BRRRR with Mortgage Notes?

[Jordan Blackwell]

Hi BP Family,

I am a real estate newbie and am becoming more and more intrigued by mortgage notes. I may be displaying my ignorance here, but is there a way to BRRRR a note much like people do with physical real estate? From what I've seen thus far, either you take the monthly cash flow or you sell and take a lump sum. Is there a way to get the best of both worlds? I am guessing the answer involves either selling partials or hypothecation, but would love any guidance by the seasoned experts out there.

Thanks!

Jordan

[Don Konipol]

Notes are even harder for a novice to buy with OPM than real property is.  For a decent quality note with a decent yield, there are a multitude of buyers at any point in time.  The complaints of note investors trying to purchase or invest in notes via crowdfunding platforms is that by the time they see the listing, the investment has been fully subscribed.  We are oversubscribed on every note participation we syndicate.

For anyone trying to raise capital without superior knowledge in this space, there exist numerous problems to overcome.  Securities regulation compliance, transparency, investor vetting, professional competition from well financed competitors to name a few.  

The fantasy out there is that with a fast and superficial education and limited experience, a note investor will be able to identify, find and negotiate the purchase of notes at a “discount” to market value.  Anything is possible, it’s just not probable.

The big opportunity in note investing today is the purchase of notes where payments are in arrears, or the note has a balloon maturity which has occurred, and modifying the notes to create a performing note.  Once the now performing, modified note has a 12-24 month payment history, the note holder should have an asset with a significant capital gain.

Note secured by commercial property carry rather light regulatory baggage.  The residential note field is a field filled with regulatory land mines, attorneys looking for class action lawsuits, and deadbeat borrowers spending 2-4 years living for free while simultaneously destroying the house.  Yeah, anyone can luck out once, long run expertise, knowledge and experience are required.