How Do You Make Money as a Note Investor?

Foreign.

This is the no Closer show where you get the latest developments in distressed note investing and learn the secrets of how you can control millions of dollars worth of property for panties on the dollar. Get educated and entertained by someone who has closed thousands of deals and lives to support you in achieving the same. Now here's your host CEO of We Close Nodes, Scott Carson.

Hey Real Estate investors.

If you have ever wanted to dive into the sexy side of real estate and become a note investor and not just somebody that owner finances properties or buys and sells on terms, but somebody who's actually buying debt from lenders, mortgage bankers, hedge funds on distressed real estate on both residential and commercial properties. Now is the perfect time. And guess what? We have our upcoming three day workshop here in just a few days on July 25th, 26th and 27th. That's right, that's a Friday. Saturday, Sunday. You can join me live on Zoom and our Note Buying for Dummies workshop. We'll go through the Fs of how to find fund and flip non performing notes at huge discounts without having to use your own money. And we'll show you all the different ways you can make money being a note investor. Day one's all about how we find these deals from banks, hedge funds and how you can automate the process of connecting with these people and get tapes and listen to you over and over again. Day two is all about raising capital and marketing. We'll show you how to tap into thousands of IRA investors who are looking for deals to fund and how to communicate and how to contact them and get them to fund your deals. And day three is all about the flip the exit strategies putting deals together. We'll mix in due diligence. We'll mix in the marketing side along with the structure side. So much stuff in three days live on Zoom with yours truly, the Note guy, Scott Carson. Make sure you get signed up by going to Note buying for dummies.com or click on the three day workshop tab on our workshop. Get signed up today as we're still running discounts and you too can soon become a no buyer.

Foreign Good afternoon and good evening everybody. Welcome to this episode of the Note Clothes Show. As always, Scott Carson jacked up to be here today. A question I get from many non note investors. People who attended a workshop or see me speak or they've heard about note investing is how do you make money as a note investor? And I actually had a call with one of my one coaching students who had that same question asked from a potential funding Partner, I don't understand how you make money. So let me go through. That's what this episode is all about, how we make money as note investors. And it's really just a couple ways. But it's pretty simple. I mean if you're going to be a note investor, you're usually going to either be buying performing or non performing notes for the most part. Most note investors, that's what you're going to start off with now, performing note real easy. You're going to basically buy that mortgage at par and par means at full value because you're happy with the yield, the interest rate. Like if it's a hard money loan it 8, 9, 10, 12% you could buy that note at you know, par at full value and you're going to get a 12 return on payments and then a repayment of the principal in a period of time. You might buy it at a discount too, especially if it's a not. It was once a non performing, now that's now re performing. You might be able to buy it at a discount and get a double digit return on it. You know like you're buying the mortgage and you're simply getting the interest payments, you know, principal interest payments back to you or get interest payments and getting a repayment back of your principal. That's the number one way, first way that most people dive into note investing, they're buying a note performance, the cash flow. Second side is non performing notes which is obviously got a little bit more exciting. It was pretty exciting during the RTC days of the 80s if the saving loan scandal of course after 2008 with the big debacle, the Great Recession, you know, non performing notes. People always ask well why would I want to buy non performing? How do you make money in non performing? And it's the same basis as the idea that you're buying a asset, a note at a discount. Borrower still owes the full amount owed, but you're buying that receivable at a discount with a right to collect on that full receivable or the full legal balance or the full payoff amount. So if they owe 200 and you they didn't paid in six months, you can buy that note at 100 grand. You make your money by either a getting the borrower to start making payments on time so you're getting payments on a regular basis with a full payoff, they refinance or sell the asset off later or if they don't pay, you know, pay you no stay. You have the right as the bank to then foreclose or take legal action against the bar for non payment and then foreclose to sell the property at the foreclosure auction so that you're paid in full or give cash for keys or do a deed loan for the borrower to give you the property and they walk away and you forgive the debt but they've got to sign the property. Then you now control an asset that's worth more than what you're owed or worth you know at least what you the debt was or a lot more than what you paid for that. So you make your money in that way. Now what you do with that asset is completely up to you. If you take it back, you could, if you do foreclose, you could sell it at the auction. If you, if it's worth a whole lot more than what you owe, that's usually what's going to happen. You can get the borrower to give you the property for some cash. Then you own a property to United rental portfolio. You can fix it up and sell it, you can keep it owner finance and do what you want. I'm a big, big believer in either selling that asset off so you can bring in the capital and then go double down. All right. I like cash flow obviously if it's not performing on buying my first way of making money is to get the borrower back on track. Making payments that's going to be the biggest bang for your buck to get cash flow coming in without having to put money out for legal costs and then repair costs and then drag out for foreclosure. Because if you can start having money come in the first 30 to 60 days, that's a benefit versus waiting a year to get something. But it's going to happen in the non performing space. You're going to have stuff that takes six months to a year or two years depending on how knowledgeable that borrowers, what state it's in, what's the foreclosure laws and how far legal has been started by the previous seller. Now if you get a little bit bigger you can start a fund, a note fund and that's where you're pulling people's money under SEC rules, Security Exchange Commission rules, making sure it's approved, doing it properly and then you're giving your those investors a preferred rate of return and then part of the back end. Now a lot of people would like to invest in a note fund. That's one way to make money and be a note investor a little bit more passively. If I'm an active note investor. And like we're starting to fund, I'm going to be using that capital from investors to go out and buy assets, give them a preferred return, 6, 8%, something like that, and then make 50 to you know, 50% of the back end at least. And I'm also going to charge some fees along the way like asset management fees, servicing fees. If I'm the Realtor, I can sell it and make a Realtor's commission. The sales side I would do that. There's a right fees I can charge as long as it's customary with what the market cost would be for that fee. Now I don't necessarily have to take those fees, but I want to write them into my fund agreement so that if I need to I can tap into that if I'm doing a great job and, and making sure that my investors are happy. Those are kind of the three major ways. There obviously some other funds out there, note funds will buy portfolios of notes in bulk and their goal is to.

