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6 Steps To Becoming A Successful Note Investor

Updated on July 6, 2013

6 Steps To Success

The market for real estate investors is an ever changing landscape of peaks and valleys depending on the niche or strategy that you use. Most investors often find themselves chasing multiple strategies and struggling to make a full time living unless they focus on one niche to master. Preforeclosure investors gave way to short sales which lead to REO and courthouse step buyers looking for quality product. That has all given way to those investors now looking to cash in on the wave of nonperforming notes that secure over 15 million plus homes that are upside down on their financing currently.

1) Finding Deals

As with any successful investment strategy, there are several keys to keep in mind. The first key is obviously finding the deals that match your investment strategy. This in itself can be task. Websites like Auction.com and Nationwide Note Xchange and a host of other listing sites offer lists of notes that can be cherry picked by the individual investor, but often times the deals get bid up beyond what the full time investor is looking to pay.

The opposite end of the spectrum is to call banks special asset managers and secondary marketing departments directly with the hope of finding opportunities direct from the source. This can be time consuming with repeat calls and emails, but often results in opportunities that other investors never see. This is especially true on the commercial side of the business where banks that aren’t looking to sell their residential assets will often consider individual trades on commercial assets.

If you are really looking for a fun time, there are plenty of brokers out there who are recycling lists of notes that can be fresh or months old. Of course I’m being sarcastic here, but occasionally you will find someone who truly represents a solid seller who has product to move and is not a “joker broker”. Hedge funds seem to be the flavor of the day right now. Many funds have purchased large pools and have broken them up into assets that don’t meet their specific guidelines such as size, location, value or condition.

2) Exit Strategies/Game Plan

Obviously, finding the deals is only half the battle. You have to know what your plan on doing with the asset(s) once you close on them. Are you looking to modify the loans for cash flow and return? Are you just looking to wholesale and make quick cash returns for your time? Are you looking to control the real estate via friendly foreclosures, cash for keys, or deed in lieu? Are you looking to sell the real estate after foreclosing or keep the asset as part of your portfolio as rental or owner financed deal? Each market and deal can be completely different so it’s extremely important to keep your options open and be flexible.

Many investors overlook assets in areas where the government HAMP and HAFA programs give investors the opportunity to cash in on the Hardest Hit Funds for performing modifications. While each state has a different amount that it funds, it can often turn your marginal wholesale deal into an extremely attractive, double digit return modification depending on what you pay for the note. Markets can often change depending on laws passed that can benefit or inhibit your strategy as well, so savvy investors are often expending time and resources in researching market trends outside of their own backyards.

3) Marketing and 4) Private Money

Two things that investors often struggle with is marketing and raising private money. Unfortunately, most don’t investors don’t realize that the two go hand in hand and that successful investors use their marketing as a money raising machine. Marketing your deals for buyers is just as important as marketing to find deals unless you have all the money you need and are only buying for your portfolio. Most investors don’t fall into this category and so they often need cash on the front end to keep the power on and pay bills. If you are just wholesaling, it’s important to build your list of buyers via resources like ActiveRain.com, Meetup.com, real estate clubs, and events such as the Noteworthy Convention that takes place each October in Las Vegas. Hanging out where investors hang out or advertising deals where investors are looking also helps. Using online tools such as Postlets.com to post your deals to 300+ social media websites can help you find deals with it posting to Trulia, Zillow, Hotpads, LinkedIn, and other sites is the first step in building a marketing machine. YouTube is also an amazing source to market your deals if you have video or pictures of your deals. Pictures can be uploaded to Animoto to create a virtual walk through or marketable video that gives your deal the “pow” and “bang” that separates you from other investors who might just post on Craigslist.

Often times, knowing who is buying in a market by contacting local realtors or title companies who close other transactions in that market can also help you identify cash buyers. Finding buyers is one thing, but without some sort of email or CRM tool to constantly communicate or distribute your deal to your database can be the difference between moving one deal or one hundred. Business cards stacked on your nightstand or in a shoe box do you zero if you don’t save the info on it somewhere you can use it.

Posting deals in markets where investors can’t find assets can also be beneficial for you as well. Arizona and Nevada investors will often post in southern or northern California where deals are rare or hard to come by if the numbers make sense as California investors are often willing to go outside of their state to find good deals.

Finding private money is all about the numbers and knowing your numbers on your deals can be the difference in raising $10,000 versus $10 million. Foreclosure time frames, market values, repair estimates, rental rates, and estimated return on investment can help you get more deals done and put investors comfortably at rest knowing that you’ve done your homework. If you focus on what could go wrong instead of the best possible situation, your investors or joint venture partners will be educated and ready for the proverbial “monkey wrench” that can bog up your deal closing or exit strategies.

5) Look Professional

Looking professional and seasoned (even if you are new) has also become more important. Unfortunately, joker brokers and uneducated investors have recently jumped into the note markets making it more convoluted out there for the serious investor. Simple things such as email addresses, websites, logos, and even references can help separate you from others and insure you get the deals or lists where others don’t. What if you have no experience in notes? Be honest and focus on what you do have experience with. Even aligning yourself with someone who has experience is possible in today’s market as plenty of investors are looking to find deals. Most investors are willing to pay a flat fee or marketing bonus for new investors to spend time on the phone tracking down deals. Getting yourself a professional email and website is pretty cheap these days with tools provided from Google and Odesk or Fiverr.com.

6) Outsourcing Servicing

Finding success in note investing also includes doing your due diligence and servicing but you can often hire out to specialty servicing companies such as Weston or NuView Financial to help you identify holes in paperwork and assignments that can cloud your ability to obtain title and foreclose. Doing it yourself and trying to save a penny can often lead to you spending huge dollars in legal fees because you initially tried to cut a corner on the front end. The best money I spend is on my servicing and document review companies.

Becoming a successful real estate investor doesn’t happen overnight and it is definitely the same thing with note investing. But if you focus on finding deals, marketing smart and consistently, outsourcing to professionals, and having a flexible game plan that allows for you to maximize deals will often help you avoid the pitfalls out there and have investors knocking down your door to invest with you. I truly believe that note investing is the new proverbial pot of gold at the end of the rainbow for smart investors who are looking for a large inventory of deals and less competition then what they might be used to in the past. Note investing has been good to me. If you work hard and focus on what I’ve outlined above, it can also be very profitable and good for you as well!

Scott Carson

Scott Carson, The Note Guy
Scott Carson, The Note Guy

Finding Note Deals

Successful Note Investors

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