All Forum Posts by: Doug Smith

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.

Sean, Hope all is well in the Panhandle. You should be able to pull the deed from the County Clerk's office. In Florida, the Clerk websites are pretty uniform and usually you click on "Official Records" in the On Line Search section. It may be owned in an LLC, which means you will have to do some more hunting. If the LLC is domiciled in Florida, then sunbiz.org can help you there. If you have trouble, give me a buzz. We do this kind of thing all the time on our business.

Bob, I was a banker for 20 years and used home equity lines of credit (HELOCs) very heavily with my clients in their investment endeavors. A loan is a one-time shot where you will usually pay a point to a point and a half on the money you borrower. It will usually be a fixed rate over a specific period of time (15 years, 30 years, etc). A HELOC is a variable rate instrument based usually on the Wall Street Journal Prime Rate (sometimes LIBOR). If there are annual fees, the HELOC can get expensive, but you can usually make interest only payments and go back to draw down more as you need it. There may be annual renewals, so unlike the Loan, you may have your line cut off and termed out. You have to look at how you plan to use the loan or line in order to determine which one is best for you. If you wish to reach out to me off line to talk it through, I'm happy to help. Now that I am managing note funds, I kind of miss helping customers one-on-one.

@Veronica Mackey It's a different animal from investing directly in real estate. I worked in lending and collection work for 20 years before I started. My best advice would be to partner with someone who really knows what they are doing before you go off on your own. Figure out what you bring to the table and what you don't know. Find someone who you can compliment. Let me know if you have specific questions. I'm glad to answer them.

Dion is right, George, you have to have a license in GA to even buy a note that is owner-oc residential. I personally had a long chat with the GA Dept of Banking and Finance when we contemplated entering that market. That's why we don't do resi notes in GA. Sorry to break the bad news, but if you want to buy in your home State of GA, you'll need a license.

@Jessica Swingle What a great post! This was really helpful. Ohio was not our favorite place to do business and we were liquidating our holdings there anyway, but licensing is so grey in so many States that we are very, very careful. I appreciate the work you put in on this topic and thanks for sharing.

@Ali Langston I preach starting with a self-assessment of what you are great at and were you are deficient. What do you bring to the table (experience, contacts, money, etc). Once you can realistically do that, then surround yourself with really smart people who are experts in areas that you are deficient in. That's how I did it with my company. I had the contacts within the banks and hedge funds from spending 20 years in banking as an executive and I'm an expert in lending and loan collection, but I had little money to fund the operation and I didn't have investor contacts. I was stubborn and tried to do it all on my own. One of my old banking clients owns a National title company that does a huge about of closings in the investor world and he has tons of contacts. Once I joined forces with smart people with different skill sets, my business took off. many banks and hedge funds will sell one off to you if you know who to talk to and how to talk to them.

I was fortunate to have that banking background where my phone would ring several times per day with real estate investors asking me to buy my REO. If bankers only got one call per month, they might take the time to chat with them, but I used to get 5 or more per day. People also used to call the wrong people. They would call a branch manager. Although nice people, bank managers usually do not understand lending very well and don't have the authority to sell a note.

Here's another thing to thing about: Bank Asset Managers are given a portfolio of a finite amount of deals to work. The bank wants them to solve the problems and work through the portfolio to get them off the books by collecting them or selling them for an amount the bank would deem appropriate. Banks, however, are notorious for laying off good bankers once they no longer need them. Bank Asset Managers usually know this fact well, so you have to ask yourself "what is their incentive for solving the problems with the portfolio?" Why would they want to sell you their loans, whittle down their portfolio, and then be out of a job. It makes no sense, I know, but is the way banks work. The way to get into banks is to know someone, pure and simple.

Ali, I hope that helps a bit. I would find smart people to help you rather than trying to do it all yourself. Good luck, my friend!

...from the school of hard knocks...and I'm still learning every day. I started in consumer finance for nearly 5 years and then I began originating mortgages in the early 90s. I soon switched over to underwriting and collections inside of the banking world. Making and collecting loans for more than 2 decades was my education. There are gurus out there that will help, but there is no way I could have learned enough to do what I do now in a two day course. There are so many laws and intricacies involved in working through notes that you will always be learning. One major thing that I learned along the way is to surround yourself with experts in the area you want to do business in. I would suggest determining what you bring to the table...money, expertise in specific area, etc...and partner with those who can fill in the blanks. For instance, one of the other principals in Castle Rock is a CPA with a strong investment banking backgrounds that is the majority owner of Clear Title America, one of the best known closing agents for real estate investors in the industry. He brought investment banking experience, 30 years of business savvy, all of the resources that a National title agent can provide, and a huge rolodex of real estate investors to sell the REO to. I would suggest that rather than spending tons of money on a course from a guru that sells two-day courses and only glosses over the business to sell more of their educational products, figure out what you bring to the table and partner with experts that can take you to the next level. That's how we did it.

Hey Ron,

It took us a long, long time to get in the door with institutional sellers. Both myself and one of the other principals in Castle Rock each had over 20 years working as executives in financial institutions. We had tons of experience and contacts, but it still was an uphill grind to get in the door. Ellis is right, it's very tough to find notes directly from banks where the pricing makes sense.

You will have a standard asset/loan purchase agreement. Upon the buy/sale, the seller will provide an assignment of mortgage and an allonge that assigns the note. Those are the main forms that we use in our business. Let me know if you have specific questions.