BiggerPockets Podcast 273: An Introduction to Passive Income Through Real Estate Note Investing with Dave Van Horn

by | BiggerPockets.com

Most people understand the world of rental properties, house flips, and other common real estate investments. But there is one little-known niche that could provide massive cash flow and profits without the headaches: note investing. In this episode of the BiggerPockets Podcast, we sit down with Dave Van Horn, author of Real Estate Note Investing, to talk about how anyone can get started with real estate note investing—even as a first investor. In addition to a great conversation about notes, you’ll also hear some of Dave’s powerful strategies for getting his real estate offers accepted, how he started his investments using the BRRRR strategy (with credit cards!) and much, much more.

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 Brandon: This is the BiggerPockets podcast Show 273.“You know my 85-year-old mother invests in performing notes. She’s a little note queen. Because it’s that simple. The payments are ACHed into her bank account every month from the servicer”.

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Brandon: What is going on, everyone? This is Brandon Turner, today’s host of the BiggerPockets podcast, here with my incredibly awesome co-host, Mr. World Traveler himself, David Meyer. How are you doing?

David: Good, man. That was like the nicest introduction I think I’ve ever gotten.

Brandon: That’s good. You know, it’s been a while since you’ve been on the show because you’ve been traversing—is that the word? All over the world, it sounds like.

David: Yeah.

Brandon: The continent? Where did you go?

David: I was in Chile. I was there for three weeks. It was awesome. Thank you, BiggerPockets, for giving me three weeks. Yeah, it was awesome.

Brandon: What are you doing in Chile? Am I saying that right?

David: Yeah.

Brandon: I just say Chili. But is it not Chili. It’s Chile.

David: I think you could say it either way. I’m like a horrible American.

Brandon: Everyone knows what you’re talking about either way. But what did you do?

David: I went with my girlfriend and we did a five-day trek, hike, around Torres del Pine which is a pretty cool area. We did some rock climbing, a lot of eating, as you know, I just love eating. We went to the mountains. We went to the desert. Just some stargazing tours. It was amazing. It was a really cool country. It’s not really one of those places a lot of people visit yet but I think it’s going to be a really popular destination soon. It’s really easy to get around. People are super nice. It was great, man.

Brandon: That’s awesome.

David: How are you doing? I mean it’s like good—how is it for you—what are you doing right now?

Brandon: It is early. It is 8:00AM right now because we’re on what, a four-hour time difference, I think.

David: Yeah.

Brandon: Well anyway. But you know, I do what I do.

David: Yeah, I could not be chipper or engaging at all at 8:00 in the morning. So kudos to you for doing an interview and talking this early.

Brandon: Thank you. We just got done recording so we always do our introduction right after we finish the recording. We just finished talking with Dave Van Horn who is our guest today. So speaking of remote locations like Chile, today’s topic is something that’s very remote to a lot of people and that is note investing. A lot of people are like oh, I don’t want to listen to that. But listen guys, there’s so much gold in this episode. Even if you don’t care anything about note investing but the reason I think it’s valuable to make you guys listen and take some notes because—like, notes, get it? Take notes.

Today’s note is—this stuff applies to almost all aspects of real estate. The stuff we talk about, we talk about BRRRR investing. We talk about how to get people to accept your offer more likely. But also note investing, really, like I say in the show, I think one of the best if not the best forms of real estate investing that people should eventually get into. Most people don’t start there but even Dave explains today how a person could actually start there, which is cool. So make sure you stick around for that. But before we get any further into the show, let’s get today’s Quick Tip.

Today’s Quick Tip is—I’m going to throw this one in there. I want to encourage you guys to practice speed when you’re looking for deals. So here’s what I mean by that. So many people come to me and like I talk to them and they say yeah, this deal came on the market a couple of weeks ago and I’m looking at it and I’m analyzing it and I’m thinking it might be kind of a good deal. Every time I’m like—it’s already gone.

If it was a good deal, it’s already gone, right? You just can’t wait in this game, in this market. You gotta practice speed. So like yeah, don’t let fear just hold you back. Because in reality, how long does it really take to analyze a deal or to run the numbers? It’s usually like ten minutes, right? So why do we wait weeks? That’s only one thing. It’s fear. So yeah.

David: That’s a good tip. I mean, basically practice analyzing deals before you’re ready to buy. And then when you’re ready to buy, you have to be able to do it like—I mean, today’s day and age, what? 24 hours or 48 hours? People are lucky from the time they see it to it’s probably going to be under contract. So great tip. I like that a lot.

Brandon: Thanks. So with that, let’s get to today’s show sponsor.

Today’s episode is brought to you by our friends at RealtyShares.com. I love these guys. RealtyShares is a real estate crowdfunding platform that allows accredited investors to invest in pre-vetted real estate deals online. So investors can browse and then invest in both residential and commercial properties that yield returns 8-16% annually. As a Realty Shares member, you can passively invest in professionally managed real estate investments in a variety of asset types and geographies for as little as $5,000, all from the convenience of your living room. So to learn more and to get started with a free account, just go to BiggerPockets.com/RealtyShares. That’s BiggerPockets.com/RealtyShares.

All right, big thanks to our sponsor always. And now, I think it’s time to jump into the show. No more talk about Chile and I don’t know, early mornings.

David: Let’s get to it. Let’s do it.

Brandon: I feel like we could do a whole show just on your trip to Chile, but we’re not going to do it.

David: I could do like a slideshow for everyone.

Brandon: What if you get like an old-fashioned like projector that will like slide if you press the button?

David: We’ll have no one listen to it or watch it.

Brandon: There you go. Did you ever watch the kids’ videos of Veggie Tales? This is totally not real estate related. Do you remember Veggie Tales at all?

David: I’ve heard of it, kind of.

Brandon: Veggie Tales is like a kids’ video back in the day but there was one episode—people in YouTube. It’s called the Song of the Cebu. Look up YouTube later, the Song of the Cebu. It’s like the funniest video, and it’s like this guy sitting pressing buttons and going through a Slide Deck of his trip to, I don’t know, Chile or something like that. Anyway, it’s funny. Song of the Cebu, Veggie Tales. Check it out. But anyway, that was totally random. Let’s get into this show. Let’s bring in Dave Van Horn and introduce you guys to somebody who’s one of the smartest people I’ve ever met. With that, let’s get to it.

All right, Mr. Dave Van Horn, welcome back to the BiggerPockets podcast after five long years in the desert. How are you doing?

Dave: He’s back.

Brandon: He’s back.

David: Welcome, welcome.

Dave: I’ll be back.

Brandon: You are back. You’re here. It was like Episode Number 28? Was that right? You were on?

Dave: That’s correct, yes.

Brandon: Wow, way back in the day when I didn’t even know what I was doing. I still don’t know what I’m doing with podcasting but back then, we were really rusty. I do not listen to those old shows. I’m like embarrassed by them. But I don’t know. Hopefully, we can do a better job today than what we did back then.

Dave: It was good, it was good.

Brandon: Okay well, you know, today we’re talking about note investing. Obviously you wrote a book on note investing which we’ll talk about later today in the show. We mentioned it in the introduction. But before we even like dive into the intricacies of how to buy a note and all that fancy stuff, I just want to start with what the heck is a note? Can you just explain to people who just have no idea. What are we talking about?

Dave: It’s a promise to pay. It’s that simple. And a lot of times I’ll start out asking people, who in here is in the note business? Or what was your first note? So if I said to Dave, what was your first note, Dave? Or if I said to Brandon, what was your first note, what would you say?

Brandon: I would say I don’t invest in notes.

Dave: Ahh. But there was a note somewhere along the way. So my first note was my student loan. And that was my first promise to pay, right? And my student loan—believe it or not, I’ve been out of school a while. It was $5800. 6.12% and it was $65 a month payment for ten years. How many people would like that payment?

