Specialist · San Diego, CA · Member since 2019 · 12 posts · 4 votes
Hi so I'm somewhat new to the real estate investing world. I have been soaking up as much information as I can from different outlets trying to decided what avenue to pursue and originally I had thought buy and holds seemed the most viable for me. But then I found out about note investing and it's been very intriguing to me. It seems like exactly the kind of passively active investment I have been looking for.
However, I'm still young (25 as of next week) and haven't had time to build up a lot of capital yet. From my understanding it's much more difficult to leverage notes and use OPM to buy them than it is with hard real estate. So, I'm going to go ahead and assume I can't just jump right in and start buying when I'm barely going to be able to afford 1-2 steeply discounted notes.
Something I have seen mentioned but can't find much information on, is the idea of wholesaling or bird dogging notes same as you would hard real estate.
Does anyone have any good information on the viability of this? Does it fall under the same guidelines as real property, and if I want to pursue that, should I start by getting a real estate license to protect me legally? Would I have to get a license in each state that I'm buying notes from if that's the case? And does anyone know an active note broker that has been able to do this successfully?
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
6y
not sure what is scarier, that you do not see the risk involved in note investing or the actual amount of risk there is in non performing note investing.
The note business is very much a relationship business. It takes a lot of time, dedication and networking to establish rapport and credibility with banks and funds that regularly sell notes. It is highly advisable as well to get educated as much as possible in this niche, as there is a very steep learning curve and you'll need to understand the business if you are trying to broker to others.
Another avenue you can pursue is canvassing Owner Finance notes, with a letter or SEO campaign, etc.
As far as licencing, becoming a realtor is not the answer, if you are brokering technically you should be taking ownership in the chain in the transaction. There are only a few legitimate brokers that I know of and deal with that are quite successful, but they have years of experience and connections in the business.
Thanks for the input. I've definitely been finding that it is mostly about networking and I've been trying to make some more connections and get involved with some training programs.
Would you mind explaining a little more about SEO campaign? I am not familiar with that.
Thanks for the input. I've definitely been finding that it is mostly about networking and I've been trying to make some more connections and get involved with some training programs.
Would you mind explaining a little more about SEO campaign? I am not familiar with that.
SEO = Search Engine Optimization. What I mean is look into setting up a website landing page for potential sellers of Owner Finance notes in addition to a mail campaign.
Thanks for the input. I've definitely been finding that it is mostly about networking and I've been trying to make some more connections and get involved with some training programs.
Would you mind explaining a little more about SEO campaign? I am not familiar with that.
SEO = Search Engine Optimization. What I mean is look into setting up a website landing page for potential sellers of Owner Finance notes in addition to a mail campaign.
Got it I will look into that. So just in your opinion do you think it is more viable to find someone more experienced to JV with and learn that way first? I do have a small amount of capital I could invest now but it's not much.
Yes, JV'ing with someone is a great way to learn, however not many will want to teach you everything if you don't have some sort of knowledge base to start from. I would recommend getting educated through the people like @Scott Carson@Martin Saenz or Eddie Speed.
Thanks for the input. I've definitely been finding that it is mostly about networking and I've been trying to make some more connections and get involved with some training programs.
Would you mind explaining a little more about SEO campaign? I am not familiar with that.
SEO = Search Engine Optimization. What I mean is look into setting up a website landing page for potential sellers of Owner Finance notes in addition to a mail campaign.
Got it I will look into that. So just in your opinion do you think it is more viable to find someone more experienced to JV with and learn that way first? I do have a small amount of capital I could invest now but it's not much.
JVing is one way to break in but you have to bring something to the table. In my case, I brought capital with me so that I could buy a couple of notes. Typically, the professional note investor will run out of investable capital because he or she has more access to deals than available capital. Sources of deals can come and go but once you get established, getting money seems to be the limiting factor.
As Chad mentioned, there is a steep learning curve and it takes time to establish relationships. If you want to get involved in institutional NPNs, you have a long way to run to get caught up with those that have been working in this space for years. My two cents would be for you to concentrate on trying to find privately originated notes to buy in your own back yard from motivated "don't wanters." At the same time, work on finding people who want to invest in notes but don't have the time to do. They can be your capital partners so that you can buy notes together.
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
7y
One thing not often discussed is the legality of brokering a note. If you do not take ownership of it and try and broker / wholesale it, a Note by the SEC is a security instrument and may be very similar to a stock, so in order to broker it you need to be licensed
I do not know anyone who has ever had a complaint or been slapped by a financial regulator for this but if you talk to an attorney most will take the cautious route and say brokering without a license is a violation
One thing not often discussed is the legality of brokering a note. If you do not take ownership of it and try and broker / wholesale it, a Note by the SEC is a security instrument and may be very similar to a stock, so in order to broker it you need to be licensed
I do not know anyone who has ever had a complaint or been slapped by a financial regulator for this but if you talk to an attorney most will take the cautious route and say brokering without a license is a violation
Agreed. The brokers I know have their situations handled, and I think there are a lot of opinions out there as to what constitutes "brokering" as opposed to "facilitating" or whatever you want to call it. I don't think most people will run into problems unless someone complains to some regulatory agency. That's not a risk I'd be comfortable taking but there are lots of folks out there that do.
