Why do you buy notes?

Question

I buy and create notes for many reasons. Some are for cashflow. Some are to raise funds. Some are to exchange. Some are to balance equity in a real estate exchange.

Chris Seveney · Answer

@Philip Klinck

I buy notes as one of my investment strategies. The reason I got into notes was based on my personal situation having a family with young kids and being in a competitive and expensive real estate market it is very difficult to scale in traditional real estate where I am. Whereas with notes you can do it anywhere anytime which was a major factor in getting into notes

It is also not an easy business and more intensive than say tax liens and deeds so you will have less competition.

Of course I do it for additional income and have created avenues to defer future earnings to provide cash flow in the future

Wesley I. · Answer

@Philip Klinck

1. I like being the bank and not have to worry about the garbage disposer, the AC, and/or the toilet not working properly.

2. Mailbox money once you find your deal (performer)

3. In the future, i would like to be able to help people who are behind or cannot make their payments and create a win-win situation.

Andy Mirza · Answer

I invest in notes because I find it interesting. The NPNs have something wrong with them & I enjoy the process of figuring out the most efficient & profitable way of liquidating them.

I went into notes after having built a small portfolio of rental properties & I realized how much I disliked dealing with "trash, tenants, & toilets."

One thing that's similar though are low income tenants & delinquent borrowers of lower price point properties. It's not exactly the same but I haven't completely escaped yet!

Don Konipol · Answer

@Philip Klinck

Our note holdings, in general fall into three categories (all our notes are secured by commercial real estate)

1. Notes we originate for the passive monthly income

2. Notes we purchase at a discount for both the monthly income and capital gain

3. Notes we originate based on a property being sold, with no monthly payments but a 20% yearly increase in note principal and an equity kicker when property is sold.

Back like 40 years ago I’d purchase notes with a relatively low stated interest rate at large discounts, and use the notes (at full value) in the purchase of real property.  However I haven’t done that in at least 30 years, and have no idea if that’s still a viable strategy in this day and age.

Chris Seveney · Answer

@Scott Matthew C.

Finding banks to even hypothecate is a huge win and getting 85% is a unicorn

Don Konipol · Answer

@Jay Hinrichs

Jay, as I am sure you remember, when interest rates were high, Like 12%+, the seller carry back note allowed many deals to be made which otherwise couldn’t obtain financing, or at least couldn’t get financing at a low enough rate to make the purchase viable.  Often, the seller holding the note would need cash, and sell the note to a third party at a (usually) substantial discount.  Real Estate Exchangors we’re big then, and people were doing up to 8 party exchanges, with throw away lots, 2nd lien no equity notes being paired with cash to obtain (usually) another problem property.

Our attorney has a investment business where he buys lots at foreclosure auction, and sells the lots to people wanting to build a home, Place a mobile home, or build a business bldg for little down, usually just a couple thousand.  Over the 15 years he’s been doing it, he’s obtained ROI of about 15-16% on his invested capital.  Guess it still works .

Jay Hinrichs · Answer

when i did timberland  ( logging bust up parcel sell off smaller parcels) these sales were mainly seller carry back.

then i went to my bank and hypothicated the notes  . bank would only give me 50%  but that was OK since the residual land we sold had basically a zero basis  IE the logs paid for the whole mary ann  ..  those were the days LOL.. I still sell the odd property on notes/seller carry back usually with zero interest and fully amortized over 30 to 40 months.. this ensures 100% collection.  And not having to sell the asset off to a wholesaler for a massive discount..

Scott Matthew C. · Answer

Hi Don, my investors and I went the traditional method two years ago and leveraged our portfolio of notes. However, the bank did not offer full value. We tried. Because of the note's stellar track record, we were able to get 85% value but had to include cash on hand and they required that we move our accounts to their institution for obvious reasons. We should have taken the deal looking back.

I would be interested if anyone has had success in getting full value in today's market too.

Why do you buy notes?

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