Bank Notes as an Investment Strategy

Investing in Real Estate Notes

So many investors base their timeline to close a real estate transaction based on their “traditional” experience of buying and selling real estate. Well that’s where most people go wrong. Let’s tale a look at bank notes as an investment strategy. Buying notes is usually a faster transaction, especially when you compare it to doing short sales and the time it takes to negotiate one of them.


Steps to Buying Real Estate Notes

The best way to explain the timeline is to just list how things go down. Let’s just start with the point where you have talked to the bank and the bank has agreed to send you a list of notes that they are willing to sell.

Typical steps in proceeding with note deals:

  • To get this list you usually have to sign a non disclosure agreement (NDA).
  • Once you get a list and identify a note or two that you want to make an offer on, you should write up a letter of intent (LOI). A LOI is just that, you stating your intent to purchase that note and what specifics you would like to see in a contract with you and the bank. You should outline what documents you want the bank to provide, due diligence period, funding period, and who the contract is to be made out to.
  • Let’s not forget to include the amount you want to pay for the note. That’s the most important part.
  • After submitting your LOI, most banks will get back to you within a week or so on whether your offer has been accepted, countered or denied. Some banks will do it faster or they might have to wait for a loan committee to determine how close your offer is to what they want to receive.
  • Once the bank accepts your offer, they will work up a loan sale agreement (LSA). This might take a week to create.
  • Sometimes the banks will send you over a servicing transferring form and a company information form that they will want you to fill out to help them write up the LSA. The bank will usually give you a week to get that back to them signed. Sometimes a bank will want earnest money, and some won’t.
  • Once you sign the LSA, your due diligence period begins which is usually two weeks.
  • Once you complete your due diligence, your funding period begins.
  • Now in a note deal, there isn’t usually a traditional closing at a title company. It all comes down to you wiring your funds to the bank and the bank then sending over an assignment of mortgage or assignment deed of trust.
  • You will want to have title pulled before your due diligence period ends just in case you can’t get something cleared up. You will want to communicate with the bank on any hiccups that pop up. Banks realize that stuff can pop up from time to time and they are glad to help clear it up to make the deal go through. I’m still working on a deal that is taking the bank 2 months to clear up. The last thing you want to do is to unknowingly take over someone else’s problem or problems and be unable to clear it up before you own it or become the bank.
  • When the bank sends over the Assignment Deed of Trust, the bank will send the borrower an estoppel letter that informs the borrowers of who their new lender is and where to send their payments to.
  • This usually takes 14 days and once that happens, the bank will send you the whole loan file for your records. At that point, you are the bank.

One thing to keep in mind is that the bigger the deal, the longer you should ask for due diligence and funding periods. Remember that banks want cash to sell notes. Financing contingencies are usually not applicable in note sales.

As you can see, when compared to the short sale process, buying notes can be a lot faster. The great thing is that there is less competition and plenty of product out there for you to be looking at buying. You just have to make the connection with the bank to find the deals that make sense to you. Buying bank notes can be a wonderful retirement income strategy or contingency income strategy. Give us a call at California Money Lenders to discuss bank notes as income generating situations, we would be more than happy to answer your questions. You may also fill out our contact form and one of our trained private money loan specialists will get back to you promptly.

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Choosing a Real Estate Investment Mentor

Quick Start to Real Estate Investment Success

A real estate investment mentor is the secret to investing success. Every great achiever in history has had mentors. No one is “self made”. Behind every extraordinary person are extraordinary mentors. As iron sharpens iron, so one man sharpens another. But how do you decide on which real estate investment mentor is right for you? Ask yourself these 3 questions when choosing a real estate investment mentor:

1. Do You Want to be a Creative or Traditional Real Estate Investor?

Deciding on which type of investor you want to be is critical because it will determine which type of real estate investment mentor is right for you.

Traditional = Local

If you plan on being a traditional investor, a local real estate investment mentor is probably your best bet. The best traditional investors are those that are very good at continually finding very inexpensive, very reliable contractors. They have the ability to move on good deals at the drop of a hat because most traditional deals require instant action or else you lose out to someone else.

