Are For Sale by Owners- Notes still profitable in today's market

17 Replies

Hello Note Experts, 

I'm currently trying to look at different career paths dealing with real estate. I was wondering if there is still a thriven market for FSBO Notes?

I'm seeing people are obtaining traditional loans for the purchase of a home since interest rates are low. Which makes me wonder how the market is for obtaining and selling Notes are. 

Any feedback will be appreciated. I'm currently looking to become a licensed RE agent but I still on the fence about that. I have always been fascinated by the thought of wholesaling FSBO Notes, so before making a big investment in becoming an RE agent I just wanted some feedback.

@Florine Sanchez There will always be distressed property in any market. Interest rates being low is great. If you can qualify for a traditional loan, you should do it. The bank is a smart partner to have in a real estate deal. If you can't qualify, or you don't want the hassle of dealing with a bank, seek out seller financing. Be willing to pay a premium in order to get a seller to carry the note. If they are willing to give you a property with zero down and easy payments, there is probably a good reason. Like it isn't worth buying.

@Anthony Dooley   I think her question related to buying seller carry back debt instruments not her buying with seller financing.

@Florine Sanchez   deal flow is an issue in todays market you have that right.. but there are still notes to be had.. and especially new originations on performing notes.. those are always available.  however the folks that carry back paper get hammered with direct mail and there are a few bigger players that telemarket.. I I know I am constantly called by them.. I keep telling them NO I don't want to sell you are notes.. but they keep calling .

you can check out FCI exchange and do a little window shopping they are based in CA and are licensed to broker notes on their portal.

Sure they are out there to buy or broker. Is it still hot or not? In the retirement age group, it is alive and kicking. As bank regs have tightened up privet property owners have been doing more and more with seller financing. Servicing Companys are helping their clients sell off portfolios of investments some performing and much more non-preforming.   

Might I suggest going to an Expo and learning from people that are doing it every day?

The Best to You... 

@Gene Chandler owner occ notes in the secondary market I think your correct more NPN avalaible.. banks and or servicers really are just holding the performing notes.. its only the seller carry back private folks ( well not only but you know what I mean) that will sell performers for cash to do something else.

I appreciate everyone's feedback. I still like the idea of brokering Seller's carry back notes. I will need to do some research on the competition before really diving into this field. 

There is actually a ton of opportunity today in purchasing (or brokering, for that matter) seller-financed notes. And at high yields, no less. There is such a wide range of opportunity out there but I tend to gravitate towards the smaller-tier (in terms of price) single-family homes-- in large part because that is where the bulk of my experience lies but also because of the sheer numbers of these potential deals out there (at the moment, don't have current real figures in terms of percentages of owner financing to bank financing in this area but it is significant).

Let me give you an example of the kinds of opportunities that are out there. A fellow investor that I know recently purchased a seller-financed note secured by a small ($60,000) manufactured home in one of the southern states (BTW there are tremendous opportunities in notes secured by manufactured homes). The owner took back financing with a $5,000 down payment. The buyer had already made 60 monthly payments of $657.29 with 84 payments remaining. That's a solid payment history-- very well-seasoned. Very little chance of the buyer defaulting, as he was already almost halfway through the term of the loan. Any way you look at it, that's a very safe investment. (BTW this home was in a gated community with a golf course. There are some really nice manufactured home communities out there today and I believe this area tends to be overlooked by note investors... may be because there seems to be a perpetuating image or stigma attached to this type of property which tends to cast it in a [for lack of a better word, 'junky' or 'lowlife'] negative light.... kind of like mobile homes which also present huge opportunities as well.

Anyway, the note (after performing all due diligence, running buyer credit check, etc) was purchased for $29,407.72, reflecting an ITV of less than 50% (fantastic) with quite a high yield... 20.24% in this case. I love deals like this. Anything above 20%, I tend to vibrate. Although I can do much better in many cases but I digress..

I could run a couple of other recent examples but I wanted to make this a short post. I just wanted the above example to be reflective of the type (or genre) of deals that I like to be on the pulse of and tend to go after. (I can bump my yields even higher by using more advanced techniques like partials, for example but that is subject matter for another day.

