What is your note buying strategy?

7 Replies

Looking to find out how many investors out there are buying notes. I have been working with notes for 5 years now and am interested in seeing the strategy that others use to buy them. 

Do you buy 1st position or 2nd position? Why is that your choice?

Do you stay local or buy all over the US?

What is your formula for note acquisition? In rehabbing, people use the MAO formula. Have you formulated something similar for Notes?

I buy first position notes from a company working with PMs and private owners in select geographical areas.

The notes are 5 yr interest only and interest rate can vary between 9-11%. There are higher return notes, but I feel they carry more risk. 

Awesome! Thanks for the reply! Do you set them up on a 5 year plan or are they structured that way when you purchase them?

@Alissa K.
I buy performing and non performing notes

1st position only
Buy in about 10 states
Setup boots on ground prior to buying in that state
Property values $30k- $200k
Will buy contract for Deeds
Goal on NPN is to get borrower on payment plan

I have had more success on the CFD’s for getting borrowers repaying than I have for notes.

@Chris Seveney

I've been using CFD and standard mortgages, not enough volume to draw true conclusions.

Thinking of using CFD conversion to mortgage at 2 years, like Ohio rule. Gives borrower a short term goal and a sense of security. Why do you think CFDs are paying better?

@Steve Hodgdon
I think with the CFD’s many may have lost a house prior and have bad credit and got into a CFD to rebuild their credit and homeownership so some take pride in it - also many have equity in them so they don’t want to let that go. Also I think many were poorly managed by prior owners/servicers

For my notes, the ones the ones that I have had to FC on are head scratchers. I have 3 that borrowers lived in house, completely ignored every call and foreclosure notice then when foreclosed upon thought it was some kind of joke and didn’t think someone would because prior servicers let them live for free for years. I feel note holders have more sense of entitlement because they have been able to live in the house for free for longer periods. With CFD and it being a forfeiture it’s much quicker to get them out and I think they realize it and they are paying such low monthly payments they cannot rent for that price

first position on NON owner occupied only.. rents 2 to 4X payments allows for dual repayment sources.. 1  rent and 2 owner of the rental.. we have done a little over 1500 of them in the last 5 years with less than 10 non pays. 

thats the kind of notes i like  8 to 10% return like clock work.. these are for the most conservative investor as an alternative to being a landlord.  3 to 7 year maturities  .

Kind of like turnkey for the note industry ..

we also do some very short term debt rates are higher but then you have to find another deal.

@Alissa K. For my IRA I like 1st position performing seller financed notes or CFDs - preferably on a partial purchase to lower the exposure.

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