Real Estate News & Commentary

What Skills Do You Need to Become a Rockstar Non-Performing Note Investor?

Expertise: Business Management, Mortgages & Creative Financing, Landlording & Rental Properties, Real Estate Investing Basics, Personal Finance, Real Estate Deal Analysis & Advice, Commercial Real Estate, Personal Development, Real Estate News & Commentary
228 Articles Written
Nonperforming Note Investing

From my incoming emails to Bigger Pockets forums, I see colleagues reach out to each other, mostly to ask,

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“Do you think this is a good deal?”

And although my initial response may seem static, it usually describes the various factors that can influence whether that specific deal (or any nonperforming note deal) will be a success, rather than the evaluation of that specific note buyer’s due diligence and purchase price.

Different types of loans fall into certain categories that are priced accordingly, but when it comes down to the actual outcome of the note, it’s a case-by-case basis.

For example, let’s say a real estate investor new to notes buys a non-performing second that is backed by equity and the senior lien is current.

There are two ways to exit this deal, either through an agreement with the homeowner or through the property. While the skills of an average real estate investor may apply when exiting through the property, what if the property drops in value and is no longer backed by equity? It takes the knowledge of the collection’s process and a certain set of skills to be capable of creating a more sustainable solution with the borrower.

I’m also asked, fairly often, “What do I need to do or know to get into notes?” I still do believe that it comes down to those three things to be successful:

  • a mentor,
  • networking, and
  • education.

That being said, there are some skill sets you may want to consider honing or developing, if you plan to manage your notes yourself (instead of using a servicer for collections and accounting).

What Skills Do You Need?

So, what skill sets does someone need in order to be successful at managing notes?

Unless you're an REO agent, who understands the various exit strategies for non-performing notes (especially short sales), I’m not so sure the skill sets of an asset manager of non-performing notes is quite the same as that of a typical real estate investor. Although it doesn’t hurt, I’m not convinced that you need a lending or real estate background either.

But, this could depend on the type of notes. Residential first mortgages are more similar, but with non-performing second mortgages, you see more of the collections’ side, especially when the note is backed by little or no equity.

Although both need similar skills, the real estate investor can always buy property through a real estate agent, so they don't necessarily need to make contact with homeowners.

Same with a first mortgage, if it isn’t paying, they can simply move on to another deal or just foreclose and exit through the property.

In second mortgages, if you own a non-performing deal you typically want to work on it and get it re-performing, either to keep it or to sell it.

So, the closest similarity would probably be the “we buy houses” business, since the emphasis is on making those appointments and conversations really count. It may be your only shot at creating a good, positive outcome.

So, here are some of the characteristics and skill sets most successful asset managers possess:

  1. building rapport (good listener)
  2. organization (using Customer Relationship Management (CRM) software),
  3. solving problems (creative),
  4. listening (detail oriented, attentive),
  5. communication (empathetic, compassionate, bilingual),
  6. interviewing (e.g. attorneys and vendors),
  7. persistence (follow-up, moving in all directions at once),
  8. phone and computer use,
  9. patience and persuasion.

Some of these are similar to skills required in other jobs, but some of the best asset managers have no real estate or lending background. Actually, our best asset managers worked in careers more similar to the broader public (teaching, sales, military, etc.), and they can build rapport in a New York minute.

Since our overall goal is to get the notes re-performing and keep people in their homes, we want our asset managers to be compassionate and capable of relating to the homeowner(s).

Let’s Talk Specifics…

For example, I’d take an individual, who’s fluent in a foreign language (e.g. Spanish), over a real estate broker or mortgage originator any day, because this person will relate more easily to a homeowner, whose first language isn’t English.

The ability to overcome the language barrier builds rapport quickly. We’ve also seen that people are more inclined to speak with someone if their warm personality carries through the phone. They may communicate more easily to an asset manager, who has a naturally gentle voice, as opposed to a rough or intimidating one.

If the asset manager is detail oriented and a good listener, he/she will be able to pinpoint the cause of the homeowner’s distress. If the asset manager is a creative problem solver, he/she will be able to offer fresh ideas to help the homeowner’s financial situation that maybe the homeowner hasn’t considered.

It’s a seat that requires a lot of skill to not only stay compliant, but to be creative enough to make things happen.

So, my best advice to someone starting out in distressed assets is that, first and foremost, it’s a “learn by doing business.”

If for some reason you find out that it’s not for you, you could possibly partner with someone who has these required skill sets. Or, another option would be to just invest in performing notes. At times, it is better to do what you do best and outsource anything else to those that will do those things better than you. That being said, there are many ways to improve or hone the skills I’ve mentioned.

Our asset managers, for example, take computer-based compliance training on FDCPA Essentials for Collectors. It may be helpful to study Fair Debt Collections to improve one’s level of compliance as well.

Our asset managers are required to role play, as well as record themselves, to improve their communication skills. During the training process, he/she sits in on other sessions to listen to more experienced asset managers communicate with homeowners. This is similar to having a mentor, who is showing him/her the collection’s side of the business.

There are other forms of education, which may help improve these skills, as well. Courses or tutorials are usually available online for any of the Note Management Software, Content Management Systems, or CRM Software you may be using.

Our Director of Borrower Management, who’s in charge of all our asset managers, ironically just took a class on negotiation. So, even if you have many of these skills already, it doesn’t hurt, when needed, to get back to the basics and refresh yourself.

Whether you’re getting started in notes or have been managing notes for some time now, are there any skills you need to work on?
Photo Credit: Scorpions and Centaurs

Since 2007, Dave Van Horn has served as president and CEO of PPR The Note Co., a holding company that manages several funds that buy, sell, and hold residential mortgages nationwide. Dave’s expertise is derived from over 30 years of residential and commercial real estate experience as a licensed Realtor, a real estate investor, and a fundraiser. As the latter, Dave has raised over $100 million in both notes and commercial real estate. In addition to his investments and role as CEO, Dave’s biggest passion is to teach others how to share, build, and preserve wealth. He authored Real Estate Note Investing, an introduction to the note investing business, helping investors enter the “other side” of the real estate business.

    Nathan Hearns
    Replied almost 6 years ago
    Dave, This is a really great post to read for someone who is new to real estate investing. I have been doing a lot of reading and information gathering on the Notes niche and really think that with my background in analytics and well as strategy planning that this might be an area I could do well to start in. Definitely going to take the tips and advice you offer here and do more education and start networking. Thanks, Nathan
    Dave Van Horn
    Replied almost 6 years ago
    Hi Nathan, Thanks for the positive feedback, I’m glad to hear you’re considering Notes! Analytics and Strategic Planning are certainly backgrounds that could help you in this business. Best of luck, Dave
    Eyan Lakhani Wholesaler from San Antonio, Texas
    Replied over 3 years ago
    Hi Dave, You contribution to BP Notes investing are so helpful and thorough.