BiggerPockets Podcast 028: Note Investing and Raising Private Money with Dave Van Horn

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On today’s episode of the BiggerPockets, we’re going to dive into an area of real estate investing that is largely unknown, yet can be one of the most passive forms of earning lucrative returns: note investing. Our guest today is Dave Van Horn, who has been actively investing in real estate for more than twenty years and currently runs a very successful note business, PPR Note Company. In addition to information on notes and passive income, Dave also has a ton of great tips for any investor looking to raise money for their real estate deals – so definitely don’t miss this valuable and informative show!

Read the transcript to episode 28 with Dave Van Horn here.

Listen to The Show on iTunes (Preferred Method!)

Click here to listen on iTunes.

Listen to the Podcast Here

In This Show, We Cover

BiggerPockets Podcast _ Real Estate Investing and Wealth Building 9.42.11 AM

  • How Dave used other people’s money to buy real estate
  • Attracting private lenders through proper networking
  • Dave’s beginning journey into note investing and “Soft-Hard Money”
  • Why people sell notes … for steep discounts.
  • Buying “delinquent mortgages” for incredibly low amounts
  • The kind of discounts you can get from second mortgages
  • Strategies for dealing with delinquent payments
  • Three ways to get started buying notes
  • How much you need to get started investing in notes
  • Unique ideas for raising capital and finding accredited investors
  • Staying out of trouble when dealing with accredited investors
  • The mistake that cost Dave’s company $10,000 when dealing with investors

Links from the Show

BiggerPockets YouTube Chanel
BP Podcast 026: Building a Scalable Real Estate Business and Tenant Management Tips with Chris Clothier
BREAKING NEWS: General Solicitation of Accredited Investors is Now Legal… Who are the Winners and Losers?
The BiggerPockets Forums
The BiggerPockets House Flipping Calculator

Books Mentioned in the Show

Missed Fortune 101 by Douglas Andrew
Mastering the Rockefeller Habits by Verne Harnish

Tweetable Topics

Keep your money moving… keep the velocity going. (Tweet This!)

How many deals could you do if you had an unlimited supply of money? (Tweet This!)

Start raising money with the people in your cell phone (Tweet This!)

Connect with Dave

Dave’s BiggerPockets Profile
Dave’s Company PPR Note Company

About Author

Thanks for checking out the BiggerPockets Real Estate Investing & Wealth Building Podcast. Hosts Joshua Dorkin & Brandon Turner strive to bring top-notch educational content and interviews to our listeners -- without the non-stop pitch prevalent around the industry. With over 180,000 listeners per show, the BiggerPockets Podcast has become the biggest real estate podcast in the world. But don’t take our word for it. We’re the top-rated and reviewed real estate show on iTunes — check it out, read the reviews on iTunes, and get busy listening and learning!


  1. Hi Sharon,

    Has to be your area it played fine for me.

    Dave that was an awesome podcast !

    Few questions:

    Many seconds people consider worthless as they are underwater. Say this scenario.

    A seller has a house that has two loans for 80/20. Originally sold for say 170k and now value is hanging in the market at 100k. First has 140k with back penalties and interest and second has 60,000 for total of 200k.

    Why would a note investor buy a second even for 4,000 in this case?? If the second forecloses they still have foreclosure costs plus the first position of 160,000 on a property worth 100,000.

    The second to keep the property would have to buy out the first of 160,000. So be in for around 170,000 on a house worth 100,000.

    A lot of properties severely underwater I do not see how you wouldn’t lose your short on buying a second. Maybe I am just missing it. What if the how owner filed BK and keeps tying up the property without making payments??

    Just trying to understand the worst case risks and how you would handle it.

    • My experience investing with 2nds, which is all I do. Most 2nd mortgage note investors like the 1st mortgage current. If a house is upside down and the homeowner is current on the 1st mortgage, we are betting on emotional equity. Emotional equity; is that the homeowner has been in the property for a while, they have all their ties to the house and area and they may have kids in school, They are emotionally attached to the property. I can get 8 out of 10 delinquent mortgages to re performing no matter what the equity is, as long as that 1st is current. Once I put legal pressure on the homeowner they will come out at sometime to address the 2nd, as long as the 1st is current. It may take 6 – 12 months to get a loan re performing, sometimes longer.

