Getting started in Notes

[David L. Rhoiney]

Hi. I am a beginning real estate investor and discovered the concept of investing in Notes and Tax liens. I wanted to see if anyone would share their story/experience on how they got started investing in Notes and/or Tax Liens? How much start up capital do you recommend? Why did you choose to this investing strategy or buy/flip or buy/hold?

Thanks in advance for your time. And thank you for letting me learn from your experience.

[Jamie Bateman]

@David L. Rhoiney Here is a blog post I wrote on BP comparing notes and rental-property investing: https://www.biggerpockets.com/...

And here are some other, related posts: https://www.biggerpockets.com/...

[David L. Rhoiney]

@Jamie Bateman thank you for those suggestions. Very informative.

I’m intrigued by Note investing because I like the idea of “becoming the bank”.

[Jamie Bateman]

@David L. Rhoiney Absolutely. It certainly has its perks. Although I have only been in notes for under 2 years, it is a great niche with many different approaches and exit strategies. Pricing is tighter than it used to be but that is true for most niches in RE investing right now. (Side note: I see you are military. One of those articles is a military-related one.)

[David L. Rhoiney]

@Jamie Bateman

Just noticed the military article. Thank you for your service.

[Logan Hassinger]

@David L. Rhoiney

If you’re comparing rentals vs notes or notes vs any other traditional RE investment for that matter, I am assuming you’re taking a more passive approach. What I mean is you’re not looking to make a Notes your primary source of income and turning it into a business. 

With that said, there are a few books out there that will help acclimate you to Note investing.

• Win-win revolution 
• Paper profits
• Bulletproof title due diligence (very “nuts & bolts” read)
• Just like rental properties or fix and flips, there is some standard note buying rules to be aware of and @dan Deppin has put together some content on this area. To get familiar with terms, I would suggest scanning through Paperstac.com and @Brett Burkey can help their. 
  
• There are also plenty of threads here on BP that go into much greater detail on the topic. 

@Dan K.undefined

[David L. Rhoiney]

@Logan Hassinger

Thank you for that information.

I'm a Surgeon so that's my primary source of income and I'm looking to generate passive income via REI. I like passive income sources that are sustainable business models. My goal in investing is to create generational wealth. So sustainable models are my goal.

[David Pere]

@David you should talk to @Stuart Grazier and @Mike Robb, they are both active duty military, and have successfully done a decent amount note investing!

[David L. Rhoiney]

@David Pere

Thanks for that post. I’ll send them a message.

[Chris Seveney]

@David L. Rhoiney

I chose notes as I don’t want to be a landlord and I can buy notes anywhere at anytime. I work a 9-5 so trying to go visit properties could only be done on weekends when I have a full plate of kids activities. Notes I do my due diligence and bids at night etc. much easier to work remote and at any time of the day.

[Jay Hinrichs]

Originally posted by @David L. Rhoiney:

@Logan Hassinger

Thank you for that information.

I'm a Surgeon so that's my primary source of income and I'm looking to generate passive income via REI. I like passive income sources that are sustainable business models. My goal in investing is to create generational wealth. So sustainable models are my goal.

for the busy professional i would highly recommend looking at professionally managed NOTE FUNDS if notes is what your looking for.

Trying to buy discounted notes in the secondary market is quite involved.. ( time wise) and there is a lot to know and learn.

Alternatively you can become the bank by working with a very GOOD local HML who manages clients funds for new origination which are primarily fix and flip loans.. so lots of turn over and payoffs.. but a good broker will have a nice pipeline so you don't experience much drag.

[Jay Hinrichs]

A few note funds i know of on BP are

@David L. Rhoiney

@Mike Hartzog

@Dave Van Horn

@Bob Malecki

PS i am not an investor in any of these so do your own due diligence..  and for sure careful of Scott Carson there has been a lot of chatter about him lately

[David L. Rhoiney]

@Chris Seveney

That awesome. I can understand and sympathize with that reasoning. I have 3 kids who all have their unique schedules. So trying to fit anything extra in can be a challenge. However researching and analyzing deals can be done from anywhere. From what I can tell I can bid on Notes online which is a plus.

[David L. Rhoiney]

@Jay Hinrichs

Thanks for that information. I’ll probably stay away from Note funds until I know the actual folks running the fund and know I can trust them.

I’ve also seen Scott Carson’s name as well as read some of the lawsuits. Considering that he’s “trained” quite a few in the Notes business it makes me weary to blindly give money too.

[Jay Hinrichs]

Originally posted by @David L. Rhoiney:

@Jay Hinrichs

Thanks for that information. I’ll probably stay away from Note funds until I know the actual folks running the fund and know I can trust them.

I’ve also seen Scott Carson’s name as well as read some of the lawsuits. Considering that he’s “trained” quite a few in the Notes business it makes me weary to blindly give money too. 

a lot of people on this site got their training from him.. and they freely admit it but don't want to paint them with the Scott Carson Brush... Mike who I mentioned has a 20 million dollar fund you don't just wake up one day and get that kind of fund together.. and Dave I know has a very robust large business same thing.. but for sure .. do your due diligence.. 

the other way folks try to do this is partnering with others that have maybe a few more years of experience than you do.. there is a lot of that going on.. Buying bad debt is a lot of work. it can work out but you can take real loss's as well.  Although a lot of folks that start out start with very low balance notes  like buying seconds for 10k type of thing.. or notes under 50k so if you do hit a bummer its not the end of the world.

