Diversifying Without Major Capital

[Zach Bollman]

Hello all, I’ve been looking into note investing and am curious what everyone’s experiences are on BP. Notes seem to be pretty capital intensive due to the cash purchase requirement. For example, with $50,000 available to invest, one would be hard pressed to find two notes. As a result, diversification seems to require large amounts of capital up front. Holding a single note goes against the strong majority of my investment knowledge from securities. So am I missing something? Are notes just a different game where investors often hold one or two, or do most investors get into notes later in the game when they have enough capital to purchase multiple notes? Thanks in advance!

[Jay Hinrichs]

here is what i have seen having been in the note business for a few decades.

most investors start with the vanilla rental.. they don't start with notes as its not as well known concpet of 

buy home put tenant in it and collect rent.. that pretty basic right.. plus you can leverage. 

when people come to us for notes they generally are using thier sidra  ( as you want to have non depreciable assets in a sidra)  they have experince in landlording so they understand being the bank on a rental home but not having to do the heavy lifting and not having to deal with the very tough rules for owner occ notes.. 

they also may not be accredited so whole notes in first position of a commerical nature .. are very salable and sustainable. and at least in todays market these can be created in the 25 to 75k demoninations and everything in between.. Note holder does as well as the owner COC just giving up the depreciation but its far more passive.

you can buy whole NPN seconds for very cheap.. but you are taking on a ton of work to figure those out depends on what your time is worth and your band width.

but generally speaking there is no leverage in notes.. once you get going and get big enough and have a local banker that loves you .. you can hypothicate notes and pull cash to buy more.. but of course your just making money on the delta between bank rate and your note rate.. and taking on debt.

One thing people like about whole notes is they are NOT wrapped up in a fund with no way to get out or if something goes wrong they cant just jump in and solve their own problem.