My first performing note just paid off — I'm hooked

[Tim Lum]

Just had my first performing note pay off early, and I have to say… this strategy is underrated.

No tenants, no repairs — just monthly income and a clean exit when the borrower sold the property. Way more passive than anything else I’ve done in real estate.

What really surprised me is how well this works inside self-directed IRAs too. 

If you're curious about my experience, feel free to DM me. Happy to share 

[Chad U.]

Quote from @Don Konipol:

Quote from @Tim Lum:

Just had my first performing note pay off early, and I have to say… this strategy is underrated.

No tenants, no repairs — just monthly income and a clean exit when the borrower sold the property. Way more passive than anything else I’ve done in real estate.

What really surprised me is how well this works inside self-directed IRAs too. 

If you're curious about my experience, feel free to DM me. Happy to share 

First, congratulations.  I’ve owned over 750 notes at one time or another in my real estate career.  
Somewhere down the line, if you keep investing, you’ll encounter the note that goes into default, and all your efforts to put it back on track are met with broken promises, lies, and “silence” by the debtor.  Then when you go to foreclose the debtor files lawsuits against YOU for a variety of nonsensical and “creative” reasons. After 6 months of that, and $10k in legal fees, the debtor files bankruptcy.  Where they’re “required” to submit a plan within 90 days that includes making “protective” payments to you.  They inevitably do NOT submit a plan, and the penalty for that is that they are granted an additional 90 days.  At the end of the second 90 days they do submit a plan, which is rejected as totally inadequate by the BK Trustee, and they are then given an additional 60 days to correct the plan.  So now it’s 18 months  that you’ve received no payments, spent 15K in legal fees, and are no closer to a resolution than you were 18 months ago.  
So now the debtor has submitted a plan that’s acceptable to the court.  Problem is that it is NOT acceptable to you.  Because the plan contains one of two totally unacceptable features; either it states that the property is worth less than the amount owed, and demands a CRAM DOWN; that means your note principal is reduced to the amount the property is worth and the balance becomes UNSECURED debt, which means you’ll NEVER collect that portion of the money. OR, the borrower states the property is worth double or triple the amount owed, so that the equity in the property “protects” your interest and so that the borrower doesn’t need to make any payments to you while the property is in BK. 

So now you need to hire and pay for an appraiser to value the property AND testify in court.  It’s at this point where the debtor begins to realize he’s spending more on attorney fees than he would if he just paid the note; that the meter is still running on the interest on the note, and that the legal fees incurred by the note holder will be added to the principal.  It’s when he realizes that BK was a knee jerk BS non solution; if his attorney and if the Trustee believe that they have squeezed most of the fees possible out of the BK, then you will be about 60-90 days from a “solution”. 

Don, are you speaking hypothetically?  Lol. 

The best is when a borrower files for BK7, gets dragged out for several months or more due to shabby submissions as you described, which eventually gets dismissed by the trustee.  Then you file for praecipe of sale with the sheriff but they are so backed up that they cannot fit it within the 6-month window for the borrower to file again for another and then the borrower files BK13.