New to Notes.... off to the races!

Zachary Taylor · 2017-06-01T14:36:08-07:00

Hello Fellow Notes Folks!New here and thought I would introduce myself. I am 33, worked in finance for past 10+ years in various roles including private equity, LBOs, M&A, credit, etc. However, I have not had professional experience originating, buying and managing my own notes, which is why I am here.I'll get right to it. I want to get started by buying one institutional NPN. Looking to spend less than $45k for my first go at this. Open to ideas here!Buying the note: I have signed up for Loan MLS, PPR and FCI. Are there other online resources to find notes you all can recommend? How does the borrower know to pay you now? or is that handled automatically?Due Diligence: I have done a lot of it in my day. What are key numbers based factors you all look for on NPNs? Number of recent payments? % of UPB? Do any of you use third-parties to help with diligence and reviewing collateral files? If so, which providers?Service Providers: What services do you all use to manage a note after the purchase? Lawyers, services, appraisal companies, agents, etc? Who do I need to line up prior to a note purchase?Loan Mod: I hear a lot of talk about Loan Modifications to get the loan performing again which is my goal. I hope to never have to foreclose. How does the loan modification process work? Is it me who is calling the borrower to work something out? I'm fine with that just trying to mentally prepare for everything. I assume a lawyer drafts the loan mod and gets everything documented?General Questions:Range of legal fees, service fees, due diligence fees, etc? How much is third party service fees does one NPN go through? What is the cost to foreclose (ballpark / high level numbers are great)?Typical time from purchase to loan mod and getting it back on track?Historical loss rates on NPN's? Any data out there?Education: Are there any case studies out there I can read? Generally I'm looking for educational info on how people find NPNs (I know I know, networking blah blah. But I just want to do one to start), what diligence they do prior to buying, how they are managed and process for how they are modified and sold. Anything you all you think would help me get up the curve would be AWESOME!Please PM me any time.That is all!Zack

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

9y

wow I got tired reading all that has to happen to buy one 45k note.. seems like there has to be a better way.. :) good luck on it.. there are plenty of NPN guys on this site.. who have little funds and some that have larger funds.. I am sure they will chime in

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Zachary Taylor

OP

Investor · Little Rock, AR · Member since 2017 · 44 posts · 14 votes

9y

Ha! Thanks Jay. Just want to be a sponge. A better way? Got to learn it all somehow.

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James Mc Ree

Rental Property Investor · Malvern, PA · Member since 2016 · 1k+ posts · 937 votes

9y

PPR has an online course you can buy for less than $300 that would probably help with a lot of the questions.

1 Reply

Justin DeCamp

Chicago, IL · Member since 2017 · 10 posts · 11 votes

9y

Zachary Taylor - I'm new to note investing as well, but as part of my research, I ran across Paper Profits by Joshua Andrews, which I found to be a good introduction to note investing. He includes a good deal of concrete metrics and advice that should answer a lot of your questions. It can be found on Amazon here: https://www.amazon.com/dp/B06Y4C7X6Y/ref=pe_385040_118058080_TE_M1DP. PPR's introductory PDF is a decent starting guide as well.

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Chris SeveneyBusiness Member

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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes

9y

Zachary Taylor I recommend partnering on your first deal. Work with a JV partner who will also show you the ropes. There is a lot to learn in notes

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Zachary Taylor

OP

Investor · Little Rock, AR · Member since 2017 · 44 posts · 14 votes

9y

@Justin DeCamp. Thanks I'll get the book today.

@Chris Seveney. Thanks Chris. I'd definitely be open to doing a JV deal... I learn better by just jumping in and doing.. Any takers on BP? :-)

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Patrick Desjardins

Real Estate Investor · Amherst, VA · Member since 2015 · 386 posts · 400 votes

9y

Originally posted by @Zachary Taylor:

@Justin DeCamp. Thanks I'll get the book today.

@Chris Seveney. Thanks Chris. I'd definitely be open to doing a JV deal... I learn better by just jumping in and doing.. Any takers on BP? :-)

People aren't allowed to solicit on the forum. I suggest reading forums threads and finding people that seem trustworthy, connect with them and develop a relationship.

