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All right, so welcome to the Note Investor podcast, or well, now rebranded to the Seller Finance and Creative Deals Podcast. I'm Dan Depen and today I want to talk about buying notes specifically and what I would do today to get up and going buying notes if I was doing it all from scratch. So I'm about coming up on nine years into this at this point, and I've bought a couple hundred notes. And it's funny because no matter how long I do this, I'm like continually learning new stuff about the business. And so, you know, if I had the opportunity to kind of zoom back and start from scratch, I want to talk about the approach that I would take with that. Sorry, I gotta turn my notifications off. So what I would do kind of step one is whatever you're doing, you got to get like some kind of reasonable note training. And you want to have access to somebody who can help you along the way. Whether that's, you know, a coach that you can email or call, or whether that's, You know, people within your network that you can call, you know, that's fine, but you want to have some decent training and be able to get help along the way. Now as far as training options, there's a lot of them out there. I'm not really going to get into specific training on this, if you follow me. You know, I offer Note Launchpad. There are other good, similar options as well. The one piece of advice I would give though is I would shy away. There are some like, very high ticket coaching programs for notes and I don't know that that's necessarily worthwhile because if you do the math on how much you would have to invest in notes to like pay yourself back for some of those and have it work, it's probably not worth it. Like, if you're going to invest that large an amount of money and you're that motivated, then you just need, you know, a little bit of help and you're going to figure out a lot of that stuff on your own over time. So the high ticket stuff is a little more, you know, for hand holding. But if you're investing that much, like, are you really going to do hand holding? So get some training, like get some idea of what the heck you're doing and have someone you can call when you need a hand. So kind of step two is we need to build some deal flow, right? And so you want to go around and sign up with the various note sellers, that's one thing. And then you also want to build out your own Network. Now, there are a lot of people out there that sell loans. You know, if you talk to geezers at note conferences, they'll tell you, oh, you know, there's. There's no deals these days. It's all different, you know, and. And the reality is the note market will evolve over time, and it's definitely different now than it was maybe 10 years ago in the wake of the financial crisis. But I'm here to tell you there are more notes out there to buy than ever. There's. If you listen to Fred and Tracy Riri, there's over a hundred thousand getting created a year. I've been doing a lot of work, like all the other writer stuff, tracking down all the people who are originating, sell their finance loans, and there are just thousands and thousands and thousands of them. So anyone who tries to tell you that notes are hard to find or the market stried up is either. Either doesn't know what they're doing or is completely full of crap. You know, if. If you want to get started real quick, seeing inventory of notes, paperstack.com which is an online marketplace for notes, you can also reach out to somebody like David Polio at snsc, who's a broker. If you sign up with him, get on his list. You know, you'll start to see lots and lots and lots of deals in your inbox every week. And there's obviously a lot more sources than that, but those are just like two you can use to get going. Now, a lot of my deals and a lot of my best deals kind of find me through my network. I. I've gotten some ones where friends who do similar things and notes to what I do. You know, I've had, like, an investor that wants to cash out, so they need to sell a couple loans, and then they call me and say, hey, Dan, do you want to buy these? So, like, a lot of my best deals, like, just sort of find new me. Now, obviously, that's not a switch you flip overnight, but you do that by hanging around the community, in the Facebook groups, going to events, getting to know people, and becoming known as a reliable counterparty. One of the. I'll call it like, one of the weird things about notes is even though it's a small world, there's just so much like bad and cruddy behavior. You know, if you make it known what you're looking for and then you gain a reputation for reliably closing on deals like provided nothing's materially wrong, then over time, a lot of these deals are going to find you. And then the next one is you want to be super specific about what you're trying, what your goals are. With notes and with students I've worked with, I have struggled mightily to get people to define specific goals. For most people it'll be easier to pull the teeth out of their freaking heads than get them to state like here's what I'm trying to do very specifically. So for me, I buy notes in two different entities. So I'll buy performing loans on my self directed IRA and then I'll buy my, well, both performing and non performing notes out