Syndication Attorney in Newport Beach, CA · Member since 2014 · 55 posts · 83 votes
7y
Notes, in general, are considered securities. So if you plan to raise money in order to buy a bunch of notes, be aware that you are selling securities and must comply with both federal and state securities laws.
Rental Property Investor · Denton, TX · Member since 2017 · 28 posts · 33 votes
7y
@Megan Randolf, you've received a lot of good feedback already. I got started in notes by taking some of the training already mentioned and did my first note by funding a JV with another pro on this list @Bob Malecki. You can learn a lot by looking over a pro's shoulder when you're just getting started. It's a very helpful community.
Specialist · Chicago, IL · Member since 2015 · 75 posts · 43 votes
7y
[Looking over a pro's shoulder] is the definitive way to go. I see where most people who are just starting out looking to get into notes are (to me, anyway) barking up the wrong tree. You'll be spinning your wheels by trying to go to banks. You need to be very, very well connected to go that route, and, even then, NPNs are a very questionable focus for a newbie with limited capital and no experience with notes at all.
And, I also wouldn't "JV" with anyone that I don't know well, either because that will require you to put up some of your own capital. Instead, I advocate "bird-dogging" or 'finding' individual note holders and then referring them to high-volume note buyers. Very safe when it's done correctly. That's the big key-- done CORRECTLY. You can absolutely run afoul of securities laws if NOT done correctly... that said, there are always funders out there looking for more business who are licensed themselves and regularly pay people for referrals whereby THE FUNDER orchestrates and controls the note transaction properly while the referral agent stays outside the transaction.
The big key for a new note person looking to break in should, I think, go this route by concentrating on the MARKETING end, seeking out and finding private note sellers. If you can find them, you can find a funder interested in those notes, earning fees that way, thereby amassing capital with which to eventually buy your own notes to hold or resell or parlay into other assets. All without risking a dime of your own money.
And the advice the other gentleman offered with respect to "SEO" and setting up a website-- you may well go ahead and do that, but good luck getting found easily and, also, trying to 'attract' "ma and pa" note sellers (which is most of what I chase) that way is tough because, in many cases (this is my experience and I've been at this 20 plus years) these note holders aren't very educated as to the type of asset they really own and have a limited or no understanding of their options (such as the ability to sell the note to generate cash). Therefore, they aren't looking for you and they are not the ones searching the internet for note buyers... so you need to be an educator (to make them aware of their options) as well as a marketer.
Learn how to market effectively and you can make pretty good money. I do know funders who are always looking for more business who will train you in the business if you can bring them business. I can probably help point you in the right direction if you are interested in starting out this way. It's a great way to learn the note business and earn at the same time. If you want to PM me, do so and I can maybe give you a little guidance.
Investor · Kingston, WA · Member since 2008 · 1k+ posts · 1k+ votes
7y
Hi @Mauricio Rauld actually notes are considered personal property and I don't think a security if bought/sold in the context of this discussion - just an assets similar to a piece of land or a home.
Ahh biggerpockets and the nay sayers, like peanut butter and jelly!
I don't understand the fear of investing in notes. What are some examples of not doing it correctly? Its a fairly simple business, aside from needing to know state regs and foreclosure processes in order to have a good grasp on the numbers. Aside from that we're talking about opportunities to buy assets at big discounts, and also flip those assets with no sweat equity, what is not to love. Not only can you make great returns but you can actually help people in need instead of taking advantage of situations.
I am really interested in getting into notes, especially coming from the agent, landlord, flipping, and wholesaling world. There are so many exit strategies with notes, I imagine the hardest part is just cultivating relationships with asset managers.
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
6y
not sure what is scarier, that you do not see the risk involved in note investing or the actual amount of risk there is in non performing note investing.
not sure what is scarier, that you do not see the risk involved in note investing or the actual amount of risk there is in non performing note investing.
that one actually made me chuckle out loud .. there are few things in real estate that are more complex than buying NPN on owner occ properties..
Now commercial notes and notes on bare land that's a different kettle of fish altogether.. Also for those reading the threads the recommendation for Scott Carson should be struck out .. turned out his JV model ended up not so well.
not sure what is scarier, that you do not see the risk involved in note investing or the actual amount of risk there is in non performing note investing.
who was the guy who sold the course on how to broker notes .. he was from Colorado ended up getting indicted and I think did jail time.
during his run.. Craigs list was full of daisy chain no money broker notes.. it was a cluster of epic proportions.
I don't think the license issue comes up really with regulators.. its if someone has a bad experience and they sue you the other side is going to claim you sold a security without a license or an exempt PPM of some sort.. that why you see folks going that route now.
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
6y
@Jay Hinrichs
Where I see the disconnect with wholesaling notes vs wholesaling property is in the supply. You can drive by a property see it’s vacant and try and get it under agreement to wholesale. You cannot do that with a note.