      Another thing to think about is that you are purchasing at such a discount, that you can really hook up a homeowner with a good deal, making a win win for every one. I’m also experiencing that a lot of homeowners are working on loan mods with the 1st mortgage when delinquent. I’m also experiencing 1st mortgage companies backing off of sales and not going through with them. 9 out of 10 of my exits are through the homeowner and not the house, and I start legal on all of my 2nds.

      There is opportunity all over the distressed 2nd mortgage space when the house is upside down. Go get it!!!!!!!!!!

  2. Joel,

    Good question!

    Firstly, there are multiple categories of 2nd mortgages and the scenario you described is the worst category. This is also the cheapest category, with assets like these typically selling for .5 to 1.5 cents (depending on a lot of factors). So the loan you described, would be sold typically for under $1000.

    Also keep in mind, when we’re buying a pool of loans we don’t focus on this category, we don’t really value it high at all, many times these types of assets are thrown in.

    There are 3 areas where you could make money in this category:

    1.) Where the homeowner asks you to do a short sale and they need the 2nd lien holder to sign off. We often average close to 10% of what’s owed. Our minimum that we usually receive is $2500 to $4500 to sign off on a short sale (For example, Bank of America will pay anywhere from $2500 to $8500 for a 2nd lien holder to sign off on a short sale). The note you described is typically purchased for under $1000 so already we’d be in the black!

    2.) The second way you could make money is where the 1st mortgage is reporting a false negative to the credit report because they are doing a loan modification on their 1st. So this means the homeowner has a source of income and they want to stay, so odds of getting a workout done on your 2nd mortgage is very favorable.

    3.) You could also foreclose from 2nd position and rent out the property, WITHOUT paying off the 1st mortgage because in MOST states you have reinstatement rights. You get a sheriff’s deed subject to the first mortgage, and you now have two options:
    – You can either rent out the property and not pay the first mortgage (and wait for the 1st mortgage to foreclose, which could take years in some states. Meaning you could collect the rent the whole time for a $100,000 property and the foreclosure doesn’t affect you since your name is not on the 1st mortgage).
    – You can reinstate the 1st mortgage and pay the 1st mortgage (especially if that’s cheaper than market rent) and then keep the property as a rental.

    4.) You could also offer a severely discounted payoff to the borrower. Meaning you could send them a letter stating that you would accept $5,000 or $10,000 instead of $60,000. Believe or not, many homeowners will do this.

    I hope this helps answer your questions, if you need any more elaboration please let me know.


    • Dave,
      -How do you start foreclosure from 2nd lien? Do you have to go through the same lengthy process that normal bank has to go through?
      – Does the eviction law goes into effect (+30 days notice) before you can get the tenant out? Can you use the “cash for keys” method?
      – If the property is foreclosed by the 1st lien, can’t evict the tenant quick enough to rent out the property, or the property is too damaged to rent for decent amount. What happen then if the property goes through foreclosure? Does the bank consider it’s a loss, and you get nothing?

      • Kevin,

        1.) Kevin, the foreclosure process is the same regardless of what position your lien is in. The length of the process depends on what state your note is located it. I’ve seen the timelines vary from 2 months to 3 years. There’s advantages and disadvantages to both sides of the spectrum.

        2.) They’re not a tenant since they own the property so it’s an ejectment process not an eviction process. Again, this varies from state to state. And yes, we could consider cash for keys to get the borrower to leave early.

        3.) If the 1st mortgage goes through foreclosure and I do nothing at the sale (like bid on the 1st mortgage) the 2nd is wiped.


  3. Thanks Bill and Dave for the responses.


    1. At some point with the market cycle turning positive will the strategy of buying seconds at a discount no longer be viable?? Meaning as values improve greatly less owners will default and that market with banks will dry up.

    2. Is there a benefit with your notes more of an advantage with states that are non-judicial and quick foreclosure process than ones with long judicial timelines taking sometimes a year to foreclose??

    I not only look at how much yield I will get but how long it will take to get that yield and how much work that is involved.