of an LLC where I'm using outside investor capital. So one of these is for retirement growth, you know, the other is an operating business, right? So I have specific targets from my self directed IRA. Generally I'm just trying to grow the thing 10% plus per year steadily. No, that's not super sexy. However, if you compare a 10 stable rate of return with equity backed by real estate compared to the ups and downs of the stock market and some of the other options, I like it a lot for like a set it and forget it retirement account. And then in my business I have other plans for target portfolio side and you know, net interest margin on hypothecations and other things like that. What your goals are doesn't matter so much. But the reason why this is so important is that where you're trying to get to is going to define the types of loans you want to buy, how many you're going to buy, how much. Like everything else in your note buying plan flows from that. Because as you get into this and you start seeing more deals, you'll find that notes come in all shapes and sizes, in flavors. There's like super premium performing non performing first seconds, mobile homes, vacant land, commercial, like just all kinds of stuff. And where a lot of people go wrong is they just start looking at stuff. They have no road map, no plan, and they'll just spin in circles like over and over. So we, we can't build the rest of the note buying system if we don't know what the freaking destination is, right? It's like getting in your car and just driving around like hoping to find something cool, but not like even having a destination, let alone knowing how to get there. To me it's the most basic thing and it's, it's maddening that people just like are so averse to doing that. But once we get an idea what we're trying to accomplish, you want to go ahead and set up that Entity, right. So if you want to invest money in a retirement account and you don't have a self directed ira, you need to get a self directed IRA set up with a custodian. I use Inspire, a trust Equity Trust is very popular with notes. Ford's trust is good. There's a lot of different custodians out there and what you can do is set up your self directed IRA account and then when ready to go by notes in that typically most everybody has money in another, you know, retirement account that they can transfer over part of it to a self directed ira. That's another thing too. Sometimes people just like assume if you're going to roll over a retirement account, you get to move the whole thing. You don't, right. Like you can move 30k to buy a small performing loan and go with that. Or you know, if you're going to run this as a business, you're going to want to get an LLC set up and get your I and all that good stuff. Right. So before we can really go out and start buying stuff, get the entity set up first. Because sometimes there's a little bit of back and forth and it takes, can take a little bit of time. So then once we got our entity right, we've, we've reached out to sellers, we're seeing deals, we kind of know what we're trying to do, we know what we're looking forward to go. We want to start building our filters. Because what happens is you, you will see way more loans than you know, you, you could ever buy. And most of the loans, like if I think it's just what I see, like on a daily, weekly basis, you know, the vast majority of tapes I get are loans that I have zero interest in because they don't fit what I'm doing. So once you set up this big seller funnel, you're going to want to be the reason you need to have that goals in these filters mapped is so that you can very quickly determine like is this worth me even looking at or not? And then when you determine loans you're looking at, you know, we're going to filter those on things like the type of asset am I just buying first? Am I just sticking to single family, residential, other particular parts of the country I want to buy in. If I live in a state that has a lot of notes, am I just, you know, trying to keep things in my backyard where I can drive around and see them? Or maybe it's regional or maybe I just want to stick to non judicial izard work States, things like that. And then also the, the loan balances. Right. Like if I'm trying to Invest, you know, 100, 200K in retirement funds, I probably don't want to look at loans with like a 500k balance. Right. There's not going to be a lot that I can do with that. And then there's also the performance of the loan. So people kind of generically talk about loans as performing or non performing. In reality there's a million shades of gray. I would kind of divide it into loans that you can expect cash flow and once that you might not be able to. Right. So if you're buying in a retirement account, you don't want to be doing workouts and non performing loans out of a retirement account. That's a huge pain. You know, now you're just looking for performance. But even in the non performing realm there's different kinds, right? There's a big difference between buying a loan with maybe the borrower six months behind because they had a job loss or divorce or something and they're still occupying the property versus one where there hasn't been a payment in five years. The property is completely vacant, the utilities are off, there's a hobo living