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Buying your first note
I'm looking to purchase my first note and I was wondering how did you acquire your first one? I'm currently cold calling banks and I'm putting together a list now for mailers. Also I'm looking in my network to see exactly if any lenders I know could sell me some.
Am I missing anything?
Also, I have about 5K to spend. Is that enough?
Thanks for the reply. I'm sure you're right that a lot of sellers wouldn't want to cash out a discount. I was thinking of approaching people who seem to be on the fence about owner carry for fear of having to wait a long time to collect the money and are selling a property that banks would be likely to shy away from - oftentimes such properties wind up going to flippers or other cash buyers at quite a steep discount, and while of course selling the note would result in a discount as well I think there are many cases where the seller would come out ahead doing that vs selling the property to be rehabbed. Just thinking of the classic flipper formula that states that one should be paying no more than 70% of ARV including not only acquisition but rehab costs as well, doing an owner carry and selling the note after 6-12 months even at $0.80 would be a better deal for the seller.
I'm considering a similar strategy for business note prospecting as well. If anything I expect this would yield more results on the business side considering the current climate, lots of people looking to get out of businesses especially in food service and the like are having to sweeten the deal to a much greater degree these days to attract buyers. That's not directly related to the subject at hand I know, but just thought I would put it out there.
@Ben Lake I would consider altering your strategy (or making this an additional one) by marketing to those who originated seller financed notes, 18-36 months ago. The idea is that many sellers would not consider discounting their note immediately after a sale but after 18-36 months might be ready to let it go for the lump sum. Just a suggestion :)
Originally posted by @Andy Mirza:@Ben Lake I would consider altering your strategy (or making this an additional one) by marketing to those who originated seller financed notes, 18-36 months ago. The idea is that many sellers would not consider discounting their note immediately after a sale but after 18-36 months might be ready to let it go for the lump sum. Just a suggestion :)
I like that idea too. In case it isn't obvious, I’m not exactly Mr. been-around-the-block in this space so I’m very open to any available advice from industry vets. Do you have any suggestions for how best to target the demographic you mentioned? One of the reasons my above idea appeals to me is due to the relative ease of contacting target audience, ie they are actively posting ads of their own which makes them easy to find. I could search sold listings I suppose, but finding ones that date back that far could be challenging and time consuming I think. I have tried using the wayback machine to find older listings but that hasn't panned out so far, although perhaps there are other/better methods of finding these that I’m not aware of. I come from an IT background so it was somewhat second nature for me to try using internet archives.
@Ben Lake I would contact my title rep to get me a list of recorded deeds of trusts or mortgages from the areas that you're targeting. Lenders will be the grantees, mortgagees, or beneficiaries. Find the ones that are individuals, trusts, or a company name that isn't a bank. The other alternative is to go to the county recorder and dig that info up manually.
@Andy Mirza Thanks, that makes sense. Any datasets like that would require much scrubbing to be useful no doubt, but I'm decently handy with Excel so I'm not too worried about that part. More than anything I suspect that skip tracing the people I'll need to contact will be the hardest part. Do you have any suggestions on how to do that efficiently and cheaply? I'm familiar with Spokeo and the like but if there are better resources out there I am all ears.
@Ben Lake http://notesellerlist.com/
then market the heck out of that list! or better yet hire a VA to CC that list and get a CRM.
@Sean Mcintire Thanks! That looks like a promising resource for sure.
@Telless Cade we often recommend with little bit of money buying a partial it helps get your feet wet and get you active in the process. Regarding cold-calling banks, we have heard many make that suggestion however the success stories are limited. In regards to brokering notes, you should know what makes a good note as you will be more successful at pitching it to investors. If you are looking for the tools feel free to reach out we have a ton of automation tools(Such as our new Notes Bid calculator) to help + over 100 Assets for sale.
@Joel Hutchinson Many of us buy individual but also buy "pools" buying with IRA has its perks as well. I
@Daniel Chun The space is very small, so just ask around for recommendations on mentors. There is a ton of resources but as we have in our beginner's series one of the best method is mentor and the method is barter.
@Ben Lake Often the best found owner carried notes are the ones that are posted for sale but done out of "must", for example someone who inherits a home.
@David Putz Just to clarify, do you mean someone who inherits a home and then sells it via owner carry? And then they need to cash out urgently for some reason? I would think there are probably lots of people in situations like that but who have no idea that they can sell their note or how to go about it; is it common in your experience for these people to go post their notes online or shop them around to investors? Just like any other investment area I have no doubt that motivated sellers are a great source of deals, it's just a matter of identifying those people and getting to them before everyone else does and getting lost in a bidding war, correct?
@Benjamin Hirsch correct. We have our automation tools that allows us to scrape county sites for these types of things but finding a note is only half the battle.
Another question I've had, is it worth calling banks/CU's when looking for commercial notes? I've seen a lot of people say that's a waste of time in most cases but I believe this was more in reference to residential.
@Telless Cade I"m going to second @Terrence Evans and suggest you look into seller financed notes. You are in Texas and Texas has been the number one producing state for owner financed notes for the last 15 years we have tracked the data. It is much more friendly to new investors. It is tough to break through to asset managers at the bank level when you just want to buy one note. Not impossible but very hard. There are also institutional note investors that will buy the note and pay you a finder's fee at closing. A good way to earn while you learn.
@Ben Lake in my years of doing notes there is a hand full of successful stories I have heard of. It sounds good however there is a lot of issues.
I've been buying non-performing seconds for 25 years and you can definitely buy a residential second
mortgage for $5,000. I also sell pools of seconds usually every other month.
Let me know if you have any questions.