Your Motivation To Start Investing In Mortgage Notes:

Tax Liens & Mortgage Notes
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Your Motivation To Start Investing In Mortgage Notes:

Bill McCafferty
Real Estate Investor · Coatesville, PA 19320 · Member since 2011 · 108 posts · 178 votes

Question of the day;
What was your biggest motivation to start Investing in Mortgage Notes?

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Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
7y

@Bill McCafferty

I found I could achieve my target ROI with a lot less risk and a lot less work and time investing in notes rather than investing in real estate.

I also found that notes secured by commercial property to have less competition on the buy side, thus available at higher yields. Added advantage is that commercial property notes are available in larger principal balances, are not tied to borrowers salary or income, are not subject to Federal regulation via the Dodd Frank Act or CFPB, nor are they subject to state laws regarding homestead or personal residences.

In 1999 I started investing in notes personally. In 2002 I started funding originations in addition to buying notes. In 2002 I started a commercial hard money investment fund and ultimately funded 400 plus commercial mortgage loans. The fund was terminated and liquidated in 2012. In 2013 I started a fund that (1) invests in hard money commercial loans I originate (2) invests in performing commercial mortgage loans we purchase from both individuals who owner financed a commercial property and banks wanting to remove a note from their portfolio, and (3) invests in commercial mortgage notes in default from banks where we are able to restructure the note so the borrower can avoid foreclosure, often providing him with the time necessary to sell the property.

My preference is to buy notes at a discount, as this is more profitable than originating private or hard money loans. However, since not enough are available meeting our criteria, we do continue to originate hard money loans.

On a personal level I also invest in real estate equity deals. Although my returns are lower than with my note investments, equity investments provide an inflation hedge, or inflation insurance should we have a return to the high inflation of the late 1970s and early 1980s. My strategy is to have my real estate portfolio leveraged 50% and value equal to twice my note portfolio. So if I have say two million dollars in notes, I also have two million invested in real estate at 50% leverage so the real estate is valued at four million. The result is that the entire four million invested is “inflation insured” by the four million in real estate.

I am able to obtain about a 16% annual yield on my note investments and about a 8% return on the real property investments. This does not include any capital gains appreciation on the equity side.

Private Mortgage Financing Partners, LLC
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  • Paul Murch
    Rental Property Investor · San Diego, CA · Member since 2012 · 33 posts · 7 votes
    7y

    For me, it was the best way to passively invest in RE in my self-directed IRA.

    4Reply
  • Bob Malecki
    Investor · Kingston, WA · Member since 2008 · 1k+ posts · 1k+ votes
    7y

    I I was flipping houses for about the past 10 years and realize that my notes is a much easier endeavor

    5Reply
  • Greg Felt
    Real Estate Agent · Memphis, TN · Member since 2008 · 146 posts · 24 votes
    7y

    you can buy non performing notes at deeping discounts than foreclosures and you also should get a better cash on cash return if you get the note back to performing, if you include the payment back on your original investment. You just don't have an asset when the mortgage balance is paid up.

    2Reply
  • Charles Campbell
    Rental Property Investor · Denton, TX · Member since 2017 · 28 posts · 33 votes
    7y

    I wanted to move some IRA funds from strictly financial markets/Wall St type investments to "NOT Wall St", and I was already comfortable investing in real estate outside my IRA, so it was a logical step.

    3Reply
  • Derek Kirkwood
    Palmdale, CA · Member since 2017 · 83 posts · 39 votes
    7y

    I find the stock market to be extremely boring.  I'll die of boredom long before I ever get to retirement.  It goes up, it goes down.  Usually more up than down.  Is there more to talk about?

    I like real estate.  I love that note investing is knowledge based.  Knowledge is power, you earn because you learn.  Its also reasonably portable which is great for my lifestyle.

    1Reply
  • Odie Ayaga
    Specialist · Delran, NJ · Member since 2016 · 2k+ posts · 951 votes
    7y

    @Dave Van Horn's explanation of all the different options available and the discounts you could buy at as well as the opportunity to help a borrower out of a tough situation.

    2Reply
  • Natasha Hunter
    Investor · Raleigh, NC · Member since 2013 · 49 posts · 55 votes
    7y

    I was a fix and flipper in FL back in 2013-2015. Inventory was getting super low and the prices started skyrocketing. My team and I attended a IRA event where they were discussing unconventional ways to invest in real estate through your IRA. Notes were mentioned but not really discussed. I started studying up on the subject. I then wondered upon Scott Carson's youtube channel and I could see how much potential this would have as cash flow. It also appealed to me that I could help someone stay in their home (my primary exit strategy) and still make money. It was a no brainer at that point. Don't have to worry about tenants and annual property maintenance.