    3. How do you vet that the loan is a property that Is not thrashed and vacant or in a bad area?? I know when banks buy pools from other banks they do a random sampling of BPO’s to see what they are purchasing but do not do research on every single loan in the pool for value. If they did that the costs are too high.

    4. Have you ran into any debt forgiveness problems?? Meaning the owner whether residential or commercial you drop down the value of the property and recast the loan but the debt forgiveness gives them huge implications.

    Example a 50 unit apartment building is overleveraged. Original debt is 1,000,000 but bank will let it go for 400,000 as it is semi-performing. You approach the owners as the new note holder. You will not go after them for their personal or corp guarantee but agree to recast the loan for 750,000 and change the interest and amort. schedule. Now since you have forgiven them 250k they have a taxable phantom income event.

    How do you handle such situations and what do you tell the owners??

    Say for example you bought 100,000 with your cash of non-performing second notes on good properties. The notes had a total full loan balance of 1,100,000. What have you seen as returns in a years time off that investment??

    • 1.) Not likely, that’s like asking will 2nds ever go away. We learned the business in an up market. It is a supply and demand equation, it is also a time for money equation. So by that I mean, in the future if there is less supply prices will be higher but you’ll get out of your deals quicker.

      That’s a myth about banks drying up, there’s always delinquent debt. People die, get sick, they lose they’re job, they get divorced. Unfortunately these things happen and will continue to happen. The rate may fall back down but there’s always delinquent assets. 1ou could also venture into credit card debt attaching to a property (similar to.a 2nd). You could also work in a defaulted 1sts or commercial,etc..

      2.) We see no significant difference, we work both. Sometimes a quick state can work against you, especially when it comes to 2nds. For example, in Texas the 1st mortgage doesn’t have to notify you as the 2nd lien holder that they are foreclosing. If you do senior lien monitoring, it’s not an issue. All major banks do all 50 states because they’re diversified amongst every state and many borrowers and if you’re operating like us, you’re only foreclosing on less than 10%. So it’s a nit in our world. Now if you only have one note, sure it may prove difficult but the risk is really you not owning enough loans.

      BTW, nobody knows the outcome of a note without talking to the borrower.

      3.) How do I vet the note? We do O & E reports (Occupancy & Encumbrance), but mainly on 1sts. We typically buy 1 to 4 family, owner occupied, single family dwelling loans. We don’t focus on speculative vacation areas and the like.

      4.) The bank or servicer who sells us the discounted loan takes the initial write down. PPR does not 1099 the borrower so their are no tax issues.

  4. Jason Nunemaker on

    Great podcast Dave! My favorite one to date, very exciting concepts and strategies. My question is; out of the notes that do go to trustee/sheriff sale, what percentage are sold to third party investors and how many come back to you?

  5. What website does Dave use (besides his own) to buy and manage notes? The one he mentioned that’s hands off, that his 80 yo grandmother uses? or can anyone provide a recommendation?

    Great podcast guys.

      • Morris Lucas on

        Hi Dave, i was wondering, have your ever ventured into buying other “debt” besides mortgages that is secured by a property? For example, when i browse tax sale notices, I frequently see banks, credit unions, repair/landscape companies, bail bond services, etc on the list of of addresses or debtors who may have interest in the property about to be sold.
        Is there any strategy in buying these type of debts that you know of? i would imagine the cost to purchase this type of debt would be much lower than purchasing a mortgage note.

        • Morris,

          Yes, in the past I have considered investing tax liens, but the returns were lower than mortgage investing and I had more capital to deploy then there was product. Other than that, I think tax lien investing is a very viable option.

          You may also want to look into Lending Club (or sites like it) to invest in unsecured debt. You can invest with as little as $25! And with diversification you can really minimize the risks that come along with unsecured investing. In fact, I’m going to be doing my next article on my personal experience with it.

          Best of luck,

  6. Hi Dave,

    A lady named Kim called me from PPR on Friday to answer my questions and gave me 877-395-1920 to call back. It was the weekend so I called back today.

    I hit operator, sales, and customer service and nobody is picking up just voice mail. I do not know Kim’s extension as she did not give me that in the voice mail.

    The voice mail when you call in does not say PPR but consolidated etc. so I am confused why there is a different name.

