Why is there no alternative to Paperstac?

[Jeff Costa]

Brett Burky's contributions to Paperstac and the educational content he produces are are unquestionably valuable. That said, it's surprising to see a lack of diverse competition in this space. In the real estate SFH market, we observed multiple platforms like Zillow, Redfin, Realtor, Trulia, and Movoto - each offering unique user interfaces, features, and experiences.

So why doesn't the note investing market have similar variety? Where are the competitors offering different UI experiences, third-party API integrations, mobile apps, and other innovations? It's puzzling that this market appears to support only a single dominant player. 

Any thoughts?

[Jay Hinrichs]

market is too small and its all cash and carry basically.  its a who ya know industry from what I see.

[Chris Seveney]

@Jeff Costa

There are other players in the space, most are institutional and don’t handle the individual investor. I could rattle off 10 off top my head but know there are more.

The reason they don’t handle smaller investor being is the note space is not big enough.

There are a lot of people who say they buy notes but I never see them buying or selling a loan…

[Jeff Costa]

Thanks @Chris Seveney and @Jay Hinrichs. To summarize:

The note investment market is a niche, relationship-driven industry with limited overall size. Its "cash and carry" nature and reliance on personal connections create significant barriers to entry, especially for individual investors or newcomers. This structure explains why institutional players dominate - they likely have the capital, connections, and infrastructure to operate effectively in such an environment. The small market size and relationship-based transactions make it difficult for new or smaller players to participate, which aligns with the earlier observation about the lack of services for individual investors.

Overall, this market seems to present challenges for growth or democratization, as its current structure favors established, well-connected players with significant capital. Any attempt to expand or change this market would likely need to address these structural characteristics. 

Put differently, it feels ripe for disruption. 

[Jay Hinrichs]

Quote from @Jeff Costa:

Thanks @Chris Seveney and @Jay Hinrichs. To summarize:

The note investment market is a niche, relationship-driven industry with limited overall size. Its "cash and carry" nature and reliance on personal connections create significant barriers to entry, especially for individual investors or newcomers. This structure explains why institutional players dominate - they likely have the capital, connections, and infrastructure to operate effectively in such an environment. The small market size and relationship-based transactions make it difficult for new or smaller players to participate, which aligns with the earlier observation about the lack of services for individual investors.

Overall, this market seems to present challenges for growth or democratization, as its current structure favors established, well-connected players with significant capital. Any attempt to expand or change this market would likely need to address these structural characteristics. 

Put differently, it feels ripe for disruption. 

well when you compare to what 90% of investors at least on this site do is buy rental houses or apartments.. NOtes are much more complicated with a lot of regulatory issues etc that buying RE simply does not have.

[Lauren Sanford]

@Jeff Costa we are amazed ourselves.  We do our best as we have a podcast and Live Show on different areas of the Note Space.  However when it comes to the market place the tech is lacking. Most note investors are looking for quick data sheet to run numbers rather than a pretty UI.  

We built out a Diligence tool that grabs data from multiple sources ( Paid and non-paid), aggregated together to give us data on multiple properties in that matter of minutes.  This all comes back to a data sheet to help us run our numbers. 

[Jamie Bateman]

@Jeff Costa Zillow makes $ from outside RE agents and REDFIN is a RE brokerage (with its own agents). These listing sites don't make $ just by being listing sites. As others have mentioned, the note-investing industry is too small to support numerous listing sites that can be profitable from simply transaction-based revenue. The smaller note buyer ans sellers just don't create enough demand. And as a seller, I prefer to work with people I have sold to before. So I don't always need or want the middleman. 

Unless there exists some alternative revenue source for a Paperstac-like platform to profit from (beyond transactions) or some amazing value proposition not already provided by Paperstac, it's hard to envision a similar site for smaller players doing well. 

[Scott Trench]

Didn’t peerstreet offer this until recently?

[Jeff Costa]

@Jamie Bateman I agree that a listing-only alternative is likely insufficient. Zillow itself is diversified across multiple revenue streams (Zillow Premier Agent, Zillow Rentals, Zillow Home Loans, and data APIs). A competitor would have to take transaction fees (as Paperstac is doing today), but could also find revenue streams in aggregating and selling anonymized market data to institutional investors or researchers. Or offering personalized consulting, deal analysis, or portfolio review for an additional fee (as others are doing today).

Your comment makes me wonder if we have a "chicken and egg" problem in the note-investing market. We are assuming the market size is inherently small and fixed. However, the market's current size could be a result of limited accessibility, rather than limited interest or potential. Lack of user-friendly platforms to facilitate transactions could be artificially constraining the market. In many industries, the introduction of accessible platforms has led to market expansion by lowering barriers to entry. For example, stock trading became more widespread with the advent of online brokerages.

It might also be possible to attract new participants who were previously unaware of (or intimidated by) note investing. If you make transactions easier, there is potential to increase volume by providing better information and transparency, making the market more attractive.

It makes me wonder if we have a self-fulfilling prophecy here. The belief that the market is too small could be preventing investment in the very infrastructure that could help it grow. Your thoughts?

[Don Konipol]

Quote from @Scott Trench:

Didn’t peerstreet offer this until recently?

 Kinda.  Peerstreet’s problems were an example of why so many companies have failed in the real estate crowdfunding space.  When dealing in and trying to quantify the value of notes that are outside the “cookie cutter” Fannie/Freddie parameters it takes an experienced and knowledgeable underwriter with experience in just this area.  Peerstreet was run at the C level by techs - not finance people.  They hired relatively inexperienced finance people to handle what they did NOT understand was the most important part of their business.  They thought their business was a technology business with a financial component, not understanding that it was a financial enterprise utilizing a technology platform. 
As I had previously mentioned. I was paid a rather large sum to “teach” Peerstreet finance people commercial loan evaluation and investment. While I never before or since accepted any like offer, the amount I was paid for minimal time was too good to pass up. Bottom line was that the specific loan I set up - evaluated - for them I told them the risks and that they should lend no more than $3 million.  I set the loan up for this amount, and was SHOCKED to be informed that Peerstreet geniuses had determined that they should make the loan for $4.8 million, not $3 million.  Since the borrower had already signed on for $3 million, this was not an increase to make a deal happen, simply Peerstreet personal operating without any understanding of the loan industry and having no intent to listen to the consultant they hired and paid for.

Anyway, Peerstreet made the $4.8 million loan, less than one year later it was in default.  At $3 million the borrower probably could have continued making payments, but the additional monthly carry was beyond their capacity to service. Further, at $3 million the borrower probably could have refinanced and paid off Peerstreet, but nobody was interested in making a new $5 million loan.  So Peerstreet ended up foreclosing, and ultimately netted about $3 million on the subsequent property disposition. 

[Jamie Bateman]

@Scott Trench you could never trade individual loans via PeerStreet, to the best of my knowledge. 

[Chris Seveney]

@Jeff Costa

MIAC, Mission Capital, Rams asset management all have huge portfolios they sell and provide tons of reporting on all aspects of the market.

Last week we had over $1B come across our desk

The challenge to disrupt is the space is more about not only who you know but who you trust.

Many of these companies have been around for a while and if the buyer pays the commission, the institutions that use them and have had large trades go through with them - why would they switch to someone else when it doesn’t cost them a penny

[Phi Tran]

we made something like this.. its in a spreadsheet. hah!

[Marco Bario]

I've spent several years developing skills and tools to be successful in a very niche space.

I usually work with mom-and-pop sellers who have originated just one seller carry in their lifetime and, when they connect with me, have never sold a note. 

Online platforms aren't a good fit for them.