How to find Notes worth investing in!
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Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
13yGee, thanks Joel, LOL, I feel discounted now....
Finding notes, is much like RE, you make connections.
Here are a few places to start:
Realtors, make sure they know you buy, you can buy a note at closing providing cash to the seller making the deal fly, usually seconds but some firsts.
Realtors carry back commissions too!
Contractors can carry back work/jobs performed and you buy the paper.
Estate Attys, Trust Attys and Bankruptcy Attys, they all bump into notes held by thier clients. Many of these can be forced sales.
Nursing Home Adminsistrators, granny has to qualify for state benefits based on assets, they can't own more than $999, so they sell the note and spend down the proceeds to pay for care.
Courthouse....notes are filed, you can contact the holders. Any installment contract is a form of financing and you can purchase the equity, modify the obligation if needed.
Note servicers usually offer to buy notes serviced in seller financed transactions, they can also sell.
Make sure the mortgage brokers in your target area know you buy notes, they may have funding opportunities as well.
Make your own sources: Look at the MLS, listed for more than 120 days, there is usually a problem, tell the seller they can offer seller financing to step up marketing efforts and you'll but the note after closing.
Approach small lumber yards and material suppliers, they finance and secure and you buy the paper.
Same with homebuilders. Particpate providing cash or they may carry back profits.
Mobile Home Dealers! Many go to properties owned by the buyers.
Small commercial notes can be found from UCC filings, they may be part of a RE deal, say a small motel, seller's carry back as financing is tough. You can buy the first 50K of a $250K note, called a partial purchase.
Your deeper discounts will come from seasoned notes than notes purchased at closing, but notes closed can easily yield 14/16/18%.
There are more! But if you work these angles it should get you on your way.
Good Luck....
25 Replies
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes13y
I am not an expert note investor.
I do have friends that are and the first thing I would do is define what notes you are trying to go after and what is your hold and exit strategy for them??
There are discounted notes , performing notes, non-performing, etc.
Some buy just for the stream of income and others want the payoff on the back end and others want a little bit of both.Your capacity and capital to start with will determine what kind of notes to go after. if you have limited capital and only buy a few notes a year you will not be looking at a bunch of bulk stuff because usually they banks will not let people cherry pick and you have to take the good with the bad and average it out so that in the end you come put ahead.
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes13y
Look up Locatelli Roa and Mark Faulkner on here. They are some BP members that buy the small notes and play in that space.
- Hard Money Lender · Davidson, NC · Member since 2012 · 69 posts · 34 votes13y
Bhavna - you should also explore investing in notes through local hard money/private money lenders in your market. Shorter term in nature, but typically yields for the note investor will be over 10%. Just my 2 cents...
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes13y
Gee, thanks Joel, LOL, I feel discounted now....
Finding notes, is much like RE, you make connections.
Here are a few places to start:
Realtors, make sure they know you buy, you can buy a note at closing providing cash to the seller making the deal fly, usually seconds but some firsts.
Realtors carry back commissions too!
Contractors can carry back work/jobs performed and you buy the paper.
Estate Attys, Trust Attys and Bankruptcy Attys, they all bump into notes held by thier clients. Many of these can be forced sales.
Nursing Home Adminsistrators, granny has to qualify for state benefits based on assets, they can't own more than $999, so they sell the note and spend down the proceeds to pay for care.
Courthouse....notes are filed, you can contact the holders. Any installment contract is a form of financing and you can purchase the equity, modify the obligation if needed.
Note servicers usually offer to buy notes serviced in seller financed transactions, they can also sell.
Make sure the mortgage brokers in your target area know you buy notes, they may have funding opportunities as well.
Make your own sources: Look at the MLS, listed for more than 120 days, there is usually a problem, tell the seller they can offer seller financing to step up marketing efforts and you'll but the note after closing.
Approach small lumber yards and material suppliers, they finance and secure and you buy the paper.
Same with homebuilders. Particpate providing cash or they may carry back profits.
Mobile Home Dealers! Many go to properties owned by the buyers.
Small commercial notes can be found from UCC filings, they may be part of a RE deal, say a small motel, seller's carry back as financing is tough. You can buy the first 50K of a $250K note, called a partial purchase.
Your deeper discounts will come from seasoned notes than notes purchased at closing, but notes closed can easily yield 14/16/18%.
