Good Book on Investing in Notes

10 Replies

Hi All,

Can ya recommend a good book to learn about investing in performing and non-performing notes?

Thanks in Advance,

Danny Cruz

Sorry, there isn't one that's up to date, I'm working on it. LOL

Ask questions at this point, hopefully you'll do some reading here and ask specifics, not so much, "how do I" . :)

Thanks Bill. I'll be sure to ask questions here then.

Profit by Investing in Real Estate Tax Liens by Larry B. Loftis covers liens and deeds pretty extensively. It teaches you about notes and positions and all that jazz. Maybe it's not exactly what you're looking for, but it may have nuggets of wisdom.

Brokering privately held notes was my entry into real estate many years ago and I've always loved this area of real estate.

Check out notetools.com they have a number of great books on the subject. Also, papersourceonline.com, noteschool.com & papergame.com which has a lot of articles written by John Behle.

Jon, I have no idea why I got a mention from you, I don't see you using the feature at all. :)

Since I'm back....

Priority of liens is a matter of law in each state, there are generalities such as a note filed before another has priority over the one filed later. I can probably make 3 or 4 paragraphs of it.

There are "note schools" "how to" and "get rich" materials. The issue with this type of material, something to be aware of, is that one, they are products (not a bad thing) and they don't get into specifics of various areas, ability to pay, collateralization, underwriting post closing, loan reviews issues, effects of legal concerns and foreclosure issues.

Materials written prior to the SAFE Act and Dodd-Frank will likely contain information that is contrary to federal law and state laws.

If you aren't familiar with these laws you can lose every dime you put into a note that is originated illegally. The note and all related materials may look great on the surface, but being unaware can cost you.

I won't pass judgment on something I have not seen, but I have seen materials on notes in the past and so far, I've not seen any comprehensive information and there are various "classes" or programs that give you enough clues to either be investing with a brokerage or be a birddog for one.

From what I've seen, a national mortgage originator's/broker's license class appears to cost about the same thing as a real estate license. Not saying get a license, but you'd learn much more there than in any guru course costing much more, I'm sure. It's a 25 hour (real hours) of instruction. Woefully inadequate IMO, but that's why brokers/originators work under others in various ways.

Those classes would certainly help any note investor, but they won't teach from an investing point of view. They don't dig too deep in collateral issues nor will it teach more of the "crystal ball" approach to underwriting issues. I took the national test on line, a practice test, I missed 6 out of 100 due to some new disclosures required that I was unaware of (I'm aware now), so I have an idea of what's taught.

We have 50 different state laws governing the note business and federal laws. You certainly don't need to know it all, but you do need to know federal laws and your state laws.

Priority of liens is in your state statutes. Additionally, you need to understand collections and servicing, something skipped I'm sure by note gurus. Servicing and collection issues can be the basis of law suits and the loss of principal. It's also important to be able to vet the seller. You'll have a contract to buy and sell a note, there will be warranties and representations made but if that broker can't repurchase that note, you can be stuck.

I appraised notes for the State of Missouri, many were not made at arm's length, some were fraudulently made, many had overstated real estate values and there were those that were in violation of law......and that was prior to current laws!

Where can you look to find information? I'd say first start with conventional mortgage regulations at the state level to ensure you're not in a brokerage activity. Then look to Fannie Mae and Freddie Mac loan underwriting, it's on line. That is if you're going to get into buying residential mortgages. Reason you need to be aware of these guidelines is because it will be conventional loan aspects that takes you out of a residential mortgage. If you see the borrower will never qualify, that means you have issues down the road. Check out the ALTA site as to title requirement. Look at the National Association of RE Appraiser's site, understand how the valuations are made and the practices required, I've seen a thousand bad appraisals! Look to HUD and mortgage servicing requirements.

Notes are not part of real estate, only laymen investor/operators slot notes in the RE industry and wrongfully so. Notes are in the banking and finance industry, so if you're looking at RE sites for note information, you're in a related area but not in the correct section of the library. RE is a category or area of finance, it falls under the financial umbrella, not the other way around. Look up your state RE commission and see if they don't come under the state department of finance/economic development. The misconception may come from every RE site I've seen having RE notes as a topic area, but they are mixing two different worlds.

Again, you don't need to know every law, you need to know applicable laws. It is finance, you need to understand the risks assumed and the return and required yield. You need to understand RE as that is your collateral. You also need to be able to "read" people, deal with borrowers, servicers and negotiate in your best interests. There may be good negotiation tactics in the guru books or other programs but take care when you read materials. If you have money to be in the note business, you have money to see your attorney. Starting out, it might be good for you to run any note passed your attorney before you bite as well as any brokerage contract. Good luck. :)

Thanks Jon, Johnathan, and Bill for the info.

Bill, if the guru is selling the note is a license broker aren't both the guru and I at risk?

Also as you stated to me, if I:

-Know the collateral

-know the borrower-

-understand the broker's deal

Is the risk properly managed? Like you said you can't know everything, but I have no problem hiring a lawyer to review a note. The lawyer's review should inform me if I'm heading toward legal trouble, is that correct?

Thanks again for the responses...

"Invest in Debt" by Jimmy Napier. Old, but a classic

Originally posted by @Daniel Cruz :
From this post:

http://www.biggerpockets.com/forums/70/topics/104083-getting-started-with-notes

"Here's a good book to check out on Amazon: Performance Anxiety by Gordon Moss. Not a technical book but one to help understand certain aspects of the note investing game."

I just commented in that thread, read the link and the list of considerations as part of your due diligence. The points I just mentioned here are at the top of the generalized areas to address, it all goes much deeper.

I believe I saw "Invest in Debt" a good generalization, don't recall the marketing aspects.

You also need to do due diligence on the broker.

You can certainly read all the guru stuff, just don't take it all to heart or act upon it. :)

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