Let's Talk Note Investing

63 Replies

If there was one feature of note investing you wish there was more information readily available on, what would it be?

finding for real note sellers.. and avoiding the fake broker Daisey chains. 

@Jay Hinrichs

That is definitely a challenge and one that can be worked around by building relationships with banks and other private lending institutions. 

This year has been a constant contact approach to building those relationships and it’s finally paying off by the seller direct volume I’m getting come Q4. 

@Logan Hassinger

Personally I think guru’s hype up getting assets from banks but how many people out there have bought a note in the last 12 mos from a bank?

I have had one bank send me assets which were all condemned homes and wanted 60 cents on the dollar. I have had a lot more luck with hedge funds and getting assets at very good pricing.

@Chris Seveney

I’m with you on the fact that gurus preach going straight to the banks. But what they don’t tell you is that that process takes time. You aren’t going to pick up the phone or send a few emails and have a deal. Last month I purchased 4 assets from a small bank in Michigan. However that was only after 8 months of staying in contact with them. 

I purchased another note In June from larger regional bank in CA that again took 6 months of communication for a sale to take place.  

I think it goes back to the fact of what drives sales in any business and that’s constantly staying in contact with your customers. 

@Chris Seveney

I have not had any luck with the list of notes for sale put out by convention lending instructions.

The two notes we purchased from banks in 2019 were ones where the borrower had come to us for refinancing, was in default on their current mortgage note. We called the lending institution holding the note, and were able to make a deal to buy the note at a discount. In one case we purchased the note with a balance of $349,000 for $199,500. In the other we purchased a note with a balance of $2,175,000 for $1,875,000. Important to note that in both cases we were initially in contact with the borrower before we ever contacted the note holder. In neither case had the note holder put the asset up for sale.

We had already vetted the financial condition of the borrower, and worked out a plan with the borrower for us to receive payments and to be paid off within 2 years.

Interested, both these properties also had SBA loans in second position. We were able to negotiate buying the SBA notes from the SBA for about 80% discount, the majority of which we passed on to the borrower, who put up the money for the SBA note purchase. All this was agreed to in our initial negotiations with the borrower.

The smaller note resulted in an 86% return in 18 months, plus the additional amount we made as our share of the SBA discounted note. The larger note resulted in a 30% return in 12 months.

Since we lend money in the 12% range with 3-4 points, these represented much larger returns to us. So, when we receive a loan request where the borrower is in default on their current obligations, and if the deal is of interest to us, we will contact the note holder to try to work a discount. In most cases the note holder is unwilling to sell at a discount, but when they are we can do very well.

All our notes and loans are secured by commercial properties.

@Don Konipol   when I was more active in this end of the business.. I forged a relationship with a thrift here in Oregon.

they would feed me their defaults.. little different scenario.. they did not want to have to take the props back as OREO and we only did maybe 4 to 6 a year.. but the ones I wanted I would buy the note within 30 days of the trustee sale.. these were all in default.. We step into their position as the foreclosing bene.. And  at the trustee sale we either got paid off and made the delta or we got the asset, myself I was primarily interested in the asset for value add.. But alas Mrs. Pickle ( her real name) retired and I could never work the same deal with the new management. 

I wonder with the many defaulted loans crowdfunders have if they are a source ?  although I can see them having to go through a learning curve first of taking back the asset instead of cutting and running..However I think over time there will be a play their for the bigger dollar sophisticated note buyers..

@Jay Hinrichs

Where I have my best luck is with hedge funds, especially smaller closed end funds who are sunsetting the fund. They are motivated to sell. The thing people need to realize is you cannot just cherry pick what the good assets are, you have to take the good with the bad. But if you understanding the financials of managing a portfolio the discount you get for the entire poll is worth it. You just need to realize not to chase good $ after bad and there are some throw always and that is what you should do with them, not spend thousands trying to get water from a rock.

When you work with a fund who knows you will take the good with the bad they then call you with assets to move. You don’t need to market to them they call you.

Originally posted by @Chris Seveney :

@Jay Hinrichs

Where I have my best luck is with hedge funds, especially smaller closed end funds who are sunsetting the fund. They are motivated to sell. The thing people need to realize is you cannot just cherry pick what the good assets are, you have to take the good with the bad. But if you understanding the financials of managing a portfolio the discount you get for the entire poll is worth it. You just need to realize not to chase good $ after bad and there are some throw always and that is what you should do with them, not spend thousands trying to get water from a rock.

