Purchasing Out-of-State Notes
Attorney · United Kingdom · Member since 2017 · 41 posts · 16 votes
Purchasing Out-of-State Notes
Most Popular Reply
Real Estate Coach · DE · Member since 2013 · 64 posts · 85 votes
8y@Zach Bollman without taking over this post and rambling on a ton of Info your seeing already, the one thing I preach at every event I speak at or anyone I try to educate is to understand your true goal for note investing. Why are you investing in notes? Why I ask and with that said it will back out on the note you acquire and your exit strategy.
For example: I’ve been at real estate investing for 27 years and lending/notes for about 18 years. About 7 years ago I changed my vision. My vision now is to truly live passively off my model which I do I believe better than most. It’s not toninpres but to impress upon that I stay focused on my vision of true passive wealth.
I have 8-9 exit strategies. Most people have 1-2 and neither will get them to their goals if they say they want what we do. The one box I MUST check every time or I don’t buy the note is that I must be willing to hold that house as a rental in my portfolio. Do you really want properties or CFDs worth 20-30k in class D neighborhoods in your so called “Passive” portfolio???? Is it really going to be passive???
When I ask this question to some potential students or attendees at events I'm a speaker at most are terrified and say no but then buy notes valued at 20-30k ARV should they need to take them back as an REO. I know many say I'm not in this to be a landlord. That's great but what happens when you have no choice. Being a landlord is great if done on the right asset in the right emerging market. Ask anyone who has purchased a turn key rental of mine. Yes I even said a turn key rental I sold for cash or on a "Seller Financed" note. So now you created your own note that's clean and you Keep For true passive wealth or feel free to sell as a performer or partial. Think long term first and back out from there and your business will flourish rather than buying a low end note that has vvery few long term strategies. With that I wish you all the best
49 Replies
- Specialist · Frederick, MD · Member since 2017 · 474 posts · 454 votes8y
@Zach Bollman - You're an Attorney so I can't resist saying, "it depends"
But seriously - another Attorney I know likes to invest in her own state because she's confident that should things go south on a deal she'd be able take action in a much more active way and have greater knowledge regarding the course of action (I'm paraphrasing).
I own a non-performing note in Missouri now. It's my first. I don't live there - as it looks like you do. It's a non-judicial state with the possibility of fast foreclosures. Two positives should you need to go that route, and at times you may.
In other states, such as neighboring Kansas, an Attorney I consulted advised that I would be required be licensed to purchase a mortgage in that state. Specifically: "Acquiring a Kansas mortgage subjects the buyer to K.S.A. 9-2203 and its licensing requirement."
Speaking directly to borrowers is something I've left to my licensed servicer because of the exposure risk there. Something obviously you'd research further if you planned to do so.
- Attorney · United Kingdom · Member since 2017 · 41 posts · 16 votes8y
@Marco Bario Indeed it does depend!
My comfort with notes in Missouri is that I'm licensed to practice here and thus can avoid a bit of the legal costs associated with hiring a local attorney should issues arise. I seem to have the same view as the attorney you know.
I'm curious regarding your experience with the servicer and the non-performing debtor. Given that the note is currently non-performing, have you left communication and negotiating up to the servicer? I'm not really sure how this aspect works as I assumed creditors worked directly with the non-performing debtors to attempt to establish a new obligation to get the debtor reperforming. However, perhaps my assumption is a bit out in left field when compared to practice.
As you can tell, this is a completely new realm for me. My practice is focused in real estate development, incentives, and commercial/corporate real estate, so the world of residential real estate is completely new. Thanks in advance!
- Investor · Chapel Hill, NC · Member since 2016 · 6 posts · 3 votes8y
Some lenders do talk to the borrower directly to work out new terms, but if you do that you have to be very careful not to run afoul of any laws. There are very specific things you are prohibited from doing or saying. To avoid that risk many note holders pay the note servicers to handle communication with the borrower. Good servicers are well trained to do avoid any legal issues.
- Specialist · Frederick, MD · Member since 2017 · 474 posts · 454 votes8y
If it's a performing loan, your servicer will accept payments on your behalf, issue statements and annual tax forms, reply to requests for payoff statements and perhaps most importantly watch your back as well as theirs when it comes to general compliance issues. Not every investor uses them in every circumstance for performing loans. Definitely "depends"
Non-performing loans take on a new set of concerns such as debt collection rules and sometimes bankruptcy. I'm working with Madison Management and paying them for "Full Collection" where they contact borrowers and pursue discussions on my behalf. Today I just ordered a "door knock" service Madison has been unable to reach a borrower via phone. Should they be successful in making in person contact, they will try to facilitate a conversation between the borrower and the servicer.