They know the local area like the back of their hand, which areas are good, which areas are bad, the direction the city is growing in, etc. Successful traditional investors spot local trends and adjust accordingly. Traditional investing is very localized so the best type of real estate investment mentor will probably be a local one.

Oftentimes, a really good “investor-friendly” real estate agent can be a great traditional real estate investment mentor. He/she can introduce you to mortgage brokers, title companies, contractors and so many other team members that will be crucial to your traditional investing success.

Creative = Nationwide

If your goal is to be a creative real estate investor, you may be surprised to hear that a nationwide real estate investment mentor may be your best bet. Creative investing techniques and formulas tend to work in every area because it is based on the concept of motivated sellers and motivated sellers are not location specific; they are everywhere.

People who need to get rid of their house quickly are compelled to do so for reasons that typically have nothing to do with the local area, such as divorce, financial problems, death, mortgage problems, etc. So a very successful creative investor could actually relocate to a totally different area and be just as successful.

Certainly there are local laws and characteristics that favor one creative technique over another, but for the most part, successful creative investing is not based on your local knowledge. Since creative investing requires significant creativity, getting outside the local box of thinking and seeing the entire nation and what different investors are doing all across the country, fosters more ideas and more ways to creatively invest.

Plus, sometimes creative investing requires very specialized team members and if you are only drawing off of your local area for those people, you are limiting yourself. Some of the best mortgage brokers for no title seasoning loans and title companies for back to back closings we use provide nationwide or regional services. Whereas if I could only draw from local title companies or mortgage brokers, I couldn’t get the deal done.

Most importantly though, the number of motivated sellers willing to sell their property creatively is limited based on the size of the market. The cliche that, “there are enough deals to go around for everybody,” is hogwash when it comes to creative investing. The more legitimate creative investing competition there is in a given area, the harder it can be to find motivated sellers. Usually, the best creative investors in a local area avoid sharing their top secrets to avoid competition. Personally, although I mentor investors all across the US, Canada and the Caribbean, I don’t mentor anyone in my hometown because I don’t want to create a direct competitor.


References Help You Find a Good Mentor

What some local “mentors” will do is act like they are going to teach a newbie the ropes, but what they really do is simply teach them just enough to be able to find deals for themselves. Here’s why. Every creative investor is always looking for more motivated seller leads as inexpensively as possible. Certain lead generation techniques require time and energy, such as driving neighborhoods looking for vacant houses or FSBO signs.

Since the mentor doesn’t have the time to do it himself, and rather than hire an employee, they get a local newbie to do all that running around for them in exchange for “showing them the ropes.” I did that when I first got started. It was a huge waste of time because that guy ended up not paying me on some of the deals I brought him, stole money from me on a deal we did “together” and stole $150,000 from a friend of mine, The guy turned out to be a total crook.

He had no intention of teaching me anything with substance except how to run around and do work for him for free. Well, he did teach me something valuable, what to look for when someone is about to take advantage of me! But although my experience was a bit extreme, local “mentors” are notorious for training people to their birddogs, not successful, independent investors. The fact is motivated sellers are a limited resource and competition is not helpful to existing, successful creative investors.

Therefore, you’re best bet if you are looking to be a creative investor is a nationwide real estate investment mentor. They will open up their vault on all their hidden secrets because they don’t have to be concerned about competition and they can draw on more ideas, techniques and team members due to their much larger geographical perspective.


2. Is the Real estate investment mentor Passionate About Teaching AND Successful at Investing?

Being a successful investor and being a good real estate investment mentor are two very different things. Some people are fantastic performers but lack the drive and patience to teach others. I have a friend who is a very successful investor and agent who refuses to mentor people anymore because she got so frustrated by students not following her instructions. She didn’t have the patience to deal with the fact that no matter what you say, sometimes students have to learn their lessons the hard way. Plus, she wasn’t passionate about teaching. She saw it as a good sideline business to make some extra money in between deal closings.

If you want to be a creative investor, you need to also make sure the mentor is successful nationwide, not just locally but wanting to become a national mentor. You want someone with a track record for mentoring students to success on a nationwide basis. A tall tell sign that they are a good local mentor but a wanna bee nationwide mentor is that the deal examples, case studies and success stories they give are all from the same geographic area.

