For You To Choose With Dave Van Horn  

December 4, 2020




GDNI 128 | Success In Note Investing


The choices you make will eventually dictate your success in note investing. Being a rewarding yet complex industry, your choice of partnerships, strategies, properties, and even charitable groups all play huge roles in forging your path. Chris Seveney and Jamie Bateman are joined by Dave Van Horn to discuss his own note industry journey, which eventually led him to found PPR. He explains his plans to diversify and expand his business model, how to choose partnerships wisely and nurture them, and what strategies allowed him to raise money effectively. Dave also shares his thoughts about life insurance policies, note warranties, and the note industry’s future in a community changed by the pandemic.

Listen to the podcast here:

For You To Choose With Dave Van Horn

We’ve brought on a special guest, someone pretty much everybody in the note industry knows, or if you don’t know, then somebody you should definitely find more information about. That is Mr. Dave Van Horn with PPR. How are you?

I’m great. How are you doing?

We are good. We are on after a quick Zoom snafu, but we got things up and running and so forth. We want to talk about PPR and how you got started in the space. Also, some of the exciting things that he has coming down the pipeline as there have been some interesting partnerships Dave’s gotten involved in that you can learn about because it’s also opportunities for everybody reading, for some potential opportunities as well. Dave, do you want to give people a little bit more about your background?

I’m from the Philadelphia area. I started pretty much as a contractor. I worked in construction. I went to college at first as an accounting major but switched to management. I got done but I couldn’t get a job. I went into construction and stayed there a while and I did it for 22 years. I had my own company for 10 of those 22 years. My oldest son still runs that company at Van Horn Painting, which is a commercial contractor. I was also a realtor since age 26. I got into fix and flips. I was a property manager and owned a title company. I’ve been an agent for over many years.

I started buying properties in 1989. It was my first rental and I’m selling that rental. I’m selling fourteen properties to a guy I know from BiggerPockets. He’s local. He’s a guy that we would meet for lunch and breakfast-type stuff. He is a good guy. He’s more in accumulation mode. I’m more in preservation mode and it’s a good time to sell now for me. At one point, I had 40 places. Right before the last downturn, I got down to about twenty properties. I had unloaded before the crash.

I unloaded a good third of my portfolio and looking back I was like, “I should have unloaded the whole thing probably.” I wasn’t that smart. I did get rid of the ones I was looking to get rid of. I’m doing it again. It’s not that the buyers are getting a bad deal or not. He’s financing is so freaking cheap. He’s probably cashflowing better than I am. It is a good time to sell. I do believe it’s a seller’s market. I oversee our REOs and I sell a few hundred houses a year throughout the country through our loss mitigation stuff. I have an REO asset manager in-house, Amy. She’s amazing. You could go, “Here are 100 properties. Can you sell these?” She’d be like, “Okay,” whereas a typical realtor would lose their mind if you said, “Here’s 1,000 listings.”

Next time we can start with what you haven’t done. How about the note space in particular? How did you get into that space?

It’s leading up to that. At one point, I used to run a real estate investment group. It started out with twelve people at lunch and in a 5, 6-year period, it ended up being in five states and six cities from Baltimore to New York. We had 8,000 people in our database in that period of time. I used to interview the speakers and then one of the speakers was a guy out of New York who was raising capital for pools of distressed junior liens. That’s how it started.

I didn’t do anything for the first 2 or 3 years but my partner, John, invested some and we’re like, “How are you able to pay these returns?” What ended up happening was right before the crash, my partner was one of my lenders. He was an investor-friendly mortgage guy. We saw the writing on the wall. I was at a RE/MAX at the time. I was selling out 75 houses a year and I went down to selling about seven houses a year. It was a good time to adjust and I was fortunate I had enough rental properties. I could live off my rentals. I didn’t have to work. I was 42 when I left my contracting business. It was right after that.

I went to desk work because I had hurt my back and then started doing my own rentals and becoming an investor-friendly realtor. That led to the note business. When I was running that group, I was also raising money for commercial real estate. We were doing mobile home parks and storage mostly in the Midwest. We were in Indiana, Michigan. Also, I had done some commercial office condo construction. I was fundraising for that stuff. That’s when I got approached by my partner, “Why don’t you raise money for notes?” That’s how we teamed up. He was working through the assets.

Later on, I was an asset manager as well for a little while. My other partner, Bob, had overseen most of the asset management for those loans at that time. To be honest with you, we were pretty much a club. We started out with our own money, then we started raising money from other people. We started doing regular private placements. It was like a club and then it became a little more of a business. Now, it’s an enduring enterprise thing.

It’s a little big club now.

The funny thing is we’ve also morphed a few times and changed some of our models and we do more capital in the first liens, to put it that way than we do junior liens. We have some other channels and we have some JV partnerships. It’s expanded the business. When I first started in notes, it was in seller-financed. It was like the Jimmy Napier, Donna Bauer and Pete Fortunato-type stuff. I was doing seller finance notes. If I sold a property to a buddy, I would hold a second. He can come in and take the keys and cashflow with no money down and other creative financing stuff.

I was also doing private or hard money. I had financial friends that would lend me money to do my fix and flips and I would lend people money from my qualified plans or from my lines of credit. At one point, I started buying houses with credit cards and I’d fix them up with a credit card, move a tenant in, refinance, pay the credit cards off. This was back when credit cards are great with low fees, no cash advance fees. It was like free money. I did that for a long time and built up a decent-sized portfolio. The market jumped up and I had a couple of millions in equity and I started putting lines of credit on my properties and I became a lender. Now I only invest in three things, anything insurance-related because I had an insurance license, anything real estate-related, or anything lending-related. That’s the box I play in for personal investments.

