• Skip to main content
  • Skip to secondary menu
  • Skip to primary sidebar
  • Skip to footer
NoteInvestor.com Logo with House next to words

Note Investor

How to buy, sell, broker or invest in private mortgage notes for cash flow!

Your #1 Source For
Note Investing Information!

  • Home
  • About
  • Articles
    • Notes 101
    • Note Brokers
    • Note Buyers
    • Real Deals
    • Seller’s Corner
    • Cash Flow Business
  • Learn
    • Sell Your Mortgage Note
    • Note Broker Training
    • How To Buy Notes
    • Note Buyers Directory
    • Creating Notes With Seller Financing
    • Note Investing 101 Series Videos
  • Bookstore
  • Contact

Finding Bad Cash Flow Notes

August 31, 2011 by Fred Rewey 2 Comments

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!

Filed Under: Note Brokers Tagged With: buy mortgage notes, finding cash flow notes, How to Find Cash Flow Notes, Note Brokers, note buyers

Reader Interactions

Comments

  1. Demetrius says

    September 17, 2011 at 8:05 am

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

    Reply
    • TracyZ says

      September 21, 2011 at 5:13 pm

      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!

      Tracy

      Reply

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Primary Sidebar

Learn Real Estate Notes

Click the reports below to download your FREE copy of 5 Ways to Cash in on Notes AND a BONUS!

Search This Site

More to See

Investing Notes Risk

21 Tips To Read Before You Get Started Investing in Notes

Note Buyers Directory 2018 by NoteInvestor.com

Selling Mortgage Notes? Find the Right Note Buyer!

Learn Note Business

Learn the Note Business in 60 Seconds?

Cash Flow Notes Business Truth

5 Myths About the Cash Flow Notes Business

Most Read Note Buying Info

How To Buy Mortgage Notes
Creating Notes With Seller Financing
Note Broker Training
Get Direct With Note Buyers Directory
How Can I Find Cash Flow Notes?
Buying and Selling Notes For Residual Income
How Dodd Frank Mortgage Laws Apply to Seller Financing
How To Calculate Cash Flow Notes
Note Investing 101 Series Videos
Best of Notes 2021

Connect With Us

  • Facebook
  • Instagram
  • LinkedIn
  • Twitter
  • YouTube

Footer

Places to Visit

  • Creating Notes
  • How To Buy Notes
  • Note Broker Training
  • Note Buyers Directory
  • Sell Your Note
  • Bookstore

We Are Here to Help

Photo of Fred Rewey and Tracy Z of NoteInvestor.com
Fred Rewey & Tracy Z NoteInvestor.com

Receive the Note Investor Newsletter

COPYRIGHT © 2008-2021 NOTE INVESTOR | PRIVACY POLICY | CONTACT US
This website is for informational purposes. This is not an offer to sell or purchase any security. Nothing is intended as legal, financial or investment advice. Any historical data represents past performance and does not guarantee future results.