On the other hand, you have people who are extremely passionate about teaching but they are not successful investors. That’s where the old saying, “Those who can’t do, teach,” comes from. They are very zealous real estate investing teachers who aren’t successful investors themselves. They are perhaps more dangerous because they teach well, but what they teach is wrong. Unfortunately, the less competent mentors are also usually the least expensive and since many budding real estate entrepreneurs are on a tight budget, sometimes they go with the lowest priced option.

This is one thing you don’t want to go cheap on because you can’t learn to be rich from a broke person. If you picked the right person, the cost of the mentor will be a drop in the bucket anyway. So avoid going with the least expensive option and make sure that the real estate investment mentor you choose is far more successful at investing than you are.

For those traditional investors looking for a local real estate investment mentor, be aware that you will have a much more limited pool of prospects than the creative investors going for a nationwide mentor. Try to avoid lowering your standards just to get a local one. Be patient and persistent. You may have to go outside your specific area but perhaps you can find someone that is regionally close to you. Or maybe you can reach out to a nationwide mentor and they may have some mentors they know that are closer to you geographically. But keep in mind that you need someone who is passionate about teaching AND is successful at investing.


3. What’s the Real Estate Investment Mentor’s Motivation to Help You?

This is a HUGE mistake many, many people make when choosing a real estate investment mentor, They do not think through the REAL motivation of why the mentor would help you. The consequences can be significant. You need to have a clear and realistic understanding as to why the mentor wants to help you. Some beginners unrealistically assume they are going to find an extremely successful mentor who, out of the goodness of his/her heart, is going to lead them to the promise land. But mentoring someone to real estate investing success is a long term, ongoing, patient and persistent process. The mentor must have substantial motivation to work with you; and the thought that they want to help you because they like you is downright naive. It doesn’t work that way in the real world.

Here are some examples of the REAL motivation of some real estate investment mentors:

  • If you are traditional investing and you have an investor friendly real estate agent mentoring you, that agent’s REAL motivation is for you to buy real estate. That’s how they get their commission, when you buy. But sometimes the best decision of all is to not buy the property. If you don’t buy the property though, your agent doesn’t get paid. When in doubt, that agent is going to tell you to buy because that is how they feed themselves.
  • If you are traditional investing and you find a local real estate investment mentor that says he/she will teach you by doing a deal together and all you have to do is bring the money, beware! That’s what got me and my friend in trouble when I first got started. Well, my friend brought money, but I was broke so I was bringing my good credit credit, which is basically the same thing. If a local mentor is truly successful, he/she doesn’t need your money or your credit to sign on a loan.
  • Whether creative or traditional, sometimes a real estate investment mentor will charge you an upfront fee to be your mentor. Although this arrange can work well, be aware that ultimately, the motivation they have to help you was provided in full at the beginning of the relationship. What motivation do they have down the road to help you when you get stuck? They have already been paid all of their money and given all of their motivation. It would be like paying a painter their entire bill before they took one stroke of the paint brush. Most people would never agree to those terms with a paint contractor. Instead, they may pay the painter some money upfront for materials and to get the work started, then they may pay some progress checks as work is completed, and then, they would hold off to pay the final bill until the paint job was complete.


Ensure Your Mentor’s Motivation

The best way to ensure your mentor’s motivation is aligned with yours, is to align your incentives with the mentor. Such as doing a profit sharing arrangement whereby when you make money, the mentor makes money. That way, when the mentor wins, you win and perhaps just as important, if a deal is falling apart, the mentor stands to miss out on those profits just like you.

In addition, if you have already paid for real estate coaching services or are trying to make a decision right now on a mentor, consider how you found that person or company. For example, did you find them by researching online, reading articles or a book they wrote or by a referral from a trusted advisor? Or did they find you, as in coming to a local hotel in your area? In most cases, the best people to work with are the ones that you found, as opposed to the people that found you.

Hopefully this information points you in the right direction, so you can make much more informed decision when choosing a real estate investment mentor. Give us a call at 707-315-1119 or fill our our contact form or borrower form to find out more information about real estate investing and private money loans. One of our private money professionals will be in touch promptly to answer your questions.

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