Money for note investing

7 Replies

Not sure I understand your question. 

If you want to invest in notes, you need your own money to invest. 

It would be odd for someone to loan you money to invest in a loan that someone else made to someone else. They'd be better off just investing directly in the note themselves.

@Jeff Copeland

It's not odd at all to use a private lender to purchase debt. I do it all the time to acquire both performing and nonperforming notes. The reason someone is lending is to be passive in nature regardless of the end investment vehicle. Sure, the private lender needs to understand who and what they have lent on and be provided some security, but this happens all the time.

@Bradley Ritter

Funds come from in 2 types of sources; private lending, JV's. I think your question is do you go about finding private lenders. That's not an easy thing to just jump and start raising hundreds of thousands of dolllars to fund note purchases. They stem from relationships that have been ongoing for years and is built on trust and execution.

@Logan Hassinger - Interesting model, and I'm genuinely curious:

What kind of spread do you typically see? i.e. How much do you pay for the private money you borrow, versus what do you earn on the notes you buy with the borrowed funds?

And do you mainly purchase the non-performing notes for the purpose of foreclosing? (Otherwise, there would obviously be no spread). 

@Jeff Copeland

Typical spread is 6-8%. I’ll borrower at 6-10 depending on the deal and time commitment, and will in turn earn 12-18% on performing notes. When it comes to nonperforming, it’s the same borrowed rates but higher returns for my company. 

I’m rarely purchasing nonperforming to own the property. With that said, I don’t purchase a nonperforming or performing note on home I’m not willing to own, if it comes to that. 

There are note deals that make sense to go after to take the property, which I've done, however that's not the primary goal. You're right, there isn't an interest rate spread I'm earning in this scenario, it's simply the net earnings after principal and interest is returned to the private lender.

The deal with the non-performing note is to purchase at a substancial discount and try to get it performing again so that you either have a performing note that pays regularly or sell it in a few years as a re-performing note(lots more than a non-performing). I rarely WANT to foreclose, but it happens.