How do you automate your Note business?

[Account Closed]

Hello Note investors - 

I've listened to The E-Myth and I keep hearing investors talk about the need to automate their business. I totally understand the concept and the need for it, but I'm having a hard time picturing what specific systems need to be in place in order to scale a Note business.

I like to do things very methodically and have no doubt that I'll be able to put reliable systems in place, but I've never built a business from scratch and I'm trying to get a sense of the task ahead.

Would you mind sharing some specific examples of the systems that you have in place or are in the process of developing? What systems would you consider to be essential and at what point in the business's development do these need to be in place?

[Darren Eady]

Get a note servicing partner first.  I work with the Note Servicing Center in Chowchilla, CA.  Then I developed a website that shows my notes and allows clients to get the useful information to make a decision online.  I could get more fancy, but those are the basics.  I also have loan docs. to write my own loans that have been developed and perfected over eight years in this loan/performing note business.

[Douglas Ladendorf]

I've had a similar question about automation of business primarily around note investing. A Servicing Partner makes sense, and I'm sure they have a variety of tools. I believe some investors create a spreadsheet or other tools to assist in evaluating notes, then there are document templates etc. Tuning in for any additional wisdom.

Doug

[Dave Van Horn]

@Account Closed

It depends on how big you would like to get with your note business and your personal goals. Is your goal to build a saleable business or a portfolio of assets? It's also a balancing act between how much capital you have to put into these systems, processes, and employees vs. how much you have to spend on product. Speaking as someone who has built a note business, and still runs one, it can be a sizeable feat. We have almost 30 employees in house (all with their own systematic processes in place) and at least a half a dozen consultants at any given time.

If you're under $1,000,000 worth of notes and you're in re-performing world, you would really just need a servicer and an accountant. That's why they call it mailbox money.

For non-performing, I know many people who use ACT software (or another contact management system), Note Smith or even a combination of Dropbox and Excel/Quickbooks to much success, even with hundreds of notes. Software can run the gamut for price that varies greatly on how robust you'd like it to be in terms of functionality and level of service.

Your question is a tough one to answer without knowing more but at the end of the day, if I were to do it all over again and give myself one simple piece of advice it would be to focus on your strengths and outsource the rest.

[Account Closed]

Thanks Darren Eady

Dave Van Horn
"If I had to do it all over again...." is some of the best advice.

I'm most interested in a portfolio of assets (working out NPNs) but I probably didn't quite phrase my question right as what I'm thinking about is independent of scale. I'd like to think about the business as something that could be scaled, but I won't feel like a failure if that doesn't happen.

What I really want to understand is what are the tasks that should be systematized? I know that there are aspects of every deal that don't fit neatly into a formula but if I'm going to be efficient then it seems like I need to have a systematic way of going about the following:

• finding deals
• analyzing deals
• working them out

Certainly the servicer and accountant will play their roles. Any other tasks that should be systemized? Any other hats I'll be wearing?

[Dave Van Horn]

@Account Closed

I'm assuming these are secured NPNs, but are they 1st or 2nd liens?

The systems and processes for the three areas you mentioned are dramatically different depending on the asset class or classes you're looking to purchase.

The good news is just about every part of the note business can be outsourced, systematized, etc. It's really just a function of what do you want to do in-house, what do you like, and what are you good at? Also it's important to keep in mind that there's a cost to everything, whether it's your money or your time.

There's an infinite number of ways to make money in this business and every company is different. Now no one can tell you how to create your business, a big part of it comes out of working in the business over time.

Just for "working the deals" area you mentioned, there are multiple tasks and systems that could be built out within each of these:

- Internal/External Administration (loan boarding, document management, uploading data into your database, letter campaigns, recording an Assignment, etc)

- Borrower Management (discovering if properties are vacant, borrower intent, etc)

- Potential Exit Strategies (which are based on the asset category you're working within - but could include processes for REO's, Loan Modifications, Deed-in-Lieu, Foreclosure, etc)

- Risk Management (senior lien monitoring - with 2nd liens, taxes, insurance, general legal, compliance, etc)

It may be too much to put into just one forum post but this should start give you an idea of the tasks at hand.

I would suggest reading a book called "Scaling Up" by Verne Harnish and book by one of his colleagues, "Traction" by Gino Wickman. Both of these have been invaluable to us building our organization.

Lastly, over the past decade in the note business I've discovered the three most important things to this or any business are: capital, sourcing, and scalability. These three things are always at odds with each other since you only have so much bandwidth, money, etc. But those are always at the top and it's really a matter of building out systems and processes for those from the top down.

Hope this answer could be of help.

Best,

Dave

[Account Closed]

Thanks Dave Van Horn .

You've given me a ton to chew on and I'll definitely be referring back to this post as I move forward. The books are on my list and I'll be focusing on my strengths as well as thinking about the interplay between capital, sourcing, and scalability.

Really appreciate your wisdom.

[Account Closed]

Dave Van Horn

Just wanted to get back to you and let you know I've started "Scaling Up". Thanks again for the recommendation. Good stuff!

[Dave Van Horn]

That's great to hear @Account Closed! Feel free to PM if there's anything else I can do for you!

[Account Closed]

Dave Van Horn
Will do!