Attended a Twin Cities Note Group Last Night

[David Moore]

I'm wondering what the general consensus on buying notes is out there. I went to a note subgroup of my local REIA last night, and it seemed like most of the people attending, myself included, had no idea how to acquire a note, and the risks involved. As we got further into the meeting, one guy spoke up and repeated himself about 5 times about his acquisition strategy, his exit strategy, how he would make his money even if the place burned down, his limited purchasing power, and on and on. The group, as it went on, really seemed to be a marketing presentation more than a group. The leader appeared to be looking for investors he could partner with to buy Notes.

At one point in the discussion, he said, don't even think about buying notes in Minnesota (where we are from).  It struck me in this meeting that note buying is capital and research intensive, fraught with risk.  I'd much rather flip a home locally or buy a rental.  I just don't get it at all.  If investing in notes requires me to trust a counterparty looking for fat fees in places I don't live, and it requires a TON of effort on my part....why not just invest in my home market.  Can anyone enlighten me on why investing in notes is cost effective (my time being a key cost element)?

[Don Konipol]

After 37 years as a real estate investor, note buyer, real estate broker, mortgage broker, real estate syndicator, hard money lender, private lender and mortgage fund manager, here is my take

Flipping houses; 20% is educating yourself and finding the deal, what happens after (renovation, sale) is 80%

Investing in performing notes; 80% is educating yourself and finding the deal, what happens after is 20%.

So if educating yourself in performing note investing is twice as intensive as educating yourself about flipping houses, it still is much more time effective than flipping homes, with one caveat.  Note investing requires capital, and a goodly amount of it.  Flipping homes can be done with little capital of your own, as plenty of lenders are active in this space for the flipper with decent credit, attention to detail, and a little education and experience.

As they say, choose your poison.  Risk can be mitigated in large part by real knowledge.