Mortgage Note Investing
Member since 2020 · 39 posts · 5 votes
Mortgage Note Investing
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Lender · Tampa, FL · Member since 2020 · 202 posts · 116 votes
4y@Mike Colucci may I ask why you are interested in institutional notes?
For clarity, when you say institutional, do you mean consumer? Meaning you're interested in buying performing notes where the note is collateralized against a personal residence? If so there are several considerations you may want to consider...
#1: Depending on the state there may be licensing requirements. There are actually three types of licenses required in the note investing space. A lender's license, a broker's or loan originator's license and a "bankers" or servicers license. Each state has requirements and they can vary significantly. In some states, you are required to have a broker's lic but not a lender or a servicer lic. In some states, you may need a license long as the asset is a SFR while if the asset is commercial no license is required. In other states you need a lic, but not if the borrower is an entity (LLC or Corp for example). Knowing the lic. law is important. For your requested investment type you should look at a "bankers" lic or servicing lic. If you are investing in FL, you can service up to 10 loans secured to personal residences without a lic, but the law is very vague if that's at one time or over your entire investment time.
#2: Institutional loans are what we in the industry refer to bank or credit union loans. The problem with that is most banks/credit unions package their loans up and sell them on wall street as MBS or mortgage-backed securities. You cannot individually pick loans to invest in, you have to invest in the MBS as a whole.
#3: Especially in FL, should the performing note turn non-perfoming you would have to wait a VERY long time to foreclose and take the asset back, and that's if it's not contested. If the Homeowner hires an attorney you could be looking at years of litigation, which could very well eat away all your equity or assumed equity in the asset
#4: Speaking of equity, if you somehow do manage to purchase an institutional loan the amount of equity would be negligible, probably less than 20% maybe as low as 3%.
You should also be aware of your intended goals behind investing in notes. Is it cash-flow or is it with the hopes that your mortgagor will default and you will be able to get the property back at a discount and capture the equity? If it's an equity play then please refer to the concerns above. If it's cash flow then you may seriously consider investing or "originating" investment loans. Originating or creating the loan, specifically an investor loan offers several risk mitigation capabilities that are simply not available in the owner-occupied space.
#1: Originating investor loans, typically means you are lending to an investor, and savvy, experienced investors (like plenty found here on BP) buy properties and request loans for those properties using their LLC. In the eyes of the federal government and most states these types of loans are considered B2B or "commercial paper", and the rules are very relaxed. The assumption is you're a business making a loan to another business and therefore the owners are on the business owners to be sophisticated enough to determine the risk-to-reward of that obligation, your loan.
#2: In most states, there is no licensing requirement for making a loan to an entity, regardless of the asset type. This is NOT universal so you will have to do your own research.
#3: The ability to control risk yet generate a great return are phenomenal in this space, as most loans are interest only and short term. Meaning your capital is only exposed to the market for a very short period of time < 24 months, and the shorter the time the less risk you have to the housing market fluctuations. I typically make loans in the <12 month range and I'm very confident in my underwriting.
As to your question about brokers and working through brokers, you will have to be aware, very much aware, of the broker you may decide to work with. As @Chris Seveney pointed out a broker is NOT looking out for your best interest as the lender/ servicer. They are only pushing the deal to close because they will get paid points when it closes. If it doesn't close they get paid nothing. As a newer note investor you have to have the ability to sift through the BS and make your own determination on whether the deal is a good deal or not, ask me how I know .... smh.
At the end of the day there is an incredible world open to those who are willing to take up the task of studying and becoming a note investor/ private lender. Another option I recommend to any new note investor is to simply partner with an experienced lender and ask to participate in a fractional note. This is the way that I lend. Happy to have a conversation about some lessons learned and best practices if you would like. best wishes and much success.
41 Replies
- 4yDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votesSome of the best properties I purchased were properties I first financed. We financed a retail/warehouse in which the owner ran into some trouble the third or fourth month into our loan. Apparently, he mis estimated the amount he would have to either spend on tenant buildouts or the amount of free rent he’d have to give tenants if they did their own buildouts. While he had negotiated a great purchase price, he lacked the financial acumen to make the property truly profitable.
Quote from @Mike Colucci:
@Jay Hinrichs the whole reason I'm getting into notes is because I can't find any properties to buy with the money I have. I'd like to invest outside of my area, but I would rather do it with notes rather than owning the property and trying to sell it. I read a post somewhere on BP that partials are like note investing with "training wheels"; if that has any relevance, that may be the path I need to take. Thanks again.
we purchased 60% ownership from him, and as a result he was able to pay off $200,000 in credit card, personal loans, and family loans he incurred. Further, we provided $180,000 for further improvements, and restructured the leasing effort to have fewer, but more stable tenants in larger spaces. Finally, we refinanced the note we held at 12% interest with a bank mortgage at 4.25% for 20 years. We just had an offer at twice the price we paid, which we turned down.