The sources you mentioned are good places to look at notes and practice analyzing them, but they are not a great place to buy notes. The seller is basically anonymous so you have no idea who you're dealing with, you have no idea what happened with the notes etc - so the seller has a big advantage over the buyer. (just my opinion, others here like FCI)

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Christopher Winkler

Specialist · Dallas, TX · Member since 2014 · 900 posts · 392 votes

9y

FYI @Zachary Taylor, $45k won't get you much for a 1st lien, and you might want to consider starting with a performer or reperformer to dip your toe in. With too many people flooding this space, people are paying $0.65 cents on the dollar for anyting besides a pile of junk. We have learned to stay away from notes on $70k or less as is value, as by the time you foreclose, hold, and rehab, you are in it for much more than you would be buying the home outright & will make little to no money on it unless you get it for a couple thousand dollars.

That is why we shifted to 2nd liens, as you can get a 2nd lien on a nice home with full equity and paying firsts for $0.50-60 cents on the dollar, though again, those prices are double what they were, so we hope the hoards to find another shiny object SOON, so the prices can come down to earth. While notes are different than buying the property, you do need to incorporate lessons from them in buying notes. Avoid 2 bdr, busy street, rural, the hood, railroad tracks, low dollar value, etc.

Papersourceuniversity.com is also a great place to get a low cost education without the high pressure sales of the expensive gurus... As others say, a JV with an experienced note investor is the best way to get in and not get scorched; Good luck!

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Christopher Winkler

Specialist · Dallas, TX · Member since 2014 · 900 posts · 392 votes

9y

Originally posted by @Patrick Desjardins:

Ain't that the truth. We tried for a while to buy off FCI and they had so much baggage, were so overpriced, and its impossible to talk to the seller directly. We avoid exchanges and try to buy direct.

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Mike Landry

Investor · Montgomery, TX · Member since 2014 · 386 posts · 151 votes

9y

Originally posted by @Justin DeCamp:

Zachary Taylor - I'm new to note investing as well, but as part of my research, I ran across Paper Profits by Joshua Andrews, which I found to be a good introduction to note investing. He includes a good deal of concrete metrics and advice that should answer a lot of your questions. It can be found on Amazon here: https://www.amazon.com/dp/B06Y4C7X6Y/ref=pe_385040.... PPR's introductory PDF is a decent starting guide as well.

bought the book and thought is was pretty....basic. Good for a beginner but I really didn't need a recap on stock market vs rentals vs notes vs ect. It seems to say if you want to buy notes you should partner with someone that does it....but if I do that why do I need to buy the book? What I was hoping for is that it would dive into how to FIND the notes. NO one here or in the book really talks about how to FIND the notes. As stated above the websites aren't a good place to actually buy a good deal. I'm only assuming but if I were to take an educated guess on how to find good deals on notes you have to:

1. Direct mail to private note holders. Listsource data?? Out of state note holders? distressed?

2. Pool other peoples capital to buy multiple notes from banks. Making it worth the banks time. maybe "wholesaling" the notes individually to investors, making a small split, and keeping the one/ones you want.

How are you finding NOTES to BUY! That is some substance that I would expect to find in a book called Paper Profits: How to BUY and profit from notes.

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Zachary Taylor

OP

Investor · Little Rock, AR · Member since 2017 · 44 posts · 14 votes

9y

@Mike Landry. Ya, definitely seems people don't want to disclose where they get their notes. Understandable. Will have to figure it out myself the hard way which I'm ok with.

Thanks for the response and book recommendation.

Also, need to educate myself on costs of holding NPNs. Foreclosure costs (for each State), length of foreclosure process per State and which State's are viewed as more favorable to by NPNs in. On the surface a deal could look great but all the added costs, etc could make it go south quickly.

Z

1 Reply

Jordan P.

Hartford, CT · Member since 2017 · 39 posts · 16 votes

9y

How are you finding NOTES to BUY! That is some substance that I would expect to find in a book called Paper Profits: How to BUY and profit from notes.

Unfortunately for you (and me) the relationships that @Joshua Andrews has made that produce note deal flow are worth way more than the revenue he's earned on his book. Same goes for other successful investors and firms that have been at this game for awhile. Finding and cultivating sources of good quality notes from good quality people is one of the main competitive advantages you can gain in this space. Don't look for people to be giving their secret sauce away for $14.99.