    I am on Eastern time and it’s about 4:50 here. What time do you close for the day??


    • Hi Dave,

      Maybe I will have better luck calling earlier in the day.

      2 questions:

      1. What happens when debt goes from secured to unsecured?? Say I buy a 100k lien for 8,000 on a second and the home owner is getting foreclosed on by the first mortgage.

      I do not want to bid on the first because the value is say 150 on the house and the first at auction is starting bid at 130k. The property forecloses and my second lien is wiped out.

      I have heard of debt collections companies buying the unsecured debt and going after the borrowers from foreclosure. Many believe the mortgages go away when getting foreclosed on but just the line interest does.

      So in that case could I easily sell my 10k debt for say 14k to a collection company being unsecured on the 100k balance and get my money back plus a little profit??

      2. Say I buy a second and it gets performing again at 50,000 lien I buy for 5,000. I have monthly payments at 10% interest for a total of 5,000 a year. There are 20 years left on the loan when I buy and 5 years in with 15 years left I no longer want to own the loan. As time goes on the value of the loan is less as the 500 payment today isn’t worth as much as it was 10 years ago. Say the market has recovered and ltv for the property is enough to now cover the first and the second. Could I sell my lien then for say 25k or 30k and get my money out then??

      I just do not want a bunch of my money trapped for a very long period of time. If I want to make something liquid I like to have the option.


      • 1.) When debt goes from secured to unsecured, you can only collect on the note (not the mortgage). Typically we don’t work unsecured notes, we usually sell our unsecured notes to collections attorneys. They’re priced accordingly and most trade for basis points.

        The loan is priced according to senior lien status, and you will know the status before purchasing. That loan in your example would probably sell for less than $1500, so you wouldn’t likely be able to sell it for 14K.

        In our world we usually don’t buy notes that are unsecured because that’s not our business model. Sometimes they may get lumped in when purchasing a large trade but we don’t sell them to our note buyers.

        2.) Joel, not quite sure I understand this question. You would be collecting P&I (principal and interests) payments and in your example you would’ve received your principal back in the first year. After that point you would essentially be making an infinite rate of return for the next 30 years (or for however long you and the homeowner scheduled the workout for).

        It also needs to be said that before we modify a loan we would get some form of arrears so that would account into our profits as well taking some risk off the table.

        Notes are also very liquid, so you could always sell the loan at any time, although it’s always nice to buy a loan that has been seasoned (we usually hold loans for at least 6-9 months prior to selling them, that’s just our rule of thumb). You could also sell a partial or a collateral assignment at any time as well.

        – Dave

        • Hi Dave,

          Thanks for responding.

          I signed up and did talk to Kim.

          A few things I learned. The buying the note your buy price isn’t secured if you are buying NPN. PPR according to Kim only guarantees your original note purchase price with another note if you are bidding on an existing performing note.

          Also if I buy a non-performing note I get no support from PPR unless in a mentorship program costing thousands of dollars. So not only do I not get a blueprint of how to make the note start performing my capital outlay is at risk with NPN.

          I am just starting to look through the examples now and docs. On some I am seeing principal reduced considerably and the interest rate is chopped down to 5% from around 9% on a second. I realize you have to get the borrower excited to reengage the loan. I am just not sure that kind of return excites me.

          Say out of every 10 loans that are NPN that ppr buys that are seconds how many in the first 2 years on average refi out or short sale etc. to pay off the lien?? I am wanting to get an idea of how often kickers come into play versus just getting the income stream. For example is it 1 out of every 10 loans or 3 out of 10 etc.??

          Even if you do not want the mentorship program when PPR sells a note they should give the buyers a .pdf guide or something of how they work so the buyer can then have something to go by to increase chances of success with working out the loan. Maybe I misunderstood what Kim was saying.

          If PPR just guarantees performing notes for a trade if they default those notes have to be bought at a much higher value marker than NPN.

          I am just concerned if I buy a second and the borrower says I do not care take a hike then I have to buy out the first or as you say if I sell off the debt I get hardly nothing from a collection company as unsecured after FC.

          So If I bought a npn second for 100,000 at 10,000 and it foreclosed I would have legal fees and maybe get 2,000 for the non-secured note to a collection agency. I would end up taking about a 9,000 loss in that case.