When you work with a fund who knows you will take the good with the bad they then call you with assets to move. You don’t need to market to them they call you. 

YUP  in the timber business we call that  chicken guts feathers and all  ..  I E the whole log including the nasty top log.. and or they called it camp run.. So in that business much like what we did in logging.. we bought the stand paid cash for it so it was ours to liquidate.

we fell the tree's  then we sorted to export then domestic then tops ( pulp) .. but some sales we would just sell to the mill Camp run one price take it all..  so I can see when your buying a tape.. you do the same.. either sell it to the next guy for a profit or slice and dice them and liquidate to get the highest returns.. 

 

@Adam Fiore call them. 
if you have not bought notes in the past You may not be as successful as they will want some track record. 

One thing I see is people always complaining about product. My question to them is how many notes are they looking to buy? Most investors I talk to are looking to buy 5-10 a year. Based on that typically a fund won’t deal with you and there are plenty of places to buy assets like Paperstac and loan mls or investors on BP in this group.

@Chris Seveney

I have yet to even begin to attempt to deal directly with a hedge fund. Yet I would like to start the journey that will one day lead to said opportunity.

How many notes does one have to purchase upfront

And on a avg how much is a standard purchase ?

@Chris Seveney

Where to buy them. Since i’m a small fish in the sea, I have to network to get my notes, and have to weed out the overpriced ones.

Definitely feel what Cody says too. I want to know where the money I wired is. LOL

@Wesley I.

You can use an attorney for escrow when purchasing from sellers you haven’t worked with before on one off or small pools. That can give you peace of mind when sending money. I’ve not done it that way as I’ve only worked with reputable sellers. 

Originally posted by @Logan Hassinger :

@Wesley I.

You can use an attorney for escrow when purchasing from sellers you haven’t worked with before on one off or small pools. That can give you peace of mind when sending money. I’ve not done it that way as I’ve only worked with reputable sellers. 

do any of you guys direct mail  seller carry back folks.. It tends to go in waves but I get direct mail on notes that I am a bene on and have gotten these quit frequently over the years.. or all you just looking for bank or hedgefunds..  I think the owner carry back direct mail folks look for that whopper hit.. you know the kid inherits the note has a bad money need and sells their note for next to nothing to just get cash today. ? 

Originally posted by : @Jay Hinrichs

do any of you guys direct mail  seller carry back folks.. It tends to go in waves but I get direct mail on notes that I am a bene on and have gotten these quit frequently over the years.. or all you just looking for bank or hedgefunds..  I think the owner carry back direct mail folks look for that whopper hit.. you know the kid inherits the note has a bad money need and sells their note for next to nothing to just get cash today. ? 

I have a couple of those carry back notes and I get more unsolicited mail about those then I do about my rental properties.  Lots of folks out there looking for notes.  I have never pursued any of these letters, so I don’t know what they would actually offer, but I’m sure you are right, many are looking for “lucky punch” situations  

@Jay Hinrichs

That’s a good approach to take for another source of notes but I haven’t tried it and I’m not aware of anyone using this strategy. 

That being said, I was just reviewing a pool of 35 here in Fort Worth with that exact reason for selling. Family inherited them and contemplated taking cash today vs tomorrow. In the end we couldn’t work out a sale but could prove as a fruitful strategy. 

Originally posted by @Logan Hassinger :

@Jay Hinrichs

That’s a good approach to take for another source of notes but I haven’t tried it and I’m not aware of anyone using this strategy. 

That being said, I was just reviewing a pool of 35 here in Fort Worth with that exact reason for selling. Family inherited them and contemplated taking cash today vs tomorrow. In the end we couldn’t work out a sale but could prove as a fruitful strategy. 

its no different than the  WE BUY houses guys.. its just we BUY NOTES.. I grew up in it.. my dad was in the land business and would create 200 to 300 private notes a year.. so he had a whole bevvy of back end note buyers so he could free up cash to buy more tax sale props. Very common business practice in years past.. And of course it ebbs and flows with how the economy is doing.. when mortgage money is easy and cash buyers are plentiful there is less reason for a seller to take back a note on the sale of their asset.. 

 

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