What The Gurus Do Not Teach You In Note Investing - Part 4

[Chris Seveney]

I recently watched a video where an investor bought a mortgage loan at a steep price, with an exit strategy that hinged entirely on getting the borrower to agree to one specific term. The kicker? The borrower was elderly, and the investment would tank if this exit strategy failed. They were paying approx. 90% for this loan that is worth around 80% at best. The investor also had no backup plan, and it was clear they hadn’t considered the potential risk if this failed - they just said "we would foreclose" - which if they did would (at best) provide single digit return...

It gets even better, if they did get the borrower to follow their exit strategy, they would make around 13%...

Here’s the problem: The gurus often make note investing sound like it’s just a game of persuasion, telling you it’s "easy" to get borrowers to agree to anything if you push the right buttons. But the reality is far more complex. Sure, in theory, the strategy this investor used might sound clever, but it’s also incredibly risky to rely solely on the compliance of a borrower—especially when they might not fully understand the terms or simply can't agree due to their personal situation.

I have tons of ideas that might look good on paper, but I don’t pursue them because I assess the real risks involved. That’s what the gurus don’t emphasize: Risk. They love to sell you on the dream of easy money but rarely talk about the times when things don't go according to plan. In the world of note investing, you have to consider not just the upside but the potential for things to go wrong, especially when you're dealing with vulnerable borrowers. It’s not always about making money—it’s about managing risk and having contingency plans in place when things don't go as expected.

Don't let anyone tell you otherwise. Stay sharp, assess your risks, and always think beyond the “perfect” exit strategy.