Note investors from Canada (and elsewhere)? Safe way to start?

Question

My journey with Bigger Pockets continues, and for the last little while I have been focused on the note investing arena. As far as real estate is concerned, I have experience with buy and holds, joint ventures (as a money partner / gap funder on flips) and most recently with active flips. I have also done mortgage lending in Canada (on 1st, 2nd and 3rd mortgages) that were originated by a mortgage brokerage.

Recently I was listening to some podcasts on Bigger Pockets about note investing and have been inhaling content about this topic ever since. Obviously with my mortgage investing background I have some understanding of the subject matter (I even read the entire Canadian mortgage agent course material etc.), but note investing is a bit of a different animal since you are dealing with a secondary market, with buying / reselling notes as well as with all sorts of different exit strategies.

I am wondering if there are any Canadian note investors out there that would be willing to share their experience. Of course, I will be very grateful for any insights and advice from any investors anywhere to hear about their journey in note investing.

At the moment I am still in the learning phase, but I would like to get going with some of my own capital in the very near future. What is the safest way to do so? I have been reading about joint ventures and would love to hear from anyone who has experience in note investing joint ventures or would be interested in doing a JV together. Thank you in advance.

Bob E. · Answer

I would start with a few smaller balance / shorter duration 1st lien performing notes.  Look for strong loan to value (LTV below 65%) a note that is well drafted.  Things to look for before buying:

• What is the LTV
• What is the yield after servicing costs?
• Is it in a good neighborhood?  Or at least decent?
• If the buyer defaults will it be easy (Trust deed / Land contract) or hard (Judicial state) to foreclose.  How much will foreclosure cost?
• If I took the property back how much could it rent it for - this drives value in several ways such as if selling to another landlord or with owner financing.
• If I did take the property back do I have the resources and connections to rehab it?

Tim S. · Answer

Check with @Nathan Turner, the Canadian Note Guy

Suzanne P. · Answer

Thank you @Bob E., for your detailed explanations, I really appreciate it. This is the type of practical advice that is really helpful to a new note buyer. I am currently spending a lot of time educating myself about notes, and there is certainly a lot to learn about the legal procedures involved. I am also looking at joint ventures to get going in the notes business and learn hands-on. Many thanks again for sharing your knowledge....

Nathan Turner · Answer

@Tim Simmons Thanks for the shout out Tim!

Eric Bell · Answer

Hi Suzanne,

I want to thank You for asking all the right questions. I recently heard about note investing and just amazed It had never crossed my mind before! Now that I've dug deeper and learned more I can't believe how helpful this valuable tool is.

It's been 6 months since you last responded, have you had any success with note investing so far?

Suzanne P. · Answer

Great, Tim, much appreciated. I will touch base with Nathan. Thanks!

Note investors from Canada (and elsewhere)? Safe way to start?

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