All Forum Posts by: Doug Smith

@Rob White The best advice I can offer is this: I was once told by another fund manager two pay two people first before anyone else...the IRS and your lawyer. I would not be unrepresented in a transaction where there is a questionable title chain. Spending a few bucks with a GOOD real estate attorney that specializes in title issues is going to be money well spent. Sometimes, its the deals that you don't do that are the best deals. This one could turn into a nightmare if your bases aren't covered. Several years ago, I had the delusion that I could handle a business transaction without my lawyer and save a few bucks...I lost over $150,000 because I missed something. I won't repeat that mistake again and I share that story because I would hate to see you make a similar mistake. I'm considered an expert in what I do...and I still lean on counsel heavily. Good luck!

There is a lot to know and learn, but it can be done. If you know real estate well, you can analyze the underlying collateral. Analyzing the note, mortgage, assignment chain, etc is a bit of a different animal, but you can learn it. We do our own analysis in house, but we have a ton of experience. You can have an attorney do it as well. You'll want to park the note with a servicer. Many will, for a fee, collect the note for you. There is a process to it, just like anything else, but once you learn it, it is not really that bad. Don't get discouraged. It's not as difficult as you think, but its not as easy as the gurus make it out to be.

@George Frye We do use other people's money along with our own, but that took a track record to raise the capital. You may want to start off with one or two and go from there. Think to yourself "would I put up the money for someone to buy notes if they have never done one before?"

I agree with Bill, you need a partner to help. Figure out what value you bring to the relationship and find a partner to help show you the ropes. You'll have to ask yourself why someone would want to partner with you if they are bringing all the capital and the know-how. Figure out what you bring to the table and then fond a complimentary partner to take you across the finish line. Two years of "book learnin'" is a lot of time. It's time to find someone who's done it before to take you the rest of the way.

@Bill Gulley is also right in stating that GA is a State where the Dept of Banking and Finance requires you to get a Mortgage Broker's license to either buy or sell a note secured by owner-occupied residential real estate. I called the department myself a few months ago to confirm that tid-bit.

I do know the rule about using notes as collateral for a loan. You can. The collateral is a real estate-backed note, not the owner-occupied residential real estate and the borrower (your company) is commercial in nature borrowing for a commercial enterprise, therefore, the loan is commercial. Banks will get heartburn over doing the deal as it is not the sort of thing they are accustomed to doing, but there is no law against it.

@Samuel Hoston Good luck in the note business. The best thing to do is to find a good partner that you can do a few deals with and learn the business. What States are you interested in? What do you currently know? What areas do you need work in? What do you bring to the table when finding a strong partner (real estate expertise, a construction background, capital, etc)? You'll find people on here that can answer basic questions, but learning really requires doing. Let us know and we will try to help.

@K. Marie Poe, it really is that slow in NJ...and that's with us pushing. We stay away from notes in that State for that reason alone.

Mentors are great to have, but good partners who compliment your skill sets are better. Make sure you do a "self-assessment" first and think about what you bring to the table and how you can help your mentor with his/her business. Reaching out to someone out of the blue and asking them to provide you all of the secrets that they perhaps spent years of hard-knocks to learn may not be all that productive. If, however, you are able to say "I want to learn from you, but I can help you in return in this way" will go much farther in your quest for knowledge. I'm always happy to help others, but I also have a business to run that I have bled and sacrificed for. Can you help them bird-dog deals? Do you have deals, capital, or expertise that you can bring to the table and say "If you help me with this, we can share in the profits." You can count is as tuition and probably make more money while you learn by having an expert on your team. BP is all about giving advice, but think of what motivates mentors the most. I have a feeling you will find many more volunteers than if you simply "take, take, take" without giving back.

@Steven Mellul I would simply walk from this one. I assume that this is in NJ. The subordinate liens will have to be extinguished, so a foreclosure is probably inevitable here. In the State of NJ, it takes a long time to foreclose...we use 510 days as an average in our business for NJ. When funds/banks come to us with an offering, we can usually get a pretty strong discount. When you approach them with a specific property, however, they are going to want pretty close to the property's value for the note. Short selling will be troublesome because of the subordinate liens. There are tons and tons notes out there. I learned long ago not to get too focused on one deal. If it's not there, I learned it was best to move on to the next one. I hope that helps.

Jennifer, we've got similar paths it seems. I went to college at Illinois Wesleyan just down the road from Danville and my first job out of college was in OFallon, MO. I lived in St Peters off of Mexico Road near the Mall. That was over 20 years ago, but I have fond memories of there (I'll throw in a Go Cards). We don't invest directly in real estate, but we do invest Nationally in 1st mortgage notes. It took us a while to build a solid network that we could trust to look into our investments. I saw St Peters and Danville and had to chime in. Good luck and let me know if I can help in any way.

@Thomas Manuel , welcome to the note world. The best advice I can give you is to do a very frank self-assessment of your strengths and weaknesses in note investing and then surround yourself with others that can fill in the blanks. I came to the game as an expert in lending and collections after spending 20 years in lending for some large institutions. I also had the contacts to buy notes. What I didn't have was capital. I ended up partnering with a guy that owned a National title company and who had the capital contacts. Our business then really took off and we now have a strong business in buying non-performing 1sts, working through the issues, and either selling the notes or REO for a profit. It took me a while to admit to myself that I didn't know everything and then I surrounded myself with really smart, connected people. Perhaps you might want to consider doing the same. Let me know if I can help you in any way. Good luck!

Hugo, welcome to the world of investing in debt rather than investing directly in the real estate. It is, indeed, a different animal. There are many ways to invest in notes, therefore, the returns you will see will be dramatically different. You can buy notes and collect the interest. You can investing in non-performing notes and work to get the property back and return a tidy sum. Overall, it depends on what you are focusing on as to the returns you can achieve. Our firm currently only buys non-performing notes, we work through the issues and normally get the property back through a deed in lieu of foreclosure or a foreclosure. Our returns are significantly North of the one you are getting on the note, but there it is a different investment that is focused more on a capital gain rather than cash flow. There are tons of ways to invest in this world. Welcome! Let me know if you ever have questions. I'm happy to answer them.