There are more! But if you work these angles it should get you on your way.
Good Luck....
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes13y
Ha Ha Bill............................ : )
I know you do all kinds of things with RE. It's kind of hard to nail you down to just one area! LOL
I know Loc buys the little small notes and trades in those such as businesses that were funded and the seller took 50% down and financed the rest. Fast forward to 2 years into the note and the seller holding the note just wants cash today and will sell at a discount.
There are a bunch of little notes like that to invest in. I don't really play in that space but might in the future buying some for myself.
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes13y
LOL Joel, User name was financexaminer, did more in notes and financing than anything else, but we all get bored from time to time. Thanks
Bhavna, installment contracts are contract for deeds, subjest-to transactions and seller financed notes. You can also buy options as well as lease arrangements, basically assuming the position and restructuring the deal.
What you're looking at is buying the equity at a discount and assuming the seller's role.
- Note Investor · Black Forest, CO · Member since 2011 · 29 posts · 38 votes13y
Bhavna J. There are plenty of ways to find discounted mortgage notes. Some are expensive but faster response while some are less expensive but take more time to generate business. A lot depends on your skill set, working capital, time and access to capital to buy notes.
I am not saying this should be your note buying business structure but just wanted you to know mine so you know where I'm coming from on my marketing strategies.
I structured my note buying business to buy notes for my own account (self-directed IRA for tax-free growth and now with the Roth, tax-free withdrawal… Very cool) and by/broker mortgage notes for a fee… nationwide.
Direct mail, there are many organizations (even local title companies) that sell owner finance lists for approximately $.05-$.10 a name. Explain you only want individual-to-individual leads. No individual to banks, trustees, corporations, LLC's, etc.
Basically, you need the complete name and address of the beneficiary and the name of the payor to refer to in your headline of your direct mail letter. Then the rest of the information you gather when the note seller calls.
The benefit I find to direct mail is you can regulate your calls to your schedule and most of all, you get you good at talking about the business.
The downside, very expensive (close to it $.75 to a dollar a letter) and it is very hard to find a dependable persona to stamp, signed, stuff, and mail your direct mail.
Cold calls, on local notes sources such as realtors, banks, divorce attorneys, developers, real estate clubs, investor clubs (and the list goes on and on) is another approach.
The best place to start is personal calls to Real estate offices and offer to be a quest speaker at their next sales meetings. They are always looking for guest speakers. Agents get a little tired of the local title company or mortgage broker or real estate attorney presentation.
Explain to the person in charge of weekly/monthly sales meetings that as a guest speaker for their next sales meeting you will show their agents “how to sell more listings and make more money, using seller financing. “ It will be a 45 min. Power Point presentation with a 15 min. Q&A session.
You structure a simple, easy to understand presentation explaining the benefits of seller financing and how you buy seller financed notes. But most importantly, show them how they will make more money, whether one additional sale a week or a year, with the additional tool for their tool box, seller financing.
This presentation can be easily adjusted to fit the needs and key issues for the clubs and associations previously mentioned.
Most importantly, it gets you good at talking about the business on your feet, it sets you apart from your competition, and other than time, it is very inexpensive.
Well, I need to get back to work so good luck and write a bunch.
Kent
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes13y
I agree to Kent's suggestion, use the phone and talk up what you do, but take great care as a note investor of not crossing the line in a presentation to a group, unless you are a mortgage originator. It won't be too far into the prsentation until someone asks what they need to do, or what terms do you want or will you help put the note together. I suggest, as a new note investor you not get into such areas as those activities are regulated.
You can speak as an investor and what you would buy, but you can't give instruction in a specific deal or underwrite terms or even negotiate terms.
When speaking to those I mentioned above, like a homebuilder, you're telling them what you would invest in, even on a case by case basis, and you can tell them how to do the note, through an attorney for example, so you can buy it. But you can't originate the contractor's note.
You'll have noproblem speaking about buying notes with an attorney where there is an existing note. Or really with anyone about an existing note, it's when you get into the creation of a note. Buying installment deals is still an existing obligation, even if it will be modified, subject to your state requirements.
Even as a buyer, you nrrd to know origination issues, if you buy a note that was originated in violation of law you could lose out.
- Note Investor · Black Forest, CO · Member since 2011 · 29 posts · 38 votes13y
Bhavna J, hello again.