For people reading, you’ve grown it to about $150 million-plus.

GDNI 128 | Success In Note Investing

Success In Note Investing: With junior liens, you’re typically exiting through the borrower with a first mortgage as you’re exiting through the property in most cases.


We’ve passed the $160 million under management but we’re growing rapidly. We’ve been working on a JV partnership with AMIP. They’re on the West Coast, they’re in Orange County and they’re about 10, 12 times bigger than us. We’ve been working since 2019 on that. Right now, we’re trying to get an MRA, which is a line of credit, which will be going to be a $130 or more million deal there. Some of the key capital for the equity bed of assets we’re buying, we bought about $40 million so far in 2020 with them. We get aligned, tied to that and we’ll triple that volume of what we could go buy. We’re getting ready to get ramped up. We anticipate you’re going to see some more distressed in the market towards the end of 2021, for sure. There are some moratoriums and some delays, so to speak. We think some of that’s going to open up and you saw it with the first shutdown, some of the margins widening, the asset classes and syndication wind downs.

One question I wanted to ask is, with the money you raised typically put it in funds. Do you do a traditional 506(c) or are you at Reg A at this point in time or a mix of both? I know back in the day when I started looking to invest in notes, I reached out to one of your funds and spoke to a gentleman. At the time, it was 506(c), but it was a few years ago. I was curious if you ever made a leap from one to the other.

We did look at the Reg A which is crowdfunding from more of the general public. We went down that path. I invested some money and some time and we decided not to do that. The reason being is we’re fortunate we have a broad audience of high net worth already. In some ways, we’re crowdfunding from the accredited or high net worth folks. We didn’t have the need to go to the general public. We always sold notes, so it’s not like the general public couldn’t invest in anything. They could but you need a lot more administrative staff and things like that.

Some of the compliance is stricter. It’s almost like you’re a mini public offering almost to do a Reg A. It’s robust, although we’re doing some of that stuff anyway because of where we’re headed going down the IRA path. Our funds are audited. Maybe early on, we might’ve had a fund that was unaccredited as well years ago, but not for a long time. It’s been a long time since we’ve had a fund like that. In some ways, it’s cleaner and simpler. We do generally solicit and we use a third party accreditation company. We outsource some of that compliance. It’s an easier way to handle the volume.

That was interesting because I’m light years behind you, but I started having to put in a few funds together and now I’ve done a 506(b), which has had some unaccredited and can’t general solicit that I’ve done the 506(c). I’ve seen others put out a Reg A and you can invest. Some people toss $100 in there and stuff but part of me is like, “Why would I want to deal with the headaches of certain people only investing $100?”

I have a buddy that does that. I guess it’s okay. Look at LendingClub or whatever. They were that way. I understand it. I know why people do it. I’ve just been lucky that I didn’t need to do it. I found a way to connect with a lot of high net worth folks and it was an easier audience to deal with and in some ways, so I focused on that.

We’ll come back to how you contacted high net worth. That’s a question I have down the line for people who are reading.

There are some techniques and some science behind some of that.

Rolling into PPR now, you’re starting to diversify and expand the business model. As I mentioned, I consider you at an institutional level with $100 million-plus. You might not, but you’ve started building some strategic relationships with the AMIP and other things you’ve been doing. I’ll be honest, I’ve always known PPR back in the day of investing in junior liens and now you’re putting more money out into the first base. Are these changes in diversifying some of the main reasons behind it? How do you see it going or where do you see it going?

Some of it was from supply and demand. Pre-COVID, it was a high real estate market. Margins get thinner, the supply of assets was harder to find, not as many junior liens were being written for a long time. There is a lag with distress from how long has it been delinquent type stuff. We’ve bought junior liens that have been delinquent ten years, for example. That’s the record, so to speak. A lot of it came from our ability to raise capital, which became one of our strengths and we were able to raise significant capital, but where can you deploy it?

The beauty of first is you can deploy more capital margins that are a little tighter but they’re also less work in some ways. There are not as many touches. A junior lien requires a lot more touches. We might spend $3 million or $4 million and get 600 or 700 junior liens, which may require two asset managers. Whereas first liens, we did HUD-3 or whatever $25 million-ish and you’re deploying quite a bit of money and I’ll bet you, it’s not that many assets. That person could handle four times that. You might get about 100 assets or something for that. You can see how the difference is. One person could manage $100 million of first as opposed to junior liens where you can handle the smaller amount.

When you look at it, your first might be $300,000, $400,000 loans on your $500,000 properties and the seconds, they might be $50,000 to $100,000 lines or in that range. Your typical second is a 3rd to 5th, the size potentially from that. Also juniors typically in the past, correct me if I’m wrong, usually would sell at a greater discount depending on if there’s equity or not, then a first. It takes both those factors into consideration. From a bulk size, as you mentioned with the same amount of money, you’ll have a much larger pool of seconds and first, which does take more asset managers to manage that.

The risks are different as well. The junior liens are more statistical unless you’re in high equity junior liens or something, but the first mortgages are geographical sticks and bricks. They’re sold differently. You’re always looking at fair market value and things like that. Whereas, junior liens are a little different. You’re sold on UPB. There’s a totally different philosophy in a way. With junior liens, you’re typically exiting through the borrower. With a first mortgage, you’re exiting through the property in most cases. It’s a different dynamic in a way.

As I tell my attorney, “I don’t have the patience for a second,” and I feel being in the real estate and construction with first, all I care about is the property from that perspective. In seconds, I feel like you almost have to be a therapist sometimes and figure out what’s going on. What’s the borrower’s credit? What’s going to happen with them? Not philosophical, but it’s more brain twisting involved sometimes on a second.

