Your "First Note" Story. (how was it acquiring your first note?)

[Cameron York]

I am currently on my way on to buying my first note (preferably NPN's with the intent of Loan Modification) as I am currently learning what is needed and the processes. I have learned a lot and am slowly starting to understand the due diligence needed when starting out in this business. But throughout all this, I cant help but be curious as to what other Note Investors went through as they acquired their first notes/notes. I would love hear all the stories that anyone is willing to share. Advice/information is always appreciated, Thank You.

[Dave Van Horn]

Hi Cameron,

I always tell everyone my first note was my student loan. The only problem was, I was on the other end of the note, as a borrower instead of a lender/note owner.

But my first NPN story is a little bit different, I've told this story elsewhere so apologies if I'm repeating anything to anyone reading this.

It's actually a little hard to remember my first note, mainly because we bought 4 notes to work at the same time. Now we were dealing specifically with NPN 2nds, so it was a bit different than if we were buying NPN 1sts. Not that there is a magic number, but I do believe your odds of success at both learning the business and making a profit are better when buying more than just one note (in 2nds world). Early on we learned that the when dealing with NPN 2nds, it wasn't like Real Estate investing - where you could profit off of every single deal. It's more statistical and until you learn your bid strategy, overhead costs, etc, your profit margins will start to increase and your odds of getting wiped on any one loan will decrease (although it's always a possibility).

So back before the economic downturn, my partners and I purchased 4 high equity NPN 2nd mortgage notes. After a periods of many months we learned the outcome was this: one note was a grand slam, one was a home-run, and two we didn't make any money on. We purchased our notes from a note fund based in NYC that we had a relationship with (and I always say knowing your note seller is key). Since they were high equity and current on the 1st, we knew that would limit some of the risk and we learned that it simultaneously cut into our profit margins since they cost more than other categories of 2nds. We did the standard due diligence, completing BPO's, reviewing borrower credit, etc.

For us, it wasn't the profits that really mattered as much as the experience we gained from these 4 notes. It was all learn by doing - the administration, how to handle the collateral, recording an assignment (with the process being different in each county/state), learning how to deal with attorneys, learning our potential exit strategies, working with the borrowers to determine their intent, hiring a servicer, etc. Now it took longer than how we do it today, but we were tracking our data for the future and we always made a point of being proactive. We never waited for something to happen, we were constantly following up and staying up on top of things. The biggest thing I learned in that regard was that, when necessary, there's nothing gained by waiting to start the foreclosure process. 

Now today it's different than when we first started. A debt buyer's/debt owner's license seems to be more of a necessity and having a servicer in place at the outset is key, but hopefully my points of being proactive and having the correct level of expectations still rings true.

Best,

Dave