Note investors with at least 10 years of experience in the note business on this forum?

[Rob Cee]

I'm curious what note investors that are on this forum have been buying, selling and holding notes for at least 10 years and have bought, sold, and held at least 50 notes successfully?

Just curious, because in my limited travels I seem to meet a lot of new note investors that have been doing about 1-3 years.  But I rarely come across a note investor that has been doing it 10 years (and through at least one downturn).  It's easy to find rental property investors, flippers, etc... that have 10, 20, 30+ years experience, yet it seems the highly experienced note investors are much harder to find.

[Dion DePaoli]

Often times when this line of questioning occurs I am disappointed by the number of folks who don't get it while staring right at it.  It could perhaps be that all of the hype and guru marketing has devolved the conversation into something that everyone thinks is relative but unfortunately is not.  

Asking Bill to separate his mortgage company from his note business really doesn't even make sense.  The question itself implies a misunderstanding of what the business is.  Make loans.  Buy loans.  Get paid back.  Repeat.  

It seems that the distressed loan segment of the market has created it's own conversation and narrative about what it means to be in the business.  That doesn't mean it is right.  You will struggle to find investors who solely operated in distressed loans ten years ago.  The market as it is today did not exist.  The closest thing you will find would be bumping into a few folks who did some work with S&L's in the 1980's.  But even back then, the market landscape was different do to the RTC.  If you do not know what event I am mentioning feel free to google and read up on it.  

So to be clear, I think the line of questions here is seeking something that does not even exist in the form it believes it is searching for. Distressed loan investing prior to 2007 did not look like it does today. Investing in loans prior to 2007 meant making loans more often through capitalizing them in origination or being the originating firm/entity. Defaulted loans were not 'gems' like is represented in today's market they were bad things, often meaning lots of work and decent risk of loss. Now we pass around defaulted loans like tic tacs claiming there is a flavor for everyone and risk is well mitigated. (well except for some of us pessimists who run around with warnings on multiple topics within)

When I see questions that have the word "strategy" talking about investing in loans it usually has more of a root of today's market climate than that of the past. The strategy in investing in loans is to get paid back. Recover as much of the principal as possible. Deed in lieu of foreclosure is not an investment strategy it is a disposition alternative. Modification is not an investment strategy it is a disposition alternative. These ideas are talked about as if they are some specialty niche within the asset class and they are not.  Asking the question expecting an answer short of "all of them" is an example of how the casual conversation has created its own narrative.  Sort of like asking a carpenter which single hand tool he used to build a house.  (I don't want the house where he only used one)

So innately today's conversations approaches the idea of note investing somewhat improperly to begin with. IMO anyway. That is, they include ideas which really are not stand alone ideas onto themselves. To that degree this has created an idea where many look for something that need not be looked for. When you invest in loans you profit from the interest. That is why you invest in loans. That is why loans have been an investment for a millennium or two or three. Bill and a couple others have repeatedly corrected the ideas that flow with this misconception - what is a mortgagee entitled to? The recovery of the principal and the interest accrued. If what we seek as an answer is not rooted in those ideas then what is being sought doesn't exist but in marketing gimics and bar stool conversation.

Further, the talk of strategy itself over complicates the collection process. There is no new strategy in loans. Let's say that again. There is nothing new nor magical about investing in loans. To that regard, loans can be somewhat boring to some folks, which is why I guess we must jazz up the collection process to be this exciting and glamorous idea. A loan which pays as agreed does exactly that and that is all there is to do. A loan which does not pay as agreed then becomes a process of recovering and that process of recovery will be influenced by the amounts needing to be recovered, the current and on-going credit of the borrower and the value/condition of the collateral.

Often times you will not run quickly down a path of foreclosure with limited equity in the property. That exaggerates your loss. You will not simply reinstate or modify or forebear for bragging rights. That can delay the inevitable and exaggerate your loss. A mortgagee can not cause a prepayment to occur by their own desire even if the prepayment is desirable. That right is held by the borrower and reserved in a right to accelerate by the mortgagee only in certain circumstances.  So attempting to isolate those 'strategies' really doesn't even make sense since by isolation the strategy you limit you capability of recovery.

So if we change the person/entity to which we asked the question "what strategy did you use" to say a bank the question becomes a bit absurd. The bank's strategy was to lend money to a borrower who can and will pay it back with interest on or before the agreed maturity date. Often times the casual conversation about loan investing does not like to contrast with banking because that notion limits the upside potential that needs to be implied to attract investors. A loan paying 7% interest is worth 7%. It has always been as simple as that.

To that degree the casual conversation has evolved discounts into something that they really are not. Discounts have not always been a resource for profit like they are viewed in today's casual conversation. Through most of time a defaulted loan had no real market value. Who would want a loan that wasn't paying? That is the irony of today, we have created a desire for something that ultimately comes from an asset designed for almost the exact opposite of what many think they are looking for. The point of making a loan is getting paid back. The point of investing in a loan is to earn the interest from that loan. While we have experienced some evolution to that concept we must gaurd our desire to want to make these assets something they are not. If you start with the right approach you will fish in the right pond. If you don't, you will find your line in a bucket of water hoping a fish will jump in.