It is statistical. You’re not going to get out of 100 quality junior liens. You might only have favorable outcomes out of like 40 or 42 or something out of 100. You don’t know which 42 they are until you start digging into them. It’s like that. Whereas, first mortgages, you’re trying to execute pretty much on every asset. Let’s say you never have any fallout and you will but it’s a little different. It depends on what first you’re doing. If you’re doing low dollar first, that’s another animal as well. Your back taxes are worth more than the property.

Raising capital is nothing harder than raising capital for notes because it is intangible. Click To Tweet

I’ve had one where to cut the grass was more than what the property was worth. Let’s leave it at that.

Did you sell that one to me, Chris?

We’re selling some of them now if you want any of them.

I almost sold it to your good friend that starts with an M. Jamie, you’re going to mention something?

Do you want to get a little more specific, Dave, as far as where you’re headed with the partnerships and things like that?

We have two funds, a liquidity fund and an income fund and they invest in different asset classes. We’re in the midst of developing a growth fund where they’ll a little longer term that’ll have some tax advantages. Our liquidity fund invests primarily in reperforming assets and in hard money originations. We partnered up with a foundation and foundation’s an AMIP affiliate as well. That’s a property portal to sell REOs and pre-REOs. They also do some hard money lending there and we participate in some of that and some of those originations and in purchasing some of those as well.

That’s what we do in our liquidity fund, which is shorter-term investment opportunities to high net worth folks. The reason we have liquidity is because they’re re-performing loans to cashflow that are liquid. You can sell them and those types of things. Typically, we’re making a spread between the coupon rate of that loan and what our cost of capital is. Our returns are lower, but it’s liquid for a passive investor. We have a six-month option and a one-year option. In our income fund, it’s long term. We pay higher yields to our investors. It’s usually a three-year time period and we also give them the opportunity to compound their investment if they want to.

That fund invests in NPMs, only non-performing loans. Our yields are higher than what we pay out there as well. The growth fund that we’re working on and to your point, JV-ing with folks like AMIP, they have more robust acquisitions, trade desk and more efficient on operations of working through assets. They’re a 50-plus person firm. Our expertise is more on the capital management side on raising the capital and all the SEC stuff. We’re good on that side, marketing and all that. We teamed up and then with the foundation model, we’ll be selling a lot of pre-REO and REO. The new thing there is selling pre-REO, which is not something that you saw a lot of. It’s a relatively newer idea where investors can pinpoint a property and purchase it before it’s even all the way through the foreclosure process and obtain financing to obtain it as well if they want it. They don’t have to.

That’s a unique opportunity to have like another REO platform. That’s a little similar to Auction.com, but maybe a little more robust because you could buy a pre-REO as well. We’re going to be connecting with some institutional partners to push more product through that type of platform, which will be interesting. It’s another channel for us because we weren’t in any origination space. This is a way for us to enter the origination space. What I like about it is it’s dealing with commercial notes. They are short-term, like hard money notes, but they also don’t have all the Dodd-Frank type compliance to it, not all the headache with it.

That’s one of the things I like about that space. For us, it’s another channel to deploy capital and bring in a couple of other revenue centers. The third piece is this growth fund idea, which is similar to transactional funding in the sense that we’re doing a lot in the multifamily space and some of the commercial real estate space. Mostly starting out with multifamily where we’re the capital partner. We’ll come in and provide all the capital if needed or most of it. We can also be takeout financing too if you’re a multifamily investor and you’re 3 or 4 years into the project.

We can come in and take out the investors that are there. There’s a lot of unique things we’re doing there. It’s a similar thing where we’re partnering with good operators and being the capital partner because it’s not that some of these folks can’t raise money. They can, but wouldn’t it be nice that they don’t have to worry about raising money, capital call and refinancing at all? How many multifamily deals could they do if they had unlimited capital? It’s that kind of a question.

You also look at some of the other institutional lenders, depending on where you get it from and some that may have insurance money backing. You can have relationships with them. I’ve seen this in the past and you can tell me if it’s different, but you may have a good relationship with them and get a deal going. The second time around, even though they’ve got the relationship, it’s still can be sometimes a little trickier. Sometimes they’re more risk-averse, so they may change their Debt Service Credit ratio when DCR is down. From that perspective, you might have you hold a little more in reserves, which may change up the game a little bit. If you’ve got somebody who’s more of a private equity-type firm and you’ve used them and so forth, they’re not as risk-averse, but still risk-averse to put the money out from that perspective. Would you agree with that?

Yes, absolutely. Most of what we look at are under $40 million, $50 million in an acquisition. We’re in that tweener space. Do you know how a lot of multi guys are fine on the lower level and then you have the real big level? We don’t want to compete in the real expensive stuff. We like that niche and we’re more interested in the operator than even the asset. I’m not saying we don’t look at the asset. We do. I’m not saying we don’t look at the market. We do, but it’s all about the operator, how good they are at managing, not just the property management piece, but the business plan piece, if it’s a value add, especially things like that. We don’t need a ton of these folks. We just need some of them.

We like people with long histories, long track records, know what they’re doing, have a good sourcing machine, and execute in our market. For us, it’s a great way to diversify. If we can get up to a dozen or so good operators, who get half a dozen good deals a year, it’s a great way for us to go in and deploy capital, recycle capital. Now, investors that will be coming into our funds instead of just investing in one syndication will have similar returns and upside, but they’re diversified in a pool of assets. That’s the value that we’ll bring in the long run. I don’t know how much that’s being done out there now. It’s a little unique.

Dave, you’ve got a ton of experience in all different parts of the real estate and mortgage note investing. I was wondering if you could speak to the little guy, maybe somebody on my level or Chris’s level. I don’t usually call Chris a little guy, but it’s all relative. Some may be a newer investor who has 10 to 50 first lien notes in their portfolio. If you were that person now given the current market conditions, what would you be looking to do? How would you be looking to position yourself if you know somebody that’s not quite in your shoes?