David: I’ll take it. I’ll trade you.

Dave: And a lot of times, I’ll go on to tell a story about how my younger son went to college and we paid for college with a fraction of the money, probably about 30-40% of what college costs. So it’s not always what you’re paying. It’s how you’re paying it. And we utilize notes to pay a fraction of the money to pay for college. So I’ll be sure to talk about that.

Brandon: Yeah, please do. So you’re saying we’re all in the note business.

Dave: We’re all in the note business. Just ya’ll have student loans, medical debt, auto debt, mortgages. So I’m just trying to get people to step across the lines to the concept of receiving payments instead of writing a check.

Brandon: Okay yeah, that sounds much better. So from a tangible standpoint with note investing—because this is a little bit of a complicated topic but we want to make it really simple for our listeners—how is that actually done? Like no investing. How do people make money with notes?

Dave: So how do people make money with notes? How do you make a high return, that type of thing? And you know, just think of the hard money lenders, for example, right? A hard money lender or a transactional funding, short-term note, right?

But what the hard money lender’s doing is he is lending money out at 13-15% with points, and obviously it’s expensive. But he’s also doing it, trying to do that twice in a year. Say he tries to flip the money more than one time, and also they’re probably getting their capital that’s from a business line of credit on their portfolio or they’re raising private equity.

So there’s probably an arbitrage play there. By that I mean they have cheaper capital than what they lend out at and they make the difference. So that’s one way people make money. Then there’s like two other ways that come to mind, right? There’s like three ways a typical real estate investor makes money in this business.

The second way is seller financing, right? So a lot of people will originate the note to sell a property. So your grandmother sells you a house, Brandon, and she says, I’ll hold the mortgage for $100,000 and I’ll create this mortgage. It’s 8%, 30 years, whatever that is. But grandma doesn’t want to wait that long. She’s like, no I want to party now. I’m going to Vegas. I want the money.

So what I could do is I could sell my note after it’s originated, especially if it’s got 12 months of payments on it. I can take that to a note broker, a seller financed note broker and sell that note for like 80 cents on the dollar or that type of thing so grandma could get $80,000 or $100,000 note and start partying now. Because grandma says I don’t have much time left so I want to party.

The third way is the institutional notes, right? That’s the space that I play in. So we’ll go—these are bank originated loans and most of what we buy is considered an NPL, a Non-Performing Link, right? So what would possess someone to buy a loan that’s not paying, Brandon, right?

Brandon: Yeah, exactly. It just sounds like a headache.

Dave: But what happens is—we’re in an upmarket so there’s different price point when you buy in an upmarket versus a downmarket, but a lot of first mortgages today are probably anywhere from 55-75, 80 cents on the dollar. The higher up in value you go, the more expensive they are and the lower you go in value on the property, the cheaper they get. So I hope that makes sense to you.

Brandon: So you went to the three ways, right? So like there’s private money Obviously, I’ve used private money a lot and hard money. There’s that side. You could be a private money lender or a hard money lender. There’s also seller finance and you just like sell a house, like I might sell a property and then carry the contract on it, just like if I was selling a car and I was to have somebody make payments to me.

For some reason, I’ve always thought this—people have a hard time wrapping their head around seller financing but everyone gets the idea of oh, I’m going to sell my car to somebody, they’re going to make payments because I feel like most people have done that or somebody has asked them, hey, can you make payments?

So I think of it that way when people are confused. I think of selling a car and the person who is buying the car is going to make payments to you. It’s the same concept with a house, right? And then like the third way you said is you can buy institutional notes, which is what you do.

The institutional note thing is fascinating to me because you and I did this video together a couple of weeks ago that we’re including in the bonus content for your book and I learned that you can get like really good returns off of this. Like really good returns.

Dave: Yes.

Brandon: Can you explain how that is? How do people get such awesome returns off, especially a note that somebody is not paying on?

Dave: Right, so let’s take $100,000 personal mortgage, right? You might buy that for $60,000. And if the property is only worth $110,000 or $100,000, you’re okay. The worst case scenario there is they would start paying again at their 7-8% coupon rate but you paid less for that loan so your return’s actually higher. It might be 11-12%. I’m not a human calculator. But you get the idea.

The other side of that is, what if the house was worth $150,000 or $170,000 fixed up and it was vacant? Well now I have strong odds of getting that property and I did due diligence before I bought the property, right? I sent somebody out. I had a broker-priced opinion. I checked out the property in detail. And it’s vacant. I’ll probably get the property back. Well, if it’s worth $150,000 or $170,000 fixed up, it might be a really good deal even if I paid 80 cents on the dollar. Would I pay $80,000 for this $100,000 mortgage if the house was worth $170,000 and it only needed $20,000 in work or something?

So that’s how people are making money and sometimes it’s another way to get a deal that real estate investors will use the note to get the deal if they’re trying to get the property in most cases. Sometimes you’re just trying to get a passive return on the yield. The other thing that people—there’s other ways we make money. So we get a homeowner reperforming even.

And you might go, well that’s kind of boring. They’re paying their payments. You’re making a 10-12% return or whatever that is. What happens if the homeowner pays me off early? Now, my yield will go through the roof, right? So if I invested $60,000 in this scenario for two years and they paid me back the $100,000. Well now my yield went really high on that, right?

Brandon: That makes sense. You’ve got the three options then. If they start paying you, you make a good return. You’re just making a really good stable above average return, probably better than you’re going to get in the stock market. If they don’t pay you and you have to foreclose, well hopefully you bought a good enough—you bought a property with good enough equity in it that you can now foreclose and take it and go flip it or sell it to another investor or whatever. Or they pay you back. It’s just kind of feels like—I don’t want to say win-win but like, there’s good options presented to you.

Dave: This is the option I like the best because it’s secured by real estate, right? Think about—there’s companies that buy credit card debt or auto debt or student loan debt, right? Well credit card debt has no collateral. This has collateral. So as crazy as you might think I am Brandon, it’s the beauty of the business. It does have collateral.

Brandon: I love it. So with every known investor, today we’re going to talk about how people can cross over that line. How do they get from paying people to getting paid for things, right? I actually just did my first note last year. I did a seller financed—well not seller financed, I was a private lender to a buddy of mine who was flipping a house and he didn’t have the money. I lent him the money and it was hands down the best money I ever made in real estate.

I never had to lift a hammer. I never even showed up to the job site other than to just say hi to my friend. Like, I did nothing and every month, I’d get this automatic check that he set up with his bank to my house. It showed up in my mailbox. It was like true mailbox money. I was sad when he paid it off. That was just so easy. I get it.

David: I guess that’s a good question because you saying that sort of furthers this idea that you already have to have money and some sort of real estate success to begin investing in notes. Is that the truth, Dave?

Dave: No, because there’s multiple ways to—I’m a firm believer in utilizing the financing system to your advantage, whether that’s paying down debt, accelerated, using sweep accounts and things like that, or whether it’s just leverage you’re using or arbitrage or all these different terms I’m throwing out there. But instead of letting financing happen to us like most people just go through life and they’re not paying attention to financing but once you get a handle on finance, you can really tweak your real estate business and accelerate your wealth-building exponentially.

Brandon: Like how much cash would somebody have to have to actually go into a note?

Dave: You can invest in peer-to-peer lending which is a note for $20 bucks. So you can go to Lending Club, Prosper.com. So a lot of the young folks in my office do that because they run all kinds of analytics because we analyze pools of mortgages. Well they’ll put those same analytics on Lending Club or Prosper and the analytical guys are knocking it out of the park with a Lending Club. Because they’ll day trade in those and they’ll do all kinds of things.

David: Oh, wow.