And I like my note investing activities to be passive as I tend not to have a lot of free time (I think many of you are probably in the same boat).

With this in mind, it's been my experience that passive direct mail to a purchased leads list is the most cost effective, time-efficient way to find and nail down these deals.

Just try to find deals like this on FCI exchange. (You probably won't)

Direct mail is really a science (and I many cases relatively predictable in terms of projected to actual results) once you've been doing it long enough to get a solid program going.

One more thing-- I find that beginning direct mailers fail to follow up. And, that's a huge mistake because most of the deals are unearthed on the follow-up.

@Florine Sanchez I love seller financed notes and agree with @Tim Fitzgerald on the opportunity.  However I'm NOT a big on finding notes through FSBOs (For Sale By Owner) and here is why...  

1) When a seller tries to sell a property without a real estate agent it is usually because they don't want to pay a 6% commission. An unseasoned or new note will likely have a discount in excess of that % which the average FSBO seller will balk at.

2) A FSBO seller has to find a buyer for the property, agree to terms and get to closing before they have something we can buy on the secondary market. Those are a lot of "IFs"

3) A FSBO seller takes A LOT of hand holding which equals time.

So where do I like finding wholesale notes?

If someone is advertising For Sale With Owner Financing that indicates they have some level of knowledge and are a big step above a standard FSBO.

I also like marketing to professional note creators as they know how to create notes that are marketable. But as @Jay Hinrichs  pointed out they are hammered with solicitations. 

I prefer marketing to existing seller financed note holders on deals that have already closed (targeted direct mail, networking, servicing agents, online, etc).  They might still say No to the discount (until they have a need) but at least they have an existing asset to sell. 

@Tracy Z. Rewey   what I don't think a lot of folks realize is that buying notes is basically exactly like wholesaling the actual assets.

1. research  IE public records get address's from title company on every seller carry back note in your target area.

2. create direct mail piece for those address.

    Standard verbiage is:

Hey you need cash now  ... don't want to wait on payments and the risk of not getting paid.

call today for a full cash offer on your note.. we close in 5 days or less all cash.

3. once you have a seller you can simply open a note purchase escrow with a local title company or attorney office if its an attorney driven state.. now I know a lot people don't do this but I personally and for all my clients get a fresh title we pay for.. I used to do 104.1 endorsements but I think I am dating myself with those.

send money to title .. seller signs assignment and puts note into escrow .. and you close.

now were it gets tricky on the these deals is the owner occ requirements and lender liability issues that could arise and that's why I only work with commercial purpose notes .. keeps us FAR away from owner occs and all their drama..

@Jay Hinrichs boy I tell you, I just got into this business (primarily NPN) but half the time I don’t understand what you say; your awfully knowledgeable.

I know the difference between stupid and uninformed so it’s not like I feel stupid, but feel like I’m on the journey of 1000 miles and wondering what the hell I’m doing on this road.

@Robert Beryl   well I only charge 99k for my one on one training  LOL.. NOTES are not complicated when you deal in the commercial side and especially those that secure 1 to 4 units.. pretty vanilla stuff.

I was just commenting that people wonder how to get notes and .. direct mail is pretty big way.. I have been getting direct mail on my notes since I can remember .. My dad had a land business in the 60s and carried paper on hundreds of parcels a year .. so I grew up in it.. he probably half of them .. then would service them for the investors..

but that was in the day when we had little booklets that they sent in with the check.. our collection gal would literally hand do a amortization in the little booklet initial it and send it back.. so those booklets at the end of 5 to 7 years were pretty thread bare..

now of days its a little more automated :)  but the principal is the same.. someone has a note some one needs cash someone wants cash flow and yield.. and it becomes a negotiation

then you have risk reward.

my preference is good solid performing paper.. there are others than only want to take on NPN because of price points or seconds etc.. I have no interest personally in that end of the business.. some of those notes will hit great yields others can lose money and then everything in between.. our note folks like consistent yields and its the end of the world if the payment is 2 days late.. although 90% of the payments we set up for our investors are ach so that does not happen much.