[David L. Rhoiney]

@Jay Hinrichs

I understand your point. My apologies if that post came across disrespectful to anyone’s business. Not my intent.

I’m a newbie and I’m researching the entire real estate investing space to see what’s best for me and my family.

At the same time there is no such thing as a truly “passive” investment. Most investments/business ventures, require a certain degree of upfront sweat equity to produce passive income. I understand that completely and I’m not afraid of doing the legwork myself. I’m just trying to learn. Also if I don’t take the opportunity to learn the business, then it’s easier to lose money in a bad investment or fund.

[Adam Johnson]

@David L. Rhoiney

I got into notes in late 2018 after trying to start a business in hard real estate rentals. I quickly found with my first property that even though I was bringing in several hundreds of dollars per month, I was constantly breaking even or going negative on my rental income due to repairs and maintenance costs. On top of that I was trying to self manage the property and was constantly having to get in touch with my tenants about late and missed rental payments. Granted, if you are able to select your own tenants and don't have to work with inherited ones that come with the property, and you can afford to have the property managed by a third party company, things can get a little less stressful. I purchased a partial in late 2019 in the notes space as my first step into the note industry, from an investor perspective you have a lot of advantages over owning the physical property when it comes to maintenance costs; and there are a lot of other benefits to being the bank as well when it comes to handling the financial side of mortgages. You can invest as little as $5,000 to start if you can get in touch with the right people, I started with $25K.

[Tim Fitzgerald]

You can also get started by finding and referring notes for nothing out of pocket... just some of your time. You build up capital this way. Of course, you have to get good at marketing for notes and/or developing your own referral sources. All of these skills can be developed.

[Tracy Z. Rewey]

Originally posted by @David L. Rhoiney:

Hi. I am a beginning real estate investor and discovered the concept of investing in Notes and Tax liens. I wanted to see if anyone would share their story/experience on how they got started investing in Notes and/or Tax Liens? How much start up capital do you recommend? Why did you choose to this investing strategy or buy/flip or buy/hold?

Thanks in advance for your time. And thank you for letting me learn from your experience.

Welcome to the world of note investing.  Nobody calls the bank at 2am for a lockout or stopped up toilet! I'd rather collect the payments and interest (backed by real estate) than manage tenants (or manage the property managers).  You are right - nothing is completely passive and you are smart to perform your own due diligence. 

[David L. Rhoiney]

@Adam Johnson

Thank you for sharing your story.

I’m continuing to do more research but every day it sounds like Note investing is what I’m looking to do. Although I also have a goal of owning apartment buildings.

[David L. Rhoiney]

@Tracy Z. Rewey

Thank you for sharing your story.

I read your profile and it shows you have a background in the mortgage industry. Do you feel as that experience helps you decide where to look for and invest in Notes?

Also what is your opinion on Note funds?

[Tracy Z. Rewey]

Originally posted by @David L. Rhoiney:

@Tracy Z. Rewey

Thank you for sharing your story.

I read your profile and it shows you have a background in the mortgage industry. Do you feel as that experience helps you decide where to look for and invest in Notes?

Also what is your opinion on Note funds?

Hello David,

I started working in title and closing then moved to notes and mortgages working for a company that bought mortgages on the secondary market (mostly seller financed).  I learned enough there to get comfortable going out on my own. Yes, that experienced helped me understand the paper trail, underwriting and servicing. But all of that can be learned as well.

As for funds, I understand the appeal but I've always believed that nobody minds your money like you.  I've been at this 30 years and over that time have seen funds start out great with the best intentions and then there are problems with the portfolio and there aren't enough funds coming in to cover payments to investors.  From there it goes downhill. That is not to say anything disparaging against people that run funds.  There are some good ones out there.  But if I was comfortable letting people manage my money and investments I probably would have stayed in the stock market. 

[David L. Rhoiney]

@Tracy Z. Rewey

Mrs. Rewey,

Thank you for that information. I too, believe that no one cares about your money as much as you do.

From my research it seems that their is a large barrier to entry with Note investing, specifically capital requirements. Did you find this as well?

[Tracy Z. Rewey]

Originally posted by @David L. Rhoiney:

@Tracy Z. Rewey

Mrs. Rewey,

Thank you for that information. I too, believe that no one cares about your money as much as you do.

From my research it seems that their is a large barrier to entry with Note investing, specifically capital requirements. Did you find this as well?

If you want to play in the portfolio world buying multiple notes at once then yes, there are large capital requirements. If you are willing to go at it one note at a time then there are ways to buy a partial or buy a full and sell a partial to recapitalize - keeping payments on the back-end for future revenue. I personally like the smaller deals (under 50k) and find there is more room for creativity and profit. The larger deals I'm happy to refer to an institutional investor for a fee or keep some payments on the back-end. A private investor can also tap into IRA and retirement funds to buy notes using a Self-Directed Custodian.