Brandon: Okay, so the point you’re making here is anybody can invest in notes, right? It doesn’t have to be the end result but would you agree it’s a little more complicated—it’s different than most investing. When we think of, I’m going to go buy a single-family house and rent it out, this is a whole different game. And so we have to learn how to do that.

Dave: In a way, it’s no different. I mean sure there’s different risks involved and I’m not saying go do note investing without knowing what you’re doing. How many people come up to you, Brandon, and say, I could never do real estate investing?

Brandon: Sure yeah. People think it’s a really tough thing.

Dave: They’re like yeah, so it’s the same idea. It’s just a little different but it’s an asset-backed investment for us. We specialize in mortgages which are anytime you can buy it at a discount with a high yield backed by collateral, I think it beats the stock market pretty regularly. And I used to trade options.

Brandon: Yeah, that’s cool.

David: Well, I have a ton of questions about all the terms you just dropped because I don’t understand anything about this. But let’s just start at the beginning. Let’s just figure out—I’m curious. How did you get into real estate investing? Give us a little backstory about your evolution as a real estate investor and how it wound up resulting in you being the master of note investing?

Dave: Oh, boy. Well, I went to college to be an accountant and I got out—I switched in my senior year to management. I got out of school and I couldn’t find a job. So I was working in construction and living at my mom’s with my wife and son. You know how that is. And mom said, why don’t you try real estate? I got my license at like age 26 and I was taking a class to get my broker’s license and I took a class on investing.

And the teacher said how many people in here have credit cards? We all raised our hands and then the teacher said, how many people are buying houses with them? And our hands went down. We literally went over and took our textbooks and threw it in the trash and said we won’t be needing that tonight. And I went home that night and I remember telling my wife that I was going to buy houses with credit cards.

I bought my first probably ten or 12 houses with credit cards. I’d write myself a credit card check, pay cash for the house, fix up the house with another credit card and then I’d refinance the house, pay the credit cards off and get the house for free and make a couple hundred a month and walk away with some cash as well.

And then property values jumped up and I had a lot of equity and at one point I had 40 units at one point and had a couple million in equity. The next thing you know, I had about 11 lines of credit on my apartment buildings and houses and started becoming a lender, like a hard private money lender and I was a property manager at the same time at Remax and then I had all this lending going on.

And it was, the lending seemed easier. I wasn’t in court. I wasn’t a full-time inspector. Later on, I got into institutional notes by accident. I was running a real estate investing group and I used to interview the speakers. We had this speaker that was raising capitals for pools and mortgages and right before the crash, me and my partner who was a lender, a loan officer said, hey why don’t we try this note investing business?

And we reached out to this person in New York and said, show us on to collect on delinquent debt and we’ll buy a product from you. And the rest is history but we just started out with four loans. I mean it was not that much money. And two loans flopped and one was a grand slam and one was a homerun. If we had only bought two loans, we wouldn’t be talking.

Brandon: That’s cool. All right, so I want to unpack that and get into notes but before we do, I want to attempt to bring to life something you mentioned. So you did a strategy where you were buying houses with credit cards, fixing them up, and then going to a bank and refinancing them. So what’s funny is like before—

Dave: I would not do that today.

Brandon: No. Maybe the credit card thing might be a silly way to do that but the strategy itself is the exact strategy that I’ve done on almost all my real estate deals. We call it the BRRRR strategy, right? Buy a property with short-term money, usually from a private or a hard money lender, and then we fix it up, we rehab it, then we rent it out and then we refinance it to get the money back to pay off the short-term money and then repeat the process again.

So like I’ve done this for almost every property I’ve ever bought. I just do it over and over and over because I can typically get my money back. I just wanted to pull that out there. Just because Dave said he used credit cards and you’re saying well I could never buy a $200,000 property with a credit card—yeah, you don’t.

But the same principle could apply to people today. And it does. People are constantly telling me that they’re successfully doing BRRRR deals and I’m successfully doing BRRRR deals and I see it all the time on the podcast. Anyway, I just wanted to pull that point out there. Anything you want to share, Dave, on like what works with that strategy and what doesn’t? Any advice that you realized back then that was important?

Dave: Well, credit cards back then didn’t have cash advance fees like they do today so you’re much better off using private money or hard money today. One of my regrets was that I didn’t use more hard money to get started. It’s because I realized later that investors were making money on the draw schedule. I never knew that. Like I always thought the interest rate was high. There was no reason to use—I didn’t want to use hard money, right?

So when I found out later why it’s because the next draw was $10,000 and I came in under that. And I did the next phase of the project for $6,000. I can keep that $4,000 and a lot of times, people realize that. But I was a realtor and a contractor. I just didn’t have any money. And the lesson is, you don’t need any money. You just need a deal.

Brandon: Yeah, that’s so true.

Dave: That was a great lesson.

David: So you alluded to this earlier about hard money and just mentioned it again. Could you explain to everyone what exactly hard money is and why you recommend using it?

Dave: Well hard money is there because banks won’t lend on short-term renovation deals unless you’re getting a construction loan and you’re a big developer or something. So banks don’t want to lend on renovating a little house so a hard money lender is a private lender who comes in and does the commercial-first mortgage, short-term high interest rate and points usually. You know, higher than a traditional bank. But it’s short-term financing. And usually you renovate the project and you flip it out or you refinance it and keep it as a rental. So you’re buying it. Like a handyman special. A bank doesn’t want to finance a handyman special basically.

Brandon: Yeah, I think people usually don’t understand that they always ask why would you do the BRRRR strategy? Why not just go to a bank and get a loan on the fixer-upper? And that’s exactly why. Banks don’t want to lend on nasty houses so you use short-term money to fix the nasty house into a pretty house and then you go get long-term money. And if you’ve got a really good deal, then you know, you can make it happen.

You mentioned something else, too. I’ll just pull it out here because I think it’s just gold. You don’t need to have a lot of money to invest in real estate. We all know it. You don’t need to have a lot of money but you do need to have a deal.

And in today’s economy especially, like money is everywhere. Lots of people have got money today. I like to call this thing—I think we’re going to name it the deal delta. I’m coming up with a branding all the time because I’m trying to change how we call it. But anyways, we’re going to call it the deal delta.

There’s three things you need to put together a deal. You need money. You need hustle. And you need knowledge, right? But you only need two of those, really, to put together a deal. So if you’ve got some knowledge and hustle, you can go find good deals and somebody else can bring the money.

Or if you are just somebody who has money, you could get somebody else to go do the hustle and the knowledge part if you really want to. Now I recommend everybody to get the knowledge. At least like, if you want to get involved in real estate, yeah. Just build your knowledge base, get your hustle on, and you’re going to do just fine.

Dave: Yes. Awesome.

David: Before we get into the actual loan investing and note investing, could you just sort of give us a primer on mortgages for people who are thinking about their first deal, haven’t been through the process, and just don’t know the ins and outs of getting possible bank financing?

Dave: Well, the banks want to lend a certain percentage of what the house is worth. So I like to tell investors when they’re starting out is—one, what type of investor are you? Are you active or passive? And then a lot of times, they think investors—some are reluctant to utilize the loans they can get in their own name. Me, I’m not saying what I did was right but I kept that as a separate bucket. So whatever loans I got in my own name, whether that’s ten mortgages or whatever it is today, hurry up and do that and then go off and do your commercial bucket and get your commercial loans.

And then I would keep multiple buckets for me. And I would utilize debt as asset protection or I would have a lot of insurance. So I have different strategies. So I have my IRA bucket, I have my insurance bucket. That type of thing. Then I have multiple commercial buckets. I have a business bucket which is my company, right? So I have all these revenue streams, so to speak. And I segregate them somewhat. Multiple streams of income.

I actually talk about that in the book with—Robert Allen wrote a book with multiple streams of income. One of the things that got me started as a realtor, for 15 years as an agent, I just made the brokerage money. I didn’t think about, later on I became a partner in a title company, I did property management. I had a construction business.