          I know you mentioned in your series “emotional equity” meaning the borrower does not want to move and will therefore want to workout the second if the first is current.

          Dave how do you handle situations when you buy a loan that says owner occupant BUT you find out that they rented the place to a tenant or have vacated the place?? I know lenders send notices to last address on file and then angry tenants get the foreclosure notice because the bank thinks the owners are still living there.

          Looking at the docs FCI handles the servicing correct of the loan for PPR?? I guess what I am getting at is if I have to buy a note at a discount and engage the borrower and do workouts to get my loan dropped to a 5% rate it seems that is a ton of work for a low return. Now if a servicing company did a bunch of that stuff it might be better for a reasonable price. I think you mentioned something about 15 dollars a month etc.

          I want to make investments but I have to look at time allocation and return. if I take a commercial listing to sell and make 5 to 6 figures on commission then I do not want to spend hours and hours doing a workout with a borrower and tracking them down to get a loan performing again paying out 5%. This is why I do not flip houses as I do not want another job for the return. I am just trying to get the most yield and upside possible without creating another job for myself.

          I am not saying anything positive or negative about PPR just posting my journey of what I have learned as I understand it so everyone else can read along.


  7. Richard Forrester on

    This show really changed my mine about the entire real estate investment sector. I had already had decided to do fix/flip and buy/hold. Due to my situation and upcoming events, notes seems to be a very great way to build capital, diversify and, spread risk.

    Listening to you guys has really helped – as I work overseas, I can’t really start yet. However, I have my bank on line, and you all are a great education resource.


  8. Dave Van Horn


    Wow, there’s a lot to answer here so I’ll try to do my best. Many of these questions I answered initially in the podcast.

    – We at PPR only sell secured performing and non-performing notes. If you were to purchase a Performing Note from us, we do rep and warrant your initial investment principle. If you purchase a Non-Performing Note from us, we warrant that it’s a valid lien and whether or not it is in 1st or 2nd position.

    – And you’re absolutely correct about our NPN guidance, but keep in mind that there aren’t many NPN sellers and funds that offer ANY support whatsoever. One of the reasons we don’t include a pdf form with our NPN notes is that we expect our buyers to have some knowledge of how to work Non-Performing notes before they but them. And to be completely honest, the collections side of the NPN business is very involved and takes a considerable amount of time to learn. So in other words, no pdf could cover what you need to know to work non-performing notes. Our internal training for our asset managers takes several months, so please keep those points in mind. I wouldn’t want ANYONE buying notes from us who had no idea what they were doing, not only is that bad for business (why would they buy from us again?) but I would hate to see an investor lose their money.

    – The 5% you’re referring to is NOT the investor’s rate of return, it’s the interest rate on the borrower’s workout agreement in that example. The note you’re purchasing is bought at a discount, giving you a much higher rate of return than the borrower’s interest rate. And if the borrower pays early or cashes out, that’s where kickers come into play. Also, the interest rate reduction of 9% to 5% you see is determined by how much arrears is paid by the borrower. If they pay more in arrears, the interest rate usually decreases.

    We also have no way of knowing that answer about the amount of kickers. Unfortunately we don’t know those stats because we’re a velocity model, we usually exit our loans within 6 to 8 months. Common sense would tell me that not too many people are refinancing in the current market so that amount would most likely be minimal.

    (I would also like to point out that you do NOT have to buyout the 1st mortgage because most states have reinstatement rights. It’s extremely rare that we would payoff a 1st, reinstate a 1st, or even make a payment on a 1st)

    – In your example of the NPN 2nd that’s foreclosed on by the 1st mortgage, if you allowed it to get to that point you would lose your money. The category of 2nds that get foreclosed on by the 1st are THE CHEAPEST category. But the point I tried to stress in the podcast is that there are many strategies to avoid getting foreclosed on by the 1st mortgage and 2nd mortgages are very affordable compared to 1st mortgages. Meaning for the price to get one 1st mortgage I could get up to eight or ten 2nd mortgages. So in your example that would be one you get wiped on, but keep in mind you often buy NPN in bulk so as not to put all your eggs in one basket.

