Minimum Capital For Buying Notes

Vancouver, British Columbia · Member since 2017 · 24 posts · 5 votes

If I want to be an individual investor, how much money do you need to have to play? Is it possible to buy some small notes in the $5-10K range?

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Bob Malecki

Investor · Kingston, WA · Member since 2008 · 1k+ posts · 1k+ votes

Sure but if you are buying 1st position debt, don't expect the underlying asset to be very pretty. I started out with a $14K first position NPL on a home at the time worth $30K. Got the borrower to pay $10K towards his arrearages of $25K and modified his loan to 8% (from 11%) and reamortized to a new 360 month term to get his payments down to around $350/month. After about 14 payments our cost basis was $0.00.

Borrower has defaulted a few more times over the years, we've had to file foreclosure which got him to the table for a forbearance agreement and resume payments. With 312 payments remaining and his home value now in the $70K range, having to spend some monies on legal fees every so often does not bother us.

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Gary Headrick
St. Marys, GA · Member since 2016 · 154 posts · 74 votes
8y
You might want to check Groundfloor. They sell fractional interest in notes for non accredited investors.
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Bob Malecki
Investor · Kingston, WA · Member since 2008 · 1k+ posts · 1k+ votes
8y
Sure but if you are buying 1st position debt, don't expect the underlying asset to be very pretty. I started out with a $14K first position NPL on a home at the time worth $30K. Got the borrower to pay $10K towards his arrearages of $25K and modified his loan to 8% (from 11%) and reamortized to a new 360 month term to get his payments down to around $350/month. After about 14 payments our cost basis was $0.00.
Borrower has defaulted a few more times over the years, we've had to file foreclosure which got him to the table for a forbearance agreement and resume payments. With 312 payments remaining and his home value now in the $70K range, having to spend some monies on legal fees every so often does not bother us.
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Tim S.
Investor · California, CA · Member since 2016 · 367 posts · 375 votes
8y
I'd say $25k. the lower value the asset is, the higher the risk. I'm referring to 1st position non-performing notes, not CFD's. You'll need some cash to pay expenses as well. Low value properties most likely are going to be in crime ridden areas, and/or the house will be a wreck.

You can do it for less, but I wouldn't recommend it.
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Ian IppolitoBusiness Member
Investor · Tampa, FL · Member since 2015 · 1k+ posts · 1k+ votes
8y
@Ryan, are you an accredited investor? If so, then 5K to 10K is plenty to be able to choose from most of the major hard money loan platforms. The advantage of crowdfunding, is that you pull your money with others, so you don’t have to fund the entire loan. This lets you get in at a much lower price point than buying the whole loan yourself.
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Alexander Burnett
Palm Beach, FL · Member since 2017 · 10 posts · 2 votes
8y
Ryan,
$5K is sufficient to get started in the debt investment arena.
Instead of your typical note investment, I would look into buying tax liens in your county. They are superior liens even to a first mortgage and are fully secured by real estate.
And the best part is that the county will do all the collection work for you.
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Chris SeveneyBusiness Member
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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
8y
Ryan Dutt $10k won’t get you a non performing note but you can get a performing / partial note for that price. Issue with non performing is you will need $5k for legal expenses etc so that leaves you withe little to buy the note. Feel free to shoot me an email offline if you want to discuss further
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Bob E.
Queen Creek, AZ · Member since 2014 · 2k+ posts · 1k+ votes
8y
Keep in mind, if you have to FC you are likely to need money not only to pay the legal fees but also to cover any back taxes, and if there are no auction buyers, to make repairs so you can resell it or rent it.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
Originally posted by @Alexander Burnett:

Ryan,
$5K is sufficient to get started in the debt investment arena.
Instead of your typical note investment, I would look into buying tax liens in your county. They are superior liens even to a first mortgage and are fully secured by real estate.
And the best part is that the county will do all the collection work for you.
for someone sitting in Canada buying tax sales would be a pig in a poke most of the time and could end up with some worthless sliver of land.. just because you buy a tax lien does not mean your going to get paid back any interest or your principal.
tax deed states like CA its a little easier because like you said its first position and you have some time to look at whats coming up and make a bid.. just like following a foreclosure sale.
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Alexander Burnett
Palm Beach, FL · Member since 2017 · 10 posts · 2 votes
8y
Originally posted by @Jay Hinrichs:
Originally posted by @Alexander Burnett:

