Note investing with little to no experience.

21 Replies

An agent shows me a deal. I buy the note for a multi family for 18 months. I attract all income with the current tenants already established in the property. Is this a good deal for a first time buyer?

Agents make it sound good. Do you know of any articles or any sources I can look up this specific kind of deal? Or if you have the time can you explain it to me please? 

Thankbyou

I am far from the most experienced investor, but my understanding is that owning the note gives you ZERO rights to the rents of the current occupants.  Owning the note gives you the right to the mortgage payments due under the note ONLY.  The building could be 100% vacant and the borrower would still owe you the monthly payments.

If the borrower defaults, you have the right to foreclose and take ownership of thenproperty.  

The question is, would you WANT to own the property?  Has it been maintained or does it require $1,000,000 to make it rentable and structurally stable??  Is it in a bad area of town or an area in which you would want to live?

NONE of this speaks to the possible problems with the note and associated mortgage.

It MAY be a good deal.  The only way to know is to understand all the variables noted above plus the myriad variables that are not listed.

Team up with an experienced note investor that has experience with multis.

Better to have PART of a good deal that ALL of a bad deal.

I hope this is helpful!

Bill

Originally posted by @Bill B. :

I am far from the most experienced investor, but my understanding is that owning the note gives you ZERO rights to the rents of the current occupants.  Owning the note gives you the right to the mortgage payments due under the note ONLY.  The building could be 100% vacant and the borrower would still owe you the monthly payments.

If the borrower defaults, you have the right to foreclose and take ownership of thenproperty.  

The question is, would you WANT to own the property?  Has it been maintained or does it require $1,000,000 to make it rentable and structurally stable??  Is it in a bad area of town or an area in which you would want to live?

NONE of this speaks to the possible problems with the note and associated mortgage.

It MAY be a good deal.  The only way to know is to understand all the variables noted above plus the myriad variables that are not listed.

Team up with an experienced note investor that has experience with multis.

Better to have PART of a good deal that ALL of a bad deal.

I hope this is helpful!

Bill

 Hi Bill,

Quick question for you. If the borrower defaults and you foreclose the property, do you have to buy the property? I am unfamiliar with how it works exactly and how you obtain the property. For example:

Say I buy a note for 5K

2nd lien position

Delinquent for 120+ Days

Principal Balance: 15K

Origination Loan Amount: 20k

Origination Date: 2004

Maturity Date: 2029

Term: 302 months

Payment / Interest : 120

Interest: 5%

Property Value: 175K

Senior Origination: 2004

Senior Origination Amount: 135K

Senior Payoff: 135K

@Johnny Hoang if you own the 2nd position note and you FC, you will have to pay off the 1st lien in order to own the property outright.  The first note holder may allow you to buy him out at a discount, or take over his/her payments, depends on the circumstances.  

@Bill B. is correct, owning the note does not give you the right to collect any of the rents, only the mortgage payments, 

@shelton white, your question can't be answered that easily.  There are so many variables, it would take quite a bit of investigating, hours,  to to determine if it's a good deal or not.

Originally posted by @Tim S. :

@Johnny Hoang if you own the 2nd position note and you FC, you will have to pay off the 1st lien in order to own the property outright.  The first note holder may allow you to buy him out at a discount, or take over his/her payments, depends on the circumstances.  

@Bill B. is correct, owning the note does not give you the right to collect any of the rents, only the mortgage payments, 

Thank you, for the quick response Tim!

If I were to take over the payments, would I be subject to credit check, down payment, etc? Would I have to go through the process of obtaining the loan like I would if I were just buying another property?

As stated by @Tim S. , FC on the second does not give you title.  Tim Simmons outlined the facts pretty well.  I'd like to add that investing in seconds is investing in the borrower.  Do they want to keep the home?  That is answered most clearly by seeing a first position note that is current.  That can't be determined by the data you provided.  Even if you know that the first is current, there are many other variables that must be addressed before you invest in any note, first or second. 

Were the loan and mortgage created properly? Is there clear and clean chai of title from the originator to who owns the note now?  Are property taxes current? Are there fines for maintenance levied by the city?

Again, the examples above are just a few of the many variables that must be investigated BEFORE buying the note, first or second position.

I strongly suggest that @Johnny Hoang and @Shelton White both find an experienced note investor to learn from.

I hope this helps.

Thank you. I am going to a few different classes / seminars and going to network a bit more before I jump in.  Its a very interesting space that I would like to be apart of. But I am doing my due diligence, on learning how to do due diligence on notes haha. Again, I thank you guys for your quick response and lending a helping hand! @Tim S. @Bill B.

Sorry for the late response. You guys gave me plenty of information. I’ve decided not to go with it because I feel that’s for a more experienced investor. I’m amazed at all the knowledge you guys have and thankful for each of your responses. You’ve helped me make the right decision.

@Shelton White and @Johnny Hoang there are a number of great resources out there to get some knowledge on note investing. If you're interested you can look into @Scott Carson of We Close Notes  , one of the most accessible and informative note educators I've come across. You can also look into @Dave Van Horn who's written countless blog posts for BP, was on Podcast #28 and also runs PPR Note Company. Last but not least I'd recommend listening to Podcast #211 with @Bob Malecki who's another highly knowledgeable player in the note space. Good luck!

Originally posted by @Odie Ayaga :

@Shelton White and @Johnny Hoang there are a number of great resources out there to get some knowledge on note investing. If you're interested you can look into @Scott Carson of We Close Notes  , one of the most accessible and informative note educators I've come across. You can also look into @Dave Van Horn who's written countless blog posts for BP, was on Podcast #28 and also runs PPR Note Company. Last but not least I'd recommend listening to Podcast #211 with @Bob Malecki who's another highly knowledgeable player in the note space. Good luck!

 Thank you Odie. I've actually read / listened to most of what you mentioned above. Also, reached out to them as well. Definitely great stuff, learning so much. The note game seems so attractive to me for a number of reasons as I am sure they are for you too!

@Bill B. thats not exactly correct .. most mortgages have an assignment of rents clause.. this allows the bene of the note and mortgage to have the rents assigned to them while they go through the foreclosure process.. FHA just included those terms in their mortgages. now enforcing it can be a chore or it can be quite easy I have done it both ways..

however even with that clause its not a slam dunk as I stated to actually get the tenant to pay you..  

the questions being asked here are from those who really need to step back and learn more about note investing.

or just look at buying a cheap note as tuition.. you probably going to lose your investment but you can learn something as you get schooled in how to protect yourself as a note buyer..

@Bill B.   foreclosing on the second DOES give you title.. maybe I was not understanding your post or short hand.. you do get title SUBJECT TOO all senior mortgages and liens.  Seconds are quite risky for most beginners.. but most beginners try these becasue they are cheap.. they are cheap for a reason.

@Jay Hinrichs Thank You Jay for straightening me out.  As I've stated, I know I have a long way to go.  But, I have some great mentors and I also have people who are generous with their time and experience, like you, here on BP.

 @Jay Hinrichs   I also want to thank you. Your words are gold and will save me and I'm sure many other people a lot of time and mistakes. And not only from this thread I might add but from many others I've read that you commented on. So thanks again for continually sharing the insight!

@Johnny Hoang - Great at least there is someone on BP listening to advise from veterans like 

@Jay Hinrichs . My two cents for the others on the posts lurking for the artificial profit numbers is not to attempt a graduate school  exam when you are not ready for elementary school HW. Sorry for those who started their journey paying money to Guru's classes.

Good Luck

Vivek