The road to me discovering notes wasn’t always easy to navigate. In some ways, it was a long and arduous path. A lot of it had to do with it taking so long for me to find them! It’s funny, it wasn’t until I was around 46 or 47 years old that I realized this would be where the next stage of my working life would go — shaping my career, not only as an investor, but also as a writer and business owner. Over the years, on my path toward the institutional note business where I work today, I saw many savvy investors using notes to get better real estate deals.
At the time, I hardly realized it. It was only when I was writing my new book that I started to put the pieces together. Back in those days, I was focusing on my “We Buy Houses” business and little else. Although I was well aware that the best sources of deals were from motivated sellers (like probate, divorce, out-of-state owners, etc.), what I didn’t know was that some investors were putting that business model on steroids.
Other Investors Were Being Creative
I first learned about creative strategies that were similar or related to the note business from friends who were bidding at foreclosure and sheriff sales. This can definitively be a viable way to acquire property, but back then I was never too excited by the idea of buying real estate sight unseen and in a bidding situation. I also didn’t feel like it was too easy to scale this business.
Next, I noticed those who were buying REO (real estate owned) properties. I did this on a small scale at the time, too, going after one-off deals like HUD houses and bank-owned properties that were usually listed through the MLS. Later on, I figured out during the economic downturn that there were large entities doing this in bulk by buying large tapes of REO properties — usually geographically. Banks tend to like selling REO’s in this fashion, because they can often make more money selling to buyers who want their local areas.
And then of course I realized buying distressed mortgage notes existed, the space where I play today. Where you tend to be ahead of everyone including the sheriff sales and the “we buy houses” folks. In other words, as a note owner, you’re first in line.
Using Notes For Better Acquisitions
Acquisitions of real estate deals can get better with notes, too. For example, when I was doing the “We Buy Houses” business it was all about solving motivated sellers’ problems and having the right tool in the tool belt. And that’s exactly what I did with notes and creative financing ideas by making multiple offers, some of which involved notes. Sure, I can make a low cash offer like anyone else, but perhaps I can make different offers with flexible variations of financing and let them pick the situation that’s best for them. Keep in mind, all of the offer structures already fit my needs and may even differentiate me from any other “we buy houses” bidders.
Making Multiple Offers
So let’s say a motivated seller — a pair of senior citizens for instance — called in about my “we buy houses—any situation/any condition” ad and wanted to sell their home. Their motivation was to move closer to their children who were out of state, which is a pretty common occurrence. Like many seniors, they have lived in their home for more than 40 years. The property is paid off. There is some deferred maintenance and some things in the home are just functionally obsolete, but it would still make for a good rental property. Let’s also say they’ve accumulated a lot of stuff in the home over the years….