Real Estate Investing Basics

How to Get Started in Real Estate Notes: A Primer for Investor Newbies

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
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Recently, I wrote an article introducing those that aren’t familiar to the world of notes (“An Introduction to Investing in Notes: Why You Should ‘Be the Bank’"). And, as promised, I'd like to follow up on that topic by addressing a few commonly asked questions about note investing and discussing how you can be successful with or without quitting your full-time job or necessarily having to pay a high priced guru. Whether it's getting started with notes, or any other endeavor for that matter, I firmly believe there are three things that can help you to be successful:

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  1. Get educated in the space.
  2. Build relationships with others in the field.
  3. Find a mentor or coach (if you really want to accelerate things).

Do I Need to Pay a Guru to be Successful in Notes?

The short answer is no. But it also begs the question, how should I educate myself?

For me, I didn’t really pay a high priced guru to learn about delinquent second mortgages, but I think it was more of a function of the fact that no real gurus were teaching it.

Related: Real Estate Notes vs. 401k: Which Investment Wins Out Over 30 Years?

I was first introduced to notes at my REIA group where I learned about private money and hard money and attended some workshops from a few guru-like real estate professionals.

As for the delinquent second lien space, I was really taught the collection side of the distressed debt business by my note seller. And to be quite honest, I paid a lot more than a guru fee in expensive notes — and notes that were never delivered. That being said, it truly was a learn-by-doing business for us, and it probably took us much longer to learn the business back in ‘07 than it does for most people today with all the information available on the web. It also depends on the individual. Some folks are good at teaching themselves, and some are not and may need more prodding than others to take action. But there really is a ton of information available today.

Join Some Groups

The first place I’d start is to subscribe to the Tax Liens, Notes, Paper, & Cash Flows Discussion Forum on BiggerPockets. This is a great forum to ask questions and learn from others who are not only just starting out in the business, but there are also plenty of experienced note investors on the site. You could also join some online groups, too. For example, I run a Distressed Second Mortgages Group (DSMG) on LinkedIn, and many folks actually buy and sell their notes on this platform. There are many groups on Facebook, as well as many note and real estate groups organizing their events with Meetup.

Next, try to check out some of the note conventions, and be sure to ask others on BiggerPockets which events and programs they are going to and/or have liked.

Can I Invest in Notes While Working a Full-Time Job?

Unless you line up a trade between a note fund and a bank for a large commission, investing in notes is really not a get-rich-quick scheme. I’ll admit that you can make a nice living and find some great notes to invest in, but for me, the real fun started when the cash flow from my notes started to buy me more notes.

You can certainly be successful investing in notes part-time. I’ve been doing it for several years, and the reason it’s so easy to invest in performing (or re-performing) notes is because the servicer, who collects the borrower payments, really does the bulk of the work, including all the accounting and tax reporting.

As for non-performing notes, I had a full-time job and things were cool until I got up to about 25-30 notes (with no assistant). Keep in mind, I had some flexibility in my full-time job and could make phone calls and such if I needed to. After about 30 loans, you may start thinking about possibly going full-time.

Can I Invest in Notes With No Money?

It does take money to buy notes, but the short answer is no, you don’t really need any of your own money. If I really think about it, PPR was almost completely built with OPM (other people’s money), as we had very little capital when starting out. Other than the first couple notes my partners and I went in on just to see if we could do the business, the bulk of the money came from investor capital raised through private placements.

Related: Real Estate Notes vs. 401k: Which Investment Wins Out Over 30 Years?

As for many of my colleagues and friends, they’ve employed various strategies for launching their note businesses. My one friend ended up becoming a servicer himself. One girl joint ventured with investors in a first lien fund. One built his business by brokering. He would put deals together by grouping individual note buyer capital to make larger purchases from a note fund, and he would make either money, free notes, or just cheaper notes for himself. Another friend, who became super proficient at the workout with the borrowers, just assists others who have the capital and loans to execute efficiently on their deals.

So, whether you’re using notes to pay for your expenses or your buying notes for the long run in your self-directed retirement account, with a little education, research, and some networking with folks in the business, your note success is really just around the corner.

Have you added notes to your real estate portfolio? What questions do you have about this form of investing?

Leave your comments below!