So I would sell Brandon a house and then make money in all these other ways. So I would get paid five or six times on a particular deal. So that’s what I mean by multiple streams of income. You could do that with your investing as well.

Brandon: So that’s one reason that makes me excited about getting into note investing because I am getting into it. Especially the more I talk to you here, you and I did a bonus video together that we launched with the book for people who buy the book, they get an interview that you and I did with—what was his name, Bob?

Dave: Yeah Bob from my office, Bob [Inaudible][26:56].

Brandon: Yeah, he’s bright. So we did this video and you guys basically walked me through how to buy my first note. It was unbelievable but like I’m excited because of the idea of multiple streams of income. I’m not getting out of real estate investing. I’m not getting out of rental properties, right? But like if I can diversify my portfolio within the real estate space—I’m not going to go buy stocks because I don’t like stocks. That’s not my thing. I’m not going to go buy bonds or whatever.

But if I can get multiple streams of income within the real estate nice, I get that. I understand that. And that’s what makes me excited. I love the fact that you brought up the multiple streams of income and I did read that book when I was younger, too. Robert Allen’s Multiple Streams of Income, I think that’s what it was called. A huge fan of that.

David: I’m curious. If me, Dave Meyer, was interested in getting my first note investment, where do I start?

Dave: So, a lot of people get started in different places so that’s why I was asking the question earlier, what type of investor are you? Are you active, passive, what’s your experience level? But a lot of times, people start in performing notes because they’re easier. They’re already paying and they’re typically already placed with a servicer who’s collecting the payments for you. They just give you statements every month. So there’s very little—

David: Can you just dig into that quickly? A lot of our audience probably is not familiar with performing versus non-performing and benefits of each?

Dave: Well, performing means the note’s paying and a lot of times in our case, it was a note that once defaulted and became re-performing. And now it’s paying—especially if they’re paying for more than 12 months, they’re considered performing again. And you know, my 85-year-old mother invests in performing notes. She’s like a little note queen. Because it’s that simple.

The payments are ACHed into her bank account every month from the servicer. The only challenge would be if the note were to redefault and if that were the case, most servicers have default servicing so they would pursue the property or whatever. So you have collateral behind your investment. Just like you would if you invested in a house, right?

Brandon: Okay so you’re saying your 85-year-old mom, so she has a note that it has a servicer. So there’s a company that deals with the note, right? So she’s got this money coming in every month because for whatever the amount is—let’s say hypothetically she had $100,000 and they’re paying 8% interest on it, let’s just say, for simple math. And they’re getting—what is that, $8,000 a year?

Dave: If you buy it at a discount, it’d be a higher payment. So she might get a 10-12% return on it a month.

Brandon: Okay, so that’s another thing we have to talk about then. You could buy it at a discount, just like I can go buy a real estate deal at a discount. Okay, so I want to buy a note. So somebody is making a payment every month to you, let’s say. So you have a note. They’re paying you, Dave, every month they’re paying you $1000 a month and the note is for $100,000, we’ll say. I could buy that note from you for a discount you’re saying, just like a real estate deal. I can go buy that for $90,000 from you.

Dave: Right. So a lot of deals, especially real estate investors, I don’t understand the ability to capitalize on a note you own. They think you buy a note, you’re stuck in a note for 20-30 years, right? But what you don’t know is you can sell the note. You can sell a piece of the note. I can sell Brandon five years of payments to his IRA account. Or I can actually borrow against my note. It’s called a collateral assignment and note mortgage.

So Dave could lend me $10,000 and I could back his loan with my performing mortgage and I can do a recording in a county courthouse behind what the note’s located. So I get to—collateral assignment and note mortgage is what it’s called. It’s two documents. I do a promissory note for Dave and do a recording to protect Dave.

And if I didn’t pay, Dave could take my note. Just like you could take a house. The only difference when you’re buying a note is it’s a note sale agreement and you record the assignment and mortgage when you buy a house, it’s an agreement of sale and you record the deed. It’s that simple.

David: Very, very simple.

Brandon: Cool. Okay. I’m a new investor. Like let’s say I want to do a performing note. That’s easier. So I just want to own the mortgage of someone who is actively paying their mortgage every month. What do I do? I have absolutely no idea how I’d go about that. I know how to find a real estate deal but I have no idea how to find a note that is going to make me money.

Dave: Well you know, there’s a lot of places where you could buy notes. It could be in exchanges like FCI Exchange. They sell notes there all the time. Auction.com, LoanMLS. There’s all kinds of websites. Our website sells notes. We sell notes every week. So you can—and there’s multiple funds that sell notes. Gemini sells notes. Granite Mortgage sells notes. There’s all kinds of funds out there that sells notes. There’s also other trade desks. Colonial Funding’s a trade desk in Texas.

So you’re just not familiar with it. That’s all that it really is. It’s a familiarity thing. But there’s plenty of places. There’s note brokers that sell notes on a regular basis so there’s note exchanges, note brokers, there’s funds that sell notes. So there’s plenty of places to buy notes once you’re familiar with the business. But it’s like anything. You’ve got to get educated in the space. You’ve got to network with people doing it. You might want a JV or mirror someone else at first until you get a handle of what’s going on.

It would be if I let Brandon watch a deal that I would go out and look at, look at the due diligence. He would shadow me. Just like you could do in a real estate deal, right? Somebody could tag along and watch all the numbers and watch what Brandon did and watch how Brandon rehabbed it. It’s the same idea, really.

Brandon: Okay, yeah. And I think that’s super valuable advice for anybody whether or not they’re trying to buy notes or not. You just said shadow somebody. Your first deal, you don’t have to do yourself. If you’re like brand new to any kind of real estate, figure out what you want to do and then go find somebody who’s doing it and be like hey, can I just follow you around? Can I just learn from you? I mean, don’t be annoying about it. But isn’t that great?

David: I feel like so many people are like, oh how do I make this much money on your first deal? Even if you come out on a wash on your first deal. Even if you don’t make any money, you’re going to learn so much that is going to make you money for the rest of your life. It does not matter if you’re going to make a huge swath of cash on that first deal.

Dave: So there’s other ways to get started, too. One is note funds. So a lot of times you have to be a high net worth individual to invest in a note fund but sometimes you don’t. But a note fund spreads the risk around. So instead of if one note went bad and you’re in a fund of a hundred notes or a thousand notes, there’s less risk because—also, you can’t be sued.

You’re just like a limited liability partner. So you have some liability protections there and believe it or not, a lot of people utilize qualified plans to invest in notes because it’s so passive. There’s less maintenance and things like that. So there is a place for them. You can also invest in non-performing notes which is, you know how Brandon rehabs a house, we rehab the paper basically. There’s also seller financed deals, is a great way to get started as well and that’s where you do owner financing.

One of the strategies I used to do when I was buying property, I would make like four and five offers on a house. On the same house. So I would do an offer of owner financing. I’d do an offer if they held a second. I’d do an offer of if I went with a traditional bank. And then I’d do an offer about if I use a hard money cash offer. So you know, and all offers worked good for me. It didn’t matter which one the seller picked but it’s a neat way to get a property and get some interesting financing going.

Brandon: So here’s why I love that. And I teach people this a lot. It’s something I’ve been doing for years. When you make people multiple—and this is just not note investing, it’s all investing. When you make multiple offers, people don’t—they’re more likely to choose between the options presented than a yes or no. So instead of saying, like I actually this morning, I’m sending in an offer on a property.

So I’m submitting an offer on a property. They’re asking $929,000. I’m offering them today—it’s a big property—I’m offering them—it’s been on the market forever. I’m offering them $800,000 and I’ll come with a loan. Or I’m going to offer them like $850,000 if they’ll carry a second mortgage for $100,000. Because if they can carry a second mortgage, I can come up with way less money out of pocket. Therefore, I’m willing to pay way more. So when I submit this offer today, I’m going to give them two options.