I think I recall you posting about going in on a fractionalized note.. those in the right setting work fine.

when I had my HML company in Oakland CA in the lateer 80s that's literally all we did.. I had full time staff that did nothing but sliced and diced the monthly payments all by hand.. LOL.

that's why when the crowd funders started with 5k investments and putting 20 to 30 people in a loan I thought holly molly that's going to be some tough customer service and reporting.. and in a default its going to really be something.. and of course that has played out..

Anywho good luck.. not that complicated if I can do it !!!

@Jay Hinrichs thanks Jay. Yes you have so much experience, you got started, well that license in 1975 and I was only a few years old.

I do like the fractional investing. I got the documents today:

1) Deed of Trust (Recorded)
2) Promissory Note
3) Guaranty (2)
4) Title Commitment & Legal Description
5) Certificate of Insurance

The minimum is $50,000 and there were only 5 of us.

Though I have started with residential NPN for some reason commercial interests me. Well I don’t won’t to disrespect the person who started this thread and go off track but thanks for everything for taking the time to share your experiences with us here!

Wow! This is a lot of information on Seller financed notes. I'm tiring to figure out how to start and where to learn. Thank you @Tim Fitzgerald for the example of the manufactured home. Believe it or not, that is one area I wanted to corner in the Note world. @Tracy Z. Rewey great information about FSBO's. You are right, I'm sure the average FSBO would need a lot of hand-holding and most would prefer the buyer to be pre-approved for a loan before negotiating the sale of the home. Thanks, @Jay Hinrichs I appreciate your years and knowledge as well.  I'm not sure what "good solid performing paper" so if you could just share a little info on that I would appreciate it. 

Florine,  since its your thread we can go on any tangent you want.

Good performing paper in my world is paper ( notes) that are first position... borrowers who are professionals in the industry with long track records and substantial portfolios.. income at 2 to 3 X of the monthly payment to the note holder and ARV at 65% or so.... we have done about 1500 of these for NON accredited and accredited investors.. the other thing I like is the same as we are talking about one note one investor.. so that gives you the same command and control the fractionalized notes are fine as long as the broker putting them together with you is very good and reputable..

Originally posted by @Jay Hinrichs :

@Tracy Z. Rewey  what I don't think a lot of folks realize is that buying notes is basically exactly like wholesaling the actual assets.

1. research  IE public records get address's from title company on every seller carry back note in your target area.

Agree with you there Jay, plus now most counties have public records online and seller financed leads can be purchased from a reputable list provider without the hassle of going through the records yourself.  I don't miss the days of microfiche and dusty courthouse ledger books (which was actually my first introduction to notes back when I worked for a title company that an investor paid to dig through the records for seller financed notes).  Same concept just updated for 2018!

@Tracy Z. Rewey   our title companies on the west coast could give us this data with the click of a mouse in about 5 seconds if I wanted them..

I just ask for every DT recorded that has an individual name or LLC.. or IRA ..

Same thing I did when I created a data base of every owner of 10 acres of more of visible timber ( via telemetry) from the OR CA border to Tacoma.. we just took out the timber companies.. and worked that data base since 1992... its fluid data base though some have logged and some of the timber that was too young in 92 is now merch.. then I took that data base and going back to the day I reverse directoried them and then did tele marketing. unless we just could not get them on the phone we did very little direct mail..

At the route of most of WHAT BP and investors is about is learning the court houses  be it recorders office / planning departments/  surveyors office in the northwest with the unbelievable Arial photogs they have..  But then you now have all this new fangled stuff like Google earth  LOL  that took all that Arial photos and put them on line.. in on the West coast you have Property RADAR which takes it all and puts it on your phone.. Anyone in the Real estate business on the West coast that does not have that app on their phone is not serious about the craft.

@Odie Ayaga Hi Odie. It’s natural to see the successes of someone like @Jay Hinrichs and wish that were us. But don’t forget he’s been doing this over 40 years. We can’t be him. We can only be the the best of who we are! 

Just keep plugging away, that all we can do :)  

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