I don’t know if you can find deals like this in todays market when looking for a property to buy; certainly not on the sites like Loopnet, etc. - Member since 2020 · 39 posts · 5 votes4y
Quote from @H. Jack Miller:
Gelt financial the only I founded is one of them.Quote from @Mike Colucci:
@H. Jack Miller that's great advice, but what are the companies you are referring to? I'd be happy to check them out. To be honest, I really don't know much about this; I thought note investing was just purchasing a note, doing your due diligence, finding a servicing company, and collecting the payments, with the hopes that the borrower doesn't stop paying.
@H. Jack Miller, thanks for the response, but I think before I jump into buying, I definitely need some education first, But I'll keep your company in mind.
- Member since 2020 · 39 posts · 5 votes4y
Quote from @Don Konipol:
Some of the best properties I purchased were properties I first financed. We financed a retail/warehouse in which the owner ran into some trouble the third or fourth month into our loan. Apparently, he mis estimated the amount he would have to either spend on tenant buildouts or the amount of free rent he’d have to give tenants if they did their own buildouts. While he had negotiated a great purchase price, he lacked the financial acumen to make the property truly profitable.Quote from @Mike Colucci:
@Jay Hinrichs the whole reason I'm getting into notes is because I can't find any properties to buy with the money I have. I'd like to invest outside of my area, but I would rather do it with notes rather than owning the property and trying to sell it. I read a post somewhere on BP that partials are like note investing with "training wheels"; if that has any relevance, that may be the path I need to take. Thanks again.
we purchased 60% ownership from him, and as a result he was able to pay off $200,000 in credit card, personal loans, and family loans he incurred. Further, we provided $180,000 for further improvements, and restructured the leasing effort to have fewer, but more stable tenants in larger spaces. Finally, we refinanced the note we held at 12% interest with a bank mortgage at 4.25% for 20 years. We just had an offer at twice the price we paid, which we turned down.
I don’t know if you can find deals like this in todays market when looking for a property to buy; certainly not on the sites like Loopnet, etc.@Don Konipol the type of property I was looking for was a condo that I could rehab and rent out; my funds are limited with what I can buy, especially here in South Florida.
- Member since 2020 · 39 posts · 5 votes4y
@Chris Seveney and @Kimberly Banks Fawcett thanks for your input guys. I wasn't committed to purchasing anything from him; actually his business seems to be more focused on the non-preforming side of note investing. I wanted to throw his name up here and see what more experienced investors had to say about him. I've been checking out some of the people recommended by Marco Bario above.
I think what I need is some kind of course that will show me the "nuts and bolts" of how to do note investing. Like how and where to buy notes, how to do the due diligence on them, how to run the numbers on them, & how to market your business to grow it etc.
It's great to read blog posts, books, and watch YouTube videos about how great note investing is, but once you've made the decision to jump in, a beginner like me needs some guidence or "training wheels" until I'm comfortable with the entire or, at least, most of the process. I've noticed Tracy Z and Fred Rewey of www.noteinvestor.com comes up in a lot of posts for cost effective basics training.
- Lender · Boca Raton, FL · Member since 2014 · 250 posts · 133 votes4y
Quote from @Mike Colucci:
Quote from @H. Jack Miller:
Gelt financial the only I founded is one of them.Quote from @Mike Colucci:
@H. Jack Miller that's great advice, but what are the companies you are referring to? I'd be happy to check them out. To be honest, I really don't know much about this; I thought note investing was just purchasing a note, doing your due diligence, finding a servicing company, and collecting the payments, with the hopes that the borrower doesn't stop paying.
@H. Jack Miller, thanks for the response, but I think before I jump into buying, I definitely need some education first, But I'll keep your company in mind.
Smart move, its to easy to loose money
- Rental Property Investor · Northern NJ · Member since 2019 · 672 posts · 677 votes4y
Quote from @Mike Colucci:
@Chris Seveney and @Kimberly Banks Fawcett thanks for your input guys. I wasn't committed to purchasing anything from him; actually his business seems to be more focused on the non-preforming side of note investing. I wanted to throw his name up here and see what more experienced investors had to say about him. I've been checking out some of the people recommended by Marco Bario above.