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

9y

@Mike Landry you can try the direct mail approach.. however its the same as wholesalers direct mailing distressed homes. or vacant homes or what have U.. Bene's will get inundated with direct mail.. I know I get at least 10 for each seller carry back I do.. there are some big players in the space.

from what I can see and I don't do NPN.. so not an expert by any means.. I suspect those that have constant deal flow have created very important relationships with fund managers .

the NPN first start out in HUGE pools 500 million that kind of thing.. then by the time it gets to the street IE you the one off buyer its gone through many hands...

ERGO I think if one concentrates on Performing debt.. much easier to acquire and the returns a lot more consistent.. There is a ton of work in NPN just to make a few extra % return.

the direct mail folks are all looking for massive discounts.. and 20 to 30% apr yields... can you get them yes.. IN the mean time unless your a big player.. your missing making money while you search for these deals...

I would invest in a fund... that does this.. @mikeherzog has a fund.. seek him out.. its a mid level fund from what I know.. Chris above who posted has puts together deals as well. good place to start.

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Patrick Desjardins

Real Estate Investor · Amherst, VA · Member since 2015 · 386 posts · 400 votes

9y

You can't expect people to answer 20 super broad questions on a public forum, especially when some of those questions involve revealing proprietary data and information. Everyone I know on this forum enjoys helping and sharing, but at the same time, both parties have to get value.

Maybe my friend @Joshua Andrews needs to start a $2,997 info product or weekend seminar, then we can all blame him for not going in-depth on his secrets. The guy has a better success rate on notes than myself and pretty much everyone else I know.

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Zachary Taylor

OP

Investor · Little Rock, AR · Member since 2017 · 44 posts · 14 votes

9y

Patrick Desjardins understood. But as a someone new in the space I figured I'd ask all the questions I had and see what came of it. As for adding value, I'm currently trying to find someone to JV with on my first NPN. Also, happy to use my background in financial modeling/credit/M&A/debt/capital raising to add value to an experience NPN investor. Jay Hinrichs thanks for the response, Jay. Not too interested in investing in a fund. Will look into it though. I'm most interested in currently occupied properties with NPN and working with the borrower to get them back on track. Zack

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Mike Landry

Investor · Montgomery, TX · Member since 2014 · 386 posts · 151 votes

9y

@Jordan P. I don't blame people for hoarding their secrets. Just don't try to capitalize on a vague book without much content. I have heard this book "advertised" by friends multiple times on this website. Yeah, I was duped.

Funny how no one here hoards information on direct mailing lists, wholesaling, flipping, multifamily numbers, ect. They actually compare what works and help people get started most of the time. Why are you guys a bunch of note snobs? Are you afraid its too easy and the market would swing with too many buyers? lol

@Jay Hinrichs Thanks Jay. As a self motivator I am really just trying to learn this side of the business. I like the idea of diversifying and would buy a note if the right deal came by. But as an Airline Pilot with a career I enjoy and a great w2 I don't have to buy anything and only buy great deals. I checked out Chris above's website and he want to JV on deals that you supply ALL the capital for or just pay you a flat interest rate(not sure the %). Not something too appealing. He must have paid some guru to get the secrets.

@Patrick Desjardins Proprietary data??? Now we are talking! More power to your buddy if he can sell a $2997 course. In a book on HOW to buy notes I would expect at least one resource on HOW to actually buy a note. Is that too much to ask? Good for him for being successful. That is truly great and I'm sure he busted his *** to get there. Your profile says to just reach out if you have any questions on buying notes. Ok. Where do you buy your notes from? Can you give one tip or advice for someone that is educated in real estate, knows and buys from the local foreclosures, and is intimately familiar with direct mail marketing. Unfortunately the only value I can bring you is if you are interested in an aviation career. Most of the real estate stuff I know isn't really top secret.

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Don KonipolBusiness Member

Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes

9y

Best way to find decent notes is by developing a network of people who may come across the type of notes you are looking for, and who have an incentive to contact you. Because of the low, low interest rate environment, demand for notes is so high that note exchange marketplaces are not a good source.

