Performing Notes, How To Get Started?

Question

Hello Everyone!  Hey does anyone have any experience with investing in performing notes?  Is there a lot of capital needed to get into that way of investing?  Are there ways to broker those types of deals?

Darren Eady · Answer

@Rashad S.

Yes

No

I've created 4200 performing mortgage notes and sold them.

To participate in performing notes, you'll need your own funds to buy them in their entirety.

I'm not allowed to pay a broker (per SEC rules) to sell performing notes.

Gail Greenberg · Answer

@Rashad S. Hello, Rashad - performing notes usually trade at 85%+ of UPB. So the trick is to identify ones that are likely to KEEP performing. Because you're buying at such a high price, your exit strategies will be more limited than those you have with a non-performing note.

With an NPN, it's often possible to make money in several ways depending on how the deal goes: you can get the borrower to reperform, then keep the note for cash flow or sell it or keep it and sell a partial. OR, if they don't reperform, you can foreclose and get a full payoff when the property sells at foreclosure sale OR, if it doesn't, you can keep the property as a rental. OR you can sell it outright for a windfall profit or sell it with seller financing to create a new performing note.

With a performing note, you're paying so much that not all those strategies will be profitable. So choose wisely!

Steve Hodgdon · Answer

@Jay Hinrichs

Jay - While I'm mostly in performing, I keep sniping deals here and there when I think I can get a quick kill. One just shot back :(   BPO wrong by $30k. Tightening criteria means I am not winning NPN bids because of the craze of new folks looking for get rich quick. My performers just keep doing exactly that, performing. Wonder if I'll ever learn!

Jay Hinrichs · Answer

@Steve Hodgdon  what I am seeing now in the performing note arena.. is there is far more money than Notes.

Steve Hodgdon · Answer

@Rashad S. What brings you to the esoteric world of notes?

It's like any other financial business. If you have similar experience, a strength in one or more of the workout scenarios, then you have  a leg up on many new folks. Its work, it's a job, it's other people's money. Can you take fiduciary responsibility or do you just want a commission? There are lots of money hungry brokers already. Don't see a need for another one.

Don Konipol · Answer

@Rashad S., performing notes cover a wide amount of territory.  There is a vast difference between notes that fall under the jurisdiction of the Dodd - Frank Act and/or Consumer Finance Protection Bureau, and those that do not.  Further, there are difference between notes that are in one way or another sold as partials, and those sold as whole notes.  Also difference between seasoned notes and notes being originated.  So an investor, or intermediary, will usually choose a specific type of note and gain knowledge of all aspects.

Individuals purchasing notes that are not covered by Dodd Frank or the CFPB for their own account usually have little to worry about from a regulatory standpoint.  People like myself who are in the business of making notes available to individual investors need to comply (or should comply) with Federal and or state securities laws.

Performing Notes, How To Get Started?

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