Each servicer is a little different in the services they offer, and some would say their strengths and weaknesses.
I've never had a performing loan turn non-performing so I can't share first hand knowledge on that, but certainly something a qualified servicer should be equipped to handle.
- Attorney · United Kingdom · Member since 2017 · 41 posts · 16 votes8y
@Bill Loeb Great information -- thanks! I didn't realize that services provide middle-man services for negotiating with non-performing debtors.
@Marco Bario Do you know of any resources that provide credible reviews of servicers in relation to smaller notes, such as a $30,000 second lien?
- Specialist · Frederick, MD · Member since 2017 · 474 posts · 454 votes8y
@Zach Bollman - I wish there were those types of reviews out there, but it's really a combination of networking and trial/error. Some have minimum volume requirements. Madison Management Services does not, nor does FCI Services.
- Attorney · United Kingdom · Member since 2017 · 41 posts · 16 votes8y
@Marco Bario Thanks for the information. I'll dig through the forums and see what I can come up with.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes8yZach Bollman To tag along what Marco noted - I have performing and non performing notes and I have never spoken with a borrower - I outsource everything. For non performing notes if I buy it non performing I usually use law offices of Daniel singer or polaris credit counselors to do the initial outreach. I have had better success with them than the servicer. For servicing I use Madison for most of my notes and have SNSC for a few others. There are some servicers who you could not pay me to use as their customer service is so awful - one of them I left 24 voice messages and never got a phone call back.
7e investments53 Reviews - Attorney · United Kingdom · Member since 2017 · 41 posts · 16 votes8y
@Chris Seveney Thank you for the information. I have seen a bit about FCI — they wouldn’t be one of those you would use, would they?
Also have a related question: for someone new to notes but happy to put some effort into them, would you suggest sticking to performing notes for the first bit, or perhaps dipping a toe into a non-performing note? The reason I ask is the performing notes tend to require quite a bit more capital to acquire while non-performing notes are obviously less expensive — for someone uncomfortable with putting $60,000 into a single performing note, potentially putting $5,000 into a non-performing note as a learning experience seems like a better route. However, being completely new to this, I’m unsure on the reality of the situation.
Thanks!
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes8y
I will send you a PM on who is in my do not use list.
I recommend to people to start off typically with a performing note (or CFD). The reason I recommend that is
1. They are typically safer investments than non performing but your never guaranteed anything
2. You get to know the process. There are a lot of little things you go through when boarding the note and getting it setup. Why not learn all of that with a performing note
3. You can buy a performing note with a low UPB ($5-$10k) with substantial equity in the property. Thus having the note secured by high equity
In that price range you would be targeting a 8-12% return Which i would take all day long on an asset with a ton of equity
7e investments53 Reviews - Attorney · United Kingdom · Member since 2017 · 41 posts · 16 votes8y
@Chris Seveney Thank you for the great information. I haven't come across many of these UPB notes around $10,000 — perhaps I'm looking in the wrong place. Is there an exchnage, or exchanges, you recommend for finding these notes? Would love to get some experience in the world of notes, but throwing $50,000 into something I've never really dealt with is unnerving. Thanks again for your help!
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes8y
@Zach Bollman there is fci exchange, watermark exchange, paperstac, madison management, loan mls are a few sites
I recommend going on Facebook and joining some note investing groups like @Martin Saenz group note investing made easier and post about you and what your looking for. There are individual investors always looking to move product
7e investments53 Reviews - Attorney · United Kingdom · Member since 2017 · 41 posts · 16 votes8y
@Chris Seveney Will do. Thanks again for all the information!
- Investor · Fredericksburg, VA · Member since 2017 · 377 posts · 230 votes8y
Great discussion here.I would just add that note investing is a business whereby you need to learn the fundamentals and have an action plan in place.That requires self-reflection, a budget, branding, a team in place, and systems.Once you begin your pursuit of education while self-reflecting on your long term goals, you will form parameters.Those parameters might include states you prefer and don’t prefer.At the end of the day, you want to be careful that others aren’t setting your parameters up as it should be an organic process you come to realize for yourself.Hope that makes some sense as that is how I approach it. @Chris Seveney...thank you for looping me in. This one is interesting
- Real Estate Coach · DE · Member since 2013 · 64 posts · 85 votes8y
@Zach Bollman without taking over this post and rambling on a ton of Info your seeing already, the one thing I preach at every event I speak at or anyone I try to educate is to understand your true goal for note investing. Why are you investing in notes? Why I ask and with that said it will back out on the note you acquire and your exit strategy.
