All Forum Posts by: Liz Brumer-Smith

I see the Distressed Mortgage Expo (DME) is coming up but is now called the Diversified Mortgage Expo. Is anyone planning to go to this? I'll be speaking at the event on getting started in notes.

I also have FC proceedings on hold in PA. I think it's more important to look on a county by county basis, with some big exceptions that have state moratoriums. 

I've used all three services mentioned above and more. FCI and Madison are the largest for the smaller investor who is buying one or two notes at a time. Allied is really knowledgable and has since launched an online portal. They can handle partials well just as FCI can. All three have pros and cons. No one servicing company is perfect! I find it's best to keep the loan you're purchasing with the original servicer. This minimizes confusion in the transfer (for the borrower and reduces the chance of missed payments during the transfer). If you're originating the loan yourself try out each servicer and adjust in the future if your not happy.

There are a lot of reasons note sellers are willing to take a discount off the face value, but it always comes down to needing to sell for whatever reason. Maybe they are discounting because of challenges or defects relating to the loan, or they have a strong preference for cash now vs having to wait to collect the payments over time. I wrote an article in the Bigger Pockets blog forums about why you can even buy discounted notes (performing or non-performing) this might give you better insight into the logic behind why notes are sold for less than what's owed.

Paperstac is definitely a good starting place but there are other platforms as well like Direct Source or Notes Direct.

Licensing requirements definitely varies from state to state, and it's important that you know what your looking at, how to analyze the note and the underlying collateral (the home and the paper) before buying even a performing note.  A lot of notes for sale on Paperstac were once non-performing and are since re-performing, making them a slightly riskier investment. There's nothing wrong with this model, but could increase the likelihood of the borrower re-defaulting. 

Hi Julie, great questions! 

Yes where the loan falls in the amortization schedule matters. The length of the loan, the interest rate you're charging, and of course the loan to value of the asset will all play a role in the price you get for the note when it comes time to sell. Something I didn't see others mention is that in your original strategy you were thinking of selling the note as a potential exit strategy. While that's a great option, the secondary market demands a discount even if the loan has paid on time since origination and paperwork was completed to a T. So you need to be willing to accept a slight discount in order to get your money back. Balloons can help, ideally a 5 year balloon but you also want to make sure the borrower has options either by selling (hoping the market is still strong enough to sell) or they would qualify for a traditional loan or financing elsewhere (meaning they need to have a good credit score and financial standing).

We love creating mortgage notes and buy existing mortgage notes from sellers like yourself all the time. There is definitely a market for it. The risks everyone has mentioned above are very much a risk, but it can be a very lucrative business if you're willing to take the risk with the reward.  

Cammie, I totally understand the hesitation at first. However, I've paid upwards of $30K+ combined to gain others wisdom, knowledge, and experience over the years. $1,500 - $2,500 is really not that much to learn how to do something correctly. Think of it like a college class -- you wouldn't start a new career without some sort of training. If the cost for education helps you make $75,000 over the next two years or helps you avoid making a silly $5,000 - $10,000 mistake, I think it's money well spent.

In regards to your goals. I think $20,000 is a good start but it won't buy you much. You're going to have to find a low balanced mortgage note and make sure it's not secured by a piece of junk property at that value (so targeting notes with equity). They do exist but it will be a slow game to get you to the point where you have enough passive income to replace your current income.

Let's say you find a note that you purchase it for $20,000. The loan is performing and has 15 years left. Achieving a 12% return you'd be earning $240.03 of cash flow. At a 15% return (which can be accomplished you just really have to work to find the deal) you'd be earning $279.92. See how this will take many years to reach your goals if you can only allocate $20,000 each year? There are alternatives, like investing in NPL's to build your investment income to then buy performing loans, or convert non-performing loans into performing loans. You can also work with money partners leveraging other people's money to buy notes.

Yes, any money you can use to fuel your business will only help you reach your financial goals at an accelerated rate. I think both are critical. If you have money but nothing to invest in then you're in a tough spot. Visa versa, if you have deals but no money you also aren't getting anywhere. It's critical to work on both simultaneously to really see success.

I have been a mentee virtually and found it worked for me, but I'm a go getter. I take initiative and follow through with action steps and goals. Being face to face is nice, but I don't think it's necessary to succeed.

@Matt Finch great questions! JV is an option, I started off doing it that way with money lenders doing the work and showing them the ropes, but then it became a full time job to explain every step of the process to them. I no longer do that anymore because it was so time intensive. I now simply work with private funding partners where they act as a silent partner getting a return upon completion of the deal. It's a far better method for me personally. I also suggest learning the ropes yourself possibly from a formal class. You don't know what the JV is or isn't teaching you. They may have done certain things that they forgot to tell you can leave big gaps in your knowledge base.

In regards to your second questions, yes you could but it will take time just as it would with any other investing strategy. Note investing is not a get rich quick scheme. Building passive income to that scale will take a lot of capital on your end, effort, and time. However it is very feasible (I personally have made that in a given year 100% from my note investments). Since you do make a good salary, my biggest tip would be to keep that income going and use all extra income from your note business to reinvest into buying new notes. This will 10x your results and get you to your financial goals in a much faster time.

Is there a reason you're looking for a local mentor? There are a number of mentors that could help you virtually! Thank you for sharing your questions!

@Robert Harpster that's great to hear! I'm so glad you're finding valuable information here. There are a lot of experienced note investors in this space. Is there anything in particular you feel you aren't confident with yet, that doesn't seem to be provided elsewhere?

I've been a note investor now for close to eight years. Investing in mortgage notes is how I got started in real estate investing. As I see the current state of the mortgage industry become more distressed, I realize the massive opportunity that will be in place moving forward in the next few years for distressed debt buyers.

This has made me wonder, if you aren't familiar with investing in real estate notes or are familiar with the concept and are interested in learning more about note investing -- what questions do you have?

What information do you feel you need to decide if it's right for you? What information is missing from other forums, blog posts, videos, etc. to help you learn more about investing in notes?