Best return to date in note investing

12 Replies

Hi Guys,

My best deal so far in note investing has yielded a 275% return! This was a re-performing note that I then sold to a performing note investor. 

Love this business!

HI Nathan, I am curious how long ago you bought the note and how long you held it before selling.  What were the numbers?

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Always fascinated by the idea of notes. But I hear its incredibly tough right now to make the numbers work. Obviously not for you on this one though.

But when you "created" the loan for 26k, what was the discount to the borrower?
I'm assuming that when you bought the note for 5,500 it was non-performing and then you came up with terms for the borrower by lowering the principal and payment amounts so that they could be enticed to start paying again?

If so, I am curious as to how you got them to agree to the new loan terms. And/or what kind of discount they got from the original loan balance.

btw: Where do you buy your notes from?

@Franky Juwana I have used my SDIRA, cash and JV partners to purchase notes. What to look for in a nutshell, emotional equity, clean title, payment history ( when was the last payment) watch for taxes, is their actually a house on the land.... Condition of the home, area, employment rates of the area,, what is it near ( university, etc)

@Franky Juwana @Jay Raught Jay hit it on the head Franky. Being Canadian I don't have an IRA myself but I do work with investors who are using IRA funds to buy notes, otherwise it's a cash game.

For a non performing 1st lien it's important to do the research on the house since that is the protection of your investment. In many cases you will become the homeowner and need to be sure the value is there if you plan to resell. Taxes are the other thing to verify since that is the lien that takes precedent over you. There's more to it for sure but that's the basic idea.

@Mike H. This one is for sure a grand slam but even singles are double digit returns. 

In this case the property value was determined to be 27k by a local realtor so I took a 700 down payment and financed the rest at a 9% interest rate (highest I can charge in IL). The borrower has no idea what I paid for the note since that is not public record and I'm not about to share that info with them and this was a new note so there were no terms to restructure. 

I have had other loans where I reduced the time to pay and raised both the interest rate and monthly payment and they were happy to agree since to them the most important thing was to pay off the house quickly. It's always a negotiation with the borrower so it can vary quite a bit. 

As to where I buy notes from, I buy from hedge funds and note servicers. I'm an open book when it comes to note investing except the names of my suppliers since that took me years of networking and working in the business to earn a reputation as someone who closes deals.

@Franky Juwana they can be good, the short answer is it depends.

What are you looking for? Do you want long term payments coming in or are you looking for quicker turn around? Partials can be very good when you are dealing with seller financed notes but a hedge fund will only you the whole note. You do need to be pretty good with either a financial calculator or some kind of software to help you determine all the numbers in that kind of transaction so it's not usually for beginners.

Interesting that people would shy away from partials.  We actually sell them with a higher yield then when we sell the whole note because the discount is killing us in the out years.

Too,  whee buying a partial you still have 1st position lien but with a smaller investment so your ITV is improved.

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