How Do You Vet a Note Before Buying?

Question

For those who invest in notes, what’s your go-to checklist before closing a deal?
I’ve been looking into ways to better evaluate borrower history and collateral value.
Would love to hear what’s been working for you.

Denise Supplee · Answer

With notes, due diligence really makes or breaks the deal. I like to confirm the borrower’s payment history, verify property value with a recent BPO or appraisal, and make sure the lien and title are clear. I also look closely at the note’s seasoning, loan-to-value, and whether the yield justifies the risk. In our co-investing club, we’ve found that having a clear exit plan whether to hold for income or sell the note - helps guide how much risk and discount make sense going in.

G. Brian Davis · Answer

Hi @Barbara Johannsen, I’ve learned a lot about this through a co-investing club I’m part of, we review investments together and share insights, which has really helped me refine my approach. I typically focus on three main areas: checking the borrower’s payment history, assessing the collateral’s current market value, and running the numbers to make sure the note offers a solid return after all costs. I also make sure to look for any liens or legal issues on the property.