Investing in Notes
The Paper Source Note Symposium 2017- Day 1
Most of you know a big focus area for me is “passive” income, and creating multiple streams of income. One of the areas I am focusing on is note investing. Note investing is also referred to as investing in paper, as you are not buying the building or business (or dozens of other assets for that matter). You are buying the underlying promissory note that financed the asset.
This was my first year attending the Paper Source Note Symposium in Las Vegas, Nevada. For those of you who are unfamiliar, this is an annual note broker/investor conference. It is a 3 day event jammed pack with industry experts sharing their knowledge. One of the best features of the conference is the fact there are no sales pitches. When you add in the ability to network with serious investors, you have the making of a world-class conference. I will be uploading my notes from each day here on the blog. As I delve deeper into the note industry, I will use these notes as an outline for future blog posts. Let’s get started.
Day 1 started off with a field trip down to Nevada Legal News for an outdoor trustee sale. Now, being from Pennsylvania, I am used to a judicial sale taking place at the county courthouse by the sheriff. There are some pretty distinct differences between the two types of sales. As an investor, it seems you have a lot more freedom in how you pursue a foreclosure via trustee compared to a judicial foreclosure. Going forward, I will definitely be pursuing opportunities outside of Pennsylvania, so that I can take advantage of trustee sales.
Kurt DeMeire was not only our keynote speaker today, he also led the info session during the field trip. Kurt is both a broker and investor, and runs a great business in California and Nevada for investors called County Records Research, www.countyrecordsresearch.com.
Here are the notes:
*Keep in mind these are direct from my journal and the goal is to expand upon them in future posts. That being said, some of these may not make much sense to you yet.
Trust deeds can happen daily
Delinquency period can be any length of time beyond the grace period on the loan
Opportunity for note buyers start once note becomes delinquent
At trustee sale, all junior liens, including IRS are wiped off the property
Property taxes are senior to all loans and liens
At trustee sale you have no contingencies to protect you
Smaller lenders are the most receptive to selling notes in default
Your offer to buy out lender can be subject to seeing the property, verifying all senior debt, and reviewing note paperwork
Use NOD’s (notice of default) to talk to lenders and as an agent, to get listings
Lenders instruct trustee as to where to price bid
Specified bid- bid amount below what is owed on the note
Equity can be created by buying a discounted note, dropped price at sale, offer below value to lender as REO, at trustee sale when junior liens are wiped out
5 Ways to buy foreclosures: Before sale from owner
At trustee sale
After Sale as REO
From bidder at sale
Purchase NPN from lender before sale
Next up was Gerald Lemoine-What’s Working In Today’s Note World:
If you think education is expensive, try ignorance
Check out training from Ward Hanigan, Bruce Norris, and Pete Fortunato
Think of your portfolio as a mutual fund- have a basket of notes
Diversify-don’t put all your capital into one note
Rare to make a home run on 1st mortgages, more likely on 2nds
Be patient pick right time to get aggressive with collections
Use public records to find and market to note holders
You can improve the yield on a note by selling a partial
Find notes by: Mailing private individuals; NOD list; Referrals; Hedge funds; Direct from small banks; Servicing companies like FCI exchange; Websites like LoanMLS, auction.com, loanmarket.net
His website is lemoinegroup.com and he likes to buy distressed notes
Last up was Tom Henderson: Advanced Techniques For Buying Notes & RE:
Never call borrow a client, that denotes a fiduciary relationship
See his website
Yields aren’t realized until you are paid
Never pay PAR or above for a note
Discounts are not because of TVM (time value of money) it is because of the risk the note buyer incurs
Always get the note before the quote
Higher interest rates lower property price
Price of RE is directly proportionate to financing available
Foreclosure is the property returning to its rightful owner
Use skip tracers
Obtain credit reports and/or loan applications
Make sure payors can make payments
Collateral is only real defense against risk management
If you buy right, you can sell right
ITV- investment to value- amount invested in note divided by as is value of property
Get his book, The Note Professor Notebook
You can raise your yield by selling partials
10 for 12 yields 35.07%
Do an exit interview when buying notes
Well, that was it for day 1. Tomorrow I will post Day 2 notes.