How do you vet note JV partners?

[Amanda G.]

Working on my due diligence for note investing. I am happy to learn as much as I can through reading, and I also know that the main teacher is actually doing something. 

I've been interviewing potential people who currently invest in notes for JV possibilities. If you were starting off, what would you want to see in a JV partner? A certain length of time in the business? Variety of loans worked? Local networks in areas they buy notes? In a normal job interview I would ask for references, but I'm not sure that works in this world. How would you or did you decide who you were going to work with?

[Tim S.]

Make sure you ask how many note deals they have completed. By completed I mean all the way through the exit strategy. i.e. get the note reperforming then sell the note. Foreclose on the loan, then sell the house, etc. I see lots of new note investors who are raising money from JV partners but they've never completed one note deal. Some of them have just started, bought a few notes are learning to do the workouts but haven't completed the full cycle. It can take a year or 3 to complete the full cycle.

Ask what kinds of problems they have run across, how did they deal with them?  Have them tell you about their worst performing  deals.   Ask them what the biggest risks are.  

I wouldn't give them any money until you see the specific note deal it is going to buy.  As opposed to giving them some money up front then they go find a note for you.  

Ask how you will be collateralized by the note. will you be named on the Assignment of Mortgage?  There are other ways to ensure you are protected.  You need to have some form of ownership of the note so that your investment is protected.  

@Amanda G.  Yes, requesting the managing partner to contribute some of their own funds is not unreasonable, especially if it's a higher value asset.  Some won't do it, but it can't hurt to ask.  I've done it.