Buying and holding a few select mortgage notes for long term income can be a very smart financial move today, but there is also huge opportunity and profit to be made in flipping these notes to other buyers
Flipping notes to another note investor is a great way to start in the note business.
It gives you the ability to compound a few small deals into a very profitable business. You also get to free up more resources when you are flipping notes.
The speed of the note business allows you to turn your money around much faster than conventional real-estate businesses.
In this article we will show you 5 proven note-flipping strategies that you can start using today
You will learn:
What’s it mean to Flip a Note?
Let’s talk about what it means to flip a note.
The concept of flipping means that you’re going to have the asset, if at all, only for a short period of time and then you are going to sell it for a profit. In notes there are a lot of ways to do this, with real estate when you’re flipping a home typically means you’ll have to come with some money close on the property make repairs and improvements than market it and sell it. By contrast, notes are very little effort.
Why flipping mortgage notes is so attractive.
Flipping mortgage notes is attractive for a number of reasons:
You don’t have to have any money to do it, all you have to do is be able to go and find the note.
There can be virtually no risk in flipping Notes as opposed to house flipping which requires really significant upfront capital, a lot of time and a lot of risk.
Flipping notes can be done from anywhere as opposed to flipping houses where you really need to have boots on the ground. When you’re flipping notes the only thing you need is a phone and a computer and from there you’re able to do anything that you need in the note business
When you’re flipping a note you never have to redo the kitchen or the bathroom or evict or all of the very many things that you have to do when you’re flipping a house. People are more comfortable with flipping houses because of the physical aspect of it. It makes sense to them because there’s a property. When we’re talking about flipping notes the asset can be less tangible because it’s really just paper that says that the holder of the paper has certain rights to receive payments for a period of time.
However I noticed more than that, a note is an interest in the property that is secured by the property and is just in a different place within the capital stack. The difference between owning a note and owning the property is that when you own the property you enjoy the use of the property and you pay the lender the note holder for the benefit of that use ( that is if you don’t buy cash).
5 Ways to Flip Notes
1.The Soft Flip, where you sell part of your note to another investor – The soft flip term was first coined by JD Crouse on our making money in commercial notes teleseminar. In the seminar JD’s described how he would put a note under contract and then close on it by selling a partial which is to say part of the payments to another investor and then closing with some of his funds and the investors funds thus the soft flip because he is retained part of the note payments for himself.
2. The Straight Flip, where you purchase the notes at a discount then sell them to other investors. Since the value of a note, especially non-performing or sub, is much more subjective than the value of real estate there are margins that one can build in. The reason that values are more subjective is that there are many more components to assessing the value which include the borrower, the market, the collateral the position of the note and the other liens on the property. It’s this subjectivity that allows you to build in a margin that works.
3. The Re-Performing Flip, where you buy sub-performing or non-performing notes get them re-performing and then sell them to Value investors, cash flow investors, rather than opportunistic investors. Non-performing or sub-performing loans typically sell at a discount the discount various by asset type and by location, lien priority and so forth and can range anywhere from a 5 or 10% (highly desirable collateral, low LTV) discount to a 50 (non-performing first position mortgages) to 90 or 95% discount (non-performing junior residential liens). It’s these discounts that make the re-performing flip attractive. The concept behind the re-performing flip is that you acquire the asset when it’s not paying or staying very late, perform a workout or restructuring and then sell the newly rehabilitated loan to a cash flow investor who’s more risk-averse but willing to pay a premium for stable recurring income.
4. The Assignable Contract Flip, where you put the notes under contract and then sell the assignable contract to the end buyer. This is probably the most straightforward flip because you are literally just selling the contract. If you put a pool of notes under contract at a discount, where you’ve done the work to find the seller negotiate the price and get a contract signed, then any investor worth his salt will be glad to pay you a fee for the work you’ve done when you flip the notes to her
5. The Cherry Pick Flip, where you tie up a pool, carve off some notes for yourself, sell the rest to other investors and close with their money instead of yours. For example, it’s not uncommon when you’re prospecting for assets, for example calling on banks for notes, to find a pool of notes. One way to flip notes is to put the entire pool under contract then to divide the portions of the pool that you don’t want to own for yourself and to sell those directly to other investors who are only able to buy in smaller amounts. Let’s suppose you found a pool of 20 notes that’s selling for 50 cents on UPB and that pool has an unpaid principal balance of 2 million dollars or 100k per note. that means you’d pay $1,000,000 for the pool or $50k (on average) per note.
If you were able to find this deal do you think that you could find the investor for the million dollars, of course, you could. Now, do you think it’s likely that this investor would be willing to pay $55,555 / note instead of the 50,000?
Of course, he would, and guess what, that leaves two notes just for you! That’s an easy way to flip notes without any of your own money to an investor in a transparent way while still making a substantial, in this case six-figure, profit for yourself.
What are the advantages of flipping notes?
What are the big advantages of flipping notes over flipping real estate is that there’s no real investment in repairs or improvements any improving that you’re doing to the value comes through working with the borrower rather than investing in materials and labor to improve a property
Another big advantage of flipping notes is that the asset class is so attractive to investors right now that if you can be the one to find the notes as long as they’re reasonably priced you should have investors at the ready
Another advantage of flipping notes instead of Real Estate is that it can be done from anywhere. Many of the investors that I work with have portfolios across the country with many assets almost none of which they’ve ever seen with their own eyes. It’s literally a make money at home in your underwear kind of opportunity
Unlike real estate, there are very few laws and regulations regarding the purchase and sale or brokering of notes.
