Can you buy car notes like you buy real estate notes
Real Estate Professional · Orlando, FL · Member since 2016 · 22 posts · 10 votes
Can you buy car notes like you buy real estate notes
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St. Marys, GA · Member since 2016 · 154 posts · 74 votes
9yI was in the car paper business for 5 years so have some experience. The good news is you can make far more money with car paper than RE (I was making 29.85%APR which in actuality works out at 17%). The bad news is that are MULTIPLE pitfalls. As mentioned most new car dealers have floor plans or deal with customers with decent credit. The market is with used car dealers. Broad generalization is that used car dealers are deserving of their bad rep. A lot of shady folks are in the biz. So first you need a reputable dealer and hammer out an agreement with them. You will buy the paper at x% of face value and they will assign the note to you. An even bigger issue is what is your arrangement with the dealer on selling your repos and you will have a lot of them - about 10% of sales. You will be responsible for the repair of the repo (they never arrive nice). How and under what arrangement will it be resold. Highly unlikely that you will get a dealer license so you have to find an outlet for resales.
The next issue is the car itself. You will quickly learn what models are reliable and easy to be repaired. For instance, Toyotas are reliable but the parts are expensive. Stay away from muscle cars. Trucks are usually good and have decent resale.
Next comes the customer. The majority will have less than stellar credit (saw one where his score was 429 - must have stiffed the paper boy). Get an extensive friends and family contact list as these people change phones and residences like you change socks. The majority (again a generalization) think their car payment should cover everything like insurance and repairs so if it breaks down, many will just walk away. You will have to chase about a third of them monthly and be prepared for every lie in the book. Your post office box (never give out your home address and you should probably use a pseudonym) will be filled with insurance cancellation notices and insurance companies almost never tell you when it is reinstated.
Have a good repo service (believe me you don't want to do it) and learn how to find repo guys in other states because you will have to chase some. Also find repair services that will repair the car to be resold - not showroom condition.
The technology has improved on starter interrupt if not paid on time and car locator devices but they cost so figure out who is paying and how much.
Although the business was good to me monetarily, it just wore me out.
7 Replies
- Rental Property Investor · Lindon, UT · Member since 2015 · 862 posts · 438 votes9y
If you could . . . would you want to?
Cars are a depreciating asset and there is a possession issue to address.
- Real Estate Professional · Orlando, FL · Member since 2016 · 22 posts · 10 votes9yI'm sure there will be pro and cons with this. I'm sure if you could buy the loan, the first thing you would want to do is your due diligence on the borrower. I'm new the note investing, so it seemed like a way for someone with less cash to get into something like this. Doesn't necessarily have to be only cars. Possibly boats, or different items people finance.
- Specialist · Melrose Park, PA · Member since 2013 · 167 posts · 217 votes9y
There's a lot of debt out there that could eventually be up for sale: credit card debt, medical debt and - another big kahuna - student loan debt. It will be interesting to see how these all develop.
- 9yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
absolutely many used car dealers used HML to floor inventory and of course they factor their notes..
I know a few very very Large players in the industry.. its a big money deal for certain. most private investors buy sub prime auto debt.
they put those systems in the car that disables it if your payment is late plus a lojack so they know where to go pick it up when they don't pay.
- St. Marys, GA · Member since 2016 · 154 posts · 74 votes9y
I was in the car paper business for 5 years so have some experience. The good news is you can make far more money with car paper than RE (I was making 29.85%APR which in actuality works out at 17%). The bad news is that are MULTIPLE pitfalls. As mentioned most new car dealers have floor plans or deal with customers with decent credit. The market is with used car dealers. Broad generalization is that used car dealers are deserving of their bad rep. A lot of shady folks are in the biz. So first you need a reputable dealer and hammer out an agreement with them. You will buy the paper at x% of face value and they will assign the note to you. An even bigger issue is what is your arrangement with the dealer on selling your repos and you will have a lot of them - about 10% of sales. You will be responsible for the repair of the repo (they never arrive nice). How and under what arrangement will it be resold. Highly unlikely that you will get a dealer license so you have to find an outlet for resales.
The next issue is the car itself. You will quickly learn what models are reliable and easy to be repaired. For instance, Toyotas are reliable but the parts are expensive. Stay away from muscle cars. Trucks are usually good and have decent resale.
Next comes the customer. The majority will have less than stellar credit (saw one where his score was 429 - must have stiffed the paper boy). Get an extensive friends and family contact list as these people change phones and residences like you change socks. The majority (again a generalization) think their car payment should cover everything like insurance and repairs so if it breaks down, many will just walk away. You will have to chase about a third of them monthly and be prepared for every lie in the book. Your post office box (never give out your home address and you should probably use a pseudonym) will be filled with insurance cancellation notices and insurance companies almost never tell you when it is reinstated.
Have a good repo service (believe me you don't want to do it) and learn how to find repo guys in other states because you will have to chase some. Also find repair services that will repair the car to be resold - not showroom condition.
The technology has improved on starter interrupt if not paid on time and car locator devices but they cost so figure out who is paying and how much.
Although the business was good to me monetarily, it just wore me out.
- Real Estate Agent · Winter haven, FL · Member since 2011 · 572 posts · 336 votes9y
Yes, that's actually the model used by many large Buy Here Pay Here dealers. They'll buy cars at auction say $1,500-$2,500 sell via BHPH at say $10,000. And after borrower buildso an established payment hystory of 3-7 months they sell the notes at around 70-80%. I have done the research my self and there is little to no info specifically on buying notes available. You have to research things like private equity, secondary markets and securities to get more knowledge. It's amazing how the simplest investment strategies are hidden behind fancy terminology.
- Real Estate Agent · Winter haven, FL · Member since 2011 · 572 posts · 336 votes9y
You should take a look at Santander Consumers USA they are one of the larges buyers of auto loans. They just won a big case where they were being blamed for potentially creating bubble. Since the auto dealers are providing subprimes and just to resell o the secondary market.
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