    3Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y

    I am on the private short term origination end of the business..  So for me at least my second go around.. No one wants to hear what we did in the 80s.. 

    but in 95 to 2000 I was doing timber ( which was insanely profitable) and small developing and some fix and flips

    timber stalled out a little so I started buying courthouse steps in pretty big volume we had 10 million avalaible to buy homes some one of the top 3 in the pdx market. 

    the epiphany for me came when one day I am at auction nice little 3 2 rancher that arv say 170k remember this was 2000 today 3 X that but anyway opening bid was 80k and that always brings out the bidders.. So as I qualify my funds.. ( show the crier your cashiers checks and register).. 34 people qualified that was just under 3 million in cash and probably more since we all new it would bid up say maybe 4 mil plus in cash all cashing one little rancher. someone bid way high and at that point I said.. Crap I would be better lending to all these guys and let them do all the work.. so we took our 10 million and created a HML business and grew it to just over 35 million over the course of 6 or 7 years.. but then the GFC hit and it was at that point I realized that Cash flow rentals are not immune I was funding a bunch of them and ended up owing 200 of them and we got our clock cleaned.

    then we looked at a niche performing note model not a NPN model and have done about 60 million in that business last 5 years.. conservative returns but predictable and FAR more appropriate for IRAS most of the time compared to the risk of actually owning the asset. I tried to buy some bigger NPN tapes in the crash but boy it was hard getting to anyone who is real.. And I had no interest in low value notes.. too much work for little dollars. so we continue to fund flippers and basically loan money on our own projects for with others as a JV partner which I really like that. same passive component of notes but not the drama 97% of the time as dealing with defaulted homeowners...

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    2Reply
  • Sam Monderer
    Nassau county, NY · Member since 2011 · 26 posts · 2 votes
    7y

    @Jay Hinrichs

    That’s amazing

    0Reply
  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    7y

    @Bill McCafferty

    I found I could achieve my target ROI with a lot less risk and a lot less work and time investing in notes rather than investing in real estate.

    I also found that notes secured by commercial property to have less competition on the buy side, thus available at higher yields. Added advantage is that commercial property notes are available in larger principal balances, are not tied to borrowers salary or income, are not subject to Federal regulation via the Dodd Frank Act or CFPB, nor are they subject to state laws regarding homestead or personal residences.

    In 1999 I started investing in notes personally. In 2002 I started funding originations in addition to buying notes. In 2002 I started a commercial hard money investment fund and ultimately funded 400 plus commercial mortgage loans. The fund was terminated and liquidated in 2012. In 2013 I started a fund that (1) invests in hard money commercial loans I originate (2) invests in performing commercial mortgage loans we purchase from both individuals who owner financed a commercial property and banks wanting to remove a note from their portfolio, and (3) invests in commercial mortgage notes in default from banks where we are able to restructure the note so the borrower can avoid foreclosure, often providing him with the time necessary to sell the property.

    My preference is to buy notes at a discount, as this is more profitable than originating private or hard money loans. However, since not enough are available meeting our criteria, we do continue to originate hard money loans.

    On a personal level I also invest in real estate equity deals. Although my returns are lower than with my note investments, equity investments provide an inflation hedge, or inflation insurance should we have a return to the high inflation of the late 1970s and early 1980s. My strategy is to have my real estate portfolio leveraged 50% and value equal to twice my note portfolio. So if I have say two million dollars in notes, I also have two million invested in real estate at 50% leverage so the real estate is valued at four million. The result is that the entire four million invested is “inflation insured” by the four million in real estate.

    I am able to obtain about a 16% annual yield on my note investments and about a 8% return on the real property investments. This does not include any capital gains appreciation on the equity side.

    Private Mortgage Financing Partners, LLC
    WebsiteView Page
    6Reply
  • Mark Fries
    Contractor · Jacksonville, FL · Member since 2017 · 1k+ posts · 2k+ votes
    7y
    @Don Konipol I basically don't understand anything you said in your entire reply but it sounds incredibly smart and if I ever make, it I'm going to hire you to handle my stuff!! Lol...
    2Reply
  • Bill McCafferty
    OP
    Real Estate Investor · Coatesville, PA 19320 · Member since 2011 · 108 posts · 178 votes
    7y

    Thanks for the responses.

    1Reply
  • Dave Van HornPro Member
    Fund Manager · Wayne, PA · Member since 2009 · 1k+ posts · 1k+ votes
    7y

    The market crash of '08 was our main motivation!  At least to go completely head on into the business.