I think what I need is some kind of course that will show me the "nuts and bolts" of how to do note investing. Like how and where to buy notes, how to do the due diligence on them, how to run the numbers on them, & how to market your business to grow it etc.
It's great to read blog posts, books, and watch YouTube videos about how great note investing is, but once you've made the decision to jump in, a beginner like me needs some guidence or "training wheels" until I'm comfortable with the entire or, at least, most of the process. I've noticed Tracy Z and Fred Rewey of www.noteinvestor.com comes up in a lot of posts for cost effective basics training.
Look into Dan Deppen at Fusion Notes. I've heard good things about his course. He has a podcast I really like too called the Note Investor podcast. I believe he may be on BP too but cant tag him.
- Investor · NJ · Member since 2022 · 154 posts · 223 votes4y
Daphne Wilson is another to look into. Very thorough course that has helped my wife get started, but I believe she only does seconds. Shes clear on her reasons why and it makes sense. We will be looking to get into firsts eventually as well. Many ways to make money in this business. Keep all of us updated on what you end up doing.
- Investor · Orange County, CA · Member since 2014 · 19 posts · 44 votes4y
Quote from @Mike Colucci:
@Chris Seveney and @Kimberly Banks Fawcett thanks for your input guys. I wasn't committed to purchasing anything from him; actually his business seems to be more focused on the non-preforming side of note investing. I wanted to throw his name up here and see what more experienced investors had to say about him. I've been checking out some of the people recommended by Marco Bario above.
I think what I need is some kind of course that will show me the "nuts and bolts" of how to do note investing. Like how and where to buy notes, how to do the due diligence on them, how to run the numbers on them, & how to market your business to grow it etc.
It's great to read blog posts, books, and watch YouTube videos about how great note investing is, but once you've made the decision to jump in, a beginner like me needs some guidence or "training wheels" until I'm comfortable with the entire or, at least, most of the process. I've noticed Tracy Z and Fred Rewey of www.noteinvestor.com comes up in a lot of posts for cost effective basics training.
Always happy to help.
- Gilbert, AZ · Member since 2019 · 31 posts · 3 votes4y
Quote from @Jay Hinrichs:
Quote from @Mike Colucci:
Has anyone here done any kind of education or training with Scott Carson at We Close Notes .com? Any recommendations with that site?
@Chris Seveney I beleive Chris knows alot about Scott Carson.. and there are very long threads on this individual doing partials and investors getting wiped out and lawsuits filed and I think i read judgements being rendered against him..
try to find the threads on BP before you jump into that bath tub..
Any idea where that thread is? I was looking into buying partials or even seeing if there are opportunities to sell partials.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes4y
@Daniel Chun
Go to google and put in a name and the word BiggerPockets after the name.
7e investments53 Reviews - Member since 2020 · 39 posts · 5 votes4y
Quote from @Mark F.:
Quote from @Mike Colucci:
@Chris Seveney and @Kimberly Banks Fawcett thanks for your input guys. I wasn't committed to purchasing anything from him; actually his business seems to be more focused on the non-preforming side of note investing. I wanted to throw his name up here and see what more experienced investors had to say about him. I've been checking out some of the people recommended by Marco Bario above.
I think what I need is some kind of course that will show me the "nuts and bolts" of how to do note investing. Like how and where to buy notes, how to do the due diligence on them, how to run the numbers on them, & how to market your business to grow it etc.
It's great to read blog posts, books, and watch YouTube videos about how great note investing is, but once you've made the decision to jump in, a beginner like me needs some guidence or "training wheels" until I'm comfortable with the entire or, at least, most of the process. I've noticed Tracy Z and Fred Rewey of www.noteinvestor.com comes up in a lot of posts for cost effective basics training.
Look into Dan Deppen at Fusion Notes. I've heard good things about his course. He has a podcast I really like too called the Note Investor podcast. I believe he may be on BP too but cant tag him.
@Mark F. I haven't looked into his course yet, but his name is another that others on this site have recommended in other threads or me personally. I'll definitely be checking him out. Thanks.
- Member since 2020 · 39 posts · 5 votes4y
Quote from @Bernard Joseph S.:
Daphne Wilson is another to look into. Very thorough course that has helped my wife get started, but I believe she only does seconds. Shes clear on her reasons why and it makes sense. We will be looking to get into firsts eventually as well. Many ways to make money in this business. Keep all of us updated on what you end up doing.
Thanks @Bernard Joseph S.; I'll look her up.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes3y
@Mike Colucci
Who did you end up going with? Care to share experience ?
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