I realize you are an experienced note buyer and know this, but I must say for the people new to the note business and thinking about getting in the note business…
We are NOT loan originators or mortgage brokers. We are note INVESTORS.This is important, it is simple thing to explain this concept to prospects as we buy real estate notes and mortgages AFTER they are originate, closed, recorded at the county seat and in most cases, after 3,6,9,12 months of seasoning.
My previous comments about presentations/personal face-to-face calls were expressed as an idea to help all readers spread the word about their note buying business, NOT originating loans
Again, the Realtor, investment club presentation is to show how seller financing will pay commission from the down payment and sell the note to pull cash out, if needed.
A real time case study. Last May, I gave a 45 minutes seller financing presentation to 20 ( +or-) brokers at a medium size Realtor office here in Colorado Springs.
That presentation generated 4 realtor calls over the next two months that produced no business but importantly, plenty of good will with the broker owner. You’ll see why…
On December 20, 2012, a broker called with a note for sale. He was a no-show for my presentation but more importantly, referred by the Broker Owner and that says something, right? I will broker his note to my institutional investor for a fee, at end of this month.
Eight months later the presentation created 5 calls, one transaction, a broker fee, lots of good will, more referrals and another note for my investor.
Costing me 15 – 20 hours of cold calling, presenting, of brokering time and effort and as you know, any referrals from the brokerage in the future (tomorrow or 5 years from now) increases the profits and lowers the initial expense.
Face-to-face prospect calling is the absolute best way to generate long-term business. It must be and is, the most important aspect of a note business marketing strategy.
Do this… take Mr. Gills note source list mentioned in his post above and pick a one day a week for face-to-face calls and include the next day for follow up.
Do this two times a month and you will be amazed at what you learn about yourself, the note business and the quality of prospects you create.
WAY!!! better than sitting around and waiting for the phone to ring from your expensive direct mail or beautiful web site, which is one of 300,000 on the web.
Granted, it does take guts to call on a prospect face to face, right out of the blue. Guaranteed, the hardest part of cold calling is getting past your own front door!
Should that be the case, try Dale Carnegie in your area. They have a $200.00 cold calling course that in my opinion is worth every penny.
You'll learn how to cold call face-to-face, over the phone, email, etc. If you are watching your pennies, be aware of the up-sell to their very good but more expensive business courses.
Bhavna J., if you add this very important aspect of face-to-face cold calling to your note business, you’ll be ahead of 95% of your local completion and with pleasant persistence, you’ll grow in more ways that you imagine and best of all...
... if you are the slightest bit competitive, blow your completion out of the water.
Give it a shot. It’s a blast and don’t be surprised that after a good call, your car drives itself home… you’ll see.
Best of luck and sell a bunch,
Kent - Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes13yDon't forget about me too Joel I buy notes and on occasion, sell them.
Originally posted by Joel Owens:
Look up Locatelli Roa and Mark Faulkner on here. They are some BP members that buy the small notes and play in that space.Step one is to let everyone know that you buy notes and which specific criteria you have. Second, making connections as mentioned above is important.
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes13y
Will, ya beat me to it, Will is a note guy!!!
Might mention too Kevin Yates!
Originally posted by Kent Anderson:
.........We are NOT loan originators or mortgage brokers. We are note INVESTORS............My previous comments about presentations/personal face-to-face calls were expressed as an idea to help all readers spread the word about their note buying business, NOT originating loans
...........Kent, I think you missed my point. I have nothing against a seminar appraoch to a note investor spreading the word, problem is, you don't know what you don't know. If a note investor is not aware of what origination issues are and they get involved in a very closely related topic, they won't know the difference between telling someone how to underwite thier loan and explaining what they might look for in a note they would purchase. I'm saying know the difference and avoid what you aren't qualified to do.
You don't need to be an originator to buy notes, but geeez, it sure helps knowing such aspects in selecting good notes!
If you are skilled in seminar presentations, discussions about how a note should be made in the future can be avoided, and should be, concentrating on what side of the fence you are working on. An example: saying, I buy notes that are made at or below 80% loan to value is much different than saying, you need to make your loan at an 80% LTV or below, it's easy to get involved in personal circumstances in a group, I know having held seminars long ago.