Ryan,
$5K is sufficient to get started in the debt investment arena.
Instead of your typical note investment, I would look into buying tax liens in your county. They are superior liens even to a first mortgage and are fully secured by real estate.
And the best part is that the county will do all the collection work for you.
for someone sitting in Canada buying tax sales would be a pig in a poke most of the time and could end up with some worthless sliver of land.. just because you buy a tax lien does not mean your going to get paid back any interest or your principal.
tax deed states like CA its a little easier because like you said its first position and you have some time to look at whats coming up and make a bid.. just like following a foreclosure sale.
I didn't say you should buy liens on worthless land. Like any other investment strategy, you need to know what you're doing and perform due diligence. We have been buying liens for 20+ years and I have yet to get a property back. More than 95% get redeemed or sell at auction (which covers your entire investment + interest and fees). We have bought over $10M of liens over the years with interest of 18% to 24%. The yields are much higher depending on how long they take to pay off.
Doesn't matter where you live. Auctions are held online and all needed due diligence can easily be done online.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
@Alexander Burnett your a professional, !! others results may vary LOL...
most of what I have seen in your neck of the woods on property that will redeem get bid way down into the mid to low single diget return rates.
are you bidding in other states other than florida.. ?
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Alexander Burnett
Palm Beach, FL · Member since 2017 · 10 posts · 2 votes
8y
Originally posted by @Jay Hinrichs:
@Alexander Burnett your a professional, !! others results may vary LOL...
most of what I have seen in your neck of the woods on property that will redeem get bid way down into the mid to low single diget return rates.
are you bidding in other states other than florida.. ?
We buy in different states depending on the year. There is plenty of inventory left after the primary auction for the smaller investor to do very well with smaller amounts of capital to invest and get the highest interest (varies from 10% to 50% per annum)
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
@Alexander Burnett that's what I figured... I think if you find those little honey hole counties with not so much pressure .. but how do you actually do drive by's etc.. ?
the tax cert sales I went to in the deep south .. 10,000 certs were being sold in 2 days// I could see the pro's in the back of the room with their lap tops etc.
but I guess the on line over the counter stuff is what your talking about.
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Alexander Burnett
Palm Beach, FL · Member since 2017 · 10 posts · 2 votes
8y
Originally posted by @Jay Hinrichs:

@Alexander Burnett that's what I figured... I think if you find those little honey hole counties with not so much pressure .. but how do you actually do drive by's etc.. ?
the tax cert sales I went to in the deep south .. 10,000 certs were being sold in 2 days// I could see the pro's in the back of the room with their lap tops etc.
but I guess the on line over the counter stuff is what your talking about.
We never drive by any property. Redemption can take place at any time before the auction and drive by's would take an inordinate amount of time potentially for nothing. All the due diligence is done online.
Since I spend a lot of time in France and Italy, I do most of the buying from there.
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Account Closed
OP
Vancouver, British Columbia · Member since 2017 · 24 posts · 5 votes
8y
Thanks for chipping in with your responses everyone! I'm a total newbie so all of your information has been very educational for me. I really appreciate your time and help. Looking forward to buying some notes soon for dat cashflow! Cheers.
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Ned CareyPro Member
Moderator
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
8y
@Alexander Burnett You certainly don't want to buy in Baltimore then.
@Account Closed There are many online lending platforms. Prosper was an early one. I don't even know if they still exist. basically people present what they want the loan for and investors make them offers. I am not sure of names or how legit they are but I am sure someone here knows.
A risk of buying real estate notes with the small amount you have is you would likely only get one and that puts you at higher risk. If you have a portfolio of many notes and one goes bad you still have the others to help cover your loss. I believe the lending sites I mentioned allow you to lend small amounts to spread out that risk.
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Tim Fitzgerald
Specialist · Chicago, IL · Member since 2015 · 75 posts · 43 votes
8y
Suggested threads (You can use "other people's money" to get started as opposed to risking your own $ while you learn the ropes:
https://www.biggerpockets.com/forums/70/topics/518...

https://www.biggerpockets.com/forums/70/topics/510...

https://www.biggerpockets.com/forums/70/topics/504...

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Alexander Burnett
Palm Beach, FL · Member since 2017 · 10 posts · 2 votes
8y
Originally posted by @Ned Carey:

@Alexander Burnett You certainly don't want to buy in Baltimore then.
@Account Closed There are many online lending platforms. Prosper was an early one. I don't even know if they still exist. basically people present what they want the loan for and investors make them offers. I am not sure of names or how legit they are but I am sure someone here knows.
A risk of buying real estate notes with the small amount you have is you would likely only get one and that puts you at higher risk. If you have a portfolio of many notes and one goes bad you still have the others to help cover your loss. I believe the lending sites I mentioned allow you to lend small amounts to spread out that risk.
@Ned Carey There are thousands of county-held liens - $100 or less - that carry the highest interest allowed by statute (18% in Florida) leftover from the auction that most institutional investors ignore because they are too small. They are vey safe - no one would let a property go for that amount, and you would be happy if they did - As a beginner investor with $10,000, you could create an enviable portfolio of 100+ liens while learning the business.
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