in the thing, that kind of stuff, right. So we want to build a really, we don't need to be too specific with the filters. And that's another thing too. Like when you start, you're probably going to be overly specific and that's not the worst thing in the world. Like as you get more experience, I will often do loans that are sort of outside the edges of what I traditionally do. I'll give you an example. This Oklahoma City land contract portfolio that I acquired very recently. I think I've talked about it a little bit on some other podcasts or at least I've mentioned it in other places. You know, these are loans that somebody originated themselves self service them know they have some rough edges. You know, a few years ago I would have just said, hey, I'm screening those out. I'm not going to deal with it now that I'm more experienced and you know, more capable of handling some of these things that can widen the aperture a little bit. But we want to know as tapes come in, what we're going to filter for and what we're going to filter out. And then so we get our tapes, we go through our filters, we, we find loans like, hey, this looks like it fits our model. We want to really quickly price. And so I'm not going to nerd out on pricing theory in this, but if it's a performing loan, it's fairly straightforward. You know, you'll use the time value of money calculations in a spreadsheet and you'll also want to factor in your costs. So when you buy a loan, there's going to be some upfront costs for like due diligence and recording and onboarding at a loan servicer and that kind of stuff. And then ongoing, there's typically a monthly servicing fee. So you just want to make sure you buy that, bake that in to your pricing. Basically the super high level method that I use is I'll look at a loan, I'll look at all its characteristics, I'll make a qualitative determination of its overall risk level and then I'll decide based on the risk level and how I'm funding this, what kind of return I would need to justify that level of risk and then back in to a price again. This, this podcast isn't about pricing theory and all that, but I think you'll find that once you start, once you've done this, a lot like you can do this really, really quickly. So the reason why it's so important to filter quick and price quick is because most deals don't go anywhere. You'll find a lot of people will list loans for sale and then you make an offer and then the buyer, the seller comes back with unrealistic pricing expectations or you get into due diligence and you find out there's some fatal title flaw or the seller is a scumbag and they sell it out from under you for somebody that offers five more dollars. So I mean, I've, I haven't run the numbers on this in a long, long time. But I mean, of the offers that I submit, I mean maybe 10 to 20% actually get accepted. And so that's another mistake a lot of people make is they'll spend like hours and hours like going over like, almost like preempting the deep due diligence and you know, figuring out pricing for a deal that just may not even be anything there or not. And then once you've got your, your process in place and the other thing I recommend doing too, right, so with this filtering pricing process, before you're even ready like to actually make offers, just practice like go download tapes from paper stack and just start running through them and penciling them out to get through that, right? And then once you're comfortable and kind of ready to do it for real, going to start submitting offers and you Know, do that until you get your first one accepted. Now when you're buying your first loan, number one, I recommend just buying a performing loan because it's going to be the most simple because you're going to learn a lot when you buy that first loan. Just going through the process of the transaction, getting the sale agreement in place, sending the funds, getting the loan onboarded, getting the assignments and the other stuff and all of that, you're going to learn a bunch. The only real difference between buying, performing and non performing is when we get to non performing. Now there's a bunch more moving parts we might be dealing with. Force, place, insurance, delinquent, taxes, starting legal, all that stuff. So I think think of like with a performing note you've got a subset of things to do that are non performing. So to start just, just start with the performing, keep it simple, get a handle on that and then you can expand into non performing. The other thing you want to do on your first loan is don't obsess over getting the perfect deal. This is another place where people get stuck all the time like they want it just to be a home run. And that's great. Like I understand that if you can pull that off, that's obviously better. As long as you're buying a decent quality note, it doesn't hurt my head if you overpay for it because you're going to learn so much in that first transaction, it's going to set you off to the races. The first loan that I ever bought, it was a performing loan, it was performing land contract and I paid I think 85 cents on the dollar for it. And this was in a market where those things were probably trading for 70 cents on the dollar. But I didn't know the market and I was new and I just looked at it and I priced it for I think