Looking for Note Investors

25 Replies

I’m just starting to look at note investing and feel a little over my skis. I’ve got 27 units but this note investing stuff has me all mixed up! I’ve got the general idea but have so many questions. I’ve read some books and watched quit a few videos but I’m still not feeling comfortable. Any advice or help would be appreciated! Thanks

@Jamie Bateman Thanks for the reply. I need to keep looking on this forum and I also have listened to your podcast! Specifically I requested the files on a note and I got a data dump. I’m a bit overwhelmed with all the information. I think I need to get a better understanding of each document. Following the chain of title and how all of this fits together is my main problem at the moment.

@David Putz Hi Dave since you asked :) The loan is a land contract with two individuals signed on it in 2011 (performing loan) but when I look at title the owner is an LLC as of 2011 then it changed to another LLC IN 2018. I'm not too familiar with land contracts but I think title doesn't change with a land contract? So was the change of title in 2018 someone buying the note and if so if I were to buy the note would I be on the title then until the two people paid off the loan? Thanks for any advice you can provide

@TJ Addison the easiest way to think of a land contract is to think of buying lease options agreements. If you were to buy a lease option from someone you now own the agreement + the property. Once the borrower(cfd)/tenant(lease option) completes the contract/option they take ownership of the property. So yes the title changes when a cfd is purchased.

@TJ Addison

I have bought 100+ land contracts so I can share my experience. Land contracts require a lot more due diligence as each state has differing laws attributed to land contracts.

What you state about the one you mentioned was answered - the property was sold from LLC to LLC with the underlying land contract being assigned from owner to owner.

It’s also important to understand who the originator of the land contract was, as there were several companies who were originating land contracts and were fined heavily for selling them at inflated rates and pricing and are now dealing with state attorney generals. On these instances even people who bought them are targeted and in many instances are forced to lower the interest rate (and possibly the loan balance as well.

They definitely are not for the faint of heart

@TJ Addison - The first note I ever purchased was a performing note on a good property with solid equity coverage. It was originated by someone I knew when his company sold a turnkey rental property to an investor. 7% face rate and I paid par. I still collect on it today. Pretty boring, however, it was a valuable experience for buying paper vs. property. 

Starting out - In addition to purchasing that first note, I soaked up as much as I could from books and free resources before paying money for education. Today I operate a business full time which purchases and flips seller-financed mortgage notes. Needless to say, my experience has grown due to immersing myself in the space. 

By the way - as a property investor you're in a great position to add notes to your toolbox. I've always felt that the more I understand real estate financing and ways to use it creatively, the better investor I am overall. There's a note investor named Dawn Rickabaugh who talks about "the dance between property and paper." I carry that concept with me constantly. 


@TJ Addison I'm new to note investing on the active side also. Like you I've had my experience on the other more tradition sides to start on: flips, multi-family. My first was a CFD, so it's not like so hard you should deter you entirely. Ti me it's important to act. Whatever way gets you to action. Be educated, so you can make sure your plan allows you to survive any mistakes

Ultimately I want more Non-Performing slogans, but knew I needed to learn how to close the loans and wanted a base of money coming in each month.  Plus I learn how to do due diligence, close it, record it, and board a loan.

wjen I do non performing I'll make sure I target a smaller size if I do on my own or else I leverage doing a JV if I want to risk a larger amount so I learn from someone else more experienced.

@TJ Addison I'm finalizing the purchase of my first note. It's a CFD with a very nice yield, solid loan to value, and in nice shape. I took the advice of some trusted advisors and went with a performing instrument to get a feel for the transaction. That learning experience is worth the price of admission. I'm very thankful for doing it and would recommend going that route to anyone new to notes. I'm excited for my next deal and feel like I'm part of the club!

@TJ Addison not like you more ammunition. However my experience many people chase higher return rates and then end up with an actual return below the “lower” rates of a performing note anyway. 

Lots of good advise on this thread. Finding people you can trust and learn from is crucial to your success. I started late 2019, went against the grain and took a non-performer as my first note. Lengthy process that involves a lot of holding cost but ive learned a ton and was able to network and find valuable resources. My second note is a performer, its pretty boring compared to my 1st.

Attend meetups in person or online to network and ask questions. Ive noticed most note investors are pretty open and willing to share their knowledge, experience, and stories.

Watch out for paper cuts!

@Peter Halliday

This occurs frequently as newer investors do not have the experience to understand all the costs that are involved in holding a NPL.

For example many use attorneys who follow Fannie Mae guidelines / rates for a foreclosure and use that number as their estimated foreclosure cost not realizing their are court fees, advertising fees etc. And that doesn’t include if the borrower disputes the debt or fights the foreclosure.

@TJ Addison , there are many real estate investment strategies out there, and each one has a concept and process associated with it. Nothing is different when it comes to note investing. Also, comparatively, there are many more exit strategies that can come out of a note than any other real estate investment strategy. For that reason, I prefer Notes over any other type of investment. I believe most investors lack confidence because of the five areas I have outlined below.

  1. 1. Understanding the process from acquisition to disposition
  2. 2. Understanding the Paper
  3. 3. Analyzing the numbers: It starts with your offer. 
  4. 4. Your due diligence will likely be two-fold, pre-acquisition, and post-acquisition
  5. 5. Placing a Bid and Funding a Note

@Joseph King You've nailed it on the head.  I'm looking at a couple right now that I think will be ok but I can't pull the trigger.  There are a couple things about each one that scare me a little but like a property I doubt there is a perfect note.  I need to keep learning.

@TJ Addison

100% correct that no such thing as a perfect note - the closer to perfect the more they cost as it’s a risk vs return game. The more proverbial hair on them the better the discount should be.

@TJ Addison understood. Gaining confidence is all from experience. The key right now is getting experience with a lowesr risk as possible. We have found many new investors don't know what is a good deal and/or understand what the headers of a data tape are.