Note Purchasing - For Beginner

[Aubrey Martin]

Hello all,

This is my first post on BP, despite listening to the podcast for well over two years now. The recent podcast on purchasing notes intrigued me because I had never heard of this method. I feel this may be a great approach for me, as my job may have me relocating within 4-5 years. 

After listening to the podcast, I watched a few YouTube videos and read a ~60 page PDF from Dave Van Horn on Real Estate Note Investing, which I found through a google search, so I’m not sure if it’s the full version of the book sold on here or not. I’m looking to take the next steps in learning the trade. 

I’m leaning toward a more passive approach due to my work outlook for the next few years, and would be targeting something above 10% returns if possible. As such, performing notes have seemed to be the likely route, but I’m definitely not afraid to tackle something non-performing if the returns are worth it. 

My background is in Finance, and I can comprehend all of the calculations and variables involved. It seems that the major information I’m missing from online resources is just how to calculate a fair price for a particular note, and some of the variables to keep in mind. 

I’d love some insight on great resources to continue learning the economics of deals, and where to find them. I’m also interested in learning about the financing options and how to scale the business properly. I’m 23, so my largest drawback is my savings level, but I make a nice income and can stack away enough to self-fund a nice sized deal in about 6 months if I couldn’t find funding. I’m located in Charlotte, NC, if that makes a difference in the information i need to review. 

[Edward B.]

@Aubrey Martin, NPNs are "sexy" like flipping properties is "sexy". e.g. there are not a lot of HGTV shows on buy and hold investors. My experience in the 1-2 years that I have been int he note game is that performing notes are not a bad route to go. Ten percent returns are very realistic and you can get a good boost when they pay off a note that you purchased at a discount. I have JV'd on a couple of NPNs and the returns honestly are not that much better since they are trying to get 20%-30% returns and the margins are getting squeezed with all of the new players trying to get in the market...just like flipping.

I think a good strategy is to start with some performing notes to get your feet wet and your accounts set up (servicing, collateral holders, BPOs, Title, door knockers, etc). It may put you in a good position to pick up an NPN when it comes along to shoot for that big return. Being able to say that you have even a small portfolio of notes will give you some cred. You may also be able to find some people looking to just get 6%-8% return on their money and you can make the spread to build your portfolio.

I too have a finance background which is why notes appeal to me as well. Lots of opportunity here if you are smart and patient.