Which NOTES have MORE RISK?

[Shiloh Lundahl]

Like most investments, note investing can also be very active or very passive, depending on whether the note is performing or non-performing.

For note investors, which investments in your opinion have more risk and why:

1 - 2nd position performing notes in your own state close to home, or

2 - 1st position performing notes out of state in an area where the numbers make sense?

[Dave Van Horn]

It looks like this went from what seemed like an institutional note question to a seller finance noted question!

If it were institutional notes, @Patrick Desjardins is right. You're comparing apples to oranges in the original question. To make a decision it comes down to the borrower, collateral, and equity more than location, especially with a 2nd lien. Generally speaking, geography is less relevant with 2nd liens unless there's high equity and the risk is more statistical (i.e. your past data) and more dependent upon occupancy and senior lien status. With 1st liens it's all about sticks and bricks, and geography plays a bigger role (though it's not an end all be all since you don't know borrower intent, especially if the home is still occupied).

@Shiloh Lundahl

How do you own these properties you're looking to do 2nd liens with?

If an LLC owns the properties, have you tried getting a business line of credit to your LLC that's backed by the equity in your properties? That could be a viable strategy and while you're looking for a bank to do that, just find private investors willing to do seconds. They're out there. If they're not thrilled with the property attached to the note, then consider offering to cross collateralize it with another property. And lastly, to everyone's point above, licensing is something to be cognizant of when creating these types of notes.

If all else fails, maybe consider a different approach: selling shares of your LLC to a private investor and that way you don't have to create any notes!