Most note transactions close very quickly unlike a real estate transaction which will frequently require inspections, financing and long escrow times. Note transactions, by contrast, can happen very quickly, it’s not uncommon to see a deal from start to close happened in 15 to 45 days
Where to get funding for flipping notes?
What are the things that come up quite frequently when someone begins to consider flipping notes is funding? There are a number of ways that you can flip notes with no funds of your own whatsoever. However, there are also sources of capital that you should not ignore that can make you much more effective.
While you’re not able to get a loan that you can use to buy residential notes there are lots of vehicles for other types of debt that would allow you to make the purchases. One such type of funding is a business line of credit, we’ve known investors of used home equity lines of credit. We also know of others who have used credit cards, refinanced their houses, and used self-directed IRA. You can also raise private money from individual investors or from a group of investors and there are some loan programs for the acquisition of commercial non-performing notes.
Whatever you do don’t let funding be the thing that stops you the most important thing you can do in this business is fine the note.
That is the highest paid and largest value thing that you can do.
If all you did was find the notes and you never had any funding of your own, you could have a very profitable business
How to Get Started Flipping Notes
The best way I know to get started flipping notes is to go find notes.
You can’t flip notes if you haven’t identified a source of mortgage notes. One of the traps that a lot of new people get into in the note business is that they go online and they go into forums and on LinkedIn and they talk with other folks who are looking to do the same thing. They get into what’s not so lovingly referred to as a daisy chain or a broker chain or a joker broker chain.
This is where somebody tells you that they are representing somebody or that they know somebody who selling notes when really they only know somebody who knows somebody who knows somebody this is a scourge on the business in general and you should avoid it at all costs.
There are a lot of time wasters who will tell you that they are a seller’s rep or that they are in control of assets, when in fact they are on a wing of a prayer with nothing but the word of a seller. Don’t go down this rabbit hole, it’s a waste of time, instead find the actual sellers and actual noteholders. The way to make flipping notes work for you is to make sure that the time that you spend on the business is actually time well spent and that means reaching out to real sellers not hopping on online networks and discussion forums in trading Excel spreadsheets “tapes” with Jokers.
Examples of what our students have achieved
For example, our friend and past student Paul Marshall of the investment only group dialed the phone and called small banks in California. He found a bank that was selling an eight million dollar pool and quickly put it under contract with an investment group that he knew. Very shortly thereafter he found another 18 million dollar pool which he also put under contract with no money of his own. Paul was able to leverage his prospecting into about a quarter Million Dollar Payday in roughly six months from a cold start not too shabby.
Other good examples include Clint Walker, a truck driver, who found a commercial note which was able to sell to a local investor.
And more recently Joe Bayarena of cross-country notes who found a small pool of notes with a local Bank in Texas and was able to sell those notes to ready investors.
If you’re looking for an opportunity where you can make money just off your hustle so that you can then start building capital to really improve your life, then flipping notes might just be for you. It doesn’t matter where you live, what your experiences are or how much money you have.
What matters is your willingness to do the work to go and find the opportunities. If you’re willing to do that and then at the same time to build a database or marketing list of investors to whom you can sell the assets, if you’re willing to do just these two things then you can make a lot of money flipping notes.
Focus on finding the assets and you can’t go wrong.
BankProspector is software that is built specifically for the purpose of finding real sellers. Repeat non-emotional discounted and distressed sellers of sub non-performing assets and REO.
Bankprospector will show you what every Bank and every Credit Union has in their portfolio for late non-performing loans. It will also show you what other note sale indicators there are and provide you with contacts, phone numbers, emails and more. The system is built for folks like you whose mission is to find discounted note deals.
There are private mortgage note sellers and there are ways to find and approach them but one of the reasons we focus on Banks and Credit Unions is that they become repeat sellers and there’s no additional markup.
I would much rather work with one seller who will sell 2 or 5 or 10 times with me per year than to spend all my time hunting down one-off individual private sellers. Lenders sell assets as a matter of course in their normal daily business the question is whether or not you will be the one to reap the benefits.
There is an amazing opportunity for investors to flip a high volume of distressed property notes at premium prices to international investors right now.
Have you been missing out?
Those using BankProspector have an incredible advantage in buying because they are able to quickly and efficiently source great deals on distressed property note
15 thoughts on “Flipping Notes [5 Little-Known Ways to Get Started]”
Great article…thank you!
How accurate is the bankpropector? Is the numbers and all contact info up to date and how much is it? Thanks!
BankProspector bank data is updated nightly and credit unions are updated monthly. Contacts are added, flagged, and updated continually, every day.
I AM IN MONTREAL CANADA. I WOULD LIKE TO DO REAL ESTATE.
I want to figure out how to figure out how to do the math to discount morgage note. I want you to walk me through the math with the notes.
I want you to walk me through math to figureing out how to discount a morgage note.
Great article! The more and more I keep reading about notes the more I feel secure that this is the vehicle I want to use to get my foot in the door with real estate. I live and work overseas my question is that when flipping notes do you need to have title company set in place or an attorney to ensure payments are secured and paid out in a timely manner?
You’ll want a title company during your due-diligence and a mortgage servicing company to collect your payments.
Do you have a mentorship program of sorts for not flipping? I would be interested if you do. Please contact me
Hey Stephanie, We’ll actually be sending an announcement about that soon. If you’re on our list you should get it. If not, you should get on our list. Thanks!
I am interested in learning about Flipping Notes. Let me know if you have a program
We do, you should jump on our web class
i would like to buy a book that have this info step by step easy to get to the motes no mon bo jumbo