Top 5 Mistakes New Note Investors Make

September 23, 2020





Note investing is something that just doesn’t happen overnight. Unless you’re just one heck of a lucky person, you are bound to make mistakes, especially if you’re just starting. Today, Chris Severney discusses the five most common mistakes that new note investors, and even some experienced ones, make. Learning from best practices makes note investing easier to do with less stumbling. Listen in and learn how you can avoid these pitfalls in your own note investing endeavors.

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Top 5 Mistakes New Note Investors Make

In this episode, I want to talk about the top five mistakes I see new note investors are making. I came up with this topic because of some trials and tribulations. I had a lot of new investors reach out and ask a lot of questions that are starting to go down the paths that are not necessarily the wrong path, but going off the path that they should be following. Note investing is something that doesn’t happen overnight. It does take time. When you continue to grow, it can be lucrative. For me, as many of you know, we started out buying a few notes at a time and then I started buying 3 to 5 a month. We just acquired approximately 50 assets to our portfolio but we are continuing to grow.

Mistake #1: Winging It

With that, let’s get started with number one which is not having a plan. No matter what it is you’re looking to do, you always should have the end in mind. I always go back with my son, we sit there, we go for a jog, and he wants to race me. I always tell him, “Always focus on the finish line. Don’t worry where everyone else is around you. You can’t control their speed. You can’t control them. You can only control yourself and focus on your own task which is to get to that finish line as fast as possible.” No matter what it is you’re doing, that’s still the case.

With note investing, you need a plan. That plan should focus on the first long-term what your goals to the near term, which is starting out with what’s your sandbox. What I mean by sandbox is where are you going to play in this realm? Are you doing first? Are you doing second? Are you doing performing loans? Are you doing a nonperforming loan? Are there property values that you’re targeting? Are there certain states, judicial, nonjudicial, cities? That’s where you need to start is, “I’m going to target this area or these areas and I’m looking for X, Y and Z.” It’s important because if you’re chasing every shiny object, you’re never going to get anywhere. As you start out, you want to be focused so when you do talk to somebody that may have some assets to say, “I’m looking for a nonperforming first in and around Memphis, Tennessee. Do you know anybody or anyone that has something?”

It’s much easier for somebody to possibly provide something and somebody to say, “I’m a nonperforming note investor. I’ll buy firsts or seconds anywhere in the US at any price point.” When you’re starting out, it’s a little more difficult because sometimes it comes off a little too aggressive if that makes sense. The other plan or things mentioned is without a plan, most people wing it. A few things that drove me nuts personally when I got started is building my calculator. I spent 100 hours in a few weeks building this thing and testing it.

Education is critical to successful note investing. Don’t take it lightly. Click To Tweet

It was driving me nuts because I get tapes that come in the door and opportunities that come to me and I had to be disciplined to pass on them. Have you ever seen the movie Top Gun? It’s one of my favorite movies. It’s when Tom Cruise is, in the end, not leaving his wingman. He was disciplined. I’m saying, “When I’m on track, I got to stay focused and finish but I’m working on it.” It’s how it plays out. That’s something that you plan, focus on the tasks at hand, and building a calculator is important. Putting together some due diligence on how am I going to do due diligence?

What are my steps and processes? Most of this stuff is free. I give a lot of this content out for people but you need to organize it and put that into a plan. When you have a plan, you will be much more successful and you also have targets to hit. You will buy one note this year or you want to buy three notes this year. If you are buying three, how are you getting there? Are you buying three at a time? Are you buying a performer or non-performer? It allows for a lot more vision from that perspective. That is mistake number one that I see.

Mistake #2: Rushing Education

The second mistake is a lack of education or people rushing in. People may put a plan together but taking what I call a Weekend Warrior course doesn’t cut it. I’m being frank with you. There’s 50% of the content that’s in there and you’re not going to understand or realize what’s important or not important. You’re trying to digest as much as possible and also, by the time you take it and then go buy a note, so much time has passed, you’re going to forget 90% of what it is you learned. Education is very important. I’m not putting down any education or any educational programs in any way, shape, or form. What I’m getting at is education should be something that is a month-long process, not a weekend process. I’ve talked to most engineers who try and get into this business. Most of them will say they took 4 to 6 months. For me, I took some training but I did a lot on BiggerPockets and read on BiggerPockets. I tried to watch some videos and case studies.