    – We usually have a few techniques to ask the tenant to contact the homeowner – which in turn leads them to call us. If they don’t, we just initiate foreclosure and wait for them to come to us. And if it’s vacant, that is one of the risks you run when you purchase a NPN 2nd mortgage. But if like us you buy only Current on the 1st mortgage you can assume that the borrower is either in the property or still has invested interest in the property.

    -We primarily use FCI for our re-performing notes. FCI charges $15/month to service performing notes (which covers accounting, record keeping, monthly statements, 1098’s – both to the borrow and to you, sending out late notices, etc). Although PPR doesn’t provide this service, you can also buy NPNs and have a specialty servicer work the notes for you.

    – If you’re making 5 or 6 figures, why personally work non-performing notes? For high income earners, it may not make sense to personally work non-performing assets (especially on a one off basis), but as a business it has been very good to me. It may make more sense getting involved in notes in a more passive way like by buying re-performing notes or placing NPNs with a servicer.

    Hope I could answer your questions Joel.


  9. Dave,

    Thank you for sharing so much good stuff although much of it is way over my head. I first read your article on P2P lending and followed the link to the podcast! Both excellent & opened my eyes to different areas of investing. Also great questions from Joel Owens.

    Question: at what price point would you say a small investor start investing in the type of notes that your company sells? Would it make sense to buy one re-performing note @10-15k or wait until you can buy many notes in order to diversify & reduce risk?

    Also, your last response states “we expect our buyers to have some knowledge of how to work Non-Performing notes before they but them”. Does that apply to buyers of the re-performing loans?

    Final question: can you please clarify PPR’s guarantee with an example. Joel’s statement about “…your buy price isn’t secured if you are buying NPN. PPR according to Kim only guarantees your original note purchase price with another note if you are bidding on an existing performing note” is confusing.


    • Emma,

      Thanks for listening/reading!

      As far as your first question goes, 10-15K is good enough to get started with re-performing because our re-performing notes are covered by a warranty so diversification isn’t really an issue.

      And no, have knowledge prior to buying re-performing notes doesn’t necessarily apply to these types of notes, but we do have a re-performing workshop if you’re interested in learning more about them.

      The spirit for the warranty for re-performers is to protect your initial investment principle. So for example, if you bought a re-performing mortgage for $15,000 and you collected 2,000 and you’re loan re-defaulted and we couldn’t get it re-performing in a short period of time, you would get a note credit or refund for $13,000. On a NPN, we only rep and warrant that the lien is in 2nd position and that it’s a valid lien. We also won’t sell a note unless we have all collateral in house.

      Please let me know if you have any more questions!


  10. Thank you all for a great show. I learned a lot and am intrigued by this other aspect of real estate.

    Dave, I would appreciate it If you could elaborate a little on how to hold notes (in person, through an entity, and which) from asset protection, liability, business, and tax points of view.

    Many thanks! Uri

    • Uri,

      Interesting question, I own notes in all the ways you listed.

      Even though I own a few notes without using either, most of the notes I personally hold are in an LLC or in my IRA account. They’re serviced by a company called FCI (

      In my opinion, if you’re going to do it long term and as a business, an LLC is the way to go. It’s a form of asset protection (just like it would for owning properties), gives you anonymity and a more professional image seen by the borrower. I also think there isn’t too much liability when holding notes, especially compared to owning Real Estate.

      As far as tax advantages go, there aren’t any when holding notes in an LLC because it’s a pass through. And in an IRA, the tax advantages are the same regardless of what the IRA owns (tax-free or tax-deferred).

      Thanks for listening!


  11. Loved this episode.

    Regarding accredited investors, do you have to be accredited to actually buy a note? Or is that just in reference to pooling money to buy a large package of notes?

  12. Dave,
    Thanks for all the free information. The podcast was GREAT!!!

    When pooling money from investors to buy notes, what rate of return should the investor expect to earn and what would be a fair rate that I should expect.

    Thanks again,

  13. Dave,
    Your podcast was extremely informative and helpful in shedding some light on an interesting facet of investing. Is there a book that you would recommend for a new, passive (at least right now), investor exploring notes as a long-term strategy for building capital and retirement savings which will be a good starting point for my education on investing in notes?

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