This year the note business is perking up again and once the note buying cycle commences … so does the bidding wars and mad dashes to get and close more transactions. Since the note industry can be a tricky one to assess, I talked to note buyers and note brokers across the country and asked them to give their assessments for this cycle’s note industry landscape. The overarching observation: this will be a competitive note-buying cycle — so if you snooze, you may lose out on that good looking note you’ve been eyeing.
The major pitfall of note buyers is lack of preparation. The note business appears slow due to a lack of inventory (appearances can be deceitful) and a low participation rate among first-time note brokers, but it’s still a competitive market. So to boost chances of success — and possibly snag that great note this year I have narrowed down some tips for you.
Tip #1: Close that laptop and market for your notes the old-fashioned way to get direct to the note holders themselves. These days, using note listing sites seems to be even worse than prior years. A lot of the notes found on these sites are listed by unprofessional note brokers who do not have an investor list of their own and may not even have control over the note to be listing them. In addition, a majority of the true seller financed notes that might be found online are notes that have been through the process already and cancelled by other note buyers OR the sellers are extremely unrealistic in their expectations. It leads to note professionals spinning their wheels and wasting their time. Kicking off your search online is a good move, but don’t believe everything you see, do your own investigating and due diligence. Note buyers should always be careful and wary. The internet can tell only part of the story — and it’s usually only the part the note holder wants you to hear.
Tip #2: Educate yourself on market values and trends. Note Buyers need to get up to speed quickly on real estate market values in the areas they buy notes in so they can make the right decision when it presents itself. The more thoroughly note buyers educate themselves, the more successful the note buying search will be. This, of course, is where it’s really all about location, location, location. Sites like City-Date.com and Loopnet.com are some great sites for note buyers to use that will show market trends, crime, demography and much more.
Tip #3: Build your note buying dream team before you make offers. In order to be a serious frontrunner in a bidding war, you’ll need to have all of your ducks in a row.
Not only will you need a savvy veteran note professional on your side to ask for advice and specific questions, but you might also want a note processor, servicer, appraisal source, title source, credit checking source and even a possible real estate attorney (that knows the note business) at the ready just in case so you can act fast. You can take it a step further to help make yourself more competitive, the most successful note buyers are going beyond the free initial quote and giving firm prices right out of the gate after they review the payors credit. Not all note buyers will be able to do this, but some do. For a seal-the-deal final touch, draft a template of the personal letter/email you will send to the note holders (sellers) explaining how much you love their note and why you want to buy it. Note sellers always respond positively to a personal letter/email, and if note buyers are competing, it might be the deciding factor.
Tip #4: Keep sweeten-the-deal moves in mind. You’ve finally found that perfect note — but you’re stuck in a bidding war with another equally prepared note buyer. How do you win by a nose? For one, see if there are contingency clauses you’re willing to forego in your note buying contract. Contingencies are terms of a contract that must be met or the note buyer or note holder can walk away from the deal; credit, appraisal and title contingencies are among the most common. To be sure, all of these have various levels of risk that not all note buyers are willing to accept, and you should consult with your team before removing any of them if you are unsure. After all, you want to protect your money in the long run. That said, doing due diligence can help you feel better about removing contingencies.
There are also smaller carrots you can offer, such as finding out when the note holder prefers to close and using that closing date in your contract. Or close as quickly as possible and offer for them to keep the next payment. All these kinds of little perks can add up to much more than you think; for instance, a note holder earlier this year who ultimately went with our lower bid because the offer had no credit verification contingencies. We see this very often, many note holders prefer less contingencies or a faster close to a few more dollars.
Ultimately, what all the advice boils down to is making sure you don’t get caught unprepared when that perfect note is finally up for grabs. The name of the game is to figure out what you want; get your process straightened out and when the right note comes along, be ready to pounce — and quickly. Remember success demands action, keep on marketing, it’s going to work! TWITA! (That’s What I’m Talkin’ About!)
Jeff Armstrong of Armstrong Capital, your favorite Master Buyer, has been in the cash flow industry since 1991. Specializing in the private mortgage note niche and seller financed notes he can be reached at 818-865-2322 or by email at info@armstrongcapital.com. For beginning to advance training opportunities, resources, to learn more or to obtain a quote visit armstrongcapital.com and secretsofpaper.com.