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

9y

@Mike Landry Just hook up with a good HML and get some notes that way you can ease into non performing.. not really sure why folks are so hot on the none performing.. ton of work.

but the yields can be a little better.. and or just private money lend yourself.. you can beat NPN fund rates easy loaning your own money.. and deal with what you hope is a much better borrower other than a homeowner that is down and out.. the rate at which homeowners default after being brought current is staggering.. at the end of the day your really just buying an asset most of the times and go about it in a very difficult time sucking manner.

NPN are in my mind only appropriate for investors that want to scale and create a business and hold millions upon millions of them.. put systems in place to deal with them etc etc..

However as your doing your day job you definantly have the time to study all sorts of materials.. assuming your flying longer legs and not commuter stuff.. I lived in the Napa valley for years and at our country club we had O probably 25 to 40 pilots all based out of SF... mainly long haul to Asia type routes.. and most of them had some side gig going and or owned some nice commercial rental portfolios.. plus there was a fund manager who specialized in pilots.

I know when I would take some the guys up in my Cirrus the ones that did not have a back ground in GA when we went to land they freaked out thought I was flying them right into the ground.

And or I let them try to land and they fare at 40 feet.. LOL... great gig flying that's what I really wanted to be .. but it was not meant to be for me.. I did not have the patience in the mid 70S to build huge time to get hired.. so I just went into real estate.. and paid for my flying all these years.

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Patrick Desjardins

Real Estate Investor · Amherst, VA · Member since 2015 · 386 posts · 400 votes

9y

Originally posted by @Mike Landry:

@Jordan P. I don't blame people for hoarding their secrets. Just don't try to capitalize on a vague book without much content. I have heard this book "advertised" by friends multiple times on this website. Yeah, I was duped.

Funny how no one here hoards information on direct mailing lists, wholesaling, flipping, multifamily numbers, ect. They actually compare what works and help people get started most of the time. Why are you guys a bunch of note snobs? Are you afraid its too easy and the market would swing with too many buyers? lol

@Jay Hinrichs Thanks Jay. As a self motivator I am really just trying to learn this side of the business. I like the idea of diversifying and would buy a note if the right deal came by. But as an Airline Pilot with a career I enjoy and a great w2 I don't have to buy anything and only buy great deals. I checked out Chris above's website and he want to JV on deals that you supply ALL the capital for or just pay you a flat interest rate(not sure the %). Not something too appealing. He must have paid some guru to get the secrets.

@Patrick Desjardins Proprietary data??? Now we are talking! More power to your buddy if he can sell a $2997 course. In a book on HOW to buy notes I would expect at least one resource on HOW to actually buy a note. Is that too much to ask? Good for him for being successful. That is truly great and I'm sure he busted his *** to get there. Your profile says to just reach out if you have any questions on buying notes. Ok. Where do you buy your notes from? Can you give one tip or advice for someone that is educated in real estate, knows and buys from the local foreclosures, and is intimately familiar with direct mail marketing. Unfortunately the only value I can bring you is if you are interested in an aviation career. Most of the real estate stuff I know isn't really top secret.

I don't appreciate the tone of your comment. You were not duped, scammed, lied to, or anything of the sort, and your attitude is a piss poor way of getting people to share information with you. You bought an introductory book meant for people who are used to buying CDs and mutual funds, maybe a handful of rentals. Not sophisticated and experienced real estate investors. Nothing wrong with you being unhappy with your purchase because it's not what you wanted and expected, however saying you were duped is in poor taste.

After criticizing the book, you go on to criticize Chris Winkler's JV deals when it's a pretty common structure in the note space for small one-off notes..

"Your profile says to just reach out if you have any questions on buying notes. Ok. Where do you buy your notes from? Can you give one tip or advice for someone that is educated in real estate, knows and buys from the local foreclosures, and is intimately familiar with direct mail marketing."

As a newbie, the best way to find note sellers (performing or NPNs) is to attend the note conferences and meet sellers, vendors and network with other note investors. Or you can do like a guy I know and pay $2,000 for a list of note sellers (and yes, it worked for him but was way more expensive than a $15 book). Heck half the people on this forum probably have notes to sell, but soliciting is not allowed.