GDNI 128 | Success In Note Investing

Success In Note Investing: Back taxes are worth more than the property.


You’re going to see more products. That’s telling me you’re going to need more capital. It’s like your money list. You have a buyers list. It’s building the money list. Also, think about what can you leverage? I’ve had a couple of business coaches and some of them were high-end and the main questions they were always asking me is, “What can you leverage in the next 6 or 12 months it’s going to catapult you personally or business-wise, and what is that thing?” When you repeatedly ask yourself that over time, the answers change, but it does get you thinking what are you missing? What could you leverage and focus on what you’re really good at?

For me, it took me 50 by the time I figured out what I was good at and not focus on, I’m not good and try to leverage that missing link. For some of us, it’s going to be different things, capital, JV partner, education, a source and technology. It’s going to be different things for different folks. It’s figuring that out and knowing what you can do to leverage that. What I’m trying to leverage this year is dramatically different than what I was trying to leverage last year or the year before. It shifts. It’s back to those three pillars of any business, it’s capital, sources of product and then scalability type stuff. How many notes could you handle the notes for free? Can you handle 100, 10,000, 50,000?

At some point, you’re shutting down. It might be 50. You’re at different stages. I’m not knocking that I’ve been at every stage. Kudos to you and that’s a great question that you ask in the sense that you have to ask yourself, “Am I trying to be an investor that’s happy with passive cashflow?” I have a good friend that started out when I did, and that’s what he does. He’s happy with his nice little mini pool of notes, I’ll call it. It’s not even that small or anything. He lives good. He’s got a beach life. I can’t knock him. He has a much more mellow life than I do or do you want to build a saleable business? They’re totally different goals. There was nothing wrong with either one of them. It’s what do you want and what fits you? You might have 50 notes and your goals to get to 100 notes. This will tell you the story.

I remember when I was a young man. When I was a contractor and as a realtor, part-time my goal was to buy one house a year. I was going to do that for twenty years. I was going to pay them all off, have twenty free and clear I was going to live happily ever after, and then I was going to sell a note a year and live off that property. Maybe even hold the paper on it and I was just going to chill. That one window, then it became, I want 100 houses and then I want a 100 free and clear. I got to 40 and I’m like, “No, I don’t want 100 houses. It’s too much aggravation. I want 100 notes.” It led from there and then it shifts. What’s right for you, might not be what’s right for me or for Chris.

Clearly, you know how to raise money.

Yes. That’s the secret sauce for me.

How did you do it? If somebody who was sitting across the table from you and said, “Dave, how should I raise my first $1 million or $5 million? What are two things that I should do or two things I should walk away from this call or this conversation on?” What would those be?

Nothing’s harder than raising capital for notes because it’s an intangible. It’s not like, “Here’s the blueprint to the building I’m raising money for. Here’s the house. Here’s the rehab.” You can see, touch, drive-by and all that. With notes, it’s a little harder. You have to present that model. You have to present some case studies, you have to be credible and you have to be authentic. You can’t be hokey. You want to be trustworthy. Your reputation precedes you. If you have a bad reputation, you’re going to have a tough time raising money.

Let’s assume you have all that good stuff. You have a good story and you have a good model and it makes sense. Now it’s, “How do I get in front of more people being it’s just a numbers game?” As with any sales type of thing, you’re selling subscriptions. How do I get in front of the right people and more of them? In the beginning, I always thought it was, “I need to know more people and go to more networking meetings.” That works to a point and I then tapped into other people’s networks as well. You are doing it here with this medium, the show. For me, it was writing for BiggerPockets changed that. What flipped that switch was it became less about who I knew and who knew me.

That’s when you start to get into a groove where now, it’s a lot of different game, especially when that happens. It’s a positive thing. It’s a good thing, but it also took some commitment. I wrote articles for about five years like you’re doing a show for however many episodes. It is a big commitment to grow an audience and have a good message that people want to tune into or read. Hopefully, good results come from that. That was part of it. There’s some other stuff you can do too. I used to do stuff with charities. A lot of people don’t think about those angles where, “There’s a lot of high net worth that is involved in charity so get out there and help out in the community.”

Your MidAtlantic Summit, isn’t that type of charity?

It was a charitable based thing. We used to donate it all to the homeless and project homes. Try to think of something bigger than you. If you’re doing something that’s bigger than you and you’re trying to raise the money, it’s easier to raise money for a charity than Chris’ crazy note deal. It’s much easier to raise money for battered women than to give Chris money for who knows what he’s raising money for.

How much do you think you’ve raised off of BiggerPockets? I’ve got a good portfolio percentage-wise, but I’m curious what’s it saying to yours?

It’s a tough question to answer because it’s hard for me to look at it quite that way. I look at it differently and I’ll tell you why. I sold insurance, I sold real estate, you’re selling subscriptions to a fund, whatever you’re selling and you know how it takes maybe 7 to 10 touches to get a client to come into the fold. One of the things about BiggerPockets or a podcast or a speaking event is that it’ll act as a touch. The beauty of BiggerPockets is you can touch a lot of people quickly and in volume. I’ve done the touring around the countries, speaking at REIA meetings or hotels and all that good stuff.

I’m not knocking that and there are some efficient ways to do that as well. With a podcast like BiggerPockets, you’re going to hit a lot of people. That’s a lot of hotel trips, but you can also maximize some of the stuff you’re doing. Me and my younger son work for PPR and we used to come up with some crazy stuff because he’s a younger guy and here’s an example. If I was flying to Dallas to do an event, when I’m at the hotel, I would do a meetup on note investing.

