Note Investing

Last week I shared with you my struggles with communicating with Asset Managers. That struggle was the hardest thing to overcome through my journey of note investing.  I struggled for weeks to understand why this group of individuals would not reach out to me after many attempts at contacting them.  There were times that I was hoping for them to just say “Leave me alone”!  This week I want to share with you about how “Tapes” work in this industry and the time, effort, and research that goes into finding notes to invest in.

After I was able to get my “Shtick” down with Asset Managers I had another avalanche facing me. TAPES!!! How the industry works today is that lenders send out Excel spreadsheets that contain “Assets” or notes that are for sale.  Each of the tapes that I get weekly are formatted differently and have different data points on them.  When I opened my first tape, my reaction was “Holy Crap” there is a lot of information and there is no rhyme or reason to the flow of the spreadsheet.  I could draw on my prior experience from the debt buying industry and had a few macros saved that I could update to filter through the data.  Typically, each tape that I receive has anywhere from 100 to 500 notes on them.  And there are between 15 and 25 columns of data that you need to filter through.  As I went through these tapes I roughly kept track of my time spent on the initial due diligence steps, and I was averaging between 3 to 4 hours to complete a tape that had an average of 200 notes on it.  Some of the data points that I was filtering on were City, State, Zip, Unpaid Balance, Last payment date, and property taxes if it was listed.  Sorry, for all the details, but they are important!

Note investing is not sexy, and there are a lot of details that one needs to know to be successful.  As I continued to receive new tapes on a monthly basis I found out quickly not all tapes are equal.  Some would give you a lot more information and others would give you just basic demographic and payment information.  As I was starting out, I told myself I would l review every tape that came across my desk and determine if I was going to spend time on it. I saw a pattern developing from specific lenders that I wanted to just say “No Thanks” to their tapes because they were just not good at all.  My reason was simple and protects our Company/Investors down the road.  If their tapes were bad what would their “Chain of Title” and documentation look like?  These documents are heavily scrutinized by Federal Entities like the CFPB, SEC, and FDIC “Alphabet Soup” to name a few.

Finally, I had located notes that we wanted to buy and start working with homeowners.  Our 1st purchase consisted of three notes in Evansville, IN.   The three notes had an average Unpaid Balance of $35,000 and the average purchase price of each note was $10,000.  And this is where things get interesting. Buying and investing in real estate notes is like OJT (On the Job Training). There were some mistakes/learnings that set me back in buying more notes right away.  Next week I will share my mistakes as painful as they were!  They were HUGE growing opportunities for me and the business.  Until then, have a productive week ahead!  Remember we all can be part of bringing Wall Street to Main Street!