For example: I’ve been at real estate investing for 27 years and lending/notes for about 18 years. About 7 years ago I changed my vision. My vision now is to truly live passively off my model which I do I believe better than most. It’s not toninpres but to impress upon that I stay focused on my vision of true passive wealth.
I have 8-9 exit strategies. Most people have 1-2 and neither will get them to their goals if they say they want what we do. The one box I MUST check every time or I don’t buy the note is that I must be willing to hold that house as a rental in my portfolio. Do you really want properties or CFDs worth 20-30k in class D neighborhoods in your so called “Passive” portfolio???? Is it really going to be passive???
When I ask this question to some potential students or attendees at events I'm a speaker at most are terrified and say no but then buy notes valued at 20-30k ARV should they need to take them back as an REO. I know many say I'm not in this to be a landlord. That's great but what happens when you have no choice. Being a landlord is great if done on the right asset in the right emerging market. Ask anyone who has purchased a turn key rental of mine. Yes I even said a turn key rental I sold for cash or on a "Seller Financed" note. So now you created your own note that's clean and you Keep For true passive wealth or feel free to sell as a performer or partial. Think long term first and back out from there and your business will flourish rather than buying a low end note that has vvery few long term strategies. With that I wish you all the best
- 8yDan DeppenBusiness MemberErie, CO · Member since 2017 · 274 posts · 267 votes
Originally posted by @Zach Bollman:
@Chris Seveney Thank you for the great information. I haven't come across many of these UPB notes around $10,000 — perhaps I'm looking in the wrong place. Is there an exchnage, or exchanges, you recommend for finding these notes? Would love to get some experience in the world of notes, but throwing $50,000 into something I've never really dealt with is unnerving. Thanks again for your help!
I made a video that lists some sources of notes. I can't post a link here but I'll send you a PM.
- Attorney · United Kingdom · Member since 2017 · 41 posts · 16 votes8y
@Dan Zitofsky Thank you for the great information. I fully appreciate the reality of buying a note secured by a property that I would be willing to hold and rent. Given this, I'm currently looking for notes near the back-end of their payment schedule since they are backed by a property I would be willing to hold and likely don't require a $50,000+ investment up front.
As I mentioned above, my biggest concern is throwing $50,000+ into a single note without having any real experience as a note investor. Given my overall assets at the moment, $50,000+ into a single note is rather uncomfortable and creates massive exposure to a single asset. Again, perhaps this is just the inherent reality of the note space given my current financial situation. Overall, my long-term goal is not to accumulate a bunch of notes backed by class D neighborhoods, but for the moment, my interest is to find a note with a lower UPB to be a learning experience while keeping exposure down. After gaining a better understanding of the entire process through the hands-on process of acquiring and setting up note service, I would likely be willing to jump into more ideal notes for my current situation (e.g., second liens in class B/A neighborhoods, lower UPB firsts in class B/A neighborhoods).
Given your experience, is the ideal entry into note investing through larger performing notes? As you mentioned, note investors often cite not wanting to be a landlord, but the reason for secured investing is the ability to reposes the collateral which will require being a landlord until the title can be cleared. Thus, many note investors seem to pursue a logical fallacy in their investing: purchasing notes secured by properties they would never want to own. In my situation, I'm interested in note investing because notes are more familiar to me. I have neither owned a note nor an investment property; however, my prior work in banking and now as a real estate attorney have created a bit of comfort with notes as I deal with lending on a regular basis -- notes provide an opportunity for me to focus on what I'm familiar with, although the reality of becoming a landlord is always present. Given the above, what would you consider to be an ideal entry point for someone new to note investing?
Thank you for your time!
- Lender · Sioux Falls, SD · Member since 2016 · 26 posts · 20 votes8y
@Dan Deppen and @Chris Seveney
I'm in the same place as Zach. Any chance I could get your video and do not use list too? This is a great post for us newbies. Thank you all for helping us, and thanks, Zach, for getting it started!
