State of the Union for 2018

10 Replies

Those that have been doing this a while, how do you feel about the current environment? There’s a flood of new people (including me) coming into the market and from talking to people in this for a while and reading, seems like there is less inventory and more people chasing it. Those that have been doing it have established relationships. My previous business I was good even though companies were shutting their doors left and right as I had good customers and provided quality service and we weren’t the cheapest by far. We didn’t compete on price we competed on service. So coming into the notes, I’m just another name. Obviously every business has its cycle, I’m wondering were the vets see this industry heading? Nobody is obviously can see the future, but just throwing it out there none the less. Thank you

WE fixed this by creating our own notes and not relying on buying from others.. however caveat is that's much easier for me to say than to do.. we have extensive background in many facets of the real estate business that lends it self to mom and pop investor style notes..

In my mind the freedom of information ( internet)  the HOW to class's  ( guru's  selling how to )

and then Soup D Jour

all of these add up to legions of people coming into different RE niche's heretofore were not the province of more of what I call the individual investor.. be them a successful business owner looking to do something new.. high wage earner looking for diversification etc.

And of course the mother of them all chasing Yield.. when people read about so and so who did this deal and made 30% or 100% or 300 %   they want in.

For the in whatever its worth file.. me personally I did a lot of courthouse steps buying and pre foreclosure work for years.. ( pre foreclosures sub too before that became illegal in the west coast states and well not illegal but highly regulated and not profitable)  the last court house steps auction I attended there was a little dinger in Portland opening bid 80k  this brings out the folks as the retail was 180k..

35 individuals qualified for that sale so that was 35 people with at least 80 in cashiers checks chasing one deal.. that ended up going for retail..

It was that sale that I decided to fire back up my NMLS license and just lend all these people money.. and make good returns but consistent and my days of hitting homeruns at the foreclosure auctions were over.. I could literally make more money loaning at 12% than I could buying the asset.

So there you go.. legions of people reading on sites like BP  LOW price of entry you can buy notes for under 10k  no license or experience required.. How to schools charging 30k like an Eddie Speed and all the other originizations teaching people how to.

So 6 years ago I said heck forget this I am just going to start a company that creates great notes all firsts all performing and service the conservative passive investor who does not have the time to chase down all these NPN or wants to compete or wants the risk of buying a bummer.. the client that just wants their 9 or 10% but wants it each and every month.. 1500 notes later here we are.. !! one of the best things I ever did...

Thank you @Jay Hinrichs for your detailed answer. The last business I was in was low barrier to entry too, but people don’t conduct themselves properly and don’t have the patience and ruin their name. I did it slow and steady, well not so slow but I kept my word and promises and picked it up quick.

I’ve bought one note so far. The law offices of Daniel Singer is handling it (I can’t speak high enough on him). But I also did a fractional investment on a development in TX that puts me in a first lien position (with the other investors). I should expect to receive 9% interest. I was told I was crazy; that’s not enough. But I feel chasing double digit returns in a field I know nothing about or next to nothing is crazier.

Thankfully my bills are paid and I’m going to take my time. It’s hard for me as a Northeast person as we do everything fast but I worked hard for what I have, I’m not going to blow it and if I am it’s going to be on one hell of a party not in investing in things I have no clue about. :)

I am slightly comforted by the fact that this is still one forum on Biggerpockets that is not right on the top. Slow and steady and if it doesn’t work, on to greener pastures. One door closes another opens up.

Thank you again Sir for your feedback.

@Robert Beryl
Predicting the future is like throwing a dart. If the current climate stays as is prices will continue to increase as their is a flood of new note investors.

I am curious what the retainment rate is for new investors as many who get involved in notes realize it’s a lot of work and it is not passive.

My hope is many jump to something else like crypto currency and gamble on Blockchain.

Thanks @Chris Seveney I agree we can’t predict the future but there are some old timers here that have been through cycles. This time might be different though.

Technology has opened up a lot of things to people that wouldn’t have had opportunities before. However you are right, this is not a get rich fast business. People watch too much tv and all this social media stuff and it’s mostly fake.

As a side note I buy sub prime auto notes (I really like that business, they don’t pay, repo the car) but I was talking to the dealer who’s been doing this for 30 years and he was saying it’s tougher now as the internet has increased competition etc.

But again as you said this is not so easy from what I see. I’m hoping that I can get in with a banker or two and build a relationship. My word is everything to me. I have several attorneys and I don’t even need to pay retainer fees. They know I pay. So I’ll hang in there and like I said slow and steady.

Well thanks for your input; I appreciate it.


@Robert Beryl

Your perception of the current marketplace is correct in my opinion. You've entered the space at the time of an upmarket that may be here to stay for awhile. My company and I entered the space in an upmarket as well; the only difference being it was really just a matter of months before one of the biggest economic crashes ever. Fortunately we were able to build and eventually thrive as a 2nd lien business in a down market because of that. The irony is, we've now grown enough in that time since the pendulum has swung the other way, we've bought more 1st and 2nd lien product this year than the last few years combined. The rub to the retail institutional note buyer is, we've also sold less than ever.

What you're describing when you talk about what you see right now, is really just a factor of the marketplace. And I also see that being much of the same for the retail note buyer throughout 2018 and possibly even further. I think on the institutional side, there's not much advantage to sell to the retail buyer for a variety of reasons. For example, many institutional funds can make more money either holding notes that are appreciating in value or selling notes in bulk to another bank where they can get things like NSO credits. It's not only about the money, but the risk as well with compliance being what it is.

