How to Purchase Notes

Question

Hi Everyone,

Just wanted to get thoughts and feedback on approaching local banks vs utilizing an organization like PPR to purchase notes on my behalf?  I've done a lot of reading about notes and think I'm more interested in the non performing side of things, and it seems like 2nds in general provide more risk, but also more upside?  I'm a licensed Realtor in the state of Nebraska, so the concepts, nomenclature and exit strategies make sense to me.  I also work full time as of now so my thought is to start a 401k, roll it to a self directed IRA and also invest in a tax deferred vehicle.  Any good next steps and advice on which direction to persue for someone who hasn't ever purchased paper before?  Thanks in advance!

Adam Hershman · Answer

Hey Ethan,

I can't comment much on notes, as I'm far from an expert in that area. I can comment on the self directed IRA portion of it, as I am an expert on that. Full disclosure I work for Provident Trust Group, as passive IRA custodian.

Like Dmitriy commented above, most employers won't let you roll money out of a 401k unless you're ending your employment or you reach normal retirement age. This doesn't mean that you can't roll over 401ks from previous jobs, or any IRA accounts with traditional brokerage firms you may have. Secondly if you plan on purchasing these notes on a regular basis or with any kind of time constraints, you may want to look into the SDIRA LLC model. Essentially a SDIRA LLC gives you control of how the funds are administered, because you would manage an LLC that would be the sole investment of your self directed IRA.

Let me know if you have any questions, I'm always happy to help!

Thanks!

Adam

a.hershman@trustprovident.com

www.trustprovident.com

Bob Malecki · Answer

Since you are new to notes, you should invest in some education and attend a few note conferences. One of the first I attended is the one sponsored by PaperSource:

http://papersourceseminars.com/paper-source-note-symposium-cash-flow-profits-2015/

You will meet other investors, vendors and fund managers. Good networking event and good educational info.

Bob

Bob E. · Answer

Assuming you are comfortable reading a title report to understand liens on the property, know how to check tax and HOA status, and have a way to verify via BPO or other method, the value of the property then I would say the next step is to register with some note sellers.

I have had good luck with Granite Loan Solutions.  Have bought 1 through Watermark Exchange, and used a few others too.

Look at some deals and and see if you can find a note that works for you.

Dmitriy Fomichenko · Answer

@Ethan Hamilton

self-directed IRA or 401k could be great vehicles for investing and deferring taxes. Couple points to consider:

1. If you have employer sponsored 401k the chances are that you will not be able to touch that and move funds over into a self-directed retirement account for as long as you work for that employer or reach normal retirement age.

2. If you invest in non-performing notes and do the workout yourself this can be viewed as active investing and will subject gains in your IRA or 401k to a taxation called UBIT (Unrelated Business Income Tax). Be sure to consult with an experienced tax expert on this subject. @Nathaniel Busch is active here on BP and would be the one I would go to.

Hope this helps.