Looking to Network with Note Buyers

[Angelo Santitto]

Hello 👋,

I fell into Note buying by accident and I am new to it all.  So I’m looking to connect and network with other note buyers and sellers🙂

-Angelo

[Jeff S.]

You might clarify, @Angelo Santitto. Note investing can be broadly categorized into two classes – performing and non-performing notes. To generalize broadly, most who call themselves private or hard money lenders (or any of the other euphemisms for the same thing) typically originate first-position or (rarely) second-position performing real estate loans. These lenders originate their loans and hold them to maturity, like us, or they might sell them one at a time to an investor like you (?). Larger lenders might bundle their loans and sell them en masse to a Wall Street hedge fund, bank, or insurance company.

Those who like to label themselves as “note investors,” as you did, typically buy defaulted or non-performing notes. Often, these investors buy bundles (tapes) of defaulted loans at a great discount to the principal balance and then create workout agreements with the borrowers to get the notes to perform. Occasionally, they buy a non-performing note with the intent of foreclosing to obtain the property. Except for some commercial investors, this is virtually never the intent of a residential performing loan investor.

Lately, performing notes investors are typically earning between around 10% to 15% for very little work after origination. On the other hand, non-performing note investors can make into the hundreds of percent, though usually against relatively smaller dollar investments. There is also a huge amount of strategic and legal expertise across many states in getting non-performing notes to “re-perform” and be sold, perhaps to someone like you.

Performing loans don’t require anywhere near the same amount of work or expertise but typically involve a lot more capital per loan. Availability of funds is one reason some buy NPNs. That is, you can buy many non-performing notes for a relatively small amount of money.

Well-originated performing loans rarely default. The typical P/HML has a default rate around 1% to 3%. Even then, if originated at a sensible LTV, the lender is usually made whole through foreclosure. On the other hand, it's quite common for non-performing note investors to get wiped out on a significant percentage of their loans. They make this up by earning tens to hundreds of percent on the remainder and can do quite well.

Though some funds do it, it's a rare individual I know who invests in both types of notes. We are firmly in the performing note camp and spend only a handful of hours on each loan from beginning to end. The rest, to me, can be a full-time job.

I’m not trying to define you, Angelo, just wondering your direction and why.

(Also, post where you wish but you’ll get better interactions if you post each question or comment to one forum instead of several. I’m not sure which forum you expect responses for the same comment.)