If you could. Who would you mentor?

Question

Personally, I think the smartest person in the room, is the notes investor. Why? Deals need money, money needs security, and security needs yield. Within the activity of real estate for the purposes of ROI I would much rather own a cash flowing note than any other activity. Why? It's simple, secure, and can scale.

I found a notes dealer offering 10% return on $35k first mortgage trust deed note. I could get a return with them and forget about it, but from listening to hard money guys, I think I should learn the business instead. The problem is I don't have a college degree, or a background in finance. The transaction looks like simple math; 1 year term at 9%, four points (4%), first lean position, 65% LTV. I'll take a guess on a $300k loan would look like the following:

$300,000 x .65 = $195,000 + 4% = $202,800

Buyer has $97,200 down payment and the note investor uses a loan servicing company to handle payments, notice of default, while an real estate attorney would handle foreclosing on the property. Obviously this is a simplified transaction void of preliminary title report, title insurance, inspection, BPO, appraisal and escrow fees.

So what are the minimum qualifications to get schooled or even mentored in this business?

I could go out and get my MLO license, real estate license, or both, but by then I may not need a mentor...Maybe that's the answer I was looking for.

So far my concerns are: costs. I will be investing $1,000 just to earn my MLO license, and another $1,000+ for my real estate license to what equates to a sales person job.

Pitching and qualifying clients with all the new and ever changing lending laws, only getting paid when I close a transaction which can be months apart from paycheck to paycheck.

Right now I'm unemployed and I see myself homeless, destitute, and unhappy playing the W-2 game. I don't have any kids, I don't plan on any until I'm rich, going on 43 maybe I missed that boat, so...What the hell should I do? Go get a college degree so I can get past a corporate gate keeper and live hand to mouth? This isn't a pity party, just looking for financial advice, I'm sure technological unemployment will salivate at the mouth until all humans are unemployed however I don't think debt is something technology can unemploy. I'm reminded of something I heard once, it's all bout time and interest. I'm interested in debt instruments and how I can be a fat cat too ;)

Please advise.

Brady Durr · Answer

“Never invest in a business you can’t understand.” Warren Buffet. Assuming that’s a performing $35K note you have 80% chance it will pay off early. Your ROI will drop and the mail box money will stop. Did they mention that?

ROI on notes require 1 of 2 things.

1. The borrower pays each and every month per the contract

2. After you foreclose someone wants to pay more for the house than you paid for the note.

No monthly payment or a home worthy of a dozer wrecks ROI. There are not many of other ways to get ROI in notes. Oh yea, deduct your expenses such as loan serving fees, BPO/CMA, special servicers fees, O&E reports, attorney fees, code enforcement liens, forced placed insurance, unpaid taxes, repairs, then you get ROI.

Consider these steps to being a note investor

1. Go to weclosenotes.com and sign up for Scott Carson virtual note buying for dummies. You will also learn what not to waste time on such RMLO certifications.

2. Write a business plan if for nothing else to ensure you want to move to step 3.

3. To make a living with this you need learn how to run a legit business. Check out your local SCORE chapter or Small Business Admin office for free training/mentorship on this topic. You will never get a business loan to buy bad debt.

4. Get your plan and priorities set so you stay focused on your mission.

5. Follow every note investor and note educator you can find on meet-up, facebook, linked, active rain, etc. and listen to them.

6. Devote every spare moment to digesting webinars past and present on youtube and vimeo.

7. To master this craft you need training, mentorship and 10,000 hours.

8. To get volume you need training, mentorship and 10,000 hours on marketing.

Watching hundreds of hours of free video from note educators such as Speed, Carson, Malecki, the note queen, Note MBA, will speed up the learning curve.

You absolutely will need a source of income during this time.

Jay Hinrichs · Answer

If in fact your homeless destitute and unhappy.. then real estate is the last thing you should be looking at.

if your just being factious then well.. note bizz is a good one.. but it takes a lot of dough to make money at it @Darren Eady I think Darren will tell you .. you need a good 5 million or so working to make any real money as a broker .. other wise just be a RMLO and broker conventional or resi loans with no risk

Account Closed · Answer

Not a clean answer but here are some thoughts:

One of the best mentors is to get a job working for whoever does what you want to learn. You won't get ahead working in that job but you will get clearer focus and learn the subject.

Another idea, buy that note you mentioned and simply observe the process, you will learn a lot. Only buy it if it's a good note though. 35k at 10% isn't going to float your boat for long, you can't simply 'forget about it'.

You don't need a college degree or a background in finance. Many of those that do have a college degree majored in an unrelated subject.

You aren't the only one struggling with this, I'll bet 90% of the people on this site struggle with the same issues.