Now I say all this but to Jay's point above, the note space is VAST and the market isn't everything, there are ways around it. I've told this story before and I'll probably tell it again but around the time of the crash I had a friend who didn't know what to do. He was nearly broke. His then-current business model of Buy and Hold was no longer working. He just couldn't get financing. So instead of remaining despondent, he decided to take a banker to lunch. What he was really doing wasn't "Hey, I have _____, will you lend me money on it?" He took the approach of asking, "What is it you're looking for? What is your bank or other banks you know, lending on?" The banker's answer at that time, was student housing. So my friend goes "Okay" and he began to adapt. He started by pounding the pavement for student housing deals, reaching out to his network, and building his team. Pretty soon he was raising private money for student housing rentals and finding the remainder of traditional financing needed pretty easy. That was 10 years ago. He now owns over $100 million in student and commercial Real Estate, and makes a pretty penny in his salary raising capital as well.

My point of the story is this: It's not about what "we" want as note investors. It's about discovering "what the market has to offer" and being able to adapt to it.

People often ask me "why aren't you selling as many notes today?" And my new favorite reply is "Where were you 5 years ago? We sold everything we had!" If you're going to buy in 2018 like you would in 2013, you're going to struggle to get product with higher prices, higher demand, and lower supply. Of course there will always be some sort of institutional product out there, it’s just a matter of how much and when. The good news is, there's a million ways to do the note business. Be it hard money lending, P2P lending, even seller financed notes seems to be coming back now that there's equity in the marketplace. Just like hard Real Estate, the possibilities are limitless and I see 2018 being a big year for many people in the note space.

@Dave Van Horn Thank you so much Mr Van Horn. I’ve read your post several times and will return to it. I am new and eager, but I need to breathe and find the road less travelled for lack of a better phrase.
There will always be a way. I’m grateful that I posted this as to get the type of responses I got.

I’ve learned so much in the last few months, it’s just that I’m impatient but as I age I’m learning the value of patience. Way beyond expectations, I’m in decent spot where I can devote time to this. Your comments articulated well what I felt but am not knowledgeable enough to coherently state. I am building a good team and will bide my time and keep learning.

As mentioned above I just invested in a project in TX and was surprised to learn that big developers don’t necessarily get all their financing from banks. I will not name drop but I mentioned this to my accountant and he told me one of their clients gets only a small amount from banks; there’s a whole avenue of different financing (this client is a massive well known international developer).

So I will continue to learn and can’t express my gratitude enough for you taking the time to respond to this post.

Thank you Sir; I truly appreciate it.


@Dave Van Horn   If I have learned anything in all my years in the industry ( and I use that as a very broad term  Real estate and real estate finance)  it ebbs it flows  whats hot one cycle is not the next . what I will be doing 5 years from now is probably not what I am doing today..

Like when I got into buying Timber in the 90s.. I did not know a pine tree from a fir tree .. I knew what an oak was LOL.. but the concepts were straight forward and in 2 short years we were the largest NON land owner log supplier in the Willamette valley.. moving millions of board feet of timber annually.

great story on the student rentals.. that's kind of how it went for me on the HML company.

I asked my banker one day I said I am tired of buying court house steps I want to use these same lines of credit to make loans how do I do that.. he laid it all out for me.. that grew to over 30 million.. but then 08 hit and well you know the rest of the story.. was not pretty.. and a very serious piece of humble pie.

Let me add this. To Dave's point of seller financing coming back-- and, as he also alluded to 'networking'- as in taking a banker to lunch---a serious long-term player in the note space should never overlook attorneys, accountants and financial planners as viable referral sources for this type of product. Reaching them requires a good long-term marketing plan which, when done correctly, can potentially result in multiple note referrals per year from each source. That can add up to a lot of money year after year.

Seeing that these types of financial professionals tend to have note holders amongst their clientele who, in many cases, have taken back seller financing (in many cases, the only time they've done this in their life)but are just not very educated as to how to manage the note, much less how to go about liquidating all or part of it to fill a financial need.

Most of my leads come from referral sources such as these who are looking to help their client out who is in need of cash for one reason or another. And I find these people relatively easy to work with... especially when they see how well I can guide them through the entire process in a very low-stress manner.

@Tim Fitzgerald yes you are right. I have a very good network down here in Florida. Also where my child goes to school (private) there are a lot of people that I’ve spoke to that are familiar with the Note business (they have clients). Further I just now was talking to a “cousin” whom I’m very close to.

He works for one of the major banks. He was telling me he has a client that just started originating mortgaged and it’s going well. He told me to get my license and he’ll send me people that don’t quiet fit the big banks criteria.

So as Mr Horn was stating, there is always a way in this vast industry.

It should be noted that the project I invested in in Texas was through a client of my accounting firm. It all boils down to keeping a good name and for me that’s first and foremost.

I can answer your question based on my knowledge this past fall and now. This is somewhat less analytical and a lot more anecdotal referenced in planning short term RE projects for the next six months. Relative to my regional market, asking prices are moving up, list to sell is down to days, and many regular home buyers are crossing the 100% threshold in multi offer scenarios. Short term answer, I am buying everything with a front door right now. Properties are still selling for far less than 8 years ago. Rental demand pressure is northward. I have relationships with finance and broker types in the field and that is the only channel that is providing good prospects, fast moving opportunities. Too many sharks chasing the MLS right now. The higher rental demand adds some insurance on an economic correction but everything I am seeing and hearing from my sources is a bounce. In my region we were still on the bottom until early fall and then the rumbling of change was in the air.


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