Another valuable thing is talking to some attorneys or other people in the business. Hear their war stories and share their stories. That’s why we produce this show to share the stories because we made plenty of mistakes. We’re trying to give you the information to avoid those mistakes. Part of the challenge is understanding what we say, what’s the important side of things and what’s not. It can be challenging with that education component to make sure that you continue to educate and ask questions. You can find somebody who’s also another note investor and have a buddy or an individual who’s an accountability partner or may use to talk about. The show started with Gail and me calling each other up, running ideas off each other or talking about some of the craziness that we go through.

Mistake #3: Chasing Everything

It was to a point of, “We’ve got to start recording this stuff because this is a lot of stuff that you can’t make up from the crazy stories we had.” That’s where we’re at now. I’m sharing these stories with you. Education is important, but also I don’t recommend going to spend $20,000 on education on note investing. It can be done for thousands of dollars, not tens of thousands. I talked about no plan and no education. The third one and I touched upon this on the plan are people chasing everything. We already talked about building your sandbox. I want to go back to that and hit that hard because I see people who want to wholesale notes. I see people who want to buy seconds. I see people who want to buy first.

GDNI 117 | Note Investing Mistakes

Note Investing Mistakes: No matter what it is you’re looking to do, always have the end in mind.


I see people wanting to sell partials when they haven’t owned a note. You’re trying to run before you walk. When I talked to people like that, the questions I’ve asked are, “Who’s your servicer?” “I don’t have a servicer. I haven’t signed up for a servicer.” “Do you have an attorney in the States that you’re looking to do?” “No. I was going to find one online.” “Do you have a preservation company? Do you have a title company?” They look at me and they’re like, “No. I was going to wait. The problem is they’re running in circles, getting tapes or worst of all trying to build relationships with multiple asset managers. I’d call that free A is going to chase too many asset managers. If you start with your plan, let me know what you’re going to buy right off the bat.

I’ve been telling people I buy 90% of my notes from 2 or 3 sellers. I pulled 50 assets from two sellers that I buy a lot from. Roughly 40 from 1 and 10 from the other. They’re given to me in a sense of, “We have these. If you’re interested in them and you want them, they’re yours.” I gave a price. We went back and forth a little bit on the price and rock the deal. The 40 assets took a little bit longer. One asset took about two weeks. The other one took about three weeks to close the deal but I’m not out there actively chasing banks, credit unions and everyone else alike at this point in time because I’ve got plenty of deals coming in the doors from 2 or 3 people.

If they go away, I’d have to spend more time chasing other things or finding new partners in that perspective. I say this because a lot of people will focus too much time and effort in trying to chase many people. If your goal is to buy 1 note or 3 notes, figure out what it is you got going. Why do you need ten different sellers? You need one. If one of them sends you a tape of 30 assets, there’s three of them on there that you should be able to pick and choose and pull the trigger on. What happens is once you strike the deal with them, you buy and it’s a fluid process, they’re going to come back to you. There are a lot of people in this business who don’t close on deals. When people say there are thousands of note investors, I still truly believe in the hundreds of them. I’ll say Main Street mom and pop investors like myself or the people who pick out the hedge funds in $20 million, $50 million funds.

You’ve got people putting a few million bucks into this, it’s not as active as people think it is. In my mind, I see a lot of window shoppers. When I talk to sellers, they say the same thing. I remember when I was getting going, I bought 25 assets. One of the individuals said, “You’re one of the top five buyers.” I’m like, “I bought twenty assets from you.” Most people buy one a year or whatever it is, but they’re not buying in bulk 50 assets at a time. Once you start buying, you take 1, buy 3 then you start buying 4 or 5. The next thing, you’re buying 10 or 20. When that happens, you moved to that top of the list and that seller is going to know what it is you buy.

Experience is key in the note business. Click To Tweet

What they’re going to do is the next time they have something that comes up, they’re going to be like, “You like this kind of asset or this location or whatever it is. Are you interested in this?” You will start to see you’ll be able to buy at a significant discount. Back to item number three is sometimes people chase too much or chase everything. They’re trying to network too much. I have an email list of 10,000 names and what did I do? One day I decided 9,500 people on this list have never opened a reply to an email. Why are they here? Is it so I can brag about having a big list? Who cares? I’ve pared that down. Now, it’s about 700 people.

When I send out a newsletter or I send something out, my open rate is very high which does affect better deliverability plus the people who are receiving it appreciate the content and may do something with the content. I can focus on those individuals and get to know them better. If you have 10,000 people, there’s no way you’re going to remember them. If you’ve got 500, 600 people, for the most part, you can remember most of those people in some way, shape, or form or put notes in there and realize, “This person is in Michigan. They’re a realtor. They know this market. This person is in Florida. This person is in Indiana. This person is in Georgia.” It can become much more beneficial because you get to know them a little better and they get to know you and it goes back to you again. Building that network and starting that network small, you build up your business and gain the trust to get to know people.

