3 Reasons that most Note Investors fail

[Martin Saenz]

3 reasons that most note investor's fail:

1) Fear that leads to half steppin’. I’m not a fan of rap music but I do like this song from Big Daddy Kane which is titled, “Ain’t No Half Steppin’”. What prevents most note investors from going the extra mile is fear. The note space is very complex and holds a lot of pitfalls. People understand how the numbers work but there is an air of mystery regarding how to obtain the cashflow. What I see over and over is someone will fish around the internet, read a few books, attend a few seminars, and perhaps buy a few notes without proper due diligence which tends to lead to negative results. I never see these folks beyond a 6 month point.

I also find folks that get some formal training but don’t go the full distance with that trainer. They hop around to other people trying to fill voids with their knowledge deficiencies. This too I see on a weekly basis.
2) Lack of capital. I’ve bootstrapped most of my business life. Even when I obtained some success, I still lived with a survivalist mentality…so I get it. What I see happen often is these folks look to broker deals or set themselves up as an expert so they can take down some passive dollars from someone. What happens is they spend more time gaining expertise in branding then in learning how to note invest (i.e. proper due diligence and workout skills). Hence, the disaster train leaves the station.
3) JV partners. I've seen horror stories on both the passive side and the expert investor side. Passive folks find ‘so called' experts only to find that the experts aren't communicating well and don't know what they are doing. I've know plenty of expert investors that get passive investors and don't set up the relationship expectations well from the beginning. This leads to passive investors constantly nagging the expert to the point of exhaustion. This is assuming that the expert has been communicating well to this point, of course.

My heart goes out to people in each stage because they are all people that want more for themselves and their families. The best message I can relay is to education yourself, first and foremost. Then, map out your systems carefully. This will help you gain confidence to move to the next step whether that is picking up a few notes or connecting with some partners (that you set up strong expectations up front).

[Tim S.]

".......explaining the benefits compared to stocks or real estate"

First, I have to say I am a fan of notes, I actively invest in NPN's. One pet peeve I have, I often see people tout note investing as an alternative to savings which is close to zero return (a fair claim), and the (poor performing, volatile, unpredictable, insert other term) stock market.  

They usually make some claim about how their 401k, or IRA is probably earning close to zero.  I don't know who these people are who are earning close to zero in the stock market.  in 2017 anyone with a pulse should have made at least 10-15%,  Wasn't too terribly hard to make 20% last year and 2016.  2018 is another story.  So my point is, the people who are "advertising" notes as an investment vehicle should be honest about their relative and potential performance.  

It should be considered a red flag if someone is touting 30-60% (or more) as the normal or expected returns for note investing, while at the same time citing near zero returns for the stock market or other competing investments.  Those returns, and better, are certainly possible with notes, I've done it myself.  

It is fair to say notes are protected by the value of the real estate and therefore have a backstop, while stock can go to zero.  That is true in theory, stocks can go to zero.  But do you think Apple, or Exxon, or Amazon are going out of business anytime in the foreseeable future?  So unless you are investing in some really risky stocks, they are for the most part not going to zero or anywhere near it.  

The point being, be wary of anyone who says, "you should invest in NPN's because they are safer than the stock market", that is not true in all/most cases. A particular note deal may indeed be safer than a particular high risk stock, sure.