I have to admit that in all my years of investing, I have never bought a note. I have originated them or created them “from scratch” but never bought an already existing note.
That being said, I have now bought my first note. So this is the tale of the first note, and a non-performing note at that, will be developing over the next few weeks and months.
From step one of meeting a note broker and getting to know her and how she works, to scanning the tapes, to narrowing down what I want and getting her to speed it up a little by pinpointing some of the notes she had already pinpointed as possible good deals, to doing to the due diligence on property title and location to making the offer to funding the deal. Then getting the note transferred in my company’s name which is the step I am in the middle of now.
How did I train my brain on buying notes from others? Obviously, with 27 years in the mortgage business, a former FHA mortgage underwriter, CEO of a mortgage company where I had millions in lines of credit to fund and sell loans (and yes had to do that), a landlord of 20 years, and having received payments on notes for years, I had a good start.
Actually, it’s said that the experts in similar fields can be the worst investors. Like, we know too much for our own good and could make a bigger mistake than a newbie.
So, I decided to read everything I could, and go to a couple of conferences. In fact, I’m about to go to the Big Daddy of note conference at the end of April, called Paper Source, and will be learning more and making more connections.
In the last 2 months I have read about 10 books. Some were useless. Some were good, and I picked my top 5 for the breadth of what they cover, the quality and practicality of their examples (can you apply what they wrote about to life in a short period of time), and the simplicity of the language or calculations for the average reader(ie the non-math person getting into a somewhat math oriented business). In fact if you don’t like one of these books and paid for it, mail the book to me and I will reimburse you.
So here are my top 5 reads in getting to know more about note investing.
Fast Cash by Lorelei Stephens was a book of basics and the stories to go with them. Lorelei grew up in note investing since her father started the note brokerage call Wall Street Brokers (because the business’s first location was on Wall St in Seattle WA – LOL) in 1971.
She educates the reader on the different types of mortgage investments, and a couple of business which included real estate, through stories of several different transactions that were great, some that went bad, and why. The depth of her knowledge is obvious, from the first pages and when I looked up her website it was very informative with blog posts and caveats galore. For free. I highly recommend her book for the dos and don’ts and buyer beware aspect.
Deals on Wheels by Lonnie Scruggs is about buying and selling mobile homes but because it’s all about how to buy mobiles homes cheap (usually older ones the dealers don’t want) and then selling them with financing in place. I feel that this is a great basic book on how the math and ROI works. The grammar and typos kind of give you a chuckle – the authenticity of his communication comes through 😉
Cash In on Cash Flow – Laurence J Pino –
Though this book was written in 1998, it is still timely and one of the best basics on where (what industries) you can invest in cash flow. Mr Pino is not just a real estate guy; he is an attorney who has invested in all kinds of debt. And so I would call this your Buying Debt 101. From mortgage notes, to car and other vehicle notes, to business debts secured or unsecured, factoring (which is buying a business receivable) to lottery to insurance.
All those things can be bought as a promise to pay. Because he is an attorney, he also touches on the different laws that can be helpful or hurtful. I guess since buying debt is a 2000+year old practice, his 1998 publishing date is still pretty recent. He has a way of making the concepts simple and gives you an overview of the 50, yes 50, ways you can make money with none of your own invested. I might argue that this should be #1.
Now if you want a book with the how to calculate the ROI payments and discounted prices on a note or understand the formulas, I would recommend Invest In Debt by Jimmy Napier 1993 rev 2004. This is another easy read that helps you understand how to calculate the payment, rework the payment without losing yield etc. How do you calculate what to offer a seller of a note. How do figure out what to offer if there is a balloon note. How do you figure out if a note is a good price. How can you get someone struggling with the payment back on track without losing money. And more.
Lastly, if you want the basics on seller financing, Seller Financing on Steroids by Dawn Rickabaugh the Note Queen, 2010 and is being updated for release soon. I love this book, because like me, she is a problem solver. She shares through story telling how seller financing has saved many deals and people avoid a lot of hardship.
You might say, hey, we don’t do that here. Well, she used to be in SoCal, and many of her stories are about transactions here. Whether it’s her million dollar property or the little 100k house, there are seller financing stories at all levels and all types of properties.
My favorite on is the commercial property that would sell that ended up making her a 32% return. My belief is that as interest rates rise more sellers will have to consider seller financing. And you might, Athena, most sellers want their cash out of the property; why else would they be selling! Well, read the book and see how they still will… and she will be my next podcast guest on Women in Investing and Investors Corner. So stay tuned!