It’s the same reason that as tall, venti, or grande. You don’t think about the 7-11 99 cents a cup of coffee when you’re like, which one do I want? $9, $30, or $100 for that cup of coffee? You choose between the options presented rather than an outside thing. So that’s just a quick tip for anybody out there. I love that, Dave. So make multiple offers and if you ask for seller financing, you never know. You might get that.

Okay so that’s cool. So I want to go through a little story here, an example. Like Dave Meyer here is a new investor, wants to get started in real estate, and doesn’t want to change toilets and deal with crappy tenants that want to do all this stuff. He wants some passive income.

David: Wow, sounds great. Sounds amazing. Let’s do that.

Dave: What would you do with your weekends? You’d have to hike or something.

David: That’s a problem I would love to have. I will figure out what to do instead of dealing with tenants. That would be great.

Dave: You’ll miss standing in line at Home Depot.

Brandon: All right, so Dave wants to buy his first note. He’s decided that he wants a, we’ll say, performing note at this point. I’m assuming Dave Van Horn here, a performing note is probably going to be more expensive than a non-performing, kind of like a fixed up house is better than a nasty house, right? Okay. And maybe it’s going to be a less return but maybe a little more stable and a little less risk. Am I correct on that?

Dave: Yes, you are correct.

Brandon: So now he goes to a site like FCI Exchange. Which I think is a cool site for digging around because they give you a lot of numbers. That’s what’s cool about that site. But like you said, they can go to your site. They can buy a note from you guys and they can buy a note from a lot of people out there. But let’s just say he goes out and he starts researching and somebody says yes, Dave Meyer, I will sell you this note.

It is a performing first mortgage and the person owes $100,000. Well, they can go lower. A person owes $50,000 on it. It’s a little house in Detroit or something. So they owe $50,000 on it. The house is worth $70,000 though. But they only owe $50,000. So I’m going to sell you this note for I don’t know, what’s reasonable, $45,000? $55,000? I don’t know.

Dave: Well, if it’s non-performing, it might be 50 or 60 cents on the dollar.

Brandon: Okay, it’s not performing.

Dave: If it’s performing in like the 70 cents or 80 cents. It depends on the quality of the borrower or the collateral behind it. Usually, the higher the mortgage amount and the better the quality of the collateral, the more you’ll pay on the dollar. Especially with first mortgages.

Brandon: Okay, so let’s say there’s a $50,000 that Dave Meyer here wants to buy and he can buy it for $40,000, we’ll say. 80 cents on the dollar, right? So $40,000. So here’s the cool thing, right? He’s not getting—even if the note, the interest that the borrower is paying—even if the interest was 8%, Dave is not getting 8% on his money, right? Because it’s 8% on whatever the original balance was of that note.

Dave: On the $50,000, yeah.

Brandon: On the $50,000. So like he’s actually making closer to I don’t know, 10% we’ll say. And then what happens if they pay the property off? Do they refinance or they sell it?

Dave: You would collect even more in payments, right? Because you would be—or you could—say they defaulted. You have plenty of collateral behind you as well. So it’s just a nice—it’s another way to invest. A lot of times, think about real estate rentals, right? I used to be a property manager. If you’re making more than a 30% return on your rental on the cash flow, it’s a pretty good number. And if you go much higher than that, you tend to be in maybe less desirable areas or something.

But when you factor in maintenance and property management, are you down closer to 20% or 15%? You see how it starts to shrink. So note investing is not as crazy as people think when you factor in you’re not dealing with the property with the property management and the maintenance. Now, a lot of folks do the property management themselves. I get it. Because I used to do all those things. But that’s just kind of the tradeoff there, right?

So it’s really, especially if you get into the nicer property, the returns are even lower, right? And then if you paid a property management fee, you’re either paying a property manager or you’re paying yourself if you want to work for $25.00 an hour, that’s fine. But I mean you get the idea. There’s nothing wrong with it. I just to be a property manager. But I used to do some crazy things, too, in volume.

Brandon: All right, cool.

David: So I have two questions about this. First, if this property is so great and I can make all this money, why are people even selling these mortgages? Why wouldn’t the bank or the original service, whoever is owning the loan right now—why would they sell it to me at a discount?

Dave: So they can go back and buy more or they’re making money on their rehab. So if I bought that example that Brandon was using, if it’s a $50,000 mortgage and it was non-performing and I bought it for $25,000, and in six to 12 months, I get it reperforming and I sell it to you, Dave, for $35,000 to $40,000, I’m a happy camper. I’m okay. If I make $10,000 to $15,000 on my $25,000 investment in less than a year, am I okay with that? Yeah. I’ll live.

Brandon: So it’s kind of like saying why would you ever sell a house if you flip it? Why don’t I just hold onto it as a rental? Well because some people are just in the business of flipping houses. They like that quick cash, making a chunk, and then moving on. There are so many analogies between rental and flipping versus note investing.

Dave: Even with $40,000, I can go back and borrow two more notes, right? And then I did it again and again.

David: So let’s answer the question that’s certainly foremost on my mind which is what happens when it goes badly? I know my rentals—I know how to evict someone at this point. But what happens when a performing note becomes a non-performing note?

Dave: Well, you have to either reach out to your servicer and they’ll start foreclosure action or whatever or they’ll try to get it back on track for you. We actually have a warranty at our company so if we sell you a note, our warranty is investment principle minus payments received. So we would actually give you an option to sell the note back to us. And we don’t really want you to lose money because you would keep buying more notes, right? But you know, different companies have different reps and warrants when they sell you a note. So you want to be with somebody reputable.

Brandon: So what’s cool about note investing that I’ve kind of discovered a little bit in talking with you a lot especially, Dave, is kind of like I don’t want to say you can’t lose. You definitely can lose.

Dave: You can lose.

Brandon: You can lose. But there’s so many protections. Like in other words, if they pay you off—you have so many exit strategies. If they pay you off, you likely make all your money back and then a big chunk, like a kicker or something like that is what you said.

Dave: Sure. You can have infinite returns, too, right?

Brandon: How would you do that?

Dave: Like say you bought a note for a small amount and they paid you arrears. And you took your risk off the table and they made payments for a year and you got all your money back. Well now your return was infinite after that year. Say they were behind in three years in payments and they got you caught up or you might have discounted the arrears.

So they paid you a chunk of money, they started paying again, and at a certain point, your risk is off the table and now it’s just all gravy coming in at the remaining part of that note. Or you could have sold a piece of the note and now you’ve got all your capital back. And now it’s all an infinite rate of return. So you can cash flow off notes. You could do some neat things.

Brandon: That’s cool. So if we were to go back to I guess the original example here—Dave bought this property for $50,000—or he bought it for $40,000, he bought the note for $40,000 and it was worth $50,000. If they went and refinanced, would they have sold the house eventually then whatever—then he can get all his money back plus that extra $10,000 that he didn’t put in. That’s awesome. If they don’t do it, he may have to foreclose on them.

Now, in some states, I know it’s hell to have to foreclose and some states are a lot easier. But let’s just say he’s in a state that whatever he forecloses on them, six months later, they’re out. It goes through the process. And now he’s got a house that’s worth $50,000 and he only owes it $40,000. Now maybe he can flip that house and I know some investors use notes as a way to actually generate potential leads.

There’s really a lot of like—or they just keep paying it on forever and they make a good return for as long as he holds on the note. Or he sells the note. There’s like so many exit strategies which is one thing that I love about note investing.

Dave: Right. So it depends what your goal is. Like if you’re a real estate investor and you venture into the note space and your goal is to get more properties, then maybe you want to pay vacant first mortgages, for example. If you’re somebody that wants payments, you might go after occupied to get modified or that are already performing.

