All Forum Posts by: Patrick Desjardins

Because they're horrible at it. They have high turnover and most of them have zero experience. 

When I started I was talking to the borrowers myself and my results were 10x better, and getting results quicker, than going through the servicer. Sadly, because of all the regulations and scumbag attorneys it's best to let your servicer do it.

The ideal scenario would be if you're big enough and can hire your own in-house team and train them to follow FDCPA and CFPB.

I doubt that is correct. Recapitalizing is one of the most difficult aspect of note investing as a note investor. Pretty sure that applies to both note funds and individual guys operating out of their home office, perhaps not necessarily as a JV but access to funds for sure.

Note investing is very cash intensive. You have the purchase price, due diligence costs, the legal fees, insurance, licensing, servicing fees, reserves you have to keep, repairs and the list goes on.

So let's say you start with your own money, as most of us have. You start with 100k and you buy a 1st mortgage for 40k. You start foreclosing and in that state it takes a year and costs you a total of 5k in legal fees and various other fees. You've paid a year's worth of servicing at $85 a month. The house goes to auction and no one bids on it so you end up with it. It only takes 5k in various repairs to make it rentable.

Well in that very basic scenario, in one year you've spent 51k out of 100 before earning your first dollar. And now you don't even have enough money to buy a 2nd comparable note (or you stretch it, have no reserve and get in trouble).

If you want to share in the upside (but also risk your capital) you can do joint ventures with small investors. Fixed rates are very common for note funds.

I'm pretty sure they have a fairly active note investor community up there. Look up Meetup and see what's available.

 It's still a great investment vehicle, especially if you offset its weaker aspects with other investments. For example you mention owning real estate / rentals. Nothing stops you from getting the strong returns of notes while also owning rentals for its benefits. Aim for 30% on non-performing or 12% on performing, anything above that is gravy. Then you have your rentals for tax benefits etc.

They complement each other very well. For example a $300 note payment today might be nice but assuming they don't refinance, that same payment in 20 years will feel much smaller. It's the opposite with your rental - the current rent after paying the mortgage is going to be small, but assuming rents increase then in 20 years it'll feel much bigger.

Honestly I'm not sure what systems you can put in place for some of this stuff. When a servicer auto-dials the wrong number for 30 days, when you email them / call them multiple times to make sure the demand letter is on its way and then they say "oops we forgot, sorry!", when an attorney doesn't publish your FC in the newspaper so it has to be delayed 2 months, when the attorney hands the keys to a cash for keys deal before you had it inspected and the homeowner stole the AC unit/water heater and ripped out the HVAC (all true stories from the past year).. 

The only thing you can really do is constantly look over their shoulder and monitor it, and things will still fall through the cracks. You can minimize the problems but not fully remove them. Just imo.

That the 80/20 rule is a real thing. We are surrounded by absolute incompetence. Most of the companies we deal with have high turnover and most of the people we deal with are mediocre at best at their job. Most of them couldn't care less about your success, either.

It sounds harsh and kind of gloomy but it's what I've observed in the past few years.

Never trust that paperwork will be transferred correctly, never trust that your servicer will make the call, never trust that your attorney will have your foreclosure published, never trust that your contractor is going to do their job, never trust that the county is going to account for your payment right. You have to micro-manage every little details in every step of the process and it is extremely frustrating and annoying.

This is such a niche thing that I doubt many of us here can put a value on it with 100% accuracy. 

With that said, what's painfully obvious is that assigning face value to that note is ludicrous. It's unsecured, non performing, not even an arms length transaction, to a weak borrower. This note is basically worthless to most investors including myself.

I only buy secured mortgages but if I had to guess I'd probably value that thing at less than 5 cents on the dollar. Even less if the guy does file for bankruptcy. Your best bet is to value it like a credit card debt, and you know how discounted those are.

Maybe someone else can chime in.

Meh. Guru stuff..

First you want to get a general overview of notes so you can have an idea of what really interests you. There are a lot of niches. Someone talking about note investing is as broad as someone talking about real estate investing. I'd start with Dave Van Horn's dozens of articles on BP to give you an idea of the larger picture. Scott Carson's free videos also give you some insight.

Once you've learned a bit more and you've determined which niche you want to focus on, then you can do more research into the specifics of that niche. So for example if I told you to buy a book on buying seller financed notes, it's entirely different than buying a $100 note in 3rd position, being foreclosed on by the 1st and 2nd :)

Start with "The Banker's Code" by George Antone. Should give you some of the basics.