Since 2007, Dave Van Horn has served as president and CEO of PPR Note Co., a $150MM+ company managing funds that buy, sell, and hold residential mortgages nat...
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    No Nonsense Landlord
    Replied over 5 years ago
    This is an area I need to learn more about. I have purchased my own notes (paid off a mortgage), and have bought notes to foreclose on, but never as an investment itself.
    Deshan Kennedy Real Estate Agent from Fredericksburg, VA
    Replied over 5 years ago
    How has the purchasing notes for foreclosure experience been for you?
    Eric D. Investor from Eagan, Minnesota
    Replied over 5 years ago
    I have only done two. one got redeemed and I received 10.5% interest and paid in full. The other I got the property for ~$205K which is worth almost $400K after quite a bit of work.
    No Nonsense Landlord
    Replied over 5 years ago
    This is an area I need to learn more about. I have purchased my own notes (paid off a mortgage), and have bought notes to foreclose on, but never as an investment itself. Reply Report comment
    John Van Uytven Property Manager from Oconee, IL
    Replied over 5 years ago
    Good Article, really enjoyed reading it. Looking forward to getting notes.
    Dave Van Horn Fund Manager from Berwyn, PA
    Replied over 5 years ago
    Thanks for the positive feedback John! If you ever want to discuss notes, just let me know.
    Christian Bors Real Estate Agent from Camp Hill, Pennsylvania
    Replied over 5 years ago
    Very curious about this niche. Sounds very interesting however, I need a lot more education. Nice article!
    Dave Van Horn Fund Manager from Berwyn, PA
    Replied over 5 years ago
    Hi Christian, Thanks for your comment! If you’re interested in more education, feel free to direct message me and I’ll provide some resources. Also, if you have any questions, feel free to ask. Best, Dave
    Jeffrey De LA Cruz from Vineland, New Jersey
    Replied over 5 years ago
    I want to now a how to get loans for down payment rehab and purchase any source that could help ?
    Dave Van Horn Fund Manager from Berwyn, PA
    Replied over 5 years ago
    Hi Jeffrey, Other than a bank construction loan, you could also try using hard money, private money, credit cards, or maybe even a seller assist and repair credit from the seller. Other options could be getting the seller to give you a second mortgage post-closing, or you could do a creative joint venture with the seller. I hope this info helps! Dave
    Leslie Hinterberger
    Replied over 5 years ago
    I need to learn more about what you do before I choose my niche. What resources do you recommend? Thanks!
    Thomas Chang Real Estate Agent from Aliso Viejo, CA
    Replied over 5 years ago
    Thanks for the information. Really looking forward to learning more about the note business.
    Joe Moore Rental Property Investor from Los Angeles, CA
    Replied about 5 years ago
    This is an avenue that I am to develop an interest in. Thanks for the article.
    Gene Ramirez Investor from Ventura, California
    Replied about 5 years ago
    Wow. Awesome article. Keep up the good work, your articles are full of great information. Thanks.
    Brenda A. from Woodland Hills, California
    Replied about 5 years ago
    Dave, I just read your very well written and precise and awesome article and I would definitely like to learn more about this niche. Can I start my Real Estate portfolio with notes or do I have to wait until I have some properties in my portfolio?
    Dave Van Horn Fund Manager from Berwyn, PA
    Replied almost 5 years ago
    Hi Brenda, Thanks for the kind words! To answer your question, it all depends on you the investor. It depends what you’re looking for. whether you’d prefer active work vs. passive, cash flow vs. appreciation, how much capital you have (or can raise) etc. Speaking from experience, I’m personally glad to have started with hard real estate because of the various tax advantages but at the same time I would have loved to have known about notes in the beginning of my career. Best, Dave
    Brenda A. from Woodland Hills, California
    Replied almost 5 years ago
    Thanks Dave for this great article on notes. I am taking your advice and starting to go to REI meetings and making friends in the groups. Your words are very encouraging and I am looking at ways to move immediately on your suggestions about using notes as an entry way into starting my RE investment business. I will also start reaching out to more people on Bigger pockets like you Dave. Thanks again!
    Brenda A. from Woodland Hills, California
    Replied almost 5 years ago
    I’ve gone to 2 different excellent REIA meetings in the 2 main LA areas I’m interested in doing business in and I think the connections I have made networking are the right people to help me get started, I will definitely keep Bigger Pockets informed about the progress I’m making.
    Tom Heidel from Bradenton, Florida
    Replied over 4 years ago
    Dave, Excellent article. I became aware of notes about 2 months ago while attending a REIA meeting in Sarasota. When it was first explained, it lost me and most everyone in the room. I’ve since dived in and have been giving myself an education on note investing. I’ve been reading your articles from your first and working towards your latest. I’ve found them very valuable. In May I am going to spend 3 days over a weekend to get the deep dive from an experienced note investor here in the Tampa area. I’ve set up the self-directed LLC’s for my wife and I and I’m ready to get started. I’m look forward to reading the rest of your posts. I’m certain I’ll run into you at a note event soon and I’ll buy you an adult beverage in exchange for the education you have provided through your posts. Thanks Much!!
    Dave Van Horn Fund Manager from Berwyn, PA
    Replied over 4 years ago
    Hi Tom, Thanks for the response, happy to see the articles can be of help to you. As part of your deep dive, if you’re interested, Private Message me and I can give you a free advance copy of my new Introduction to Note Investing E-book. It might be able to answer some of your questions and provide more in depth insight into the business. Best, Dave
    Rob Chamberlain Investor from Madison, Wisconsin
    Replied over 4 years ago
    Great article, I am interested in learning more!
    Ken C. from Winter Garden, Florida
    Replied over 3 years ago
    PS, Also Dave, I want to say THANK YOU very much for sharing your own personal life experience with notes, etc. As of to date, I am a complete novice to this particular RE niche and I’m really looking forward to getting more educated on the subject. Btw, are you by chance taking on any students to act as your understudy and become SUCCESS stories in the note arena? If so, where can I sign up? Yes. I am petitioning the expert himself to shorten the learning curve on the pathway to SUCCESS… I’ll look forward to your reply, Thank you kindly