It is a big commitment to grow an audience and have a good message that people want to tune into or read. Click To Tweet

I would bring a pocket full of zip drives. I’d have a happy hour. I buy some hors d’oeuvres and from 4:00 to 7:00 or 5:00 to 8:00, I’d have a happy hour in the lobby of the hotel I’m going to talk about note investing. I send out a meetup in Dallas. I don’t even have people’s emails. The next thing you know, I got 40, 50 people in the lobby of the bar and I’m handing out zip drives about note investing. That wasn’t even what I was going to. That was just, “I got to hang out the night before the event, anyway.” I’m also getting more mileage out of that event. If you do that in New York City, you’ll have 50, 60 people in that. You’ve never met them. You don’t even have their emails. You don’t even need them. You’re just connecting through meetup. Junior was good at that stuff. I’m old school, “What’s meetup? How’s that work again?” I know, just go to this hotel by some bigger hors d’oeuvres and hand out that drive.

You were able to get on the Zoom call better than I was. That’s true.

Sometimes simple just commonsensical things like that, where if you’re traveling to, I don’t know how many cities a year, now you maximize more.

Nobody’s traveling now, so get Zoom.

I love the podcast and as I get older or don’t have to do it as much, my strategy shifts a little on more of a stay in touch but be out of reach kind of guy these days.

One point I want people to understand too, is in BiggerPockets, it’s so real estate-focused. That’s the benefit of it, that you can reach many people, but again, it was the consistency commitment that you made to constantly write those articles to get your name on BiggerPockets. People then think, “Note investing, Dave Van Horn.” Now, I think of real estate agents, it’s Russell Brazil, who’s up the street from me because I’m here a lot. Him and James Wise out in Cleveland. When you get branded and make that commitment and get that brand, it’s powerful to propel your business from that perspective.

A lot of great stuff happened with BiggerPockets. My son was an English major and a scriptwriter. He always lived in LA New York and we would write these articles and he would add it on. I’m not much of a writer. I’m more of a talker and he’d be like, “Dad, didn’t you have English in school?” We would write articles together and we wrote for a few months and nothing happened. Picture writing and you’re like, “Is anybody reading any of this stuff?” That’s a commitment. I’ve met a lot of great people. I’m friends with J Scott, Darren Sager, and David Greene.

I would have never met all these folks over the years if that didn’t happen and get to speak in New York at Darren’s group. There were a lot of people there who will fly in. That’s how I met Ryan Murdock. It goes on and on. You wouldn’t have met those great people along the way. It’s a powerful network. I’ve talked to Josh on many occasions and I don’t even know that he thought it would end up where it is. It’s one of those things, but talk about committed. Nobody was more committed than Josh.

To piggyback on that really quickly, preparing for the show or I also will write some blog posts fairly regularly. It helps me to look at my business and my goals and figure out where I’m headed. Even if nobody reads it, it seems like it’s beneficial to collect my own thoughts and get my research things on my own. It helps me stick with it and then hopefully, grow the business from there.

The approach would be to write or to go into the forums or something like that. For me, the articles happened and they asked me to be on the podcast and I was early on and that led to a book. One thing led to another. This 2020, we were supposed to be the head sponsor for the New Orleans event and then it got kyboshed. It’s funny how things have evolved and we advertise on these days. We are running a lot of ads. It’s come full circle. Now, I’m paying them. It’s all good though.

You mentioned you’ve got a personal portfolio as well, besides PPR. Do you have a different approach from one to the other?

Yes, dramatically different. Mine’s simple. As I was saying, I only invest in three areas. I have short-term, mid-term and long-term investments. I always have stuff that’s a tax advantage, that isn’t tax advantage. I also try to earmark the capital to the investment a lot of times based on what is my cost of capital. I try to line things up better than some people might. As far as note investing on a personal level, I only invest in performers. I’m in some note funds, but then I do some other stuff. I do some commercial notes and some merchant cash, which are commercial notes on receivables. I do some ATM investing and do some other things. Real estate, I’m in commercial syndications in apartments. I have some stuffs that are risky and some stuffs that are less risky. I have a mix that way, but I don’t deviate too far. I diversify within those channels.

Chris and I had the Wealth Without Wall Street guys on and that’s a whole different rabbit hole of infinite banking and all that. I think you’ve mentioned that you have used whole life insurance or some borrowed against a life insurance policy. I was curious if you could quickly touch on that.

It can be a touchy subject because life insurance sales are controversial. There is a lot of different types of policies and that’s part of the confusion. Let’s put it this way. The wealthy use insurance completely different than the middle class or lower class folks do. They’re typically use an insurance to replace income, whereas the wealthy are using it in a banking concept, to build, preserve or pass on wealth. It’s a different strategy and different types of policies. I do use the personal banking concept than I do the business banking concept too with key man policies. There are some good strategies.

Once you max out your qualified plans, then where else can you put money that’s a good bucket? If you’re a family office and you’re managing $200 million, your self-directed IRA investment is not helping move the needle on the tax savings. You’re in a different realm. You’ve got to start to utilize other vehicles. That’s one of those areas that you can utilize to build a lot of wealth. A builder had taught me that when I was nineteen. He was borrowing money out of policies to build a house. He’d make $100,000 on the house and he paid the policy back. You can do that with notes.

GDNI 128 | Success In Note Investing

Success In Note Investing: To start effective relationships, you must have a good story and a good model that makes sense.