If I want to get yield, I might go into junior liens because there’s more yields. It’s a higher risk so higher returns. So it’s what kind of investor are you? Are you somebody who’s looking for something safe or are you somebody who’s looking for a high yield? It varies, right? Just like anything else.

Brandon: Yeah, that makes a lot of sense. So if there’s like one message I can kind of get across here to people from what I’ve learned reading through your book, talking to you, is that like note investing is big. There’s so many avenues, kind of like how somebody said well, I don’t want to invest in real estate because I don’t want to have to fix toilets. Well I don’t fix toilets and I invest in real estate. Or I don’t want to do notes because I don’t want to deal with people in foreclosure. Okay, well do something else then. Or do a different type of note investing.

There’s so many different types of note investing which is again why I love your book because it just gives a broad overview. So I guess now is probably as good as any a time to just mention you wrote a book on note investing. Can you give us like a 30-second kind of description of what—there it is. Real Estate Note Investing by Dave Van Horn. Tell us what is the book about just in like a quick summary.

Dave: The book, it’s awesome. It’s got the best cover I’ve ever seen.

Brandon: It is a pretty darn cool cover.

Dave: It is a cool cover. But anyhow. What I like about the book is you know, even before I wrote the book, there wasn’t that many notebooks that talked about the whole note industry as a whole, right? It’s a huge industry, a trillion dollar industry and I don’t think there is a comprehensive book done to date. And it’s one of the things I wanted to try to explain all the different aspects of the note business just like real estate, right? You can invest in real estate in a million different ways.

And I think with notes people get confused. They don’t know, well how do I get started? How big is it? I think that was one of the things first initially that brought me to writing the book about it. But I also wanted to point out that we also go into how do you find notes? How do you do due diligence on notes? How do you do it safely? How do you make money on notes? All these things. How do I use notes to increase my wealth and incorporate it into my real estate business and even into my everyday life.

And I actually go into a whole thing about how you can pay down debt quicker, how you can buy houses better, how you can sell houses better, how you can cash flow after you no longer own the house. How you can invest better, how you can pay down debt really fast, how you can build your wealth twice as fast, right? You can use all these different finance hacks and I think a lot of real estate investors just tend to go out and do their part of the business, whether it’s finding deals and rehabbing or whatever that is. They don’t necessarily look at it’s a finance driven business. Sometimes the deal is in the financing, right?

My partner says this all the time. There’s no bad houses. There’s just bad prices, right? There’s no bad notes. There’s just bad prices on the notes. And that’s really—or bad terms. So I think what I’m hoping that this book does is it introduces the concept of we can make our businesses that much better by utilizing notes in our business, that type of thing whether it’s scaling more. I don’t care if you’re a wholesaler or rehabber, turnkey person, you’re going to make more money. You’re going to do it a little bit easier. You’re going to cut out some of the nonsense in your life by utilizing notes more in your business. Sometimes it’s even a great way to exit.

One of the things I’m doing personally, Brandon, I’m a little older than you—but I’ve had houses that I’ve owned for years and I’m starting to pay some of them off, right? I’m paying them off and I’m moving them into a family trust, doing a little estate planning. But I’m hoping interest rates go up, right? Now how many real estate investors do you know are hoping interest rates go up?

You’ve got to be going like, there’s something wrong with you. You’re hoping they go up. Well I’m hoping they go up because I want to sell some of these houses with owner financing to a gentleman like yourself where I hold the paper. We don’t have to pay the realtor fees, I transfer it to you. It’s almost like a cash deal. And I’m giving you financing and maybe I do a fixed rate of 8% for 30 years, interest only, for example to your entity.

You’re not living there. You’re renting it out. You grab the keys. You walk in. It’s turnkey. And you’re yelling hey, I just added another gem to my portfolio. I don’t have to really do anything and I’m paying Dave instead of paying the bank, right? It’s not such a bad concept, right? And here I am cash flowing off property I no longer own and my family likes that. So sometimes a great way for a real estate investor to exit, you know?

Brandon: Yeah, that’s awesome. You know, some people think of notes as being a really advanced strategy. It is something that usually comes later in an investor’s life but when reading through this book and talking to you, I realize this is so important for newbies as well. If you’re an advanced investor, you’re going to love this book. But if you’re a brand newbie, let me tell you why I think every single newbie needs to read this book, because by understanding both sides of the financing thing—if you understand how private money work and how seller financing works, and how raising hard money works, all of that—like this book explains both sides of it which will help you put together more deals.

Like a few years ago, I bought a 24-unit complex and I had no money. I was like 23 at the time or 24 at the time. And this property came up. If I didn’t know about how seller financing worked, I would have never thought to even ask the seller to do seller financing. I just bought a million dollar mobile home park here a few months ago and if I had not known about how seller financing works, we wouldn’t even have thought to negotiate that into the deal. So we ended up getting seller financing into the whole thing.

So because I understood that, I was able to put together more deals. Especially if you’re new, if you don’t have a lot of money to start investing, seller financing is one of the greatest ways to do it. So definitely pick up a copy of this book because it’s going to shed a ton of light on how to do that. You’ll become an expert at it so then you can suggest that to people like old guys like Dave Van Horn here.

Dave: Old guys like me.

Brandon: Who want to retire.

Dave: Brandon, you hit it on the head. This is an autobiographical book in a way, right? It started out when I was a newbie and then when I started learning about notes, you don’t need a lot of money to start in the note business. You can literally do it with $20-25 on Lending Club and Prosper.com. You don’t need a lot of resources to get into the note business today.

But one of my favorite things in the book is how your assets can pay back your liabilities, how a note can pay your student loan back at a fraction of the cost. How your note can pay for a brand new car instead of buying a used car. How a note can put a free addition on your house by utilizing a home equity loan and a note.

These techniques of how we pay back our debts with our investments is just a unique concept that I like and it’s just another strategy to build wealth quicker and hopefully I can share some of this with everybody through the book and somebody can take—just about anybody can take a little something away from it.

Brandon: That’s awesome. All right, like I said, guys, I think everybody should pick up a copy of this book whether you’re a newbie or an advanced investor. Pick it up. It’s cheap. It starts at $19.99. You can get it only right now on BiggerPockets.com. You’re not going to find this on Amazon or Audible or anything else right now. It’s only on BiggerPockets.com. And again, prices start at $19.99. Go to BiggerPockets.com/NoteInvesting. BiggerPockets.com/NoteInvesting.

And we are doing a big launch as we always do when we launch a book at BiggerPockets. We want to encourage people to jump in and take action so we’re providing massive, massive benefit right up front, massive bonuses. Because we want the bonuses to be worth ten times the cost of the book. So we’re including, today, if you guys buy in this first ten days. I can’t remember exactly if it’s ten days or 14 days but anyway, if you buy it in the first couple of weeks here, you’re going to get some bonus content including an e-book called Stay Safe: Note Investing Pitfalls to Avoid.

You’re going to get something, a video interview that me and Dave and Bob, your partner in crime there, did. That was mindblowing to me. We just walked like Dave and Bob screenshared, we looked at some notes, we analyzed them together. We looked at some numbers of like, how does it all work? That was unbelievably helpful for me. And then third, there’s also an audio interview and a transcript you did with Mary Hart about asset mistakes. Can you explain, what was that?

Dave: Well Mary Hart’s an asset protection attorney and we went into a lot of things investors don’t think about when they’re building their portfolio to protect themselves, whether it’s from lawsuits and things like that and how you can utilize notes and as a form of asset protection. So a lot of people don’t know that you can use notes as asset protection and those types of things. But she goes into a bunch of other strategies that are typical real estate investor should incorporate to avoid some trouble, you know?

