Note Accessibility

There are many factors required of the note investor before they can actually invest in notes. Likely the most important would be note accessibility. Captain Obvious lives.


As we continue our discussion about notes, let’s talk about the accessibility the average investor has to them. Unless you’re buying notes “off the street” where you live or at least in the market where you live, it’s going to be fairly difficult. Now I’ve been buying notes and selling notes and trading notes since 1976 in San Diego. I know the market there clearly, I know what properties make sense, as far as security what doesn’t, and of course you can have a loan to value number that you like but it’s only based upon the quality of the data you uncover when you did that analysis. Now the access to notes is a key factor and most people simply don’t have access. They can talk to their local realtor but most realtors don’t do notes, they do houses because that’s how they make their living. Most investment real estate people don’t do notes either, because they’re either leasing commercial space, or they’re selling and exchanging income property and they generally don’t do notes. Now, there are note funds and there are places where you can get access to those notes that are not in funds but are in various websites on the internet. What you have to understand is due diligence on the internet is still the key, matter fact, it becomes more important because a mistake on the internet is far different than making a mistake in your local market. How are you going to handle this long distance? What are you going to rely on? Are you going to develop a team in each city that you find a note? That’s a pretty tall order. There are two classes of note buyers, as defined by the Securities and Exchange Commission, accredited investors and non-accredited investors. An accredited investor is, as far as I’m concerned, is a pure invention of the SCC, it merely means that that person is one or the other of the following two things: they’re either worth a million dollars, not counting their primary residence, or if they’re single their income is 200,000 or better, if they’re married the household income is 300,000 or better. If you qualify by income or net worth, you don’t need both, they deem you as an accredited investor. Now, if you are not accredited that means you’re limited, for the most part, in buying local notes secured by local real estate property that you find either through your professional, a real estate licensee or that you’re networking at local investment clubs or wherever you find them. You still have to do the due diligence. Most people aren’t’ comfortable doing that. I’ve done it that way because I’m second generation professional in the industry; I was mentored within an inch of my life by two note professionals, one of which died with 85,000 a month in note income. So, he knew what he was doing. Now access, a lot of times, comes from having a professional be the lead man or woman in a group investment scenario. One of the things that you have to understand is that when you do that, you are not going to be the individual owner of a note or notes. You won’t be called on to have expertise on those notes. You will simply be an investor. It’s like the old fashioned limited partnerships of the 1970s and 80s. You would simply put your money in, the professional who was running the limited partnership would then make the decision on purchasing the property, how it was done, how it was managed, when it was sold, how it was sold, etc. You got the tax benefits, if there were any, to the extent that you had money in it. Any profits that were distributed by the ratio of your investment compared to the entire group’s investment number. Now what we’re going to talk about next time is, is a note investment group for you. It’s not for everybody but we’re going to explain that next time out.

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