Broker and invest notes performing and non performing

8 Replies

Hello,

I am a newbie and so this is my first time posting a question here on Bigger Pockets.

I am very interested in learning how to successfully broker as well as invest in notes (performing & non-performing).  From what I hear this is an area that is poised for great opportunity for the next several years.  

Is this accurate and if so how can I learn to do this myself? 

Thank you for your help!

Sergio

Thank you Bob!

Hi

The note itself is complex, flipping them is a whole lot easier than houses. Please check with your own attorney. Here is what mine told me. Realtors don't work with notes so we are not infringing on their territory. Consequently we can flip notes and collect a finders fee, as opposed to an assignment fee, were you have to have under contract and put up a deposit. The note market is hot and there are a lot of them, All types

My transactional funder says he will finance for a day as long as I have a buyer ready. That's the easy part. Finding the best deals is the hard part. Same as houses. Magic word "Marketing"

Hope that helps

Mike

You don't actually need transactional funding as most of the time you can wholesale deals within the due diligence period. In today's market, I'd be looking to JV with investors to take down and control more notes as we are in a perfect storm for note deals. There are multiple exit strategies available out there to make a lot more money then a wholesale fee.

@Francesco Sergio  

Welcome to Bigger Pockets.  There is a forum here which has many threads about whole loan mortgages which folks like to slang term as "Notes".  Might also be a good idea to tangent off into some of the other threads such as General Foreclosure & Pre-Foreclosure as those to carry ideas related to the asset class.  


This idea that you can wholesale notes is so very flawed.  It has a basis that notes work like real property.  They do not.  There is no innate value increase in a non-performing note.  In fact, the risk is quite the opposite since time is one of your worst enemies.  It is more akin to playing hot potato mixed with Russian Roulette.  The suggested ethics of getting yourself into due diligence to then try and flip the note to another note buyer will quickly destroy your reputation in addition to it's own mile high barrier for execution in a general sense.  

The current disposition strategies for a defaulted note are the same as they have always been.  There is nothing new to the industry, perhaps new to the reader but that is about it.  There is no magic in any of it.  A borrower can do one of two things:  (a) Pay (b) Not Pay.  When a borrower pays as agreed, there is nothing to do.  When a borrower does not pay the remedy afford in the security instrument is foreclosure.  Through that process there are alternatives to foreclosure like a deed in lieu or allowing a short (sale or pay).  Viola, there is your nuts and bolts.  

Digging into performing loans is also not all that magical but you do have to understand the risks and the tools available to offset those risks.  Within all performance classes the street level investor is up against institutional capital which is much more willing and able to take returns at half what a street level guy is looking for so there are some barriers.  Aside from the performance is the actual origination structure and note terms which in residential paper is not all that hard to catch on to.  

None of that is meant to deter you from digging into the asset class.  It's really just meant to pull you into a reality based idea around what the actual market really looks like.  The secondary mortgage market is literally in the Trillions of dollars.  The distressed portion of that market is also in the trillion dollar range.  It is not going anywhere any time soon.  However when you have institutional investors paying upwards of 77.6% of RE Value for non-performing loans and the premium mortgage market taking yields at 3.5% you will do well to, as @Bob E.  mentions to find a mentor to work with.  I would be leery of anyone who tells you this is "easier than real property".  Frankly, that doesn't even make sense since the asset class innately includes concepts of real property in it's entirety plus all of the other concepts like title, accounting, bankruptcy, foreclosure and the oodles of regulations.   

Bob has a pretty good thread around here somewhere (perhaps he can link it in) where he chronicles some of his recent acquisitions.  I am fond of the thread as within is the good and the bad.  Easy assets are easy assets.  They are nice romantic stories and certainly produce quality returns.  However, I like the thread because it has some of the assets that have had barriers and obstacles.  Those provide insights into details that many newbies do not hear enough of.  The "tough" stuff.  Learning the ropes in those trenches will help you carve out your niche to manage your time tables and expense levels.  Those are the skills that will get you ahead in this asset class.  Not trying to treat loans like hot potatoes.  

Like I said, welcome to BP ask lots of questions and explore the threads.  Good luck.

Hook up with an experience note buyer and seller and let them teach you.


Joe Gore

Thank you to all...great advice.  Much appreciated!

Sergio

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