- Investor · Adkins, TX · Member since 2012 · 193 posts · 93 votes8y
@Dan Zitofsky Makes particle sense. Class D can mean disaster.
- Napa, CA · Member since 2017 · 57 posts · 27 votes8y
Thanks also @Dan Zitofsky. I'm also a newbie trying to figure this space out.
@Dan Deppen - I'd also love to see your video if possible.
@Joshua Hilliard
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Dan Zitofsky I came to this realization personally as well.. I started in 1982 in HML.... got my butt handed to me in 08 to 2010 like a lot of us lenders in the HML space.
and then coming out of that I am with you Commerical loans on rentals with a ton of equity in B and C areas.
dual form of repayment and many exits..
I know 99% of investors want owner occ only i think becasue that what the gurus tell them :)
but I like to take the emotion out of it and I dont want any defaults or have to deal with any delinquencies or spend a dime on collections.
to that end we are closing in on 2,000 notes done in this manner in the last 6 years.. If these are done properly these are the ultimate in passive income and what i call turnkey note investing... 100% of your money goes to the note and other than a modest servicing fee if you chose to have someone do the collections your not spending all this time and effort on finding them and then dealing with homeowner drama and if your not dealing with home owner drama your paying someone to deal with it.. I get it and its a niche but there is other note opportunities that preclude this type of collection efforts.
- Real Estate Coach · DE · Member since 2013 · 64 posts · 85 votes8y
@Jay Hinrichs I love your comment and may be the only one out there playing in the same sand box as me. I cant keep preaching this to new investors as they see the light from a guru so much differently. I literally speak about this on stage all over the world now and on every interview Im on as well as my pages but most dont see it. Whats crazy is most in the business are in because they want true passive income and their actions dont speak the same way. As far as non owner occupied or occupied I do non owner occupied 99% of the time. Many reasons. I sell my assets with equity and skin in the game to the investor seeking passive income and wealth creation. I now have a note thats performing, where the property has been rehabbed, rented and managed with skin in the game. I used to sell tons of partials from here after 6-12 months and now pretty much hold on to all of them. With these notes so valuable I get offered PAR or extremely close to it each time. I also have to look at Dodd Frank and CFPB on the owner occupied seller financing which is another reason I focus on seller financing to investors.
Thanks again for the comment so others understand how powerful what we do could be and how they should plan and set themselves up from the beginning. I literally just finished a coaching call with a student of a past GURU they worked with that had them buy 8 Class D assets in 7 markets because thats what they could afford to buy. Literally when I got involved we were able to sell 3 for a profit after tons of work and the others are a wreck. Why??? because they never estimated taking the properties back and the rehab costs. This comes up all the time and people new in the industry tell me if that happens they'll sell as REO to investors. Well, being they are my students I am willing to help them and will try to get them sold as is for them but I dont mess in these low end areas so its going to be tough and Im sure a loss for them. Reason I mention this is they didnt understand the worst exit strategy and it came to life and usually does. If it doesnt work with the worst exit strategy you need to stay away from the note @Zach Bollman
- Attorney · United Kingdom · Member since 2017 · 41 posts · 16 votes8y
@Dan Zitofsky Thanks again for the replies and great information. In the other thread, @Jay Hinrichs mentioned commercial notes, which I did not realize he was referring to, and it seems you have been as well. In light of this, your advice as well as Jay's makes much more sense: I had been looking at the risks and additional requirements of owner-occupied notes. Seeing that much of the information around here, and note investing in general, focuses on owner-occupied notes, do you have any suggestions for where to learn more about commercial notes specifically? I am much more interested in commercial notes, and commercial lending generally. I would prefer to leave owner-occupied financing to Fannie... As always, thank you for your time.
- Real Estate Coach · DE · Member since 2013 · 64 posts · 85 votes8y
[Removed by Moderators]
My whole business model is based around commercial notes and turning non performing assets (Notes, Tax Liens, REOS and Distressed seller deals) into performing notes with skin in the game and equity. It totally changed the game for me the past 8 years.
- Investor · Boca Raton, FL · Member since 2012 · 1k+ posts · 1k+ votes8y
I am out of state to every note I buy, and as a matter of fact I have 3 in your area and doing due diligence on a few more that bids were accepted on.
You really should consider JV partnering with an experienced note buyer, and invest in 2 or 3 low value notes to spread the risk and learn as you go. This is how I started out originally, along with self educating am now full time into the business and loving every minute of it.
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