There are certain policies that allow you to build up cash value quickly. Some of them like the typical ones they sell you have a lot of death benefits, but the cash value doesn’t kick in until twenty years from now. There are other ones that kicks in in 12 and 15 months. That’s night and day. If I can access that capital, even if I’m borrowing my own money at 4% and 5% and I can go out and make it 12% or 15% on my note. The next thing you know, your note is paying for your policy or help lowering the cost of that policy. It’s a different animal. It’s what can you do with that investment. That’s what I do. I use the arbitrage of my policies. The other thing is your policy will continue to grow.

You’ll get a dividend on that policy. The money is still there, even though you’ve borrowed it out. A lot of people don’t know that or look at that and then it passes favorably to heirs. I can own a lot more real estate that’s leveraged if I have insurance in place. If I have $5 million in insurance coverage and I have $3 million worth of real estate, does it matter what I pay it off? That’s irrelevant. It could be paid off anytime. Up until recently, you’ll get a stepped-up basis. I don’t know what’s going to happen going forward. That gives you a certain level of freedom and peace of mind that a lot of people discount.

I’ve started doing it myself as well and I don’t know why it has to be controversial. You don’t have to sell out and go buy your groceries with infinite banking necessarily, but why not use it as one more tool?

It’s just a tool and it’s used properly. Unfortunately, the salespeople in the system are what makes its contentious. Salesmen are right there with a car salesman. That’s the issue.

One thing I want to jump back briefly and with the scale of your company, you mentioned, you’ve got the different types of funds, liquidity, your growth and opportunity funds and so forth. You keep them as 506(c)s because it’s simplified and stuff, but also you give a preferred return to your investors. It seems like you do keep things simple, just down to the basics of blocking and tackling and try not to overthink how you do something and keep things simplified from that perspective. I’m the same way. I try and keep things as simple stupid as possible is what I like to say. I’m curious, is that something as a company, you try and not over-complicate things, especially at the size you’re at? Would you disagree with me and say, “No, it’s much more?” I know being a company that size is complex in managing the system and stuff.

We’re too complicated. We’re always trying to simplify. We have struggles and issues like anybody else. I wish we were problem-free all the time, but that’s half the fun.

What I was trying to refer to is I know some newer investors as they start a fund, they try and put out there like, “Different returns for different people at this point in time.” They will try and waterfall it and give excess distributions. Try and keep it open-ended with excess distributions, which would be a complete accounting nightmare.

They complicate the options and we did that early on. We made every mistake you can make. We had too many choices, too many options and it keeps you on the phone explaining it all. The fear was, “You won’t get any investors if you didn’t have a lot of options.” It’s two options. Do you want chocolate or vanilla? We don’t have 42 different options. That never worked well for us. We learned that early on like we learned that people prefer monthly payments over quarterly payments or whatever that is. If you try different things, you’ll realize, “This works way better than this.” We also had the wrong terms, like the length of time where, “It was great for the investor. It just didn’t work for us as a company.” We settled into what timeframes worked for what asset classes and what rates worked.

What do you think, what timeframe works for note fund?

We liked the three-year thing, unless it’s a performing note fund where it’s got a lot of liquidity. One of the advantages for us is we can do shorter terms and have lower rates. Sometimes it’s about what’s your blended cost of capital too. Once you can bring in some leverage, even if my rates real high, what’s my blended rate once I get some institutional money?

I realized with one of mine that if I would have done five years and with the preferred, I’m like, “It would be much longer to get my money back.” I did three years because I looked at and a typical note 12 to 18 months so I want to try and get two turns on it with on the non-performing.

That’s the whole goal. You get as many turns as you can in that timeframe. Another thing that works well for us is compounding where you have a good number of people that compounds. It helps with cashflow early on or different things like that. There are strategies you can employ that helps you regulate the capital. Try to know what you’re investing in, but you can do.

Dave, I was invested in one of your funds. I don’t know if you know that.

Is it good or bad?

It’s all good. It was like clockwork just on the first every month. I have nothing bad to say whatsoever.

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It’s ACA’s first business day.

Jamie, he pays much better than I paid you on our JV deal?

Yeah, because he paid me. I’m kidding.

Jamie and I laugh. We had a JV deal in Maryland that this borrower was painful. It took a long time. He was a non-performer that was brutal. We made out at the end or Jamie did.

We have all kind of war stories but that’s the beauty of our investors. They don’t have to worry about that. We do all that worrying and it makes it passive. It’s the same way with notes. For years and years, we had a note warranty. That peace of mind enabled us to sell more notes than some folks are.

Tell me a little bit about the note warranty.

It was really simple. It was an investment principal minus payments received. It’s designed so that you wouldn’t lose your principal and it was a buyback option for us to buy it back. We don’t have to buy it back. There are cases where we would give you an attorney referral if you wanted one. Sometimes it makes more sense for the person to exit through the property maybe but people like the peace of mind that, “In a worst-case scenario, they’ll buy this back.” If their warranty was passed, they’ve already collected more than they invested, then we would give them a price to still buy that the non-performing asset off them.

If somebody has a portfolio and they have twenty loans in it and one hiccups on them, it’s not the end of the world. They’re looking at, “What am I making in my whole portfolio,” usually. It’s a peace of mind thing for them. Sometimes we do get a little bit of a premium for the note because you have the warranty, but you can go out and buy one without the warranty. The next thing you know you’re in the NPN business and there are a lot more requirements. It’s one of those things.

I don’t think people realize how much work is involved with NPNs and people here at note investing, performing notes can be passive because you get to collect the mortgage payment every month. NPNs are not a passive business. 

My note tip of the day is to specialize or minimize your risk. Try to share or shift risk to anywhere, operating partners or wherever. Especially in the note business, it’s heavily regulated now. Look what we’ve done. We were a company that took all the risk and now we don’t take as much risk in every area.