    Also the investment itself is fairly motivating....Where else can you tap into a cash-flowing asset, that's collateralized by hard real estate but you don't have to deal with the physical property itself?

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    5Reply
  • Greg Junge
    Investor · Parrish, FL · Member since 2014 · 120 posts · 115 votes
    7y
    Learning about note investing is on my list for 2019, Since I have some sdira funds that I want to use. Does anyone know of a "turnkey" operator for note investing? Is there one, or do you have to learn everything from the ground up and start from scratch with note education? Any help will be appreciated!
    1Reply
  • Tim Fitzgerald
    Specialist · Chicago, IL · Member since 2015 · 75 posts · 43 votes
    7y

    I got into notes for two reasons:

    1. A way to generate cash from essentially nothing by finding and referring notes to other investors; and

    2. For the ability to invest in the security of real estate without the inherent hassles of tenants and toilets .

    With notes, I have no headaches associated with the physical property, but the security of an (oftentimes) appreciating asset.

    But , for me, I find notes a whole lot more profitable than flipping property (if you’re a flipper, that is) as a means of generating cash.

    Through the years, I became more and more proficient at marketing for notes and forged relationships with larger-scale note investors who are always looking for more deals. Money in my pocket every time I turn one over to them. Their thirst for more, I’ve found, is unquenchable and I’ve trained a lot of people to act as "finders" for them. Since they don't have their own marketing departments, they're very receptive to the additional business.

    I love this business. Probably will never retire.

    2Reply
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    7y

    @Bill McCafferty

    Mine was to be able to meet bill mccafferty

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  • Bill McCafferty
    OP
    Real Estate Investor · Coatesville, PA 19320 · Member since 2011 · 108 posts · 178 votes
    7y

    @Chris Seveney

    The pleasure was all mine brother. Hope to run into this year. Love the FB page and the articles you post. Some good nuggets.

    0Reply
  • John Thedford
    Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    7y

    Easy profits without tenants and toilets. I started seven years ago and my only regret is not having started earlier.

    0Reply
  • Andy Mirza
    Lender · Ladera Ranch, CA · Member since 2014 · 1k+ posts · 1k+ votes
    7y

    The main motivation is to make enough money to put food on the table. Beyond that, there is no limit to how much money I can make past that amount. I thoroughly enjoy the challenge. Every day I'm facing a new issue, a new problem, a new complication to managing notes, and I get a kick out of solving the problems. I really do learn something new every day (or close to it!), which keeps things interesting.

    1Reply
  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    7y

    A related question is if you are a note investor do you also invest in ownership of real estate?  And in what form?

    Private Mortgage Financing Partners, LLC
    WebsiteView Page
    0Reply
  • Ken Hobbick
    Investor · Parker, CO · Member since 2014 · 42 posts · 44 votes
    7y

    I started investing in income property after years of continuing disappointing ups and downs from stock market. I wished I could invest all my funds in 401k stocks into real estate but owning property within your 401k is less than ideal, that's when I found out you can own the notes within your IRA and generate long term cash flows without the risks of tenants and repairs.

    0Reply
  • Duriel Taylor
    Realtor · FL · Member since 2013 · 372 posts · 83 votes
    7y

    Anyone here can share with sourcing NPN? either brokers, wholesalers, alternative websites from the usual ones, etc. I look forward to hearing from everyone hear. Thank you in advance for the referrals and or suggestions.

    0Reply
  • Sunny Shakhawala
    Parsippany, NJ · Member since 2016 · 64 posts · 49 votes
    7y

    Similar yield, much less work. 

    No tax benefits. Trade offs. 

    0Reply
  • Dave Van HornPro Member
    Fund Manager · Wayne, PA · Member since 2009 · 1k+ posts · 1k+ votes
    7y

    @Don Konipol Of course! 

    Its funny, I think when people hear I'm a note guy they assume I don't do hard real estate anymore and it couldn't be further from the truth. In fact, when we're buying large pools or tapes of 1sts, a large percentage are vacant upon purchase - so we're really in the hard real estate business when we're in the note business.

    Not to mention, I have personal holdings - both a residential portfolio and a growing commercial portfolio. I like both investment classes (as well as a few others) and try to take advantage of the benefits in tandem.

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    0Reply
  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    7y

    @Dave Van Horn, you've done such a GREAT job as a knowledgeable, successful note investor that no one thinks of you as investing in anything else.  But as we know to be successful in the note business, you must have real estate expertise as well as mortgage knowledge.

    Private Mortgage Financing Partners, LLC
    WebsiteView Page
    2Reply
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