I see you're in CA. You get the RE license then a MLO endorsement on that license. You can't get a MLO license, you have to get the RE license first. You're right, it costs money, takes time and will leaving you sweating that next paycheck...thank you Dodd-Frank. Keep in mind hard money lending doesn't require a MLO endorsement, only consumer lending does.

Just my opinion, if you have kids (I have 4) you'll have all these same issues times however many kids you have...you better be ready to stomach it. Having said that, there are many people with dim prospects that have many kids, so I guess it works for a lot of people.

Don't think notes are the holy grail. Success has more to do with your interests and talents than simply notes being the thing.

I'll stop preaching now:)

Darren Eady · Answer

@Michael M.

Michael, you are a talented writer. I'm not sure if that helps your current situation, but I think there is a career there for you. It takes money to be involved in the note business, so it's probably not the route you should go right now. There are other ways to get involved in real estate outside of notes that take less or no money. Find a partner to supply the cash to flip some homes. Get a lease / sub-lease going and make a spread. Too many people talk and write about being involved in real estate and then they don't do anything and they end up with that hand-to-mouth job your were mentioning. Good luck Michael!

Dion DePaoli · Answer

Depending on what states you want to lend in, a license may be required for both commercial and residential loans. I believe, and one of the California folks can correct me if I am wrong, but California requires a license to lend for either and both.

Becoming a lender is more than simply running out and taking the state exam to get a license. That will teach you about the regulations but it won't teach you about being a good lender.

So what is a good lender? - Well one who does loans and gets paid back.

So in your example of a $300k house where the borrower puts down $100k - how do you get paid back? Is the borrower repairing the property? If so, what is the amount of capital needed for repairs and will those repairs increase the value of the property to provide enough capital to pay off the loan?

As a Mortgagee you don't control the property, so a borrower who might over capitalize an investment may also stick to an unrealistic sale price which prolongs the sale which can eventually cause delinquency and default.

Further things to consider, will the proposed repairs affect the value of the property if not done properly? Borrower gets in over their head, rips apart too much of the property and can't get it put back together. Property value declines as a result. It started as $300k but with the walls removed and no kitchen it's now worth $200k. Then what will you do?

The math of any given loan is pretty straight forward. It's math. It's absolute. 2+2=4. Being able to do the math doesn't make you a good lender. If all you have is the $200k and you deploy and the borrower defaults you won't have enough money to make advances to disposition the loan. A borrower in over their head isn't going to pay for taxes and insurance among other things. What if they just take your money and run off to Cuba? How will you verify the work needing to be done is complete? Are you qualified to do that - plumbing, electrical, structural repairs or alike?

Bigger Pockets is a great resource of information for newbies, however, the boards at times over simplify a complicated industry where mastery takes time. Find me a lender who hasn't had several bad deals and I will show you a lender who hasn't made many deals. To that degree, plan on losing some money on some deals.

I didn't read your post as if you were broke, but rather your view of your current self being a W-2 wage earner doesn't offer much upside. That doesn't mean you should jump into lending. You simply don't know enough about what you don't know. It would be similar to running to the Casino and playing a single hand with all your money. Maybe you win. Maybe you lose.

In regards to being a glorified sales person, just because you have money doesn't mean people will knock your door down. In any given market lenders compete against each other for qualified borrowers. News flash, being self employed means you will have to sell your product and service to others while remaining competitive in the market place. Everyone will want to borrow money but that doesn't mean you should give it to just anyone. Those who you do want to lend money to will have more than you as an option.

As one final concept, if you don't want to pitch clients and qualify them you should not even consider becoming a lender. Qualifying borrowers is sort of the job of any given lender. Pitching borrowers is how you get business. Earning 13% isn't going to make you rich either, it is a nice return but don't look at becoming a lender as the opportunity to become the next BlackRock. How much you can earn is directly related to how much you can invest.

Good luck.

Michael M. · Answer

@ Darren Easy, thanks for the compliment. I'll look at writing gigs.

Michael M. · Answer

@ Deon DePaoli you made some good points. If you only lend up to 65% LTV, I believe you are protected. The borrower has significant skin in the game, the property has residual value and is insured. Here in CA MLO license is governed by the DBO while the RE license is governed by CalBRE. Each independent of the other unless you have both licenses, then it defaults to the CalBRE.

I've never got ahead at a W-2 job. I always eventually fell behind, no matter how hard I climbed up the latter or how much brown nosing I had to endure.

Thanks for the input.

I've never got ahead at a W-2 job. I always eventually fell behind, no matter how hard I climbed up the latter or how much brown nosing I had to endure.

Thanks for the input.

If you could. Who would you mentor?

If you could. Who would you mentor?

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