How do you qualify a potential note investor for a JV partnership

11 Replies

Hello all. 

This is my first post here. I have done my 'due diligence' in researching the note business. Knowing myself, I have determined I'd like to purchase a performing note in the state of FL as a JV. I like having the mentorship and enjoy learning from an investor. I have already met some wonderful investors that I trust, but I am trying to go into this investment with my eyes wide open.

With that said, what documents/background checks/legal agreements does a JV need to review to ensure a quality partnership with an investor? It feels odd to give someone (or an LLC) 15k+ without feeling very vulnerable. What questions would you ask your potential investor? Here are some thoughts I've cultivated so far. I'd love to hear your thoughts as well.

1. Can I see your books? 

2. Can you send me a sample monthly report you provide your investors.

3. Who's responsible for contacting the borrower if they don't pay and the note becomes non-performing

4. Do you provide 'worst case scenario' information (ie foreclosure costs and timelines for the state of residence?) 

Basically, how do I ensure I'm not getting bamboozled. TIA. 

Those are good questions @Michelle Burdo . Your JV manager should provide absolute transparency with a shared spreadsheet to track income/expense, shared folder for the various loan and project files, and a comprehensive partnership (JV) agreement that outlines each party's responsibilities and exits under various circumstances. ALWAYS have a written agreement in place and be sure as the funding partner, you have mutual authority on the decisions that will need to be made over the course of the venture. Make sure your funds are in a segregates/isolated bank account. The entity used for the ownership of the assets in the JV should have a Fed tax ID and there should be annual tax filings done.


I think you are on the right track. I would also run a background check on the investor. You should have a very clear understanding of what reporting they are going to provide and when, and the investor should be able to provide samples. You should have access to all the collateral, receipts and other data related to the asset. I wouldn't expect the investor to share everything in their books, but they should share the accounting data for any assets you are partered on. 

In addition, I suggest you do a search of the their company to make sure it's in good standing in the state of organization and registered to do business in the state where the office is located. Take a tour of their office. You should be able to view the physical note files on past deals that they've done. See what they are willing to show you regarding the systems they use to manage their notes, online servicer portals, other records. Get the addresses and case numbers of past deals, get the stories on what they did and how, and verify these by looking up recorded documents and court cases.

Do a google searches of the company and the individuals and see what comes up.

Thanks for all the feedback. I do find it curious that there isn't a standardized go-to list in the industry (like a checkoff list) to qualify an investor. I'll definitely be scanning through all of these comments to put forth a comprehensive effort. Many thanks.

Originally posted by @Michelle Burdo :

Thanks for all the feedback. I do find it curious that there isn't a standardized go-to list in the industry (like a checkoff list) to qualify an investor. I'll definitely be scanning through all of these comments to put forth a comprehensive effort. Many thanks.

thats because these are not standard deals its only been in last decade or so that people even consider JVing on notes.. now in CA we did fictionalized notes for decades and still do.. so in essence your JVing but you had a broker ( me) controlling all the fictionalized interests.

but i agree a background check on the potential partner as a HML in my day and fairly active 200 to 300 loans a year for decades .. you would be shocked at those that talk a great game . prepare beautiful presentations. etc etc and when you back ground them . Well lets just say your shocked.


@Michelle Burdo , a lot of quality answers here already. As @Account Closed said, referrals are key. Ultimately, you are taking a risk and banking on the fact that the investor is experienced and open, and operates with integrity. Communication is fundamental to success as well.

Also, you said you are focused on investing in performing notes. If you buy a truly performing note, I would look for a split that is better than your typical 50/50 split, or consider buying a partial. It can be difficult to find performing notes with enough upside for both you and your other investor to make a decent profit (and with a performer, there is often no clearly defined exit point).

Curious, why focused on just Florida? 

@Michelle Burdo

1. Background check

2. Referrals

3. Ask how many deals they have done

4. How many deals have been closed out

5. How many deals lost money?

6. How did you handle the loss?

7. Samples of reporting (question to referrals is how are they in providing the monthly reporting)

8. How long have you been doing this?

9. What’s your typical exit strategy

10. Do you or servicer do 3rd party reach out

12. Who is your servicer

13. What states do you invest in?

14. Can I see your JV agreement

15. Don’t bother asking to see their books as most wont understand them anyways and they are pointless honestly as if they were bad they would most likely “cook the books”

16. Have you ever had to request additional funds from an investor

17. What do you target for returns (too high would make me weary)

18. If propose a note to you: who is your attorney in that state.

oh, since I'm feeling cynical today...
How about you owning the note outright and the JV partner getting a return based on agreed performance and time bound success goals? Most folks using OPM would object.

Also, don't believe BPO valuations. They are often retail. The foreclosure property is never 100% perfect and ready for sale at top of market. 

And what's "enough" education? I have 30+ years of debt buying/collections and still can't guarantee success. 

Being more positive, notes are a good way to make a nice return. But, it's not a purely passive investment. 

Back to fighting for possession in Lansing MI. Borrower knows her rights and can stay a year. Extorting $$, affectionately called "cash for keys".