Once you get to know people, they may get a deal and be like, “I don’t do this but Chris does that type of deal.” Networking and marketing work for itself in that perspective. The key to that is starting with that small network and learning to grow it. If you’re closing deals, focus on 1 or 2 sellers to start to close some deals. My first deal is Paperstac. There’s nothing wrong with buying a deal on Paperstac. I tell people you’re going to get close to the same pricing on Paperstac as you may from a seller as you’re getting going buying one-offs. For me, I buy on Paperstac still. I know I can get certain deals I can get there.

Certain deals or better deals, I might be able to get from somebody else but that’s because I have that history. When you’re starting out, you may not have that history so starting out on Paperstac is something that you pull the trigger. You pull the trigger on a deal on Paperstac and it’s an identical note from somebody else or somewhere else. You could have saved $500 or $1,000. You’re not going to save 50% but how many hours did you waste chasing to get that? It’s going to be a lot more hours than it was worth because you could have used those hours to manage that asset you already pulled the trigger on to further educate you on the note business because experience is key in this business. I say that enough to people that experience is the key.

Mistake #4: Going Cheap

Number four, this is the one that drives me the most nuts. What drives me crazy is people going cheap. I can name several examples of this which is trying to order a cheaper title report. Asking people, “What type of business do I set up?” When people ask me that, I say, “What type of woman should you marry? Should you marry the same type of woman like me?” They look at me like six heads. I said, “I have no clue what’s your finances are and what’s your situation is. I know nothing. You could have a trust fund giving you $1 million a year which is going to be a different type of entity structure than somebody who has no assets.” You could have a full-time job as well so maybe an escrow might be better than a note.

GDNI 117 | Note Investing Mistakes

Note Investing Mistakes: An email list with thousands of contacts is useless if 90% of them don’t even open the emails that you send.


The go-to is the LLC. I would say never buy notes in your own personal name. I’m not the person that should decide that or nobody on Facebook, BiggerPockets or anywhere else should. It should be your attorney and primarily your CPA. No matter what type of entity structure you have, there’s asset protection which is what the entity does then there are the tax consequences which an LLC does nothing for you on taxes. It ends up getting filed on you under your name at the end of the day but people tend to go cheap. They don’t want to spend $200 on a lawyer, $200 on a CPA, an extra $50 on a title report or an extra $50 having somebody go take a look at the property. Those are some of the examples that I see.

If you want to be a note investor, in buying a note you don’t need to sometimes do all this stuff. If you are buying one note or if you buy a nonperforming note or invest in a fund because you’re going to spend way too much time, effort, wasted costs, chasing things and they’re probably not going to end up buying then it’s worth a whole other topic, but please don’t go cheap. I hear it far too often. It’s interesting because people have hundreds of thousands of dollars and talk about, “I don’t have a CPA.” Get one because you’re going to need one.

If you have that much money, you should have a CPA especially if you’re investing. You shouldn’t be doing it on your own. Eventually, if you want to raise money, one of the major components to help people is to have somebody else to do your books. Have a third-party. If I was investing with somebody, I’d say, “Who does your books?” If they said they did their own books, I’m turned off because I’d rather have a third party do it because it’s independent and another audit that’s getting done from that perspective. I see people go cheap on as they start to grow their business are marketing and have a podcast.

The podcast probably runs me $7,500. That’s a lot of money but it provides a significant ROI to me. Having a decent website. Right now, my website sucks but to be frank, 90% of note investing websites suck. I’m in the process of redoing my website which is going to be a lot more informational, above the line and informative for people and that’s going to provide an ROI. The same thing on my logo. I had somebody on Fiverr do it for $5 to start to grow your business. Starting out is not as important but as you start to grow, people will look at every little thing you do. Is it professional? Is it something that shows that the person pays attention to detail?

If you want to be a note investor, don’t think about doing everything by yourself. Don’t go cheap! Click To Tweet

You don’t need to spend millions of dollars on marketing but putting in together a nice CRM even sometimes or having an email address that doesn’t have Gmail into it shows the professionalism of that company. Professionalism is important if you’re looking to raise money. People don’t realize it but people do look at that information as well as who you associate with. I’ve had people question me about some people that at one point in time was friends with on Facebook because those people have a checkered past. That’s awful. Facebook groups and other things.

