Finding Bad Cash Flow Notes

No one has ever asked us,

“How do I find BAD note deals?”

The funny part is, that as a note buyer, we see more bad deals than we do good ones.

But isn’t that just the nature of the business? Yes, but it doesn’t need to be so.

When beginners start in the note business they spend an inordinate amount of time on what we consider “bad” (or at least extremely “challenging”) deals.

These are mortgage and trust deeds that will most likely never be purchased. They include things like:

  • Very small second position notes behind large first mortgages
  • Promissory Notes created from a “loan” instead of an actual owner financing sale
  • Collateral with little resale value
  • Zero down, no seasoning, and bad credit (all on the same transaction), or
  • Future rights to an oil well in the middle of nowhere.

You know…that kind of stuff.

So why is this important?

It leads some people to give up on the note business…

They submit a handful of worksheets to funders, only to have them all rejected.

The newbie’s impression of the industry is that, “there just are not any buyable notes.” When in fact, there are plenty of marketable cash flows; they are just wasting time on the ones that are not investment worthy to the note buyer. And that is easy to do.

We were once asked,

How many deals submitted to a note buyer will be buyable?

The answer lies in how good you get at reviewing them yourself.

In the beginning, about 80% (or more) of the real estate contracts you submit to investors are probably not marketable for a variety of reasons.

This is the “cutting your teeth” part of the business – paying your dues if you will.

It is just as important to know why a note IS NOT buyable as when it is buyable.

After a couple dozen transactions, you begin to see a pattern. This is where you make a big leap in education…

Don’t waste time on trying to buy mortgage notes that are just too difficult or impossible to place with investors.

I have been known to stop midway through a quote request worksheet, set the pen down, and let the seller finish talking – knowing at that point I just don’t have a deal.

I am not going to waste my time taking a “long shot” when I would rather get a deal on the line with more potential. You are not paid for your time if the deal does not close.

So, how many of the contracts you submit now are rejected?

With effective screening, about 18% of the transactions submitted by note brokers will not be buyable.

You will also know that it may not be right for a particular funder, but that doesn’t mean it won’t fit with another investor.

Learn to screen out the bad deals, concentrate on the good, and you will be well on your way to better results in the cash flow business!

Searching for more information?  Be sure to read the article:

How To Find Cash Flow Notes

Including access to free videos on our 5 favorite marketing methods!


  1. What about notes directly from banks and lender sources. Are these marketable notes while they are seller finance ?

    • Hello Demetrius,

      Great question! The challenge with buying notes held by banks is the discount. In the past, banks have been reluctant to take a discount on the notes they originate. Of course no note seller likes the discount but this is especially true with a bank that actually loans or disburses cold hard cash. In the past we’ve focused most our energies on buying notes from individual note holders. Banks have been used to getting par or premium pricing through their established outlets on the secondary market… but that has started to change. There are banks that now have paper on their books that either 1) they can’t sell or 2) were created when they took back a property, resold, and then did their own form of seller financing. In these cases a bank might be more willing to accept a discount.

      Thanks for reading and commenting at Note Investor!


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