My recent realization about notes

[Brian Larson]

In the past year or so I have been increasingly interested in leveraging discounted notes to diversify my portfolio. I prefer 1st position notes but certainly understand how others like and do well with 2nds.

Initially the concept was very foreign and I often thought 'wait, so I am buying someone elses debt and playing the role of the bank?" Well, yeah, and now I am super comfortable with this notion.

The point of this post is not how I eventually became OK with the concept but rather a realization I had after many discussions with friends, family and colleagues and a recent event (more on that in a second)

What I noticed is that the most confused were people under 40 and in urban areas (I live in Los Angeles area). This concept was very foreign.

When I explained notes to people above 50 and/or in rural areas the concept of Private Financing/Seller Carry was crystal clear.

Then, 2 weekends ago, I was cleaning out my grandfathers house as he recently passed. I came across a box of old papers and went through them to make sure his SSN was not on anything. What I found was that the past 3 houses he sold (he moved his primary property as he migrated further west with his job) were all seller carry situations and he would by the next place with cash.

My grandpa (who passed in Jan at age 99) was not a real estate person at all, this was just the obvious way to sell property. He had been selling property this way his entire life and likely never thought a thing about it. I then realized why older and/or more rural people are used to this. It happens all the time and was the norm for farms and rural land for many years.

I am sure this point has been made somewhere before and probably in a book but it just dawned on me...this was the norm for hundreds of years before commercial banks were able to merge and grow and own 'everything' in the country

Anyways, nothing earth shattering here but thought I would pass along. When explaining notes to my wife just recently I was able to talk about my grandpas transactions and it seemed to immediately convert her thought from 'this is abstract' to 'ok, I get it, this has been done forever, forget the banks :)'

[Dion DePaoli]

As an interesting detail to your post early mortgage contracts date back to Mesopotamia and Babylon.  So we are talking like 3,000 years BC or over 5,000 years ago.  It is speculated that writing was born from the action of lending but I will leave that for the scholars.  

Much of our modern mortgage concept traces back to the middle ages right after the Roman Empire collapsed.  Necessary ideas of fairness and redemption directly come from those periods and legal battles of the time which are found in our laws today.  

America has always had a type of mortgage.  Our mortgage market went through cycles of expansion as our banking system struggled.  The general idea the public has on finance is closer to our mortgage market expansion in the 1940's and 1950's.  The type of finance found in "It's A Wonderful Life", you know the holiday movie.   Today we finance or capitalize mortgages a bit different with our secondary market and securities.  Lot's of influences along the way to get to where we are now and how we operate.  

This post is a cool reminder that we have viewed property ownership in a different manner in the past than we do today.  Land ownership had great influence in our country's upcoming.  Life wasn't always about living in the metro-plex and going to a supermarket for proteins and vegetables.