Most single family real estate is owned by an individual whereas most notes are owned by institutional investors. Institutional investors sell to hedge funds and hedge funds to smaller funds eventually making its way down to Main Street buyers. When someone says they want to wholesale notes - who they getting them from and who they selling too? Hedge funds and smaller funds do not need or use a wholesaler. If they do not sell direct they may have their servicer or a large broker sell for them. There are not thousands of firms selling notes to investors, it is a select few and those in the business already know who they are.
Is it possible to find a note here and there to broker - yes but I don’t see how someone can make a full time business out of it and make it profitable. Most note investors I know are not even profitable once you account for overhead and G&A costs.
Also - You can have no experience in real estate and wholesale a home - that is not the case with a note.
Where I see the disconnect with wholesaling notes vs wholesaling property is in the supply. You can drive by a property see it’s vacant and try and get it under agreement to wholesale. You cannot do that with a note.
Most single family real estate is owned by an individual whereas most notes are owned by institutional investors. Institutional investors sell to hedge funds and hedge funds to smaller funds eventually making its way down to Main Street buyers. When someone says they want to wholesale notes - who they getting them from and who they selling too? Hedge funds and smaller funds do not need or use a wholesaler. If they do not sell direct they may have their servicer or a large broker sell for them. There are not thousands of firms selling notes to investors, it is a select few and those in the business already know who they are.
Is it possible to find a note here and there to broker - yes but I don’t see how someone can make a full time business out of it and make it profitable. Most note investors I know are not even profitable once you account for overhead and G&A costs.
Also - You can have no experience in real estate and wholesale a home - that is not the case with a note.
Yup I think the only real targets for these folks Is NON owner occ and bare land and commercial notes..
Real Estate Agent · Santa Barbara, CA · Member since 2016 · 518 posts · 283 votes
6y
@Megan Randolph in California you have to be a real estate broker to broker notes, I also believe if your in the business of buying and selling them for yourself you have to be licensed once you reach a certain volume which I believe is around 8. I’m not an attorney so don’t sue me.
Specialist · Chicago, IL · Member since 2015 · 75 posts · 43 votes
6y
@Chris Seveney offers that [most notes are owned by institutional investors] but, in any event, that's not where to look if you intent to broker or flip.
According to public records, there were at least somewhere in the neighborhood of 100,000 new seller-financed 1st position notes created in 2018 alone.
These are the notes that can be brokered or referred to an investor on an individual basis because in these cases, you are approaching the note holder directly.
You can use a purchased mailing list to reach these note holders, and you can certainly get your fair share of business by pursuing this process if done correctly.
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
6y
@Jay Hinrichs
I agree. The other big difference is you can drive around town find vacant houses etc find out who owns them and contact them o try and wholesale a house. You cannot do that with notes.
Regarding someone else’s comment, yes you can find some one-off owner financed deals but many are either land, not properly originated and/or serviced and low dollar value. You can find them but then make what $500-$1500 on a deal that you spent that much in lists and lots of time. If someone told me they were going to be a full time note broker and never invested in notes I would tell them they will make more $ and spend less time flipping burgers
Investor · San Diego, CA · Member since 2019 · 286 posts · 135 votes
6y
@Megan Randolph
Noticed you are in the same city and wanted to let you know about this meetup that happens every first thursday of the month. The group focuses on notes, and this is where I have met mentors, note sellers and buyers. Let me know if you are interested.
From my limited knowledge, i think you cannot wholesale a note. You might be able to broker but not wholesale.
Noticed you are in the same city and wanted to let you know about this meetup that happens every first thursday of the month. The group focuses on notes, and this is where I have met mentors, note sellers and buyers. Let me know if you are interested.
From my limited knowledge, i think you cannot wholesale a note. You might be able to broker but not wholesale.
Lots of good info on this thread.
Yeah I'm not looking to go that route. I finally found some good mentors after the whole Scott Carson fiasco and am just working on building my own business from scratch. I'd definitely be interested in the meet up though. I've had a hard time finding meetups geared towards notes. Please send me the information
I've recently had a great deal of success marketing to seller-financed noteholders. I send 300 letters a week. Each batch results in 1 - 3 replies. Of those replies, I'm trending on closing 30% - 50% from the replies I receive. That's a very good ratio. I started doing this about a year ago, got discouraged (it happens), but decided three months ago to re-focus. October has been a good month.
With interest rates low and probably headed lower, institutional investors who purchase notes, banks, in particular, have access to low-cost capital and have been increasing their purchase prices. My model is to add what I can to my own portfolio and broker the rest.
Check out the Note Inc podcast (free) and Note Investing Tools (very fairly priced) if you'd like to learn more. Jeff Armstrong (Armstrong Capital) has a lot of information as well. He also does speaking appearances.
Most of the work is marketing, and with success speaking to note holder leads, obtaining quotes, then facilitating deal closings.
The part I enjoy most is speaking with noteholders. I'm a big fan of seller financing because it cuts out the big banks and there's a story behind every note.
