Investing in Notes - Best way to learn quickly & possible JVs?

Question

Bigger Pockets continues to amaze me - thank you, Josh and Brandon for creating such an amazing forum & knowledge treasure trove! I listened to the podcast with Dave Van Horn yesterday about note investing. I have some experience with this since I have been lending on second mortgages in Canada with a return of about 12 to 13%. These were new mortgages that were originated by a mortgage broker and I was the second mortgage lender who was secured through a 2nd mortgage. Since I needed more cash flow/ a bigger return I have started to do joint ventures as the money partner with active investors on flips where the return is significantly higher. But the passive nature of mortgage lending has always intrigued me and that's why note investing sounds so interesting. In the podcast it certainly sounded like note investing can offer much higher returns than what I was able to achieve through 2nd mortgages.

Because I believe in leverage I would be most interested in learning how to invest in notes on junior loans (2nd mortgages), performing and non-performing. Listening to Dave van Horn's podcast it sounded like there are a whole range of investment strategies with notes and different exit strategies (re-working the loan, selling the note, using the note as collateral for another transaction, and probably a few more...). I also like the idea that note investing contributes positively to the economy and can provide a good solution for a borrower who has experienced some difficulties.

I have downloaded Dave's ebook but need to get a bit more detailed knowledge to truly understand the business and the potential of investing in notes. I also read in another post about finding a mentor in the notes investing world or even joint venturing with an experienced note investor. I am familiar with JVs on the flipping side of real estate but I can't quite picture how a JV would work in the notes investing business.

At any rate, I would definitely like to learn more about note investing and would appreciate any input from other Bigger Pockets members out there who can point me in the right direction, would consider being a mentor  or who would can tell me what a JV looks like in the note investing world. Thank you in advance!!!!

Don Konipol · Answer

@Suzanne P. Best of luck on this endeavor. Investing in seconds, especially non performing, is much more active than passive, much more a business model than an investment. The good side is that the return on investment can be much higher than just holding performing firsts - of course the risk is also much higher and the amount of work is much greater. However, sounds like you have a good level of experience which will give you a good shot at success. Let us know how it goes.....

I would recommend an old classic, Invest in Debt by Jim Napier. He discusses many strategies for increasing the ROI or the note holder.

I would recommend an old classic, Invest in Debt by Jim Napier.  He discusses many strategies for increasing the ROI or the note holder.

Mark Pace · Answer

Dave does quarterly conference calls that are open to anyone. You may want to jump on one of these calls and ask Dave and his partners your questions. You should be able to sign up on the PPR web site.

Dennis Weber · Answer

Fuquan Bilal at NNGNote.com has a lot of free training about seconds on his website. He also has a program he does occasionally where you buy a pool of about 3or 4 notes from him and he holds your hand thru the process. I didn't join in but it sounded like a good idea.

Suzanne P. · Answer

Thank you, @Mark Pace, @Dennis Weber, @Don konipol, @Steve Hodgdon, @Bob Malecki, @Dion DePaoli, for your responses. I have had a few crazy days and wasn't able to get back to you and thank you for your input. I really appreciate all your input and I will investigate some of the resources you suggested in greater detail. My style of investing is what I would call "semi-passive", for example, for my flips I work with wholesalers and project managers and I don't mind a smaller profit margin for less active / less hands-on management. As I said earlier, I can do purely passive investing here in Canada with second mortgages with a return of 12 to 15%. Is there a strategy with notes that is semi-passive and involves a greater return? (Maybe buying from note brokers or doing joint ventures)?

In one of the podcasts I was listening to they were talking about a "rehabbed non-performing second" (I don't remember the technical term, but it was a re-performing note). At any rate, the note was purchased at a fraction of face value (maybe 10 or 15% if I remember correctly) and the note buyer was able to work out a payment plan with the borrower that gave him a 25+ year sizeable positive cash flow.The example I heard sounded almost like long-term rental property ownership except the cash flow is coming from the note rather than from the property (hence no property management and tenant hassles). This strategy sounded very interesting, and I am wondering if there any specific resources or service providers out there that specialize in semi-passive note investing with good returns. Thank you in advance for any further comments you may have.

Dion DePaoli · Answer

"Dion DePaoli" - d to the g to the d.

Steve Hodgdon · Answer

@Suzanne P.    Keep reading the posts in the note forum here. 1000 different ways to invest and points of view. @DionDiPaoli posts are educational and offer a contrarian position on most ideas. He's helped me build a solid portfolio of 25 performing and non performing 1st position loans.  @Don Konipol writes from experience and truth. @Bob Malecki also freely gives genuine information. I'm in the space a little over a year after decades in unsecured distressed debt. I used to own collection agencies. This is different. It can be as passive or active as you wish.

Dave Van Horn · Answer

Hi @Suzanne P.,

Feel free to PM me if you ever have any questions I can help you with.

And if you can make it, you should also join us on our Free Note Investor Q&A Call January 18th that Mark mentioned above. On the call, along with other active note investors, you can discuss any note question (even deal specific questions) with my partner - the director of Borrower Management at PPR and myself.

Hope to see you there.

Best,

Dave

Steve Hodgdon · Answer

@Suzanne P. I LOVE (really) when somebody jumps into the deepest end of the pool.

What's your goal? 1. Mine is maintain income greater than my expenses.  2. Build business with like minded folks to either buy, sell or syndicate deals. 3. Grow from 30 loans to 100 in 2017. 4. Take my daughter to Thailand and my wife to Italy.

IF we know where we want to go, we can get there faster.

2nds really intrigue me. I've only done firsts so far. I'm an old bill collector so 2nds are more about the borrower and less about the property. They are priced accordingly. Double edged sword though. Risk of loan going to zero is significant.

Folks pitch the magic of emotional equity. While true sometimes, it's also true that borrowers (and all of us) repeat the same behavior. If they didn't pay the last 3 mortgage holders, why would they pay you? Are you a better loss mitigation expert than Bank of America or a bigger debt buyer?

There's dumb money and smart money. What do you bring to the table that you're good at? Lever that skill along with some cash and you'll get a better return.

Maybe "paper trade" a little? Sellers of debt usually only show the good news though. But still there is learning to be gained by asking for examples of prior performance.

Sherman Arnowitz · Answer

Suzanne,Not sure if you've done anything yet, but feel free to contact me about education and joint ventures. I've been investing in seconds for 17 years and have several education and JV programs.

Suzanne P. · Answer

Thank you@Brian Adams for the tip, and yes, I would definitely like to connect with you @Dave Van Horn, as you are a true expert in the note investing business. I am note sure if I can join the Free Note Investor Q&A Call on Jan 18 since I am flying out to a conference that day, but I will definitely look into the services that your company provides. I have already read your ebook and am searching for the best way to actively get started in note investing. Thank you also for your kind offer to answer some of my questions, and I will definitely take you up on that as I progress further into this topic.

Investing in Notes - Best way to learn quickly & possible JVs?

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