Buy it and bulk at a bulk.

Discount and then turn around, sell it to individual investors at a market 5, 10, 20% above what they paid and they're making money. They're still offering a deal to investor like you and me to buy an individual note. But it's like the Sam's Walmart thing. They bought it at Sam's and are selling it now at Walmart individually. They buy and bulky at a bigger discount and go from there. That's, you know, one of the things that we do when we're buying a portfolio. We'll look at what we want to keep and then we'll look to sell a portion off immediately to recoup back our investment and you know, get a velocity of capital moving. What you know, that's one thing buying and selling notes as a fund or you can do this an individual too if you buy it at a cheap enough price. If it doesn't go the exit strategy, right that you want to go sell it. Another very popular strategy that a lot of people want to do is wholesaling notes where you're basically getting notes under contract and then selling that contract off after you do some due diligence to an investor like me who is willing to put up the funds to buy it and go from there. But honestly, if you're not investors, we're going to be looking to make cash flow from either performing notes or getting non performing back on track. We're going to look to make some bigger checks to either foreclose or Selling that note off to another investor. Or third thing, we're going to take that asset back through some sort of deed and loo dean lieu, foreclosure, cash for keys or a foreclosure process and then taking the asset back to either fix it up or turn around and sell it on the open market as a foreclosure or reo real estate owned asset. So like I said, every state's a little bit different. If you're looking for passive returns, buying and or investing not in performing notes is going to be the best route for you. Especially if you're happy making about a 10 return or less. Not a lot of work. You have a servicer, it's parked with a servicing company. You can use your ira. Money's coming in on a monthly basis, you still got to double check, make sure the borrower is on track and do your own due diligence. But non performing is going to get a higher yield because you're buying things at a discount. Yes, there's a little bit more risk involved, but you can mitigate this risk by doing your due diligence. Looking at the servicing notes, looking at collateral files, make sure you have the right to foreclose. Looking at the payment history, looking at the notes. There's a lot of things that go into the due diligence of a non performing note. Make sure it's a good deal. Of course buying the right price is the most important thing to making sure that it is a deal and not a dud for you. So that's it. You're either getting cash flow or you're taking the asset back and making a bigger check by selling the asset off or you're getting it reperforming, getting that bar reperforming on a non performing note and then after 12 or 24 months selling that note as a re performing note off in some cases. Or you're flipping paper, flipping contracts and buying it and bulk and solid individually. So there's a variety of ways of making notes as a note investor, not any different, a lot of real estate stuff, it's just a different asset class with some different limitations. Like if there's a ton of equity above what's owed, you're not entitled that equity. You're old only owed what is due to you. Unless you're able to negotiate with a borrower to take the property back and either have them walk away without getting paid or give them some cashing for keys to walk away. So we cover a lot of these things. This is one of the things we cover on the funding side in day three of our workshops and we'll go through different strategies, different case studies and how to make things happen and specific deal flow stuff like that that's the same when I'm looking at a portfolio tapes it's great to look for performing stuff that I can get at a decent yield and if you're a new note investor that may be one of the most important things to do is buy some performing notes at a price that makes sense to replace your income or buy non performing owner occupied assets that you can get reperforming to replace your income or replace your costs so that you get your cost basis covered on a monthly basis so you're not having to stress about income coming in every month. So we teach these things like I said find out more information our website we close notes.com and I hope that this episode was helpful for you that wonder how the hell you make money as a note investor.