You hit upon our next topic I want to touch base on before we wrap up this episode. You mentioned risk and regulations coming down the pike. Where do you see the note space coming up in the next few months because notes are always delayed? You’re heavily involved during the last downturn. I think this one is going to be different. We know there’s more non-performing notes, along with being non-performing at this point in time. Do they make it to the market? Have banks gotten smarter? Pull out your crystal ball and see.

Short-term, you know what’s going on. We just got through an election. I was in an upmarket before ’07, ’08, ’09 then there was a crash and then there’s a lag to this distress. It was crazy for a while. I’ve paid $0.12 for a first mortgage before.

I think that will ever happen again though because people do think that will happen.

I hope not, not likely. Obviously, prices went back up. It’s funny, I was hearing people complaining about the prices of assets. When I started in a junior lien business, it was not unheard of us for us to pay $0.60 or $0.70 for a junior lien. They go, “How could it possibly,” and what they don’t understand is that if a property is worth $300,000, the first is $50,000, the second is $50,000 and I bought it for $38,000. If bought it for $0.60, $0.70, I was still going to make money. It was just a matter of when and in an upmarket, it’s usually quicker. It was a time for money equation usually. It wasn’t that crazy.

You saw first trading in the ’80s and your people are like, “How can that be?” What’s the ARV on that thing? Your biggest risk was that they were going to pay for it. When you factor in, if you bought a pool first and you got a lot of vacancies and that ARV might buy $1 million mortgage for $800,000, but if it’s worth $1.4 million with $150,000 put into it, that’s a bet. I’m making stuff up, but you got to put it in perspective. They look, “What’s the cost on the dollar?” They’re not looking at what’s going on. We have a lot of the eviction moratoriums but eventually, that’s going to lift.

GDNI 128 | Success In Note Investing

Success In Note Investing: Get as many turns as you can in a three-year timeframe.


You’re going to see a definite second half of the year in 2021. It depends on how robust it is will be how much stimulus they give us now. The stimulus is late, to be honest with you. Every day that goes by that they don’t put stimulus and it’s hurting us as an economy and as a country. All that nonsense they’re going through now of not getting stimulus out. You can see that these retail sectors getting pummeled, the office space is going to get hammered and will that trickle down into the single-family space eventually? Maybe.

The single-family space has been doing well. That has a lot to do with the shortage of assets for people to buy. There’s a shortage of housing. If you think about new construction, it is still not back to where it was before the last crash in volume. It has cheap capital. That’s a big thing. You have a lot of household formation going on. All that what’s driving a lot of this. You’re seeing the single-family space, it’s still a seller’s market for sure. Will that start to shift towards the end of 2021? Yes, it could, especially as more distressed assets start to hit. As all these foreclosures hit the market, the courthouses are going to be jammed when they open back up. That’s for sure.

I’m getting dates already for some that have in the pipeline for March and April. I had another investor text me that said they’re supposed to have it. It has been postponed twice and now it’s not until July. I was like, “No.”

At some point, the music will stop and will everybody be back to work or will they be working as much or at the same level that they were working? We know that answer. I don’t know this, but what will the permanent change of behavior be after some of this is over? Are people still going to be nervous? I look at myself, I used to fly around a lot. Am I going to fly around quite as much? Probably not. Am I going to do as much different things that I used to do or am I going to be more in my new mode? Am I going to go to the office every day or am I going to want to sit around in my smoking jacket? You’ve gotten used to some of what’s going on now and you’re not going to want to go back to the way things were.

They talk about normal, but you’re going to be doing things different. Do I need as much office space? No. Do I need every employee in the office five days a week? No. We already know that. It’s going to be different. There’s going to be an overabundance of office space for sure. It’s going to be interesting to see what happens with that. You have a new administration and all. You’re going to see some of the tax changes that are proposed. You know where that’s going. You’ve been there before. You know what that’s going to be. Now, how much of that we’ll go through? A lot will depend on what’s going on in Georgia and how much debate there’s going to be?

You can see what the plans are, but will they all get implemented? That’s a whole another story. I don’t know that you can lose sleep over most of that. You know what that’s going to do. Even if it went 100% of the way, people are going to figure out the next workaround for whatever. Does it mean people aren’t going to invest in real estate? I don’t know. If your capital gains are ordinary income, does that mean you’re going to stop owning multifamily apartments that are real passive and have a tax break? I don’t know. Everybody’s going to head for the elevator and we’ll change again. It’s hard to say some of that stuff, but it looks like the top 1% to 1.5% will be hit with some taxes. No one’s ever excited about tax increases, but it’s expected in a way.

You’ve been successfully investing in many different market conditions over decades.

When John Kennedy was in office, the tax rate was 90%. Nobody talks about that. When I started investing in real estate, interest rates were at 14%. I remember the owner-occupied house, I paid 11.6% and I lived in it. I was happy to get that mortgage and I made money on that house.

I remember the first house I bought was in 2001 and I was supposed to close the day after 9/11 and it got postponed. At that point in time, interest rates were 6%. My parents back in the ’70s and ’80s, when they bought their house in the ’70s, it was 6%. That’s unbelievable. Lock that in and get a fixed rate because you’ll never get lower than that.

This is free money now. That’s what I tell people. People are like, “It went to 3.75%.” I’m like, “You’re kidding. Stop.” It’s normal. SFRs are going to be okay. They might cool off a little bit, or level off a little bit. If you have a big uptick if more products will the fed step in and try to play around with the inflation. Eventually, some of the rates start to rise a little bit and that could put a cooling off on the SFR space, but I don’t see anything crazy like a big decline that I’m expecting or anything.

I don’t know how the government can raise rates too much because of all the money they borrowed. They borrowed so much money that they’re the ones who will have to pay.

