7 Deadly Sins of Note Investing for Beginners

May 19, 2022




The note investing space is a complex one that can be very intimidating for beginners. I have been investing in notes for over five years and am still learning something new every day. During this time, I have also made many mistakes and today I will share with you the 7 deadly sins of note investing to help you avoid making these common mistakes!

Sin #1: Analysis by Paralysis

The first thing that every note investor has in common is that they meticulously analyze everything before investing. I can’t tell you how many internet videos I looked at; the number of other well-known investors’ articles I read; and the comments on sites like BiggerPockets. I also attended virtual courses and multi-day-day online conferences, which featured numerous speakers. You don’t only watch these online courses once, do you? Don’t lie to me; how many of you have taken training that has been recorded and watched it numerous times. Join the club.

A majority of the information provided was relevant and I would highly recommend it to anybody interested in learning more about notes. These trainings are high level, lack depth and can only take you so far. As one note investor said, investing in notes is like golf: You may watch 1,000 hours of video on how to hit a golf ball, but until you step up to the tee and swing that club, it’s just a different sensation and you have no idea what you’re experiencing. So, the best way to learn is by doing, which leads to Sin #2.

 Sin #2: Do not Buy Just One Note

When you buy your first note, don’t buy just one. As Grant Cardone advises, you want to “10X” it. My first note was not one but four. Looking back, it was one of the finest decisions I have ever made. They were low-cost notes that I purchased with my own funds. Two were in bankruptcy, one was performing, and one was non-performing. As some would say, I wanted to try every flavor of ice cream there was so I could appreciate the due diligence involved for each of them. Which leads to Sin #3.

Sin #3: Do not Be Pennywise and a Pound Foolish

I see people every day on social media asking for a legal document for their business or attempting to cut corners. You’re going to be purchasing an asset (whether a note or real property) that costs tens of thousands of dollars or more, and you’re too cheap to pay $250 to have one created by an attorney. The same may be said about those who do not order a title report or have a Broker Price Opinion (BPO) performed on the property because they trusted Google street view. As a newer investor, these are musts, along with having someone qualified review the title report and making sure you check the BPO. While these are staples that should be done on every note, remember that to run a business, do not fall into Sin #4.

Sin #4: Don’t Be a Copycat

For my first set of notes, they were purchased through a servicer trade desk. To limit the pain, I (and my vendors) would have to go through with a newbie, I did not transfer servicing, I left it where the loans were being serviced and hired a collateral company to store the files. I know that most individuals keep their own collateral, but for me, leaving home early in the morning and returning late at night from my job takes away time with my family. For me to go to the post office to mail an assignment or an original note is time away from my family. I have children, and I can imagine reviewing collateral while drinking a cup of coffee with my son smashing his Millennium Falcon into my coffee cup and all over an original note. This is just one example of many. You want to run your business on what works best for you, which may not be best for others. This leads to Sin #5.

Sin #5: Do Not Try and Do it All – Work on Your Business and Not in Your Business (Michael Gerber – E-myth)

After performing the due diligence, negotiating the sale price, then closing on my first loans, I had my “oh-sh!t” moment. Now what do I do?

Trust me if you perform any of the following, proceed with caution.

I thought I could do my accounting books since I have some accounting background – after spending a few days attempting to set-up QuickBooks, I said to hell with this and hired a bookkeeper.

I spent hours on-end adding LinkedIn connections, wasting time doing this so I hired a virtual assistant for the price of a cup of coffee who worked faster and more effectively than I could.

I had a period where I was frustrated with servicers and figured I’d just do it myself. That was a blunder, while I had received FDCPA training and felt comfortable, it’s remarkable how many times you reach out to someone and receive no response only to have them blow up your phone the second they need your attention.

Here is a little secret: the numbers do not work for any of the above. You must develop your company plan, strategize and implement, while also concentrating on important activities and utilizing the resources available to you.

Sin #6: Not Having Patience

For a new note investor, the due diligence procedure is stressful, and you’re running 1,000 miles an hour. Everything appears to come to a halt when you execute the LSA (loan sale agreement) and wire the cash. It’s as if everyone went dark or was on vacation. The boarding process will take 4-6 weeks unless someone can come up with a blockchain that can expedite the loan transfer process (damn that is a good idea cough cough). Once the loan is boarded and the hello letter goes out, there is still a waiting game. On non-performing notes do not expect your special servicer to have discussions with the borrower like they are best friends and they magically agree to a loan modification. In most instances, these loans have been sold multiple times and the borrower has continuously been threatened with foreclosure only to have the loan sold and they continue to sit home and not pay. It is not until the demand letter is sent (30 days after the hello letter and now approximately 8-10 weeks since you funded) that action typically can occur. Then if you do get the borrower to agree to a modification, it will take your special servicer a few days to get it completed and sent out. Then the borrower is typically in no rush to return it and then waits another week or two (even if you put in a date to be executed by but they do not care, as what can you do – they know you’re not going to toss out a modification because they held it for an extra week). So finally, after three months, you get your modification. Now this is not always the case and you can get modifications done sooner, but too many times I see investors wearing their rose-colored glasses and assuming they will get a modification done in an expedited manner and have the deal analyzed from a profitability standpoint with a quick modification.

Sin#7: Good Is the Enemy of Great (Jim Collins) Being Average

If you want to make it in note investing you need to remain consistent and think of others first. If you follow the norm, you are average. You need to determine what separates you from the rest of the pack? Why would someone with money want to invest with you? How I accomplish this is through consistency and assisting others. When someone asks me a question, I answer it. I do not ask them to fill out some form to join my mailing list or group. I give them the information they want. I also will admit my mistakes. By acknowledging them, I will have them fresh in my mind to avoid repeating them. Lastly, do not settle for mediocrity. Look to continue your self-improvement.

I hope you enjoyed this post. I wanted to share my experiences with all of you so I can save you time growing your business. If I can save one investor five minutes of time, I am thankful, as time is irreplaceable. Time is the most valuable asset we have and as time goes on, it becomes more valuable as we do not know how much is left.

As you begin your journey to learn the basics of mortgage note investing, please be sure to visit our podcast

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