Pay attention to that but back to the initial component, do not. It’s the same thing with JV agreements or any type of legal agreement, don’t pull it off the internet. If you get it from somebody, have an attorney review it. I know people who have taken my JV agreement, people I have JV-ed with. They went and used it. They didn’t modify some of the languages and they had what moments because I knew it structured my needs, my desires and not yours. When you’re on the other end, you want to make sure it fits your goals and what you’re trying to accomplish. It’s important to have somebody else take a look at because at the end of the day if something were to occur and have an attorney look at it to a point where we need to get them involved. They can say, “I’ve worked on this. I’ll happily defend you on some things.”

Mistake #5: Buying From Your Mentor

Number five and this one I have literally fun. I’m on phone calls from people I bought a note from them. How do you think it turned out? Do not buy a note from your mentor, flat out. I’ve said it 1,000 times but do not buy a note. Here’s the reason why. You are paying somebody to educate you, mentor you on maximizing your profits while minimizing risk on an investment. It means making sure it’s clean collateral and acquiring it for the lowest possible price. I had someone teaching me, “I want to do this.” I want them to teach me the risks and how to buy things for the cheapest price.

On the flip side, if somebody is selling a note, that’s your responsibility especially if you’re taking other people’s money. You have a fiduciary responsibility to maximize profits. How can somebody as a seller maximize profits on the same side and tell somebody how to buy it for the least amount? It’s a complete conflict. It is something I tell people all the time. If somebody asks me for some education. I help them out. The first thing I tell them is you are not buying a note from me because I want to sell it for the most amount of money and you should be buying for the least amount possible. There is no happy medium on that. It’s just a conflict of interest.

Notes And Bolts

The interesting thing is these assets, these four calls that I got, one of them was an asset that was weirdly overpaid. It has been vacant. There are a lot of taxes. Their mentor clearly didn’t help them in any of the due diligence components because I had driven by this property. I saw that it had been vacant for a long period of time. As a new investor, they’re not going to know. A lot of people are like, “Was it vacant for a week or vacant for five years?” There are ways to tell. First, I saw the pictures and I go, “There are lots of taxes.” There were a lot of issues and unfortunately, that person is going to lose five figures in this deal. That’s a big bite.

GDNI 117 | Note Investing Mistakes

Note Investing Mistakes: Never buy from your mentor. It will always be a conflict of interest.


Another one was this person bought a note and never got the hard collateral. He keeps getting told it is being sent but now the rumbling is it was lost. They want a refund on it. The person is like, “No because the loan sale agreement says you have 30 days to contest anything.” That’s a yes because they were supposed to provide this information and give them the 30-day notice. That’s like saying, “You have 30 days to review something but this person didn’t give you that information to review. The clock technically hasn’t started.” It’s another avenue of where is that conflict that they sold something that was junk and not to mention, they realized after the fact that the chain of assignments was out of order. The entities are no longer in business. It’s been a complete disaster for them.

Another was somebody who was doing a mentoring/investment group which they buy notes with people and teach them. It’s notes that this person was buying, they were marking them up and selling them back to these investors. They are showing them the ropes on the process. It’s almost what I gather from it and this is just my opinion. I can’t state this as a fact. It is almost as if the investor bought a pool of assets, they kept all the good ones and had five crappy ones in there. They were like, “1, 2, 3, 4, 5. Here you go. You are buying these five crappy ones.” I wouldn’t buy on this aspect, but buying from a mentor is a conflict of interest. I can’t reiterate that enough.

Those are my top five mistakes that I see note investors are making. I also see some experienced investors making some of these mistakes as well. I want to thank you for reading this episode. As always, please leave us a review on iTunes, Stitcher and Google Play. If you want some more video content, go over to our YouTube page at 7E Investments. If you want more interaction, make sure to join our Facebook group, Notes And Bolts From The Good Deeds Note Investing Podcast where we’ve got over almost 1,200 note investors actively participating. We have a lot of discussions, especially what’s going on with the markets with COVID, evictions, foreclosures and referrals. It’s a great place to go to. There is a lot more information on investing

Also, stay tuned. We’ve got some videos coming out that will be live going through a lot of things we talked about. We’re going to go through how to build a business plan. We’re going to talk about due diligence and how to put a calculator together. There is a lot of content that’s going to be coming out that we’re going to share with all of you. Be patient and we’ll be rolling that out shortly. Thank you for reading this blog and please go out and do some good deeds. Thank you.

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