Note investors are NOT loan originators.....absolutely right but how do you know the difference between two matters if you have no idea about the other apsect?
All I'm suggesting is that you know the difference and ensure you stay on the right side of the fence, especially in a group public setting.I suggested several ways to find notes, some of them require getting with others ahead of time before the note is made, another reason I mentioned the origination side as opposed as simply buying. That should never be done except on a one on one basis, say with an agent explaining the types of notes you'd be interested in. And, tread lightly if you get in a position of looking at a proposed note, you need to make the lender/seller make the decission as to what terms they want. You just need to use common sence, CYA, stay at arm's length and yet do business. You need to avoid getting involved in originating a note you might buy.
If you're looking at doing notes from time to time, a seminar approach can do the trick. What I found is that involving other professionals, especially attorneys, CPA's, insurance agents and OH(!), and stock brokers can feed you enough business that you will be doing notes full time in your office, Realtors don't really add much in seasoned note production. (I did some deals through stock brokers, when those guys got a hold of a note in a client's portfolio, they could think of a dozen better investments to meet the needs of thier clients and "better serve thier client".....they also got a little commission to boot! You can certainly pay these briddogs in notes, attorneys usually decline BTW, depends on what they are doing.
What works for one may not work the same for another, much like any sales process, find your niche. :)
- Note Investor · Black Forest, CO · Member since 2011 · 29 posts · 38 votes13y
Bhavna J, for your file.
A SHORT LIST OF POSSIBLE NOTE SOURCES
Bankruptcy/ receivers
Real estate attorneys
Probate attorneys
Divorce attorneys
Bail bondsman
Bankers
Charities/foundations
Collection companies
CPAs
Direct mail lists
Escrow agents
Escrow companies
Financial planners
For Sale by Owners
For Sale by Owner web sites
Investment groups/clubs
Land developers
Mobile home dealers and land home developers
Mortgage brokers
Newspaper advertising—“Free Shoppers”
Real estate brokers/agents
Real estate investors, other note investors
Rehabbers
Title companiesHope this helps,
Kent - Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes13y
Great list Kent.
- Consulting · Fort Worth, TX · Member since 2014 · 65 posts · 15 votes10y
This thread has been fascinating, but there were a couple of scenarios outlined that I have not been able to make much sense of. Could anyone elaborate on these?
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes10y
Originally posted by @Steve Burt:
This thread has been fascinating, but there were a couple of scenarios outlined that I have not been able to make much sense of. Could anyone elaborate on these?
Can you be more specific?
This is an old thread I believe, so I'll bring this up to date. Buying a note right after settlement puts you in a lender's position, not a note investor, I would draft the funding as arbitrage loaning money on the note then roll it over as a purchase 3 or 6 months later. This can keep you out of funding a consumer loan, the homeowner can be exempt under Dodd-Frank. See your attorney. :)
- Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes10y
Originally posted by @Bill Gulley:
Originally posted by @Steve Burt:
This thread has been fascinating, but there were a couple of scenarios outlined that I have not been able to make much sense of. Could anyone elaborate on these?
Can you be more specific?
This is an old thread I believe, so I'll bring this up to date.
Buying a note right after settlement puts you in a lender's position, not a note investor, I would draft the funding as arbitrage loaning money on the note then roll it over as a purchase 3 or 6 months later. This can keep you out of funding a consumer loan, the homeowner can be exempt under Dodd-Frank. See your attorney. :)
This is something I've learned today thanks Bill :)
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes10y
You're Welcome. What are you doing up, it's 4:22 AM ? Just getting in? LOL
Most changes in finance and RE will effect how things are done at some point. "Funding at the table" is a matter found addressed with wholesale banking and note purchases, something most investors won't be reading. Any party purchasing an originated note at settlement will be consider the lender. Time passing cures that issues, but the amount of time was not mentioned.
Three months might still be too soon, the sale being contemplated, that's why I said see an attorney. If it were me, I'd wait a year before taking the note.
Nothing is stated as to taking the note as collateral for another loan. I don't call such tactics "get around" or "circumvent" I call them "windows of opportunity". :)
- Consulting · Fort Worth, TX · Member since 2014 · 65 posts · 15 votes10y
Thanks for the updating. I was speaking more toward the UCC portion of the paragraph. I have never heard of anything like that before. Is that common?
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