How to Define Systems & Build a Team When Investing in Real Estate Notes

How to Define Systems & Build a Team When Investing in Real Estate Notes

3 min read
Dave Van Horn

Dave Van Horn is a veteran real estate investor and CEO of PPR Note Co., a $150MM+ company managing 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, real estate investor, and private lender.

Beginning his career in construction and as a Realtor, Dave bought his first investment property in 1989. After years of managing his own construction business, Dave became a full-time real estate investor, specializing in fix and flips, buy and holds, and eventually commercial projects, before moving into note investing in 2007.

Over the past decade, Dave has also invested his time into becoming a connector and educator, who helps others achieve success. He focuses jointly on helping accredited investors build and preserve wealth with his group Strategic Investor Alliance and with general audiences through the annual MidAtlantic Real Estate Investor Summit.

Dave has also shared his strategies and experiences with real estate and note investing via hundreds of articles published on the BiggerPockets Blog and with his acclaimed book Real Estate Note Investing.

Dave has been featured on the BiggerPockets Podcast twice (shows 28 and 273), as well as episodes of familiar podcasts, including Joe Fairless’ Best Ever Show, Invest Like a Boss, Cashflow Ninja, and many others. He also has been a guest of Herb Cohen’s on Executive Leaders Radio, which airs nationwide.

Dave is a licensed Realtor with eXp Realty with CRS and GRI designations.

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It seems like it was just yesterday when I started out as a note investor. In the beginning, I was mostly investing in real estate rental properties, and I was first introduced to notes on the private money and hard money side.

Since my income from real estate sales started to plummet in the last downturn, part of my strategy towards investing in distressed notes was to find a new source of income. So initially I didn’t have much of a process or system figured out for note investing.

Fast forward a few years, my partners and I, as well as all of our employees, have a working system in place for our growing note business. That being said, our processes are something that we continually work to further develop and streamline.

Related: Diversifying into Real Estate Notes? Better Choose a Strategy! Here’s How.

But whether you’re looking to note investing as an opportunity for passive income or as a more involved, active endeavor, having a system in place can improve the entire experience. Looking back, I wish that we had known this sooner, as being more proactive may have saved us time or even some opportunity cost.

So, if you’re currently learning more about notes or you’re getting started in the note business, here are some tips for building out a system for efficiently investing in real estate notes.

Starting Out

When my partners and I gathered up some capital and bought our first few non-performing notes, we had no clue what we were doing, but we were willing, and we proceeded to learn how to manage and collect on the assets. The bulk of this at the time was through trial and error.

Now, even though there’s a certain point when you just have to take action, there is definitely more note education available today for those who are just starting out (see recent article, “The Top 5 Resources to Educate Yourself on Real Estate Note Investing”).

Other than ourselves, we didn’t really have a team in place, let alone a process. When you’re just getting started, maybe your team is just you. Maybe you’re the one wearing all of the hats. But once you figure out what you’re good at and more importantly what you enjoy doing, then you can focus on that. The good news is you can outsource just about every part of the business. So for us, it’s helpful to consider which tasks are better outsourced and which should be kept internally.

Developing a Team

Once you know your goals with note investing and your strategy (see recent article, “Diversifying into Real Estate Notes? Better Choose a Strategy! Here’s How.”), it becomes easier to know what players you’ll need on your team. For example, if you’re investing in non-performing notes to rehab them, what you need may be different than if you’re investing in performing notes for passive income.

With performing notes, your team doesn’t need to be that big. In fact, the largest component is having a licensed, compliant servicer to handle anything from payment processing and accounting to sending letters to the borrower for you, as well as specialty servicing options in the event of default if you should ever need it. With non-performing notes, depending on your model, you may need to add a few more team members.

As you own more notes with various situations and circumstances, you’ll quickly see the need arise for many other third-party vendors to join your team. A potential short list of possible team members besides attorneys could include due diligence vendors, such as BPO (broker price opinion) vendors, credit report suppliers, property preservation companies, encumbrance and lien report sources, door knock services, software vendors, and compliant loan servicers. You may also need website developers, virtual assistants, various consultants, and REO agents, just to name a few.

Defining Processes

As you grow in activity and size, not only in outsourcing but internally as well, you’ll quickly see the need for more systems and processes. If you really think about it, all of your processes begin with you. They’re in your head, but until you get them on paper, and hopefully later into your database or software, it’s hard to gain any kind of efficiencies.

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

Recently, I took the time to just to write out everything that I do on a day-to-day basis. By mapping out my workflow, as well as my department’s, it made it more clear what needed to be delegated or outsourced and what needed to be of higher or lower priority.

Some of you out there on BiggerPockets may already have experience creating processes and developing a team for your real estate business, so this may sound very familiar. Also, similar to real estate investing, what your model is and how far you go with it is really up to you.

Your note investing can really grow as far as you want to take it, whether you just want to accumulate notes for yourself or form a larger enterprise. The good news is you can always tweak the processes and systems to fit your future plans.

Where are you in your note investing journey?

Leave your comments and questions below!