Brandon: That’s awesome, that’s awesome. Well cool. Everyone go pick it up. BiggerPockets.com/NoteInvesting or if you can’t remember that, just go to BiggerPockets.com/store. You’ll find it there as well. But again, this is for everybody. Go pick it up right now during the launch period and if you love it, tell a friend.

All right so let’s move on. I have one more question before we move on because we’ve touched on it a couple of times today and we never really dove into what it was but I want people to understand because it’s a pretty common phrase with note investing. What does it mean when you say first lien or second lien or junior lien, senior lien? What are you talking about? And then we’ll move on.

Dave: Well first mortgage is what someone typically takes out when they buy their house, right? That’s the main mortgage. A second lien or a junior lien means the same thing. A junior lien could be a third position or fourth position as well though. But usually junior liens are usually a second mortgage in most cases where someone were to take out an additional home equity loan on their house or a home equity line of credit on their house, that would be a junior lien or a second lien. People do it for improvement or something like that where they’re borrowing out of the equity of their house.

Brandon: Okay. Yeah, that makes sense. Well is there anything you want to leave with us before we move onto the Fire Round and the Famous Four? Any final pieces of advice for people who want to get started with note investing?

Dave: Um, utilize leverage. Leverage your resources. If I were to ask you what point of leverage will make a dramatic impact on you in the next year? Is it leveraging people, money, time, technology? What is that leverage? Think of ways to leverage your resources and your financing.

David: Awesome. That’s great advice.

Brandon: Yeah. Very cool. All right, well let’s move on and get to today’s Fire Round.

It’s time for the Fire Round.

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David: All right. First Fire Round question. Is it possible to purchase your own non-performing note?

Dave: Yes. You could purchase a non-performing note in several locations. Note websites, note brokers, note exchanges. Yes.

David: Excellent. Very quick and Fire Roundish.

Brandon: Yeah, that was very quick. Next question. The title of the forum thread was Other Avenues of Note Investing. Here’s the question from Dustin. Granted, I’m aware of the main discussion in this forum as I know it’s investing in real estate, but I’m curious to hear other feedback. Does anyone invest in other notes outside of real estate? I started note investing a few years ago. I noticed other avenues like annuities and other things. I’m just wondering, would love to hear who invests in notes outside of real estate and any advice they can give. Any thoughts to give Dustin on that? Can you invest on outside of real estate?

Dave: Yes. Well just to give you a real perspective, notes are a trillion dollar industry, right? So they’re all over the place. And I have friends that invest in student loan debt. I have friends that invest in credit card debt. I personally invest in commercial notes because I can’t invest my IRA in my own company. So I invest in commercial notes that are tied to receivables. So I have a friend that has a company that does commercial notes to businesses for short-term loans for retail establishments. And interest rates are very similar to hard money rates. So I invest from my retirement account into commercial notes, for example. So yes, it happens all the time.

Brandon: All right. Cool.

David: All right, question number three. If I want to be an individual note investor, how much money do you need to have to play? Is it possible to buy some notes in the $5,000-$10,000K range?

Brandon: Real estate specifically, right?

Dave: It is possible but it tends to get riskier the lower it gets. So most performing loans, if you’re buying a second mortgage are probably between $20,000 and $40,000. Most first mortgages could be $20,000 to $30,000 to $60,000 and $70,000 and up. It can go higher, much higher. But most of them tend to sell in that range because the real big mortgages go to the big funds. They grab the largest mortgages if that makes sense. So the lower end of the spectrum is where typical investors hang out. But when you get into that $5,000 range you start getting into more risk. So I’ve bought loans, for example, in Detroit for $80 bucks. Now, you might go, well, that’s risky. Yeah, but it was $80. Put it in perspective.

Brandon: That’s funny. That’s hilarious. So on that note, question number four. On that note, no pun intended. Yeah, thanks. Would it be a smart strategy to buy a non-performing note or a defaulted mortgage—so, somebody who’s not paying—just to foreclose on them and get leads for your flipping business? Like is that a strategy I should be pursuing?

Dave: Some investors do that and they typically do it with vacant properties because if the property is already vacant, you can determine that prior to buying usually. If it’s occupied or not. You usually have a BPO or a broker-priced opinion, somebody who goes out to the property and they can kind of tell you if it’s vacant or not. So if it’s vacant, you have better odds of getting the property and not having to deal with evicting a family or something like that.

Brandon: To dive in a little deeper than that, I know this is the Fire Round, but when we did that video interview, you and I and Bob as part of the bonus content, what I really learned or got out of it or really respected from what you guys do is like, you’re not in the business—I had this wrong opinion of note investing. I honestly thought the goal was to buy like, to deal with people who are in foreclosure and try to kick them out of their house. That was kind of the view I had but I realize what you guys are actually doing is like in every way possible trying to help people.

So you’re going to people who have got like, hey to go back to the examples we used earlier—they owe $50,000 on their mortgage, let’s say, and Dave buys it for $40,000. But you know, they haven’t made a payment in two years and now they’ve got $20,000 in late fees and charges and now they owe $70,000. They’re upside down. They can’t get ahead. They’re just drowning in debt, right? And you go to them and say hey, listen. Let’s just negotiate something. Can you put a little bit down on your debt? Can we knock off all those payments and fees or whatever, right?

That’s what I really got out of it like you look at this as like an ethical business which I really respected a lot. It made me excited to get into this because you’re helping people and you’re not just taking advantage of them in a hard situation. You’re trying to do what a bank could never do. A bank is cold and hard. You guys have a heart. So kudos to you.

Dave: Socially conscious investing. So you’re trying to share your discount with the homeowner to hopefully keep them in their home if you can. And that’s our primary focus here.

Brandon: Yeah, I love that. Again, you’ve got to listen to that video. It’s really cool. Super cool stuff. All right, well that was the Fire Round. Now before we get to the Famous Four, let’s hear a quick word from Mindy and what’s going on this week on the BiggerPockets Money podcast.

Mindy: Hi Brandon, I’m super excited for this week’s episode of the BiggerPockets Money Podcast. Last week, we released Part One of the Choose FI interview with Brad and Jonathan. This week, we’re releasing the second half of their interview. There was just too much excellent information to cut this interview down. Thanks for asking. And now back to the Famous Four.

Brandon: All righty. Make sure you guys check that out. You can get to it by going to BiggerPockets.com/MoneyShow. Okay, Money Show. Make sure you guys go check that out because it’s fantastic. Because stuff. All right, well let’s get to the world-famous Famous Four. Was that an English accent?

David: I always use an English accent. I turn into an old British lady. Whatever happens. I don’t know. It’s too weird. All right, we have some questions for you. First one, what is your favorite real estate book?

Dave: My favorite real estate book I’m reading now because my book is, believe it or not, it’s a weird book. It’s called The First Entrepreneur and it’s about George Washington. And I’m a history buff a little bit. I read a lot of books but this book, I like a lot because I didn’t realize George Washington was this big land baron business owner and he had to do some things we didn’t have to do like fight the French and Indians or something to protect his turf and stuff like that. But he had thousands of acreage. And when he got married he got even more acreage. And all this—it’s an interesting story. I didn’t realize how much of a real tycoon he was. It’s called The First Entrepreneur. It’s a good book on George Washington.

Brandon: Cool. All right, what about a business book? What’s your favorite business book or current favorite?

Dave: I guess my current favorite book was a book I just finished called Abundance. And I think who wrote that—Peter Diamandis? Or somebody? It’s called Abundance and it’s probably the most optimistic book I’ve read in a long time about just the possibilities of all the stuff that’s going on right now and all the solutions to most of our major problems are already here. We just haven’t connected all the dots yet. And it’s a great book. Abundance.

Brandon: All right, what about your hobbies? What do you do for fun?

