentioned you do like creative financing. What does that look like in your terms?

Rick & Crystal Rumer (20:12)

Yeah, on the land, we’re generally going to finance somebody at 10 % for 15 years. Every once in while we’ll do one at 11 % for 20 years, but we have a little bit shorter timeline on these single family, I’m sorry, on the land notes that we create. Saying that on the single family side.

We are financing at 10 % for 30 years, more of a traditional 30 year mortgage note for somebody. That makes their payment significantly lower for the folks that were, that used to be renters that we’re now giving the opportunity to be a homeowner. And that’s what it’s about for us is providing the opportunity for somebody to change the trajectory of their family. They might’ve been a renter.

for their whole life or sometimes even second generation renter, but we’re taking those renters, putting them into an owner finance home, they now get to build equity. And we all know in America, that’s generally where most people create their wealth is through their home ownership. So those terms are gonna be 10 % for 30 years. And on the land side is generally 10 % for 15.

Michelle Kesil (21:34)

Awesome. And how do you guys find like the investors or the people that you partner with?

Rick & Crystal Rumer (21:42)

Well, like Rick was talking about earlier, it really comes down to relationships. So we’re definitely relationally based business. ⁓ But it’s all over. We use people’s self-directed IRA. So we’re connected with different IRA companies, different ⁓ investment groups as well. But I would say majority is going to be of our clients referrals and just relation, relationship based.

as well. Yeah, we have a tremendous number. When she’s saying relationship based, we have a tremendous number. I would probably say 70 to 80 % of people that will buy a note from us and then come back to us six months later or a year later and they say, Hey, do you have some more of these or Hey, can I do another one? Because ultimately once they see that stream of income coming in and they enjoy becoming the bank and once they realize and something

changes in their mindset. like, we can keep doing this over and over. So that’s what she means when she says relationship based is we’re looking to do, ⁓ we take care of our customers. We look to do multiple deals with them. Yeah. It’s not about one transaction or a transaction. It’s about growing together, seeing what their goals are, what their values are and helping them ultimately grow their wealth as well.

Michelle Kesil (23:05)

Awesome. Thank you for sharing that. So before we wrap up here, if somebody wants to reach out, connect, learn more, where can people find you and connect with you?

Rick & Crystal Rumer (23:09)

Absolutely.

Yes, so I would say LinkedIn, Crystal Rumer with our emails and I’m sure you can post this, but it’s going to be crystal@texassecurednotes.com and then it’s Rick@texassecurednotes.com And then we also like Zoom calls all the time. We like virtual. If you’re local, we do face to face quite often.

but then we also are very open about sharing our phone numbers as well. So we can give you that information too.

Michelle Kesil (23:52)

Perfect, appreciate your time and your story. Thank you for being here.

Rick & Crystal Rumer (23:56)

Yeah, well, thanks for having us. Thank you.

Michelle Kesil (23:58)

course.

For those tuning into the show, if you got value, make sure that you’ve subscribed. We’ve got more conversations with operators who are building real businesses and we will see you on the next episode.