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Chris SeveneyBusiness Member

Moderator

Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes

9y

What surprises me is people think a $15 book or education can get them into a career. When you study to be an accountant, engineer, finance etc. You will spend tens of thousands of dollars to gain knowledge and experience. I have spent hundreds of hours watching videos, making connections, building a financial calculator for notes and placing systems in place. If you think someone who had spent all that time will give it away for free you are mistaken. Notes is a small tight knit industry and making connections is huge. If you want to get educated in notes and scale quickly you will need to pay for your education. I have no issues paying $500+ for an education as the knowledge I learned easily saved me hours and hours of research which time = money.

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

9y

@Chris Seveney

there are two note boot camps that folks talk about being a good deal I think they are in Vegas once a year...

Scott Carson just had a big deal and it was web based

Eddie speed charges like big money guru's charge not sure how good his stuff is.

bottom line just like you did.. this business of buying notes to me is not like other passive or any other kind of investing.. it takes much more energy... and really if your going to put all that time and energy into it .. you need to scale like your talking about..

to simply think your going to buy NPN or Super high yield notes like your buying a rental house IE they are all over the place.. well that thinking is flawed.

for most there are great companies selling performing notes that will beat most folks returns on rentals on an strictly APR rate... .

Along with simply loaning your money as a private lender .. Most states have a carve out for 2 to 3 loans in a year and you don't need a license.. and or there are 38 or so states no license is required for commercial purpose loans.. you do need to be cognizant of usery in some states.. but most states you don't even have to worry about that.

Early payoff on a private note that has a few points will usually put yields squarely in the 20 to 30% apr range.

And as stated there are many providers of performing notes that pay 8 to 12% all day long .. with very very few defaults if any...

So not sure what the lure is to mom and pops that think they want to get into NPN or discounted seller carry backs.. do you know what the returns those folks are looking for is it simply the mind set that they want to make better than 12% or the lure of 20% or better.. ??? just curious whats the draw at the street and mom and pop level.

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Chris SeveneyBusiness Member

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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes

9y

@Jay Hinrichs

Jay is correct, buying notes is by no means passive unless you are a silent JV partner or buying performing notes. I got into notes as I have a full time job and family. I am in real estate for my full time job and do not have time to drive around looking at homes to expand my portfolio. Also, in the DC market, it is saturated with fix and flippers and investors who honestly in many instances I see paying way to much for properties and they just want to get in. There is a property down the street from me on busy corner of a main road. A flipper bought it for $350k, put about $200k into it and tried to get $900k for it. Dropped it down to $600k and never sold so they moved into it and now trying to sell it (which besides being on a main road, the basement access is from the exterior).

With notes, this can be done from anywhere and at any time during the day, and its easier to invest anywhere. I get a tape and review it from 9-midnight. I will not get a realtor to get me into homes during those hours. For me, notes makes a lot more sense as I can put in the work but on my own time. With notes, I find it is easier to build a team of experts than it is when doing buy and holds. Just my 2 cents, every investment strategy is different for people and people need to do what makes sense for them, not what they think is the shiny star that every one else is trying to chase.

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Mike Landry

Investor · Montgomery, TX · Member since 2014 · 386 posts · 151 votes

9y

@Jay Hinrichs I haven't flown GA in probably 10 years. I'm sure I'd flare at 50 ft and scare the daylights out of myself. Thanks for the note tips.

@Patrick Desjardins Understand and I apologize for my "attitude". I honestly bought it after seeing multiple recommendations here and the words "How to buy" in the title. I did appreciate the sections on bankruptcy and how it can affect your notes. I am all for paying $$$ for education. It's just hard to figure out in the REI environment which programs are truly worthwhile and which ones are just some guru regurgitating a bunch of junk.

@Chris Seveney which programs do you recomend? $500 seems reasonable.

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

9y

@Chris Seveney Scott actually personally contacted me and wanted me to watch the lastest program that he did.. seems like a very genuine guy.. and its loaded with content.

not being in the note buying business and or NPN business it was not anything I wanted to spend time on personally.. but I bet that would be a good place for @Mike Landry to start ...

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Chris SeveneyBusiness Member

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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes

9y

Scott is no BS - he leads you to water but you have to take the next steps. It does not happen overnight but provides great content to get you started.

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New to Notes.... off to the races!

New to Notes.... off to the races!

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