like a 13 return and I was okay with that. And then after I bought the loan and got there on the track, I realized like I overpaid but, but a couple good things happened. One, I learned so much in that first transaction, it really set me off to the races. Like after I got that one under my belt, I bought I think about like 15 or 18 loans and in the next year after that and then I got locked in to, to the market pricing and I actually still own that loan and my self directed IRA and it still pays like nine years later. So you know, overpaying a little bit for a loan, if it, if it's like the lead domino that's going to get you going is not the worst thing in the world. So again, like, you learn so much. When you do the first transaction, don't obviously, be careful, don't make a mistake, don't buy a loan with a title fee, don't buy a lemon, but don't worry about optimizing every little thing. So if you're trying to optimize every little thing, you could get stuck. And then you miss those learnings and you miss getting on the ramp. Now, once you get an offer accepted, we have to go through the final due diligence. That's like the super serious part. And again, I've got other videos where I talk about due diligence, but this is where we're gonna review the loan documents, get an ONI report, which is basically a title report, get photos of the property, review the call notes from the loan servicer, review the pay history, do all the stuff, make sure everything's in order. And then we're going to get set up with our loan servicer. And then after we close, we're going to get it boarded with that. But, you know, usually once you get an offer accepted, now you want to start getting that account with a loan servicer set up, and then, you know, get her done and complete the transaction. Because like I said, you're going to learn so much from that first one. And I don't care what training you take, like, how thorough it is, who it's from, wherever there's. There's just nothing that replaces actually going through the process of buying a loan. Now if you have someone to kind of look over your shoulder and advise, that's definitely better. But there's really no replacement for actually doing it. So. And then once you get through that, right? So you get through the first note or two and you actually bought these things or at the loan servicer, like you're getting going, it's always a good idea to kind of go back. Like, maybe this is just some of my growing up in the tech industry, but I like to do, like, retrospectives. Like, just go back and think about, like, kind of write down, like, okay, what went well with that? What did I do that I would have done differently next time? Were there surprises that jumped out at me? Were there new things that I learned that I didn't know? And the next time I do this, how am I going to do that better? And then you don't have to do it after your first deal, but eventually, as you build up a business, I'm big on having standard operating procedures and so eventually want to begin to build your standard operating procedures that just make it easier to run your business. Because one of the things I really like about loans is even though they're all kind of their own special butterflies, the structure of the deals lends themselves to rinse and repeat cycles and standard operating procedures. So, you know, definitely think about that. So it's not just a one shot deal. Think about how you're going to do this better next time and how you can build a snowball, right? And then over time, as you keep going, you're, you're going to learn a lot. Your processes are going to become updated, you're going to get better at pricing, you're going to get faster, you're going to be able to handle more scenarios. I mean, for me, you know, in my eighth or what, ninth year, man, I, I've learned a ton, right? So if I look at this portfolio I bought, that was the first time I bought 19 loans at the same time. And I wrote down a bunch of stuff that next time I do that, you know, I'm going to do a little bit differently to make that smoother. So you always want to be in a continuous learning loop with this. I don't care how long you've been doing it. One of the things that just seems popular, if you talk to people who have been around the mortgage industry for a long time, I had a couple of these conversations just in the past week where people like to say, oh, I've been doing this for 30 years, doing this for 25 years. And you know, I'm kind of curious like how much have you learned or changed like in the last five? Like most of the people in the mortgage industry, whether it's like the called more mainstream conventional mortgage industry or the like note or individual note investing industry, they don't change their spots very often. So if, if you're not making adjustments based on experience, it really doesn't matter if you have one year of experience or 100, right? So we're always updating our processes and our learning and getting more. And for me that's kind of what makes the whole process fun. So if I was approaching notes from day one, this is how I would do it. I realize that's a pretty like high level framework, but hopefully this gives you some good things to think about and some nice pitfalls to avoid. So I hope you enjoy that. I'll see you guys next time.