I’m talking about if things got crazy or would they start to step in and try to do some more. If you think about it, 80% of the increase in taxes is going to impact that top 1% to 1.5% more than everybody else. What they want to spend the money on it looks like is mostly education, healthcare, R&D and infrastructure. The increase in tax in the beginning could be a little bit painful for people, but what it’ll do is it’ll force people to go out and make more money. In the long run, it could be beneficial. We’ll get GDP up. Most of the economists are thinking it will.

Its short-term pain for a longer-term gain type scenario is what a lot of economists are thinking. We’ll see. Nobody knows. I’m more of tell me the rules and I’ll play the game kind of guy. I’m not a guy trying to figure out the game in advance. I’m usually whatever you did come up with, I’ll find some workaround or I’ll shift gears into something else. As I was telling you with my money, I’ll take qualified plan money, and I’ll put that into something that gets taxed because then the taxes don’t impact me. If I have after-tax dollars, I might put that into multifamily syndication because I get all kinds of depreciation.

Right now, I’m getting bonus depreciation, but that could go away. I’m marrying that type of capital it’s going into what investment and then shifting gears. You’re going to see tax breaks for things like solar and energy-efficient stuff. I have a buddy that has an energy fund. You might get a ton of tax breaks over there all of a sudden and the oil industry subsidies will go away, “I’m going to put my money in this in solar and wind now.” I’m not going to lose sleep over that.

That’s a great comment you made about don’t worry about what you get in tax. Worry about how you’re going to go earn it back and make more off of it. I’ve followed that same philosophy of, “Tell me what the rules are and I’ll master the game.”

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We need some taxes. Paying the golden goose that lays the egg for all of us live in a great place and that’s had a great business. It’s a necessary thing. I’m not always thrilled with it or spend on it. Don’t take it the wrong way or how they’re doing it but I’ll play along.

I had two quick questions. My first was, why did you sell the title company if you’re in the note space?

Most of my title business was coming from my real estate group. Right after the crash, the real estate group went nowhere because as a realtor, all I sold was a real estate investment property. Jamie might buy five houses from me this year and you might buy seven houses from me this year. I dealt with a few select folks who bought a lot of houses and when all the financing went away, the title went away. I’m still great friends with my former partner. I still send her business. I have this closing come out at her office, but I told her, “This isn’t fair anymore. I’m not contributing enough folks and enough of this, so let’s wind it down.” We were in it a few years.

My last question was, when you were getting started and stuff, who’s your role model?

For which business? I’ve been in 42 businesses.

For the note space.

Believe it or not, one of the first speakers I saw was Jimmy Napier and then Donna Bauer. I was just talking to Donna Bauer. I did a bootcamp thing with her, which is bizarre, but we were friends from long ago. I had no idea what a note was. I thought it was a musical symbol or I thought a loan meant to be all by myself. She got me into the game initially by explaining it. I’m like, “What’s this note thing?” It was a way to become more efficient with my real estate investing.

What I realized is if I utilize leverage better and became more efficient with what I was doing, I didn’t need to own as many properties. What I liked about notes was it was scalable. I could buy at a discount with a high yield and with collateral. Years ago, I used to play around trading options. This beat that for me because I liked the collateral component. In the non-performing note business, it’s hard to look up to anybody because it’s such sketchy business. You could count on one hand how many ethical operators there are.

You can count on more than two, how many unethical ones there.

I have a good friend, Jack Krupey, from PRP. Jack does some consulting work with us and I’ve always looked up to Jack and what he was able to build at PRP. I do look up to Ron McMahan when he’s built at AMIP in just a short period of time. He’s a savvy guy. There are some of the folks I do look up to. Mike Darrio, who’s over there at their Trade Desk. He was at Condor Capital previous to that. Some of those folks that I do look up to know their craft. There’s plenty of sketchy folks out there. I hate to say that, but it is the truth. Know your note seller.

I was on a call one day with a company that provides some services and we were talking and he was like, “Who you’d been buying from and stuff?” I mentioned the name and stuff and he was laughing. He looks at the last text on his phone. It was from that individual. He knew him well. It just goes to show to know who your sellers, but also this is a small business when it comes down to it. Everybody knows everybody in that perspective.

They do. It is a small neighborhood. Much more than regular real estate.

Jamie, any final thoughts?

Dave, I want to thank you for coming on. This has been a blast and I appreciate your time.

It’s my pleasure. Hopefully, you get something out of this.

GDNI 128 | Success In Note Investing

Success In Note Investing: Specialize or minimize your risk. Try to share or shift risk to anywhere you can, particularly operating partners.


There are tons of nuggets buried in there, for sure.

One last thing, Dave, if people want to learn more information about your funds and what you’ve got going on, where do they find the info on PPR?

PPRNoteCO.com. You can find out more about our latest offerings. I’m always on BiggerPockets and we do have a LinkedIn group called Distressed Mortgages Group. We answer questions almost every day, especially on BiggerPockets, we answer a lot of questions. Anybody has anything about notes we typically jump on and chime in.

You also have a Strategic Investor Alliance, is that right?

COVID put the squash on some of that. Yes, we did have a group for high net worth investors. To your point, that was something I did to add value to high net worth folks. That’s another idea that you could do if you’re trying to raise capital is to form a group that adds value to high net worth folks.

Thank you, Dave, for coming on this episode. Everyone out there reading, thank you as always for reading. Go out and do some good deeds.

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About Dave Van Horn

GDNI 128 | Success In Note InvestingPPR Note Co. (PPR) is a financial services firm that primarily assists private equity funds investing in distressed residential mortgages throughout the United States.

PPR provides top-tier business services in the areas of Asset Acquisitions & Analytics, Borrower Management, Document Management, and Client Relations.





Specialties: Planning and Business Development, Marketing and Fundraising, Note Education

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