Note Investing: What's On Your Mind?

Question

What topics and questions are on your mind for the rest of 2024 and for 2025? We are hosting free webinars each month and want to offer as much value as possible.

Alecia Bolton · Answer

I would think that a lot of folks who were in it 2-3 years ago were in it for the non-performers, and we know how that market is currently.

I'm not currently buying because my capital is currently deployed.  That's the downside of performing notes.  I'm a big fan of the upside though.

Topics on my mind:

what market conditions would have to occur for the NPN space to make sense for smaller investors?  And depending on the conditions, would we want them to happen (from a larger societal perspective)?

Does note investing still make sense for small investors?

Chris' question on the alphabet is intriguing as well.  And how hungry did someone have to be to say 'mm, that 8 legged sea creature with the snappy legs looks delicious'.

Don Konipol · Answer

@Chris Seveney

“ I am scrubbing my database and from just a few years ago I would guess 90% of people who were "interested" in notes 2-3 years ago are no longer interested.”

Exactly why the majority of investors are not good at investing - hopefully they stayed fully invested in the equity market or debt market the last 45 years and “rode the bull”.  But, they chase the latest hot trend.  STR today, multi family tomorrow, self storage next year.  Then after they’ve bought at the market top, they sell out at a loss and invest in the next hot thing - at the market top. If they’re “passive” investors they invest in funds/syndications where the syndicator/fund manager has “stretched” beyond all reason because the ROI in his specialty has gone below all risk return reasonableness BUT it’s his business and he doesn’t have the integrity to (temporarily) shut it down.  To a hammer, the answer is ALWAYS a nail.

Jamie Bateman · Answer

I thought maybe you'd read the topic of my post. But then again, I also expected a smart-a$$ comment from you. I am surprised it took you almost 20 minutes, though.

Chris Seveney · Answer

These are great questions.

What I see for market conditions to change is an uptick in unemployment and continued defaults. Right now I see a good amount of NPN's that were originated at 3-5% interest rates and are like 6 months behind. Whoever is buying these for 90 cents on the dollar and having to go through a BK before foreclosure is going to lose their shirt on these assets.

I would give it 2-3 years and those loans will have been dismissed 2x and be 2 years behind where these lenders will not want them and we will start to see more inventory. I do not see it happening this year or really even next.

As it relates to does it make sense for small investors, I think it does for those who invest either under $1M or above $10M. That mid-range investor if doing a fund in that range is going to be very difficult to find enough product, cover your overhead and pay the investors.  It can be done but I would probably also diversify it in private lending or another type and just not NPN's.

I think reality people need to understand is the days of 25%+ returns are only happening if the operator is on top of their game but stuff is being sold and priced out at 15-20% and that should be the expectation. If you are going at this thinking you are going in bidding and winning above it, you are going to be disappointed.

Another Question:

Do you think interest rates trending or heading back down is good or bad for non performing note investors?

Chris Seveney · Answer

I was getting my morning workout in. Thus the delay. In all seriousness, question on my mind is what are people looking for to acquire? What strategies have they implemented over the past year since the market has shifted significantly?

I am scrubbing my database and from just a few years ago I would guess 90% of people who were "interested" in notes 2-3 years ago are no longer interested. This is good for you and me, but just curious to hear what others are doing.

Dan Deppen · Answer

I use a licensed servicer and let them worry about it. When creating the owner finance note you can usually set it up where the borrower pays the servicing fees.

Chris Seveney · Answer

I always wondered, why does the alphabet have an order to it? That has been on my mind lately.

If it is related to note investing, my question is, people complain about lack of inventory, but when inventory comes out, we rarely see people bidding on assets - so are people actually investing?

Note Investing: What's On Your Mind?

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