Note Buying – Need to line up the Money First?

OK, so I keep getting this question, and I wanted to address it directly, because it’s absolutely key to doing this right.

So here’s the question, which Brian K. posted in a comment on an earlier post, and which I’ve received numerous times over the past two weeks in my free 20-minute sessions …

“If I need money to buy a note, should I chase down notes or secure money first?”

So in order to answer this one, let me tell you a little story about Dean Engle and his early non-performing note purchases:

1. $23,500 – 1st note I bought. It’s there in black and white on the homepage (first video). All from my own money
2. $54,000 – 2nd note I bought. I didn’t have enough for this one and I didn’t have any other sources of financing lined up so I convinced my wife that she’d do better buying me a note and getting 13% on her investment, plus 2 points, than holding her Cisco options which were underwater (!)
3. $26,000 – 3rd note I bought. I invested out of my self-directed IRA
4. $14,500 – 4th note I bought. Also from my self-directed IRA
5. $23,000 – 5th note I bought – and my 2nd quick flip. I sold it for $30,000 within a month, but funded it from my self-directed IRA (had it under contract before I purchased it, but couldn’t close it in a single transaction so had to come out of pocket)
6. $8,750 – 6th note I bought. None of my own money – brokered deal on which I made $2,000 (YOU DON’T NEED MONEY FOR ALL NOTE DEALS!!!!)
7. $66,500 – 7th note I bought. I used hard money for this one – so I put up 25% of the note cost ($16,625) and the investor put up the rest, at 4 points and 13%
8. $12,500 – 8th note I bought. From my self-directed IRA
9. $153,550 – 9th note I bought. Used the hard money lender again that I’d used on my 7th note. Same terms
10. $7,000 – 10th note I bought. From my self-directed IRA

I want to point out three very important points about this list of notes:

1) You can buy small notes, for very little money
2) It doesn’t have to be your own money
3) You don’t need to have ANY money – you can broker notes or bird-dog notes (see #6 in the list)

I learned very slowly that I could go out and get money from someone to fund my notes. And here’s who that person was who funded that first note (note #7): a foreclosure auction buyer – (maybe you call them trustee sale buyers in your state).

Here are the three reasons why I like auction buyers when you’re starting out note buying:

• They know more about notes and non-performing notes than most lenders (after all, they’re dealing with banks and trustees and foreclosures all the time in their business)
• They can place a value on a property faster than anyone. Usually they’ll have completed a driveby of the property (if they even need to do one – some of those guys know their county so well they can judge value just based on a street address!)
• They can make a decision to fund a deal very quickly – as long as you have the right paperwork to give them, they can usually fund the next day if you need it

So how would I answer Brian K? With one of TWO recommendations:

1. Decide you want to be a bird-dog, and broker notes – to get it started.

OR

2. If you want to BUY your own notes, then line up the money first. Then chase the notes.

If you know you have no more than $50,000 available yourself, then you can chase notes worth less than $50,000.

But as I just suggested to Rick the other day (Rick’s in north Georgia chasing notes himself, and admits he has about $100,000 available of his own cash), why not line someone up at a 25-75% split and “leverage” yourself up?

Rick’s $100,000 could then be worth $400,000 in note purchases.

AND he gets to learn from someone with deep experience in buying foreclosures if he chooses his hard money lender right (you learn from every deal and every relationship)

Ah, but I hear you asking me: “so how do I convince my hard money lender to lend me money?!”

It’s simple – one of my Oklahoma readers used the Basic How-to-Raise-Money toolkit file – you know the one with those 2 deal summaries I wrote up on the southern California note and the Portland Oregon note? (If you haven’t already: watch my FREE 84-min Video on How-to-Raise-Money NOW!)

Well they used that EXACT document and showed it to a handful of target investors and said: “This is what we’re looking to do, would you fund something like this if we came to you asking for your money?”

That little document opened doors for them. They’re in talks with a number of those investors now. Why? Because it lays out a sample deal in simple terms that any investor will understand and appreciate.

And think of it from the investor’s perspective – especially the auction buyer’s perspective – they MAY look at you and think “hmmm, this is cool – I can use [YOUR NAME HERE] to learn something about bank notes, which I’m hearing all about right now. Maybe he can go find them, I can fund them, and we can work them out together.”

If you set it up right, and pick your partner right, this could be a very nice win-win relationship!

So, ACTION STEP: find out the next foreclosure trustee sale or sheriff sale or auction in your county, and GO THERE. And see who you meet. Strike up a conversation, say you’re starting to buy notes and looking for hard money.

I’ll be amazed if you don’t meet at least 1 investor who’s interested in hearing more about note buying!

And ACTION STEP #2: go out there and start Finding Notes and if you find one you don’t have the money for – BROKER it to someone who does. At least you can make some good money! (We pay 1% of the acquisition cost, for example, for notes or pools smaller than $1million – not that I’m recommending you to just come to us with notes – but rather to give you an idea of what you might be able to charge other note buyers, at a minimum.

That’s the equivalent of $1,000 on a relatively small $100,000 note. Better than working at the office!