Dave: Play with my grandkids. I do a little fishing. I have a mountain house. I go away. I like to travel a little bit. But history. And I read a lot. That’s probably my biggest—I like anything history related like sightseeing stuff, you know. Any time I’m in a different city.

David: Cool. All right. And what sets apart successful investors from those who give up, fail, or never even get started?

Dave: Wow. What sets them apart? I guess they’re persistent. They don’t give up. They don’t listen to the herd. We were talking about the herd earlier. You go against the herd. If you do the opposite of what everybody else is doing, you’ll be super successful.

Brandon: There you go.

David: Good advice.

Brandon: I love that. Last question of the day. Dave, where can people find out more about you? Where can they connect with you or go to your website, stuff like that?

Dave: You could go to PPRNoteCo.com. PPRNoteCo.com or you can catch me on BiggerPockets. I’m always in the forums, always writing articles. Yep.

David: Perfect. Awesome.

Brandon: All right, dude. This was awesome. And I know we’ve only scratched the surface. Yeah, this has been cool. So if people want to get to know more about note investing, I would highly encourage them to all pick up a copy of real estate note investing. It is fantastic. Dave, you’re a very good writer and I enjoy reading your stuff. So I think people are going to love this.

Dave: Thank you guys.

Brandon: Well thank you very much. We’ll see you again.

David: Thanks a lot, man. Congratulations on the book.

Dave: Thank you guys. Take care. Bye.

Brandon: All right, that was our show with Mr. Dave Van Horn. Every time I talk to that guy, my mind is blown. What about you?

David: Yeah, absolutely. My mind is spinning. I am absolutely going to read the book now, I can tell you that much. I started reading it before this interview and his writing is really good. You think, a lot of our books in BiggerPockets, you think oh, tax book or note book. It’s not going to be that interesting. But the really good writers, it’s really interesting and I think it’s going to be—I’m eager to read the rest of it. That’s for sure.

Brandon: Yeah, it is super, super awesome. I’ve skimmed through and I read most of it. I want to actually go through in more detail with a highlighter because I only have the digital version. Now I’ve got to get the physical one. I’ve got to go get Katie to send me that. Katie is our head of publishing at BiggerPockets and she’s awesome. And I’m going to make her send me a free copy. I’m going to throw my weight around a little bit.

David: One of the perks.

Brandon: One of the perks of being the podcast guy is I’m going to have her send me—the only perk. All right, so before we go, what was the coolest thing you did in Chile?

David: So I highly recommend it. We went to this place called Torres del Pine. All the way in Southern Patagonia. Basically the end of the world. There’s this amazing trek and you could do it. It’s like 70 miles for five days. And in between every day you can stay at like a hostel and so you don’t have to bring a tent or anything. You hike all day. You can drink beer and everyone’s hanging out and playing cards and games and you just—great comradery. It’s a whole lot of fun. So check it out. Torres del Pine, southern Chile. That’s my recommendation.

Brandon: That’s awesome. Did you do the Machu Picchu while you were there? Is that something?

David: I have. No, that’s Peru. I have done that before.

Brandon: Peru. You’ve done that though, right?

David: I did that right before—that was awesome, too. Very similar kind of experience. Super fun. I love South America. Those are my recommendations. What about you? What are you doing in Hawaii? What’s your top Hawaii experience recently?

Brandon: Man. I don’t know. I mean surfing. I just love surfing. I do a lot of that. Here’s one recommendation. If you guys ever go to Oahu, go over to the town of Kailua where is where we’re staying right now and go to Island Snow and get their shaved ice. It’s like natural flavors, snow cap on top with like condensed milk on top and ice cream at the bottom of the cup. It’s unbelievable. Like, it’s unbelievable.

David: That’s sounds good. Maybe we should get—what’s it called?

Brandon: It’s called Island Snow but it’s a shaved ice. The product is.

David: I think we’re going to have Island Snow to sponsor the next podcast. Free advertising right now.

Brandon: I know. It’s so good. If you guys are ever in Oahu, go to Island Snow. It’s pretty fantastic. And yeah. Well, I think that’s it. All right, I will catch you next time, Mr. David Meyer. And for BiggerPockets.com, this is Brandon and David, signing off.

David: We’ll see you next time. Thanks everyone.

Brandon: Adios.

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In This Episode We Cover:

  • What is a note?
  • The types of notes available
  • Ways to start investing in notes
  • How much cash one needs to have a note
  • Dave’s backstory as a real estate investor
  • Dave’s shift to note investing
  • What hard money is
  • Three things you need to put together a deal
  • Getting bank financing
  • Performing vs. non-performing notes
  • Shadowing and how to do it
  • Making multiple offers
  • What happens when a performing note becomes a non-performing note?
  • About the book
  • And SO much more!

Links from the Show

Books Mentioned in this Show

Fire Round Questions

Tweetable Topics:

  • “It’s not only about what you’re paying, it’s about how you’re paying it.” (Tweet This!)
  • “You don’t need any money, you just need a deal.” (Tweet This!)

Connect with Dave

Do you want to invest but don’t want to deal with tenants, toilets, and termites? Do you want to make a long-lasting passive income stream—from paper? If you answered YES to any of these questions, this book is for you! Order today!

About Author

Thanks for checking out the BiggerPockets Real Estate Investing & Wealth Building Podcast. Hosts Joshua Dorkin & Brandon Turner strive to bring top-notch educational content and interviews to our listeners — without the non-stop pitch prevalent around the industry.

With over 180,000 listeners per show, the BiggerPockets Podcast has become the biggest real estate podcast in the world. But don’t take our word for it. We’re the top-rated and reviewed real estate show on iTunes — check it out, read the reviews on iTunes, and get busy listening and learning!

13 Comments

    • Dave Van Horn

      Thanks Don! And that’s one of the best ways to learn! I would see if someone in your local REIA works with notes in some capacity or peruse the BiggerPockets Note forums to see if anyone in the note business is in your area and/or willing to share info with you on recent deals.

  1. Kevin Coggins

    Awesome podcast with perfect timing! I’m just starting to have an interest in note investing and there was definitely some great info here. Seems like I will need significantly more capital than what I currently have – or at least overhaul my current strategy to truly get into it individually (to get into the range of 50k that you had mentioned). I thought it was pretty cool that you initially went to school for accounting – that’s what I’m currently studying after going back a year ago (hopefully Just a year left until I’m CPA eligible).

    • Dave Van Horn

      Thanks Kevin! The one thing perhaps I didn’t stress enough in the podcast (but I try to do so in the book) is that we started PPR 10 years ago with almost none of our own money. And we really grew the business to what it is today almost entirely with private capital. Notes can be a capital intensive business so learning to raise capital can be key to growing your note business!

      P.S.
      Congrats on the upcoming accounting degree. Even though I never became a CPA, I still value what I learned way back when, I even use a lot of it today.

  2. James Dickens

    The podcast was great. Listened to it about 3 times now. Bought the Digital Copy of the book and am about 1/3 of the way done with it. Lots of great info and several questions spinning around in my head! May have to read this a few times to get it all.

    Thanks for putting this together and introducing me/us to something that is new and different for those of us just starting out.

  3. Luke Grogan

    Dave,
    Excellent interview and very interesting information. I was curious to listen because I have been doing some private lending (with training wheels since it’s almost exclusively to my partner who I’ve flipped with). I’ve considered notes but I’ve held off for a few reasons, lack of knowledge being the primary and continuing to buy rentals the secondary.

    I jumped on your site after the podcast and what a surprise to see that we’ve already done business together! Your company bought some old debt of mine from my first attempt at real estate investing. Pretty wild, but I had a generally positive experience with you (through Jeff B.). My only complaint was my counter offer was so quickly accepted that I realized I’m a bad negotiator! Haha.

    Accept my app and let’s do (another) deal together!

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